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People Ex Rel. Scott v. Convenient Food Co.

JULY 3, 1974.

THE PEOPLE EX REL. WILLIAM J. SCOTT, ATTORNEY GENERAL OF THE STATE OF ILLINOIS, PLAINTIFF-APPELLANT,

v.

CONVENIENT FOOD MART, INC. ET AL., DEFENDANTS-APPELLEES.



APPEAL from the Circuit Court of Cook County; the Hon. DANIEL A. COVELLI, Judge, presiding.

MR. JUSTICE DEMPSEY DELIVERED THE OPINION OF THE COURT:

The Attorney General of the State of Illinois sought injunctive relief and civil penalties from three corporations and two individuals for alleged violations of the Illinois Antitrust Act. (Ill. Rev. Stat. 1969, ch. 38, par. 60-1 et seq.) The case was tried without a jury and after the State presented its evidence the defendants moved for judgment pursuant to section 64(5) of the Civil Practice Act. (Ill. Rev. Stat. 1971, ch. 110, par. 64(5).) The court sustained the motion, found the defendants not guilty and dismissed the complaint for want of equity. The State appealed.

The corporate defendants are Convenient Food Mart, Scot Lad Foods and Bresler Ice Cream Company. The individual defendants are William and Harry Bresler. Convenient is engaged in the business of operating, and granting franchises to others to operate, limited inventory grocery markets under the registered name of Convenient Food Mart. Scot Lad Foods owns fifty percent of the stock of Convenient, and its Meadowmoor dairy division sells milk and dairy products to Convenient's Illinois franchisees. The Bresler Company is engaged in the manufacture, distribution and marketing of ice cream and ice cream products and sells them to the same franchisees. William and Harry Bresler are officers of the Bresler Company and Convenient. They and other members of the Bresler family own the remaining fifty percent of Convenient's stock.

Bresler and Meadowmoor are Chicago based companies and their products have been sold for many years in small grocery stores throughout the Chicagoland area. In the middle 1950's an evolution took place in the retailing of foods and the market for their products declined drastically. Chain stores expanded rapidly; the stores increased in numbers and size and large areas were set aside for automobile parking. Purchasing power enabled them to reduce prices, and the lower prices, the wide selection of merchandise and ease of parking attracted customers.

This aggressive competition was too much for many grocers. It was estimated that every time a supermarket opened, 10 or 12 small groceries closed. Those who supplied the groceries suffered too. The situation became acute for independent suppliers when the chain stores started to produce their own merchandise or develop close associations with large producers and distributors. Meadowmoor and Bresler were unable to obtain any of the chain business. Meadowmoor, which was also hurt when the practice of home milk delivery was widely discontinued, offered one-half ownership of the company to one of the grocery chains, but its offer was not accepted.

Faced with the gradual diminution of their business and its seemingly inevitable cessation, Bresler and Meadowmoor, unknown to each other, searched for possible remedies. Learning through a mutual friend of each other's problem and motivation, officers of the companies met, and after many discussions agreed to launch a combined attack on the difficulties besetting them. The officers conducted extensive research. They traveled to different states, observed what was being done by others, consulted with entrepreneurs of the grocery business, studied marketing techniques and experimented with various merchandising methods. From all this they developed — as a means of survival for themselves and the individual groceryman as well — a plan for making small groceries competitive with the supermarket chains.

Their concept was a number of family-owned stores that could profit from combined buying power and the lower operating costs resulting from the devotion and hard work of the family members. They designed a format of distinctive, attractively designed, clean, well-located food stores, with uniform equipment and fixtures, limited items of merchandise and ample parking space, which would give the public maximum service by staying open each day until midnight.

Bresler and Meadowmoor agreed to unite their forces and become franchisors for such stores. Their intent was to do everything possible to keep the small grocer in business by seeking from purveyors low prices and discounts, by arranging financing for fixtures and inventories, by guaranteeing leases, preparing advertising and furnishing skilled direction and expert advice. Convenient Food Mart was incorporated in 1958 and a pilot store was opened that year in Skokie, Illinois. The policy of careful supervision over its franchisees and obtaining every possible advantage for them was successful Convenient Food Mart stores have thrived and so has the corporation. Meadowmoor and Bresler have prospered. At the time the Attorney General's complaint was filed in 1971 there were more than 80 franchised stores in Illinois and, in addition, there were several stores owned and operated by Convenient itself.

