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Schwimmer v. Sony Corp.

UNITED STATES COURT OF APPEALS, SECOND CIRCUIT


decided: July 10, 1980.

MENDEL SCHWIMMER D/B/A SUPERSONIC ELECTRONICS CO., PLAINTIFF-APPELLANT,
v.
SONY CORPORATION OF AMERICA AND SONY CORPORATION, DEFENDANTS-APPELLEES

Appeal from two judgments of the District Court for the Eastern District of New York (Eugene H. Nickerson, Judge), (1) granting summary judgment to appellee Sony Corporation dismissing the amended complaint against it for lack of standing under § 4 of the Clayton Act, 15 U.S.C. § 15, and (2) granting summary judgment to appellee Sony Corporation of America on its counterclaim against appellant to recover fraudulently obtained advertising credits in the amount of $54,133.50. Affirmed.

Before Feinberg, Chief Judge, Smith,*fn* Circuit Judge, and Owen, District Judge.*fn**

Author: Owen

Mendel Schwimmer, the sole proprietor of plaintiff-appellant Supersonic Electronics Company (Supersonic), a seller of televisions and other electronic appliances, appeals from two orders of the United States District Court for the Eastern District of New York, one granting summary judgment to defendant-appellee Sony Corporation of America (Sonam) on its counter-claim against Supersonic to recover monies paid on the basis of false advertising claims, and the other granting summary judgment to defendant-appellee Sony Corporation (Sony), the Japanese parent of Sonam, dismissing Supersonic's price discrimination claims against it.*fn1

Sony is a major Japanese manufacturer of consumer electronic products which are sold in the United States exclusively through Sony's wholly-owned subsidiary, Sonam.*fn2 Supersonic, located in Brooklyn, New York, was an authorized Sony dealer from December 1975 until April 1977. During that period, with a few exceptions, Supersonic purchased all of its Sony-brand products from Sonam. In its first year as a Sony dealer, Supersonic sold over $3,000,000 worth of Sony-brand products, and its sales, made throughout the United States, continued to increase in the following years.

Supersonic attributed its success with Sony-brand products to its marketing practices. First, it sold primarily to other Sony dealers, at prices below those offered by Sonam and its distributors. This practice, known as transshipping, enabled Supersonic to make high volume sales at a low profit margin. Second, appellant did not restrict its sales to the Sonam Eastern Region which is comprised of New York, New Jersey, and other East Coast States.*fn3

In 1977, Sonam terminated its dealer agreement with Supersonic. Shortly thereafter, appellant brought this action under the federal antitrust laws contending, inter alia, that the termination resulted from Sonam's opposition to Supersonic's transshipping and geographically unrestricted resale practices. The complaint alleged that Sonam had conspired with certain of its dealers and distributors to employ anticompetitive devices restricting Supersonic's legitimate marketing practices in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, and Section 2(a), (d) and (e) of the Robinson-Patman Act, 15 U.S.C. §§ 13(a), (d) and (e). Supersonic's claims against Sonam are not the subject of this appeal.

In 1977, Supersonic filed an amended complaint in which it first asserted certain independent antitrust claims directly against Sony, the parent corporation. The amended complaint alleges inter alia, that Sony violated the price discrimination provisions of the Robinson-Patman Act, 15 U.S.C. § 13(a), by selling certain products to one dealer, Interocean Industries, Inc. (Interocean), at prices below those charged to Sonam.*fn4

Sonam's answer to the complaint denied all the material allegations, and interposed a counterclaim in the amount of $54,133.50. The counterclaim sought repayment of certain monies allegedly wrongfully obtained by Supersonic through the submission of falsified advertising claims to Sonam.

The District Court, in successive orders, dismissed the amended complaint as to Sony, and granted Sonam's motion for summary judgment on its counterclaim.*fn5 This appeal followed.

I. Sonam's Counterclaim Against Supersonic.

The undisputed facts in support of Sonam's motion for summary judgment on its counterclaim are as follows. Sonam conducted a cooperative advertising program with its dealers in order to promote the advertisement of Sony-brand products, and each year Sonam distributed a manual containing the terms and conditions of the program. The 1976 Manual, which Supersonic received,*fn6 provided that dealers would receive credit for advertising costs in amounts up to 4% of the dealers' net annual purchases of Sony-brand merchandise. Refunds for an individual advertisement were not to exceed 75% of the actual cost to the dealer of running these advertisements.

