Opinions of the United 1994 Decisions States Court of Appeals for the Third Circuit

10-7-1994

Alvord-Polk, Inc., et al. v. F. Schumacher & Co. Precedential or Non-Precedential:

Docket 92-1762

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___________

No. 92-1762 ___________

ALVORD-POLK, INC.; AMERICAN BLIND FACTORY, INC.; DELTA PAINT AND WALLPAPER SUPPLY CO., INC.; FAIRMAN WALLPAPER AND PAINT COMPANY; FRANK R. YOCUM, t/a FRANK R. YOCUM & SONS WALLPAPER CO.; HARRY'S WALLPAPER, INC.; LANCASTER CARPET MARKET, INC.; MARVIN KOLSKY, t/a HEADQUARTERS WINDOWS & WALLS; SILVER WALLPAPER & PAINT CO., INC.; YANKEE WALLCOVERINGS, INC.,

Appellants,

vs.

F. SCHUMACHER & CO.; THE NATIONAL DECORATING PRODUCTS ASSOCIATION, INC.

Appellees.

___________

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

(D.C. Civil No. 90-03617)

___________

ARGUED MARCH 17, 1993

OPINION VACATED SEPTEMBER 15, 1993

SUBMITTED PURSUANT TO LAR 34.1(a) ON PANEL REHEARING OCTOBER 25, 1993*

BEFORE: STAPLETON, ROTH and LEWIS, Circuit Judges.

* The motion for oral argument on panel rehearing filed by F. Schumacher & Co. is denied. (Filed October 12, 1994)

___________

Steven A. Asher (ARGUED) Kohn, Nast & Graf 1101 Market Street 24th Floor Philadelphia, PA 19107

Attorney for Appellants, Alvord-Polk, Inc., American Blind Factory, Inc.; Delta Paint and Wallpaper Supply Co., Inc; Frank R. Yocum, t/a Frank R. Yocum & Sons Wallpaper Co.; Harry's Wallpaper, Inc.; Lancaster Carpet Market, Inc.; Marvin Kolsky, t/a Headquarters Windows & Walls; Silver Wallpaper & Paint Co., Inc.; Yankee Wallcoverings, Inc.

Michael S. Lando (ARGUED) 1411 Fifth Avenue Pittsburgh, PA 15219

Attorney for Appellant, Fairman Wallpaper and Paint Company

Margaret M. Zwisler (ARGUED) Howrey & Simon 1299 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2402

Attorney for Appellee, F. Schumacher & Co.

Richard D. Lageson (ARGUED) Gino F. Battisti Suelthaus & Kaplan, P.C. 7733 Forsyth Boulevard, 12th Floor St. Louis, MO 63105

Attorneys for Appellee, The National Decorating Products Association, Inc.

___________

OPINION OF THE COURT __________ LEWIS, Circuit Judge.

For over a decade, retailers who market wallpaper by

providing sample books and showroom displays have feuded with

dealers who sell at a discount through toll-free "1-800"

telephone numbers. In this case, ten 800-number dealers have

accused the retailers' trade association and one of the leading

wallpaper manufacturers of violating antitrust laws in an attempt

to force them out of business. The district court granted

summary judgment to the defendants on these and certain state-law

claims. We will reverse the grant of summary judgment as to some

federal and state antitrust claims but will affirm as to others

and as to the 800-number dealers' tort claims.

I.

Our review of a grant of summary judgment is plenary;

we evaluate the evidence using the same standard the district

court was to have applied in reaching its decision. Big Apple

BMW, Inc. v. BMW of North America, Inc.,

(3d

Cir. 1992); J.F. Feeser, Inc. v. Serv-A-Portion, Inc.,

(3d Cir. 1990); Erie Telecommunications, Inc. v. City of Erie,

(3d Cir. 1988). Plaintiffs have

alleged three theories of antitrust liability under the Sherman

Act,

(the "Act"). A brief review of the Act and

its purposes informs our determination of the standard to be

applied on summary judgment. A.

Section 1 of the Sherman Act provides: Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal[.]

. The very essence of a section 1 claim, of course,

is the existence of an agreement. Indeed, section 1 liability is

predicated upon some form of concerted action.1 Fisher v.

Berkeley,

(1986); Copperweld Corp. v.

Independence Tube Corp.,

(1984); United

States v. Colgate & Co.,

(1919); Big Apple BMW,

. See also Weiss v. York Hospital,

(3d Cir. 1984) (section 1 claim requires proof of three elements,

the first of which is "a contract, combination or conspiracy");

Edward J. Sweeney & Sons, Inc. v. Texaco, Inc.,

(3d Cir. 1980) ("[u]nilateral action, no matter what its

motivation, cannot violate [section] 1"). A "`unity of purpose

or a common design and understanding or a meeting of minds in an

unlawful arrangement[,]'" must exist to trigger section 1

liability. Copperweld,

, quoting American Tobacco

Co. v. United States,

(1946). See also Fisher,

; Sweeney,

.

1 . The term "concerted action" is often used as shorthand for any form of activity meeting the section 1 "contract, combination or conspiracy" requirement. Bogosian v. Gulf Oil Corp.,

(3d Cir. 1977). The requirement is an important one, for it emphasizes

the distinction between section 1 liability, which is imposed for

concerted action in restraint of trade, and liability imposed

under section 2 of the Sherman Act for monopolization. See

Copperweld,

. Activity which is alleged to have

been in violation of section 1 may be subject to a per se

standard and engender liability without inquiry into the harm it

has actually caused. See Copperweld,

. See

generally Business Electronics Corp. v. Sharp Electronics Corp.,

(1988). Alternatively, section 1 liability

might be imposed for concerted action which violates the "rule of

reason" standard without proof that it threatened monopolization.

Copperweld,

.

Congress treated concerted action more strictly than

unilateral behavior because, Concerted activity inherently is fraught with anticompetitive risk. It deprives the marketplace of the independent centers of decisionmaking that competition assumes and demands. In any conspiracy, two or more entities that previously pursued their own interests separately are combining to act as one for their common benefit. This not only reduces the diverse directions in which economic power is aimed but suddenly increases the economic power moving in one particular direction. Of course, such mergings of resources may well lead to efficiencies that benefit consumers, but their anticompetitive potential is sufficient to warrant scrutiny even in the absence of incipient monopoly.

. For this reason, when we examine an alleged

violation of section 1 of the Sherman Act, we look for an agreement that "brings together economic power that was

previously pursuing divergent goals."

. A lack of

such divergent goals precludes officers of a single company from

conspiring. Neither internally coordinated conduct of a

corporation and its unincorporated division, nor activity

undertaken jointly by a parent corporation and its wholly owned

subsidiary, can form the bases of section 1 violations.

.

An agreement need not be explicit to result in section

1 liability, Standard Oil Co. of New Jersey v. United States,

(1911), quoted in Copperweld,

(Stevens, J., dissenting), and may instead be inferred from

circumstantial evidence. Theatre Enterprises, Inc. v. Paramount

Film Distributing Corp.,

(1954); Sweeney,

673 F.2d at 111; Milgram v. Loew's, Inc.,

(3d

Cir. 1951). Therefore, direct evidence of concerted action is

not required.

In this case, the parties contest the propriety of

summary judgment on the issue of concerted action in each of

three different alleged fact patterns. Before addressing each

fact pattern, we turn to a review of the summary judgment

standard applicable to antitrust cases.

B.

A district court may enter summary judgment "if the

pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."

Fed. R. Civ. P. 56(c). The substantive law determines which

facts are material. Anderson v. Liberty Lobby, Inc.,

(1986).

A party moving for summary judgment need not produce

evidence to disprove its opponent's claim, Celotex Corp. v.

Catrett,

(1986), but it does bear the burden of

demonstrating the absence of any genuine issues of material fact.

Big Apple BMW,

. As in this case, when the

nonmoving party will bear the burden of proof at trial, the

moving party may meet its burden by showing that the nonmoving

party has failed to produce evidence sufficient to establish the

existence of an element essential to its case. Celotex,

.

In reviewing the evidence, facts and inferences must be

viewed in the light most favorable to the party opposing summary

judgment. Matsushita Electric Industrial Co., Ltd. v. Zenith

Radio Corp.,

(1986). When the moving party has

pointed to material facts tending to show there is no genuine

issue for trial, however, the nonmoving party "must do more than

simply show that there is some metaphysical doubt as to the

material facts. . . . Where the record taken as a whole could

not lead a rational trier of fact to find for the nonmoving

party, there is no `genuine issue for trial.'" Matsushita,

.

This traditional summary judgment standard applies with

equal force in antitrust cases, Eastman Kodak Co. v. Image Technical Services, Inc.,

(1992); Big Apple

BMW,

; however, the meaning we ascribe to

circumstantial evidence will vary depending upon the challenged

conduct.

For example, evidence of conduct which is "as

consistent with permissible competition as with illegal

conspiracy," without more, does not support an inference of

conspiracy. Matsushita,

n.21, citing Monsanto

Co. v. Spray-Rite Service Corp.,

, 763-64 (1984); Big

Apple BMW,

. See generally Fineman v. Armstrong

World Industries, Inc.,

(3d Cir. 1992).

This is because mistaken inferences in such a context "are

especially costly[;] they chill the very conduct the antitrust

laws are designed to protect." Matsushita,

;

Monsanto, 465 U.S. at 763-64. In such cases, the Supreme Court

has required plaintiffs to submit "evidence tending to exclude

the possibility" of independent action, i.e., "direct or

circumstantial evidence that reasonably tends to prove that [the

alleged conspirators] `had a conscious commitment to a common

scheme designed to achieve an unlawful objective.'" Monsanto, 465 U.S. at 764, quoting Sweeney,

.

