Denton v. Mr. Swiss of Missouri, Inc.

• Decision Date: 07 October 1977
• Docket Number: Nos. 76-1864,s. 76-1864
• Citation: 564 F.2d 236
• Parties: , 1977-2 Trade Cases 61,667 E. L. DENTON, Wilma Denton, Jack W. Keith, Bartlett A. Mayer, Hugh M. Hills, Emma Sue Hills, Appellants, v. MR. SWISS OF MISSOURI, INC., Mr. Swiss of Springfield, Inc., Mr. Swiss of Kansas City, Inc., Charles C. Killingsworth, Robert J. Roundtree, Hubert R. Shemwell and Cormart, Inc., Appellees. to 76-1866.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 236

564 F.2d 236

195 U.S.P.Q. 609, 1977-2 Trade Cases 61,667

E. L. DENTON, Wilma Denton, Jack W. Keith, Bartlett A Mayer, Hugh M. Hills, Emma Sue Hills, Appellants, v. MR. SWISS OF MISSOURI, INC., Mr. Swiss of Springfield, Inc. Mr. Swiss of Kansas City, Inc., Charles C Killingsworth, Robert J. Roundtree Hubert R. Shemwell and Cormart, Inc., Appellees.

Nos. 76-1864 to 76-1866.

United States Court of Appeals, Eighth Circuit.

Submitted June 15, 1977.

Decided Oct. 7, 1977.

Christopher J. Stark, Springfield, Mo., argued, made conclusion, and filed briefs for appellants.

James T. Newsom, argued, and John C. Monica, Kansas City, Mo., on briefs, for appellees.

Before LAY and BRIGHT, Circuit Judges, and MILLER, Judge. ^*

MILLER, Judge.

In these consolidated antitrust actions, appellants seek reversal of the judgments and orders of the district court ¹ (1) dismissing the antitrust count of appellants' complaints for failure to make discovery pursuant to Fed.R.Civ.P. 37(b)(2); and (2) granting summary judgment in favor of appellee Cormart, Inc., on its counterclaim, based on breach of license agreements, for (a) unpaid royalties and percentage-of-gross-sales charges specified in the agreements and for (b) a permanent injunction preventing appellants from displaying or using the "Mr. Swiss" trademark, the "Alpine Boy" logo, and a distinctive store design (sometimes referred to as "standardized system") of the "Mr. Swiss" franchise. We affirm the dismissal of the antitrust count of appellants' complaints, but reverse the summary judgment on the counterclaim of appellee Cormart, Inc., and remand the cases to the district court for further proceedings on the issues raised by the counterclaim.

BACKGROUND

These cases involve the Mr. Swiss franchise system of fast food stores serving primarily soft ice cream and sandwiches. Appellants, at various times from 1967 to 1972, entered into Mr. Swiss license agreements with Mr. Swiss of Missouri, Inc., ² and have operated Mr. Swiss stores under those agreements. The complaints in these three actions were filed in November and December of 1974 and allege that appellants have been damaged as a result of a tying arrangement imposed upon them by appellees, namely: in return for use of the "Mr. Swiss" trademark, the "Alpine Boy" logo, and the distinctive store design, they were required to purchase their supplies from sources approved by appellees and to pay a On January 24, 1975, an order was entered consolidating these cases for the purposes of discovery; also, in January 1975, a pretrial order was entered in all cases under the terms of which discovery was to be completed in each case by May 10, 1975. During this discovery period, appellants did not respond to any of appellees' discovery requests, even after motions were filed by several of the appellees to compel discovery and compliance with the Federal Rules of Civil Procedure.

royalty and a percentage-of-gross-sales charge.

Thereafter, on June 19, 1975, these cases were referred to a special master pursuant to Fed.R.Civ.P. 53(b) for the supervision of discovery. The master held an initial pretrial conference on July 11, 1975, at which the outstanding motions to compel discovery were granted, and counsel for appellants was given until August 11, 1975, to completely respond to all of the existing discovery requests. A new discovery period ending December 1, 1975, was established in anticipation of trial by January 20, 1976.

Appellants did not attempt to comply with the discovery orders of July 11, 1975, ³ until September 11, 1975, at which time the master held a pretrial conference to discuss the matter of noncompliance with the orders. Answers to some interrogatories were filed with the court, but they were "wholly deficient, revealing little or nothing respecting the factual contentions supporting the (appellants') claims." In an attempt to explain the failure to comply, appellants' counsel (at that time) responded that the delay was due in part to appellants' "fragmented" records and that his requests to appellants' bookkeepers "were simply not complied with," resulting in his having to do the work alone. He suggested that part of the delay was attributable to appellants themselves.

