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GOTTESMAN v. GMC

March 30, 1970

Callman Gottesman, Maria Mattiello and Paul J. Peyser
v.
General Motors Corp. and E.I. du Pont de Nemours & Co.


Metzner, D. J.


The opinion of the court was delivered by: METZNER

METZNER, D. J.:

This derivative action by minority stockholders of General Motors sought treble damages pursuant to § 4 of the Clayton Act, 15 U.S.C. § 15, alleging that du Pont had violated § 7 of the Clayton Act, 15 U.S.C. § 18, and §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 & 2, and had breached its common law fiduciary duty to General Motors. The action was instituted immediately after the Supreme Court announced its decision in the government's enforcement action against these defendants. United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586, 1 L. Ed. 2d 1057, 77 S. Ct. 872 (1957). The Court held that du Pont had obtained a commanding position as the supplier of automotive finishes and fabrics to General Motors through its ownership of 23% of the stock of General Motors and that this was a violation of § 7 of the Clayton Act.

 In the instant case, this court held that a violation of § 7 did not give rise to a private right of action for money damages. At the same time it was held that the enforcement judgment was not available to the plaintiffs under § 5(a) of the Clayton Act, 15 U.S.C. § 16(a), because it dealt with a time period prior to that covered by this private suit. 221 F. Supp. 488 (S.D.N.Y. 1963), leave to appeal denied (2d Cir. Jan. 31, 1964), cert. denied, 379 U.S. 882, 85 S. Ct. 144, 13 L. Ed. 2d 88 (1964).

 The trial on the merits of the Sherman Act claims and the fiduciary claim then proceeded, resulting in a judgment in favor of the defendants. 279 F. Supp. 361 (S.D.N.Y. 1967). The plaintiffs, in appealing from this adverse judgment, raised the propriety of the court's previous rulings as to the applicability of § 7 and the effect to be given to the government judgment under § 5(a). The Court of Appeals remanded the case for further proceedings because it held that a private claim for money damages could be maintained on an alleged violation of § 7 and that the government judgment should have been given greater evidentiary weight. The court specifically stated that it did not pass upon the merits of the litigation. 414 F.2d 956 (2d Cir. 1969).

 This court conferred with counsel who subsequently submitted briefs as to the proceedings to be had on the remand. The parties agreed that the claims for relief, including money damages for violation of § 7, could be determined on the existing record, *fn1" giving due weight to the judgment in the government enforcement action as suggested by the Court of Appeals. Du Pont conceded that its interest in General Motors constituted a violation of § 7 during the damage period. In terms of § 7, as interpreted by the Supreme Court in the government action (353 U.S. at 607 *fn2" ), this means that there was a reasonable probability that the stock ownership was likely to result in the creation of a monopoly at the time of suit.

 The parties further agreed that the sole issue to be decided on the remand is whether this violation caused injury to General Motors. The Court of Appeals held:

 
"Of course, plaintiffs cannot rest on a showing of a violation of section 7; they must, as in private actions under other sections of the antitrust laws, prove that they have been injured by the violation." 414 F.2d at 961.
 
* * *
 
"We are aware that the judgment is only prima facie evidence at best and that plaintiffs have the burden of showing not only antitrust law violation but injury as well." 414 F.2d at 965.

 When the Court of Appeals speaks of injury, it is speaking of the fact of injury as opposed to the amount of damages, since the original trial was limited solely to the question of liability. In Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 114, 23 L. Ed. 2d 129, 89 S. Ct. 1562 n. 9 (1969), the Court said:

 
"Zenith's burden of proving the fact of damage under § 4 of the Clayton Act is satisfied by its proof of some damage flowing from the unlawful conspiracy; inquiry beyond this minimum point goes only to the amount and not the fact of damage. It is enough that the illegality is shown to be a material cause of the injury. . . ."

 Translating the Court's language in terms of this case, it calls for answers to two questions. First, did du Pont's stock ownership produce the sales to General Motors? Second, if so, could General Motors have bought the merchandise at lower prices with equal quality and services?

 To answer these questions on the existing record, a determination must be made as to the evidentiary weight to be given the government judgment. The Court of Appeals, in referring to the cases which it relied on to justify the use of a judgment covering a different time period, stated in 414 F.2d at 963:

 
"While it is true that in none of these latter cases was the earlier government judgment allowed into evidence . . . it is equally true that no flat, inflexible rule of exclusion was applied. The rationale which emerges from them is that while a judgment of violation in a government suit covering a given period is insufficient to establish a violation at a later date, that judgment may be of evidentiary weight in the private action if it encompasses findings sufficiently related to the issues of the private action and if sufficient ...

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