Conversely, if the alleged conduct is "facially

anticompetitive and exactly the harm the antitrust laws aim to

prevent," no special care need be taken in assigning inferences

to circumstantial evidence. Eastman Kodak,

;

Arnold Pontiac-GMC, Inc. v. Budd Baer, Inc.,

(3d Cir. 1987) (Monsanto and Matsushita do not apply when challenged action is overtly anticompetitive); Tunis Brothers

Co., Inc. v. Ford Motor Co., Inc.,

(3d Cir. 1987)

(implying that Matsushita requires evidence tending to exclude

the possibility of independent action only when the challenged

conduct is as consistent with permissible competition as with

illegal conspiracy). See also In re Coordinated Pretrial

Proceedings in Petroleum Products Antitrust Litigation,

(9th Cir. 1990) ("the key to proper interpretation of

Matsushita lies in the danger of permitting inferences from

certain types of ambiguous evidence").2

II.

With these standards in mind, we will review the

evidence, granting reasonable inferences to the plaintiffs.3

Persons interested in decorating or redecorating their

homes or offices typically view samples of wallpaper before

purchasing. Recognizing this, retailers traditionally have made

available to consumers the wallpaper sample books they purchase

from manufacturers. They have also provided consumers with

information through the use of promotional materials and showroom

2 . Similarly, the analyses set forth in Monsanto and Matsushita do not apply when a plaintiff has offered direct evidence of concerted action. Arnold Pontiac-GMC, Inc. v. Budd Baer, Inc.,

(3d Cir. 1987). See also In re Coordinated Pretrial Proceedings in Petroleum Products Antitrust Litigation,

(9th Cir. 1990). 3 . Our review does not include consideration of evidence which was the subject of the three pending motions to supplement the record. Nor will we consider citations to evidence in F. Schumacher & Co.'s brief which was not of record before the district court. displays. The purchase of sample books, establishment of a

showroom and hiring of knowledgeable sales personnel are costly

endeavors and, as one might expect, these costs are reflected in

higher prices to consumers. Manufacturers have encouraged

retailers to incur these costs, however, because of a prevailing

notion that their products sell better when marketed thus.

In recent years, a new breed of retailer has emerged.

Some companies now accept orders from consumers all over the

United States who call toll-free telephone numbers to order

wallpaper after having availed themselves of the sample books,

displays and assistance offered by conventional retailers.

Today, purchasers may visit a conventional retailer's showroom,

peruse the sample books, note the brands and product numbers of

the patterns they like, and then go home and order wallpaper at a

discount from an 800-number dealer. This informed decision has,

of course, been funded in part by retailers who will realize no

return on their investment. The 800-number dealer will arrange a

"drop shipment" directly from the manufacturer to the purchasers'

homes.4

Both conventional retailers and 800-number dealers are

members of the National Decorating Products Association (the

4 . In the nomenclature of the marketplace, these 800-number dealers are "free-riders," who reduce or eliminate service to create price competition but who benefit from services such as wallpaper sample books, salesperson advice and showroom displays paid for and provided by other, full-service retailers. See Continental T.V., Inc. v. GTE Sylvania Inc.,

(1977); Big Apple BMW, Inc. v. BMW of North America, Inc.,

(3d Cir. 1992). "NDPA"), a trade association comprised of independent retailers

who sell a variety of decorating products. The NDPA has about

3,300 members who operate approximately 8,500 retail locations.

Its policy is established and its business conducted by an

18-member board of directors. It sponsors a number of trade

shows and educational programs for its members each year. It

also publishes a monthly industry news journal titled Decorating

Retailer, and it formerly published a similar newsletter called

Wallcovering Industry News.

A.

In the late 1970's and early 1980's, conventional

retailers in the NDPA threatened to cease purchasing products

from manufacturers who continued to do business with the

800-number dealers, whom they referred to as "pirates." The NDPA

itself actively campaigned against 800-number dealers by lobbying

manufacturers to recognize the advantages of conventional

retailing and by encouraging them to "level the playing field"

between 800-number dealers and conventional retailers.

For example, Robert Petit, NDPA's executive vice

president and chief executive officer, spoke to manufacturers,

including Michael Landau, president of F. Schumacher & Co.

("FSC") on this subject. Appendix ("App.") at 190-97, 202. In

February, 1983, Petit sent a letter on NDPA letterhead urging

retailers to request from manufacturers sample books that did not

reveal retail prices. Depriving consumers of this information,

Petit argued, would make it more difficult for them to avail

themselves of an 800-number dealer's discount. App. at 523. The NDPA also marketed a "sales piracy kit" for conventional

retailers to use in disguising or concealing pattern numbers and

price information on sample books so that consumers could not so

easily acquire the information and then order elsewhere. App. at

271-73, 407.

In 1985, the Federal Trade Commission ("FTC") issued a

complaint against NDPA because of these activities. In 1986, the

parties entered into a consent decree which provided in part: NDPA . . . shall cease and desist from:

A. Conduct having the purpose or effect of: * * *

Expressly or impliedly advocating, suggesting, advising, or recommending that any of NDPA's . . . members refuse to deal with any seller of wallcoverings on account of, or that any of NDPA's . . . members engage in any other act to affect, or to attempt to affect, the prices, terms or conditions of sale, or distribution methods or choice of customers of any seller of wallcoverings.

App. at 412. The consent decree also provided: IT IS FURTHER ORDERED that this Order shall not be construed to prevent NDPA . . . from publishing written materials or sponsoring seminars, or otherwise providing information or its members' views on topics including but not limited to cost accounting principles, and suggested prices and product identification numbers in wallcovering sample books to other sellers of wallcoverings, provided, however, that the information or views are not presented in a manner constituting a violation of any provision contained in Part II of this Order. Id.5

In the aftermath of this settlement, as required by the

consent decree, NDPA circulated a summary of the consent order in

which it informed members that NDPA, as a group of competitors,

was "already considered to be an `agreement.'" App. at 430. The

NDPA guidelines for conducting meetings, drafted shortly before

entry of the consent decree, also acknowledge that "a trade

association is, by definition, a combination of competitors."

App. at 740. The guidelines further provide that before a

chapter officer delivers a speech or makes a presentation at a

meeting, he or she should state that the views expressed are his

or her own and not those of the NDPA or any chapter. App. at

743.

Since the entry of the consent decree, NDPA has

modified its lobbying efforts to some extent, but it has not

ceased them. The following passage from Petit's deposition

testimony illustrates his view of the effect of the consent

decree on NDPA's lobbying activities: We changed some of the things we were doing. One of the things that the [FTC] objected to us doing was, for example, having a sales piracy kit. Their feeling on that was that -- which we didn't agree with at all [--] that we were projecting a single way for the dealers to take action, and that they felt that this was bad. There was no problem

5 . We may, of course, consider evidence of activity necessitating the entry of the consent decree, as well as the terms of the consent decree itself, as part of the overall picture, or potential evidence of a pattern of conduct. See Big Apple BMW,

; cf. Continental Ore Co. v. Union Carbide & Carbon Corp.,

(1962). with the FTC of enumerating numerous things that might be done, but not to specialize in one particular thing. So, therefore, we did drop the sales piracy kit.

* * *

We took extra care in everything we did to make sure we lived up to that FTC agreement.

App. at 199. Some NDPA members apparently believe NDPA has

substantially altered its activities; one poll revealed that

members have resigned because the NDPA is "not doing anything in

regard to the sales piracy issue." App. at 200. Petit, however,

has continued to impart to manufacturers, including Landau, his

view of the advantages of conventional retailing over other

methods of marketing wallcovering, such as 800-number sales.

App. at 198.

B.

The sentiment against 800-number dealers continued to

escalate even after the consent decree was entered. Decorating

Retailer published several letters from NDPA members, including

some retailers who were former or current NDPA officers, urging

action against the 800-number dealers. Its editor, John Rogers,

often solicited comment for the letters column by sending a

variety of articles from a forthcoming issue to a number of

people in the industry. In each issue of Decorating Retailer, a

standard statement appeared in the letters column apprising the

reader that: "The editor reserves the right to edit to fit space

limitations or publishing policies. Opinions expressed are those of the writer and not necessarily those of the editor." E.g.,

app. at 496.

Decorating Retailer and Wallcovering Industry News also

printed several news articles about 800-number dealers, most of

which used the term "pirates" among other characterizations to

describe them. In May, 1988, one editorial -- a Perspective

column in Decorating Retailer -- stated that "[t]here are

increasing signs that the retailer's voice crying in the

wallcovering wilderness is being heard," and cited many

developments in the industry, such as "a sudden advent of bar

coding kits for retailer protection of sample book pattern

numbers," as signs that wallpaper suppliers were responding to

retailers' needs. App. at 758.

C.

Undoubtedly, FSC, a leading manufacturer which had

always promoted the traditional method of marketing

wallcoverings, heard the complaints. In July, 1988, it announced

a drop shipment surcharge on wallcovering deliveries directly to

consumers, to take effect in September, 1988. App. at 298-99.

Under this new policy, FSC would impose a 7 percent surcharge on

every order requesting drop shipment. Obviously, this would have

the effect of increasing the 800-number dealers' costs while

decreasing their ability to compete on the basis of price with

conventional retailers.

The minutes from FSC's management committee meeting in

April, 1988, state that it considered the policy to be a signal

to conventional retailers that FSC was trying to help them. App. at 290. A draft press release, later revised, identified

the protection of dealers from piracy as one reason for the

surcharge. Compare app. at 298-99 with app. at 1364-65. Minutes

from September, 1989, reveal that the management committee viewed

the drop shipment surcharge as "a good first step" against

800-number dealers. App. at 304.

Beyond merely responding to dealer complaints, FSC also

claimed that the surcharge was, in part, intended to recoup

increased costs of drop shipments. It did not, however, employ

any particular formula or calculations to arrive at its surcharge

figure or to determine its basis for recoupment. Nor did it

consult any source regarding or otherwise study such costs,

although the record contains statements by another manufacturer

indicating that his costs for drop shipments were no higher than

for shipments to stores. App. at 148-49, 622.

