author: WEXLER, District Judge.

text:
    LIAMUIGA TOURS, a DIVISION OF CARIBBEAN TOURISM CONSULTANTS LTD., Plaintiff, v. TRAVEL IMPRESSIONS, LTD., Defendant.
    No. CV 84-0468.
    United States District Court, E.D. New York.
    Sept. 18, 1985.

      Robert M. Gottschalk, P.C. by Sidney N. Weiss, New York City, for plaintiff.
    Cooperman, Levitt & Winikoff, P.C., New York City, for defendant.
   MEMORANDUM AND ORDER

WEXLER, District Judge.

Plaintiff Liamuiga Tours, a division of Caribbean Tourism Consultants, Ltd., (Liamuiga Tours) is incorporated under the laws of St. Kitts and is located solely on St. Kitts. Defendant Travel Impressions, Ltd. (Travel Impressions) is a New York corporation with its principal place of business in New York. Plaintiff is in the travel and tourist business, providing local charters, travel services and tourist information, and tour packages locally on St. Kitts. Defendant is a bulk wholesale tour operator for the Caribbean, including St. Kitts, providing travel and tour packages. Defendant books or charters planes, contracts for ground transport and activities, and books blocks of hotel rooms. These travel packages are sold through retail travel agents. For a period from 1981 to 1983 plaintiff was a “Destination Service Operator” (DSO), or local representative, for defendant on St. Kitts. A third player, not a party to this action, is the Royal St. Kitts Hotel (Hotel), the largest and most modern hotel with the best facilities and amenities on the island. It has over twenty-five percent of the approximately 500 hotel rooms on St. Kitts.

St. Kitts, or St. Christopher, is a Caribbean island formerly part of the British colony of St. Kitts-Nevis-Anguila, and now part of the federation of St. Christopher and Nevis. It is a small island and not one of the most popular Caribbean vacation spots. The “season” for St. Kitts, which is to say the heavy tourist trade period, is from December to the following April, also known as the winter season. Under the terms of a contract entered into on December 29, 1981, plaintiff became defendant’s representative, or DSO, on St. Kitts for the 1981-1982 season. Defendant continued to engage plaintiff’s services either by an amendment that expired at the end of the next season in April 1983 or by a superseding contract that was terminated by defendant in October and November of 1983. Plaintiff sues defendant for anti-trust violations (first cause of action), breach of contract (second cause of action), and interference with business relationships (third cause of action), alleging total damages of $1,650,000.00, including treble damages for anti-trust. Defendant now moves to dismiss the anti-trust cause of action for failure to state a claim on which relief can be granted, Rule 12(b)(6), and for summary judgment on the other two causes of action, Rule 56(b), Fed.R.Civ.P. Defendant further contends that the amount in controversy necessary for diversity jurisdiction, 28 U.S.C. § 1332(a), over the state law claims is less than $10,000.00 and asks for dismissal for lack of subject matter jurisdiction. Rule 12(h), Fed.R.Civ.P. Alternatively, defendant asks for dismissal of the entire action based on forum non conveniens.

I.

In December 1981 Travel Impressions engaged Liamuiga Tours as its DSO on St. Kitts for the 1981-1982 season. Liamuiga Tours was to meet and greet the Travel Impressions clients, arrange transport, arrange activities, and generally be an available and helpful source of information and services. This specifically included running hospitality desks for Travel Impressions customers in the Royal St. Kitts Hotel and several other hotels. It is undisputed that Travel Impressions lodged eighty percent of its clients at the Royal St. Kitts Hotel and that it brings in about eighty percent of the U.S. “package tour passengers” coming to St. Kitts. In addition, plaintiff was allowed to sell local tour packages to defendant’s patrons and retain all profits.

Defendant continued plaintiff’s services for the 1982-1983 season, either by a one-season term amendment to the original one-season contract or by superseding contract with no set expiration, a factual issue disputed by the parties. In December 1982, however, the Hotel refused to allow plaintiff to operate a hospitality desk on its premises. The reasons are uncertain. Either the Hotel wanted compensation for the use of its premises, did not want tour representatives operating there, took a dislike to the head of Liamuiga Tours, Makeda Mikael, or found Ms. Mikael to be rude and arrogant to both Travel Impressions customers and other guests. In any event, the reasons are not relevent at this point. Another Liamuiga Tours representative was allowed to be of service to Travel Impressions clients without the use of a hospitality desk, and defendant and plaintiff continued to negotiate with the Hotel for reinstatement of the desk.

In February 1983 relations with the Hotel were further strained when a snowstorm in the United States closed airports and stranded departing tourists in St. Kitts for two days. A dispute arose as to whether the vacationers or Travel Impressions would pay for the extra stay at the Hotel, with confusion as to what representations Liamuiga Tours had made. At the end of February a fire at the Hotel caused it to close down until September 1983, thereby suspending the hospitality desk controversy-

During the off-season of 1983 plaintiff apparently continued to perform full DSO duties for Travel Impressions. According to the plaintiff, in November 1983 the Hotel informed Travel Impressions that it wanted nothing more to do with plaintiff and threatened to cancel Travel Impressions’ bookings if it continued plaintiff as its representative (Affidavit of Makeda Mikael II 20(x)). In any event, by letter of October 12, 1983 and telex of November 9, 1983 defendant declared that it was ending or not renewing its DSO relationship with plaintiff. Liamuiga Tours instituted a suit against the Hotel in St. Kitts and commenced the action against Travel Impressions in this Court.

II.

Plaintiff’s first and third causes of action allege violations of the Sherman Act, 15 U.S.C. §§ 1, 2, and ask damages under the Clayton Act, 15 U.S.C. § 15.

As a first cause of action plaintiff alleges restraint of trade by defendant and an anti-competitive conspiracy with a non-party co-conspirator to monopolize the tourist business in St. Kitts and between the United States and St. Kitts (Complaint ¶¶ 22-24). Plaintiff asks for treble damages under § 4 of the Clayton Act. 15 U.S.C. § 15. Defendant moves to dismiss the anti-trust claims for failure to state a claim on which relief can be granted. Rule 12(b)(6), Fed.R. Civ.P. In view of the affidavits and exhibits presented the motion may properly be converted to one for summary judgment. Rules 12(b)(7), 56(b), Fed.R.Civ.P.

Travel Impressions contends that the anti-trust laws are inapplicable as there is no anti-competitive effect on a United States market. Defendant is correct that a domestic market must be affected in either interstate commerce or commerce between the United States and a foreign country.

The effects test was first articulated in United States v. Aluminum Company of America, 148 F.2d 416 (2d Cir.1945). In that seminal case Judge Learned Hand con-eluded that Congress did not intend for the Sherman Act “to punish all whom its courts can catch for conduct which has no consequences within the United States.” Id. at 443 (citations omitted). Judge Hand discussed the ramifications of an anti-competitive agreement in international commerce and concluded that whatever the intent, such an agreement is not covered by our anti-trust laws “unless its performance is shown actually to have had some effect” on American imports and exports. Id. at 444.

The federal courts have differed in their application of the effects test. Plaintiff would have this Court use the test outlined by the Ninth Circuit in Timberlane Lumber Co. v. Bank of America, N.T. & S.A., 549 F.2d 597 (9th Cir.1977). Nevertheless, the controlling case in this Circuit is National Bank of Canada v. Interbank Card Association, 666 F.2d 6 (2d Cir.1981). In that case the Second Circuit Court of Appeals held that there must be an appreciable anti-competitive effect on this country’s commerce of a type sufficient to justify assertion of jurisdiction. Id. at 9. The Second Circuit explicitly rejected the Ninth Circuit’s tripartite test in Timberlane Lumber Co., 549 F.2d at 613. National Bank of Canada, 666 F.2d at 8. Specifically, the Second Circuit asserted that the first two elements of the test, intended or actual effect on United States foreign trade and cognizable injury to a plaintiff, allowed an unwarranted extension of jurisdiction to cases where the anti-competitive effect was limited to a foreign market. Id. Under the Second Circuit’s standard, anti-competitive agreements formed within or without the United States must cause actual injury to domestic commerce to confer jurisdiction.

Long discussion of the case law, while enlightening, is not necessary. In 1982, the year after the Second Circuit’s decision in National Bank of Canada, Congress addressed the issue of extraterritorial application of the Sherman Act. The resulting legislation amended the Act to provide:

§ 6a. Conduct involving trade or commerce with foreign nations.
Sections 1 to 7 of this title shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless—
(1) such conduct has a direct, substantial, and reasonably foreseeable effect—
(A) on trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations; or
(B) on export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States; and
(2) such effect gives rise to a claim under the provisions of sections 1 to 7 of this title, other than this section.
If sections 1 to 7 of this title apply to such conduct only because of the operation of paragraph (1)(B), then sections 1 to 7 of this title shall apply to such conduct only for injury to export business in the United States.

15 U.S.C. § 6a (1982). There is as yet little case law interpreting § 6a and the Court must resort to the legislative history contained in the House Report on the measure. H.Rep. No. 686, 97th Cong., 2d Sess. 2, reprinted in 1982 U.S.Code Cong. & Ad. News 2431, 2487.

The amendment had two stated purposes. First, Congress sought to ease the business community’s anxiety caused by their perception that anti-trust laws were a hindrance to export ventures. This aspect of the 1982 amendment is of no concern here. Second, Congress sought to clarify the test for determination of United States anti-trust jurisdiction in international commerce. The House Report listed the subtle variations of the effects test articulated by various courts. Calling for a single, objective standard, Congress chose a test that “makes the Sherman Act inapplicable to conduct involving trade or commerce with foreign nations, other than import transactions, unless there is a ‘direct, substantial, and reasonably foreseeable effect’ on domestic or import commerce or the export opportunities of a domestic person.” Id. at 3, reprinted in U.S.Code Cong. & Ad.News at 2488 (emphasis added). Moreover, the Report explained that the effect required for jurisdictional nexus: must be an anti-competitive effect in the; domestic market. Id. at 11-12, reprinted in U.S.Code Cong. & Ad.News at 2496-97. .In sum, the amendment adopts the' stricter effects test of National Bank of Canada.

Analysis of the facts in this case quickly reveals that plaintiff hjis lost business on St. Kitts. Taking the allegations of the complaint as true, Liamuga Tours has lost a pool of nearly guaranteed customers for its own charters and tourist packages, as well as the income from the contract with Travel Impressions. Barring Liamuiga Tours from the Royal St. Kitts Hotel makes it a markedly" IdSs attractive DSO for every travel Agency'; or tour operator needing such services on St. Kitts. It could effectively explu.de; plaintiff from the DSO market completely and substantially from the local charter market, albeit indirectly. Nonetheless, the situs of these effects, however considerable, is St. Kitts. It matters not if there' was anti-competitive conduct in the United States or by domestic corporations. Eurim-Pharm GmbH v. Pfizer, Inc., 593 F.Supp. 1102 (S.D.N.Y. 1984). The consequences suffered by plaintiff are limited to St. Kitts. Accordingly, these effects do hot establish a jurisdictional nexus.

