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Crest Auto Supplies Inc. v. Ero Manufacturing Co.

May 20, 1966

CREST AUTO SUPPLIES, INC., PROTECTO OF MICHIGAN, INC., AND MORRIS EINHORN, PLAINTIFFS, COUNTER-DEFENDANTS, APPELLANTS, AND ALBERT GARFIELD, ORVILLE B. LEFKO, GEORGE HAAR, AND BEN KRUGEL, COUNTER-DEFENDANTS, APPELLANTS
v.
ERO MANUFACTURING COMPANY, DEFENDANT AND COUNTER-PLAINTIFF, APPELLEE



Schnackenberg, Castle and Kiley, Circuit Judges.

Author: Kiley

KILEY, Circuit Judge.

Plaintiffs filed a six-count amended complaint under 28 U.S.C. § 1337 charging defendant with violations in its franchising agreements of the anti-trust laws and seeking treble damages in all counts. A separate plaintiff in each of the first three counts charged defendant with identical violations (as to each of the three plaintiffs) of § 1 of the Sherman Act, 15 U.S.C. § 1 (price fixing), § 3 of the Clayton Act, 15 U.S.C. § 14 (exclusive dealing), and § 2 of the Clayton Act, as amended by § 2(a), (e) of the Robinson-Patman Act, 15 U.S.C. § 13(a), (e) (discrimination in prices and services). A separate one of the plaintiffs in each of the last three counts charged that he had been required by the franchise agreement to pay certain amounts of money to defendant for advertising purposes, and that defendant had failed to use the money for this purpose. Defendant filed seven counterclaims against the plaintiffs and four individual counter-defendants (hereafter "guarantors") for money due for merchandise, unpaid rent and advertising. The district court granted defendant's motion for summary judgment on the Sherman Act and Clayton Act § 3 claims of the first three counts and on the remaining three counts, and granted defendant's motion to dismiss with prejudice the claims under § 2 of the Clayton Act in the first three counts. The court also granted defendant's motion for summary judgment on defendant's seven counter-claims. Plaintiffs and the individual guarantors have appealed. We affirm.

Ero Manufacturing Company, defendant, an Illinois corporation which manufactures automobile seat covers, convertible tops, and related accessories, granted exclusive franchises to fourteen stores in an attempt to establish a nationwide system. Plaintiffs, Crest Auto Supplies, Inc., an Illinois corporation, Protecto of Michigan, Inc., a Michigan corporation, and Morris Einhorn, of Cincinnati, Ohio, received seven of the fourteen franchises and were licensed to use defendant's trade name "Protecto" in operating automobile seat cover stores.*fn1 Albert Garfield, an Illinois resident, and Orville B. Lefko, George Haar, and Ben Krugel, residents of Detroit, Michigan, were joined, as counter-defendants on defendant's counterclaims, as guarantors of plaintiffs' franchise obligations: Garfield of the Crest Auto lease and the other three of financial obligations of Protecto of Michigan.*fn2

The first issue raised is whether the district court erred in ordering the guarantors joined, under Rule 13(h),*fn3 and in deciding that Lefko, Haar, and Krugel were within the court's jurisdiction.

The guarantors now contend that they should not have been brought in under Rule 13(h) because they were not "required for the granting of complete relief," and that the court could not obtain in personam jurisdiction over them in Michigan. Ero's motion to join these individuals was filed on May 1, 1964. The court, by order dated June 5, 1964, granted the motion. In its Memorandum Opinion of June 1, indicating it would grant the motion over plaintiffs' opposition, the court states:

Plaintiffs oppose this motion on two grounds (1) that said additional parties are not "indispensable" so as to meet the requirements of Rule 13(h) and (2) the court cannot acquire jurisdiction of Lefko, Haar, and Krugel.

Any opposition at this point was by plaintiffs, not by the guarantors. Only after the court granted the motion were the guarantors served with summons.*fn4 It does not appear that any motion to quash was made. Nor did any guarantor raise any joinder or jurisdictional objection by motion. It is significant that the individual guarantors filed, on June 30, 1964, their answers to Ero's counterclaims; in none of their answers were these objections raised. Pursuant to Rules 12(b) and (h) they have waived any objection they had on these points.*fn5 We need not reach the merits of the joinder and jurisdictional questions.

The main question is whether plaintiffs alleged any claims upon which relief of treble damages for civil anti-trust violations can be granted.

Crest Auto charged that defendant, "and other co-conspirators, to the Plaintiffs unknown," agreed to "unlawfully restrain and substantially lessen competition" in the market by fixing and maintaining prices of defendant's products and by creating or inducing boycotts, in violation of § 1 of the Sherman Act; that defendant violated § 3 of the Clayton Act by contracting for the sale of, and fixing prices for, its products with the provision that Crest Auto "not use or deal in" similar products of others, and that the contract tended to lessen competition and to create a monopoly; and that defendant violated § 2 of the Clayton Act, as amended, by granting discriminations in prices and services to certain customers without offering the same prices and services to other customers, including Crest Auto.

The alleged unlawful overt act pursuant to the conspiracy, charged in the complaint, is defendant's use in granting its franchises to dealers, including Crest Auto, of an "Exclusive Dealers Franchise Contract," which contains a provision prohibiting the dealer, including Crest Auto, from selling or using any products of defendant's competitors, except with defendant's consent. The effect charged is that "on numerous occasions" competitors of defendant approached Crest Auto offering products similar to defendant's at generally lower prices. The injury alleged was the constant refusal of defendant, pursuant to the alleged unlawful contract, to permit Crest Auto to trade with these competitors of defendant, and the consequent business loss of $60,000.00.

Protecto of Michigan, Inc., and Einhorn, adopted the allegations of Crest Auto in their charges against defendant, with alleged resultant injury and business loss of $125,000.00 and $75,000.00 respectively. All plaintiffs also charged that under the alleged unlawful franchise contracts they were "forced" to pay 20% of the purchase price of defendant's products for the purported purpose of advertising, but that the moneys were not used for that purpose. Each seeks damages for treble the amount so paid. Defendant admitted the franchise contracts with plaintiffs but denied all allegations of unlawful conduct. Its motion for summary judgment, or alternatively, to dismiss the three anti-trust counts for failure to state a claim upon which relief can be granted, followed.

The district court decided, in granting summary judgment for defendant upon plaintiffs' civil anti-trust charges under § 1 of the Sherman Act and § 3 of the Clayton Act, that plaintiffs were in pari delicto with defendant if the charges were true, and that plaintiffs were accordingly barred from maintaining the charges. The court then found that plaintiffs' allegation of a violation of § 2 of the Clayton Act did not state a claim upon which relief could be granted because there was no allegation that the alleged discrimination in prices and services "substantially lessened competition or tended to create a monopoly in any line of commerce," and that without the requisite competitive effect the alleged discrimination was not unlawful.

There is no quarrel with plaintiffs' first proposition "that summary procedures should be used sparingly in complex antitrust litigation where motive and intent play leading roles. . .," citing Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 7 L. Ed. 2d 458, 82 S. Ct. 486 (1962). See also Alles Corp. v. Senco Products, Inc., 329 F.2d 567, 572 (6th Cir. 1964). Nor is there any dispute over the proposition that the court must look at the record on summary judgment in the light most favorable to the party opposing the motion, and that, as stated by the Supreme Court in Poller, 368 U.S. at 467, summary judgment under Rule 56(c) should be entered only when the pleadings, depositions, affidavits and admissions show there is no "genuine issue as to any material fact" and that the moving party is entitled to judgment as a matter of law. We cannot agree, ...


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