Petition — National Maritime Union v. Commerce Tankers Corp.

Supreme Court brief1977

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MICHAEL RODAK, JR., CLER}

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Supreme Court of the Udite

October Term, 1977

No. . a

87-358

Nationa, Maritime Uncon or America, AFL-CIO,

Petitioner,

ComMMERCE TANKERS CORPORATION,

and

Vantace STEAMSHIP CORPORATION,

Respondents.

PETITJON FOR A WRIT OF CERTIORARI TO THE

ITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Seymour M. WaLpMan

Watpman & WatpMan

501 Fifth Avenue

New York, New York 10017

Bernarp D. MELTZER

1111 East 60th Street

Chicago, Illinois 60637

Nep R. Pures

Pures & CapPrIELLo

346 West 17th Street

New York, New York 10011

Attorneys for Petitioner

TABLE OF CONTENTS

PAGE

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Es ee ae a 2

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RE ATTESTED 8

Reasons for Granting the Writ —......000000200.0cccecceceeeeeeeee 10

I. The Decision Below Conflicts With Impor-

tant Constitutional Principles Established by

he OR 10

II. The Decision Below Directly Conflicts With

a Recent Decision of the Court of Appeals

BE RI EE SII ciicuccnststtnceeeseustiotesiontueenionscnonte 13

III. The Justifications Advanced by the Court

Below for Failing to Apply the Noerr-Pen-

nington Doctrine Will Not Withstand

SD schuiiethitetnesisiiciaiiiesea ee iilsatitinbtestainditeidiianes 15

RESETS ERE Sve ene ane ee Cn a EN 19

TABLE OF AUTHORITIES

Cases:

Adolph Coors Co. v. A € S Wholesalers, Inc., 1977-2

CCH Trade Cases 961,565 (10th Cir. 1977) 10, 12n, 13,14

PAGE

Boys Markets, Inc. v. Retail Clerks Local 770, 398

SUGEEs TEE scstiesrsnosnsbaciiileisadaientisessinbasndiittepiadicaalipsabbingiaptedapaneiiis 11

California Motor Transport Co. v. Trucking Un-

limited, 404 U.S. 508 W000... 9, 10, 10n, 11, 14n, 18n

Connell Construction Co. vy. Plumbers ¢ Steamfitters

Local Union No. 100, 421 U.S. 616 20000. eeeeeeeeee 12

Continental T.V. Inc. v. GTE Sylvania, Inc., 97 §8.Ct.

alae lat ata aela ten 12n, 14

Eastern Railroad Presidents Conference v. Noerr

Motor Freight, Inc., 365 U.S. 127 .......... 9, 10, 13, 14, 15, 16

Fiumara v. Texaco Inc., 204 F.Supp. 344, aff’d per

curiam 310 F.2d 737 (3rd Cir.), cert. den’d, 372 U.S.

aa i aia Le euslinieimibomaials 15n

Franchise Realty Interstate Corp. v. San Francisco

Local Joint Executive Board of Culinary Workers,

542 F.2d 1076, cert. den’d, 97 S.Ct. 1571-00... 10n

Howard Johnson Co. Inc. vy. Hotel and Restaurant

Employees, 417 U.S. 249 —...0020000......... REST AB ree envio 12-13

Israel v. Baxter Laboratories, Inc., 466 F.2d 272 .......... 10n

N.M.U. v. Commerce Tankers Corp., 325 F.Supp. 360

(S.D.N.Y. 1971), rev’d 457 F.2d 1127 —...0000 0... 5, 6

National Maritime Union, 196 N.L.R.B. No. 165

(1971), enf’d, 486 F.2d 907 cert. den’d, 416 U.S. 970 6n

Otter Tail Power Co. v. United States. 410 U.S. 366 .... 18n

Semke vy. Enid Automobile Dealers Ass’n, 456 F.2d

aL 10n

ili

PAGE

United Mine Workers of America v. Pennington, 381

ae 9, 10, 13, 14, 14n, 15, 16, 16n, 17, 18, 18n

United Steelworkers of America v. Warrier & Gulf.

Ss is I ce 11

Statutes:

Clayton Act: § 4, 15 U.S.C. ¢4 ....... siisalebaistibasedieiinaaiaedadnuaanions 3

National Labor Relations Act:

Ss BY Rs TID cincccssnscccpersevsnccesorsenscmnssosmsecesneed 6, 6n

I I I, i ensiicbeie 6

LS |} eames 3

I a isscimicberniitt 2

—

InN THE

Supreme Court of the United States

October Term, 1977

OT cesta

National Manitime Union or America, AFL-CIO,

Petitioner,

ComMERCE T'ANKERS CORPORATION,

and

Vantace STEAMSHIP CORPORATION,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Petitioner requests that a writ of certiorari issue to

review the judgment of the United States Court of Appeals

for the Second Circuit entered in this case on April 15,

1977.

Opinions Below

The opinion of the Court of Appeals is reported at 553

F. 2d 793 and reprinted in Appendix A. The opinion of

the District Court for the Southern District of New York

is .eported at 411 F. Supp. 1224 and reprinted in Appendix

Jurisdiction

The judgment of the Court of Appeals (Appendix B)

was entered on April 15, 1977; and a petition for rehearing

by respondent Commerce Tankers Corporation (“Com-

merce”) was denied on June 15, 1977 (Appendix C). This

Court’s jurisdiction to review the judgment below is based

on 28 U.S.C. §1254(1).

Question Presented

Petitioner National Maritime Union (“NMU”), a labor

organization representing unlicensed seamen, and respon-

dent Commerce, a shipping company, included in their col-

lective bargaining agreement a provision requiring Com-

merce to obtain from a purchaser of its vesse!s a commit-

ment to assume the NMU agreement for the remainder of

its term. Ignoring that provision, Commerce contracted

to sell a vessel to respondent Vantage Steamship Corp.

(“Vantage”), which had bargaining relations with another

union and no intention of assuming the NMU agreement.

The NMU obtained an arbitral award requiring Commerce

to comply with the collective agreement and, thereafter, a

preliminary injunction from a United States District Court

enforcing the award and enjoining a sale without com-

pliance with the contract. Apart from these proceedings,

NMU did not take or threaten any other action to enforce

the contract provisions involved. The preliminary injunc-

tion was subsequently reversed. Commerce and Vantage,

claiming that the collective bargaining provision violated

the antitrust laws, seek treble damages for losses caused

by the preliminary injunction.

The question presented is:

Whether treble damages may be awarded in a Sher-

man Act suit based on a collective bargaining contract

provision allegedly violative of that Act, when the

contract provision was ignored by the employer party

and the only damages resulted from a preliminary in-

junction enforcing an arbitration award and enjoining

breach of that clause, issued by a United States Dis-

trict Court at the behest of the union party.

Statutes Involved

Sherman Act, §1 (15 U.S.C. 41):

“Every contract, combination in the form of trust or

otherwise, or conspiracy, in restraint of trade or com-

merce among the several States, or with foreign na-

tions, is hereby declared to be illegal; ... .”

Clayton Act, §4 (15 U.S.C. §4):

“Any person who shall be injured in his business or

property by reason of anything forbidden in the anti-

trust laws may sue therefor in any district court of

the United States in the district in which the defen-

dant resides or is found or has an agent, without re-

spect to the amount in controversy, and shall recover

threefold the damages by him sustained, and the cost

of suit, including a reasonable attorney’s fee.”

Statement of the Case

For many years Commerce, an American flag shipping

company, has had collective bargaining agreements with

NMU. During the late 1950’s and 1960’s, jobs in the

American merchant marine declined sharply because of

technological developments, the increasingly successful

competition of low-wage foreign flag ships, and the demise

of the American flag passenger fleet. In 1969, the NMU

and two other maritime unions (Masters, Mates and Pilots

and American Radio Association), in separate negotia-

tions, secured from the shipowners, including Commerce,

a protective “sale and transfer” provision, modelled on a

clause obtained previously by the Marine Engineers Bene-

ficial Association, a labor organization representing li-

censed engineers in the American merchant marine.' The

NMU’s clause, expressly designed to preserve the “jobs

and job rights” of employees represented by the union,

provided in general that (1) if a vessel covered by the

agreement was sold to an American flag company, the

NMU would continue to furnish its crew; (2) the seller

would secure from the prospective buyer a commitment

to honor the NMU’s collective agreement with the seller;

and (3) the seller would give the union advance notice of

the prospective sale.’

In late 1970 Commerce’s parent, Vernitron Corporation,

decided to terminate its maritime activities by selling the

two ships owned by Commerce, the S/S Thalia and the

S/S Barbara. The Thalia was sold to a company that

happened to have bargaining relationships with NMU, and

the purchaser gave and honored the commitment pre-

scribed by the NMU agreement.

On December 23, 1970 Commerce and Vantage contracted

for the sale of the S/S Barbara for $2,750,000. The

The principal NMU negotiations involve two employer associa-

tions, the Maritime Service Committee, representing dry cargo

operators, and the Tanker Service Committee, representing tanker

companies. Non-members, called “independents,” are invited to

participate in these negotiations. Some independents do so; others,

like Commerce in 1969, do not. Commerce stipulated at trial, and

the District Court found, that Commerce was a party to and bound

by the resulting agreement.

?The NMU-Commerce “sale and transfer” clause, which forms

the basis of this suit, is quoted in full in the District Court’s opin-

ion at 31a.

)

draft agreement prepared by Commerce’s attorney re-

quired the purchaser to assume the NMU contract, but at

Vantage’s insistence that clause was deleted. Vantage’s

unlicensed seamen were represented by another labor or-

ganization, the Seafarers International Union (“SIU”);

and Vantage’s agreement with SIU covered after-acquired

vessels.

Commerce failed to notify NMU of its intended sale

of the Barbara, but early in January 1971, NMU learned

of the contemplated sale through the trade press. The

union asked Commerce whether the purchaser had com-

mitted itself to assume the NMU agreement. On January

13, 1971 Commerce’s President gave written assurances

that the commitment would be forthcoming.

NMU soon discovered, however, that Commerce’s assur-

ances failed to reflect either the contract of sale or Van-

tage’s plans. Accordingly, NMU initiated arbitration

against Commerce pursuant to their collective agreement.

Before the arbitrator, Theodore W. Kheel, Commerce ad-

mitted that its ship sale contract with Vantage did not

contain the contractually prescribed undertaking. Conse-

quently, the arbitrator issued an award prohibiting any

sale of the Barbara without compliance with the sale and

transfer clause. NMU moved to confirm the award before

the United States District Court in New York. Vantage

intervened; and after the issuance and subsequent dissolu-

tion of a temporary restraining order, the matter was

heard by Judge Marvin E. Frankel.

On February 23, 1971, Judge Frankel orally restored

the temporary restraining order, and on March 2nd he

issued a preliminary injunction enforcing the arbitral pro-

hibition, conditioned on NMU’s furnishing an injunction

bond of $10,000. Judge Frankel’s opinion, reported at

325 F. Supp. 360, rejected the companies’ contentions that

the sale and transfer clause violated both the Sherman Act

and Section 8(e) of the National Labor Relations Act, 29

U.S.C. §158(e). Since NMU promptly furnished the requi-

site injunction bond, the preliminary injunction prevented

the sale which Commerce and Vantage were on the point

of consummating.

Neither Commerce nor Vantage moved the Court of

Appeals for an increase of the injunction bond, for a stay

of Judge Frankel’s injunction order, or for an expedited

appeal. Indeed, Commerce sought and obtained three ex-

tensions of time for the filing of appellate briefs.

In late May, the Regional Director of the NLRB, pur-

suant to charges filed by Vantage, issued a complaint

against NMU under Section 8(e), and initiated the in-

junctive proceedings routinely required by Section 10(l)

of the NLRA. 29 U.S.C. §160(/). On July 15, 1971, Dis-

trict Judge Croake denied both an injunction against NMU

and Commerce’s motion to vacate Judge Frankel’s injunc-

tion. Thereupon Commerce finally moved the Court of

Appeals to dissolve that injunction or to increase the bond.

The Court of Appeals denied that motion but directed that

the appeal be expedited. Thereafter, the NLRB’s appeal

from Judge Croake’s order was consolidated with the ap-

peal from Judge Frankel’s preliminary injunction. On

March 22, 1972, the Court of Appeals reversed both orders,

vacating the preliminary injunction and directing issuance

of the Section 10(/) injunction sought by the Regional

Director. 457 F.2d 1127.

*In the NLRB’s Section 8(e) proceedings, the Administrative

Law Judge recommended dismissal of the complaint; the Board

disagreed, holding the sale and transfer clause invalid under Sec-

tion 8(e), 196 NLRB No. 165. The Court of Appeals, in enfore-

ing the Board’s order, 486 F. 2d 907, cert. den’d 416 U.S. 970,

referred to the “knotty legal problems” “difficult to decide” be-

cause of “the closeness of these competing arguments.”

-e

OO i le

In May, 1972, Commerce sold the Barbara to another

American flag company—an NMU contract company, as it

happened—for $700,000.‘ Commerce also recovered an ad-

ditional $700,000 from Vantage in settlement of a commer-

cial arbitration proceeding between the two companies. In

the present action Commerce claims damages of $1,550,000,

consisting essentially of Vantage’s contract price plus al-

leged additional ship maintenance costs, less the proceeds

of the vessel’s sale and the recovery from Vantage. Van-

tage claims damages of $2,230,000, consisting of anticipated

profits from the charter it had negotiated for the Barbara

plus the $700,000 paid to Commerce.’ Since both companies

seek treble damages under the Sherman Act, their claims

against NMU exceed $11,000,000.

Despite the complex proceedings related to this action,

two critical facts are clear. Both were found by the Dis-

trict Court (60a-61a) and are fully supported by the evi-

dence, and both findings were left undisturbed by the Court

of Appeals:

1. NMU’s effort to enforce the sale and transfer clause

consisted solely of the institution of contractually provided

arbitration and the subsequent judicial proceeding, in the

United States District Court, to enforce the arbitration

award. NMU neither took nor threatened economic or coer-

cive action, such as strikes or picketing.

‘Following the issuance of the preliminary injunction, Com-

merce received proposals for purchase of the Barbara at prices

exceeding its ultimate selling price. Although much of the trial

concerned the responsibility for the failure to consummate these

proposals and, earlier, to salvage a charter for the Barbara nego-

tiated by Vantage prior to initiation of the arbitral and judicial

proceedings, those issues are not germane to the present petition.

5 Commerce counterclaimed in the original NMU action. Vantage

brought a separate action against NMU which was then consoli-

dated with the NMU-Commeree suit.

~. ad

2. All damages sought in this action resulted from the

preliminary injunction issued by Judge Frankel. Commerce

—and Vantage—totally ignored the sale and transfer pro-

vision of the NMU collective bargaining agreement. They

made every effort to transfer the vessel either before the

Court could act or during the interval between the disso-

lution of the temporary restraining order and the hearing

on the application for a preliminary injunction. Pleadings

by both companies in the present action allege that only

the Court order blocked the sale (Appendix in Court of

Appeals, 199a and 232a). And the President of Vernitron,

Commerce’s parent, testified at trial (Tr. Transcript, p.

575) :

“Tf there were no injunction the sale would have been

completed and none of us would be in this room today.”

The Decisions Below

Judge Griesa found it unnecessary to reach the merits

of plaintiffs’ antitrust claim that the sale and transfer

clause in the collective agreement constituted an illegal

group boycott. In any event, he held, the proximate cause

of the injuries claimed by both Commerce and Vantage

“was the preliminary injunction issued by Judge Frankel

in a case admittedly involving close and difficult questions

of law”, and accordingly the only damages incurred were

not recoverable in an antitrust action. Judge Griesa did

award judgment to Commerce for the amount of the in-

junction bond (60a-61la, 65a).

The Court of Appeals, also without reaching the merits

of the antitrust claim, reversed and remanded, instructing

the District Court to decide the antitrust claim. The re-

viewing Court noted the NMU contention that “good faith

resort to the courts cannot be a basis for liability” and

hie 2.

the NMU’s supporting authorities, including Eastern Rail-

road Presidents Conference v. Noerr Motor Freight, Inc.,

365 U.S. 127; United Mine Workers of America v. Penning-

ton, 381 U.S. 657, 669-670; and California Motor Transport

Co. v. Trucking Unlimited, 404 U.S. 508, 510-511, but re-

jected their applicability on the ground that “they do not

stand for the proposition that a group boycott that is illegal

under the antitrust laws can be immunized from liability

by a later law suit to enforce it” (13a). The Court said

that had Commerce and Vantage sued first, their antitrust

action would not have heen “barred” hy a subsequent legal

proceeding on NMU’s part. The Court also stated that

under the Sherman Act, an antitrust violation need be only

“a material cause” or “a substantial factor” in the occur-

rence of damage; in the Court’s view, the “disputed clause

and the NMU’s determined efforts to enforce it were the

proximate cause of injury to appellants” (12a-14a).°

* The Court below decided on the merits the issue raised in this

petition, and its decision is the law of the case subject only to

review by this Court. The reversal sought through this petition

would reinstate the final judgment of the District Court and end

the litigation. Accordingly, that issue is now ripe for review.

We also believe that on the merits of the antitrust claim, the

trial record establishes the applicability of the labor exemption:

the challenged provision was plainly directed at preserving jobs

of seamen represented by the NMU and entitled to ship out of its

hiring hall; it required merely that a specific collective agreement

continue to govern employment relations aboard an existing NMU

contract vessel for the remainder of the contract term; it was in-

corporated in a collective bargaining agreement which already

covered the vessel in question; and it represents a form of sue-

cessorship obligation common in American labor relations. Never-

theless, we recognize that neither Court below reached the merits

of the labor exemption issue, and no findings of fact expressly

addressed that issue. For that reason alone, we have not presented

the labor exemption issue in this petition. Tf, however, either Com-

merce or Vantage petitions for review of antitrust questions in

this case, we ask that this petition be deemed to include the ques-

tion of whether the evidence required a dismissal of the Sherman

Act claims on the basis of the labor exemption.

