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CERNUTO, INC. v. UNITED CABINET CORP.

April 20, 1978

CERNUTO, INCORPORATED, a corporation, t/d/b/a C&C BUILDERS SUPPLY COMPANY, Plaintiff,
v.
UNITED CABINET CORPORATION, a corporation, FAMOUS FURNACE & SUPPLY COMPANY, a corporation, and ROBERT L. LAPPIN COMPANY, INC., a corporation, Defendants



The opinion of the court was delivered by: COHILL

 Plaintiff, Cernuto, Inc. (C&C) instituted this action asserting a violation of § 1 of the Sherman Act, 15 U.S.C. § 1 (1970), which declares illegal every contract, combination or conspiracy in restraint of trade. In addition, invoking this court's pendent jurisdiction, C&C set forth five counts predicated on its alleged contract rights and a count based on unfair trade practices.

 Defendants in this case are United Cabinet Corporation (United), which manufactures kitchen and bathroom cabinets, Robert L. Lappin Company, Inc. (Lappin), exclusive manufacturer's representative for United in Ohio, parts of West Virginia and western Pennsylvania, and Famous Furnace & Supply Company (Famous), which sells United's products in the same geographic area as did C&C. Defendants United and Lappin have moved for summary judgment on Count 1, which alleges the Sherman Act violation. Lappin alone moved for summary judgment on Count 6, which alleges tortious interference with contractual relations.

 In their motion for summary judgment, United and Lappin contend that Count 1 of the complaint fails to allege that the asserted agreement to terminate C&C unreasonably restrained trade, which is essential to make out a violation of § 1 of the Sherman Act except for certain practices condemned as per se unreasonable restraints of trade. In addition, United and Lappin point out that, because C&C did not indicate in its pretrial statement an intent to prove an unreasonable restraint of trade, Local Rule 5.II. precludes C&C from offering such proof at trial. Without establishing an unreasonable restraint of trade, according to the movants, C&C cannot prevail on Count 1 because it has not alleged a per se violation.

 C&C apparently agrees with this analysis except that it argues it has alleged a per se violation and has offered in its pretrial statement to prove facts supporting such a violation. The determinative question, therefore, is whether C&C can prove at trial facts supporting a per se violation. We conclude that it cannot and accordingly grant summary judgment as to Count 1 in favor of United and Lappin.

 For purposes of this motion, United and Lappin accept as true the facts C&C has alleged regarding its termination. Where conflicting inferences can be drawn from the facts, C&C, the nonmoving party, is entitled to all those inferences favorable to its position. United States v. Diebold, 369 U.S. 654, 8 L. Ed. 2d 176, 82 S. Ct. 993 (1962); Smith v. Pittsburgh Gage & Supply Co., 464 F.2d 870 (3d Cir. 1972). If the record shows an indisputable right to judgment and affirmatively establishes that the non-moving party cannot prevail under any circumstances, however, summary judgment may be granted. Phoenix Savings & Loan, Inc. v. Aetna Casualty & Surety Co., 381 F.2d 245 (4th Cir. 1967).

 Count 1

 C&C alleges that defendants' concerted actions led to C&C's termination in violation of § 1 of the Sherman Act, 15 U.S.C. § 1 (1970), which provides in part:

 
"Every contract, combination . . . or conspiracy, in restraint of trade or commerce among the several States . . is declared to be illegal . . .."

 To prove a § 1 violation, a plaintiff must establish that the concerted activity was "in restraint of trade." Because all business agreements restrain trade to some degree, the Supreme Court long ago construed § 1 to proscribe only those combinations that unduly restrain trade. Standard Oil Co. of N.J. v. United States, 221 U.S. 1, 58-60, 55 L. Ed. 619, 31 S. Ct. 502 (1911). See Ace Beer Distributors, Inc. v. Kohn, Inc., 318 F.2d 283, 286-87 (6th Cir.), cert. denied, 375 U.S. 922, 84 S. Ct. 267, 11 L. Ed. 2d 166 (1963). Thus, as a general rule, an antitrust plaintiff must prove "that the combination or conspiracy produced adverse, anti-competitive effects within relevant product and geographic markets . . .." Martin B. Glauser Dodge Co. v. Chrysler Corp., 570 F.2d 72, 81 (3d Cir. 1977). See Coleman Motor Co. v. Chrysler Corp., 525 F.2d 1338, 1346 (3d Cir. 1975). In this case, however, C&C has not alleged such harmful effects of defendants' supposed combination. Nor has C&C disclosed in its pretrial narrative statement or at the pretrial conference the substance of any evidence of anti-competitive effects in the relevant markets, which, according to Local Rule 5.II.G., bars C&C's admission of such evidence at trial. C&C, therefore, is precluded from proving at trial that the alleged agreement was "in restraint of trade."