The procedure for obtaining the advertising credits was fully set forth in the 1976 Manual. Dealers were required to submit a signed proof of claim representing their actual expenditures for advertising Sony-brand products. The proof of claim was to contain a full description of the nature and cost of the advertisements which were run, along with all of the invoices for the advertising services. In connection with proof of claims for radio advertisements, a dealer was required to submit the scripts of the advertisements, as well as an affidavit from the radio station confirming the fact that the advertisements had been run on the dates and times indicated on the proof of claim form.

Supersonic participated in Sonam's cooperative advertising program to the extent that it submitted the appropriate forms purporting to be accurate accounts of its advertising expenses, and received credits according to the terms of the 1976 Manual. In or about April 1977, Sonam discovered that an advertising agency known as Computer Cast had submitted, on Supersonic's behalf, four falsified proof of claims for radio advertisements. The advertisements described on the forms had never been run, and Supersonic had not incurred any of the expenses claimed. On the basis of these fraudulent proofs of claim, Supersonic had received credits from Sonam in the amount of $54,133.50, or 65% of the expenses it claimed to have paid.

Through its own investigation, Sonam also learned that Supersonic was one of nine authorized Sonam dealers in the New York metropolitan area which had submitted false claims through Computer Cast and had received credits for non-existent advertisements. Sonam suspended all of these dealers temporarily, and requested that they assist Sonam in an investigation of the circumstances under which the falsified claims had been prepared and submitted. In addition, the dealers were asked to return to Sonam the money that had been credited to their accounts in satisfaction of the false claims. Seven of the dealers complied with these requests and resumed normal business activities with Sonam. One other dealer initially agreed to repay the monies owed but then withheld payment and was subsequently terminated. Supersonic refused from the outset to cooperate with Sonam. It neither assisted in the investigation nor refunded the money credited to its account on the basis of the false claims. Supersonic was thereafter terminated, whereupon it commenced this action.

Supersonic does not dispute the fact that it submitted claims for advertising expenses that, in fact, were never incurred.*fn7 Its defense to Sonam's counterclaim is that there was an agreement between Sonam and its dealers, including Supersonic, to treat the cooperative advertising program as a sham in order to provide the dealers with an automatic 4% discount on purchases of Sony-brand products. Supersonic maintains that Sonam understood that the forms submitted in accordance with the terms and conditions of the 1976 Manual would not reflect actual advertising expenditures. The Manual procedures were utilized, Supersonic contends, to avoid liability for providing hidden discounts to authorized Sonam dealers in violation of federal anti-dumping statutes and the Robinson-Patman Act.

Supersonic's appeal from the District Court's order granting summary judgment is based on its contention that there is an issue of fact as to the terms of the agreement between the parties. See Union Insurance Society of Canton Ltd. v. William Gluckin & Co., Inc., 353 F.2d 946, 952 (2d Cir. 1965). The court below found no evidence in the record to contradict appellee's version of the parties' agreement as set forth in the 1976 Manual. Supersonic disputes this finding. First, it argues that certain affidavits and deposition testimony establish that prior to 1977 Sonam never conscientiously enforced the advertising program. Appellant refers specifically to the affidavit of a former Sonam employee, Joseph Sadowy, who was in charge of Sonam's Eastern Region for several years up to April 1977. Sadowy's affidavit states that in the period before 1976, "the rebate was available to any dealer as long as the completed form was submitted to Sonam." It appears that a new program was instituted in March 1976 requiring verification of such advertising claims. In this connection, Supersonic tenders Sadowy's conclusory observation in his affidavit that "(i)n reality, nothing changed."*fn8 Supersonic also points to the deposition of Murray Gidseg, the executive director of a major Sonam customer, in which he testified that prior to the institution of the verification requirements in March 1976, advertising rebates were obtained by submitting "fluffies," i. e., unsubstantiated claims for reimbursement. Also, Supersonic relies on the affidavit of Mendel Schwimmer which was submitted in opposition to Sonam's summary judgment motion. Schwimmer's affidavit, hearsay in all material respects,*fn9 states that on the basis of information obtained from other Sonam dealers and the Sonam salesmen servicing his account, he understood from the inception of his franchise that the forms required to be submitted for reimbursement of advertising expenses "never were expected to reflect the true amounts expended."

