Opinion
Complaint by former independent automobile dealers against automobile manufacturers for treble damages under Anti-Trust Laws. A defendant moved to dismiss the complaint for failure to state a claim upon which relief can be granted. The District Court, Smith, Chief Judge, held that the complaint, which alleged that the defendants rigidly maintained a system of exclusive dealer franchises, which excluded independents, forced tie-in sales of accessories and services at excessive prices, and deprived public of free competitive pricing of new and used automobiles, and that plaintiffs were injured by being forced out of business, properly alleged system the operation of which caused restriction on free flow of goods in commerce and a potential clog on competition, and was not defective in apparently relying on inference of ‘ conscious parallelism’ as an assertion of concerted activity by defendants.
Motion denied.
Sydney Alderman, New Haven, Conn., Malkan & Ellner, New York City, for plaintiffs.
Frederick H. Wiggin, Wiggin & Dana, New Haven, Conn., Henry M. Hogan, Gen. Counsel, Gen. Motors Corp., Detroit, Mich., for defendants.
SMITH, Chief Judge.
Plaintiffs, formerly independent, unfranchised automobile dealers, are suing for treble damages under the anti-trust laws. They have joined as defendants General Motors Corporation, Ford Motor Company, and the Chrysler group as manufacturers, certain ‘ authorized’ or franchised dealers, and various others including the General Motors Acceptance Corporation, Chrysler Sales Corporation, and the National Automobile Dealers Association.
Defendant General Motors Corporation has moved to dismiss the complaint for failure to state a claim upon which relief can be granted. In its attack GMC has segmented the complaint and endeavored to show the failings of each part— the ‘ whole is no greater than the sum of its parts' approach. Summarizing, GMC says the following: it is not enough merely to complain of an alleged violation in the words of the statute but facts must be shown establishing misconduct, Black & Yates v. Mahogany Association, 3 Cir., 129 F.2d 227, 231, 148 A.L.R. 841, and the plaintiffs allege no facts showing a restraint on commerce by GMC; the necessary allegations of facts establishing a violation through conspiracy, contract, or agreement are missing and ‘ conscious parallelism’ alone does not constitute a violation, Theatre Enterprises v. Paramount Film Distributing Corp., 346 U.S. 537, 541, 74 S.Ct. 257, 98 L.Ed. 273; there is no real allegation of public injury and there hardly could be such because competition has been steadily increasing over the years to its high peak of the present day; that the defendants did not choose to do business with the plaintiffs is a local matter not under the anti-trust provisions, United States v. Bausch and Lomb, 321 U.S. 707, 64 S.Ct. 805, 88 L.Ed. 1024; Brosious v. Pepsi-Cola Co., 3 Cir., 155 F.2d 99; and it was the plaintiffs' purchases of cars with defective titles in their ‘ bootleg’ operations which was the proximate cause of their injury, not the defendants' failure to deal with them.
GMC would have this court find that the complaint fails to meet the requirements set forth in Feddersen Motors v. Ward, 10 Cir., 1950, 180 F.2d 519, 522:
‘ And in a case of this kind brought by an individual suitor for the recovery of three-fold damages, it is essential that the complaint allege a violation of the Act in the form of undue restriction or obstruction of interstate commerce and damages to plaintiff proximately resulting from the acts and conduct which constitute the violation. But injury to plaintiff alone is not enough upon which to predicate such an action. There must be harm to the general public in the form of undue restriction of interstate commerce * * *. And a general allegation of the forming of such a combination or conspiracy with resulting injury to the public and to the plaintiff is not enough. While detail is not necessary, it is essential that the complaint allege facts from which it can be determined as a matter of law that by reason of intent, tendency, or the inherent nature of the contemplated acts, the conspiracy was reasonably calculated to prejudice the public interest by unduly restricting the free flow of interstate commerce.’
The plaintiffs object to atomizing the complaint. They claim it should be read as a whole, and if so approached, they say it satisfies the purpose of pleadings as described in Hickman v. Taylor, 329 U.S. 495, 501, 67 S.Ct. 385, 388, 91 L.Ed. 451:
‘ The new rules, however, restrict the pleadings to * * * general notice-giving and invest the deposition-discovery process with a vital role in the preparation for trial.’
Plaintiffs claim that they have alleged the aggregate effect of all the acts of the defendants and their conspiracy as embodied in the exclusive dealing distribution system, and that such is sufficient.
In dealing with a motion to dismiss for failure to state a claim, the rule of Dioguardi v. Durning, 2 Cir., 1944, 139 F.2d 774, should be kept in mind. Such dismissal should not be granted unless it appears to a certainty that plaintiff is entitled to no relief under any state of facts which could be proved in support of the claim.
Reminded of this, what do we find in the complaint? Plaintiffs allege the rigid maintenance of a system of exclusive dealer franchises, arbitrarily limited in number and location, which operates to exclude from the business of selling current model automobiles those independents who will not submit and conform to the system. Plaintiffs allege the system is maintained by a careful policing designed to restrain franchised dealers from selling to independents and is supported by various forms of pressure effectively exerted on banks, finance companies, newspapers, and even legislative bodies. Plaintiffs say the system fosters, and is in fact guilty of, forced tie-in sales of accessories and services at excessive prices. They say the public is deprived of free competitive pricing by the control over retail prices exerted by the manufacturers in both the new and used car markets. And they allege their own injury, being forced out of business because of inability to compete with franchised dealers.
Taking the allegations as true, the situation may be characterized as one in which a would-be distributor is denied access to sources of supply because of exclusive dealing contracts. Standard Oil Co. v. United States, 337 U.S. 293, 69 S.Ct. 1051, 93 L.Ed. 1371, involved the reverse circumstances. A big supplier had tied up many outlets with requirements contracts. The Supreme Court said, 337 U.S. at page 314, 69 S.Ct. at page 1062:
‘ It cannot be gainsaid that observance by a dealer of his requirements contract with Standard does effectively foreclose whatever opportunity there might be for competing suppliers to attract his patronage, and it is clear that the affected proportion of retail sales of petroleum products is substantial. * * * Standard's use of the contracts creates just such a potential clog on competition as it was the purpose of Section 3 to remove whereever, were it to become actual, it would impede a substantial amount of competitive activity.’
The plaintiffs would seem to have alleged a system the operation of which causes a restriction on the free flow of goods in commerce and a ‘ potential clog on competition’ .
One further item demands attention. The complaint lacks a clear-cut assertion of concerted activity by the defendants. The plaintiffs seem to rely on the inference of ‘ conscious parallelism’ .
Theatre Enterprises v. Paramount, supra, involved a neighborhood motion picture exhibitor who was trying to break the system used by various distributors of ‘ first-run’ showings in downtown areas of Baltimore. The court said, 346 U.S. at pages 540-541, 74 S.Ct. at page 259:
‘ The crucial question is whether respondents' conduct toward petitioner stemmed from independent decision or from an agreement, tacit or express. To be sure, business behavior is admissible circumstantial evidence from which the fact finder may infer agreement. * * * circumstantial evidence of consciously parallel behavior may have made heavy inroads into the traditional judicial attitude toward conspiracy, but ‘ conscious parallelism’ has not yet read conspiracy out of the Sherman Act entirely.'
It is open to plaintiffs to prove conscious parallelism of business activity. Difficulties of convincing the trier to draw the inference of agreement from the proof of parallelism should not militate against the complaint at this time.
Defendant General Motors' motion to dismiss is denied.