Susser v. Carvel Corporation

Decision Date07 June 1962
Citation206 F. Supp. 636
PartiesBernard SUSSER et al., Plaintiffs, v. CARVEL CORPORATION et al., Defendants. Lester N. MODICK et al., Plaintiffs, v. CARVEL STORES OF NEW YORK, INC., et al., Defendants. Martha M. McCOY et al., Plaintiffs, v. CARVEL CORPORATION et al., Defendants. James OSSOLA et al., Plaintiffs, v. CARVEL STORES OF NEW YORK, INC., et al., Defendants. Joseph P. PHELAN, Plaintiff, v. CARVEL STORES OF NEW YORK, INC., et al., Defendants. James P. PIERCE et al., Plaintiffs, v. CARVEL STORES OF NEW YORK, INC., et al., Defendants. Matthew SEU et al., Plaintiffs, v. CARVEL CORPORATION et al., Defendants. Paul S. GIBERMAN et al., Plaintiffs, v. CARVEL STORES OF NEW YORK, INC., et al., Defendants. Joseph PAZDRO et al., Plaintiffs, v. CARVEL STORES OF NEW YORK, INC., et al., Defendants.
CourtU.S. District Court — Southern District of New York

COPYRIGHT MATERIAL OMITTED

Greenfield, Rothstein, Klein & Yarnell, New York City, for plaintiffs; Sidney W. Rothstein, Jules Yarnell, Joseph L. Klein, New York City, of counsel.

Amen, Weisman & Butler, New York City, for "Carvel" defendants; Herman L. Weisman, Herbert Roth, New York City, of counsel.

Shearman & Sterling, New York City, for defendant H. P. Hood & Sons, Inc.; John A. Wilson, New York City, of counsel.

Schneider & Lichtenstein, New York City, for defendant Mohawk Container Co.; Charles Lichtenstein, New York City, of counsel.

Albert L. Wigor, New York City, for defendant Eagle Cone Corp.; Paul J. Harriton, New York City, of counsel.

William G. Mulligan, New York City, for defendant Rakestraw's Dairy Products, Inc.; Eve M. Preminger, New York City, of counsel.

DAWSON, District Judge.

I. General Nature of the Actions.

These are nine separate cases which were consolidated for trial. By consent of the parties the trial was held without a jury.

The plaintiffs in all cases are persons who are or were operators, under franchise agreements, of Carvel Dari-Freeze Stores at which "soft" ice cream was sold. Defendant Carvel Corporation and its subsidiaries issued the franchises, sold the basic equipment needed for operation of the stores and performed other related functions.1 The other corporate defendants in the actions are the suppliers of various products such as ice cream mix, cones and paper goods used in connection with the dispensing of soft ice cream.2 Also named as defendants were certain individuals who are or were officers or employees of Carvel.3

The complaints in each of the cases set forth two fundamental causes of action. The first cause of action, based on a claim that the plaintiffs were induced to enter into their franchise agreements on the basis of certain fraudulent misrepresentations made by Carvel, was previously tried in a separate trial. The opinion of the Court which decided the fraud and deceit causes of action adversely to the plaintiffs was handed down on February 7, 1962. The present opinion relates to the second fundamental cause of action set forth in the complaints which claims treble damages for alleged violations of the antitrust laws on the part of the Carvel and the supplier defendants.

By the consent of all parties, as embodied in Pre-Trial Order No. 5, dated February 7, 1962, it was provided that a joint trial of the issues of liability under the antitrust laws be held, that the issue of liability be tried separately from the issue of damages, that plaintiffs were relying solely on alleged per se violations of the antitrust laws and that plaintiffs' evidence on the issue of liability would be limited to written agreements between the Carvel defendants and plaintiffs and other documents supplementary thereto or explanatory thereof, as well as written agreements between Carvel defendants and the supplier defendants and other documents supplementary thereto and explanatory thereof. At the trial, which was held in March, 1962, both sides relied primarily on documentary evidence to establish their case.

II. Allegations of Unlawful Practices.

In regard to the antitrust causes of action the complaints all contain certain common allegations. They allege that the defendants entered into an understanding and agreement during the period encompassed by the complaint and prior and subsequent thereto whereby:

1. The supplier defendants refused to sell their respective products direct to the Carvel franchise operators but would sell only through Carvel.

2. The Carvel defendants designed the franchise agreement so as to obligate and compel their franchise operators to deal solely and only with the supplier defendants.

