United States Court of Appeals
For the First Circuit
No. 02-2114
DJ MANUFACTURING CORPORATION,
Plaintiff, Appellant,
v.
TEX-SHIELD, INC.,
Defendant, Appellee,
XYZ INSURANCE CO., CREATIVE APPAREL,
BLUCHER USA, BLUCHER GMBH.,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Jay A. García-Gregory, U.S. District Judge]
Before
Torruella, Selya and Lipez,
Circuit Judges.
Marc Lamer, with whom Kostos & Lamer, PC, Eugene F. Hestres
and Bird, Bird and Hestres were on brief, for appellant.
Timothy K. Beeken, with whom Debevoise & Plimpton, Daniel M.
Abuhoff, Correa, Collazo, Herrero, Jiménez & Fortuño and Pedro
Jiménez were on brief, for appellee.
July 28, 2003
TORRUELLA, Circuit Judge. Plaintiff-appellant DJ
Manufacturing ("DJM") alleges that Tex-Shield, Inc. ("Tex-Shield")
and Creative Apparel Associates ("Creative Apparel") violated,
inter alia, a Puerto Rican antitrust statute, 10 P.R. Laws Ann. §
264 (2002), by conspiring to destroy competition in the market for
chemical protective clothing in Puerto Rico.1 The district court
dismissed the complaint on a motion to dismiss. After careful
review, we reverse and remand for further proceedings.
I. Facts
Because this is an appeal from a dismissal under Fed. R.
Civ. P. Rule 12(b)(6), "[w]e glean the facts from the amended
complaint, stripped of any rhetorical gloss." Young v. Lepone, 305
F.3d 1, 4 (1st Cir. 2002).
DJM manufactures sewn clothing and equipage for the
United States military. It is a "small disadvantaged business"
under 48 C.F.R. § 19.001 (2003) (and a certified participant in the
Small Business Administration's program for contracts set aside to
small disadvantaged businesses under Section 8(a) of the Small
Business Act, 15 U.S.C. § 637(a) (2000).
1
The plaintiffs also alleged violations of Sections 1 and 2 of
the Sherman Act, 15 U.S.C. §§ 1 and 2, Sections 2(a), (e), and (f)
of the Robinson-Patman Act, 15 U.S.C. §§ 13(a), (e), (f), the
Puerto Rican statute dealing with price discrimination, 10 L.P.R.A.
§ 263, and the Puerto Rican statute dealing with transactions in
restraint of trade, 10 L.P.R.A. § 258. The district court's
decision is unchallenged with respect to these other claims.
-2-
Defendant Tex-Shield manufactures, and its parent Blucher
GmbH holds a patent for, technology used to produce a chemical
protective material known as "Saratoga Filter Cloth" (the "Cloth").
The Cloth is a protective shield against biological and chemical
agents sewn into garments purchased by the United States military
and used for protection against attack by chemical warfare.
In July 1993, the United States Air Force ("USAF")
requested bids for the production of 40,000 Chemical Defense
Coveralls. The bidding was limited to businesses participating in
the SBA's § 8(a) program, such as DJM. The USAF specified that the
coveralls must be made using the Cloth and identified Tex-Shield as
the sole source. DJM won the contract.
DJM then subcontracted with Tex-Shield to buy the Cloth
for a price of $49.27 per yard. Subsequently, DJM and Tex-Shield
made a "technical services" contract, whereby, for a fee of $35,000
per month for twelve months, Tex-Shield agreed to provide DJM with
certain technical services.
On June 24, 1994, the Defense Personnel Support Center
("DPSC") solicited proposals for the production of at least 100,000
chemical and biological suits, with an option for more. As with
the USAF solicitation, the DPSC solicitation was limited to SBA's
§ 8(a) program participants. Also, the solicitation required the
suits be made with the Cloth; again, Tex-Shield was identified as
the Cloth's sole approved source.