In a four-count complaint the State charged the defendants with intending, by contract, combination or conspiracy, to fix, control and maintain the resale price of merchandise in accordance with the directives of Convenient; to compel the franchisees to buy Meadowmoor's milk and Bresler's ice cream in order to obtain Convenient franchises; to unreasonably restrain trade in the sale of milk, ice cream and other products to Convenient franchisees; to prevent the franchisees from buying milk and ice cream at prices lower than those of Meadowmoor and Bresler, and to permit the prices set in the stores operated by Convenient itself to control the prices of merchandise sold in franchised stores in the same market area, all in violation of sections 60-3(1)(a), 60-3(2), 60-3(4) of the Illinois Antitrust Act. (Ill. Rev. Stat. 1969, ch. 38, pars. 60-3(1)(a), 60-3(2), 60-3(4).) The complaint prayed that the franchise agreements and the contracts between Meadowmoor, Bresler and the franchisees be declared void, that Meadowmoor and Bresler be ordered to divest themselves of Convenient, that they be permanently enjoined from engaging in a similar business, and that each defendant be penalized $50,000 for the violation of each count in which it or he was named defendant.

Thus, a full circle has been turned in a decade and a half. In the late 1950's Meadowmoor and Bresler were struggling to withstand competition which was taking away the outlets for their products. In the early 1970's they and their offspring, Convenient, are accused of depriving competitors of outlets for their products.

The State's evidence was both documentary and oral. Among the documents introduced into evidence were franchise and security agreements between Convenient and certain franchisees, contracts between franchisees and the Meadowmoor and Bresler companies, and a manual for Convenient store operators. The franchise agreements required the franchisees to operate pursuant to the manual and provided that he shall "* * * purchase, sell and use such products as are required for the operation of the business, as designated by CFM [Convenient], and to be ordered exclusively from suppliers approved by CFM for quality." The agreements varied, however, and in some the words "for quality" were replaced by the words, "for volume purchasing and guaranteed sales benefits." Convenient issues from time to time a purveyors list which designates the suppliers it has approved. The franchise agreements also varied insofar as some provided that the franchisee agreed to "maintain a uniform merchandising program as determined by CFM" and others stated that the franchisee agreed to maintain a "uniform price to be charged for its products as determined by CFM." In the security agreements the franchisees agreed to buy from Convenient, freezers, refrigerated cases, shelving and equipment for installation in their stores. The Meadowmoor-franchisee contract stated that the franchisee agreed to buy all his requirements of milk, cream and other dairy products exclusively from Meadowmoor for a term of 20 years; the Bresler-franchisee contract stated that the franchisee agreed to buy all his ice cream, mixes and frozen confections from Bresler for a term of 10 1/2 years. The manual gave the franchisee detailed instructions about the operation of his store and his responsibilities to Convenient.

One franchisee testified that an officer of Convenient told him that he would be required to sign milk and ice cream contracts before he would be allowed a Convenient Food Mart franchise. Another testified that before he signed a contract with Convenient, he was told who the milk and ice cream purveyors would be. A third said he was told by Meadowmoor's president that if he did not stop selling a competitor's milk and put Meadowmoor's back in his store within 24 hours, his franchise would be taken away. A former national sales director of Convenient testified that a requirement for the consummation of a franchise was the signing of a milk contract with Meadowmoor and an ice cream contract with Bresler.

On the other hand, the State's witnesses gave testimony favorable to the defendants. Five franchisees were called as witnesses by the State. One testified that he did not always follow the prices suggested by Convenient; sometimes he charged more, sometimes he charged less. Another said he did the same thing. He also said that in some cases he bought merchandise from dealers not on the approved purveyors list. A third stated that he did not follow the suggested prices; he would charge more for some items and less for others. He also stated that he did not limit his purchases to the purveyors recommended by Convenient. The fourth testified that he bought from purveyors who served him best whether they were on the approved list or not, and that he set his selling prices as he wished. He said Convenient never defaulted him for either practice. The fifth testified that he set his own prices for the ice cream sold in his store.

Of the five franchisees, one testified that he was never tendered a Meadowmoor contract. He had a contract with Bresler, but said that even if he did not he would still buy his ice cream from Bresler. A second franchisee said he sold Meadowmoor milk, but had not been asked and had never signed a contract to do so. A third, who operated two stores, ...


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