The opinion of the court was delivered by: CASTILLO
II. The Antitrust Conspiracy Claims
1. Count I: Per Se Violations
b. The Plaintiff's Evidence
(iv) March 1993 - June 15, 1993
(a) March 15, 1993: Tucker/Rocky Article Quoting Bob Gregg (PX 382)
(b) The March 22, 1993 Gregg Letter (PX 4C)
(c) March 22, 1993: Parts Unlimited Revises Price List (PX 444)
(d) March 31, 1993: Phone Call (PX 624)
(e) Late March 1993: Mike Buckey Replaces Pat Logue as Dunlop's National Sales Manager
(f) Late March 1993: Gregg Phone Call to Buckley Regarding Termination of Distributors
(g) April 1, 1993: Buckley Memo To Dunlop Distributors (PX 2)
(h) The April 8, 1993 Gregg Letter (PX 5)
(i) April Phone Call Between Buckley & Gregg Regarding April 8, 1992 Gregg Letter
(j) April 30, 1993: Logue Conversation with Motorcycle Stuff Regarding Tucker/Rocky's Low Prices
(k) May 6, 1993: Buckley Visits Nichols, Meets Jack Jesse, and Writes Call Reports (PX 14)
(l) May 6, 1993: Buckley Spends Evening with Jeff Fox of Parts Unlimited
(m) May 7, 1993: Buckley Visits Tucker/Rocky Warehouse in Chicago
(n) Early May 1993: "Firm Commitments" (PX 17)
(o) Late May 1993: Tucker/Rocky Issues Revised Price List (PX 214; PX 645)
(p) May 20, 1993: Buckley's "Price War" Memo (PX 3)
(q) Buckley's Memos to Robin Mitchell (PX 17; PX 18)
(r) June 15, 1993: Dunlop Terminates Nichols (PX 16)
(v) Post-Termination Evidence
(a) June 1993: Tucker/Rocky Branch Manager's Report (PX 277)
(c) Tucker/Rocky's Missing Branch Manager Reports
(d) September 1993: Trade Show Memo (PX 206)
(e) Metzeler Memo of October 5, 1993 on "Price Stability" (PX 303)
(f) Tucker/Rocky Memo Regarding "Market Stabilizing Programs" (PX 280)
(g) Dunlop Raises MSD Mid-Year
(vi) Inadmissible Testimony
(b) Rocky Trevino (PX 622)
(c) Terry Baisley - William Giacomelli Conversation (PX 643)
(i) The Horizontal Agreement
(ii) The Vertical Agreement
(a) There is no evidence of parallelism supporting the inference of an agreement to terminate Nichols or to fix prices
(ii) Three Examples of Non-Parallel Behavior
(a) Dunlop Unilaterally Decided to Reduce Distribution Network
(b) Parts Unlimited's 1993 Price Increases
(c) Tucker/Rocky and Parts Unlimited's 1994 Price Increases
(b) The Gregg letters are ambiguous evidence and therefore do not support an inference of price-fixing or a termination agreement
(i) The March 22, 1993 Gregg Letter
(ii) The April 8, 1993 Gregg Letter
(c) There is no other direct or circumstantial evidence of collusion supporting Nichols' section 1 claim
