Gottesman v. General Motors Corporation

• Decision Date: 04 January 1971
• Docket Number: Docket 34982.,No. 150,150
• Citation: 436 F.2d 1205
• Court: U.S. Court of Appeals — Second Circuit
• 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.

436 F.2d 1205 (1971)

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

No. 150, Docket 34982.

United States Court of Appeals, Second Circuit.

Argued November 9, 1970.

Decided January 4, 1971.

Rehearing Denied February 1, 1971.

David Brady, New York City, Bergreen & Bergreen, Gordon, Brady, Caffrey & Keller, Netter, Netter, Dowd, Fox & Ness, Leo Brady, Clendon H. Lee and Arthur B. Netter, New York City, of counsel, for plaintiffs-appellants.

Daniel M. Gribbon, Washington, D. C., Covington & Burling, Littauer, Gordon, Ullman, Riseman & Ploscowe, Hugh B. Cox, Harris Weinstein, Richard B. Stewart, Frank H. Gordon, Washington, D. C., and Irving S. Shapiro, Wilmington, Del., of counsel, for defendant-appellee E. I. du Pont de Nemours & Co.

Edward B. Wallace, New York City, Ross L. Malone, William A. Grier and John J. Higgins, New York City, of

counsel, for defendant-appellee General Motors Corp.

Before MARIS^* and MOORE, Circuit Judges, and RYAN,^** District Judge.

MARIS, Circuit Judge:

This is a derivative action brought under section 4 of the Clayton Act¹ by the plaintiffs as stockholders of General Motors Corporation against E.I. du Pont de Nemours and Company for treble the damages sustained by General Motors by reason of du Pont's violation of section 7 of the Clayton Act and sections 1 and 2 of the Sherman Act and the breach of its common law fiduciary duty. The action was commenced shortly after the decision of the Supreme Court in the suit of the United States v. E. I. du Pont de Nemours and Company was handed down in 1957 holding that du Pont's commanding position as a supplier of automotive fabrics and finishes to General Motors, obtained at least in part by its ownership of a 23% stock interest in General Motors, violated section 7 of the Clayton Act.² The Government's action was brought in 1949,³ while the present private derivative action relates to the period 1950 to 1959. The plaintiffs in the present suit relied, under section 5(a) of the Clayton Act,⁴ upon the matters adjudicated in the Government's action and they also offered a great deal of additional evidence seeking to establish injury.

A trial was had to a judge without a jury, limited to the question of injury or the fact of damage, as distinguished from the amount of the damages. The trial judge, having previously ruled that the Government's judgment was not available to the plaintiffs under section 5(a) of the Clayton Act because it dealt with a time prior to that covered by this private suit and that a violation of section 7 of the Clayton Act did not give rise to a private action for treble damages,⁵ held that the plaintiffs had not proved their Sherman Act and fiduciary claims and dismissed the first and ninth causes of action insofar as they pertained to automotive fabrics and finishes.⁶ On appeal by the plaintiffs this court set aside the judgment, holding that a violation of section 7 of the Clayton Act may be the basis for a private suit for damages and that the trial judge had not given sufficient evidentiary weight to the matters involved in the Government's prior judgment which the plaintiffs were entitled to have treated as prima facie evidence in their case.⁷

On remand the parties agreed that the claims for relief, including money damages for violation of section 7, could be determined on the existing record and that the issue should remain limited to the question of injury or the fact of damage. Upon reconsideration the trial judge held that the facts established prima facie by the Government's prior judgment were, first, that du Pont used its stock interest to entrench itself as the primary supplier of automotive fabrics and finishes to General Motors, and, second, that the stock interest led to the insulation from free competition of most of General Motors' market in these products. After affording evidentiary weight to the facts thus established prima facie, the trial judge held that they in themselves did not support a finding of actual injury or damage to General Motors on the section 7 claim or require a different result from that previously reached on the Sherman Act and fiduciary claims. Pointing out that no showing had been made that General Motors could have purchased the materials in question on the open market at lower prices with equal service and quality the trial judge concluded that the plaintiffs had failed to prove injury to General Motors and judgment was again entered dismissing the first and ninth causes of action.⁸ The present appeal, the second by the plaintiffs, followed.

