The opinion of the court was delivered by: STEWART
Plaintiffs, Irving Sulmeyer and Arnold L. Kupetz, who are the co-trustees of the Estate of Bubble Up, International, Ltd. ("Bubble Up"),
an Illinois corporation now in Chapter X reorganization proceedings, have brought an action against defendants, Seven-Up Company ("Seven-Up") and Seven-Up Export Corporation ("Export"),
alleging that, since 1957, the two have engaged in a combination and conspiracy to restrain trade and to monopolize the production, sale and distribution of concentrates for lemon/lime soft drinks, in violation of §§ 1 and 2 of the Sherman Act. 15 U.S.C. § 1 and § 2.
Prior to May of 1973, when plaintiffs sold Bubble Up's income-producing assets, Bubble Up was in the business of supplying concentrate to franchised bottlers in foreign countries for use in the production of a lemon/lime soft drink sold under the trade name "Bubble Up." Defendants, engaged in a similar business, are the "dominant seller" in the lemon/lime market, accounting for approximately 45% of the industry's sales. Plaintiffs allege that defendants' agreements with bottlers in foreign countries, which prohibit bottlers from producing soft drinks of the same flavor as that of defendants, functioned to preclude Bubble Up from access to markets and resulted in creating a monopoly and in restraining trade. In furtherance of the plan, defendants allegedly instituted baseless litigation against Bubble Up and threatened those who "expressed an interest in bottling Bubble Up." Plaintiffs allege damage in excess of $1,000,000 and seek injunctive relief as well.
Plaintiffs have moved for partial summary judgment, arguing that per se violations of § 1 and § 2 of the Sherman Act have been shown by the agreements between Seven-Up and bottlers and by deposition testimony of defendants' executives; plaintiffs claim that the only issues which require a trial are the questions of impact and damages. Defendants have cross-moved for partial summary judgment, contesting plaintiffs' standing to bring suit, alleging that the two named defendants constitute one business entity, and opposing plaintiffs' motion on the grounds that triable issues remain. We consider the motions together.
In defense of plaintiffs' motion for partial summary judgment, defendants contest plaintiffs' ability to bring this litigation on two grounds. First, defendants argue that plaintiffs lack standing to assert claims which allege unlawful activity in the marketing and distribution of soft drinks in foreign countries because plaintiffs' business was only that of supplying concentrate to and enfranchising bottlers. Second, defendants argue that the United States antitrust laws have no application to injury which relates to commerce in foreign nations.
In support of their first contention, defendants turn the court's attention to Billy Baxter, Inc. v. Coca-Cola Company, 431 F.2d 183 (2d Cir. 1970), cert. denied, 401 U.S. 923, 27 L. Ed. 2d 826, 91 S. Ct. 877 (1971), which held that a plaintiff was outside the "target area" of the alleged anticompetitive activities and therefore lacked standing to bring suit. In Billy Baxter, a franchisor, who was in the business of licensing information needed for the manufacture of beverages and supplying some raw materials but who left the production of the soft drinks to independent franchisees, was not permitted to assert antitrust claims against the Coca-Cola and the Canada Dry Corporation, who had allegedly coerced the retail customers of the franchisees into refusing Billy Baxter soft drinks.
Seven-Up claims that the facts here are parallel because Bubble Up only engaged in a similarly limited business of supplying franchisees but has alleged injuries related to unlawful conduct in the distribution and marketing of the product.
However, unlike the plaintiff in Billy Baxter, Bubble Up has asserted that it, like defendants, manufactured concentrates, franchised bottlers, supplied advertising and promotional material, offered substantial assistance to its franchisees, and was actively involved in supervising the work of the franchisees.
