Gottesman v. General Motors Corporation

• Decision Date: 13 August 1969
• Docket Number: No. 304-306,Docket 32412-32414.,304-306
• Citation: 414 F.2d 956
• Parties: Callman GOTTESMAN, Maria Mattiello, and Paul J. Peyser, Plaintiffs-Appellants, v. GENERAL MOTORS CORPORATION and E. I. Du Pont De Nemours & Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

414 F.2d 956 (1969)

Callman GOTTESMAN, Maria Mattiello, and Paul J. Peyser, Plaintiffs-Appellants, v. GENERAL MOTORS CORPORATION and E. I. Du Pont De Nemours & Company, Defendants-Appellees.

Nos. 304-306, Docket 32412-32414.

United States Court of Appeals Second Circuit.

Argued April 14, 1969.

Decided August 13, 1969.

David Brady, New York City (O'Connor & Farber; Gordon, Brady, Caffrey & Keller, Netter, Netter, Dowd, Fox & Ness, Leo Brady, Clendon H. Lee, Arthur B. Netter, Henry L. Bayles, Abbott Gould, New York City, on the brief), for plaintiffs-appellants.

Daniel M. Gribbon, Wasihngton, D. C. (Covington & Burling, Washington, D. C., Littauer, Gordon, Ullman, Riseman & Ploscowe, New York City, Hugh B. Cox, Frank H. Gordon, New York City, Irving S. Shapiro, Wilmington, Del., on the brief), for defendant-appellee E. I. du Pont de Nemours & Co.

Edward B. Wallace, New York City (Ross L. Malone, William A. Grier, John R. Anderson, Detroit, Mich., John J. Higgins, New York City, on the brief), for defendant-appellee General Motors Corporation.

Before WATERMAN, SMITH and FEINBERG, Circuit Judges.

FEINBERG, Circuit Judge:

I. Background.

Plaintiffs, minority stockholders of General Motors Corporation, appeal from a judgment for defendants General Motors and E. I. du Pont de Nemours & Company entered in the United States District Court for the Southern District of New York after a trial without a jury before Charles M. Metzner, J., 279 F. Supp. 361 (1967). Plaintiffs brought this derivative antitrust action in June 1957,¹ immediately after the Supreme Court's opinion in United States v. E. I. du Pont de Nemours & Co., 353 U.S. 586, 77 S.Ct. 872, 1 L.Ed.2d 1057 (1957). That decision reversed a district court dismissal of an antitrust action brought against du Pont and General Motors, among others. The Court held that du Pont's commanding position as a supplier of automotive finishes and fabrics to General Motors, obtained at least in part by its ownership of a 23 per cent stock interest in General Motors, violated section 7 of the Clayton Act, 15 U.S.C. § 18, since acquisition of the stock raised a reasonable probability of the creation of a monopoly in that line of commerce. While the Government had also alleged violations of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, the Court did not decide the appeal from the district court's dismissal of those charges. 353 U.S. at 588 n. 5, 77 S.Ct. 872. In a later decision, the Court held that the proper remedy for the Clayton Act violation was complete divestiture by du Pont of its General Motors stock. United States v. E. I. du Pont de Nemours & Co., 366 U.S. 316, 81 S.Ct. 1243, 6 L.Ed. 2d 318 (1961).

The present civil action for treble damages was brought pursuant to section 4 of the Clayton Act, 15 U.S.C. § 15, alleging that du Pont had violated section 7 of the Clayton Act and sections 1 and 2 of the Sherman Act, and had breached its common law fiduciary duty. Specifically, plaintiffs claimed that subsequent to May 4, 1950,² du Pont utilized its stock control to insure its position as primary supplier to General Motors of a variety of products, thereby preventing actual and potential competition from other suppliers and enabling du Pont to sell General Motors its products at excessive prices. In September 1963, Judge Metzner issued an opinion dealing with the effect to be given to the Supreme Court judgment in the first du Pont case, explaining that a decision on that issue in advance of trial was necessary in order to define the scope of deposition-discovery procedures. 221 F. Supp. 488. The judge held that a violation of section 7 of the Clayton Act did not constitute a cause of action for money damages. Moreover, since the Supreme Court judgment dealt only with the situation of the two corporations as of June 1949, the judgment was not available to the plaintiffs, who were suing for acts committed after May 4, 1950, on their other claims, except "for historical purposes and background material." The judge disagreed with plaintiffs' contention that the Supreme Court had found an actual restraint of trade by du Pont, stating that the Court had found only a "reasonable probability of the creation of a monopoly." In a subsequent Pretrial Order dated November 12, 1963, Judge Metzner held that the only "ultimate facts" determined by the du Pont decision which might be prima facie evidence in the case at bar were:

(a) that du Pont acquired 23% of the stock of General Motors;

(b) that automotive finishes and fabrics constitute a substantial "relevant market" within the meaning of the Clayton Act;

(c) that said acquisition of stock by du Pont was not solely for investment;

(d) that General Motors\' share of the "relevant market" for automotive finishes and fabrics was substantial;

(e) that du Pont supplied a substantial share of that market;

(f) that du Pont used its stock interest in General Motors to entrench itself as the primary supplier to General Motors of automotive finishes and fabrics and that du Pont controlled General Motors to that extent.

