Petition — Flex-a-Lite Corp. v. Schwitzer Division, Wallace-Murray Corp.

et

Supreme Court, U,

FILED

FEB 24 1979

[IGAAR. BODAK. JR., CLERK

In the Supreme Court of the

United States

Ocroser Term, 1978

Motown Recorp CorporaTion,

Petitioner,

vs.

Jack SoLinGcer,

Respondent.

Petition for Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit

Kurt W. MeLcHior

One Embarcadero Center, 25th Floor

San Francisco, California 94111

Telephone: (415) 398-3344

Counsel for Petitioner

Severson, Werson, Berke & MELCHIOR

Tuomas G. Woop

Lawrence A. Hose

Of Counsel

SORG PRINTING COMPANY OF CALIFORNIA, 346 FIRST STREET, SAN FRANCISCO 84108

INDEX

Opinion Below 1

Jurisdiction 2

Questions Presented 2

Statutory Provision Involved 2

2

4

5

Statement of the Case

Statement of Facts

Reasons for Granting the Writ

1. A Decision by this Court on the Rights of Re-

mote Plaintiffs to Maintain Private Antitrust

Damage Claims is Urgently Needed .................. 5

2. That a Plaintiff Would “Foreseeably” be In-

jured by an Antitrust Violation Does Not

Establish He Was Injured “by Reason [There]-

of” 6

a. The “Foreseeability” Test Conflicts with

Other Decisions of the Ninth and Other

Cireuits 6

b. The “Foreseeability” Test Would Vastly

Expand the Class of Potential Plaintiffs ... 11

3. A Mere Prospective Purchaser of a Business

Has No Standing to Sue for Antitrust Viola-

tions in the Market He Would Have Liked to

Enter 13

a. The Decision of the Court Below that a

Mere Prospective Purchaser of a Business

Sustains Injury in his “Business Or Prop-

erty” Conflicts with a Prior Decision of the

Eighth Circuit 13

b. A Mere Prospective Purchaser Should Not

Be Able to Claim Antitrust Injury to his

“Business Or Property” 15

Conclusion 17

Appendix

TABLE OF AUTHORITIES CITED

Cases

Pages

Blankenship v. Hearst Corp., 519 F.2d 418 (9th Cir.

IP stiiniiciudeplisesiicdaanssitiatts chess Nasidegeeitee 8

Bookout v. Schine Chain Theatres, Inc., 253 F.2d 299

tt Ap | Rene ecme ine nec ena ens 6

Bosse v. Crowell Collier and Macmillan, 565 F.2d 602

CRU SPUR TED scistansteannerccineseiticttins 8

Bravman v. Basset Furniture Industries, Ine., 552

F.2d 90 (3d Cir. 1977), cert. denied, 434 U.S. 823

SR cnniscitveiss sestamenibecaan neal 7

Brunswick Corp. v. Pueblo Bowl-O-Mat, 429 U.S. 477

RUPE nas bGssnisinhiiacodvciakee Soi 5, 6

Calderone Enterprises Corp. v. United Artists Thea-

tre Circuit, Inc., 454 F.2d 1292 (2d-@ir 1971), cert.

denied 406 U.S. 930 (1972) 0.200.002... me 6, 7, 8, 9

Commerce Tankers Corp. v. National Maritime Union

of America, 553 F.2d 793 (2d Cir. 1977) 7

Contreras v. Grower Shipper Vegetable Ass’n of Cen-

tral Cal., 1971 Trade Cas, {| 73,592 (N.D. Cal. 1971),

aff’d per curiam, 484 F.2d 1346 (9th Cir. 1973), cert.

denied, 415 U.S. 932 (1974) ....... alii asielldadneaih undies 6,8

Coopers & Lybrand v, Livesay, .... U.S, ...., 98 S.Ct.

Pee CUED cscs isin sich caiinsstcciemensiabishtcaninctthns Ss

Donovan Const. Co. of Minnesota v. Florida Tele-

phone Corp., 564 F.2d 1191 (5th Cir. 1977), cert.

denied, 98 S.Ct. 1878 (1978) ............... 7

Duff v. Kansas City Star Co., 299 F.2d 320 (1962) . ..13, 14

Farnell v. Albuquerque Publishing Co., No. 78-1181

(10th Cir., decided Oct. 24, 1978) owe ee 7

Flora v. United States, 357 U.S. 63 (1958) -.00... 15

TaBLe or AuTHORITIES CITED lil

Pages

Hawaii v. Standard Oil Co., 405 U.S, 251 (1972) -....11, 12, 16

Hecht v. Pro-Football, Inc., 570 F.2d 982 (D.C. Cir.

1977), cert. denied, 98 S.Ct. 3069 (1978) 7,14

Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) ....5, 7, 13, 16

In re Multidistrict Vehicle Air Pollution, 481 F.2d 122

(9th Cir. 1973), cert. denied, 414 U.S. 1045 (1973) .... 7,8

Karseal Corp. v. Richfield Oil Corp., 221 F.2d 358

(9th Cir. 1955) 11

Long Island Lighting Co. v. Standard Oil Co. of Cali-

fornia, 521 F.2d 1269 (2d Cir. 1975) 8,9

Lupia v. Stella D’Oro Biscuit Co., Inc. 586 F.2d 1163

(7th Cir. 1978) 7

Malamud v. Sinclair Oil Co., 521 F.2d 1142 (6th Cir.

1975) 7

Martin v. Phillips Petroleum Company, 365 F.2d 629

(5th Cir. 1966), cert. denied, 386 U.S. 991 (1966) ...... 15

Peter v. Western Newspaper Union, 200 F.2d 867 (5th

Cir. 1953) 6

Quinonez v. National Association of Securities Deal-

ers, Inc., 540 F.2d 824 (5th Cir. 1976) 14

Reibert v. Atlantic Richfield Co., 471 F.2d 727 (10th

Cir. 1973), cert. denied, 411 U.S. 938 (1972) ................ 7

Reiter v. Sonotone Corporation, No. 78-690, cert.

granted, 47 U.S, L.W. 26. 6, 7

iv TABLE oF AuTHOorITIES CrTED

Pages

South Carolina Council of Milk Producers, Ine. v.

Newton, 360 F.2d 414 (4th Cir. 1966), cert. denied,

385 U.S. 934 (1966) ...................... 7

Triangle Conduit & Cable Co. v. National Electric

Products Corp., 152 F.2d 398 (3rd Cir. 1945) -....... 15

Tugboai, Inc. v. Mobile Towing Co., 534 F.2d 1172

RU GI, TRU D ssinnsnscinnsccsnsiiisesacancemnineteeilteniaanei iineaianmaaalis 7

Twentieth Century Fox Film Corp. v. Goldwyn, 328

F.2d 109 (9th Cir. 1964), cert. denied, 379 U.S. 880

(1964) ........ 8

United States v. Great Northern Ry. Co., 343 U.S. 562

PS eo ictvininialeadile 15

Waldron v. British Petroleum Co., 231 F.Supp. 72

8 Sk | Ree 15

Wobb v. Ford Motor Co., 76 F.R.D. 452 (W.D. Pa.

