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Tunis Bros. Co., Inc. v. Ford Motor Co.

filed: December 27, 1991; As Corrected January 24, 1992.

TUNIS BROTHERS COMPANY, INC.; RICHARD N. DE LA RIGAUDIERE; AND DAVID C. SMITH,
v.
FORD MOTOR COMPANY; FORD MOTOR CREDIT COMPANY; WENNER FORD TRACTOR, INC.,; JOHN S. WENNER; JOHN WATSON; DOUGLAS N. CRAWFORD; EUGENE W. FRAHER; E. S. HASEL; HUGH NICKEL; KENNETH E. HARRIS; C. W. WENZEL; FORD MOTOR COMPANY, FORD MOTOR CREDIT COMPANY, AND WENNER FORD TRACTOR, INC., APPELLANTS IN NO. 90-1797, TUNIS BROTHERS COMPANY, INC.; RICHARD N. DE LA RIGAUDIERE; AND DAVID C. SMITH, APPELLANTS IN NO. 90-1816
v.
FORD MOTOR COMPANY; FORD MOTOR CREDIT COMPANY; WENNER FORD TRACTOR, INC.; JOHN S. WENNER; JOHN WATSON; DOUGLAS N. CRAWFORD; EUGENE W. FRAHER; E. S. HASEL; HUGH NICKEL; KENNETH E. HARRIS; C. W. WENZEL



Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. Civ. No. 82-05557)

Before: Becker, Mansmann and Scirica, Circuit Judges.

Author: Mansmann

Opinion OF THE COURT

MANSMANN, Circuit Judge.

In this appeal arising out of the termination of a franchised tractor dealership, we are presented with several issues stemming from the lengthy trial in which the plaintiff, Tunis Brothers Company, Inc., obtained a jury verdict for $227,605.50 in compensatory damages and $4 million in punitive damages against the defendants, Ford Motor Company, Ford Motor Credit Company and Wenner Ford Tractor, Inc.*fn1

This lawsuit grew out of the sale of Tunis Brothers, a Ford tractor dealership and hardware business, from its original owner, Richard Tunis, to Richard de la Rigaudiere and David C. Smith, and Ford Motor Company's refusal to transfer the Ford franchise with that sale. At the root of its antitrust claim, Tunis Brothers claims that the three Ford defendants conspired to terminate its Ford tractor franchise in order to benefit a competitor Ford franchisee, defendant Wenner Ford. To evaluate the merits of the antitrust claim, we must visit the "mushroom capitol of the world" and the site of Tunis Brothers -- Kennett Square, Pennsylvania -- and learn of the preferences of Tunis Brothers' mushroom farming customers. Particularly, we need to assess whether the evidence demonstrates that the farmers' avowed preferences for Ford tractors and a Kennett Square Ford dealership satisfy the plaintiffs burden of proof on the elements of relevant product and relevant geographic markets. Tunis Brothers' fraud claim, similarly, stems from alleged misrepresentations made by Ford Motor and Ford Credit to induce Tunis to resign as franchise holder prior to the consummation of the sale. Moreover, the propriety of seeking as damages lost gross profits, rather than lost net profits will be addressed, as well as the level of outrageous conduct required to sustain an award of punitive damages.

I.

Because the facts underlying this appeal are so important to its resolution and because the district court has so thoroughly described those facts in its post-verdict Memorandum and Order dated December 3, 1990, we shall adopt as our own a large portion of the statement of facts of that Memorandum. We will first provide background for this case, review its procedural history, and then, as we discuss in turn each legal issue, we will more fully set forth particularly relevant facts.

