Seagram-Distillers Corp. v. New Cut Rate Liquors

• Citation: 221 F.2d 815
• Decision Date: 25 April 1955
• Docket Number: No. 11275.,11275.
• Parties: SEAGRAM-DISTILLERS CORPORATION, Plaintiff-Appellee, v. NEW CUT RATE LIQUORS, Inc., et al., Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

221 F.2d 815 (1955)

SEAGRAM-DISTILLERS CORPORATION, Plaintiff-Appellee, v. NEW CUT RATE LIQUORS, Inc., et al., Defendants-Appellants.

No. 11275.

United States Court of Appeals, Seventh Circuit.

April 4, 1955.

Rehearing Denied April 25, 1955.

Allen H. Schultz, Chicago, Ill., Louis L. Biro, Chicago, Ill., for appellants.

Frank D. Mayer, Leo F. Tierney, Louis A. Kohn, Chicago, Ill., Patrick W. O'Brien, Chicago, Ill., Mayer, Meyer, Austrian & Platt, Chicago, Ill., of counsel, for Seagram-Distillers Corp.

Before MAJOR, FINNEGAN and SCHNACKENBERG, Circuit Judges.

SCHNACKENBERG, Circuit Judge.

From an order for a preliminary injunction, granted by the district court, on plaintiff's motion, defendants have appealed.

The verified complaint, as amended, alleges that plaintiff, a Delaware corporation, is engaged throughout the United States in the business of dealing in, selling and distributing alcoholic beverages of standard quality. These beverages, described generally as "Seagram products" and including Seagram's "VO" and "7 Crown," are sold in bottles bearing the trade-marks, brands or names of the producers. Plaintiff is the sole person authorized to sell and distribute Seagram products in Illinois.

It is alleged that during the past several years plaintiff has expended over $500,000 in Illinois alone in advertising Seagram products and, as a consequence, the trade-marks, brands or names under which Seagram products are sold have become widely and favorably known to the trade and public in Illinois. Plaintiff also alleges that the matter in controversy exceeds $3,000.

Plaintiff's complaint further alleges that the sales of Seagram products in Illinois are subject to the provisions of fair trade contracts executed in accordance with the Illinois Fair Trade Act.¹ Furthermore, it is alleged that, prior to the acts complained of, the defendants had received copies of the plaintiff's schedule of fair trade prices stipulated in accordance with the executed fair trade contracts, and also that defendants have refused to discontinue offering for sale or selling Seagram products at less than the aforesaid stipulated prices, and have continued said wrongful conduct by wilfully and knowingly offering for sale and selling said products at prices below those stipulated, and particularly that they advertised in a newspaper on June 15, 1954, that they would sell Seagram products at less than the fair trade prices therefor. Plaintiff further alleges that defendants intend to continue said conduct to the irreparable damage of the good will and business of the plaintiff, thereby impairing the value of the trade-marks, brands and names under which Seagram products are sold, and unless defendants are immediately enjoined and restrained from continuing such conduct, plaintiff will suffer further irreparable damage.

There was a prayer for a preliminary injunction restraining defendants from advertising, offering for sale or selling Seagram products at less than the stipulated prices, and for a final decree to the same effect.

Defendants' verified answer denied all of the material allegations of the plaintiff, including the allegations that the matter in controversy, exclusive of interest and costs, exceeded the sum or value of $3,000, that plaintiff had no adequate remedy at law, that fair trade contracts had been executed in accordance with the Illinois Fair Trade Act, and that defendants had violated the provisions of said alleged contracts. The answer also stated (1) that plaintiff had abandoned and waived any and all rights it may have had as a result of the execution of alleged price-fixing contracts; (2) that the alleged price-fixing contracts do not comply with the provisions of the Illinois Fair Trade Act in that they lack the immediate vendor-vendee relationship required to bring a price-fixing contract within the exceptions provided under the provisions of said act; and (3) that the Illinois Fair Trade Act is unconstitutional and consequently plaintiff's alleged price-fixing contracts executed thereunder are illegal and void.

The court held a hearing on plaintiff's motion for a preliminary injunction, at which time evidence was taken.

