Florida Seed Co. v. Monsanto Co. , 105 F.3d 1372 ( 1997 )

United States Court of Appeals,
Eleventh Circuit.
No. 96-6080.
FLORIDA SEED COMPANY, INC., a corporation, Frit Industries, Inc.,
a corporation, Plaintiffs-Counter-Defendants-Appellants,
v.
MONSANTO COMPANY, a corporation, Defendant-Counter-Claimant-
Appellee.
Feb. 18, 1997.
Appeal from the United States District Court for the Middle
District of Alabama. (No. CV-94-D-514-N), Ira De Ment, Judge.
Before TJOFLAT and DUBINA, Circuit Judges, and STAGG*, Senior
District Judge.
DUBINA, Circuit Judge:
Plaintiffs/Appellants Florida Seed Company, Inc. ("Florida
Seed") and Frit Industries ("Frit") appeal the district court's
judgment dismissing their Sherman Act claim against
Defendant/Appellee Monsanto Company ("Monsanto"). The district
court held that Plaintiffs lacked standing to assert their
antitrust claims. We affirm.
I. BACKGROUND
This case arises out of Monsanto's 1993 acquisition of the
Chevron Corporation's Ortho lawn and garden business ("Ortho").
Ortho markets some 200 lawn and garden products. Florida Seed is
engaged in wholesale distribution and marketing of lawn and garden
products. Prior to Monsanto's acquisition of Ortho, Florida Seed
handled the product lines of both Monsanto and Ortho.
*
Honorable Tom Stagg, Senior U.S. District Judge for the
Western District of Louisiana, sitting by designation.
The Federal Trade Commission ("FTC") believed that Monsanto's
acquisition of Ortho created competitive issues as to one of
Ortho's products, a nonselective herbicide called "Kleenup."
Kleenup is based on glyphosate, a patented ingredient that Ortho
purchases from Monsanto. Monsanto also uses glyphosate in its
nonselective herbicide called "Roundup." Monsanto entered into a
consent decree with the FTC agreeing to divest to a suitable
purchaser the trademark "Kleenup." The agreement also provided
that Monsanto would sell a significant volume of glyphosate, plus
manufacturing know-how and certain regulatory approvals and
filings, on a time schedule acceptable to the FTC. The consent
decree does not contain any reference to the distribution channels
for Kleenup.
After acquiring Ortho, Monsanto notified Florida Seed that its
distributorship agreement for Ortho products would not be renewed
following its expiration. Monsanto stated that the decision was
part of a broader strategic decision to use fewer distributors.
Following expiration of the distributorship relationship, Florida
Seed refused to pay Monsanto certain amounts owed. Monsanto
therefore demanded payment from Frit, which had guaranteed Florida
Seed's debt. Florida Seed and Frit then filed this antitrust suit.
Plaintiffs allege that Monsanto engaged in monopolization and
attempted monopolization of the residential nonselective herbicide
market in violation of Section 2 of the Sherman Act by its
acquisition of Ortho and its termination of Florida Seed's
distributorship.1 Plaintiffs contend that Monsanto's decision was
aimed at damaging the value of Kleenup prior to its divestiture
under the FTC consent decree.
II. ISSUE
Whether the district court properly dismissed Plaintiffs'
Sherman Act claim because they lacked standing to assert such
claim.
III. STANDARD OF REVIEW
"The question of standing is one of law." Todorov v. DCH
Healthcare Auth., 921 F.2d 1438, 1448 (11th Cir.1991).
Accordingly, we review de novo the district court's judgment of
dismissal. DeLong Equip. Co. v. Washington Mills Electro Minerals
Corp., 990 F.2d 1186, 1194 (11th Cir.), cert. denied, 510 U.S.
1012, 114 S. Ct. 604, 126 L. Ed. 2d 569 (1993).
IV. DISCUSSION
A private plaintiff seeking damages under the antitrust laws
must establish standing to sue. Antitrust standing requires more
than the "injury in fact" and the "case or controversy" required by
Article III of the Constitution. Todorov, 921 F.2d at 1448.
Rather, the doctrine of antitrust standing reflects prudential
concerns and is designed to avoid burdening the courts with
speculative or remote claims. Associated Gen. Contractors of
California, Inc. v. California State Council of Carpenters, 459
U.S. 519, 545, 103 S. Ct. 897, 912, 74 L. Ed. 2d 723 (1983). See also
1
Plaintiffs also brought a claim under the Clayton Act,
which the district court dismissed. Plaintiffs do not contest
this ruling on appeal. Moreover, Plaintiffs asserted various
claims under state law that were not ruled on by the district
court and have been stayed pending this appeal.
Todorov, 921 F.2d at 1448 ("Antitrust standing is best understood
in a general sense as a search for the proper plaintiff to enforce
the antitrust laws."); PHILIP AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶
334.2 at 409 (1993 Supp.).
