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1997 Term, Number 12 / March 23, 1998

Today the Court granted certiorari in two cases of interest to the business community. Amicus briefs in support of the petitioners in these cases are due on May 7, 1998, and amicus briefs in support of the respondents are due on June 8 (because June 6 is a Saturday). Any questions about these cases should be directed to Evan Tager (202-778-0618) or Alan Untereiner (202-778-0656) in our Washington office.

1. Sherman Act Group Boycott Conspiracy To Monopolize. The Court granted certiorari in NYNEX Corp. v. Discon Inc., No. 96-1570, to decide whether, in the absence of any issue of horizontal restraints or vertical price restraints, a supplier may bring suit against a former purchaser and the purchaser's new supplier based on the theory that the agreement between the former purchaser and the new supplier is (1) a group boycott in violation of Section 1 of the Sherman Act or (2) a conspiracy to monopolize in violation of Section 2 of the Sherman Act.

Discon Incorporated (Discon) is a supplier of telephone equipment removal services. In the past, it sold those services to New York Telephone Company (NYT), a subsidiary of NYNEX Corporation (NYNEX), as well as to another NYNEX subsidiary, NYNEX Material Enterprises Company (MECo), which served as a purchasing agent for the NYNEX companies. NYT purchased removal services, either directly or through MECo, from a number of suppliers including Discon and AT&T Technologies, Inc. (AT&T Technologies). After some time, MECo stopped purchasing from Discon, and thereafter, NYT did as well.

Discon brought suit against NYNEX, NYT, and MECo alleging, among other things, that defendants had unlawfully conspired with AT&T Technologies in violation of Sections 1 and 2 of the Sherman Act by purchasing removal services at inflated prices (part of which defendants allegedly recouped via a secret rebate scheme) in order to eliminate Discon as a competitor. The United States District Court for the Western District of New York granted the NYNEX defendants' motion to dismiss Discon's Section 1 and 2 claims.

A panel of the Second Circuit affirmed in part and reversed in part. 93 F.3d 1055 (1996). After concluding that the district court had properly dismissed Discon's claim of a horizonal conspiracy to restrain trade between AT&T Technologies and the NYNEX defendants, the panel went on to opine that "Discon may be able to prevail under a different legal theory." Id. at 1060. Discon's Sherman Act Section 1 claim alleging an unlawful two-firm group boycott, the Second Circuit held, survives a motion to dismiss because the group boycott doctrine announced in Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207 (1959), could be "extended * * * to the situation where only a single retailer and a single manufacturer conspire" (93 F.3d at 1060), especially in light of the fact that "no * * * procompetitive rationale appears on the face of the complaint." Id. at 1061. Similarly, Discon's allegation of conspiracy to monopolize states a valid claim under Section 2 because a purchaser "may be liable for conspiracy to monopolize where it agrees with [a supplier] to assist [the supplier] in its attempt to monopolize the relevant market." Id. at 1062.

The Second Circuit's decision conflicts with the decisions of many other Circuits expressly refusing to extend the group boycott doctrine under Klor's to two-firm supplier-purchaser situations. See, e.g., Bailey's, Inc. v. Windsor America, Inc., 948 F.2d 1018, 1031 (6th Cir. 1991); Lomar Wholesale Grocery, Inc. v. Dieter's Gourmet Foods, Inc., 824 F.2d 582, 590-91 (8th Cir. 1987). It also conflicts with the decisions of many other Circuits holding that a buyer's agreement to use one supplier rather than another does not constitute a conspiracy to monopolize in violation of Section 2 of the Sherman Act. See, e.g., Seagood Trading Corp. v. Jerrico, Inc., 924 F.2d 1555, 1576 (11th Cir. 1991); Dreiling v. Peugeot Motors of America, Inc., 850 F.2d 1373, 1382 (10th Cir. 1988).

This case should be of interest to a broad range of businesses.

2. Collective Bargaining Agreements Union Security Provisions. So-called "union security provisions" are provisions of collective bargaining agreements (CBAs) that require the employer to hire only dues-paying members of the union. The Supreme Court has held that such agreements are permissible under the National Labor Relations Act to the extent the dues cover activities "germane to collective bargaining, contract administration, and grievance adjustment." Communications Workers v. Beck, 487 U.S. 735, 742 (1988). In addition, Section 8(a)(3) of the Act specifically provides that union security provisions may not be applied to prevent employment of an individual until "the thirtieth day following the beginning of such employment." 29 U.S.C. 158(a)(3). The Supreme Court granted certiorari in Marquez v. Screen Actors Guild, Inc., No. 97-1056, to determine (i) whether a union breaches its duty of fair representation by negotiating a security provision that requires payment of full union dues and fees; (ii) whether a claim based on the proper interpretation of the 30-day grace period set forth in 29 U.S.C. 158(a)(3) is within the exclusive jurisdiction of the National Labor Relations Board (NLRB); and (iii) whether an employer that has entered into a CBA is a necessary party to an employee's suit alleging that the union negotiated unlawful terms in that agreement.

Lakeside Productions, producer of the television series "Medicine Ball," entered into a CBA with the Screen Actors Guild. The CBA provided that any actor who had previously worked more than 30 days in the motion picture industry was required to be "a member of the Union in good standing" and to pay periodic dues and initiation fees. Part-time actress Naomi Marquez was offered a small part in "Medicine Ball." The Guild informed Marquez that she was obligated to pay initiation fees and dues before she would be cleared for work. Marquez failed to do so, and the part was given to another actress.

Marquez filed suit, alleging that the Guild breached its duty of fair representation by failing to grant a 30-day grace period for each period of employment in the industry, by requiring membership in the union as a condition of employment, and by demanding full payment of union dues rather than informing Marquez of her right to pay only that portion of union fees and dues attributable to collective bargaining, contract administration, and grievance adjustment. Marquez also sued Lakeside, alleging that, because she was seeking reformation of the contract, Lakeside was a necessary party to the suit. The district court granted summary judgment in favor of both defendants on all counts, holding that the claim based on the 30-day grace period was within the exclusive jurisdiction of the NLRB, and that Marquez had failed to raise a material question of fact about her other claims.

The Ninth Circuit affirmed in all respects. 124 F.3d 1034 (1997). It noted that under Beck the Guild was no longer permitted to require full membership in the union as a condition of employment and could not, therefore, enforce the literal terms of the security clause in the CBA between the Guild and Lakeside. Nevertheless, the court explained, Beck did not call into question the facial validity of security clauses. Thus,

the union's negotiation of the security clause could not have been arbitrary or in bad faith as would be required for a finding that the union violated its duty of fair representation. Id. at 1039. As for the claims against Lakeside, the Ninth Circuit reasoned that, because the plaintiff's facial challenge to the union security clause had been dismissed, she was no longer entitled to reformation of the contract and Lakeside therefore was no longer a necessary party. Id. at 1043-1044. Finally, the court agreed with the district court that the NLRB has exclusive jurisdiction over claims relating to the 30-day grace period in Section 8(a)(3). Id. at 1040-1041. Marquez challenged the propriety of all three rulings in her petition for certiorari, which was granted in its entirety.

Employers that have entered into union security provisions should be interested in the Court's resolution of the issues in this case.

Copyright 1998 Mayer, Brown & Platt. This Mayer, Brown & Platt publication provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

This Mayer, Brown, Rowe & Maw Supreme Court Docket Report provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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