On September 19, 1975, because of the failure to make discovery and the incompleteness of answers to interrogatories on the crucial issues of injury and damages, the master imposed sanctions of a then undetermined amount upon appellants' counsel and directed that offers of proof be made by him on these crucial issues by September 25, 1975. Appellants were cautioned that "continued failure to make discovery will certainly . . . require dismissal of one or more of these actions."

By November 7, 1975, these offers of proof with the proper specificity had not yet been presented to the court; accordingly, a pretrial conference was scheduled for November 14, 1975. At that conference, offers of proof were presented, but the master, as well as appellants' counsel, acknowledged that they were inadequate and incomplete. The master ordered appellants to file with the court by December 1, 1975, the materials and information that would satisfy the order for offers of proof and would also respond to yet unanswered interrogatories. However, the order of November 14, met with noncompliance. Belatedly, appellants asked for an extension of time for completion of discovery until March 15, 1976. Although the master extended discovery until December 31, 1975, appellants did not produce any colorable compliance with that order until an extensive pretrial conference held on January 5-7, 1976.

At this pretrial conference, appellants presented offers of proof with respect to comparative prices of supplies during the time periods in question, but complete offers of proof on the issues of injury and damages were not presented, either in the form of written offers of proof or answers to interrogatories. During this conference, the master explained the status of the lawsuits to several of the appellants in detail and specifically advised them of the failings of their counsel. The special master then allowed appellants until January 28, 1976, to move for leave to file supplemental answers to interrogatories out of time. Appellants failed to so move. In an order dated January 30, 1976, the master further extended the time for appellants to file their narrative pretrial briefs, specifically Meanwhile, on October 14, 1975, appellee Cormart counterclaimed for unpaid royalties and percentage-of-gross-sales charges and for the above-referred to permanent injunction. In January 1976, appellees moved for dismissal and/or for summary judgment on count I (the federal antitrust count) of the complaints. ⁴

stating that these briefs should adequately cover the issues of injury and damages, which appellants had theretofore failed to do. Appellants also failed to meet this deadline; instead, they filed narrative pretrial briefs which were in general and conclusory terms and amounted to little more than restatements of the amended complaints.

On February 18, 1976, appellants moved for summary judgment on appellee Cormart's counterclaim. Appellants maintained that the license agreements were void and unenforceable under the federal antitrust laws, that they were contrary to the public policy of Missouri, and that Cormart was not the true owner of the trademarks and logo.

The master, on March 22, 1976, filed his final report with the district court in which he recommended, inter alia :

1. That count I (federal antitrust count) of each of appellants' complaints be dismissed for failure to make discovery.

2. That count I of each of the appellants' complaints be dismissed because none could show damage to their business or property as required by 15 U.S.C. § 15.

3. That appellants' store license agreements be terminated in accordance with their terms due to appellants' material breach of the agreements, as well as appellants' and appellees' mutual desire for such termination.

4. That appellants' further use of the "Mr. Swiss" trademark, the "Alpine Boy" logo, and the distinctive store design be enjoined upon termination of the license agreements pursuant to the terms thereof.

5. That summary judgment be granted in favor of appellee Cormart on its counterclaim based on breach of license agreements for all unpaid royalties and percentage-of-gross-sales charges due from each appellant, plus accumulated interest.

6. That all other counts (trademark infringement, unfair competition, and violation under Missouri Antitrust Law) of appellee Cormart's counterclaim be dismissed either because of the injunctive relief recommended by the master or because of lack of independent federal jurisdiction.

7. That Charles M. Edwards, counsel for appellants (at that time), pay sanctions in the sum of $3,388.16 as the reasonable attorneys' fees and expenses necessarily expended by appellees in attempting to obtain material discovery in this action.

The report and recommendations of the master were adopted by the district court.

OPINION

Dismissal of Count I of Appellants' Complaint

Appellants argue that the district court erred as a matter of law and abused its discretion by dismissing, pursuant to Fed.R.Civ.P. 37(b)(2), count I of all complaints for failure to make discovery.

The Federal Rules of Civil Procedure give the trial court broad discretion in imposing sanctions upon parties who fail to make discovery. However, the due process clause of the Fifth Amendment to the Constitution limits the power of courts to dismiss an action without affording a party the opportunity for a hearing on the merits, Societe Internationale v. Rogers,357 U.S. 197, 209, 78 S.Ct. 1087, 2 L.Ed.2d 1255 (1958), and the rule itself requires the court to enter such orders "as are just." Nevertheless, the district court's action will not be reversed unless there has been an abuse of discretion. Fox v....