Opinion
No. 79-CV-33.
May 31, 1979.
Hancock, Estabrook, Ryan, Shove Hust, Syracuse, N.Y., for plaintiff; Paul M. Hanrahan, M. Harold Dwyer, Syracuse, N.Y., of counsel.
Gross, Shuman, Brizdle, Laub Gilfillan, P.C., Buffalo, N Y, for defendants Syracuse Shopping Center Associates, International Business Realty Corp. and Irving H. Rosenberg; Philip B. Abramowitz, Buffalo, N.Y., of counsel.
Vecchio Clark, North Syracuse, N.Y., for defendant DeWitt's Optical World, Inc.; Howard F.G. Clark, Jr., North Syracuse, N.Y., of counsel.
MEMORANDUM-DECISION AND ORDER
On January 15, 1974, Optivision, Inc., which operates a wholesale and retail optical goods business, entered into a lease agreement with Syracuse Shopping Center Associates ("Syracuse Associates") to rent a small commercial unit within the Northern Lights Shopping Center for use as a retail store for the dispensing of eyeglasses, contact lenses, and other optical devices. The lease was for five years, commencing on March 1, 1974 and ending on February 28, 1979. A rider to the lease gave the tenant the option to extend the term for an additional five-year period at a slightly increased rental, and provided that the tenant must give the landlord notice of his exercise of the option at least six months prior to the expiration date of the original term. The lease required such notice to be delivered in person or sent by certified mail to Syracuse Shopping Center Associates at 17 Court Street, Buffalo, New York. There is disagreement among the parties as to whether Optivision validly exercised this renewal option.
On September 6, 1978, the landlord leased a different commercial unit in the Northern Lights Shopping Center to a competitor of Optivision, DeWitt's Optical World, Inc. ("DeWitt"), for use as a retail optical goods store. The lease agreement with DeWitt contains an exclusivity clause, providing that the landlord will not rent space in the shopping center to any other optical store unless the center is expanded to include a third department store.
In this action, Optivision challenges the validity of the exclusivity clause in DeWitt's lease under §§ 1 and 2 of the Sherman Act, 15 U.S.C. § 1, 2, and under the New York State Donnelly Act. New York General Business Law § 340. Optivision also asserts that, under the legal or equitable principles applied by the New York courts, the lease should be regarded as having been properly renewed, and further alleges that defendants have tortiously interfered with plaintiff's contractual relations. Optivision seeks declaratory and injunctive relief as well as damages.
Presently before the Court is Optivision's motion for a preliminary injunction to restrain defendants from taking any action to enforce the exclusivity clause contained in the lease between the landlord and DeWitt and to restrain defendants from taking any action to remove plaintiff from its present Northern Lights location, pending a determination on the merits of this lawsuit. An evidentiary hearing was held before the Court on March 27 and 28, 1979. At that time, four witnesses testified: John Ransom, Chairman of the Board of Optivision; John Carter, New York State Regional Manager for Optivision; Irving Rosenberg, President of International Business Realty Corporation ("International") and the leasing and managing agent for Northern Lights; and Morris DeWitt, President and principal shareholder of DeWitt's Optical World, Inc. Certain documentary proof was received in evidence during the hearing.
It is well established in this circuit that a party seeking a preliminary injunction must make a clear showing of either
(1) probable success on the merits and possible irreparable injury, or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief.Selchow Righter Co. v. McGraw-Hill Book Co., 580 F.2d 25, 27 (2d Cir. 1978); State of New York v. Nuclear Regulatory Commission, 550 F.2d 745, 750 (2d Cir. 1977); Jacobson Co. v. Armstrong Cork Co., 548 F.2d 438, 441 n. 2 (2d Cir. 1977); Sonesta International Hotels Corp. v. Wellington Associates, 483 F.2d 247, 250 (2d Cir. 1973).
I. A.
Initially, defendants argue that plaintiff does not have standing to maintain the antitrust claims since there is not a sufficient causal relationship between the harm to Optivision and defendants' alleged anticompetitive conduct. Defendants argue that the damage suffered by Optivision is a direct and proximate result of its own ineptitude in failing to properly exercise the renewal option in its lease rather than the result of any combination or conspiracy among the defendants.
The right of a private litigant to injunctive relief in an antitrust action is governed by § 16 of the Clayton Act, 15 U.S.C. § 26, which states in pertinent part:
Section 16 of the Clayton Act, 15 U.S.C. § 26, is not specifically cited in the Complaint, but leave to amend the Complaint to include this statutory provision as a jurisdictional basis could be granted. Rule 15(a), Fed.R.Civ.P., provides that leave to amend "shall be freely given when justice so requires."
Any person, firm, corporation, or association shall be entitled to sue for and have injunctive relief, in any court of the United States having jurisdiction over the parties, against threatened loss or damage by a violation of the antitrust laws . . . when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity, under the rules governing such proceedings . . .
See also Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 130, 89 S.Ct. 1562, 23 L.Ed.2d 129 (1969); SCM Corp. v. Xerox Corp., 507 F.2d 358, 360 (2d Cir. 1974). The standing requirement of § 16 is less restrictive than that contained in § 4 since the right to sue under the former provision extends to threatened as well as actual injuries, and is not limited to injuries to a party's "business or property." Hawaii v. Standard Oil Co., 405 U.S. 251, 260-62, 92 S.Ct. 885, 31 L.Ed.2d 184 (1972); DeGregorio v. Segal, 443 F. Supp. 1257, 1265 n. 13 (E.D.Pa. 1978); 15 J. Von Kalinowski, Antitrust Laws and Trade Regulation § 114.01[1] (1978).