Standing alone, the testimony of Sadowy and Gidseg as to Sonam's ineffective policing of the advertising program does not amount to evidence of an agreement between Supersonic and Sonam to treat the terms of the 1976 Manual as a nullity or sham. It may be that Sonam did not regularly check or confirm the accuracy of the proof of claim forms submitted by dealers. This does not support a claim of an agreement between Sonam and its dealers to engage in a fraudulent scheme to provide an automatic 4% discount on the basis of falsified advertising claims. While it is true that Schwimmer's hearsay affidavit would, if competent and credited, be some evidence of such an agreement, we also note that it directly contradicts his earlier deposition testimony:

Q. You thought it (the advertising) ran?

A. I thought the advertising was run.

Q. And you don't know whether your advertising, in fact, ran on WJIT?

A. I assume it was run.

Q. You assumed it was?

A. It was run.

Q. You assumed is what you said.

A. I never heard it myself.

Q. So you don't know.

A. For a fact, up until April since Sony*fn10 approved it and he was with Sony I know it was run.

Q. You thought it was run?

A. It was run, yes.

A. Up until April "77, I knew it was run.

Q. How did you know it was run up to April 1977?

A. Because Norman King (the agent) told me and Sony gave me an approval.

Q. So you assumed it was running?

A. Yes.

A. I assumed once I got advertising credit I assumed it actually ran.

We also observe that Mr. Schwimmer in his earlier deposition testimony believed the advertisements were run not only on the basis of what the advertising agent told him, but also because he assumed Sonam would not otherwise have issued the credit. From this testimony, one would necessarily conclude that, in Schwimmer's mind, neither Supersonic nor Sonam had any intention of disregarding the terms of the 1976 Manual. Since the District Court could properly rely on Schwimmer's earlier deposition testimony, as opposed to his later conflicting hearsay affidavit, Perma Research and Development Co. v. Singer Co., 410 F.2d 572, 577 (2d Cir. 1969), it correctly concluded that there was no genuine issue of fact barring Sonam from recovering the $54,133.50 credited to Supersonic on the basis of fraudulent submissions.

II. Supersonic's Robinson-Patman Act Claim Against Sony.

Supersonic also appeals from the dismissal of its claim that Sony violated § 2(a) of the Robinson-Patman Act. One issue alone is presented: whether Supersonic has standing under § 4 of the Clayton Act to assert this claim.

The District Court concluded that Supersonic lacked standing to assert a claim against Sony because Supersonic was not within the "target area" of Sony's alleged price discrimination between Sonam and Interocean. In granting Sony's motion for summary judgment, the court below found no evidence (1) that Supersonic was a direct purchaser of Sony, or (2) that Sony's alleged price discrimination between Sonam and Interocean was directed at Supersonic, or (3) that Sony controlled subsequent resale prices by Sonam or others purchasing from Sony.*fn11

Appellant first contends that, as a non-direct purchaser, it has standing to sue Sony because it was within the "target area" of the alleged price discrimination. See Calderone Enterprises Corp. v. United Artists Theatre Circuit, Inc., 454 F.2d 1292 (2d Cir. 1971), cert. denied, 406 U.S. 930, 92 S. Ct. 1776, 32 L. Ed. 2d 132 (1972). Further, appellant takes the position that secondary purchasers have automatic standing to sue any discriminating seller who distributes its products to the secondary market through wholly-owned subsidiaries.*fn12 We disagree.

Section 2(a) of the Robinson-Patman Act prohibits price discrimination between competing purchasers. That section provides, in pertinent part, that

It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce . . . and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them . . . .

