Ogilvie v. Fotomat Corp.

Decision Date16 March 1981
Docket NumberNos. 80-1064,80-1065,s. 80-1064
Parties1980-81 Trade Cases 63,817 Donald M. OGILVIE, Appellee, v. FOTOMAT CORPORATION, Appellant. GRIESEDIECK ENTERPRISES, NO. 1, INC., et al., Appellees, v. FOTOMAT CORPORATION, Appellant. Donald M. OGILVIE, Appellant, v. FOTOMAT CORPORATION, Appellee. GRIESEDIECK ENTERPRISES, NO. 1, INC. et al., Appellants, v. FOTOMAT CORPORATION, Appellee.
CourtU.S. Court of Appeals — Eighth Circuit

E. Barrett Prettyman, Jr., Hogan & Hartson, Washington, D. C., James O. Sullivan, Alan J. Reniche, Robert H. Plaxico, Sullivan, Jones & Archer, San Diego, Cal., Martin J. Purcell, Morris J. Nunn, Morrison, Hecker, Curtis, Krider & Parrish, Kansas City, Mo., for appellant.

Warren E. Slagle, Richard F. Adams, John J. Williams, III, George M. Bock, Slagle &amp Before LAY, Chief Judge, and BRIGHT and McMILLIAN, Circuit Judges.

Bernard, Kansas City, Mo., Edward H. Tenney, Jr., Tenney, Dahman & Katcher, St. Louis, Mo., for appellee.

BRIGHT, Circuit Judge.

Donald M. Ogilvie and ten corporations owned by Alvin Griesedieck, Jr. (appellees), franchisees of Fotomat Corporation (Fotomat), brought these consolidated actions against Fotomat, alleging claims arising under federal antitrust statutes as well as Missouri fraud and contracts law. In their complaints, appellees alleged, inter alia, that Fotomat fraudulently induced them to enter into franchise agreements and that Fotomat unlawfully conspired with its wholly owned subsidiary, Fotomat Labs, Inc. (Fotomat Labs), to restrain trade by eliminating them as competitors. The jury returned verdicts in favor of appellees on these and other claims following a six-week trial. The district court thereafter eliminated certain damage awards as duplicative, reduced the jury's fraud awards as excessive, and entered judgments on the jury verdicts as modified.

On appeal Fotomat argues for reversal of the fraud and antitrust conspiracy judgments, as well as for a reduction of damages and attorneys' fees. We agree in part with appellant. For the reasons set forth below, we affirm the fraud judgments and reverse the antitrust conspiracy judgments. We also order a reduction of the jury's punitive damage awards and remand for recomputation of attorneys' fees. Appellees in their cross-appeal assert that the district court erred in refusing an injunction on their antitrust claims. We affirm the denial of the injunction.

I. Background.

Fotomat and its franchisees sell photographic film, film processing services and related products through small, freestanding stores or kiosks usually located in the parking lots of shopping centers. 1 In April 1967, Fotomat opened its first company-owned stores and began marketing franchises to operate similar retail outlets. 2

In the summer of 1968, Donald Ogilvie and Alvin Griesedieck, responding to Fotomat's solicitations, both participated in sales presentations with Fotomat representatives. 3 Ogilvie executed a master franchise agreement with Fotomat in August 1968. In January 1969, Griesedieck similarly signed a master agreement. Ogilvie agreed to purchase five franchises from Fotomat to be located in metropolitan Kansas City for a price of $105,000; Griesedieck agreed to purchase twenty franchises in metropolitan St. Louis at a price of $420,000. 4 Under the master franchise agreements, Fotomat required Ogilvie and Griesedieck to execute standard franchise and lease agreements for each store. 5

The standard franchise agreements required appellees to purchase all merchandise, film processing services, and other services from Fotomat. 6 The agreements also provided that Fotomat would sell film and film processing to appellees "at (Fotomat's) cost without any markup whatsoever." An express condition of the franchise agreements required appellees to continue as lessees of Fotomat kiosks, with the terms of the lease referenced and tied to the standard franchise agreements.

By summer 1969, Fotomat concluded that its earnings from company-owned stores were markedly greater than from franchised stores. Thereafter, Fotomat sold franchises only to fulfill pre-existing commitments. In 1971, Fotomat named a new "franchise relations" director with instructions to "work himself out of a job" through the reacquisition of franchises.

