Leider v. Ralfe

Citation387 F.Supp.2d 283
Decision Date25 January 2005
Docket NumberNo. 01 Civ.3137 HB FM.,01 Civ.3137 HB FM.
PartiesAndrew LEIDER, George Vuoso, and Robert Hallowell, on behalf of themselves and those similarly situated, Plaintiffs, v. Gary RALFE, Nicholas Oppenheimer, De Beers Centenary A.G., and De Beers Consolidated Mines, Ltd., Defendants.
CourtU.S. District Court — Southern District of New York

Christopher Lovell, Lovell & Stewart, L.L.P., New York City, for Plaintiffs.

Brett M. Kitt, Erika C. Birg, James L. Brochin, Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York City, Robert P. Parker, Paul, Weiss, Rifkind, Wharton, Washington, DC, for Defendants.

OPINION & ORDER

BAER, District Judge.

Andrew Leider, George Vuoso, and Robert Hallowell (collectively, "plaintiffs") and amici curiae J. Walter Thompson Company ("JWT") and International Diamond Manufacturers' Association ("IDMA") object to Magistrate Judge Maas' most recent Report and Recommendation ("R & R").1 For the reasons set forth below, I adopt the R & R in part and plaintiffs' motion to certify their state law claims is denied. Further, this matter is set down for a pre-trial conference on February 2, 2005 at 3:00 PM in order to explore and set a schedule for further proceedings, and to determine the scope of any proposed injunctive relief pursuant to plaintiffs' Wilson Tariff Act and Sherman Act claims, the only remaining claims.

I. BACKGROUND

The facts, prior proceedings, and history of this litigation are more fully set out in the prior decisions in this matter, familiarity with which is presumed. Leider v. Ralfe, No. 01 Civ. 3137, 2003 U.S. Dist. LEXIS 21159 (S.D.N.Y. March 3, 2003) ("1st R & R"); Leider v. Ralfe, No. 01 Civ. 3137, 2003 WL 22339305 (S.D.N.Y. Oct. 10, 2003) ("1st Opinion"); Leider v. Ralfe, No. 01 Civ. 3137, 2004 WL 1773330 (S.D.N.Y. July 30, 2004) ("2d R & R"). Briefly, plaintiffs are residents of initiated this lawsuit against two divisions of De Beers Group and their chairman, Nicholas Oppenheimer, and managing director, Gary Ralfe (collectively, "De Beers"), in which they allege federal and state claims based on De Beers alleged price-fixing, anticompetitive conduct, and other nefarious business practices. As a result of De Beers' alleged monopoly and other allegedly deceptive practices in the diamond industry, plaintiffs contend that they and other American consumers have over-paid for diamonds and diamond jewelry, for which they seek both monetary damages and injunctive relief. De Beers defaulted and judgment was entered against the defendants on August 16, 2001 and January 15, 2003.2

This matter was first referred to Magistrate Judge Maas for an R & R on class certification and damages. Magistrate Judge Maas recommended that plaintiffs' motion for class certification be denied. 1st R & R, 2003 U.S. Dist. LEXIS 21159, at *3. I adopted this R & R in part and held that while plaintiffs' lacked standing to sue for monetary damages under the Wilson Tariff and Sherman Acts, their motion for class certification would be granted pursuant to Federal Rule of Civil Procedure ("Fed. R. Civ.P.") 23(b)(2) for injunctive relief under these two statutes. 1st Opinion, 2003 WL 22339305, at *1, 9. I further ruled that plaintiffs' Donnelly Act claims could not be certified for injunctive relief and remanded this case to Magistrate Judge Maas for another R & R with respect to the question of whether plaintiffs' Lanham Act and state law claims should be certified pursuant to Fed.R.Civ.P. 23(b)(2) or (3). Id. at *11. Following remand, plaintiffs withdrew their Lanham Act claims.2d R & R, 2004 WL 1773330, at *2. In addition, several organizations were granted leave to appear as amici curiae.3 Id. In his 2d R & R, Magistrate Judge Maas recommended that this Court certify plaintiffs' N.Y. Gen Bus. Law § 349 claims pursuant to Fed.R.Civ.P. 23(b)(3).2d R & R, 2004 WL 1773330, at *2. He further recommended that this Court deny plaintiffs' motion to certify their Donnelly Act and N.Y. Gen. Bus. Law § 350 claims. Id. Both plaintiffs and the amici filed timely objections.

II. DISCUSSION
A. Standard of Review

This Court reviews an R & R for clear error, but reviews de novo those portions of the R & R to which a party interposes an objection. 28 U.S.C § 636(b)(1); Fed.R.Civ.P. 72(b). Here, the objections of plaintiffs and the amici touch on nearly every aspect of the R & R and therefore I review it de novo in its entirety.

