Petition — Hawkins v. Holiday Inns, Inc.

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Office-Spreme Court, U

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80-1619 MAR 28 198}

No. 8O- ALEXAND.-'2 L. STEVAS,

CLERK

Supreme Court of the United States

October Term, 1980

FRANK L. HAWKINS,

v.

HOLIDAY INNS, INC.,

Petitioner

Respondent

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

Davin BERGER

1622 Locust Street

Philadelphia, PA 19103

(215) 875-4900

Counsel of Record for Petitioner

Frank L. Hawkins

Of Counsel |

H. Lappre MonracvugE, JR.

WarRREN D. MULLOY

ALAN C. KESSLER

BERGER & MONTAGUE, P. C.

1622 Locust Street

Philadelphia, PA 19103

(215) 875-4900

HAROLD BROWN

Brown, Prirti1, LEIGHTON & COHEN

66 Long Wharf

Boston, MA 02110

(617) 227-9265

EpwaARD KUHN

McDona.p, Kunw, SMITH, GANDY,

MruwerR & TAIT

150 E. Court Avenue

Memphis, TN 38103

(901) 526-0606

International Printing Co., 711 So. 50th St., Phila., Pa. 19143 — Tel. (215) 727-8711

QUESTION PRESENTED FOR REVIEW

Whether a restraint by a hotel franchisor which exists

in a written agreement and/or combination between the

franchisor and franchisee, and which is actively policed

by the franchisor, which precluded the franchisee from

transferring his three licensed hotels to an otherwise quali-

fied third party constitutes an unreasonable restraint of

trade (Sherman Act, §1, 15 U. S. C. $1) outside the

limited defense of United States v. Colgate, 250 U. S. 300

(1919).

PARTIES TO THE PROCEEDINGS

IN THE COURT BELOW

The parties to the proceedings in the courts below are

Frank L. Hawkins, Petitioner and Holiday Inns, Inc., Re-

spondent.

TABLE OF CONTENTS

QUESTION PRESENTED FOR REVIEW .............ceeeeceeees

PARTIES TO THE PROCEEDINGS IN THE Courts BELOW ........

SARE OP DUIS o.oo ovine oa ckcakcadth cone

RIE TMI cas cok. 60 4004s owaee cee ehkcee

I. The Court Below Has Decided an Important Question

of Federal Law Which Should Be Settled by This

OME 5 cd censevnnnsceddeanksaeaediaaee

A. The Court Below Has Decided an Important

Federal Question in Conflict With the Applica-

ble Decisions of the Supreme Court ..........

B. The Court Below Has Decided an Important

Federal Question in Conflict With the Applica-

ble Decisions of Other Circuit Courts of

DOGO io vcncevcacicincsseieiars eee

C. The Court Below Failed to Apply the Principles

and Doctrine Established by the Supreme Court

and Followed by Circuit Courts of Appeals to

the Present Case Resulting in Fundamental and

8 PTT ee

REAM 60. ic cdesiscevnsndsbxsebssewbseuie

Nnpne = =

14

‘TABLE OF CONTENTS (Continued)

APPENDIX: Page

Opinion of the Court of Appeals ..............0eeseee Al

Opinion of the District Court .............ceeeeeeenee A6

Judgment of the Court of Appeals .............00e0055 A25

' Judgment of the District Court ..............ceseeees A27

Opinion of the Court of Appeals Denying Petition for

Rehearing and Suggestion for Rehearing En Banc .. A29

SUEY TRIUUOIIININS o65 ccc ccecenccccccdceciocrespons A30

(iii)

TABLE OF AUTHORITIES

Cases: Page

Adolph Coors Company v. Federal Trade Commission, 497

Fs ee Ree Ce Sa RD iin an ek mdsans Sw es eerqaaen 15

Albrecht v. Herald Company, 390 U. S. 145 (1968) ..... 14, 19, 20

Anderson v. American Automobile Assoc., 454 F. 2d 1240

Co RE ee eS Pere rT ee ee oe 15

Arnott v. American Oil Company, 609 F. 2d 873 (8th Cir.

NN a os ok tees vs cavhcl i ner incee 14

Board of Trade of City of Chicago v. United States, 246

iy EE CRE NTN AOE RA DA d ap cache VARNES 21

Byars v. Bluff City News Company, 609 F. 2d 843 (6th Cir.

Ee hy ORE ee ewer re i Bro en iene 7,8

Campbell v. Olivia M. D., 424 F. 2d 1244 (6th Cir. 1970) ... 9

Clairol Inc. v. Boston Discount Center of Berkley, Inc., 608

ae CR TE EO PD 4k ok NR ee ened eben cena ces 8, 14

Continental Ore Company v. Union Carbide & Carbon Co.,

a i ee ok WG Laas pbukbene Uheedeeeeees 4

Continental T.V., Inc. v. GTE Sylvania, Inc., 433 U. S. 36

ea ee Neen alee Vand eh aah aude wes teks eeaae 8,9

Federal Trade Commhission v. Beech-Nut Packing Company,

ee Se ED oben io4 bas cca ceekeb bh eewe eres 11,13

Fontana Aviation, Inc. v. Beech Aircraft Corp., 432 F. 2d

1080 (7th Cir. 1970) cert. denied, 401 U.S. 932 (1971). 15

Fount-Wip, Inc. v. Reddi-Wip, Inc., 568 F. 2d 1296 (9th Cir. |

URE ses Sak eaeN Na aad bes eho cd esa SRNR SbT eae ES 14, 15

Frey & Son, Inc. v. Cudahy Packing Company, 256 U. S. 208

ROC TS IPRS ree Ey SSC LE cP EPC PI Es PEAS LMG aN Ser EIN 10, 11

George W. Warner & Company, Inc. v. Black and Decker

Manufacturing Company, Inc., 277 F. 2d 787 (2d Cir.

SE TF CRK RANG aac bb 4 KK A Wd > Khon tea ete 2 15, 16

Harold Friedman, Inc. v. Thorofare Markets, Inc., 587 F. 2d

127 (3d Cir. 1978)

TABLE OF AUTHORITIES (Continued)

Cases (Continued): Page

Lamb Enterprises, Inc. v. Toledo Blade Company, 461 F. 2d

S06 (Oth Cir. 1972) .......cccccccccccccccccccccceces 21

Lavender v. Kurn, 327 U. S. 645 (1946) ..........-- eee 9

Osborn v. Sinclair Refining Company, 324 F. 2d 566 (4th Cir.

BED bein ciens casa ancccthencaccss ees eceasnenenmen 17

Perma Life Mufflers, Inc. v. International Parts Corp., 392

We BE CBD vin nee cis vednenvesnsdscanedancevess 19

Reed Brothers, Inc. v. Monsanto Company, 525 F. 2d 486

(8th Cir. 1975) cert. denied, 423 U. S. 1055 (1976) ..... 15

Simpson v. Union Oil Co. of California, 377 U. S. 13 (1964)

13, 14, 20

Standard Oil of New Jersey v. United States, 221 U. S. 1

CORD ooivcas vcenn sade catnoavecscntesecekeetedeesns 7

Tenant v. Peoria & P. V. Ry. Co., 321 U. S. 29 (1944) ...... 9

Times-Picayune Publishing Company v. United States, 345

Wh SE CIEE vnc kcsevsnvvanscoscsvecsoxennesues 20, 21

Unibrand Tire & Product Company, Inc. v. Armstrong Rubber

Company, 429 F. Supp. 470 (W. D. N. Y. 1977) ....... 19

United States v. Arnold, Schwinn & Company, 388 U. S. 365

(1967) reversed on other grounds, Continental T.V.,

Inc. v. GTE Sylvania, Inc., 433 U. S. 36 (1977) ........ 8,9

United States v. A. Schrader’s Son, Inc., 252 U.S. 85 (1920) . 10

United States v. Bausch & Lomb Optical Company, 321 U. S.

|| EER Oe Abe poeae AL ELLIOT 12, 13, 20

United States v. Colgate, 250 U. S. 300 (1919) ....i, 7, 8,9, 10, 11,

13, 14, 15, 17, 18, 19, 20

United States v. Parke, Davis & Company, 362 U. S. 29 (1960)

8, 11, 12, 13, 14, 16, 17, 20, 21

Statutes:

8 eS rrr re etre te i, 1, 2, 6, 7, 8, 9, 20

“LE eg * ern eermnerere ay mea 8

ee RS ST ergot re l

OPINION BELOW

The Opinion of the United States Court of Appeals

for the Sixth Circuit is officially reported as follows, and

is also printed in the Appendix as indicated.

