Mid-West Paper Products Co. v. Continental Group, Inc.
| Decision Date | 05 April 1979 |
| Docket Number | MID-WEST,78-1776 and 78-1796,No. 78-1736,78-1746,Nos. 78-1736,No. 78-1776,No. 78-1746,No. 78-1796,78-1736,78-1776,78-1796,s. 78-1736 |
| Parties | 1979-1 Trade Cases 62,531 PAPER PRODUCTS COMPANY, Appellant in, v. CONTINENTAL GROUP, INC., American Bag and Paper Corporation, Chase Bag Company, Harley Corporation, St. Regis Paper Company. SHOPPING CART, INC., Individually and on behalf of all others similarly situated, Appellant in, v. CONTINENTAL GROUP, INC., American Bag and Paper Corporation, Chase Bag Company, Harley Corporation, St. Regis Paper Company. 86TH STREET FOOD SPECIALTY, INC., C. G. Dairies, Inc. and 3 J'S Farms, Inc., Appellants in, v. CONTINENTAL GROUP, INC., American Bag and Paper Corporation, Chase Bag Company, Harley Corporation, St. Regis Paper Company. MURRAY'S OF BAEDERWOOD, INC., on behalf of itself and all others similarly situated, Appellant in, v. CONTINENTAL GROUP, INC., American Bag and Paper Corporation, Chase Bag Company, Harley Corporation, St. Regis Paper Company. |
| Court | U.S. Court of Appeals — Third Circuit |
Mitchell A. Kramer (argued), Steven Kapustin, Stuart Peim, Kramer & Salus, Philadelphia, Pa., for appellant Mid-West Paper Products Co.
Patrick T. Ryan (argued), William J. Lehane, Wilson M. Brown, III, Drinker, Biddle & Reath, Philadelphia, Pa., Larry L. Williams, Clifford, Warnke, Glass, McIlwain & Finney, Washington, D. C., for appellee Continental Group, Inc.
Arnold Levin (argued), Josephine Stamm, Adler, Barish, Daniels, Levin & Creskoff, Philadelphia, Pa., Richard J. Molish, Langhorne, Pa., for appellant Shopping Cart, Inc.
Edward C. German, Joseph Manta, Philip A. Ryan, LaBrum & Doak, Philadelphia, Pa., for appellee American Bag and Paper Corp.
Richard D. Greenfield, Bala Cynwyd, Pa., Philip Stephen Fuoco, Haddonfield, N. J., Eric L. Keisman, Wolf, Popper, Ross, Wolf & Jones, New York City, for appellants 86th Street Food Specialty, Inc., C. G. Dairies, Inc., and 3 J's Farms, Inc Henry T. Reath (argued), Michael M. Baylson, Peter J. Hoffman, Duane, Morris & Heckscher, Philadelphia, Pa., for appellee Chase Bag Co.
Bernard M. Gross, Warren Rubin (argued), Gross & Sklar, P. C., Philadelphia, Pa., for appellant Murray's of Baederwood, Inc.
Benjamin M. Quigg, Jr., Morgan, Lewis & Bockius, Philadelphia, Pa., Michael L. Denger, Sutherland, Asbill & Brennan, Washington, D. C., for appellee Harley Corp.
Ralph W. Brenner (argued), T. Michael Mather, Steven R. Fischer, Montgomery, McCracken, Walker & Rhoads, Philadelphia, Pa., H. Richard Wachtel, Grant S. Lewis, LeBoeuf, Lamb, Leiby & MacRae, New York City, for appellee St. Regis Paper Co.
Before ALDISERT, ADAMS and HIGGINBOTHAM, Circuit Judges.
In this appeal we are called upon to apply the teaching of Illinois Brick Co. v. State of Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), to a number of settings, all in the context of a series of antitrust actions brought against manufacturers of consumer bags, alleging illegal price fixing under the Sherman Act and seeking both treble damages and injunctive relief. Because none of the plaintiffs purchased bags directly from the defendants, the district court relied on the holding in Illinois Brick that indirect purchasers from antitrust violators may not as a general matter sue for treble damages, granted defendants' motions for summary judgment, and dismissed the suits in their entirety.
With respect to all the plaintiffs, excepting only Mid-West Paper Products Company, we agree with the district court that Illinois Brick bars their claims for treble damages. But in our view such plaintiffs may still seek injunctive relief. We also believe that summary judgment on Mid-West's suit is inappropriate at least at this time.
