author: DONALD E. O’BRIEN, Chief Judge.

text:
    LOMAR WHOLESALE GROCERY, INC., Plaintiff, v. DIETER’S GOURMET FOODS, INC., Gourmet Foods, Inc. and Art Stone, Defendants.
    Civ. No. 79-401-E.
    United States District Court, S.D. Iowa, C.D.
    June 28, 1985.

      John P. Roehrick, Donald J. Polden, Ray Sullins, Des Moines, Iowa, for plaintiff.
    John C. Cortesio, Jr., Des Moines, Iowa, Thomas J. Rooney, St. Paul, Minn., Sondra Colligan, Sherman Oaks, Cal., for defendants.
   ORDER

DONALD E. O’BRIEN, Chief Judge.

This Order addresses the three motions for summary judgment filed by defendants which relate to plaintiffs Sherman Act claims. First is the Motion for Summary Judgment of Defendants Gourmet Foods, Inc., and Art Stone as to Plaintiffs Sherman Act Claim in Respect to Dieter’s Gourmet Foods, Inc., Products which was filed on February 15, 1983 (Docket No. 159). Second is the same defendants’ motion for summary judgment as to plaintiffs Sherman Act claim in respect to Celestial Seasoning, Inc., products which was filed on July 21, 1983 (Docket No. 191). Third, on July 27, 1983, the same defendants filed a motion for summary judgment as to plaintiff’s Sherman Act claims regarding Chicago Dietetic Supply, Inc. products (Docket No. 196). Plaintiff filed two memorandum which set forth its position; one was filed on July 7, 1983 (Docket No. 186), and the other was filed on March 30, 1984 (Docket No. 208). Oral arguments were presented to the Court on November 9, 1984 in Des Moines, Iowa. Thereafter, the parties filed a Stipulation which significantly narrowed the issues involved in the motions for summary judgment (one copy of the Stipulation was filed on February 4, 1985, Docket No. 241; a second copy was filed on February 6, 1985, Docket No. 242). For the reasons stated below, defendants’ motions for summary judgment as to the Sherman Act claims shall be granted.

I. Chicago Dietetic Products.

Defendants moved for summary judgment contending that the four-year statute of limitations set forth in 15 U.S.C. § 15(b) which applies to antitrust claims expired before plaintiff filed its claim regarding Chicago Dietetic products. On August 26, 1981, the plaintiff filed an amended complaint which alleged a combination or conspiracy between the defendants and Chicago Dietetic Supply, Inc., to restrain trade in violation of Section 1 of the Sherman Act. Specifically, the conspiracy claim relates to Chicago Dietetic Supply’s refusal to sell its Featherweight line of products to the plaintiff and for terminating plaintiff as a distributor on March 5, 1976.

Defendants contend that the last overt act of the alleged conspiracy occurred over four years before plaintiff filed its amended complaint and that this amendment should not relate back to the original complaint. Plaintiff argues that the amendment should relate back to the filing of the first complaint or, in the alternative, the attempts by the food brokers, Mr. Robert Mitchell and Mr. Mancel Jones, to obtain Chicago Dietetic products for Lomar resulted in continuing conspiratorial acts which occurred during the limitations period.

A. Relation Back — Rule 15(c).
Fed.R.Civ.P. 15(c) provides:
Relation Back of Amendments. Whenever the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment relates back to the date of the original pleading.

This rule of relation back is consistent with the idea of notice pleading which underlies the Federal Rules.

[Wjhile it is still the rule that an amendment which states entirely new claim for relief based on different facts will not relate back, if the pleading sufficiently indicates the transaction or occurrence on which the claim or defense is based, amendments correcting specific factual details, such as time and place, as well as other items, will relate back.

3 Moore’s Federal Practice 1115.15(3), at 15-196-98. The first step is to examine what was set forth in the original complaint. Paragraph 12 of the original complaint alleges that

defendants and certain co-conspirators unknown to plaintiffs have conspired and agreed with one another to boycott and eliminate plaintiff as a competitor in the sale of Dietor’s Gourmet salad dressing.

Plaintiffs original allegations consistently charge antitrust violations with respect to only one brand of salad dressing, viz., Dieter’s Gourmet. Since the original complaint sets forth only conduct which relates to Dieter’s Gourmet salad dressing, the Court finds that the claim regarding Chicago Dietetic’s Featherweight product line does not arise out of the conduct or transactions set forth in the original complaint. The allegations in the complaint give defendant no notice of conduct relating to the alleged conspiracy regarding Chicago Dietetic’s Featherweight product line.

Next, the Court must consider whether the claim regarding the Featherweight product line arose from conduct which was “attempted to be set forth” in the original complaint. Because plaintiff specifically intended not to include its claims regarding Chicago Dietetic products in its original complaint, this Court holds plaintiff is not entitled to relation back on the ground that the claim was “attempted to be set forth” in its original complaint.

The November 4, 1981 deposition of Lou Hurwitz, president and owner of Lomar, indicates that plaintiff intentionally limited its original complaint to claims involving Dieter’s Gourmet products. Furthermore, at the time it filed its original complaint, plaintiff was well aware of its potential claim regarding Chicago Dietetic’s products. In its Answers to Second Set of Interrogatories to Plaintiff which was filed July 2, 1981, plaintiff states:

In 1977 or 1978, the exact time being unknown to Plaintiff, Jim Schacherer of Lomar made complaint to the Iowa Attorney General’s Office that Chicago Dietetic was refusing to sell its Featherweight line to Lomar. Plaintiff understands that an agent of the Attorney General’s Office, unknown to Lomar, visited Chicago Dietetic in Chicago and that no one in Chicago Dietetic would talk to him. Plaintiff has no records with reference to this matter and it was not pursued further because thereafter Chicago Dietetic started furnishing its product to Lomar.

Yet, a month and a half later, plaintiff filed an amended complaint asserting the claim. Plaintiff admits that it did not intend to raise any claim about its termination by Chicago Dietetic in its original complaint, but argues that defendants followed a course of conduct that was a broad-based conspiracy and that the broad-based conspiracy included both Dieter’s Gourmet and Chicago Dietetic products. However, plaintiff did not allege a broad-based conspiracy in its original complaint. Instead, the conspiracy or conduct alleged specifically mentions only Dieter’s Gourmet salad dressing. Therefore, the Court finds that the claim about Chicago Dietetic products did not arise from conduct that was attempted to be set forth in the original complaint.

The Court holds that plaintiff’s claim regarding Chicago Dietetic products is an entirely new claim and that defendants did not receive fair notice of it in the original complaint. Thus, the amendment will not relate back under the provisions of Rule 15(c).

B. Continuing Conspiracy.

Lomar argues that continuing antitrust violations occurred when it sought Chicago Dietetic products through food brokers of Remco Ltd. Defendants argue that Lomar did not ask for the Chicago Dietetic products from Chicago Dietetic during the period from March 5, 1976 to January 1, 1980 and that the broker’s comments to Frank Rielly are not the acts of Lomar, but are the acts of Remco Ltd., an agent of Chicago Dietetic. In Zenith Radio Corp. v. Hazeltine Research, 401 U.S. 321, 338, 91 S.Ct. 795, 806, 28 L.Ed.2d 77 (1971), the United States Supreme Court stated:

Generally, a cause of action accrues and the statute begins to run when a defendant commits an act that injures a plaintiff’s business ... In the context of a continuing conspiracy to violate the antitrust law, such as the conspiracy in the instant case, this has usually been understood to mean that each time a plaintiff is injured by an act of the defendants a cause of action accrues to him to recover the damages caused by that act and that, as to those damages, the statute of limitations runs from the commission of the act.

The Eighth Circuit followed this rule in Pioneer Co. v. Talon, Inc., 462 F.2d 1106 (8th Cir.1972), when the court held that the statute of limitations began to run on September 4, 1964, the date that two orders Pioneer had placed with Talon were refused and, as a result, Pioneer was caused injury.

It is undisputed that Lomar placed no orders after March 5, 1976. The inquiries by the brokers, even as such inquiries were attributable to Lomar, are not equivalent to placing orders. Rather, this case is analogous to the facts in Garelick v. Goerlich’s, Inc., 323 F.2d 854 (6th Cir.1963). Here, as in the Garelick case, the conduct between the brokers and Lomar and the brokers and Chicago Dietetic was such that it did not give rise to any injury or damage to Lomar. When the inquiries made and the action taken in response are general in nature, no new injury is caused. Instead, the injury, if any, experienced by Lomar is part of the continuing injury that was caused by its termination as a distributor. In contrast, where an alleged conspirator fails to fill a specific order, as in Pioneer Co., a specific and identifiable harm is caused to plaintiff by the failure to receive the ordered goods. Accordingly, the Court holds that the actions taken with reference to the inquiries of the brokers were not overt acts which caused injury or damage to the plaintiff. Thus, the four-year statute of limitations expired before plaintiff’s amended complaint was filed and defendants are entitled to summary judgment as to the Sherman Act claim relating to Chicago Dietetic products.

