United States District Court, Southern District of New York
March 28, 1991
SQUARE D COMPANY, PLAINTIFF,
SCHNEIDER S.A., SQD ACQUISITION CO., MERLIN GERIN S.A., TELEMECANIQUE S.A., SOCIETE PARISIENNE D'ENTREPRISES ET DE PARTICIPATIONS, SCHNEIDER USA, INC., ELICAN HOLDINGS, S & K HOLDINGS, INC., STANDARD, KOMODIKIS & CO., INC., MAHMOUD TIAR, GEORGE KOMODIKIS, COMPAGNIE FINANCIERE DE PARIBAS, BANQUE PARIBAS AND SOCIETE GENERALE, DEFENDANTS.
The opinion of the court was delivered by: Sand, District Judge.
On March 26, 1991, this Court heard oral argument on
defendants' Order to Show Cause why Counts I, II, III and IV of
plaintiff's Amended and Supplemental Complaint ("Complaint")
should not be dismissed. At that time the Court issued an oral
Opinion denying defendants' motion and reserved the right to
issue a subsequent
written Opinion. The following constitutes that written
In the motion presently before the Court, defendants move to
dismiss the first four Counts of the Complaint pursuant to F.R.
Civ.P. 12(b)(6) for failure to state a claim upon which relief
can be granted. Counts I and II allege violations of § 7 of the
Clayton Act, 15 U.S.C.S. § 18 (1990). Count III alleges
violations of § 8 of the Clayton Act, 15 U.S.C.S. § 19 (1990).
Count IV alleges that defendants have conspired to restrain
trade in violation of § 1 of the Sherman Act, 15 U.S.C.S. §
1 (1990). Plaintiff seeks preliminary and permanent injunctive
Plaintiff, Square D Company ("Square D"), is a Delaware
corporation with its principal place of business in Palatine,
Illinois. Square D is principally engaged in the business of
producing electrical distribution and electrical control
products for commercial and industrial use.
The defendants in this action are a number of corporations
and individuals all allegedly affiliated with Schneider, S.A.
(hereinafter "Schneider"). The complaint alleges that defendant
Schneider, acting through a group of commonly controlled
companies known as Groupe Schneider, is engaged in an illegal
plan to acquire Square D.
The complaint states that on February 21, 1991, Schneider
announced its intention to engage in a proxy fight for control
of Square D's Board of Directors, the purpose of which is to
install Directors who will effectuate consummation of a merger
between Square D and Schneider. Complaint ¶ 62. The complaint
also states that Schneider launched a hostile all-share tender
offer for Square D on March 4, 1991. Complaint ¶ 65.
With regard to the proxy fight, the complaint alleges that
Schneider has proposed a slate of eleven candidates for Square
D's Board. All eleven are allegedly "either employees,
officers, directors, or consultants of Schneider or one or more
of its subsidiaries." Complaint ¶ 122. The complaint further
alleges that one of the Schneider nominees, defendant Mahmoud
Tiar, sits on the Board of a Schneider subsidiary that competes
with Square D in the United States. Complaint ¶ 124. It also
asserts that five other nominees are officers or directors of
two Schneider affiliated companies — Spie Batignolles and
Jeaumont-Schneider — which in turn own a controlling interest
in a third company (Jeumont Schneider Automation) which
competes with Square D. Complaint ¶ 125.
In deciding a motion to dismiss, this Court is required to
accept the plaintiff's allegations as true and construe those
allegations in the light most favorable to plaintiff. See
Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40
L.Ed.2d 90 (1974). The complaint will be dismissed only if the
plaintiff can prove no set of facts that would entitle him to
relief. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99,
101-02, 2 L.Ed.2d 80 (1957); Goldman v. Belden, 754 F.2d 1059,
1065 (2d Cir. 1985).
A. Counts I and II — Alleged Violations of § 7
of Clayton Act
Section 7 of the Clayton Act, as amended, provides in
pertinent part that "No [natural or legal] person engaged in
commerce . . . shall acquire, directly or indirectly, the whole
or any part of the stock or . . . assets of another person . .
. where in any line of commerce . . . in any section of the
country, the effect of such acquisition may be substantially to
lessen competition, or to tend to create a monopoly." 15
U.S.C.S. § 18. Counts I and II of the Amended Complaint allege that
if Schneider succeeds in acquiring Square D, the effect will be
to lessen actual or potential competition among certain
products in the United States.