Reasons for Granting the Writ

The decision below conflicts with important principles

underlying decisions of this Court that provide Constitu-

tional protection to the right to petition the branches of

government, including the judiciary. See cases cited at p.

9, supra. It also directly conflicts with a decision of the

Court of Appeals for the Tenth Cirenit, Adolph Coors

Company v. AdS Wholesalers, Inc., 1977-2 CCH Trade

Cases 61,565, decided on July 29, 1977, after issuance of

the decision below, and reprinted in Appendix E.

The Decision Below Conflicts With Important Con-

stitutional Principles Established by Decisions of This

Court.

The “philosophy” (California Motor Transport, 404 U.S.

at 510) on which the decisions cited above rest is commonly

known as the Noerr-Pennington doctrine. Under that doc-

trine, efforts to obtain legislative (Noerr), executive (Pen-

nington) or judicial (California Motor Transport Co.)

action cannot be the basis of liability under the Sherman

Act; nor are damages resulting from such governmental

action recoverable from the private petitioners, regardless

of their anticompetitive motivation and objective.’ To per-

mit recovery of such damages, this Court has recognized,

* California Motor Transport Co. recognized an exception in the

case of “sham” proceedings. There is no claim here, and not the

slightest evidence, that the proceedings in the United States Dis-

trict Court were fraudulent or “sham”. On the meaning of “sham”

in this context, see Semke v. Enid Automobile Dealers Ass’n, 456

F, 2d 1361; Israel v. Baxter Laboratories, Inc., 466 F. 2d 272, 278;

and Franchise Realty Interstate Corp. v. San Francisco Local Joint

a of Culinary Workers, 542 F. 2d 1076, cert. den’d 97 8. Ct.

would “be destructive of” the Constitutionally protected

right to petition and the strong public policy encouraging

free, uninhibited access to governmental tribunals (Cali-

fornia Motor Transport Co., 404 U.S. at 510).

The erroneous decision below, if left as a binding deter-

mination, would frustrate that policy in areas well beyond

labor relations. For that decision would deter any party

desiring in good faith to invoke the orderly machinery of

adjudication for the determination and enforcement of dis-

puted claims. That decision is thus incompatible not only

with the Noerr-Pennington doctrine but also with basic

purposes behind the rule of law: that disputants should be

encouraged to utilize judicial machinery rather than self-

help or economic coercion for resolving disputes over the

validity of their agreements, and that decisions of lawful

tribunals sought and secured in good faith should be obeyed

and may be relied upon as long as they are outstanding,

without either monetary or penal liability for the conse-

quences of such decisions.

The decision below would have especially pernicious con-

sequences in the context of labor relations. The national

policy, reflected in the decisions of this Court, favors resort

by labor unions to arbitral and related judicial procedures,

rather than the strike and the picket line, in order to

resolve issues arising under a collective bargaining agree-

ment. E.g., United Steelworkers of America v. Warrier &

Gulf Nav. Co., 363 U.S. 574; Boys Markets, Inc. v. Retail

Clerks, Local 770, 398 U.S. 235. NMU’s course of conduct

in this case conformed to that policy. Yet the decision

below, solely because of NMU’s successful resort to arbi-

tration and litigation, would expose this union to massive

potential treble damage liability. The implications of that

decision to labor organizations and others run counter to

the national policy favoring resort to the orderly processes

of adjudication. These implications, we submit, should be

clearly dispelled by this Court.

That the NMU’s invocation of arbitral and judicial pro-

ceedings represented a good faith effort to enforce what

was manifestly a substantial claim is demonstrated by

Judge Frankel’s decision and opinion, the initial decision

of the NLRB’s Administrative Law Judge, and the re-

peated comments of the Court of Appeals in the Section

8(e) case as to the complexity and closeness of the issues.

Moreover, Sherman Act standards are far from precise,

and the uncertainties are compounded when antitrust and

labor relations law intersect, particularly when a chal-

lenged restraint is incorporated in a collective bargaining

agreement. See Connell Construction Co. v. Plumbers and

Steamfitters Local Union No. 100, 421 U.S. 616, 625-626.

These difficulties underscore the importance of fostering

recourse to orderly adjudication, rather than coercive self-

help, for the resolution of disputes regarding the validity

of collective bargaining provisions challenged under the

Sherman Act.*

In a case involving a transfer clause, similar to the one

at bar, this Court, indeed, indicated that recourse to the

courts for injunctive relief is appropriate. In Howard

Johnson Co. Inc. v. Hotel & Restaurant Employees, 417

* This policy is not limited to labor cases. Thus in the extensive

antitrust area governed by the rule of reason (see Continental T.V.

Inc. v. GTE Sylvania, Inc., 97 S.Ct. 2549), it is often difficult to

distinguish the licit from the illicit or to predict the ultimate judi-

cial response. Parties involved in that area should be encouraged

to present their genuine disputes for judicial resolution; and if a

challenged restraint has not been implemented prior to a judicial

determination, a litigant should not be subject to the treble dam-

age provisions of the antitrust laws solely because of the conse-

quences of a judicial decision obtained in good faith but subse-

quently reversed. See Adolph Coors Company v. A&S Whole-

salers, Inc., supra.

ee a

U.S. 249, this Court ruled that such a clause did not obli-

gate a purchaser to accept the seller’s collective agreement

or arbitrate the union’s claims thercunder. The Court

noted, however, that the union retained its arbitral remedy

against the seller for breach of his obligations under the

successorship provisions of the agreement. It also noted,

in footnote 3 of its opinion, the union’s failure to pursue

another potential remedy, namely, seeking to enjoin the

sale before it occurred, and cited the instant case. Although

this footnote reflected the reversal of Judge Frankel’s

preliminary injunction, the Court indicated that a proceed-

ing to enjoin breach of a contract provision similar to the

NMU sale and transfer clause would be appropriate.

The Noerr-Pennington principle protects such good faith

recourse to the machinery of adjudication. By exposing

successful suitors to treble damages under the antitrust

laws for the consequences of judicial decrees, the decision

below aggravates its basic conflict with the Noerr-Penning-

ton doctrine, escalates its infringement on Constitutional

rights of petition, and compromises the purposes of the

rule of law.

Il.

The Decision Below Directly Conflicts With a Recent

Decision of the Court of Appeals for the Tenth Circuit.

The Noerr-Pennington principle has recently been ap-

plied by the Court of Appeals for the Tenth Circuit as the

basis for dismissing a treble damage claim in a situation

strikingly similar to that herein. See Adolph Coors Com-

pany v. A & S Wholesalers, Inc., supra. In Coors, the

plaintiff manufacturer obtained a preliminary injunction

enforcing distribution limitations that it had imposed on

its customers and barring A & S from obtaining and trans-

porting plaintiff's beer in violation of those limitations.

A&S counterclaimed, alleging that the limitations violated

the Sherman Act and seeking damages resulting from

Coors’ _. of the injunction proceeding. The dis-

trict court dissolved the preliminary injunction but dis-

missed that counterclaim. In all material respects Coors

is indistinguishable from the instant case.

The Court of Appeals, relying on this Court’s recent

decision in Continental T.V., Inc., et al. v. GTE Sylvania,

Inc., supra, held that the validity under the Sherman Act

of Coors’ commercial restraint could be decided only after

a trial governed by the “rule of reason”, and remanded

for that purpose. Nevertheless, after determining that

Coors’ injunctive action had not been a “sham,” the Court

of Appeals held that Coors’ successful “pursuit” of that

litigation could not give rise to recoverable damages. Ac-

cordingly, the reviewing court affirmed the trial court’s

dismissal of the damage claim based on Coors’ resort to

the courts.

The decision of the Tenth Circuit manifestly rests on

the following rule: In the absence of circumstances activat-

ing the sham exception to Noerr-Pennington, there is no

liability for damages flowing from the institution and out-

come of legal proceedings initiated in good faith in order

to enforce restrictions on sales even though such restric-

tions may ultimately be held to be in violation of the

Sherman Act.’ Plainly, that holding of the Court of Ap-

*In a case decided before Pennington and California Motor

Transport Co., plaintiff sought antitrust damages for injuries re-

sulting from both a preliminary injunction and a permanent in-

junction subsequently dissolved on appeal. Although the iniunc-

tions enforced a trade restraint challenged as violative of the

Sherman Act, the District Court granted summary judgment

holding: “Injuries resulting from compliance with an injunction,

even if improperly obtained, cannot support a recovery in a private

peals for the Tenth Circuit is in direct conflict with the

decision below. This direct conflict between circuits on an

issue that lies at the heart of the rule of law would alone

warrant the grant of this petition.

Il.

The Justifications Advanced by the Court Below for

Failing to Apply the Noerr-Pennington Doctrine Will

Not Withstand Scrutiny.

1, Initially, the Court of Appeals erred in regarding the

issue of Sherman Act liability for damages caused by a

court decision as an aspect of the injunction bond rule

(12a-13a). Although in this litigation the claimed damages

happened to result from a preliminary injunction, the same

issue would arise if damages flowed from a permanent

injunction, or a judgment for money damages, unaccom-

panied by any injunction bond. In those hypothetical in-

stances, if the decision enforcing a provision challenged

under the Sherman Act were subsequently reversed on

appeal, the Noerr-Pennington principle would still control

and would bar subsequent recovery for the damages caused

by the judicial decision.

2. In holding that “the execution of the disputed clause

and the NMU’s determined efforts to enforce it” were the

proximate cause of injury, the Court below failed to dis-

tingnish between “efforts to enforce” through voluntary

persuasion, economic coercion, or other extra-legal means

and “efforts to enforce” through good faith legal proceed-

ings. Such proceedings are privileged and non-actionable

antitrust suit.” Finmara v. Texaco, Inc., 204 F. Supp. 344, 547;

we per curiam, 310 F. 2d 737 (3rd Cir.), cert. den’d, 372 U.S

under the Noerr-Pennington doctrine and may not, there-

fore, serve as the basis for a damage recovery.

The Court below noted that the sale and transfer clause,

if independently violative of the Sherman Act, would be

vulnerable to legal attack, regardless of any enforcement

action by NMU. That point is sound as far as it goes. But

under the District Court’s findings—undisturbed by the

Court of Appeals—the contract clause was totally ignored

_ by Commerce ; no damages flowed from its presence in the

collective bargaining agreement. Had either Commerce or

Vantage directed a legal challenge at the disputed clause

before the NMU instituted its own arbitral and judicial

proceedings, damages, as distinguished from injunctive or

declaratory relief, would not have been recoverable.

Contrary to the assumption of the Court below, the

Noerr-Pennington principles are not restricted to under-

standings and conspiracies whose only purpose is to seek

official action. This Court has made it abundantly clear

that those principles apply even though recourse to official

action is an integral part of a scheme that includes inde-

pendently illegal and actionable conduct. In such cireum-

stances, unlawful conduct may be remedied and damages

recovered for any resultant injuries, except for injuries

caused by appeal to governmental action. Invoking official

processes remains, however, non-actionable, and damages

resulting from governmental decisions are not recoverable.

Indeed, Pennington itself illustrates this point.’®

og ae

1°Tn Pennington, this Court held that an alleged union-employer

agreement to eliminate marginal companies by having the union

impose onerous bargaining terms on them would not be exempt

from the Sherman Act and could lead to damage recovery, but that

successful requests to the Secretary of Labor for certain Walsh-

Healy Act determinations—and their consequences—did not ex-

tend either liability or damages, although part of the same con-

spiracy. Justice White’s opinion stated (381 U.S. at 670-671) :

“Joint efforts to influence public officials do not violate the anti-

trust laws even though intended to eliminate competition.

3. In its repeated assertions that the NMU’s resort to

judicial proceedings did not “insulate” or “immunize” it

from liability, or “bar” an action by Commerce and Van-

tage addressed to the validity of the “sale and transfer”

provision, the Court below set up a straw man. Commerce

and Vantage could have brought suit at any time; but

because NMU refrained from self-help, absent the pre-

liminary injunction they would not have been damaged

and they would have been restricted to declaratory or in-

junctive relief. Plaintiffs’ claim for such relief was not

extinguished by the injunction obtained by NMU. On the

other hand, their claim has not thereby been expanded,

with respect to either liability or damages, by NMU’s

“petition” for judicial relief. Petitioner’s contentions do

not “insulate” or “immunize” NMU; the union’s liability

remains exactly what it was before it brought suit.

4. The Court of Appeals’ analysis of proximate and

supervening causes simply ignores Noerr and Pennington.

Adopting the terminology of the opinion below, one could

as accurately say in Pennington that the underlying illicit

agreement to drive smaller coal companies out of business

was a “material cause” or “substantial factor” in the de-

fendants’ approaches to the Secretary of Labor and that

the damages resulting from the Secretary’s Walsh-Healy

Such conduct is not illegal either standing alone or as part

of a broader scheme itself violative of the Sherman Act.”

“(T]he jury should have been instructed, as UMW requested,

to exclude any damages which Phillips may have suffered as

a result of the Secretary's Walsh-Healy determinations” (em-

phasis supplied).

Similarly, in the present case, the District Court was correct in

excluding any damages that Commerce and Vantage may have

suffered as a result of the District Court’s preliminary injunction.

And as was found by the trial court, there are no other damages.

determinations were thus proximately caused by the illegal

understanding between the union and the larger companies.

But this Court in its Pennington decision rejected such

an approach."

The critical point overlooked by the Court below is that

this case does not present a routine tort or even Sherman

Act situation in which the interplay of the acts of a number

of different private parties creates more than one “but

for” cause. Here the key act which generated all the dam-

ages was the good faith and successful invocation of arbi-

tral and judicial processes. That appeal to official action

is constitutionally protected in order to safeguard free

access to the courts among other branches of government.

The vindication of that important policy and its under-

lying Constitutional basis requires review and reversal of

the decision below.

In Otter Tail Power Co. v. United States, 410 U.S. 366, this

Court remanded a key portion of a plaintiff's judgment for con-

sideration of the applicability of the intervening decision in Cali-

fornia Motor Transport Co. In Otter the defendant was guilty of

attempts to monopolize which were independent of any resort to

litigation and which were “a material cause” of the recourse to

judicial proceedings and the resultant damages. Nevertheless,

this Court indicated that the case would be governed by the Noerr-

Pennington doctrine, as extended to judicial proceedings by Cali-

fornia Motor Transport Co., unless the “sham” exception was

operative.

a Oe A eee

CONCLUSION

For the reasons stated, this petition for a writ of cer-

tiorari should be granted.

Respectfully submitted,

Seymour M. WatpMan

Watpman & WaLpMan

501 Fifth Avenue

New York, New York 10017

Bernarp D. MeLTzer

1111 East 60th Street

Chicago, Illinois 60637

Nep R. PxHILuies

Puiuurrs & CapPiELLo

346 West 17th Street

New York, New York 10011

Attorneys for Petitioner

APPENDIX

Appendix A

(Opinion of Court of Appeals)

UNITED STATES COURT OF APPEALS

For tHe Seconp Circuit

No. 179-80—September Term, 1976.

(Argued January 19, 1977 Decided April 15, 1977.)

Docket Nos. 76-7217, 7223

Commerce TanKERS CoRPORATION,

Defendant-Counterclaimant-A ppellant,

—and—

VantTaGE STEAMSHIP CORPORATION,

Intervening Defendant-Appellant,

—against—

Nationa, Maritime Union or America, AFL-CIO,

Plaintiff-A ppellee.

Vantace Sreamsnuip Corporation,

Plaintiff-Appellant,

—against—

Nationa, Maritime Union or America, AFL-CIO,

Defendant-A ppellee.

Appendix A

Before:

LumBarD, Feinserc, Circuit Judges, and

Corrrin, District Judge.*

Appeal from judgment of the United States District

Court for the Southern District of New York, Thomas P.

Griesa, J., dismissing complaint alleging violations of fed-

eral antitrust and labor laws, and limiting recovery for

wiongful injunction to amount posted for injunction bond.

Affirmed in part and reversed in part.

D. Davin Coney, Great Neck, N.Y., for Defen-

dant-Counterclaimant-A ppellant.

Martin C. Senam, New York, N.Y. (Surrey,

Karasik, Morse and Seham; Fred C. Klein,

David F. Devine, on the brief), for In-

tervening Defendant-Appellant Vantage

Steamship Corporation,

Cuartes Sover, New York, N.Y. (Phillips &

Cappiello), for Plaintiff-Appellee.

Fernsere, Circuit Judge:

Over six years ago, appellant Commerce Tankers Cor-

poration for pressing economic reasons attempted to sell

its last remaining vessel to Vantage Steamship Corp., also

appellant here. Appellee National Maritime Union (NMU),

which represented the seamen on the vessel, objected to

* Of the United States District Court for the District of Vermont,

sitting by designation.

Appendix A

the sale because Commerce had not obtained a commitment

from Vantage to continue the NMU as bargaining repre-

sentative, in accordance with a provision of NMU’s collec-

tive bargaining agreement with Commerce. This began a

flurry of litigation over a period of several years among

Commerce, Vantage, NMU and the National Labor Rela-

tions Board (NLRB), in combinations and permutations

set forth below.

At first NMU blocked the sale, obtaining an arbitration

award and an injunction in the United States District

Court for the Southern District of New York. National

Maritime Union v. Commerce Tankers Corp., 325 F. Supp.

360 (S.D.N.Y. 1971). That injunction, however, was re-

versed after the Regional Director of the NLRB, on an

application under §10(1) of the National Labor Relations

Act, alleged that there was “reasonable cause to believe”

that the clause invoked by the NMU violated section 8(e)

of the National Labor Relations Act, see Mcleod v.

