Kestenbaum v. Falstaff Brewing Corp.

• Decision Date: 23 June 1978
• Docket Number: No. 76-4290,76-4290
• Citation: 575 F.2d 564
• Parties: 1978-1 Trade Cases 62,100, 3 Fed. R. Evid. Serv. 1082 Dana I. KESTENBAUM, Plaintiff-Appellee, v. FALSTAFF BREWING CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 564

575 F.2d 564

1978-1 Trade Cases 62,100, 3 Fed. R. Evid. Serv. 1082

Dana I. KESTENBAUM, Plaintiff-Appellee, v. FALSTAFF BREWING CORPORATION, Defendant-Appellant.

No. 76-4290.

United States Court of Appeals Fifth Circuit.

June 23, 1978.

Max Hendrick, III, John L. Carter, Houston, Tex., for defendant-appellant.

Jack N. Price, Austin, Tex., Ed P. Magre, Cameron, Tex., for plaintiff-appellee.

Appeal from the United States District Court for the Western District of Texas.

Before TUTTLE, COLEMAN and RONEY, Circuit Judges.

RONEY, Circuit Judge:

This is a vertical restraint antitrust case. The plaintiff, Dana I. Kestenbaum, a beer distributor, sued his supplier, Falstaff Brewing Corporation, alleging violations of Section 1 of the Sherman Act, 15 U.S.C.A. § 1. The jury returned a verdict for Kestenbaum. We hold that Kestenbaum's proof of damage from price-fixing was inadequate; he failed to show that Falstaff's local advertising, bar spending, and warehouse requirements, and use of its power to approve the purchaser of his business, had any anticompetitive effect; his proof of lost goodwill was contrary to the law of the case; but various other allegations of trial error are unpersuasive. We remand for a new trial, the only post-verdict remedy which Falstaff sought in the district court.

I. The Proof

The jury returned a verdict for the plaintiff, and it is our duty to view the facts in the light most favorable to his case. Boeing Co. v. Shipman, 411 F.2d 365, 374-375 (5th Cir. 1969) (en banc).

This dispute arises from a decline in the thirst for Falstaff beer in Texas during the 1960's. At that time plaintiff Dana I. Kestenbaum was the Falstaff distributor for four Texas counties: Milam, Robertson, Brazos, and Burleson, all of which are located slightly north of the Houston-Austin highway. Kestenbaum's family had been in the business since 1934, and in the early 1960's, he had earned net profits as high as $12,000 per year.

In 1967, Falstaff and Kestenbaum reduced their relationship to writing in the form of franchise agreements renewable yearly. The agreements designated geographical territories which would be Kestenbaum's "primary area(s) of interest." He pledged to invest three cents per case in local advertising, when he was financially able to do so. The agreements gave Falstaff the right to terminate at any time, on 30 days' notice, by payment of a penalty. The agreements allowed Kestenbaum to assign his rights to another distributor, but required Falstaff's approval of the assignee's "sales management and financial ability to perform as a Falstaff distributor."

Although Kestenbaum enjoyed a 10-12 percent share of the beer market in his territory, his sales, like those of other Falstaff distributors in Texas, had begun to fall. In 1968, he barely broke even. In 1969 he suffered a loss. In late 1970 and early 1971, he sold his business. The Milam territory went to one neighboring Falstaff distributor, and the Robertson area went to another. He sold his Brazos and Burleson business to his local manager. In all, he realized $30,000 from the sale, in addition to recovering close to $80,000 for his capital investment.

In 1972, he brought this antitrust suit, and claimed damages for the period back to 1968 allowed by the statute of limitations 15 U.S.C.A. § 15b. This Court reversed a general verdict in his favor. Kestenbaum v. Falstaff Brewing Corp., 514 F.2d 690 (5th Cir. 1975), cert. denied, 424 U.S. 943, 96 S.Ct. 1412, 47 L.Ed.2d 349 (1976). The alleged violations of the Sherman Act were the same at both trials:

A. Price-fixing. Kestenbaum testified that Falstaff placed a ceiling on the prices at which he resold the beer. See Albrecht v. Herald Co., 390 U.S. 145, 88 S.Ct. 869, 19 L.Ed.2d 998 (1968). In an earlier period, Falstaff had dictated his prices explicitly. Later it instructed him to "meet competition." Pursuant to Falstaff's instructions, he collaborated with other beer wholesalers in his area to establish price schedules. When this "competitive" price went up, Falstaff claimed half of any increase. In the first trial, Kestenbaum claimed injury from those assessments by Falstaff. The Court held them legal. The general verdict was reversed for failure to show injury or damage. Kestenbaum, 514 F.2d at 694-695; see Newberry v. Washington Post Co., 438 F.Supp. 470, 482 (D.D.C.1977) (Gesell, J.).

