Central Chemical Corp. v. Agrico Chemical Co.

• Decision Date: 29 January 1982
• Docket Number: Civ. No. W-76-974.
• Citation: 531 F. Supp. 533
• Parties: CENTRAL CHEMICAL CORPORATION v. AGRICO CHEMICAL COMPANY.
• Court: U.S. District Court — District of Maryland

531 F. Supp. 533

CENTRAL CHEMICAL CORPORATION v. AGRICO CHEMICAL COMPANY.

Civ. No. W-76-974.

United States District Court, D. Maryland.

January 29, 1982.

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Jeffrey D. Herschman, Baltimore, Md., for plaintiff; Louis A. Noonberg, Baltimore, Md., on brief.

Kent L. Jones and Hall, Estill, Hardwick, Cable & Collingsworth, Tulsa, Okl., for defendant; Mack Muratet Braly & Associates, Tulsa, Okl., Miles & Stockbridge, Baltimore, Md., on brief.

WATKINS, Senior District Judge.

This case is before the Court on defendant's Motion to Dismiss that Portion of Count Four of the Amended Complaint Alleging Violations of Section 3 of the Clayton Act and its Motion for Summary Judgment on Count IV of the Amended Complaint. For the reasons stated herein, this Court will grant both motions.

Plaintiff Central Chemical Corporation (Central) is a Maryland corporation engaged in the business of blending and marketing fertilizers for agricultural uses. Defendant Agrico Chemical Company (Agrico) is a Delaware corporation with its principal office and place of business in Tulsa, Oklahoma. Agrico is engaged in the business of mining, producing, processing, and selling various fertilizer raw materials, including nitrates and phosphates, and of purchasing for resale muriate of potash (MP). There is some evidence to indicate that Agrico is also engaged in the business of blending and marketing agricultural fertilizers.

In its Amended Complaint, plaintiff avers that prior to the events which precipitated this lawsuit, Agrico had supplied Central with raw materials under the terms of a written contract. According to plaintiff, this business relationship existed during FY 1972 and FY 1973.¹ For the period covering FY 1974, however, the parties' negotiation efforts did not culminate in a written contract. Instead, plaintiff refused to enter into a long-term requirements contract and defendant refused to supply quantities of scarce di-ammonium phosphate (DAP) and granular triple super phosphate (GTSP) to the plaintiff.

In Counts I and II of the original complaint, plaintiff sought recovery under this Court's diversity jurisdiction for injuries suffered due to defendant's failure to supply plaintiff with quantities of certain fertilizer raw materials during FY 1974. Plaintiff claimed that defendant's failure to supply the raw materials was a breach of contract or, alternatively, gave rise to an action based on promissory estoppel.

Subsequently, plaintiff amended its complaint to add Count IV.² In this count, plaintiff alleges that certain actions taken by defendant, some of which arose out of the same transaction at issue in Counts I and II, violated the antitrust laws, and that plaintiff was injured thereby. Central claims that the various terms under which certain other customers purchased DAP and GTSP from Agrico constituted illegal tying arrangements, or prohibited exclusive dealing contracts. Central further alleges that Agrico's refusal to supply Central with DAP and GTSP was a refusal to deal in furtherance of an illegal conspiracy. Central also claims that because of the national shortage in DAP and GTSP during FY 1974, Agrico was a monopolist in these scarce materials, and that Agrico abused this monopoly power by refusing to use reasonable selection criteria in allocating these scarce materials. Finally, Central claims that Agrico was attempting to monopolize the wholesale and retail markets in DAP and GTSP in the Eastern United States.

Tying and Exclusive Dealing Claims

Plaintiff alleges that defendant tied the purchase of DAP and GTSP to the purchase of urea and MP, and to the purchase of paper bags used in the resale of the blended fertilizer products. Plaintiff also alleges that Agrico required certain customers to enter into "executive accounts": exclusive dealing contracts wherein these customers would agree over a five-year period to purchase all of their requirements of specific raw materials from Agrico.

Central argues that Agrico's refusal to supply Central with scarce DAP and GTSP in FY 1974 was due to Central's decisions not to enter into illegal tying arrangements,³ and not to accept a five-year exclusive dealing contract. Central concludes that it was injured by Agrico's refusal to deal, and that this refusal to deal is illegal under the Clayton Act. Section 3 of the Clayton Act provides in pertinent part:

It shall be unlawful for any person ... to lease or make a sale or contract for sale of goods ... on the condition, agreement or understanding that the lessee or purchaser thereof shall not use or deal in the goods ... of a competitor or competitors of the lessor or seller, where the effect of such lease, sale or contract for sale or such condition, agreement or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce.

