Eastern Auto Distributors, Inc. v. Peugeot Motors of America, Civ. A. No. 81-733-N.
| Decision Date | 17 October 1983 |
| Docket Number | Civ. A. No. 81-733-N. |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | EASTERN AUTO DISTRIBUTORS, INC., Plaintiff, v. PEUGEOT MOTORS OF AMERICA, INC. and Automobiles Peugeot, S.A., Defendants. |
Wayne Lustig, Judith M. Ziegler, Guy, Cromwell, Betz & Lustig, Virginia Beach, Va., for plaintiff.
Conrad M. Shumadine, John Y. Pearson, Jr., Bruce T. Bishop, Willcox, Savage, Dickson, Hollis & Eley, Norfolk, Va., for defendants.
Eastern Auto Distributors, Inc. moves this Court under Rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss a counterclaim filed by Peugeot Motors of America, Inc. (hereinafter PMA). The basis for the requested dismissal is the contention that the counterclaimant seller lacks standing to allege antitrust and contractual violations against the buyer.
PMA is a Delaware corporation with exclusive rights to distribute French manufactured Peugeot automobiles in the United States. Title to the vehicles is transferred to PMA in France who then delivers the cars to Eastern Auto Distributors, Inc. (hereinafter EAD), a Virginia corporation. EAD then purchases the cars from PMA and resells them to retail dealers located throughout the southeastern United States. Counterclaim, ¶ 6 and ¶ 7. EAD also recruits and enfranchises the various retail dealers located within their distribution area. Counterclaim, ¶ 7. From 1958 to 1980, EAD was also the distributor and enfranchisor of Renault vehicles. Counterclaim, ¶ 8. This counterclaim arises in the context of a much larger action instituted by EAD against PMA and PMA's parent company, Automobiles Peugeot, S.A., alleging in seven separate counts various breach of contract, antitrust and Dealer Day in Court Act causes of actions.
The counterclaim alleges that EAD engaged in widespread illegal tying arrangements from 1972 to 1980. PMA states EAD used its economic power to require new retail dealers to carry both Peugeot and Renault vehicles. Counterclaim, ¶ 9. If a dealer wanted only a Peugeot franchise he was required to operate a Renault franchise, and vice versa. Id. Some dealers accepted both franchises but others who declined to accept the arrangement were denied either franchise. Counterclaim, ¶ 21. Additionally, PMA alleges that EAD instituted a policy of not filling dual dealer vehicle orders unless the dealer ordered both Peugeot and Renault automobiles. Counterclaim, ¶ 12. PMA recognizes that various makes of cars have different appeals to different retail dealers, and, therefore, acknowledges that Peugeot was either the tying or tied product depending on the retail dealer's purchasing desires. PMA's Memorandum of Law in Response to EAD's Motion to Dismiss at 1-2 (hereinafter PMA's Memorandum).
PMA asserts three separate counts against EAD. Count One states that many dealers were denied Peugeot franchises or failed to order as many vehicles as they would have absent the tying agreement resulting in a substantial lessening in competition and an unreasonable restraint of trade in violation of § 3 of the Clayton Act. 15 U.S.C.A. § 14.1 Count Two alleges that the retail dealers who acquiesced to the dual dealership arrangement or agreed to order both Peugeot or Renault vehicles engaged in a "contract, combination or conspiracy in restraint of trade" in violation of § 1 of the Sherman Act. 15 U.S.C. § 1.2 Counterclaim, ¶ 28 and ¶ 29. Count Three asserts a breach of the Distributor Agreement between PMA and EAD. Counterclaim, ¶¶ 35-40. Essentially, PMA states EAD failed to use their "best efforts" to assure an effective distribution network in the sale of Peugeot products. Counterclaim, ¶ 38.3
EAD contends that PMA lacks standing to assert these claims arising from the unlawful tying arrangement between EAD and the retailer dealers violating the anti-trust laws. EAD Brief in Support of Motion to Dismiss at 3 (hereinafter EAD Brief). Allegedly, PMA has not demonstrated an antitrust injury of the type the antitrust laws were designed to prevent. In this unique situation where Peugeot can be either the "tying" or the "tied" product, EAD states that when Peugeot is the tied product, the unexpected sale of any additional Peugeot automobiles can only increase PMA's profits and, thus, fails to demonstrate any injury. PMA concedes that this analysis is correct as to the dual orders of Peugeots and Renaults, but rebuts this proposition as to prospective dealers who were denied Peugeot franchises arguing that PMA lost the benefit of the best possible retail dealers being forced to accept less competent retail dealers due to EAD's actions. Counsel for PMA, Oral Argument, August 15, 1983. When Peugeot was the tying product, EAD argues PMA is asserting the possible antitrust claims of retail dealers and, therefore, has not alleged an injury to its own business by reason of a violation of an antitrust statute thereby precluding a grant of standing as to Counts One and Two.4
Secondly, EAD contends that the contract claim must be dismissed because the asserted breach is based on the allegedly defective antitrust claims. EAD Brief at 7. This argument is without merit. Count Three states EAD did not use their "best efforts" as required in the Distributor Agreement. Counterclaim, ¶¶ 35-40. Although EAD's tying practices may not bootstrap PMA into a grant of standing to assert an antitrust claim, the same practice may be sufficient to allege a breach of contract. Parmalee Transportation Co. v. Keeshin, 292 F.2d 794 (7th Cir.1961) cert. denied, 368 U.S. 972, 82 S.Ct. 376, 7 L.Ed.2d 401 (1961); . Accordingly, EAD's Motion to Dismiss is DENIED as to Count Three, which count alleges a contractual breach.
