Donahue v. Pendleton Woolen Mills, Inc.

• Decision Date: 21 March 1986
• Docket Number: No. 84 Civ. 7149(RJW).,84 Civ. 7149(RJW).
• Parties: James P. DONAHUE, William J. Perez, and Harry J. Thornton, Plaintiffs, v. PENDLETON WOOLEN MILLS, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

633 F. Supp. 1423

James P. DONAHUE, William J. Perez, and Harry J. Thornton, Plaintiffs, v. PENDLETON WOOLEN MILLS, INC., Defendant.

No. 84 Civ. 7149(RJW).

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

March 21, 1986.

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Wisehart & Koch, New York City, for plaintiffs; Arthur M. Wisehart, of counsel.

Schnader, Harrison, Segal & Lewis, New York City, for defendant; Thomas A. Greene, Nicholas N. Price, Martin Wald, of counsel.

OPINION

ROBERT J. WARD, District Judge.

Three former sales representatives of Pendleton Woolen Mills ("Pendleton") have filed an action against the company charging that the manner of and motivation behind their termination violated the Age Discrimination in Employment Act (ADEA), as amended, 29 U.S.C. § 621 et seq., the Sherman Act, 15 U.S.C. §§ 1 & 2, and unspecified state contract or common law rights. Pendleton moves under Rule 12(c), Fed.R. Civ.P., for judgment on the pleadings as to three of the four causes of action alleged in the complaint. Plaintiff cross-moves under Rule 15(a), Fed.R.Civ.P., to amend the complaint. As the following analysis will indicate, Pendleton has not established that plaintiffs cannot plead circumstances entitling them to recover on the claims alleged in the complaint, nor has Pendleton proved that those claims are entirely time-barred. Defendant's motion for judgment on the pleadings, therefore, is granted in part and denied in part without prejudice to its renewal as a motion for summary judgment after the completion of discovery. Plaintiffs' cross-motion for leave to amend the complaint is granted.

BACKGROUND

For the purposes of this motion, the Court must accept the factual allegations of the complaint as true. In the complaint, plaintiffs allege the following. Pendleton Woolen Mills is an Oregon corporation which manufactures men's and women's wearing apparel and various other woolen goods. Pendleton employed James Donahue, William Perez, and Harry Thornton as members of the nationwide sales force it uses to service its retail dealers throughout the United States. Pendleton hired Donahue in 1959, Thornton in 1965, and Perez in 1971. All three plaintiffs claim to have relied at the time they became Pendleton sales representatives "upon the representation, understanding, and custom and usage in the trade that they would continue to receive commissions at the rate of 5% of sales on the lines and in the territories assigned to them, that Pendleton would not unreasonably interfere with their ability to generate sales, and that they would not be terminated without good cause." Complaint at ¶ 29.

Within a nine month span from November 1982 to August 1983, and shortly after it implemented a new plan known as "Management by Objective," id. at ¶ 42, Pendleton terminated Donahue, who was then 52, Perez, who was then 53, and Thornton, who was then 56. Pendleton filled all three vacated positions with younger men. Plaintiffs assert that their unfavorable evaluations merely served as a pretext for their dismissals since Pendleton nonetheless retained other, younger sales representatives who had compiled poorer sales records.

Plaintiffs allege furthermore that Pendleton has resumed an illegal resale price maintenance agreement that had been the subject of an earlier investigation by the Federal Trade Commission ("FTC"). Following a 1979 investigation of certain marketing practices carried on by Pendleton, the FTC had furnished Pendleton with a copy of a draft complaint charging violations of the Federal Trade Commission Act ("FTCA"). Shortly thereafter, Pendleton entered into a consent order with the FTC that required the company, among other things, to cease maintaining, fixing, or enforcing resale prices for its products and to refrain from monitoring or sanctioning dealers who did not comply with pricing directives. In re Pendleton Woolen Mills, Inc., 94 F.T.C. Decisions 229 (1979). Plaintiffs allege that despite the consent decree, Pendleton continues to survey resale prices, to coerce retail stores and sales representative to set and maintain retail prices decided by Pendleton, and to refuse Pendleton products to discounters.

