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LEKTRO-VEND CORP. v. VENDO CORP.
July 22, 1980
LEKTRO-VEND CORP., A DELAWARE CORPORATION, ANN STONER, AS ADMINISTRATOR OF THE ESTATE OF HARRY B. STONER, DECEASED, AND STONER INVESTMENTS, INC., A DELAWARE CORPORATION,
THE VENDO CORPORATION, A MISSOURI CORPORATION.
The opinion of the court was delivered by: Roszkowski, District Judge.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This is an anti-trust action filed in 1965 by plaintiffs,
Lektro-Vend Corporation ("Lektro-Vend"), Harry B. Stoner
("Stoner"), and Stoner Investments, Inc. ("Stoner Investments")
against defendant, the Vendo Company ("Vendo"). Plaintiffs allege
that defendant's acquisition of Stoner Manufacturing Corporation
(the predecessor of Stoner Investments), in 1959, violated
sections 1 and 2 of The Sherman Act, 15 U.S.C. § 1, 2 and
Sections 4, 7, and 16 of The Clayton Act, 15 U.S.C. § 15, 18,
and 26. For the reasons herein stated, this court awards a
judgment in favor of defendant.
A bench trial was held in this case beginning in August, 1978
and concluding in September, 1978. The background findings of
fact, conclusions of law, and an analysis and discussion
supporting this decision are stated below.
Plaintiff, Stoner Investments, Inc. ("Stoner Investments"), is
a corporation organized and existing under the laws of the State
of Delaware. It is a successor to an Illinois Corporation of the
same name, which prior to June 1, 1959, was named Stoner
Stoner Manufacturing Company ("Stoner Manufacturing") was an
Illinois corporation engaged primarily in the manufacturing of
candy vending machines.
Plaintiff, Harry B. Stoner ("Stoner"), was president and
controlling owner of Stoner Manufacturing, now Stoner
Investments, prior to his death in March, 1976. On October 1,
1976, Stoner's wife, Ann Stoner, administrator of his estate, was
substituted as a party plaintiff in this case.
Stoner was president of defendant, Vendo Corporation's, Aurora
Division (previously Stoner Manufacturing) from June 1, 1959
through June 1, 1964 and a director of Vendo from May 28, 1959 to
April 21, 1964.
Plaintiff, Lektro-Vend Corporation ("Lektro-Vend"), is a
Delaware corporation with its principal place of business in
Aurora, Illinois. Lektro-Vend was first organized in September,
1963 as a manufacturer of candy and snack pastry vending
Stoner Investments currently owns approximately 78% of the
stock of Lektro-Vend.
Defendant, Vendo Corporation, is a Missouri corporation with
its principal place of business in Kansas City, Missouri. The
principal business of Vendo is the manufacturing and selling of
bottle and can soft drink vending machines, including premixed
Coca-Cola, to franchised soft drink bottlers. In addition, Vendo
manufactures and sells general merchandise vending machines,
coffee vending machines, milk vending machines, ice cream vending
machines, hot canned food vending machines, cold food vending
machines, and soft drink vending machines to vending operators.
At various times, Vendo also manufactured and sold candy, pastry
and snack vending machines as well as cigarette vending machines
to vending operators.
The parties agree that Stoner was a design genius in creating
innovative vending machine products.
By 1959, Stoner Manufacturing's drop-shelf candy vending
machine was the leading candy vending machine throughout the
United States. As against other candy vending machine sales, its
sales fluctuated between 71% of the market in 1955 and 31% in
By 1959, Stoner Manufacturing also manufactured and sold
vending machines for instant coffee, hot canned food, hot
sandwiches, and cigarettes. In addition, Stoner was at work on
developing a console cigarette machine, a refrigerated sandwich
machine, and a post-mix cold drink machine.
Stoner Manufacturing employed twelve to thirteen salesmen and
sold vending machines throughout the United States. In early
1959, the company was also negotiating for the licensing of a
company in England to sell its machines abroad, but the
negotiations were unsuccessful.
