Reply Brief — Fraser v. Lintas

(3) Supreme Court; U.S.

No. 96-455 FILED

NOV 14 1996

CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1996

-

EDWIN DEJESUS, indivdually and on behalf of all others

similarly situated, CAROLYN PENZO, RICHARD C. LARKIN,

WILLIAM M. COOKE, and RANDY J. LANE,

Petitioners,

—_Y

SEARS, ROEBUCK & CO., INC.,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

——————————

PETITIONERS’ REPLY BRIEF

LS

ecm —

PATRICK M. WALL

Counsel of Record for Petitioners

60 East 42nd Street

New York, New York 10165

(212) 972-1223

TABLE OF CONTENTS

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SUES Pe RTE bch ns Semavekeseasua egress basacccens

ARGUMENT...

CONCLUSION

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PAGE

10

ii

TABLE OF AUTHORITIES

Cases PAGE

American Protein Corp. v. AB Volvo, 844 F.2d 56

(2d Cir.), cert. denied, 488 U.S. 852 (1988)...... a

Butts v. Commissioner of Internal Revenue, 49 F.3d

713 (6th Cir. 1995)...... 2. cece eee rece eee ee eee eees 6

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

(CCH) Par. 63,788 (N.D. Ohio 1980)...........+. 4

First Nat’l City Bank v. Banco Para el Comercio

Exterior de Cuba, 462 U.S. 611 (1983)........... 9

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

803 F.2d 1463 (9th Cir. 1986) ........---- +e eee 5

Goldinger v. Boron Oil Co., 375 F. Supp. 400 (W.D. Pa.

1974), aff’d, 511 F.2d 1393 (3d Cir.), cert. denied,

423 U.S. 834 (1975) ....cccccccccccenceccccasceces 5

Hand v. Central Transport, Inc., 779 F.2d 8 (6th Cir.

19BS) ..ncccccccccacsecanvenesecvocasesserennsvctes 3

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

U.S. 2 (1984) 2... cc ccececccccevcceccccncnecsccses 2,4,9

Kingston Dry Dock Co. v. Lake Champlain Transp. Co.,

31 F.2d 265 (2d Cir. 1929) ........-e cece cece eee ees 8

United Farmers Agents v. Farmers Insurance

Exchange, 89 F.3d 233 (Sth Ce, SOS o duivascaees 6

Waldo v. North American Van Lines, Inc., 669 F. Supp.

722 (W.D. Pa. 1987) ....- cece eee ceee tener eeeeees 4

Statutes

Sherman Anti-Trust Act............0eeeee errr eee e eens passim

IN THE

Supreme Court of the United States

OCTOBER TERM, 1996

: No. 96-455

i ce

EDWIN DEJEsuUS, 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., INC..,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

>

PETITIONERS’ REPLY BRIEF

I. INTRODUCTION

Respondent Sears’ Brief in Opposition (“SBO”) contains

statements and arguments requiring a reply. We reply to them

in the order in which they were made.

Il. ARGUMENT

1. By describing the NOAs’ claim that Sears violated the

Sherman Act as a mere “objection to a job requirement” (SBO

2) or an “employment grievance” (SBO 3 n.*), Sears seeks to

trivialize it. In so doing, it would have this Court ignore the

fact, for example, that the NOAs alleged that Sears used its

undoubted and unfettered power over electronic access to its

database and over the NOAs’ livelihoods to coerce some

10,000 of them to lease computers from it indefinitely rather

than to purchase them for a far less total cost on the open

market, thus victimizing not only the NOAs but also Sears’

competitors in the computer field, who lost millions of dollars

in sales by virtue of Sears’ coercive tactics.

2. In arguing that a “tying” claim must involve a “product”

that has to be “sold” as a “fundamental, definitional matter”

(SBO 2, 3 n.*), Sears reveals the weakness of its argument

and of the holding of the court below. Its position is incon-

sistent with the broad view of this Court in Jefferson Parish

Hospital District No. 2 v. Hyde, 466 U.S. 2, 21 n.34 (1984).

Just as the Sherman Act does not mention “tying,” it contains

no requirement that there be a tangible “tying product” or that

the “tying product” be sold.

