392 U.S. 134 (1968), 733, Perma Life Mufflers, Inc. v. International Parts Corp.

Docket Nº:No. 733
Citation:392 U.S. 134, 88 S.Ct. 1981, 20 L.Ed.2d 982
Party Name:Perma Life Mufflers, Inc. v. International Parts Corp.
Case Date:June 10, 1968
Court:United States Supreme Court
 
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Page 134

392 U.S. 134 (1968)

88 S.Ct. 1981, 20 L.Ed.2d 982

Perma Life Mufflers, Inc.

v.

International Parts Corp.

No. 733

United States Supreme Court

June 10, 1968

Argued April 22-23, 1968

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Syllabus

Petitioners, dealers who had operated "Midas Muffler Shops," brought this antitrust action for treble damages against respondent Midas, Inc., its parent corporation (International), two other subsidiaries, and corporate officers and agents, charging an illegal conspiracy in violation of § 1 of the Sherman Act, and violations of § 3 of the Clayton Act and § 2 as amended by the Robinson-Patman Act. Petitioners attacked provisions of the sales agreements which they had made with Midas including those which barred petitioners from purchasing from other sources, prevented them from selling outside designated territories, tied muffler sales to other Midas-line products, and required petitioners to sell at fixed retail prices. The District Court entered summary judgment for respondents. The Court of Appeals reversed the judgment on the Robinson-Patman claim but affirmed the District Court's ruling that petitioners' other claims were barred by the doctrine of in pari delicto, noting that petitioners, with full knowledge of the restrictions, had enthusiastically sought and enormously profited from the Midas franchises, and had sought additional franchises. The court also held that petitioners' Sherman Act claim was barred because Midas and International were part of a single business entity, and therefore entitled to cooperate without creating an illegal conspiracy.

Held:

1. There is nothing in the language of the antitrust laws indicating a congressional intent that the doctrine of in pari delicto should constitute a defense to a private antitrust action, and such application of the doctrine would undermine the important function performed by the private antitrust action in enforcing the antitrust laws. Pp. 138-140.

2. The record refutes respondents' argument that petitioners actively participated in formulating the restrictive plan and encouraged its continuation. Pp. 140-141.

3. Common ownership does not relieve separate corporate entities of the obligations which the antitrust laws impose, and, in any

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event, each petitioner can charge a combination between Midas and himself or other acquiescing franchisees. Pp. 141-142.

376 F.2d 692, reversed and remanded.

BLACK, J., lead opinion

MR. JUSTICE BLACK delivered the opinion of the Court.

The principal question presented is whether the plaintiffs in this private antitrust action were barred from recovery by a doctrine known by the Latin phrase in pari delicto, which literally means "of equal fault." The plaintiffs, petitioners here, were all dealers who had operated "Midas Muffler Shops" under sales agreements granted by respondent [88 S.Ct. 1983] Midas, Inc. Their complaint charged that Midas had entered into a conspiracy with the other named defendants -- its parent corporation International Parts Corp., two other subsidiaries, and six individual defendants who were officers or agents of the corporations -- to restrain and substantially lessen competition in violation of l of the Sherman Act1 and § 3 of the Clayton Act.2 They also charged that the defendants had violated § 2(a) of the Clayton Act, as amended by the Robinson-Patman Act,3 by granting discriminations in prices and services to some of their customers without offering the same advantages to the plaintiffs. The District Court entered summary judgment for respondents with respect to all of petitioners'

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claims. On appeal, the Court of Appeals reversed the judgment for respondents on the Robinson-Patman claim but, over Judge Cummings' dissent, affirmed the District Court's ruling that the other claims were barred by the doctrine of in pari delicto. The court also held that petitioners' Sherman Act claim was barred because Midas and International, while functioning as separate corporations, had a common ownership, and therefore could cooperate without creating an illegal conspiracy.4 376 F.2d 692 (1967). Because these rulings by the Court of Appeals seemed to threaten the effectiveness of the private action as a vital means for enforcing the antitrust policy of the United States, we granted certiorari. 389 U.S. 1034 (1968). For reasons to be stated, we reverse.