15 U.S.C. § 13(a). Standing to raise a claim under Section 2(a) is derived from Section 4 of the Clayton Act, 15 U.S.C. § 15, which provides that "(a)ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor" and recover treble damages and costs and a reasonable attorneys' fee. The language of Section 4 of the Clayton Act is quite broad and could be read to confer standing to assert claims under § 2(a) of the Robinson-Patman Act on purchasers who are only indirectly or incidentally injured by a seller's price discrimination between direct purchasers. However, courts have recognized the need to limit the scope of Section 4 by establishing "practical rules of standing . . . (to) exclude remote parties with possibly speculative injuries." Long Island Lighting Co. v. Standard Oil Co. of California, 521 F.2d 1269, 1273 (2d Cir. 1975), cert. denied, 423 U.S. 1073, 96 S. Ct. 855, 47 L. Ed. 2d 83 (1976); see also, Calderone Enterprises Corp. v. United Artists Theatre Circuit, Inc., 454 F.2d 1292, 1295 (2d Cir. 1971), cert. denied, 406 U.S. 930, 92 S. Ct. 1776, 32 L. Ed. 2d 132 (1972). Thus, it is recognized that treble damage actions, effective and attractive as they are in deterring violations of the federal antitrust laws, must have some boundaries. Consequently, the standing requirement is designed, in essence, to limit access to treble recovery to a target of the anticompetitive conduct. Thus, the standing rules exclude a non-target whose damages are more difficult to prove and, in all likelihood, highly speculative. Where, as here, the substantive law provides few "bright lines" separating permissible from impermissible conduct, it is especially important to have clear standing rules in order to avoid abuses of the Clayton Act's private enforcement remedy.

Calderone Enterprises Corp. v. United Artists Theatre Circuit, Inc. enunciates the following rule:

Id. at 1295 (emphasis added).*fn13 Courts have examined whether the plaintiff suffered a "direct" injury as opposed to an "incidental," "indirect" or "remote" injury. See, e. g., Productive Inventions, Inc. v. Trico Products Corp., 224 F.2d 678, 680 (2d Cir. 1955), cert. denied, 350 U.S. 936, 76 S. Ct. 301, 100 L. Ed. 818 (1956); Long Island Lighting Co. v. Standard Oil Co., supra, at 1274.*fn14 While courts frequently focus on the purpose of the antitrust conspiracy, specifically whether it was "aimed at" the one claiming injury, we do not conclude that a requirement of specific intent should be read into the "target area" test.*fn15 As the Ninth Circuit stated in Twentieth Century Fox Film Corp. v. Goldwyn, 328 F.2d 190, 220 (9th Cir.), cert. denied, 379 U.S. 880, 85 S. Ct. 143, 13 L. Ed. 2d 87 (1964):

(I)n using the words "aimed at" this court did not mean to imply that it must have been a purpose of the conspirators to injure the particular individual claiming damages. Rather, it was intended to express the view that the plaintiff must show that, whether or not then known to the conspirators, plaintiff's affected operation was actually in the area which it could reasonably be foreseen would be affected by the conspiracy. This is made clear by our quotation, in Karseal, of this excerpt from the opinion in Conference of Studio Unions v. Loew's Inc., 9 Cir., 193 F.2d 51, 54-55:

"A conspiracy may have many purposes and objects; the conspirators may perform an almost infinite variety of acts in furtherance of the conspiracy; but, in order to state a cause of action under the anti-trust laws a plaintiff must show more than that one purpose of the conspiracy was a restraint of trade and that an act has been committed which harms him. He must show that he is within that area of the economy which is endangered by a breakdown of competitive conditions in a particular industry. Otherwise he is not injured "by reason' of anything forbidden in the anti-trust laws."

Further, the "aimed at" language of the "target area" test has also been discussed in terms of causation. Contreras v. Grower Shipper Assn. of Central California, 1971 Trade Cas. P 73,592 (N.D.Cal.1971), aff'd per curiam, 484 F.2d 1346 (9th Cir. 1973), cert. denied, 415 U.S. 932, 94 S. Ct. 1445, 39 L. Ed. 2d 490 (1974); see also Twentieth Century Fox Film Corp. v. Goldwyn, 328 F.2d 190, 220 (9th Cir.), cert. denied, 379 U.S. 880, 85 S. Ct. 143, 13 L. Ed. 2d 87 (1964), discussing, Karseal Corp. v. Richfield Oil Corp., 221 F.2d 358, 362 (9th Cir. 1955). In Contreras, farm workers engaged in growing, harvesting and processing lettuce alleged that certain growers and shippers of iceberg lettuce and their trade association violated §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2 by conspiring to raise the price of iceberg lettuce by limiting its production and dividing the market, thereby reducing the amount of work available to the plaintiffs. The plaintiffs sought damages for lost job opportunities caused by the defendants' cutbacks in lettuce production. The court, in denying the plaintiffs standing to sue, properly observed that the standing requirement of § 4 of the Clayton Act excludes suits by persons whose injury "was not necessary to achieve the purposes of the conspiracy, even though it may have followed as a logical result of the other acts (in furtherance of the conspiracy)." Id. at 90,453.

