Local Beauty Supply, Inc. v. Lamaur Inc.

• Decision Date: 09 April 1986
• Docket Number: No. 85-1570,85-1570
• Citation: 787 F.2d 1197
• Parties: , 1986-1 Trade Cases 67,040 LOCAL BEAUTY SUPPLY, INC., Plaintiff-Appellant, v. LAMAUR INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1197

787 F.2d 1197

54 USLW 2549, 1986-1 Trade Cases 67,040

LOCAL BEAUTY SUPPLY, INC., Plaintiff-Appellant, v. LAMAUR INC., Defendant-Appellee.

No. 85-1570.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 23, 1985.

Decided April 9, 1986.

Rehearing and Rehearing En Banc Denied May 8, 1986.

Mark A. Welge, Frumkin & Manta, Philadelphia, Pa., for plaintiff-appellant.

Charles A. Mays, Leonard, Street & Deinard, Minneapolis, Minn., for defendant-appellee.

Before CUMMINGS, Chief Judge, EASTERBROOK, Circuit Judge, and GRANT, Senior District Judge. ^*

CUMMINGS, Chief Judge.

Plaintiff appeals from the summary judgment granted to defendant. The district court held that plaintiff lacked standing to bring this antitrust action against the defendant. We affirm on the ground that the plaintiff has failed to demonstrate an antitrust injury and therefore cannot obtain damages or an injunction.

I. STATEMENT OF CASE AND FACTS

The defendant, Lamaur Inc., is a Minneapolis, Minnesota, manufacturer of beauty products. Lamaur has approximately 150 authorized distributors who sell the products as either full-service or cash-and-carry operations. Full-service dealers maintain field salespersons to advertise and sell the products to beauty salons. Cash-and-carry dealers typically sell the products through flyer advertising and sell primarily to small salons, retailers or unauthorized distributors. Lamaur prefers the full-service dealers because they provide more services to the clients and invest in advertising and active promotion of Lamaur's product. The plaintiff, Local Beauty Supply (Local), was a distributor of Lamaur products from 1956 to September 19, 1980, with its principal place of business in Castleton, Indiana. Over that time Local became more and more a cash-and-carry operation.

In 1973 Lamaur entered into a Lamaur distributor agreement (LDA) with its dealers. The agreement contained three pertinent provisions. First, the distributors agreed not to sell restricted-use products (such as permanent waves and bleaches) to non-salon customers without consent from Lamaur. Second, the agreement provided that distributors who failed to provide full service and advertising would remit to Lamaur 15% of the wholesale price as a functional discount. Third, the distributors agreed to submit to auditing by Lamaur in order to ensure compliance with the previous two provisions. If a distributor breached the agreement, Lamaur could cancel the LDA without prior notice. Local was a signatory to both the 1973 and 1977 LDA's.

Local contends that Lamaur used the audit and functional discount provisions of the LDA to facilitate a price maintenance scheme in violation of Sec. 1 of the Sherman Act, 15 U.S.C. Sec. 1. Local maintains that it was terminated by Lamaur in order to pacify distributors complaining of Local's sub-jobbing. As damages, Local seeks its lost profits from its inability to sell Lamaur products. Local argues that distributors in Chicago were complaining of its sales to Victory Bee (Bee), a retail discounter in Hillside, Illinois. Local alleges that in order to keep Bee from undercutting the distributors, Lamaur decided to stop selling to its supplier, Local. When Lamaur requested an audit of Local, Local refused, claiming the audits were a ruse, designed to intimidate Local (and other distributors) into stopping sales to Bee. Because Local would not submit to this audit, it was terminated. Thus, argues Local, its termination was the direct result of an unlawful price-fixing scheme. Local seeks treble damages under Sec. 4 of the Clayton Act, 15 U.S.C. Sec. 15, and injunctive relief pursuant to Sec. 16 of the Clayton Act, 15 U.S.C. Sec. 26.

Local filed a four-count complaint against Lamaur. Count I charged a violation of Sec. 1 of the Sherman Act and sought ten million dollars in damages but trebled under Sec. 4 of the Clayton Act; Count II alleged a post-termination boycott in violation of the same provision; Count III charged violations of Secs. 2(d) and 2(e) of the Robinson-Patman Act, 15 U.S.C. Secs. 13(d) and 13(e); and Count IV claimed injunctive or $50,000 per month monetary relief. ¹ Counts I, III and IV were dismissed for lack of standing; Count II was dismissed by agreement of the parties to allow entry of final judgment. Local bases its appeal on Counts I and IV.

II. ANTITRUST INJURY

The district court granted summary judgment to the defendant, holding that under the antitrust injury standards of Associated General Contractors v. California St. Council of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723, Blue Shield of Virginia v. McCready, 457 U.S. 465, 102 S.Ct. 2540, 73 L.Ed.2d 149, and the Seventh Circuit test that requires a plaintiff to be within the statute's target area as established in Lupia v. Stella D'Oro Biscuit Co., 586 F.2d 1163 (7th Cir.1978), certiorari denied, 440 U.S. 982, 99 S.Ct. 1791, 60 L.Ed.2d 242, the plaintiff had no standing to bring the antitrust action. Although we agree that Local may not bring this action, we do so under the antitrust injury test set forth in Brunswick v. Pueblo Bowl-O-Mat, 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701, and followed in subsequent Supreme Court cases, including the most recent case of Matsushita Electric Industrial Co. v. Zenith Radio Corp., ---U.S.----, 106 S.Ct. 1348, 1354, 1356, 89 L.Ed.2d 538 (1986).

