United Magazine v. Murdoch Magazines Distribution

393 F.Supp.2d 199

UNITED MAGAZINE COMPANY, et al., Plaintiffs, v. MURDOCH MAGAZINES DISTRIBUTION, INC., et al., Defendants.

No. 00 Civ. 3367(PKC).

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

September 22, 2005.

COPYRIGHT MATERIAL OMITTED

Carl E. Person, New York City, Gus H. Small, Cohen, Pollock, Merlin, Axelrod & Small, PC, Atlanta, GA, Robert E. Burton, Dublin, OH, for United Magazine Company, Inc.

Philip G. Barber, Constantine & Partners, PC, New York City, Yang Chen, Constantine Cannon PC, New York City, Daniel C. Malone, George G. Gordon, Paul H. Friedman, Terri L. Bowman, Dechert, LLP, New York City, Irvig Scher, Weil, Gotschal & Manges LLP(NYC), New York City, Isaac M. Bayda, Jacobs, Persinger & Parker, New York City, Lawrence I. Fox, McDermott, Will & Emery, LLP(NY), New YOrk City, for Defendants.

MEMORANDUM AND ORDER

CASTEL, District Judge.

This is a Robinson-Patman Act claim brought by wholesalers of magazines against "distributors" of magazines. Familiarity is assumed with the prior decisions in this case, which set forth the plaintiffs' legal theories and the factual and procedural background of this case. United Magazine Co. v. Murdoch Magazines Distribution, Inc., 146 F.Supp.2d 385 (S.D.N.Y.2001) ("Unimag I"), United Magazine Co. v. Murdoch Magazines Distribution, Inc., 2001 WL 1607039 (S.D.N.Y.Dec.17, 2001) ("Unimag II") and United Magazines Co. v. Murdoch Magazines Distribution, Inc., 353 F.Supp.2d 433 (S.D.N.Y.2004) ("Unimag III"). A brief summary of the relationship of the parties and the nature of the claims is in order.

The plaintiffs are United Magazine Company, The Stoll Companies, Michiana News Service, Inc., Geo. R. Klein News Co. and Central News Company (collectively, "Plaintiffs" or "Unimag") who are the wholesalers. The magazines at issue are "distributed" by defendants Kable News Company, Inc. ("Kable"), Murdoch Magazines Distribution, Inc. ("Murdoch Distribution"), TV Guide Distribution, Inc. ("TGD"), Curtis Circulation Company ("Curtis"), Comag Marketing Group, LLC ("Comag"), Hearst Distribution Group, Inc. ("HDG"), Time Distribution Services, Inc. ("TDS") and Warner Publisher Services, Inc. ("WPS") (collectively, "defendants" or "distributors"). Plaintiffs allege that, from May 1996 through May 2000, defendants violated the Robinson-Patman Act, 15 U.S.C. § 13(a), by providing "secret discounts, rebates, other payments, services of value and other benefits" to certain competitors of plaintiffs. The facts describing the general relationship between the parties, including an overview of the magazine distribution system, are set forth in Unimag III, in which this court disposed of certain defendants' prior motions for partial summary judgment. In the main, and with the limitations and exceptions noted in Unimag III, the publishers of the magazines in question, and not the distributors, set the terms and conditions of sale. Plaintiffs have not elected to sue the publishers.

Following nearly two years of discovery, defendants sought to file motions for summary judgment as to plaintiffs' remaining claims. After a premotion conference at which the parties outlined on the record their claims and defenses, defendants proceeded with motions directed solely to the issue of whether section 2(a) of the Robinson-Patman Act applies to the transactions at issue in this case, reserving their right to move on other grounds at a later date if necessary. On December 29, 2004, I granted partial summary judgment in favor of defendants. In Unimag III, I concluded that there was no triable issue as to whether the moving defendants, other than Curtis, controlled the price and other terms of sale to plaintiffs.¹ With respect to any claim based on defendants' return policies, I ruled that the moving defendants had not met their initial burden of demonstrating that their return policies cannot support a price discrimination claim against them under section 2(a). Specifically, I ruled: "As to [the moving] defendants other than Curtis, plaintiffs' section 2(a) claims may proceed solely upon a claim that defendants' `return policies' resulted in a discriminatory price or term of sale." Unimag III, 353 F.Supp.2d at 448. Subsequent to Unimag III, plaintiffs have endeavored to recharacterize the "return policies" claim as an "allotment" discrimination claim.