The issue remaining is whether a supplier of automobiles has standing under § 1 of the Sherman Act and § 3 of the Clayton Act to sue a mid-level distributor for allegedly engaging in a tying arrangement with retail dealers. Standing under either § 1 or § 3 is determined in accordance with § 4 of the Sherman Act, 15 U.S.C. § 15. Central Chemical Corp. v. Agrico Chemical Co., 531 F.Supp. 533 (D.Md.1982). Section 4 reads as follows:
Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States ... and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee.
(In pertinent part; emphasis added).
Such antitrust standing requires a greater showing of injury than the minimal injury-in-fact test mandated by the Article Three "case and controversy" constitutional requirement. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977). The plaintiff must demonstrate that the antitrust injury is of the type the antitrust laws were designed to prevent and that the injury flows from that which makes the defendant's acts unlawful. Id. at 429 U.S. at 489; 97 S.Ct. at 697.
The Seventh Circuit Court of Appeals in a recent decision, Bichane v. Chemetron Corp. (In re Industrial Gas Antitrust Litigation), 681 F.2d 514 (7th Cir.1982) cert. denied, 459 U.S. ___, 103 S.Ct. 1261, 75 L.Ed.2d 487 (1983), discussed the perimeters of antitrust standing under § 4 and articulated a clearly defined two step analysis that helps remove the obtuseness and obscurity surrounding the issue. Id. at 515. First, the plaintiff must allege an antitrust injury "which is inextricably related to, and caused by, the alleged anticompetitive conduct." Id., citing Brunswick, supra. Second, the court must determine if the plaintiff is the proper party to bring suit. Id.; citing Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977).
In Bichane, an employee refused to follow his employer's directives requiring him to violate the antitrust laws and, subsequently was fired. The Seventh Circuit Court of Appeals, applying the test outlined above, held that the employee lacked standing under § 4 to assert a claim based on the antitrust violations. No antitrust injury was established which flowed from the lessening of competition, rather the Court stated the injury was inflicted by the employer's coercion and the employee's ultimate discharge was a matter concerning labor practices which antitrust laws do not address. "Thus a mere relationship with the anticompetitive scheme is insufficient to bring the injured party within the scope of § 4; only where the injury is directly related to the scheme's anticompetitive effect does § 4 apply." Bichane at 515. Having found no antitrust injury, the Court proceeded to hold also that Bichane was not a proper plaintiff interpreting § 4 to require a direct causal link between the antitrust violation and the resulting injury in order to prevent the courts from being flooded by antitrust litigation instituted by remote parties. Although recognizing that antitrust standing is not limited to consumers, the court stated that § 4 does limit standing to those plaintiffs who are efficient enforcers of antitrust laws. Id. at 520; citing Illinois Brick, supra, and Calderone Enterprises Corp. v. United Artists Theatre Circuit, Inc., 454 F.2d 1292 (2d Cir.1971) cert. denied, 406 U.S. 930, 92 S.Ct. 1776, 32 L.Ed.2d 132 (1972). The Seventh Circuit Court of Appeals further recognized the conflicting policies behind antitrust laws attempting on one hand to deter future violators and compensate victims of anticompetitive practices while on the other hand attempting to prevent excessive treble damage litigation.
The lower federal courts consistently have held that antitrust violators do not create causes of action for all persons tangentially harmed....
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...causation and speculative harm has caused the dismissal of other actions under Section 4. See Eastern Auto Distributors v. Peugeot Motors of America, 573 F.Supp. 943 (E.D.Va.1983) (dismissing a defendant supplier's counterclaim for lost sales based on the plaintiff distributor's alleged tyi......