Opinion of Court of Appeals (Appendix, infra, p. A-

1) is reported at 634 F. 2d 342 (6th Cir. 1980).

JURISDICTION

The judgment of the Court of Appeals for the Sixth

Circuit was entered on November 5, 1980, and is set out

in Appendix, infra, p. A-25. A timely petition for rehear-

ing, containing a suggestion that the action be reheard en

banc, was filed on November 21, 1980, and was denied

on December 22, 1980. The order of denial is set out in

Appendix, infra, p. A-29. The jurisdiction of the Supreme

Court of the United States is invoked under 28 U. S. C.

Section 1254(1).

STATUTE INVOLVED

Section One of the Sherman Act (15 U. S. C. § 1)

provides in pertinent part:

“Every contract, combination . . . or conspiracy, in

restraint of trade or commerce among the several

states . . . is declared to be illegal .. .”

(1)

2 Petition for Writ of Certivrari

‘STATEMENT OF THE CASE

Petitioner, Frank L. Hawkins, commenced suit against

respondent, Holiday Inns, Inc., in October, 1974, alleging

an unreasonable restraint of trade by respondent in viola-

tion of Section 1 of the Sherman Act, 15 U. S. C. $1,’

causing injury to petitioner's “business or property,” as

set forth below. The case was tried before a jury which

returned a verdict for petitioner in the amount of $674,-

000.00 single damages. The District Court issued an

Opinion and Order in effect granting Judgment N. O. V.

and the Court of Appeals for the Sixth Circuit affirmed.

Petitioner owned and operated three separate hotels

since approximately 1962, and had been granted a Holi-

day Inns’ (“HI”) license for each, under Agreements

which provided, inter alia, that the license “is non-transfer-

able without the written consent of the Licensor”. Peti-

tioner expended considerable efforts in building, up the

name and goodwill of HI within the Mobile area, when,

in the normal course of business he decided to sell his

inns.

Because petitioner, in originally obtaining financing,

had to “cross-collateralize” his three inns he had special

problems in attempting to sell them. Accordingly, peti-

tioner had to sell all his inns as a package or not at all,

and he had been unsuccessful in several attempts to sell.

As of 1972, Radice Realty and Construction Company,

through its Motor Lodge Division, owned, developed and

operated five hotel-motels under national franchises

(Sheraton, Howard Johnson). Disappointed with its ex-

pansion in the hotel-motel industry, Radice Realty sought

a dramatic increase in its hotel-motel holdings. In 1971,

its Board of Directors ordered that the motor lodge divi-

1. Section 1 of the Sherman Act was the basis for federal juris-

diction in the Court of First Instance (Rules of the Supreme Court

of the United States, 21(i) ).

Petition for Writ of Certiorari 3

sion acquire four motels within eighteen months or else

face liquidation. Because of this ultimatum, the president

of the motor lodge division, Thomas J. Butler, sought to

acquire existing hotels-motels and looked for a city that

had multiple operations. As a result of its Board’s order,

Radice Realty acquired a Ramada Inn in Virginia. Need-

ing three more motels, Radice Realty wished to purchase

petitioner's inns, since they fit ideally into the Radice plan

and would have given Radice the four inns it needed

within the required eighteen months. Accordingly, the

needs of both petitioner and Radice complimented each

other. Radice presented a unique opportunity for peti-

tioner to sell his three inns.

The Radice Board of Directors and the Finance Com-

mittee approved the acquisition, told Mr. Butler to pro-

ceed, and authorized the expenditure of $2 million. At

this time, Radice had excellent credit, had assets exceeding

liabilities, had showed a good profit for the fiscal year,

had cash far in excess of the purchase price, and was there-

fore in a position to consummate the purchase of peti-

tioner’s three inns. The jury so found (see Answer to

Jury Interrogatory No. 1, p. A-30). Accordingly, Mr.

Butler apprised petitioner of the authorization to proceed

and thereafter, in January, 1973, Radice Realty “made an

offer to purchase the three existing Holiday Inns in Mo-

bile, Alabama.” The sole material condition precedent to

a consummated agreement of sale was that petitioner ob-

tain from HI a confirmation that petitioner could transfer

his HI franchises. Radice Realty noted that “upon our

receipt of such written confirmation,. . . we will direct

our attorneys to draft the necessary contracts” and that

“we trust .. . will be in the very near future”.?

2. The Court of Appeals made a naked statement that peti-

tioner never received a bona fide offer from Radice. (Opinion at

4, p. A-4) Notwithstanding that this issue, while it might be

4 Petition for Writ of Certiorari

Petitioner then wrote respondent asking for its con-

sent to the transfer of the licenses, advising respondent

that the prospective purchasers already operated other

hotels-motels. In order to obtain this consent to transfer,

respondent had to waive its “non-Holiday Inns” clause,

also in the license agreement and which conditioned the

grant of a HI franchise on the non-ownership of non-

Holiday Inns.* Petitioner’s sole interest in requesting a

2. (Cont'd. )

relevant in a breach of contract case, has absolutely no relevance

in the case sub judice—where the issue was whether respondent’s

enforcement of its non-Holiday Inn provision materially contributed

to the aborted sale by petitioner of his inns to Radice (whether or

not there was a bona fide offer )—the record overwhelmingly sup-

ported, as demonstrated above, a finding that Radice made a bona

fide offer to acquire petitioner's inns. Moreover, the Radice episode

merely shows that there was some damage or impact and provided

a measurable framework for assessing the amount of damage as

well. Even assuming arguendo, the Radice offer was not a “bona

fide offer,” petitioner was entitled to have the jury infer and decide

from all the evidence whether or not respondent’s conduct ma-

terially contributed to the loss by petitioner of the sale to Radice,

causing him injury. It was the function of the jury, not the District

Court, to weigh the evidence and to draw its conclusion. Con-

tinental Ore Company v. Union Carbide & Carbon Company, 370

U. S. 690, 700-701 (1962). The jury performed that function and

concluded that Radice Realty made a bona fide offer to purchase

petitioner's inns, Jury Interrogatory No. 1, p. A-30.

3. One indicia of the unreasonableness of the provision is that

it flatly prohibited ownership in any non-Holiday Inn without re-

gard to the geographic location of those non-Holiday Inns and

their competitive effect. For instance, had Radice Realty pur-

chased petitioner's inns in Mobile, Alabama, its other hotel-motels

were in Milwaukee, Wisconsin, Virginia, and Ocala and St. Augus-

tine, Florida—substantial distances from Mobile. While many

competitors similar to HI had standards resembling those of HI

and computerized reservations systems comparable to respondent's

reservation system, all had provisions in their license agreements

far less restrictive than the non-Holiday Inn clause.

Petition for Writ of Certiorari 5

transfer of the licenses to Radice and the consequent

waiver of the “non-Holiday Inn” clause was so that he

could effect a sale of his hotels as Holiday Inns.* Re-

spondent denied the requested transfer by summarily re-

fusing to waive that clause, expressly advising petitioner

that it had “been our policy for many years” and “the

Company is not going to change its policy in this regard

unless a court rules otherwise .. .”. As a result of re-

spondent’s response, dealings with Radice Realty were

terminated and therefore never consummated. The jury

so found (see Answer to Jury Interrogatory No. 4, p. A-

31). The jury found that the HI franchise system com-

prised 15+% of the hotel-motel-motor lodge market. Be-

cause of the non-Holiday Inn clause, petitioner could only

sell his inns * to a maximum of those owning that 15+%

of that market, i.e., other owners and operators of HI, and

was restrained from selling to the owners/operators of the

remaining substantial (85%) portion of the market. In

other words, because of the non-Holiday Inn clause and

respondent's enforcement of it, only the owners/ operators

of 15+% of all the hotels-motels-motor lodges throughout

the United States’ qualified to be potential buyers of

petitioner's inns and HI franchises. Conversely, because

4. While it is true that petitioner was not seeking to own a

competing hotel, (Opinion at 2, p. A-2) it was petitioner who

sought the transfer end waiver which was requirec on his part to

achieve his sale to Radice.