Nevertheless, plaihtiff argues that the American market sufflrs anti-competitive effects from plaintiffs;'exclusion from the DSO market in St. Kitts. Liamuiga Tours maintains that there , is; less competition among DSO’s and Consequent higher costs to American travel agents, and their clients, booking tours, 'to St. Kitts. In short, plaintiff claims' that' there is an anti-competitive effect qn American businesses engaged in the “expohfv o.f tourist groups to St. Kitts. The issuers whether this is an anti-competitive effectin’ businesses within the United States- an<f%hether it is a substantial, direct, and reasonably foreseeable effect. 15 U.S.C. '§Í 6j0(B).

The argument that the domestic market affected is tour packagers boomerangs in an odd fashion. It is defendant Travel Impressions, not the plaintiff, that suffers the anti-competitive consequences. For it is Travel Impressions that will find itself with fewer DSO’s competing for its business. The lesser competition supposedly will result in higher DSO costs to defendant, which it must absorb or pass on, making its St. Kitts packages either less profitable or less attractive. In effect, plaintiff’s argument is that defendant by excluding plaintiff is causing an anti-competitive effect on defendant. If Liamuiga Tours were suing the Royal St. Kitts Hotel in anti-trust, the domestic market effects argument would not have this absurd twist. Plaintiff seeks to escape it by asserting that the persons suffering the anti-competitive effect are American consumers of Caribbean tour packages. Nevertheless, it remains that the entities suffering any possible direct anti-competitive effect are the travel agencies. Moreover, they all suffer the same effect and none gains a competitive advantage in the St. Kitts travel market. Insofar as St. Kitts becomes less attractive in the larger market encompassing packaged tours to all Caribbean vacation areas, the travel agent most dependent on St. Kitts business is adversely affected.

Once again taking the plaintiff’s allegations as true, apparently defendant is the package tour operator most dependent on St. Kitts business. According to Ms. Mikael’s affidavit, Travel Impressions is the only wholesale or bulk tour operator to St. Kitts and is the only user of a DSO (Mikael Affidavit II10). Defendant brings in about eighty percent of the “bulk and non-bulk” package tour passengers (Aff. II10). Defendant’s passengers arrive by the “planeload full,” and the remaining twenty percent of the package tour visitors are the clients of a few independent travel agents and non-bulk operators (Aff. 1110).

The Court will not belabor the factual analysis. It is clear from plaintiff’s allegations that defendant is the only “market” for DSO’s on St. Kitts and controls the lion’s share of the St. Kitts package tour market in the United States. It is equally clear that there is no evidence whatsoever that this is the result of anti-competitive practices. Furthermore, eliminating plaintiff from the DSO market has not been shown to have any direct, substantial, or reasonably foreseeable effect on competition among United States tour operators for the Caribbean or St. Kitts. Plaintiff has surely been cut out of the St. Kitts DSO market, although more likely at the behest of the non-party Hotel than the defendant. While the effects in St. Kitts are substantial, at best domestic consequences are speculative.

Therefore, under 15 U.S.C. § 6a and National Bank of Canada v. Interbank Card Assoc., 666 F.2d 6 (2d Cir.1981), there is no jurisdictional nexus for this Court to decide the claim under the Sherman Act, and the first cause of action is dismissed.

There remains the third cause of action for interfering with plaintiff’s business relationships. The specific facts supporting the claim are not stated. It is unclear what relationships with whom suffered interference, and where, when, and how they suffered it. As plaintiff alleges violation of New York common law as a basis for the Complaint, the Court presumes that this third cause is partly based on that theory. But plaintiff also reiterates the anti-trust and contract law violations of the first and second causes of action as bases for this cause.

Insofar as plaintiff invokes the anti-trust laws of this country, they are inapplicable to the claim for interference in business relationships for the reasons discussed earlier. Insofar as plaintiff invokes this state’s common law, and contract law in particular, plaintiff has failed to allege with the minimum particularity any facts in support of the claim. Moreover, plaintiff has failed to plead any basis for the application of New York law to this cause of action. Accordingly, the third cause of action is dismissed without prejudice.

III.

Plaintiff’s second cause of action is for breach of contract. Travel Impressions moves for summary judgment on the ground that the only agreement it had with plaintiff expired of its own accord on April 21, 1983 and defendant was under no obligation to renew its contractual relationship with Liamuiga Tours. Defendant offers the original contract for the 1981-1982 season, executed on December 29, 1981 by Ms. Mikael and by Mr. McDonnell for Travel Impressions (Defendant’s Exhibit B), and the amendment extending the original contract through April 21, 1983 (Defendant’s Exhibit C), which was executed on April 27, 1982. Both the original contract and the 1982 amendment provide for a basic per head payment of $4.00 for the off season, or summer, and ‘,a $250.00 per week flat rate for the high season for various escort and assistance services. The 1982 amendment varies the payment term slightly by pegging the flat/ate in the winter season to a sixty-two passenger minimum. The original contract' has a number of other provisions, among which are a $7.00 per person fee for áirport-hotel transport (Defendant’s Exhibit B, ¶ 4), operation of hospitality desks, (¶ 1(g)), retention by Liamuiga Tours of commissions earned on sale of local tours and entertainment (¶ 5), and a provision for one month’s notice of termination (T[ 3). The 1982 amendment does not vary these terms, it only extends the time and modifies the payment term.

Plaintiff counters with a document on Travel Impressions letterhead entitled “Destination Service Operator Agreement” (DSO Agreement) (Plaintiff’s Exhibit 2 and Defendant’s Exhibit D). This document is seven pages long, contrasted with the three page original contract, and is far more detailed as to the services and responsibilities that the parties undertake. It sets out the costs charged to each party and how they should be billed.Finally, it is signed by defendant on December 29, 1982 and plaintiff on January 7|¿'1983. It does not provide for the rate of compensation or a term of duration, terms that are set out in the original contract and modified by the 1982 amendment. Plaintiff claims that this alone constitutes its agreement with defendant and it does not expire as of April 21, 1983. Defendant claims that this document is a DSO manual only and does not constitute an agreement between the parties.

Plaintiff, through the affidavit of Ms. Mikael, narrates the various services provided by plaintiff from the spring to the fall of 1983, including news on the Royal St. Kitts’ reconstruction, other local information of interest, arrangements for a September visit by Travel Impressions personnel, and continued services to arriving Travel Impressions clients (Mikael Affidavit ¶ 20(i-vii)). This is supported by copies of correspondence from the summer and early fall that evidence defendant’s continuing amicable dealings with Liamuiga Tours as defendant’s DSO on St. Kitts (Plaintiff’s Exhibits 5-9).

Plaintiff also contends that the DSO contract was renewed in September 1983. Liamuiga Tours maintains that when the code of certain telexes is correctly interpreted the telexes indicate the contract renewal. A copy of a telex received by Travel Impressions at the end of September 1983 is particularly useful on this point (Defendant’s Exhibit F). The Court does not pretend to make a definitive interpretation of its meaning at this juncture, however, the text appears to read: “Re infor[mation] for p[rogram] manual. Should we mail or abbreviate and telex. Please also advise Brad re contract renewal.” This would indicate that Liamuiga Tours is providing earlier requested information for defendant’s manual update (see Plaintiff’s Exhibit 7). Plaintiff argues that the telex conveys the information that the contract has been renewed. Defendant contends that it is a query as to when or whether renewal is forthcoming. Tellingly, there is a handwritten note on the telex: “9/28 — Di—Pis. obtain the k she sent up. — Brad.” A reasonable reading of this notation is that Brad Tolkin of Travel Impressions wanted his assistant to find the renewal contract that Ms. Mikael had signed and sent. Again, the Court is not definitively interpreting the import of the notation.

On October 12, 1983 the Executive Vice President of Travel Impressions, Ira Theodore, wrote a letter to Ms. Mikael (Defendant’s Exhibit G) captioned “Winter 1984 Representation Service,” declaring that defendant would not engage Liamuiga Tours’ services for the “winter 1984 season,” citing the conflict between plaintiff and the Royal St. Kitts Hotel as the reason. By telex of November 9, 1983 (Plaintiff’s Exhibit 10) Denis McDonnell of Travel Impressions informed Ms. Mikael: “I am sorry to inform you that Royal St. Kitts Hotel insist you cease operations from [sic] both fall and winter. It is unfortunate but you realize my hands are tied in this matter.” This ended the DSO relationship between the parties.

Plaintiff contends that the apologies conveyed in defendant’s missives ending their dealings definitively bespeak termination, not failure to renew. While the language does not clearly evidence breach of contract, the facts raise a number of issues. Initially, there is an issue as to whether the DSO Agreement constitutes a contract between the parties and what terms it imposes, specifically whether it extends the term of the parties’ agreement beyond April 21, 1983. Next, are the issues of whether the contract was renewed or extended to include the 1983-1984 season, either by the actions and course of dealings of the parties after April 1983, or by a renewal agreement signed and delivered by Ms. Mikael.

That the document entitled “Destination Service Operator Agreement” is on its face an agreement between the parties is beyond doubt. The document is titled as an agreement. Its closing paragraph declares, “T.I. would appreciate your acknowledgement and confirmation by telex at your earliest convenience. Additionally, please sign and return a copy of this agreement, and maintain a copy for your records” (Defendant’s Exhibit D, p. 7). The document is signed and dated by both parties. Clearly, the document impressed Ms. Mikael as bearing on rights and obligations between the parties as she added a modification under the signatures noting Liamuiga Tours’ limited ability to operate within the Royal St. Kitts Hotel, then signed and dated the modification. It is incredible to contend that a document detailing duties and obligations, denominated an agreement, and executed at the request of the party that now seeks to disavow it is a mere manual.