However, as in a suit for treble damages under § 4, a party seeking injunctive relief under § 16 must demonstrate that the injury he has suffered (or is threatened with) proximately results from the antitrust violation. Credit Bureau Reports, Inc. v. Retail Credit Co., 476 F.2d 989, 992 (5th Cir. 1973); Burkhead v. Phillips Petroleum Co., 308 F. Supp. 120, 123 (N.D.Cal. 1970). Thus, "[t]here must be a causal connection between an antitrust violation and an injury sufficient for the trier of fact to establish that the violation was a `material cause' of or a `substantial factor' in the occurrence of damage." Bowen v. New York News, Inc., 522 F.2d 1242, 1255 (2d Cir. 1975), cert. denied, 425 U.S. 936, 96 S.Ct. 1667, 48 L.Ed.2d 177 (1976); Billy Baxter, Inc. v. Coca-Cola Co., 431 F.2d 183, 187 (2d Cir. 1970), cert. denied, 401 U.S. 923, 91 S.Ct. 877, 27 L.Ed.2d 826 (1971).
On the basis of the present record in this case, the Court concludes that there is a sufficient causal relationship between the harm plaintiff is threatened with and the alleged anticompetitive conduct. While Optivision may not have validly exercised its renewal option, there is a substantial possibility that it would have been able to enter into a new lease agreement with the landlord at an increased rental if the exclusivity clause had not been granted to DeWitt. The nexus between the threatened harm and the activity in question can be seen from the letter sent by the landlord's counsel to the attorney for Optivision in which it is stated that Syracuse Associates have made "lease commitments which preclude their further interest in . . . [Optivision's] staying at Northern Lights." Defendants correctly point out that if Optivision has not properly renewed its lease, it will be in the same position with respect to the enforcement of the exclusivity clause as any other optical goods store in the Syracuse area, but the Court feels that such a party does have standing to seek injunctive relief, provided that there is space available in the shopping center which the landlord refuses to rent because of the exclusivity clause. See Pay Less Drug Stores Northwest, Inc. v. City Products Corp., 1975-2 Trade Cases ¶ 60,385 (D.Ore. 1975).
The Court believes that, for similar reasons, the causation requirement under New York State antitrust law is also satisfied in this case. The decision in Mobil Oil Corp. v. Rubenfeld, 48 A.D.2d 428, 370 N.Y.S.2d 943 (2d Dept. 1975), aff'd, 40 N.Y.2d 936, 390 N.Y.S.2d 57, 358 N.E.2d 882 (1976) is not to the contrary since the court in that case did not find that there was an insufficient causal relationship between the landlord's antitrust violations and the tenant's eviction, but rather found that the recognition, in those circumstances, of a retaliatory defense would impose a disproportionate penalty upon the landlord whereas monetary damages would adequately effectuate the purpose of the antitrust laws.
Thus, plaintiff has shown a probability of successfully demonstrating that it has standing to maintain this suit.
B.
Defendants also contend that the federal antitrust claims must be rejected, because plaintiff has failed to satisfy the interstate commerce requirement of the Sherman Act. That Act prohibits every contract, combination, or conspiracy "in restraint of trade or commerce among the several States," 15 U.S.C. § 1, and also outlaws any monopolization of, attempt to monopolize, or combination or conspiracy to monopolize a "part of the trade or commerce among the several States." 15 U.S.C. § 2.
The interstate commerce requirement of the Sherman Act will be established if the plaintiff is able to demonstrate either that the alleged anticompetitive conduct occurred in the flow of interstate commerce or that the activity in question, although occurring on a local or state level, has a substantial effect upon interstate commerce. Burke v. Ford, 389 U.S. 320, 321, 88 S.Ct. 443, 19 L.Ed.2d 554 (1967); Tiger Trash v. Browning-Ferris Industries, Inc., 560 F.2d 818, 825 (7th Cir. 1977), cert. denied, 434 U.S. 1034, 98 S.Ct. 768, 54 L.Ed.2d 782 (1978); Taxi Weekly, Inc. v. Metropolitan Taxicab Board of Trade, Inc., 539 F.2d 907, 909 (2d Cir. 1976); United States v. Greater Syracuse Board of Realtors, Inc., 449 F. Supp. 887, 891 (N.D.N.Y. 1978).
The source of the restraint may be intrastate, as the making of a contract or combination usually is; the application of the restraint may be intrastate, as it often is; but neither matters if the necessary effect is to stifle or restrain commerce among the states. If it is interstate commerce that feels the pinch, it does not matter how local the operation which applies the squeeze.United States v. Women's Sportswear Manufacturers Association, 336 U.S. 460, 464, 69 S.Ct. 714, 716, 93 L.Ed. 805 (1949).
The substantiality of the effect under the affecting commerce theory must be viewed in terms of practical economics. Goldfarb v. Virginia State Bar, 421 U.S. 773, 784 n. 11, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975); Doctors, Inc. v. Blue Cross of Greater Philadelphia, 490 F.2d 48, 51 (3d Cir. 1973); Rasmussen v. American Dairy Association, 472 F.2d 517, 523 (9th Cir. 1972), cert. denied, 412 U.S. 950, 93 S.Ct. 3014, 37 L.Ed.2d 1003 (1973). In making this determination, the court must consider whether there is a sufficient nexus between the complained of conduct and the interstate commerce involved and whether the volume or amount of commerce so affected is substantial. Hospital Building Co. v. Trustees of Rex Hospital, 425 U.S. 738, 96 S.Ct. 1848, 48 L.Ed.2d 338 (1976); Harold Friedman Inc. v. Thorofare Markets Inc., 587 F.2d 127, 132 (3d Cir. 1978); United States v. Greater Syracuse Board of Realtors, Inc., supra, 449 F. Supp. at 891, 897; Joe Westbrook, Inc. v. Chrysler Corp., 419 F. Supp. 824, 837 (N.D.Ga. 1976).