From 1955 to 1959, Stoner Manufacturing's sales varied from a
6.8% share to a 4.2% share of the market of all U.S. vending
machine sales. Within the "Vendo-served" market,*fn2 in that
same time period, Stoner Manufacturing's share varied from 7.2%
Prior to 1959, Vendo was primarily a manufacturer of beverage
and ice cream vending machines. It had approximately 112 company
salesmen who sold throughout the United States and it exported
its machines to 58 countries.
Vendo's sales and income after taxes for the calendar year
ending December 31, 1955 through 1977 are set out in the
December 31 Sales Net Income (Loss)
1955 $20,799,000 $842,000
1956 42,076,000 1,660,000
1957 37,056,000 1,075,000
1958 29,410,000 973,000
1959 45,046,000 2,484,000
1960 61,244,000 3,153,000
1961 53,696,000 2,297,000
1962 55,343,000 2,898,000
1963 51,958,000 1,990,000
1964 63,538,000 3,503,000
1965 77,425,000 5,101,000
1966 90,577,000 6,460,000
1967 88,361,000 5,016,000
1968 99,931,000 4,605,000
1969 99,353,000 2,408,000
1970 90,748,000 2,110,000
1971 91,868,000 92,000
1972 110,794,000 2,573,000
1973 113,346,000 2,857,000
1974 88,374,000 (3,134,000)
1975 69,164,000 (2,463,000)
1976 83,370,000 ( 857,000)
1977 97,168,000 (3,650,000)
Vendo's share of all vending machine sales was 20.3% in 1955,
21.5% in 1956, 28.2% in 1957, and 28.4% in 1958. Its share of the
"Vendo-served" market was 21.6% in 1955, 22.9% in 1956, 30% in
1957, and 24.3% in 1958.
As can be seen, during the time period most immediately
relevant to this suit (1959-1966), Vendo controlled approximately
30% of the market in which it competed. In 1966, Vendo expected
its share of market dollars to climb to 58% by 1971.
The vending machine industry experienced rapid growth and
change in the years 1955 through 1966.
During that period there was a significant trend toward
concentration within the industry with one-half the number of
manufacturers existing in 1966 as existed in 1958. The 130
manufacturers in 1957 dwindled to 76 in 1963 and 66 in 1964. In
1964, 49 of the 66 manufacturers experienced sales over $100,000.
In 1964 only 16 manufacturers of vending machines for
confections and food had sales in excess of $100,000; in 1964
only 8 of 12 companies manufacturing vending machines for candy
bars had sales in excess of $100,000. This trend toward
concentration throughout the vending machine manufacturing
industry has continued through 1975. The 66 manufacturers of 1964
had dwindled to 44 by 1975. From 1963 to 1973, the number of
manufacturers with sales of $100,000 fell from 54 to 31.
Also during the years 1955 through 1966, the number of
locations available for the placement of machines increased and
the number of operators in the business increased.
Additionally, development of new equipment was substantial.
The vending machine industry reached its peak in 1966 with
sales of $216,518,000.
By 1966, the industry was approaching a point of saturation.
Industrial construction declined, the number of locations
available for the placement of machines decreased, and an
increasing percentage of the new machines sold were for
replacement of existing machines at existing locations rather
than for new locations.
Customers for vending machines can be divided into two
different classes: 1) franchised soft drink bottlers (e.g., the
Coca-Cola Company), which purchase machines to vend soft drinks
which they manufacture, and 2) vending service companies, known
as "operators", which purchase vending machines for the sale of
food, beverages, and other items typically manufactured by
others, including vending machines for hot, cold, and frozen
foods, dairy products, coffee, candy, pastry, snacks, ice, soft
drinks, and cigarettes. Bottlers and operators conduct different
types of businesses for different purposes.
Franchised soft drink bottlers are in the business of mixing,
bottling, and selling, by whatever means, their brand-named soft
drink. Bottlers purchase and operate bottle and can vending
machines as only one means to sell their drink. Bottlers, in
operating soft drink vending machines, are both seeking a profit
and a means for creating a preference for their product by making
their brand-name soft drink available in as many places as
possible whether the location is profitable or unprofitable.
