On Appeal From the United States District Court for the Middle District of Pennsylvania. Civil Action No. 86-0386.
Before: Greenberg, Nygaard, and Lewis, Circuit Judges.
GREENBERG, Circuit Judge.
Petruzzi's IGA Supermarket, Inc. (Petruzzi's IGA), for itself and on behalf of the class it represents, appeals from the district court's July 31, 1992 order entering summary judgment in favor of defendants Darling-Delaware Company, Inc. (Darling), The Standard Tallow Corp. (Standard), and Moyer Packing Company (Moyer). Petruzzi's IGA does not appeal from an earlier order of the district court dismissing a fourth defendant, Herman Isacs, Inc., pursuant to Fed. R. Civ. P. 12(b)(2) because of a lack of personal jurisdiction. See 677 F. Supp. 289 (M.D. Pa. 1987).*fn1 In its complaint, Petruzzi's IGA alleged that the defendants conspired to allocate customers in the fat and bone rendering industry in violation of section 1 of the Sherman Act, 15 U.S.C. § 1. However, after considering the evidence put forward by Petruzzi's IGA in response to the defendants' motions for summary judgment, the district court concluded that Petruzzi's IGA failed to raise a genuine issue of material fact to controvert the defendants' denial that there was a conspiracy among the remaining defendants. District Court's Opinion (Opin.) at 65. Because we disagree in part with the district court's view of the evidence and in part with its application of the appropriate legal standards, we will reverse its July 31, 1992 order insofar as it granted summary judgment to Darling and Moyer. However, because we agree that the evidence put forward does not tend to exclude the possibility that Standard acted independently, see Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 764, 104 S. Ct. 1464, 1471, 79 L. Ed. 2d 775 (1984), we will affirm the district court's grant of summary judgment to Standard.*fn2
This case involves an allegation of a restraint of trade in the fat and bone rendering industry. In this industry, rendering companies, such as the defendants, purchase inedible fats, bones, suet, and meat trimmings (raw materials) from suppliers, such as butcher shops, supermarkets, restaurants, hotels, and government agencies. These companies then process the raw materials into finished products such as tallow, grease, animal feed, and fertilizer.
On March 14, 1986, Petruzzi's IGA filed a class action in the United States District Court for the Middle District of Pennsylvania against Darling, Standard, Moyer, and Herman Isacs, Inc., alleging that from as early as January 1, 1977, to at least December 31, 1985, the defendants conspired to allocate existing raw material accounts in the fat and bone rendering industry in parts of Pennsylvania, New Jersey, and Connecticut. According to the complaint, the defendants violated section 1 of the Sherman Act by: (1) agreeing to refrain from soliciting accounts serviced by the other defendants; (2) submitting collusive and rigged bids to certain accounts; (3) settling "allocation disputes," where one competitor acquired an account owned by a competitor, by requiring the former to return the account or transfer an account of equal tonnage to the wronged renderer; and (4) urging other renderers to join the conspiracy. Complaint PP 15-17, App. at 141-42. Petruzzi's IGA contends that those competitors of the defendants who refused to abide by these "rules" were targeted by other renderers in an effort to keep them in line. For example, if Rendering Company A offered a higher price for the raw materials from an account which was being serviced by one of the defendants, then that defendant or perhaps another participant in the conspiracy would respond by offering higher, above-market prices on Company A's other accounts. According to Petruzzi's IGA, because of the defendants' superior financial resources, such predatory tactics ensured that competitors either complied with the rules, sold out to the defendants, or entered bankruptcy. Brief at 5. Petruzzi's IGA does not contend the defendants conspired with respect to new accounts, but only that once the account was won or "loaded," others stayed away or at most put forward sham bids.
