Webb v. Primo's Inc., Civ. No. 1:88-cv-888-ODE.

• Decision Date: 11 October 1988
• Docket Number: Civ. No. 1:88-cv-888-ODE.
• Citation: 706 F. Supp. 863
• Parties: Dean O. WEBB, Regency Consultants, Inc., and Primo's Partners, Ltd. v. PRIMO'S INC., Ferris Anthony and Carmelo Tringali.
• Court: U.S. District Court — Northern District of Georgia

706 F. Supp. 863

Dean O. WEBB, Regency Consultants, Inc., and Primo's Partners, Ltd. v. PRIMO'S INC., Ferris Anthony and Carmelo Tringali.

Civ. No. 1:88-cv-888-ODE.

United States District Court, N.D. Georgia, Atlanta Division.

October 11, 1988.

Edward W. Klein, III, Office of Edward W. Klein, Thomas Charles Sinowski, Sandy E. Scott, Sinowski & Jones, Marietta, Ga., for plaintiffs.

Dan Bessent Wingate, Long, Weinberg, Ansley & Wheeler, Atlanta, Ga., Charles Edward Gallagher, Primo's Inc., Fayetteville, Ga., for defendants.

ORDER

ORINDA D. EVANS, District Judge.

This action is before the court on various motions by both Defendants Primo's Inc., Ferris Anthony, and Carmelo Tringali ("Defendants") and Plaintiffs Dean O. Webb, Regency Consultants, Inc., and Primo's Partners, Ltd. ("Plaintiffs"). In their complaint Plaintiffs allege violations of the Sherman Act, 15 U.S.C. § 1, the Clayton Act, 15 U.S.C. § 14, the Racketeer Influenced and Corporate Organizations Act (RICO), 18 U.S.C. § 1962(c) and various state law claims. Plaintiffs move to amend their complaint and move to strike Defendants' counterclaim and to compel discovery. Defendants assert motions to dismiss, for summary judgment, for a protective order, for a discovery conference, for production of documents and to strike Plaintiff's first amended complaint.

This case arose after Plaintiff Dean O. Webb met with Defendants Anthony and Tringali, the officers and sole shareholders of Defendant Primo's Inc., in the summer of 1987 about purchasing a number of Primo's franchised "pizza and sub" fast food restaurants. On September 25, 1987 Plaintiff submitted an initial offer to buy five franchised stores. After further negotiations, Plaintiff executed three franchise agreements on October 30, 1987 covering restaurants in Stone Mountain, Lake City and Stockbridge, Georgia.¹

These franchise agreements set out in great detail the relationship between the parties. The franchisees were expected to furnish and run the restaurants according to Defendants' specifications, to participate in Defendants' training program and sell only products approved by Defendants. The agreement allowed the franchisee to purchase products from any approved supplier and to submit other products to the franchisor for approval. Defendants, as the franchisors, promised to assist in store openings and operations, provide copies of an operations manual and to periodically inspect the premises. The agreements allowed the franchisee to unilaterally terminate the relationship on a material breach by the franchisor.

Plaintiff Webb, who was president of an investment firm and had no experience in the fast food business, incorporated Plaintiff Regency Consultants, Inc. in September, 1987, to act as the managing company of the franchised stores and formed Plaintiff Primo's Partners, Ltd., to operate as the owners. The latter was to be funded by investors after a syndication.

The franchises were unprofitable and in late 1987 the relationship between the parties began to deteriorate. As a result, on April 15, 1988 Plaintiff, through his attorneys, announced his termination of the franchise agreements on the grounds that Defendants had made false representations in the sale of the franchises and failed to make disclosures required by Georgia law before entering into a business opportunity contract.

Plaintiffs claim that Defendants conspired to cause the franchises to fail. Defendants' refusal to assist in the store openings, to train Plaintiff's employees, to provide operations manuals and to inspect their restaurants as promised in the franchise agreements are among the factors Plaintiffs blame for the failure. In addition, Plaintiffs contend that Defendants forced them to purchase products from Defendants' commissary at unfairly high prices and misrepresented the operational costs.

On April 22, 1988 Plaintiffs filed the instant law suit. The complaint is cast in seven counts alleging (1) tying and unfair competition in violation of the Sherman Act, 15 U.S.C. § 1, the Clayton Act, 15 U.S.C. § 14, and the Federal Trade Commission Act (FTC Act), 15 U.S.C. § 45; (2) wire and mail fraud in violation of RICO, 18 U.S.C. § 1961(1)(B); (3) fraud and deceit in violation of O.C.G.A. § 51-6-1; (4) unfair trade practices; (5) violation of the Georgia Fair Business Practices Act, O.C. G.A. § 10-1-393(b)(5) and 393(b)(9); violation of the Georgia Sale of Business Opportunities Act, O.C.G.A. §§ 10-1-411 and 413; and (7) breach of contract.

