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Package Closure Corp. v. Sealright Co.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT


April 3, 1944

PACKAGE CLOSURE CORPORATION
v.
SEALRIGHT CO., INC., ET AL.

Appeal from the District Court of the United States for the Southern District of New York.

Author: Frank

Before CHASE, CLARK, and FRANK, Circuit Judges.

FRANK, Circuit Judge.

1. Without doubt, plaintiff alleges conduct by defendants violative of the Sherman Act. But that is not enough upon which to ground an action under § 7, 15 U.S.C.A. § 15. The question is whether plaintiff's allegations sufficiently show that, "by reason of" that conduct, plaintiff was "injured" and thereby "sustained damages."

The gist of the prolix complaint, and in fact the only ground of recovery by plaintiff under the Sherman Act, consists of allegations that, in aid of a conspiracy the purpose of which was to destroy plaintiff as a business rival, defendants, acting in concert, fixed a combination price at which they sold hoods and caps "so low as not to permit a return to them covering the reasonable expense of production and sale and a reasonable profit thereon"; that this price "was not based upon any economies in the cost of production or distribution effected through the sales of caps and hoods in combination"; that plaintiff could not compete in those circumstances; and that, as a consequence, it suffered damages. Defendants contend that these allegations disclose no causal relation between their acts and plaintiff's loss since plaintiff itself alleges its lack of "the requisite financial resources" to manufacture caps and cappers; that defendants' reduction in prices constituted no actionable wrong; and that, in any event, plaintiff's allegations of damages are insufficient. We cannot agree.

In Story Parchment Co. v. Paterson Co., 282 U.S. 555, 561, 51 S. Ct. 248, 250, 75 L. Ed. 544, a treble damage suit under the Sherman Act, the defendants, combining and conspiring in order to injure the plaintiff, sold their goods "below the point of fair profit, and finally below the cost of production." The Circuit Court of Appeals had reversed a judgment for plaintiff because it held that there was no basis for a reasonable inference that prices in excess of those actually realized would have prevailed if there had been no combination, and because the plaintiff was without capital to meet the situation confronting it even if there had been unrestrained competition, plaintiff's failure (so the court concluded) being inevitable either from lack of capital or inefficient management. 1 Cir., 37 F.2d 537. The Supreme Court reversed, saying: (282 U.S. pages 561, 562, 566, 567, 51 S. Ct. page 250, 75 L. Ed. 544); "There was evidence from which the jury reasonably could have found that, in pursuance of the conspiracy, respondents sold their goods below the point of fair profit, and finally below the cost of production; that petitioner had an efficient plant and sales organization, and was producing a quality of paper superior to that produced by either of the three companies; and that current prices, shown in detail, were higher during a period antedating the unlawful combination and price cutting in pursuance of it than afterward. It does not necessarily follow, of course, that these higher prices would have continued except for the conspiracy, but it is fair to say that the natural and probable effect of the combination and price cutting would be to destroy normal prices; and there was evidence of the prices received by petitioner before the cut prices were put into operation, and those received after, showing actual and substantial reductions, and evidence from which the probable amount of the loss could be approximated. The trial court fairly instructed the jury in substance that, if they were satisfied that the old prices were reasonable, and that they would not have changed by reason of any economic condition, but would have been maintained except for the unlawful acts of the respondents, the jury might consider as an element of damages the difference between the prices actually received and what would have been received but for the unlawful conspiracy. Upon a consideration of the evidence, we are of opinion that it was open to the jury to find that the price cutting and the resulting lower prices were directly attributable to the unlawful combination; and that the assumption indulged by the court below, that respondents' acts would have been the same if they had been acting independently of one another, with the same resulting curtailment of prices, must be rejected as unsound. * * * Disposing of the second item of damages, the court below, after referring to evidence tending to show that petitioner was not in a thriving financial condition, said that petitioner was without capital to meet the situation which it faced, even if there had been no conspiracy and there had been open competition; and that its failure was inevitable either from lack of capital or inefficient management or both. The court therefore concluded that petitioner had not sustained the burden of proving that the depreciation in value of its plant was due in any measurable degree to any violation of the Sherman Act by the respondents. But this conclusion rested upon inferences from facts within the exclusive province of the jury, and which could not be drawn by the court contrary to the verdict of the jury without usurping the functions of that fact finding body. Whether the unlawful acts of respondents or conditions apart from them constituted the proximate cause of the depreciation in value was a question, upon the evidence in this record, for the jury, 'to be determined as a fact, in view of the circumstances of fact attending it.' Milwaukee & St. Paul Ry. Co. v. Kellogg, 94 U.S. 469, 474, 24 L. Ed. 256."

