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JACOBSON & CO. v. ARMSTRONG CORK CO.

May 10, 1977

Jacobson & Co., Inc.
v.
Armstrong Cork Co.



The opinion of the court was delivered by: WEINFELD

Opinion, Findings of Fact and Conclusions of Law

WEINFELD, D.J.: Jacobson & Company, Inc. ("Jacobson") brought this action under the antitrust laws seeking damages and an injunction compelling the defendant, Armstrong Cork Company ("Armstrong"), to reinstate it as an authorized distributor of Armstrong products in the New York-New Jersey area. Armstrong is the nation's leading producer of acoustical ceiling products, including ceiling tile and board. Jacobson is a large "interior" contractor, which specializes in the installation of "integrated ceiling systems." Such systems are composed of acoustical ceiling board, suspension materials, light fixtures, air distribution components and, occasionally, background noise generators designed to mask floor noises that are reflected off a ceiling. Jacobson was first appointed an authorized Armstrong distributor in March 1968. Essentially, plaintiff's claim is that Armstrong terminated it as a distributor on March 19, 1976 in furtherance of an effort to impose restrictions on the territories in which and customers to whom authorized distributors could resell Armstrong products. The termination is thus alleged to have violated section 1 of the Sherman Act, *fn1" which was held by the Supreme Court in Arnold, Schwinn & Co. v. United States *fn2" to render per se illegal any attempt by a manufacturer "to restrict and confine areas or persons with whom an article may be traded after the manufacturer has parted with dominion over it." *fn3"

On July 2, 1976, the Court issued a preliminary injunction requiring Armstrong during the pendency of this action to continue selling its products to Jacobson on the same terms and conditions, and with the same concomitant services, as such products are sold to Armstrong's authorized distributors. *fn4" Although the Court at that juncture of the litigation questioned whether Jacobson had shown a probability of success on the merits, it nonetheless concluded that preliminary relief was justified, *fn5" since Jacobson had raised "sufficiently serious questions going to the merits to make them a fair ground for litigation," and had demonstrated "a balance of hardships tipping a hearing, which neither side requested, then a hearing, which neither side requested, the decision to grant the injunction was made on the basis of affidavits submitted to the Court. *fn6" The Court then observed that the reasons underlying Jacobson's termination were in sharp dispute *fn7" and that the controverted issues deserved more deliberate inquiry than was possible at that time, when the parties had not had full discovery and when all the pertinent facts had not been fully developed. *fn8"

 As the case neared trial, on April 19, 1977, Jacobson moved to punish Armstrong for contempt of court for alleged violations of the preliminary injunction in connection with Jacobson's bids on construction projects in Columbia, South Carolina, and New Haven, Connecticut. After oral argument and a review of the submissions of the parties, the Court directed that a contempt hearing be consolidated with the trial of plaintiff's case, since it appeared that Jacobson would seek to introduce evidence relating to the alleged contempt both for the purpose of recovering damages under its complaint and to show Armstrong's motive and intent in terminating Jacobson as a distributor.

 At the start of trial, the Court ruled that Jacobson could not introduce evidence relating to the South Carolina and New Haven projects for the purpose of recovering damages because the events complained of occurred subsequent to the institution of suit *fn9" and because no motion to supplement the complaint had been made. *fn10" Plaintiff's counsel was then instructed that such evidence would be admitted solely for the purpose of showing Armstrong's alleged motive and intent in terminating Jacobson. *fn11" Upon the trial before the jury, evidence concerning the South Carolina project was received for the limited purpose stated above. *fn12"

 Although plaintiff in the pretrial order asserted claims for damages only based on Armstrong's alleged acts in connection with the projects in New Haven and South Carolina, no motion was made during trial to supplement the complaint to include those claims and, by plaintiff's own admission, no competent evidence of damages on any of its claims was introduced. Accordingly, at the conclusion of plaintiff's case, the Court granted Armstrong's motion for a directed verdict on the claim for damages. Because only equitable issues remained in the case, the jury was dismissed and the Court resumed the trial as the trier of fact with respect to plaintiff's claim for injunctive relief. *fn13" Upon the continued trial both parties were afforded an opportunity to submit additional evidence on the contempt claims.

 The consolidated trial and hearing generated a transcript of testimony totalling over 1,000 pages and extended over six trial days. Sharply contested issues of fact developed with respect to plaintiff's claim for injunctive relief and its contempt motion.

