Auburn News Co., Inc. v. Providence Journal Co., 81-1047

• Decision Date: 23 September 1981
• Docket Number: No. 81-1047,81-1047
• Parties: 1981-2 Trade Cases 64,298, 7 Media L. Rep. 1969 AUBURN NEWS COMPANY, INC., et al., Plaintiffs-Appellees, v. PROVIDENCE JOURNAL COMPANY, et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — First Circuit

Page 273

659 F.2d 273

1981-2 Trade Cases 64,298, 7 Media L. Rep. 1969

AUBURN NEWS COMPANY, INC., et al., Plaintiffs-Appellees, v. PROVIDENCE JOURNAL COMPANY, et al., Defendants-Appellants.

No. 81-1047.

United States Court of Appeals, First Circuit.

Argued June 2, 1981.

Decided Sept. 23, 1981.

Joseph V. Cavanagh, Jr., Providence, R. I., with whom Edward F. Hindle, Edwards & Angell, Providence, R. I., Daniel C. Kaufman and Waddey, Lundin & Newport, Nashville, Tenn., were on brief, for defendants-appellants.

Frank Licht, Providence, R. I. and David L. Foster, New York City, with whom Richard A. Licht, Letts, Quinn & Licht, Providence, R. I., Howard C. Buschman, III, Richard L. Posen, Jack A. Pawa, Willkie, Farr & Gallagher, New York City, Austin T. Stickells, Boston, Mass., Leonard Decof and Decof & Grimm, Providence, R. I., were on brief, for plaintiffs-appellees.

Before CAMPBELL, BOWNES and BREYER, Circuit Judges.

BOWNES, Circuit Judge.

Defendant-appellant Providence Journal Company (Journal) and its wholly-owned subsidiary, defendant-appellant Southern New England News Distributors, Inc. (SNENDI) appeal from a preliminary injunction of the District Court for the District of Rhode Island, enjoining them from refusing to deal with plaintiffs-appellees, eighteen independent wholesale newspaper distributors, and from using their customer lists. We vacate that part of the preliminary injunction enjoining appellants from not doing business with appellees. Because appellants apparently did not object to that part of the preliminary injunction forbidding them from using the customer list of appellees, ¹ we do not review it on appeal.

The Journal, a privately-owned corporation in Rhode Island, publishes and circulates The Providence Sunday Journal, The Providence Journal (Monday-Friday morning newspaper), The Evening Bulletin (Monday-Friday afternoon newspaper), and the Providence Journal Bulletin (Saturday morning newspaper) throughout Rhode Island and southeastern Massachusetts. The Evening Bulletin is the only newspaper facing direct competition from other Rhode Island local papers. The Journal's subsidiary, SNENDI, distributes directly to store accounts and to home delivery carriers in parts of Rhode Island and southeastern Massachusetts. The Journal determines SNENDI policy and its circulation department employees directly supervise SNENDI personnel on a daily basis.

Appellees are sole proprietorships, family partnerships and family corporations which own and operate independent wholesale newspaper distribution businesses. They mainly purchase and resell Journal newspapers to home delivery carriers and store accounts in areas not directly covered by the Journal. During the week, most appellees do not distribute non-Journal newspapers. Two of the appellees supply less than three dozen copies of out-of-town newspapers (New York Times, New York News, Boston Globe and Boston Herald) on weekdays, and a third distributes 137 copies daily of the Attleboro Sun Times. On Sundays, appellees distribute out-of-town newspapers to their retailers. They and the Journal operate in geographically separate areas. Although such territorial division was not an explicit condition of the relationship between either the appellees and the Journal or among the appellees themselves, the arrangement was respected by all. The absence of price competition benefited the appellees.

The Journal distributed its paper through independent distributors until 1973. Its creation in that year of SNENDI with the object of directly entering the distributorship business was a marked shift from its prior reliance upon the independent distributors. At a breakfast of independent distributors called by the Journal in March 1973, its circulation director further emphasized the move towards an in-house distribution system; he announced that the Journal would purchase distributorships from those independents who wished to sell "at fantastic prices, starting at 100% increase above cost," rising "all the way to 800-900% and/or over," and that, in effect, it would not recognize the sale of distributorships, except to those who were part of the immediate family of the current distributors. This policy would thus foreclose the acquisition of new distributorships by independent wholesalers, and fortify the Journal's direct role in the distribution of its newspapers. In fact, the Journal did not always adhere to its new policy; it did do business with six distributorships sold to third parties. But as an aftermath of the breakfast meeting, the Journal did acquire about thirty distributorships through SNENDI so that it had direct dealing with retailers accounting for 50% of the Journal's circulation.

