Donlan v. Carvel

• Decision Date: 10 September 1962
• Docket Number: Civ. A. No. 11694.
• Citation: 209 F. Supp. 829
• Parties: Daniel L. DONLAN et al., Plaintiffs, v. Thomas CARVEL et al., Defendants.
• Court: U.S. District Court — District of Maryland

209 F. Supp. 829

Daniel L. DONLAN et al., Plaintiffs, v. Thomas CARVEL et al., Defendants.

Civ. A. No. 11694.

United States District Court D. Maryland.

September 10, 1962.

Lawrence I. Weisman, Baltimore, Md., and Arnold Fleischmann, Towson, Md., for plaintiffs.

Amen, Weisman & Butler, New York City, for Carvel defendants.

David Gerber, Baltimore, Md., for Maryland Baking Co. and Maryland Cup Co.

William L. Marbury, John Martin Jones, Jr., Piper & Marbury and Irving F. Cohn, Baltimore, Md., for Maryland Cup Co. and Eagle Cone Corp.

WINTER, District Judge.

Certain of defendants have moved, under Rule 12(b), F.R.Civ.P., 28 U.S.C.A., to dismiss the six antitrust counts of plaintiffs' twenty count complaint, contending that they fail in a number of respects to state a claim upon which relief can be granted.

The complaint was filed by a number of plaintiffs, each of whom alleged that he became a "Carvel" franchised dealer engaged in the sale at retail of Carvel "soft" ice cream. The persons designated as Carvel defendants¹ issued the franchises, sold and leased the basic equipment for operation of the stores, and performed other related functions. The other defendants (sometimes called "non-Carvel defendants") are the suppliers of various products, such as ice cream mix, cones and paper goods, used in connection with the retail sale of soft ice cream. In the six antitrust counts, plaintiffs generally allege understandings and agreements, combinations, conspiracies through boycott, tie-in sales, exclusive dealing arrangements, price-fixing schemes, and attempts to monopolize in violation of the Sherman and Clayton Acts, without, however specifying what provisions of those Acts are claimed to have been violated.

The motions to dismiss are filed on behalf of all of the Carvel defendants, Maryland Baking Company, a supplier of ice cream cakes, cones, cups and allied bakery products, Maryland Cup Company, a supplier of paper containers, and Eagle Cone Corporation, a supplier of ice cream cakes, cones, cups and allied bakery products.

In regard to the counts in question the four grounds of the motion are: (1) the complaint fails to allege Federal jurisdiction, because it fails to allege restraints which involve, directly affect or substantially restrain or obstruct interstate commerce; (2) the complaint fails to allege public injury as to those allegedly illegal restraints which do not constitute per se antitrust violations; (3) the complaint fails to allege any injury to plaintiffs in regard to the price-fixing allegations, because the complaint alleges that increases in prices caused by the allegedly illegal restraints were passed on to the consuming public; and (4) the complaint fails to state a cause of action under § 3 of the Clayton Act, 15 U.S.C.A. § 14, because it fails to allege that the Carvel defendants have a dominant or controlling position in any relevant market. Should the Court find these various grounds well-founded, the first would require a complete dismissal of the counts of the complaint to which the motions are directed, and the others would require a partial dismissal.

The arguments and briefs cover a wide range, particularly those advanced on behalf of the Carvel defendants. The latter are more in the nature of arguments on a motion for summary judgment, but the matter is before the Court on motion to dismiss and the oft repeated cardinal rule that the sufficiency of the complaint is to be tested by the allegations contained therein is fully applicable. In this connection, it should be noted that most of the defendants were also defendants in a similar suit filed in and partially heard by the United States District Court for the Southern District of New York, Susser et al. v. Carvel Corporation et al., 206 F.Supp. 636 (D.C.S.D.N.Y., Decided June 7, 1962). On antitrust liability, that case has been decided adversely to most of the contentions of the plaintiffs there, but, after trial, so that much of what has been said by that Court is inapplicable here. It should be noted also that summary dismissal in private antitrust litigation should be sparingly granted, because of the nature of the issues and the availability of proof, Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 82 S.Ct. 486, 491, 7 L.Ed.2d 458 (1962); McElhenney Co. v. Western Auto Supply Company, 269 F.2d 332, 339 (4 Cir. 1959).

A — Federal Jurisdiction:

Plaintiffs allege that all defendants "are engaged in interstate commerce within the scope of the antitrust laws of the United States" (¶ 63, Complaint), that "the actions of the defendants complained of herein affected a substantial portion of interstate commerce" (¶ 64, Complaint), and that, after specifying various acts of the defendants alleged to be illegal, "trade and commerce between the States has been and is being hampered, obstructed and restrained; competition has been and is being hampered, obstructed, restrained and foreclosed" (¶ 70, Complaint).