-3-
In preparing its bid for DPSC, DJM inquired as to the
cost of procuring the Cloth. Tex-Shield quoted DJM a price of
$38.71 per yard for the first 100,000 suits, and $41.07 per yard
for any additional yardage. Tex-Shield quoted DJM a price of
$148.95 for the first 100,000 suits in pre-cut "kits" and $154.43
per kit for any extra kits. Based on these quotes, DJM offered
DPSC a price of $186.62 per unit for the first 100,000 suits and
$183.50 for any more suits. Creative Apparel bid $179.55 for the
first 100,000 suits and $186.02 for any extra. Creative won the
contract.
DJM filed a complaint against Tex-Shield, Blucher USA,
Blucher GmbH, and Creative Apparel,2 alleging several federal and
state antitrust violations. The complaint included allegations
that Tex-Shield violated § 264 of the Puerto Rico Anti-Monopoly Act
by selling goods in Puerto Rico at prices different from the
articles' price when sold elsewhere.
The district court dismissed all of the consolidated
actions, including the § 264 count, for failure to state a cause of
action. See Fed. R. Civ. P. 12(b)(6). In dismissing the § 264
count, the district court read the section only as an anti-dumping
2
Tex-Shield is wholly-owned by Blucher USA, which in turn is
wholly-owned by Blucher GmbH. Creative Apparel is, like DJM, a
clothing and equipage manufacturer. Tex-Shield, the Cloth's sole
supplier, also makes finished chemical and biological protective
clothing.
-4-
statute, forbidding the sale of goods at lower prices in Puerto
Rico.
DJM appeals only the lower court's dismissal of the § 264
count, as DJM waived all other appealable errors.
II. Standard of Review
We review the district court's resolution of Tex-Shield's
motion to dismiss de novo. Beddall v. State St. Bank & Trust Co.,
137 F.3d 12, 16 (1st Cir. 1998). When a litigant is facing a
summary dismissal, we first accept the complaint's well-pleaded
factual allegations as true, drawing all reasonable inferences in
the plaintiff's favor, and then determine whether this reading of
the complaint justifies recovery on any cognizable theory. Martin
v. Applied Cellular Tech., Inc., 284 F.3d 1, 6 (1st Cir. 2002).
Summary disposals "should be used sparingly in complex antitrust
litigation where motive and intent play leading roles, the proof is
largely in the hands of alleged conspirators, and hostile witnesses
thicken the plot." Poller v. Columbia Broad. Sys., Inc., 368 U.S.
464, 473 (1962).
III. Analysis
Two issues require discussion. First, we consider if the
district court erred when it limited the interpretation of the
phrase "at prices which are substantially different" to only those
situations where a supplier offers its product at a substantially
lower price to Puerto Rican customers as opposed to non-Puerto
-5-
Rican customers, and ruled out those situations where a supplier
charged the Puerto Rican company substantially more than a
non-Puerto Rican company. Second, we decide if DJM's complaint
alleges sufficient facts to establish a § 264 claim, including
whether the complaint at least inferentially asserts that (1) Tex-
Shield's alleged conduct is aimed at "destroying competition or
eliminating a competitor located in Puerto Rico"; and (2) the goods
at issue are of the same grade or quality.
A. Statutory Interpretation
Neither this circuit nor the Puerto Rican commonwealth
courts have determined the pricing behaviors covered by § 264. DJM
contends that the statute prohibits charging either less or more
for goods in Puerto Rico. Thus, DJM argues that the district court
erred when it viewed the statute as an anti-dumping statute that
prohibits only the charging of lower prices in Puerto Rico.
Finally, DJM argues that § 264 is clear on its face and that we
should thus refrain from examining its legislative history. We
agree.
Where the statute's language is clear, and its terms do
not lead to "absurd or wholly impracticable consequences," the
words used are generally taken as the final expression of the
intended meaning. Caminetti v. United States, 242 U.S. 470, 490
(1917); see also United States v. Mo. Pac. R.R., 278 U.S. 269, 277-
78 (1929) ("where no ambiguity exists, there is no room for
-6-
construction"). Although different canons of statutory
construction may apply when construing statutes in a civil code
system as opposed to statutes in a common law system, we need not
concern ourselves with these differences because the Puerto Rico
legislature provides a clear command as to the first step of civil
code interpretation: "When a law is clear and free from all
ambiguity, the letter of the same shall not be disregarded, under
the pretext of fulfilling the spirit thereof." 31 P.R. Laws Ann.