Plaintiffs contend that through a system of threats and rewards, Pendleton forced its sales force to "do the dirty work or face reprisals" in implementing this retail price maintenance plan. Plaintiffs directly link their termination to the illegal scheme they describe by contending that "on information and belief, Pendleton terminated the plaintiffs in part ... to make an example of them for those who refuse to actively participate in Pendleton's continuing violations." Id. ¶ 51.¹

From the foregoing allegations, plaintiffs assert four causes of action. The first cause of action charges Pendleton with having embarked on a program to terminate its older sales personnel and replace them with younger employees in violation of the ADEA.² In the second cause of action, plaintiffs allege that Pendleton violated the antitrust laws in resuming activities that constitute a resale price maintenance agreement. In the third count, which plaintiffs characterize as a claim for breach of contract, plaintiffs aver that Pendleton violated the terms and conditions of their employment and breached implied covenants of good faith dealing by terminating them. Plaintiffs maintain in addition that their wrongful terminations tarnished their reputations for reliability, dependability, and good service in their trade as sales representatives, therby destroying the goodwill the plaintiffs had built up over the years with their accounts. As a fourth, tort, cause of action, plaintiffs contend that "Pendleton disseminated false stigmatizing reasons for the actions taken against plaintiffs ... in reckless or grossly negligent disregard for the plaintiffs' rights, while concealing Pendleton's intentional violations of law as the underlying motivation of said actions...." Id. ¶ 57.

Pendleton moves under Fed.R.Civ.P. 12(c) for judgment on the pleadings on several grounds. First, Pendleton asserts that plaintiffs lack standing to assert the antitrust violations alleged in the second cause of action. Second, Pendleton contends that the fourth cause of action fails to state a claim upon which relief can be granted. Finally, Pendleton seeks to dismiss the second, third, and fourth causes of action at least in part as time-barred. Plaintiff cross-moves for leave to amend the complaint to add specific allegations concerning the operation on Pendleton's supposed resale price maintenance agreement and to include specific instances of derogatory statements made by Pendleton managers about plaintiffs. The Court will address seriatim defendant's objections to the original complaint and then will consider the amendments to the complaint that plaintiffs have proposed.

DISCUSSION

I. Motion for Judgment on the Pleadings

The Court may grant a motion for judgment on the pleadings only if it appears that "the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); Bloor v. Carro, Spanbock, Londin, Rodman & Fass, 754 F.2d 57, 61 (2d Cir. 1985); George C. Frey Ready-Mixed Concrete, Inc. v. Pine Hill Concrete Mix Corp., 554 F.2d 551, 553 (2d Cir.1977).

A. Antitrust Standing

Pendleton contends that the Supreme Court's most recent decision on antitrust standing, Associated General Contractors of California, Inc., v. California State Council of Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983), dictates dismissal of plaintiffs' Sherman Act cause of action. Before examining the case law on antitrust standing, the Court will briefly recapitulate Pendleton's distribution system as it appears from plaintiffs' complaint, in order to visualize the layers in the market structure allegedly involved in this case. Pendleton manufactures clothing in competition with other makers. It distributes its products through retailers who in turn sell to the consuming public. Pendleton operates some of the retail stores directly and supplies as well other independent retailers. To reach the independent stores, Pendleton employs a sales force. The complaint alleges that at least some of the salesmen Pendleton employed or employs also carry the lines of other clothing manufacturers.

Plaintiffs' complaint suggests two different antitrust violations by Pendleton in connection with the distribution system described above. The first, which plaintiffs identify explicitly in the complaint, involves the resale price maintenance scheme allegedly conducted by Pendleton. The second, which is arguably implied by plaintiffs' allegations, concerns interference by Pendleton in the labor market for clothing salesmen. Each requires a distinct standing analysis.

1. Resale Price Maintenance Agreement

Resale price maintenance schemes operate to prevent price competition between the various dealers handling a given manufacturer's products. Generally in implementing such schemes, the manufacturer "suggests" an appropriate resale price and enforces dealer acquiescence in that price through some form of coercive sanction, which might range from delayed shipments to termination. See VII P. Areeda & D. Turner, Antitrust Law ¶ 1438-1442 (1986) ("VII Areeda & Turner"). Although such schemes directly coerce retailers, who must charge the price suggested by the manufacturer if they wish to continue carrying the product line, consumers ultimately pay the economic cost of such conduct in the higher prices set by the manufacturer. Resale price maintenance schemes are per se unlawful.³Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911) (minimum resale price); Albrecht v. Herald Co., 390 U.S. 145, 88 S.Ct. 869, 19 L.Ed.2d 998 (1968) (maximum resale price).

In the complaint, plaintiffs allege that...