Source: https://casetext.com/case/milsen-company-v-southland-corporation
Timestamp: 2020-07-05 12:26:46
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Matched Legal Cases: ['§ 1', '§ 13', '§ 1', '§ 2', '§ 14', '§ 18', '§ 13', '§ 14']

Milsen Company v. Southland Corporation, 454 F.2d 363 | Casetext Search + Citator
Milsen Company v. Southland Corporation
See Menominee Rubber Co. v. Gould, Inc., 657 F.2d 164, 167 (7th Cir. 1981); Reinders Bros. v. Rain Bird…
358 U.S. at 520-521, 79 S.Ct. 429.See Milsen Co. v. Southland Corp., 454 F.2d 363 (7th Cir. 1971); Sunshine…
Full title:MILSEN COMPANY, A CORPORATION, ET AL., PLAINTIFFS-APPELLANTS, v. THE…
Date published: Jan 25, 1972
454 F.2d 363 (7th Cir. 1972)
In Milsen, after the franchisees filed their complaint alleging that the defendants had violated both the Sherman Act and the Clayton Acts, the defendants sent default notices to the plaintiffs informing them that the agreements would be terminated in 15 days if the past due fees were not paid. 454 F.2d at 364.
Summary of this case from 7-Eleven, Inc. v. Violet Spear Vianna, Inc.
December 13, 1971. Rehearing Denied January 25, 1972.
G. Duane Vieth, Washington, D.C., Earl E. Pollock, Donald E. Egan, Chicago, Ill., for defendants-appellees.
This is an appeal from the trial court's denial of a preliminary injunction against termination of franchise agreements pending the trial of an antitrust suit against the franchisor.
This court on June 11, 1971, granted plaintiffs' motion for injunction pending appeal. The order enjoined Southland and Northern Illinois Open Pantry from collecting franchise fees from plaintiffs who posted appropriate bonds.
On March 8, 1971, plaintiffs filed their complaint, alleging that defendants had violated sections of the Sherman and Clayton Acts. On April 15, defendants answered the complaint; Northern Illinois filed a counterclaim for franchise fees and rents allegedly in arrears. On the same day, Northern Illinois served notices of default on plaintiffs and on the owners of six other franchised stores. The notices stated that the franchise agreements would be terminated in 15 days if the outstanding fees and rents were not paid.
15 U.S.C. § 1 and 2; 15 U.S.C. § 13, 14 and 18.
1. Combining to restrain trade through tie-ins and price fixing ( 15 U.S.C. § 1). The franchise agreement requires the store owner to stock items designated and in quantities specified by the franchisor. The franchisor's agreement to replace stock which is not sold in a reasonable time does not apply to items not recommended by the franchisor. In another clause of the agreement, the store owner agrees to sell only those products which are approved by the franchisor's merchandising service. He agrees to buy equipment under the direction of the franchisor. The plaintiffs who took the stand testified that Open Pantry required them to buy groceries from defendant M. Loeb, to buy dairy products from defendant Wanzer, and to enter into leases and insurance and loan agreements with Open Pantry or companies designated by it.
2. Attempting to monopolize the wholesale and retail grocery business through the above practices ( 15 U.S.C. § 2).
3. Requiring the store owners not to buy goods from competitors of the designated suppliers ( 15 U.S.C. § 14). The basis for this alleged violation is described above. In addition, Open Pantry forbade the store owners to display merchandise, set up in-store promotions or talk to salesmen from food distributors except when authorized by the franchisor.
4. Acquiring corporations with the effect of lessening competition ( 15 U.S.C. § 18). Southland offered Open Pantry store owners inducements to convert their store to the "7-Eleven" chain, also owned by Southland. In some instances plaintiffs' primary competitors were 7-Eleven stores. Also, Open Pantry required its franchisees to buy their dairy products from another Southland subsidiary, Wanzer Sons.
Plaintiffs also alleged but did not attempt to prove discrimination in prices, discounts and services ( 15 U.S.C. § 13 and 13a).
