Opinion
Civil Action No. 5:01-CV-124-C
June 4, 2002
ORDER
PART A.
On this date the Court considered Miller Brewing Company's ("Defendant") Motion for Summary Judgment filed December 19, 2001, as to Counts I through V of Plaintiffs First and/or Second Amended Complaint(s). Lubbock Beverage Company, Inc.'s ("Plaintiff") Response to Defendant's Motion for Summary Judgment was filed February 4, 2002. Defendant Miller Brewing Company's Reply Brief in Support of Its Motion for Summary Judgment on Plaintiffs Claims was filed February 19, 2002
Counts I through V of Plaintiffs Second Amended Complaint are similar to Counts I through V of Plaintiffs First Amended Complaint. Rather than having Defendant and Plaintiff unnecessarily duplicate previously filed motions, responses, replies, and supporting documents which were unaffected by the later filing of Plaintiff's Second Amended Complaint, see "II. Procedural Background" infra, this Court granted the parties leave to file supplemental motions, responses, replies, and supporting documents as necessary to encompass any amendments to Counts I through V found in Plaintiffs Second Amended Complaint.
After considering all the relevant arguments and evidence, the Court GRANTS Defendant's Motion for Summary Judgment as to Counts I through V of Plaintiffs First and/or Second Amended Complaint(s).
PART B.
On this date the Court considered Defendant Miller Brewing Company's Motion for Partial Summary Judgment on Plaintiffs Robinson-Patman Act Claims filed March 6. 2002, as to Counts VI and VII of Plaintiffs Second Amended Complaint, as well as Defendant Miller Brewing Company's Supplemental Motion for Summary Judgment on Plaintiffs Robinson-Patman Act Claims filed March 18, 2002, as to Counts VI and VII of Plaintiffs Second Amended Complaint. On March 25, 2002, Plaintiff filed Lubbock Beverage Company, Inc.'s Response to Defendant Miller Brewing Company's Motion for Partial Summary Judgment and Supplemental Motion for Summary Judgment on Plaintiffs Robinson-Patman Act Claims. On April 10, 2002, Plaintiff filed Lubbock Beverage Company, Inc.'s Supplemental Response to Defendant Miller Brewing Company's Motion for Partial Summary Judgment and Supplemental Motion for Summary Judgment on Plaintiffs Robinson-Patman Act Claims. Defendant Miller Brewing Company's Reply to Plaintiff Lubbock Beverage Co., Inc.'s Supplemental Response to the Motion for Partial Summary Judgment and Supplemental Motion for Summary Judgment on Plaintiffs Robinson-Patman Act Claims was filed on April 24, 2002.
After considering all the relevant arguments and evidence, the Court DENIES Defendant Miller Brewing Company's Motion for Partial Summary Judgment on Plaintiffs Robinson-Patman Act Claims as to Counts VI and VII of Plaintiffs Second Amended Complaint and DENIES Defendant Miller Brewing Company's Supplemental Motion for Summary Judgment on Plaintiff's Robinson-Patman Act Claims as to Counts VI and VII of Plaintiffs Second Amended Complaint.
PART C.
On this date the Court considered Defendant Miller Brewing Company's Motion for Partial Summary Judgment on Count One of Its Counterclaim filed December 21, 2001. Lubbock Beverage Company, Inc.'s Response to Defendant Miller Brewing Company's Motion for Summary Judgment and Motion for Partial Summary Judgment was filed on February 4, 2002. Defendant Miller Brewing Company's Reply Brief in Support of Its Motion for Partial Summary Judgment on Count One of Its Counterclaim was filed on February 19, 2002.
After considering all the relevant arguments and evidence, the Court DENIES Defendant Miller Brewing Company's Motion for Partial Summary Judgment on Count One of Its Counterclaim.
I. FACTUAL BACKGROUND
First and/or Second Amended Complaint(s)
Plaintiff is a Texas corporation with its principal place of business in Lubbock County, Texas. Plaintiff distributes beer for and on behalf of Defendant. Defendant is a Wisconsin corporation with its principal place of business in the state of Wisconsin. Defendant is a brewer of beer that wholesales beer to distributors. On January 1, 1999, Plaintiff and Defendant signed the "Miller Brewing Company Distributorship Agreement" ("Agreement"). Under the terms of the Agreement, Plaintiff was Defendant's exclusive distributor in Lubbock, Texas, and the surrounding area.
Under the Agreement, the price which Defendant charged its distributors for its products was commonly called the "FOB" price; the price which Plaintiff charged retail outlets for Defendant's products was commonly called the price-to-retail ("PTR"). Plaintiff contends that when Defendant established the FOB price for Plaintiff, Defendant also suggested a PTR that Plaintiff should use in selling Defendant's products to Plaintiffs customers. If Plaintiff charged a higher PTR than suggested by Defendant, Plaintiff complains that Defendant then raised the FOB price to Plaintiff so as to eliminate the increased profit which might be realized by Plaintiffs higher-than-suggested PTR. However, if Plaintiff charged less than the suggested PTR, Plaintiff complains that Defendant would not reduce Plaintiffs FOB price. Thus, Plaintiff asserts that Defendant's conduct was coercive and both "fixed" Plaintiffs PTR and, consequently, "controlled" Plaintiff's profit margin.
In the spring of 2000, Plaintiff received an offer of purchase of the assets of Plaintiffs distributorship from James R Harman, President of Techtro Energy, Inc. ("Techtro"), as evidenced by Mr. Harman's April 21, 2000, "Letter of Intent." See n. 6 infra. The sale of Plaintiffs distributorship was subject to Section 5 of the Agreement, which required Plaintiff to obtain prior written approval from Defendant for any ownership transfer. By letter addressed to Mr. Harman and dated July 13, 2000, Defendant rejected Techtro's June 2000 "Application for Distributorship Appointment," see n. 6 infra, based on Defendant's significant questions and concerns regarding Techtro's lack of experience in the beer industry, Techtro's inadequate financial position to support the distributorship, and Techtro's unsupportable financial projections for the distributorship's growth in the future.
Section 5. Distributor Ownership and Transfers. See n. 6. 7, 8 infra.
Plaintiff brought suit alleging that Defendant (1) violated the Texas Beer Industry Fair Dealing Law by unreasonably withholding its approval of Plaintiffs sale to Techtro and by fixing product prices; (2) violated the price fixing provisions of the Texas Free Enterprise and Antitrust Act of 1983 and the federal antitrust Sherman Act, breached its duty of good faith and fair dealing with Plaintiff, and discriminated against Plaintiff in the prices and terms of Defendant's sales to Plaintiff; and (3) violated the Clayton Act as amended by the Robinson-Patman Act by underpricing Defendant's products sold in Plaintiff's territory.
Plaintiff seeks this Court's Order requiring Defendant to purchase the assets or stock of Plaintiff for the fair market value as represented by the Techtro offer of purchase, actual and exemplary damages, treble damages pursuant to the antitrust statutes, attorney's fees and costs, prejudgment and postjudgment interest, and such other and further relief as this Court deems appropriate.
Defendant denies each of Plaintiffs claims and affirmatively asserts, inter alia, that (1) Plaintiffs claims are barred by the doctrine of "unclean hands"; (2) Defendant has the right of complete or partial offset; (3) Plaintiff has suffered no antitrust injury; (4) Plaintiff has failed to mitigate damages, (5) Plaintiffs claims may be barred by the expiration of the applicable statutes of limitations; and (6) Plaintiffs claims for equitable relief are barred because Plaintiff has complete and adequate remedies at law.
First Amended Counterclaim
The Court hereby incorporates the "Factual Background" set forth supra and supplements as follows:
Pursuant to the Agreement, including provisions such as Section 3.4, Defendant alleged that from time to time Defendant initiated price promotions during which the FOB price to all distributors, including Plaintiff, was effectively reduced, because Defendant reimbursed the distributors for a portion of the FOB price. Defendant asserted that the amount of the FOB price reimbursement was based on the volume of orders shipped to each distributor during the promotion period and was also affected by the PTR charged by distributors to retailers. Defendant contends that the FOB price reimbursements to distributors were intended to encourage distributors to offer a reduced PTR to retailers, with the ultimate result intended to be lower sale prices to consumers.
