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Holleb & Co. v. Produce Terminal Cold Storage Co.

decided: March 12, 1976.

HOLLEB & COMPANY, PLAINTIFF-APPELLANT,
v.
PRODUCE TERMINAL COLD STORAGE CO. AND BEATRICE FOODS CO., DEFENDANTS-APPELLEES



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division - No. 72-C-1640 PRENTICE H. MARSHALL, Judge.

Cummings and Pell, Circuit Judges, and Warren, District Judge.*fn*

Author: Cummings

CUMMINGS, Circuit Judge.

In this private treble damage antitrust action, plaintiff Holleb & Co. challenges the legality of the defendants' practices in the wholesale distribution of frozen foods. Plaintiff is a family corporation which has been a wholesale grocery distributor since 1919. In 1970, because of the growing popularity of frozen foods and to accommodate its customers, plaintiff decided to create a division for the wholesale distribution of frozen food to retail stores.

Defendant Produce Terminal Cold Storage Company,*fn1 acquired by defendant Beatrice Foods Company in 1964, is also a frozen food distributor, offering products to independent groceries, chain stores and cooperative member stores. At the time plaintiff began its frozen food operation in 1971, the competition included Produce Terminal, its sub-distributors and other large independent distributors. In addition, some of the large chain supermarkets had their own warehouses or participated in cooperative ventures. These chains generally purchased only limited quantities from independent distributors. Other large chains relied primarily on the independent distributors for their frozen food products, as did the smaller grocery stores.

After experiencing substantial losses in the first year and a half of its frozen food operations, plaintiff instituted this action. Holleb has charged that it was damaged to the extent of $500,000, before trebling, by Produce Terminal's violations of Sections 1 and 2 of the Sherman Act (15 U.S.C. §§ 1 and 2) and Sections 2(a), 2(d), 2(f) and 3 of the Clayton Act,*fn2 as amended by the Robinson-Patman Act (15 U.S.C. §§ 13(a), 13(d), 13(f) and 14). Produce Terminal counterclaimed for $500,000, before trebling,*fn3 based on Holleb's alleged violations of Section 2 of the Sherman Act and Sections 2(a) and 2(d) of the Clayton Act, as amended.

The case was tried to a jury. At the close of all the evidence, both sides filed motions for directed verdicts as to all claims, and the court granted defendants' motion as to Holleb's claims under Section 1 of the Sherman Act and Section 3 of the Clayton Act. In turn, defendants' counterclaims under Section 2 of the Sherman Act and Section 2(d) of the Clayton Act were eliminated. Defendants amended their prayer for damages under their remaining claim under Section 2(a) of the Clayton Act to $10,000 before trebling.

After fourteen trial days, the jury deliberated for three days with respect to the claims submitted to it and failed to reach any verdict. We are told that the jury was split 9-2 against Holleb.

Ten months thereafter, the district court filed an unreported memorandum decision holding that plaintiff Holleb had not proved any statutory violations nor that it had suffered any damage. Therefore, it granted defendants' motion pursuant to Rule 50(b) of the Federal Rules of Civil Procedure for judgment in respect to all of plaintiff's claims. As to defendants' remaining counterclaim under Section 2(a) of the Clayton Act, the court held that any violations by Holleb were de minimis and therefore entered judgment in favor of plaintiff on the counterclaim. Our review of the record satisfies us that plaintiff made a prima facie case against defendants under Section 2(a) of the Clayton Act and therefore we reverse in part.

Tying Arrangement

Holleb charged that Produce Terminal violated Section 1 of the Sherman Act and Section 3 of the Clayton Act by conditioning its offering of frozen food companies' products for sale on their agreeing to lease cold storage space from Produce Terminal. Plaintiff characterizes this arrangement as an illegal tying agreement. We disagree. An illegal tying agreement results when the seller requires the buyer to purchase in addition to the desired product another less desired product with the potential effect that competition in the tied product would be lessened. Northern Pacific R. Co. v. United States, 356 U.S. 1, 5-6, 2 L. Ed. 2d 545, 78 S. Ct. 514 (1958). Because Produce Terminal, as a buyer, conditions its purchase of frozen foods upon the purchase, by the seller, of Produce Terminal's warehouse facilities, the arrangement is not literally a traditional tying agreement. Cf. Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495, 22 L. Ed. 2d 495, 89 S. Ct. 1252; Advance Business Systems & Supply Co. v. SCM Corp., 415 F.2d 55 (4th Cir. 1969), certiorari denied, 397 U.S. 920, 25 L. Ed. 2d 101, 90 S. Ct. 928.

The arrangement can be recharacterized, however, to assume the literal form of a tying agreement. Produce Terminal can be viewed as selling to the frozen food producers a service, the resale of goods to retail grocers. The sale of Produce Terminal's warehouse facilities can then be seen as tied to the sale of this "product." Under this conceptualization, Section 3 of the Clayton Act is not violated because Produce Terminal is selling a service, not "goods, wares, merchandise, machinery, supplies, or other commodities * * *." 15 U.S.C. § 14; Tri-State Broadcasting Co. v. United Press International, 369 F.2d 268 (5th Cir. 1968); Columbia Broadcasting Co. v. Amana Refrigerator, Inc., 295 F.2d 375 (7th Cir. 1961), certiorari denied, 369 U.S. 812, 7 L. Ed. 2d 612, 82 S. Ct. 689.

The arrangement also does not violate Section 1 of the Sherman Act because plaintiff has failed to prove the requisite elements of the offense. To violate that Section, the accused company must have "sufficient economic power to impose an appreciable restraint on free competition in the tied product." Northern Pacific R. Co. v. United States, supra, 356 U.S. at 11; Fortner Enterprises, Inc. v. United States Steel Corp., supra, 394 U.S. at 499. Plaintiff has offered no evidence showing that Produce Terminal has any market power over the tying product, the ability to resell goods to grocers. Cities Service Oil Co. v. Coleman Oil Co., 470 F.2d 925, 931 (1st Cir. 1972), certiorari denied, 411 U.S. 967, 36 L. Ed. 2d 688, 93 S. Ct. 2150. Nor could the jury reasonably infer that Produce Terminal has such power either from the nature of its services, which were not unique or special (cf. Fortner Enterprises, Inc. v. United States, supra, 394 U.S. at 505), or from the structure of the industry which includes other independent distributors and chain warehouses that can purchase directly from frozen food producers. The evil of a tying agreement is the restraint of competition in the tied product. Sulmeyer ...


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