Petition — Ohio-Sealy Mattress Manufacturing Co. v. Sealy, Inc.

ALEXANDER L

NO. CLERK

IN THE

Supreme Court Of The United States

OCTOBER TERM, 1983

OHIO-SEALY MATTRESS

MANUFACTURING COMPANY, et al.,

Petitioners,

Vv.

SEALY, INCORPORATED,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE SEVENTH CIRCUIT

FREDERIC F. BRACE, Jr., P.C.*

PATRICK J. O’DONNELL

Brace & O’DONNELL

332 South Michigan Avenue

Suite 1858

Chicago, Illinois 60604

(312) 347-4400

Attorneys for Petitioners

*Counsel of Record

STEVAg,

aK egal ie

wiih

PRN Os ie a A

Sn

QUESTIONS PRESENTED

1. Is the contractual question of waiver of arbitration—as op-

posed to the statutory* question of “default in proceeding with

such arbitration” —to be decided by the court or the arbitration

panel? (There is a conflict between the Second Circuit and the

Seventh Circuit on this issue.)

(Discussed infra, pp. 4-6)

2. Is it per se lawful for a trademark licensor to impose royal-

ties on non-trademarked goods?

(Discussed infra, pp. 6-8)

|

ii

TABLE OF CONTENTS

CRUESIIONS PRESENTED eee ecisi eee eect

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TABLE OF AUTHORITIES ............eceeeecvees

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PRESEN ass vocgices Cepbsdecsectooacconave

STATUTORY PROVISIONS INVOLVED ...........

STATEMENT OF THE CASE ...............e0008.

REASONS FOR GRANTING THE WRIT...........

The Decisions Below Deprived Petitioners Of Their

Statutory Right Under Sections 3 and 4 Of The Federal

Arbitration Act To Have All Contractual Questions

—Including The Question Of Waiver—Decided By

The Arbitration Pane)... i035. 2... 0c ccscinccesewes

The Decisions Below In Effect Created An Antitrust

Rule Of “Per Se Legality” For Conditioning The Use

Of Powerful Trademarks On The Payment Of Royal-

ties On Non-Trademarked Products...............

r Page

APPENDIX:

Opinion Sought To Be Reviewed:

Opinion of the United States Court of Appeals for the

Seventh Circuit, July 7, 1983.............-05- Al

Other Opinions And Orders In This Case:

Memorandum Opinion and Order of the United States

District Court for the Northern District of Illinois,

DRS PR ADEE Nace cicccvdtwapaedc ts cement All

Memorandum Opinion and Order of the United States

District Court for the Northern District of Illinois,

BeptemGer 46; 1962... . vdcicdccvetweess obese A4l

Miscellaneous:

Statements pursuant to Rules 21.1(b) and 28.1...... A46

iv

TABLE OF AUTHORITIES

Cases

Almacenes Fernandez, S.A. v. Golodetz, 148 F.2d 625

DE ROOD Wiss ces Secs o Beds uowee cueeres

Carcich v. Rederi A/B Nordie, 389 F.2d 692 (2d Cir.

Lee v. Ply*Gem Industries, Inc., 593 F.2d 1266 (D.C.

CEE a 5's vaigd oh otc gedevdchdecespnsens

Moses H. Cone Memorial Hospital v. Mercury Con-

struction Corp., US. , 103 S.Ct. 927

ERG UD eS ping SFb up a0cgtervgsectbogewecss

Ohio-Sealy Mattress Mfg. Co. v. Sealy, Inc., 585 F.2d

821 (7th Cir. 1978), cert. denied, 440 U.S. 930

Poller v. Columbia Broadcasting System, Inc., 368

RED. SC CIOUED , acl kbsces Qcbeanctsseucsauh

Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388

BP, SH LOGED siv'slc Cy 6 0 obs bo aH SRE ae

Zenith Radio Corp. v. Hazeltine Research, Inc., 395

BE ME AGGD) 6 cc sO NEUE CbtRP Soc de ccvcecua

Section 3 of the Federal Arbitration Act

es BS: cles kp tts adh ie od wh cued cue ves

Section 4 of the Federal Arbitration Act

DU SRS GH irs ss ikedeasndvetscasgucecd rr

NO.

IN THE

Supreme Court Of The United States

OCTOBER TERM, 1983

OHIO-SEALY MATTRESS

MANUFACTURING COMPANY, et al.,

Petitioners,

Vi

SEALY, INCORPORATED,

Respondent.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE SEVENTH CIRCUIT

Petitioners Ohio Sealy Mattress Manufacturing Company and

its subsidiaries’ pray that a writ of certiorari issue to review a

judgment of the United States Court of Appeals for the Seventh

Circuit.

OPINIONS BELOW

The opinion of the Court of Appeals for the Seventh Circuit is

set forth commencing at page Al of the Appendix hereto. The

sf Memorandum Opinion and Order of the United States District

+ Court for the Northern District of Illinois dated July 20, 1982 is

reported at 545 F. Supp. 765, and is set forth at page All of the

‘Petitioners’ statements pursuant to Supreme Court Rules 21.1(b) 4

and 28.1 are set forth in the Appendix hereto at page A46. ‘s:

2

Appendix hereto. The Memorandum Opinion and Order of the

United States District Court for the Northern District of Illinois

dated September 10, 1982 is set forth at page A41 of the Appen-

dix hereto.

JURISDICTION

The judgment of the United States Court of Appeals for the

Seventh Circuit was entered on July 7, 1983. This petition for cer-

tiorari was filed within 90 days of that date. This Court has juris-

diction to review the judgment by writ of certiorari under 28

U.S.C. § 1254(1).

STATUTORY PROVISIONS INVOLVED

Section 3 of the Federal Arbitration Act, 9 U.S.C. § 3, states:

If any suit or proceeding be brought in any of the courts of

the United States upon any issue referable to arbitration

under an agreement in writing for such arbitration, the court

in which such suit is pending, upon being satisfied that the is-

sue involved in such suit or proceeding is referable to arbitra-

tion under such an agreement, shall on application of one of

the parties stay the trial of the action until such arbitration

has been had in accordance with the terms of the agreement,

providing the applicant for the stay is not in default in

proceeding with such arbitration. (Emphasis added.)

Section 4 of the Federal Arbitration Act, 9 U.S.C. § 4, states in

pertinent part:

A party aggrieved by the alleged failure, neglect, or refusal

of another to arbitrate under a written agreement for arbi-

tration may petition any United States district court which,

save for such agreement, would have jurisdiction under Title

28, in a civil action or in admiralty of the subject matter of a

suit arising out of the controversy between the parties, for an

order directing that such arbitration proceed in the manner

provided for in such agreement . . - The court shall hear the

3

parties, and upon being satisfied that the making of the

agreement for arbitration or the failure to comply therewith

is not in issue, the court shall make an order directing the

parties to proceed to arbitration in accordance with the

terms of the agreement. (Emphasis added. )

STATEMENT OF THE CASE

In March, 1976 a dispute arose between petitioners and respon-

dent regarding petitioners’ obligation to pay royalties under a

trademark licensing agreement, and petitioners immediately

requested arbitration pursuant to an arbitration provision con-

tained in that agreement. Respondent did not proceed to arbi-

tration, however, and by October, 1977, the royalty dispute had

expanded to include non-arbitrable antitrust questions as well as

arbitrable contractual questions. Accordingly, petitioners offered

to have “the matter” resolved by litigation or arbitration when-

ever respondent chose. Respondent took no action whatsoever for

six months, at which time it sought to recover the disputed royal-

ties by means of a counterclaim in a pending antitrust action. Pe-

titioners promptly answered respondent’s counterclaim, setting

up respondent’s failure to arbitrate, and respondent’s antitrust

violations as defeases.

The matter remained in this posture for another 30 months—

until November, 1980—at which time petitioners moved, inter

alia, to compel arbitration pursuant to Section 4 of the Federal

Arbitration Act. Respondent countered with a motion for sum-

mary judgment on its counterclaim.

The matter remained in this posture for another 21 months—

until July, 1982—at which time the district court denied peti-

tioners’ request for arbitration and granted respondent's motion

for summary judgment. Petitioners filed an interlocutory appeal

and the Court of Appeals for the Seventh Circuit affirmed both

the denial of arbitration and the grant of summary judgment. ©

4

REASONS FOR GRANTING THE WRIT

1. The Decisions Below Deprived Petitioners Of Their

Statutory Right Under Sections 3 and 4 Of The

Federal Arbitration Act To Have All Contractual

Questions—Including The Question Of Waiver—

Decided By The Arbitration Panel.

Petitioners contend that the royalties, royalty increases and

late charges at issue were assessed contrary to the terms of the

license agreement and in violation of the antitrust laws. The dis-

pute therefore encompassed both contractual disputes, which

were susceptible of arbitration, and antitrust disputes, which

must be resolved by litigation. Lee v. Ply*Gem Industries, Inc.,

593 F.2d 1266, 1274-75 (D.C. Cir. 1979).

Petitioners’ right to have the contractual issues decided by ar-

bitration is a substantive federal right. Moses H. Cone Memorial

Hospital v. Mercury Construction Corp., US.

' , 103 S.Ct 927, 941 (1983). When presented with a

motion to stay proceedings pending arbitration, the limits of the

trial court’s inquiry are narrowly confined by Section 3 of the

Federal Arbitration Act, 9 U.S.C. § 3: the trial court can only de-

termine (1) whether there is “an agreement in writing,” (2)

whether the “‘issue involved . . . is referable to arbitration under

such an agreement,” and (3) whether the “applicant for the stay

is not in default in proceeding with such arbitration.” When pre-

sented with a motion to compel arbitration, the limits of the

court’s inquiry are similarly confined by Section 4 of the Federal

Arbitration Act, 9 U.S.C. § 4: the court can only determine (1)

whether there is “a written agreement for arbitration,” (2)

whether the court would have jurisdiction “save for such

agreement,” and (3) whether there has been a “failure to comply

therewith.” If either set of narrow questions is answered in favor

of the party secking arbitration, the inquiry is ended and arbitra-

tion must follow. Moses H. ee een rare

Construction Corp., id. at 940.

5

In this case neither the district court nor the Court of Appeals

paid sufficient heed to the mandate of the Federal Arbitration Act

—indeed, the district court did not even mention that Act. In-

stead the district court looked to “equitable considerations of

waiver and estoppel” (Appendix, A32), it ignored petitioners’

requests for arbitration going back six years, and it concluded

that petitioners’ pre-suit failure to specify that only the antitrust

issues were to be litigated constituted a “waiver” of arbitration.

While the Court of Appeals mentioned Section 3 of the Federal

Arbitration Act, it held, in effect, that petitioners had “defaulted

in proceeding” with an arbitration that had never been initiated

by respondent, the party seeking relief. Moreover, the Court of

Appeals did not mention Section 4 of the Act, which contains no

exception for an alleged “default in proceeding with such arbitra-

tion.”

But the Court of Appeals’ error went beyond its failure to obey

the carefully-worded mandate of the Federal Arbitration Act. By

looking to “all the facts and circumstances” (Appendix, A4), and

by declining to adopt a “rigid rule as to what constitutes a waiver

of an arbitration agreement” (Appendix, A5), the Court of Ap-

peals subverted the Congressional policy favoring arbitration.

Although petitioners’ first judicial act with respect to respon-

dent’s counterclaim was to reassert the arbitration agreement, pe-

titioners were nevertheless held solely accountable for the four

year delay during which the district court took no action on peti-

tioners’ request for arbitration. (Appendix, A5)

“[I]n passing upon a § 3 application for a stay while the parties

arbitrate, a federal court may consider only issues relating to the

making and performance of the agreement to arbitrate.” Prima

Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404

(1967). In this case there is no dispute as to the existence or

validity of the arbitration provision, nor does respondent deny

that the subject matter is arbitrable. The Second Circuit has held

that doing what petitioners did—raising arbitration in the answer

6

and later moving for a stay pending arbitration—precludes a

finding of default under Section 3. Carcich vy. Rederi A/B Nordie,

389 F.2d 692 (2d Cir. 1968); Almacenes Fernandez, S.A. v.

Golodetz, 148 F.2d 625 (2d Cir. 1945). The inquiry should have

been ended at this point and arbitration should have been

ordered. But the courts below went on to consider the effect of

petitioners’ statement that they stood “ready to have the matter

resolved by litigation or arbitration,” and it was held that this

statement constituted a waiver of their contractual right to arbi-

tration. In so holding, the lower courts made the fundamental

mistake of deciding an issue exclusively within the domain of the

arbitration panel.

The Arbitration Act establishes that, as a matter of federal

law, any doubts concerning the scope of arbitrable issues

should be resolved in favor of arbitration, whether the prob-

lem at hand is the construction of the contract language itself

or an allegation of waiver, delay, or a like defense to arbi-

trability.”

Moses H. Cone Memorial Hospitai vy. Mercury Construction

Corp., US. , 103 S.Ct. 927, 941-42 (1983).

