# Petition — Vendo Co. v. Lektro-Vend Corp.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1977
- **Citation:** 433 U.S. 623

## Text

IN THE

MICHAEL RODAK, JR..CLEF

Supreme Court of the Gnited eS

Ocroser Term, 1976

76-156

THE VENDO COMPANY, a Missouri corporation,
Petitioner,

No.

vs.

LEKTRO-VEND CORP., a Delaware corporation,
HARRY B. STONER and STONER INVESTMENTS, INC.,
a Delaware corporation,

Respondents.

PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT

Ear. E. Po.titock

Gary SENNER

Puiu A. HasBer

Louis C. Kemer

SonNENSCHEIN CaRLIN NaTH
& RoseENTHAL
8000 Sears Tower
Chicago, Illinois 60606

Attorneys for Petitioner

LAMBERT M. OcHSENSCHLAGER

Wayne F. Werer

Rep, OcHSENSCHLAGER, MurpHy & Hupp
75 S. Stolp Ave.
Aurora, Illinois 60507

Of Counsel

CHAS. P. YOUNG-CHICAGO

PAGE
i i i i ee 1
I Iii a kh sth as 1
QUESTIONS PRESENTED .............-.ceeeees 2
PD Mo ce ccuudecteseceen 2
— owe ) i» Gt gy . Dol | GRRE 3

a i a a 3
The State Court Proceeding .................... 5
The Federal Action and the Decision Below ...... 9
REASONS FOR GRANTING THE WRIT .......... 10

I. In Holding that § 16 of the Clayton Act “Ex-
pressly Authorizes” Injunctions against State
Court Proceedings for Purposes of 28 U.S.C.

§ 2283, the Decision Below is in Direct Conflict
with Decisions of Other Courts of Appeals and
Conflicts in Principle with the Decisions of This
SD ad odd cau bdbccbeudcteedheneduececeissklh 11

A. The Decision Below Is in Direct Conflict
with Decisions of Other Courts of Appeals
as to the Applicability of § 2283 ........... 13

B. The Decision Below Conflicts in Principle
with This Court’s Decisions Construing the
“Expressly Authorized” Exception to § 2283 15

II. In Holding that Principles of Comity and Feder-
alism Are Inapplicable, the Decision Below Also
Directly Conflicts with the Decisions of Another
Court of Appeals and in Principle with Decisions
Se RE OP eS Aner 19

il
PAGE

III. The Decision Below, in Expressly Sanctioning
the District Court’s Review of the Final Decision
of the Illinois Supreme Court, Has So Far De-
parted from the Accepted and Usual Course of
Judicial Proceedings as to Call for an Exercise
of This Court’s Supervision .................. 22

IV. The Decision Below Raises Issues of Broad Na-
tional Significance and Is Likely to Have a Seri-
ous Detrimental Impact on the Relationship be-

tween State and Federal Courts ......... resows 24
SIN o iec nice iccecneedubeueeanases aneus 25
APPENDICES:

A —Opinion of the United States Court of Ap-
peals for the Seventh Cireuit .......... App. 1

B-—Order and Judgment of the Uniied States
Court of Appeals for the Seventh Cireuit. App. 17

C —Order of the United States Court of Appeals
for the Seventh Circuit, On Rehearing .. App. 18

D —Opinion of the United States District Court
for the Northern District of Illinois .... App. 19

Ii —Preliminary Injunction Order of the United
States District Court for the Northern Dis-
ee 0 ME dice die acca gh chide uneed App. 36

CITATIONS

CASES:

Alabama Public Service Commission v. Southern Rail-

way Company, 341 U.S. 341 (1951) ............... 20
Amalgamated Clothing Workers of America v. Rich-
man Bros., 348 U.S. 511 (1955) ..............0.. 12, 16

American Manufacturers Mutual Ins. Co. v. American
Broadcasting-Paramount Theatres, Inc., 1966 Trade
See We Se CNET GD nos cckccasceeceesusueene 12

Atlantic Coast Line R. Co. v. Brotherhood of Loco-
motive Engineers, 398 U.S. 281 (1970) ..11, 12, 22, 23, 25

CasEs: PAGE
Avon Fub. Co. v. American News Co., 143 F. Supp. 516

Se ME Ser ciceSséukeudé¥agechsbeue donee 12
Bascom Launder Corp. v. Telecoin Corp., 9 F.R.D. 667

i Pe bee ane an ene cee esens dun keen 12
Carter v. Ogden Corp., 524 F.2d 74 (5th Cir. 1975) ..12,15
Cousins v. Wigoda, 409 U.S. 1201 (1972) ............ 19
Francis v. Henderson, 48 L.F.d.2d 149 (1976) ........ 21
Helfenbein v. International Industries, Inc., 438 F.2d

i Ue ce duke ces he kn 12, 14, 21
Huffman v. Pursue, Ltd., 420 U.S. 592 (1975) ........ 19
In re Glenn W. Turner Enterprises Litigation, 521

ae Oe Cs Se BED ve GEGK c 605s EME Wickiwine snc 22-23
Kelly v. Kosuga, 358 U.S. 516 (1959) ............... 21
Lyons v. Westinghouse Electric Corp., 201 F.2d 510

(2d Cir.), cert. denied, 345 U.S. 923 (1953) ....... 12,13
Lyons v. Westinghouse Electric Corp., 222 F.2d 184

(2d Cir.), cert. denied, 350 U.S. 825 (1955) ........ 18

Mitchum v. Foster, 407 U.S. 225 (1972) 11, 12, 15, 16, 17, 19
Mullis v. Arco Petroleum Corp., 502 F.2d 290 (7th Cir.

46404 Gil awian ens Fbsks ON Ghee met entocteens 21
Oklahoma Packing Co. vy. Oklahoma Gas and Electric

SUD neSudsceusawswascsecevte’s 18, 25
Potter v. Carvel Stores of N.Y., Inc., 314 F.2d 45 (4th

SE OU oon 505066502 4600350550.20450068606- 12,14
Red Rock Cola Co. v. Red Rock Bottlers, 195 F.2d 406

TED 6.0560 cabh us taNe kk68 5 CREA K0b00* 20
Reines Distributors, Inc. v. Admiral Corp., 182 F.

rr rs PE wr ndedh oboe cunece ness 12

Response of Carolina v. Leasco Response, Inc., 498
F.2d 314 (5th Cir.), cert. dented, 419 U.S. 1050
DEE Acadia hoedyendhs<kussentseeeeuncuan 19, 20, 21

iv
CasEs: PAGE
Rizzo v. Goode, 423 U.S. 362 (1976) ..............2.. 19
Rooker v. Fidelity Trust Co., 263 U.S, 413 (1913) .... 23

Sar Industries, Inc. v. Monogram Industries, Inc.,

1976-1 Trade Cases § 60,816 (C.D. Cal.) ......... 12, 24
Singer v. A. Hollander & Son., 202 F.2d 55 (3d Cir.
FOU) cocvcceccesecesetecuseces suueenenee 21, 22
Stone v. Powell, 44 U.S.L.W. 5313 (U.S., July 6, 1976) 21
Studebaker Corp. v. Gittlin, 360 F.2d 692 (1966) ..... 14
T. Smith & Son, Inc. v. Williams, 275 F.2d 397 (5th
Cop. BGR) .icccccecescesssuesusessusenl 16
The Vendo Co. v. Stoner, 105 Ill. App. 2d 261, 245
8 Ff FF) | Pee ee 6
The Vendo Co. vy. Stoner, 58 Til. 2d 289, 321 N.E.2d 1
(TBGG) occ ccccccveeccéeebebesneun cee 4-8

Toucey v. N.Y. Life Ins. Co., 314 U.S. 118 (1941) .... 15
United States v. Bayer Company, 135 F. Supp. 65

C33 8 | ee 14
Vernitron Corp. v. Benjamin, 440 F.2d 105 (2d Cir),
cert, dented, GB U.S. GU CRUE) cc cencenconeneu 16
Younger v. Harris, 401 U.S. 37 (1971) .............. 19
STATUTES:
Civil Rights Act of 1871 § 1, 42 U.S.C. § 1983 .........
PITTTTTTTTTT TTT ee 15-18, 19, 23
Clayten Act 44, 15 USO. 626 ...sccncccsuseueeeeee 3
Clayton Act § 16, 15 U.S.C. § 26 ......... 2, 3, 11-18, 19-23
Federal Anti-Injunction Act, 28 U.S.C. § 2283 .......
PTeTETT Tree 2-3, 11-18, 19, 24
Judicial Code, 28 U.S.C. § 1254(1) ................. 2

OTHER AUTHORITIES:

Moore, Federal Practice (2d ed. 1974) .............. 18

IN THE

Supreme Court of the Gnited States

Ocrosper Term, 1976

THE VENDO COMPANY, a Missouri corporation,
Petitioner,

vs.
LEKTRO-VEND CORP., a Delaware corporation,
HARRY B. STONER and STONER INVESTMENTS, INC.,
a Delaware corporation,
Respondents.

PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT

Petitioner prays that a writ of certiorari issue to review
the judgment and opinion of the United States Court of
Appeals for the Seventh Circuit entered in this action on
May 28, 1976, affirming an order of the District Court
granting a preliminary injunction in favor of respondents.

Opinions Below

The opinion of the Court of Appeals is unofficially
reported at 1976-1 ‘trade Cases { 60,919 and is reproduced
in Appendix A. The Memorandum Opinion and Order of
the District Court is reported at 403 F. Supp. 527 and is
reproduced in Appendix D.

Jurisdiction

The final judgment of the Court of Appeals was entered
on May 28, 1976. The Court of Appeals denied petitioner’s

2

petition for rehearing on July 16, 1976. The jurisdiction
of this Court is invoked under 28 U.S.C. § 1254(1).

Questions Presented

In a previously filed state court proceeding, the Illinois
Supreme Court affirmed judgments to compensate petitioner
Vendo for respondent Stoner’s violation of his state-law
fiduciary duties while serving as a Vendo director and
officer, and this Court denied certiorari. Before the judg-
ments could be collected, however, Stoner obtained from the
Federal District Court a preliminary injunction against
enforcement of the judgments on the basis of Stoner’s claim
that the state proceeding and the judgments violated the
federal antitrust laws. The questions presented are:

(1) Whether §16 of the Clayton Act “expressly autho-
rizes” injunctions against state court proceedings as an
exception to the Anti-Injunction Statute, 28 U.S.C. § 2283.

(2) Whether principles of comity and federalism nor-
mally applicable to requested injunctions against state
court proceedings do not apply where the injunction is
sought under § 16 of the Clayton Aet.

(3) Whether a single federal district judge has juris-
diction to review and nullify a tinal decision of the highest
court of a state.

(4) Whether state court defendants who have deliber-
ately withdrawn their federal antitrust defense (and there-
by have prevented its consideration by the state courts)
may on the same federal antitrust ground subsequently ob-
tain a federal preliminary injunction against collection of
final judgments entered in the state proceeding.

Statutes Involved
The Federal Anti-Injunction Act, 28 U.S.C. § 2283, pro-

vides:
A court of the United States may not grant an in-

junction to stay proceedings in a State court except as

3

expressly authorized by Act of Congress, or where
necessary in aid of its jurisdiction, or to protect or
effectuate its judgments.

Section 16 of the Clayton Act, 15 U.S.C. § 26, provides:

Any person, firm, corporation, or association shall be
entitled to sue for and have injunctive relief, in any
court of the United States having jurisdiction over the
parties, against threatened loss or damage by a viola-
tion of the antitrust laws, including sections 13, 14, 18,
and 19 of this title, when and under the same condi-
tions and principles as injunctive relief against threat-
ened conduct that will cause loss or damage is granted
by courts of equity, under the rules governing such
proceedings, and upon the execution of proper bond
against damages for an injunction improvidently
granted and a showing that the danger of irreparable
loss or damage is immediate, a preliminary injunction
may issue: Provided, That nothing herein contained
shall be construed to entitle any person, firm, corpora-
tion, or association, except the United States, to bring
suit in equity for injunctive relief against any common
carrier subject to the provisions of the ‘Act to regulate
commerce, approved February fourth, eighteen hun-
dred and eighty-seven, in respect of any matter subject
to the regulation, supervision, or other jurisdiction of
the Interstate Commerce Commission.

STATEMENT OF THE CASE
Introduction

This is a federal antitrust action brought in the Northern
District of Illinois under $44 and 16 of the Clayton Act
(15 U.S.C. $4 15 and 26). In their complaint the respond-
ents (plaintiffs below) allege, inter alia, that petitioner
Vendo violated the Sherman Act by bringing and prosecut-
ing an action in the Illinois state courts against two of the

4

respondents, Harry B. Stoner and Stoner Investments,
Inc., resulting in judgments against them totalling
$7,516,335.

These judgments against respondents Stoner and Stoner
Investments were affirmed by the Illinois Supreme Court
in The Vendo Co. v Stoner, 58 Ill. 2d 289, 321 N.E. 2d 1
(1974), holding that Stoner, while both an officer and di-
rector of Vendo, had repeatedly vioiated his state-law
fiduciary duties to Vendo. This Court denied certiorari,
420 U.S. 975 (1975).

Nevertheless, to forestall collection of the judgments, the
respondents then obtained from the District Court in this
ease an order which preliminarily enjoined Vendo from
taking “any further steps to enforce or collect. or attempt
to enforce or collect” the judgments (App. 40).* The Court
of Appeals affirmed on May 28, 1976 (App. 1, 17) and
denied Vendo’s petition for rehearing on July 16, 1976
(App. 18).

Vendo’s state court suit was filed eleven years ago in
August, 1965. This federal action was filed two months
later by respondents Stoner and Stoner Investments, the
defendants in the state court suit, and Lektro-Vend Corp.,
a company (like Stoner Investments) controlled by Stoner
and members of his family.

