Tip Top Farms, Inc. v. Dairylea Co-op., Inc., 1

• Decision Date: 30 December 1985
• Docket Number: No. 3,No. 2,No. 1,1,2,3
• Citation: 497 N.Y.S.2d 99,114 A.D.2d 12
• Parties: , 1986-1 Trade Cases P 66,915 TIP TOP FARMS, INC., Appellant-Respondent, v. DAIRYLEA COOPERATIVE, INC., Respondent-Appellant. (Action). PARK LANE DAIRIES, INC., et al., Appellants-Respondents, v. DAIRYLEA COOPERATIVE, INC., Respondent-Appellant. (Action). JEROME DAIRY CO., INC., Appellant-Respondent, v. DAIRYLEA COOPERATIVE, INC., Respondent-Appellant. (Action).
• Court: New York Supreme Court — Appellate Division

Page 99

497 N.Y.S.2d 99

114 A.D.2d 12, 1986-1 Trade Cases P 66,915

TIP TOP FARMS, INC., Appellant-Respondent, v. DAIRYLEA COOPERATIVE, INC., Respondent-Appellant. (Action No. 1).

PARK LANE DAIRIES, INC., et al., Appellants-Respondents, v. DAIRYLEA COOPERATIVE, INC., Respondent-Appellant. (Action No. 2).

JEROME DAIRY CO., INC., Appellant-Respondent, v. DAIRYLEA COOPERATIVE, INC., Respondent-Appellant. (Action No. 3).

Supreme Court, Appellate Division,

Second Department.

Dec. 30, 1985.

Marcus & Katz, Mineola (Lawrence K. Katz, of counsel), for appellants-respondents Tip Top Farms, Inc. and Jerome Dairy Co., Inc.

Field, Lomenzo & Turret, P.C., New York City (David A. Field and Burt Kesselman, of counsel), for appellants-respondents Park Lane Dairies, Inc. and Park Dale Dairies, Inc.

Bond, Schoeneck & King (John M. Freyer, Ronald C. Berger, Syracuse, and Janet H. Bliss, of counsel), for respondent-appellant Dairylea Co-op., Inc.

Before LAZER, J.P., and BRACKEN, RUBIN and EIBER, JJ.

RUBIN, Justice.

The common issue for appellate review in these three appeals is whether Federal antitrust policies bar indirect purchasers from obtaining, in an action to recover damages for a breach of contract or for money had and received, so much of a direct purchaser's recovery fund in a Federal antitrust action as represents illegal overcharges that had been passed on to the indirect purchasers pursuant to cost-plus pricing provisions in their requirements contracts with the direct purchaser.

Defendant Dairylea Cooperative, Inc. operates a milk pasteurizing plant in Queens County where it pasteurizes and packages milk and milk by-products for itself and other dealers. The plaintiffs are licensed milk dealers, who sell milk at wholesale in various counties in the metropolitan area.

Tip Top Farms, Inc. (Tip Top), the plaintiff in Action No. 1, alleges that defendant processed all its requirements for milk and milk products in 1973 and 1974 pursuant to an oral agreement which the parties entered into in October 1973. According to Tip Top, defendant agreed to supply it with all its requirements for packaged milk and milk products in exchange for a price that was based on three components: (1) the monthly price for raw milk established by the Federal Milk Market Administrator; (2) a charge for processing the raw milk, generally negotiated in the spring and fall of each year; and (3) defendant's cost for fiberboard milk cartons plus 1% as an allowance for plant loss. The parties allegedly agreed that defendant's profit was to be solely derived from the cost of processing the raw milk. Pursuant to said agreement, defendant issued monthly announcements notifying Tip Top of all increases or decreases in the cost of milk, the cost of processing and the current cost for cartons. Tip Top would order from defendant all its requirements for packaged milk and milk by-products. Tip Top's requirements varied, and the agreement did not obligate it to purchase a fixed quantity. Furthermore, Tip Top alleges that the agreement was terminable at will by either party.

Plaintiffs in Action No. 2, Park Lane Dairies, Inc. (Park Lane) and Park Dale Dairies, Inc. (Park Dale), allege that they entered into a similar oral contract with defendant in 1969, and, pursuant to said agreement, they pruchased all their requirements for packaged milk and milk products from defendant in the years 1971 through 1974. Plaintiff in Action No. 3, Jerome Dairy Co., Inc. (Jerome Dairy), also alleges that it entered into a similar oral agreement with defendant in December 1967, and that it purchased all its requirements for packaged milk and by-products from defendant during 1971 to 1974 in accordance with said agreement.