These private antitrust actions were instituted in the wake of a grand jury indictment charging five corporations and seven individuals engaged in the manufacture of consumer bags with fixing prices in violation of section 1 of the Sherman Act. 1
The criminal indictment, the language of which was closely tracked in the complaints filed in the private civil actions, described consumer bags as single or multilayered paper bags that may also contain linings or coatings made from other materials and that are employed to prepackage products then marketed in them. Consumer bags are designed for capacities of less than twenty-five pounds. They often have printed exterior designs describing their contents and are used for packaging a variety of products, including pet foods, cookies, tea, coffee, and chemicals.
Plaintiffs in the civil actions fall into three categories: The first group, which includes Shopping Cart, Inc., 86th Street Food Specialty, Inc., C. G. Dairies, Inc. and 3 J's Farms, Inc., consists of supermarkets and retail grocery stores that do not purchase consumer bags directly from the defendants or from anyone else, but purchase products that are packaged in consumer bags for resale to their customers.
In the second category is Murray's of Baederwood, Inc. (Murray), a grocery store and delicatessen that sells products packaged in consumer bags, and also purchases empty consumer bags in which it packages its own brand of ice cream. The bags admittedly are not purchased directly from any of the defendants, but are for the most part bought from middlemen and wholesalers. However, one of Murray's officers suggested in a deposition that one of the firms from which Murray purchases bags 2 Together, the first two classifications will be referred to as the "supermarket plaintiffs."
Finally, there is Mid-West Paper Products Company (Mid-West), a middleman that purchases bags for resale to automobile manufacturers, which in turn put machine parts in the bags. Mid-West buys bags directly from various manufacturers, including Great Plains Bag Company (Great Plains), a subsidiary of defendant Continental Group, Inc. The parties are in dispute whether these bags are properly denominated consumer bags, rather than kraft bags.
Named as defendants in these actions are the five corporations listed in the criminal indictment: Continental Group, Inc., American Bag and Paper Corp., Chase Bag Co., Harley Corp., and St. Regis Paper Co. The cases involved in this appeal as well as other suits were consolidated for trial in the Eastern District of Pennsylvania, where plaintiffs sought certification to represent a class, and asked for treble damages and injunctive relief.
The district judge at first limited discovery to matters relevant to the class certification question. After the Supreme Court's decision in Illinois Brick, however, the judge requested the parties to show cause why the cases should not be dismissed because of that precedent. On April 5, 1978, summary judgment was granted in favor of the defendants on the authority of Illinois Brick. The order was not accompanied by an opinion. Plaintiffs filed a timely appeal.
According to Justice White, the author of the Illinois Brick opinion, the result there was logically compelled by the Court's earlier decision in Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968). In Hanover Shoe, a company that had illegally overcharged its customers was sued by one of them for treble damages under § 4 of the Clayton Act. 3 It was determined there that as a matter of law an antitrust violator may not, as a general matter, interpose as a defense that the direct purchaser has not been injured because it had passed on the illegal overcharge to its own customers. As described in Illinois Brick, the Court in Hanover Shoe
held that except in certain limited circumstances, a direct purchaser suing for treble damages under § 4 of the Clayton Act is injured within the meaning of § 4 by the full amount of the overcharge paid by it and that the antitrust defendant is not permitted to introduce evidence that indirect purchasers were in fact injured by the illegal overcharge. 392 U.S., at 494, 88 S.Ct. at 2232. The first reason for the Court's rejection of this offer of proof was an unwillingness to complicate treble-damages actions with attempts to trace the effects of the overcharge on the purchaser's prices, sales, costs, and profits, and of showing that these variables would have behaved differently without the overcharge. Id., at 492-493, 88 S.Ct. at 2231. A second reason for barring the pass-on defense was the Court's concern that unless direct purchasers were allowed to sue for the portion of the overcharge arguably passed on to indirect purchasers, antitrust violators "would retain the fruits of their illegality" because indirect purchasers "would have only a tiny stake in the lawsuit" and hence little incentive to sue. Id., at 494, 88 S.Ct. at 2232. 4
With Hanover Shoe already foreclosing the defensive use of "pass-on" except in limited circumstances, the Court in Illinois Brick adopted a rule of symmetry with respect to the offensive use of "pass-on", thereby barring indirect purchasers from suing for treble damages whenever the antitrust defendant would be precluded from asserting the pass-on defense against a direct purchaser.
The Court reasoned that symmetry was required to protect defendants from the serious risk of multiple liability. 5 Also, it considered the "principal basis for the decision in Hanover Shoe " the perception that it would greatly complicate and reduce the effectiveness of treble damages proceedings if they were to include an analysis of the price and output decisions of a direct purchaser to determine how much of the illegal overcharge was absorbed by it and how much was passed on to be equally applicable to the assertion of pass-on theories by plaintiffs. 6 In sum, Illinois Brick concluded: "Permitting the use of...
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