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CAPITAL CITY PUBL. CO. v. TRENTON TIMES CORP.

November 9, 1983

CAPITAL CITY PUBLISHING CO., Plaintiff,
v.
TRENTON TIMES CORP., et al., Defendants



The opinion of the court was delivered by: ACKERMAN

 HAROLD A. ACKERMAN, District Judge.

 This is an action brought by the plaintiff, Capital City Publishing Company, Inc., against the defendants, Trenton Times Corporation, and the Audit Bureau of Circulations (ABC). Plaintiff is the publisher of the Trentonian, a daily newspaper, which competes with the Trenton Times, published by Defendant Trenton Times Corporation.

 The two newspapers allegedly compete intensely for the sale of print advertising in the greater Trenton metropolitan area, the sale of print advertising being the principal source of revenue for both papers.

 A newspaper's market share of paid circulation has a direct bearing on its ability to sell print advertising, and this is allegedly particularly so in the intensely competitive Trenton market. Generally speaking, the higher these circulation figures are, the higher the paper's advertising revenue. The paid circulation figures for both the Trentonian and the Trenton Times have been audited and published for many years by the defendant, ABC.

 Plaintiff alleges jurisdiction based upon 28 U.S.C. Section 1337, and 15 U.S.C. Section 15, as well as the doctrine of pendent jurisdiction.

 This matter was first scheduled to be before me upon the application by plaintiff Capital City for a preliminary injunction which was scheduled to be held on May 23, 1983. To prepare for this hearing, I ordered that expedited discovery be commenced. Pursuant to an agreement among the parties that defendants would not publish or release certain circulation figures of the Times without 30 day's prior notice to plaintiff, on June 7, 1983, I ordered that the hearing on this application be adjourned sine die.

 Upon motion of Trenton Times, I disqualified plaintiff's counsel by order dated June 1st, 1983. All pending motions were also then adjourned to allow plaintiff time to retain new counsel or to appeal my order. Plaintiff thereafter retained new counsel, the firm of Wachtell, Lipton, Rosen and Katz, and filed an amended complaint on July 18, 1983.

 This matter is presently before me on four motions: first, Defendant ABC's Rule 12(b)(6) motion to dismiss plaintiff's complaint; second, Defendant Trenton Times' 12(b)(6) motion to dismiss certain counts of plaintiff's complaint, which has been referred to as the Times' "piggy-back" motion, since it relies upon ABC's arguments; third, Defendant ABC's motion to dismiss or stay proceedings; and fourth, Defendant Trenton Times' motion for a preliminary injunction.

 I will address each of these motions in turn. I note that by letter dated September 30, 1983, the plaintiff withdrew without prejudice its motion to hold the defendant Trenton Times, in contempt. I first turn to Defendant ABC's Rule 12(b)(6) motion to dismiss plaintiff's complaint for failure to state a claim upon which relief can be granted.

 A Rule 12(b)(6) motion is, of course, addressed to the legal sufficiency of the complaint. Rule 8(a)(2) of the Federal Rules of Civil Procedure requires only that such a complaint include "'a short and plain statement of the claim,' that will give the defendant fair notice of what the plaintiff's claim is and the ground upon which it rests." Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 102, 2 L. Ed. 2d 80 (1957), quoting Rule 8(a)(2). As Chief Judge Seitz has stated, "It is not necessary to plead evidence, nor is it necessary to plead the facts upon which the claim is based." Bogosian v. Gulf Oil Corp., 561 F.2d 434, 446 (3d Cir.1977).

 Thus, in deciding a motion to dismiss brought pursuant to Rule 12(b)(6), "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley 355 U.S. at 41 at 45-46, 78 S. Ct. 99 at 101-102, 2 L. Ed. 2d 80.

 Further, I must be "extremely liberal in construing anti-trust complaints" for the purposes of such a motion. See Knuth v. Erie-Crawford Dairy Cooperative Association, 395 F.2d 420, 423 (3d Cir.1968). As Justice Marshall noted in Hospital Building Co. v. Trustees of Rex Hospital, 425 U.S. 738, 746, 96 S. Ct. 1848, 1853, 48 L. Ed. 2d 338 (1976), ". . . in anti-trust cases where 'the proof is largely in the hands of the alleged conspirators,' Poller v. Columbia Broadcasting, 368 U.S. 464, 473, 82 S. Ct. 486, 491, 7 L. Ed. 2d 458 (1962), dismissals prior to giving the plaintiff ample opportunity for discovery should be granted sparingly." Justice Marshall added in the next sentence that this was a "concededly rigorous standard." 425 U.S. at 746, 96 S. Ct. at 1853. The Federal Rules provide for "simplified 'notice pleading'" and "reject the approach that pleading is a game of skill in which one misstep by counsel may be decisive to the outcome, and accept the principle that the purpose of pleading is to facilitate a proper decision on the merits." Conley 355 U.S. at 47-48, 78 S. Ct. at 102-103.

 Applying this standard, and for the reasons which follow, I find that I cannot conclude that plaintiff could prove no set of facts in support of its claim which would entitle it to relief.

 The gravamen of plaintiff's complaint is that the defendants Times and ABC, acting in concert, have engaged in a scheme, the object of which is to knowingly publish false and inflated circulation figures for the Defendant Times to the detriment of the Plaintiff Trentonian, and of competition in the Trenton, New Jersey newspaper advertising market. Plaintiff alleges that Defendant ABC has ignored repeated complaints by the plaintiff about these false circulation figures, and has ignored the requirements of its own by-laws and rules by failing to conduct suitable audits of these figures. Further, the Defendant ABC has allegedly released these false figures and audit reports knowing that the circulation figures, if published, would be relied upon by advertisers and newspapers alike in connection with the purchase and sale of newspaper advertising in the greater Trenton metropolitan area.

