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Schwimmer v. Sony Corp.

decided: July 10, 1980.


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 ...

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