Susser v. Carvel Corporation

• Citation: 332 F.2d 505
• Parties: Bernard SUSSER et al., Plaintiffs-Appellants, v. CARVEL CORPORATION, Carvel Dari-Freeze Stores, Inc., Carvel Stores Realty Corporation, et al., Defendants-Appellees, And Eight Other Cases.
• Decision Date: 08 May 1964
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

332 F.2d 505 (1964)

Bernard SUSSER et al., Plaintiffs-Appellants, v. CARVEL CORPORATION, Carvel Dari-Freeze Stores, Inc., Carvel Stores Realty Corporation, et al., Defendants-Appellees, And Eight Other Cases.

United States Court of Appeals Second Circuit.

Argued October 24, 1963.

Decided May 8, 1964.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Sidney W. Rothstein, New York City (Joseph L. Klein, Greenfield, Rothstein & Klein, New York City, on the brief), for plaintiffs-appellants Bernard Susser, et al.

Herman L. Weisman, New York City (Herbert F. Roth, Amen, Weisman & Butler, New York City, on the brief), for defendants-appellees Carvel, et al.

William G. Mulligan, New York City, for defendant-appellee Rakestraw's Dairy Products.

John A. Wilson, New York City (Willard M. L. Robinson, Shearman & Sterling, New York City, on the brief), for defendant-appellee H. P. Hood & Sons, Inc.

Irving L. Weinberger, New York City (Albert L. Wigor, New York City, on the brief), for defendant-appellee Eagle Cone Corp.

Before LUMBARD, Chief Judge, and MEDINA and FRIENDLY, Circuit Judges.

LUMBARD, Chief Judge (writing for the majority in part and dissenting in part).

The plaintiffs in nine actions which were tried together in the Southern District of New York appeal from the dismissal of their complaints which alleged violations of the antitrust laws and sought treble damages from the Carvel Corporation, a New York corporation which manufactures dairy and primarily soft ice cream products, its subsidiary organizations, certain of its individual officers and attorneys, and a number of its suppliers. The plaintiffs, former and present individual operators of Carvel franchise outlets in Massachusetts, Connecticut and Pennsylvania, also charged the Carvel defendants with fraudulent misrepresentations in the franchise negotiations.

After a separate trial of the fraud charges Judge Dawson, sitting without a jury, dismissed the complaints as to these charges on February 7, 1962. The issue of liability on the antitrust causes of action was tried separately before Judge Dawson without a jury. The plaintiffs alleged that Carvel had unlawfully fixed the prices of the retail products sold at the franchise stores and that the franchise agreements embodied tying and exclusive dealing arrangements violative of the Sherman and Clayton acts. The complaints also charged that the contracts between Carvel and the supplier defendants embodied concerted refusals to deal with the plaintiffs violative of the antitrust laws. In a pretrial order the plaintiffs stipulated that they would rely solely upon "per se" violations of the antitrust laws as shown in certain written agreements and other documents. From a judgment which, with one exception,¹ dismissed the complaints against all the defendants on the ground that the plaintiffs had failed to prove violations of the antitrust laws, 206 F.Supp. 636 (S.D.N.Y.1963), the plaintiffs appeal.

THE CARVEL FRANCHISE SYSTEM

Although the franchise operators conduct their stores as independent businessmen, through provisions in the franchise agreement Carvel is able to maintain a chain of 400 stores uniform in appearance as well as in operation. The dealer is obligated to conduct his business in accordance with a Standard Operating Procedure Manual (Manual) which governs in great detail the general operation of the store, including the types of products which may be offered for sale, the recipes for their preparation, the nature and placement of advertising displays in the store, the color of the employees' uniforms, and the hours when the store lights must be turned on. The stores are identical in design, each featuring the Carvel crown and cone trademark on a flat slanting roof, glass walls at its front, and the name "Carvel" on its sides in neon lights. This distinctive design is protected by a design patent. The ice cream, which is processed from a mix prepared from a secret formula, is dispensed from a patented machine which bears the Carvel name or trademark. The paper containers, ice cream cones, and spoons all bear the Carvel name and in some instances are unique in design.

The Carvel chain of franchise stores has grown from approximately 180 in 1954 to approximately 400 at the time of trial in 1962. The stores are presently located throughout the eastern portion of the United States from Maine to Florida and as far west as Wisconsin. Their annual gross sales are from six to eight million dollars. Carvel's sales to the stores of supplies, equipment, and machinery reached a high point of $5,532,396 in 1957 and in 1960 totalled $4,460,689.

