Blackburn v. Sweeney, 94-2737

Decision Date15 June 1995
Docket NumberNo. 94-2737,94-2737
Parties, 1995-1 Trade Cases P 70,980, 1995-2 Trade Cases P 71,153 Thomas BLACKBURN and Raymond T. Green, Plaintiffs-Appellants, v. Charles SWEENEY, Jr. and Daniel H. Pfeifer, Defendants-Appellees.
CourtU.S. Court of Appeals — Seventh Circuit

Philip A. Whistler, argued, Melissa R. Garrard, Ice, Miller, Donadio & Ryan, Indianapolis, IN, for plaintiffs-appellants.

Ronald E. Elberger, George E. Purdy, George T. Patton, Jr., argued, Bose, McKinney & Evans, Indianapolis, IN, for defendants-appellees.

Before CUMMINGS, CUDAHY and ROVNER, Circuit Judges.

CUMMINGS, Circuit Judge.

Plaintiffs Blackburn and Green charge that the "Withdrawal from Partnership Agreement" that they entered with their former law partners, Sweeney and Pfeifer, constitutes a horizontal agreement to allocate markets in violation of Sec. 1 of the Sherman Act. They thus seek to enjoin its enforcement and to collect treble damages under Sec. 4 of the Clayton Act.

Background

Defendants Sweeney and Pfeifer practice law in South Bend, Indiana; plaintiffs Blackburn and Green practice law in Fort Wayne and Lafayette, Indiana. The four previously specialized in plaintiffs' personal injury law together in the firm of Sweeney, Pfeifer & Blackburn, which actually consisted of three separate partnerships corresponding to the offices in Lafayette, Fort Wayne and South Bend. Green, however, was not a partner in the South Bend partnership. Sweeney and Pfeifer practiced out of the main office in South Bend while Blackburn and Green manned the satellite offices in Fort Wayne and Lafayette. The firm attracted most of their clients through heavy television and yellow page advertising.

In July 1992 Sweeney and Pfeifer brought an action against Blackburn and Green in state court alleging misappropriation of partnership funds. The state court found that Blackburn and Green had diverted partnership funds in breach of the Fort Wayne partnership agreement. The court entered an order on August 4, 1992, requiring an accounting by Blackburn and Green and the dissolution of the Fort Wayne and Lafayette partnerships. The order further specified the steps to be taken to facilitate the disentanglement, including the return of files to the different offices and the sending of notice to clients advising them of their right to be represented by the attorney of their choice.

On September 3, 1992, the parties signed an "Agreement to Withdraw From Partnerships" ("Agreement")--the result of a month of negotiations and 25 iterations. On September 8, 1992, pursuant to their newly hammered out agreement, Sweeney and Pfeifer dismissed their state court action with prejudice stipulating that unaccounted-for money had been "utilized for law office purposes" and that neither Blackburn's nor Green's conduct constituted "a basis for any criminal action or violation of the Code of Professional Responsibility of Indiana."

Three months after signing the Agreement, in December 1992, Blackburn and Green brought an action in Indiana state court seeking a declaratory judgment that the Agreement was void and unenforceable under Rule 5.6 of the Indiana Rules of Professional Conduct. 1 The challenged portion of the Agreement provides:

Sweeney and Pfeifer shall not directly or indirectly, within the areas described on Exhibit "A" attached hereto, do any advertising, including but not limited to, television, radio, newspapers, billboards, direct mail or yellow pages. In consideration of the agreement contained in paragraph 2 herein, Blackburn and Green shall not directly or indirectly, within the areas described on Exhibit "B" attached hereto, do any advertising, including but not limited to television, radio, newspapers, billboards, direct mail or yellow pages.

On July 25, 1994, the Indiana court of appeals reversed a grant of summary judgment to defendants and held that the Agreement not to advertise violated Rule 5.6 and that the entire Agreement was therefore unenforceable. The Indiana Supreme Court granted a transfer and oral argument was set for April 5, 1995.

In the interim, on July 15, 1993, Blackburn and Green filed their two-count complaint in the present action in the district court for the Northern District of Indiana. Count I alleged a per se violation of Sec. 1 of the Sherman Act. Count II alleged, in the alternative, that the Agreement was illegal under the Rule of Reason. Blackburn and Green sought declaratory and injunctive relief prohibiting the enforcement of the Agreement, treble damages, costs, and attorneys' fees. In March 1994, the district court granted summary judgment to defendants on Count I finding that the advertising Agreement was not a market allocation. A few months later in a separate order, the district court granted summary judgement to the defendants on Count II as well.

