696 F.Supp. 97 (D.Del. 1988), Civ. A. 83-95, Coca-Cola Bottling Co. of Shreveport, Inc. v. Coca-Cola Co.

Docket Nº:Civ. A. 83-95
Citation:696 F.Supp. 97
Party Name:Coca-Cola Bottling Co. of Shreveport, Inc. v. Coca-Cola Co.
Case Date:August 02, 1988
Court:United States District Courts, 3th Circuit, District of Delaware
 
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696 F.Supp. 97 (D.Del. 1988)

COCA-COLA BOTTLING COMPANY OF SHREVEPORT, INC., et al., Plaintiffs,

v.

The COCA-COLA COMPANY, a Delaware corporation, Defendant.

ALEXANDRIA COCA-COLA BOTTLING COMPANY, LTD., et al., Plaintiffs,

v.

The COCA-COLA COMPANY, a Delaware corporation, Defendant.

Civ. A. Nos. 83-95 MMS, 83-120 MMS.

United States District Court, D. Delaware.

Aug. 2, 1988

Edmund N. Carpenter, II, Charles F. Richards, Jr. and Jesse A. Finkelstein of Richards, Layton & Finger, Wilmington, Del. (Emmet J. Bondurant and Jane F. Vehko of Bondurant, Mixson & Elmore, Atlanta, Ga., Miles J. Alexander, Jerre B. Swan and William H. Brewster of Kilpatrick & Cody, Atlanta, Ga., of counsel), for plaintiffs.

Andrew B. Kirkpatrick, Jr., William O. LaMotte, III and Richard D. Allen of Morris, Nichols, Arsht & Tunnell, Wilmington, Del. (Frank C. Jones, Michael C. Russ and George S. Branch of King & Spalding, Atlanta, Ga., of counsel), for defendant.

OPINION

MURRAY M. SCHWARTZ, Chief Judge.

There are three related cases now before the Court: Coca-Cola Bottling Company of Elizabethtown, Inc. v. The Coca-Cola

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Company, No. 81-48 MMS; Coca-Cola Bottling Company of Shreveport, Inc. v. The Coca-Cola Company, No. 83-95 MMS; and Alexandria Coca-Cola Bottling Company, Ltd. v. The Coca-Cola Company, No. 83-120. This opinion disposes of motions filed in the latter two cases (the "diet Coke cases"); an opinion released concurrently with this one (" Coke VI ") addresses motions filed in the first case (the "Coke case," or "Elizabethtown"). Specifically, this opinion treats the partial summary judgment motions filed by the Coca-Cola Company (the "Company") and the cross-motions for partial summary judgment filed by the plaintiffs.

The Elizabethtown litigation began in 1981 and stemmed from the Company's decision to begin substituting high-fructose corn syrup ("HFCS" or "HFCS-55") for granulated sugar in the syrup for Coca-Cola sold by the Company to the plaintiff bottlers. The Coke case centers primarily around the type of syrup to which the bottlers are entitled (sucrose-sweetened or HFCS-sweetened) and the price of that syrup. In 1983, when the Company introduced its new diet product, diet Coke, many Coca-Cola bottlers believed that the Company was obligated to supply the syrup for the new product under the terms of the existing contracts. The Company disagreed and these suits ensued.

The plaintiffs in 83-95 (the "unamended bottlers") are bottlers whose contracts derive from agreements entered as consent decrees (the "Consent Decrees") primarily between the ancestors of the present bottlers (the "parent bottlers") and the Company in 1921. 1 The plaintiffs in 83-120 (the "amended bottlers") are bottlers who have amended their contracts with the Company in response to a Company proposal and negotiations begun in 1978 (the "1978 amendment"). The differences in status of the unamended and amended bottlers will be discussed more fully below.

Trial of the three cases is scheduled to begin in late September of this year and continue for five months.

This Court has jurisdiction over the diet Coke cases pursuant to 28 U.S.C.§§ 1332, 1338, 2201 (1982 & Supp. IV 1986); and 15 U.S.C. §§ 15, 26, 1121 (1982).

I. FACTUAL BACKGROUND

Many of those familiar with this litigation know the following litany by heart. 2

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For the sake of those less steeped in the history of the parties, the Court will repeat it yet again. 3

A. The Growth of the Bottling System

In an amusing sketch of the history of Coca-Cola, Pat Watters notes that by the late 1970's, the world's population consumed approximately 12.5 million gallons of Coca-Cola drinks daily. P. Watters, Coca-Cola: An Illustrated History 3 (1978). There is every reason to believe that this figure is considerably greater today. The nativity of this phenomenally successful soft drink is due to the efforts of an Atlanta pharmacist, John Styth Pemberton, who developed the original formula for the drink in 1886. Shortly afterward, Asa G. Candler, also an Atlanta pharmacist and owner of a wholesale drug company, purchased the trademark rights and the formula from Pemberton. Candler formed The Coca-Cola Company to market the product as a soda fountain beverage.

