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Tire Sales Corp. v. Cities Service Oil Co.

decided*fn*: October 7, 1980.

TIRE SALES CORPORATION, ET AL., PLAINTIFFS-COUNTERDEFENDANTS-APPELLANTS,
v.
CITIES SERVICE OIL COMPANY, DEFENDANT-COUNTERPLAINTIFF-APPELLEE; TIRE SALES CORPORATION, PLAINTIFF-APPELLANT, V. CITIES SERVICE OIL COMPANY, DEFENDANT-APPELLEE



Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 74 C 599 -- John F. Grady and Frank J. McGarr, Judges.

Before Cummings and Pell, Circuit Judges, and Dumbauld, Senior District Judge.*fn**

Author: Cummings

Plaintiff appeals in No. 80-1187 from the order of the district court granting a directed verdict in favor of defendant on plaintiff's private treble-damage action brought under Section 4 of the Clayton Act (15 U.S.C. § 15) for alleged violations of Section 1 of the Sherman Act (15 U.S.C. § 1) and Section 3 of the Clayton Act (15 U.S.C. § 14) commencing January 1, 1971. Plaintiff appeals in No. 76-1398 from the order of the district court granting summary judgment in favor of defendant on its counterclaim for $42,580.03 plus interest for goods sold to plaintiff in 1970 and 1971. The appeals were briefed and argued together. We now reverse in both No. 80-1187 and No. 76-1398 and remand the case for trial.

I

Plaintiff Tire Sales, an Illinois corporation, was until 1975 a wholesale distributor of tires, batteries and automotive accessories in Evergreen Park, Illinois, on the south side of Chicago. Defendant Cities Service Oil Company (Citgo) is engaged in the production and distribution of petroleum and other products. It markets its gasoline in the Chicago metropolitan area to operators of Citgo service stations who are franchisees or lessees of Citgo and who purchase all their oil and gasoline requirements from Citgo. Citgo provides its dealers with credit card facilities and is responsible for making repairs and improvements on the leased premises.

From 1952 through 1965 plaintiff was a franchisee of Uniroyal, Inc. and sold tires, batteries and accessories (TBA) at retail to individual and commercial accounts in the open market. At the end of 1964, Uniroyal signed a sales commission agreement with Citgo whereby Uniroyal agreed to pay 7 1/2 commissions to Citgo on sales of Uniroyal tires to independent Citgo service stations. Uniroyal initially attempted to handle and warehouse its own TBA sales to the Citgo stations, but this proved a failure. In 1965, Uniroyal and Citgo therefore asked plaintiff to sell Uniroyal TBA to approximately 50 independent Citgo stations on the south side of Chicago. Plaintiff furnished Citgo and Uniroyal with monthly reports of its sales to those dealers, thus enabling Citgo to calculate what commissions to collect from Uniroyal. Both plaintiff and Citgo representatives would call on those dealers and solicit orders for TBA from plaintiff.

Subsequently, sales commission arrangements similar to the one executed by Uniroyal and Citgo were invalidated as unfair trade practices in violation of Section 5 of the Federal Trade Commission Act (15 U.S.C. § 45). See, e.g., Atlantic Refining Co. v. Federal Trade Commission, 381 U.S. 357, 85 S. Ct. 1498, 14 L. Ed. 2d 443, Citgo and Uniroyal consequently entered into a new agreement in 1966, giving Citgo a middleman's profit instead of commissions on sales made to its independent service stations. Under the new arrangement, Citgo bought directly from Uniroyal and then informed plaintiff that in order to continue as the authorized TBA distributor for Citgo dealers, plaintiff would have to buy that portion of its TBA from Citgo rather than from Uniroyal. Under a written agreement of August 14, 1967, plaintiff bought from Citgo a quantity of TBA equivalent to the quantity plaintiff sold to Citgo dealers. Citgo received a 7 to 8 1/2 profit on these sales, consisting of the difference between the amount Citgo paid Uniroyal for TBA and the amount for which Citgo sold TBA to plaintiff. Plaintiff and Citgo did business under this purchase-resale arrangement for approximately three years, during which time Citgo representatives continued to promote and monitor its dealers' TBA business with plaintiff.

