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DELIGIANNIS v. PEPSICO

January 29, 1991

ARISTOMENIS DELIGIANNIS, NIKI DELIGIANNIS, ROBERT A. DELIGIANNIS AND CONSTANTINE A. DELIGIANNIS, PLAINTIFFS,
v.
PEPSICO, INC., A NORTH CAROLINA CORPORATION, PEPSI-COLA METROPOLITAN BOTTLING COMPANY, INC., A NEW JERSEY CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Kram, District Judge.

  MEMORANDUM OPINION AND ORDER

Plaintiffs bring this diversity action to recover damages in excess of $92 million arising out of an alleged contract with defendants concerning the purchase and sale of certain bottling companies and bottling licenses. In May 1989, the Court dismissed the antitrust claims and all claims asserted by Deep South Pepsi-Cola Bottling Company, for failure to state a claim upon which relief could be granted in accordance with Rule 12(b)(6) of the Federal Rules of Civil Procedure. Dependants now move, pursuant to Rule 56(b) of the Federal Rules of Civil Procedure, for an order granting them summary judgment dismissing plaintiff's remaining claims.

BACKGROUND*fn1

PepsiCo, Inc. ("PepsiCo") is a manufacturer of soft drink concentrates. It owns a number of well-known trademarks, including "Pepsi-Cola," "Pepsi," "Diet Pepsi," "Slice" and "Mountain Dew." It licenses these trademarks to bottling companies across the United States to manufacture and distribute the trademarked soft drinks. Each bottling company has been granted an exclusive license to sell the trademarked products within a defined geographical territory.

Among the bottling companies licensed by PepsiCo in early 1985 were the Franklin Bottling Company ("Franklin"), headquartered in Franklin, Pennsylvania, and Buchanan Enterprises, Inc., headquartered in Texarkana, Arkansas. Franklin was owned by members of the Deligiannis family — the brothers Robert, Constantine and Michael Deligiannis, and their parents, Aristomenis and Niki Deligiannis — all of whom, with the exception of Michael, are plaintiffs in this action.

Buchanan Enterprises was owned by Sam Buchanan. Although it sold PepsiCo products, its largest sellers were Dr Pepper products, for which it held a license from PepsiCo's rival, the Dr Pepper Company. Buchanan Enterprises was licensed for three adjoining territories — Texarkana, Arkansas ("Texarkana"); Camden, Arkansas ("Camden"); and Mount Pleasant, Texas ("Mount Pleasant") — only two of which, Texarkana and Camden, were licensed for Pepsi. In addition, Buchanan Enterprises was licensed and produced 7-Up, Sunkist and Canada Dry soft drink products.

The Deligiannises' Southern Acquisitions

In 1983, the Deligiannis group was presented with an opportunity to acquire an independent Pepsi-Cola bottling company located in Natchez and McComb, Mississippi ("Natchez/McComb"). The Deligiannis group closed Natchez/McComb on June 17, 1983, paying $6.25 million.

In late 1984-early 1985, the members of the Deligiannis family began to consider the possibility of selling Franklin to PepsiCo, an idea the Deligiannis group had previously considered in 1981. (Deposition of Robert Deligiannis ["R. Deligiannis Tr."],*fn2 at 209-11; M. Deligiannis Tr. Vol. III at 12-14.) At about the same time, the Deligiannis group was presented the opportunity to acquire a PepsiCo-licensed bottling company in Jennings and Lake Charles, Louisiana ("Jennings/Lake Charles").

The Jennings/Lake Charles acquisition ultimately was closed for approximately $9 million on April 19, 1985 at which time the Deligiannis group assumed additional debt, bringing its bank indebtedness (exclusive of installment payment obligations to the sellers of the acquired companies) to $17.5 million.

While seeking financing to acquire the Jennings/Lake Charles bottling company, the Deligiannises learned that Buchanan Enterprises might also be for sale. In January 1985, Sam Buchanan told PepsiCo's Mr. Mangold that he might be interested in selling his business, but "[o]nly if there is an entrepreneur who can accommodate our entire house, meaning all of our brands." (Buchanan Tr. 10-11.) Mr. Mangold called Robert Deligiannis and let him know that the Texarkana bottling company might be for sale. (R. Deligiannis Tr. 543.) Robert Deligiannis testified that Mr. Mangold told him to call Mr. Buchanan directly:

  After Jim Mangold had talked with Sam Buchanan,
  Jim Mangold called me and told me to call Sam to
  set up a date because Jim thought it was fruitless
  for him to set the date up and then have to call
  me back and see if my schedule was right.

(R. Deligiannis Tr. 543.)