5. Respondent did not request the identity of or any financial

or other information regarding the prospective purchaser. It,

therefore, never exercised any purported right to license those it

preferred since without any idea as to the identity of the prospec-

tive purchaser, the non-Holiday Inn clause was the only reason

offered for withholding consent to the transfer of the licenses.

6. Thus, the relevant market was the purchase of hotels, motels

and inns and was not the actual business of operating hotel-motels.

7. Of that 15+-%, respondent was the largest single owner of

6 Petition for Writ of Certiorari

of the non-Holiday Inns clause, the owners/operators of

85% of the hotels-motels-motor lodges in the United States

were precluded from purchasing petitioner's inns and HI

franchises and Radice Realty was part of that 85%. (See

Answers to Jury Interrogatories Nos. 5, 8(a) and 8(b), p.

p. A-31-32).

District Court

The case went to trial before a six person jury, Judge

Harry W. Wellford presiding. After several trial days, the

case was submitted to the jury. The jury was asked to

answer thirteen specific and technical interrogatories, many

consisting of subparts and requiring computation. (See

pp. A-30-33). On September 15, 1977, the jury answered

the interrogatories in favor of petitioner on his charge that

respondent violated Section 1 of the Sherman Act in the

amount of $674,000.00 single damages.* Subsequent to

the trial, petitioner moved for entry of the judgment based

upon the jury’s verdict in the amount of $2,220,000 treble

the amount of the damages found by the jury. Defendant

renewed its motion for a directed verdict and Judge Well-

ford issued an Opinion and Order, in effect granting Judg-

ment N. O. V. (p. A-6).

Court of Appeals

Petitioner filed an appeal from the District Court's

order which subsequently resulted in the Opinion and

Order of the Court of Appeals for the Sixth Circuit, affirm-

ing that order. (p. A-1). The Court of Appeals subse-

quently denied petitioner's petition for rehearing with

suggestion that the action be reheard en banc. (p. A-29).

8. The jury found inter alia: the “non-Holiday Inns” clause

was “calculated adversely to effect the public interest . . .” (Jury

Interrogatory No. 5, p. A-31) and that its effect “under the circum-

stances [was] an unreasouable restraint of trade” (Jury Interroga-

tory No. 6, p. A-31).

Petition for Writ of Certiorari 7

ARGUMENT

I.

THE COURT BELOW HAS DECIDED AN IMPOR-

TANT QUESTION OF FEDERAL LAW WHICH

SHOULD BE SETTLED BY THIS COURT

The opinion of the Court of Appeals for the Sixth

Circuit in this matter has created a controversy of great

public moment in the enforcement and application of the

antitrust laws. In supporting its decision in a case brought

under Section 1 of the Sherman Act for a violation to be

judged under the Rule of Reason standard,’ the Court of

Appeals for the Sixth Circuit absolutely and blindly relied

upon the cases of United States v. Colgate, 250 U. S. 300

(1919) and Byars v. Bluff City News Co., 609 F. 2d 843

(6th Cir. 1979). In doing so, the opinion of the Court

below created two basic and fundamental infirmities which

cannot stand witho~t severely impairing the Supreme

Court’s pronouncements. First, the Court below construed

the case strictly as a “refusal to deal” case."® Petitioner

has consistently maintained throughout the proceedings

that the case does not involve a refusal to deal and that

Colgate is inapplicable. The Court below then simply

cited Colgate nee 20 omitting any reference to the

litany of cases subsequently decided by the Supreme Court

and followed by the Circuit Courts of Appeals, which sub-

sequently qualified the “Colgate Doctrine”.

9. First developed by the Supreme Court in Standard Oil of

New Jersey v. United States, 221 U. S. 1 (1911).

10. There is a clear and fundamental distinction between re-

fusal to deal cases where a defendant has refused to deal with a

plaintiff, and the case at bar where respondent’s conduct precluded

a petitioner from dealing with a third party. See n. 4, supra, at 5.

8 Petition for Writ of Certiorari

Second, the Court below also relied upon Byars, supra

(a distributor termination case). The Court of Appeals

admitted that Byars concerned single firm monopoly power

under Section 2 of the Sherman Act and the circumstances

under which a monopolist has a duty to deal. Applying

this inappropriate line of reasoning, the Court claimed that

petitioner never alleged in his Complaint or in any other

pleading that the case involved monopolization by re-

spondent under § 2 of the Sherman Act. From its incep-

tion, the case sub judice concerned a restraint of trade

under § 1 of the Sherman Act. By applying the law and

rationale of Byars, supra, a monopolist’s unilateral refusal

to deal case, and by ignoring the Rule of Reason test fol-

lowed in that Circuit," the Court of Appeals for the Sixth

Circuit clearly erred.as a matter of law, and has created an

inconsistency and conflict with the decisions of the

Supreme Court and Courts of Appeals.”

11. It is indeed curious that the Court of Appeals would have

relied upon Byars, supra, (a monopolist refusal to deal case) rather

than Clairol, Inc. v. Boston Discount Center of Berkley, Inc., 608

F, 2d 1114 (6th Cir. 1979), a refusal to deal case under §1 of

the Sherman Act, applying the Rule of Reason. In Clairol, unlike

the case sub judice, even the Court of Appeals for the Sixth Circuit

noted that Colgate “has substantially been narrowed by subse«uent

decisions of the Supreme Court .. .” The Court also explained

that there was evidence that the manufacturer, as in United States

v. Parke, Davis & Company, 362 U. S. 29 (1960), undertook polic-

ing actions designed to restrict the resale of its product. Further-

more, the Court held that a letter sent by the manufacturer to its

distributors arguably established that the relationship and restric-

tion was a matter of agreement, so that the manufacturer’s action

went “beyond the simple refusal to sell and warning which might

be protected by the Colgate Doctrine.” 608 F. 2d at 1123.

12. Even U. S. v. Arnold, Schwinn & Co., 388 U. S. 365, 381-2

(1967) reversed on other grounds, Continental T.V., Inc. v. GTE

Sylvania, Inc., 433 U. S. 36 (1977), recognized that in determining

Petition for Writ of Certiorari 9

The decision of the Court below is one of great

potential significance. Before its influence spreads to

other jurisdictions, the decision below should be reviewed

by the Supreme Court."

A. The Court Below Has Decided an Important

Federal Question in Conflict With the Applicable

Decisions of the Supreme Court

The decision below departs radically from and funda-

mentally misconstrues the legal doctrine governing “re-

fusals to deal” established by the Supreme Court in a long

and unbroken line of decisions.

In United States v. Colgate, 250 U. S. 300 (1919),

the Supreme Court held that a seller “may announce in

advance’—but not contract—“the circumstances under

which he will refuse to sell” 250 U. S. at 307. However,

as the Supreme Court explicitly mandated, while a seller

12. (Cont'd. )

the lawfulness of a franchise contract under §1 of the Sherman

Act, the Rule of Reason test applied. Indeed, Sylvania, supra,

reaffirmed this view.

13. It must also be emphasized that the factual issues in this

case were presented to the jury in the form of 13 detailed inter-

rogatories (with sub-parts, Appendix, p. A-30) and after careful

consideration, the jury found for petitioner. There was substantial

evidence to support each of the jury’s findings. However, the

Court below let stand the District Court’s rejection of inferences

drawn by the jury from the evidence and substitution of its own

findings as a trier of fact after having resolved evidentiary conflicts

in favor of respondent, and having weighed and considered the

credibility of witnesses. This was a highly improper way to review

a record in considering a direct verdict or judgment n.o.v., a clear

usurpation by the court of the functions of the jury and presented

an unquestionable denial of the petitioner's constitutional right to

a trial by jury. Tenant v. Peoria & P. V. Ry. Co., 321 U. S. 29

(1944); Lavender v. Kurn, 327 U. S. 645 (1946); Campbell v.

Olivia M. D., 424 F. 2d 1244, 1245 (6th Cir. 1970).

10 Petition for Writ of Certiorari

is free to select its customers, it may not do so in a way

that achieves forbidden ends.

