The opinion of the court was delivered by: VICTOR Marrero, United States District Judge.
The Carriers allege five causes of action under federal law in this
Court, numbered and labeled as follows:
• First: "Indirect Price Discrimination," in violation of §
2(a) of the Clayton Act, also referred to as the "primary-line price
• Second: "Price Discrimination — Treble Damages and
Injunction," pursuant to §§ 2(a), (d) and (e)*fn4 of the Clayton
Act, also referred to as the "secondary-line price discrimination
• Third: "Conspiracy in restraint of trade," in violation of §
1 of the Sherman Act.
• Fourth: "Further Conspiracy in restraint of Trade," in violation
of § 2 of the Sherman Act, or the "monopolization claims."
• Twelfth: "Vertical restraint of trade, monopolization, and
price-fixing," which the Court refers to as the "maximum resale price
The Daily News now moves under Rule 12(b)(6) of the Federal Rules of
Civil Procedure (hereinafter the "Daily News's Motion") for dismissal of
all federal claims for failure to state a claim for relief and,
consequently, for dismissal of the remaining state law claims on the
ground that the exercise of supplemental jurisdiction would be improper.
Alternatively, the Daily News moves for a stay of all proceedings pending
disposition of the original action in state court. In addition, a group
of purported individual defendants move pursuant to Rules 12(b)(4) and
(b)(5) of the Federal Rules of Civil Procedure to dismiss the complaint
because of purported deficiencies in service of process (hereinafter the
"Individual Defendants' Motion").
For the reasons set forth below, the Daily News's Motion is granted as
to the Carriers' First, Third, Fourth and Twelfth causes of action. The
only viable federal cause of action that remains against the Daily News
is the Carriers' Second claim alleging secondary-line price
discrimination. Because the Court sustains this claim, dismissal of the
state law claims is unwarranted at this time. Furthermore, the Individual
Defendants' Motion is granted. The Carriers are granted leave to file an
amended complaint within 20 days of the date of this Decision and Order.
II. FACTS AND PROCEDURAL HISTORY
The Carriers are residents of the State of New York and are engaged in
the business of newspaper home delivery in Brooklyn and Staten Island.
(Compl. ¶¶ 4-36). The Daily News publishes, markets and distributes
the Daily News (the "Newspaper") and has its principal place of business
in the State of New York. (Compl. ¶¶ 37, 39). Defendants John Doe
Nos. 1-50 and Jane Doe Nos. 1-50 (the "Alternate Carriers") are engaged
in the business of home delivery of the Newspaper, either as employees,
agents, or independent carriers. (Compl. ¶ 38).
Since the 1960's, the Daily News has distributed the Newspaper through
a number of independent contractors who signed "Carrier Agreements,"
granting the contractors primary responsibility for home delivery of the
Newspaper in specifically defined territories. (Compl. ¶¶ 40-42). All
of the Carriers have signed such Carrier Agreements with the Daily News.
(Compl. ¶ 44). Pursuant to these agreements, the Carriers are solely
responsible for billing (including setting the price) and collecting
remittance from their home delivery customers. (Compl. ¶ 46(L)). The
Carrier Agreements provide that nothing in the contracts shall "restrict
the right of either party to buy from or sell to any person anywhere
other copies of the News . . . ." Defendants' Notice of Motion to
Dismiss, dated May 31, 2000, Ex. C, section III.
Since approximately 1995, the Daily News has implemented a
"pay-by-mail" program, under which it sells the Newspaper directly to
customers. (Compl. ¶ 46(M)). Under this program, the Daily News mails
bills directly to customers and directs these customers to mail payments
directly back to it. (Compl. ¶ 46(P)). The Daily News then pays
either the Carriers or the Alternate Carriers a fee to deliver a copy of
the Newspaper to each customer. (Compl. ¶¶ 46(O) & (P)). Although not
clearly stated in the complaint, the Carriers suggest that there is at
least one other possible mode of distribution for pay-by-mail, that is,
sales of the Newspaper to other independent delivery firms which, in
turn, resell directly to the customer. (Compl. ¶ 46(B)). The Carriers
contend that this "pay-by-mail" program places the Daily News in direct
competition with the Carriers for the sale of the Newspaper to home
delivery customers. (Compl. ¶¶ 51, 52).