2. Count II: The Rule of Reason
3. Count III: Group Boycott
B. The Illinois Antitrust Act.
1. Count IV: Per Se Pricefixing
2. Count V: Rule of Reason
3. Count VI: Group Boycott
C. The Robinson-Patman Act Claims
b. Tucker/Rocky and Parts Unlimited: Section 2(f)
3. The "Meeting Competition" Defense
III. The State Law Claims
1. Count VIII: Illinois Consumer Fraud Act
2. Counts IX & X: Illinois Franchise Act Illinois
3. Count XI: Promissory Estoppel
4. Count XII: Equitable Estoppel
5. Count XIII: Equitable Recoupment
6. Count XIV: Breach of Contract/Good Faith & Fair Dealing
C. Claims against Tucker/Rocky and Parts Unlimited
1. Count XVI: Tortious Interference with Contract
2. Count XVII: Tortious Interference with Prospective Economic Advantage
IV. Dunlop's Motion to Strike Nichols' Jury Demand
MEMORANDUM OPINION AND ORDER1
On June 15, 1993, after a thirty-year business relationship, Dunlop Tire Corporation ("Dunlop"), the largest manufacturer of motorcycle tires in the United States, terminated Nichols Motorcycle Supply Inc. ("Nichols"), its oldest distributor. The termination letter -- commonly referred to in the vernacular as a "Dear John" letter -- merely stated:
Please see enclosed copy of your "Dunlop Distributor Motorcycle Tire/Tube Agreement" signed by you on January 11, 1993.
In reference to item nine of above-mentioned agreement, Dunlop Tire Corporation exercises its option to terminate this agreement effective five days from receipt of this letter.
Not surprisingly, as a direct result of this letter, Nichols commenced a multi-faceted litigation campaign against Dunlop and other parties. Thus, currently pending before this Court is an antitrust action brought by Nichols against Dunlop and Dunlop's two largest distributors, Tucker/Rocky Distributing ("Tucker/Rocky") and LeMans Corporation, through its Parts Unlimited division ("Parts Unlimited"), Nichols' former competitors.
The Third Amended Complaint contains seventeen counts.
The federal antitrust conspiracy claims, brought under the Sherman Antitrust Act, 15 U.S.C. § 1 (1995), and the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a) (1995),
are asserted in Counts I-III and VII. The Illinois Antitrust Act claims are asserted in Counts IV-VI and the supplemental state law claims are asserted in Counts VIII-XVII. The Court has federal subject matter, supplemental and diversity jurisdiction. The fate of the state law claims depends largely upon the decisions this Court makes regarding the Sherman and Robinson-Patman Act claims. We will begin there.
The relevant market for antitrust purposes in this case is defined as the manufacture, sale, distribution and resale of replacement and premium motorcycle tires in the United States. 12(N)(3)(b) Reply P 5. The relevant manufacturers and distributors, for purposes of this case, are as follows.
Nichols formerly distributed Dunlop tires and was Dunlop's oldest distributor, acting in this capacity for over 30 years before being terminated on June 15, 1993. 12(M) PP 146, 400. At the time Nichols was terminated, Dunlop tires constituted approximately 20 percent of Nichols' total sales. PX 608 at 29. Nichols has never distributed Metzeler products. 12(N)(3)(b) Reply P 54. Nichols, however, does sell about 150 lines of motorcycle-related merchandise to both motorcycle retailers and approximately 15-20 different distributors. Nichols also currently sells the following tire brands: Bridgestone, Cheng Shin, Continental, Kenda, and Kings. 12(M) P 2. In the past Nichols has also sold Dunlop, Avon, Michelin, Pirelli, and Yokohama. Nichols is also the owner of the Pro Sport line of motorcycle products and the exclusive agent for Kings motorcycle tires in continental North America. Nichols sells Pro Sport products and Kings fires through a network of distributors and publishes an annual catalog of suggested resale prices. 12(M) PP 12, 48.
Nichols' market share for Dunlop tires between 1990-1994, as indicated by the percentage of tires Dunlop sold to Nichols, was as follows:
Table 6. Dunlop Motorcycle Tire Sales to
Select Distributors, 1990-94
1990 1991 1992 1993 1994
Nichols 13.2 5.4 9.3 1.9 0.00
Dunlop is a Delaware corporation with its principal place of business in West Amherst, New York. 12(M) P 4. Dunlop manufactures motorcycle tires and sells them to wholesale distributors, who resell them to retail dealers and subdistributors. Retail dealers in turn sell Dunlop tires primarily to the consuming public. Id. Robin Mitchell is Dunlop's senior vice president of marketing and sales. 12(M) App. A. Patrick Logue was Dunlop's national sales manager from approximately 1987 through March 1993. Id. Michael J. Buckley succeeded Mr. Logue as the national sales manager in March 1993. Id.