§ 14 (1967 & Supp. 1989); see also Pritzker v. Yari, 42 F.3d 53,
66-67 (1st Cir. 1994) (declining to "wander beyond the four
corners" of a Puerto Rican statute to discern "legislative
intent").
Here, the statute is clear regarding the pricing behavior
it targets. Section 264 states:
It shall be unlawful to sell, contract to
sell, offer to sell, or participate in any
step for the sale of articles in Puerto Rico,
after making due allowance for differences in
costs incident to the delivering of goods in
Puerto Rico and the costs of handling such
goods in Puerto Rico, at prices which are
substantially different from prices charged or
quoted by such sellers for goods of the same
grade or quality to buyers located outside of
Puerto Rico, when such difference in price is
granted with the purpose of destroying
competition or eliminating a competitor
located in Puerto Rico.
10 P.R. Laws Ann. § 264 (emphasis added). Unlike the Federal
Anti-Dumping Act of 1916, which the district court adopted as the
definitive model for this statute, there is no specific prohibition
-7-
against charging "a price substantially less" in Puerto Rico --
instead the legislature chose the broader term "substantially
different," which covers both higher and lower pricing.3
Because we hold the statutory language embraces both
higher and lower prices on its face, we need not enter the quagmire
of legislative history or use other tools of construction. The
district court judge erred in interpreting the provision too
narrowly, and that interpretation is reversed.
B. Sufficiency of Factual Allegations
Having decided the statute includes both higher and lower
price discrimination, we consider whether the complaint's
3
The Federal Anti-Dumping Act reads in pertinent part:
It shall be unlawful for any person importing or
assisting in importing any articles from any foreign
country into the United States, commonly and
systematically to import, sell or cause to be imported or
sold such articles within the United States at a price
substantially less than the actual market value or
wholesale price of such articles, at the time of
exportation to the United States, in the principal
markets of the country of their production, or of other
foreign countries to which they are commonly exported
after adding to such market value or wholesale price,
freight, duty, and other charges and expenses necessarily
incident to the importation and sale thereof in the
United States: Provided, That such act or acts be done
with the intent of destroying or injuring an industry in
the United States, or of preventing the establishment of
an industry in the United States, or of restraining or
monopolizing any part of trade and commerce in such
articles in the United States.
15 U.S.C. § 72 (2003) (emphasis added). Clearly, the Puerto Rican
legislature did not merely adopt the provision wholesale, but
rather changed significant portions of it.
-8-
allegations and any logical inferences therefrom "justify recovery
on any cognizable theory." Martin, 284 F.3d at 6. Here, DJM
claims that the prices Tex-Shield charged to Creative Apparel were
lower than those quoted to DJM plainly suffice to survive
dismissal.
Even if the statute applies to the alleged charging of
higher prices in Puerto Rico, there are still two possible
obstacles to stating a claim under § 264. First, § 264 prohibits
a supplier from charging different prices for the purpose of
destroying the supplier's "competition or eliminating a competitor
located in Puerto Rico." Second, § 264 requires that the goods be
of "the same grade and quality." The district court did not
address either issue; taking all inferences in DJM's favor, we find
the district court erred in dismissing the complaint.4
1. Adverse Impact on Competition or Competitor
A well-pleaded § 264 claim must include allegations that
the price discrimination was for "the purpose of destroying
competition or eliminating a competitor located in Puerto Rico."
In its complaint, DJM contends that Tex-Shield and Creative Apparel
entered into "an agreement" involving, among other things,
investment by Tex-Shield in Creative Apparel as part of a
joint strategy to secure and maintain for the
Blucher defendants monopoly power in United
4
This is not a case in which the district court converted the
12(b)(6) motion into a motion for summary judgment.
-9-
States trade and commerce in Chemical
Protective Cloth . . . and to attempt to
secure and maintain, and to secure and
maintain, monopoly power for Creative
[Apparel] in United States trade and commerce
in Chemical Protective Clothing, as well as in
such trade and commerce in the § 8(a) market.
