Rossi v. Standard Roofing Inc (Part II) , 156 F.3d 452 ( 1998 )

Opinions of the United
1998 Decisions States Court of Appeals
for the Third Circuit
9-9-1998
Rossi v. Standard Roofing Inc (Part II)
Precedential or Non-Precedential:
Docket 97-5185
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Volume 2 of 2
Filed September 9, 1998
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NO. 97-5185
JOSEPH ROSSI; ROSSI FLORENCE, CORP.;
ROSSI ROOFING, INC.,
Appellants
v.
STANDARD ROOFING, INC.; ARZEE ROOFING SUPPLY
CORP.; GAF CORPORATION; ALLIED ROOFING, INC.;
SERVISTAR CORP.; ROBERT HIGGINSON; HARDWARE
WHOLESALERS, INC.; WILLIAM HIGGINSON;
CERTAINTEED CORP.; WOLVERINE CORP.; NAILITE
CORP.; ESTATE OF ROBERT HIGGINSON; AL ROTH;
CARY ROTH; JOSEPH LICCIARDELLO; WOOD FIBRE
INDUSTRIES, INC.
On Appeal From the United States District Court
For the District of New Jersey
(D.C. Civ. No. 92-cv-05377)
Argued: November 6, 1997
Before: BECKER, ROTH, Circuit Judges and
DIAMOND, District Judge.*
(Filed September 9, 1998)
_________________________________________________________________
* Honorable Gustave Diamond, United States District Judge for the
Western District of Pennsylvania, sitting by designation.
Finally, another former employee at Standard, Michael
Hydro, testified that GAF comprised eighty percent of his
sales while he worked there and at least five of Standard's
customers purchased exclusively GAF product. He also
explained that in 1989 and 1990, a large number of
townhouse projects were already "spec'd" with GAF
product, which made it impossible for the roofers to switch
product lines mid-stream. Thus, anyone who could not
supply GAF product was effectively barred from bidding for
these jobs. On the basis of all of this evidence, we believe
that Rossi has demonstrated that a genuine issue of
material fact exists as to whether GAF product was special,
and necessary for a distributor like Rossi to successfully
compete in northern New Jersey.
Against this background on the roofing market in general
and GAF 's place in the market in particular, we move to
the evidence Rossi adduced that GAF used secret rebates
with several of its biggest distributors in northern New
Jersey, including Standard, Arzee, and Allied, for that is
critical to understanding the motivations of Rossi's
horizontal competitors. Pursuant to this scheme, GAF
provided these distributors off-invoice, non-volume
discounts on their purchases. These "rebates," assuming
they were only offered to a few favored distributors as Rossi
contends, allowed those distributors to sell GAF product at
or below the prevailing market price (as set by the
distributors who did not receive the discounts) while
secretly conspiring to pocket the difference. In GAF district
sales manager Bud Krusa's words, "the less [sic] people
[who] knew about it [the discounts], the less chance you
[the smaller distributors] have of getting it[and] dropping
the entire market price." The most favorable inference we
can draw for Rossi from Krusa's statement is that if these
highly secret rebates became widely known, the smaller
distributors who were not receiving rebates would have put
pressure on GAF to receive equal treatment, and that this
shakeup of the market could ultimately destabilize prices,
lead to a price war, and "drop[ ] the entire market price" for
GAF product.
By adducing evidence of the GAF rebate scheme and the
importance of GAF and GAF product, Rossi transforms
42
what might otherwise have been a very difficult (and
implausible) conspiracy into a realistic opportunity for a few
cooperating competitors to fix prices and earn substantial
profits while still operating within what appears to be a
competitive marketplace. Cf. Brooke Group Ltd. v. Brown &
Williamson Tobacco Corp., 509 U.S. 209, 239 (1993)
(holding that a conspiracy to fix supra-competitive prices in
a market with many variables was implausible because of
the complexity required to monitor and enforce it) (citations
omitted).
We find this case, as it relates to GAF, Standard, and
Arzee, fundamentally unlike Matsushita. There, the critical
problem with the conspiracy as alleged was that the
conspirators had been losing large sums of money over a
period of twenty plus years by undercutting the market in
the hope of building market share and eventually
establishing a monopoly. Not only did the Courtfind it
difficult to distinguish the allegedly predatory pricing
strategy from actual price competition, but given the
extremely low chance that the scheme would succeed, the
Court concluded that the defendants, if they operated in a
rational manner, had no motive to engage in the conduct
with which they were charged. In contrast, it is not difficult
to divine the likely motive of the three distributors,
Standard, Arzee, and Allied, in boycotting Rossi. As Rossi's
horizontal competitors, they wanted to rid the market of a
price-cutting competitor with a reputation for excellent
service and reliability who had refused to cooperate in their
price-fixing schemes in the past. Moreover, Rossi is aided in
asking us to permit the fact finder to draw this inference by
the strong likelihood that the boycott would actually
succeed (as evidenced by the results).
Even if all of this is true, submits GAF, it still does not
explain why it would make sense for GAF to join the
conspiracy. We agree that GAF 's motive, as the
manufacturer-supplier, is less obvious than Standard's or
Arzee's, but ultimately we find it no less compelling. This is
because Rossi has adduced evidence that Standard, Arzee,
and Allied possessed substantial economic leverage over
GAF. Together, they purchased $10.7 million of the $24.1
million of GAF product sold in New Jersey in 1989, or
43
44.5% of GAF 's total northern New Jersey sales. These
distributors were not happy about the prospects of Rossi
entering the market and competing with them, and they
made their views known to GAF. Complaints and threats
from three of GAF's largest customers in New Jersey are
sufficient to establish a rational motive for GAF to engage
in the concerted conduct that Rossi alleges. For these
reasons, we do not accept GAF's submission that Rossi's
conspiracy theory, and the economic motivations behind it,
are inherently implausible.
(2) Circumstantial Evidence Against GAF
We turn next to the circumstantial evidence that
supports Rossi's allegations that GAF joined with Standard
and Arzee (and potentially others) to enforce a market-wide
boycott of first Rossi Florence and later Rossi Roofing, The
evidence comes in several forms. First, as we will detail,
Rossi has adduced evidence that GAF received numerous
complaints about Rossi's pricing practices while he was at
Standard and responded to them by asking Rossi to raise
his resale prices on GAF product. While these complaints
antedate Rossi entering the marketplace, they are useful
background information to establish motive and practice.
See Big Apple BMW, 974 F.2d at 1360-61.
Second, GAF participated in the group boycott against
Rossi through monitoring and enforcement activities and
the implementation of an unprecedented anti-trans-
shipment policy. Third, there is evidence that GAF singled
out Rossi and acted contrary to its own corporate policy in
refusing to deal with him (an important factor under
Monsanto and Matsushita), in that GAF employees testified
that the company had an "open distribution" policy under
which they sold to all comers, yet GAF refused to sell to
Rossi and went to considerable lengths to see that he was
not able to secure GAF product from other sources. Finally,
Rossi has also adduced evidence that two of GAF 's
explanations why it refused to deal with him -- that it had
adequate distribution in New Jersey and product shortage
-- were pretextual.
