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DE FILIPPO v. FORD MOTOR CO.

June 14, 1974

Armen De FILIPPO and Sheldon Fleishman t/a A&S a Partnership
v.
FORD MOTOR COMPANY, a Delaware corporation, et al.


Newcomer, District Judge.


The opinion of the court was delivered by: NEWCOMER

NEWCOMER, District Judge.

 The present case was tried to a jury on four causes of action, all arising from the same basic set of operative facts, between October 1 and November 13, 1973. On November 15, 1973, the jury returned a verdict in favor of plaintiffs on their Sherman anti-trust *fn1" claim and on their contract claim; the jury found for plaintiffs on their Automobile Dealers' Day in Court Act *fn2" claim, but also found that plaintiffs suffered no damages because of defendant's violation. Accordingly, the Court entered judgment for defendant on this claim, as well as on the contract claim, *fn3" since the jury's answers to the special interrogatories revealed that the Statute of Frauds would bar any contractual recovery. *fn4" The Court entered judgment in favor of plaintiffs on the anti-trust claim, and trebled the damages awarded by the jury, which were $750,000, to $2,250,000.

 Factual Background

 Plaintiffs in this case, Armen De Filippo and Sheldon Fleishman, became Ford dealers at Chestnut Motors in West Philadelphia under an arrangement known as a "Dealer Development Dealership," in which plaintiffs put up 20% of the capital, Ford put up the rest, and plaintiffs were obligated to buy out Ford's share with the dealership's profits over a specified period of time. The record shows that plaintiffs succeeded in ending Chestnut Motor's history of losses, although because of an accountant's error, plaintiffs' profit margin was not as great as was originally thought.

 On October 15, 1969, approximately eight months after plaintiffs began managing the dealership, Chestnut's main showroom, service department, parts department, and general offices were destroyed by fire.

 During the negotiations between plaintiffs and Ford that followed the fire over the possibility of plaintiffs acquiring another Ford dealership, the parties focused on Presidential Motors, a "factory" (Ford owned and operated) dealership located on the fringe of Philadelphia which had shown consistent losses. The sale of Presidential to plaintiffs as private dealers was attractive to Ford because it had received complaints from nearby private Ford dealers that Presidential's subsidized losses were detracting from their sales. However, it appeared that even the dealer development program would not present attractive enough terms to induce plaintiffs to take over Presidential. Consequently, plaintiffs and Ford representatives worked out an arrangement whereby plaintiffs would postpone their investment until they had operated Presidential (and, hopefully, brought it into the black) for three months and would defer substantial parts of their rent payments to Ford until the last years of their lease.

 During the negotiations these terms were embodied in the form of a buy-sell agreement, but between the conclusion of these negotiations on December 12, 1969, and the plaintiffs' meeting with Ford Representatives on December 18, 1969, at which plaintiffs testified they expected the Presidential contract to be concluded, Ford officials changed the form of agreed terms from a buy-sell agreement into a proposed offer by plaintiffs to purchase Presidential's assets. This change was ordered by Mr. Dewitt, Supervisor of Ford's Dealer Investment Services, and was effected by tearing off the first page of the buy-sell agreement and substituting a letter delineated an "offer to purchase," to which the remaining pages of the buy-sell agreement were attached as an appendix. Plaintiffs were not informed of this change.

 At the December 18, 1969 meeting, Ford representatives indicated to De Filippo4a that the deferred rent part of the negotiated package would have to await approval by Leaseco, Ford's subsidiary in charge of leasing operations. De Filippo became angry and threatened to back out on the whole deal, whereupon George Brandtz, Esquire, of the law firm of Wolf, Block, Schorr, and Solis-Cohen, in whose offices the December 18th meeting was being held, suggested that the offer to purchase Presidential's assets (which De Filippo but not defendant had signed) be held in escrow pending Leaseco's approval of the deferred rent terms. This suggestion was accepted by both parties.