As this action concerns “a written contract defendant drafted and executed in New York for services to be partly performed in New York” (Plaintiff’s Memorandum of Law in Opposition to Defendant’s Motion to Dismiss, p. 19), it would appear that New York contract law applies. That law clearly holds that where two or more written instruments between the same parties concerning the same subject matter are contemporaneously executed, they will be read and interpreted together. E.g., Evans Products Co. v. Decker, 383 N.Y.S.2d 457, 459, 52 A.D.2d 991 (3d Dep’t 1976). In this instance, however, some eight months elapsed between the 1982 amendment extending the original contract (Defendant’s Exhibit C) and the execution of the DSO Agreement (Defendant’s Exhibit D). This emphatically does not make these contemporaneously executed instruments. Yet the agreements do not conflict, for the DSO Agreement elaborates on duties and procedures outlined in the original agreement and is silent as to the payment and duration terms set forth in the original and the 1982 amendment. On the evidence now before it, the Court is inclined to read the three instruments as forming a consistent, single agreement. Nevertheless, the interpretation of these three instruments is subsidiary to the larger issues of whether a contract existed between the parties in the fall of 1983 and whether it was breached. Therefore, it is inadvisable for the Court to definitively construe the three documents without deciding the larger issues.

The original agreement, its 1982 amendment, and the DSO Agreement are not the only possible bases for finding that a contract existed between the parties. It is recognized that after an agreement expires by its own terms an implied contract can arise when the parties continue to perform as before. 22 N.Y.Jur.2d Contracts § 203 (1982). From the affidavits and documents submitted as part of the summary judgment motion, it could be reasonably inferred that the parties by their conduct had mutually assented to an extension of the original contract. In addition, there is the contention that Ms. Mikael signed and delivered a contract renewal in October 1983. That document and any supporting factual information, aside from the one telex (Defendant’s Exhibit F), are not now before the Court, rendering summary judgment on the existence of a contract particularly inappropriate.

Furthermore, unless the existence of an agreement and its terms are established, it is futile to discuss the issue of breach. In addition to the duration, payment, and termination terms, the contract provision for a hospitality desk or DSO presence on the Hotel premises is material to the question of breach. Neither party has fully addressed that point as yet.

Accordingly, the existence of a contract after April 1983, whether it was breached, what damages were suffered, and whether, in the absence of a contract, money is nonetheless owing for services rendered by the plaintiff are all factual questions genuinely disputed and unsuited to summary judgment. Adickes v. Kress & Co., 398 U.S. 144, 157-60, 90 S.Ct. 1598, 1608-10, 26 L.Ed.2d 142 (1970). Therefore, Travel Impressions’ motion for summary judgment on the cause of action for breach of contract is denied.

IV.

The Court has dismissed the antitrust and business interference claims but has not disposed of plaintiffs contract action, which arises under state law. The parties acknowledge that the state claim properly remains before this Court as diversity of citizenship exists between plaintiff and defendant. 28 U.S.C. § 1332(a)(2). Travel Impressions, however, contends that the $10,000.00 amount in controversy required for subject matter jurisdiction is lacking, 28 U.S.C. § 1332(a), and moves for dismissal pursuant to Rule 12(h), Fed.R. Civ.P.

Defendant argues that contrary to Liamuiga Tours’ prayer for relief in the amount of $450,000.00 for breach of contract, the claim is worth no more than the value of the contract for one season, that is either the $2,700.00 flat payment provided in the contract or the $3,700.00 paid to plaintiff’s replacement for the 1983-1984 season. Plaintiff counters that whatever the flat fee contract term was, in fact total fees paid to Liamuiga Tours by Travel Impressions were $8,700.00 in 1981, $25,-150.00 in 1982, and $11,000.00 in 1983 (Mikael Affidavit II24). More importantly, plaintiff asserts that it has lost the commissions and fees from entertainment, excursions, and other tourist activity arrangements and packages put together by Liamuiga Tours and sold to interested Travel Impressions clients on St. Kitts. As noted earlier, the contract between the parties explicitly allowed Liamqiga Tours to retain all commissions earned on its independent sales of tourist packages to defendant’s patrons. Obviously, Travel Impressions’ DSO is the first contact for defendant’s clients and likely to be their first source when searching out vacation activities on St. Kitts. Moreover, there was no apparent prohibition against plaintiff’s active solicitation of Travel Impressions customers. As DSO, then, Liamuiga Tours had an almost guaranteed clientele for services outside its contract with Travel Impressions. According to the affidavit of Ms. Mikael, this amounted to “many times” the annual sums paid by Travel Impressions (Aff. ¶ 24).

The controlling Supreme Court case on the issue of jurisdictional amount is St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 58 S.Ct. 586, 82 L.Ed. 845 (1938). After first observing that the courts should rigorously enforce the congressional intent to restrict diversity jurisdiction by requiring a’’substantial sum in controversy, the Court set out the rule for dismissal:

[T]he sum claimed by the plaintiff controls if the claim is made in good faith. It must appear to a legal certainty that the claim is really for less than the jurisdictional amount to justify dismissal.

Id. at 288, 58 S.Ct. at 590. The Court explained that recovery of less than the jurisdictional amount or the allegation óf a valid defense do not destroy federal jurisdiction. Rather, a court must be satisfied to a legal certainty that the plaintiff was never entitled to recover the amount claimed.

The courts have differed in their application of the rule in the St. Paul Mercury Indemnity case. Some courts have applied it so as to require that a challenge to the sum claimed puts the burden on the plaintiff to show that the claim survives the legal certainty test. E.g., Taylor v. Sandoval, 442 F.Supp. 491, 494 (D.Colo.1977). Other courts have apparently left the burden on the defendant to show that it is a legal certainty that the claim cannot amount to the jurisdictional minimum or was made in bad faith. E.g., LeBlanc v. Spector, 378 F.Supp. 301, 306 (D.Conn. 1973). Nevertheless, a prolonged discussion of the law and facts is not necessary, nor are the burdens so onerous. In a not so recent case, apparently overlooked by counsel, the Second Circuit Court of Appeals has neatly summed up the application of St. Paul Mercury Indemnity. In Zacharia v. Harbor Island Spa, Inc., 684 F.2d 199, 202 (2d Cir.1982), the Court of Appeals particularly stressed the wisdom of not delving into the comparative merits of a case when deciding the issue of jurisdictional amount. For to require real proof of claimed relief quickly takes a court into adjudication of facts and weighing of legal merits. The Zacharia Court laid out the rule thusly:

Although diversity jurisdiction depends upon the amount in controversy exceeding $10,000, jurisdiction is not lost because a plaintiff’s ultimate recovery is less than that amount. The jurisdictional determination is to be made on the basis of the plaintiffs allegations, not on a decision on the merits. Moreover, even where those allegations leave grave doubt about the likelihood of recovery of the requisite amount, dismissal is not warranted____ Rather, it must appear to a legal certainty from the complaint that the plaintiff cannot recover sufficient damages to invoke federal jurisdiction____ We have allowed, however, resort to materials developed in discovery to be used to amplify the meaning of the complaint allegations.

Id. at 202 (citations omitted).

While plaintiff has not put forward detailed support for its breach of contract claim of $150,000.00 in the Complaint, it has shown previous annual earnings from the contract in excess of $10,000.00. There is no indication that earnings would have been less for the 1983-1984 season had the DSO relationship continued. Nor has the defendant rebutted the presumption in favor of plaintiffs allegation. Travel Impressions has merely pointed to the flat rate provision of the contract and asserted that that was all it was worth. Not only does that fail to include the off-season per capita rate, it ignores the almost certain independent commission earnings reaped by a moderately enterprising DSO. The Court, however, is skeptical of plaintiffs claim for $300,000.00 in “foreseeable consequential damages.” Damages for breach of contract are generally limited to compensatory damages. 36 N.Y.Jur.2d Damages § 32 (1984). And they must be shown to flow naturally and directly from the breach. Id. §§ 20, 25. Remote, indirect, speculative, or conjectural losses are not recoverable. Id. §§ 13, 14, 108. Nevertheless, while at this time there is little apparent support for the alleged $150,000.00 in actual damages and $300,000.00 in consequential damages, defendant has not shown that there is a legal certainty that plaintiff is not entitled to damages in excess of $10,000.00 for breach of contract.

Defendant’s motion to dismiss for lack of subject matter jurisdiction is denied. Plaintiff is grantéd^ lgaye» tó amend the complaint, if necessary^, »as to damages. Of course, should( it at any time appear certain that plaintiff has'-no factual or legal basis for pleading daihages in excess of $10,-000.00 on its state claim, penalties might be appropriate. Nee. Rule 11, Fed.R.Civ.P.

V.

Finally, defendant asks that this action be dismissed, on the ground of forum non conveniens. As the Court has dismissed plaintiff’s anti-trust and business interference claims, examination of the forum non conveniens issue is restricted to the remaining cause, of action for breach of contract. Dismissal- of the anti-trust claim may alter the parties’ interests and views on the appropriateness of this forum. It certainly dispenses' w-ith the argument of the inapplicability .of the doctrine of forum non conveníais djo »anti-trust actions. Industrial Investment Development Corp. v. Mitsui & Co., Ltd., 671 F.2d 876 (5th Cir.1982), cert. -denied,— U.S.-, 104 S.Ct. 393, 78 L.Ed.2d 337 (1984).

Suits between citizens of different countries separated by significant distances present more than the usual venue difficulties. Often none of the possible forums is ideal. The doctríne of forum non conveniens, though, the ancestor of the statute for transfer of venue based on inconvenience, 28 U.S.C. §-1404(a), is not identical to it and survives the 1948 enactment of that law. Norwood v. Kirkpatrick, 349 U.S. 29, 32, 75 S.Ct. 544, 546, 99 L.Ed. 789 (1955). Under^tfofu/m non conveniens there is less judicial, discretion and the remedy is the harsh one of dismissal. Id., 75 S.Ct. at 546. For in determining the issue a court decides whether it should decline to exercise jurisdiction\jii an instance where it has jurisdiction and venue. Gulf Oil Corp. v. Gilbert, 330 U.S. 501, 504-07, 67 S.Ct. 839, 841-42, 91 L.Ed. 1055 (1947).

Initially there is'a .question as to whether state law or federal law governs the doctrine in diversity, .cases. In Gilbert, a diversity action jn $ew"York federal court, the United States-Supreme Court avoided deciding which law controlled by observing that federal and New York law were the same. Id. at 509, 67 S.Ct. at 843. More recently, the Second Circuit Court of Appeals also found no significant difference between the two. Alcoa Steamship Co., Inc. v. M/V Nordic Regent, 654 F.2d 147 (2d Cir.), cert. denied, 449 U.S. 890, 101 S.Ct. 248, 66 L.Ed.2d 116 (1980). Accordingly, this Court need not decide between state and federal law, as they apparently do not conflict.

