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Fontana Aviation Inc. v. Beech Aircraft Corp.

September 23, 1970

FONTANA AVIATION, INC., A CORPORATION, APPELLANT,
v.
BEECH AIRCRAFT CORPORATION, A CORPORATION, AND HARTZOG-SCHNECK AVIATION, INC., APPELLEES



Kiley, Fairchild and Pell, Circuit Judges.

Author: Pell

PELL, Circuit Judge:

Fontana, appellant herein, is a Michigan corporation operating at an airport in Iron Mountain, Michigan, and engaged in the business of selling and servicing airplanes, as well as providing various flight connected services. Appellee, Beech, is a Delaware corporation with its principal place of business in Kansas. It is engaged in the manufacture, distribution and sale of aircraft under the trade name "Beechcraft." Beech sells its planes through a nationwide network of twenty-four distributors who in turn sell largely to retail dealers although Beech at all material times involved owned and operated some distributor companies, which not only sold to independent dealers but also to the ultimate consumers.

The appellee, Hartzog, is an Illinois corporation located in Rockford, Illinois. It has been a Beechcraft distributor since 1961 and its territory included not only portions of Illinois but of several adjoining states including the upper peninsula of Michigan, in which Fontana was located. While Hartzog sold to independent dealers, it also sold directly to consumers through its wholly owned dealer company.

Fontana had been a Beechcraft dealer since 1946. Following Hartzog's becoming a Beechcraft distributor in 1961, Fontana purchased airplanes sold by it from Hartzog until the termination of the dealership by Hartzog in April 1966.

Subsequent to the termination, Fontana filed an antitrust action against Beech and Hartzog alleging a conspiracy whereby the United States was divided into exclusive territories with each distributor having a separate territory and with distributors being restricted from competing in each other's territory; prices were fixed on the resale of new Beech aircraft; illegal demonstrator and stocking requirements were imposed on independent dealers and restriction was made on the sale of a new model aircraft known as the King Air Model to distributor organizations or their wholly owned dealer companies. Fontana claimed that its dealer contract was cancelled by Hartzog pursuant to the alleged conspiracy when Fontana refused to acquiesce in territorial, stocking and airplane model restrictions and that Fontana, subsequently, was unable to secure a dealership from other distributors.

While there was some dispute between the parties on this appeal as to various evidentiary matters, there was testimony adduced in the district court to support a jury finding that the factual situation is the following.

Prior to 1966, Beech's contracts with its distributors, and the contract that Beech distributors had with their dealers, contained limitations upon the sale of airplanes outside the distributors' or dealers' "territory." There were provisions for interterritorial financial adjustments if such sales outside the territory took place. Further, these territorial limitations had been the subject of discussion between Beech and its distributors. These discussions ordinarily occurred at meetings of the Beech distributor advisory council which met and discussed mutual problems. The council included the president of Hartzog and the meetings were attended by officials of Beech. In February 1964, the minutes of the council indicated that there had been concern expressed at legal ramifications of the portion of the contract dealing with the territorial restrictions.

During the period of 1961 to 1966, Fontana had made one payment of $1000 to a distributor for an out-of-territory sale and had received through Hartzog one-half, or $5000, of the amount paid by another distributor for a sale within the Hartzog-Fontana territory.

In 1966, Beech's standard distributor contract was amended. The provision pertaining to financial adjustments following out-of-territory sales was eliminated. There was a provision that the distributor agreed to appoint and establish "in its area of responsibility" the minimum number of authorized Beechcraft dealers required to secure adequate market penetration. It appears that under the 1966 agreements a distributor could not appoint a dealer in another distributor's area of responsibility. Early in 1966, when the corporate class plane market was just beginning to develop, representatives of Fontana and Hartzog met, at which time Fontana indicated it wanted a dealer contract which would permit it to sell the relatively new King Air without being required to purchase and stock the entire line of Beech planes necessary to obtain a twenty percent discount. Hartzog replied that Fontana should confine its sales efforts to single engine and light twin planes only and that it would not receive a contract permitting it to sell King Air. Fontana indicated it would attempt to secure a direct dealership from Beech. Hartzog replied that if it did so Hartzog would cancel Fontana's contract. Subsequently, Fontana unsuccessfully attempted to secure a direct dealership from Beech, which declined to deviate from its established marketing setup through distributors. Thereafter, Hartzog terminated the Fontana dealership contract as of April 15, 1966. Subsequently, Fontana sought to secure an authorized dealership from two other distributors, one located in Pontiac, Michigan, and one located in Rochester, Minnesota. These distributors, after checking with Beech, declined to enter into a dealership contract with Fontana.

Fontana claimed that after cancellation it had seventeen excellent prospects for purchase of Beech aircraft. During the trial of the cause below, Fontana, after objections by the defendants, was limited in its damage estimate, insofar as post cancellation damages were concerned, to the seventeen named prospects.

In addition to the post-cancellation damages, Fontana claimed damages resulting from three precancellation situations. One was that it received only a ten percent dealer discount on sales of Baron and Travel Air Plane sales instead of the twenty percent discount because of its not stocking certain Beech aircraft required by the dealer contract. Secondly, Fontana contended it was improperly confined to a sales agent commission of $12,500 on a King Air sale originated by it instead of the twenty percent discount it would have received in the absence of the restrictions contained in the Hartzog contract. Thirdly, Fontana contended it was entitled to reimbursement of a $1,000 penalty paid by it to a Kentucky distributor for an out-of-territory sale.

As may be needed in the development of this opinion, further specific reference to the factual situation appearing in the evidence will be brought out in connection with the examination of the applicable law.

Following a five week jury trial, a verdict was returned in favor of Fontana in the amount of $150,000, on which the court entered judgment in the trebled amount of $450,000, together with costs and attorneys' fees. Thereafter, pursuant to defendants' motion, the district court vacated the treble-damage judgment and entered judgment for the defendants notwithstanding the verdict. The court in addition conditionally granted a new trial "should this judgment be vacated or reversed." Fontana instituted the present appeal from the court's action.

During the course of the proceedings, Hartzog had filed a counterclaim for $5,000 because of the $5,000 territorial infringement payment made to Fontana during the course of its dealership. The jury awarded Hartzog $5,000 on the counterclaim. The district court also entered judgment, notwithstanding the verdict, on the counterclaim and dismissed the counterclaim on the merits. Hartzog likewise filed an appeal.

The district court judge in an apparent partial reliance on the then recently decided case of United States v. Container Corporation of America, 393 U.S. 333, 21 L. Ed. 2d 526, 89 S. Ct. 510 (1969), stated in his memorandum opinion, "We will assume, but not decide, that defendants are guilty of antitrust violations." The district court in part also apparently rested its decision on its ultimate determination that there was no fact of damage shown by Fontana, thereby enabling the court to dispose of the motion for judgment notwithstanding the verdict without regard to a determination of the antitrust issue. The granting of the new trial conditionally was predicated on the same grounds supporting the granting of the motion for judgment n.o.v., presumably that there was no fact of damage. There is no indication in the court's memorandum opinion or order that the new trial was conditionally granted because of a failure to prove an antitrust case.

The result which we will reach in this opinion is that the judgment notwithstanding the verdict was erroneous. However, we will also, as we may do, review the conditional order of the trial court, made pursuant to Rule 50(b), F.R.C.P., granting a new trial. 3 Barron & ...


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