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CALLAHAN v. SCOTT PAPER CO.

June 14, 1982

F. Joseph CALLAHAN
v.
SCOTT PAPER COMPANY; Jeffrey W. BROWN v. SCOTT PAPER COMPANY



The opinion of the court was delivered by: LUONGO

In these two related civil actions, F. Joseph Callahan, plaintiff in C.A. 81-3786, and Jeffrey W. Brown, plaintiff in C.A. 81-3788, both former employees of the defendant, Scott Paper Company (Scott), allege inter alia that they were discharged from their employment with Scott because they exposed, objected to, and made efforts to eliminate unlawful price discounts and promotional allowances granted by Scott to certain "favored customers" in violation of section 1 of the Sherman Act, 15 U.S.C. § 1, and section 2 of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13. Claiming that they have been injured in their business or property by reason of Scott's alleged antitrust violations, plaintiffs seek (1) treble damages under section 4 of the Clayton Act, 15 U.S.C. § 15, and (2) to enjoin Scott from further violations of the antitrust laws, see 15 U.S.C. § 26. In addition, Brown and Callahan have asserted state-law claims, seeking damages and reinstatement on the theory of wrongful discharge. Jurisdiction over these latter claims exists by reason of diversity of citizenship. Presently before me are Scott's motions to dismiss the antitrust and wrongful discharge counts of plaintiffs' complaints on the ground that they do not state claims upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). For reasons discussed herein, I will grant Scott's motions.

I. The Antitrust Claims

 The factual allegations bearing on plaintiffs' antitrust claims, as set forth in their respective complaints, are substantially the same. *fn1" For purposes of these motions to dismiss, I accept the truth of those allegations.

 Scott is a large corporation engaged in the manufacture of various paper products, including paper towels, toilet tissue, facial tissues, napkins and wax paper. Plaintiffs Brown and Callahan had been employed by Scott for 13 and 24 years, respectively, during which time they held various positions. At all times relevant to these lawsuits, however, they were employed in sales managerial capacities. In these positions, plaintiffs' compensation, bonuses, stock options, promotions and performance ratings were based in part on the sales and profits in their assigned territories, as well as on their ability to obtain new and retain old customers. Sometime between 1976 and 1980, Callahan became aware that Scott was offering unlawful price discounts and promotional allowances to some customers but not to others. Brown learned similar information in 1980 or 1981. Each objected to this unlawful activity and took steps to halt it. As a result, they came into conflict with their superiors. On February 19, 1981, Callahan was terminated without explanation. Approximately one month later, Brown was terminated, also without explanation.

 Scott contends that plaintiffs do not have standing to sue for treble damages under § 4 of the Clayton Act, 15 U.S.C. § 15, and therefore that plaintiffs' antitrust claims must be dismissed. More particularly, Scott argues that employees of the antitrust violator, as opposed to competitors or customers, do not have standing to sue their employer for violation of the antitrust laws. Plaintiffs maintain that the Court of Appeals for the Third Circuit has rejected the "competitors only" test and has opted instead for a standard which measures a particular plaintiff's standing based upon a "functional analysis of the factual matrix." Plaintiffs argue that under this latter approach they meet the standing requirement. Although I disagree somewhat with Scott's reasoning, I do agree that plaintiffs lack standing to sue for treble damages.

 Section 4 of the Clayton Act provides that "(any) person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor ... and shall recover threefold the damages by him sustained ...." 15 U.S.C. § 15. Despite its broad language, however, the "courts have been virtually unanimous in concluding that Congress did not intend the antitrust laws to provide a remedy in damages for all injuries that might conceivably be traced to an antitrust violation." Hawaii v. Standard Oil Co., 405 U.S. 251, 263 n.14, 92 S. Ct. 885, 891 n.14, 31 L. Ed. 2d 184 (1972) (collecting cases). Thus, to restrict the availability of the relief provided by § 4 to those individuals whose protection is the fundamental purpose of the antitrust laws, "the courts have developed a standing doctrine "peculiar to antitrust actions.' " Bravman v. Bassett Furniture Industries, Inc., 552 F.2d 90, 96 (3d Cir. 1977) (quoting Malamud v. Sinclair Oil Corp., 521 F.2d 1142, 1148 (6th Cir. 1975)), cert. denied, 434 U.S. 823, 98 S. Ct. 69, 54 L. Ed. 2d 80 (1978).

