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GRAHAM v. TRIANGLE PUBLS.

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA


August 21, 1964

JOHN J. & WARREN H. GRAHAM, a partnership
v.
TRIANGLE PUBLICATIONS, INC.

The opinion of the court was delivered by: HIGGINBOTHAM

This is an action for preliminary injunction instituted by plaintiffs, John and Warren Graham, suburban-Philadelphia newsdealers, seeking to enjoin defendant, Triangle Publications, Inc. (Triangle), owner and publisher of The Philadelphia Inquirer, from refusing to sell the Inquirer to plaintiffs, and alleging, inter alia, that Triangle's refusal to deal is prohibited by Section 1 of the Sherman Act. *fn1"

Triangle, on the other hand, filed a counterclaim against plaintiffs, joining 13 other suburban newsdealers *fn2" and the association to which they belong, *fn3" as counterdefendants, alleging, inter alia, *fn4" that these counterdefendants conspired at a series of meetings to fix the resale price of the Inquirer in violation of Section 1 of the Sherman Act. Although Triangle is not seeking injunctive and treble damage relief at this stage, evidence on this issue has bearing upon whether plaintiffs have come into equity with 'unclean hands.' Triangle also has moved to dismiss plaintiffs' complaint for failure to state a cause of action.

 My findings of fact for the purposes of this preliminary injunction are as follows: *fn5"

 The Inquirer, which is published in Philadelphia, is a morning newspaper carrying national and world-wide news and has a circulation of over 500,000 daily copies and over 900,000 Sunday copies. Its circulation includes substantial numbers of copies distributed in the states of New Jersey, Delaware, Maryland and the District of Columbia. Triangle has approximately 250 suburban newsdealers distributing Inquirers in Bucks, Chester, Delaware and Montgomery Counties in Pennsylvania, and Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Mercer and Salem Counties in New Jersey, and Newcastle County in the state of Delaware.

 Plaintiffs, John and Warren Graham, are partners in a news route in the Villanova-Rosemont area of suburban Philadelphia where they delivered newspapers to home subscribers and stores. Plaintiffs served 900 Inquirers daily and approximately 100 New York papers, including the New York Times and Herald Tribune. In delivering newspapers, plaintiffs used two trucks and various tying and wrapping equipment which they own. In addition to the work done by themselves they had one full-time employee to assist them. *fn6" They operate from plaintiff John Graham's home. Under the arrangement that plaintiffs and many other newsdealers had with Triangle, they purchased newspapers for resale from the defendant and were permitted to return the newspapers they did not sell and receive credit for them. Plaintiffs charged a weekly service fee ranging from ten cents to fifty cents per customer, with an average of approximately twenty cents, depending upon the amount of service required by the individual account. *fn7" It is this service charge which is the subject of the present controversy.

 At least as early as February 1958, the imposition of service charges by carriers was a matter of concern to Triangle. At that time Triangle's policy was to require new carriers to sign an agreement on a form supplied by it stating that they would not charge a price for the paper in excess of that established by Triangle. This policy was discontinued shortly afterwards, and instead, Triangle went 'along with (a) five cents a week delivery charge on the daily papers * * *' *fn8" until September 30, 1963, when it raised the daily Inquirer from five to eight cents a copy. *fn9"

 The retail price increase to eight cents was accompanied by notices to all of Triangle's carriers stating:

 'The daily home delivery price * * * becomes 48 cents per week [for six dailys a week]. Under this price structure, we will not supply the newspaper for resale by any carrier who adds a service charge to that figure.' *fn10"

 These notices were followed by periodic statements in the masthead of the Inquirer that the daily home delivered rate is 48 cents per week.

 After the notices to discontinue service charges were sent to the carriers, the enforcement policy of Triangle, as stated by Morris J. Schiffman, Circulation Director of the Inquirer, was that no action was to be taken against noncomplying carriers unless a complaint was made by one of the subscribers on his route. When a complaint was received, the carrier was then told by Mr. Schiffman, or one of his subordinates, that he would be 'cut off' unless he submitted a written statement that he would eliminate the service charge. However, Triangle took no independent action to ascertain whether service charges were being imposed by the carriers.

 In response to demands by representatives of Triangle, at least seven carriers gave such statements after being told that their supply of Inquirers would be discontinued. *fn11"

 Around the same time as Triangle announced its policy on service charges, a group of suburban carriers began meeting on a regular basis under the auspices of an organization known as the Delaware Valley News Dealers' Association. The first meeting was held in New Jersey at which plaintiff, John Graham, director and treasurer of the Association, spoke and at which Robert E. Davidson, one of the counterdefendants, presided. There were about seven of these meetings which were attended by as many as fifty carriers, some of whom were from New Jersey. One of the major -- although not sole -- subjects of discussion at these meetings was service charges.

