United Magazine v. Murdoch Magazines Distribution

Page 385

146 F.Supp.2d 385

UNITED MAGAZINE COMPANY, the Stoll Companies, Michiana News Service, Inc., Geo. R. Klein News Co., Central News Company, and the Scherer Companies, Plaintiffs, v. MURDOCH MAGAZINES DISTRIBUTION, INC., TV Guide Distribution, Inc., Curtis Circulation Company, Comag Marketing Group, LLC, Hearst Distribution Group, Inc., Kable News Company, Inc., Time Distribution Services, Inc., Warner Publisher Services, Inc., and Chas. Levy Circulating Co., Defendants.

No. 00 Civ. 3367(AGS).

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

May 31, 2001.

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Carl E. Person, New York City, for Plaintiffs.

Philip G. Barber, Constantine & Partners, P.C., New York City, for Defendants Murdoch Magazines Distribution, Inc. and TV Guide Distribution, Inc.

George G. Gordon, Dechert Price & Rhoads, New York City, for Defendant Curtis Circulation Company.

Lawrence I. Fox, McDermott, Will & Emery, New York City, for Defendants Comag Marketing Group, LLC and Hearst Distribution Group, Inc.

I. Michael Bayda, Jacobs Persinger & Parker, New York City, for Defendant Kable News Company, Inc.

Irving Scher, Weil, Gotshal & Manges LLP, New York City, for Defendants Time Distribution Services, Inc. and Warner Publisher Services, Inc.

Richard L. Fenton, Sonnenschein Nath & Rosenthal, New York City, for Defendant Chas. Levy Circulating Co.

OPINION AND ORDER

SCHWARTZ, District Judge.

Plaintiffs, related companies in the magazine and book wholesale business, allege that defendants, a wholesaler and various magazine and book distributors, have violated antitrust laws, breached certain contracts, and committed certain torts. The wholesaler, defendant Chas. Levy Circulating Co. ("Levy"), and the distributor defendants (collectively the "Distributors") each move, pursuant to Rule 12(b)(6), to dismiss the claims against them respectively in the Amended Complaint. For the reasons set forth below, defendants' motions are granted.

I. THE PARTIES

Plaintiff United Magazine Company ("Unimag") is an Ohio corporation with its principal place of business in Ohio. (Am. Compl.¶ 6.) Unimag directly or indirectly owns all of the stock of each of the other plaintiffs. (Id.) Plaintiff The Stoll Companies ("Stoll") is an Ohio corporation with its principal place of business in Ohio. (Id. ¶ 9.) Plaintiff Michiana News Service, Inc. ("Michiana") is a Michigan corporation with its principal place of business in Ohio. (Id. ¶ 11.) Plaintiff Geo. R. Klein News Co. ("Klein") is an Ohio corporation with its principal place of business in Ohio. (Id. ¶ 13.) Plaintiff Central News Company ("Central") is an Ohio corporation with its principal place of business in Ohio. (Id. ¶ 15.) Plaintiff The Scherer Companies ("Scherer") is a Delaware corporation with its principal place of business in Ohio. (Id. ¶ 19.)

Defendant Murdoch Magazines Distribution, Inc. and defendant TV Guide Distribution, Inc. (together "Murdoch") are Delaware corporations with their principal places of business in New York. (Id. ¶¶ 24-25.) Defendant Curtis Circulation Company ("Curtis") is a Delaware corporation with its principal place of business in New Jersey. (Id. ¶ 26.) Defendant Hearst Distribution, Inc. and defendant Comag Marketing Group, LLC (together "Hearst") are Delaware corporations with their principal places of business in New York. (Id. ¶¶ 27-28.) Defendant Kable News Company, Inc. ("Kable") is an Illinois corporation with its principal place of business in New York. (Id. ¶ 29.) Defendant Time Distribution Services, Inc. ("Time") is a Delaware corporation with its principal place of business in New York. (Id. ¶ 30.) Defendant Warner Publisher Services, Inc. ("Warner") is a New York corporation with its principal place of business in New York. (Id. ¶ 31.) (Time and Warner will hereinafter together be referred to as "Time Warner."¹) Defendant Levy is an Illinois partnership with its principal place of business in Illinois. (Id. ¶ 34.)

II. BACKGROUND

The facts set forth below are taken from the Amended Complaint. All of the parties herein are involved in the magazine and book distribution industry, the structure of which forms the factual background of this action. Each magazine or book (together "publication") is published by a specific publisher. (E.g. Time-Warner, Inc. publishes Time.) (Am.Compl. ¶ 38.I.) Each publisher then sells specific publication titles to a particular distributor. Commonly, publication titles are available from only one distributor. (E.g. TV Guide is only available from Murdoch.) (Am. Compl.¶¶ 38.G, 46.) Distributors then resell the publications to wholesalers at a discount off of the cover price. (Id. ¶ 52.) Distributors determine the wholesalers to which titles will be sold, and in what quantity. (Id. ¶ 46.) Wholesalers, in turn, resell the publications to retailers at a smaller discount off the cover price than the wholesalers receive from the distributors. (Id. ¶ 52.) Wholesalers are responsible, at their own expense, for allocating the publications among retailers, physically distributing the publications to retail locations, and arranging the publications in display racks. (Id. ¶¶ 47-48.) Retailers then sell the publications to consumers at the cover price. (Id. ¶ 52.)