II.

Dieter’s Gourmet. Between about January 1, 1975 and January 1, 1981, Gourmet Foods, Inc. (GF), a Minnesota corporation engaged in the specialty food distribution business, purchased Dieter’s Gourmet brand products from Dieter’s Gourmet Foods, Inc. (Dieter’s), a California corporation located in Los Angeles. GF resold these products in several midwestern states from its warehouse and office located in St. Paul, Minnesota.

Lomar Foods, Inc. (Lomar), is a specialty food distributor covering the upper mid-west from its Des Moines, Iowa location. Lomar attempted to purchase Dieter’s products directly from Dieter’s, but Dieter’s declined to sell to Lomar in 1975. From September 17, 1975 to September 15, 1976, Lomar bought Dieter’s products from M & JR Hakes, Inc., a grocery warehouse in Laurens, Iowa that obtained these products from Defendant GF. When GF discovered that M & JR Hakes was reselling Dieter’s products to Lomar, it refused to sell Dieter’s products to M & JR Hakes. This refusal occurred in August of 1976.

Lomar next obtained Dieter’s products from Super Service Foods Distributors, Inc., a food distributor in Kansas City, Missouri, for the period from October 12, 1976 until February 8, 1979. Super Service never refused to sell Dieter’s products to Lo-mar and supplied to Lomar all such products that it could. In March of 1979, Super Service was sold to Carlstrom Foods, Inc., a specialty food distributor in St. Louis, Missouri. After this sale, Lomar did not make any purchases from either Super Service or Carlstrom Foods. Lomar agrees that the refusal, if any, of Carlstrom Foods, Inc. to sell Dieter’s products to Lo-mar in April, 1979 was unilaterally determined, self-motivated behavior.

In August or September of 1978, Lomar again tried to purchase Dieter’s products directly from Dieter’s. Lomar attempted to get Dieter’s to undertake a survey of its Iowa distribution. In early 1979, Lomar submitted an order together with a credit application to Dieter’s. In a letter dated March 30, 1979, Dieter’s informed Lou Hurwitz of Lomar that Dieter’s would hold Lomar’s order for six months and would conduct a market survey. Lomar filed this lawsuit on August 30, 1979, before the six months had expired.

Celestial Seasoning. Celestial Seasoning, Inc. (Celestial), is a Colorado corporation located in Boulder, Colorado which manufactures and sells a line of teas, including herbal teas. Celestial has sold its products to Lomar, GF, and other distributors. At no time has GF held an exclusive distributorship for Celestial products. Lo-mar purchased Celestial products directly from Celestial for a period of time up to July, 1981. Celestial did not sell to Lomar after June, 1981 and in September, 1981, terminated Lomar as a distributor. Sometime in September, 1981, Lomar was able to purchase Celestial products through another distributor, with the permission of Celestial.

Ken Vickerstaff, Celestial’s west central regional sales manager, came to Des Moines on June 30, 1981 to survey supermarkets carrying Celestial products. Vick-erstaff, after making this survey, felt that Dave’s Marketing, Celestial’s broker, and Lomar, Celestial’s distributor, were not satisfactorily complying with Celestial’s shelf-management program. On July 1, 1981, Vickerstaff and Bob Colin of Dave’s Marketing met with Lou Hurwitz, Lomar’s president, at Lomar’s offices. During this meeting a dispute arose relating to Lo-mar’s failure to sell certain iced tea shippers which Celestial had sent to Lomar and relating to a discount which Lomar sought to claim with respect to certain products purchased from Celestial.

After this meeting, Vickerstaff, while at the Des Moines airport, telephoned Paul Enright, Celestial’s vice president of sales. While on his way to the airport, Vickerstaff had decided that he would recommend the termination of Lomar as a Celestial distributor. Vickerstaff told Enright that neither the broker nor the distributor was doing its job properly and that he was going to investigate other ways to handle the Iowa market.

After this conversation, Vickerstaff flew to Minneapolis for a meeting with Geoffrey Michael of Sales and Marketing, Inc., Celestial’s broker in the Minnesota area, and Art Stone, president of GF. This visit had been planned by Vickerstaff before he went to Des Moines from Boulder. Vicker-staff met with Art Stone and Geoffrey Michael on July 1, 1981 in Minneapolis and initiated a discussion of the Iowa market and GF’s representation in that market.

The decision to terminate Lomar was made by Celestial’s management, specifically Paul Enright, after Vickerstaff met with Art Stone and Geoffrey Michael concerning their distribution of Celestial products in the Iowa’ market. GF and Art Stone were aware of Lomar’s termination as a distributor of Celestial products about two months before Lomar had confirmation from Paul Enright of its termination.

Lomar contends that Celestial’s termination of it as a distributor was pursuant to a combination, conspiracy and agreement between Celestial and GF and Art Stone and may have been price related. Plaintiff’s Response to Statement of Material Facts filed November 20, 1984 (Docket No. 237), p. 5. Lomar also contends that Chicago Dietetic and Dieter’s were parties to the conspiracy between Celestial-GF-Art Stone through the operation and conduct of GF and Art Stone. Id., at 5-6.

Claims. Lomar alleges that defendants conspired and agreed regarding three types of restraints; specifically, Lo-mar asserts that it will prove a group boycott, price fixing, and a horizontal territorial arrangement. Memorandum of Authorities in Support of Plaintiff’s Resistance filed July 7, 1983 (Docket No. 186), p. 11. As a result of the stipulation, plaintiff has agreed that it will attempt to prove violations of the Sherman Act solely on per se theories. Whether the per se rule or the rule of reason applies to a particular restraint is a question of law for the courts. Accordingly, the critical issue is whether the alleged restraints should be subject to the per se rule or the rule of reason. If the per se rule applies and there are material factual disputes, defendants’ motion for summary judgment must be denied.

When deciding whether to apply the per se rule, the first step is to decide if the business practice falls within one of the categories of restraints which has been declared per se unreasonable. Failing this, the second step is to determine if the per se rule should be extended to cover the challenged business practice.

A. Group Boycott.

Lomar argues that there exists a classic boycott aimed at disrupting important and necessary trade relations of Lomar with suppliers like Hakes, Dieter’s and Chicago Dietetic.

In this case Lomar has alleged, and will prove a conspiracy to boycott Lomar from participation in the market for specialty goods in Iowa. Gourmet Foods targeted Lomar with extinction and colla-torated with manufacturers and suppliers of necessary products to exclude Lo-mar from competition in the market. Where the effect or object of the conspiracy is to exclude or destroy competition by a competitor of even one conspirator, then the activity should be characterized as a group boycott and treated in law as a per se violation.

Memorandum of Authorities in Support of Plaintiff’s Resistance filed July 7, 1983 (Docket No. 186), pp. 14-15.

In analyzing a concerted refusal to deal, the Court must consider the relationship between the parties and the role each party plays in effectuating the refusal to deal. First, the Court turns to defining the parameters of the alleged conspiracy, specifically, who is involved and how they are connected with one another.

Lomar is not contending that Chicago Dietetic combined or conspired with Dieter’s. Lomar is not contending that Chicago Dietetic combined or conspired with Celestial. Plaintiff’s Revised Answers to Defendants’ Fourth Set of Written Interrogatories filed May 18, 1983 (Docket No. 172), p. 15. Yet Lomar contends that Chicago Dietetic was a party to the conspiracy between Celestial-GF-Art Stone through the operation and conduct of GF and Art Stone. This leaves open the possibility that horizontal interaction occurred between Dieter’s, the diet salad dressing maker, and Celestial, the tea manufacturer. However, no evidence shows nor can it be reasonably inferred that Dieter’s and Celestial came to an understanding directly with one another. Also, the evidence does not show that GF and Art Stone gained Celestial’s compliance in the alleged conspiracy in mid-1981 as a result of the representation that Dieter’s agreed to refuse to deal with Lomar. Indeed, the Dieter’s-GF arrangement occurred so far before Celestial terminated Lomar that the events are related because of GF’s involvement in each. Instead, Lo-mar is contending, in effect, and a jury could reasonably find that GF and Art Stone had a goal of eliminating or weakening Lomar as a competitor in the business of specialty food distribution and that GF and Art Stone agreed separately with each of the three manufacturers without direct contact between the manufacturers that the manufacturers would not deal with Lo-mar. This broad-based conspiracy could be visualized as a rimless, spoked wheel with GF and Art Stone as the hub and each of the three manufacturers as a spoke.