The following background consists of all undisputed facts and facts reasonably inferred from the jury's verdict, taken in the light most favorable to the plaintiffs, the verdict winners, as set forth in the district court's Memorandum Opinion:

Tunis Brothers Company, Inc. was founded by Richard N. Tunis and his brother Robert in 1934 as a tractor and farm supply business in Kennett Square, Pennsylvania, known colloquially as the "mushroom capital of the world." In 1959, Tunis Brothers became a Ford Motor Company franchised dealership selling Ford tractors, equipment and accessories, as well as non-Ford products. From May 1, 1974, until the resignation of Richard Tunis on March 17, 1981, the parties' relationship was governed by a "Dealer Sales and Services Agreement" (the "franchise agreement"). It is undisputed that this franchise agreement expressly required Ford's prior written consent to transfer of ownership of the Ford franchise and additionally permitted termination of the franchise at will on thirty (30) days written notice by Tunis Brothers or on sixty (60) days written notice by Ford.

Richard N. de la Rigaudiere was the nephew of Richard and Isabelle Tunis. He had worked at Tunis Brothers since 1966, eventually becoming the store's parts manager. David C. Smith was the owner of a local company named Fert-L Soil and a steady customer and friend of Richard Tunis. In March 1980, de la Rigaudiere and Smith approached Richard Tunis about the prospect of purchasing Tunis Brothers. The negotiations culminated in the sale of Tunis Brothers to de la Rigaudiere and Smith [on March 16, 1981] for the price of $450,000.00.

Wenner Ford is a Delaware corporation with its principal place of business in Concordville, Pennsylvania -- about eleven miles east of Kennett Square. Wenner Ford was the authorized Ford dealer of farm and industrial tractors nearest to Tunis Brothers. It was established as a privately owned dealership by John Wenner, a former Parts Operations Manager for Ford in Michigan, in 1977. As a result of a serious cash-flow problem, John Wenner recapitalized Wenner Ford as a Ford Dealer Development dealership in July, 1979 with the assistance of Ford employees Eugene Fraher, John Watson and Hugh Nickel, and Ford Motor credit employee Howard W. Stoneback. Under the terms of this program, Ford purchased 79% of the equity of Wenner Ford and owned all of its voting stock. John Wenner retained 21% of the equity and operated Wenner Ford as its President and Chief Executive Officer. Wenner was to buy out Ford's interest incrementally and eventually return to private dealer status.

District Court Memorandum Opinion Typescript at 6-8.

We will detail later the miscommunications characterizing the plaintiffs' negotiations with Ford, but a framework sketch is necessary here to provide a factual context for the legal claims. The plaintiffs first negotiated in April of 1980, with John Watson, Zone Manager for Ford's Tractor Operations, for the franchise held by Tunis in Kennett Square. Watson recommended to de la Rigaudiere and Smith that they relocate Tunis Brothers to the Oxford/Cochranville area approximately 10 miles west of Kennett Square. Watson subsequently issued a report in which he recommended that de la Rigaudiere and Smith were qualified for a franchise in the Cochranville area.

Displeased with Watson's suggestion, de la Rigaudiere and Smith subsequently met with Eugene Fraher, the Northeastern District Manager of Ford Tractor Operations, in Cohoes, New York in June of 1980. Fraher informed them of Ford's designation of the Kennett Square location as an attrition point, and Ford's plan to establish a franchise in the Cochranville area. As an accommodation to the plaintiffs, however, Fraher promised to consider their application for a Kennett Square franchise for a 2-3 year period of time if they submitted a business plan to him, which they subsequently sent to Fraher. Fraher cautioned them, however, that any purchase of the Tunis Brothers Company should be made contingent upon obtaining the Ford franchise. Nevertheless, after they obtained mortgage financing, Smith and de la Rigaudiere failed to so condition their purchase of Tunis Brothers.

