Kellam Energy, Inc. v. Duncan

• Citation: 668 F. Supp. 861
• Decision Date: 19 August 1987
• Docket Number: No. Civ. A. 84-579-CMW.,Civ. A. 84-579-CMW.
• Parties: KELLAM ENERGY, INC., a Virginia corporation as Successor to Kellam, Inc. and Shore Atlantic, Inc., Plaintiff, v. Robert M. DUNCAN, t/a Super Soda, a Delaware resident, and R.C. Nehi Bottling, Inc., t/a Super Soda, a Delaware corporation, Defendants.
• Court: U.S. District Court — District of Delaware

668 F. Supp. 861

KELLAM ENERGY, INC., a Virginia corporation as Successor to Kellam, Inc. and Shore Atlantic, Inc., Plaintiff, v. Robert M. DUNCAN, t/a Super Soda, a Delaware resident, and R.C. Nehi Bottling, Inc., t/a Super Soda, a Delaware corporation, Defendants.

No. Civ. A. 84-579-CMW.

United States District Court, D. Delaware.

August 19, 1987.

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Charles S. Crompton, Jr., and W. Harding Drane, Jr., of Potter, Anderson & Corroon, Wilmington, Del. (Willcox & Savage, Norfolk, Va., of counsel), for plaintiff.

William J. Wier, Jr., Joseph G. Krauss, of Herlihy & Wier, Wilmington, Del. and R. Brandon Jones, of Hudson, Jones, Jaywork & Williams, Dover, Del., for defendants.

                                         TABLE OF CONTENTS
                                                                             PAGE
                 FACTS.............................................................866
                   I. THE PARTIES..................................................866
                       A. Plaintiff................................................866
                       B. Defendants...............................................867
                  II. THE ECONOMIC RELATIONSHIP....................................867
                 III. THE SEVEN CONTRACTS AT ISSUE.................................869
                  IV. THE LITIGATION...............................................870
                 DISCUSSION........................................................871
                  I. SUMMARY JUDGMENT IN COMPLEX LITIGATION........................871
                 II. DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT ON
                     THE CONTRACT CLAIM............................................872
                     A. The Regulations and Their Interpretations..................872
                     B. Changed Business Practices.................................874
                        1. The Contracts' Length...................................874
                        2. The Requirements Provisions.............................875
                        3. The Equipment Purchase Term.............................875
                III. PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ON THE
                     BREACH OF CONTRACT: THE COMMON LAW UNFAIR COMPETITION
                     AND THE ANTI-TRUST COUNTERCLAIMS..............................876
                     A. The Contract Counterclaim..................................876
                        1. The Covenant Not to Compete.............................876
                        2. The Oral Contract Modification..........................877
                        3. The Written Contract Terms..............................878
                     B. The Unfair Competition Counterclaim........................879
                     C. The Antitrust Counterclaims................................880
                        1. Tying...................................................880
                           a. Sale of the Tied Product.............................881
                           b. Coercion.............................................881
                        2. Exclusive Dealing.......................................883
                           a. Whether An Arrangement Existed.......................883
                

                                                                             PAGE
                           b. A Significant Anti-Competitive Effect................884
                              i. The Relevant Line of Commerce.....................884
                             ii. Significant Impact on Competition.................885
                        3. Resale Price Maintenance................................886
                        4. Attempted Monopolization................................888
                           a. The Relevant Product Market..........................888
                           b. Dangerous Probability of Success.....................890
                                i. Logical Problems with the Market Share Data.....890
                               ii. The Market Share Data...........................890
                              iii. Other Factors Beyond Market Share...............891
                 IV. CONCLUSION....................................................892
                

OPINION

CALEB M. WRIGHT, Senior District Judge.

In this breach of contract action the defendants asserted counterclaims based on the federal antitrust laws and sundry state and common law claims. The matter is before the Court on Cross Motions for Summary Judgment.

The action was brought by Plaintiff, Kellam Energy, Inc. ("Kellam"), a Virginia corporation that is a wholesale distributor of petroleum in Delaware, Maryland and Virginia. The Defendant is R.C. Nehi Bottling, Inc. ("Nehi"), a Delaware soft drink bottling corporation that operates a chain of "Super Soda" convenience stores which sell beverages, groceries and snacks, as well as gasoline. Robert M. Duncan ("Duncan"), a Delaware resident and chief executive officer of Nehi, is the other defendant.

The Court denies Nehi's Summary Judgment Motion on Kellam's contract claim. There remains an unresolved factual question concerning whether certain contracts between the parties violated federal petroleum regulations.

