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State v. Lawn King Inc.

Decided: July 3, 1979.


On appeal from Superior Court of New Jersey, Law Division, Mercer County, whose opinions are reported at 150 N.J. Super. 204 (1977) and 152 N.J. Super. 333 (1977).

Halpern, Ard and Antell. The opinion of the court was delivered by Antell, J.A.D.


Defendants appeal from their convictions under the first, second and sixth counts of an indictment charging multiple violations of the New Jersey Antitrust Act, N.J.S.A. 56:9-3. The judgment under review, entered after a nonjury trial, rests upon findings of vertical trade restraints in the form of price fixing, allocation of exclusive territories, tying arrangements, advertising restrictions and restraints upon alienation. It was within the context of dealer and distributor franchise arrangements for the furnishing of automated lawn care maintenance service to the public that the offending practices were found. Defendant Sandler was president and controlling stockholder of the corporate defendant, which functioned as franchisor, and the gist of the charges is that defendants illegally restrained competition between the franchisees.

The judgment below was accompanied by a formal opinion, reported at 150 N.J. Super. 204 (Law Div. 1977), and followed by another reported at 152 N.J. Super. 333 (Law Div. 1977), which comprehensively outline the circumstances of the case. We therefore find it unnecessary to restate the complex factual details, but instead incorporate them by reference to the opinions below.

Paramount among the grounds urged for reversal is defendants' contention that the trial judge erred in refusing to analyze the evidence under the "rule of reason" and by holding that the business behavior here questioned is illegal per se. They also urge that the findings and evidence are insufficient

to support his determination that defendants were guilty either of price fixing or tying arrangements, or to support his conclusion that defendants' advertising restrictions and restrictions upon resales of the franchises constituted unreasonable restraints of trade or commerce.

Our analysis begins with the statute under which the indictment was returned, N.J.S.A. 56:9-3, which provides:

Every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce, in this State, shall be unlawful.

This section should be read together with N.J.S.A. 56:9-18, which states:

This act shall be construed in harmony with ruling judicial interpretations of comparable Federal antitrust statutes and to effectuate, insofar as practicable, a uniformity in the laws of those states which enact it.

Also see Exxon Corp. v. Wagner , 154 N.J. Super. 538, 544 (App. Div. 1977).

In the federal jurisdiction it is settled that the comparable provision of the Sherman Anti-Trust Act, 15 U.S.C.A. ยง 1, does not embrace all restraints of trade. It prohibits only those which "unreasonably" curtail competition. Northern Pacific Ry. Co. v. United States , 356 U.S. 1, 5, 78 S. Ct. 514, 2 L. Ed. 2d 545 (1958); Standard Oil Co. v. United States , 221 U.S. 1, 31 S. Ct. 502, 55 L. Ed. 619 (1911); Note, "Vertical Restraints -- Legality of Non-price Vertical Restraints Determined Under Rule of Reason," 9 Seton Hall L. Rev. 496, 502 (1978). For guidance in application the United States Supreme Court adopted what is known as the rule of reason test. The most frequently cited statement thereof is the following by Justice Brandeis in Board of Trade of City of Chicago v. United States , 246 U.S. 231, 38 S. Ct. 242, 62 L. Ed. 683 (1918):

Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test

of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences. [246 U.S. at 238, 38 S. Ct. at 244]

Accord, White Motor Co. v. United States , 372 U.S. 253, 262, 83 S. Ct. 696, 9 L. Ed. 2d 738 (1963). "Under this rule, the factfinder weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition." Continental T.V., Inc. v. GTE Sylvania Inc. , 433 U.S. 36, 49, 97 S. Ct. 2549, 2557, 53 L. Ed. 2d 568 (1977).

Faced with the necessity of dealing with overwhelmingly complicated factual patterns, the court concluded that some business practices are per se violations. As it explained in Northern Pacific Ry. Co. v. United States, supra:

Refining this somewhat, the Court in United State v. Topco Associates, Inc. , 405 U.S. 596, ...

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