Glasofer Motors v. Osterlund, Inc.

• Decision Date: 09 June 1981
• Citation: 180 N.J.Super. 6,433 A.2d 780
• Parties: , 1981-2 Trade Cases P 64,241 GLASOFER MOTORS, Plaintiff-Appellant, v. OSTERLUND, INC. and Federal Truck Company of New Jersey, Defendants- Respondents.
• Court: New Jersey Superior Court — Appellate Division

Page 6

180 N.J.Super. 6

433 A.2d 780, 1981-2 Trade Cases P 64,241

GLASOFER MOTORS, Plaintiff-Appellant, v. OSTERLUND, INC. and Federal Truck Company of New Jersey Defendants- Respondents.

Superior Court of New Jersey, Appellate Division.

Submitted April 14, 1981.

Decided June 9, 1981.

Krevsky & Silber, Elizabeth, for plaintiff-appellant (Fred Rabinowitz, Elizabeth, on the brief).

Schwartz & Andolino, Newark, for defendant-respondent Osterlund, Inc. (Edward R. Schwartz, Newark, of counsel, and Constance G. Ilardi, Newark, on the brief).

Riker, Danzig, Scherer & Hyland, Newark, for defendant-respondent Federal Truck Co. of New Jersey (Benjamin P. Michel, Newark, on the brief).

Before Judges MATTHEWS, MORTON I. GREENBERG and J. H. COLEMAN.

The opinion of the court was delivered by

MATTHEWS, P. J. A. D.

Plaintiff instituted this action in the Chancery Division against defendants seeking injunctive relief for alleged violations of the Sherman Act, 15 U.S.C.A. §§ 1 and 2, and the New Jersey Antitrust Act, N.J.S.A. 56:9-1 et seq. (count one); treble damages, attorneys' fees and costs pursuant to N.J.S.A. 56:9-12 (count two), and damages for alleged tortious interference with contractual relations (count three).

After issue was joined and the pretrial conference, defendants moved for summary judgment. The parties stipulated the facts and, after oral argument, the trial judge issued a letter opinion granting defendants' motion.

Plaintiff is a New Jersey corporation with its principal place of business in Elizabeth; defendant Federal Truck Company is a New Jersey corporation with its principal place of business in Newark, and defendant Osterlund, Inc. is a Pennsylvania corporation with its principal place of business in Harrisburg, Pennsylvania. Prior to 1975, all three parties were authorized and franchised dealers of Diamond Reo Trucks, Inc., a Michigan corporation and manufacturer of Diamond Reo trucks and parts. Osterlund also operated a parts warehouse for the distribution of Diamond Reo parts. Glasofer was among the dealers to whom Osterlund distributed Diamond Reo parts.

In 1975 Diamond Reo was adjudicated bankrupt and ceased production of Diamond Reo trucks and parts. The parties' authorized dealership and franchise agreements with Diamond Reo expired on December 31, 1975.

Between January 1, 1976 and June 9, 1977, Osterlund continued to purchase Diamond Reo parts from the bankruptcy receiver. On the latter date Osterlund purchased certain patents and production rights and the trade name and trademarks of Diamond Reo from the bankruptcy liquidator. Thereafter, and until December 1978, Osterlund sold Diamond Reo parts to former Diamond Reo dealers, including Glasofer. Osterlund did not manufacture the parts; they were manufactured for it by various parts manufacturers and then resold. The parts used in Diamond Reo trucks consisted of "captive parts," which were manufactured in accordance with the patents and manufacturing rights purchased by Osterlund from Diamond Reo's bankruptcy liquidator, and "vendor parts," which were not made in accordance with patents owned by Osterlund and not made exclusively for use in Diamond Reo trucks. The vendor parts were sold by 350 to 400 suppliers.

In January 1978 Osterlund commenced production of a truck known as the Diamond Reo Giant. It sought to reestablish the Diamond Reo authorized franchise dealer network and in April 1978 contacted Glasofer and offered a dealership for distribution and sale of the Diamond Reo Giant. Glasofer, then a dealer for other lines of trucks, declined the offer but continued to purchase Diamond Reo parts from Osterlund. In August 1978 Osterlund and Federal entered into an agreement whereby Federal became Osterlund's authorized dealer in Essex and Union Counties.

In November 1978 the City of Newark owned a fleet of approximately 70 Diamond Reo trucks and invited bids for a contract to supply it with parts for those vehicles in 1979. The invitation to bid for the 1979 parts contract stated that "Bids will be accepted only from Manufacturer's direct factory branches, or their authorized distributors or dealers." It also provided that "The Division of Central Purchase of the City of Newark reserves the right to reject any and all bids or to waive technical defects, when, in its judgment the interests of the City of Newark shall so require..." Although Glasofer was not an authorized Diamond Reo distributor or dealer in November 1978, it bid for Newark's 1979 Diamond Reo parts contract; Federal also submitted a bid.

