Ungar v. Dunkin' Donuts of America, Inc.

• Citation: 531 F.2d 1211
• Decision Date: 03 March 1976
• Docket Number: 75--1626,Nos. 75--1625,No. 75--1625,No. 75--1626,75--1625,s. 75--1625
• Parties: 1976-1 Trade Cases 60,763 David UNGAR et al., v. DUNKIN' DONUTS OF AMERICA, INC. and Quincy Adams Donuts, Inc. c/o C.T. Corporation, Appellants inJohn RADER, an individual, et al., v. DUNKIN' DONUTS, INC., a Delaware Corporation and Dunkin' Donuts of America, Inc., a Massachusetts Corporation, Appellants in
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Page 1211

531 F.2d 1211

1976-1 Trade Cases 60,763

David UNGAR et al., v. DUNKIN' DONUTS OF AMERICA, INC. and Quincy Adams Donuts,

Inc. c/o C.T. Corporation, Appellants in No. 75--1625.

John RADER, an individual, et al., v. DUNKIN' DONUTS, INC., a Delaware Corporation and Dunkin'

Donuts of America, Inc., a Massachusetts

Corporation, Appellants in No. 75--1626.

Nos. 75--1625, 75--1626.

United States Court of Appeals Third Circuit.

Argued Nov. 11, 1975.

Decided March 3, 1976.

A. H. Wilcox, Charles J. Bloom, Pepper, Hamilton & Scheetz, Philadelphia, Pa., Philip F. Zeidman, Arthur I. Cantor, Brownstein Zeidman Schomer & Chase, Washington, D.C., for appellants; Lawrence W. Hantman, Dunkin' Donuts, Inc., Randolph, Mass., of counsel.

David Berger, Warren D. Mulloy, Bruce K. Cohen, Warren Rubin, David Berger, Edward C. German, Joseph G. Manta, Edward R. Paul, LaBrum & Doak, Philadelphia, Pa., Harold Brown, Brown & Leighton, Boston, Mass., for appellees.

W. Yale Matheson, Richard M. Calkins, Chicago, Ill., for the McDonald's Operators Ass'n, Inc., as amicus curiae.

Ira M. Millstein, Irving Scher, Stanley A. Rothstein, Weil, Gotshal & Manges, New York City, for International Franchise Ass'n, as amicus curiae; Lewis G. Rudnick, Rudnick, Wolfe, Snyderman & Foreman, Chicago, Ill., Jerry H. Opack, Washington, D.C., of counsel.

Before ALDISERT, HUNTER and GARTH, Circuit Judges.

ALDISERT, Circuit Judge.

This appeal from a plaintiff class certification of claims brought under § 1 of the Sherman Act, 15 U.S.C. § 1, ¹ alleging illegal tie-in sales, arises from two consolidated actions by franchisees against their franchisor, Dunkin' Donuts of America, Inc. The district court decided that it was not necessary for each franchisee to prove that he individually was coerced by the franchisor to accept the allegedly tied items; rather it would be sufficient if the franchisees as a group could prove either that the franchisor had a policy to persuade the franchisees to accept the allegedly tied items, or that a large number of franchisees had, in fact, accepted them. Based on this view of the required proof, the district court concluded that common questions would predominate over individual ones and certified a class under Rule 23(b)(3), F.R.Civ.P. ² This interlocutory appeal, challenging the proriety of these rulings, was requested by the district court under 28 U.S.C. § 1292(b) ³ and was permitted by a divided panel of this court by order of May 7, 1975. We conclude that the alternative modes of proof which the district court deemed sufficient cannot substitute for proof by each franchisee that he, individually, was coerced to accept the alleged tie-in sales. Accordingly, the class certification--expressly premised on the district court's contrary view--cannot stand. The district court opinion is reported at 68 F.R.D. 65 (E.D.Pa.1975).

I.

Adversaries will always differ as to the propriety of the grant or denial of class certification and it is to be expected that litigants and district judges may often desire immediate review of that decision. However, this court has taken a strong position that a class certification decision, per se, is not an appealable final order under 28 U.S.C. § 1291. Hackett v. General Host Corp., 455 F.2d 618 (3d Cir.), cert. denied, 407 U.S. 925, 92 S.Ct. 2460, 32 L.Ed.2d 812 (1972). To qualify for interlocutory review in this circuit a class certification decision must be attended by special factors which take it outside the ambit of the general rule. Katz v. Carte Blanche Corp., 496 F.2d 747, 756 (3d Cir.) (in banc) cert. denied, 419 U.S. 885, 95 S.Ct. 152, 42 L.Ed.2d 125 (1974).