Almost immediately following its decision in Colgate,

the Supreme Court began qualifying it. {In United States

v. A. Schrader’s Son, Inc., 252 U. S. 85 (1920) the Supreme

Court explained that Colgate went no further than to

protect a manufacturer who

merely indicates his wishes concerning prices and

declines further dealings with all who fail to observe

them * ° *

but that manufacturer entered into an unlawful combina-

tion when he:

enters into agreements—whether express or implied

from a course of dealing or other circumstances—

with all customers ° * °

252 U.S. at 99-100.

The next case decided by the Supreme Court was

Frey & Son, Inc. v. Cudahy Packing Co., 256 U. S. 208

(1921). In veversing the Court of Appeals for the Fourth

Circuit which had found no formal agreement to main-

tain resale prices, the Supreme Court referred to its deci-

sion in Schrader, supra, that the:

essential agreement, combination or conspiracy might

be implied from a course of dealing or other circum-

stances.

so that:

Having regard to the course of dealing and all the

pertinent facts disclosed by the present record, we

think whether there existed an unlawful combination

or agreement between the manufacturer and jobbers

was a question for the jury to decide, and that the

Petition for Writ of Certiorari ll

Circuit Court of Appeals erred when it held other-

wise.

256 U. S. at 210.

In Federal Trade Commission v. Beech-Nut Packing

Co., 257 U. S. 441 (1922), the third case decided within

three years after Colgate, the Supreme Court found that

Beech-Nut had indulged in a number of restrictive prac-

tices including refusals to sell to those who would not

adhere to the policy and a system of reporting to detect

violators. The Court rejected Beech-Nut’s contention that

its conduct was legal under Colgate by stating that the

Beech-Nut system goes far beyond the simple refusal

to sell goods to persons who will not sell at stated

prices, which in the Colgate case was held to be

within the legal right of the producer.

257 U. S. at 454.

In discussing the limited effect of the Beech-Nut de-

cision on Colgate, the Supreme Court later said in United

States v. Parke, Davis & Company, 362 U. S. 29, 41-42

(1960):

* * * because Beech-Nut’s methods were as effective

as agreements in producing the result that “all who

would deal in the company’s products are constrained

to sell at the suggested prices,” 257 U. S. at page 455,

42, S. Ct. at page 155, the Court held that the securing

of the customers’ adherence by such methods con-

stituted the creation of an unlawful combination to

suppress price competition among the retailers.

That Beech-Nut narrowly limited Colgate and an-

nounced principles which subject to Sherman Act

liability the producer who secures his customers’ ad-

12 Petition for Writ of Certiorari

herence to his resale prices by methods which go

beyond the simple refusal to sell to customers who

will not resell at stated prices, was made clear in

United States v. Bausch & Lomb Optical Co., [Cita-

tions omitted].

Next in this progeny was United States v. Bausch &

Lomb Optical Co., 321 U. S. 707 (1944), where a distribu-

tor sold only to “licensed” wholesalers who were willing to

cooperate with its policy, and the “licensed” wholesalers

“were allowed to resell only to retailers who held licenses”

from the distributor (a requirement strikingly similar to

the effect of the non-Holiday Inn clause in the case at

bar).** 321 U. S. at 714. Moreover, the retailer’s agree-

ment to conform to the license requirement was enforced

by surveillance and by cancellation of the retailer's li-

cense if he failed to abide by its terms. The Supreme

Court, in condemning this plan, declared:

So far as the wholesalers are concerned, Soft-Lite

and its officers conspired and combined among them-

selves and with at least some of the wholesalers to

restrain commerce . . . by limiting the customers of

the wholesalers to those recommended by the whole-

salers and approved by Soft-Lite—all in violation of

the Sherman Act.

Whether this conspiracy and combination was

achieved by agreement or by acquiescence of the

wholesalers coupled with assistance in effectuating its

purpose is immaterial. (Emphasis supplied).

321 U. S. at 723.

14. If a wholesaler did business with unapproved retailers it

was excluded from the distributors’ list of designated wholesalers.

Petition for Writ of Certiorari 13

In assessing the impact of Bausch & Lomb and Beech-

Nut upon the continuing limited application of Colgate,

the Supreme Court commented in Parke, Davis,” supra.

Thus, whatever uncertainty previously existed as to

the scope of the Colgate doctrine, Bausch & Lomb

and Beech-Nut plainly fashioned its dimensions as

meaning no more than that a simple refusal to sell to

customers who will not resell at prices suggested by

the seller is permissible under the Sherman Act. In

other words, an unlawful combination is not just

such as arises from a price maintenance agreement,

express or implied; such a combination is also or-

ganized if the producer secures adherence to his sug-

gested prices by means which go beyond his mere

declination to sell to a customer who will not observe

his announced policy.

ce] 2 0

When the manufacturer's actions, as here, go beyond

mere announcement of his policy and the simple re-

fusal to deal, and he employs other means which

effect adherence to his resale prices, . . . he has put

together a combination in violation of the Sherman

Act.

Thus, whether an unlawful combination or conspiracy

is proved is to be judged by what the parties actually

did rather than by the words they used. [Citations

omitted.] 362 U. S. at 43-44. (Emphasis supplied).

(See also, Id. at 45).

In later cases, the Supreme Court has followed its

increasingly restrictive view of Colgate. Thus, in Simpson

15. Parke, Davis refused to sell to wholesalers who did not

adhere to its policy. and refused to sell to wholesalers who sold

Parke, Davis products to retailers who did not observe the sug-

gested minimum retail prices.

14 Petition for Writ of Certiorari

v. Union Oil Company of California, 377 U. S. 13 (1964)

the Court reiterated that the fact that a retailer can refuse

to deal does not give the supplier immunity “if the ar-

rangement is one of those schemes condemned by the

antitrust laws.” 377 U.S. at 16.

Finally, in explaining how a “combination’—which,

like agreements, are outside of Colgate—might arise, the

Supreme Court in Albrecht v. Herald Company, 390 U. S.

145, 150 n.6 (1968), noted that the petitioner, under

Parke Davis, supra, could have claimed a combination be-

tween the distributor-manufacturer and himself, “at least

as of the day he [petitioner] unwillingly complied with

the distributor-manufacturer’s condition.”

B. The Court Below Has Decided an Important

Federal Question in Conflict With the Applicable

Decisions of Other Circuit Courts of Appeals

The Circuit Courts of Appeals have carefully noted

the erosion of the “Colgate doctrine” and have applied a

type of strict scrutiny standard in those cases in which it

has been raised."

For instance, in Fount-Wip, Inc. v. Reddi-Whip, Inc.,

568 F. 2d 1296, 1300 (9th Cir. 1978), the Ninth Circuit

reversed the district court’s grant of a judgment notwith-

standing the verdict on a refusal to deal claim holding that

a refusal to deal “which is anti-competitive in purpose or

16. Tne Supreme Court added that the petitioner could have

also claimed a combination between the distrib 1tor-manufacturer

and its distributors (carriers), and did in fact claim a combination

between the distributor-manufacturer and petitioner’s customers.

See also, Arnott v. American Oil Company, 609 F. 2d 873 (8th Cir.

1979) (combination exists between franchisor and franchisee when

franchisee complied with the restraint, even unwillingly ).

17. See Clairol, Inc. v. Boston Discount Center of Berkley,

Inc., 608 F. 2d 1114 (6th Cir. 1979), supra at p. 8, n. 11.

Petition for Writ of Certiorari 15

effect, or both, constitutes an unreasonable restraint of

trade in violation of the Sherman Act.” (Emphasis sup-

plied). See also, Anderson v. American Automobile As-

sociation, 454 F. 2d 1240 (9th Cir. 1972). Similarly, in

Fontana Aviation, Inc. v. Beech Aircraft Corporation, 432

F. 2d 1080, 1085 (7th Cir. 1970), cert. denied, 401 U. S.

932 (1971), the Seventh Circuit reversed the trial court's

grant of a judgment n.o.v.,"* after admonishing that the

right of a manufacturer to deal with whom it pleases “is

neither absolute nor exempt from regulation. If it is

accompanied by unlawful conduct or agreement . . . the

right is deemed to have transgressed the act.” See also,

Reed Brothers, Inc. v. Monsanto Company, 525 F. 2d

486, 495 (8th Cir. 1975), cert. denied, 423 U. S. 1055

(1976); Adolph Coors Company v. Federal Trade Com-

mission, 497 F. 2d 1178 (10th Cir. 1974).

In George W. Warner & Co., Inc. v. Black & Decker

Manufacturing Company, Inc., 277 F. 2d 787 (2d Cir.