Stoner was the president and the controlling owner of
Stoner Manufacturing Corporation (now Stoner Invest-
ments), which had been engaged for many years in the
business of making and selling candy-vending machines
throughout the United States. In April, 1959, Vendo and
Stoner Manufacturing entered into a contract for Vendo’s

*“App.” references are to the pertinent pages in the Appendices
to this Petition, infra.

5

purchase of the assets of Stoner Manufacturing.* Stoner
also executed an employment contract with Vendo (provid-
ing for a salary of $50,000 a year), and Stoner became a
director of Vendo as well as president of the company’s
Aurora Division (formerly the Stoner Manufacturing
plant). Stoner ceased being a Vendo director in March or
April of 1964, and Stoner’s contract of emplovment termi-
nated June 1, 1964. (58 Ill. 2d at 293, 295, 300-01, 321 N.E.
2d at 4, 7-8.)

The State Court Proceeding

In the marathon state court proceeding (lasting approxi-
mately nine-and-one-half years), it was determined that
Stoner, individually and through Stoner Investments, had
violated his fiduciary duties to Vendo during the 1959-64
period that he was an officer and director of Vendo (a) by
secretly supporting the development and marketing of a
new type of candy vending machine by Lektro-Vend, (b) by
withholding the facts concerning his involvement with
Lektro-Vend and misleading Vendo with regard to its
possible acquisition of the Lektro-Vend machine, and (c)
by misappropriating Vendo’s opportunity to acquire the
machine.

It was also determined that Stoner and Stoner Invest-
ments had unlawfully breached the non-competition cove-
nants in their agreements with Vendo, but that in any event
the judgments were proper on the basis of Stoner’s viola-
tion of his fiduciary duties “[q]uite apart from any liability
which may be predicated upon a breach of the covenants

* Under the sale contract Vendo agreed to pay Stoner Manufac-
turing (1) $3,400,000 in cash; (2) 60,000 shares of Vendo stock;
(3) for a period of 10 years (or until such time as Vendo might
exercise an option to purchase the Stoner plant) all profits in
excess of $250,000 realized from the use of the assets being pur-
chased; and (4) for a period of 10 years, 25% of the income re-
ceived from foreign sales realized from the use of assets being
purchased.

6

against competition. . .” and “[rJegardless of the...
disposition of those restraint-of-trade issues. . .” (58 Ill.
2d at 303-04, 308, 321 N.E. 2d at 9, 12.)

In Decen:! er, 1966, the state trial court sitting without a
jury found in favor of Vendo and initially entered a judg-
ment against the two defendants jointly for $1.100.000 and
a judgment against Stoner individually for $250,000.

The defendants appealed to the Illinois Appellate Court,
which in 1969 sustained the trial court’s conclusion concern-
ing Stoner’s misconduct* but remanded the case to the trial
court for a further hearing with respect to the amount of
damages recoverable by Vendo. (105 Ill. App. 2d 261, 245
N.E. 2d 263.)

The Illinois Appellate Court sustained the validity
of the non-competition covenants in the sale and employ-
ment contracts. It found that the defendants’ breaches of
the covenants occurred “in-term,” i.e., during the period
specified by the contract in which Stoner was to be paid to
perform services for Vendo and in which Stoner Invest-
ments was to be paid a percentage of Vendo’s profits de-
rived from the assets it had sold to Vendo. (105 Ill. App.
2d at 281-86, 245 N.E. 2d at 273-76.)

On the other hand, the Illinois Appellate Court held that
the trial court had erred in striking the defendants’ federal
antitrust defense and that they were entitled on remand to
a hearing on the issue. (105 Ill. App. 2d at 294-97, 245 N.E.
2d at 279-81.) However, just before the second trial was
to commence, Stoner and Stoner Investments formally with-
drew their federal antitrust defense which the Illinois Ap-
pellate Court had at their behest sustained and had directed
the trial Court to consider. (App. 7.)

* In addition to Stoner’s violation of his fiduciary duties as an
officer and director, Stoner had also been held liable by the trial
court on the ground of theft of trade secrets belonging to Vendo,
but this alternative ground was reversed by the Illinois Appellate
Court and the issue was not pursued thereafter.

At the second trial, in 1971, on the basis of additional
evidence on damages, the trial court awarded a judgment
to Vendo in the amount of $170,835 against Stoner and a
judgment against both defendants for $7,345,000. The
defendants again appealed to the Illinois Appellate Court,
which in 1973 affirmed the judgment against Stoner Lut
reversed the judgment against the two defendants jointly
and remanded the case for a further hearing. (13 Ill. App.
3d 291, 300 N.E. 2d 632.) Each side filed a petition for leave
to appeal to the Illinois Supreme Court, and both petitions
were allowed.

In its opinion, written by Mr. Justice Schaefer, the
Illinois Supreme Court unanimously affirmed both trial
court judgments, holding:

“Quite apart from any liability which may be predi-
cated upon a breach of the covenants against compe-
tition contained in the sales agreement and the employ-
ment contract, it is clear that Stoner violated his fidu-
ciary duties to plaintiff during the period when he was
a director and an officer of plaintiff... .

“Stoner had a foot in each camp. Not only did his
undisclosed individual interest in controlling the fur-
ther development and ultimately the manufacture and
sale of the Lektro-Vend create the possibility of his
taking an unfair advantage of plaintiff, but the evi-
dence gives strong indication that he actually misled
plaintiff while he was purportedly acting as plaintiff’s
agent with regard to plaintiff’s possible acquisition of
the Lektro-Vend.” (58 Ill. 2d at 303-04, 321 N.E. 2d at
9; italies added.)

With respect to the non-competition covenants, the IIli-
nois Supreme Court held:

“The appellate court concluded, in our opinion cor-
rectly, that defendants’ activities directed toward the
development and thereafter the marketing of the

8

Lektro-Vend, consisting of substantial financial aid,
and the provision of physical facilities, as well as
defendant’s ownership interest in the Lektro-Vend
enterprise, were so substantial as to go beyond the
limits established by the covenants.

“Regardless of the appellate court’s disposition of
those restraint-of-trade issues, the defendants may, as
we have pointed out, be held liable on the ground of a
breach of fiduciary obligation on the part of Stoner....

“At the original trial defendants raised as an affirm-
ative defense and by way of counterclaim a charge
that the sale agreement and the employment contract
violated both the Illinois Antitrust Act (Ill. Rev. Stat.
1973, ch. 38, par. 60-1 et seq.) and the Federal antitrust
laws (15 U.S.C. see. 1 et seg.). The latter charge was
withdrawn by defendants on the remand, and refer-
ences in the record indicate that at some point a suit
was filed against plaintiff in the United States District
Court for the Northern District of peel weating to
the alleged violations of Federa} -lav.-

“With respect to the State antitrust claim .. . the
Illinois act, having been enacted in 1965, long after the
contracts here in question were entered into, cannot
properly form the basis of a counterclaim by defen-
dants.” (58 Ill. 2d at 308-10, 321 N.E. 2d at 11-12;
italics added.)

On November 27, 1974, the Illinois Supreme Court denied
a petition for rehearing filed by Stoner and Stoner Invest-
ments. On December 9, 1974, Mr. Justice Schaefer of the
Illinois Supreme Court denied their request for a stay of
execution pending consideration of their petition for cer-
tiorari in this Court. On January 28, 1975, Mr. Justice
‘Rehnquist also denied a request by Stoner and Stoner
Investments for a stay of execution pending consideration
of their petition for certiorari. On March 17, 1975, this
Court denied the petition for certiorari. (420 U.S. 975.)

i)
The Federal Action and the Decision Below

On January 2, 1975, after Vendo had commenced efforts
to collect its state court judgments, respondents reactivated
this federal suit, filing an amended complaint reasserting
their antitrust claim with respect to the state action. There-
after, on January 29, 1975, respondents filed a motion for a
preliminary injunction against the proceedings in the state
courts to collect Vendo’s judgments.

On May 29, 1975, the District Court issued its Memoran-
dum Opinion and Order, announcing its decision to grant
the preliminary injunction (App. 19).* Thereafter, on
June 30, 1975, the District Court’s Order Granting Pre-
liminary Injunction was entered (App. 36). Vendo appealed
to the Court of Appeals, which on May 28, 1976, affirmed
the District Court’s order (App. 1, 17).

In its opinion, the Court of Appeals held that the Federal
Anti-Injunction Statute, 28 U.S.C. § 2283, did not bar the
injunction. The Court held, on the ground that (16 of
the Clayton Act lodges equitable jurisdiction only in fed-
eral courts, that § 16 is one of those federal statutes under
which stays of state court proceedings are “expressiv
authorized” within the scope of that exception to 4 2283.
(App. 11, 13.)

* The District Court, it should be noted, neither held nor found
that enforcement of the judgments would violate tne antitrust laws.
Instead, the Court merely stated that “There is persuasive evidence
that Vendo’s activities in its litigation against the Stoner interests
in Illinois state ccurt were not a genuine attempt to use the
adjudicative process legitimately” (App. 30), citing only events
in the 1963-66 period. The District Court also stated that, “Jf the
state court litigation was itself part of the anticompetitive scheme,
a jndgment arising from such litigation is not an ordinary debt”
(App. 31, italies added), and “Jf federal law is violated by con-
tinuation of the state action the paramount national interest re-
quires court intervention” (App. 34, italics added), but reached no
conclusion as to the correctness of the “if” clauses of these hypo-
thetical statements.

10

The Court of Appeals also rejected Vendo’s argument
that, entirely apart from the absolute prohibition of § 2283,
principles of comity and federalism barred the District
Court’s injunction against enforcement of the decision of
the highest court of a state. The Court of Appeals sweep-
ingly held: “The principle of comity has no applicability
when the exclusive remedy for an injury lies in the federal
court” (App. 14).

In addition, the Court of Appeals expressly sanctioned
the District’s Court’s assertion of its jurisdiction to review
a final decision of the Illinois Supreme Court. The Court
stated (App. 14) that “We agree” with the District Court
that such a review was “imperative” because the Illinois
Supreme Court had not considered the respondents’ federal
antitrust defense—notwithstanding the fact (acknowledged
in a footnote by the Court below, App. 7) that it was the
respondents themselves who had prevented the state courts
from considering their federal antitrust defense by for-
mally withdrawing the defense several years earlier and
never again raising the issue in the state proceeding.

REASONS FOR GRANTING THE WRIT

The decision below, in disregard of fundamental policies
governing the relationship between federal and state courts,
conflicts in principle with decisions of this Court and con-
flicts directly with the decisions of other Courts of Appeals.

As set forth more fully in the Statement (supra, pp.
0-8), the Ilhneis Supreme Court, after nearly ten arduous
vears of litigation, affirmed judgments to compensate
Vendo for Stoner’s flagrant violations of his state-law
fiduciary duties while serving as a Vendo director and
officer. This Court denied certiorari, and the state judg-
ments were unequivocally final and entitled to full faith
and credit. But then, in order to forestall collection of
the judgments against them, Stoner and Stoner Invest-
ments hit upon a new strategem. They obtained from the
District Court a preliminary injunction against enforce-

11

ment of the judgments on the claim that the state suit from
its very inception was violative of the federal antitrust
laws—the same claim, moreover, which they had deliber-
ately withdrawn as a defense in the state proceeding (and
thereby prevented the state courts and this Court from
adjudicating).

The ramifications of this procedure—approved by the
Court below—are, to say the least, extraordinary. It would
give to every district judge the power to review, set aside,
and nullify final state court judgments through the prelim-
inary injunction device. It would reduce the highest tribu-
nals of any state to the status of special masters subject
to de novo control by a single district judge. Nor is there
any reason why such control should be exercised only under
the federal antitrust laws; on precisely the same theory,
final state court judgments—even, as here, after the denial
of certiorari—could likewise be preliminarily enjoined
under myriad other federal statutes as well.

As we shall show, the decision below sanctioning such a
procedure is fundamentally at war with settled law regard-
ing the Anti-Injunction Statute, principles of comity and
federalism, and collateral review of state court judgments.

I. In Holding that §16 of the Clayton Act “Expressly
Authorizes” Injunctions against State Court Proceed-
ings for Purposes of 28 U.S.C. § 2283, the Decision Be-
low Is in Direct Conflict with Decisions of Other Courts
of Appeals and Conflicts in Principle with the Decisions
of This Court.

The Anti-Injunction Statute, 28 U.S.C. § 2283 (supra,
pp. 2-3), categorically prohibits all federal court injunctions
against state court proceedings “except as expressly autho-
rized by Act of Congress,” or unless one of the other two
exceptions stated in § 2283 applies. Atlantic Coast Line R.
Co. v. Brotherhood of Locomotive Eitgineers, 398 U.S. 281,
286-87 (1970); Mitchum v. Foster, 407 U.S. 225, 228-29
(1972).

12

Furthermore, this Court has repeatedly held that the
exceptions to §2283 are to be strictly and narrowly
construed. Thus, in Amalgamated Clothing Workers of
America v. Richman Bros., 348 U.S. 511 (1955), the Court
stated, in referring to the enactment in 1948 of § 2283 in
its present form, that “. . . Congress made clear beyond
eavil that the prohibition is not to be whittled away by
judicial improvisation” (p. 514) and that “This is not a
statute conveying a broad general policy for appropriate
ad hoc application” (pp. 515-16, italies added). Similarly,
in the .1tlantic Coast Line case, supra, the Court admon-
ished that “the exceptions should not be enlarged by loose
statutory construction.” (398 U.S. at 287, italics added;
see also p. 297.)

In accordance with that principle, and as pointed out by
this Court in Mitchum v. Foster, supra, 407 U.S. at 224-37,
only a small number of federal statutes have been held to
“expressly authorize” federal injunctions against state
court proceedings. And more specifically, prior to the Dis-
trict Court’s decision in this case, no court had ever held
that §16 of the Clayton Act (supra, p. 3) was such a
statute. On the contrary, every court which had expressly
considered the issue had uniformly held that 416 does not
“authorize” injunctions against state court proceedings."

