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KELLY v. GMC

December 31, 1976

DAVID KELLY and WILLIAM KELLY, Individually and trading as KELLY'S BUSTLETON ESSO, Plaintiffs
v.
GENERAL MOTORS CORPORATION, FORD MOTOR COMPANY, CHRYSLER CORPORATION and AMERICAN MOTORS CORPORATION, Defendants



The opinion of the court was delivered by: HUYETT

 HUYETT, J.

 Plaintiff William Kelly has filed this monumentally ambitious antitrust suit against all four American automobile manufacturers. Kelly is the sole proprietor *fn1" of Kelly's Bustleton Exxon Station in Northeast Philadelphia, and he seeks to represent in this lawsuit a nationwide class of all automobile repair entities other than defendants' authorized new car dealers. *fn2" In an earlier Memorandum and Order we denied plaintiff's motion for class certification without prejudice. We ruled that it was impossible to exercise informed discretion under the circumstances where plaintiff's antitrust theories were so indistinctly defined that identification of the substantive issues was impossible. Plaintiff was allowed discovery limited to the class certification issue and he was permitted to renew his motion, after sharpening his claims for relief. Now, following three oral arguments and the filing of numerous briefs during which time plaintiff's claims have undergone a remarkable transformation, we deny plaintiff's motion in all respects.

 Kelly's Bustleton Exxon is a three-bay gasoline service station that is located at the well-travelled intersection of Bustleton Avenue and Red Lion Road in a residential area of Philadelphia. By his own account, Kelly's service station is a rather ordinary, reasonably prosperous enterprise, typical of thousands of others in the United States. He estimates that he has about 1000 regular gasoline customers and 500 regular service customers, most of whom he draws from a three to five mile radius around his station. He derives his income principally from the sale of gasoline and from performing various maintenance and repair services for automobiles. In 1972 his gross revenue was about $205,000. Of that amount, $150,000 was derived from the sale of gasoline and $35,000 from the sale of parts and labor. A significant portion of the service-related revenue is attributable to performing the routine and periodic state inspections required of all cars registered in Pennsylvania. However, Kelly characterizes the majority of his service revenue as stemming from repair work consisting of engine tune-ups, and the replacement of starter motors, alternators and water pumps. In addition to repair work, he performs air conditioning service and he is equipped and eager to do front end alignments and engine analyses. There are, however, some automobile repairs which he either declines to perform or "farms out" to specialty repair shops. For example, he does not engage in body and fender work, transmission overhauls, glass repair, or valve head grinding and cleaning.

 I. PLAINTIFF'S THEORIES

 Plaintiff's grievances, as they have evolved, *fn3" concern two relatively distinct aspects of the auto manufacturer's marketing policies. The first segment of Kelly's complaint concerns the policy of all four defendants to sell their new automobiles under the coverage of a warranty. This warranty, typically a limited one under which defendants agree to repair defects in materials and workmanship for a stated period of time or miles, is included in the price of the car. Plaintiff attacks this practice as a tying arrangement, forbidden by Section 1 of the Sherman Act, 15 U.S.C. § 1. Plaintiff maintains that the defendants use their economic power with respect to new cars to force new car buyers to purchase warranty coverage from them also. The unstated premise apparently is that the new car warranty is a service contract which ought to be sold separately from the new car so that interested entrepreneurs can enter the new car warranty market and compete with the auto manufacturers in the sale of warranty contracts. Plaintiff seeks only to enjoin this purported tie-in arrangement, and he seeks certification of a Rule 23(b)(2) class.

 The second segment of plaintiff's complaint attacks the defendants' marketing policies with respect to original equipment replacement parts. For purposes of this case, the parties appear to agree that the automobile replacement parts market is bisected in one important respect. On the one hand, there is an "after market", encompassing those replacement parts for which there is sufficient demand to warrant entry into the market by parts manufacturers other than the big four auto manufacturers. On the other hand, there is a "dealer market", representing replacement parts manufactured only by the defendants, which auto repair businesses must resort to in order to perform certain repairs. It is this "dealer market" for original equipment replacement parts which is the target of a multi-faceted antitrust attack by the plaintiff.

 Plaintiff alleges that the defendants sell their original equipment parts only through their authorized dealers. Thus the dealers act both as retailers and as wholesalers. When they purchase parts from the defendants for use in their own auto repair operations they act as retailers, selling parts to the ultimate consumer. When they purchase parts for resale to other auto repair businesses -- members of plaintiff's proposed class -- they act as wholesalers. In this distribution scheme the plaintiff discerns at least three antitrust violations.