Next, the Court considers the substance of the agreement or conspiracy which existed between GF and Art Stone and each of the manufacturers. Lomar contends that GF and Art Stone prevailed upon Dieter’s, Celestial and Chicago Dietetic and persuaded them to refuse to sell their products to Lomar. Specifically, with respect to the two remaining product line claims, Lomar is contending that Dieter’s refused to enter a distributorship arrangement with it because of a conspiracy between Dieter’s and GF and is contending that Celestial terminated Lomar as a distributor as a result of GF’s intervention. In addition, with respect to Dieter’s products, GF stopped selling to M & JR Hakes because it was reselling the product to Lomar. Lomar contends that this activity amounts to a boycott with the purpose of preventing Lomar from having access to certain goods.

First, the terms “group boycott” and “classic group boycott” are labels which are not particularly helpful in thinking about the instant problem. See Worthen Bank & Trust Co. v. National Bankamericard, Inc., 485 F.2d 119, 124-25 (8th Cir.1973), cert. denied, 415 U.S. 918, 94 S.Ct. 1417, 39 L.Ed.2d 473 (1974) (reversed district court ruling that a bylaw was a per se illegal restraint). Second, where agreements or arrangements fall under the broad heading of concerted refusals to deal, the real question is whether such a refusal, when the facts are viewed in the light most favorable to the plaintiff, is of a type which has been declared illegal per se. Not all concerted refusals to deal are deemed illegal per se. Cascade Cabinet Co. v. Western Cabinet & Millwork, 710 F.2d 1366, 1371 (9th Cir.1983). E.g., Northwest Wholesale Stationers, Inc. v. Pacific Stationery and Printing Co., — U.S. -, 105 S.Ct. 2613, 86 L.Ed.2d 202 (1985). The Third and Fifth Circuits have identified three categories of concerted refusals to deal which are illegal per se:

(1) horizontal combinations of traders at one level of distribution having the purpose of excluding direct competitors from the market, e.g., Associated Press v. United States, 326 U.S. 1, 65 S.Ct. 1416, 89 L.Ed. 2013 (1945); Eastern States Retail Lumber Dealers’ Ass’n v. United States, 234 U.S. 600, 34 S.Ct. 951, 58 L.Ed. 1490 (1914); (2) vertical combinations, designed to exclude from the market direct competitors of some members of the combination, e.g., Klor’s, Inc. v. Broadway-Hale Stores, Inc, 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959); and (3) coercive combinations aimed at influencing the trade practices of boycott victims. Eg., Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211, 71 S.Ct. 259, 95 L.Ed. 219 (1951); Fashion Originators’ Guild of America v. Federal Trade Commission, 312 U.S. 457, 61 S.Ct. 703, 85 L.Ed. 949 (1941).

Consolidated Express, Inc. v. New York Shipping Ass’n, Inc., 602 F.2d 494, 522 (3d Cir.1979). See E.A. McQuade Tours, Inc. v. Consolidated Air Tour Manual Committee, 467 F.2d 178, 186-87 (5th Cir.1972), cert. denied, 409 U.S. 1109, 93 S.Ct. 912, 34 L.Ed.2d 690 (1973). The Eighth Circuit has referred to these categories with approval in Worthen Bank & Trust Co., 485 F.2d at 124-25. Accordingly, this Court adopts these categories and turns to whether the instant refusals to deal fall within one such category.

The first category does not apply because there is not a horizontal combination at the level of the direct competitor sought to be excluded, i.e., Lomar. Only GF is a direct competitor of Lomar and it is not dealing with other direct competitors of Lomar.

The Court concludes that the second category is not applicable to the refusals to deal. Klor’s Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959), is distinguishable. Klor’s operated a retail store in competition with one of Broadway-Hale’s department stores. Klor’s complaint alleged that ten national appliance manufacturers and the distributors for these manufacturers had conspired among themselves and with Broadway-Hale not to sell to Klor’s. The Supreme Court held that the allegations, if true, showed a boycott that was “not to be tolerated.” Id., at 213, 79 S.Ct. at 710. In Klor’s, there was an obvious horizontal character to the conspiracy in that it was among ten national manufacturers. In the present case, the combinations are only vertical in character. In Klor’s, the Supreme Court distinguished the boycott from the case of manufacturer and a dealer entering an exclusive distributorship. Id., at 212, 79 S.Ct. at 709. The facts of the instant case fall between the boycott condemned in Klor’s and a typical exclusive distributorship. This Court concludes that the present refusals to deal are closer to the exclusive distributorship situation because of their vertical nature and lack of a horizontal connection between competitors on the same level. Consequently, this Court concludes that vertical agreements arrived at independently but part of a broad-based “hub-and-spoke” conspiracy do not fit within the second category of concerted refusals to deal which have been declared illegal per se.

The instant refusals to deal with Lomar do not fall within the third category because those refusals are not aimed at influencing Lomar’s trade practices. The third category applies to refusals designed to influence a competitor’s practices rather than refusals aimed at eliminating the competitor. See E.A. McQuade Tours, 467 F.2d at 187.

Having concluded that the instant refusals to deal do not fall within any of the three established categories which are deemed illegal per se, the Court turns to whether the per se rule should be extended to cover these situations. The legal test applied when deciding whether to extend the per se rule to conduct which does not fit easily within the limits of the above categories is

“whether the practice facially appears to be one that would always or almost always tend to restrict competition and decrease output ... or instead one designed to ‘increase economic efficiency and render markets more, rather than less, competitive.’ ” Broadcast Music, Inc. v. CBS, 441 U.S. 1, 19-20, 99 S.Ct. 1551, 1562, 60 L.Ed.2d 1 (1980).

Krehl v. Baskin-Robbins Ice Cream Co., 664 F.2d 1348, 1356 (9th Cir.1982) (per se rule held inapplicable). In other words, a particular restraint must have “a pernicious effect on competition and lack[ ] any redeeming virtue.” Northern Pacific Railway v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958). Lo-mar argues that the refusals to deal have effectively excluded Lomar from competing with GF with reference to the Dieter’s products and Celestial products. GF contends that its relationship with Dieter’s is properly characterized as an exclusive distributorship which promotes interbrand competition. Similarly, GF contends that its vertical arrangement with Celestial promotes interbrand competition and that Celestial has independent reasons for terminating Lomar as a distributor. Lomar has not specifically addressed the effect these refusals to deal have on interbrand competition. Instead, Lomar argues that the refusals are boycotts, that boycotts are illegal per se, and that, therefore, these refusals are illegal per se. As noted in Continental T. V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977), “[i]nterbrand competition is competition among manufacturers of the same general product ... and is the primary concern of antitrust law.” 433 U.S. at 51 n. 19, 97 S.Ct. at 2558 n. 19.

Plaintiff’s answer to Interrogatory No. 19 of the second set of interrogatories of defendants lists nine makers of diet salad dressing, including Dieter’s Gourmet and Featherweight by Chicago Dietetic. The answer also states that there “are probably many, many more.” With respect to Celestial’s product line, other companies have actively entered the herbal tea market although Lomar contends that these other companies did not offer as wide a selection of flavors nor did they package and promote their products as effectively as Celestial. Because these vertical arrangements which GF has with Dieter’s and Celestial are likely to promote interbrand competítion — vertical nonprice restraints have long been recognized as a means to promote interbrand competition — this Court cannot conclude that those relationships are plainly anticompetitive and tend to restrict competition. In addition: (1) Lomar is able to get Celestial products from another distributor, albeit not directly from Celestial. (2) The mere fact that a manufacturer such as Celestial or Dieter’s changes distributors or refuses to deal with a potential distributor at the request of another distributor does not warrant application of the per se rule. See Burdett Sound, Inc. v. Altec Corp., 515 F.2d 1245, 1249 (5th Cir.1975) (no antitrust violation to contract with a new distributor and terminate former distributor); Valley Liquors, Inc. v. Renfield Importers, Ltd., 678 F.2d 742 (7th Cir.1982) (two distributors, acting independently, can request a manufacturer to terminate a third distributor who is price cutting). (3) The case of Com-Tel, Inc. v. DuKane Corp., 669 F.2d 404 (6th Cir.1982), is distinguishable because in that case interbrand competition was not served by defendant’s conduct; the sole effect was to reduce intrab-rand competition. Id., at 412. (4) As a practical matter, GF’s ability to veto the request of others to distribute Dieter’s products is so much like a de facto exclusive distributorship, a type of vertical refusal to deal, that this veto power is not properly labeled as a per se unlawful boycott.

