WHITE CONSOL. INDUSTRIES v. Whirlpool Corp., C85-472
| Decision Date | 01 August 1985 |
| Docket Number | No. C85-472,C85-667.,C85-472 |
| Citation | 619 F. Supp. 1022 |
| Parties | WHITE CONSOLIDATED INDUSTRIES, INC., Plaintiff, v. WHIRLPOOL CORP., Dart & Kraft, Inc., Hobart Corp., Emerson Electric Co., Defendants. MAGIC CHEF, INC., Plaintiff, v. WHIRLPOOL CORP., Dart & Kraft, Inc., Hobart Corp., Emerson Electric Co., Defendants. |
| Court | U.S. District Court — Northern District of Ohio |
James M. Porter, Thomas S. Kilbane, James P. Murphy, Walter J. Rekstis, III, John R. Gall, John E. Lynch, Jr., Stacey D. Ballin, Squire, Sanders & Dempsey, Daniel R. Elliott, Jr., Vice-President — Law White Consol. Industries, Inc., Cleveland, Ohio, for White Consol.
John K. Train, III, Martin J. Elgison, H. Stephen Harris, Jr., Alston & Bird, Atlanta, Ga., Jason C. Blackford, Mark O'Neill, Weston, Hurd, Fallon, Paisley & Howley, Cleveland, Ohio, for Magic Chef, Inc.
M. Neal Rains, Eric H. Zagrans, Stephen R. Twiss, Arter & Hadden, Cleveland, Ohio, Jerome A. Hochberg, Ann K. Sullivan, Paul H. Friedman, Arter & Hadden, Washington, D.C., William K. Holmes, Joseph A. Scoville, Tracey T. Larsen, Philip S. VanDerWeele, Warner, Norcross & Judd, Grand Rapids, Mich., Charles Putnam, Robert I. Frey, Whirlpool Corp., Benton Harbor, Mich., for Whirlpool Corp.
Donald G. Kempf, Jr., Tefft W. Smith, Thomas D. Yannucci, John T. Whatley, Randall A. Hack, Kirkland & Ellis, Chicago, Ill., George F. Karch, Jr., Thompson, Hine & Flory, Cleveland, Ohio, for Dart & Kraft, Inc.
Arthur F. Golden, Paul W. Bartel, Daniel L. Brackett, Davis, Polk & Wardwell, New York City, H. Stephen Madsen, Jonathan E. Thackeray, Baker & Hostetler, Cleveland, Ohio, for Emerson Elec.
MEMORANDUM AND ORDER VACATING PRELIMINARY INJUNCTION
On June 28, the Court granted the motions of the plaintiffs in the above-captioned cases for a preliminary injunction.1 The Court concluded at that time that:
For the divestiture in this case to be curative, Emerson would have to be free to manufacture, distribute, and market the Model 21 under any name not confusingly similar to KitchenAid's. In addition, Emerson would have to be free to distribute the Model 21 through any means it chose. Finally, Emerson would have to be free to private label the Model 21. The Court finds that these restrictions are sufficiently inhibitive of Emerson's ability to compete in the market that Emerson will not act as a post-transaction check on Whirlpool and will not, in any way, make up for the loss of KitchenAid. Court's Order of July 3, Conclusion 24.
On July 1, 1985, the defendants filed a motion to vacate the preliminary injunction. Attached to the motion was a proposed amendment to the supply contract, agreed to and signed by both Whirlpool and Emerson, which allows the post-transaction Emerson to: (1) manufacture, distribute and market the Model 21 dishwasher under any name not confusingly similar to KitchenAid's; (2) distribute the Model 21 through any means it chooses; and (3) private label the Model 21.2 The defendants' brief in support of its motion argues that the contract amendment constitutes a change in circumstances and grounds for the Court to vacate the preliminary injunction.
The plaintiffs oppose the motion to vacate on two basic grounds. They contend that even under the amended contract, Emerson will not be a viable and/or willing competitor in the dishwasher market and therefore the divestiture is still not curative. In addition, the plaintiffs continue to argue that even a viable and willing Emerson will not cure the anti-competitive effects of the proposed transaction. The plaintiffs also argue that the question of the willingness of Emerson to actively compete, especially under the amended contract, should be saved until there can be more discovery and should be resolved at a trial on the merits.
The Court finds that plaintiffs' arguments are unpersuasive. From the evidence available to the Court after a lengthy hearing, the Court finds that under the amended supply contract, Emerson is likely to be a willing and viable competitor in the dishwasher market. Its strong independence will give it complete control over its own manufacturing output and distribution and thus will eliminate the anti-competitive concerns raised by the D & K/Whirlpool stock purchase agreement. Accordingly, the Court orders the preliminary injunction of July 3, 1985, vacated.