We follow a two-pronged approach in deciding whether a
plaintiff has antitrust standing. Municipal Utils. Bd. of
Albertville v. Alabama Power Co., 934 F.2d 1493, 1499 (11th
Cir.1991). First, the plaintiff must establish that it has
suffered "antitrust injury." Id. As the Supreme Court has made
clear, to have standing antitrust plaintiffs "must prove more than
injury casually linked to an illegal presence in the market [i.e.,
but for causation]. Plaintiffs must prove antitrust injury, which
is to say injury of the type that the antitrust laws were intended
to prevent and that flows from that which makes the defendants'
acts unlawful." Brunswick Corp. v. Pueblo Bowl-o-Mat, Inc., 429
U.S. 477, 489, 97 S. Ct. 690, 697, 50 L. Ed. 2d 701 (1977).
Second, the plaintiff must establish that it is an efficient
enforcer of the antitrust laws. Municipal Utils. Bd. of
Albertville, 934 F.2d at 1499. This determination is predicated on
the "target area test." Austin v. Blue Cross & Blue Shield of
Ala., 903 F.2d 1385, 1388 (11th Cir.1990). The target area test
requires that an antitrust plaintiff both "prove that he is within
that sector of the economy endangered by a breakdown of competitive
conditions in a particular industry" and that he is "the target
against which anticompetitive activity is directed." National
Indep. Theatre Exhibitors, Inc. v. Buena Vista Distribution Co.,
748 F.2d 602, 608 (11th Cir.1984), cert. denied sub nom., Patterson
v. Buena Vista Distribution Co., 474 U.S. 1013, 106 S. Ct. 544, 88
L. Ed. 2d 473 (1985). Basically, a plaintiff must show that it is a
customer or competitor in the relevant antitrust market.
Associated General Contractors, 459 U.S. at 539, 103 S.Ct. at 909.
A. Standing of Florida Seed
Plaintiffs' complaint relates to Florida Seed's inability to
purchase nonselective herbicides from Monsanto, not to an increase
in prices or to a lessening of competition. At one time, Florida
Seed was both a customer and a distributor of Kleenup. Now,
Florida Seed is neither. In fact, Florida Seed admits that the
"termination of [its] distributorship is at the heart of this
case." Plaintiffs-Appellants Brief at 5. Nevertheless, Plaintiffs
argue that they may maintain an antitrust action based on the
terminated distributorship because, in their view, Monsanto
violated the Sherman Act "by dealing with its own distributor in
furtherance of an anticompetitive purpose." Id. at 26. We
disagree.
The Supreme Court pointed out in Brunswick Corp. v. Pueblo
Bowl-o-Mat, Inc., 429 U.S. 477, 97 S. Ct. 690, 50 L. Ed. 2d 701
(1977), that "[e]very merger of two existing entities into one,
whether lawful or unlawful, has the potential for producing
economic readjustments that adversely affect some persons. But
Congress has not condemned mergers on that account; it has
condemned them only when they may produce anticompetitive effects."
Id. at 487, 97 S.Ct. at 696. "The objective in preventing certain
mergers is ... to prevent [the acquiring party] from obtaining
sufficient market power to raise prices...." Tugboat, Inc. v.
Mobile Towing Co., 534 F.2d 1172, 1176 (5th Cir.1976).2 Obviously,
mergers often have an adverse impact on those employees, suppliers,
or distributors made redundant by a merger. In many instances,
those displaced by a merger suffer an economic loss. However, this
loss is not an antitrust injury because it does not flow from that
which makes a merger unlawful. Injuries like that suffered by
Florida Seed do not "coincide[ ] with the public detriment tending
to result from the alleged violation." Todorov, 921 F.2d at 1450;
see also Kenneth L. Glazer and Abbot B. Lipky, Jr., Unilateral
Refusals to Deal Under Section 2 of the Sherman Act, 63 ANTIT. L.J.
749, 787-90 (1995) (suggesting "per se legality" for manufacturer's
efforts to vertically integrate distribution of its own products).
Relying on Brunswick, courts have consistently denied standing
to distributors who were terminated, or whose contracts were not
renewed, following a merger. See Atlantic Richfield Co. v. USA
Petroleum Co., 495 U.S. 328, 345, 110 S. Ct. 1884, 1895, 109 L. Ed. 2d
333 (1990); G.K.A. Beverage Corp. v. Honickman, 55 F.3d 762 (2nd
Cir.), cert. denied, --- U.S. ----, 116 S. Ct. 381, 133 L. Ed. 2d 304
(1995); Sierra Wine & Liquor Co. v. Heublein, Inc., 626 F.2d 129
(9th Cir.1980); John Lenore & Co. v. Olympia Brewing Co., 550 F.2d
495 (9th Cir.1977); Universal Brands, Inc. v. Philip Morris, Inc.,
546 F.2d 30 (5th Cir.1977); Return on Inv. Systems v. TransLogic
Corp., 702 F. Supp. 677 (N.D.Ill.1988); Bryant Heating & Air
Conditioning Corp., Inc. v. Carrier Corp., 597 F. Supp. 1045, 1051-
2
In Bonner v. City of Prichard, 661 F.2d 1206 (11th
Cir.1981) (en banc), the Eleventh Circuit Court of Appeals
adopted as binding precedent the decisions of the former Fifth
Circuit issued before October 1, 1981.
