Tops Markets, Inc. v. Quality Markets, Inc.

• Decision Date: 09 April 1998
• Docket Number: 97-7448,Docket Nos. 97-7392
• Citation: 142 F.3d 90
• Parties: 1998-1 Trade Cases P 72,111 TOPS MARKETS, INC., Plaintiff-Appellant-Cross-Appellee, v. QUALITY MARKETS, INC.; The Penn Traffic Company; Sunrise Properties, Inc., Defendants-Appellees, James V. Paige, Jr., Defendant-Appellee-Cross-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

Page 90

142 F.3d 90

1998-1 Trade Cases P 72,111

TOPS MARKETS, INC., Plaintiff-Appellant-Cross-Appellee, v. QUALITY MARKETS, INC.; The Penn Traffic Company; Sunrise

Properties, Inc., Defendants-Appellees,

James V. Paige, Jr., Defendant-Appellee-Cross-Appellant.

Docket Nos. 97-7392, 97-7448.

United States Court of Appeals, Second Circuit.

Argued Oct. 27, 1997.

Decided April 9, 1998.

Edward C. Cosgrove, Buffalo, NY, for Plaintiff-Appellant Tops Markets, Inc.

Kenneth N. Hart, New York City (Vanessa E. Brosgol, Donovan Leisure Newton & Irvine, New York City; Charles C. Swanekamp, Saperston & Day, P.C., Buffalo, NY, of counsel), for Defendants-Appellees Quality Markets, Inc., The Penn Traffic Company and Sunrise Properties, Inc.

David J. Seeger, Buffalo, NY, for Defendant-Appellee James V. Paige, Jr.

Before: FEINBERG, CARDAMONE, and WALKER, Circuit Judges.

CARDAMONE, Circuit Judge:

On this appeal from a dismissal of an antitrust complaint, we affirm all but one of the district court's rulings. We conclude that plaintiff's claim of attempted monopolization presents a genuine issue of material fact and should not have been dismissed. In ruling on this sort of cause of action it is important to distinguish aggressive competition from the kind of predatory conduct that tends to destroy competition. A wise insight suggests that a business that attains monopoly power is a business at the end of its journey. While defendants' pilgrimage was far from complete, a reasonable factfinder could believe that, by their words and actions, defendants here demonstrated a specific intent to create a monopoly with a dangerous probability of success. Were such to be found, it would demonstrate a failure of the market at the expense of the public, something the Sherman Act is designed to prevent.

Tops Markets, Inc. (Tops, plaintiff or appellant) appeals from an August 21, 1996 judgment of the United States District Court for the Western District of New York (Elfvin, J.) that: (1) granted summary judgment in favor of defendants Quality Markets, Inc., the Penn Traffic Company and Sunrise Properties, Inc., and defendant James V. Paige, Jr.; (2) dismissed plaintiff's federal antitrust claims; and, (3) declined to exercise pendent jurisdiction over remaining state law claims and counterclaims, dismissing them all without prejudice. Defendant Paige cross-appeals the dismissal without prejudice of plaintiff's state law claims against him, and the dismissal of his state law counterclaims against plaintiff.

FACTS

The corporate parties to this action include: plaintiff Tops Markets, a New York corporation engaged in the retail supermarket business, operating 53 supermarkets and 87 convenience stores in western New York; defendant Penn Traffic Company (Penn), which owns and operates 267 supermarkets and 15 discount department stores throughout New York, Pennsylvania, Ohio and West Virginia; defendant Quality Markets (Quality), a New York corporation that is a division of Penn and competes with Tops by operating supermarkets in western New York and western Pennsylvania; and defendant Sunrise Properties (Sunrise), a Pennsylvania corporation and wholly-owned subsidiary of Penn that owns and develops commercial real estate for Penn and its divisions. Quality, Penn and Sunrise together comprise the "Quality defendants." The remaining party is defendant James V. Paige, Jr., a Jamestown, New York, real estate developer.

A. The Relevant Market

For purposes of reviewing the grant of summary judgment in this antitrust appeal, the relevant geographical market is that to The Jamestown market recently has undergone dramatic changes. In 1992 Quality owned five of the nine supermarkets in the geographical market. Of the remaining four supermarkets, "Bells" and "Super Duper" each owned and operated two. In January 1993 Quality acquired and within one year closed both "Bells" stores. In April 1995 it purchased both "Super Duper" stores and immediately shut them both as well. In May 1995 Wegmans, a Quality competitor, successfully opened a large 100,000 square foot supermarket in the Jamestown market area.

which the parties stipulated: an area in the southeastern portion of Chautauqua County, New York, extending approximately seven to ten miles in all directions from the city of Jamestown. The area includes 17 municipalities and is populated by approximately 75,000 people. The parties also stipulated that the relevant product market consists of the retail sale by "supermarkets" of predominantly food items, together with general household merchandise. A "supermarket" is defined as a retail store with at least 7,500 square feet of retail space that sells a full range of perishable and non-perishable food items and general household merchandise.

