Photovest Corp. v. Fotomat Corp.

Decision Date25 October 1979
Docket NumberNos. 77-1741,77-1742,s. 77-1741
Citation606 F.2d 704
Parties, 1979-2 Trade Cases 62,869 PHOTOVEST CORPORATION, an Indiana Corporation, Plaintiff-Appellee and Cross-Appellant, v. FOTOMAT CORPORATION, a Delaware Corporation, Defendant-Appellant and Cross-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

Edward L. Lascher, Wendy C. Wilner, Ventura, Cal., for defendant-appellant and cross-appellee.

Theodore R. Boehm, Indianapolis, Ind., for plaintiff-appellee and cross-appellant.

Before PELL, Circuit Judge, MARKEY, Chief Judge, * and WOOD, Circuit Judge.

PELL, Circuit Judge.

The defendant, Fotomat Corporation, is engaged in the retail sale of film processing, film, and camera related products which are sold insofar as the present litigation is concerned from small (9' X 5'), "drive-thru" kiosks located generally in shopping center parking lots. It obtained the rights to this retailing concept in 1967 and opened its first stores in April of that year. It also began selling franchises, and by 1971, 1,035 units were open, 680 company stores and 355 franchised stores. These stores sell mostly to amateur photographers. The customer drives up to the side of the kiosk and gives his exposed film to a "Fotomate" who operates the kiosk. He may also purchase film or other items from the Fotomate. One or two days later the customer returns and receives the processed work. In each metropolitan area in which it operates, Fotomat runs a pickup and delivery service to the kiosks from a central area office which is staffed by an area manager and some assistants. A route driver runs a daily pickup and delivery circuit of all the kiosks in the area, delivering the previous day's developed film and picking up that day's film. At the end of the route, the driver delivers the film to the processor.

The plaintiff, Photovest Corporation, was formed in 1968 by three individuals desiring to invest in Fotomat franchises. Photovest was incorporated for the purpose of operating a block of Fotomat kiosks in the Indianapolis area. On August 26, 1968, Photovest signed a master franchise purchase agreement obligating it to purchase 15 franchises to operate 15 Fotomat stores in Marion County, Indiana. Specific store sites had not been selected, but each store was bound by the standard Fotomat franchise agreement and the standard Fotomat lease agreement, which would be separately signed upon the opening of each store. Photovest agreed to pay $21,000 for each franchise for a total of $315,000. It also agreed to pay Fotomat royalties and advertising fees based on monthly gross sales. Additional details of the franchise agreement as well as other pertinent facts will be set forth throughout this opinion where relevant to the specific argument being discussed.

In December 1974, Photovest filed this action 1 charging Fotomat, Inter alia, with violations of both federal and state antitrust laws, breach of contract, fraud, and tortious breach of contract. After trial in the district court, the judge made extensive findings of fact and conclusions of law and awarded Photovest damages totaling $3,017,161.86. Prior to the district court's decision, Fotomat had paid Photovest $41,484.53 which reduced the final judgment to $2,923,557.

In this appeal, Fotomat raises numerous arguments regarding the antitrust, breach of contract, and damages aspects of the district court's decision. It also argues that some of the procedures followed by the district court judge violated Fotomat's due process rights. We will address one of these procedural problems first.

