Cosmetic Gallery, Inc. v. Schoeneman Corp.

• Decision Date: 19 July 2007
• Docket Number: No. 05-3679.,05-3679.
• Citation: 495 F.3d 46
• Parties: COSMETIC GALLERY, INC. d/b/a The Salon at Image Beauty, Appellant v. SCHOENEMAN CORPORATION d/b/a Schoeneman Beauty Supply; F. Dale Schoeneman, individually, jointly, severally and in the alternative.
• Court: U.S. Court of Appeals — Third Circuit

495 F.3d 46

COSMETIC GALLERY, INC. d/b/a The Salon at Image Beauty, Appellant v. SCHOENEMAN CORPORATION d/b/a Schoeneman Beauty Supply; F. Dale Schoeneman, individually, jointly, severally and in the alternative.

No. 05-3679.

United States Court of Appeals, Third Circuit.

Argued April 24, 2007.

Filed: July 19, 2007.

Stephen J. DeFeo, Esquire (Argued), Brown & Connery, Westmont, NJ, for Appellant.

Burt M. Rublin, Esquire (Argued), Ballard, Spahr, Andrews & Ingersoll, Philadelphia, PA, for Appellees.

Before SCIRICA, Chief Judge, FUENTES and ALARCÓN^*, Circuit Judges.

OPINION OF THE COURT

SCIRICA, Chief Judge.

At issue in this civil antitrust suit alleging a group boycott is whether plaintiff offered sufficient evidence to survive defendants' motion for summary judgment. We will affirm the grant of summary judgment.

I.

Plaintiff Cosmetic Gallery, Inc. is a New Jersey corporation that owns and operates a hair salon and retails hair care products and professional beauty supplies. Defendant Schoeneman Corporation is a Pennsylvania corporation, owned and operated by co-defendant F. Dale Schoeneman, and does business as Schoeneman Beauty Supply, a wholesale distributor of beauty supplies to salons in Pennsylvania, New Jersey, Delaware and West Virginia.

Cosmetic Gallery filed this suit in New Jersey Superior Court, alleging violations of the New Jersey Antitrust Act, N.J. Stat. Ann. § 56:9-3, statutory and common law unfair competition, N.J. Stat. Ann. § 56:4-1, wrongful refusal to deal, tortious interference with contractual relations, and tortious interference with prospective economic advantage. Defendants removed to the United States District Court for the District of New Jersey on diversity grounds.¹

II.

This suit arises from the business of selling and distributing certain lines of hair-care products that are designated as "salon-only" lines and products. Manufacturers of salon-only lines and products routinely place restrictions on distributors that limit resale only to professional hair-stylists or hair salons, making these the only outlets from which an end use customer can buy the exclusive products. The restrictions, which effectively limit the availability of the products, serve to increase the cachet and prestige of these salon-only product lines, and enable their sale as exclusive premium products. Although they differ, distribution agreements typically require that in order to purchase salon-only products from a distributor, a retailer must have a salon license and must derive some minimum amount of revenue from salon business, and that salon services—as opposed to product sales—must account for between 30 percent and 50 percent of its revenue. Many agreements also prohibit distribution to any salons or persons who have engaged in "diversion" of salon-only products. In this context, diversion is the sale of salon-only products outside the permitted channels expressly provided in manufacturer-distributor contracts, such as sales by a distributor to a retailer who is not connected to a professional hair salon or licensed hairstylists. The distribution agreements often include sanctions and penalties, including termination of distribution contracts, should the products be diverted outside authorized channels.

Cosmetic Gallery, a corporation owned and operated by Charles Eisenberg, is a retailer of hair care products. Cosmetic Gallery also operated two retail stores in southern New Jersey under the name Image Beauty. Cosmetic Gallery asserts it intended to convert or open three facilities under a different business model that included both salon and retail sales services. To that end, Eisenberg had a functioning salon in one of the Image Beauty locations, though it accounted for less than 5 percent of that store's revenue; the other two salons never materialized.

As part of its intended business model, Cosmetic Gallery sought contracts with several distributors of salon-only hair-care lines and products doing business with independent salons and professional hair stylists in southern New Jersey. Among these distributors were Schoeneman Beauty Supply, Inc., East Coast Salon Services, Emiliani Enterprises, and Goldwell Mid-Atlantic. In March 2001, Cosmetic Gallery signed a salon agreement with Emiliani Enterprises to buy Paul Mitchell products. But Emiliani Enterprises soon canceled the agreement because the company had learned Cosmetic Gallery was selling diverted Paul Mitchell products. Cosmetic Gallery contends this cancellation was at defendants' direction.

