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Legal - Dismissal of Dealer Price Fixing Conspiracy Reversed, Headed for Trial

- January 2009

Dismissal of Dealer Price Fixing Conspiracy Reversed, Headed for Trial

An agreement among dealers of the same branded product not to compete with each other on price and not sell outside of their manufacturer-assigned geographic Area of Responsibility is an unlawful price fixing agreement under the antitrust laws. A recent federal appeals court decision examined the level of evidence necessary for a plaintiff complaining about a dealer price fixing conspiracy to avoid summary judgment and have a jury decide on antitrust liability. (Toledo Mack Sales & Service, Inc. v. Mack Trucks, Inc., 3rd Cir., No. 07-1811).

The defendant Mack Trucks produces heavy-duty trucks and sells them for resale through its network of authorized dealers. An important aspect of Mack’s price to the dealer was a transaction-specific discount known as “sales assistance”. The amount of sales assistance that Mack offered a dealer on a particular transaction varied according to potential competition, number of trucks ordered, the customer involved and other factors.

Each dealer had an assigned Area of Responsibility (AOR) although, according to Mack’s stated policy, these areas were not exclusive (i.e., the dealer could sell anywhere). However, in 1989 Mack adopted a written policy of denying any sales assistance to a dealer seeking the discount on an out-of-AOR sale. Mack rescinded this written policy shortly after its adoption; however, the plaintiff claimed Mack nevertheless continued to follow it in actual practice.

The plaintiff, Toledo Mack Sales (“Toledo”), was a Mack truck dealer who aggressively competed against other Mack dealers on price and by regularly selling outside his AOR. Following termination of its distributorship in 2002, Toledo filed suit and claimed Mack’s practice of denying sales assistance for out-of-AOR sales was done at the behest of dealers and in aid to the “gentlemen’s agreements” among dealers not to compete against each other—a classic horizontal price fixing conspiracy.

Toledo’s evidence of the dealer cartel, sufficient to get the case to the jury, was:

Dave Yeager (Toledo’s owner) testified that while attending a dealer meeting in the late 1980’s, two Mack dealers from New Jersey approached him and told him bluntly that “the way it works” in New Jersey is that “dealers don’t compete on price”.

A Mack consultant testified that at a Mack sales meeting in 1999 she heard a Mack employee say that “there was a gentlemen’s agreement among Mack truck dealers that they would sell only in their own AOR’s…[but] some Mack truck dealers did not honor the ‘gentlemen’s agreement’ and engaged in sales efforts in other Mack dealers’ territories.”

A Mack district sales manager from 1988 to 2002 was asked at his deposition whether “some Mack dealers [had] unwritten understandings with other Mack dealers that they wouldn’t compete in each other’s AOR’s.” He responded that “there were some Mack dealers that—and I’ve heard them called gentlemen’s agreements, where they wouldn’t compete in other dealers’ areas…”

The defendant argued this evidence was legally insufficient since Toledo was unable to present the details of any agreement among dealers. However, the appeals court ruled that this evidence is sufficient to “entitle Toledo to place the question [whether there was a dealer price fixing agreement] before the jury.”

Finally, Toledo presented direct evidence that Mack had an unofficial policy of discouraging price competition among its dealers and actively participated in the conspiracy to support their anti-competitive agreements. Mack did so by, among other things, refusing to offer sales assistance (discounts) to dealers who sought to sell outside their AORs. Toledo claimed this policy was a result of an agreement between Mack and its National Distributor Advisory Council (“NVAC”). Mack’s position that this policy was solely the result of Mack’s decision-making was weakened by evidence that the draft policy was discussed thoroughly at a NVAC meeting and recommended by the NVAC members. The NVAC consisted of two Mack executives and seven dealers. As further evidence, Toledo introduced a tape recording of a July 1989 telephone conversation between Yeager (Toledo’s owner) and Mack’s VP of Sales who said:

“…the one thing I can tell you that would be fair and legitimate advice is that I think this policy came about to a large extent because of the voice of the distributor organization [NVAC]…. If it’s probably ever gonna be changed or modified, it will come about as a result of the voice of dealer organization.”

As the court’s opinion notes, over the course of several years Yeager had secretly recorded a number of telephone conversations between himself and various Mack executives, and those recordings featured prominently in Toledo’s evidence at trial.

The appeals court sent the case back to the district court for a jury to decide Toledo’s antitrust claims: did Mack truck dealers enter into “gentlemen’s agreements” not to compete with each other one price; and did Mack Truck enter into an agreement with its dealers that it would delay or deny sales assistance to any dealer who sought to make an out-of-AOR sale.