On April 1, 1991, the three defendants remaining after the dismissal of Herman Isacs, Inc., moved for summary judgment, citing an absence of evidence of concerted action. In response to these motions, Petruzzi's IGA submitted a large amount of evidence which it contended demonstrated the existence of an agreement among the remaining defendants. Of significance, Petruzzi's IGA submitted: (1) testimony from Howard Salisbury and Ralph Ebersole, two former employees of Moyer; (2) secretly taped recordings of conversations between principals of Ryder Rendering Company, a former competitor of the defendants, and principals of Moyer (the Ryder tapes); (3) testimony of two economists who concluded that the defendants conspired not to compete for existing raw material accounts; (4) deposition testimony of representatives of the defendants; (5) a memorandum prepared by Michele Ellerin, the former wife of Lee Ryder, a co-owner of Ryder Rendering (the Ellerin memorandum); (6) records of five past civil and criminal antitrust actions involving the defendants and/or their employees; (7) phone records of the defendants and their principals indicating numerous phone calls to each other over the years; and (8) evidence of socializing by principals of the defendants. Petruzzi's IGA's evidence describes the limited nature of competition for existing accounts and several instances of retaliation against noncomplying rendering companies.
Despite this evidence, the district court granted the defendants summary judgment because it determined that Petruzzi's IGA had not put forward evidence which tended to exclude the possibility that the defendants acted independently. Opin. at 65. In addition, the court stated that summary judgment was appropriate because the defendants "have met plaintiff's evidence with plausible business reasons justifying the conduct called into question." Opin. at 66. Petruzzi's IGA then appealed.
In this appeal, we once again consider what evidence an antitrust plaintiff alleging a violation of section 1 of the Sherman Act*fn3 must put forward to defeat a motion for summary judgment. To establish a section 1 violation, a product plaintiff must prove: (1) concerted action by the defendants; (2) that produced anticompetitive effects within the relevant product and geographic markets; (3) that the objects of the conduct pursuant to the concerted action were illegal; and (4) that it was injured as a proximate result of the concerted action. J.F. Feeser, Inc. v. Serv-A-Portion, Inc., 909 F.2d 1524, 1541 (3d Cir. 1990), cert. denied, 113 L. Ed. 2d 246, 111 S. Ct. 1313 (1991); Tunis Bros. Co. v. Ford Motor Co., 763 F.2d 1482, 1489 (3d Cir. 1985), vacated for further reconsideration, 475 U.S. 1105, 106 S. Ct. 1509 (1986). Without proof of all of these elements, a plaintiff cannot maintain a section 1 claim.
As was the case here, at the summary judgment stage antitrust defendants often maintain that the plaintiff has not offered sufficient proof that they acted in concert and accordingly did not satisfy the first element of a section 1 claim. See, e.g., Big Apple BMW, Inc. v. BMW of North America, Inc., 974 F.2d 1358, 1364 (3d Cir. 1992), cert. denied, 113 S. Ct. 1262, 122 L. Ed. 2d 659 (1993). And, as noted above, the district court agreed with the defendants. Petruzzi's IGA argues that the district court erred in this determination because it proffered evidence sufficient to allow a reasonable jury to conclude that the defendants acted in concert. Petruzzi's IGA asserts that the district court not only improperly discounted evidence that supported an inference of collusion, but also improperly compartmentalized the evidence Petruzzi's IGA put forth.
A. The Summary Judgment Standard
We review the district court's summary judgment determination de novo, applying the same standard as the district court.*fn4 As this court recently reiterated, "A non-movant's burden in defending against summary judgment in an antitrust case is no different than in any other case." Big Apple BMW, 974 F.2d at 1363. Rather, in all cases summary judgment should be granted if, after drawing all reasonable inferences from the underlying facts in the light most favorable to the nonmoving party, the court concludes that there is no genuine issue of material fact to be resolved at trial and the moving party is entitled to judgment as a matter of law. Where the movant has produced evidence in support of its motion for summary judgment, the nonmovant cannot rest on the allegations of pleadings and must do more than create some metaphysical doubt.