 Plaintiff, John Graham, testified that the carriers, including himself as an active leader of the Association, agreed at these meetings that where they previously imposed a service charge, they would continue to make such charge. The suburban carriers also raised a legal fund of $ 6500 at these meetings to assist the first man whose supply of Inquirers was discontinued.

 After receiving numerous complaints from subscribers about plaintiffs' service charges, representatives of Triangle personally informed plaintiffs on February 13, 1963, and again on February 17, 1963, that unless they agreed to eliminate these charges they would be 'cut off.' Plaintiffs refused to agree and on February 18, 1964, Triangle stopped selling newspapers to the plaintiffs and have continuously refused to deal with them up to the present time. This refusal to deal was occasioned solely by the failure of plaintiffs to adhere to Triangle's announced resale price policy. On the same day, Triangle began establishing its own distribution system to the subscribers in the areas formerly serviced by plaintiffs so that the subscribers are now being served by Triangle's employees at a home delivery rate of 48 cents per week. This suit was instituted on February 18, 1964, immediately after the occurrence of the above described events.

 Before turning to the difficult questions raised in this litigation, I find preliminarily that the allegedly unlawful conduct of both Triangle and the counter-defendants involves and has a substantial effect upon interstate commerce. See Evening News Publishing Co. v. Allied Newspaper Carriers of New Jersey, 263 F.2d 715 (3rd Cir. 1963). *fn12"

 At this stage of the proceedings the Court is governed by the familiar rule that a preliminary injunction should be viewed with caution and only granted in those clear cases where there is a substantial probability of eventual success. *fn13" Thus, '* * * where difficult questions of law and fact are in dispute * * * it is established law of this District and Circuit that a preliminary injunction will not issue * * *.' Clifton Park Manor, Section One, Inc. v. Mason, 137 F.Supp. 324, 325 (D.Del.1955). *fn14" Accordingly, it has been said that '* * * to doubt is to deny.' Madison Square Garden Corp. v. Braddock, 90 F.2d 924, 927 (3rd Cir. 1937). I have doubt in this case.

 The major issues are: (1) whether, apart from the statements obtained from the seven carriers, triangle's refusal to deal with plaintiffs in pursuance of its resale price policy falls within the protection of the Colgate doctrine; and (2) whether because of Triangle's solicitation of the aforementioned statements, plaintiffs are clearly entitled to an injunction under 15 U.S.C. § 26 where the law is uncertain as to the defenses of unclean hands and McGuire Act exemption; and (3) whether plaintiffs will suffer irreparable injury if a preliminary injunction is not granted.

 I

 UNILATERAL REFUSAL TO DEAL

 Apart from the statements received from the carriers which I shall discuss in the next section, I find that Triangle's resale price policy was maintained and enforced within the permissible bounds of United States v. Colgate & Co., 250 U.S. 300, 39 S. Ct. 465, 63 L. Ed. 992 (1919) and United States v. Parke Davis & Co., 362 U.S. 29, 80 S. Ct. 503, 4 L. Ed. 2d 505 (1960).

 Colgate held that unless an express or implied agreement between a manufacturer and dealer exists, a manufacturer can enforce its resale price policy by refusing in sell to noncomplying dealers. This doctrine has been narrowed over the years by cases which involved more than a bare refusal to deal.

 Thus in Federal Trade Commission v. Beech-Nut Packing Co., 257 U.S. 441, 42 S. Ct. 150, 66 L. Ed. 307 (1922), Beech-Nut refused to sell to wholesalers who sold to price-cutting retailers. To detect violators Beech-Nut utilized code numbers on its products and had numerous agents reporting on retailers.

 In United States v. Bausch & Lomb Optical Co., 321 U.S. 707, 64 S. Ct. 805, 88 L. Ed. 1024 (1943), the Court found a violation of the Sherman Act when defendant refused to sell to wholesalers who sold to retailers other than those who were approved by defendant (i.e., retailers who adhered to the published retail price list).

