Parkway Baking Company v. Freihofer Baking Company
| Decision Date | 21 May 1958 |
| Docket Number | 12406.,No. 12405,12405 |
| Parties | The PARKWAY BAKING COMPANY, Inc. (Plaintiff), National Bakers Services, Inc. (Plaintiff), v. FREIHOFER BAKING COMPANY (Inc.) (Defendant) William Freihofer Baking Company (Additional Defendant), National Bakers Services, Inc. (Additional Defendant), National Bakers Services, Inc., Appellant. The PARKWAY BAKING COMPANY, Inc. (Plaintiff), National Bakers Services, Inc. (Plaintiff), v. FREIHOFER BAKING COMPANY (Inc.) (Defendant), William Freihofer Baking Company (Additional Defendant), National Bakers Services, Inc. (Additional Defendant), The Parkway Baking Company, Inc., Appellant. |
| Court | U.S. Court of Appeals — Third Circuit |
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George B. Christensen, Chicago, Ill. (James L. Perkins, Chicago, Ill., Andrew R. Klein, Philadelphia, Pa., Winston, Strawn, Smith & Patterson, Chicago, Ill., Synnestvedt & Lechner, Philadelphia, Pa., on the brief), for National Bakers Services, Inc.
Henry N. Paul, Jr., Philadelphia, Pa. (Wallace D. Newcomb, James C. McConnon, Philadelphia, Pa., Paul & Paul, Philadelphia, Pa., on the brief), for The Parkway Baking Co.
Joseph Gray Jackson, Philadelphia, Pa. (Edward Lovett Jackson, Philadelphia, Pa., William Steell Jackson and Sons, Philadelphia, Pa., on the brief), for Freihofer Baking Co., Inc.
Before BIGGS, Chief Judge, KALODNER, Circuit Judge, and WRIGHT, District Judge.
The Parkway Baking Company Parkway holds an exclusive license from the National Bakers Service, Inc. National, the owner of a secret formula for the baking of a low calorie bread and of the trademark "Hollywood", to bake and sell "Hollywood" bread in the greater Philadelphia area.1 The William Freihofer Baking Company William Freihofer is National's exclusive "Hollywood" licensee in an area north of the Parkway territory in which lies the City of Allentown, Pennsylvania. The Freihofer Baking Company of Philadelphia Philadelphia Freihofer, a subsidiary of William Freihofer and subject to the latter company's control, is not licensed by National to use the "Hollywood" trademark in any area.
Prior to May 1956, both William Freihofer and Parkway sold "Hollywood" bread to individual store units of the American Stores, a large chain grocery which operates stores in both the Parkway and William Freihofer territories. In May 1956 the American Stores desiring to purchase all of its Hollywood bread from a single source at one price entered into a requirements contract with Parkway. Under the terms of this contract, Parkway was to deliver "Hollywood" bread to the platform of the American Stores' warehouse which was located within the Parkway exclusive territory. Although this contract was entered into by Parkway with the knowledge that a substantial quantity of its bread would be reshipped by the American Stores to retail outlets in the William Freihofer Allentown territory there is no substantial evidence that this sales agreement was a subterfuge entered into merely to enable Parkway to invade William Freihofer's area. Nor is there any evidence that Parkway did or could exercise any control over American Stores.
When Parkway's "Hollywood" bread appeared for sale and was sold in William Freihofer territory, William Freihofer immediately protested to National which requested Parkway to stop these sales. Parkway, faced with the choice of continuing the platform deliveries to the American Stores' warehouse or losing the American Stores business, continued the deliveries. William Freihofer then decided to retaliate. It entered an agreement with its wholly owned subsidiary, Philadelphia Freihofer, whereby "Hollywood" bread was sold to Philadelphia Freihofer in Allentown, and would then be brought to the Philadelphia area and distributed throughout that territory by Philadelphia Freihofer.
During this period of retaliation the William Freihofer "Hollywood" bread was not wrapped in its customary wrapper bearing the designation "William Freihofer Baking Co., Allentown, Pa." but instead was wrapped with a label bearing the designation Freihofer Baking Co., Philadelphia, Pa.2 The trial court found that the disparity between the usual label and that used during the period of retaliation was caused by an error on the part of William Freihofer or the printer and was not consummated intentionally. This finding3 is fully supported by the record. But the label indicated that Philadelphia Freihofer was licensed to bake and sell Hollywood bread. The two assertions were false.