However, at the summary judgment stage, a court is not to weigh the evidence or make credibility determinations. Id. at 1363. Instead, these tasks are left for the fact-finder. To raise a genuine issue of material fact, therefore, "the [summary judgment] opponent need not match, item for item, each piece of evidence proffered by the movant," but simply must exceed the "mere scintilla" standard. Id. Additionally, a court should not tightly compartmentalize the evidence put forward by the nonmovant, but instead should analyze it as a whole to see if together it supports an inference of concerted action. Id. at 1364 (citing Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 699, 82 S. Ct. 1404, 1410, 8 L. Ed. 2d 777 (1962)); In re Japanese Elec. Prods. Antitrust Litig., 723 F.2d 238, 305 (3d Cir. 1983), rev'd on other grounds sub nom. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986).
As in other cases, a nonmovant plaintiff in a section 1 case does not have to submit direct evidence, i.e., the so-called smoking gun, but can rely solely on circumstantial evidence and the reasonable inferences drawn from such evidence.*fn5 Big Apple BMW, 974 F.2d. at 1364; In re Japanese Elec. Prods., 723 F.2d at 304. Furthermore, where the nonmovant has put forward evidence which it contends allows for an inference of a section 1 violation, the movant defendant bears the burden of proving that drawing an inference of unlawful behavior is unreasonable. Big Apple BMW, 974 F.2d at 1363-64 (citing Eastman Kodak Co. v. Image Technical Servs., Inc., 119 L. Ed. 2d 265, 112 S. Ct. 2072, 2083 (1992)). Nonetheless, in drawing favorable inferences from underlying facts, a court must remember that often a fine line separates unlawful concerted action from legitimate business practices. Thus, we have noted that in antitrust cases, "care must be taken to ensure that inferences of unlawful activity drawn from ambiguous evidence do not infringe upon the defendants' freedom." Big Apple BMW, 974 F.2d at 1363.
To understand exactly what inferences are circumscribed in a section 1 case, we must examine closely the Supreme Court's decision in Matsushita Electrical Industries Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). In Matsushita, the plaintiffs, American manufacturers of television sets, alleged that the defendants, Japanese manufacturers of consumer electronic products (CEP), conspired to fix prices below market level so as to drive the American manufacturers from the American CEP market. According to the plaintiffs, the defendants financed this strategy through monopoly profits earned in the Japanese market. Thus, the plaintiffs put forward evidence suggesting, inter alia, that the defendants earned monopoly profits in the Japanese market; that they agreed to distribute their products according to a "five company rule," whereby each competitor was allowed to sell to only five American distributors; that they reached agreements with Japan's Ministry of International Trade and Industry on minimum prices for CEP exported to the American market; and that they avoided these agreements through rebate schemes. Id. at 580-81, 106 S. Ct. at 1353.
The district court granted the defendants summary judgment. See 513 F. Supp. 1100 (E.D. Pa. 1981). We then reversed in part, holding that the plaintiffs had put forward sufficient evidence from which a conspiracy reasonably could be inferred. See In re Japanese Elec. Prods., 723 F.2d at 303-16. On certiorari, the Supreme Court reversed our decision. The Court stated that because the plaintiffs' theory of conspiracy did not make sense from an economic standpoint, the ambiguous evidence of a conspiracy they put forward was insufficient to withstand summary judgment. Instead, in the circumstances, the plaintiffs needed to provide "more persuasive evidence to support their claim than would otherwise be necessary." 475 U.S. at 587, 106 S. Ct. at 1356. The Court emphasized that evidence which is equally consistent with legal and illegal conduct, standing alone, cannot support an inference of antitrust conspiracy. Id. at 588, 106 S. Ct. at 1356 (citing Monsanto, 465 U.S. at 764, 104 S. Ct. at 1470).
