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TEXACO INC. v. RICKY HASBROUCK

SUPREME COURT OF THE UNITED STATES No. 87-2048 110 S. Ct. 2535, 496 U.S. 543, 110 L. Ed. 2d 492, 58 U.S.L.W. 4807, 1990.SCT.43076 <http://www.versuslaw.com> decided: June 14, 1990. TEXACO INC., PETITIONERv.RICKY HASBROUCK, DBA RICK'S TEXACO, ET AL. On petition for writ of certiorari to the United States Court of Appeals for the Ninth Circuit. Stevens, J., delivered the opinion of the Court, in which Rehnquist, C. J., and Brennan, Marshall, Blackmun, and O'connor, JJ., joined. White, J., filed an opinion concurring in the result. Scalia, J., filed an opinion concurring in the judgment, in which Kennedy, J., joined. Author: Stevens


On petition for writ of certiorari to the United States Court of Appeals for the Ninth Circuit.

Stevens, J., delivered the opinion of the Court, in which Rehnquist, C. J., and Brennan, Marshall, Blackmun, and O'connor, JJ., joined. White, J., filed an opinion concurring in the result. Scalia, J., filed an opinion concurring in the judgment, in which Kennedy, J., joined.

Author: Stevens

Petitioner (Texaco) sold gasoline directly to respondents and several other retailers in Spokane, Washington, at its retail tank wagon prices (RTW) while it granted substantial discounts to two distributors. During the period between 1972 and 1981, the stations supplied by the two distributors increased their sales volume dramatically, while respondents' sales suffered a corresponding decline. Respondents filed an action against Texaco under the Robinson-Patman Amendment to the Clayton Act (Act), 38 Stat. 730, as amended, 49 Stat. 1526, 15 U.S.C. § 13, alleging that the distributor discounts violated § 2(a) of the Act, 15 U.S.C. § 13(a). Respondents recovered treble damages, and the Court of Appeals for the Ninth Circuit affirmed the judgment. We granted certiorari, 490 U.S. (1989), to consider Texaco's contention that legitimate functional discounts do not violate the Act because a seller is not responsible for its customers' independent resale pricing decisions. While we agree with the basic thrust of Texaco's argument, we conclude that in this case it is foreclosed by the facts of record.

 I

Given the jury's general verdict in favor of respondents, disputed questions of fact have been resolved in their favor. There seems, moreover, to be no serious doubt about the character of the market, Texaco's pricing practices, or the relative importance of Texaco's direct sales to retailers ("through put" business) and its sales to distributors. The principal disputes at trial related to questions of causation and damages.

Respondents are 12 independent Texaco retailers. They displayed the Texaco trademark, accepted Texaco credit cards, and bought their gasoline products directly from Texaco. Texaco delivered the gasoline to respondents' stations.

The retail gasoline market in Spokane was highly competitive throughout the damages period, which ran from 1972 to 1981. Stations marketing the nationally advertised Texaco gasoline competed with other major brands as well as with stations featuring independent brands. Moreover, although discounted prices at a nearby Texaco station would have the most obvious impact on a respondent's trade, the cross-city traffic patterns and relatively small size of Spokane produced a city-wide competitive market. See, e. g., App. 244, 283-291. Texaco's through put sales in the Spokane market declined from a monthly volume of 569,269 gallons in 1970 to 389,557 gallons in 1975. Id., at 487-488. Texaco's independent retailers' share of the market for Texaco gas declined from 76% to 49%.*fn1 Ibid. Seven of the respondents' stations were out of business by the end of 1978. Id., at 22-23, R. 501.

The respondents tried unsuccessfully to increase their ability to compete with lower priced stations. Some tried converting from full service to self-service stations. See, e. g., App. 55-56. Two of the respondents sought to buy their own tank trucks and haul their gasoline from Texaco's supply point, but Texaco vetoed that proposal. Id., at 38-41, 59. While the independent retailers struggled, two Spokane gasoline distributors supplied by Texaco prospered. Gull Oil Company (Gull) had its headquarters in Seattle and distributed petroleum products in four western States under its own name. Id., at 94-95. In Spokane it purchased its gas from Texaco at prices that ranged from six to four cents below Texaco's RTW price. Id., at 31-32. Gull resold that product under its own name; the fact that it was being supplied by Texaco was not known by either the public or the respondents. See, e. g., id., at 256. In Spokane, Gull supplied about 15 stations; some were "consignment stations" and some were "commission stations." In both situations Gull retained title to the gasoline until it was pumped into a motorist's tank. In the consignment stations, the station operator set the retail prices, but in the commission stations Gull set the prices and paid the operator a commission. Its policy was to price its gasoline at a penny less than the prevailing price for major brands. Gull employed two truck drivers in Spokane who picked up product at Texaco's bulk plant and delivered it to the Gull stations. It also employed one supervisor in Spokane. Apart from its trucks and investment in retail facilities, Gull apparently owned no assets in that market. App. 96-109, 504-512. At least with respect to the commission stations, Gull is fairly characterized as a retailer of gasoline throughout the relevant period.

