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Sound Ship Building Corp. v. Bethlehem Steel Co.

filed: January 16, 1976; As Amended June 13, 1976.

SOUND SHIP BUILDING CORP., A NEW YORK CORPORATION, APPELLANT,
v.
BETHLEHEM STEEL COMPANY (INCORPORATED), A PENNSYLVANIA CORPORATION AND BETHLEHEM STEEL CORPORATION, A DELAWARE CORPORATION



ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY D.C. CIVIL No. 112-73.

Van Dusen, Adams and Rosenn, Circuit Judges.

Author: Adams

Opinion OF THE COURT

ADAMS, Circuit Judge.

This is an appeal by Sound Ship Building Corporation (Sound Ship) from the district court's ruling that Bethlehem Steel Corporation (Bethlehem) did not violate section 1 of the Sherman Act by including a restrictive covenant in the deed of sale transferring certain land to the JML Trading Company (JML). We affirm the judgment, although on a ground different from that relied on by the district court.

I.

Sound Ship is a corporation that engaged in the construction and repair of non-self-propelled barges in the New York harbor area. During the 1950's and 1960's, it conducted its business at a site in the College Point section of Queens, New York. The land and facilities were used by Sound Ship under the terms of a lease that expired in September 1971.

When it was informed by its landlord that the lease would not be renewed, Sound Ship sought a new location for its operations. In the course of its search, Sound Ship examined over forty parcels of land in the New York region. The one that it found most suitable was part of a tract known as Mariner's Harbor Industrial Park, on Staten Island. This site had sufficient pier space, water depth, and launching ways for Sound Ship's construction business.

The Mariner's Harbor property was owned by JML. It had previously been one of four shipyards operated by Bethlehem in the New York area. Bethlehem had sold it and two of the other three shipyards during the 1960's in the face of a decline in the region's ship-building market. In each of the three sales, Bethlehem had included a deed restriction that prohibited the use of the location for the construction or repair of ships for a specified period of time. The sale of the Mariner's Harbor property to JML took place in 1964, and the restriction in the deed of sale was to be effective for twenty years.

JML was willing to rent its Mariner's Harbor site to Sound Ship, but the covenant restricting the business permitted there rendered the property of limited value for Sound Ship's purposes. Because it found the site so attractive, Sound Ship attempted to obtain a release of the covenant from Bethlehem. At first, Bethlehem refused to grant the release, but it later expressed a willingness to lift all restrictions for a price of $250,000, to be paid over the remaining thirteen years that the covenant would otherwise have been effective. When this figure was combined with the rental fees that JML would have charged, Sound Ship would have had to pay just over $45,000 annually for the property. Sound Ship decided not to take the property, and the only reason set forth for its declination is that one of Sound's principals became angry at the prospect of paying $250,000 to a competitor.

Subsequent to January 1972, Sound Ship leased a property in Hoboken, New Jersey. The Hoboken site, however, presented Sound Ship with several difficulties. In particular, it did not have sufficient launching ways for construction of new vessels; the water was too shallow for use of Sound Ship's floating drydock; and heavy tugboat traffic and a severe tidal rip made the performance of repair work in the water rather difficult. Despite these problems, the annual rental that Sound Ship agreed to pay for the Hoboken location was $56,000 -- almost $11,000 more than Sound Ship would have had to pay for the Mariner's Harbor property. An additional $33,250 had to be expended every year at Hoboken for watchman and security services, which would have been provided free of charge by the landlord at Mariner's Harbor, and for dredging, which would not have been necessary at Mariner's Harbor. As Sound Ship concisely states in its brief, the Hoboken property "not only was considerably more costly in terms of rent and other operating expenses, but also was far less suited to Sound Ship's business."

Some time after leasing the Hoboken property, Sound Ship's financial condition deteriorated, and the company ultimately went out of business. Sound Ship filed suit against Bethlehem in January 1973. It alleged in its complaint that the inclusion of the restrictive covenant in the deed of sale and Bethlehem's refusal to waive the restrictions without payment of a fee violated sections 1 and 2 of the Sherman Act.*fn1 The Count of the complaint based upon section 2 was later voluntarily dropped by Sound Ship.

Each party moved for summary judgment. Based on the pleadings, affidavits, answers to interrogatories, and depositions, the district court entered judgment in favor of Bethlehem. The trial judge held that the covenant was merely ancillary to a lawful primary contract, and was therefore not violative of section 1 of the Sherman Act. Principal reliance was ...


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