Pearl Brewing Co. v. Jos. Schlitz Brewing Co.

• Decision Date: 03 May 1976
• Docket Number: Civ. A. No. 71-H-778A.
• Citation: Pearl Brewing Co. v. Jos. Schlitz Brewing Co., 415 F.Supp. 1122 (S.D. Tex. 1976)
• Parties: PEARL BREWING CO. et al., Plaintiffs, v. JOS. SCHLITZ BREWING CO. Defendant.
• Court: U.S. District Court — Southern District of Texas

415 F. Supp. 1122

PEARL BREWING CO. et al., Plaintiffs, v. JOS. SCHLITZ BREWING CO. Defendant.

Civ. A. No. 71-H-778A.

United States District Court, S. D. Texas, Houston Division.

May 3, 1976.

COPYRIGHT MATERIAL OMITTED

John C. Snodgrass and Max Hendrix, Vinson, Elkins, Searls, Connally & Smith, Houston, Tex., for plaintiffs.

Frank Knapp and Fletcher Etheridge, Butler, Binion, Rice, Cook & Knapp, Houston, Tex., for defendant.

CARL O. BUE, Jr., District Judge.

MEMORANDUM AND ORDER

I. INTRODUCTION

Several motions are pending before the Court in this complex antitrust litigation which involves alleged anti-competitive conduct among certain manufacturers, distributors, wholesalers and retailers in the beer industry in Texas. Plaintiffs' Motion for Leave to File Second Amended Complaint is granted in part and denied in part; Defendant's Motion to Amend Counterclaim is granted, and the Clerk is directed to file the Amended Counterclaim; Plaintiffs' Motion to Strike Affirmative Defenses, which raises the issue of the propriety of invoking in an antitrust context the equitable defenses of in pari delicto and "unclean hands", is granted; Plaintiffs' Motion to Sever Defendant's Counterclaim for Separate Trial is granted; Defendant's Motion to Compel Discovery, which raises the issue of the proper scope of "non-trial" experts pursuant to Fed.R.Civ.P. 26(b)(4)(B), is granted in part and denied in part.

II. LEAVE TO AMEND COMPLAINT

A.

Plaintiffs' Motion for Leave to File Second Amended Complaint is granted in part and denied in part. This complaint adds a new cause of action, attempts to relate back some of the allegedly monopolistic conduct of defendant to a period at least four years prior to the filing of the original complaint, if not before, and specifies particular dollar amounts which are purported to be actual damages suffered by each plaintiff under each appropriate cause of action.

B.

Defendant objects to the motion to amend for a variety of reasons:

(1) claims and damages caused by alleging a "narrowing of the gap" are barred in part by limitations;

(2) actions pleaded for attempted monopolization fail to state a claim upon which relief can be granted;

(3) plaintiffs' claims do not operate under the law to permit relating back more than four years before the filing of the original complaint; and

(4) the pleading of "fraudulent concealment" is not adequately pleaded so as to permit a tolling of the applicable limitations period.

C.

The matters raised by the parties regarding the propriety of plaintiffs amending their complaint relate to factual questions vigorously contested by the parties. These matters typically cannot be resolved on the pleadings and, in any event, are improperly inquired into at this stage, especially in view of the liberal rules regarding amendment of complaints. Fed.R. Civ.P. 15.

Thus, the Court now permits an amendment to reflect the addition of technical details, such as party names and particular dollar amounts, and the addition of the claims contained in Sections VII and X of the proposed amendment, which are arguably related to matters previously plead. All remaining allegations and defenses raised by the parties are fundamentally composed of factual matters still in dispute, such as defendant's statute of limitations defense and plaintiffs' allegations of conduct meriting inclusion of pre-July 15, 1967, claims. The verity of facts upon which these matters are based cannot be resolved at this time. Therefore, the complaint may be amended only to reflect actions alleged to have occurred on or after July 15, 1967, the date marking the fourth year before the filing of the original complaint, and to reflect a cause of action suggesting "narrowing the gap", a practice so closely connected to the concept of pricing as to be raised, arguably, in plaintiffs' previous two complaints.

D.

Subsequent proof by the parties may demonstrate to the Court the need to restrict or expand the scope of this litigation prior to trial based upon the development of the above factual areas. For present purposes of discovery and on the present record, the Court concludes at this time that the amendment is proper insofar as events after July 15, 1967, are alleged to have occurred. The Court does not view such amendment as altering the basic evidentiary framework of the case heretofore existent or causing undue delay in the conclusion of discovery or the start of trial. Plaintiffs will additionally be allowed to amend to substitute the estate of one of the original parties who has died. Defendant will be allowed 45 days in which to answer.