In reaching its decision the Supreme Court first noted that the alleged predatory pricing conspiracy was speculative at best because it required the defendants to agree to forego profits that a free market would offer them. The Court then stated that the only way such a conspiracy would make any sense was if the defendants could recoup their losses in the future through monopoly profits. 475 U.S. at 588-89, 106 S. Ct. at 1357. The Court, however, looked at the market and determined that there was no evidence that the defendants could recoup such losses. Thus, the Court concluded that the defendants had no motive to engage in the alleged conspiracy. Id. at 592-93, 106 S. Ct. at 1359. The Court further recognized that the alleged unlawful behavior was equally consistent with lawful behavior because "cutting prices in order to increase business often is the very essence of competition." Id. at 594, 106 S. Ct. at 1360.
Importantly, however, in reaching its Conclusion the Matsushita Court did not hold that an antitrust defendant is entitled to summary judgment merely by providing an economic theory to justify its behavior. See Eastman Kodak Co. v. Image Technical Servs., Inc., 119 L. Ed. 2d 265, 112 S. Ct. 2072, 2083 (1992) ("The [Matsushita ] Court did not hold that if the moving party enunciates any economic theory supporting its behavior, regardless of its accuracy in reflecting the actual market, it is entitled to summary judgment." (emphasis in original)); In re Coordinated Pretrial Proceedings in Petroleum Prods. Antitrust Litig., 906 F.2d 432, 439 (9th Cir. 1990) ("Nor do we think that Matsushita and Monsanto can be read as authorizing a court to award summary judgment to antitrust defendants whenever the evidence is plausibly consistent with both inferences of conspiracy and inferences of innocent conduct."), cert. denied, 111 S. Ct. 2274 (1991). Instead, the Court simply stressed that to survive summary judgment in the absence of direct evidence or strong circumstantial evidence of an agreement, a plaintiff must assert a theory that is plausible. Matsushita, 475 U.S. at 593-94, 106 S. Ct. at 1359-60. In this respect, then, Matsushita did not invent a new requirement for an antitrust plaintiff to meet, but merely articulated an established one, i.e., the inferences drawn from the proffered evidence must be reasonable. See Eastman Kodak Co., 112 S. Ct. at 2083. Therefore, contrary to the district court's reasoning in our case, the defendants were not entitled to summary judgment simply because they demonstrated a plausible rationale for their behavior. Rather, the focus must remain on the evidence proffered by the plaintiff and whether that evidence "tends to exclude the possibility that [the defendants] were acting independently." Monsanto, 465 U.S. at 764, 104 S. Ct. at 1471.
B. Applying The Lessons of Matsushita to This Case
As just indicated, two important circumstances underlying the Court's decision in Matsushita were (1) that the plaintiffs' theory of conspiracy was implausible and (2) that permitting an inference of antitrust conspiracy in the circumstances "would have the effect of deterring significant procompetitive conduct." In re Coordinated Pretrial Proceedings, 906 F.2d at 439 (emphasis added to reflect tenor of court's holding). In particular, the Matsushita Court worried that if it allowed mistaken inferences to be drawn from the defendants' price-cutting policies, it would chill procompetitive behavior. See Matsushita, 475 U.S. at 594, 106 S. Ct. at 1360. Thus, the Court stated that the acceptable inferences which can be drawn from circumstantial evidence vary with the plausibility of the plaintiffs' theory and the dangers associated with such inferences. See id. at 587, 594, 106 S. Ct. at 1356, 1360; see also In re Coordinated Pretrial Proceedings, 906 F.2d at 439-40 (noting that Court's concern in Matsushita about deterring procompetitive behavior led to limitations on inferences it was willing to make).
Here, in stark contrast with the circumstances in Matsushita, the plaintiff's theory of conspiracy is not implausible. In fact, it makes perfect economic sense. In particular, if Petruzzi's IGA is correct, the defendants' action would enable them to make profits that the free market would not allow them, in both the short-run and the long-run. Because the defendants provided a homogeneous service,*fn6 the only true basis for competition among them was price. Therefore, the only way for the defendants to curtail competition was by agreement. Moreover, because the sellers were selling a by-product of their everyday operations that required Disposition, they had an inelastic supply curve, i.e., the amount they were willing to sell was not highly dependent on the price they were offered, and they did not have much bargaining power absent competition from the renderers. See Richard A. Posner, Economic Analysis of Law 267-68 (3d ed. 1986) (discussing factors that make collusion likely).
