Alpha Distrib. Co. of Cal., Inc. v. Jack Daniel Distillery

• Decision Date: 09 February 1972
• Docket Number: 24542 and 24561.,No. 24541,24541
• Citation: 454 F.2d 442
• Parties: ALPHA DISTRIBUTING COMPANY OF CALIFORNIA, INC., also doing business under the name and style of Alpha Distributing Company, Inc., Plaintiff, Appellee, Cross-Appellant, v. JACK DANIEL DISTILLERY, LEM MOTLOW, PROP., INC., a corporation, Brown-Forman Distillers Corporation, a corporation, Defendants, Appellants, Cross-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

454 F.2d 442 (1972)

ALPHA DISTRIBUTING COMPANY OF CALIFORNIA, INC., also doing business under the name and style of Alpha Distributing Company, Inc., Plaintiff, Appellee, Cross-Appellant, v. JACK DANIEL DISTILLERY, LEM MOTLOW, PROP., INC., a corporation, Brown-Forman Distillers Corporation, a corporation, Defendants, Appellants, Cross-Appellees.

Nos. 24541, 24542 and 24561.

United States Court of Appeals, Ninth Circuit.

January 6, 1972.

Rehearing Denied February 9, 1972.

COPYRIGHT MATERIAL OMITTED

A. B. Dunne (argued), Louis L. Phelps, of Dunne, Phelps & Mills, San Francisco, Cal., for Jack Daniel Distillery and others.

J. Albert Hutchinson (argued), San Francisco, Cal., for Alpha Distributing Co. of Cal., Inc.

Before MADDEN, Judge of the United States Court of Claims,^* and HAMLEY and TRASK, Circuit Judges.

HAMLEY, Circuit Judge:

Alpha Distributing Company of California, Inc. (Alpha),¹ brought this action against Jack Daniel Distillery, Lem Motlow, Prop., Inc. (Jack Daniel), Brown-Forman Distillers Corporation (Brown-Forman), and others,² for damages, and for injunctive and declaratory relief, because of Jack Daniel's termination of Alpha's whiskey distributorship. Alpha commenced the action in the Superior Court of the State of California in and for the City and County of San Francisco. Jack Daniel removed the case to the United States District Court because of diversity of citizenship.

In its complaint Alpha made three claims against defendants, namely that in terminating the distributorship, defendants: (1) breached an oral distributorship contract, (2) violated California antitrust statutes, and (3) interfered with contractual rights and business relations between Alpha and Jack Daniel. After Jack Daniel removed the case to the federal court, Alpha filed a supplement to its complaint alleging, as a fourth claim, that defendants had violated federal antitrust statutes. Alpha sought damages in the sum of $2,125,000 on each claim (but not cumulative), a trebling of the damages assessed, and reasonable attorneys' fees.

Jack Daniel and Brown-Forman answered, denying the critical allegations of the complaint and supplement thereto. Jack Daniel also counterclaimed for $36,885.00, for whiskey sold and delivered to Alpha and not paid for. The counterclaim was not contested.

At the conclusion of a lengthy non-jury trial, the district court determined that Jack Daniel was liable to Alpha for damages for breach of contract. It determined all other claims in favor of defendants. These determinations are evidenced by a memorandum of decision, findings of fact and conclusions of law on the issue of liability.

The court reserved the issue of damages on the first claim and appointed a special master to report thereon. In due course the special master filed a report and account, recommending that Alpha be awarded damages in the sum of two hundred and five thousand dollars on its first claim.

Proceedings were had thereon, the result being that the district court accepted the special master's recommendation, deducted therefrom the amount of Jack Daniel's uncontested counterclaim, and awarded Alpha judgment in the sum of $168,115 against Jack Daniel on its first claim. The judgment recites that in its memorandum of decision, findings of fact and conclusions of law, previously filed, defendants were awarded judgment on the second, third and fourth claims. However, the decretal provisions of the judgment make no reference to those claims.

Jack Daniel appeals from the judgment against it on the first claim and, on the remaining three claims, insofar as the judgment expressly fails to award judgment for it on those claims.³ Brown-Forman appeals from the judgment insofar as the decretal provision thereof fails expressly to award judgment in its favor and against Alpha on all four claims. Alpha cross-appeals from the judgment insofar as it awards judgment for defendants on the second, third and fourth claims. An earlier stage of this controversy was before this court in 304 F.2d 451 (9th Cir. 1962).

We reverse the judgment insofar as it awards recovery to Alpha on the first claim. We affirm the judgment insofar as it denies recovery to Alpha on the third claim. The cause will be remanded for supplemental findings and conclusions on the second and fourth claims, and for entry of an amended judgment in favor of defendants on the first and third claims. The judgment on remand should also reflect an award in favor of Jack Daniel in the sum of $36,885.00 upon its uncontested counterclaim.