Section 3.4 Submissions to Miller. Distributor shall submit only complete and accurate notices, reports, claims, reimbursement requests, payment requests or other communications to Miller. Records of all transactions, including all price promotion allowance programs instituted by Miller, shall be maintained by Distributor for a minimum of three (3) years or as prescribed by state law, whichever is longer. Miller shall have the right to audit all such records. For any Miller price promotion allowance program, Distributor shall be required to file forms prescribed by Miller from time to time. Miller may audit any reimbursement claims filed by Distributor. In the event Miller finds errors greater than One Thousand Dollars ($1,000.00), or such other dollar amount set by Miller from time to time. Miller may calculate the percentage rate of error and. using that percentage rate of error, extrapolate the amount owed to Miller for up to the prior three (3) years total reimbursement claims made by Distributor to Miller. Miller shall notify Distributor of the extrapolated audit results. Within thirty (30) days of such notice, Distributor must either pay the extrapolated amount to Miller or pay for the cost of a full audit by Miller or Miller's designee. Miller reserves the right to enforce other appropriate remedies. including those described in Section 7 below. See n. 4, 5 infra.
Defendant alleged that in February 1999, and pursuant to its express rights contained in Section 3.4, see n. 3 supra, Defendant conducted a routine audit of Plaintiff's FOB price reimbursement claims made in connection with Defendant's promotions programs in 1998. Defendant contends that its audit of a representative sample of Plaintiffs records revealed that Plaintiff was over-reporting its sales volumes and misrepresenting its PTR. As a result, Defendant alleged that it overpaid Plaintiffs FOB price reimbursements during the representative time period in the approximate amount of $30,000. Defendant asserted that by extrapolating the representative overpayment to the entire 1998 time period, Defendant allegedly overpaid Plaintiffs FOB price reimbursements by at least $173,000. Defendant claimed that it demanded from Plaintiff the return of the monies overpaid but that Plaintiff failed and refused to do so. Because Plaintiff failed to repay to Defendant monies allegedly due and owing, Defendant argued that it was entitled to immediately terminate the Agreement, and without compensation to Plaintiff, pursuant to both Sections 7.1 and 7.2 of the Agreement, as well as §§ 102.71(6) and 102.73 of the Texas Alcoholic Beverage Code.
Section 7.1. Termination With Cure. Except as provided in Section 7.2 below, Miller may at any time initiate termination in accordance with the procedures specified in this Section if Distributor fails to comply with any commitment or undertaking stated in its application, or with any of the obligations set forth in this Agreement or the Standards, or as otherwise permitted by state law.
Section 7.2. Termination Without Cure. If any of the following events occur, Miller shall have the right to terminate this Agreement immediately upon giving written notice without any obligation on Miller's part to follow the procedures described in Section 7.1 above or to make a Termination with Cure Payment to Distributor:
(b) Distributor's fraudulent conduct or substantial misrepresentation in any of its dealings with Miller or with others concerning Miller products.
(c) Any significant variation between the financial data submitted to Miller in Distributor's application and the actual financial condition of Distributor as reflected in Distributor's balance sheet at the time Distributor commences operations under this Agreement
. . .
(e) Distributor's insolvency (including Distributor's inability to pay its debts as they mature) or failure to pay monies due Miller in accordance with the terms of sale established by Miller. Distributors assignment or attempt to assign for the benefit of creditors, the institution of bankruptcy proceedings by or against Distributor, or the dissolution or liquidation of Distributor.
. . .
(j) Distributor's failure to undertake a good-faith effort to cure noncompliance pursuant to Section 7.1 above. See n. 4 supra
(k) Any other right to terminate granted under state law, statute or regulation.
Defendant also claimed breach of contract, breach of the duty of good faith and fair dealing, and fraud. Further, Defendant contends that Plaintiffs fraudulent concealment and misrepresentation of the true sales volumes and PTR figures tolled any limitations period applicable to Defendant's counterclaim.
Defendant's Counterclaim invokes this Court's jurisdiction (1) pursuant to Rule 13 of the Federal Rules of Civil Procedure ("FRCP") as a compulsory counterclaim arising out of the same transaction or occurrence as the subject matter of Plaintiffs action; (2) pursuant to the Court's supplemental jurisdiction under 28 U.S.C. § 1367; and (3) pursuant to the Court's diversity jurisdiction under 28 U.S.C. § 1332 (a).
In Count One of its Counterclaim, Defendant seeks a judgment from this Court declaring that the Agreement between the parties be terminated effective immediately upon the signing of this Court's judgment and further declaring that Plaintiff receive no compensation as a result of such termination. Defendant also prays for actual damages, exemplary damages, attorneys' fees, costs, prejudgment and postjudgment interest, and such other relief as the Court may deem appropriate.
Plaintiff affirmatively asserts that (I) Defendant's fraud claims are barred because they have failed to state with particularity the circumstances constituting fraud as required by FRCP 9; (2) Defendant has failed to establish this Court's jurisdiction over the subject matter as required by FRCP 12(b)(1), (3) Defendant has failed to state a claim upon which relief can be granted as required by FRCP 12(b)(6); (4) Defendant's claims are barred by the doctrine of "unclean hands," Defendant's prior material breach of the Agreement, offset, the "economic loss rule," the statute of frauds, and Defendant's own action, inaction, negligence, or misjudgment. Plaintiff also asserts that the limitations period has run and that Defendant's exemplary damages claim violates the Seventh Amendment of the United States Constitution, as well as Article I, Section 13, of the Texas Constitution
Finally, Plaintiff claims that it conducted its own audit of the FOB price reimbursements allegedly overpaid by Defendant. Plaintiff insists that it tendered to Defendant the amount of the overpayment Plaintiffs audit revealed, but Defendant wrongfully refused Plaintiff's tender of such payment.
II. PROCEDURAL BACKGROUND
Complaint/Answer
Plaintiffs Original Petition was filed in the 99th Judicial District Court in and for Lubbock County, Texas, on March 16, 2001. Defendant's Original Answer was filed in said state court on April 12, 2001 Defendant's Notice of Removal was filed on April 23, 2001. Plaintiffs First Amended Complaint was filed August 3, 2001, and Defendant Miller Brewing Company's Answer to Plaintiffs First Amended Complaint was filed August 16, 2001. With leave of this Court, Plaintiffs Second Amended Complaint was filed on February 26, 2002, and Defendant Miller Brewing Company's Answer to Plaintiffs Second Amended Complaint was filed on March 6, 2002.
Motion for Summary Judgment
Defendant Miller Brewing Company's Motion for Summary Judgment on Counts I through V of Plaintiffs First Amended Complaint, see n. 1 supra, was filed on December 19, 2001. Lubbock Beverage Company, Inc.'s Response to Defendant's Motion for Summary Judgment was filed February 4, 2002. Defendant Miller Brewing Company's Reply Brief in Support of Its Motion for Summary Judgment on Plaintiffs Claims was filed on February 19, 2002.
Robinson-Patman Act
Defendant Miller Brewing Company's Motion for Partial Summary Judgment on Plaintiffs Robinson-Patman Act Claims was filed on March 6, 2002 and, with leave of this Court, Defendant Miller Brewing Company's Supplemental Motion for Summary Judgment on Plaintiffs Robinson-Patman Act Claims was filed on March 18, 2002. Lubbock Beverage Company, Inc.'s Response to Defendant Miller Brewing Company's Motion for Partial Summary Judgment and Supplemental Motion for Summary Judgment on Plaintiffs Robinson-Patman Act Claims was filed on March 25, 2002. With leave of this Court, Lubbock Beverage Company, Inc.'s Supplemental Response to Defendant Miller Brewing Company's Motion for Partial Summary Judgment and Supplemental Motion for Summary Judgment on Plaintiffs Robinson-Patman Act Claims was filed on April 10, 2002. Defendant Miller Brewing Company's Reply to Plaintiff Lubbock Beverage Co., Inc.'s Supplemental Response to the Motion for Partial Summary Judgment and Supplemental Motion for Summary Judgment on Plaintiffs Robinson-Patman Act Claims was filed on April 24, 2002.