Discussion
1. Per se violation

Horizontal agreements to allocate markets among competitors are per se violations of Sec. 1 of the Sherman Act. United States v. Topco Associates, 405 U.S. 596, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972), Palmer v. BRG of Georgia, Inc., 498 U.S. 46, 111 S.Ct. 401, 112 L.Ed.2d 349 (1990). Defendants contend that because all parties to the Agreement can still practice law in all parts of Indiana, the mutual geographic restrictions on advertising do not constitute an allocation of markets and are thus not subject to per se treatment. Defendants are mistaken. To fit under the per se rule an agreement need not foreclose all possible avenues of competition. In Topco only 10% of the goods sold by the member stores carried the Topco brand--the object of the geographical market allocation held to be a per se violation. Similarly in United States v. Cooperative Theatres of Ohio, Inc., 845 F.2d 1367 (6th Cir.1988), the court held that an agreement not to actively solicit a competitor's customers was a per se violation even though the parties remained free to compete for new customers.

The purpose of the advertising Agreement was, as testified to by defendant Sweeney, to "really trade markets.... We, in effect, said that'll be your market" (Pl.App. tab 8). Both parties in this case represent plaintiffs in personal injury cases and rely heavily on advertising as their primary source of clients. Sweeney further testified that he attributes more than 50% of Sweeney & Pfeifer's fee income to advertising on which the firm spends approximately one hundred thousand dollars a year. At oral argument, counsel for Blackburn and Green put the percentage of clients brought in by advertising at 90%. Whichever figure is accepted, the reciprocal Agreement to limit advertising to different geographical regions was intended to be, and sufficiently approximates an agreement to allocate markets so that the per se rule of illegality applies.

In a further attempt to avoid per se treatment, defendants contend that the Agreement not to advertise in each other's territories is ancillary to the agreement to dissolve the partnership and therefore subject to Rule of Reason analysis. The claim is that the advertising restriction is a limited covenant not to compete that is part of a larger agreement, the overall effect of which is pro-competitive. If this model fit, the agreement would be evaluated under the Rule of Reason and would be lawful if neither firm had market power. See Polk Bros., Inc. v. Forest City Enterprises, Inc., 776 F.2d 185, 189 (7th Cir.1985); United States v. Addyston Pipe & Steel Co., 85 F. 271, 280-83 (6th Cir.1898) (Taft, J.), affirmed, 175 U.S. 211, 20 S.Ct. 96, 44 L.Ed. 136 (1899).

At first blush this characterization of the Agreement seems plausible. As members of a single firm, plaintiffs and defendants were not competing for clients. The dissolution of the partnership into two competing economic units cannot but have a positive effect on competition in the market generally. That this increase in competition is partly tempered by the restrictions on advertising, perhaps to ensure an orderly transitional period, does not change the fact that the overall effect is pro-competitive. On closer scrutiny, however, this picture breaks down.

Polk teaches that courts must look to the time an agreement was adopted in assessing its potential for promoting enterprise and productivity--or, in this case, competition in the legal market. 776 F.2d at 189. In Polk, this court held that the per se rule did not apply to an agreement between two stores not to sell overlapping items because the agreement was entered to facilitate a joint venture between the two firms to build a structure to house both stores. Because the stores sold generally complementary items, the joint venture promised not only an increase in retail capacity, but also added convenience to customers. Because the limited agreement not to sell certain competing products may have "contribute[d] to the success of a cooperative venture that promises greater productivity and output," it was an ancillary restraint and not subject to the per se rule. Id.

The Agreement fails under this analysis for two reasons. First, at the time it was entered it was not necessary for the dissolution of the partnership and the resulting potential increase in competition. Sweeney and Pfeifer had already sued to dissolve the partnership and the judge had ordered the dissolution. The Agreement therefore was not a necessary condition for the increased competition resulting from the split-up of the partnership: the fission had occurred and the partnership was essentially over at the time the Agreement was entered. Starting then with the actual status quo of a dissolved partnership, the only effect of the Agreement was to limit the potential competition between the resulting firms. The agreement is thus analogous to a post-termination agreement not to compete that is entered after...