In Gulf Oil Corp. v. Gilbert, the Supreme Court laid out the considerations a court must address under forum non conveniens. The underlying principle is that the plaintiff’s choice of forum should not be disturbed unless the balance of factors strongly favors the defendant. 330 U.S. at 508, 67 S.Ct. at 843. The analysis is one of the ease and efficiency of litigation in the chosen forum. Inherent in the analysis is the concern that the particular court has been chosen to make trial a vexatious, harrassing, and expensive experience for the defendant. As the Second Circuit Court of Appeals has pointed out, however, improved technology, transportation, and communication since the Gilbert decision have altered the analysis of such factors as expense, accessibility, availability, and convenience. Manu International, S.A. v. Avon Products, Inc., 641 F.2d 62, 65 (2d Cir. 1981) (quoting Calavo Growers of California v. Generali Belgium, 632 F.2d 963, 969 (2d Cir.1980) (Newman, J., concurring) ).

In Gilbert the Supreme Court divided the factors to be considered into categories of private and public interest. Important private interests of the litigants are ease of access to sources of proof, availability of compulsory process, the cost of attendance for witnesses and parties, enforceability of judgment, and other factors bearing on the ease, expeditiousness, and expense of trial. 330 U.S. at 508, 67 S.Ct. at 843. Factors of public interest are perhaps less weighty and include congestion of the forum’s docket, but see Calavo Growers of California v. Generali Belgium, 632 F.2d at 969 (Newman, J., concurring), the inappropriateness of asking jurors to try a case with no connection to their community, the preference for having a home forum decide the law governing the case, and the interest in having localized controversies decide where they arose. Gulf Oil Corp. v. Gilbert, 330 U.S. at 508-09, 67 S.Ct. at 843. This last consideration is likely the most important public interest factor. For when the locality of the court is not where the cause of action arose, has little direct involvement or interest in its outcome, and is connected to the litigation only by virtue of minimal contacts amounting to just enough to bestow jurisdiction and venue, the doctrine of forum non conveniens makes it particularly appropriate for the court to decline jurisdiction.

Turning to the case at hand, the Court notes that many of the forum non conveniens factors are not addressed by either party. Moreover, the parties’ discussion largely concerns trial of the defunct antitrust claims and is irrelevant to the breach of contract claim. Addressing the private interest factors, the Court first examines the accessibility and availability of witnesses and documents. Travel Impressions is concerned primarily with witnesses on St. Kitts, especially certain of the Hotel’s personnel, and the documentary evidence in the hands of the Hotel and plaintiff. Defendant cites possible problems in obtaining discovery and testimony from sources on St. Kitts. Liamuiga Tours counters that two of the Hotel managers defendant names as potential witnesses have left the island, and represents that it will make available to defendant the persons and papers under its control, including what it obtains in its local litigation against the Hotel.

Much if not all of the documentation of the contract should be in defendant’s possession. Most likely any witnesses in St. Kitts that are necessary to the defense will have to be produced for the plaintiff’s case at trial. Liamuiga Tours must certainly produce Ms. Mikael, who as its principal signed the DSO contracts. In short, for plaintiff to make its case at trial it must produce much of the evidence defendant apparently seeks. Failure to allow pre-trial discovery of the evidence would, of course, result in sanctions under Rule 37, Fed.R. Civ.P., including striking of pleadings and precluding introduction of the evidence. Neither side has discussed the availability of compulsory process on St. Kitts or the usefulness of letters rogatory. See 28 U.S.C. §§ 1781, 1782.

The cost of defending the action would appear to be lower in this forum. Plaintiff has consented to bear the cost of pursuing its case in New York by filing in this Court. Further, defendant has not put forth a clear factual basis for its assertion that it will be less costly for it to appear in St. Kitts and develop its defense there. It is clear that a New York judgment against Travel Impressions will be enforceable. It is not clear that a St. Kitts judgment will be enforceable. Nor has defendant represented that it will submit to the jurisdiction of a St. Kitts court and guarantee satisfaction of any judgment against it. See Alcoa Steamship Co., Inc. v. M/V Nordic Regent, 654 F.2d at 150, 159. In sum, at this stage the parties have not presented complete arguments on the private interest factors under forum non conveniens or developed the facts beyond mostly speculative assertions. This is in part attributable to their concentration on the anti-trust claims. As yet, there is little to show that trial in this Court is vexatious and unduly expensive for defendant, particularly as the plaintiff has filed in Travel Impressions’ home forum. Manu International, S.A. v. Avon Products, Inc., 641 F.2d at 67.

The Court is even less enlightened by the parties’ arguments on the public interest factors. That New York law governs the remaining claim is a given for the parties. Plaintiff asserts the proposition at one point and defendant nowhere contradicts it. On the face of it, there are contacts sufficient to support jurisdiction in New York and application of its law to the contract. The contract was drafted, partly executed, and partly performed within the state. It follows that as the case concerns a New York citizen, and apparently New York law, the community has an interest in its resolution. And as there is a substantial nexus between the contract controversy and the Eastern District of New York, the size of this Court’s docket is a negligible factor. In short, there is no public interest reason for dismissing this action under forum non conveniens.

In conclusion, the record is inadequate for the Court to make a sound analysis and final decision on forum non conveniens. The interests so far presented to the Court, however, do not balance against allowing plaintiff its choice of forum, particularly when it is defendant's home forum. Both New York and St. Kitts courts have drawbacks and a well-reasoned determination requires comparative evaluation of both their advantages and obstacles. As it stands, defendant has not shown that it will be easier and fairer to try this case in St. Kitts. Manu International, S.A. v. Avon Products, Inc., 641 F.2d at 65. Furthermore, the Court suspects that the parties may reassess their forum preferences in light of dismissal of the anti-trust claims. There is no bar to a future motion to dismiss for forum non conveniens, if it appears appropriate. At this juncture, however, defendant’s motion to dismiss for forum non conveniens is denied.

VI.

The Court concludes that it lacks jurisdiction to hear the anti-trust claim. Defendant’s motion for summary judgment is granted as to the plaintiff’s first cause of action, and the anti-trust claim is hereby dismissed.

The Court next concludes that there are genuine issues of material fact as to the second cause of action for breach of contract. Summary judgment is, therefore, inappropriate. Accordingly, defendant’s motion is denied. The Court rules that it retains subject matter jurisdiction over the contract claim based on diversity of citizenship and concludes that such jurisdiction does not fail for an inadequate amount in controversy. Nevertheless, plaintiff is granted leave to amend the Complaint with respect to damages.

The Court further concludes that plaintiff has not pleaded sufficient facts or law to support a claim for interference with business relationships. Whether or not there is ground for a state law claim, it is certain that there is no basis for the claim under anti-trust law. Accordingly, the third cause of action is dismissed without prejudice and with leave to renew by amendment to the Complaint within sixty days from the entry of this decision.

Finally, defendant’s motion for dismissal based on forum non conveniens is denied.

SO ORDERED.


source: Caselaw Access Project

author: BLUMENFELD, Senior District Judge.

license: Public Domain

text:
    James REARDON v. John R. MANSON. and Perry HAWKINS v. Richard M. STEINERT.
    Civ. Nos. H-77-240, H-77-497.
    United States District Court, D. Connecticut.
    Sept. 18, 1985.
    David Golub, Silver, Golub & Sandak, Stamford, Conn., for plaintiff.
    Richard F. Jacobson, Frederick W. Fawcett, Asst. Attys. Gen., Bridgeport, Conn., for defendant.
   RULING ON APPLICATION FOR HABEAS CORPUS

BLUMENFELD, Senior District Judge.

These applications for writs of habeas corpus are before the court on remand from the Court of Appeals for the Second Circuit. Reardon v. Manson, 644 F.2d 122 (1981). Familiarity with the Court of Appeals’ opinion, with the previous opinion of this court, Reardon v. Manson, 491 F.Supp. 982 (1980), and with the opinions of the Connecticut Supreme Court, State v. Reardon, 172 Conn. 593, 376 A.2d 65 (1977); State v. Hawkins, 173 Conn. 431, 378 A.2d 534 (1977), is assumed. The issue presented by these applications is whether petitioners’ constitutional right to confront and cross-examine adverse witnesses, guaranteed by the sixth and fourteenth amendments to the Constitution, was violated by the admission at their trials on drug charges of certain testimony by a state toxicologist, one Dr. Charles Reading.

Prior Proceedings

Petitioners were each convicted in state court of drug offenses, Reardon’s involving marijuana, and Hawkins’ involving cocaine. The convictions were affirmed by the Connecticut Supreme Court. In each case, Dr. Reading testified, over defendant’s objection on the ground that the testimony was hearsay, as to the nature of substances seized from the defendant and tested in the state toxicological laboratory. In State v. Reardon, the Connecticut Supreme Court upheld Reardon’s conviction, declaring:

The jury’s consideration of Dr. Reading’s testimony, which we have held was admissible and which bore strong indicia of reliability, and upon which the defendant had a full and fair opportunity to cross-examine, did not deprive the defendant of the right of confrontation guaranteed by our state or federal constitutions.

172 Conn. at 599-600, 376 A.2d 65. Hawkins’ conviction was affirmed in reliance on Reardon. 173 Conn. at 438, 378 A.2d 534.

On petitioners’ applications for writs of habeas corpus, this court held, after a hearing, that petitioners’ sixth amendment rights had been violated by the admission of Dr. Reading’s testimony. Dr. Reading testified that in reaching his opinion as to the nature of the tested substances, he relied on tests performed by chemists under his supervision. I first determined that Dr. Reading’s testimony was hearsay.

The testimony of Dr. Reading, in effect, merely repeated the information given him by his chemists. As to some of the tests, he simply reiterated the chemists’ analysis with no first-hand knowledge of the test results. By passing along a chemist’s assurance that a particular test yielded a positive result, Dr. Reading was only narrating hearsay. As to other tests where he himself observed the results of the experiments, he still was required to assume that the substances tested were in fact the substances in question, that the tests had been performed correctly, and that the appropriate standards had been used. When he examined the slides created by his chemists and then based his conclusion on the slides, he nonetheless still passed along the chemist’s hearsay declaration that the tests were in fact properly conducted on the appropriate substances. As to these facts Dr. Reading had no independent knowledge.

491 F.Supp. at 985. Next, I held that Dr. Reading’s testimony was crucial to the state’s case (the parties having stipulated that Dr. Reading’s testimony was the only evidence as to the nature of the substances), that the prosecution had not demonstrated the unavailability of the hearsay declarants, and that the other indicia of reliability necessary to satisfy the Confrontation Clause were not present. 491 F.Supp. at 986-88. See, e.g., United States v. Oates, 560 F.2d 45, 81 (2d Cir.1977). I therefore ordered that the writ issue unless petitioners were granted new trials within 60 days.

