Opposition Brief — Fraser v. Lintas

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OCT 24 1996

Supreme Court of the Unjted States

CLERK

OCTOBER TERM, 1996

IN THE

_>-

EDWIN DEJESUS, individually and on behalf of all others

similarly situated, CAROLYN PENZO, RICHARD C. LARKIN,

WILLIAM M. COOKE, and RANDY J. LANE,

Petitioners,

SEARS, ROEBUCK & CO.,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

BRIEF OF RESPONDENT IN OPPOSITION

Theodore N. Mirvis*

Paul K. Rowe

Meir Feder

WACHTELL, LIPTON, ROSEN

& KATZ

51 West 52nd Street

New York, New York 10019

(212) 403-1000

Attorneys for Respondent

* Counsel of Record

QUESTION PRESENTED

Whether the objections of certain Allstate Insurance Com-

pany agents to the job requirements that they lease specified

computer equipment and advertise in the Yellow Pages

through a specified advertising agency give rise to federal

antitrust claims.

PARTIES TO THE PROCEEDING

The petitioners, appellants in the Court of Appeals, are

Edwin De Jesus, individually and on behalf of a purported

class, Carolyn Penzo, Richard C. Larkin, William M. Cooke

and Randy J. Lane.

The respondent, appellee in the Court of Appeais, is Sears,

Roebuck & Co. Sears, Roebuck and Co. has no parent com-

panies or subsidiaries that have issued shares to the public,

except MaxServ, Inc.; Sears Canada Inc.; and Sears, Roebuck

de Mexico, S.A. de C.V. Sears is the majority owner of each.

The Allstate Corporation, the parent of Allstate Insurance

Company, was previously a wholly owned subsidiary of

Sears: Sears sold 19.9% of that interest in a public offering

completed on June 9, 1993, and spun off the remaining inter-

est to Sears’ shareholders on June 30, 1995. Prior to June

1993, Dean Witter, Discover & Co. was a wholly owned sub-

sidiary of Sears; in that year, Sears sold 19.9% of its owner-

ship interest in a public offering and spun off the remaining

interest to Sears’ shareholders.

ill

TABLE OF CONTENTS

PAGE

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PARTIES TO THE PROCEEDINGS. ................... ii

WORMEReED WOE FAGPCRBUIURE SEES ci cscccccsscosestocscscescs iv

ero edt Be Sar) | a rere on l

REASONS FOR DENYING THE WRIT............... 2

A. There is no conflict with any decision of

IESE BETES ORG EA GE 2

B. There is no conflict with any decision of

ST RNIN faa GhaGics gis 6c ase nendeacdidees 3

C. This case is in any event an inappropriate

EE ON ch cach ices anaes sasnveeees 7

SG a Ah a. GREER CC TACh AKA CAS &N ssn cavsics ceees 9

TABLE OF AUTHORITIES

Cases PAGE

American Computer Trust Leasing v. Jack Farrell

Implement Co., 763 F. Supp. 1473 (D. Minn.

1991), aff’d, 967 F.2d 1208 (8th Cir.), cert.

denied, 506 U.S. 956 (1992) .......--.-e eee eee eeee 6n

Bazal v. Belford Trucking Co., 442 F. Supp. 1089

(Bm: Me by) eeeererterreererys rrte rer: rrr ty 4n

Digidyne Corp. v. Data Gen. Corp., 734 F.2d

1336 (9th Cir. 1984), cert. denied, 473 U.S.

GOB CIGES) nancies kc clesnens Siar es nc kceni eels es 5, 6n

Drinkwine v. Federated Publications, Inc., 780 F.2d

735 (9th Cir. 1985), cert. denied, 475 U.S. 1087

CU SRG noon sons dencdsanstvachxtsdsssgapevagerssenas 7

Eastman Kodak Co. v. Image Technical Servs. Inc.,

$04 U.S. 451 (1992) cccccsveccnc seis censseadeseese 7

Esposito v. Mister Softee, Inc., 1983-1 Trade Cas.

(CCH) 965,336 (S.D.N.Y.), aff'd mem., 742

F.2d 1445 (2d Cir. 1983), cert. denied, 465 U.S.

SOBRE CADGAD inc vcik nav ine cuts ccadenenses cess seentss 8

Everhart v. United Refining Co., 1980-81 Trade Cas.

