American Key Corp. v. Cole Nat. Corp.

• Decision Date: 12 June 1985
• Docket Number: No. 84-8058,84-8058
• Parties: 1985-2 Trade Cases 66,648, 2 Fed.R.Serv.3d 614, 18 Fed. R. Evid. Serv. 458 AMERICAN KEY CORPORATION, and Ron DeWeese, Plaintiffs-Appellants, v. COLE NATIONAL CORPORATION, and Sears, Roebuck and Co., Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1569

762 F.2d 1569

1985-2 Trade Cases 66,648, 2 Fed.R.Serv.3d 614,

18 Fed. R. Evid. Serv. 458

AMERICAN KEY CORPORATION, and Ron DeWeese, Plaintiffs-Appellants, v. COLE NATIONAL CORPORATION, and Sears, Roebuck and Co. Defendants-Appellees.

No. 84-8058.

United States Court of Appeals Eleventh Circuit.

June 12, 1985.

John C. Butters, Atlanta, Ga., for plaintiffs-appellants.

Emmet J. Bondurant, Thomas B. Metzloff, Atlanta, Ga., Paul Michael Pohl, Cleveland, Ohio, for Cole Nat. Corp.

Michael A. Doyle, Frank G. Smith, Atlanta, Ga., for Sears.

Appeal from the United States District Court for the Northern District of Georgia.

Before KRAVITCH and ANDERSON, Circuit Judges, and ATKINS ^*, District Judge.

ATKINS, District Judge:

Appellant, American Key Corporation ¹ (American Key) seeks reversal (a) of American Key filed an anti-trust action alleging a conspiracy to violate sections 1 and 2 of the Sherman Act. The original complaint was filed in May 1980 against Cumberland Associates and Carter & Associates, Inc., the owners of the mall in which American Key was located. Carter filed its answer June 5, 1980 and Cumberland filed its answer on February 13, 1981. A district court local rule requires that discovery be completed within four months, unless extended within that time, after the filing of an answer. In March, 1981, leave was granted to file an amended complaint naming Cole and Sears as defendants on the theory that they had conspired to keep American Key, an alleged rival, out of various malls. Cole and Sears filed their answers respectively on May 1 and 5, 1981. On October 29, 1982, after several extensions had been granted, the district court extended the discovery period an additional 30 days for a limited purpose.

summary judgments entered in behalf of the appellees, Cole National Corporation (Cole) and Sears, Roebuck & Co. (Sears) and (b) orders restricting discovery.

All defendants moved for summary judgment urging that facts developed in discovery established there was no evidence to support the claims of the amended complaint. In granting the motions, the district court, 579 F.Supp. 1245, concluded: (a) the relevant product market was "replacement keys and related items"; (b) the relevant geographic market was not, as American Key claimed, only regional enclosed shopping malls; (c) that American Key had not offered significant probative evidence which would tend to show the conspiracy it had alleged; and (d) there was no evidence that any of the appellees had monopoly power in any relevant market nor that they had attempted or conspired to monopolize the sale of replacement keys and related products. ²

Finding no abuse of discretion in the discovery rulings and no error in the determination that there was no genuine issue as to any material fact, we affirm.

STANDARD OF REVIEW

The district court's order granting the summary judgments is reviewable by this Court to determine if American Key produced sufficient material facts to raise genuine issues for trial. See, First National Bank v. Cities Service Co., 391 U.S. 253, 288, 88 S.Ct. 1575, 1592, 20 L.Ed.2d 569 (1968); Pan-Islamic Trade Corp. v. Exxon Corp., 632 F.2d 539, 553 (5th Cir.1980), cert. denied, 454 U.S. 927, 102 S.Ct. 427, 70 L.Ed.2d 236 (1981).

The district court's discovery orders are reviewable by this Court only for an abuse of discretion. Wyatt v. Kaplan, 686 F.2d 276 (5th Cir.1982); Scroggins v. Air Cargo, Inc., 534 F.2d 1124, 1133 (5th Cir.1976).

STATEMENT OF THE FACTS

The facts in this appeal are undisputed. Cole is a corporation with headquarters near Cleveland, Ohio, involved in a variety of retailing enterprises. Besides its key duplicating services described below, Cole sells (1) personalized products through its "Things Remembered" stores; (2) video games, home computers, toys, juvenile furniture, sporting goods, and outdoor play equipment through its "Child World" and "Children's Palace" stores; (3) cookies through its "The Original Cookie Company" stores; and (4) prescription eyewear and related optical products.