Testimony concerning the contacts between Optivision's Northern Lights store and interstate commerce was received at the hearing held in this case. In the Court's opinion, the most significant of those contacts is the purchase of products from out-of-state suppliers for resale in the Northern Lights retail outlet. Both Mr. Ransom and Mr. Carter listed several Optivision suppliers which were located in other states, but the record does not contain the precise figure representing the volume of products sent from outside the state to the Northern Lights store. Mr. Ransom stated that the projected gross retail sales for the Northern Lights store for the year 1979 is $200,000, and said that approximately 40% of the gross retail sales figure is represented by the wholesale cost of the products delivered to that store for resale (which would make the wholesale cost in 1979 $80,000). It is unclear exactly what portion of the $80,000 wholesale cost reflects the purchase of goods from out-of-state suppliers, but it is reasonable to infer from the testimony that a significant portion of the $80,000 figure represents the purchase of out-of-state products since Mr. Ransom stated that Optivision's largest supplier of optical lenses, from which it purchases the great bulk of its lenses, is located in Philadelphia, Pennsylvania, and lenses constitute one of the two principal items bought from wholesalers (the other principal item being frames).
Mr. Ransom also said that the proportion of out-of-state as opposed to in-state products purchased for the Northern Lights store was probably about the same as that purchased for the other Optivision retail outlets.
The Optivision representatives also testified that, while the vast majority of customers going to the Northern Lights store were from the Greater Syracuse Metropolitan Area, a small percentage (perhaps 1 or 2% according to Mr. Carter) came from other states. In this regard, it was noted that customers of other Optivision stores are given guarantees that will be honored at the Northern Lights retail outlet, and that the Northern Lights Shopping Center is located near several interstate highways.
Testimony was received at the hearing showing that Optivision accepts credit cards from customers, but the Court does not have to consider what significance this might have in establishing the required nexus with interstate commerce, because the witness, who was asked this question, was unable to state where the credit card payments came from.
There was also testimony that materials are sometimes transferred between the Northern Lights store and Optivision stores located outside New York State. Optivision has six stores in Georgia in addition to twelve in New York State. Optivision is also affiliated, under a concept known as Vision World, with stores located in Maryland and the Washington, D.C. area. The stores associated with Vision World engage in joint purchasing and promotional programs.
The alleged anticompetitive conduct here — the enforcement of the exclusivity clause in DeWitt's lease — will result in a cessation of the interstate movement of supplies and customers to the Northern Lights store operated by Optivision. This will cause a reduction in the total amount of commerce moving between the states or, at least, will cause the diversion of such commerce from Optivision's Northern Lights store to DeWitt's store situated in that shopping center or to retail optical outlets located elsewhere. In either event, there would be the required nexus between the acts in question and the interstate commerce involved. See Harold Friedman Inc. v. Thorofare Markets Inc., supra, 587 F.2d at 132; Hudson Valley Asbestos Corp. v. Tougher Heating Plumbing Co., 510 F.2d 1140, 1142-43 n. 1 (2d Cir.), cert. denied, 421 U.S. 1011, 95 S.Ct. 2416, 44 L.Ed.2d 679 (1975).
While there is a sufficient nexus between the complained of conduct and the interstate commerce engaged in by the Northern Lights store, there would not be an adequate nexus between the activities in question and the other seventeen retail stores owned and operated by Optivision, at least in the absence of proof that Optivision will be driven out of business by the defendants' actions. There is no evidence that Optivision as a corporate entity will be so affected.
While it is not clear from the present record what the exact amount of interstate commerce implicated here is, it appears that a substantial portion of the $80,000 worth of supplies purchased annually by the Northern Lights store comes from companies situated in other states. This factor, either alone, or in combination with the sale of goods to out-of-state customers, the transfer of materials between stores in different states, and other factors that may be demonstrated at a trial on the merits, may quite possibly be sufficient to show that interstate commerce has been substantially affected. In Feminist Women's Health Center, Inc. v. Mohammad, 586 F.2d 530, 539-41 (5th Cir. 1978), the Fifth Circuit found that there was a substantial effect upon interstate commerce so as to establish Sherman Act jurisdiction where the principal connections with interstate commerce were the plaintiff's purchases of $4,000 or $5,000 worth of out-of-state supplies a year, and the plaintiff's receipt of $12,000 worth of business a year from out-of-state patients. Also, in a civil rights case — Katzenbach v. McClung, 379 U.S. 294, 85 S.Ct. 377, 13 L.Ed.2d 290 (1964) — the Supreme Court found a sufficient effect upon commerce so as to bring a restaurant within the purview of Congressional supervision under the Commerce Clause, where the restaurant purchased $70,000 worth of meat from a local supplier who had procured it from outside the state. The latter case, while not decided under the Sherman Act, is relevant here, because it has repeatedly been held that, in passing the Sherman Act, Congress intended to exercise the fullest extent of its constitutional power to regulate commerce. See, e.g., United States v. American Building Maintenance Industries, 422 U.S. 271, 278, 95 S.Ct. 2150, 45 L.Ed.2d 177 (1975); United States v. Frankfort Distilleries, Inc., 324 U.S. 293, 298, 65 S.Ct. 661, 89 L.Ed. 951 (1945); United States v. South-Eastern Underwriters Association, 322 U.S. 533, 558, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944).
The purchases which DeWitt makes from out-of-state suppliers could also be considered in determining the substantiality of the effect which the complained of conduct has upon interstate commerce, see Harold Friedman Inc. v. Thorofare Markets Inc., supra, 587 F.2d at 132-33, but no proof in this regard was introduced at the hearing.
The interstate connections in Mohammad also included very limited payments received from out-of-state insurance companies and relatively small amounts spent on interstate travel by the plaintiff's officers or employees.