Petitioners are confident that they can prevail on the question

of waiver at an evidentiary hearing before an arbitrator, but peti-

tioners have been deprived of that opportunity by the action of the

courts below in summarily ruling against arbitration. That sum-

mary action against arbitration is the exact opposite of the

procedure mandated by Congress in Sections 3 and 4 of the

Federal Arbitration Act.

2. The Decisions Below In Effect Created An Antitrust

Rule Of “Per Se Legality” For Conditioning The

Use Of Powerful Trademarks On The Payment Of

Royalties On Non-Trademarked Products.

The Court of Appeals affirmed without discussion the trial

court’s summary judgment denying petitioners’ trademark mis-

f

7

use defenses (Appendix, A10). These defenses were based upon

Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100,

139 (1969). In that case the Court held that misuse can be found

where there is insistence on exacting a royalty based on a percent-

age of total sales and rejection of proposals to pay only for actual

use. /bid. Because the Court of Appeals in Zenith had not deter-

mined whether the trial court had been correct in finding misuse,

the case was remanded to the Court of Appeals. The same result

should follow here.

The district court based its summary judgment on the Court of

Appeals’ decision in an earlier case between the same parties,

Ohio-Sealy Mattress Mfg. Co. v. Sealy, Inc., 585 F.2d 821 (7th

Cir. 1978), cert. denied, 440 U.S. 930 (1979), assuming that the

facts had not changed. (Appendix, A38). Although petitioners

pointed out that the record showed that the facts had indeed

changed, the trial court still refused to conduct an evidentiary

hearing. (Appendix, A43). The district court thus compounded

its earlier error in stating, based on no evidence whatsoever, that

respondent provided petitioners with “services” which benefited

the non-trademarked products involved. (Appendix, A39).

If petitioners are ever granted an evidentiary hearing, they can

show that respondent’s royalties on non-trademarked products

unreasonably restrain interbrand (Sears v. Sealy) competition,

but neither the District Court nor the Court of Appeals allowed

such a hearing. Summary procedures should be used sparingly in

complex antitrust litigation, Poller v. Columbia Broadcasting

System, Inc., 368 U.S. 464, 473 (1962), yet nothing could be

more summary than the procedures employed below.

CONCLUSION

During this case’s six-year pendency in the District Court

neither a judge nor an arbitrator heard a word of testimony, but

the facts were resolved against petitioners nevertheless.

This petition for a writ of certiorari should be granted.

Respectfully submitted,

FREDERIC F. BRACE, Jr., P.C.

PATRICK J. O’DONNELL

OF COUNSEL:

Brace & O'Donnell

332 S. Michigan Avenue

Suite 1858

Chicago, Illinois 60604

(312) 347-4400

Attornevs for Petitioners

ras

Al

in the

United States Court of Appeals

Hor the Seventh Circuit

No. 82-2367

Ou!0-SEALY MATTRESS MANUFACTURING COMPANY, SEALY

MATTRESS COMPANY OF Houston, SEALY MATTRESS COMPANY

OF Fort WorTH, SEALY MATTRESS COMPANY OF PUERTO RICO,

Inc., SEALY Or THE NorTHEAST, and SEALY MATTRESS

COMPANY OF GEORGIA,

Piaintiffs-Appellants,

v.

Morris A. KAPLAN, SEALY MATTRESS COMPANY OF ILLINOIS,

WILLIAM H. WaLzer, SEALY CONNECTICUT, INC., SEALY

GREATER New York, INC., WATERBURY MATTRESS COMPANY,

MorTON H. YULMAN, SEALY OF EASTERN New York, INC.,

SEALY OF MINNESOTA, INC., Peter D. Brown, SEALY

MATTRESS COMPANY OF MICHIGAN, INC., T.C, ENGLEHARDT,

Jr., FRED G. HopGes BEDDING Company (A/K/A SEALY Mat-

TRESS COMPANY OF READING, Pa.), SEALY Or Des Mornes, INC.,

WALTER HERTZ, SEALY MATTRESS COMPANY OF New JERSEY,

Inc., JosepH V. Morritt, SEALY Or THE CAROLINAS, PEERLESS

MATTRESS COMPANY, LLOYD B. ROSENFELD, SEALY MATTRESS

COMPANY OF OREGON, JosepH R. RUDICK, MARYLAND

BEDDING COMPANY, JAMES THOMPSON, Howarp G. HAas,

SEALY INCORPORATED, SEALY SPRING COKPORATION, SEALY

MATTRESS COMPANY OF COLORADO, INC., SEALY MATTRESS

COMPANY OF NORTHERN CALIFORNIA, INC., SEALY MATTRESS

COMPANY OF SOUTHERN CALIFORNIA, INC., SEALY MATTRESS

ComMPANY OF ARIZONA, INC., SEALY MATTRESS COMPANY OF

FLoripa, Inc., SEALY MATTRESS COMPANY OF PITTSBURGH,

Inc., and SEALY MATTRESS COMPANY OF PHILADELPHIA, INC.,

Defendants-Appellees.

(Caption continued on following page)

A2

Appeal from the United States District Court

for the Northern District of Ilinois, Eastern Division.

No. 76 C 810—Marvin E. Aspen, Judge.

ARGUED MARCH 28, 1983—Decipep JuLy 7, 1983

Before CUMMINGS, Chief Judge, BAUER and Correy, Circuit

Judges.

Bauer, Circuit Judge. The issue in this case is whether Ohio-

Sealy, Inc. waived its express right to arbitrate the amount of

royalties due under its license agreement with Sealy, Inc. The dis-

trict court held that Ohio-Sealy waived its contractual right to ar-

bitration when it told Sealy “[ W Je stand ready to have the matter

resolved by litigation or arbitration whenever you so choose.” Ac-

cordingly, the district court refused to stay Sealy’s counterclaim

pending arbitration and ruled, as a matter of law, that Sealy was

entitled to withheld royalties and late charges. We affirm.

The controversy arose when Ohio-Sealy attempted to collect a

multi-million dollar judgment’ it had won against Sealy in a 1975

antitrust suit. The judgment had been stayed without bond, and

during the stay Ohio-Sealy continued to pay Sealy royalties and

other monies due under the license agreement. In March, 1976,

however, Ohio-Sealy began withholding these monies and credit-

ing them against the 1975 judgment. Ohio-Sealy also filed this ac-

tion, charging that Sealy’s Board of Directors was continuing to

engage in the very conduct which had been held to be anticompet-

itive in the 1975 action. The contract claims raised in this appeal

are just some of the many claims raised in Ohio-Sealy’s six-count,

seventy-two page amended complaint.

‘Judgment originally was entered for 20.4 million dollars but was sub-

sequently reduced to 10.2 million dollars by remittur.

A3

Sealy objected to the withholding of the monies, contending

that Ohio-Sealy’s action violated the license agreement. Sealy

also moved to stay the new action Ohio-Sealy had just filed. The

stay was granted. During the two-year stay the parties continued

to dispute amounts due under the license agreement. Ohio-Sealy

urged that these disputes be submitted to arbitration. Sealy re-

sponded by threatening to terminate Ohio-Sealy’s license. In

1977, after considerable haggling, Ohio-Sealy made the following

proposal: (1) it conceded the lawfulness of some of the royalties

claimed by Sealy; (2) it issued a credit memorandum for the

amount of these royalties; and (3) it offered to have the dispute

over the remaining royalties resolved by litigation or arbitration.

One year after Ohio-Sealy made this proposal the stay was lifted.

Sealy then answered Ohio-Sealy’s complaint and counterclaimed

for the unpaid royalties and late charges.

After the 1975 judgment was upheld in this court and the Unit-

ed States Supreme Court denied certiorari, Ohio-Sealy Mattress

Manufacturing Co. v. Sealy, Inc., 585 F.2d 821 (7th Cir. 1978),

cert. denied, 440 U.S. 930 (1979), Sealy satisfied the judgment.

Thereafter it renewed its threat to terminate Ohio-Sealy’s license

unless Ohio-Sealy paid all disputed royalties; Ohio-Sealy

acquiesced under protest. The amount Ohio-Sealy remitted, how-

ever, did not include late charges. The disputed royalties and late

charges are the subject of this appeal.

Contending that the royalties and late charges were contested

on antitrust as well as contractual grounds, Ohio-Sealy requested

the district court to stay consideration of the merits of Sealy’s

counterclaim until after arbitration. The district court, however,

held that Ohio-Sealy had waived its right to insist on arbitration

because, for approximately five years, it had offered Sealy the

choice of resolving the dispute by litigation or arbitration. The

district court also ruled on the merits of Sealy’s counterclaim,

granting summary judgment in Sealy’s favor.

"

)

A4

II

Ohio-Sealy contends that the district court erred in concluding

that Ohio-Sealy waived its right to arbitration. Relying on section

3 of the Federal Arbitration Act, 9 U.S.C. § 3, Ohio-Sealy main-

tains that it did not waive its right to arbitration because it was

not in default within the meaning of the statute. Ohio-Sealy as-

serts that to sustain a finding of default under section 3 the record

must establish that: (1) the party seeking to invoke the right to

arbitration took some judicial action inconsistent with the exer-

cise of that right; and (2) the party opposing arbitration was

prejudiced by that inconsistency. Ohio-Sealy maintains that

neither of these two elements was satisfied.

Emphasizing that federal policy strongly favors arbitration and

that the purpose of the Federal Arbitration Act, 9 U.S.C. § 1 ef

seq., is to make agreements irrevocable and enforceable, Ohio-

Sealy states that it has sought arbitration consistently since 1976.

Further, it maintains that it did not default within the meaning of

the statute because it raised the arbitration issue in its answer and

later filed a motion for a stay pending arbitration.

To determine whether a party has defaulted in proceeding with

arbitration, thereby waiving the arbitration agreement, the court

must analyze al! the facts and circumstances. Martin Marietta

Aluminum, Inc. v. General Electric Co., 586 F.2d 143 (9th Cir.

1978). Prejudice and delay are significant factors the court must

consider in applying the default provision of section 3 of the

Federal Arbitration Act, 9 U.S.C. § 3. In re Mercury Construc-

tion Corp., 656 F.2d 933 (4th Cir. 1981), aff'd sub nom. Moses H.

Cone Memorial Hospital v. Mercury Construction Corp., 103 S.

Ct. 927 (1983); Midwest Window Systems, Inc. v. Amcor Indus-

tries, Inc., 630 F.2d 535 (7th Cir. 1980).

Ohio-Sealy states that as early as October, 1977, it told Sealy

to arbitrate of litigate in order to collect the disputed royalties.

The record is replete with correspondence reiterating Ohio-Sea-

ly’s offer. Appendix, Vol. IT at 534, 902, 904, 905, 919-20. Ohio-

Sealy argues that this correspondence does not constitute par-

ahs tae se

AS

ticipation in any judicial proceeding and, therefore, should not

have been considered by the court. We cannot agree. There is no

rigid rule as to what constitutes a waiver of an arbitration

agreement; the issue depends on the facts of the particular case.

Reid Burton Construction, Inc. v. Carpenters District Council of

Southern Colorado, 614 F.2d 698 (10th Cir.), cert. denied, 449

U.S. 824 (1980). Delay, especially when it causes actual

prejudice, may constitute default under the statute. Jn re Mercury

Construction Corp., 656 F.2d 933 (4th Cir. 1981), aff'd sub nom.

Moses H. Cone Memorial Hospital v. Mercury Construction

Corp., 103 S. Ct. 927 (1983). See also Dickstein v. du Pont, 443

F.2d 783 (1st Cir. 1971). And, the correspondence is highly

relevant to whether Ohio-Sealy asserted its right to arbitration in

a timely manner.

We are aware that when a party raises its arbitration right as

an affirmative defense, the party seeking to prove waiver has a

heavy burden. Martin Marietta Aluminum, Inc. v. General Elec-

tric Co., 586 F.2d 143 (9th Cir. 1978). We believe, however, that

Sealy has sustained that burden. Sealy has offered evidence that,

despite the arbitration provision, Ohio-Sealy continually has

offered Sealy the option of litigation or arbitration. Sealy chose

litigating, filing its answers and counterclaim soon after the stay

was lifted. Both parties then went forward with the litigation, en-

gaging in extensive pretrial activities. Clearly, in view of Ohio-

Sealy’s participation in these proceedings, and its failure to assert

its right to arbitration, Sealy was justified in concluding that

Ohio-Sealy had decided to waive arbitration.

Without conceding that it was guilty of delay in seeking arbitra-

tion, Ohio-Sealy argues that assuming, arguendo, it did delay, the

trial judge failed to consider whether this delay prejudiced Sealy.

Ohio-Sealy asserts that the trial court’s failure to consider the is-

sue of prejudice automatically mandates reversal. Appellants’ br.

at 13. It is difficult to understand how Ohio-Sealy can make this

assertion, for the trial judge specifically stated that “[w Jaiver will

A6é

be found where the party seeking to invoke the right to arbitration

has taken some action inconsistent with the exercise of that right

and the party opposing arbitration has been prejudiced by that in-

consistency.’ Ohio-Sealy Mattress Manufacturing Co. v. Sealy,

Inc., No. 76 C 810, slip op. at 22 (N.D. Ill. Aug. 20, 1982).

