Ideal Dairy Farms, Inc. v. John Labatt, Ltd.

• Decision Date: 24 July 1996
• Docket Number: AFL-CIO,No. 95-5435,95-5435
• Citation: 90 F.3d 737
• Parties: 1996-2 Trade Cases P 71,495, RICO Bus.Disp.Guide 9080 IDEAL DAIRY FARMS, INC., Appellant, v. JOHN LABATT, LTD.; John Labatt, Inc.; Tuscan Dairy Farms, Inc.; Johanna Dairies Incorporated; Robert Facchina; ABC Companies, 1 Through X (Fictitious Names of Labatt Affiliates That Actively Participated In The Monopolistic Practices Described Below, But Whose Identities are Presently Unknown); John Does, 1 Through X (Fictitious Names of Officers and/or Directors of The Corporate Defendants Who Actively Participated In The Decision-Making Regarding The Monopolistic Practices Described Below, But Whose Identities Are Presently Unknown); Elmhurst Milk & Cream Company, Inc.; Local 584, International Brotherhood Of Teamsters, Chauffeurs, Warehousemen and Helpers of America,; Honeywell Farms, Inc., t/a Elmhurst Dairy. TUSCAN DAIRY FARMS, INC., Defendant/Third-Party Plaintiff, v. IDEAL DAIRY FARMS, INC.; Gilbert Levine; Mark Greenberg, Third-Party Defendants.
• Court: U.S. Court of Appeals — Third Circuit

Page 737

90 F.3d 737

1996-2 Trade Cases P 71,495, RICO Bus.Disp.Guide 9080

IDEAL DAIRY FARMS, INC., Appellant, v. JOHN LABATT, LTD.; John Labatt, Inc.; Tuscan Dairy Farms,

Inc.; Johanna Dairies Incorporated; Robert Facchina; ABC

Companies, 1 Through X (Fictitious Names of Labatt

Affiliates That Actively Participated In The Monopolistic

Practices Described Below, But Whose Identities are

Presently Unknown); John Does, 1 Through X (Fictitious

Names of Officers and/or Directors of The Corporate

Defendants Who Actively Participated In The Decision-Making

Regarding The Monopolistic Practices Described Below, But

Whose Identities Are Presently Unknown); Elmhurst Milk &

Cream Company, Inc.; Local 584, International Brotherhood

Of Teamsters, Chauffeurs, Warehousemen and Helpers of

America, AFL-CIO; Honeywell Farms, Inc., t/a Elmhurst Dairy.

TUSCAN DAIRY FARMS, INC., Defendant/Third-Party Plaintiff, v. IDEAL DAIRY FARMS, INC.; Gilbert Levine; Mark Greenberg,

Third-Party Defendants.

No. 95-5435.

United States Court of Appeals, Third Circuit.

Argued May 3, 1996.

Decided July 24, 1996.

Sheldon A. Weiss (argued), Millburn, NJ, Steven Pasternak, Pasternak, Feldman & Plutnick, Livingston, NJ, for Appellant.

Thomas H. Moreland (argued), Lawrence E. Jacobs, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, New York City, for Appellee Tuscan Dairy Farms.

Frederick L. Whitmer, Pitney, Hardin, Kipp & Szuch, Morristown, NJ, for Appellees John Labatt, Ltd.; John Labatt, Inc.; Johanna Dairies, Incorporated and Robert Facchina.

Before: SCIRICA and ROTH, Circuit Judges and GODBOLD ¹, Circuit Judge.

OPINION OF THE COURT

ROTH, Circuit Judge:

The litigation giving rise to this appeal began when a locally owned dairy in Northern New Jersey sued a large Canadian corporation, its affiliates, and several New Jersey dairies purchased by the corporation in the 1980s. The plaintiff, Ideal Dairy Farms, Inc. ("Ideal"), filed a complaint that raised breach of contract, tort, fraud, RICO, and antitrust claims. One of the defendants, Tuscan Dairy Farms ("Tuscan"), filed a counterclaim against Ideal seeking payment of unpaid invoices totalling over $2 million.

After extensive discovery proceedings, defendants moved for summary judgment on their counterclaim and on all of Ideal's twenty-five claims. The district court granted summary judgment dismissing the claims against the defendants on the basis of its finding that Ideal failed to raise a genuine issue of material fact. It also granted summary judgment in favor of defendants on their counterclaim and awarded Tuscan $2,264,333.71. Ideal appealed the district court's summary judgment order.

With regard to Ideal's claims involving the 1985 supply contract between Tuscan and Ideal, we believe that Ideal has sufficiently demonstrated that genuine issues of material fact exist that preclude summary judgment. As a result, we will reverse and remand the following claims:

(1) Breach of Contract (Eleventh Count);

(2) Breach of Implied Covenant of Good Faith (Twelfth Count); and

(3) Tortious Interference with Contract (Fourteenth Count).

With regard to all other remaining claims, we find that summary judgment was properly granted against Ideal. We will therefore affirm the district court's order dismissing all of the antitrust claims, the common law fraud and RICO claims, and the tort claims not involving the 1985 supply contract.

I.

The appellant, Ideal, is a New Jersey corporation owned by Mark Greenberg and Gil Levine. Ideal distributes processed dairy products to retail customers and to customers in the food service industry. In the mid-1980s, the Labatt corporation, a Canadian entity with major interests in the beer and dairy industries, began acquiring dairies in the United States. For example, in Northern New Jersey, Labatt acquired Tuscan and Johanna Dairy Farms ("Johanna"). Labatt also purchased smaller dairy plants in Northern New Jersey, which it either consolidated with other more efficient plants or shut down.

