461 F.Supp. 627 (D.Colo. 1978), Civ. A. 76-K-918, Westman Commission Co. v. Hobart Corp.

Docket NºCiv. A. 76-K-918
Citation461 F.Supp. 627
Party NameWestman Commission Co. v. Hobart Corp.
Case DateDecember 06, 1978
CourtUnited States District Courts, 10th Circuit, District of Colorado

Page 627

461 F.Supp. 627 (D.Colo. 1978)

WESTMAN COMMISSION COMPANY, a Colorado Corporation,

v.

HOBART CORPORATION, an Ohio Corporation.

Civ. A. No. 76-K-918.

United States District Court, D. Colorado.

Dec. 6, 1978

As Amended Dec. 7 and 8, 1978.

Roger Goldburg and Sidney W. Delong, Shank, Irwin & Holmes, Denver, Colo., and Michael J. Abramovitz, Drexler & Wald, Denver, Colo., for Westman Com'n Co.

James E. Hautzinger, Dawson, Nagel, Sherman & Howard, Denver, Colo., and John F. McClatchey and Thomas J. Collin, Thompson, Hine & Flory, Cleveland, Ohio, for Hobart Corp.

MEMORANDUM OPINION AND ORDER

KANE, District Judge.

Pursuant to the pre-trial order of May 9, 1978 trial of the above captioned case was bifurcated. The first trial which began August 21, 1978 is limited to the determination of liability. The second trial which has yet to be set will be to determine damages. Following the August trial a transcript of proceedings was prepared and extensive post-trial briefs were filed. I have now completed an examination of the record, exhibits and briefs and will commence the onerous task of making these findings of fact and conclusions of law. The job has been made easier by the excellent quality of advocacy demonstrated by counsel for both

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the plaintiff and the defendant. The presentation of the evidence and arguments will provide me with no excuse for error and thus I approach this decision with unaccustomed diffidence. As previously implied, my conclusion is that the plaintiff has established liability by a preponderance of the evidence and that a subsequent trial on the issue of damages will be required.

The plaintiff, Westman Commission initiated this private antitrust action against the defendant Hobart Corporation alleging that the defendant combined or conspired with a competitor of plaintiffs, Nobel, Incorporated, to restrain trade in violation of Section 1 of the Sherman Act, 15 U.S.C. Specifically, Westman alleges that Hobart conspired with Nobel in Hobart's refusal to appoint plaintiff as a dealer in Hobart kitchen equipment for the purpose of excluding plaintiff from competing with Nobel in the Denver market for the sale of restaurant equipment and supplies.

There is a recognized distinct market wherein a purveyor can supply a customer in the institutional food service or restaurant business with all requisite equipment and supplies. Commonly referred to as "one-stop shopping" or "full-line distribution," customers obtain convenience, cost savings and better service from a "one-stop shopping" distributor than from houses specializing in selected products.

Westman is presently engaged in the restaurant equipment and supply business. From 1952 to 1973 Westman was in the wholesale grocery business, supplying frozen foods, dry groceries, paper products and janitorial supplies to retail grocers, restaurants, hospitals, schools and other buyers. In 1973, Westman purchased the assets of the WE-4 Division of Wilscam Enterprises, Inc., in order to expand the scope of the business to that of a "one-stop shopping" center for institutional and restaurant customers. The WE-4 Division supplied all of the furnishings and kitchen equipment for Wilscam Enterprises' restaurants as well as a number of other customers which were not part of the same corporate monolith.

Hobart is a manufacturer of kitchen equipment for use in food service establishments where food is prepared for consumption either on or off the premises. The products it manufactures include scales, reach-in and walk-in refrigerators and freezers, certain types of cooking and re-heating equipment, food mixers, slicers and cutters, dishwashing machines, disposers, and waste equipment systems.

Often, and sometimes proudly, referred to as the "Cadillac" of the food service industry, Hobart has enjoyed the reputation of being the preeminent manufacturer of kitchen equipment. Thomas Ricca, an expert in food facilities design, testified that in certain lines of restaurant equipment there is a noticeable absence of acceptable substitutes at a price comparable with that of Hobart products. He further stated that Hobart's food preparation equipment, table food cutters and microwave ovens are superior to anything else on the market.

In addition, Mr. Ricca testified that Hobart is the only manufacturer to offer factory service of its equipment. Although service is normally available for the products of other manufacturers who compete with Hobart, such is usually provided by a factory trained service representative as distinguished from a manufacturer's own service company such as Hobart.

