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Hitting the Bottlers

A baffling Texas Supreme Court ruling could make juries irrelevant
by Published on

The soft drink business in East Texas was a relatively friendly affair when Jerry Dudley started out 40 years ago. Family-owned companies bottled colas and fruit drinks, and sold them to local grocers or mom-and-pop convenience stores. There was competition, but it wasn’t cutthroat. There weren’t international conglomerates trying to muscle you out of the market, and maybe drive you out of business.

But in the early 1990s, that all began to change. Dudley, president and general manager of Harmar Bottling Co. in Paris, Texas, began seeing his soft drinks nudged from prime shelf space-even out of stores entirely-to make way for a competitor’s products. He watched local bottlers disappear one by one, losing the struggle to stay in business.

It got so bad that Harmar and some of his fellow independent bottlers banded together and sued the heavyweights of carbonated beverages-Coca-Cola Enterprises Inc. and Coca-Cola Inc., Pepsico Inc. and Pepsi’s bottler, Delta Beverage Group-claiming that in their zeal to dominate the region’s soft drink market, the corporate titans had broken Texas law by engaging in predatory, anticompetitive business practices.

Pepsi settled before trial. Coke-with its never-say-die litigation strategy-fought the suit. In 2000, after a six-week trial, a jury in Daingerfield, Texas, found Coca-Cola Enterprises-a bottling company 40 percent-owned by Coca-Cola-guilty of breaking state antitrust laws. Although a far cry from the $100 million they were hoping for, Harmar and the other regional bottlers won a $15.6 million judgment. Almost seven years later, they have yet to see a dime.

In late 2006, after sitting on the case for nearly two years, the Texas Supreme Court finally ruled on Coke’s appeal of the suit. By a 5-4 vote, the state’s highest civil court threw out the verdict.

Reversing a multimillion dollar judgment is not out of character for a court packed with conservative judges, six of them appointed by Gov. Rick Perry before winning pro forma elections. But the legal reasoning that the slim majority used to justify its ruling was so alarming-and sets such an unappetizing precedent-that it has spawned incredulity in Texas legal circles.

In effect, the court reviewed the evidence and decided the jury was wrong. It was a remarkable reach beyond the court’s usual exercise of power.

Ordinarily, appeals courts give great deference to a jury’s conclusions. Jurors, after all, are the ones who hear the witnesses, review evidence, and deliberate the case. A court usually has a compelling reason when it decides to disregard the jury’s conclusions.

What that reason might be is not clear in this case. More than a few scholars argue that the state Supreme Court doesn’t have a sound legal principle with which to justify its decision. Worse, they fear it opens the door for other Texas courts to begin arbitrarily tossing aside jury verdicts with which they disagree. If the high court continues on this course, they say, the constitutional right to a civil jury trial could be in jeopardy.

Dudley and the bottlers have asked the court to reconsider its decision, because they’d still like to get their money. Law professors from across the state have joined that request, arguing there is now much more at stake then who sells the most diet sodas in East Texas.

“It’s elitism versus egalitarianism,” says Nelson Roach, who represented Harmar Bottling during trial. “It’s whether or not you believe that ordinary people have the capability to collectively judge the facts of the case. There is a movement that has been very hostile to the rights of juries to make decisions, and this case is part and parcel of it.”

It started in the early 1990s, Dudley recalls. At the time, local bottling companies competed to sell soft drinks to retailers in Northeast Texas and neighboring swaths of Oklahoma, Arkansas, and Louisiana.

Then the big boys-Coca-Cola and Pepsi-arrived and began taking over the market.

In Dudley’s Northeast Texas territory, Coca-Cola Enterprises snapped up local bottlers to distribute Coke and Dr Pepper until it accounted for 75 to 80 percent of the total carbonated beverage sales in the region. From its position of market dominance, Coke started putting the screws to Harmar and other small beverage companies.

