Pepsico v. Central Inv. Corp.

• Decision Date: 26 April 2001
• Docket Number: No. C-1-98-389.,C-1-98-389.
• Citation: 271 F.Supp.2d 1040
• Parties: PEPSICO, INC., Plaintiff, v. CENTRAL INVESTMENT CORPORATION, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of Ohio

271 F.Supp.2d 1040

PEPSICO, INC., Plaintiff, v. CENTRAL INVESTMENT CORPORATION, INC., et al., Defendants.

No. C-1-98-389.

United States District Court, S.D. Ohio, Western Division.

April 26, 2001.

COPYRIGHT MATERIAL OMITTED

Stephen Jospeh Butler, Renee S. Filiatraut, Thompson Hine LLP, Cincinnati, OH, Roger Pascal, John C. Martin, Thomas Paul Luning, James A. Clark, Caroline K. Sheerin, Kevin S. Hovis, Annaliese F. Fleming, Anne Hall Burkett, Robin M. Spencer, Thomas B. Quinn, Schiff Hardin & Waite, Chicago, IL, Gerard W. Casey, PepsiCo Inc. Law Dept., Purchase, NY, Robert A. McMahon, Eberly McMahon Hochscheid LLC, Cincinnati, OH, for PepsiCo, Inc.

G. Jack Donson, Jr., Taft Stettinius & Hollister, Cincinnati, OH, James Burdette Helmer, Jr., Helmer Martins & Morgan, Cincinnati, OH, Helen G. Kirsch, Judith L. Harris, William A. Georghegan, Reed Smith Shaw & McClay, Washington, DC, for Central Investment Corp.

James Burdette Helmer, Jr., Helmer Martins & Morgan, Cincinnati, OH, for Pepsi-Cola Bottling Co. of Ft. Lauderdale-Palm Beach, Inc.

ORDER

BECKWITH, District Judge.

This matter is before the Court on the motions for summary judgment (Doc. Nos. 202 & 203) filed by Defendants Central Investment Corporation and Pepsi-Cola Bottling Company of Ft. Lauderdale-Palm Beach, Inc. In their first motion, Defendants seek summary judgment in their favor as to each count of Plaintiff PepsiCo, Inc.'s Amended Complaint. In their second motion, Defendants seek partial summary judgment on their counterclaim for a declaratory judgment that open commissary delivery is not a permissible means of service under the terms of the Syrup Appointments entered into by the parties. For the reasons set forth below, both Defendants' motions for summary judgment are well-taken and are GRANTED. Defendants also have before the Court a Motion to File Supplemental Memorandum In Support of Motion for Summary Judgment as to PepsiCo's Amended Complaint (Doc. No. 238). In light of the Court's rulings on the summary judgment motions, Defendants' motion to file a supplemental memorandum is MOOT.

I. Background

The parties in this case are PepsiCo, Inc. ("PepsiCo"), a well-known manufacturer of soft drinks, Central Investment Corporation, Inc. ("CIC") and Pepsi-Cola Bottling Company of Ft. Lauderdale-Palm Beach, Inc. PepsiCo is a North Carolina corporation with its principal place of business located in Purchase, New York. Defendant CIC is an Ohio corporation with its principal place of business in Cincinnati. Defendant Pepsi-Cola Bottling Company of Ft. Lauderdale-Palm Beach, Inc. is a Florida corporation and wholly-owned subsidiary of CIC. For ease of reference, the Court will collectively refer to the Defendants as "CIC." CIC sells and distributes Pepsi products in defined geographic areas of Ohio and Florida.

The dispute in this case arises out of Bottling and Syrup Appointments¹ entered into by the parties in the late 1950's and early 1960's. In exchange for the exclusive right to distribute Pepsi and Pepsi products, the appointments require CIC "to push vigorously" and "secure full distribution" of Pepsi within its assigned territories. The appointments are governed by New York law and are terminable by PepsiCo for CIC's failure to comply with one or more terms of the Appointments.

The Bottling and Syrup Appointments originally provided only for what the parties call "store door" delivery; that is, CIC would deliver directly to each customer its requirements for Pepsi products. In 1985, the Syrup Appointment was amended to allow Pepsi syrup to be delivered to what the amendment calls National Account Customers² via a self-distribution system, or "closed commissary." A closed commissary is a distribution center which is owned by the customer and provides a central location for delivery of syrup. The customer-owned distribution center then takes responsibility for delivering the syrup to the individual restaurants along with the other supplies. The amendment to the Syrup Appointment reserved to PepsiCo the right to sell syrup to National Account Customers. See Doc. No. 202, Ex. 4, Amendment to Syrup Appointment ¶ 10(a). The amendment gave CIC the right to manufacture and deliver syrup to closed commissaries of National Account Customers if the closed commissary was located within CIC's territory. See id. ¶ 10(c)(i). In exchange for that service, PepsiCo agreed to pay CIC a fee at a rate to be determined from time to time by PepsiCo. Id. If the commissary was located outside of CIC's territory but delivered syrup to outlets within CIC's territory, PepsiCo agreed to pay CIC a "Brand Delivery Fee" equal to 8% of the PepsiCo's list price for store door delivery of syrup. See id. ¶ 10(c)(ii).