Operators, on the other hand, are companies solely in the
business of purchasing vending machines, placing them on
locations, loading them with products, and maintaining them in
service. Vending operators operate machines solely for a profit,
as they are not interested in establishing the brand name of any
product they vend.
There are several types of operators that can be distinguished
according to the type of institution served. "Street operators"
serve small, public establishments such as gas stations, bowling
alleys, bars, and restaurants. "Industrial operators", or
"full-line operators", place their machines in locations such as
factories, schools, and hospitals where virtually the same
patrons are served every day.
Street operators, ordinarily operate the "4 C's" in vending
machines-candy, coffee, cold drinks, and cigarettes and usually
have two to four machines at one location.
Industrial operators will often times locate a bank of
equipment at one location providing a full line of products. The
machines placed within banks of equipment are generally larger in
capacity and size and have less styling and more uniformity in
Street operators ordinarily have "console" machines which are
smaller in size and capacity and are highly stylized and more
distinctive in appearance.
Vending operator companies vary in size. There are national
operating companies which are large publicly owned chains listed
on the New York Stock Exchange with national or regional
coverage. There are independent operators which do business in a
smaller number of locations. Some independents are members of
buying co-operatives, such as AVA. Additionally, there are some
bottlers who are also vending operators. Those bottlers who are
also operators generally conduct their vending operator business
as a separate company or division with separate offices, books,
personnel, and routes.
In 1958, almost all operators were entirely independent with
Canteen Corporation being the only operator company with a
Beginning in the early 1960's, the industry experienced the
growth of several national and large regional operators such as
ARA, Servomotion, Macke, Interstate United, Automatique, and
Autoviables. These operators engage in both the operation of
vending machines and in manual food preparation and service on
the location premises.
In the late 1950's and early 1960's, Vendo was interested in
becoming a full-line manufacturer*fn3 of vending machine
equipment. Vendo, in fact, successfully used the full-line
marketing technique. Today, Vendo is not a full-line
Both full-line and non-full line manufacturers provide their
customers with cosmetic devices for their equipment (such as
grills, screens, panels, and headers) which permit their machines
to be placed in banks with the machines of other companies.
The use of these cosmetic devices to provide uniform or
matching appearances between the machines of different companies
reduces somewhat the disadvantage of being a non-full line
Additionally, non-full line manufacturers often times join
buying cooperatives in order to diminish the significance of
being a non-full line manufacturer.
In 1955, Clarence Adelberg, Executive Vice President of Stoner
Manufacturing, suggested to Elmer Pierson, Chairman of the Board
of Vendo, that Vendo acquire Stoner Manufacturing. Stoner and
Adelberg subsequently met with various Vendo officers in Kansas
City to discuss this possibility. However, no agreement was
reached at this time. Plaintiffs contend, and Vendo denies, that,
during these negotiations, Robert W. Wagstaff, Executive Vice
President and General Counsel of Vendo, threatened that, if
Stoner did not sell, Vendo would put Stoner out of business.
Nevertheless, both parties agree that Stoner's subsequent
decision to sell in 1959 was not prompted by any threat or action
In July, 1956, Vendo acquired Vendorlator Manufacturing Co.
("Vendorlator"), a manufacturer of bottle vending machines from
Fresno, California. As a result of this acquisition, the FTC
commenced proceedings against Vendo in 1957 charging that the
acquisition would tend to substantially lessen competition within
the sub-market of bottle vending machines in violation of Section
7 of the Clayton Act. Before a decision was reached, Vendo and
the FTC entered into a consent decree requiring Vendo to secure
advance clearance from the FTC before acquiring any other
manufacturers of bottle vending machines.
In October, 1958, Bip Glassgold, Stoner Manufacturing's Vice
President in charge of sales, again approached Vendo to explore
the possibility of Vendo acquiring Stoner Manufacturing. Robert
Wagstaff, who had become Chief Executive officer for Vendo in
1958, Henry Gaddis, Vendo's Chief Financial officer, and Elmer
Pierson participated in the negotiations for Vendo. Harry Stoner,
Joseph Lazzara, Controller of Stoner Manufacturing, Jack Steward,
Bip Glassgold, and Everett Johnson, a Senior partner at Arthur
Anderson & Co., participated on behalf of Stoner Manufacturing.