On March 3, 1981, Hugh Nickel, dealer replacement representative for the Northern Region of Ford Tractor Operations, and Douglas Crawford, who had succeeded John Watson as the Zone Manager, met with Smith, de la Rigaudiere, and the Tunises at Tunis Brothers. At that meeting Nickel requested that Richard Tunis, as franchise holder, submit an unconditional letter of resignation. The parties dispute whether Nickel represented that this resignation letter would be acted upon with Smith and de la Rigaudiere's franchise application or only after approval of their application. Nickel also took information from Smith and de la Rigaudiere necessary to complete a franchise agreement. The plaintiffs maintain that they informed Nickel of their combined $50,000 investment in the business, however, the application reflected only a $5,000 investment. It is undisputed that Nickel recommended disapproval of the franchise application. The district court's Memorandum Opinion continues:

The closing of the sale of Tunis Brothers took place on March 16, 1981, thirteen days after the meeting with Nickel. On March 17th, Richard Tunis sent his letter of resignation and termination notice to Ford, which were forwarded on March 23rd, by Nickel and Fraher, to Market Representation Manager Kenneth E. Harris for immediate action. Harris, however, held the letter pending the processing of plaintiffs' dealership and credit applications.

On April 1, 1981, [Howard] Stoneback [, manager of the Philadelphia branch, of Ford Credit,] telephoned Harris to say that Ford Credit would not approve plaintiffs' credit application. On April 2, Richard Tunis was informed by a letter signed by John J.L. Johnson, General Sales Manager of Ford Tractor Operations, that his resignation had been accepted effective immediately. When plaintiffs were informed of this decision, they discovered the erroneous information in their credit application prepared by Nickel. Plaintiffs were subsequently permitted to submit a second credit application containing the correct information. However, before a decision on the revised credit application was reached, plaintiffs' dealership application was rejected. This information was conveyed to plaintiffs by letter dated August 7, 1981 from E. S. Hasel, the Regional Manager for the Northern Region of Ford Tractor who, like Fraher, was a director and senior vice-president of Wenner Ford. Tunis Brothers subsequently became a franchised dealer of Allis-Chalmers farm tractors but is currently in Chapter 11 bankruptcy.

District Court Memorandum Opinion Typescript at 11-12.

This litigation commenced on December 15, 1982, when Tunis Brothers, de la Rigaudiere and Smith filed their complaint naming as defendants Ford Motor, Ford Credit, Wenner Ford, John S. Wenner and Ford employees John Watson, Douglas N. Crawford, Eugene W. Fraher, E. S. Hasel, Hugh Nickel, Kenneth E. Harris, and C. W. Wenzel. The plaintiffs charged the defendants with a conspiracy to violate several provisions of the antitrust laws, including section 1 of the Sherman Act, 15 U.S.C. § 1; sections 7 and 14 of the Clayton Act, 15 U.S.C. §§ 18 and 24; and with various state law tort and breach of contract claims arising out of Ford's failure to renew the Tunis Brothers Ford tractor franchise upon its sale from Richard and Isabelle Tunis to de la Rigaudiere and Smith. And so began the long and tortuous legal proceedings that again find themselves before our court.

During the first round of litigation, in a June 22, 1983 order, the district court dismissed the claims asserted under the Clayton Act for failure to state a claim and the claim against C. W. Wenzel for lack of personal jurisdiction. Tunis Bros. Co. v. Ford Motor Co., No. 82-5557 (E.D. Pa. June 22, 1983). Later, the district court granted summary judgment in favor of all of the defendants on the remaining federal counts, finding that there were no genuine issues of material fact from which a reasonable jury could infer an antitrust conspiracy. Tunis Bros. Co. v. Ford Motor Co., 587 F. Supp. 267 (E.D. Pa. 1984).

On appeal, we reversed that award of summary judgment, stating that "viewing the evidence in the light most favorable to plaintiffs, we find that the evidence presented supports an inference that the close ties between . . . defendants Ford and Wenner Ford led to an illegal agreement, even if implicit." Tunis Bros. Co. v. Ford Motor Co., 763 F.2d 1482 (3d Cir. 1985) (" Tunis I").