Plaintiffs allege that Bubble Up was directly in competition with defendants, that defendants have directly sought to limit not only Bubble Up's franchisees but also Bubble Up itself, and to that end, defendants have instituted litigation in foreign countries and coerced bottlers who were potential franchisees of plaintiffs. In so far as the facts have developed at this juncture,
we do not believe that this is an instance where we are asked to trace an ingredient "from supplier to manufacturer to distributor to retailer" in order to perceive the alleged harm to a plaintiff. Nor do we conclude that the harm alleged is either incidental, derivative or too remote to permit this action to continue. Thus, we hold that plaintiffs made sufficient allegations of personal and direct harm to have standing to maintain this suit.
Defendants also argue that plaintiffs have failed to establish the requisite jurisdictional nexus between the activities of defendants and the United States antitrust laws because the only unlawful conduct alleged involved the internal commerce of foreign nations. However, "[a] conspiracy to monopolize or restrain the domestic or foreign commerce of the United States is not outside the reach of the Sherman Act just because part of the conduct complained of occurs in foreign countries." Continental Ore Co. v. Union Carbide & Carbon Co., 370 U.S. 690, 704, 8 L. Ed. 2d 777, 82 S. Ct. 1404 (1962) (citations omitted). Here, plaintiffs have alleged substantial impact on their United States business and property and upon trade and commerce between the United States and foreign countries. Further, the alleged antitrust violations relate to anticompetitive practices between plaintiffs and defendants, both of which are American corporations. Finally, the challenged conduct includes actions taken with the United States. Thus, we cannot conclude that, as a matter of law, the alleged illegalities did not have "impact within the United States and upon its foreign trade." Continental Carbide, supra, 370 U.S. at 705. We find the alleged injuries to be within the reach of the antitrust laws.
Defendants' motion for partial summary judgment is predicated upon the assertion that, as a matter of law, the two named defendants cannot conspire with each other because they are one business entity. See Sunkist v. Winckler & Smith Co., 370 U.S. 19, 8 L. Ed. 2d 305, 82 S. Ct. 1130 (1962). While motions for summary judgment "should be used sparingly in complex antitrust litigation," [Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S. Ct. 486, 7 L. Ed. 2d 458 (1962), we believe that in this instance, partial summary judgment is appropriately granted. We note that, unlike Poller, supra, we are not dealing with questions of intent and motive, determination of which rests largely upon the credibility of witnesses, but rather with the question of the relationship between Seven-Up and Export. Defendants have presented to us the affidavit of Leslie R. Scott, former general manager, president, and presently a consultant of Export, and the agency agreement between Seven-Up and Export ("Agency Agreement"). Both documents substantiate defendants' claim that Export was created to be, functioned as, and never acted in any manner other than as an agent for Seven-Up. Prior to 1948, the foreign franchising of Seven-Up concentrate was handled by one of Seven-Up's vice-presidents. Immediately upon incorporation of Export, an Agency Agreement was entered into between Seven-Up and Export in which Export was designated as Seven-Up's "general agent to promote . . . [Seven-Up's] business . . . outside the United States."
Export was permitted to manufacture concentrate only with the consent of Seven-Up. Export had the right to copy Seven-Up's advertising but could not deviate from the format without Seven-Up's permission. Export was empowered with the right to use Seven-Up's trademarks but Seven-Up retained the ownership of such marks. Export was required to diligently "further the interest of" Seven-Up and was obligated to "engage in no other business which is competitive directly or remotely with the business of Seven-Up.
Finally, Export was required to make periodic reports to Seven-Up and to permit full inspection of its records.
With two exceptions, all of the directors of Export have been either officers or directors of Seven-Up. Further, Scott's affidavit provides evidence that Export never functioned as an independent entity but rather acted as Seven-Up's agent, relying upon Seven-Up's personnel resources, sales and promotion techniques, and training courses. It appears that the terms of the Agency Agreement were followed and that final authority for all major decisions, including the right to enfranchise bottlers, remained with Seven-Up. Scott Affidavit, para. 11.