Dunlop is the largest selling motorcycle tire manufacturer in the United States. Its current market share in the relevant markets is approximately 62-70 percent. 12(M) P 6. Dunlop's success can be partially attributed to the fact that Dunlop has very high consumer name recognition, which predisposes many consumers to purchase Dunlop replacement motorcycle tires. 12(N)(3)(b) Reply P 7. Dunlop tires are also used by distributors as a lead product to generate sales of other non-Dunlop products to dealers. 12(N)(3)(b) Reply P 8.
At the time Nichols was terminated as a Dunlop distributor in June 1993, Dunlop sold tires to 18 distributors: American Honda, Bell Industries, Custom Chrome, Cycle Products, Cycle Sports (in Puerto Rico), Dixie, Harley-Davidson, Intrac, J & D Walter, KK Motorcycle, Marshall Distributing, Motorcycle Stuff, Parts Unlimited, Performance Tire, Pikes Peak, Tucker/Rocky, and Tri-State. Of these 18 distributors, Dunlop sold the most tires to the following four distributors between 1990-1993 (in decreasing order). Tucker/Rocky, Parts Unlimited, Motorcycle Stuff, and Nichols Supply. 12(M) P 10. Dunlop's top three distributors, measured by the percentage of tires sold to them from 1990-1994, are: Tucker/Rocky, followed closely by Parts Unlimited (within 2-5%), and Motorcycle Stuff (7-9 % off the leader from 1990-92; 21% off the leader in 1993; 12.4% off the leader in 1994; and 12.2% off the leader for all four years). Id. (PX 608, App. Table D-3). Nichols followed in fourth and fifth
place from 1990-1992, until its termination on June 15, 1993. Id.
Metzeler is a German tire manufacturer, owned by Pirelli. Metzeler Motorcycle Tire North America is its North American subsidiary. 12(M) PP 7-8. Gregory Blackwell has been the president of Metzeler N.A. since January 1992. 12(M) App. A.
Metzeler is the second largest selling motorcycle tire manufacturer in the relevant market. 12(N)(3)(b) Reply P 9. Metzeler tires generally sell at a higher price than Dunlop, and are not discounted as much because there is less intrabrand competition (i.e., fewer distributors) for Metzeler tires. 12(N)(3)(b) Reply P 13. In the last several years, Metzeler has reduced its distributor base from approximately 12 distributors to five. 12(N)(3)(b) Reply P 14. Metzeler's five U.S. distributors are: KK Motorcycle, Motorace, Parts Unlimited, Pike's Peak and Tucker/Rocky. 12(M) P 10. Tucker/Rocky and Parts Unlimited sell the largest numbers of Metzeler tires; together they account for 90 percent of its sales (Tucker/Rocky buys 60% and Parts Unlimited buys 30%). 12(N)(3)(b) Reply P 14.
In 1990, Metzeler had a market share in the relevant markets of 24-30 percent. The president of Metzeler N.A., Gregory Blackwell, estimates that Metzeler's market share is currently 25-30 percent. However, Dunlop's reports indicate that Metzeler's total market share for tires fell to about 12.8-13.75 percent in 1993, although its share of the premium tire market may have been 15 percent. 12(N)(3)(b) Reply P 10 (PX 608 at 16-18).
