RW Intern., Inc. v. Borden Interamerica, Inc.

• Decision Date: 24 November 1987
• Docket Number: Civ. No. 85-1141 (JAF).
• Citation: 673 F. Supp. 654
• Parties: R.W. INTERNATIONAL, INC., Thomas H. Ward, and International Food Distributors, Inc., Plaintiffs, v. BORDEN INTERAMERICA, INC. and Borden, Inc., Defendants.
• Court: U.S. District Court — District of Puerto Rico

673 F. Supp. 654

R.W. INTERNATIONAL, INC., Thomas H. Ward, and International Food Distributors, Inc., Plaintiffs, v. BORDEN INTERAMERICA, INC. and Borden, Inc., Defendants.

Civ. No. 85-1141 (JAF).

United States District Court, D. Puerto Rico.

November 24, 1987.

Geoffrey M. Woods, Woods & Woods, San Juan, P.R., for plaintiffs.

Leonardo Andrade Lugo, Goldman & Antonetti, San Juan, P.R., for defendants.

OPINION AND ORDER

FUSTE, District Judge.

This lawsuit arises out of activities beginning in June, 1983, when co-defendant Borden Interamerica, Inc. ("Interamerica"), a subsidiary of co-defendant Borden, Inc. ("Borden"), acquired the distribution rights of co-plaintiff corporation International Food Distributors, Inc. ("International"), through an agreement with its president, co-plaintiff Thomas Ward. Included in the agreement of sale was the covenant that Ward would not compete in the wholesale distribution of frozen food and dairy products so long as Interamerica carried on the distributorship assigned by the agreement.

We need not at this point list the goings on after the agreement was signed except to note that they spawned two lawsuits. The first, a state court action filed by co-defendant Interamerica, alleges that Ward violated the non-competition covenant. This, the second suit, consists of several causes of action under local tort and contract law, along with allegations of violations of federal antitrust law, specifically 15 U.S.C. Sections 1 and 2.

This case is before us now with a complex and prolific procedural history. A pretrial order was issued on September 10, 1985, after co-defendant Interamerica had filed its motion to dismiss for lack of diversity jurisdiction and its motion for summary judgment as to the antitrust claim.¹ That order set a schedule for discovery concerning both the jurisdictional and substantive issues. By the end of October, 1985, plaintiffs' oppositions to defendants' motions were due unless plaintiffs had indicated to the court that further depositions would be necessary.

Only one deposition was taken; on October 1 and October 2, 1985, Miguel Simonet, the president of Interamerica was deposed by plaintiffs, solely on matters concerning the principal place of business of Interamerica. Matters touching upon the antitrust claims were not addressed, then or after the deadline for exploring such issues had passed.

After a flurry of replies and surreplies on both the antitrust and diversity issues, along with the injection of an amended complaint, and the reassignment of the case to the writing judge, the matter stands submitted on both of defendants' motions.

Because plaintiffs were on notice that this court's jurisdiction was being contested via the scheduling order, as well as defendants' dispositive motions, we now, pursuant to Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986), dismiss all of plaintiffs' claims. The antitrust claims fail to sufficiently state a cause of action and the state law claims are dismissed for lack of diversity jurisdiction.

I. The Antitrust Claims

Plaintiffs seem to contend several different antitrust violations in their amended complaint. The most obvious—the sixth cause of action—sounds wholly in antitrust, alleging violations of sections 1 and 2 of the Sherman Act. An exploration of the requirements of federal antitrust claims reveals that plaintiffs have failed to allege the necessary elements to sustain an antitrust cause of action.

A.

To successfully claim a violation of Section 1 of the Sherman Act, contracting or conspiring in restraint of trade, plaintiffs must allege that defendants' actions resulted in damage to competition as a whole in the relevant market, and not just to themselves as a particular competitor. White v. Hearst Corp., 669 F.2d 14, 18 (1st Cir.1982); Americana Industries v. Wometco de P.R., 556 F.2d 625, 627 (1st Cir. 1977); Havoco of America v. Shell Oil Co., 626 F.2d 549, 554-59 (7th Cir.1980); ADM v. Sigma, 628 F.2d 753, 754 (1st Cir.1980); Medical Arts Pharmacy of Stanford Inc. v. Blue Cross & Blue Shield of Connecticut Inc., 675 F.2d 502, 504 (2nd Cir.1982). This information may not be "developed" at trial; it must be pleaded originally in the complaint or readily available during discovery proceedings. "The absence of a sufficient allegation of anti-competitive effects in a Sherman Act complaint is fatal to the existence of the cause of action." Havoco, 626 F.2d at 554.