Similarly, it is difficult to understand how Ohio-Sealy can con-

tend that Sealy would not have been prejudiced if Ohio-Sealy

were permitted to insist on its right to arbitration after Sealy had

embarked on protracted litigation. As the trial judge noted, Sealy

expended considerable time and money on extensive discovery,

document production and briefing on the merits of the royalty dis-

pute. Moreover, forcing Sealy to abandon the litigation in favor of

arbi:ration would have delayed Sealy’s receipt of the unpaid, long

overdue royalties.

The only action Ohio-Sealy took that can be construed as a

demand for arbitration was to file the “Plaintiffs’ Motion Re

Counterclaim,” which requested the district court to grant sum-

mary judgment in Ohio-Sealy’s favor. In the alternative, Ohio-

Sealy requested that, if it did not prevail on its summary judg-

ment motion, the court “enforce the Federal Arbitration Act by

staying further proceedings on the counterclaim pending resolu-

tion of the contractual issues by arbitration.” Plaintiffs’ Motion

Re Counterclaim § 5, Plaintiffs’ Appendix, Vol. II at 807.

We find Ohio-Sealy’s position internally contradictory. After

offering Sealy the choice of litigating arbitrable issues and actual-

ly participating in the litigation of these issues, Ohio-Sealy now

seeks to avoid the results of that litigation. Ohio-Sealy cannot

have it both ways. It acquiesced in Sealy’s choice of litigation;

now it must live with the consequences of that acquiescence. We

find the district court properly held that “[h]aving consistently

maintained that it stood ready to resolve the question of the royal-

ties and attendant charges by arbitration or litigation at Sealy’s

pleasure, Ohio-Sealy cannot now be heard to complain that Sealy

A7

made the wrong choice.” Ohio-Sealv Mattress Manufacturing

Co. v. Sealy, Inc., No. 76 C 810, siip op. at 22 (N.D. IIL Aug. 20,

1982) (emphasis in the original).’

Ill

The next issue is whether the district court correctly granted

summary judgment in Sealy’s favor on the counterclaim. Ohio-

Sealy contends that the judge erred in granting summary judg-

ment because Ohio-Sealy’s contractual defenses raised genuine

issues of material fact.

The 1975 license agreement provides that Ohio-Sealy shall pay

royalties on all products considered to be “Sealy Products.” The

agreement defines “Sealy Products” as those products that, with

Sealy’s approval, bear a Sealy Mark, or are manufactured ac-

cording to specifications issued by Sealy (whether or not they

bear a Sealy Mark), or are produced, with Sealy’s approval, in

Licensee’s plant at specified locations. License Agreement Article

I, 9 A, Plaintiffs’ Appendix in Vol. II at 819.

After the parties had entered into this agreement, Ohio-Sealy

began manufacturing bedding for Sears Roebuck. Sealy claimed

royalties on these products; Ohio-Sealy insisted that this bedding

did not fall within the license definition of ‘Sealy Products.” The

district court held Sealy was entitled to royalties on the bedding

manufactured for Sears Roebuck because Sealy had approved the

manufacture of this bedding by: (1) approving Ohio-Sealy’s move

from its existing plant to a larger plant which Ohio-Sealy claimed

was necessary to handle increased volume, including the Sears

business; and (2) approving the transportation of Sears bedding

in trucks bearing the Sealy name and logo.

*Ohio-Sealy also claims that the district court erred in applying the

permeation doctrine. Because the district court grounded its decision on

the waiver issue we need not consider whether the permeation doctrine

would have required the court to deny arbitration because the antitrust

claims were inextricably intertwined with the contractual claims.

A8

Ohio-Sealy claims that evidence in the record contradicts the

lower court finding that Sealy approved the manufacture of Sears

bedding. It states that Sealy did not pressure Ohio-Sealy to per-

form its contractual duty to report the volume of the Sears sales in

order to ascertain the amount of royalties due on these sales and

that Sealy did not attempt to collect these royalties until two

years after they had accrued. This contradictory evidence, Ohio-

Sealy reasons, precludes summary disposition.

Ohio-Sealy’s arguments are not persuasive. As the trial court

noted, the license agreement did not specify what conduct would

constitute approval of the manufacture of non-Sealy label

products to bring these within the royalty provisions. The record,

however, reveals that Sealy was well aware that Ohio-Sealy was

producing and selling bedding to Sears and that Sealy approved

the use of Ohio-Sealy’s plants and trucks to facilitate the Sears

business. Sealy’s letter approving Ohio-Sealy’s move to a larger

Georgia plant stated:

Although your [Ohio-Sealy’s] sales reports to Sealy, Inc.

have not indicated any significant increase in the Tucker

plant’s operating level from 1974 to 1976, we are aware of

the need for increasing the volume of Sealy sales in Georgia.

(Of course our current picture is incomplete, especially as to

the Sears business, since your 1977 royalty report is not yet

due.) We trust that the expanding business to which you

refer, including the Sears business, will enable you to take

full advantage of the increased capacity and greater

efficiency that the new facility will provide.

Letter dated October 14, 1977, Plaintiffs’ Appendix, Vol. II at

563. It is difficult to imagine a more explicit approval. Because

Ohio-Sealy has offered no evidence to contradict the obvious con-

clusion that this approval was granted because Sealy anticipated

increased sales, and, thus, increased royalties from the sale of

non-Sealy label bedding, we hold that the trial judge properly

granted summary judgment in Sealy’s favor.’

‘Similarly, we think Sealy’s agreement to permit non-Sealy label bed-

ding to be transported in trucks bearing the Sealy name and logo consti-

tutes approval, bringing the Sears sales within the royalty provisions.

* You

A9

Further, we find Ohio-Sealy’s assertion that genuine issues of

material fact exist with respect to the computation of royalties

equally unavailing. Ohio-Sealy argues that the royalties on the

Sears bedding were not computed in accordance with the formula

contained in Article VII of the license agreement. The formula

requires Ohio-Sealy to pay royalties on only one-half of its sales in

excess of the Royalty Sales Base. Assuming arguendo that it is

obligated to pay royalties on the sales of Sears bedding, Ohio-

Sealy contends those sales should be included in the Royalty Sales

Base and all royalties due Sealy should be recomputed. Instead,

royalties on the Sears sales were calculated by computing the per-

centage of Ohio-Sealy’s previous Royalty Sales Base to its total

net sales and applying that percentage to the Sears sales, thereby

requiring Ohio-Sealy to pay the full royalty on a higher percent-

age of the Sears sales than it would have paid if the Royalty Sales

Base had been recalculated to include the Sears sales.

The license agreement is silent as to how to compute royalties

on unreported sales disclosed by triennial audits. For this reason,

the method outlined in the Sealy Policies and Procedures Manual

was applied to compute these royalties. The trial judge held that

Ohio-Sealy’s challenge to this method of computing royalties on

previously unreported sales had no merit “in light of the clear

procedure mandated by the Sealy Policies and Procedure Manual

followed in this case.” Ohio-Sealy Mattress Manufacturing Co.

v. Sealy, Inc., No. 76 C 810, slip op. at 30 (N.D. Iii. Aug. 20,

1982). Ohio-Sealy, however, emphasizes that the license

agreement provides that no provision of this Manual “shall be

binding to the extent that it shall contravene or be inconsistent

with the provisions of [the license agreement], License

Agreement Article IV, § D, Plaintiffs’ Appendix, Vol. II at

830-31. It claims that computing the royalties on the Sears sales

according to the method outlined in tiie Manual instead of the

method specified in the license agreement does just that. This ar-

gument is unpersuasive. If the license agreement specifies no

Shaws.

Al0

method of computing royalties on newly discovered sales, there is

nothing that the Manual can contradict.

IV

Similarly, we have considered Ohio-Sealy’s challenge to the

late charges and find them to be totally meritless. The license

agreement provides that “Sealy shall have the right to assess a

charge of one per cent (1%) per month for late payment of royal-

ties... .”” License Agreement Article VII, 4 F, Plaintiffs’ Appen-

dix, Vol. II at 847. Ohio-Sealy purposely withheld the royalties

voluntarily causing them to be late. Therefore, they are subject to

the agreed penalty.‘

Vv

Ohio-Sealy also asserts that the district court erred in rejecting

its antitrust defenses to the counterclaim. These defenses were

carefully analyzed, and properly rejected, by the district court.

Because we agree with the district court’s analysis, we need not

discuss these defenses here.

Accordingly, the decision of the district court is | AFFIRMED.

A true Copy:

Teste:

Clerk of the United States Court of

Appeals for the Seventh Circuit

‘Relying on United Order of American Bricklayers & Stone Masons

Union v. Thorlief Larsen & Son, Inc., 519 F.2d 331 (7th Cir. 1975),

Ohio-Sealy contends that the late charge is an unenforceable penalty.

The district court properly held that case did not support Ohio-Sealy’s

contention.

All

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

Oun10-SEALY MATTRESS MANUFACTURING COM- )

PANY, SEALY MATTRESS COMPANY OF Hous-

TON, SEALY MATTRESS COMPANY OF PUERTO

Rico, Inc., SEALY MATTRESS COMPANY OF

Fort WortTH, SEALY OF THE NORTHEAST, and

SEALY MATTRESS COMPANY OF GEORGIA,

Plaintiffs,

v.

Morris A. KAPLAN, SEALY Matrasss Com-

PANY OF ILLINOIS, WILLIAM H. WALZER,

SEALY CONNECTICUT, INC., SEALY GREATER

New York, INC., WATERBURY MATTRESS

COMPANY, MORTON H. YULMAN, SEALY OF

EASTERN New York, INC., SEALY OF MINNE-

SOTA, INC., PETER D. BROWN, SEALY MatT-

TRESS COMPANY OF MICHIGAN, INc., T. C.

ENGLEHARDT, JR., FRED G. HopGES BEDDING

ComPANY (a/k/a SEALY MATTRESS COMPANY

Or READING, Pa.), SEALY Or Des MOINES,

INC., WALTER HERTZ, SEALY MATTRESS ComM-

PANY OF New Jersey, INC., JOSEPH V.

Morrfitt, SEALY OF THE CAROLINAS, PEER-

LESS MATTRESS COMPANY, LLoyp B. Ro-

SENFELD, SEALY MATTRESS COMPANY OF

OREGON, JosEPH R. RUDICK, MARYLAND

BEDDING COMPANY, JAMES E. THOMPSON,

Howarp G. Haas, SEALY, INCORPORATED,

SEALY SPRING CORPORATION, SEALY MaAT-

TRESS COMPANY OF COLORADO, INC., SEALY

MATTRESS COMPANY OF NORTHERN CALI-

FORNIA, INC., SEALY MATTRESS COMPANY OF

SOUTHERN CALIFORNIA, INC., SEALY MAart-

TRESS COMPANY OF ARIZONA, INC., SEALY

MATTRESS COMPANY OF FLORIDA, INC., SEALY

MATTRESS COMPANY OF PITTSBURGH, INC.,

and SEALY MATTRESS COMPANY OF PHILA-

DELPHIA, INC.,

Defendants. |

NO. 76 C 0810

Al2

MEMORANDUM OPINION AND ORDER

MarVIN E. Aspen, District Judge:

This case is one of several related antitrust actions that have

been filed over the past decade by Ohio-Sealy Mattress Manufac-

turing Company (“Ohio-Sealy”’) and its subsidiaries (collectively

referred to herein as “Plaintiffs”) against Sealy, Inc. (“Sealy”)

and its various subsidiaries, licensees, officers and directors (col-

lectively referred to herein as “Defendants’’) seeking declaratory,

injunctive and monetary relief for alleged anticompetitive con-

duct in the mattress manufacturing industry. This matter is pres-

ently before the Court on defendant’s motion for summary judg-

ment with respect to the issues set forth in sections II.D.(a) and

(b) and section IV of the Schedule of Issues previously filed in this

case and the parties’ cross-motions for summary judgment on

Sealy’s amended counterclaim.' For the reasons set forth below,

defendants’ motion for summary judgment will be denied with

respect to the issue set forth in section II.D.(a), but granted with

respect to the issues set forth in sections II.D.(b) and IV, and

Sealy’s motion for summary judgment on its counterclaim will be

granted.

I.

Defendant's Motion For Summary Judgment on the Issues Set

Forth in Sections I1.D.(a) and (b) and Section IV of the Schedule

of Issues

The two principal issues toward which this motion is directed

are: (1) whether plaintiffs are collaterally estopped from claiming

in this action that they are entitled to equitable relief as to the ex-

clusive manufacturing territories clause contained in the licensing

agreement between Sealy and its licensees, assuming that plain-

‘All other issues in Ohio-Sealy Mattress Company v. Kaplan, No. 76

C 0810, which have not previously been decided by this Court are pres-

ently being mediated. Discovery as to these issues is tolled during his

mediation.

Al3

tiffs can eventually show that the clause either applied alone or in

combination with other alleged restraints violates the antitrust

laws [Schedule of Issues Section II.D.(a)]}; and (2) whether plain-

tiffs have standing to seek relief in this action in connection with

Sealy’s acquisition of its Des Moines, lowa, and Reading, Penn-

sylvania, licensees [Schedule of Issues Sections II.D.(b) and IV].