Tucker/Rocky is a Texas corporation with its principal place of business in Irving, Texas (Dallas). 12(M) P 5. Robert Nickell is the current chairman and past president (October 1989 to October 1992). Robert Gregg succeeded Mr. Nickell as president on October 1, 1992. 12(M) App. A. Tucker/Rocky owns and operates 12 warehouses in the United States and is considered a national distributor. Tucker/Rocky is in the business of distributing parts, accessories, and apparel for motorcycles and watercraft. 12(M) P 5. Tucker/Rocky is Dunlop's largest distributor, as indicated by its market share. 12(N)(3)(b) Reply P 12. This market share is based on the percentage of tires Dunlop sold to Tucker/Rocky during the periods 1990-1994, and was as follows:
Table 6. Dunlop Motorcycle Tire Sales to
Select Distributors, 1990-94
Tucker/Rocky 1990 1991 1992 1993 1994
25.2 27.5 27.2 36.4 33.3
E. Parts Unlimited
LeMans Corporation is a Wisconsin corporation with its principal place of business in Janesville, Wisconsin. 12(M) P 6. Fred Fox is the current chairman and chief executive officer. Jeff Fox is Fred Fox's son, and has been the president of Parts Unlimited since approximately October 1992. 12(M) App. A. LeMans, through its Parts Unlimited division, is in the business of distributing parts and accessories for motorcycles, watercraft, and snowmobiles. 12(M) P 6. Parts Unlimited is Dunlop's second largest distributor, as indicated by its Dunlop market share. 12(N)(3)(b) Reply P 12. This market share is based on the percentage of tires Dunlop sold to Parts Unlimited during the period 1990-1994, and was as follows:
Table 6. Dunlop Motorcycle Tire Sales to
Select Distributors, 1990-94
Parts Unlimited 1990 1991 1992 1993 1994
19.0 23.6 24.7 31.5 28.0
F. Combined Market Share
For the years 1990-1994, Tucker/Rocky and Parts Unlimited, combined, held the following market share:
Table 6. Dunlop Motorcycle Tire Sales to
Select Distributors, 1990-94
T/R & PU 1990 1991 1992 1993 1994
Subtotal 44.2 51.1 51.9 67.9 61.4
12(N)(3)(b) Reply P 12. This data establishes that Tucker/Rocky and Parts Unlimited's combined market share at the end of 1993 rose by 16 percent, dropping off in 1994, but remaining 9.5 percent higher than their combined 1992 market share. The combined market share of Dunlop and Metzeler is currently about 85 percent. 12(N)(3)(b) Reply P 11.
Nichols has retained an economist, Dr. John Pisarkiewicz, as an expert to perform several tasks in this litigation. 12(M) PP 21, 196. Raymond S. Sims is a Vice President at A.T. Kearney, Inc., in Chicago, Illinois. He has been retained as an expert in this case by Dunlop. 12(M) P 201. The defendants also offer Professor David T. Sheffman, who has produced a report entitled "Trends in the Motorcycle Industry 1985-1993," which indicates that the number of motorcycle dealers selling motorcycles and other related products dropped from 12,953 to 9,264 from 1985 to 1993. The number of real dollars (per million) from these sales, according to this report, also dropped from $ 1,671 to $ 1,247 during that time period. DX 70.
II. The Antitrust Conspiracy Claims
In Counts I, II, and III, plaintiff broadly alleges that the defendants unreasonably restrained trade by forming an illegal conspiracy to terminate smaller discounting distributors, like Nichols, to consolidate the market and implement an agreement to raise and stabilize resale dealer prices for Dunlop tires in violation of section 1 of the Sherman Antitrust Act. 12(N)(3)(b) P 12.
In particular, Nichols claims that Dunlop, Tucker/Rocky and Parts Unlimited performed vertical and horizontal combinations.
Section 1 states: "Every contract, combination . . . or conspiracy, in restraint of trade or commerce among the several States . . . is declared to be illegal." 15 U.S.C. § 1 (1995). According to the statute, a plaintiff claiming a section 1 violation must establish a combination or some form of concerted action between at least two legally distinct economic entities. See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 771, 81 L. Ed. 2d 628, 104 S. Ct. 2731 (1984). Under well-established principles of antitrust law, unilateral conduct ("independent action") by a single person or enterprise falls outside the scope of this provision. Monsanto Co. v. Spray Rite Serv. Corp., 465 U.S. 752, 761, 79 L. Ed. 2d 775, 104 S. Ct. 1464 (1984)(citing United States v. Colgate, 250 U.S. 300, 307, 63 L. Ed. 992, 39 S. Ct. 465 (1919)).
