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Michelman v. Clark-Schwebel Fiber Glass Corp.

decided: April 21, 1976.

CARLYLE MICHELMAN, TRUSTEE OF TEXTURA, LTD. IN BANKRUPTCY PROCEEDINGS, PLAINTIFF-APPELLEE,
v.
CLARK-SCHWEBEL FIBER GLASS CORPORATION, AND BURLINGTON INDUSTRIES, INC., DEFENDANTS-APPELLANTS



Appeal from a judgment entered after a jury trial before Charles H. Tenney, Judge, in the United States District Court for the Southern District of New York, finding that appellants violated § 1 of the Sherman Act, 15 U.S.C. § 1, by conspiring to cut off supplies of goods and credit to Textura, Ltd.

Lumbard, Smith and Mansfield, Circuit Judges.

Author: Mansfield

MANSFIELD, Circuit Judge:

Unraveling the complexities of an antitrust case usually places a heavy burden on all concerned, and perhaps the greatest on the finder of the facts. After a four-week trial before Charles H. Tenney, Judge, of this private antitrust suit for $9,750,000 treble damages under § 4 of the Clayton Act, 15 U.S.C. § 15, by the trustee in bankruptcy of Textura, Ltd. ("Textura"), the jury returned a verdict of $531,617 damages (before trebling) in the plaintiff's favor upon the claim that defendants-appellants, Clark-Schwebel Fiber Glass Corporation ("Clark-Schwebel") and Burlington Industries, Inc. ("Burlington") had violated § 1 of the Sherman Act, 15 U.S.C. § 1, by conspiring to cut off supplies and credit to Textura, thus forcing it out of business. Although the verdict was the product of four days of jury deliberation we are satisfied that, even when the evidence is viewed most favorably to the plaintiff, the verdict cannot be upheld. Accordingly, we must conclude that the defendants' motions for a directed verdict and judgment notwithstanding the verdict should have been granted.

The action was begun on December 9, 1966, in the Southern District of New York by Textura, Ltd. (for which its trustee in bankruptcy, Carlyle Michelman, was later substituted), its wholly-owned subsidiary Fenesta Fabrics, Inc. and Malcolm G. Powrie, majority shareholder and principal officer of Textura, against Clark-Schwebel, Burlington and J. P. Stevens & Co., Inc. ("Stevens"). Textura, a converter of decorative fiber glass fabrics into draperies, alleged that the defendants, who were suppliers of such fabrics, had conspired in violation of § 1 of the Sherman Act, 15 U.S.C. § 1, to restrain trade in the sale of such fabrics by using various means to drive Textura out of business, including the restriction of credit on sales to it, the withholding or delaying of deliveries to it, the shipment of defective merchandise to it and the inducement of its factor, L. F. Dommerich & Co. (which was named as a co-conspirator) to terminate financing of its receivables. In addition to this claim, the trial of which forms the basis of the present appeal, Textura also claimed that in refusing to extend credit to it the defendants had discriminated against it in violation of the Robinson-Patman Act, 15 U.S.C. §§ 13(a) and (e), that the defendants had unlawfully fixed prices of decorative and industrial fiber glass fabrics and that they had monopolized and attempted to monopolize trade and commerce in fiber glass industrial fabrics in violation of § 2 of the Sherman Act, 15 U.S.C. § 2.

Trial of the action was begun on October 15, 1974, before Judge Tenney and a jury. At the close of the plaintiff's case the court directed a verdict for the defendants on the decorative fabrics price-fixing claim and the plaintiff voluntarily dropped the Robinson-Patman Act and monopolization claims. Answering written questions, the jury found that there was a conspiracy between Clark-Schwebel and Burlington to drive Textura out of business but rendered a verdict on that claim in favor of Stevens, which it found not to be a member. It awarded $531,617 single damages to Textura against Clark-Schwebel and Burlington. In addition it rendered a total verdict of $99.56 single damages in favor of Textura against Burlington and Stevens on the industrial fiber glass fabric price-fixing claim. The claims of Powrie and Fenesta Fabrics Inc. were dismissed.

The district court denied defendants' motions made during trial for a directed verdict and their post-verdict motions for judgment notwithstanding the verdict, which were based upon the contention that the evidence was insufficient to support an inference of conspiracy to drive Textura out of business. Upon this appeal the two appellants advance this same contention as the principal ground for reversal. They also seek reversal on the ground that Textura failed to prove that it suffered any damages as a result of the alleged conspiracy or that any such damages were caused by the defendants. In the alternative they seek a new trial because of errors claimed to have been committed in the conduct of the trial.

