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Lyons v. Westinghouse Electric Corp.

March 29, 1955


Before L. Hand, Medina and Dimock, Judges.

Author: Hand

This case comes up on a motion by the defendant Westinghouse Electric Corporation to dismiss an appeal by the plaintiffs from an order of the District Court for the Southern District of New York (Walsh, J., presiding); and on a petition for a writ of mandamus to direct Judge Walsh to vacate the order, in case the appeal is dismissed.

L. HAND, Circuit Judge: The defendant, Westinghouse Corporation, with the support of an affidavit of the General Electric Company, moves to dismiss an appeal taken by the plaintiff from an order staying all further proceedings in the prosecution of the action at bar, pending the final determination of an action in the Supreme Court of New York brought by the Westinghouse Corporation against the plaintiffs. As an alternative, if the appeal is dismissed, the plaintiffs petition for a writ of mandamus to direct Judge Walsh to vacate the same order. The complaint in the action at bar was in two counts, each for a separate claim. One of these was against the Westinghouse Corporation and the General Electric Company on a claim for damages arising out of a conspiracy in violation of the Anti-Trust Acts; the other was against the Westinghouse Corporation alone on a claim for damages for the violation of the Clayton and Robinson-Patman Acts. Before the plaintiffs brought the action the Westinghouse Corporation had sued them in the state court, demanding that they account for the breach of a contract made with it as its agents for the sale of electric lamps; to which as one of their defences the plaintiffs at bar pleaded that the Westinghouse and General Electric companies had entered into the same conspiracy to restrain competition in the marketing of such lamps. On October 6, 1953, the state court after a trial to a judge filed a decision, directing the plaintiffs to account as agents of the Westinghouse Corporation; in support of which among other matters it found that the "defense of illegality, based upon violation of anti-trust laws, had neither been sustained nor establihed." An interlocutory judgment was entered on this decision, from which the plaintiffs at bar have appealed, and the appeal is still pending.

The Westinghouse Corporation argues that the order on appeal was no more than "a mere stay of proceedings which a court of law, as well as a court in equity, may grant in a cause pending before it by virtue of its inherent power to control the progress of the cause so as to maintain the orderly processes of justice";*fn* and that, therefore, even though the federal action is at law, we should not treat the order as a substitute for a decree in equity enjoining its further prosecution. Judge Medina and Judge Dimock agree with this position and the motion to dismiss the appeal will therefore be granted. Although I should be personally disposed to hold that the order falls within the doctrine of Enelow v. N.Y. Life Insurance Co., supra (293 U.S. 379), Shanferoke Coal & Supply Corporation v. Westchester Service Corporation, 293 U.,.s 449; and Ettelson v. Metropolitan Life Insurance Co., 317 U.S. 188, rather than within that of City of Morgantown v. Royal Insurance Co., Ltd., 337 U.S. 254, Baltimore Contractors v. Bodinger, 348 U.S. 176, and Mottolese v. Preston, 172 Fed. (2) 308 (C.A. 2), it does not seem to me that it would serve any purpose to set out my reasons, especially on a question which at best is open to so much debate. Hence the question arises whether the occasion is one in which it is proper to resort to mandamus. Our decisions in Mottolese v. Kaufman, 176 Fed.(2) 301 and P. Beiersdorf & Co., Inc. v. McGohey, 187 Fed. (2) 14, are controlling as to the propriety of this method of review; and, indeed, the situation presents a stronger reason for resorting to it then existed in either of those decisions. The merits of the claim here involved have been decided, and will go to final judgment as soon as the account has been judicially settled; when that happens the Westinghouse Corporation will be in a position to plead the judgment as an estoppel, and, if it is successful, that will dispose of the action at bar without a trial. It is true that the estoppel will not, literally speaking, end the jurisdiction of the district court; but it will do so in substance, if it is an estoppel at all, for it will conclude any further consideration of the existence of the conspiracy, and on that all else depends. For this reason we hold, quite aside from the two decisions just cited, that the question whether a final judgment will be an estoppel so nearly touches the jurisdiction of the district court, as to make it proper for us to entertain the petition for mandamus. Cf. Ex parte Wagner, 249 U.S. 465, 471.