On petition for writ of certiorari, the Supreme Court vacated our decision in Tunis I and remanded the case for reconsideration in light of its decision in Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). The Court in Matsushita held that when an antitrust defendant's conduct is consistent with both permissible competition and illegal conspiracy, a plaintiff "must present evidence 'that tends to exclude the possibility' that the alleged conspirators acted independently" in order to survive a motion for summary judgment. 475 U.S. at 588 (quoting Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 764, 79 L. Ed. 2d 775 , 104 S. Ct. 1464 (1984)).

On remand, we found that the "evidence adduced by [plaintiffs] to satisfy this burden [was] substantial but not overwhelming . . ." and further remanded the case to the district court for trial on all counts. Tunis Bros. Co. Inc. v. Ford Motor Co., 823 F.2d 49, 51 (3d Cir. 1987) (" Tunis II "), cert. denied, 484 U.S. 1060, 98 L. Ed. 2d 979 , 108 S. Ct. 1013 (1988). Pursuant to this remand, the district court bifurcated the trial, commencing the liability portion on November 15, 1988.

After all of the liability evidence had been presented, on December 14, 1988, the district court granted the defendants' motion for a directed verdict on counts I, II, III and VI, and also their motion for the dismissal of de la Rigaudiere and Smith as individual plaintiffs.*fn2 Further, the district court dismissed all of the claims against the Ford employees in their individual capacities before submitting the case to the jury. Thus the only counts that remained were Counts IV and V against Ford Motor, Ford Credit, Wenner Ford, and John S. Wenner. Count IV charged the defendants with a violation of section 1 of the Sherman Act under the rule of reason doctrine. Count V alleged pendent state law claims of fraud, misrepresentation, and tortious interference with contractual relations.

Eight special interrogatories were sent to the jury to determine whether the remaining defendants had either conspired to violate section 1 of the Sherman Act under the rule of reason analysis or defrauded Tunis Brothers. In its answers to these interrogatories, the jury found that Ford Motor, Ford Credit and Wenner Ford had conspired to terminate the Tunis Brothers franchise, that the conspiracy had an adverse economic impact on the intrabrand market for Ford tractors in the Kennett Square area, and that the adverse impact on competition outweighed any beneficial competitive effects in that market. The jury also found that Ford Motor and Ford Credit had defrauded the plaintiffs in their attempt to secure a new Ford franchise. The jury exculpated John S. Wenner on all counts.

After denying the defendants' motion for a new trial on liability, the district court permitted the damages phase of the trial to commence. On February 1, 1989, the jury returned a verdict of $227,605.50 against Ford Motor, Ford Credit and Wenner Ford on the antitrust claim. In addition, the jury returned a verdict in the same amount against Ford Motor and Ford Credit on the fraud count. The jury apportioned damages for the fraud count in the amount of $159,323.85 against Ford Motor and $68,281.65 against Ford Credit. Finally, the jury awarded punitive damages against Ford Motor in the amount of $2,800,000.00 and against Ford Credit in the amount of $1,200,000.00.

In their February 17, 1989, motion for judgment notwithstanding the verdict or in the alternative for a new trial, the defendants alleged that the rulings of the district court were erroneous, that the jury's verdict was against the weight of the evidence, and that the plaintiffs' claims were insufficient as a matter of law. In the alternative, the defendants sought a new trial or a remittitur on damages. The district court denied these motions on September 26, 1990.

The parties have filed cross-appeals. Ford Motor and Wenner Ford challenge the denial of their motions for a judgment n.o.v. on both the antitrust and fraud claims. They also challenge the denial of their motions for judgment n.o.v. or alternatively a new trial on both compensatory and punitive damages. Ford Credit, stipulated to be a wholly owned subsidiary of Ford Motor, additionally questions: (1) whether, as a matter of law, it can be capable of conspiring in violation of the Sherman Act with its parent corporation, Ford Motor; (2) the sufficiency of the evidence concerning the conspiracy between Ford Credit and Wenner Ford; and (3) Ford Credit's liability for fraud absent any evidence of misrepresentation by a Ford Credit representative.