Special counsel retained by Carvel in 1955 for that purpose drafted a new form of the franchise agreement. The plaintiffs in four of the actions entered into franchise agreements prior to 1955; the plaintiffs in the remaining actions became franchisees after 1955. Both agreements and the corresponding Manuals must therefore be scrutinized. The new agreement effected two important changes. First, whereas under the earlier agreement the franchise dealer was obligated to sell Carvel products at prices fixed by the parent organization, the new agreement explicitly provides that the dealer has the right to fix his own prices. Second, under the earlier agreement the dealer was obliged to purchase his entire requirements of supplies, machinery, equipment, and paper goods from Carvel or Carvel approved sources. The new agreement requires the purchase from Carvel or Carvel approved sources only of those supplies which are a part of the end product sold to the public and permits the dealer to purchase machinery, equipment, and paper goods from independent sources so long as his store is maintained in accordance with the Manual specifications.

PRICE-FIXING

It is undisputed that the pre-1955 Manual established "standard selling prices" to which the dealers were obligated to adhere. The pre-1955 franchise required the dealers "To maintain prices on products designated in, and as per Carvel Standard Operating Procedure and not to conduct any reduced price sales of these items without written consent from Carvel." Judge Dawson held that these price-fixing provisions were illegal and that the four plaintiffs who had entered into the earlier franchise were entitled to a trial on the issue of damages. No appeal was taken from this aspect of the judgment below.²

The revised franchise provides: "The dealer shall have the right to sell Carvel's Frozen Dairy Product and/or other items authorized for sale by him under the terms of this agreement at any price that the dealer determines. Wherever Carvel recommends a retail price, such recommendation is based upon Carvel's experience concerning all factors that enter into a proper price, but such recommendation is in no manner binding upon the dealer." The appellants contend that notwithstanding this provision Carvel effectively continued to fix prices at which Carvel products were sold to the public and that Judge Dawson's finding to the contrary is clearly erroneous.

Even in the absence of express contractual provisions which evidence an unlawful scheme, a charge of unlawful price-fixing may be substantiated by proof of a course of conduct by which the seller or licensor effectively maintains control of the ultimate retail price at which a product is sold. Federal Trade Commission v. Beech-Nut Packing Co., 257 U.S. 441, 42 S.Ct. 150, 66 L. Ed. 307 (1922). The appellants direct our attention to the fact that six pages of the revised Manual continued to refer to "Standard selling price"; that in letters to several dealers Carvel emphasized that only 10¢ and 20¢ cones were prescribed by the Manual and that the minimum portions prescribed by the Manual were mandatory; that Carvel sought to have dealers report to it any deviation by other dealers from the requirements of the Manual; and that Carvel suggested that dealers seek its permission before conducting a sale at prices other than those established in the Manual. Moreover, the appellants emphasize the existence of a board of governors consisting of various dealers appointed by Carvel, the function of which is to make recommendations concerning the suggested retail selling price of Carvel products.

As Judge Dawson noted, the mere existence of a means whereby retail price levels are recommended is not sufficient to establish a violation of the Sherman Act, unless there is a showing of an attempt to enforce a price structure upon the retail tradesmen. See Maple Flooring Mfrs.' Ass'n v. United States, 268 U.S. 563, 45 S.Ct. 578, 69 L.Ed. 1093 (1925); Cement Mfrs.' Protective Ass'n v. United States, 268 U.S. 588, 45 S. Ct. 586, 69 L.Ed. 1104 (1925). Here, the franchise provisions explicitly reserved to the individual dealer the right to set whatever price he desired. And, by contrast with the letters to which the appellants referred, Carvel introduced in evidence bulletins circulated to all the dealers as well as letters sent to several emphasizing that Carvel had changed its prior pricing policy and that each dealer now had the right to set his own prices, although Carvel did indicate that its suggested retail prices were based upon its own broad experience in customer sales.

Fred Vettel, Carvel's general manager since 1955, testified that the board of governors operated primarily as a medium for the interchange of ideas among a representative group of individual franchise dealers. He further stated that since sometime in 1957 Carvel had made available to the dealers advertising displays which left blank spaces for those dealers who wished to insert prices other than those suggested by the Carvel organization, although the appellants adduced evidence that on some occasions requests for such posters were refused.

In short, the evidence was contradictory on the question whether Carvel attempted to impose a binding price structure on the retail dealers. It is not...