On retrial, Kestenbaum gave new testimony and offered a new damage theory. Previously he had testified that in the early 1960's, Falstaff had refused his request to raise his prices by a nickel a case and to keep the proceeds for himself to cover certain expenses. On retrial, he asserted that similar incidents took place in 1966 and 1970. Kestenbaum claimed injury from the inability to raise his price, and calculated damages of $15,741.70 by counting up a nickel for each case sold from 1968 forward. While he testified that he did not know what a nickel increase would have done to his sales volume, he also indicated that, because the distributors of Pearl, Lone Star, Budweiser, and Schlitz were willing to go along with the price hike, the increase would not have reduced the quantity sold. The jury found Falstaff had engaged in price-fixing and awarded damages of $5,000.

B. Territorial Restrictions. Kestenbaum testified that Falstaff confined him to the territories named in his distributorship, and would not let him service 11 customers on the border of Brazos County who were assigned to another distributor. See Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977). As in the first trial, however, Kestenbaum offered no proof of monetary injury from sales lost, and the trial court instructed the jury not to include the claim of territorial restrictions in assessing damages. See Kestenbaum, 514 F.2d at 697.

C. General Combination to Restrain Trade. As additional "overt acts" in furtherance of a conspiracy to restrain trade, Kestenbaum challenged Falstaff's requirements that he advertise locally, engage in bar spending, and maintain three warehouses rather than one. In the words of his attorney, these were "acts of harassment" which "caused him excessive expenditures, without commensurate increase in business."

Falstaff encouraged Kestenbaum to maintain warehouses in Cameron, Milam County; Caldwell, Burleson County; and Bryan, Brazos County. In fact, the territories were drawn in 1967 on the basis of the three warehouses he then had. Kestenbaum started the warehouse in Caldwell, because he thought it would help him with his sales if he were a visible member of the local business community. The warehouses, however, were not effective for that purpose. Shortly before he sold the business, he closed the Caldwell warehouse and his purchaser did not reopen it. The distributor who bought the Milam territory abandoned the warehouse there. Despite the inefficiency of maintaining three separate warehouses in a declining market, Falstaff refused to let him consolidate into one warehouse unless he moved to Bryan, the growth area in his territory and the place where a central warehouse would be best located. Kestenbaum rejected that proposal because he did not want to leave Cameron, the community where he had grown up and where his children were in school. The jury found that Falstaff's conduct with respect to Kestenbaum's warehouses was unreasonable and awarded him $24,000 of the $47,603.36 he estimated he would have saved by closing down two of his warehouses in 1968.

Falstaff required Kestenbaum to engage in "bar spending," or visiting tavern outlets and buying free Falstaff for all those present. Though Kestenbaum found this practice advisable at first, he later determined it was of "no benefit" to him. Similarly, he thought the requirement that he spend three cents per case in distributing Falstaff-prepared advertising on the local radio and newspapers did him no good. Kestenbaum testified his promotional efforts were of no avail when Falstaff was producing bad beer, which spewed when opened, and Falstaff's national advertising was not producing a good brand name image. An expert witness, Dr. Stanley Block, professor at Texas Christian University, testified that national advertising was the "real clout" in the beer business. Falstaff's requirements that Kestenbaum promote the beer locally deprived him of the ability to make optimum business decisions. The jury found the requirements unreasonable. They awarded him $3,435.00 of the $8,235.03 he claimed in unnecessary advertising expense, and $8,000.00 of $16,397.26 he claimed he wasted on bar spending.

D. Restraints on Sale of Business. Kestenbaum found a willing buyer, Marshall Durr, who offered to buy his Milam and Robertson County territories. Falstaff refused to approve Durr, though it did not question his managerial competence or financial soundness. Falstaff preferred that Kestenbaum sell the territories to existing Falstaff distributors. Falstaff suggested that $25,000 was all Kestenbaum should receive for the goodwill value of the business. Kestenbaum eventually received $30,000, but lost $1,000 by being unable to sell to Durr. In Dr. Block's opinion, the approval clause was, like the 30-day notice provisions, an enforcement device. Falstaff's ability to keep the sales price low would guarantee that a purchaser could earn an adequate return without being tempted to break out of the territorial and other restraints which Falstaff had imposed on Kestenbaum.

Kestenbaum claimed that if his sale had not been subject to Falstaff's approval, and if he had not been required to engage in unnecessary warehouse expenses, the goodwill value would have been much greater. The trial judge instructed the jury, in accord with the prior opinion of this Court, that goodwill was to be determined through consideration of two elements:

First, the profit the business has made over and above an amount fairly...