In summary, the Court holds that a distributor may enter vertical arrangements with two or three manufacturers where the purpose of each arrangement is to exclude the same competitor of the distributor from marketing that manufacturer’s product and where the motivation on the part of the distributor is to lessen the competition with which he is faced. Doing so is not a per se violation of section 1 of the Sherman Act. Rather, these arrangements are subject to scrutiny under the rule of reason. In short, these restraints are vertical nonprice restraints. Thus, defendants are entitled to summary judgment on plaintiff’s claim regarding a concerted refusal to deal for the purpose of excluding plaintiff.

B. Vertical Price Fixing.

It is unlawful per se for a manufacturer to terminate a distributor at the request of a competing distributor when both desire to reduce price competition at the distributor level. Cernuto, Inc. v. United Cabinet Corp., 595 F.2d 164 (3d Cir.1979). In Monsanto Co. v. Spray Rite Service Corp., 465 U.S. 752, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984), the Supreme Court emphasized the importance of distinguishing between distributor termination cases that involve concerted action to set price and those that involve concerted action on nonprice restrictions. Id., at 761, 104 S.Ct., at 1469. The former are illegal per se while the latter are judged under the rule of reason.

As to this theory, defendants contend that the plaintiff does not have sufficient proof to reach a jury on the question of concerted action to fix price. Prior to the Supreme Court’s decision in Monsanto Co. the parties strongly disagreed on the standard of proof required. In Monsanto Co.: the Supreme Court settled this legal dispute by holding:

Thus, something more than evidence of complaints is needed. There must be evidence that tends to exclude the possibility that the manufacturer and nonter-minated distributors were acting independently. As Judge Aldisert has written, the antitrust plaintiff should present direct or circumstantial evidence that reasonably tends to prove that the manufacturer and others “had a conscious commitment to the common scheme designed to achieve an unlawful objective.” Edward J. Sweeney & Sons, [v. Texaco, Inc., 637 F.2d 105, 111 (3d Cir.1980), cert. denied, 451 U.S. 911, 101 S.Ct. 1981, 68 L.Ed.2d 300 (1981) ]; accord H.L. Moore Drug Exchange, v. Eli Lily & Co., 662 F.2d 935, 941 (CA 2 1981) cert. denied, 459 U.S. 880, 103 S.Ct. 176, 74 L.Ed.2d 144 (1982); cf. American Tobacco Co. v. United States, 328 U.S. 781, 810, 66 S.Ct. 1125, 90 L.Ed. 1575 (1946) (circumstances must reveal a “unity of purpose or a common design and understanding, or a meeting of minds in an unlawful arrangement”).

Id., at 764, 104 S.Ct. at 1471 (footnotes omitted). Prior to this ruling it appears that plaintiff would have survived this motion for summary judgment had this Court chosen to follow Battle v. Lubrizol Corp., 673 F.2d 984, 991 (8th Cir.1982), aff'd by an equally divided court, 712 F.2d 1238 (8th Cir.1983) (en banc), regarding the proof sufficient to allow the inference of concerted action to fix price. At this point it is important to note that section 1 is not violated if GF and Art Stone, as a single business entity, procured the vertical restraints with the intent to raise price after Lomar was subject to these restraints. The unilateral desire of one party to the restraint to raise prices does not violate section 1. Instead, both the manufacturer and distributor must enter the common scheme with the design to stabilize or fix prices.

Plaintiff’s Memorandum filed March 30, 1984 (Docket No. 208), after the Monsanto Co. decision, argues that there are questions of fact surrounding defendants’ assertions (1) that GF had an “exclusive distributorship” with Dieter’s; (2) that Dieter’s had independent justification for refusing to grant a distributorship arrangement to Lomar; and (3) that Dieter’s was conducting a bona fide market study when Lomar filed this lawsuit.

Plaintiff’s argument misses the mark. The thrust of defendants’ motion with reference to the vertical price-fixing claim is that plaintiff cannot show GF and Dieter’s took concerted action with the common purpose to fix prices.

The Court can find that GF had the power to veto applications by other distributors to obtain a distributorship in its territory, can find that the market study was a pretext designed to camouflage the decision which had already been made by GF and Dieter’s to refuse to deal with Lomar, can find that GF was a powerful force in the market, can find that GF did not have an “exclusive distributorship” with Dieter’s, and can find that GF raised its prices after Lomar was unable to buy Dieter’s products. Yet none of these facts give rise to the inference that there was a price-fixing conspiracy between GF and Dieter’s.

The Supreme Court in Monsanto Co. specifically held that an agreement could not be inferred merely from complaints by distributors to the manufacturer about price-cutting distributors and the fact that termination came about in response to such complaints. In Roesch, Inc. v. Star Cooler Corp., 671 F.2d 1168, 1172 (8th Cir.1982), aff'd by an equally divided court, 712 F.2d 1235 (8th Cir.1983) (en banc), the panel indicated that a manufacturer’s recommendation to its distributors to charge a certain price did not permit the inference of illegal activity unless there is additional evidence of price monitoring or evidence of pressure and coercion to secure adherence to the suggested price. None of these factors are present in the instant case. Under the standards set forth in Monsanto Co. v. Spray Rite Services, the Court concludes that Lomar has not produced enough proof to permit the inference of a price-fixing conspiracy between Dieter’s and GF. Thus, defendants are entitled to summary judgment on plaintiff’s section 1 claim relating to Dieter’s products.

Interrogatory No. 63 of Defendants’ Amended and Substituted Third Set of Written Interrogatories to Plaintiff request Lomar to state the specific conduct, acts or practices of GF, Art Stone and Celestial that it contends constitute an attempt to fix the price of Celestial products. Lomar’s answer states:

Giving instruction to Gourmet Foods, Inc., sales personnel to stop selling Celestial Seasoning, Inc. products in Iowa. Attempting to get an exclusive distributorship for Celestial Seasoning, Inc. products in Iowa.
Instructing its salesmen to offer Celestial Seasoning, Inc. products for sale to customers in Iowa on a one-for-one basis; customers were told that if they bought one case of Celestial Seasoning, Inc. products that they would get one free. Securing the brokerage of Celestial Seasoning, Inc. products through Sales and Marketing.
The termination of plaintiff as a distributor of Celestial Seasoning, Inc., products by Celestial Seasoning, Inc.
The termination of Davis Brokerage by Celestial Seasoning, Inc. as a broker for Celestial Seasoning, Inc. products. Awarding the brokerage of Celestial Seasoning, Inc. to Sales and Marketing, Inc.

Interrogatory No. 67 of the same set requests particular facts which support Lo-mar’s answers to Interrogatories 63, 64 and 65. Lomar’s answer states:

In the early part of July, 1981, in Davenport, Iowa, in a Gourmet Foods sales meeting, Gourmet Foods salesmen were instructed to stop selling Celestial Seasoning, Inc. products to customers in Iowa.
On July 8, 1981, Art Stone wrote a letter to Ken Vickerstaff stating he wanted an exclusive distributorship for Celestial Seasoning, Inc. products in Iowa.
Bob Mitchell, store manager for the Dahl’s Market at 3710 Hubbell Avenue, sometime in September, 1981, advised Steve Frede, an employee of plaintiff, that a Gourmet Foods, Inc. salesman had offered to sell him Celestial Seasoning, Inc. products on terms described in the answer to Interrogatory No. 63.

In addition, Lomar asserts that its sales of Celestial products had been increasing steadily prior to termination, that Lomar had never been given any sales goals by Celestial, that Lomar had never been advised that its sales performance was unsatisfactory, and that Lomar was terminated after conversations between Ken Vicker-staff, Art Stone and Geoffrey Michael.

Again, these facts do not reach the standard of proof required by Monsanto Co. and, thus, defendants are entitled to summary judgment as to plaintiff’s section 1 claim relating to the price fixing of Celestial products.

C. Horizontal Territorial Restraints.

Finally, Lomar has asserted that it will prove a conspiracy to engage in horizontal territorial arrangements. Unlike its price-fixing and boycott theories, plaintiff did not devote a section of its Memorandum filed on July 7, 1983 to this theory. Nor is the theory of horizontal territorial arrangements addressed in plaintiff’s Memorandum filed March 30, 1984. In light of the respect plaintiff has shown for this theory, it is enough to say that the facts of this case cannot be strained to show horizontal territorial restraints such as those condemned as unlawful per se in United States v. Topco Associates, 405 U.S. 596, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972).

III. Conclusion.

First, plaintiff’s Sherman Act claim as to Chicago Dietetic products is time barred. Second, plaintiff’s boycott theory as to Dieter’s and Celestial products is more properly characterized as a vertical non-price restriction and thus not subject to the per se rule. Third, with respect to plaintiff's price-fixing theory, plaintiff has failed to produce sufficient evidence to allow for the inference of concerted action to set prices; thus, defendants are entitled to summary judgment on this claim. Accordingly,

IT IS THEREFORE ORDERED that the motion for summary judgment of Defendants Gourmet Foods and Art Stone as to plaintiff’s Sherman Act claim relating to Chicago Dietetic products is hereby granted.

