Quality Discount Tires, Inc. v. Firestone Tire & Rubber Co.

Eldridge, J., delivered the opinion of the Court. This is the first case to reach this Court involving the Maryland Antitrust Act, Maryland Code (1975, 1977 Cum. Supp.), §§ 11-201 — 11-213 of the Commercial Law Article. The plaintiff in a private action under that statute here challenges the granting of the defendant’s motion for a directed verdict.

The testimony developed at trial tended to establish that in September 1972, Quality Discount Tires, Inc., the plaintiff, entered into a dealership agreement with the Firestone Tire and Rubber Company, the defendant. 1 According to the terms of the agreement, Firestone, inter alia, was obligated to sell tires to Quality at the “Company’s regular Direct Dealer Prices” and to allow Quality to participate, along with other dealers, in cooperative advertising paid for in part by Firestone. This agreement could be cancelled by either party without cause upon 60 days’ written notice. In March 1973, Quality was excluded from Firestone’s advertising program. In April 1973, Quality instituted this action in the Circuit Court for Baltimore County under the Maryland Antitrust statute, seeking damages for the exclusion from the advertising program.

Quality alleged that this exclusion was in furtherance of a price-fixing arrangement and that Firestone, consequently, had violated § 11-204 (a) (1) which prohibits a person, by contract, combination, or conspiracy with one or more other persons, ¹⁰ from unreasonably restraining trade or commerce. Specifically, Quality brought the action pursuant to § 11-209 (b) (2), which provides that a “person whose business or property has been injured ... by a violation of § 11-204 may maintain an action for damages ... against any person who has committed the violation.” In May 1973, Firestone gave formal notice to Quality that it would be terminated as a Firestone dealer, effective July 1973. Quality then amended its declaration, seeking damages for the termination of its dealership as well as for its exclusion from the cooperative advertising. Thereafter, following extensive discovery, the case came on for trial.

At the close of the plaintiffs evidence, the trial court granted Firestone’s motion for a directed verdict on the grounds (1) that Quality had failed to establish any violation of § 11-204 (a) (1), and (2) that Quality had failed to establish . that it had been damaged by Firestone’s actions. Quality took an appeal to the Court of Special Appeals. Before any proceedings in that court, we granted Quality’s petition for a writ of certiorari. Quality argues that the motion for directed verdict was improperly granted.

In addition, Quality argues that several pre-trial orders relating to discovery and other procedural matters were in error. (1) Whether There Was Evidence of a Statutory Violation In 1972, the General Assembly adopted the Maryland Antitrust Act. 2 The purpose of the Act is to “complement the body of federal law governing restraints of trade,” and the General Assembly stated its intent that “in construing this subtitle, the courts be guided by the interpretation given by the federal courts to the various federal statutes dealing with the same or similar matters.” Section 11-202 (a). ¹¹ In the instant case, Quality alleges that Firestone violated § 11-204 (a) (1) of the Act, which provides that “[a] person may not... [b]y contract, combination, or conspiracy with one or more other persons, unreasonably restrain trade or commerce ...The federal analogue to this provision is § 1 of the Sherman Antitrust Act of July 2, 1890, 26 Stat. 209 , as amended, 15 U.S.C. 1, which states that every “contract, combination ... or conspiracy, in restraint of trade or commerce... is declared to be illegal.” Quality maintains that its termination as a Firestone dealer was an act by Firestone in furtherance of a “contract, combination, or conspiracy” among Firestone and several Firestone dealers in the Baltimore metropolitan area; that the purpose and result of this conspiracy or arrangement was “restraint of trade” in the form of resale price maintenance of Firestone products; and that its termination was, as a consequence, in violation of the Maryland Antitrust Act. The trial judge, in granting Firestone’s motion for a directed verdict, stated: “There is no evidence in this case to submit to a jury of ‘a conscious commitment to a common scheme’ that would in any way show that there was a contract, combination, or any type of conspiracy.” In ruling on a motion for a directed verdict, a court is required to “assume the truth of all credible evidence in the case tending to sustain the contentions of the party against whom the verdict is directed as well as all inferences of fact reasonably and fairly deducible therefrom.” Durante v. Braun, 263 Md. 685, 689 , 284 A. 2d 241 (1971). These facts and inferences must be viewed in the light most favorable to the party against whom the directed verdict is sought, that is, all conflicts must be resolved in his favor, and if “there is any legally relevant and competent evidence from which a rational mind can infer a fact at issue,” the motion for a directed verdict must be denied, Yommer v. McKenzie, 255 Md. 220, 228 , 257 A. 2d 138 (1969).