53 (S.D.Fla.1984); A.G.S. Elecs., Ltd. v. B.S.R. (U.S.A.), Ltd.,
460 F. Supp. 707, 710 (S.D.N.Y.), aff'd, 591 F.2d 1329 (2nd
Cir.1978). The teaching of these cases is clear: distributors who
are terminated following a merger suffer no antitrust injury.
Plaintiffs have not shown why we should treat Florida Seed
differently. Florida Seed complains not about higher prices or
about injury to competition, but about injury to itself. Thus,
Florida Seed has suffered no antitrust injury.3
Because we hold that Florida Seed has suffered no antitrust
injury, we need not address whether Florida Seed would be an
efficient enforcer of the antitrust laws as required by the second
prong of our standing analysis. However, it is clear from the
3
Two leading antitrust commentators have addressed whether
those displaced by a merger have standing to sue under the
antitrust laws.
Many mergers have been challenged by suppliers
(including dealers, franchisees, and employees
providing the merging firms with distribution and other
services) displaced as a result of the merger.
Injury-in-fact may be doubtful when equivalent
opportunities are available elsewhere. If other
opportunities do not exist [as alleged by Florida
Seed], displaced suppliers made redundant by a merger
suffer actual losses but not antitrust injury, for the
rationale for condemning a merger lies in its potential
for supracompetitive pricing, not in its potential for
cost savings and other efficiencies. A merger that
actually brings about supracompetitive prices and
diminished output reduces the need for inputs and can
therefore injure suppliers. Although such an injury
connects more closely with the rationale for finding a
violation, it is still not antitrust injury because it
is neither the means by which output is restricted nor
the direct concern of antitrust rules protecting
product market competition.
PHILIP AREEDA & HERBERT HOVENKAMP, Antitrust Law ¶ 381 (rev. ed.
1995) (emphasis added). Professors Areeda and Hovenkamp
support our view that Florida Seed has suffered no antitrust
injury from Monsanto's acquisition of Ortho.
record that Florida Seed is not an efficient enforcer. Florida
Seed cannot allege any nexus between the injury it has suffered and
a lessening of competition in the United States. In this case, if
the injury the antitrust laws address—the power to raise prices and
reduce output—has occurred, the proper parties to challenge
Monsanto's acquisition of Ortho are direct purchasers in the
nonselective herbicide market.
B. Standing of Frit
Frit is not a customer or competitor in any relevant market,
but merely the sole shareholder of Florida Seed and a guarantor of
its debt. Plaintiffs allege injury to Florida Seed only, not to
Frit. The only injuries allegedly suffered by Frit are as a
shareholder and guarantor. Thus, Frit has suffered no antitrust
injury. Courts uniformly have held that stockholders, even sole
stockholders such as Frit, lack standing to bring an antitrust suit
for injury to their corporations. See, e.g., Lovett v. General
Motors Corp., 975 F.2d 518 (8th Cir.1992), rev'd in part, 998 F.2d
575 (1993), cert. denied, 510 U.S. 1113, 114 S. Ct. 1058, 127
L. Ed. 2d 378 (1994); Rand v. Anaconda-Ericsson, Inc., 794 F.2d 843,
849 (2nd Cir.), cert. denied, 479 U.S. 987, 107 S. Ct. 519, 93
L. Ed. 2d 582 (1986); Bubar v. Ampco Foods, Inc., 752 F.2d 445, 450
(9th Cir.), cert. denied, 472 U.S. 1018, 105 S. Ct. 3481, 87 L. Ed. 2d
616 (1985); Midwestern Waffles, Inc. v. Waffle House, Inc., 734
F.2d 705, 710 (11th Cir.1984); Harris v. Shell Oil Co., 371
F. Supp. 376, 377 (M.D.Ala.1974). We agree with the foregoing cases
and hold that Frit has suffered no antitrust injury. Accordingly,
the district court properly concluded that Frit did not have
standing under the antitrust laws to challenge Monsanto's
acquisition of Ortho.
V. CONCLUSION
In a recent Seventh Circuit case, Judge Easterbrook wrote that
"this is a mundane commercial case, in which a buyer has used the
antitrust laws to postpone paying its debts." Digital Equipment
Corp. v. Unig Digital Technologies, Inc., 73 F.3d 756, 763 (7th
Cir.1996). The same is true here. Simply put, this is not an
antitrust case but rather a breach of contract case. Plaintiffs'
pursuit of this case has forestalled for almost three years
Monsanto's efforts to collect the debt owed it by Plaintiffs. In
the words of Judge Easterbrook, the "[t]ime for payment is at
hand." Id.
We affirm the district court's judgment of dismissal.
AFFIRMED.