On June 14, 1988, Plaintiffs moved to amend to their complaint adding an eighth count alleging Rule 11 violations and the tort of abusive litigation in response to Defendants' counterclaims. Plaintiffs again moved to amend the complaint on July 25, 1988, apparently to set out the allegations of fraud with greater particularity. These motions are GRANTED and will be considered in ruling on the motions before the court.

The FTC Act and Antitrust Claims

The court now turns to Defendants' motions to dismiss and for summary judgment. Defendants contend that because Plaintiffs' federal law claims are without merit, this court lacks jurisdiction to hear the state law claims due to the absence of diversity of citizenship.

As to Count I, Defendants correctly maintain that there is no private cause of action under the FTC Act, 15 U.S.C. § 45. See Fulton v. Hecht, 580 F.2d 1243, 1249 n. 2 (5th Cir.1978), cert. denied, 440 U.S. 981, 99 S.Ct. 1789, 60 L.Ed.2d 241 (1979). Plaintiffs' claims under the Sherman and Clayton Acts basically allege that Defendants engaged in illegal tying² and contracted, combined and conspired with "an unknown co-conspirator (a potential purchaser of the franchises)" in restraint of trade to prevent Plaintiffs from competing fairly in the fast food market in Atlanta. The Clayton Act claim involves allegations that Defendants tied the sale of food inventory at inflated prices to the sale of franchises in restraint of free competition.

With regard to the antitrust violations under the Sherman Act, Defendants Anthony and Tringali maintain that because they are both officers of Defendant Primo's Inc., the allegations lack the plurality of actors necessary to support a claim under section 1,³ which only "reaches unreasonable restrains of trade effected by a `contract, combination ... or conspiracy' between separate entities." Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768, 104 S.Ct. 2731, 2740, 81 L.Ed. 2d 628 (1984) (emphasis in the original). The allegations of "an unknown co-conspirator" do not cure this deficiency, according to Defendants, because their affidavits denying concerted action pierce Plaintiffs' pleadings. Defendants also assert that the Plaintiff cannot make out a prima facie case of illegal tying. In addition, Defendants contend that Plaintiffs are bound by the franchise agreements they attached to the complaint, which explicitly allow franchisees to purchase products from approved sources other than Defendants.

Plaintiffs do not argue that the franchise agreements themselves create an illegal tying agreement. They instead attempt to establish illegal tying through Defendants' alleged statements and conduct.

Section 1 of the Sherman Act only reaches concerted conduct. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 769, 104 S.Ct. 2731, 2740-41, 81 L.Ed.2d 628 (1984). Contracts, combinations or conspiracies between officers in the same firm do not raise the antitrust concerns that section 1 was designed to address. Id. Plaintiffs' bare allegations of an "unknown co-conspirator" are insufficient to counter Defendants affidavits denying a conspiracy and will not survive summary judgment or to bring this claim within section 1.

As to Plaintiffs' allegations of tying, the "essential characteristic" of an illegal tying arrangement is the seller's exploitation of its control over the tying product (in this case the franchise) to force the buyer into the purchase of the tied product (here the goods sold by Defendants' commissary) "that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms." Jefferson Parish Hospital Dist. No. 2 v. Hyde, 466 U.S. 2, 12, 104 S.Ct. 1551, 1558, 80 L.Ed.2d 2 (1984). "The key to such an arrangement's anticompetitiveness (and thus its illegality) is the seller's ability to force buyers to purchase one product in the package, the tied product, by virtue of the seller's control or dominance over the other product in the package, the tying product." Tic-X-Press v. Omni Promotions Co. of Georgia, 815 F.2d 1407, 1414 (11th Cir. 1987) (emphasis in the original).

The franchise agreements Plaintiff Webb signed did not require that all products used at the stores be purchased from Defendants.⁴ Therefore, the agreements themselves did not create a tying arrangement that was illegal per se. Kentucky Fried Chicken v. Diversified Packaging Corp., 549 F.2d 368, 379 (5th Cir. 1977); see Siegel v. Chicken Delight, Inc., 448 F.2d 43 (9th Cir.1971). However, a tie need not be written to be illegal. Kentucky Fried, at 377.

As to whether Defendants' actual business practices created an illegal tying arrangement, Plaintiff must prove five elements to establish a prima facie case under a "rule of reason" analysis: (1) a tying and a tied product; (2) evidence of actual coercion by the seller that in fact forced the buyer to purchase the tied product; (3) evidence that the seller had sufficient market power with regard to the tying product to force the purchaser to buy the tied product; (4) anticompetitive effects in the tied market; and (5) a "not insubstantial amount" of interstate commerce involvement in the tied market. Amey, Inc. v. Gulf Abstract & Title, Inc., 758 F.2d 1486, 1503 (11th Cir.1985), cert. denied, 475 U.S. 1107, 106 S.Ct. 1513, 89 L.Ed.2d 912 (1986).

Proof of coercion would make the tying arrangement illegal per se and eliminate the...