Accord, Beahm v. Shortall, 279 Md. 321, 341-343 , 368 A. 2d 1005 (1977); Levine v. Rendler, 272 Md. 1, 12 , 320 A. 2d 258 (1974). ¹² Quality argues that granting the motion for a directed verdict was error for two reasons. First, Quality maintains that, viewed in the light most favorable to it, evidence was adduced on the basis of which a jury could have reasonably found a “conscious commitment to a common scheme” in violation of the antitrust laws by Firestone and the Firestone dealers. Second, Quality insists that it is not, in any event, necessary to show “a conscious commitment to a common scheme” in order to establish a combination in violation of the antitrust laws, and that sufficient evidence was adduced, under the correct rule of law, to establish a violation. Firestone, on the other hand, arguing for the legal standard employed by the trial court, insists that “Quality needed to prove that Firestone and its alleged co-conspirators consciously agreed or conspired to fix price and that Firestone terminated Quality pursuant to that conspiracy; it needed to prove a conscious commitment to a common scheme.” (Respondent’s brief, p. 42.) In light of the provision of the Maryland Antitrust Act that, in construing this statute, courts be guided (but not bound) by the opinions of the federal courts under the federal antitrust laws, it would be appropriate to briefly review the history of resale price maintenance cases under the Sherman Antitrust Act.

In Dr. Miles Medical Co. v. John D. Park & Sons, 220 U. S. 373 , 31 S. Ct. 376 , 55 L. Ed. 502 (1911), Dr. Miles, a drug manufacturer, had attempted to control the prices at which wholesalers and retailers sold its products by means of “consignment contracts” and “retail agency contracts.” Although the prices fixed by these contracts were not excessive, the Court held them unenforceable on the ground that they had the effect of forming a combination destructive of competition and hence were agreements in restraint of trade under § 1 of the Sherman Act. 3 ¹³ This holding was affirmed in United States v. Schrader's Son, Inc., 252 U. S. 85, 99 , 40 S. Ct. 251 , 64 L. Ed. 471 (1920), where the Court stated that when one “enters into agreements [to fix resale prices]—whether express or implied from a course of dealing or other circumstances,” a basis for a Sherman Act violation exists. However, the antitrust laws prohibit more than those restraints of trade which arise by the agreements of the participants. As the Court stated in Federal Trade Commission v. Beech-Nut Packing Co., 257 U. S. 441, 455 , 42 S. Ct. 150 , 66 L. Ed. 307 (1922), a resale price maintenance case, the presence vel non of an agreement is not the touchstone of an illegal combination under the antitrust laws: “The specific facts found show suppression of the freedom of competition by methods in which the company secures the cooperation of its distributors and customers, which are quite as effectual as agreements express or implied intended to accomplish the same purpose.” (Emphasis supplied.) Recently in Albrecht v. Herald Company, 390 U. S. 145, 149 , 88 S. Ct. 869, 871 , 19 L.Ed.2d 998 (1968), a case involving the termination of a newspaper carrier for failure to observe pricing policies, the Supreme Court reiterated that § 1 of the Sherman Act “covers combinations in addition to contracts and conspiracies, express or implied.” Accord, United States v. Parke, Davis and Company, 362 U. S. 29 , 80 S. Ct. 503 , 4 L.Ed.2d 505 (1960); United States v. Bausch & Lomb Optical ¹⁴ Co., 321 U. S. 707 , 64 S. Ct. 805 , 88 L. Ed. 1024 (1944); Osborn v. Sinclair Refining Company, 286 F. 2d 832 (4th Cir. 1960), cert. denied, 366 U. S. 963 , 81 S. Ct. 1924 , 6 L.Ed.2d 1255 (1961), 324 F. 2d 566 (4th Cir. 1963). There is one very limited set of circumstances under which a seller, without violating the Sherman Act, may terminate a dealer for failing to adhere to pricing practices.