 Given the unique status of Defendant ABC, as the sole auditor of paid circulation figures, both the plaintiff Trentonian and Trenton-market advertisers have had no choice but to rely, and plaintiff asserts, have in fact relied upon the false circulation figures for the Defendant Times published by it and Defendant ABC. The dual effect of defendant's conduct, plaintiff contends, has been a loss to the plaintiff of advertising revenue, profits and goodwill, and loss or "suppression" of competition in the Trenton print advertising market.

 Specifically, plaintiff's complaint is organized as follows. First, Counts 1 through 3 of the complaint allege various violations of the Sherman Act, based on the foregoing facts. Count 1, alleged only against Defendant Times, charges that it has attempted to monopolize the newspaper advertising market by this and other conduct. Because this count is directed only against the Defendant Times, it is not a part of this motion.

 Count 2 charges that both Defendants Times and ABC were engaging in a combination and conspiracy to restrain and monopolize interstate trade and commerce in the sale of print advertising, in violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C. Sections 1 and 2.

 Count 3, directed against Defendant ABC only, charges that it constitutes a combination in unreasonable restraint of interstate trade and commerce in violation of Section 1 of the Sherman Act.

 Counts 4, 5 and 6 allege the same or parallel types of anti-trust violations as do Counts 1, 2 and 3, respectively, but allege that such conduct violates the New Jersey Anti-Trust Act, N.J.S.A. Section 56:9-1, et seq.

 Of the remaining eight claims, four are directed against the Defendant ABC: first, negligent misrepresentation, Count 11; second, breach of contract, Count 12; third, negligence, Count 13; and fourth, conspiracy to disparage, defraud, violate the New Jersey Consumer Fraud Act, and commit tortious interference with prospective business advantage, which is Count 14. The first three of these are asserted against ABC alone. The fourth is asserted against both ABC and the Times.

 The remaining four claims are asserted against the Defendant Times alone, and thus are again not the subject of this motion: first, disparagement, Count 7; second, fraud, Count 8; third, tortious interference with prospective business advantage, Count 9; and fourth, unlawful practices under the New Jersey Consumer Fraud Act, which is Count 10.

 The complaint seeks compensatory and statutory damages against both Defendants ABC and the Times, as well as injunctive relief, including an injunction against ABC's publication of any circulation figures with respect to the Defendant Trenton Times, unless such figures have been verified by an independent auditor approved by the Court.

 I will examine first the legal sufficiency of plaintiff's federal Sherman Act claims. As Judge Gibbons has stated in Martin v. Glauser Dodge Co. v. Chrysler Corp., 570 F.2d 72 (3d Cir.1977), cert. denied, 436 U.S. 913, 98 S. Ct. 2253, 56 L. Ed. 2d 413 (1978), "In order to sustain a cause of action under Section 1 of the Sherman Act, the plaintiff must prove: one, that the defendants, combined or conspired among each other; two, that the combination or conspiracy produced adverse anti-competitive effects within relevant product and geographic markets; three, that the objects of and the conduct pursuant to that contract or conspiracy were illegal; and four, that the plaintiff was injured as a proximate result of that conspiracy."

 More recent cases have clarified the law by holding that to successfully establish a claim under Section 1 of the Sherman Act, a plaintiff must prove either anti-competitive effect, or unlawful purpose. McClain v. Real Estate Board of New Orleans, 444 U.S. 232, at 243, 100 S. Ct. 502 at 509, 62 L. Ed. 2d 441 (1980); Tose v. First Pennsylvania Bank, N.A., 648 F.2d 879, 892 n. 17 (3d Cir.), cert. denied, 454 U.S. 893, 102 S. Ct. 390, 70 L. Ed. 2d 208 (1981).

 Defendant ABC argues that the complaint is deficient as to each of these elements. I disagree.

 First, it is undisputed that the complaint explicitly alleges in paragraph 28 that "Defendants ABC and the Times have combined and conspired to restrain and monopolize interstate trade and commerce in the sale of print advertising in violation of Sections 1 and 2 of the Sherman Act . . . ." See also paragraph 31. Further, as Defendant ABC notes, the complaint goes on to detail the alleged time period of the conspiracy, its object or purpose, which was to "eliminate competition in the sale of print advertising in the greater Trenton metropolitan area by draining advertising revenue from the competitors of the Times, including the Trentonian," as well as certain actions allegedly taken to effectuate the purposes of this conspiracy. These include ABC's failure to conduct a reasonable audit of Defendant Times' circulation figures, notwithstanding plaintiff's request and complaints in that regard, and ABC's knowing publication of false circulation figures for the Defendant Times and its representation that they were accurate, notwithstanding its knowledge that they were false.

 Contrary to ABC's contentions, I find that this satisfies plaintiff's burden at this stage of the proceedings. Plaintiff has alleged the existence of a conspiracy with a unity of purpose, and has identified its parties and time, as well as the actions allegedly taken to effectuate it. No further specificity is required in the complaint. See Leeward Petroleum, Ltd. v. Mene Grande Oil Co., 415 F. Supp. 158, a very instructive opinion by Chief Judge Latchum in the District of Delaware, 1976; and I find that the facts alleged do give rise to an inference supporting the existence of the conspiracy. See McKnight v. Southeastern Pennsylvania Transit Authority, 583 F.2d 1229, 1235-1236 (3d Cir.1978).

 Plaintiff's complaint clearly alleges that, one, the Times knowingly furnished false circulation figures to Defendant ABC, and two, ABC published those figures and represented to the public that they were accurate despite the fact that it actually knew that the figures were false. Further, the complaint suggests that neither party could accomplish the scheme without the other. On the basis of these ...


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