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OHIO-SEALY MATTRESS MFG. CO. v. KAPLAN

July 20, 1982

OHIO-SEALY MATTRESS MANUFACTURING COMPANY, SEALY MATTRESS COMPANY OF HOUSTON, SEALY MATTRESS COMPANY OF PUERTO RICO, INC., SEALY MATTRESS COMPANY OF FORT WORTH, SEALY OF THE NORTHEAST, AND SEALY MATTRESS COMPANY OF GEORGIA, PLAINTIFFS,
v.
MORRIS A. KAPLAN, SEALY MATTRESS COMPANY OF ILLINOIS, WILLIAM H. WALZER, SEALY CONNECTICUT, INC., SEALY GREATER NEW YORK, INC., WATERBURY MATTRESS COMPANY, MORTON H. YULMAN, SEALY OF EASTERN NEW YORK, INC., SEALY OF MINNESOTA, INC., PETER D. BROWN, SEALY MATTRESS COMPANY OF MICHIGAN, INC., T.C. ENGLEHARDT, JR., FRED G. HODGES BEDDING COMPANY (A/K/A SEALY MATTRESS COMPANY OF READING, PA.), SEALY OF DES MOINES, INC., WALTER HERTZ, SEALY MATTRESS COMPANY OF NEW JERSEY, INC., JOSEPH V. MOFFITT, SEALY OF THE CAROLINAS, PEERLESS MATTRESS COMPANY, LLOYD B. ROSENFELD, SEALY MATTRESS COMPANY OF OREGON, JOSEPH R. RUDICK, MARYLAND BEDDING COMPANY, JAMES E. THOMPSON, HOWARD G. HAAS, SEALY, INCORPORATED, SEALY SPRING CORPORATION, SEALY MATTRESS COMPANY OF COLORADO, INC., SEALY MATTRESS COMPANY OF NORTHERN CALIFORNIA, INC., SEALY MATTRESS COMPANY OF SOUTHERN CALIFORNIA, INC., SEALY MATTRESS COMPANY OF ARIZONA, INC., SEALY MATTRESS COMPANY OF FLORIDA, INC., SEALY MATTRESS COMPANY OF PITTSBURGH, INC., AND SEALY MATTRESS COMPANY OF PHILADELPHIA, INC., DEFENDANTS.



The opinion of the court was delivered by: Aspen, District Judge:

    MEMORANDUM OPINION AND ORDER

This case is one of several related antitrust actions that have been filed over the past decade by Ohio-Sealy Mattress Manufacturing Company ("Ohio-Sealy") and its subsidiaries (collectively referred to herein as "Plaintiffs") against Sealy, Inc. ("Sealy") and its various subsidiaries, licensees, officers and directors (collectively referred to herein as "Defendants") seeking declaratory, injunctive and monetary relief for alleged anticompetitive conduct in the mattress manufacturing industry. This matter is presently before the Court on defendant's motion for summary judgment with respect to the issues set forth in sections II.D.(a) and (b) and section IV of the Schedule of Issues previously filed in this case and the parties' cross-motions for summary judgment on Sealy's amended counterclaim.*fn1 For the reasons set forth below, defendants' motion for summary judgment will be denied with respect to the issue set forth in section II.D.(a), but granted with respect to the issues set forth in sections II.D.(b) and IV, and Sealy's motion for summary judgment on its counterclaim will be granted.

I.

Defendant's Motion For Summary Judgment on the Issues Set Forth
    in Sections II.D.(a) and (b) and Section IV of the Schedule
    of Issues