 And finally in United States v. Parke Davis, supra, the Court departed from the requirement of finding an express or implied agreement to maintain prices, as enunciated in the earlier cases, and held that Parke Davis' 'refusal to deal with * * * wholesalers in order to elicit their willingness to deny Parke Davis products to (price-cutting) retailers' was a combination and conspiracy in restraint of trade within the meaning of Section 1 of the Sherman Act. (362 U.S. at 45, 80 S. Ct. at 512.) The Court in Parke Davis did not overrule Colgate, but only amplified the type of conduct beyond a simple refusal to deal which would be deemed unlawful.

 All of the cases cited by plaintiffs on this issue, including the cases cited above, *fn15" involve facts of a conspiracy or combination between a producer and his distributers to boycott or refuse to deal with certain designated third persons and, in some cases, a system of spying or active policing to ascertain noncomplying retailers. In the instant case, there is no allegation nor evidence of any combination or conspiracy to boycott any third persons, and though there is an allegation in the complaint of spying, *fn16" plaintiffs have failed to prove this conduct. Absent these elements, Triangle's actions consist of no more than a simple unilateral refusal to deal which falls within the permissible limits of the Colgate case, supra, and the Third Circuit case of Klein v. American Luggage Works, Inc., 323 F.2d 787 (3rd Cir. 1963).

 II

 DEFENSES TO CLAIMED ILLEGALITY OF THE SEVEN AGREEMENTS

 Assuming without deciding that the seven agreements which Triangle obtained from the carriers are illegal and invalidate its resale price setting scheme, *fn17" Triangle raised defenses involving cloudy areas of antitrust law on which there is not yet any final authority and which cast doubt on plaintiff' case.

 First, plaintiffs contend that the seven agreements fall within the McGuire Act exemption to the antitrust laws. Section 2 of that Act provides:

 'Nothing * * * in any of the Antitrust Acts shall render unlawful any contracts or agreements prescribing minimum or stipulated prices * * * of a commodity which bears * * * the trademark, brand, or name of the producer * * * of such commodity * * * when contracts or agreements of that description are lawful as applied to interstate transactions under any statute * * * in effect in any State.' 15 U.S.C. § 45(a)(2). (Emphasis added.)

 And section 1 of the Pennsylvania Act similarly exempts agreements from the antitrust laws which provide 'that the buyer will not resell such commodity, except at the price stipulated by the vendor.' (Emphasis added.) Act of June 5, 1935, P.L. 266, 1, as amended, 73 P.S. § 7. The textual argument is thus made that these two acts do not merely exempt minimum price agreements but also exempt 'stipulated' price agreements, including the instant agreements which stipulate that the carriers would charge no more than forty-eight cents per week.

 Since this is a rather novel contention, there are no cases precisely in point. However, in Mead Johnson & Co v. West Chester Discount Health & Vitamin Center, Inc., 212 F.Supp. 310 (E.D.Pa.1962), then District Court Judge Freedman alluded to the present situation when he said: 'Indeed, it may well be said that the fixing of a minimum retail price is an exercise of some, but not all, of the authority conferred by the statutory right to set a stipulated price.' (212 F.Supp. at 313). (Emphasis added.) It should also be mentioned that the Miller-Tydings Amendment *fn18" only used the phrase 'minimum prices.' It would therefore seem that the later addition of the words 'stipulated price' was intended by Congress in the McGuire Act to mean something more than a minimum price. *fn19"

 Section 1 of the Pennsylvania Act, here relied on, is still in force since the Supreme Court of Pennsylvania only declared the non-signer clause of Section 2 *fn20" unconstitutional in Olin-Mathieson Chemical Corp. v. White Cross Stores, Inc., 414 Pa. 95, 100, 199 A.2d 266 (1964). In the White Cross case the Pennsylvania Supreme Court was concerned with the improper delegation of power to private persons, a problem which does not exist under Section 1, which declares lawful vertical agreements between producer and vendor. Until the state courts also declare Section 1 of the Pennsylvania Act unconstitutional it still remains on the books and must be applied as written. Again it should be remembered that a final interpretation of the Federal and Pennsylvania Acts is not required at this stage. I only mention the above considerations to indicate the uncertainty in the law and the reasons for the 'doubt' that I have. *fn21"

 Next, there is the contention that the agreement of plaintiffs with the other carriers attending the meetings of the Delaware Valley News Dealers Association to continue to impose service charges constitutes an illegal price-fixing conspiracy and, as such, plaintiffs' unclean hands bar them from obtaining a preliminary injunction under § 16 of the Clayton Act. (15 U.S.C. § 26.) However, plaintiffs maintain that the unclean hands defense no longer exists in antitrust suits, citing as authority Kiefer-Stewart v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211, 71 S. Ct. 259, 95 L. Ed. 219 (1951) and Moore v. Mead Service Co., 340 U.S. 944, 71 S. Ct. 528, 95 L. Ed. 681 (1951). *fn22"