The background facts stated below are drawn largely from the district court's memorandum of decision and findings of fact.

In 1950 Jack Daniel was a small Tennessee distillery owned and operated by the Motlow family, making a high-grade sour or bourbon mash leached (charcoal filtered) whiskey. Alpha was a licensed wholesale distributor and importer of alcoholic beverages in the state of California. Alpha, a California corporation, maintained its principal office at San Francisco, and sales offices in other places in the northerly part of the state. Brown-Forman is a Delaware corporation engaged in the manufacture of distilled spirits in the state of Kentucky, which products were sold in interstate commerce and in the state of Kentucky.

On or about August 4, 1950, D. E. Motlow, acting for Jack Daniel, became acquainted with Loris M. diGrazia, president of Alpha. Jack Daniel's products were then virtually unknown to the trade in California and were in limited supply; but an additional supply of aged Jack Daniel whiskeys was anticipated in 1951 and thereafter.⁴

At their August 4, 1950 meeting Motlow and diGrazia discussed a proposal that Alpha become the exclusive distributor for Jack Daniel products in Northern California, and basic understandings concerning such an exclusive distributorship were expressed. These understandings were confirmed in subsequent telephone conversations and correspondence. During October, 1950, Alpha placed its first order, and was supplied with some three hundred cases of Jack Daniel's Black Label whiskey during 1950.

Alpha immediately commenced to "pioneer" the distribution of Jack Daniel products in an "excellent manner. It supplied local advertising, sales aids, sampling and other promotional and sales activities and support. During 1954 Alpha assigned a sales executive as "brand manager" of Jack Daniel's whiskeys, a function customarily carried out by distillers in aid of their distributors. In the early period of Alpha's distributorship, Jack Daniel did not provide any local advertising or promotion for its products.

In mid-1951, Jack Daniel appointed Parrott & Co., a California corporation (Parrott), as its broker in eleven of the western states of the United States. Alpha's purchases and sales of Jack Daniel's products progressively increased, from two thousand seven hundred cases in 1951 to ten thousand four hundred and nine cases in 1955. During 1954, Jack Daniel curtailed its distillation of whiskey, closing its operations for several months. This resulted in lesser quantities of aged whiskeys maturing in 1958 and 1959.

In early 1956, Jack Daniel advised Alpha that a shortage of its products in relation to sales was anticipated. Because of this, Jack Daniel advised, sales to Alpha and other purchasers would be rationed or allocated to Jack Daniel's existing customers on an equitable basis as related to 1955 purchases. Jack Daniel requested Alpha to similarly allocate its supplies to Alpha's existing customers for Jack Daniel products. Such allocation to Alpha by Jack Daniel and by Alpha to its established customers continued until the distributorship was terminated, as described below.

On August 25, 1956, Brown-Forman formed a new corporation under the Jack Daniel name, which corporation acquired the old Jack Daniel corporation four days later. The old corporation was thereupon liquidated. Brown-Forman held all of the capital stock of the new Jack Daniel.

The original oral distributorship contract was amended in certain respects, the most recent as of October 27, 1958. These amendments pertained to (1) the expansion and contraction of Alpha's exclusive territory, and (2) Jack Daniel's allocation scheme. There were no amendments with regard to the duration or manner of terminating the contract.

On October 31, 1960, Jack Daniel gave Alpha written notice that the distributorship would be terminated effective December 31, 1960. No cause was stated for this termination. On December 31, 1960, Alpha had in excess of three thousand five hundred customers in its exclusive territory for Jack Daniel whiskey.

Upon its refusal to further deal with Alpha, Jack Daniel furnished its products to Rathjen Bros. of California and Rathjen Bros. of Oakland (Rathjen) which had been Brown-Forman's distributor. Rathjen had been a competitor of Alpha in the distribution of distilled spirits at wholesale in Alpha's exclusive Jack Daniel territory. Rathjen assumed and continued Alpha's system of allocation of Jack Daniel products to Alpha's established customers, as requested by Jack Daniel, and as aided by Parrott as Jack Daniel's broker-agent.

As a basis for its breach of contract claim against Jack Daniel, Alpha alleged in its complaint that, by the terms of the oral contract for an exclusive distributorship of Jack Daniel's products in Northern California, the parties agreed that Alpha should remain and continue as Jack Daniel's exclusive distributor as long as Alpha performed its undertakings thereunder. According to Alpha, it was understood that Alpha's exclusive distributorship should not and would not be terminated without good cause.

The trial court determined that these allegations had been proved. The court specifically found that under the oral contract, the distributorship was not to be terminated, except for cause.⁵ The court further found that Jack Daniel terminated the distributorship without...