Johnson v. Nationwide Industries, Inc., 77 C 1162.

• Decision Date: 19 April 1978
• Docket Number: No. 77 C 1162.,77 C 1162.
• Citation: 450 F. Supp. 948
• Parties: Robert W. JOHNSON, John P. Williams, Nannie S. Williams, Elaine B. Hansen, Individually and in a representative capacity on behalf of all other persons similarly situated, Plaintiffs, v. NATIONWIDE INDUSTRIES, INC., Nationwide Condominium Corporation, Moss Financial Corporation, Outer Drive East Corporation, Randolph-Outer Drive Venture, Jupiter Industries, Inc., American Invsco Corporation, American Invsco Management, American Invsco Realty, Inc., American Invsco Insurance Services, Inc., Outer Drive East Garage, Inc., Harold Blankstein, Jerrold Wexler, Joseph Moss and NCC, Inc., Defendants.
• Court: U.S. District Court — Northern District of Illinois

450 F. Supp. 948

Robert W. JOHNSON, John P. Williams, Nannie S. Williams, Elaine B. Hansen, Individually and in a representative capacity on behalf of all other persons similarly situated, Plaintiffs, v. NATIONWIDE INDUSTRIES, INC., Nationwide Condominium Corporation, Moss Financial Corporation, Outer Drive East Corporation, Randolph-Outer Drive Venture, Jupiter Industries, Inc., American Invsco Corporation, American Invsco Management, American Invsco Realty, Inc., American Invsco Insurance Services, Inc., Outer Drive East Garage, Inc., Harold Blankstein, Jerrold Wexler, Joseph Moss and NCC, Inc., Defendants.

No. 77 C 1162.

United States District Court, N. D. Illinois, E. D.

April 19, 1978.

Paul Gary, William D. Maddux, Jack T. Riley, Jr., Shelley B. Gardner, Jerald A. Kessler, Edgar J. Schoen, John P. Fox, Jr., Chicago, Ill., for plaintiffs.

Sheldon O. Collen, David W. Clark, John B. Simon, of Friedman & Koven, Wilbert F. Crowley, Jr., James F. Gebhart, of Coin, Edler & Crowley, Michael L. Shakman, Elaine E. Bucklo, of Devoe, Shadur & Krupp, Alvin Charles Katz, Jay Erens, Robert Berliner, Jr., of Levy & Erens, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER

McGARR, District Judge.

Plaintiffs in this action (seeking to sue on behalf of a class of persons similarly situated as well as on their own behalf) are four owners of condominium units in a building in Chicago known as the Outer Drive East Condominium. For convenience and ease of understanding, we will in this opinion refer to the various defendants in groups. The first group, which we shall call the developer defendants, consists of two individuals and six corporations, some of which are entities resulting from various corporate reorganizations experienced by the other corporate defendants in the group. These defendants are alleged to have been collectively responsible for the original development of the property as an apartment building, and for its subsequent conversion in 1973 to condominiums. The second group of defendants, composed of one individual, Blankstein, and the corporation he is alleged to control, is involved with operating a garage on the property. The third group, which we shall call the Invsco defendants, consists of four corporations alleged to be the new owners of all the units previously held by the developer defendants as unsold residential units and certain commercial units, and the new assignee of the building management contract.

The substance of the allegations in the Amended Complaint may be briefly summarized as follows: That the developers planned the condominium conversion in such a way that they were effectively able to maintain control over the designation of the firm that would be awarded the contract to manage the building, and were able to maintain control over the condominium "homeowners'" association us well; that the developers entered into an amendment of an existing lease of the garage facility that was more favorable to the lessee than to the condominium owners (who each own a proportionate share of the garage facility as a common element); that the terms of the garage lease and management contract were not disclosed prior to plaintiffs' purchases, nor was the Declaration of Condominium Ownership; that prior to their purchases plaintiffs were led to believe that operating expenses of the building would be offset by rents collected through the garage lease, while in fact the amendment to the garage lease effected a reduction in the amount of rent to be paid by the lessee in exchange for the lessee's promise to the developers of a certain number of parking spaces for the developers' use at reduced fees; that prior to their purchases plaintiffs were also led to believe that their purchases would be a good investment, while in fact there has been no remarkable appreciation in value, assessments have been higher than expected, and the persons realizing the greatest profit on their investments were the developer defendants, who sold their interests and assigned their rights to the management contract to some member or members of the Invsco group.

Plaintiffs marshall the foregoing allegations into four distinct legal theories, each of which is embodied in a separate count. Before the court are motions by each of the defendants to dismiss various portions of the amended complaint. Our analysis will proceed count by count, rather than motion by motion.