The Court referred this motion to Magistrate John Cooley for a

report and recommendation on the merits. On June 4, 1981,

Magistrate Cooley recommended that defendants’ motion be

denied in all respects and defendants have filed objections to the

magistrate’s report and recommendation pursuant to 28 U.S.C.

§ 636(b)(1).? After a careful and thorough review of the magis-

trate’s report and recommendation, the memoranda filed by the

parties both before the magistrate and in connection with the ob-

jections filed with the Court, and the prior opinions of this Court

and those of Judge Parsons that bear on the issues at hand, we

conclude that Ohio-Sealy is not barred from seeking equitable

relief with respect to the exclusive manufacturing territories

clause and that Ohio-Sealy lacks standing to challenge Sealy’s ac-

quisition of its Des Moines and Reading licensees.

A.

Section II.D.(a) of the Schedule of Issues provides in pertinent

part:

Plaintiffs ... contend that equitable relief must include at

the very minimum: (a) elimination of the exclusive manufac-

turing territories provisions and related provisions adopted

immediately after the April, 1975 jury verdict [in Ohio-

Sealy Mattress Manufacturing Company v. Sealy, Inc., No.

71 C 1243 (N.D. Ill. Parsons, J.)}.

*While the parties were engaged in active settlement discussions as to

all issues in the case, this Court delayed ruling on the report and objec-

tions. At the request of the parties, the Court is now ruling on this and

the other matters set forth in the opinion, while the remaining portions

of this case continue to be negotiated.

Al4

Defendants maintain that the issue of equitable relief with respect

to the exclusive manufacturing territories clause within the tem-

poral scope of the instant case was actually and fully litigated

before Judge Parsons and necessarily decided by him in late 1979

in the context of the second equitable relief proceeding in Ohio-

Sealy Mattress Manufacturing Company v. Sealy, Inc., No.

71 C 1243 (“1971 case”), on remand from the United States

Court of Appeals for the Seventh Circuit. In Ohio-Sealy Mattress

Manufacturing Company vy. Sealy, Inc., 585 F.2d 821 (7th Cir.

1978), cert. denied, 440 U.S, 930 (1979), the Seventh Circuit up-

held a jury veraict in favor of plaintiffs and against defendants,

but the Court of Appeals remanded the case for another hearing

on equitable relief. On remand, Judge Parsons, who had presided

at the trial of the 1971 case in 1974 and 1975 and the first hearing

on equitable relief in 1976, declined to enjoin the exclusive manu-

facturing territories clause, though he did enjoin other provisions

of the license agreement in order to prevent the conduct that the

jury had found violative of the antitrust laws, Defendants argue

that principles of collateral estoppel bar plaintiffs from raising the

issue of equitable relief from the exclusive manufacturing territo-

ries clause in this case, which is temporarily limited to alleged un-

lawful conduct by defendants between April, 1975, and April,

1978,’ since defendants’ alleged application of the clause alone

and in conjunction with other alleged restraints during that time

period was before Judge Parsons in the 1979 equitable relief

proceeding in the 1971 case. Parklane Hosiery Company v.

Shore, 439 U.S. 322, 99 S.Ct. 645 (1979); Restatement (Second)

of Judgments § 68 (Tentative Draft No. 4, April 15, 1977).

*On February 27, 1981, this Court limited the temporal scope of this

case to defendants’ conduct between the April, 1975, jury verdict in the

1971 case and April, 1978, when Sealy changed the composition of its

board of directors. See Ohio-Sealy Mattress Manufacturing Company

v. Kaplan, 90 F.R.D. 40 (N.D. Ill. 1981), Plaintiffs are also seeking

relief for alleged unlawful conduct after April, 1978, in Ohio-Sealy

Mattress Manufacturing Company v. Duncan, No. 79 C 2741 (N.D.

Ill.), and for additional alleged wrongs in Ohio-Sealy Mattress Man-

ufacturing Company v. Haas, No. 82 C 2488 (N.D. Ill.).

Al5

In an earlier opinion in this case dated February 4, 1981, this

Court indicated after reviewing Judge Parsons’ opinion on equita-

ble relief in the 1971 case, that, in its view, Judge Parsons had

confined his inquiry to whether defendants’ pre-verdict conduct at

issue in that case necessitated the equitable relief sought by plain-

tiffs in that case. Ohio-Seadly. Mattress Manufacturing Company

vy. Kaplan, 90 F.R.D. 35, 38 (N.D. Ill. 1981). Although we had

held previously that defendants were precluded from seeking

post-verdict damages in this case for pre-verdict conduct that was

necessarily part of the 1971 case, we reiterated that our earlier

decision:

does not preclude plaintiffs from seeking equitable relief [in

this case] based on [post-verdict] conduct; nor does Judge

Parsons’ recent ruling on equitable relief bar such a claim,

since his ruling was based on the pre-verdict conduct at issue

in that case.

Id. Defendants suggest, however, that our statement with respect

to the scope of the equitable relief proceeding conducted by Judge

Parsons fails to take account of the issues actually litigated and

necessarily decided by Judge Parsons in his written opinion at the

conclusion of that proceeding. Thus, at defendants’ urging, we

have again reviewed Judge Parsons’ opinion on equitable relief,

but still cannot conclude that the issue of equitable relief from the

exclusive manufacturing territories provision with respect to

defendants’ post-verdict conduct involved in this case was actual-

ly litigated or necessarily decided by Judge Parsons in such a way

as to invoke the preclusive bar of collateral estoppel in this case.*

Although there are certain statements in Judge Parsons’ opin-

ion, as amended, that, taken out of context, could be construed as

indicating that he considered both pre- and post-verdict conduct

and the appropriate relief therefrom in fashioning the equitable

relief with respect to the exclusive manufacturing territories

clause in the 1971 case, the general tenor of the opinion and Judge

‘Magistrate Cooley reached the same conclusion for similar reasons.

Al6

Parsons’ own statements as to what he was and was not deciding

in that case compel a more narrow interpretation of his opinion.

Judge Parsons was aware that Ohio-Sealy had filed several law-

suits against Sealy and others after the 1975 jury verdict chal-

lenging various actions taken by defendants subsequent to the

jury verdict, yet he attempted to confine his inquiry to the conduct

at issue in the 1971 case and the jury’s findings in that regard. He

stated that although he had been kept up to date as to the other

litigation brought by Ohio-Sealy against Sealy,

[nJone of these cases is before me for decision, nor should

they be. The trial of this case was concluded in 1975, and the

equitable relief I fashioned must be founded upon the

findings of the jury that heard this case. Today's decree may

have some effect upon both cases indirectly, but it should not

be my purpose here to influence decisions yet to be made.

Later decisions should be free to rest upon the facts peculiar

to the cases in which they will be made.

Ohio-Sealy Mattress Manufacturing Company v. Sealy, Inc.,

No. 71 C 1243 mem. op. at 29-30 (N.D. Ill. December 1, 1980, as

amended January 30, 1981).

Whether Judge Parsons should have or could have considered

defendants’ post-verdict conduct in connection with the second

equitable relief proceeding, his opinion indicates that he con-

sidered little, if any, post-verdict conduct as bearing on the issue

of equitable relief from the exclusive manufacturing territories

clause. Although Judge Parsons mentioned Sealy’s post-verdict

acquisitions of its Portland and San Diego licensees late in his

opinion, he set them apart from the issues he felt relevant to his

determination on equitable relief in the 1971 case. All of the

examples of defendants’ anticompetitve conduct cited and relied

upon by the court in connection with its discussion of equitable

relief related to pre-verdict activity. Moreover, Judge Parsons

characterized Ohio-Sealy’s additional evidence in the second

equitable relief proceeding as “principally ... a reiteration by

Al7

[plaintiff's] expert, Dr. Mueller, of the positions he had taken in

earlier testimony. ...°’ Jd. mem. op. at 29. While there are pas-

sages in Judge Parson’s opinion and in the transcripts of the

proceedings over which he presided that might support an ar-

gument that the question of equitable relief from the exclusive

manufacturing territories clause was decided on a record that in-

cluded some post-verdict conduct stretching through the tempo-

ral scope of the instant case, this Court cannot definitively say

that such issues were actually litigated or necessarily decided in

the context of the second equitable relief proceeding, which was

essentially a belated adjunct to the 1975 jury verdict.

Defendants also argue that the court of appeals in Ohio-Sealy

Mattress Manufacturing Co. v. Sealy, Inc., 585 F.2d 821 (7th

Cir. 1978), “expressly acknowledged that the exclusive manufac-

turing territories clause was not itself objectionable.‘ Thus, they

contend that Ohio-Sealy should be precluded from challenging

the clause in the context of this case. But the court of appeals did

not hold that the exclusive manufacturing territories clause was

necessarily lawful under all possible circumstances. Rather, the

court stated that:

Repeatedly, Sealy argues that, e.g., areas of primary respon-

sibility, exclusive manufacturing licenses, location clauses,

pass-over payments, rights of first refusal, etc., have all been

held at one time or another not to violate the antitrust laws.

That is certainly true enough, but we know of no authority

holding that these devices, alone or in conjunction, do not

violate the antitrust laws even though they have effects plain-

ly within the ambit of those laws. On the violation issue,

Sealy consistently refuses to address what was obviously

Ohio’s case theory, on which the jury was appropriately in-

structed in agreed language. It is thoroughly established that

“[a]cts which may be legal and innocent in themselves,

standing alone, lose that character when incorporated into a

conspiracy to restrain trade.”

585 F.2d at 827-28 (citations omitted, emphasis in original).

Al8

Whether Ohio-Sealy will be able to show a violation of the anti-

trust laws brought about by the application of the exclusive man-

ufacturing territory clause itself or in conjunction with other al-

legedly anticompetitive elements within the context of this case in

order to justify the equitable relief it continues to seek is a very

different question upon which we express no opinion at this junc-

ture. We hold only that if such a violation should be proven,

neither the opinion of the court of appeals nor Judge Parsons’

opinion in the 1971 case would preclude Ohio-Sealy from seeking

equitable relief therefrom in this case in the form of elmination of

the exclusive manufacturing territories clause.

Accordingly, defendants’ motion for summary judgment with

respect to the issue set forth in section II.D.(a) of the Schedule of

Issues is denied. It is so ordered.

B.

The issue under section II.D.(b) of the Schedule of Issues is

whether Ohio-Sealy may seek divestiture of the Reading and Des

Moines licensees under section 16 of the Clayton Act, 15 U.S.C.

§ 26, in connection with its claim that Sealy’s acquisition of those

licensees in August, 1977, and April, 1978, respectively, violated

section | of the Sherman Act, 15 U.S.C. § 1. The related issue

presented by section IV of the Schedule of Issues is whether Ohio-

Sealy may seek any relief for the Reading and Des Moines acqui-

sitions under Count III of the amended complaint charging a

violation of section 7 of the Clayton Act, 15 U.S.C. § 18. Defen-

dants maintain that Ohio-Sealy lacks standing to challenge the

Reading or Des Moines acquisitions under section 4 of the Clay-

ton Act, 15 U.S.C. § 15, providing for private treble damage ac-

tions for violation of the antitrust laws because it did not compete

in those markets nor had it taken any steps to enter those markets

at the time of the acquisitions, and it never attempted to acquire

the Reading or Des Moines licensees either before or after Sealy

acted to acquire those licensees.

Al9

As a threshhold matter, Ohio-Sealy argues that defendants are

precluded from raising the standing issue because it is not includ-

ed in defendants’ arguments with respect to the Reading and Des

Moines transactions set forth in the Schedule of Issues. It argues

that our preclusion order of February 4, 1981, bars defendants

from attacking the complaint on any ground not specifically

raised in the Schedule of Issues. On the merits, Ohio-Sealy con-

tends that it does have standing to challenge the acquisitions at is-

sue because it is and was a potential competitor in the relevant

markets. Ohio-Sealy also argues that the Reading and Des

Moines acquisitions cannot be viewed in a vacuum but rather

must be seen as part of a longstanding effort by Sealy to restrain

intrabrand competition in the mattress manufacturing industry

and that if Ohio-Sealy had not been prevented unlawfully from

competing in areas adjacent to the Reading and Des Moines mar-

kets in the past, it would have been a substantial competitive force

in those markets at the time of the acquisitions challenged herein.

Magistrate Cooley was persuaded by Ohio-Sealy’s threshhold

arguments and recommended that this Court consider imposing

sanctions for defendants’ violation of the preclusion order. With

respect to the merits, the magistrate concluded that the standing

question was fraught with disputed issues of material fact render-

ing it inappropriate for resolution on summary judgment.