In 1899, two Chattanooga lawyers, B.F. Thomas and J.B. Whitehead, purchased the rights to sell Coca-Cola in "bottles or other receptacles." Docket Item ("Dkt." 1, exh. B-1 at 39 (83-120). Their agreement with the Company provided that the Company would supply the syrup at a fixed price and that Whitehead and Thomas would in turn produce sufficient quantities of the drink to meet "the demand in all territory embraced in this agreement." Id. 4

The 1899 contract obligated Whitehead and Thomas to "establish in the city of Atlanta, as soon as the necessary machinery and buildings can be obtained, a bottling plant for the purpose of bottling a mixture of Coca-Cola syrup preparation with carbonic acid and water." Coke 1920, 269 F. at 800 (quoting 1899 contract). Initially, two plants were built and operated by Whitehead and Thomas. Demand soon outpaced the capacity of the two plants, however, and Whitehead and Thomas determined that new plants were necessary to fulfill their contractual duties. Id. at 801.

At about the same time, there was a falling out between Whitehead and Thomas as to the best method of developing the bottling business. In particular, they disagreed over the length of the contracts to be granted to "first-line," or "actual" bottlers--local plant owners with whom Whitehead and Thomas would contract in fulfillment of the obligation imposed by the 1899 contract to supply sufficient quantities of the drink to meet demand. Whitehead favored perpetual contracts, whereas Thomas viewed term contracts as wiser. Unable to compromise, the two split the bottling business. The company they initially had formed, Coca-Cola Bottling Company, remained under the control of Thomas (the "Thomas Co."), who retained bottling rights in approximately fifteen states while conveying rights in the remainder of the states to Whitehead. Whitehead and a new partner, J.T. Lupton, named their bottling company " The Coca-Cola Bottling Company" (the "Whitehead-Lupton Co."). The Company, Thomas Co., and Whitehead-Lupton Co. joined in amending the 1899 agreement to reflect the division.

With the consent of the Company, the two bottling companies (the "parent bottlers") 5 proceeded to sub-contract with individual

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first-line bottlers for actual bottling. The first-line bottlers invested in bottling plants and equipment, and bought their syrup from the parent bottler with rights to bottle Coca-Cola in their locality. By 1920, the actual bottlers' capital investment exceeded that of the Company by a factor of five.

For the first years of the contracts, the Company sold the bottlers the same syrup sold to soda fountains. Because there was some disparity in taste between the bottled and the fountain drink, some saccharin was added to the bottled product. 6 After the passage of the Pure Food and Drug Act in 1906, outlawing the use of saccharin in food, the Company formulated a separate bottle syrup. The new syrup contained more granulated sugar to maintain the sweetness, and accordingly was more expensive. The parent bottlers allowed the Company to increase the syrup price to reflect the higher cost of the sweetener.

World War I disrupted (among other things) the sugar market, bringing price controls and rationing. Unable to purchase its requirements of sugar, the Company experimented with sugar substitutes, including corn syrup, in an effort to compensate for the limited amount of sugar available. This experimentation may have been prompted by work done by the United States Department of Agriculture, which released a report titled "Formulas for Sugar-Saving Sirups [sic]." See Dkt. 60 (81-48) at 20. The sugar substitutes did not produce syrup of satisfactory quality.

After the war, the situation did not improve. Sugar prices soared due to shortages, and the Company sought new agreements from the bottlers tying syrup prices to its manufacturing costs. While negotiating this proposal, the bottlers demanded specific information from the Company about its costs. The Company refused to disclose the information, insisting that the bottlers' verification concerns be allayed by "the integrity and good faith of The Coca-Cola Company." PX 1, at 1580.

Unwilling to take the Company's representations on faith, the bottlers rejected the flexible pricing proposal. The Company then announced that it viewed the contracts with the parent bottlers as terminable at will, to which the bottlers responded by demanding that the Company acknowledge the perpetual nature of the contracts. The Company informed the bottlers that their contracts would be terminated as of May 1, 1920.

The parent bottlers filed separate suits seeking a determination that their contracts were perpetual. Pending a final determination of the litigations, the parties agreed to a court order temporarily governing their relations. Syrup price per gallon was set at $1.72 for five months, after which the price would be adjusted up or down from that figure, depending on the Company's costs.

Unknown to the bottlers, and contrary to the representations made at the outset of the litigation in an affidavit by Charles H. Candler, then Chairman of the Board of the Company, the Company had entered into long-term sugar contracts just when sugar prices peaked. Thus, while the price of sugar dropped steeply from a June, 1920, peak, and while the prices of competing beverages fell, the price of Coca-Cola remained high. Coca-Cola sales volume decreased dramatically, by 53% in...

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