Coca-Cola Bottling Co. v. Coca-Cola Co.

• Decision Date: 28 June 1991
• Docket Number: 83-120 JJF.,Civ. A. No. 83-95 JJF
• Citation: 769 F. Supp. 671
• Parties: 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.
• Court: U.S. District Court — District of Delaware

769 F. Supp. 671

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 JJF, 83-120 JJF.

United States District Court, D. Delaware.

June 28, 1991.

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Edmund N. Carpenter, II, Charles F. Richards and Jesse A. Finkelstein of Richards, Layton & Finger, Wilmington, Del. (Emmet J. Bondurant, Jane F. Vehko and Jeffrey D. Horst of Bondurant, Mixson & Elmore, Atlanta, Ga., of counsel), for plaintiffs.

Richard D. Allen of Morris, Nichols, Arsht & Tunnell, Wilmington, Del. (Michael C. Russ, George S. Branch and William F. Lummus, Jr. of King & Spalding, Atlanta, Ga., of counsel), for defendant.

FARNAN, District Judge.

OPINION

These actions are two consolidated cases brought against The Coca-Cola Company, a Delaware corporation (hereinafter "the Company") by certain independently-owned Coca-Cola bottlers (referred to collectively hereinafter as "plaintiffs" or "the bottlers"). These actions, which for ease of reference will be referred to as the "diet Coke cases," were originally filed in 1983 and have thus far resulted in eight years of litigation, six published opinions, one bench trial, and numerous unpublished opinions and orders. The bench trial was conducted before the Hon. Murray M. Schwartz in December 1988 — January 1989. Before he could render decision, Judge Schwartz became too ill to continue with this litigation. The cases were reassigned to me. Offered the option of my deciding the cases based upon the record developed before Judge Schwartz or a retrial, the parties chose to retry the cases.

A nine-day bench trial was conducted before me on various dates during October-November, 1990. This Opinion constitutes the Court's Findings of Fact and Conclusions of Law pursuant to Fed.R.Civ.P. 52(a) in both C.A. No. 83-95 and C.A. No. 83-120.

INTRODUCTION

These are two of three related actions involving the contracts which govern the relationship between The Coca-Cola Company and its bottlers. The diet Coke cases arise out of contractual disputes between the Company and certain of its bottlers over whether the syrup for diet Coca-Cola (referred to interchangeably as "diet Coca-Cola" and "diet Coke") is covered under the terms of the bottlers' contracts with the Company. A related case, Coca-Cola Bottling Co. of Elizabethtown, Inc. v. The Coca-Cola Company, 769 F.Supp. 599 (referred to hereinafter as the "Elizabethtown litigation"), involves contractual disputes over the supply of syrup for the product Coca-Cola.¹

The long and tortured history of this litigation has been recited elsewhere, including most recently in this Court's opinion issued this date in the related Elizabethtown case (referred to hereinafter as the "Elizabethtown opinion"), and the Court refers the reader to these recountings for a detailed recital of the events leading to this and the related Elizabethtown litigation. See, e.g., Coca-Cola Bottling Co. of Shreveport, Inc. v. The Coca-Cola Co., 696 F.Supp. 97 (D.Del.1988); Coca-Cola Bottling Co. of Elizabethtown, Inc. v. The Coca-Cola Co., 696 F.Supp. 57 (D.Del.1988). Because an understanding of the contractual relationships and history of the parties is necessary to an understanding of the issues in these cases, the Court will briefly outline the background facts once again here. The following narrative is intended to provide the necessary background for the reader uninitiated to this litigation and is drawn from various sources, including the prior published opinions and evidence in the record. Those factual findings necessary to the Court's holdings in these matters will be treated in greater detail in the Findings of Fact.

In 1886, Dr. John Smyth Pemberton, an Atlanta pharmacist developed the formula for Coca-Cola syrup, which could be mixed with carbonated water to produce the beverage Coca-Cola. On June 6, 1887, he registered the name "Coca-Cola" written in Spencerian script as a trademark "for soda water and other beverages." Between 1888 and 1891 Asa G. Candler, another Atlanta pharmacist, acquired ownership of the Coca-Cola trademark and formula. In 1892, Candler formed the Coca-Cola Company, a Georgia corporation (the "Georgia corporation"), to manufacture and market Coca-Cola syrup for sale in soda fountains.

