Hanover Shoe, Inc. v. United Shoe Machinery Corp.

• Decision Date: 11 April 1967
• Docket Number: 15627.,No. 15626,15626
• Citation: 377 F.2d 776
• Parties: The HANOVER SHOE, INC. v. UNITED SHOE MACHINERY CORPORATION, Appellant. The HANOVER SHOE, INC., Appellant, v. UNITED SHOE MACHINERY CORPORATION.
• Court: U.S. Court of Appeals — Third Circuit

377 F.2d 776 (1967)

The HANOVER SHOE, INC. v. UNITED SHOE MACHINERY CORPORATION, Appellant.

The HANOVER SHOE, INC., Appellant, v. UNITED SHOE MACHINERY CORPORATION.

Nos. 15626, 15627.

United States Court of Appeals Third Circuit.

Argued May 3, 1966.

Decided April 11, 1967.

Rehearing Denied and Supplemental Opinion Filed May 18, 1967.

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Ralph M. Carson, New York City, (Warren, Hill, Henkelman & McMenamin, Scranton, Pa., Davis, Polk, Wardwell, Sunderland & Kiendl, New York City, on the brief), for United Shoe Machinery Corp.

Breck P. McAllister, New York City (Nogi, O'Malley & Harris, Scranton, Pa., Donovan, Leisure, Newton & Irvine, New York City, on the brief), for Hanover Shoe, Inc.

Before FORMAN, GANEY and FREEDMAN, Circuit Judges.

OPINION OF THE COURT

FREEDMAN, Circuit Judge:

This private antitrust action presents a number of important questions.

Plaintiff, The Hanover Shoe, Inc., is a manufacturer of shoes and a customer of defendant, United Shoe Machinery Corporation, a manufacturer and distributor of shoe machinery. In this action brought under § 4 of the Clayton Act (15 U.S.C. § 15) based on violations of § 2 of the Sherman Act (15 U.S.C. § 2) Hanover obtained a trebled damage judgment against United in the amount of $4,239,609, with interest, and an award of $650,000 for counsel fees. United appeals from the judgment on a number of grounds, and Hanover has taken a cross-appeal on the ground that there was not sufficient evidence to support the district court's rejection of one of its large items of damage.

THE PROCEEDINGS

Almost twenty years ago, on December 15, 1947, the United States brought a civil action against United in the United States District Court for the District of Massachusetts, under § 4 of the Sherman Act (15 U.S.C. § 4) to restrain alleged violations of §§ 1 and 2 of the Act (15 U.S.C. §§ 1, 2). Judge Wyzanski, who heard the case, graphically detailed what he called the "prodigious length" of the trial. "The hearings took 121 days and covered 14,194 pages of transcript and included the offer of 5512 exhibits totalling 26,474 pages (in addition to approximately 150,000 pages of OMR's records concerning machines in shoe factories as of a certain date and over 6,000 soft copies of patents) and 47 depositions covering 2122 pages. At the close of the evidence the Court asked for briefs, and requested findings of fact and conclusions of law. The Government offered briefs totalling 653 pages and requests totalling 667 pages. United submitted briefs totalling 1240 pages, and requests totalling 499 pages."¹ On February 18, 1953, Judge Wyzanski filed an elaborate opinion in which he found that United was guilty of monopolization in violation of § 2 of the Sherman Act. United States v. United Shoe Machinery Corp., 110 F.Supp. 295 (D.Mass.1953). The Supreme Court affirmed on May 17, 1954 in a per curiam opinion. United Shoe Machinery Corp. v. United States, 347 U.S. 521, 74 S.Ct. 699, 98 L.Ed. 910 (1954).

More than a year later, on September 21, 1955, Hanover brought the present treble damage action against United in the United States District Court for the Middle District of Pennsylvania. By pretrial agreement the parties submitted for preliminary decision the defense that any excessive rentals charged to Hanover for shoe machinery would not constitute an injury to its business or property if the excess was passed on to its customers. After the hearing had been held on this issue the district judge died and Chief Judge Biggs designated Circuit Judge Goodrich in his place. Judge Goodrich summarized the complaint as charging that defendant, "as a result of its unlawful control of the market, has caused plaintiff * * * to pay excessive rentals for the lease of shoe machinery." He held as a matter of law that if United was guilty of monopolization and had charged Hanover excessive rentals, Hanover had a cause of action for the difference between what it was charged and what it could properly have been charged in the absence of monopolistic practices. He also held that the injury occurred when Hanover was overcharged for the machinery and that since the cause of action arose at the moment the tort occurred, United would not be relieved of liability because subsequent events might have alleviated some of the ultimate consequences of the wrong, for these would not inure to the benefit of the defendant. Judge Goodrich certified that the case was appropriate for an interlocutory appeal under 28 U.S.C. § 1292(b), because the issue involved a controlling question of law as to which there was substantial ground for difference of opinion, and an immediate appeal might materially advance the ultimate termination of the litigation. Hanover Shoe, Inc. v. United Shoe Machinery Corp., 185 F.Supp. 826 (M.D. Pa.1960). We affirmed in a per curiam opinion in which we rejected the claim that treble damages would result in a windfall to Hanover, stating that Congress had imposed this rigorous penalty and any modification was for it to make and not for the courts. Hanover Shoe, Inc. v. United Shoe Machinery Corp., 281 F.2d 481 (3 Cir. 1960), cert. denied, 364 U.S. 901, 81 S.Ct. 234, 5 L.Ed.2d 194 (1960).

