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SCHOENKOPF v. BROWN & WILLIAMSON TOBACCO CORP.

January 18, 1980

RICHARD SCHOENKOPF, d/b/a "VEND MARK"
v.
BROWN & WILLIAMSON TOBACCO CORPORATION, LOEW'S THEATRES, INC., R. J. REYNOLDS TOBACCO COMPANY



The opinion of the court was delivered by: BRODERICK

MEMORANDUM

The plaintiff, Richard Schoenkopf, brought this action against R. J. Reynolds Tobacco Company (RJR), Brown & Williamson Tobacco Corporation (B&W), and Loew's Theatres, Inc. (Lorillard) for alleged violations of the Sherman Act, the Robinson-Patman Act, and for alleged breaches of contracts which the plaintiff allegedly entered with each of the three defendants. The plaintiff has sought treble damages for the alleged Sherman Act violations, damages for his contractual claims, and injunctive relief under the Robinson-Patman Act.

 The plaintiff alleged that: (1) the defendants conspired to refuse to deal with the plaintiff, in violation of section 1 of the Sherman Act, 15 U.S.C. § 1 (1976); (2) the defendants violated section 2(d) of the Robinson-Patman Act, 15 U.S.C. § 13(d) (1976), by failing to make the promotional allowances they offer to the operators of cigarette vending machines available to all operators of cigarette vending machines; and (3) each defendant breached its contract with the plaintiff. The case was tried before a jury from October 11, 1979 to October 23, 1979, and at the end of the plaintiff's case, the defendants filed Rule 50 motions for a directed verdict on the plaintiff's Sherman Act claims. After hearing argument thereon, the Court directed a verdict for all defendants on the Sherman Act claims. By agreement of the parties, the jury was discharged and it was stipulated that the Court should decide the plaintiff's Robinson-Patman and contractual claims on the basis of the testimony presented to the jury, together with other facts stipulated by the parties.

 I. The Sherman Act Claims

 The six major tobacco companies, American, Philip Morris, Liggett & Myers, RJR, B&W, and Lorillard, each market many different brands of cigarettes. One marketing technique employed by all of these companies is the sale of their brands of cigarettes to operators of cigarette vending machines. The number of different brands marketed by these companies, however, greatly exceeds the number of columns in a cigarette vending machine. To encourage vending machine operators to display and sell their brands of cigarettes, each of the six major tobacco companies offers a promotional allowance to the vending machine operators for placing various combinations of their brands in the columns of a machine. These allowances range from approximately $ 1.50 per year to approximately $ 15.00 per year, depending upon the type and/or number of brands placed in the machine.

 Many vending machine operators have no knowledge of these promotional allowances, however, because they are not in direct contact with the tobacco companies and do not read the trade journals in which these allowances are advertised. These operators typically own only one or two vending machines, and locate them at their places of business, which are usually gas stations, stores, or restaurants. The operators of a large number of vending machines take advantage of these promotional allowances much more frequently than the small operators.

 The plaintiff, in the middle of 1976, started a company known as "Vend-Mark". The purpose of Vend-Mark was to act as an independent reporting agent for people who operated only a few vending machines and wished to participate in the promotional allowance programs offered by the tobacco companies. The plaintiff entered into agreements with each of the six major tobacco companies that basically provided that Vend-Mark would submit a promotional allowance report to the company at the end of each quarter which covered all of the machines of operators for whom the plaintiff was the reporting agent. The tobacco companies paid Vend-Mark directly for these reports, and the plaintiff, pursuant to the arrangements he had made with the small operators, remitted fifty percent of the payment covering their particular machine or machines to them.

 Vend-Mark was successful and grew rapidly. By the end of the third quarter of 1977, Vend-Mark was reporting for 3,496 machines, and there were 5,520 machines for which Vend-Mark was reporting at the end of the first quarter of 1978. At the time of trial, Vend-Mark was reporting for approximately 4,200 machines.

 Lorillard also terminated its reporting agreement with the plaintiff on March 31, 1978. Its primary reason for terminating the plaintiff was a failure of performance by the plaintiff in its submission of reports regarding the placement of Lorillard products. In addition, RJR terminated its reporting agreement with the plaintiff on May 1, 1978, due to a determination on the part of RJR that it was more advantageous to RJR to have its own personnel contact the individual cigarette vending machine operators and pay the promotional allowances directly to the operators in cash when its salesmen made calls on the operators.

 The plaintiff claims that the defendants conspired to refuse to deal with him, in violation of section 1 of the Sherman Act. At the end of the plaintiff's case, however, the Court concluded that there was insufficient evidence from which a jury could reasonably find the existence of a conspiracy among the defendants to terminate the plaintiff, and accordingly directed a verdict for the defendants on the plaintiff's Sherman Act claims. In granting the directed verdict, we have given the plaintiff the benefit of every inference that could be drawn from the evidence he presented. Furthermore, the Court did not weigh the credibility of any witness in arriving at its decision to grant the defendants' Rule 50 motions.