*See Lyons v. Westinghouse Electric Corp., 201 F.2d 510 (2d
Cir.), cert. dented, 345 U.S. 923 (1953), affirming 109 F. Supp.
925, 926 (S.D.N.Y. 1952); Potter v. Carvel Stores of N.Y., Inc.,
314 F.2d 45 (4th Cir. 1963), affirming 203 F. Supp. 462 (D. Md.
1962) ; Reines Distributors, Inc. vy. Admiral Corp., 182 F. Supp.
226 (S.D.N.Y. 1960); Bascom Launder Corp. v. Telecoin Corp.,
9 F.R.D. 677 (S.D.N.Y. 1950); Avon Pub. Co. v. American News
(o., 143 F. Supp. 516 (S.D.N.Y. 1956); American Manufacturers
Mutual Ins. Co. vy. American Broadcasting-Paramount Theatres,
Inc., 1966 Trade Cases 971,918 (S.D.N.Y.). See also the recent
decision in Carter v. Ogden Corp., 524 F.2d 74, 75 (5th Cir. 1975),
reversing an injunction issued under § 16 of the Clayton Act and
holding “that under 28 U.S.C.A. § 2283 this injunction was pro-
hibited. .. .” On the other hand, compare Sar Industries, Inc. v.
Monogram Industries, Inc., 1976-1 Trade Cases % 60,816 (C.D.
Cal.), relying on the District Court’s decision in this ease.

13

Thus, the Court below not only is the first Court of Appeals
ever to hold that § 16 of the Clayton Act “expressly author-
izes” injunctions against state proceedings, but further-
more its holding is inconsistent with the holdings of other
Courts of Appeals as well as the rationale of this Court’s
decisions.

A. The Decision Below Is in Direct Conflict with De-
cisions of Other Courts of Appeals as to the Appli-
cability of § 2283.

Prior to the decision below, the only Courts of Appeals
which had decided the issue—the Second and Fourth Cir-
cuits—had held that § 16 of the Clayton Act does not “ex-
pressly authorize” injunctions against state proceedings.
The decision below is in direct conflict with both of those
decisions.

Lyons v. Westinghouse Electric Corp., 201 F.2d 510 (2d
Cir.), cert. denied, 345 U.S. 923 (1953), involved circum-
stances remarkably similar to those present in the instant
case. Westinghouse had sued Lyons and others in the New
York state courts for breach of a contract and an aeccount-
ing. The state court defendants raised a federal antitrust
defense in the state suit, claiming that the contract violated
the antitrust laws. Thereafter, they brought suit in the
federal court against Westinghouse under the federal anti-
trust laws advancing the same federal antitrust grounds
which they had asserted by way of defense in the state
proceeding. The District Court held that it could not
enjoin the state proceedings, “even though the [federal]
Anti-Trust Laws are involved in both actions, as in this
case,” because “a stay of these State court proceedings is
not expressly authorized by any act of Congress, and it is
not required in aid of this court’s jurisdiction or to effec-
tuate its judgments.” 109 F. Supp. 925-26 (S.D.N.Y. 1952)
(italics added). The Court of Appeals for the Second
Circuit affirmed, specifically holding that the District Court

14

“rightly held that 28 U.S.C.A. § 2283 prevents the issuance
of such a stay.” 201 F.2d at 510 (italies added).*

Potter v. Carvel Stores of New York, Inc., 314 F.2d 45
(4th Cir. 1963), likewise involved companion state and
federal lawsuits in which the state court defendant was the
plaintiff in a federal antitrust action brought against the
state court plaintiff. The District Court refused to enjoin
the state action on the ground that it was barred by § 2283,
specifically agreeing that “$16 of the Clayton Act, 15
U.S.C.A. § 26, which provides for private antitrust injunc-
tive relief is not one of the ‘Act of Congress’ exceptions
engrafted into the flat prohibition of 28 U.S.C.A. § 2283.”
203 F. Supp. 462, 465 (D. Md. 1962). The Court of Appeals
for the Fourth Circuit affirmed, holding that “. . . for the
reasons stated by [the District Court], we think that the

* Neither the Clayton Act nor any antitrust issues were even
involved in the Seeond Cireuit case cited below (App. 12-13),
Studebaker Corp. v. Gittlin, 360 F.2d 692, 698 (1966). The passing
reference to the Clayton Act in Studebaker, by way of dictum, did
not conclude that § 16 “expressly authorizes” injunctions against
state court proceedings, did not cite any case where such a con-
clusion had been reached, and did not even remotely overrule the
Second Cirecuit’s prior decision in Lyons, supra.

Equally inapposite are the other two cases cited by the Court
below concerning § 2283 (App. 11-12). Helfenbein v. International
Industries, Inc., 438 F.2d 1068, 1071 (8th Cir. 1971), neither held
nor implied that § 16 “expressly authorizes” injunctions against
state court proceedings. Helfenbein merely decided that, since the
plaintiff’s injury had not resulted from an antitrust violation, no
injunction of any sort was authorized by § 16. The Court did not
even reach the question whether, if a proper showing of causation
had been made, the injunction would nevertheless have been barred
by § 2283. United States v. Bayer Company, 135 F. Supp. 65
(S.D.N.Y. 1955), was based on a different exception to § 2283—
the “effectuate its judgments” exception—and does not even refer

to the “expressly authorized” exception. —

15

refusal to enjoin the state court proceedings is unassailable
on appeal.” 314 F.2d at 46.

See also the recent decision in Carter v. Ogden Corp., 524
F.2d 74 (5th Cir. 1975), reversing an injunction issued under
§ 16 of the Clayton Act and holding “that under 28 U.S.C.A.
§ 2283 this injunction was prohibited. . . .”

Review of the decision below is essential to resolve the
clear conflict between the Circuits.

B. The Decision Below Conflicts in Principle with This

Court’s Decisions Construing the “Expressly Autho-
rized” Exception to § 2283.

As previously stated (supra, pp. 11-12), this Court has
repeatedly held that 4 2283 and the exceptions thereto are to
be strictly and narrowly construed. In Mitchum v. Foster,
407 U.S. 225 (1972), this Court dealt specifically with the
“expressly authorized” exception.

The Court (pp. 234-35) reviewed the seven federal
statutes which it had previously held fall within that excep-
tion and pointed out_(pp. 236-37) that “the criteria to be

a eed aaa Pes ,
applied are those reflected in the Court’s decisions prior to
Toucey” (Toucey v. N. Y. Life Ins. Co., 314 U.S. 118
(1941)). In applying those criteria to the statute involved
there—§ 1983 of the Civil Rights Act—and after carefully

analyzing the origins and history of that statute, the Court
in Mitchum found that:

“The very purpose of § 1983 was to interpose the fed-
eral courts between the States and the people, as guard-
ians of the people’s federal rights—to protect the peo-
ple from unconstitutional action under color of state
law, ‘whether that action be executive, legislative, or
judicial’.” (407 U.S. at 242, italics added.)

16

On these grounds, this Court determined that § 1983 quali-
fied as an eighth federal statute that “expressly authorized”
stays of state court proceedings.

In this ease, in holding that § 16 of the Clayton Act is also
a federal statute which “expressly authorizes” stays of state
court proceedings, the Court below misapplied the criteria
recognized in Mitchum and violated the strictures contained
in this Court’s other decisions interpreting § 2283. The
decision below represents, in fact, a broad departure from
the whole line of this Court’s cases concerning § 2283 and
sets forth an approach which, if generally accepted, would
have serious consequences for the relationship between the
federal and state courts, not only in the antitrust field but
in many other areas of the law as well.

Without even attempting to analyze the origins and
history of § 16, in the way this Court analyzed § 1983 in
Mitchum, the Court below held that § 16 created a “uniquely
federal remedy” merely on the ground that its grant of
injunctive powers to enforce the antitrust laws was con-
ferred only on the federal courts (App. 11, 13). According
to the Court below (7bid.), this jurisdiction “would be frus-
trated” if Vendo were allowed to enforce its state court
judgments. However, it is well established that a grant
of exclusive jurisdiction is not a ground for holding that
the “expressly authorized” exception applies. Amalga-
mated Clothing Workers of America v. Richman Bros., 348
U.S. 511, 515 (1955). In that case, this Court specifically
held that § 2283 may bar an injunction even where federal
substantive law preempts state law altogether and a state
court has acted “wholly without jurisdiction over the subject
matter, having invaded a field preempted by Congress.”
Accord, e.g., T. Smith & Son, Inc., v. Williams, 275 F.2d
397 (Sth Cir. 1960); Vernitron Corp. v. Benjamin, 440 F.2d
105, TOS (2d Cir.), cert. denied, 402 U.S. 987 (1971).

Even more important, the impropriety of holding that
§16 “expressly authorizes” stays of state proceedings is

17

demonstrated by comparing 416 with the seven statutes
reviewed in Mitchum (407 U.S. at 234-35) and with §1983
of the Civil Rights Act. Each of these statutes provides for
a special set of uniform federal procedures or remedies.
But in addition each of these statutes either contains
specific language providing for stays of state proceedings
or, in the absence of such language, necessarily requires by
its very nature and function that conflicting state judicial
proceedings must be enjoined in order to achieve its

purpose.*

Section 16 of the Clayton Act is clearly not a statute of
this type. Even apart from the absence of specific lan-
guage providing for stays of state proceedings, there is
not the slightest basis (and the Court of Appeals pointed
to none) for believing that 4 16—unlike, e.g., § 1983 of the

* The seven statutes enumerated by the Supreme Court are as
follows: (1) the provisions in the Bankruptey Act expressly pro-
viding for stays of suits against the bankrupt; (2) 28 U.S.C.
§ 1446(e), providing that upon the filing of a petition to remove
a state suit to federal court the “State court shall proceed no
further unless and until the ease is remanded”; (3) 46 U.S.C. § 185,
providing that upon filing of a shipowner’s petition in federal court
for limitation of his liability and deposit of the requisite funds by
the shipowner with the court, “all claims and proceedings against
the owner with respect to the matter in question shall cease”; (4) _
28 U.S.C. § 2361, providing that in federal interpleader actions
“a district court may ... enter its order restraining [all claimants]
. . . from instituting or prosecuting any proceeding in any State
or United States court affecting the property, instrument, or
obligation involved in the interpleader action”; (5) 11 U.S.C.
§ 203(s)(2), the provision of the Frazier-Lemke Farm Mortgage
Act expressly staying “all judicial or official proceedings in any
eourt”; (6) 28 U.S.C. § 2251, providing that a federal court before
which a habeas corpus proceeding is pending may “stay any pro-
ceeding against the person detained in any State Court . . . for
any matter involved in the habeas corpus proceeding”; (7) § 205(a)
of the Emergency Price Control Act of 1942, governing the powers
of the Price Administrator to enforce the provisions of the Act.

18

Civil Rights Act—was designed to prevent abuses by state
courts or other governmental bodies. There likewise is
not the slightest basis (and the Court of Appeals pointed
to none) for believing that Congress’ purpose in enacting
the statute was even remotely to place injunctive restraints
on state court proceedings.

Furthermore, it simply is not true that federal courts
have exclusive jurisdiction to enforce the federal antitrust
laws. While the Clayton Act confers only federal jurisdic-
tion of original claims for relief brought under the federal
antitrust laws, it is well-settled that the state courts have
jurisdiction to adjudicate federal antitrust defenses to state
law claims. See, e.g., Lyons v. Westinghouse Electric Corp.,
222 F.2d 184, 187 (2d Cir.), cert. denied, 350 U.S. 825
(1955); LA Moore, Federal Practice 70.208 (2d ed. 1974),
p. 2325.

Indeed, in the context of this case, it is especially clear
that Stoner’s federal antitrust remedy against Vendo’s
prosecution of its state court action was by no means
“uniquely federal.” As the Illinois Appellate Court had
specifically held in that proceeding, Stoner was entitled to
assert the federal antitrust issues in state court as a de-
fense to Vendo’s claims. But then Stoner chose to withdraw
that defense at the opening of the second state court trial.
If that defense to Vendo’s claims was valid, it could and
should have been asserted in the state court proceedings,
and Stoner could thereby have “nipped in the bud” any
alleged “injury” from the state action.

Of course, as the Court below pointed out, the federal
antitrust laws express an important public policy. But the
same is true of numerous other federal statutes as well as
the Anti-Injunction Statute itself. See, e.g., Oklahoma Pack-
ing Co. v. Oklahoma Gas and Electric Co., 309 U.S. 4, 8-9
(1939). Clearly the importance of the antitrust laws is
not a proper criterion for determining whether the “ex-
pressly authorized” exception to § 2283 is applicable.

19

II. In Holding that Principles of Comity and Federalism
Are Inapplicable, the Decision Below Also Directly
Conflicts with the Decisions of Another Court of
Appeals and in Principle with Decisions of This Court.

In Younger v. Harris, 401 U.S. 37, 43-45 (1971), and in
Mitchum v. Foster, supra, 407 U.S. at 243, this Court re-
affirmed the principles of comity and federalism “that must
restrain a federal court when asked to enjoin a state court
proceeding,” even in a case where such an injunction is not
absolutely barred by § 2283. See also Rizzo v. Goode, 423
U.S. 362, 379-80 (1976); Cousins v. Wigoda, 409 U.S. 1201,
1205-06 (1972). Thus, such principles apply even where an
injunction is sought under a federal statute that “expressly
authorizes” injunctions against state court proceedings.
In Huffman v. Pursue, Ltd., 420 U.S. 592 (1975), this
Court specifically held that principles of comity and fed-
eralism barred an injunction against a civil state court
proceeding in the context of a suit brought under § 1983 of
the Civil Rights Act—the very statute which Mitchum held
was designed to afford protection against unconstitutional
acts by (inter alia) state courts.

In this case, however, the Court below held that these
principles of comity and federalism were inapplicable for
the same reason underlying its decision as to § 2283—
namely, that § 16 of the Clayton Act confers equitable juris-
diction only on federal courts. According to the Court
below (App. 14): “The principle of comity has no appli-
eability when the exclusive remedy for an injury lies in
the federal court.”” Even apart from the fact that Stoner
had a complete remedy in the state courts but deliberately
chose to abandon that remedy, the ruling below is not only
irreconcilable with the cited decisions of this Court, but
furthermore is in direct conflict with decisions of the Court
of Appeals for the Fifth Circuit.

