597 F.2d 814 (2nd Cir. 1979), 683, F. & M. Schaefer Corp. v. C. Schmidt & Sons, Inc.

Docket Nº:683, 736, Dockets 78-7621, 78-7648.
Citation:597 F.2d 814
Party Name:The F. & M. SCHAEFER CORPORATION and the F. & M. Schaefer Brewing Co., Plaintiffs-Appellees, v. C. SCHMIDT & SONS, INC. and Citibank, N.A., as Successor Trustee under Four Trust Agreements each dated December 28, 1944, made by Rudolph J. Schaefer, as Settlor, Defendants-Appellants.
Case Date:April 03, 1979
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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597 F.2d 814 (2nd Cir. 1979)

The F. & M. SCHAEFER CORPORATION and the F. & M. Schaefer

Brewing Co., Plaintiffs-Appellees,


C. SCHMIDT & SONS, INC. and Citibank, N.A., as Successor

Trustee under Four Trust Agreements each dated

December 28, 1944, made by Rudolph J.

Schaefer, as Settlor,


Nos. 683, 736, Dockets 78-7621, 78-7648.

United States Court of Appeals, Second Circuit

April 3, 1979

Argued March 5, 1979.

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Patrick W. Kittredge, Philadelphia, Pa. (Alan M. Lerner, Joseph M. Donley, Cohen, Shapiro, Polisher, Shiekman & Cohen, Philadelphia, Pa., Arthur M. Handler, Leonard W. Wagman, Manuel W. Gottlieb, Vicki Z. Armet, Curtis V. Trinko, Golenbock & Barell, New York City, of counsel), for defendant-appellant C. Schmidt & Sons, Inc.

William B. Pennell, New York City (R. Bruce MacWhorter, Richard P. Lasko, Shearman & Sterling, New York City, of counsel), for defendant-appellant Citibank, N.A.

William R. Glendon, New York City (Guy C. Quinlan, William S. Greenawalt, James J. Maloney, Peter M. Dugre, Rogers & Wells, New York City, of counsel), for plaintiffs-appellees.

Before FRIENDLY, SMITH and MANSFIELD, Circuit Judges.


C. Schmidt & Sons, Inc. and Citibank, N.A., appeal a decision of Judge Broderick granting appellees F. & M. Schaefer Corp. and F. & M. Schaefer Brewing Co. (collectively "Schaefer") 1 preliminary relief enjoining appellants from executing an agreement entered into by them on April 3, 1978, for the purchase by Schmidt for $6 million 2 from a trust administered by Citibank of subordinated, convertible notes issued by F. & M. Schaefer Corp. in the face amount of $20 million, due January 15, 1998. The notes are convertible into 769,232 shares of Schaefer common stock, or approximately 29% Of its outstanding shares after conversion. 3 Schaefer is a publicly held company, and the 29% Block would represent the largest single holding. It is undisputed that Schmidt would convert the notes if it were allowed to purchase them, but there is some dispute whether Schmidt would thereby obtain control of Schaefer.

Schmidt and Schaefer are direct competitors; both market various brands of "regional" beers selling at "popular" prices, meaning that they sell primarily within one region of the country and at a price below that of the "premium" labels marketed by the national brewers (e. g., Anheuser-Busch, Inc., Miller Brewing Co., Jos. Schlitz Brewing Co.). Schmidt and Schaefer market largely within the 12-state northeastern region of the United States. A large share of their sales, however, is concentrated in the New York City and Philadelphia metropolitan areas, which in 1977 accounted for about 34% Of Schaefer's total sales and 28% Of Schmidt's total sales. Price competition

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between the two is vigorous and represents a major factor affecting each company's sales and profits.

Upon learning of Citibank's proposed sale of the notes to Schmidt, Schaefer sued to prevent the sale, claiming that it would violate §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2 and § 7 of the Clayton Act, 15 U.S.C. § 18, and moved for a preliminary injunction. After a hearing lasting six weeks, the trial court found that Schaefer and the public would possibly suffer irreparable harm if preliminary relief were denied, that Schaefer had established sufficiently serious questions to provide fair grounds for litigating the merits of the Clayton Act claim, that the proposed combination of the two competitors in the New York and Philadelphia areas created "a presumption that the purchase would violate the antitrust laws," and that Schaefer had demonstrated that the respective hardships caused by granting or denying preliminary relief tipped decidedly toward it. Accordingly, the court enjoined the execution of the agreement pending a plenary trial and decision on the merits. 4 See Triebwasser & Katz v. A.T.&.T. Co., 535 F.2d 1356 (2d Cir. 1976); Sonesta Int'l Hotels Corp. v. Wellington Associates, 483 F.2d 247 (2d Cir. 1973). Appellants contest several of the factual and legal conclusions reached by the trial court in determining that Schaefer satisfied the criteria for preliminary injunctive relief. We affirm.

Schmidt first contends that Schaefer has not made an adequate showing on the merits. We disagree. According to the evidence introduced below, Schmidt's proposed horizontal acquisition of a substantial interest in Schaefer would constitute a prima facie violation of § 7. See United States v. Philadelphia National Bank, 374 U.S. 321, 363, 83 S.Ct. 1715, 10 L.Ed.2d 915 (1963). The companies are locked in vigorous competition with each other in the New York and Philadelphia metropolitan areas, where the two have substantial shares of the market, and elsewhere in the northeastern region. In 1977 four brewers (Schaefer, Schmidt, Anheuser-Busch, and Miller) accounted for 81.8% Of all sales of beer to food stores in the New York metropolitan area, with Schaefer and Schmidt making 23% And 24.3% Of such sales respectively, or a total of 47.3%. In the same year the same four brewers sold 75.2% Of the beer supplied to home vendors in the same area, with Schaefer and Schmidt furnishing 20.1% And 15% Respectively, or a total of 35.1%. The trial court also found that the combined sales of the two companies accounted for 28% Of all sales in...

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