In United States v. Colgate & Co., 250 U. S. 300 , 39 S. Ct. 465 , 63 L. Ed. 992 (1919), the Court stated that a seller may announce in advance that he will refuse to deal with any retailers who fail to abide by the seller’s announced pricing policies. The Court stated that § 1 of the Sherman Act does not restrict the right of a trader or manufacturer “freely to exercise his own independent discretion as to parties with whom he will deal; and, of course, he may announce in advance the circumstances under which he will refuse to sell.” ( 250 U. S. at 307 .) However, in later cases, the Supreme Court has made it clear that the Colgate principle is very narrow, Albrecht v. Herald Company, supra, 390 U. S. at 148-149 ; United States v. Parke, Davis and Company, supra, 362 U. S. at 36-47 ; United States v. Bausch & Lomb Optical Co., supra, 321 U. S. at 721-723 ; Federal Trade Commission v. Beech-Nut Packing Co., supra, 257 U. S. at 451-455 ; United States v. Shrader’s Son, Inc., supra, 252 U. S. at 98-100 . In United States v. Parke, Davis and Company, supra, involving activity by a drug manufacturer to promote compliance by drugstores with its suggested retail prices, the Supreme Court, after reviewing the resale price maintenance cases subsequent to Colgate, stated ( 362 U. S. at 43 ): “Thus, whatever uncertainty previously existed as to the scope of the Colgate doctrine, Bausch & Lomb and Beech-Nut plainly fashioned its dimensions as meaning no more than that a simple refusal to sell to customers who will not resell at prices suggested by the seller is permissible under the Sherman Act. In other words, an unlawful combination is not just ¹⁵ such as arises from a price maintenance agreement, express or implied; such a combination is also organized if the producer secures adherence to his suggested prices by means which go beyond his mere declination to sell to a customer who will not observe his announced policy.” The Court in Parke, Davis went on to acknowledge that a manufacturer’s mere announcement of a resale price policy and simple refusal to sell to those not adhering to that policy, has the same economic effect as conduct proscribed by the Sherman Act, and the Court emphasized that this result would be “tolerated” only in one situation ( 362 U. S. at 44 ): “True, there results the same economic effect as is accomplished by a prohibited combination to suppress price competition if each customer, although induced to do so solely by a manufacturer’s announced policy, independently decides to observe specified resale prices.

So long as Colgate is not overruled, this result is tolerated but only when it is the consequence of a mere refusal to sell in the exercise of the manufacturer’s right ‘freely to exercise his own independent discretion as to parties with whom he will deal.’ When the manufacturer’s actions, as here, go beyond mere announcement of his policy and the simple refusal to deal, and he employs other means which effect adherence to his resale prices, this countervailing consideration is not present and therefore he has put together a combination in violation of the Sherman Act.” The United States Court of Appeals for the Second Circuit, after reviewing Parlce, Davis and the other Supreme Court cases circumscribing the Colgate doctrine, said regarding a seller’s “right” to terminate a dealer for refusing to adhere to price maintenance policies (George W. Warner & Co. v. Black & Decker Mfg. Co., 277 F. 2d 787, 790 (2d Cir. 1960)): “The Supreme Court has left a narrow channel ¹⁶ through which a manufacturer may pass even though the facts would have to be of such Doric simplicity as to be somewhat rare in this day of complex business enterprise.” Consequently, the legal standard argued for by Firestone in the instant case, namely that Quality had to prove that Firestone and co-conspirators “consciously agreed or conspired to fix prices,” is not the proper standard to be employed in a case such as this. 4 Instead, in a case involving a seller’s termination of a dealer because of the latter’s refusal to conform to resale price maintenance policies, a combination in restraint of trade is created where the termination is not the result of the seller’s own “independent discretion as to the parties with whom he will deal” or where the seller employs means to effect adherence to resale prices which “go beyond mere announcement of his policy and the simple refusal to deal.” United States v. Parke, Davis and Company, supra, 362 U. S. at 44 . Turning to the facts of this case, we agree with Quality’s contention that evidence was adduced which, viewed in the light most favorable to it, would allow a jury to reasonably conclude that Firestone created a combination in restraint of trade. Testimony was presented at trial which tended to establish the following facts.