In both Response of Carolina v. Leasco Response, Inc.,
498 F.2d 314 (5th Cir.), cert. denied, 419 U.S. 1050 (1974),

20

and Red Rock Cola Co. v. Red Rock Bottlers, 195 F.2d
406 (5th Cir. 1952), federal injunctions against state court
proceedings were (as in this case) sought under § 16 of
the Clayton Act. In both cases, the requested injunctions
had been granted by the district courts. But in both cases
the Fifth Circuit reversed, holding that—even apart from
§ 2283—the injunctions were improper on the basis of prin-
ciples of comity and federalism.

In Response of Carolina, supra, 498 F.2d at 320, the
Fifth Cireuit held:

“... the principles of comity and federalism recognized
by this Court in Red Rock Cola Co. v. Red Rock Bot-
tlers, supra, 195 F.2d 406... mitigate against unneces-
sarily interfering with pending state court proceedings.
Red Rock involved a question similar to the issue in
this case, whether an injunction could issue under the
antitrust laws to enjoin a state court suit. This Court
reversed the issuance of the preliminary injunctions
on the grounds of federalism and comity.”

Similarly, in the Red Rock case, supra, 195 F.2d at 410,
the Fifth Cireuit held, quoting Alabama Public Service
Commission v Southern Railway Co., 341 U.S. 341, 350
(1951):

“Considering that ‘few public interests have a higher
claim upon the discretion of a federal chancellor than
the avoidance of needless friction with state policies,’
the usual rule of comity must govern the exercise of

equitable jurisdiction by the District Court in this
case.”

In addition, contrary to the apparent premise of the
Court below in brushing aside principles of comity and
federalism, a federal injunction against the enforcement
of the state court judgments was never Stoner’s “exclusive
remedy” under the federal antitrust laws. Instead, as the
Illinois Appellate Court had held, the respondents were

21

entitled to assert their federal antitrust defense as a bar
to Vendo’s claim in the state court. But, for their own
tactical reasons, they deliberately chose to abandon that
remedy which, if their defense was meritorious, would have
prevented the very “injury” of which they now complain."

No greater insult to the processes of a state judicial
system can be conceived than that which has occurred here:
Having deliberately abandoned the assertion of their
federal antitrust defense in the state courts (which had
provided them with “an opportunity for full and fair litiga-
tion” of that defense—see Stone v. Powell, 44 U.S.L.W.
5313, 5321 (U.S., July 6, 1976); Francis v. Henderson,
48 L.Ed. 2d 149, 154 (1976)), and having elected to
proceed to final judgment in the state courts on that basis,
the Stoner group then attacked the result of that process
by asserting in federal court, as justification for an injunc-
tion against the state judgments, tlie same issues that they
had withdrawn from the state courts’ consideration. Thus,
far from being inapplicable, principles of comity and fed-

* Furthermore, § 16 of the Clayton Act authorizes injunctions
only against “threatened loss or damage by a violation of the anti-
trust laws.” (Italies added.) If the alleged “injury” results from
a separate obligation or is based on independent grounds, no in-
junction may issue under § 16. See Response of Carolina vy. Leasco
Response, Inc., 498 F.2d 314, 317 (5th Cir.), cert. denied, 419 U.S.
1050 (1974) ; Melfenbein v. International Industries, Inc., 438 F.2d
1068, 1071 (8th Cir. 1971); Mullis v. Arco Petroleum Corp., 502
F.2d 290, 293 (7th Cir. 1974) (per Stevens, J.).

Here, the Illinois Supreme Court squarely held that the state
court judgments are based on Stoner’s violation of his fiduciary
duties under state law and that the liability of Stoner and Stoner
Investments was independent of the non-competition covenants
(supra, pp. 7-8). Consequently, even assuming arguendo that
Vendo could be found to have violated the antitrust laws, this
would provide no basis for enjoining collection of the Illinois
judgments or for reif®\fg Stoner of his Illinois fiduciary obliga-
tions. See, e.g., Singer v. A. Hollander & Son, Inc., 202 F.2d 55,
59 (3d Cir. 1953); ef. Kelly v. Kosuga, 358 U.S. 516 (1959).

22

eralism are particularly relevant in the circumstances of
this case and should have barred such a flagrant abuse of
federal equity power.

III. The Decision Below, in Expressly Sanctioning the
District Court’s Review of the Final Decision of
the Illinois Supreme Court, Has So Far Departed
from the Accepted and Usual Course of Judicial
Proceedings as to Call for an Exercise of This Court’s
Supervision.

The Court of Appeals’ express approval of the District
Court’s assertion of jurisdiction to review the final deci-
sion of a state court of highest resort (as to which, more-
over, this Court had denied certiorari) also is contrary to
fundamental principles underlying the relationship of fed-
eral and state courts.

In Atlantic Coast Line R. Co. v. Brotherhood of Loco-
motive Engineers, 398 U.S. 281, 286 (1970), this Court
pointed out:

“Thus from the beginning we have had in this country
two essenually separate legal systems. Each system
proceeds independently of the other with ultimate re-
view in this Court of the federal questions raised in
either system”,

The Court also warned (ibid.):

“Obviously this dual system could not function if state
and federal courts were free to fight each other for
control of a particular case.”

See also, e.g.. Singer v. A. Hollander & Son, Inc., 202 F.2d
09, 09 (3d Cir. 1953) (“. . . it is not our business to review
the correctness of fact conclusions reached by the Vice
Chancellor of the State of New Jersey and its Supreme
Court”); Zn re Glenn W. Turner Enterprises Litigation,
521 F.2d 775, 780 (3d Cir. 1975) (“. .. the state and lower

23

federal courts are independent, and ... a federal action is
not superior to a state proceeding merely because of its
federal character. .. .As a corollary to this principle, judg-
ments resulting from federal actions are not preferred to
judgments resulting from state actions because of their
federal character.”).

As the District Court in the instant case recognized
(App. 19-20), it was without jurisdiction to review the
Illinois Supreme Court's decision under the Civil Rights
Act, 42 U.S.C. $1983. See, e.g., Rooker v. Fidelity Trust Co.,
263 U.S. 413 (1913). Yet, inexplicably, the District Court
concluded that it had such jurisdiction under §16 of the
Clayton Act (App. 25). The Court of Appeals “agreed” on
the ground that the Illinois Supreme Court “expressly re-
fused to consider” the federal antitrust issues raised by the
Stoner group (App. 14).

However, although acknowledged in a footnote (App.
7), the Court below then disregarded the fact that it was
the respondents themselves who withdrew the federal
antitrust issues from consideration by the state courts, and
that it was only for this reason that the Illinois Supreme
Court did not pass on those issues. Thus, the Illinois
Supreme Court never “expressly refused to consider” the
federal antitrust issues. No such issue was even before the
Iilinois Supreme Court since it had been withdrawn by
respondents years before and never raised again, and the
Illinois Supreme Court merely noted that fact in its opinion.

In any event, the decision of the Illinois Supreme Court
is final and entitled to full faith and credit. This Court,
which is the only federal court with power to review the
final decision of the highest court of a state, denied cer-
tiorari, and the matter should have rested there. The anti-
trusi laws confer no greater power on a federal district
court to perform this Court’s reviewing functions than the
Civil Rights Act or any other federal law. See Atlantic
Coast Line R. Co. vy. Brotherhood of Locomotive Engineers,
supra, 398 U.S. at 286.

24

IV. The Decision Below Raises Issues of Broad National
Significance and Is Likely to Have a Serious Detri-
mental Impact on the Relationship between State
and Federai Courts.

Under the analysis of the Court below, wherever a fed-
eral statute provides for a private injunction action main-
tainable only in the federal courts, then:

1. The bar of § 2283 would not apply, and state
court proceedings would therefore be subject to federal
stays without regard to the Anti-Injunction Statute;

2. No considerations of comity or federalism would

apply in considering whether to grant such injune-
tions: and

»

3. Even a final judgment of a state court, reviewed
bv the highest court of that state, would be subject to
collateral review by a federal district court in such
an injunction action.

Through this technique, state court defendants would be
able to utilize the federal courts to frustrate and inter-
fere with the state court proceedings in which they are
involved, and (as in this ease) even to nullify final judg-
ments reviewed by the highest state courts. Moreover, it
is not only the antitrust laws that might be utilized in that
way by state court defendants,* but indeed many other fed-
eral statutes as well.

Review of the decision below is essential, we submit, in
view of the critical importance to the Nation’s parallel
federal and state judicial systems of a clear set of proce-
dural restraints upon improper interference by the courts
of one system with those of the other. Such restraints have

* At least one such injunction has already been granted by
another federal distriet court on the basis of the District Court's
opinion in this case. Sar Industries, Inc. v. Monogram Industries,
Inc., 1976-1 Trade Cases © 60,816 (C.D. Cal.)

25

long been recognized as a basic part of our federal-state
structure, and this Court has referred to the Anti-Injunc-
tion Statute as

“a limitation of the power of the federal courts dating
almost from the beginning of our history and express-
ing an important Congressional policy—to prevent
needless friction between state and federal courts.”
Oklahoma Packing Co. v. Oklahome Gas and Electric
Co., 309 U.S. 4, 8-9 (1939).

The maintenance of that policy, and the “fundamental
constitutional independence of the States and their courts,”
Atlantic Coast Line R. Co. v. Brotherhood of Locomotive
Engineers, supra, 398 U.S. at 287, are seriously threatened
by the decision of the Court of Appeals in this case.

CONCLUSION

For the foregoing reasons, the petition for writ of cer-
tiorari should be granted.

Respectfully submitted,

Earu FE. Pottock

Gary SENNER

Pup A. HaBer

Louis C. KEeILer

SONNENSCHEIN CARLIN NATH
& RoseENTHAL

Attorneys for Petitioner

LAMBERT M. OcHSENSCHLAGER
Wayne F. WEILER
Rerp, OCHSENSCHLAGER, Murpuy & Hupp

Of Counsel

Dated: August 4, 1976.

ROS a TT
‘

APPENDICES

App. 1

APPENDIX A
Opinion of the United States Court
of Appeals for the Seventh Circuit

IN THE
UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT

Nos. 75-1792 and 75-1793
LexktTro-VEND Corporation, a Delaware corporation; Harry

B. Sroner: and Stoner Investments, Inc., a Delaware
corporation,

Plaintiff s-Appellees,
v.
Tue Venvo Company, a Missouri corporation,
Defendant-A ppellant.

Appeals from the United States District Court for
the Northern District of Illinois, Eastern Division.
No. 65 C 1755
Ricnarp W. McLaren, Judge.

Arevep Dec per 8, 1975 — Decipep May 28, 1976

Before Swycert and Sprecuer, Circuit Judges, and
Warren, District Judge.

Swycert, Circuit Judge. The overe!l question is whether
the district court properly issued a preliminary injune-

' The Honorable Robert W. Warren, United States District Judge
for the Eastern District of Wisconsin, is sitting by designation.

App. 2
75-1792, 75-1793

tion in this antitrust case, thereby staying enforcement
proceedings in the Illinois state courts to collect two
judgments entered in a suit on an employment contract
that contained a noncompetition covenant. Among the
specific issues raised is whether section 16 of the Clayton
Act, 15 U.S.C. § 26, comes within the “expressly autho-
rized” exception of the anti-injunction statute, 28 U.S.C.
§ 1183. We hold that it does. We also hold that the dis-
trict judge did not abuse his discretion in finding the plain-
tiffs have a likelihood of success on the merits and they
would suffer irreparable injury absent an injunction. We
therefore affirm the district court’s grant of a preliminary
injunction.

The Vendo Company is located in Kansas City, Mis-
souri. In 1959 it was a leading manufacturer and seller
of vending machines for cold beverages, ice cream, and
certain other products. It did not manufacture vending
machines for ice cream, candy, cigarettes, sandwiches, or
coffee, but was conducting research and development in
that area.

Stoner Manufacturing Company, located in Aurora,
Illinois, was principally engaged in the manufacture of
eandy vending machines that had a nationwide market.
Compared with Vendo it was a smaller and less diversi-
fied enterprise. Harry H. Stoner, his wife, and other mem-
bers of his family owned all of the Stoner Manufacturing

stock. Stoner was the president and controlled the com-
pany.

Following negotiations with Stoner, Vendo purchased
the assets of Stoner Manufacturing Corporation in April
1959 with the exception of its real estate and buildings.
(Upon consummation of the purchase, Stoner Manufac-
turing was reorganized as Stoner Investments, Inc.) The
sales agreement imposed a ten-year noncompetition re-
striction on Stoner Manufacturing not to own, control, or
manage any business engaged in the manufacture or sale

App. 3
75-1792, 75-1793

of vending machines. In addition, an employment con-
tract between Vendo and Harry B. Stoner was executed
whereby the latter would serve Vendo as a consultant for
five years at an annual salary of $50,000. This contract
had a noncompetition covenant also. Stoner agreed that
during the term of the contract and for five years fol-
lowing the termination of his employment he would not
“(Directly or indirectly, in any of the territories in which
the Company [Vendo] .. . is at present conducting busi-
ness and also in territories which Stoner knows the Com-
pany ... intends to extend and carry on business .. .”
enter into the vending manufacturing business. The em-
ployment contract provided that Stoner “[S)hould regu-
late his own hours of employment and shall determine
the amount of time and effort he shall devote .. .” to
Vendo.?

