The opinion of the court was delivered by: Marovitz, District Judge.
The cases cited by plaintiff, Kiefer-Stewart Co. v. Joseph
Seagram and Sons, Inc., 340 U.S. 211, 71 S.Ct. 259, 95 L.Ed. 219
(1951); Trebuhs Realty Co. v. News Syndicate, (D.C.N.Y., 1952)
107 F. Supp. 595; Moore v. Mead Service Co. (10th Cir., 1951)
190 F.2d 540, and others, were all considered by this Court in the
Rayco decision, and distinguished. Each of these cases deal with
the general proposition that the alleged illegal conduct of one
party cannot immunize the other party against liability to those
they injured. However, these holdings, disallowing the in pari
delicto defense were limited to specific situations where the
plaintiff had not violated the antitrust acts in combination with
the defendant. This is the crucial distinction applied in Rayco,
and reapplied today.
While Davidson v. K.C. Star Co. (D.C.Mo., 1962) 202 F. Supp. 613,
619, on which we relied in Rayco, has been subsequently
reversed by the Eighth Circuit Court of Appeals, (Bales v. K.C.
Star Co. (8th Cir., 1964) 336 F.2d 439), it must be noted that
said reversal was based on the fact that the plaintiff was
coerced into entering into the antitrust violations. That
"coercion" argument was considered by this Court in Rayco, with
regard to our discussion of Ring v. Spina, (2d Cir., 1945)
148 F.2d 647, and rejected on the facts before us. Indeed, we might
note the clear distinction made by the 8th Circuit in Bales on
It is clear then from the papers before us, as in Rayco, that
there was no coercion involved here, and that plaintiffs sought
to create a monopoly for themselves and defendant within
specified territorial limits. Indeed, the depositions reveal that
two plaintiffs here asked for and received franchises for
additional locations after first entering into the contract with
defendant, and that at no time did the plaintiffs request an
opportunity to deal in products of
other manufacturers, a right provided for in Paragraph 6 of the
agreement. In addition, there are no allegations of coercion
contained in the complaint of supporting affidavits.
As for plaintiffs' further argument that the Court's refusal to
permit suits by "exclusive franchisees" will negate the
provisions of Sec. 3 of the Clayton Act, we need only point to
the many cases cited by plaintiffs themselves permitting suits by
dealers who were "coerced," by parties who had not combined with
defendants in violation of antitrust acts, and by competitors
whose retail outlets had been reduced.
For these reasons, we must conclude that plaintiffs here are
barred from maintaining an action for violation of Section 3 of
the Clayton Act.
Similarly, accepting for the purposes of this motion the
contention that defendant violated Sec. 1 of the Sherman Act by
requiring plaintiffs to maintain resale prices, plaintiffs cannot
recover when they acquiesced to the terms of this alleged
arrangement. That is, we must apply the in pari delicto defense
with equal force in this area as it was in Pa. Water & Power Co.
v. Consolidated Gas Electric Light & Power Co., supra.
"We are in accord * * * that Penns Water is precluded
from recovery in this case because it was a party to
the illegal agreement upon which it now bases its
claim to recover under the anti-trust acts."
See also Northwestern Oil Co. v. Socony-Vacuum Oil Co., supra,
where the Seventh Circuit Court of Appeals stated:
"Having participated in this illegal undertaking,
plaintiff may not recover; where parties are in pari
delicto, the law leaves them where it finds them."
Accordingly, the plaintiffs may not pursue further these
alleged violations of Section 1 of the Sherman Act.
The third antitrust charge, the alleged violation of Secs. 2(a)
and 2(e) of the Clayton Act, as amended by the Robinson-Patman
Act, must also fall. Plaintiffs complain merely that defendant
Ero "granted discriminations in prices and services to certain of
their customers without offering or otherwise making available
those same prices and services to others of their customers
including the plaintiffs herein." There are no allegations that
such discrimination substantially lessened competition or tended
to create a monopoly in any line of commerce. It is clear that
without such a competitive effect, price discrimination is
entirely lawful, and that service discrimination is lawful in the
absence of competition. Borden Co. v. F.T.C., (7th Cir., 1964)
339 F.2d 953, 956; American Oil Co. v. F.T.C., (7th Cir., 1963)
325 F.2d 101, 256; Eliz. Arden Sales Corp. v. Gus Blass Co., (8th
Cir., 1945) 150 F.2d 988, 994.