National Maritime Union, 457 F.2d 1127 (2d Cir. 1972), a

preliminary determination later confirmed by the Board

and by this court in NLRB v. National Maritime Union,

486 F.2d 907 (2d Cir. 1973), cert. denied, 416 U.S. 970

(1974). Commerce and Vantage claimed that they suffered

damages of $1,550,000 and $2,230,000, respectively, due to

NMU’s conduct, which they alleged violated.not only the

National Labor Relations Act, but also the Sherman Act.

After a non-jury trial in the United States District Court

for the Southern District of New York, Judge Thomas P.

Griesa found that the proximate cause of any damage was

the district court injunction against the sale. The judge

1 Appellants also alleged, inter alia, violation of the New York

antitrust law, wrongful injunction, and tortious interference with

contract. Only the second of these claims is pressed here.

Appendiz A

therefore limited Commerce’s recovery to the $10,000 in-

junction bond posted by NMU in the litigation below and

denied Vantage any relief whatever, since it was not cov-

ered by the bond. 411 F. Supp. at 1225. This appeal fol-

lowed. For reasons set forth below, we reverse and remand

for further consideration of appellants’ claim under the

Sherman Act.

The background of this litigation is set forth in our two

prior opinions cited above, and we will try not to repeat

here anything but the essential facts. The contract clause

in question, which is reproduced in the margin,? was con-

* Article I, section 2, which is entitled “Sale and Transfer of

Vessels,” provides:

(a) The Company agrees with respect to any vessel which is

presently under or may hereafter come under this Agreement,

that if during the term of this Agreement said vessel is sold

or transferred in any manner to any other business entity not

covered by this Agreement for operation under United States

flag (but not including a vessel which the Company bareboat

charters and the charter is terminated), said vessel shall be

sold or transferred with the complement of employees who

either are or shall be provided by the Union in accordance with

the terms of this Agreement, or such number as may be agreed

upon between the Union and the transferee. The term

“transfer” shall be construed to include any chartering of a

vessel by the Company.

(bh) The Company obligates itself to obtain for the benefit of

the Union a written undertaking with the Union to be executed

by the business entity to which the vessel has been sold or

transferred that for the full term of the Agreement all of its

terms and provisions shall apply to said vessel except as

herein-above provided and that said business entity will fully

comply with all of the terms and provisions of this Agreement

and any amendments thereto to preserve the jobs and job

rights of the Unlicensed Personnel covered by this Agreement

and to protect and maintain the wages, pension rights and

other economic benefits and working conditions provided such

personnel under this Agreement.

‘iss

ews -

Appendix A

tained in a multiemployer NMU collective bargaining

agreement, to which Commerce was a party. The clause

provided in substance that if Commerce sells a ship to an

American flag shipper not already under contract with

the NMU, the ship will be sold with a crew provided by

the NMU, and Commerce will obtain from the purchaser

“a written undertaking” to abide by the NMU contract.

In the fall of 1970, Commerce’s parent, Vernitron Cor-

poration, decided for business reasons to go out of the

shipping business. On December 23, 1970, Commerce con-

tracted to sell the S.S. Barbara, an ocean-going tanker,

to Vantage for a price of $2,750,000, with delivery sched-

uled for February 28, 1971. The -ontract did not contain

any provision regarding “the complement of employees”

to be furnished by the NMU; nor did Commerce obtain

from Vantage the undertaking with the NMU called for by

paragraph (b) of the restraint-on-transfer clause. See note

2, supra. At the time, Vantage could not properly have

given such an undertaking, since it was party to a con-

flicting agreement with the Seafarers International Union

of North America (SIU), a rival maritime union. In Janu-

ary 1971, Vantage chartered the ship it had contracted to

purchase to the Standard Oil Company of California

(SoCal) for a period of one year, commencing on March

5, 1971.

At this point, furious activity ensued. The NMU de-

manded of Commerce and Vantage that Vantage accept

the NMU as the bargaining agent of the unlicensed seamen

employed aboard the ship. The SIU threatened to strike

all Vantage vessels if it ceased using the STU hiring hall

to obtain its unlicensed seamen. Vantage threatened to sue

Commerce if it did not deliver the S.S. Barbara in accor-

dance with its contract. The NMU commenced and won a

Appendia A

labor arbitration, at which the arbitrator did not consider

the legality of the restraint-on-transfer clause; the award

enjoined the sale of the vessel without compliance with

the clause. The next day, NMU began an action against

Commerce in the United States District Court for the

Southern District of New York for confirmation of the

award. A week later, Vantage intervened as a party de-

fendant and also filed unfair labor practice charges with

the NLRB against the NMU and Commerce. After some

other skirmishing, Judge Frankel in early March 1971

granted a preliminary injunction against the sale unless

the contested clause were observed. The arguments of

Commerce and Vantage that the clause was illegal were

given short shrift, National Maritime Union v. Commerce

Tankers Corporation, supra, 325 F. Supp. at 364-65, and

the court required NMU to post only a $10,000 bond. Both

Commerce and Vantage appealed.

At about this time, Vantage’s charter with SoCal was

cancelled due to “union problems.” Shortly thereafter,

Commerce advised the NMU that all efforts to obtain a

United States flag purchaser had been unsuccessful and

Commerce asked the NMU to drop its objection to the

transfer, offering to drop its legal attack on the clause.

The NMU refused, saying that it “would not gamble that

the ship might go SIU.”

In late May 1971, the Regional Director of the NLRB

issued a complaint against the NMU and sought a 4 10(1)

injunction against enforcement of the restraint-on-transfer

clause. The NLRB’s motion was heard along with a mo-

tion by Commerce to vacate the earlier preliminary in-

junction against it, in view of the intervening NLRB com-

plaint. In July 1971, Judge Croake denied both motions,

but it appears that were it not for the jurisdictional prob-

Appendia A

lem posed by the earlier appeal of Commerce and Vantage,

the judge would have vacated the injunction obtained by

the NMU.* The NLRB appealed from the order refusing

a §10(1) injunction.

By notice of motion dated July 21, 1971, Commerce

moved in this court to vacate the NMU injunction against

the sale of the vessel, or, in the ‘alternative, to increase

the bond to be posted by the NMU to $2,750,000. Com-

merce advised the panel then sitting of the NLRB com-

plaint and of various additional financial exigencies‘ and

argued strenuously that at least the NMU “should be

obliged to post a bond to cover the full purchase price

of the vessel so that Commerce .. . . will not be left in

a situation in which recovery against any of the other

parties cannot be readily accomplished.” The NMU’s posi-

tion was that a large bond was “singularly inappropriate

. . in view of the absence of any meaningful defense to

the merits of the action [by the NMU against Commerce].”

The panel denied Commerce’s motion, but ©»pedited the

appeal. Thereafter, another panel reversed the rulings of

the district court, vacating the NMU injunction and grant-

ing the NLRB a § 10(1) injunction. 457 F.2d 1127. Eventu-

? McLeod v. National Maritime Union, 329 F. Supp. 151, 160

(S.D.N.Y. 1971). Judge Croake’s original opinion vacated the

preliminary injunction. The judge thereafter decided, however,

that since the issue was the subject of a pending appeal, he should

not, as a matter of discretion, express any opinion on the subject.

The opinion was revised accordingly.

* Thus, the affidavits in support of the motion pointed out that

Commerce had been directed by an arbitration award that it had

obtained against Vantage, see 486 F.2d at 910 and n.3, to sell the

S.S. Barbara in order to minimize damages, that the only outstand-

ing offer at the time was $1,300,000 from a foreign flag operator,

and that Vantage said it was still willing to buy the ship for

$2,750,000 if it had the “express right to operate STU.”

Appendia A

ally, the NLRB completed the unfair labor practice pro-

ceeding and found that the NMU had violated § 8(e) of

the Labor Act. The NLRB sought enforcement of its

order, which we granted. 486 F.2d 907.

This background brings us to the litigation now before

us. From the start, Commerce—later joined by Vantage—

has claimed that the NMU’s restraint-on-transfer clause

was illegal and should not he enforced, and that the NMU

was liable to it for damages. Commerce’s damage claims

were pressed in the form of counterclaims in the suit by

NMU against it. Vantage brought its own action in Octo-

ber 1972 against the NMU and Commerce. In June 1973,

pursuant to a settlement agreement between Vantage,

Commerce and Vernitron, the action was discontinued

against Commerce and Vernitron. After our reversal of

the injunction obtained by the NMU in its action, Com-

merce’s counterclaims against the NMU in that suit and

Vantage’s action against the NMU were consolidated and

tried without a jury before Judge Thomas P. Griesa. The

trial lasted over two weeks; 15 witnesses testified and there

were over 1500 pages of transcript.

Commerce and Vantage argued that the NMU was liable

for damages on a number of theories. First, the NMU vio-

lated Section 1 of the Sherman Act, 15 U.S.C. §1, in two

ways described by the district judge as follows: “(1) That

the restraint on transfer clause involved a group boycott

against certain potential purchasers of vessels and there-

fore constituted a per se violation; and (2) that the sale

and transfer clause was the result of a combination or

conspiracy between NMU and large shipping companies

to enhance their competitive and financial position at the

on ee —

awe *

Appendia A

expense of smaller companies such as Commerce.” 411

F. Supp. at 1229. Second, the NMU was liable under sec-

tion 303 of the Labor Management Relations Act, 29 U.S.C.

§ 187, which by its terms incorporates section 8(b)(4) of

the National Labor Relations Act, 29 U.S.C. § 158(b) (4),

both of which are reproduced in the margin.’ Third, Com-

5 Section 187 reads:

(a) It shall be unlawful, for the purpose of this section

only, in an industry or activity affecting commerce, for any

labor organization to engage in any activity or conduct defined

as an unfair labor practice in section 158(b)(4) of this title.

(b) Whoever shall be injured in his business or property by

reason of any violation of subsection (a) of this section may

sue therefor in any district court of the United States subject

to the limitations and provisions of section 185 of this title

without respect to the amount in controversy, or in any other

court having jurisdiction of the parties, and shall recover the

damages by him sustained and the cost of the suit.

Section 185(b)(4) reads:

(b) It Shall be an unfair labor practice for a labor organiza-

tion or its agents—

(4) (i) to engage in, or to induce or encourage any

individual employed by any person engaged in commerce

or in an industry affecting commerce to engage in, a strike

or a refusal in the course of his employment to use, manu-

facture, process, transport, or otherwise handle or work on

any goods, articles, materials, or commodities or to perform

any services; or (ii) to threaten, coerce, or restrain any

person engaged in commerce or in an industry affecting

commerce, where in either ease an object thereof is—

(A) foreing or requiring any employer or self-employed

person to join any labor or employer organization or to

enter into any agreement which is prohibited by sub-

section (e) of this section;

(B) forcing or requiring any person to cease using,

selling, handling, transporting, or otherwise dealing in

the products of any other producer, processor, or manu-

facturer, or to cease doing business with any other person,

or foreing or requiring any other employer to recognize

or bargain with a labor organization as the representative

10a

Appendia A

merce and Vantage relied on various other alleged bases

of liability: The contract clause violated New York Gen-

eral Business Law, § 340, known as the Donnelly Anti-trust

Act; the NMU wrongfully induced breach of the contract

between Commerce and Vantage for the sale of the 8.8.

Barbara; and the NMU obtained a “wrongful injunction.”

Judge Griesa decided all of these claims on the merits

except the very first of the two federal antitrust claims.

On the second antitrust claim, the judge held in a lengthy

opinion that the evidence did not support the view that

the restraint-on-transfer clause was the result of a “con-

spiracy between the NMU and large shipping companies

to enhance their competitive ... position at the expense of

smaller companies ....” The judge also ruled that even

though the clause violated section 8(e) of the Labor Act,

the NMU was not liable under 29 U.S.C. §4§ 158(b) (4) and

187. The former section nrovides that it shall be an unfair

labor practice for a labor union “to threaten, coerce, or

restrain any person” with “an object” of “forcing or re-

quiring any employer” to enter into a prohibited agree-

ment or “forcing or requiring any person . . . to cease

doing business . . .” with anyone else. The judge held that

the NMU did not coerce Commerce into signing the agree-

ment containing the restraint-on-transfer clause. Nor did

the NMU coerce Commerce into maintaining the clause,

of his employees unless such labor organization has been

certified as the representative of such employees under the

provisions of section 159 of this title: Provided, That

nothing contained in this clause (B) shall be construed

to make unlawful, where not otherwise unlawful, any

primary strike or primary picketing . . .

The “subsection (e)” referred to above is the same section 8(e)

which the NLRB and then this court found that the NMU had

violated by the restraint-on-transfer clause. 486 F.2d 907.

lla

Appendiaz A

since the NMU did not “strike cr threaten to strike” to

enforce the provision, but instead “went to arbitration and

then to court, ... [and] resort to a court for a judicial

remedy is not coercion.” 411 F. Supp. at 1238. Accordingly,

the judge found that the NMU did not violate section

8(b)(4) of the Labor Act and therefore appellants could

not recover under 29 U.S.C. 4187. With regard to the

other asserted theories of liability, the judge held that the

New York State antitrust law was inapplicable, on the

authority of Connell Construction Co. v. Plumbers and

Steamfitters Union No. 100, 421 U.S. 616, 635-37 (1975),

that the NMU was not liable for wrongful inducement of

breach of contract hecause “the proximate cause of the

asserted injuries was the preliminary injunction, and the

remedy of Commerce and Vantage is limited to the injune-

tion bond,” 411 F. Supp at 1240, and that the NMU’s lia-

bility for the “wrongful injunction” was limited to the

$10,000 bond posted for the benefit of Commerce only.®

The only claim that the judge did not decide on the

merits was that “the restraint-on-transfer clause was a

group boycott against certain potential purchasers of ves-

sels and therefore constituted a per se violation” of the

Sherman Act. 411 F. Supp. at 1229. Judge Griesa recog-

nized that this claim raised the preliminary issue whether

the clause could be considered exempt from the antitrust

laws after the Supreme Court decision in Connell, supra.

But he decided that it was not necessary to reach that

issue, because even if the clause were subject to the anti-

trust laws and did violate them, the violation would not be

“the proximate cause” of the injuries to Commerce and

Vantage. The judge found instead that:

* Perhaps through oversight, the bond did not cover Vantage.

12a

Appendia A

The proximate cause of the delay and final frustra-

tion of the §.S. Barbara transactions was the pre-

liminary injunction issued by Judge Frankel in a case

admittedly involving close and difficult questions of

law. The problem created by the injunction was com-

pounded by the long delay of Commerce and Vantage

in seeking an appellate remedy.

411 F. Supp. at 1239. Accordingly, the judge denied re-

covery “on any theory of antitrust violation.” Id.

Judge Griesa cited no authority for the view that one

who commits a per se violation of the Sherman Act can

be insulated from liability by the injunction bond rule.

That rule has its origin in early equity practice. The chan-

cellor had limited authority to award damages directly,

but had broad discretion to frame orders granting injune-

tions. See generally 1 J. Pomerov’s Equity Jurisprudence

§§ 1-39, 237(e) (5th ed. 1941). The practice grew up of

conditioning the grant of a preliminary injunction on a

plaintiff’s agreement to post a bond to cover any damages

that might result if it were later determined that plaintiff

was not entitled to an injunction. See Russell v. Farley,

105 U.S. 433 (1881). The plaintiff, in effect, consented to

liability up to the amount of the bond, as the price for it.

Otherwise, plaintiff could be found liable for damages

only on the theory of malicious prosecution, an action at

law. See Benz v. Compania Naviera Hildago, 205 F.2d 945,

948 (9th Cir. 1953); 7 Moore’s Federal Practice § 65.10[1]

at 65.98-99.

We recognize the authority of the injunction bond rule,

and we have relied on it ourselves. E.g., In re Spencer Kel-

a ——

13a

Appendix A

logg & Sons, 52 F.2d 129, 134-35 (2d Cir. 1931). But we do

not think it applies to the antitrust claim pressed on the

unique facts of this case. The purpose of the injunction

bond rule is to provide protection to a defendant who is

under injunction in an equity action, but who ultimately

prevails on the merits. The rule, however, does not apply

to this action at law for damages arising out of a per se

antitrust violation. Had Commerce and Vantage brought

their actions before the NMU’s suit to enforce the restraint-

on-transfer clause, their recovery would not have been

barred by the intervening wrongful injunction, nor would

their damages have heen limited to the amount of the bond.

We do not believe that their rights are altered because

Commerce asserted its antitrust claims as counterclaims in

the suit against it, or because Vantage intervened as a

defendant in that action and brought its own action for

damages after the NMU obtained its wrongful injunction.

The NMU argues that it cannot be held liable even if its

restraint-on-transfer clause violated the antitrust laws be-

cause the district court injunction was a “superseding

cause” and because good faith resort to the courts cannot

be a basis for liability, citing, e.g., Eastern Railroad Presi-

dents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127

(1961); United Mine Workers of America v. Pennington,

381 U.S. 657, 669-70 (1965); and California Motor Trans-

port Co. v. Trucking Unlimited, 404 U.S. 508, 510-11 (1972).

But those cases do not stand for the proposition that a

group boycott that is illegal under the antitrust laws can

be immunized from liability hy a later law suit to enforce

it. Indeed, the language in them indicates to the contrary.’

7 Petitioners, of course, have the right of access to the agencies

and courts to be heard... . That right, as indicated, is part of

the right of petition protected by the First Amendment. Yet

l4a

Appendia A

It appears that the district judge was led astray by

applying the wrong standard for proof of damages in anti-

trust cases. Proximate cause for an antitrust violation is

based on the statutory requirement that the injuries occur

“by reason of” the antitrust violation. 15 U.S.C. §15. We

have described the test as

a causal connection between an antitrust violation and

an injury sufficient for the trier of fact to establish

that the violation was a “material cause” of or a “sub-

stantial factor” in the occurrence of the damage.

