American Vision Centers, Inc. v. Cohen

• Decision Date: 26 April 1989
• Docket Number: No. 88 C 2624.,88 C 2624.
• Citation: 711 F. Supp. 721
• Parties: AMERICAN VISION CENTERS, INC., Plaintiff, v. Robert COHEN, Edward Cohen, Alan Cohen, Allan Bernstein, Stanley B. Bernstein, and Robert Gertler, Defendants.
• Court: U.S. District Court — Eastern District of New York

711 F. Supp. 721

AMERICAN VISION CENTERS, INC., Plaintiff, v. Robert COHEN, Edward Cohen, Alan Cohen, Allan Bernstein, Stanley B. Bernstein, and Robert Gertler, Defendants.

No. 88 C 2624.

United States District Court, E.D. New York.

April 26, 1989.

Fennell & Minkoff (Darrell K. Fennell and Nancy M. Harnett, of counsel), New York City, for plaintiff.

Hoffman & Pollok (Mark A. Summers, of counsel), New York City, for defendants Robert Cohen, Edward Cohen, Alan Cohen, Allan Bernstein and Robert Gertler.

MEMORANDUM AND ORDER

NICKERSON, District Judge.

Plaintiff American Vision Centers, Inc. (American Vision) brought this action against defendants, six of its former officers or directors. Defendants have moved pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss the two antitrust claims alleged in the complaint for failure to state a claim upon which relief can be granted, and pursuant to Rule 12(b)(1) to dismiss the remaining pendent state law claims for lack of subject matter jurisdiction.

The complaint alleges, in substance, the following. American Vision, a New York corporation, operates retail stores, or sells franchises to operate such stores, for the sale of eyeglasses and other optical products to the public. Since 1977 it has conducted business in New York and seven other states, but not in Connecticut, Florida, or New Jersey. From October 1977 to October 1987 the three Cohen defendants were the majority shareholders of American Vision, each owning 18% of the common stock. They used their 54% ownership of the stock to name themselves directors and officers, and to choose the other three defendants as directors for various periods. Members of the public owned the balance of the stock.

The Cohens resigned as officers in December 1984 but remained in control as majority stockholders and directors and named successor officers. In October 1987 the Cohens sold their stock to Kay AVC Corp.

While they served as officers and directors of American Vision, the Cohens owned 100% of the stock and were officers and directors of Cohen Fashion Optical, Inc. (Cohen Fashion). It too owned and franchised retail optical stores in several states, operating or franchising over 60 such stores in early 1986 in Connecticut, Florida, New Jersey, and New York. Cohen Fashion competed directly with American Vision. Indeed, the Cohens so recognized in a 1979 prospectus of American Vision and in a 1986 Form 10-K filed by American Vision and signed by them.

The Cohens ran the two companies to favor Cohen Fashion, to divert to it corporate opportunities belonging to American Vision, and to prevent American Vision from opening stores or granting franchises in Florida, Connecticut, New Jersey, and New York and from otherwise competing with Cohen Fashion.

The complaint's first claim asserts a violation of Section 8 of the Clayton Act, 15 U.S.C. § 19 (1982). That section provides in pertinent part that "no person at the same time shall be a director in any two or more corporations" any of which has capital, surplus, and undivided profits of more than $1,000,000, if they are or have been "competitors" so that "the elimination of competition by agreement between them" would violate the antitrust laws.

The second claim alleges a violation of Section 1 of the Sherman Act, 15 U.S.C. § 1 (1982), providing, so far as pertinent, that "every contract, combination in the form of trust or otherwise, or conspiracy" in restraint of interstate commerce is illegal, and that "every person" making such an illegal contract or engaging in such an illegal contract or combination shall be deemed guilty of a felony.

Claims three through five are pendent state law claims.

The complaint recites what on their face appear to be the prerequisites for claims under the Clayton and Sherman Acts. It says that American Vision and Cohen Fashion were and are "competitors," that each had capital, surplus, and undivided profits of more than $1,000,000, that as directors in both companies the Cohens eliminated competition between the two pursuant to a conspiracy in restraint of trade between the Cohens, the other defendants, Cohen Fashion, and others, to prevent American Vision from competing with Cohen Fashion by dividing geographical markets and by other means inhibiting competition by American Vision, all so as substantially to restrain interstate commerce.

Defendants' chief argument is that the complaint's allegations do not establish claims either under the Clayton Act or under the Sherman Act. Citing Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984), the defendants contend that there is no allegation of a "plurality of actors" who engaged in the alleged antitrust violations because American Vision and Cohen Fashion constituted "a single business entity" that could not conspire with itself. Thus, despite their admissions in writing that the companies were in "competition," the defendants now say that there were no two "competitors" within the meaning of Section 8 of the Clayton Act and no two "persons" who could enter into a conspiracy to violate the Sherman Act.

Prior to the Copperweld case the Supreme Court had recognized, at least in dicta, that there could be liability under the Sherman Act for restraints resulting from a conspiracy among a parent and its wholly-owned subsidiaries. See, e.g., United States v. Yellow Cab Co., 332 U.S. 218, 227, 67 S.Ct. 1560, 1565, 91 L.Ed. 2010 (1947); Kiefer-Stewart Co. v. Joseph E. Seagram, 340 U.S. 211, 215, 71 S.Ct. 259, 261, 95 L.Ed. 219 (1951) and cases cited. The Copperweld decision disapproved of those decisions and held that a parent corporation and its wholly-owned subsidiary were incapable of conspiring with each other for purposes of § 1 of the Sherman Act. 467 U.S. at 777, 104 S.Ct. at 2744.

While the Copperweld opinion declined to consider the circumstances under which a parent and an affiliate not completely owned could be liable, id. at 767, 104 S.Ct. at 2739, the court's reasoning makes it clear that the Cohens may not escape liability merely because they owned 54% of the American Vision stock and acted as its directors and officers.

As the court explained, one reason Congress dealt with concerted activity subject to § 1 of the Sherman Act more sternly than unilateral activity under § 2, prohibiting monopolies or attempts to monopolize, was that a conspiracy between two entities with different economic interests "reduces the...