While the present record has certain deficiencies, the Court believes that it is likely that the plaintiff will be able to successfully demonstrate, at a trial on the merits, that the complained of conduct substantially affects interstate commerce.
Since the Court believes that it is likely that the plaintiff will be able to prevail on the "affecting commerce" theory, it is unnecessary to consider the "in commerce" theory.
C.
Optivision contends that exclusivity clauses in shopping center leases should be treated as per se unlawful under § 1 of the Sherman Act, and, in the alternative, argues that if the Court decides to apply a rule of reason analysis, the exclusivity clause in DeWitt's lease should be found to be unreasonable in the circumstances of this case.Section 1 of the Sherman Act proscribes all agreements "in restraint of trade." If this provision were to be read literally, all commercial contracts would be regarded as violative of the Act since every agreement binds the contracting parties to its terms, and, accordingly, restrains their commercial dealings to a certain extent. National Society of Professional Engineers v. United States, 435 U.S. 679, 687-88, 98 S.Ct. 1355, 55 L.Ed.2d 637 (1978); Chicago Board of Trade v. United States, 246 U.S. 231, 238, 38 S.Ct. 242, 62 L.Ed. 683 (1918). Recognizing that it was not Congress' intention to prohibit all contracts nor even all contracts that cause an insignificant or attenuated restraint of trade, the Supreme Court adopted the rule of reason as the standard of analysis for scrutinizing most business relations under the Sherman Act. Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977); United States v. Topco Associates, Inc., 405 U.S. 596, 607, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972); Standard Oil Co. v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619 (1911). Under this rule, all the circumstances presented by a particular case must be evaluated by the trier of fact to determine whether the complained of conduct imposes an unreasonable restraint on competition. Continental T.V., Inc. v. GTE Sylvania Inc., supra 433 U.S. at 49, 97 S.Ct. 2549; White Motor Co. v. United States, 372 U.S. 253, 261, 83 S.Ct. 696, 9 L.Ed.2d 738 (1963); Hunt v. Mobil Oil Corp., 465 F. Supp. 195, 213 (S.D.N.Y. 1978).
In making this inquiry, consideration must be given to "the facts peculiar to the business in which the restraint is applied, the nature of the restraint and its effects, and the history of the restraint and the reasons for its adoption." United States v. Topco Associates, Inc., supra, 405 U.S. at 607, 92 S.Ct. at 1133. See Chicago Board of Trade v. United States, supra, 246 U.S. at 238, 38 S.Ct. 242; National Auto Brokers Corp. v. General Motors Corp., 572 F.2d 953, 960 (2d Cir. 1978). The focus of the analysis must be upon the impact of the challenged activity on competitive conditions in the relevant market. National Society of Professional Engineers v. United States, supra, 435 U.S. at 688-92, 98 S.Ct. 1355; American Motor Inns, Inc. v. Holiday Inns, Inc, 521 F.2d 1230, 1247 (3d Cir. 1975). Any benefits to competition are to be weighed against the competitive evils of the practice in question. Gough v. Rossmoor Corp., 585 F.2d 381, 388-89 (9th Cir. 1978).
While the rule of reason is used to evaluate the validity of most activity challenged under the Sherman Act, the doctrine of per se illegality has been applied to certain conduct that is manifestly anticompetitive. Thus, in Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958), the Supreme Court stated,
[T]here are certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use. This principle of per se unreasonableness not only makes the type of restraints which are proscribed by the Sherman Act more certain to the benefit of everyone concerned, but it also avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable — an inquiry so often wholly fruitless when undertaken.
See also Continental T.V., Inc. v. GTE Sylvania Inc., supra, 433 U.S. at 50, 97 S.Ct. 2549; United States v. Topco Associates, Inc., supra, 405 U.S. at 607, 92 S.Ct. 1126. Courts have been willing to classify specific types of business relationships as per se violations only after having had considerable experience in evaluating them. Broadcast Music, Inc. v. CBS, Inc., ___ U.S. ___, ___, 99 S.Ct. 1551, 60 L.Ed.2d 1 (1979); White Motor Co. v. United States, supra, 372 U.S. at 263, 83 S.Ct. 696; Evans v. S.S. Kresge Co., 544 F.2d 1184, 1191 (3d Cir. 1976), cert. denied, 433 U.S. 908, 97 S.Ct. 2973, 53 L.Ed.2d 1092 (1977). Examples of activity held to be per se unlawful include price fixing, United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129 (1940), group boycotts, Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959), and horizontal divisions of markets. Timken Roller Bearing Co. v. United States, 341 U.S. 593, 71 S.Ct. 971, 95 L.Ed. 1199 (1951).
The Court believes that this is not an appropriate case to apply a per se rule. There has not been extensive judicial experience with exclusivity clauses in shopping center leases. There have been only a limited number of reported opinions dealing with such clauses. Most of those opinions involve rulings on preliminary motions, and do not contain a detailed economic evaluation of this type of activity. See Harold Friedman Inc. v. Thorofare Markets Inc., supra, 587 F.2d at 141 n. 56. Moreover, while the Federal Trade Commission, see, e.g., Tysons Corner Regional Shopping Center, 85 F.T.C. 987, 1973-76 FTC Complaints Orders ¶ 20,933 (1975); Gimbels Brothers, Inc., 1973-76 FTC Complaints Orders ¶ 20,478 (1974), and at least one commentator, Note, The Antitrust Implications of Restrictive Covenants in Shopping Center Leases, 86 Harv.L.Rev. 1201 (1973), have taken the position that restrictive covenants in shopping center leases should be subject to the per se doctrine, all courts considering this matter have indicated that a rule of reason approach should be applied. Harold Friedman Inc. v. Thorofare Markets Inc., supra; Borman's, Inc. v. Great Scott Super Markets, Inc., 433 F. Supp. 343 (E.D.Mich. 1975); Dart Drug Corp. v. Peoples Drug Stores, Inc., 1977-1 Trade Cases ¶ 61,281 (D.D.C. 1977); Pay Less Drug Stores Northwest, Inc. v. City Products Corp., supra. See also Savon Gas Stations No. 6, Inc. v. Shell Oil Co., 309 F.2d 306 (4th Cir. 1962), cert. denied, 372 U.S. 911, 83 S.Ct. 725, 9 L.Ed.2d 719 (1963); Dalmo Sales Co. v. Tysons Corner Regional Shopping Center, 308 F. Supp. 988, 995 (D.D.C.), aff'd, 139 U.S. App.D.C. 22, 429 F.2d 206 (1970).