B. The Disputed Act: The Washington Street Site

Tops owned a supermarket in the Jamestown market until 1984 when it voluntarily terminated operations there. Seven years later, in 1991, it resolved to re-enter the Jamestown market and commissioned studies to evaluate the feasibility and profitability of numerous potential sites for a new store location. These studies determined certain property located on Washington Street in Jamestown (the Washington Street site) was the most suitable spot for a supermarket. The Washington Street site consisted of several parcels of land, four of which were owned by defendant Paige.

Paige agreed to sell his four parcels to Tops. Under the terms of a March 13, 1992 contract, Paige undertook to transfer title to Tops for $475,000. The parties set December 15, 1992 as the date for closing, subject to change only by their mutual agreement. The contract also called for Paige to obtain options to purchase the remaining parcels he did not own at the Washington Street site, giving him until March 15, 1992 to comply with this requirement. The contract specified that if Paige failed to acquire these additional parcels, Tops could elect unilaterally to terminate the agreement.

When Quality discovered Tops' intention to re-enter the Jamestown market at the Washington Street site, it expressed an interest in acquiring two of Paige's Washington site parcels. Paige and Sunrise subsequently entered into a "Back-Up" agreement on June 30, 1992 under which Sunrise would acquire for $225,000 two non-contiguous parcels lacking any frontage on Washington Street. The contract of sale was made expressly contingent upon the termination of Paige's prior contract with Tops.

Sunrise and Paige restructured their contract on November 4, 1992 to grant Sunrise the option to purchase the same two parcels for a total purchase price (i.e., the sum of the option price and the "strike price") of $360,000. This arrangement again was amended on January 27, 1993 to increase the total purchase price to $765,000. Also included was a right of repurchase by Paige within one year after the deed to the property was conveyed to Sunrise. Any repurchase however, would be subject to a deed restriction limiting the property to uses other than a supermarket. On the same day that the second amendment was prepared, Paige notified Sunrise that his contract with Tops had terminated. Sunrise thereafter exercised its option and did acquire title to the two Washington Street parcels in April 1993. This lawsuit followed.

Plaintiff eventually acquired the entire Washington Street site when the Jamestown Urban Renewal Agency, exercising its power of eminent domain, condemned the property and later sold it to Tops. Tops opened a superstore at the site on April 19, 1997.

C. Prior Proceedings

Plaintiff filed the present action in the Western District of New York in April 1993 to recover damages from the Quality defendants and Paige for their alleged violations of *95s § 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1 & 2. It also asserted state law claims against the Quality defendants for violations of New York state antitrust laws and tortious interference with a contractual relationship. As against Paige, it further alleged breach of contract, breach of fiduciary duty, and fraud. Maintaining no binding contract existed between him and Tops, Paige counterclaimed against Tops on several state law grounds including fraud, tortious interference with a contractual relationship, wrongfully clouding title, and defamation.

Defendants moved for summary judgment with respect to all of plaintiff's causes of action. In its August 21, 1996 judgment, the trial court ruled that Tops failed to establish facts from which a reasonable jury could find that defendants violated either § 1 or § 2 of the Sherman Act. It determined, with respect to plaintiff's § 1 cause of action, that Tops failed to show either an actual adverse effect on competition in the Jamestown market or Quality's possession of market power. With respect to the § 2 cause of action, it further ruled that Tops failed to demonstrate Quality had either the requisite market power or potential market power to sustain a monopolization or attempted monopolization claim respectively.

Plaintiff urges on appeal that dismissing its Sherman Act causes of action was error. Paige cross-appeals, arguing the district court should have entertained his state law counterclaims and dismissed Tops' state law claims against him with prejudice. We affirm, in part, reverse, in part, and remand this case to the district court for further proceedings.

DISCUSSION

Standard of Review

This appeal comes before us as a result of a grant of summary judgment. Courts use summary judgment "to isolate and dispose of factually unsupported claims," Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986), particularly in the antitrust context. By avoiding wasteful trials and preventing lengthy litigation that may have a chilling effect on pro-competitive market forces, summary judgment serves a vital function in the area of antitrust law. See Matsushita Elec. Indus. Co. v....