Count I alleges that plaintiffs were required, as a condition of purchase of their units, to "ratify and approve" both a long-term management contract and a long-term garage lease with parties of the developer defendants' choosing, the choice in each case being either a related corporation or one controlled by a close associate of the developer defendants. These imposed conditions are alleged to constitute illegal tying agreements in restraint of trade and in violation of § 1 of the Sherman Act (15 U.S.C. § 1).

The defendant developers move to dismiss, for failure to state a claim upon which relief may be granted, only that part of Count I dealing with the garage lease; defendants Blankstein and the corporate garage lessee move to dismiss or for summary judgment as to this part of the count for the same failure to state a claim, and move for dismissal of or for summary judgment on the rest of the count (dealing with the management contract) as well; the Invsco defendants move for dismissal or summary judgment as to the whole count. We will treat all motions simply as motions to dismiss.

The developer and garage lessee defendants contend that the facts alleged in Count I as to the garage lease fail to support a claim of an illegal tying agreement as that concept was defined in International Salt Co. v. United States, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20 (1947), and the cases following it, and they assert several reasons for that failure. We note only one, because we find it determinative.

An illegal tying agreement can be found when a seller of one product uses his market power over that product to force the sale of another product by making the purchase of one product a condition of the purchase of the other. Although in the more common form of tying agreement the tying seller is also the seller of the tied product, illegality has also been found when the two sellers are legally separate entities or individuals, but one seller has control over the other (as in the case of corporate subsidiaries) or the tying seller receives some other economic benefit from the sale of the tied product. See Fortner Enterprises, Inc. v. United States Steel, 394 U.S. 495, 89 S.Ct. 1252, 22 L.Ed.2d 495 (1969); Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 88 S.Ct. 1981, 20 L.Ed.2d 982 (1968); Imperial Point Colonnades Condominium, Inc. v. Mangurian, 549 F.2d 1029 (5th Cir. 1977); Crawford Transport Co. v. Chrysler Corp., 338 F.2d 934 (6th Cir. 1964); Ungar v. Dunkin' Donuts of America, Inc., 1975 Trade Cases, 68 F.R.D. 65 (E.D.Pa.1975). The agreement to tie need not be explicit, but may be inferred from the circumstances. See Osborn v. Sinclair Refining Co., 286 F.2d 832 (4th Cir. 1960), cert. denied, 366 U.S. 963, 81 S.Ct. 1924, 6 L.Ed.2d 1255.

But one of the most obvious requirements for finding an illegal tying agreement is that there be in fact two products involved, so that one can properly be said to be tied to the other. See Fortner Enterprises, Inc. v. United States Steel, supra; Washington Gas Light Co. v. Virginia Electric and Power Co., 438 F.2d 248 (4th Cir. 1971). This is precisely what is lacking in the part of Count I considered here. The initial garage lease was executed by one of the developer defendants as lessor and the corporation allegedly controlled by defendant Blankstein as lessee in 1964 (See Blankstein Affidavit and Exhibit A, attached to Blankstein's memorandum in support), while the building was still an apartment building. This occurred nine years before the condominium conversion, and the original term of the lease extended to 1977, a date which would have been four years after the condominium conversion. Two years after the date of the original lease, the term was extended to 1989 and another provision was added. (See Blankstein Affidavit and Exhibit B). Finally, in 1973, the year in which the condominium conversion occurred, the lease was amended one more time, to extend the term another nine years to 1998, to alter the rent formula, and to provide for reduced parking rates for the developer-defendants (See Blankstein Affidavit and Exhibit C).

When plaintiffs purchased their individual units and proportionate shares of the common elements of the condominium after the building's conversion, they took their property subject to all existing liens, encumbrances, and leases, just as does anyone who purchases real property. The garage lease was an existing encumbrance, and plaintiffs took subject to it. The lease was not a separate thing they were required to accept as a condition of purchase of their real property, but was a limitation on the estates they purchased. The factual situation is not precisely analogous to the principal case upon which plaintiffs rely. In that case, Imperial Point Colonnades Condominium, Inc. v. Mangurian, supra, the court in dicta acknowledged that an illegal tying agreement could be found when purchasers of condominium units were required by the Declaration of Condominium Ownership to enter into a lease of separate nearby facilities owned by the developer. Unlike the case at bar, the purchasers there were to be lessees of separate property, not simply successor lessors under a lease of part of their property already existing at the time of their purchases.

Accordingly, there being no separate products involved, we find that that part of Count I which purports to assert an agreement tying the purchase of condominium units to the lease of the garage facility in the building fails to...