Firestone published and distributed to its dealers a suggested list price for its products. According to the testimony of Robert Settle, president of Westminster Tire & Service, Inc., a Firestone dealer, “the tire dealers in the Firestone chain, normally we go by the recommended tire ¹⁷ prices — the guide which we are sent every month or so.” 5 Quality, however, at some point determined that it would be to its advantage to sell Firestone products at prices lower than those of competing dealers. Consistent with this policy, Quality planned to run an independent series of relatively large newspaper advertisements offering Firestone products at discount prices. The first of the proposed large advertisements was shown to Clark Chapman, an official of Firestone, who assisted Quality in preparing the advertisement.

According to Chapman, no suggestion was ever made that Quality could not or should not advertise or sell its products at less than Firestone’s suggested retail price. Subsequently, the advertisement was published. On the same day and in the same paper, there appeared a cooperative Firestone advertisement offering to sell Firestone products at prices higher than those contained in Quality’s advertisement. Five independent Firestone dealers, along with Quality, participated in this advertisement.

Firestone paid for three-quarters of the cost of this advertisement, and it advertised the locations of several Firestone stores (retail outlets owned and operated by Firestone) as well as the locations of independent Firestone dealers. The cooperative Firestone advertisement contained, in addition, the following statement: “Priced as shown at Firestone Stores. Competitively priced at Firestone Dealers and at all service stations displaying the Firestone sign.” (Emphasis supplied.) Despite the fact that the cooperative advertisement stated that the advertised products were “competitively priced at Firestone dealers,” on the day following the appearance of the advertisement, at least three of the five participating ¹⁸ dealers called both Clark Chapman and Thomas Stevens, then a Firestone manager for part of the Baltimore area, complaining about the prices quoted in Quality’s independent advertisement. Robert Settle, one of the dealers who called Chapman, in testifying to what he remembered of the conversation, stated that “it just under-priced what the whole Baltimore dealers are running; running slightly under, which I am up in Westminster.” Similarly, Raymond Nelson, an employee of another Firestone dealer, Flood Firestone in Annapolis, testified that after a customer had complained to him about Quality’s lower price, he called a Firestone representative and said, in effect, “Why would he sell at one price and we have been selling at another price?” Further, there was testimony which indicated that Marvin Schnitzer, a third Firestone dealer who operated three retail stores in the Baltimore area, had spoken to a Firestone representative with the intent of discovering whether “any steps were being taken to assure that this kind of thing didn’t happen again,” inasmuch as “if this matter were continued to be run, that his business would naturally suffer, because as he pointed out, that naturally the people would go to the place which was running the lowest price.” Clearly, the jury could infer from this testimony that the independent Firestone dealers attached no significance whatsoever to the phrase “competitively priced at Firestone dealers,” and that they understood participation in the cooperative advertising to involve an arrangement to sell at the prices there advertised.

The immediacy of the complaints, the content of the complaints, and the fact that at least three of the five participating dealers were complainants support this inference. Chapman testified that when these complaints were communicated to Thomas Stevens, Stevens said, “I will look into it.” The same morning, Stevens called Joseph Soley, president of Quality. Mr. Soley reported the conversation as follows: “It seemed like all hell broke loose.... He felt that we were wrong definitely to advertise even if it was 25 cents below the other dealers. ...