Counterclaim/Answer
Defendant Miller Brewing Company's Counterclaim was filed on April 23, 2001. Defendant Miller Brewing Company's First Amended Counterclaim was filed on May 31, 2001. With leave of this Court, Counter-Defendant's Second Amended Answer was filed on August 20, 2001, by Plaintiff Defendant Miller Brewing Company's Motion for Partial Summary Judgment on Count One of Its Counterclaim was filed on December 21, 2001. On February 4, 2002, Lubbock Beverage Company, Inc.'s Response to Defendant Miller Brewing Company's Motion for Partial Summary Judgment was filed. Defendant Miller Brewing Company's Reply Brief in Support of Its Motion for Partial Summary Judgment on Count One of Its Counterclaim was filed on February 19, 2002. With leave of this Court, Lubbock Beverage Company, Inc.'s Supplemental Response to Defendant Miller Brewing Company's Motion for Partial Summary Judgment was filed on April 10, 2002 Defendant Miller Brewing Company's Reply to Plaintiff Lubbock Beverage Co., Inc.'s Supplemental Response to the Motion for Partial Summary Judgment was filed on April 24, 2002.
Trial is scheduled in this matter for July 8, 2002.
III. STANDARD
Summary judgment is appropriate only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any," when viewed in the light most favorable to the non-moving party, "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986) (internal quotations omitted). A dispute about a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Id. at 248. In making its determination, the court must draw all justifiable inferences in favor of the non-moving party. Id. at 255. Once the moving party has initially shown "that there is an absence of evidence to support the nonmoving party's case," Celotex Corp. V. Catrett, 477 U.S. 317, 325 (1986), the non-movant must come forward, after adequate time for discovery, with significant probative evidence showing a triable issue of fact. FED. R. CIV. P. 56(e); State Farm Life Ins. Co. v Gutterman, 896 F.2d 116, 118 (5th Cir. 1990). Conclusory allegations and denials, speculation, improbable inferences, unsubstantiated assertions, and legalistic argumentation are not adequate substitutes for specific facts showing that there is a genuine issue for trial. Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428 (5th Cir. 1996) (en banc), SEC v. Recile, 10 F.3d 1093, 1097 (5th Cir. 1993). To defeat a properly supported motion for summary judgment, the non-movant must present more than a mere scintilla of evidence. See Anderson, 477 U.S. at 251. Rather, the non-movant must present sufficient evidence upon which a jury could reasonably find in the non-movant's favor Id.
Although summary judgments should be granted sparingly in complex, fact-sensitive antitrust cases, Transource Int'l, Inc. v. Trinity Indus., Inc., 725 F.2d 274, 279 (5th Cir. 1984), simply because a case is based upon antitrust law does not suspend the application of Rule 56. Aladdin Oil v. Texaco, Inc., 603 F.2d 1107, 1111 (5th Cir. 1979). Some antitrust cases are appropriately dismissed on motion for summary judgment because, despite their complexity, no dispute exists regarding an underlying material fact. Bayou Bottling, Inc. v Dr. Pepper Co., 725 F.2d 300, 303 (5th Cir. 1984).
IV. DISCUSSION PART A.
Counts I through V of Plaintiffs First and/or Second Amended Complaint(s) allege three central complaints. First, Plaintiff complains that Defendant unreasonably withheld its consent to the sale of Plaintiffs distributorship to Techtro. Second, Plaintiff complains that Defendant violated various price fixing statutes. Third, Plaintiff complains that Defendant breached its duty of good faith and fair dealing with Plaintiff.
Plaintiff's First Cause of Action
Defendant's Refusal to Consent to Plaintiffs Sale of Distributorship
The parties agree that Plaintiff is a "distributor" and Defendant is a "manufacturer" as defined by the Texas Beer Industry Fair Dealing Law ("TBIFDL"). TEX. ALCO. BEV. CODE ANN. § 102.71(3)-(4) (Vernon 1995). The "Transfer of Business Assets or Stock" of a distributor is governed by TBIFDL § 102.76(a), which provides as follows:
No manufacturer shall unreasonably withhold or delay its approval of any assignment, sale, or transfer of the stock of a distributor or all or any portion of a distributor's assets, distributor's voting stock, the voting stock of any parent corporation, or the beneficial ownership or control of any other entity owning or controlling the distributor, including the distributor's rights and obligations under the terms of an agreement whenever the person or persons to be substituted meet reasonable standards imposed not only upon the distributor but upon all other distributors of that manufacturer of the same general class, taking into account the size and location of the sales territory and market to be served.
Id. § 102.76(a).
The TBIFDL also provides that
(a) Any manufacturer who, without good cause, unreasonably withholds consent to any assignment, transfer, or sale of a distributor's business assets or voting stock or other equity securities, shall pay such distributor with whom it has an agreement . . . the fair market value of the distributor's business with relation to the affected brand or brands. In determining fair market value, consideration shall be given to all elements of value, including but not limited to goodwill and going concern value.
Id. § 102.77(a).
Plaintiff claims that Techtro offered to buy at fair market value all of Plaintiffs distributorship assets pursuant to Techtro's "Letter of Intent" dated April 21, 2000. Pursuant to Section 5.2(a), see n. 6 supra, of the Agreement, Techtro completed an "Application for Distributorship Appointment" ("Application") and submitted the Application to Defendant in June 2000.
Section 5.2(a). Letter of Intent. Prior to any such Transfer, Distributor shall deliver to Miller a bona fide nonbinding letter of intent negotiated on an arm's length basis duly executed by Distributor and the proposed purchaser, which letter of intent shall be expressly made subject to Miller's rights described in this Section and shall set forth all the essential terms of the transaction, including the property subject to the Transfer; the consideration to be paid; the representations and warranties to be given by Distributor; and, all other material terms and conditions which would be contained in a definitive purchase and sale agreement. Such letter of intent and a distributor application completed by the proposed purchaser shall be submitted to Miller within five (5) days after execution by Distributor of the letter of intent.
Plaintiff contends that, although Techtro met the reasonable standards imposed upon Plaintiff and all of Defendant's other distributors of the same general class, taking into account the size and location of Plaintiffs territory and the market to be served, as provided by TBIFDL § 102.76(a), Defendant nevertheless unreasonably withheld approval of Plaintiffs sale to Techtro. Because Plaintiff claims that Defendant unreasonably withheld its approval to the sale, Plaintiff argues that Defendant must pay to Plaintiff the fair market value of Plaintiffs business in accordance with the TBIFDL § 102.77(a) Plaintiff claims that written demand was made to Defendant to purchase Plaintiffs business, but Defendant refused to do so.
Defendant argues that its review of Techtro's Application pursuant to Section 5.2(d) of the Agreement revealed that Techtro failed to meet the approval criteria set forth in Section 5.4 of the Agreement. Defendant also contends that Techtro's Application indicated that Techtro's lending bank would have a first lien on all assets of the sale, a provision which conflicts with Defendant's policies, as well as the specific terms of the parties' Agreement.
Section 5.2(d). Review of Proposed Purchaser . . . . Miller shall have sixty (60) days from receipt of the completed distributor application to approve or disapprove the proposed purchaser and transaction. Distributor may Convey its business in accordance with the letter of intent subject to Miller's prior written approval of the proposed purchaser, which approval shall not be unreasonably withheld . . . . Miller shall notify Distributor in writing if Miller disapproves the proposed purchaser. The notice will include the reasons for the disapproval. If Miller disapproves the proposed purchaser. Distributor shall not Convey its rights under this Agreement or render itself unable to fulfill its obligations hereunder unless and until it obtains Miller's approval as described in this Section 5.2.