THE FACTS

A short outline of the undisputed facts with respect to the history of Textura and its dealings with the defendants is essential to our review and analysis of the record. Though Textura's predecessor was formed in 1954,*fn1 the company operated on only a small scale until 1958, when Malcolm G. Powrie, Textura's president, decided to step up the company's operations. Textura's primary business consisted of purchasing bulk fiber glass fabrics from three suppliers -- Clark-Schwebel, Burlington and Stevens -- and converting the fabrics into finished draperies, which were then sold for use as window drapes.

Textura's method of operation represented an innovation in this area. Previously, owners of large office buildings had purchased only venetian blinds as window coverings; those tenants who desired drapes had to buy the drapes themselves on a piecemeal basis. Textura pioneered the bulk sale of fiber glass drapes directly to building owners for use in an entire building, thereby eliminating the need for venetian blinds. Generally, Textura attempted to obtain a specification for use of one of its exclusive fabric styles from the owner of a new building as it was being planned. If successful, Textura would then install the drapes at a later point, sometimes more than two years thereafter, when construction of the building had been completed.

Textura faced obstacles in developing this new method of selling fiber glass drapes. One difficulty arose from the fact that engineering data concerning the effect of venetian blinds on a building's heating and air conditioning requirements were well developed, while similar data concerning fiber glass drapes did not exist. Building owners were thus reluctant to buy drapes rather than venetian blinds because of the difficulty in computing how much heating and air conditioning they might then require. To cope with this problem, Textura engaged heating engineers to develop the relevant data for fiber glass drapes. This research, for which Textura received financial aid from Clark-Schwebel and others, took several years and culminated in the publication of a booklet in early 1965 to be used as a marketing tool in convincing reluctant building owners to buy drapes rather than venetian blinds.

Another difficulty arose from the long delay between Textura's making of a contract to install drapes in a building and the actual installation and receipt of payment by it. To avoid the necessity of financing large amounts of inventory during this period, Textura asked for and received special arrangements from each of the three companies, Burlington, Clark-Schwebel and Stevens, which supplied the bulk fiber glass fabrics used in its draperies.*fn2 While none of these arrangements was ever reduced to writing, Textura was informally allowed to place bulk orders for fabrics with the supplier, which would then weave the fabrics, and hold them in its inventory until Textura called for them. The fabrics were generally held by the supplier for some months, and in some instances, for a year or more before Textura called for delivery and was billed for them by the supplier. Since Textura paid no interest for this investment in inventory, it thus gained a benefit not enjoyed by other customers. Furthermore, while the terms of the supplier's invoice required payment within 30 or 60 days, Textura rarely, if ever, met these terms; often it did not pay until 90 days or more after the invoice date, and on one occasion 140 days later. For the most part, Textura was apparently not charged interest on these overdue bills.

Over the years each supplier periodically would press Textura to "call out" fabrics sooner, and to speed up its payments for fabrics already delivered. However, their methods of trying to obtain prompter payment varied. In 1963, for instance, which was long prior to the alleged conspiracy, Raymond P. Nordheim, Vice President of Clark-Schwebel, wrote Powrie in June, October, and December, asking him to send payments on Textura's account. Burlington, on the other hand, asked Powrie and other stockholders of Textura on various occasions (1957, 1958, 1962 and 1964) to guarantee personally payment of the firm's debts. However, Powrie refused to give such a guarantee.

Until 1964, Textura had operated primarily in California, and had achieved some success in that market; the company showed net profits of $40,091 in 1962, and $49,285 in 1963. However, in 1964, when Textura expanded its sales operations and staff throughout the nation, the expenses involved in this expansion took their toll on the company which, according to the testimony of Powrie, its President, was always a thinly financed company. Textura experienced net losses of $113,788 in 1964 (characterized as "staggering" by Powrie), and $31,195 in 1965 (which made Textura's financial statement look "horrible" according to Powrie). It reported a negative working capital in both years,*fn3 indicating an extremely shaky financial condition.

Textura's financial reverses created increasing concern among its suppliers about payment of Textura's outstanding bills. Each supplier, however, adopted an independent approach to the problem. In early 1965, Burlington succeeded in obtaining from Powrie a personal guarantee, effective until the end of 1965, and an agreement to try to keep Textura's account within 90-day limits and to work toward even prompter payment than that.