44
(a) Distributors' Complaints and GAF's Response
While Rossi worked at Standard, the company received,
as did Arzee and Allied, the off-invoice, non-volume rebates
discussed supra. Rossi used these rebates to reduce the
prices he charged to his customers in an effort to increase
sales volume; he did not, as his competitors did, retain the
rebates to increase gross profits. This aggressive price-
cutting strategy understandably angered Standard's
competitors, and several of them complained to GAF about
Rossi's behavior. Krusa and Licciardello, both then working
as GAF district sales managers in the New Jersey region,
frequently called Rossi at Standard and passed along the
complaints of Arzee, Allied, Passaic Metals and others
about Rossi's pricing. Krusa and Licciardello also called
Bob Schaab, the Controller of Standard, to complain that
Rossi was passing on the discounts given by GAF to
Standard to his customers.
Although GAF did not have suggested resale prices,
Krusa and Licciardello told Rossi to raise his resale prices
for GAF product. Schaab, relaying GAF's messages, also
asked Rossi to refrain from passing the GAF rebates to
Standard's customers. Rossi refused, and vowed to price as
he saw fit. This evidence suggests several things. First, it
reaffirms the motives of Rossi's horizontal competitors,
Arzee and to a lesser extent Standard. Second, it shows
that a group of distributors (even a group that did not
include Standard) could wield economic leverage over GAF
and influence its interactions with recalcitrant distributors.
Third, it suggests that GAF's course of conduct was to
curry favor with its larger distributors by doing what it
could to assist them in stabilizing the market and keeping
price levels up.
We agree with GAF that evidence that it succumbed to
pressure from distributors is not sufficient, by itself, to
survive summary judgment, since the evidence of
complaints and threats GAF received from Standard and
Arzee is not enough in isolation to prove concerted action.
See Monsanto, 465 U.S. at 763-64 ("[p]ermitting an
agreement to be inferred merely from the existence of
complaints, or even from the fact that termination came
about `in response to' complaints, could deter or penalize
45
perfectly legitimate conduct."); Sweeney, 637 F.2d at 111.
However, we do not rely solely on these complaints. Rather,
there is a substantial amount of additional evidence to
support a finding of an unlawful conspiracy. In this
circumstance, we are permitted to consider the evidence of
distributor complaints. See Monsanto, 465 U.S. at 764 n.8
("We do not suggest that evidence of complaints has no
probative value at all, but only that the burden remains on
the antitrust plaintiff to introduce additional evidence
sufficient to support a finding of an unlawful contract,
combination, or conspiracy.").
(b) Actions in Contravention of GAF Corporate
Policy
GAF's boycott against Rossi appears to be contrary to its
own corporate policy, particularly in light of the evidence
adduced of GAF's draconian enforcement and anti-trans-
shipment activities. There is testimony in the record that
GAF had an open distribution system. Peter Bacchione,
GAF 's director of marketing and sales and Krusa's superior
in 1989, testified that GAF never had a closed distribution
network and never rejected a potential distributor because
the local market was saturated. Bacchione testified:
Q: Do you recall in 1989 whether GAF, with respect to
the roofing products that you had responsibility for,
had any particular objectives with respect to
increasing, decreasing, or otherwise, its distribution
channel.
A: . . . We always looked to increase our share of
business with any distributor.
Q: Did GAF have any exclusive distributors for roofing
products while you were national sales director?
A: No.
* * *
Q: Wasn't GAF's philosophy to have an open
distribution network?
* * *
46
A: Maybe it was -- maybe it was a philosophy. A
practice. Whether it was a philosophy that was up on
a wall some place, I don't recall that.
Q: Was it the practice?
A: Generally, we sold on an open basis. There were no
exclusivities.14
This testimony directly contradicts GAF's litigation
position as stated by Krusa, who has maintained since
1989 that GAF refused to supply Rossi because it had
"adequate distribution."15 Krusa is also contradicted by
Lorraine Campbell, Ruth Rogers, Mary Lou Sperr and Bob
Tafaro, all of whom worked for Krusa, and all of whom
testified that Krusa never told them that GAF had adequate
distribution in New Jersey. Finally, Rossi submits that
Krusa is contradicted by the fact that GAF supplied 34 out
of the 39 distributors in northern New Jersey, and only
refused to sell to three distributors including Rossi Roofing.
On summary judgment, of course, we need not resolve this
dispute, but rather grant Rossi all favorable inferences.
(c) Monitoring and Enforcement Activities
GAF, through Krusa and Licciardello, took still more
steps to ensure that Rossi did not get any GAF product. In
January 1989, when Droesch told Krusa that he planned to
buy GAF product through his Florence Corporation in Long
_________________________________________________________________
14. Bacchione appears to contradict himself during his deposition. For
example, in reference to the decision whether to open up ABC as a
distributor after Rossi Roofing had gone out of business, Bacchione also
said: "The concern was not whether or not to open up another
distributor. The concern was whether or not we had adequate
distribution, I think was the subject at hand. I think we felt there was
adequate distribution. . . . There was not a valid reason to open up
another distributor [next door to Standard]." This contradictory
testimony leads to two possible conclusions, and on summary judgment,
we must accept the one most favorable to Rossi.
15. For example, Krusa allegedly told Droesch in January 1989 that GAF
would not sell to Rossi Florence in New Jersey because it had adequate
distribution. In July 1989, when Krusa prevented Rossi from picking up
an order of GAF product from HWI, Rossi spoke with Krusa who told
him, "The distribution is filled. GAF requires no other distributors."
47
Island and resell it to Rossi Florence, Krusa told Droesch
that "he would not allow that and he would not sell me [sic]
in Long Island if I did that." GAF also warned other
distributors not to resell its products to Rossi, and there is
evidence that, on at least one occasion, GAF took steps to
enforce its boycott. GAF salesmen Sal Granfort and Doug
Collins warned DiNaso & Sons, a roofing and siding
distributor located in Staten Island, New York, not to resell
its product to Rossi. After DiNaso & Sons ignored their
warnings, GAF raised DiNaso's prices by $1.00/unit,
arguably in retaliation. Similarly, when Rossi contacted
Stroeber Supply, another northern New Jersey distributor,
to see if it would sell GAF product to him, Larry
Hammershock of Stroeber told a Rossi Roofing employee
that Stroeber had already been told by GAF not to sell GAF
product to Rossi Roofing. Hammershock defied GAF and
sold to Rossi Roofing anyway, but at a higher price.
There is also evidence that GAF extended the boycott to
buying groups like HWI and Servistar which Rossi began to
use, in addition to distributors like Stroeber and DiNaso, to
try to circumvent the GAF boycott.16 To this end, Rossi
_________________________________________________________________
16. Rossi contests the district court's affirmance of an order by the
magistrate judge, denying his motion to compel GAF to disclose the
names of the entity or entities that were the subject matter of certain
conversations between GAF 's in-house counsel Robert Poyourow and
Krusa on July 27, 1989, August 10, 1989, and January 6, 1990. Rossi
hypothesizes that several of these discussions centered around HWI and
Servistar, and he submits that the district court abused its discretion
when it accepted GAF's description of the "subject matter" of these
conversations on its privilege log as "absence of a legal obligation to
sell
product." We conclude, however, that the district court did not abuse its
discretion by denying Rossi's motion to compel the name of the entity
discussed or any other additional information concerning the "subject
matter" of the conversation catalogued in GAF's privilege log. See
Rabushka v. United States, 122 F.3d 559, 565 (8th Cir. 1997) (standard
of review), cert. denied, Rabushka ex rel. United States v. Crane Co., 118
S. Ct. 1336 (1998). Rule 26(b)(5) only requires that a party claiming a
privilege "describe the nature of the documents, communications, or
things not produced or disclosed in a manner that . . . will enable other
parties to assess the applicability of the privilege or protection." Fed.