That decision, we think, compels reversal here. True, here the plaintiff does not go so far as to allege sales "finally below the cost of production." But that difference is not sufficient to distinguish this case from Story Parchment.*fn2 Plaintiff's allegations, if proved and unexplained, will show a conspiracy to drive plaintiff out of business by forbidden concerted action in fixing a price which had no reasonable economic foundation and the purpose of which was to injure plaintiff.

Of course, if, without concert, the defendants had severally sold at a price injurious to plaintiff, their conduct would not have been actionable, for, ordinarily, one engaged in actual competition, may sell his products at such prices as he chooses regardless of the consequences to his competitors. Indeed, keen rivalry in the essence of that competition which the common law fosters and which the Sherman Act is designed to promote. Because of the assumed value of competition - to consumers and also as a stimulant of enterprising characteristics, regarded as desirable, in the competitors themselves - the common law recognizes a privilege (which the Sherman Act underscores) to do acts, when engaged in competition, resulting in financial loss to others, although, in the absence of a competitive purpose, those same acts would give rise to legal liability. As Mr. Justice Holmes said, "A man has a right to set up a shop in a small village which can support but one of the kind, although he expects and intends to ruin a deserving widow who is established there already," this privilege resting "on the economic postulate that free competition is worth more to society than it costs."*fn3 But that privilege, founded on the existence of a bona fide competitive purpose, vanishes at common law when the purpose is not competition in good faith.*fn3a "Imposed legal duties are usually a compromise between conflicting interests, the aggressor being privileged to invade the victim's interest to protect his own, so far as the law recognizes it. Hence, when he is not actuated by the desire to protect a recognized interest, the basis for his excuse disappears."*fn4 Much the same policy is embodied in § 7 of the Sherman Act. Accordingly, when persons aim not to compete but to eliminate competition, when, with that intent, they combine to fix prices so as to destroy a rival, and when their conduct has that effect, the injured rival may recover three times his resultant damages. It is defendants' price-fixing conspiracy for the illegal purpose and with the consequence alleged by plaintiff which gives plaintiff here a good claim under the Act.

The lower court did not reach its decision by distinguishing the instant case from the Story Parchment case,*fn5 but, in its opinion, said that in such a suit the plaintiff's allegations that defendants' violation of the Sherman Act was "the proximate cause" of the damages to the plaintiff "are jurisdictional," and that, "for that reason, legal conclusions are insufficient and facts must be pleaded with definiteness and particularity." Holding that plaintiff's allegations in that respect were "legal conclusions," it therefore decided that the complaint must be dismissed.In other words, it held that "jurisdictional" facts must be alleged with unusual particularity. We cannot agree.

There is no doubt that, as federal jurisdiction in an action for treble damages is founded on the facts that the defendant violated the Act and that by reason of that violation the plaintiff has sustained damages, such facts are "jurisdictional." But so, too, is the existence of a claim for more than $3,000 in a suit based upon diversity of citizenship, or the plaintiff's ownership of a patent in a suit for patent infringement; yet such facts in such suits need not (especially under the new Rules) be alleged with any unusual "definiteness and particularity." It is urged by defendants that a stricter requirement as to a plaintiff's pleading in treble damage actions is necessary because of the expense often involved in such litigation.*fn6 But in that respect such actions are not unique, for huge expense is involved, too, in many a patent infringement suit and in many a suit where jurisdiction rests on diversity of citizenship. To impose peculiarly stiff requirements in treble damage suits will be to frustate the Congressional intent. As Judge Lurton said some forty years ago: "Congress evidently foresaw the wholesome effect of pecuniary responsibility for injuries resulting from such forbidden combinations and the courts should not devitalize the remedy by strained interpretations calculated to encourage disregard of the law."*fn7