According to the Carriers, after entering the market for direct sales
to customers, the Daily News adopted new business practices designed to
hamper the Carriers' ability to compete. These practices include (1)
changing the methods and schedules for delivery of the Newspaper to
independent carriers; (2) instituting a computer-based information
tracking system, also known as "DISCUS," without properly training the
Carriers and failing to grant them access to that vital information; (3)
adopting a centralized customer complaint system which impeded the
Carriers' ability to respond to their customers' service concerns; and
(4) improperly retaining gratuities earmarked for the Carriers' delivery
personnel. (Compl. ¶¶ 46(E)-(P)).
The Carriers also accuse the Daily News of serious violations of the
antitrust laws. They allege that the Daily News has sold the Newspaper to
the Alternate Carriers and other home delivery customers at below-cost
prices or at prices not yielding a reasonable return. (Compl. ¶¶ 46(A)
& (B)). Further, they assert that the Daily News has guaranteed
below-cost pricing to favored carriers for long periods of time,
sometimes more than a year, but that the
Daily News has never offered
these preferential prices to the Carriers. (Compl. ¶ 46(B)).
The Carriers also assert that the Daily News conspired with others to
systematically exclude them from the home delivery business and that the
Carriers were forced to buy the Newspaper from the Daily News at
"unreasonably high prices." (Compl. ¶¶ 71, 72). Finally, the Carriers
allege that the Daily News fixed and maintained the prices at which the
Carriers could sell the Newspaper to customers and that they were injured
because they were prevented from charging more than the Daily News's
price. (Compl. ¶¶ 164(D), 166-67).
The Daily News's Motion asserts that none of the five federal causes of
action sufficiently pleads violations of the antitrust laws. The
Individual Defendants also move to dismiss the complaint for improper
service of process.
III. STANDARD OF REVIEW UNDER RULE 12(b)(6)
In considering a motion to dismiss under Rule 12(b)(6), the Court is
obliged to accept the well-pleaded assertions of fact in the complaint as
true and to draw all reasonable inferences and resolve doubts in favor of
the non-moving party. See Kaluczky v. City of White Plains, 57 F.3d 202,
206 (2d Cir. 1995) (citations omitted); Global Discount Travel, L.L.C.
v. Trans World Airlines, Inc., 960 F. Supp. 701, 704 (S.D.N.Y. 1997)
(citations omitted). The focus of the Court's inquiry is not whether
plaintiffs will ultimately prevail, but whether the claimants are entitled
to an opportunity to offer evidence in support of their claims. See
Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds,
Davis v. Scherer, 468 U.S. 183 (1984). Therefore, a motion to dismiss
must be denied "unless it appears beyond doubt that the plaintiff can
prove no set of facts in support of his claim which would entitle him to
relief." Id. (citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).
Under the Federal Rules of Civil Procedure, the standard for assessing
the sufficiency of a complaint in an antitrust action is the same as in
any other case: "a short, plain statement of a claim for relief which
gives notice to the opposing party is all that is necessary." See George
C. Frey Ready-Mixed Concrete, Inc. v. Pine Hill Concrete Mix Corp.,
554 F.2d 551, 554 (2d Cir. 1977); Global Discount Travel, 960 F. Supp. at
704; Fed. R. Civ. P. 8(a). Nevertheless, courts have warned that
"conclusory allegations which merely recite the litany of antitrust will
not suffice. This court retains the power to insist upon some specificity
in pleading before allowing a potentially massive factual controversy to
proceed." John's Insulation, Inc. v. Siska Constr. Co., 774 F. Supp. 156,
163 (S.D.N.Y. 1991) (citations omitted).
IV. PRIMARY-LINE PRICE DISCRIMINATION
In their First cause of action, the Carriers assert a primary-line
price discrimination claim pursuant to § 2(a) of the Clayton Act, as
amended by the Robinson-Patman Act. Primary-line price discrimination
occurs when a seller's discriminatory pricing injures the seller's direct
competitors. See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.,
509 U.S. 209, 220, reh'g denied, 509 U.S. 940 (1993); George Haug Co.,
Inc. v. Rolls Royce Motor Cars, Inc., 148 F.3d 136, 141 n. 2 (2d Cir.