As Coke moved in, Dudley says, it kept getting harder and harder for the dwindling number of independent bottlers to make a go of it. Coke cut deals with retailers-called calendar marketing agreements-that gave preferential treatment to Coke products. Soda companies compete fiercely for the best shelf space and promotions in stores, particularly convenience stores, where they make most of their profits. Harmar products, such as Royal Crown Cola and 7 UP, were being consigned to the bottom shelf in refrigerators and aisles, with little way to announce their presence.

Entire product lines-such as A&W Root Beer, Orange Crush and Country Time Lemonade-were prohibited by name from some stores. In other instances, shops were required to price Coca-Cola products lower than their competitors, in effect forcing retailers to increase the price of Harmar’s drinks, even when their wholesale cost was lower. And, Dudley notes, in stores where his drinks were forced out entirely, the price of Coke would go up, sometimes by as much as a dime.

“Ten cents doesn’t sound like much,” Dudley says, “but there’s 24 bottles in a case. That’s $2.24 per case, and they do millions of cases-so we’re talking about a huge amount of money.”

In 1994, Harmar and the other bottlers filed their lawsuit against Coca-Cola and Coca-Cola Enterprises, alleging violations of the Texas Free Enterprise and Antitrust Act, which outlaws companies from engaging in predatory, anticompetitive business practices. (Pepsi and its bottler sent an expert to be a witness for the plaintiffs.)

When the suit came to trial in 2000, the case turned on whether Coca-Cola’s actions constituted a harm to competition, which is forbidden under Texas antitrust law, or harm to competitors, which occurs every day in a free market.

“Part of what goes on in business world is taking business away from competitors,” says Jerry Beane, a lawyer for Coca-Cola Enterprises. “When you do that, your competitor suffers some sort of harm as a result. It’s no more complicated than Toyota selling a lot of cars or trucks to people who otherwise would have purchased Ford or GM vehicles. That’s the process of competition.”

Roach, who represented Harmar, counters that by limiting a company’s ability to reach consumers in retail outlets, Coca-Cola harmed competition. Moreover, in the soft drink business, harm to competitors raised red flags as well.

“The cola market is a mature, highly concentrated market with high barriers to entry,” Roach says. “That means if you get rid of somebody, nobody is going to re-enter the market and compete against you.”

On June 21, 2000, a jury found Coca-Cola guilty of antitrust violations. Although the judge refused to order Coke to sell its Dr Pepper distribution rights as the plaintiffs had requested, he awarded the bottlers $15.6 million in damages.

Coke appealed the decision. In 2003, a unanimous state court of appeals affirmed the trial court’s finding that Coke’s marketing agreements “could be read to restrict trade and impact competition” in violation of antitrust laws.

If the story ended there, it likely would be a footnote in the modern struggle between big corporations and independent businesses, and a mere skirmish in the global cola wars. But Coca-Cola challenged the appellate court decision, and the Texas Supreme Court took the case. A year later, it heard oral arguments. After letting the case languish on its docket for another two years, the court reversed the jury’s decision.

The right to a jury trial is enshrined in both the Texas and U.S. constitutions. Whether it’s a 12-person trial for criminal cases or seven for civil proceedings, jurors are entrusted to consider the facts and render judgment. Judges provide the jury with guidance on points of law, but in the end, it’s the jury that weighs the competing claims and arguments of both sides and determines where the truth lies.

“The judiciary is the only branch of government where the ordinary citizen has the authority to decide civil and criminal issues, and juries have unlimited authority under the Constitution with regard to their findings of fact,” says U.S. District Judge Sam Sparks of Austin. “It’s really an amazing system, and it’s worked for well over 200 years.”

Jury verdicts are often appealed by the losing party, but usually those appeals turn on a point of law-whether evidence was admissible or not, or the jury received improper instructions from the judge, or there was some other sort of procedural mistake. Rarely will a court-even the U.S. Supreme Court-delve into the validity of a jury’s findings of fact.