Whether an unlawful conspiracy or combination exists should be judged by what the parties actually did rather than by the words they used. See United States v. Parke, Davis & Co., 362 U.S. 29, 44, 4 L. Ed. 2d 505, 80 S. Ct. 503 (1960) (citing Eastern States Retail Lumber Dealers' Ass'n v. United States, 234 U.S. 600, 612, 58 L. Ed. 1490, 34 S. Ct. 951 (1914); see also United States v. General Motors Corp., 384 U.S. 127, 142, 16 L. Ed. 2d 415, 86 S. Ct. 1321 (1966) (holding explicit agreement is not a necessary part of a Sherman Act conspiracy where joint and collaborative effort is pervasive). Once a plaintiff establishes the existence of an illegal contract, combination or conspiracy ("an agreement"), it must then proceed to demonstrate that the agreement constituted an unreasonable (and therefore illegal) restraint of trade under either the per se rule or the rule of reason. The nature of the restraint (e.g., vertical price restraint, vertical nonprice restraint, horizontal price restraint etc.) determines which rule must be applied. See Denny's Marina, Inc. v. Renfro Prods., Inc., 8 F.3d 1217, 1220 (7th Cir. 1993). The per se claims will be addressed first.
1. Count I: Per Se Violations
In Count I, plaintiff alleges that the defendants participated in a vertical and a horizontal conspiracy to fix prices in violation of section 1 of the Sherman Act. The plaintiff's theory in Count I is that these agreements were illegal per se. In particular, plaintiffs theory is that Dunlop, together with its two largest distributors, Tucker/Rocky and Parts Unlimited, conspired to terminate smaller discounting distributors, like Nichols, to consolidate their market share and implement an illegal agreement to raise and stabilize resale dealer prices for Dunlop motorcycle tires. There are two agreements under this theory: an agreement to terminate Nichols (because it was a discounter) and an agreement to fix prices. Plaintiff defines these agreements as both horizontal (between the two defendant distributors) and vertical (between Dunlop, Tucker/Rocky and Parts Unlimited) and admits that the proof of these conspiracies "tends to blend together." Transcript at 26. A review of the plaintiff's proof follows a short discussion of the applicable legal principles.
Conduct a considered illegal per se is limited to cases where a defendant's actions are so plainly harmful to competition, Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 724, 99 L. Ed. 2d 808, 108 S. Ct. 1515 (1988), that they are presumed illegal and the need for further proof of anticompetitive impact is unnecessary.
Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 109 L. Ed. 2d 333, 110 S. Ct. 1884 (1990); Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 49-50, 53 L. Ed. 2d 568, 97 S. Ct. 2549 (1977). Per se cases include horizontal and vertical price fixing agreements and certain types of group boycotts. See Capital Imaging v. Mohawk Valley Medical Assoc., 996 F.2d 537, 542-43 (2d Cir. 1993) (listing the types of per se violations recognized by the Supreme Court). Price-fixing agreements need not include an "explicit agreement on prices to be charged or that one party have the right to be consulted about the other's prices." Denny's Marina, Inc. v. Renfro Productions, Inc., 8 F.3d 1217, 1221 (7th Cir. 1993)(citing cases). Rather, price-fixing agreements need only have been formed for the purpose and effect of fixing or stabilizing the price of a product in interstate commerce.
Id. Tacit agreements are therefore actionable if they can be shown to exist. 6 P. Areeda, Antitrust Law § 1410 at 66 (1986).
An agreement that is illegal per se under section 1 is difficult to prove. Much like Title VII cases, the antitrust analysis proceeds in stages because it involves shifting burdens that lead to an ultimate burden of proof which is extremely difficult for a plaintiff to satisfy.