The two principal issues toward which this motion is directed are: (1) whether plaintiffs are collaterally estopped from claiming in this action that they are entitled to equitable relief as to the exclusive manufacturing territories clause contained in the licensing agreement between Sealy and its licensees, assuming that plaintiffs can eventually show that the clause either applied alone or in combination with other alleged restraints violates the antitrust laws [Schedule of Issues Section II.D.(a)]; and (2) whether plaintiffs have standing to seek relief in this action in connection with Sealy's acquisition of its Des Moines, Iowa, and Reading, Pennsylvania, licensees [Schedule of Issues Sections II.D.(b) and IV]. The Court referred this motion to Magistrate John Cooley for a report and recommendation on the merits. On June 4, 1981, Magistrate Cooley recommended that defendants' motion be denied in all respects and defendants have filed objections to the magistrate's report and recommendation pursuant to 28 U.S.C. § 636(b)(1).*fn2 After a careful and thorough review of the magistrate's report and recommendation, the memoranda filed by the parties both before the magistrate and in connection with the objections filed with the Court, and the prior opinions of this Court and those of Judge Parsons that bear on the issues at hand, we conclude that Ohio-Sealy is not barred from seeking equitable relief with respect to the exclusive manufacturing territories clause and that Ohio-Sealy lacks standing to challenge Sealy's acquisition of its Des Moines and Reading licensees.

A.

Section II.D.(a) of the Schedule of Issues provides in pertinent part:

  Plaintiffs . . . contend that equitable relief must
  include at the very minimum: (a) elimination of the
  exclusive manufacturing territories provisions and
  related provisions adopted immediately after the
  April, 1975 jury verdict [in Ohio-Sealy Mattress
  Manufacturing Company v. Sealy, Inc., No. 71 C 1243
  (N.D.Ill. Parsons, J.)].

Defendants maintain that the issue of equitable relief with respect to the exclusive manufacturing territories clause within the temporal scope of the instant case was actually and fully litigated before Judge Parsons and necessarily decided by him in late 1979 in the context of the second equitable relief proceeding in Ohio-Sealy Mattress Manufacturing Company v. Sealy, Inc., No. 71 C 1243 ("1971 case"), on remand from the United States Court of Appeals for the Seventh Circuit. In Ohio-Sealy Mattress Manufacturing Company v. Sealy, Inc., 585 F.2d 821 (7th Cir. 1978), cert. denied, 440 U.S. 930, 99 S.Ct. 1267, 59 L.Ed.2d 486 (1979), the Seventh Circuit upheld a jury verdict in favor of plaintiffs and against defendants, but the Court of Appeals remanded the case for another hearing on equitable relief. On remand, Judge Parsons, who had presided at the trial of the 1971 case in 1974 and 1975 and the first hearing on equitable relief in 1976, declined to enjoin the exclusive manufacturing territories clause, though he did enjoin other provisions of the license agreement in order to prevent the conduct that the jury had found violative of the antitrust laws. Defendants argue that principles of collateral estoppel bar plaintiffs from raising the issue of equitable relief from the exclusive manufacturing territories clause in this case, which is temporarily limited to alleged unlawful conduct by defendants between April, 1975, and April, 1978,*fn3 since defendants' alleged application of the clause alone and in conjunction with other alleged restraints during that time period was before Judge Parsons in the 1979 equitable relief proceeding in the 1971 case. Parklane Hosiery Company v. Shore, 439 U.S. 322, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979); Restatement (Second) of Judgments § 68 (Tentative Draft No. 4, April 15, 1977).

In an earlier opinion in this case dated February 4, 1981, this Court indicated after reviewing Judge Parsons' opinion on equitable relief in the 1971 case, that, in its view, Judge Parsons had confined his inquiry to whether defendants' pre-verdict conduct at issue in that case necessitated the equitable relief sought by plaintiffs in that case. Ohio-Sealy Mattress Manufacturing Company v. Kaplan, 90 F.R.D. 35, 38 (N.D.Ill. 1981). Although we had held previously that defendants were precluded from seeking post-verdict damages in this case for pre-verdict conduct that was necessarily part of the 1971 case, we reiterated that our earlier decision:

  does not preclude plaintiffs from seeking equitable
  relief [in this case] based on [post-verdict]
  conduct; nor does Judge Parsons' recent ruling on
  equitable relief bar such a claim, since his ruling
  was based on the pre-verdict conduct at issue in that
  case.