In order for the Sherman Act and the Clayton Act to be applicable to an alleged unlawful restraint, it must appear that the restraint occurs in interstate commerce, or, if the restraint arises in intrastate commerce, that it has a substantial adverse effect on interstate commerce. Radiant Burners v. Peoples Gas Co., 364 U.S. 656, 81 S.Ct. 365, 5 L.Ed.2d 358 (1961); Klor's v. Broadway-Hale Stores, 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959); U. S. v. Women's Sportswear Ass'n., 336 U.S. 460, 69 S.Ct. 714, 93 L.Ed. 805 (1949); Mandeville Farms v. Sugar Co., 334 U.S. 219, 68 S.Ct. 996, 92 L.Ed. 1328 (1948); United States v. Yellow Cab Co., 332 U.S. 218, 67 S.Ct. 1560, 91 L.Ed. 2010 (1947); Las Vegas Merchant Plumbers Ass'n. v. United States, 210 F.2d 732 (9 Cir.1954) cert. den. 348 U.S. 817, 75 S.Ct. 29, 99 L.Ed. 645 (1954).

If the complaint is deemed not to allege sufficiently that the alleged restraints are not in interstate commerce but, rather, are in intrastate commerce, a question of fact arises as to the substantiality of the impact of the local restraint on interstate commerce. This is not a question which should be decided on motion to dismiss. Savon Gas Stations No. 6, Inc. v. Shell Oil Company, 203 F.Supp. 529 (D.C.Md.1962), appeal pending, urged by defendants, is not applicable, because there it was decided on motion for summary judgment that the undisputed facts showed that the impact of the alleged restraint was incidental and inconsequential in its effect on interstate commerce. Here the question arises on allegations, treated as proved for purposes of these motions.

The Court concludes that plaintiffs have sufficiently pleaded Federal jurisdiction.

B — Public Injury:

In private antitrust litigation, except for per se violations of the Sherman Act, a plaintiff to recover must allege and prove that the public has been adversely affected by the alleged unlawful restraint, Apex Hosiery Co. v. Leader, 310 U.S. 469, 60 S.Ct. 982, 84 L.Ed. 1311 (1940); Nelligan v. Ford Motor Company, 262 F.2d 556 (4 Cir.1959) and Schwing Motor Company v. Hudson Sales Corporation, 138 F.Supp. 899 (D. C.Md.1956), aff'd. per curiam 239 F.2d 176 (4 Cir.1956) cert. den. 355 U.S. 823, 78 S.Ct. 30, 2 L.Ed.2d 38 (1957). The necessity of this allegation and proof in the case of per se violations is excused, because as to this type of restraint it has been held that Congress had determined its own criteria of public harm and it was not for the courts to decide whether in an individual case injury had actually occurred, Klor's v. Broadway-Hale Stores, supra. What are the per se violations is not always entirely clear. Northern Pacific R. Co. v. United States, 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958) lists group boycotts, division of markets, price-fixing and tie-in arrangements as those restraints which are declared to be per se illegal under the Sherman Act. Klor's v. Broadway-Hale Stores, supra, held that a group boycott is per se illegal, but it has been suggested by Rahl, Per Se Rules and Boycotts under the Sherman Act: Some Reflections On the Klor's Case, 45 Va.L.Rev. 1165 (1959) that in some cases a boycott may not be per se illegal under the Sherman Act. Cf. Handler, Recent Antitrust Developments, 14 The Record (Assoc. of the Bar of the City of N. Y.) 318, 343, et seq. (1959).

Defendants admit that as to the per se violations which have been alleged plaintiffs need not allege or prove public injury, but in effect argue that as a minimum plaintiffs must allege and prove public injury in regard to the allegations of an exclusive dealing arrangement and an attempt to monopolize.

A precise delineation of what are and what are not per se violations is unnecessary in this case, because plaintiffs have alleged that "there was and is a vast market and demand particularly within the trading area of the non-Carvel defendants and within the State of Maryland, for the products of each of the defendants" (¶ 64, Complaint), that "* * * a large and substantial segment of the public, particularly in the areas aforementioned , by the aforesaid agreements and understandings was compelled to and did pay higher prices for the products manufactured and sold by the defendants and that said public was deprived of the right to purchase said products in a free, open and competitive market. Furthermore, the public in said areas was deprived of the opportunity of buying competitive food products from Carvel franchised dealers, including the plaintiffs herein" (¶ 68, Complaint), and that "resale prices of merchandise sold by franchised Carvel operators have been and are being unlawfully and improperly fixed and maintained and the purchasing public compelled to pay higher prices for such merchandise; and the public has been and is being otherwise injured and prejudiced in the premises" (¶ 70, Complaint). Manifestly, plaintiffs have alleged public injury with regard to each of the alleged restraints, and defendants' contention...