The Court rejects plaintiff's suggestion that exclusivity clauses should be treated as veiled attempts at price fixing. A price fixing agreement is "a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity." United States v. Socony-Vacuum, supra, 310 U.S. at 223, 60 S.Ct. at 844. See also United States v. Parke, Davis Co., 362 U.S. 29, 47, 80 S.Ct. 503, 4 L.Ed.2d 505 (1960); United States v. Nu-Phonics, Inc., 433 F. Supp. 1006, 1011 (E.D.Mich. 1977). The per se rule will be applied even if the effect upon prices is indirect. United States v. General Motors Corp., 384 U.S. 127, 147, 86 S.Ct. 1321, 16 L.Ed.2d 415 (1966); Simpson v. Union Oil Co., 377 U.S. 13, 16-22, 84 S.Ct. 1051, 12 L.Ed.2d 98 (1964). However, not all arrangements that have an impact on prices are per se unlawful as price fixing combinations. Broadcast Music, Inc. v. CBS, Inc., supra, ___ U.S. at ___, 99 S.Ct. 1551; L. Sullivan, Antitrust § 73 (1977). Here there is no indication that the purpose of the complained of conduct was to fix prices, and any effect, which this activity might have upon prices, will be merely incidental, and will depend upon the market power of DeWitt. Therefore, the Court is of the opinion that it would be inappropriate to treat an exclusivity clause as a per se unlawful price fixing arrangement.
In support of its argument that exclusivity clauses are, in essence, sophisticated attempts at price fixing, plaintiff relies upon State of Ohio ex rel. Brown v. Zayre of Ohio, Inc., 1974-2 Trade Cases ¶ 75,232 (Ohio Ct.Comm.Pl.Cuyahoga Co. 1974). This Court notes that while the decision in Zayre discussed federal precedents, it was actually based upon state antitrust law.
Moreover, the Court is unable to conclude that exclusivity clauses in shopping center leases are unreasonable in all possible circumstances. The competitive impact of such arrangements may vary considerably depending upon the availability of suitable alternate locations in the relevant market, and upon the strength of the remaining competition. In addition, there is a possible economic justification for a provision of this nature. In some situations, it may be necessary to include such a clause in a shopping center lease in order to attract to the center a certain type of store which might be unwilling to commit itself to a lease with high rentals if it knows that a competing store will be present in the center.
Also, the impact upon competitive conditions may differ depending upon the type of exclusivity clause involved. A provision that is to be enforceable for a set period of time or one that is to remain in effect until the shopping center expands (i.e., until an additional department store is added) does not necessarily have as great an effect upon competition as one not so limited in duration. Thus, the Court concludes that the validity of the exclusivity clause in DeWitt's lease with the landlord must be determined under the rule of reason rather than under a per se approach.
An exclusivity clause in a shopping center lease is similar, in many respects, to an exclusive dealing arrangement between a manufacturer and a distributor since in both situations "a business entity in control of a product restrictively selects the parties to whom it will sell the commodity." Harold Friedman Inc. v. Thorofare Markets Inc., supra, 587 F.2d at 142. See also Borman's, Inc. v. Great Scott Super Markets, Inc., supra, 433 F. Supp. at 351. Exclusive distributorships between manufacturers and sellers have generally been upheld by the courts under the rule of reason. Oreck Corp. v. Whirlpool Corp., 579 F.2d 126 (2d Cir. 1978); Joseph E. Seagram Sons, Inc. v. Hawaiian Oke Liquors, Ltd., 416 F.2d 71 (9th Cir. 1969), cert. denied, 396 U.S. 1062, 90 S.Ct. 752, 24 L.Ed.2d 755 (1970); Bay City-Abrahams Bros., Inc. v. Estee Lauder, Inc., 375 F. Supp. 1206 (S.D.N.Y. 1974).
It appears that the relevant product market in which the alleged anticompetitive conduct must be examined involves the retail sale of eyeglasses, contact lenses, and other optical devices along with the customer services pertaining thereto. However, there is disagreement among the parties concerning the relevant geographic market. Defendants contend that the geographic market is the Greater Syracuse Metropolitan Area while plaintiff argues that the relevant market is the vicinity of the Northern Lights Mall or the North Syracuse area. The geographic market, which is the area of effective competition, must correspond to commercial realities. Brown Shoe Co. v. United States, 370 U.S. 294, 336, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962). It has been characterized as the area "in which the seller operates, and to which the purchaser can practicably turn for supplies." Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 327, 81 S.Ct. 623, 628, 5 L.Ed.2d 580 (1961). See also Hudson Valley Asbestos Corp. v. Tougher Heating Plumbing Co., supra, 510 F.2d at 1144 n. 2; L. Sullivan, supra, § 19. While the relevant geographic market is often the nation, it can, in an appropriate case, be as small as a city or even part of a city. Lorain Journal Co. v. United States, 342 U.S. 143, 72 S.Ct. 181, 96 L.Ed. 162 (1951) (City of Lorain), William Goldman Theatres, Inc. v. Loew's, Inc., 150 F.2d 738 (3d Cir. 1945) (Central theatre district of Philadelphia).
