Federal Paper Bd. Co., Inc. v. Amata, Civ. No. H-86-1415 (MJB).

• Court: United States District Courts. 2nd Circuit. United States District Court (Connecticut)
• Writing for the Court: BLUMENFELD, Senior
• Citation: 693 F. Supp. 1376
• Parties: FEDERAL PAPER BOARD COMPANY, INC. v. Giacinto (a/k/a Jesse) P. AMATA, Harold Kirstein, United Paper and Metal Co., Inc., International Reclamation Corp., Connecticut Recycling Company, Inc., James D. Hershman, I. Hershman & Co., Inc., David Goodman, Tri-City Recycling, Inc., Harry Goodman, Inc., Capital Fibers, Harvey Lurie, Wilmington Paper Corp., Tessa Industries, Inc., James A. Derrico, Sr., Tiffany Fibers, Inc., James A. Derrico, Jr., Automated Material Handling, Inc., Kimberly Kirker and James Kirker, Trustee.
• Docket Number: Civ. No. H-86-1415 (MJB).
• Decision Date: 10 February 1988

693 F. Supp. 1376

FEDERAL PAPER BOARD COMPANY, INC.
v.
Giacinto (a/k/a Jesse) P. AMATA, Harold Kirstein, United Paper and Metal Co., Inc., International Reclamation Corp., Connecticut Recycling Company, Inc., James D. Hershman, I. Hershman & Co., Inc., David Goodman, Tri-City Recycling, Inc., Harry Goodman, Inc., Capital Fibers, Harvey Lurie, Wilmington Paper Corp., Tessa Industries, Inc., James A. Derrico, Sr., Tiffany Fibers, Inc., James A. Derrico, Jr., Automated Material Handling, Inc., Kimberly Kirker and James Kirker, Trustee.

Civ. No. H-86-1415 (MJB).

United States District Court, D. Connecticut.

February 10, 1988.

693 F. Supp. 1377

COPYRIGHT MATERIAL OMITTED

693 F. Supp. 1378

COPYRIGHT MATERIAL OMITTED

693 F. Supp. 1379

George E. O'Brien, Christopher F. Wanat, Mark V. Connolly, John W. O'Meara, Tyler, Cooper & Alcorn, New Haven, Conn., for plaintiff

William R. Moller, Hartford, Conn., Jacob D. Zeldes, David P. Atkins, Zeldes, Needle & Cooper, Bridgeport, Conn., Eliot Gersten, Hartford, Conn., David L. Belt, Ira B. Grudberg, Alice Miskimin, New Haven, Conn., John Wirzbicki, Milton Jacobson, Norwich, Conn., Hugh F. Keefe, New Haven, Conn., Henry B. Hurvitz, Carl Yeich, Hartford, Conn., V. James Ferraro, New Haven, Conn., for defendants.

RULING ON MOTIONS TO DISMISS

BLUMENFELD, Senior District Judge.

This case arises out of alleged bribes and kickbacks paid to Federal Paper Board Company's former employee, Giacinto P. Amata. The amended complaint alleges violations of section 1 of the Sherman Act (Count I), section 2 of the Sherman Act (Count II), section 2(c) of the Robinson-Patman Act (Count III), and RICO (Count IV), along with several violations of state law (Counts V to XII). This ruling responds to the motions of defendants James D. Hershman and I. Hershman & Co., Inc. ("Hershman") (as to Counts I to IV), Automated Material Handling, Inc. and James A. Derrico, Jr. ("Automated") (as to all counts), David Goodman, Tri-City Recycling Co., Inc., Harry Goodman, Inc., and Capital Fibers ("Goodman") (as to all counts), Harold Kirstein, United Paper and Metal Co., Inc., International Reclamation Corp., and Connecticut Recycling Co., Inc. ("Kirstein") (as to Counts I to IV), James A. Derrico, Sr. and Tiffany Fibers, Inc. ("Tiffany") (as to all counts), and Giacinto P. Amata ("Amata") (as to Counts I to IV) to dismiss Federal's amended complaint.

The motions have been brought both as motions to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure and as motions for judgment on the pleadings pursuant to Rule 12(c). With respect to those defendants that have filed pleadings, the motions are properly treated as motions for judgment on the pleadings.¹ See Falls Riverway Realty, Inc. v. City of Niagara Falls, 754 F.2d 49, 53 (2d Cir. 1985). The standards that apply to a motion to dismiss for failure to state a claim brought under Rule 12(b)(6) are the same as the standards for deciding a motion for judgment on the pleadings for failure to state a claim brought under Rule 12(c), as authorized by Rule 12(h)(2). See Andreo v. Friedlander, Gaines, Cohen, Rosenthal & Rosenberg, 660 F.Supp. 1362, 1365 (D.Conn.1987) hereinafter Andreo II. For purposes of this ruling, therefore, all well-pleaded allegations of Federal will be taken to be true, see 2A J. Moore, J. Lucas & G. Grotheer, Moore's Federal Practice ¶ 12.15 at 12-106 (2d ed. 1987), and Federal's claims will not be dismissed "unless it appears `beyond doubt that Federal can prove no set of facts in support of its claims which would entitle it to relief.'" Goldman v. Belden, 754 F.2d 1059, 1065 (2d Cir.1985) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957) (footnote omitted)).

