Hill v. A-T-O, Inc.

• Citation: 535 F.2d 1349
• Decision Date: 10 May 1976
• Docket Number: INC,A-T-,No. 232,D,232
• Parties: 1976-1 Trade Cases 60,873 Cheryl Perry HILL et al., Plaintiffs-Appellants, v., et al., Defendants-Appellees. ocket 75-7295.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 1349

535 F.2d 1349

1976-1 Trade Cases 60,873

Cheryl Perry HILL et al., Plaintiffs-Appellants, v. A-T-O, INC., et al., Defendants-Appellees.

No. 232, Docket 75-7295.

United States Court of Appeals, Second Circuit.

Argued Dec. 18, 1975.

Decided May 10, 1976.

Janet Benshoof, New York City (Brooklyn Legal Services Corp. B., New York City, on the brief, John C. Gray. Jr., Douglas V. Ackerman, Brooklyn, N.Y., of counsel), for plaintiffs-appellants.

Lewis Harris, New York City (Harris, Fredericks & Korobkin, New York City, on the brief, Barry I. Fredericks, New York City, of counsel), for defendant-appellee A-T-O, Inc.

Barton P. Blumberg, New York City (DiFalco, Field & Lomenzo, New York City, on the brief, Joel L. Cohen, New York City, of counsel), for defendants-appellees Family Buying Power. Inc., Nationwide Promotions, Inc., Executive Buying Power, Inc., Family Cleaning Power, Inc., M. Robert Dortch and Frank Dortch.

Irwin M. Berg, New York City (Norman S. Langer, Brooklyn, N.Y., on the brief), for defendants-appellees Compact Associates. Inc., Compact Bellerose, Inc., Compact Electra Corp., and Hyman Sindelman.

Before HAYS, TIMBERS and GURFEIN, Circuit Judges.

HAYS, Circuit Judge:

Plaintiffs appeal from two orders of the United States District Court for the Eastern District of New York. The first order, dated March 5, 1975, granted defendants leave to reargue a motion for summary judgment and upon reargument awarded summary judgment dismissing the amended complaint. The second order, dated April 11, 1975, denied plaintiffs' motion for leave to reargue or reamend their amended complaint and General Rule 9(g) statement.

Plaintiffs' class action ¹ was commenced in the district court on December 3, 1973 and alleges violations by defendants of the federal antitrust laws. Defendant A-T-O, Inc. ("ATO") manufactures vacuum cleaners and certain vacuum accessories for residential use and sells them in interstate commerce to independent distributors for retail sale. The defendants Family Buying Power, Inc., Nationwide Promotions, Inc., Executive Buying Power, Inc., Family Cleaning Power, Inc., M. Robert Dortch and Frank Dortch (the "FBP defendants") own and operate a quotation and buying service (the "buying service") through which members who pay an annual membership fee obtain a catalogue and quotation sheets which allegedly enables them to purchase various types of merchandise at large discounts. Compact Associates, Inc., Compact Electra Corp., Compact Bellerose, Inc. ., and Hyman Sindelman (the "Compact defendants") are retail distributors which marketed the ATO vacuum cleaners together with membership in the buying service in the New York City area by means of door-to-door solicitations during certain times alleged in the amended complaint. Plaintiff class consists of purchasers of the vacuum cleaner and membership in the buying service sold to them by the Compact defendants pursuant to written agreements executed during the course of the in-home solicitations.

In the winter of 1967 ATO purchased directly from the FBP defendants membership certificates in the FBP buying service which ATO in turn sold with its vacuum cleaners to the Compact defendants for retail sales. About a year later ATO and FBP terminated their business relationship after the Federal Trade Commission had questioned the propriety of the use of the FBP buying service membership certificates in connection with the sales of the vacuum cleaners. Subsequent to this development the Compact defendants obtained the FBP certificates directly from the FBP defendants and continued to sell them to the ultimate consumers together with the ATO manufactured vacuum cleaners. At all relevant times Compact had an exclusive license to offer the FBP certificates in the New York metropolitan region. It did so only in conjunction with sales of the vacuum cleaners. Prospective customers were told by Compact salesmen that if they agreed to purchase the cleaner they would be given "free of charge" a membership certificate in the FBP buying service. The Compact defendants admit that they never sold memberships in FBP separately from sales of the vacuum cleaner.