There is little doubt that plaintiffs have established at least a prima facie case of antitrust violations under the four categories enumerated above. Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495, 89 S.Ct. 1252, 22 L.Ed.2d 495 (1969) (tying prefabricated houses to loans); F T C v. Texaco, Inc., 393 U.S. 223, 89 S.Ct. 429, 21 L.Ed.2d 394 (1968) (tying leases and gasoline contracts to tires, batteries and accessories); Siegel v. Chicken Delight, Inc., 311 F. Supp. 847 (N.D.Cal. 1970), aff'd except on damages issue, 448 F.2d 43 (9th Cir. 1971) (tying trademarks to supplies). Price-fixing violations were found in Albrecht v. Herald Co., 390 U.S. 145, 88 S.Ct. 869, 19 L.Ed.2d 998 (1968); Simpson v. Union Oil Co., 377 U.S. 13, 84 S.Ct. 1051, 12 L.Ed.2d 98 (1964); and United States v. Parke, Davis Co., 362 U.S. 29, 80 S.Ct. 503, 4 L.Ed.2d 505 (1960). The Brown Shoe cases are examples of exclusive dealing in violation of 15 U.S.C. § 14 (F T C v. Brown Shoe Co., 384 U.S. 316, 86 S.Ct. 1501, 16 L.Ed.2d 587 (1966)), and vertical and horizontal mergers which lessen competition (Brown Shoe Co. v. United States, 370 U.S. 294, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962)).
Under the district judge's view of the case, he did not need to (and did not) make any finding on whether antitrust violations were shown. It is necessary for us to review the record and the law to determine the probability of plaintiffs' success on the merits, to evaluate the equities between the parties, and to provide a background for considering the relationship between the alleged antitrust violations and the threatened terminations of the franchise agreements.
Semmes Motors, Inc. v. Ford Motor Co., 429 F.2d 1197 (2d Cir. 1970), suggests in a similar case that because of the imbalance of hardship, a plaintiff need not show a likelihood of success. A temporary injunction should be granted if the questions raise "a fair ground for litigation." 429 F.2d at 1205-06. Under either standard, plaintiffs in this case have met their burden.
Many courts have held that defendants who are or may be guilty of anticompetitive practices should not be permitted to terminate franchises, leases or sales contracts when such terminations would effectuate those practices. Semmes Motors, Inc. v. Ford Motor Co., 429 F.2d 1197 (2d Cir. 1970); Sahm v. V-1 Oil Co., 402 F.2d 69 (10th Cir. 1968); Broussard v. Socony Mobil Oil Co., 350 F.2d 346 (5th Cir. 1965); Bergen Drug Co. v. Parke, Davis Co., 307 F.2d 725 (3d Cir. 1962); Bateman v. Ford Motor Co., 302 F.2d 63 (3d Cir. 1962); Interphoto Corp. v. Minolta Corp., 295 F. Supp. 711 (S.D.N.Y.), aff'd, 417 F.2d 621 (2d Cir. 1969); Wurzberg Brothers, Inc. v. Head Ski Co., 276 F. Supp. 142 (D.N.J. 1967); Madsen v. Chrysler Corp., 261 F. Supp. 488 (N.D. Ill. 1966), vacated as moot, 375 F.2d 773 (7th Cir. 1967); McKesson and Robbins, Inc. v. Charles Pfizer Co., 235 F. Supp. 743 (E.D.Pa. 1964).
See also Wilson, "An Emerging Enforcement Policy for Franchising," 15 New York Law Forum 1 (1969).
Contra, Miller Plymouth Center, Inc. v. Chrysler Motors Corp., 286 F. Supp. 529 (D.Mass. 1968). The court appeared to conclude that money damages would be proper and adequate relief because the court could not order the parties to continue their relationship indefinitely. But the court could nevertheless have enjoined termination for anticompetitive purposes.
