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DONAHUE v. PENDLETON WOLLEN MILLS

March 21, 1986

JAMES P. DONAHUE, WILLIAM J. PEREZ, and HARRY J. THORNTON, Plaintiffs, v PENDLETON WOLLEN MILLS, INC., Defendant


The opinion of the court was delivered by: WARD

WARD, District Judge.

Three former sales representatives of Pendleton Woolen Mills ("Pendleton) have filed an action against the company charging that the manner of and motivation behind their termination violated the Age Discrimination in Employment Act (ADEA), as amended, 29 U.S.C. § 521 et. seq., the Sherman Act, 15 U.S.C. §§ l & 2, and unspecified state contract or common law rights, Pendleton moves under Rule 12(c), Fed. R. Civ. P., for judgment on the pleadings as to three of the four causes of action alleged in the complaint. Plaintiff cross-moves under Rule 15(a), Fed. R. Civ. P., to amend the complaint. As the following analysis will indicate, Pendleton has not established that plaintiffs cannot plead circumstances entitling them to recover on the claims alleged in the complaint, nor has Pendleton proved that those claims are entirely time-barred. Defendant's motion for judgment on the pleadings, therefore, is granted in part and denied in part without prejudice to its renewal as a motion for summary judgment after the completion of discovery. Plaintiffs' cross-motion for leave to amend the complaint is granted.

 BACKGROUND

 For the purposes of this motion, the Court must accept the factual allegations of the complaint as true. In the complaint, plaintiffs allege the following. Pendleton Woolen Mills is an Oregon corporation which manufactures men's and women's wearing apparel and various other woolen goods. Pendleton employed James Donahue, William Perez, and Harry Thornton as members of the nationwide sales force it uses to service its retail dealers throughout the United States. Pendleton hired Donahue in 1959, Thornton in 1965, and Perez in 1971. All three plaintiffs claim to have relied at the time they became Pendleton sales representatives upon the representation, understanding, and custom and usage in the trade that they would continue to receive commissions at the rate of 5% of sales on the lines and in the territories assigned to them, that Pendleton would not unreasonably interfere with their ability to generate sales, and that they would not be terminated without good cause." Complaint at [P] 29.

 Within a nine month span from November 1982 to August 1983, and shortly after it implemented a new plan known as "Management by Objective," id. at [P]42, Pendleton terminated Donahue, who was then 52, Perez, who was then 53, and Thornton, who was then 56. Pendleton filled all three vacated positions with younger men. Plaintiffs assert that their unfavorable evaluations merely served as a pretext for their dismissals since Pendleton nonetheless retained other, younger sales representatives who had compiled poorer sales records.

 Plaintiffs allege furthermore that Pendleton has resumed an illegal resale price maintenance agreement that had been the subject of an earlier investigation by the Federal Trade Commission ("FTC). Following a 1979 investigation of certain marketing practices carried on by Pendleton, the FTC had furnished Pendleton with a copy of a draft complaint charging violations of the Federal Trade Commission Act ("FTCA). Shortly thereafter, Pendleton entered into a consent order with the FTC that required the company, among other things, to cease maintaining, flexing, or enforcing resale prices for its products and to refrain from monitoring or sanctioning dealers who did not comply with pricing directives. In re Pendleton Woolen Mills, Inc., 94 F.T.C. Decisions 229 (1979). Plaintiffs allege that despite the consent decree, Pendleton continues to survey resale prices, to coerce retail stores and sales representative to set and maintain retail prices decided by Pendleton, and to refuse Pendleton products to discounters.

 Plaintiffs contend that through a system of threats and rewards, Pendleton forced its sales force to "do the dirty work or face reprisals" in implementing this retail price maintenance plan. Plaintiffs directly link their termination to the illegal scheme they describe by contending that "[o]n information and belief, Pendleton terminated the plaintiffs in part ... to make an example of them for those who refuse to activity participate in Pendleton's continuing violations." Id. [P] 51. *fn1"

