The opinion of the court was delivered by: SOFAER
Reborn Enterprises, Inc. ("Reborn") brought this action in April 1982 against defendants, Andrews MacLaren, Ltd. ("MacLaren Ltd."); Andrews MacLaren Inc. ("MacLaren Inc."); Ben's for Kids, Inc. ("Ben's"); Mark Wein ("Wein"), the since deceased former president of Ben's; Fine Child Inc. ("Fine Child"); and James Fine ("Fine"), president of Fine Child.Reborn seeks damages based upon alleged violations of federal and state antitrust laws and of common law contractual rights. Plaintiff alleges that defendants engaged in conduct constituting per se violations of section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, by forming horizontal and vertical contracts, combinations, and conspiracies to fix prices, by imposing restrictions on the territories in which various retailers could sell the MacLaren Baby Buggy, and by engaging in concerted refusals to deal and tying arrangements.Plaintiff claims that the tying arrangements were also unlawful under section 3 of the Clayton Act, 15 U.S.C. § 14. Alternatively, plaintiff maintains that the conduct amounted to an unreasonable restraint of trade under a "rule of reason" analysis. Plaintiff also alleges that defendants monopolized, attempted to monopolize, and conspired to monopolize commerce in violation of section 2 of the Sherman Act, 15 U.S.C. § 2, and that defendants Fine Child, Fine, Ben's, and Wein engaged in illegal price discrimination in violation of section 2 of the Robinson-Patman Act, 15 U.S.C. § 13(a), (d), (f). Plaintiff further claims that defendants violated sections 340 and 369(a) of New York's Donnelly Act. N.Y. Gen. Bus. Law §§ 340, 369(a). Finally, Reborn contends that defendants tortiously breached contracts with Reborn and maliciously conspired to interfere with Reborn's advantageous business relationships. Thus, Reborn contends, defendants are jointly and severably liable for compensatory, treble, and punitive damages, as well as for costs and attorney's fees. Reborn requests that the court permanently enjoin defendants from refusing to sell MacLaren strollers, parts, and accessories to Reborn and order them to make such strollers, parts and accessories available to Reborn.
Defendants Fine and Fine Child counterclaimed against Reborn and its attorneys for defamation based on a letter charging defendants with illegal conduct, sent by Reborn's attorneys to all defendants on January 15, 1982. By order dated August 30, 1982, the defamation claim was severed from the antitrust claims, to be tried separately after all other issues were determined.
After exhaustive discovery, the case was placed on the ready trial calendar in January 1984. At that time, defendants raised a variety of motions which taken together seek dismissal and/or summary judgment against all plaintiff's claims. For the reasons that follow, summary judgment is granted on behalf of all defendants on the federal antitrust claims. The pendent state claims are dismissed without prejudice to plaintiff's right to pursue them in an appropriate court, in which the defamation counterclaim may also be asserted.
Reborn is a New York corporation that operates eight retail stores in New York, New Jersey, and Connecticut. Its Manhattan store is located on Third Avenue and 82nd Street. Matthew Wallis, who founded Reborn in 1976, is its president and chief executive officer. Reborn is a discount maternity shop selling primarily maternity clothing and, for a time, the MacLaren Baby Buggy.Wallis sometimes also sells non-clothing items such as wallets and pocketbooks that he acquires by buying the inventory of maternity stores which have gone out of business. Wallis' pricing policy is to buy his goods at wholesale, to determine the retail price at which other companies are selling particular items, and then to sell those items for less. Wallis 317.
MacLaren Ltd. is a relatively small British company that manufactures and sells a line of folding baby strollers and related equipment. Its goods are sold throughout Europe and in the United States. Until May 1980, MacLaren Ltd. sold its stoller directly to customers in the United States.On May 1, 1980, MacLaren Ltd. formed a wholly owned subsidiary named MacLaren Inc., a corporation organized under the laws of New York, to act as the sole distributor of its stroller in the United States. This arrangement has continued since that time, except for the period between November 1981 and May 1983, during which Fine Child acted as sole distributor for MacLaren in the United States.
Fine Child was a New York corporation, incorporated in 1975, which sold infant products to juvenile stores. Fine Child was not a prime manufacturer, but sold imported products on a finished goods basis, or on an exclusive license basis. It also sold products it designed and then subcontracted out for manufacturer. Fine 11. James Fine was Fine Child's president, chief executive officer, and sole stockholder. By early 1983, when Fine Child had failed financially and had been taken over by Sassy Seat Inc., also a juvenile goods company, Fine was hired by Sassy Seat and now serves as the company's president.
