Falstaff Brewing Co. v. Stroh Brewery Co.

• Decision Date: 19 February 1986
• Docket Number: No. C-85-1361-JPV.,C-85-1361-JPV.
• Citation: 628 F. Supp. 822
• Court: U.S. District Court — Northern District of California
• Parties: FALSTAFF BREWING COMPANY, a Delaware corporation; General Brewing Company, a California corporation; Pearl Brewing Company, a Texas corporation; and S & P Company, a California corporation, Plaintiffs, v. The STROH BREWERY COMPANY, Peter Stroh, Christopher Lole, Arthur J. Tonna, Roger Fridholm, and Joseph Englert, Defendants.

628 F. Supp. 822

FALSTAFF BREWING COMPANY, a Delaware corporation; General Brewing Company, a California corporation; Pearl Brewing Company, a Texas corporation; and S & P Company, a California corporation, Plaintiffs, v. The STROH BREWERY COMPANY, Peter Stroh, Christopher Lole, Arthur J. Tonna, Roger Fridholm, and Joseph Englert, Defendants.

No. C-85-1361-JPV.

United States District Court, N.D. California.

February 19, 1986.

COPYRIGHT MATERIAL OMITTED

Joseph L. Alioto, Alioto & Alioto, San Francisco, Cal., for plaintiffs.

William Alsup, Morrison & Foerster, San Francisco, Cal., for defendants.

MEMORANDUM OPINION AND ORDER

VUKASIN, District Judge.

I. INTRODUCTION

Plaintiffs, Falstaff Brewing Company, General Brewing Company and Pearl Brewing Company, all wholly owned subsidiaries of plaintiff S & P Company hereinafter collectively referred to as "Falstaff" filed this civil action for damages, as well as for injunctive and declaratory relief on February 4, 1985. The original complaint alleged that defendants Stroh Brewery Company "Stroh", Joseph Englert, and four executives of Stroh¹ conspired to restrain trade, attempted to monopolize the domestic beer market, and tortiously interfered with plaintiffs' contract negotiations, all in violation of Sections 1 and 2 of the Sherman Anti-trust Act, and state law.

On May 2, 1985, this Court denied Stroh's motion to dismiss the complaint in its entirety, instead quashing service of process, dismissing the complaint as to the Stroh executives, and granting defendant's alternative motion for a more definite statement.² On July 26, 1985, a more definite statement, in the form of an amended complaint, was filed.³ The matter now before the Court is defendant Stroh's motion, joined in by defendant Englert,⁴ to dismiss the amended complaint.

II. THE COMPLAINT

Plaintiffs' complaint alleges violations of Sections 1 and 2 of the Sherman Act, to wit, conspiracy to restrain trade and attempted monopolization. Plaintiffs, as well as defendant Stroh, are engaged in the business of brewing and distributing beer throughout the United States. Accordingly, the relevant market upon which the claim must be determined is the United States domestic beer market. The alleged acts constituting the anti-trust violations are: (1) Stroh came to an internal decision to institute predatory pricing programs aimed at eliminating independent, smaller breweries of the size of plaintiff; (2) Stroh publicly announced that plaintiff companies "can't survive and we're looking at picking up those companies;" (3) Stroh directed the public remarks at the distributor network of plaintiffs; (4) Prior to the public announcement, Stroh salesmen and distributors engaged in continuing commercial disparagement of plaintiff companies; (5) Stroh interfered with plaintiff S & P's plan to buy Pabst Brewing Company and delayed the acquisition by approximately six months; and (6) Stroh is selling its beer below cost in markets specifically selected to injure or destroy plaintiffs' sales and profits. See Amend.Compl., ¶ 12. Plaintiffs further allege the specific intent behind the aforementioned acts to be the elimination of plaintiff companies, and, therefore, price competition in the United States. Finally, plaintiff alleges the effects of Stroh's acts to be, among others: (1) delaying plaintiff S & P's aquisition of Pabst; (2) impairing plaintiffs' profits; and (3) causing economic concern among plaintiffs' network of distibutors. Amend. Compl., ¶ 15.

III. MOTION TO DISMISS

In ruling on a motion to dismiss for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court may only determine the legal sufficiency of the complaint. For purposes of a motion to dismiss, material allegations of the complaint are to be taken as admitted. Jenkins v. McKeithen, 395 U.S. 411, 421, 89 S.Ct. 1843, 1848, 23 L.Ed.2d 404 (1969). The complaint is to be liberally construed in favor of plaintiffs. See F.R.Civ.P. 8(f); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957). The complaint should not be dismissed unless it appears that plaintiffs can prove no set of facts in support of their claim which would entitle them to relief. Conley, supra, 355 U.S. at 45-46, 78 S.Ct. at 101-02. The Court, however, does not have to accept every allegation in the complaint as true. Conclusory allegations of law, unsupported conclusions and unwarranted inferences need not be accepted for purposes of a Rule 12(b)(6) motion. See, e.g., United States v. Tulare Lake Canal Co., 535 F.2d 1093, 1097 (9th Cir.1976). With these preliminary considerations in mind, the Court turns to the claims which defendant moves to dismiss.