In approximately 1976, a Federal antitrust action was commenced against several manufacturers of fiberboard products. In violation of the Clayton Act (15 U.S.C. § 15), said manufacturers had allegedly conspired to fix prices and to allocate customers, resulting in illegal overcharges for their products, such as milk cartons, during the years 1960 to 1974. The United States District Court for the Northern District of Illinois certified a class which included direct purchasers from the manufacturer but excluded indirect purchasers further down in the chain of distribution (see, In re Folding Carton Antitrust Litigation, 75 F.R.D. 727). In 1979, the antitrust action was settled. The manufacturers, without admitting any liability, agreed to contribute to a settlement fund exceeding $200,000,000. Since Dairylea was a direct purchaser, it was included as a member of the plaintiff class in the antitrust action, and was notified in 1979 that it could submit a claim indicating its total purchases of fiberboard products from the defendant manufacturer during any four years between 1960 and 1974. Dairylea filed a claim based on its purchases of fiberboard products from defendant manufacturers during the years 1971 through 1974. Dairylea's claim was approved to the extent of $20,606,000. In April 1980, Dairylea received its proportionate share of the settlement fund in the form of $1,165,981.52 in cash, $29,100 in noninterest bearing promissory notes and a stock warrant entitling it to purchase 291 shares of Federal Paper Board Company, Inc.

Thereafter, plaintiffs commenced the instant actions in an attempt to recover a portion of the funds defendant Dairylea received in settlement of the antitrust action on a theory of breach of contract and on a theory of money had and received. Since Dairylea had passed on the milk carton manufacturer's overcharge to plaintiffs during the period of 1971 through 1974 by charging them, pursuant to their respective requirements agreements, the cost of the cartons plus 1%, plaintiffs reasoned that a portion of the proceeds of the antitrust settlement received by Dairylea represented a reduction of the cost of milk cartons which they purchased from Dairylea during that period. Therefore, plaintiffs contended that Dairylea was contractually obligated under the cost-plus provision of their oral contracts to refund said amount to them.

Special Term granted those branches of defendant's motions which requested summary judgment dismissing the causes of action in plaintiffs' respective complaints which sought to recover, on either a breach of contract or money had and received theory, the proceeds defendant received in settlement of the antitrust litigation on the ground that recovery would undermine overriding Federal antitrust policies. We agree with Special Term.

ILLINOIS BRICK RULE AND POLICY CONSIDERATIONS

Clayton Act § 4 (15 U.S.C. § 15) provides that any person "who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefore * * * and shall recover threefold the damages by him sustained". In Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707, reh. denied 434 U.S. 881, 98 S.Ct. 243, 54 L.Ed.2d 164, the United States Supreme Court held that, aside from two narrow exceptions, an indirect purchaser had no cause of action against the manufacturer under Clayton Act § 4 to recover treble damages for an illegal overcharge on the theory that the overcharge had been passed on to the indirect purchaser by the direct purchaser in the distribution chain.

In so holding, the Supreme Court echoed the policy considerations it had expressed nine years earlier in Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231, when it ruled that an antitrust defendant could not assert as a defense to a claim for treble damages under Clayton Act § 4, that the plaintiff, a direct purchaser, had "passed on" the overcharge to a buyer further down in the chain of distribution, and, thus, had not sustained real economic injury.

One policy consideration voiced by the Supreme Court in Hanover Shoe, supra, p. 493, 88 S.Ct. at 2231 as warranting a bar to the assertion of "pass-on" defense was the "massive evidence and complicated [economic] theories" that would be injected into the litigation to prove the amount of the overcharge, if any, that was passed on. As noted by the Hanover Shoe court:

"A wide range of factors influence a company's pricing policies. Normally the impact of a single change in the relevant conditions cannot be measured after the fact; indeed a businessman may be unable to state whether, had one fact been different (a single supply less expensive, general economic conditions more buoyant, or the labor market tighter, for example), he would have chosen a different price. Equally difficult to determine, in the real economic world rather than an economist's hypothetical model, is what effect a change in a company's price will have on its total sales. Finally, costs per unit for a different volume of total sales are hard to estimate. Even if it could be shown that the buyer raised his price in response to, and in the amount of, the overcharge and that his margin of profit and total sales had not thereafter declined, there would remain the nearly insuperable difficulty of demonstrating that the particular plaintiff could not or would not have raised his prices absent the overcharge or maintained the higher price had the overcharge been discontinued. Since establishing the applicability of the passing-on defense would require a convincing showing of each of these virtually unascertainable figures, the task would normally prove insurmountable" (Hanover Shoe, Inc. v. United Shoe Mach. Corp., supra, at pp. 492-493, 88 S.Ct. at 2231).

The Illinois Brick court recognized that the same insurmountable evidentiary problems of tracing the effect of an overcharge on prices, sales, costs and profits would apply a fortiori to a case where passing on was used offensively (Illinois Brick Co. v. Illinois, supra, 431 U.S. at p. 741, 97 S.Ct. at 2072) and "would transform treble-damages actions into massive efforts to apportion the...