Kellam Energy, Inc. v. Duncan

• Decision Date: 20 June 1985
• Docket Number: Civ. A. No. 84-579 CMW.
• Citation: 616 F. Supp. 215
• 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

616 F. Supp. 215

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.

Civ. A. No. 84-579 CMW.

United States District Court, D. Delaware.

June 20, 1985.

Charles S. Crompton, Jr., and W. Harding Drane, Jr., of Potter, Anderson & Corroon, Wilmington, Del. (Hugh L. Patterson, and Walter D. Kelley, Jr., of Willcox, Savage, Dickson, Hollis & Eley, Norfolk, Va., of counsel), for plaintiff.

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

OPINION

CALEB M. WRIGHT, Senior District Judge.

This is an action for breach of contract in which the defendants have asserted a number of counterclaims based on alleged violations of the antitrust laws. It is now before the Court on the defendants' first motion to compel the production of documents.

The plaintiff Kellam Energy, Inc., a Virginia corporation (hereinafter "Kellam"), is a distributor of petroleum products in the states of Delaware, Maryland and Virginia and maintains its principal place of business in Belle Haven, Virginia. Kellam also operates a number of "convenience stores", which sell beverages, groceries and snacks as well as gasoline, in southern Delaware and parts of Maryland and Virginia on the Delmarva Peninsula. Kellam also supplies these convenience stores with gasoline products. The defendant R.C. Nehi Bottling, Inc. (hereinafter "Nehi"), is a Delaware corporation with its principal place of business in Camden, Delaware, and is engaged in the production and distribution of soft drinks as well as running a chain of convenience stores in southern Delaware under the name "Super Soda Center." Defendant Robert M. Duncan (hereinafter "Duncan") is a resident of Delaware and the chief executive officer of Nehi.

At issue in this case are a series of seven contracts entered into between Kellam and Duncan or Nehi between May 1, 1975 and May 28, 1982, according to which seven of the Super Soda outlets are to purchase petroleum products from Kellam for periods of fifteen years. At least four of these agreements may be plausibly characterized as requirements contracts, obligating the buyer to purchase from Kellam "all of buyer's entire supply of gasoline and diesel fuel which buyer dispenses at the above described location." Kellam alleges that Nehi and Duncan have breached these contracts by purchasing petroleum products from other suppliers. In addition to asserting a number of affirmative defenses, Nehi and Duncan have counterclaimed by alleging that the contracts in question are part of a course of action by Kellam that violates a number of antitrust statutes, including the Robinson-Patman Act, 15 U.S.C. § 13(a), and Sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1 and 2. Specifically, the defendants assert that Kellam has engaged in unlawful price discrimination by selling petroleum products to its own outlets at a price lower than it sells these same products to the Super Soda outlets; that Kellam has used the contracts in question to set the price paid for petroleum products by competing convenience stores at an artificially high price; and that Kellam has used these contracts as part of a plan to monopolize the gasoline-convenience store market in southern Delaware.

Nehi's requests for production may be divided into four categories: (1) documents relating to Kellam's alleged damages; (2) documents relating to Kellam's pricing practices with regard to its petroleum products distributed to other retail gasoline outlets "in the same classification"¹ as Nehi; (3) documents relating to Kellam's interest in and marketing strategy for entering the convenience store market; and (4) documents relating to Kellam's compliance with governmental regulation of the petroleum products industry and its response to the deregulation of that industry. Nehi's requests cover the time period from January 1, 1975 to the present and refer to a geographic area on the Delmarva Peninsula that includes the portions of the states of Maryland and Delaware from Smyrna, Delaware, to the border between Maryland and Virginia. In addition to objecting to individual requests on the grounds that they are vague, overbroad, overly burdensome or irrelevant, immaterial and not calculated to lead to the discovery of admissible evidence, Kellam has made two general objections to Nehi's requests based on their geographic and temporal scope. Kellam argues that the geographic scope of the requests should be limited to the specific areas where Kellam's and Nehi's convenience stores actually compete for gasoline sales, namely, the towns of Seaford, Milford and Harrington,² Delaware. Kellam also maintains that the relevant time period for discovery should extend no earlier than March 15, 1982, since it was not until that date that Kellam took over operation of the convenience stores that now compete with Nehi in these three towns.

