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CARLO C. GELARDI CORP. v. MILLER BREWING CO.

December 11, 1980

CARLO C. GELARDI CORP., A New Jersey Corporation, Plaintiff,
v.
MILLER BREWING COMPANY, A Wisconsin Corporation, Defendant



The opinion of the court was delivered by: ACKERMAN

The plaintiff in this suit, Carlo C. Gelardi Corp. (Gelardi), a former distributor of Miller Brewing Co. (Miller) products, brought this suit against Miller after Miller terminated Gelardi's distributorship agreement. Gelardi's complaint alleges violations of Sections 1 & 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1 & 2, the Robinson-Patman Antidiscrimination Act, 15 U.S.C. § 13, and the New Jersey Franchise Practices Act, N.J.S.A. 56:10-1 et seq., as well as breach of contract and tortious interference with business and contractual opportunity. Miller has filed a motion seeking partial summary judgment as to all but the tortious interference claims made by Gelardi. In responding to this motion, Gelardi has decided not to pursue its Sherman Act § 2 claim. It has, however, contested the remaining aspects of Miller's motion. I have decided to grant Miller's motion as to Gelardi's Sherman Act § 1, Robinson-Patman Act, and breach of contractually created exclusive territory claims. The remainder of Miller's motion has been denied.

Because this case has already been the subject of two scholarly opinions by the late Hon. George H. Barlow, it is unnecessary for me to engage in an extensive discussion of the factual background of this suit. See Carlo C. Gelardi Corp. v. Miller Brewing Co., 421 F. Supp. 233 (D.N.J.1976) (Gelardi I); Carlo C. Gelardi Corp. v. Miller Brewing Co., 421 F. Supp. 237 (D.N.J.1976) (Gelardi II). I will, however, discuss the facts as they are relevant to the issues under discussion in each section of this opinion.

 In deciding this motion I have applied the appropriate standards required by Fed.R.Civ.P. 56. These are well-summarized by the following quotations from the Supreme Court:

 Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S. Ct. 486, 491, 7 L. Ed. 2d 458 (1962). However:

 
To the extent that (it has been suggested) that Rule 56(e) should, in effect, be read out of antitrust cases and permit plaintiffs to get to a jury on the basis of the allegations in their complaints, coupled with the hope that something can be developed at trial in the way of evidence to support those allegations, we decline to accept it. While we recognize the importance of preserving litigants' rights to a trial on their claims, we are not prepared to extend those rights to the point of requiring that anyone who files an antitrust complaint setting forth a valid cause of action be entitled to a full-dress trial notwithstanding the absence of any significant probative evidence tending to support the complaint.

 First National Bank of Arizona v. Cities Service Corp., 391 U.S. 253, 289-90, 88 S. Ct. 1575, 1593, 20 L. Ed. 2d 569 (1968). See also Mid-West Paper Products Co. v. Continental Group, Inc., 596 F.2d 573, 579 (3d Cir. 1979). With these standards in mind, I will now discuss the specific issues raised by the defendant's motion.

 I. Sherman Act § 1

 In Gelardi II Judge Barlow concluded, in denying an injunction to the plaintiff, that Gelardi had not demonstrated a reasonable probability of success on its Sherman Act § 1 claims. 421 F. Supp. at 240-45. In that opinion Judge Barlow discussed three aspects of the plaintiff's § 1 claim, all of which are still being pressed by the plaintiff:

 
(1) Miller's allocation of beer products is an unreasonable restraint of trade, in violation of the Sherman Act, 15 U.S.C. § 1.
 
(2) Miller's establishment of a dual distributorship in the plaintiff's area of primary responsibility manifests a conspiracy to force the plaintiff out of business, in violation of the Sherman Act, id. §§ 1, 2;
 
(3) Miller's entire course of conduct toward the plaintiff manifests a conspiracy to force the plaintiff out of business, in violation of the Sherman Act, id.

 421 F. Supp. at 240-41. (footnotes omitted) In addition to these claims, it appears from the plaintiff's brief in response to this motion that the plaintiff also contends that Miller engaged in a conspiracy to fix prices, a per se violation of Sherman Act § 1. I will consider all of these contentions.