Defendants' attack on the first two Counts of the Amended
Complaint centers on the contention that plaintiff is not
entitled to seek injunctive relief under § 7 of the Clayton Act
because it lacks standing.
Defendants claim that Square D has not and cannot allege
"antitrust injury." See Cargill, Inc. v. Monfort of Colorado,
Inc., 479 U.S. 104, 113, 107 S.Ct. 484, 491, 93 L.Ed.2d 427
Defendants recognize that in Consolidated Gold Fields PLC v.
Minorco, S.A., 871 F.2d 252, 257-61 (2d Cir.), cert. dismissed,
492 U.S. 939, 110 S.Ct. 29, 106 L.Ed.2d 639 (1989), the Second
Circuit held that a target of a hostile takeover had standing
under § 7 of the Clayton Act because the target's allegation
that it would "lose its ability to compete independently" was
antitrust injury within the meaning of Cargill. Defendants
further acknowledge that Square D has alleged that if
Schneider's takeover attempt succeeds, Square D will lose its
independence as a corporate entity. See Complaint ¶¶ 102, 118.
Defendants' primary argument — which occupies a full
twenty-two pages in their opening brief — is not that Minorco
is distinguishable, but rather that it was wrongly decided.
Whatever the merits of that argument, it has little relevance
to the decision of this motion by this Court. Quite simply,
Minorco is the law of the Second Circuit and this Court is
bound to follow it.
Defendants' second argument is that the instant case is
distinguishable from Minorco, at least as to Count I of the
Amended Complaint. Defendants argue that in Minorco, the
challenged merger was between two entities which were engaged
in actual competition, whereas in this case, Count I of the
Amended Complaint alleges only the loss of potential
This Court does not read Minorco as turning on the presence
of actual, as opposed to potential, competition between the
acquiror and the target; rather, the case turned on the
majority's interpretation of what constituted antitrust injury
for purposes of § 7 of the Clayton Act. Of course, in Minorco,
the Court had no occasion to address the issue of potential
competition because that issue was not raised on the facts of
that case. However, it appears to this Court that the reasoning
of Judge Newman, writing for the majority in Minorco, would
apply with equal force to the loss of potential competition.
Moreover, as the complaint alleges and as amplified by
plaintiff's counsel at oral argument, the line between actual
and potential competition in this controversy may not be as
clear as the division between counts in the complaint implies.
The facts alleged in the complaint indicate that Schneider has
entered the North American market through acquisitions of a
Canadian and a Mexican company, and that it attempted
unsuccessfully to acquire an American company. As such, the
distinction between actual and potential competition in this
case is somewhat unclear, especially in light of the suggestion
of plaintiff's counsel that the relevant market for antitrust
purposes may be North America, as opposed to just the United
On the basis of the reasons set out above, this Court rejects
defendants' contention that Count I — the potential
competition claim — does not state a claim under Minorco. In
addition, we note that Count II of the Amended Complaint, which
also asserts a putative violation of § 7 of the Clayton Act,
alleges a diminution in actual competition and is therefore
clearly sufficient under Minorco.
At oral argument, counsel for defendants made an oral
application for a certification by this Court under 28 U.S.C. § 1292(b)
(1988), with respect to this Court's decision not to
dismiss Counts I and II of the Complaint. Under § 1292(b),
certification is appropriate where there is a controlling
question of law as to which there are substantial grounds for
difference of opinion and where an immediate appeal may
materially advance the ultimate termination of the litigation.
See 28 U.S.C. § 1292(b).
In this case, there is no substantial difference of opinion
in this Circuit as to the issue of Square D's standing to raise
the claims asserted in Count II of the Complaint. That the law
of standing may be different in other Circuits or that
Minorco may have received an unfavorable reception in some of
the secondary literature does not create a substantial
difference of opinion as to the law in this Circuit. As to
the standing issue raised by Count I of the Complaint, the
potential for difference of opinion is greater. Yet because the
line between actual and potential competition is blurred under
the facts alleged in the Complaint, certification of the
standing issue under Count I, but not Count II, would not be an
appropriate way of achieving a prompt and efficient resolution
of this case.
Indeed, certification would be likely to hinder the
resolution of this case, which is proceeding on an expedited
schedule due to the immediacy of the issues it raises. This
Court has scheduled a hearing on the merits with respect to
five non-antitrust counts of the Complaint for May 13, 1991.