Stevens and Clark-Schwebel adopted different measures. In April, 1965, Stevens put a flat $10,000 limit on the credit it would advance to Textura, and demanded that the latter pay bills outstanding in excess of that amount. Clark-Schwebel, during the early part of the year, prodded Textura, sometimes with humor, to speed up its payments,*fn4 but as 1965 drew to a close, its attitude toughened. Clark-Schwebel began charging Textura interest on accounts more than 30 days old, and finally, on December 27, took the drastic step of holding up further shipments of fabric to Textura "until this matter is straightened out." Textura also pressed complaints of its own against Clark-Schwebel during the year; it repeatedly notified Clark-Schwebel that it had received defective fabrics, and unsuccessfully asked the latter to make appropriate adjustments.*fn5

It is against this undisputed background that we turn to 1966, the year of the alleged conspiracy. The principal events relied upon by Textura begin on March 1, 1966. During the first two months of 1966, Textura had made some payments on its account with Clark-Schwebel, and the latter company made some fabric shipments to Textura. The dispute over the quality of fabrics shipped by Clark-Schwebel remained unresolved, however, and on February 27, Textura brought the matter to a head by notifying Clark-Schwebel that it was taking a $30,000 credit on its bills as an offset for damages claimed to have been sustained because of the defective fabrics. This action was contrary to the terms of the contract between the parties, which required arbitration of such disputes. On March 1, Clark-Schwebel retaliated by (1) billing Textura approximately $92,000 for all the fabrics manufactured pursuant to Textura's orders and held in inventory but not yet called out by Textura, (2) refusing to extend credit, and (3) demanding immediate payment of all the outstanding invoices.

Attempts to reach an informal settlement of the dispute were fruitless, and on June 9, Clark-Schwebel initiated a formal arbitration proceeding. There is no evidence that Burlington was involved in Clark-Schwebel's decisions to bill Textura for the fabrics and to take the dispute to arbitration. In fact Burlington did not even learn of Clark-Schwebel's termination of credit to Textura and the possible arbitration of the dispute until June 8, 1966.

The exchange of salvos on February 27 and March 1 virtually ended normal commercial relations between Textura and Clark-Schwebel. While Clark-Schwebel made some shipments of fabric to Textura later in 1966, it did so only for immediate cash payment, and the total shipments amounted to only a small percentage of the previous year's shipments. On July 29 the two companies agreed to settle their dispute, Textura undertaking to accept delivery of and pay cash for $70,000 of the warehoused goods during the next three months, after which it would receive a $12,000 credit as an adjustment of its quality claims. Powrie testified that he told Clark-Schwebel that the terms of the agreement were impossible, and he accepted them only because he had no choice. However, the agreement was later modified at Textura's request and still that company failed to perform it, making only one $5,000 payment during the rest of the year.

Turning to Textura's relations with Burlington in 1966, the personal guarantee which Powrie had executed for Burlington expired on December 31, 1965. On January 5, 1966, Burlington requested a renewal for the year 1966 but Powrie resisted or stalled and the request was unsuccessfully renewed several times during the early part of the year. Despite the refusal to sign the guarantee, however, Burlington, unlike Clark-Schwebel, continued to ship goods on credit to Textura in large quantities through July. Although Burlington held up credit approval of some new orders placed by Textura in March and April, which resulted in certain fabrics (e.g., "Crown") becoming temporarily unavailable to Textura in August and September, it later accepted these orders and another order placed in May to replace some of the fabrics Clark-Schwebel had refused to weave for Textura. Burlington actually wove a large amount of one fabric, "Homespun," previously made for Textura by Clark-Schwebel prior to the breakdown in their relations.

As Powrie later conceded, the news that Clark-Schwebel was putting into arbitration a claim of approximately $90,000 against Textura would, in view of its poor financial condition, naturally tend to make others wary about extending credit to Textura, since a decision in favor of Clark-Schwebel could put Textura in bankruptcy. After the arbitration was filed Burlington renewed its request to Powrie for a personal guarantee of Textura's debts. Stevens also requested a guarantee. However, no such guarantee was given. Although Burlington's shipments to Textura plunged during August and September because of Burlington's delay in approving the new orders placed in March and April, shipments from Burlington rose in October and November as a result of Burlington's later decision to accept the new orders and to continue shipping goods to Textura without a personal guarantee. In return Textura agreed to work to keep its account within 60-day terms. During the period following Clark-Schwebel's filing of the arbitration proceeding, officials of Clark-Schwebel and Burlington discussed in a series of telephone conversations the progress of the Textura-Clark-Schwebel settlement negotiations and other factors relating to Textura's financial stability.

One other blow received by Textura during 1966 deserves mention. Textura depended on its factor, L. F. Dommerich, Inc. to bolster its cash flow by purchasing its accounts receivable. Sometime during the summer of 1966 Dommerich decided to terminate its factoring agreement, and in preparation for that step, built up large cash reserves of approximately $84,000 against Textura's account in July and August of that year, thereby depriving Textura of badly needed cash. Dommerich's notice of termination was sent on August 10, to be effective October 10. The reasons for Dommerich's decision to terminate Textura do not appear on the record, but there is no evidence that the appellants were involved in that decision.*fn6

The termination of the factoring agreement appears to have sealed Textura's fate. Though Dommerich relented to the extent of continuing its factoring operations for Textura into December, Textura's efforts to find another factor did not succeed, and on December ...


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