The most common situation is a suit by an automobile dealer under the "Dealer's Day in Court Act," which provides for damages only. In reversing the denial of a preliminary injunction against termination of one such dealership, the Third Circuit Court of Appeals said: "A judgment for damages acquired years after his franchise has been taken away and his business obliterated is small consolation to one who . . . has had a . . . franchise since 1933." Bateman, supra, 302 F.2d at 66. The Second Circuit expressed a similar sentiment in Semmes, supra, 429 F.2d at 1205: "[Franchises] want to sell automobiles, not to live on the income from a damages award." These cases recognize the vested interest a franchisee builds in his business through years of effort and expenditure, as noted by this court in Beloit Culligan Soft Water Service, Inc. v. Culligan, Inc., 274 F.2d 29, 34 (7th Cir. 1959).
In Kelly v. Kosuga, 358 U.S. 516, 79 S.Ct. 429, 3 L.Ed.2d 475 (1959), defendant (an onion grower) bought 50 carloads of onions at a fair price. The defendant alleged that plaintiff (another onion dealer) had coerced him and others into buying the onions to prevent plaintiff from dumping 600 carloads of onions on the futures market. The Court held for the plaintiff because, again, it could enforce the sales contract without enforcing the precise conduct made illegal by the antitrust statutes. Shoaf v. Triangle Publications, Inc., 43 F.R.D. 10 (E.D.Pa. 1967), followed Kelly in awarding a counterclaim to the seller of newspapers, where the defense was that the seller's resale price maintenance policy violated the Sherman Act.
4. Most important, if a court allows defendants to collect the franchise fees or terminate the franchises, it must in effect approve the possible antitrust violations. Continental Wall Paper Co. v. Louis Voight Sons Co., 212 U.S. 227, 29 S.Ct. 280, 53 L.Ed. 486 (1909), limited in Wilder Mfg. Co. v. Corn Products Refining Co., 236 U.S. 165, 35 S.Ct. 398, 59 L.Ed. 520 (1915); and Farbenfabriken Bayer, A. G. v. Sterling Drug, Inc., 307 F.2d 207 (3d Cir. 1962), cert. denied, 372 U.S. 929, 83 S.Ct. 872, 9 L.Ed.2d 733 (1963).
Even more convincing evidence of the connection between the franchise fees and the antitrust violations is the arrangement for selling dairy products. Open Pantry required its franchisees to buy and resell dairy products from defendant Wanzer, and from no other dairy. Wanzer's price for a gallon of milk was as much as 32 cents higher than other brands. The resale price dictated by Open Pantry was higher than resale prices for other brands, but so low in comparison with the wholesale price that plaintiffs lost as much as 9 cents on each sale of a gallon of milk. Various plaintiffs testified that the high Wanzer prices jeopardized their competitive positions against other grocery stores. Since dairy products constituted 15 to 20 percent of the volume in their stores and were a primary attraction to get customers into the convenience groceries, business as a whole suffered. Declining sales made it difficult for plaintiffs to pay their franchise fees.
Plaintiffs were able to come to this conclusion by comparing gross sales and profits with those during the period of the milk strike in 1970, when they were allowed to buy other brands of dairy products.
The franchisor promoted Wanzer as the exclusive supplier of dairy products because Wanzer rebated 14 percent of Open Pantry outlet sales proceeds to Northern Illinois Open Pantry. Supposedly, the franchisor applied these rebates against the franchise fees due from plaintiffs. But the rebates were not enough to cover the monthly accumulation of franchise fees.
A franchisee received no credit against his fees for purchases of other brands of dairy products.
The inequities of this arrangement prove the wisdom of courts which have refused to permit a party to benefit from contractual rights when the contract is an instrument of restraint of trade. Osborn v. Sinclair Refining Co., 324 F.2d 566 (4th Cir. 1963); Wurzberg Brothers, Inc. v. Head Ski Co., 276 F. Supp. 142 (D.N.J. 1967). If the agreement violates antitrust laws, "it follows that the reasons for defendant's refusal to renew [or termination of] the plaintiff's franchise become immaterial and irrelevant." Wurzberg, supra at 146.