BPW UD <nccinsnstsinsssiinsannnttinessinensenasiienniccmialoanasiaiaiaeauieaiacaiaie 10

Wilson v. Ringsby Truck Lines, Inc., 320 F.Supp. 699

(D. Colo. 1970) ...... 10

STATUTES

United States Code Annotated:

Title 15, Section 1 ..... 2, 3,8

Title 15, Section 2 ... 2, 3, 8

ae Ty, TI BD eicceessssisseccsciemstistariene 2, 3,15

Bene BB, Be BD nscvcinsncisccctninipaenaaiaa 2,3

Title 28, Section 1254(1) -........................... 2

TaBLE OF AUTHORITIES CITED Vv

MISCELLANEOUS

Pages

Beane, “Antitrust: Standing and Passing On,” 26 Bay-

lor L.Rev. 331 (1974) 10

Berger and Bernstein, “An Analytical Framework for

Antitrust Standing,” 86 Yale L.J. 809 (1977) ............ 10

Comment, “Standing to Sue in Antitrust: The Applica-

tion of Data Processing to Private Treble Damage

Actions,” 11 Tulsa Law J. 542 (1976) 11

Comment, “Standing Under Clayton Section 4: A Pro-

verbial Mystery,” 77 Dick. L.Rev. 73 (1972) .............--- 11

Handler, “The Shift from Substantive to Procedural

Innovations in Antitrust Suits: The Twenty-Third

Annual Antitrust Review,” 71 Colum.L.Rev. 1

(1971) 10

Note, “Standing to Sue in Private Antitrust Litiga-

tion: Circuits in Conflict,” 10 Ind.L.Rev, 532 (1977)... 11

Sullivan, Handbook of the Law of Antitrust (1977)... 14

In the Supreme Court of the

United States

Octoser Term, 1978

Motown Recorp CorporaTIOoNn,

Petitioner,

Vs.

Jack SoLinGEr,

Respondent.

Petition for Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit

Petitioner, Motown Record Curporation, respectfully

prays that this Court issue its writ of certiorari to review

the decision of the United States Court of Appeals for the

Ninth Circuit, filed in this proceeding on November 27, 1978.

OPINION BELOW

The opinion of the Court of Appeals, reported at 586

F.2d 1304, is reprinted in the Appendix. No opinion was

rendered by the District Court for the Northern District

of California.

2

JURISDICTION

The judgment of the Court of Appeals for the Ninth

Circuit was entered on November 27, 1978. This petition

for certiorari is filed within 90 days of that date. The

Court’s jurisdiction is invoked under 28 U.S.C. § 1254(1).

QUESTIONS PRESENTED

1. Is the mere “foreseeability” of an antitrust injury

sufficient to meet the statutory requirement of injury “by

reason of” an antitrust violation?

2. Does a plaintiff, who has no business or property in

the area of competition allegedly restrained, have standing

to maintain a private antitrust action, based solely on his

claim of “intention and preparedness” to enter the market?

STATUTORY PROVISION INVOLVED

Section 4 of the Clayton Act (15 U.S.C. § 15):

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 defendant

resides or is found or has an agent without respect

to the amount in controversy, and shall recover three-

fold the damages by him sustained, and the cost of

suit, including a reasonable attorney’s fee.

STATEMENT OF THE CASE

In 1974, respondent brought suit in the Northern Dis-

trict of California against various defendants, alleging

violations of sections 1 and 2 of the Sherman Act and

Section 7 of the Clayton Act (15 U.S.C. §§ 1, 2, and 18) and

seeking treble damages of $10,500,000. (R. 10.) In late

1975 he added petitioner as an additional defendant.

8

Respondent claims that petitioner and another defendant,

as phonograph record producers, refused to deal with him

in violation of sections 1 and 2 of the Sherman Act. (15

U.S.C. §§ 1, 2.) In broad language, the complaint alleges

a combination and conspiracy and an attempt to monopolize.

Independent Music Sales (“IMS”) was a dealer in phono-

graph records, and respondent was its general manager.

Petitioner allegedly boycotted respondent and IMS, took

various steps to allocate territories among its distributors,

spread false rumors about IMS and plaintiff, and created

a monopoly “in the independent distribution” of its own

records. By these acts, it is claimed, petitioner and others

“prevented plaintiff from acquiring [IMS] and put [IMS]

out of business,” thereby damaging respondent in the,

trebled sum of $10,500,000. (R. 9.) On the same facts, the

complaint avers a state law claim for unfair competition

against petitioner and others. The complaint also alleges

that other defendants violated section 7 of the Clayton Act.

(15 U.S.C. § 18.)

Petitioner moved to dismiss, contending the complaint

showed on its face that respondent lacked standing to main-

tain this action since he had no “business or property”

committed to the area of competition—the wholesale dis-

tribution of popular-music records and tape recordings—

allegedly restrained by defendants, and that being outside

the market allegedly restrained he could claim no injury “by

reason of” the claimed violations. Both quotations state

statutory requirements for maintenance of private antitrust

actions under section 4 of the Clayton Act (15 U.S.C. § 15).

In response to the motion, respondent supplemented his

complaint by affidavit. The district court granted peti-

tioner’s motion and dismissed the action on the ground that

4

respondent could not state a claim on which relief could

be granted."

On respondent’s appeal to the Ninth Cireuit Court of

Appeals, the judgment of the District Court was affirmed

as to the dismissal of the section 7 claim, but reversed and

remanded as to the Sherman Act claims. (App. 14.)

Petitioner timely filed this petition.

STATEMENT OF FACTS

Respondent had been employed as the chief executive

officer of Independent Music Sales, Ine. (“IMS”), which

distributed popular-music records and tapes in Northern

California. (R. 3-5.) Respondent negotiated with IMS’

owner for sale of the business to a new corporation which

respondent intended to form. (See R. 264.) A contract to

purchase and sell the business had been drafted, and re-

spondent had obtained financing. At this point, respond-

ent alleges, he contacted petitioner and another defendant,

both popular-musie record and tape manufacturers, and

allegedly “the top companies which distributed their

product through independent distributors.” (R. 5.) He

asked the two companies if they would sell to his proposed

new business. They refused to do so. (App. 3.) Respondent

then decided not to form the new corporation, not to have

the new corporation enter into the proposed contract to

purchase IMS’ assets, and not to become the proprietor

of a record distribution business. Subsequently, IMS went

out of business. It has not yet claimed that petitioner’s or

anyone else’s antitrust violations were the cause of its

demise.

1. The other defendants, who had previously answered, then

moved for judgment on the pleadings. These motions were also

granted on the basis of petitioner’s arguments, and the entire action

was dismissed. Respondent pursued one single appeal from the

ensuing judgment of dismissal.

5

REASONS FOR GRANTING THE WRIT

1. A Decision by This Court on the Rights of Remote Plaintiffs

to Maintain Private Antitrust Damage Claims Is Urgently

Required.

The lower courts have often lamented that this Court

has never spoken on the question how remote from the

claimed restraint may a plaintiff be and yet maintain a

private treble damage action under the antitrust laws?

The law in this area is in great disarray. Different circuits,

and sometimes different panels within the same circuit,

apply widely divergent standards to test whether a remote

plaintiff has “standing”: whether he has suffered injury

to “business or property ... by reason of” an alleged anti-

trust violation.

Twice recently, this Court has spoken firmly on related

issues. In Brunswick Corp. v. Pueblo Bowl-O-Mat, 429 U.S.

477 (1977), it held that not all damages related to antitrust

violations are compensable; a plaintiff must show that his

injury was caused by a violation that the antitrust laws

were designed to protect against. In Illinois Brick Co. v.

Illinois, 431 U.S. 720 (1977), it held that, in general, only

first-tier purchasers can maintain a private antitrust action.

In this case, existing law has been stretched beyond

recognition to afford standing to a person who never risked

or lost a penny, but who can now freely gamble on receiving

a jury verdict exceeding $10,000,000. The court of appeals’

decision, which permits respondent this riskless wager,

must be reversed. Moreover, this case affords a sound and

clear opportunity to rationalize the law in an important,

confused and much-litigated field which badly needs this

court’s authoritative guidance.

Since a somewhat similar issue—the right of consumers

to maintain private antitrust suits—is now before the court

6

in Reiter v. Sonotone Corporation, No. 78-690, cert. granted

47 U.S. L.W. 26, this is a good time and a good case to com-

plete the Court’s work in the antitrust “standing” field.

2. That a Plaintiff Would “Foreseeably" Be Injured by an Anti-

trust Violation Does Not Establish He Was Injured "By Reason

[ThereJof."

a. THE “FORESEEABILITY” TEST CONFLICTS WITH OTHER DECISIONS

OF THE NINTH AND OTHER CIRCUITS.