 Plaintiff first complains of price discrimination in violation of § 2(a) of the Robinson-Patman Act, 15 U.S.C. § 13(a). Section 2(a) forbids a seller from discriminating in price between purchasers of similar goods where the effect of the price differential may be to reduce competition between the favored and disfavored customers. Kelly claims that he is an indirect purchaser of replacement parts from the auto manufacturers and that at least as to some parts he purchases from dealers, he pays a higher price than do competing new car dealers who sell the parts in their retail capacity as auto repair businesses.

 The second aspect of plaintiff's replacement parts attack is the refusal to deal theory. Plaintiff contends -- and defendants steadfastly deny -- that the auto manufacturers sell parts only to their authorized new car dealers, and that they refuse to sell any parts to members of the proposed class. This marketing policy is claimed to violate the antitrust laws on two levels. *fn4" On the one hand, Kelly's pleadings and briefs perceive a grand conspiracy among all four defendants to refuse to sell their own parts to anyone other than their own authorized dealers. This group boycott, plaintiff contends, is a per se violation of § 1 of the Sherman Act, citing Klor's Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 3 L. Ed. 2d 741, 79 S. Ct. 705 (1959); Radiant Burners Inc. v. Peoples Gas & Light Co., 364 U.S. 656, 5 L. Ed. 2d 358, 81 S. Ct. 365 (1961) (per curiam). Alternatively, Kelly asserts that the defendants individually pursue their refusal to deal policies in an attempt to monopolize the distribution market for their own parts.

 II. THE TIE-IN CLAIM

 Plaintiff seeks to enjoin the defendants' policy of including limited warranty coverage in the price of the new automobiles they sell. On the theory that a new car warranty is a service contract that is separable from the car that it covers, Kelly maintains that this is an unlawful tying arrangement. Because Kelly seeks no damages on this claim he requests certification of a class under Rule 23(b)(2). In seeking certification of a (b)(2) class, a plaintiff need only satisfy the court of the mere existence of common issues, and he avoids the most common stumbling blocks to certification of (b)(3) classes -- showing that the common issues predominate over individual ones and showing that class treatment is superior to individual prosecution of the claims. There obviously does exist the common question of whether or not the defendants' warranty policies violate the antitrust laws. According to plaintiff, then, class certification should not be frustrated by the so-called commonality or predominance barriers. We do not believe the issue is quite that simple because Kelly's tie-in claim raises substantial, if not insurmountable, standing problems in our view. Although these problems are not readily adaptable to conventional Rule 23(a) analyses, we believe that the sound exercise of our discretion militates against certifying this class.

 Tying arrangements are per se illegal because they have a pernicious anticompetitive effect in two respects. In the first place, the coerced buyer of the tied product is deprived of the option of either choosing between a spectrum of similar products offered by other sellers or not buying the product at all. Secondly, other sellers of the tied product are denied access to the market for the tied product for reasons unrelated to quality or price. Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 2 L. Ed. 2d 545, 78 S. Ct. 514 (1958). Unquestionably, then, coerced buyers of the tied product, see Ungar v. Dunkin' Donuts, 531 F.2d 1211 (3d Cir.) cert. denied, 429 U.S. 823, 97 S. Ct. 74, 50 L. Ed. 2d 84, 45 U.S.L.W. 3249 (1976), and other sellers of the tied product have standing to challenge a tying arrangement under Section 1 of the Sherman Act, 15 U.S.C. § 1. Plaintiff and the class he seeks to represent do not claim standing as unwilling buyers of new car warranties. They do, however, assert a right to challenge defendants' warranty practices as prospective sellers of warranties. Alternatively, Kelly alleges that automobile repair businesses can maintain this action as the inevitable beneficiaries of warranty repair work, once the sale of warranty contracts is freed up from the exclusive grip of the defendants.

 We address the latter claim first. Under the defendants' prevailing warranty practices, the buyer of a new automobile receives from the manufacturer a limited warranty, insuring the car against certain defects in materials and workmanship. Should the buyer discover a defect the defendants promise to repair or replace it free of charge, but all such warranty service must be performed by defendants' authorized dealers. When an authorized dealer performs a warranty repair for the new car buyer, he sends proof of the repair to the manufacturer, who reimburses the dealer for his services. This procedure deprives members of the proposed class of access to the market for warranty repair work, which Kelly alleges he is equipped to perform. If the tie-in of the warranty contract to the ...


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