Ben's for Kids is a New York corporation consisting of a single retail store located on Third Avenue between 78th and 79th Streets. It sells furniture and clothing for children up to three years of age. Mark Wein was Ben's sole stockholder and chief executive officer during all times relevant to this litigation. His pricing policy was to charge as much as he could get for a product without losing customers. Wein 18. Ms. Kurzman, a MacLaren Inc. employee, had worked at Ben's, and her brother is currently employed there.
During the 1970's MacLaren Ltd. invented a lightweight infant umbrella stroller which could fold easily and was virtually unbreakable. All parties agree that it is one of the finest of all baby strollers. Plaintiff claims that it is known as the "Rolls Royce" of strollers. Plaintiff's Pretrial Memorandum at 6; Kurzman 43-46. Despite its high price, it sells well because of its outstanding quality. The MacLaren stroller was originally sold in Europe. In 1979 the company decided to "test the waters" in the United States by selling at first to only one juvenile goods store while monitoring the stoller's success. Around this time, Wein spotted the stroller at a trade show in England, and arranged with MacLaren Ltd. to purchase it. From 1979 through early 1980, Ben's purchased directly from MacLaren Ltd. and was the only store in the United States carrying the stroller.
The stroller sold well at Ben's. MacLaren Ltd. was impressed with the quality of Wein's store, the relationship Wein had with his customers, and his policy of providing extensive post-sale repair service. Then and now MacLaren Ltd. has worked hard to maintain a strong, positive relationship with Ben's. Satisfied that its stroller would sell well in the United States, MacLaren Ltd. formed MacLaren Inc. to handle sales here.
In August 1980, Wallis, owner of the Reborn maternity store, located near Ben's on the Upper East Side of Manhattan, noticed the MacLaren stroller being sold at Ben's. He contacted MacLaren Inc. and sought to place an order. Barbara Kurzman, then employed by MacLaren Inc., visited Reborn. After her visit, she decided it would be unwise for MacLaren Ltd. to do business with Reborn. She reasoned that because it was a maternity shop which sold no juvenile goods, it would ill fit MacLaren's marketing strategy, which was to sell only to juvenile goods shops. Kurzman 46-49. MacLaren believed that a juvenile goods store was more suitable for selling MacLaren strollers than a maternity shop because customers have the opportunity in a juvenile goods store to compare the MacLaren stroller with strollers of other brands and the proprietor has more knowledge about strollers. Kurzman 45-46. Ms. Kurzman also felt it would be unwise for MacLaren to deal with Reborn because of its close proximity to Ben's. Kurzman explained her position to Ian Jones, Export Sales Manager of MacLaren Ltd., and to George Hambleton, Vice President of MacLaren Inc. Kurzman did, however, inform Jones that Reborn wanted to purchase the stroller. Jones made a note on a telex that he would contact Reborn in November 1980, the next time he planned to visit New York.
During Jones' visit in November, he opened new accounts in Manhattan and Brooklyn at Schneider's Juvenile Furniture, Albee's Baby Carriage, Yeedl's, Berkowitz, and Hatzlacha, all well established juvenile goods stores which sold both "hard" and "soft" goods for very young children. ("Hard" goods include juvenile furnitures, strollers, high chairs, car seats, carriages, cribs, and the like, while "soft" goods include baby clothing, bibs, and other accessories.) Jones or Kurzman gave Ben's and all other retailers a "suggested price list," and asked them to try and charge about the suggested price. Kurzman 13-16; see Hambleton 73-75. During his visit, Jones told Wein he thought it unlikely that any other store on the Upper East Side would receive the stroller, and he did not contact Wallis, Jones 53.
The depositions and over evidence indicate that those involved in sales at both MacLaren Ltd. and MacLaren Inc. were ambivalent about doing business with Reborn. As a maternity store, with no repair facilities, and with the habit of cutting suggested retail prices, Reborn did not fit MacLaren's maketing strategy. Furthermore MacLaren had carefully cultivated its relationship with Ben's, which was located close to the Reborn store. Consequently, a year passed between Wallis' initial inquiry and MacLaren's decision seriously to examine Reborn as an account.