As to the preliminary question of whether or not defendants

may raise the standing argument despite the fact that it was tech-

nically not set forth in the Schedule of Issues, we note, as we did

at the outset of our opinion on the preclusion order, that the

Schedule of Issues “should not be used as a trap by which ‘unwary

counsel’ are precluded from raising [otherwise meritorious] is-

sues.” Ohio-Sealy Mattress Manufacturing Company v. Kaplan,

90 F.R.D. 35, 36 (N.D. Ill. 1981) (citation omitted). In the in-

stant case, defendants’ position with respect to the Reading and

Des Moines acquisitions as set forth in the Schedule of Issues,

filed with the Court on January 15, 1981, reflected some confu-

A20

sion concerning an earlier opinion of this Court issued on August

1, 1980, delineating the scope of this litigation. See Ohio-Sealy

Mattress Manu /acturing Company v. Kaplan, 90 F.R.D. 11

(N.D. Ill. 1980). In the August | opinion, the Court had held that

plaintiffs were barred from seeking damages in this case flowing

from defendants’ pre-verdict conduct at issue in the 1971 case for

which monetary and equitable relief had already been awarded

by Judge Parsons. As a result of the broad language in the August

1, 1980, opinion and a subsequent opinion dated September 17,

1980,’ however, defendants assumed that plaintiffs were barred

from seeking relief for the Reading and Des Moines acquisitions

as well even though they actually occurred after the verdict in the

1971 case.

It was not until after our opinion dated February 4, 1981, in

which we clarified our earlier opinions, that defendants realized

that the Reading and Des Moines acquisitions were still part of

the instant case. See Ohio-Sealy Mattress Manufacturing Com-

pany v. Kaplan, 90 F.R.D. 35, 37-39 (N.D. Ill. 1981). At that

time, the Court also ordered defendants to move for summary

judgment with respect to some of the remaining issues in this

case, including the Reading and Des Moines transactions. /d., 90

F.R.D. at 40. It would thus be fundamentally unfair to limit

defendants to the position they took in the Schedule of Issues with

respect to the Reading and Des Moines acquisitions since the gist

of defendants’ argument therein was that the Court’s previous

orders had eliminated those claims from this case. Once those

claims were “resurrected” after the Schedule of Issues was filed,

defendants should not be precluded from challenging the basis of

those claims. To decide otherwise would convert the Schedule of

‘Certain passages in those opinions gave the impression that all of

Ohio’s claims with respect to the Reading and Des Moines acquisitions

were barred on res judicata grounds. See, e.g., Ohio-Sealy Mattress

Manufacturing Company v. Kaplan, 90 F.R.D. 11, 20 (N.D. Ill. 1980);

Ohio-Sealy Mattress Manufacturing Company v. Kaplan, 90 F.R.D.

21, 24, n.4 (N.D. Ill. 1980).

A21

Issues, which is a useful device for simplifying the scope of a com-

plex case, would be converted into a shield preventing defendants

from raising questions that go to the very heart of plaintiffs’ case

because of some initial confusion regarding the temporal scope of

this litigation.°

As to the merits of defendants’ motion for summary judgment,’

we do not agree with the magistrate that the question of standing

in this case is not amenable to determination in the context of a

motion for summary judgment. While the magistrate appeared to

be generally reluctant to recommend taking a hotly-contested

case like this away from the jury by a grant of summary judg-

ment, he did not identify any specific material factual disputes

that would preclude summary judgment as a matter of law. The

Court, having reviewed the parties’ briefs and the magistrate’s

report and recommendation, concludes that any dispute with re-

spect to the standing question is essentially legal in nature. In

similar contexts, courts have consistently found summary judg-

ment to be an acceptable method of early resolution of the stand-

ing issue in antitrust cases that conserves “limited judicial time

and resources.” Weit v. Continental Illinois National Bank &

Trust Company, 641 F.2d 457, 461 and 469 (7th Cir. 1981), cert.

denied, 102 S.Ct. 1610 (1982); Solinger v. A & M Records, Inc.,

*We also note that to the extent that defendants’ position concerning

Ohio’s standing to challenge the Reading and Des Moines acquisitions

raises a question with respect to this Court’s subject matter jurisdiction,

Association of Data Processing Service Organizations, Inc. v. Camp,

397 U.S. 150, 90 S.Ct. 827 (1970), it may not be waived but may be as-

serted at any time throughout the proceedings, as well as on appeal.

Choudhry v. Jenkins, 559 F.2d 1085, 1091 (7th Cir. 1977); United

States v. City of Philadelphia, 482 F.Supp. 1248, 1252 n.1 (E.D. Pa.

1979).

’Ohio purports to only having “outlined” its opposition to the merits of

defendants’ motion in light of its position that the standing issue is not

properly before the Court. Its “outline,” however, is fairly detailed,

complete with argument and case citations. Accordingly, the Court does

not deem additional briefing to be necessary to a resolution of defen-

dants’ motion on the merits.

A22

586 F.2d 1304, 1309 and 1311 (9th Cir. 1978), cert. denied, 441

U.S. 908 (1979); Bosse v. Crowell Collier and Macmillan, 565

F.2d 602, 606-07 (9th Cir. 1977); John Lenore & Company v.

Olympia Brewing Company, 550 F.2d 495 (9th Cir. 1977).

Section 4 of the Clayton Act, 15 U.S.C. § 15, the statutory ba-

sis for private antitrust damage actions, provides, in pertinent

part:

[a]ny person who shall be injured in his business or property

by reason of anything forbidden in the antitrust laws may sue

therefor in any district court of the United States... without

respect 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.

The proliferation of treble damage suits in the federal courts as

well as concerns about the potential inequity in multiple trebled

damage liability for antitrust defendants and the attendant wind-

fall recovery for antitrust plaintiffs has sparked judicial efforts to

read reasonable limitations into the facially broad right of action

contained in section 4.° The courts have struggled mightily with

the question of standing in the antitrust context in order to limit

the potentially limitless class of plaintiffs who might seek relief

under the antitrust laws. Although volumes have been written on

the subject,’ the common threads that seem to run through each

analysis, regardless of the label used by an individual court or

commentator, focus on the question of causation in a particular

factual context and the notion that the plaintiff's alleged injury

*As the court stated in Lupia v. Stella D’Oro Biscuit Company, Inc.,

586 F.2d 1163, 1168 (7th Cir. 1978), cert. denied, 440 U.S. 982 (1979),

“[i]t would appear the circuits all view the treble damages suit as too

lethal a cannon to put in the hands of anyone who has suffered only an

‘indirect,’ ‘secondary,’ or ‘remote’ injury.” See also Mid-West Paper

Products Co. v. Continental Group, 596 F.2d 573, 583 (3d Cir. 1979).

*See, e.g., Berger & Bernstein, An Analytical Framework for Anti-

trust Standing, 86 Yale L.J. 809 (1977); Areeda, Antitrust Violations

Without Damage Recoveries, 89 Harv.L.Rev. 1127 (1976); Areeda &

Turner, Antitrust Law § 333 et seq. (1978).

A23

must be of a competitive nature that the antitrust laws were de-

signed to protect against. See Brunswick Corporation v. Pueblo

Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, 696-97 (1977);

Bichan v. Chemetron Corporation, No. 81-2567 (7th Cir. June

25, 1981); Weit v. Continental Illinois National Bank & Trust

Company, 641 F.2d 457, 469 (7th Cir. 1981), cert. denied, 102

S.Ct. 1610 (1982); Mid-West Paper Products Co. v. Continental

Group, 596 F.2d 573, 582-83 (3d Cir. 1979).

The United States Court of Appeals for the Seventh Circuit,

together with courts in several other circuits, apparently utilizes

the “target area” approach to determine whether the causation

element of standing has been satisfied.” The target area test

focuses on the relationship between the plaintiff and the area of

the economy affected by the defendants’ alleged anticompetitive

behavior. Bichan v. Chemetron Corporation, supra, slip. op. at 4;

In re Multidistrict Vehicle Air Pollution, 481 F.2d 122, 127-28

(9th Cir.), cert. denied sub nom., 414 U.S. 1045 (1973); Confer-

ence of Studio Unions v. Loew's, Inc., 193 F.2d 51, 55 (9th Cir.

1951), cert. denied, 342 U.S. 919 (1952). If the plaintiff can show

that he has suffered injury to his business or property as a con-

sequence of his presence in an area of the economy foreseeably

endangered by a breakdown in competitive conditions attributa-

ble to the-defendant’s actions, he is deemed to be within the target

area of the particular substantive antitrust violation alleged.

Lupia v. Stella D’Oro Biscuit Company, 586 F.2d 1163, 1168-69

"See Bichan v. Chemetron Corporation, No. 81-2567, slip. op. at 6

(7th Cir. June 25, 1982); Weit v. Continental Illinois National Bank &

Trust Company, 641 F.2d 457, 469 (7th Cir. 1981), cert. denied, 102

S.Ct. 1610 (1982); Schwimmer v. Sony Corp. of America, 637 F.2d 41

(2d Cir. 1980); Lupia v. Stella D’Oro Biscuit Company, 586 F.2d 1163,

1168 (7th Cir. 1978). See also Solinger v. A & M Records, Inc., 586

F.2d 1304 (9th Cir. 1978), cert. denied, 441 U.S. 908 (1979); John Len-

ore & Company v. Olympia Brewing Company, 550 F.2d 495, 509 (9th

Cir. 1977); Daily v. Quality School Plan, Inc., 380 F.2d 484, 487-88

(Sth Cir. 1967); Sanitary Milk Producers v. Bergjans Farm Dairy, Inc.,

368 F.2d 679, 688-89 (8th Cir. 1966); Council of Milk Inc.

v. Newton, 360 F.2d 414 (4th Cir.), cert. denied, 385 U.S. 934 (1966).

\

A24

(7th Cir. 1978), cert. denied, 440 U.S. 982 (1979); Solinger v.

A&M Records, Inc., 586 F.2d 1304, 1310 (9th Cir. 1978), cert.

denied, 441 U.S. 908 (1979).

As a further means of winnowing down the class of potential

antitrust plaintiffs, the courts have recently emphasized that the

plaintiff's injury must be of a type that the antitrust laws were de-

signed to prevent. J. Truett Payne Co., Inc. v. Chrysler Motors

Corporation, 451 U.S. 557, 101 S.Ct. 1923 (1981); Brunswick

Corporation v. Pueblo Bowl-O-Mat, Inc., supra; Bichan v.

Chemetron Corporation, supra. Whether this requirement of

“antitrust injury” is viewed as the final stage in a proper standing

analysis or as a separate element of the plaintiff's substantive

cause of action under a particular section of the antitrust laws, it

is clear that it must be established as a threshold matter before

the plaintiff will be entitled to relief under the antitrust laws.

Bichan v. Chemetron Corporation, supra; Weit v. Continental

Illinois National Bank & Trust Co., supra; Mid-West Paper

Products Co. v. Continental Group, supra."' Together, the general

standing requirement focusing on causation and the notion of

antitrust injury insure that the plaintiff's alleged injury is both

traceable to the defendant’s conduct and cognizable under the

antitrust laws.

It is important to apply the target area test with reference to

the particular substantive antitrust violation alleged. Accord-

"As the court noted in Weit v. Continental Illinois National Bank &

Trust Company, 641 F.2d 457, 469 (7th Cir. 198i), cert. denied, 102

S.Ct. 1610 (1982):

the distinction between the antitrust injury requirement of Section

4 and the more general standing requirement is often blurred . . .

This is not surprising in antitrust actions as the two requirements

overlap considerably. The labels are not important however. The

fundamental requirement is that plaintiffs establish a sufficient

nexus between the defendant's alleged actions and an injury to the

plaintiffs.

See also Mid-West Paper Products Co. v. Continental Group, 596 F.2d

$73, 582-83 (3d Cir. 1979).

A25

ingly, in view of the rather broad scope of section 1 of the Sher-

man Act proscribing any contract, combination or conspiracy in

restraint of trade,” courts have held that not only existing com-

petitors in the affected market but also “prospective [competi-

tors] who have taken substantial demonstrable steps to enter an

industry and who [are] thwarted in that purpose by antitrust

violations” have suffered, potentially, the type of injury to their

business or property that section | was intended to protect against.

Solinger v. A & M Records, Inc., supra, 586 F.2d at 1309; Hecht

v. Pro-Football, Inc., 570 F.2d 982, 994 (D.C. Cir.), cert. denied,

436 U.S. 956 (1977). Some courts have held, however, that the

plaintiff must be an actual ““component of the competitive infra-

structure” or a “component of competitive significance” in the

affected market in order to complain of a violation of section 7 of

the Clayton Act proscribing mergers or acquisitions that may

substantially lessen competition or tend to create a monopoly in

any line of commerce.” Solinger v. A & M Records, Inc., supra,

586 F.2d at 1312; Bosse v. Crowell Collier and Macmillan, 565

F.2d 602, 607 (9th Cir. 1977); John Lenore & Co. v. Olympia

Brewing Co., 550 F.2d 495, 500 (9th Cir. 1977).

The narrower class of potential plaintiffs in a section 7 action is

said to be justified because of the more limited type of activity

proscribed by that provision. Solinger v. A & M Records, Inc., su-

"Section | of the Sherman Act, 15 U.S.C.§ 1, provides in pertinent

part that “[e]very contract, combination in the form of trust or other-

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

states, or with foreign nations, is declared to be illegal.”

