Court Opinion

ID: 3688262
Source: CourtListenerOpinion
Date Created: 2016-07-06 06:31:46.28068+00
Date Added: 2024-06-11T15:32:17.664086
License: Public Domain

I concur in the determination that there is an omission of a necessary party, and that on the evidence the plaintiff has not proved a violation of the "Valentine Act." Section 1331.01 etseq., Revised Code.
The plaintiff attacks the legality of certain acts of Gera Corporation and other individuals. On the assumption that this conduct is illegal, plaintiff then contends that it would be an abuse of discretion for a public official to enter into a contract which is the product of that illegal conduct. The appellant joined only the liquor director in this action.
The injury perpetrated or threatened here may be subject to injunctive action under the "Valentine Act." Assuming it is, plaintiff might also be entitled to join, and obtain ancillary relief against, the liquor director in order to afford a complete and meaningful remedy. However, in the present case, plaintiff has placed in issue the legality of Gera's actions without making Gera a party. A decision which would deny to the liquor director the right to enter into the proposed contract would obviously interfere with a substantial right of Gera. It would not, however, be binding on Gera. I, therefore, believe that the person alleged to be acting illegally is a necessary party to a complete determination of the controversy. Further, it should *Page 40 
be noted that plaintiff has here attempted to foist solely upon the director the obligation to defend the legality of the conduct of private third persons of which he and his department do not necessarily have personal knowledge. There is no claim of fraud or collusion on the part of the director. I do not believe that the courts should, as a matter of policy, place public officials in such a position when they are proposing to let a contract.
The question of necessary parties would not dispose of this suit. Sections 2307.26 and 2323.05, Revised Code. I, therefore, also concur in the finding that on the evidence plaintiff has not proved a violation of the "Valentine Act."
It is apparent on the evidence that Gera and its parent, Glen Alden, possessed the capacity to restrain competition. It is apparent also that there is a combination of capital and skill, and that overt acts have occurred. The principal question is, therefore, whether plaintiff has established an intent or purpose to unreasonably restrict trade or commerce. Section 1331.01 (B) (1), Revised Code.
Plaintiff contends (1) that the Otis division of Gera would in fact operate under the proposed contract at a loss; (2) that its management knows that a loss is reasonably anticipated over the three-year period of the contract; (3) that by so doing it will economically destroy the only present competitor and effectively deter prospective competitors who might otherwise enter this particular market; and (4) that these circumstances reasonably give rise to an inference that the purpose of the conduct is to unreasonably restrict trade in that market. Cf.United States v. N. Y. Great Atlantic  Pacific Tea Co.,67 F. Supp., 626 (E. D. Ill., 1946), affirmed 173 F.2d 79 (C. C. A., 7 — 1949), and the discussion by Carl H. Fulda, "Food Distribution in the United States," 99 Univ. of Pa. Law Review, 1051 (1951).
This evidentiary and economic theory of plaintiff is open to doubt. However, assuming the validity of the theory, the plaintiff must establish the first essential fact of its theory,i. e., that the bid of Gera would result in a loss. To sustain plaintiff's evidentiary theory, "loss" should here mean revenue below operating cost. The existence of revenue in excess of that cost would make any inference of illegal purpose more difficult to justify.
Without Otis' financial statements, there would be no evidence from which any loss could be reasonably determined. *Page 41 
Plaintiff does not and, having itself placed them in evidence, cannot deny that these statements were prepared from the actual books of account and records of the Otis division of Gera. No attempt was made by plaintiff to go behind these book figures and prove actual costs. An examination of the statements graphically demonstrates the inadequacy of plaintiff's case. Two appendixes appear at the conclusion of this concurring opinion. Appendix No. 1 is a comparison of income and expense figures of the Otis division for the years 1956-1957 (when Otis had the liquor contract), 1958-1959 (when the plaintiff had the liquor contract), and the "pro forma" figures for the year 1960 prepared by the Otis division and based upon anticipated income and related expenses (offered by the defendant). This comparison shows that, based on the figures submitted, the Otis division reasonably anticipated a net profit per year, with the liquor contract, of $75,640, or a 13.2 per cent profit on sales.
Appendix No. 2 is an analysis of Otis' income and related expenses for a projected year. In making this analysis, specific volumes, rates and amounts were used where known or computable. Where unknown or subject only to estimate, the only available figures in the record were used. Otis division's projected net operating profit ($75,640) shown in the comparison statement, and that found by the analysis in appendix No. 2 ($72,077.88), differs only by $3,562.12 — a relatively nominal amount.
Upon the evidence submitted the inescapable conclusion is that the Otis division may reasonably anticipate a most fair margin of profit.