 From the foregoing allegations, plaintiffs assert four causes of action. The first cause of action charges Pendleton with having embarked on a program to terminate its older ones personnel and replace them with younger employees in violation of the ADEA. *fn2" In the second cause of action, plaintiffs allege that Pendleton violated the antitrust laws in resuming activities that constitute a resale price maintenance agreement. In the third count, which plaintiffs characterize as a claim for breach of contract, plaintiffs aver that Pendleton violated the terms and conditions of their employment and breached implied covenants of good faith dealing by terminating them. Plaintiffs maintain in addition that their wrongful terminations tarnished their reputations for reliability, dependability, and good service in their trade as sales representatives, thereby destroying the goodwill the plaintiffs had built up over the years with their accounts. As a fourth, tort, cause of action, plaintiffs contend that "Pendleton disseminated false stigmatizing reasons for the actions taken against plaintiffs ... in reckless or grossly negligent disregard for the plaintiffs' rights, while concealing Pendleton's intentional violations of law as the underlying motivation of said actions. ." Id. [P] 59.

 Pendleton moves under Fed. R. Civ. P. 12(c) for judgment on the pleadings on several grounds. First, Pendleton asserts that plaintiffs lack standing to assert the antitrust violations alleged in the second cause of action. Second, Pendleton contends that the fourth cause of action fails to state a claim upon which relief can be granted. Finally, Pendleton seeks to dismiss the second, third, and fourth causes of action at least in part as time-barred. Plaintiff cross-moves for leave to amend the complaint to add specific allegations concerning the operation on Pendleton, supposed resale price maintenance agreement and to include specific instances of derogatory statements made by Pendleton managers about plaintiffs, the Court will address seriatim defendant's objections to the original complaint and then will consider the amendments to the complaint that plaintiffs have proposed.

 DISCUSSION

 1. Motion for Judgment on the Pleadings

 The Court may grant a motion for judgment on the pleadings only if it appears that "the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957); Bloor v. Carro, Spanbock, Londin, Rodman & Fass, 754 F.2d 57, 61 (2d Cir. 1985); George C. Frey Ready-Mixed Concrete, Inc. v. Pine Hill Concrete Mix Corp., 554 F.2d 551, 553 (2d Cir. 1977).

 A. Antitrust Standing

 Pendleton contends that the Supreme Court's most recent decision on antitrust standing, Associated General Contractors of California, Inc., v. California State Council or Carpenters, 459 U.S. 519, 74 L. Ed. 2d 723, 103 S. Ct. 897 (1983), dictates dismissal of plaintiffs' Sherman Act cause of action. Before examining the case law on antitrust standing, the Court will briefly recapitulate Pendleton's distribution system as it appears from plaintiffs, complaint, in order to visualize the layers in the market structure allegedly involved in this case. Pendleton manufactures clothing in competition with other makers. It distributes its products through retailers who in turn sell to the consuming public. Pendleton operates some of the retail stores directly and supplies as well other independent retailers. To reach the independent stores, Pendleton employs a sales force. The complaint alleges that at least some of the salesmen Pendleton employed or employs also carry the lines of other clothing manufacturers.

 Plaintiffs' complaint suggests two different antitrust violations by Pendleton in connection with the distribution system described above. The first, which plaintiffs identify explicitly in the complaint, involves the resale price maintenance scheme allegedly conducted by Pendleton. The second, which is arguably implied by plaintiffs' allegations, concerns interference by Pendleton in the labor market for clothing salesmen. Each requires a distinct standing analysis.

 1. Resale Price Maintenance Agreement.

 Resale price maintenance schemes operate to prevent price competition between the various dealers handling a given manufacturer's products. Generally in implementing such schemes, the manufacturer suggests" an appropriate resale price and enforces dealer acquiescence in that price through some form of coercive sanction, which might range from delayed shipments to termination. See VII P. Areeda & D. Turner, Antitrust Law [P] 1438-1442 (1986) ("VII Areeda & Turner"). Although such schemes directly coerce retailers, who must charge the price suggested by the manufacturer if they wish to continue carrying the product line, consumers ultimatly pay the economic cost of such conduct in the higher prices set by the manufacturer. Resale price maintenance schemes are per se unlawnful. *fn3" Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 55 L. Ed. 502, 31 S. Ct. 376 (1911) (minimum resale price); Albrecht v. Herald Co., 390 U.S. 145, 19 L. Ed. 2d 998, 88 S. Ct. 869 (1968) (maximum resale price).

