Bridges v. MacLean

• Court: Court of Appeals for the First Circuit
• Decided: January 6, 2000
• Docket: 99-1126
• Status: Published

Opinion

USCA1 Opinion

                  United States Court of Appeals

                      For the First Circuit

                       ____________________



No. 99-1126



                          SALLY BRIDGES,

                           TAMMY BRADY,



                     Plaintiffs, Appellants,



                                v.



                  MACLEAN-STEVENS STUDIOS, INC.,

                 LAWRENCE MACLEAN, BLAIR MACLEAN,



                      Defendants, Appellees.



                       ____________________



           APPEAL FROM THE UNITED STATES DISTRICT COURT



                    FOR THE DISTRICT OF MAINE



           [Hon. Morton A. Brody, U.S. District Judge]



                       ____________________



                              Before



                     Torruella, Chief Judge,



                 Lynch and Lipez, Circuit Judges.



                      _____________________



    Jon Holder, with whom Holder & Grover, P.A. was on brief, for

appellants.

    John H. Rich III, with whom David B. McConnell, and Perkins

Thompson Hinckley & Keddy were on brief, for appellees.


____________________



                         January 6, 2000

                       ____________________  TORRUELLA, Chief Judge.  This appeal arises from an

antitrust suit involving the school portrait industry.  Plaintiff-

appellants are parents of school-age children who attend schools

that have entered into exclusive contracts with MacLean-Stevens

Studios, Inc.  Defendant-appellees are MacLean-Stevens Studios,

Inc., a photography studio that services the school portrait

market, and its owners Lawrence and Blair MacLean.  Appellants

allege that appellees engaged in commercial bribery in violation of

15 U.S.C.  13(c) (Count I), price discrimination in violation of

15 U.S.C.  13(a) (Count II), and conspiracy to restrain trade in

violation of 15 U.S.C.  1 (Count III).  On December 17, 1998 the

district court entered summary judgment for defendant-appellees on

all counts.  See Bridges v. MacLean-Stevens Studios, Inc., 35 F.

Supp. 2d 20 (D. Me. 1998).  This appeal followed.  Having carefully

considered the record and the law, we affirm.

                            BACKGROUND

  The facts necessary to decide this case are not in

dispute and were aptly summarized by the district court.  Appellee

MacLean-Stevens Studios, Inc. is a New Hampshire corporation that

offers student portrait services in several New England states. 

Appellants are parents of school-age children who attend schools

that have entered into exclusive contracts with MacLean-Stevens. 

These contracts provide that the school will receive a commission

of twenty percent (20%) of the price of the portrait packages sold

and designate MacLean-Stevens as the exclusive provider of

portraits on school property.  As a result, the school portraits

purchased by appellants are priced according to a "commission price

list."  Prices on the commission price list are generally twenty

percent (20%) higher than portrait prices charged by MacLean-

Stevens for children who attend schools that decline a commission. 

The nature and quality of the pictures are identical regardless of

whether the commission price applies.

  It is the schools' decision to accept or decline a

commission.  If a school enters into a contract that provides for

a commission, the commission goes to the school's general fund.  If

a school declines the commission, the reduction in costs is passed

on to parents in the form of lower portrait prices.  Before 1996,

parents were not informed that the prices on the commission price

list included a commission paid to their children's school.  At no

time, however, has a school's contract with MacLean-Stevens

obligated parents to purchase school portraits.

  All schools provide some services to MacLean-Stevens

regardless of whether they accept the commission and designate

MacLean-Stevens as the exclusive portrait provider.  These services

include:  scheduling photo sessions, providing and arranging space

for the photo sessions, distributing the portrait packages to

students, and collecting payment from students in the elementary

grades.  Appellees, in turn, provide yearbook, team, and

identification photos to all schools free of charge.  Appellees

also provide each elementary school student with a free class

portrait.

  In the school portrait industry, the practice of entering

into an exclusive dealing contract that provides for a commission

to the school is not unusual.  Some of appellees' competitors have

even paid commissions of up to fifty percent (50%).  Most of these

contracts, including appellees',  are one-year contracts, but some

have a duration of up to three years.  During the 1995-1996 school

year, MacLean-Stevens had 159 accounts with schools in Maine, 112

of which accepted a commission and designated MacLean-Stevens as

their exclusive photographer, and 49 of which did not.

  In addition to MacLean-Stevens and other photography

studios that take portraits on school property, numerous businesses

in New England offer portrait services off school grounds.  For

example, both Wal-Mart and J.C. Penney have studio photography

services.  Appellants are aware of these options and have purchased

portraits of their children from these businesses on several

occasions.

