Evans v. SS Kresge Company, Civ. A. No. 71-85.

Decision Date13 May 1975
Docket NumberCiv. A. No. 71-85.
Citation394 F. Supp. 817
PartiesJohn EVANS, Trustee in Bankruptcy for Hempfield Stores, Inc., a Bankrupt, Plaintiff, v. S. S. KRESGE COMPANY, a Foreign Corporation, Defendant.
CourtU.S. District Court — Eastern District of Pennsylvania






David R. Brown, Roslyn M. Litman, Pittsburgh, Pa., for plaintiff.

Andrew L. Weil, Pittsburgh, Pa., Henry T. Reath, Philadelphia, Pa., for defendant.


McCUNE, District Judge.

Plaintiff, trustee in bankruptcy for Hempfield Stores, Inc., formerly Skat-Zap, Inc. (Hempfield) initiated this antitrust action in 1971 complaining that defendant, S. S. Kresge Company (Kresge), violated Section 1 of the Sherman Act, 15 U.S.C.A. § 1 which provides, inter alia, that "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade . . . among the several States, . . . is declared to be illegal." Plaintiff claims injury and seeks damages under § 4 of the Clayton Act, 15 U.S.C.A. § 15.

Following prolonged and extensive discovery1 defendant has renewed its motion for summary judgment.2 In support of that motion, defendant advances three arguments: (1) that the court does not have jurisdiction over the subject matter of this action; (2) that the conduct complained of is neither per se violative of § 1 of the Sherman Act nor unreasonable when examined by the "rule of reason" standard; and (3) that Hempfield's participation in the conduct complained of precludes any recovery by its trustee in bankruptcy as a matter of law.

Plaintiff has filed a cross motion for partial summary judgment in which it asks the court to determine that certain of the practices complained of are violative of § 1 as a matter of law (per se violations). Plaintiff's brief in opposition to defendant's motion for summary judgment addresses each of the alternative arguments advanced by defendant in support of its motion. First, plaintiff contends that the jurisdiction of the court over the subject matter of this complaint has been established. In the alternative, plaintiff contends that the jurisdictional issue is inextricably intertwined with determination of the merits thereby precluding entry of summary judgment. Plaintiff also argues that the issue of subject matter jurisdiction must be determined by the trier of fact, a jury in this case, since defendant has demanded a jury trial. Second, as we have already mentioned, plaintiff claims that the activities complained of are per se violative of § 1 of the Sherman Act. Finally, plaintiff denies that Hempfield's participation in the alleged pricefixing scheme and various other alleged restraints is a bar to its recovery.

Also before the court are a counterclaim by defendant seeking monies allegedly owed to it for unpaid rent and other itemized expenses and plaintiff's counterclaim in which plaintiff alleges that rent already paid for two months constitutes a preference under § 60 of the Bankruptcy Act, 11 U.S.C.A. § 96.

The court has heard oral argument on the respective motions for summary judgment and has considered the briefs of both parties.

We turn now to the facts which give rise to the present controversy.


Defendant Kresge is incorporated under the laws of Michigan. It operates department stores in 48 states, the District of Columbia and several foreign countries. Some of those stores use the Kresge name while others operate under the name "K-Mart" which is defendant's registered exclusive service trade name.

Defendant has used the "K-Mart" trade name in an effort to develop a reputation as a low mark-up, highly competitive merchandiser selling quality merchandise at discount prices. From its inception the plan was designed and its success was dependent on high volume sales with a low per item profit margin. Kresge felt that the best way to achieve high volume sales was to draw on the potential buying power of those who made frequent food purchases. However, since Kresge had no prior experience in food merchandising and did not have any source of distribution, it elected to license its registered trade name to independent food store operators who would conduct a K-Mart Food Store operation as part of or adjacent to a K-Mart department store. This arrangement, it was felt, would provide "one-stop shopping" and enhance customer acceptance of the K-Mart program. This action is a direct result of two such license agreements entered into between Hempfield (Skat-Zap) and Kresge.