Billy Bazter, Inc. vy. Coca-Cola Company, 431 F.2d 183, 187

(2d Cir. 1970), cert. denied, 401 U.S. 923 (1971) (citations

omitted). By this standard, the execution of the disputed

clause and the NMU’s determined efforts to enforce it were

the proximate cause of injury to appellants, and the notion

of superseding cause urged on us by the NMU on appeal is

simply inapplicable. Similarly, we have emphasized that

the right to recovery under the antitrust laws is given to

those in the “target area” of the violation. SCM Corp. v.

Radio Corporation of America, 407 F.2d 166, 171 (2d Cir.),

cert. denied, 395 U.S. 943 (1969); Calderone Enterprises

Corp. v. United Artists Theater Circuit, Inc., 454 F.2d 1292

(2d Cir. 1971), cert. denied, 406 U.S. 930 (1972). Vantage,

and other potential buyers of vessels, were the targets of

the restraint-on-transfer clause.

that does not necessarily give them immunity from the anti-

trust laws.

It is well settled that First Amendment rights are not im-

munized from regulation when they are used as an integral

part of conduct which violates a valid statute. ...

404 U.S. at 513-14. (Footnote omitted). See also 365 at 136-37.

l5a

Appendia A

Finally, we regard the district judge’s emphasis on “the

long delay of Commerce and Vantage in seeking an appel-

late remedy” as misplaced. Even if there had been an in-

excusable delay, that would be irrelevant to NMU’s anti-

trust liability under the tests referred to above. But even

more important, there was no undue delay in seeking

appellate relief in this unusual case. After the district

court enjoined the sale in March 1971 and an appeal was

taken to this court in early April, Commerce and Vantage

frantically sought an immediate remedy at the NLRB by

pressing the § 8(e) unfair labor practice charge. This was

the most effective way of demonstrating that the district

court injunction had been improper, and this course proved

to be successful. Moreover, as soon as the NLRB issued

its complaint on May 24, 1971, Commerce sought to vacate

the injunction first in the district court and then in this

court, and argued, in the alternative, for an increase in

the NMU’s bond. Under the circumstances, appellants fol-

lowed a sensible course, and the NMU’s efforts, successful

at the time, to keep the injunction in force and the bond at

an inadequate figure, strengthen rather than weaken, appel-

lants’ equitable position now.

We thus conclude that the district judge committed

error in holding that no damages (above the $10,000 bond)

could be proved on the claim of a group boycott antitrust

violation and in failing to rule on the substance of that

claim. The obvious remedy for that error is to remand

the case to the district court for it to consider appellant’s

first antitrust claim on the merits. Appellants, however,

ask us to bypass that procedure and to hold that the re-

straint-on-transfer clause would not be exempt from the

antitrust laws under the standards established by Connell,

supra, and that the agreement constitutes a group boycott

16a

Appendix A

and is illegal per se under section 1 of the Sherman Act.

See Klor’s, Inc. v. Broadway-Hale Stores, Inc., 359 U.S.

207 (1959). Both these assertions raise extremely complex

and significant questions on the interaction between the

federal labor and antitrust laws. The accommodation of

the conflicting policies reflected in these laws has aptly

been called “a troublesome and unruly issue.” See Meltzer,

Labor Unions, Collective Bargaining, and the Antitrust

Laws, 32 U. Chi. L. Rev. 659 (1965). Connell indicates

that a “nonstatutory” exemption from the antitrust laws

in this case, see 421 C.S. at 622, turns upon whether the

restraint-on-transfer clause was a “direct restraint on the

business market . . . that would not follow naturally upon

the elimination of competition over wages and working

condition,” id. at 625, and whether the inclusion of the

clause in “a lawfr’ collective-bargaining agreement” shel-

ters the NMU ° cause of the “federal policy favoring col-

lective bargaining.” Id. at 626. See generally St. Antoine,

Connell: Antitrust Law at the Expense of Labor Law, 62

Va. L. Rev. 603 (1976) ; Note, Supreme Court Term—1974,

89 Harv. I... Rev. 234 (1975). And we do not believe that

our prior holding that the clause violated § 8(e) necessar-

ily determines that antitrust issue, although it lends sup-

port to appellants’ position. And even if the “nonstatutory”

exemption does not apply, there is at least a substantial

question whether a per se approach under the antitrust

laws is applicable in the case of a non-exempt labor activ-

ity.* See Mackey v. National Football League, 543 F.2d

* This brings us to the question of antitrust liability when

union activity is held to be non-exempt. The principal danger

of these recent rulings is that a finding of antitrust liability

will automatically be made whenever the challenged conduct

is held to be non-exempt. This would be a per se approach

with a vengeance. Arrangements may fall outside the scope

17a

Appendix A

606 (8th Cir. 1976), cert. filed, 45 U.S.L.W. 3511 (Jan. 25,

1977) ; see generally McCormick, Group Boycotts—Per Se

or Not Per Se, That Is the Question, 7 Seton Hall L. Rev.

703 (1976) (on the complexity of the per se approach to

group boycotts in general). It would, however, be in-

appropriate for us to decide these issues now without

further findings from the district court and briefs on the

questions from both parties.’ See Connell, supra, 421 U.S.

at 637. At this point, we are without detailed findings

from the district court on the anti-competitive effects of

the restraint-on-transfer clause, or in the event that the

rule of reason inquiry should apply, on the anti-competitive

purposes of the clause.’’ We therefore remand to the dis-

of mandatory bargaining and yet have no adverse effect on

competition. We still must find whether the agreement

restrains trade and whether the restraint is unreasonable. A

fair reading of Jewel Tea (Meat Cutters v. Jewel Tea Co.,

Inc., 381 U.S. 676 (1965).] satisfies me that the Court intended

that there be a full-scale rule of reason inquiry in every

instance in which a non-exempt activity is claimed to be in

violation of antitrust.

Handler, Labor and Antitrust: A Bit of History, 40 Antitrust L.J.

233, 239-40 (1971). Cf. Jacobi v. Bache & Co., Inc., 520 F.2d 1231,

1238-39 (2d Cir. 1975), cert. denied, 423 U.S. 1053 (1976).

* On appeal, the NMU’s brief did not diseuss the antitrust claim

at issue here, presumably because the district court did not reach

it. Also, in their complaint and their briefs in this court, Com-

merce and Vantage have argued that the alleged group boycott

was illegal per se. If, on remand, the district court determines

that the rule of reason theory should apply, appellants should be

allowed to press their claim of a group boycott antitrust violation

under that theory.

10 We realize that the district court has already determined that

the restraint-on-transfer clause was not the result of a conspiracy

between the NMU and the large shipping companies to enhance

their competitive position. Our remand on the issue of an illegal

group boycott does not disturb that finding, but by the same token,

the finding does not foreclose full examination of appellants’ group

18a

Appendix A

trict court for consideration of the merits of the first anti-

trust claim.

We turn now to the district court’s dismissal of appel-

lants’ claim under § 303 of the Labor Management Rela-

tions Act, 29 U.S.C. § 187, see note 5, supra, and its lim-

itation of NMU’s liability for wrongful injunction to the

amount of the injunction bond. With respect to the claim

under § 303, we agree with the judge’s determination that

“resort to the courts” is not a threat, coercion or restraint

under § 8(b) (4) (ii), 29 U.S.C. § 158(b) (4) (ii). See Retail

Clerks Local 770 (Hughes Market, Inc.), 218 N.L.R.B. No.

84 (1975) ; ef. Local Union No. 48 v. Hardy Corp., 332 F.2d

682 (5th Cir. 1964). Similarly, the judge correctly limited

Commerce’s recovery for wrongful injunction to the $10,000

injunction bond posted by NMU. See Associated General

Contractors v. Illinois Conference of Teamsters, 486 F.2d

972, 974-75 (7th Cir. 1973); International Ladies Garment

Workers Union v. Donnelly Garment Co., 147 F.2d 246 (8th

Cir.), cert. denied, 325 U.S. 852 (1945); but see United

States Steel Corp. v. United Mine Workers, 456 F.2d 483

(3d Cir.), cert. denied, 408 U.S. 923 (1972).

—

boycott claim. We note that in Connell, “[t]here was no evidence

that Local 100’s organizing campaign was connected with any agree-

ment with members of the multiemployer bargaining unit... .”

421 U.S. at 625 n.2. The Court nonetheless considered the multi-

employer bargaining agreement as “relevant in determining the

effect that the agreement between Local 100 and Connell would

have on the business market.” Id. at 623. The same considerations

apply in this case. Although the district court found no conspiracy

between the NMU and the large shipping companies to injure the

smaller companies, it must still evaluate the agreement between the

NMU and the shipping companies for its effect on the market.

19a

Appendiz A

Accordingly, we affirm the court’s dismissal of appel-

lants’ claims under § 303 of the Labor Management Rela-

tions Act and its limitation on the recovery for wrongful

injunction, but reverse its dismissal of appellants’ claim

of a group boycott in vivlation of section 1 of the Sherman

Act and remand for further consideration.

LemBarp, Circuit Judge (concurring in part and dis-enting

in part):

I agree with my brothers that any limitation of recovery

under the injunction bond rule does not bar full recovery

for violation of the antitrust laws.’ But I disagree with

my brothers’ failure to find that there has been a violation

of the antitrust laws since the record made in the court

below furnishes ample basis for such a determination. In

my view, it remains only for the district court to assess

the damages and enter judgment.

Connell Construction Co. v. Plumbers & Steamfitters

Local Union No. 100, 421 U.S. 616, 634 (1975) squarely

rejected the argument that § 303 of the LMRA provided

the exclusive employer remedy for violations of the “hot

eargo” prohibition of §8(e) of the National Labor Rela-

tions Act (“NLRA”), 28 U.S.C. § 158(e). In determining

whether to apply labor’s nonstatutory exemption, the

Court observed that “labor policy requires tolerance for

It seems to me there is considerable doubt of the continued

validity of the limitation of recovery for wrongful injunction to

the amount of the bond. See Metzger & Friedlander, The Prelim-

inary Injunction: Injury Without Remedy? 29 Bus. Law. 913

(1974) ; Note, Interlocutory Injunctions and the Injunction Bond,

73 Harv. L. Rev. 333 (1959) ; and Note, Recovery of Damages on

Injunction Bonds, 32 Colum. L. Rev. 869 (1932). However, as

appropriate recovery should be available for violations of the

antitrust laws, no purpose would be served by further examination

of that question.

20a

Appendiz A

lessening of business competition based on differences in

wages and working conditions[,]” 421 U.S. at 622, but an

agreement between a union and a nonlabor party which

restrains competition in any other manner is not immune,

421 U.S. at 622-23; see Mine Workers v. Pennington, 381

U.S. 657, 662 (1965); Allen Bradley Co. v. Electrical

Workers, 325 U.S. 797, 806-11 (1945). In applying these

standards to the facts before it, the Connell Court analyzed

the agreement in issue in terms of §8(e) of the NLRA.

Although the union argued that the agreement was saved

by reason of the construction industry proviso to § 8(e),

the Court disagreed and found it to be an illegal secondary

boycott.

Once the Court reached the §8(e) issue it deemed it

unnecessary to engage in further serutiny but concluded

that the union was not immunized from antitrust liability.

421 U.S. at 634-35. I believe that inasmuch as the National

Labor Relations Board (“NLRB”), 196 NLRB No. 165

(1972), and this court, 486 F.2d 907 (2d Cir. 1973), cert.

denied, 416 U.S. 970 (1974), have adjudicated the NMU

restraint-on-transfer clause and efforts at its enforcement

to be a violation of 4 8(e), there is no need for us or for

the district court to 12-examine this record. See Connell

Construction Co. v. Plumbers & Steamfitters Local Union

No. 100, 483 F.2d 1154, 1179 (5th Cir. 1973), rew’d, 421

U.S. 616 (dissenting opinion of Circuit Judge Clark).

Implicit in our prior decision enforcing the Board’s

order was an acceptance of its finding that the restraint-

of-transfer clause prevented Commerce from selling the

S.S. Barbara to a Vantage, 486 F.2d at 911.2 We also ruled

* The district court’s opinion arrives at the same basic finding

but for its legal conclusion which we today reject that the NMU’s

resort to arbitration and the ensuing injunction were nonactionable

superseding causes. 411 F. Supp. at 1239.

2la

Appendia A

that the National Woodwork standards were met since

the clause was not “addressed to the labor relations of the

contracting employer vis-d-vis his own employees,” 486

F.2d 912, quoting National Woodwork Mfgrs Ass’n v.

NLRB, 386 U.S. 612, 645 (1967). These two conclusions

are sufficient to meet the Connell standard that the clause

have “a potential for restraining competition in the busi-

ness market in ways that would not follow naturally from

elimination of competition over wages and working condi-

tions.” 416 U.S. at 635.*

The majority suggests that inclusion of the clause in “a

lawful collective-bargaining agreement” might save it from

antitrust scrutiny, at 801, quoting Connell, supra, 421 U.S.

at 626. But that argument has no application to the facts

before us since we have already ruled that portion of the

collective-bargaining agreement to be unlawful as violative

of § 8(e).

The record before us requires a finding of liability on

ei\her a per se or rule-of-reason analysis of the NMU’s

* This view is fully consistent with the thoughts of Professor

Handler whose comments are favorably cited by the majority:

To me the test should be this: Whatever is required or ex-

pressly authorized under existing labor legislation should be

exempt from the antitrust laws. And whatever is mandatory

should be determined in the light of our national labor policy,

which should override any countervailing antitrust considera-

tions.

Handler, Labor and Antitrust: A Bit of History, 40 Antitrust

L.J. 233, 238 (1971).

Perhaps a finding of no exemption entails a preliminary ap-

praisal of the nature and merits of the underlying antitrust claim,

but it does not necessarily follow that the labor organization will

be found liable on that claim. “Exemption and liability are not

co-extensive concepts.” Jd. at 237. The removal of the shroud of

immunity simply means that the union must answer to the charge

of violating the antitrust laws.

22a

Appendia A

actions.‘ Under the per se approach a well-meaning purpose

will not insulate a group boycott from liability, see Fashion

Originators Guild of America, Inc. v. FTC, 312 U.S. 457

(1941) ; Radiant Burners, Inc. v. Peoples Gas Light & Coke

Co., 364 U.S. 656 (1961), and its anticompetitive effect will

be presumed, see Northern Pacific Railway v. United States,

356 U.S. 1, 5 (1958). Under the balancing approach of the

rule of reason, examination of the facts of this case indi-

cates that the anticompetitive effects of this particular

agreement outweigh any legitimate collective bargaining

concerns.

Judge Griesa’s 58 page opinion carefully traced the bar-

gaining practices in the shipping industry and found that

the restraint-on-transfer clause had its genesis in com-

plaints made by Joseph Curran, president of the NMU, in

a January 22, 1968 letter to Edward Silver concerning the

loss of NMU-represented vessels through sale and transfer.

Silver, who testified at trial, was the lawyer and chief nego-

tiator for the two major shipping owners associations, the

Tankers Service Committee (“TSC”) and the Maritime Ser-

vice Committee (“MSC”). The restraint-on-transfer clause

was first successfully negotiated into a collective-bargaining

agreement by the Maritime Enginers Beneficial Associa-

tion (“MEBA”), a non-competing union, in a May, 1968

‘In a post-Connell decision, the Eighth Cireuit has found the

per se approach to be inapplicable to a group boycott arising out of

a labor agreement. See Mackey v. National Football League, 543

F.2d 606 (8th Cir. 1976), cert. filed, 45 U.S.L.W. 3511 (Jan. 25,

1977). A rule of reason inquiry in the context of a labor boycott

might well be an appropriate means to balance the goals of the

antitrust laws with the positive values of collective-bargaining.

5 For a recent and thorough review of this subject see McCormick,

Group Boyeotts—Per Se or Not Per Se, That is the Question, 7

Seton Hall L. Rev. 703 (1976).

23a

Appendia A

amendment to its contract with MSC. Judge Griesa found

this version of the restraint-on-transfer clause to be the

model for the NMU clause. The district judge found the

purpose of the clause to have been memorialized in the fol-

lowing portion of a June 25, 1969 letter from J. M. Calhoon,

president of MEBA to Silver:

The original and continuing purpose of said Memo-

randum is: To preserve the jobs and job rights of the

Company’s engineers covered by our collective bargain-

ing agreement and to protect and maintain the wages,

pension rights and other economic benefits and working

conditions provided such engineers under said Agree-

ment.

411 F. Supp. 1224, 1233 (S.D.N.Y. 1976). The clause was

subsequently adopted without significant discussion in the

NMU’s 1969 collective-bargaining agreement.

Allen Bradley Co., supra at 798, forecloses any argument

that a labor agreement is not unreasonable simply because

its general purpose is “to get and hold jobs for [the union

members] at good wages and under high working stan-

dards.” As we noted in our prior decision, the NMU’s

interest in job preservation was not directed at the crew

members of the 8.8. Barbara since it is the union’s practice

to strip a ship of its crew when it is sold and to have it

remanned from the hiring halls. 486 F.2d at 914.

The anticompetitive effect of the restraint-on-transfer

clause is also apparent from the record before us. Its most

immediate impact was to thwart the sale of the S.S. Bar-

bara to Vantage, cause the cancellation of the lucrative

SoCal charter, and virtually force the sale of the vessel for

scrap. Beyond that, the clanse prohibits shipowners from

selling their vessels to United States Flag operators unless

24a

Appendiaz A

the prospective buyer agrees to enter into an NMU collec-

tive-bargaining agreement. Owners are effectively pre-

vented from selling to a ;otential buyer whose employees

are presently represented by the NMU’s rival, the Sea-

farer’s International Union (“SIU”). Sales are, therefore,

limited to foreign flag operators, non-SIU operators, or

those who would buy for scrap value. Mergers between

small NMU represented owners and small SIU represented

owners are foreclosed. By encouraging sales to foreign flag

owners, the clause lessens competition among the American

owners.

In summary, whether the appropriate inquiry is under a

rule of reason or the per se measure, the record requires a

finding that the Union must be held responsible for viola-

tion of the antitrust law.