R.
Civ. Pro. 26(b)(5). These matters are generally best left to the district
and
magistrate courts' discretion. In the circumstances that exist here, we
will not second guess the courts' conclusion that the description
provided was adequate to support the privilege claim.
48
joined HWI in July 1989 and placed an order for GAF
product. Membership in HWI ordinarily should have
allowed Rossi to purchase products from all of HWI's
suppliers, including GAF. Likewise, GAF normally supplied
its products to all HWI members, regardless of whether
they appeared on GAF's own customer list.
Notwithstanding this, when a Rossi Roofing driver went to
GAF's facility on July 27, 1989, to pick up the GAF
product ordered through HWI, GAF would not release it.
After several hours of wrangling over the order, Rossi
eventually spoke with Krusa, who had given the order not
to release the GAF product. Krusa told Rossi "I am not
selling to you. The distribution is filled. GAF requires no
other distributors." Rossi replied that GAF was not really
selling to Rossi Roofing, but rather to HWI, to which Krusa
responded, "We are not selling to you." After this dramatic
exchange, Dave Heine of HWI remarked that he had never
seen anything like this in his ten years working at the
buying group. App. at 2596, 3513.
In yet another effort to obtain GAF product and
circumvent the boycott, Rossi used Far Hills Lumber and
Hardware ("Far Hills"), a start-up hardware store of which
he was a principal, to place orders through the buying
group Servistar. See supra S II.B.2.a and infra S II.B.2.c.
Rossi was able to purchase one order of $30,000 worth of
GAF product on August 2 and 3, 1989. However, after GAF
and Standard found out that Rossi had used Far Hills and
Servistar to get GAF product, see infra S II.B.2.c, GAF
refused to fill Far Hills' second order for $456 of GAF
product.
Rossi has also adduced evidence that GAF and Standard
coordinated to ensure that Rossi was not getting any GAF
product. See supra S II.B.2.a. Rossi developed evidence that
Licciardello of Standard confirmed with Gessner of GAF
that GAF was not selling to Rossi, and there is evidence
that, after seeing GAF product in front of Rossi Roofing,
Licciardello called and was reassured by GAF that the load
was not for Rossi but bound for Walmart on a Jentar truck.
See id. In addition, there is the statement made by
Licciardello after he learned that Rossi Roofing had been
getting GAF product through Far Hills and Servistar that
49
" `that's the last time we're going to be seeing any GAF
across the street.' They got the -- they were getting the
loads through [Far Hills], which is [Servistar]. That's how
Joe Rossi was getting GAF and he's [Licciardello] going to
put an end to that. `Never going to see another GAF load
across the street.' " See supra S II.B.2.a.
(d) Pretextual Excuses
Finally, Rossi argues that GAF used pretextual excuses to
explain why it refused to supply Rossi, and that this use of
pretext is further circumstantial evidence of the conspiracy
he alleges. See Fragale, 760 F.2d at 474 (pretextual excuses
are circumstantial evidence that can disprove the likelihood
of independent action). The first excuse is that Rossi was
not needed because GAF had adequate distribution. Rossi
notes that, despite Krusa's contention that everyone in his
office knew that he had "adequate distribution" in New
Jersey, neither his boss, Peter Bacchione, nor his
employees, Lorraine Campbell, Ruth Rogers, Mary Lou
Sperr, and Bob Tafaro had ever heard of this policy. Even
Krusa admits that GAF had never refused to fill an order
through a buying group like Servistar because its
distribution was allegedly full.
This "adequate distribution" excuse is just the "flip side"
of Rossi's contention that GAF was acting in contravention
of its open distribution policy, and for the same reasons
that there is a genuine issue whether GAF 's policy was to
supply all distributors who wished to purchase its
products, there is also a genuine issue of material fact
whether the "adequate distribution" justification Krusa gave
to Rossi was legitimate or simply pretextual. We note again
that GAF supplied its roofing product to at least 34 of the
39 distributors in the northern New Jersey marketplace,
but not to Rossi.
GAF's second excuse, which Rossi submits was also
pretextual, was that GAF had a product shortage and
therefore could not supply any new distributors. Rossi
contends that there is a genuine issue of material fact as to
the validity of this excuse because Bacchione, GAF's
national sales manager, testified that he could recall no
50
problems in filling customer orders for GAF product in
1989, despite the fact that this would have been a matter
within his job responsibilities. In addition, Rossi argues
that the only document GAF has been able to produce to
corroborate Krusa's claim that GAF product was in short
supply in 1988 and 1989 was a memorandum dated
August 11, 1989. Rossi submits that this memorandum
should not be considered conclusive for the purposes of
summary judgment because it was written almost nine
months after GAF had decided not to supply Rossi
Florence. GAF counters that the memorandum refers to the
product shortage as a "continuing" issue, and therefore that
summary judgment is appropriate.
The critical language in the memorandum is:
We continue to have an im-balance of inventory
between Baltimore and So. Bound Brook. The lack of
warehousing has been a very critical issue, causing the
im-balance in inventory.
We are receiving more calls, on a daily basis, from
customers in the southern half of the district
complaining of our lack of product and the congestion
of trucks and also the length of time it takes to get
loaded at the Baltimore Plant.
Our reading of the document is that it is ambiguous and
therefore insufficient to command summary judgment. For
example, it is unclear whether the memorandum refers to
an overall GAF product shortage or just a warehousing "im-
balance" that was temporarily interfering with delivery to
the southern half of Krusa's territory. Also, while the
memorandum refers to the problem as a "continuing" one,
there is no indication what that means. On summary
judgment, viewing the evidence in a light most favorable to
Rossi, he has established a genuine issue of fact whether
both the "adequate distribution" and the "product shortage"
excuses were pretextual.
(e) Conclusion
To summarize, we find that Rossi has adduced competent
evidence that GAF: (1) responded to distributor complaints
51
in the past; (2) singled out Rossi as one of the few
distributors out of a large number in northern New Jersey
not to receive GAF product; (3) acted in contravention of its
own established open distribution policy in dealing with
Rossi; (4) threatened and punished distributors who resold
to Rossi; (5) refused to supply Rossi through buying groups;
(6) implemented an unprecedented policy prohibiting trans-
shipment of GAF product to Rossi; (7) cooperated with
Standard in monitoring and enforcing the boycott; and (8)
offered pretextual excuses to explain its behavior.
Examining the totality of this evidence, it is sufficient to
support a reasonable inference that GAF was acting in
concert with Standard and Arzee to boycott Rossi.