From Stoner's viewpoint, the proposed sale to Vendo was
advantageous due to Stoner's health problems, the death of
Stoner's close associate and Executive Vice President Adelberg,
the strain on Stoner from running the firm alone, and the fact
that each of Stoner Manufacturing's shareholders had Stoner stock
as one of their principal assets. According to Stoner's
Vendo seemed to be a logical purchaser because no
other prospective purchaser had any management people
capable of running the business without being
educated in the vending machine field. Vendo being
experienced in that field will be able to take over
with less assistance from me. I am interested in
having the business continued by people who have
capable management and who will continue to employ
and be compatible with our present officers and
employees and with a minimum of dislocation of
business practices and employment security. I do not
want to let the business just drift and carry on of
its own momentum, because this cannot continue
indefinitely and there is great risk of loss involved
in such a program. I attribute our poor showing in
sales in 1958, and since, at least in part, to the
management difficulties I have already described.
Vendo's purpose in acquiring Stoner Manufacturing was to expand
its line of vending machines, principally through the acquisition
of a proven candy machine. An internal Vendo memorandum of
October 20, 1958 from Stevens to Wagstaff indicated that,
although Stoner Manufacturing's 1958 sales had declined and
although the company had certain weaknesses and a few unfavorable
factors, Stoner was "the leading supplier" of candy and pastry
machines as well as "a major factor in instant coffee equipment."
Stevens concluded that the acquisition would be "a big step
toward giving us a complete line of equipment." Additionally,
Wagstaff reported to Pierson that two other vending machine
manufacturers were negotiating with Stoner. Buckley from Vendo's
marketing division had indicated that "if Stoner were to fall
into the hands of a more aggressive competitor . . . the entrance
of Vendo into this particular market would be still
retarded. . . ."
On April 3, 1959, after extensive negotiations during which
various proposals were discussed, Vendo and Stoner Manufacturing,
both represented by counsel, entered into a contractual agreement
whereby Vendo would purchase the assets of Stoner Manufacturing,
including inventions, patents, drawings, designs, and research
and development work.
Under the sale agreement, Vendo was to pay Stoner Manufacturing
$3,400,000 in cash and deliver to it 60,000 shares of Vendo
stock. The land and the property constituting the Stoner
Manufacturing plant was leased to Vendo at a stipulated rental
for ten years with an option of renewal for a like period.
The acquisition agreement contained the following restrictive
Section 15. From and after the closing the Company
[Stoner Mfg. Corp.] will not own, directly or
indirectly, manage, operate, join, control or
participate in the ownership, management, operation
or control of, or be connected in any manner with,
any business engaged in the manufacture and sale of
vending machines under any name similar to the
Company's present name, and, for a period of ten (10)
years after the closing, the Company will not in any
manner, directly or indirectly, enter into or engage
in the United States or any foreign country in which
Vendo or any affiliate or subsidiary is so engaged,
in the manufacture and sale of vending machines or
any business similar to that now being conducted by
the Company. The Company also agrees that during its
corporate existence it will, without incurring any
financial obligation, co-operate with Vendo to
prevent the use by others of the names "Stoner" and
"Stoner Mfg. Corp." in connection with any business
similar to that now carried on by the Company and
also agrees not to disclose to others, or make use
of, directly or indirectly any formulas or process
now owned or used by the Company.
Vendo and Stoner voluntarily sought pre-merger clearance of the
acquisition by the FTC, and on May 14, 1959 the FTC sent their
In addition to the sale agreement, the parties executed an
employment agreement on June 1, 1959 whereby Stoner agreed to
serve as an officer, or in such other executive or advisory
capacity as Vendo requested, consistent with Stoner's physical
abilities, for five years at an annual salary of $50,000.00.