Upon learning of the bid submitted by Glasofer, an officer of Federal called Osterlund to complain that Federal did not know that Glasofer was an Osterlund dealer. Osterlund told the caller that Glasofer was not an Osterlund dealer. Federal then questioned Osterlund how Glasofer could bid on Newark's 1979 Diamond Reo parts contract. Osterlund then called Glasofer and was informed that Glasofer assumed it was a Diamond Reo dealer. Osterlund then told Glasofer that Osterlund had a substantial investment and had to protect its dealer, Federal; that Glasofer should not have represented itself as an authorized Diamond Reo dealer, and that under the circumstances Glasofer should withdraw its bid. When Glasofer refused to do so, Osterlund refused to sell Diamond Reo parts to Glasofer.

Osterlund claimed below that it stopped dealing with Glasofer for two reasons: (1) because of the circumstances surrounding Glasofer's November 1978 bid for Newark's 1979 Diamond Reo parts contract, and (2) because of Osterlund's policy, established in November 1978, of refusing to sell Diamond Reo parts to anyone located within the territory assigned to an authorized Diamond Reo dealer unless the customer is located approximately 30 miles or more from the authorized dealer. The mileage radius policy is flexible and has varied according to the population density of the territory involved. For example, Osterlund has continued to sell Diamond Reo parts to a former Diamond Reo dealer located only eight miles from an authorized New Jersey dealer. (Osterlund contacted that authorized dealer and secured its approval before making direct sales in its territory.) Glasofer is located 12 miles from Federal, the closest authorized Diamond Reo dealer.

In order to fulfill its contract with Newark, Glasofer purchased Diamond Reo parts from one of Osterlund's authorized dealers in Brooklyn, New York, at prices higher than those Osterlund charged its authorized dealers and other customers. Glasofer contends it suffered damages in the amount of $7664.66 for parts and freight as a result of Osterlund's refusal to deal directly with it.

The trial judge found that Glasofer's contention that it assumed it was an authorized Diamond Reo dealer was not credible because it had turned down an offer from Osterlund in April 1978 to become an authorized dealer, and that Glasofer willfully misrepresented itself as an authorized Diamond Reo dealer in its November 1978 bid for Newark's 1979 Diamond Reo parts contract. He also found that

... (p)laintiff's willful misrepresentation constitutes bad faith and shocks the court's conscience. This unconscionable act undeniably forms part of the basis of this lawsuit. Defendants' actions arose as a direct result of plaintiff's conduct.

The trial judge concluded that the clean hands doctrine barred Glasofer's action.

I

Glasofer contends that the trial judge erred in ruling that its antitrust claims are barred by the clean hands doctrine. We agree.

The clean hands doctrine is an equitable principle which requires a denial of relief to a party who is himself guilty of inequitable conduct in reference to the matter in controversy. Ballentine's Law Dictionary (3 ed. 1969), at 208; 27 Am.Jur.2d, Equity, § 136 at 667.

In Kiefer-Stewart v. Seagram, 340 U.S. 211, 71 S.Ct. 259, 95 L.Ed. 219 (1950), reh. den. 340 U.S. 939, 71 S.Ct. 487, 95 L.Ed. 678 (1950), plaintiff brought suit for treble damages under the Sherman Act, 15 U.S.C. §§ 1 and 15, alleging that defendants conspired to sell liquor only to those wholesalers who would resell at maximum prices fixed by them. 340 U.S. at 213, 71 S.Ct. at 260. The court upheld the jury's verdict for plaintiff since an agreement among competitors to fix maximum resale prices, no less than those to fix minimum prices, "cripple(s) the freedom of traders and thereby restrain(s) their ability to sell in accordance with their own judgment." Ibid. The evidence also showed that plaintiff had agreed with other wholesalers to set minimum prices for the sale of liquor, and defendants contended that the trial judge erred in instructing the jury that plaintiff's part in such a conspiracy, even if proved, was no defense to its antitrust action. 340 U.S. at 214, 71 S.Ct. at 261. The Supreme Court held the instruction correct:

If petitioner and others were guilty of infractions of the antitrust laws, they could be held responsible in appropriate proceedings brought against them by the Government or by injured private persons. The alleged illegal conduct of petitioner, however, could not legalize the unlawful combination by respondents nor immunize them against liability to those they injured. (Id. at 214, 71 S.Ct. at 261)

Thus, Kiefer-Stewart abolished the defense of unclean hands in private antitrust actions. Illegal conduct by an antitrust plaintiff does not automatically bar his claim since:

... the purposes of the antitrust laws are best served by insuring that the private action will be an ever-present threat to deter anyone contemplating business behavior in violation of the antitrust laws. The plaintiff who reaps the reward of treble damages may be no less morally reprehensible than the defendant, but the law encourages his suit to further the overriding public policy in favor of competition. (Perma Life Mufflers v. International Parts Corp., 392 U.S. 134, 139, 88 S.Ct. 1981, 1984, 20 L.Ed.2d 982 (196...