Fleischmann Distilling Corp. v. Distillers Co. Ltd., 73 Civ. 5467.

Decision Date12 May 1975
Docket NumberNo. 73 Civ. 5467.,73 Civ. 5467.
PartiesThe FLEISCHMANN DISTILLING CORPORATION and Julius Wile Sons & Co., Inc., Plaintiffs, v. The DISTILLERS COMPANY LIMITED et al., Defendants.
CourtU.S. District Court — Southern District of New York


Lord, Day & Lord, New York City, for plaintiffs.

Davis Polk & Wardwell, New York City, for defendants.


ROBERT L. CARTER, District Judge.

The Nature of the Controversy

This action was commenced in late 1973 pursuant to Section 1 of the Sherman Act, 15 U.S.C. § 1; Sections 4 and 12 of the Clayton Act, 15 U.S.C. §§ 15, 22; Sections 73 and 77 of the Wilson Tariff Act, 15 U.S.C. §§ 8, 15; and Section 37 of the Lanham Act, 15 U.S.C. § 1119. Jurisdiction is asserted under 28 U.S.C. §§ 1332, 1337, 1338, 1391(d) and 2201.

Plaintiffs, Fleischmann Distilling Corporation ("Fleischmann") and Julius Wile Sons & Co., Inc. ("Wile"), are each a wholly-owned subsidiary of Standard Brands Incorporated ("SBI"). Plaintiffs rectify and bottle distilled spirits throughout the United States. The defendants, The Distillers Company Limited ("DCL"), James Buchanan & Company Limited ("Buchanan"), and Peter Dawson Limited ("Dawson"), are all corporations organized and existing under the laws of the United Kingdom. Buchanan and Dawson are wholly-owned subsidiaries of DCL and manufacture and sell Scottish-Bottled Scotch whiskey under various trademarked brands.1

Defendants have moved for dismissal of the second, third, fourth, fifth and sixth claims of the complaint under Rule 12(b) (6) of the F.R.Civ.P. for failure to state a claim upon which relief may be granted, and for dismissal of the second, fourth and sixth claims under Rule 12(b)(1) for lack of subject matter jurisdiction. Alternatively, defendants move to treat their Rule 12(b)(6) motion as one for summary judgment, as provided in Rule 12(b).2

Factual Background

Buchanan and Dawson brands are sold f. o. b. United Kingdom ports to exclusive United States distributors which import and distribute the brands in the United States. Fleischmann and Wile operated under such distributorships with Buchanan and Dawson for 35 and 37 years respectively, until the termination of the Fleischmann-Buchanan relationship in 1973 and the Wile-Dawson relationship in 1972, according to the terms of the respective agreements. Affidavit of Cary Younghusband, Managing Director of Buchanan, ¶¶ 11, 22 (hereafter Younghusband affidavit); Affidavit of John McCormack, Director of Dawson, ¶¶ 8, 19, 21-22 (hereafter McCormack affidavit).

The Fleischmann-Buchanan Dispute

The Fleischmann-Buchanan relationship was inaugurated in 1939, when the parties entered into a ten-year exclusive distributorship agreement. Reliance on their long-term association allegedly spurred Fleischmann to invest heavily in the advertising and sales promotion of Black & White; the brand was the leading seller in the United States during this period. Affidavit of Walter Devlin, Executive Vice-President of Fleischmann, ¶ 6 (hereafter Devlin affidavit). In 1948, a further distributorship arrangement was entered into for a five-year term.

The third agreement, dated October 21, 1953, is the subject of this litigation. It was executed in London following negotiations initiated by Fleishmann in January of that year. It appointed Fleischmann sole distributor for Buchanan brands in the United States, stated that all sales were to be made f. o. b. United Kingdom ports with payment to be made by credit established at a London bank, and specifically provided that it was to be interpreted in accordance with the laws of England. Following an initial one-year term, the undertaking would continue contingent on termination by either party upon three months' written notice. Exhibit C to Younghusband affidavit.

The decline in Scotch whiskey production during World War II led to a general shortage of the product and resulted in almost every brand being put on allocation. Devlin affidavit, ¶ 8 and Exhibits D-G thereto. This state of affairs, coupled with the near-impossibility of acquiring any other Scotch whiskey distributorship from DCL, professedly resulted in such acute, unequal bargaining power that Fleischmann had no choice but to acquiesce in the one-year span of the 1953 agreement and its termination condition. Devlin affidavit, ¶¶ 8-10.

Until the early 1960's, sales of Buchanan brands in the United States rose continuously. Then sales began to decline. Between 1959 and 1972, shipments by Buchanan to Fleischmann fell by over 54%. Younghusband affidavit, ¶ 14 and Exhibit F thereto. During the same period total imports of Scotch whiskey into the United States expanded by over 185%. Id., ¶ 15 and Exhibit H thereto. The downturn in Black & White's fortunes became increasingly acute in 1971, and in 1972 there had been a 16% drop from shipments in the preceding year. Id., ¶ 16.

