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JULIUS M. AMES CO. v. BOSTITCH

March 8, 1965

JULIUS M. AMES CO. and Independent Pennsylvania Nail Co., Plaintiffs,
v.
BOSTITCH, INC., Defendant



The opinion of the court was delivered by: MCLEAN

This is a private antitrust action in which plaintiffs charge that defendant has violated Section 1 of the Sherman Act (15 U.S.C. § 1) and Section 7 of the Clayton Act (15 U.S.C. § 18). The two charges are not separately stated but are commingled in one count. Defendant moves under Rule 12(b)(6) to dismiss the Clayton Act charge on the ground that the complaint fails to state a claim. It also moves under Rule 56 for summary judgment dismissing the Sherman Act charge on the ground that it has no foundation in fact.

The allegations of the complaint may be summarized as follows:

Plaintiffs are engaged in the business of distributing metal fastener devices and products. Defendant is engaged in the business of manufacturing and selling machinery and devices for wire stitching, stapling, tacking and fastening, as well as wire, staples and related articles used with this machinery. It sells its products through subsidiary and affiliated companies.

 Prior to April 1, 1961, Calwire, Inc. ('Calwire') was a California corporation engaged in manufacturing a heavy duty pneumatic industrial nailing tool, and nails and staples to be used with it. Calnail, Inc. ('Calnail') was its exclusive sales agent. Calnail owned all the stock of Calwire. Calnail distributed its products through independent distributors, two of whom were the two plaintiffs.

 On April 1, 1961, defendant entered into an agreement with the owners of the stock of Calnail, pursuant to which defendant acquired that stock, Calwire was merged into Calnail, all 'pre-existing arrangements' for the distribution of Calnail products by plaintiffs were cancelled, and defendant and its subsidiaries and affiliates took over the distribution of Calnail products.

 Defendant was the 'principal and dominant' manufacturer of metal fastening devices and products in the United States, and Calnail was 'the dominant factor' in its 'product market.' Defendant's acquisition of Calnail has had 'adverse competitive effects' in the market for heavy duty pneumatic industrial nailing tools. It violates Section 7 because it may have the effect of substantially lessening competition or tending to create a monopoly in the manufacture and distribution of heavy duty pneumatic industrial nailing tools in the United States.

 Defendant has also violated Section 1 of the Sherman Act in that it has conspired with its own sales subsidiaries and affiliates and with Calnail and Calwire, and has, in concert with them, refused to deal with plaintiffs and other former Calnail distributors. Plaintiffs have been damaged in their business and property by these violations in that (a) they have been prevented from distributing Calnail products, and (b) they 'have been and will continue to be unable to compete' with defendant and its subsidiaries 'in the distribution and sale of heavy duty pneumatic industrial nailing tools, and nails and staples' used therewith. The relief asked is treble damages in the sum of $ 1,800,000 for each plaintiff and a decree requiring defendant to divest itself of the stock and business of Calnail.

 I will first consider defendant's motion under Rule 12(b)(6) addressed to the Clayton Act charge. Defendant expressly assumes, for the purposes of this motion only, that the acquisition of Calnail by defendant was a violation of Section 7. Its contention is that nevertheless the complaint fails to state a claim for relief because no private individual may sue for damages which he has suffered as a result of a violation by a defendant of Section 7, and no private individual, as distinct from the United States, may seek a decree requiring defendant to divest itself of the assets illegally acquired.

 Section 4 of the Clayton Act (15 U.S.C. § 15) provides that 'any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws' may sue for treble damages. The Clayton Act is an 'antitrust law.' (15 U.S.C. § 12) Logically, it follows inevitably that a person injured by reason of anything forbidden in the Clayton Act may sue for treble damages.

 Defendant attacks this syllogism on the strength of three decisions which appear to have rejected it. First is a decision of Judge Metzner at pre-trial, in Gottesman v. General Motors Corporation, 221 F.Supp. 488 (S.D.N.Y.1963), leave to appeal denied, unreported (Jan. 31, 1964), cert. denied, 379 U.S. 882, 85 S. Ct. 144, 13 L. Ed. 2d 88 (1964). That was a derivative stockholders' action by stockholders of General Motors Corporation against General Motors and du Pont seeking damages allegedly sustained by General Motors as a result of the acquisition by du Pont of General Motors stock which was condemned in United States v. E. I. du Pont de Nemours & Co., 353 U.S. 586, 77 S. Ct. 872, 1 L. Ed. 2d 1057 (1957). Plaintiffs charged violations of the Sherman Act as well as of Section 7 of the Clayton Act. In the course of an opinion ruling in advance of trial upon various questions of law, Judge Metzner said (221 F.Supp. at 493):

 'The test of a section 7 violation is whether 'there is a reasonable probability that the acquisition is likely to result in the condemned restraints.' straints.' United States v. E. I. du Pont de Nemours & Co., supra, 353 U.S. at 607, 77 S. Ct. at 884, 1 L. Ed. 2d 1057. Plaintiffs cannot be damaged by a potential restraint of trade or monopolization. There can be no claim for money damages for a violation of section 7.'

 Next is a dictum in Highland Supply Corp. v. Reynolds Metals Co., 327 F.2d 725 (8th Cir. 1964). That was an action for damages allegedly sustained by plaintiff by reason of defendant's violations of Section 2 of the Sherman Act and Section 7 of the Clayton Act. Defendant acquired the stock and assets of a manufacturer of aluminum foil. The acquired company subsequently reduced its prices. Plaintiff was a competitor of the acquired company. The district court dismissed the complaint, without leave to amend, on the ground, apparently, of the statute of limitations. The opinion of the Court of Appeals reversing the district court is devoted primarily to a discussion of the statute of limitations. In a footnote (327 F.2d at 728 n. 3), however, the court said:

 'We think that any effort to convert Section 7 of the Clayton Act into a per se violation of the antitrust laws so as to give rise to a private right of action under the Clayton Act has ben squarely checked by what is said by Mr. Chief Justice Warren in Brown Shoe Co. v. United States, 370 U.S. 294, 82 S. Ct. 1502, 8 L. Ed. 2d 510. As interpreted in that case, Section 7 of the Clayton Act does not condemn all mergers, but only those having demonstrable anti-competitive effects. The statute deals with clear-cut menaces to competition, not with accomplished monopolies, presently creating damage to a competitor, which is the sine qua non of a private right of action under Section 5 (Section 4) of the Clayton Act.'

 The third decision is Bailey's Bakery, Ltd. v. Continental Baking Company, 235 F.Supp. 705 (D. Hawaii 1964). That was an action for damages allegedly sustained by plaintiff by reason of defendant's acquisition of a bakery of which plaintiff was a competitor. The complaint alleged that the acquired company had engaged in various practices, i.e., selling at low prices, extensive advertising, etc., so that plaintiff could not successfully compete. The complaint charged violations of Sections 1 and 2 of the Sherman Act and Section 7 of the Clayton Act. The court dismissed the complaint as to the Clayton Act charge for failure to state a claim. It said (235 F.Supp. at 716):

 'Clayton § 7 is strictly an 'ounce of prevention' Act, based upon a 'may be' monopoly situation.'

 It went on to say that a plaintiff cannot recover for 'anticipated invasions' of his rights and ...


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