According to Texas legal precedent, an appeals court will reverse a jury’s ruling only if there is no more than a “mere scintilla” of evidence to prove some essential fact that the jury relied on to reach its verdict. But lack of evidence was one of the key pegs on which the Texas Supreme Court hung its decision to overturn-despite what many who have reviewed the case believe to be an abundance of evidence to support the jury’s decision.

Writing for the majority, Justice Nathan Hecht based his ruling on two factors: First, he adopted an argument made in a friend-of-the-court brief by the attorney general of Alabama by holding that Texas courts have no jurisdiction over antitrust violations in other states. Second, Hecht struck down the jury verdict as applied to antitrust violations in Texas, writing that the plaintiffs had presented no evidence that the market as a whole was harmed by Coca-Cola’s actions. There was no evidence that a substantial amount of competition was adversely affected, he wrote, and no evidence that prices were generally higher. Any proof of market harm was in “relatively isolated instances.” The jury came to its conclusion without a basis in fact, Hecht argued: Coke’s conduct surely harmed its competitors, but it didn’t harm competition.

Justice Scott Brister

In his dissenting opinion, Justice Scott Brister-never mistaken for a friend of the trial lawyers-vehemently disagreed. Hecht’s holding that Texas courts did not have out-of-state jurisdiction, he wrote, was “unprecedented.” While Texas law could not be applied to out-of-state actors, state courts were not barred from applying similar out-of-state laws. “Unless our sister states define monopolies or restraints on trade differently than we do, it makes no difference whether the jury’s findings were based on Texas law or some other,” Brister said.

As for Hecht’s ruling that there was no support for the jury’s verdict, Brister countered that Coca-Cola’s demand for lowest pricing in a store, its prohibition of certain competitors’ products, and its ban on competitors’ signs in stores were all that was necessary to prove an antitrust violation, regardless of whether actual injury to competition was shown. “Agreements expressly intended to raise prices and reduce consumer choices harm competition,” Brister wrote. “Jurors were entitled to conclude that Coke’s agreements were, in several respects, intended to accomplish just that.”

Three of the four newest justices on the all-Republican court-Paul Green, Phil Johnson, and Don Willett (the latter two Perry appointees)-joined Hecht’s opinion along with Dale Wainwright. Three of them-Green, Johnson, and Willett-weren’t on the court when the case was argued in late 2004. Chief Justice Wallace Jefferson and Justices Harriet O’Neill and David Medina joined Brister’s dissent.

Dudley was shocked when the decision came down on Oct. 20, 2006. His 12-year legal battle, complete with victories at the trial and on first appeal, were rendered meaningless.

“I don’t understand the legal system where good people in Daingerfield, Texas, sat on a jury for six weeks, heard mounds of evidence, testimony from retailers and parent company people and everyone, make a decision in our favor, and that decision could go to the appeals court and get a unanimous decision in our favor, then all of a sudden the Supreme Court just null-and-voids everything these people saw and heard, and what they said,” Dudley says. “It seems like there’s something wrong with it.”

Dudley wasn’t the only one to see something wrong with the decision. If Hecht and his colleagues had been members of the Daingerfield jury, their opinion as to the facts of the case would have been unremarkable. But when a bare majority of state Supreme Court justices second-guess a jury’s verdict, it turns some heads.

When Harmar petitioned the court for a rehearing, a number of prominent law professors from around the state lined up to file friend-of-the-court briefs condemning the court’s decision. While one Texas Tech professor (and a brief by the attorney general of Oklahoma) focused on interstate jurisdictional issues raised by the court’s decision, the primary source of concern was the overruling of the jury verdict on factual grounds. On this, Lonny Hoffman of the University of Houston Law Center was one of those leading the charge.

“I was pleased that so many of my colleagues that I reached out to had a common view,” Hoffman says. “[The original jury's conclusions] looked like a pretty good verdict-and a whole lot of other people thought that, too.”