                            DISCUSSION

I.  Standard of Review

  This Court reviews orders for summary judgment de novo,

construing the record in the light most favorable to the nonmovant

and resolving all reasonable inferences in that party's favor.  See

Houlton Citizens' Coalition v. Town of Houlton, 175 F.3d 178, 184

(1st Cir. 1999) (citing Mullin v. Raytheon Co., 164 F.3d 696, 698

(1st Cir. 1999)).  This standard of review does not limit us to the

district court's rationale; in contrast, we may affirm the entry of

summary judgment on "any ground revealed by the record."  Id.II.  15 U.S.C.  13(c) - Commercial Bribery

  Appellants contend that the commissions paid by MacLean-

Stevens constitute commercial bribery in violation of 15 U.S.C.

 13(c), commonly known as section 2(c) of the Robinson-Patman Act. 

Appellees counter that (1) appellants do not have antitrust 

standing because they have not suffered an antitrust injury; (2)

commercial bribery is not a cognizable claim under  13(c); (3) the

commissions paid to the schools in this case do not cross the

"seller-buyer line" as required by  13(c); (4) the commissions are

lawful pursuant to the statutory exemption for "services rendered";

and (5) appellees have antitrust immunity under the Nonprofit

Institutions Act, 15 U.S.C.  13c.  The district court rejected

appellees' argument that the commissions paid to the schools in

this case were for services rendered, but agreed that the Nonprofit

Institutions Act applied.  See Bridges, 35 F. Supp. 2d at 25.  The

district court further concluded that even if the Nonprofit

Institution Act were not applicable, appellants could not

demonstrate that the schools acted as the agents of parents with

regard to the purchase of school portraits from MacLean-Stevens. 

See id.

  We agree with the district court that, as to the portrait

sales, the schools are not agents or intermediaries of the parents,

and therefore the commission agreements between MacLean-Stevens and

the schools do not violate section 2(c) of the Robinson-Patman Act. 

Accordingly, the entry of summary judgment for appellees was

proper.  We thus need not reach the other arguments addressed by

the district court or raised by appellees.

  Section 2(c) of the Robinson-Patman Act states:

    It shall be unlawful for any person engaged in

  commerce, in the course of such commerce, to

  pay or grant, or to receive or accept,

  anything of value as a commission, brokerage,

  or other compensation, or any allowance or

  discount in lieu thereof, except for services

  rendered in connection with the sale or

  purchase of goods, wares, or merchandise,

  either to the other party to such transaction

  or to an agent, representative, or other

  intermediary therein where such intermediary

  is acting in fact for or in behalf, or is

  subject to the direct or indirect control, of

  any party to such transaction other than the

  person by whom such compensation is so granted

  or paid.



15 U.S.C.  13(c).  The Robinson-Patman Act was enacted "to curb

and prohibit all devices by which large buyers gained

discriminatory preferences over smaller ones by virtue of their

greater purchasing power."   Federal Trade Comm'n v. Henry Broch &

Co., 363 U.S. 166, 168 (1960).  Prior to the statute's enactment in

1936, a congressional inquiry revealed that large buyers and

sellers were circumventing the discriminatory price prohibitions of

the Clayton Act by insisting on indirect price concessions.  See

id. at 168-69.  The most widely used method for obtaining an

indirect price concession was a "dummy broker."  A dummy broker was

a fiction, set up by the buyer, that rendered no services and yet

collected a "brokerage" fee from the seller.  The fictitious broker

then paid the fee to its employer, the buyer.  See id. at 169.

  Although dummy brokers were the primary target of section

2(c), the Supreme Court has stated that Congress "phrased section

2(c) broadly, not only to cover the other methods then in existence

but all other means by which brokerage could be used to effect

price discrimination."  Id.  The Court further indicated, in dicta,

that:

    The Report of the House Judiciary Committee

  described the brokerage provision as dealing

  "with the abuse of the brokerage function for

  purposes of oppressive discrimination."  And

  although not mentioned in the Committee

  Reports, the debates on the bill show clearly

  that  2(c) was intended to proscribe other

  practices such as the "bribing" of a seller's

  broker by the buyer.



Id. at 169-70 n.6 (citations omitted); see also California Motor

Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 513 (1972)

("bribery of a public purchasing agent" could violate section 2(c))

(dictum).  The Senate Report discussing section 2(c) states:

    The relation of the broker to his client is a

  fiduciary one.  To collect from a client for

  services rendered in the interest of a party

  adverse to him, is a violation of that

  relationship;  and to protect those who deal

  in the streams of commerce against breaches of

  faith in its relations of trust, is to foster

  confidence in its processes and promote its

  wholesomeness and volume.