At the end of 1970, Citgo terminated its agreement with Uniroyal to purchase TBA for resale to Citgo dealers. Accordingly, Citgo could no longer sell Uniroyal tires to plaintiff or take a profit on the sale of tires purchased by plaintiff directly from Uniroyal and sold to Citgo dealers. As a result, Citgo ceased doing business with plaintiff as a TBA distributor and dealt instead with Berry Tire Co. (Berry Tire), a franchised Goodyear dealer. Citgo had purchase-resale arrangements with Goodyear and Firestone as well as Uniroyal. Thereafter, plaintiff's TBA sales to Citgo dealers decreased dramatically. Plaintiff fell behind in its payments to Uniroyal, which in 1972 cancelled plaintiff as one of its franchisees. Plaintiff at that time owed Uniroyal $80,000, which it paid off over the course of the next year. Plaintiff also owed Citgo a similar amount for TBA inventory purchased before the termination of the purchase-resale agreement and running into 1971 according to defendant's counterclaim (par. 2 of R. Item 7). Plaintiff reduced this indebtedness to $42,580.03. From 1971 through 1975, plaintiff's financial situation, then as a Dunlop franchisee, steadily deteriorated and in December 1975 it went out of business.

In 1974, Citgo filed suit against plaintiff to recover the outstanding debt. Plaintiff then filed the present antitrust suit alleging that Citgo conspired with its independent dealers in the Chicago area and with distributors of Goodyear and Firestone tires*fn1 in the same area to restrain trade, to have tie-in sales in the sale of tires to those stations, to boycott plaintiff, to limit and allocate TBA purchases by Citgo dealers instead to Goodyear and Firestone tires and to TBA distributor Berry Tire and conditioned sale of gas and oil to its dealers on the understanding that they would not purchase TBA from plaintiff or other competitors of Citgo. Plaintiff further claimed that Citgo's allegedly illegal activities caused them $970,000 actual damages or $2,910,000 in treble damages as provided by Section 4 of the Clayton Act. Accordingly, plaintiff sought judgment in the latter amount plus costs and reasonable attorney's fees. Defendant denied these allegations and counterclaimed for $42,580.03, plus interest, as the amount still due under the purchase-resale agreement and in 1971. Plaintiff defended the counterclaim on the ground that no balance was due Citgo because the debt arose as a result of an antitrust conspiracy and illegal tie-in sales.

On March 4, 1976, Judge Grady, to whom this case was then assigned, filed a memorandum order (410 F. Supp. 1222) disposing of the issues raised by the parties' cross-motions for summary judgment. He entered judgment in favor of Citgo with respect to plaintiff's charges of reciprocal dealing, monopolization and attempted monopolization,*fn2 but refused judgment on a conspiracy to monopolize charge. Plaintiff, however, withdrew this latter charge before trial, and none of the foregoing claims are now in issue. Judge Grady also refused summary judgment with respect to the claims of tie-in sales, group boycott and exclusive dealing in violation of Section 1 of the Sherman Act and Section 3 of the Clayton Act. On these claims, he found that Citgo's position gave it the power to impose TBA tie-in sales on an appreciable number of buyers in the market and that the requisite amount of commerce was "indisputably demonstrated," but that there was conflicting evidence as to whether Citgo's dealers "were induced (by Citgo) to make TBA purchases (from Berry Tire) for reasons other than those which motivate a reasonable buyer in a free market namely, price, quality, and the like," so that a trial was required to determine whether Citgo's dealers had been illegally induced by Citgo to buy TBA from Berry Tire rather than plaintiff.*fn3 410 F. Supp. at 1227-1228.

Finally, Judge Grady entered judgment for Citgo on its counterclaim because the "defense of an antitrust violation is limited to situations where the court would be enforcing the precise conduct condemned by the (Sherman) Act," but stayed the judgment until final disposition of the other issues in the case. 410 F. Supp. at 1232. Thereafter, the plaintiff filed a protective notice of appeal with respect to the judgment against it on the counterclaim. That appeal was assigned No. 76-3198 by the Clerk of this Court.

The trial on the merits began on December 10, 1979, before a jury with Judge McGarr, to whom the case had been reassigned, presiding. On January 9, defendant's motion for a directed verdict at the close of the plaintiff's case was granted and the jury was discharged. On the same date, judgment was entered that the plaintiff take nothing and that the action be dismissed on the merits. In early February, plaintiff filed its notice of appeal and it was assigned No. 80-1187 in this Court.

II

As noted above, Judge Grady in refusing summary judgment on plaintiff's tie-in sales claim found that a trial was necessary on the question whether Citgo had illegally coerced its dealers to switch their TBA business from plaintiff to Berry Tire. At the close of plaintiff's case at trial, however, Judge McGarr directed a verdict against plaintiff, finding that

(1) there was insufficient evidence to establish a prima facie case that Citgo had illegally tied TBA ...


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