Were this Court to certify the standing issue raised in Counts
I or II of the Complaint under § 1292(b), it would be
unrealistic to suppose that the Second Circuit would determine
whether or not to accept the certification, have briefing and
argument, and decide the issue prior to the time when this case
will be resolved, in significant part or whole. Once this case
is resolved, Schneider will have the opportunity to address the
Minorco issue to the Second Circuit, and beyond if appropriate,
on the basis of a full record developed in this Court.
Accordingly, defendants' application for certification under §
1292(b) is denied.
B. Count III — Alleged Violation of § 8 of the
Section 8 of the Clayton Act provides, in pertinent part,
that "No person shall, at the same time, serve as a director or
officer in any two corporations . . . that are . . . engaged in
. . . commerce . . . [and are] competitors, so that the
elimination of competition by agreement between them would
constitute a violation of any of the antitrust laws." 15
U.S.C.S. § 19. Count III of Square D's complaint alleges that
the defendants' plan to conduct a proxy fight violates § 8
because all of the defendants' nominees are "employees,
officers, directors or consultants of Schneider or its
subsidiaries." Complaint ¶ 122.
In their briefs, the defendants concede that one of the
nominees, defendant Mahmoud Tiar, is a director of a
Schneider-affiliated company that competes with Square D.*fn1
However, defendants argue that the other ten nominees are not
"officers or directors" within the meaning of § 8.
Square D contends the other ten nominees are all "agents" of
Schneider. Square D argues that because Schneider is a "person"
within the meaning of § 8, and because some of Schneider's
subsidiaries compete with Square D, the election of the
nominees to Square D's Board would violate § 8, in that
Schneider would have agents on the Boards of both Square D and
its competitors. Defendants argue in response that Square D's
"agency" theory of § 8 liability is flawed. They point out that
§ 8, on its face, applies only to "officers and directors," and
not to agents.
In deciding the validity of plaintiff's agency theory, we
must begin by looking to the policies underlying § 8. The
purposes of § 8 are to avoid the opportunity for the
coordination of business decisions by competitors and to
prevent the exchange of commercially sensitive information by
competitors. See United Auto Workers, 97 F.T.C. 933, 935
(1981). Section 8 establishes a prophylactic rule designed to
avoid potential antitrust violations before they occur. See SCM
Corp. v. Federal Trade Comm'n, 565 F.2d 807, 811 (2d Cir.
In view of the prophylactic and remedial purposes of § 8, we
decline to read it as literally as the defendants suggest. If
such a literal reading were adopted, it would be easy for a
company to interlock with a competitor and yet evade § 8
liability simply by calling its agents on the competitors'
board something other than either officers or directors. Such a
result would exalt form over substance, contrary to the intent
of Congress in enacting the antitrust laws. See United States
v. Yellow Cab
Co., 332 U.S. 218, 227, 67 S.Ct. 1560, 1565, 91 L.Ed. 2010
For purposes of deciding this motion to dismiss, at this
early procedural stage of the case, this Court concludes that
a cause of action under § 8 is stated where a company attempts
to place on the Board of a competitor individuals who are
agents of, and have an employment or business relationship
with, such company. In such circumstances, the policies
underlying § 8 — preventing the coordination of business
decisions by competitors and the exchange of commercially
sensitive information — are implicated. See United States v.
Cleveland Trust Co., 392 F. Supp. 699, 711-12 (N.D.Ohio 1974);
United Auto Workers, 97 F.T.C. at 935-36.
Defendants urge that recognition of the agency theory
advanced by Square D will be tantamount to holding that § 8
prevents a company from attempting to acquire a competitor
through a proxy fight. We disagree. In the view of this Court,
§ 8 would not be implicated where a competitor seeks the
election of an "agent" whose only purpose is to consummate a
takeover and who does not otherwise have a business
relationship — such as that of officer, director or employee
— with the firm promoting his election. In such a case, the
concerns underlying § 8 would not be implicated due to the
limited purpose of the agency. In this case, however,
Schneider's purported "agents" allegedly do have a business
relationship with Schneider, and therefore the concerns
underlying § 8 are implicated.*fn2
We note that with regard to five of the Schneider nominees a
second basis exists for the possible application of § 8. Those
five nominees — Messrs. Bitouzet, Coret, Nicolaidis, Reveniaud
and Pecquer — are allegedly officers or directors of Spie
Batignolles ("Spie") and Jeumont-Schneider, two companies
allegedly controlled by Schneider. Those two companies, in
turn, allegedly control a third company, Jeumont-Schneider
Automation ("JSA"), which competes with Square D.