The Court concludes, on the basis of the present record, that the relevant geographic market is the northern part of the Greater Syracuse Metropolitan Area. This conclusion is supported by the testimony of Mr. Carter, Mr. Rosenberg, and Mr. DeWitt. Mr. Carter described the North Syracuse-Mattydale-Liverpool region as being the primary marketing area of the Northern Lights store; Mr. DeWitt characterized the same general vicinity as the drawing area for Northern Lights; and Mr. Rosenberg indicated that commercial properties in that area are in competition with Northern Lights for tenants.
The record now before the Court reveals that there are numerous commercial properties in the relevant geographic market which are suitable as alternate locations for a retail optical store. Several such properties were listed by Mr. Rosenberg in his testimony given at the hearing. The availability of such market alternatives is an important factor that supports a determination that the exclusivity clause here does not unreasonably restrain competition. See Borman's, Inc. v. Great Scott Super Markets, Inc., supra, 433 F. Supp. at 351. See also Elder-Beerman Stores Corp. v. Federated Department Stores, Inc., 459 F.2d 138 (6th Cir. 1972). It is significant that in the only case in which an exclusivity clause in a shopping center lease was invalidated — Pay Less Drug Stores Northwest, Inc. v. City Products Corp., supra — the court found that alternate sites in the area were unavailable, and that a site within the shopping center in question was the only place from which the plaintiff could effectively compete in the market. This is not the case here.
Optivision contends that the restraint in question is an unreasonable one since the Northern Lights Shopping Center, from which plaintiff is being excluded, is an enclosed regional mall while the other commercial properties in the area (with the exception of Penn Can Mall where DeWitt already has a retail optical store) are strip shopping centers or plazas. However, there is not an adequate basis for the Court to compare accurately the alternate locations in question. While certain very basic information concerning the Northern Lights Shopping Center was received in evidence, there is no indication in the record of the size or configuration of the various strip centers or plazas in the relevant market area. Also, plaintiff has offered no proof concerning the amount of traffic passing by the Northern Lights regional mall in comparison to that passing by the strip centers and plazas or the amount of business which an optical store located in one of these strip centers or plazas has been able to generate in comparison to the amount of business done by a retail optical outlet located in Northern Lights. The only evidence in the record on this question is adverse to the plaintiff. Mr. DeWitt testified, based upon his experience with a store in the K-Mart Plaza, that a store in one of the strip centers in that area was exposed to the same volume of traffic as a store in the Northern Lights Mall. It is possible that, upon a trial on the merits, plaintiff will be able to establish that a store in Northern Lights is exposed to a larger volume of traffic than a store in one of the strip centers or that the amount of business done by an optical store in Northern Lights is greater than that generated by a retail outlet in a strip center. However, this will not necessarily establish the unreasonableness of the restraint involved here. The extent of the disparity between the amount of traffic passing by or business done at the different locations will have to be considered.
Mr. Ransom testified that the volume of traffic passing by Northern Lights was significant, but when asked by plaintiff's counsel to compare the amount of traffic going by Northern Lights with that on Route 11, he was unable to do so because of his lack of familiarity with the area.
Moreover, the exclusivity clause in DeWitt's lease will properly be regarded as an unreasonable restraint of trade only if this provision has an adverse impact on competitive conditions as they exist generally in the field of commerce in which plaintiff is engaged. Gough v. Rossmoor Corp., supra, 585 F.2d at 386. Thus, the significance of the competition eliminated must be viewed in the context of the total competition extant in the relevant market. Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 615, 73 S.Ct. 872, 97 L.Ed. 1277 (1953); Associated Press v. United States, 326 U.S. 1, 27, 65 S.Ct. 1416, 89 L.Ed. 2013 (1945) (Frankfurter, J., concurring); American Motor Inns, Inc. v. Holiday Inns, Inc., supra, 521 F.2d at 1247; 1 J. Von Kalinowski, supra, § 6.02[4][a].
According to Mr. DeWitt (and there is no evidence to the contrary), there are nine or ten retail optical stores competing in the northern part of the Greater Syracuse Metropolitan Area. In addition, Mr. Ransom acknowledged that the retail sale of optical goods is a highly competitive business. It seems doubtful to the Court, in view of the prevailing market conditions, that the elimination of one retail outlet would have a significant competitive impact. It has frequently been stated that the "antitrust laws . . . were enacted for `the protection of competition, not competitors'. . . ." Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488, 97 S.Ct. 690, 697, 50 L.Ed.2d 701 (1977) (Emphasis in original). See also Gough v. Rossmoor Corp., supra, 585 F.2d at, 386; Oreck Corp. v. Whirlpool Corp., 579 F.2d 126, 134 (2d Cir. 1978).
There are perhaps thirty or more optical stores in the Greater Syracuse Metropolitan Area.
Of course, when a per se violation of the Sherman Act has been established, the applicability of the antitrust laws is not affected by the fact that only one competitor has been eliminated, Klor's, Inc. v. Broadway-Hale Stores, Inc., supra, but the Court has previously indicated that a per se approach is not appropriate here. Also, it should be pointed out that Optivision is not being completely eliminated as a competitor. It has another retail outlet in the market area — a small store adjacent to its factory in Liverpool. Moreover, Optivision has four other stores in the Greater Syracuse Metropolitan Area.
The type of exclusivity clause involved in this case should also be considered. The provision in question provides:
Landlord agrees that after the date of execution of this lease, Landlord will not execute any new leases or renew any existing leases for any other optical store in the shopping center or mall, or any other adjacent building owned, operated or managed by Landlord, or any other such building owned or operated by Landlord situated within three blocks of the premises leased herein, except in the event that the shopping center is expanded to add a third department store, in which case one more optical store could be added, but Tenant shall have first right of refusal on the leasing of such additional store. Landlord states that he has not made or renewed any lease of any other optical store as of date of this agreement.
