Havoco of America, Ltd. v. Shell Oil Co.

• Decision Date: 03 September 1980
• Docket Number: No. 79-1261,79-1261
• Citation: 626 F.2d 549
• Parties: 1980-2 Trade Cases 63,425 HAVOCO OF AMERICA, LTD., Plaintiff-Appellant, v. SHELL OIL COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 549

626 F.2d 549

1980-2 Trade Cases 63,425

HAVOCO OF AMERICA, LTD., Plaintiff-Appellant, v. SHELL OIL COMPANY, Defendant-Appellee.

No. 79-1261.

United States Court of Appeals,

Seventh Circuit.

Argued Nov. 27, 1979.

Decided July 10, 1980.

Rehearing and Rehearing En Banc Denied Sept. 3, 1980.

Paul E. Freehling, John B. Lashbrook, Chicago, Ill., for plaintiff-appellant.

Joan M. Hall, Chicago, Ill., for defendant-appellee.

Before CASTLE, Senior Circuit Judge, and PELL and WOOD, Circuit Judges.

PELL, Circuit Judge.

Havoco of America, Ltd. (Havoco) brought this treble damage action against the Shell Oil Company (Shell) pursuant to Section 4 of the Clayton Act, 15 U.S.C. § 15, alleging that Shell conspired to restrain trade in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. The sole question presented by this appeal is whether the district court erred in dismissing the complaint for failure to state a claim upon which relief can be granted.

I.

The factual allegations in the complaint, which we assume to be true for purposes of considering a dismissal for failure to state a claim, are as follows. Havoco, both directly and through its subsidiaries, engages in a variety of business activities relating to products which are sources of energy, including coal and oil.

In February 1975, Havoco entered into a contract with the Tennessee Valley Authority (TVA), a major purchaser of coal, to provide coal to TVA for a period from February 1975 through February 1985. Havoco itself does not produce coal, but rather functions as an independent marketer. The contract therefore provided that the coal was to be obtained from, among others, R&F Coal, a wholly owned subsidiary of Seaway Coal. The Havoco-TVA contract permitted either party to reopen base price negotiations six months after execution. TVA exercised that option in August of 1975 and negotiations continued for several months. In early 1976, R&F Coal urged Havoco to assign its TVA contract to R& F, so that that company, as the producer, could negotiate directly with TVA. As consideration for the assignment, R&F proposed to pay Havoco either a lump sum, or a commission on each ton of coal sold by R&F to TVA through the original contract term, whether pursuant to the Havoco-TVA contract or any subsequent contract R&F might negotiate independently.

In February 1976, Havoco and R&F orally agreed to the assignment on the commission basis, an agreement which was reduced to writing the following month. ¹ In April 1977, TVA and R&F entered into a short term contract for the purchase and sale of coal, and two months later a second contract was executed, obligating R&F to sell coal to TVA over a seventeen year period.

Notwithstanding R&F's contractual agreement to pay commissions to Havoco, it has consistently refused to do so, despite the fact that its sales to date have been substantial. Arriving finally at the involvement of the defendant in this action, it is Havoco's contention that this breach of contract was in fact induced by Shell, which, after extensive negotiations, in July 1977 acquired all of the stock of R&F's parent corporation, Seaway Coal.

Havoco thereafter commenced this litigation. The original complaint named several defendants, including Shell, R&F and Seaway, ² and alleged, in addition to violations of Section 1 of the Sherman Act, several state law causes of action including breach of contract, fraudulent misrepresentation, deceit, unfair competition, breach of fiduciary duty, tortious interference with contract relations, and violations of the Illinois Antitrust Act, Ill.Rev.Stat. ch. 38, § 60-3(2) and the Illinois Deceptive Business Practices Act, id. at ch. 121 1/2, § 262. The district court dismissed the federal antitrust count for failure to state a claim, and, because there was a lack of diversity between Havoco and Shell, also dismissed the pendent state claims following the guidelines set forth in United Mine Workers of America v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966) and Owen Equipment & Erection Company v. Kroger, 437 U.S. 365, 98 S.Ct. 2396, 57 L.Ed.2d 274 (1978).

Havoco then filed an amended complaint naming Shell alone as a defendant and alleging only a violation of Section 1 of the Sherman Act. It pursued its state law claims against the remaining original defendants in a diversity action in the Northern District of Illinois. Havoco of America, Ltd. v. R&F Coal Co., No. 79 C 75 (N.D.Ill.) (dismissed pursuant to stipulation, Jan. 3, 1980). This appeal resulted from the district court's dismissal of the amended complaint.