While the state’s appeal from this court’s decision was pending, the Supreme Court decided Sumner v. Mata, 449 U.S. 539, 101 S.Ct. 764, 66 L.Ed.2d 722 (1981). In that case, it was held that a habeas court should include in its decision the reasoning which led it to decline to defer to the state court’s factfinding. The Court referred specifically to 28 U.S.C. § 2254(d), which is set forth in the margin. After Sumner, it is clear that a federal district court granting a habeas application must explain which of the eight factors listed in section 2254(d) justifies its lack of deference to the state court’s factual determinations.

The Court of Appeals, in its decision remanding these petitions, noted that this court’s ruling did not cpmply with Sumner’s requirement. The Court of Appeals found that this court’s factual determinations conflicted with those of the Connecticut Supreme Court in several respects.

Judge Blumenfeld treated the chemists as extrajudicial declarants. The Supreme Court of Connecticut regarded them to be collectors of trustworthy scientific data who performed testing procedures in keeping with their prescribed duties. The Connecticut court found the scientific facts gathered by the chemists under the direction and supervision of the expert toxicologist were reliable and trustworthy. The district court found that no indicia of reliability could be assigned to the extra-judicial declarations of the claimants who performed the tests. The state court found the results of the thin layer chromatography and chemical tests were personally observed by Dr. Reading. The district court found that Dr. Reading’s opinion, based on these results, was founded on assumptions that were unsupported in the evidence. The state court determined there was reasonable necessity for Dr. Reading’s reliance on the findings of the chemist Pernitis. The federal court was persuaded that the witnesses were deliberately by-passed by the State to advance the interests of the prosecution.

644 F.2d at 127-28.

In the interim since the decision of the Court of Appeals, petitioners and the state have submitted new memoranda, and the court has carefully considered whether the Connecticut Supreme Court’s factual determinations were “fairly supported by the record.” 28 U.S.C. § 2254(d)(8). The court will first consider this issue, then turn to the constitutional question raised by petitioners.

Factfinding in the State Court

According to the Court of Appeals, this court “treated the chemists as extra-judicial declarants,” while “[t]he Supreme Court of Connecticut regarded them to be collectors of trustworthy scientific data who performed testing procedures in keeping with their prescribed duties.” 644 F.2d at 127-28. A close reading of the Connecticut Supreme Court’s opinion in Reardon, however, reveals that although that court considered Dr. Reading’s testimony admissible, it recognized that the chemist was an extra-judicial declarant. The Connecticut Court held that Dr. Reading’s testimony was admissible as expert testimony, although his opinion was based in part on information given him by the chemist, whom the court also considered to be an expert. The Connecticut Court concluded its discussion of the admissibility of Dr. Reading's testimony by stating:

It has been held that there is no rule that facts proven under exceptions to the hearsay rule, though received in evidence, must be denied all evidentiary value where there is a reasonable necessity for such an exception, and where it is supported by an adequate basis for assurance that that evidence has those qualities of reliability and trustworthiness attributed to other evidence admissible under long-established exceptions to the hearsay rule without violating constitutional rights. Kay v. United States, 255 F.2d 476, 480-81 (4th Cir. [1958]).

172 Conn. at 598, 376 A.2d 65 (emphasis added).

The Connecticut Supreme Court evidently recognized that Dr. Reading’s narration of the results of tests performed by another was admissible, if at all, only under an exception to the hearsay rule; and that Dr. Reading’s expert opinion, to the extent it was based on information obtained from others, likewise could come in only under such an exception. The Connecticut Court thus recognized the chemists as extra-judicial declarants, a factual determination in which this court concurs.

The second ppiftffoi. disagreement identified by the Coqrt(o| • Appeals concerns the reliability arid trustworthiness of the extrajudicial declarations, of the chemists. It is difficult to extract-,frpm the state court’s opinion the grounds ‘for its finding that the statements of thefch’emist in Reardon bore “strong indicia .of. reliability.” It appears, however, that the’(state court determined that the chemist'"was an “expert,” 172 Conn. at 597, 376 A.2d 65, that the tests were “routine,” id. at 598, 376 A.2d 65, and that Dr. Reading personally supervised the tests. Id.

The record is absolutely devoid of any evidence as to ,.the- qualifications of the chemists who' actually performed the tests in either petitionary case. Moreover, although similar tests were frequently performed in the state toxicological laboratory, Dr. Reading’s detailed testimony concerning the testing procedures makes it clear beyond cavil that the tests themselves were anything but “routine.” They were complicated tests requiring a high degree of skill and the use of sophisticated equipment, and the interpretation of the tests’ results required specialized knowledge and experience. Cf. United States v. McClintock, 748 F.2d 1278, 1292 (9th Cir.1984). Finally, Dr. Reading’s testimony also establishes rather conclusively that he did not “supervise” the testing in any meaningful sense. He was present in the laboratory, but was attending to other work. He did not observe the tests being made, and could not verify from his own personal knowledge that the substances tested by the chemists were actually the substances seized from petitioners, which Dr. Reading had removed from the laboratory safe and given to the chemists. Indeed, it strains credulity to assert that Dr. Reading could personally “supervise” some 50 of these tests daily.

The Connecticut Court also appears to have assumed, without explicitly finding, that Dr. Reading and the chemists were neutral, and therefore trustworthy, witnesses. Reardon, 172 Conn. at 595-98, 376 A.2d 65. See also State v. Cosgrove, 181 Conn. 562, 576-77, 436 A.2d 33 (1980) (criticizing this court’s characterization of the chemists as important participants in the prosecutorial effort). The record shows that one of the state toxicological laboratory’s primary functions is to assist the state in prosecuting persons accused of crimes involving illegal drugs. See Conn. Gen.Stat. § 19-483. The fact that the chemist “owes no allegiance per se to the state’s attorney,” Cosgrove, 181 Conn. at 577, 436 A.2d 33, cannot obscure the close relationship between the toxicological laboratory and prosecuting arm of the state government. Under such circumstances, the neutrality of Dr. Reading and his chemists cannot be presumed. In recognition of these circumstances, the Court of Appeals for this Circuit held in United States v. Oates, 560 F.2d 45, 68 (2d Cir.1977), that chemists are “important participants in the prosecutorial effort.” Nothing in the record on these cases suggests otherwise.

Viewing the record as a whole, the court finds no support for the state court’s conclusion that the chemists’ extra-judicial declarations bore indicia of reliability and trustworthiness. In the absence of such record support, 28 U.S.C. § 2254(d) does not require deference to the state court’s factual determination.

Also unsupported by the record was the state court’s conclusion that Dr. Reading’s opinion was founded on “firsthand personal knowledge.” 172 Conn. at 598, 376 A.2d 65. Although Dr. Reading did testify that he had personally observed the results of the thin layer chromatography and chemical tests, he specifically stated at both trials that he based his opinion on all the tests, including the microscopic examinations performed only by the chemists. Moreover, as this court pointed out in its ruling granting the petitions, even in making his own observations, Dr. Reading necessarily relied on the declarations of the chemists that the substances tested were the substances seized from petitioners, that the plates were properly prepared with samples of the substances and of known standards, and that the tests procedures were properly carried out. At Hawkins’ trial, Dr. Reading acknowledged that he had no independent recollection of the analyses in question.

As the Court of Appeals noted, the Connecticut Supreme Court also found in Rear-don that there was reasonable necessity for Dr. Reading’s reliance on the findings of the chemist. The Reardon opinion does not explain the ground for this finding except to state that the “laboratory procedures [were] adopted and undertaken pursuant to [Dr. Reading’s] supervision and direction.” 172 Conn. at 598, 376 A.2d 65. There is no evidence in the record that Dr. Reading established the procedures followed in the laboratory; and, as previously noted, Dr. Reading was unable to testify as to whether the usual procedures were actually followed in these cases.

The real issue, of course, is not whether there was a reasonable necessity for Dr. Reading’s reliance on the chemists, but whether there was reasonable necessity for the state’s reliance on Dr. Reading’s hearsay testimony in lieu of producing the chemists to testify at trial. As Ohio v. Roberts makes clear, 448 U.S. 56, 66, 100 S.Ct. 2531, 2539, 65 L.Ed.2d 597 (1980), it was incumbent upon the state to make a showing that the hearsay declarants were unavailable. The state made no such showing at either trial, nor, so far as the court can determine, at any stage of the appeals. The state never suggested any reason at all for its choice of Dr. Reading, rather than the chemists who performed the tests, to testify. In State v. Cosgrove, 181 Conn. 562, 583, 436 A.2d 33 (1980), written expressly in response to this court’s decision, the Connecticut Supreme Court suggests that production of the chemist would place considerable administrative burdens on the state. Such burdens do not justify the deprivation of a right guaranteed by the Constitution. Cf. Mayer v. City of Chicago, 404 U.S. 189, 92 S.Ct. 410, 30 L.Ed.2d 372 (1971) (financial and administrative burdens on state do not justify refusal to provide an indigent with a free transcript on appeal). Although the court in Cosgrove characterized its reasoning as the type of interest-balancing employed by the Supreme Court of the United States in cases involving hearsay testimony and the Confrontation Clause, that Court has made clear that the state interests it considers significant in that context are the interests “in effective law enforcement, and in the development and formulation of the rules of evidence applicable in criminal proceedings.” Ohio v. Roberts, 448 U.S. at 64, 100 S.Ct. at 2538. Such interests are not implicated in the state’s decision not to produce the chemists to testify in these cases. The court therefore finds that the record did not support the existence of a “reasonable necessity” for the state’s reliance on Dr. Reading’s narration of hearsay, in lieu of producing the hearsay declarant.

As the foregoing discussion makes clear, deference to the state court’s factfinding in these cases is not required because that court’s factual determinations were not fairly supported by the record. 28 U.S.C. § 2254(d)(8). I next consider whether admission of Dr. Reading’s testimony violated petitioners’ rights under the Confrontation Clause.

The Confrontation Clause

The discussion in the prior ruling of petitioners’ claim that admission of Dr. Reading’s testimony, whether or not permissible under Connecticut’s law of evidence, violated their right to confront and examine the witnesses against them, need not be repeated here. There the court determined first that Dr. Reading’s testimony was crucial to the state’s case against each petitioner, since it was the only evidence presented as to the nature of the allegedly illegal substances. Second, the court found that the state had made no effort to demonstrate the unavailability of the hearsay declarants, the chemists who actually tested the substances. Finally, the court determined, based on consideration of the record, that the state had not demonstrated indicia of reliability which would justify admitting Dr. Reading’s testimony despite the fact that the chemists were not presented. In the present opinion, I have made it clear that the Connecticut Supreme Court’s contrary finding, that adequate indicia of reliability were present, was not fairly supported by the record.

