UNITED STATES DISTRICT COURT, EASTERN DISTRICT OF NEW YORK.
April 28, 1982
Associates Capital Services Corp. of New Jersey
Fairway Private Cars, Inc.; Fairway Private Cars, Inc. v. Motorola Communications & Electronics, Inc., Motorola Inc., Associates Capital Services Corp. of New Jersey
The opinion of the court was delivered by: PLATT
Memorandum and Order
PLATT, D.J. [In full text except for omissions as indicated by asterisks]: This is a motion by the defendants in the second of the above-captioned actions, Motorola Inc. (Motorola) and Motorola Communications & Electronics, Inc. (MCEI), to dismiss three counts of the four count complaint, and by defendant Associates Capital Services Corp. (Associates) to dismiss all four counts of the complaint on a variety of grounds.
Despite the seemingly multifaceted nature of this case, both of the complaints in these consolidated actions arise essentially from a relatively simple set of facts. Fairway Private Cars, Inc. (Fairway), the defendant in the first action and plaintiff in the second action, entered into a conditional sales contract with MCEI and Motorola in June, 1979 for the purchase of two-way mobile radios and related equipment. In June, 1980 a lease for additional equipment was signed by the same parties. Both the contract and the lease were subsequently assigned to Associates in December, 1979 and September, 1980, respectively.
In August, 1981, Fairway failed to make payments allegedly due under the terms of the contracts to Associates. Associates accelerated the balance due under both contracts and sought $259,947.20 from Fairway.
During the time that Fairway had possession of the radios and equipment, it had complained to Motorla and MCEI of defects which said defendants had unsuccessfully tried to correct. At some unspecified time, Fairway complaining of breach of warranties offered to return the merchandise and sought repayment of the $96,371.90 it had previously paid to the defendants.
Associates brought its action for breach of contract on December 8, 1981. On December 11, 1981, Fairway brought its action against Motorola, MCEI and Associates alleging in count 1, breach of warranty; in count 2, use of deceptive acts and practices in violation of section 349 of the New York General Business Law; in count 3, restraint of Fairway's right to freely engage in business in violation of the New York State antitrust law, section 340 of the New York General Business Law (Donnelly Act); and in count 4, breach of the duty of fair dealing and good faith.
By order of this Court dated March 16, 1982, the two actions were consolidated.
Associates, Motorola and MCEI now move, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss the deceptive trade practice and Donnelly Act counts of the complaint for failure to state claims upon which relief can be granted. Associates makes the same motion solely on its own behalf as to the bad faith dealing count. Motorola and MCEI also move to dismiss the bad faith dealing count on the basis of Fairway's alleged failure to provide a short, plain statement pursuant to Rule 8(a) of the Federal Rules of Civil Procedure. Finally, Associates seeks a dismissal of the breach of warranty count, and argues that Fairway be required to reassert this claim in its answer to Associates' action for breach of contract against Fairway as an offset only.
I -- Donnelly Act Claim
Fairway's complaint alleges that the defendants conspired in violation of New York State's antitrust law, the Donnelly Act,
restrain and inhibit plaintiff from purchasing suitable radio equipment and financing for same from their sources and to coerce and compel plaintiff to continue to do business with defendants and to continue to make payments to defendant Associates even though said defendants knew or had reeason to know that the [radio] system acquired by plaintiff was inoperable, and, despite repeated efforts by defendant MCEI, would not be made operable or suitable for plaintiff's purposes.
Fairway sets forth four specific acts committed by the defendants in furtherance of their alleged conspiracy:
1. MCEI and Motorola stated that they would not further service or repair the inoperable radio system until Fairway paid to Associates the full amount of $259,947.20.
2. MCEI and Motorola wrongfully refused to provide repair service despite the existence of a maintenance service contract purchased by Fairway.
3. MCEI threatened removal of an antennae from Motorola's Burlington site without which Fairway could not operate its business.
4. Associates, knowing of the breaches by Motorola and MCEI declared the full $259,947.20 due payable.
Fairway states that the purpose of defendants' "conspiratorial" acts was to prevent it from purchasing radio equipment elsewhere, and conclude that this conspiracy necessarily "had a serious and substantial anticompetitive effect and constitutes an unlawful restraint of trade." Complaint P29.
The thrust of defendants' argument is aimed at whether Fairway has properly asserted a claim under the Donnelly Act. They seek dismissal of this court of the complaint on the ground that if an antitrust action lies here at all, it must be asserted under the Sherman Act, 15 U.S.C.A. § 1. Because we do not read this complaint as sufficiently stating a claim upon which relief could be granted under either the Donnelly Act or the Sherman Act, we do not find it necessary to decide whether this claim should be asserted under Sherman or Donnelly or whether it could be asserted under both of these Acts.
