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Best Brands Beverage Inc. v. Falstaff Brewing Corp.

decided: November 9, 1987; As Amended March 21, 1988.

BEST BRANDS BEVERAGE, INC., PLAINTIFF-APPELLEE,
v.
FALSTAFF BREWING CORPORATION AND PEARL BREWING COMPANY, DEFENDANTS-APPELLANTS



Appeal from judgment entered after a jury trial in the United States District Court for the Southern District Court for the Southern District of New York (Richard Owen, Judge) in favor of appellee Best Brands Beverage, Inc. on Robinson-Patman Antidiscrimination Act and state breach of contract claims.

Author: Altimari

Before: NEWMAN, MINER and ALTIMARI, Circuit Judges.

ALTIMARI, Circuit Judge:

Defendants-appellants Falstaff Brewing Corporation and Pearl Brewing Company ("Falstaff") appeal from a $45,714,000 judgment entered after a jury trial in the United States District Court for the Southern District of New York (Richard Owen, Judge) which found in favor of plaintiff-appellee Best Brands Beverage, Inc. ("Best") on its antitrust and state breach of contract claims. The jury's verdict on both claims was based primarily upon evidence that Falstaff raised prices it charged Best for some of Falstaff's products, including various sized packages of Haffenreffer Private Stock malt liquor and Ballentine Ale, and did not charge similar price increases on those products to its other customers. From this evidence, Best argued that Falstaff discriminated against it on the basis of price in violation of the Robinson-Patman Antidiscrimination Act, 15 U.S.C. § 13(a) (the "Robinson-Patman Act" or the "act"), and, accordingly, that it was entitled to recover treble damages pursuant to section 4 of the Clayton Act, 15 U.S.C. § 15(a). Best also claimed that, by raising prices on its products, Falstaff breached an alleged agreement in which Falstaff supposedly had agreed to charge Best the "lowest prices in the East."

After Best presented its case at trial, Falstaff timely moved for a directed verdict pursuant to Fed. R. Civ. P. 50(a) on the antitrust and contract claims, but the district court denied the motion. After the jury returned a $15,238,000 verdict in favor of Best on both claims, Falstaff renewed its Rule 50 motion in the form of a motion for judgment n.o.v. See Fed. R. Civ. P. 50(b). The district court denied the post-verdict motion in an endorsed memorandum, and subsequently entered final judgment in favor of Best after trebling the jury verdict to $45,714,000. The district court also awarded Best post-judgment interest, costs and attorneys' fees in the amount of $147,352.36, and entered a permanent injunction against Falstaff prohibiting it from interfering with Best's distributorship or treating Best in a manner different from its other customers through its pricing policy or otherwise. For the reasons stated below, we reverse.

FACTS

Falstaff jointly produces with Pearl a variety of malt beverages, including Ballentine Ale and Haffenreffer Private Stock malt liquor. Falstaff sells its malt beverage products nationwide from its San Antonio, Texas and Fort Wayne, Indiana breweries. The malt beverage products are sold to customers F.O.B. the docks of either the San Antonio brewery, where Pearl is located, or Fort Wayne, where Falstaff's only active brewery and principal place of business is located.

To aid Falstaff in gaining access to various market regions throughout the United States, it has appointed master distributors in specific regions who serve as master wholesalers within an assigned territory. Currently, Falstaff has appointed two master distributors, Southland Distributing Company ("Southland") and Best, who are assigned to territories in the Southeastern and Mid-Atlantic United States, respectively. Southland's region extends over the six states of North Carolina, South Carolina, Alabama, Georgia, Tennessee and Florida. Best's territory includes New York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia and the District of Columbia.

Falstaff's two master distributors, Southland and Best, operate exclusively within their assigned territories, and apparently have never sold, nor attempted to sell, Falstaff products outside of their assigned territories. Thus, it appears that they have never engaged in face-to-face competition with one another. Likewise, it does not appear that their customers have ever competed with one another--apparently because their customers exclusively conduct business within their respective territories, which encompass several defined geographic markets that ordinarily do not overlap or otherwise intersect.