Section 5.4. Approval Criteria. In determining whether to approve or disapprove, as the case may be, a proposed Transfer, change of ownership or any other disposition of an ownership interest in Distributor's business under this Section 5, Miller may consider the qualifications of the proposed purchaser or transferee to fulfill the obligations of this Agreement, the effects of the resulting business combination, the resulting territory con figuration, the potential ad vantages of alternative market combinations, and such other facts and circumstances that Miller reasonably may deem to be relevant. In evaluating the proposed purchaser's or transferee's qualifications. Miller may consider such factors as it deems appropriate, including:
(a) Whether the proposed purchaser or transferee has the financial resources to purchase and own Distributor or the specified interest in it upon terms which will not jeopardize the future operation of the Distributor business, and whether under such ownership Distributor will be able to provide the financial support (including but not limited to market spending, capital expenditures, and any equity capitalization or refinancing requirements) necessary for the successful operation of the Distributor business and to comply with the terms of this Agreement.
(b) Whether the proposed purchaser or transferee and manager have the proven business experience to successfully operate the Distributor business, including whether the non-owner management of the proposed purchaser or transferee has appropriate incentives to comply with the Distributor obligations under this Agreement. Prior experience in the wholesale malt beverage distribution business is strongly preferred by Miller. If a proposed purchaser or transferee would be a first time Miller distributor, the purchaser must be willing to participate along with Distributor's management in a series of training classes in order to be educated on Miller's business practices.
(c) Whether the proposed purchaser or transferee after the Transfer will be engaged in selling competing brands of malt beverages or other products to the extent that such sales would, in the reasonable judgment of Miller. interfere with the successful marketing of, and time and resources devoted to, the Miller products in Distributor's Area.
Section 2.2. Payment Terms . . . . Regardless of the method of payment, Distributor hereby grants, and Miller shall retain, a security interest in products and containers delivered to Distributor until Miller receives full payment of all monies owed to Miller. Upon Miller's request, Distributor shall execute such documents as are necessary to perfect Miller's security interest
Defendant's July 13, 2000, letter to Techtro advised that Defendant would not approve Techtro's proposed acquisition of Plaintiff and specifically included the reasons for the disapproval as required by the Agreement. See n. 7 supra. Among the reasons Defendant gave for refusing to approve Techtro's asset purchase of Plaintiff were the following:
1. Techtro had little, if any, experience in the sales, distribution, and/or marketing of malt beverage products;
2. Techtro's proposed General Manager lacked sufficient management skills to oversee the daily operations of a malt beverage distributorship, particularly given the size of Plaintiff;
3. Techtro's Application failed to meet the minimum financial guidelines outlined in the Agreement;
4. Techtro's financial projections were inconsistent with current and historical financial trends of Plaintiff;
5. Techtro's sales volume projections were overstated and unsupported by current Lubbock market area trends; and
6. Techtro's annual cash flow did not appear adequate to properly service the debt load to be incurred by Techtro.
Defendant also expressed concern that Techtro's business would not be financially capable of(1) complying with Section 3.2 of the Agreement, (2) servicing its existing debt, and (3) absorbing the additional costs required for increased marketing and promotional efforts should the projected sales volume and net income not be achieved as forecast in Techtro's Application. Defendant indicated that the effective distribution, sales, marketing, and promotion of Defendant's products would involve, infer alia, substantial commitment and effort both in terms of senior management and in terms of expenditures for marketing and promotional support and that Defendant doubted Techtro's ability to meet same. Consequently, notwithstanding Mr. Harmon's pledge of personal monies to support Techtro's purchase and Techtro's stated willingness to hire a general manager approved by Defendant, Defendant advised Techtro that, in light of Techtro's lack of industry experience and inadequate corporate financial position and projections, Defendant felt compelled to disapprove Techtro's proposed asset purchase of Plaintiff.
Section 3.2. Performance Standards. Distributor shall, by using its best efforts, vigorously and aggressively sell, deliver, merchandise, and promote the full package line of Miller products listed on the Distributor Data Sheet. Distributor shall also comply at all times with those Distributor obligations described in the Performance Standards and its subparts, including Sales, Operations, Quality, and Finance ("the Standards"), receipt of which is hereby acknowledged. The Standards may be modified from time to time by Miller upon the giving of reasonable notice to Distributor and any such modifications shall not be deemed an amendment to this Agreement. The Standards, as modified from time to time by Miller, shall be identical for all other authorized Miller distributors.
(d) Finance. Distributor shall maintain sufficient working capital to ensure that its facilities, equipment, inventory, and personnel are adequate to compete effectively with other non-Miller brands of malt beverages.
Plaintiff argues that not only did Defendant unreasonably withhold its approval of the sale to Techtro, but Defendant also failed to show how the standards imposed upon Plaintiff related to the standards imposed "upon all other distributors of that manufacturer of the same general class." TBIFDL § 102.76(a) First, the Court notes that the "Comments" to the parties' January 1999 Agreement acknowledge that the new Agreement "establishes specific performance standards for our distributors, . . . which standards are grouped into four main functions: Sales, Operations, Quality and Finance." Second, the Court notes that Section 3.2, Performance Standards, of the Agreement specifically states, "The Standards, as modified from time to time by Miller, shall be identical for all other authorized Miller distributors" (emphasis added). See n. 10 supra. Accordingly, this Court is persuaded that the standards imposed upon Plaintiff by the parties' Agreement related to the standards imposed upon Defendant's other distributors as required by the TBIFDL.
This Court is also persuaded that Defendant's refusal to approve the sale to Techtro was reasonable. The Agreement between the parties expressly sets forth suggested, nonexclusive approval criteria for Defendant's consideration in determining whether to approve or disapprove a proposed change of ownership. See n. 8 supra. After carefully reviewing the competent summary judgment evidence, including those items filed by the parties under protective seal, and viewing all the evidence in the light most favorable to the nonmovant Plaintiff, this Court is convinced that Defendant reasonably applied the Agreement's approval criteria in determining whether or not to reject Techtro's Application.
First, Defendant identified with specificity various deficiencies in Techtro's Application, including Techtro's failure to include market share estimates, distribution goals by product, strategic pricing plans, and allowances for increases in marketing and promotional expenses associated with projected increases in volume sales.
Second, Defendant outlined the inadequacies of Techtro's financial position and analyzed Techtro's financial data supplied in connection with the purchase transaction. In that regard, Defendant determined that Techtro [ailed to meet Defendant's minimum financial criteria and believed that Techtro risked the inability to ensure sufficient working capital to compete effectively.
Third, Defendant's analysis of Techtro's projected sales and earnings indicated to Defendant that Techtro's projections were unrealistic and unsupportable when compared against Plaintiffs actual historical volume and [sometimes negative] income record over the past several years.
Fourth, Techtro's Application indicated that Techtro's lending bank would have first lien on all assets of the sale. Defendant asserts that this provision is not only in direct conflict with Defendant's general policies but is also in violation of the specific terms of the parties' Agreement. See n. 9 supra.
Additionally, even when drawing all justifiable inferences in favor of Plaintiff, this Court finds that Plaintiff has not come forward with significant probative evidence showing a triable issue of fact with regard to Plaintiffs First Cause of Action. Because Defendant enumerated several legitimate business reasons for withholding its approval of Plaintiffs asset sale to Techtro, any one of which was sufficient to reject Techtro's Application, this Court finds that Defendant did not unreasonably withhold its approval of the purchase by Techtro of Plaintiffs distributorship in violation of the TBIFDL. Consequently, Plaintiff is not entitled to an Order of this Court requiring Defendant to pay to Plaintiff the fair market value of Plaintiff's business. Therefore, this Court finds that Defendant is entitled to summary judgment on Plaintiffs First Cause of Action.
Plaintiff's Second, Third, and Fourth Causes of Action
Defendant's Alleged Vertical Price Fixing/Resale Price Maintenance
Plaintiff claims that Defendant sought to, and did, fix the retail price Plaintiff charged to its customers and sought to, and did, control Plaintiffs profit margin in violation of the price fixing provisions of the TBIFDL. Plaintiff also claims that Defendant willfully and flagrantly violated the price fixing and profit margin control prohibitions of both the Texas Free Enterprise and Antitrust Act of 1983 ("Texas Act") and the federal antitrust Sherman Act.
