United States District Court, Southern District of Illinois, N.D
August 15, 1969
JOSEPH A. FAGAN, PLAINTIFF,
SUNBEAM LIGHTING CO., INC., EASTERN, A CALIFORNIA CORPORATION, AND KEN GLAESNER, DEFENDANTS.
The opinion of the court was delivered by: Robert D. Morgan, District Judge.
OPINION AND ORDER
This is a private antitrust suit for treble damages arising
under the Commerce and Trade Laws of the United States, 15 U.S.C. § 1ff.
Jurisdiction is founded on 28 U.S.C. § 1337. The case is
presently before the court on defendant Sunbeam's motion, under
F.R.C.P. 12(b)(6), to dismiss the complaint because of
plaintiff's "failure to state a claim upon which relief can be
granted," or, in the alternative, to strike portions of the
complaint. Defendant Glaesner has never been served with summons.
The allegations of the complaint, which are taken as true for
purposes of this motion, state that the defendant Ken Glaesner is
the Eastern Regional Manager of the defendant corporation; that
the plaintiff was a sales representative of the defendant
corporation by an agreement which states in pertinent part that:
"1. The Company does hereby appoint * * * (Fagan) its
exclusive Sales representative for * * * the
following described territory * * *.
"2. The terms of the agreement shall commence on the
date hereof and continue until terminated by either
party upon the giving of thirty (30) days prior
notice * * *.
"3. (a) * * * He shall not be precluded from handling
other lines or acting as Sales Representative for
other companies, provided, however, that he shall not
during the term of this Agreement maintain any
connection, directly or indirectly, of any kind, with
any person, firm, or corporation which is engaged in
competition with the Company.
"4. The authority of the Sales Representative shall
be limited to soliciting orders for the Company's
lighting fixtures at the prices and on the
terms * * * established by the Company * * *.
The Sales Representative shall have no power or
authority in any manner to obligate or bind the
Company * * *. The Sales Representative is expressly
declared not to be an agent of the Company and is and
shall be in all respects an independent contractor.
"14. This Agreement has been executed in the * * *
State of California, and shall be interpreted
according to the laws of the State of
California. * * * The statute of limitations on any
claim of Sales Representative against Company shall
be six (6) months from the date of termination or
the occurrence of the claim, whichever is earlier."
Plaintiff, during the contract period, did represent companies
with similar products to those of defendant and by reason thereof
the defendant corporation terminated the "Sales Representative
Agreement" on or about August 2, 1968.
Plaintiff argues that the agreement and conduct of the
defendants operated as a conspiracy in restraint of interstate
commerce, tending to lessen competition since the plaintiff was
compelled to refrain from representing manufacturers and
distributors of similar products, and creating a monopoly for the
defendants within the Southern District of Illinois, to the
plaintiff's damage in excess of $100,000.
The defendant Sunbeam argues that the claim alleged herein is
barred by the six-month limitation provision of the contract
pleaded. The contract states that the agreement shall be
interpreted according to the laws of the State of California
where the agreement was executed. Said defendant cites numerous
cases from California and several federal cases which hold that
a six-month contractual limitation period is reasonable and
This court might agree that the limitation is reasonable and
valid if the action were a suit upon the contract or for breach
thereof. The action before this court, however, is based upon
federal public policy as expressed in the antitrust laws of the
United States. The contract is simply offered as evidence of the
alleged violation of that policy. An action to recover treble
damages under the Clayton Act is a civil remedy sounding in tort.
Clark Oil Co. v. Phillips Petroleum Co., 148 F.2d 580 (8th Cir.