Predictably, retailers responded favorably to the

imposition of the surcharge. For example, in September, 1988, a

Decorating Retailer editor's note responding to a letter about

800-number dealers' advertisements stated that "there are signs

that telling your troubles to suppliers eventually will be heard

and some remedy may result." App. at 485.

Yet the retailers were not entirely satisfied. In

January, 1989, at a convention in Halifax, Nova Scotia, Petit

revisited the issue of 800-number dealers and the problems they

posed for the industry. An August, 1989 memo shows that Petit

spoke to at least one manufacturer about "the anger felt by the

retailers in lack of support from the wallcovering industry." App. at 185-86. See also app. at 190-98, 201-07, 212-29, 404,

416-19, 693-99, 700. During this period, NDPA officer Clyde

Morgan also expressed "concern about the 800-number and the

effect it was having on me" at a meeting of industry leaders.

App. at 183.

The fall 1989 planning session at FSC also reflected

continuing concerns about 800-number dealers. In September,

1989, soon after an NDPA meeting, Landau stated at a management

committee meeting that the surcharge was a good first step but

that other measures were necessary. App. at 304. An October,

1989 memo asked whether "we [should] make another anti-pirate

move? If so, what?" App. at 793. In November, 1989, Landau

reported to the management committee what he had learned at an

NDPA trade show: "retailers squeezed by mass market & 800 #'s."

App. at 307. The minutes from that committee's meeting also

include the following entry: "800 #s: Meeting with attorneys

next week to formulate new strategy." App. at 309.

D.

In January, 1990, FSC announced a local trading policy

to be implemented in March, 1990. App. at 694-97. FSC dealers

would be prohibited from selling FSC products outside of their

"local trading area," thus effectively prohibiting 800-number

dealers from selling FSC's products nationwide through their

toll-free telephone numbers. Immediately after this policy was

announced, Petit circulated a copy of it to the NDPA board of

directors, saying, "This is a major step forward in our battle

against the 800-number operators." App. at 693. He also sent a letter to Landau on NDPA letterhead stating, "On behalf of the

members of our decorating products associations, I want to

express our appreciation of your actions." App. at 700.

Five FSC executives testified that the purpose of the

local trading area policy was to ensure that FSC dealers would

realize a return on their investments in sample books and other

FSC overhead. App. at 1215, 1218-19, 1222-23, 1238-40, 1249-50,

1340-43, 1520-22, 1550-52. FSC's vice president of sales

testified that if FSC had not taken action against the 800-number

dealers, it "would continue to have resistance to purchasing

sample books with the piracy issue." App. at 691. Indeed, there

were several references in planning meetings to safeguarding

against free riders and supporting conventional retailers.

Shortly thereafter, according to Decorating Retailer

and Wallcovering Industry News articles, NDPA president John

Wells spoke at a trade show in Anaheim, California. The articles

describe Wells as urging that "[i]nsisting on supplier support

rather than coding books is the answer to piracy problems

besetting wallcovering retailers." App. at 440. At the same

show Petit, according to one of the articles, applauded

manufacturers' efforts to fight 800-number dealers.

In

accordance with NDPA guidelines, Wells specifically stated that

his views were his own as an independent retailer, but the

articles refer both to him and to Petit in their NDPA

capacities.6

6 . FSC and NDPA argue that these articles constitute inadmissible hearsay. Plaintiffs respond that the articles are In May, 1990, Rogers wrote a Perspective column in

which he discussed the retailers' opposition to 800-number

dealers, reviewed some of the methods retailers had adopted to

guard against 800-number dealers' taking their business, and

stated, "ultimately, the answer for the individual dealer is that

given by Wells: `I will support those who support me.'" App. at

167. Rogers testified that while the Perspective column does not

represent the policy of the NDPA, to his knowledge there has not

been an occasion when a comment published in it has contravened

NDPA's policies.

Both before and after it instituted the policies in

question, FSC received letters from retailers urging it to take

action against the 800-number dealers. Meanwhile, during this

period the FTC repeatedly responded to inquiries from plaintiffs

with the assurance that, in its view, NDPA was in compliance with

the consent decree entered into in 1986.

E.

Anti-800 number dealer sentiment was not confined to

retailers' ranks; manufacturers were also discussing 800-number

dealers among themselves. Between 1988 and 1990, wallpaper

manufacturers discussed 800-number dealers at meetings of the (..continued) admissible as statements of NDPA, having been published in its own publications. See Fed. R. Evid. 801(d)(2) (statements are not hearsay if they are offered against a party and are statements of which the party has "manifested his adoption or belief in its truth"). We agree: an employee of NDPA had to have written these articles, which were adopted by NDPA when it published them in Decorating Retailer and Wallcovering Industry News. Wells' statements as reflected in the articles are, therefore, admissible. Wallcovering Manufacturers Association ("WMA"), an organization

in which Landau served as a member of the board of directors.

In April, 1988, for example, Landau reported to the FSC

management committee that there had been "extensive discussion

pirate situation" at the WMA meeting in Hilton Head. App. at

292. Manufacturers also discussed bar-coding, in the context of

either "pirate-proofing" sample books or standardizing labels and

shipping containers. FSC discussed with other manufacturers

steps they were taking to combat 800-number dealers, such as

engaging in cooperative advertising, imposing state sales taxes

and imposing local trading policies.

800-number dealers were also discussed at conventions

sponsored by a chain of wallcovering stores called Wallpaper-To-

Go. App. at 313, 315. FSC officials and other wallcovering

manufacturers deny that they agreed with other manufacturers to

take action against the 800-number dealers, however. See FSC's

brief at 42.

Other manufacturers reacted against the 800-number

dealers in much the same fashion as FSC did. In April, 1988, the

owner of one company wrote an open letter to manufacturers about

800-number dealers. In it, he suggested that a task force be

formed to establish an "effective, standard and universal method

of `[p]irate-[p]roofing' sample books." App. at 884. At least

one manufacturer took a step in that direction and coded its

sample books so that style and price information could not easily

be discerned. App. at 139-41. Another imposed a local trading

policy, app. at 130-38, 151, and another tried, but discontinued, a cooperative advertising program with conventional retailers.

App. at 127-28. By August, 1989, two more manufacturers had

imposed a drop shipment surcharge. App. at 160, 789.

III.

In May, 1990, plaintiffs filed suit against NDPA and

FSC. Their amended complaint, filed in January, 1991, contained

twelve counts, the first four of which provide the central focus

for this appeal. In Count I, they alleged that "[t]he individual

retail wallcovering dealers, acting through the NDPA" violated

section 1 of the Sherman Act by entering into a horizontal

conspiracy to eliminate the competition posed by 800-number

dealers. In Count II, the plaintiffs alleged that in response to

the pressure exerted by the NDPA, FSC joined NDPA in a vertical

conspiracy similarly designed to thwart competition. In

Counts III and IV, the plaintiffs alleged that FSC entered into a

conspiracy with other, unnamed, wallcovering manufacturers aimed

at eliminating 800-number dealers. Specifically, plaintiffs

challenged FSC's imposition of the drop shipment surcharge and

its adoption of a local trading policy as being directed at

them.7

Plaintiffs also alleged a claim under section 2(d) of

the Clayton Act,

(d); state-law antitrust and

7 . Their amended complaint indicates that plaintiffs originally were concerned about two additional FSC policies: FSC's failure to discuss cooperative advertising possibilities with 800-number dealers though it did so with conventional retailers, and FSC's charging state sales tax on drop shipments. These policies, however, are not subjects of this appeal. restraint of trade violations; tortious interference with

contracts and prospective contractual relations; fraud and

misrepresentation; defamation and commercial disparagement and

breach of contract. In turn, FSC asserted various counterclaims

against the 800-number dealers.

The district court granted defendants' motions for

summary judgment on Counts I through IV and granted both

plaintiffs and defendants summary judgment on various other

claims and counterclaims. Thereafter, the parties settled those

claims which had not been disposed of, and plaintiffs filed this

appeal challenging the district court's decision on Counts I

through IV, the state-law antitrust claims, the tortious

interference claim and the defamation claim against NDPA.

The district court had jurisdiction over this case

pursuant to

, and we exercise jurisdiction

pursuant to

In our analysis of each of the

8 . NDPA and FSC argue that we lack jurisdiction over this appeal because the district court failed to enter a judgment on a separate document in accordance with Rule 58 of the Federal Rules of Civil Procedure and had not yet awarded costs in accordance with Rule 54(d) of the Federal Rules of Civil Procedure.

In Bankers Trust Co. v. Mallis,

(1978) (per curiam), however, the Supreme Court recognized that the rules of civil procedure requiring entry of judgment on a separate document should be interpreted in a common-sense fashion. "If, by error, a separate judgment is not filed before a party appeals, nothing but delay would flow from requiring the court of appeals to dismiss the appeal." Mallis,

. See also International Brotherhood of Teamsters v. Western Pennsylvania Motor Carriers Assoc.,

(3d Cir. 1981). The district court's failure to enter judgment in accordance with the dictates of Rule 58 appears to stem from oversight. No other plausible suggestion has been advanced. Thus, we reject this jurisdictional argument. plaintiffs' Sherman Act claims, which allege three distinct

antitrust theories of liability, we proceed from the premise that

"plaintiffs should be given the full benefit of their proof

without tightly compartmentalizing the various factual components

and wiping the slate clean after scrutiny of each." Continental

Ore Co. v. Union Carbide & Carbon Corp.,

(1962).

IV.

At Count I, in which plaintiffs named only NDPA as a

defendant, they alleged that conventional retailers, acting

through the NDPA, conspired to pressure manufacturers to

eliminate them from the marketplace. The district court examined

the record for evidence of "officially sanctioned NDPA activity,"

found none, and ruled that plaintiffs could not meet the

"concerted action" requirement because "[t]he NDPA can only act

pursuant to a resolution from its board and no such resolution

has been identified." App. at 37. We will reverse.

A.

