Seagram-Distillers Corp. v. New Cut Rate Liquors

• Decision Date: 24 June 1957
• Docket Number: No. 11685.,11685.
• Citation: 245 F.2d 453
• Parties: SEAGRAM-DISTILLERS CORPORATION, a Delaware corporation, Plaintiff-Appellee, v. NEW CUT RATE LIQUORS, Inc., et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

245 F.2d 453 (1957)

SEAGRAM-DISTILLERS CORPORATION, a Delaware corporation, Plaintiff-Appellee, v. NEW CUT RATE LIQUORS, Inc., et al., Defendants-Appellants.

No. 11685.

United States Court of Appeals Seventh Circuit.

May 23, 1957.

Rehearing Denied June 24, 1957.

Allen H. Schultz, Louis L. Biro, Robert Karmel, Charles D. Snewind, Chicago, Ill., for defendants-appellants, Schultz, Biro & Karmel, Chicago, Ill., of counsel.

Patrick W. O'Brien, Louis A. Kohn, Frank D. Mayer, James C. Mallatt, Chicago, Ill., for Seagram-Distillers Corp., plaintiff-appellee, Mayer, Friedlich, Spiess, Tierney, Brown & Platt, Chicago, Ill., of counsel.

Before MAJOR, FINNEGAN and SCHNACKENBERG, Circuit Judges.

SCHNACKENBERG, Circuit Judge.

Defendants appeal from a judgment of the district court, entered December 5, 1955, which permanently enjoined them from offering for sale or selling Seagram products at less than the prices stipulated by plaintiff from time to time under the Illinois Fair Trade Act¹ and in accordance with contracts made pursuant thereto.

Based upon plaintiff's amended complaint, which defendants answered, the district court, after hearing evidence, on July 2, 1954 granted a preliminary injunction, having found that action necessary to preserve the status quo. We affirmed. 221 F.2d 815, certiorari denied 350 U.S. 828, 76 S.Ct. 59, 100 L.Ed. 740.

On final hearing of the case, the district court heard additional evidence and, by stipulation, also considered the evidence heard on the motion for preliminary injunction.

The amended complaint alleges that plaintiff is a Delaware corporation and a citizen of that state, and defendants are citizens and residents of the state of Illinois. It expressly alleges that this is a suit between citizens of different states, and the matter in controversy herein, exclusive of interest and costs, exceeds the sum of $3,000.

It further appears therefrom that plaintiff is the sole authorized Illinois distributor of Seagram beverages, which it sells under the trademarks, brands and names of the producers thereof, and that defendants are engaged in the retail liquor business in Illinois. Plaintiff has expended in Illinois over $500,000 in advertising Seagram products, having sold large quantities thereof in that state.

It is also charged that plaintiff executed fair trade contracts, in accordance with the Illinois Fair Trade Act, with large numbers of retailers in Illinois, and announced stipulated retail prices of Seagram products, that notice thereof was given to defendants and that they continued advertising, offering for sale or selling of Seagram products at less than the stipulated prices, to the irreparable damage of the good will and business of the plaintiff, that, unless defendants are enjoined, plaintiff will suffer further irreparable damage in a decrease in its sales and others dealing in said products will fail to comply with its fair trade contracts, all to the great damage and financial loss of plaintiff.

Federal jurisdiction was challenged by defendants, both in their answer and by a motion made at the time of the final hearing on the merits. They now argue that plaintiff failed to establish federal jurisdiction in that no competent evidence was introduced to prove that the matter in controversy, exclusive of interest and costs, exceeded the sum of $3,000.

1. Plaintiff in such a case must carry throughout the litigation the burden of showing that it is properly in court. KVOS, Inc., v. Associated Press, 299 U.S. 269, 57 S.Ct. 197, 81 L.Ed. 183. If its allegations of jurisdictional facts are challenged by its adversary in any appropriate manner, it must support them by competent proof. McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 80 L.Ed. 1135.

In an attempt to sustain its burden, plaintiff succeeded in introducing, over the objection of defendants as to its competency, evidence which, plaintiff contends, tended to prove the value of its good will in the Seagram products. Its witness Teece testified that "for the past two or three years, in excess of $3,000,000 was spent by plaintiff in Illinois advertising, as well as promotion, and outdoor signs." Thereon the district court made a finding of fact that the matter in controversy, exclusive of interest and costs, exceeds the sum of $3,000. It thereupon concluded that it had jurisdiction.