3. The franchise operators were forbidden to deal in "competitive products," and

4. The operators were required to sell their products to the public at prices fixed by Carvel.

Rephrased in standard antitrust terminology, the complaint apparently alleges, as to the supplier defendants, a boycott under which they declined to make direct sales to the franchise operators. As to the Carvel defendants they are seemingly charged with (1) participation in the conspiratorial boycott against direct sales, (2) requiring, as a condition of obtaining the franchise and purchasing equipment, the use of the supplier defendants' products to the exclusion of the suppliers' competitors (tie-in), (3) forbidding the franchise operators from selling other than Carvel approved products (exclusive dealing), and (4) price fixing. These allegations will be taken up in order following a general discussion of the nature of the Carvel operation.

III. Nature of the Carvel Operation and the Franchise System.

Thomas Carvel, an individual defendant in some of the actions and president of the Carvel Corporation, went into the ice cream business in 1934. Over the succeeding years Mr. Carvel developed a freezer for dispensing "soft" ice cream, an ice cream mixture about the consistency of frozen custard. About 1948 the business established by Mr. Carvel had grown so substantially that two corporations, Carvel Corporation and Carvel Dari-Freeze Stores, Inc., were organized for the purpose of issuing franchises and selling freezers for the operation of soft ice cream stores under the Carvel name.

Thereafter, while the Carvel corporations operated some stores directly, most of their business related to the franchise operation. Each of the plaintiffs entered into agreements for the operation of a franchised Carvel Dari-Freeze ice cream store. The franchise operators conducted their businesses as independent contractors but were subjected to a number of restrictions which tended to create a uniform system of operation.

In some instances the franchisee erected his own store on premises subleased from Carvel. In other cases the franchisee leased a completed store as well as the land. All stores were constructed according to plans and specifications approved by Carvel. The ice cream sold by the stores is dispensed through certain machines designed by the defendants and bearing the Carvel name or trademark. The ice cream so dispensed is processed from an ice cream mix which the franchisee bought through Carvel from a dairy approved by Carvel. The mix is prepared from a special approved formula which was developed by Carvel and which is kept confidential by the dairies. Under the franchise agreements Carvel receives a royalty of twenty-five cents a gallon on the mix used in the machines.

The plaintiffs' franchise agreements require the franchisees to operate their stores in accordance with a Standard Operating Procedure Manual (SOP). This SOP regulates the business of the operators in a number of respects. It describes the products which the operators may sell at their store, the advertising which they may use, the color they must paint their store, the hours when they must put on their lights, the amount of insurance they must carry, the colors of their employees' uniforms, and many other details. To the public the individual franchise operator appears to be part of a national organization which manufactures and distributes a limited type of products of uniform quality. The Carvel SOP refers to each store as "an integral part of the chain."

There are approximately 400 Carvel Dari-Freeze stores presently in operation, extending from Maine to Florida and as far west as Wisconsin. The stores do an estimated gross business of between six to eight million dollars annually. Carvel's sales to the stores of equipment, ingredients and supplies reached a high of $5,532,396 in 1957 and in 1960 totalled $4,460,689.

The operation of franchise stores, of which Carvel is an example, is a comparatively recent development. Franchise stores differ from the older established chain store operations in which the managers of the stores were not independent operators.

The franchise method of operation has the advantage, from the standpoint of our American system of competitive economy, of enabling numerous groups of individuals with small capital to become entrepreneurs. The franchise business has had a phenomenal growth in the ice cream industry. If our economy had not developed that system of operation these individuals would have turned out to have been merely employees. The franchise system creates a class of independent businessmen; it provides the public with an opportunity to get a uniform product at numerous points of sale from small independent contractors, rather than from employees of a vast chain. The franchise system of operation is therefore good for the economy.

However, the cornerstone of a franchise system must be the trademark or trade name of a product. It is this uniformity of product and control of its quality and distribution which causes the public to turn to franchise stores for the product. This is well illustrated in the Carvel operation. The individual franchise to a dealer permits him to manufacture and sell Carvel ice cream from a store of uniform and distinctive design that has as an integral structural feature the Carvel crown and cone...

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    ...exclusion of others, i. e., a monopoly of sorts. Dresser Industries, Inc. v. Heraeus Engelhard Vacuum, Inc., supra; Susser v. Carvel Corp., 206 F.Supp. 636 (S.D.N.Y.1962), aff'd 332 F.2d 505 (2nd Cir. 1964), cert. denied 381 U.S. 125, 85 S.Ct. 1364, 14 L.Ed.2d 284 (1965). There are no right......
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