I would hold that the NMU has violated 41 of the Sher-

man Act, 15 U.S.C. §1, and remand to the district court

solely for determination of damages.

25a

Appendix B

(Judgment of Court of Appeals)

UNITED STATES COURT OF APPEALS

For tue Seconp Crrcuir

71 Civ. 582 (T.P.G.)—72 Civ. 4619 (T.P.G.)

76-7217—76-7223

At a stated Term of the United States Court of

Appeals for the Second Circuit, held at the

United States Courthouse in the City of

New York, on the fifteenth day of April

one thousand nine hundred and seventy-

seven.

Present:

Hon. J. Epwarp Lumparp,

Hon. Wiurrep FErnsera,

Circuit Judges,

Hon. Ausert W. Corrrin,

District Judge.

National Maritime Unton or America, AFL-CIO,

Plaintiff-Appellee,

Commerce TANKERS CORPORATION,

Defendant-Counterclaimant-A ppellant,

and

Vantace Streamsuip Corp.,

Intervening Defendant-Appellant.

26a 7a

Appendia B

Appendix C

(Order of Court of Appeals)

Vantace Sreamsuip Corp.,

Plaintiff-Appellant,

ve UNITED STATES COURT OF APPEALS

NationaL Maritime Union or America, AFL-CIO, For tHe Seconp Crrcurr

Defendant-A ppellee. At a stated Term of the United States Court of

Appeals, in and for the Second Circuit, held

at the United States Court House, in the

City of New York, on the fifteenth day of

June, one thousand nine hundred and sev-

enty-seven.

Appeal from the United States District Court for the

Southern District of New York.

This cause came on to be heard on the transcript of

record from the United States District Court for the South-

ern District of New York, and was argued by counsel. 76-7217

On ConsmeratTion Wuenreor, it is now hereby ordered,

adjudged, and decreed that the judgment of said District

Court be and it hereby is affirmed in part, reversed in

part and the action be and it hereby is remanded to said Plaintiff-A ppellee,

District Court for further proceedings in accordance with v.

the opinion of this court.

NationaL Maritime Union or America, AFL-CIO,

Commerce TANKERS CORPORATION,

A. Danret Fusaro

Clerk Defendant-Counterclaimant-A ppellant,

By Artuur Hetzer -

Deputy Clerk Vantace Sreamsuip Corp.,

Intervening Defendant-A ppellant.

JUDGMENT ENTERED

6/29/77

Raymonp F. BurcHarpr Vantace Sreamsnuip Corp.,

CLERK Plaintiff-A ppellant,

A true copy, v.

A. Dante Fusaro

Friep, Aprit 15, 1977

A. Dante, Fusaro, Cierx Defendant-A ppellee.

NationaL Maritme Union or America, AFL-CIO,

29a

28a

Appendiz C Appendix D

A petition for rehearing containing a suggestion that (Opinion of District Court)

the action be reheard en banc having been filed herein by

counsel for the appellant Commerce Tankers Corporation, UNITED STATES DISTRICT COURT

and no active judge or judge who was a member of the SoutHERN District or New York

panel having requested that a vote be taken on said sug-

gestion,

Nos. 71 Civ. 582—72 Civ. 4619

Upon consideration thereof, it is March 31, 1976

Ordered that said petition be and it hereby is Denzep.

/8/ Invinc R. Kavrman Nationa, Maritime Union or America, AFL-CIO,

Irvine R. Kaurmay, Plainti

Chief Judge . intiff,

Commerce TaNKERS CORPORATION,

Defendant-Counterclaimant,

and

Vantace SteamsuHip Corp.,

Intervening Defendant.

Vantace Sreamsuip Corp.,

Plaintiff,

5 v.

Nationa Maritime Union or America, AFL-CIO,

Defendant.

AsraHaM E. Freepman by Charles Sovel, Ned

R. Phillips, New York City, for National

Maritime Union of America, AFL-CIO.

30a

Appendiz D

D. Daviw Conen, Great Neck, N.Y., Marshall,

Bratter, Greene, Allison & Tucker by James

M. Bergen, Stephen B. Camhi, New York

York City, for Commerce Tankers Corp.

Surrey, Karastxk, Morse & Senam by Fred C.

Klein, Donald F. Devine, New York City,

for Vantage Steamship Corp.

Griesa, District Judge:

This is the final stage of litigation in these two con-

solidated cases involving National Maritime Union of

America (“NMU”), Commerce Tankers Corporation, and

Vantage Steamship Corp. The remaining matters to be

covered relate to the counterclaims of Commerce against

NMU in 71 Civ. 582 and the claims of Vantage against

NMU in 72 Civ. 4619. These matters have been tried by

the court without a jury. This decision constitutes findings

of fact and conclusions of law.

Prior Proceedings

This litigation grows out of an attempt by Commerce to

sell its ship, the S.S. Barbara, to Vantage pursuant to a

contract of sale dated December 23, 1970. The contract

price was $2,750,000. At the time of this contract of sale,

Commerce had a collective bargaining agreement with

NMU covering the unlicensed personnel on Commerce’s

vessels. Article I, Section 2 of this collective bargaining

agreement provided that if the employer sold any of its

ships to a buyer who would operate under the United

States flag, the ship should be sold with the complement

of NMU employees, and that the employer would obtain

Le ee ae ORDO, Bee we

3la

Appendiz D

from the buyer an undertaking that the NMU collective

bargaining agreement would apply to the vessel.’ Article

I, Section 2 will sometimes be referred to as the “restraint

on transfer clause.”

The problem created by the proposed sale of the S.S.

Barbara to Vantage was that Vantage’s collective bargain-

1 Article I, Section 2 reads as follows:

“Section 2. Sale and Transfer of Vessels. (a) The Com-

pany agrees with respect to any vessel which is presently

under or may hereafter come under this Agreement, that if

during the term of this Agreement said vessel is sold or trans-

ferred in any manner to any other business entity not covered

by this Agreement for operation under United States flag

(but not including a vessel which the Company bareboat

charters and the charter is terminated), said vessel shall be

sold or transferred with the complement of employees who

either are or shall be provided by the Union in accordance

with the terms of this Agreement, or such number as may be

agreed upon between the Union and the transferee. The term

‘transfer’ shall be construed to include any chartering of a

vessel by the Company.

“(b) The Company obligates itself to obtain for the benefit of

the Union a written undertaking with the Union to be ex-

ecuted by the business entity to which the vessel has been

sold or transferred that for the full term of the Agreement

all of its terms and provisions shall apply to said vessel except

as hereinabove provided and that said business entity will

fully comply with all of the terms and provisions of this

Agreement and any amendments thereto to preserve the jobs

and job rights of the Unlicensed Personnel covered by this

Agreement and to protect and maintain the wages, pension

rights and other economic benefits and working conditions

provided such personnel under this Agreement.

“(e) The Company agrees that if it desires to sell, bareboat

charter or in any manner whatsoever transfer a vessel to

another business entity, whether for United States flag or

Foreign-flag registry, timely written notice to the Union must

first be given prior to any such sale or transfer.

“(d) This Section shall be deemed of the essence of the Col-

lective Bargaining Agreement and in the event of any viola-

tion, the no-strike provision of this Agreement shall not be

applicable.”

32a

Appendix D

ing agreement for unlicensed seaman was with NMU’s rival

organization—Seafarer’s International Union (“SIU”).

Vantage did not intend to man the S.S. Barbara with

NMU members, nor did Vantage give Commerce any un-

dertaking that it would do so.

After learning of the proposed sale, NMU demanded

enforcement of the restraint on transfer clause by way of

arbitration, which was held before Arbitrator Theodore

Kheel in New York City on February 8, 1971. The arbi-

trator found in favor of NMU and ordered that Com-

merce not transfer the 8.8. Barbara to Vantage or any

other purchaser without complying with the clause.

On February 9, 1971 the first of the actions in this court,

71 Civ. 582, was commenced by NMU against Commerce to

obtain enforcement of Arbitrator Kheel’s decision.

Vantage was thereafter permitted to intervene in this

action. On March 2, 1971 Judge Frankel handed down a

decision holding that a preliminary injunction should issue

restraining the transfer of the S.S. Barbara in violation of

the restraint on transfer clause. National Maritime Union

v. Commerce Tankers Corp., 325 F.Supp. 360 (S.D.N.Y.

1971). The preliminary injunction was signed March 4,

1971. NMU was required to post a bond of $10,000. Com-

merce and Vantage appealed.

On May 24, 1971 the New York Regional Director of the

National Labor Relations Board issued a complaint against

NMU charging that the restraint on transfer clause in the

Commerce-NMU collective bargaining agreement violated

Section 8(e) of the National Labor Relations Act, 29 U.S.C.

§ 158(e). On the same day the NLRB filed a petition in

this court (71 Civ. 2300) asking for a preliminary injunce-

tion under Section 10(/) of the National Labor Relations

Act, 29 U.S.C. § 160(1). The NLRB filed an amended peti-

tion on June 1 adding Commerce as a respondent.

ve men

33a

Appendiz D

On May 27, Commerce filed x motion in the District

Court to vacate Judge Frankel’s preliminary injunction in

view of the NLRB charges.

Both the NLRB’s §10(l) motion in 71 Civ. 2300 and

Commerce’s motion to vacate in 71 Civ. 582 were heard by

Judge Croake on June 4, 1971. On July 15 Judge Croake

issued a decision denying both motions. McLeod v. Na-

tional Maritime Union, 329 F.Supp. 151 (S.D.N.Y. 1971).

Appeals were taken.

On March 22, 1972 the Second Circuit Court of Appeals

reversed the rulings of Judges Frankel and Croake, hold-

ing that there was reasonable cause to believe that Article

I, Section 2 of the NMU-Commerce collective bargaining

agreement involved an unfair labor practice and that there-

fore a Section 10/1) injunction should issue. The Court of

Appeals also held that, because of the filing of the NLRB

complaint subsequent to Judge Frankel’s preliminary in-

junction, that injunction should be vacated. National Mari-

time Union v. Commerce Tankers Corp., 457 F.2d 1127 (2d

Cir. 1972).

Unfortunately, by this time the proposal to transfer the

S.S. Barbara to Vantage was dead, for reasons to be de-

scribed hereafter. On May 1, 1972 Commerce sold the Bar-

bara to Plaza Shipping, Ine. (an NMU contract company)

for a greatly reduced price—$700,000.

Meanwhile, the unfair labor practice matter had been

proceeding in the NLRB. On September 2, 1971 NLRB

Trial Examiner Thomas F. Ricci filed a decision recom-

mending dismissal of the complaint. On May 16, 1972 the

Board issued its decision, reversing the trial examiner,

and holding that Article I, Section 2 of the NMU-Com-

merce agreement was invalid because it violated Section

8(e) of the National Labor Relations Act. Upon the

34a

Appendia D

NLREB’s petition for enforcement, in which Vantage inter-

vened in support of the NLRB, the Court of Appeals

(opinion of Judge Feinberg joined by Judges Lumbard

and Friendly) upheld the NLRB’s ruling. NLRB v. Na-

tional Maritime Union, 486 F.2d 907 (2d Cir. 1973), cert.

denied, 416 U.S. 970, 94 S.Ct. 1993, 40 L.Ed.2d 559 (1974).

It is appropriate here to discuss this decision in some

detail. Section 8(e) provides:

“(e) It shall be an unfair labor practice for any

labor organization and any employer to enter into any

contract or agreement, express or implied, whereby

such employer ceases or refrains or agrees to cease

or refrain from handling, using, selling, transporting

or otherwise dealing in any of the products of any

other employer, or to cease doing business with any

other person, and any contract or agreement entered

into heretofore or hereafter containing such an agree-

ment shall be to such extent unenforcible and void:

”

The Court noted that Section 8(e) does not “shimmer with

clarity” and that the question presented was “difficult to

decide.” Jd. at 910, 911. The Court further noted that the

primary purpose of Section 8(e) was to curb certain “sec-

ondary” labor activities. NMU argued that Article I, Sec-

tion 2 was proper because it had the “primary” labor

objective of preserving work for its members vis-a-vis

Commerce and other NMU employers. However, the Court

of Appeals held that the contractual clause went beyond

“work preservation,” and had an illegal secondary purpose

of expanding NMU jurisdiction to non-NMU employers

such as Vantage.

me et

a ee

tect ccsisttths ees etree nnrene ieee ne elt ee 8 ne.

35a

Appendix D

Concurrently with these proceedings in the federal courts

and the NLRB, there was an arbitration and a state court

proceeding involving Commerce and Vantage.

On February 10, 1971 Commerce demanded arbitration

against Vantage on the December 23, 1970 contract of sale,

claiming damages for breach of contract. On March 29,

1971, in an action in Supreme Court, New York County,

Justice Streit ordered arbitration. The arbitration com-

menced May 12. On July 9, the arbitrators awarded Com-

merce damages measured by the amount of the contract

price for the 8.S. Barbara—$2,750,000, plus other damages

in the amount of $133,264, less the net proceeds to be real-

ized upon the resale of the S.S. Barbara.

As already described, Commerce sold the Barbara to

Plaza Shipping, Inc. on May 1, 1972 for $700,000.

On November 20, 1972 Justice Abraham J. Gellinoff

issued a decision confirming the arbitration award. This

was affirmed by the Appellate Division, First Department,

on April 5, 1973. Vantage Steamship Corp. v. Commerce

Tankers Corporation, 41 A.D.2d 813, 342 N.Y.S.2d 281

(1st Dept. 1973).

On October 30, 1972 Vantage commenced an action in

this court (72 Civ. 4619) against NMU and Commeree.

Among other things, Vantage alleged that NMU and Com-

merce had been guilty of an unfair labor practice and had

violated Section 1 of the Sherman Act. This is one of the

cases being dealt with in the present opinion.

On May 31, 1973 Vantage and Commerce concluded a

settlement of all disputes between these parties. Vantage

agreed to pay Commerce $700,000 in installments over a

period of time. Commerce and Vantage exchanged releases

in which there were express reservations of rights against

NMU.

36a

Appendix D

The net result of all these proceedings is that there re-

main for determination Commerce’s claim against NMU

for damages in 71 Civ. 582 and Vantage’s claim against

NMU for damages in 72 Civ. 4619.

Contentions of Commerce and Vantage

Commerce and Vantage claim that NMU is liable for

damages under Section 303 of the Labor Management

Relations Act, 29 U.S.C. § 187, which provides:

“$187. Unlawful activities or conduct; right to sue;

jurisdiction; liinitations; damages

“(a) It shalk be unlawful, for the purpose of this

section only, in an industry or activity affecting com-

merce, for any labor organization to engage in any

activity or conduct defined as an unfair labor practice

in section 158(b)(4) of this title.

“(b) Whoever shall be injured in his business or

property by reason or any violation of subsection

(a) of this section may sue therefor in any district

court of the United States subject to the limitations

and provisions of section 185 of this title without re-

spect to the amount in controvery, or in any other

court having jurisdiction of the parties, and shal!

recover the damages by him sustained and the cost

of the suit.” *

? Originally Commerce and Vantage contended that they would

be entitled to damages under Section 301 of the Labor Manage-

ment Relations Act, 29 U.S.C. § 185. However, this section relates

to suits “for violation of contracts between an employer and a labor

organization.” Neither Commerce nor Vantage is suing NMU on

such a cause of action.

cele a ee a Oe eee ee ee

37a

Appendix D

Section 303 authorizes a suit for damages where there

has been a violation of Section 8(b)(4) of the National

Labor Relations Act, 29 U.S.C. § 158(b)(4). The relevant

passages in Section 8(b)(4) are as follows:

“(b) It shall be an unfair labor practice for a labor

organization or its ageuts—

“(4) ... (ii) to threaten, coerce, or restrain any

person engaged in commerce or in an industry af-

fecting commerce, where in either case an object

thereof is—

“(A) forcing or requiring any employer or self-

employed person to join any labor or employer or-

ganization or to enter into any agreement which is

prohibited by subsection (e) of this section;

“(B) forcing or requiring any person to cease

using, selling, handling, transporting, or otherwise

dealing in the products of any other producer, pro-

cessor, or manufacturer, or to cease doing business

with any other person, .. .”

The references to “subsection (ce) of this section” is

the Section 8(e) which was found to have been violated

by the Court of Appeals in its opinion in the NLRB pro-

ceeding. 486 F.2d 907. As already described, that court

held that Article I, Section 2 of the NMU-Commerce agree-

ment was a violation of Section 8(e). However, the mere

making of a contract which violates Section 8(e) does not

in and of itself give rise to a cause of action for damages.

It is only where the added elements of Section 8(b) (4)

are found to exist that a cause of action for damages ac-

erues. For instance, the latter section would be violated

38a

Appendia D

where a labor union threatens, coerces or restrains an em-

ployer with the object of forcing or requiring the employer

to enter into the Section 8(e) agreement. Similarly, Sec-

tion 8(b)(4) would be violated if a labor union threatens,

coerces or restrains an employer in order to force or re-

quire him to cease doing business with another party.

Commerce and Vantage claim that NMU violated Section

8(b)(4) in that (1) NMU coerced Commerce into entering

into the collective bargaining agreement containing the

Article I, Section 2 provision which violated Section 8(e) ;

(2) that NMU coerced Commerce, and forced Commerce to

cease doing business with Vantage, and forced a prospec-

tive charterer to cease doing business with Vantage—such

coercion and force being the strike threat contained in

Article I, Section 2; (3) NMU restrained Commerce, and

forced Commerce to cease doing business with Vantage, by

obtaining the preliminary injunction from Judge Frankel.

Commerce and Vantage further contend that NMU is

liable under Section 1 of the Sherman Act. In the first

place, Commerce and Vantage urge that there is no labor

law exemption from antitrust liability here, citing Connell

Construction Co. v. Plumbers and Steamfitters Local Union

No. 100, 421 U.S. 616, 95 S.Ct. 1830, 44 L.Fd.2d 418 (1975).