The facts disclosed in the Government's case have been fully set out in the opinions of the District Court for the Northern District of Illinois⁹ and the Supreme Court¹⁰ in that case and the additional facts developed in the present case are sufficiently recited in the opinions of the district court¹¹ in this case. They, therefore, need not be repeated here.

The plaintiffs' contentions on this appeal, upon analysis, resolve themselves basically into two. The first is that the Supreme Court in the Government's case found that General Motors had been injured by du Pont's violation of section 7 of the Clayton Act and that the trial judge in the present case failed to give appropriate¹² effect to that finding. The second is that, in any event, the plaintiff's additional evidence established the fact of injury and that the trial judge was guilty of clear error in finding that, while du Pont's ownership of stock in General Motors constituted a violation of section 7 of the Clayton Act, the violation did not cause any injury to General Motors. We find no merit in either contention of the plaintiffs.

In support of the first contention the plaintiffs argue that the undisputed facts in the Government's case established not only violation of section 7 of the Clayton Act but also injury to General Motors by reason of such violation and that the trial judge did not give realistic recognition to the latter finding. In support of their contention that the Supreme Court found such injury they point to certain passages from the 1957 and 1961 opinions of that Court which, they urge, constitute such a finding. We have studied these opinions with the greatest care and we cannot agree with the plaintiffs' contention in this regard. The question of injury to General Motors was not raised by the Government in its pleadings, was not involved in the charge of violation of section 7 of the Clayton Act and was, accordingly, neither considered nor resolved by the Court in the Government's case. The statements to which the plaintiffs refer were directed to the Court's determination of the section 7 violation. We think that the Court made it clear that it was not dealing with actual injury when it said that "considerations of price, quality and service were not overlooked" by the officers of both companies and that they acted "honorably and fairly."¹³

In its opinion on the first appeal in this case this court did say, as the plaintiffs point out, that the Supreme Court in its second opinion "apparently regarded its 1957 holding as encompassing not only an antitrust violation but also injury."¹⁴ But we were there referring to the injury to the public interest¹⁵ which resulted from du Pont's violation of section 7 of the Clayton Act, not to private injury to General Motors. Private injury does not necessarily accompany such a public injury. Indeed, it is possible that such a public injury might result from an antitrust violation by a seller while at the same time the buyer was financially benefited.¹⁶ This court sought to make it clear that it did not regard the decision in the Government's case as controlling on the issue of injury to General Motors when it went on to say:

"In any event, as to all the issues, the trier of fact must make the determination, giving proper weight to the earlier judgment."¹⁷

Moreover, the Government's judgment did not, as the plaintiffs argue, shift to du Pont the burden of proving that General Motors was not damaged by its violation of section 7 of the Clayton Act. As this court in its opinion on the first appeal stated:

"Of course, plaintiffs cannot rest on a showing of a violation of section 7; they must, as in private actions under other sections of the antitrust laws, prove that they have been injured by the violation."¹⁸

And also that:

"we are aware that the judgment is only prima facie evidence at best and that plaintiffs have the burden of showing not only antitrust law violation but injury as well."¹⁹

We are satisfied that the trial judge did not err in holding that the judgment of the Supreme Court in the Government's case, given its full evidentiary value, was not evidence, conclusive or prima facie, of the fact of damage by du Pont to General Motors.

When, as in this case, the question of private injury resulting from an antitrust violation has not been litigated in the Government's case, the burden is on the plaintiff, in its treble damage suit under section 4 of the Clayton Act, to support its claim of resulting damage by the introduction of evidence.²⁰ This the plaintiffs sought to do in the present case. They relied on evidence of the volume of purchases of automotive fabrics and finishes by General Motors from du Pont and du Pont's markups on the various materials which, they urge, particularize and spell out special damage to General Motors. They argue that du Pont's "entrenched market share" acquired as the result of its stock ownership in General Motors enabled it to extract higher prices from General Motors by means of markups and margins for profits on these products than on the same or comparable products sold to other automotive manufacturers.

The trial judge, on remand, fully considered the issue of fact thus raised. He reviewed the record, giving the judgment in the...