Although there are certain statements in Judge Parsons' opinion, as amended, that, taken out of context, could be construed as indicating that he considered both pre- and post-verdict conduct and the appropriate relief therefrom in fashioning the equitable relief with respect to the exclusive manufacturing territories clause in the 1971 case, the general tenor of the opinion and Judge Parsons' own statements as to what he was and was not deciding in that case compel a more narrow interpretation of his opinion. Judge Parsons was aware that Ohio-Sealy had filed several lawsuits against Sealy and others after the 1975 jury verdict challenging various actions taken by defendants subsequent to the jury verdict, yet he attempted to confine his inquiry to the conduct at issue in the 1971 case and the jury's findings in that regard. He stated that although he had been kept up to date as to the other litigation brought by Ohio-Sealy against Sealy,

  [n]one of these cases is before me for decision, nor
  should they be. The trial of this case was concluded
  in 1975, and the equitable relief I fashioned must be
  founded upon the findings of the jury that heard this
  case. Today's decree may have some effect upon both
  cases indirectly, but it should not be my purpose
  here to influence decisions yet to be made. Later
  decisions should be free to rest upon the facts
  peculiar to the cases in which they will be made.

Ohio-Sealy Mattress Manufacturing Company v. Sealy, Inc., No. 71 C 1243 mem. op. at 29-30 (N.D.Ill. December 1, 1980, as amended January 30, 1981).

Whether Judge Parsons should have or could have considered defendants' post-verdict conduct in connection with the second equitable relief proceeding, his opinion indicates that he considered little, if any, post-verdict conduct as bearing on the issue of equitable relief from the exclusive manufacturing territories clause. Although Judge Parsons mentioned Sealy's post-verdict acquisitions of its Portland and San Diego licensees late in his opinion, he set them apart from the issues he felt relevant to his determination on equitable relief in the 1971 case. All of the examples of defendants' anticompetitive conduct cited and relied upon by the court in connection with its discussion of equitable relief related to pre-verdict activity. Moreover, Judge Parsons characterized Ohio-Sealy's additional evidence in the second equitable relief proceeding as "principally . . . a reiteration by [plaintiff's] expert, Dr. Mueller, of the positions he had taken in earlier testimony. . . ." Id. mem. op. at 29. While there are passages in Judge Parson's opinion and in the transcripts of the proceedings over which he presided that might support an argument that the question of equitable relief from the exclusive manufacturing territories clause was decided on a record that included some post-verdict conduct stretching through the temporal scope of the instant case, this Court cannot definitively say that such issues were actually litigated or necessarily decided in the context of the second equitable relief proceeding, which was essentially a belated adjunct to the 1975 jury verdict.

Defendants also argue that the court of appeals in Ohio-Sealy Mattress Manufacturing Co. v. Sealy, Inc., 585 F.2d 821 (7th Cir. 1978), "expressly acknowledged that the exclusive manufacturing territories clause was not itself objectionable." Thus, they contend that Ohio-Sealy should be precluded from challenging the clause in the context of this case. But the court of appeals did not hold that the exclusive manufacturing territories clause was necessarily lawful under all possible circumstances. Rather, the court stated that:

  Repeatedly, Sealy argues that, e.g., areas of primary
  responsibility, exclusive manufacturing licenses,
  location clauses, pass-over payments, rights of first
  refusal, etc., have all been held at one time or
  another not to violate the antitrust laws. That is
  certainly true enough, but we know of no authority
  holding that these devices, alone or in conjunction,
  do not violate the antitrust laws even though they
  have effects plainly within the ambit of those laws.
  On the violation issue, Sealy consistently refuses to
  address what was obviously Ohio's case theory, on
  which the jury was appropriately instructed in agreed
  language. It is thoroughly established that "[a]cts
  which may be legal and innocent in themselves,
  standing alone, lose that character when incorporated
  into a conspiracy to restrain trade."

585 F.2d at 827-28 (citations omitted, emphasis in original).

Whether Ohio-Sealy will be able to show a violation of the antitrust laws brought about by the application of the exclusive manufacturing territory clause itself or in conjunction with other allegedly anticompetitive elements within the context of this case in order to justify the equitable relief it continues to seek is a very different question upon which we express no opinion at this juncture. We hold only that if such a violation should be proven, neither the opinion of the court of appeals nor Judge Parsons' opinion in the 1971 case would preclude ...


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