(CCH) 963,788 (N.D. Ohio 1980).........-...--- 4n

Fortner Enters., Inc. v. United States Steel Corp.,

394 U.S. 49S (1969) 2... cccvwcccccccscrsscsceseess 8

49er Chevrolet, Inc. v. General Motors Corp.,

803 F.2d 1463 (9th Cir. 1986), cert. denied,

PUB ie YAS i vs epee rrererr re fore tere 4n

Gemco Latinoamerica, Inc. v. Seiko Time Corp., 685

F. Supp. 400 (S.D.N.Y. 1988)........---.--+0e-++> 7

PONE teen ener Neue ner Ereny a

PAGE

Goldinger v. Boron Oil Co., 375 F. Supp. 400

(W.D. Pa. 1974), aff’d mem., 511 F.2d 1393

(3d Cir.), cert. denied, 423 U.S. 834 (1975)...... 4n

Gonzalez v. St. Margaret’s Home Housing Dev. Fund

Corp., 880 F.2d 1514 (2d Cir. 1959).............. 3n

Hand v. Central Transp. Co., 779 F.2d 8 (6th Cir.

ROM Binns d pacnusanens) Hide soa AOR 3,4

Jefferson Parish Hospital District No. 2 v. Hyde, 466

Noscc Wb CN ORGS C0 es U4 LC UESWEKS hob che enebecebneses 2, 8n

Lucas Indus. v. Kendiesel, Inc., 1995 WL 350050

aA me ME OE Fag. | Be eapegte Beagrie ee an 6

Northern Pacific Ry. Co. v. United States, 356 U.S. 1

ERPS Guia dia Tis abAr sce Oey HeREes Ph ideneeanca ch cies 3n

Susser v. Carvel Corp., 332 F.2d 505 (2d Cir. 1964),

cart. Gamind, SEL US. FSS CRIES) vv ec kkssccecksss 5

Telerate Sys., Inc. v. Caro, 689 F. Supp. 221

Sens Ra kPa 0k Aa ak ha 0k bho rhea deaoae 6n

Trans Sport, Inc. v. Starter Sportswear, Inc., 964 F.2d

Re Ee AS 5 7 5 Bee Ase ey eee 8

United Farmers Agents Ass’n v. Farmers Ins.

Exch., Civ. No. A-92-CA-373 (W.D. Tex.

PRE, a ROT aaah po Pi ee ROS CC RUS es ws 6

United Farmers Agents Ass’n v. Farmers Ins. Exch.,

892 F. Supp. 890 (W.D. Tex. 1995), aff’d, 89 F.3d

Pads CRE nt ed ab tA nc 5 bcc ov i behest ean bues 6,7

Waldo v. North Am. Van Lines, Inc., 669 F. Supp. 722

GF Re ME sy 5 a tetera ge we pec eee 4n, 5

IN THE

Supreme Court of the United States

OCTOBER TERM, 1996

No. 96-455

—_<—

EDWIN DEJESUS, individually and on behalf of all others

similarly situated, CAROLYN PENZO, RICHARD C. LARKIN,

WILLIAM M. COOKE, and RANDY J. LANE,

Petitioners,

—_—V)—

SEARS, ROEBUCK & Co..,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

BRIEF OF RESPONDENT IN OPPOSITION

STATEMENT OF THE CASE

Respondent hereby incorporates the description of the case

in the opinion below, at 2a-8a.

REASONS FOR DENYING THE WRIT

A. There is no conflict with any decision

of this Court.

The Second Circuit held below that petitioners could not

state an antitrust tying claim by alleging that their employer,

Allstate, required them to purchase certain job-related items

from specified sources. Specifically, the court below

explained, “employment, standing alone, cannot constitute a

tying product.” 13a. Petitioners object vaguely that this hold-

ing “ignore[s] th[e] principles of Jefferson Parish [Hospital

District No. 2 v. Hyde, 466 U.S. 2 (1984).]” Pet. 5; see also

id. at 8, 12.

There is no conflict between Jefferson Parish (or any other

decision of this Court) and the decision below. The two cases

simply do not speak to the same issue. Nothing in Jefferson

Parish addresses whether an employee’s objection to a job

requirement that he or she purchase certain items from his or

her employer gives rise to an antitrust tying claim.

To the extent Jefferson Parish is relevant at all, it plainly

supports the Second Circuit’s holding. As this Court made

clear there, the rationale of tying doctrine is to prevent a party

with monopoly or economic power in one product (the tying

product) from leveraging that power into the market for a sec-

ond product (the tied product) by requiring that the purchaser

of the first product also purchase the second. 466 U.S. at 12-

16. Petitioners’ claim, which is premised on their objection to

Allstate job requirements (not on any alleged abuse by All-

state of monopoly or market power in a product), simply does

not fit anywhere remotely within this paradigm. Allstate is

not charged with having monopoly or any other level of eco-

nomic power in any product market, or with seeking to lever-

age power in one product market into another product market.