Almost immediately after the Stoner Manufacturing as-
sets were acquired by Vendo, friction developed between

2 The full text of the noncompetition clause reads:

5. During the term of this agreement and for a period of
five (5) years following the termination of his employment
hereunder, whether by lapse of time or by termination as here-
inafter provided, Stoner shall not directly or indirectly, in any
of the territories in which the Company or its subsidiaries or
affiliates is at present conducting business and also in terri-
tories which Stoner knows the Company or its subsidiaries or
affiliates intends to extend and carry on business by expansion
of present activities, enter into or engage in the vending ma-
chine manufacturing business or any branch thereof, either
as an individual on his own account, or as a partner or joint
venturer, or as an employee, agent or saleman for any person,
firm or corporation or as an officer or director of a corperation
or otherwise, provided however that the Company, its subsid-
iaries and affiliates shall be excluded from the restrictions
hereof and provided also that Stoner shall be permitted to
own, hold, acquire and dispose of stocks and other securities
which are traded in the investment security market whether
on listed exchanges or over the counter.

App. 4
75-1792, 75-1793

Stoner and his employer. Stoner complained that his
services as a consultant were not being utilized and that
he was being treated as a mere figurehead. Very likely
this state of affairs prompted the development of the
events that lead to the litigation in both the state and
federal courts.

For several years before the sale to Vendo, Rod Phil-
lips was the Stoner plant superintendent and his son, Bill,
the assistant superintendent. Because of their disagree-
ment with the policies and operations of Vendo, the father
and the son resigned from their respective positions in
mid-1960. Bill Phillips after quitting Vendo began the
design of an electronic coin detecting device and attempted
to interest Stoner in financing its development. Stoner
evinced interest and agreed to pay the younger Phillips
$650 per month to develop the device. It was agreed that
any patents on the invention would belong to Stoner Invest-
ments. By the end of 1960 a model was completed and a
patent applied for. The patent was issued in October 1960
and was assigned to Stoner Investments; however, the
patented device was never produced commercially.

About this same time Rod and Bill Phillips developed
a machine for vending candy that was radically different
from any previous machine. It combined in a novel vet
practical design three existing vending machine features:
stock rotation (known as “first-in, first-out”), a window
to display the product to be vended, and a capacity for
stocking mixed items in a single conveyance.* At Rod

*In 1959 when Stoner Manufacturing sold out to Vendo it was
manufacturing a eandy vending machine called a “drop shelf” ma-
chine. The Phillip’s machine, which became known as the “Lektro-
Vend” model, was an extension of the “drop shelf” model. After
the purchase of the Stoner assets in April 1959, Vendo began ex-
perimenting with the same idea as that developed by the Phillipses.
Two models were built. Vendo, however, considered the models
defective in certain mechanical respects and too expensive to pro-
duce. The project was dropped.

App. 5
75-1792, 75-1793

Phillips’s request Stoner agreed to finance the develop-
ment of this new machine; however, neither Stoner nor
Stoner Investments was to have any ownership or con-
trol over the venture. Interest-free loans aggregating
$200,000 were made by Stoner to the Phillipses during
1961-62. Stoner also made available a building in Aurora
rent free.

By October 1962 prototypes of the machine developed
by Rod and Bill Phillips had been constructed and were
exhibited at a trade show in San Francisco. The machine
won favorable interest in the industry. In the meantime
Lektro-Vend Corporation had been organized. The orig-
inal stockholders were Rod and Bill Phillips, Ruth Net-
ray (Stoner’s sister-in-law), and several employees of the
corporation.

In December 1962 Mrs. Netray loaned the Phillipses
$350,000. The loan was later increased to $525,000. The
proceeds of those borrowings were used in part to pay
off the $200,000 loan made by Stoner. During that same
month Stoner asked Vendo to be released from his em-
ployment contract, saying that he had an opportunity to
invest in the Lektro-Vend venture. Vendo refused to ac-
cede to his request and Stoner was told that Vendo itself
was interested in buying the Lektro-Vend machine. Stoner
was asked to learn whether Rod Phillips was interested
in selling and, if so, to arrange a meeting between Phil-
lips and representatives of Vendo. Stoner reported that
Rod Phillips was asking $1,500,000.

Rod Phillips met with certain Vendo officials in January
1963 to show them the operation of the machine. Stoner
was present, but took no part in the meeting. In March
Stoner wrote Vendo’s vice-president that he had told
Phillips that he assumed in the absence of any word from
Vendo that Vendo no longer had any interest in the pat-
ent. The vice-president responded that Vendo was still
interested, but that the asking price was too high.

App. 6
75-1792, 75-1793

During the summer of 1963 Stoner had a conversation
with Vendo’s president. Upon inquiry from the latter as
to the actual extent of Stoner’s involvement with Phil-
lips, Stoner said that his relationship was confined to
loans which had been repaid by another person. He did
not disclose that the other person was his sister-in-law.

In March 1964 Stoner Investments contracted to sell
Lektro-Vend a new plant which had been built in Aurora
by Stoner Investments during the previous year. The deal
was financed through a bank loan which was subject to
an agreement that Stoner Investments would repurchase
the property in the event of default.

Stoner’s contract of employment terminated June 1,
1964. During that same month Lektro-Vend issued 5,000
shares of stock to Mrs. Stoner and in July it issued 5,000
shares of stock to Stoner Investments. Stoner sent a
letter to fifty vending machine operators in which he iden-
tified himself with the old Stoner Manufacturing Company
and said that he was now interested in Lektro-Vend. He
went to great lengths to recommend the Lektro-Vend prod-
uct. Litigation followed.

Vendo sued Stoner and Stoner Investments in the Illinois
state court in August 1965. In October 1965 Lektro-Vend,
Stoner, and Stoner Investments sued Vendo in the federal
court. The action in the state court was finally terminated
in November 1974 when the Illinois Supreme Court denied
a petition for rehearing of its decision affirming judgments

against Stoner and Stoner Investments, Inc. in excess of
$7 ,000,000.4

*In an attempt to aid the reader to better understand this com-
plex litigation and at the same time to shorten the opinion, a sum-
mary of the state court litigation follows.

Vendo v. Harry B. Stoner and Stoner Investments, Inc.

The suit was filed in Kane County, Illinois on August 10, 1965;
the complaint charged breach of noncompetition covenants; an

App. 7
75-1792, 75-1793

The complaint in the federal action alleged violations
by Vendo of sections 4 and 16 of the Clayton Act (15 U.S.C.
§§ 15 and 26). The case lay dormant until June 1975 when
the district court granted plaintiffs’ motion for a prelimi-
nary injunction staying defendant’s efforts to collect its
state court judgments until the merits of the federal suit
could be determined. That action precipitated the present
appeal under the provisions of 28 U.S.C. § 1292(a).

4 (Continued)
amended complaint also charged theft of trade secrets. After a
bench trial the court on December 16, 1966 found for Vendo.
Judgments against Stoner for $250,000 and against both defend-
ants for $1,100,000 were granted. Stoner and Stoner Investments
were enjoined from further acts of competition.

An appeal was taken to the Appellate Court of Illinois. That
court entered its decision on January 30, 1969, 105 Ill. App. 2d 261.
The court held that no trade secrets were involved, the noneompeti-
tion covenants were valid and enforceable, and the covenants had
been breached by the defendants. The grant of injunctive relief
was affirmed. The court also held that though the trial court erred
in striking the affirmative defense based on the federal antitrust
laws, it was correct in denying the defense based on the Illinois
antitrust laws. The cause was remanded for a determination of
damages and further proceedings.

Upon remand the defendant withdrew its affirmative defense as-
serted under the federal antitrust laws. The trial court, after
hearing evidence, entered judgments against Stoner and Stoner
Investments which totaled $7,363,500.

Upon a second appeal to the Illinois Appellate Court, the court
decided, on September 12, 1973, 13 Ill. App. 3d 291, that the trial
court erred in the measurement of damages. The case was re-
manded for assessment of damages in accordance with the Appel-
late Court’s original opinion.

Upon appeal to the Illinois Supreme Court on September 27,
1974, 58 Ill. 2d 289, the appellate court was reversed and the trial
court’s judgments were affirmed. The Supreme Court in deciding
the case constructed a different theory of recovery—the breach of
a fiduciary obligation on the part of Stoner—then had been asserted
by Vendo.

App. 8
75-1792, 17-1793

I

The threshold question relates to the authority of a
federal court to enjoin a proceeding pending in a state
court. Specifically, the question is whether section 2283 of
the Judicial Code® prevented the district court from issuing
a preliminary injunction staying the efforts of Vendo to
collect its state court judgments against Stoner and Stoner
Investments, Inc.®

The underlying purpose of this section, grounded in
federalism is “[T]o prevent friction between state and fed-
eral courts.” Oklahoma Packing Co. v. Oklahoma Gas €
Electric Co., 309 U.S. 4, 9 (1940). The statute is to be
strictly applied Amalgamated Clothing Workers v. Rich-
man Bros. Co., 348 U.S. 511, 515-16 (1955). Unless one
of the three exceptions listed in the statute is evident,
it constitutes an absolute ban upon a federal court in-
junction against a pending state court proceeding. Atlan-
tic Coast Line R.R. Co. v. Brotherhood of Locomotive
Engineers, 398 U.S. 281, 286-87 (1970).

In the instant case the district court held that both the
“as expressly authorized” exception and the “in aid of
its jurisdiction” exception applied and issued the prelim-
inary injunction. Since we are of the view that the judge
was correct in holding the first exception applicable, we

need not reach the question raised as to the second ex-
ception.

*°28 U.S.C. § 2283 provides:
A court of the United States may not grant an injunction to
stay proceedings in a state court except as expressly authorized
by Act of Congress, or where necessary in aid of its jurisdiec-
tion, or to protect or effectuate its judgments.
®* The injunction preserved Vendo’s lien and rights under the
state court judgments. It also contained detailed provisions regu-

lating the conduct of the judgment debtors during the pendency
of the injunction.

App. 9
75-1792, 75-1793

Section 16 of the Clayton Act (15 U.S.C. § 26) provides
that any person is entitled to sue for and have injunctive
relief in any court of the United States having jurisdiction
over the parties against threatened loss or damage from
violations of the antitrust laws. The complaint in the
instant case alleges violations of section 7 and 2 of the
Sherman Act (15 U.S.C. §§7 and 2) and reads in part:

On or about August 10, 1965, Vendo filed suit in
the Cireuit Court for the Sixteenth Judicial Circuit of
Illinois against Stoner and Stoner Investments. The
full text of the complaint is attached to this complaint
as Exhibit C. The complaint alleges that Stoner had
breached his agreement not to compete of June 1, 1959
and that Stoner Investments had breached that portion
of the April 3, 1959 contract of sale which sought to
eliminate competition for 19 years throughout the
world. As has been previously alleged, the world-wide
non-competition covenants contained in the said con-
tracts -e illegal and in violation of the antitrust laws
of the Uuited States, particularly Sections 1 and 2 of
the Sherman Act. The purpose of the said law suit is
to unlawfully harass Stoner and Stoner Investments
and to eliminate the competition of Stoner, Stoner
Investments and Lektro-Vend. The lawsuit is part of
Vendo’s plan to monopolize the vending machine man-
ufacturing business. The threats to enforce such non-
competition covenants ard the bringing of a suit in an
attempt to enforce the illegal covenants are overt acts
of Vendo in monopolization and constitute an attempt
to monopolize the trade or commerce in the State
of Illinois among the several states and foreign coun-
tries in the manufacture of such vending machines.
Lektro-Vend, Stoner and Stoner Investments have
been injured in their business and property as a direct
and proximate result of these overt acts of Vendo.’

7 Other allegations specifically refer to the noncompetition cove-
nants contained in the 1959 agreements.

App. 10
75-1792, 75-1793

The question before us is whether section 16 of the Clayton
Act, 15 U.S.C. § 26, should be interpreted as coming within
the “expressly authorized” provision of section 2283 of
the Judicial Code.

The Supreme Court’s decision in Mitchum v. Foster, 407
U.S. 225 (1972), provides guidance. In that case the
Court held section 7 of the Civil Rights Act of 1871, 42
U.S.C. § 1983, came within the meaning of the “expressly
authorized” exception of the anti-injunction statute. The
Court initially noted that, “Despite the seemingly un-
compromising language of the anti-injunction statute prior
to 1948, [it was] soon recognized that exceptions must
be made to its blanket prohibition if the import and pur-
pose of other Acts of Congress were to be given their
intended scope.” Jd. at 233-34. The court also cataloged
six separate instances in which it had found federal courts
empowered to enjoin state court proceedings in carrying
out the will of Congress “despite the anti-injunction stat-
ute.” Mr. Justice Stewart observed that “[i]n addition to
the exceptions to the anti-injunction statute found to be
embodied in the various Acts of Congress, the Court
[has] recognized other ‘implied’ exceptions to the blanket
prohibition of the anti-injunction statute.” Id. at 235. The
relevant criteria to be applied in determining whether
an Act of Congress comes within the “expressly author-
ized” exception were listed: (1) The “federal law need
not contain an express reference” to the anti-injunction
statute; (2) “[A] federal law need not expressly authorize
an injunction of a state court proceeding in order to
qualify as an exception”; and (3) “[A]n Act of Congress
must have created a specific and uniquely federal right or
remedy, enforceable in a court of equity, that could be
frustrated if the federal court were not empowered to
enjoin a state court proceeding.” Jd. at 237. Sammariz-
ing these criteria, Mr. Justice Stewart wrote: “The
test . . . is whether an Act of Congress, clearly creating
a federal right or remedy enforceable in a federal court of

App. 11
75-1792, 75-1793

equity, could be given its intended scope only by a stay
of a state court proceeding.” Jd. at 238.

Applying these criteria to section 16 of the Clayton
Act, we are of the view that it falls within the “expressly
authorized” exception. Mitchum noted that section 1983 .
of the Civil Rights Act “opened the federal courts to
private citizens, offering a uniquely federal remedy” in
vindicating basic federal rights. Id. at 239. So, too, does
section 16 of the Clayton Act open the federal courts
to private citizens offering a uniquely federal remedy as
an important part of the enforcement provisions of the
antitrust laws. The private enforcement of these laws by
injunctive relief is vested exclusively within the jurisdic-
tion of the federal courts. This jurisdiction would be
frustrated if federal courts did not have the power to
enjoin a state court proceeding in an appropriate case.
The present situation is a classic example. Here Vendo
seeks to thwart a federal antitrust suit by the enforce-
ment of state court judgments which are alleged to be the
very object of antitrust violations.

