Stifel, Nicolaus & Co., Inc. v. Dain, Kalman & Quail, Inc.

Decision Date15 June 1978
Docket NumberNo. 77-1755,77-1755
Parties1978-1 Trade Cases 62,094 STIFEL, NICOLAUS & COMPANY, INCORPORATED, a corporation, Appellant, v. DAIN, KALMAN & QUAIL, INCORPORATED, a corporation, Inter-Regional Financial Group, Inc., a corporation, Robert W. Fischer, Daryl Stamp, Gene Brawner and Jack Dean Jackson, Appellees.
CourtU.S. Court of Appeals — Eighth Circuit

John H. Lashly, St. Louis, Mo., for appellant; Kenneth C. Brostron and James J. Hennelly, St. Louis, Mo., on the brief.

James H. O'Hagan, Minneapolis, Minn., for appellees; Peter S. Hendrixson and J. Marquis Eastwood, Minneapolis, Minn., and James W. Hall, Cedar Rapids, Iowa, on the brief.

Before ROSS and HENLEY, Circuit Judges, and LARSON, Senior District Judge. *

HENLEY, Circuit Judge.

This is an appeal by an unsuccessful plaintiff in an antitrust and unfair competition suit that was filed in September, 1975 in the United States District Court for the Northern District of Iowa.

The complaint was in three counts. The first count charged that the several defendants had violated § 1 of the Sherman Antitrust Act of 1890, 15 U.S.C. § 1; the second count charged a violation of § 2 of the Sherman Act, 15 U.S.C. § 2; and the third count charged that the defendants had been guilty of common law unfair competition and tortious interference with relations between the plaintiff and three of its key employees. 1 Jurisdiction of Counts I and II was based on 15 U.S.C. § 15; jurisdiction of Count III was pendent, although it might well have been based on diversity of citizenship and the requisite amount in controversy. 28 U.S.C. § 1332(a). 2FN 1. Section 1 of the Sherman Act provides that every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states or with foreign nations is illegal.

Soon after the complaint was filed, the defendants filed a motion to dismiss it. That motion was denied in an order accompanied by an unpublished memorandum opinion filed on December 24, 1975. The defendants answered, and the case progressed toward trial readiness throughout 1976 and was set for trial in the spring of 1977. However, in March of that year the defendants filed another motion to dismiss the complaint and an alternative motion for summary judgment.

Those motions came before the district court in late April, 1977, and as of that time the court was of the opinion that the position of the defendants was well taken, and that the motions should be granted. Accordingly, the complaint was dismissed in its entirety. Stifel, Nicolaus & Co. v. Dain, Kalman & Quail, Inc., 430 F.Supp. 1234 (N.D.Iowa 1977).

Plaintiff filed a timely motion for reconsideration and prayed that the judgment of the district court be set aside and that the case proceed to trial on the merits. In August, 1977 the district court denied that motion with the qualification that leave would be granted to plaintiff to amend Count III of the complaint so as to allege diversity jurisdiction, but the district court stipulated that if such an amendment was filed, plaintiff would have to arbitrate its common law claim in accordance with the rules of the New York Stock Exchange (NYSE).

Within the time allowed by the district court plaintiff filed an amended complaint in which it sought to reallege its antitrust claims and in which it alleged diversity jurisdiction with respect to Count III and increased the amount of damages claimed in that count to an amount equal to the treble damages claimed under the antitrust counts.

Before any action was taken by the district court with respect to that amendment, plaintiff filed its notice of appeal. 3

Background facts of the case are not disputed.

Plaintiff, Stifel, Nicolaus & Company, Incorporated (Stifel), is a Missouri corporation with its principal place of business being located in the City of St. Louis. The corporate defendant, Dain, Kalman & Quail, Incorporated (Dain), is a Delaware corporation with its principal place of business being located in Minneapolis, Minnesota; it is wholly owned by the other corporate defendant, Inter-Regional Financial Group, Inc., which is a holding company organized under Delaware law and with its principal place of business being Minneapolis. The defendant Robert W. Fischer, a citizen of Minnesota, is the principal executive officer of both of the corporate defendants. The individual defendants, Daryl Stamp, Gene Brawner and Jack Dean Jackson, are all citizens of Iowa. They are all employees of Dain and formerly were employed by Stifel.

Stifel and Dain are competitors in interstate commerce in the securities brokerage business. Both are members of NYSE and are subject to its rules. Prior to September 3, 1975 Stifel and Dain both maintained branch offices in Iowa City and Cedar Rapids, Iowa, which are about seventeen miles apart; Cedar Rapids is the larger of the two cities. Since the date just mentioned Dain has continued to operate an office in both Cedar Rapids and Iowa City, and plaintiff has operated an office in the latter city.

