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CARNIVALE BAG CO. v. SLIDE-RITE MFG. CORP.

June 10, 1975

Carnivale Bag Co., Inc., Arcadia Furs, Inc., National-Penncraft, Inc., and H. Bloom & Sons
v.
Slide-Rite Mfg. Corp., Pilling Chain Co., Inc., and Acme Associates Inc.


Carter, D.J.


The opinion of the court was delivered by: CARTER

CARTER, D.J.:

Plaintiffs bring this action pursuant to § 4 of the Clayton Act, 15 U.S.C. § 15, seeking damages and injunctive relief for alleged violations of § 1 of the Sherman Act, 15 U.S.C. § 1. Defendants move to dismiss under Rule 12(b)(6), F.R. Civ. P., on the ground that plaintiffs lack standing to maintain this action. The motion is denied.

 The Complaint

 The complaint alleges that the four plaintiff corporations are manufacturers of clothing, plastic bags and carryalls, and that all plaintiffs have "purchased zippers comprised of parts supplied by defendants for use in such products." (Complaint para. 1-3). The action is brought on behalf of the class of manufacturers of these products "in which zippers were used, during the period of January 1, 1966 to date." (Complaint para. 6). It is further alleged that during the relevant period, each of the three defendants "has been engaged in the manufacture and sale of sliders * * * to semi-integrated zipper manufacturers and zipper assemblers * * *." (Complaint para. 12-14). A "slider" is "a component of a zipper attached to and which slides on a zipper chain. Movement of the slider along the chain opens or closes the zipper." (Complaint para. 16). It is alleged that the defendant slider manufacturers violated § 1 of the Sherman Act by entering into a combination and conspiracy "to raise, fix, stabilize and maintain the price of sliders," and to "establish uniform prices for such sliders * * *." (Complaint para. 23). Plaintiffs and their class have allegedly sustained injury as a result of this combination in that they "have been required to overpay for the zippers they buy from semi-integrated manufacturers, zipper assemblers and integrated manufacturers and such excessive cost has increased their cost of production and reduced the profits which they would otherwise enjoy." More generally, it is alleged that plaintiffs have been damaged by the increased price of sliders; by the restraint of competition in the sale of sliders; and by the loss of "the opportunity for them to obtain sliders at competitive prices * * *." (Complaint para. 24).

 Discussion

 A motion to dismiss should not be granted unless it is established "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); see Build of Buffalo, Inc. v. Sedita, 441 F.2d 284, 287 (2d Cir. 1971). The allegations of the complaint are assumed to be true for purposes of the motion, Heit v. Weitzen, 402 F.2d 909, 913 (2d Cir. 1968), and are considered in the light most favorable to the plaintiff. Sinva v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 253 F. Supp. 359, 367 (S.D.N.Y. 1966).

 In support of their motions, defendants rely primarily on Donson Stores, Inc. v. American Bakeries Co., 58 F.R.D. 481 (S.D.N.Y. 1973) (Bauman, J.), and like cases where the courts have held that only the immediate purchaser from an antitrust defendant has standing, and that a purchaser from the defendant's customer or a more remote purchaser may not maintain an action. *fn1" Philadelphia Housing Authority v. American Radiator and Standard Sanitary Corp., 50 F.R.D. 13 (E.D. Pa. 1970), aff'd sub nom Mangano v. American Radiator and Standard Sanitary Corp., 438 F.2d 1187 (3d Cir. 1971); United Egg Producers v. Bauer International Corp., 312 F. Supp. 319 (S.D.N.Y. 1970); Balmac, Inc. v. American Metal Products Corp., TRADE CASES P 74,235 (N.D. Cal. 1972); Travis v. Fairmount Foods, 346 F. Supp. 679 (E.D. Pa. 1972); see also In re Antibiotic Antitrust Actions, 333 F. Supp. 310 (S.D.N.Y. 1971). In Donson Stores, supra, Judge Bauman stated that his holding denying standing to remote purchasers was a logical and necessary deduction from the Supreme Court's rejection of the "passing-on" defense in Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481 at 483, 20 L. Ed. 2d 1231, 88 S. Ct. 2224 (1968). In Hanover Shoe, where a "purchaser" *fn2" from defendant United sued to recover for price overcharges which allegedly resulted from United's monopolization, United sought to raise the defense that plaintiff Hanover, its immediate customer, had sustained no damage since it had "passed on" the overcharge to subsequent purchasers. The Supreme Court held that the trial court properly rejected this defense for two related reasons: (1) the Court foresaw a great increase in the complexity of antitrust litigation if the defense were allowed; and (2) the deterrent effect of private antitrust enforcement would be weakened since most defendants would raise this complicated defense as a delaying tactic if permitted to do so. *fn3" 392 U.S. at 493.