B. Donnelly Act

Plaintiffs' eighth cause of action alleges a violation of N.Y. Gen. Bus. Law § 340, more commonly known as the "Donnelly Act," which is New York's antitrust statute.4 To support this claim, plaintiffs contend that De Beers' anticompetitive and monopolistic business practices "were undertaken and disseminated from New York" and directly and proximately caused the unlawful price inflation of diamonds and diamond jewelry for which plaintiffs seek damages. Compl. ¶¶ 85, 86. In his 2d R & R, Magistrate Judge Maas concluded that N.Y. C.P.L.R. § 901(b) barred certification of plaintiffs' Donnelly Act claim. Plaintiffs object and argue, in essence, that their Donnelly Act claims should be certified because: (1) the Donnelly Act — whose legislative history they believe supports the maintenance of class actions — should be interpreted to conform with the Sherman Act; and (2) N.Y. C.P.L.R. § 901(b) does not apply in federal court. These arguments fail because New York law firmly disallows a Donnelly Act class action by private plaintiffs and this law applies with equal force in federal court.

1. N.Y. C.P.L.R. § 901(b)

N.Y. C.P.L.R. § 901(b), which sets out the prerequisites for a class action suit, prohibits a class action "to recover a penalty or minimum measure of recovery created or imposed by statute," unless the statute "specifically authorizes the recovery thereof in a class action...." The Donnelly Act provides, in pertinent part, that "any person who shall sustain damages by reason of any violation of this section, shall recover three-fold the actual damages sustained thereby, as well as costs not exceeding ten thousand dollars, and reasonable attorneys' fees." N.Y. Gen. Bus. Law § 340(5) (emphasis supplied). When these two statutes are read together, it is evidence that a class action cannot be maintained under the Donnelly Act. As the First Department explained, "[p]rivate persons are precluded from bringing a class action under the Donnelly Act ... because the treble damages remedy provided for in subsection 5 constitutes a `penalty' within the meaning of CPLR 901(b)," and the Donnelly Act "does not specifically authorize recovery in a class action...." Cox v. Microsoft Corp., 290 A.D.2d 206, 737 N.Y.S.2d 1, 2 (1st Dep't 2002) ("Cox I"5); Asher v. Abbott Labs., 290 A.D.2d 208, 737 N.Y.S.2d 4, 4 (1st Dep't 2002) (same); accord Giovanniello v. Hispanic Media Group USA, Inc., 4 Misc.3d 440, 780 N.Y.S.2d 720, 722 (2004); Rubin v. Nine West Group, Inc., No. 0763/99, 1999 WL 1425364, at *4-5 (N.Y.Sup. Nov. 3, 1999); Russo & Dubin v. Allied Maint. Corp., 95 Misc.2d 344, 407 N.Y.S.2d 617, 620 (1978); Blumenthal v. Am. Soc'y of Travel Agents, Inc., No. 16812/76, 1977 WL 18392, at *3 (N.Y.Sup. July 5, 1977).

In so holding, the First Department "note[d] the specific authorization to bring class actions on behalf of governmental entities given to the Attorney General in General Business Law § 342-b, the absence of such specific authorization in section 340(6), and the enactment of the latter provision after two courts held that class actions could not be brought under the Donnelly Act because they are not specifically authorized." Id. (internal citations omitted); Asher, 737 N.Y.S.2d at 4 (same). Finally, the Cox Court reviewed the history of treble damages under New York law to support its view that such an award is punitive in nature. Id. at 3.

To rebut this sound reasoning and contrary authority, plaintiffs essentially suggest that this Court disregard the decisions of the Appellate Division and instead divine how the New York Court of Appeals might come out. As an alternative, plaintiffs propose that this Court reject New York law entirely and instead follow the cases interpreting the federal antitrust statute. Obviously, neither approach is particularly appealing. While a federal judge has a lengthy job description, crystal ball gazing was, last I looked, not on the list. Further, in their zeal to certify their state claims, plaintiffs have glossed over important distinctions between federal and New York antitrust law. The New York Court of Appeals has instructed that, where possible, "the Donnelly Act — often called a "Little Sherman Act" — should generally be construed in light of Federal precedent." Anheuser-Busch, Inc. v. Abrams, 71 N.Y.2d 327, 335, 525 N.Y.S.2d 816, 520 N.E.2d 535 (1988). However, New York's high court "do[es] not move in lockstep with the Federal courts in [its] interpretation of antitrust law" and has recognized that interpretation of the Donnelly Act should reflect New York's own state policy. Id. With respect to class actions, there is such a policy difference. "Although federal courts have held that treble damages are remedial, not punitive, New York state courts have historically concluded that treble damages are punitive in nature." Lennon v. Philip Morris Cos., Inc., 189 Misc.2d 577, 734 N.Y.S.2d 374, 380 (2001). This, together with the policy statement embodied in N.Y. C.P.L.R. § 901(b), forecloses any synchronous interpretation of the Donnelly and Sherman Acts with respect class actions. Id. (observing that "CPLR § 901(b) was designed to discourage ... recovery of a statutory minimum by each class member [that] results in `annihilatory punishment.'" (McLaughlin, Practice Commentaries, McKinney's Cons.Laws of N.Y., Book 7B, CPLR C901:7, at 327-28, citing, Vickers v. Home Fed., 87 Misc.2d 880, 386 N.Y.S.2d 291[]).) (ellipses, alteration, and citation in original).

Plaintiffs' reliance on the Donnelly Act's...

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