It is both uncontested and uncontestable that NDPA is

an association of competing wallpaper dealers. As such, when

NDPA takes action it has engaged in concerted action so as to

trigger potential section 1 liability. Weiss,

(..continued)

As to costs, we note that the parties' stipulation of settlement, which disposed of those counts as to which the district court had not granted summary judgment and which was entered as an order by the district court, provided that each party was to bear its own costs, thus implicitly if not actually resolving any Rule 54(d) issue. (hospital executive committee's actions are concerted action

within the meaning on section 1). "[A]ntitrust policy requires

the courts to seek the economic substance of an arrangement, not

merely its form." Weiss,

. The actions of a

group of competitors taken in one name present the same potential

evils as do the actions of a group of competitors who have not

created a formal organization within which to operate. See

("[w]here such associations exist, their actions are

subject to scrutiny under section 1 . . . in order to insure that

their members do not abuse otherwise legitimate organizations to

secure an unfair advantage over their competitors"). See also

Silver v. New York Stock Exchange,

(1963);

Associated Press v. United States,

(1945).

We agree with NDPA's contention, however, that NDPA can

only be held liable for concerted action if it acted as an

entity. See Nanavati v. Burdette Tomlin Memorial Hospital,

(3d Cir. 1988) (Weiss holds that when a group of

competitors "acts as a body, it constitutes a `combination'").

In Nanavati, we held that although the actions of a hospital

executive committee might constitute concerted action, the

committee does not engage in concerted action when it does not

"act[] as an entity in furtherance of the conspiracy."

. As we explained there: Our conclusion in Weiss was premised on the concept that where individual actors take actions as a group, they are a combination for the purposes of those actions. Where no group action is taken, no such combination can exist. In short, we did not hold in Weiss that because the actions of the medical staff constitute the actions of a combination, even where there is no allegation that the staff acted as a group, the `contract, combination or conspiracy' requirement has been met. Such a group is a combination as a matter of law only for the actions it takes as a group.

In Nanavati, the plaintiff did not maintain that the

executive committee took any action as a group.

Instead, he

pointed to the actions of medical staff members who were not on

the executive committee as the basis for his claim. He argued

that the record contained evidence of a boycott against him by

members of the medical staff, so the jury had not erred in

finding that the executive committee had participated in the

boycott. Our search for evidence that members of the executive

committee had acted in furtherance of the boycott yielded none;

thus, we affirmed the district court's grant of judgment n.o.v.

to the executive committee.

Nanavati teaches that concerted action does not exist every time a trade association member speaks or acts. Instead,

in assessing whether a trade association (or any other group of

competitors) has taken concerted action, a court must examine all

the facts and circumstances to determine whether the action taken

was the result of some agreement, tacit or otherwise,9 among 9 . It would be incorrect to require an official board resolution, or other officially sanctioned activity, to impose liability on NDPA. Recognizing that perpetrators of antitrust violations are often sophisticated businessmen, courts regularly permit agreements to be shown by circumstantial evidence. See Big Apple BMW,

; Theatre Enterprises, Inc. v. Paramount Film Distributing Corp.,

(1954). members of the association. See generally Nanavati,

.

Judicial scrutiny of alleged concerted action,

undertaken to determine whether it was the result of an

agreement, is an intricate endeavor. In the straightforward

case, such as when a stock exchange requires disconnection of a

nonmember's private telephone wire, or a hospital executive

committee votes to deny staff privileges to a member, the action

is obviously a result of an agreement which is stamped with the

imprimatur of the association by a vote or passage of a

resolution. See, e.g., Silver,

; Weiss,

. We can hardly say, however, that this case falls within

that genre.

Here, plaintiffs rely on American Society of Mechanical

Engineers, Inc. v. Hydrolevel Corp.,

(1982), to

argue that NDPA took concerted action when its officers spoke out

in protest against the 800-number dealers' business methods and

when NDPA publications included letters complaining about

800-number dealers. In Hydrolevel, the Supreme Court, relying on

general principles of agency law, determined that the American

Society of Mechanical Engineers ("ASME") could be held liable for

the actions of its officers and agents taken with apparent

authority. Writing for the majority, Justice Blackmun held that

imposing liability based upon apparent authority comported with

the intent of the antitrust laws because ASME possessed great

power and the codes and standards it issued influenced policies

and affected entities' abilities to do business. Hydrolevel,

. "When it cloaks its subcommittee officials with the

authority of its reputation, ASME permits those agents to affect

the destinies of businesses and thus gives them the power to

frustrate competition in the marketplace."

.

Imposing antitrust liability on the association for the actions

of its agents would encourage ASME to police its ranks and

prevent the use of associations by one or more competitors to

injure another. See generally

. See also M.

Boudin, Antitrust Doctrine and the Sway of Metaphor, 75 Geo. L.

J. 395, 417-18 (1986).10

In deciding Hydrolevel, the Court rejected ASME's

argument that it should not be held liable unless its agents had

acted with an intent to benefit it. This argument was

irrelevant, the Court held, in part because "[w]hether they

intend to benefit ASME or not, ASME's agents exercise economic

power because they act with the force of the Society's reputation

behind them." Hydrolevel,

. The Court viewed the

imposition of liability regardless of the agents' intent as more

10 . Judge Boudin notes that the Supreme Court in Hydrolevel viewed ASME as an "extra-governmental agency" regulating its own industry. American Society of Mechanical Engineers, Inc. v. Hydrolevel Corp.,

(1982). See M. Boudin, Antitrust Doctrine and the Sway of Metaphor, 75 Geo. L. J. 395, 417 (1986). Indeed, Hydrolevel and many other trade association cases have focused on this role and on associations' standard-setting or industry-regulating activities. See e.g. Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co.,

(1985); Moore v. Boating Industry Assoc.,

(7th Cir. 1987). See generally ABA Antitrust Section, Antitrust Law Developments 86-91 (3d ed. 1992). Notably, the case before us does not involve standard-setting or industry-regulating activity on NDPA's part. consistent with the purposes of antitrust law, since this would

encourage ASME to police its agents so as to prevent the

anticompetitive effects of their using its name and power even in

individual efforts at restraining trade.

The issue presented here, however, is markedly

different. In Hydrolevel, the plaintiff had named three

defendants in its conspiracy claim. Although it is difficult to

discern the exact contours of the alleged conspiracy from the

Hydrolevel opinion, it is quite clear that the plaintiff there

was not seeking to hold ASME liable for concerted action solely

on the basis of actions taken by one official with apparent

authority. The conspiracy alleged apparently was between the

chairman of an ASME standards committee and the plaintiff's

primary competitor; the question before the Court was whether

ASME could be held liable for its agent's anticompetitive

activity in participating in the conspiracy even though no one

else at ASME had authorized the violation. Because a conspiracy

was alleged to have taken place between the ASME official and

another conspirator, the Court did not address the question of

whether an agent with apparent authority can cause a trade

association to be held liable for violating the antitrust laws by

taking action on behalf of the association which would have

amounted to such a violation if the association itself, as a

combination of competitors, had undertaken it.

We believe that the Hydrolevel rule that an association's economic power may justify its being held liable

for the actions of its agents cannot be extended to defeat the "concerted action" requirement of section 1. Imposing liability

on an association, as we did in Weiss, does not abolish or

diminish the first element of section 1 liability; it merely

recognizes that a group of competitors with a unity of purpose

are engaged in concerted action, whether or not they act under

one name. As we explained in Nanavati, in the absence of a

co-conspirator, an association's actions satisfy the concerted

action requirement only when taken in a group capacity. The

potential for antitrust liability arising from the concerted

action of a group such as a trade association, as that liability

may be established by the apparent authority of an agent to speak

on behalf of and bind that association, has not yet been fully

explored in a trade restraint case.11 In Hydrolevel, for

example, the Court described the concept of apparent authority as

one which results in liability on a principal's part for an

agent's torts. Hydrolevel,

. Thus, if an

agent commits fraud, his or her principal is liable if he or she

11 . There is, however, authority for the proposition that a trade association, in and of itself, is a unit of joint action sufficient to constitute a section 1 combination. See G.D. Webster, The Law of Associations § 9a.01[1], 9A3-4 (1991) ("There is no question that an association is a `combination' within the meaning of Section 1 of the Sherman Act. Although a conspiracy requires more than one person, an association, by its very nature a group, satisfies the requirement of joint action. Thus, any association activity which restrains interstate commerce can be violative of Section 1 even if no one acts in concert with the association."); Stephanie W. Kanwit, FTC Enforcement Efforts Involving Trade and Professional Associations, 46 Antitrust L.J. 640, 640 (1977) ("Because trade associations are, by definition, organizations of competitors, they automatically satisfy the combination requirements of § 1 of the Sherman Act.") acted with apparent authority to act on behalf of that principal.

Id. at 566. Similarly, if an agent acting with apparent

authority makes misrepresentations that cause pecuniary loss to a

third party or is "guilty of defamation," the principal is

liable. Id. See also id. at 568; see generally Restatement

(Second) of Agency §§ 215 et seq. (a principal is liable for the

"torts of its servants" and for its "servants' tortious

conduct"). Applying that general principle to the antitrust area

leads us to conclude that a principal will be liable for an

antitrust violation if an agent acting with apparent authority

violates the antitrust laws, as one did in Hydrolevel by

conspiring with another person. See Hydrolevel,

(speaking in terms of finding "ASME . . . civilly liable for the

antitrust violations of its agents acting with apparent

authority" (emphasis added)).

We are dealing here, however, with a trade association

which is charged with violating the antitrust laws by

constituting a horizontal conspiracy to eliminate the 800-number

dealers. Clearly, an association, as a combination of its

members, can violate the antitrust laws through such a

conspiracy. This was the nature of the claim which prompted the

FTC to initiate its complaint against the NDPA in 1985. The

singular characteristic of plaintiffs' allegations here is that

the association is now charged with acting through agents whom it

has imbued with apparent authority. It is uncontested that the

NDPA is highly sophisticated and possesses significant market

power; it is unrealistic to think that such a sophisticated trade association, wary of the antitrust laws, would ingenuously act as

an association in endorsing the type of activity forbidden by the

consent decree.

