United States v. American Linen Supply Company

• Decision Date: 11 April 1956
• Docket Number: No. 55 C 1481.,55 C 1481.
• Citation: 141 F. Supp. 105
• Parties: UNITED STATES of America v. AMERICAN LINEN SUPPLY COMPANY, Frank G. Steiner, and Jonas H. Mayer.
• Court: U.S. District Court — Northern District of Illinois

141 F. Supp. 105

UNITED STATES of America v. AMERICAN LINEN SUPPLY COMPANY, Frank G. Steiner, and Jonas H. Mayer.

No. 55 C 1481.

United States District Court N. D. Illinois.

April 11, 1956.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Earl A. Jinkinson, Bertram M. Long, Raymond C. Nordhaus, Chicago, Ill., for plaintiff.

Leo F. Tierney, Roger W. Barrett, Charles L. Stewart, Jr., Mayer, Friedlich, Spiess, Tierney, Brown & Platt, Chicago, Ill., for defendants.

HOFFMAN, District Judge.

This is a civil action brought by the United States under the provisions of Section 4 of the Sherman Act and Section 15 of the Clayton Act, 15 U.S.C.A. §§ 4 and 25, for equitable relief against alleged violations of Section 1 of the Sherman Act and Section 3 of the Clayton Act, 15 U.S.C.A. §§ 1 and 14. The defendants are American Linen Supply Company, a Nevada corporation with principal offices in Chicago, hereafter referred to as ALSCO, Frank G. Steiner, ALSCO's president, and Jonas H. Mayer, ALSCO's vice-president. The action was originally commenced in the Eastern District of Wisconsin and was transferred, upon the defendants' motion, to this District for further proceedings.

In this Court the defendants have filed four motions now to be considered: First, a motion to dismiss the complaint for failure to state a claim upon which relief can be granted; second, a motion to dismiss the individual defendants from the action; third, a motion to require the statement of separate claims in separate counts; and fourth, a motion for a more definite statement. No answer has yet been filed by the defendants.

1. Motion to Dismiss for Failure to State a Claim.

The defendants' first motion is made under the provisions of Rule 12(b) (6) of the Federal Rules of Civil Procedure, 28 U.S.C.A., questioning the legal sufficiency of the allegations of the complaint. Broadly stated, these allegations charge the defendants with combining and conspiring, with approximately three hundred distributors not named as parties, to restrain trade and commerce in cloth and paper towel cabinets and paper towels in violation of Section 1 of the Sherman Act, and with entering into unlawful contracts, agreements and understandings with these distributors which substantially limit competition and tend to create a monopoly in paper towel cabinets and paper towels in violation of Section 3 of the Clayton Act.

More particularly, the complaint alleges that ALSCO is engaged in the business of manufacturing dispensing cabinets for cloth and paper towels, used in restaurants, stores, industrial concerns, institutions, and government agencies throughout the United States. More than 500,000 cabinets for dispensing cloth towels have been sold by ALSCO and are now in use, it is recited, and more than 275,000 of its cabinets for dispensing paper towels are alleged to have been sold and to be in use. ALSCO also distributes paper towels, manufactured both by ALSCO and by others, and its total annual sales are stated to be in excess of $2,000,000. All of these operations are alleged to involve interstate commerce.

The defendant ALSCO, according to the complaint, is the owner of patents covering certain mechanisms in both its cloth and paper towel cabinets. The pattern of distribution described by the government depends upon the type of cabinet. The cloth cabinets produced by ALSCO are sold to a number of linen supply companies throughout the United States, and the purchaser receives what is referred to as a user license authorizing use of the patented mechanism and obliging him to pay a $1 annual royalty for the use of each cabinet purchased. Paper towel cabinets, on the other hand, are sold to linen supply companies and paper jobbers throughout the United States with separate leases of their patented mechanisms. The purchasers-lessees then install these paper towel cabinets in the stores, restaurants, institutions, and factories of their customers without cost to the customer, upon the condition that the consumer must purchase his total requirements of paper towels from the jobber installing the cabinet. These jobbers, in turn, are required to purchase their requirements of paper towels from ALSCO. Finally, it is alleged that ALSCO also operates its own linen supply companies, through which it supplies and services towel cabinets in direct dealing with consumers.