A relatively small aspect of Cole's business is its key duplicating services, accounting for less than 6% of its sales in 1981. As of January 31, 1982, Cole operated numerous key duplicating shops on the premises of major retailers. Many, but not all, of these shops are located in stores that are found in malls or shopping centers.

Cole markets its key duplicating services by operating key shops primarily at small locations leased from major retailers. These locations are either in the store of a major retailer, or else directly adjoining the retailer such as in the store's parking lot. In some of its key shops, Cole sells other items and provides other services in addition to the key duplicating service.

THE COLE AND SEARS RELATIONSHIP

Since the 1930's, Cole and its predecessor have contracted with Sears to lease space to operate key shops in or adjacent to certain Sears stores. Under the terms of licensing agreements between the parties, Cole pays Sears a percentage of its net sales from the key shop in Sears stores. The parties presently operate under two non-exclusive concession agreements relating to the key shops; the first concerns "Outside Key Shops" which are located in Sears' parking lots, while the second concerns "Inside Key Shops" located within particular Sears stores. Under both Agreements, Sears grants Cole "the privilege of conducting and operating" the key shops at particular Sears stores designated in a "Location Rider" attached to each Agreement. The Agreements set Sears' compensation at 22% of Cole's net sales for each shop.

The Agreements afforded Cole total control over employee relations, including the "sole and exclusive right to hire, transfer, suspend, lay off, recall, promote, assign, discipline, adjust grievances and discharge said employees." All contracts and purchases made by Cole in connection with the key shops are to be made directly by Cole in its own name. The Agreements give both parties the right to terminate the licensing arrangement upon sixty days' notice with or without cause. The Agreements expressly provide that upon termination, Cole has no right or interest relating to any future contracts that Sears may elect to make with others regarding the key duplicating concession. The Agreements expressly state that Sears may elect to (1) operate the key shop itself; (2) have any third party operate it; (3) enter into a new arrangement with Cole; or (4) terminate the key shop operation altogether.

The Agreements do not contain an "exclusive" dealing provision. Sears has the right to operate key shops itself or to have others do so, or not to have a key shop at all. Sears has leased key departments that are operated by companies other than Cole. The latter is not obligated to serve all Sears stores, and, in fact, does not. Cole is not foreclosed from dealing with other retailers to operate key duplicating facilities in other stores or to open key shops of its own--a right which Cole exercises. The Agreements do not contain any provisions giving Sears control over Cole's pricing. The Agreements expressly state that Sears has no "right or power to effect or control the prices at which service and/or merchandise shall be offered" by Cole.

COLE AND ITS "THINGS REMEMBERED" CHAIN

In the early 1970's, Cole began developing a new retail marketing concept in which it would lease space in a mall or shopping center to establish a store which would sell a wide variety of products that could be engraved or "personalized" while the customer waited. A "Things Remembered" store carries such items as mugs, pen and pencil sets, ID bracelets, baby gifts, inexpensive jewelry, door knockers, and lighters.

As an additional product line, some "Things Remembered" stores include a small-scale key duplicating facility. The key duplicating facility is not a significant aspect of the product mix or marketing concept of the "Things Remembered" stores. Key facilities are included because of the low costs of including the key duplicating capability.

In certain instances, Cole has placed a "Things Remembered" store in a mall which already has an existing Cole operated key shop in a Sears store, or Cole has opened a key shop in a Sears store in a mall in which a "Things Remembered" store was already operating. In 1973, Cole at the request of Sears, entered into an agreement

with Sears in which Cole agreed to adjust its payments pursuant to the license agreements (which were previously based on a percentage of sales of Cole key shops) in order to compensate Sears for any reductions that might be caused by the operation of a "Things Remembered" and a Sears key shop in the same mall.

DeWEESE AND HIS COLE CONNECTION

Ron DeWeese, President of American Key, was hired by Cole in 1974 as an Assistant District Manager responsible for managing certain key shops in the southeastern United States. Mr. DeWeese, while still a Cole employee, attempted to operate a key shop of his own, but sold his interest when his supervisor at Cole discovered this conflict of interest. When Cole officials discovered that DeWeese had opened a second key shop in downtown Atlanta, he was immediately discharged. DeWeese understandably should have had knowledge of the personnel at both Cole and Sears as a result of his role as Cole's assistant district manager.

THE FORMATION OF AMERICAN KEY

American Key was formed in August 1976 with an initial capital contribution of $500. From its inception, Ron DeWeese has been its president and principal shareholder. American Key took over the operation of Mr. DeWeese's key shop in downtown Atlanta. Since its formation, American Key has attempted to operate small key duplicating facilities in shopping malls or other retail locations in the Atlanta area and a few other locations in the Southeast. At one time it had facilities at 16 different locations. American Key has operated...