Robert Deligiannis subsequently contacted Mr. Buchanan and arranged to meet with him. The two met in Texarkana on February 12, 1985. At that time Mr. Buchanan offered to sell "the stock of Buchanan Enterprises" for total consideration of approximately $20 million. On April 8, 9 and 10, Robert Deligiannis again travelled to Texarkana, visited retail outlets in the area and met once more with Mr. Buchanan. Promptly thereafter he sent a letter, dated April 11, 1985, to Mr. Buchanan, offering to pay $18 million on certain terms. Mr. Buchanan responded by letter dated April 23, 1985, containing a counter-offer of $18,450,000 on different terms. (R. Deligiannis Ex. 23; R. Deligiannis Tr. 254; Buchanan Tr. 18; Buchanan Ex. 4.)*fn3 Throughout the negotiations there were repeated telephone calls between Mr. Deligiannis and Mr. Buchanan.

On June 6, 1985, according to Robert Deligiannis, Mr. Buchanan called to arrange a further meeting later that month because Mr. Deligiannis had been putting him off. Deligiannis also recalled Mr. Buchanan saying, "Bob, if you do not sign the letter of intent by the end of the month, then I am going to pull it [Buchanan Enterprises] off the market."

On or about June 18, 1985, Mr. Deligiannis again spoke with Mr. Buchanan over the telephone. During this conversation they discussed a further offer by Buchanan. Following this telephone call, Mr. Buchanan undertook to "write down what my final deal would be on paper, and send it to him." (Buchanan Tr. 27.) Buchanan's letter dated June 19, 1985, accompanied by a formal letter of intent, offered to sell the stock of Buchanan Enterprises for $18,536,748 on still different terms. (R. Deligiannis Ex. 24; Buchanan Ex. 2.)*fn4

According to Mr. Deligiannis, Mr. Buchanan called him on June 21, and said that the "sale was off because I was dragging my feet, I better sign the letter of intent by June 30th." (R. Deligiannis Tr. 587.) Deligiannis testified that he did not sign by June 30, however, because Jeff Cone of PepsiCo cautioned him not to:

  [T]here was [a] telephone conversation between us,
  between Jeff and myself.

Q: What was nature of the communication?

  A: We discussed this letter of intent proposal and
  he had suggested to me that there was something
  that needed to be added or subtracted, that there
  was something that was not right, but I don't
  remember exactly.
  Jeff said, "You cannot sign it because Sam
  [Buchanan] has some things mixed up."

(R. Deligiannis Tr. 643-44.)

Mr. Deligiannis testified that at the time of this conversation, he "understood what Jeff was telling him" (R. Deligiannis Tr. 656), and that Cone sent him a handwritten note that set forth "the reason why we should not sign the letter of intent with Texarkana, for the acquisition of it." (R. Deligiannis Tr. 33: R. Deligiannis Ex. 27.) As Mr. Deligiannis understood the note, Mr. Cone was advising him that the assets to be retained by Mr. Buchanan "should have been deducted" from the purchase price rather than added to it. (R. Deligiannis Tr. 653.) Mr. Deligiannis agreed that this was sound advice and testified that he would not sign the letter of intent "if there was an error in it, I would not sign it the way it was." (R. Deligiannis Tr. 658-59.)

Mr. Deligiannis never brought the error to Mr. Buchanan's attention. Mr. Deligiannis testified that Mr. Buchanan called him again, on July 1, reaching him in Pittsburgh where he was attending the first of two closing meetings held in connection with the Deligiannises' sale of the Franklin Bottling Company. According to Deligiannis:

  Sam called me up and . . . said if I didn't sign
  the letter of intent, that you could consider that
  I have taken Texarkana off the market.

(R. Deligiannis Tr. 675.) Mr. Deligiannis further testified that in response to his query as to whether or not Buchanan would place Buchanan Enterprises back on the market, Mr. Buchanan responded "Yes, call my [sic] the first of September. . . ." (R. Deligiannis Tr. 684.) According to Mr. Deligiannis, Mr. Buchanan called him once again after July 1, on either July 10 or 11, to reiterate that because Deligiannis had failed to sign the letter of intent his company was being taken off the market. Deligiannis testified, "I just asked him if he would reconsider and he said to me that `You have dragged this thing on long enough. You have not in good faith kept this thing going and at this time it is off the market,' and that was it." (R. Deligiannis Tr. 689-90.) Mr. Deligiannis again did not advise Buchanan that he believed there was an error in the purchase price. Robert Deligiannis' brother Michael testified that at the time of, and prior to, the Franklin closing on or about July 15, 1985, it was his understanding that Buchanan had taken Texarkana off the market. (M. Deligiannis Tr. Vol. II at 209-10.)