 An examination of the testimony in this case reveals conduct on the part of the three defendants which could be considered parallel conduct. B&W terminated the plaintiff on March 6, 1978, Lorillard terminated the plaintiff on March 31, 1978, and RJR terminated the plaintiff on May 1, 1978. The plaintiff, however, was dealing with all six major tobacco companies, and at the time of trial was still dealing with three of these companies. In addition, B&W, prior to its termination of the plaintiff, made an offer to the plaintiff in the form of a counter-proposal to continue their relationship provided that B&W could send its payments directly to the vending machine operators. The plaintiff rejected this offer and elected to not continue to do business with B&W.

 Moreover, the representatives of the defendants, who at trial were called by the plaintiff as on cross-examination, stated different reasons for their decisions to terminate the plaintiff. The representative of B&W testified that B&W terminated the plaintiff because of a company policy that absolutely prohibited a non-owner or non-operator of a vending machine to participate in B&W's promotional allowance programs. Lorillard's representative testified that Lorillard terminated the plaintiff due primarily to the inaccuracy of the reports that the plaintiff submitted to Lorillard. Finally, the representative of RJR testified that RJR terminated the plaintiff because of a desire to have RJR personnel directly contact the operators of vending machines and to make direct cash payments to them in an effort to induce the operators to place as many RJR brands as possible in their machines.

 The plaintiff produced uncontradicted evidence that there was a trade show of the National Automatic Merchandising Association (NAMA) in Chicago between October 12, 1977 and October 16, 1977, which representatives of the major tobacco companies, including the defendants, attended and had attended for many years. It was the custom of the tobacco industry to have the person in charge of vending for a particular tobacco company attend the show. No evidence was presented by the plaintiff, however, that the representatives of the three defendants had any discussions concerning the plaintiff at the Chicago trade show. Furthermore, the representatives of the defendants called to the stand by the plaintiff as on cross-examination testified that there was no discussion concerning the plaintiff at the trade show or any other time. In addition, each of the defendants' representatives testified without contradiction by the plaintiff that they had no knowledge of the actions of the other two defendants in terminating the plaintiff.

 The only other witness called by the plaintiff's counsel was the plaintiff himself, and he offered no additional evidence concerning the existence of a conspiracy other than the fact that a representative of B&W told him that there had been a meeting in Chicago of the NAMA and sent the plaintiff a report of the meeting that appeared in a trade journal entitled the "American Automatic Merchandiser". B&W's representative testified without contradiction that he sent the article to the plaintiff because he thought it would be of interest to the plaintiff in that the article discussed some of the problems faced by cigarette vending machine operators and contained some interesting information about the vending industry.

 It is well established that a conspiracy may be established by the presentation of circumstantial evidence. In Theatre Enterprises, Inc. v. Paramount Film Distributing Corp., 346 U.S. 537, 74 S. Ct. 257, 98 L. Ed. 273 (1954), the Supreme Court stated: "To be sure, business behavior is admissible circumstantial evidence from which the fact finder may infer agreement." Id. at 259 (citations omitted). The Supreme Court, however, admonished that

 
this Court has never held that proof of parallel business behavior conclusively establishes agreement or, phrased differently, that such behavior constitutes a Sherman Act offense. Circumstantial evidence of consciously parallel behavior may have made heavy inroads into the traditional judicial attitude toward conspiracy; but "conscious parallelism" has not yet read conspiracy out of the Sherman Act entirely. Id. at 259-60 (footnote omitted).

 Our Third Circuit, when confronted with a case involving consciously parallel business behavior in Venzie v. United States Mineral Products Co., 521 F.2d 1309 (3d Cir. 1975), stated that in order to establish the existence of a conspiracy from evidence of parallel business behavior, a plaintiff must also prove two additional elements: "(1) a showing of acts by defendants in contradiction of their own economic interests . . . ; and (2) satisfactory demonstration of a motivation to enter an agreement." Id. at 1314 (citations omitted). Since the plaintiff in the case before the Court was attempting to establish the existence of a conspiracy among the defendants through consciously parallel business behavior, it was his burden to prove these two additional elements. We concluded that the plaintiff did not present sufficient evidence from which a jury could reasonably conclude that either of the two additional requirements set forth in Venzie were satisfied.