In considering the antitrust implications of this

situation, though, our first concern must be whether plaintiffs'

allegations demonstrate an antitrust violation. Specifically, we

must determine whether statements by NDPA officers demonstrate

that NDPA recommended that its members refuse to deal with any

seller of wallcoverings on account of the prices or distribution

methods of that seller. We must also determine whether the

evidence could show that the NDPA officers' statements were made

with the apparent authority of the membership of the NDPA for

those officers to act as the NDPA's agents. This method of

analysis is consistent with Hydrolevel, which instructs that a

court must find an antitrust violation before deciding whether to

hold an association liable for that violation by virtue of the

perpetrator's apparent authority.12

B.

Having focused our inquiry not just upon whether Petit

or other NDPA agents might have acted with apparent authority but

also upon whether their actions could constitute an antitrust

12 . We do not, however, require that members of NDPA actually ratify an agent's actions before NDPA may be held liable for them. Such a rule not only would be unrealistic, see supra note 9, but it also would contravene the Court's admonition that agents of trade associations acting with apparent authority exercise the associations' economic power regardless of whether they are acting to benefit the associations. Hydrolevel,

. violation in the absence of that authority, we believe that a

rational jury could find for the plaintiffs if the evidence

presented to us is proven at trial. As noted previously, Petit

has acknowledged that since the entry of the FTC consent decree

he has continued to urge manufacturers to take steps to hinder

800-number dealers in the conduct of their business. App. at

199, 407. He described himself as conveying "the concerns of

NDPA," app. at 191, and he stated that he views it as part of his

job to convey those concerns. App. at 192. Additionally, once

FSC announced its local trading policy, Petit circulated a copy

of it to the NDPA board of directors along with a memorandum

which could be read as triumphant. App. at 693. From this, a

rational juror could infer that Petit viewed himself as being

authorized by the NDPA to make the statements he made.

Moreover, the record contains evidence from which a

rational juror could also infer that Petit's actions represented

concerted action. That is, a jury could find that, while

representing NDPA, Petit went beyond merely voicing complaints to

manufacturers to actually coercing (or attempting to coerce) them

into cooperating in eliminating 800-number dealers. There is

some evidence that Petit emphasized to manufacturers with whom he

met "the anger felt by the retailers in [the] lack of support

from the wallcovering industry." App. at 185. See also app. at

190-98, 218-29. Such evidence, when viewed against the existing

backdrop of urgings from NDPA officers and editors that retailers

should support only those manufacturers who supported them, could

imply a threat of a retailers' boycott if manufacturers did not take steps to help eliminate 800-number dealers from the

marketplace.

In sum, nothing in either the antitrust laws or the FTC

consent decree prohibits NDPA from voicing complaints. Granting

all reasonable inferences to the plaintiffs, however, a rational

jury could find that NDPA did more than serve as a conduit for

members' complaints in this case. It could, for example, find

that NDPA, acting through its officers, threatened a retailers'

boycott of manufacturers and thus could hold NDPA liable for a

section 1 violation. For these reasons, we will reverse the

district court's grant of summary judgment at Count I.

V.

At Count II, plaintiffs alleged that FSC responded to

pressure from the NDPA by conspiring with it to eliminate

800-number wallpaper dealers from the marketplace. Their

allegations flow directly from evidence of FSC's taking actions

to eliminate free riders from the marketplace in response to

conventional retailers' complaints (and, possibly, threats of

boycott). There is no dispute that plaintiffs are free riders,

and there is no question as to the legitimacy of a manufacturer's

desire to rid the marketplace of free riders. See Continental

T.V., Inc. v. GTE Sylvania, Inc.,

(1977); cf. Big

Apple BMW,

. Therefore, the scenario which is

the focus of Count II is as consistent with procompetitive

activity as with allegedly illegal activity. Monsanto, 465 U.S.

at 763. In Monsanto, a case which also involved an alleged

conspiracy to terminate a dealership relationship because of

other dealers' complaints, the Supreme Court noted: Permitting 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. [C]omplaints about price cutters `are natural -- and from the manufacturer's perspective, unavoidable -- reactions by distributors to the activities of their rivals.' Such complaints . . . `arise in the normal course of business and do not indicate illegal concerted action.' . . . Moreover, distributors are an important source of information for manufacturers. In order to assure an efficient distribution system, manufacturers and distributors constantly must coordinate their activities to assure that their product will reach the consumer persuasively and efficiently. To bar a manufacturer from acting solely because the information upon which it acts originated as a price complaint would create an irrational dislocation in the market.

Monsanto, 465 U.S. at 763-64. Thus, we exercise a measure of

caution when drawing inferences from such facts; "a fine line demarcates concerted action that violates antitrust law from

legitimate business practices." Big Apple BMW,

,

citing Monsanto, 465 U.S. at 762-64. See also Matsushita,

n.21.13

13 . In Matsushita, the Supreme Court, in the context of an alleged horizontal price-fixing conspiracy, ruled that the case should not proceed to trial because the petitioners lacked a rational motive to conspire in the manner alleged. It also noted, however, that its ruling was not meant to "imply that, if petitioners had had a plausible reason to conspire, ambiguous conduct could suffice to create a triable issue of conspiracy. Our decision in Monsanto . . . establishes that conduct that is In Big Apple BMW, plaintiffs alleged that BMW of North

America, Inc. ("BMW") had refused to grant automobile dealerships

to them because other dealers had complained about plaintiffs'

high-volume, deep-discount business methods. BMW asserted a

variety of legitimate business reasons for its actions, including

a concern about plaintiffs being "free-rider" dealers.

Plaintiffs, however, presented evidence that they would not have

posed the "free-rider" problem BMW feared, see Big Apple BMW,

, and that a person with the same advertising tactics

as theirs (high-volume, deep-discount "sellathons") had been

granted a BMW franchise.

. They also presented

evidence tending to discredit the other reasons BMW proffered to

support its refusal to grant them a franchise.

.

We reversed the district court's grant of summary

judgment because plaintiffs had advanced evidence tending to

exclude the possibility of BMW's having acted independently from

the complaining dealers. They had "countered each alleged reason

with evidence that both discredits BMW NA's witnesses and

provides independent support for the [plaintiffs'] claim that BMW

NA and its dealers acted in concert to repel" plaintiffs'

competition.

. Similarly, in Arnold Pontiac-GMC, Inc. v. General

Motors Corp.,

(3d Cir. 1986), we reversed a grant of

summary judgment because defendant General Motors Corporation (..continued) as consistent with permissible competition as with illegal conspiracy does not, without more, support even an inference of conspiracy." Matsushita,

n.21. ("GMC") first favorably viewed plaintiff's franchise application,

then heard its dealers' disapproval and threatened

non-cooperation, and then denied the application. GMC had not

expressed concern about the plaintiff's franchise application

until it heard its dealers' complaints. We held that "we must

infer that [the dealers'] conduct contributed to GMC's decision

not to award [the plaintiff] the Buick franchise." Arnold

Pontiac,

.

In marked contrast to Big Apple BMW and Arnold Pontiac,

here the 800-number dealers concede that they are free riders.

It is also undisputed that FSC has for years sold sample books

and promotional materials and has encouraged its dealers to

invest in these and other overhead costs in order to provide

better service to their customers. A jury could find that,

because FSC had for years recognized the importance of selling

service, its actions aimed at 800-number dealers were entirely

consistent with its previously held view of its own self-interest

and do not tend to demonstrate that it acted in conjunction with

anyone in implementing its policies.

On the other hand, however, the record also contains

evidence that may indicate concerted action between FSC and NDPA.

Specifically, plaintiffs highlight two examples of what they

claim to be FSC's assertion of pretextual reasons for its

actions. If FSC in fact advanced reasons for its actions which

were pretextual, this would tend to support an inference that it

acted as part of a conspiracy with conventional retailers. See Big Apple BMW,

. First, plaintiffs point to evidence in FSC's management

committee minutes which contrast the "objective" of its drop

shipment surcharge ("To make statement to industry that we are

trying to help them") with the "rationale" for this surcharge

("To protect legitimate customers, [t]o increase margins in this

area"). App. at 290. They also point to a parallel distinction

between FSC's original and published press releases announcing

the surcharge. The original press release stated: In direct response to retailer requests, we at F. Schumacher & Company are proud to announce that we will assertively support our dealers in their local trading areas and protect them from sales piracy by adding a seven percent surcharge onto all drop shipments . . . While bar coding is a breakthrough for the industry in terms of product identification we feel that it alone is not an entirely effective deterrent against sales piracy . . . . Our approach attacks the problem at its root and makes the accounts who drop ship feel the effects, rather than leaving the responsibility of policing to the retailers.

App. at 298-99. The final press release stated that the policy

was not designed to combat "piracy" but rather to help insure that our consumers receive the best possible service and that our wallcovering brands are supported in the most effective and appropriate manner at retail . . . This policy seeks to encourage all dealers to concentrate their selling efforts exclusively within their own trading areas where they can provide service directly to the consumers to whom they sell the product.

App. at 486.

Plaintiffs argue that these inconsistencies in and

contrasts between the internal and the public explanations of the drop shipment policy reveal that FSC was attempting to disguise

the true reason for its actions. We agree; while the two

statements and the two press releases could be seen as being in

harmony with FSC's explanation that it took the action it did to

protect the investments made by traditional retailers, a jury

might view FSC's apparent desire to use more genteel language

when explaining its actions to the public as implying a sinister

motive.

Second, plaintiffs argue that although FSC acknowledges

that dealer complaints were part of the reason for its surcharge,

at one time it also stated that the surcharge was intended in

part to recoup increased costs associated with drop shipments.