We recognize the general rule that a reviewing court will reverse the grant or denial of an interlocutory injunction only where the district court's order abuses its discretion. But "where it is plain that the disposition was in substantial measure a result of the lower court's view of the law, which is inextricably bound up in the controversy, the appellate court can, and should review such conclusions." Societe Comptoir etc. v. Alexander's Dept. Stores, Inc., 299 F.2d 33 (2d Cir. 1962). Where the lower court's conclusions and applications of law are erroneous, as we have found here, even the denial of a preliminary injunction should be reversed if necessary to protect the parties' rights. Ring v. Spina, 148 F.2d 647 (2d Cir. 1945); see also Bateman v. Ford Motor Co., 302 F.2d 63 (3d Cir. 1962); Perry v. Perry, 88 U.S.App.D.C. 337, 190 F.2d 601 (D.C. Cir. 1951).
Misapplication of the law to particular facts is itself an abuse of discretion. United States v. Beaty, 288 F.2d 653 (6th Cir. 1961); Clemons v. Board of Education, 228 F.2d 853 (6th Cir.), cert. denied, 350 U.S. 1006, 76 S.Ct. 651, 100 L.Ed. 868 (1956).
Northern Illinois took this ejectment action in the midst of the appeal at its own risk. But we believe the trial on the merits is the more appropriate forum for a determination of whether the risk was a permanent injunction returning the stores to the plaintiffs' possession, or treble damages for their losses. See Ramsburg v. American Investment Co., 231 F.2d 333 (7th Cir. 1956).
The Ramsburg case was settled following the 1956 opinion denying the motion to dismiss the appeal.
Our opinion does not compel a holding that plaintiffs owe no franchise or other fees to defendants. Siegel v. Chicken Delight, Inc., 311 F. Supp. 847 (N.D.Cal. 1970), did not allow as an offset against damages a reasonable value for the Chicken Delight license or the value of the tied products. The Ninth Circuit remanded the case for a limited trial on the damages issue and said: "To ascertain whether an unlawful arrangement for the sale of products has caused injury to the purchaser, the cost or value of the products involved, free from the unlawful arrangement, must first be ascertained." 448 F.2d 43, 52 (9th Cir. 1971). If the district court finds plaintiffs entitled to treble damages, it should award defendants an offset of the reasonable value of services which benefited plaintiffs and were not bound up with any illegal practices by defendants.
Defendants Open Pantry Food Marts and Open Pantry Development Corp. challenge the district court's jurisdiction under the antitrust statutes. They claim plaintiffs have shown no effect on interstate commerce. Their objection is untenable, according to similar cases involving antitrust complaints against national franchises. Siegel v. Chicken Delight, Inc., 311 F. Supp. 847 at 850 (N.D.Cal. 1970), aff'd except on damages issue, 448 F.2d 43 (9th Cir. 1971); Susser v. Carvel Corp., 206 F. Supp. 636 at 651 (S.D.N.Y. 1962), aff'd, 332 F.2d 505 (2d Cir.), cert. granted, 379 U.S. 885, 85 S.Ct. 158, 13 L.Ed.2d 91 (1964), cert. dismissed, 381 U.S. 125, 85 S.Ct. 1364, 14 L.Ed.2d 284 (1965).
Defendants rely primarily on two cases of local price wars, where the courts found no effect on interstate commerce Uniform Oil Co. v. Phillips Petroleum Co., 400 F.2d 267 (9th Cir. 1968); Atlantic Co. v. Citizens Ice Cold Storage Co., 178 F.2d 453 (5th Cir. 1949), cert. denied, 339 U.S. 953, 70 S.Ct. 841, 94 L.Ed. 1365 (1950). But those cases appear to conflict with the Supreme Court's holding in Moore v. Mead's Fine Bread Co., 348 U.S. 115, 75 S.Ct. 148, 99 L.Ed. 145 (1954).
In Milsen Co. v Southland Corp. (454 F.2d 363, 366), the Court of Appeals for the Seventh Circuit stated as follows: "Many courts have held that defendants who are or may be guilty of anti-competitive practices should not be permitted to terminate franchises, leases or sales contracts when such terminations would effectuate those practices.