"The party opposing the summary judgment motion must do more than show there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). Here, the basic facts underlying Plaintiffs Second, Third, and Fourth Causes of Action are essentially undisputed, but the parties disagree as to the conclusions that should be drawn from those facts.
The parties do not dispute that, under the Agreement, the price which Defendant charges its distributors for its products is the "FOB" price; the price which Plaintiff charges retail outlets for Defendant's products is the PTR. Plaintiff contends that when Defendant establishes the FOB price for Plaintiff, Defendant also suggests a PTR that Plaintiff should use in selling Defendant's products to Plaintiffs customers. If Plaintiff charges a higher PTR than suggested by Defendant, Plaintiff complains that Defendant then raises the FOB price to Plaintiff so as to eliminate the increased profit which might be realized by Plaintiffs higher-than-suggested PTR. However, if Plaintiff charges less than the suggested PTR, Plaintiff complains that Defendant will not reduce Plaintiffs FOB price. Thus, Plaintiff asserts that Defendant's conduct is coercive and both "fixes" Plaintiff's PTR and "controls" Plaintiffs profit margin.
Defendant argues that none of its FOB pricing practices "fix" the PTR that Plaintiff charges or "control" the profit margin which could be realized by Plaintiff. Defendant asserts that Plaintiffs PTR is a voluntary, unilateral decision made by Plaintiff and that Plaintiff is free to reduce or increase the PTR as Plaintiff sees fit. Defendant contends that its own unilateral, independent conduct in shifting the FOB price in response to any increase or decrease of Plaintiffs PTR does not constitute price fixing. Defendant further argues that no liability under the Sherman Act or the Texas Act can attach because the requisite "combination" or "conspiracy" is absent.
"Prohibited Conduct" under the TBIFDL is set forth as follows:
No manufacturer shall
(1) induce or coerce, or attempt to induce or coerce, any distributor to engage in any illegal act or course of conduct;
(2) require a distributor to assent to any unreasonable requirement, condition, understanding, or term of an agreement prohibiting a distributor from selling the product of any other manufacturer or manufacturers;
(3) fix or maintain the price at which a distributor may resell beer;
(4) fail to provide to each distributor of its brands a written contract which embodies the manufacturer's agreement with its distributor;
(5) require any distributor to accept delivery of any beer or any other item or commodity which shall not have been ordered by the distributor.
TBIFDL § 102.75.
"Unlawful Practices" under the Texas Act include:
(a) Every contract, combination, or conspiracy in restraint of trade or commerce is unlawful.
(b) It is unlawful for any person to monopolize, attempt to monopolize, or conspire to monopolize any part of trade or commerce.
(c) It is unlawful for any person to sell, lease, or contract for the sale or lease of any goods, whether patented or unpatented, for use, consumption, or resale or to fix a price for such use, consumption, or resale or to discount from or rebate upon such price, on the condition, agreement, or understanding that the purchaser or lessee shall not use or deal in the goods of a competitor or competitors of the seller or lessor, where the effect of the condition, agreement, or understanding may be to lessen competition substantially in any line of trade or commerce.
. . .
(h) In any lawsuit alleging a contract, combination, or conspiracy to fix prices, evidence of uniform prices alone shall not be sufficient to establish a violation of Subsection (a) of Section 15.05.
TEX. BUS. CAM. CODE ANN § 15.05 (Vernon 1987 Supp 2002)
"The provisions of [the Texas] Act shall be construed . . . in harmony with federal judicial interpretations of comparable federal antitrust statutes." Id. § 15.04. "Establishing a violation of the [Texas] Act, then, requires the same elements as are required to establish the comparable violation of the Sherman Antitrust Act, 15 U.S.C § 1." Nafrawi v. Hendrick Med. Ctr., 676 F. Supp. 770, 774 (N D. Tex. 1987).
Under the Sherman Act, "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal" 15 U.S.C. § 1 (1997). "[T]he Sherman Act's prohibition of `every' agreement in `restraint of trade,' . . . prohibits only agreements that unreasonably restrain trade." NYNEX (Corp. v. Discon, Inc., 525 U.S. 128, 133 (1998) (emphasis in original)
It is well settled that the traditional framework of analysis under § 1 of the Sherman Act is the "rule of reason." Spectators' Communication Network Inc. v. Colonial Country Club, 231 F.3d 1005, 1012 (5th Cir. 2000). "[V]ertical maximum price fixing, like the majority of commercial arrangements subject to the antitrust laws, should be evaluated under the rule of reason. In our view, rule-of-reason analysis will effectively identify those situations in which vertical maximum price fixing amounts to anticompetitive conduct." State Oil Co. v. Khan, 522 U.S. 3, 22 (1997). Under this rule, the fact finder weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition. Id.
Section 1 of the Sherman Act expressly requires that there be a "combination . . . or conspiracy" in order to establish a violation. 15 U.S.C. § 1. "Independent action is not proscribed." Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 760 (1984). "[T]here can be no liability under § 1 [of the Sherman Act] in the absence of a combination or agreement." Id. "[T]he distinction between independent action and joint action is fundamental in antitrust jurisprudence, and a claim will not exist in the absence of the latter." Id. See a/so Metro Ford Truck Sales, Inc. v. Ford Motor Co., 145 F.3d 320 (5th Cir. 1998) (concluding that the lack of a "contract, combination . . . or conspiracy" precludes a Sherman Act claim).
"To prove conspiracy or `concerted action,' the plaintiff must prove that the conspirators had a `conscious commitment to a common scheme designed to achieve an unlawful objective.'" Monsanto, 465 U.S. at 768. "[W]hether an unlawful combination or conspiracy is proved is to be judged by what the parties actually did rather than by the words they used." United States v. Parke, Davis Co., 362 U.S. 29, 44 (1960).
[A]n unlawful combination is not just such as arises from a price maintenance agreement, express or implied; such a combination is also organized if the [Defendant] secures adherence to his suggested prices by means which go beyond his mere declination to sell to a customer who will not observe his announced policy.
Id. at 43 (emphasis in original). A claim under § I of the Sherman Act requires proof "that the defendant (1) engaged in a conspiracy (2) that restrained trade (3) in a particular market." Spectators' Communication Network Inc., 231 F.3d at 1010.
In the instant case, Plaintiff acknowledges that it is free to set its own PTR and that Plaintiff voluntarily chooses when and if to deviate from Defendant's suggested PTR. Plaintiff also acknowledges that Defendant has the right to unilaterally set its FOB price and to suggest a PTR. Plaintiff complains, however, that Defendant's conduct in changing its FOB price to correspond to a proportionate percentage of Plaintiff's PTR effectively secures Plaintiffs adherence to Defendant's suggested PTR by means which go beyond the boundaries of the Texas Act and the Sherman Act.
Section 1.6. Reservations of Rights. Miller reserves the unqualified right to manage and conduct its business in all respects and shall be free at all times . . . to determine the prices or other terms on which it sells Miller products
Section 2.1. Sale Terms The prices charged by Miller to Distributor for Miller products and other applicable terms of sale shall be those established by Miller and in effect on the date of shipment. Miller shall inform Distributor of its prices and other applicable terms of sale in writing from time to time, but Miller shall have the unlimited right to change prices and to establish terms of sale at any time.
This Court is unpersuaded. As a threshold matter, Plaintiff has offered no evidence that a combination, conspiracy, or agreement existed between or among Defendant and any other person(s) or entity(ies) to further a "conscious commitment to a common scheme designed to achieve an unlawful objective" Defendant cannot be guilty of a combination or conspiracy merely because Defendant indicates a suggested PTR and then independently and unilaterally adjusts its FOB price in response to Plaintiff's equally independent and unilateral choice whether to deviate or not from Defendant's suggested PTR. "The combination required under Section 1 must be demonstrated by proof of: (1) an express or implied agreement, or (2) the securing of actual adherence to prices by means beyond mere refusal to deal." Acquaire v. Canada Dry Bottling Co. of New York, Inc., 24 F.3d 401, 410 (2d Cir. 1994).