 Claim for Injunctive Relief

 Jacobson seeks to be reinstated as an authorized Armstrong distributor under section 16 of the Clayton Act, which authorizes a private party to sue for injunctive relief "against threatened loss or damage by a violation of the antitrust laws." *fn14" The gravamen of plaintiff's claim is that Armstrong has violated section 1 of the Sherman Act because its termination of Jacobson was an act in furtherance of an agreement, combination or conspiracy to impose restrictions on the territories within which Jacobson could resell Armstrong products and on the types of customers to which such products could be resold. *fn15" Specifically, Jacobson asserts that Armstrong attempted to restrain it both from selling Armstrong products in the Philadelphia, Pennsylvania area, where Armstrong had a longstanding relationship with a major distributor, and from bidding against local Armstrong contractors or distributors to secure contracts for installation of ceiling systems in government office buildings to be constructed in Atlanta, Georgia and Columbia, South Carolina. In addition, Jacobson contends that Armstrong was opposed to the operation of a "Supply Center" by Jacobson in the Philadelphia area, which wholesaled Armstrong products directly to independent contractors, institutional buyers and other customers who installed such products themselves. According to Jacobson, its active promotion of this type of marketing ran afoul of Armstrong's policy of having its own authorized contractors install its commercial, as opposed to residential, ceiling products.

 Jacobson did not assert at trial that these alleged attempts or inclinations to impose territorial and customer restraints on resales actually had an impact on its business or property; *fn16" rather, it offered evidence of them to show that Jacobson's sales and attempted sales of Armstrong products outside its assigned territory substantially contributed to defendant's decision to terminate Jacobson's dealership.

 As this Court noted in its decision of Jacobson's motion for preliminary relief, Armstrong's liability turns on an issue of fact. If Armstrong was involved in a conspiracy or combination *fn17" to protect various of its distributors against competition from Jacobson in their respective designated areas or to confine sales of Armstrong products to customers who use Armstrong contractors to install such products, and if these considerations contributed substantially *fn18" to the decision to terminate Jacobson, then plaintiff is entitled to judgment. If, as Armstrong contends, the decision to terminate was based solely on legitimate business reasons such as Jacobson's declining purchases and the prospect of a further decline, its concentration on large jobs and disregard for other substantial portions of the market, its excessive and unjustified complaints, and its deteriorating relationship with Armstrong, then Jacobson's claim must be dismissed. *fn19"

 Based upon the Court's own trial notes, which include contemporaneous appraisal of each trial witness, a word-by-word reading of the entire trial transcript, the demeanor of the trial witnesses and assessments of their credibility, and consideration of the trial exhibits, the Court concludes that the plaintiff has failed to carry its burden of proof with respect to the existence of any conspiracy, contract or combination in restraint of trade and with respect to whether Armstrong's decision to terminate was influenced by a purpose to restrict the territories in which, or customers to which, its products could be sold.

 In asserting that its termination was influenced by improper motives, Jacobson relies principally on alleged incidents relating to its Philadelphia area sales and its bids on federal construction projects in Atlanta and South Carolina. This reliance must fail. With respect to significant conflicts in the evidence concerning these matters, the Court accepts the testimony of defendant's witnesses. Armstrong neither imposed nor sought to impose any restraint upon plaintiff's Philadelphia sales; indeed, plaintiff has been freely selling Armstrong products in sizable quantities in the Philadelphia area since 1970, when it first began stocking such products in its nearby Elizabeth, New Jersey warehouse. Although Jacobson was not given access to Armstrong's Mid-Atlantic Sales Office since it was not an authorized distributor in that area, special pricing information for large jobs and other services provided by that office were made available to Jacobson through Armstrong's Northeastern Regional Office in Saddlebrook, New Jersey. The Saddlebrook office was the assigned office for the area in which Jacobson was designated as a distributor. The fact that Jacobson had to contact the office in its own authorized region for these services was not burdensome to it and did not constitute nor was it intended to constitute a restraint on its Philadelphia area sales.

 Jacobson's contention that Armstrong was opposed to its wholesaling activities, which were carried on at its Supply Center in Elizabeth, New Jersey, is wholly without merit. The evidence establishes that a substantial number of Armstrong contractors and distributors make wholesale sales of Armstrong products to customers who install such products themselves. At least one large Armstrong contractor in the New York area, in addition to Jacobson, freely and actively promotes such sales through advertising and other means. Armstrong has not discouraged or interfered with this method of marketing, and, indeed, has on occasion promoted the wholesaling activities of its contractors and distributors. Armstrong did, on one occasion, voice some objection to a flyer mailed by Jacobson to Philadelphia area contractors, which advertised a wholesale sale of Armstrong products. The complaint, however, was not based on the fact that Jacobson was selling at wholesale. Rather, it was directed at Jacobson's public ...


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