1998). Thus, a primary-line Robinson-Patman Act claim contemplates price
discrimination by the defendant among its customers in an attempt
those competing with the defendant for those sales. See, e.g., Intimate
Bookshop, Inc. v. Barnes & Noble, Inc., 88 F. Supp.2d 133, 137 n. 1
(S.D.N.Y. 2000); Coastal Fuels of Puerto Rico, Inc. v. Caribbean
Petroleum Corp., 79 F.3d 182, 188 (1st Cir.), cert. denied, 519 U.S. 927
(1996); Julian O. Von Kalinowski, et al., Antitrust Law and Trade
Regulation: Desk Edition § 5.01, at 5-7 to 5-8 (2000) (hereinafter
"Von Kalinowski"). The Carriers contend that they compete directly with
the Daily News for sale of the Newspaper to customers as a result of the
Daily News's institution of a competing distribution system that operates
in the Carriers' previously assigned marketing territories. (Compl.
To succeed on a claim of primary-line price discrimination, plaintiffs
must prove that: "(1) the alleged price discrimination meets the `in
commerce' requirement, i.e., that `either of any' of the purchases
involved are in commerce; (2) there has been discrimination in price
between different purchasers of products of like grade and quality; and
(3) the effect of the discrimination may be substantially to lessen
competition or tend to create a monopoly." See Cardinal Indus., Inc. v.
Pressman Toy Corp., No. 96 Civ. 4590, 1996 WL 724730, at *3 (S.D.N.Y.
Dec. 17, 1996) (quotations omitted); see also John B. Hull, Inc. v.
Waterbury Petroleum Prods., 588 F.2d 24, 27 (2d Cir. 1978), cert.
denied, 440 U.S. 960 (1979).
Although their allegations with respect to the first two elements are
sparse, the Carriers have pleaded the bare minimum necessary to satisfy
those elements. The Carriers allege that
[d]efendants have sold the News, wholesale, at prices
below cost, or at margins of profit not yielding a
reasonable return on gross sales, with the intent and
effect of restraining, suppressing, destroying, and
eliminating the competition of Plaintiffs and other
independent dealers. . . . In some instances, Defendant
Publisher has guaranteed below cost prices to the
Defendants/Alternate Carriers and other home delivery
customers for periods as long as one year or more, but
has never offered below cost pricing to the Plaintiffs.
(Compl. ¶ 46(B) (emphasis added)). The Carriers also allege that,
"[t]he Publisher is further engaged in selling and distributing its
publication in interstate commerce to readers or other purchasers
throughout the United States." (Compl. ¶ 39). Although the Daily News
disputes each of these points,*fn6 the Carriers have provided a short,
plain statement of these elements sufficient to give notice to the Daily
News of these aspects of a claim for relief.
The insufficiency of the Carriers' pleading becomes apparent in
connection with the third element, often referred to as the competitive
injury requirement. This element of primary-line price discrimination
claims has been the source of confusion and the subject of extensive
scholarly debate. See Cardinal Indus., 1996 WL 724730, at *3; George
Haug, 148 F.3d at 141 ("[t]he language in Section 2(a) relating to injury
to competition is the key to the legality of most differential pricing
practices and has engendered significant legal uncertainty. . . .").
The confusion arose in the aftermath of the Supreme Court's decision in
Utah Pie Co. v. Continental Baking Co., 386 U.S. 685, 693-98 (1967),
where the Court, in effect, permitted
an inference of injury to
competition to be drawn from proof of predatory intent. See also Cardinal
Indus., 1996 WL 724730, at *3. In Utah Pie, 386 U.S. at 693-98, the
plaintiff had introduced both objective and subjective evidence of the
defendant's predatory intent, including evidence of below-cost pricing
and express indications of the defendant's intent to injure plaintiff.