Nor has Plaintiff shown a combination or conspiracy which might be implied from a course of dealing or other circumstances. "[I]f a manufacturer takes affirmative action to achieve uniform adherence, . . . the customers' acquiescence is not then a matter of individual free choice." Gen. Cinema Corp. v. Buena Vista Distribution Co., 681 F.2d 594, 597 (9th Cir. 1982) (citing Parke, Davis Co., 362 U.S. at 46-47). "Any claim of vertical price fixing must, therefore, demonstrate affirmative action that will induce customers to adhere to a uniform price." Id. The course of action taken "must involve making a meaningful event depend on compliance or noncompliance with the `suggested' or stated price." Kestenbaum v. Falstaff Brewing Corp., 514 F.2d 690, 694 (5th Cir. 1975).
Plaintiff has offered no evidence which shows that Defendant's actions amounted to the coercion requisite to suggest an implied combination or agreement to unlawfully induce avoidance of price competition Defendant's pricing schedule contains no illegal consequence for Plaintiffs failure to charge the suggested PTR. There is no evidence in the record that Defendant took any affirmative action to terminate dealings with Plaintiff or otherwise threatened that Plaintiff would suffer the consequences of some "meaningful event" for failure to accede to Defendant's suggested PTR. "Evidence of exposition, persuasion, argument, or pressure on the part of the manufacturer is insufficient, without more, to establish coercion required for resale price maintenance." Carlson Mach. Tools v. Am. Tool, 678 F.2d 1253, 1261 (5th Cir. 1982). See also Acquaire, 24 F.3d at 410 (holding that evidence of exposition, persuasion, argument, or pressure on the part of the manufacturer is insufficient, without more, to establish coercion required for resale price maintenance) Consequently, this Court finds that Defendant's FOB pricing policy contains insufficient elements of coercion to suggest an implied combination or agreement in furtherance of a common scheme in violation of the state and federal antitrust laws.
Finally, this Court finds that Defendant's action of simply changing its FOB price in close conformity with Plaintiff s PTR is lawful and neither fixes nor maintains the price at which Plaintiff may resell its beer in violation of TBIFDL § 102.75(3). The TBIFDL does not require the showing of a combination, conspiracy, or agreement. Id. Rather, the TBIFDL promotes the fair, efficient, and competitive distribution of beer by assuring, inter cilia, that a beer distributor is free to manage its business enterprise, including the right to independently establish its selling prices. Id. § 102.72(a)(1).
In a vertical price fixing case, Plaintiff must produce evidence which "tends to exclude the possibility of independent action." Monsanto Co., 465 U.S. at 768. Here, Plaintiff admits that it is free to set its own PTR and acknowledges that Defendant is free to independently establish the FOB price. Plaintiff complains, however, that Defendant "controls" Plaintiffs profit margins by changing the FOB price in response to Plaintiffs choice of PTR and, thus, effectively "fixes" the PTR that Plaintiff ultimately chooses.
Although this Court recognizes that Plaintiffs profit margin might fluctuate in proportion to the FOB price set by Defendant vis-a-vis the PTR selected by Plaintiff, this Court is unconvinced that Plaintiffs varying profit margin had any illegal effect on the "competitive distribution of beer." TBIFDL § 102.72(a). First, regardless of the FOB price set by Defendant, Plaintiff continued to be free to set its own PTR. Plaintiff has offered no evidence which shows that Defendant took steps to forcibly impose any particular PTR on Plaintiff. There is no suggestion that Plaintiff was precluded from charging prices different from the PTR suggested by Defendant.
Second, the Court is persuaded that Defendant's FOB price did not motivate Plaintiffs choice of PTR, because Plaintiff still remained vulnerable to the efforts of interbrand competitors. This Court is unconvinced that any increase or decrease in Plaintiffs profit margin influenced Plaintiff to set a noncompetitive PTR. Although Plaintiffs dissatisfaction with Defendant's pricing system is clear, the antitrust laws were enacted for "the protection of competition, not competitors." Cargill, Inc. V. Monfort of Colo., Inc., 479 U.S. 104, 110 (1986) (emphasis in original). This Court's analysis is also (1) consistent with the general view that "the primary purpose of the antitrust laws is to protect interbrand competition," State Oil Co., 522 U.S. at 15, and (2) cognizant of the "possibility that a vertical restraint imposed by a single manufacturer or wholesaler may stimulate interbrand competition even as it reduces intrabrand competition." Id. at 14 (emphasis in original).
While Defendant's policy of increasing and decreasing the FOB price might be classified as arbitrary, this Court finds that Defendant's conduct is not itself violative of the antitrust laws nor does Defendant's conduct afford a basis for proof of injury. Kestenbaum, 514 F.2d at 694. Plaintiff cannot invoke the antitrust laws to demand equal treatment unless Plaintiff can also demonstrate that Defendant's conduct induced or coerced Plaintiff to set its PTR at other than a competitive level. Gen. Cinema Corp., 681 F.2d at 598. Plaintiff has failed to do so.
Third, even were this Court to entertain Plaintiff's argument that Defendant's motive in increasing and decreasing its FOB price was to put Plaintiff out of business, the Supreme Court has warned "that decisions to put a victim out of business are not always the stuff of antitrust liability." Spectators' Communication Network Inc., 231 F.3d at 1013. This Court also notes that it is not alone in concluding that the pricing system at issue sub judice is not an anticompetitive restraint of trade. See Gen. Cinema Corp., 681 F.2d at 597-98 (concluding that a film distributor's rental fees which were dependent on individual ticket prices and which resulted in a higher or lower proportion of rental fee to ticket price had no illegal effect and was insufficient to constitute a claim of vertical price fixing); Martindell v. News Group Publ'ns, Inc., 580 F. Supp. 330 (E.D.N Y. 1984) (finding that a floating percentage fee charged by a wholesaler newspaper to distributor which effectively altered distributor's profit margin was lawful and not a restraint of trade); Butera v. Sun Oil Co., 496 F.2d 434, 437 (1st Cir. 1974) (upholding supplier's price changes conforming with customers' price changes which insured that customers' profit margins did not change).
Based on the foregoing discussion conducted under the rule of reason analysis, this Court finds that the absence of a combination, conspiracy, or agreement which interfered with or otherwise restrained trade causing injury to Plaintiff precludes both a Sherman Act claim and a Texas Act claim. This Court also finds that Defendant's FOB pricing system does not constitute price fixing in violation of either the Texas Act, the Sherman Act, or the TBIFDL Therefore, this Court finds that Defendant is entitled to summary judgment on Plaintiffs Second, Third, and Fourth Causes of Action.
Plaintiff's Fifth Cause of Action
Defendant's Alleged Breach of Good Faith and Fair Dealing
Plaintiff alleges that Defendant expressly assumed an obligation of good faith under the terms of the Agreement and that Defendant breached this duty through a course of conduct which included the following
Preamble to Agreement.
Miller Brewing Company ("Miller") and the undersigned Distributor recognize that the success of Miller and each of its authorized distributors depends largely on the reputation and competitiveness of Miller products and distributors' performance, and on how well each fulfills its responsibilities to one another and our customers. Therefore, this Agreement imposes on both Miller and Distributor an obligation of good faith in its performance or enforcement. Conformance with the express terms of this Agreement shall be deemed to constitute compliance with such good faith obligation.
A. Defendant's failure to timely pay monies owed to Plaintiff;
B. Defendant's failure to offer to Plaintiff discounted pricing which Defendant offered to other distributors;
C. Defendant's failure to properly and consistently ship product to Plaintiff,
D. Defendant's improper and inconsistent methods of inspecting and auditing of Plaintiff causing harassment and demoralization of Plaintiff and Plaintiffs owners and agents;
E. Defendant's failure to honor agreements to share expenses in local advertisements;
F. Defendant's improper attempts to fix prices and/or control Plaintiff's profit margins.
Plaintiff also contends that Defendant somehow committed itself to an even greater obligation of good faith because the "Comments" prefacing the Agreement state that Defendant is "guided by the following fundamental principle: Miller and Distributor each expressly recognize an obligation of good faith in its relationship with the other and in the performance and enforcement of the new Agreement."
