American Soc'y of Mech. Eng'rs v. HydrolevelAnnotate this Case
456 U.S. 556 (1982)
U.S. Supreme Court
American Soc'y of Mech. Eng'rs v. Hydrolevel, 456 U.S. 556 (1982)
American Society of Mechanical Engineers, Inc. v Hydrolevel Corp.
Argued January 13, 1982
Decided May 17, 1982
456 U.S. 556
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE SECOND CIRCUIT
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. 456 U. S. 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. 456 U. S. 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. 456 U. S. 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. 456 U. S. 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. 456 U. S. 578. POWELL, J., filed a dissenting opinion, in which WHITE and REHNQUIST, JJ., joined, post, p. 456 U. S. 578.
JUSTICE BLACKMUN delivered the opinion of the Court.
Petitioner, the American Society of Mechanical Engineers, Inc. (ASME), is a nonprofit membership corporation organized in 1880 under the laws of the State of New York. This case presents the important issue of the Society's civil liability under the antitrust laws for acts of its agents performed
with apparent authority. Because the judgment of the Court of Appeals upholding civil liability is consistent with the central purposes of the antitrust laws, we affirm that judgment.
ASME has over 90,000 members drawn from all fields of mechanical engineering. It has an annual operating budget of over $12 million. It employs a full-time staff, but much of its work is done through volunteers from industry and government. The Society engages in a number of activities, such as publishing a mechanical engineering magazine and conducting educational and research programs.
In addition, ASME promulgates and publishes over 400 separate codes and standards for areas of engineering and industry. These codes, while only advisory, have a powerful influence: federal regulations have incorporated many of them by reference, as have the laws of most States, the ordinances of major cities, and the laws of all the Provinces of Canada. See Brief for Petitioner 2. Obviously, if a manufacturer's product cannot satisfy the applicable ASME code, it is at a great disadvantage in the marketplace.
Among ASME's many sets of standards is its Boiler and Pressure Vessel Code. This set, like ASME's other codes, is very important in the affected industry; it has been adopted by 46 States and all but one of the Canadian Provinces. See id. at 5. Section IV of the code sets forth standards for components of heating boilers, including "low-water fuel cutoffs." If the water in a boiler drops below a level sufficient to moderate the boiler's temperature, the boiler can "dry fire," or even explode. A low-water fuel cutoff does what its name implies: when the water in the boiler falls below a certain level, the device blocks the flow of fuel to the boiler before the water level reaches a dangerously low point. To prevent dry firing and boiler explosions,