IT IS FURTHER ORDERED that the motion for summary judgment of Defendants Gourmet Food and Art Stone as to plaintiff’s Sherman Act claim in respect to Dieter’s Gourmet Foods, Inc., products is hereby granted.

IT IS FURTHER ORDERED that the motion for summary judgment of Defendants Gourmet Foods and Art Stone as to plaintiff’s Sherman Act claims in respect to Celestial Seasoning, Inc., products is hereby granted.

      . Plaintiff apparently has addressed only the first step, arguing simply that the restraints are tantamount to a boycott and thus illegal per se.

      . Lomar does not explicitly contend that this occurred. Indeed, plaintiffs explanation of the conspiracy has been conclusory and lacking in specifics. Nevertheless, the Court feels obligated, given the standards applicable to summary judgments, to address these possibilities.

      . This Court holds that the difference between terminating á distributorship and refusing to grant a distributorship is not legally significant in the context of the standard of proof required to permit the inference of a price-fixing conspiracy.


source: Caselaw Access Project

license: Public Domain

text:
    LOMAR WHOLESALE GROCERY, INC., Plaintiff, v. DIETER’S GOURMET FOODS, INC., a California Corporation, Gourmet Foods, Inc., a Minnesota Corporation, and Art Stone, President of Gourmet Foods, Inc., Defendants.
    Civ. No. 79-401-E.
    United States District Court, S.D. Iowa, C.D.
    Dec. 27, 1985.

      John P. Roehrick, Donald J. Polden, Ray Sullins, Des Moines, Iowa, for plaintiff.
    John C. Cortesio, Jr., Des Moines, Iowa, Thomas J. Rooney, St. Paul, Minn., Sondra Colligan, Sherman Oaks, Cal., for defendants.
   ORDER

DONALD E. O’BRIEN, Chief Judge.

The Court has before it defendants’ motion for summary judgment on plaintiff’s Robinson-Patman Act claims. On June 10, 1985, this Court filed an Order directing the plaintiff to file a report regarding its characterization of the relevant product market for its Section 2(a) claim. Plaintiff filed such a response and defendants filed a reply to plaintiff’s response. A hearing addressing the Robinson-Patman Act issues was held before the undersigned in Des Moines, Iowa on October 30, 1985 and both parties have submitted post-argument letters to the Court which shall be filed as briefs and made part of the record here. The matter is fully submitted and defendants’ motion for summary judgment is granted.

I. Competitive Injury Requirement.

In a primary line case, the competitive injury requirement of Section 2(a) can be satisfied by (1) actual evidence of injury to competition at the seller’s level shown by market analysis or (2) by showing predatory intent from which the injury to competition can be inferred. See ABA Antitrust Section, Antitrust Law Developments, p. 231 (2d ed. 1984). Lomar argues that it can show both an attempt to monopolize and predatory pricing.

A. Market Analysis.

The Court recognizes that the legal principles to be applied when plaintiff is seeking to show actual competitive injury through market analysis are not a model of clarity. International Air Industries, Inc. v. American Excelsior Co., 517 F.2d 714, 722 n. 14 (5th Cir.1975), cert. denied, 424 U.S. 943, 96 S.Ct. 1411, 47 L.Ed.2d 349 (1976). With this in mind, the Court turns to plaintiff’s theory. Plaintiff contends:

Since the market for specialty foods is comprised of only two firms in the greater Iowa area, Gourmet Foods’ systematic below-cost pricing on the key 180 items would have destroyed Lomar as a competitor and would have created a monopoly for Gourmet Foods.

Plaintiff’s Response, p. 5, Docket No. 245. Plaintiff further contends that

the Plaintiff need show only that the Defendant discriminated in price to its customers and that the discrimination on a particular product or products adversely affected competition by another seller (such as the Plaintiff) of that particular product or products; relevant product market analysis is unimportant except insofar as it permits consideration of whether the Plaintiff and Defendants were competitors and whether the products were of like grade a quality.

Plaintiff’s Response, p. 7. Furthermore, Lomar asserts that defendants’ predatory pricing injured it as a competitor of Gourmet Foods in the market for sales of the 180 items and also for the sale of specialty foods. Id. In its Order filed June 10, 1985, this Court held that “specialty food” was not a relevant product market. However, assuming that such a market did exist, plaintiff has still failed to come forward with evidence required to show competitive injury under the “market analysis” prong. In so holding, the Court relies on D.E. Rogers Associates, Inc. v. Gardner-Denver Co., 718 F.2d 1431, 1439 (6th Cir.1983), and International Air Industries, supra, 517 F.2d at 722-23. As near as this Court can tell, Lomar’s assertion that it was injured in its attempt to sell the 180 items is simply a way of saying that it lost business and profits which, in turn, shows that competition was injured. The diversion of business and the corresponding loss of profits is a natural consequence of honest and vigorous competition. Id. Thus, the Court holds that, despite ample opportunity, plaintiff has failed to come forward with evidence as required by Fed.R.Civ.P. 56(e) to support its theory that it can show anti-competitive effect through market analysis. Consequently, defendants are entitled to summary judgment on this prong of plaintiffs competitive injury theory.

B. Predatory Pricing.

The Court’s Order filed June 10, 1985 did not address plaintiffs claim that it could show the requisite competitive injury by establishing predatory intent through predatory pricing. The Court now addresses that claim. Plaintiff claims that 180 items were sold in violation of the Robinson-Pat-man Act. Plaintiff argues that

the statutory requirement that the Plaintiff demonstrates some actual or probable effect on competition may be satisfied by evidence that the defendant sold a product (or products) in the trade area shared by the Plaintiff and Defendant at a price or prices below cost; an effect on competition is inferred from the below cost pricing.

Plaintiffs Response, p. 3. Plaintiff has submitted a summary to the Court which it asserts shows that four of the five products listed were sold at prices below Gourmet Foods’ out-of-pocket or variable costs.

176 of 180 items. Defendant argues that because plaintiff has presented no evidence of below average variable cost pricing on 176 of the 180 items, that there is no factual issue involving below average variable cost pricing of those 176 items and, thus, defendants are entitled to summary judgment as to those 176 items. The Court agrees and holds that the plaintiff has failed to come forward with evidence as required by Rule 56(e) which would create a triable issue of fact with regard to the 176 items.

Macadamia nuts. The Court holds that the plaintiff cannot rely on a typing transposition in an answer to. an interrogatory to create an issue of fact with respect to below cost pricing of macadamia nuts. There is no genuine issue of fact with respect to the macadamia nuts claim and therefore defendants are entitled to summary judgment on it. See Defendants’ Reply, pp. 6-8, Docket No. 248.

Final three items. With respect to the remaining three items, defendants assert that plaintiffs evidence of below average variable cost prices is based upon incorrect computations of variable cost. Specifically, defendants contend that costs in the categories of legal, administrative, warehouse, advertising and all but $2,200 of the insurance costs were erroneously considered as variable by the plaintiff. In addition, defendants assert that plaintiff erred as to the price per case for the three items. Defendants’ position is set forth on pages 4 through 8 of their Memorandum filed December 11, 1984 (Docket No. 239).

First, defendants’ contend that the price per case which Lomar used as the price at which Gourmet Foods sold the product was taken from a computer reporter prepared in 1983 and reflected 1983 prices. The relevant period for comparing cost to price is September 1, 1981, to October 31, 1982; thus, the 1983 prices are irrelevant in relation to the costs incurred during that period. The correct price information could have been obtained from the answers of defendants to Interrogatory 2a of Lomar’s Third Set (Docket No. 227). The answers reflect that Gourmet Foods was charging prices higher than the figures used by the plaintiff in its summary.

Second, defendants contend plaintiff included items in its computation of variable cost which did not vary with the amount of sales made.

Plaintiff has been aware of these contentions for some time yet has made no attempt to counter them. Indeed, plaintiff’s latest pleading stands pat on the summary and ignores the weaknesses which have been pointed out by the defendants. Plaintiff’s Response, pp. 3-4.

Having reviewed the record, the Court holds that plaintiff has not created a genuine issue of material fact with regard to the predatory pricing claim because the record does not show nor. support the inference that defendants’ prices were below average variable costs. In short, plaintiff’s summary is not supported by the record. In addition, plaintiff has failed to present sufficient evidence which would allow a jury to find predatory intent based on defendants’ conduct. See Conoco, Inc. v. Inman Oil Co., 774 F.2d 895 (8th Cir.1985). Accordingly, defendants are entitled to summary judgment as to the predatory pricing claim.

