United Roasters, Inc. v. Colgate-Palmolive Co.

• Decision Date: 13 July 1979
• Docket Number: No. 77-184-CIV-5.,77-184-CIV-5.
• Citation: 485 F. Supp. 1041
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: UNITED ROASTERS, INC., Plaintiff, v. COLGATE-PALMOLIVE COMPANY, Defendant.

485 F. Supp. 1041

UNITED ROASTERS, INC., Plaintiff, v. COLGATE-PALMOLIVE COMPANY, Defendant.

No. 77-184-CIV-5.

United States District Court, E. D. North Carolina, Raleigh Division.

July 13, 1979.

COPYRIGHT MATERIAL OMITTED

George W. House and L. P. McLendon, Jr., Brooks, Pierce, McLendon, Humphrey & Leonard, Greensboro, N. C., for United Roasters, Inc.

J. Allen Adams and H. Hugh Stevens, Sanford, Adams, McCullough & Beard, Raleigh, N. C., for Colgate-Palmolive Co.

MEMORANDUM OF DECISION

DUPREE, District Judge.

Plaintiff United Roasters, Inc. (UR) alleges in this diversity action that it was damaged by the wrongful conduct of a well-known conglomerate, Colgate-Palmolive Company (Colgate), when UR contractually transferred to Colgate all of its assets and process rights in the production of various snack foods. The complaint contains seven counts. Defendant Colgate has moved for partial summary judgment dismissing Counts 4 and 5. Count 4 alleged unfair trade practices and deceptive acts in violation of North Carolina General Statutes § 75-1.1 (1969 Repl.Vol.) Count 5 alleged a restraint of trade in violation of N.C.G.S. §§ 75-1 and 2.

The court has studied 1,626 pages of depositions, 74 pages of answers to interrogatories, 29 pages of briefs and hundreds of pages of exhibits filed in support of and in opposition to the motion for partial summary judgment. This examination shows that substantial variance exists between the UR and Colgate versions of what occurred during the negotiation, formation, performance and termination of the contract; genuine issues of material fact remain to be decided at trial. Accordingly, Colgate's motion for partial summary judgment will be denied.

However, Colgate's motion for partial summary judgment also attacks the legal theories set forth in Counts 4 and 5 as applied to the facts as alleged by UR. In this respect, Colgate's motion more closely resembles a motion to dismiss for failure to state a claim for which relief can be granted, although it is labeled a motion for partial summary judgment. Nevertheless, the court will proceed to determine the legal sufficiency of UR's allegations; a court may treat a motion for summary judgment as a motion to dismiss when it is concerned only with the sufficiency of the allegations within a count and not with factual material. Grzelak v. Calumet Publishing Company, Inc., 543 F.2d 579 (7th Cir. 1975); F.R. Civ.P. 1.

I. Factual Background as Alleged by Plaintiff UR.

Plaintiff is in the business of producing and distributing various roasted soybean and corn snacks from its plant located in Clayton, North Carolina. Interested in expansion of the marketing of its product, UR approached Colgate in October of 1972 for the purpose of negotiating a Colgate takeover of the marketing of UR's roasted snacks. The negotiations yielded roughly the following agreement: Colgate was to be permitted to study the soybean market and various manufacturing techniques. At the end of the study period, Colgate would decide whether to enter a test soybean market. Should Colgate decide to do so, it would pay UR four per cent of the test market sales, with a minimum payment of $100,000 and a maximum payment of $200,000 over the life of the test market. UR alleges that the test market was not to exceed two years, beginning on September 1, 1973, and ending on September 1, 1975. In exchange for the four per cent royalty payment, UR was to transfer all of its assets, including the right to the roasted soybean snack process, to Colgate. After the transfer, UR was to be retained as an independent contractor for the purpose of actual manufacture of the roasted soybean snacks. If Colgate decided not to expand the test market at the end of the two-year period, the contract would "terminate" and the rights and assets transferred to Colgate would be returned to UR.

