Sciambra v. Graham News Co.

• Citation: 841 F.2d 651
• Decision Date: 08 April 1988
• Docket Number: No. 86-3501,86-3501
• Parties: 1988-1 Trade Cases 67,955, 10 Fed.R.Serv.3d 1173 Joseph SCIAMBRA d/b/a Periodical Marketing and Consulting Company, Plaintiff- Appellant Cross-Appellee, v. GRAHAM NEWS COMPANY, et al., Defendants, ARA Services, Inc., Defendant-Appellee Cross-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 651

841 F.2d 651

1988-1 Trade Cases 67,955, 10 Fed.R.Serv.3d 1173

Joseph SCIAMBRA d/b/a Periodical Marketing and Consulting

Company, Plaintiff- Appellant Cross-Appellee, v. GRAHAM NEWS COMPANY, et al., Defendants, ARA Services, Inc., Defendant-Appellee Cross-Appellant.

No. 86-3501.

United States Court of Appeals,

Fifth Circuit.

April 8, 1988.

Rehearing and Rehearing En Banc Denied May 17, 1988.

Charles K. Reasonover, Deutsch, Kerrigan & Stiles, New Orleans, La., for plaintiff-appellant cross-appellee.

James A. Babst, Harry McCall, Jr., Chaffe, McCall, Toler & Sarpy, New Orleans, La., for defendant-appellee cross-appellant.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before TIMBERS, ^* KING, ^** and HIGGINBOTHAM, Circuit Judges.

TIMBERS, Circuit Judge:

Joseph Sciambra d/b/a Periodical Marketing and Consulting Company ("Sciambra") appeals from a default judgment entered February 20, 1987 in the Eastern District of Louisiana, Marcel Livaudais, Jr., District Judge. The court imposed, pursuant to Fed.R.Civ.P. 37, a sanction in the form of a default judgment against ARA Services, Inc. ("ARA"), Sciambra's former supplier. The court awarded Sciambra damages based on his antitrust complaint. The court subtracted from its damage award the amount of a settlement between Sciambra and ARA's alleged coconspirator, the purchaser of ARA's business. The court then trebled that figure.

On appeal, Sciambra claims that the initial award should have been trebled before the amount of the settlement was deducted. ARA cross-appeals, claiming that the court (1) erred in imposing a default judgment under Rule 37; (2) lacked subject matter jurisdiction by virtue of the settlement; (3) erred in its assessment of damages; and (4) should not have trebled damages based on the default judgment.

We hold that the court had jurisdiction and we affirm the Rule 37 default judgment as a sanction. We reverse and remand, however, solely on the issue of damages, holding that the court erroneously based its calculations on the going concern value of Sciambra's business although he had sold it. On remand on the issue of damages, moreover, we instruct the district court to treble the award before deducting the amount paid in settlement by the alleged coconspirator.

I.

We shall summarize only those facts and prior proceedings believed necessary to an understanding of the issues raised on appeal.

Sciambra distributed primarily magazines to retailers in the New Orleans area. He obtained his supply from ARA, a wholesaler and competitor distributor of books and periodicals. ARA is the largest book and magazine distributor in the United States. Although ARA initially provided some retail accounts to Sciambra, he operated an independent business and had solicited and obtained the majority of his accounts. Metro News Agency ("Metro News") also was a wholesaler and competitor distributor in the New Orleans area. Graham News Company, Metro News and Bayou News Agency, Inc. (collectively "Graham") had substantially identical ownership and management.

In late 1983 or early 1984, representatives of Graham discussed with ARA the possibility of purchasing ARA's business in New Orleans. During several meetings between their representatives, Graham told ARA that it did not want to assume ARA's contract with Sciambra. ARA agreed to terminate Sciambra's source of supply prior to the sale of its business to Graham. It gave Sciambra 30 days notice of termination on March 19, 1984. ¹

On March 16, ARA and Graham executed a sales agreement whereby ARA sold its business to Graham for $2,799,065. The sales price was based on 65% of ARA's annual net sales. Apparently the value of a periodical business typically ranges from 10% to 100% of annual sales. Actual delivery of assets was to take place on April 2. ARA arranged for Graham to service Sciambra on the same terms as ARA had serviced him until April 18, pursuant to the notice of termination. After April 18, neither ARA nor Graham would supply Sciambra. Included in the total sales price paid by Graham for ARA's business was an amount expressly allocated for ARA's annual sales to Sciambra. The parties determined this amount to be $255,632, based on 65% of ARA's annual net sales to Sciambra.

Paragraph 2.1(c) of the sales agreement provided:

"The contract between Seller [ARA] and Joe Sciambra is not being assumed by Buyer [Graham], provided that both Buyer and Seller agree that sales by Seller to Joe Sciambra, Cash Route Operator shall be included within the Aggregate Net Sales referred to in Section 2.1(a) to calculate the Purchase Price."