No “product” sold by Allstate is even involved; petitioners

instead seek to have their employment by Allstate treated as

if it were a tying product. Petitioners’ complaint is about their

jobs — not about any misuse of product market power by All-

state. Recognizing such a claim would entail an unprece-

dented and unjustified intrusion of federal antitrust law into

garden-variety employment relationships.*

B. There is no conflict with any decision of

another Circuit.

Petitioners contend that the Second Circuit’s decision

rejecting their antitrust tying claim “was in conflict with other

circuits’ holdings on virtually identical issues.” Pet. 5. These

purported conflicts, however, are imaginary.

1. Petitioners claim a conflict with Hand v. Central Trans-

port Co., 779 F.2d 8 (6th Cir. 1985), which they assert “held

that employment as owner-operator of a truck was a tying

product.” Pet. 6. Hand, however, addresses a completely

different issue, holding only that any definition of the rele-

vant market for market power analysis must take account of

possible submarkets, see 779 F.2d at 11; the case nowhere

discusses whether employment may be a tying product, let

alone “holds” that it may. Moreover, leaving aside the

absence of any holding or discussion by the Sixth Circuit, it

is not even clear from the cryptic opinion in Hand whether

the plaintiffs in that case even claimed employment as a tying

product. See id. at 11 (apparently analyzing the “truck credit

market,” not the empioyment market, as the “tying product

af As a fundamental, definitional matter, “[a] tying arrangement

is “an agreement by a party to sell one product, but only on the condi-

tion that the buyer also purchase a different (or tied) product.’ ” Gonzalez

v. St. Margaret's Home Housing Dev. Fund Corp., 880 F.2d 1514, 1516

(2d Cir. 1959), quoting Northern Pacific Ry. Co. v. United States,

356 U.S. 1, 5 (1958). Petitioners now suggest that their claim should

be considered as something other than a tying claim. Pet. 5, 12. How-

ever, petitioners specifically argued the claim to both the District

Court and the Second Circuit as a tying claim. In any event, regard-

less of the label applied to petitioners’ claim, it remains clear that

their employment grievance does not give rise to a federal antitrust

claim.

market”). Indeed, Hand, which petitioners now purport to find

directly on point, is in fact so marginally relevant that peti-

tioners never even cited it to the Second Circuit (or the Dis-

trict Court).*

2. Petitioners claim that, if they are “[vJiewed as inde-

pendent contractors vis-a-vis Allstate,” the ruling below

somehow conflicts with various cases applying antitrust tying

scrutiny to franchisor requirements that their franchisees buy

certain products directly from the franchisor. Pet. 6-7. Peti-

tioners offer no reason, however, why this Court should be

called upon to address either the uniquely fact-bound question

of whether they — under the unique circumstances of All-

state’s “Neighborhood Office Agent” (NOA) program — are

independent contractors, or why the label applied to an

* The federal courts have, in actuality, repeatedly rejected efforts

to treat employment as a tying product, recognizing the basic inconsis-

tency of that proposition with the settled requirement that a tying claim

begin with the defendant's sale of a tying product to the plaintiff. See

Waldo v. North American Van Lines, Inc., 669 F. Supp. 722 (W.D. Pa.

1987) (rejecting such claim as a “tortured comparison” te a true antitrust

tying claim: “It is a fundamental principle of antitrust tying law that an

alleged tying arrangement requires that at least two products and/or ser-

vices be purchased by the same individual; that is, there must be lineal

movement between the products.”); Everhart v. United Refining Co.,

1980-81 Trade Cas. (CCH) 963,788, at 78,208 (N.D. Ohio 1980), and

cases there cited; Goldinger v. Boron Oil Co., 375 F. Supp. 400, 405

(W.D. Pa. 1974); aff'd mem., 511 F.2d 1393 (3d Cir.), cert. denied, 423

U.S. 834 (1975); 49er Chevrolet, Inc. v. General Motors Corp., 803 F.2d

1463, 1469 (9th Cir. 1986)(no tying arrangement “where {car} dealers

perform(ed] repair services for GM and are paid by GM,” because “they

are not buyers of an allegedly tied product at all, but are sellers”), cert.

denied, 480 U.S. 947 (1987). The only contrary authority of which

respondent is aware, Bazal v. Belford Trucking Co., 442 F. Supp. 1089

(S.D. Fla. 1977), is a two-decade old district court decision that has never

been followed by any other court. (Moreover, Bazal stressed that the

plaintiff there had sufficiently alleged economic market power in the

truck rental market, see id. at 1096-97 — unlike here where petitioners

can make no allegation that Allstate possessed market power in any prod-

uct market.)

employment relationship should matter for antitrust purposes.