In Old Dearborn Distributing Co. v. Seagram-Distillers Corp., 299 U.S. 183, at page 195, 57 S.Ct. 139, at page 145, 81 L.Ed. 109, which upheld the constitutionality of the Illinois Fair Trade Act, the court referred to section 2 of the act, which reads:

"§ 2. Wilfully and knowingly advertising, offering for sale or selling any commodity at less than the price stipulated in any contract entered into pursuant to the provisions of section 1 of this Act, whether the person so advertising, offering for sale or selling is or is not a party to such contract, is unfair competition and is actionable at the suit of any person damaged thereby."

It said that section 2 "interferes only when he purchaser of the commodity sells with the aid of the good will of the vendor; and it interferes then only to protect that good will against injury". At page 198 of 299 U.S., at page 146 of 57 S.Ct., it added:

"* * * the sole purpose of the present law is to afford a legitimate remedy for an injury to the good will which results from the use of trade-marks, brands or names, * *." (Italics supplied.)

The district court did not note that, when the $3,000 requisite for jurisdiction² is challenged in an action brought in a federal court for the protection of a right belonging to plaintiff, there is an important distinction between two classes of diversity cases.

In one class (which we shall call class A), a plaintiff charges wrongful acts by a defendant, or by several defendants acting jointly, which have, or will, injure or damage a right for which plaintiff seeks protection. In such a case, if plaintiff shows that the alleged injury or damage caused or threatened by a defendant, or by several defendants acting jointly, amounts to at least $3,000, the federal court has jurisdiction.

In the other class of diversity cases (which we shall call class B), a plaintiff charges wrongful acts by a defendant, or by several defendants acting jointly, which, if not prevented, will completely deny or destroy the right for which plaintiff seeks protection. In such a case, if plaintiff shows that the right is worth at least $3,000, the federal court has jurisdiction.

This distinction is made apparent by cases to which we now refer.

Class A.

In McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 56 S.Ct. 780, 80 L.Ed. 1135, General Motors sued in a federal district court to restrain the enforcement of an Indiana act providing for the regulation of the business of purchasing contracts arising out of retail installment sales, on the ground that the act was invalid. Although the complaint, to show federal jurisdiction, set forth the net worth of General Motors' business in Indiana covered by the act and other facts tending to prove the value of its right to carry on that business in that state, the court, 298 U.S. at page 181, 56 S.Ct. at page 781, said:

"Respondent General Motors invokes the principle that jurisdiction is to be tested by the value of the object or right to be protected against interference. * * * But in the instant case, the statute does not attempt to prevent respondent from conducting its business. There is no showing that it cannot obtain a license and proceed with its operations. The value or net worth of the business which respondent transacts in Indiana is not involved save to the extent that it may be affected by the incidence of the statutory regulation. The object or right to be protected against unconstitutional interference is the right to be free of that regulation. The value of that right may be measured by the loss, if any, which would follow the enforcement of the rules prescribed. The particular allegations of respondent\'s bill as to the extent or value of its business throw no light upon that subject. They fail to set forth any facts showing what, if any, curtailment of business and consequent loss the enforcement of the statute would involve. The bill is thus destitute of any appropriate allegation as to jurisdictional amount save the general allegation that the matter in controversy exceeds $3,000. That allegation was put in issue and the record discloses neither finding nor evidence to sustain it."

In KVOS, Inc., v. Associated Press, 299 U.S. 269, 57 S.Ct. 197, 81 L.Ed. 183, Associated Press sued in a federal district court to enjoin the proprietor of a radio station from pirating news gathered by Associated Press for use of its members. The district court, 9 F.Supp. 279, held that the jurisdictional requirement now under consideration had not been met, and dismissed the suit. The Court of Appeals disagreed, 9 Cir., 80 F. 2d 575, and held that Associated Press had shown the requisite fact of jurisdiction. The Supreme Court reversed the Court of Appeals, pointing out, 299 U.S. at page 278, 57 S.Ct. at page 201, that the only attempt by Associated Press to show jurisdiction by competent proof was an affidavit to the effect that payments made by newspaper members for news sold to them by Associated Press were upwards of $8,000 per month, "* * * `which is being imperilled and jeopardized by the acts of defendant * * * and said sum greatly exceeds the sum of Three Thousand Dollars, exclusive of interest and costs, and complainant is in danger of losing said memberships and payments if defendant's practices in respect to pirating said news is not enjoined.'" The Supreme Court, 299 U.S. at page 279, 57 S.Ct. at page 201, in rejecting this attempt to show jurisdiction, said "no intimation is given of the character or extent of the damage they the members would suffer by such withdrawal. The...