Navien America, Inc. v. III (2011)

MEMORANDUM OF DECISION RE (# 110) PLAINTIFF'S MOTION TO STRIKE COUNTERCLAIM

This is a collection action brought by the plaintiff, Navien America, Inc. (“Navien”) against the defendant, John H. Allen, III, d/b/a Allen's Plumbing Supply (“Allen”).

The defendant has made a counterclaim against the plaintiff alleging that the plaintiff has engaged in price-fixing in violation of §§ 3 and 5(a) of the Connecticut Antitrust Act, Conn. Gen. Statutes §§ 35–26 and 35–28(a).

The plaintiff has moved to strike that counterclaim, arguing that 1) it fails to apprise the plaintiff sufficiently of the nature of the action and (2) it fails to state a legally sufficient antitrust claim upon which relief can be granted.

“A motion to strike admits all facts well pleaded;  it does not admit legal conclusions or the truth or accuracy of opinions stated in the pleadings.”   Faulkner v. United Technologies Corp., 240 Conn. 576, 588, 693, A.2d 293 (1997).  “The purpose of a motion to strike is to contest ․ the legal sufficiency of the allegations of any complaint [or counter claim] ․ to state a claim upon which relief can be granted ․ A motion to strike ․ requires no factual findings by the trial court.”  Fort Trumbull Conservancy, LLC v Alves, 262 Conn. 480, 498 (2003).

The parties appeared and were heard and the Court reserved decision.   Having considered the arguments of counsel, the applicable statutes and case law, the Court makes the following findings.

The defendant bases its allegation of price fixing on the fact that the plaintiff engages in a policy with the retail companies with which it supplies tankless water heaters whereby such retailers, including the defendant, are not permitted to sell its products for less than a minimum price set by Navien.   When Allen refused to go along with that policy, Navien refused to provide Allen with the merchandise.   Navien continues to supply those products to Allen's competitors.   Allen has alleged that such practice constitutes illegal price fixing.

(1) AS FOR THE CLAIM THAT THE COUNTER CLAIM DOES NOT SUFFICIENTLY APPRISE THE PLAINTIFF OF THE NATURE OF THE ACTION:

The defendant's reference to Sections 35–26 and 35–28(a), C.G.S. more than sufficiently apprises the plaintiff as to what proscribed conduct the defendant is relying upon.   Those statutes expressly, concern the prohibition against restraint of trade or commerce.   The reference to “Sections 3 and 5(a) of the Connecticut Antitrust Act,” while inaccurate, does not prevent the plaintiff from being aware of the defendant's counterclaim.

That argument in opposition to the motion to strike has no merit.

(2) AS FOR THE ARGUMENT THAT COUNTERCLAIM FAILS TO STATE A LEGALLY SUFFICIENT ANTITRUST CLAIM:

The plaintiff, Navien, has cited a number of cases which deal with the issue of price fixing policies which rise to the level of violations of the antitrust statutes.   Navien argues that its policy of mandatory price minimums for its products does not constitute a restrain on trade and cites authority for its position.

In its brief in support of the motion to strike, Navien points out, “It is the intent of the General Assembly that in construing sections 35–24 to 35–46, inclusive, the courts of this state shall be guided by the interpretations given by the federal courts to federal antitrust statutes.”  Sec. 35–44b, C.G.S.

Navien argues that there are two ways in which the Court may analyze alleged violations of the Connecticut Antitrust Act:  (1) the “rule of reason” analysis when dealing with conduct which is in restraint of trade or (2) finding a “per se” violation when presented with conduct that is “manifestly anticompetitive.”   See Bridgeport Harbour Place I, LLC v. Ganim, 111 Conn.App. 197, 216 (2008), and Elida, Inc. v. Harmor Realty Corp., 177 Conn. 218, 230–31 (1979).

Navien points out that the United States Supreme Court recently rejected the application of the “per se” rule to cases alleging antitrust violations based on the existence of a vertical price restraint, citing Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 908 (2007).

In light of that decision, Navien argues that courts faced with cases alleging vertical price constraints (such as Allen's counterclaim in the instant case) must now employ a “rule of reason” test, which requires a court to distinguish between a restraint with an anticompetitive effect that is harmful to the consumer and a restraint with a procompetitive effect that is in the consumers' interest.   See Leegin, supra, p. 897.