In March 1981, Kurzman, acting as a representative of MacLaren Inc., visited Reborn, which by then had moved to a larger store. She told Wallis outright that MacLaren was reluctant to deal with him because he sold no other juvenile goods and because there was ample distribution of the stroller on the Upper East Side. She asked Wallis if he would agree not to sell the stroller from his Upper East Side store, and Wallis acceded in order to increase his chances of getting the stroller. Kurzman 113. Kurzman stated "Wallis has given me his word as a gentleman that if indeed we open him as an account, that he will not sell in his New York Store." Kurzman 114. Kurzman also told Wallis that MacLaren would appreciate his selling the stroller close to the suggested retail price. Kurzman 124-25. Nevertheless, after the meeting Kurzman again advised MacLaren that in her opinion the company should not deal with Reborn.
In April 1981, Mr. Hambleton himself visited Reborn's Manhattan store. Despite Kurzman's suggestion, he agreed to open an account with Wallis because he liked the fact that Reborn had eight outlets and an extensive advertising campaign. He asked Wallis not to sell the stroller from Roborn's Upper East Side store until Hambleton had had a chance to talk to Wein. Hambleton 67-68. Wallis grudgingly agreed. Wallis 214-215. Hambleton did not set a specific time by which he would take to Wein, and did not condition MacLaren's sale to Wallis upon Wallis' promise not to sell from the Upper East Side. Hambleton also told Wallis that Reborn should try to sell near the suggested retail price if possible, but that MacLaren understood they could not require retailers to adhere to the price. Hambleton 72-73. Wallis agreed to consider this suggestion and entered an order for a quantity of strollers. Plaintiff Exhibit 9. In early April 1981, the first shipment of MacLaren strollers bound for Reborn was misdelivered to Ben's through an error of the shipping company, whose driver had been accustomed to delivering stroller's to Ben's when his truck entered that part of town. Upon learning of the trucker's error, Wein promptly returned the misdelivered goods to the company, and the shipment was then properly delivered to Reborn's Manhattan store. Wallis became very suspicious and agitated by the misdelivery. He persistently called Hambleton and Kurzman, insisting that the misdelivery was purposeful and accusing MacLaren of conspiring to deprive him of the stroller because he was a discounter. When the shipment was redelivered to Reborn, Wallis refused the goods, contending that all the boxes had been opened. The boxes were returned to the warehouse and examined by Kurzman, who claims that only two had been open. Hambleton 90. The open boxes were sealed, the shipment went back to Wallis, and he accepted it.
After the misdelivery incident, Kurzman, Hambleton, and Wallis had lunch in an attempt to "improve relations." Hambleton 104. At this meeting, Wallis threatened to sue MacLaren. He also said that he had been taping all conversations with MacLaren, Inc., that he believed a sinister motive existed for the misdelivery, and that he feared that MacLaren Inc. was going to cut him off because he was a discounter. Hambleton tried to assure him that Reborn's pricing policy would not influence their decision to do business with him. Wallis remained suspicious.
Throughout April, Wallis repeatedly called Hambleton to find out whether or not he had spoken to Wein, so Wallis could begin selling strollers from Reborn's upper east side store. Hambleton had not done so, allegedly due to the aggravation Wallis had caused him during the month. Wallis nevertheless began to sell the stroller from Reborn's Upper East Side store. Hambleton claims this was done without his approval, but Wallis maintains that Hambleton told him to go ahead. Wallis 215. In any event, no person from MacLaren took any action to prevent Wallis from selling from the Upper East Side once he had begun, and Reborn quickly became one of MacLaren's largest accounts.
After the April misdelivery, Wein called Hambleton of MacLaren Inc. and Alan Nash and Ian Jones of MacLaren Ltd. to ask why MacLaren was selling its stroller to Reborn, a maternity store. He was told by all that the company wanted to see how the arrangement would work out. Subsequently, Wein walked by Reborn's Manhattan store, noticed the stroller displayed in the window, and went in to talk to Wallis. Tempers flared, and Wallis ended up ejecting Wein from the store and summoning the police. Wallis 366.