The first defence which the plaintiffs at bar pleaded to the action in the state court was in seven separately numbered paragraphs, the first of which alleged that the Westinghouse Corporation, the General Electric Companies "and others" were "engaged in a mutual conspiracy together to monopolize the manufacture, distribution and sale of electric lamps in the United States." The second paragraph alleged that, in pursuance of that conspiracy, the conspirators agreed not to "sell electric lamps in the usual course of trade, but only through alleged 'agents' under their direction, control and surveillance;" and that the conspirators compelled the "alleged 'agents' to observe uniform price schedules," and prevented "said alleged 'agents' from competing among each other." The fourth paragraph alleged that the conspirators were successful in their purpose of establishing a monopoly; and the fifth, that "by reason of the premises the defendant * * * were unable to purchase electric lamps in the ordinary and usual course of trade, and, in order to engage in their aforesaid business, were compelled to, and did, execute whatever agreements and papers the plaintiff, from time to time, prescribed or demanded, and they were compelled to, and did, comply with all other requirements specified by the plaintiff." The sixth paragraph alleged that these "agreements and transactions * * * were exacted by the plaintiff in furtherance and in execution of the aforesaid conspiracy and as an integral part of the carrying out thereof"; and the seventh, that "by reason of the premises, the agreements and transactions alleged in the complaint were unlawful." The complaint at bar alleged the existence of a conspiracy in so nearly identical terms that we need not repeat them; and its twelfth paragraph alleged that "by reason thereof, it was impossible for plaintiffs profitably to engage in the business of selling electric lamps without having for sale and delivery electric lamps manufactured by the defendants * * * and to carry on such business most successfully and profitably, it was necessary to handle the lamps of both defendants." The thirteenth paragraph then alleged that because of this situation "the plaintiffs were compelled to enter into written contracts * * * as 'agents' at prices and upon terms fixed * * * pursuant to the conspiracy and * * * were limited to * * * selling * * * to persons designated or authorized * * * all * * * in pursuance of the conspiracy." Further, that the contract, on which the Westinghouse Corporation sued in the state court, appointed the plaintiffs its "agents" to sell lamps, consigned to it at prescribed prices and on prescribed terms (though they were to acquire to title to them), to account to the Corporation for the prices received, less commissions, to keep books of account and render periodical reports "on forms provided by Westinghouse" and to remit the net proceeds of sales each month.

We think that the state court had undoubted jurisdiction, notwithstanding § 15 of Title 15 U.S. Code, to decide the merits of the first defence, although it involved exactly the same claim as that pleaded in the first count of the action at bar. The extent to which conspiracies under the Anti-Trust Act invalidated transactions of the conspirators with third persons apparently arose for the first time in Connolly v. Union Sewer Pipe Co., 184 U.S. 540, 550-552, where the buyer pleaded such a defense to an action for the price of goods, and the Court unanimously overruled it. Soon thereafter, however, in Continental Wall Paper Company v. Voight & Sons Co., 212 U.S. 227, it held by a five to four vote what the minority though was the exact opposite and what with deference it is indeed hard to distinguish. Next came Wilder Manufacturing Co. v. Corn Products Refining Co., 236 U.S. 165, where the seller was allowed to recover for goods sold, as in Connolly v. Union Sewer Pipe Co., Supra. The opinion - page 177 - gave as an explanation of Continental Paper Company v. Voight & Sons, supra, that the following "elements of illegality" had been there "inhering" in the contract of sale: "(a) the relations of the contracting parties to the goods sold, (b) the want of real ownership in the seller, (c) the peculiar obligations which were imposed upon the buyer, and (d) the fact that to allow the nominal seller to enforce the payment of the price would have been in and of itself directly to sanction and give effect to a violation of the Anti-Trust Act inhering in the sale." In Geddes v. Anaconda Copper Mining Co., 254 U.S. 590, the Court refused to allow a corporation to rescind the sale of its assets to another corporation on the ground that the sale had been in pursuance of a contract that violated the Anti-Trust Act; and in the course of the opinion - p. 593 - said that "the remedies provided * * * for enforcing the rights created by it are exclusive." In Small Co. v. Lamborn & Co., 267 U.S. 248, it overruled the defence to an action to recover the purchase price - page 252 - because "the contracts disclosed the full transaction * * * and contemplated that the sale should pass the title wthout any restriction on the right of the buyer to resell as it might choose. * * * It is only where the invalidity is inherent in the contract that the Act may be interposed as a defense." Finally, in Bruce's Juices v. American Can Co., 330 U.S. 743, in overruling the buyer's defence to the seller's action of recover for goods sold at prices illegally discriminatory under the Robinson-Patman Act, the Court said - page 755 - of the Anti-Trust Act "that where a suit is based upon an agreement * * * which has as its object and effect accomplishment of illegal ends which would be consummated by the judgment sought, the Court will entertain the defense that the contract is illegal under the express provision of that statute. * * * But when the contract sued upon is not intrinsically illegal the Court has refused to allow property to be obtained under a contract of sale without enforcing the duty to pay for it because of violations of the Sherman Act not inhering in the particular contract in suit."