Stoner also agreed to serve as a director of Vendo without
additional compensation. As to Stoner's service, the employment
contract provided that:
Stoner shall regulate his own hours of employment and
shall determine the amount of time and effort which
he shall devote . . ., it being understood that the
value of Stoner's services to the Company [Vendo] are
not measured by the amount of time or effort devoted
to the business by Stoner but by the value of his
advice and counsel in the operation of the Aurora,
Illinois, facility, and his know-how, experience and
reputation in the vending machine field.
The contract provided that Stoner's employment could be
terminated in several ways: (a) Vendo "shall have the right to
terminate . . . in the event of a substantial violation of the
terms hereof by Stoner", (b) Stoner could terminate "in the event
he shall feel that he is not physically able to perform his
duties hereunder", or (c) if not terminated by either party, the
employment would expire at the end of the five year term or on
Stoner's death, whichever came first.
The employment agreement also contained a restrictive covenant
which provided that:
5. During the term of this agreement and for a
period of five (5) years following the termination of
his employment hereunder, whether by lapse of time or
by termination as hereinafter provided, Stoner shall
not directly or indirectly, in any of the territories
in which the Company or its subsidiaries or
affiliates is at present conducting business and also
in territories which Stoner knows the Company
or its subsidiaries intends to extend and carry on
business by expansion of present activities, enter
into or engage in the vending machine manufacturing
business or any branch thereof, either as an
individual on his own account, or as a partner or
joint venturer, or as an employee, agent or salesman
for any person, firm or corporation or as an officer
or director of a corporation or otherwise, provided,
however, that the Company, its subsidiaries and
affiliates shall be excluded from the restrictions
hereof and provided also that Stoner shall be
permitted to own, hold, acquire and dispose of stocks
and other securities which are traded in the
investment security market whether on listed
exchanges or over the counter.
The period of the non-competition covenants was the same period
during which Vendo (a) had the option to purchase the Stoner
Manufacturing plant, (b) was to pay out a specified share of
profits from the use of the acquired assets, and (c) was to pay
out a specified share of the income from the foreign production
of the acquired machinery.*fn5 The term of the non-competition
covenants was increased from 5 years to 10 years after Vendo
received a proposal from Stoner that Vendo's then pending offer,
which included a 5 year option and payout, be changed to include
a 10 year option and payout. The increased term was proposed by
Hillix, Vendo's outside counsel in response to Stoner's
Vendo's press release announcing the Stoner acquisition to the
trade stated that "[o]fficers of the Stoner firm will continue in
their present capacities, . . . and there will be no change in
the mode of operations."
Vendo prepared a letter, which Stoner signed, to be sent to
Stoner's customers. That letter stated: "We do not anticipate any
change in Stoner's basic operating policies. We will continue to
serve you, our customers, with the same organization we had in
the past. Officers of Stoner Manufacturing will remain unchanged
with myself as President."
Another letter drafted by Vendo, and signed by Stoner, was sent
to Stoner Manufacturing employees. That letter stated that an
independent engineering department would be maintained in Aurora
after the sale.
THE BREAKDOWN OF THE PARTIES' RELATIONSHIP
Almost immediately after the closing of the acquisition
transaction, Stoner became unhappy because he began losing
control of his company.
Shortly after the closing of the sale, Vendo announced that the
engineering and research departments of Stoner Manufacturing
would be moved to Kansas City. Subsequently, new product research
and development was moved to Kansas City, and Vendo's research
and development head, Bobby Andrews, reviewed Stoner
Manufacturing's development work and recommended that part of it
Stoner was not consulted about these developments and he
believed he had been relegated to "senior citizen status."
Within approximately three weeks of the closing of the sale,
executive control of operations, sales, and finance was also
transferred to Kansas City. None of Stoner's division executives
would report to Stoner as president.
Wagstaff set up a meeting in Aurora on June 24, 1959. Stoner
maintains that Wagstaff "fired" Stoner at this meeting and that
the office of president of the Stoner Division was made "strictly
advisory." Wagstaff stated that he told Stoner his job
as president was advisory only and ...