II. Robinson-Patman Act Section 2(c).

On page 4 of its Memorandum filed July 17, 1984 (Docket No. 224), Lomar states:

Lomar has alleged that the Defendant Art Stone has violated Section 2(c) of the Act by engaging in unlawful brokerage arrangements through the use of food brokerage companies which were nothing but fronts for Art Stone and Gourmet Foods. With respect to this claim Lomar has recently propounded specific interrogatories designed to obtain certain information concerning the operation of Service Brokerage, Inc., and Sales & Marketing, Inc. When the Defendants have answered these interrogatories, Lo-mar will be prepared to respond more fully to Defendants’ Motion for Summary Judgment as it pertains to this point.

Due to time constraints the Section 2(c) claim was not addressed at the November 9,1984 hearing. However, in a letter dated November 30, 1984, plaintiff presented its argument to the Court. In that letter Lo-mar asserted that:

Gourmet Foods and the brokerage firms held themselves out as being the same business entity. That is enough to establish a prima facie case of unlawful receipt of brokerage.
The defendants in this case,' however, argue that Lomar can point to no injury from the alleged brokerage arrangement. In Answers to Interrogatory 2(m) of Plaintiff’s Fourth Set of Interrogator ries, Gourmet Foods reports brokerage payments to Sales and Marketing of over $3,000 in 1981 from Mauna Loa Macadamia Nuts which are the same product that Gourmet Foods was selling below cost in Iowa. This clearly establishes at least one instance of demonstrable injury to Lomar from the brokerage arrangements.

Defendants’ response to plaintiff’s letter is set forth on pages 10-13 of their Memorandum filed December 11, 1984 (Docket No. 239), and asserts that plaintiff has been unable to show an injury and, thus, under 15 U.S.C. § 15(a), lacks standing to assert the Section 2(c) claim. See Abernathy v. Bausch & Lomb, Inc., 97 F.R.D. 470, 475-77 (N.D.Tex.1983). As observed above, plaintiff’s specific contention of injury with respect to the macadamia nuts is erroneous because the record clearly establishes that the sales were not below average variable cost. For this reason and other reasons set forth by defendants in their briefs and its recent response to plaintiff’s letter of November 6, 1985, the Court concludes that Lomar has not established the requisite injury which would' allow it to assert the Section 2(c) claim. Thus, the Court grants defendants summary judgment on this claim.

Since the Court in its Order of June 28, 1985 granted summary judgment on the plaintiff’s Sherman Act claims, all of plaintiff’s claims have now been disposed of.

IT IS THEREFORE ORDERED that the motion for summary judgment of Defendants Gourmet Foods, Inc. and Art Stone as to plaintiff’s Robinson-Patman Act claims is hereby granted.

IT IS FURTHER HEREBY ORDERED that since all claims have been denied, this cause is dismissed at plaintiff’s costs.

IT IS FURTHER HEREBY ORDERED that the letters to the Court submitted by counsel shall be filed with the Clerk of Court as supplemental briefs.


author: ROBERT H. HALL, District Judge.

text:
    Jeannine H. SMITH and Harry B. Smith, Jr., Plaintiffs, v. PAY-FONE SYSTEMS, INC. and Lewis Greenwood, Defendants.
    Civ. A. No. C85-2498A.
    United States District Court, N.D. Georgia, Atlanta Division.
    Aug. 9, 1985.
    Kevin E. Grady, Alston & Bird, Atlanta, Ga., for plaintiffs.
    Steven S. Davis, Bushkin, Gaims, Gaines & Jonas, Los Angeles, Cal., for defendants.
   ORDER

ROBERT H. HALL, District Judge.

This action on a franchise agreement is presently before the court on the following motions: (1) defendants’ motion to stay judicial proceedings pending arbitration; (2) plaintiffs’ motion for default judgment; (3) plaintiffs’ motion to strike the defendants’ motion to stay and (4) plaintiffs’ motion for an injunction staying arbitration. Federal jurisdiction is predicated upon 28 U.S.C. §§ 1331, 1332 and 1337.

FACTS

Defendant Pay-Fone Systems, Inc. (“Pay-Fone”) is a California corporation which provides payroll and other accounting services to customers in California and other states, and which also sells Pay-Fone franchises which allow franchisees to provide payroll services to their own customers under the Pay-Fone banner. Defendant Lewis Greenwood is the president and chief executive officer of Pay-Fone.

On January 24, 1984, the Smiths entered into a franchise agreement with Pay-Fone. On March 11, 1985, Pay-Fone brought suit in California State Court for breach of contract and for a declaratory judgment that the franchise was terminated due to the Smiths’ alleged breach of the agreement. On April 16, 1985, the Smiths removed the case to federal court in California, and subsequently filed a motion to dismiss for lack of personal jurisdiction. On May 31, 1985, Pay-Fone voluntarily dismissed the action without prejudice and on that same date Pay-Fone served its Demand for Arbitration upon the Smiths and upon the American Arbitration Association (the “AAA”).

On April 11, 1985, plaintiffs filed the present action against defendants alleging the following: (1) price-fixing, tying and unfair competition in violation of section 1 of the Sherman Act (15 U.S.C. § 1); (2) racketeering activities in violation of the Racketeer Influenced and Corrupt Organizations Act (RICO, 18 U.S.C. § 1962(c)); (3) fraud and deceit; (4) an unfair trade practice in violation of Georgia law; (5) unfair and deceptive practices in the conduct of trade and commerce in violation of the Georgia Fair Business Practices Act (Ga. Off’l Code Ann. § 10-1-390 et seq); (6) a violation of the Georgia Sale of Business Opportunities Act (Ga. Off’l Code Ann. § 10-1-410 et seq); and (7) breach of contract. By stipulation the parties agreed to extend until June 3, 1985, the time within which defendants could respond to the complaint. On June 5, 1985, defendants filed a motion to stay proceedings pending binding arbitration. Further facts will be disclosed as necessary for the discussion of the pending motions.

DISCUSSION

A) Plaintiffs' Motion for Default and to Strike Defendants’ Motion for a Stay

Plaintiffs’ initial response to defendants’ motion for a stay pending arbitration is that the motion does not satisfy the requirements of an answer under the federal rules and that defendants are therefore in default. In the alternative, plaintiffs move to strike the motion for a stay on timeliness grounds.

It is true that defendants have failed to file answers to plaintiffs’ complaint, as required by Rule 7, Fed.R.Civ.P. In addition, the motion to stay judicial proceedings pending arbitration, while authorized by the Federal Arbitration Act, 9 U.S.C. § 3 (1970), is outside the ambit of those Rule 12(b) motions that suffice as responsive pleadings in lieu of answers. However, federal courts have traditionally entertained certain types of pre-answer motions not specifically provided for in the Federal Rules of Civil Procedure. Included among these are motions to stay proceedings pending arbitration. First Citizens Municipal Corp. v. Pershing Division of Donaldson, Lufkin & Jenrette Securities Corp., 546 F.Supp. 884 (N.D.Ga.1982), see generally 5 C. Wright & A. Miller, Federal Practice and Procedure § 1360 (1969). For this reason, and in consideration of the strong federal policy favoring resolution of disputes on the merits, the court DENIES plaintiffs’ for default.

Alternatively, plaintiffs have moved to strike defendants’ motion for a stay on the ground that it was served two days late. The court DENIES this motion. While in no way condoning defendants’ tardiness, the court finds that the two-day delay is not a sufficient basis on which to strike the motion; again, a resolution on the merits is preferable.

B) Defendants’ Motion for a Stay Pending Arbitration and Plaintiffs’ Motion for an Injunction

Defendants’ motion for a stay and plaintiffs’ motion for an injunction center on the same issue — the arbitrability of the dispute presently before the court. Because a resolution of one motion will necessarily resolve the other motion, the court will discuss the two motions together.

Defendants contend that a stay of these judicial proceedings is appropriate because the dispute before the court is subject to arbitration as provided in the contract between the parties. The contract provides the following arbitration clause:

29. ARBITRATION
Except as may be precluded by specifically applicable law of the state in which the franchise business is located, any controversy, dispute, or claim arising out of or relating to this agreement that cannot be settled between the parties hereto by negotiation shall be settled by binding arbitration in accordance with the rules of and utilizing the services of the American Arbitration Association. The prevailing party in such action shall be entitled to reasonable attorney fees and costs, and judgment upon the award rendered by the arbitrators shall be entered in any court having jurisdiction.

Although this broad arbitration clause appears to require arbitration of the majority of the issues in this case, plaintiffs have advanced several theories to support their contention that the issues in this case are not arbitrable and that in fact arbitration should be enjoined.

