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April 12, 1977

Brager & Co., Inc., Plaintiff
Leumi Securities Corp., Bank Leumi le-Israel, B.M., and Bank Leumi Trust Co. of New York, Defendants

Weinfeld, D.J.

The opinion of the court was delivered by: WEINFELD


Defendants Leumi Securities Corporation ("Leumi Securities"), Bank Leumi Le-Israel, B.M. ("Leumi Israel") and Bank Leumi Trust Company of New York ("Leumi New York") move to dismiss the complaint against them in this antitrust action on the ground that it fails to state a claim upon which relief can be granted.

 Plaintiff, Brager & Company, Inc. ("Brager"), is a registered broker-dealer whose business consists primarily of the trading of bonds issued by the State of Israel. Plaintiff alleges that since 1952 it bought and sold such bonds before their maturity, thereby creating a secondary market, in which it was the "most significant dealer" until the sequence of events outlined in the amended complaint.

 Defendant Leumi Israel is a large Israeli bank which, according to plaintiff, is highly diversified, ranks as one of the 100 largest banks in the world, and maintains close ties with the State of Israel. Leumi Israel is alleged to be the parent corporation and controlling shareholder of both Leumi New York, a domestic banking corporation, and Leumi Securities, a New York State corporation registered as a broker-dealer, which also specializes in the trading of Israeli bonds.

 Plaintiff asserts that Leumi Securities, since it began trading Israeli bonds in 1967, has captured over sixty per cent of the market and has become the price leader for such bonds. Plaintiff, whose market share has been reduced to approximately forty per cent, *fn1" attributes Leumi Securities' success to its affiliation "and special relationship with Leumi Israel and Leumi New York." This relationship is alleged to provide Leumi Securities with financial advantages such as unsecured loans at low interest rates, guarantees and ready access to potential purchasers and sellers of Israeli bonds. Leumi Israel and Leumi New York are alleged to have close ties with a limited class of persons who, because of their special interest in Israel, invest in Israeli bonds, even though they have lower yields than similar securities; through these contacts Leumi Israel and Leumi New York are alleged to provide Leumi Securities with a ready market for the sale and purchase of Israeli bonds.

 The amended complaint charges that the defendants have violated Sections 1 and 2 of the Sherman Act *fn2" by conspiring, acting and attempting to monopolize the trading market in Israeli bonds. The violations asserted rest, in part, on allegations that the defendants have improperly utilized their relationship to each other and their relationship with investors in Israeli bonds to eliminate plaintiff as a competitor or to minimize its business. The complaint also alleges that the defendants have violated Section 7 of the Clayton Act *fn3" by making corporate acquisitions that tended substantially to lessen competition in the market for Israeli bonds.

 Plaintiff alleges that it and Leumi Securities are now the only two significant Israeli bond dealers. Its basic charge, however worded and whatever the legal theory it advances, is that but for Leumi Securities' entry into the secondary market under the sponsorship of its parent, Leumi Israel, plaintiff would continue to command a major portion of the market. In essence, plaintiff asserts that Leumi Israel, the deep-pocket parent, through the facilities of Leumi New York, has enabled Leumi Securities to engage in anticompetitive activities with the result that it has displaced plaintiff from its former position of leadership, foreclosed new firms from entering the business and prevented existing firms from expanding their share of the market.

 The defendants, outraged by plaintiff's charges that they engaged in a conspiracy among themselves and with other alleged conspirators, urge that the charges are without factual foundation. However, on a motion to dismiss for failure to state a claim, the allegations of the complaint are assumed to be true, and the complaint must be upheld unless "it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." *fn4"

 Alleged Violations of Section 1 of the Sherman Act

 Count I of the amended complaint charges that the defendants have violated Section 1 of the Sherman Act by engaging in a continuing combination and conspiracy in unreasonable restraint of commerce within the secondary market for Israeli bonds. The defendants allegedly carried out the conspiracy by threatening and intimidating Brager into abandoning its activities in the Israeli bond market; by maintaining unreasonably high, anticompetitive prices in that market; by using the defendants' allegedly unique relationship with customers having a special interest in Israel to influence such customers to sell and purchase Israeli bonds solely through Leumi Securities; and by using the defendants' other resources to preclude actual and potential customers in the Israeli bond market from transacting business with broker-dealers other than Leumi Securities.

 The defendants argue that they are legally incapable of conspiring in violation of Section 1 because Leumi New York and Leumi Securities are subsidiaries of Leumi Israel and because no defendant competes with any other defendant. In the alternative, they assert that the complaint fails to state a claim because the alleged conspiracy and the various acts complained of are "inherent in the normal relationship existing between affiliated companies."

 The mere fact of corporate affiliation does not suffice to render dealings between subsidiaries or between a subsidiary and its parent illegal under Section 1; nor, however, does the fact of affiliation or mutual ownership insulate corporations from liability for conspiracies in restraint of commerce. *fn5" The fact that the complaint alleges the defendants to be related entities is not by itself of special significance; rather, whether such entities are in fact mere instrumentalities of a single commercial unit, incapable of conspiring or combining with their parent, or separate units, capable of violating Section 1, will turn upon the independence of action enjoyed by the companies, the extent to which they are mutually owned and controlled, the degree, if any, to which they compete with one another or are held out to do so, and whether any of them were specifically incorporated or controlled to effect anticompetitive purposes. *fn6" The determination of these factual matters cannot be made upon a motion to dismiss but must await a hearing on the merits.

 Similarly, the defendants' contention that the complaint alleges only actions inherent in the normal relations between affiliates, and not actions constituting an illegal conspiracy, must be rejected at this stage of the litigation. Given that the defendant would, in the requisite factual circumstances, be legally capable of conspiring in violation of Section 1, the complaint adequately alleges both a conspiracy and an object or result that, if accomplished even by otherwise lawful means, could amount to an unreasonable restraint of trade. The defendants' contrary assertion that "normal" corporate interaction cannot constitute unreasonable restraint merely raises another issue of fact, for it remains to be seen whether the alleged agreements were "normal" interaction, whether they were reached with the purpose of restraining trade, and whether the objects of the alleged conspiracy and the means of effecting them constituted unreasonable restraints under the ...

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