Two years ago this Court held that injury is cognizable

under the Clayton Act only if it is of the kind against which

the antitrust laws were designed to protect. (Brunswick

Corp. v. Pueblo Bowl-O-Mat, 429 U.S. 477 (1977).) While

this Court has not considered the issue, lower courts have

consistently ruled that some antitrust injuries are too

remote to confer standing. Standing to sue is routinely

denied employees for jobs lost due to restraints on their

employers,? shareholders for restraints on their corpo-

rations,® landlords for restraints on their tenants,‘ and

others. But for claims lying nearer to the restrained market,

the lower courts have struggled without success to devise a

test defining those interests which the antitrust laws were

designed to protect, describing those plaintiffs who can

assert injury “by reason of” an antitrust violation. The

courts of appeal have used several different standards to

2. E.g., Contreras v. Grower Shipper Vegetable Ass’n of Cen-

tral Cal., 1971 Trade Cas. § 73,592 (N.D. Cal. 1971), aff'd per

curiam, 484 F.2d 1346 (9th Cir. 1973), cert. denied, 415 U.S. 932

(1974).

3. E.g., Bookout v. Schine Chain Theatres, Inc., 253 F.2d 292

(2d Cir. 1958); Peter v. Western Newspaper Union, 200 F.2d 867

(5th Cir. 1953).

4. E.g., Calderone Enterprises Corp. v. United Artists Theatre

Circuit, Inc., 454 F.2d 1292 (2d Cir. 1971), cert. denied, 406 U.S.

930 (1972).

7

determine whether this element of standing has been met.°

Hitherto, the Ninth Circuit has consistently adhered to the

“target area” approach. (F.g., In re Multidistrict Vehicle

Air Pollution, 481 F.2d 122, 127 (9 Cir. 1973), cert. denied,

414 U.S. 1045 (1973), and cases cited below, see App. 9-10.)

5. Experimentation with standing requirements has led to in-

creasing disparity between the circuits. The Second, Fourth and

Fifth Cireuits follow the “target area” formulation. Commerce

Tankers Corp. v. National Maritime Union of America, 553 F.2d

793, 801 (2d Cir. 1977); Calderone Enterprises Corp. v. United

Artists Theatre Circuit, 454 F.2d 1292, 1295 (2d Cir. 1971), cert.

denied, 406 U.S. 930 (1972); South Carolina Council of Milk Pro-

ducers, Inc. v. Newton, 360 F.2d 414, 418 (4th Cir. 1966), cert.

denied, 385 U.S. 934 (1966); Donovan Const. Co. of Minnesota v.

Florida Telephone Corp., 564 F.2d 1191, 1192 (5th Cir. 1977),

cert. denied, 98 S.Ct. 1878 (1978); Tugboat, Inc. v. Mobile Towing

Co., 534 F.2d 1172, 1175 (5th Cir. 1977).

The Tenth Circuit adheres to the “direct injury’’ standard. Far-

nell v. Albuquerque Publishing Co., No. 78-1181 (10th Cir., de-

cided Oct. 24, 1978); Reibert v. Atlantic Richfield Co., 471 F.2d

727, 733 (10th Cir. 1973), cert. denied, 411 U.S. 938 (1972).

The Third Circuit, which developed the “direct injury” stand-

ard, now disapproves of both the “direct injury” and the “target

area’’ approaches. It favors, instead, “. . . a balancing test com-

prised of many constant and variable factors... .” Bravman v.

Basset Furniture Industries, Inc., 552 F.2d 90, 99 (3d Cir. 1977),

cert. denied, 434 U.S. 823 (1977).

The Eighth Cireuit describes its standing requirement as an

“injury ... something more than remote .. . .”’ Reiter v. Sonotone

Corp., 579 F.2d 1077, 1081-82 fn. 9 (8th Cir. 1978), cert. granted

on another issue, No. 78-690, 47 U.S.L.W. 26 (Jan. 9, 1979).

The District of Columbia Circuit requires a “causal connection

between the injury and the defendant’s allegedly illegal acts.”

Hecht v. Pro-Football, Inc., 570 F.2d 982, 987 (D.C. Cir. 1977),

cert. denied, 98 S.Ct. 3069 (1978).

The Seventh Cireuit is without a standard. It had adopted the

Sixth Cireuit’s “zone of interest’ approach expressed in Malamud

v. Sinclair Oil Co., 521 F.2d 1142, 1151 (6th Cir. 1975) but now

doubts that the Malamud approach survives this Court’s decision

in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). Lupia v.

Stella D’Oro Biscuit Co., Inc., 586 F.2d 1163, 1169 (7th Cir. 1978).

As the opinion below recognizes, the Ninth Cirenit has used the

“target area’’ test both with and without a “foreseeability” com-

ponent (App. 11, n.6). The present opinion recites past “target

area’’ cases from the Ninth Circuit but limits its analysis to fore-

seeability. (App. 14, n.9.)

8

In this case, the Ninth Cireuit declared for the first time

that where the offense charged is a violation of sections 1

or 2 of the Sherman Act, the “target area” test requires

no more than that the plaintiff s>ow he is “within the area

of the economy that the defendants should have foreseen

would be affected by their violation of the antitrust laws,

if any.”* (App. 11-12; emphasis supplied.) Although it

offered a recital of some prior “pure” target area cases,

the court admitted its opinion here creates another new

test for standing:

Because a party other than a competitor who alleged

a section 1 or 2 violation may be within the area of

the economy that the antitrust laws are designed to

protect, this court has formulated another test for

standing. As discussed in this opinion, the test is fore-

seeability. (App. 14, n.9.)

This “foreseeability” test now embraced by the Ninth

Cireuit has previously been expressly rejected by the See-

ond Circuit. (Calderone Enterprises Corp. v. United Artists

Theatre Circuit, 454 F.2d 1292 (2d Cir. 1971), cert. denied,

406 U.S. 930; Long Island Lighting Co. v. Standard Oil Co.

of California, 521 F.2d 1269 (2d Cir. 1975).) In Calderone

Enterprises the dissenting judge argued that the proper

6. Foreseeability, as part of the “target area” test, appears

sporadically in prior Ninth Cireuit decisions. Compare Blanken-

ship v. Hearst Corp., 519 F.2d 418, 426 (9th Cir. 1975), and Twen-

tieth Century For Film Corp. v. Goldwyn, 328 F.2d 109, 220 (9th

Cir. 1964), cert. denied, 379 U.S. 880 (1964) [target area is that

area of economy foreseeably affected] with Bosse v. Crowell Col-

lier and Maemillan, 565 F.2d 602, 606 (9th Cir. 1977) and In re

Multidistrict Vehicle Air Pollution, 481 F.2d 122, 128 (9th Cir.

Cir. 1973), cert. denied, 414 U.S. 1045 (1973) [foreseeable plain-

tiffs denied standing]. Cf. Contreras v. Grower Shipper Vegetable

Ass’n. of Central Cal., 1971 Trade Cas. § 73,592 (N.D. Cal. 1971),

aff'd per curiam 484 F.2d 1346 (9th Cir. 1973), cert. denied, 415

U.S. 932 (1974) [injury to plaintiffs a logical but not necessary

result of conduct: standing denied}.

9

standard was “whether plaintiff would be in the reasonably

foreseeable area to be affected by the antitrust violation.”

(454 F.2d at 1300.) The majority expressly addressed and

rejected the “foreseeability” test urged by the dissent. (454

F.2d at 1296 n. 2.) Four years later in Long Island Light-

ing Company the Second Circuit reiterated its rejection of

a “foreseeability” test, stating that under the target area

doctrine as interpreted and applied in the Second Circuit

“even parties whose injuries may be both immediate and

foreseeable may lack standing to pursue a private remedy.”

(521 F.2d at 1274.)* The court expressly found that the

injury sustained by the plaintiff was “foreseeable” but

nonetheless denied recovery for lack of standing. (Jd.)