Little need be added to the discussion contained in the prior ruling. The court notes, however, that the Supreme Court’s decision in Ohio v. Roberts is entirely consistent with this court’s treatment of the Confrontation Clause issue. The Supreme Court’s discussion is worthy of quotation in full:

The Confrontation Clause operates in two separate ways to restrict the range of admissible hearsay. First, in conformance with the Framers’ preference for face-to-face accusation, the Sixth Amendment establishes a rule of necessity. In the usual case (including cases where prior cross-examination has occurred), the prosecution must either produce, or demonstrate the unavailability of, the declarant whose statement it wishes to use against the defendant. See Mancusi v. Stubbs, 408 U.S. 204 [92 S.Ct. 2308, 33 L.Ed.2d 293] (1972); Barber v. Page, 390 U.S. 719 [88 S.Ct. 1318, 20 L.Ed.2d 255] (1968). See also Motes v. United States, 178 U.S. 458 [20 S.Ct. 993, 44 L.Ed.2d 1150] (1900); California v. Green, 399 U.S. [149] at 161-62, 165, 167, n. 16 [90 S.Ct. 1930 at 1936-37, 1938, 1939, n. 16, 26 L.Ed.2d 489 (1970) ].
The second aspect operates once a witness is shown to be unavailable. Reflecting its underlying purpose to augment accuracy in the factfinding process by ensuring the defendant an effective means to test adverse evidence, the Clause countenances only hearsay marked with such trustworthiness that “there is no material departure from the reason of the general rule.” Snyder v. Massachusetts, 291 U.S. [97] at 107 [54 S.Ct. 330 at 333, 78 L.Ed. 674 (1934)]. The principle recently was formulated in Mancusi v. Stubbs:
“The focus of the Court’s concern has been to insure that there ‘are indicia of reliability which have been widely viewed as determinative of whether a statement may be placed before the jury though there is no confrontation of the declarant,’ Dutton v. Evans, supra [400 U.S. 74], at 89 [91 S.Ct. 210 at 220, 27 L.Ed.2d 213 (1970) ], and to ‘afford the trier of fact a satisfactory basis for evaluating the truth of the prior statement,’ California v. Green, supra [399 U.S.], at 161 [90 S.Ct. at 1936]. It is clear from these statements, and from numerous prior decisions of this Court, that even though the witness be unavailable his prior testimony must bear some of these ‘indicia of reliability.’ ” 408 U.S., at 213 [92 S.Ct. at 2313].
The Court has applied this “indicia of reliability” requirement principally by concluding that certain hearsay exceptions rest upon such solid foundations that admission of virtually any evidence within them comports with the “substance of the constitutional protection.” Mattox v. United States, 156 U.S. [237], at 244 [15 S.Ct. 337, at 340, 39 L.Ed. 409 (1895)]. This reflects the truism that “hearsay rules and the Confrontation Clause are generally designed to protect similar values,” California v. Green, 399 U.S., at 155 [90 S.Ct., at 1933], and “stem from the same roots,” Dutton v. Evans, 400 U.S. 74, 86 [91 S.Ct. 210, 218, 27 L.Ed.2d 213] (1970). It also responds to the need for certainty in the workaday world of conducting criminal trials.
In sum, when a hearsay declarant is not present for cross-examination at trial, the Confrontation Clause normally requires a showing that he is unavailable. Even then, his statement is admissible only if it bears adequate “indicia of reliability.” Reliability can be inferred without more in a case where the evidence falls within a firmly rooted hearsay exception. In other eases, the evidence must be excluded, at least absent a showing of particularized guarantees of trustworthiness.

448 U.S. at 65-66, 100 S.Ct. at 2538-39 (note 9 omitted).

Under the standards enunciated in Roberts, it was incumbent on the state to make a showing at petitioners’ trials that the hearsay declarants were not available to testify. The state made no such showing. Nor, in the judgment of this court after a careful review of the record, did the state demonstrate that the out-of-court statements bore indicia of reliability adequate to justify their admission. This is not a case where the nature of the hearsay exception upon which the state relied is such that reliability can be inferred. For the reasons discussed in this court’s prior ruling and in this decision, the court concludes that petitioners’ constitutional right to confront and cross-examine the witnesses against them was violated at their state court trials.

Conclusion

Because the Connecticut Supreme Court’s findings of fact relating to the reliability of the hearsay testimony admitted at petitioners’ trials were not adequately supported by the record, this court need not defer to those findings. 28 U.S.C. § 2254(d)(8). Having reviewed the record, this court finds that the extra-judicial statements did not bear such adequate indicia of reliability that they could be admitted without giving petitioners an opportunity to confront and cross-examine the declarants. The conclusion that petitioners’ rights under the sixth amendment were violated is inescapable.

It is therefore ORDERED that a writ of habeas corpus issue out of this court discharging the petitioners from custody, unless petitioners are afforded a new trial within 60 days.

SO ORDERED.

      . 28 U.S.C. § 2254(d) provides:
      (d) In any proceeding instituted in a Federal court by an application for a writ of habeas corpus by a person in custody pursuant to the judgment of a State court, a determination after a hearing on the merits of a factual issue, made by a State court of competent jurisdiction in a proceeding to which the applicant for the writ and the State or an officer or agent thereof were parties, evidenced by a written finding, written opinion, or other reliable and adequate written indicia, shall be presumed to be correct, unless the applicant shall establish or it shall otherwise appear, or the respondent shall admit—
      (1) that the merits of' the factual dispute were not resolved in the State court hearing;
      (2) that the factfinding procedure employed by the State court was not adequate to afford a full and fair hearing;
      (3) that the material facts were not adequately developed at the State court hearing;
      (4) that the State court lacked jurisdiction of the subject matter or over the person of the applicant in the State court proceeding;
      (5) that the applicant was an indigent and the State court, in deprivation of his constitutional right, failed to appoint counsel to represent him in the State court proceeding;
      (6) that the applicant did not receive a full, fair, and adequate hearing in the State court proceeding; or
      (7) that the applicant was otherwise denied due process of law in the State court proceeding;
      (8) or unless that part of the record of the State court proceeding in which the determination of such factual issue was made, pertinent to a determination of the sufficiency of the evidence to support such factual determination, is produced as provided for hereinafter, and the Federal court on a consideration of such part of the record as a whole concludes that such factual determination is not fairly supported by the record:
      And in an evidentiary hearing in the proceeding in the Federal court, when due proof of such factual determination has been made, unless the existence of one or more of the circumstances respectively set forth in paragraphs numbered (1) to (7), inclusive, is shown by the applicant, otherwise appears, or is admitted by the respondent, or unless the court concludes pursuant to the provisions of paragraph numbered (8) that the record in the State court proceeding, considered as a whole, does not fairly support such factual determination, the burden shall rest upon the applicant to establish by convincing evidence that the factual determination by the State court was erroneous.

      . In a later case, the Connecticut Court clarified the reasoning employed in Reardon. In State v. Cosgrove, 181 Conn. 562, 584, 436 A.2d 33 (1980), Dr. Reading’s testimony was held admissible over the objection that it violated the hearsay rule. (No claim was made under the Confrontation Clause regarding Dr. Reading’s testimony.) Admission of the testimony was held to be "consistent with the accepted principle that an expert’s testimony may be based on reports of others if the reports are those customarily relied on by such an expert in formulating an opinion.” Cosgrove thus resolves any doubt that the Connecticut Court recognizes the chemists as extra-judicial declarants, and recognizes that admission of Dr. Reading’s testimony involves an exception to the general rule against hearsay.
      I note that the "accepted principle” to which the Connecticut Court referred is a principle of relatively recent vintage. It has long been the law in Connecticut that an expert’s opinion is inadmissible if it is based on hearsay evidence. E.g., Brown v. Blauvelt, 152 Conn. 272, 274, 205 A.2d 773 (1964). The.eases on which the court relied in Cosgrove to establish its "accepted principle” are cases which carve out a limited exception to the general rule against allowing an expert opinion leased on hearsay for situations where a physicians opinion regarding a person’s mental or physical condition is based in part upon the observations of others. State v. Cuvelier, 175 Conn. 100, 394 A.2d 185 (1978); Brown v. United States, 375 F.2d 310 (D.C.Cir. 1966). Dr. Reading’s testimony might not even have been admissibléluñder Fed.R.Ev. 703, given the constitutional problems raised in a criminal trial by the useorhearsay to prove a crucial element of the government’s case. See generally McCormick on Evidence (3d ed.) § 15 (1984).
      This court is, of course, required to defer to the Connecticut Cojirt’s opinion on matters of state law, such as the admissibility of testimony under the state's law of evidence. But it is equally obvious, that the decision whether the testimony was admissible does not answer the constitutional question raised by petitioners.

      . This court suggested in the prior ruling that the state prefers Dr. Reading’s testimony to the chemists’ as a matter of trial tactics. The suggestion is a matter of speculation on the part of the court, albeit speculation rooted in an understanding of trial strategy gained over many years. In any event, even if I am wrong in my assessment, the record reveals no showing by the state of any reason for its failure to call the chemists to testify.

      . It is not immediately apparent why production of a chemist, one of more than 20 who work in the toxicological laboratory, would present more of a burden to the state than production of Dr. Reading, one of three supervising toxicologists.

      . As the court stated in its prior ruling, the testimony of Dr. Reading was the only evidence offered by the state to prove the illegal nature of the substances. 491 F.Supp. at 986. Although the state now argues in its memorandum that there was other evidence from which the juries could have concluded that the substances were marijuana and cocaine, respectively, the state stipulated at the initial hearing on these petitions that Dr. Reading’s testimony was the only evidence. In this respect, these cases are quite different from Cosgrove, in which there was other evidence that the substance at issue was marijuana. 181 Conn. at 585-87, 436 A.2d 33. The absence, in petitioners’ trials, of such additional evidence also distinguishes these cases from United States v. Clark, 613 F.2d 391, 405-06 (2d Cir.1979), in which it was held that the nature of the substance need not be proven by direct evidence.

       A demonstration of unavailability, however, is not always required. In Dutton v. Evans, 400 U.S. 74 [91 S.Ct. 210, 27 L.Ed.2d 213] (1970), for example, the Court found the utility of trial confrontation so remote that it did not require the prosecution to produce a seemingly available witness. Cf. Read, The New Confrontation — Hearsay Dilemma, 45 S.Cal.L.Rev. 1, 43, 49 (1972); The Supreme Court, 1970 Term, 85 Harv.L.Rev. 3, 194-195, 197-198 (1971).