This clause does not exclude competition from the Northern Lights Mall under all circumstances since an additional optical store will be permitted if a third department store is added. However, the potential effect of this portion of the clause is limited by the fact that DeWitt is given the first right of refusal on the leasing of such additional store.
Another factor that should be considered is whether there is an economic justification for the exclusivity clause in his case. As previously noted, it is possible that high rentals in a regional mall such as Northern Lights would make it necessary for the landlord to provide a particular type of specialty store with an exclusivity provision in order to attract it as a tenant. Mr. DeWitt testified that he would not have entered into a lease for the rental of space in Northern Lights if he knew that another optical store would be present in the mall. He indicated that other shopping centers provide optical stores with protection similar in nature to that provided by the clause in question here. On the other hand, it is not known whether any other specialty stores in Northern Lights have exclusivity provisions in their leases, although it appears that at least some of them do not, since the mall contains a number of shoe stores and several stores specializing in women's fashions. If an exclusivity provision is necessary to attract an optical store, such a clause has a beneficial impact on competition that will have to be considered along with any adverse competitive effects. On the basis of the present record, the Court is unwilling to reach a conclusion concerning the economic necessity for the exclusivity provision here. However, the fact that a particular restraint does not provide an affirmative benefit to competition does not necessarily mean that the activity violates § 1, provided that the harm to competition is not significant. See Gough v. Rossmoor Corp., supra, 585 F.2d at 389.
Mr. DeWitt stated that other shopping centers will not put in a second optical store until there are two or three department stores. He said that his lease at Penn Can Mall does not contain an exclusivity clause, but does provide him with the first right of refusal if a second optical store is to be opened there. It is also noted that there is an exclusivity clause in Optivision's lease although Optivision states that, if it is allowed to remain at Northern Lights, it would not seek to enforce this provision.
Mr. Rosenberg testified that he was not aware of exclusivity clauses in any other leases at Northern Lights, but he also said that he was not responsible for negotiating provisions of that nature. Such negotiations are apparently conducted directly by the landlord.
The Court concludes that plaintiff has not shown a probability of successfully demonstrating, at a trial on the merits, that the exclusivity clause in DeWitt's lease violates § 1 of the Sherman Act. It is unlikely that Optivision will be able to establish the applicability of the per se doctrine or be able to prove that the restraint in question violates the rule of reason. In finding that the complained of conduct is probably not an unreasonable restraint of trade, the Court places particular emphasis upon the facts that there are numerous alternate locations, which are suitable for a retail optical store, and that substantial competition remains in the relevant market despite the enforcement of this clause. The Court also questions whether plaintiff has raised sufficiently serious issues concerning the validity under § 1 of the present exclusivity clause to make them a fair ground for litigation, but it is unnecessary to decide definitely whether the issues raised are of such doubt and magnitude since (as will be discussed later) it is clear that the balance of hardships does not tip decidedly in plaintiff's favor.
D.
Optivision also alleges that the exclusivity clause in DeWitt's lease violates § 2 of the Sherman Act as a combination or conspiracy to monopolize trade or commerce.
An essential element of a conspiracy to monopolize is proof of specific intent to monopolize the designated segment of commerce. Bowen v. New York News, Inc., supra, 522 F.2d at 1258; Lewis v. Pennington, 400 F.2d 806, 811 (6th Cir.), cert. denied, 393 U.S. 983, 89 S.Ct. 450, 21 L.Ed.2d 444 (1968); L. Sullivan, supra, § 49. The present record does not contain evidence from which the Court could find the existence of such a specific intent on part of the defendants. Of course, the requisite intent may be proved by circumstantial evidence in an appropriate case, 2 J. Von Kalinowski, supra, § 9.02[5], but the Court does not believe that the existence of an agreement between the landlord and DeWitt to exclude other retail optical stores from one specific shopping center is sufficient, by itself, to show an intent to monopolize the relevant segment of commerce.
In view of the vigorous competition in the relevant market and the lack of any other evidence of specific intent, the Court is also unwilling to infer specific intent on the part of DeWitt from the fact that DeWitt, in addition to securing an exclusivity clause in its Northern Lights lease, has received assurance of the first right of refusal on the leasing of a second optical store in Penn Can Mall.
Moreover, there is no indication that defendants have the power to control the market for the retail sale of optical goods in the northern part of the Greater Syracuse Metropolitan Area, but, rather, there appears to be vigorous competition among a number of different competitors which have stores in that region. Of course, a claim of conspiracy to monopolize does not require a showing of power to exclude competition, American Tobacco Co. v. United States, 328 U.S. 781, 789, 66 S.Ct. 1125, 90 L.Ed. 1575 (1946), but the absence of any serious likelihood of successfully achieving monopolization is evidence that can be used to support a finding of lack of specific intent. Hudson Valley Asbestos Corp. v. Tougher Heating Plumbing Co., supra, 510 F.2d at 1144.
The Court concludes that, with respect to plaintiff's § 2 claim, Optivision has demonstrated neither a probability of success on the merits nor sufficiently serious questions going to the merits to make them a fair ground for litigation.
From the wording of the § 2 claim in the Complaint, it is possible that plaintiff may be alleging that defendants' conduct constitutes attempted monopolization as well as a conspiracy to monopolize, but a letter sent by plaintiff's counsel to the Court after the hearing appears to disclaim this theory. In any event, the Court's discussion of the failure to establish proof of a conspiracy to monopolize shows that the two essential elements of an attempt to monopolize — specific intent to build a monopoly and dangerous probability of success — have not been demonstrated in this case. See Buffalo Courier-Express, Inc. v. Buffalo Evening News, Inc., 601 F.2d 48 (2d Cir. 1979); Bowen v. New York News, Inc., supra, 522 F.2d at 1252 n. 7.