Prior to August 12, 1963, two of the incorporators of Hempfield, Frank Zapalla, Jr., and Frank Nascone were the owners of a real estate development firm known as Maret Corporation which solicited and obtained long term lease commitments from Kresge for department stores in two shopping centers, one located in Westmoreland County, the other in Allegheny County. However, the commitments were contingent upon Kresge's ability to obtain a licensee who would operate a grocery store at each location. Hempfield was incorporated to operate the grocery stores.

Hempfield was incorporated on August 12, 1963, under the name of Skat-Zap, Inc. The incorporators and initial shareholders were Zapalla, Nascone, and Herman Skatell. Shortly thereafter on September 23, 1963, Hempfield and Kresge entered into a license agreement which authorized Hempfield to use the name "K-Mart Foods" for a period of twelve years at a retail supermarket located next door to the Kresge department store in the Westmoreland County shopping center. The store was designated K-Mart Food Store No. 4032. Approximately eight months later, the same parties concluded a second agreement which authorized Hempfield's use of the name "K-Mart" for a ten-year period at a store located in the Allegheny County shopping center. Kresge designated this K-Mart Food Store No. 4064.

Pursuant to these agreements, Hempfield opened Food Stores 4032 and 4064 in 1964 and continued to operate both until July, 1969, at which time the leases were terminated. Shortly thereafter, Hempfield filed a petition in bankruptcy.3

During the years of its operation Hempfield went through a succession of ownerships. In 1967, a joint venture entity of which Gerald Loevner was the partner-in-charge assumed control of all outstanding shares until January, 1969, when Anthony Polito, who had been associated with the supermarkets in various capacities since 1965, purchased all Hempfield stock.

While the grocery supermarket and the department store at each K-Mart location were designed to appear to the public as a single entity providing "onestop shopping," in fact, the stores were independently operated. None of the goods sold by Hempfield was permitted to carry the K-Mart or any other Kresge brand name. Nor was Hempfield permitted to use the name "K-Mart" on its checks, its business stationery or even its pricing labels. Neither sold any goods or services to the other and Kresge did not dictate Hempfield's source of supply.

The record reveals the major supplier of Hempfield's groceries was a Pennsylvania wholesaler, Fox Grocery Company, a large local grocery outlet, which was located in the area of both Hempfield stores. Plaintiff alleges that it also received a substantial quantity of goods via direct shipment from out of state suppliers which amounted to in excess of $400,000.00 per year at cost. However, it appears that the bankrupt's records are incomplete in many respects. The parties have been unable to determine exactly what volume of purchases Hempfield made from out of state sources, from whom such purchases were made and whether the goods were actually shipped in from out of state or merely billed from out of state addresses.

It appears that the total retail volume of both Hempfield stores was in the vicinity of four million dollars per year,4 almost all of which came from the sale of groceries although both stores sold the usual non-food items customarily found in grocery stores, e. g., health and beauty aids.5

It is undisputed that Hempfield's sales all occurred in the communities where its two stores were located.

The essence of the complaint is that defendant, through various provisions of the license agreements and the rules and regulations which supplemented those agreements, unlawfully sought to regulate certain aspects of Hempfield's business in violation of Section 1 of the Sherman Act. It is not necessary to set forth the various provisions of the license agreements in detail. In substance, they required, inter alia, that Hempfield (1) charge prices identical to those charged by Kresge on "like items," i. e., items sold by both the food stores and the department stores which prices were established by defendant in the event the parties were unable to arrive at a mutually agreeable price; maintain merchandise "competitive"6 in price with the same or similar goods offered for sale in the trading area; (3) limit non-food merchandise offered for sale to specific categories of goods; (4) refrain from entering into fair trade agreements; (5) refrain from issuing trading stamps without express permission from Kresge; and (6) use certain equipment furnished by defendant at Food Store 4064 (Count II).

Plaintiff alleges that the above listed restraints "contributed to Hempfield's business failure." In plaintiff's view, the first of the above mentioned restraints resulted in a horizontal price-fixing arrangement which is a per se violation of § 1; alleged restraints 2 through 5 interfered with Hempfield's ability to exercise its independent business judgment; and alleged restraint 6 was an unlawful tying agreement.

Defendant denies that any or all of the practices complained of violated the Sherman Act. Furthermore, it denies that any of the alleged restraints contributed to Hempfield's business failure which it attributes to bad management,...

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