The upshot of these decisions, if we apprehend them aright, is that, if the conspiracy inheres in the contract in suit by a conspirator against a non-conspirator, the conspiracy is a defence, but not otherwise. It is impossible to import any exact boundaries into that word; and we shall not attempt to do so; but, whatever may be its limits, it appears to us that, when a conspirator seeks to enforce a contract between himself and one of his "agents," whom he has employed to carry out the purposes of the illegal enterprise, the conspiracy must "inhere" in the contract. The "agent" is a cooperator with him in his illegal venture, unlike the buyer of the goods monopolized, who has not joined in the undertaking and is therefore not an abettor. The fact that the agent's cooperation is unwilling is irrelevant; although a victim of the wrong, he becomes an active promoter of it. Therefore, we think that the state court had jurisdiction to pass upon whether the defence, as alleged, was proved.

It does not, however, follow that final judgment in the state action when entered will be an estoppel in the case at bar. That would be true, we agree, except for § 15 of Title 15, U.S. Code, because, although the finding that there was no conspiracy involved questions of law as well as questions of fact, it was nevertheless of a kind that courts treat as estoppels.*fn** Thus the inquiry comes down to whether, when Congress gave exclusive jurisdiction to the district court over wrongs committed under the Anti-Trust Acts, it only meant that the "person who shall be injured" must sue in the district court to recover damages; or whether it also meant that the district court must have unfettered power to decide the claim, regardless of the findings of any other courts, even when these were essential to the decision of actions over which their jurisdiction was unquestioned. A priori either reading seems permissible, and the decisions give an uncertain answer. The only case that we have discovered in the Supreme Court is Becher v. Contoure Laboratories, Incorporated, 279 U.S. 388. The action was by the patentee, Becher, for the infringement of his patent; and the defendant was the corporate assignee of the rights of one, Oppenheimer, who had recovered judgment against Becher in a state court, and whose claim had been that the information on which Becher procured the grant of his patent, he had got from Oppenheimer in a confidential relation. Oppenheimer's assignee pleaded the judgment of the state court as a defence, and it was held to be a good estoppel, although the consequence was to invalidate Becher's patent. The meat of the opinion is this, p. 391:

"Again, even if the logical conclusion from the establishing of Oppenheimer's claim is that Becher's patent is void, that is not the effect of the judgment. Establishing a fact and giving a specific effect to it by judgment are quite distinct."