E.
Another claim asserted by Optivision is that the exclusivity clause in DeWitt's lease violates the New York State Donnelly Act. New York General Business Law § 340. The Donnelly Act was modeled after the Sherman Act, and, therefore, the mode of analysis utilized under the state statute is similar to that developed under the federal legislation. State v. Mobil Oil Corp., 38 N.Y.2d 460, 463, 381 N.Y.S.2d 426, 428, 344 N.E.2d 357, 359 (1976); Hsing Chow v. Union Central Life Insurance Co., 457 F. Supp. 1303, 1308 (E.D.N.Y. 1978). Only those agreements which constitute unreasonable restraints of trade are prohibited under the Donnelly Act. Dawn to Dusk, Ltd. v. Frank Brunckhorst Co., 23 A.D.2d 780, 258 N.Y.S.2d 746, 748 (2d Dept. 1965); Triple D E, Inc. v. Van Buren, 72 Misc.2d 569, 339 N.Y.S.2d 821, 830 (S.Ct. Nassau Co. 1972), aff'd, 42 A.D.2d 841, 346 N.Y.S.2d 737 (2d Dept. 1973); Big Top Stores, Inc. v. Ardsley Toy Shoppe, Ltd., 64 Misc.2d 894, 315 N.Y.S.2d 897, 905 (S.Ct. Westchester Co. 1970), aff'd, 36 A.D.2d 582, 318 N.Y.S.2d 924 (2d Dept. 1971). In Peoples Savings Bank v. County Dollar Corp., 43 A.D.2d 327, 351 N.Y.S.2d 157 (2d Dept.), aff'd, 35 N.Y.2d 836, 362 N.Y.S.2d 864, 321 N.E.2d 784 (1974), an exclusivity clause in a shopping center lease was upheld under the rule of reason. In doing so, the court emphasized the existence of alternate locations where the excluded merchant could do business:
The Court has pendent jurisdiction over this claim and the other causes of action arising under New York State law. While plaintiff has not made a sufficient showing on the merits to be entitled to preliminary injunctive relief on the federal antitrust claims, those claims are not properly characterized as wholly insubstantial or patently frivolous. Therefore, the federal causes of action form a sufficient basis upon which to predicate pendent jurisdiction over the state claims. See Bell v. Hood, 327 U.S. 678, 682-83, 66 S.Ct. 773, 90 L.Ed. 939 (1946); George C. Frey Ready-Mixed Concrete, Inc. v. Pine Hill Concrete Mix Corp., 554 F.2d 551, 554 n. 3 (2d Cir. 1977).
Not all agreements which restrain trade are proscribed by statute (General Business Law, § 340). The test is whether the restraint is unreasonable ( Dawn to Dusk, Ltd. v. Brunckhorst Co., 23 A.D.2d 780, 258 N.Y.S.2d 746). The City of Yonkers is the fourth largest city in the State of New York, with a population in excess of 200,000. The Cross County Shopping Center is but a small part of the City of Yonkers and there are many other locations within that city where Seamen's can locate a branch without violating the restrictive covenant in question. Indeed (and this was conceded on the argument of the appeal), there are sites on Central Avenue, only a short distance from the Cross County Shopping Center, but just outside of the restricted area, upon which Seamen's can locate a branch bank. Clearly, therefore, the covenant under review, limited as it is to the lessor's holdings in a small area, is a reasonable restriction.351 N.Y.S.2d at 161. With respect to the present case, it has been shown that there are numerous alternate sites for the location of a retail optical store in the relevant market area, and, therefore, the restraint in question would probably be regarded as a reasonable one under the Donnelly Act.
Thus, plaintiff has not established a probability of success on the merits with regard to its Donnelly Act claim, and it is questionable whether sufficiently serious issues going to the merits have been raised to make them a fair ground for litigation.
II.
In addition to arguing that the exclusivity clause in DeWitt's lease violates federal and state antitrust laws, Optivision maintains that, under controlling legal or equitable principles of New York State law, it should be regarded as having properly exercised the option to renew its Northern Lights lease for the five-year period following February 28, 1979.
Under New York law, notice exercising an option is legally effective only if given within the specified time and in the designated manner. J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc., 42 N.Y.2d 392, 396, 397 N.Y.S.2d 958, 960, 366 N.E.2d 1313, 1315 (1977); Sy Jack Realty Co. v. Pergament Syosset Corp., 27 N.Y.2d 449, 452, 318 N.Y.S.2d 720, 721, 267 N.E.2d 462, 463 (1971); Goldberg v. Himlyn, 121 Misc. 580, 201 N.Y.S. 837, 841 (Kings Co.Ct. 1923); 34 N.Y. Jur., Landlord and Tenant § 419 (1964); 1A Corbin on Contracts § 264 (1963). However, the New York courts will relieve a tenant from the forfeiture of a valuable leasehold resulting from the tenant's failure to exercise his renewal option in a timely manner if his failure to do so was the result of an honest mistake or similar excusable fault, provided that the landlord will not be prejudiced by the late renewal. Sy Jack Realty Co. v. Pergament Syosset Corp., supra; Jones v. Gianferante, 305 N.Y. 135, 111 N.E.2d 419 (1953); Rizzo v. Morrison Motors, Inc., 29 A.D.2d 912, 289 N.Y.S.2d 903 (4th Dept. 1968); Gallagher v. Marconi, 68 Misc.2d 319, 326 N.Y.S.2d 697 (Dist.Ct.Suffolk Co. 1971); Gordon v. Barash, 67 Misc.2d