Coca-Cola Bottling Co. v. Coca-Cola Co., Civ. A. No. 81-48 MMS.

• Decision Date: 08 August 1986
• Docket Number: Civ. A. No. 81-48 MMS.
• Citation: 654 F. Supp. 1388
• Parties: COCA-COLA BOTTLING COMPANY OF ELIZABETHTOWN, INC., et al., Plaintiffs, v. The COCA-COLA COMPANY, Defendant.
• Court: U.S. District Court — District of Delaware

654 F. Supp. 1388

COCA-COLA BOTTLING COMPANY OF ELIZABETHTOWN, INC., et al., Plaintiffs, v. The COCA-COLA COMPANY, Defendant.

Civ. A. No. 81-48 MMS.

United States District Court, D. Delaware.

August 8, 1986.

Edmund N. Carpenter II, Charles F. Richards, Jr., Jesse A. Finkelstein, of Richards, Layton & Finger, Wilmington, Del.; Emmet J. Bondurant and Jane V. Vehko, of Bondurant, Mixson & Elmore, Atlanta, Ga.; J. Barry Epperson, of Epperson, Goodpaster & Johnston, Tulsa, Okl.; M.B. Jackson, of MacDonald, Halsted & Laybourne, Los Angeles, Cal., of counsel, for plaintiffs and intervenors.

Andrew B. Kirkpatrick, Jr., William O. LaMotte, III, and Richard D. Allen, of Morris, Nichols, Arsht & Tunnell, Wilmington, Del.; Griffin B. Bell, Frank C. Jones, Chilton Davis Varner and Dwight J. Davis, of King & Spalding, Atlanta, Ga., of counsel, for defendant.

MEMORANDUM OPINION

MURRAY M. SCHWARTZ, Chief Judge.

This class action for declaratory, injunctive, and monetary relief was brought against The Coca-Cola Company ("the Company") by Coca-Cola Bottling Company of Elizabethtown, Inc. on behalf of itself and other unamended first-line Coca-Cola bottlers in the United States.¹ By Order dated April 12, 1983 (Dkt. 155), 95 F.R.D. 168, as amended on April 27, 1983, 98 F.R.D. 254, (Dkt. 157), the Court certified two issues for determination and severed those issues for separate trial pursuant to Fed.R.Civ.P. 42(b). Those issues are: (1) the meaning of the term "sugar" as used in Paragraph 10 of two identical 1921 Consent Decrees, including whether the word "sugar" as used in that paragraph encompasses High Fructose Corn Syrup-55 ("HFCS-55"), and (2) the meaning of the term "market price" as used in paragraph 7 of those Decrees.

Paragraph 10 of the Consent Decrees provides:

The party of the second part The Coca-Cola Company contracts that the syrup sold and furnished by it to the party of the first part the parent bottler is to be high grade standard Bottlers Coca-Cola Syrup, and shall contain not less than five and thirty two one-hundredths (5.32) pounds of sugar to each gallon of syrup.

Paragraph 7 of the Consent Decrees reads:

It is agreed between the parties that the price of sugar is to be determined quarterly, January, April, July and October in each year, by averaging the market price of standard granulated sugar during the first week in such quarter, as quoted at the refineries by the ten refineries operating in the United States of America at the time, having the largest capacity and output.²

PX 4; PX 5.

Since January, 1980, the Company has sweetened Coca-Cola with High Fructose Corn Syrup-55 ("HFCS-55").³ Plaintiffs assert the term "sugar" as used in the Decrees means refined granulated sugar, i.e., sucrose. They contend that HFCS-55 is not "sugar" as that term is used in the 1921 Consent Decrees and that the Company is violating Paragraph 10 of those Decrees by using HFCS-55 in Coca-Cola Bottlers Syrup without their consent. The Coca-Cola Company argues "sugar" as used in paragraph 10 is a generic name for a family of complex carbohydrates which includes not only sucrose, but also fructose and glucose. Based on this interpretation, the Company insists it has the right to use HFCS-55 in Cola-Cola Bottlers Syrup without the bottlers' consent.

The second issue in dispute between the unamended bottlers and The Cola-Cola Company involves the meaning of the term "market price" of sugar as used in paragraph 7 of the 1921 Consent Decrees. Plaintiffs contend for purposes of paragraph 7 that market price is the average of the actual selling prices of the basis grade of refined granulated sugar being charged f.o.b. the ten largest refineries in the United States on sugar sold in wholesale lots for prompt shipment to industrial users during the first seven days of each calendar quarter, after the deduction of any rebates, discounts, or allowances (other than a two percent cash discount).

Defendant counters "market price" means the publicly quoted or "list" prices announced by refiners to the entire trade prior to sale before any rebates, discounts, or allowances are negotiated by an individual purchaser. The Company has not restricted its definition to only those prices reflected on a published list; it has instead used the term more broadly to include those prices publicly quoted to the trade at large prior to sale, i.e., the price that would be published in a price list if the refiner issued a current price list at that given moment.