Several cases support our holding. In Helfenbein v.
International Industries, Inc., 438 F.2d 1068 (8th Cir.
1971), decided prior to Mitchum, the plaintiffs had filed
suit seeking to recover treble damages for violation of the
Sherman and Clayton Acts. The loss or damages claimed
in the federal suit were due to one plaintiff being forced
into arbitration and other plaintiffs being evicted from
leased premises—consequences which under the issues
presented to the federal court were alleged to have re-
sulted from antitrust violations. The court, in upholding
the trial judge’s determination to deny an injunction,
stated that there was no authority under the federal
antitrust laws to enjoin state enforcement or remedy for
collection of ordinary debts. The court found that the
plaintiffs had “only remotely alluded] to their potential
loss or damage under federal law.” Jd at 1071. There had

App. 12
75-1792, 75-1793

been “no attempt in either the arbitration or eviction pro-
ceedings to enforce the very conduct . . . prohibited by
the Clayton or Sherman Acts.” Jd. The court found that
the loss or damage done to the plaintiffs was related to
their defenses as provided under state law. The loss did
not flow from any prohibition under federal laws—there
was no evidence that the evictions resulted from their
refusal to buy according to a “tie-in” agreement they had
executed with the defendants. While the court did not ex-
pressly decide that injunctive relief would have been proper
had the loss or damage been intricately connected to a
federal antitrust claim, it is clear from the logic of the
decision that this result would have been reached.

Another decision prior to Mitchum reached exactly this
result. In United States v. Bayer, 135 F. Supp. 65 (S.D.N.Y.
1955), the court held that a contract between Bayer and
I. G. Farber violated the Sherman Act. As part of the
afforded relief, the court enjoined an assignee of Faber
from enforcing in state court royalty payments under the
contract. In holding that section 2283 did not bar the in-
junction, the court said:

The answer [to section 2283] is that 44 of the Sher-
man Act grants the United States District Court juris-
diction “to prevent and restrain violations” of the Act.
The injunction is a necessary incident to the Court’s
power in order to effectuate its judgment that the
Bayer contracts are illegal. Simply to declare the
agreement illegal and at the same time permit recovery
of the proceeds would render the decree of the court
quite sterile. he purpose of the decree is not only to
prevent repetition of past offenses but also “to prevent
the defendants from acquiring any of the fruits of the
condemned project.” 135 F. Supp. at 73.

Studebaker Corp. v. Gittlin, 360 F.2d 692 (2d Cir. 1966),
is also instructive. In an appeal by a stockholder from an
order of the district court enjoining the use of other stock-

App. 13
75-1792, 75-1793

holder authorizations obtained without compliance with the
proxy rules in a state court proceeding to obtain inspection
of Studebaker’s shareholders’ lists, the Second Circuit held
that section 2283 did not bar the injunction. The court
distinguished the federal securities statutes wmch afford
enforcement by private parties from the provisions of the
National Labor Relations Act which restrict the enforce-
ment of its provisions to the National Labor Relations
Board. Judge Friendly, writing for the court, stated: “Sec-
tion 16 of the Clayton Act... affords a closer parallel, since
there as here the private suit plays an important part in
enforcement.” 360 F.2d at 698. He concluded that “where
the very act of prosecuting the state proceeding violated
federal law .. .,” section 2283 did not stand in the way of
enjoining the state court action. /d.°

When Congress enacted the various antitrust laws it
created federal rights and remedies enforceable by private
parties in a federal court of equity. That such powers were
vested exclusively in the federal courts reflect the Congres-
sional belief that the national objectives of the antitrust
laws will be effectuated if entrusted to the jurisdiction of
the federal courts. If federal courts are prohibited from
enjoining state court proceedings which are part of an an-
ticompetitive scheme in violation of the federal antitrust
laws, the full scope and force of those laws will be seriously
impaired. Moreover, the national interest in the preserva-
tion of competition—one of our-most important public
policies—would be frustrated. Accordingly, we ho!d that
section 16 of the Clayton Act constitutes an “expressly
authorized” exception to the anti-injunction provision of
the Judicial Code.

Vendo further contends that even if the district court
was not barred by section 2283 from issuing the injunction,

8 Gittlin was cited in Mitchum (407 U.S. at 237, n. 25) in dis-
cussing the meaning of the “expressly authorized” exception.

App. 14
75-1792, 75-1793

principals of comity and federalism constitute a bar. The
principle of comity has no applicability when the exclusive
remedy for an injury lies in the federal court. We are in
agreement with the trial court’s observation:

Principles of comity and federalism do not prevent
the issuance of an injunction considering the peculiar
nature of this case. The federal action here is based
in part on the very proceeding sought to be enjoined.
If federal law is violated by continuation of the state
action the paramount national interest requires court
intervention. Lektro-Vend Corp. v. Vendo Company,
403 F. Supp. 527, 537 (N.D. Til. 1975).

It is also argued that the district court lacked jurisdiction
to reverse, review, or revise the state court judgments in a
collateral attack. While the district court conceded that it
had no power to directly review cases from state courts, it
went on to point out that here the plaintiffs’ claim that
“(The state court proceedings did not take account of
Vendo’s violations of antitrust law and were prosecuted in
violation of Sections 1 and 2 of the Sherman Act...” Jd. at
529. Therefore, the “[S]tate court proceedings must be
examined by this Court for the purpose of determining
whether Vendo prosecuted those cases as part of an anti-
competitive scheme.” Jd. at 532. The judge additionally
commented: “The final Illinois Supreme Court opinion
makes such a review imperative. The Illinois court ex-
pressly refused to consider the allegations that the state
proceedings were part of an anti-competitive scheme. Plain-
tiffs, having never had a trial on this issue, must be heard
in the only forum now aveilable.” Id. at 532, n. 4. We agree
with these comments.

II

In determining that interlocutory relief was appropriate,
the district court concluded that the plaintiffs had demon-
strated a likelihood of ultimate success on the merits of their

App. 15
~ 75-1792, 75-1793

claims. Defendant attacks this ruling by arguing that there
was a total failure of proof. It says that the state court
judgments are based on Stoner’s violation of fiduciary duties
and do not depend (contrary to the trial judge’s findings)
on the noncompetition covenants. Additionally, it is argued
that the covenants are lawful when tested by antitrust
standards.

In the first place, defendant’s attack is overbroad. As
we said in Bath Industries v. Blot, 427 F.2d 97, 111 (7th
Cir. 1970), “[I)t is not necessary that the trial court
find the certainty of a wrong, a likelihood is sufficient.”
Furthermore, since the grant of a temporary injunction
rests within the sound discretion of the trial court,
Prendergast v. New York Telephone Co., 262 U.S. 43
(1923), appellate review is narrow. Scherr v. Volpe, 466
F.2d 1027 (7th Cir. 1972).

Secondly, when the Supreme Court of Illinois affirmed the
judgments on the unadvanced theory that Stoner had
violated his fiduciary duties, it did not consider or decide
any of the antitrust issues presented here. It did not and
could not evaluate Vendo’s alleged monopolistic scheme
which included the enforcements of the noncompetition cove-
nants. The district court found that the covenants were
“overly broad” and that there was substantial evidence that
Vendo had the “required specific intent to monopolize” in a
relevant market. Given the limitations of our review, we
cannot say the trial court erred.

The judge states in his memorandum opinion:

On the record as a whole, the Court finds that a
preliminary injunction will prevent irreparable harm,
protect the public interest, and will benefit plaintiffs
more than it will burden Vendo. Continued efforts
at collection will prevent Lektro-Vend Corporation
from marketing a promising, newly-developed vend-
ing machine. The state court collection process places
insurmountable barriers in the way of raising capital

App. 16
75-1792, 75-1793

for any expansion program. Moreover, collection of
the state judgment will effectively place Lektro-
Vend in the hands of—or at least at the disposition
of—Vendo. Stoner Investments is controlled by Mr.
Stoner; 78.57% of Lektro-Vend is owned by Stoner
Investments. Needless to say, Vendo would also con-
trol Stoner Investments. The case or controversy
requirement contained in Article III then would re-
quire dismissal of Lektro-Vend and Stoner Invest-
ments. Continued collection thus would eliminate two
of the plaintiffs herein. Moreover, Mr. Stoner’s abil-
ity to effectively prosecute this action would be
severely limited by further execution of the state
court case. This also amounts to irreparable harm.
(Citations omitted.)

We are not prepared to say that the court erred in reach-
ing these conclusions.

Defendant’s last contentions are that laches, waiver,
and collateral estoppel bar injunctive relief. Issues not
raised in the trial court cannot be presented for the first
time on appeal. United States v. Tyrrell, 329 F.2d 341,
345 (7th Cir. 1964). As we noted in Hamilton Die Cast,
Inc. v. United States F. & G. Co., 508 F.2d 417, 420 (7th
Cir. 1975): “[A] trial court should not be reversed on
grounds that were never -urged or argued below.” Defen-
dant failed to raise these issues in the trial court. Regard-
less of this procedural defect, we are convinced that these
contentions are without merit.

The grant of interlocutory relief is affirmed.
A true Copy:
Teste:

Clerk of the United States Court of
Appeals for the Seventh Circuit

Oo ane et

ee

App. 17

APPENDIX B

Order and Judgment of the United States
Court of Appeals for the Seventh Circuit

UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT

Chicago, Illinois 60604

May 28, 1976

Before
Hon. LUTHER M. SWYGERT, Circuit Judge
Hon. ROBERT A. SPRECHER, Cireuit Judge
Hon. ROBERT W. WARREN, District Judge*

) Appeal from the United

States District Court
LEKTRO-VEND CORP., etc., et al., 9 a No ~~

Plaintiffs-Appellees, trict of Illinois East-

ern Division No. 65 C

No. 75-1792 & 75-1793 vs. r 1755
THE VENDO COMPANY, etc., The Honorable
Defendant-Appellant. | Richard LS McLaren,
‘ udge

This cause came on to be heard on the transcript of the
record from the United States District Court for the
Northern District of Illinois, Eastern Division, and was
argued by counsel.

On consideration whereof, it is ordered and adjudged
by this court that the judgment of the said District Court
in this cause appealed from be, and the same is hereby,
AFFIRMED, with costs, in accordance with the opinion
of this Court filed this date.

* Honorable Robert W. Warren, United States District Judge for
the Eastern District of Wisconsin, is sitting by designation.

App. 18

APPENDIX C
Order of the United States Court of Appeals
for the Seventh Circuit, On Rehearing
UNITED STATES COURT OF APPEALS
For the Seventh Circuit
Chicago, Illinois 60604
July 16, 1976

Before
Hon. LutHer M. Swycert, Cireuit Judge
Hon. Rosert A. Sprecuer, Circuit Judge
Hon. Roperr W. Warren, District Judge*

LEKTRO-VEND CORP., etc., et al., P - ne United
Plaintiffs-Appellees, | “2P<2's ‘tom the United

No. 75-1792, 75-1798 vs. : es at ee ee

ern Division.
THE VENDO COMPANY, etc.,

Defendants-Appellants. | No. 65 C 1755

On consideration of the petition for rehearing and sug-
gestion that it be reheard en banc filed in the above-entitled
cause, no judge in active service having requested a vote
thereon, nor any judge having voted to grant the sugges-
tion, and all of the members of the panel having voted to
deny a rehearing,

Ir 1s Orperep that the petition for a rehearing in the
above entitled cause be, and the same is hereby, Deniep.

Note: Judges Cummings, Pell and Tone did not partici-
pate in the disposition of this petition.

* The Honorable Robert W. Warren, United States District Judge
for the Eastern District of Wisconsin, is sitting by designation.

Ae ee ee a oe

App. 19
APPENDIX D

Opinion of the United States District
Court for the Northern District of Illinois

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

— — ———————- ——

LEKTRO-VEND CORP., a Delaware
corporation, HARRY B. STONER
and STONER INVESTMENTS, INC.,
a Delaware corporation,
Plaintiffs, | Wo, 65 C 1755
v.

THE VENDO COMPANY, a
Missouri corporation,

Defendant. |

—_————— ——————

MEMORANDUM OPINION AND ORDER
I.

This is a complex antitrust action’ by Lektro-Vend Cor-
poration, Harry B. Stoner and Stoner Investments, Inc.,

1 Plaintiffs also assert a civil rights claim pursuant to 42 U.S.C.
§ 1983 claiming certain portions of the Illinois Supreme Court de-
cisions violated procedural and substantive due process. The Court
has no jurisdiction to entertain this claim. Rooker v. Fidelity
Trust Co., 263 U.S. 413 (1923); Louis Ender Inc. v. General Foods
Corp., 467 F.2d 929 (8th Cir. 1972) ; Sarelas v. Slechan, 326 F.2d
490 (7th Cir. 1963). As explained in Adkins v. Underwood, 370 F.
Supp. 510, 514-15 (N.D.TIl. 1974) :

“While lower federal courts were given certain power in the
Judiciary Act of 1789, they were not given any power to
directly review cases from state courts, and they have not been

(Footnote continued on following page.)

App. 20

plaintiffs, against the Vendo Company, the defendant.
Vendo recently obtained a $7,345,500 state court judgment
against Mr. Stoner and Stoner Investments for violation
of their purported fiduciary duties to Vendo. Vendo v.
Stoner, 58 Ill.2d 289, N.E.2d (1974), cert. denied,

US. (1975). Plaintiffs? now seek a preliminary
injunction preventing Vendo from taking any further steps,
pending a trial of this case, to collect its state court judg-
ment, urging that the state court proceedings did not take
account of Vendo’s violations of antitrust law and were
prosecuted in violation of sections 1 and 2 of the Sherman
Act, 15 U.S.C. §§ 1 and 2. For the reasons and on the con-
ditions stated below, the motion will be granted. Insofar
as required, this opinion shall constitute the Court’s find-
ings of fact and conclusions of law. F.R.Civ.P. 52(a), 65(d).