All defendants now move for summary judgment dismissing the remainder of plaintiffs' claim on several alternative grounds. First, all defendants move for summary judgment on the ground that any alleged "allotment" discrimination asserted by plaintiffs is not actionable under the Robinson-Patman Act, and is, in any event, unsupported by evidence. Second, Curtis, Kable and TDS (with respect to Time Inc. titles) — the only defendants against whom any claim based on price discrimination not arising from allegedly discriminatory return policies or allotments remains — move for summary judgment on the ground that no plaintiff can establish two essential elements: causal antitrust injury and net price discrimination. Third, defendant TDS moves on the ground that there is no proof that it discriminated in price with respect to Time Inc. titles. Finally, defendants HDG and Comag move on the grounds that it is undisputed that HDG distributed magazines to plaintiffs during only a portion of the relevant time period, and Comag never distributed any magazine to any plaintiff at any time. For the reasons set forth below, defendants' motions for summary judgment are granted, and plaintiffs' second amended complaint is dismissed.

Magazine Wholesaler Industry

Prior to 1996, magazine wholesalers such as plaintiffs operated in defined geographic territories, and, as a result, faced little competition from other wholesalers. The lack of competition meant that wholesalers' margins were relatively high. The lack of competition was not advantageous to retailers of magazines, however, and in 1995, retailers began to demand a change in the industry. Large chain retailers shifted from purchasing magazines from many local wholesalers to purchasing from a limited number of wholesalers capable of servicing multiple, or even all, retail locations. The resulting consolidation of business led to direct competition between wholesalers for the first time. Chain retailers began inviting multiple wholesalers to bid for their business. The wholesalers did not generally know which other wholesalers were bidding for a retail account, or the prices or terms being offered by the other wholesalers. With the resulting competition came demands from large retail chains for larger discounts, as well as "signing bonuses" in exchange for signing multiyear contracts with a single wholesaler. (Unimag 1996 SEC Form 10-K (Bowman Ex. 12); Scherer Dep. at 44-45, 52-53, 57, 60-61; Declaration of Carol Kloster dated Feb. 8, 2004; Declaration of David B. Thompson dated June 14, 2005) In its Form 10-K for the year 1996, filed with the Securities and Exchange Commission, Unimag noted the significant "reduction in revenue from existing chain customers ... where new discounts, rebates and amortization of signing bonuses caused an approximate 5% reduction in revenue without a corresponding reduction in the related cost of the products...." Unimag noted that "[t]his trend was not unique to Unimag ... as it was representative of changes throughout the entire industry in 1996." Unimag attributed its decline in gross margin "almost totally to the discounting and rebating changes during 1996." (Bowman Ex. 12 at 19) Unimag anticipated that it would be able to offset the decreasing margins and "greater pricing pressures" by reducing its fixed and variable costs, and noted that "successful wholesalers have concentrated on cost cutting measures in order to remain competitive." (Id. at 13, 15)

In the face of the dramatic changes and increased competition in the magazine wholesaling industry, many small wholesalers ceased conducting business, leaving only four major wholesalers and some 20 minor wholesalers. (Thompson Dep. at 92-93; Second Amended Complaint ("2AC") ¶ 45) The increased competition led to declining profitability for even the remaining wholesalers, including Unimag, who in some cases had to bid for business at unprofitable rates just to keep a retail account and keep market share. (Scherer Dep. at 667) At least one competing wholesaler, Charles Levy Circulating Company ("Levy"), stated that its strategy was to obtain and retain retail accounts regardless of profitability, meaning that the prices it paid for the magazines did not control the amount of its bids to sell the magazines. (Kloster Decl. ¶ 9)

I. DEFENDANTS' MOTION TO STRIKE

Defendants move to strike the Declaration of David B. Thompson in its entirety, along with certain exhibits to the Thompson Declaration. Defendants also seek strike those portions of plaintiffs' Rule 56.1 statement that are identical to the Thompson Declaration or that rely on the exhibits sought to be stricken.

Defendants move to strike the Thompson Declaration as violating the requirements of Rule 56(e), Fed.R.Civ.P., that an affidavit in opposition to summary judgment must be made on personal knowledge and "set forth such facts as would be admissible in evidence" and that a party may not rest on "mere allegations or denials." Defendants argue that the Thompson Declaration depends almost entirely on conclusory statements and inadmissible hearsay or evidence not in the record. They also seek to strike the Declaration as contradicting the prior sworn testimony of Mr. Thompson and other Rule 30(b)(6) designees and contemporaneous documents, including filings with the SEC. Generously resolving all doubts in favor of the non-movant, I conclude that the deficiencies in the text of Thompson Declaration do not go to its admissibility and, therefore, I will not strike the Declaration in its entirety.

However, the exhibits to the Thompson Declaration stand on a different...