Opinion ID: 403683
Heading Depth: 1
Heading Rank: 4

Heading: Dismissal of the Antitrust Defense

Text: 61 The second portion of this consolidated appeal concerns whether the district court erred in granting Kaiser's Rule 12(f) 18 motion to strike Avondale's antitrust defense. The motion was granted on the basis that, as pleaded, the counterclaim was barred by the four-year statute of limitations. Specifically, Avondale argues that Kaiser is seeking to enforce a contract that is intrinsically illegal under the antitrust laws and that this illegality constitutes a valid defense to Kaiser's suit. 62 Although motions to strike a defense are generally disfavored, a Rule 12(f) motion to dismiss a defense is proper when the defense is insufficient as a matter of law. Anchor Hocking Corporation v. Jacksonville Electric Authority, 419 F.Supp. 992, 1000 (M.D.Fla.1976). See also Lunsford v. United States, 570 F.2d 221, 228 (8th Cir. 1977); 2A Moore's Federal Practice P 12.21 at 2437 (2d ed. 1948); Wright & Miller, Federal Practice and Procedure: Civil § 1381 at 799-800 (1969). The issue that we must decide, then, is whether the antitrust defense in this context is insufficient as a matter of law. 63 For the most part, Avondale and Kaiser rely on the same cases in arguing the sufficiency point, but they come to different conclusions about what the appropriate sufficiency standard is. According to Avondale, the sufficiency of the antitrust defense in contract actions is to be determined by deciding whether the contract is or is not intrinsically illegal. Avondale argues that the contract involved is intrinsically illegal in that it embodies a tying arrangement; therefore, the alleged antitrust illegality is not merely a collateral matter, and it infects the entire contract. Kaiser responds that sufficiency of the antitrust defense turns on whether the rejection of the defense would be tantamount to having the court enforce the precise conduct that the antitrust laws forbid. Since Kaiser does not seek enforcement of the actual tie-in, and only seeks the fair and reasonable value of work done by it under the changes provision, Kaiser argues that striking the defense would not have the effect of permitting enforcement of conduct prohibited by the antitrust laws. 64 Violations of the antitrust laws as a defense to actions on a contract were discussed by the Supreme Court initially in Connolly v. Union Sewer Pipe Company, 184 U.S. 540, 22 S.Ct. 431, 46 L.Ed. 679 (1902). In Connolly, the defendant buyers attempted to escape an obligation to pay for sewer pipe on the ground that the seller of the pipe was engaged in monopolistic activity calculated to raise the price of the pipe. In rejecting this putative antitrust defense, the Court stated: 65 The defence cannot be maintained. Assuming, as defendants contend, that the alleged combination was illegal if tested by the principles of the common law, still it would not follow that they could, at common law, refuse to pay for pipe bought by them under special contracts with the plaintiff. The illegality of such combination did not prevent the plaintiff corporation from selling pipe that it obtained from its constituent companies or either of them. It could pass a title by a sale to anyone desiring to buy, and the buyer could not justify a refusal to pay for what he bought and received by proving that the seller had previously, in the prosecution of its business, entered into an illegal combination with others in reference generally to the sale of (the) ... pipe. 66 184 U.S. at 545, 22 S.Ct. at 434. 67 Connolly was distinguished by the Court in Continental Wall Paper Company v. Louis Voight & Sons Company, 212 U.S. 227, 29 S.Ct. 280, 53 L.Ed. 486 (1909), in which the contract sued upon was not deemed to be collateral to the alleged antitrust violation because the contract was based upon agreements that were and are essential parts of an illegal scheme. 212 U.S. 261, 29 S.Ct. at 291-92 (emphasis in original). In such an instance, the Court in Continental refused to give effect ... to agreements that constituted that combination, and by means of which the combination proposes to accomplish forbidden ends. Id. at 262, 29 S.Ct. at 292. This distinction between Continental and Connolly was explained in a later case as turning on whether the contract sued upon was intrinsically illegal or whether the antitrust violation was merely collateral to the contract. See Bruce's Juices, Inc. v. American Can Co., 330 U.S. 743, 755, 67 S.Ct. 1015, 1020, 91 L.Ed. 1219 (1947). 68 Continental was given a very restricted reading by the Court in Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959). 19 In that case, Kelly threatened Kosuga, an onion grower, that he, Kelly, would dump 1000 carloads of onions on the futures market to depress prices unless Kosuga and other onion growers purchased some of these onions. Kosuga agreed to purchase 50 carloads, and also agreed not to deliver any of these onions on the futures market for the remainder of the season in order to create  'a false and fictitious market condition.'  358 U.S. at 517, 79 S.Ct. at 430 (quoting Kosuga's brief). When Kelly sued Kosuga for the purchase price of the 50 carloads that Kosuga agreed to buy, Kosuga attempted to raise an antitrust defense based on Continental. 69 In affirming the striking of the defense, the Court noted that (a)s a defense to an action based on contract, the plea of illegality based on a violation of the Sherman Act has not met with much favor in this Court. 358 U.S. at 518, 79 S.Ct. at 431 (footnote omitted). The reasons for this lack of success, the Court went on to explain, were that the antitrust laws provided remedies that could not be added to judicially by including the avoidance of private contracts as a sanction, Id. at 519, 79 S.Ct. at 431, and that the federal courts should not be quick to create a policy of nonenforcement of contracts beyond that which is clearly the requirement of the Sherman Act. Id. The Court quoted sympathetically Justice Holmes's dissent in Continental : The courts are to be guided by the policy  'of preventing people from getting other people's property for nothing when they purport to be buying it.'  Id. 358 U.S. at 520-21, 79 S.Ct. at 432 (quoting Continental, supra, 212 U.S. at 271, 29 S.Ct. at 296 (Holmes, J., dissenting)). 70 In discussing the narrow scope of the antitrust defense, the Court in Kelly distinguished Continental as a case where striking the antitrust defense would make the courts a party to the carrying out of one of the very restraints forbidden by the Sherman Act. Id. 358 U.S. at 520, 79 S.Ct. at 432. The Court concluded: 71 Accordingly, while the nondelivery agreement between the parties could not be enforced by a court, if its unlawful character under the Sherman Act be assumed, it can hardly be said to enforce a violation of the Act to give legal effect to a completed sale of onions at a fair price.... (W)here, as here, a lawful sale for a fair consideration constitutes an intelligible economic transaction in itself, we do not think it inappropriate or violative of the intent of the parties to give it effect even though it furnished the occasion for a restrictive agreement of the sort here in question. 72 The restrictive Kelly approach was reinforced in Kaiser Steel Corporation v. Mullins, --- U.S. ----, 102 S.Ct. 851, 70 L.Ed.2d 833 (1982). 20 This court has had occasion to apply the restrictive Kelly analysis on a number of occasions. See Delta Marina, Inc. v. Plaquemine Oil Sales, Inc., 644 F.2d 455, 458-59 (5th Cir. 1981); Carpa, Inc. v. Ward Foods, Inc., 536 F.2d 39, 54-55 (5th Cir. 1976); Abercrombie v. Lum's, Inc., 531 F.2d 775, 778-79 (5th Cir. 1976); Response of Carolina v. Leasco Response, Incorporated, 498 F.2d 314, 319 (5th Cir.), cert. denied, 419 U.S. 1050, 95 S.Ct. 626, 42 L.Ed.2d 645 (1974). In both Abercrombie and Carpa, we applied the Kelly rule in a tie-in context. 73 The thrust of Avondale's argument is that Continental establishes the proposition that if the underlying agreement sued upon has any taint of antitrust illegality, then the entire agreement is subject to the antitrust defense. We must reject this argument. Contrary to Avondale's assertions, Continental did not sire the distinction Avondale seeks to make between intrinsically illegal contracts and those contracts merely collateral to an illegal agreement. Rather, Continental involved a situation where the Court permitted the defendant to assert the antitrust defense because the contract sued upon was considered to be one of a number of agreements that constituted, in and of themselves, the illegal scheme. Continental did not involve one party trying to enforce an innocent provision of a contract that involved antitrust illegality; the entire contract was infected by illegality because the contract, and those like it, were responsible for the existence of the illegal combination in the first instance. 