(Footnote continued from preceding page.)

given such power since that time. . . . Only the Supreme Court
is authorized to review on direct appeal the decision of state
courts. From the beginning this country has had two essen-
tially separate legal systems. Each system, federal and state,
proceeds independently of the other with ultimate review in

the United States Supreme Court of federal questions raised
in either system.

“Even if a state court decision is constitutionally wrong, that
does not make the judgment void, it merely leaves it open to
reversal or modification in an appropriate and timely appel-
late proceeding. Unless and until so reversed or modified, it
would be an effective and conclusive adjudication. Under the
legislation of Congress, no court of the United States other
than the United States Supreme Court ean entertain a pro-

ceeding to reverse or modify a state court judgment which is
in error.”

* The motion for preliminary injunction only sought relief for
Mr. Stoner and Stoner Investments, not Lektro-Vend Corporation.
It is clear, however, that the hearing litigated the interests of all
three plaintiffs and that Vendo acquiesced in this procedure.

Plaintiff's motion to amend the motion to include Lektro-Vend is
therefore granted.

een

App. 21

To demonstrate the necessity of a preliminary injunc-
tion a brief excursion into the history of the relationship
between the parties is required. This action has its genesis
in the 1959 purchase of Stoner Manufacturing Corp. by
Vendo. This sale was occasioned primarily by Mr. Stoner’s
health problems. At that time Stoner Manufacturing was
primarily a producer of candy vending machines through-
out the United States. Vendo prior to 1959 was a manu-
facturer of beverage and ice cream vending machines. The
record in the state court proceedings and here demonstrates
that Vendo had two purposes in purchasing Stoner Man-
ufacturing: expansion of its product line® and elimina-
tion of Mr. Stoner as a potential competitor in the vending
machine market. The parties agree that Mr. Stoner was a
design genius in creating innovative vending machine prod-
ucts.

The sale agreement between Vendo and Stoner Man-
ufacturing provided that Vendo would pay the Stoner in-
terests $3,400,000 and deliver 60,000 shares of Vendo stock
to Mr. Stoner. This made Mr. Stoner a major shareholder
of Vendo. Mr. Stoner also became an officer and director
of Vendo. His employment contract with Vendo had a five
year term and his salary was $50,000 per year. The 1959
agreements also provided that Stoner Manufacturing would
not directly or indirectly participate in the management,
ownership or control of a vending machine business for
ten years in the United States or any foreign country in
which Vendo was doing business. Mr. Stoner’s employment
contract provided that for a period of five years following
the termination of his employment, Mr. Stoner would not
compete with Vendo in any territory in which Vendo was
doing business or intended to do business.

3 Federal Trade Commission approval was required before Vendo
could purehase the Stoner vending machine interests. Apparently
this was accomplished by misrepresenting to the Commission that
Stoner Manufacturing and Vendo were not actual or potential com-
petitors. The record demonstrates that at the least Vendo was a
potential competitor of Stoner Manufacturing.

App. 22

Shortly after the 1959 agreements were consummated Mr.
Stoner and Vendo had a falling out. Mr. Stoner had been
led to believe he would be able to take an active role in
research and development and would be treated as chair-
man of the board with respect to operation of the pur-
chased assets of Stoner Manufacturing. In actuality Mr.
Stoner was virtually ignored or bypassed by the Vendo
management. The Vendo management admittedly was thus
only paying Mr. Stoner not to compete rather than employ-
ing him for performance of actual services.

The succeeding events are adequately set out in the first
opinion of the Illinois Court of Appeals at 105 Tll.App.2d
261, 269-77. During the fall of 1960 Mr. Stoner began
financing vending machine research and development by
certain former Stoner Manufacturing employees. This
work culminated in the development of a revolutionary
first-in-first-out (FIFO) candy vending machine, called the
Lektro-Vend machine. The first prototypes of the Lektro-
Vend were exhibited at a trade show in October 1962.
Vendo employees were present and made initial inquiries
about purchasing the design. The inventors, however,
decided to manufacture and market the machine on their
own. Mr. Stoner was asked to join these efforts. Thus in
December 1962 Mr. Stoner sought to be released from his
Vendo employment contract stating that he wanted to in-
vest in the Lektro-Vend machine. Mr. Stoner did not dis-

close at that time his previous backing of the Lektro-Vend
project.

Vendo refused the release request because it did not
want to compete with Stoner. Vendo officials stated that
part of the consideration for the 1959 agreements was
the non-competition clauses. Instead, Stoner was requested
to help Vendo purchase the Lektro-Vend from the in-
ventors. The inventors sought $1,500,000; Vendo thought
this price too high and declined to purchase the machine.
Vendo also thought that there were inherent technical
problems in the Lektro-Vend and that it was too costly to

a Te ee

se yh tn ai he le acl tl. nt a ae ea At es

App. 23

produce. Mr. Stoner warned that was a serious mistake
not to purchase the Lektro-Vend.

Some time shortly after the Vendo refusal to purchase
the Lektro-Vend, Mr. Stoner revealed his financial support
of the Lektro-Vend inventors. It appears, however, that
Vendo was well aware of the Stoner involvement with
Lektro-Vend as early as the 1962 trade show.

Mr. Stoner’s and Stoner Investments’ involvement with
the Lektro-Vend inventors and the Lektro-Vend Corpora-
tion continued. Stoner Investments helped Lektro-Vend
Corporation establish a production plant and further loans
or loan guarantees were made by both Mr. Stoner and
Stoner Investments. Meanwhile Mr. Stoner’s employment
contract with Vendo terminated on June 1, 1964, although
Mr. Stoner remained on the Vendo board until the spring of
1965. It is clear, however, that neither Mr. Stoner nor
Vendo thought until late in the state court litigation that
this relationship created for Mr. Stoner any further obliga-
tions beyond those duties purportedly contained in the
non-competition covenants.

In March 1965 Lektro-Vend salesmen reported that
Vendo salesmen were circulating rumors in che trade that
Lektro-Vend was about to go out of business. Mr. Stoner
responded with a letter to 50 vending machine operators.
This letter, denominated by the parties as the “Dear Oper-
ator” letter, stated that Stoner was now “interested” in
Lektro-Vend Corporation and would guarantee its con-
tinued existence.

Conflict between the parties sharpened in August 1965
when Vendo brought suit against Mr. Stoner and Stoner
Investments. The Court proposes to examine these pro-
ceedings only insofar as they may reflect illegal anti-com-
petitive conduct by Vendo. The original Vendo complaint
focused on alleged violation of the non-competition cove-
nants in the employment and sales agreements and sought
$500,000 in damages. This complaint was amended to add

2 EEE eevee

App. 24

a charge of theft of trade secrets and the ad damnum was
raised to $1,500,000. An injunction against Stoner and
Stoner Investments preventing further aid to Lektro-Vend
running until July 1, 1969 was also sought. The Illinois
Appellate Court opinion after the first trial reveals that the
evidence during the first trial was directed to the covenants
and the trade secrets issue. After the first trial, the Illinois
trial court entered judgment against Mr. Stoner for
$250,000 for violation of the covenants and $1,100,000 for
theft cf a trade secret. The Appellate Court at 105
Ill.App.2d 261 reversed as to the latter, stating that Vendo
had no trade secret. It is clear from all the evidence that
Vendo should have known that there was no theft of a trade
secret; indeed, the first Illinois Court of Appeals’ decision
demonstrates that the effort by Vendo to prove theft of a
trade secret amounted to vexatious litigation.

The Appellate Court remanded the case with directions
for further hearings on damages. Before the second state
trial, Vendo again raised the ad damnum, this time to
$7,345,500. At trial, however, Vendo attempted to prove
the entirely new theory that Stoner was legally at fault
for Vendo’s failure to have a FIFO machine. On this basis,
the trial court entered judgment against Stoner for
$170,835 for forfeiture of salary for the time in which he
purportedly illegally competed, and for $7,345,500 against
Stoner and Stoner Investments for the lost profits for
failure of Vendo to have a FIFO machine. Mr. Stoner and
Stoner Investments again appealed and the Appellate Court
again reversed, stating that Vendo’s failure to have a FIFO
vending machine was not attributable to the Stoner inter-
ests. The salary forfeiture was affirmed. Each side was
then granted leave to appeal to the Illinois Supreme Court.

The Illinois Stpreme Court reinstated the trial court
judgment, predicating liability on a corporate opportunity
theory. It held that as a director of Vendo Mr. Stoner
breached his fiduciary duty by failing to adequately dis-
close his financial involvement in the Lektro-Vend machine.

App. 25

The court thus concluded that it could not say that Vendo
would have declined to purchase the Lektro-Vend machine
had adequate disclosure been made or a genuine oppor-
tunity to purchase existed. It affirmed the $7,345,500 dam-
age award on the Vendo lost profits theory. The Stoner
interests sought a rehearing on the grounds that tu. cor-
porate opportunity theory denied it substantive and p.-
cedural due process because Stoner was functionally denied
a trial on this issue. The Illinois Supreme Court denied the
petition for rehearing and a petition for certiorari was sub-
sequently denied by the United States Supreme Court. As
noted above, the Court believes that it does not have juris-
diction to review the due process aspects of the state court
proceedings; however, as will be more fully explained
below, the state court proceedings must be examined by
this Court for the purpose of determining whether Vendo
prosecuted those cases as part of an anti-competitive
scheme.*

II.

Three legal issues are raised by the brief outline of facts
just concluded: (1) Have plaintiffs established under the
four usual requirements that a preliminary injunction is
necessary? (2) Have plaintiffs met their special burden of
establishing the necessity for enjoining a state court pro-
ceeding? (3) Assuming an injunction is necessary, what
type of bond is appropriate?

A.

The four factors usually examined to determine whether
interlocutory relief is appropriate are:

(1) likelihood of ultimately prevailing on the merits;

* The final Illinois Supreme Court opinion makes such a review
imperative. The Illinois court expressly refused to consider the
allegations that the state proceedings were part of an anticompeti-
tive scheme. Plaintiffs, having never had a trial on this issue, must
be heard in the only forum now available.

a Le

App. 26

(2) likelihood of irreparable harm;
(3) balancing the hardships; and

(4) protection of the public interest.

In the instant case, this Court believes that plaintiffs
have demonstrated likelihood of ultimate success on both
the section 1 and section 2 Sherman Act claims. The sec-
tion 1 claim arises from the 1959 agreement. Under section
1 of the Sherman Act, contracts which unreasonably re-
strain interstate commerce are void. The federal antitrust
laws make covenants not to compete which are overly
broad in geographical scope or in time unreasonable re-
straints of trade. Once antitrust jurisdiction is invoked,
the validity of the challenged covenants is measured solely
under federal law, regardless of legality under state law.
Schine Chain Theatres v. United States, 334 U.S. 119
(1948).

Under federal law a non-competition covenant is legal
under two conditions:

(1) the covenant is merely ancillary to the main pur-
pose of a lawful contract;

(2) the covenant is necessary to protect the legiti-
mate property interests purchased by the covenantee.
See Uniied States v. Addyston Pipe & Steel Co., 85 F.
271 (6th Cir. 1898), aff'd as modified, 175 U.S. 211.
Moreover, a covenant not to compete examined in light
of other monopolistic practices can be declared illegal
even if otherwise lawful if it can be shown that the
object and the effect of the agreement was primarily
directed at the elimination of competition. Schine
Chain Theatres v. United States, supra; Bowl America,
Inc. v. Fair Lane, Inc., 299 F.Supp. 1080 (D.Md. 1969).

Here it appears that the covenants extracted were overly
broad, and the facts and circumstances surrounding the
1959 agreement and subsequent activities demonstrate that
their object (and effect) were primarily directed at the

App. 27

elimination of competition rather than protection of good
will. As drafted, the covenants were intended to protect
the good will of Vendo where Vendo was doing or planning
to do business; they were not limited to areas in which
Stoner Manufacturing was operating. Under Addyston
Pipe and similar cases this amounts to prima facie proof
of illegality. Additionally, Vendo’s president admitted the
major purpose and intent of the employment contract was
to obtain the anticompetitive benefits accruing from the
covenants. It should also be noted even after Vendo re-
ceived notice that Stoner was invoived in the Lektro-Vend
project it refused to terminate his employment as the
contract allowed. It appears to the Court that this course of
conduct was adopted by Vendo in an attempt to limit Mr.
Stoner’s activities for the full planned term of the post-
employment agreement, showing that protection of good will
was not a significant goal in obtaining the covenant. Since
Mr. Stoner apparently was never called upon to perform
significant services for Vendo the covenant amounted to
a naked agreement not to compete, solely anticompetitive
in purpose and effect.

Vendo argues that even if the covenants are illegal under
section 1 of the Sherman Act, the state court judgment did
not rely on these contractual terms and therefore is un-
assailable. The section 1 claim does not rest alone on the
theory that the state litigation was an essential part of an
illegal anticompetitive scheme but rather depends on an
analysis of the total circumstances surrounding creation of
the 1959 agreements. The Court believes that viewed in
this light the corporate opportunity theory relied on in
the final state court decision cannot either in logic or as a
matter of federal antitrust law be separated from the
anticompetitive intent and effect of the covenants. Mr.
Stoner’s position as a director was dependent on the ac-
quisition and employment contracts. He would not have
become a corporate director of Vendo absent entry of the
anticompetitive agreements. Additionally, his status as a
director clearly was not intended to create additional

a

App. 28

duties; it only encompassed duties already undertaken as
an employee of Vendo. The general rule that where a con-
tract is only partially illegal under the antitrust laws, the
illegal portions can be severed, is therefore inapposite. Here
the anticompetitive clauses are essential primary elements
of the bargain and thus cannot be severed, making all ele-
ments of the 1959 agreements unenforceable. See Superior
Bedding v. Serta Assoc., Inc., 353 F.Supp. 1143 (N.D.Il.
1972). See also Reynolds Metals Co. v. Metals Disintegrat-
mg Co., 8 F.R.D. 347 (D.N.J. 1948), aff'd 96 F.2d 90 (3d
Cir. 1949). Vendo’s reliance on the ultimate theory of the
state court litigation thus is not well taken. The 1959 agree-
ments were cut from one piece of anticompetitive cloth and
cannot be snipped apart.