Square D argues that the competition between Square D and JSA
can be imputed to Spie and Jeumont-Schneider, such that the
election of officers or directors of the latter two entities to
the Square D Board would violate § 8. For purposes of this
motion to dismiss, we accept plaintiffs' contention. In
Kennecott Copper Corp. v. Curtiss-Wright Corp., 584 F.2d 1195,
1205 (2d Cir. 1978), the Second Circuit reversed a finding of §
8 liability premised on the theory that competition with a
subsidiary could be deemed to a parent corporation, where there
was no claim that the parent exercised substantial control over
the business decisions of the subsidiary. The Kennecott Court
declined to express an opinion on whether such deeming might be
appropriate if the parent had exercised control over the
This court believes that competition with a subsidiary may be
properly deemed to a parent corporation where the parent
closely controls or dictates the policies of its subsidiary. In
this case, whether Spie and Jeumont-Schneider exercise such
over JSA is a question of fact that precludes granting of the
motion to dismiss.
The final argument raised by defendants in support of their
motion to dismiss is that Square D's § 8 claim is not ripe.
Defendants argue that its nominees may not be elected, and that
even if its nominees are elected and interlock results, the
interlock would exist for only a very brief time prior to the
merger of Square D into Schneider. For purposes of this motion,
we reject defendants' view. Schneider has announced its
intention to engage in a proxy fight in an effort to have its
nominees elected to the Square D Board. As such, it cannot rely
on its possible failure in this endeavor as an excuse to avoid
judicial review. Likewise, the short life-span of the interlock
that would allegedly result from the election of Schneider's
nominees does not make Square D's § 8 claim unripe. While the
short duration of the alleged interlock might bear on the
degree to which the concerns underlying § 8 are implicated —
and therefore on the appropriateness of injunctive relief —
that fact is not dispositive on the question of whether Count
III of the Complaint is subject to dismissal at this time.
In sum, we hold that defendants' motion to dismiss
plaintiff's § 8 claims must be denied. There are questions of
fact as to whether the Schneider nominees are agents of
Schneider and have a business relationship with Schneider.
There are also questions of fact as to whether Spie and
Jeumont-Schneider exercise substantial control over the
policies of JSA. These fact questions cannot be resolved on a
motion to dismiss and must await further proceedings.
C. Count IV — Alleged Violation of § 1 of
In Count IV of the Complaint, Square D alleges that the
acquisition proposal and proxy fight initiated by Schneider are
overt acts in furtherance of a conspiracy among Schneider, its
subsidiaries and its bank to eliminate Square D as a
competitor. See Complaint ¶ 131. Square D contends that this
alleged conspiracy violates § 1 of the Sherman Act.
Defendants argue that Count IV fails to state a claim because
the requisite plurality of actors does not exist. See
Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752,
767-69, 104 S.Ct. 2731, 2739-41, 81 L.Ed.2d 628 (1984).
Defendants assert, in essence, that a corporation's officers,
employees, agents and subsidiaries are legally incapable of
conspiring with the corporation itself.
We note the apparent inconsistency between Count III of the
Complaint, which is premised on the assertion that Schneider's
subsidiaries and agents are acting as one entity under
Schneider's direct control, and Count IV, which appears to
assert that the various defendants constitute discrete entities
"previously pursuing divergent goals," id. at 771, 104 S.Ct. at
2741-42, capable of incurring § 1 liability. However, we
recognize that we are dealing with a motion to dismiss and that
alternative pleading is permitted in the federal courts,
especially at the preliminary stages of litigation.
While a corporation is legally incapable of conspiring with
its own wholly-owned subsidiary, see id. at 774-77, 104 S.Ct.
at 2743-45, Square D has alleged that Schneider conspired with
its partially-owned subsidiaries, officers or employees of
those subsidiaries, and its bank. At this stage of the
proceedings, drawing all inferences favorably towards
plaintiff, we cannot conclude that plaintiff's § 1 claims are
legally insufficient. Therefore, especially in view of the fact
that it appears that the proof of plaintiff's § 1 claims at a
hearing would be no different from the proof offered in support
of its other antitrust claims, we decline to dismiss Count IV.
For the reasons given above, defendants' motion to dismiss is
denied in its entirety.