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NEW SANITARY TOWEL SUPPLY v. CONSOLIDATED LAUNDRIE

November 30, 1962

NEW SANITARY TOWEL SUPPLY, INC., et al., Plaintiffs,
v.
CONSOLIDATED LAUNDRIES CORPORATION et al., Defendants



The opinion of the court was delivered by: CROAKE

Defendants move for an order granting partial judgment on the pleadings, pursuant to Rule 12(c) and Rule 12(h) of the Federal Rules of Civil Procedure on the ground that certain causes of action asserted in the complaint fail to state claims upon which relief can be granted.

This is a civil antitrust action for treble damages brought pursuant to Section 4 of the Clayton Act (15 U.S.C.A. 15). Plaintiffs are three corporations and three individuals formerly engaged in the diaper service, linen supply, and commercial laundry businesses. They allege that they were driven out of these businesses by a conspiracy among the defendants unlawfully to restrain and to create a monopoly in interstate commerce.

For the purposes of this motion, the complaint may be divided into three categories of claims to the effect that:

 1) Defendants conspired to injure and did injure the corporate plaintiffs in violation of the antitrust laws (15 U.S.C.A. ยงยง 1, 2, 13, 14 and 18).

 2) As a result of the conspiracy, plaintiff Blue Diamond Laundry No. 1, Inc. ('Blue Diamond') suffered loss in the value of stock it had owned in Sanitary Diaper Corporation ('Sanitary Diaper'), and the individual plaintiffs Paul and Lawrence Ullman suffered losses in the value of stock they held in the corporate plaintiff New Sanitary Towel Supply, Inc. ('New Sanitary').

 3) As a result of the conspiracy, plaintiffs Paul Ullman and Philip H. Lewis were compelled by defendants to sign restrictive covenants not to compete in the diaper, linen and laundry businesses for certain periods of time.

 The motion seeks to have the second and third categories of claims dismissed.

 As to the damage allegedly suffered as a result of the loss of value of stock of New Sanitary and Sanitary Diaper, it is clear that that part of the complaint must be dismissed.

 Under Section 4 of the Clayton Act, *fn1" which reads in part as follows:

 'Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor * * *.' (Emphasis added.)

 it has been repeatedly held that the injury to the business or property of the complainant must be direct and not remote. *fn2" It has also been repeatedly held that a stockholder has no cause of action for the loss of the value of stock caused by injuries sustained by the corporation as a result of violation of the anti-trust laws. *fn3"

 Plaintiffs state in their memorandum of law that New Sanitary and Sanitary Diaper have been dissolved and that, as a consequence, there is a doubt as to whether the dissolved corporations may maintain the antitrust actions or whether the stockholders may maintain them. *fn4" They now assert that these causes of action are, therefore, brought in the alternative.

 The argument of plaintiffs is that defendants are attempting to attack the complaint piecemeal, and that after having had the causes of action for diminution in the value of the stock dismissed, defendants plan to make a motion, after the statute of limitations has run, to dismiss the direct actions by New Sanitary and Sanitary Diaper on the ground that said corporations had been dissolved.

 There are a number of difficulties with these arguments. There is no allegation in the complaint that either New Sanitary or Sanitary Diaper had been dissolved, nor does it appear in the complaint that the claim for loss of value for the stock was pleaded in the alternative. Plaintiffs, however, are faced with a more fundamental difficulty. Even if it were alleged that the corporations were dissolved and unable to sue, and even if the claim for loss of value of the stock were pleaded in the alternative, the question would still remain as to whether an action for such losses of value in stock is maintainable under Section 4 of the Clayton Act. The reason for the rule against such recoveries is not so much to prevent overlapping recompense to both corporation and stockholders, but is rather to prevent the recovery for injuries which are indirect in nature. This purpose is implicit from the opinion in the case of Fleischer v. A.A.P. Inc., 180 F.Supp. 717 (S.D.N.Y., 1959), appeal dismissed 264 F.2d 515 (2d Cir. 1959), cert. denied, 359 U.S. 1002, 79 S. Ct. 1139, 3 L. Ed. 2d 1030 (1959). In that matter stockholders were precluded from maintaining an ...


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