A Challenge to Conglomerates: Private Treble Damages Suits

Loyola Marymount University and Loyola Law School Digital Commons at Loyola Marymount University and Loyola Law School Loyola of Los Angeles Law Review Law Reviews 4-1-1970 A Challenge to Conglomerates: Private Treble Damages Suits James C. Thomas Recommended Citation James C. Thomas, A Challenge to Conglomerates: Private Treble Damages Suits, 3 Loy. L.A. L. Rev. 292 (1970). Available at: https://digitalcommons.lmu.edu/llr/vol3/iss2/9 This Symposium is brought to you for free and open access by the Law Reviews at Digital Commons @ Loyola Marymount University and Loyola Law School. It has been accepted for inclusion in Loyola of Los Angeles Law Review by an authorized administrator of Digital Commons@Loyola Marymount University and Loyola Law School. For more information, please contact . A CHALLENGE TO CONGLOMERATES: PRIVATE TREBLE DAMAGES SUITS by James C. Thomas* I. INTRODUCTION Section 7 of the Clayton Act1 allows the United States Government to attack a proposed or completed merger which may potentially lead to violation of the policy of the antitrust statutes. The remedy for violation in the case of a completed merger is a divestiture order and such orders have been granted on the authority of Section 7.2 One of the better known decisions requiring divestiture is United States v. E. I. du Pont de Nemours & Co.,3 wherein Du Pont was required to divest its shares of General Motors Corporation stock. Notwithstanding the success of the government in obtaining such orders private litigants have encountered difficulty in bringing a cause of action under Section 7. In 1963, a federal district court in Gottesman v. General Motors Corp.4 noted that, "[t]here can be no claim for money damages for a violation of Section 7 [of the Clayton Act]."'5 While the Gottesman words were dictum,6 they evidence a general judicial hostility toward treble damage suits brought by private litigants. These words were reiterated, again in dictum, by the Eighth Circuit in Highland Supply Corp. v. Reynolds Metals Co.,7 the court inferring that private litigants have no standing to attack an alleged violation of Section 7 of the Clayton Act." Since Gottesman and Highland Supply, two other courts have denied private litigants relief under Section 7. In Bailey's Bakery, Ltd. v. Continental Baking Co.,9 the Hawaii Federal District Court, in a decision * Professor of Law, University of Tulsa School of Law. 1 15 U.S.C. § 18 (1964). 2 See, e.g., Utah Pub. Serv. Comm'n v. El Paso Natural Gas Co., 395 U.S. 464 (1969); United States v. E.I. du Pont de Nemours Co., 353 U.S. 586 (1957). 3 353 U.S. 586 (1957). 4 221 F. Supp. 488 (S.D.N.Y. 1963), cert. denied, 379 U.S. 882 (1964). 5 Id. at 493. 6 This case involved a pre-trial evidentiary issue; it was not a final determination. For the District Court's holding on the merits see 279 F. Supp. 361 (S.D.N.Y. 1967). 7 327 F.2d 725 (8th Cir. 1964). 8 Id. at 728 n.3. 9 235 F. Supp. 705 (D. Hawaii 1964), affd mem. 401 F.2d 182 (9th Cir. 1968), cert. denied, 393 U.S. 1086 (1969). 292 1970] A CHALLENGE TO CONGLOMERATES affirmed by the Ninth Circuit, 10 reasoned that treble damages must be denied because the injury was caused by practices subsequent to the acquisition and not by the acquisition itself.11 Dairy Foods Inc. v. Farmers Co-Operative Creamery,'2 decided in April of 1969, is the latest case holding against private litigants in Section 7 cases on theories analogous to those of Gottesman and Highland Supply. In each of these cases the underlying reason for denying treble damages to private plaintiffs was that Section 7 of the Clayton Act is directed at potential rather than actual competitive injury. Since one is not permitted to recover damages for potential injury, a private litigant under this narrow interpretation of the statute, cannot sustain the burden of proving damages. This position is not without logic. Section 7 of the Clayton Act prohibits only those acquisitions where the effect "may be substantially to lessen competition, or to tend to create a monopoly."'" If emphasis is placed on the words "may be" and "tend", one can technically conclude that the statutory proscription is directed at potential rather than actual lessening of competition. 1 4 If one accepts this conclusion it is logical to state that injury to a plaintiff resulting from a corporate acquisition is speculative and therefore not actionable. The Second Circuit, considering Gottesman on appeal, thought differently.' 5 While agreeing with other courts and the trial court that, "a violation of Section 7 of the Clayton Act does not furnish a basis for a claim for money damages under the broad language of Section 4 of the Act,"' 0 the court did allow the plaintiff to show actual damage after a Section 7 violation had been established. Thus if a private litigant can show that an acquisition violated Section 7 and subsequent to that acquisition the potential damage became actual, a cause of action for treble damages lies under Section 417 of the Act. The Second Circuit's decision in Gottesman answers some of the criticism leveled at the concept that a private litigant cannot recover 10 401 F.2d 182 (9th Cir. 1968) (per curium). 11 235 F. Supp. at 717. 12 298 F. Supp. 774 0D. Minn. 1969). See also Bowl America Inc. v. Fair Lanes, Inc., 299 F. Supp. 1080, 1095-96 (D. Md. 1969), where the court by resorting to the Sherman Act avoided the issue. 13 15 U.S.C. § 18 (1964). 14 See United States v. El Paso Natural Gas Co., 376 U.S. 651 (1964); Brown Shoe Co. v. United States, 370 U.S. 294 (1962). 15 Gottesman v. General Motors Corp., 414 F.2d 956 (2d Cir. 1969). 16 Id. at 960-61. '7 15 U.S.C. § 15 (1964). LOYOLA UNIVERSITY LAW REVIEW [Vol. 3 damages under Section 7. This viewpoint makes as much sense as saying that one who gives another poison cannot be held for murder because, death does not come from the giving of poison, it's the after affects that kill. The logic of Bailey's Bakery, Highland Supply, and the federal district court in Gottesman, are reminiscent of the interpretive technique followed in the case where a defendant charged with leaving the scene of an accident, was released because the person struck by his automobile was killed instantly thereby leaving no one to receive his report.' 8 The "no standing" doctrine has been dismissed by some courts as an illogical interpretation of the statute."9 This rejection comes from the same court, but different judges, that handed down the decision in Gottesman. More recently the idea that private plaintiffs should be prohibited from recovering treble damages in cases involving Section 7 violations was rejected by the Fifth Circuit in Dailey v. Quality School Plan, Inc.20 Without specifically discussing the question, the United States Supreme Court in Minnesota Mining and Manufacturing Co. v. New Jersey Wood Finishing Co.,2 1 apparently assumed that treble damages were available to plaintiffs injured by a corporate a (...truncated)