 Although Judge Barlow was considering this case on a motion for a preliminary injunction brought by the plaintiff, while I am presently faced with a motion for summary judgment brought by the defendant, Judge Barlow's statement of the law remains the law of this case. In view of the differing posture of the case I must draw every factual inference in favor of the plaintiff, while Judge Barlow was required to objectively view the proofs and determine the plaintiff's likelihood of success. While this difference in posture requires a different approach to the facts, it does not change the applicable law and I am fortunate in having Judge Barlow's scholarly opinion to guide me through the analysis of some of the issues presented here.

 I will, therefore, begin my decision of this case where Judge Barlow began: with a consideration of the plaintiff's claims regarding Miller's beer allocation system and particularly whether the plaintiff has set forth sufficient facts to create a genuine issue of fact as to whether a conspiracy existed. In his discussion of the allocation issue Judge Barlow set forth the following basic principle of antitrust law:

 
"Essential to the violation of the antitrust laws is an agreement or combination, the purpose and effect of which is restraint of trade and suppression of competition." See Viking Theatre Corp. v. Paramount Film Distrib. Corp., 320 F.2d 285, 293 (3d Cir. 1963), aff'd., 378 U.S. 123, 84 S. Ct. 1657, 12 L. Ed. 2d 743 (1964); Martin B. Glauser Dodge Co. v. Chrysler Corp., 418 F. Supp. 1009, at 1015 (D.N.J.1976); Kaiser v. General Motors Corp. (Pontiac Motor Div. ), 396 F. Supp. 33, 38 (E.D.Pa.1975). Whatever the merits of plaintiff's argument that the Miller allocation system is an unreasonable restraint of trade, there is no evidence to indicate that the allocation system is the result of a contract, combination, or conspiracy as required by § 1 of the Sherman Act.

 421 F. Supp. at 241-42 (footnotes omitted). Judge Barlow reached this conclusion after conducting a hearing. I have searched the record of that hearing as well as the subsequent discovery and I have concluded that Gelardi has still failed, after four years of discovery, to produce evidence of a conspiracy or combination which has the purpose or effect of illegally restraining trade or suppressing competition. Indeed, even when the plaintiff's claims are accepted at face value without requiring support in the record, the claims fall short of stating a violation of Sherman Act § 1. It is this lack of an unlawful conspiracy that is fatal to all of the plaintiff's Sherman Act theories.

 If we accept the plaintiff's claims at face value the following facts appear. Miller had for several years been dissatisfied with Gelardi, perhaps unreasonably dissatisfied, and had considered terminating its distributorship and replacing it with a different corporation. Warren Distributing Co. (Warren) was another Miller distributor that vigorously competed with Gelardi in certain parts of the region that Gelardi served. Warren's competition included hiring an unfaithful Gelardi employee who badmouthed Gelardi to the benefit of Warren and with the result that customers complained about Gelardi to Miller. In late June or early July of 1975 Gelardi reached an agreement with Warren whereby Warren would purchase a 50% interest in Gelardi. The president of Warren advised Miller of this proposed deal and Miller responded with a telegram to Gelardi which said that the deal could not be completed unless and until Miller approved it and that Miller would not have sufficient time in which to consider the deal before the intended date of closing the deal. Shortly thereafter Miller summoned Warren's president to Milwaukee, where Miller's headquarters is located, and when Warren's president returned to New Jersey he was in possession of a distributorship agreement with Miller that gave Warren the right to distribute Miller products in the same area that Gelardi was authorized to distribute within. This new distributorship agreement with Warren was contrary to Miller's contract with Gelardi which gave it an exclusive area of distribution. The resulting dual distribution area was virtually unique among Miller distributors. During the time that this dual distributorship was in effect Miller continually treated Warren better than it treated Gelardi. This was reflected, in particular, by Miller's giving Warren more favorable credit terms that it was giving to Gelardi, by Miller's giving Warren more beer than it was giving to Gelardi, and by delivering beer to Warren by more direct railroad routing than was used in delivering beer to Gelardi. During the period of the dual distributorship a destructive price war was waged between Warren and Gelardi. In April of 1976 the dual distributorship ended when Gelardi signed, in exchange for $ 420,000.00, an agreement not to compete with Warren. Thereafter, Miller terminated its distributorship agreement with Gelardi contending that Gelardi had breached its contract with Miller by agreeing not to serve the area that it had promised to serve in its contract with Miller.