The parties further agreed that if Colgate continued to market the roasted soybeans after the end of the two-year period (September 1, 1975), Colgate would pay UR over a twenty-five-year period the greater of four per cent of gross sales dollars (but not more than $200,000 each year) or seven per cent of gross profits after deducting the first two million dollars of gross profits each year. Colgate further agreed generally to be liable for all debts arising from UR's manufacture of the snacks, but would take UR's assets free and clear of any prior debts. Colgate was granted sole discretion to terminate the agreement at any time within the two-year period between September 1, 1973 and September 1, 1975 upon thirty days' written notice to UR. Colgate was also given the right to discontinue marketing the roasted soybeans at any time subsequent to the two-year period upon thirty days' written notice to UR. If Colgate decided to terminate the agreement, Colgate agreed to reconvey to UR all the assets transferred to it by UR on an "as is" basis at the time of the reconveyance, plus existing improvements, additions, repairs or replacements. In exchange, UR agreed to pay to Colgate the total net book value of all improvements and additions to the assets covered by the original conveyance.

The shareholders of UR approved the contract on February 1, 1973. On March 28, 1973 Colgate had completed its initial studies and exercised its right to purchase all the assets of UR and to begin test marketing. UR cancelled all existing brokerage contracts, liquidated its stocks and notified all direct purchasers that production would be discontinued. From that point on, UR was effectively employed solely by Colgate to manufacture roasted soybean snacks for the sole use of Colgate in its distribution efforts during test marketing.

Colgate gave the brand name of "BAMBEANOS" to the roasted soybean snack produced by UR and set up timetables for the actual test marketing of this product in various parts of the country. Meanwhile, in 1974 Dr. Maurice Hoover of North Carolina State University began working as a consultant in the development of a new snack product called "JIMMY CRACK CORN", a roasted corn kernel snack. UR presented JIMMY CRACK CORN to Colgate for consideration as a possible additional product. Experimentation and control taste-testing by Colgate indicated that JIMMY CRACK CORN could be very competitive in the snack food market.

In the meantime, test-marketing of various flavors of BAMBEANOS continued. UR alleges that BAMBEANOS' average share of the snack nut market was "unexpectedly and encouragingly high." UR further alleges that JIMMY CRACK CORN experienced the same success as BAMBEANOS. However, notwithstanding the apparent success of both BAMBEANOS and JIMMY CRACK CORN in the test marketing phase, UR alleges that Colgate in bad faith began certain deceptive practices which in the end destroyed UR's business. According to UR, Colgate's senior management secretly decided not to expand from the test market phase of the contract and to discontinue all efforts to market a soybean snack after January of 1976, but at the same time not to terminate UR's contract at the end of the test market phase, September 1, 1975. On the basis of written assurances by Colgate, UR claims that it was led to believe that Colgate intended to expand the marketing of the snacks. UR alleges that Colgate made the secret decision to discontinue marketing, but at the same time continue the contract, for three basic reasons:

(1) Colgate realized that disclosure of such a decision would cause UR to cease production of JIMMY CRACK CORN, which Colgate needed to complete the test marketing of this apparently lucrative snack food;

(2) Colgate desired to extend the time of the agreement as far as possible beyond the guideline date of September 1, 1975 in order to create an appearance that it had entered the last phase of the contract and thus force UR to purchase Colgate's additions and new equipment before it could resume production; and

(3) Colgate sought to prevent UR from resuming production of products which would be in direct competition in the snack food market with Colgate's newly-acquired subsidiary, Rivianna Foods.

UR alleges that during the time between January and July, 1976, Colgate at no time gave the thirty-day notice of termination as required by the contract.

Colgate first told UR on July 19, 1976 that it had previously decided not to expand the test market or in any manner continue marketing of roasted soybean snacks. Colgate allegedly told UR that, in spite of the certain profitability of BAMBEANOS, Colgate was not interested in any product which created less than fifteen million dollars in annual gross sales. UR's basic position at that time was that a fifteen-million-dollar objective was known to be unobtainable by all parties at the time of the original negotiations and that had that goal been disclosed, the shareholders of UR would never have wasted three years by entering into the Colgate contract. UR then demanded that Colgate terminate the contract, return the plant and equipment to UR, and allow UR to resume independent production and marketing of roasted soybean snacks. Colgate refused and stated that Colgate had just recently acquired a new subsidiary, Rivianna Foods, which was extensively involved in the snack food market, and that Colgate intended to give Rivianna an opportunity to review the BAMBEANOS test market data. Colgate apparently felt that it would be better equipped to handle a relatively low volume product through a subsidiary rather than on an independent contractor basis through the parent company.

Colgate notified UR on August 24, 1976 that Rivianna Foods had decided against marketing UR's roasted soybean snacks. Moreover, Colgate further told UR to dismiss its work force and to end all expenditures because Colgate would no longer pay operation costs as required by the contract. Again UR demanded that Colgate return its assets "plus then existing improvements." Colgate proposed in the alternative...