Market Force Inc. v. Wauwatosa Realty Co., 906 F.2d 1167, 1171 (7th Cir. 1990). The Seventh Circuit has articulated a burden shifting formula: "when the defendants establish that their conduct is consistent with independent action, the plaintiffs are required to come forward with evidence tending to exclude the possibility of independent action." Id. If the plaintiff's evidence of a conspiracy is ambiguous, ( i.e., is as consistent with the defendant's permissible independent interests, then the case may not proceed to a jury). Id. Conversely, the case may proceed if the plaintiff can demonstrate, through specific evidence, that the "inference of conspiracy to fix prices is reasonable in light of the competing inference of independent action." Id. at 1171 (quoting Valley Liquors, Inc. v. Renfield Importers, Ltd., 822 F.2d 656, 660-61 (7th Cir.), cert. denied, 484 U.S. 977, 98 L. Ed. 2d 486, 108 S. Ct. 488 (1987)).
These Seventh Circuit standards have been derived from the specific standards set out by the Supreme Court in Matsushita Electric Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986), and Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 79 L. Ed. 2d 775, 104 S. Ct. 1464 (1983). In Matsushita, the Supreme Court granted certiorari to articulate the standard that district courts must apply when deciding a motion for summary judgment in an antitrust conspiracy case. In Monsanto, the Court granted certiorari to articulate the standard of proof required to find a vertical price-fixing conspiracy in violation of section 1 of the Sherman Act. These two cases establish the legal parameters for this Court's decision.
In Monsanto, Justice Powell, writing for the Supreme Court, found that the plaintiff presented sufficient evidence of an agreement to terminate a distributor, pursuant to a vertical price-fixing conspiracy between a manufacturer and a large distributor, to create a jury issue. In reaching this conclusion, the Court articulated the proper standard to be applied to section 1 claims like the one before us. The Court also outlined several important distinctions that are worth repeating here because they address the very heart of this case:
This Court has drawn two important distinctions that are at the center of this and any other distributor-termination case. First, there is the basic distinction between concerted and independent action -- a distinction not always clearly drawn by the parties and the courts. Section 1 of the Sherman Act requires that there be a "contract, combination . . . or conspiracy" between the manufacturer and other distributors in order to establish a violation. 15 U.S.C. § 1. Independent action is not proscribed. A manufacturer of course generally has a right to deal, or refuse to deal, with whomever it likes, as long as it does so independently. United States v. Colgate & Co., 250 U.S. 300, 307, 63 L. Ed. 992, 39 S. Ct. 465 (1919); cf. United States v. Parke, Davis & Co., 362 U.S. 29, 4 L. Ed. 2d 505, 80 S. Ct. 503 (1960). Under Colgate, the manufacturer can announce its resale prices in advance and refuse to deal with those who fail to comply. And a distributor is free to acquiesce in the manufacturer's demand in order to avoid termination. The second important distinction in distributor-termination cases is that between concerted action to set prices and concerted action on nonprice restrictions. The former have been per se illegal since the early years of national antitrust enforcement. See Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 404-409, 55 L. Ed. 502, 31 S. Ct. 376 (1911). The latter are judged under the rule of reason, which requires a weighing of the relevant circumstances of a case to decide whether a restrictive practice constitutes an unreasonable restraint on competition. See Continental T.V. Inc. v. GTE Sylvania Inc., 433 U.S. 36, 53 L. Ed. 2d 568, 97 S. Ct. 2549 (1977).