Thus, taking the allegations of Counts I, II, and III of the
complaint as true for the purposes of this motion, plaintiff has
failed to adequately state a cause of action upon which relief
can be granted. Defendant is entitled to judgment as a matter of
Counts IV, V, and VI, brought by the three plaintiffs
respectively, charge that defendant collected money for
advertising purposes, and failed to expend same according to the
provisions of the contract. We are inclined initially to dispose
of these counts on jurisdictional grounds. It is clear from a
reading of the complaint that these counts set forth a breach of
contract action, governed by State law. (See Garfield Dep. pp.
146, 147, 149; Lefko Dep. pp. 176, 177; Einhorn Dep. p. 155).
Such an action must be based on some independent jurisdictional
ground, e.g. diversity of citizenship, not present here. While
in isolated circumstances the Court may invoke the doctrine of
pendent jurisdiction, Hurn v. Oursler, 289 U.S. 238, 53 S.Ct.
586, 77 L.Ed. 1148 (1933), to retain jurisdiction over a
non-federal claim, the pleadings here do not justify such action.
That is, in Hurn v. Oursler, supra, the Supreme Court stated that
a federal court may retain jurisdiction over both federal and
non-federal claims, when the same cause
of action is alleged in two counts, one count setting forth
federal grounds for recovery, the other setting forth non-federal
"The distinction to be observed is between a case
where two distinct grounds in support of a single
cause of action are alleged, one only of which
presents a federal question, and a case where two
separate and distinct causes of action are alleged,
one only of which is federal in character." Hurn v.
Oursler, supra, at p. 246, 53 S.Ct. at p. 589.
The antitrust violations alleged in Counts I-III are entirely
independent of the breach of contract charges found in Counts
IV-VI. The arguments made by plaintiffs with respect to Rule 2 of
the Federal Rules of Civil Procedure are not applicable. While it
is true that there is only one form of action, known as a "civil
action" under that Rule, this relates to the distinction between
law and equity, and not to questions of federal and state
jurisdiction. The latter counts do not state alternative grounds
in support of a single cause of action, and thus, do not justify
application of the pendent jurisdiction doctrine.
Inasmuch as plaintiff Crest and defendant Ero are both citizens
of Illinois, it is clear that complete diversity of citizenship,
as required by Sec. 1332, Title 28, U.S.C. is absent. Treinies v.
Sunshine Mining Co., 308 U.S. 66, 71, 60 S.Ct. 44, 84 L.Ed. 85
(1939); Soderstrom v. Kungsholm Baking Co., (7th Cir., 1951)
189 F.2d 1008, 1013. Without the presence of such an independent
basis of jurisdiction this Court ordinarily would be compelled to
dismiss, without more, Counts IV, V, and VI. K.S. Corp. v.
Chemstrand Corp. (D.C.N.Y., 1961) 198 F. Supp. 310; Phila. Dressed
Beef Co. v. Wilson & Co., (D.C. Pa., 1956) 19 F.R.D. 198.
However, a reading of all the pleadings before us reveals that
defendant Ero has filed counterclaims dealing, in part, with
these same advertising assessments and expenditures. Such
counterclaims, to be discussed, infra, are "compulsory" in nature
under Rule 13(a), as they arise out of the same "transaction or
occurrence" made subject of the original complaint, i.e. the
exclusive dealership agreement. Since these counterclaims are
auxiliary to the main claim, no independent jurisdictional
grounds are needed to support them, and lack of diversity of
citizenship does not defeat them. Moore v. N.Y. Cotton Exchange,
270 U.S. 593, 46 S.Ct. 367, 70 L.Ed. 750 (1926). Thus, if we were
to dismiss Counts IV, V, and VI of the complaint, we would be
left with the absurd conclusion that the defendant may sue via
counterclaim in federal court on the advertising sections of the
contract, while the plaintiff would have to maintain a completely
separate suit on the same subject matter in the State Courts.
Indeed, were plaintiff to institute such an action in the State
tribunals, the defendant conceivably could argue that the action
is barred by res judicata in that plaintiff was compelled to
assert such claims in federal court and failed to do so.
To escape from this technical bog, this Court shall follow the
course suggested by Chief Judge Biggs of the Third Circuit Court
of Appeals in Great Lakes Rubber Corp. v. Herbert Cooper, Inc.,
(3rd Cir., 1961) 286 F.2d 631. In that case, the Court held that
after dismissal of the original complaint for lack of federal
jurisdiction, and retention of a counterclaim because of
independent grounds of federal jurisdiction, the essential
allegations of the original complaint could be raised as a
compulsory counterclaim to the retained claim, since there was
ancillary jurisdiction over the compulsory counterclaim.