The Court notes, to begin with, that there is a general policy of allowing liberal discovery in antitrust cases. See F.T.C. v. Lukens Steel Co., 444 F.Supp. 803 (D.D.C. 1977); Maritime Cinema Service Corp. v. Movies en Route, Inc., 60 F.R.D. 587 (S.D. N.Y.1973); Morgan Smith Automotive Products, Inc. v. General Motors Corp., 54 F.R.D. 19 (E.D.Pa.1971); Leonia Amusement Corp. v. Loew's, Inc., 16 F.R.D. 583 (S.D.N.Y.1954). Particularly where allegations of conspiracy or monopolization are involved, as in the instant case, broad discovery may be needed to uncover evidence of invidious design, pattern or intent. See F.T.C. v. Lukens, supra; Quonset Real Estate Corp. v. Paramount Film Distr. Corp., 50 F.R.D. 240 (S.D.N.Y.1970). As the court noted in the latter case, the discovery provisions of the Federal Rules of Civil Procedure are afforded a liberal construction when information is sought "to establish design or pattern to monopolize or intent to conspire in violation of the antitrust laws." Id. at 241.

Kellam argues, however, that the geographic scope of discovery with respect to Nehi's antitrust counterclaims should be limited to the boundaries of the geographic market in which Kellam and Nehi compete, namely, the three towns in which they both operate convenience stores, and that the outer temporal limit of discovery should be set by the statute of limitations for the antitrust laws, namely, four years prior to the filing of the complaint, or 1980. See Clayton Act § 4B, 15 U.S.C. § 15b.

The Court finds these arguments unpersuasive. The cases clearly establish that the temporal scope of discovery in antitrust suits should not be confined to the limitations period of the antitrust statutes. See Wilder Enterprises, Inc. v. Allied Artists Pictures Corp., 632 F.2d 1135 (4th Cir.1980) (discovery regarding allegedly unlawful agreement during two years preceding limitations period should have been permitted where it was relevant to the question of conspiracy); Empire Volkswagen, Inc. v. World-Wide Volkswagen Corp., 35 Fed.R.Serv.2d 259 (S.D.N.Y.1982) (discovery in antitrust actions routinely goes beyond statutory period); Robertson v. Nat'l Basketball Ass'n., 67 F.R.D. 691 (S.D.N.Y.1975) (history of bargaining relevant to question whether alleged restraints came into being as result of arms' length negotiations); Maritime Cinema Service Corp. v. Movies en Route, Inc., supra (discovery permitted six years prior to alleged damages); Quonset Real Estate Corp. v. Paramount Film Distr. Corp., supra (discovery permitted for period of ten years antedating earliest possible wrong); Schenley Industries, Inc. v. New Jersey Wine & Spirit Wholesalers, 272 F.Supp. 872 (D.N. J.1967) (asserted history of conspiracy rather than scope of plaintiff's damages provides temporal boundary for discovery). In the instant case, Nehi is alleging harm from a conspiracy to restrain trade and a scheme of monopolization that may have begun as early as 1975. Nehi should therefore be allowed to obtain documents originating as early as that year. To be sure, Nehi will only be entitled to recover for damages it suffered within the limitations period, but the scope of Nehi's possible damages does not define the scope of permissible discovery. See Schenley Industries, Inc. v. New Jersey Wine & Spirit Wholesalers, supra, at 888.

As to the geographic scope of Nehi's discovery requests, the Court cannot agree with Kellam's argument that it should be limited to the specific locations where Kellam's convenience stores compete with Nehi's. Kellam notes correctly that the geographic market is defined by the "area of effective competition." See United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 357-59, 83 S.Ct. 1715, 1738-39, 10 L.Ed.2d 915 (1963);³Jetro Cash & Carry Enterprises v. Food Distr. Center, 569 F.Supp. 1404, 1983-2 Trade Cases (CCH) ¶ 65,722...