Fotomat, as part of "an aggressive build program" in Kansas City and St. Louis, began overlapping the marketing areas of franchise stores. 7 In September 1972, Fotomat started to overlap eleven of the Griesedieck stores and five of the Ogilvie stores. 8

Appellees brought these actions in September 1975. In their complaints they alleged, inter alia, that Fotomat breached its promise to sell products and services at cost; that Fotomat fraudulently induced them to enter into franchise and lease agreements by representing that it would sell products and services at cost; that Fotomat imposed illegal tying arrangements, by requiring, as a condition on the sale of Fotomat franchises, the purchase of merchandise, services, and film developing, and the lease of real estate, in violation of section 1 of the Sherman Act, 15 U.S.C. § 1 (1976), and section 3 of the Clayton Act, 15 U.S.C. § 14 (1976); that Fotomat conspired with Fotomat Labs to eliminate the plaintiffs as competitors, in violation of section 1 of the Sherman Act; and that Fotomat attempted to monopolize the drive-through retail film and film processing market, in violation of section 2 of the Sherman Act, 15 U.S.C. § 2 (1976).

The jury returned verdicts in favor of appellees on their tying, conspiracy, breach of contract and fraud claims, assessing actual damages on each claim, as well as punitive damages on the fraud claims. The jury returned verdicts for Fotomat on appellees' attempted monopolization and lease tying claims. 9

Pursuant to posttrial motions, the district court reduced the actual damages on appellees' fraud claims as in excess of proof. The district court also determined that appellees' tying, breach of contract, and fraud claims were duplicative and, therefore, entered judgment only on the fraud claims, the largest of the verdicts. The district court also entered treble damage judgments on the jury's conspiracy verdicts.

On appeal, Fotomat contends that (1) the district court erroneously instructed the jury on appellees' fraud claims; (2) the district court should have reduced the punitive damages awarded on the fraud claims; (3) Fotomat and Fotomat Labs were not separate economic entities legally capable of conspiracy; (4) the district court erroneously computed the attorneys' fees it awarded to appellees' attorneys.

II. Analysis.
A. The Fraud Instruction.

At trial, appellees contended that Fotomat never intended to honor its contractual Under Missouri law, a case of fraudulent misrepresentation of existing intent must be premised on a misrepresentation that was false when made. See Slater v. KFC Corp., 621 F.2d 932, 936 (8th Cir. 1980). As the Missouri Court of Appeals has stated, "(v)ital to recovery on the theory of an actionable misrepresentation of an existing purpose of state of mind is a current intention by the promisor at the time the agreement is made not to perform." Klecker v. Sutton, 523 S.W.2d 558, 562 (Mo.App.1975) (emphasis in original).

                commitment to sell merchandise and services at "Fotomat's cost without any markup whatsoever."  The evidence disclosed that Fotomat did not pass on to appellees certain discounts and allowances from outside photofinishers.  In addition, Fotomat failed to pass on discounts from outside vendors of merchandise resold to appellees.  Fotomat concedes on appeal that its withholding of the discounts may have been wrongful as a matter of contract law.  10 Fotomat argues, however, that the jury improperly found fraud without the necessary finding that Fotomat had no intent to honor its contractual commitment at the time it executed the franchise agreements.  11

After examining the verdict-directing instruction, we conclude that the district court properly placed before the jury the issue of Fotomat's intent at the time of contract execution. The district court instructed the jury that its verdict must be for Ogilvie and the Griesedieck corporations if it found:

(1) that (Fotomat) made certain representations to (appellees,) namely: that (Fotomat) would sell merchandise, film and film processing services to (appellees) at (Fotomat's) cost without any markup whatsoever, and

(2) that (Fotomat) intended that (appellees) rely upon such representations in purchasing the respective franchise agreements from (Fotomat) and in continuing to make payments to (Fotomat) thereunder and in continuing to purchase merchandise, film and film processing services from (Fotomat), and

(3) that the representations, if any, were false, and

(4) that (Fotomat) knew the representations were false, and

(5) that the representations were material to the purchase by (appellees) of the Fotomat franchises and the payments made to (Fotomat) thereunder, and

(6) that (appellees) relied on and had the right to rely on the representations in making the purchases, and

(7) that as a direct result of such representations (appellees were) injured and damaged.

If you find and believe that (appellees) have failed to establish any one of the above elements then you must find in favor of Fotomat on the claim stated in this instruction.

Fotomat contends that under this instruction the jury may have predicated fraud liability on a finding that the "no markup" representations became false after the contract period began. We do not agree. This instruction requires the jury, before imposing liability, to find that Fotomat knew its representations were false. The knowledge element of the instruction necessarily implies knowledge that the representations were false at the time they were made. Having submitted this...

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