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MARCO HOLDING CO. v. LEAR SIEGLER

February 14, 1985

MARCO HOLDING COMPANY, AN ILLINOIS CORPORATION, PLAINTIFF,
v.
LEAR SIEGLER, INC., A DELAWARE CORPORATION, D/B/A NATIONAL TWIST DRILL & TOOL COMPANY; CHICAGO HI-SPEED TOOL COMPANY AND SUPPLY, AN ILLINOIS CORPORATION; SERSON SUPPLY INC., AN ILLINOIS CORPORATION, DEFENDANTS.



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

  MEMORANDUM OPINION

Before us in this heavily litigated case are (1) defendants', Lear Siegler, Inc. (Lear Siegler), Chicago Hi-Speed Tool Company and Supply, Inc. (Chicago Hi-Speed), and Serson Supply, Inc. (Serson Supply), motion for summary judgment on count III of Marco Holding Company's (Marco) third amended complaint, alleging a violation of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, and Section 3 of the Clayton Act, 15 U.S.C. § 14, and (2) Marco's motion under Fed.R.Civ.P. 12(f) to strike count II of Lear Siegler's counterclaim, alleging "fraudulent and deceitful misrepresentation" and its first and second affirmative defenses or, alternatively, for summary judgment, Fed.R.Civ.P. 56, and for sanctions under Fed.R.Civ.P. 11. For the reasons hereinafter stated we (1) deny Lear Siegler's motion for summary judgment on count III of the third amended complaint and deny plaintiff's request for sanctions and (2) grant Marco's motion for summary judgment on Lear Siegler's counterclaim, and first and second affirmative defenses, but deny its request for sanctions, fees and expenses with regard to this particular motion.

In addition to the pleadings on the motions before us, the voluminous record includes many exhibits and extensive deposition testimony of the following persons involved in this litigation: William S. Lazich (Lazich), currently division president of National Twist Drill & Tool Company (National Twist); Charles A. Kremser (Kremser), vice president of sales of National Twist; Robert D. Pedigree (Pedigree), one of three regional sales managers of National Twist; Wilfred A. Ferzacca (Ferzacca), another regional sales manager of National Twist; Leon Rosen (Rosen), president of Chicago Hi-Speed; John J. Serson (Serson), president of Serson Supply; Wesley Barnes (Barnes), vice president of Serson Supply; Mark Douglas Friefeld (Friefeld), president of Manufacturers' Industrial Suppliers Corporation (MIS) during the relevant time period; Barry R. Friefeld, of Field Tool Supply Co. (Field Tool); Sidney Friefeld, co-owner with Edward Friefeld of MIS and Field Tool; Samuel A. Robbins (Robbins), certified public accountant and accountant for MIS and Field Tool; and Robert E. Templeton (Templeton), salesman for National Twist. Many of these persons have been deposed, redeposed and deposed yet again. Additionally, the record also includes affidavits from some of the above-named gentlemen.

From the above, we have determined that the following facts, relevant to the motions before us, are, apparently, not disputed. Lear Siegler, through its National Twist division, manufactures cutting tools, including end mills, drills, and taps. It sells them under various brand names, including "National", "Standard", and "Max-Line". Apparently, the items are substantially identical, although they are put into different packages and the Max-Line brand tools are less expensive than the National and Standard brands. The industry generally perceives the Max-Line brand to be inferior to National and Standard. Max-Line does not have the "image" that National has. Lazich Dep. at 169 (July 23, 1983)*fn1 Lear Siegler sells the cutting tools through a network of distributors, some of whom sell to other distributors, while others sell to end users.

In August, 1976, Lear Siegler made Serson Supply a master distributor of the National brand; it had previously been a Standard distributor. (A "master distributor" is one who sells solely to other distributors and not to end-users or consuming accounts.) Lear Siegler also made Chicago Hi-Speed a master distributor of Standard. In 1981 and 1982, Serson Supply and Chicago Hi-Speed were "considered good dollar volume" distributors and the largest distributors in the Chicago metropolitan area. Kremser Dep. at 229-230 (Dec. 6, 1984).

In June, 1981, Ferzacca, sales manager for Lear Siegler's Chicago area region, contacted MIS concerning the possibility that MIS become a distributor of Lear Siegler cutting tools. Ferzacca was interested in MIS, as he understood it sold to small distributors and Lear Siegler was interested in having such a distributor. Lear Siegler was losing small orders and needed an aggressive master distributor. Ferzacca Dep. at 25 (Mar. 23, 1983); Pl.Ex. O (Ferzacca Weekly Summary Report of Nov. 7, 1981).