A. SHERMAN ACT, SECTION 1 CLAIM

Section 1 of the Sherman Act prohibits contracts, agreements and conspiracies in restraint of trade. 15 U.S.C. Section 1. Accordingly, the complaint must set out, at a minimum, some concerted action among two or more persons or distinct business entities, which is intended to harm or unreasonably restrain competition, and some adverse effect on competition caused by the concerted action. Kaplan v. Burroughs Corp., 611 F.2d 286, 290-91 (9th Cir.1979). Although plaintiffs' complaint is somewhat lacking in specificity with respect to concert of action, that being the alleged conspiracy between Falstaff and its distributors and salesmen, these shortcomings should not form the basis for dismissal. It is sufficient, for purposes of a Rule 12(b)(6) motion that plaintiff has alleged some concerted action. Whether or not this allegation in fact is true should be determined on a factual basis, not as a matter of law. For like reasons, the complaint also passes 12(b)(6) muster with respect to the allegation of defendants' intent to restrain trade.

The cornerstone of anti-trust law is competition. Congress' intent in passing the Sherman Act was not to subject all business and commercial torts to the scrutiny of federal law. Indeed, only acts which adversely affect competition are proscribed. Accordingly, the primary consideration in determining a Section 1 claim is whether the alleged acts have significant anticompetitive effects. Sherman v. British Leyland Motors, LTD., 601 F.2d 429, 449 (9th Cir.1979). It is with regard to the requirement of an allegation of this adverse effect on competition that the Section 1 complaint is defective.

In making this determination the Court notes section seven of the amended complaint titled "Effects." In this section, plaintiffs state the alleged results of Stroh's illegal activity, to wit: delaying plaintiffs' acquisition of Pabst stock, impairing plaintiffs' profits, and causing economic concern among plaintiffs' distributors. Amend.Compl., ¶ 15. Nowhere does plaintiff claim an adverse effect on competition as distinguished from effects on plaintiff's own business. Absent injury to competition, injury to plaintiffs as competitors will not satisfy the pleading requirements of Section 1. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488, 97 S.Ct. 690, 697, 50 L.Ed.2d 701 (1977). The anti-trust laws were enacted for the protection of competition not competitors. Brown Shoe Co. v. United States, 370 U.S. 294, 320, 82 S.Ct. 1502, 1521, 8 L.Ed.2d 510 (1962).

In its opposition to the motion to dismiss plaintiff claims that no allegation of anti-competitive effect is necessary. Rather, plaintiff argues that the alleged actions of Stroh are per se anti-competitive; that by virtue of plaintiffs' commercial demise, competition in the domestic beer industry will necessarily suffer. The law, however, is clear. Only in certain limited circumstances will an adverse impact on a single or group of competitors constitute an adverse impact on competition as a whole. This per se treatment is limited to traditional anti-trust activities such as horizontal and vertical price fixing, horizontal divisions of markets, and horizontal boycotts or concerted refusals to deal. See N.C.A.A. v. Board of Regents of University of Oklahoma, 468 U.S. 85, 104 S.Ct. 2948, 2960-62, 82 L.Ed.2d 70 (1984); Silver v. New York Stock Exchange, 373 U.S. 341, 347-49, 83 S.Ct. 1246, 1251-52, 10 L.Ed.2d 389 (1963); Northern Pacific Railway v. United States, 356 U.S. 1, 5-7, 78 S.Ct. 514, 518-19, 2 L.Ed.2d 545 (1958); United States v. Sacony-Vacuum Oil Co., 310 U.S. 150, 218, 60 S.Ct. 811, 841-42, 84 L.Ed. 1129 (1940). Plaintiffs have not alleged any of these types of activities.

The cases relied on by plaintiffs to support the application of a per se analysis are inapposite. In Klor's, Inc. v. BroadwayHale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959) the Court held that elimination of a single competitor through a group boycott/concerted refusal to deal was per se anticompetitive. In the present action, although plaintiffs have alleged that Stroh's activities are aimed at eliminating plaintiffs from the domestic beer market, there is no allegation of boycott. In Silver v. New York Stock Exchange, 373 U.S. 341, 83 S.Ct. 1246, 10 L.Ed.2d 389 (1963), the Supreme Court applied a per se analysis when the Exchange members collectively removed the private wire services of a single broker. Finally, in United States v. General Motors Corp., 384 U.S. 127, 86 S.Ct. 1321, 16 L.Ed.2d 415 (1966), General Motors' agreement with franchise dealers to eliminate the automobile sales of discount houses was held to be a per se restraint of trade. Plaintiff has not alleged any such concerted deprivation of essential goods or services upon which reliance on these cases could be based. The court recognizes the fact that a multitude of cases have imposed anti-trust liability on a per se basis when the anti-competitive activity is directed at only one competitor. The common denominator among these cases, however, is the notion that certain actions, such as horizontal and vertical price fixing, horizontal divisions of markets, and horizontal...