1945) cert. denied, 326 U.S. 734, 66 S.Ct. 42, 90 L.Ed. 437
(1945). It is clear that federal law controls in determining
whether the action was properly commenced. Moore Co. v. Sid
Richardson Carbon & Gasoline Co., 347 F.2d 921 (8th Cir. 1965),
cert. denied, 383 U.S. 925, 86 S.Ct. 927, 15 L.Ed.2d 845 (1966),
rehearing denied, 384 U.S. 914, 86 S.Ct. 1335, 16 L.Ed.2d 367
(1966). The lack of uniformity in state statutes of limitations
was the prime factor which motivated Congress to enact the four
year statute of limitations applicable to private antitrust
litigation. Kansas City v. Federal Pacific Electric Co.,
310 F.2d 271 (8th Cir. 1962), cert. denied, 371 U.S. 912, 83 S.Ct. 256, 9
L.Ed.2d 171, (1962), rehearing denied, 373 U.S. 914, 83 S.Ct.
1297, 10 L.Ed.2d 415 (1962). Because of the nature of this action
and to be consistent with the spirit of uniformity, the
limitation period of four years contained in 15 U.S.C. § 15b must
be applied and the commencement of this action was well within
Second, the defendant Sunbeam argues that venue is improper and
therefore the action should be transferred to another district.
There were no specific grounds argued for transfer, but it
appears that the defendant's basis is either that California was
the state of execution, or that since the contract provided that
California law be applied, California is the proper forum. This
court does not consider either ground sufficient to override
plaintiff's choice of forum. This court may be bound to apply
California law in any construction of the contract, but the
federal antitrust laws govern venue of an action thereunder.
Section 12 of the Clayton Act enlarged
the local jurisdiction of the district courts so as to
establish the venue of a suit not only in a district in which the
corporation resides or is found, but also in any district in
which it transacts business. Eastman Kodak Co. v. Southern Photo
Materials Co., 273 U.S. 359, 47 S.Ct. 400, 71 L.Ed. 684 (1927).
In Eastman the court stated (273 U.S. at 374, 47 S.Ct. at 404)
"* * * since it appears * * * that the defendant, in
a continuous course of business, was engaged, not
only in selling and shipping its goods to dealers
within the Georgia district, but also in soliciting
orders therein through its salesmen and promoting the
demand for its goods through its demonstrators for
the purpose of increasing its sales, we conclude that
it was transacting business in that district, within
the meaning of section 12 of the Clayton Act, * * *."
Also in Eastman, the court, referring to cases previously
decided, stated (273 U.S. at 373, 47 S.Ct. at 403) that:
"a corporation engaged in the solicitation of orders
in a district was in fact `doing business' therein,
although not in such sense that process could be
there served upon it."
It is clear by the contract under which the plaintiff was
retained that the defendants in a continuous course of business
did solicit orders for the sale and shipment of goods into this
district, as well as promote their products through the use of a
sales representative within this district. Therefore, venue is
clearly proper in this district court.
Third, the defendant Sunbeam argues that the action is barred
under a paragraph of the alleged contract which provides that
acceptance by a sales representative of his commission checks
amounts to a waiver of all claims against the corporation to the
date of said checks. It is the defendant's position that since
this plaintiff has accepted all his checks due, he is barred from
maintaining this action. It suffices to reiterate that this
action is not founded upon the contract, but upon federal public
policy as expressed in the antitrust laws of the United States;
therefore, the contract provision is not a bar to the action.
The final argument, and the critical issue before this court is
whether the plaintiff has alleged facts sufficient to show that
the defendant has done something forbidden by the antitrust laws
which injured the plaintiff in his business or property.
The antitrust laws, 15 U.S.C. § lff, involved herein, state in
pertinent part that:
§ 1. "Every contract, combination in the form of
trust or otherwise, or conspiracy, in restraint of
trade or commerce * * * is declared to be
illegal: * * *.
§ 2. "Every person who shall monopolize, or attempt
to monopolize, or combine or conspire with any other
person or persons, to monopolize any part of the
trade of commerce among the several States, * * *
shall be deemed guilty of a misdemeanor * * *.