While these distinctions in theory are reasonably clear, often they are difficult to apply in practice. In Sylvania we emphasized that the legality of arguably anticompetitive conduct should be primarily judged by its "market impact." But the economic effect of all the conduct described above -- unilateral and concerted vertical price-setting, agreements on price and nonprice restrictions -- is in many, but not all, cases similar or identical. [citation omitted]. And judged from a distance, the conduct of the parties in the various situations can be indistinguishable. For example, the fact that a manufacturer and its distributors are in constant communication about prices and marketing strategy distributors are in constant communication about prices and marketing strategy does not alone show that the distributors are not making independent pricing decisions. A manufacturer and its distributors have legitimate reasons to exchange information about price and the reception of their products in the market. Moreover, it is precisely in cases in which the manufacturer attempts to further a particular marketing strategy by means of agreements on often costly nonprice restrictions that it will have the most interest in the distributors' resale prices. The manufacturer often will want to ensure that its distributors earn sufficient profit to pay for programs such as hiring and training additional salesmen or demonstrating the technical features of the product, and will want to see that "free-riders" do not interfere. Thus, the manufacturer's strongly felt concern about resale prices does not necessarily mean that it has done more than the Colgate doctrine allows. Nevertheless, it is of considerable importance that independent action by the manufacturer, and concerted action on nonprice restrictions, be distinguished from price-fixing agreements, since under present law the latter are subject to per se treatment and treble damages. On a claim of concerted price-fixing, the antitrust plaintiff must present evidence sufficient to carry its burden of proving that there was such an agreement. If an inference of such an agreement may be drawn from highly ambiguous evidence, there is a considerable danger that the doctrines enunciated in Sylvania and Colgate will be seriously eroded.
Monsanto, 465 U.S. at 760-63 (emphasis added). The Supreme Court then held that evidence that is sufficient to show agreement is evidence that "tends to exclude the possibility that the manufacturer and nonterminated distributors were acting independently." 465 U.S. at 764.
the absence of plausible motive to engage in the conduct charged is highly relevant to whether a genuine issue for trial exists within the meaning of Rule 56(e). Lack of motive bears on the range of permissible conclusions that might be drawn from ambiguous evidence: if petitioners had no rational economic motive to conspire, and if their conduct is consistent with others, equally plausible explanations, the conduct does not give rise to an inference of conspiracy.
475 U.S. at 596. To summarize, Monsanto requires the plaintiff to produce evidence that tends to preclude independent action. Matsushita limits the range of justifiable inferences that can be drawn from ambiguous evidence offered to comply with Monsanto.
Direct evidence of a conspiracy will always meet this standard. "Ambiguous" circumstantial evidence, alone, will not be enough. Somewhere between these two extremes lies the kind of circumstantial evidence that will provide enough direction for the factfinder to conclude that the defendants' minds met, and from this meeting an agreement arose and was implemented through concerted action that achieves an unlawful objective. Monsanto, 465 U.S. at 761 n.9. The demarcation between circumstantial evidence which is "ambiguous" and that which is not, however, is unclear.
Ambiguous evidence permits equally competing inferences without "tending" to point in one direction or the other. Market Force, 906 F.2d at 1171. For example, circumstantial evidence of a conspiracy that is "consistent with independent action" is ambiguous. Monsanto, 465 U.S. at 763. Ambiguous evidence cannot be sent to a jury because a court may not invite the factfinder to speculate that an agreement existed. See 6 P. Areeda, Antitrust Law § 1405 at 21-23, for a good discussion of the judge and jury's role in determining whether an agreement exists. To prevent such speculation, the Supreme Court has held that "the range of [permissible] inferences that may be drawn from ambiguous evidence [must be] limited," Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986); Capital Imaging v. Mohawk Valley Medical Assoc., 996 F.2d 537, 542 (2d Cir.), cert. denied, 126 L. Ed. 2d 337, 114 S. Ct. 388 (1993); Valley Liquors, Inc. v. Renfield Importers, Ltd., 822 F.2d 656, 660-61 (7th Cir. 1987), and cannot be used, without more, to establish the existence of a section 1 agreement.
Conversely, unambiguous evidence tends to point in a single direction -- like a signpost.
The Supreme Court has defined the absence of ambiguity as evidence which "tends to exclude the possibility" that the defendants acted independently for lawful business reasons, rather than in concert for unlawful purposes. Monsanto, 465 U.S. at 761. As Professor Areeda says:
Notwithstanding many difficulties in appraising the sufficiency of circumstantial evidence, we know what we are looking for: some level of commitment to a common course of action. The fact-finder may be perplexed by the evidence, but his reasoning will not be confused if he keeps clearly in mind that he is looking for a traditional agreement.