The proceedings in the district court were not cursory. The court heard oral argument on the request for class status in March, 1974. Almost a year later it rendered its decision in a 155 page opinion. In a second, 11 page, opinion, setting forth the § 1292(b) criteria, the district court wrote:

(A controlling question of law) exists here on two levels. The matter of class certification itself is 'serious to the conduct of the litigation', both practically and legally. See Katz v. Carte Blanche Corp., 496 F.2d at 755. On the practical level, a number of factors held cognizable by the Court in Katz are present here: (1) the expense to the litigants of discovery on the merits of a class action and of trial of such an action; (2) inhibition of potential settlement caused by uncertainty as to the propriety of class certification; and (3) the saving of time of the District Court. However, even if we were to focus solely upon the legal questions and posit that a 'controlling question' does not exist when the sole issue is whether the factual complex of a given case meets the class action requirements of Rule 23, we would find a controlling question here--that is, the propriety of our rejection of the individual coercion doctrine and the correctness of our resultant conclusions (following some 75 pages of discussion of the antitrust law of tying) as to the requisite proof to establish conduct constituting an illegal tie. As we have indicated, our finding of predominance of common questions, essential to determination of the class, was in large measure a function of our conclusion concerning the requisite proof to establish an illegal tie.

While we believe that the conclusions in our opinion regarding the law of tying were correct, the opinion also reflects a rejection of the views of many other District Court Judges who have adopted the individual coercion doctrine. Although we believe we have demonstrated that the individual coercion doctrine initially evolved from a misreliance on certain cases and have also demonstrated that it cannot be maintained in the face of the Supreme Court's decision in Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 88 S.Ct. 1981, 20 L.Ed.2d 982 (1968), the presence of these differing District Court opinions requires that we declare that there is 'substantial ground for difference of opinion' as to the correctness of our decision.

App. at 185a--86a (footnote omitted).

We doubt that this interlocutory appeal would have been accepted by this court had it not involved the question of the district court's rejection of the doctrine of individual coercion. Accordingly, the focus of our discussion will be on the propriety vel non of that rejection.

II.

Dunkin' Donuts began as a small chain of company owned coffee and doughnut shops in New England. Today it is the largest coffee and doughnut franchising system in the country. By 1975--20 years after Dunkin' Donuts began franchising its operation--more than 700 shops dotted the United States, most of them franchises.

Typically, Dunkin' Donuts provides its franchisees with a 'turn-key' operation. It selects suitable sites for doughnut shops and either purchases or leases them. It builds a doughnut shop, and offers the prospective franchisee a lease on the land and building. It also offers to sell him the equipment needed to operate the shop. Appellant contends that it is this package deal aspect of the franchise that often attracts the prospective franchisee: the new businessman has only to turn the key, and he is in business. Dunkin' Donuts does not manufacture or sell the products, or the ingredients of the products, sold in the shops. Rather, to assure uniform quality of products sold under the trademark, Dunkin' Donuts maintains a quality control system for the most important supplies used in the operation, and supervises an approved supplier system as to those supplies.

Two actions, seeking damages as well as declaratory and injunctive relief, were filed in 1972 against Dunkin' Donuts by 14 of its present and former franchisees. One action, Ungar, arises under franchise agreements signed before November 1, 1970, the date Dunkin' Donuts changed its franchise agreement form. The other, Rader, arises under franchise agreements signed after that date. The actions were consolidated below; insofar as this appeal is concerned, the plaintiffs do not rely on the terms of their franchise agreements. We treat the two actions as one.

The claims asserted against Dunkin' Donuts were wide-ranging, including counts based on violations of the antitrust, ⁴ patent and securities laws, as well as counts alleging fraud, breach of fiduciary duty, breach of contract and tortious interference with business expectations. Class action status was sought with respect to most, but not all, of the claims; the proposed class consisted of all present and former franchisees, a group estimated to number over 600. The district court certified a class as to three aspects of the case only: '(1) the antitrust tying claims with respect to equipment, signs, real estate and supplies; (2) the contractual claim with respect to the Advertising Fund; and (3) the antitrust claims with respect to the in-term restrictive covenant.' 68 F.R.D. 150 (footnote omitted). The class certification was only on the issue of liability. The district court reserved the question of damages, and the question whether certain individual claims were barred by the statute of limitations, for a separate proceeding should liability be established.

Neither side has briefed the issue of class certification of the Advertising Fund claim; both sides have briefed the issue of certification of the in-term restrictive covenant claim. The district court's § 1292(b) certification does not include either of those issues. The sole question presented on this appeal is the propriety of class certification of the antitrust tying claims, which question subsumes review of the district court's conclusions as to the proof requisite to establish an illegal tie-in.

Summarized, it was appellees' contention that Dunkin' Donuts had a policy of granting a license to use its trademark only on the condition that the licensee accept certain other items from Dunkin' Donuts, and that this practice constituted a...