The vast potential scope of so vague a standard as “fore-

seeability” has been aptly characterized by the Second

Cirenit:

[The “foreseeability” test urged by the dissent would

permit anyone to sue, regardless of how distant his

interest or relationship (including a customer of a com-

petitor’s customer, or a supplier to a supplier dealing

with an alleged conspirator), since it would be difficult

to disprove the fact that remote economic repercus-

sions in the line of distribution result from almost

every antitrust violation. (Calderone Enterprises Corp.

v. United Artists Theatre Circuit, supra, 454 F.2d 1292,

1296, n.2.)

As the Calderone court also noted, damage to “remotely

situated persons” is much harder to assess:

[Their damage is usually much more speculative and

diffieult to prove than that of a competitor who is an

immediate victim of the violation. (7d. at 1295.)

7. The chaotie status of the standing doctrine in the lower

courts is emphasized by the fact that, despite the proliferation of

labels for the various approaches to analyzing standing, both this

ease and the diametrically opposed Second Cireuit cases claim to

apply the “target area” doctrine.

10

Finally, the “foreseeability” test opens the “floodgates

...to permit treble damage suits by every creditor stock-

holder, employee, subcontractor or supplier of goods and

services that might be affected.” (Id.) The result, as pro-

phesied by the Second Circuit, will be:

[O]ver-kill, due to an enlargement of the private

weapon to a caliber far exceeding that contemplated

by Congress. If the antitrust laws were precise and

crystallized something might be said in favor of such

an enormous expansion of potential treble damage

liability, speculative as the damages might be. But the

fact remains that because there are few “bright lines”

in the area, even experts who have devoted their entire

professional lives to the practice of antitrust law often

find it impossible to advise a client with any degree

of certainty whether his contemplated conduct will

transgress lawful bounds. (Jd.)

Both the courts* and the commentators® have expressed

dismay at the confusion and conflict among lower court

8. See e.g., Wobb v. Ford Motor Co., 76 F.R.D. 452, 456, n.2

(W.D. Pa. 1977) [“The perplexing question of who is entitled to

sue under the antitrust laws, never being definitely addressed by

the Supreme Court, has led to inconsistent lower federal court opin-

ions.”’]; Wilson v. Ringsby Truck Lines, Inc., 320 F.Supp. 699, 701

(D. Colo. 1970) [“We must confess at the outset that we find anti-

trust standing cases more than a little confusing and certainly be-

yond our powers of reconciliation.’’].

9. D. Berger and R. Bernstein, An Analytical Framework for

Antitrust Standing, 86 Yale L.J. 809, 840 (1977) [referring to the

“decisional morass” in the standing area and noting the lack of

“an analytical framework that could make order out of the chaos”’];

M. Handler, The Shift from Substantive to Procedural Innovations

in Antitrust Suits: The Twenty-Third Annual Antitrust Review,

71 Colum.L.Rev. 1, 28 (1971) [“The plain fact is that the standing-

to-sue cases are irreconcilable. And the case law has become in-

creasingly confused”]; J. Beane, Antitrust: Standing and Passing

On, 26 Baylor L.Rev. 331, 333 (1974) [“Without definitive guid-

ance from the Supreme Court with respect to standing in antitrust

matters, the circuit courts have entrenched themselves into respec-

tive camps with regard to the analysis of standing to sue. Although

1l

decisions on antitrust standing, This case provides an ideal

vehicle for this Court to provide long-needed clarity in this

area.

b. THE “FORESEEABILITY" TEST WOULD VASTLY EXPAND THE CLASS OF

POTENTIAL PLAINTIFFS.

In Hawaii v. Standard Oil Co., 405 U.S. 251 (1972), this

court observed with approval:

[The] lower courts have been virtually unanimous in

concluding that Congress did not intend the antitrust

laws to provide a remedy in damages for all injuries

that might conceivably be traced to an antitrust viola-

tion. (405 U.S. at 263 n.14.)

In this case, the Ninth Cireuit has ended that unanimity,

extending antitrust standing far beyond those “aimed at

and hit” by the violation. (Karseal Corp. v. Richfield Oil

Corp., 221 F.2d 358, 363 (9 Cir. 1955).)

common in goal, these respective approaches have substantial and

marked differences in analysis”); Comment, Standing to Sue in

Antitrust: The Application of Data Processing to Private Treble

Damage Actions, 11 Tulsa Law J. 542 (1976) [“[d]espite six dee-

ades of unresolved controversy, the Supreme Court has failed to

give a definitive treatment to the rigid standing requirements under

section 4 of the Clayton Act’’]; Note, Standing to Sue in Private

Antitrust Litigation: Circuits in Conflict, 10 Ind.L.Rev. 532, 554

(1977) [Given the conflict in the circuits, “if tne choice exists, a

potential private antitrust litigant who has been in any way re-

motely injured would be much wiser to opt for the nonrestrictive

views of the Fourth, Sixth, Seventh, Eighth, or Ninth Circuits,

than for the uncertain approaches of the Fifth, Tenth, and District

of Columbia Cireuits. Care should be taken especially to avoid the

restrictive views of the First, Second, and’ Third Circuits if pos-

sible”]; Comment, Standing Under Clayton Section 4: A Prover-

bial Mystery, 77 Dick. L.Rev. 73 (1972) [“The present split con-

cerning the required causal connection between the injury and the

violation is one which will continue to be a battleground for years

to come. As long as the Supreme Court is content to avoid the issue

of section 4 standing, the proverbial mystery will continue. With-

out a solution, the private claimant will be forced to gamble the

high cost of antitrust litigation against the whims of the court on

every section 4 action”’}.

12

The remedy this court in Hawaii denied persons “con-

ceivably” injured by an antitrust violation, the Ninth

Cireuit has given back to those “foreseeably” damaged.

What difference exists between “conceivable” and “foresee-

able” is an abstraction depending on the eagerness and per-

spective of the observer. These concepts clearly adjoin and

may largely overlap. Certainly clarity cannot be found in

the concept of “foreseeability” so as to tell trial judges

and litigants where, if beyond the market forces of buyers,

sellers and competitors themselves, a “foreseeable” and

therefore proper plaintiff becomes a merely “conceivable”

and thus illicit one.

Before this case, the “target area” test was regarded as

the most liberal standard for antitrust standing (see note

9, swpra), requiring only that the plaintiff be “within the

area of the economy that is endangered by a breakdown

of competitive conditions.” (App. 10.) Under the decision

in this case, however, the plaintiff need no longer be within

the endangered area; it now is sufficient that he be outside

the area, merely looking in.

Virtually any person can make that claim, and endless

lines of potential plaintiffs are within areas “of the economy

foreseeably ... affected by the antitrust violation alleged.”

(App. 10-11.) Whatever limitation the “target area” test

once imposed on antitrust standing has now been casually

jettisoned by the Ninth Circuit.

The foreseeability test for antitrust standing is bad law

and bad policy; this court should reject such an additional

layer of confusion and unpredictability in an already too

confused and unpredictable area of the law.

What test should this Court announce? It is perhaps

more important that the Court settle the question and

announce a test, than that it choose a particuiar one of the

13

many available tests. However, consistent with this court’s

recent statement in Illinois Brick Co. v. Illinois, 431 U.S.

720 (1977) that vigorous private antitrust enforcement is

best promoted by restricting private actions to those imme-

diately and directly affected, standing should be afforded

only those plaintiffs in direct business contact with one or

more defendants, as competitors, buyers, or sellers. Per-

haps, an exception might be made for the rare case where

the violation is clear but by its nature has prevented the

existence of competition—an illegal, total monopoly in

violation of section 2 is a theoretical example—but almost

all cases could be fully redressed under such a test of

“direct business contact,” and the exception may be un-

necessary.