Id. § 1410 at 67. The crucial question is "Who was in agreement with whom and about what?" Id. § 1409 at 59.
b. The Plaintiff's Evidence
What follows is the evidence that the plaintiff has relied upon in an attempt to meet the requirements of Monsanto and Matsushita and to survive the defendants' Motions for Summary Judgment.
It is summarized in a chronological fashion to give the reader a comprehensive view of the evidence plaintiff discovered to prove its case and which this Court evaluated in reaching its decisions.
In August of 1991, Tucker/Rocky, the largest distributor for Dunlop tires in the United States, attempted to purchase Nichols' business, which then consisted of just one warehouse located in Alsip, Illinois, a suburb of Chicago. Tucker/Rocky threatened to open its own warehouse in Chicago if Nichols declined to sell. Nichols declined to pursue negotiations with Tucker/Rocky. 12(N)(3)(b) Reply P 17. Tucker/Rocky then made good on its threat, opening its own Chicago warehouse (its 12th location) in August 1992. In May 1992, Nichols began planning to open a Phoenix, Arizona warehouse.
In the meantime, a price war among distributors had developed regarding the sale of Dunlop tires.
For instance, in September of 1991, Tucker/Rocky's monthly reports indicate that its Dunlop sales were dropping due to "deteriorating service level and competitive pressure." PX 252U. Reports in the following months bore the same complaints. An October 1991 report noted the existence of "severe price pressure on Dunlop." PX 251. A December 1991 report referred to "another 25% drop in Dunlop sales over the previous month .... Discounting by the competition has to be a big factor." PX 250U.
Despite its one-warehouse operation, the evidence indicates that Nichols successfully used discounting methods to undercut Tucker/Rocky and Parts Unlimited in areas of the country where these large distributors were strongest. There is also deposition testimony that Tucker/Rocky was "unwilling to sell" at Nichols' prices and that Jeff Fox of Parts Unlimited discussed the need to "clean up the market" with Pat Logue of Dunlop.
During the summer and fall of 1992, various meetings took place between Dunlop, Nichols, Tucker/Rocky and Parts Unlimited. For instance, in July or August 1992, Pat Logue of Dunlop met with Jack Jesse, the president of Nichols. Nichols did not mention the new warehouse at that time. On August 16, 1992, Logue attended Tucker/Rocky's open house for its new Chicago warehouse. On August 17, 1992, Logue held a business meeting with Jeff Fox of Parts Unlimited. On September 14, 1992, Nichols leased the new Phoenix warehouse. Later that month, at the IMAE trade show in Las Vegas, Nevada, Jesse told Logue that Nichols planned to open a new warehouse in Phoenix. In October 1992, Logue flew to Dallas to hold business meetings with Bob Nickell, the current chairman and past-president of Tucker/Rocky, and Bob Gregg, the president of Tucker/Rocky since October 1, 1992. In November of 1992, Nickell spoke with Jeff Fox of Parts Unlimited at a Dunlop distributor meeting in Hawaii. Fox recalled discussing only non-business matters with Nickell in Hawaii.
On November 14, 1992, Lee Walsh, a Parts Unlimited representative, wrote a letter to Jeff Fox, which stated:
Nichols Motorcycle supply has recently hired 2 Road Reps for this area. One in Washington and One in Oregon. While in Oregon this week I got my hands on the discount program that they are proposing to the dealers. (copy enclosed). I also did a price compare spread sheet so we could see where we stood (copy enclosed).
The pricing is bad enough, but they are also talking up the new Phoenix warehouse and are telling the dealers that they are looking to expand their warehouse locations and that Seattle is one of the target areas!
This is probably a big line of bull -- but the dealers are sure listening.
I'm not concerned, but I thought you ought to know and should see how the pricing actually ends up.
On December 28, 1992, Pat Logue, the National Sales Manager for Dunlop, issued the following Memorandum to all of Dunlop's distributors:
To: All Dunlop Motorcycle Tire ...