§ 14 "It shall be unlawful for any person engaged in
commerce, * * * to lease or make a sale or contract
for sale of goods * * * on the condition * * * that
the lessee or purchaser thereof shall not use or deal
in the goods * * * of a competitor or competitors of
the lessor or seller * * *.
§ 15. "Any person who shall be injured in his
business or property by reason of anything forbidden
in the antitrust laws may sue therefor * * * and
shall recover threefold the damages by him
sustained * * *."
It is clear that the plaintiff herein was a sales
representative retained by the defendant company in its vertical
chain of distribution, as opposed to a dealer in or retailer of
the company's products. This is abundantly shown not only by the
terms of the alleged contract, but also by the fact that he is
alleged to have been retained and connected
to the defendants only by that alleged contract.
The plaintiff argues that the antitrust laws are public in
purpose and prohibit certain specific results, irrespective of
what the relationship between the parties is called; that in
keeping with this purpose, the provisions of the alleged contract
as quoted hereinabove, taken collectively, violate Sections 1 and
2 of the Sherman Act. In support of this position, plaintiff
cites Perma Life Mufflers, Inc. v. International Parts Corp.,
392 U.S. 134, 88 S.Ct. 1981, 20 L.Ed.2d 982 (1968), in which dealers
were obligated to: (1) purchase all their mufflers from the
company defendant; (2) sell the mufflers at resale prices fixed
by the company; (3) refrain from dealing with any of the supply
company's competitors; (4) exclusively sell the company's
products within a defined territory. While the Supreme Court in
that case decided that the doctrine of in pari delicto was not a
defense to that private antitrust action and remanded the case
for trial, without deciding that defendant was guilty of any
antitrust violation, it is apparent that the court considered
that a cause of action had been stated. The Perma Life Mufflers
facts are clearly distinguishable, however, from those in the
cause before this court. In Perma Life Mufflers the restraints
were upon retail dealers; contradistinctively, the restraints
alleged herein were upon a person within the defendant company's
own vertical chain of distribution and this distinction is
critical. Only in the former situation is the law clear that such
allegations, if proved, constitute a violation of the antitrust
laws of the United States. Perma Life Mufflers, therefore, is not
dispositive of the case and motion before this court.
Beginning with Standard Oil Co. v. United States, 221 U.S. 1,
31 S.Ct. 502, 55 L.Ed. 619 (1911), the Supreme Court has
consistently construed the Sherman Act as prohibiting only
unreasonable restraints of trade. The defendant maintains that a
manufacturer who does not part with title, dominion or risk of
loss of his product, may impose restrictions on the distribution
of that product, as well as determine his selling price without
creating an unreasonable restraint of trade within the construed
meaning of the Sherman Act. This being true, the defendant
argues, the allegations of the complaint are not sufficient to
state a claim upon which relief can be granted and the cause
should be dismissed.
In United States v. Arnold Schwinn & Co., 388 U.S. 365, 87
S.Ct. 1856, 18 L. Ed.2d 1249 (1967), the Supreme Court set out
the proper scope of analysis applicable to the case before this
court when it stated (388 U.S. at 375-376, 87 S.Ct. at 1864)
"restraints as to territory or customers, vertical or
horizontal, are unlawful if they are `ancillary to
the price fixing' * * * or if the price fixing is `an
integral part of the whole distribution
system' * * *. In those situations, it is needless
to inquire further * * *. At the other extreme, a
manufacturer of a product other and equivalent brands
of which are readily available in the market
may * * * `franchise' certain dealers to whom, alone,
he will sell his goods, * * *. It is within these
boundary lines that we must analyze the present
The threshold inquiry, therefore, is whether there is a
sufficient allegation of price fixing here. If the restrictions
in the alleged contract were part of a scheme involving unlawful
price fixing, the result would be a per se violation of the
Sherman Act. It is manifest that unlawful price fixing is "the
fixing of prices at which others may sell." 388 U.S. at 376, 87
S.Ct. at 1864. It is clear from the allegations of the complaint
that such activity is not involved in this case. The defendants
herein did not attempt to fix the price at which the plaintiff or
others could sell Sunbeam products which they had acquired;
rather, they simply controlled the price at which they,
would sell Sunbeam products initially and required the plaintiff
to quote those prices. This type of price control, by a
manufacturer in the first sale of his product, is not the kind
that the antitrust laws seek to prohibit. Thus, the restrictions
imposed do not in themselves, and nothing more is alleged,
constitute a per se violation of the Sherman Act.