Tunis Brothers, de la Rigaudiere, and Smith, in their cross-appeal, challenge the orders of the district court that: (1) excluded testimony of two expert witnesses on damages, (2) dismissed de la Rigaudiere and Smith as individual plaintiffs; and (3) denied prejudgment interest.

Our appellate jurisdiction is predicated upon 28 U.S.C. § 1291. We turn now to the issues.

II.

We begin with the challenges of all three Ford defendants to the district court's denial of their motions for judgment n.o.v. with respect to the antitrust verdict. Our review of a request for judgment n.o.v. is governed by the standard set forth in Link v. Mercedes-Benz of N. Am., Inc., 788 F.2d 918, 921 (3d Cir. 1986), providing that we must determine whether the trial record is "critically deficient of that minimum quantum of evidence" required to allow the jury's verdict to stand. We are mindful that "when deciding a motion for judgment notwithstanding the verdict, the trial judge must determine whether the evidence and justifiable inferences most favorable to the prevailing party afford any rational basis for the verdict." Bhaya v. Westinghouse Elec. Corp., 832 F.2d 258, 259 (3d Cir. 1987), cert. denied, 488 U.S. 1004, 102 L. Ed. 2d 774 , 109 S. Ct. 782 (1989); Berndt v. Kaiser Aluminum & Chemical Sales, Inc., 789 F.2d 253, 258 (3d Cir. 1986). "Our review of the application of this standard is plenary." Bhaya, 832 F.2d at 259. The question of relevant market definition is a factual one and "we . . . must affirm the jury's conclusion unless the record is devoid of evidence upon which the jury might reasonably base its conclusion." Weiss v. York Hospital, 745 F.2d 786, 825 (3d Cir. 1984).

To recover under their Sherman Act section 1 claim, under the rule of reason test, the plaintiffs were required to prove: "(1) that the defendants contracted, combined, or conspired among each other; (2) that the combination or conspiracy produced adverse, anti-competitive effects within relevant product and geographic markets; (3) that the objects of and the conduct pursuant to that contract or conspiracy were illegal; and (4) that the plaintiffs were injured as a proximate result of that conspiracy." Tunis I, 763 F.2d 1482 ; Martin B. Glauser Dodge Co. v. Chrysler Corp., 570 F.2d 72, 81 (3d Cir. 1977), cert. denied, 436 U.S. 913, 56 L. Ed. 2d 413 , 98 S. Ct. 2253 (1978). We will focus our analysis on the second factor to ascertain whether the evidence adduced at trial pertaining to the relevant product market, the relevant geographic market, and the anti-competitive effects supports the verdict. Because we conclude that the plaintiffs failed to prove these prerequisites, it will not be necessary for us to address the first, third and fourth requirements.

A. Relevant Product Market

The defendants contest the jury's finding, recorded in its interrogatory answers, that the relevant product market consisted solely of Ford tractors. According to the Ford defendants, even when viewed through the eyes of Tunis Brothers' predominant customers -- mushroom growers -- the relevant product market consists of Ford, Massey Ferguson, Case and John Deere tractors of comparable size, price and features.

The relevant product market is defined as those "commodities reasonably interchangeable by consumers for the same purposes." United States v. E. I. Du Pont de Nemours & Co., 351 U.S. 377, 395, 100 L. Ed. 1264 , 76 S. Ct. 994 (1956); SmithKline Corp. v. Eli Lilly & Co., 575 F.2d 1056, 1062-63 (3d Cir.), cert. denied, 439 U.S. 838, 58 L. Ed. 2d 134 , 99 S. Ct. 123 (1978). Factors to be considered include price, use and qualities. Du Pont de Nemours, 351 U.S. at 404. Accordingly, the products in a relevant product market would be characterized by a cross-elasticity of demand, in other words, the rise in the price of a good within a relevant product market would tend to create a greater demand for other like goods in that market. Id. at 380, 400. Here, the products that were under consideration by the jury were those which the local farmers -- predominantly mushroom farmers -- purchased for their agricultural needs.