Applying the rationale of Utah Pie, lower courts have inferred
primary-line competitive injury from evidence of predatory intent. See
Cardinal Indus., 1996 WL 724730, at *3.
However, in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.,
509 U.S. 209, 220 (1993), the Supreme Court sought to clarify Utah Pie
with respect to the weight of a defendant's subjective intent: "[a]s the
law has been explored since Utah Pie, it has become evident that
primary-line competitive injury under the Robinson-Patman Act is of the
same general character as the injury inflicted by predatory pricing
schemes actionable under § 2 of the Sherman Act." By harmonizing the
competitive injury requirements under the Robinson-Patman Act and the
Sherman Act, the Court effectively abrogated the inference of competitive
injury permitted under Utah Pie. See Cardinal Indus., 1996 WL 724730, at
Since Brooke Group, the Second Circuit has recognized the requirement
for pleading competitive injury in primary-line price discrimination
cases. See George Haug, 148 F.3d at 143. Furthermore, courts in this
Circuit have applied a two-prong test, derived from Brooke Group, for
establishing such injury. The plaintiff must show that (1) competitive
injury resulted from a rival's prices that were below an appropriate
measure of the rival's costs and (2) the competitor had a reasonable
prospect of later recouping its investment in below-cost prices, or, in
other words, there was a reasonable likelihood that the competitor could
succeed in diminishing or eliminating competition and subsequently raise
prices in order to offset its earlier expected losses. See Cardinal
Indus., 1996 WL 724730, at *4.
By imposing this two-part test for primary-line price discrimination
cases, the Supreme Court harmonized the competitive injury requirements
in discriminatory pricing actions under the Robinson-Patman Act and
predatory pricing schemes under § 2 of the Sherman Act. Although it
recognized material differences in the language of the two statutes, the
Court stated that the essence of a claim under both statutes is
identical: "A business rival has priced its products in an unfair manner
with an object to eliminate or retard competition and thereby gain and
exercise control over prices in the relevant market." Brooke Group, 509
U.S. at 222.
The Court reasoned that the first prong of the competitive injury
requirement is necessary because only below-cost pricing can inflict
competitive injury. See id. at 223. This finding reflected, in part, the
Court's recognition that above-cost pricing that remains below general
market prices is more often competition-enhancing. See id. Any
condemnation of above-cost price cutting carries the risk of depriving
consumers of lower prices, while protecting weak competitors from lost
profits — a result that contradicts established antitrust policy.*fn7
The second prong of the primary-line price discrimination test requires
the plaintiffs to show that the defendant had a reasonable prospect of
recouping its investment in below-cost prices. See Brooke Group, 509
U.S. at 224; see also Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 584-85 n. 8 & 592 n. 16 (1986). In order for
discriminatory pricing to be anticompetitive, the predatory firm must
succeed in eliminating would-be price cutters and in charging higher
prices later to compensate for price cutting in the short run. See
Matsushita, 475 U.S. at 592. Absent the reasonable possibility of success
in such recoupment, below-cost pricing cannot be anticompetitive because
a failed predatory pricing scheme only results in lower aggregate prices
for the consumer, again, a pro-competitive outcome. See Brooke Group, 509
U.S. at 224; Matsushita, 475 U.S. at 594 ("cutting prices in order to
increase business often is the very essence of competition. Thus,
mistaken inferences in cases such as this one are especially costly
because they chill the very conduct the antitrust laws are designed to
Thus, both prongs of the competitive injury test exist to ensure that
the antitrust laws are not wielded to suppress vigorous competition. In
other words, the test forces courts to distinguish between clearly
anticompetitive below-cost pricing and price discrimination that promotes
competition. See Cardinal Indus., 1996 WL 724730, at *4 (the two-part
test "filter[s] out acts of price discrimination that increase
In the context of a Rule 12(b)(6) motion, Cardinal Indus. held that the
failure of the pleadings to assert facts establishing the two prongs of
the competitive injury requirement necessitated dismissal: "Plaintiff has
failed to allege, even in a conclusory manner, that defendant sold its
Jumbo Color Dot Dominoes at below-cost prices or that, even if defendant
did so, it could eventually recoup its losses. . . . Plaintiff has failed