Perma Life Mufflers, Inc. v. International Parts Corp.

• Decision Date: 07 June 1967
• Docket Number: No. 15862.,15862.
• Citation: 376 F.2d 692
• Parties: PERMA LIFE MUFFLERS, INC., et al., Plaintiffs-Appellants, v. INTERNATIONAL PARTS CORPORATION et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

376 F.2d 692 (1967)

PERMA LIFE MUFFLERS, INC., et al., Plaintiffs-Appellants, v. INTERNATIONAL PARTS CORPORATION et al., Defendants-Appellees.

No. 15862.

United States Court of Appeals Seventh Circuit.

April 25, 1967.

Rehearing Denied June 7, 1967.

Michael A. Bilandic, Chicago, Ill., Raymond R. Dickey, Robert F. Rolnick, Marshall E. Miller, Washington, D. C., for appellants, Danzansky & Dickey, Washington, D. C., of counsel.

Jay Erens, David Silbert, John T. Chadwell, Glenn W. McGee, David J. Gibbons, Chicago, Ill., for appellees, Chadwell, Keck, Kayser, Ruggles & McLaren, Jacobson, Nierman & Silbert, Chicago, Ill., of counesl.

Before MAJOR, Senior Circuit Judge, and SCHNACKENBERG and CUMMINGS, Circuit Judges.

Rehearing Denied June 7, 1967, en banc.

MAJOR, Senior Circuit Judge.

Plaintiffs brought this action in a three-count complaint for the recovery of damages allegedly sustained by reason of defendants' violation of the antitrust laws of the United States. They alleged in counts 1 and 2 that the terms of certain franchise agreements executed by the parties to govern their relationship in the purchase and sale of automotive exhaust systems parts through establishments displaying defendants' trade and service marks, "Midas" and "Midas Muffler Shop," illegally restricted plaintiffs in the operation of said shops. They alleged that the corporate and individual defendants joined in an illegal conspiracy to restrain trade, in violation of Sec. 1 of the Sherman Act (See. 1, Title 15 U.S. C.A.), and that they violated Sec. 3 of the Clayton Act (Sec. 14, Title 15 U.S. C.A.). They alleged in count 3 that the defendants violated Sec. 2 of the Clayton Act, as amended by the Robinson-Patman Act (Sec. 13, Title 15 U.S.C.A.), by granting discrimination in price and service to certain of their customers without offering or otherwise making available these same prices and services to plaintiffs.

The District Court, on a voluminous record and after numerous protracted hearings, sustained defendants' motion for summary judgment as to all counts. In its order entered May 24, 1966, from which the appeal comes, the Court held (1) that plaintiffs were in pari delicto and, therefore, without standing to complain about violations of Sec. 1 of the Sherman Act and Sec. 3 of the Clayton Act, and (2) that defendants' price and service discrimination did not constitute a violation of the Clayton Act, as amended by the Robinson-Patman Act.

Of the multiple plaintiffs, only four, Gregory Skarupa, Maxwell Ross, Joseph Pierce and Claude Wheeler, are here as appellants. Each of the plaintiffs, as well as others, was licensed under a franchise agreement with defendants to use the trade name, trademarks and service marks identified as "Midas" and "Midas Muffler Shops," in businesses which they operated in various states. Each plaintiff voluntarily entered into his first franchise agreement, and subsequently each sought and obtained franchises for additional shops.

The defendants were International Parts Corporation, three of its subsidiary corporations, plus six individual officers or agents of the corporate defendants. These ten separate legal persons constituted a single trading entity by which Nathan Sherman and his son, Gordon Sherman, conducted their family-owned business, including the sale of automobile exhaust systems.

In support of their motion for summary judgment, defendants presented to the District Court a 9-page detailed affidavit of the two Shermans, defendants and chief executive officers of the corporate defendants, and a 31-page appendix of excerpts from plaintiffs' depositions, answers to interrogatories or other record sources. Neither the affidavit nor the contents of the appendix was challenged by the plaintiffs in the court below by counter-affidavits. Plaintiffs relied upon documentary proof, their deposition testimony and defendants' answers to interrogatories.

