Mathias v. Daily News, L.P.

152 F.Supp.2d 465

Francis MATHIAS, Weimar News Delivery, Inc., Lucian Debonis, Debonis News Home Delivery, Inc. Tom Winter, Tomco Newspaper Delivery, Christine Destefano, Chrisco News Home Delivery Service, Joseph Fay, Christopher Cirri, Joseph Parrinello, C & F Newspaper Home Delivery Service, Inc., Christos Matiatos, Dawn News, Inc., Paul D'Agostino, C.C. Swen, Inc., Nick Calabrese, C & G News, Inc. Daniel Scalero, D & L News, Michael D'Esposito, D'Esposito Daily News, Maria Gagolewski, M.N.S. News, Nick Destanis, Dn Home Delivery, Katherine Geissler, G & G News, Inc., Pasquale Campinelli, Camris, Inc., Douglas A. Barr, Princewood Home Delivery, Inc., Joseph Lioce, Plaintiffs, v. DAILY NEWS, L.P., John Doe and Jane Doe # 1-50, Defendants.

No. 00 CIV. 1305(VM).

United States District Court, S.D. New York.

July 23, 2001.

COPYRIGHT MATERIAL OMITTED

Andrew J. Campanelli, Perry, Kearon & Campanelli, L.L.P., Westbury, NY, for Plaintiffs.

DECISION AND ORDER

MARRERO, District Judge.

I. INTRODUCTION

This case originated in New York State Supreme Court, Richmond County, where plaintiffs, a group of independent newspaper delivery firms (the "Carriers"), alleged that defendant Daily News, L.P. (the "Daily News") breached its contractual obligations with respect to certain independent home delivery agreements in force with the Carriers. After discovery and some motion practice, the Carriers filed a parallel action in this Court alleging essentially the same wrongful conduct, but adding a number of claims under § 2 of the Clayton Act,¹ as amended by § 1 of the Robinson-Patman Act,² and §§ 1 and 2 of the Sherman Act.³

The Carriers allege five causes of action under federal law in this Court, numbered and labeled as follows:

• First: "Indirect Price Discrimination," in violation of § 2(a) of the Clayton Act, also referred to as the "primary-line price discrimination claim."

• Second: "Price Discrimination—Treble Damages and Injunction," pursuant to §§ 2(a), (d) and (e)⁴ of the Clayton Act, also referred to as the "secondary-line price discrimination claim."

• Third: "Conspiracy in restraint of trade," in violation of § 1 of the Sherman Act.

• Fourth: "Further Conspiracy in restraint of Trade," in violation of § 2 of the Sherman Act, or the "monopolization claims."

• Twelfth: "Vertical restraint of trade, monopolization, and price-fixing," which the Court refers to as the "maximum resale price maintenance claim."⁵

The Daily News now moves under Rule 12(b)(6) of the Federal Rules of Civil Procedure (hereinafter the "Daily News's Motion") for dismissal of all federal claims for failure to state a claim for relief and, consequently, for dismissal of the remaining state law claims on the ground that the exercise of supplemental jurisdiction would be improper. Alternatively, the Daily News moves for a stay of all proceedings pending disposition of the original action in state court. In addition, a group of purported individual defendants move pursuant to Rules 12(b)(4) and (b)(5) of the Federal Rules of Civil Procedure to dismiss the complaint because of purported deficiencies in service of process (hereinafter the "Individual Defendants' Motion").

For the reasons set forth below, the Daily News's Motion is granted as to the Carriers' First, Third, Fourth and Twelfth causes of action. The only viable federal cause of action that remains against the Daily News is the Carriers' Second claim alleging secondary-line price discrimination. Because the Court sustains this claim, dismissal of the state law claims is unwarranted at this time. Furthermore, the Individual Defendants' Motion is granted. The Carriers are granted leave to file an amended complaint within 20 days of the date of this Decision and Order.

II. FACTS AND PROCEDURAL HISTORY

The Carriers are residents of the State of New York and are engaged in the business of newspaper home delivery in Brooklyn and Staten Island. (Compl.¶¶ 4-36). The Daily News publishes, markets and distributes the Daily News (the "Newspaper") and has its principal place of business in the State of New York. (Compl.¶¶ 37, 39). Defendants John Doe Nos. 1-50 and Jane Doe Nos. 1-50 (the "Alternate Carriers") are engaged in the business of home delivery of the Newspaper, either as employees, agents, or independent carriers. (Compl.¶ 38).