3. Sears’ apparent position that the Sherman Act requires

a tangible “product” is inconsistent with its own position on

the application of the Sherman Act to franchise cases. Con-

ceding (SBO 4), as it must, that Sherman Act violations have

been found in “franchisor requirements that their franchisees

buy certain products directly from the franchisor.” Sears con-

tends that the tying “product” is the franchise itself. If the

necessary “product” can be defined so broadly as to include

the intangible right or privilege which constitutes a franchise,

it can easily accommodate “employment” or a contractual

arrangement with independent contractors such as Sears has

with its NOAs.

Put another way, a franchisor who requires a franchisee to

purchase incidental products directly from the franchisor, or

risk losing the franchise, violates the Sherman Act. Here,

through Allstate, Sears required the NOAs to lease computers

3

from it at the risk of losing their livelihood as NOAs. Sears

has shown no valid reason why the Sherman Act should view

these two strikingly similar situations differently, making fish

of one and fowl of the other. No such reason exists, especially

in light of Jefferson Parish.

4. Sears argues (SBO 2) that the NOAs’ complaint was

properly dismissed because it did not charge that Sears or All-

state had monopoly or market power in a “product.” Once

again, it erroneously assumes that a tangible “product” is

required, and contradicts its position with respect to the fran-

chise cases. Furthermore, the NOAs sufficiently alleged

(Third Amended Complaint (“TAC”] Pars. 11, 20[b]) that

Sears had market power over access to its database and that

the NOAs who, through Allstate, were contractually bound to

it, needed electronic access to that database in order to per-

form their duties properly.

5. In arguing (SBO 3) that the Second Circuit's holding

that employment cannot be a “tying product” is not in conflict

with Hand v. Central Transport, Inc., 779 F.2d 8 (6th Cir.

1985), Sears claims that “it is not even clear from the cryptic

opinion in Hand whether the plaintiff in that case even

claimed employment as a tying product” and that the Fifth

Circuit never so held. Hand itself, however, States, at p. 9,

that the plaintiff's complaint had alleged that the defendants

(collectively referred to as “Mohawk”) “violated the anti-trust

laws by ‘tying’ the financing of tractor-trailer trucks with the

acceptance of Mohawk’s offer of employment.” It is further

Stated, at p. 10, that the plaintiff claimed that “Mohawk

impressed upon him that his employment as an owner-oper-

ator was conditioned upon financing the tractor with

Mohawk.” Moreover, had not the Fifth Circuit at least implic-

itly held that such employment could be a tying “product,” it

would have summarily affirmed on that ground alone, as did

the Second Circuit here.

4

6. The statement (SBO 3 n.*) that the NOAs “suggest that

their claim should be considered as something other than a

tying claim” is not so. They have made a tying claim, but

without the gloss put on it by those, such as Sears, who would

require a tangible “product,” and other features such as “lin-

ear movement” and the like. That gloss was removed by this

Court in Jefferson Parish.

7. Sears’ claim (SBO 4 n.*) that “federal courts have. . .

repeatedly rejected efforts to treat employment as a tying

product” is not borne out by the cases cited in support of it.

Sears’ citation of Waldo v. North American Van Lines, Inc.,

669 F. Supp. 722 (W.D. Pa. 1987) misses the mark, since it

refers to a tying claim in Waldo of the sort the NOAs never

made and ignores a tying claim in Waldo of a sort they do

make. In dealing with Waldo’s claim that his ability to obtain

a tractor from NAVL was tied to his willingness to obtain

insurance from it, the court stated, at 727-29, that:

Proof of a tying arrangement can be established either

by reference to an express contractual provision or by

showing that the plaintiff was coerced into accepting the

tied item. . . . Here, there is nothing in the Truckman’s

Agreement or the Contractor Operating Agreement

which directly or indirectly requires owner/operators to

purchase insurance specifically and solely through

NAVL.

* *” *

Our review of this evidence convinces us that plaintiff

has failed to produce proof of coercion. . . . By admit-

\ing that he was aware of his option to purchase insur-

ance elsewhere, plaintiff has defeated the very essence of

his illegal tying claim.

That is clearly not this case.

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

(CCH) 963,788 (N.D. Ohio 1980) does not support Sears’

5

position. There, for example—unlike here—the plaintiffs

were not required to pay such substantial expenses as rent, or

sign a lease for the premises and, indeed, had “no financial

risks whatsoever” in their relationship with the defendant.

The element of coercion was lacking.

Goldinger v. Boron Oil Co., 375 F. Supp. 400 (W.D. Pa.

1974), aff'd, 511 F.2d 1393 (3d Cir.), cert. denied, 423 U.S.