"Section 7 of the Clayton Act, 15 U.S.C. § 18, provides in pertinent

part:

No corporation engaged in commerce shall acquire, directly or

indirectly, the whole or any part of the stock or other share capital

and no corporation subject to the jurisdiction of the Federal Trade

Commission shall acquire the whole or any part of the assets of

another corporation engaged also in commerce, where in any line

of commerce in any section of the country, the effect of such acqui-

sition may be substantially to lessen competition, or to tend to

create a monopoly. . . . ‘ A

A26

pra, 586 F.2d at 1312 n. 9. At the same time, however, section 7 is

consistently characterized as a broad prophylactic provision in-

tended to arrest anticompetitive activity in its incipiency. F.7.C.

v. Proctor & Gamble Company, 386 U.S. 568, 577, 87 S.Ct. 1224,

1229 (1967). Although most courts that have considered the

question of a potential competitor’s standing under section 4 have

done so in the context of a suit challenging allegedly anticompeti-

tive conduct under section | or 2 of the Sherman Act," we are not

necessarily prepared to hold that a potential competitor may

never have standing to challenge an allegedly anticompetitive

merger or acquisition under section 7. In our view, a potential

competitor who has reached an advanced stage of preparedness to

enter a particular market and who has taken substantial demon-

strable steps directed toward that end may have suffered an injury

to its business or property within the meaning of section 4 so as to

maintain a cause of action for a violation of section 7 as well as

sections | and 2 so long as a sufficient causal connection can be es-

tablished between defendant’s alleged acts and plaintiff's injuries

and those injuries are cognizable under the antitrust laws."

“In addition to those cases cited in the text, see Woods Exploration

and Producing Co. v. Aluminum Co. of America, 438 F.2d 1286, 1310

(Sth Cir. 1971), cert. denied, 404 U.S. 1047 (1972); Martin v. Phillips

Petroleum Co., 365 F.2d 629, 633-34 (Sth Cir.), cert. denied, 385 U.S.

991 (1966); Denver Petroleum Co. v. Shell Oil Co., 306 F.Supp. 289,

307-08 (D. Colo. 1969); Waldron v. British Petroleum Co., 231 F.Supp.

72, 81-82 (S.D.N.Y. 1964); Deterjet Corp. v. United Aircraft Corp.,

211 F.Supp. 348, 353 (D. Del. 1962).

‘It is generally recognized that standing to seek injunctive relief for a

violation of the antitrust laws pursuant to section 16 of the Clayton Act,

15 U.S.C. § 26, is more easily obtained than is standing to seek treble

damages under section 4 of the Clayton Act, 15 U.S.C. § 15. Mid-West

Paper Products Co. v. Continental Group, 596 F.2d 573, 590-94 (3d

Cir. 1979); Universal Brands, Inc. v. Phillip Morris, Inc., 546 F.2d 30,

34 (Sth Cir. 1977). In order to seek injunctive relief under section 16, a

plaintiff need only demonstrate that it is threatened with injury attribut-

able to defendant's alleged anticompetitive conduct. Jd. Inasmuch as we

conclude below that Ohio-Sealy does not have standing to seek relief

under section | of the Sherman Act or Section 7 of the Clayton Act, we

(Footnote continued on next page.)

A27

Applying these standards to the case at bar, however, the un-

disputed facts compel the conclusion that Ohio-Sealy is not with-

in the target area affected by Sealy’s allegedly unlawful acquisi-

tion of the Reading and Des Moines licensees for purposes of

asserting a violation of either section | of the Sherman Act or sec-

tion 7 of the Clayton Act. Moreover, it suffered no antitrust in-

jury thereby for which relief might be available within the context

of this case. During the ten years preceding Sealy’s acquisitions of

its Reading and Des Moines licensees, Ohio-Sealy did not make

any sales in the Des Moines area and made only $1,467 worth of

sales in the Reading area in only one of those years, 1978,

amounting to just .0479% of total Sealy-label sales in the Reading

market for that year. Under any standard, Ohio-Sealy’s sales in

the Reading market in 1978 are de minimis. Moreover, at no time

relevant herein did Ohio-Sealy take any tangible steps to enter

the Reading or Des Moines markets either by acquisition or di-

rect sales competition that might have been thwarted or even

affected by Sealy’s allegedly unlawful acquisitions of its licensees

in those markets. At the time Sealy moved to acquire its Reading

licensee, there were no competing bidders for that market. Fur-

thermore, Sealy acquired its Des Moines licensee by the exercise

of its contractual right of first refusal in order to preempt an

agreement whereby Sealy’s Detroit and Portland licensees had

arranged to purchase substantially all of Des Moines’ assets."

Ohio was not even tangentially involved in either transaction.

(Footnote continued from previous page.)

need not reach the “vexed question” of whether the divestiture sought by

Ohio-Sealy would be available to a private litigant under section 16 as

an equitable remedy for a violation of the antitrust laws. Berkey Photo,

Inc. v. Eastman Kodak Company, 457 F.Supp. 404, 428 (S.D.N.Y.

1978).

“Indeed, the Detroit licensee, Sealy Mattress Company of Michigan,

Inc., subsequently filed suit in its own right against Sealy alleging a

violation of the antitrust laws as a result of the Des Moines acquisi-

tion. See Sealy Mattress Company of Michigan, Inc. v. Sealy, Inc.,

No. 80 C 4676 (N.D. Ill.). Ohio-Sealy has not joined in that suit.

A28

Ohio-Sealy seems to concede that it was not an existing compet-

itor in the Reading or Des Moines markets at the time of the ac-

quisitions at issue in this case, but it argues that it was a potential

competitor because it “is always looking for ways to expand, by

acquisition or otherwise.” It is clear, however, that in order to be a

potential competitor within the target area of alleged anticom-

petitive conduct, a plaintiff must have taken “substantial demon-

strable steps to enter an industry.”’ Solinger v. A & M Records,

Inc., supra, 586 F.2d at 1309; Hecht v. Pro-Football, Inc., supra.

Ohio-Sealy has brought forth no evidence of any steps it took to

enter the Reading or Des Moines markets either before or during

the acquisitions in question. The mere amorphous desire to ex-

pand into new markets in general is insufficient to bring a plaintiff

within the class of persons entitled to complain of such conduct at

the time it occurred.

Ohio-Sealy maintains that it was already a competitive force in

the mattress manufacturing industry as a whole at the time of the

Reading and Des Moines acquisitions and, thus, that it need not

establish its presence as an existing or potential competitor in par-

ticular local markets in order to have standing to sue for alleged

anticompetitive conduct in those markets. Ohio contends that it

was reasonably foreseeable that it would be affected in some way

by whatever happened in the Reading and Des Moines markets

by virtue of its very existence. The Supreme Court has empha-

sized on more than one occasion, however, that the antitrust laws

are not meant to protect particular competitors, but rather com-

petition itself. Brunswick Corporation v. Pueblo Bowl-O-Mat,

Inc., supra, 429 U.S. at 488, 97 S.Ct. at 697; Brown Shoe Co. v.

United States, 370 U.S. 294, 320, 82 S.Ct. 1502, 1521 (1962). It

necessarily follows that if a company does act compete in a given

area of the economy and if it has taken no steps to enter that area,

it may not complain of supposed diminution in competition in that

area.”

"It is interesting to note that, during the trial of the 1971 case, Ohio-

Sealy proved that the mattress business was essentially local in nature,

(Footnote continued on next page.)

A29

Moreover, both courts and commentators have noted that the

concept of foreseeability in antitrust actions only operates nega-

tively to reduce the class of plaintiffs who might properly com-

plain of allegedly anticompetitive conduct. It may not be used to

expand the number of potential plaintiffs in the target area nor is

it a sufficient independent basis for standing. See Mid-West Paper

Products Co. v. Continental Group, 596 F.2d 573, 581 n.27 (3d

Cir. 1979); Areeda and Turner, Antitrust Law § 34\1c at p. 220

(1978); Berger & Bernstein, An Analytical Framework for Anti-

trust Standing, 86 Yale L.J. 809, 835 (1977). As the court stated

in John Lenore & Co. v. Olympia Brewing Co., 550 F.2d 495, 499

(9th Cir. 1977):

{a]ntitrust violations admittedly create many foreseeable

ripples of injury to individuals, but the law has not allowed

all of those merely affected by the ripples to sue for treble

damages. Congress, in passing this legislation, did not intend

to protect every possible or potential injury which could

remotely be connecte’ to a corporate merger or acquisition.

See also Calderone Enterprises, Inc. v. United Artists Theatre

Circuit, Inc., 454 F.2d 1292, 1295-96 (2d Cir. 1971), cert. denied,

406 U.S. 930 (1972).

Finally, Ohio-Sealy maintains that the Court should not view

the Reading and Des Moines acquisitions in a vacuum since it

might have been a significant competitor in those markets if it had

(Footnote continued from previous page.)

thereby further undercutting its argument, advanced herein, that its

presence in the industry as a whole entitles it to complain of a diminu-

tion in competition in a local market in which it does not compete. As the

court of appeals stated in Ohio-Sealy Mattress Manufacturing Com-

pany v. Sealy, Inc., 585 F.2d 821, 828 (7th Cir. 1978), cert. denied, 440

U.S. 930 (1979):

Ohio proved that the mattress business is substantially local in na-

ture, because of the bulk and weight of the product, the fact that re-

tailers typically do not care to warehouse the product and the need

for frequent customer sales calls. As Sealy concedes, the great

majority of mattress sales are made within 200-300 miles of a man-

ufacturing plant.

hi

A30

not been kept out of adjacent markets by Sealy’s prior unlawful

acquisitions in those neighboring areas. Thus, Ohio-Sealy argues

that the Reading acquisition must be viewed in conjunction with

Sealy’s pre-verdict acquisitions of its Pittsburgh and Philadelphia

licensees, which together allegedly foreclosed Ohio from the en-

tire state of Pennsylvania. Furthermore, under this line of reason-

ing, the Des Moines acquisition would be viewed in conjunction

with Sealy’s pre-verdict acquisitions of its Denver, Arizona, and

two California licensees, which together with Sealy’s subsequent

acquisition of its Portland licensee in 1979 allegedly foreclosed

Ohio-Sealy from much of the western United States. This final

argument exposes the underlying weakness in Ohio’s entire chal-

lenge to the Reading and Des Moines acquisitions for it estab-

lishes that to the extent it has been foreclosed at all from the

Reading or Des Moines markets, such injury does not stem from

the acquisitions challenged in the context of this case but, rather,

from conduct that was the subject of prior litigation, since re-

solved, between these parties.

As we noted earlier in this opinion, prior rulings in this case es-

tablish that the temporal scope of this case is limited to post-ver-

dict conduct occurring between April, 1975, and April, 1978.

Ohio-Sealy Mattress Manufacturing Company v. Kaplan, 90

F.R.D. 40 (N.D. Ill. 1981). In this context, we have repeatedly

rejected plaintiff's claims for post-verdict damages attributable to

pre-verdict conduct on the basis of the application of res judicata

and satisfaction of judgment principles. In so doing, the Court ex-

pressly stated that:

It is clear that Ohio may sue only for those damages which

occur as a result of some post-verdict act. The mere allega-

tion that the post-verdict acts were but a continuation of the

pre-verdict conspiracy is insufficient to entitle Ohio to

damages in addition to those which it has received to

remedy defendants’ pre-verdict conduct.

Ohio-Sealy Mattress Manufacturing Company v. Kaplan, 90

F.R.D. 11, 19 n. 15 (N.D. Ill. 1980) (emphasis supplied, citation

omitted).

A3l

Although the Reading and Des Moines acquisitions occurred

after the 1975 jury verdict and thus are technically within the

temporal scope of this case, it is clear that Ohio-Sealy has not suf-

fered injury within the context of this case because of those acqui-

sitions. Rather, its claimed injury, under its own theory of its case,

is attributable to defendants’ prior unlawful conduct in keeping

Ohio-Sealy out of neighboring markets. Ohio-Sealy’s inability to

compete effectively in the Reading and Des Moines areas during

the time period involved in this case is apparently a direct out-

growth of that prior unlawful conduct for which defendants

previously have been held liable and plaintiffs already compensat-

ed. As we have stated earlier, the Court will not allow plaintiffs to

reargue their asserted right to relief for pre-verdict conduct in this

case. Id.

Accordingly, for the reasons set forth above, defendants’ mo-

tion for summary judgment on the issues set forth in sections

II.D(b) and IV of the Schedule of Issues is granted. It is so or-

dered.

II.

Cross-Motions For Summary Judgment on Sealy’s

Counterclaim for Unpaid Royalties and Late Charges

Article VII of the 1975 Sealy Uniform License Agreement

between Sealy and its licensees provides that the licensees shall

pay to Sealy certain royalties on their net sales of “Sealy

Products,” defined in article I.A. as products bearing the Sealy

trademark as well as non-Sealy mark products manufactured by a

licensee with Sealy’s approval. The license agreement also

provides that Sealy is entitled to a late charge equal to one percent

per month for late payment of royalties due under article VII. See

Article VILF.

