Bunch v. Artec Intern. Corp., 82 Civ. 2211(JMC)

• Decision Date: 26 January 1983
• Docket Number: 81 Civ. 7439(JMC).,No. 82 Civ. 2211(JMC),82 Civ. 2211(JMC)
• Citation: 559 F. Supp. 961
• Parties: Richard L. BUNCH, Plaintiff, v. ARTEC INTERNATIONAL CORPORATION, Dictaphone Corporation and Pitney Bowes Inc., Defendants. WORD SYSTEMS, INC., Plaintiff, v. ARTEC INTERNATIONAL CORPORATION, formerly a California Corporation, Dictaphone Corporation (Del.), a Delaware Corporation, Pitney Bowes Inc., a Delaware Corporation, Defendants.
• Court: U.S. District Court — Southern District of New York

559 F. Supp. 961

Richard L. BUNCH, Plaintiff, v. ARTEC INTERNATIONAL CORPORATION, Dictaphone Corporation and Pitney Bowes Inc., Defendants.

WORD SYSTEMS, INC., Plaintiff, v. ARTEC INTERNATIONAL CORPORATION, formerly a California Corporation, Dictaphone Corporation (Del.), a Delaware Corporation, Pitney Bowes Inc., a Delaware Corporation, Defendants.

Nos. 82 Civ. 2211(JMC), 81 Civ. 7439(JMC).

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

January 26, 1983.

COPYRIGHT MATERIAL OMITTED

Greenfield & Chimicles, P.C., Bala Cynwyd, Pa. (Nicholas E. Chimicles, Bala Cynwyd, Pa., of counsel) for plaintiffs.

Wachtell, Lipton, Rosen & Katz, New York City (Bertram M. Kantor, Paul E. Levine, Daniel N. Perlmutter, New York City, of counsel) for defendants.

MEMORANDUM AND ORDER

CANNELLA, District Judge:

Defendants' motion to dismiss plaintiff Word Systems, Inc.'s "Word Systems" complaint is granted in part and denied in part. Fed.R.Civ.P. 12(b)(6).

Defendants' motion to dismiss plaintiff Richard L. Bunch's "Bunch" complaint is granted in part and denied in part. Fed.R. Civ.P. 12(b)(6).

FACTS

Word Systems and Bunch commenced separate actions against defendants alleging violations of the Sherman Act, 15 U.S.C. § 1, breach of contract, tortious interference with business relationships, civil conspiracy, trade libel, fraud, unfair competition and breach of warranty. Although plaintiffs allege different facts in support of their respective complaints, both in essence, are based on the same actions by defendants — the termination of plaintiffs as independent distributors of word processors for defendant Artec International Corporation "Artec". Plaintiffs allege that defendants, through a series of acquisitions and mergers, unlawfully conspired and contracted to deprive plaintiffs of certain rights and to eliminate them as defendants' competitors in restraint of trade and commerce.

The following relevant facts are culled from plaintiffs' complaints: On January 25, 1978, Artec, a small manufacturer of word processing equipment, agreed to make Word Systems its exclusive dealer for marketing and servicing Artec products in the southeast Pennsylvania region.¹ Similarly, on September 4, 1979, Artec appointed Bunch as its exclusive agent for the marketing and servicing of Artec's products in the Seattle area.² Pursuant to these agreements, plaintiffs purchased Artec equipment for resale and, in the case of Word Systems, underwrote a series of rental financing agreements and provided Artec with technical and sales assistance.

Defendant Pitney Bowes, Inc. "Pitney Bowes", a leading manufacturer of postage meters and related mailing equipment, acquired defendant Dictaphone Corporation "Dictaphone" a manufacturer of dictating and voice processing systems in May 1979. Dictaphone thereafter became a wholly-owned subsidiary of Pitney Bowes. Plaintiff contends that in January 1980, Pitney Bowes acquired Artec in an effort to expand its operations in the business equipment market. After the acquisition of Artec in February 1980, responsibility for marketing Artec products was transferred to Dictaphone even though Dictaphone had no experience in either marketing or servicing of Artec's word processing equipment. Plaintiffs allege that prior to the acquisition of Artec, defendants agreed to replace Artec's network of dealers and distributors. Thereafter, Bunch claims that Dictaphone, without justification, revoked his exclusive dealership along with several other Artec dealers. Word Systems, however, continued to act as Dictaphone's southeast Pennsylvania Artec dealer and on July 17, 1980, was appointed Dictaphone's exclusive dealer for the same territory.³ Bunch entered into a similar agreement with Dictaphone on September 8, 1980.