Plaintiff might have used other methods to prove that the cost would exceed the corresponding revenues. But appellant offered these financial statements as part of its evidence. Having done so, it must be bound by what is reasonably implied from them. They established that Gera could have had a legitimate profit motive in making the bid. Thus, on the facts proved, the entire evidentiary theory of plaintiff falls.
The letter of Otis to the liquor director, October 23, 1953, relates to the purported increase in costs over a prior ten-year period. This evidence is too remote to be of value. It is certainly not decisive. There is much in the record to indicate that the state has for many years been the victim of the noncompetitive conditions in the Cleveland area, and that exorbitant rates *Page 42 
for liquor handling and storage may have been charged. However, the existence of a "gravy train" does not raise an inference of a loss under the proposed contract.
There being no proof that the bid price would be a deliberately losing proposition, the plaintiff has failed to establish its own legal and evidentiary theory, and the judgment must be for the defendant.
                             APPENDIX No. 1 Comparison Statement                               Actual                         Pro Forma 1960 with liquor bus.          without liquor bus. 1956      1957             1958      1959 OPERAT. INCOME Handling    $244378.57  $193966.70  $ 91375.67  $ 63712.75   $180842.00 Storage      363141.60   442961.22   315089.51   230495.16    360881.00 Rental        79641.00    31096.00    26155.00    22556.00     30956.00 Tot. Oper.  $687161.17  $668023.92  $432620.18  $316763.91   $572679.00 Inc. OPERAT. EXP. Plant      $197105.29  $195207.90  $193450.08  $168746.28   $183782.00 (A) Oper. Serv.        35056.60    37538.17    45927.80    23183.09     21800.00 (B) Maint. Plant        222614.89   187286.04   114953.07    93398.42    201157.00 (C) Labor Total       $454776.78  $420032.11  $354330.95  $285327.79   $406739.00 GR. OPER. PROF.       $232384.39  $247991.81  $ 78289.23  $ 31436.12   $165940.00 % to Sales      33.8%       37.1%       18.1%        9.9%        29.0% GEN. ADMIN.    $ 89678.03  $ 93312.99  $ 68909.11  $ 47015.87   $ 90300.00 (C) NET OPER. PROF. (LOSS)      $142706.36  $154678.82   $ 9380.12  $(15579.75)   $75640.00 % to Sales      20.8%       23.1%        2.2%       (4.9%)       13.2% (A)      The evidence shows a rental reduction of $14,757.00 in 1959 based upon a pre-existing 25-year lease containing an automatic reduction clause *Page 43 
on a sliding scale every 5 years. No dispute exists of record as to the fairness of this lease. (B)      This amount when analyzed by specific accounts shows the difference is primarily due to a $9,000.00 reduction in depreciation expense on maintenance and handling equipment, and no provision being made for supplies and handling equipment of approximately $2,500.00 in prior years. (C)      These amounts were not specifically analyzed by individual accounts.
                             APPENDIX No. 2 Analysis for a Projected Year.OPERATING INCOMELiquor — State of Ohio:      (A) Handling  1 mo. stor: 4,435,020 cases ÷ 3 yrs. @ .095  $140442.30 Renewal Storage: 4,224,444 cases ÷ 3 yrs. @ .03     42244.44 Rental of Wholesale Store: 12,854 sq. ft. @ .0575                     8869.26 Total liquor income — State             $191556.00Liquor — Distillers         (B)       60796.88 Total liquor income                           $252352.88Non-Liquor Revenues
Tenant  Merchandise             (C)             316764.00 Total Income                   (D)                      $569116.88OPERATING EXPENSES                (E) Plant  Operating                               $183782.00 Service  Maintenance                             21800.00 Plant Labor                                      201157.00 General  Administrative                          90300.00 Total operating expenses                                $497039.00 Net operating profit                                      72077.88OTHER INCOME  EXPENSE            (F)                         6725.00NET PROFIT before Federal Taxes                            $ 65352.88 *Page 44 
(A)      Based upon the volume figures of John R. Slocum, Chief of the Voucher Section, Division of Accounting, Department of Liquor Control. Rates based upon bid figures of Otis. (B)      Based upon appellant's Exhibit No. 1, showing revenue figures from distillers for year 1957 (Otis' latest year of receiving such revenues). (C)      Based upon appellee's Exhibit 6  C, showing latest years other revenue which did not include any liquor income. (D)      Appellee's Exhibit C shows projected income from all sources to be $572,679.00, or a net difference of only $3,562.12. (E)      Based upon appellee's Exhibit C showing projected expenses for year 1960. Comparison of expenses for years 1956-1959 inclusive, shows uniformity and gives additional weight to the projected figures. (F)      Based upon appellee's Exhibit C, non-operating expenses are relatively small and the necessity of adjusting for such items is argumentative, particularly for the purposes herein used.