Unable to secure contracts for salon-only brands from the area distributors, Cosmetic Gallery sued Schoeneman Beauty Supply and F. Dale Schoeneman, its owner, alleging the defendants led and enforced a group boycott of Cosmetic Gallery among hair care product distributors. In addition to Schoeneman Beauty Supply, Schoeneman also owns fifty percent of Renee Beauty Salons, Inc., which owns and operates twelve salon stores in New Jersey under the name Beauty Bar. Just one of these salons is located near a Cosmetic Gallery Image Beauty store—in a neighboring town in southern New Jersey—but that Beauty Bar salon did not open until after the events challenged by Cosmetic Gallery, and the nearby Cosmetic Gallery store did not have competing salon services. Beauty Bar, which combines both retail and salon services, sells salon-only brands of hair products in its stores. Those products are purchased by Beauty Bar from Schoeneman Beauty Supply and other distributors, including East Coast Salon Services, Emiliani Enterprises, and Goldwell Mid-Atlantic.

Cosmetic Gallery contends Schoeneman orchestrated a group boycott in order to prevent it from competing with Beauty Bar. Cosmetic Gallery alleges Schoeneman Beauty Supply and other distributors who had an economic interest in the success of Beauty Bar because it was a big customer consequently had an interest in keeping out Image Beauty as a competitor. Cosmetic Gallery further contended Schoeneman Beauty Supply wanted to exclude Image Beauty from competing with it because Cosmetic Gallery had a history of success in undercutting Beauty Bar's prices for hair care products and sundries. But defendants point out that Cosmetic Gallery and Eisenberg had never been party to a distribution contract for salon-only products, and furthermore, Eisenberg had a lengthy history of selling diverted salon-only products. Not only did diverted products sold by Eisenberg include some of the brands distributed by defendants, but Eisenberg was actively engaged in selling these diverted products during the time of the events from which this suit sprouted.

Eisenberg offered what he contends was both direct and circumstantial evidence of the conspiracy.² The District Court found Cosmetic Gallery's evidence insufficient to support its claims, and granted summary judgment in favor of the defendants.

III.

This case was brought under New Jersey law, principally under N.J. Stat. Ann. § 56:9-3, which provides: "Every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce, in this State, shall be unlawful." In applying § 56:9-3, New Jersey courts look to the federal courts' interpretation of the similar wording of the Sherman Act.³ N.J. Stat. Ann. § 56:9-18;⁴ Patel v. Soriano, 369 N.J.Super. 192, 848 A.2d 803, 826 (App.Div.2004). On appeal, Cosmetic Gallery contends the District Court erred in granting summary judgment in favor of the defendants.

Summary judgment is only appropriate where the court is satisfied "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 330, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Where an illegal conspiracy is alleged, the complaining party must establish "that there is a genuine issue of material fact as to whether [the accused party] entered into an illegal conspiracy that caused respondents to suffer a cognizable injury." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Fed.R.Civ.P. 56(e). This requires both a showing of injury that resulted from the illegal conduct and that the issue of fact be "genuine"; in other words, "the nonmoving party must come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita, 475 U.S. at 586-87, 106 S.Ct. 1348 (quoting Fed. R.Civ.P. 56(e)).

Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial. . . .

It follows from these settled principles that if the factual context renders respondents' claim implausible—if the claim is one that simply makes no economic sense—respondents must come forward with more persuasive evidence to support their claim than would otherwise be necessary.

Id. at 587, 106 S.Ct. 1348 (internal quotations and citations omitted).

Furthermore, "[t]o survive a motion for summary judgment . . . [an antitrust] plaintiff seeking damages for a violation of § 1 [of the Sherman Act] must present evidence that tends to exclude the possibility" that the alleged conspirators acted independently. Id. at 588, 106 S.Ct. 1348 (internal quotation marks omitted). Thus, a plaintiff must offer enough evidence that "the inference of conspiracy is reasonable in light of the competing inferences of independent action or collusive action that could not have harmed respondents." Id.

The Supreme Court has cautioned that fact finders should not be permitted "to infer conspiracies when such inferences are implausible, because the effect of such practices is often to deter procompetitive conduct." Id. at 593, 106 S.Ct. 1348 (citing Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 762-64, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984)).

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