Antitrust Law Daily Wrap Up, ANTITRUST—DCNJ: Permeation Doctrine Did Not Bar Arbitration of Manufacturer’s Claims Against Terminated Distributor, (Jan 8, 2013)

By Jeffrey May, J.D.

A leading manufacturer of commercial roofing systems facing a terminated distributor's price discrimination claims in the federal district court in New Jersey can proceed with a parallel arbitration brought under Indiana common law, alleging that the distributor owed money on outstanding bills, the federal district court in New Jersey has ruled (Marjam Supply Co. v. Firestone Bldg. Prods. Co., January 7, 2013, Martini, W.).

The terminated distributor unsuccessfully sought a stay of the arbitration pursuant to Federal Rule of Civil Procedure 65, arguing that the arbitration would usurp the federal district court’s antitrust decisions. The distributor contended that a stay of the arbitration was justified by the “permeation doctrine,” which permits a federal court to stay arbitration in order to preserve its exclusive jurisdiction over non-arbitrable federal claims.

Assuming that the permeation doctrine would be accepted by the Third Circuit and that federal antitrust claims were non-arbitrable, the court concluded that any overlap between the antitrust issues and the arbitration claims was too insignificant to constitute permeation or to justify a stay of arbitration. To resolve the antitrust claims, the federal district court would have to determine whether the manufacturer engaged in price discrimination favoring the distributor's competitors. To resolve the arbitrable issue, including breach of contract and unjust enrichment, an arbitrator would have to decide whether the distributor accepted goods without remitting payment. The issues were dissimilar enough that the arbitrator could avoid deciding the ultimate antitrust issues, the court decided.

The court also noted that it would not stay arbitration based on the distributor's argument that the claims the manufacturer wished to arbitrate qualified as compulsory counterclaims under Federal Rule of Civil Procedure 13(a). Strong federal policy favoring arbitration weighs against a stay, it was noted. Also rejected was the distributor's argument that arbitration would cause irreparable harm.

This case is Civ. No. 11-7119 (WJM).

Alan M. Lebensfeld (Lebensfeld, Borker & Sussman, LLP) for Marjam Supply Co. Christopher Viceconte (Gibbons P.C.) for Firestone Building Products Co.

Cases: Antitrust FranchisingDistribution NewJerseyNews