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SABRE SHIPPING CORP. v. AMERICAN PRESIDENT LINES

April 24, 1969

SABRE SHIPPING CORPORATION, Plaintiff,
v.
AMERICAN PRESIDENT LINES, Ltd., et al., Defendants. JAPAN LINE, Ltd., et al., Third-Party Plaintiffs, v. AMERICAN PRESIDENT LINES, Ltd., et al., Third-Party Defendants


Ryan, District Judge.


The opinion of the court was delivered by: RYAN

RYAN, District Judge:

Fourteen third-party defendants, who have settled with plaintiff and obtained from it dismissal of the complaint without prejudice and a Covenant Not to Sue, move for summary judgment on the third party complaint. Familiarity with the claim in suit is presumed from the decision of this Court in Sabre Shipping Corp. v. American President Lines, Ltd., 285 F. Supp. 949; aff'd Japan Line, Ltd. et al. v. Sabre Shipping Corporation, 407 F.2d 173, 2nd Circuit, January 14, 1969. It is sufficient on this motion to state that the complaint charged third party plaintiffs and moving defendants with violation of the antitrust laws and destruction of plaintiff's business by a conspiracy effected under authority of the Japan Conference and the Hong Kong Conference, of which all defendants were members, under F.M.C. Agreement 3103 and 5700 respectively. Plaintiff alleged that the reduction of rates effected by defendants which drove it out of the competition was outside the scope of the Conference and the protection of the Shipping Act. The main complaint was filed in October, 1966; in July, 1967 twenty-five of the defendants settled with plaintiff and entered into a "Covenant Not to Sue and Covenant Not to Sue Further", and a Stipulation of Dismissal without prejudice as to those defendants was so ordered by the Clerk of the Court in August, 1967. The third party plaintiffs, who are five Japanese Lines, refused to join in the settlement and, after moving unsuccessfully for summary judgment to dismiss the complaint, filed the third party complaint on August 14, 1968 against some of the settling defendants.

 The third party complaint alleges that the third party action arises under the Sherman and Clayton Antitrust Acts; that it is brought pursuant to Rule 14, F.R.Civ.P., against 17 third party defendants who are or may be liable to third party plaintiffs for all or part of the plaintiff's claim against them; and that all these defendants as well as the two Conferences maintain a place of business in this District. After reciting the background of the suit - the claim by SABRE in the main suit that defendants conspired to monopolize the trade and drive SABRE out of business; the settlement and Covenant between the plaintiff and 25 defendants; and the dismissal of the action against these defendants; and the third party plaintiffs' exclusion from the settlement and dismissal - the third party complaint pleads two separate counts.

 In the first count, third party plaintiffs deny liability to plaintiff SABRE but claim that, if the acts alleged were done, they were the joint acts of third party plaintiffs and third party defendants; that any liability of the Japanese Lines will arise out of their joint acts; and that the third party defendants will be liable to the Japanese Lines, if SABRE recovers a judgment against them.

 In the second count, third party plaintiffs plead Paragraph 32 of the Conference Agreement, to which they and some of the third party defendants were signatories, which they allege provides that if legal expenses are incurred by a member as a result of compliance with the agreement and without fault on the part of the member, these expenses shall be prorated among the members for the account of the Conference. They then charge that any expenses and damages incurred by the five Japanese Lines and any liability to SABRE will have been incurred as a result of compliance with F.M.C. 3103 and will arise out of the joint acts of the third party plaintiffs and third party defendants who will be liable over to them. The prayer for relief asks judgment for all sums that may be adjudged in favor of SABRE, together with the "legal expenses" in both actions.

 The moving defendants have interposed a general denial and plead the following affirmative defenses: failure to state a claim; failure to perform a condition precedent to establishing liability under Paragraph 32 of the Agreement; failure to join the Conference and all the signatories to the Agreement; reduction of the SABRE claim by payment from the third party defendants; and reduction of third party plaintiffs' claim in that they represent 9 signatories to the Agreement. Five of the defendants further defend on the ground that they were never signatories to the Agreement durment during any relevant period. All defendants admit that they maintain an office for the transaction of business here.

 The Covenant Not to Sue and Not to Sue Further entered into on July 27, 1967 between SABRE as Covenantor and 25 defendants as Covenantees, among whom are the two Conferences, recites that the consideration for its execution does not represent full compensation for the damages alleged to have been suffered by plaintiff, that plaintiff retains all claims and causes of action against the other defendants in the action, and that the agreement is not a release to any person whosoever including the Covenantees in the pending suit or any other suit.