1960) the Second Circuit presented a cogent and thought-

ful analysis of the Supreme Court decisions qualifying

Colgate:

For some forty years, the Colgate doctrine had “be-

come part of the economic regime of the country

upon which the commercial community and the law-

yers who advise it have justifiably relied.” (Dissent-

ing opinion, Mr. Justice Harlan in United States v.

Parke, Davis and Co., supra, [362 U. S. 29, 80 S. Ct.

518]). That they did so advise and did so rely is

not open to doubt; whether they did so “justifiably”

in the light of warning signals during this period is

more debatable. ;

18. “[D]eference must be given to decisions of the trier of

fact.” Id.

16 Petition for Writ of Certiorari

Almost immediately after the Colgate decision the

Supreme Court in two price fixing cases (United

States v. A. Schrader’s Sons, Inc., 252 U. S. 85, 86,

40 S. Ct. 251, 64 L. Ed. 471; Federal Trade Commis-

sion v. Beech-Nut Packing Co., 257 U. S. 441, 451,

42 S. Ct. 150, 66 L. Ed. 307) began to qualify the

Colgate decision.

In this circuit in Adams-Mitchell Co. v. Cambridge

Distributing Co., 2 Cir. 1951, 189 F. 2d 913,916...

Judge Frank in a vigorous dissent . . . [a]fter tracing

the history of the Supreme Court’s opinions on the

subject, he said, “Considering the course of Supreme

Court anti-trust decisions on the subject of price-

fixing since Colgate was decided, it seems to me that,

although that doctrine may not be wholly dead, yet,

by distinctions stopping just short of extinction, it

has been reduced to almost imperceptible propor-

tions.”

J 2 °

The Supreme Court has left a narrow channel through

which a manufacturer may pass even though the facts

would have to be of such Doric simplicity as to be

somewhat rare in this day of complex business enter-

prise... .

The court indicated [in Parke, Davis, supra] that

when the manufacturer’s actions “go beyond mere

announcement of his policy and the simple refusal to

deal, and he employs other means which effect ad-

herence to his resale prices” then he has put together a

combination in violation of the Sherman Act. [Em-

phasis supplied]

277 F. 2d at 789-790.

The Fourth Circuit Court of Appeals discussed the

effect of Parke, Davis and other Supreme Court cases on

Petition for Writ of Certiorari 17

Colgate in Osborn v. Sinclair Refining Company, 324 F. 2d

566 (4th Cir. 1963). In reversing the district court's de-

cision based upon Colgate, the Court held that the decision

“was flatly opposed to many cases limiting” a refusal to

deal. 324 F. 2d at 571. The Court restated the Parke,

Davis teachings that when a seller goes beyond a mere

announcement of its policies

“and he employs other means which effect adherence”

to his policy . . . if the seller pressures his customers

or dealers into adhering to . . . exclusive dealing

. . he has put together an unlawful arrangement

and taken himself outside the narrow protection af-

forded by Colgate.

324 F. 2d at 573.

Finally the Court observed:

The right of customer selection sanctioned by Colgate

must not, as Parke, Davis shows, be taken in its literal

generality. The appellee bases too much on Colgate,

without taking into account qualifying pronounce-

ments in later decisions, which are not le’s canonical.

o oO °

It is clear from the Schrader’s Englander, and Warner

cases, as well as many others, that if the seller imposes

a trade restraining arrangement upon his customers,

whether they be willing or reluctant, the seller has

acted outside the protection of Colgate... . If the

arrangement or combination between the seller and

his dealers is put together through the coercive tactics

of the seller alone, this is sufficient. [Emphasis sup-

plied |

324 F. 2d 573-574 nn. 12 and 13.

Similarly, in Harold Friedman, Inc. v. Thorofare

Markets, Inc., 587 F. 2d 127 (3d Cir. 1978), after review-

18 Petition for Writ of Certiorari

ing an exclusivity clause in a shopping center lease, the

Third Circuit Court of Appeals directed that the right to

refuse to deal is neither absolute nor exempt from regu-

lation:

[particularly where the refusal to deal is not uni-

lateral but rather is prompted by an understanding

with other parties, an antitrust violation may be found,

either by application of a per se rule or through a

“rule of reason” analysis.

587 F. 2d at 142.

The Third Circuit Court of Appeals added that the exist-

ence of the lease agreement, containing the exclusivity

clause, together with the managing agent’s (of the shop-

ping center) refusal to extend the lease, could prove the

existence of a “contract, combination or conspiracy in re-

straint of trade.”

Thus, a steady and unbroken line of Supreme Court

decisions commencing immediately after the Colgate de-

cision, as well as the decisions of those Circuit Courts of

Appeals which have followed the letter and spirit of the

Supreme Court, have severely qualified and narrowed

Colgate as follows: (1) Colgate went no further than to

protect a manufacturer who “merely indicated” the condi-

tions under which it does business and refuses to deal, (2)

Colgate does not protect the manufacturer whose condition

is contained in an agreement—either express or implied

from a course of dealing or other circumstances (which is

a question for the jury), (3) Colgate does not protect the

manufacturer who is part of a combination which is

created by a manufacturer who secures adherence to its

condition by methods, not necessarily contractual, which

go beyond a mere announcement of those conditions

coupled with a simple refusal to deal—e.g., taking affirma-

tive action to detect those who were violating the condi-

Petition for Writ of Certiorari 19

tions, (4) that combination or agreement may exist be-

tween the plaintiff and the manufacturer as of the day the

plaintiff unwillingly complied with the manufacturer's

condition.

C. The Court Below Failed to Apply Principles and

Doctrine Established by the Supreme Court and

Followed by Circuit Courts of Appeals to the

Present Case Resulting in Fundamental and

Significant Error

The Court below in the case sub judice failed to

cite, mention or otherwise refer to a single one of the

Supreme Court decisions criticizing and qualifying

Colgate.’® As such, the the Court of Appeals’ mere blind

reliance upon Colgate ignores, conflicts with and is flatly

opposed to the more than sixty years of case law decided

since Colgate. In fact, had the Court below addressed the

decisions of the Supreme Court and other Circuit Courts,

it would have concluded that the respondent’s conduct—

its enforcement or application of the “non-Holiday Inn”

clause—did not fall within the very “narrow channel” of

the Colgate defense.

First, the restraint—the refusal to agree to the transfer

because of “non-Holiday Inn” provision—was contained

in a written agreement (the franchise agreement) with

respondent, petitioner and all other Holiday Inn fran-

chisees. Albrecht, supra; Perma Life Mufflers, Inc. v. In-

ternational Parts Corp., 392 U. S. 134, 139-140 (1968 ).”°

19. To the extent that Colgate has been “eroded almost to ex-

tinction.” Unibrand Tire & Product Co., Inc. v. Armstrong Rubber

Co., 429 F. Supp. 470, 474 (W. D. N. Y. 1977).

20. This is the same contract which petitioner contended, and

the jury found, was a contract in unreasonable restraint of trade.

20 Petition for Writ of Certiorari

It is undisputed that Section 1 of the Sherman Act is aimed

at a concert of action, and not at purely unilateral con-

duct (Colgate). However, the case sub judice does not

concern unilateral conduct—the mere announcement in

Colgate—but specifically involves a concert of action evi-

denced by an agreement. Thus, without going any

further, the written contract between respondent and peti-

tioner renders Colgate prima facie, inapplicable.

Second, as in Bausch & Lomb, supra, Parke, Davis,

supra, and.Albrecht, supra, even assuming arguendo no

agreement, a concert of action is nevertheless present in

the combination existing between respondent, petitioner

and other Holiday Inn franchisees relating to the enforce-

ment of a non-Holiday Inn policy. There was evidence

before the jury that respondent relied upon the participa-

tion and feedback of its franchisees in successfully en-

forcing the policy. Such combination takes respondent'’s

conduct outside the Colgate defense.

Third, as in Parke, Davis, supra, and other cases, re-

spondent also went beyond the mere announcement of its

condition by enforcing it against petitioner and actively

policing the provision to detect violators. Respondent re-

lied upon employees of its Inspection Department who

visited the franchised inns to actively detect violations,

and upon the reports of other franchisees.