Although no direct competition exists between Best and Southland, or their customers, there remains a possibility that some products purchased in Southland's territory could make their way into Best's territory, and vice versa. Thus, whenever a substantial price difference exists between two neighboring markets for the same or similar products, a practice called "transshipping" may occur, whereby an individual or a company purchases a stock of product in the lower priced territory, and "transships" it to the higher priced territory for resale. While this practice may occur, Best has cited no instances of actual transshipping between its and Southland's territories, nor were any known transshippers who operated in Best's or Southland's territories identified.

Best has been a Falstaff master distributor for several years and originally had been appointed to serve as Falstaff's master distributor for the metropolitan New York market when the company was owned by Richard Sane. Falstaff decided to appoint Best as a master distributor in order to discourage it from engaging in its active transshipping business. Best's appointment as a Falstaff master distributor was later confirmed in writing in June 1982 only after its current owners, David and Raymond Tye, insisted that Best's appointment as a Falstaff master distributor be confirmed in a written agreement.

In early 1982, Best's then-prospective (and current) owners, David and Raymond Tye, were interested in purchasing Best in order to expand on its Falstaff master distributorship. The Tyes did not want to purchase the company until they had an agreement from Falstaff regarding the distributorship. David Tye then contacted Falstaff's Chairman, Jack Miller, about Best's position as a master distributor for Falstaff products. Tye subsequently spoke with Clifford Lincoln, Falstaff's General Sales Manager, who informed Tye that he had been instructed to give Best a contract. Lincoln and Tye then met in Chicago on June 1, 1982, where Lincoln delivered to Tye a document entitled "Distributor Report" that indicated that Best was a master distributor for Falstaff in the metropolitan New York City market. The distributor report appeared to suggest that Best's territory was to be exclusive, but it contained no promises, terms or conditions governing the distributorship. In addition, it did not set forth the prices Falstaff would charge Best for Falstaff products, establish the quantity of products to be purchased, or indicate the duration of the appointment .

Once Tye received the distributor report from Lincoln, which he believed to be an agreement, he and his brother purchased Best for approximately $1,000,000, and took control of the company. Tye then began a program designed to increase sales of Falstaff products in the metropolitan New York market. At that time, the only Falstaff product available for resale in the New York market was various sized packages of Ballentine Ale. Best immediately increased sales of that product. The year before Best's appointment, 153,000 cases of Ballentine were sold in New York, but this figure jumped to 1,689,911 by 1983.

Due to Best's success in increasing sales of Falstaff products, Falstaff appointed Best to serve as master distributor for additional markets. Accordingly, between 1982 and 1984, Best's territory grew to its present size. As Best was appointed master distributor over each additional market, no written agreements were signed by the parties, nor were there even any negotiations . Rather, Falstaff merely sent Best letters indicating that Best had been appointed as "master distributor" or "master wholesaler" for the new market.

Best's initial sales efforts were concentrated on distribution of Ballentine Ale, but in early 1983 David Tye introduced Haffenreffer into Best's territory, beginning with the Virginia market and then moving northward. Haffenreffer had sold well in other regions of the United States, but it was virtually unknown in Virginia and other parts of Best's territory. Nevertheless, Tye's introduction of Haffenreffer was successful, apparently because local wholesalers and consumers were familiar with the product due to its marketing in the Southeastern region. Best rapidly became Falstaff's largest purchaser of Haffenreffer, and Haffenreffer sales in Best's territory increased from 31,808 cases sold in 1983 to 1,139,776 cases sold in 1984.

Throughout Best's and Falstaff's relationship, Falstaff charged Best various prices for its products, sometimes increasing the price, and at other times reducing the price for promotional purposes. Best usually was charged the same prices on Falstaff products as Southland, and often was charged lower prices than those charged to Falstaff's other customers. In November 1984, Falstaff announced that, effective December 1, 1984, the price Best was charged for various sized packages of Haffenreffer and Ballentine would be increased significantly (the "December increase"). The December increase was to affect products sold throughout New York State, but Best opted to pass along the increase only to its wholesalers in New York City.

Thereafter, David Tye attempted to contact Falstaff's principal, Paul Kalmanovitz, to seek a rescission of the December increase. Tye had assumed that the December increase was imposed by Falstaff as a punitive measure arising out of an unrelated dispute between Kalmanovitz and his brother, Raymond Tye. Tye had offered personally to resolve the dispute between ...


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