In November, 1981, Mark D. Friefeld and Barry Friefeld went to National Twist's headquarters in Rochester, Michigan to effect an "arrangement", see Lear Siegler Br. at 2, or a "contract", see Marco brief at 4, by which Lear Siegler would sell cutting tools to MIS who would, in turn, resell to other distributors. At the meeting, Lear Siegler issued MIS a "quotation number", see Lear Siegler Br. at 2, or a "purchase order", see Marco Br. at 5, pursuant to which products were delivered to MIS in December, 1981. The exact terms of the "arrangements" or "contract" between MIS and Lear Siegler are, as we shall see, in dispute. Apparently, there was no written contract.

In January, 1982, MIS sent a "Trans-O-Gram", drafted by Friefeld, to all distributors on its mailing list. The message stated that "National Twist Drill Brand" was "Now a Stocked Line at M.I.S." and quoted the following prices: (1) under $200 list: discount less 50 percent; (2) $200 list and over: discount 50 percent and 10 percent. National Twist's Distributor Discount Schedules, dated effective September 4, 1981, June 21, 1982, May 9, 1983, and March 12, 1984, announce that distributor discounts on certain listed items were: (1) orders for $500 or more at list price, minus 50 percent; (2) orders for less than $500 at list price minus 45 percent. Thus, even assuming that the percentage discounts remained the same as between MIS' and National Twist's price schedules, those discounts were available to MIS customers for much smaller orders: $200 as opposed to $500.

A copy of the Trans-O-Gram was sent to Kremser at National Twist. Other distributors, including Chicago Hi-Speed and Serson Supply also received the Trans-O-Gram. Chicago Hi-Speed and Serson Supply contacted Lear Siegler. They inquired, Def.Br. at 3, or complained, Pl.Br. at 6, about the pricing schedule of National products. Other companies contacted Lear Siegler as well and complained. Lazich Dep. at 154 (July 25, 1983). It appears, however, that the "complaints" of Chicago Hi-Speed and Serson Supply were the most vigorous.

At his deposition, Kremser testified that after one of the calls he did not "know how he pacified him. He was very angry. . . .[,] was going to discontinue doing business with us or diminish our sales." He told the caller "[n]ot to do anything drastic and just hold his fire for awhile until I have a chance to talk and find out why they are going out to National distributor organizations." Kremser Dep. at 153 (July 26, 1983). Rosen, of Chicago Hi-Speed called Pedigree and said "[i]f National is going to continue to sell Field Tool, then I won't be able to continue to represent Standard tool." Pedigree Dep. at 94 (Oct. 19, 1983). Kremser was sure that the "problem" "wouldn't go away" and that Lear Siegler was "in jeopardy with some of our good distributors." Kremser Dep. at 165. See also Rosen Confidential Dep. at 107 (Nov. 9, 1984); Serson Confidential Dep. at 26 (Oct. 22, 1984).

Defendants state that Kremser advised representatives of Serson Supply and Chicago Hi-Speed that Lear Siegler "would look into the "situation" and "was dealing with that matter." Def.Motion (Appendix) at 4, Fact ## 10, 11.

Kremser and Pedigree met with MIS in Chicago to try to convince it to carry the Max-Line brand. During the same trip, after meeting with MIS, they met with Bosler Supply, Serson and Chicago Hi-Speed. Pedigree Dep. at 106-107 (Oct. 19, 1983). When asked, "Are you still dealing with Field Tool?", Kremser allegedly responded, "We are still trying to resolve the issue." Id. at 108-109. The decision to terminate MIS as a National brand distributor was made at the meeting at which Mark Friefeld, Barry Friefeld, Pedigree, Kremser and another unnamed person were present. Id. at 100. Lazich made the decision to terminate MIS as a National distributor. Id. at 102. But Lear Siegler offered to have MIS act as a distributor of its Max-Line tools. Def.Br. at 6; Pl.Br. at 7.

Both Kremser and Lazich testified that absent the complaints of other distributors, including Serson Supply and Chicago Hi-Speed, and other problems in the future, Lear Siegler would not have terminated MIS. Kremser Dep. at 170; Lazich Dep. at 166.

Prior to 1979, MIS and Field Tool were separate corporations. MIS sold only to other distributors, while Field Tool sold both to distributors and consuming accounts (end users). Both corporations were owned by Sidney Friefeld and Edward Friefeld. In 1979, acting on advice of their accountant, Samuel A. Robbins, the corporations were merged, allegedly for tax purposes. The Articles of Merger were filed with the Secretary of State. Lear Siegler Mem., Letter from F.R. Buoscio to Samuel A. Robbins (Feb. 26, 1979). At this time, MIS was dissolved and reincorporated to preserve its name. Id. In 1983, Mark D. Friefeld, the owner and president of Marco Holding, purchased all the assets of Field Tool and MIS. In 1981, he was president of MIS.

