Package Closure Corporation v. Sealright Co.
Decision Date | 03 April 1944 |
Docket Number | No. 273.,273. |
Parties | PACKAGE CLOSURE CORPORATION v. SEALRIGHT CO., Inc., et al. |
Court | U.S. Court of Appeals — Second Circuit |
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Unger & Pollack, of New York City (William F. Unger, of New York City, of counsel), for appellant.
Sullivan & Cromwell and Henry R. Ashton, all of New York City, Hiscock, Cowie, Bruce, Lee & Mawhinney, of Syracuse, N. Y., and Joseph J. Brown, of Philadelphia, Pa., for appellees.
Edwards & Smith, of New York City (John F. Dailey, Jr., and Charles A. Ellis, both of New York City, of counsel), for defendant-appellee Daniel A. Mackin.
Before CHASE, CLARK, and FRANK, Circuit Judges.
1. Without doubt, plaintiff alleges conduct by defendants violative of the Sherman Act. But that is not enough upon which to ground an action under § 7, 15 U.S.C.A. § 15. The question is whether plaintiff's allegations sufficiently show that, "by reason of" that conduct, plaintiff was "injured" and thereby "sustained damages."
The gist of the prolix complaint, and in fact the only ground of recovery by plaintiff under the Sherman Act, consists of allegations that, in aid of a conspiracy the purpose of which was to destroy plaintiff as a business rival, defendants, acting in concert, fixed a combination price at which they sold hoods and caps "so low as not to permit a return to them covering the reasonable expense of production and sale and a reasonable profit thereon"; that this price "was not based upon any economies in the cost of production or distribution effected through the sales of caps and hoods in combination"; that plaintiff could not compete in those circumstances; and that, as a consequence, it suffered damages. Defendants contend that these allegations disclose no causal relation between their acts and plaintiff's loss since plaintiff itself alleges its lack of "the requisite financial resources" to manufacture caps and cappers; that defendants' reduction in prices constituted no actionable wrong; and that, in any event, plaintiff's allegations of damages are insufficient. We cannot agree.
In Story Parchment Co. v. Paterson Co., 282 U.S. 555, 561, 51 S.Ct. 248, 250, 75 L. Ed. 544, a treble damage suit under the Sherman Act, the defendants, combining and conspiring in order to injure the plaintiff, sold their goods "below the point of fair profit, and finally below the cost of production." The Circuit Court of Appeals had reversed a judgment for plaintiff because it held that there was no basis for a reasonable inference that prices in excess of those actually realized would have prevailed if there had been no combination, and because the plaintiff was without capital to meet the situation confronting it even if there had been unrestrained competition, plaintiff's failure (so the court concluded) being inevitable either from lack of capital or inefficient management. 1 Cir., 37 F.2d 537. The Supreme Court reversed, saying: (282 U.S. pages 561, 562, 566, 567, 51 S.Ct. page 250, 75 L.Ed. 544);
That decision, we think, compels reversal here. True, here the plaintiff does not go so far as to allege sales "finally below the cost of production." But that difference is not sufficient to distinguish this case from Story Parchment.2 Plaintiff's allegations, if proved and unexplained, will show a conspiracy to drive plaintiff out of business by forbidden concerted action in fixing a price which had no reasonable economic foundation and the purpose of which was to injure plaintiff.
Of course, if, without concert, the defendants had severally sold at a price injurious to plaintiff, their conduct would not have been actionable, for, ordinarily, one engaged in actual competition, may sell his products at such prices as he chooses regardless of the consequences to his competitors. Indeed, keen rivalry in the essence of that competition which the common law fosters and which the Sherman Act is designed to promote. Because of the assumed value of competition — to consumers and also as a stimulant of enterprising characteristics, regarded as desirable, in the competitors themselves — the common law recognizes a privilege (which the Sherman Act underscores) to do acts, when engaged in competition, resulting in financial loss to others, although, in the absence of a competitive purpose, those same acts would give rise to legal liability. As Mr. Justice Holmes said, "A man has a right to set up a shop in a small village which can support but one of the kind, although he expects and intends to ruin a deserving widow who is established there already," this privilege resting "on the economic postulate that free competition is worth more to society than it costs."3 But that privilege, founded on the existence of a bona fide competitive purpose, vanishes at common law when the purpose is not competition in good faith.3a 4 Much the same policy is embodied in § 7 of the Sherman Act. Accordingly, when persons aim not to compete but to eliminate competition, when, with that intent, they combine to fix prices so as to destroy a rival, and when their conduct has that effect, the injured rival may recover three times his resultant damages. It is defendants' price-fixing conspiracy for the illegal purpose and with the consequence alleged by plaintiff which gives plaintiff here a good claim under the Act.
The lower court did not reach its decision by distinguishing the instant case from the Story Parchment case,5 but, in its opinion, said that in such a suit the plaintiff's allegations that defendants' violation of the Sherman Act was "the proximate cause" of the damages to the plaintiff "are jurisdictional," and that, "for that reason, legal conclusions are insufficient and facts must be pleaded with definiteness and particularity." Holding that plaintiff's allegations in that respect were "legal conclusions," it therefore decided that the complaint must be dismissed. In other words, it held that "jurisdictional" facts must be alleged with unusual particularity. We cannot agree.
There is no doubt that, as federal jurisdiction in an action for treble damages is founded on the facts that the defendant violated the Act and that by reason of that violation the plaintiff has sustained damages, such facts are "jurisdictional." But so, too, is the existence of a claim for more than $3,000 in a suit based upon diversity of citizenship, or the plaintiff's ownership of a patent in a suit for patent infringement; yet such facts in...
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