Plaintiffs also argue that a violation of the “attempt to
monopolize” proscription of section 2 of the Sherman Act
occurred here. To prove violation of section 2, plaintiffs
must establish three elements of proof: (1) a dangerous
probability of actual monopolization in a relevant market;
(2) specific intent to establish a monopoly power; and (3)
overt acts. Plaintiffs need not prove that Vendo has suc-
ceeded in establishing monopoly power but must merely
show that Vendo has the capacity to make a serious attempt
to acquire monopoly status. Lorain Journal v. United
States, 342 U.S. 143 (1951); Kearney & Trecker Corp. v.
Giddings &€ Lewis, Inc., 452 F.2d 579 (7th Cir. 1971).

In the instant case the relevant market is a recognized
sub-market within the vending machine industry—coin op-
erated food and beverage vending machines. Lektro-Vend
and Vendo are actual competitors in the sub-market, al-
though the price structure of the industry prevents absolute
congruity of competition. The geographic market is nation-
wide in scope. Within this market the number of competi-
tors has been steadily declining. Between 1958 and 1966
the number of vending machine manufacturers was nearly
halved and the number of competitors with sales over
$100,000, particularly in the candy bar section of the in-
dustry, became quite small. Within this increasingly con-

App. 29

centrated market, Vendo maintained a significant market
share. While it appears that the evidence is somewhat in
conflict, Vendo’s market share is most probably over 20%.
The “attempt to monopolize” prohibition in section 2 was
intended to “nip incipient monopolies in the bud”; with
this congressional policy in mind, considering the structure
of the vending machine industry, the Court believes that,
unchecked, Vendo’s alleged practices raise a dangerous
propensity for creation of an actual monopoly.

The Court also finds that plaintiffs have produced sub-
stantial evidence that Vendo had the required specific intent
to monopolize and that it performed overt acts intended
to create a monopoly position. Prior to 1959, Vendo had
an aggressive acquisition program to buttress its product
line and market share. The courts have consistently held
that such conduct, along with other evidence of anticom-
petitive conduct, is persuasive evidence of an attempt to
monopolize. See e.g., United States v. Grinnell Corp., 384
U.S. 563 (1966). Vendo’s uniform policy of extracting
broad covenants not to compete—such as the ones involved
in the instant litigation—also evidences specific intent to
monopolize. In addition, there is evidence that Vendo used
litigation as a method of harassing and eliminating com-
petition.

The right to litigate commercial controversies comes
within the penumbra of the first amendment. Cf. Eastern
R.R. Pres. Conf. v. Noerr Motor Freight, Inc., 365 U.S. 127
(1961); California Motor Transport Co. v. Trucking Un-
limited, 404 U.S. 508 (1972). However, if litigation is used
as an integral part of a scheme attempting to monopolize
and exclude competition from the marketplace, that litiga-
tion can lose its first amendment protection. Walker
Process Equip. v. Food Mach. Corp., 382 U.S. 172 (1965).
As the Supreme Court stated in California Motor Trans-

port:
“Tt is well settled that First Amendment rights are
not immunized from regulation when they are used as

Se

App. 30

an integral part of conduct which violates a valid
statute ....If the end result is unlawful, it matters
not what the means used in violation may be lawful.”
404 U.S. at 5145

This holding was recently reaffirmed in United States v.
Otter Tail Power Co., 4) U.S. 366 (1973); aff'd after re-
mand, 417 U.S. 901 (1974). Thus if plaintiffs can prove
that Vendo’s state court litigation against the Stoner in-
terests was not a genuine attempt to use the adjudicative
process legitimately, antitrust liability in the instant case
under section 2 of the Sherman Act would follow. Cf. Metro
Cable Co. v. CATV of Rockford, 74-1492 (7th Cir. April 2,
1975). See also Mach-Tronics Inc. v. Zirpoli, 316 F.2d 820
(9th Cir. 1963) (antitrust liability arises from anticompeti-
tive institution of state trade secret case); Kobe, Inc. v.
Dempsey Pump Co., 198 F.2d 416 (10th Cir. 1952).

There is persuasive evidence that Vendo’s activities in
its litigation against the Stoner interests in Illinois state
court were not a genuine attempt to use the adjudicative
process legitimately. Its theft of trade secret claim was
clearly non-meritorious and litigation of this claim might

well be interpreted—considering the record as a whole— —

as an attempt to further harass the Stoner interests and
limit the amount of aid Stoner could lend Lektro-Vend.
The attempt to enforce the covenants not to compete by
way of injunction and damages may be similarly indication
of a violation of section 2. It may also be argued that, had
this litigation been legitimately undertaken to protect good
will or confidential information, Vendo would have exercised
its right to terminate Mr. Stoner’s employment as soon
as it discovered Mr. Stoner’s relationship with the Lektro-
Vend project; instead it prolonged Mr. Stoner’s employ-
ment for the full term even though he was given no duties.
As noted above, the intent of this action appears to have
been to lengthen the period for which the non-competition
covenants would run. The purpose of this portion of the
state litigation seems purely anticompetitive. If so, this

App. 31

scheme was successful, for the state litigation severely
hampered Lektro-Vend’s development.

Despite the above stated line of reasoning, defendant
contends that the Supreme Court’s decisions in Bruce’s
Juices v. American Can Co., 330 U.S. 743 (1947) and Kelly
v. Kosuga, 358 U.S. 516 (1959) bar injunctive relief under
the instant circumstances. These cases hold that the anti-
trust laws provide no defense for actions under state law
for collection of debts for sale of goods and services:

“If the contract provisions sued on in the state court
do not embody or further the anti-competitive prac-
tices, then there has been no irreparable loss or dam-
age from violation of the antitrust law” requiring in-
junctive relief.

Response of Carolina v. Leasco Response, Inc., 408 F.2d
314, 319 (5th Cir. 1974).

However, when the precise conduct proscribed by the
antitrust laws is sought to be furthered in a state court
action, the antitrust defense and injunctive relief are avail-
able in federal court. Continental Wallpaper Co. v. Lewis
Voigt & Sons, 212 U.S. 227 (1909). See also Farbenfa-
briken Bayer, A.G. v. Sterling Drug, Inc., 307 F.2d 207 (3d
Cir. 1962). Bruce’s Juices and Kelly therefore do not ap-
ply. If the state court litigation was itself part of the anti-
competitive scheme, a judgment arising from such litiga-
tion is not an ordinary debt.

On the record as a whole, the Court finds that a prelim-
inary injunction will prevent irreparable harm, protect the
public interest, and will benefit plaintiffs more than it will
burden Vendo. Continued efforts at collection will prevent
Lektro-Vend Corporation from marketing a promising,
newly-developed vending machine. The state court collec-
tion process places insurmountable barriers in the way of
raising capital for any expansion program. Moreover,
collection ef the state judgment will effectively place
Lektro-Vend in the hands of—or at least at the disposition

es

App. 32

of—Vendo. Stoner Investments is controlled by Mr.
Stoner; 78.57% of Lektro-Vend is owned by Stoner Invest-
ments. Needless to say, Vendo would also control Stoner
Investments. The case or controversy requirement con-
tained in Article III then would require dismissal of Lektro-
Vend and Stoner Investments. Cf. Mar Foods v. First
Nat'l Bank of Chicago, 73 C 1959 (N.D.Il. November 6,
1974). Continued collection thus would eliminate two of
the plaintiffs herein. Moreover, Mr. Stoner’s ability to
effectively prosecute this action would be severely limited
by further execution of the state court case. This also
amounts to irreparable harm. Milsen v. Southland, 454 F.2d
363 (7th Cir. 1972).

In the Court’s view, the public interest also requires
issuance of a preliminary injunction. Few public policies
are more important than protection of competition. In the
instant case, as previously mentioned, the number of com-
petitors in the vending machine market is declining. Thus
the courts have a duty to vigilantly protect the remaining
competition. The balance of equities also favors plaintiffs.
Vendo’s state judgment is protected by judgment liens and
security agreements. Stoner and Stoner Investments, de-
spite Vendo’s protestations to the contrary, have substan-
tially complied with these agreements. Vendo has already
realized over $582,000 from an escrow trust agreement. If
it is ultimately successful here, its only loss will be certain
interest payments which the Stoner interests concededly
cannot pay. On the other hand, the Stoner interests and
Lektro-Vend’s losses arising from denial of the prelim-
inary injunction will be severe, as demonstrated above. See
Semmes Motors, Inc. v. Ford, 429 F.2d 1197 (2d Cir. 1970).

Because they seek an injunction against state court pro-
ceedings, plaintiffs are faced with a special burden. The
anti-injunction statute, 28 U.S.C. § 2283, prohibits issuance
of an injunction to stay proceedings, in a state court except

wee

App. 33

under three conditions: (1) when expressly authorized by
an act of Congress, (2) where necessary in aid of jurisdic-
tion, and (3) to protect or effectuate federal judgments.
Moreover, the principles of comity and federalism militate
against unnecessarily interfering with pending state court
actions even if § 2283 is satisfied. Mitchum v. Foster, 407
U.S. 225 (1972).

There is a paucity of authority on the issue of whether
the injunction provisions contained in 15 U.S.C. § 26 pro-
vide express congressional authorization to grant injunc-
tions against state court actions. United States v. Bayer,
135 F. Supp. 65 (S.D.N.Y. 1955) indicates that express
authorization is provided while Helfenbeim v. International
Ind., Inc., 498 F.2d 1068 (8th Cir. 1971) states no such
authority exists. The Supreme Court’s decision in“Mitchum
v. Foster, supra, seems to clarify the issue. In Mitchwm, a
42 U.S.C. § 1983 case, the Court held that to qualify under
the “expressly authorized” exception of the anti-injunction
statute, a federal law need not contain an express reference
to § 2283 nor expressly authorize an injunction of a state
court proceeding. To qualify as an expressly authorized
exception the statute would, however, have to create

“a specific and uniquely federal right or remedy,
enforceable in a federal court of equity, that could be
frustrated if the federal court were not empowered to
enjoin a state court proceeding.” 407 U.S. at 237.

These tests are equally applicable to antitrust actions.
When Congress passed the various antitrust laws it clearly
created federal rights and remedies enforceable in a federal
equity court. In fact, such power was exclusively vested in
the federal court system, indicating congressional approval
of enjoining certain state actions, if necessary. Cf. Lemel-
son v. Ampex, 372 F. Supp. 708 (N.D. Ill. 1974). This Court
therefore holds that these laws, in the instant case, can only
be given their intended scope by staying the state court
proceedings and that § 2283 authorizes an injunction here

App. 34

where the state court proceedings are part of the anti-
competitive scheme.

The Court also holds that § 2283 authorizes an injunction
here because further collection efforts would eliminate two
plaintiffs, Stoner Investments and Lektro-Vend Corp., as
parties under the case or controversy provisions of Article
IIT since they would necessarily be controlled by Vendo.
Vendo’s offer to place the Stoner Investment and Lektro-
Vend stock under control of the Court does not meet this
problem because as a matter of substance Vendo would con-
trol both plaintiff and defendant, requiring dismissal under
Article III. Thus the injunction is also necessary to protect
the jurisdiction of the Court. Principles of comity and
federalism do not prevent the issuance of an injunction
considering the peculiar nature of this case. The federal
action here is based in part on the very proceeding sought
to be enjoined. If federal law is violated by continuation
of the state action the paramount national interest requires
court intervention.®

C.

Since the Court has determined that a preliminary in-
junction should issue, the terms and conditions of the
injunction must be determined. The first issue is what type
of security must plaintiffs produce pursuant to F.R.Civ.P.
65(c). The amount of security required is within the sound
discretion of the court and is intended to protect against
such cost and damages as may be incurred by any party
wrongfully restrained or enjoined. However, there is no
liability for damages resulting from issuance of an injunce-
tion erroneously granted unless the suit was prosecuted
maliciously and without probable cause. See 7 Moore’s
Federal Practice § 65.10 at p. 98 and cases cited therein.

° The findings contained herein are interlocutory in nature neces-
sarily based on an ineomplete record. Of course, a complete trial
specifically directed to the issues in this case might produce evi-
dence requiring a different or more limited result.

App. 35

Because the plaintiffs have placed considerable evidence in
the record demonstrating illegal anticompetitive behavior
on the part of Vendo, it seems unlikely that Vendo will be
able to prove any compensable damage arising from issu-
ance of this injunction. Moreover, since this injunction will
not remove the pre-existing judgment liens, Vendo remains
well protected. Accordingly, a nominal bond of $2,500.00
(Twenty Five Hundred Dollars) will be required. See
Scherr v. Volpe, 466 F.2d 1027 (7th Cir. 1972); Urbain v.
Knapp Bros. Mfg., 217 F.2d 810 (6th Cir. 1954).

The remaining issue concerns the scope of the prelim-
inary injunction. Such an injunction should protect plain-
tiffs from harm due to collection of the state court judg-
ment while preserving the Stoner interests’ assets so that
Vendo will be able to collect on the judgment if it is ulti-
mately successful. The Court believes that these two goals
can be accomplished by enjoining further collection efforts
but leaving intact those portions of the state decrees (and
liens) which prevent transfer of any of the Stoner assets.
As previously indicated, Mr. Stoner and Stoner Invest-
ments will be required to pay all taxes, utilities and main-
tenance from currently collected income to preserve the
assets. Plaintiffs shall prepare and present on notice a
draft order in conformance with the views expressed herein
within ten (10) days.

It Is So OrpERED

ENTERED:

/s/ R. W. McLaren
United States District Judge

Datep: May 29, 1975

a

App. 36

APPENDIX E

Preliminary Injunction Order of the
United States District Court for

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_0385%3A1. Public record. Not legal advice.