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DELLWOOD FOODS, INC. v. KRAFTCO CORP.

September 30, 1976

Dellwood Foods, Inc., Plaintiff
v.
Kraftco Corp., Defendant


Goettel, D.J.


The opinion of the court was delivered by: GOETTEL

GOETTEL, D.J.:

Plaintiff, Dellwood Foods, Inc. ("Dellwood"), is suing Kraftco Corporation ("Kraftco") for an alleged breach of contract. Initially Dellwood is seeking a preliminary injunction to enjoin Kraftco from any further competition in the metropolitan New York area regarding the processing and distributing of various milk products. Dellwood seeks, in effect, to enforce a covenant not-to-compete which Kraftco had previously agreed to. The motion for the preliminary injunction is denied at this time, for the reasons stated below.

 In the fall of 1973, the Sealtest Division of Kraftco decided to close a milk processing plant in Queens and to remove itself from active participation in fluid milk distribution in the metropolitan New York area. Thereafter, it decided to sell this portion of its business to Kraftco.

 A formal agreement was entered into on November 11, 1973, between Kraftco and Dellwood (already a major processor and distributor of fluid milk products in the New York area). In the agreement, Kraftco sold to Dellwood its metropolitan area milk business, the milk processing plant in Queens with related property, the "Muller Dairies" trademark, and granted to Dellwood the right and license to use the "Sealtest" and "Light n' Lively" trademarks. The price was $3,271,710: $1,200,000 was paid to Kraftco on November 20, 1973, and the balance is currently being paid in 144 equal monthly payments.

 The agreement also contained the following covenant: for a period of five years, commencing November 11, 1973, Kraftco "would not engage in the business of processing or distributing Fluid Milk Products in the Metropolitan Area." (para. 18).

 Two months later, on January 18, 1974, the Federal Trade Commission ("FTC") issued a formal complaint with respect to the Dellwood-Kraftco agreement. The FTC claimed that the effect of the agreement would be to eliminate or prevent actual or potential competition among milk processors and distributors in the metropolitan New York area. The FTC went on to charge that, under the agreement, Dellwood would become the dominant company in the field and that free and open competition would be denied to consumers. (FTC Complaint of 1/18/74).

 In response to the FTC Complaint, Dellwood, Kraftco and members of the FTC worked out a solution acceptable to all the parties involved. This resulted in a Consent Order being issued on March 14, 1975, which required the following:

 As to Dellwood --

 
(1) Its Trade License agreement of November 20, 1973, (involving the "Sealtest" and "Light n' Lively" marks) must terminate on March 31, 1976;
 
(2) It would have to cut back by at least one-half the customers acquired through the Queens plant purchase;
 
(3) It would have to divest itself of the Queens processing plant; and
 
(4) It would be subject to a ten year restriction on further acquisitions within the milk industry.

 As to Kraftco: Kraftco could make no agreements prior to January 1, 1979, without notifying the FTC involving "Light n' Lively" or "Sealtest" fluid milk products in ...


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