In re Otto's Liquor, Inc., 3-70-690.

CourtUnited States District Courts. 8th Circuit. United States District Court of Minnesota
Citation321 F. Supp. 160
Docket NumberNo. 3-70-690.,3-70-690.
PartiesIn the Matter of OTTO'S LIQUOR, INC., Alleged Bankrupt.
Decision Date28 September 1970

Goff & Goff, by Sydney W. Goff, St. Paul, Minn., for the alleged bankrupt.

Shanedling, Phillips, Gross & Aaron, by Felix M. Phillips and Bert M. Gross, Minneapolis, Minn., for three petitioning creditors, Johnson Brothers Wholesale Liquor Co., Inc., Griggs, Cooper & Co., Inc. and McKesson Liquor Co.

NEVILLE, District Judge.

The question for decision is whether an alleged bankrupt, a retail liquor dealer, against whom three creditors have filed an involuntary petition in bankruptcy can assert as a defense to its insolvency in a trial by jury that the three petitioning creditors and others, all wholesale liquor dealers, have so conducted themselves as to be in violation of the Federal and the State of Minnesota antitrust and similar laws, thus allegedly rendering their claimed debts void and requiring a dismissal of the petition. Were such to be the finding and were a dismissal to be granted it would leave the alleged bankrupt in a solvent position, for of indebtedness approximating $190,000, some $161,000 represents the claims of wholesale liquor dealers. If these latter are void, the alleged bankrupt undoubtedly is solvent in view of its ownership of other tangible assets.

Following the filing of the petition by the three creditors, the alleged bankrupt filed an answer and demanded a jury trial pursuant to 11 U.S.C. § 42. The jury returned a verdict finding the alleged bankrupt insolvent. At the trial the court declined to receive evidence on, or submit to the jury the question of the aforesaid alleged antitrust violations and reserved its ruling thereon.1 The alleged bankrupt contended that its name, license and good will had a value of some $150,000, an amount which together with its other assets would be sufficient to render the alleged bankrupt solvent even were none of its indebtedness found to be void. Since the alleged bankrupt was defeated on this issue by the finding of insolvency by the jury, the question now is squarely before the court as to whether a further jury trial should be had to test and determine the validity and legality of the indebtedness of some $161,000 owed to the wholesale liquor dealers as creditors.2

In its amended answer, the alleged bankrupt affirmatively alleges that petitioners' claims are the result of sales and deliveries of liquor which "* * * were in violation of the provisions of Minnesota Statutes Annotated Section 325.81 and in violation of the provisions of a number of laws of the United States, including, but not limited to, the Sherman Anti-Trust Act, the Clayton Act and the Robinson Patman Act"; that these transactions "were and are illegal, invalid and unenforceable," and that petitioner's claims are not provable claims within the meaning of the Bankruptcy Act, in that such claims "* * * constitute the unpaid amount of the prices charged the respondent by the petitioners in connection with, as a part of, and resulting from the said illegal, invalid and unenforceable transaction engaged in by petitioners, which prices were and are unfair, unreasonable, excessive, arbitrarily fixed by petitioners acting in violation of the aforesaid laws and compelled by petitioners to be accepted by respondent. * *" In its brief, the alleged bankrupt respondent claims to be able to prove per se violations of the antitrust laws such as fixing and manipulation of prices, the arbitrary allocation of geographical sales to wholesalers by distributors, the stifling of competition, and incipient monopolies and trade restraints between and among the liquor wholesalers in this state.

While state law governs in general the rights and duties of sellers and purchasers "* * * the effect of illegality under a federal statute is a matter of federal law." Kelly v. Kosuga, 358 U.S. 516, 519, 79 S.C. 429, 431, 3 L.Ed.2d 475 (1959). In none of the federal antitrust laws has congress seen fit to authorize the affirmative defense asserted by respondent. Four means of enforcing the antitrust policy are provided under the Sherman Act; criminal penalties, injunction by a government initiated suit, property forfeiture and private treble damages suits. 15 U.S.C. §§ 1-7, 15.

See Lockhart, Violation of Anti-Trust Laws as a Defense in Civil Actions, 31 Minn.L.Rev. 507, 508 (1947) where it is stated:

"* * * Nothing in the act as it came from Congress expressly authorized violation of the Sherman Act to be asserted as a defense to a civil action. This was no oversight, for the legislative history shows that such a sanction was repeatedly called to the attention of the lawmakers at the time Sherman Act was under consideration.
Seven of the twenty-one anti-trust bills introduced in Congress in the same month as the original Sherman bill contained sections authorizing such a defense in various terms. Two expressly provided that the purchaser of any commodity from a violator would not be liable for the price. Five deprived the federal courts of jurisdiction to enforce rights arising out of transactions in violation of the act. One of these was referred to the Senate Finance Committee on the same day it received the Sherman Bill. Indeed, the original Sherman Bill itself contained an analogous provision permitting any person damaged by a violation to recover back the full purchase price of any commodity advanced in price by an illegal combination."

