Jones v. Ford Motor Co.

• Decision Date: 01 June 1979
• Docket Number: No. 77-1135,77-1135
• Citation: 599 F.2d 394
• Parties: 1979-1 Trade Cases 62,679 Olin JONES, Plaintiff-Appellant, v. FORD MOTOR COMPANY, a corporation, Defendant-Appellee, and University Ford, Inc., and Maury Kemp, Defendants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 394

599 F.2d 394

1979-1 Trade Cases 62,679

Olin JONES, Plaintiff-Appellant, v. FORD MOTOR COMPANY, a corporation, Defendant-Appellee, and University Ford, Inc., and Maury Kemp, Defendants.

No. 77-1135.

United States Court of Appeals, Tenth Circuit.

Argued and Submitted Aug. 10, 1978.

Decided June 1, 1979.

William L. Lutz, Las Cruces, N. M., for plaintiff-appellant.

John P. Eastham, Albuquerque, N. M. (John P. Burton, Rodey, Dickason, Sloan, Akin & Robb, Albuquerque, N. M., and Richard J. Molloy, Dearborn, Mich., with him on the brief), for defendant-appellee.

Before SETH, Chief Judge, LOGAN, Circuit Judge, and COOK, District Judge. ^*

LOGAN, Circuit Judge.

This appeal arises out of a suit brought by Olin Jones against Ford Motor Company, University Ford, Inc. and Maury Kemp, making claims based upon alleged violations of the antitrust laws, common law fraud, and Securities Exchange Commission's Rule 10b-5. Diversity of citizenship supports jurisdiction on the claim not based upon federal law. The trial court granted defendants' Fed.R.Civ.P. 12(b)(6) motion to dismiss the antitrust claim (Count I), on grounds that Jones lacked standing to assert it. Summary judgment was given against Jones on the common law fraud and Rule 10b-5 claims, based upon a finding that the applicable statute of limitations had run. This appeal challenges all three rulings, plus the refusal of the judge to permit an amendment to Count I on the antitrust claim.

Central to Jones' complaint are assertions that Ford Motor Company committed fraud to induce him to acquire a Ford dealership in Las Cruces, New Mexico in 1969 through the Ford dealer development program. As a result Jones invested $50,000 to purchase 500 shares of the common stock of a newly formed corporation, Olin Jones Ford, Inc.; Ford contributed $137,000, one-half to purchase 685 shares of $100 par preferred voting stock, and one-half in the form of a loan to the corporation represented by its promissory note. The money was used by the corporation to purchase the assets of the dealership from the prior owner and for working capital.

The contract, corporate articles and other documents made clear that the entire voting control of the corporation would vest in the preferred stock so long as any was outstanding. Jones was hired as president and general manager. The contract provided for bonus arrangements based upon profitability, specified in detail the method of paying off the loan made to the corporation and purchase of Ford's preferred stock by Jones out of bonuses and dividends, and dealt precisely with the use of corporate profits for dividends. Dissolution and buy out of Jones' interest were also covered, with a specification of priorities of preferred stock over common in case of dissolution, and paying Jones book value for his stock if his interest was terminated. Jones and two Ford Motor Company employees working with the dealer development program were elected to serve as directors and did so serve until Jones was discharged in April 1971 after twenty-one months operation of the dealership. When he was terminated Jones received $1 under the contract as payment in full for his shares of common stock, upon a finding by the accountant employed to review the books that his stock was worthless. The complaint at issue here was filed October 11, 1974, in federal district court.

Count I alleges violations of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and Section 4 of the Clayton Act, 15 U.S.C. § 15. It asserts that Ford Motor Company, incident to inducing plaintiff to purchase the Ford franchise in Las Cruces, caused Olin Jones Ford, Inc. to be created, took all voting stock of the corporation, elected a majority of the board of directors, and sold Jones non-voting stock for $50,000. Thereafter Ford caused the new corporation to enter into an agreement with Jones for the dealership operation, with the aim of increasing its sales of new car units. It is then alleged that El Paso County, Texas, and Dona Ana County, New Mexico, constitute a single market for the sale of automobiles; Jones advertised on television in El Paso on behalf of the dealership; because of such advertising Maury Kemp (an El Paso car dealer) organized a boycott against the television station by most El Paso automobile dealers, boycotted the station and complained to Ford Motor Company that his market had been invaded, requesting Ford to prohibit plaintiff from advertising on El Paso television stations. Ford Motor Company, Olin Jones Ford, Inc., and Maury Kemp then allegedly entered into an agreement that Ford would direct that Jones cease all such advertising, restrict his sales to Dona Ana County, New Mexico, and no longer attempt to sell cars in competition with Maury Kemp's Ford agency in El Paso. When Jones refused to cease advertising, all defendants, acting through Ford's control of Olin Jones Ford, Inc.'s board of directors, fired Jones from his position, terminated his management contract, giving Jones only $1 for his $50,000 investment, and selling the dealership corporation to Kemp at a greatly reduced price. The agreement was asserted to be in furtherance of a plan to monopolize the sale of Ford products in El Paso County and Dona Ana County, New Mexico, all of which resulted in losses to Jones.