The Court also denies Kellam's Motion for Summary Judgment on the contract counterclaim, holding that there exists a factual dispute as to whether Kellam breached the contracts by charging Nehi too high a price for petroleum. The Court, however, grants plaintiff's Motion for Summary Judgment on the Unfair Competition counterclaim, because it does not state a viable common law cause of action in Delaware.

The Court grants in part and denies in part plaintiff's Motion for Summary Judgment on the four antitrust counterclaims. The Court rules that defendants' tying counterclaim merits summary judgment because there is no evidence that the tying arrangement was forced upon Nehi. The Court also finds that the requirements contracts signed between Kellam and Nehi could not have constituted exclusive dealing, in violation of Clayton Act § 3, because no exclusive dealing arrangement existed. The Court holds that Kellam's sales methods may have constituted resale price maintenance in violation of the Sherman Act § 1, so that summary judgment is denied on this counterclaim. Finally, the Court denies summary judgment on defendants' attempted monopolization counterclaim.

FACTS

I. THE PARTIES

A. Plaintiff

Kellam is a regional distributor of gasoline, diesel fuel, propane gas, and home heating oil. The Company, since 1938, has sold to both retail outlets and individual consumers on the Delmarva Peninsula. The Peninsula is an isolated, rural tri-state area that includes portions of Delaware, Maryland and Virginia. Kellam also operates, on the Peninsula, a chain of convenience stores through its wholly-owned subsidiary, Shore Stop Inc. ("Shore Stop"). Both Kellam and Shore Stop are headquartered in Belle Haven, Virginia.

Kellam is a wholesale gasoline jobber. That is, it purchases oil from a large refiner—Texaco—and distributes it to retailers on the Delmarva Peninsula. The Company sells gasoline through an established dealer network using, primarily, requirements contracts. Under these agreements, Kellam installs, at the retailer's facility, underground tanks, gasoline dispensing equipment, and Texaco signs—an investment of approximately $70,000 per station. The contracts stipulate that Kellam must service this equipment and supply the retail outlet with all of its gasoline needs. In exchange for Kellam's services, the retail dealer agrees, inter alia, that it will purchase all of its gasoline requirements to be sold at a particular location from Kellam Energy. To perform its obligations, Kellam must maintain a staff of service technicians, own a fleet of gasoline transports and operate several bulk distribution plants. In the 1960s Kellam was one of the first companies on the Peninsula to install self-service gasoline dispensing equipment.¹

Kellam's predecessor corporations, Shore Atlantic, Inc. and Kellam, Inc., concentrated almost exclusively on retail gas sales. In 1979, all this changed. Kellam took the decision to integrate forward into the convenience store business; Shore Stop, Inc. was incorporated to direct Kellam's new venture.

Shore Stop opened its first convenience store in Machipongo, Virginia in March, 1981, and three more Virginia outlets followed shortly thereafter. In 1982, however, Kellam seized a rare opportunity to expand its convenience store business when Banks Dairy Markets, Inc. which owned and operated a chain of seventeen convenience stores in Maryland and Delaware, filed for bankruptcy. Under a reorganization plan approved by the Bankruptcy Court, Shore Stop began operating the Banks convenience stores in 1982 and acquired Banks Dairy Markets, Inc. in 1983. As of December 31, 1984, Shore Stop owned and operated thirty-three convenience stores on the Delmarva Peninsula. Most of these stores sell gasoline.

B. Defendants

Defendant, Nehi, is a soft drink bottling company headquartered in Camden, Delaware. The Company owns the exclusive bottling and distribution rights for R.C. Cola, Diet Rite Cola, Orange Crush, and Hires Root Beer in Delaware and Maryland's Eastern Shore. Nehi owns two liquor stores and a chain of sixteen beverage warehouses. Under the name "Super Soda Center", the Company currently operates ten beverage warehouses in Delaware and leases six Super Soda Centers in Maryland. In 1984, Nehi reported approximately $10 million in sales.

After initially selling a limited number of items, like soft drinks and cigarettes, the Company made a dramatic decision in 1973. Defendant, and Nehi's president, Duncan, decided to add gasoline to the Super Soda line of products. At that time, he contacted Kellam about supplying Super Soda's existing locations.

II. THE ECONOMIC RELATIONSHIP

In 1974, Kellam installed gasoline dispensing equipment at the Super Soda Center in Salisbury, Maryland, and the parties entered into the first gasoline supply contract. Between 1975 and 1982, Nehi and Kellam entered into long-term gasoline contracts for nine more Super Soda Centers. Kellam today supplies ten of the sixteen Super Soda Centers located in Delaware and on the Eastern Shore of Maryland; the Super Soda Centers are Kellam's largest independent customer for gasoline.²

The events that set...