Finally, if either the “object or effect” was to un-

reasonably restrain trade, an “otherwise reasonable trade

arrangement must fall,” Times-Picayune Publishing Com-

pany v. United States, 345 U. S. 594, 614, 622 (1953), and

“the fact that a retailer can refuse to deal does not give [it]

immunity if the arrangement is one of those schemes con-

demned by the antitrust laws.” Simpson v. Union Oil

Company of California, 377 U. S. 13, 16 (1964). As al-

ready explained, the effect of respondent’s enforcement of

the non-Holiday Inn clause in the instant case—what it

Petition for Writ of Certiorari 21

“actually did” Parke, Davis, supra,”—was to: preclude

petitioner's sale of his inns; “lock up” the owners of ap-

proximately 15% of the market (represented by respondent

owned and managed inns and other Holiday Inn franchised

inns), and foreclose purchases of Holiday Inn hotels by

the other 85% of the market representing owners of other

hotels, motels and inns, in a manner found by the jury to

constitute an unreasonable restraint of trade, Jury Inter-

rogatories 6, 8(a) and (b), p. A-31, 32.”

21. While the terms of a contract may be inoffensive on their

face, the “Act [Sherman] deals with competitive realities, not

words.” Times-Picayune Publishing Company v. United States,

supra, 345 U. S. at 614-615.

22. Whether a restraint is unreasonable under Section 1 of the

Sherman Act is a question of fact to be determined by the jury.

Board of Trade of Chicago v. United States, 246 U. S. 231 (1918);

Times-Picayune Publishing Co., supra; Lamb Enterprises, Inc. v.

Toledo Blade Company, 461 F. 2d 506, 517 (6th Cir. 1972).

22 Petition for Writ of Certiorari

CONCLUSION

The decision below presents an issue of extreme public

importance which should be decided by the Supreme

Court, since it conflicts with the decisions of the Supreme

Court and the other Courts of Appeals. The Petition for

Certiorari should be granted.

Respectfully submitted,

Davin BERGER

1622 Locust Street

Philadelphia, PA 19103

(215) 875-4900

Counsel of Record for Petitioner

Frank L. Hawkins

Of Counsel:

H. LapprE MonraAGUvE, JR.

WARREN D. MULLoy

ALAN C, KESSLER

BERGER & MONTAGUE, P. C.

1622 Locust Street

Philadelphia, PA 19103

(215) 875-4900

HAROLD BROWN

Brown, Prirti, LEIGHTON & COHEN

66 Long Wharf

Boston, MA 02110

(617) 227-9265

EpWwaArRpD KUHN

McDonaLp, Kuun, SMITH, GANDY,

MILLER & TAIT

150 E. Court Avenue

Memphis, TN 38103

(901) 526-0606

Appendix.

No. 78-1244

No. 78-1245

UNITED STATES COURT OF APPEALS

For THE SIxTH CIRCUIT

FRANK L. HAWKINS,

Plaintiff-Appellant,

Cross-Appellee

v

HOLIDAY INNS, INC.,

Defendant-Appellee,

Cross-Appellant.

On APPEAL FROM THE UNITED STATES DistTricr CouRT

For THE WESTERN DIsTRICT OF TENNESSEE.

aos

Decided and Filed November 5, 1980.

Before: Kerru, KENNEDY, AND Martin, Circuit Judges.

Martin, Circuit Judge. This case was commenced in

October 1974 by Frank L. Hawkins against Holiday Inns,

Inc. for alleged violations of Section 1 of the Sherman Act

(15 U. S. C. §1) and Section 3 of the Clayton Act (15

U. S. C. §14). Prior to trial, Hawkins dismissed his

claims under Section 3 of the Clayton Act.

Hawkins has been a franchisee of Holiday Inns in the

Mobile, Alabama area since 1961, and for an even longer

period of time elsewhere. As of 1973, Hawkins owned

three motels in the Mobile area, all three then being oper-

ated as Holiday Inns motels pursuant to franchises granted

by Holiday Inns.

(Al)

A2 Court of Appeals Opinion

In the franchise agreements between Holiday Inns

and Hawkins, Hawkins agreed not to own, operate, be

connected with or associated with any hotel or motel

other than Holiday Inns hotels or motels. This is the so-

called “non-Holiday Inn clause.”

The non-Holiday Inn clause reflected Holiday Inns’

unilaterally adopted policy of not granting franchises to

competitors. It is undisputed that Holiday Inns never

prevented Hawkins from owning, operating, being con-

nected with or associated with any other hotel or motel.

In fact, on two occasions Hawkins owned motels other

than Holiday Inns motels, without objection from Holiday

Inns.

In 1972 and 1973, Hawkins, through a real estate

broker, Hardin B. Arledge, solicited negotiations with

Radice Realty and Construction Corp. looking toward the

sale of his Mobile motels and the franchises granted to

him by Holiday Inns. Although Hawkins owned the

motels, the franchise agreements between Holiday Inns

and Hawkins could not be unilaterally assigned by Hawk-

ins to a third party. At the time of the negotiations

with Hawkins, Radice Realty owned motels other than

Holiday Inns motels.

While Hawkins knew of Holiday Inns’ policy of not

granting a franchise to a competitor, he wrote to Holiday

Inns and generally inquired if Holiday Inns would waive

its non-Holiday Inn policy for a potential purchaser of his

motels and franchises. Hawkins did not disclose Radice

Realty’s identity or submit any information relating to it,

other than to state that the potential purchaser owned

competing motels. Hawkins did not seek a waiver of the

non-Holiday Inn policy on his own behalf because he was

not seeking to own or operate a competing motel.

Holiday Inns responded by restating its policy of not

issuing franchises to competitors and its intention to main-

Court of Appeals Opinion A3

tain this policy to the extent permitted by law. Hawkins

did not communicate further on this subject with Holiday

Inns; Radice Realty never communicated with Holiday

Inns.

Hawkins sued. Simply put, the gravamen of

Hawkins’ complaint was that Holiday Inns unreasonably

restrained trade by enforcing the clause in his franchise

agreements which prevented Hawkins from buying an in-

terest in a competing motel by preventing him from selling

his trademark and service mark agreements with Holiday

Inns (i.e., his franchises) to a competitor. Hawkins ad-

mits he was free to sell his motels without the Holiday

Inns license agreements.

Hawkins has never asserted any claim for or on be-

half of Radice Realty, nor has Radice Realty asserted any

claim on its own behalf. Rather, Hawkins asserted that

Holiday Inns’ conduct constituted an unreasonable re-

straint which injured him in his trade or business and

sought damages of $2 million before trebling. |

The case was tried in Memphis. At the close of

Hawkins’ case, Holiday Inns moved for a directed verdict,

pursuant to Rule 50(b), Federal Rules of Civil Procedure.

The trial court took the motion under advisement.

At the close of all the evidence, both parties moved

for a directed verdict. Hawkins’ motion was summarily

denied; the trial judge continued to reserve decision on

Holiday Inns’ motion. The jury returned responses to

jury interrogatories finding in favor of Hawkins in the

amount of $674,000 single damages, subject to trebling. ©

The trial court never entered judgment based upon

the responses to jury interrogatories. On January 25, 1978,

an opinion granting Holiday Inns’ motion for a directed

verdict was entered which stipulated that if the directed

verdict were set aside by this Court, the verdict would be

set at a maximum of $280,000 damages, before trebling.

A4 Court of Appeals Opinion

On February 7, 1978, the Clerk of Court filed a judgment

in accordance with the memorandum opinion.

Hawkins appealed the judgment entered on the di-

rected verdict in favor of Holiday Inns. Holiday Inns

cross-appealed from the portion of the judgment which

allows, in the event judgment in its favor is set aside, the

verdict to be set at $280,000, subject to trebling.

The trial court applied the correct standard in direct-

ing a verdict in favor of Holiday Inns as a matter of law,

and the evidence was such that there could be but one

reasonable conclusion as to the correct verdict. Hawkins

never received a bona fide offer to purchase his Holiday

Inns motels from Radice Realty.

Holiday Inns never enforced the non-Holiday Inn

clause in its franchise agreements with Hawkins against

Hawkins. There was no evidence from which it could

reasonably be concluded that Holiday Inns refused to

deal with anyone. Holiday Inns’ contracts with Hawkins

were not in restraint of trade. The rule of law sought to

be imposed by Hawkins lacks any commercial value.

Considering all the evidence most favorably to Hawk-

ins, at most he has proven that Holiday Inns unilaterally

refused to deal with an unidentified entity, Radice Realty,

conduct which was and is lawful under United States v.

