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TERRIFIC PROMOTIONS, INC. v. DOLLAR TREE STORES

December 10, 1996

Terrific Promotions, Inc., Pamela J. Alper, and Michael N. Alper, Plaintiffs,
v.
Dollar Tree Stores, Inc., and Timothy J. Avers, Defendants.



The opinion of the court was delivered by: LINDBERG

MEMORANDUM OPINION AND ORDER

 Plaintiffs Terrific Promotions, Inc., a Delaware corporation ("TPI-DE"), Michael N. Alper, and Pamela J. Alper ("the Alpers") have filed a Rule 59(e) motion for reconsideration of the court's order of November 26, 1996, dismissing with prejudice their federal antitrust and securities fraud claims against defendants Dollar Tree Stores, Inc. ("DTS") and Timothy J. Avers ("Avers"), and declining to exercise jurisdiction over their supplemental state law claims. For the reasons set forth below, their motion for reconsideration is denied.

 FACTUAL SUMMARY1

 This litigation relates to a corporate acquisition in which defendant DTS purchased one hundred percent of the stock of Terrific Promotions, Inc., an Illinois corporation ("TPI-IL"), from the Alpers for a sum of more than $ 53 million. The Alpers claim that they did not intend to convey any proprietary business information relating to TPI-IL's wholesale merchandising operations, even though the Stock Purchase Agreement contained no provisions excluding that portion of the company from the sale. Plaintiffs now seek to recover the exclusive use of that business information by claiming that the transaction violated federal antitrust and securities laws.

 DISCUSSION

 A motion for reconsideration pursuant to Fed. R. Civ. P. 59(e) enables the court to correct its own "manifest error[s] of law or fact" and thus "avoid unnecessary appellate procedures." Moro v. Shell Oil Co., 91 F.3d 872, 876 (7th Cir. 1996). It does not provide a vehicle for a party "to introduce new evidence or advance arguments that could and should have been presented to the district court prior to the judgment." Id. As set forth below, plaintiffs argue that the court committed errors of law and fact in dismissing their antitrust and securities fraud claims. After reviewing these suggestions of error, however, the court remains persuaded that these claims were properly dismissed.

 A.

 Plaintiffs allege that defendants DTS and Avers conspired to harm competition in the national wholesale merchandising market *fn2" in violation of Section 1 of the Sherman Act, 15 U.S.C. ยง 1. The substance of this claim may be stated as follows: (1) the Stock Purchase Agreement did not convey to DTS any business information concerning TPI-IL's wholesale merchandising business, and thus the current use of such information by DTS is a misappropriation, (2) the misappropriation resulted in the entry of DTS into the wholesale merchandising market by "unlawful means" and the "destruction" of TPI-DE, an "existing competitor" and the successor to TPI-IL's wholesale merchandising operations (Pls.' Mot. for Recons. at 5), and (3) the misappropriation harmed competition in the national wholesale merchandising market because, without it, "there would be more competitors in [that] market today" (Pls.' Mem. in Opp'n to Def. DTS's Mot. to Dismiss at 16).

 The court dismissed the antitrust claim because plaintiffs could prove no set of facts to support their allegation that the misappropriation or anything else about the transaction harmed competition in the national wholesale merchandising market. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488, 50 L. Ed. 2d 701, 97 S. Ct. 690 (1977) (Section 1 of the Sherman Act requires harm to the market and not merely harm to competitors). In order to demonstrate that the transaction had any effect on the market whatsoever, plaintiffs would need to show either (1) that it reduced the number of competitors in the market, or (2) that it hindered the number of competitors from increasing. Because DTS was not present in the wholesale merchandising market prior to the stock sale, its alleged misappropriation of the Alper's wholesale merchandising business could not have reduced the overall number of market competitors.

 Plaintiffs would therefore need to show that the transaction hindered the number of competitors from increasing. To do this, plaintiffs would need to show that the misappropriation or some other facet of the transaction imposed a burden on the Alpers' reentry into the market that was greater than the burden that DTS would have realized in entering the market for the first time. This cannot be done. The redundant development costs imposed on the Alpers by virtue of the misappropriation could be no greater than those incurred by DTS in entering the market for the first time, and for this reason the alleged misappropriation could not have hindered the number of market competitors from increasing. The court further determined that the Alpers were not subject to any non-competition agreements that restricted their reentry into the national wholesale merchandising market in competition with DTS. For these reasons, the court held that plaintiffs could prove no set of facts to support their claim that the transaction suppressed competition.

 Second, plaintiffs assert that the court erroneously relied on a finding that the Alpers were not barred from reentering the national wholesale merchandising market, a fact which they contend is not "dispositive" in a claim under Section 1 of the Sherman Act. (Pls.' Mot. for Recons. at 5.) Rather, plaintiffs suggest that they need only show that defendant DTS "suppressed" competition by "destroying" TPI-DE. (Id. at 5-6.) It would seem, however, that plaintiffs misperceive the manner in which the court "relied" on such a finding. The fact that the Alpers were not barred from reentering the market by virtue of non-competition agreements is but one reason why the transaction did not "suppress" competition. As has been shown, the alleged destruction of TPI-DE by DTS can provide no further evidence of the suppression of competition in the national wholesale merchandising market.

 Third, plaintiffs suggest that the court misconstrued paragraph 54 of their second amended complaint, which alleges that unspecified "restrictive covenants solidified the adverse market consequences" of the antitrust conspiracy. The court interpreted this statement as an assertion that the Alpers were subject to restrictive covenants that barred them from reentering the wholesale merchandising market directly; it then observed that no such covenants exist. Plaintiffs have clarified that paragraph 54 refers to the Non-Competition Agreement appended to the Stock Purchase Agreement, the effect of which was to prevent the Alpers from engaging in certain retail (but not wholesale) operations in competition with DTS for a period of four years after the stock sale. Plaintiffs now argue that their limited exclusion from the retail market tangentially encumbers their wholesale operations "by arguably limiting certain proof of performance sales." (Pls.' Mot. for Recons. at 6 n.17).

 The legality of a non-competition agreement under Section 1 of the Sherman Act is properly governed by the "rule of reason" analysis. Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255, 265 (7th Cir. 1981), cert. denied, 455 U.S. 921, 71 L. Ed. 2d 461, 102 S. Ct. 1277 (1982). Under this rule, covenants are valid if they are "(1) ancillary to the main purpose of a lawful contract, and (2) necessary to protect the covenantee's legitimate property interests, which require that the covenants be as limited as is reasonable to protect the covenantee's interests." 660 F.2d at ...


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