Callahan v. Scott Paper Co.

• Decision Date: 14 June 1982
• Docket Number: 81-3788.,Civ. A. No. 81-3786
• Parties: F. Joseph CALLAHAN v. SCOTT PAPER COMPANY. Jeffrey W. BROWN v. SCOTT PAPER COMPANY.
• Court: U.S. District Court — Eastern District of Pennsylvania

541 F. Supp. 550

F. Joseph CALLAHAN v. SCOTT PAPER COMPANY.

Jeffrey W. BROWN v. SCOTT PAPER COMPANY.

Civ. A. Nos. 81-3786, 81-3788.

United States District Court, E. D. Pennsylvania.

June 14, 1982.

COPYRIGHT MATERIAL OMITTED

William A. DeStefano, Oliver, DeStefano, Pentima & Partridge, Philadelphia, Pa., for plaintiffs Brown and Callahan.

Patrick W. Kittredge, Kittredge, Kaufman & Donley, Philadelphia, Pa., for defendant.

OPINION

LUONGO, Chief Judge.

In these two related civil actions, F. Joseph Callahan, plaintiff in C.A. 81-3786, and Jeffrey W. Brown, plaintiff in C.A. 81-3788, both former employees of the defendant, Scott Paper Company (Scott), allege inter alia that they were discharged from their employment with Scott because they exposed, objected to, and made efforts to eliminate unlawful price discounts and promotional allowances granted by Scott to certain "favored customers" in violation of section 1 of the Sherman Act, 15 U.S.C. § 1, and section 2 of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13. Claiming that they have been injured in their business or property by reason of Scott's alleged antitrust violations, plaintiffs seek (1) treble damages under section 4 of the Clayton Act, 15 U.S.C. § 15, and (2) to enjoin Scott from further violations of the antitrust laws, see 15 U.S.C. § 26. In addition, Brown and Callahan have asserted state-law claims, seeking damages and reinstatement on the theory of wrongful discharge. Jurisdiction over these latter claims exists by reason of diversity of citizenship. Presently before me are Scott's motions to dismiss the antitrust and wrongful discharge counts of plaintiffs' complaints on the ground that they do not state claims upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). For reasons discussed herein, I will grant Scott's motions.

I. The Antitrust Claims

The factual allegations bearing on plaintiffs' antitrust claims, as set forth in their respective complaints, are substantially the same.¹ For purposes of these motions to dismiss, I accept the truth of those allegations.

Scott is a large corporation engaged in the manufacture of various paper products, including paper towels, toilet tissue, facial tissues, napkins and wax paper. Plaintiffs Brown and Callahan had been employed by Scott for 13 and 24 years, respectively, during which time they held various positions. At all times relevant to these lawsuits, however, they were employed in sales managerial capacities. In these positions, plaintiffs' compensation, bonuses, stock options, promotions and performance ratings were based in part on the sales and profits in their assigned territories, as well as on their ability to obtain new and retain old customers. Sometime between 1976 and 1980, Callahan became aware that Scott was offering unlawful price discounts and promotional allowances to some customers but not to others. Brown learned similar information in 1980 or 1981. Each objected to this unlawful activity and took steps to halt it. As a result, they came into conflict with their superiors. On February 19, 1981, Callahan was terminated without explanation. Approximately one month later, Brown was terminated, also without explanation.

Brown, in Count I of his complaint, and Callahan, in Count II, allege that as a direct result of Scott's anticompetitive activity, they have suffered reduced compensation; lost the opportunity to increase their sales by adding new customers; witnessed a reduction in their potential for advancement; suffered a diminution of their professional reputation and integrity; and ultimately lost their jobs. They seek treble damages, and to enjoin Scott from engaging in further anticompetitive activity.

Scott contends that plaintiffs do not have standing to sue for treble damages under § 4 of the Clayton Act, 15 U.S.C. § 15, and therefore that plaintiffs' antitrust claims must be dismissed. More particularly, Scott argues that employees of the antitrust violator, as opposed to competitors or customers, do not have standing to sue their employer for violation of the antitrust laws. Plaintiffs maintain that the Court of Appeals for the Third Circuit has rejected the "competitors only" test and has opted instead for a standard which measures a particular plaintiff's standing based upon a "functional analysis of the factual matrix." Plaintiffs argue that under this latter approach they meet the standing requirement. Although I disagree somewhat with Scott's reasoning, I do agree that plaintiffs lack standing to sue for treble damages.