 Now it should be emphasized that the facts that I have just related do not necessarily find support in the record, but simply represent Gelardi's version of the facts which I am using as a base for this Sherman Act § 1 analysis. The facts as related also contain legal conclusions that may not be validly derived from the record or the law. In particular, the facts related state that Miller breached its contract with Gelardi by setting up a dual distributorship for Miller products in Gelardi's exclusive territory. It is extremely doubtful that the law would support a conclusion of breach of contract since in 1975, when the alleged breach of contract occurred, exclusive territorial agreements were considered to be a per se violation of the Sherman Act. United States v. Arnold, Schwinn & Co., 388 U.S. 365, 87 S. Ct. 1856, 18 L. Ed. 2d 1249 (1965) overruled Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 97 S. Ct. 2549, 53 L. Ed. 2d 568 (1977). Nevertheless, in order to give Gelardi the benefit of every inference that it may be entitled to under Rule 56 standards I have even accepted for purposes of the Sherman Act § 1 analysis Gelardi's assertion that Miller breached its exclusive territorial agreement.

 Even under these facts Miller's conduct does not violate the antitrust laws.

 
It is indisputable that a single manufacturer or seller can ordinarily stop doing business with A and transfer his business to B and that such a transfer is valid even though B may have solicited the transfer and even though the seller and B may have agreed prior to the seller's termination of A.

 Ark Dental Supply Co. v. Cavitron Corp., 461 F.2d 1093, 1094 (3d Cir. 1972) citing Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke & Liquors, Ltd., 416 F.2d 71 (9th Cir. 1969) cert. denied 396 U.S. 1062, 90 S. Ct. 752, 24 L. Ed. 2d 755 (1970). Nor does the fact that a breach of contract is involved transform such conduct into a violation of the antitrust laws. As Judge Barlow held in Gelardi II:

 
The fact that Miller's actions had an adverse impact upon the plaintiff's business does not, by itself, amount to a violation of the Sherman Act. Damage alone does not constitute liability under the Act.... A conspiracy which results merely in the substitution of one distributor for another does not violate § 1 .... Nor is an increase in the number of distributors actionable under § 1 .... The elimination of the plaintiff's distributorship would violate § 1 only if, in fact, it constituted a restraint of trade or was motivated by an anti-competitive intent.

 421 F. Supp. at 242-43 (citations omitted). It is clear, then, that unless it was motivated by an unlawful intent in violation of the Sherman Act Miller would not have violated the Sherman Act even if it had taken more drastic actions against Gelardi than those it is alleged to have taken: absent unlawful intent, Miller could have cut off Gelardi's distributorship without notice in July 1975 and put Warren in its place. In fact Miller did less than that. Miller allowed Gelardi to remain in business until Gelardi sold its rights to Warren. If Miller had cut Gelardi off in July 1975, Gelardi would not have gotten a dime from Warren. It was only because Miller permitted Gelardi to remain in business that Gelardi's covenant not to compete was worth the not inconsiderable sum of $ 420,000.00 to Warren. Since some money is always better than none, Miller's actions were clearly less damaging to Gelardi than a complete cutoff would have been and did not, in and of themselves, violate the Sherman Act. Franklin Music v. American Broadcasting Co., 616 F.2d 528 at 542 (3d Cir. 1979).

 The only question to be decided then is whether Gelardi has shown sufficient facts from which it could be inferred that Miller had an unlawful intent in violation of the Sherman Act. In this regard Gelardi argues that any or all of three possible unlawful intents may be inferred:

 
(1) Miller was engaged in a conspiracy with Warren in furtherance of Warren's effort to drive competing distributors, like Gelardi, out of business.
 
(2) Miller was engaged in a conspiracy with Warren in furtherance of Miller's efforts to prevent other beers from competing with its products more vigorously through using Gelardi as a distributor of their products as well as of Miller products.

 Because the facts cannot support any of these inferences, Miller's motion for summary judgment on the § 1 claims will be granted.

 The Third Circuit, in Cernuto, Inc. v. United Cabinet Corp., 595 F.2d 164 (3d Cir. 1979), recently considered a theory like the one put forth by Gelardi in its first argument of unlawful intent. In Cernuto the court wrote that

 
When a marketing decision, although ostensibly taken by a manufacturer, is in fact the result of pressure from another customer, such a decision must be scrutinized more closely than solely unilateral action might be .... When a manufacturer acts on its own, in pursuing its own market strategy, it is seeking to compete with other manufacturers by imposing what may be defended as reasonable vertical restraints .... However, if the action of a manufacturer or other supplier is taken at the direction of its customer, the restraint becomes primarily horizontal in nature in that one customer is seeking to suppress its competition by utilizing the power of a common supplier. ...

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