Costen v. Pauline's Sportswear, Inc.

• Decision Date: 21 February 1968
• Docket Number: No. 21387.,21387.
• Citation: 391 F.2d 81
• Parties: Aleta G. COSTEN, Dyal E. Stone, Marie B. Stone, Patricia Ann Hobbs, Nick C. Howat and Margaret A. Howat, Appellants, v. PAULINE'S SPORTSWEAR, INC., Regal Accessories of New York, Robert C. Abild and Desda S. Abild, Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

391 F.2d 81 (1968)

Aleta G. COSTEN, Dyal E. Stone, Marie B. Stone, Patricia Ann Hobbs, Nick C. Howat and Margaret A. Howat, Appellants, v. PAULINE'S SPORTSWEAR, INC., Regal Accessories of New York, Robert C. Abild and Desda S. Abild, Appellees.

No. 21387.

United States Court of Appeals Ninth Circuit.

February 21, 1968.

William T. Richert, Fresno, Cal. (argued) of Fullerton, Lang & Richert, Fresno, Cal., for appellant.

Thomas H. Greenwald, Beverly Hills, Cal. (argued), for appellee.

Before HAMLEY, JERTBERG, and ELY, Circuit Judges.

ELY, Circuit Judge.

Appellants, plaintiffs below, challenge the District Court's dismissal of their original complaint and of their amended complaint. The original complaint consists of twelve counts, each appellant¹ being covered by three counts. The amended complaint consists of eight counts, in groups of two counts for each appellant. In both complaints there is no substantial difference in the allegations relating to each appellant. Thus, for convenience, the following discussion of the factual situation as alleged in the complaints will be confined to the first group of counts in each complaint, those relating to appellant Aleta G. Costen.

The appellees are a corporation, Pauline's Sportswear, and two of its principal officers. On June 20, 1964, Costen entered into an agreement with the corporation for the franchise rights to a "Pauline's Sportswear" retail clothing shop. Simultaneously, Costen made a sublease agreement with the corporation for the use of certain premises in a shopping center in San Leandro, California. According to the allegations of the complaints, the appellees have entered into approximately seventy-five similar franchise and sublease arrangements in the State of California.

The franchise agreement required that Costen purchase all required merchandise for her retail shop from the appellee corporation and that she sell this merchandise at retail prices established in the agreement, unless the corporation should grant written consent to the charging of different prices. The agreement expressly prohibited Costen from dealing in merchandise manufactured or sold by anyone other than the appellee corporation. Furthermore, both the franchise and the sublease were subject to termination by the corporation if Costen should violate any of the specified restrictions.

Following the execution of this agreement, Costen commenced to operate her shop at the premises covered by the lease. During the period between June 20, 1964, and April 30, 1965, the corporation sold ladies' sportswear to Costen pursuant to the franchise agreement and orders placed by Costen. Throughout the period in which Costen maintained the retail shop, she complied with the terms of the franchise agreement. She was, however, unable to operate the shop at a profit. The complaints allege that she suffered the loss of $5,500, the purchase price of the franchise, plus a net loss from operations in the sum of $1,658.18. Additionally, it is alleged that she suffered a loss of the value of her time and effort for twenty-nine weeks in the amount of $100.00 per week.

Appellants' attorney very forthrightly represented during oral argument that the suit is based solely upon the existence of the franchise and lease arrangement and upon the appellees' pursuit of the arrangement in the ordinary course of business. We are not confronted with allegations of any affirmative action on the part of the appellees to terminate the appellants' business operations or to force appellants to suffer losses. Additionally, the complaints make no allegations concerning any request made by appellants to appellees to allow any particular appellant to depart from any or all of the conditions stated in the franchise agreement. Appellants have alleged, however, that they conformed their actions to the terms of the agreement because they "feared" that appellees would terminate the franchise and evict them from their premises if they did not follow the agreement that each had made with appellees.

On the basis of these allegations, the original complaint charged that appellees had violated section one of the Sherman Act, 15 U.S.C. § 1, by way of resale price maintenance. Secondly, appellants charged that appellees monopolized, or attempted to monopolize, "trade or commerce among the several States having to do with the sale and distribution of manufactured ladies' sportswear," in violation of section two of the Sherman Act, 15 U.S.C. § 2. Thirdly, the complaint charged a violation of section one of the Sherman Act and section three of the Clayton Act, 15 U.S.C. § 14, through exclusive dealing and illegal tie-ins.