Allegations

The amended complaint alleges the following facts. Federal Paper Board Company, Inc. ("Federal") is a New York corporation with executive offices in New Jersey. Federal manufactures and sells wood and paper products, including recycled paperboard and paperboard cartons. Federal's claims in this case relate to Federal's manufacture and sale of recycled paperboard at its mill in Sprague, Connecticut. Recycled paperboard is produced principally from wastepaper and is used to make folding paperboard cartons.

693 F. Supp. 1380

From 1970 to 1985, Giacinto P. Amata was responsible for purchasing the wastepaper used as the raw material at the Sprague mill. Federal expected Amata "to purchase wastepaper for Federal at the most advantageous price and delivery terms, from the numerous competing suppliers of wastepaper." In 1985, Federal discovered that Amata had been accepting bribes and kickbacks from the wastepaper suppliers with whom he had been dealing (including defendants Hershman, Automated, Goodman, Kirstein, and Tiffany). Federal alleges that Amata would not permit wastepaper suppliers who refused to pay him bribes to sell in significant amounts to the Sprague mill and that Amata suggested to the uncooperative suppliers that they sell their wastepaper to Amata's favored suppliers who would then resell the wastepaper to Federal at a higher price. By 1985, Amata had concentrated the purchases of wastepaper so that the majority of the Sprague mill's wastepaper came from the suppliers making payments to Amata. The cost of the bribes was passed on to Federal through the price charged for wastepaper sold to the Sprague mill. Following Amata's discharge, Federal was able to purchase wastepaper at more favorable prices from a wider source of suppliers.

In connection with Federal's claim under section 1 of the Sherman Act, Federal alleges that Amata entered into conspiracies "between and among" the defendant wastepaper suppliers for the purposes of gaining commercial advantage, fixing prices of wastepaper supplied to the Sprague mill, and restraining competition. In connection with its Robinson-Patman Act claim, Federal alleges that the payments received by Amata were not for bona fide services rendered, but were commercial bribes. In connection with its RICO claim, Federal alleges that Amata "conspired, established, conducted, and participated" with the defendant wastepaper suppliers, both individually and as a group, in enterprises engaged in a pattern of racketeering activity. Federal also alleges that Amata participated in the affairs of Federal through a pattern of racketeering activity. The purposes of the alleged enterprises included fixing the price of wastepaper supplied to the Sprague mill, reducing competition among the suppliers of wastepaper to the Sprague mill, and defrauding Federal. As predicate acts for the RICO count, Federal alleges violations of the federal mail fraud and wire fraud statutes, 18 U.S. C. §§ 1341 and 1343 (1982), and the Hobbs and Travel Acts, 18 U.S.C. §§ 1951 and 1952 (1982 & Supp. IV 1986).

Discussion

I. Sherman Act Count

Federal alleges a violation of section 1 of the Sherman Act, which provides in relevant part:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.

15 U.S.C. § 1 (1982).² Defendants assert that Federal has failed to state a claim under section 1 of the Sherman Act.³ In particular, they argue that Federal has failed to plead a per se violation of the act or an injury to competition, and that it has inadequately alleged a relevant market or a conspiracy.

Although section 1 of the Sherman Act on its face prohibits every restraint of trade, the Supreme Court has long held that section 1 prohibits only unreasonable restraints on trade. See Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49, 97 S.Ct. 2549, 2557, 53 L.Ed.2d 568 (1977). "A restraint may be adjudged unreasonable

693 F. Supp. 1381

either because it fits within a class of restraints that has been held to be `per se' unreasonable, or because it violates what has come to be known as the `Rule of Reason'...." Federal Trade Comm'n v. Indiana Fed'n of Dentists, 476 U.S. 447, 457-58, 106 S.Ct. 2009, 2017, 90 L.Ed.2d 445 (1986). Under the rule of reason, "the factfinder weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition." Continental T.V., 433 U.S. at 49, 97 S.Ct. at 2557. A particular restraint on trade is unreasonable if its anticompetitive effects outweigh its procompetitive effects. International Distribution Centers, Inc. v. Walsh Trucking Co., 812 F.2d 786, 793 (2d Cir.), cert. denied, ___ U.S. ___, 107 S.Ct. 3188, 96 L.Ed.2d 676 (1987). Some forms of conduct, however, "because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. The principle of per se unreasonableness ... avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable — an inquiry so often wholly fruitless when undertaken." Northern Pac. Ry. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958).⁴ Per se rules of liability involve generalizations about the social utility of certain practices, but as with a claim under the rule of reason, the ultimate issue in a claim of per se liability is whether the challenged conduct is an unreasonable restraint of trade. See Arizona v. Maricopa County Medical Soc'y, 457 U.S. 332, 344 & n. 16, 102 S.Ct. 2466, 2473 & n. 16, 73 L.Ed.2d 48 (1982)

A. Impact on Competition is Essential To a Sherman Act Claim

A determination of the reasonableness of defendants' conduct, whether through detailed analysis under the rule of reason or through...