Accordingly, Parkway brought the present action against Philadelphia Freihofer alleging a violation of Section 43 (a) of the Lanham Act, 60 Stat. 441 (1946), 15 U.S.C.A. § 1125(a).4 William Freihofer was permitted to intervene as a party defendant pursuant to agreement. Rule 24(b), Fed.R.Civ.Proc. 28 U.S.C. National had refused to join in the complaint with Parkway and therefore was joined by Parkway as an involuntary party plaintiff. Rule 19(a), Fed.R.Civ.Proc. 28 U.S.C. National then entered a general appearance in the case and filed claims against Parkway and William Freihofer alleging that both baking companies had violated their license agreements. National's claims proceeded on the theory that the licenses barred the licensees from making sales within their territories knowing that purchasers were buying for resale and distribution within the exclusive territory of another licensee.
The trial court found that Parkway's license allowed it to make bona fide sales and deliveries to an independent purchaser within its exclusive territory regardless of its knowledge that some of the bread would be sold later by that independent purchaser within the exclusive territory of William Freihofer. The court below also found that since William Freihofer's sales in Philadelphia were made through its controlled subsidiary, Philadelphia Freihofer, these were not bona fide sales and that therefore William Freihofer had violated its license. Accordingly, the trial court enjoined William Freihofer from invading the Parkway territory through sales to Philadelphia Freihofer for resale within Parkway's territory. The trial court also found that inasmuch as National was not injured by such sales and since the license agreements are for the benefit of the exclusive licensees, that Parkway could recover against William Freihofer on the theory that it was a third party beneficiary of the license contract between National and William Freihofer. The cause was referred to a master for the purpose of ascertaining the damages. The trial court also found that there was a technical violation of Section 43(a) of the Lanham Act by Philadelphia Freihofer, but found such violation to be de minimis and therefore awarded no damages and did not issue an injunction. 154 F.Supp. 823.
Parkway, at our No. 12,406, appeals from the refusal of the District Court to grant Parkway an injunction and an accounting against Philadelphia Freihofer for its alleged violation of Section 43(a) of the Lanham Act. National, at our No. 12,405, appeals from the ruling that Parkway did not violate its license when it sold to the American Stores. Other claims, cross claims and counterclaims were asserted. They were dismissed, however, and the orders of dismissal have not been appealed from. We will not encumber this opinion by setting out these pleadings.
The question involved in this appeal is whether Parkway's sales to American Stores are in violation of the license which it holds from National, or in brief, whether Parkway is selling its Hollywood bread in Allentown.
As the rights and duties of licensor and licensee are determined by the terms of their contract, this question can be resolved only by an interpretation of that instrument. As we have said, the contract between Parkway and National gave Parkway the right to bake and sell "Hollywood" bread in the Philadelphia area. The writing contains no restriction against bona fide sales to an independent vendor within the exclusive territory, even though Parkway has knowledge that the vendee, American Stores, will resell the bread within the exclusive territory of another. National, however, argues that under Illinois law we would be required to read such a restriction into the contract. Parkway contends that we are precluded from applying Illinois law because: (1) the contract was entered into in Pennsylvania; (2) National did not raise the issue of Illinois law in the court below which decided the case under the law of Pennsylvania, and (3) National failed to give any notice of foreign law as is required by the Pennsylvania Judicial Notice Act, Act of May 4, 1939, P.L. 42, 28 P.S.Pa. § 294.
At the threshhold, therefore, we are faced with the question of which law to apply in interpreting the contract. Although there is evidence in the record that Medina, National's Vice-President signed the Parkway license agreement in Philadelphia, the license itself contains the statement that it shall be in effect "only upon acceptance by the Company at its offices in Chicago, Illinois." There is also a recital on the agreement that National "has caused this agreement to be executed * * * attested * * * and its corporate seal affixed at Chicago, Illinois." So far as the record shows it appears that the last act necessary for the formation of the contract occurred in Illinois.
This, therefore being a case where the litigation is in one state and the operative transaction in another it is the duty of the federal court to apply the conflict of laws rules of the state where the case is being tried. Klaxon Co. v. Stentor Electric Mfg. Co., 1941, 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477. The Pennsylvania rule in contract cases is that the interpretation of the instrument is determined in accordance with the law of the place of contracting, and that is the place where the last act necessary for the...
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