The offenses charged in the complaint fall into two classes. First, it is averred that the defendants require the jobbers through which it distributes its paper towel cabinets to purchase their total requirements of paper towels from ALSCO as a condition to their obtaining paper towel cabinets, and, in addition, require the jobbers' customers to purchase their total requirements of paper towels from the jobber making the paper towel cabinet installation. The second class of offenses charged consists of a continuing agreement, understanding, and concert of action among the defendants and the three hundred linen supply companies and paper jobbers included as co-conspirators, by the terms of which the defendants require their jobbers in both cloth and paper towel cabinets and in paper towels not to solicit any customer being served by another jobber nor to replace any cloth or paper towel cabinet installed by another jobber.

The complaint also charges that the defendants, in effectuating and carrying out these offenses, have investigated violations of the agreements, have enforced compliance, and have penalized non-compliance by compelling offending jobbers to make restitution for business taken from other jobbers, and by threatening to cancel and by cancelling ALSCO's selling, lease, or license agreements with offending jobbers. The government also complains that, by way of enforcement of the offending agreements, the defendants have compelled the paper jobbers to buy their total requirements of paper towels from ALSCO, and the jobbers' customers to buy their requirements of paper towels from the jobber who installed their cabinets.

The effect of these agreements and practices is charged to be the elimination of competition between jobbers in the lease and sale of cloth and paper towel cabinets and the sale of paper towels, and the foreclosure of other suppliers from competing for the sale of paper towels to jobbers and customers, both to the restraint of the free flow of cloth and paper towel cabinets and paper towels in interstate trade and commerce.

By their motion to dismiss the complaint, the defendants have challenged the legal sufficiency of these allegations. A few general observations regarding the nature of this motion may be offered before the detailed contentions are considered. Under the provisions of Rule 12(b) (6), Federal Rules of Civil Procedure, the complaint must be upheld so long as it states a claim upon which relief can be granted. Since the promulgation of those Rules, pleadings are no longer tested against the demanding standards of the common law. No longer must the allegations be cast in prescribed verbal formulas. A measure of clarity and precision has been sacrificed in quest of decisions rendered without delay and upon grounds closer to the merits of the controversy. It is enough that the complaint contains a short and plain statement of the claim showing that the plaintiff is entitled to relief. Rule 8, Fed.Rules Civ.Proc. If the defendant is fairly informed of a genuine and triable claim against him, he is compelled to answer and to proceed to trial. The accepted test appears to be whether the plaintiff would be entitled to recover upon any state of facts which might be proved in support of the allegations. See Mullen v. Fitz Simons & Connell Dredge & Dock Co., 7 Cir., 1949, 172 F.2d 601 certiorari denied, 1949, 337 U.S. 959, 69 S.Ct. 1534, 93 L.Ed. 1758. If a liberal reading discloses that, at least by general statement, the plaintiff has charged every element necessary to a recovery, summary dismissal is not justified. United States v. Employing Plasterers Association of Chicago, 1954, 347 U.S. 186, 74 S.Ct. 452, 98 L.Ed. 618.

The Tying Arrangements. We turn first to the charge that the defendants have required their jobbers, as a condition to obtaining paper towel cabinets containing patented mechanisms, to purchase their total requirements of paper towels from ALSCO, and that the jobbers' customers are required to purchase their requirements of paper towels from the jobber who installed the cabinet. The government takes the position that by tying the sale or lease of towel cabinets to the sale of paper towels, the defendants have offended the prohibitions of Section 3 of the Clayton Act, 15 U.S. C.A. § 14, 38 Stat. 731, as amended. That section provides in part:

"It shall be unlawful for any person engaged in commerce, in the course of such commerce, to lease or make a sale or contract for sale of goods, wares, merchandise, machinery, supplies, or other commodities, whether patented or unpatented, * * * on the condition, agreement, or understanding that the lessee or purchaser thereof shall not use or deal in the goods, wares, merchandise, machinery, supplies, or other commodities of a competitor or competitors of the lessor or seller, where the effect of such lease, sale, or contract for sale or such condition, agreement, or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce."

The plain meaning of these words strongly implies the illegality of the practices charged against the defendants. The section reflects a legislative judgment that clauses tying the sale of one product to the sale of another seldom serve any legitimate business purpose; they can usually be explained only as attempts to exert the leverage of a monopolistic market position in one product, and to extend it to another product by excluding competitors. See Standard Oil Co. of California v. United States, 1949, 337 U.S. 293, 305-306, ...