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Harold Friedman Inc. v. Kroger Co.

decided: June 26, 1978.



Before Seitz, Chief Judge, and Van Dusen and Rosenn, Circuit Judges.

Author: Van Dusen


This is an appeal from an order granting defendant's motion for summary judgment in a case brought under §§ 1 and 2 of the Sherman Act. We affirm.


The record establishes the following facts. The plaintiff, Harold Friedman, Inc. (hereinafter Friedman), is a franchisee of Foodland, Inc., a national grocery store chain. Prior to the actions complained of, Friedman operated four Foodland grocery stores in the Butler, Pa., area. At the time the complaint was filed and at the time the motion for summary judgment was granted, Friedman operated five such stores. Defendant, the Kroger Company (hereinafter Kroger), is the nation's third largest supermarket chain, operating over 1,200 stores in 20 states. During all relevant times, Kroger operated one store in the Butler area. On March 27, 1959, defendant Kroger leased a store in the Greater Butler Mart shopping center. The lease entitled Kroger to the premises until October 31, 1976, with an option to renew until October 31, 1991, and contained a restrictive covenant preventing the landlord from leasing other space in the shopping center to more than one other grocery store. On September 22, 1972, Kroger decided to abandon this store and to erect a much larger "Superstore" within two miles of the shopping center and nearer to the center of Butler. Having learned of Kroger's decision to terminate its shopping center operation from one of the owners of the shopping center, Friedman expressed to the landlord an interest in leasing Kroger's space. The landlord informed Kroger of this, and on May 23, 1973, Kroger notified the landlord that it would abandon the space in November 1973 upon the opening of the new store, and also advised the landlord that it would attempt to find a suitable sub-tenant. Kroger's attempts to find a sub-tenant were unsuccessful, much to the concern of the landlord, because of the adverse effect on the other tenants of having a significant portion of the shopping center vacant.

During this time, Friedman and the shopping center landlord began negotiating a lease agreement for the premises and in November 1973 entered into an agreement in principle for lease of the premises. In December 1973, the landlord informed Kroger that it had found a tenant and asked Kroger to agree to termination of the lease. On December 8, 1973, Kroger closed the shopping center store and opened its new store, but retained the shopping center premises despite the knowledge that the landlord had found a tenant. Friedman did not approach Kroger about subletting the premises and Kroger continued to seek a sub-tenant to no avail.

On January 17, 1974, Friedman and the landlord executed a lease of the premises, contingent upon the landlord's terminating Kroger's lease. Two weeks earlier, however, on January 4, 1974, Kroger had contracted with Harry Davis and Company, auctioneers, to auction Kroger's equipment at the closed shopping center store. The contract provided that the equipment was to be removed by the buyer at the buyer's risk and expense within a time specified by the auctioneer. This removal provision was standard for all prior auctions conducted by Davis for both Kroger and Friedman. On February 4, 1974, Friedman purchased the equipment at the auction with the intention of leaving it in place and opening a Foodland store on the premises. Friedman claims that he informed Davis of this intention, but in his deposition Davis states that he recalls no such conversation. On February 20, Davis reminded Friedman that the terms of the sale required him to remove the equipment, and on March 22 Kroger informed Friedman by certified mail that if Friedman did not remove the equipment by April 2, 1974, Kroger would have it moved and stored for Friedman's account. Friedman claims that he offered to pay Kroger an amount equivalent to three months' rent on the premises if Kroger would allow Friedman to leave the equipment in place and that Kroger refused.

In mid-April Kroger hired the Henry T. Limberg Company to remove the equipment. This removal was completed by April 19. Friedman alleges that the removal was done in such a way as to necessitate very lengthy and excessive repairs. For example, Friedman testified that pipes and copper tubing which Friedman had purchased were ripped out of the floor, causing extensive damage.

Meanwhile, the shopping center landlord sued Kroger to terminate the lease, claiming that Kroger had defaulted by allowing the premises to remain vacant. This litigation was settled on May 7, 1974, when Kroger agreed to terminate the lease. Friedman took over the premises at that time.

On August 30, 1974, Kroger notified Friedman that the removed equipment was being stored and that unless Friedman contacted Kroger immediately and reimbursed it for moving and storage costs, Kroger would resell the equipment to recover those costs. Friedman's attorney responded that the moving and storage costs were incurred by Kroger's unilateral action and that any sale was without Friedman's consent. On October 29, 1974, the equipment was auctioned by Harry Davis and Company for an amount which was less than the cost of moving and storage. In November 1974, Friedman opened a Foodland store at the shopping center with new equipment.