Vantage and Commerce then contend that NMU has Sher-

man Act Section 1 liability on the following related but

somewhat different theories: (1) That the restraint on

transfer clause involved a group boycott against certain

potential purchasers of vessels and therefore constituted a

per se violation; and (2) that the sale and transfer clause

was the result of a combination or conspiracy between

NMU and large shipping companies to enhance their com-

petitive and financial position at the expense of smaller

companies such as Commerce.

ee ee ee eee

39a

Appendix D

Commerce and Vantage also rely upon certain common

law theories. They contend that NMU wrongfully induced

the breach of the contract between Commerce and Vantage

for the sale of the S.S. Barbara. Commerce and Vantage

also contend that NMU is liable for obtaining a “wrongful

injunction”—1. e., the preliminary injunction issued by

Judge Frankel.

Vantage claims that Article I, Section 2 violated New

York General Business Law § 340, known as the Donnelly

Anti-Trust Act.

The amounts of damages (before any trebling based

upon the Sherman Act theory) are claimed to be as fol-

lows. Commerce claims that it is entitled to a total of

$1,550,000, calculated by taking the contract price for the

S.S. Barbara ($2,750,000) and subtracting the amount real-

ized upon the resale to another purchaser ($700,000) and

further subtracting the amount received from Vantage in

the settlement ($700,000), giving a net total of $1,350,000,

to which is added the costs of holding the S.S. Barbara

after it was supposed to have been delivered to Vantage

($200,000). Vantage claims a total of $2,230,000, consisting

of loss of profits on a charter it had for the S.S. Barbara

with Standard Oil of California—the alleged profits being

$1,500,000; amounts invested by Vantage in repair of the

S.S. Barbara ($30,000) ; and the amount paid to Commerce

in the settlement ($700,000).

Contentions of NMU

NMU denies the validity of each of the above theories.

In addition NMU asserts certain affirmative contentions.

NMU urges that the only action it took to enforce Article

I, Section 2 was to obtain an arbitration award, and then

sue in this court to enforce that award. NMU contends

40a

Appendix D

that it was the preliminary injunction of Judge Frankel

in this lawsuit which prevented the consummation of the

sale of the S.S. Barbara to Vantage and the fulfillment of

the charter which Vantage had obtained for the vessel.

NMU argues that Commerce and Vantage did not pursue

available remedies in the Court of Appeals in a timely or

appropriate manner. NMU contends that its liability, if

any, is limited to the amount of the $10,000 bond posted for

the preliminary injunction.

NMU also urges that the settlement of the mutual claims

of Commerce and Vantage operates as a bar to any recov-

ery by either of these parties against NMU.

Further Facts

Background of Article I, Section 2

A substantial part of the evidence in this case relates to

the contention of Commerce and Vantage that the restraint

on transfer clause (Article I, Section 2) of the NMU-

Commerce collective bargaining agreement was the result

of a joint effort by larger shipping companies to somehow

prejudice the smaller companies and reduce competition.

Commerce and Vantage contend that the large companies

were attempting to inhibit free transfer of vessels so as

to keep the contributors to the union pension funds “bound

into the contributing group” (Commerce Post-Trial Brief

p. 28). Moreover, Commerce and Vantage contend that the

large companies were attempting to reduce competition in

certain trade carried on by United States flag vessels.’

Commerce and Vantage allege that, since Article I, Sec-

tion 2 imposed its restrictions only upon sales to a United

* United States intercoastal trade and certain other trade has

been limited by law to United States flag vessels.

4la

Appendia D

States flag operator, the result would be to encourage sales

to foreign flag operators thus reducing the number of

United States flag vessels.

There is no direct evidence that these alleged purposes

were discussed or agreed upon by the larger companies.

Commerce and Vantage assert that their claims of com-

bination or conspiracy on the part of the larger shipping

companies are proved by circumstantial evidence about the

background of the collective bargaining agreement in ques-

tion, and about the methods used in negotiating this agree-

ment.

In the United States maritime industry there are sep-

arate unions representing the unlicensed seamen, the engi-

neers, the deck officers and the radiomen.

There are competing unions for the different categories

of personnel—an example being the NMU and SIU rivalry

respecting unlicensed seamen. In one segment of the United

States shipping industry the companies have contracts

with a particular line-up of unions, as follows:

Category Union

Unlicensed seamen NMU

Engineers Marine Engineers Beneficial

Association (“MEBA”)

Deck officers Masters, Mates and Pilots

(“MMP”)

Radiomen American Radio Association

(“ARA”) *.

Among the shipping companies having contracts with

this group of unions—NMU, MEBA, MMP and ARA—

are companies who have formed certain committees to act

together in bargaining with the unions. One such commit-

42a

Appendiz D

tee is the Tanker Service Committee (“TSC”), which rep-

resents certain large tanker operators. The other committee

is the Maritime Service Committee (“MSC”), which rep-

resents certain non-tanker operators. For many years a

lawyer by the name of Edward Silver has represented both

the TSC and the MSC in negotiations with these unions.

Many companies other than members of the TSC and the

MSC have collective bargaining agreements with this set

of unions. These other companies have been referred to

in this action as the “independents.” Commerce was such

an “independent” tanker company, operating two tankers.

Although the independents are not represented by the TSC

and MSC in any legal sense, the independents have in

practice generally acquiesced in the agreements worked

out by the committees.

In 1961 or thereabouts NMU, MEBA, MMP and ARA

entered into labor contracts which were due to expire in

June 1965. In 1963 NMU agreed with its contract em-

ployers that its agreement would be extended until June

1969, subject to possible “wage reopeners” in 1967 or 1968.

NMU hoped that the other unions would follow, thus creat-

ing some degree of stability in maritime labor relations.

However, this did not occur. When the non-NMU contracts

expired in 1965, there was a strike by MEBA which shut

down a large segment of the shipping industry. One of

the problems was the contention that MEBA was not re-

ceiving benefits granted to MMP.

When the 1965 agreements with MEBA, MMP and ARA

were arrived at, one of the features of these agreements

was what are known as “most favored nation” clauses.

These clauses provided basically that each union would re-

ceive the equivalent of the most favorable treatment given

to another union. The 1965 agreements were to last until

June 1969.

ad —

43a

Appendiz D

The NMU contract, having been entered into prior to

1965, did not have a most favored nation clause.

The most favored nation clauses proved to be highly un-

satisfactory. An arbitration award in favor of one union

would lead to an arbitration proceeding by another union

claiming to be entitled to the benefits conferred upon the

union in the first proceeding.

Moreover, during the 1965-1969 period serious questions

arose regarding the funding of union pension plans. One

problem related to what is called the “past service liability.”

When the union pension funds were established (the

NMU fund was established in 1951), the companies became

liable for contributions, not only for benefits based upon

current services of the employees, but also for benefits

based upon past services—i. e., services performed by em-

ployees prior to the adoption of the pension plan. By the

late 1960’s the companies as a whole were delinquent on

their past service liabilities to the extent of many millions

of dollars.

Subsequent to the conclusion of the 1965 labor contracts,

the ARA obtained an arbitration award directing that the

past service liability of the companies to the ARA pension

plan should be made up in a short period of time—about

five to seven years. This was a cause of severe consterna-

tion to the shipping companies. If the formula decided

upon by the arbitrator with respect to the ARA were to

be applied with respect to other union pension funds, the

burden on the companies would be acute.

Lee Pressman, attorney for the MEBA, proposed a com-

promise. Under his proposal the funding of past service

liabilities would be stretched out to either 15 or 25 years

depending on the relative age of the vessels owned by a

particular company. A company having vessels with an

44a

Appendiz D

average age of more than 20 years would fund its past

service liability over a period of 15 years. A company

having vessels with an average age of less than 20 years

would fund the past service liability over a period of 25

years. It appears that in 1967 this proposal was agreed

upon by the TSC and MSC and also by the group of unions

—NMU, MEBA, MMP and ARA. The evidence is not pre-

cise as to whether the independent shipping companies

agreed. The implication is that they acquiesced in their

normal manner.

Obviously the companies able to stretch their past serv-

ice funding over 25 years would have a somewhat lighter

financial load than the companies required to do the fund-

ing in 15 years. Commerce and Vantage contend that this

was one of the instances in which the larger shipping com-

panies combined to place the smaller companies at an eco-

nomic disadvantage. The idea is that the larger companies

had the newer fleets and dealt themselves the more favor-

able funding treatment.

The weight of the evidence does not support this con-

tention. For instance, United Fruit had a large fleet, but

the age of the fleet was such as to put United Fruit in the

shorter—15 year—funding category. Commerce itself ap-

pears to have been eligible to receive the benefit of the 25-

year furding.

During this period, NMU and MEBA manifested con-

cern about loss of jobs for their members due to discon-

tinued operation of vessels or sale of vessels to companies

not having contracts with these particular unions.

On January 22, 1968, Joseph Curran, president of NMU,

wrote Silver complaining:

“The shipowners have been engaged in the sale and

transfer of vessels and the merger of companies at

GRE thes ty ates

C8 a es svete

45a

Appendiz D

such a rapid rate that new transfer agreements go into

effect before the ink on the old ones is dry.”

The letter stated that this situation prevented “stability” in

the industry and further stated that the union would take

“ .. appropriate action to protect its contracts, the

security of its pension programs, and the rights of our

members and their families to receive the pension

benefits which they have earned.”

NMU took no immediate action. However, MEBA en-

tered into discussions on the subject with Silver. The re-

sult was that in May 1968 MSC and MEBA agreed upon

an amendment to their collective bargaining agreements in

the form of a restraint on transfer clause of the kind which

later became the Article I, Section 2 involved in this action.

In other words the genesis of NMU’s restraint on transfer

clause was the MEBA-MSC contract amendment of May

1968.

In late 1968 and early 1969 the unions and the TSC and

MSC were preparing for the collective bargaining negotia-

tions which would take place in connection with the expira-

tion of the NMU, MEBA, MMP and ARA contracts in

June 1969.

The subject of funding the union pension plan was

under further consideration. Funding of union pension

plans was based upon contributions from the companies.

An individual company would contribute on the basis of

the number of man-days of employment with that company.

If a company scrapped or sold vessels, or if it acquired

more modern vessels requiring less crew, this company’s

man-days of employment would he reduced. The practice

in the industry was to have periodic calculations by actu-

46a

Appendia D

aries as to the amounts of money required to fund the

union pension plans and the number of man-days being

worked, and an assessment of the amount of money per

man-day required to be contributed.

The unions were concerned about the solvency of their

pension plans because of loss of employment—reduction in

man-days—in the United States maritime industry. The

problem related to the entire subject of funding, both past

service and present service liabilities. The concern existed

despite the fact that in theory, even if man-days were re-

duced, solvency of the funds could be insured by actuarial

adjustments increasing the contribution per man-day.

During 1968 and early 1969 NMU, MEBA, MMP and

ARA reached an agreement among themselves that they

would present, as far as possible, common demands to the

shipping companies in the forthcoming 1969 collective bar-

gain negotiations. This was designed to avoid disputes

which had been created by different unions obtaining dif-

ferent benefits. The common bargaining approach was also

designed to do away with the most favored nation clauses,

which were now condemned by both the companies and the

unions.

One of the demands which the unions agreed to make

upon the companies was for guaranteed minimum con-

tributions to the union pension funds. It was also agreed

that each of the unions would request the restraint on

transfer clause which had been obtained by the MEBA

from the MSC in May 1968.

The collective bargaining negotiations opened on April

2, 1969. It had been arranged that these negotiations

would be held on a coordinated basis involving all of the

unions—NMU, MEBA, MMP and ARA. At the opening

session on April 2 representatives of all the unions met

47a

Appendiz D

together with company representatives. Thereafter, at

least for a time, company representatives met with a dif-

ferent union each day on a rotating basis.

Invitations to the negotiations commencing April 2 were

given not only to the TSC and MSC companies but also to

the independents, including Commerce. However, there

was little or no participation by the independents. Com-

merce attended none of the sessions. The effect was that

the negotiations on behalf of all the companies were car-

ried on by the representatives of the TSC and MSC.

The first phase of the negotiations concerned what are

called “economic terms”—referring in general to wages,

overtime rates, pension fund contributions and similar

items. The second phase of the negotiations related to

work rules and other items not covered by the economic

terms.

By July 1969 the economic terms had been worked out.

These terms were incorporated in memoranda of under-

standing relating to the <ifferent unions. Such a memo-

randum, relating to NMU and the tanker companies, was

signed by NMU and the TSC on July 16, 1969. This memo-

randum was sent to Commerce for signature. Commerce

signed and returned it to NMU on July 13, 1969.

Among other things, the NMU-tanker company economic

terms provided that the tanker companies would guarantee

pension fund payments to NMU under a formula which

would provide a minimum of $44 million per year. It ap-

pears that this formula was intended to include both past

service and present service obligations.‘

With regard to the restraint on transfer clause, it was

apparently assumed by all parties to the negotiations that

*The guarantees turned out to be somewhat illusory. By 1972

the companies were behind in their contributions by several million

dollars. NMU forgave the deficiency.

48a

Appendiz D

the clause, which had been adopted by MEBA and the TSC

in May 1968, would be incorporated in all the collective

bargaining agreements being negotiated in 1969. There is

no evidence of any debate or dispute on the subject. J. M.

Calhoon, president of MEBA, wrote a letter to Silver dated

June 25, 1969 “confirming” the purpose of the May 1968

memorandum of understanding as to the restraint on trans-

fer clause as follows:

“The original and continuing purpose of said Memo-

randum is: To preserve the jobs and job rights of the

Company’s engineers covered by our collective bar-

gaining agreement and to protect and maintain the

wages, pension rights and othe reconomic benefits and

working conditions provided such engineers under said

Agreement.”

The restraint on transfer clause was not included in the

July 16, 1969 memorandum of understanding regarding the

NMU-tanker company economic terms. It appears that

this clause was formally agreed upen at some point during

the balance of the contract negotiations, which lasted until

sometime in December 1969.

Subsequent to July 1969, Commerce was sent three other

memoranda of understanding relating to various provi-

sions—on August 5, August 18 and September 30. None

of these dealt with the restraint on transfer clause.

However, the restraint on transfer clause (Article I,

Section 2) was included in the final agreement—the so-

called “Bluebook,” entitled “June 16, 1969-June 15, 1972

Agreement Between Various Tanker Companies and The

National Maritime Union of America, AFL-CIO.” Due to

an oversight by NMU personnel, the companies were not

actually requested to sign the final agreement or any

Cite tie trates lilies 24

49a

Appendix D

memorandum indicating their assent to it. However, the

agreement was put into effect. Commerce made no ob-

jection to the restraint on transfer clause or to any other

provision. Commerce does not deny that it was in fact

a party to the final agreement, although Commerce never

signed it.

It appears that the restraint on transfer clause was in-

cluded in the other union contracts—i.e., MEBA, MMP

and ARA—negotiated in 1969 with both the tanker and

non-tanker companies.

I reject the contention of Commerce and Vantage that

the TSC und MSC, as far as any issue in this case is

concerned, negotiated improperly for the benefit of the

larger companies vis-a-vis the smaller companies such as

Commerce. The restraint and transfer clause was a de-

mand by the unions on all the companies, large and small.

There is no evidence whatever to suggest that the larger

companies promoted the restraint on transfer clause in

any way, or regarded it as a device to benefit them at the

expense of the smaller companies. As to the matter of

maintaining the pool of contributors to the union pension

funds, it is clear that this was one of the reasons why the

unions demanded the restraint on transfer clause from all

the companies. However, there is no evidence that the

larger companies sought the restraint on transfer clause

in order to lock smaller companies into the group of pen-

sion fund contributors. There is also no support in the

evidence for the contention that the restraint clause was

intended to encourage sales to foreign companies, thus

reducing competition in United States flag trade.

Sale of the S.S. Barbara

As of late 1970 Commerce was owned by Vernitron Cor-

poration of Great Neck, New York. The president of Com-

50a

Appendiz D

merce was Milton Pilalas. Herman S. Nathanson became

president of Vernitron in November 1970.

Vernitron decided to discontinue its shipping business

and to sell Commerce’s two vessels—S.S. Thalia and S.S.

Barbara. Nathanson took charge of the arrangements for

the sale of the vessels. Because of disagreements between

Pilalas and Vernitron, Pilalas had little participation in

the dealings relating to the sales of the Thalia and the

Barbara.

Nathanson was assisted by David Cohen, house counsel

and assistant secretary of Vernitron. Vernitron also re-

tained admiralty counsel—Kenneth Simon.

Final negotiations for the sale of the vessels took place

in late December 1970. The prospective purchaser of the

Thalia at this time was Tanker “Four Lakes,” Inc. For

the Barbara, it was Vantage Steamship Corp. The pres-

ident of Vantage was Philip Corletta.

Simon was familiar with the restraint on transfer clause

in the union agreements. The contract for the sale of the

Thalia to Tanker “Four Lakes” contained a paragraph

complying with that clause—t.e., requiring the continua-

tion of the same unions. This clause apparently presented

no problem to Tanker “Four Lakes.”

Simon prepared a draft contract for the sale of the

Barbara to Vantage. This draft contained a paragraph

about continuation of unions.

On December 22, 1970 the representatives of Vernitron—

Nathanson, Cohen and Simon—met with Corletta of Van-

tage. In the midst of discussing various matters, there

was a brief mention of the union continuation clause. Cor-

letta said that the clause must be eliminated because Van-

tage was an SIU company. Nathanson or Simon asked

about a possible union problem for Commerce. Corletta

ne ee ee ee

5la

Appendix D

replied that after the vessel was delivered this would be

Corletta’s problem.

