Reiter v. Sonotone Corp.

• Decision Date: 10 May 1977
• Docket Number: No. 4-75-Civ. 206.,4-75-Civ. 206.
• Citation: 435 F. Supp. 933
• Parties: Kathleen R. REITER, Individually and as representative of the Class of All Personal Users of Hearing Aids located in the United States, Plaintiffs, v. SONOTONE CORPORATION, a New York corporation, Beltone Electronics Corporation, an Illinois corporation, Dahlberg Electronics, Inc., a Minnesota corporation, Textron Incorporated, a Delaware corporation, and Radioear Corporation, a Delaware corporation, Defendants.
• Court: U.S. District Court — District of Minnesota

435 F. Supp. 933

Kathleen R. REITER, Individually and as representative of the Class of All Personal Users of Hearing Aids located in the United States, Plaintiffs, v. SONOTONE CORPORATION, a New York corporation, Beltone Electronics Corporation, an Illinois corporation, Dahlberg Electronics, Inc., a Minnesota corporation, Textron Incorporated, a Delaware corporation, and Radioear Corporation, a Delaware corporation, Defendants.

No. 4-75-Civ. 206.

United States District Court, D. Minnesota, Fourth Division.

Memorandum Order March 31, 1977.

As Amended May 10, 1977.

John E. Thomas, Cochrane & Bresnahan, St. Paul, Minn., for plaintiffs.

James H. Levy and William I. Kampf, St. Paul, Minn., for Beltone Electronics; Julian R. Wilheim, Chicago, Ill., Fred L. Woodworth, Dykema, Gossett, Spencer, Goodnow & Trigg, Detroit, Mich., of counsel.

Eugene M. Warlich, Doherty, Rumble & Butler, St. Paul, Minn., for Radio Ear Corp.

Elliot S. Kaplan and Deborah J. Palmer, Robins, Davis & Lyons, Minneapolis, Minn., for Textron Incorporated.

John M. Palmer, Levitt, Palmer, Bowman, Bearmon & Rotman, Minneapolis, Minn., for Dahlberg Electronics Corp.

LARSON, District Judge.

Plaintiff Kathleen R. Reiter brings this antitrust action seeking damages and injunctive relief against five manufacturers of hearing aids. In her complaint she requests certification of a class consisting of all persons who have purchased hearing aids manufactured by any of the defendants. All defendants except Sonotone, which has not appeared in any proceeding in this case, move for dismissal or, in the alternative, for summary judgment.

Plaintiff, along with all potential members of the class she seeks to represent, is a purchaser of a hearing aid manufactured by one of the defendants and distributed by methods that allegedly contravene the antitrust laws. She is not in any business related to that of defendants or their distributors and alleges no property interest other than that of an individual who, because of defendants' actions, was forced to part with more money to purchase a hearing aid than she would have had to pay had they not engaged in allegedly illegal business practices. She is the classic consumer plaintiff.

Defendants base their motion solely on the ground that plaintiff and the members of any class she would represent lack standing to sue for damages under § 4 of the Clayton Act, 15 U.S.C. § 15. In support of their arguments defendants have cited an impressive array of cases dealing with the standing issue. They concede, however, that apart from a very recent set of opinions issued by Honorable Spencer Williams, United States District Judge for the Northern District of California,¹ there exists no case law precisely on point. To date, a number of large consumer class actions have been prosecuted, many to conclusion, without any consideration of the standing issue raised here. This case therefore is one of first impression in this district and, if only published precedent is considered, nationally.

A. The "Target Area" Test.

Development of standing doctrine under § 4 of the Clayton Act has been shaped by judicial awareness of a need to limit the statute's seemingly broad grant of rights to sue: "Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court ...." As the Second Circuit has remarked, a literal interpretation of these words would open the "flood-gate to all, no matter how remote their interest or incidental their relationship"; given the imprecision of substantive antitrust statutes and doctrine, such limitation of standing is necessary to keep the caseload and the fact situations of the cases within manageable bounds. Calderone Enterprises Corporation v. United Artists Theatre Circuit, Inc., 454 F.2d 1292 at 1295-96 (2d Cir. 1971), cert. den. 406 U.S. 930, 92 S.Ct. 1776, 32 L.Ed.2d 132 (1972). Therefore, in analyzing a plaintiff's relationship to defendants and to the alleged facts, the Court must ask whether plaintiff is a person within the "target area" of the alleged antitrust conspiracy. Sanitary Milk Producers v. Bergjans Farm Dairy, Inc., 368 F.2d 679 at 689 (8th Cir. 1966) (explicitly endorsing application of the "target area" test as explained in Karseal Corp. v. Richfield Oil Corp., 221 F.2d 358 at 362 (9th Cir. 1955)).