Sciambra's business was the only account separately allocated in the agreement. During the course of negotiating the sale, both parties discussed potential antitrust concerns. Graham attempted to obtain from ARA an indemnity agreement covering any antitrust violations asserted by Sciambra. ARA would not agree to such a condition. After April 18 when Graham refused to supply products to Sciambra, Graham became the only wholesaler of books and periodicals in the New Orleans area.

On April 16, Sciambra commenced the instant action against Graham and ARA, alleging antitrust violations under Secs. 1 and 2 of the Sherman Act, and Secs. 4, 7, and 16 of the Clayton Act, as well as breach of contract claims under state law. The complaint alleged basically that ARA and Graham had conspired to restrain trade and to monopolize the wholesale distribution of periodicals in the Greater New Orleans market; and, for the purpose of eliminating him as a competitor, that they had refused to supply Sciambra with goods. Sciambra requested injunctive relief and $255,632 in damages (the amount Graham and ARA allocated in their sales contract for his business), the damages to be trebled.

On June 29, Judge Feldman, to whom the case temporarily was assigned, granted Sciambra a mandatory preliminary injunction against Graham based on a showing of probable violation of Sec. 2 of the Sherman Act. The injunction required Graham to supply periodicals to Sciambra. The injunction was not granted against ARA, who no longer was in the periodical business in New Orleans. Graham began supplying Sciambra. Sciambra went back in business on about July 1. There were a total of approximately 70 days during which Sciambra lacked supplies before the injunction was entered.

Subsequently, on September 12, Sciambra and Graham entered into a sales contract. The contract provided that Graham would purchase Sciambra's business for the recited consideration of $40,000. In connection with the sale, Sciambra and Graham entered into an undated non-competition agreement pursuant to which Sciambra agreed to refrain from commercial activity for seven years within one hundred miles of any retail account in South Louisiana serviced by him in 1983 or 1984.

On September 20, Sciambra and Graham entered into a settlement agreement, releasing Graham from any alleged antitrust violations asserted by Sciambra, for the sum of $125,000. Apparently, the sale and the settlement (collectively the "Graham sales settlement") were agreed upon at the same time. Pursuant to the agreement, Sciambra ceased operations in October. ARA was not a party to that agreement.

The instant action continued against ARA. A total of ten court orders were entered by Magistrate Fonseca and Judge Livaudais to enforce discovery against ARA. Shortly before trial, the court determined that numerous discovery abuses by ARA made a fair trial impossible. On March 7, 1986, the court, pursuant to Fed.R.Civ.P. 37(b)(2)(C) and (E), imposed sanctions against ARA consisting of a default judgment, costs and attorney's fees for repeated failures to comply with court-ordered discovery.

After trial on the issue of damages, the court, in its June 4, 1986 order, awarded $255,632 in damages against ARA, based on what the court perceived as the market value of the business--that which a willing seller and a willing buyer would pay--as evidenced by the ARA/Graham sale allotting $255,632 for Sciambra's business. Although Sciambra offered his business to both ARA and Metro News for $100,000 when his supply was being terminated and he could not find an alternative source, the court held that it was hardly an "arms length" negotiation. The court subtracted the $165,000 Graham sales settlement from the $255,632 damages. Although the court initially did not permit trebling, it subsequently entered an amended order on February 20, 1987 and trebled the $90,632 damage award. The result was an award of $271,896 in damages, plus attorney's fees of $69,414.72 and costs of $8,085.95.

From the judgment entered on that order the instant appeal has been taken.

II.

We turn first to ARA's claim that the court abused its discretion in imposing a sanction in the form of a default judgment. ARA asserts that the court's findings of fact on which it based its sanction are unsupported by the record. We disagree.

A district court has discretion to impose sanctions under Rule 37. Judgment by default, although a harsh sanction, is one contemplated by the Rule. We will reverse a determination that sanctions are warranted only if the district court has abused its discretion. National Hockey League v. Metropolitan Hockey Club, Inc., 427 U.S. 639, 642-43 (1976) (per curiam); Batson v. Neal Spelce Ass'n, Inc., 765 F.2d 511, 514 (5th Cir.1985).

Upon our review of the record, we affirm the entry of the judgment by default. The court explained in detail the factors leading to its decision to impose a default judgment. True, the court's findings were drafted by Sciambra and signed by the judge, a practice we disfavor. Amstar Corp. v. Domino's Pizza, Inc., 615 F.2d 252, 258 (5th Cir.1980). But viewing these findings with a more critical eye, we hold that they do not amount to an abuse of discretion.

The magistrate had ordered production, among other documents, of all...