In his opposition to Navien's motion to strike Allen argues that judicial interpretation of the Act is to be guided by, not mandated by, the interpretations given to federal antitrust statutes by federal courts and that certain interpretations of federal law are inappropriate or inapposite when interpreting the Connecticut Antitrust Act. He cites Westport Taxi Serv., Inc. v. Westport Transit Dist., 235 Conn. 1 (1995), wherein our Supreme Court held, “we follow federal precedent when we interpret the Act unless the text of our antitrust statutes, or other pertinent state law, requires us to interpret it differently.”  Id. P. 15–16 (emphasis added).

Allen argues that Leegin is applicable only to federal antitrust law and to antitrust laws of states which strictly follow federal case law and which do not have “significant statutory departures from Sherman Act's provisions for price maintenance.”   He considers Connecticut to be one of those states.

Allen points out that during the pendency of the Leegin case, Connecticut joined 37 other states in a brief in favor of the per se rule and in opposition to the adoption of the rule of reason analysis.   Despite that effort in Leegin, the United States Supreme Court decided that in federal cases vertical price maintenance is subject to the rule of reason analysis rather than the per se rule.

Leegin, as federal precedent, is to be followed when the courts of this state interpret the Connecticut Antitrust Act unless the text of our antitrust statutes, or other pertinent state law, requires them to interpret it differently.   See Miller's Pond Co., LLC v. New London, 273 Conn. 786, 806 (2005).

Notwithstanding Connecticut's historic position for the maintenance of the per se test, this court has not been provided with any Connecticut antitrust statutes or pertinent state law to permit it not to follow Leegin as a federal precedent.   The court finds that the rule of reason analysis is the applicable standard in this case to determine if there has been a violation of the Connecticut Antitrust Act.

Allen goes on to argue that if the courts were to follow the rule of reason and reject the per se rule against vertical minimum price fixing, a plaintiff (in this case, Allen, in furtherance of his counterclaim) would bear the burden of showing that an agreement had anticompetitive effects.   Should he succeed in meeting that burden, the burden would then switch to the defendant (in this case the plaintiff, Navien) to show that the conduct challenged supports a sufficiently pro-competitive objective.   Citing Major League Baseball Properties Inc. v. Salvino, Inc., 542 F.3d 290, 317 (2d Cir., 2008).

In this case, Allen has not cited any authority for this court not to follow the precedent of Leegin.   He has, however, argued that the text of § 35–28, C.G.S., as per the holding in the Westport Taxi case, allows this court to apply the per se test notwithstanding the holding in Leegin.

Allens' reliance upon the provisions of § 35–28, C.G.S. (which prohibit, inter alia, fixing, controlling or maintaining prices, limiting the sale or supply, and refusing to deal) to warrant the application of the per se test is misplaced.   In order for such acts to warrant application of the per se test, it is incumbent upon Allen to allege and establish “that such restraint on trade is manifestly anticompetitive through its pernicious effect on competition and its lack of any redeeming virtue ․ ‘Per se’ rules of illegality should be applied only to conduct which is shown to be ‘manifestly anticompetitive.’  “ Elida, Inc., v. Harmor Realty Corporation, 177 Conn. 218, 231 (1979).

No such allegation is made by Allen in his counterclaim.

In support of its motion, Navien points out that our courts have held that it is a fundamental requirement under a rule of reason claim that there must be an allegation of “public injury to competition ․ a harmful effect on a more generalized market and not merely on a single supplier or purchaser ․” See Baer v. New England Home Delivery Service, LLC, 2007 Conn.Super. LEXIS 2696 at*8–*9 fn.3 (Conn.Super.Ct. Oct 18, 2007).

“In the context of an antitrust count, a plaintiff cannot merely state, in conclusory terms, that a defendant violated ․ antitrust laws.”  Budget Rent a Car of Westchester, Inc. v. Rental Car Resources, Inc. 842 F.Sup. 614, 616 (D.Conn.1993).

“There must be some allegation of public injury to competition;  a harmful effect on a more generalized market and not merely on a single supplier or purchaser.”  Blaine v. Meineke Discount Muffler Shops, Inc., 670 F.Sup. 1107, 1114 (D.Conn.1987).”

“Such allegations are essential because the antitrust laws were enacted to protect competition, not competitors.”  Retail Service Associates v. ConAgra Products Co., 759 F.Sup. 976, 979–80 D.Conn.1987).

For the foregoing reasons, the plaintiff's motion to strike the defendant's counterclaim is hereby granted.

BY THE COURT,

JOSEPH W. DOHERTY, JUDGE

Doherty, Joseph W., J.