Particularly forceful is the evidence that GAF prohibited
distributors from trans-shipping GAF product to Rossi and
that GAF prevented Rossi from purchasing its products
from buying groups. These actions simply do not make
sense in light of GAF's asserted justifications for its
behavior vis a vis Rossi. For example, if there were truly a
product shortage in northern New Jersey, presumably GAF
would then have cut off supply to all Servistar and HWI
members who were not on GAF's approved customer list to
ensure that its larger distributors like Standard and Arzee
would not suffer from the short supply. Yet, GAF supplied
Far Hills, also an entity that was not on GAF's customer
list, until it discovered that Far Hills was under Rossi's
control. Moreover, the product shortage excuse is not
consistent with GAF's claim that it unilaterally
implemented a policy precluding trans-shipment of product
at the distributor level. Assuming that GAF product was
scarce, GAF would understandably want to ensure that its
favored distributors received it ahead of all others. However,
once GAF decided how it would allocate among its approved
distributors whatever amount of GAF product existed, it is
difficult to conceive of a legitimate reason why GAF would
care whether that distributor used the product or resold it
to Rossi Roofing at a profit.
Additionally, the product shortage justification does not
explain why GAF would sell Droesch as much GAF product
as he wanted in Long Island but would not allow him to
trans-ship that product to New Jersey. Similarly, it is hard
52
to comprehend why GAF would continue to fill $30,000
orders, obviously commercial-sized purchases, to buying
group members in northern New Jersey, if it was truly
believed that it had adequate distribution in that market.
One explanation of this behavior is that GAF was acting in
concert with Standard, Arzee, and Allied to boycott Rossi
and force him out of business.
For the reasons described above, Rossi has met his
burden of adducing evidence that tends to exclude the
possibility of independent action, and hence we will reverse
the district court's order granting summary judgment in
favor of GAF.
c. Servistar
In contrast to the defendants discussed above, we will
affirm the district court's grant of summary judgment in
favor of Servistar because Rossi has failed to introduce
either direct or circumstantial evidence that tends to
exclude the possibility that Servistar acted independently
rather than joining the conspiracy against Rossi.
Servistar's involvement in this case stems from its refusal
to honor Rossi's second purchase request for $456 of GAF
product on August 11, 1989. Rossi had already obtained a
little over $30,000 of GAF product on August 8 and 9,
1989, via his Far Hills account with Servistar, which was
resold to Rossi Roofing. Two days later, when Rossi
attempted to order a second batch, Servistar did notfill it,
claiming that GAF had cut Far Hills off from obtaining GAF
product. Rossi contends that after he received thefirst
order of GAF product, Standard and Arzee discovered how
he had circumvented the blockade, notified GAF, and that
GAF then enlisted Servistar to join the group boycott and
cut off this new avenue of supply. Rossi offers three pieces
of evidence to support this allegation: (1) a discussion he
had with Jim Cherbonneau of Servistar in which
Cherbonneau told him that GAF did not want Servistar to
ship its product to Rossi and that GAF would not supply
Rossi through his Servistar account;17 (2) Servistar's
_________________________________________________________________
17. Cherbonneau told Rossi, "GAF called, they knew where the product
was going. They had filled their needs in that area, and [ ] they do not
want us to ship to you."
53
curious and sudden change of mind, selling Rossi $30,000
of GAF product one day and refusing a minuscule $456
order two days later; and (3) Servistar's use of the allegedly
pretextual excuse that Far Hills had credit problems to
justify its refusal to deal.
Rossi's only direct evidence, the phone conversation with
Cherbonneau, is not evidence of Servistar's conspiratorial
involvement. Cherbonneau said that "GAF would not sell
product to Servistar to go to -- through [Far Hills] to me."
Cherbonneau's statement, while not precluding concerted
action, is evidence only of a unilateral decision by GAF to
not supply Rossi through any means (or a multilateral
conspiracy that did not include Servistar). Additionally, it is
undisputed that Servistar could not force GAF to supply it
or its members with GAF product. Unlike other products
Servistar supplied, Servistar neither stored GAF product in
its warehouses nor had the contractual right to compel GAF
to supply the product. The Servistar-GAF purchasing
agreement did not obligate GAF to accept all of Servistar's
members' orders.
Because Servistar provided GAF product to its members
on what is known in the industry as a "drop shipment"
basis, it had no control over whether its suppliers would
actually deliver their products to its members. The"drop
shipment" relationship between Servistar and GAF meant
that when a Servistar member placed an order with
Servistar for GAF product, Servistar would forward that
order to GAF. The member would then go to the GAF
warehouse to pick up the GAF product directly from GAF,
not Servistar. GAF then would invoice Servistar for the
purchase, and Servistar would pay GAF. Subsequently,
Servistar would collect the amount due from its member.
Using this "drop shipment" purchasing method, Servistar
assists its members by: (1) negotiating group discounts
from manufacturers, and (2) acting as the guarantor of its
members' credit to those manufacturers. Thus, Servistar's
role did not include pre-purchasing and warehousing of
GAF product, and it had virtually no say over which of its
members GAF chose to supply.
Under these circumstances, Rossi's claim that "at the
request of GAF, Servistar refused to fill Far Hills' next order
54
for $450 because Far Hills had resold it to Rossi Roofing,"
is not supported by Rossi's own testimony. As described
above, according to the undisputed evidence, GAF did not
have to conspire with Servistar to boycott Rossi Roofing
because GAF did not need Servistar's acquiescence to
prohibit Far Hills or Rossi Roofing from buying its product
through Servistar. Since there is no evidence that Servistar
could overrule a unilateral GAF decision to refuse to supply
a Servistar member, we cannot reasonably infer on the
basis of such ambiguous evidence that Servistar and GAF
agreed to refuse to sell to Far Hills. See International
Logistics Group Ltd. v. Chrysler Corp., 884 F.2d 904, 907
(6th Cir. 1989) (no credible conspiracy is alleged where a
manufacturer imposing distribution restraints does not
need agreement or acquiescence from its distributors in
formulating marketing conditions for its product); 6 Phillip
E. Areeda, Antitrust Law P 1402b4 (1986) ("discussions,
suggestions, recommendations, and the giving of
information do not indicate any conspiracy where the actor
imposing the alleged restraint does not wish or need the
acquiescence of the other party or any quid pro quo from
him").
Similarly, Rossi's allegation that Servistar made no effort
to require GAF to fill the order of its member Far Hills does
not support his theory of conspiracy. Without direct
evidence (or other strong circumstantial evidence) of
concerted action by Servistar and GAF, we cannot draw an
inference of an unlawful conspiracy from the equivocal
nature of Servistar's decision not to make what would most
likely have been a futile effort to encourage GAF to sell to
Rossi. Servistar's refusal to disrupt its relationship with
GAF because GAF unilaterally (from Servistar's perspective)
refused to deal with Rossi is clearly "as consistent with
permissible competition as with illegal conspiracy,"
Matsushita, 475 U.S. at 588 (citations omitted), and is not
evidence of a "conscious commitment to a common
scheme." Monsanto, 465 U.S. at 764. We note in this regard
that there is no evidence that Servistar was on notice that
GAF was part of a conspiracy to boycott Rossi Roofing.
Thus, from Servistar's point of view, this was simply a
unilateral refusal to deal. Indeed, even if Servistar did know
that GAF was involved in an unlawful group boycott, its
55
decision to continue relations with GAF would still not rise
to the level of concerted action.
