McElhenney Co. v. Western Auto Supply Company

• Decision Date: 18 November 1958
• Docket Number: Civ. A. No. 2135.
• Citation: 167 F. Supp. 949
• Parties: McELHENNEY CO., Inc., W. F. Snipes, J. T. Snipes, George Toole, Mac Toole, R. P. Swofford, Charles L. Gasque and Harry Clinkscales, Plaintiffs, v. WESTERN AUTO SUPPLY COMPANY, Defendant.
• Court: U.S. District Court — District of South Carolina

167 F. Supp. 949

McELHENNEY CO., Inc., W. F. Snipes, J. T. Snipes, George Toole, Mac Toole, R. P. Swofford, Charles L. Gasque and Harry Clinkscales, Plaintiffs, v. WESTERN AUTO SUPPLY COMPANY, Defendant.

Civ. A. No. 2135.

United States District Court W. D. South Carolina, Spartanburg Division.

November 18, 1958.

Chester D. Ward, Jr., Spartanburg, S. C., for plaintiffs.

Wyche, Burgess & Wyche, Greenville, S. C., Watson, Ess, Marshall & Enggas, Kansas City, Mo., for defendant.

WILLIAMS, District Judge.

Defendant has moved to dismiss the amended complaint on the ground that it fails to state claims upon which relief can be granted. The amended complaint seeks treble damages for alleged violations of Section 2 of the Sherman Act (15 U.S.C.A. § 2) and Section 3 of the Clayton Act (15 U.S.C.A. § 14) as authorized by Section 4 of the Clayton Act (15 U.S.C.A. § 15).

The Parties

The defendant Western Auto Supply Company is engaged in the business of selling tires, tubes, batteries, auto accessories, sporting goods, home appliances, etc., at retail through some 350 company-owned stores and at wholesale to some 3,600 Associate Stores located throughout the United States. As of December 31, 1956, it operated seven company-owned stores and had 91 associate stores in South Carolina.

The plaintiffs, except McElhenney Co., Inc., were, prior to 1954, five owners and operators of their respective Associate Stores in various towns in South Carolina. Each alleges that at various dates between 1954 and 1956 his franchise from the defendant was cancelled but that he continued to operate either independently or by an affiliation with Firestone. Plaintiff McElhenney Co., Inc., from February 1954 to October 1956, had the exclusive franchise for the distribution at wholesale of Sylvania radio and television sets and parts in South Carolina.

The Allegations of the Amended Complaint

The amended complaint alleges that the defendant did business with its Associate Stores, including the former dealers suing as plaintiffs herein, by means of a franchise. The Associate Store franchise is a vendor-purchaser contract by which defendant Western grants to the Associate the right to use the name "Western Auto Associate Store" in conjunction with the proprietor's name and agrees that it will sell the Associate merchandise on the same terms as all other Associate Stores. The Associate retains ownership, management and control of his store and only agrees under certain conditions to buy a stated amount of merchandise from Western for the opening stock of his store. The franchise is terminable by either party at any time on 60 days' written notice. Nothing in the franchise requires the Associate to deal exclusively with Western.

Plaintiff retailers contend that their franchises were cancelled because they insisted upon purchasing some items of "outside" merchandise, i. e., merchandise not distributed by defendant. Plaintiff McElhenney, the former Sylvania distributor, asserts that defendant's alleged policy against its Associate Stores handling "outside" merchandise curtailed its sales of Sylvania products to Western Auto Associate Stores in South Carolina, all to its loss and damage.

Plaintiffs' contentions are that the above alleged facts manifest an unlawful exclusive dealing arrangement in violation of Section 3 of the Clayton Act and an unlawful attempt to monopolize or monopolization in violation of Section 2 of the Sherman Act. Defendant, on the other hand, contends that the above allegations manifest no more than the exercise of the defendant's legal right to terminate the franchises of dealers who it deems do not adequately represent it. Judgment is sought by plaintiffs in the amount of $2,241,000 and costs and a reasonable attorney's fee.

Discussion

It is fundamental that the purpose for the enactment of the federal anti-trust laws, including the Sherman and Clayton Acts, was to protect the public interest from the evils of monopolies and unreasonable restraints of trade in interstate commerce. Wilder Mfg. Co. v. Corn Products Refining Co., 1915, 236 U.S. 165, 35 S.Ct. 398, 59 L.Ed. 520. Accordingly, to recover in a private antitrust suit the plaintiff must allege facts from which it can be determined that there has been a violation of the antitrust laws together with damage to the plaintiff as a consequence of such violation. Glenn Coal Co. v. Dickinson Fuel Co., 4 Cir., 1934, 72 F.2d 885; Schwing Motor Company v. Hudson Sales Corporation, D.C.Md.1956, 138 F.Supp. 899, affirmed 4 Cir., 1956, 239 F.2d 176; Nelligan v. Ford Motor Company, D.C. S.C.1958, 161 F.Supp. 738. See also Shotkin v. General Electric Co., 10 Cir., 1948, 171 F.2d 236; Feddersen Motors v. Ward, 10 Cir., 1950, 180 F.2d 519; Arthur v. Kraft-Phenix Cheese Corporation, D.C.Md.1937, 26 F.Supp. 824; Neumann v. Bastian-Blessing Co., D.C. N.D.Ill.1947, 70 F.Supp. 447.

