American Soc’y of Mech. Eng’rs v. Hydrolevel, 456 U.S. 556 (1982)

American Society of Mechanical Engineers, Inc. v Hydrolevel Corp.

No. 80-1765.

Argued January 13, 1982
Decided May 17, 1982
456 U.S. 556

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR

THE SECOND CIRCUIT

Syllabus

Petitioner, a nonprofit membership corporation with over 90,000 members drawn from all fields of mechanical engineering, promulgates codes for areas of engineering and industry. Much of its work is done through volunteers from industry and government. The codes, while only advisory, have a powerful economic influence, many of them being incorporated by reference in federal regulations and state and local laws. Respondent marketed a safety device for use in water boilers and secured a customer that previously had purchased the competing product of McDonnell & Miller, Inc. (M&M). One of M&M’s officials, a vice-president (James), was vice-chairman of petitioner’s subcommittee that drafted, revised, and interpreted the segment of petitioner’s code governing the safety device in question. Subsequently, he and other M&M officials met with the subcommittee’s chairman (Hardin). As a result, M&M sent a letter to petitioner asking whether a safety device with a feature such as one contained in respondent’s device satisfied the pertinent code requirements. The letter was referred to Hardin, as chairman of the subcommittee, and ultimately an "unofficial response" was issued, prepared by Hardin but mailed on petitioner’s stationery over the signature of one of petitioner’s full-time employees. The response, in effect, declared respondent’s product unsafe. Thereafter, M&M’s salesmen used the subcommittee’s response to discourage customers from buying respondent’s product. Respondent subsequently sought a correction from petitioner of the unofficial response; respondent continued to suffer market resistance after the pertinent committee replied. After James’ part in the drafting of the original letter of inquiry became public, respondent filed suit in Federal District Court against petitioner (and others who settled), alleging violation of the Sherman Act. The trial court rejected respondent’s request for jury instructions that petitioner could be held liable for its agents’ conduct if they acted within the scope of their apparent authority. Instead, the jury was instructed that petitioner could be held liable only if it had ratified its agents’ actions or if the agents had acted in pursuit of petitioner’s interests. The jury nonetheless returned a verdict for respondent. The Court of Appeals affirmed, concluding that petitioner could be held liable if its agents had acted within the scope of their apparent authority, and that thus the charge was more favorable to petitioner than the law required.

Held: Petitioner is civilly liable under the antitrust laws for the antitrust violations of its agents committed with apparent authority. Pp. 565-576.

(a) Under general rules of agency law, principals are liable when their agents act with apparent authority and commit torts analogous to the antitrust violation presented here. An agent who appears to have authority to make statements for his principal gives to his statements the weight of the principal’s reputation -- in this case, the weight of petitioner’s acknowledged expertise in boiler safety. Pp. 565-570.

(b) Petitioner’s liability under a theory of apparent authority is consistent with the congressional intent behind the antitrust laws to encourage competition. Petitioner wields great power in the Nation’s economy, and when it cloaks its subcommittee officials with the authority of its reputation, it permits those agents to affect the destinies of businesses, and thus gives them the power -- as illustrated by the facts of this case -- to frustrate competition in the marketplace. A rule that imposes liability on the standard-setting organization -- which is best situated to prevent antitrust violations through the abuse of its reputation -- is most faithful to the congressional intent that the private right of action deter antitrust violations. On the other hand, a ratification rule would have anticompetitive effects, encouraging petitioner to do as little as possible to oversee its agents, since it could avoid liability by ensuring that it remained ignorant of its agents’ conduct. And a rule whereby petitioner would not be liable unless its agents acted with an intent to benefit petitioner would be irrelevant to the antitrust laws’ purposes. The anticompetitive practices of petitioner’s agents are repugnant to the antitrust laws even if the agents act without any intent to aid petitioner, and petitioner should be encouraged to eliminate the anticompetitive practices of all its agents acting with apparent authority, especially those who use their positions in petitioner solely for their own benefit or the benefit of their employers. Pp. 570-574.

(c) Application of the theory of apparent authority is not improper on the asserted ground that treble damages for antitrust violations are punitive, and that, under traditional agency law, the courts do not employ apparent authority to impose punitive damages upon a principal for the acts of its agents. Since treble damages also serve as a means of deterring antitrust violations and of compensating victims, it is in accord with both the purposes of the antitrust laws and principles of agency law to hold petitioner liable for the acts of agents committed with apparent authority. Nor does the fact that petitioner is a nonprofit organization weaken the force of the antitrust and agency principles that indicate that it should be liable for respondent’s antitrust injuries. Pp. 574-576.

635 F.2d 118, affirmed.

BLACKMUN, J., delivered the opinion of the Court, in which BRENNAN, MARSHALL, STEVENS, and O’CONNOR, JJ., joined. BURGER, C.J., filed an opinion concurring in the judgment, post, p. 578. POWELL, J., filed a dissenting opinion, in which WHITE and REHNQUIST, JJ., joined, post, p. 578.