Without direct evidence with respect to Servistar, we
must also consider whether Rossi's conspiracy theory is
plausible, and whether inferring concerted action under
these circumstances would have the effect of deterring
significant procompetitive conduct. See Petruzzi's, 998 F.2d
at 1233. Both of these considerations militate against
inferring concerted action with respect to Servistar. Apart
from the evidence discussed above that it would be
unreasonable to infer that Servistar would conspire with
GAF to do what GAF could do unilaterally (i.e. refuse to
release GAF product to Rossi from GAF warehouses), it is
similarly implausible that GAF, an extremely minor
Servistar supplier, could "pressure" Servistar, a billion plus
dollar buying cooperative, into joining the group boycott of
Rossi Roofing, a small start-up roofing and siding
distributor. Similarly, Rossi has adduced no evidence of a
motive for Servistar to join the conspiracy. See Matsushita,
475 U.S. at 596-97. Nothing in the record indicates that
Servistar had any reason to support a conspiracy to
increase or stabilize wholesale roofing prices in New Jersey,
and, to repeat, there is simply no evidence of GAF leverage
over Servistar.18
Perhaps most importantly, inferring a conspiracy from
the slim circumstantial evidence would have the effect of
deterring Servistar's significant procompetitive conduct in
this as well as many other markets. As a wholesale
purchasing cooperative, Servistar bolsters competition and
increases economic efficiency by aggregating small
purchasers thereby permitting them "to achieve economies
of scale in both the purchase and warehousing of wholesale
supplies, and also ensur[ing] ready access to a stock of
goods that might otherwise be unavailable on short notice.
The cost savings and order-filling guarantees enable smaller
retailers to reduce prices and maintain their retail stock so
_________________________________________________________________
18. Sales of GAF product through Servistar, estimated at about $2.5
million, comprised only 12% of Servistar's total roofing purchases on
behalf of its members and an insignificant fraction of Servistar's one
billion plus national purchases in 1989.
56
as to compete more effectively with larger retailers."
Northwest Wholesale Stationers, 472 U.S. at 295. If we were
to permit an antitrust violation to be inferred under the
facts of this case, it would significantly impact the ability of
Servistar to continue its procompetitive actions in the
market.
Because Servistar could not compel GAF to sell to Far
Hills, Servistar's only option in response to GAF's decision
not to supply Far Hills would have been to somehow bring
pressure to bear on the roofing manufacturer. Such action
would undoubtedly adversely affect all Servistar members
nationwide who were receiving improved pricing for GAF
product through Servistar, especially if it led to the
restriction or cessation of Servistar's purchasing agreement
with GAF. Indeed, inferring concerted action in these
circumstances could encourage Servistar to terminate
relationships with every supplier that refused to sell to a
particular Servistar member. This would deter Servistar's
procompetitive activities and deny Servistar's members the
significant benefits of cooperative membership.
Finally, Rossi submits that Servistar offered a pretextual
excuse to explain its decision not to supply Far Hills with
GAF product. Pretextual excuses, as noted, can disprove
the likelihood of independent action. See Fragale, 760 F.2d
at 474. Rossi challenges Servistar's explanation that it
refused to supply the second order of GAF product to Far
Hills because of Far Hills' credit problems. Although it
appears that there are genuine issues of fact concerning
Far Hills' credit-worthiness and its impact on Servistar's
decision to refuse Rossi's second order of GAF product,19
considering Servistar's lack of motive to conspire, GAF's
lack of any leverage over Servistar, and the fact that GAF
did not need to enlist Servistar's help to boycott Rossi, this
_________________________________________________________________
19. On the one hand, the record indicates that Servistar refused Far Hills
credit on August 15, 1989, even though Far Hills had only used $30,755
of its outstanding $75,000 credit limit and no payments were yet due.
On the other hand, Servistar contends that it extended the $75,000
credit limit to Far Hills for the purpose of funding hardware purchases,
not roofing supplies. According to Servistar's forceful rejoinder, the
initial
order of $30,755 was an error, and after it was discovered, Servistar
unilaterally determined not to permit it to happen again.
57
slim reed of pretext is simply not enough. In view of the
procompetitive role Servistar plays in the market generally
and concerned that we do not "chill the very conduct the
antitrust laws are designed to protect," Matsushita, 475
U.S. at 594, we conclude that Rossi has not met his burden
here in opposing summary judgment, and therefore we will
affirm the district court's order granting summary judgment
in favor of Servistar.
d. Wood Fiber
Like GAF, Wood Fiber manufactures roofing products,
including Structodek FS, which is widely used in certain
commercial roofing applications. Unlike GAF, however,
Wood Fiber is only tangentially involved in the alleged
conspiracy with its activity centering around a single
incident in which Rossi was frustrated in his attempt to
purchase approximately $5,000 worth of Structodek FS. We
will affirm the district court's grant of summary judgment
in favor of Wood Fiber because, as with Servistar, Rossi has
failed to introduce evidence that tends to exclude the
possibility that Wood Fiber acted independently rather than
joining the conspiracy against Rossi.
On June 6, 1989, Rossi Roofing ordered Structodek FS
from Wood Fiber for its customer, Star Roofing. Wood Fiber
quoted a price and a shipping date of July 5th to Rossi
Roofing. On June 27, 1989, Karl Loser, Wood Fiber's sales
representative in New Jersey, called and told Rossi
Roofing's Mike Issler that Wood Fiber would notfill the
order. As a result, Rossi Roofing lost the order for
Structodek FS from Star Roofing. Rossi claims that Loser
told him that Wood Fiber was being pressured by Standard
and Arzee not to sell to him and that there was a"problem"
with his pricing. Loser also told Issler that Wood Fiber had
previously sold product to a small distributor on Long
Island and suffered when Allied canceled orders in
retaliation. Loser testified that he wanted to supply Rossi
Roofing, but that his concerns that Rossi Roofing's
competitors would retaliate "influenced" his decision not to
supply Rossi Roofing.
Based upon these facts, Rossi asks us to infer that Wood
Fiber participated in a conspiracy to boycott Rossi Roofing
58
because it gave in to pressure and fear of retaliation by
several of its distributors. It is well established that this
kind of evidence, by itself, is legally insufficient to prove a
conspiracy. See Monsanto, 465 U.S. at 763-64; Sweeney,
637 F.2d at 111. In Sweeney, the plaintiffs contended that
"the retailers' acts of complaining and [the defendant's]
reaction to the complaints constituted concerted action in
restraint of trade." Sweeney, 637 F.2d at 110. We rejected
that argument and noted that "even if the appellants had
demonstrated that [the defendant's] actions were in
response to these complaints, such evidence alone would
not show the necessary concerted action." Id. Similarly, in
Monsanto, the Supreme Court opined that "[p]ermitting an
agreement to be inferred merely from the existence of
complaints, or even from the fact that termination came
about `in response to' complaints, could deter or penalize
perfectly legitimate conduct." 465 U.S. at 763. Thus, the
Court held that " `[t]o permit the inference of concerted
action on the basis of receiving complaints alone and thus
to expose the defendant to treble damage liability would
both inhibit management's exercise of independent
business judgment and emasculate the terms of the
statute.' " Id. at 764 (quoting Sweeney, 637 F.2d at 111
n.2).
We have explained at length supra why the claims
against Standard, Arzee, and GAF survive, notwithstanding
these precedents. However, because Rossi has not adduced
evidence of anything other than the fact that Wood Fiber
may have responded to pressure and threats from Standard
and Arzee, we cannot infer the existence of concerted action
involving Wood Fiber. The evidence adduced against Wood
Fiber stands in stark contrast to the evidence against GAF.