Any publications unsold at the end of their respective shelf lives are removed from retail locations by the wholesalers, at the wholesalers' expense. The wholesalers are then responsible for disposing of the unsold publications and certifying such disposal to the distributors. Certification may entail removing the cover of each unsold publication and shipping the covers back to the particular distributor, or scanning the UPC codes on the unsold publications and sending the distributor an affidavit stating that the wholesaler disposed of the particular publications properly. (Id. ¶¶ 48-49.) Unsold publications also generate credits back along the chain of sale. That is, retailers receive credits from wholesalers for each unsold publication; wholesalers receive credits from distributors; and distributors receive credits from publishers. (Id. ¶¶ 50, 52.) Under this system, distributors have a financial incentive to distribute as many copies of the publications as possible because they receive full credit for unsold publications that they purchased and are not responsible for the costs of physical distribution. (Id. ¶ 53.)

Historically, each wholesaler was granted one or more exclusive geographic territories in which it alone sold publications to retailers. Any retailer in a given area could purchase publications only from the single wholesaler with rights to that area. (Id. ¶¶ 44, 56-60.) Under this system, wholesalers could operate profitably because any losses incurred supplying smaller, less-profitable retailers were compensated for by profits made on larger, more-profitable retailers. Over the last fifty years, the number of both distributors and wholesalers has decreased, as distributors purchased other distributors and wholesalers purchased other wholesalers. (Id. ¶ 45.) For example, during this period Unimag acquired Stoll, Michiana, Klein, and Central. (Id. ¶¶ 9, 11, 13, 15.) Beginning in 1995, one or more of the Distributors began permitting some wholesalers to sell magazines and books to certain large retailers without regard for exclusive geographic territories. (Id. ¶ 62.) Under the new system, wholesalers were permitted to bid for the right to sell to a given large retailer in multiple territories. (Id. ¶¶ 63-64.) This change was apparently driven by the large retailers, who preferred to purchase all of their publications from one wholesaler, rather than having to make purchases from a different wholesaler in each geographic area. (Id. ¶ 63.)

From 1938 through late 1995, Stoll had exclusive territories in northern Ohio, southern Michigan, and eastern Indiana. (Id. ¶ 103.) From 1971 through late 1995, Michiana had exclusive territories in southwestern Michigan, Indiana, and northwestern Ohio. (Id. ¶ 104.) From 1958 through late 1995, Klein had exclusive territories in northern and northeastern Ohio. (Id. ¶ 105.) From 1959 through late 1995, Central had exclusive territories in northern Ohio, West Virginia, and Pennsylvania. (Id. ¶ 106.) Service News Company d/b/a Yankee News Company, had exclusive territories in Connecticut and New York from 1958 until its merger into Unimag in 1998. (Id. ¶¶ 21, 107.) From 1988 through late 1995, Unimag had exclusive territories in Connecticut, New York, North Carolina, South Carolina, and Pennsylvania. (Id. ¶ 108.) Scherer did not itself operate as a wholesaler of books and magazines. Instead, Scherer provided management services and computer hardware, software, and technical support to the other plaintiffs. (Am.Compl.¶ 20.) As of late 1995, Levy had exclusive territories in Illinois, Indiana, Michigan, Pennsylvania, and Wisconsin. (Id. ¶ 112.)

Sometime between 1995 and 1999, defendant Levy began selling to one or more large retailers in one or more of the plaintiffs' previously exclusive territories. (Id. ¶ 76.) The Distributors enabled Levy to do this by providing Levy with extra copies of magazines and books, as well as with various discounts. These discounts were not provided to plaintiffs. (Id. ¶¶ 63, 67, 74.) As a result, plaintiffs were left with only smaller, less-profitable retailers, and so had difficulty maintaining sufficient revenues to continue to operate. (Id. ¶¶ 73, 93.) In late 1998, Levy negotiated to acquire the assets of plaintiffs. (Id. ¶ 115.) These negotiations culminated in an executed asset purchase agreement dated March 18, 1999 (the "Purchase Agreement"). Plaintiffs and Levy never closed on the asset purchase transaction, however. Plaintiffs allege that they were "forced" to cease doing business in September 1999. (Id. ¶ 93.) Plaintiffs filed this action on May 3, 2000. Murdoch moved to...