The concern by Buchanan of its loss of number one sales position in this country and the sharp declivity in imports was brought to Fleischmann's attention on several occasions prior to termination. Younghusband affidavit, ¶¶ 14-20 and Exhibits K-O thereto. Despite advertising campaigns initiated in 1971-1972, Devlin affidavit, ¶¶ 17-20, sales continued to drop in 1973, and by letter dated August 23,3 Buchanan notified Fleischmann that the agreement was being terminated in accordance with the contract provision. Termination was effective on December 31, 1973, officially giving Fleischmann four months' notice. Younghusband affidavit, ¶ 22 and Exhibit L thereto.

The Wile-Dawson Dispute

Wile's business connection with Dawson had its inception in 1935 when Wile was first appointed exclusive United States distributor for the Dawson brands. Until 1954 Wile and Dawson had no written contract, the former being of the opinion that no written contract was preferable to the short-term commitments then being offered. Affidavit of Richard Blum, President of Wile, ¶ 9 (hereafter Blum affidavit). In 1954 and 1955 written contracts were executed, providing for one-year terms to be automatically renewable subject to three months' notice. Following a proposal by Dawson for a duration of one year, and a counter-proposal by Wile for a five-year term, a new agreement was executed in 1964 for a two-year term, but without any condition for automatic renewal. At the conclusion of the first year and upon satisfactory performance, Wile could request and receive a new two-year contract upon similar terms. Each year from 1965 through 1971, Wile and Dawson entered into new two-year obligations. Blum affidavit, ¶¶ 11-13; McCormack affidavit, ¶¶ 9-12.

The 1968 agreement contained a "termination upon a change of control of Wile" clause. Sixty days' notice of termination was to be given within thirty days after Dawson received notice that there had been a change in working control of Wile. McCormack affidavit, ¶ 13 and Exhibit C, ¶ 15(d) thereto. Informed by DCL that these provisos were being uniformly inserted into all contracts between DCL subsidiaries and their distributors, Wile acquiesced in the clause's inclusion because the possibility of actual change in control seemed remote and "because in light of previous dealings with DCL it was felt that a protest would be fruitless." Blum affidavit, ¶ 14. Dawson affirms that the clause in fact was discussed and then accepted by Blum without objection, the latter apparently observing that such provisions were already included in other distributorship agreements which Wile had with other suppliers. Affidavit of John Gilderdale, counsel to DCL, ¶¶ 4, 5.4

The last contract executed between Wile and Dawson, dated April 30, 1971, included both the change of control provision and the two-year term. In all other respects, it was similar to the Fleischmann-Buchanan agreement, including the clause that its interpretation be governed in accordance with the law of England. Exhibit C to McCormack affidavit.

On March 2, 1972, Henry Weigl, the President of SBI, informed Sir Alex McDonald, Chairman of DCL, that SBI had signed a letter of intent to acquire Wile. On March 9, 1972, Blum came to London and discussed the proposed acquisition with DCL seeking relinquishment by Dawson of the right to terminate upon change of control. Wile was unsuccessful in obtaining the waiver; instead the import of the discussion was that the Wile-Dawson association would be jeopardized by the acquisition. Blum affidavit, ¶ 27; McCormack affidavit, ¶ 155.

Dawson's view that the agreement would end when SBI obtained control of Wile was communicated to the latter by McDonald on March 20, 1972. Exhibit D to McCormack affidavit; Blum affidavit, ¶ 28. On March 30, 1972, Dawson gave Wile formal notice of termination based on the erroneous belief that SBI had already assumed working control of Wile. Blum affidavit, ¶ 29 and Exhibit I thereto. Wile responded on April 3, 1972, that working control had not yet passed to SBI and that no binding agreement had been executed. McCormack affidavit, ¶ 18 and Exhibit F thereto. Accordingly, Dawson rescinded the notice on April 11, 1972. Ibid. and Exhibit G. Wile avows that it could not ascertain whether Dawson would terminate if control passed. Blum affidavit, ¶ 32.

On July 10, 1972, Wile apprised Dawson that an agreement had been reached with SBI, and that control would transfer on or about August 31, 1972. Wile's letter acknowledged that "paragraph 15 (c) of our contract with you provides that you have the right to cancel this agreement within thirty days of receipt of notice from us of the `passing of control' from the present stockholders to other stockholders." Exhibit H to McCormack affidavit. Wile gave formal notice of the change in working control on October 11, but urged that the agreement not be concluded. Blum affidavit, ¶ 33. Dawson gave formal notice of termination on October 23, 1972, with the effective date of termination extended to December 31, 1972. McCormack...

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