Thus, we shall formally dismiss Counts IV, V and VI of the
complaint, and, on the Court's own motion, reinstate them at this
time as a compulsory counter-counterclaim.
Accordingly, we must then turn to the substantive merits of
those claims with respect to defendant's (now, under this Court's
current reasoning, counter-counterdefendant's) motion for summary
Under Paragraph 8 of the franchise contracts, plaintiffs agreed
to pay Ero an amount equal to 20 per cent of their purchases,
which money was to be expended by Ero for advertising purposes.
In Counts IV, V, and VI, plaintiffs allege that Ero did not use
that money for advertising as it was required to do.
Pursuant to Rule 56, defendant Ero, in support of its summary
judgment motion, has submitted the affidavit of David J. Bitran,
its auditor, who had complete control of the books and records
covering the transactions in question. That affidavit clearly
spells out that not only were plaintiff's advertising remittances
spent for the proper purpose, but, in addition, defendant Ero
spent considerably more for such advertising than it was obliged
to do under the contracts. (see Par. 5, pp. 2, 3, and 4 of
Affid.) Mr. Bitran has clearly recited in detail, the amounts
which plaintiffs were obliged to remit to Ero, the amounts which
they did in fact remit, and the amounts actually expended for
In response, plaintiffs have failed to heed the requirements of
Rule 56. A party adverse to a summary judgment motion may not
rest upon his pleadings once sworn affidavits have been
introduced. (See more detailed discussion with regard to
defendant's counterclaims, infra.) Plaintiffs have not made any
attempt to refute the accuracy of Mr. Bitran's figures. They have
failed completely to submit any documentary evidence to
controvert the computations sworn to in that affidavit. Under the
clear provisions of Rule 56(e) we must conclude that plaintiff
has failed to demonstrate the existence of any material
controverted questions of fact, and summary judgment must be
Accordingly, it is the opinion of this Court that summary
judgment be granted in favor of defendant Ero on all six counts
of the complaint, the latter three being treated for purposes of
this motion as plaintiff's compulsory counterclaims.
2) With regard to the motion for summary judgment on
defendant's counterclaims, counter-defendants (plaintiffs) have
not seen fit to provide this Court with affidavits supporting
their position. Said parties will not be permitted to stand on
the non-particularized, unverified allegations in their answers
to the counterclaims filed herein, in the face of the affidavits
and exhibits filed by counter-claimants. See Rule 56, Fed.Rules
"When a motion for summary judgment is made and
supported as provided in this rule, an adverse party
may not rest upon the mere allegations or denials of
his pleading, but his response, by affidavits or as
otherwise provided in this rule, must set forth
specific facts showing that there is a genuine issue
for trial. If he does not so respond, summary
judgment, if appropriate, shall be entered against
The affidavit of David J. Bitran, auditor of counter-claimant
Ero, meets the requirements of Rule 56(e). It is based on
personal knowledge, and a detailed account of how such knowledge
was obtained is provided (See Par. 2). The Exhibits filed in
support of said affidavit add credence to the factual averments,
and satisfy Rule 56.
Paragraphs 3(g) and (i) of said affidavit recite that all
obligations of the sublessor have been performed with regard to
the Count I claims, and that as of March 1, 1965, Crest owed
Protecto $5,757.98. The liability of the guarantor is clearly
demonstrated in Par. 3(c) and Exh. 2. Similarly, the validity of
Counts II and III are demonstrated in Paragraphs 4(e)-(h); the
validity of Count IV by Par. 4(i); the validity of Count V in
Paragraphs 5(c) and (f); the validity of Count VI in Paragraphs
5(d) and (f); and the validity of Count VII in Par. 5(g) and Exh.
Counter-defendants have not submitted any evidence to refute
these sworn factual averments, and rely inadequately on their
unverified answers to the counterclaims. The averments of the
supported by the extensive exhibits filed herein, must control.
Indeed, counter-defendants do not even deny the accuracy of the
sworn facts, but merely question the validity of the affidavit.
It is the opinion of this Court that the affidavit filed herein
is proper and meets the test set out in Rule 56.
Accordingly, we must grant summary judgment in favor of the
counter-plaintiff Ero (a) against Crest Auto Supplies, Inc. and
Albert Garfield, jointly and severally, for $5,757.98; (b)
against Protecto of Michigan, Inc., Orville Lefko, George Haar,
and Ben Krugel, jointly and severally for $94,948.86; and (c)
against Morris Einhorn for $52,968.59.
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