It is not irrational for a monopoly-holder such as Tex-Shield to
act with the intent of sabotaging one of its two customers.5 Such
a concerted effort to establish and maintain monopoly power in the
relevant markets, if proven, would meet § 264's purpose requirement
because it would constitute an intent to harm competition in the
chemical protective clothing market or eliminate DJM as Creative
Apparel's competitor; thus, DJM's pleadings on this count suffice
to meet § 264's intent requirement. Compare In re Compact Disc
Minimum Advertised Price Antitrust Litig., 138 F. Supp. 2d 25, 28
n.4 (D. Me. 2001) (denying motion to dismiss where it was "not
irrational or implausible to infer agreement from the facts
alleged"), with DM Research, Inc. v. Coll. of Am. Pathologists, 170
F.3d 53, 55-56 (1st Cir. 1999) (affirming dismissal where complaint
"merely assert[ed] a conspiracy in conclusory terms" and stating
that allegation of some fact pertaining to an agreement would be
5
Both the allegation that Tex-Shield is building "additional
manufacturing operations" near Creative Apparel's plant and the
claim that Tex-Shield is investing in Creative Apparel to "enhance
its financial condition" could, if proven, support a finding of an
anti-competitive purpose to the price differential. Both of these
facts suggest a special relationship between Tex-Shield and
Creative Apparel that would make it logical for them to conspire to
destroy competition in the chemical protective clothing market.
-10-
necessary to overcome the improbability of a conspiracy against the
interests of one or more of the parties).
2. Goods of Same Grade and Quality
Finally, § 264 requires that DJM allege that Tex-Shield
was quoting different prices for "goods of the same grade or
quality." Defendants argue that "the goods for which DJM requested
a price -- pre-cut fabric kits -- were not the same grade or
quality as the goods on which Creative Apparel requested a price --
uncut cloth on the roll." Although this argument may ultimately
have merit, it does not preclude inferences from the complaint
sufficient to defeat a Rule 12(b)(6) motion.
It is possible to infer from the complaint that the goods
at issue were of the same grade and quality. According to the
complaint, a DPSC report indicates that "Defendant Tex-shield had,
in fact, offered the Blucher Chemical Protective Cloth to Creative
at a significantly lower price than it had offered the cloth to
DJM." Given that the final product, the chemical protective
clothing, had to be produced according to military specifications
that included use of the Cloth, it is a reasonable inference --
without considering any contrary proof -- that the goods at issue
(the Cloth) had to be of the same grade and quality.6 Cf. Arruda
6
We find the defendant's reliance on Lubbock Glass & Mirror Co.
v. Pittsburgh Plate Glass Co., 313 F. Supp. 1184, 1187 (N.D. Tex.
1970), unfounded. In Lubbock Glass, the court found that glass,
doors, frames and windows could not be considered of like kind and
quality when conveyed in different contracting jobs, because
-11-
v. Sears, Roebuck & Co., 310 F.3d 13, 18 (1st Cir. 2002)
(indicating that in evaluating propriety of 12(b)(6) motion, the
court must "assume the truth of all well-pleaded facts and indulge
all reasonable inferences therefrom that fit the plaintiff's stated
theory of liability").
IV. Conclusion
For the foregoing reasons, the district court's dismissal
of the complaint is reversed and the case is remanded for further
proceedings consistent with this opinion. We intimate no view as
to whether, after pretrial discovery, trialworthy issues will be
shown to exist.
Reversed and remanded.
"intangible items, such as installation, weather conditions, the
architect or contractor in charge of the job and other intangibles
make each job unique or different." Id. at 1185. Further the
court stated that
commercial installed contracts . . . are a combination of
many ingredients, none of which are subject to exact
calculation. A difference in one ingredient could and
probably would occasion a difference in the total price
or bid. Apparently, someone calculating a bid for a
commercial installed contract cannot even determine
exactly the material costs involved.
Id. at 1186-87. The Cloth needed by both DJM and Creative is the
same and the costs involved are easily estimated, as shown by DJM's
own calculation of cutting costs.
-12-