A competing form of syrup delivery is "open commissary" delivery. An open commissary is a delivery operation which is independent of both PepsiCo and the National Account Customer. Like the closed commissary, however, the open commissary provides one-stop shopping for the restaurant. For a number of years after the parties executed the Amendment to the Syrup Appointment, a course of performance between PepsiCo and CIC established that open commissary delivery was not a method of delivery available under the Syrup Appointment. See Doc. No. 202, Exs. 28 & 32 ("We [PepsiCo] have acknowledged to you [CIC] that the form of delivery in question [open commissary] is not permitted under the terms of Paragraph 10 of your Pepsi-Cola Syrup Appointments."). In other words, a National Account Customer would either have to have syrup delivered by store door delivery to each of its outlets or operate its own self-distribution system or closed commissary. If a National Account Customer insisted on receiving syrup through an open commissary, PepsiCo would obtain from CIC a waiver on an individual basis. See id.

According to PepsiCo, in or about the mid-1990's, National Account Customers began requesting open commissary delivery of syrup with increasing frequency. It is clear from the papers and exhibits submitted that PepsiCo views the ability to provide open commissary delivery of fountain syrup to be an important aspect of competing with it chief rival, the Coca-Cola Company. It is also apparent that PepsiCo came to view the process of obtaining waivers on a case-by-case basis to permit open commissary delivery as being too time consuming and non-responsive to the needs of National Account Customers. See, e.g., Doc. No. 202, Ex. 44, Letter from PepsiCo to Independent Bottler ("Per previous discussions regarding the broader Fountain Limited Waiver proposed by the Pepsi-Cola Company, we are not in a position to sign limited waivers on an account-by-account basis. We cannot effectively sell and negotiate in the National Account arena with that type of restriction."). Therefore, in 1997, PepsiCo embarked on an initiative to obtain from all of the independent bottlers a blanket agreement which would allow PepsiCo to provide open commissary service to National Account Customers at will. An example of the this agreement (also known as "the 1997 waiver") is shown at Exhibit 35 of CIC's motion for summary judgment. See Doc. No. 202, Ex. 35. In its basic form, the agreement compensates the independent bottler on per-gallon basis for syrup delivered via open commissary in exchange for waiving the limitations on open commissary delivery imposed by paragraph 10(c) of the 1985 Amendment to the Syrup Appointment. See id. PepsiCo claims that over 95% of its independent bottlers signed the 1997 waiver. However, there were a number of bottlers, including CIC, who refused to give PepsiCo blanket permission to provide open commissary service to National Account Customers.

Another impediment to PepsiCo's ability to provide syrup through open commissaries was Coke's open commissary policy. Coke had in its agreements with open commissaries a "loyalty clause" which provided that the commissary could distribute Coca-Cola products only on the condition that it not sell or distribute any competing products, i.e., PepsiCo products. In May, 1998, PepsiCo filed an antitrust lawsuit against Coke in the United States District Court for the Southern District of New York. In that lawsuit, PepsiCo claimed that Coke's enforcement of the loyalty clause against independent commissaries was a restraint of trade in violation of § 1 of the Sherman Act, 15 U.S.C. § 1, and monopolization and/or attempted monopolization under § 2 of the Sherman Act, 15 U.S.C. § 2. See PepsiCo, Inc. v. The Coca-Cola Co., 114 F.Supp.2d 243, 245 (S.D.N.Y. 2000).

The preceding background brings us to the two events which by and large were the flashpoints which ignited this lawsuit.

In January 1998, CIC sent through its counsel a letter to PepsiCo CEO Roger Enrico which stated that CIC had learned through various unidentified sources that PepsiCo intended to service Tricon restaurants in CIC's exclusive territories through open commissary delivery. The letter reiterated to Mr. Enrico that PepsiCo's past policy had been that paragraph 10(c) of the Amendment to the Syrup Appointment prohibited PepsiCo from providing open commissary delivery. The letter further stated that CIC considered any delivery of syrup to National Account Customers via open commissary to be a violation of the Syrup Appointment and that it would take all legal action necessary to protect its franchise rights. Finally, CIC sent a copy of the letter to Tricon as a warning that participation in open commissary delivery in violation of the Syrup Appointment would be met with legal action. See Doc. No. 202, Ex. 64.

By the spring of 1998 CIC had not yet signed the blanket 1997 waiver, but it also appears that CIC had not definitively decided against it either. The record reflects correspondence from CIC to PepsiCo requesting that PepsiCo provide information, primarily financial data, which would assist CIC in determining whether to sign the 1997 waiver. See ...