15 U.S.C. § 14. The same conduct proscribed by this statute may in some cases violate Section 1 of the Sherman Act, 15 U.S.C. § 1,⁴ Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495, 89 S.Ct. 1252, 22 L.Ed.2d 495 (1969), and to the extent that the alleged arrangements would violate Section 1, plaintiff argues that they are illegal under the Sherman Act as well.

Neither Section 3 of the Clayton Act nor Section 1 of the Sherman Act creates a private right of action for money damages. That right is conferred by Section 4 of the Clayton Act, which provides that "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws" may sue to recover treble damages. 15 U.S.C. § 15. Agrico argues that Central lacks standing under Section 4 of the Clayton Act to raise a claim as to any alleged violation of Section 3 of that Act, or to raise a claim as to certain alleged violations of Section 1 of the Sherman Act.⁵ Hence, Agrico asserts that Central's claims of illegal tying and exclusive dealing should be dismissed pursuant to F.R.Civ.P. 12(b)(1).⁶

In order to have standing to bring a claim under Section 4 of the Clayton Act, a plaintiff must have suffered injury "by reason of" the alleged antitrust violation. 15 U.S.C. § 15. See Ratliff v. Burney, 657 F.2d 640, 642 (4 Cir. 1981). Moreover, the injury suffered must be of the "type that the statute was intended to forestall." Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 487-88, 97 S.Ct. 690, 696-97, 50 L.Ed.2d 701 (1977) (citing Wyandotte Transportation Co. v. United States, 389 U.S. 191, 202, 88 S.Ct. 379, 386, 19 L.Ed.2d 407 (1967). In Brunswick, the plaintiff claimed to have suffered injury by reason of an illegal merger between the defendant and some of plaintiff's failing competitors. The only injury which the plaintiff in Brunswick could show was that competition revived after the merger, and that the plaintiff's profits were lessened thereby. The Supreme Court held that the plaintiff had failed to produce evidence sufficient to recover on its illegal merger claim. 429 U.S. 488-89, 97 S.Ct. 697.

The Court in Brunswick specifically addressed the nature of the injury which the plaintiff must show to comply with the standing requirement in Section 4 of the Clayton Act:

We therefore hold that for plaintiffs to recover ... they must prove more than injury causally linked to an illegal presence in the market. Plaintiffs must prove antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful. The injury should reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation. It should, in short, be "the type of loss that the claimed violations ... would be likely to cause." Zenith Radio Corp. v. Hazeltine Research, 395 U.S. 100, 125, 89 S.Ct. 1562, 1577, 23 L.Ed.2d 129 (1969).

Id. at 489, 97 S.Ct. at 697 (emphasis in original). In applying Brunswick, the Court therefore must inquire as to the "anticompetitive effect" of an illegal tying or exclusive dealing arrangement, the alleged violations at issue.

In David R. McGeorge Car Co. v. Leyland Motor Sales, Inc., 504 F.2d 52 (4 Cir. 1974), cert. denied, 420 U.S. 992, 95 S.Ct. 1430, 43 L.Ed.2d 674 (1975), the Fourth Circuit analyzed the standing requirement by defining what constituted the anticompetitive effect of a tying arrangement: "The vice of an illegal tie-in is the fact that the agreement or the effect thereof lessens competition in the tied product." 504 F.2d at 58. The Fifth Circuit has also considered the relationship between anticompetitive effect and the standing of plaintiffs to raise tying violations. Southern Concrete Co. v. United States Steel Corp., 535 F.2d 313 (5 Cir. 1976), cert. denied, 429 U.S. 1096, 97 S.Ct. 1113, 51 L.Ed.2d 543 (1977). That court noted that in order to establish that the plaintiff has been injured by reason of an antitrust violation, he must show that he was in the "target area" of the alleged violation; i.e., he must "show himself within the sector of economy in which the violation threatened a breakdown of competitive conditions."⁷ Id. at 316. The Fifth Circuit analyzed tying arrangements in order to identify the sector of the economy effected thereby, and concluded:

The area of the economy threatened with a breakdown of competitive conditions because of a tying agreement is the market for the tied product; and those who will be proximately injured thereby—in addition to the party subject to the tie—are competitors in the tied product.

Id. at 317. The Fifth Circuit held that because the plaintiff in Southern Concrete had not purchased the tied product from the defendant and did not sell the tied product to others, it lacked standing to raise any tying violations. Id.

In determining the appropriate standard by which to judge a plaintiff's standing to raise an illegal...