 In Cromar Co. v. Nuclear Materials & Equipment Co., 543 F.2d 501 (3d Cir. 1976), Judge Garth reviewed the history of the § 4 standing requirement in the Third Circuit. Without attempting to duplicate his scholarly efforts, it is nevertheless useful to reexamine the case law in this circuit to determine whether plaintiffs have standing to sue their former employer for damages for violating the antitrust laws. In two early per curiam opinions, Melrose Realty Co. v. Loew's, Inc., 234 F.2d 518 (3d Cir.), cert. denied, 352 U.S. 890, 77 S. Ct. 128, 1 L. Ed. 2d 85 (1956), and Harrison v. Paramount Pictures, Inc., 115 F. Supp. 312 (E.D.Pa.1953), aff'd, 211 F.2d 405 (3d Cir.), cert. denied, 348 U.S. 828, 75 S. Ct. 45, 99 L. Ed. 653 (1954), the court of appeals held that the lessor of a motion picture theater who was not engaged in the business of operating theaters, but whose rental income from the leased theater was based on a percentage of the lessee's receipts, did not have standing to sue the lessee or the motion picture distributors who had conspired to violate the antitrust laws by restricting the licensing of pictures at the theater. The decisions in Melrose and Harrison were based entirely on the district court opinion of Judge Kirkpatrick in Harrison, supra. Judge Kirkpatrick's analysis, however, was limited. Stating that it was impossible to define a general rule for gauging a plaintiff's § 4 standing, Judge Kirkpatrick found only that the lessor's injury-the diminution of rental income resulting from the alleged unlawful licensing restrictions-was too remote and clearly "beyond the limit of injuries cognizable under the antitrust laws." 115 F. Supp. at 317.

 In a line of decisions subsequent to Melrose and Harrison, the court of appeals held that a shareholder of a corporation, whose only injury consisted of the diminution in value of his shares, did not have standing to maintain a § 4 suit for antitrust injury inflicted on the corporation. E.g., Pitchford v. PEPI, Inc., 531 F.2d 92 (3d Cir.), cert. denied, 426 U.S. 935, 96 S. Ct. 2649, 49 L. Ed. 2d 387 (1976); Kauffman v. Dreyfus Fund, Inc., 434 F.2d 727 (3d Cir. 1970), cert. denied, 401 U.S. 974, 91 S. Ct. 1190, 28 L. Ed. 2d 323 (1971); Ash v. International Business Machine Corp., 353 F.2d 491 (3d Cir. 1965), cert. denied, 384 U.S. 927, 86 S. Ct. 1446, 16 L. Ed. 2d 531 (1966). The reason for denying the shareholder-plaintiff standing in each of these decisions was simple; "the language (in section 4 of the Clayton Act) does not include indirect harm that the individual may (have suffered) as a stockholder through injury inflicted upon the corporation." Pitchford v. PEPI, Inc., 531 F.2d at 97. Pitchford, Kauffman and Ash are thus representative of the "direct injury" test of § 4 standing. The critical inquiry under direct injury analysis is whether there is some intermediate antitrust victim separating the plaintiff and the antitrust violator. If so, the plaintiff lacks standing. See In re Multidistrict Vehicle Air Pollution M. D. L. No. 31, 481 F.2d 122, 127 (9th Cir.), cert. denied, 414 U.S. 1045, 94 S. Ct. 551, 38 L. Ed. 2d 336 (1973).