III. MOTION TO AMEND COUNTERCLAIM

Defendant's Motion to Amend Counterclaim is granted. The Clerk is hereby directed to file defendant's Second Amended Counterclaim, although for purposes of uniformity, defendant may wish to incorporate in one pleading its amended counterclaim and its answer to plaintiffs' amended complaint. Defendant asserts correctly that this amendment eliminates three counts from the original counterclaim. As represented to the Court at an in-chambers conference, plaintiffs do not really object to the amendment, but rather to any trial of the counterclaim simultaneously with the trial of plaintiffs' case-in-chief. The merits of separate trials are discussed hereafter. See Part V, infra. The amendment to the counterclaim will be granted.

IV. MOTION TO STRIKE AFFIRMATIVE DEFENSES

A. Introduction

Plaintiffs' Motion to Strike Affirmative Defenses is granted. Plaintiffs' motion challenges defendant's right to invoke the equitable defenses of in pari delicto and "unclean hands". The judicial starting point for evaluation of these defenses is Kiefer-Stewart Co. v. Jos. E. Seagram & Sons, 340 U.S. 211, 71 S.Ct. 259, 95 L.Ed. 219 (1951).

B. Kiefer-Stewart and "Unclean Hands"

In Kiefer-Stewart, a wholesaler of liquor sued its supplier for antitrust violations. As a defense, the supplier introduced evidence designed to show that the wholesaler had agreed with other wholesalers to set minimum prices for the sale of liquor, and thus had agreed to violate the antitrust laws. 340 U.S. at 214, 71 S.Ct. at 261, 95 L.Ed. at 224. The trial court instructed the jury that, even if proved, the wholesaler's part in such a conspiracy was no defense to the cause of action brought by the wholesaler against the supplier. Id.

On appeal, the United States Supreme Court unanimously upheld the use of this instruction. The Court stated that any infraction of the antitrust laws by the plaintiff wholesaler could be remedied by the institution of appropriate proceedings against it by the Government or appropriate injured private persons. Id. However, such alleged illegal conduct could not, according to the Court, legalize the alleged unlawful conduct of the defendant supplier or immunize it against liability. Id.

Other courts interpreting the Kiefer-Stewart decision have excluded the defense of "unclean hands" on the basis of that decision. See, e. g., Credit Bureau Reports, Inc. v. Retail Credit Co., 358 F.Supp. 780, 796 (S.D.Tex.1971), aff'd, 476 F.2d 989 (5th Cir. 1973); cf. Bernstein v. Universal Pictures, Inc., 517 F.2d 976, 981-82 (2d Cir. 1975).¹

C. Perma Life and In Pari Delicto

1. Prior Judicial Pronouncements

There are significant similarities between the defenses in pari delicto and "unclean hands", especially since they are premised on the same rationale. See 2 Pomeroy, Equity Jurisprudence §§ 397-398 (5th ed. 1941). Indeed, it might properly be stated that within the general category of an antitrust plaintiff's conduct under the label "unclean hands" is included that category of conduct which is properly labeled in pari delicto to take cognizance of the equal fault of a plaintiff who participates in a scheme maintained by a defendant whom the plaintiff thereafter charges with anticompetitive conduct. Given these conceptual similarities, the "unclean hands" decision by the Supreme Court in Kiefer-Stewart and its rationale are equally applicable as a starting point in discussing the viability of in pari delicto.

After Kiefer-Stewart, the Supreme Court held that a defendant-supplier could be liable under the antitrust laws for a scheme violative thereof regardless of whether the plaintiff-retailer had participated in the scheme knowingly when he had the opportunity to extricate himself voluntarily from such involvement. Simpson v. Union Oil Co., 377 U.S. 13, 16, 84 S.Ct. 1051, 1054, 12 L.Ed.2d 98, 101 (1964). Cf. Klor's v. Broad-way-Hale Stores, 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959); Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959); Sunshine Packers, Inc. v. American Can Co., 395 F.2d 86, 87-88 (5th Cir. 1968). The gist of the holding in Simpson was that a restraint of trade or monopolistic practice was actionable, regardless of the participation, albeit coerced, of the plaintiff. 377 U.S. at 16-17, 84 S.Ct. at 1054-1055, 12 L.Ed.2d at 101-102. The Court emphasized in Simpson the public interest to be served by the institution of antitrust proceedings as legislated by the Congress. 377 U.S. at 16, 84 S.Ct. at 1054, 12 L.Ed.2d at 101 quoting Radovich v. National Football League, 352 U.S. 445, 453-54, 77 S.Ct. 390, 394-95, 1 L.Ed.2d 456, 462-63 (1957). Taken to its logical extent, the rationale of Simpson emphasizes the supervening impact of the public interest in maintaining competitive markets to such an extent as to justify subsuming and eliminating entirely the in pari delicto defense.²

2. The Perma Life Decision

a. Should In Pari Delicto Be Recognized?

Against this background, the Supreme Court decided Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 88 S.Ct. 1981, 20 L.Ed.2d 982, in 1968. In that case, recognizing that a plaintiff's conduct may also be no less morally reprehensible than that of a defendant, Mr. Justice Black, speaking for the Court, ruled that the plaintiff was not to be...