It led to the ¹⁹ fact that if we didn’t change our ways, or conform, to what he called a Firestone family ... that it could result in our cancellation.... He did ask about what we planned to do, and I think I made it clear when I said we are not part of Firestone’s family ... and I said we really want to be independent dealers.” (Emphasis supplied.) In a deposition, introduced into evidence at trial, taken two years prior to the trial, Stevens testified as follows regarding this telephone conversation: “Q. Who initiated the conversation? “A. I believe I did.... “Q. How did the conversation begin? “A. Called Soley and asked him why he would run an ad in conflict in the same newspaper on the same date in a different section of the paper at different prices.... “Q. And what did he reply? “A. His reply was, well, why, am I upsetting anybody? “Q. What was your reply to that? “A. I said it didn’t make good business sense to advertise in one portion of the paper, a given tire, and given price, and advertise the same tire at a lower price in a separate section of the paper.. .. “Q. How did the conversation end? “A. ... My conversation ended in that Mr. Soley, I am going to initiate a letter of termination of your dealership agreement with Firestone.” Termination proceedings were subsequently instituted, and Quality was immediately dropped from Firestone’s cooperative advertising program. Thus, viewing the evidence in the light most favorable to Quality, we are faced with the following sequence of events: (1) Firestone, knowing in advance of Quality’s intention to ²⁰ advertise and sell at discount prices, made no objections; (2) Quality advertised Firestone products at prices lower than competing Firestone dealers; (3) these competing dealers immediately complained to Firestone; (4) Firestone, after promising to “look into it,” called Quality, threatening to terminate its dealership arrangement unless Quality conformed to existing price levels; (5) Quality refused and was terminated by Firestone.

A jury could reasonably infer from these facts the existence of an agreement between Firestone and its independent dealers to maintain resale prices at a given level, and an agreement by Firestone to enforce this pricing policy by taking action against offending dealers. 6 This is sufficient to establish a termination of a dealership in violation of the antitrust laws. As the United States Court of Appeals for the Ninth Circuit stated in a dealer termination case presenting similar evidence, “We would think that a typical case of illegal conspiracy to fix prices would arise from the desire of one dealer to eliminate his price cutting competitor through concerted action with the manufacturer. The simplicity of the case claimed by the appellant is no argument against him.” Girardi v. Gates Rubber Company Sales Division, Inc., 325 F. 2d 196, 200 (9th Cir. 1963). However, even discounting this permissible inference of actual agreement or conspiracy, the evidence is more than adequate to sustain an inference of the existence of an illegal combination under the standards set forth in United States v. Parke, Davis and Company, supra.

It is clear that the jury ²¹ could infer that the termination by Firestone of its dealership arrangement was caused by Quality’s pricing practices. On the other hand, the testimony suggests that Firestone only took an interest in Quality’s pricing practices at the instance of the complaining dealers who were concerned about the effects of price competition. By responding to those dealers as it did, Firestone entered into a combination or arrangement whose purpose was the fixing of prices. See United States v. General Motors Corp., 384 U. S. 127 , 86 S. Ct. 1321 , 16 L.Ed.2d 415 (1966); Girardi v. Gates Rubber Company Sales Division, Inc., supra.

From the evidence that Firestone initially acquiesced in Quality’s independent advertisement and that Firestone’s later actions were performed at the instance of the complaining dealers, the jury could infer that Firestone’s termination of Quality was not “the exercise of a manufacturer’s right freely to exercise his own independent discretion” in merely announcing his policy and refusing to deal with those not adhering, United States v. Parke, Davis and Company, supra, 362 U. S. at 44 , emphasis supplied. Thus, the “countervailing considerations” which give rise to the Colgate exception would here be absent, and Firestone’s combination with the independent dealers would be in restraint of trade. Additional testimony provided a basis on which a jury could find that Firestone, in yet another way, exceeded the limited Colgate dispensation. Robert