The certified issues were tried by the Court between May 19 and June 13, 1986, without a jury, generating over 3400 pages of trial transcript. Testimony was given by fourteen witnesses, either through live testimony or by deposition. During the course of the trial plaintiffs tendered one thousand and forty-nine documentary exhibits; the Company tendered six hundred and forty-nine.⁴

The Court concludes: (1) "sugar" for purposes of paragraph 10 means refined granulated sugar from cane or beet, and therefore HFCS-55 is not sugar as that term is used in paragraph 10 of the 1921 Consent Decrees, and (2) for purposes of paragraph 7 the "market price" of sugar means an average of the price per pound for refined granulated sugar of the grade and in the packaging unit in which it is principally sold to industrial users f.o.b. the refinery, as made known to such industrial users upon inquiry prior to sale by the ten refineries in the United States with the largest capacity and output during the first seven days of each calendar quarter, less any discounts, allowances, or rebates from that price which are available to industrial users or are made known to them upon inquiry prior to sale, but not including a standard two percent cash discount or any individually negotiated discounts, allowances, or rebates.

I. Background Facts

Much of the historical background of the contractual relationship between The Coca-Cola Company and the bottlers of Coca-Cola is summarized in the 1920 opinion of the Court, Coca-Cola Bottling Co. v. The Coca-Cola Co., 269 Fed. 796 (D.Del.1920), and in other opinions of this Court, Coca-Cola Bottling Co. of Elizabethtown, Inc. v. The Coca-Cola Co., 95 F.R.D. 168 (D.Del.1982); Coca-Cola Bottling Co. of Elizabethtown, Inc. v. The Coca-Cola Company, 98 F.R.D. 254 (D.Del.1983). Some of that background is repeated here because it aids in understanding the resolution of the present controversy.

In 1892 The Coca-Cola Company was formed to market fountain syrup. Dkt. 334 (Pretrial Order, Admitted Facts) ¶ 6 (hereinafter "Admitted Facts ¶ ___"). The Coca-Cola bottling system began in 1899. On July 21 of that year Asa Candler, then president of The Coca-Cola Company, executed on behalf of The Coca-Cola Company a contract granting B.F. Thomas and J.B. Whitehead the exclusive right to engage in the business of bottling and selling Coca-Cola throughout all but eight of the United States. The contract obligated the Company to sell Thomas and Whitehead their requirements of Coca-Cola syrup at a fixed price. Admitted Facts ¶¶ 9, 10, 11, 12.

In 1900 Thomas and Whitehead divided the territory between them. Admitted Facts ¶ 16. Thomas named his bottling company "Coca-Cola Bottling Company" ("the Thomas Company"). Admitted Facts ¶ 18. Whitehead and his new partner J.T. Lupton entitled their bottling company "The Coca-Cola Bottling Company" ("the Whitehead-Lupton Company"). Admitted Facts ¶¶ 17, 19. These two companies became the primary "parent" bottlers.

The two companies developed their respective geographic areas independently. They each contracted with local businessmen ("actual bottlers" or "first-line bottlers") who built bottling plants, developed the market for bottled Coca-Cola, and sold Coca-Cola to customers in their exclusive territory. Admitted Facts ¶¶ 16-20, 24. The Thomas Company granted to its actual bottlers term contracts for two years, Admitted Facts ¶ 26; the Whitehead-Lupton Company granted contracts with no time limitation. Admitted Facts ¶ 105. In 1920 there were more than 300 bottlers in the Thomas Territory, Admitted Facts ¶ 26, and approximately 800 in the original Whitehead-Lupton territory. Admitted Facts ¶ 25. The parents neither manufactured or transported the syrup nor bottled the final product, The Coca-Cola Bottling Co. v. The Coca-Cola Co., 269 Fed. at 801, 811-12; Admitted Facts ¶ 23; that was exclusively left to the actual bottlers.

Under the terms of the parent bottlers' contract, the Company agreed to sell the parents their requirements of Coca-Cola Bottlers Syrup at a fixed price. The agreement also required that the "Coca-Cola syrup ... be used in proportions of not less than one ounce of syrup to eight ounces of water." Admitted Facts ¶ 12.

Refined granulated sugar was the principal and most expensive ingredient used in the manufacture of Coca-Cola syrup. PX 766 (AZ0605, AZ0609, AZ0610, AZ0611). The price of sugar had been in the range of 4.9 cents in 1899 when the contract was originally executed and 4.65 cents in 1907 when the fixed price of syrup had last been amended. PX 312. World War I severely affected the price and supply of sugar. Only the imposition of rigid price controls held the price of refined sugar at 9 cents per pound. Admitted Facts ¶ 50. After termination of federal price controls of sugar in September 1919, prices rose rapidly until they exceeded 23 cents per pound in May-June 1920. Admitted Facts ¶ 55.

During the war years, sugar purchasers were assigned quotas under which they were allowed to buy only 50 percent of their sugar purchases made during a previous base period. Admitted Facts ¶ 49. The Company responded by reducing the quantity of sugar used to sweeten Coca-Cola Bottlers Syrup, and by using sweeteners other than cane sugar. Admitted Facts ¶ 53.

In addition to reducing the quantity of its most expensive ingredient in Coca-Cola Bottlers Syrup, the Company sought price relief from the parent bottlers. In 191...