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MERICAN, INC. v. CATERPILLAR TRACTOR CO.

September 28, 1984

MERICAN, INC., MERICAN CURTIS, INC., and MERICAN CURTIS, LTD.
v.
CATERPILLAR TRACTOR CO.



The opinion of the court was delivered by: VANARTSDALEN

 VanARTSDALEN, J.

 Plaintiffs filed the present action nearly four years ago, alleging that defendant Caterpillar Tractor Co. (Caterpillar) violated § 1 of the Sherman Act, 15 U.S.C. § 1, by altering its system for collecting a service fee from its authorized dealers in order to exclude plaintiffs and other independent marketers from competing in the overseas sale and servicing of Caterpillar electrical generator sets. Plaintiffs originally sought monetary damages under § 4 of the Clayton Act, 15 U.S.C. § 15, and injunctive relief under § 16 of the Clayton Act, 15 U.S.C. § 26. In March of 1982, Caterpillar moved to dismiss plaintiffs' claims for monetary damages, because plaintiffs were indirect purchasers and thus barred by the rule of Illinois Brick Co. v. Illinois, 431 U.S. 720, 52 L. Ed. 2d 707, 97 S. Ct. 2061 (1977). This court denied Caterpillar's motion, but certified the Illinois Brick issue to the court of appeals pursuant to 28 U.S.C. § 1292(b), and the court of appeals granted review. The court of appeals then reversed this court's order, holding that the rule of Illinois Brick bars plaintiffs from seeking damages under § 4 of the Clayton Act. Merican, Inc. v. Caterpillar Tractor Co., 713 F.2d 958 (3d Cir. 1983), cert. denied, 465 U.S. 1024, 104 S. Ct. 1278, 79 L. Ed. 2d 682 (1984). *fn1"

 In the aftermath of the court of appeals' decision, the parties have moved in opposite directions. Plaintiffs have filed a motion for leave to amend their complaint to replace the rejected § 4 claim with a claim for damages under the common law of civil conspiracy. Caterpillar, on the other hand, filed a motion for summary judgment as to plaintiffs' remaining claim for injunctive relief. For the reasons that follow, plaintiffs' motion will be denied, and Caterpillar's motion will be granted.

 Most of the relevant facts are set forth at length in the court of appeals' opinion. Briefly, Caterpillar distributes its electrical generator sets through a network of authorized dealers. Under the terms of the distribution agreement between Caterpillar and its dealers, Caterpillar offers the dealers a 5% discount off the list price of its electrical generator sets in exchange for the dealer's obligation to service Caterpillar's products in the dealer's assigned service territory. If a dealer sells a Caterpillar generator set that receives its "initial substantial use" in another dealer's service territory, the selling dealer is required to return the 5% to Caterpillar. Caterpillar then distributes the 5% to the servicing dealer, provided that the servicing dealer submits an appropriate claim. This payment is known as an interterritorial service fee.

 Prior to 1978, Caterpillar had a practice of returning the fee to the selling dealer if no servicing dealer presented a claim. Many selling dealers simply transferred the service fee directly to the servicing dealer, and retained the service fee if they knew that no claim would be made. A dealer selling to an independent marketer that resold the generator set and provided its own servicing could be assured that no claim for the service fee would be made. Consequently, that selling dealer could pass on some or all of the 5% as a price reduction to the buyer.

 In July, 1978, Caterpillar began to insist that its dealers comply with the distribution agreement and return the service fee as soon as it became known that the generator set would receive its initial substantial use outside of the seller's service territory. Caterpillar would then hold the fee for a year, and return it to the selling dealer if no claim was made. In February 1980, Caterpillar implemented a policy whereby it no longer returned the service fee to the selling dealer, but instead kept all unclaimed fees as miscellaneous income. The practical result of this modified system was to prevent selling dealers from passing on all or part of the service fee as a price reduction to marketers who intended to resell and service the generator sets outside of the selling dealers' service territory.

