Fount-Wip, Inc. v. Reddi-Wip, Inc.
| Decision Date | 06 February 1978 |
| Docket Number | REDDI-WI,INC,No. 74-1818,FOUNT-WI,74-1818 |
| Citation | 568 F.2d 1296 |
| Parties | 1978-1 Trade Cases 61,886 , a California Corporation, and National Fount-Wip Vegetable Products, Inc., an Illinois Corporation, Plaintiffs-Appellants, v., a corporation, Hunt-Wesson Foods, Inc., a corporation, Marcus Lipsky, an Individual, Brookhill Farms, Inc., a corporation, Farm Fresh Sales, Inc., a corporation, and Chicago Fount-Wip Distributing Company, Inc., a corporation, Defendants-Respondents. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Gary B. Lovell, Newport Beach, Cal. (argued), of Baltaxe & Klein, Beverly Hills, Cal., for appellant.
Maxwell M. Blecher (argued), of Blecher, Collins & Hoecker, Los Angeles, Cal., for appellee.
Appeal from the United States District Court for the Central District of California.
Before CHAMBERS and HUFSTEDLER, Circuit Judges, and WONG, * District Judge.
The plaintiffs won this antitrust case before a jury, but promptly lost their victory when the district court granted defendants' motion for judgment notwithstanding the verdict and, in the alternative, their motion for a new trial. We affirm judgment for the defendants on the Sherman Act, Section 2 and Clayton Act, Section 7 claims, but we remand plaintiffs' Sherman Act, Section 1 claim for a new trial because the district court could not properly take away from the jury that portion of the case.
This whipped cream battle is an outgrowth of a bitter family feud. Plaintiff corporations are owned by Lapin, the brother-in-law and former business partner of Lipsky. From 1951 to 1959, Lapin and Lipsky jointly owned and operated Reddi-Wip, which licensed the production and distribution of aerosol whipped cream topping. Irreconcilable differences arose in the family in 1959, and Lapin and Lipsky parted. Lipsky retain control of Reddi-Wip; Lapin acquired control of Reddi-Wip's former subsidiaries, Fount-Wip and National Fount-Wip Vegetable Products. Fount-Wip produces aerosol whipped cream topping from a dairy base. National Fount-Wip Vegetable Products produces whipped cream from a vegetable base.
As part of the dissolution agreement, Lapin and Lipsky entered into a covenant of non-competition covering the seven-year period from 1959 to 1966. Lipsky agreed to confine Reddi-Wip's licensees to the production and distribution of aerosol whipped cream for sale to the retail trade, primarily supermarkets, and Lapin agreed to confine the Fount-Wip companies to the institutional trade, such as restaurants, hotels, and quick-service food chains.
In Chicago, the center of the activities involved, the two principal independent whipped cream producing dairies were Brookhill Farms and Super Whip Sales. Super Whip sold primarily to the retail market. Brookhill sold both to the retail and to the institutional trades. The other important whipped cream production facility in Chicago was the Instant-Whip plant; Instant-Whip is not a party to this litigation. Unlike Brookhill and Super Whip, Instant-Whip was not a licensee of a whipped cream formula franchisor; its facilities were used only by its parent, the Instant-Whip company.
Lipsky offered to purchase Lapin's interest in Fount-Wip in 1964. According to Lapin, the offer was made at a private meeting attended only by Lapin and Lipsky. Lapin testified that when he rejected the offer, Lipsky threatened to drive him out of business.
Reddi-Wip acquired Super Whip in 1964. The following year, Reddi-Wip, acting through Super Whip, acquired Brookhill and two-thirds of the stock of Super Whip Valve Company, which was engaged in the production of aerosol valves for sale to manufacturers of aerosol whipped toppings. Lipsky thereafter took no action to terminate Brookhill's contract with Fount-Wip. Rather, Fount-Wip's contract was extended two years to the end of 1967 on the same terms that previously existed. Six months before the expiration of that contract, the parties began negotiating for a new agreement. The negotiations were characterized by hard bargaining on both sides, but the parties were soon deadlocked about the size of the royalty that Brookhill would pay Fount-Wip and about the duration of the new contract.
In November, 1967, the defendants offered to continue the royalty terms of the old contract for a period of one year, with a potential renewal for a second year. Lapin held out for a three-year agreement. Lapin claimed that in December, he decided to accept the Brookhill offer. However, the parties were unable to get together until February, 1968, at which time the Brookhill offer was withdrawn. By April, the negotiations had collapsed, and Lapin lost Brookhill as a franchisee.