 In the complaint, plaintiffs allege that Pendleton has resumed the activities first investigated by the FTC in 1979 and that those activities constitute an unlawful resale price maintenance agreement. *fn4" Plaintiffs further allege that Pendleton uses its sales force to implement the pricing system, to monitor dealer compliance with the system, and to sanction non-cooperative dealers. detailers Retailers and consumers affected by this conduct certainly would have standing to challenge such pricing arrangements. Reiter v. Sonotone,442 U.S. 330, 60 L. Ed. 2d 931, 99 S. Ct. 2326 (1979). The Supreme Court has not decided the precise question of whether employees who allegedly have been used to implement antitrust violations, such as the scheme alleged here, and who further allege that they have suffered direct injury flowing from the scheme have standing under the Clayton Act to sue their employer. Nonetheless, the considerations elaborated in the two most recent Supreme Court cases on antitrust standing and in the Second Circuit's interpretation of those cases leads this Court to conclude that plaintiffs have established standing to sue on the antitrust claim raised in the complaint. *fn5"

 Section 4 of the Clayton Act, 15 U.S.C. § 15, permits [a]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws" to sue in the federal district courts. *fn6" Despite the apparent sweep of this language, judicial interpretation has elaborated certain requirements a plaintiff must meet to have standing to bring an antitrust action. The Supreme Court most recently addressed questions of antitrust standing in Blue Shield of Virginia v. McCready, 457 U.S. 465, 73 L. Ed. 2d 149, 102 S. Ct. 2540 (1982), and Associated General, supra, 459 U.S. 519(1983).

 In McCready, The Supreme Court summarized the development of two judicial limitation[s] on the availability of the § 4 remedy to particular classes of persons and for redress of particular forms of injury. " McCready, supra, 457 U.S. at 473. Courts refuse to find standing for particular plaintiff when, for example, to do so would expose defendants to a threat of double recovery or when plaintiff sustains injuries too remote" from the alleged antitrust violation. 457 U.S. at 474, 476-78.

 McCready itself involved a plaintiff who belonged to Blue Shield of Virginia, a prepaid health plan to which her employer subscribed. Blue Shield is an association of participating physicians who sponsor and administer the plan. Under the terms of the plan, Blue Shield would reimburse members for psychiatric services, but would limit payments to psychologists to those billed through a supervising physician. Plaintiff sought treatment by a psychologist and submitted a claim for reimbursement. Blue Shield denied the claim. Plaintiff then faced the dilemma, as posed by the Court, of being reimbursed for a service she had not chosen or of paying for the treatment she preferred. 457 U.S. at 483. Plaintiff resisted the coercion and paid her psychologist herself. She subsequently brought a class action, alleging that Blue Shield and the Neuropsychiatric Society of Virginia, Inc. had engaged in an unlawful conspiracy, in violation of § 1 of the Sherman Act, to exclude psychologists from receiving compensation under the Blue Shield plan. Plaintiff made no allegations that the conspiracy had caused her to pay higher prices for the services of her psychologists. Plaintiff did allege that member psychologists had conspired with their agent Blue Shield to prevent or to limit the access of psychologists to the market for mental health services and that plaintiff, as a consumer of those mental health services, had standing the challenge the conspiracy.

 The Court in McCready analyzed the issue of plaintiff's right to sue in light of the applicable limitations on Clayton Act § 4 standing. Writing for the majority, Justice Brennan first found no danger of double recovery. 457 U.S. at 474-75. McCready rather than the psychologists had suffered the injury. Indeed, plaintiff's psychologist, who had been fully paid for his services, suffered no injury by virtue of Blue Cross failure to reimburse the plaintiff. As the Court put it, "employees as subscribers ... are out of pocket as a consequence of the plan's failure to pay benefits." 457 U.S. at 475. Plan subscribers' damages, the Court concluded, stood apart from any that psychologists might allege in any suit of their own. *fn7"

 Turning to the "conceptually more difficult question" of whether plaintiff had sustained injury too remote from the antitrust violation, the Court articulated a comprehensive inquiry to determine proximity.

 In applying that elusive concept [of proximate cause] to this statutory action, we look (1) to the physical and economic nexus between the alleged violation and the harm to the plaintiff, and (2), more particularly, to the relationship of the injury alleged with those forms of injury about which Congress was likely to have been concerned in making defendant's conduct unlawful and in providing a private remedy under § 4.

 457 U.S. at 478.

 The Court immediately disposed of defendants' contention that only psychologists had been proximately injured by the defendants' purported conduct. That the goal of the conspirators was to prevent penetration of psychologists into that part of the mental health care market defendants sought to preserve did not necessarily render plaintiffs' injury remote.

