Hiland Dairy, Inc. v. Kroger Company

• Citation: 402 F.2d 968
• Decision Date: 31 October 1968
• Docket Number: No. 19122.,19122.
• Parties: HILAND DAIRY, INC., Reiss Dairy, Inc., and Sunny Hill Farms Dairy Company, Inc., Appellants, v. The KROGER COMPANY, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

402 F.2d 968 (1968)

HILAND DAIRY, INC., Reiss Dairy, Inc., and Sunny Hill Farms Dairy Company, Inc., Appellants, v. The KROGER COMPANY, Appellee.

No. 19122.

United States Court of Appeals Eighth Circuit.

October 31, 1968.

COPYRIGHT MATERIAL OMITTED

Gray L. Dorsey, Chesterfield, Mo., for appellants; Edward F. O'Herin, of O'Herin & Newberry, Malden, Mo., and Lynn C. Paulson, Washington, D. C., were on the briefs.

Norman K. Diamond, of Arnold & Porter, Washington, D. C., for appellee; Peter K. Bleakley, Washington, D. C., J. Terrell Vaughan and John P. Emde, of Armstrong, Teasdale, Kramer & Vaughan, St. Louis, Mo., and George A. Leonard, Gen. Counsel, The Kroger Co., Cincinnati, Ohio, were on the brief.

Before VAN OOSTERHOUT, Chief Judge, and GIBSON and BRIGHT, Circuit Judges.

GIBSON, Circuit Judge.

Appellants, plaintiffs below, seek a trial on the merits of their class complaint against appellee, The Kroger Company, for an alleged attempt to monopolize the milk and dairy business in the St. Louis, Mo., Trade Territory in violation of § 2 of the Sherman Anti-Trust Act, 15 U.S.C. § 2. The District Court¹ dismissed the complaint on motion for failure to state a claim on which relief could be granted.

The plaintiffs, Highland Dairy, Inc., Reiss Dairy, Inc., and Sunny Hill Farms Dairy Company, Inc., are engaged in the buying and processing of raw milk and distributing and processing of fluid milk and other dairy products at wholesale and retail in the St. Louis, Mo., Trade Territory, a geographical area denominated by them as an area within 250 miles more or less of St. Louis, Missouri. Highland Dairy has its principal office at Springfield, Missouri; Reiss Dairy at Sikeston, Missouri; and Sunny Hill Farms Dairy at Cape Girardeau, Missouri. Defendant, The Kroger Company, operates a national chain of retail grocery stores approximately 1500 in number located in 30 states, with its principal office at Cincinnati, Ohio. It is alleged to be the second largest retail food chain in the United States and has net annual sales exceeding 2.6 billion dollars. In addition to the retail stores, Kroger operates other plants and businesses, bakeries, dairies, a coffee roasting plant and various food and non-edible product enterprises that complement and are allied to its overall operation as a food chain. It has more than 200 retail stores in the St. Louis Trade Territory (located in Missouri, Iowa, Illinois, Kentucky, Tennessee, and Arkansas) in which it sells approximately 8 per cent of the processed fluid milk and other dairy products at the retail level. The plaintiffs-appellants will be referred to in this opinion as "plaintiffs" and the defendant-appellee as either "defendant" or "Kroger."

Plaintiffs' complaint seeks to enjoin Kroger from building a dairy processing plant in the St. Louis Trade area, having a capacity to supply more than 20 per cent of the total consumers' demand, on the basis that such plant would give Kroger the power to impose unreasonable restrictions on the sale and distribution of fluid milk and other dairy products in interstate trade and would constitute an attempt to monopolize in violation of § 2 of the Sherman Anti-Trust Act.

This is not a case of a conspiracy, combination or merger to violate §§ 1 and 2 of the Sherman Act, nor is it one based on the commission of acts, lawful or otherwise, that place an unreasonable restriction on competition or lessen competition; but represents an attempt to keep Kroger out of the dairy field on the charge in the complaint that the entry into this field constitutes an attempt to monopolize under § 2 of the Act. The gist of the complaint is that the building of the plant with the specific intent to monopolize constitutes a proscribed attempt to monopolize under § 2.²

Plaintiffs' position is that the purpose of §§ 1 and 2 of the Sherman Anti-Trust Act is to prevent monopolistic restrictions on competition and that every act or transaction, regardless of form, that has for its purpose the restriction of competition is prohibited under the Act. They recognize the teaching of Standard Oil Company of New Jersey v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619 (1911) that qualifies the proscription to unreasonable restrictive acts as noted at p. 58, p. 515 of 31 S.Ct.: "all contracts or acts which were unreasonably restrictive of competitive conditions" and at p. 60, 31 S.Ct. 502 to any "undue restraint" of commerce, as measured by the common law standard of reasonableness. Contracts or acts under the common law standard could be unreasonably restrictive (1) when inherently so, "from the nature or character of the contract or act" (2) inferentially, where "the surrounding circumstances" are such as to justify the conclusion that they were entered into not for bona fide competitive reasons but in order to gain by injuring competition through price, production, or quality control, Standard Oil, supra at 58, 31 S.Ct. 502.³