Also in direct contrast to Matsushita, the defendants' challenged activities are not procompetitive. After all, refusing to bid on accounts hardly can be labelled as the "very essence of competition." Matsushita, 475 U.S. at 594, 106 S. Ct. at 1360. Therefore, given the circumstances of this case, more liberal inferences from the evidence should be permitted than in Matsushita because the attendant dangers from drawing inferences recognized in Matsushita are not present.
Nonetheless, the mere facts that a plaintiff alleges a plausible conspiracy and that that allegation does not threaten to chill procompetitive behavior do not mean that there are no restrictions on the inferences that can be drawn from the evidence it puts forward. For example, the cases indicate that a plaintiff cannot withstand a summary judgment motion by establishing only consciously parallel behavior on the part of the defendants. See Theatre Enters., Inc. v. Paramount Film Distrib. Corp., 346 U.S. 537, 541, 74 S. Ct. 257, 259-60, 98 L. Ed. 273 (1954); In re Japanese Elec. Prods., 723 F.2d at 304. Instead, in a conscious parallelism case, a plaintiff also must demonstrate the existence of certain "plus" factors, for only when these additional factors are present does the evidence tend to exclude the possibility that the defendants acted independently. See In re Japanese Elec. Prods., 723 F.2d at 304.
C. The Lessons of Matsushita - Part Two
In its decision, the district court stated that if a plaintiff provided direct evidence of a conspiracy, then the strictures of Matsushita did not apply. Opin. at 12; see also In re Coordinated Pretrial Proceedings, 906 F.2d at 440-41 (drawing this Conclusion). This statement is undeniably true, for no inferences are required from direct evidence to establish a fact and thus a court need not be concerned about the reasonableness of the inferences to be drawn from such evidence. However, this Conclusion does not mean that all circumstantial evidence should be treated alike. Rather, the focus in Matsushita was on ambiguous evidence, see Matsushita, 475 U.S. at 588, 106 S. Ct. at 1356 ("But antitrust law limits the range of permissible inferences from ambiguous evidence in a § 1 case."), and what inferences reasonably could be drawn from that type of evidence. The Supreme Court did not draw a distinction between direct evidence on the one hand and circumstantial evidence on the other. Rather, it stated that in the absence of a plausible theory of conspiracy, a court must consider whether the plaintiff put forward "sufficiently unambiguous" evidence that the defendants conspired. Matsushita, 475 U.S. at 597, 106 S. Ct. at 1362. Therefore, in section 1 cases, it is unnecessary for a court to engage in the exercise of distinguishing strong circumstantial evidence of concerted action from direct evidence of concerted action for both are "sufficiently unambiguous."*fn7 Moreover, in this case, such an exercise is doubly unnecessary because Petruzzi's IGA's theory is not implausible.
Before detailing the evidence put forward by Petruzzi's IGA, we pause to stress the nature of its allegations because it is important to keep it in mind when considering the evidence. Although Petruzzi's IGA alleges that the defendants' actions had an impact on prices, it does not contend that the defendants conspired to fix prices per se. Also Petruzzi's IGA's ultimate goal is not to prove that the defendants priced predatorily. Rather, it seeks to show only that the defendants conspired to allocate customers so that once a renderer had won or "loaded" an account, competition for that account effectively ceased. Thus, with respect to the evidence relating to pricing, Petruzzi's IGA does not need to show that prices across the industry were suspiciously similar, or that the defendants priced predatorily. Rather, it need demonstrate only that the prices paid by the defendants differed significantly between new and existing accounts for such data would be consistent with its theory that competition was restrained unlawfully only on existing accounts.