 Denying reimbursement to subscribers for the cost of treatment was the very means by which it alleged that Blue Shield sought to achieve its illegal ends. The harm to McCready and her class was clearly forseeable; indeed, it was a necessary step in effecting the ends of the alleged illegal conspiracy. Where the injury alleged is so integral an aspect of the conspiracy alleged, there can be no question but that the loss was precisly "the type of loss that the claimed violations.. would be likely to cause."

 457 U.S. at 479 (citations omitted). Because McCready had consumed psychotherapy services that should have been eligible for reimbursement, she acted or participated within that part of the market endanged by the breakdown of competitive conditions that resulted from Blue Shield's alleged policy of selective reimbursement. 457 U.S. at 481. That participation along with the foreseeability of harm to McCready satisfied the nexus requirement of the Court's proximity test.

 McCready's injury furthermore satisfied the second requirement for proximity, that the injury reflect Congress' core concern to protect competition. The Court found that McCready's injury was inextricably intertwined with the injury the conspirators sought to inflict on psychologists and the psychotherapy market," and therefore fell squarely within the area of Congressional concern." 457 U.S. at 484. Allowing McCready to redress the limitation on her choice by suing Blue Shield would thwart Blue Shield's use of its selective reimbursement policy allegedly as the means to limit access to the market for mental health services. In McCready, then, the Supreme Court broadened the group of plaintiffs who have antitrust standing beyond those encompassed by the various tests formerly employed by the circuits, including the Second Circuits requirement that plaintiffs be in the target area of the anticompetitive conduct. A plaintiff need no longer allege that the injury suffered reflects the direct and ultimately intended anticompetitive effect of the alleged violations as long as the plaintiff satisfies the proximity requirement by participating in some relevant fashion in the portion of the market endangered by the breakdown.

 In Associated General, supra, 459 U.S. 519, the Supreme Court elaborated the anauyis undertaken in MeCready. Plaintiffs there, two construction unions, sued the Associated General Constructors of California, Inc. ("Associated", a membership corporation composed of building and construction contractors. The unions and Associated had signed a collective bargaining agreement to govern the terms and conditions of employment contracts with union construction workers. Plaintiffs sued A alleging specific labor law violations and several antitrust causes of action. The antitrust claim at issue on appeal charged defendants with coercing (1) landowners or developers who were likely to hire general contractors, and (2) general contractors, who might be either members of Associated or their competition, to let their subcontracts to firms that employed non-union labor. 459 U.S. at 527-29. The antitrust claim amounted to an assertion that Associated directly coerced or restrained members and other general contractors who, in turn, had employed subcontractors, some of whom employed union labor. The comlaint did not allege any restraint in the market for labor union services, as must have been the case had Associated attempted to coerce the general contractors into favoring one union over another.

 The Supreme Court in Associated General reversed the Ninth Circuit which had found standing on defendants' alleged intention to injure the unions and the resulting foreseeable harm. The Court again began its analysis under § 4 of the Clayton Act by reviewing the line of cases interpreting its reach, and focused particularly on the evolving concept of proximate cause. Although the Court found that the complaint alleged a causal connection between the antitrust violation and the unions injury, as well as an intent to harm the union, it nonetheless found that other factors relevant to the question of antitrust standing dictated dismissal of the complaint in that

 Instance. The five factors that comprised the Court's analysis included(1) the nature of the alleged injury, (2) the indirectness of the injury, (3) the existence of an identifiable class of persons whose self-interest would normally motivate them to bring the action, (4) the speculative nature of the damage claim, and (5) the potential complexity of accounting for damages resulting from defendants' behavior in order to avoid the possibility of double recovery. 459 U.S. at 545 (summary).

 Under the first prong of its analysis, the Court concluded that the nature of the unions' injury did not fall squarely within the area of Congressional concern. First, it was not clear to the Court whether the unions' interests would be served or disserved by enhanced competition in the market for general contractors, the market alleged to have been restrained. 459 U.S. at 539. Second, the Court observed that Congress had responded directly to labor concerns by enacting and several times amending a comprehensive set of labor statutes to foster and protect the development of labor unions. Consequently, the Court found that "a union, in its capacity as bargaining ...


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