Defendant argues that under Texas law there is no independent cause of action for a breach of duty of good faith and fair dealing and, consequently, Plaintiffs "Fifth Cause of Action — Breach of the Duty of Good Faith and Fair Dealing" fails as a matter of law. This Court agrees.
Under Texas statutory law, "[e]very contract or duty . . . imposes an obligation of good faith in its performance or enforcement." TEX. BUS. COM CODE ANN. § 1.203. (Vernon 1994). The "Uniform Commercial Code Comment" to § 1.203 explains as follows:
This section does not support an independent cause of action for failure to perform or enforce in good faith. Rather, this section means that a failure to perform or enforce, in good faith, a specific duty or obligation under the contract, constitutes a breach of that contract or makes unavailable, under the particular circumstances, a remedial right or power. This distinction makes it clear that the doctrine of good faith merely directs a court towards interpreting contracts within the commercial context in which they are created, performed, and enforced, and does not create a separate duty of fairness and reasonableness which can be independently breached.
Id. U.C.C. cmt.
Under Texas caselaw, § 1.203 has been consistently interpreted to reflect the insights stated in the U.C.C. comment supra. See, e.g., N. Nat. Gas Co. v. Conoco, Inc., 986 S.W.2d 603, 606 (Tex. 1998) (holding that § 1.203 does not support an independent cause of action for failure to perform or enforce in good faith); Crim Truck Tractor Co. v. Navistar Int'l Transp. Corp., 823 S.W.2d 591 (Tex. 1992) (interpreting § 1.203 to mean that "a breach of this contractual duty of good faith and fair dealing gives rise only to a cause of action for breach of contract and does not give rise to an independent tort cause of action").
In the instant case, Plaintiff has specifically alleged a cause of action for breach of good faith and fair dealing and not a cause of action for breach of contract. The court in In re Absolute Resource Corporation held that because "there is no independent cause of action for failure to act in good faith under section 1.203, . . . Plaintiff's claims for breach of the duty of good faith and fair dealing should be dismissed." Absolute Resource Corp. v. Hurst Trust (In re Absolute Resource Corp.), 76 F. Supp.2d 723, 734 (ND. Tex 1999). This Court agrees. Therefore, this Court finds that Defendant is entitled to summary judgment on Plaintiffs Fifth Cause of Action.
PART B.
Plaintiffs Second Amended Complaint added Counts VI and VII for price discrimination and for discrimination in things of value, respectively, under the Clayton Act, as amended by the Robinson-Patman Act ("RPA").
Plaintiff's Sixth and Seventh Causes of Action
Defendant's Alleged Price Discrimination and Discrimination in Things of Value
Plaintiff contends in Count VI that Defendant discriminated against Plaintiff in the prices and terms of sale of Defendant's products, including Defendant-owned products, in Plaintiffs territory and that Defendant allowed, and continues to allow, pricing discounts, rebates, allowances, programs, services, and/or benefits to Plaintiffs competitors, including Defendant, that are not made available to Plaintiff. Plaintiff complains that Defendant's discrimination has resulted in direct injury to Plaintiff through lost sales volume and lost profits, as well as Plaintiffs weakened ability to compete against competitors favored by Defendant, including Defendant.
Plaintiff argues in Count VII that Defendant has granted to Plaintiffs competitors, including Defendant, things of value, including rebates, margin enhancements, or other compensation, allowances, or discounts in lieu thereof, on proportionally unequal terms when compared to Defendant's terms to Plaintiff, even though Plaintiffs competitors render no services therefor. Plaintiff complains that this additional discrimination by Defendant has resulted in direct injury to Plaintiff through lost sales volume and lost profits, as well as Plaintiffs weakened ability to compete against those competitors favored by Defendant, including Defendant.
Defendant argues that Plaintiff's RPA claims in Counts VI and VII depend on a showing by Plaintiff that Defendant discriminated against Plaintiff in favor of Plaintiffs competitors. Defendant asserts that Plaintiff has unequivocally admitted that there is no competitor in Plaintiffs market which sells the same products that Plaintiff sells; therefore, Plaintiff cannot make out a claim under the RPA. Defendant also argues that summary judgment is proper because Plaintiffs damages claims were based on an "automatic damages" measure that has been squarely rejected by the United States Supreme Court and, further, that Plaintiff has failed to prove a causal connection between Defendant's alleged price discrimination and Plaintiffs alleged injuries.
In pertinent part, the RPA provides:
It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce, where such commodities are sold for use, consumption, or resale, . . . and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them.15 U.S.C. § 13 (a) (1997).
With regard to "[p]ayment for services or facilities for processing or sale,"
[i]t shall be unlawful for any person engaged in commerce to pay or contract for the payment of anything of value to or for the benefit of a customer of such person in the course of such commerce as compensation or in consideration for any services or facilities furnished by or through such customer in connection with the processing, handling, sale, or offering for sale of any products or commodities manufactured, sold, or offered for sale by such person, unless such payment or consideration is available on proportionally equal terms to all other customers competing in the distribution of such products or commodities.15 U.S.C. § 13 (d).
With regard to "[f]urnishing services or facilities for processing, handling, etc.,"
[i]t shall be unlawful for any person to discriminate in favor of one purchaser against another purchaser or purchasers of a commodity bought for resale, with or without processing, by contracting to furnish or furnishing, or by contributing to the furnishing of, any services or facilities connected with the processing, handling, sale, or offering for sale of such commodity so purchased upon terms not accorded to all purchasers on proportionally equal terms.
Id. § 13(e).
Under the RPA, a pricing pattern which has adverse effects only upon Defendant's competition is commonly called primary line competition, and a pricing pattern which has adverse effects only upon Plaintiffs competition is commonly called secondary line competition. FTC v. Anheuser-Busch, Inc., 363 U.S. 536, 538 (1960). Pricing discrimination occurs in two forms: (1) as a price differential between geographical markets, called primary line competition, and (2) as a price differential between purchasers, called secondary line competition Texaco, Inc. v. Hasbrouck, 496 U.S. 543, 557-58 (1990). Plaintiffs RPA antitrust violations alleged in this case reflect unlawful price discriminations affecting secondary line competition. that is, price discriminations by Defendant which affected competition among Defendant's buyers
Thus, in order to establish a secondary line competition violation of the RPA, Plaintiff must show that Defendant discriminated in price (1) between Plaintiff and Plaintiffs competitors (2) for commodities of like grade and quality (3) where the effect of such discriminatory price was to substantially lessen competition or tend to create a monopoly Id. § 13(a). Moreover, Plaintiff has the burden of proving the extent of actual injuries suffered, such as lost sales and profits. Texaco, Inc., 496 U.S. at 556.
However, in keeping with the RPA's prophylactic purpose, Plaintiff need not show that Defendant's discriminations did, in fact, harm competition; rather, Plaintiff must show "a reasonable possibility that a price difference may harm competition." Falls City Indus., Inc. v. Vanco Beverage, Inc., 460 U.S. 428, 435 (1983). "This reasonable possibility of harm is often referred to as competitive injury." Id. "[I]njury to competition is established prima fade by proof of a substantial price discrimination between competing purchasers over time." Id. "Unless rebutted by one of the [RPA's] affirmative defenses, a showing of competitive injury as part of a prima facie case is sufficient to . . . authorize further inquiry by the courts into whether the plaintiff is entitled to treble damages." Id.
The Fifth Circuit has interpreted the "reasonable possibility of substantially lessening competition" as requiring the plaintiff to prove that the result of the price discrimination "is likely to be a severe, adverse effect on competition." Chrysler Credit Corp. v. J. Truett Payne Co., 670 F.2d 575, 580 (5th Cir. 1982). "In order to show a violation of [the RPA] a plaintiff must demonstrate that the likely effect of the alleged price discrimination was to allow a favored competitor to draw significant sales or profits away from him, the disfavored competitor." Id.