The judge dismissed plaintiffs' claim for money damages under section 7 of the Clayton Act as a matter of law, but certified the order for immediate appeal. This court denied leave to appeal from that order on January 31, 1964, and the Supreme Court denied certiorari, 379 U.S. 882, 85 S.Ct. 144, 13 L.Ed.2d 88 (1964).

After extensive pre-trial and discovery proceedings, the claims relating to du Pont's sales of automotive fabrics and finishes for passenger cars manufactured by General Motors came to trial in November 1966 solely on the questions of liability of du Pont and injury to General Motors as distinguished from the quantum of damages. The trial continued until late January 1967; thereafter Judge Metzner filed his opinion, dismissing these causes of action. He found that du Pont had not used its stock ownership to control General Motors' purchases of automotive finishes or fabrics or to insulate General Motors from competition in either line of commerce in violation of section 1 or 2 of the Sherman Act and that du Pont had not abused any fiduciary duty to General Motors. On March 29, 1968, final judgment was entered after a finding pursuant to Rule 54(b) of the Federal Rules of Civil Procedure that more than one claim for relief had been presented and that there was no just reason for delay. This finding was upheld by this court in denying defendants' motion to dismiss plaintiffs' appeal in July 1968. 401 F.2d 510.

On this appeal plaintiffs argue that numerous issues of law and fact were incorrectly decided by the court below. We do not have to reach most of these claims, however, for we find that the rulings in Judge Metzner's Pretrial Opinion of September 18, 1963, and their application to the case at trial, were sufficiently erroneous to require remanding the action for further consideration. In particular, we hold that Judge Metzner erred in deciding that a violation of section 7 of the Clayton Act cannot support a private cause of action for money damages, and that he improperly restricted the scope and weight of the government judgment in the first du Pont case as applied to the case at bar. Because of this disposition of the case, we need summarize only briefly the relevant facts set out at length in the du Pont opinion and in the opinion of the district court.

During the second decade of the century, du Pont acquired a number of manufacturing operations in automotive fabrics and paints. Considering other areas of further expansion, the corporation became interested in purchasing General Motors stock, both as a profitable investment and because General Motors constituted a large potential market for du Pont products. In 1917, du Pont decided to acquire $25,000,000 worth, or 23 per cent, of the outstanding common stock of General Motors. While the precise percentage of ownership varied for a number of years, it remained at 23 per cent from 1939 on. At least in the first few years after du Pont's stock acquisition, the company made substantial and successful efforts to insure that the maximum share of General Motors' purchases of automotive fabrics and finishes were from du Pont. As the Supreme Court found in the first du Pont case, these purchases constituted a substantial part of the total market. Thus, in 1946 and 1947, when General Motors purchased approximately one half of all such products, du Pont supplied 67 and 68 per cent, respectively, of General Motors' requirements for finishes and 52.3 and 38.5 per cent of its fabric requirements. 353 U.S. at 596, 77 S.Ct. 872. During the years covered by the case at bar, the district court found that General Motors' share of the automobile market varied 41 per cent and 52.7 per cent and that du Pont's share of General Motors' purchases averaged at 21 per cent for automotive fabrics and 74 per cent for automotive finishes. 279 F.Supp. at 369. From 1951 to 1959, du Pont sold from 89.2 per cent to 96.2 per cent of its total production of automotive finishes to General Motors and during 1955 to 1959 du Pont's sales of automotive fabrics to General Motors averaged 86 per cent of du Pont's production. Id. at 380-381.

In holding that du Pont's stock purchase resulted in a violation of section 7 of the Clayton Act, the Supreme Court found that "immediately after the acquisition, du Pont's influence growing out of it was brought to bear within General Motors to achieve primacy for du Pont as General Motors' supplier of automotive fabrics and finishes," 353 U.S. at 602, 77 S.Ct. at 882, and that "the inference is overwhelming that du Pont's commanding position was promoted by its stock interest and was not gained solely on competitive merit." Id. at 605, 77 S.Ct. at 883. The Court referred to "the fact, plainly revealed by the record, that du Pont purposely employed its stock to pry open the General Motors' market to entrench itself as the primary...