S. Rep. No. 1502, at 7 (1936).

  Against this background, five circuits have concluded

that commercial bribery is within the ambit of section 2(c).  See

Harris v. Duty Free Shoppers Ltd. Partnership, 940 F.2d 1272, 1274

(9th Cir. 1991); Environmental Tectonics v. W.S. Kirkpatrick, Inc.,

847 F.2d 1052, 1066 (3d Cir. 1988); Grace v. E.J. Kozin Co., 538

F.2d 170, 173 (7th Cir. 1976); Fitch v. Kentucky-Tennessee Light &

Power, 136 F.2d 12, 15-16 (6th Cir. 1943).  Other courts, however,

have expressed their doubts.  See Seaboard Supply Co. v. Congoleum

Corp., 770 F.2d 367, 371-72 (3d Cir. 1985); Excel Handbag Co. v.

Edison Bros. Stores, 630 F.2d 379, 387 (5th Cir. 1980).  For

purposes of this appeal, we assume, without deciding, that

commercial bribery is actionable under section 2(c).  Nevertheless,

appellants' claim still fails.

  Appellants argue that the commissions paid by MacLean-

Stevens to the schools on the profit from portrait sales violate

section 2(c).  In order to find a violation of section 2(c), "the

payments involved must be made to a party to the transaction or to

someone connected with that party in an agency, representative, or

intermediary relationship."  Ragen, Inc. v. Sterling Nelson & Sons,

Inc., 351 F.2d 851, 862 (9th Cir. 1965).  In other words, the

payments must cross the "seller-buyer line."  Seaboard Supply Co.,

770 F.2d at 372 ("In the appellate decisions which have found

commercial bribery within the ambit of section 2(c) the common

thread has been the passing of illegal payments from the seller to

buyer or vise versa.").  The Third Circuit explained, "Congress

intended that legitimate brokerage relationships not be affected,"

and therefore liability may only be imposed "when the seller-buyer

line has been passed."  770 F.2d at 372.

  Where a transaction involves a seller, buyer, and a third

party, the seller-buyer line is crossed if the seller or buyer pays

a commission to a third party acting as the agent or intermediary

of the opposing party.  Here, appellants allege that the seller-

buyer line was crossed because the schools acted as intermediaries

on behalf of the parents when they contracted with MacLean-Stevens

for school portrait services.  This argument was considered and

rejected by the Fourth Circuit in Stephen Jay Photography, Ltd. v.

Olan Mills, Inc., 903 F.2d 988, 991 (1990).

  In Stephen Jay Photography, the court was required to

determine if commercial photographers violated the Robinson-Patman

Act by paying commissions to schools on the profit from portrait

packages sold to parents.  The critical inquiry, the court stated,

was "whether, as a matter of law, the payments made from appellees

to the schools from profits on portrait sales crossed the seller-

buyer line."  Id. at 992.  The court concluded that the seller-

buyer line had not been crossed because "circuit court cases

finding commercial bribery in violation of section 2(c) all involve

the corruption of an agency or employment relationship."  Id. at

993 (citing Grace, 538 F.2d 170; Ragen, 351 F.2d 851; Fitch, 136

F.2d 12).  The facts before the court did not meet this test.

    [T]he relationship between the students and

  the schools does not rise to one akin to that

  of agency or employment.  Without such a

  relationship to connect the students'

  purchasing decisions to the schools, the

  payments from the appellees to the schools do

  not cross the seller-buyer line.



Id.  In reaching this result, the court acknowledged that:

    Unquestionably, the schools and the students

  enjoy a special relationship of trust.  And it

  is true that the schools arranged to have

  yearbook photographs taken by appellees and

  encouraged students to purchase portraits from

  them.  However, letters encouraging the

  students to purchase these photographs either

  expressly or implicitly indicated that their

  decision to purchase portraits was optional. 

  From this correspondence it is abundantly

  clear that the schools did not assume a

  position resembling that of a portrait

  purchasing agent for the students.  



Id.

  The core facts of this case are identical to those in

Stephen Jay Photography.  There, as here, "the schools did not have

the authority to bind the [parents] to purchase portraits.  Instead

[parents] were free to purchase portraits from appellees or from a

photographer of their choice, or to purchase no portraits from

anyone."  Id.  Because the schools had no control over the parents'

purchasing decisions, the agency or employment relationship

required by section 2(c) is lacking.  Id.; see also Harris, 940

F.2d at 1275; Environmental Tectonics, 847 F.2d at 1066; Grace, 538

F.2d at 171-73; Ragen, 351 F.2d at 853-58; Fitch, 136 F.2d at 15-

16; Pharmacare v. Caremark, 965 F. Supp. 1411, 1424-25 (D. Haw.