On any view, petitioners’ antitrust claims represent efforts to

treat as separate “products” what are inseparable attributes of

employment as an Allstate agent, regardless of whether one

regards that employment as akin to traditional employment or

to the status of an independent contractor.

Petitioners’ purported conflict is not a true conflict but only

an attempt to argue for a (major) extension of tying doctrine

beyond the franchisor context. That argument was directly

addressed, and disposed of, by the court below. As the court

explained in addressing one such case — Susser v. Carvel

Corp., 332 F.2d 505 (2d Cir. 1964), cert. denied, 381 U.S. 125

(1965) — the franchise context fits the traditional model of

tying: i.e., it “involve[s] a sale of both the tying product [the

franchise] and the tied product to the party complaining of an

antitrust violation. This pattern accords with the ‘fundamental

principle of antitrust law that an illegal tying arrangement

requires that at least two products and/or services be pur-

chased by the same individual. . . .’” 13a, quoting Waldo v.

North Am. Van Lines, Inc., 669 F. Supp. 722, 731 (W.D. Pa.

1987). As the court went on to explain, petitioners’ claim

does not fit this traditional model: “it is simply implausible

to regard Plaintiffs’ employment. . . for which they are paid

by Allstate, as something that Allstate or Sears is selling to

Plaintiffs.” 13a.

3. Petitioners strain to suggest that there is some tension

between the holding below and Digidyne Corp. v. Data

General Corp., 734 F.2d 1336 (9th Cir. 1984), cert. denied,

473 U.S. 908 (1985), which held that a computer database

may qualify as a tying product. Once again, the tension is

nonexistent. The Second Circuit never held that a database

sold on the open market — as in Digidyne — cannot be a tying

product. Rather, the basis of the holding below was simply

that where a proprietary database such as Allstate’s — which

contains confidential information about Allstate’s customers,

products, and pricing, and is available only to Allstate’s own

agents — is provided (without charge) as an attribute of peti-

tioners’ employment, it cannot be deemed a “tying product”

for antitrust purposes. 14a.*

4. There is even less to petitioners’ call for review by this

Court on account of the two unpublished district court opin-

ions which the petition highlights (at 9-11). Leaving aside that

a district court decision (let alone an unpublished one) can

hardly give rise to a conflict that demands this Court's atten-

tion, Lucas Industries, Inc. v. Kendiesel, Inc., 1995 WL

350050 (D.N.J. June 9, 1995), did not involve an employer's

providing of anything to its own employee force. The tech-

nical literature that was deemed the tying product in Lucas

was a product provided to third parties, and the district court

stressed that there was “great demand for technical literature

separate and apart from demand for parts,” that the literature

had its own separate market value, and that there was an inde-

pendent market for the literature. /d. at *4. Thus, whether or

not Lucas was correct in treating the technical literature as a

separate product, Lucas does not support treating employee-

only access to Allstate’s database as a separate product.

United Farmers Agents Ass'n v. Farmers Insurance

Exchange, Civ. No. A-92-CA-373 (W.D. Tex. Apr. 8, 1993),

adds nothing. The court there did not rule that database access

provided to employees was a tying product; rather, it merely

rejected a challenge to the standing of certain plaintiffs who

had never purchased the allegedly tied product. Indeed, as

noted by the Second Circuit, the subsequent, published deci-

sion in the same case (892 F. Supp. 890 (W.D. Tex. 1995),

aff'd, 89 F.3d 233 (Sth Cir. 1996)) specifically rejected the

putative tying claim on the ground, inter alia, that access to

a The two district court opinion petitioners cite with Digidyne —

Telerate Systems, Inc. v. Caro, 689 F. Supp 221, 234 (S.D.N.Y. 1988),

~ and American Computer Trust Leasing v. Jack Farrell Implement Co.,

763 F. Supp. 1473 (D. Minn. 1991), aff'd, 967 F.2d 1208 (8th Cir.), cert.

denied, 506 U.S. 956 (1992) — are irrelevant for the same reason, and are

both cases in which the tying claims were rejected.

the insurance company’s database was not a tying “product”

separate from the plaintiff-agents’ jobs. 14a (citing Farmers

Insurance). And the Fifth Circuit, in affirming, likewise

rejected the contention that “electronic access to Farmers pol-

icy information” was a cognizable tying product market,

terming the claim “essentially an intracompany dispute over

how to run a computer system, not a valid claim under the

antitrust laws.” 89 F.3d at 236-37.

