UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
August 24, 1979
THE F. & M. SCHAEFER CORPORATION and THE F. & M. SCHAEFER BREWING COMPANY, Plaintiffs, against C. SCHMIDT & SONS, INC. and CITIBANK, N.A. as Successor Trustee, Defendants.
The opinion of the court was delivered by: BRODERICK
VINCENT L. BRODERICK, U.S.D.J.
The F. & M. Schaefer Corporation and the F. & M. Schaefer Brewing Company (collectively "Schaefer" or "plaintiff") filed a motion under Section 1l of the Clayton Act, 15 U.S.C. Section 26, preliminarily to enjoin C. Schmidt & Sons ("Schmidt" or "defendant") and Citibank N.A. from consummating a Note Purchase Agreement. The terms of the Agreement provided for the sale to Schmidt of notes which are convertible into shares of Schaefer; upon conversion the holder would possess approximately 30% of the outstanding shares of Schaefer. Schaefer argued that the action of Schmidt was in violation of the antitrust laws, specifically Sections 1 and 2 of the Sherman Act, 15 U.S.C. Sections 1 and 2, and Section 7 of the Clayton Act, 15 U.S.C. Section 18.
An evidentiary hearing was held before me. In a memorandum order of December 4, 1978, I granted Schaefer's motion and enjoined Schmidt, pending a final trial, from any activities which would confer on Schmidt any degree of control over Schaefer, including the consummation of the Note Purchase Agreement. The memorandum order also enjoined Schmidt from acquiring or attempting to acquire any common stock or other securities of Schaefer, from obtaining or soliciting proxies to vote stock of Schaefer, and from voting or otherwise exercising any indicia of control over any stock or other securities of Schaefer. The Court of Appeals affirmed (597 F.2d 814 (2d Cir. 1979)).Thereafter Schmidt assigned its rights under the Note Purchase to Stroh Brewery Company, which produces and markets beer in another part of the country and is not competitive with Schaefer.
This action is now before me on plaintiff's motion for costs and an attorney's fee pursuant to Section 16 of the Clayton Act, 15 U.S.C. § 26 ("Section 16").
Section 16 was amended by the addition of a provision with respect to costs and an attorney's fee after, and in response to, the decision of the Supreme Court in Alyeska Pipeline Service Co. v. Wilderness Society, 421 U.S. 240 (1975).
In Alyeska, the Supreme Court held that, with a few narrow exceptions, the federal courts have no power to award attorneys' fees in the absence of specific statutory authority.
Section 16 now provides in pertinent part:
In any action under this section in which the plaintiff substantially prevails, the court shall award the cost of the suit, including a reasonable attorney's fee, to such plaintiff.
The dispositive question is whether plaintiff has "substantially prevailed."
There is no indication in either the statute or the legislative history of the meaning of the phrase "substantially prevails."
Other statutes contain language similar to that contained in Section 16. Thus under the Freedom of Information Act, 5 U.S.C. Section 552a(g)(3)(B), "[the] court may assess... reasonable attorney fees... in any case... in which the complainant substantially prevailed." Under 42 U.S.C. Section 1988, in certain designated civil actions and proceedings "... the court, in its discretion, may allow the prevailing party... a reasonable attorney's fee as part of the costs."
Defendant argues that cases which have construed these other statutes are inapposite because the language of those statutes is permissive, while the language in Section 16 is mandatory -- if the court, in a Section 16 case, finds that the plaintiff substantially prevailed, the court has no discretion and must award an attorney's fee. I reject this argument. Whether the provision with respect to award of an attorney's fee is mandatory or permissive, the award or the possibility of an award, follows a determination that plaintiff substantially prevailed. The award, if there is one, responds to the determination that plaintiff substantially prevailed; it is not part of that determination.
Defendant urges that costs and an attorney's fee cannot be awarded to plaintiff because in the operative stages of the case no prevailing party was identified. Thus the preliminary injunction was issued predicated upon findings of possible irreparable harm and sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward Schaefer. See Caulfield v. The Board of Education of the City of New York, 583 F.2d 605, 610 (2d Cir. 1978).
Defendant pointedly notes that I did not find that there was a probability that Schaefer would succeed on the merits, and suggests that my failure to do so precludes a finding that Schaefer is the prevailing party.
I reject the suggestion. The time to determine who was the prevailing party is now, when the action has been concluded (in whatever fashion) and relief is sought which requires such a determination. The findings which were made on the motion for a preliminary injunction were made in the context of that motion; those findings are not the outer parameters of considerations, and findings which may be made, in the context of a motion for an award of an attorney's fee. The finding on the basis of litigable questions rather than probability of success was appropriate in the context of the case at that time and in my judgment would be appropriate in all instances where such a finding can be made, because the court should make only such findings as are necessary to a grant of preliminary relief. If Schmidt's argument were accepted, determination of a motion for preliminary relief would improperly be clouded with consideration of the prospect that there may be a future motion for an award of an attorney's fee; the court would sub silentio be deciding an issue which was not then before it.
The appropriate benchmarks in determining which party prevailed are a) the situation immediately prior to the commencement of suit, and b) the situation today, and the role, if any, played by the litigation in effecting any changes between the two.
Imediately prior to the commencement of the action Schmidt, a leading competitor of Schaefer in Schaefer's major beer distribution markets of Philadelphia and New York, was on the verge of consummating a Note Purchase Agreement which, when consummated, would place in its hands notes of Schaefer convertible into some 30 percent of Schaefer's common stock. Today there is no possibility that the Note Purchase Agreement will be consummated by Schmidt: Schmidt has, in fact, assigned all its rights under the Note Purchase Agreement to another entity which is not a competitor of Schaefer.
Schmidt was in the first instance prevented from consummating the Note Purchase Agreement by the bringing of this action, in the initial stages of which an application was successfully prosecuted for an order preliminarily enjoining execution of the Note Purchase Agreement. The hearing on the application lasted some 19 days, and it is to be doubted that a plenary trial, if had, would have added very much to the evidence before me as fact-finder. (See Rule 65(a)(2), Fed.R.Civ.P.).
When the Court of Appeals affirmed the order granting the preliminary injunction, Schmidt assigned its rights under the Note Purchase Agreement to a purchaser acceptable to Schaefer and non-competitive with Schaefer. Given the vigor with which Schmidt opposed Schaefer's preliminary injunction application it is clear to me that Schmidt withdrew from the lists because it considered my memorandum order granting the preliminary injunction and the Court of Appeals opinion affirming that order, and realistically assessed its chances of success in a plenary trial as extremely remote.
Thus the situation currently existing -- i.e., that Schmidt, a leading competitor, no longer is in a position to threaten to acquire a large block of Schaefer shares and through the acquisition to lessen competition in the beer industry -- resulted from Schaefer's prosecution of this action, and would not have resulted if Schaefer had not prosecuted this action.
I find, therefore, that Schaefer has "substantially prevailed" in this litigation, and is entitled to costs and an attorney's fee.
Plaintiff shall recover from defendant the cost of the suit, including a reasonable attorney's fee.
This action is referred to Magistrtate Harold J. Raby for the purpose of conducting a hearing on the issue of a reasonable attorney's fee and submitting to me a Report and Recommendation on an appropriate attorney's fee award.