This action was brought under Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15 and 26, for violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. Plaintiffs' amended complaint set forth two causes of action. First, it is alleged that defendants have agreed to use and have imposed an illegal tying arrangement in the sale of the vacuum cleaners and buying service memberships, the effect of which is unreasonably to restrain interstate trade and commerce in the market for home vacuum cleaners. Second, plaintiffs alleged that defendants conspired to use a selling program consisting of misrepresentation and fraud, and have used such a program for the purpose of restraining interstate commerce in the market for home vacuum cleaners and/or buying service memberships. Plaintiffs seek injunctive relief and treble damages.

On January 21, 1975, the district court denied defendants' motion for summary judgment holding that there were genuine and material issues of fact which could only be resolved at trial. On March 5, 1975, the district court granted the defendants leave to reargue the motion for summary judgment and upon reconsideration reversed its earlier decision of January 21 and awarded summary judgment pursuant to Rule 56, Fed.R.Civ.P. dismissing plaintiffs' amended complaint. In its Memorandum and Order of March 5, 1975, the district court stated that its grant of summary judgment against plaintiffs' first cause of action alleging an illegal tying arrangement was based upon application of this Court's decision in Capital Temporaries Inc. of Hartford v. Olsten Corp., 506 F.2d 658 (2d Cir. 1974). The Court held that neither the amended complaint nor any supporting affidavit or other evidence introduced by plaintiffs had established "actual coercion" on behalf of the defendants with respect to the alleged tie-in. The second cause of action was dismissed on the grounds that it was, in essence, a claim for common law fraud not within the scope of the Sherman Act. We believe the district court misconstrued our decision in Capital Temporaries and therefore reverse its grant of summary judgment and remand for trial on the merits of the first cause of action asserting an illegal tying arrangement by defendants.

I.

The standards under which a tying arrangement conditioning the sale of one product upon the purchase of another is deemed to be a per se violation of the federal antitrust statutes are well established. Northern Pacific R. Co. v. United States, 356 U.S. 1, 5-6, 78 S.Ct. 514, 518, 2 L.Ed.2d 545, 550 (1958) sets forth the two controlling standards.

"For our purposes a tying arrangement may be defined as an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product . . . . Where such conditions are successfully exacted competition on the merits with respect to the tied product is inevitably curbed. Indeed 'tying agreements serve hardly any purpose beyond the suppression of competition.' Standard Oil Co. of California and Standard Stations v. United States, 337 U.S. 293, 305-306, (69 S.Ct. 1051, 1058, 93 L.Ed. 1371). They deny competitors free access to the market for the tied product, not because the party imposing the tying requirements has a better product or a lower price but because of his power or leverage in another market. At the same time buyers are forced to forego their free choice between competing products. For these reasons 'tying agreements fare harshly under the laws forbidding restraints of trade.' Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 606, (73 S.Ct. 872, 879, 97 L.Ed. 1277). They are unreasonable in and of themselves whenever a party has sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product and a 'not insubstantial' amount of interstate commerce is affected. International Salt Co. v. United States, 332 U.S. 392, (68 S.Ct. 12, 92 L.Ed. 20)." (footnote omitted) (emphasis supplied).

The Supreme Court's most recent tie-in decision in Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495, 89 S.Ct. 1252, 22 L.Ed.2d 495 (1969) elaborated these two per se requirements in the context, as here, of a motion for summary judgment. The complaint in Fortner charged that in order to obtain certain real estate development loans petitioner had been required to agree to purchase and erect respondent's prefabricated houses. The Court reversed a grant of summary judgment against the petitioner. With respect to the requirement that the defendant exert economic power in the tying product market sufficient to restrain competition in the market for the tied product, the Court held that petitioner's pleadings and affidavits which tended to show that competitors of United States Steel sold comparable prefabricated houses at lower prices and that petitioner had accepted the tying condition " solely because (respondents') offer to provide 100% financing, lending an amount equal to the full purchase price of the land to be acquired, was unusually and uniquely advantageous to him", 394 U.S. at 504, 89 S.Ct. at 1259, 22 L.Ed.2d at 506, entitled petitioner to go to trial on this issue. ²

"The standard of 'sufficient economic power' does not, as the District Court held, require that the defendant have a monopoly or even a dominant position throughout the market for the tying product. Our tie-in cases have made unmistakably clear that the economic power over the tying product can be sufficient even though the power falls far short of dominance and even though the power exists only with respect to some of the buyers in the market. . . . As we said in the Loew's case, 371 U.S. (38) at 45, (83 S.Ct. 97, at 102, 9 L.Ed.2d...