II.

Before analyzing Havoco's substantive claims, we first examine briefly the appropriate role of summary judgment procedures in antitrust litigation. It is well settled that a complaint should not be dismissed for failure to state a claim unless it is abundantly clear that the plaintiff could prove no set of facts which would entitle it to relief. Hospital Building Co. v. Rex Hospital Trustees, 425 U.S. 738, 746, 96 S.Ct. 1848, 1853, 48 L.Ed.2d 338 (1976); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). As the Supreme Court has observed, "(S)ummary procedures should be used sparingly in complex antitrust litigation where motive and intent play leading roles, the proof is largely in the hands of the alleged conspirators, and hostile witnesses thicken the plot." Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458 (1962).

These concerns are further entitled to special weight in cases involving, as here, a private treble damage action brought pursuant to Section 4 of the Clayton Act, 15 U.S.C. § 15. This follows from the fact that that section embodies a Congressional intent to encourage private enforcement of the antitrust laws through the provision of treble damage remedies to those plaintiffs with meritorious claims who are willing to undertake the too often lengthy and costly litigation process. In accordance with this intent, we have generally recognized a preference for liberal construction of pleadings in private treble damage actions. See, e. g., Austin v. House of Vision, Inc., 385 F.2d 171 (7th Cir. 1967).

It does not necessarily follow, however, that the above principles require the trial of cases where the cause of action alleged is substantively deficient. A contrary view would be tantamount to excepting antitrust litigation from the provisions of Rules 12(b)(6) and 56 of the Federal Rules of Civil Procedure. We rather think that the import of Poller and its progeny is simply that where some claim under the antitrust laws has been stated, the factual, subjective questions of intent and purpose are properly resolved only after discovery and trial. Here, however, the question presented relates, as it should on a Rule 12(b)(6) motion, to the purely legal issue of whether, viewing all of Havoco's allegations, including those of purpose and intent, as true, Havoco has successfully pleaded a contract, combination, or conspiracy in restraint of trade, within the meaning of the Sherman Act. If the pleadings allege such a violation, the action must be remanded for trial, however unlikely it may be that Havoco can prove its contentions. Conversely, if the allegations of the complaint fail to establish the requisite elements of the cause of action, our requiring costly and time consuming discovery and trial work would represent an abdication of our judicial responsibility. See Lupia v. Stella D'Oro Biscuit Co., Inc., 586 F.2d 1163, 1166-67 (7th Cir. 1978), cert. denied, 440 U.S. 982, 99 S.Ct. 1791, 60 L.Ed.2d 242 (1979).

A. Contract, Combination, or Conspiracy

The first question raised by the unusual facts of this case is whether the "contract, combination or conspiracy" element of the cause of action can be established with respect to Shell, which did not acquire R&F's parent corporation until after a substantial part of the actions challenged here had occurred. Havoco does not attack the acquisition of Seaway itself as violative of the antimonopoly prohibitions contained in Section 2 of the Act. ³ Rather it argues that by virtue of the acquisition, Shell entered the ongoing conspiracy between R&F and other defendants named in the original complaint, and did so not only with knowledge of the alleged anticompetitive conduct of the acquired co-conspirators, but also with a purpose to continue the conduct by inducing R&F to breach its contract to pay commissions.

It is well recognized that a co-conspirator who joins a conspiracy with knowledge of what has gone on before and with an intent to pursue the same objectives may, in the antitrust context, be charged with the preceding acts of its co-conspirators. See, e. g., Industrial Building Materials, Inc. v. Interchemical Corp., 437 F.2d 1336, 1343 (9th Cir. 1970). It is also an acknowledged principle that a corporation may "conspire" within the meaning of the Sherman Act with its subsidiaries, provided that the organizations are held out as distinct legal entities. See United States v. Citizens & Southern National Bank, 422 U.S. 86, 116, 95 S.Ct. 2099, 2116, 45 L.Ed.2d 41 (1975); Timken Roller Bearing Co. v. United States, 341 U.S. 593, 598, 71 S.Ct. 971, 974, 95 L.Ed. 1199 (1951). We therefore think that Havoco's allegations are sufficient as to this element.

B. Restraint of Trade

Interpretation and application of Section 1 of the Sherman Act, which pauciloquently prohibits "(e)very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations" is rarely free from difficulty. This follows from the fact that, as the Supreme Court has observed, the statute cannot be read to mean what it says without invalidating the entire body of commercial contract law. National Society of Professional Engineers v. United States, 435 U.S. 679, 687-88, 98 S.Ct. 1355, 55...