Plaintiffs initially argue that, under principles of Georgia law, the arbitration agreement is unenforceable for two reasons: (1) it is too broad and (2) plaintiffs have revoked their consent to be bound by arbitration. Plaintiffs’ reliance on Georgia law is misplaced; instead the agreement is governed by the terms of the Federal Arbitration Act (the “Act”), 9 U.S.C. § 1 et seq (1970). This Act applies whenever there is, as in this case, a “written provision in ... a contract evidencing a transaction involving (interstate) commerce to settle by arbitration a controversy thereafter arising out of such contract_” 9 U.S.C. § 2. This Act specifically provides that such agreements are valid and irrevocable.

As stated by the Supreme Court, the Act “is a congressional declaration of a liberal federal policy favoring arbitration agreements notwithstanding any state substantive or procedural policies to the contrary. The effect of this section is to create a body of federal substantive law of arbitra-bility, applicable to any arbitration agreement within the coverage of the Act.” Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983) (emphasis added).

Plaintiffs contend, however, that Georgia law is applicable in this case despite the well-settled rule that state law is inapplicable in cases falling within the coverage of the Act. Plaintiffs base this contention on the initial language of the arbitration clause, “(e)xcept as may be precluded by specifically applicable law of the state in which the franchise business is locat-ed_” According to plaintiffs, this language makes Georgia law controlling despite the existence of the federal Act. This court disagrees. Numerous federal courts have been presented with a similar argument in cases involving arbitration clauses containing a choice of law provision. The courts have consistently held that the Federal Arbitration Act controls, despite the choice of law provisions. Huber, Hunt & Nichols, Inc. v. Architectural Stone Co., Inc., 625 F.2d 22 (5th Cir.1980); First Citizens Municipal Corp. v. Pershing Division of Donaldson, Lufkin & Jenrette Securities, Corp., 546 F.Supp. 884 (N.D.Ga.1982); see also Northern Illinois Gas Co. v. Airco Industrial Gases, 676 F.2d 270 (7th Cir.1982); Stodolink v. Yankee Barn Homes, Inc., 574 F.Supp. 557 (D.Conn.1983); Romnes v. Bache & Co., Inc., 439 F.Supp. 833 (W.D.Wis.1977). This court agrees that the federal Act controls, despite the language of the contract. Adherance to the language of this arbitration clause would result in a state preemption of federal law in all cases of inconsistencies. As such the Federal Arbitration Act would be rendered meaningless.

Plaintiffs next present certain equitable defenses to enforcement of the arbitration provision. Plaintiffs argue that enforcement of the arbitration provision is barred by the doctrines of unclean hands, laches and/or waiver. The court sees no merit to the first two theories and will focus its discussion solely on plaintiffs’ waiver argument.

Plaintiffs contend that by instituting the California litigation defendants have waived their right to arbitration. Certainly arbitration is a contractual right which the parties may waive, however, in federal court the filing of an action does not necessarily constitute a waiver. In the present case the court concludes that there was no waiver, for two reasons. First, the court finds that Pay-Fone did not “substantially invok(e) the litigation machinery” by instituting the California lawsuit, so as to necessitate a finding of waiver. While Pay-Fone’s actions were initially inconsistent with the right to arbitrate, within three months of instituting the California lawsuit Pay-Fone dismissed it and moved for arbitration. During this period the Smiths had not answered or made any motions on the merits, but had merely moved to dismiss for lack of personal jurisdiction. In light of the strong federal policy favoring arbitration, the court declines to find this action tantamount to a waiver. See e.g., Merrill Lynch, Pierce, Fenner & Smith Inc. v. Lecopulos, 553 F.2d 842 (2nd Cir.1977) (finding no waiver where there had been no answer on the merits).

Second, even if the institution of the lawsuit were seen as a substantial invocation of the litigation machinery this would not necessitate a finding of waiver. Because of the strong federal policy favoring arbitration there must not only be an act inconsistent with the right to arbitrate (e.g., institution of a lawsuit) but also substantial prejudice to the other party. Reid Burton Construction, Inc. v. Carpenters District Council, 614 F.2d 698 (10th Cir.), cert denied 449 U.S. 824, 101 S.Ct. 85, 66 L.Ed.2d 27 (1980); Shinto Shipping Co. v. Fibrex & Shipping Co., 572 F.2d 1328 (9th Cir.1978); Carolina Throwing Co. v. S&E Novelty Corp., 442 F.2d 329 (4th Cir.1971); ITT World Communications Inc. v. Communications Workers, 422 F.2d 77 (2nd Cir.1970); see also Belke v. Merrill Lynch, Pierce, Fenner & Smith, 693 F.2d 1023 (11th Cir.1982) (implicitly adopting the prejudice requirement, n. 2).

In the present ease the court fails to see the substantial prejudice to the plaintiffs, defendants in the California action. Plaintiffs contend that they were substantially prejudiced in that they expended sums in removing to federal court, in retaining local counsel and in filing the motion to dismiss. As plaintiffs have not documented the amounts expended in defending the California suit the court is unable to gauge their substantiality. In any event the court is not convinced that merely defending a lawsuit to the point of a motion to dismiss for lack of personal jurisdiction is the type of substantia] prejudice necessary to find a waiver, especially in light of the federal policy favoring arbitration. For these reasons the court rules that defendants herein have not waived their right to arbitration.

Plaintiffs’ final argument is that this dispute is not arbitrable because the antitrust claims, which are non-arbitrable, permeate the entire complaint. It is true that in the past the Eleventh Circuit has applied the “intertwining” doctrine, a judicially created exception to the Federal Arbitration Acts’ command that a district court stay proceedings pending arbitration. 9 U.S.C. § 3. Under the intertwining doctrine when arbitrable and non-arbitrable claims arise from the same transaction and are inextricably intertwined factually and legally the court may, in its discretion, deny arbitration as to the arbitrable claims and try all the claims together in federal court. Sibley v. Tandy Corp., 543 F.2d 540 (5th Cir.1976) cert denied, 434 U.S. 824, 98 S.Ct. 71, 54 L.Ed.2d 82 (1977) (involving federal securities claims, which arguably are non-arbitrable). The Supreme Court has recently expressly rejected the intertwining doctrine. In Dean Witter Reynolds Inc. v. Byrd, — U.S.-, 105 S.Ct. 1238, 84 L.Ed.2d 158 (1985), a case not cited by either party, the Court held that in cases involving both arbitrable and non-arbitrable claims “the Arbitration Act requires district courts to compel arbitration of pendent arbitrable claims when one of the parties files a motion to compel, even where the result would be the possibly inefficient maintenance of separate proceedings in different forums.” Id., 105 S.Ct. at 1241. The effect of this decision on the present case is to require a denial of plaintiffs’ motion, to the extent that it seeks a total injunction; the mere fact that plaintiffs’ antitrust claims may be intertwined with the arbitrable claims is no longer a basis for denying arbitration.

The next issue, therefore, is whether the court should stay the judicial proceedings on the non-arbitrable claims pending the arbitration. The court sees no reason to do this. The court finds Justice White’s concurring opinion in Dean Witter instructive on this point:

The Court’s opinion makes it clear that a District Court should not stay arbitration, or refuse to compel it at all, for fear of its preclusive effect. And I can perceive few, if any, other possible reasons for staying the arbitration pending the outcome of the lawsuit. Belated enforcement of the arbitration clause, though a less substantial interference than a refusal to enforce it at all, nonetheless significantly disappoints the expectations of the parties and frustrates the clear purpose of their agreement. In addition, once it is decided that the two proceedings are to go forward independently, the concern for speedy resolution suggests that neither should be delayed. While the impossibility of the lawyers being in two places at once may require some accommodation in scheduling, it seems to me that the heavy presumption should be that the arbitration and the lawsuit will each proceed in its normal course.

Id. at 1245. See also Dimenstien v. Whiteman, 759 F.2d 1514 (11th Cir.1985) (an apparent adoption of Justice White’s view).

For these reasons the court rules as follows. To the extent defendants’ motion seeks a stay of the entire judicial proceedings, it is DENIED. The court will stay the proceedings as to the arbitrable claims. However, the parties are DIRECTED to proceed in this forum on plaintiffs’ antitrust claims. Defendants should file their answers by August 29, 1985. To the extent that plaintiffs’ motion seeks to enjoin all arbitration, it is DENIED. The court will enjoin arbitration of the non-arbitrable antitrust claims. However, the parties are DIRECTED to proceed to arbitration on the arbitrable issues. Additionally, the parties are instructed to keep the court apprised of the progress of the arbitration and to provide the court with a copy of the arbitrator’s final decision.