1996); Edison Elec. Inst. v. Henwood, 832 F. Supp. 413, 414-19

(D.D.C. 1993).

  We need look no further than Stephen Jay Photography to

affirm the entry of summary judgment on this issue.  Nonetheless,

we find additional support for our decision in Harris v. Duty Free

Shoppers Ltd. Partnership, 940 F.2d 1272, 1275 (9th Cir. 1991).  In

Harris, the owner of a duty free shop, Peter Harris, filed a

section 2(c) claim for commercial bribery against his competitor

Duty Free Shoppers.  The facts in the case were not in dispute. 

Duty Free Shoppers paid commissions to tour companies and tour

guides to promote its shop with tourists by (1) scheduling stops of

tour buses at the store; (2) supplying the store with advance

information about the number and characteristics of tour groups

that were stopping; (3) distributing promotional materials to the

tourists; (4) assisting the tourists in ordering items; and (5)

explaining the regulations covering duty free merchandise to the

tourists.  Harris, in contrast, did not engage in this practice. 

The district court granted summary judgment in favor of Duty Free

Shoppers, and the Ninth Circuit affirmed.

  On appeal, Harris argued that the district court erred

because there was clearly a fiduciary duty between tour guides and

tourists.  The court agreed that section 2(c) "encompasses cases of

commercial bribery tending to undermine the fiduciary relationship

between a buyer and its agent, representative, or other

intermediary," id. at 1274 (citing Ragen, 351 F.2d at 858), but

concluded that the facts did not indicate that section 2(c) had

been violated.

    [T]he tour guides and tourists are not in an

  employment relationship; the tour guides are

  not shopping experts; and they are not at all

  times subject to the control of the tourists. 

  Moreover, the tourists are free to purchase

  their souvenirs and gift items anywhere; in

  fact, they are free not to purchase at all. 

  On these facts, we hold that tour guides and

  tour operators are not in an agency or

  fiduciary relationship with their passengers,

  nor do they serve as intermediaries subject to

  the direct or indirect control of those

  passengers, with regard to the transactions in

  question -- the purchase of Duty Free's retail

  goods.



Id. at 1275 (internal quotations omitted).  In rejecting Harris'

claim that there was a fiduciary duty between tour guides and

tourists, the court emphasized that its inquiry was limited to the

transaction in question.

    In addressing whether the payments involved

  were made to a party to the transaction or to

  someone connected with that party in an

  agency, and thus fiduciary relationship, . . .

  "[r]eference must be made to the transactions

  in question to determine whether or not the

  necessary relationship exists."



Id. (quoting Ragen, 351 F.2d at 862).

  Here, as in Harris, appellants urge the court to consider

the parties' relationship generally, rather than have the court

examine the "transactions in question."  Id.  We decline to do so. 

Accordingly, we have no problem rejecting appellants' argument that

the schools in this case are subject to the indirect control of

"named plaintiffs in particular and the parents in general."  While

appellants' proposition may be true in some general sense, the only

relevant transaction is the sale and purchase of school portraits. 

As to this limited transaction, the record is clear that the

schools are not in an agency or fiduciary relationship with the

parents, nor do they serve as intermediaries subject to the "direct

or indirect control" of the parents.  Therefore, summary judgment

on this claim was proper.

III.  15 U.S.C.  13(a) - Price Discrimination

  MacLean-Stevens offers its school portrait packages

according to two separate price lists.  A commission price list

applies where a school elects to receive a commission.  In all

other cases, a less expensive, non-commission price list is

offered.  Count II of appellants' amended complaint alleges that

this dual pricing structure constitutes price discrimination in

violation of 15 U.S.C.  13(a).  The statute states:

    It shall be unlawful for any person engaged in

  commerce, in the course of such commerce,

  either directly or indirectly, to discriminate

  in price between different purchasers of

  commodities of like grade and quality, where

  either or any of the purchases involved in

  such discrimination are in commerce, where

  such commodities are sold for use,

  consumption, or resale within the United

  States . . . and where the effect of such

  discrimination may be substantially to lessen 

    competition or tend to create a monopoly in

  any line of commerce, or to injure, destroy,

  or prevent competition with any person who

  either grants or knowingly receives the

  benefit of such discrimination, or with

  customers of either of them:  Provided, That

  nothing herein contained shall prevent

  differentials which make only due allowance

  for differences in the cost of manufacture,

  sale, or delivery resulting from the differing

  methods or quantities in which such

  commodities are to such purchasers sold or

  delivered . . . . 