FSC did not, however, use mathematical calculations to arrive at

its surcharge figure; it neither consulted anyone regarding nor

studied such costs, and the record contains statements by another

manufacturer indicating that his costs for drop shipments were no

higher than for shipments to stores. This, plaintiffs argue,

underscores the arbitrariness of the surcharge and evinces FSC's

true, sinister motive.

A lack of market research, while perhaps adding luster

to plaintiffs' contention that the surcharge was arbitrarily

determined, does not necessarily invite an inference that FSC's

statement was an attempt to conceal a conspiracy. It is true

that the seven percent figure did not reflect an analysis of

FSC's costs; however, this does not indicate that FSC was not

pursuing its self interests in imposing it. Nevertheless,

viewing this evidence in conjunction with the press releases and the retailer pressure on FSC, it is not an implausible conclusion

that FSC may have imposed the surcharge without first undertaking

mathematical calculations because it had agreed with others to

impose the surcharge whether it made economic sense or not.

Accordingly, because there is some evidence from which

a rational jury could infer that FSC advanced pretextual reasons

for its policies, and might in turn infer that FSC had acted in

concert with NDPA in deciding to implement policies designed to

injure 800-number dealers, we will reverse the district court's

grant of summary judgment at Count II.

VI.

At Counts III and IV, plaintiffs allege that FSC

conspired with other wallcovering manufacturers to injure the

800-number dealers. We will affirm the district court's grant of

summary judgment as to these counts because plaintiffs' evidence

tends to show only an opportunity to conspire, not an agreement

to do so.

Certainly, direct evidence (or a direct inference) of

an agreement between FSC and other manufacturers regarding

800-number dealers could enable plaintiffs to show concerted

action. The evidence of an agreement, however, amounts to

nothing more than communications on the 800-number subject.

Communications alone, although more suspicious among competitors

than between a manufacturer and its distributors, do not

necessarily result in liability. Tose v. First Pennsylvania

Bank, N.A.,

(3d Cir. 1981). As we have

observed, it is only when those communications rise to the level of an agreement, tacit or otherwise, that they become an

antitrust violation.

Thus, plaintiffs are left to argue that FSC and other

manufacturers conspired based upon their parallel conduct.

"[P]roof of consciously parallel business behavior is

circumstantial evidence from which an agreement, tacit or

express, can be inferred but . . . such evidence, without more,

is insufficient unless the circumstances under which it occurred

make the inference of rational, independent choice less

attractive than that of concerted action." Bogosian v. United

States,

(3d Cir. 1977). The circumstances

necessary to support such an inference are: (a) a showing that

the defendants acted contrary to their own economic interests;

and (b) satisfactory demonstration of a motivation to enter an

agreement.

citing Venzie Corp. v. United States Mineral

Products Co., Inc.,

(3d Cir. 1975). See also

Petruzzi's IGA Supermarkets, Inc. v. Darling Delaware Co., Inc.,

(3d Cir. 1993); Schoenkopf v. Brown & Williamson

Tobacco Corp.,

(3d Cir. 1980).

In particular, when evidence shows communications which

provided an opportunity for agreement, a plaintiff must still

produce evidence permitting an inference that an agreement in

fact existed. Venzie,

. The evidence must give

rise to more than speculation.

In Venzie, for example, plaintiffs contended that two

defendant corporations had agreed to refuse to sell fireproofing

material to them. The record contained evidence that defendants had made numerous telephone calls, at least one of which

concerned the plaintiffs, to each other and had met for lunch.

We held that it was for the jury to assess the credibility of the

defendants' assertions that they had not discussed or agreed upon

the alleged refusal to deal, but, even disregarding statements to

that effect, all that plaintiffs' evidence proved was an

opportunity for an agreement, which would not suffice to support

a verdict. Plaintiffs had failed to highlight evidence

supporting an inference that an agreement in fact existed and

thus could not support a verdict. Venzie,

. See

also Tose,

.

In contrast, a particularly detailed memorandum of a

telephone call can give rise to a reasonable inference of

agreement. In Apex Oil Co. v. DiMauro,

(2d Cir

1987), for example, the plaintiff survived a summary judgment

motion by advancing evidence in the form of detailed memoranda

indicating the existence of an agreement.

In this case, it is conceded that manufacturers

discussed 800-number dealers, and actions they were taking

concerning them, at conventions. The evidence of communications

thus falls somewhere between Venzie, in which there were no notations of the subject matter of the conversations, and Apex

Oil, in which the notations implied an agreement. Plaintiffs,

however, seek to infer an agreement from those communications

despite a lack of independent evidence tending to show an

agreement and in the face of uncontradicted testimony that only

informational exchanges took place. Without more, they cannot do so. Cf. Tose,

(mere disbelief of contrary

testimony does not prove agreement).

We emphasize that unlike actions such as price-cutting,

which provide the classic example of conscious parallelism, FSC's

action was in its economic interests. It is simple syllogistic

reasoning that if FSC was aware that most of its dealers were

conventional retailers, and believed that its products sold

better in the conventional setting, it would conclude that it was

in its economic interests to keep the conventional retailers

satisfied. That FSC may have foregone some short-term

opportunity for sales to 800-number dealers does not suffice to

show it acted contrary to its self-interests when its actions

clearly would benefit it economically in the long term. Tose,

; see P. Areeda, Antitrust Law § 1415e (1986).

FSC's listening to retailers' complaints in no way implies that

there was an agreement among manufacturers to do the same. See

Venzie,

("[t]he absence of action contrary to

one's economic interest renders consciously parallel business

behavior `meaningless, and in no way indicates agreement,'"

quoting Turner, The Definition of Agreement Under the Sherman Act: Conscious Parallelism and Refusals to Deal,

, 681 (1962)); see also Houser v. Fox Theatres Management

Corp,

(3d Cir. 1988) (requiring both

actions contrary to economic interests and motive to conspire).

VII.

Remaining for disposition are the plaintiffs' state-law

antitrust and tort claims. To the extent that their state-law antitrust claims mirror their federal antitrust claims, we will

dispose of those claims in like manner. We will affirm the

district court's disposition of the state-law tort claims.

A.

In Count VI, plaintiffs alleged that the defendants

violated Pennsylvania antitrust law by engaging in the activity

alleged as the basis of Counts I through IV. This allegation

rises or falls with plaintiffs' federal antitrust claims. See

Collins v. Main Line Board of Realtors,

(Pa. 1973);

Schwartz v. Laundry and Linen Supply Drivers' Union,

(Pa. Super. 1940); plaintiffs' brief at 45; FSC's brief at 47-48.

Therefore, our decision with respect to Counts I through IV

disposes of Count VI as well. Count VI survives to the extent

that it is directed toward the theories of liability upon which

Counts I and II are based; to the extent it is a counterpart of

Counts III and IV, however, we will affirm the district court's

grant of summary judgment.

B.

In Count VII, plaintiffs alleged that FSC and NDPA

tortiously interfered with their existing and prospective

contracts. We have previously noted that the "factual

underpinnings" of such intentional interference claims generally

"are intertwined with" the antitrust claims they accompany, see Big Apple BMW,

, but that statement does not

imply that claims of intentional interference with contractual

relations must always survive summary judgment if a plaintiff's

antitrust claims survive. It merely implies what to some might be obvious -- that antitrust violations or other actions in

restraint of trade are examples of improper conduct. We are not

bound, therefore, to reversing on the tortious interference

claims merely because we are reversing on two of plaintiffs'

antitrust claims. Instead, we will affirm the grant of summary

judgment to defendants on Count VII because plaintiffs have

failed to demonstrate that they would be able to present evidence

tending to prove each element of their tortious interference

claims at trial.

To establish a claim of tortious interference with

existing contracts, plaintiffs must prove that the defendants

intentionally and improperly interfered with their performance of

contracts with third persons. Nathanson v. Medical College of

Pennsylvania,

(3d Cir. 1991); Adler, Barish,

Daniels, Levin and Creskoff v. Epstein,

(Pa.

1978). To prove their claims of tortious interference with

prospective contractual relations, plaintiffs likewise must

prove, inter alia, the existence of prospective contracts.

Thompson Coal Co. v. Pike Coal Co.,

(Pa. 1979).

A prospective contract "is something less than a contractual

right, something more than a mere hope[ ]" id.; it exists if there is a reasonable probability that a contract will arise from

the parties' current dealings. Glenn v. Point Park College,

(Pa. 1971).

Plaintiffs have failed to identify with sufficient

precision contracts and prospective contracts which were

interfered with by the defendants. They have likewise failed to identify an existing contract which was terminated because of the

defendants' actions. Nor have they demonstrated a reasonable

probability that they would have entered into prospective

contracts with third parties but for defendants' alleged

interference. See General Sound Telephone Co., Inc. v. AT&T

Communications, Inc.,

(E.D. Pa. 1987).

This case differs in this respect from Big Apple BMW, in which we

reversed a grant of summary judgment on claims of intentional

interference with contractual relations solely because their

"factual underpinnings" were "intertwined with the antitrust

claims" as to which we were reversing a grant of summary

judgment. In Big Apple BMW, the plaintiffs had specified

transactions in which they claimed defendants' actions had

deprived them of specific automobile dealership franchises. In

contrast, in this case, plaintiffs have failed to advance more

than speculation to support their claim of tortious interference;

therefore, we will affirm the district court as to this count.

C.

Finally, in Count X, plaintiffs alleged that the NDPA

defamed them by publishing articles and editorials referring to

800-number dealers as "pirates." Under Pennsylvania law, a

statement is defamatory if it "`tends to so harm the reputation

of another as to lower him in the estimation of the community or

to deter third persons from associating or dealing with him.'"

U.S. Healthcare, Inc. v. Blue Cross of Greater Philadelphia,

(3d Cir. 1990), quoting Birl v. Philadelphia Electric Co.,

(Pa. 1960). To prove their claim, plaintiffs must show: (1) the defamatory character of the

statements; (2) publication by NDPA; (3) the statements'

application to the plaintiffs; (4) an understanding by readers of

the statements' defamatory meaning; and (5) an understanding by

readers of an intent on the part of NDPA to refer to the

plaintiffs. 42 Pa. Cons. Stat. Ann. § 8343(a) (1982); U.S.