In essence, Petruzzi's IGA contends that the defendants created a cartel to ensure that prices for raw materials would be artificially low. Game theory teaches us that a cartel cannot survive absent some enforcement mechanism because otherwise the incentives to cheat are too great. See Posner, supra, at 265-66; George J. Stigler, A Theory of Oligopoly, in The Organization of Industry 39, 42-44 (1968). Here, Petruzzi's IGA contends that the defendants enforced their agreement by "targeting" the noncomplying companies, i.e., bidding on their accounts predatorily. Thus, to the extent that there is testimony regarding the defendants pricing above market, it is relevant not to establish a predatory pricing violation by a particular defendant, but to show the enforcement mechanism used by the defendants to enforce their agreement. Instances of predatory pricing, therefore, are circumstantial evidence that an unlawful agreement exists.
With this background, we now turn to the evidence put forward by Petruzzi's IGA. We consider this evidence as a whole and with the reasonable inferences that we can draw from it. Such a consideration reveals that while a reasonable jury could conclude that Darling and Moyer acted in concert, it could not find that Standard took part in this conspiracy.
1. Testimony of an Agreement between Moyer and Darling
Howard Salisbury, a solicitor for Moyer during the early 1980s, testified that Moyer followed a "code" in not soliciting the accounts of other renderers, particularly Darling. Likewise, Ralph Ebersole testified that representatives of Moyer and Darling discussed price-fixing and other customer problems while at National Renderers Association (NRA) meetings. The district court dismissed the significance of their testimony, however, stating that neither man knew whether this adherence to the "code" flowed from conversations between representatives of the defendants. Rather, the district court said that all that could be inferred from these statements was that Moyer adhered to a code of noninterference. Opin. at 23-24. Our reading of the record shows otherwise.
Salisbury signed a written statement stating, "I did not bother Darling accounts. Mr. Sage [a high-level Moyer solicitor] told me on at least two occasions that there was a mutual agreement and understanding with Darling, not to bother their accounts." App. at 2228 (emphasis added). When discussing this statement during his deposition, Salisbury stated that Sage told him: "there was an understanding." App. at 2212. While Salisbury later testified that he was not told of any understanding or agreement that Moyer had with any other company, App. at 2216, he did not retract his statement as to Darling.*fn8 In fact, Salisbury testified:
I told [Mr. Rubin and Mr. Keiser, lawyers for Petruzzi's IGA] that there was an agreement or understanding. I also explained to Mr. Kaiser (sic) it has been going on ever since I have been in the business. Ever since 1969. It was something that everybody done (sic).
Like Salisbury, Ralph Ebersole also provided evidence of an agreement between Moyer and Darling. Ralph Ebersole was the Director of Marketing for Finished Products at Moyer from 1974 to 1979. He took this job after his company sold out to Moyer, but he left to start his own company once his five-year contract with Moyer was up. Because he was not involved directly with the purchase of raw materials, Ebesole's testimony relates mostly to the meetings between other renderers at the NRA meetings which he attended.
Ebersole testified at his deposition that he is not currently a member of the NRA because he did not agree with what went on in those meetings, e.g., Discussions about "keeping prices down." App. at 843. He testified that while attending the NRA meetings for Moyer, he saw John Hendricks of Moyer and Earl Englemyer of Darling discussing customer problems. App. at 846-47, 899. He also testified that Sage of Moyer and Englemyer discussed inquiries that Moyer was receiving from Darling's customers relating to the prices they were being paid. Sage apparently informed Englemyer that Moyer could not explain to Darling's customers why it would not pick up the raw materials from them. App. at 852. From this testimony, a reasonable jury could conclude that Moyer and Darling were acting in concert.
Moreover, Ebersole's testimony suggests that Moyer did not limit its attempts to conspire to Darling. Ebersole testified that a principal at Southern Tier, a renderer which is not a party to this action, informed him that Sage approached him about working out a relationship in which each company would stay away from the other's customers. App. at 860.*fn9 He further testified about overhearing conversations between Sage and Ryder principals about not soliciting the accounts of others. App. at 866-67. While neither Ryder nor Southern Tier are defendants, this testimony does suggest that Moyer pursued a course ...