Gemini Supply Corp. v. Zeitlin

• Decision Date: 26 June 1984
• Docket Number: No. CV 84-0524.,CV 84-0524.
• Citation: 590 F. Supp. 153
• Parties: GEMINI SUPPLY CORPORATION, Plaintiff, v. Bernard ZEITLIN, Edmer Sanitary Supply Company, Inc., Edward Zeitlin, Glenn Rogers and Jerome Goldberg, Defendants. EDMER SANITARY SUPPLY COMPANY, INC., Third-Party Plaintiff, v. William ZAGER and George Flanagan, Third-Party Defendants.
• Court: U.S. District Court — Eastern District of New York

590 F. Supp. 153

GEMINI SUPPLY CORPORATION, Plaintiff, v. Bernard ZEITLIN, Edmer Sanitary Supply Company, Inc., Edward Zeitlin, Glenn Rogers and Jerome Goldberg, Defendants.

EDMER SANITARY SUPPLY COMPANY, INC., Third-Party Plaintiff, v. William ZAGER and George Flanagan, Third-Party Defendants.

No. CV 84-0524.

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

June 26, 1984.

Edward Rubin, Shapiro, Spiegel, Garfunkel, Rubin & Driggin, New York City, for plaintiff.

Norman Roy Grutman, Grutman Miller Greenspoon Hendler & Levin, New York City, for defendants.

MEMORANDUM AND ORDER

PLATT, District Judge.

This case is before the Court on the parties' cross-motions for preliminary injunctive relief. Plaintiff Gemini Supply Corporation ("Gemini") seeks to enjoin defendants Edmer Sanitary Supply Company, Inc. ("Edmer"), and Messrs. Bernard Zeitlin, Edward Zeitlin, Glenn Rogers and Jerome Goldberg¹ from violating the Robinson-Patman Act, 15 U.S.C. § 13 et seq. (1982). Third-party plaintiff Edmer seeks to enjoin third-party defendants Messrs. William Zager and George Flanagan,² as well as Gemini, from soliciting Edmer's customers or using or disclosing certain information which the third-party defendants acquired while employees of Edmer, and which Edmer alleges is confidential. On February 14, 1984, defendants' counsel consented to the entry of a temporary restraining order ("TRO") forbidding defendants from violating the Robinson-Patman Act, and a hearing was held to consider both motions on twelve dates between February 21, 1984 and April 4, 1984. For the reasons that follow, both motions for injunctive relief are denied, and the TRO is dissolved.

I

Edmer was founded in 1959 by Mr. Bernard Zeitlin. (Tr. p. 731-32). It distributes janitorial and sanitary supplies to businesses and institutions in the New York Metropolitan area. While little or no evidence was presented at the hearing concerning either the size of Edmer, the definition or size of a relevant market, or Edmer's share of that market, it is apparent from the record that the sanitary supply industry is highly competitive, has relatively low barriers to entry and that Edmer is only one of many companies competing in that market. (Tr. p. 753-58).

Messrs. Zager and Flanagan began working for Edmer as salesmen in 1976. (Defendant's exhibit P, Tr. pp. 210, 1447). Each signed, as a condition of their employment, an agreement in the nature of a restrictive covenant, which provided, inter alia, that they would not, for a period of three years after they left Edmer's employ, solicit orders for goods in any city or town they had visited as a salesman for Edmer or from any person who had been a customer of Edmer. They also agreed not to disclose any confidential information they received while with Edmer. (Defendant's exhibits A and Y). During the period between 1976 and October, 1983, Messrs. Zager and Flanagan became two of Edmer's leading salesmen (Tr. p. 878), and each serviced approximately 200 accounts. (Tr. pp. 236, 1456).

During the late part of the summer of 1982 Messrs. Zager and Flanagan, who were growing increasingly dissatisfied with their prospects at Edmer, began considering leaving Edmer and forming their own sanitary supply company. (Tr. p. 212). Over the next fourteen months each of the third-party defendants took certain steps, allegedly on their own time, towards achieving this goal, such as forming Gemini, finding and leasing office space, and assembling a list of potential customers through the purchase of mailing lists from various commercial sources in New York City. (Tr. pp. 213-16). However, Messrs. Zager and Flanagan did not solicit any business on Gemini's behalf from anyone until after October 17, 1983. (Tr. pp. 214-15).

During the week of October 17, 1983, Messrs. Zager and Flanagan resigned from Edmer and began soliciting business for Gemini. Some of the businesses and institutions they solicited were accounts they had serviced while at Edmer, and some were not. There was no credible evidence presented at the hearing that either Mr. Zager or Mr. Flanagan removed written customer information from Edmer at the time of their departure. There was considerable evidence that the information Gemini used to solicit prospective customers was either readily available through public sources, e.g., the yellow pages or else was information which Messrs. Zager and Flanagan remembered from their work at Edmer. (Tr. pp. 218-19).