 Although the plaintiff attempted to bring out on cross-examination of the representatives of the three defendants that the action of each defendant in terminating the plaintiff was in contradiction of their own economic interest, and although the plaintiff argued that it was, there was insufficient evidence from which a jury could reasonably so find. The evidence presented through the plaintiff's cross-examination of the defendants' representatives was that each defendant decided that dealing with the plaintiff was not economically beneficial to it. The evidence was uncontradicted that the plaintiff did not make any effort to persuade vending machine operators to utilize any particular display plan for which the defendants offered a bonus, but only reported to the defendants when a bonus was due to the vending machine operator by that particular defendant. In effect, while Vend-Mark provided a service to the vending machine operators, it did not directly benefit any particular defendant. RJR testified that it terminated the plaintiff because Vend-Mark deprived it of the benefit of being able to continue its policy of having its salesmen pay cash directly to the vending machine operators in order to personally encourage the vending machine operators to utilize one or more of its bonus display plans. Lorillard testified that it terminated the plaintiff primarily because it was not economically beneficial to it to make payments to the plaintiff since the plaintiff's reports were inaccurate. B&W testified that it terminated the plaintiff because of its policy that it was more economically beneficial to it to prohibit bonus payments from being made to anyone other than the vending machine owner or operator. B&W, however, was willing to continue dealing with the plaintiff but insisted that its bonus payments be delivered directly to the vending machine owner or operator.

 Furthermore there was insufficient evidence from which a jury could reasonably find a "satisfactory demonstration of a motivation to enter an agreement." Venzie, supra at 1314 (citations omitted). The plaintiff did not offer sufficient evidence of any motive that the defendants had for entering into a conspiracy to refuse to deal with the plaintiff. In addition, the reasons posited by the defendants for terminating the plaintiff, and the fact that the plaintiff's business did not benefit any one of the defendants, provided no motivation for the defendants to conspire by agreeing to refuse to deal with the plaintiff.

 The plaintiff offered no direct evidence to contradict the assertions by the representatives of the defendants that they were not aware of the terminations of the plaintiff by the other defendants. The plaintiff's evidence does stress, however, that the terminations by the defendants occurred on March 6, 1978 (B&W), March 31, 1978 (Lorillard), and May 1, 1978 (RJR). Although this Court did not base its directed verdict on the failure of the plaintiff to prove "conscious" parallelism, there is nonetheless a question presented as to whether the parallelism in this case was "conscious."

 In conclusion, the evidence presented by the plaintiff demonstrated that the defendants had valid business reasons for acting as they did, that their actions were consistent with the unilateral exercise of business judgment, and that their actions did not require the participation of the other defendants in order to advance their independent self-interests. Pursuant to Venzie, the plaintiff therefore failed to carry his burden of introducing sufficient evidence from which a jury could reasonably find that a conspiracy existed among the defendants to refuse to deal with the plaintiff.

 In determining that a verdict should be directed for the defendants on the plaintiff's Sherman Act claims, the Court did not weigh the credibility of the witnesses and considered all of the evidence presented by the plaintiff as true, including the hearsay evidence offered against all of the defendants on the ground that such evidence was admissible as to all defendants pursuant to the co-conspirator exception to the hearsay rule, Fed.R.Evid. 801(d)(2)(E). The Court recognizes that the co-conspirator exception to the hearsay rule requires a finding by the Court that there was a preponderance of independent evidence, after weighing credibility, showing the existence of a conspiracy, that the declarant and defendants were members of the conspiracy, and that the statements were made during the course of and in furtherance of the conspiracy. The Court, in directing a verdict for the defendants on the ground that the plaintiff's evidence was not sufficient to prove the existence of a conspiracy, did nonetheless consider all of the hearsay evidence presented by the plaintiff pursuant to the co-conspirator exception to the hearsay rule.

 It is conceivable that a jury could elect to not believe the defendants' testimony that they did not conspire to refuse to deal with the plaintiff. This alone, however, will not sustain the denial of a motion for a directed verdict. The Venzie Court stated:

 
While the jury was free to disregard the defendants' testimony that no agreement of any kind was formulated during the course of these contacts, mere disbelief could not rise to the level of positive proof of agreement to sustain plaintiffs' burden of proving conspiracy. Id. at 1313.

 II. The Robinson-Patman Act Claim

 The plaintiff alleged that the defendants violated section 2(d) of the Robinson-Patman Act, 15 U.S.C. § 13(d) (1976), because they did not offer their promotional allowance to all operators of cigarette vending machines. Section 2(d) provides:

 
It shall be unlawful for any person engaged in commerce to pay or contract for the payment of anything of value to or for the benefit of a customer of such person in the course of such commerce as compensation or in consideration for any services or facilities furnished by or through such customer in connection with the processing, handling, sale, or offering for sale of any products or commodities manufactured, sold, or offered for sale by such person, unless such payment or consideration is available on proportionally equal terms to all other customers competing in the distribution of such products or commodities.

 The plaintiff has requested an injunction on the ground that section 2(d) was violated in that it requires the defendants to either do business with the plaintiff or seek out and inform every operator of a cigarette vending machine of the bonus ...


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