With the price fixing and violation per se issues determined,
this court must decide whether the plaintiff has alleged
sufficient facts to show that the alleged contract, tested by a
"rule of reason," constitutes an unreasonable restraint of trade.
The court in Schwinn established the rule (388 U.S. at 379, 87
S.Ct. at 1865) that:
"If the manufacturer parts with dominion over his
product or transfers risk of loss to another, he may
not reserve control over its destiny or the
conditions of its resale."
This court is fully satisfied, on the allegations here, that the
defendant company did retain dominion and risk of loss of its
products by the terms of the alleged contract, title did not pass
and the orders of the plaintiff were not binding upon the company
until "accepted by it at its principal office." The plaintiff had
"no power or authority in any manner to obligate or bind the
Company," thus both the dominion and risk of loss must have
remained with the defendant, as well as title to the goods. The
court in Schwinn went on to state (388 U.S. at 380, 87 S.Ct. at
"Where the manufacturer retains title, dominion, and
risk with respect to the product * * * it is only if
the impact of the confinement is `unreasonably'
restrictive of competition that a violation of § 1
results from such confinement, unencumbered by
culpable price fixing."
The court clearly distinguishes between those situations in which
the manufacturer parts with dominion and risk of loss and those
situations in which the manufacturer does not. Where there is a
loss of dominion and risk coupled with restrictions as set out in
the plaintiff's complaint, a violation of the antitrust laws is
stated. Where, however, the manufacturer retains dominion and
risk of loss, the mere allegations of restrictions is
insufficient to show a violation of the antitrust laws. See,
United States v. Arnold Schwinn & Co., 388 U.S. 365
, 87 S.Ct.
1856 (1967). This distinction is critical in considering what
allegations are sufficient to establish a cause of action in the
first situation and what additional allegations are required to
state a cause of action in the second situation. It seems clear
that where, as here, the manufacturer retains dominion, title and
risk of loss of his products, mere allegations of restrictions in
the vertical chain of distribution, standing alone, are not
sufficient to state a claim upon which relief can be granted.
One last point need only be treated summarily. 15 U.S.C. § 14
prohibits a person from selling or leasing goods upon the
condition that the purchaser or lessee not deal in competing
goods. It should suffice to observe that the alleged arrangement
between the plaintiff and the defendants herein involved neither
a lease nor a sale situation. It is unnecessary to consider
whether the prohibition in Paragraph 3(a) of the contract here
violates the provisions of the Sherman Act (15 U.S.C. § 1, 2),
since if the defendants' conduct involves, but does not violate,
the broader proscription of 15 U.S.C. § 14 (which is Section 3 of
the Clayton Act), it necessarily follows that the conduct is not
forbidden by the Sherman Act. Tampa Electric Co. v. Nashville
Coal Co., 365 U.S. 320, 335, 81 S.Ct. 623, 5 L.Ed.2d 580(1961).
Since no violation is alleged, it is unnecessary to consider
the question of plaintiff's possible damage.
For the reasons stated, the plaintiff has failed to state a
claim upon which relief can be granted. Accordingly, the motion
is allowed and the complaint is
hereby dismissed. As noted at the outset, the defendant Glaesner
has never been served with process. Plaintiff is allowed 20 days
within which to file an amended complaint, if he considers that
a cause of action against these defendants does exist in the
light of this opinion.
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