The contract for the sale of the S.S. Barbara by Com-

merce to Vantage was signed December 23, 1970. It did

not contain a uniop continuation clause. The vessel was to

be delivered on or before February 28, 1971, although the

time could be extended for certain specified reasons, or

for any reason beyond Commerce’s control, to April 4,

1971. The contract would be extended even after that date

if Vantage did not give notice of cancellation.

Events Subsequent to Sale

A public announcement of the sales of the Thalia and

the Barbara by Commerce was made on December 28, 1970.

Word of the sales was picked up by NMU shortly there-

after. There apparently was no problem from NMU’s

standpoint regarding the Thalia. However, NMU was con-

cerned about the Barbara being transferred to an operator

under contract with SIU. On January 7, 1971 Mel Barisic

of NMU called Pilalas of Commerce to inquire about the

sale. On January 11 Barisic sent a letter to Commerce

asking what steps would be taken to comply with Article I,

Section 2 of the Commerce-NMU contract. On January 13

Pilalas responded by letter stating that he had no reason

to believe that the same unions would not be continued

on the Barbara following the sale.

At about this time, an NMU lawyer spoke to Corletta

of Vantage on the telephone, requesting an undertaking

from Vantage that Article I, Section 2 would be complied

with. Corletta refused to give such assurance.

On January 25, 1971 NMU made a demand for arbitra-

tion of its rights under Article I, Section 2 respecting the

sale of the Barbara. This resulted in the arbitration held

52a

Appendix D

February 8 before Arbitrator Kheel and his decision in

favor of NMU, all as described earlier in this opinion.

In the earlier portion of this opinion entitled “Prior

Proceedings” I have described the main features of the

complex litigation which occurred during 1971-1973. Cer-

tain other details must be added. These relate particularly

to questions about (1) the frustration of the sale of the

Barbara to Vantage and of a charter which Vantage had

obtained for the Barbara; (2) the fixing of the injunction

bond by Judge Frankel; and (3) the timeliness of the ap-

pellate remedies sought by Commerce and Vantage.

On the same day the arbitration occurred—February 8,

1971—Vantage entered inio an agreement with Standard

Oil of California (“SoCal”) to charter the Barbara to

SoCal for one year commencing some time between Feb-

ruary 15 and March 5, 1971.

As stated earlier, NMU sued in this court on February

9, 1971 to obtain enforcement of Arbitrator Kheel’s award

of February 8.

At the time the complaint was filed, NMU presented an

order to show cause for a hearing on a preliminary injunc-

tion motion to restrain the sale of the Barbara in violation

of Article I, Section 2. Judge Wyatt signed the order to

show cause setting the hearing on the preliminary injunc-

tion motion for February 16. The order to show cause also

contained a temporary restraining order. Judge Wyatt

fixed the amount of the bond for the TRO as $10,000.

On February 10 NMU and Commerce agreed to adjourn

the hearing to February 23 and agreed that the TRO would

remain in effect.

On February 11 NMU posted the required $10,000 bond.

Under the terms of the bond the surety undertook

ae eS See eee oe

PUN ie eT a 2a AT On tbe >

53a

Appendix D

“.. that the Plaintiff [NMU] will pay to the Defen-

dant [Commerce Tankers Corporation] so enjoined,

such damages not exceeding the sum of Ten Thousand

and No/100 ($10,000) as it may sustain by reason of

the injunction, if the Court shall finally decide that the

Plaintiff was not entitled thereto; such damages to be

ascertained by a reference, or otherwise as the Court

shall direct.”

On February 18 Commerce filed papers supporting Van-

tage’s motion to intervene which had heen filed February 16.

Commerce also opposed NMU’s motion for a preliminary

injunction and requested that the TRO be vacated, or in

the alternative asked that NMU be required to post a bond

in the amount of $2,750,000 to cover Commerce’s potentia!

loss of the ship sale and an additional bond to cover Van-

tage’s potential loss of the SoCal charter.

Following a hearing on February 18, Judge Wyatt

handed down a memorandum on February 19 granting Van-

tage’s motion to intervene and holding that the temporary

restraining order should be dissolved on condition that a

bond be posted to cover contributions to the NMU pension

fund. On February 22 Judge Wyatt signed an order based

on that memorandum and fixing the amount of the bond

as $278,361.

Commerce and Vantage agreed that each would provide

half of this bond. Commerce arranged for its half. Van-

tage failed to provide its half.

The preliminary injunction motion was heard on Feb-

ruary 23 by Judge Frankel. On that day he orally restored

the TRO. On February 24 Judge Frankel signed an order

continuing the TRO on the basis of a $10,000 bond posted

54a

Appendiz D

by NMU. On February 25 Judge Frankel signed a revised

TRO, again fixing the bond at $10,000.

Judge Frankel’s decision of March 2, holding that a pre-

liminary injunction should issue prohibiting the sale of the

Barbara in violation of Article I, Section 2, further held

that the $10,000 amount of the TRO bond would be suffi-

cient for the preliminary injunction. Judge Frankel stated

that in his view the protestations of Commerce and Van-

tage regarding threatened financial loss were not impres-

sive. Judge Frankel noted that Commerce and Vantage had

simply ignored the Article I, Section 2 provision, and had

made their contract without seeking a timely test before a

court or arbitrator.

Judge Frankel’s preliminary injunction of March 4 con-

tained the provision:

“OrpeRED, that Plaintiff shall post a bond in the

amount of Ten Thousand ($10,000.00) Dollars for the

payment of such costs and damages as defendant may

be found to have incurred should it hereafter be deter-

mined that this injunction was wrongfully issued.”

Apparently none of the parties, in submitting proposed

orders to Judge Frankel, considered the possible need to

delineate the rights of Commerce and Vantage with respect

to the bond or bonds. In any event, the caption of the order

refers to Commerce as “Defendant” and Vantage as “In-

tervening Defendant.” The paragraph in the order dealing

with the bond refers only to a singular “defendant,” which,

literally read, would mean Commerce. In any event, no

other bond was ever filed than the $10,000 bond filed in

the TRO. The sole beneficiary of this bond is Commerce.

March 5, 1971 was the original deadline for delivery of

the Barbara by Vantage to SoCal on the charter. This

55a

Appendiz D

deadline was orally extended. During the subsequent pe-

riod of time there were intensive discussions regarding

possible mechanisms for carrying out the SoCal charter

for the Barbara. Vantage finally agreed that Commerce

could charter the Barbara to SoCal, with Vantage reserv-

ing its right to sue Commerce for non-delivery of the vessel,

and for profits derived from the charter. However, SoCal

refused to accept this proposal and on March 11 notified

Vantage that it considered the charter canceled. SoCal’s

cancellation was the result of complications regarding the

injunction and union problems. The evidence shows that

at least through the end of March SoCal would have char-

tered the Barbara if these problems had been resolved.

On March 12, 1971 Commerce requested Vantage to free

Commerce to sell the Barbara to another buyer. This

request was without prejudice to any alleged damage claims

of Vantage. It is clear that, following the cancellation of

the SoCal charter, Vantage did not in fact wish to proceed

with the purchase of the Barbara, at least at the contract

price of $2,750,000. However, until May 26, 1971, Vantage

continued to formally insist upon the delivery of the Bar-

bara in order to preserve Vantage’s legal rights.

On March 18 Commerce obtained an order to show cause,

returnable March 23, for a resettlement of Judge Frankel’s

order of March 4. The proposed revision was a paragraph

stating that Commerce was free to sell the Barbara to a

purchaser other than Vantage, who could comply with

Article I, Section 2. On March 24 Judge Frankel denied

this application.

As described earlier, Commerce at this time was involved

in arbitration proceedings against Vantage under the aegis

of the state court. Also, commencing in late May there was

an NLRB proceeding, resulting in an action in the federal

56a

Appendia D

court to obtain a preliminary injunction against NMU

under 29 U.S.C. § 160(1), which was denied by Judge Croake

on June 4, 1971.

However;Commerce and Vantage had a right of imme-

diate appeal from Judge Frankel’s injunction of March 4.

The chronology which is now set forth shows that Com-

merce and Vantage chose not to prosecute this appeal on

any urgent basis.

No notices of appeal were filed until Vantage did so on

April 1 and Commerce on April 2. Commerce filed the rec-

ord on appeal with the Second Circuit on May 12 and

obtained an extension for filing its brief until June 20.

On June 17 Commerce obtained another extension to July

20. On July 19 Commerce obtained a third extension to

August 20, 1971.

On July 20 Commerce filed a motion in the Court of Ap-

peals requesting that the preliminary injunction of Judge

Frankel be suspended, modified or dissolved, or, in the

alternative, that the bond required to be posted by NMU

be increased to $2,750,000. On August 17 Commerce ap-

plied for an extension of another 60 days to file its brief.

This proposed extension would have lasted until October 19,

1971.

On August 18 the Court of Appeals (Judges Feinberg,

Mulligan and Timbers) denied the motion to vacate or

amend the injunction and denied the request to increase

the bond to $2,750,000. The court ordered that the appeal

be expedited and that all briefs should be filed on or before

September 29, 1971 with a hearing the week of October 4,

1971. This schedule was complied with.

As already described, the Court of Appeals considered

together Judge Frankel’s granting of the preliminary in-

junction in favor of NMU and Judge Croake’s denial of

MRE ite es “tails .

57a

Appendix D

a preliminary injunction against NMU in the NLRB action.

The Court of Appeals reversed both rulings on March 22,

1972, by which time the proposed sale of the Barbara to

Vantage and the charter of the Barbara to SoCal were

no longer feasible.

Neither Commerce nor Vantage made any attempt to

obtain immediate or accelerated action by the Court of

Appeals—either by motion for a stay, motion for an in-

creased bond or swift prosecution of their appeal. Com-

merce’s motion to suspend Judge Frankel’s injunction or

to increase the amount of the bond was not filed until 41%4

months after the entry of the injunction. Due to Com-

merce’s repeated requests for extensions of time for filing

its brief, the appeal was not heard until seven months after

the date of the injunction, and the hearing would have

been delayed further had it not been for the deadline

imposed by the Court of Appeals.

There is every reason to believe that, had Commerce and

Vantage proceeded immediately in the Court of Appeals,

they could have obtained expedited review. The viability

of the transactions involving the sale and charter of the

Barbara was clearly threatened by any appreciable delay.

It is diffienlt to believe that the Court of Appeals would

have ignored this. Exactly what response the court would

have made to a request for immediate appellate action

cannot, of course, be known. But Commerce and Vantage

never attempted to obtain such relief.

It should be noted that in August 1971 Commerce

had discussions through a broker regarding a possible

sale of the Barbara to a company called Northeast Petro-

leum Company, for foreign flag operation. Northeast at

first offered $1.3 million and then reduced its offer to

$1 million. Northeast asked Commerce to obtain a letter

58a

Appendiz D

from NMU stating that NMU would not strike North-

east’s United States facilities if Northeast bought the ship

for foreign flag operation. Counsel for NMU supplied a

letter which made no express concessions, but stated “the

collective bargaining agreement is self-explanatory.” The

sale to Northeast Petroleum did not go through. To the

extent that Commerce claims that NMU is responsible, I

reject this argument. Certainly there is nothing in Article

I, Section 2 which in any way prevented the sale of the

Barbara to Northeast Petroleum.

Conclusions of Law

The Labor Statutes

At an earlier point in this opinion I summarized the

arguments of Commerce and Vantage in support of their

claims for damages under Section 303 of the Labor Man-

agement Relations Act, 29 U.S.C. § 187, and Section 8(b)

(4) of the National Labor Relations Act, 29 U.S.C.

§ 158(b)(4). I reject each of these arguments and hold

that neither Commerce nor Vantage has a valid claim

under these provisions.

The argument that NMU coerced Commerce into enter-

ing into the collective bargaining agreement containing the

restraint on transfer clause is contrary to the facts. Com-

merce was content to have the TSC representatives, who

had the maximum bargaining power, negotiate on its be-

half. Commerce declined the invitation to participate in

the negotiations, and took no exception to the terms agreed

to by its de facto representatives. The practical necessi-

ties of this type of bargaining do not constitute the type

of coercion requisite for a violation of Section 8(b)(4).

ee ee es

at res &

F hie table 6 pte Bata tg her OP OP He. ee ee Ot

Se ee ee hes

59a

Appendiz D

I also reject the argument that the strike threat con-

tained in Article I, Section 2 exerted coercion and force

on Commerce and Vantage, causing the frustration of the

sale of the Barbara to Vantage and the charter of the

Barbara to SoCal. These arguments have no factual sup-

port. The strike provision in Article I, Section 2 did not

prevent Commerce from making the agreement for the

sale of the Barbara to Vantage. When it came to enforcing

Article I, Section 2, NMU did not strike or threaten to

strike. NMU went to arbitration and then to court. As to

the SoCal charter, this was frustrated as a result of the

preliminary injunction and the impatience of SoCal with

the legal complications with NMU. SoCal did not cancel

because of any coercion from a strike threat.

The final argument under Section 8(b)(4) advanced by

Commerce and Vantage is that NMU restrained Com-

merce and forced Commerce to cease doing business with

Vantage, by obtaining the preliminary injunction from

Judge Frankel.

The Fifth Cireuit Court of Appeals has analyzed the

statute and legislative history, and has held that resort

to a court for a judicial remedy is not coercion within the

meaning of Section 8(b)(4). Local Union No. 48 v. Hardy

Corp., 332 F.2d 682 (5th Cir. 1964). The court stated (p.

686) :

_ “We believe that the Congress used ‘coerce’ in the

section under consideration as a word of art, and

that it means no more than nonjudicial acts of a com-

pelling or restraining nature, applied by way of con-

certed self help consisting of a strike, picketing or other

economic retaliation or pressure in a background of a

60a

Appendia D

labor dispute. Our view is supported by the legislative

history.”

On the basis of this well-reasoned authority, I reject the

contention that NMU violated Section 8(b)(4) by seeking

and obtaining a preliminary injunction.

Sherman Act

I have already found against the factual contentions of

Commerce and Vantage regarding an alleged combination

or conspiracy by the larger shipping companies to enhance

their financial and competitive position. However, this

leaves open the question as to whether the restraint on

transfer clause in the collective bargaining agreement

amounted to a per se violation of Sherman Act $1. This,

in turn, raises another question as to whether the restraint

on transfer clause is exempt from the federal antitrust

laws.

Both of these issues involve difficult and complex ques-

tions of law. The exemption problem depends upon the

application of the recent Supreme Court decision in Con-

nell Construction Co. v. Plumbers and Steamfitters Union

No. 100, 421 U.S. 616, 95 S.Ct. 1830, 44 L.Ed.2d 418 (1975),

and earlier decisions, particularly United Mine Workers v.

Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626

(1965), and Meat Cutters Local 189 v. Jewel Tea Co., 381

U.S. 676, 85 S.Ct. 1596, 14 L.Ed.2d 640 (1965). The per se

violation question also presents numerous problems.

It is inappropriate and unnecessary for me to decide

these questions. Even if Article I, Section 2 were held

to violate Sherman Act §1, under the facts of this case I

would necessarily hold that such violation was not the prox-

ee ee ee Cee ee

Oe ee 2 eee

dl ee ee uk le ’ o

6la

Appendix D

imate cause of the injuries sustained by Commerce and

Vantage.

NMU took no action to implement or enforce Article I,

Section 2 other than to seek a determination of its legal

rights by arbitration and by resort to this court. Prior to

NMU’s commencement of litigation, Article I, Section 2 had

not deterred Commerce or Vantage in any way. The provi-

sion had simply been ignored.

The proximate cause of the delay and final frustration of

the S.S. Barbara transactions was the preliminary injunc-

tion issued by Judge Frankel in a case admittedly involving

close and difficult questions of law. The problem created by

the injunction was compounded by the long delay of Com-

merce and Vantage in seeking an appellate remedy.

There can be no recovery in this case on any theory of

antitrust violation. Commerce and Vantage can recover

only to the extent permitted by the specific rules relating

to injuries suffered as a result of the granting of an in-

junction.

Remedy Regarding Injunction

Rule 65(c) of the Federal Rules of Civil Procedure pro-

vides :

“(e) Security. No restraining order or preliminary

injunction shall issue except upon the giving of security

by the applicant, in such sum as the court deems

proper, for the payment of such costs and damages as

may be incurred or suffered by any party who is found

to have been wrongfully enjoined or restrained. No

such security shall be required of the United States or

of an officer or agency thereof.”

62a

Appendiz D

There has been some divergence of view as to the

rights, if any, of a party to recover damages for injury

resulting from a preliminary injunction later determined to

have been erroneously issued. The resolution of the problem

by the majority of the courts, both before and after the

adoption of Rule 65(c) is as follows. In the absence of

malicious prosecution, the seeking of injunctive relief is not

a tort. However, a party obtaining a preliminary injunction

may be required, as a condition of obtaining the injunction,

to provide a bond or other undertaking to indemnify the

defendant for injuries resulting from the injunction, if the

injunction is later overturned. In such a case recovery by

the injured party is limited to the amount of the bond or

undertaking. Associated General Contractors v. Illinois

Conference of Teamsters, 486 F.2d 972, 975, n. 6 (7th Cir.

1973) ; United Motors Service, Inc. v. Tropic-Aire, Inc., 57

F.2d 479, 483 (8th Cir. 1932); 7 J. Moore, Federal Practice

{ 65.10[1], at 65-98 (2d ed. 1975); Note, Recovery of Dam-

ages on Injunction Bonds, 32 Colum.L.Rev. 869, 871 (1932).

The Court of Appeals for the Second Circuit summarized

the rule as follows (Judge Learned Hand, joined by Judges

Augustus Hand and Chase) :

“Any one who acts honestly and does not subject him-

self to a charge of malicious prosecution is as free

from liability in invoking the action of a court as the

court itself, and what he does under its order is not a

wrong. The party aggrieved has no remedy except in

so far as the court may have protected him by bond or

otherwise, as a condition upon the order, and as secu-

rity against its own errors.” In Re Spencer Kellogg &

Sons, 52 F.2d 129, 135 (2d Cir. 1931).

a ale Soa Bite Sea” ditt"

63a

Appendia D

Under this rule, the maximum liability of NMU with

respect to the preliminary injunction is the amount of the

$10,000 bond. As already described, this bond runs solely

in favor of Commerce.