Plaintiffs do not directly dispute the facts presented in the Scott Affidavit but rely instead upon the existence of two separate corporations and upon the language contained in Export's articles of incorporation to argue that Export and Seven-Up were not one business enterprise and that the "agency agreement" between the two constitutes a per se violation of § 1 of the Sherman Act. However, we are directed by the Supreme Court to look to substance over form, and while Export and Seven-Up did avail themselves of separate corporate status, Export was the subsidiary and agent of Seven-Up. "To hold otherwise would be to impose grave legal consequences upon organizational distinctions that are of de minimis meaning and effect . . . ." Sunkist v. Winckler & Smith Co., 370 U.S. 19, 29, 8 L. Ed. 2d 305, 82 S. Ct. 1130 (1962).
In reaching this conclusion, we are mindful that we are considering the question of the relationship between Export and Seven-Up on a motion for partial summary judgment and that the facts must be viewed in a light most favorable to the party opposing the motion. Poller v. Columbia Broadcasting System, supra, 368 U.S. at 473. However, when we examine plaintiffs' attempt to deny the parent-subsidiary relationship, we find only reliance upon the broad language of Export's articles of incorporation which form the basis of plaintiffs' assertion that Export was a potential competitor of Seven-Up. Plaintiffs ignore that the first stated purpose of Export is to act as an agent for another corporation and focus upon the wording of the other stated purposes which permit Export to "manufacture, purchase, sell, import and export . . . all kinds of syrups. . . ." However, we find this language in itself to be insufficient to negate the undisputed facts as to the genesis of Export and to its function as Seven-Up's subsidiary, handling foreign sales and promotion.
We note further that we are not involved here with a fledgling lawsuit, in which discovery is just commencing,
but rather with an eight year old litigation which is on the eve of trial. Thus, we do not believe that plaintiffs' failure to contradict the Scott affidavit can be explained by a lack of information but rather is attributable to the fact that the Scott affidavit presents data as to which there are no material disputes. Therefore, we conclude that defendants are entitled to partial summary judgment; we hold that Seven-Up and Export constitute one business entity and we dismiss plaintiffs' allegations under § 1 of the Sherman Act in so far as they relate to a conspiracy between Seven-Up and Export. We do not dismiss plaintiffs' allegations that Seven-Up and Export conspired with independent third parties to restrain trade; while the "others" are only identified as bottlers in foreign countries, the allegations are sufficient to require a trial.
Our conclusion that Export was a subsidiary of Seven-Up interrelates with our finding that the Agency Agreement between Export and Seven-Up was not a violation of § 1 of the Sherman Act but rather was the formalized expression of why Seven-Up created Export. We note that Export was incorporated on April 26, 1948 and the Agency Agreement was entered into on May 11, 1948. Export never had an independent existence and thus its agreement with Seven-Up did not constitute a contract in restraint of trade between two distinct entities. Therefore, plaintiffs' motion for summary judgment premised upon the Scott agreement as a per se violation is denied.
We turn now to plaintiffs' other claims for summary judgment. Plaintiffs allege that the agreements between Seven-Up and bottlers in foreign countries, which restrict the territories in which the bottler distributes Seven-Up, is a per se violation of the antitrust laws under United States v. Arnold, Schwinn & Co., 388 U.S. 365, 18 L. Ed. 2d 1249, 87 S. Ct. 1856 (1967). Defendants admit that their franchise agreements unquestionably limit a bottler to the distribution of Seven-Up within a given territory but argue that Schwinn is distinguishable because the holding in Schwinn only found that territorial resale restraints were illegal per se when title, risk and dominion in the goods was passed to the distributor. Defendants assert that, unlike Schwinn, they do not distribute a product for resale but license the right to use a trademark and to sell a concentrate which may only be made into a finished product in accordance with a fixed formula. Further, Seven-Up claims it controls the quality of the soft drinks and the franchisees' ability to use the trademark. Plaintiffs' claim that, despite defendants' ...