For example, Rossi has not adduced any evidence that
Wood Fiber offered pretextual excuses, or prohibited trans-
shipment of its product, or engaged in monitoring and
enforcement of the alleged boycott. Without some additional
evidence, a fact finder may not infer that Wood Fiber
entered into an agreement to boycott Rossi Florence or
Rossi Roofing, and therefore we will affirm the district
court's order granting summary judgment in favor of Wood
Fiber.
59
III. PROXIMATE CAUSE AND ANTITRUST INJURY
Having determined that Rossi has adduced sufficient
evidence of a conspiracy to satisfy the first prong of the
prima facie case with respect to the Standard defendants,
the Arzee defendants, and GAF, we now consider whether
Rossi has adduced sufficient evidence to satisfy the fourth
prong, "that the plaintiffs were injured as a proximate
result of that conspiracy." Tunis Bros., 763 F.2d at 1489.20
The district court concluded that even if Rossi had
established the existence of an agreement, his claim still
would fail because he had not established that the business
losses he suffered were in any way related to that
conspiracy. See Rossi v. Standard Roofing, Inc., 958 F.
Supp. 976, 991 (D.N.J. 1997). The court determined that
Rossi's allegations -- that the defendants prevented him
from obtaining GAF and other roofing products he needed
to compete and thereby stopped him from opening Rossi
Florence and ultimately forced Rossi Roofing out of
business -- are unsupported in the record. The district
court also concluded that Rossi's damages expert, Regan R.
Rockhill, CPA, based his report upon unfounded
assumptions that would force a trier of fact to use
"guesswork and speculation" in determining what, if any,
injury Rossi suffered as a result of the defendants' actions.
See id. The court criticized the Rockhill Report for being
nothing more than an impermissible "but for" damage
model that erroneously ignored several important factors,
including failing: (1) to consider that Rossi had no
experience running his own business; (2) to analyze
specifically what products were needed to assure a
successful distributorship; and (3) to engage in any
analysis of what harm, if any, was caused by the alleged
antitrust violations as opposed to other factors, such as
Rossi's management style or general business conditions.
See id.
The district court accordingly held that Rossi had not
presented sufficient evidence of damages such that a
_________________________________________________________________
20. As explained above, because Rossi's allegations qualify for per se
treatment, the second and third prongs of the four-part antitrust prima
facie case are conclusively presumed. See supra S II.A.
60
reasonable inference could be made connecting the injury
with the defendants' conduct. For the reasons we will
explain, we disagree with the court's conclusion that Rossi
has not identified a genuine issue of material fact with
regard to the proximate cause and damages element of his
prima facie case.
To recover damages, an antitrust plaintiff must prove
causation, described in our jurisprudence as "fact of
damage or injury." See Danny Kresky Enters. Corp. v.
Magid, 716 F.2d 206, 209 (3d Cir. 1983). It is not necessary
to show with total certainty the amount of damages
sustained, just that the antitrust violation caused the
antitrust injury suffered by the plaintiff. See Amerinet, Inc.
v. Xerox Corp., 972 F.2d 1483, 1493 (8th Cir. 1992); Danny
Kresky, 716 F.2d at 211 ("the standard of causation
requires only that plaintiff prove that defendant's illegal
conduct was a material cause of its injury"). As the
Supreme Court explained in Zenith Radio Corp. v. Hazeltine
Research, Inc., 395 U.S. 100, 114 n.9 (1968) (citations
omitted) (emphasis in original):
[Plaintiff's] burden of proving the fact of damage under
S 4 of the Clayton Act is satisfied by its proof of some
damage flowing from the unlawful conspiracy; inquiry
beyond this minimum point goes only to the amount
and not the fact of damages. It is enough that the
illegality is shown to be a material cause of the injury;
a plaintiff need not exhaust all possible alternative
sources of injury in fulfilling his burden of proving
compensable injury under S 4.
Once causation is established, the jury is permitted to
calculate the actual damages suffered using a " `reasonable
estimate, as long as the jury verdict is not the product of
speculation or guess work.' " In re Lower Lake Erie Iron Ore
Antitrust Litig., 998 F.2d 1144, 1176 (3d Cir. 1993) (citing
MCI Communications Corp. v. American Tel. & Tel. Co., 708
F.2d 1081, 1161 (7th Cir. 1983)) (other citations omitted).
Thus, in antitrust cases, there are ultimately two related,
but distinct, inquiries to establish antitrust injury. First,
the plaintiff must prove the fact of antitrust injury, as part
of his prima facie case; then, he must make a showing
regarding the amount of damages, in order to justify an
61
award by the trier of fact. Concerning the former, courts
apply the ordinary standard of proof, but with respect to
the latter, the standard is somewhat relaxed. See In re
Lower Lake Erie Iron Ore, 998 F.2d at 1176 ("[t]he relaxed
measure of proof is afforded to the amount, not the
causation of loss -- the nexus between the defendant's
illegal activity and the injuries suffered must be reasonably
proven.") (citations omitted); see also Bigelow v. RKO Radio
Pictures, 327 U.S. 251, 264-65 (1946) (holding that when
the plaintiff cannot prove his damages by precise
computation, the jury "may make a just and reasonable
estimate of the damage based on relevant data, and render
its verdict accordingly").
Under these standards, Rossi's antitrust claim does not
suffer from the infirmities claimed by the district court. At
the threshold, it is important to note that we need only
concern ourselves with the first element of antitrust injury,
causation. At this procedural juncture, reviewing the
district court's grant of the defendants' motions for
summary judgment, we are not, as we would be upon
reviewing a jury verdict, determining whether a plaintiff has
brought forth sufficient evidence to justify the actual
damages awarded. Rather, here, all we are concerned with
is whether Rossi has established that the defendants'
"illegal conduct was a material cause of [his] injury." Danny
Kresky, 716 F.2d at 211; see also Zenith Radio, 395 U.S. at
114 n.9.
We find two sources of evidence sufficient for Rossi to
demonstrate fact of injury or causation: (1) evidence of
specific lost transactions based upon Rossi's inability to
purchase product; and (2) the Rockhill Damage Report. We
discuss these in turn.
We have already explained that there is ample evidence
in the record that Standard, Arzee, and GAF conspired to
deny Rossi access to GAF product and prevent him from
competing in the roofing and siding business in northern
New Jersey. See supra S II.B.2.a & b. Also, there is evidence
that, with a few exceptions, the defendants successfully
prevented Rossi from obtaining GAF product. See id.
Moreover, there is evidence that GAF product was highly
desirable, if not critical, to Rossi's target customers. See
62
supra S II.B.2.b(1). Finally, several of Rossi's former
customers from his Standard days, including Sean Coffey,
Francis Doherty, John Feher, Albert Logan, and Melvin
Stanley, have testified that they would have done business
with Rossi Roofing if he had had access to the necessary
products, primarily GAF product.
This evidence is enough by itself to satisfy Rossi's burden
on causation for the purposes of summary judgment. Rossi
has put forth evidence that the defendants' alleged
conspiracy unlawfully prevented him from obtaining GAF
product, and that he lost multiple sales as a result. Thus,
if Rossi can successfully prove the existence of the
conspiracy, he will have proved fact of injury. The case
before us is not analogous to Van Dyk Research Corp. v.
