660 F.2d 255 (7th Cir. 1981), 80-2120, Lektro-Vend Corp. v. Vendo Co.

Docket Nº:80-2120.
Citation:660 F.2d 255
Party Name:LEKTRO-VEND CORPORATION, a Delaware corporation, Ann Stoner, As Administrator of the Estate of Harry B. Stoner, Deceased, and Stoner Investments, Inc., a Delaware corporation, Plaintiffs-Appellants, v. The VENDO COMPANY, a Missouri Corporation, Defendant-Appellee.
Case Date:August 27, 1981
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
FREE EXCERPT

Page 255

660 F.2d 255 (7th Cir. 1981)

LEKTRO-VEND CORPORATION, a Delaware corporation, Ann Stoner,

As Administrator of the Estate of Harry B. Stoner,

Deceased, and Stoner Investments, Inc.,

a Delaware corporation,

Plaintiffs-Appellants,

v.

The VENDO COMPANY, a Missouri Corporation, Defendant-Appellee.

No. 80-2120.

United States Court of Appeals, Seventh Circuit

August 27, 1981

Argued Feb. 10, 1981.

Certiorari Denied Jan. 25, 1982.

See 102 S.Ct. 1277.

Page 256

James E. S. Baker, Sidley & Austin, Chicago, Ill., for plaintiffs-appellants.

Earl E. Pollack, Chicago, Ill., for defendant-appellee.

Page 257

Before PELL, Circuit Judge, MARKEY, [*] Chief Judge, and WOOD, Circuit Judge.

PELL, Circuit Judge.

This appeal represents the culmination of nearly sixteen years of litigation over complex antitrust issues at all levels of the Illinois and federal court systems. In this most recent appeal, the plaintiffs contest the district court's findings that a certain acquisition by the defendant company in 1959, and the concomitant execution of covenants not to compete, did not 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.

The Parties

The plaintiffs in this case are Lektro-Vend Corporation (Lektro-Vend) and Stoner Investments, Inc. (Stoner Investments), both Delaware corporations, and Ann Stoner, Administrator of the estate of Harry B. Stoner. 1 Harry Stoner (Stoner), an innovative design genius in the vending machine manufacturing industry, was president and controlling owner of Stoner Manufacturing Corporation (Stoner Manufacturing) prior to its 1959 sale to the Vendo Company (Vendo). Stoner Manufacturing primarily manufactured and marketed candy vending machines. The defendant, Vendo, is a Missouri corporation which manufactures and markets various types of vending machines. After the 1959 sale, Stoner held the office of president of Vendo's Aurora, Illinois Division until June 1, 1964. He also served as a Vendo director from May 28, 1959 to April 21, 1964.

Plaintiff Lektro-Vend was developed with Harry Stoner's assistance beginning in 1961 to manufacture candy and snack pastry vending machines. It was formally incorporated in September, 1963. Plaintiff Stoner Investments, successor to Stoner Manufacturing, is a real estate and investment company which owns almost 80% of Lektro-Vend's stock. Stoner Investments was wholly owned by Harry and Ann Stoner prior to Harry Stoner's death.

Vendo's 1959 Acquisition of Stoner Manufacturing

Vendo primarily manufactured beverage and ice cream vending machines prior to 1959. By that time, Vendo was a leading vending machine manufacturer and was considering expanding its product line to include several types of machines it did not then manufacture including a candy machine. Stoner Manufacturing had previously approached Vendo in 1955 to suggest that Vendo acquire Stoner Manufacturing, but those negotiations had proved fruitless. In October 1958, prompted by Harry Stoner's failing health and the death of Stoner Manufacturing's executive vice-president, Clarence Adelberg, Stoner Manufacturing again initiated negotiations with Vendo. In an affidavit submitted to the Federal Trade Commission to gain premerger clearance, Stoner explained his reasons for selling the business:

The stock of the Corporation is owned by four members of our family. There are 870 shares outstanding, of which I own 245 and my wife owns 155.

My own health has never been robust.... Nevertheless, I had always felt able to, and had, managed the business without difficulty until the death of Clarence R. Adelberg.... Since his death there has been a void in management which has not yet been filled.

.. I am concerned because the principal asset of each of the stockholders is his Stoner Mfg. Corp. stock. I feel that the strain of my responsibility is too great in the present state of my health.

Vendo seemed to be a logical purchaser because no other prospective purchaser had any management people capable of

Page 258

running the business without being educated in the vending machine field. Vendo being experienced in that field will be able to take over with less assistance from me.