Plaintiffs claim that beginning in the fall of 1980, defendants illegally modified the terms of their sales agreements in order to terminate plaintiffs and other independent Artec dealers. For example, plaintiffs assert that defendants conspired to raise sales quotas, reduce plaintiffs' commission rates, modify credit agreements between plaintiffs and defendants and denied plaintiffs necessary technical assistance with respect to Dictaphone and Artec products. In addition, plaintiffs contend that Dictaphone began marketing Artec word processors in violation of plaintiffs' exclusive dealer agreements with Artec. Plaintiffs allege that they were only allowed to continue as Artec dealers until Dictaphone was able to develop an expertise in the marketing and servicing of word processors. Plaintiffs argue that defendants engaged in the aforementioned conduct for the sole purpose of eliminating plaintiffs as defendants' competitors, thereby violating the Sherman Act. Bunch further alleges that defendants terminated his dealership in an attempt to reap the benefits of Bunch's efforts to sell approximately $600,000 worth of word processors to a national hotel chain.

Plaintiffs also claim that Artec breached its dealership agreements with plaintiffs because they were never notified that Artec purportedly assigned its contractual rights to Dictaphone; thus, making Dictaphone's attempted termination of plaintiffs as Artec dealers void. Alternatively Bunch argues, assuming there was a valid assignment from Artec to Dictaphone, that he was terminated without just cause. Word Systems contends, that because it was not notified that its dealership agreement had expired, the intent of the parties was to continue the agreement, thereby making Dictaphone's May 22, 1981 termination letter a nullity.⁴

Plaintiffs further allege that defendants tortiously interfered with prospective and actual business relationships. Without specifying any particular contracts, Word Systems contends that it has been deprived of revenues it otherwise would have received had the dealership agreements been fully performed. Similarly, Bunch contends that defendants deliberately engaged in acts intended to destroy his business, thereby depriving him of revenues he otherwise would have received.

Both complaints also allege that defendants participated in a civil conspiracy intending to harm plaintiffs in their respective businesses. In essence, plaintiffs assert that defendants, knowing that they were going to terminate all independent Artec dealers, wrongfully induced plaintiffs to continue to work on behalf of Artec and Dictaphone. Plaintiffs contend that defendants engaged in such conduct in order to "reap the benefits of the labor performed by plaintiffs."⁵ Both complaints further allege that defendants libeled and defamed plaintiffs. Both plaintiffs, without specifying the alleged defamatory statements made by defendants, assert that defendants informed plaintiffs' customers, that plaintiffs were being replaced by Dictaphone and that customer service would significantly improve as a result. Although both complaints assert that these statements will divert plaintiffs' customers to Dictaphone, blacken plaintiffs' reputation and expose them to public ridicule, neither complaint asserts that the alleged defamatory statements were false.⁶

Bunch also asserts that defendants engaged in acts of unfair competition because "defendants conspired and agreed to embark on a calculatedly designed plan to compete unfairly with plaintiff, and did in fact in this manner unfairly compete with plaintiff."⁷ Bunch contends that he suffered damages as a result of this conduct.

DISCUSSION

Sherman Act Claims

Initially, the Court notes that the essence of a section one Sherman Act claim is a combination or agreement between two or more parties in restraint of trade or commerce. See Oreck Corp. v. Whirlpool Corp., 639 F.2d 75, 78 (2d Cir.1980), cert. denied, 454 U.S. 1083, 102 S.Ct. 639, 70 L.Ed.2d 618 (1981). In addition, unless defendants' conduct is manifestly anticompetitive, that is, having a "pernicious effect on competition and a lack of any redeeming virtue," Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958), the Court must apply the "rule of reason" standard to determine whether plaintiffs' termination constituted an unreasonable restraint on competition, see Copy-Data Systems, Inc. v. Toshiba America, Inc., 663 F.2d 405, 408-09 (2d Cir.1981) "Copy-Data"; Borger v. Yamaha International Corp., 625 F.2d 390, 396-97 (2d Cir.1980); Fuchs Sugars & Syrups, Inc. v. Amstar Corp., 602 F.2d 1025, 1030-31 (2d Cir.1979). The Court further notes that merely because a dealer's termination may contain elements of a horizontal restriction, it does not become a per se violation of the Sherman Act, thereby obviating the requirement that plaintiffs establish that defendants' conduct is manifestly anticompetitive. See Broadcast Music, Inc. v. Columbia Broadcasting Systems, Inc., 441 U.S. 1, 9, 99 S.Ct. 1551, 1556-57, 60 L.Ed.2d 1 (1979); Copy-Data, supra, 663 F.2d at 409. See also Medical Arts Pharmacy, Inc. v. Blue Cross & Blue Shield, Inc., 675 F.2d 502, 505 (2d Cir.1982) (per curiam).

In response to defendants' motions to dismiss, plaintiffs argue that their termination constituted a horizontal division of markets and, therefore, a per se restraint of trade. Although not alleged in their complaint, plaintiffs assert that because they are "competitors" of defendants — their termination cannot be characterized simply as a decision by a supplier to alter its distribution system.

The complaint alleges that Pitney Bowes and Dictaphone had no experience, prior to the acquisition of Artec, in either the marketing or servicing of word processors. The pleadings further reveal that Pitney Bowes acquired Artec in an attempt to expand its operations into the word processing market. Thus, the Court can see no basis for plaintiffs' contention that they were defendants' competitors prior to the acquisition of Artec. Moreover, the post-acquisition activities of the parties clearly cannot be characterized as those of competitors. The ...