In September, 1975 the individual defendants, Stamp, Brawner and Jackson, were all key employees of plaintiff in its Iowa offices. Stamp was the manager of the Iowa City office and was also manager of the Cedar Rapids office which he had established in 1973. All three of those individuals were account executives and were registered with the Securities and Exchange Commission as representatives of plaintiff. All had been trained by Stifel, and Stamp was a vice president of Stifel. All had access to records and confidential information that belonged to Stifel. Presumably, all three men had built up personal good will between themselves and customers of Stifel with whom they dealt.

On September 3, 1975 Stamp, Brawner, Jackson and all other employees of Stifel in Iowa City and Cedar Rapids quit their jobs without notice and went to work for Dain. Stamp, Brawner and Jackson took with them copies of records of customer accounts and began to solicit customers of Stifel to transfer their business to Dain. The immediate effect of the actions just described was the disruption of the business of Stifel in both Iowa City and Cedar Rapids. It seems that both offices were closed initially; the one in Iowa City was reopened and is functioning today; the one in Cedar Rapids has never been reopened.

This suit was filed on September 22, 1975. It was and is the theory of the plaintiff that the defection of its employees was the result of a conspiracy involving all six defendants. Plaintiff estimated its actual damages at $1,500,000.00, and it sought recovery of that sum in Count III of the complaint, the common law claim. Plaintiff sought treble damages ($4,500,000.00) in Counts I and II. 4

In their original motion to dismiss, the defendants alleged that the district court lacked subject matter jurisdiction and that the complaint did not state a claim upon which relief could be granted. Alternatively, defendants moved that proceedings be stayed and that the dispute between Stifel and Dain be arbitrated as required by the rules of NYSE.

While Count I of the complaint contained a general allegation that the conspiracy among the defendants was an "unreasonable" restraint on interstate commerce, the basic position of the plaintiff in resisting the defendants' motion was that the conspiracy was designed to eliminate plaintiff as a competitor in the Cedar Rapids-Iowa City area, and was a per se violation of § 1 of the Sherman Act under the rule laid down in Albert Pick-Barth Co. v. Mitchell Woodbury Corp., 57 F.2d 96 (1st Cir.), Cert. denied, 286 U.S. 552, 52 S.Ct. 503, 76 L.Ed. 1288 (1932), as limited by George R. Whitten, Jr., Inc. v. Paddock Pool Builders, Inc., 508 F.2d 547 (1st Cir. 1974), Cert. denied, 421 U.S. 1004, 95 S.Ct. 2407, 44 L.Ed.2d 673 (1975).

While § 1 of the Sherman Act in terms prohibits all combinations and conspiracies in restraint of interstate or foreign trade or commerce, the scope of the Act has been narrowed by judicial construction to combinations or conspiracies which "unreasonably" affect trade or commerce in the sense that they violate the "rule of reason" which has long been recognized in antitrust cases. See, e. g., Northern Pacific R. Co. v. United States, 356 U.S. 1, 4-5, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958), and Apex Hosiery Co. v. Leader, 310 U.S. 469, 60 S.Ct. 982, 84 L.Ed. 1311 (1940). The rule of reason requires that the restraint in question affect market prices or otherwise deprive the consuming public of the benefits of free competition. Apex Hosiery Co. v. Leader, supra, 310 U.S. at 500-01, 60 S.Ct. 982, and cases cited.

There are, however, certain business combinations and practices that are so pernicious and so devoid of redeeming attributes that they are considered to be unreasonable restraints on interstate or foreign commerce per se. If a businessman is injured as a result of a per se violation of § 1 of the Sherman Act, he need not allege or prove any particular effect or impact of the violation on interstate or foreign commerce; the existence of such an effect or impact is conclusively presumed. United States v. Bensinger Co., 430 F.2d 584, 588 (8th Cir. 1970). Certain categories of per se violations are well defined and include price fixing, group boycotts, and certain types of tying agreements. See the opinion of the district court, 430 F.Supp. at 1238, and cases cited.

The Pick-Barth rule, as limited by Whitten, supra, is that a per se violation of § 1 occurs where a significant competitor in interstate or foreign commerce enters into a conspiracy to destroy completely or eliminate from competition a competitor by means of unfair trade practices including the luring away of key employees with the usual concomitants of such luring.

When the original motion to dismiss came before him, the district judge thought that Count I of the...

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