Falls Church Bratwursthaus v. Bratwursthaus M. Corp.

• Decision Date: 11 January 1973
• Docket Number: Civ. A. No. 39-71-A,40-71-A.
• Citation: 354 F. Supp. 1237
• Court: U.S. District Court — Eastern District of Virginia
• Parties: FALLS CHURCH BRATWURSTHAUS, INC., Plaintiff, v. BRATWURSTHAUS MANAGEMENT CORPORATION, Defendant. The SIXTY CORPORATION OF VIRGINIA, Plaintiff, v. BRATWURSTHAUS MANAGEMENT CORPORATION, Defendant.

354 F. Supp. 1237

FALLS CHURCH BRATWURSTHAUS, INC., Plaintiff, v. BRATWURSTHAUS MANAGEMENT CORPORATION, Defendant.

The SIXTY CORPORATION OF VIRGINIA, Plaintiff, v. BRATWURSTHAUS MANAGEMENT CORPORATION, Defendant.

Civ. A. Nos. 39-71-A, 40-71-A.

United States District Court, E. D. Virginia, Alexandria Division.

January 11, 1973.

George A. Simpson, Fairfax, Va., for Falls Church Bratwursthaus, Inc.

Michael S. Horwatt, Reston, Va., for Bratwursthaus Management Corporation.

Laurence G. Roman, Arlington, Va., for Sixty Corporation of Virginia.

MEMORANDUM OPINION

OREN R. LEWIS, District Judge.

These suits were brought under § 1 of the Sherman Act, 15 U.S.C. § 1, and §§ 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15 and 26, alleging

unlawful "tie-ins"—

conspiracy between the franchiser and its suppliers—

franchisor's illegal refusal to deal with the franchisee—

unlawful restraint upon alienation— and unreasonable restraint of trade.

Each of the plaintiffs seeks treble damages and counsel fees, and asks that their respective franchise agreements be declared null and void, and for such other relief as is necessary to protect their respective interests.

The defendant denies all of the plaintiffs' allegations and counterclaims for non-payment of franchise fees and breach of other conditions of the franchise agreements.

Both of the plaintiffs responded to the counterclaim and sought declaratory judgments under 28 U.S.C. § 2201, adjudging that their respective franchise agreements were null and void under both federal and state laws.

Shortly thereafter the defendant sought an injunction to restrain the plaintiffs from continuing to use the "Bratwursthaus" name and system during the pendency of these suits.

Upon hearing, the Court required the plaintiffs to pay their respective franchise fees into the registry of the Court so long as they continued to use the name "Bratwursthaus" and to accept the benefits of their franchise agreements. Upon final determination of this action the Court will then determine whether the said franchise fees or any part thereof shall be returned to the plaintiffs or be paid to the defendant.

The plaintiffs have been depositing the franchise fees in the registry of this Court as directed and are continuing to use the name "Bratwursthaus" and some or all of the other benefits set forth in their respective franchise agreements.

Bratwurst House, Inc., of St. Cloud, Minnesota, the record title holder and registrant for the service marks in question, was declared bankrupt on December 11, 1969 by the United States District Court for the District of Minnesota.

On February 12, 1972 the plaintiffs purchased all of the trustee's right, title and interest to the bankrupt's assets, including the service marks, designs, emblems, secret recipes, methods of operation know-how and any and all good will —choses in action and all rights and defenses under royalty and licensing agreements, for the sum of $3,000.00.

The plaintiffs terminated the defendant's licensing agreements April 30, 1972.

Most of the evidence in this case was introduced by stipulation and through exhibits—Only the pertinent portions thereof will be mentioned herein—If any of the parties request more detailed findings for appeal purposes, the Court will then adopt such of the plaintiffs' proposed findings as it deems proper.

Bratwurst House, Inc., of St. Cloud, Minnesota, owned the registered service marks in question until February 18, 1972—They were registered in the plaintiffs' names on that date.

The defendant was the exclusive owner of the Bratwursthaus franchise system for the east coast of the United States until February of 1972.

Falls Church Bratwursthaus, Inc. was authorized on or about November 28, 1967 to open and operate a Bratwursthaus restaurant in Falls Church, Virginia, in conformity with the terms and conditions of a written franchise agreement. It paid the defendant $40,000.00 to cover the furnishing, installation and supplying of materials, equipment and supplies incident to opening its restaurant.

The defendant corporation authorized The Sixty Corporation of Virginia to open and operate a Bratwursthaus restaurant in Woodbridge, Virginia, as of August 1, 1968 in conformity with a similar franchise agreement. The Sixty Corporation paid the defendant $50,000.00 to cover the furnishing, installation and supplying of materials, equipment and supplies incident to opening its restaurant.

The defendant terminated The Sixty Corporation's franchise in November of 1970 and notified the company of its intention to purchase its restaurant equipment pursuant to paragraph four of the franchise agreement.

The defendant terminated the Falls Church Bratwursthaus franchise agreement December 18, 1970.

Both plaintiffs elected to deposit their franchise fees in the registry of the Court and to continue their restaurant operations pending the outcome of this suit.

Paragraph four of The Sixty Corporation franchise agreement provides that upon termination for any cause, the defendant has the right to purchase all or part of The Sixty Corporation's furniture, fixtures, signs and other chattels at forty per cent of their original cost.

The Falls Church Bratwursthaus, Inc. franchise agreement contains certain buy-back provisions upon termination.

Both franchise agreements contain restrictions on the right of the plaintiffs to operate competing businesses.

Both require the plaintiffs to purchase their supplies either from the defendant or from a source designated by the defendant.

Each was required to pay the defendant a franchise fee equaling five per cent of gross sales.

Both were required to sell Schmidt's beer—Schmidt paid the defendant a rebate of $1.00 per keg.

The defendant required the plaintiffs to sell Miller's beer beginning May 19, 1969—Miller gave the defendant a rebate on beer sold.

The Sixty Corporation refused to change over to Miller's beer.

The defendant also demanded, and obtained for a period of time, a rebate of two cents per dozen on rolls sold Bratwursthaus restaurants.

Schluderberg-Kurdle Company, Inc., the defendant's approved supplier of sausage, paid the defendant ten cents a pound on all sausage sold in Bratwursthaus restaurants during the years 1968, 1969 and 1970.

The ten cents per pound commission was initially paid to Bratwurst House, Inc., of St. Cloud, Minnesota, and later to the defendant pursuant to instructions from the defendant—The commissions are now being held in escrow pursuant to the request of counsel for the plaintiffs.

The record shows that Falls Church Bratwursthaus, Inc. purchased 21,410 pounds of sausage at a cost of $17,834.00 and 1,837 kegs of Schmidt's beer at a cost of $30,083.00.

The Sixty Corporation of Virginia purchased 12,797 pounds of sausage at a cost of $10,835.00 and 2,045 kegs of Schmidt's beer at a cost of $33,890.00.

It was stipulated that sausage and keg beer sales to Bratwursthaus restaurants in Maryland and Virginia during the years 1968, 1969 and 1970 were in excess of $400,000.00.

The defendant corporation leased the premises used by the Falls Church Bratwursthaus restaurant. The president concedes that it was understood by all concerned that the lease would be assigned to the plaintiff corporation.

The Supreme Court of the United States, in Northern Pacific Railway v. United States, 356 U.S. 1 (1958), at 5 and 6, 78 S.Ct. 514, at 518, 2 L.Ed.2d 545, said:

". . . A tying arrangement may be defined as an agreement by a party to sell one product

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