Xerox Corp., 478 F. Supp. 1268 (D.N.J. 1979), a case upon
which the district court relied, where the plaintiff failed to
prove fact of injury primarily because it could not show that
it lost even a single contract based upon the alleged
unlawful practices of the defendant. See 478 F. Supp. at
1327.
In the same vein, Amerinet is not availing to the
defendants either. In Amerinet, the Eighth Circuit
concluded that the plaintiff had not shown antitrust injury
or causation in large part because statements and
assertions by its own damage expert "strongly suggest[ed]
. . . that [plaintiff's] decline was caused at least partly by,
if not substantially or mainly by, other factors than
[defendant's] alleged antitrust violations." Amerinet, 972
F.2d at 1495 (noting that the plaintiff's damage expert
admitted that the plaintiff was in a period of decline prior
to the defendant's alleged antitrust violations). In addition,
the plaintiff in Amerinet was only able to show that, at
most, the allegedly illegal activity was "one factor among
many, and not a controlling or major factor" in specific
potential clients' decisions not to purchase from the
plaintiff. Id. at 1497. Therefore, the Eighth Circuit held that
the plaintiff had not adduced sufficient evidence of element
of causation to enable it to withstand summary judgment.
Here, Rossi's evidence is more substantial than in either
Van Dyk Research or Amerinet. Rossi has proffered evidence
from five specific customers that they would have
63
purchased GAF product from Rossi if he had been able to
sell it to them, and Rossi's inability to consummate those
sales (leading to a loss of business and therefore injury) is
a direct result of the alleged antitrust violation-- the group
boycott. In addition, Richard Droesch, Rossi's partner in
the failed Rossi Florence venture, backed out of that
venture at least in part based upon his understanding that
the company would not be able to get the products it
needed, particularly GAF product, to compete successfully
in the market. For all these reasons, we believe that the
record supports Rossi's allegations that he suffered
antitrust injury, and that it was caused by the defendant's
allegedly unlawful actions.
The district court also utterly rejected Rossi's damage
expert, holding that his report was nothing more than a
"but for" damage model that failed as a matter of law to
support Rossi's damage allegations. We believe, however,
that the Rockhill Report, when combined with the
testimony concerning the five lost sales, is indicative of a
larger pattern of loss and helps Rossi demonstrate
causation. Thus, while the other damage evidence is
enough alone to satisfy Rossi's summary judgment burden,
for the guidance of the district court on remand, we
nonetheless consider the Rockhill Report.
A typical "but for" damage model, like the one in Southern
Pacific Com. Co. v. American Tel. & Tel. Co., 556 F. Supp.
825 (D.D.C. 1983), aggregates the defendant's alleged
violations and creates a hypothetical calculation projecting
the plaintiff's profits and losses "but for" the defendant's
antitrust violations. In Van Dyk Research, for example, this
estimate was based upon an internal "task force" report
created by the plaintiff projecting its own future
performance. See 478 F. Supp. at 1327. The plaintiff then
compares this hypothetical figure with its actual
performance to calculate its damages. Courts usually
highlight two problems with models created using this
methodology.
First, they do not attempt to measure the particularized
effects of any specific alleged illegal practices, but rather
rely on an aggregation of injury from all factors. See
Southern Pacific, 556 F. Supp. at 1092. Second, their
64
hypothetical "but for" calculations usually rely upon
unrealistic ex ante assumptions about the business
environment, such as assumptions of perfect knowledge of
future demand, future prices, and future costs that tend to
overstate the plaintiff's damage claim. See id. at 1092-93
(pointing out many difficulties not caused by the
defendants that negatively impacted plaintiff's profitability
yet were not accounted for in the "but for" damage model).
Thus, using a "but for" damage model arguably makes it
impossible for the trier of fact to determine what, if any,
injury derived from the defendant's antitrust violations as
opposed to other factors, and courts sometimes reject such
models as the basis of either causation or amount of injury.
See Southern Pacific, 556 F. Supp. at 1090, 1098; Van Dyk
Research, 478 F. Supp. at 1327.
The Rockhill Report is in many respects a "but for"
damage model because it does not deal with the
particularized effects of specific injuries, but rather
aggregates all of Rossi's damages into one figure. Relying on
Van Dyk Research and Southern Pacific, defendants argue
that all "but for" models should be precluded as a matter of
law from serving as a basis for antitrust causation and
damage calculation. We do not agree with the defendants'
reading of these cases (and, at all events, are not bound by
them), which we conclude only stand for the proposition
that some, not all, "but for" models are too speculative and
must be precluded as a matter of law. The Rockhill Report,
as we shall see, is much less speculative and does not
suffer from many of the flaws in the damage models
discussed in Van Dyk Research and Southern Pacific, and
thus it is not comparable with them.
Rockhill made two major assumptions in calculating the
damages Rossi suffered because of his inability to procure
products. First, he estimated that Rossi Florence and/or
Rossi Roofing would have achieved the same pattern of
sales revenues (and revenue growth) beginning in 1989 and
extending to 2008 that ABC's Morristown sales branch
actually achieved from 1990-1993, operating out of the
same location, with Rossi as branch manager. Rossi makes
a strong argument that this estimate took into account the
poor general business conditions that existed at the time,
65
as well as any other extrinsic factors not related to the
defendants' alleged boycott, because Rockhill based his
estimate upon actual sales figures Rossi was able to
achieve competing against the same firms, selling the same
products at the same location to the same customers under
the actual business conditions that existed at the time.21
The second major assumption in the Rockhill Report is that
Rossi would have been able to manage Rossi Florence and
Rossi Roofing in the manner that he had run Standard's
Morristown branch from 1974-1987. Rockhill used
Standard's Morristown branch financial statements to
develop 14-year averages for cost of sales, payroll expenses,
equipment expenses, and administrative expenses (as a
percentage of total sales) and applied them to the sales
estimate. This kind of estimate, while perhaps not one upon
which we would base our own personal investment
decisions, nevertheless is sufficient to establish causation
(especially when considered in conjunction with thefive lost
transactions).22
(Text continued on page 68)
_________________________________________________________________
21. Defendants also complain that it is inappropriate to use sales figures
Rossi achieved working for ABC, a major national chain, to estimate the
revenues that Rossi Florence or Rossi Roofing would have achieved
without the boycott. This position has some force and is certainly an
appropriate argument to advance before the trier of fact; however, it is
not uncontroverted. There is ample evidence in the record that wholesale
roofing and siding sales has a strong local accent, and that after price,
service and reliability are the next most critical factors in customers'
purchasing decisions. Rossi had a long track record in northern New
Jersey, and several witnesses testified that they would patronize Rossi
regardless of whom he worked for, as long as he carried the product they
needed at a competitive price, because he provided the best service.
Thus, it is not clearly evident that Rossi's salesfigures with ABC (or
Standard) would necessarily be higher than with Rossi Roofing.