After a subsequent trial without a jury, Chief Judge Sheridan on April 28, 1965 filed a comprehensive opinion holding that Hanover was entitled to recover treble damages for the excess of the leasing costs over what it would have cost to own the same machines had they been available for purchase. Damages were limited to the period beginning July 1, 1939 on the ground that any earlier period was barred by the Pennsylvania statute of limitations, and were awarded to September 21, 1955, the date the action was brought. Hanover Shoe, Inc. v. United Shoe Machinery Corp., 245 F.Supp. 258 (M.D.Pa.1965). Hanover's alternative claim for damages, that the leasing charges were themselves excessive, was rejected by the district court because the Government decree, on which Hanover relied, had made no finding that United's leasing charges were excessive. Hanover has not sought review of this ruling on appeal. On August 12, 1965 Chief Judge Sheridan denied United's motion for a new trial, and entered the judgment from which these appeals are taken.

ACQUIESCENCE AND DEMAND

At the outset United contends that Hanover acquiesced in its leasing system which helped Hanover to obtain high profits and gave Hanover special benefits such as the right to return obsolete machines and the free services of United's technicians on problems in shoe making. According to United, the absence of a formal demand by Hanover for the sale of United's shoe machinery is fatal to Hanover's claim.

The court below found that "Hanover has proved that as a consequence of United's monopolization it was unable to purchase most of the more important machines which it would have purchased had they been available." 245 F.Supp. at 287. This finding negatives any inference of acquiescence in the United leasing system. The finding in the Government case of the existence of the monopoly and of United's policy against sales, the participation of Mr. Sheppard, Hanover's president, in the effort of a trade association of which he was president to persuade United to offer more of its machinery for sale and Hanover's purchase of machinery from United when it first became possible to do so by virtue of the Government decree, sufficiently support the finding by the court below and forbid our declaring it to be clearly erroneous.

The question remains, however, of the necessity of a formal demand for the purchase of machines during the damage period. On this issue the court below found: "Hanover never asked United if it could buy the lease-only machines. Neither did it protest its inability to buy. Mr. Sheppard testified that any such request would have been a `foolish question.' This explanation does not seem unreasonable in view of the findings in the Government case and the evidence in this case." 245 F. Supp. at 280.

Hanover was, as the court below found, along with the entire shoe machinery industry, a "captive customer" of United. What the witness characterized as foolish amounts to a futile gesture which the law does not require. Hanover had been a customer of United in the leasing of machinery for many years. It was well aware of United's power as the supplier of machinery and of its policy against sales. In such circumstances it would be ironic as well as idle to require the victim of the monopoly to make an explicit demand the denial of which was implicit in the continuance of the monopoly. See Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 699, 82 S.Ct. 1404, 8 L.Ed.2d 777 (1962).

INJURY

1. United urges that its leasing system did no injury to Hanover because Hanover's competitors were subject to the same practices which United uniformly imposed on all its customers. This is a remarkable proposition. It is founded upon the premise that harm done to a customer loses its injurious effect when similar harm is inflicted upon other customers similarly situated. It would punish a partial wrong but absolve it if it is widespread and thus would reduce the antitrust laws to a moral imperative without realistic effect. There is no reason to relieve actual injury on a basis so unrealistic and undesirable. Keough v. Chicago & Northwestern Railway Co., 260 U.S. 156, 43 S.Ct. 47, 67 L.Ed. 183 (1922) does not require us to do so. There a shipper sued several railroads for treble damages on the ground that they had by agreement among themselves fixed excessive freight rates. United relies on the statement by Mr. Justice Brandeis that the exaction of the alleged excessive rate, which had been approved by the Interstate Commerce Commission, might not have harmed the plaintiff because all other shippers were entitled to be put on a parity with him. What was involved in Keough, however, was a...