3. A Mere Prospective Purchaser of a Business Has No Standing

to Sue for Antitrust Violations in the Market He Would Have

Liked to Enter.

a. THE DECISION OF THE COURT BELOW THAT A MERE PROSPECTIVE

PURCHASER OF A BUSINESS SUSTAINS INJURY IN HIS “BUSINESS OR

PROPERTY" CONFLICTS WITH A PRIOR DECISION OF THE EIGHTH

CIRCUIT.

Respondent seeks damages for the alleged destruction of

a business he never owned. He has alleged no more than

that he took certain preparatory steps—arranging to form

a corporation, negotiating (but not consummating) con-

tracts for purchase of the business, arranging financing,

and acquiring experience in the field—which supposedly

make him a “prospective purchaser.” The court of appeals

held that this was enough to permit him to sue. (App. 8-9.)

As the court conceded, its ruling conflicts with the Eighth

Cireuit’s decision in Duff v. Kansas City Star Co., 299 F.2d

320, 323 (1962). Said the court below:

Some courts have held that a prospective purchaser

may not recover under section 4 because the amount

14

of damages sustained is not sufficiently ascertainable,

and thus the plaintiff has not suffered tangible injury

to his business or property. E.g., Duff v. Kansas City

Star, 299 F.2d 320, 323 (8th Cir. 1962), see generally

L. Sullivan, Handbook of the Law of Antitrust, section

247 at 770 (1977). We disagree, however, and adopt

the view that a prospective purchaser who has taken

substantial demonstrable steps to enter an industry

and who is thwarted in that purpose by antitrust

violations, has suffered a possible ascertainable loss.

(App. 7-8, emphasis supplied.)

In Duff the plaintiff, who had once owned and operated

a weekly newspaper in Kansas City, was attempting to

re-enter the newspaper business there. He alleged that,

among other things, he “had located an office, made arrange-

ments to have his paper printed, and took extensive

samplings of the advertising market and newspaper indus-

try at that time” (299 F.2d at 323) but was prevented from

re-entering the market by the defendant’s antitrust viola-

tions. The court of appeals held that plaintiff lacked stand-

ing to claim antitrust damages:

[What [plaintiff] is seeking here is damages by

reason of loss of anticipated profits in an anticipated

business. This he may not do. (299 F.2d at 323.)

The question of whether actual compliance with section

4’s requirement of a showing of injury to plaintiff’s “busi-

ness” or “property” is mandated, or whether a mere “inten-

tion and preparedness” to acquire a “business” is sufficient

to assert such a claim has arisen on many occasions, with

inconsistent results. This recurring question of the scope

10. E.g., Hecht v. Pro-Football, Inc., 570 F.2d 982, 994 (D.C.

Cir. 1977), cert. denied, 98 S.Ct. 3069 (1978); Quinonez v. Na-

tional Association of Securities Dealers, Inc., 540 F.2d 824, 830

15

of the “business or property” requirement, as exemplified

by the clear conflict here between the Eighth and Ninth

Circuits, should be finally resolved by this Court.

b. A MERE PROSPECTIVE PURCHASER SHOULD NOT BE ABLE TO CLAIM

ANTITRUST INJURY TO HIS “BUSINESS OR PROPERTY."

Allowing “prospective purchasers” to sue will open the

courts to a host of plaintiffs, never contemplated by section

4 of the Clayton Act, who have been injured in neither their

business nor their property.

The lower court’s interpretation does violence to the plain

language of the statute: it blinks reality to say that one

who claims only that he almost bought a business can be

injured in that “business.” No public policy justifies such

deviation from the simple statutory language. There is no

reason not to read that language in the most straight-

forward and natural way. (United States v. Great Northern

Ry. Co., 343 U.S. 562 (1952); Flora v. United States, 357

U.S. 63 (1958); see Coopers & Lybrand v. Livesay, .... U.S.

..... 98 S.Ct. 2454 (1978) [holding that, where the statute

expressly conditions appealability on a “final” judgment,

policy arguments for an exception applicable to a particular

class of non-final judgments are properly addressed to

Congress].) Had Congress meant to extend the right to

press treble damage actions to persons on the periphery

of a “business’—such as a “prospective purchaser” of a

business—it was fully competent to state that intent in

words sufficient to the task.

The policy considerations that led Congress to limit the

treble damage remedy to those sustaining injury in their

(5th Cir. 1976); Martin v. Phillips Petroleum Company, 365 F.2d

629, 633 (5th Cir. 1966), cert. denied, 386 U.S. 991 (1966); T'ri-

angle Conduit & Cable Co. v. National Electric Products Corp.,

152 F.2d 398, 399-400 (38d Cir. 1945); Waldron v. British Petro-

leum Co., 231 F.Supp. 72 (S.D.N.Y. 1964).

16

“business or property” are evident. Extending standing to

persons, such as “prospective purchase’'s,” with nebulous

claims creates the obvious risk of multiple recoveries for

the same alleged harm, a point well illustrated by this case.

The risk of multiple recovery here grows out of the fact

that, while one and only one _ business—IMS’—was

“destroyed,” any number of persons may claim to be

“prospective purchasers” of that business. To attain stand-

ing via the “prospective purchaser” route, the decision

below requires some vague mix of experience, availability

of financing, and negotiations with the prospective seller.

Persons selling a business commonly negotiate with several

potential buyers at the same time. Each of those potential

buyers is likely to have enough experience and financing

to meet the court of appeals’ amorphous standard. It is

unnecessary to make any elaborate analysis of the unfair-

ness of permitting such multiple recoveries for a single

loss: this court has stated repeatedly that it is “unwilling

to ‘open the door to duplicative recoveries’ under § 4.”

(Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061,

2067 (1977), quoting from Hawaii v. Standard Oil Co., 405

U.S. 251, 264 (1972).)

Furthermore, such a “prospective purchaser’s” damages

are inherently speculative. Pre- and post-conspiracy profits

of the almost-bought business provide no sure guide to the

prospective buyer’s loss. There is no reason to assume the

buyer will run the business as the seller does. Indeed, in

this case, it appears that respondent intended to have a

different capital and debt structure, different executive

compensation, different fixed costs, and different marketing

strategies from IMS. (See R. 243-263.) Thus, both the fact

and the extent of a prospective buyer’s damage is left whollv

to speculation.

17

Finally, there is no justification for permitting those who

merely come to the brink of a market but do not enter it

and do not put even a nickel at risk, to recover damages

as though they had actually invested and seen their invest-

ment damaged by an antitrust violation. The lower court's

rule of standing encourages speculat‘ve litigation, permit-

ting mere bystanders to roll the dice on a treble damage

bonanza at no more cost than the expense of a lawsuit.

In fact, under this test an outsider who knows or suspects

a restraint in a particular market could make spurious

gestures toward entry, just to sustain a suit.

In the absence of any suggestion that Congress wished

to open the federal courts to adventures by such outsiders,

nothing in the antitrust laws warrants imposing such

formless and speculative claims on the federal courts.

CONCLUSION

For these reasons, a writ of certiorari should issue to

review the decision of the Court of Appeals for the Ninth

Circuit.

Respectfully submitted,

Kurt W. MevcHior

One Embarcadero Center, 25th Floor

San Francisco, California 94111

Telephone: (415) 398-3344

Counsel for Petitioner

Severson, Werson, Berke & Metcuior

Tomas G. Woop

Lawrence A. Hopen

Of Counsel

February 23, 1979.

(Appendix follows)

Ss ee

Appendix A

Filed—Nov 27 1978

Emil FE. Melfi, Jr. Clerk

U.S. Court of Appeals

In the United States Court of Appeals

for the Ninth Circuit

No. 76-2965

Jack Solinger,

Plaintiff-Appellant,

V.

