Atkin v. Union Processing Corp.

• Citation: 457 N.Y.S.2d 152,90 A.D.2d 332
• Parties: , 1982-83 Trade Cases P 65,183 Morris ATKIN, Sol Atkin and Samuel J. Atkin, Appellants, v. UNION PROCESSING CORPORATION, Respondent and another action.
• Decision Date: 17 December 1982
• Court: New York Supreme Court Appellate Division

Page 152

457 N.Y.S.2d 152

90 A.D.2d 332, 1982-83 Trade Cases P 65,183

Morris ATKIN, Sol Atkin and Samuel J. Atkin, Appellants, v. UNION PROCESSING CORPORATION, Respondent and another action.

Supreme Court, Appellate Division,

Fourth Department.

Dec. 17, 1982.

Harris, Beach, Wilcox, Rubin & Levey, Rochester, for appellants (James Hartman, Rochester, of counsel).

Nixon, Hargrave, Devans & Doyle, Rochester, for respondent (William Eggers, Rochester, of counsel).

Before SIMONS, J.P., and HANCOCK, CALLAHAN, DOERR and MOULE, JJ.

MOULE, Justice.

The principal question raised on this appeal is whether an agreement between two parties which provided that only one of them would operate a scrap metal shredder in the Rochester area is in violation of either the Sherman (U.S.Code, tit. 15, § 1 et seq.) or Donnelly (General Business Law, § 340 et seq.) Acts.

The basis of this action is a written contract made between the plaintiffs, owners of a scrap metal business in Rochester, and defendant which is also in the same business. Both parties purchased and processed scrap metal and resold the processed scrap to steel mills and foundries and were at that time considering the purchase of a metal shredder to process light metal. Steel mills preferred the shredded metal because the shredding process separated ferrous and nonferrous scrap and allowed them to purchase a cleaner grade of scrap. When defendant learned that plaintiffs had placed a down payment on a shredder, it initiated negotiations to ensure that there would be only one shredding operation in the Rochester area. Both sides agreed that there was not enough raw material in the area to support two shredding operations. They eventually reached an agreement whereby plaintiffs assigned the shredder purchase contract to defendant in return for two percent of defendant's gross sales for the next seven years. After one and one-half years had elapsed, defendant ceased making payments under the contract.

Plaintiffs originally brought suit in October 1978 for judgment allowing them to inspect defendant's books and for the amount they claimed was due under the contract. Defendant raised the affirmative defense that part of plaintiffs' consideration for the contract consisted of an oral restrictive covenant not to operate a shredder in the Rochester area which rendered the contract unenforceable. Plaintiffs' motion for partial summary judgment was granted by Special Term, which ruled that defendant would not be allowed to prove an oral agreement because of the contract's integration clause. Defendant appealed and this court reversed, holding that "parol evidence is admissible to show that the consideration for a contract is illegal" (Atkin v. Union Processing Corp., 77 A.D.2d 790, 430 N.Y.S.2d 735). Plaintiffs then moved for a separate trial on the issue of the legality of the contract. After a trial was conducted, the court found that the alleged oral agreement not to compete was part of plaintiffs' consideration for the contract and that, since the agreement was in restraint of competition, it was per se unreasonable and in violation of both the Sherman and Donnelly Acts.

Plaintiffs present two contentions on this appeal. First, that the contract between the parties represents their entire agreement and contains no illegal restraint. Second, that, even if an oral agreement not to compete existed, it was reasonable within the meaning of both the Sherman and Donnelly Acts and, therefore, the contract was enforceable.

Plaintiffs' first contention is without merit. Parol evidence was properly admitted at trial to establish the existence of plaintiffs' oral guarantee not to install a shredder in Rochester (Atkin v. Union Processing Corp., supra). Both parties testified at trial that there were only enough raw materials available in Rochester to operate one shredder profitably. The parties also agreed that the purpose of the negotiations was to ensure that only one shredder would operate in the Rochester area. The only question on which the parties disagreed was whether plaintiffs had orally covenanted not to operate a shredder in competition with defendant. It was up to the trial court to determine the credibility of the witnesses who testified. The trial court is in the best position to evaluate the credibility of witnesses and its findings should be given great deference (Perry v. Perry, 79 A.D.2d 851, 434 N.Y.S.2d 496; McCall v. Town of Middlebury, 52 A.D.2d 736, 382 N.Y.S.2d 179). The record in this case supports the trial court's finding that an oral agreement not to compete was part of plaintiffs' consideration for the agreement.

Plaintiffs next contend that, even if an oral agreement not to compete existed, it was reasonable within the meaning of the Sherman and Donnelly Acts. Assuming that the Sherman Act was properly asserted in this case, ¹ it does not require a finding that plaintiffs' agreement not to compete was illegal as a matter of law. Courts have construed the Sherman Act "as precluding only those contracts or combinations which 'unreasonably' restrain competition" (Northern Pacific R. Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545; see, also, Standard Oil Co. v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619, 834; Chicago Board of Trade v. United States, 246 U.S. 231, 38 S.Ct. 242, 62 L.Ed.2d 683). There are, however, certain agreements which "because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use" (Northern Pacific R. Co. v. United States, supra, 356 U.S. at 5, 78 S.Ct. at 518). These per se unreasonable practices include price fixing (United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 210, 60 S.Ct. 811, 838, 84 L.Ed. 1129), division of markets (United States v. Addyston Pipe & Steel Co., 85 F. 271, affd. 175 U.S. 211, 20 S.Ct. 96, 44 L.Ed. 136), group boycotts (Fashion Originators' Guild v. Federal Trade Comm, 312 U.S. 457, 61 S.Ct. 703, 85 L.Ed. 949), and tying arrangements (International Salt Co. v. United States, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20). Defendant argues that the contract it entered into with plaintiffs...