In late 1979 or early 1980, the Journal sought to complete the change in its method of distribution. In a letter of August 11, 1980, it told all independent distributors that effective September 6, 1980, it would not sell its newspapers at wholesale rates to them. Direct sale and distribution of newspapers, the Journal explained, would result in a more efficient economical system and provide more uniform service to the readership. It also stated that it would be "pleased to discuss ... a reasonable offer for the purchase of ... subscriber lists of Journal newspapers" and that the offer of purchase would expire at the close of business on Friday, September 5, 1980. Fourteen of the thirty-two independent distributors with whom the Journal was then dealing sold out to it; appellees are the remaining eighteen distributors who did not. The Journal also informed store proprietors served by appellees that they "would be receiving (their) papers directly from the Providence Journal Company." In addition, the Journal placed advertisements in its newspapers informing home delivery carriers that they had to contact the Journal if they wanted to continue delivering Journal papers.

On September 2, 1980, the independent distributors brought suit challenging the direct distribution plan. They filed a thirteen-count complaint alleging that the Journal had conspired to restrain trade and destroy competition in violation of § 1 of the Sherman Act, 15 U.S.C. § 1, ² and that it had monopolized and attempted to monopolize trade in contravention of § 2 of the Sherman Act, 15 U.S.C. § 2. ³ They also asserted parallel claims under the Rhode Island Antitrust Act, R.I.Gen.Laws §§ 6-36-1 et seq., as well as common law claims of unfair competition and tortious interference with contractual relations. Plaintiffs' complaint prayed for treble damages and for interim and permanent injunctive relief. Together with their complaint, they filed a motion for a temporary restraining order, which the court below issued pending hearing and determination of the motion for preliminary injunction.

Discovery was expedited, but could not be completed because of the pressures of time. Nevertheless, numerous depositions were taken, extensive documentary evidence was produced, and the hearing on the preliminary injunction consisted of seven days of trial and a half day of argument. The district court heard fifteen witnesses, including four experts. It determined that the plaintiffs had demonstrated adequate grounds for issuance of a preliminary injunction that they would suffer irreparable harm if defendants were not enjoined, that the balance of harm tipped in the direction of the plaintiffs, that they established a public interest requiring preliminary relief, and that they produced credible evidence which, if accepted at the hearing on the merits, would result in ultimate success. The court employed the "alternative test" standard enunciated in the Second Circuit, see, e. g., U. S. v. Bedford Associates, 618 F.2d 904, 912 n.15 (2d Cir. 1980), that the plaintiff need not make as persuasive a showing that he is likely to succeed on the merits where other factors are strong, such as the potential harm to plaintiff and the lack of a similar potential for harm to defendant. In granting the injunction, the district court rejected treble damages as an adequate remedy at law, concluding that such an award (1) would convert litigation "into a kind of private eminent domain proceeding" in which the Journal would "have purchased Plaintiffs' businesses, at a price determined by the Court"; (2) would fail to recognize the interests of the many retailers not party to the action; and (3) would obstruct "the lofty purpose of the Sherman Act." In its order entered December 23, 1980, the district court enjoined the Journal pendente lite from "refusing to deal with plaintiffs and from using plaintiffs' customer lists"; plaintiffs were required to post a $30,000 bond without surety.

Before this court, appellants argue that the district court erred as a matter of law in granting the preliminary injunction by not requiring that plaintiffs show a probability of success on the merits; that plaintiffs, contrary to the district court's determination, had an adequate remedy at law; and that the district court, in effectively enjoining the Journal's conversion to a direct wholesale distribution system, misapplied fundamental antitrust principles, and failed to accept the Journal's valid business reasons for the conversion to a direct distribution system.

We begin by observing that private parties may be afforded preliminary injunctive relief in antitrust cases

when and under the same conditions and principles as injunctive relief ... is granted by courts of equity, ... and upon the execution of proper bond against damages for an injunction improvidently granted and a showing that the danger of irreparable loss or damage is immediate.

15 U.S.C. § 26. We, therefore, briefly review our standard for granting a preliminary injunction. We adhere, of course, to the basic requirement, which originated centuries ago in the English Court of Chancery, that before such relief becomes available...