From the foregoing analysis, we turn to the issue before us: at what point in a distribution chain does the injury from price discrimination become too remote to permit an indirect purchaser to sue under § 4 of the Clayton Act? Clearly, the first level purchaser has standing to sue by virtue of the "direct" injury inflicted upon it. See, e. g., Klein v. Lionel Corp., 237 F.2d 13 (3d Cir. 1956); see also, Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 488-90, 88 S. Ct. 2224, 2228-2229, 20 L. Ed. 2d 1231 (1968). However, the impact of price discrimination on an indirect purchaser at a subsequent level is more difficult to assess. Courts are not permitted to assume that the original seller's overcharge is automatically passed on to successive customers. See Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S. Ct. 2061, 52 L. Ed. 2d 707 (1977).*fn16 Nevertheless, a court must guard against a situation in which a seller interposes a middleman as a shield against antitrust liability,*fn17 especially where the middleman is a subsidiary of the seller.*fn18 Thus, an indirect purchaser is considered a "target" of a seller's price discrimination if there is evidence that the discrimination was "aimed at" the indirect purchaser by virtue of the nature and foreseeable effect of the antitrust conspiracy. Relevant factors to consider in this connection are the anticompetitive purpose or object of the seller's price discrimination, see, e. g., FLM Collision Parts, Inc. v. Ford Motor Co., 406 F. Supp. 224 (S.D.N.Y.1975), aff'd in part on other grounds, rev'd in part on other grounds, 543 F.2d 1019 (2d Cir. 1976), cert. denied, 429 U.S. 1097, 97 S. Ct. 1116, 51 L. Ed. 2d 545 (1977), and the seller's control over the resale price to the indirect purchaser. See American News Co. v. FTC, 300 F.2d 104 (2d Cir.), cert. denied, 371 U.S. 824, 83 S. Ct. 44, 9 L. Ed. 2d 64 (1962).

We conclude that the District Court was correct in its determination that Supersonic has no standing to pursue this action against Sony since the uncontradicted record amply supports its conclusion that Supersonic was not in the "target area" of Sony's alleged price discrimination.

Appellant argues, in the alternative, that Supersonic should be considered a direct purchaser from Sony under the single-entity doctrine. See F. Rowe, Price Discrimination Under the Robinson-Patman Act, 53-57 (1962), and Supp. nn.35-42 (1964). Supersonic contends that the court below failed to consider the issue of whether Sony and its wholly-owned subsidiary, Sonam, constitute a single sales entity for purposes of the Robinson-Patman Act. Compare, Baim & Blank, Inc. v. Philco Corp., 148 F. Supp. 541 (E.D.N.Y.1957), with Reines Distributors, Inc. v. Admiral Corp., 256 F. Supp. 581 (S.D.N.Y.1966). Supersonic, however, did not raise this issue in its pleadings or motion papers, and therefore is precluded from raising it for the first time on appeal. Grace Towers Tenants Ass'n v. Grace Housing Development Fund Co., 538 F.2d 491, 495 (2d Cir. 1976); Capps v. Humble Oil & Refining Co., 536 F.2d 80, 82 (5th Cir. 1976); National Equipment Rental, Ltd. v. Stanley, 283 F.2d 600, 603 (2d Cir. 1960); Parenzan v. Iino Kauin Kabushiki Kaisya, 251 F.2d 928, 930 (2d Cir.), cert. denied sub nom., International Terminal Operating Co. v. Iino Kauin Kaisha, Ltd., 356 U.S. 939, 78 S. Ct. 781, 2 L. Ed. 2d 814 (1958). Further, we note that the single-entity theory was not raised implicitly by any evidence adduced by Supersonic. As noted above, the record contains no proof that Sony controlled the resale prices of Sonam, or exercised dominion and control over its subsidiary. Absent such evidence, there was nothing for the District Court to consider. See Reins Distributors, Inc. v. Admiral Corp., supra, at 585-86.

The orders appealed from are affirmed.


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