Section 4 of the Clayton Act provides that "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor ... and shall recover threefold the damages by him sustained ...." 15 U.S.C. § 15. Despite its broad language, however, the "courts have been virtually unanimous in concluding 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." Hawaii v. Standard Oil Co., 405 U.S. 251, 263 n.14, 92 S.Ct. 885, 891 n.14, 31 L.Ed.2d 184 (1972) (collecting cases). Thus, to restrict the availability of the relief provided by § 4 to those individuals whose protection is the fundamental purpose of the antitrust laws, "the courts have developed a standing doctrine `peculiar to antitrust actions.'" Bravman v. Bassett Furniture Industries, Inc., 552 F.2d 90, 96 (3d Cir. 1977) (quoting Malamud v. Sinclair Oil Corp., 521 F.2d 1142, 1148 (6th Cir. 1975)), cert. denied, 434 U.S. 823, 98 S.Ct. 69, 54 L.Ed.2d 80 (1978).

In Cromar Co. v. Nuclear Materials & Equipment Co., 543 F.2d 501 (3d Cir. 1976), Judge Garth reviewed the history of the § 4 standing requirement in the Third Circuit. Without attempting to duplicate his scholarly efforts, it is nevertheless useful to reexamine the case law in this circuit to determine whether plaintiffs have standing to sue their former employer for damages for violating the antitrust laws. In two early per curiam opinions, Melrose Realty Co. v. Loew's, Inc., 234 F.2d 518 (3d Cir.), cert. denied, 352 U.S. 890, 77 S.Ct. 128, 1 L.Ed.2d 85 (1956), and Harrison v. Paramount Pictures, Inc., 115 F.Supp. 312 (E.D. Pa.1953), aff'd, 211 F.2d 405 (3d Cir.), cert. denied, 348 U.S. 828, 75 S.Ct. 45, 99 L.Ed. 653 (1954), the court of appeals held that the lessor of a motion picture theater who was not engaged in the business of operating theaters, but whose rental income from the leased theater was based on a percentage of the lessee's receipts, did not have standing to sue the lessee or the motion picture distributors who had conspired to violate the antitrust laws by restricting the licensing of pictures at the theater. The decisions in Melrose and Harrison were based entirely on the district court opinion of Judge Kirkpatrick in Harrison, supra. Judge Kirkpatrick's analysis, however, was limited. Stating that it was impossible to define a general rule for gauging a plaintiff's § 4 standing, Judge Kirkpatrick found only that the lessor's injury—the diminution of rental income resulting from the alleged unlawful licensing restrictions— was too remote and clearly "beyond the limit of injuries cognizable under the antitrust laws." 115 F.Supp. at 317.

In a line of decisions subsequent to Melrose and Harrison, the court of appeals held that a shareholder of a corporation, whose only injury consisted of the diminution in value of his shares, did not have standing to maintain a § 4 suit for antitrust injury inflicted on the corporation. E.g., Pitchford v. PEPI, Inc., 531 F.2d 92 (3d Cir.), cert. denied, 426 U.S. 935, 96 S.Ct. 2649, 49 L.Ed.2d 387 (1976); Kauffman v. Dreyfus Fund, Inc., 434 F.2d 727 (3d Cir. 1970), cert. denied, 401 U.S. 974, 91 S.Ct. 1190, 28 L.Ed.2d 323 (1971); Ash v. International Business Machine Corp., 353 F.2d 491 (3d Cir. 1965), cert. denied, 384 U.S. 927, 86 S.Ct. 1446, 16 L.Ed.2d 531 (1966). The reason for denying the shareholder-plaintiff standing in each of these decisions was simple; "the language in section 4 of the Clayton Act does not include indirect harm that the individual may have suffered as a stockholder through injury inflicted upon the corporation." Pitchford v. PEPI, Inc., 531 F.2d at 97. Pitchford, Kauffman and Ash are thus representative of the "direct injury" test of § 4 standing. The critical inquiry under direct injury analysis is whether there is some intermediate antitrust victim separating the plaintiff and the antitrust violator. If so, the plaintiff lacks standing. See In re Multidistrict Vehicle Air Pollution M. D. L. No. 31, 481 F.2d 122, 127 (9th Cir.), cert. denied, 414 U.S. 1045, 94 S.Ct. 551, 38 L.Ed.2d 336 (1973).

In International Ass'n of Heat and Frost Insulators & Asbestos Workers v. United Contractors Ass'n, 483 F.2d 384 (3d Cir. 1973), amended 494 F.2d 1353 (3d Cir. 1974), the court of appeals tempered its restrictive approach to standing to sue under § 4 and permitted a group of unions to sue on behalf of their members even though the injury suffered by the union members was not the direct result of the defendants' anticompetitive conduct. Although the standing issue presented in International Association is dissimilar to that which confronts this court, the court of appeals' reasoning is instructive. Briefly summarizing the facts, 28 unions (Unions), on behalf of their members, sued the Associated Trades and Crafts Union (Trades and Crafts Union) and the United Contractors Association (Association), a trade association which, inter alia, acted as bargaining representative for the member contractors, for conspiring and combining to restrain trade and eliminate competition in the construction industry in the Western District of Pennsylvania. To accomplish their scheme, the Association and the Trades and Crafts Union agreed that employees of members of the Association would be compelled to...