The complaint alleges only that the purchase of International and inclusion of the covenant not to compete were actions in restraint of trade. Plaintiffs do little more to buttress that allegation than offer International President Ward's assertion in his affidavit that Interamerica head Simonet admitted the actions were in truth an attempt to monopolize the frozen food market in Puerto Rico, along with Ward's claim that International was "the only real competitor to Interamerica in Puerto Rico." We note here that the enforcement of covenants not to compete are neither per se antitrust violations nor per se permissible. Instead, they are subject to judicial scrutiny on a case-by-case basis under the Rule of Reason. Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255, 267-69 (7th Cir. 1981), cert. denied, 455 U.S. 921, 102 S.Ct. 1277, 71 L.Ed.2d 461 (1982). Nonetheless, plaintiffs' assertions, without verifiable information concerning the composition of and damage to the relevant market, do not make a colorable federal antitrust claim. Americana Industries, 556 F.2d at 627-28; Havoco, 626 F.2d at 558.

B.

Plaintiffs also allege and defendants also deny that the purchase of International and the inclusion and attempted enforcement of the covenant not to compete were attempts to monopolize the frozen food and dairy market in Puerto Rico. (We are unable to discern from the pleadings any claim that defendants actually monopolized that market). The Section 2 allegations also fall short of stating an antitrust claim in federal court.

To succeed at trial on a Section 2 claim, plaintiffs must establish an intent to monopolize as well as a dangerous probability of success in a relevant market. George R. Whitten Jr., Inc. v. Paddock Pool Bldrs., Inc., 508 F.2d 547, 550 (1st Cir.1974), cert. denied, 421 U.S. 1004, 95 S.Ct. 2407, 44 L.Ed.2d 673 (1975); C.R. Bard Inc., v. Medical Electronics Corp., 529 F.Supp. 1382, 1390 (D.C.Mass.1982). See also Lektro-Vend Corp., 660 F.2d at 270 (proof of an attempt to monopolize requires: "(1) a specific intent to monopolize, i.e., to gain the power to control prices or to exclude competition in a line of commerce, (2) predatory or anticompetitive acts engaged in to further the purpose to monopolize, and (3) a dangerous probability of success in the relevant market which requires evidence that the defendant had sufficient market power to have been reasonably able to create a monopoly.") (citations omitted). A colorable claim, thus, must include evidence of the market power of the defendants and, therefore, must, like Section 1 claims, include facts defining the relevant market. Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172, 177, 86 S.Ct. 347, 350, 15 L.Ed.2d 247 (1965); Gilbuilt Homes, Inc., v. Continental Homes, etc., 667 F.2d 209, 211 (1st Cir.1981); Paddock Pool Bldrs., 508 F.2d at 550; C.R. Bard, Inc., 529 F.Supp. at 1390.

Like the First Circuit, "we do not think that a bare allegation, `on information and belief', of malice and a specific intent to put the plaintiffs out of business can save a complaint that fails to allege facts and circumstances tending to show that the defendant has substantial market power." Americana Industries, 556 F.2d at 627-28. See also Hennessy Industries Inc., v. FMC Corp., 779 F.2d 402, 405 (7th Cir.1985) ("The complaint does not set forth any facts from which we can infer that defendants had sufficient market power to have been able to create a monopoly."). Plaintiffs have not fully alleged a Section 2 violation and cannot be permitted to proceed on their insufficient complaint.

C.

The complaint, as amended, contains in each other state-law based cause of action the paragraph that the state law violations constituted monopolization or attempts to monopolize the frozen food market in Puerto Rico. To the extent that these represent federal antitrust claims they are dismissed for lack of standing, since plaintiffs have not alleged the requisite "antitrust injury" making the Sherman Act applicable. Plaintiffs would have been injured despite any damage to the market, and, thus, were not injured by any resultant lack of competition, but rather by the state law violations complained of. As in Turner v. Johnson & Johnson, 809 F.2d 90, 102 (1st Cir.1986), "the alleged injury to plaintiffs here unquestionably flowed from the alleged state law violation and not from suppressed competition in the ... market." Those claims are, therefore, denied. See also Southaven Land Co., Inc. v. Malone & Hyde, Inc., 715 F.2d 1079 (6th Cir.1983) (plaintiff lacked standing when no causal connection existed between anticompetitive action and plaintiff's alleged injury); Nishimura v. Dolan, 599 F.Supp. 484, 494-97 (E.D.N.Y.1984) (breach of contract or tort does not rise to level of injury the antitrust laws were designed to prevent).

II. The Diversity Issue

We turn now to defendants' motion to dismiss due to a lack of diversity among the parties. Plaintiffs assert that the citizenship of Interamerica is located in New York or in Ohio, the location of the headquarters of the parent, Borden, Inc. Defendant Interamerica contends that it is a citizen of Puerto Rico. Since six of the seven causes of action are state law claims, inasmuch as all of the plaintiffs, corporate and individual, are citizens of Puerto Rico, and since there must be complete diversity in order for the state law claims to be heard in federal court, Owen Equipment and...