Robert and Constantine Deligiannis both testified that, notwithstanding Mr. Buchanan's pronouncements, they believed that he would still sell to them at some future date and simply dismissed the possibility that he might not. (C. Deligiannis Tr. 330-31; R. Deligiannis Tr. 684-85.)

Discussion With PepsiCo

On March 28, 1985, while the Deligiannis group was in the process of acquiring the Jennings/Lake Charles bottling company, a meeting was held in Franklin, Pennsylvania, attended by the Deligiannis family, their accountant/consultant Henry Burkhalter, and three PepsiCo employees — James Mangold, Jeff Cone and Richard Westelman. Among the topics discussed at the meeting was the means for financing prospective acquisitions — including the possibility of raising cash by selling Franklin. (R. Deligiannis Tr. 222-23, 226-31; Burkhalter Tr. 16-17, 21-27, 30.)

At this meeting, PepsiCo is alleged to have entered into a binding contract with the Deligiannises to consummate one of two transactions: Either (a) the Deligiannis group would sell the Franklin Bottling Company to PepsiCo or to one of its subsidiaries, and PepsiCo would assist the Deligiannis group in arranging financing to enable them to acquire Buchanan Enterprises directly from Sam Buchanan or (b) PepsiCo would only acquire the business comprising the Texarkana territory of Buchanan Enterprises, and swap it for the Franklin Bottling Company, at which time the Deligiannis group would acquire the business comprising Camden and Mount Pleasant directly from Buchanan. (R. Deligiannis Tr. 4, 6; C. Deligiannis Tr. 39-45; Burkhalter Tr. at 74-77; see also R. Deligiannis Ex. 26 at 29.)

Robert and Constantine Deligiannis and Mr. Burkhalter all testified that the contemplated "swap" was a firm deal, consummated during the discussions which took place at the March 28, 1985 meeting. The two other plaintiffs, however, had no such impression of a deal being struck. Niki Deligiannis, mother of Robert, Constantine and Michael, testified that no PepsiCo representative made any representation that the Deligiannis family would get Texarkana. (Deposition of Niki Deligiannis ["N. Deligiannis Tr."] at 154-55.) And Aristomenis Deligiannis, the father, did not remember any PepsiCo offer for Franklin at the March 28 meeting. (Deposition of Aristomenis Deligiannis ["A. Deligiannis Tr."] at 69-70.) Despite earlier testimony about how a "firm deal" had been struck, Mr. Burkhalter later testified that after the March 28 meeting, "[a] decision was to be made by the Deligiannis[es] whether they wanted to do it or not" (Burkhalter Tr. 30).

In May 1985, the Deligiannis group entertained a competing offer for the Franklin Bottling Company made by Santa Fe Associates. Santa Fe's offer was higher than PepsiCo's offer, but Robert Deligiannis, seeing a "bidding war" developing (R. Deligiannis Tr. 382), subsequently went back to PepsiCo's James Mangold, and PepsiCo responded by raising its offer. (C. Deligiannis Tr. 286-87; Mangold Tr. 109; M. Deligiannis Tr. Vol. II at 129.)

Constantine Deligiannis testified that the March 28 "agreement" with PepsiCo precluded dealings with Santa Fe. He testified that, despite the absence of any agreement with PepsiCo on financial terms, he could not have accepted the Santa Fe offer by virtue of a prior "commitment" to PepsiCo. (C. Deligiannis Tr. 206, 216-17.) His brother, Robert, in contrast, maintained that he and PepsiCo only had a "proposed deal" at that time. Robert Deligiannis testified:

    Q. Did you understand before you went back to
  Mr. Mangold that you and PepsiCo had a deal?

A. We had a proposed deal.

(R. Deligiannis Tr. 322-23.) Plaintiff Aristomenis felt free to accept the Santa Fe offer despite the "promises" that had gone before:

    Q. Did you regard yourself as free to accept the
  Santa Fe offer if PepsiCo had not met it or
  bettered it?

A. Yes.

    Q. Were there any promises between you and
  PepsiCo before the Santa Fe offer regarding
  Franklin and Texarkana?

A. I believe so, yes.

(A. Deligiannis Tr. 64-65.) Plaintiff Niki testified:

    Q. At the time of this meeting with your family,
  in connection with the Santa Fe offer, did you
  have a point of view, whether you expressed it or
  not, that you could not accept the Santa Fe offer
  because you had a binding contract which you had
  made previously with PepsiCo concerning Franklin
  and Texarkana?
    A. It wasn't really a binding contract we had
  with them to ...

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