At this hearing vice president Teece of plaintiff, and vice president Lind of plaintiff and Joseph E. Seagram & Sons, Inc., of which plaintiff is a wholly owned subsidiary, testified that plaintiff has adopted a fair trade policy in every state having a fair trade act, and that over five thousand fair trade contracts identical to that introduced into evidence as plaintiff's exhibit 2 had been executed in Illinois. It was stated that the purpose of these contracts was to protect the trade-marks and good will built up over a period of years by the plaintiff for Seagram products. During the last two or three years plaintiff has in fact spent over $3,000,000 in advertising and promoting their sale in Illinois. In addition, plaintiff has 32 "missionary men," who continuously contact retailers with reference to the plaintiff's products. They operate primarily in the city of Chicago, and are charged with the duty of determining whether the retailers they call on are maintaining plaintiff's fair trade prices. Plaintiff also employs, from time to time, various shopping services to ascertain whether fair trade prices are being maintained.

Both Lind and Teece testified that unless the price cutting of plaintiff's products by the defendants was restrained, plaintiff's business would suffer grave and irreparable harm; that the good will built up over a period of years would be almost lost, the volume of plaintiff's business would be cut by "at least 50 per cent in three months' time;" that when a brand becomes involved in price-cutting "it loses its standing, and when it has lost its standing, it is through."

On June 15, 1954, an advertisement appeared in the Chicago Sun-Times in which all fifty-two defendant liquor stores offered for sale and advertised fifths of Seagram's "VO" and "7 Crown" at $4.89 and $3.49, although the fair trade prices are $5.98 and $4.30 respectively. This advertisement was published by these defendants individually and collectively as the "Foremost Liquor Stores." The defendant liquor stores are entitled to use the name "Foremost Store" as subscribers to the merchandising and promotional services rendered by the defendant "Foremost Promotions, Inc."

Teece testified that over fifty liquor retailers in Chicago called on him the day the advertisement was published. One of the callers was the president of the "Illinois Package Association," a group of Chicago liquor retailers. He wanted to know "immediately" what the plaintiff was going to do with reference to the price cutting and added:

"I have your merchandise on the shelf. If you don\'t do something about it, I will take it off the shelf."

Teece was also told that other members of this association were of the same opinion. Another complaint registered with Teece was by one of the managers of a chain of Chicago stores. He warned the plaintiff that if something was not done about the advertisement, they proposed to take action.

Also on the day of publication of defendants' advertisement, plaintiff's Chicago manager responsible for "policing the market" in Cook County reported to Teece that there had been a tremendous number of telephone complaints from retail liquor dealers in Chicago. He said that two supervisors had been called in to help handle these calls, and orders had been cancelled because of the defendants' advertisement.

Six weeks before the publication of defendants' advertisement, plaintiff and the attorneys for defendants had entered into an arrangement in connection with the continuance of a fair trade suit involving two "Foremost Stores." A letter reflecting this arrangement was sent by one of the attorneys for defendants to all of them; it was signed by Irving Robins, their "agent and attorney in fact." This letter, dated April 30, 1954, began as follows:

"As you know, Seagram Distillers Corporation has consistently endeavored to enforce its Fair Trade prices in this area."

The letter then set out the terms of the agreement between the plaintiff and defendants, the substance of which was:

"(1) All Foremost Stores will strictly adhere to the Fair Trade Prices on Seagram products.

"(2) Seagram will make every diligent effort to enforce its Fair Trade prices in the Chicago area."

It was also stated that the Foremost Stores would:

"* * * endeavor to keep Seagram informed of all violations (price cutting by competitors of Foremost Stores) so that they (Seagram) may have an opportunity to carry out their Fair Trade policy."

In closing, the letter said:

"We believe that in view of Seagram\'s consistent record in this matter, it should first be given a reasonable chance to correct any price cutting situation."

Finally, the letter said that if, after notice of a price cutting situation, Seagram should fail to take "proper action we will notify you (defendant stores) and advise you whether you may legally sell Seagram products below the applicable Fair Trade prices."

On May 24, 1954, one of the attorneys for the defendants sent a letter to one of the attorneys for plaintiff which stated that shopping by defendants' agents of what was later shown to be approximately 94 liquor retailers had revealed 76 violations of pla...