The Dompier Oil Company (Dompier) started business in 1954 selling Quaker State Motor Oil. In 1960 it became a full line distributor of Texaco products, and by the mid-1970's its sales of gasoline represented over three-quarters of its business. App. 114-115. Dompier purchased Texaco gasoline at prices of 3.95 cents to 3.65 cents below the RTW price. Dompier thus paid a higher price than Gull, but Dompier, unlike Gull, resold its gas under the Texaco brand names. Id., at 24, 29-30. It supplied about eight to ten Spokane retail stations. In the period prior to October 1974, two of those stations were owned by the president of Dompier but the others were independently operated. See, e. g., id., at 119-121, 147-148. In the early 1970's, Texaco representatives encouraged Dompier to enter the retail business directly, and in 1974 and 1975 it acquired four stations.*fn2 Id., at 114-135, 483-503. Dompier's president estimated at trial that the share of its total gasoline sales made at retail during the middle 1970's was "probably 84 to 90 percent." Id., at 115.

Like Gull, Dompier picked up Texaco's product at the Texaco bulk plant and delivered directly to retail outlets. Unlike Gull, Dompier owned a bulk storage facility, but it was seldom used because its capacity was less than that of many retail stations. Again unlike Gull, Dompier received from Texaco the equivalent of the common carrier rate for delivering the gasoline product to the retail outlets. Thus, in addition to its discount from the RTW price, Dompier made a profit on its hauling function.*fn3 App. 123-131, 186-192, 411-413.

The stations supplied by Dompier regularly sold at retail at lower prices than respondents'. Even before Dompier directly entered the retail business in 1974, its customers were selling to consumers at prices barely above the RTW price. Id., at 329-338; Record 315, 1250-1251. Dompier's sales volume increased continuously and substantially throughout the relevant period. Between 1970 and 1975 its monthly sales volume increased from 155,152 gallons to 462,956 gallons; this represented an increase from 20.7% to almost 50% of Texaco's sales in Spokane. App. 487-488.

There was ample evidence that Texaco executives were well aware of Dompier's dramatic growth and believed that it was attributable to "the magnitude of the distributor discount and the hauling allowance."*fn4 See also, e. g., App. 213-223, 407-413. In response to complaints from individual respondents about Dompier's aggressive pricing, however, Texaco representatives professed that they "couldn't understand it." Record 401-404.

II

Respondents filed suit against Texaco in July 1976. After a four week trial, the jury awarded damages measured by the difference between the RTW price and the price paid by Dompier. As we subsequently decided in J. Truett Payne Co. v. Chrysler Motors Corp., 451 U.S. 557 (1981), this measure of damages was improper. Accordingly, although it rejected Texaco's defenses on the issue of liability,*fn5 the Court of Appeals for the Ninth Circuit remanded the case for a new trial. Hasbrouck v. Texaco, Inc., 663 F.2d 930 (1981), cert. denied, 459 U.S. 828 (1982).

At the second trial, Texaco contended that the special prices to Gull and Dompier were justified by cost savings,*fn6 were the product of a good faith attempt to meet competition,*fn7 and were lawful "functional discounts." The District Court withheld the cost justification defense from the jury because it was not supported by the evidence and the jury rejected the other defenses. It awarded respondents actual damages of $449,900.*fn8 The jury apparently credited the testimony of respondents' expert witness who had estimated what the respondents' profits would have been if they had paid the same prices as the four stations owned by Dompier. See 634 F. Supp. 34, 43; 842 F.2d, at 1043-1044.

In Texaco's motion for judgment notwithstanding the verdict, it claimed as a matter of law that its functional discounts did not adversely affect competition within the meaning of the Act because any injury to respondents was attributable to decisions made independently by Dompier. The District Court denied the motion. In an opinion supplementing its oral ruling denying Texaco's motion for a directed verdict, the Court assumed, arguendo, that Dompier was entitled to a functional discount, even on the gas that was sold at retail,*fn9 but nevertheless concluded that the "presumed legality of functional discounts" had been rebutted by evidence that the amount of the discounts to Gull and Dompier was not reasonably related to the cost of any function that they performed.*fn10 634 F. Supp., at 37-38, and n. 4.

The Court of Appeals affirmed. It reasoned: "As the Supreme Court long ago made clear, and recently reaffirmed, there may be a Robinson-Patman violation even if the favored and disfavored buyers do not compete, so long as the customers of the favored buyer compete with the disfavored buyer or its customers. Morton Salt, 334 U.S. at 43-44 . . .; Perkins v. Standard Oil Co., 395 U.S. 642, 646-47 . . . (1969); Falls City Indus., Inc. v. Vanco Beverages, Inc., 460 U.S. 428, 434-35 (1983). Despite the fact that Dompier and Gull, at least in their capacities as wholesalers, did not compete directly with Hasbrouck, a section 2(a) violation may occur if (1) the discount they received was not cost-based and (2) all or a portion of it was passed on by them to customers of theirs who competed with Hasbrouck. Morton Salt, 384 U.S. at 43-44, . . . ; Perkins v. Standard Oil, 395 U.S. at 648-49, . . . ; see 3 E. Kintner & J. Bauer, supra, § 22.14.

"Hasbrouck presented ample evidence to demonstrate that . . . . the services performed by Gull and Dompier were insubstantial and did not justify the functional discount." 842 F.2d, at 1039.

The Court of Appeals concluded its analysis by observing:

"To hold that price discrimination between a wholesaler and a retailer could never violate the Robinson-Patman Act would leave immune from antitrust scrutiny a discriminatory pricing procedure that can effectively serve to harm competition. We think such a result would be contrary to the ...


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