I. EXCHANGE OF BRIEFS PROCEDURE

Fotomat argues that it was prejudiced, and indeed was deprived of due process, by the fact that Photovest submitted an extensive trial brief to the district court judge without at the same time providing Fotomat with a copy. On Friday, December 3, 1976, Fotomat's counsel first discovered that Photovest had earlier filed a 207 page trial brief with the district court judge and that Photovest did not intend to serve a copy on Fotomat. Earlier that day Fotomat had given Photovest a copy of its trial brief. Since the trial was to begin on Monday, December 6, 1976, Fotomat immediately complained to the judge of the In camera filing. The judge found that the pretrial order did not require pretrial exchange of briefs and that there was no record of any agreement to such an exchange. He said he "would leave counsel where they find themselves." At that time, Photovest agreed to return Fotomat's trial brief which Fotomat had earlier served on it. On Monday, December 6, the first day of trial, Fotomat filed a motion to reconsider and the judge granted a hearing. After hearing arguments on the exchange of briefs issue, he ordered Photovest to serve its brief on Fotomat with some modifications. Photovest was allowed to edit and delete certain portions of its brief "to avoid tipping off Fotomat's witnesses." It served the edited brief on Fotomat on December 16, 1976, the ninth day of the trial. Trial was then recessed for two months. The judge advised Fotomat that it could submit a revised trial brief prior to resuming trial and could follow the same procedure as Photovest in submitting its trial brief. That is, Fotomat could submit a complete version to the court and a modified version to Photovest. All briefs were to be exchanged at the conclusion of the trial. In January, 1977, Fotomat served Photovest with its 38-page trial brief filed with the court on December 3, 1976, and on February 11, 1977, Fotomat filed a 290-page supplemental trial brief and served a copy on Photovest. After the recess, trial resumed on February 14 at which time Fotomat again objected to not being served a copy of Photovest's unedited trial brief. Photovest then voluntarily agreed to give Fotomat a copy of the unedited version which it did later that day.

Fotomat contends that it was prejudiced by this procedure and that the procedure violates the Federal Rules of Civil Procedure and the Constitution. Before addressing the propriety of the delayed exchange of trial briefs, we note that there is in this case the additional factor that Fotomat was apparently unaware of the procedure until the first day of trial by which time Photovest had already submitted its unedited brief to the court. The record indicates that this was a result of a bona fide misunderstanding between counsel at the pretrial stages. Nothing in the record suggests any foul play or attempts to secure an unfair advantage by either party. Accordingly, the only issues are whether the procedure violates either the Federal Rules of Civil Procedure or the Constitution, or is otherwise undesirable, and if so, whether Fotomat was prejudiced by it. We also note that the delayed exchange of trial briefs is not an unusual procedure in the Southern District of Indiana. Local Rule 19(k) of the District Court for the Southern District of Indiana 2 does not appear to require pretrial exchange of trial briefs and the practice in that district is not to exchange until the conclusion of trial.

Fotomat contends that the procedure violates Rule 5(a), Fed.R.Civ.P., which requires service on all the parties of

Every order required by its terms to be served, every pleading subsequent to the original complaint unless the court otherwise orders because of numerous defendants, every paper relating to discovery required to be served upon a party unless the court otherwise orders, every written motion other than one which may be heard ex parte, and every written notice, appearance, demand, offer of judgment, designation of record on appeal, And similar paper . . . .

(Emphasis added.) Fotomat argues that a trial brief is a "similar paper" under Rule 5(a) and thus that the procedure employed in this case is inconsistent with Rule 5(a). 3 However, neither Fotomat nor Photovest has provided any federal case involving the application of the rule to trial briefs, and our independent research has been equally unsuccessful. Indeed, "the language of Rule 5 has given rise to little controversy." 4 Wright & Miller, Federal Practice and Procedure: Civil § 1141 at 570 (1969). As a result, we are left to write on a clean slate.

The inclusion of the words "and similar paper" in Rule 5(a) indicates that the drafters did not intend the preceding list of documents to be exhaustive. Wright and Miller state that the words suggest an expansive application of the rule. Id., § 1143 at 577. Even an expansive application of the rule does not, in our opinion, clearly mandate pretrial exchange of trial briefs. Rule 5(a) provides an extensive list of documents before concluding with the phrase "and similar paper." Given the prominence and significance of the trial brief in the litigation process, its glaring absence from the list of documents specifically mentioned in the rule supports the inference that the drafters did not intend Rule 5(a) to apply to trial briefs. This inference is buttressed by the existence of local rules like the one before us, none of which, as far as we have been able to determine, have been successfully challenged as inconsistent with Rule 5(a). 4

We also note that the rule does not address the timing of the service. The procedure in the present case clearly provided for service on all parties since it always contemplated exchange at the close of trial. The only unusual aspect was that service on the court occurred well before service on the opposing party. Therefore, arguably the rule does not have any application to the issue before us.

Fotomat also argues that the delayed exchange procedure violates the Due Process Clause of the Fifth Amendment. Again we note the absence of any cases involving a due process challenge to a delayed exchange of trial briefs procedure. None of the cases cited by Fotomat involves a closely analogous situation, and...

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