 In Donson Stores, supra, Judge Bauman reasoned that since the immediate purchaser is entitled to recover the entire overcharge under Hanover Shoe, whether or not the overcharge is passed on, to allow subsequent purchasers to sue the defendant would be to expose the defendant to multiple liability:

 
"Fairness dictates that if a price fixer overcharges his customer one dollar, his damage exposure should be limited to that dollar trebled. It therefore follows that if an initial purchaser may recover an illegal overcharge regardless of whether he passes it on to succeeding purchasers, they must be denied standing to sue in order to prevent the possibility of multiple liability." 58 F.R.D. at 484.

 In the present case, the complaint does not allege that plaintiffs purchased sliders directly from defendants. *fn4" It is alleged only that plaintiffs purchased completed zippers from integrated and semi-integrated zipper manufacturers and zipper assemblers, *fn5" who, it may be inferred, purchased sliders from the defendants. Defendants contend that under Donson Stores, only the integrated and semi-integrated manufacturers and assemblers -- not the plaintiffs -- have standing as immediate purchasers of sliders from defendants.

 I am convinced that the corollary drawn from Hanover Shoe in Donson Stores is unwarranted, and I decline to follow the reasoning of Donson Stores. As I read Hanover Shoe, the Supreme Court's primary reason for precluding defendants from raising the passing-on defense was that such a defense would unduly hinder private enforcement of the antitrust laws. It would disserve the policies stated by the Court to permit these defendants to use the Court's very prohibition of the use of the passing-on defense as a complete defense against an entire class of plaintiffs. In In re Master Key Antitrust Litigation, 1973-2 TRADE CASES P 71,680 at 94,978-79 (D. Conn. 1973), Judge Blumenfeld held that Hanover Shoe should not be construed to preclude suits by subsequent purchasers against alleged price fixers. Master Key is a sound analysis of Hanover Shoe, and I follow it here. Judge Blumenfeld said:

 
"Thus, defendants' invocation of Hanover, which rejected a proposed pass-on defense in order to ensure that those who violated the antitrust laws did not escape liability through a multiplication of legal complexity, strikes a discordant note. The attempt to transform a rejection of a defense because it unduly hampers antitrust enforcement into a reason for a complete refusal to entertain the claims of a certain class of plaintiffs seems an ingenious attempt to turn the decision and its underlying rationale on its head."

 The Supreme Court in Hanover Shoe clearly did not expect that its holding would be interpreted to preclude actions by subsequent purchasers. One of the Court's reasons for rejecting the passing-on defense was concern that the defense would be raised to bar suits by all subsequent purchasers except the consuming public:

 
"In addition, if buyers are subjected to the passing-on defense, those who buy from them would also have to meet the challenge that they passed on the higher price to their customers. These ultimate customers, in today's case the buyers of single pairs of shoes, would have only a tiny stake in a lawsuit and little interest in attempting a class action. In consequence, those who violate the antitrust laws by price fixing or monopolizing would retain the fruits of their illegality because no one was available who would bring suit against them. ...

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