 An exception to the general rule requiring proof of an undue restraint of trade, however, exists for certain concerted activities that the courts, through experience with them, consider per se unreasonable restraints. "[Because] of their pernicious effect on competition and lack of any redeeming virtue [they] are conclusively presumed to be unreasonable and therefore illegal." Northern Pac. R. Co. v. United States, 356 U.S. 1, 5, 2 L. Ed. 2d 545, 78 S. Ct. 514 (1958). These exceptions include horizontal price fixing, United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 84 L. Ed. 1129, 60 S. Ct. 811 (1940); resale price maintenance, Dr. Miles Medical Co. v. John D. Park & Sons, 220 U.S. 373, 55 L. Ed. 502, 31 S. Ct. 376 (1911); group boycotts, Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 3 L. Ed. 2d 741, 79 S. Ct. 705 (1959); tying arrangements, International Salt Co. v. United States, 332 U.S. 392, 92 L. Ed. 20, 68 S. Ct. 12 (1947); and reciprocal dealing, United States v. Griffith, 334 U.S. 100, 92 L. Ed. 1236, 68 S. Ct. 941 (1948). Thus, to withstand the motion for summary judgment on Count 1, C&C must have alleged and be able to prove a per se violation of § 1.

 C&C alleges that Famous, Lappin and United agreed that United would refuse to deal with C&C. It is well established that a "refusal to deal," i.e., a refusal to buy or sell, is not in itself violative of § 1 of the Sherman Act. The right of a businessman to exercise his independent discretion in deciding with whom he will deal has long been recognized. United States v. Colgate, 250 U.S. 300, 63 L. Ed. 992, 39 S. Ct. 465 (1919). This right of selection, however, is a qualified one; it presumes the right, also qualified, not to deal with others. See, e.g., Lorain Journal Co. v. United States, 342 U.S. 143, 96 L. Ed. 162, 72 S. Ct. 181 (1951). A refusal to deal violates § 1 of the Sherman Act only when it, in combination with other factors, produces an unreasonable restraint of trade. United States v. Parke, Davis & Co., 362 U.S. 29, 32, 4 L. Ed. 2d 505, 80 S. Ct. 503 (1960); Ace Beer Distributors, Inc. v. Kohn, Inc., supra, at 286-87. And a refusal to deal that is in furtherance of a per se violation is itself a per se restraint of trade. See, e.g., Quigley v. Exxon Co. U.S.A., 376 F. Supp. 342, 350-52 (M.D. Pa. 1974); Interphoto Corp. v. Minolta Corp., 295 F. Supp. 711 (S.D.N.Y.), aff'd, 417 F.2d 621 (2d Cir. 1969). The question becomes, therefore, whether the refusal to deal with C&C for reasons that can be inferred from the record, drawing inferences most favorable to C&C, was in furtherance of a per se violation.

 Refusals to deal generally arise in one of three contexts: (1) unilateral refusals to deal, where an individual person or firm independently decides not to sell to, or buy from, one or more customers or suppliers; (2) vertical refusals to deal, where businesses in successive tiers of the distributive system expressly agree not to deal with others; and (3) horizontal refusals to deal, also called group boycotts, where competitors agree not to deal with others in the same level of distributive system or in other levels. 8 von Kalinowski, Antitrust Laws and Trade Regulation § 61.01 (1977). Although the alleged agreement here was vertical in structure, it involved only a single supplier, United, and a single dealer, Famous. Because no other competitor of United agreed not to deal with C&C, the arrangement was not truly a boycott, which would be per se illegal. Klor's Inc. v. ...


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