To continue reading

Request your trial
28 cases
  • 44 Liquormart Inc. v. Rhode Island
    • United States
    • U.S. Supreme Court
    • 13 Mayo 1996
    ...price advertising as evidence of Sherman Act violation); UnitedStates v. Sealy, Inc., 388 U. S. 350, 355 (1967) (same); Blackburn v. Sweeney, 53 F. 3d 825, 828 (CA7 1995) (considering restrictions on the location of advertising as evidence of Sherman Act violation). 16 The appellants' stipu......
  • International Test and Balance v. Associated Air
    • United States
    • U.S. District Court — Northern District of Illinois
    • 15 Julio 1998
    ...Society, 457 U.S. 332, 348, 102 S.Ct. 2466, 73 L.Ed.2d 48 (1982); (2) certain attempts at market allocation, see Blackburn v. Sweeney, 53 F.3d 825, 827 (7th Cir.1995) and General Leaseways, 744 F.2d at 595; and (3) group boycotts, "if used to enforce a rule or policy or practice that is its......
  • Major League Baseball Properties v. Salvino, Inc.
    • United States
    • U.S. Court of Appeals — Second Circuit
    • 12 Septiembre 2008
    ...evaluated on its own and may be per se illegal even if the remainder of the joint venture is entirely lawful.7 Cf. Blackburn v. Sweeney, 53 F.3d 825, 828-29 (7th Cir.1995) (applying the per se rule to a provision in a law partnership dissolution agreement that restrained the territories whe......
  • In re Humira (Adalimumab) Antitrust Litig.
    • United States
    • U.S. District Court — Northern District of Illinois
    • 8 Junio 2020
    ...See [109] ¶¶ 203, 205, 209. That does not necessarily sink plaintiffs’ claim. Areeda & Hovenkamp, § 2030c; Blackburn v. Sweeney , 53 F.3d 825, 827 (7th Cir. 1995) ("[t]o fit under the per se rule" a horizontal, market-allocation agreement "need not foreclose all possible avenues of competit......
  • Request a trial to view additional results
22 books & journal articles
  • Chapter 8. Joint Ventures
    • United States
    • ABA Archive Editions Library Mergers and Acquisitions: Understanding the Antitrust Issues, 2d Edition
    • 1 Enero 2004
    ...horizontal competitors might be construed to contain an illegal agreement to allocate customers). 312. See, e.g. , Blackburn v. Sweeney, 53 F.3d 825, 828 (7th Cir. 1995) (geographic restriction on advertising held not ancillary to dissolution agreement between partners); General Leaseways, ......
  • Causation And Damages
    • United States
    • ABA Antitrust Library Model Jury Instructions in Civil Antitrust Cases
    • 8 Diciembre 2016
    ...NOTES A plaintiff shown to bear equal responsibility for an antitrust violation may be barred from recovery. Blackburn v. Sweeney, 53 F.3d 825, 829 (7th Cir. 1995); Columbia Nitrogen Co. v. Royster Co., 451 F.2d 3, 15-16 (4th Cir. 1971) (“when parties of substantially equal economic strengt......
  • Table of Cases
    • United States
    • ABA Archive Editions Library Mergers and Acquisitions: Understanding the Antitrust Issues, 2d Edition
    • 1 Enero 2004
    ...F.2d 1203 (9th Cir. 1982), 385 Big Bear Lodging Association v. Snow Summit, Inc., 182 F.3d 1096 (9th Cir. 1999), 317 Blackburn v. Sweeney, 53 F.3d 825 (7th Cir. 1995), 315 Blue Cross & Blue Shield United v. Marshfield Clinic, 883 F. Supp. 1247 (W.D. Wis.), aff’d in part and rev’d in part , ......
  • Section 1 of The Sherman Act
    • United States
    • ABA Antitrust Library Model Jury Instructions in Civil Antitrust Cases
    • 8 Diciembre 2016
    ...market within which both do business or whether they merely reserve one market for one and another for the other”); Blackburn v. Sweeney, 53 F.3d 825 (7th Cir. 1995); Louisiana Wholesale Drug Co. v. Hoechst Marion Roussel, Inc., 332 F.3d 896 (6th Cir. 2003). This instruction assumes that th......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT