Opinion ID: 431798
Heading Depth: 1
Heading Rank: 3

Heading: antitrust defenses to contract counterclaims

Text: 44 Appellants also assail the district court's grant of summary judgment on the appellees' claims for overdue franchise and lease payments. They claim that the judgment requires a federal court to enforce an illegal contract and that result is contrary to the rule governing antitrust defenses recently laid down in Kaiser Steel Corp. v. Mullins, 455 U.S. 72, 102 S.Ct. 851, 70 L.Ed.2d 833 (1982). The district court read Mullins as allowing antitrust defenses to contract suits only where the promise being sued on is itself illegal under the antitrust laws. It characterized the promise appellees sued on as one for monies for goods or services furnished to the plaintiff over a period of years. Williamsburg, slip op. at 2 (Sept. 3, 1982) (Memorandum). It apparently concluded that this promise was legal because the damages [Gatlinburg asked for in its antitrust claim] would not necessarily include a recovery of the fees paid and to be paid by [Gatlinburg] under the contract. Id. Although our reasoning differs from that of the district court, we agree that under Mullins appellants can not raise their antitrust defenses. 45 To understand Mullins, we look first at limitations that courts had imposed previously on the applicability of antitrust defenses to contract suits. The leading pre-Mullins case is Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959), which involved a suit by a seller of onions against a buyer for failure to pay. As a defense, the buyer, who, like the seller, was an onion supplier, alleged that he had been coerced to buy the onions by the seller's threats to dump a large quantity on the market, thereby depressing prices. The contract-suit defendant agreed to buy 50 cars of onions, and both plaintiff and defendant agreed not to deliver any onions on the market for the remainder of that trading season, thereby artificially decreasing demand and inflating futures prices. The Court rejected the defendant's argument that, because he was coerced into buying the onions by a threat of unlawful conduct, the contract was unenforceable. In doing so, it noted that the plea of illegality based on violation of the Sherman Act has not met with much favor in this Court. Id. at 518, 79 S.Ct. at 431. It then stated the following rule for deciding when to enforce illegal contracts: 46 Past the point where the judgment of the Court would itself be enforcing the precise conduct made unlawful by the [Sherman] Act, the courts are to be guided by the overriding general policy ... of preventing people from getting other people's property for nothing when they purport to be buying it. 47 Id. at 520-21, 79 S.Ct. at 432 (quoting Continental Wall Paper Co. v. Louis Voight & Sons, Co., 212 U.S. 227, 271, 29 S.Ct. 280, 296, 53 L.Ed. 486 (1909) (Holmes, J., dissenting)). 48 Kosuga was generally viewed as permitting antitrust defenses in only a very narrow class of contract suits, courts being understandably hesitant to interpose complex antitrust issues in a simple suit for breach of contract. See Mullins, 642 F.2d at 1311 (D.C.Cir.1981), Viacom International, Inc. v. Tandem Productions, Inc., 526 F.2d 593 (2d Cir.1975). This court, in particular, read Kosuga to limit antitrust defenses to situations where the requested enforcement was of agreements not to compete or other direct market restrictions, that made the court ... a party to an anticompetitive scheme. Mullins, 642 F.2d at 1310 (quoting Kosuga, 358 U.S. at 520, 79 S.Ct. at 432); see also id. at 1311 n. 9. 49 This court's decision in Mullins, however, was reversed by the Supreme Court. See 455 U.S. at 78-79, 102 S.Ct. at 857. In Mullins, the defendant, a coal producer, agreed to make contributions to United Mine Worker health and retirement funds based in part on the quantity of coal it purchased from non-union producers. The defendant failed to report such purchases and to make contributions based on them. After the contract expired, the union sued to collect the owed contributions. Clearly, enforcement of the promise to contribute to the welfare fund would not have directly impeded competition at that point in time. See id. at 81 n. 6, 102 S.Ct. at 858 n. 6. Nonetheless, the Supreme Court allowed the asserted antitrust defense, stating: 50 If [defendant] Kaiser's undertaking is illegal under the antitrust ... laws, it is because of the financial burden which the agreement attached to purchases of coal from non-UMW producers, even though they may have contributed to other employee welfare funds. It is plain enough that to order Kaiser to pay would command conduct that assertedly renders the promise an illegal undertaking under the federal statutes. 51 Id. at 79, 102 S.Ct. at 857. 52 In so holding, however, the Court cited with favor language in Kosuga that lower courts had relied on to strictly limit applicability of antitrust defenses. See 455 U.S. at 80, 102 S.Ct. at 857 (plea of illegality based on violation of the Sherman Act has not met with much favor) (quoting Kosuga, 358 U.S. at 518, 79 S.Ct. at 431). In addition, Mullins accepted the Kosuga rationale that an antitrust defense to a contract suit may be raised only where enforcement would make the courts a party to the carrying out of one of the very restraints forbidden by the Sherman Act. Id. 455 U.S. at 81, 102 S.Ct. at 857 (quoting Kosuga, 358 U.S. at 520, 79 S.Ct. at 432). In Mullins, the promise to contribute to the health and retirement funds in proportion to defendant's purchases of non-union coal was a means by which the plaintiff enforced restraints on purchases of non-union coal. By linking contributions to the purchase of non-union coal, this promise on its face embraced the very restraint of trade that the defendant alleged violated the Sherman Act. Had the Court assisted the union in collecting such contributions, it would have effectively become a party to the allegedly illegal scheme to discourage non-union coal purchases. Thus, in permitting the defendant to raise its antitrust defense in Mullins, the Court opened the window only a notch to antitrust defenses, i.e., it refused to enforce a promise to pay that was itself a mechanism to police anticompetitive conduct. 53 Unlike the illegal promise in Mullins, the promises to pay franchise fees in this case do not appear on their face to be primarily means to enforce the allegedly illegal tie-ins between the wax figures and start-up services. They appear rather to be a consideration for goods and services, to be paid for on an installment basis, i.e., a routine exchange which Mullins was careful to distinguish from the penalty-like agreement it refused to enforce. See Mullins, 455 U.S. at 80, 102 S.Ct. at 857 (antitrust defense disfavored in action to recover agreed price for goods sold). This is not a case where the appellants turned to an alternative supplier of start-up services and now object to paying a penalty for doing so. 9 To transform the contracts here into illegal tie-ins would require complex proof of monopoly power in the tying market and leverage of that power in the tied market. Even then, their vice would extend only to the amount that the agreed prices exceeded the fair value of the goods and services received and consumed--the portion of the prices that could be traced to the illegal practice. The complexity of proof and speculative nature of appellants' defenses seem to us to place them outside of the Mullins exception and clearly within the ambit of disfavor for such defenses articulated in Kosuga. And even if there might be grounds for such a defense in other cases, we reject it here, where it was first raised ten years after the figures and the tied start-up services had been received and consumed without objection by the buyer. 10 We therefore hold in the circumstances of this case that the obligation to make franchise payments persists and the defense that the original agreement included a tainted tie-in sale may not be raised. The remote danger, in a case such as this, that the court will be a party to enforcing an illegal restraint, seems far outweighed by the probability that allowing the defense would let the buyer escape from its side of a bargain long after it had secured exactly what it had bargained for, as well as involve the courts in a prolonged controversy over whether an illegal tie-in existed due to the seller's market power and how that tie-in affected the agreed price for goods and services. 54 We also hold that appellants cannot raise any illegality that may attach to the Gatlinburg lease as a defense to appellees' counterclaim for lease payments. Appellants nowhere attack their obligation to pay rent, standing alone, as illegal under the Sherman Act. Such a rationale would lead to the absurd result that all leases violate the antitrust laws. Instead, appellants allege that they were coerced to lease the figures as part of a scheme by appellees to perpetuate their monopoly over Lynch figures. But this allegation raises factual controversies, perhaps relevant to appellants' contentions that the lease was part of a bigger scheme to monopolize the wax museum figure market, that are entirely unrelated to the contract claim before us. It is precisely this type of antitrust defense that Kosuga clearly held, and Mullins affirmed, to be inappropriate in a simple suit for the purchase price of delivered goods. See Mullins, 455 U.S. at 80, 102 S.Ct. at 457, Kosuga, 358 U.S. at 521, 79 S.Ct. at 432. In accord with these cases and the district court's decision, we hold that Gatlinburg may not raise the alleged antitrust illegality of its lease of Lynch figures as a defense to appellees' suit for rent. 55