458 F.2d 927 (7th Cir. 1972), 71-1195, Halverson v. Convenient Food Mart, Inc.

Docket Nº:71-1195.
Citation:458 F.2d 927
Party Name:Roger O. HALVERSON et al., Plaintiffs-Appellants, v. CONVENIENT FOOD MART, INC., et al., Defendants-Appellees.
Case Date:April 05, 1972
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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Page 927

458 F.2d 927 (7th Cir. 1972)

Roger O. HALVERSON et al., Plaintiffs-Appellants,

v.

CONVENIENT FOOD MART, INC., et al., Defendants-Appellees.

No. 71-1195.

United States Court of Appeals, Seventh Circuit.

April 5, 1972

Page 928

Donald C. Gancer, Charles E. Eklund, John T. Kennedy, John O. Demaret, Chicago, Ill., Querrey, Harrow, Gulanick & Kennedy, Chicago, Ill., for plaintiffs-appellants.

Harry G. Fins, Earl A. Jinkinson, Charles C. Kirshbaum, Barry L. Kroll, Edward J. Wendrow, John W. Stack, Chicago, Ill., for defendants-appellees; Winston, Strawn, Smith & Patterson, Chicago, Ill., of counsel.

Before KNOCH, Senior Circuit Judge, and STEVENS and SPRECHER, Circuit Judges.

SPRECHER, Circuit Judge.

This appeal presents the novel question of the effect of a lawyer's communications with potential class members on a subsequently filed class action.

Plaintiffs are the owners of some 36 separate businesses operating retail grocery stores under franchise agreements with defendant Convenient Food Mart, Inc. Defendant Scot Lad Foods, Inc., through its Meadowmoor Dairy subsidiary, markets milk and related dairy products and defendant Bresler Ice Cream Co. sells ice cream. Plaintiffs allege that Meadowmoor and Bresler each own 50 percent of Convenient's outstanding stock.

The complaint alleged that Convenient, through its franchise agreements with plaintiffs and other franchisees, has conspired with Meadowmoor and Bresler to restrain and monopolize interstate

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trade in violation of sections 1 and 2 of the Sherman Act and section 3 of the Clayton Act. 1 The instruments of the alleged violations are exclusive-dealing clauses which require franchisees to buy and sell specified products from suppliers designated by Convenient. Meadowmoor is the designated supplier of dairy products and Bresler, of ice cream. Plaintiffs also allege the use of an advertising fund, to which they must contribute 1 percent of gross sales, in furtherance of defendants' "captive market" scheme. The complaint suggested that defendants receive rebates from advertisers and suppliers of general merchandise whom they require the franchisees to patronize.

In addition, plaintiffs alleged violations of 15 U.S.C. § 13(c) by virtue of Convenient's dual representation as agent both for plaintiffs and for Meadowmoor and Bresler.

The complaint was brought on behalf of the named plaintiffs and on behalf of all Convenient franchisees, many of whom are outside the Chicago area, and all persons who were franchisees as of July 1, 1960, but had since lost their franchises. With the complaint was filed the affidavit required by Rule 39 of the rules of the Northern District of Illinois that plaintiffs' lawyer had not solicited the case.

During pretrial proceedings, one of the attorneys for defendants suggested to the trial judge that the plaintiffs had been solicited. The judge ordered a hearing, at which the facts described below were elicited. On motion of defendants, the judge dismissed the entire case. It is not clear from his announcement of dismissal whether his reason was an ethical breach by plaintiffs' lawyer, a violation of local Rule 39, inadequate or unfair representation of the class under Rule 23(a) (4), Fed.R.Civ.P., or some unidentified omission from the complaint. 2

I

A short history of the relationship between plaintiffs and their lawyer will help in evaluating his supposed misconduct. In 1968 about 75 of the 80 Convenient franchisees in the Chicago area formed an association for purposes of dealing with Convenient on complaints and problems. The association's steering committee retained a lawyer and asked him to negotiate with Convenient for advertising rebates, which were provided for in the franchise agreements but had not been received by franchisees. As a result of his efforts, Convenient in August 1969 distributed advertising allowances accrued since January 1, 1969, to all Chicago-area franchisees.

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Thereafter, the rebates were made on a monthly basis; the total payment to Chicago franchisees was $20,000 annually. Convenient also sent the association a check for attorney's fees, which it turned over to the lawyer.

There was little further contact between the association and the attorney until December 1969, when an officer invited him to a meeting where 31 members were in attendance. There he discussed with the members the possibility of bringing an antitrust suit against Convenient. The lawyer said he would want written authorization from franchisees who would be named plaintiffs. He also asked for a one-third contingent fee and it was agreed that the association would pay the costs. After the lawyer left, all...

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