A&M Records, Ine.; Transamerica Corp.,

United Artists Corp.; United Artists

Records, Ine. ; Eric-Mainland Distribut-

ing Co.; Musical Isle of America;

Record Merchandising Company, Inc.;

Jerome 8S. Moss; Robert Fead; Sidney

Talmadge; Motown Record Corpora-

tion,

Defendants-Appellees.

|

OPINION

Appeal from the United States District Court

for the Northern District of California

Before: Barnes, Trask and Hug, Circuit Judges.

Barnes, Senior Cireuit Judge: |

This is an appeal from a district court judgment dis-

missing a private antitrust action brought under sections

1 and 2 of the Sherman Act, 15 U.S.C. §$1 and 2, and

sections 4 and 7 of the Clayton Act, 15 U.S.C. $$ 15 and 18

on the ground that the plaintiff lacked standing to sue for

damages under section 4 of the Clayton Act.

2 Appendiz

I

Jack Solinger, the former president and general manager

of Independent Music Sales, Inc. (I.M.S.), an independent

distributor of phonographic records and tape recordings,

by an original and an amended complaint, sued A&M

Records, Inc. (A&M) and Motown Record Corporation

(Motown) for damages arising from alleged antitrust vio-

lations, including a territorial allocation scheme. Solinger

in his original complaint, had sued Transamerica Corpora-

tion for violating section 7 of the Clayton Act and section 2

of the Sherman Act. He alleged that Transamerica engaged

in improper corporate mergers and consolidations, stock

acquisitions, and acquisitions of corporate assets. He further

alleged that these acquisitions of manufacturers, including

defendant United Artists, and distributors, including de-

fendants United Artists Records, Inc., Eric-Mainland, Musi-

cal Isle of America, Record Merchandising Co., Inc., and

individually named officers thereof, Moss, Fead and Tal-

madge, resulted in a direct lessening of competition in the

record distribution industry.

Until March 1973, I.M.S. was the principal independent

distributor of phonographic records and tape recordings in

northern California and acted as the distributor for defend-

ants A&M and Motown, two large manufacturers of records

and tape recordings.’ As a distributor for these companies,

I.M.S. principally serviced northern California, but also

sold A&M and Motown products to certain retail accounts

in southern California. The latter named area, however,

was primarily serviced for A&M and Motown by another

distributor, Record Merchandising Company.

1. By 1973 A&M and Motown were ranked as the fourth and

fifth largest record manufacturers in the popular music field.

Appendix 3

In 1972 and 1973, Solinger negotiated on his own behalf

to purchase I.M.S. from its sole shareholder, Zenith Dis-

tributing Company. He obtained financing, and negotiated

both a written but unsigned purchase agreement, and a

written but unsigned “Rental and Service Agreement” from

Zenith, The purchase was to be made by J.N.S. Enterprises,

an entity Solinger intended to create for that purpose.

Before signing the final papers, Solinger contacted both

A&M and Motown to determine whether they would retain

I.M.S. as their distributor after such a purchase. Both

companies indicated that they would not retain I.M.S.

Solinger contends that he did not complete the purchase of

I.M.S. because I.M.S. could not survive without the A&M

and Motown contracts, Shortly thereafter, both companies

terminated I.M.S. as a distributor and without these two

contracts, I.M.S. went out of business.

Solinger alleges that A&M and Motown refused to deal

with him and with I.M.S. because, pursuant to his specific

directions as president, I.M.S. had refused to comply with

a territorial allocation plan established by A&M and Motown

under which northern and southern California were divided

into two separate territories. Solinger also alleges that

after A&M and Motown terminated their distribution agree-

ments with [.M.S., Eric-Mainland Distributing Company

became the distributor for both A&M and Motown products

for northern California and began to comply with a terri-

torial allocation plan under which it would not sell A&M

and Motown products in southern California.

II

The district court granted Motown’s motion to dismiss

Solinger’s complaint (as to Motown alone) on the ground

that the complaint failed to state a claim upon which

+ Appendiz

relief could be granted. Thereupon all other defendants

filed similar motions. The Court filed a final judgment in

favor of all defendants on June 29, 1976, stating only that

“the action be, and hereby is dismissed.” Although the

grounds for dismissal were not stated in the order, the

court indicated that “basically” the plaintiff lacked stand-

ing.”

Under Fed. R. Civ. P. 12(b)(6), however, if there is a

motion to dismiss for failure to state a claim upon which

relief can be granted, and matters outside the pleadings are

presented to and not excluded but are heard by the court,

the motion is to be treated as one for summary judgment

and disposed of as provided in Fed. R. Civ. P. 56, and

particularly 56(c) thereof. Because material outside the

pleadings was presented in this case, the judgment must

be held to be one for summary judgment. Dorado v. Kerr,

454 F.2d 892, 896 (9th Cir. 1972).

It is elementary that the district court before granting

summary judgment must determine that no genuine issue

of material fact exists, and that the moving party is

entitled to judgment as a matter of law. Fed. R. Civ. P.

56(c); Baldwin v. Redwood City, 540 F2d 1360 (9th Cir.

2. On June 25, 1978 counsel raised the question of the form of

the orders proposed by the moving parties:

Mr. McKewzie [Attorney for plaintiff]: That order [pre-

sented on behalf of Transamerica Corporation, et al.] recites

that the Court lacks subject matter jurisdiction over the

action. I understand Your Honor’s ruling today, you simply

hold that we haven’t brought ourselves within the standing

provision, which is 15 U.S.C. § 15. I think the form of this

order goes way beyond that. Therefore I don’t think this is a

proper form of order.

° . .

Tue Court: It is basically standing.

. . . «

Tae Court: For the record it’s on standing.

Appendix 5

1976); Great Western Bank & Trust v. Kotz, 532 F.2d

1252, 1254 (9th 1976); Zweig v. Hearst Corp., 521 F.2d

1129, 1133 (9th Cir.), cert. denied, 423 U.S. 1025 (1975).

When no finding is made by the court specifying with par-

ticularity what material facts have been established, and

without a finding that no material factual issues remain,

there is no way in which a reviewing court can pass upon

the merits of the controversy when the judgment is ap-

pealed. We have no power to judge the fact issue de novo.

Hycon Manufacturing Co. v. H. Koch & Sens, 219 F.2d

353, 355 (9th Cir.), cert. denied, 349 U.S. 953 (1958).

Because we are required to review this case as one for

summary judgment, and because the court failed to deter-

mine whether any genuine issues of material fact exist and

whether the plaintiff is entitled to judgment as a matter

of law, we remand part of the case to the district court for

further proceedings to determine what the undisputed facts

are, and that no material factual issues remain; and, if

that be true, whether Solinger has standing. As discussed

in the remainder of this opinion, we affirm as a matter of

law the district court’s determination that plaintiff does

not have standing to pursue his claim under section 7 of

the Clayton Act.

Tir

Section 4 of the Clayton Act, 15 U.S.C. $15 (1976)

provides a private cause of action for those parties in-

jured by antitrust violations such as the ones alleged by

Solinger in his complaint: violations of sections 1 and 2

of the Sherman Act and sections 4 and 7 of the Clayton

Act, 15 U.S.C. $$ 1, 2, 15 and 18. Section 4 provides:

Any person who shall be injured in his business or

property by reason of anything forbidden in the anti-

6 Appendix

trust laws may sue therefore in any district court of

the United States in the district in which the defendant

resides or is found or has an agent, without respect

to the amount in controversy, and shall recover three-

fold the damages by him sustained, and the cost of

suit, including reasonable attorney’s fee.

15 U.S.C. § 15. Despite the broad language of this provision,

the parties entitled to recover under this section have been

greatly limited through judicially created restrictions on

standing. See generally L. Sullivan, Handbook of the Law

of Antitrust § 247, at 770 (1977); Berger & Bernstein, An

Analytical Framework for Antitrust Standing, 86 Yale

L.J. 809 (1977); Lytle & Purdue, Antitrust Target Area

Under Section 4 of the Alleged Antitrust Violation, 25 Am.

U.L.Rev. 795 (1976).