Healthcare,

. The law does not require that a

plaintiff be specifically named in an allegedly defamatory

statement, for a statement might be defamatory if, by description

or circumstances, it tends to identify the plaintiff as its

object. Redco Corp. v. CBS, Inc.,

(3d Cir.

1985).

Plaintiffs base their defamation claim upon statements

referring to 800-number dealers in general as "pirates."

Individual group members may sue based upon statements about a

group when the statements were directed toward a "comparatively

small class or group all of whose constituent members may be

readily identified and the recipients of the [statements] are

likely to identify some, if not all, of them as intended objects

of the defamation." Farrell v. Triangle Publications, Inc.,

(Pa. 1960). But no claim arises from a

defamatory remark directed toward a group whose membership is so

numerous that no individual member can reasonably be deemed its

intended object.

. Similarly, no claim exists if, for

any other reason, a reader could not reasonably conclude that the

statements at issue referred to the particular person or persons

alleging defamation.

. Relying upon record evidence indicating that in 1990

there were only 20 to 25 800-number dealers in the industry (app.

at 1123-24), plaintiffs argue that they may base their claim on

statements directed at 800-number dealers in general. Cf.

Restatement (Second) of Torts § 564A, comment c. As noted above,

however, a group's size is not the sole consideration in

determining whether individual members may assert defamation

claims based upon statements about the group. A group may be

relatively small, but statements which disparage it may not serve

as a basis for an individual defamation claim unless a reader

could reasonably connect them to the complaining individual.

In Farrell, for example, one of 13 township

commissioners asserted a defamation claim against a newspaper

which had published a story implicating "a number of township

commissioners and others" in corrupt activity. Farrell,

. The Pennsylvania Supreme Court held that the plaintiff

had stated a claim for defamation. In so holding, however, the

court concentrated not on the size of the group discussed but on

whether readers "knew that the plaintiff was one of the thirteen

commissioners."

. We similarly do not end our inquiry

upon being apprised that there were between 20 and 25 800-number

dealers in 1990; we examine whether the plaintiffs were

"sufficiently identified as [objects of NDPA's statements] to

justifiably warrant a conclusion that [their] individual

reputation[s have] been substantially injured."

.

Here, there is nothing in the record other than the

number of 800-dealers which could support a conclusion that any of the plaintiffs' individual reputations were injured by NDPA's

statements about 800-number dealers in general. Indeed, the

individual identities of this group's members are, by the very

nature of their business, less meaningful than the telephone

numbers they promote to facilitate discount purchases. This

group appears amorphous and ill-defined when compared to the

well-defined group of township commissioners at issue in Farrell.

Plaintiffs have not produced evidence tending to prove that they

belong to such an easily identifiable, cohesive group that a

reader would ascribe statements referring to 800-number dealers

in general as "pirates" to any of them individually. Thus, we

will affirm the district court's grant of summary judgment on

Count X.

VIII.

For the foregoing reasons, we will reverse the district

court's grant of summary judgment as to Counts I and II, as well

as the corresponding portion of Count VI, but will affirm its

disposition of Counts III, IV, VII and X and the remainder of

Count VI. ALVORD-POLK, INC., ET AL., v. F. SCHUMACHER & CO., ET AL. No. 92-1762

STAPLETON, J., concurring in part and dissenting in part:

I would affirm the district court's summary judgment in

favor of the defendants on the vertical conspiracy count and,

accordingly, dissent from Section V of the court's opinion. I am

also unable to join all of Sections IV-A, VII-A, and VII-B. I do

join the remainder of the court's opinion. I comment only on the

trade association aspect of the horizontal conspiracy charge and

on the vertical conspiracy charge.

I.

Trade associations have been held liable for

unreasonably restraining trade in violation of section 1 of the

Sherman Act, even when they have not been accused of contracting,

combining, or conspiring with other unrelated actors. See, e.g., National Soc'y of Professional Eng'rs v. United States,

(1978). Courts, however, have not articulated how a trade

association, by itself, can violate a statute which "does not

prohibit unreasonable restraints on trade as such -- but only

restraints effected by a contract, combination, or conspiracy."

Copperweld Corp. v. Independence Tube Corp.,

(1984).

A sound theory of trade association liability under

section 1 will recognize the anticompetitive potential inherent in an agglomeration of competitors. Indeed, trade associations

have fixed prices, see, e.g., Goldfarb v. Virginia State Bar,

(1975), organized group boycotts, see, e.g., Fashion

Originators' Guild of America, Inc. v. FTC,

(1941),

allocated customers and territories, see, e.g., United States v.

Topco Assoc., Inc.,

(1972), and suppressed potential

competitors, see, e.g., United States v. Women's Sportswear Mfr.

Ass'n,

(1949). A sound theory of trade association

liability, however, also will recognize that some trade

association activities are not necessarily inconsistent with the

preservation of competition. These activities include

cooperative research, market surveys, development of new uses for

products, mutual insurance, publication of trade journals,

advertising, and joint representation before legislative and

administrative agencies. See Julian O. van Kalinowski, Antitrust

Laws and Trade Regulation § 6I.01. Most trade associations are

organized for the purpose of pursuing these kinds of activities

and most members initially join because of the benefit to be

derived therefrom. If such an association thereafter engages in

anticompetitive activity, only a limited number of its members

may be involved in, or even aware of, the change of course.

Finally, a sound theory of trade association liability will

conform with the "well-established" rule that "[a] single person

or entity acting alone is not subject to the strictures of

Section 1." Earl W. Kintner, Federal Antitrust Law § 9.7. The plaintiffs insist that trade association activity

is concerted activity for purposes of section 1. Since any activity of an officer of an association engaged in with apparent

authority is activity of the association under conventional rules

of agency, any such activity, in plaintiffs' view, is thus

concerted activity for purposes of section 1. This logic

eviscerates the concerted action requirement of section 1.14

In my view, the agreement element of a section 1 claim

is satisfied if, but only if, it is shown that two or more of the

association's members have committed themselves to the anti-

competitive activity of the trade association and to the

accomplishment of its objectives. Thus, in the absence of a

conspiracy between the trade association and a third party, the

association can be liable only if some of its members are using

it to unreasonably restrain trade.

Since a trade association is normally controlled by its

members, where an association has engaged in anticompetitive

activity, it normally will not be difficult to show the necessary

agreement among a group of its members. The focus of the theory

on the commitment of its members to anticompetitive activity,

however, has important corollary consequences. One is that

members of the trade association who neither participate nor

knowingly acquiesce in the association's anticompetitive

activity, unlike those who do, will not be held liable along with

the association. See, e.g., Kline v. Coldwell, Banker & Co., 508

14 . For the reasons explained in the court's opinion, the agency principles discussed in American Soc'y of Mechanical Eng'rs v. Hydrolevel Corp.,

(1982), and the Supreme Court's application of those principles in that case are not pertinent until a violation of section 1 has been established. F.2d 226 (9th Cir. 1974), cert. denied,

(1975);

Phelps Dodge Refining Corp. v. FTC,

(2d Cir. 1943);

see generally, Earl W. Kinter, Federal Antitrust Law § 9.16.

Another collateral consequence of this theory of

concerted activity is that, in the absence of membership

commitment to an activity engaged in by an association officer or

a conspiracy between the officer and some other entity, the

activity of the officer is not concerted activity. It seems to

me that this must be true without regard to whether the officer

had apparent authority to act as he did, although evidence

supporting the existence of apparent authority may also

constitute circumstantial evidence tending to show concerted

activity on the part of the members of the association.

As the district court recognized, if NDPA's directors,

acting on behalf of the retailers they represent, had passed a

resolution instructing its officers to recruit retailers for a

boycott of any manufacturer who dealt with 800-number dealers and

to threaten manufacturers with such a boycott, and an officer of

the association had carried out this directive, the association

clearly would have engaged in concerted activity for purposes of

section 1. As the district court emphasized, there is no

evidence of such formal corporate action in this record.

The district court erred, however, by not continuing

its inquiry beyond this level. If NDPA's directors did not pass

such a resolution but, acting on behalf of the retailers they

represented, tacitly agreed among themselves to so instruct

NDPA's officers, the association would just as surely be engaged in concerted activity when an officer carried out this agreement.

In this situation, as in the first, NDPA would have been used by

its members, through their representatives on the board, to

engage in concerted activity. The same would be true if an

officer of the NDPA had initiated this kind of anti-competitive

activity without the knowledge or approval of the board and the

board, after learning of it, had approved or acquiesced in it.

As a matter of antitrust theory, however, I do not think that an

activity of an NDPA officer, even if engaged in with apparent

authority, can constitute concerted activity in the absence of

some basis for inferring member commitment to that activity.

With this theoretical background, I turn to the summary

judgment record in this case. Plaintiffs urge that a trier of

fact could infer from the present record that officers of NDPA,

with the approval of NDPA's board and the retailers they

represent, threatened FSC and other manufacturers with a dealer

boycott if they did not take measures against the 800-number

dealers. I do not understand the defendants to urge at this

stage that such an inference would not provide a satisfactory

basis for imposing section 1 liability.15 They do insist,

however, that such an inference cannot reasonably be drawn from

the current record. While the issue is a close one, I think

there is enough evidence to make the plaintiffs' inference a

permissible one. 15 . I express no opinion on whether the activities the defendants are accused of engaging in constitute an unreasonable restraint of trade within the meaning of section 1 of the Sherman Act. Mr. Petit, the CEO of NDPA, candidly acknowledged

speaking directly to numerous manufacturers after the consent

decree about the concerns of conventional retailers regarding

800-number dealers. Given the past history of the matter and Mr.

Petit's view that the scope of FTC's consent decree was of very

limited effect, a rational trier of fact could infer that Mr.