Judge Abraham L. Marovitz in a memorandum opinion, after a meticulous analysis of the factual situation and the case law, with reference to counts 1 and 2 stated:

"It is clear from the undisputed facts before us that each plaintiff voluntarily entered into the franchise agreement at issue and accepted the benefits therefrom. They are, under the holdings in Rayco Rayco Manufacturing Company v. Dunn, D.C., 234 F.Supp. 593 and Crest Crest Auto Supplies, Inc. v. Ero Manufacturing Co., D.C., 246 F.Supp. 224 in pari delicto with defendants, and therefore unable to reap the harvest of their own misdeeds. Each plaintiff recognized that the franchise conveyed to him the right to use the various Midas trade names, trademarks and service marks, and each profited from the use of same. They are not now entitled to the high profit of a treble damage suit when they voluntarily acceded to, fostered, and profited from the very practice about which they now complain."

Subsequent to the entry of the judgment in the instant case, Crest was affirmed by this Court. Crest Auto Supplies, Inc. v. Ero Mfg. Co., 360 F.2d 896.

In allowing defendants' motion for summary judgment on count 3 of the complaint, the District Court concluded:

"* * * that any alleged difference in price or service between purchases by plaintiff of Midas brand exhaust parts and purchases by other persons of Midas or International brand parts from defendant did not constitute a discrimination violative of the Robinson-Patman Act, in that (a) plaintiffs did not compete with other purchasers of Midas brand parts; (b) plaintiffs had the opportunity to purchase either brand; and (c) the Midas exhaust parts system was unlike the International system in grade and quality."

We think the Midas history, taken in the main from the unchallenged affidavits of Nathan and Gordon Sherman, is relevant. International Parts and the other defendants composed the single business entity by which the Sherman family sold exhaust parts. Prior to the Midas franchise plan, which defendants originated in 1955, exhaust system parts were sold to consumers from innumerable retail outlets, such as garages and service stations. A muffler was merchandised like most other automotive replacement parts, was given no special attention, enjoyed no consumer brand consciousness and required a labor charge for installation. All of this was changed by the introduction of Midas, with its nationally advertised trade names, nationwide chain of specialized exhaust system shops, unique guarantee and free installation.

A network of franchised dealers, each of whom purchased directly from International Parts and owned a retail outlet identified by the various "Midas" trade names and service marks, invited the public to a nationwide chain of automotive shops specializing in exhaust system parts. The dingy surroundings of the typical auto repair shop were replaced by the Midas atmosphere of cleanliness, comfort and prompt, courteous service. The guarantee of a new Midas muffler free to replace any that wore out as long as the customer owned the car was to be honored in each shop no matter where the first muffler was purchased.

Success for this new merchandising concept, and for each Midas dealer, necessitated that the American motorist recognize the Midas name and have confidence that each dealer was an exhaust specialist who handled the same quality product, provided the same clean and comfortable surroundings, gave the same prompt and dependable service and honored the same unique Midas guarantee. Millions were spent by defendants and the Midas dealers on national and local advertising to publicize this Midas story.

A franchise agreement was tendered to each prospective dealer. It required no franchise fee, construction expense or purchase of capital equipment from defendants, and it was cancellable by either party on 30 days' notice. No lease of real estate or other equipment from Midas was required; the franchise was a contract for the purchase of Midas products for resale from a retail outlet licensed by defendants to use the trademark "Midas" and the service mark "Midas Muffler Shop." Unlike the traditional auto repair shops that purchased through middlemen, the Midas dealers purchased at a significantly lower cost directly from International Parts.

A national association of Midas dealers and a monthly magazine allowed each dealer to learn about and profit from the experiences of his fellow dealers and to visualize better the national Midas image. Select dealers, including plaintiffs, who were most interested in this image and who had attained the greatest success, were members of a dealers' National Advisory Council. International Parts employees, called Midas field counselors, were used to assist the dealers.

After obtaining their first Midas franchise agreement most dealers, including plaintiffs, subsequently opened additional shops. Virtually every dealer, particularly plaintiffs, enjoyed substantial monetary gains from participation in the Midas program.

The gist of plaintiffs' argument appears to be embodied in the following statement taken from their brief:

"Appellants operated under their agreements with appellees retailing and installing the Midas mufflers from 1955-56 to 1959-60. During this period appellees sold appellants the Midas muffler with its lifetime guarantee. In return appellees required appellants to retail the muffler at prices fixed by appellees and to honor muffler guarantees on presentation. Appellants were also required to deal exclusively with appellees. To purchase the Midas muffler, appellants were required to purchase all other exhaust parts items from appellees. At the same time appellees refused to sell appellants or permit them to handle the International muffler (which also carried a lifetime guarantee) or any automobile parts other than automotive exhaust systems parts. Moreover, appellees also refused to allow appellants to purchase from any of appellees\' competitors."

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