That looks as though the distinction were between the finding of one of the constituent facts that together make up a claim and the entire congeries of such facts, taken as a unit; an estoppel is good as to the first but not as to the second.It is possible to real § 71**fn** of the Restatement of Judgments with such a limitation: that is to say if "matter" be read as all the "operative" facts that together make up a right. Comment (c) would also be consonant with this in saying that the finding of a state court, as a defence to an action on a note, that a patent given as its consideration was invalid, is not an estoppel in an action in a federal court brought upon the patent. There are decisions holding that findings in courts of testamentary jurisdiction will not be estoppels in actions in other courts***fn** on the other hand, the Third Circuit in United States v. Silliman, 167 Fed.(2) 607, held that a finding of the Surrogate's Court of New York that there had been no fraud in a proceeding before it, was conclusive in an action in the district court. In Loomis v. Loomis, 288 N.Y. 222, the Court of Appeals decided that a finding by the "Family Court" - a division of an inferior court in New York City - that the parties had been divorced did not operate as an estoppel in an action in the Supreme Court for a declaratory judgment that the divorce was void. On the other hand in Geracey, Inc. v. Hoover, 133 Fed.(2) 25, a majority of the Court of Appeals for the District of Columbia held that the judgment of the Municipal Court of the District was an estoppel in an action in the District Court in the following situation. The defendant, a landlord, had sued the plaintiff, his tenant, in the Municipal Court to recover rent, and the plaintiff had pleaded as a set-off that the landlord had damaged his chattels in an amount greater than the Municipal Court's monetary jurisdiction. The Municipal Court dismissed the set-off on the merits, and the Court of Appeals held the finding to be estoppel in an action by the tenant to recover damages in the full amount. Judge Rutledge dissented.

It is possible that decisions like Loomis v. Loomis, supra (288 N.Y. 222) and Geracey, Inc. v. Hoover, supra (133 Fed.(2) 25) depended upon the relative authority of the court that made the findings compared with that of the court which tried the cause. That may also be the explanation of those decisions that refused to treat as conclusive the findings of a testamentary court; Judge Goodrich's careful analysis in United States v. Silliman, supra (167 Fed.(2) 607) of the powers and standing of the Surrogate's Court of New York, seems to presuppose such an interpretation. The traditional jealousy of all states of any attempt to adjudicate elsewhere interests in their real property, or in the matrimonial status of their own domiciliaries, is enough to account for those decisions. We are in accord with what Judge Goodrich says about the doctrine of res judicata in general - page 614 - : "such a rule of public policy must be watched in its application lest a blind adherence to it tend to defeat the even firmer established policy of giving every litigant a full and fair day in court." In short, it appears to us that the doctrine, like so many others in the law, must be treated as a compromise between two conflicting interests: the convenience of avoiding a multiplicity of suits and the adequacy of the remedies afforded for conceded wrongs.

In the case at bar it appears to us that the grant to the district courts of exclusive jurisdiction over the action for treble damages should be taken to imply an immunity of their decisions from any prejudgment elsewhere; at least on occasions, like those at bar, where the putative estoppel includes the whole nexus of facts that makes up the wrong. The remedy provided is not solely civil; two thirds of the recovery is not remedial and inevitably presupposes a punitive purpose. It is like a qui tam action, except that the plaintiff keeps all the penalty, instead of sharing it with the sovereign. There are sound reasons for assuming that such ercovery should not be subject to the determinations of state courts. It was part of the effort to prevent monopoly and restraints of commerce; and it was natural to wish it to be uniformly administered, being national in scope. Relief by certiorari would still exist, it is true; but that is a remedy burdensome to litigants and to the Supreme Court, already charged with enough. Obviously, an administration of the Acts, at once effective and uniform, would best be accomplished by an untrammeled jurisdiction of the federal courts.

Nor is there anything inconsistent with this in allowing violations of the Acts to be raised as valid defences to actions brought in state courts upon a claim against third persons, if it involves a partial enforcement of an undertaking itself forbidden. It is appropriate to the underlying purpose of the Acts that such claims shall not succeed, by compelling individuals on whom the wrong impinges to pay what is not due, even though they may later recover the amount three times over. For these reasons we think that the situation is one where the delay and expense of a double trial of the same issue, do not balance the importance of an uncommitted enforcement of the remedy provided in § 15.

As we have concluded that the district court has refused to rpoceed pending a final judgment of the state court that can have no effect upon the decision of the action at bar, we hold that its refusal was not authorized by law and that it is our duty, as it is within our power, to direct a writ of mandamus to go, ...

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