834 (1975) does not support the proposition for which it was

cited. Indeed, at 404, in explaining its rejection of a tying

claim, the court stated that:

There is nothing in the evidentiary material including

plaintiff’s own deposition to show that he ever purchased

or was required to purchase any product from the defen-

GON. Ss

Here, however, it is clearly alleged that the NOAs were

required to lease computers from Sears and pay fees to Wood-

ward Direct, a company controlled by Sears.

Sears’ citation of 49er Chevrolet, Inc. v. General Motors

Corp., 803 F.2d 1463 (9th Cir. 1986) is surprising. The case

is not at all in point on its facts, but is very much in point in

its statement of the law. It stated at 1469, for example, that:

The Supreme Court has indicated that the legality of any

particular arrangement depends not on whether the chal-

lenged conduct can be labeled “tying,” but rather on its

competitive effects. See Jefferson Parish Hospital Dis-

trict No. 2 v. Hyde, 466 U.S. 2, 104 S. Ct. 1551, 1563,

nn. 33 & 34, 80 L.Ed.2d 2 (1984). Because the dealers in

this case failed to make an adequate showing of harmful

anticompetitive effects resuiting from the existing war-

ranty payment arrangements, we conclude that the dis-

trict court properly held that these arrangements do not

violate the antitrust laws.

The anti-competitive effects in this case are more than obvious.

Some 10,000 NOAs were required, for example, to lease from

6

Sears a computer which they could have obtained from any one

of Sears’ many competitors in the computer field.

8. The inconsistencies in Sears’ position (and in that of the

court below) are exemplified by its treatment (SBO 4-5) of

the franchise cases upon which the NOAs relied at pp. 6-7 of

the petition. Forced to recognize that Sherman Act violations

have been found in “franchisor requirements that their fran-

chisees buy certain products directly from the franchisor,”

Sears’ recourse is to distinguish franchise cases from this one

by referring to NOAs as “employees,” rather than as the inde-

pendent contractors they were held to be in Butts v. Com-

missioner of Internal Revenue, 49 F.3d 713 (6th Cir. 1995)—a

case with which Sears chooses not to deal. Even if the NOAs

were mere employees, their claim would be a valid one. But

they are independent contractors with as much right to be

shielded from “tying” as are franchisees who are forced to

buy incidental items directly from their franchisor.

9. Sears (SBO 5-6) describes the Second Circuit’s opinion

as holding that where a database such as Allstate’s is made

available without charge to the NOAs as an “attribute of

. . . [their] employment, it cannot be deemed a ‘tying prod-

uct’ for antitrust purposes.” Such reasoning begs the question:

the database was not made available to the NOAs without

charge. The NOAs had to pay for it through a costly and

indefinite lease from Sears itself of a computer more cheaply

available by purchase on the open market. To say that Sears

provided the database to the NOAs “without charge” is to

ignore reality and to play with words. A throat-parched

desert-wanderer who is offered ice water “without charge”

provided that he pay fifty dollars for the plastic cup into

which the water will be poured—the wanderer not being

allowed to use his own cup—can be excused for believing

that he did not receive the water “without charge.” Sears, it

seems, would dispute this.

10.. In claiming (SBO 7) that the Fifth Circuit’s decision in

United Farmers Agents v. Farmers Insurance Exchange, 89

7

F.3d 233 (Sth Cir. 1996) supports its position that the NOAs’

claim—facially similar to that of the plaintiffs there—is “not

a valid claim under the antitrust laws,” Sears ignores the sig-

nifi cant differences between the facts of the two cases. The

Fifth Circuit relied heavily on facts not present here and upon

the absence of facts which the NOAs’ complaint alleged they

would prove, but were never given the opportunity so to do.

For example:

a. A Farmers’ agent could use another agent’s computer to

access the electronic database (89 F.3d at 235}, buta NOA

was not allowed to do so (TAC 4 20[b]);

b. Farmers Insurance did not sell electronic access to its

database or sell computers (89 F.2d at 236), but Sears does

sell or lease computers and, through Allstate, required NOAs

to buy electronic access to the database by the indefinite lease

of one of its computers;

c. The Farmers’ agents, though granted ample discovery,

were unable to show that other computers of comparable qual-

ity were available elsewhere at less cost (89 F.3d at 237), but

the NOAs aileged that they could make such a showing! (TAC

11 20[b], 32);

d. The Farmers’ agent had available to him or her manual

access to policy information which was “a good substitute for

electronic access” (89 F.3d at 238), but the NOAs alleged that

computer access to the database was “necessary for the proper

performance of the NOA’s work” (TAC 99 20[b] and 32);

e. A Farmers’ agent “unhappy with Farmers’ computer pol-

icy,” was free to move to anew company “without incurring

any significant cost” (89 F.3d at 238-39), but the NOA was

not so free, since his contract required him, for example, to be

personally responsible for even long-term office leases (TAC

1917, 72(g], 73). Such leases are not easily broken.