The Supreme Court, at least as early as 1931, manifested no hostility to treble damage suits under the Sherman Act (Story Parchment Co. v. Paterson Co., supra) and we observe no signs that in the intervening years it has become less friendly either to direct enforcement*fn8 or indirect enforcement of that Act.*fn9 We see no reason whatever to believe that the Supreme Court intended its liberal rules governing pleadings*fn10 to be inapplicable to a suit for treble damages. See C. E. Stevens Co. v. Foster & Kleiser, 311 U.S. 255, 260, 261, 61 S. Ct. 210, 85 L. Ed. 173.*fn11 We conclude that plaintiff has made sufficient allegations of a causal relation between the violation of the Act and plaintiff's injury*fn12 to entitle it to go to a jury. If the defendants, before trial, desire more detailed information from plaintiff, they can seek it by interrogatories, deposition or discovery.*fn13

Those same comments apply to plaintiff's allegation of its damages. The complaint sufficiently alleges plaintiff's loss of its investment in its plant; and there is no insufficiency in the allegations as to loss of prospective profits. As the Supreme Court observed in Story Parchment, supra, when a wrongdoer is alone responsible for creating a condition in which damages cannot be measured with exactness and precision, he cannot complain. The court said: "Where the tort itself is of such a nature as to preclude the ascertainment of the amount of damages with certainty, it would be a perversion of fundamental principles of justice to deny all relief to the injured person, and thereby relieve the wrongdoer from making any amend for his acts. In such case, while the damages may not be determined by mere speculation or guess, it will be enough if the evidence show the extent of the damages as a matter of just and reasonable inference, although the result be only approximate. The wrongdoer is not entitled to complain that they cannot be measured with the exactness and precision that would be possible if the case, which he alone is responsible for making, were otherwise."

That doctrine finds its application in many differing contexts.*fn14 Often, a failure to apply that doctrine would mean that the more grievous the wrong done to the plaintiff by the defendant, the less likelihood there would be of a recovery. In the Story Parchment case the court (282 U.S. at page 565, 51 S. Ct. at page 251, 75 L. Ed. 544) quoted with approval from Straus v. Victor Talking Machine Co., 2 Cir., 297 F. 791, 802, to the effect that "the constant tendency of the courts is to find come way in which damages can be awarded where a wrong has been done. Difficulty of ascertainment is no longer confused with right of recovery."*fn15

2. The court below - citing Shaw's, Inc. v. Wilson-Jones Co., 3 Cir., 105 F.2d 331 and Lipson v. Socony-Vacuum Corp., 1 Cir., 87 F.2d 265 - held that the complaint alleged no violation of § 2 of the Clayton Act as amended, 15 U.S.C.A. § 13,*fn16 because it showed "no discrimination between different purchasers or that any purchases took place," and no "discrimination between purchasers of commodities of like grade and quality." Judge CHASE and Judge CLARK agree with that conclusion, on the ground that a discount on a combination sale is not a forbidden discrimination and that, in any event, no actual discriminatory sales are alleged.

On that point, I differ with my colleagues for the following reasons: The complaint does, I think, allege that there were sales of caps to those who purchased them in combination with hoods at prices which discriminated against those who purchased caps only. In both instances, the same product, caps, were actually sold. The facts therefore distinguish this case from Shaw's, Inc. v. Wilson-Jones Co., supra, where the defendant refused to quote a price to plaintiff while quoting a price to plaintiff's competitor; there was no allegation of actual sales, and accordingly the court held there was no discrimination in price "between different purchasers." [105 F.2d 333.] In Lipson v. Socony Vacuum Corp., 1 Cir., 87 F.2d 265, the defendant made a differentiation between sales of gasoline in tank cars and sales in tank trucks or tank wagons; there the differentiation was based on a difference in the quantity of the product sold. Here the discrimination has no similar foundation. Since the defendants granted the so-called "discount" in order substantially to lessen competition, or to create a monopoly, and with that effect, I think they were guilty of a statutory violation by reason of which plaintiff was injured and sustained damages; for the statute covers a prevention or destruction of competition "with any person who * * * grants * * * such discrimination." It is not necessary that the plaintiff show that it was a purchaser against whom defendants discriminated.*fn17 I think the issue should go to a jury.

Reversed and remanded as to first cause of action; affirmed as to second and third causes.


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