       See, e.g., Pointer v. Texas, 380 U.S. [400], at 407 [85 S.Ct. 1065, at 1069, 13 L.Ed.2d 923 (1965)] (dying declarations); Mattox v. United States, 156 U.S., at 243-244 [15 S.Ct., at 340] (same); Mancusi v. Stubbs, 408 U.S. 204, 213-16 [92 S.Ct. 2308, 2313-14, 33 L.Ed.2d 293] (1972) (cross-examined prior-trial testimony); Comment, 30 La.L.Rev. 651, 668 (1970) ("Properly administered the business and public records exceptions would seem to be among the safest of the hearsay exceptions”).

      . The exception under which Dr. Reading’s testimony was admitted, allowing an expert to base his opinion on statements by others, hardly qualifies as "firmly rooted.” See note 2, supra. See also Ohio v. Roberts, 448 U.S. at 66 n. 8, 100 S.Ct. at 2539 n. 8 (dying declarations, cross-examined prior trial testimony, and the business and public records exceptions considered to carry their own "indicia of reliability”). In this regard an additional distinction between petitioners' cases and State v. Cosgrove should be pointed out. In Cosgrove, the Connecticut Supreme Court held that admission of the toxicological laboratory report was permitted under the business records exception to the hearsay rule, and did not violate the Confrontation Clause. Admission of the report is not in issue in these cases.
      It is highly questionable whether the business records exception is a proper basis for admission of the toxicological report. The state’s operation of a laboratory for the purpose of assisting in the prosecution of accused criminals is hardly a business in the traditional sense. Moreover, the close relationship between the prosecutor and the laboratory undermines the assumption of unusual reliability and trustworthiness on which the exception is predicated. See United States v. Oates, 560 F.2d 45 (2d Cir.1977).
      It should also be noted that in Conn.Gen.Stat. § 19-483(b), the state legislature has provided that the toxicological report shall be received as competent evidence unless the defendant objects, in which case the "usual rules of evidence shall obtain.” The language suggests that the legislature recognized the hearsay problem presented by admission of the report without testimony by the persons who performed the analysis.


author: McCUNE, District Judge.

text:
    COMMONWEALTH OF PENNSYLVANIA, Plaintiff, v. DERRY CONSTRUCTION CO., INC., and Latrobe Road Construction, Inc., Defendants.
    Civ. A. No. 85-688.
    United States District Court, W.D. Pennsylvania.
    Sept. 18, 1985.

      Carl Hisiro, David Cole, Harrisburg, Pa., for plaintiff.
    Walter T. McGough, Pittsburgh, Pa., B. Patrick Costello, Greensburg, Pa., Stephen C. Kifer, Pittsburgh, Pa., for defendants.
   MEMORANDUM

McCUNE, District Judge.

On March 21, 1985, the plaintiff, Commonwealth of Pennsylvania, filed the present action against defendant, Latrobe Road Construction, Inc. (Latrobe), seeking damages for alleged violations of § 1 of the Sherman Act, 15 U.S.C. §§ 1-7 and §§ 1962(a) and 1962(b) of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961-1968.

An amended complaint was filed on March 28, 1985, naming Derry Construction Co., Inc. (Derry) as an additional defendant.

We consider the defendants’ motions for a more definite statement and to dismiss rjqo count,

Motion for a More Definite Statement

In paragraph 17 of plaintiff’s amended complaint plaintiff alleges that:

17. Since at least August 1979, and continuing thereafter until at least sometime in 1980, the exact dates being unknown, defendants and their co-conspirators engaged in a combination or conspiracy in unreasonable restraint of interstate trade and commerce in violation of section 1 of the Sherman Act, 15 U.S.C. § 1.

The defendants contend that this allegation fails to allege with sufficient particularity the dates on which the alleged acts were to have occurred. Since the complaint merely states that they occurred from August 1979 and continued thereafter until sometime in 1980, the defendants argue they cannot frame a responsive pleading or determine what affirmative defenses might be available.

The same argument is raised with regard to plaintiff’s RICO count. Paragraphs 29 and 30 of plaintiff’s amended complaint refer to the use of the mails in furtherance of the antitrust conspiracy referred to in paragraph 17. Plaintiff claims that the alleged acts of mail fraud represented a pattern of racketeering activity.

These allegations fail, however, to give specifics as to date, time or persons involved. The defendants therefore argue that the plaintiff has failed to allege evidence of the predicate acts (mail fraud) with particularity, as required by FED.R. CIV.P. 9(b).

While we agree with the defendants that the contested allegations lack specificity, we are confronted by the familiar argument which arises from the situation wherein the facts sought by the defendants are within the defendants’ knowledge and control. The plaintiffs always argue that discovery should be permitted so that the facts might be supplied. The defendants insist on compliance with rule 9(b).

This court has had occasion to address this problem before in the case of Chambers Development Co. v. Browning-Ferris Industries, 590 F.Supp. 1528 (W.D.Pa. 1984).

In Chambers the plaintiff alleged, as a pattern of racketeering activity, that the defendants used the mails and wire communications for purposes of effectuating the underlying scheme. The plaintiff further alleged that this activity occurred during the past four years. The defendant in Chambers raised the same argument as is raised in the present case that the complaint did not meet the specificity requirements of FED.R.CIV.P. 9(b).

In agreeing with the defendant in Chambers, the court (per Judge Cohill) found that fraudulent acts, which are alleged predicate acts in RICO claims, must be plead with specificity. 590 F.Supp. at 1537.

FED.R.CIV.P. 9(b) requires that allegations of fraud be stated with ‘particularity’. This rule applies to allegations of mail fraud as predicate RICO civil offenses and generally requires assertions of ‘time, place and contents of false representations ... [and] the identity of the person making the misrepresentation

Id., citing Eaby v. Richmond, 561 F.Supp. 131 (E.D.Pa.1983) quoting Bennett v. Berg, 685 F.2d 1053 (8th Cir.1982).

We therefore conclude that plaintiff's complaint lacks specificity with regard to both its antitrust and RICO claims. We further conclude, however, that the proper remedy in this situation is not to immediately require a more definite statement since, as we have previously noted, the facts sought by the defendants may be within their knowledge and control.

Instead, turning once again to the opinion in Chambers, a period of discovery will be allowed, after which the plaintiff will be permitted to file an amended complaint which meets the requirements of FED.R. CIV.P. 9(b).

Defendants may then renew their motions to dismiss for lack of specificity, if necessary, 590 F.Supp. at 1539, or may file other motions. Meanwhile, the defendants need not answer the complaint.

We consider this disposition proper because defendants have admitted violation of the Sherman Act in a criminal proceeding which is of record. Accordingly, this opinion is limited to the situation described.

Motion to Dismiss RICO Claim

After the defendants filed their motion to dismiss plaintiff’s RICO claim, the United States Supreme Court addressed many of the issues raised by defendants’ motion.

The defendants had argued that the plaintiff had not alleged a conviction of a predicate act and that the complaint failed to allege any “racketeering injury” separate and apart from the injury resulting from the alleged predicate acts.

In Sedima, S.P.R.L. v. Imrex Co., Inc., — U.S. -, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985) the Court held that a “prior conviction requirement cannot be found in the definition of ‘racketeering activity’.” Id. at -, 105 S.Ct. at 3281. Furthermore, there is no requirement of a racketeering injury separate from the harm from the predicate acts. Id. at-, 105 S.Ct. at 3284.

Likewise, there is no requirement, as defendants contend, that a connection with “organized crime” be alleged. Id. at-, 105 S.Ct. at 3286. See also, Gilbert v. Prudential-Bache Securities, Inc., 769 F.2d 940 (3d Cir.1985).

The defendants’ remaining argument, which was not addressed by the Supreme Court, is whether under §§ 1962(a) and 1962(b) of RICO the “person” must be separate from the “enterprise”.

In paragraphs 24 and 25 of plaintiff's amended complaint, plaintiff defines Latrobe as both the “person” and the “enterprise” within the meaning of §§ 1961(3) and 1961(4) of RICO.

Cases cited by the defendants, including Judge Weber’s recent decision in Tarasi v. Dravo Corp., 613 F.Supp. 1235 (W.D.Pa. 1985), have consistently held that in the context of an action under § 1962(c) of RICO, the “person” must be a separate and distinct entity from the “enterprise”. See, B.F. Hirsch v. Enright Refining Co., Inc., 751 F.2d 628 (3d Cir.1984).

It must be remembered, however, that the plaintiff brings the present action under §§ 1962(a) and 1962(b). While one would assume that the three sections should be interpreted in the same manner, a reading of the sections indicates that three different situations are involved, thus requiring separate analysis as to whether a “person” and “enterprise” can be the same entity.

In Haroco, Inc. v. American Nat. B. & T. Co. of Chicago, 747 F.2d 384 (7th Cir. 1984), the court recognized the significant differences between subsections (a) and (c). Although the plaintiff in Haroco had abandoned its § 1962(a) claim the court nevertheless stated in dicta that:

... a corporation-enterprise may be held liable under subsection (a) when the corporation is also a perpetrator. As we parse subsection (a), a “person” (such as a corporation-enterprise) acts unlawfully if it receives income derived directly or indirectly from a pattern of racketeering activity in which the person has participated as a principal within the meaning of 18 U.S.C. § 2, and if the person uses the income in the establishment or operation of an enterprise affecting commerce. Subsection (a) does not contain any of the language in subsection (c) which suggests that the liable person and the enterprise must be separate. Under subsection (a), therefore, the liable person may be a corporation using the proceeds of a pattern of racketeering activity in its operations. This approach to subsection (a) thus makes the corporation-enterprise liable under RICO when the corporation is actually the direct or indirect beneficiary of the pattern of racketeering activity, but not when it is merely the victim, prize, or passive instrument of racketeering. This result is in accord with the primary purpose of RICO, which, after all, is to reach those who ultimately profit from racketeering, not those who are victimized by it. (Emphasis added).

Id., at 402.

We have found no other cases which discuss whether a “person” and “enterprise” need be separate entities under §§ 1962(a) and 1962(b).

Nevertheless, we find the reasoning of the court in Haroco persuasive. This reasoning is supported by the language of § 1962.

We find no difficulty in reading § 1962(a) as prohibiting any person (Latrobe) who has received any income from a pattern of racketeering activity, from using or investing such income in the establishment or operation of any enterprise (Latrobe) which engages in interstate commerce. Logic dictates that a corporation, receiving income from a pattern of racketeering in which it has participated as a principal, can invest that income in its own operations.