The economic arrangements that led to this lawsuit have a long history. Respondent International Parts has been in the business of manufacturing automobile mufflers and other exhaust system parts since 1938. In 1955, the owners of International initiated a detailed plan for promoting the sale of mufflers by extensively advertising the "Midas" trade name and establishing a nationwide chain of dealers who would specialize in selling exhaust system equipment. Each prospective dealer was offered a sales agreement prepared by Midas, Inc., a wholly owned subsidiary of International. The agreement

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obligated the dealer to purchase all his mufflers from Midas, to honor the Midas guarantee on mufflers sold by any dealer, and to sell the mufflers at resale prices fixed by Midas and at locations specified in the agreement. The dealers were also obligated to purchase all their exhaust system parts from Midas, to carry the complete line of Midas products, and in general to refrain from dealing with any of Midas' competitors. In return, Midas promised to underwrite the cost of the muffler guarantee and gave the dealer permission to use the registered trademark "Midas" and the service mark "Midas Muffler Shops." The dealer was also granted the exclusive right to sell "Midas" products within his defined territory. He was not required to pay a franchise fee or to purchase or lease substantial capital equipment from Midas, and the agreement was cancelable by either party on 30 days' notice.

Petitioners' complaint challenged as illegal restraints of trade numerous provisions of the agreements, such as the terms barring them from purchasing [88 S.Ct. 1984] from other sources of supply, preventing them from selling outside the designated territory, tying the sale of mufflers to the sale of other products in the Midas line, and requiring them to sell at fixed retail prices. Petitioners alleged that they had often requested Midas to eliminate these restrictions, but that Midas had refused, and had threatened to terminate their agreements if they failed to comply. Finally they alleged that one of the plaintiffs had had his agreement canceled by Midas for purchasing exhaust parts from a Midas competitor, and that the other plaintiff dealers had themselves canceled their agreements. All the plaintiffs claimed treble damages for the monetary loss they had suffered from having to abide by the restrictive provisions.

The Court of Appeals, agreeing with the District Court, held the suit barred because petitioners were in pari

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delicto. The court noted that each of the petitioners had enthusiastically sought to acquire a Midas franchise with full knowledge of these provisions, and had "solemnly subscribed" to the agreement containing the restrictive terms. Petitioners had all made enormous profits as Midas dealers, had eagerly sought to acquire additional franchises, and had voluntarily entered into additional franchise agreements, all while fully aware of the restrictions they now challenge. Under these circumstances, the Court of Appeals concluded, "[i]t would be difficult to visualize a case more appropriate for the application of the pari delicto doctrine." 376 F.2d at 699.

We find ourselves in complete disagreement with the Court of Appeals. There is nothing in the language of the antitrust acts which indicates that Congress wanted to make the common law in pari delicto doctrine a defense to treble damage actions, and the facts of this case suggest no basis for applying such a doctrine even if it did exist. Although in pari delicto literally means "of equal fault," the doctrine has been applied, correctly or incorrectly, in a wide variety of situations in which a plaintiff seeking damages or equitable relief is himself involved in some of the same sort of wrongdoing. We have often indicated the inappropriateness of invoking broad common law barriers to relief where a private suit serves important public purposes. It was for this reason that we held in Kiefer-Stewart Co. v. Seagram & Sons, 340 U.S. 211 (1951), that a plaintiff in an antitrust suit could not be barred from recovery by proof that he had engaged in an unrelated conspiracy to commit some other antitrust violation. Similarly, in Simpson v. Union Oil Co., 377 U.S. 13 (1964), we held that a dealer whose consignment agreement was canceled for failure to adhere to a fixed resale price could bring suit under the antitrust laws even though by signing the agreement he had, to that extent,

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become a participant in the illegal, competition-destroying scheme. Both Simpson and Kiefer-Stewart were premised on a recognition that the purposes of the antitrust laws are best served by insuring that the private action will be an ever-present threat to deter anyone contemplating business behavior in violation of the antitrust laws. The plaintiff who reaps the reward of treble damages may be no less morally reprehensible than the defendant, but the law encourages his suit to further the overriding public policy in favor of competition. A more fastidious regard for the relative moral worth of the parties would only result in seriously undermining the usefulness of the private action as a bulwark of antitrust enforcement. And permitting the plaintiff to recover a windfall gain does not encourage continued violations by those in his position,...

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