15 U.S.C.  13(a).



  The Supreme Court has held that there are two

prerequisites to recovery under 15 U.S.C.  13(a).  See Brooke

Group, Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222-

24 (1993).  First, the prices complained of must be below an

appropriate measure of the defendant's costs.  See id.  Second, the

defendant must have a reasonable prospect of recouping its

investment in below-cost prices.  See id.  In this case, the

district court concluded that appellants had failed to raise a

genuine issue of fact as to either requirement.  See Bridges, 35 F.

Supp. 2d at 28.  We agree.

  First, there is no evidence in the record that appellees

offer portrait packages at below cost.  As the district court

accurately concluded, appellees' dual pricing structure is the

result of a difference in market costs.  Where a school elects to

receive a commission, the prices of portraits are increased by the

additional cost of the commission.  Where, however, a school

declines the commission, the lower price of portraits reflects a

decrease in the cost of production.  Accordingly, the prices

complained of are not below "an appropriate measure of the

defendant's costs."  See Brooke Group, 509 U.S. at 222-24; see also

Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 230-36 (1st

Cir. 1983) (holding Sherman Act does not prohibit prices that

exceed both incremental and average costs).

  Second, even accepting appellants' argument that the non-

commission portrait packages are below cost, appellants cannot

demonstrate that MacLean-Stevens has a reasonable prospect of

recouping any investment in below-cost prices.  The Supreme Court

has stated:

    Determining whether recoupment of predatory

  losses is likely requires an estimate of the

  cost of the alleged predation and a close

  analysis of both the scheme alleged by the

  plaintiff and the structure and conditions of

  the relevant market.  If market circumstances

  or deficiencies in proof would bar a

  reasonable jury from finding that the scheme

  alleged would likely result in sustained

  supracompetitive pricing, the plaintiff's case

  has failed.



Brooke Group, 509 U.S. at 226 (citation omitted).  Therefore,

"where the market is highly diffuse and competitive, or where new

entry is easy . . . summary disposition of the case is

appropriate."  Id.  Here, the record indicates that (1) MacLean-

Stevens does not control a dominant share of the school photography

market and (2) there are relatively few barriers to entry in that

market.  Conversely, there is no indication in the record that

MacLean-Steven could maintain supracompetitive prices. 

Accordingly, appellants' price discrimination claim fails as a

matter of law.

IV.  15 U.S.C.  1 - Restraint of Trade

  Count III of appellants' complaint alleges a

"conspirac[y] between the [appellees] and the schools to engage in

the form of commercial bribery described herein in order to gain a

competitive edge" in violation of 15 U.S.C.  1.  The statute

states: "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 hereby declared to

be illegal."  15 U.S.C.  1.

  Appellants have provided the Court with no citations and

little argument in support of this claim.  The district court, for

its part, concluded that Count III is contrary to both law and

logic.  See Bridges, 35 F. Supp. at 29.  Once again, we agree.

  First, appellants offer no evidence of a conspiracy other

than the exclusive contracts between MacLean-Stevens and the

schools.  As a matter of law, a contract by itself does not

constitute a conspiracy.  See Stephen Jay Photography, 903 F.2d at

995; Burns v. Cover Studios, Inc., 818 F. Supp. 888, 893 (W.D. Pa.

1993).   Therefore, without at least some explanation of "how the

contracts operated to restrain trade," Stephen Jay Photography, 903

F.2d at 995, appellants cannot prevail on a section 1 conspiracy

claim.  Second, appellants have offered no evidence of any

concerted activity, "an essential element of a section 1 claim." 

Id. at 994.  Third, we note that there is no evidence in the record

that the exclusive contracts between MacLean-Stevens and the

schools have an anticompetitive effect or foreclose a substantial

percentage of the school portrait market.  See U.S. Healthcare,

Inc. v. Healthsource, Inc., 986 F.2d 589, 595 (1st Cir. 1993).

  Finally, the Supreme Court has stated "if the factual

context renders respondents' claim implausible - if the claim is

one that simply makes no economic sense - respondents must come

forward with more persuasive evidence to support their claim than

would otherwise be necessary."  Matsushita Elec. Indus. v. Zenith

Radio Corp., 475 U.S. 574, 587 (1986).  Here, we find that

appellants' section 1 claim is illogical.  As the Fourth Circuit

stated in Stephen Jay Photography, "appellants have articulated no

motive the schools might have to engage in such a conspiracy. 

Indeed, logically the converse is true because the schools benefit

when photographers aggressively compete for contracts."  903 F.2d

at 994.  Accordingly, summary judgment on this claim was proper.

                            CONCLUSION

  For the reasons stated above, we affirm the judgment of

the district court.