Nevertheless, the Supreme Court has held that there may be a violation of the RPA "even if the favored and disfavored buyers do not compete, so long as the customers of the favored buyer compete with the disfavored buyer or its customers." Texaco, Inc., 496 U.S. at 554. "[T]he competitive injury component of [an RPA] violation is not limited to the injury to competition between the favored and the disfavored purchaser; it also encompasses the injury to competition between their customers." Falls City Indus., Inc. 460 U.S. at 436. "The whole thrust of the [RPA] concerns protection of competition for resale. . . . Competition is determined by careful analysis of each party's customers. Only if they are each directly after the same dollar are they competing." M.C. Mfg. Co., Inc. v. Tex. Foundries, Inc., 517 F.2d 1059, 1068 n. 20 (5th Cir. 1975).
With regard to Count VI, Defendant argues that Plaintiff has admitted that Plaintiff does not compete for sales with other distributors of Defendant's products in the Lubbock market and, therefore, Plaintiff cannot establish a violation of the RPA price discrimination provisions. This Court disagrees.
In his deposition, Charles Ray Mayers, Plaintiffs President, testified:
Q. In the Lubbock market or outside the Lubbock market . . . tell me every entity that [Plaintiff] competes with.
A. We compete against Standard Sales which is the Budweiser people. We compete against Great Plains Distributing, which is not only a Coors Distributor but a Miller distributor, they distribute Miller products in my market. . .
. . .
Q. Okay. But you don't compete with your fellow Miller distributors, do you sir, for consumers to buy your beer?
A. No.
Q. Okay. Other than —
A. Let me correct that. Other than the South Great Plains, they're selling products that Miller owns in my market, which makes me compete against them.
. . .
Q. Does Miller sell the Strohl's products and Strohl's light product?
A. The only products Miller sells is Olde English 800, Hamm's, Henry Weinhard and Mickey Malt liquor, those brands, they own.
With regard to Count VII, Defendant reiterates its arguments that Plaintiff is not a competitor, has suffered no actual injury, and has established no causal connection between Defendant's alleged misconduct and Plaintiffs alleged damages. To support Count VII, Plaintiff has produced evidence, albeit extremely weak, that "gross profits on a brand/package may vary between distributors for the following reason: . . . Distributor Margin enhancements" However, because of this lawsuit's unusual procedural history, wherein, with leave of this Court, Counts VI and VII were added subsequent to Defendant's summary judgment motions and Plaintiffs responses but prior to this Court's enlargement of time for discovery, Plaintiff insists that completion of discovery will allow Plaintiff to present additional evidence in support of Count VII.
Accordingly, this Court finds summary judgment on Counts VI and VII is inappropriate at this time. Plaintiff has demonstrated that a "reasonable possibility" exists that Defendant's pricing policies with regard to its own brands for resale in Plaintiffs territory may harm competition and/or the consumer, especially given the contractual relationship between the parties under the Agreement in force. It appears to this Court that genuine issues of material fact exist as to (1) whether Defendant manufactures and sells for resale certain products of "like grade and quality" which directly compete with Plaintiff for the same consumer dollar and (2) whether Defendant makes available to Plaintiff margin enhancements on proportionally unequal terms.
While price discrimination which threatens competition, but which has not caused any actual competitive injury, may be held to violate the RPA, this Court is fully cognizant that such price discrimination may still not support an action for damages. Whether Plaintiff will be able to establish, "as a matter of fact and with a fair degree of certainty," Chrysler Credit Corp., 670 F.2d at 582, a "substantial lessening" of competition or a "severe, adverse effect on competition" sufficient to support Plaintiffs alleged injuries and damages are questions for the fact finder to determine. Consequently, drawing all reasonable inferences most favorably to Plaintiff, but without expressing any opinion as to the merits of Plaintiffs claim, this Court finds that Defendant is not entitled to summary judgment on Plaintiffs Sixth and Seventh Causes of Action.
PART C.
In Count One of its Counterclaim, Defendant alleges that from time to time Defendant initiated price promotions during which the FOB price to all distributors, including Plaintiff, was effectively reduced, because Defendant reimbursed the distributors for a portion of the FOB price. Defendant asserts that the amount of the FOB price reimbursement was based on the volume of orders shipped to each distributor during the promotion period and was also affected by the PTR charged by distributors to retailers. Defendant contends that the FOB price reimbursements to distributors were intended to encourage distributors to offer a reduced PTR to retailers, with the ultimate result intended to be lower sale prices to consumers.
Defendant alleges that in February 1999, and pursuant to its express rights contained in Section 3.4, see n. 3 supra, Defendant conducted a routine audit of Plaintiff's FOB price reimbursement claims made in connection with Defendant's promotions programs in 1998. Defendant contends that its audit of a representative sample of Plaintiffs records revealed that Plaintiff was over-reporting its sales volumes and misrepresenting its PTR. As a result, Defendant alleges that it overpaid Plaintiffs FOB price reimbursements during the representative time period in the approximate amount of $30,000. Defendant asserts that by extrapolating the representative overpayment to the entire 1998 time period, Defendant allegedly overpaid Plaintiffs FOB price reimbursements by at least $173,000.
Defendant claims that it demanded from Plaintiff the return of the monies overpaid, but Plaintiff failed and refused to do so. Because Plaintiff failed to repay to Defendant monies allegedly due and owing, Defendant argues that it is entitled to immediately terminate the Agreement without compensation to Plaintiff pursuant to express provisions of § 102.74 of the TBIFDL. Defendant also argues that Plaintiff fraudulently concealed Plaintiffs correct sales volumes and PTRs and that any applicable limitations period was tolled as a result
In response, Plaintiff argues, inter alia, that genuine issues of material fact exist as to (1) the amounts, if any, owing to Defendant, (2) whether any amounts owing are subject to Plaintiffs offset, and (3) whether Defendant's prior breach of the Agreement excused Plaintiffs performance.
In its Reply, however, Defendant made clear that it "seeks partial summary judgment solely on its claim for declaratory judgment that [Defendant] is entitled to terminate the parties' Distributor Agreement based on the express terms of a Texas statute, not on any claim for breach of contract, or to recover damages" (emphasis in original). This Court confines its analysis accordingly and expresses no opinion as to the merits of the parties' other claims and/or defenses.
Under the express terms of the "Termination and Notice of Cancellation" provisions of the TBIFDL,
(c) [a] manufacturer or distributor may cancel, fail to renew, or otherwise terminate an agreement without furnishing any prior notification for any of the following reasons:
. . .
(4) in the event of the failure to pay amounts owing the other when due, upon demand therefor, in accordance with agreed payment terms.
TEX. ALCO. BEV. CODE ANN. § 102.73(c)(4).
This Court finds that Defendant has failed to meet the threshold burden enunciated in the plain language of § 102.73(c)(4) and is not entitled to terminate the parties' Agreement based on the express terms of the statute. Critically, Defendant has failed to establish the "amounts owing the other when due."
Contrary to Defendant's conclusory assertion that "[i]t is undisputed that [Plaintiff] owes [Defendant] a significant debt under the provisions of the parties' beer distribution contract," Plaintiff raises several defensive theories and vigorously contests the amounts, if any, due and owing to Defendant. Further, this Court notes that each party has offered conflicting evidence of independent audits as to the amount of the alleged FOB price reimbursement overpayments. Thus, based on the express terms of the TBIFDL, this Court finds that Defendant is not entitled to summary judgment as to Count One of its Counterclaim.
CONCLUSION
After considering all the relevant arguments and evidence, this Court GRANTS Defendant's Motion for Summary Judgment as to Counts I through V of Plaintiffs First and/or Second Amended Complaint(s); DENIES Defendant Miller Brewing Company's Motion for Partial Summary Judgment on Plaintiffs Robinson-Patman Act Claims as to Counts VI and VII of Plaintiffs Second Amended Complaint; DENIES Defendant Miller Brewing Company's Supplemental Motion for Summary Judgment on Plaintiffs Robinson-Patman Act Claims as to Counts VI and VII of Plaintiffs Second Amended Complaint; and DENIES Defendant Miller Brewing Company's Motion for Partial Summary Judgment on Count One of Its Counterclaim.