Count II is against Ford Motor Company alone, alleging common law fraud. It treats the inducement of Jones to undertake the Las Cruces dealership, the unconscionable nature of the contract, and seeks recovery of the $50,000 lost by Jones on his investment.

Count III against Ford Motor Company and University Ford, Inc. (successor to Olin Jones Ford, Inc.) is based on Rule 10b-5 (17 C.F.R. § 240.10b-5) promulgated under 15 U.S.C. § 78j. It asserts the inducements to Jones to purchase stock under representations that he would have full control and operation of the corporation, would be able to purchase all outstanding stock and become sole owner, and would make large sums of money. It asserts the falseness of these representations, the absolute control by Ford, the making of untrue statements and omitting to state material facts with intent to deceive Jones, resulting in Jones' loss of his $50,000 investment.

A fourth claim asserted against Maury Kemp personally is not at issue on appeal, having been settled between the parties.

I

We treat first the standing issue with respect to the antitrust claims. Section 4 of the Clayton Act, 15 U.S.C. § 15, reads:

Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to the amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee.

The trial judge was of the view that despite Jones' casting the allegations in Count I as injury to his property and business personally, in reality it alleges injury to Olin Jones Ford, Inc., the business entity which operated the dealership. Reliance is placed upon the references to advertising on television in El Paso, which may have been ordered by Jones but was in the name and on behalf of the dealership corporation. A conspiracy to monopolize automobile sales in the two-county area would be to the detriment of the Las Cruces dealership corporation as the business entity which suffers.

It is settled law that shareholders and employees do not have standing to sue for antitrust violations that injure a corporation. This Circuit has recognized the general rule in Reibert v. Atlantic Richfield Company, 471 F.2d 727 (10th Cir.), Cert. denied, 411 U.S. 938, 93 S.Ct. 1900, 36 L.Ed.2d 399 (1973). See also, Nationwide Auto Appraiser Serv., Inc. v. Association of Cas. and Sur. Cos., 382 F.2d 925 (10th Cir. 1967). The reasoning behind the rule is well stated in Martens v. Barrett, 245 F.2d 844, 846 (5th Cir. 1957), as follows:

A claim for treble damages, as is this one, originates in Section 4 of the Clayton Act, 15 U.S.C.A. § 15. By it, this punitive sanction in enforcement of the statutory Anti-trust policy, is limited to "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws." A corporation is a "person," 15 U.S.C.A. § 12. And it is universal that where the business or property allegedly interfered with by forbidden practices is that being done and carried on by a corporation, it is that corporation alone, and not its stockholders (few or many), officers, directors, creditors or licensors, who has a right of recovery, even though in an economic sense real harm may well be sustained as the impact of such wrongful acts bring about reduced earnings, lower salaries, bonuses, injury to general business reputation, or diminution in the value of ownership. (Footnotes omitted.)

While Section 4 of the Clayton Act was worded broadly to effect Congress' intentions to encourage sanctions against antitrust violations wherever possible, the right of action is limited to those directly injured by the anti-competitive behavior. Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977). Thus, even though there are losses of a job with a corporation and upon an investment in stock this is not regarded the direct injury against which the treble damages action was aimed. Reibert, supra, 471 F.2d at 731, discussed this principle as follows:

In Peterson v. Borden Co., supra, (50 F.2d 644 (7th Cir. 1931)) stockholders were allegedly fraudulently induced to sell their stocks to majority stockholders for less than its value. Subsequently the majority stockholders sold the entire assets to a corporate competitor. The minority stockholders sued to recover damages for injury to their property caused by alleged violations of the antitrust laws...