' A Farmers’ agent was allowed to purchase a computer (89 F.3d

at 235); Sears caused 10,000 NOAs to be saddled with indefinite leases.

The Fifth Circuit's opinion in United Farmers, we submit,

supports our position. If it had had the NOAs’ complaint

before it, the outcome would surely have been different.

11. Sears’ argument (SBO 8 n.*) that the complaint was

invalid because it failed to allege that the NOAs were

required to use Woodward Direct, only that they were

required to do so if they wished to advertise in the Yellow

Pages is erroneous. Sears claims that it was essential to allege

that it had forced the NOAs “into the purchase of a tied prod-

uct.” This the complaint surely did. It was alleged that if the

NOAs wished to advertise in the Yellow pages, they had to do

so through Woodward Direct. That, we submit, is all that is

required to state a valid tying claim.

12. Sears’ reliance upon the “corporate veil” doctrine

(SBO 7) is misplaced. The complaint clearly alleges (TAC

9 30) that Sears caused Allstate to require the 10,000 NOAs to

lease Sears-owned computers in order to access the database

essential to their livelihoods and to obtain desirable Yellow

Pages advertising solely through a Sears-owned agency.

These coercive tactics profited Sears, rather than Allstate, to

the tune of millions of dollars. The complaint can surely

“fairly be read to allege independent action on the part of”

Sears. Here, the entire thrust of the complaint was that Sears,

for its own benefit, was an active wrongdoer using Allstate as

its agent. As Judge Learned Hand noted in Kingston Dry Dock

Co. v. Lake Champlain Transp. Co., 31 F.2d 265, 267 (2d Cir.

1929):

One corporation may ... become an actor in a

given transaction. . . and when it has, will be legally

responsible.

That is the principle upon which the complaint relied, and its

allegations of Sears’ active wrongdoing supported that reliance.

Even if the complaint had sought to pierce the corporate

veil, Sears errs in its attack upon it. Whether a piercing of the

corporate veil is appropriate in a given case is generally a fact

9

question which should be submitted to a jury. See American

Protein Corp. v. AB Volvo, 844 F.2d 56, 59 (2d Cir.), cert.

denied, 488 U.S. 852 (1988) (“[T]he issue of corporate dis-

regard is generally submitted to the jury.”).

The counts improperly dismissed were brought under fed-

eral remedial statutes—the Sherman and Clayton Acts. The

“corporate veil” is not so sturdy in such cases. In First Nat'l

City Bank v. Banco Para el Comercio Exterior de Cuba, 462

U.S. 611, 630 (1983), for example, this Court stated that it

had “consistently refused to give effect to corporate form

where it is interposed to defeat legislative policies.”

13. Finally, we are at a loss to understand Sears’ argument

(SBO 7) that the petition should be denied because the com-

plaint failed to allege that Sears had “appreciable economic

power in the tying market.” First, if such a specific allegation

were essential to the complaint and, if present, would have

saved it, the Second Circuit would have permitted an amend-

ment. Most important, however, is the fact that, fairly read,

the complaint alleged that Sears, through its agent Allstate,

had complete power over electronic access to the database

which the NOAs—contractually bound to Allstate—needed to

perform their duties and that, in the words of Jefferson

Parish, 466 U.S. at 12, Sears was guilty of:

exploitation of its control over the tying product [i.e., the

database] to force the buyer into the purchase [here, the

indefinite lease] of a tied product [i.e., a Sears-owned

computer] that the buyer. . . preferred to purchase else-

where on different terms.

This illegal “forcing,” which violated the Sherman Act, was

properly alleged.

10

Ill. CONCLUSION

For the foregoing reasons, the petition should be granted

and the judgment of the Second Circuit in this case should be

reviewed.

Respectfully submitted,

Patrick M. Wall

Counsel of Record for Petitioners

60 East 42nd Street

New York, New York 10165

(212) 972-1223

November 12, 1996