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42nd Parallel North v. E Street Denim Co.

February 13, 2002

42ND PARALLEL NORTH, PLAINTIFF-APPELLANT,
v.
E STREET DENIM COMPANY, WESTERN GLOVE WORKS, BUFFALO DE FRANCE CORP., GRASS ROOTS CLOTHING CO., INC., AND URBAN OUTFITTERS, INC., DEFENDANTS-APPELLEES.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 00 C 4090--Wayne R. Andersen, Judge.

Before Bauer, Coffey, and Evans, Circuit Judges.

The opinion of the court was delivered by: Evans, Circuit Judge.

Argued January 23, 2002

On January 23, 2002, the same day our panel heard oral arguments in this case, the front page of the business section of the New York Times reported:

The Netscape Communications Corporation, the commercial pioneer in Web browsing software, whose fortunes faded after a withering assault from Microsoft, filed a broad antitrust suit yesterday against the company. Netscape charged that its decline was a result of Microsoft's illegal tactics, echoing many of the findings in the government's case against the company.

The Microsoft/Netscape (Netscape's corporate parent is AOL Time Warner) brouhaha is the sort of battle one thinks about when considering lawsuits under federal antitrust laws. One does not ordinarily conjure up the same sort of images when thinking about two little retail stores in suburban Chicago duking it out over blue jeans and T-shirts. But that's what we've got before us on this appeal. The district judge thought that the tussle didn't measure up as an antitrust suit and he dismissed it. As we see it, the district judge got it right, and his dismissal of the suit is affirmed.

We draw the facts from the amended complaint, accepting its allegations as true. 42nd Parallel North and E Street Denim Company are retailers of specialty clothing competing for the same customers, those in the "brand driven" and "fashion oriented" money-spending age group of 9 to 24. Both sell their wares in the central business district of Highland Park, a suburb north of Chicago, with approximately 32,000 residents; the central business district boasts 570 retail stores, including The Gap, Banana Republic, Saks Fifth Avenue, Eddie Bauer, Jos. A. Bank, Ann Taylor, The Limited, and Bath and Body Works.

After it opened for business in 1996, 42nd's suppliers included Buffalo de France, which manufactures and distributes denim blue jeans and sportswear under the trade name "Buffalo Jeans, David Britton"; Western Glove Works, which manufactures and distributes denim blue jeans and sportswear under the trade name "Silver Jeans"; and Grass Roots Clothing, which manufactures and distributes clothing, including fashion T-shirts. 42nd made substantial sales of each of these three companies' product lines.

42nd alleges that since that time (dates are not really specified), E Street threatened and coerced these manufacturers (who are also named as defendants) not to do business with 42nd. Buffalo Jeans, which had been 42nd's main supplier, has refused to fill its orders, claiming that the orders were lost or it did not have the products to ship. It has shipped only out-of-season styles or unpopular sizes. Buffalo Jeans claimed it was having supply problems. 42nd asserts that Buffalo Jeans' justifications are false because:

E Street and other stores in the area are filled with the same product that 42nd has been unable to obtain. Likewise, other retail stores throughout the United States and in other parts of Illinois have had little or no problems having [their] orders filled by Buffalo Jeans or obtaining sales and support services.

Western Glove also has refused to fill 42nd's orders, claiming they were either lost or not received. Noting that at some point the owner/president of Western Glove acknowledged that "he was under pressure by E Street not to continue to sell to 42nd," 42nd asserts that E Street's threats and coercion caused Western Glove to stop selling to 42nd. Grass Roots has also refused to fill 42nd's orders; a Grass Roots representative said that E Street "placed pressure on it not to sell to 42nd."

42nd further asserts that beginning in September of 1999 it has asked Urban Outfitters (another named defendant) that manufactures and distributes jeans and sportswear, to fill 42nd's orders. Urban Outfitters has refused, citing E Street as the reason.

42nd brought a claim under sec.sec. 4 and 16 of the Clayton Act based on a violation of sec. 1 of the Sherman Act. It sought damages for lost retail sales of the products at issue, losses in the form of markdowns caused by the shipment of out-of-season styles and unpopular sizes, lost sales of associated items, and a reduction of customer goodwill. The district judge dismissed the complaint (and relinquished jurisdiction over a pair of supplemental state law claims) because 42nd had failed to allege an anticompetitive effect on the market. We review a ruling on a motion to dismiss de novo. Although we have instructed district judges to be wary of dismissing antitrust complaints under Federal Rule of Civil Procedure 12(b)(6), see Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101, 1106-07 (7th Cir. 1984), the district judge here acted properly as this suit is a nonstarter.

Section 1 of the Sherman Act proscribes "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations." 15 U.S.C. sec. 1. Our starting point is Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717 (1988). In Sharp, a manufacturer of electronic calculators terminated one dealer in response to another dealer's complaints about the first dealer's price-cutting habits. The shunned dealer sued the manufacturer, claiming an antitrust violation. The Court noted that any conspiracy to terminate the dealer constituted a vertical and not a horizontal restraint because it involved an agreement between participants at different levels of distribution. Id. at 730 n.4. Moreover, because the restraint did not involve an agreement on prices, it was not per se illegal but rather subject to a Rule of Reason analysis. Id. at 735-36. The Court declined to adopt a per se prohibition, noting that a retailer's ability to exploit an increase in intrabrand market power is limited by the ...


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