Similarly, we would read § 1962(b) as prohibiting any person (Latrobe) from acquiring an interest in or control of an enterprise (Latrobe) engaged in interstate commerce, through a pattern of racketeering. It is perhaps arguable that a corporation, through a pattern of racketeering, might gain an interest in or control of itself through the purchase of outstanding shares of stock with the money from the pattern of racketeering.

We therefore do not encounter the problem caused by § 1962(c) where a person must be employed by or associated with an enterprise, thus raising the impossibility of Latrobe employing or associating with itself.

Therefore we conclude that the plaintiff has set forth a claim under §§ 1962(a) and 1962(b) of RICO.

Finally, Derry raises the argument that plaintiff has not alleged a “pattern of racketeering activity” by Derry.

We believe that this argument fails.

Plaintiff has alleged a conspiracy between Derry and Latrobe. Plaintiff has also alleged that the mailing of bills and receipt of payments through the mails was in furtherance of that conspiracy. These acts of alleged mail fraud, which are also alleged to represent a “pattern of racketeering”, are therefore imputed to Derry. Plaintiffs complaint thus sufficiently alleges a “pattern of racketeering activity” by Derry.

An order follows.

      . Although the court in Chambers dealt with the specificity requirement solely in the context of a RICO claim, the reasoning in Chambers is equally applicable to the lack of specificity regarding plaintiff's antitrust claim in the instant case.

      . The district court in Haroco dismissed plaintiffs RICO claim under § 1962(c) for failure to allege a RICO injury separate from the injury arising from the predicate acts. The Court of Appeals for the Seventh Circuit reversed, 747 F.2d 384 (1984), and the United States Supreme Court eventually affirmed the decision of the Seventh Circuit. — U.S.-, 105 S.Ct. 3291, 87 L.Ed.2d 437 (1985).


author: ROBERT D. POTTER, Chief Judge.

text:
    The GARMENT DISTRICT, INC., Plaintiff, v. BELK STORES SERVICES, INC., Matthews-Belk Company, and Jantzen, Inc., Defendants.
    No. C-C-84-0543-P.
    United States District Court, W.D. North Carolina, Charlotte Division.
    Sept. 18, 1985.

      Stacy J. Haigney and Herbert S. Kassner, Kassner, Haigney & Thompson, New York City, C. Michael Wilson, Gerdes, Mason, Brunson, Wilson & Tolbert, Charlotte, N.C., for plaintiff.
    E. Osborne Ayscue, Jr., Helms, Mulliss & Johnston, A. Ward McKeithen, Robinson, Bradshaw & Hinson, Charlotte, N.C., Donovan, Leisure, Newton & Irvine; Sullivan & Cromwell, New York City, for defendants.
   MEMORANDUM OF DECISION AND ORDER

ROBERT D. POTTER, Chief Judge.

THIS MATTER came on to be heard before the undersigned judge and a jury on September 11, 1985 at Charlotte, North Carolina.

The Plaintiff was represented by Herbert Kassner and Stacy Haigney, Attorneys at Law, and C. Michael Wilson, Attorney at Law. The Defendant Jantzen was represented by A. Ward McKeithen, Attorney at Law, and the Belk Defendants were represented by E. Osborne Ayscue, Jr. and Ben Hudson, Attorneys at Law. At the close of the Plaintiff’s evidence all the Defendants moved for a directed verdict pursuant to Rule 50(a) of the Federal Rules of Civil Procedure, which was granted in open court.

If an antitrust plaintiff does not present sufficient evidence of his case in chief, a district court has a duty to direct a verdict in favor of the defendant. Roesch, Inc. v. Star Cooler Corp., 671 F.2d 1168 (8th Cir. 1982).

As stated in the Plaintiff’s trial brief, “the essence of the Garment District’s claim is under Section 1 of the Sherman Antitrust Act (15 U.S.C. § 1)” which reads as follows:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations is declared to be illegal.

In order for the plaintiff to survive a motion for directed verdict, the plaintiff’s evidence when considered in the light most favorable to the plaintiff must demonstrate: (1) that the Defendants contracted, combined or conspired among each other, (2) that the combination or conspiracy produced adverse anti-competitive effects within the relevant product and geographic markets, (3) that the objects of and conduct pursuant to the conspiracy were illegal, and (4) that the Plaintiff was injured as a proximate result of the conspiracy. Davis-Watkins Co. v. Service Merchandise, 686 F.2d 1190, 1195-96 (6th Cir.1982).

Now, turning to the first element, “conspiracy,” the Plaintiff contends that there was a conspiracy “between the defendant Belk Stores Buying Services, Inc. and Matthews-Belk (hereinafter jointly referred to as “Belk”) on the one hand and Jantzen on the other to refrain from selling Jantzen merchandise to plaintiff from early 1981 to the present because the plaintiff was a discounter and that the loss of Jantzen merchandise by the Garment District was, ‘in purpose and effect,’ a coerced price fixing agreement in per se violation of Section 1 of the Sherman Act.”

The Plaintiff’s evidence in the light most favorable to the Plaintiff was that Belk’s told Jantzen representatives that if Jantzen continued to supply the Plaintiff that Belk’s would terminate its business with Jantzen. The Plaintiff produced no evidence that there was any agreement or “conspiracy” between Jantzen and Belk to maintain resale prices. A conspiracy to maintain resale prices simply was not established by proof that the Defendant manufacturer terminated the Plaintiff following or even in response to, complaints or threats by the Defendant Belk. Independent action by a manufacturer and concerted action on non price restrictions must be distinguished from price fixing agreements. On a claim of concerted price fixing, the antitrust plaintiff must present evidence to carry the burden of proving there was such an agreement. Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984). This the Plaintiff has failed to do.

The Plaintiff has produced absolutely no evidence of any agreement between the Defendants Jantzen and Belk with reference to fixing prices. On the contrary, the only evidence is that all retailers of Jantzen goods, including Belk and the Plaintiff, set their prices with no interference from the Defendant Jantzen. Thus, the Plaintiff has failed to satisfy the first element that there was a conspiracy to fix prices because Jantzen refused to sell to the Plaintiff.

If the evidence considered in the light most favorable to the Plaintiff showed that Jantzen terminated the Plaintiff as a result of Belk’s Complaint and the statement that Belks would terminate its business with Jantzen if Jantzen continued to do business with the Plaintiff, the next question is whether that action had an anti-competitive effect within the relevant product and geographic market.

The answer is clearly “no.” Limiting the number of distributors, or even eliminating existing ones to make the remaining ones sale outlets for a region, is conduct judged under the rule of reason. The evidence showed with few exceptions that Jantzen products were sold only in department and. specialty stores, and that Jantzen did not sell its products to self-service operations of the kind operated by Plaintiff. Horizontal restraints serve to stifle competition. However, vertical intrabrand refusals to deal, on the other hand, may limit intra brand competition, but at the same time promote inter brand competition. Limiting intrabrand competition may have a positive effect on inter-brand competition in the sportswear field. Terry’s Floor Fashions v. Burlington Industries, 763 F.2d 604 (4th Cir.1985) (Winter, C.J., concurring). The only brand the Plaintiff could not handle because of the alleged concerted action of the Defendants was Jantzen. To paraphrase Justice Holmes in his dissenting opinion in Dr. Miles Medical Co. v. John D. Park, 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911): There may be necessaries that sooner or later must be dealt with, like short rations in a shipwreck, but Jantzen sportswear is not one of them. The Country, the economy and Gaston County, North Carolina could survive without Jantzen. In any event, the evidence was that at least one other store in Gastonia, Iveys, sold Jantzen products.

Now, turning to the third element that the objects of the alleged conduct of the Defendants were illegal, there is no evidence that the Defendants engaged in any conspiracy to fix prices. Considering the evidence in the light most favorable to the Plaintiff that the Plaintiff was terminated by the Defendant Jantzen as a result of complaints by Defendant Belk, that conduct is not illegal. Permitting an agreement to be inferred merely from the existence of complaints or from the fact that termination came about in response to complaints could deter or penalize perfectly legitimate conduct. Monsanto, supra 465 U.S. at-, 104 S.Ct. at 1470, 79 L.Ed.2d at 785.

Finally, in order to prevail, the Plaintiff must demonstrate that it was injured as a proximate result of the conspiracy.

The statute, 15 U.S.C. Section 15, which gives the private litigant the right to sue, imposes the basic requirement that there be injury to Plaintiff's business or property. It has, therefore, been held repeatedly that the gist of the action is legal injury, not mere violation of the statute. The damages for which recovery may be had in a civil action must be proximately related to the conspiracy; recovery for the violation is not based on the conspiracy itself but on injury to the Plaintiff produced by specific overt acts pursuant to the conspiracy. The mere existence of a violation is not sufficient ipso facto to support the action; a private person has no right to complain of a violation of Section 1, nor does such a violation per se give a private cause of action. See Winkler & Smith Citrus Products Co. v. Sunkist Growers, Inc., 346 F.2d 1012, n. 1 (9th Cir.1965).

The Plaintiff did not offer in evidence any financial statements to substantiate its claim of damages. On cross-examination of Plaintiff’s witnesses, however, it was demonstrated that the Plaintiff had a loss from operations from its inception in August 1981 until it closed in 1983. (The Plaintiff did have a profit for the period ending January 31, 1982 primarily because of interest earnings.)

There was no credible evidence from the Plaintiff that it had suffered any financial loss as a result of the Defendant Jantzen’s termination of sales to the Plaintiff in 1982.

Cross-examination of the Plaintiff’s witnesses revealed that there had been six to eight thousand dollars misappropriated; that the Plaintiff’s accountant had called the Plaintiff’s attention to numerous poor business and accounting practices; that there had been approximately $100,000 shrinkage in inventory during the operation of the business; that Jay Crippen, a majority shareholder in the Plaintiff corporation, was also majority shareholder in another store in Knoxville, Tennessee (which is also in bankruptcy); that merchandise had been shipped from the Plaintiff to the Knoxville store; and that there were numerous other defalcations on the part of the management of the Plaintiff. All of this evidence leads to the inevitable conclusion that the Plaintiff’s survival was doomed from the start by the failure of its management and not because it did not receive Jantzen merchandise from Jantzen after 1982.

In short, the Plaintiff did not show that it suffered any damage because of Defendant Jantzen’s refusal to sell to it. Any projection of damages on this evidence would be pure speculation and guesswork, which would not support an antitrust judgment for the Plaintiff.

In conclusion, the Plaintiff has not produced evidence which would support a verdict that the Defendants had violated Section 1 of the Sherman Act.

The Defendants’ motion for a directed verdict pursuant to Rule 50(a) of the Federal Rules of Civil Procedure is GRANTED.