The essential doctrines of Standard Oil have been adhered to by the Court in succeeding cases. Concededly, the purpose of the Sherman Act is to preserve a system of free competition. This means no unreasonable or undue restraints are to be imposed on our competitive economic system so as to hinder or retard the free interplay of vital competition in the marketplace. The public is to be protected from the evils incident to monopolistic practices.

Plaintiffs admit that under § 2 the attempt to monopolize must be "likely to accomplish" monopolization, Kansas City Star Company v. United States, 240 F.2d 643, 663 (8 Cir. 1957), cert. denied 354 U.S. 923, 77 S.Ct. 1381, 1 L. Ed.2d 1438, or afford a "dangerous probability of" monopolization, American Tobacco Co. v. United States, 328 U.S. 781, 785, 66 S.Ct. 1125, 90 L.Ed. 1575 (1946). Specific intent to monopolize must be well pleaded and proved. They, however, contend that Kroger's acquisition by internal expansion of a dairy facility with capacity to supply 20 per cent of the market would be likely to accomplish monopolization under present trade practices; would enable Kroger to impose handicaps on competitors; and Kroger's motive for acquiring power to control prices in milk processing is to use dairy "loss leaders" to get more store traffic and thus increase its volume and its profit margin on other retail sales.

Kroger maintains the complaint on its face is insufficient to show any possibility of a finding of "dangerous probability of monopoly" which is a prerequisite to an illegal attempt to monopolize; that Kroger's alleged 20 per cent of the market is far short of the minimum necessary to achieve monopoly; that Kroger under the admitted facts will not have the capacity to raise prices or exclude competition at will; that the complaint lacks the requisite allegations of any conduct establishing a specific intent to monopolize; that Kroger's internal expansion is sanctioned by the anti-trust laws; and that the plaintiffs seek to use the anti-trust laws to freeze market shares and to insulate them from the impact of competition — a subversion of the anti-trust laws.

The District Court viewed the complaint as insufficient, pointing out that no case has ever condemned internal expansion by a food retailer to provide for its own requirements; that the fact the market is being adequately served by the plaintiffs as a class is immaterial; that the mere building of the plant, even with the intent of using milk sales as a "loss leader," does not show a present intent of an attempt to monopolize; and concluded that § 2 of the Sherman Act does not prohibit internal expansion of a large food retailer to supply its own 8 per cent share of the market and an additional 12 per cent of the wholesale market. The District Court reasoned at 969 of 274 F.Supp.: "* * * The present intent to destroy competition or build monopoly is essential to a finding of an `attempt to monopolize' (Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 626, 73 S.Ct. 872, 97 L.Ed. 1277), but the attempt must be evidenced by the actions done with such intent." and then held:

"* * * The mere construction of the processing plant by Kroger will not constitute a violation of Section 2 of the Sherman Antitrust Act. It may well be (and as to this we express no opinion) that Kroger\'s conduct and acts subsequent to the completion of the plant will be such as to entitle plaintiffs to relief, either injunctive or otherwise."

At the threshold of this review we are confronted with the contention that a motion to dismiss is not a proper procedure to test the merits of plaintiffs' case as the plaintiffs have not had opportunity to elaborate and adduce evidence in support of their allegations. We likewise feel that a motion to dismiss and even a summary judgment proceeding do not generally afford a satisfactory vehicle for disposing of complex issues. The United States Supreme Court in First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 88 S. Ct. 1575, 20 L.Ed.2d 569 (1968), however, approved the use of a summary judgment procedure in a complex antitrust action, stating at 288, at 1592 of 88 S. Ct.:

"Thus neither precedent nor logic supports petitioner\'s contention that the evidence to which he points is significantly probative of conspiracy and therefore, we hold that on the facts as shown summary judgment was correctly awarded to respondent."

and rejected the contention that Rule 56(e), Fed.R.Civ.P., is not applicable to complex anti-trust cases and that plaintiffs should have a hearing on the merits of their complaint either before the court or a jury, with this pertinent observation, at 290, at 1593 of 88 S.Ct.:

"While we recognize the importance of preserving litigants\' rights to a trial on their claims, we are not prepared to extend those rights to the point of requiring that anyone who files an antitrust complaint setting forth a valid cause of action be entitled to a full-dress trial

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