The target area test is essentially a measure of remoteness of injury resulting from antitrust violations. In most cases it serves to eliminate those plaintiffs whose business relationship with defendants is so attenuated as to render the alleged injury negligible or highly speculative. In re Antibiotic Antitrust Actions, 333 F.Supp. 310 (S.D.N.Y.1971) (farmers whose purchase of poultry feed was several levels removed from the actions of drug manufacturers, so that damage could not possibly be established, lacked standing); Nassau County Association of Insurance Agents, Inc. v. Aetna Life and Casualty Co., 361 F.Supp. 967 (S.D.N.Y.1973), aff'd 497 F.2d 1151 (2d Cir.), cert. den. 419 U.S. 968, 95 S.Ct. 232, 42 L.Ed.2d 184 (1974) (injury to association of insurance agents too remote where actions of company directed at the agents); Calderone Enterprises Corp., supra, (theatre landlord whose lessee's revenues, upon which the rental was partially based, were adversely affected by defendants' business methods, too remote); State of Illinois v. Ampress Brick Co., Inc., 67 F.R.D. 461 (N.D. Ill.1975), rev'd in part 536 F.2d 1163 (7th Cir. 1976), cert. granted 429 U.S. 938, 97 S.Ct. 352, 50 L.Ed.2d 307 (1976) (an "ultimate" consumer or user of goods distributed by means involving antitrust violations has standing to attempt proof of damages and is not precluded by "remoteness" even where the goods have passed through intermediaries and been altered).

The standing of persons whose business relationship to defendants is solely that of ordinary consumer must be evaluated in the same manner. Where the injury is so remotely connected to the alleged conspiracy that damages can only be speculative, the consumer lacks standing. Jeffrey v. Southwestern Bell, 518 F.2d 1129 (5th Cir. 1975) (monopolization of telephone equipment market aimed at "manufacturers, sellers, and lessors" of equipment rather than subscribers); Lefrak v. Arabian American Oil Co., 405 F.Supp. 597 (E.D.N. Y.1975) (consumer is within target area of foreign suppliers' conspiracy to fix prices of home heating oil).

Plaintiff here is a purchaser of an item that is sold in the form in which it is manufactured; it does not become part of something else before the consumer obtains it, so that the market effects of anticompetitive practices are readily ascertainable as to each hearing aid sold. State of Illinois v. Ampress Brick, supra. The presence of retailers in the distribution chain does not shield defendants from suit based on defendants' actions. Lefrak, supra; In re Master Key Antitrust Litigation, 528 F.2d 5 at 12 (2d Cir. 1975). If defendants did indeed conspire to limit competition between themselves, the consumers for whose use hearing aids are manufactured are clearly "targets" of the conspiracy.

B. "Business or Property."

Defendants also argue that consumers cannot have standing to sue under the antitrust laws because the injury to "business or property" which gives rise to a right of action under Clayton Act § 4 must be to plaintiff's business interests. The Court cannot agree with that conclusion.

Most of the cases dealing with consumer standing under § 4 involve businessmen "consumers" — persons who can and do allege injury to their commercial interests by virtue of defendants' actions. For this reason, much of the judicial language cited by defendants is inapplicable in this context. See, e. g., Calderone, supra, (requirement of competitive injury applied to eliminate plaintiff-businessman whose injury was too remote); GAF Corp. v. Circle Floor Co., Inc., 463 F.2d 752 (2d Cir. 1972), cert. dism. 413 U.S. 901, 93 S.Ct. 3058, 37 L.Ed.2d 1045 (1973) (requirement of competitive injury applied to eliminate plaintiff corporation fighting attempted takeover).

Defendants base much of their argument on the holding in In re Multidistrict Vehicle Air Pollution M.D.L. No. 31, 481 F.2d 122 (9th Cir.), cert. den. 414 U.S. 1045, 94 S.Ct. 551, 38 L.Ed.2d 336 (1973), which dismissed governmental plaintiffs who alleged general economic harm rather than specific injury to the states as consumers. Multidistrict Vehicle Air Pollution, supra, at 125.² In deciding that case the panel relied, as do defendants here, on Hawaii v. Standard Oil of California, 405 U.S. 251, 92 S.Ct. 885, 31 L.Ed.2d 184 (1972), in which the Supreme Court held that the State of Hawaii lacked standing to sue as parens patriae alleging damage to its economy caused by defendants' anticompetitive actions. Reliance on one phrase from that case, however, is misplaced. Although the Court did, as defendants claim, conclude that the words "business or property" "refer to commercial interests or enterprises", 405 U.S. 251 at 264, 92 S.Ct. 885 at 892, 31 L.Ed.2d 184, its interpretation of "commercial interests" clearly encompasses the interest of consumers who must pay more in the marketplace because of defendants' actions. 405 U.S. 251 at 262 fn. 14, 92 S.Ct. 885. The Court distinguished the State's interest in its general economic welfare from its proprietary interest as a consumer, and it suggested that under 15 U.S.C. § 15 (Clayton Act § 4) a state could in its proprietary capacity bring a class action as representative of its consumer citizens. 405 U.S. 251 at 266, 92 S.Ct. 885. In affirming dismissal of the parens patriae plaintiff, the Court contradicted the claim of defendants herein that plaintiffs must be in business to have standing under § 4.³

The Eighth Circuit decision in Ragar v. T. J. Raney & Sons, 521 F.2d 795 (1975), affirming the decision of Judge Henley in the Eastern...