In summary, the court:
1) DENIES plaintiffs’ motion for a default judgment;
2) DENIES plaintiffs’ motion to strike defendants’ motion to stay;
3) DENIES defendants’ motion to stay these procéedings pending arbitration (see the discussion, supra for clarification); and
4)DENIES plaintiffs’ motion to enjoin arbitration (see the discussion, supra for clarification).

      . For the sake of clarity, the court will refer to the parties by their names when referring to the California litigation and by their designation as plaintiffs or defendants when referring to the present action.

      . The court is aware that plaintiffs’ antitrust claims are not arbitrable. See discussion, infra pp. 125-126.

      . E.C. Ernst, Inc. v. Manhatten Construction Co., 559 F.2d 268, 269 (5th Cir.1977), in which the court held that waiting two and one-half years after suit had been brought to request arbitration amounted to a waiver.

      .Plaintiffs do contend, in their reply brief filed July 12, 1985, that their attorneys' fees already exceed $8,000. They have not documented this amount. Moreover, plaintiffs admit that this amount includes attorneys’ fees for the present litigation, in which, as the court is well aware, extensive briefing has been filed. Plaintiffs appear to argue that the fees in this action are also a prejudice because "plaintiffs relied upon defendants’ conduct [an act inconsistent with the defendants’ intention to arbitrate] when plaintiffs decided to file suit in this court.” (Plaintiffs’ Reply Brief, p. 13). The court is not convinced by this argument. Plaintiffs could themselves have demanded arbitration and avoided these litigation expenses. Moreover, as plaintiffs have pointed out, all plaintiffs’ claims are not arbitrable and therefore plaintiff would have had to resort to litigation in order to pursue the antitrust claim.

      . Cobb v. Lewis, 488 F.2d 41 (5th Cir.1974).

      . Section 3 of the Federal Arbitration Act provides:
      If any suit or proceeding be brought in any of the courts of the United States upon any issue referable to arbitration under an agreement in writing for such arbitration, the court in which such suit is pending, upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement, shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, provided the applicant for the stay is not in default in proceeding with such arbitration,
      (emphasis added)

      . But see Shihadeh v. Dean Witter Reynolds, Inc., 766 F.2d 461 (11th Cir.1985), in which a different panel of the Eleventh Circuit declined to decide this issue. Instead, the case was remanded to allow the district court to decide it. After careful consideration of relevant Eleventh Circuit caselaw, including Raiford v. Buslease, 745 F.2d 1419 (11th Cir.1984), this court has adopted Justice White's view, particularly in light of the Court’s statements in Dean Witter concerning the possible preclusive effect of an arbitrator's decision. Id., — U.S. -, 105 S.Ct. at 1243-44.


author: McCUNE, District Judge.

text:
    EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, Plaintiff, v. JONES & LAUGHLIN STEEL CORPORATION, Defendant.
    Civ. A. No. 84-1851.
    United States District Court, W.D. Pennsylvania.
    Aug. 15, 1985.

      Henry Koltys, E.E.O.C., Philadelphia, Pa., for plaintiff.
    John C. Unkovic, Pittsburgh, Pa., for defendant.
   MEMORANDUM

McCUNE, District Judge.

In this action brought under Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000 e et seq., the plaintiff, Equal Employment Opportunity Commission and charging party, Nancy Herdt, allege that the defendant, Jones & Laugh-lin Steel Corporation (J & L), engaged in employment practices which discriminated against women.

We consider the defendant’s motion for summary judgment.

Facts

The plaintiff was employed by J&L from July of 1950 until February of 1983 at which time she was laid off from her position as a Customer Service Correspondent (CSC) at J & L’s Aliquippa Works 14" Mill.

Following plaintiffs layoff a male employee, Larry Musante, who had been on “Layoff-Recall Likely,” was called back to replace the plaintiff.

The plaintiff shortly thereafter filed a sex discrimination complaint with the EEOC alleging that she (1) belongs to a protected group (female), (2) she was performing her job in a satisfactory manner, and (3) she was laid off in order to rehire a male employee.

In response to these charges the defendant contends that due to economic conditions, plaintiff’s unwillingness to perform certain down river duties and her overall performance, it was in the best interest of the corporation to lay off the plaintiff and recall Musante, who was judged to be the most productive, flexible and qualified for the CSC position. The defendant submits that the plaintiff’s sex was not a factor in determining which employees would be retained. Based on the above, the defendant contends that it has rebutted the plaintiff's prima facie case and further argues that since the plaintiff has not offered any evidence of pretext it is entitled to summary judgment as a matter of law.

Discussion

The Third Circuit Court of Appeals has recently held that a prima facie case is easily made out in a Title VII suit. All that parties alleging a discriminatory layoff need show is that they were laid off from a job for which they were qualified while others not in the protected class were retained. Bellissimo v. Westinghouse Electric Corp., et al., 764 F.2d 175 (3d Cir.1985).

We find that the plaintiff has made out a prima facie case. Mrs. Herdt has shown, and the defendant cannot dispute, that she was laid off from a position which she was satisfactorily performing and that she was replaced by a man.

A layoff, however, is not per se disparate treatment. It violates Title VII only if it is made on a basis that would not result in the layoff of a male employee. Bellissimo, supra citing Moore v. City of Charlotte, 754 F.2d 1100, 1106, 1110 (4th Cir.1985).

In order to rebutt the inference of discrimination raised in the plaintiff’s prima facie showing, the defendant must set forth valid, non-discriminatory reasons for its actions. Texas Department of Community Affairs v. Burdine, 450 U.S. 248, 101 S.Ct. 1089, 67 L.Ed.2d 207 (1981).

In the instant case it is undisputed that from 1981 to 1983, J & L experienced a serious decline in its business. This decline in business resulted in a reduction in the number of salaried employees at the defendant’s Aliquippa works.

J & L adhered to the policy of retaining those employees who best met its needs based on the individual's experience, performance, skills and ability.

The plaintiff’s replacement, Larry Mu-sante, was at one time a Correspondent, Chief Correspondent and plaintiff’s Supervisor at the 14" Mill. He later was Chief Correspondent at the Seamless Tube Plant but due to a poor seamless tube market his position was eliminated and he was placed on “Layoff-Recall Likely.” Musante was rated as “Beyond Full Standards” while Chief Correspondent at both the 14" Mill and Seamless Tube operation and had ex-cellant evaluations through most of his career. Thus one could reasonably conclude that although the plaintiff was a good employee, Musante was the more experienced and qualified.

In reviewing the affidavits, depositions and other evidence of record we find support for the defendant’s position and conclude that the defendant has set forth valid, non-discriminatory reasons for its actions, thus shifting the burden to the plaintiff to demonstrate that the reasons set forth by the defendant were a mere pretext for discrimination.

It is at this stage of the shifting burden of proof that the plaintiff has difficulty in making out its case. Although the plaintiff contends in its briefs that there are issues of fact to be determined regarding whether Musante was truly the better employee, the plaintiff fails to offer any evidence which rebutts the deposition testimony and documentary evidence submitted by the defendant which supports defendant’s position. The plaintiff merely argues that it should be given the opportunity to show that this is mere pretext without offering any evidence which raises a genuine issue of fact.

Furthermore, the plaintiff stipulated at the pretrial conference held in the instant case that its only evidence of discrimination is the testimony of the plaintiff. The plaintiff can point to no specific facts other than her own speculation that shows sex discrimination.

Plaintiff specifically denies ever being told that she was laid off because of her sex and does not possess any documents that would support her claim other than those already made a part of the record.

Plaintiff attempts to raise an issue of fact in a footnote on page 7 of her second response to defendant’s motion for summary judgment by stating that she will show at trial that the few female CSC’s with the defendant were also replaced by males. Plaintiff fails to support this contention, however, with any evidence whatsoever. It is well settled that a party may not raise a genuine issue of fact by merely stating so in its brief, but must by affidavit or otherwise set forth specific facts showing there is a genuine issue for trial. Ness v. Marshall, 660 F.2d 517, 519 (3d Cir.1981). Plaintiff has failed to do this.

Setting forth a prima facie case of discrimination does not preclude the entering of summary judgment. Graham v. F.B. Leopold Company, Inc., 602 F.Supp. 1423 (W.D.Pa.1985). When the defendant sets forth valid, non-discriminatory reasons for its actions, which are supported by the record, the ultimate burden to show pretext rests with the plaintiff. In the instant case, the plaintiff has failed to offer any evidence which raises a genuine issue of fact regarding whether the reasons offered by the defendant for the layoff were pre-textual.

Absent any genuine issue of material fact, the defendant is entitled to a judgment as a matter of law.

      . For ease of discussion the EEOC and charging party will be referred to collectively as the plaintiff.