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Integrated Systems and Power, Inc. v. Honeywell International

May 13, 2010


The opinion of the court was delivered by: Robert P. Patterson, Jr., U.S.D.J.


By motion dated August 17, 2009, Defendant Honeywell International, Inc. ("Defendant" or "Honeywell") moves to dismiss Plaintiff Integrated Systems & Power, Inc.'s ("Plaintiff" or "ISPI") complaint pursuant to Rule 12(b)(6) for failure to state a claim upon which relief may be granted. On September 21, 2009, Plaintiff filed its opposition to Defendant's motion and on October 13, 2009, Defendant filed its reply in further support of its motion to dismiss. The Court heard oral argument on November 20, 2009. For the reasons discussed herein, Defendant's motion is granted and Plaintiff's complaint is dismissed without prejudice.

I. Facts

Plaintiff ISPI is a corporation engaged in the business of selling, installing and servicing fire-detection and alarm systems, including NOTIFIER systems manufactured by Defendant Honeywell. (Compl. ¶ 6.)*fn1 Through the NOTIFIER division of its Fire Solutions Group, Honeywell manufactures commercial fire alarm systems, as well as related technology, peripheral devices and accessories. (Id. ¶ 7.) From January 2002 until July 2009, ISPI was a non-exclusive authorized distributor of Honeywell's NOTIFIER fire-detection alarm system. (Id. ¶¶ 9, 26.) Pursuant to a NOTIFIER Engineered Systems Distributor Agreement dated November 5, 2001 and later pursuant to a successor agreement dated July 1, 2003 (the "Distributor Agreement"), Honeywell authorized ISPI to market, sell, install and service Honeywell's NOTIFIER fire-detection and alarm system products, with New York City as ISPI's "territory" or "primary trading area." (Id. ¶¶ 9-10.) The Distribution Agreement contained no limitation on the entities to which ISPI was authorized to sell products and/or services. (Id. ¶ 14.)

As an authorized NOTIFIER distributor, ISPI sold only NOTIFIER fire-detection and alarm systems. (Id. ¶ 12.) On the other hand, after ISPI became a NOTIFIER distributer, in addition to servicing NOTIFIER systems, ISPI continued to provide service to its pre-existing portfolio of customers with Simplex fire-detection alarm systems -- a brand competing with NOTIFIER. (Id. ¶ 13.)

During its time as an authorized distributor, ISPI submitted bids on a number of NOTIFIER service contracts, where the client's system had been sold, installed and/or previously serviced by a different NOTIFIER authorized distributor. (Id. ¶¶ 19-24.) ISPI frequently submitted the lowest bid for such service contracts. In some cases ISPI successfully obtained the contracts in question (id. ¶¶ 20(d), 23, 24); in some cases it was unsuccessful and the client remained with the "incumbent" distributor despite ISPI's lower bid. (id. ¶¶ 20(a),(b)). Other dealers, against whom ISPI was bidding for service contracts, complained to Honeywell about ISPI's bidding practices, and Honeywell in turn warned ISPI on a number of occasions that such low-ball bidding was a problem.

(Id. ¶¶ 19-23, 25, 28.) Honeywell instructed ISPI not to bid for service contracts against other authorized NOTIFIER distributors and told ISPI that Honeywell "expects [ISPI] to cooperate and not bid." (Id. ¶ 20(d).)

At a meeting among NOTIFIER distributors on April 28, 2009, shortly after ISPI was awarded a contract with the United States Postal Service for fire alarm maintenance at 13 postal service sites, other NOTIFIER distributers besides ISPI again complained to Honeywell about ISPI's practice of bidding against other authorized NOTIFIER distributors. (Id. ¶¶ 24, 25.) The distributors pressured Honeywell to terminate ISPI as an authorized distributor and, in response to the distributors' requests, demands and/or threats, Honeywell agreed to terminate its Distributor Agreement with ISPI. (Id. ¶ 25.)

By letter dated June 4, 2009, Honeywell gave notice to ISPI that it would terminate ISPI's distributorship without cause on 30 days notice, effective July 6, 2009 in accordance with the terms of the Distributor Agreement. (Id. ¶¶ 11, 26.) In two telephone conversations between representatives of ISPI and Honeywell on June 8 and 16, 2009, Honeywell told ISPI that it terminated ISPI because of ISPI's practice of bidding for service contracts against other distributors and referenced examples of ISPI's bidding, complaints from other distributors and previous warnings given by Honeywell to ISPI. (Id. ¶ 28.)

II. Plaintiff's Antitrust Allegations

Plaintiff alleges that NOTIFIER distributors, other than ISPI, agreed among themselves to engage in the conduct complained of: (i) to allocate customers; (ii) to not compete for service contracts; (iii) to submit non-competitive bids; and (iv) to complain to Honeywell about ISPI's low bids on service contracts. (Compl. ¶¶ 1, 15, 25.) Plaintiff also alleges that the purpose and/or effect of the agreement was eliminating or substantially reducing price competition. (Id. ¶¶ 1, 17.) Plaintiff further alleges that Honeywell was and is an active participant in the agreement among the distributors, that Honeywell knowingly aided and abetted the distributors' agreement, and that Honeywell terminated ISPI's distributorship as part of the distributors' agreement and in response to complaints by distributors. (Id. ¶¶ 16, 25, 27)

In its complaint, Plaintiff lists the relevant product market as "the sale, installation and servicing of NOTIFIER fire-detection and alarm system products" and the relevant geographic market as New York City. (Id. ¶ 8.) Plaintiff asserts that the alleged agreement among the NOTIFIER distributors constitutes a horizontal conspiracy (id. ¶¶ 1, 16, 18, 27), and that such conduct constitutes a per se violation of Section 1 of the Sherman Act (id. ¶¶ 29-33). In the alternative, if the alleged conspiracy is not deemed to be a per se violation, Plaintiff asserts that the complained of conduct is unlawful under the rule of reason because the anticompetitive effects of Honeywell's conduct outweigh the pro-competitive effects, if any. (Id. ¶¶ 34-37.)

III. Discussion

Defendant moves to dismiss the complaint for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Generally, a complaint must merely contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). In recent years the Supreme Court has clarified and refined the appropriate pleading standard:

Rule 8(a)(2) still requires a "showing," rather than a blanket assertion, of entitlement to relief. Without some factual allegation in the complaint, it is hard to see how a claimant could satisfy the requirement of providing not only "fair notice" of the nature of the claim, but also "grounds" on which the claim rests.

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 n.3 (2007). The Supreme Court recognized the "threshold requirement of Rule 8(a)(2) that the 'plain statement' possess enough heft to 'show that the pleader is entitled to relief.'" Id. at 557. Courts "do not require heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face." Id. at 570. In determining whether a complaint states a claim to relief that is plausible on its face, a court "must take all of the factual allegations in the complaint as true," but is "not bound to accept as true a legal conclusion couched as a factual allegation." Ashcroft v. Iqbal, ___ U.S. ____, 129 S.Ct. 1937, 1949-50 (2009) (citing Twombly, 550 U.S. at 555).

A. Per Se Analysis

The primary point of dispute between the parties is whether the complaint has alleged conduct that is properly analyzed under the per se rule for Sherman Act violations or under the so-called "rule of reason." While Plaintiff repeatedly asserts that Defendant's conduct constitutes a "horizontal conspiracy," and therefore is a per se violation, this characterization is a legal conclusion that the Court does not accept as true on a motion to dismiss. Therefore, as a threshold ...

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