Since the 1960's, the Daily News has distributed the Newspaper through a number of independent contractors who signed "Carrier Agreements," granting the contractors primary responsibility for home delivery of the Newspaper in specifically defined territories. (Compl.¶¶ 40-42). All of the Carriers have signed such Carrier Agreements with the Daily News. (Compl.¶ 44). Pursuant to these agreements, the Carriers are solely responsible for billing (including setting the price) and collecting remittance from their home delivery customers. (Compl.¶ 46(L)). The Carrier Agreements provide that nothing in the contracts shall "restrict the right of either party to buy from or sell to any person anywhere other copies of the News ...." Defendants' Notice of Motion to Dismiss, dated May 31, 2000, Ex. C, section III.

Since approximately 1995, the Daily News has implemented a "pay-by-mail" program, under which it sells the Newspaper directly to customers. (Compl.¶ 46(M)). Under this program, the Daily News mails bills directly to customers and directs these customers to mail payments directly back to it. (Compl.¶ 46(P)). The Daily News then pays either the Carriers or the Alternate Carriers a fee to deliver a copy of the Newspaper to each customer. (Compl.¶¶ 46(O) & (P)). Although not clearly stated in the complaint, the Carriers suggest that there is at least one other possible mode of distribution for pay-by-mail, that is, sales of the Newspaper to other independent delivery firms which, in turn, resell directly to the customer. (Compl.¶ 46(B)). The Carriers contend that this "pay-by-mail" program places the Daily News in direct competition with the Carriers for the sale of the Newspaper to home delivery customers. (Compl.¶¶ 51, 52).

According to the Carriers, after entering the market for direct sales to customers, the Daily News adopted new business practices designed to hamper the Carriers' ability to compete. These practices include (1) changing the methods and schedules for delivery of the Newspaper to independent carriers; (2) instituting a computer-based information tracking system, also known as "DISCUS," without properly training the Carriers and failing to grant them access to that vital information; (3) adopting a centralized customer complaint system which impeded the Carriers' ability to respond to their customers' service concerns; and (4) improperly retaining gratuities earmarked for the Carriers' delivery personnel. (Compl.¶¶ 46(E)-(P)).

The Carriers also accuse the Daily News of serious violations of the antitrust laws. They allege that the Daily News has sold the Newspaper to the Alternate Carriers and other home delivery customers at below-cost prices or at prices not yielding a reasonable return. (Compl.¶¶ 46(A) & (B)). Further, they assert that the Daily News has guaranteed below-cost pricing to favored carriers for long periods of time, sometimes more than a year, but that the Daily News has never offered these preferential prices to the Carriers. (Compl.¶ 46(B)).

The Carriers also assert that the Daily News conspired with others to systematically exclude them from the home delivery business and that the Carriers were forced to buy the Newspaper from the Daily News at "unreasonably high prices." (Compl.¶¶ 71, 72). Finally, the Carriers allege that the Daily News fixed and maintained the prices at which the Carriers could sell the Newspaper to customers and that they were injured because they were prevented from charging more than the Daily News's price. (Compl.¶¶ 164(D), 166-67).

The Daily News's Motion asserts that none of the five federal causes of action sufficiently pleads violations of the antitrust laws. The Individual Defendants also move to dismiss the complaint for improper service of process.

III. STANDARD OF REVIEW UNDER RULE 12(b)(6)

In considering a motion to dismiss under Rule 12(b)(6), the Court is obliged to accept the well-pleaded assertions of fact in the complaint as true and to draw all reasonable inferences and resolve doubts in favor of the non-moving party. See Kaluczky v. City of White Plains, 57 F.3d 202, 206 (2d Cir.1995) (citations omitted); Global Discount Travel, L.L.C. v. Trans World Airlines, Inc., 960 F.Supp. 701, 704 (S.D.N.Y.1997) (citations omitted). The focus of the Court's inquiry is not whether plaintiffs will ultimately prevail, but whether the claimants are entitled to an opportunity to offer evidence in support of their claims. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974), overruled on other grounds, Davis v. Scherer, 468 U.S. 183, 104 S.Ct. 3012, 82 L.Ed.2d 139 (1984). Therefore, a motion to dismiss must be denied "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Id. (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)).

Under the Federal Rules of Civil Procedure, the standard for assessing the sufficiency of a complaint in an antitrust action is the same as in any other case: "a short, plain statement of a claim for relief which gives notice to the opposing party is all that is necessary." See George C. Frey Ready-Mixed Concrete, Inc. v. Pine Hill Concrete Mix Corp., 554 F.2d 551, 554 (2d Cir.1977); Global Discount Travel, 960 F.Supp. at 704; Fed.R.Civ.P. 8(a). Nevertheless, courts have warned that "conclusory allegations which merely recite the litany of antitrust will not suffice. This court retains the power to insist upon some specificity in pleading before allowing a potentially massive factual controversy to proceed." John's Insulation,...