74 It is clear from Kelly that the Continental rule is restricted solely to those cases where the denial of the antitrust defense would itself be enforcing the precise conduct made unlawful by the (antitrust law). 358 U.S. at 520, 79 S.Ct. at 432. See also Kaiser Steel Corporation v. Mullins, --- U.S. ----, 102 S.Ct. 851, 70 L.Ed.2d 833 (1982). If the contract provisions (sought to be enforced) do not embody or further anti-competitive practices, then there has been no irreparable loss or damage from a violation of the anti-trust law. Response of Carolina, supra, 498 F.2d at 319 (emphasis in original). See also Abercrombie, supra, 531 F.2d at 779. 75 In the present case, Kaiser has instituted a suit for the fair and reasonable price of change-work. Kaiser does not seek to enforce the tie-in by suing a party who has received the desired tying product and now refuses to accept the tied product. Avondale does not allege that Kaiser is requesting an inflated price for the work nor does it allege that the changes provision is a tied item. It argues only that these provisions occur as part of a contract that embodies an allegedly illegal tie-in. 76 The precise conduct against which the antitrust laws seek to protect in the present context is tying. The change work constitutes an intelligible economic transaction in itself under Kelly, 358 U.S. at 521, 79 S.Ct. at 432, and the antitrust defense is inapplicable. 77 Before concluding, we will note briefly several arguments made by Avondale designed to escape the application of Kelly to the present case. 78 First, Avondale argues that Kaiser's reliance on Carpa v. Ward Foods, Inc., 536 F.2d 39 (5th Cir. 1976) is inapplicable because Carpa's acceptance of Kelly is by way of dictum. Avondale argues that Kelly was a simple collection case, Avondale br. at 27, and did not involve tying, so Kelly is not applicable to the present case. 79 Even if Avondale were correct in its characterization of our application of Kelly in Carpa as mere dicta, Carpa is not necessary to Kaiser's argument. Irrespective of what factual differences exist between Kelly and the present case, the specific rationale in Kelly encompassed the principle that the antitrust defense is applicable only in one circumstance-where rejection of the defense is tantamount to making the court literally assist a party to commit the precise conduct that the antitrust laws forbid. Since that one circumstance is not present in the case before us, the rationale of Kelly is applicable. In addition, we accepted Kelly in a tying context prior to Carpa. See Abercrombie, supra, 531 F.2d at 778-79. 80 The real flaw in Avondale's argument, however, is that Kaiser's reliance on Carpa is not misplaced. Carpa involved a suit for damages suffered as a result of an unlawful tie-in connected with a restaurant franchise. We affirmed on the liability issue. Plaintiff Carpa, a franchisee, cross-appealed a determination of the district court that cancelled the lease that bound Carpa to pay an excessive rental. Carpa argued that if the lease had not been cancelled, he would have suffered more monetary damage that the district court should have trebled. Relying on Kelly, we affirmed the district court's refusal to pyramid Carpa's future damages on the grounds that the franchisor could sue to recover a reasonable price under the lease, which was collateral to the tying arrangements, 536 F.2d at 55. 21 Kelly was the rationale for our affirmance of the district court's determination of this issue in Carpa ; our interpretation of the ambit of antitrust defense in Carpa can hardly be labeled as mere dicta. 81 The second argument that Avondale mounts against application of Kelly is that in the present case, the Kaiser spray is defective and since Avondale has not received any of Kaiser's property, one should not be able to get something for nothing sentiments are inapplicable. Avondale misses the point. Kaiser has equipped the vessels with a cargo containment system and now seeks the reasonable price of change work. Avondale has received something in the form of spray, aluminum tanks, and installation. If Avondale disputes the value of this something, it has an appropriate remedy in contract or tort. 82 We conclude that the antitrust defense is inapplicable.