Colgate & Company, 250 U. S. 300 (1919).

As a matter of law, there was no evidence from which

anyone could reasonably conclude that: (a) Holiday Inns

caused Hawkins any injury in fact; (b) the interest

Hawkins sought to protect was in the zone of interests pro-

tected under Section 1 of the Sherman Act; or (c) any

injury to Hawkins was a direct result of Holiday Inns’ con-

duct. Hawkins has suffered no legally cognizable injury,

for he still owns and operates the three inns as Holiday

Inns motels and is receiving all of the benefits of his con-

tractual relationship with Holiday Inns.

Court of Appeals Opinion A5

In Byars v. Bluff City News Co., 609 F. 2d 843 (6th

Cir. 1979), this Court outlined the law on refusals to deal

for the benefit of the lower court to which it was remand-

ing the case. At the outset, the Court stated that, as a

general rule, “there exists no duty to deal, so long as the

determination is made unilaterally.” 609 F. 2d at 854.

The Court then noted:

Franchisees and distributors which have been

unilaterally terminated have discovered to their cha-

grin that ordinarily the law offers them no remedy

absent proof that a conspiracy against them took place.

(Citations omitted )

Even the use of unfair business practices as part

of the termination may not invoke sanction under the

antitrust laws. (Citations omitted )

609 F. 2d at 854-855.

This Court concluded by stating that if the defendant

in Byars were found not to possess monopoly power, it

could have terminated, with impunity, its relationship

with plaintiff.

It is clear from the record that Holiday Inns has acted

unilaterally in the instant case. Further, there was not

even an allegation that Holiday Inns possessed monopoly

power in the hotel-motel business. Holiday Inns did not

refuse to deal with Radice Realty. Even if it had refused,

however, the refusal was unilateral and, as recognized in

Byars, would not invoke sanction under Section 1 of the

Sherman Act.

The judgment of the District Court in favor of the

defendant Holiday Inns, Inc. is affirmed.

A6 District Court Memorandum Opinion

IN THE

UNITED STATES DISTRICT COURT

For THE WESTERN DIsTRICT OF TENNESSEE

WESTERN DIVISION

No. C-74-521

FRANK L. HAWKINS,

Plaintiff,

Dv.

HOLIDAY INNS, INC., et al.,

Defendants.

ne

MEMORANDUM OPINION

Plaintiff filed an action against Holiday Inns, Inc.,

hereafter (HI), Kemmons Wilson, its Chief Executive

Officer, and Charles M. Collins, another HI executive and

its general counsel; asserting Sherman Act (15 USC § 1)

and Clayton Act (15 USC § 14) anti-trust violations and

demanding a jury trial on the issues. The case, from the

outside to conclusion, before this Court, has been ably,

vigorously, and hotly contested in view, perhaps, of two

other prior substantial lawsuits between Hawkins and HI.’

1. The first litigation by Hawkins charged anti-trust violations

in the form of illegal tie-ins and other breaches of responsibility

under law by HI. _ It involves class action claims and is pending in

other divisions of this Court. The second by Hawkins v. HI in-

volved a claim for breach of contract respecting an additional HI

franchise in Mobile, Alabama, and resulted in a verdict and judg-

ment for plaintiff, settled by payment to Hawkins of $350,000.

District Court Memorandum Opinion A7

Plaintiff here challenged a contractual provision in his

HI franchise agreement pertaining to operation of three

existing Holiday Inn motels in or about the City of Mobile,

Alabama; his contention is that the clause in question con-

stitutes an illegal restraint in preventing his sale of the

motels and the HI franchise rights during 1973 to prospec-

tive purchasers who had interests in other motel franchise

operations at the time, and generally in limiting his ability

to sell his interests in the motels in question.

Prior to trial, after the Court had heard and over-

ruled a motion for summary judgment submitted by de-

fendants, plaintiff dismissed the Clayton Act claim and all

claims against Wilson and Collins personally. See the

Court’s Order on the summary judgment motion dated

Avgust 26, 1976, for further recitation of facts pertaining

to this controversy. Among the principal concerns of the

Court with respect to trial was the apparent complexity of

the issues involving interpretation of franchise contracts

and difficulty of determining damages, if any; accordingly,

it was concluded that issues developed during the lengthy

trial would be submitted to the jury, if a verdict were not

directed, as a matter of law, at the conclusion of the proof.

Plaintiff claims very substantial damages on account

of defendant’s “non-Holiday Inn clause”? which was al-

legedly utilized unilaterally by HI to prevent competition

and eliminate certain purchasers having other motel chain

affiliations from obtaining the HI franchise or franchises in

the Mobile area. This clause, before it was amended in

1958, provided a geographic limitation “within the license

territory, and was accompanied by a so-called “best ef-

2. The so-called “non-Holiday Inns clause” provides in perti-

nent part: “. . . that licensee will not, directly or indirectly, own

any interest in, operate, or be in any manner connected with, any

inn, hotel, or motel during the period of this license except Holiday

‘ Inns.”

A8 District Court Memorandum Opinion

forts” clause.* See American Motor Inns v. Holiday Inns,

365 F. Supp. 1073 (D. N. J. 1973).

Plaintiff took the position in trial that the “best efforts”

clause was sufficient to protect HI and its franchisees;

that the “non-Holiday Inn” clause unnecessarily and arbi-

trarily restrained plaintiff from being associated with other

inns, hotels or motels and that would-be franchisees were

thereby foreclosed illegally from entering the HI sector

of the market to the advantage of HI and disadvantage of

the plaintiff. Plaintiff took the position that HI was the

largest and the dominant factor in the motel market in

the United States and particularly as to those with a mini-

mum of 50 rooms, swimming pools, lounges and restau-

rants, and that its contractual limitation reduced the mar-

ketability of plaintiff's HI franchise and interest to his

detriment.

Defendant takes the position throughout that it has

merely exercised an appropriate unilateral commercial

right to choose or reject those with whom they would do

business as a HI franchisee, and that the anti-trust laws

do not apply to this situation. Plaintiff acknowledges such

a right generally, but maintains it is subject to a rule of

reason, and that it may not be exercised except in a lim-

ited fashion so as not to produce an unreasonable restraint

of trade as proscribed by the Sherman Act. Plaintiff con-

tended that he had obtained a desirable offer in early

1973 from the so-called Radice group which owned in-

terests in northern and eastern cities in motel chains that

were competitive nationally with HI, and that HI should

have waived the “non-Holiday Inns clause” to permit

3. Plaintiff made no contention about the pre-1958 Clause with

territorial limitation. The “best efforts clause” reads: “Licensee

does further covenant and agree . . . to use every reasonable means

to encourage use of ‘Holiday Inns’ on a national basis by the travel-

ing public.”

District Court Memorandum Opinion AQ

plaintiff to consummate his expressed desire to sell his

interests in three Inns he had acquired in Mobile to this

particular prospective purchaser.

The case went to trial before a jury after seven full

trial days and issues were presented in interrogatory form

to the trier of fact after discussion as to the form and con-

tent. At the conclusion of plaintiffs proof, defendant

moved for a directed verdict on several bases which will

again be considered fully. At the time the Court felt that

the issues presented were close questions, but that, giving

plaintiff the benefit of doubt, the matters involved should

be presented for a jury determination. The plaintiff relied

almost entirely on himself and one Philip Lowe, a former

executive with Sheraton Division of I. T. T., to develop

damages in connection with his claim, supported by some

statistical evidence. Primarily, however, plaintiff claimed

that relocation or completion of a new expressway or a

causeway across a part of Mobile Bay effectually by-passed

his most lucrative and successful location, Holiday Inn

East (hereafter East), during 1977, bringing about a

dramatic drop in value of that location, and this was the

largest element in the damage claim and perhaps the most

disputed. Lowe’s testimony, which was neither impres-

sive nor persuasive to the Court, was to the effect that

defendant's actions had caused plaintiff damage of some

$2,000,000, taking into account the “income” and “future

prospects” approach, which he testified was the only valid

approach under the circumstances.*

We shall consider first the issues raisec! on the motion

for directed verdict at the conclusion of plaintiff's proof.

4. Lowe’s testimony was amended in his rebuttal wherein he

admitted a change in analysis based upon factors not previously

known to him so that damage would be reduced, from his view-

point, to approximately one-half from his previous estimate on

direct examination.