On June 19, 1975, Friedman filed the present action, alleging that Kroger's conduct damaged Friedman by delaying the opening of the Foodland store at the shopping center, by causing Friedman to purchase and install new equipment to replace the equipment removed and sold by Kroger's agents, and by causing Friedman to repair the damage done when the equipment was removed from the premises. The complaint alleges that Kroger's actions constitute violations of §§ 1 and 2 of the Sherman Act, as well as various wrongs actionable under Pennsylvania law, including interference with competition, conversion of property, interference with business relationship, and breach of contract. The district court granted defendant's motion for partial summary judgment with respect to the counts of the complaint alleging violations of the Sherman Act. At the request of both parties, the district court expressly directed that the order granting such motion should be a final judgment in accordance with the terms of F.R.Civ.P. 54(b), thereby permitting an immediate appeal of such order.


We recognize that summary judgment should be used sparingly in antitrust cases, Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S. Ct. 486, 7 L. Ed. 2d 458 (1961), but also understand that the Sherman Act does not purport to afford remedies for all business torts committed by or against persons engaged in interstate commerce. Hunt v. Crumboch, 325 U.S. 821, 826, 65 S. Ct. 1545, 89 L. Ed. 1954 (1945).


Section 1 of the Sherman Act provides in relevant part: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal . . . ." 15 U.S.C. § 1.*fn1 The district court ruled that the defendant was entitled to summary judgment because its conduct did not unreasonably restrain trade.*fn2 We requested briefing on the issue of whether Kroger's activities constituted concerted activities as required by § 1. We hold that the requirement of concerted activity was not met and therefore find it unnecessary to reach the restraint of trade issue.

Section 1 of the Sherman Act does not proscribe every act that restrains trade. Rather, by its express language, it requires a "contract, combination . . . or conspiracy in restraint of trade." In short, it requires concerted activity.*fn3 Of course, the classic case of concerted action is an agreement by competitors to engage in a common course of conduct. L. Sullivan, Antitrust 312-13 (1977). The Supreme Court, however, has made clear that the Sherman Act's concept of concerted activity extends beyond the classic case.*fn4 Just how far it extends beyond the classic case is the issue here. For reasons given in the discussion that follows, we conclude that the record here does not present a case of concerted activity.

Plaintiff relies on Albrecht v. Herald Co., 390 U.S. 145, 88 S. Ct. 869, 19 L. Ed. 2d 998 (1968). In finding concerted activity in Albrecht, the Supreme Court adopted an expansive interpretation of "contract, combination . . . or conspiracy." Since Albrecht is the Supreme Court's most recent definitive discussion of this topic, our analysis must begin there. Although Albrecht bears a superficial similarity to the present case, our analysis will show that that case is distinguishable.

Albrecht concerned a newspaper publisher's attempt to force distributors to adhere to a retail price set by the publisher. Plaintiff Albrecht was the exclusive distributor in a particular area of metropolitan St. Louis of the newspaper published by the defendant, Herald Company. When Albrecht raised his price above the Herald's suggested resale price, the Herald informed him that if he did not lower his price, the Herald would take over Albrecht's route and deliver the papers. The Herald hired Milne Circulation Sales, Inc. to solicit subscriptions from Albrecht's customers at the Herald's lower price. Then the Herald entered into an agreement with George Kroner to have Kroner deliver the papers to the customers Milne had lured away from Albrecht. Kroner knew that the Herald would not tolerate his charging more than the Herald's suggested retail price and also understood that he might have to relinquish the route if Albrecht acceded to the Herald's demand that he reduce his price to the suggested retail price.

Albrecht claimed that the Herald's agreements with Milne and Kroner constituted concerted activity under § 1, and the Supreme Court agreed with this contention. The Court stated:

"(T)here can be no doubt that a combination arose between respondent, Milne, and Kroner to force petitioner to conform to the advertised retail price. When respondent learned that petitioner was overcharging, it hired Milne to solicit customers away from petitioner in order to get petitioner to reduce his price. It was through the efforts of Milne, as well as because of respondent's letter to petitioner's customers, that about 300 customers were obtained for Kroner. Milne's purpose was undoubtedly to earn its fee, but it was aware that the aim of the solicitation campaign was to force petitioner to lower his price. Kroner knew that respondent was giving him the customer list as part of a program to get petitioner to conform to the advertised price, and he knew that he might have to return the customers if petitioner ultimately complied with respondent's demands. He undertook to deliver papers at the suggested price and materially aided in the accomplishment of respondent's plan."

Id. at 149-50, 88 S. Ct. at 872.*fn5

The Supreme Court made no attempt to articulate a test or standard for concerted activity in Albrecht, but certain factors which appear to be crucial can be gleaned from the case. First, both Milne and Kroner knew that the Herald's purpose was to assure its fixed price for the retail sale of the papers. Therefore, knowledge of the defendant's purpose to restrain trade is an important factor. Secondly, at least two members of the combination stood to benefit by the restraint of trade, the Herald by assuring the price it desired and Kroner by getting a profitable paper route.*fn6 Thus, in a sense, two members of the combination shared a common purpose insofar as they both benefited from the restraint of trade.*fn7