It is clear that the Supreme Court has placed a heavy emphasis on interbrand competition in such cases as Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717, 99 L. Ed. 2d 808, 108 S. Ct. 1515 (1988), Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 79 L. Ed. 2d 775 , 104 S. Ct. 1464 (1984) and Continental T. V. Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 53 L. Ed. 2d 568 , 97 S. Ct. 2549 (1977). Although the Supreme Court has recognized that the reduction of intrabrand competition through the use of vertical restrictions might actually promote interbrand competition, see GTE Sylvania, Inc., 433 U.S. at 52-54, nevertheless, the Supreme Court has reconfirmed that "our approach . . . is guided by the premises of GTE Sylvania and Monsanto : . . . that interbrand competition is the primary concern of the antitrust laws. . . ." Business Electronics, 485 U.S. at 726. The emphasis of antitrust theory is thus upon protecting interbrand competition.

Nonetheless, it is also true that a well-defined submarket may constitute a relevant product market and so under certain circumstances a relevant product market could consist of one brand of a product, placing intrabrand competition at issue. In Brown Shoe Co. v. United States, 370 U.S. 294, 325, 8 L. Ed. 2d 510 , 82 S. Ct. 1502 (1962), the Supreme Court, in addressing a merger in violation of section 7 of the Clayton Act, sought to determine the product market and stated:

Within [a] broad market, well-defined submarkets may exist which, in themselves, constitute product markets for antitrust purposes. The boundaries of such a submarket may be determined by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product's peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors.

Brown Shoe, 370 U.S. at 325 (citation and footnote omitted). Special characteristics of the relevant industry may influence market definition. Columbia Metal Culvert Co. v. Kaiser Aluminum & Chemical Corp., 579 F.2d 20, 28 (3d Cir.), cert. denied, 439 U.S. 876, 58 L. Ed. 2d 190 , 99 S. Ct. 214 (1978).

Therefore, in considering the highly factual issue of whether there is a cross-elasticity of demand between Ford tractors and other tractors, we have examined prior cases in which relevant product markets have been defined. In United States v. E.I. Du Pont de Nemours & Co., 351 U.S. 377, 100 L. Ed. 1264 , 76 S. Ct. 994 (1956), the Supreme Court decided that the relevant market for cellophane was broader than cellophane only, and consisted of other interchangeable flexible packaging goods. The Court found that the cellophane market was not distinct from the market for flexible packaging materials and that at all times du Pont competed with the manufacturers of these other flexible packaging goods. Consequently, the relevant product market was not limited to cellophane alone, but encompassed other interchangeable flexible packaging goods.

More to the point, in Mogul v. General Motors Corp., the district court concluded that a Cadillac automobile was not "so unique" as alone to constitute a relevant product market. 391 F. Supp. 1305, 1313 (E.D. Pa. 1975), aff'd without opinion, 527 F.2d 645 (3d Cir. 1976). A Cadillac is "interchangeable with other luxury automobiles . . . [and] competes with even the less expensive models of automobiles in serving the consuming public's transportation needs and desires." Id. Therefore, the court granted summary judgment in favor of General Motors because although the plaintiff, who was seeking a Cadillac dealership, may have suffered an injury, there was no injury to competition because other car dealerships were still available to potential consumers. See also R.D. Imports Ryno Indus., Inc. v. Mazda Distrib. (Gulf), Inc., 807 F.2d 1222, 1225 n.2 (5th Cir.) (Mazda does not constitute relevant market as Mazdas have "a variety of domestic and foreign substitutes"), cert. denied, 484 U.S. 818 (1987), 108 S. Ct. 75, 98 L. Ed. 2d 38; Kingsport Motors, Inc. v. Chrysler Motors Corp., 644 F.2d 566, 571 (6th Cir. 1981) (in a tying case, the relevant product market "is the sum total of medium priced automobiles manufactured by Chrysler and all other automobile manufacturers and sold in the United States"); Packard Motor Car Co. v. Webster Motor Car Co., ...


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