529 F.2d 170 (9th Cir. 1975), 74--1576, Dreibus v. Wilson

Docket Nº:74--1576.
Citation:529 F.2d 170
Party Name:Perry J. DREIBUS and Frank G. Coleman, on behalf of themselves and all other shareholders of Velvet Imports, Inc., a corporation, Plaintiffs and Appellants, v. Carlyle F. WILSON et al., Defendants and Appellees.
Case Date:December 29, 1975
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 170

529 F.2d 170 (9th Cir. 1975)

Perry J. DREIBUS and Frank G. Coleman, on behalf of

themselves and all other shareholders of Velvet

Imports, Inc., a corporation, Plaintiffs

and Appellants,

v.

Carlyle F. WILSON et al., Defendants and Appellees.

No. 74--1576.

United States Court of Appeals, Ninth Circuit

December 29, 1975

Ronald M. Bayer (argued), Los Angeles, Cal., for plaintiffs and appellants.

Page 171

Joseph D. Mullender, Jr. (argued), of Ball, Hunt, Hart, Brown & Baerwitz, Beverly Hills, Cal., for defendants and appellees.

OPINION

Before ELY, Circuit Judge, CARTER, Senior Circuit Judge, and EAST, Senior District Judge. [*]

EAST, Senior District Judge:

The plaintiffs-appellants Dreibus and Coleman (Dreibus Group), as owners of 50 percent of the capital stock of Velvet Imports, Inc., appeal from an order of the District Court dismissing their Clayton Act (15 U.S.C. § 15, et seq.) shareholders derivative action for damages and injunctive relief from alleged violations of § 1 (conspiracy, restraint of trade) and § 2 (monopoly) of the Sherman Act (15 U.S.C. §§ 1 and 2) by the defendants-appellees. We affirm.

FACTS AND RELATIONSHIPS OF THE PARTIES

The plaintiff Dreibus and one Cerf were the sole owners of the capital stock and were officers of American Wood Products, Inc. (American), a furniture manufacturing firm. Neither American nor any representative stockholder thereof is a party to this cause.

American needed velvet (fabric) for its use in manufacturing furniture. Velvet fabric allegedly is in short domestic supply and costly when imported.

Dreibus and Cerf conceived a profitable enterprise in securing a foreign source for American's needs in an importing business for resale to other buyers. They interested and brought in the defendants-appellees Wilson, Smith, and Gatti (Wilson Group) into the enterprise. It was agreed that upon the successful negotiation of a contract with an Italian fabric mill, a new corporation would be formed to administer the contract.

Dreibus and Cerf, with the aid of Gatti, were successful in obtaining a contract between an Italian firm, the defendant Rossitex, S.p.A., and American (Rossitex Contract) for the exclusive distributorship, within an unrestricted area, of a supply of 'Prince' (a trade name for a man-made fiber velvet fabric) quality velvet. The contract provided for minimum quantities to be purchased by American yearly. Pursuant to a prior understanding, the parties formed a new corporation, Velvet Imports, Inc. (Imports), with ownership of 50 percent of the capital stock to the Dreibus Group and 50 percent to the Wilson Group. The Rossitex Contract was assigned by American to Imports and each of the parties pledged to the other their faith-fulness, time, efforts, and expertise to the success of Imports.

Through some means not revealed in the record, the Dreibus Group lost out and the Wilson Group took over control and management of Imports' business.

CLAIMS OF THE DREIBUS GROUP

The Dreibus Group allege that the Wilson Group, with a coconspirator, Craftex Corporation (Craftex), 'contracted, agreed, combined and conspired to restrain the interstate and foreign commerce and trade in the importation and sale of velvet in the United States' in that they:

(a) Fraudulently induced the assignment of the Rossitex Contract to Imports;

(b) Caused the removal and exclusion of the Dreibus Group from participating in efficient management and sales activities of Imports and with the specific purpose of permitting the Rossitex Contract to lapse into default and inducing the Rossitex firm to cancel the Rossitex Contract for failure to order minimum quantities;

(c) Negotiated a new exclusive distributorship with Rossitex for the importation of the Rossitex firm's velvet, for the benefit of the Wilson Group and Craftex and to the

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exclusion of the Dreibus Group; and

(d) Threatened future similar acts in restraint of competition by hindering and preventing Imports from purchasing velvet in Italy for exportation to the United States.

MOTIONS OF THE WILSON GROUP

Several of the Wilson Group moved for a dismissal of the action contending that the complaint failed to state a claim upon which relief could be granted, or in the alternative, to make the complaint more definite and certain.

ACTION BY THE DISTRICT COURT

The District Court determined that the complaint failed to state either a § 1 or a § 2 Sherman Act claim upon which relief could be granted and dismissed the complaint with leave for amendment. The Dreibus Group declined to amend the complaint and the District Court, sua sponte, dismissed the action as to all defendants.

DISCUSSION

Section 1 Claims:

At the outset, it must be brought into clear focus that the Rossitex source of imported velvet was not the sole source of Italian man-made fiber velvet actually imported into the United States. The Dreibus Group alleged that the Rossitex Contract was negotiated 'with one of the Italian fabric mills previously contacted.' See United States Department of Commerce, Bureau of Census, Vol. FT 246--U.S. (imports for consumption), dollar value of imports of Italian velvets.

The Dreibus Group accepts without qualms their exclusive distributorship throughout an unlimited area of the imported Rossitex velvet as valid and urge only that the alleged misconduct and intention of the Wilson Group drove Imports out of its exclusive distributorship of the Rossitex velvet and replaced it with another exclusive distributorship. The District Court concluded that the substitution of one distributor for another undoubtedly injures the distributor replaced, but it does not injure competition among distributors, and does not violate § 1. Ace Beer Distributors, Inc. v. Kohn, Inc., 318 F.2d 283 (6th Cir.), cert. denied, 375 U.S. 922, 84 S.Ct. 267, 11 L.Ed.2d 166 (1963); accord Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., 416 F.2d 71 (9th Cir. 1969), cert. denied, 396 U.S. 1062, 90 S.Ct. 752, 24 L.Ed.2d 755 (1970). We agree and subscribe to the following language:

'Moreover, without more, it is not a per se violation for the manufacturer or supplier to combine or conspire with others to make a change in its exclusive franchises, cutting off the supply of a former distributor. Hawaiian Oke, supra, at 76. Thus, in this case, the fact that (the Wilson Group), with or without the encouragement of (Rossitex and Craftex), determined to change its exclusive distributorship from (American) to (the Wilson Group-Craftex) and the further contention that (the Wilson Group) and others combined to make that decision have, standing alone, no antitrust significance.' Alpha Distrib. Co. of Cal. v. Jack Daniel Distillery, 454 F.2d 442, at 452 (9th...

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