In order to have standing under section 4 the plaintiff

must allege nonconclusory facts establishing that there has

been injury to the plaintiff’s business or property and that

the injury to the plaintiff’s business or property occurred

“by reason of” the antitrust violation. The plaintiff’s claim

may be dismissed for lack of standing as a matter of law,

John Lenore & Co. v. Olympia Brewing Co., 550 F.2d 495,

500 (9th Cir. 1977), where there is an insufficient showing

of causation. However, if the plaintiff states sufficient facts

to support his allegations that an antitrust violation has

occurred and that he has sustained injury to his business

or property, he is generally entitled to go to the jury on the

violation and injury issues. These two determinations, un-

like causation, are not questions of law; they are questions

of fact. See Woods Exploration & Producing Co. v. Alu-

minum Co. of America, 438 F.2d 1286 (5th Cir. 1971), cert.

denied, 404 U.S. 1047 (1972), aff'd after retrial, 509 F.2d

784 (5th Cir.), cert. denied, 423 U.S. 833 (1975) (whether

plaintiff is a prospective purchaser is a question of fact

Appendix 7

for the jury); Pacific Seafarer, Inc. v. Pacific Far East

Inne, 48 F.R.D. 347, 351 (D.D.C. 1969) (determination on

motion to dismiss is only whether the pleadings present a

triable antitrust issue and show the requisite causation).

IV

As stated above, Solinger alleges in his complaint that

the defendants committed actions that violate sections 1

and 2 of the Sherman Act and sections 4 and 7 of the Clay-

ton Act, 15 U.S.C. §$ 1, 2, 15 and 18. This Court determines

that Solinger has made a sufficient showing of antitrust

violations in his complaint to survive a motion to dismiss,

in view of the fact that we must take the allegations of the

complaint as true. Upon remand the district court should

consider whether antitrust violations have occurred,

whether there are genuine issues of material fact remain-

ing, and, if not, whether either party is entitled to judgment

as a matter of law.* We do note, however, that summary

judgment is not generally considered to be an appropriate

remedy in a case involving antitrust violations because such

claims usually involve extensive factual determinations.

Fortner Enterprises, Inc. v. United States Steel Corp., 394

U.S. 495, 500 (1967).

V

To have standing, Solinger must also show that he has

sustained injury to his business or property. In this case

Solinger was a prospective purchaser of a business. Some

courts have held that a prospective purchaser may not

3. In part VI of this opinion, we hold that plaintiff does not

have standing as a matter of law to pursue his section 7 claim.

Tt will therefore be unnecessary for the district court to determine

whether summary judgment should be granted as to the section 7

violation.

8 Appendiz

recover under section 4 because the amount of damage sus-

tained is not sufficiently ascertainable, and thus the plain-

tiff has not suffered tangible injury to his business or

property. E.g., Duff v. Kansas City Star Co., 299 F.2d

320, 323 (Sth Cir. 1962), see generally L. Sullivan, Hand-

book of the Law of Antitrust, § 247 at 770 (1977). We dis-

agree, however, and adopt the view that a prospective pur-

chaser who has taken substantial demonstrable steps to

enter an industry and who is thwarted in that purpose by

antitrust violations, has suffered a possible ascertainable

loss.

In making its determination whether the plaintiff is a

prospective purchaser, we suggest that the district court

should consider the approach adopted in Waldron v. British

Petroleum Co., 231 F. Supp. 72 (S.D.N.Y. 1964). In Wal-

dron, the court had to determine whether the plaintiff (who

had a written option contract to purchase Iranian oil), met

the standing requirements of section 4. In analyzing

whether the plaintiff had suffered the necessary injury to

“business or property” the court summarized the case law

in the various circuits as follows:

In determining whether a plaintiff has proved the

requisite intention and preparedness, the courts have

looked for varying combinations of the following typi-

cal elements:

1. The background and experience of plaintiff in his

prospective business . . .

2. Affirmative action on the part of plaintiff to engage

in the proposed business . .

3. The ability of plaintiff to finance the business and

the purchase of equipment and facilities necessary to

engage in the business... .

Appendix 9

4. The consummation of contracts by plaintiff .. .

Id. at 81-82 (citations omitted; emphasis supplied. )*

We, of course, take no position on the question whether

Solinger can support a factual determination that he met

the requirements of the intention and preparedness test

under the facts of this case. We simply remand the case

to the district court for a determination whether summary

judgment is appropriate on this issue and again note that

the issue whether the plaintiff is a prospective purchaser

is factual in nature and seldom presents a situation appro-

priate for a determination by summary judgment.

VI

The third element that Solinger must show in order to

sustain a claim under section 4 is that the loss to his busi-

ness or property was caused by the alleged antitrust vio-

lation. The injury caused by the violation must be one the

antitrust laws were designed to protect against. Brunswick

Corp. v. Pueblo Bowl-O-Mat, 429 U.S. 477 (1977). Cf. Han-

dler, Changing Trends in Antitrust Doctrines, 77 Columbia

L.Rev. 979, 989 to 993.

This Court has generally used the target area approach

in order to determine whether a given plaintiff has satis-

fied the causation element of standing.’ Bosse v. Crowell,

4. For other eases using the intention and preparedness test,

see Hecht v. Pro-Football, Inc., 570 F.2d 982 (D.C. Cir. 1976);

Quinonez v. National Assoc. of Securities Dealers, Inc., 540 F.2d

824 (5th Cir. 1976); Woods Exploration & Producing Co., Inc. v.

Aluminum Co., 438 F.2d 1286 (5th Cir. 1971).

5. The courts have used three different methods in order to

determine whether a given plaintiff has satisfied the causation ele-

ment: the target area approach, the direct injury approach, and

the zone of interests approach, the latter of which was recently

followed in Malamud v. Sinclair Oil Corp., 521 F.2d 1142 (6th

10 Appendix

Collier € MacMillan, 565 F.2d 602 (9th Cir. 1977); John

Lenore & Co. v. Olympia Brewing Co., 550 F.2d 495 (9th

Cir. 1977); In re Western Liquid Asphalt Cases, 487 F.2d

191 (9th Cir. 1973); In re Multi-district Vehicle Air Pollw-

tion, 481 F.2d 122, 129 (9th Cir.), cert. denied, 414 US.

1045 (1973). Under the target area approach the plaintiff

must show that he is within the area of the economy that

is endangered by a breakdown of competitive conditions.

Conference of Studio Unions v. Loew’s, Inc., 193 F.2d 51,

54-55 (9th Cir. 1951), cert. denied, 342 U.S. 919 (1952).

Solinger alleged that he has standing to pursue his claims

under section 1 and 2 both as a prospective purchaser of

I.M.S. and as an employee of that company. He argues

that he has standing to recover damages under section 1

of the Sherman Act because of the territorial restrictions

imposed by A&M and Motown and under section 2 of the

Sherman Act because of the territorial restrictions imposed

by A&M and Motown and under section 2 of the Sherman

Act because of a series of direct and indirect accuisitions -

by defendant Transamerica Corporation.

In order to have standing under section 4 when the plain-

tiff has alleged violations of sections 1 and 2, Solinger must

show that the injury occurred within an area of the econ-

omy that foreseeably would have been affected by the anti-

Cir. 1975). We have not commented on the zone of interests ap-

proach but we have criticized the direct injury test:

[I}f the claimant is separated from the violation by an inter-

mediate antitrust victim, standing is denied by attaching con-

clusory labels such as “remote”, “indirect”, and “consequen-

tial”. Resurrecting notions of privity, this test thus arbitrarily

forecloses otherwise meritorious claims simply because another

antitrust victim interfaces the relationship between the claim-

ant and the alleged violator.

In re Multidistrict Vehicle Air Pollution, 481 F.2d 122, 127 (9th

Cir.), cert. denied, 414 U.S. 1045 (1973). Compare: Sherman, Anti-

trust Standing: From Loeb to Malamind, 51 N.Y.U. L.Rev. 375;

Conclusion, 405 to 407 (1976).