 Plaintiffs are general trading companies that at one time bought Caterpillar electrical generator sets from an authorized Caterpillar dealer in the United States, Ohio Machine Company (OMCO), and sold those sets abroad, primarily in Saudi Arabia. Plaintiffs' principal customer for Caterpillar generator sets in Saudi Arabia was Rabiah and Nasser Co. (Ranco), which in turn sold the sets to various Saudi buyers. Plaintiffs also performed necessary delivery, installation, inspection and warranty service for users of Caterpillar generator sets in Saudi Arabia. Plaintiffs sold and serviced the Caterpillar sets in competition with certain authorized Caterpillar dealers, particularly Zahid Heavy Tractor Co. Ltd. (Zahid) of Saudi Arabia. Plaintiffs assert that Caterpillar's modification of its system for collecting the 5% service fee imposed a penalty on all sales to plaintiffs and other independent marketers, and that this penalty was designed specifically to eliminate such marketers as a source of competition to Zahid and other authorized Caterpillar dealers. In the fall of 1981, about a year and a half after Caterpillar modified this service fee system, plaintiffs ceased marketing Caterpillar electrical generator sets, and transferred their generator set business to OMCO.

 Caterpillar's Motion for Summary Judgment.

 Caterpillar contends that plaintiffs' claim for injunctive relief is moot because plaintiffs have been out of the business of marketing Caterpillar electrical generator sets for nearly three years. Plaintiffs acknowledge that they no longer market Caterpillar sets, but assert that they were driven out of the market by Caterpillar's service fee penalty and that removal of the penalty would permit them to reenter the market and compete as they once did. Caterpillar responds that certain changes in Saudi Arabian law subsequent to the cessation and sale of plaintiffs' generator set business now preclude plaintiffs from returning to this principal former market. These changes are embodied in Royal Decree No. M/32 dated 10/8/1400 H. (June 23, 1980) (Royal Decree M/32), and Ministry of Commerce Order No. 1897 dated 24/5/1401 H. (March 30, 1981) (Ministerial Decision 1897). Plaintiffs dispute Caterpillar's interpretation of these changes, and contend that these changes do not prevent plaintiffs from returning to their former business if Caterpillar's service fee penalty is enjoined. Plaintiffs' claim for injunctive relief thus turns in the first instance on the interpretation of Royal Decree M/32 and Ministerial Decision 1897.

 Federal Rule of Civil Procedure 44.1 governs the procedure for determining an issue of foreign law. Rule 44.1 states:

 Fed. R. Civ. P. 44.1. Defendants provided the requisite notice of their intent to raise an issue concerning Royal Decree M/32 and Ministerial Decision 1897 in a pleading entitled "Notice of Matter Concerning Foreign Law." Both sides then submitted translations of the relevant Saudi Regulations, affidavits from experts on Saudi law, *fn2" and other materials in support of their respective positions.

 The parties rely primarily on the expert affidavits in advancing their suggested interpretations of Royal Decree M/32 and Ministerial Decision 1897. All of the affiants profess a familiarity with the interpretation and application of Royal Decree M/32 and Ministerial Decision 1897. Not surprisingly, the experts disagree as to the scope of those laws. Because this court's determination is treated as a ruling on a question of law, however, this disagreement on the part of the experts would not foreclose the granting of a motion for summary judgment. Alosio v. Iranian Shipping Lines, S.A., 426 F. Supp. 687, 689 (S.D.N.Y. 1976), aff'd, 573 F.2d 1287 (2d Cir. 1977).

 Royal Decree M/32 essentially is the Saudi equivalent of enabling legislation, and it enables the Saudi Ministry of Commerce to promulgate revisions to the Saudi Commercial Agencies Regulations. Saba Affidavit, para. 4. One such revision is Ministerial Decision 1897, which provides "Implementation Rules" for the Commercial Agencies Regulations. These Implementation Rules became effective on May 17, 1981. Saba Affidavit, para. 6; First Al-Hejailan Affidavit, para. 7. Decision 1897 states in pertinent part:

 
"Commercial Agencies" under the Commercial Agencies Regulations and its amendments mean any person who enters into a contract with a producer or his representative, in his country to carry on business whether as an agent or distributor in any type of agency or distribution for a profit, a commission or facilities of whatever nature, including agencies for sea, air and land transportation and any agencies for which an order is issued by the Minister of Commerce.
 
. . . .
 
No person other than a Saudi, whether natural or juridical, may be a commercial agent in the Saudi Arabia Kingdom. However, Saudi companies must have fully Saudi capitalization and their boards of directors and officers and those ...

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