On or about October 21, 1983, Edmer sought a preliminary injunction in New York State Supreme Court, Nassau County, restraining Messrs. Flanagan and Zager and Gemini from soliciting Edmer's customers or disclosing any information about Edmer's business, such as the names of Edmer's customers. (Tr. p. 903). In support of their motion, Edmer submitted a list of the Edmer accounts serviced by Messrs. Zager and Flanagan to the Court. Mr. Justice Stanley Harwood appended this list to his Memorandum of November 30, 1983 denying the motion for preliminary injunctive relief. Edmer never requested that such list be sealed and it is, and has been for some time, a public record.

In late December, 1983, Messrs. Zager and Flanagan became aware that certain businesses that had been serviced by them while they were with Edmer and which were now purchasing sanitary supplies from Gemini, were being offered what Messrs. Zager and Flanagan felt were drastic price discounts by Edmer. Based on their experience with Edmer, which to their knowledge had rarely offered discounts before, Messrs. Zager and Flanagan felt that these price concessions could have only one purpose — i.e., to drive Gemini out of business. This suit followed.

In their answer to Gemini's complaint, defendants added a counterclaim and third-party action seeking the relief Edmer had failed to get from the Supreme Court, Nassau County. Evidence on both claims for relief was presented at the hearing.

II

A

In order to prevail on a motion for a preliminary injunction, the moving party must first show the possibility of irreparable injury and then show "either (1) probable success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief." Caulfield v. Board of Ed., 583 F.2d 605, 610 (2d Cir.1978). We will examine each motion in turn.

B

Plaintiff's motion papers allege that it will suffer irreparable injury if Edmer is allowed to continue its practice of offering selective deep discounts to their mutual customers. While the evidence adduced at the hearing showed that approximately eighty percent (80%) of Gemini's present customers have previously done business with Edmer (Tr. p. 276) only a fraction of these customers were offered discounts (Tr. p. 229) and only some of those offered discounts stopped purchasing from Gemini. Moreover, the hearing testimony revealed that there are tens of thousands of potential customers for Gemini in the New York Metropolitan area. Given the extent of Gemini's market which has not been subjected to allegedly illegal price discrimination by Edmer, we cannot agree that Gemini will suffer irreparable injury if an injunction is not issued. While Gemini can probably ill afford to lose any customers at this early stage in its corporate life, its financial frailty is common to any start-up business and is not the result of Edmer's alleged illegal conduct.

Gemini has also failed to demonstrate that it would probably succeed on the merits, or that there are serious questions going to the merits and a balance of hardships tipping towards Gemini.

To prevail on its Robinson-Patman Act claim, Gemini must demonstrate that Edmer has discriminated in the prices it has charged in contemporaneous sales of commodities of like grade and quality between two or more different customers; that at least one of these sales crossed a state line; and that the price discrimination has had or may in the future have the requisite negative effect on competition. Hansen, Robinson-Patman Law: A Review and Analysis, 51 Fordham L.Rev. 1113, 1125-34 (1983). The injury to competition can occur either at the "primary line", i.e., between competing sellers, one of whom is discriminating in price, or at the "secondary line", i.e., between two firms at the buyer level, one of whom receives discriminatory prices from a seller. This case is to be judged by the injury to competition at the primary line.

The first two elements of Gemini's proof are not in serious dispute. Edmer has clearly made recent sales of like commodities at different prices. (Compare plaintiff's exhibit 15A with plaintiff's exhibit 6). It is equally clear and, in fact, defense counsel stipulated that at least one of the sales producing a price discrimination crossed a state line. (Tr. p. 559). Our inquiry, then, is into Gemini's ability to show a primary-line competitive injury.

The competitive injury requirement of the Robinson-Patman Act may be met by a showing of either injury to competition at the seller's level or the existence of the seller's predatory intent from which injury to competition may be inferred. ABA Antitrust Section, Antitrust Law Developments 231 (2d Ed.1984). There may not be any serious argument that competition in the sanitary supply industry is threatened by the actions of Edmer. The testimony of a competitor, Bruce Janbey, clearly indicated that there are scores of firms selling to tens of thousands of potential customers. (Tr. pp. 756-57). Edmer's actions do not indicate an attempt to gain monopoly power in a market, nor is there any evidence that such an attempt could reasonably be expected to succeed. O. Hommel Co. v. Ferro Corp., 659 F.2d 340, 347 (3d Cir.1981), cert. denied, 455 U.S. 1017, 102 S.Ct. 1711, 72 L.Ed.2d 134 (1982).

Gemini must therefore demonstrate that Edmer's actions were predatory to prevail on its motion...