Despite the fact that the Supreme Court in construing the Sherman Act had been squarely confronted with this omission, see e. g. McMullen v. Hoffman, 174 U.S. 639, 19 S.Ct. 839, 43 L.Ed. 1117 (1899); Connolly v. Union Sewer Pipe Co., 184 U.S. 540, 22 S.Ct. 431, 46 L.Ed. 679 (1902), the Clayton Act's only addition to the antitrust enforcement measures, is its provision for private injunctive relief. 15 U.S.C. § 26.

"It is true that there are no words of express exclusion of the right of individuals to act in the enforcement of the statute, or of courts generally to entertain complaints on that subject. But it is evident that such exclusion must be implied for a twofold reason: First, because of the familiar doctrine that `where a statute creates a new offense and denounces the penalty, or gives a new right and declares the remedy, the punishment of the remedy can be only that which the statute prescribes.' citations omitted Second, because of the destruction of the powers conferred by the statute, and the frustration of the remedies which it creates, which would obviously result from admitting the right of an individual, as a means of defense to a suit brought against him on his individual and otherwise inherently legal contract, to assert that the corporation or combination suing had no legal existence in contemplation of the anti-trust act." Wilder Mfg. Co. v. Corn Products Refining Co., 236 U.S. 165, 174-175, 35 S.Ct. 398, 401, 59 L.Ed. 520 (1915).

The Robinson Patman Act likewise contains no provision for the defensive use sought by the alleged bankrupt, and the Supreme Court has clearly indicated that this legislative omission is not without significance.

"The Act prescribes sanctions, and it does not make uncollectibility of the purchase price one of them. Violation of the Act is made criminal and upon conviction a violator may be fined or imprisoned. 49 Stat. 1528, 15 U.S.C. § 13a. Any person who is injured in his business or property by reason of anything forbidden therein may sue and recover threefold the damages by him sustained and the costs of suit, including a reasonable attorney's fee. 38 Stat. 731, 15 U.S.C. § 15. This triple damage provision to redress private injury and the criminal proceedings to vindicate the public interest are the only sanctions provided by Congress." Bruce's Juices v. American Can Co., 330 U.S. 743, 750, 67 S.Ct. 1015, 1018, 91 L.Ed. 1219 (1947).

Insofar as the defense asserted by the alleged bankrupt exists at all, it constitutes an indirect sanction which the courts have added to those remedies provided by the legislation. The viability of the defense was, from the beginning, hindered by the fact that an undeserving purchaser who acquired goods by an illegal agreement and then sought to retain such without payment, might well be afforded a windfall. McMullen v. Hoffman, 174 U.S. 639, 669, 19 S.Ct. 839 (1899). Consequently, in only a narrowly defined class of cases, has the policy of refusing to enforce illegal contracts in order to encourage compliance with the antitrust laws prevailed over the policy of requiring satisfaction of all debts. Contracts merely collateral to an illegal conspiracy or combination will be enforced. Connolly v. Union Sewer Pipe Co., 184 U.S. 540, 22 S.Ct. 431 (1902); Wilder Mfg. Co. v. Corn Products Co., 236 U.S. 165, 35 S.Ct. 398 (1915); Small Co. v. Lamborn & Co., 267 U.S. 248, 45 S.Ct. 300, 69 L.Ed. 597 (1925); see also Straight Side Basket Corp. v. Webster Basket Co., 82 F.2d 245 (2d Cir. 1936); John T. Stanley Co. v. Lagomarsino, 53 F.2d 112, 114 (S.D.N.Y.1931); Gasoline Products Co. v. Champlin Refining Co., 46 F.2d 511, 514-515 (D.Me.1931). Where a contract is found to be illegal in part only, and the illegal portion is severable, the remainder will be enforced. Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429 (1959); see also, Fox Film Corp. v. Muller, 192 Minn. 212, 255 N.W. 845 (1934), 260 N.W. 320 (1935).

Section 1 of the Sherman Act, 15 U.S. C. § 1, states "Every contract * * * in restraint of trade * * * is declared to be illegal. * * *" As the court reads the authorities, they hold this language to be directed to the contract between the two or more conspirators allegedly the wholesale liquor dealers in this case and not to encompass a contract for the sale of merchandise made by one or more of the alleged offenders or co-conspirators to a third person or persons.

In raising the antitrust defense, the alleged...

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2 cases
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