If the amended complaint herein does not allege facts from which it can be ascertained that the defendant has violated the anti-trust laws with injury to the plaintiffs, defendant's motion to dismiss must be sustained.

Section 3 of the Clayton Act

Section 3 of the Clayton Act, 15 U.S. C.A. § 14, provides as follows:

"It shall be unlawful for any person engaged in commerce, in the course of such commerce, to lease or make a sale or contract for sale of goods, wares, merchandise, machinery, supplies, or other commodities, whether patented or unpatented, for use, consumption, or resale within the United States or any Territory thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the United States, or fix a price charged therefor, or discount from, or rebate upon, such price, on the condition, agreement, or understanding that the lessee or purchaser thereof shall not use or deal in the goods, ware, merchandise, machinery, supplies, or other commodities of a competitor or competitors of the lessor or seller, where the effect of such lease, sale, or contract for sale on such condition, agreement, or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce."

The amended complaint contains no allegations that the defendant actually leased, sold or contracted to sell any goods, wares, merchandise, machinery, supplies or other commodities on the condition, agreement or understanding that the plaintiffs or anyone else should not use or deal in the goods of a competitor of the defendant.

The plaintiffs contend that the defendant terminated the franchises of the retailer-plaintiffs on account of their handling of products not approved by the defendant and that this "course of dealing" constitutes a violation of Section 3 of the Clayton Act. The defendant contends that nothing more is involved than a permissible refusal to deal by a single trader acting unilaterally and not in concert with any competitor or anyone else, pursuant to the right reserved to it in its franchise agreements and in the exercise of its sound business judgment.

In Nelson Radio & Supply Co. v. Motorola, Inc., 5 Cir., 1952, 200 F.2d 911, certiorari denied, 1953, 345 U.S. 925, 73 S.Ct. 783, 97 L.Ed. 1356, a closely parallel situation was presented. There the plaintiff, a wholesaler of communications equipment, alleged that it had distributed defendant's products for several years prior to February 10, 1949. The contract under which the plaintiff operated contained a specific termination date but it also provided that it continued after that date subject to termination by written notice of either party. Prior to January 2, 1948, the defendant submitted to the plaintiff an agreement for the year 1948 and at the same time informed the plaintiff that it could not sell communications equipment manufactured by defendant's competitors. The plaintiff alleged that it signed the 1948 contract under coercion and further that during the period November 1947-February 10, 1949, the defendant notified it that it was not permitted to sell competing products. In November and December 1948 the parties sought to renew the 1948 agreement but the plaintiff insisted on the right to sell products manufactured by others than the defendant. The defendant resisted and the plaintiff's franchise was cancelled effective February 10, 1949. Holding these allegations to be insufficient to state a violation of Section 3 of the Clayton Act and affirming the dismissal of the complaint, the court said (200 F.2d at pages 915-916):

"Section 3 of the Clayton Act, by its express terms, covers only leases, sales, or contracts actually made on the condition, agreement or understanding that the lessee or purchaser thereof shall not use or deal in the goods of a competitor of the lessor or seller. There is nothing whatever in the Act to suggest that it covers a situation where the manufacturer refuses to make a sale or enter into a contract, and it has been stated time and again that a manufacturer has the unquestioned right to refuse to deal with anyone for reasons sufficient to himself. citations For that matter, a review of all of the cases decided by the Supreme Court involving Section 3 of the Clayton Act, reveals that in each of them there was an agreement and not a mere refusal to deal. There is a real difference between the act of refusing to deal and the execution of a contract which prevents a person from dealing with another. The plaintiff has not been injured as the result of a contract, either express or implied, which sought to prevent him from dealing in the goods of any competitor of the defendant.

"The judgment of the District Court dismissing the amended complaint was right and it is hereby affirmed."

The Motorola case was followed by Leo J. Meyberg Co. v. Eureka Williams Corp., 9 Cir., 1954, 215 F.2d 100, certiorari denied 1954, 348 U.S. 875, 75 S.Ct. 113, 99 L.Ed. 689. This was also an action under Section 3 of the Clayton Act charging that the...