Despite requests from MacLaren Inc. to try to adhere to the suggested retail price, Reborn continued to discount. Pltf. Pretrial Memo. at 26. MacLaren Inc. began to receive complaints from Wein and its other customers that Reborn was selling the stroller at a predatory price, that it did not have repair facilities, and that it was inappropriate for a maternity store to sell baby strollers. They did not threaten to stop buying from MacLaren unless Reborn were terminated, but merely voiced dissatisfaction. Weintraub 49; Leffler 30-33; Waxman 57-58.Both Kurzman and Hambleton informed the callers that nothing could be done. Weintraub 49.
A few of MacLaren Inc.'s other accounts sold below the suggested retail price. Complaints had been received about Berkowitz and Hatziacha. Kurzman told the proprietor of Hatzlacha that MacLaren wanted retailers to sell the stroller near the suggested retail price, because it was trying to introduce a new product in America. Kurzman 68. None of these stores, however, was ever threatened, forced, or coerced into selling at the suggested retail price. When Hatzlacha, for example, continued to sell below that price, MacLaren took no further action.
MacLaren Inc.'s distribution capability was restricted due to its limited personnel and facilities. MacLaren decided that United States distribution of the stroller would be profitable only if an organized national distributor with a staff larger than MacLaren Inc.'s were to handle the operation. Also, Hambelton was becoming increasingly involved in an organization for the blind which consumed almost all of his time. Hambleton 136. After a comprehensive search, MacLaren selected Fine Child, Inc., a New York corporation with an excellent reputation in the sale of infant products to juvenile goods stores, as its new distributor. An agreement in principle was reached between MacLaren and James Fine in October 1981 for a one-year period to commence January 1982. The arrangement was publicly announced in a press release at the Juvenile Products Manufacturers Association Trade Show in Dallas, Texas, on October 25, 1981, and in January 1982 Fine Child replaced MacLaren Inc. as the exclusive distributor of the MacLaren stroller in the United States. Pltf. Exh. 47.
MacLaren and Fine Child understood the distributorship agreement to give Fine Child complete autonomy to choose with whom it would do business, according to Fine's marketing strategy. Cross 106. In addition, the parties agreed that Fine would have authority to resolve disputes if MacLaren Ltd. chose not to get involved:
[I]n the event of any dispute arising between the Distributor and any purchaser or proposed purchaser in relation to the sale of offer for sale of the Products [Distributor shall] forthwith inform MacLaren of the details and circumstances of the dispute. Within five days of such notice, MacLaren shall at its option elect to pursue or not pursue such dispute, in which latter event the Distributor shall have the exclusive right to pursue, settle or otherwise dispose of the dispute.
Distributorship Agreement P4(m), at 7 (Pltf. Exh. 144).
Fine Child's marketing strategy for the national distribution of the stroller was "to concentrate on independent full line juvenile products retailers around the country and perhaps a few department stores with full juvenile departments." Fine beleived it was essential that in each store where the stroller would be placed there be sales people knowledgeable about the product. Fine 157. He thought that "consumer word of mouth was far and away the best advertising and best promotion that a product can have; . . . new parents . . . talk to one another a great deal . . . we wanted that kind of consumer to be sold, to have the MacLaren attributes explained to them as thoroughly and as knowledgeably and as convincingly as possible, by those people in the industry, those retailers who have been dealing in these kinds of goods for years and years." Fine 158.
Hambleton and Kurzman provided Fine with information on all MacLaren Inc.'s accounts. Most of the accounts were familiar to Fine because he had previously done business with them. He was not, however, familiar with Reborn. Kurzman and Hambleton told Fine that they had had problems with Wallis, that his store was not a juvenile goods store, that Reborn was a discounter and had inadequate repair facilities, but that it was one of MacLaren's largest accounts. Kurzman 159. They did not tell Fine whether or not to sell to Wallis, but this presentation might well have suggested that Fine should terminate the account. MacLaren had itself been supplying the account, however, and no evidence supports the contention that MacLaren insisted on its termination.