Following the filing of the original complaint, appellees filed a "NOTICE OF MOTIONS AND MOTION TO DISMISS." Accompanying this notice was an affidavit of one of the appellees entitled "AFFIDAVIT IN SUPPORT OF MOTIONS TO DISMISS." Attached to this affidavit were two exhibits consisting of copies of the franchise and lease agreements which were "in substance" those signed by the appellants. Among other things, the affiant stated that the appellants had "freely and voluntarily" entered into the franchise arrangements with the appellees, that the appellees were not engaged in interstate commerce, and that the gross annual sales of the appellee corporation were less than one million dollars, out of total annual sales in the women's sportswear industry in excess of one hundred million dollars.

The District Court's hearing on the appellees' motion resulted in an "ORDER GRANTING DEFENDANTS' MOTION TO DISMISS." The order reads, in part, as follows:

"IT IS ORDERED that defendants\' motion to dismiss is hereby granted.

"Contracts prescribing minimum resale prices of a commodity are not illegal when sanctioned by State law. 15 U.S.C.A. § 1.

"The California Business and Professions Code § 16902(a), which is part of the Fair Trade Act, makes legal contracts fixing the resale prices of trademarked commodities which are in fair and open competition with other commodities of the same general class and bear the trademark, brand or name of the producer. Thus assuming all of plaintiffs\' allegations in the complaint to be true, it does not state a claim upon which relief can be granted.

"Counsel for defendants is directed to prepare and lodge findings of fact, conclusions of law and form of judgment in accordance with Local Rule 7."

Subsequently, following the district judge's agreement with appellants' objection that findings of fact and conclusions of law need not accompany an order granting a motion to dismiss, the District Court entered a judgment dismissing the original complaint.

Thereafter, appellants filed their first amended complaint, which was virtually identical to the original complaint except for the omission of the charged violations of section one of the Sherman Act arising out of resale price maintenance. After the appellees made another motion for dismissal, supported by their attorney's affidavit that the amended complaint was substantially the same as the original one, the District Court entered an order granting the motion to dismiss this amended complaint for "the reasons set forth in the dismissal of the original complaint." This appeal followed.

In view of the state of the record before us, we are compelled to consider certain issues not raised by the parties. We believe that our determination here is controlled by Rule 12(b), Federal Rules of Civil Procedure, and by our recent decision in Erlich v. Glasner, 374 F.2d 681 (9th Cir. 1967). Rule 12(b) provides as follows:

"The following defenses may at the option of the pleader be made by motion: * * * (6) failure to state a claim upon which relief can be granted * * *. If, on a motion asserting the defense numbered (6) to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such motion by Rule 56."

In Erlich v. Glasner, supra, following the filing of an amended complaint, three motions to dismiss the amended complaint for failure to state a claim upon which relief could be granted were filed by various defendants to the action. At the time of the filing of one of the motions, an affidavit of one of the appellees "IN SUPPORT OF MOTION TO DISMISS" was also filed on behalf of the parties to that motion. These motions resulted in a judgment of dismissal by the District Court. Stating that it had "considered all of the written documents filed herein," the District Court specified several grounds for its judgment. In disposing of the appeal, we wrote:

"The affidavit filed by some of the appellees was not excluded by order of the District Court. Hence, the District Court was required to treat the motions of appellees to dismiss for failure of the amended complaint to state a claim upon which relief could be granted as motions for summary judgment, and dispose of them as provided in Rule 56, and the District Judge was required to give all parties reasonable opportunity to present all material facts made pertinent to such motion by Rule 56. The District Court failed to comply with such provision of Rule 12(b)."

374 F.2d at 683. The Erlich court also relied on several earlier decisions from our Circuit that are directly applicable to the present problem. Cohen v. Cahill, 281 F.2d 879 (9th Cir. 1960); Mantin v. Broadcast Music, Inc., 248 F.2d 530 (9th Cir. 1957). Additionally, see McPherson v. Amalgamated Sugar Co., 271 F.2d 809 (9th Cir. 1959); cf. S & S Logging Co. v. Barker, 366 F.2d 617 (9th Cir. 1966); Smith v. United States, 362 F.2d 366 (9th Cir. 1966).

It does not appear from the record before us that the District Court dealt with the appellees' motions as...