Appendix 11

trust violation alleged. See, e.g., In re Western Liquid

Asphalt Cases, 487 F.2d 191, 199 (9th Cir. 1973), cert.

denied, 415 U.S. 919 (1974) (indirect purchaser in the chain

of distribution foreseeably injured by price-fixing con-

spiracy) ; Twentieth Century Fox Film Corp. v. Goldwyn,

328 F.2d 109, 220 (9th Cir.), cert. denied, 379 U.S. 880

(1964) (held that the plaintiff was within the area of the

economy that the defendant could reasonably have foreseen

would be affected by the alleged antitrust violations) ;

Hoopes v. Union Oil Co., 374 F.2d 480 (9th Cir. 1967) (les-

see’s interest in certain property sufficient to allow lessee

standing to sue for alleged antitrust violations, despite the

fact that the lessor could also have sued, because it was

foreseeable that the lessee’s interest would be affected.®

If Solinger can support a factual determination that he

was a prospective purchaser of I.M.S., he almost certainly

has standing to pursue a claim against A&M and Motown

for any territorial restriction that violates section 1 of the

Sherman Act. As a prospective purchaser of a company

and a potential new entrant into the market, Solinger

allegedly has heen foreclosed from entering the market

because of A&M’s and Motown’s anticompetitive refusal to

deal with him.” He is within the area of the economy that

6. This Court did not use the foreseeability approach in In re

Multidistrict Vehicle Air Pollution, 481 F.2d 122, 129 (9th Cir.),

cert, denied, 414 U.S. 1045 (1975) (farmer did not have standing

to sue for damages beeause of automotive antipollution devices, no

discussion of foreseeability.) However, the court again used a fore-

seeability test in Blankenship v. Hearst Corp., 519 F.2d 418 (9th

Cir. 1975).

7. A territorial restraint is “a promise by a buyer that he will

not sell the goods outside a specified area or to customers who reside

or have their place of business outside of that area.’’ Note, Re-

stricted Channels of Distribution under the Sherman Act, 75 Harv.

L.Rev. 795, 796 (1962). And see: Continental T.V., Inc. v. GTE-

Sylvania, Inc., 433 U.S. 36, (1977), overruling United States v.

12 Appendix

the defendants should have foreseen would be affected by

their violation of the antitrust laws, if any. In re Multidis-

trict Vehicle Air Pollution, 481 F.2d 122, 129 (9th Cir.

1973).

As a prospective purchaser Solinger is also entitled to

pursue his claim against Transamerica Corporation under

section 2 of the Sherman Act if its acquisitions caused

unreasonable barriers to entry. As a potential entrant to

the market, Solinger would be within the area of the

economy that Transamerica should have foreseen would be

affected by proof of its alleged violation of the antitrust

laws.

Solinger does not, however, have standing in his capacity

as an employee of I.M.S. to pursue his claims under section

1. He is not within the area of the economy that the anti-

trust laws were designed to protect. See Brunswick Corp.

v. Pueblo Bowl-O-Mat, 429 U.S. 477 (1977).* His loss of

salary was merely incidental to the alleged antitrust viola-

tion and was not within the area of the economy that the

defendants should have foreseen would be affected by its

violation.

A different causation test exists in order to show stand-

ing under section 4 of the Clayton Act when a section 7

Arnold Schwinn & Co., 388 U.S. 365 (1967), Id. 58. Sylvania

“stands in sharp contrast to the per se attitudes in United States v.

Topco Associates, Inc., 405 U.S. 596 (1972), and Albrecht v. Herald

Co., 390 U.S. 145 (1968)” Handler, Changing Trends in Antitrust

Doctrines, 75 Columbia L.Rev. 979, 980-988 (1977).

8. Shareholders, officers, and employees of corporations are gen-

erally denied standing to sue. Pitchford v. P.E.P.I. Inc. v. White

Motor Corp., 521 F.2d 1113 (2d Cir. 1975); Ash v. International

Business Machines, Inc., 353 F.2d 491 (3d Cir.), cert. denied, 384

US. 927 (1975). Note, Sylvania and Vertical Restraints on Distri-

bution, 19 Boston College L.Rev. 751.

Appendix 13

violation is alleged.® The plaintiff must be a “component

of the competitive infrastructure” or a “component of com-

petitive significance.” Bosse v. Crowell, Collier & Mac-

Millan, 565 F.2d 602, 607 (9th Cir. 1977) (citing John Le-

nore & Co. v. Olympia Brewing Co., 550 F.2d 495, 500 (9th

Cir. 1977)).

9. Although this Court has not so stated, the threshold causa-

tion inquiry of the target area test has varied depending upon the

type of antitrust violation that is alleged to have caused injury to

the plaintiff. In cases in which a section 1 or 2 violation is alleged,

the test is whether the antitrust violation is clearly within the area

of the economy that the defendants should have or did foresee

would be endangered by the breakdown of competitive conditions.

Blankenship v. Hearst Corp., 519 F.2d 418 (9th Cir. 1975) ; Twen-

tieth Century Fox Film Corp. v. Goldwyn, 328 F.2d 190, 220 (9th

Cir.), cert. denied, 379 U.S. 880 (1969); Conference of Studio

Unions v. Loew’s Inc., 193 F.2d 51, 54-55 (9th Cir. 1951), cert.

denied, 342 U.S. 919 (1952). When a section 7 violation is alleged,

however, the plaintiff must be a “component of the competitive

infrastructure” or a “component of competitive significance.” Bosse

v. Crowell, Collier & MacMillan, 565 F.2d 602, 607 (9th Cir. 1977)

(citing John Lenore & Co. v. Olympia Brewing Co., 550 F.2d 495,

500 (9th Cir. 1977)). The difference is logical. An antitrust viola-

tion occurs under section 7 of the Clayton Act if there is a merger

or acquisition that causes substantial lessening of competition or a

tendeney to monopoly “in any line of commerce in any section of

the country.’’ 15 U.S.C. § 18 (1976). Befére a private party can

be injured directly by the type of violation section 7 was designed

to prevent, the party must be an existing competitor in the relevant

market. Although others may feel tangential effects of lessening

competition, such as raised prices or limited supply, the only imme-

diate injury caused by an illegal merger or acquisition is a lessen-

ing of competition and only a competitor could be directly affected.

The test for standing that this Court has used for a section 7 vio-

lation is designed to allow only those parties who are injured

directly to sue. Thus, the statement that a party must be a member

of the competitive infrastructure is simply another way of saying

that only a competitor within a given market can be injured by a

given merger or acquisition and only those parties should have

standing to sue.

When a section 1 violation is alleged, however, the scope of par-

ties who ean be directly injured by an action that “the antitrust

laws are designed to prevent” is much broader. It is not only the

competitor who is directly injured. Under section 1 of the Sherman

Act, “[e]very contract, combination*f the form of trust or other-

14 Appendix

In this case Solinger is not a “member of the competitive

infrastructure” or a “component of competitive signifi-

cance” either in his capacity as a prospective purchaser or

in his capacity as an employee. He has no standing as a

matter of law to pursue his claim under section 7 and the

district ccurt’s dismissal of this portion of the complaint

was proper.

Affirmed in part, reversed in part, and remanded in part.

wise, or conspiracy, in restraint of trade or commerce among the

several States or with foreign nations, is declared to be illegal.” 15

U.S.C. §1 (1976). The most obvious examples of parties who are

not competitors but who are affected by section 1 antitrust viola-

tions are those who feel the effects of a secondary boycott and

potential competitors who are attempting to enter the market but

who are precluded from doing so because of barriers to entry. Indi-

vidual consumers may be directly affected by an illegal tying

arrangement.

Because a party other than a competitor who alleged a section 1

or 2 violation may be within the area of the economy that the anti-

trust laws are designed to protect, this Court has formulated an-

other test for standing. As discussed in this opinion, the test is

foreseeability.