I have not made detailed findings with respect to the

damages of Commerce resulting from the injunction. How-

ever, it is clear that such damages are in excess of $10,000.

I hold that Commerce is entitled to judgment against NMU

for $10,000 in 71 Civ. 582.

Since there is no bond in favor of Vantage, I hold

that the complaint of Vantage in 72 Civ. 4619 must be dis-

missed. Benz v. Compania Naviera Hidalgo, S.A., 205 F.2d

944, 948 (9th Cir.), cert. denied, 346 U.S. 885, 74 S.Ct. 135,

98 L.Ed. 389 (1953).

Commerce and Vantage assert that the preliminary

injunction was entered under Section 7 of the Norris-La-

Guardia Act, 29 U.S.C. § 107, and that damages in excess

of the bond are recoverable wader this statute, citing the

Third Cireuit decision in United States Steel Corp. v.

United Mine Workers, 456 F.2d 483 (2d Cir.), cert. denied,

408 U.S. 923, 92 S.Ct. 2492, 33 1..Bid.2d 334 (1972). No ex-

tensive discussion of this point is necessary. In the pro-

ceedings before Judge Frankel, there appears to have been

no reference to Section 7 of th Norris-LaGuardia Act.

Both Commerce and Vantage, in their papers filed at the

time, treated the application for preliminary injunction as

being under Fed.R. Civ.P. 65. In any event, the weight of

authority is contrary to the Third Cireuit view, and holds

that Norris-LaGuardia Act {7 does not depart from the

common law rule limiting recovery to the amount of the

injunction bond. Associated General Contractors vy. Illinois

Conference of Teamsters, 486 F.2d 972, 975 (7th Cir. 1973) ;

64a

Appendiz D

Int’! Ladies’ Garment Workers’ Union v. Donnelly Gar-

ment Co., 147 F.2d 246, 252-53 (8th Cir.), cert. denied, 325

U.S. 852, 65 S.Ct. 1088, 89 L.Ed. 1972 (1945). See also Hoh

v. Pepsico, Inc., 491 F.2d 556, 560 (2d Cir. 1974); Detroit

Newspaper Pub. Ass’n vy. Detroit Typographical Union No.

18, 471 F.2d 872, 876 (6th Cir. 1972), cert. denied, 411 US.

967, S.Ct. 2149, 36 L.Ed.2d 687 (1973).

Miscellaneous Claims

The foregoing discussion is sufficient to dispose of the

claim of Commerce and Vantage that NMU induced the

breach of the contract for the sale of the Barbara. In other

words, the answer to this claim is that the proximate canse

of the asserted injuries was the preliminary injunction,

and the remedy of Commerce and Vantage is limited to the

injunction bond.

Vantage’s contention that it is entitled to damages

because NMU violated New York’s Donnelly Anti-Trust

Act can be disposed of on the basis of the clear holding in

Connell Construction Co. v. Plumbers and Steamfitters

Union No. 100, 421 U.S. 616, 635-37, 95 S.Ct. 1830, 1841-42,

44 L.Ed.2d 418, 433-34 (1975), that, even if there is no

exemption from federal antitrust laws, there could be no

application of state antitrust laws in a setting such as the

present case.

With respect to NMU’s contention that all claims of

Commerce and Vantage are barred by the 1973 settlement

between these parties, I reject this defense. The releases

exchanged between the parties expressly reserved the

rights of Commerce and Vantage against NMU.

ME AMO Be AANA

ee ee

Os el ew barr 2

BOUNCER rin I EE RN

65a

Appendix D

Conclusion

The counterclaims of Commerce against NMU in 71 Civ.

582 are dismissed, except that Commerce is entitled to

judgment against NMU on the second counterclaim in the

amount of $10,000.

The complaint of Vantage in 72 Civ. 4619 is dismissed.

No costs are awarded as against any party.

NMU is directed to submit appropriate judgments.

So ordered.

66a

Appendix E

(Opinion of Court of Appeals)

UNITED STATES COURT OF APPEALS

Tentu Circuit

Nos. 76-1227 and 76-1228

ApvotpH Coors Company,

Plaintiff-Appellee, Cross-Appellant,

A & S Wuotesaters, Inc.,

Defendant-Appellant, Cross-Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLORADO

(D.C. No. C-4700)

Submitted: March 16, 1977

Leo N. Braputey of Bradley, Campbeil and

Carney, Golden, Colorado, for Plaintiff-

Appellee, Cross-Appellant Coors.

TAME i ore il teatro 2 pallet eae

0 ha Ww bOI oe ee

Pele, fe”

Oe ne ae Se ee

67a

Appendia E

Ricuarp E. Tuicrpen of Thigpen and Hines,

Charlotte, North Carolina, and Irvin M.

Kent, Denver, Colorado, for Defendant-

Appellant, Cross-Appellee A €& 8S.

Before:

Sern, Barrett, Circuit Judges, and

Kerr,* District Judge.

Barrett, Circuit Judge.

This suit was initiated by Adolph Coors Company

(Coors), a Colorado corporation, on January 19, 1973, to

enjoin A & S Wholesalers, Inc. (A & S), a North Carolina

corporation, from purchasing Coors beer in Colorado from

Colorado retailers and transporting it to North Carolina

for resale to retail outlets.

Following a February 16, 1973, hearing, a Preliminary

Injunction was entered enjoining A & S from obtaining

Coors beer from Colorado retail outlets and transporting

it to North Carolina for resale to wholesalers or retailers

there. On June 5, 1973, A & S filed an Amended Answer

and Counterclaim alleging that Coors, Coors Distributing

Company and other persons unknown had combined and

conspired to impose customer and territorial restrictions

upon independent distributors, wholesalers and retailers in

the sale of Coors .. A & S prayed for damages and

injunctive relief, alleging that Coors had violated §§ 1 and 2

of the Sherman Act, 15 U.S.C.A. §§1 and 2. The case was

tried to the court following extensive and voluminous dis-

covery consisting of depositions, affidavits and various

* Of the District of Wyoming, sitting by designation.

68a

Appendia E

and sundry documents. The evidence was essentially un-

controverted. On February 28, 1975, the court entered its

Amended Memorandum Opinion and Order which (a)

dismissed the Coors complaint and dissolved the prelim-

inary injunction, (b) dismissed the A & S counterclaim

insofar as it sought damages based on Coors’ prosecution

of the instant lawsuit, and (c) decreed that the A & S coun-

terclaim based on Coors’ alleged territorial and customer

restrictions states a claim upon which relief may be

granted. The aforesaid counterclaim was thereafter tried

to a jury of six which found in favor of Coors on Jan-

uary 16, 1976. Judgment was subsequently entered on the

verdict dismissing the A & S counterclaim. Both parties

appeal.

We withheld and/or postponed any decision in this ap-

peal until the United States Supreme Court had rendered

a decision in the case of Continental T.V., Inc., et al. v.

GTI Sylvania, Incorporated, No. 76-15, on Writ of Certi-

orari to the United States Court of Appeals for the Ninth

Circuit. That decision was handed down on June 23, 1977,

reported in 45 U.S.L.W. 4828, —— U.S. . The Supreme

Court there expressly overruled the so-called Schwinn per

se rule announced in United States v. Arnold, Schwinn &

Co., 388 U.S. 365 (1967), which this court applied in Adolph

Coors Co. v. F.T.C., 497 F.2d 1178 (10th Cir. 1974), cert.

denied, 419 U.S. 1105 (1975). In a footnote, the Supreme

Court observed that in our 1974 decision we had urged the

Supreme Court “. . . to consider the nced in this area for

greater flexibility.” 45 U.S.L.W. 4831. In that respect we

said: “Although we are compelled to follow the Schwinn

pe’ se rule rendering Coors’ territorial restrictions on re-

sale illegal per se, we believe that the per se rule should

yield to situations where a unique product requires terri-

69a

Appendix E

torial restrictions to remain in business . . . Perhaps the

Supreme Court may see the wisdom of grafting an excep-

tion to the per se rule when a product is unique and the

manufacturer can justify its territorial restraints under the

rule of reason. White Motors Co. v. United States, 372 U.S.

253...” 497 F.2d at 1187. We hasten to observe that we

did not there hold that the Coors territorial restraints

were in fact justified under the rule of reason. That issue

was not before us. In any event, denial of certiorari by

the United States Supreme Court imports no expression

of opinion on the merits. Sunal v. Large, 332 U.S. 174

(1947).

We are required to test the contentions on appeal—to

the extent directly applicable—measured by the law “. . . in

effect at the time it [the appellate court] renders its deci-

sion, unless doing so would result in manifest injustice or

there is statutory direction or legislative history to the

contrary.” Bradley v. Richmond School Board, 416 U.S.

696, 711 (1974); United States v. Alabama, 362 U.S. 602

(1960) ; Mustang Fuel Corp. v. Youngstown Sheet & Tube

Company, 516 F.2d 33 (10th Cir. 1975); Chicago, Rock

Island & Pacific Railroad Company v. Hugh Breeding, Inc.,

247 F.2d 217 (10th Cir. 1957), dismissed, 355 U.S. 880

(1957); Lytle v. Commissioners of Election of Union

County, 541 F.2d 421 (4th Cir. 1976), U.S. appeal pendg.;

Parrish v. Board of Commissioners of Alabama State Bar,

524 F.2d 98 (5th Cir. 1975), cert. denied, —— U.S. ——;

Ybarra v. City of San Jose, 503 F.2d 1041 (9th Cir. 1974) ;

21 C.J.S., Courts, §194. Applying this rule, we are guided

on appeal by the law announced in Continental T.V., Inc.,

supra,

The Supreme Court in Continental T.V., Inc., et al. v.

GTE Sylvania Incorporated, supra, held in pertinent part:

70a

Appendia E

We conclude that the distinction drawn in Schwinn

between sale and nonsale transactions is not sufficient

to justify the application of a per se rule in one situa-

tion and a rule of reason in the other. The question

remains whether the per se rule stated in Schwinn

should be expanded to include nonsale transactions or

abandoned in favor of a return to the rule of reason,

We have found no persuasive support for expanding

the rule. ...

We revert to the standard articulated in Northern

Pac. R. Co. [Northern Pac, R. Co. v. United States,

356 U.S. 1 (1958)] and reiterated in White Motor

[White Motor Co. v. United States, 372 U.S. 253

(1963)], for determining whether vertical restrictions

must be “conclusively presumed to be unreasonable

and therefore illegal without elaborate inquiry as to

the precise harm they have caused or the business

excuse for their use.” 356 U.S,, at 5... . Certainly,

there has been no showing in this case, either generally

or with respect to Sylvania’s agreements, that vertical

restrictions have or are likely to have a “pernicious

effect on competition” or that they “lack... any re-

deeming virtue.” Accordingly, we conclude that the

per se rule stated in Schwinn must be overruled. In

so holding we do not foreclose the possibility that par-

ticular applications of vertical restrictions might jus-

tify per se prohibition under Northern Pac, R. Co.

But we do make clear that departure from the rule

of reason standard must be based upon demonstrable

economic effect rather than—as in Schwinn—upon

formalistic line drawing.

45 U.S.L.W., at pp. 4833, 4834,

7la

Appendix E

To the extent, then, that the law announced in Con-

tinental T.V., Inc., supra, applies to the facts and cireum-

stances contained in the record on appeal, we will dispose

of those issues; otherwise the case must be remanded for

further proceeding.

A & 8 appeals from the judgment dismissing that por-

tion of its counterclaim based upon Coors’ prosecution of

the instant lawsuit and from the verdict and judgment

relating to that portion of the counterclaim tried to the

jury. A & S alleges that the trial court erred, especially

in its failure to instruct the jury that the acts of Coors

complained of constituted a per se violation of the Sherman

Antitrust Act.

Coors cross-appeals from the trial court's denial of its

Motion for Directed Verdict and from the award to A & 8

_ of $7,500.00, representing costs and damages pursuant to

Coors’ bonds posted upon its application for injunctive

relief in that identical amount.

A recitation of the factual background, largely undis-

puted, should aid in our disposition of the legal issues

presented,

Coors owns and operates a single brewery at Golden,

Colorado, from which it produces and markets a beer

product which is in great national demand. Coors is pres-

ently the fourth largest brewery in terms of national con-

sumption even though it has historically limited its ter-

ritorial marketing area to ten and one-half of the western

states. Its brewery has produced at full capacity for years

but, even so, there have been many occasions when the

demand has outstripped production.

Coors markets its beer products through some 167 in-

dependent wholesale distributors in the established mar-

keting area, where it enjoys an average market penetra-

72a

Appendia EF

tion of about 36.40 percent, notwithstanding that its beer

products retail for substantially higher prices than its

major competitors. Coors has steadfastly maintained that

the quality of its beer is the result of its unique brewing

and distributing process, which requires refrigeration.

Coors is the only “shipping” brewery, in that it ships all

of the beer brewed at its plant in Golden to the various

distributors in refrigerated units. The beer is made by the

aseptic brewing process which requires refrigeration. In

order to maintain the quality of its product, Coors re-

quires that its distributors adhere to a program which

requires refrigeration controls and proper and regular

rotation. Coors representatives regularly monitor the pro-

gram in order to “protect the integrity” of the Coors

product. These standards are spelled out in the Coors

Distributorship Contract and Policy Manual, Coors has

established and maintained “vertical” restrictions on its»

marketing territory within which its beer products may be

sold in order to guarantee their “integrity.”

A & S is a North Carolina wholesaler licensee, Its

agents and representatives traveled from North Carolina

to Colorado where they purchased large quantities of

Coors beer (hundreds of cases) from John Schultz, a

Colorado retail licensee operating from a store in Denver,

Colorado. Schultz had obtained a North Carolina non-

resident liquor wholesaler’s permit on December 27, 1972,

but at no time did he hold a federal basic beer whole-

saler’s permit. A & S purchased the beer from Schultz

at or near the Colorado retail prices. It sold the beer, fol-

lowing its delivery to Charlotte, North Carolina, at a sub-

stantially increased retail price. A & 8 actively assisted

Schultz in obtaining the North Carolina permit, which was

necessary under the law of that State in order to supply

a lin a NE tt lle Or lt es A

73a

Appendia E

the A & S operation, This involved, inter alia, securing

state approval of the Coors label and product, all with-

out Coors’ authorization or consent. When Coors became

aware of the arrangement between A & S and Schultz, it

initiated this suit.

We will first consider the contentions raised on appeal

by A & 8. To the extent that our discussion “flows over”

involving Coors’ cross-appeal we will relate to the same

factual settings.

The A & S Contentions

A &8 contends that the trial court erred in (1) failing

to find and/or conclude as a matter of law, that Coors’

filing and continued prosecution of this suit, including the

filing of its cross-appeal, was a part of its firm and reso-

lute effort to enforce its illegal territorial restrictions on

the resale of its beer products, after it had parted with

title, risk and dominion over them, in violation of Section 1

of the Sherman Act, as sham litigation, (2) failing to in-

struct the jury that Coors’ efforts at firm and resolute

enforcement of territorial restrictions on the resale of its

products constituted a per se violation of Section 1 of the

Sherman Act, and (3) limiting the damages recoverable

by A & S Wholesalers, Inc. as a result of the wrongful

granting of the Temporary Restraining Order and the

Preliminary Injunction to $7,500.00, representing the exact

amount of the bonds posted by Coors.

(1)

When Coors filed the instant suit on January 19, 1973,

it had steadfastly maintained that it had an absolute and

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Appendia E

unqualified right to not only determine the area within

which its beer products were to be marketed, but the right

to impose certain controls over the products, following

sale, then in the hands of the wholesalers and retailers in

order “to protect the quality and integrity” of the prod-

ucts, Such was the Coors contention when the trial court

issued the preliminary injunction, Our opinion in Adolph

Coors Company v. Federal Trade Commission, supra, had

not then been rendered, While that case involved Coors’

competitive restrictions imposed on wholesalers within

Coors’ fixed marketing area and did not, as the trial court

correctly observed, involve the use of restrictions to limit

the marketing of its beer products to that area, still the

decision was firmly anchored to United States v, Arnold

Schwinn & Co., supra: We held that the Schwinn per se

rule rendered Coors’ territorial restrictions on resale il-

legal per se on the basis that once the manufacturer

(Coors) “,.. has parted with title and risk, he has parted

with dominion over the product, and his effort thereafter

to restrict territory or persons to whom the product may

be transferred—whether by explicit agreement or by silent

combination or understanding with his vendee—is a per se

violation of the Sherman Act.” 388 U.S. at 382 quoted at

497 F.2d at 1186.

The district court correctly noted that prior to our deci-

sion above referred to, “. . . there was some authority

that consideration of potential manufacturer liability to

consumers and public safety would exempt from the

Schwinn rule of per se illegality restraints on alienation of

some types of products.” [Cases cited.] [R., Vol. XXVIII,

p. 285.)

The trial court rejected the A & S allegations that Coors

instituted the instant lawsuit without probable cause in

75a

Appendix E

order to suppress competition in violation of the antitrust

laws as proscribed in California Motor Transport v, Truck-

ing Unlimited, 404 U.S. 508 (1972). There allegations had

been made that certain motor carriers had conspired to

monopolize by means, inter alia, of harassing judicial pro-

ceedings, The Court there recognized that the use of judi-

cial or administrative processes under the pretense of ob-

taining a favorable decision may, in fact, be a sham if the

true purpose is that of unlawfully interfering directly with

the lawful business pursuits of a competitor, We agree

with the trial court’s finding that A & S has failed to prove

that Coors initiated and pursued the instant action as a

“sham.” We concur that Coors proceeded in a “genuine

attempt to secure a

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