 The theories underlying the first count of the third party complaint according to the Japanese Lines are that, since the liability charged under SABRE's antitrust complaint is joint, all conspirators are joint tort-feasors and therefore liable for contribution to one another; and that since the Japanese Lines are not in pari delicto with the settling defendants, they are entitled by operation of law to complete indemnity from those defendants. The theory of the second count is that, since Conference Agreement 3103 to which all defendants are parties provides for the sharing of liability among all the Conference members for acts done in compliance with the Agreement, Japanese Lines are entitled to contribution or indemnity by contract for its damages as well as its costs in defending the SABRE action. In short, third party plaintiffs seek contribution or indemnity either in law or by contract. On the oral argument, third party plaintiffs argued for the first time but with great emphasis that the settlement is invalid and in violation of Section 15 of the Shipping Act, because it was not filed with the Commission as an Agreement "pooling or apportioning * * * losses."

 The moving defendants answer that federal common law, which must be applied since the complaint and third party complaint rest on the antitrust laws, makes no provision for contribution among joint tort feasors second, that there can be no right of indemnity by operation of law in that such a right rests on the theory of passive and active tort which will not lie under allegations of joint wrongdoing; and, finally, that the alleged indemnity liability under the Agreement cannot arise until there has been a determination by the Japan Conference (which has not been named as a third party defendant) by a two thirds vote of its members that the Japanese Lines incurred the legal expenses without fault. It is not in dispute that this determination has not been and will not be made because more than a majority of the Conference membership participated in the settlement with plaintiff.

 The moving third party defendants also contend that, if the alleged wilful violation of the antitrust laws be held to be an act done in compliance with the Conference Agreement, Paragraph 32 of the Agreement is unenforceable as against public policy. They also urge that the third party complaint must be dismissed since the Conference, against whom such a claim must be asserted is not a party defendant; and that, in any event, it appears that five of the third party defendants were not parties to the Conference Agreement during the period in suit (1962-1963) and cannot be charged with liability at all under the Agreement.

 Although the third party complaint expressly alleges that it arises under the federal antitrust laws, it is brought pursuant to Rule 14 and does not allege any independent antitrust claim. Both parties seem to agree that the claim pleaded in the third party complaint should be controlled by federal common law, but they differ, however, as to what that law is or should be. Third party defendants urge that, since in the main complaint the claimed tort is based on the federal antitrust laws, federal common law which does not permit contribution must be applied, irrespective of local law. They point out, however, that even local common law permitting contribution exists in only a few states, and that, even in those states having statutes permitting contribution, they are generally not applied in the case of intentional torts such as violations of antitrust laws.

 Japanese Lines seem to contend (although it is difficult to grasp their quicksand theories) that, in the event the Court decides that federal law applies, in the absence of clear federal statutory or case law, the Court should formulate a federal law which favors contribution. They add that this should be done by the Court taking into consideration other federal statutes so providing - federal local law as fashioned for the District of Columbia and the substantive local law found in statutes of those states favoring contribution. *fn1" In the event that the Court should determine that a federal law as so fashioned does not apply, then to determine what local law to apply the third party plaintiffs say the Court should look to a "plethora of facts", which would require a full trial for that determination. This trial, they envision, would inquire into matters such as the nationality of the members of the Conference; the place of the alleged conspiracy; the overt acts and the injury; the frequency of sailings and the ports touched, etc.; and "the relative economic interests of the many jurisdictions involved in this international situation," by which they mean the economic interests of Japan, which they contend permits contribution. We interpret this argument as saying that, although it is not so labelled, this Court must apply a federal conflicts of law rule, or choice of local law rule, to determine what local law should control the rights of the defendants inter sese.

 We must here note that, while the Covenant Not to Sue and Not to Sue Further did not release the Covenantees and expressly stated that the consideration received from them was not compensation in full, this merely served to clarify and protect the rights of the plaintiff as against all the defendants - the settling defendants and the Japanese Lines - it did not determine the rights of the defendants among themselves.

 The economic interests with which this Court is concerned primarily are of those of the United States, upon whose trade and commerce the effects of the conspiracy are alleged to have fallen. That charge is the basis of the jurisdiction of this Court. The claims here asserted are federally created by Congressional enactment and we must ...


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