I am interested in having the business continued, by people who have capable management and who will continue to employ and be compatible with our present officers and employees and with a minimum of dislocation of business practices and employment security. I do not want to let the business just drift and carry on of its own momentum because this cannot continue indefinitely and there is great risk of loss involved in such a program....

The district court found that Vendo acquired Stoner Manufacturing to expand its line of vending machines. 2 Robert Wagstaff, Vendo's chief negotiator in the acquisition, testified at trial that:

(W)e wanted to acquire its candy machine and add it to our line. We liked the capabilities that Stoner Manufacturing represented in connection with some other plans, although it mainly was a desire on our part to enlarge the line of equipment so that we could take care of this demand for full line vending, which was a very real thing in those days. We thought that was the main that was the main reason for our acquiring to (sic) Stoner.

We thought Harry Stoner would be an asset to our board of directors. He had a fine reputation in the industry, and we thought the name on his equipment was helpful.

On April 3, 1959, Vendo and Stoner Manufacturing entered into a sales contract. Vendo purchased Stoner Manufacturing's assets, including inventions, patents, drawings, designs, and research and development work, in exchange for $3,400,000 in cash and 60,000 shares of Vendo stock. 3 The acquisition agreement contained a covenant prohibiting Stoner Manufacturing from any affiliation with

any business engaged in the manufacture and sale of vending machines under any name similar to the Company's present name, and, for a period of ten (10) years after the closing, the Company will not in any manner, directly or indirectly, enter into or engage in the United States or any foreign country in which Vendo or any affiliate or subsidiary is so engaged, in the manufacture and sale of vending machines or any business similar to that now being conducted by the Company.

... (and that Stoner Manufacturing will)

co-operate with Vendo to prevent the use by others of the names "Stoner" and "Stoner Manufacturing Corp." in connection with any business similar to that now carried on by the Company and also agrees not to disclose to others, or make use of, directly or indirectly any formulae or process now owned or used by the Company.

An employment contract was executed on June 1, 1959, which provided that Stoner would serve as an officer or function in whatever other executive or advisory capacity Vendo requested, subject to his health limitations, for five years at an annual salary of $50,000. Stoner stipulated that he would also become a director of Vendo for no additional compensation. The employment contract included the following clause:

During the term of this agreement and for a period of five (5) years following

Page 259

the termination of his employment hereunder, whether by lapse of time or by termination as hereinafter provided, Stoner shall not directly or indirectly, in any of the territories in which the Company or its subsidiaries or affiliates is at present conducting business and also in territories which Stoner knows the Company or its subsidiaries or affiliates intends to extend and carry on business by expansion of present activities, enter into or engage in the vending machine manufacturing business or any branch thereof, either as an individual on his own account, or as a partner or joint venturer, or as an employee, agent or salesman for any person, firm or corporation or as an officer or director of a corporation or otherwise, ... (but this does not prevent Stoner from working for Vendo or trading in the investment securities market).

The contract provided that Stoner would regulate his own working hours "it being understood that the value of Stoner's services ... are not measured by the amount of time or effort devoted to the business by Stoner but by the value of his advice and counsel in the operation of the Aurora, Illinois, facility, and his know-how, experience and reputation in the vending machine field."

The time span covered by the noncompetition covenants was identical to the period during which Vendo (1) had the option to purchase the Stoner Manufacturing plant, (2) was to pay a stipulated share of profits from the use of the acquired assets, and (3) was to pay out a specified share of income from foreign production of the acquired machinery.

The Parties' Post-Acquisition Relationship

Rising tensions between Harry Stoner and Vendo officers catalyzed the rapid disintegration of their relationship shortly after the acquisition was consummated. Stoner Manufacturing's engineering, research, and new product research and development departments, as well as executive control of operations, sales, and finance, were moved from Aurora, Illinois to Kansas City, Missouri, Vendo's principal place of business, soon after the acquisition and without consulting Harry Stoner. Thus, no executives in Stoner's division ever reported to Stoner as president of Vendo's Aurora Division. At a June 24, 1959, meeting, Vendo's then chief executive officer, Robert Wagstaff, advised Stoner that his post as president of the Aurora Division was advisory only. Although Vendo occasionally consulted Stoner regarding business problems, 4 he exercised few actual duties and felt that no one at Vendo heeded his advice. Consequently...

To continue reading

FREE SIGN UP