A. Summary Judgment

The district court judge granted summary judgment to defendant Lamaur on plaintiff's Sherman Act Sec. 1 antitrust claim (Count I) and Clayton Act Sec. 4 damage or Clayton Act Sec. 16 injunctive claim (Count IV) on standing grounds. Therefore, we must assume for purposes of appeal that Local can prove an antitrust violation and decide only whether Local may proceed to present evidence. We of course take Local's allegations as true. Lupia v. Stella D'Oro Biscuit Co., 586 F.2d 1163, 1167 (7th Cir.1978). First, Lamaur and its distributors had an agreement to maintain retail prices; second, Lamaur attempted to enforce both the functional discount and audit provisions of its LDA to further the price-fixing scheme; and third, Lamaur's termination of Local was in furtherance of the illegal price maintenance. This is sufficient to make out an antitrust violation because otherwise lawful non-price mechanisms may be rendered per se unlawful if imposed as part of an illegal scheme to fix prices. Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 104 S.Ct. 1464, 79 L.Ed.2d 775. But to obtain an injunction or recover damages under Secs. 4 and 16 of the Clayton Act, plaintiffs must prove more than an antitrust violation; Local must also show that it was injured "by reason of the antitrust violation."

B. The Clayton Act

Section 4 of the Clayton Act, 15 U.S.C. Sec. 15, defines the class of persons who may maintain private damage actions under the antitrust laws. The statute reads very broadly, stating that "any person who shall be injured ... by reason of anything forbidden in the antitrust laws may sue...." However, the courts have not interpreted Sec. 4 to be as expansive as its literal language suggests. In Associated General, 459 U.S. at 529-35, 103 S.Ct. at 903-07, the Supreme Court analyzed the Sec. 4 language against its history, purpose, and case law. The Court first noted that traditional common-law tort concepts, such as proximate cause, directness of injury, certainty of damages, and privity of contract would constrain antitrust damages litigation. Id. at 532-33, 103 S.Ct. at 905-06; see Loeb v. Eastman Kodak Co., 183 F. 704, 709 (3d Cir.1910). Thus the Court concluded that "Congress did not intend the antitrust laws to provide a remedy in damages for all injuries that might conceivably be traced to an antitrust violation." Id. 159 U.S. at 534, 103 S.Ct. at 906 (quoting Hawaii v. Standard Oil Co., 405 U.S. 251, 263 n. 14, 92 S.Ct. 885, 891 n. 14, 31 L.Ed.2d 184). Standing requirements have been imposed because of the view that "the treble damages suit [is] too lethal a weapon to place in the hands of anyone who has suffered" an injury. Lupia, 586 F.2d at 1168. One of the more recent limitations placed on Sec. 4 by the Supreme Court for monetary or equitable relief is the requirement of an antitrust injury. Brunswick, 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701.

C. "Standing" Requirement

In In re Industrial Gas Antitrust Litigation (Bichan), 681 F.2d 514, 515 (7th Cir.1982), this Court noted that analysis of whether a plaintiff may bring a treble damages antitrust action against a defendant is two-fold. First, it is necessary to determine whether the plaintiff has suffered an antitrust injury and second whether the plaintiff is the proper party to bring the action. Id. at 515. Thus this Court specifically distinguished between the requirements of antitrust injury and a proper antitrust plaintiff. Whether a plaintiff is permitted to bring suit as a proper party necessitates the use of "standing" tests, such as the target area test. Id. at 516. But the Bichan Court then went on to analyze the antitrust injury prong under the target area test (id. at 517), a test more appropriate for determining when a plaintiff is too remote to be entitled to recover. Insofar as Bichan recognizes the concepts as analytically distinct, we adhere to this analysis.

The issue of antitrust standing has become somewhat confused. Some courts have considered "antitrust injury" as an additional element of standing, e.g., John Lenore & Co. v. Olympia Brewing Co., 550 F.2d 495 (9th Cir.1977), while others have considered the two requirements as analytically distinct. Amey, Inc. v. Gulf Abstract & Title, Inc., 758 F.2d 1486, 1500 (11th Cir.1985); Bichan, 681 F.2d at 515; Industrial Inv. Dev. Corp. v. Mitsui & Co., 671 F.2d 876, 888 (5th Cir.1982); Engine Specialties, Inc. v. Bombardier Ltd., 605 F.2d 1, 12 n. 16 (1st Cir.1979), certiorari denied, 446 U.S. 983, 100 S.Ct. 2964, 64 L.Ed.2d 839; Pollock v. Citrus Assoc., 512...