  In the Kiefer-Stewart and Moore cases, the Supreme Court did not permit the unclean hands defense to be interposed in actions at law for treble damages under 15 U.S.C. § 15. There is no question that the scope of the pari delicto or unclean hands defense has been limited by the above-cited cases *fn23" and that the District Courts are divided on whether the Kiefer-Stewart and Moore cases should be extended to deny the defense in suits for injunction under 15 U.S.C § 26. *fn24"

 Although the Third Circuit has in the past honored the defense in a private suit for injunction instituted under the antitrust laws ( Singer v. A. Hollander, 202 F.2d 55, 59 (3rd Cir. 1953)), it did not rely on the defense as the sole reason for dismissing the suit. If the unclean hands defense was the most persuasive argument for denying an injunction which should otherwise issue I would be inclined to hold under the facts and circumstances of this case that it would not be enough to thwart relief. *fn25" However, the scale tips against granting the extraordinary remedy which plaintiffs seek when the absence of a clear appellate precedent precluding the unclean hands defense in private antitrust injunction proceedings is combined with the other previously mentioned uncertainties in the law.

 III

 NO IRREPARABLE INJURY

 Plaintiffs' case fails in still another respect. Since plaintiffs have the burden of proving that they will suffer irreparable injury, *fn26" it is necessary for them to establish that they do not have an adequate remedy at law for damages and that their losses are incapable of definite measurement. See Henis v. Campania Agricola De Guatemala, 116 F.Supp. 223 (D.C.Del.1953), aff'd. per curiam, 210 F.2d 950 (3rd Cir. 1954); Hershel California Fruit Products Co., Inc. v. Hunt Foods, Inc., 111 F.Supp. 732 (S.D.Cal.1953); Fein v. Security Banknote Co., 157 F.Supp. 146 (S.D.N.Y.1957). This they have failed to do.

  Although the value of a major news route in this specific locality cannot be measured from day to day with the same precision with which one could estimate the value of a blue chip stock at 4:05 p.m., nevertheless, I cannot assume in the absence of proof on this issue that it is impossible to give a reliable approximation of the value of such route. Newspaper routes are frequently bought and sold. Since plaintiffs have failed to establish the negative, i.e., the inability to prove losses in a definite liquidated amount, I cannot invoke a doctrine of judicial notice to cover plaintiffs' evidentiary gap.

 In summary then, the failure of plaintiffs to prove irreparable harm combined with the novel and intricate legal questions upon which the law is not clear lead me to refrain from granting plaintiffs' motion for preliminary injunction.

 Triangle's motion to dismiss will also be denied since the allegations of plaintiffs' complaint, especially those dealing with policing and vertical agreements, state a cause of action under the Beech-Nut and Dr. Miles cases, supra.

 To the extent that what I have said constitutes Findings of Fact and Conclusions of Law, this Opinion shall be considered as containing them. In addition, I affirm, albeit in different form, plaintiffs' Request for Findings of Facts Nos. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 13, 14, 15, 16, 17, 21, 22, 23, 24. No. 18 is affirmed except for the Davidson agreement. I also affirm defendant's Request for Findings of Facts Nos. 1, 2, 3, 4, 6, 8, 11, 13, 14, 15, 17, 18, 19, 20, 22, 23, 24, 25, 26 and 35. All other Requests for Findings of Fact and Conclusions of Law not in harmony with those stated in this Opinion are severally denied.

 The accompanying Order also includes rulings on related discovery phases of this case which are pending.

 ORDER

 And now, this 21st day of August, 1964, plaintiffs' motion for preliminary injunction is hereby denied and defendant's motion to dismiss is also denied.

 On the discovery phases of this litigation, since defendant has priority in discovery it shall proceed within a reasonable time to complete its discovery. Upon completion of defendant's discovery, plaintiffs and counterdefendants may commence their discovery.

 Defendant's general objection to plaintiffs' interrogatories on the ground of priority is sustained. Similarly, defendant's motion for a protective order as to plaintiffs' notice of deposition is granted until defendants complete their discovery, at which time plaintiffs may proceed with their discovery. Plaintiffs' request for admissions under F.R.Civ.P. 36 is granted and plaintiffs' motion for sanctions for refusal to make discovery under F.R.Civ.P. 37 is denied.


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