 In International Ass'n of Heat and Frost Insulators & Asbestos Workers v. United Contractors Ass'n, 483 F.2d 384 (3d Cir. 1973), amended 494 F.2d 1353 (3d Cir. 1974), the court of appeals tempered its restrictive approach to standing to sue under § 4 and permitted a group of unions to sue on behalf of their members even though the injury suffered by the union members was not the direct result of the defendants' anticompetitive conduct. Although the standing issue presented in International Association is dissimilar to that which confronts this court, the court of appeals' reasoning is instructive. Briefly summarizing the facts, 28 unions (Unions), on behalf of their members, sued the Associated Trades and Crafts Union (Trades and Crafts Union) and the United Contractors Association (Association), a trade association which, inter alia, acted as bargaining representative for the member contractors, for conspiring and combining to restrain trade and eliminate competition in the construction industry in the Western District of Pennsylvania. To accomplish their scheme, the Association and the Trades and Crafts Union agreed that employees of members of the Association would be compelled to be members of the Trades and Crafts Union. In addition, the Association and the Trades and Crafts Union would enter into sham collective bargaining agreements, thereby enabling the employer members of the Association to gain a competitive advantage over the non-Association contractors who had bona fide collective bargaining agreements with the plaintiff Unions. Association members could then use their competitive advantage to effectively eliminate competition from the non-Association contractors. The Unions alleged that the defendants' scheme injured their members by denying them the right to work and earn wages on construction industry jobs which the Association members had obtained solely by reason of their unlawful competitive advantage.

 Judge Forman, author of the opinion in International Association, conceded that the harm suffered by members of the Unions was indirect inasmuch as the defendants' unlawful scheme was directed at their employers, the non-Association contractors. Nevertheless, the court held that the Unions did have standing to sue on behalf of their members because the members were within the "target area" of the defendants' anticompetitive activity, i.e., the area of the economy in which the elimination of competition occurred. The court's decision was based on the seemingly contradictory decision of the Court of Appeals for the Ninth Circuit in Conference of Studio Unions v. Loew's, Inc., 193 F.2d 51 (9th Cir. 1951), cert. denied, 342 U.S. 919, 72 S. Ct. 367, 96 L. Ed. 687 (1952), which held that a union did not have § 4 standing to sue on behalf of its members, where the injury sustained by the members, the loss of their jobs, was the result of their employers' violation of the antitrust laws. Judge Forman, however, relied heavily on the following passage from Conference :

 International Association, 483 F.2d at 397 (quoting Conference of Studio Unions v. Loew's, Inc., 193 F.2d at 54) (emphasis added by International Association court). Reasoning by negative implication, Judge Forman observed that, unlike the plaintiffs in Conference, the International Association plaintiffs were employees of the companies the defendants conspired to destroy. Thus, the injury to them, albeit indirect, could not be said to be incidental.

 The next step in the development of the § 4 standing requirement came in Pitchford v. PEPI, Inc., 531 F.2d 92 (3d Cir.), cert. denied, 426 U.S. 935, 96 S. Ct. 2649, 49 L. Ed. 2d 387 (1976), where the officer of a corporation, who was also its primary shareholder, sought to recover damages for injuries stemming from unlawful restraints of trade imposed upon the corporation. Relying on its holdings in Ash, supra, and Kauffman, supra, the court held that the officer could not sue in his capacity as shareholder. In addition, the court held that any salary reduction suffered by him as a result of the injury to the corporation was not sufficient to give him standing to sue in his capacity as officer. In what appears to be a reaffirmation of the direct injury test, the court stated:

 
Moreover, salaries of corporate officers are not necessarily tied to corporate profits; other factors may weigh in the balance. To permit suits by officers for salaries lost in consequence of antitrust violations on the basis of facts such as were presented here would open the door to conjectural damage claims. Mere assertion of a relation between a corporation's losses and its officers' salaries without more does not provide the foundation necessary to establish standing to sue. If his salary as president is not simply the reverse side of his earnings as principal shareholder of the ...

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