Petit continued, after the decree, not only to express to

manufacturers the concerns of the conventional dealers, but also

to call upon them to take specific steps to thwart the 800-number

dealers. When he spoke to manufacturers about this matter, he

spoke on behalf of the NDPA. As he testified, he spoke about

"the concerns of the NDPA." App. 191. Clearly, he viewed

himself as authorized by the NDPA to say what he did. As he put

it, "That's my job," referring to his campaign among the

manufacturers. App. 192.

As the defendants stress, there is no direct evidence

of a threat of a boycott by Mr. Petit or anyone else on NDPA's

behalf. There is, however, evidence that Mr. Petit emphasized to

the manufacturers "the anger felt by the retailers in [the] lack

of support from the wallcovering industry," App. 185, and that

his demands for action by the manufacturers came against a

background of public, oral and written advice from NDPA officers

that conventional retailers should deal only with those

manufacturers who supported them. When one adds to this evidence

the fact that some manufacturers did respond with measures

against the 800-number dealers, I believe a trier of fact could conclude that a boycott threat was intended by the NDPA officers

and understood by the manufacturers.

Finally, if a trier of fact inferred that NDPA officers

implicitly threatened a boycott, it would be permissible for the

trier of fact to further infer that the NDPA board members knew

of the boycott threat and at least tacitly approved it. Mr.

Petit's triumphant memorandum of January 29, 1990, to the board

members is strong circumstantial evidence supporting this view.

That memorandum, it will be recalled, declared that FSC's

decision not to sell to the "sales pirates" was "a major step

forward in our battle against the 800-number operators." App.

693 (emphasis added). There is, in addition, evidence that the

board regularly discussed this matter and it was receiving

intense pressure from NDPA membership to do something about the

problem. Thus, like my colleagues, I would reverse the district

court's summary judgment in favor of the defendants on the

horizontal conspiracy charge.

II.

Turning to the charged vertical conspiracy, I start

with the undisputed propositions that (1) potential purchasers of

wallcovering normally desire to view samples of the merchandise

before making a purchase, (2) as a result, FSC has for years sold

sample books and promotional materials and has for years

encouraged other investment from its retailers to facilitate

customer selection and satisfaction, and (3) the 800-number

retailers are free riders as far as that investment is concerned. Since FSC cannot long remain successfully in business if its

retailers are unwilling to make the investment necessary to

facilitate customer selection and satisfaction, FSC has a

legitimate and compelling interest in making sure free riders do

not maintain a competitive advantage over retailers who are

willing to make that investment. Nothing in this record tends to

show that FSC took any action with respect to the plaintiffs

other than to serve this interest. In particular, there is no

evidence from which a finder of fact could infer a retail price

maintenance conspiracy involving FSC. Under the now-familiar

teachings of Monsanto Co. v. Spray-Rite Service Corp.,

(1984), the mere fact that FSC's conventional retailers

complained and FSC acted in response to those complaints does not

preclude summary judgment for the defendants.

In Monsanto, a manufacturer and some of its

distributors allegedly conspired to sanction a discount

distributor. The Supreme Court began its analysis by noting that

section 1 outlaws only some sanctions against a discount

distributor: unilateral conduct is not forbidden and concerted

action is per se illegal only when it fixes prices.

at 760-

61. The Supreme Court then observed that these distinctions are

often difficult to apply in practice because the economic effect

of legal and illegal conduct can be similar -- indeed, "judged

from a distance, the conduct of the parties in the various

situations can be indistinguishable."

. Care, the

Supreme Court directed, should be taken in inferring a conspiracy

from highly ambiguous evidence, lest perfectly legitimate conduct is deterred or penalized.

. The Supreme Court went on

to hold that a vertical conspiracy cannot be inferred solely from

evidence of complaints from distributors to a manufacturer about

a discount distributor and a resulting termination of the

discount distributor: Permitting 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. . . . Moreover, distributors are an important source of information for manufacturers. In order to assure an efficient distribution system, manufacturers and distributors constantly must coordinate their activities to assure that their product will reach the consumer persuasively and efficiently. To bar a manufacturer from acting solely because the information upon which it acts originated as a price complaint would create an irrational dislocation in the market. . . .

Thus, something more than evidence of complaints is needed. There must be evidence that tends to exclude the possibility that the manufacturer and nonterminated distributors were acting independently. As Judge Aldisert has written, the antitrust plaintiff should present direct or circumstantial evidence that reasonably tends to prove that the manufacturer and others "had a conscious commitment to a common scheme designed to achieve an unlawful objective."

.

The three pieces of evidence that the plaintiffs in

this case have offered to prove a vertical conspiracy fail to

meet the standard that the Supreme Court set forth in Monsanto.

First, the plaintiffs note that the conventional retailers complained to FSC about the 800-number dealers. Complaints like

these are precisely what the Supreme Court considered in Monsanto

and found to be insufficient to prove a vertical conspiracy: [C]omplaints about price cutters "are natural -- and from the manufacturer's perspective, unavoidable -- reactions by distributors to their rivals." Such complaints, particularly where the manufacturer has imposed a costly set of nonprice restrictions, "arise in the normal course of business and do not indicate illegal concerted action."

(citations omitted). Second, plaintiffs offer evidence that FSC did not use

mathematical calculations from its own cost data to set the drop-

shipment surcharge, even though the surcharge was purportedly

instituted to equalize the costs of deliveries to the

conventional and 800-number retailers. The absence of

mathematical calculation supposedly suggests a vertical

conspiracy: in the words of this court, "FSC may have imposed

the surcharge without first undertaking mathematical calculations

because it had agreed with others to impose the surcharge whether it made economic sense or not."

FSC's determination of the drop-shipment surcharge is

not probative of whether FSC acted alone or in conspiracy with

the conventional retailers. An arbitrarily chosen surcharge is

equally compatible with both unilateral and concerted conduct.

Seeking to end destructive free-riding, FSC might have exercised

its right under United States v. Colgate,

(1919), to

unilaterally limit its dealings with 800-number retailers and,

toward that end, imposed a substantial surcharge to level the playing field for conventional retailers, or even to cripple the

800-number retailers. While I acknowledge that FSC and the

conventional retailers conceivably could have conspired to

cripple the 800-number retailers through a substantial surcharge,

that concession does not preclude summary judgment for the

defendants. Because a surcharge fixed by FSC is equally

compatible with both hypotheses, no inference of conspiracy can

be drawn: "Monsanto . . . establishes that conduct that is as

consistent with permissible competition as with illegal

conspiracy does not, without more, support even an inference of

conspiracy." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio

Corp.,

, 597 n.21 (1986).

Plaintiffs' third piece of evidence of a vertical

conspiracy is the differently-phrased explanations FSC offered in

internal and external communications for the drop-shipment

surcharge. This court observes that "a jury might view FSC's

apparent desire to use more genteel language when explaining its

actions to the public as implying a sinister motive."

FSC's liability under section 1, however, does not turn

on whether FSC had "a sinister motive," but whether it acted

alone or in combination with the conventional retailers. The

varying tones in internal and external communications are

consistent with both hypotheses -- the sanitized language that

FSC used to avoid drawing attention to its moves against the 800-

number dealers could have been the result of either a unilateral

decision to eliminate free-riding or a conspiracy with the

conventional dealers against the 800-number retailers. Once more plaintiffs have presented "highly ambiguous evidence," Monsanto,

, that does not tend "to exclude the possibility

that the manufacturer and nonterminated distributors were acting

independently,"

.

A misreading of Big Apple BMW, Inc. v. BMW of North

America, Inc.,

(3d Cir. 1992), cert. denied,

(1993), may well be responsible for the court's decision

on the vertical conspiracy count. In Big Apple BMW, we noted

that a manufacturer's "inconsistent reasons" for denying a

franchise support an inference of conspiracy with existing

franchisees. Id. at 1374. The court seizes on this language

from Big Apple BMW to argue that FSC's drop-shipment surcharge

and the varying tones of internal and external communication

about the surcharge are inconsistencies which permit an inference

of conspiracy. This analogy is flawed.

In Big Apple BMW, unsuccessful applicants for an

automobile dealership brought a claim under section 1, charging

that the manufacturer and existing dealers conspired to deny them

the dealership because they would have been price cutters. The

plaintiffs identified actions of the defendants which suggested a

conspiracy, but the defendants tendered business reasons for each

of their actions. We found that summary judgment was

inappropriate: even though the defendants had offered

justifications for their actions, these justifications were

"internally inconsistent and inconsistent with [the

manufacturer's] concomitant treatment of [other] dealers." Id. at 1374. For example, the manufacturer claimed that it refused to award a franchise to the applicants because they attempted to

bribe one of its employees; evidence showed that the same

employee solicited the applicants to buy a franchise only a year

after the attempted bribe. Id. at 1368. The manufacturer

claimed that it refused to award a franchise to the applicants

because they would have engaged in price advertising; evidence

showed that other dealers engaged in price advertising. Id. at

1378. The manufacturer claimed that it refused to award a

franchise to the applicants because they would have located their

dealership in an "automall" adjacent to other manufacturers'

dealerships; evidence showed that the manufacturer tolerated

other multi-franchise dealerships. Id. at 1380.

In Big Apple BMW, if the trier of fact believed the

plaintiffs' evidence that tended to show pretext, it would be

left with no reason to believe that the manufacturer acted

unilaterally to advance its own self interest. This case is

fundamentally different. A trier of fact in this case could

believe that FSC did not calculate the drop charge from its cost

data and could agree with every inference plaintiffs seek to draw

from the draft press release and this would still not alter the

indisputable fact that FSC had a legitimate and compelling self

interest in solving the free rider problem and preserving an

effective distribution system.

Finding no evidence in the record that tends to exclude

the possibility that FSC acted unilaterally against the 800-

number dealers, I would affirm the district court's grant of

summary judgment on the vertical conspiracy count.