A final important factor in Albrecht is that the agreement with Kroner was in no sense collateral to the purpose to restrain trade but went to the heart of the restraint. This can be seen by comparing Kroner's role with Milne's. By soliciting customers, Milne was merely performing its normal business function, and although that function facilitated the restraint of trade, it did not restrain trade. Kroner's agreement to sell at a fixed price, by contrast, did restrain trade. It precluded sales in the area of his distributorship at a higher price. Furthermore, Kroner's agreement went beyond a lawful agreement to perform the normal business function as a distributor, as it included an agreement to sell at a fixed price. As a corollary to this, it is clear that Kroner, in contrast to Milne, intended to restrain trade. To summarize, the following factors were present in Albrecht : (1) all members of the combination knew of the defendant's purpose to restrain trade; (2) at least two members of the combination benefited by the restraint of trade and, in that sense, shared a common purpose in restraining trade; (3) the agreement by two members of the combination actually restrained trade, as opposed to merely facilitating the restraint; and (4) at least two members of the combination intended to restrain trade.

We have these comments on the significance of these four factors. First, factors 2 and 3 apply only to Kroner, and it is not clear from the Albrecht opinion whether the Supreme Court would have found concerted activity under § 1 based on the agreement between the Herald and Milne alone if the Herald had delivered the newspapers itself and not hired Kroner. It would have been reasonable for the Court to have found that the Herald acted unilaterally in such a case, for in this hypothetical case only the Herald intended to restrain trade, only the Herald restrained trade, only the Herald stood to benefit from restraining trade, and no one shared with the Herald a common purpose of restraining trade. Professor Areeda also finds this position reasonable and suggests that a purely collateral agreement, such as that between Milne and the Herald, is insufficient to constitute concerted activity. Areeda makes this point by asking the following question, which poses the extreme case: "Does the Court imply that any defendant who, say, uses the telephone has "combined' with the telephone company?" P. Areeda, Antitrust Analysis 567 (1974). Clearly, a defendant whose acts in restraint of trade are facilitated by its use of the telephone has not combined with the telephone company by virtue of its contract for telephone services. It seems to us, therefore, that Kroner's role in the combination was crucial to the outcome of the case.

Our second observation is closely related to the first. Of the four factors, the only one the Supreme Court emphasized was the first. Therefore, for there to be concerted activity under Albrecht, the party combining with the defendant must have knowledge of the defendant's anticompetitive purpose. Since the Court did not emphasize the other three factors, we cannot say that they constitute part of the Supreme Court's test for concerted activity. Indeed, the Supreme Court approach in Albrecht seems to be Ad hoc rather than an attempt to formulate a test. Therefore, since the second and fourth factors are present in Albrecht, finding concerted activity in a case in which one or more of these factors is absent would be an expansion of Albrecht beyond its narrow factual confines. Such an expansion, of course, would have to be justified on grounds independent of Albrecht. Because we have found Kroner's role to be crucial in Albrecht, such justification is unlikely if all three of factors 2 through 4 are absent.

We now turn to the task of applying the principles of Albrecht to the facts of this case. Plaintiff contends that there are three possible grounds on which concerted action can be found: the lease agreement between the shopping center landlord and Kroger and the landlord's refusal to breach the lease; the agreement between Kroger and the auctioneer, Davis; and Kroger's contract with Limberg for removal of the equipment.*fn8

In applying the four factors present in the Albrecht case to these facts, it is evident that factors 2 and 3 are not present here. Factor 2 was that at least two members of the combination benefited by the restraint of trade and shared a common purpose in restraining trade. In the present case, only Kroger would benefit from preventing Friedman from operating a grocery store at the shopping center. Davis, Limberg and the shopping center landlord would receive no benefit from keeping Friedman out and, therefore, did not share a common purpose with Kroger. Factor 3 in Albrecht, that an agreement between the defendant and at least one other party to the combination actually restrain trade, as opposed to merely facilitating the restraint of trade, is also absent here. For an agreement actually to restrain trade in this case, as did the agreement between Kroner and the Herald in Albrecht, someone would have had to agree to sublease the premises from Kroger, agree not to operate a grocery store from the premises, and agree not to sub-let the premises to any other party for the purpose of operating a grocery store. Thus, the agreements plaintiff characterizes as constituting concerted activity in this case are collateral to the restraint of trade.

This case, then, is distinguishable from Albrecht in two important respects, but that does not end our inquiry, for we need to determine if the principles of Albrecht should be extended to this case. Therefore, to determine to what extent this case is distinguishable from Albrecht, we must determine whether factor 1, knowledge of defendant's purpose, and factor 4, intent to restrain trade, are present in this case.

The agreement between Kroger and the shopping center landlord

Since the lease agreement between Kroger and the landlord occurred in 1959, 13 years before Kroger decided to leave the shopping center premises, the lease itself could not possibly have constituted concerted activity in restraint of trade. Therefore, Friedman argues that the landlord, by not renting to Friedman property in which Kroger had a leasehold interest, acted in concert with Kroger. ...

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