22. For the guidance of the district court on remand, we note that the
Rockhill Report satisfies the relaxed Bigelow standard of proof for
estimating the amount of damages under which:
the jury [may] conclude as a matter of just and reasonable
inference
from the proof of defendants' wrongful acts and their tendency to
injure plaintiffs' business, and from the evidence of the decline
in
prices, profits and values, not shown to be attributable to other
causes, that defendants' wrongful acts had caused damage to the
plaintiffs. . . . [When] [ ] tortious acts . . . preclude[ ]
ascertainment
66
of the amount of damages more precisely, by comparison of profits,
prices and values as affected by the conspiracy, with what they
would have been in its absence under freely competitive conditions
. . . we [have] held that the jury could return a verdict for the
plaintiffs, even though damages could not be measured with the
exactness which would otherwise have been possible.
In such a case, even where the defendant by his own wrong has
prevented a more precise computation, the jury may not render a
verdict based on speculation or guesswork. But the jury may make
a just and reasonable estimate of the damage based on relevant
data, and render its verdict accordingly. In such circumstances
`juries are allowed to act on probable and inferential as well as
[upon] direct and positive proof.' Any other rule would enable the
wrongdoer to profit by his wrongdoing at the expense of his victim.
It would be an inducement to make wrongdoing so effective and
complete in every case as to preclude any recovery, by rendering
the
measure of damages uncertain.
Bigelow, 327 U.S. at 264 (internal citations omitted).
In Bigelow, the Supreme Court upheld a jury's damage award based
upon a comparison of the plaintiff's actual profits with the
contemporaneous profits of a competing theater with access to first-run
films, which were illegally denied to plaintiff theater by a group of
conspiring film distributors. See J. Truett Payne Co., Inc. v. Chrysler
Motors Corp., 451 U.S. 557, 566 (1981) (explaining Bigelow). The Bigelow
plaintiff had also adduced evidence comparing his actual profits during
the conspiracy with his profits when he had been able to obtain first-run
films. See id. This was enough to uphold the jury's verdict. Similarly, in
Zenith Radio, the Supreme Court permitted the plaintiff, who had been
the victim of an illegal campaign against importers attempting to bring
new products into Canada, to estimate its damages by comparing its
market share in the United States (where it competed freely) with its
market share in Canada (where it was the target of unlawful
distribution-disrupting tactics). See 395 U.S. at 116 n.11 & 124-25.
Finally, we have held that "plaintiffs must be free to select their own
damage theories as long as they are supported by a reasonable
foundation." Danny Kresky, 716 F.2d at 213 (upholding a market share
damage calculation approach in which the plaintiff argued that had it
not been for the defendants' antitrust violations, it would have been able
to achieve a percentage of the excluded market segment equal to the
percentage of the market it enjoyed in the rest of the market generally).
Compared with these cases, Rossi's damage estimation is far less
67
On the subject of the Rockhill Report, we add that the
defendants' criticism that the report is flawed as a matter
of law because it improperly mixes data using "a variety of
sources including the historic operations of Standard; ABC
actual data; input from Mr. Rossi; and judgment" is
unavailing. Rockhill used actual data to support his
estimates, and thus they are based upon a "reasonable
foundation." See Danny Kresky, 716 F.2d at 213. We do not
suggest that Standard's problems with the report are
baseless, only that they constitute genuine issues of
material fact and should also be argued before the trier of
fact.
Finally, the defendants attack the evidence supporting
Rossi's assertion of damages on several other bases.
Defendants submit that Rossi Florence and Rossi Roofing
failed because: (1) they were start-up operations, (2) they
were founded during one of the worst recessions ever to hit
the New Jersey housing market, (3) Rossi, as a manager,
failed to control his costs, and/or (4) Rossi worked on other
ventures to the detriment and ultimate failure of both
companies. One or more of these reasons, particularly the
theory that it was the recession, not a conspiracy, which
mortally wounded Rossi's business efforts, might explain
Rossi's failure in the roofing and siding business in
northern New Jersey, and could conceivably result in a
verdict for the defendants at trial. They are, however,
unavailing to the defendants at this stage of the case
because they all involve factual disputes that need to be
resolved by the trier of fact, not by this court on a motion
for summary judgment.
_________________________________________________________________
speculative. The sales revenues (at least for the first few years of the
ten
year estimate) were exactly those that Rossi actually achieved while
working as ABC's branch manager at the same location. Thus, the jury
here need not even speculate whether the comparison market (or
location) is similar enough to serve as a basis for its damage estimate,
as the jury had to in Bigelow and Zenith Radio. Similarly, both the sales
and expenses are based on real world numbers, not pure conjecture by
an optimistic new competitor. These numbers may or may not accurately
represent what Rossi Florence or Rossi Roofing would have done had it
stayed in business, but they are clearly not mere speculation or wishful
thinking, as was the case in Van Dyk Research and Southern Pacific.
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Standard also argues that Rossi failed to establish
causation because an essential element in causation
involves proving that there are no comparable substitutes
for the desired product -- here, GAF product. See Elder-
Beerman Stores Corp. v. Federated Dep't Stores, Inc., 459
F.2d 138, 148 (6th Cir. 1972). This is another factual issue
that Standard may argue to the jury. As we have explained
above, we are satisfied that Rossi's own testimony and that
of several of his witnesses are sufficient to establish that
GAF product was, for practical purposes, unique and highly
desired in this market. See supra S II.B.2.b(1).
In sum, Rossi has established a prima facie case of
antitrust injury with respect to Standard, Arzee, and GAF.
He has adduced evidence of specific lost transactions
showing causation or fact of injury, which is bolstered by
an expert damage report that is not overly speculative as a
matter of law. The combination of this evidence, while not
conclusive, provides enough of a foundation that an
eventual finder of fact would be justified in making a "just
and reasonable inference" of the damages Rossi may have
suffered as a result of the defendants' allegedly unlawful
activities.
IV. STATE LAW TORTIOUS INTERFERENCE
WITH CONTRACTUAL AND PROSPECTIVE
CONTRACTUAL RELATIONS
The district court dismissed Rossi's state law tortious
interference claims against defendants with no discussion.
It very well may be, as some of the defendants suggest, that
the district court concluded when it dismissed Rossi's state
law claims that Rossi had not shown any wrongful or
intentional conduct designed to interfere with alleged
contractual or prospective contractual relationships. If that
is the case, then based upon our disposition here, the state
law claims will likely have to be reinstated with respect to
the Standard defendants, the Arzee defendants, and GAF
since we have found that there is sufficient evidence of their
participation in an unlawful conspiracy to boycott Rossi.
However, the district court may have had some other
reason for dismissing these claims of which neither we nor
the parties before us is aware. Our jurisprudence requires
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district courts in this circuit to accompany grants of
summary judgment with an explanation sufficient to permit
the parties and this court to understand the legal premise
for the court's order. See Vadino v. A. Valey Eng'rs, 903
F.2d 253, 257-60 (3d Cir. 1990). We will therefore reverse
the district court's order dismissing the state tortious
interference claims against all defendants and remand
them to the district court for further consideration and
explanation consistent with this opinion.
V. CONCLUSION
For the foregoing reasons, we will affirm the district
court's judgment on the federal antitrust issues with
respect to Servistar and Wood Fiber, but reverse on those
issues with respect to the Standard defendants, the Arzee
defendants, and GAF. We will also reverse the district
court's judgment dismissing the state claims with respect
to all defendants. The case will be remanded for further
proceedings consistent with this opinion.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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