As in its order of July 3, the Court notes that substantial evidence was presented during the hearing concerning the effect the proposed transaction might have in markets other than dishwashers, disposers, and compactors. While the Court is mindful that this action may have been brought to protect competitive positions in those other markets, they are not relevant to this action. The Court's analysis is limited to the dishwasher, disposer, and compactor markets with primary focus on the most important of the three, the dishwasher market.
Both plaintiffs argue in their briefs that the Court has misconstrued, mischaracterized, and misunderstood their statistical argument regarding the attribution of KitchenAid's market share to Whirlpool. They claim that whether or not Emerson is independently viable, all of KitchenAid's market share must be assigned to Whirlpool, not Emerson, when the transaction is complete. The fact that the plaintiffs may not consider Emerson's viability to be relevant to the question of the proper post-acquisition attribution of KitchenAid's manufactured units market share does not make it irrelevant.
The Court finds Emerson's independent viability to be the key to the proper post-acquisition attribution of KitchenAid's manufactured units market share. This conclusion seems the only one to logically flow from the plaintiffs' own argument.
Magic Chef's brief in opposition to the motion to vacate maintains that, "... KitchenAid's market share must be attributed to Whirlpool because the supply contract would place that portion of Emerson's production capacity under Whirlpool's control ...." Magic Chef Brief, p. 4. Similarly, White's brief argues:
Whether Emerson manufactures the KitchenAid branded dishwashers for Whirlpool or Whirlpool makes them for itself makes no difference for purposes of analyzing the competitive forces in the market — for purposes of this case, to treat Emerson as an independent manufacturer of the 7% KitchenAid dishwasher market share without recognizing the entire share constituted Whirlpool's requirements is the triumph of form over substance.... That is the economic reality of the situation and it is pure fantasy to count Whirlpool's KitchenAid market share as part of the production market share of Emerson. White Brief, pp. 4-5 (emphasis in original) (footnote omitted).
The plaintiffs insist that if Whirlpool absolutely controls some aspect of Emerson's production, the market share represented by those units must be attributed to Whirlpool. With that premise, the Court agrees. But the inquiry does not end there. The question then becomes, does Whirlpool, in fact, absolutely control any or all of Emerson's production.
In its previous order, the Court found that certain restrictions placed on Emerson by the supply contract so limited its independence that it might never become a viable player in the dishwasher market. This lack of independence fueled the Court's finding that Emerson would not effectively control its own production. With the limitations in place, Emerson would be so dependent upon the requirements demands of Whirlpool that Whirlpool would have control over much of Emerson's dishwasher production. Thus, with the supply contract restrictions in place, the Court accepted the plaintiffs' market share attribution argument.
Under the amended contract, the restrictions have been eliminated and Emerson will be able to act as an independent force in the market. The plaintiffs insist that Emerson's independence and viability are irrelevant, but this claim ignores the basic premise of the attribution argument: that attribution should take place when one firm controls another's production. The Court finds, based on the evidence before it, that under the amended supply contract, Whirlpool would not have the control over Emerson's production which would justify attribution of KitchenAid's market share to Whirlpool rather than Emerson.
The amended contract affords Emerson the ability to seriously compete in the dishwasher market, making the supply contract less economically compelling for Emerson. While the supply contract will provide Emerson substantial profits during its pendency, an independent Emerson will be in the position to determine whether or not the supply contract is the most profitable deployment of its resources. Without substantial independence, Emerson would be forced to be content with the profits from the supply contract. Yet, the independence and viability which the amended contract provides Emerson also makes realistic its option to abandon the supply contract, on one year's notice, in favor of other, more profitable endeavors.
The plaintiffs have chosen to ignore the "economic reality" that Emerson is an impressive company with a long history of successful private labeling enterprises in a range of product markets. The Whirlpool/Emerson stock purchase agreement and the amended supply contract provide Emerson with virtually all that was once KitchenAid, leaving to Whirlpool only the KitchenAid name and the garbage disposer plant.
Under the amended supply agreement Emerson will be in complete control of its own production, with the option to maintain the supply agreement with Whirlpool or turn elsewhere with the Model 21. Emerson will be the company selling "the best dishwasher in the world" to the highest bidder, competing with other private label suppliers. At the end of this transaction, Whirlpool will simply become another of Emerson's private label customers in another one of its many product markets.
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