On July 21, 1899, the Georgia corporation entered into a contract with B.F. Thomas and J.B. Whitehead, granting to Thomas and Whitehead the exclusive right to sell Coca-Cola in bottles throughout the United States, except in six New England States, Mississippi, and Texas (the "1899 contract"). The 1899 contract also gave Whitehead and Thomas the exclusive right to use the trademark "Coca-Cola" on bottles containing the Coca-Cola beverage in the territories covered by the contract. The 1899 contract contemplated the formation by Whitehead and Thomas of a corporation to be known as "Coca-Cola Bottling Company" to which the rights to sell Coca-Cola in bottles would be assigned. The contract contemplated construction and operation at the expense of Whitehead and Thomas of a bottling facility in Atlanta and any additional facilities that would be necessary to meet demand.

The 1899 contract obligated the Company to sell to Whitehead and Thomas their requirements of Coca-Cola syrup at a fixed price. By an undated amendment, the 1899 contract was amended to fix the syrup price at $1.00 per gallon, less a 10¢ per gallon rebate to pay for "labels and advertising matter" to be provided by the Company at its actual cost. The syrup was to be bottled under pressure of one atmosphere in proportions of not less than one ounce of syrup to eight ounces of water.

The bottling facilities constructed in Atlanta and Chattanooga, Tennessee by Coca-Cola Bottling Company were soon unable to meet the demand for bottled Coca-Cola. Beginning in 1900, Coca-Cola Bottling Company entered into contracts by which Coca-Cola Bottling Company assigned certain of the rights acquired by Whitehead and Thomas under 1899 contract and provided the syrup it acquired from the Company pursuant to the 1899 contract to individuals, partnerships, and corporations who in turn built bottling plants and promoted and sold bottled Coca-Cola in exclusive geographic territories. Under this arrangement, Coca-Cola Bottling Company is referred to as a "parent bottler" and the entities to which it provided the syrup are referred to as "actual bottlers."²

A dispute arose between Whitehead and Thomas over the desirable contract period with the actual bottlers. Whereas Thomas favored a two-year term, Whitehead favored perpetual contracts. With the Georgia corporation's permission, Whitehead and Thomas divided the rights granted to them under the 1899 contract. Thomas retained ownership of Coca-Cola Bottling Company (for ease of reference referred to hereinafter as the "Thomas Company"). The Thomas Company conveyed to Whitehead and his new business associate, J.T. Lupton, its rights under the 1899 contract for all territories except the District of Columbia and the states of New York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia, West Virginia, North Carolina, Tennessee, Kentucky, Indiana, Ohio, Washington, Oregon, California, and small portions of Georgia and Alabama. Whitehead and Lupton then formed a Tennessee corporation called Dixie Coca-Cola Bottling Company, the name of which was thereafter changed to The Coca-Cola Bottling Company (for ease of reference, referred to hereinafter as "Whitehead-Lupton Company"). The Georgia corporation, Thomas Company, and Whitehead-Lupton Company joined in amending the 1899 agreement to reflect the division. The Thomas Company and the Whitehead-Lupton Company both continued to operate as "parent bottlers."

The Whitehead-Lupton Company and the Thomas Company further divided their territories among other parent and "subparent bottlers." Subparent bottlers of the Whitehead-Lupton Company included Western Coca-Cola Bottling Company and The Coca-Cola Bottling Company (1903). Subparent bottlers of the Thomas Company were Coca-Cola Bottling Works, Coca-Cola Bottling Works the 3d, and Pacific Coca-Cola Bottling. The two bottling plants built by Whitehead and Thomas in Atlanta and Chattanooga were sold to the actual bottlers to whom the rights for those territories were assigned. Thereafter the parent bottlers did not own any Coca-Cola bottling plants, nor were they engaged in the actual bottling or sale of Coca-Cola beverage, which was left entirely to the actual bottlers.

The 1899 contract was modified in 1915 in response to passage of the Clayton Act in 1914. In addition to the modifications relevant to the Clayton Act, the 1915 Amendment formally incorporated an increase in the price of the syrup from 90¢ to 92¢ per gallon, an increase which was offset by a reduction from 10¢ to 8¢ in the amount of advertising material per gallon of syrup the parents were required to purchase from the Georgia corporation. This pricing change had been informally agreed upon by the Georgia corporation and the parent bottlers in 1907. The 1915 Amendment was the first instance in which the phrase "Bottler's Syrup" appears in a contract between the Georgia corporation and the parent bottlers.

In 1919, the property, good will, and business of the Georgia corporation founded by Candler was acquired by a Delaware corporation also called "The Coca-Cola Company" ("the Company"), which also assumed the Georgia corporation's outstanding contracts and liabilities. Thereafter, the Georgia corporation surrendered its charter.³

In 1920, a dispute arose between the Company and the parent bottlers as to the duration of the 1899 contract and the syrup pricing provisions thereunder. The Company sought relief from the fixed price contract and...