Plaintiffs, Ohio-Sealy and its subsidiaries, paid royalties when

due to Sealy as provided by the license agreement from the date of

inl’

A32

the April, 1975, verdict in the 1971 case through March 15, 1976.

Thereafter, plaintiffs began withholding royalties from Sealy. On

April 12, 1979, however, plaintiffs paid the accumulated royalties

due for the period from March, 1976, to October, 1977, and from

October, 1976, through March, 1979, under protest though they

withheld the accumulated royalty increases for that period and

accrued late charges of one percent per month. In the context of

the instant case covering the period between the April, 1975, jury

verdict and April, 1978, plaintiffs contend that the royalties,

royalty increases and late charges sought by Sealy in its counter-

claim were assessed and computed contrary to the license

agreement and in violation of the antitrust laws as a matter of

law. Sealy maintains that the royalties, royalty increases and late

charges sought in the counterclaim were correctly assessed and

computed and that such assessments do not violate the antitrust

laws in any way as a matter of law.

As a threshold matter, Ohio-Sealy requests that the Court stay

consideration of the merits of the counterclaim and order that the

contract issues with respect to the royalties and late charges be

submitted to binding arbitration as required by article XVI of the

license agreement. Notwithstanding the strong federal policy in

favor of arbitration, courts may look to equitable considerations

of waiver and estoppel in determining whether to order arbitra-

tion. Midwest Window Systems, Inc. v. Amcor Industries, Inc.,

630 F.2d 535 (7th Cir. 1980). Waiver will be found where the

party seeking to invoke the right to arbitration has taken some ac-

tion inconsistent with the exercise of that right and the party op-

posing arbitration has been prejudiced by that inconsistency. /d.,

630 F.2d at 536-37.

In the context of the instant case. Ohio-Sealy has clearly

waived its right to insist upon arbitration of the royalty dispute.

For almost five years Ohio-Sealy has consistently articulated its

position that it stood ready to resolve the royalty dispute by litiga-

tion or arbitration, whichever route Sealy should choose. See

A33

Exhibits | through 5 attached to Sealy’s Memorandum in Sup-

port of Summary Judgment. To that end, Sealy has continually

attempted to have 1.s royalty claim heard in court with motions

before three different judges in the context of both this and the

1971 case without objection from plaintiffs as to the appropriate

forum. During this time, both parties have engaged in extensive

discovery, document production and analysis, and briefing

regarding the merits of the royalty dispute. Ohio-Sealy’s first ob-

jection to the resolution of this dispute by litigation rather than

arbitration came during the briefing of the instant motion for

summary judgment. Having consistently maintained that it stood

ready to resolve the question of the royalties and attendant

charges by arbitration or litigation at Sealy’s pleasure, Ohio-Sealy

cannot now be heard to complain that Sealy made the wrong

choice."

Ohio Sealy also contends that Sealy is not entitled to any royalties

under the license agreement because Sealy allegedly breached the

agreement by failing to seek arbitration of the royalty dispute. It

argues that Sealy’s alleged failure to perform all the terms and

conditions of the license agreement should prevent Sealy from en-

forcing the royalty provision. Even if the Court were to agree with

Ohio-Sealy’s convoluted contract theory, the appropriate remedy

would be for the Court to order arbitration rather than to fore-

close Sealy from enforcing any portion of the license agreement.

As discussed above, however, the Court finds no breach of the

arbitration provision by Sealy but rather waiver of its applicability

by plaintiffs.

On the merits, Ohio-Sealy advances a plethora of theories in

support of its position that the royalty provision and the several

“Even if we were to hold that plaintiffs had not waived their right to

arbitration of the royalty question, we would not order arbitration in this

case at the present time. As set forth more fully below, the antitrust

issues in this aspect of the case so permeate the contract questions that

remand to an arbiter would be inappropriate in any event until the Court

settles the antitrust questions involved. Applied Digital Technology, Inc.

v. Continental Casualty Company, 576 F.2d 116 (7th Cir. 1978).

A34

royalty increases violate the antitrust laws and are therefore

unenforceable. It is well settled that an alleged antitrust violation

is no defense to the enforcement of a contract unless the effect of

the judgment of the court would be to enforce the precise conduct

made unlawful under the antitrust statutes. Kelly v. Kosuga, 358

U.S. 516, 79 S.Ct. 429 (1959); Bruce’s Juices, Inc. v. American

Can Co., 330 U.S. 743, 751-57, 67 S.Ct. 1015 (1947). In the case

at bar, however, enforcement of the royalty provision in the

license agreement would necessarily involve judicial approval of

the very conduct that is alleged to violate the antitrust laws. Ac-

cordingly, we proceed to a discussion of plaintiffs’ various anti-

trust theories with respect to the royalties on Sealy products.

Ohio-Sealy’s first argument seems to be that Sealy uses the

royalties unlawfully to subsidize itself and its subsidiaries in com-

petition with Ohio-Sealy in violation of section | of the Sherman

Act.” Ohio-Sealy cites no authority in support of this novel attack

on the royalties due on net sales of Sealy products, however, and

the Court has not found any reported decisions that deal with a

subsidization claim under these circumstances. Although not

precisely on point, those courts that have dealt with the propriety

of a manufacturer’s subsidization of selected dealers have indicat-

ed that such subsidization in an intrabrand context does not con-

stitute an unreasonable restraint of trade absent evidence of

predatory conduct or proof that the unsubsidized dealer was ren-

dered unprofitable thereby or forced out of business with result-

ant anticompetitive effects. See, e.g. Lee Klinger Volkswagen,

Inc. v. Chrysler Corporation, 583 F.2d 910 (7th Cir. 1978); Mar-

tin B. Glauser Dodge Company v. Chrysler Corporation, 570

F.2d 72 (3d Cir. 1977). Like the respondent in Brunswick Cor-

poration v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690

(1977), the unsubsidized dealer who still manages a profit is

forced to argue that there is too much competition for his tastes

"Ohio-Sealy also. argues that Sealy has used the royalty increases over

the years to subsidize this litigation and that such subsidization consti-

tutes a violation of section 1 of the Sherman Act.

A35

rather than too little. But as the Supreme Court said in Bruns-

wick, such a claim is not cognizable under the antitrust laws. /d.,

429 U.S. at 487, 97 S.Ct. at 696-97.

In the case at bar, it is undisputed that Ohio-Sealy and its sub-

sidiaries are efficient, profitable companies. There is absolutely no

evidence or even an allegation that the royalties on Sealy products

are exacted or used in a predatory manner. Accordingly, Ohio-

Sealy’s subsidization claim must fail.

Ohio-Sealy next argues that Sealy is not entitled to that portion

of the royalties resulting from increases in the royalty rate during

the period in which the Sealy board of directors was “illegally”

constituted in violation of section 8 of the Clayton Act, 15 U.S.C.

§ 19, in that most of the Sealy board members also sat on the

boards of its licensees. Section 8, however, does not purport to

“disqualify” directors or nullify corporate action taken by those

directors during the time in which they sit in violation of the Act.

That section merely forbids interlocking directorates, as defined

therein, and specifies distinct remedies, not including nullification

of corporate actions, for violations of its terms. Even if a board of

directors sitting in violation of section 8 could be considered to be

not a “de jure” board, it is hornbook law that,

[i]n general, the contracts and acts of de facto officers, when

action within the scope of their authority, are just as binding

as the acts of officers de jure, at least so far as third persons

are concerned. ... A de facto board of directors may legally

perform such acts as are within the scope of the business of

the corporation. ...

2 Fletcher, Cyclopedia of Corporations, (Perm.Ed.) § 380, p. 215.

Ohio-Sealy has cited no authority in support of its strained, defen-

sive use of section 8 and the Court has not found any through its

own efforts.” Accordingly, plaintiffs’ section 8 claim must also fail.

*Ohio-Sealy’s attempted defensive use of section 8 would also prob-

ably be barred by the policy expressed in Bruce's Juices and Kelly, su-

pra, since enforcement of the royalty increases would not result directly

in a violation of section 8. The violation would be complete once the al-

legedly illegally constituted board sat as a body.

A36

For purposes of the preceding discussion, there was no need to

distinguish between royalties due on products bearing the Sealy

trademark and those due on non-Sealy trademark products man-

ufactured with Sealy’s approval. Ohio-Sealy argues, however,

that Sealy is not entitled to royalties on non-Sealy mark products

manufactured for Sears Roebuck and Company because Sealy

never approved Ohio-Sealy’s production of the Sears bedding

within the meaning of article I.A. of the license agreement” and

because Sealy’s practice of coercing its licensees to pay royalties

on both Sealy mark and non-Sealy mark products constitutes an

unlawful use of its trademark in violation of sections | and 2 of

the Sherman Act. Zenith Radio Corporation v. Hazeltine Re-

search, Inc., 395 U.S. 100, 133-41, 89 S.Ct. 1562, 1582-86

(1969).

With respect to the issue of Sealy’s approval of the production

of non-Sealy mark Sears bedding, the undisputed evidence in the

record together with the reasonable inferences to be drawn there-

from establish that Sealy approved of Ohio-Sealy’s production of

the Sears bedding within the meaning of article I.A. of the license

agreement as a matter of law. The license agreement does not

require any particular manner of approval in order to bring a

specific product manufactured and sold by a licensee within the

ambit of “Sealy Products” upon which royalties must be paid.

The record in the instant case does reveal, however, that Ohio-

Sealy’s production and sale of the Sea: bedding was brought to

the attention of Sealy on at least two occasions upon which Sealy

took note of the Sears business and affirmatively acted to enable

Ohio-Sealy to develop that business. On September 28, 1977, Mr.

Ernest Wuliger, the president of Ohio-Sealy, wrote to the president

of Sealy requesting approval to build a new plant in Georgia in

nArticle VII of the license agreement requires payment of royalties on

a licensee's net sales of “Sealy Products.” “Sealy Products” are defined

in article 1.A. of the license agreement as products bearing the Sealy

mark or those that “are produced, with Sealy’s approval, in Licensee's

plant at a location enumerated in Section II.”

A37

order “to handle our increased volume, which includes Sears

Roebuck.” Mr. Haas secured board approval for Ohio-Sealy’s

request and wrote back to Mr. Wuliger on October 14, 1977, stat-

ing that “[wl]e trust that the expanding business to which you

refer, including the Searmbusiness, will enable you to take full ad-

vantage of the increased capacity and greater efficiency that the

new facility will provide.” Later, in August, 1978, Mr. Wuliger

wrote to Mr. Haas requesting permission to deliver the “no-

name” Sears Harmony House mattresses in “Sealy” trucks in

light of some earlier confusion over the delivery of non-Sealy

mark mattresses in trucks bearing the Sealy mark. Mr. Haas re-

sponded in November, 1978, stating that “[wJe do not interpret

the license agreement or the Policies and Procedures Manual as °

forbidding you from using your regular trucks for the delivery of

Sears Harmony House mattresses.”

The only reasonable inference that could possibly be drawn

from the evidence in the record is that Sealy expressly approved

of Ohio-Sealy’s production and sale of non-Sealy mark bedding.

Indeed, Sealy acted to enhance Ohio-Sealy’s ability to service

that market. Ohio-Sealy has not brought forth any evidence that

would support a contrary inference and its mere unsubstantiated

assertion that Sealy did not approve of the production of the Sears

bedding within the meaning of the license agreement, without

more, cannot defeat summary judgment on this point.

There is also no dispute with respect to the lawfulness of Sealy’s

system of exacting royalties on sales of both Sealy mark and non-

Sealy mark products as far as the Sears bedding is concerned that

precludes summary judgment on that point. In Zenith Radio

Corp. v. Hazeltine Research, Inc., supra, the Supreme Court held

that the grant of a patent license may not be conditioned upon the

payment of royalties on products that do not use the patent. The

Court expressly reaffirmed the rule of Automatic Radio Manu-

facturing Company v. Hazeltine Research, Inc., 339 U.S. 827, 70

S.Ct. 894 (1950), that a patent owner could negotiate for royalties

A38

on total sales, whether or not all sales used the patent, as a con-

venient measure of the value of the license. 395 U.S. at 137-38, 89

S.Ct. at 1584. But the refusal to license on any other terms would

constitute misue of the patent, according to the Court, although

no inference of such conditioning could properly be made simply

because a license provision calls for royalties on total sales. 395

U.S. at 139, 89 S.Ct. at 1585. The Court thus remanded the case

for a determination as to whether the respondent had conditioned

the grant of its patent license upon payment of royaltivs on sales

of unpatented as well as patented products. Finally, the Court in

Zenith noted that a finding of patent misuse would not necessarily

result in a violation of section | or 2 of the Sherman Act, 395 U.S.

at 140, 89 S.Ct. 1585, though the lower courts have found that

such misuse of a patent or trademark does violate the antitrust

laws and, in appropriate cases, may excuse the payment of royal-

ties otherwise due. See Carpa, Inc. v. Ward Foods, Inc., 536 F.2d

39, 50 (Sth Cir. 1976).