Hoffman wrote a brief joined by professors from Texas Tech, the University of Texas and SMU. Although he admits he’s not familiar with some of the specifics of the case, he says if reasonable people seem to disagree on whether the Daingerfield jury reached the right verdict, that’s reason enough for the Texas Supreme Court to keep its hands off. If the decision were to stand, he said, it would set a disturbing precedent for the sanctity of future jury verdicts and tilt the legal playing field in Texas even more steeply toward well-heeled defendants.

“My concern is a nightmare scenario where the plaintiff is an individual who has a lawyer on contingency and nobody’s getting paid until the thing finally gets finished on all appeals,” Hoffman says. “And what Harmar does is incentivize defendants to drag out litigation even after they’ve lost. It is a pretty strong signal to defendants that it ain’t over till it’s over.”

Coca-Cola’s lawyer sees it differently. “It disappoints me that law professors would argue that a jury verdict should not be overturned while at the same time saying that they have not studied the details,” says Jerry Beane. “One of the functions of the judges of the Texas Supreme Court is to study details.”

But according to Judge Sparks, when the state Supreme Court delves into fact-finding, it shows a profound disrespect for the jury system.

“I feel that sometimes the appellate courts think they can better solve the case than the jury did,” Sparks says. “But they didn’t hear the witnesses, they didn’t test their credibility-they’re just looking at a blank record. It’s probably with the best intentions; they just think they can make a better resolve than the jury. And if they’re going to do that, they ought to get a constitutional amendment.”

Sparks, who often writes and speaks on the importance of juries, says he sees the Texas Supreme Court’s decision as further evidence of a growing distrust of the trial-by-jury system throughout the country. When combined with a greater reliance on mandatory arbitration and plea-bargaining, it has meant that fewer and fewer cases appear before juries. What was once an enshrined right that the Founding Fathers fought for is in danger of falling into disuse. In the current session of the state Legislature, there are even proposals circulating that would prevent more complicated cases from appearing before juries such as the one t
at decided the Harmar case in Daingerfield.

According to Sparks, however, time and again juries have proven to him that they are capable of understanding and passing judgment in even the most complicated cases. “Every case I try here, I talk with the jury afterwards, and it just amazes me,” Sparks says. “And when I was a defense lawyer, sometimes a jury wouldn’t do what I wanted them to do, but I never saw a jury do anything without a reason.”

Sparks insists that if the trend away from jury trials is going to be stopped, it will have to come from public outcry-and not just from the objection of law professors and judges. “People need to start becoming more aware of the problem,” he says. “A jury trial is a right that everyone has, and nowadays we don’t have all these rights anymore. This is one we want to keep.”

The Texas Supreme Court must now decide if it will second-guess its decision to second-guess a jury. Given the high-profile criticism of its decision, as well as the close nature of the verdict, Roach has hope that the court will grant the motion to reconsider and revisit the case. If the court doesn’t act before the end of May, under administrative procedure the motion to rehear will be denied.

“I feel they’re not quite sure what to do with this hot potato,” Roach says. “Do they think they can skirt by public disapproval and disapproval by their peers by just not acting on it?”

Back in Northeast Texas, Dudley and Harmar Bottling continue their uphill fight. While a final winner has yet to be determined in the courtroom, out in the real world the verdict is a little clearer. Although Coca-Cola has backed off from some of the more aggressive provisions in its marketing agreements, such as bans on certain brands and lowest-price guarantees, independent bottlers are still struggling. In fact, Harmar is the only one of the original plaintiffs still in the soft drink business. And according to Dudley, his company’s future is shaky.

“We’re constantly facing cash-flow issues,” Dudley says. “We’ve had to cut costs wherever we can. We’ve had to cut back on services and cut back on personnel. It’s not as much fun as it used to be.”

Anthony Zurcher is a freelance writer and editor living in Austin.