 Plaintiff De Filippo testified at trial that he was not told of the change from a buy-sell agreement to an offer, and that he was led to believe by Ford representatives, some of whom he had relied upon in the past in his business affairs, that a complete agreement had been entered into between himself and Ford, contingent only upon Leaseco's approval. He also testified that he thought Mr. Brandtz was representing both himself and Ford, since Wolf, Block, Schorr and Solis-Cohen had acted as attorney for Chestnut Motors in the past. Mr. Brandtz testified that he was acting solely for Ford, the seller, and Chestnut Motors, the buyer, of which plaintiff was only a minority stockholder. It was undisputed, however, that Mr. Brandtz did not tell De Filippo that he was not representing him.

 The time fixed at the December 18th meeting for plaintiffs' becoming managers at Presidential was January 5, 1970. Between December 18th and January 5th, Ford received complaints from several Philadelphia-area Ford dealers about the "special terms," namely, the postponed investment and deferred rent contained in the proposed arrangement between plaintiffs and Ford. *fn5"

 On December 29, 1969, Leaseco approved plaintiffs' deferred rent terms. Plaintiffs prepared to move into Presidential on January 5, 1970, but were held off at the last minute by Ford management personnel. On January 9, 1970, Mr. Naughton, a Vice-President of Ford and General Manager of its Ford Division, flew from Detroit to Philadelphia to attend a meeting of the Philadelphia-area Ford dealers. At that meeting, which neither plaintiff attended, Naughton assured the dealers that the sale of Presidential would not be made to plaintiffs on the terms discussed above.

 Subsequent to this meeting, Ford offered plaintiffs Presidential without these terms, but plaintiffs refused. Plaintiffs and Ford also negotiated over the acquisition of a third Philadelphia-area dealership, Circle Ford, but these negotiations proved fruitless. On April 10, 1970, Ford terminated plaintiffs' franchise at Chestnut Motors. There was evidence that this termination was the result of plaintiffs' refusal to sign a waiver of any legal claims they might have arising out of the aborted Presidential transaction.

 The Verdicts

 Plaintiffs sued Ford (and a number of its subsidiaries) under the Sherman Act, 15 U.S.C.A. § 1, alleging that Ford had conspired with its dealers to prevent plaintiffs from becoming dealers at Presidential; under the Automobile Dealers' Day in Court Act, 15 U.S.C.A. §§ 1221-1225, alleging that in threatening to terminate unless plaintiffs signed a general waiver, defendant acted in bad faith; and upon a contract theory, alleging that an oral contract between plaintiffs and Ford could have come into existence on three separate occasions between December 18, 1969, and January 5, 1970, and that Ford's refusal to permit plaintiffs to enter into the operation of Presidential constituted a breach of such contract. Plaintiffs also claimed that a return of their equity in Chestnut Motors as of the date of the fire was due them. However, the Court, reasoning that defendant could only have been obligated to pay plaintiffs the October 15th value of their equity as part of a contract with plaintiffs for the sale of Presidential, and that any equity return would be subsumed in the damages for the breach of any such contract, directed a verdict in favor of defendant on the return of equity claim at the close of the evidence.

 The jury found that Ford's failure to deal with plaintiffs on the terms outlined in the document which plaintiffs signed on December 18, 1969, was the result of a conspiracy between Ford and its Philadelphia-area dealers. The jury found that this conspiracy was not motivated by purpose of totally preventing plaintiffs from becoming Ford dealers in the Philadelphia area, but that it did constitute an unreasonable restraint of trade.

 The jury found that a contract for the sale of Presidential Motors had been entered into between plaintiffs and Ford on December 18, 1969 (contingent only upon Leaseco's approval of the deferred rent terms). However, since the jury found that Ford's representatives at the December 18th meeting did not intentionally fail to disclose the fact that the document plaintiffs were signing had been changed into an offer, the Court decided that there was no reason why the Statute of Frauds should not be applied, and judgment for defendant was entered on the contract claim. *fn6"

 As to plaintiffs' Dealers' Day in Court Act claim, the jury found that defendant violated that Act both in threatening to terminate and in terminating the Chestnut franchise because plaintiffs would not sign a general release. However, the jury also found that the Chestnut franchise had no value as of the date it was terminated. Consequently, the Court entered judgment in favor of defendant on this claim as well.

 We will deal with plaintiffs' and defendant's motions on a claim-by-claim basis.