Mr. Ricca could not recall any specification among hundreds that he had prepared in which some Hobart equipment was not included. He noted that a customer generally requires a dealer to bid the primary item as specified and then, if desired, to submit an alternate or substitution at the end of the bid as an addendum. Ricca was careful to emphasize, however, that alternates or substitutes are rarely accepted and that many bids are awarded on an all or none, take me as I am or leave me be, basis.

Hobart sells its commercial kitchen equipment through its Food Service Dealer Division to approximately 540 independent dealers located throughout the country. There are presently between 1,500 and 1,600 restaurant equipment dealers in the United States. It is not known how many of these

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fall within the "one-stop shopping" category. Where a formal dealer sales arrangement has been executed by Hobart, a dealer can purchase directly from Hobart at factory prices and also obtain rebates of up to eight per cent of its purchases at the end of the year. In a business as competitive as the restaurant equipment and supply business, this eight per cent rebate is taken into account when preparing bids on particular jobs.

Considering the range of Hobart products, their superior quality, the competitive prices, the absence of alternates or substitutes for several of Hobart's products, the factory service available, and the difficulty in maintaining a competitive posture in the market in the absence of receiving the year-end eight per cent rebate, it is manifest that a Hobart dealership is essential to a successful "one-stop shopping" operation.

Presently, and at the time of the alleged combination or conspiracy, Nobel is a dealer in Hobart kitchen equipment. Nobel is a "one-stop shopping" center of institutional food products, frozen foods, frozen fish and meat, janitorial products, restaurant equipment and supplies. 1 It is of critical importance to note that as of 1976, the Denver area (which according to Hobart jargon includes Pueblo, Colorado some 120 miles distant) had eight Hobart dealers. As of December 1977, in the same area there were five Hobart dealers. In both years and for at least three years prior Nobel was the highest dollar Hobart dealer accounting in each year for shipments totaling approximately between forty and fifty per cent of the dollar volume of Hobart dealers in the designated area. During all this time Nobel was the only designated Hobart dealer engaged in a "one-stop shopping" operation. (See Joint Exhibit 85 M.) Since it is manifest that a Hobart dealership is essential to a "one-stop shopping" operation and Nobel was the only "one-stop shopping" operation in the "Denver area," it is equally manifest that if Nobel's position was not entirely monopolistic, it certainly was enviable. This position alone provides more than ample motivation for Nobel to importune Hobart to refuse to give Westman the quintessential dealership.

The WE-4 Division was purchased by Westman on June 15, 1973. Although Hobart had been accepting orders from the WE-4 Division as if it were a formal Hobart dealer, a sales agreement form had never been signed by Wilscam Enterprises. When Hobart learned of Westman's acquisition of the WE-4 Division, Robert F. Knight, vice president of sales for the Food Service Dealer Division of Hobart, decided not to execute a sales agreement with Westman until he could determine what the programs and aims of the new firm were. Mr. Knight testified, however, that In most cases the acquiring firm of the Hobart dealership is also extended a dealership. Compelling reasons, which were not defined, sometimes require a contrary result.

Thomas E. Wilscam, a major shareholder in Wilscam Enterprises, testified that the principal subject of the sale of WE-4 Division to Westman was the product lines that WE-4 had established. Westman also acquired WE-4's inventory, showroom, and a few of its sales people. Wilscam stated that he had contacted all of the suppliers that he had been dealing with through WE-4 Division and each had indicated agreement, without guaranties, to continue to sell products to Westman as long as Westman did a job comparable to that done by WE-4. Wilscam also testified that in response to his inquiry, he had been told by Hobart that if Westman continued to do the Same job that WE-4 had done, Hobart would have no problem in extending a dealership to Westman. WE-4 was primarily an in-house dealership. As such, it was not a threat to Nobel. The sale to Westman, however, completely changed the picture. Westman would no longer continue to do the same job that WE-4 had done. Rather,

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by reason of its acquisition of the Hobart dealership, Westman would be able to compete with Nobel and Hobart would, as it did, have a problem in extending a dealership to Westman.

Although no formal dealership agreement was extended by Hobart, sales were made to Westman on a "casual" basis over the following 14 months. For all intents and purposes, everything appeared to be copacetic and there was little or no question in the minds of the people at Westman that a...

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