C. This case is in any event an inappropriate

vehicle for review.

Even if petitioners had raised an issue worthy of this

Court’s review, this case would be an inappropriate vehicle

for such review, for there are alternative grounds for affir-

mance of the judgment below that obviate any need to reach

the questions pressed by petitioners here.

1. Although respondent Sears is the sole defendant in the

case, all of the actions alleged in the complaint were actions

of Sears’ then-subsidiary Allstate, not of Sears itself. Under

established law, a parent corporation is not, without the prof-

fer of a basis for piercing the corporate veil, liable for

antitrust violations of its subsidiary. See Drink» ine v. Fed-

erated Publications, Inc., 780 F.2d 735, 741 (9th Cir. 1985),

cert. denied, 475 U.S. 1087 (1986). Where a complaint, as

here, “cannot fairly be read to allege independent action on

the part of the [parent],” or to allege “facts” suggesting that

the subsidiary “is a ‘mere instrumentality’ of the parent,”

“there is no basis for holding the [parent] liable for the

alleged antitrust violations of [its] subsidiary.” Gemco Lati-

noamerica, Inc. v. Seiko Time Corp., 685 F. Supp. 400, 403

(S.D.N.Y. 1988) (granting motion to dismiss) (internal quo-

tation omitted).

2. The complaint fails to allege a “necessary feature of an

illegal tying arrangement: appreciable economic power in the

tying market.” Eastman Kodak Co. v. Image Technical Ser-

vices, Inc., 504 U.S. 451, 464 (1992). A complaint “must

allege facts sufficient to support an inference that [the defen-

dant) had ‘appreciable economic power’ in the tying prod-

uct.” Trans Sport, Inc. v. Starter Sportswear, Inc., 964 F.2d

186, 192 (2d Cir. 1992), quoting Fortner Enterprises, Inc. v.

United States Steel Corp., 394 U.S. 495, 503 (1969). Thus,

even if petitioners’ employment (or their concomitant access

to Allstate’s proprietary database) could somehow be viewed

as a tying product, petitioners’ failure to allege that Sears or

Allstate had market power in some cognizable market would

doom their claim. Indeed, petitioners have never even offered

a proposed market definition. Petitioners’ failure to allege any

theory of economic power in a tying market reflects the inco-

herence of their tying claims, which are in reality employment

disputes that have nothing to do with any abuse of product

market power.

3. Again reflecting the misguided nature of petitioners’

effort to transform a dispute over employment conditions

regarding advertising into an antitrust claim, petitioners do not

allege any harm from the alleged tying. Petitioners do not

allege that the requirement that Yellow Pages advertising be

arranged through Woodward Direct cost any Allstate Neigh-

borhood Office Agent anything more than what such adver-

tising would otherwise have cost. Petitioners’ inability even

to allege any harm from the supposed tying is, independent of

everything else, fatal to their claim. Esposito v. Mister Softee,

Inc., 1983-1 Trade Cas. (CCH) 965,336, at 70,003-08

(S.D.N.Y.) (collecting cases), aff’d mem., 742 F.2d 1445 (2d

Cir. 1983), cert. denied, 465 U.S. 1026 (1984).*

* Similarly, the complaint alleged only that “each NOA who

wished to advertise in the Yellow Pages” was obliged to do so via Wood-

ward Direct (emphasis added), not that anyone was required to purchase

the allegedly tied product. Without such an allegation that a seller has

exploited its control over the tying product to “force the buyer into the

purchase of a tied product,” no tying claim is stated. Jefferson Parish,

466 U.S. at 12.

* * *

In sum, the decision below correctly stated the law, and it

plainly does not conflict with any decision of this Court or of

any Court of Appeals. Even if there were an issue worthy

of this Court’s attention, moreover, this would hardly be an

appropriate case in which to address it.

CONCLUSION

For the foregoing reasons, the petition for a writ of cer-

tiorari should be denied.

Respectfully submitted,