We do note that the Donnelly Act may well forbid conduct that would not violate the Sherman Act. State v. Mobil Oil corp. [1976-1 TRADE CASES P60,809], 38 N.Y. 2d 460, 461, 381 N.Y.S.2d 426, 344 N.E.2d 357 (1976). Nonetheless, the Donnelly Act is patterned after the Sherman Act and governed by is standards. See id. at 463; Optivision, Inc. v. Syracuse Shopping Ctr. Assoc. [1979-2 TRADE CASES P62,874], 472 F. Supp. 665, 680-81 (S.D.N.Y. 1979); Hsing Chow v. Union Central Life Ins. Co. [1978-2 TRADE CASES P62,300], 457 F. Supp. 1303, 1308 (E.D.N.Y. 1978). These statutes are designed to protect competition and redress the anticompetitive effects of a variety of unlawful business practices. They are not general prohibitions of all types of activity which may result in economic harm to any individual business. See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc. [1977-1 TRADE CASES P61,255], 429 U.S. 477, 489, 97 S. Ct. 690, 697, 50 L. Ed. 2d 701 ; Brown Shoe Cov. v. United States [1962 TRADE CASES P70,366], 370 U.S. 294, 320, 82 S. Ct. 1502, 1521, 8 L. Ed. 2d 510 (1962): Havoco of Amer., Ltd. v. Shell Oil Co. [1980-2 TRADE CASES P63,425], 626 F.2d 549, 554 (7th Cir. 1980); Matter of Aimcee Wholesale Corp. [1968 TRADE CASES P72,428], 21 N.Y.2d 621, 625-26 (1968); Schlottman Agency Inc. v. Aetna Casualty & Surety Co. [1980-1 TRADE CASES P63,076], 70 A.D.2d 1041, 417 N.Y.S.2d 561 (4th Dep't 1979).
Absent an allegation of acts that would constitute a per se violation of the Sherman Act, plaintiffs must allege that they have suffered a competitive injury in a relevant market as a result of defendant's "conspiracy". Havoco of Amer., Ltd. v. Shell Oil Co., supra, 626 F.2d at 555. The failure to allege such injury may be viewed as either a "lack of standing or [as] the absence of antitrust damages." GAF Corp. v. Circle Floor Co. Inc. [1972 TRADE CASES P74,075], 563 F.2d 752, 757-58 (2d Cir. 1972). Under either analysis, the result is the same and dismissal is required.
For the purposes of this motion, we presume the allegations of the complaint to be true. Jones-Bey v. Caso, 535 F.2d 1360, 1362 (2d Cir. 1976); Fine v. City of New York, 529 F.2d 70, 75 (2d Cir. 1975); J. Baranello & Sons v. Hausmann Indico, Inc., 86 F.R.D. 151, 158 (E.D.N.Y. 1980); Trustees of the Pension Fund v. Trident Investment Mgmt., CV 81-2473 (E.D.N.Y. Feb. 17, 1982). We thus assume the existence of a conspiracy and that the defendants engaged in the four acts alleged solely for the purpose of wrongfully compelling Fairway to pay the defendants monies claimed due by Associates under the contracts. Nevertheless, Fairway has failed to allege any effect which those acts had in lessening competition in any relevant market. Indeed Fairway has failed to set forth any market that may be affected here at all.
Fairway is undoubtedly unhappy with the defendants alleged acts in this case, but it "must show something more than simply an adverse effect on [its] own business," DeVoto v. Pacific Fid. Life Ins. Co. [1980-1 TRADE CASES P.63,280], 618 F.2d 1340, 1344 (9th Cir.), cert. denied, 449 U.S. 869, 101 S. Ct. 206, 66 L. Ed. 2d 89 (1980), in order to sustain this claim under the antitrust laws. See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., supra.
Fairway has seized upon the language of the Donnelly Act which declares unlawful "Every contract, agreement, . . . whereby . . . the free exercise of any activity in the conduct of any business . . . is or may be restrained." N.Y. Gen. Bus. Law § 340 (emphasis added). It appears to be arguing that the Donnelly Act is so much broader in application than the Sherman Act that it reaches all behavior that restrains any business activity regardless of the effect on competition. The "free exercise" langauge that Fairway seeks to employ must be read in the context of the statute as a whole. In Schlottman Agency Inc. v. Aetna Casualty & Surety Co. [1980-1 TRADE CASES P63,076], 70 A.D.2d 1041, 417 N.Y.S.2d 561 (4th Dep't 1979), the court discussed the sufficiency of a complaint in relation to the "free exercise" language. It found in that case that not only did the defendants' activities interfere with the free exercise of plaintiff's business but that this interference had the effect of eliminating competition. Id. at 1042.
Thus, while the Donnelly Act may well be endowed with scope and breadth beyond the Sherman Act, we do not believe the Act as a whole, and the "free exercise" language in particular has been read by the New York courts as transforminig every alleged economic wrongdoing into an antitrust violation.
We are compelled to dismiss the antitrust count of this complaint, but do so without prejudice to Fairway to move to amend the complaint following discovery and upon the submission of a proposed amended complaint which properly asserts the injury to competition in a relevant market resulting from the acts of Associates, MCEI and Motorola.
II -- Deceptive Acts and Practices Claim
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