 The Anti-trust Claim

 I. Defendant's Motion for Judgment N.O.V.

 Defendant moves for the entry of judgment n.o.v. on plaintiffs' anti-trust claim, claiming that the jury's finding that the agreement between defendant and the Ford dealers was not the expression of a purpose to totally exclude plaintiffs from any and all Philadelphia-area Ford dealerships precludes that agreement from being considered a per se violation of the Sherman Act. As to the jury's finding that this agreement constituted an unreasonable restraint of trade, defendant argues that there was insufficient evidence presented at trial to support such a finding. Finally, defendant requests judgment n.o.v. on the grounds that the agreement found by the jury in interrogatory No. 1 was reasonable as a matter of law.

 We are persuaded upon an examination of the standards for determining the reasonability of a restraint that there was insufficient evidence to warrant the jury's finding that the agreement in question constituted an unreasonable restraint of trade.

 Defendant has cited several cases *fn7" in support of the proposition that proof of an unreasonable restraint requires extensive statistical evidence as to the kinds of goods or services with which the product subject to the restraint effectively competes, the geographic market in which it effectively competes, the percentage of the market affected by the alleged restraint, the size and strength of the competition, the existence or nonexistence of barriers to entry and the effect of the practice thereon, the purpose behind the alleged restraint, and the effect of the restraint on price or availability of products.

 Except on the matter of the purpose behind the restraint, plaintiffs herein offered little or no evidence as to any of the above elements of a rule of reason violation. No evidence was presented as to the effect of the restraint on interbrand competition (among dealers), which is required by the United States v. Arnold, Schwinn *fn8" case. No evidence was presented on the percentage of the relevant product market *fn9" affected by the alleged restraint, the existence of barriers to entry and the effect of the practice thereon, or the effect of the restraint on the price or the availability of the affected product.

 As plaintiffs' counsel declared to the Court immediately before the Court's deliverance of its charge:

 
"Plaintiffs offered no evidence whatsoever during the trial that the particular conspiracy involved in this case did constitute an unreasonable restraint of trade."
 
". . . We did not try to prove as a matter of fact unreasonable restraint of trade because as the cases which we have cited and quoted say, to prove unreasonable restraint of trade would require just an incredible amount of evidence. It would have taken us maybe weeks or months, and this is right in the quote that I submitted to Your Honor.
 
That is the reason why in per se violations such as group boycotts you do not have to prove it. So you put us in a position where you are submitting an issue of fact to the jury which we didn't try to prove. We have to lose on that because we never tried to prove it because it is not an issue of fact, sir, it is an issue of law."

 At the time of these statements we believed that plaintiffs' counsel was exaggerating his predicament in order to persuade the Court to submit his case to the jury as a group boycott case. However, after examining the parties' briefs and the transcripts, the Court is persuaded that plaintiffs' counsel was candidly stating his failure (indeed lack of attempt) to prove a rule of reason violation.

 If we were to agree with defendant that the jury's answer to interrogatory No. 2 defeated per se liability, our finding that there was insufficient evidence to support the jury's finding of unreasonableness would compel us to enter judgment in defendant's favor. However, we do not agree with defendant for the reasons discussed below.

 When this Court originally submitted the special interrogatories on the anti-trust claim to the jury, we were of the opinion that Ford could not be held liable on the basis of a finding of conspiracy alone. This was because Ford's refusal to deal with plaintiffs, even if it was the result of an agreement between Ford and its Philadelphia-dealers, did not resemble those kinds of situations which the courts had found to be the "naked restraints of trade" and thus illegal without need of further inquiry into their effects on competition. United States v. General Motors Corp., 384 U.S. 127, 86 S. Ct. 1321, 16 L. Ed. 2d 415 (1966); Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S. Ct. 705, 3 L. Ed. 2d 741 (1959). This was because Ford refused to deal with plaintiffs on terms which we then believed to be more favorable than those offered by Ford to its other dealers, whether prospective or incumbent. Since the per se group boycott cases had dealt with agreements to refuse to deal with a plaintiff at all or only upon less favorable terms than those offered to others, it was felt that the instant situation could not be considered to come within the per se group boycott category.

 The Court was led to this conclusion by the reasoning as well as the facts of the group boycott cases. The pernicious effects which the Supreme Court inferred from the inherent nature of a group boycott ...


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