In October 1981, Reborn attempted to place an order for one hundred B30 model strollers with MacLaren Inc. but was advised by Kurzman that MacLaren was currently out of stock on that model and that MacLaren Inc. would no longer be handling distribution of the strollers in the United States. Wallis demanded to know the identity of the new distributor, but was told that the distributor would contact Wallis. Kurzman meanwhile turned Wallis' order over to Fine. During October Kurzman went to Reborn to pick up a stroller for repair, and told Wallis that the new distributor might not do business with him because he could not adequately repair the strollers. Kurzman 171; Wallis 243. Wallis interpreted this as a threat and evidence of a conspiracy to cut him off because he was a discounter.He conceded, however, that "she didn't tell me what the new people were going to do." Wallis 241. Wallis repeatedly called MacLaren Inc. to get the name of the new distributor and to find out when to expect the strollers.He complained then, and claims now, that MacLaren had changed distributors in order to stop dealing with Reborn because it was a discount store. He was abusive to whomever he spoke, and tied up their switchboard for days. Kurzman 182. He became increasingly agitated, threatened to sue, and alleged the existence of multiple conspiracies to cut him off.
Reborn claims that MacLaren Inc.'s refusal to identify the new distributor was part of a scheme to terminate the account. It contends that all other customers received a formal announcement of the change in October. MacLaren Inc. did in fact prepare a letter informing all of its customers that Fine Child was to become the new United States distributor of the MacLaren stroller. It sent this letter to Fine for him to distribute. He never did so, however, and many customers did not find out about the change until after January 1982, when Fine Child actually assumed control and began handling all orders and billings. Certainly Fine Child's selection was no secret: a press release issued by MacLaren in late October announced the change. Reborn seems correct in contending that MacLaren Inc. treated it differently than other customers during October and November as Kurzman refused to identify Fine Child to Wallis; whereas she did tell others who inquired that Fine Child was to become the new distributor.Kurzman 164. This had no binding effect on Fine Child, however, and in fact had little if any practical effect on Reborn's ability to obtain strollers. On November 19, 1981, Reborn received its last shipment of strollers from MacLaren Inc. Plaintiff's Ex. 26. At about the same time, Kurzman identified Fine Child to Wallis and gave him Fine's telephone number.
Fine, too, treated Reborn differently than he did the other potential customers. He was definitely inclined against doing business with Reborn. A Fine Child agent told Mr. Leffler of Darling's in November that Fine Child was not going to sell to Reborn. Leffler 39-40. Kurzman and Jones testified that in November Fine told them that he was not planning to do business with Reborn. Kurzman 194. At the end of November 1981, Fine told Wallis he wanted a written purchase order to evaluate him as a new account, although Fine did not insist on written orders from some other stores. Fine also asked Wallis if he carried any other Fine Child products or juvenile goods. Wallis said no, but requested that Fine send him a catalogue and a price list. Fine 172.
Fine sent nothing to Wallis for at least two weeks. This may have seemed insignificant to Fine, since he was to become distributor on January 1, 1982, and only received the first shipment of strollers for resale at the end of January. To Wallis, however, Fine's failure to follow up on his conversation in late November proved he was conspiring to terminate the Reborn account.Two weeks after their conversation, Wallis called Fine and accused him of conspiring with Reborn's competitors, creating illegal tying arrangements, and discriminating against Reborn because it was a discounter. Wallis threatened to sue Fine, insisted that he had sued others before, and told Fine that he was recording their conversation. During this second conversation, Fine told Wallis that his company would not do business with Reborn.
Reborn's attorneys began charging Fine Child and all the other defendants with illegal acts in January 1982. During that month Wallis, trying to bypass Fine Child, wrote to MacLaren in England and asked for strollers. MacLaren informed Wallis that at that time they were not in a position to decide who should receive strollers in the United States. This lawsuit followed in February 1982.
Some time during the spring of 1982, after the filing of the suit, Fine Child sold fifth MacLaren strollers to a Massachusetts maternity retail store called Stork Time. Fine believed that Stork Time was not solely a maternity shop, because it also requested and purchased a number of Fine Child's other juvenile products. Fine 234; Pltf. Exhs. 58-59. In July 1982, Fine discovered that the strollers sold to Stork Time were not in its store but had been resold to Wallis. Fine then stopped dealing with Stork Time. Fine 240.
In May 1983, due to Fine Child's crumbling economic position, MacLaren Ltd. terminated the distributorship agreement. MacLaren Inc. again became the sole distributor and remains so today. Reborn immediately placed an order for strollers, but MacLaren Inc. refused to fill it. Wallis then contacted Maxwell Cross, MacLaren's Ltd.'s former marketing manager, and threatened to start a second lawsuit if MacLaren Inc. did not honor his order. Cross 88-90. MacLaren has taken the position that it will do no business with a company with which it is in litigation. Cross 58-59. From December 1981 through the present, ...