On July 15, 1982, MIS filed a complaint against Lear Siegler alleging breach of contract — promissory estoppel (count I), breach of contract — part performance (count II), and fraud and misrepresentation (count III). On May 2, 1984, MIS filed a second amended complaint, adding defendants Chicago Hi-Speed and Serson Supply and an antitrust claim (count III). On April 12, 1984, Serson filed a counterclaim and cross claim against MIS and Lear Siegler which it voluntarily dismissed on July 31, 1984. On September 13, 1984, Marco Holding, the successor corporation to Field Tool and MIS, filed a third amended complaint alleging breach of contract — promissory estoppel (count I), breach of contract — part performance (count II), antitrust violation — group boycott (count III), and tortious interference with the reasonable expectation of economic advantage (count IV). Counts I and II are directed solely against Lear Siegler. Count IV is directed solely against Chicago Hi-Speed and Serson Supply. Count III is brought against Lear Siegler, Chicago Hi-Speed and Serson Supply.

   I. Defendants' Motion for Summary Judgment on the Antitrust
                              Claim

In considering a summary judgment motion, we note that a party moving for summary judgment has the burden of clearly establishing the non-existence of any genuine issue of fact material to a judgment in its favor. Cedillo v. International Association of Bridge & Structural Iron Workers, Local Union No. 1, 603 F.2d 7, 10 (7th Cir. 1979). Any doubts concerning material facts must be resolved against the moving party. Moutoux v. Gulling Auto Electric, Inc., 295 F.2d 573, 576 (7th Cir. 1961). On the other hand, any inferences to be drawn from the underlying facts must be viewed in favor of the non-moving party. Korf v. Ball State University, 726 F.2d 1222, 1226 (7th Cir. 1984).

In the particular context of antitrust actions the applicable tests for the propriety of granting summary judgment are the same, subject to the following analyses. It is certainly as true in an antitrust case as in any other that "[i]f after completion of pretrial discovery, it is clear that the plaintiff will not be able to establish at trial an essential element of his claim, the defendant is entitled to have the complaint dismissed on summary judgment; a trial would be a waste of time." Products Liability Insurance Agency, Inc. v. Crum & Forster Insurance Companies, 682 F.2d 660, 663 (7th Cir. 1982). A plaintiff must present enough evidence of conspiracy to resist defendant's motion for summary judgment. Id. at 662.

However, in many antitrust actions — "where motive and intent play leading roles, the proof is largely in the hands of the alleged conspirators, and hostile witnesses thicken the plot" — summary disposition is inappropriate. American Dermatologists' Medical Group, Inc. v. Collagen Corporation, 595 F. Supp. 79, 81 (N.D.Ill. 1984), citing Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 491, 7 L.Ed.2d 458 (1962) (footnote omitted). Poller stands for the proposition that, "if a claim under the antitrust laws has been adequately set forth in the complaint, the highly factual and subjective questions of intent and purpose should be resolved after discovery and trial." Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106 (7th Cir. 1984) (citation omitted) (affirming the district court's grant of defendants' 12(b)(6) motion). And in order to deny a motion for summary judgment, a court need not affirmatively find that a conspiracy exists, but only that there are factual issues concerning such a conspiracy. American Dermatologists', supra, 595 F. Supp. at 81. This is precisely the situation here.

Lear Siegler contends that its termination of MIS as a distributor was an independent, unilateral act, that the termination had no adverse effect on competition, and that there is no evidence of a price-fixing conspiracy so as to warrant the application of a per se analysis. We need not, however, and do not reach the question whether a per se or rule of reason analysis should be employed here, although Marco claims that even under a rule of reason analysis, the evidence sets forth a violation of the Sherman Act.

Defendants further argue that Lear Siegler's "independent decision" to terminate MIS was based on the fact that MIS had agreed to submit its mailing list for review by Lear Siegler to allow it to "purge" from the list the names of existing Lear Siegler distributors. Not surprisingly, MIS claims that no such "purge" request was ever agreed upon. There is, of course, greatly conflicting deposition testimony on the purge issue. Cf. (for Lear Siegler) Lazich Dep. at 127, 128; Kremser Dep. at 96-97, 142, 230; Pedigree Dep. at 66 with (for MIS/Marco) Mark Douglas Friefeld Dep. at 57, 73, 77, 83. Given the various views of the arrangements between MIS and Lear Siegler and drawing inferences favorably to the non-moving party, Marco, summary judgment is clearly inappropriate to resolve these disputed issues of material fact. Lear Siegler's explanation (or motive) for terminating MIS does not necessarily obviate MIS' contention that Lear Siegler agreed, with some of its distributors, to terminate MIS, to exclude it from the market, thereby protecting and stabilizing resale prices to both the end user market, as well as the distributor market.

Defendants argue that the Supreme Court's recent decision in Monsanto Company v. Spray-Rite Service Corporation, ___ U.S. ___, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984) mandates the grant of summary judgment on Marco's antitrust claim. In Monsanto, the Court considered the standard of proof required to find a vertical price-fixing conspiracy in violation of Section 1 of the Sherman Act. We note, though, that the court's analysis was directed to that standard of proof which a plaintiff must satisfy in order ...


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