In our view, the lawfulness of Sealy’s system of exacting royal-

ties on total sales was decided in Sealy’s favor in the context of the

appeal of the verdict in the 1971 case, Ohio-Sealy Mattress Man-

ufacturing Company v. Sealy, Inc., 585 F.2d 821, 838-39 (7th

Cir. 1978), cert. denied, 440 U.S. 930 (1979), and that determin-

ation must be given collateral estoppel effect in the case at bar.

The court of appeals found that Ohio-Sealy had failed to show

that Sealy conditioned the grant of a license upon payment of

royalties on total sales. Rather, the court of appeals found that

“ .. extensive negotiations were in fact had over agreement

provisions, and Ohio was able to obtain revisions in the proposed

agreement,” and it concluded that “‘[t]here was no evidence that

Ohio sought to eliminate the non-Sealy royalties which no doubt

would have resulted in a higher royality on Sealy-brand

products.” 585 F.2d at 839. The Seventh Circuit also stated that:

[m Joreover, Sealy obtained royalties not merely for the bare

license of its trademark, but also for significant advertising,

A39

technical, and other services. To argue that none of the ser-

vices provided in the package could have benefited the

licensed plants other than in the production and sale of Sealy-

brand products is to far outrun the facts in the record.

Ohio-Sealy has brought forth no evidence nor has it argued

that the 1975 license agreement at issue in this case was any

different than earlier agreements with respect to the royalty

provision and there is no evidence or argument that the negotia-

tions surrounding the 1975 agreement were any different than

those concerning earlier agreements. Ohio-Sealy does argue,

however, that Sealy provides less services with respect to the sales

of Sears bedding than it provided with respect to the sales to

Montgomery Ward & Company at issue in the 1978 appeal

because Ward’s was involved in Sealy’s “national accounts” pro-

gram and that the lack of Sealy services that benefit the Sears

bedding is relevant to the question of conditioning. But it remains

undisputed that Sealy provides a variety of services to its

licensees, as the court of appeals noted, and it can hardly be said

that some of those services, including specialized manufacturing

and administrative know-how, plant lay-out assistance, sales

training programs, labor-relations assistance, computer pro-

grams, etc., do not benefit Ohio-Sealy in its ability to service an

account like Sears with non-Sealy mark products. As the court

noted in Zenith, supra, the assessment of royalties on total sales

may be a “convenient method” of determining the value of a

license. 395 U.S. at 137, 89 S.Ct. at 1584, That appears to be the

situation in the case at bar.

Lastly, Ohio-Sealy has mustered an assortment of theories in

support of its argument that Sealy may not exact late charges of

one percent per month on the royalties payable on Sealy Products.

The Court has carefully reviewed each of Ohio-Sealy’s theories

and concludes that none has any merit. The provision regarding

late charges is unconditional and unequivocal: “Sealy shall have

the right to assess a charge of one percent (1%) per month for late

payment of royalties.” Article VII.F. Ohio-Sealy’s contention

A40

that late charges may not be assessed without written notice or if

a licensee contests the payment of royalties in good faith is based

on language in Article VII.F. relating to the procedure on termi-

nation of a licensee for non-payment of royalties, not the assess-

ment of late charges upon royalties that have been withheld.

Ohio-Sealy’s argument that-the one percent per month late

charge provision is unenforceable a3,a penalty is refuted by the

case law, United Order of American Bricklayers v. Thorlief

Larsen & Son, Inc., 519 F.2d 331 (7thiCir. 1975), and the charge

is not usurious because it does not Anvolve a loan of money,

Clemens v. Crane, 234 Ill. 215, 84 NvE, 884, 889 (1908).” Ohio-

Sealy’s theory that equity should bar the collection of late charges

because Sealy waited too long to assert its rights is supported

neither by law nor the facts of this case. Finally, Ohio-Sealy’s

challenge to the computation of the charges must fail in light of

the clear procedure mandated by the Sealy Policies and

Procedure Manual followed in this case. See Sealy Policies and

Procedures Manual at § VII(e) at p. 8.

Accordingly, Sealy’s motion for summary judgment is granted

with respect to royalties and late charges due on sales of both

Sealy mark products and non-Sealy mark products including the

Sears bedding. It is so ordered.

/s/ MARVIN E. ASPEN

MARVIN E. ASPEN

United States District Judge

DATED: 7/20/82 ‘

“Even if this case did involve a loan, a loan to a corporation is not

within the Illinois usury statute. Ill.Rev.Stat. ch. 74, § 4(1) (a).

A4l

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

On10-SEALY MATTRESS MANUFACTURING CoM- |

PANY, SEALY MATTRESS COMPANY OF Hous-

TON, SEALY MATTRESS COMPANY OF PUERTO

Rico, INc., SEALY MATTRESS COMPANY OF

Fort Worth, SEALY OF THE NORTHEAST, and

SEALY MATTRESS COMPANY OF GEORGIA,

Plaintiffs,

Vv

Morris A. KAPLAN, SEALY MATTRESS Com-

PANY OF ILLINOIS, WILLIAM H. WALZER,

SEALY CONNECTICUT, INC., SEALY GREATER

New York, INC., WATERBURY MATTRESS

COMPANY, MORTON H. YULMAN, SEALY OF

EASTERN New York, INC., SEALY OF MINNE-

SOTA, INC., PETER D. BROWN, SEALY MatT-

TRESS COMPANY OF MICHIGAN, INc., T. C.

ENGLEHARDT, JR., FRED G. HopGEs BEDDING

ComPANY (a/k/a SEALY MATTRESS COMPANY

Or READING, Pa.), SEALY Or Des MoInes, |

INC., WALTER HERTZ, SEALY MATTRESS Com-

PANY Or New Jersey, INC., Joseru V.

Morritt, SEALY OF THE CAROLINAS, PEER-

LESS MATTRESS COMPANY, LLoyp B. Ro-

SENFELD, SEALY MATTRESS COMPANY OF

OREGON, JosepH R. RUDICK, MARYLAND

BEDDING COMPANY, JAMES E. THOMPSON,

Howarp G. Haas, SEALY, INCORPORATED,

Seay SprRiNG CORPORATION, SEALY Mat-

TRESS COMPANY OF COLoRaDo, INC., SEALY

Mattress Company OF NorTHern CALI-

roania, Inc., SEALY Mattrress COMPANY OF

SourTwHern Cairornia, Inc., SEALY Mat-

Tress Company OF Arizona, Inc., SEaLy

Matrress Company Or Fiorina, Inc., SEALY

Mattress Company OF PitrspurGu, INc.,

and Seaty Matrraess Company OF Puiza-

DELPHIA, INC.,

Defendants.

NO. 76 C 0810

A42

MEMORANDUM OPINION AND ORDER

MARVIN E. ASPEN, District Judge:

On July 20, 1982, this Court entered its memorandum opinion

and order on defendant’s motion for summary judgment with re-

spect to the issues set forth in sections II.D.(a) and (b) and section

IV of the Schedule of Issues previously established in this matter

and the parties’ cross-motions for summary judgment on defen-

dant’s counterclaims. Ohio-Sealy Mattress Manufacturing Co. v.

Kaplan, No. 76-810 (N.D. Ill. July 20, 1982). Plaintiff now seeks

reconsideration of certain portions of our earlier opinion and

order as well as the entry of final judgment pursuant to Rule

54(b) of the Federal Rules of Civil Procedure with respect to

those claims that were resolved adversely to it on July 20 so that it

may raise those claims on appeal without awaiting the disposition

of the remaining issues in this complex case. For the reasons set

forth below, plaintiff's motion for reconsideration and for Rule

54(b) certification will be denied.

Motion For Reconsideration

Plaintiff raises a host of arguments in support of its motion for

reconsideration, most of which were addressed in the context of

our earlier opinion and none of which require any substantive

change in the result reached at that time. For example, plaintiff

contends correctly that this Court did not mention the recent Su-

preme Court decision in Blue Shield of Virginia v. McCready,

U.S. , 102 S.Ct. 2540 (June 21, 1982), in connection

with its discussion of antitrust standing and injury in part I(B) of

its July 20, 1982, decision. But plaintiff does not indicate what

effect, if any, that decision might have on the case at bar. Indeed,

our review of the McCready decision reveals that while it may be

peripherally relevant as background material with respect to the

question of antitrust standing and injury in general, it provides no

guidance with respect to the issues raised in the instant case.

tial

" so

A43

Similarly, plaintiff correctly notes a slight misstatement at

page 6 of our July 20th opinion in connection with our reference

to Judge Parsons’ mention of “... Sealy’s post-verdict acquisi-

tions of its Portland and San Diego licensees . . .” in his opinion

after the second equitable relief proceeding in the 1971 case.

(Emphasis added). Of course, we meant to refer to defendant's

post-verdict conduct in both Portland and San Diego, namely, its

acquisition of the Portland licensee and its response to plaintiff's

threat to manufacture Sealy bedding in San Diego, both of which

were mentioned peripherally by Judge Parsons in his opinion. In

any event, our misstatement has no effect whatsoever on the mer-

its of the issues discussed at that portion of our opinion.'

The remaining grounds urged in support of plaintiff's motion

for reconsideration were fully addressed in our July 20th opinion

and order, and nothing plaintiff has said in support of its present

motion indicates that our initial disposition of these matters was

in error. Accordingly, plaintiffs motion for reconsideration is

denied. It is so ordered.

Motion For Rule 54(b) Certification

Rule 54(b) permits a court to direct the entry of final judgment

as to fewer than all the claims or parties involved in a particular

matter “only upon an express determination that there is no just

reason for delay and upon an express direction for the entry of

judgment.” Fed.R.Civ.P. 54(b). The rule was not intended to be a

broad exception to the historic policy against the piecemeal dispo-

sition of litigation in the federal courts. Rather, it was intended to

allow a court to release an otherwise interlocutory decision for ap-

peal when to do so would be in accordance with notions of sound

judicial administration as well as the balance of the equities in-

volved in a particular case. Curtiss-Wright Corporation v. General

‘Incredibly, plaintiff raises this minor discrepancy that has no bearing

on the ultimate merits of an issue upon which it actually prevailed in our

earlier opinion.

se

A44

Electric Company, 446 U.S. 1, S.Ct. (1980); Sears,

Roebuck & Company v. Mackey, 351 U.S. 427, US.

(1956); Advisory Committee Note to Amendment of Rule 54, 5

F.R.D. 433, 472 (1946). As the United States Court of Appeals

for the Seventh Circuit recently noted:

The discretionary component of Rule 54(b), which

requires the district court to make an “express determination

that there is no just reason for delay,” serves both to give the

district court virtually unreviewable discretion to refuse cer-

tification . . . and to limit its power to grant certification by

requiring it to weigh the virtues of accelerated judgment

against the possible drawbacks of piecemeal review.

Local P-171, Amalgamated Meat Cutters and Butcher Workmen

of North America v. Thompson Farms Company, 642 F.2d 1065,

1071-72 (7th Cir. 1981).

The circumstances and equities involved in the instant case

weigh heavily against the piecemeal review of each disposition of

a portion of plaintiff's claims. Rather, principles of sound judicial

administration require that final judgment not be entered until

the entire case is disposed of either by settlement or orderly ad-

judication. Indeed, as defendant notes, the rulings as to which

plaintiff now seeks Rule 54(b) certification were made by the

Court as part of an effort, and at plaintiff's urging, to expedite the

early termination of this litigation. Rather than expediting the

termination of this case, an intermediate appeal at this juncture

would further delay final resolution of this case.

Furthermore, the balance of equities strongly counsel against

certification of this portion of the case for early appeal. No hard-

ship can result to plaintiff from awaiting final judgment at the

conclusion of the entire case. It is defendant, not plaintiff, who

must await the payment of substantial funds until final judgment

is entered.

A45

Accordingly, plaintiff's motion for entry of a final judgment

order pursuant to Rule 54(b) of the Rules of Civil Procedure is

denied. It is so ordered.

/s/ MARVIN E. ASPEN

MARVIN E. ASPEN

United States District Judge

DATED: 9/10/82

TE

A46

STATEMENTS PURSUANT TO RULES

21.1(b) AND 28.1

Petitioners Ohio-Sealy Mattress Manufacturing Company,

Sealy Mattress Company of Houston, Sealy Mattress Company

of Fort Worth, Sealy Mattress Company of Puerto Rico, Inc.,

Sealy of the Northeast, and Sealy Mattress Company of Georgia,

and respondents Sealy, Incorporated, Sealy Spring Corporation,

Sealy Mattress Company of Colorado, Inc., Sealy Mattress Com-

pany of Northern California, Inc., Sealy Mattress Company of

Southern California, Inc., Sealy Mattress Company of Arizona,

Inc., Sealy Mattress Company of Florida, Inc., Sealy Mattress

Company of Pittsburgh, Inc., and Sealy Mattress Company of

Philadelphia, Inc., were parties to the proceedings in the Court of

Appeals.

Petitioner Ohio-Sealy Mattress Manufacturing Company has

no parent companies, subsidiaries other than wholly-owned sub-

sidiaries, or affiliates. All of the other petitioners are wholly-

owned subsidiaries of petitioner Ohio-Sealy Mattress Manufac-

turing Company.