In 1985, Ideal found itself in need of a new processed milk supplier and entered into negotiations with Tuscan. Tuscan purchases raw dairy products from farmers and processes them for sale to retail and industrial customers, as well as to distributors like Ideal. At that time, Tuscan was owned by Lou Caiola. Mr. Caiola submitted a proposed supply contract to Ideal for its consideration. Joint App. 316-23 ("1985 contract"). Ideal had no part in the preparation of the contract and signed the contract without making any changes to the text. The contract covered pricing and payment requirements but contained no clause providing for a term after which the contract would expire, nor did it discuss how the contract could be terminated. Mark Greenberg admitted at his deposition that, when they signed the contract, he and Mr. Levine were aware that the contract had "no length" and that they were "satisfied with no period of time." Joint App. 527 & 529.

The 1985 contract provided that "[a]ll milk and milk product prices [would be] based upon [the February 1985] Federal Milk Marketing Order." See Joint App. 317 (1985 contract, paragraph 2). The Federal Milk Marketing Order sets the minimum "Class I" price that a processor must pay to a farmer. ² The contract further provided that future prices could be adjusted whenever the Department of Agriculture changed Class I prices and also when "documentable or industrywide cost[s]" increased or decreased. Id. Such price adjustments were to be "consistent with generally accepted industry practice." Id. In addition to those adjustments, the contract also allowed Tuscan to add "an additional amount equal to 10% of [any] increase or decrease" after April 1, 1986. Id.

Labatt purchased Tuscan Dairy in December 1986. Lou Caiola continued to manage Tuscan's business, however, until October 1987. At that time, Herbert England, a Labatt employee, was appointed to replace Mr. Caiola. England was in charge at Tuscan until 1988, when he was replaced by Robert Facchina who ran the business for the remainder of Tuscan's relationship with Ideal.

Every day, Ideal ordered products from Tuscan. Every night, Tuscan loaded the order onto Ideal's trucks so that Ideal could deliver its cargo to customers the following morning. Every week, Tuscan sent Ideal an invoice of its purchases. Ideal responded by paying the invoices, meticulously subtracting for any product not received, or received but substandard. Every month, for nearly seven years, Tuscan sent Ideal notice of any upcoming price changes. Often these notices included a statement explaining the price changes and a newly revised price list of Tuscan's offerings.

Soon after it began doing business with Tuscan, Ideal realized that Tuscan was charging prices well above expected contract prices. Beginning in 1987, Tuscan began steadily increasing prices, usually blaming the increases on various premiums charged by farmers, cooperatives, and state governments. For example, Tuscan increased Ideal's prices in 1987 claiming that RCMA, a dairy farmers' cooperative, had increased the premium that it charged in addition to the Class I price. Later, when RCMA reduced its premium, Ideal never received the benefit of the cost decrease. Ideal discovered this overcharging by reading certain industry bulletins that publish actual changes in premiums charged by various raw milk suppliers.

Ideal first complained to Lou Caiola in 1987 that these price increases violated the terms of the 1985 contract, and for the next five years, Ideal continued to complain about the overcharges to Mr. Caiola's successors. At times, management at Tuscan promised that, if Ideal was patient, it would get the decrease that was due. At other times, Tuscan's management refused to discuss the issue.

At a meeting held on March 2, 1990, Tuscan's management attempted to rationalize its prices by comparing them, on a blackboard, to price increases authorized under the 1985 contract. In the end, Tuscan was unable to show on the blackboard that it had been increasing prices in compliance with the contract's pricing formula. Instead, the blackboard calculations highlighted the extent of Tuscan's overcharging. Mr. Facchina terminated the meeting and refused to discuss prices further.

Because Labatt owned all of the dairies capable of handling Ideal's supply needs, Mr. Greenberg and Mr. Levine believed that they were stuck with Tuscan. They doubted that they could obtain a better price elsewhere. Therefore, they concluded that they had no choice but to pay the overcharges. In addition, a New Jersey regulation hampered Ideal's ability to shop freely for a milk supplier who might offer a lower price. Section 2:52-3.1 of the New Jersey Administrative Code requires that milk dealers give milk suppliers two weeks notice before changing their source of supply. N.J.Admin.Code, tit. 2, § 52-3.1 (1996). This regulation combined with Labatt's control of several local dairies deterred Ideal from taking its business elsewhere, and Ideal's management begrudgingly continued to pay the price increases.

In late 1990, Tuscan began pressuring Ideal to enter a new contract with a five or six year term. Tuscan informed Ideal that, under a new policy implemented at all Labatt-owned dairies, all customers would be required to enter new contracts. Ideal successfully delayed signing a new agreement and secretly began looking for a new supply arrangement.

In May 1992, Ideal began to negotiate with Cumberland Farms dairy ("Cumberland"). Initially, Ideal sought only to acquire a certain size container, which Tuscan had discontinued. Cumberland, however, refused to supply just the one item but offered to supply Ideal with all of its product needs. Once they entered negotiations, Ideal also began building its own depot in Newark, where it could refrigerate products after hauling them from Cumberland's South Jersey premises.

On June 12, 1992, Ideal opened its own depot...