The parties' explanations for failing to reach agreement are sharply conflicting. According to Lipsky, Fount-Wip was the victim of technological progress in the aerosol whipped cream industry. Until 1965, Fount-Wip's position in the production of aerosol whipped cream was secure because Lapin owned the patent rights of the so-called Neilsen gun, a large reusable aerosol container which held more fill and was more suitable to institutional use than the seven-ounce disposable cans used for the production of whipped cream for retail sales. Lipsky claimed that the Neilsen gun had many disadvantages; it was more expensive and less sanitary than disposable cans, and it required substantial labor costs to make it reusable.
In 1965, the American Can Company developed a large disposable can which eliminated the disadvantages of the Neilsen gun while preserving its advantages. Brookhill began ordering disposable cans from Fount-Wip, and, by the end of 1967, almost all of Brookhill's sales of Fount-Wip's product were in disposable cans. Nevertheless, Brookhill performed its contractual obligations by continuing to pay Fount-Wip a three and one-half cents per can royalty on the disposable cans which, unlike the Neilsen gun, could be purchased directly by Brookhill without paying royalties. During the lengthy negotiations Brookhill pressed for a reduction in the royalty to one and one-half cents per can. Lapin refused, but offered to continue the old royalty for a shorter time. By February, 1968, when no agreement was reached, defendants asserted that their offer had been rejected.
Lapin argued that the collapse of negotiations and the termination of Brookhill's dealings with Fount-Wip were a part of Lipsky's plan to drive him out of business. He insisted that the collapse of negotiations was caused by Lipsky and that Lipsky knew that Lapin was prepared to accept Lipsky's offer during December and January. Lapin charges that Lipsky was negotiating in bad faith, evidenced by a number of incidents that he described as malicious during the 1967-68 period.
During the fall of 1967, Brookhill began ordering disposable cans directly from American Can Company, and it also prepared the art work for the new Brookhill label which was to replace the Fount-Wip labels. Brookhill changed the mix of disposable and returnable cans to facilitate replacement of Fount-Wip's labels with Brookhill's. During the same period, a similar dispute erupted in the New York distribution area, where a Reddi-Wip franchise production facility stopped making Fount-Wip products, and, at the conclusion of the contractual period, Brookhill failed to return returnable cans to the appellants. 1
Plaintiffs claim that the breakdown of the Brookhill-Fount-Wip talks, together with the termination of their contractual relationship, constituted an unlawful refusal to deal in violation of the Sherman Act. The theory is that Lipsky, through the companies that he controlled, undertook a series of acquisitions and bad faith commercial activities in a successful effort to drive the plaintiffs out of business in the Chicago area. In support of this theory, plaintiffs point out that the only aerosol whipped cream production facilities in Chicago were those of Brookhill, Super Whip, and Instant-Whip. When the contract negotiations collapsed, the Brookhill plant was no longer available to Fount-Wip, and Instant-Whip produced only Instant-Whip whipped cream. Lapin claimed that opening new production facilities in the Chicago market was not economically feasible by reason of the size of defendants' operations. Thus, plaintiffs argue, the effect of Reddi-Wip's acquisitions of Brookhill and Super Whip, together with the termination of the Brookhill-Fount-Wip contract, was the exclusion of the Fount-Wip companies from the Chicago market. Plaintiffs also contend that defendants' control over the aerosol whipped topping production plants in the Chicago area constituted monopolization in violation of Section 2 of the Sherman Act (15 U.S.C. § 2) and that the effects of Reddi-Wip's acquisitions of Brookhill, Super Whip, and Super Whip Valve "may be to lessen competition, or to tend to create a monopoly" in violation of Section 7 of the Clayton Act (15 U.S.C. § 18).
Although a company may ordinarily deal or refuse to deal with whomever it pleases without fear of violating the antitrust laws (e. g., United States v. Colgate & Co. (1919) 250 U.S. 300, 307, 39 S.Ct. 465, 63 L.Ed. 992), refusal to deal which is anticompetitive in purpose or effect, or both, constitutes an unreasonable restraint of trade in violation of the Sherman Act. (See, e. g., Mutual Fund Investors, Inc. v. Putnam Management Co. (9th Cir. 1977) 553 F.2d 620, 626; Westinghouse Electric Corp. v. CX Processing Laboratories, Inc. (9th Cir. 1975) 523 F.2d 668, 673; Trixler Brokerage Co. v. Ralston Purina Co. (9th Cir. 1974) 505 F.2d 1045, 1051; Bushie v. Stenocord Corp. (9th Cir. 1972) 460 F.2d 116, 119; Alpha Distributing Co. of California v. Jack Daniel Distillery (9th Cir. 1972) 454 F.2d 442, 452; cf. Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke & Liquors Ltd. (9th Cir. 1969)416 F.2d 71, 77-78.)
Two contested factual issues were presented: (1) Did defendants refuse to deal, and (2)...
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