Al0 District Court Memorandum Opinion

Considered reasonably and most favorably from the plain-

tiffs standpoint, it had been established (in addition to

the facts previously noted):

1. The HI franchise agreement had been changed in

1958, with Hawkins’ full knowledge and consent, as well

as that of all other HI franchisees throughout the country,

to incorporate the “non-Holiday Inn” policy without geo-

graphic limitation. The consequence was to establish a

HI national policy that a franchisee, or prospective fran-

chisee, could not own an interest in a competing motel

chain, unless HI issued a waiver of that policy.’ Origi-

5. In September of 1973, the validity of this policy of opera-

tion, among others, by HI and the International Association of HI

(hereafter IAHI), was for the first time considered by a federal

court, American Motor Inns v. Holiday Inns, Inc., 365 F. Supp.

1073 (D. N. J. 1973). Hawkins and his counsel are reflected as

having participated in the appeal of that decision. See 521 F. 2d

1230, 1234 (3rd Cir. 1975). This particular clause was considered

in 365 F. Supp. 1073, 1081-1084 of the trial Judge’s opinion, and

he concluded:

“Although HI claims that the purpose of the non-Holiday

Inn clause was and is to preserve the integrity and utility of

the national reservation-referral system, I find that in operation

that clause had had a much broader effect. That effect is the

intended one of reducing and preventing competition among

Holiday Inns franchisees and between franchised inns and

company-owned inns. I find that if HI sought solely to protect

its reservation-referral system, such protection was and is avail-

able through other provisions of its contract (e.g. best efforts

clause), and was and is available through less restrictive pro-

visions of the type utilized by other national hostelers.”

The Court of Appeals, however, in 1975, remanded that de-

cision because of relevant market aspects of the case, 521 F. 2d

1230, 1248:

“Because the district court opinion does not demonstrate

that in making his rule of reason analysis the trial judge took

into account many of the relevant conditions in the industry,

District Court Memorandum Opinion All

nally, the purpose of this clause, or its predecessor, was to

insure adequate HI representation in a given territory, but

later its purpose evolved into that of preserving and pro-

tecting its national reservation-referral system, for which

each franchisee is charged a periodic fee; to protect HI’s

other special methods of operation, and to insure the

loyalty of franchisees.

2. Hawkins started in Evansville, Indiana, in 1958 as

a HI franchisee and subsequently acquired three such

Inns in Mobile.*

3. Hawkins became interested about 1970 in selling

his Mobile HI interests and contacted brokers about that

time, including Arledge in Florida and Krieger in Indiana,

the latter a national specialist in sale of Holiday Inns, both

on a commission arrangement. Hawkins was unsuccess-

ful in getting his desired price from HI or others for these

Inns (about $1,200,000 exceeding his net worth or equity )

based on an assumption of his involved and complex

mortgage indebtedness of approximately $3,000,000. Dur-

ing 1972, Hawkins opposed issuance of another franchise

in the Mobile area by HI and about that time also con-

5. (Cont'd. )

that portion of the judgment regarding the reasonableness of

the non-Holiday Inn clause must be vacated. Since the parties

may have adduced at trial relevant information which is not

manifested in the district court’s opinion, the case will be re-

manded for a re-evaluation of this question by the district

court on the basis of the existing record.”

There was a settlement effectuated before any further decision

after remand.

6. At one time after 1958, despite the “non-Holiday Inn

Clause”, Hawkins operated an independent (Thunderbird) and a

Quality Inn Motel in Mobile, but he was permitted to convert these

into Holiday Inns after meeting requirements imposed upon all

HI franchisees.

Al2 District Court Memorandum Opinion

tested the failure of HI to carry through on a proposed

franchise to him in the Dauphine Island area near Mobile.

(This was the second suit referred to in footnote 1).

4. In late 1972, plaintiff entered into negotiations

with Radice Realty & Construction Co. (hereafter Radice

Realty) for sale of the three Inns, East, and the others

designated as “West” and “Downtown”. At the time,

Radice Realty controlled six motels, including a Howard

Johnson, a Sheraton and a Ramada Inn franchise, none in

or near Mobile. Negotiations with Radice Realty in Flor-

ida were intermittently conducted through broker Arledge

and on January 26, 1973, Radice Realty’s Butler of its

Motor Lodge Division, wrote “to confirm. our desire to

enter into a contract to purchase. ... Mobile Downtown,

East and West, together with all of the land, improve-

ments, furnishings, equipment and fixtures . . . as well as

approximately 5.6 acres . . . with respect to which a Holi-

day Inn franchise has been granted to you.” The letter

acknowledged a 36 room addition to Downtown “now

under construction . . . to be ready for business no later

than April 30, 1973,” and a purchase price of $4,600,000,

“including existing or to be existing mortgages . . . prior

to closing.”

Butler’s letter stated a readiness to “commence the

drawing of a contract of purchase” to incorporate “the

above as well as all of the various terms and conditions

which will be necessary to consummate the transaction,”

with “one of the prime conditions precedent . . . the ap-

proval by Holiday Inns of our company or a subsidiary

_,. to act as the operating franchisee.” It was further

set out that neither would be bound until contracts were

“finalized.”

5. Two months later, March 26, 1973, Hawkins wrote

a letter to HI which set out “that there have been serious

District Court Memorandum Opinion Al3

discussions regarding the sale of my franchises to a group

of individuals in Florida. The purchasers have asked

whether they could obtain the approval of the transfer

. . . Since they already own and operate other hotels, in-

cluding a Sheraton . . . and two Howard Johnson motels.”

Hawkins acknowledged the contractual prohibition but

felt it was “unfair and . . . may be illegal as well.”* He

asked HI for a waiver of this provision.

6. Promptly after receipt, HI’s Collins in April re-

plied that “it has been our policy for many years, and is

still our policy, not to grant a franchise to anyone operat-

ing a competitive hotel or motel.” He acknowledged a

present challenge by litigation to that provision of the con-

tract, but expressed confidence in its validity and an in-

tention not to change the policy “unless a court rules other-

wise and all appeals have been exhausted.” (See footnote

5 for an explanation of the eventual course of that litiga-

tion in which plaintiff participated on appeal). HI made

the response without knowledge of the identity of Radice

Realty as the potential Mobile franchisee. Plaintiff him-

self never notified HI of this identity, and neither the

broker nor Butler could establish actually sending HI a

franchise application by Radice Realty or following up on

the matter during the nearly two month delay after a .

tender proposal before they were made aware by Hawkins

of the April, 1973, HI negative response.* Such a fran-

chise application was apparently prepared in February of

1973 but not delivered to HI. The standard practice in

7. Plaintiff had doubtless consulted his own counsel about this

in light of the American Motor Inns case in New Jersey referred to,

and a pending dispute of another Florida franchisee about this

question with HI during 1972.

8. Butler testified he was willing, indeed anxious, to discuss

Radice Realty’s interest in the purchase and felt remiss in not con-

tacting HI directly.

Al4 District Court Memorandum Opinion

Florida was that the seller pay a six per cent commission

to the agent on consummation of such a transaction.

7. Radice Realty began experiencing serious financial

problems during 1973 in its motel business aggravated by

the national energy crisis at that time. Butler’s testimony

as head of that Division indicated no construction loans

concluded during 1973 or 1974 involving his Division,

which, in the latter year, was liquidated due to the then

financial plight of Radice Realty. The latter customarily

financed motel acquisitions by means of selling the

“equity” to investors. In this instance only one potential

investor out of some ten to fifteen usual ones was con-

tacted relative to this proposed purchase at the time

Radice Realty expressed its “desire to enter into a contract

to purchase,” and the investors would have been ulti-

mately expected, according to Butler, to have put up more

than $1,500,000 in cash to complete the transaction, had it

proceeded to a closing.”

8. For the fiscal year ended June 30, 1972, Radice

Realty’s President (who was contemplated to be the fran-

chisee if the deal were concluded) reported to its stock-

holders that “from an income standpoint, it was a dis-

appointing year . . . we experienced losses [due to]

nationwide depressed economy.” Further, the “motor

lodge business showed a loss for the year as a result of a

depressed economy ...” The June 30, 1972, consolidated

statement of equity in Radice Realty reflected an accumu-

lated deficit of nearly $1,000,000, and more than that

amount of reduction in cash from the beginning ‘of fiscal

1971 to June 30, 1972. In its June 30, 1973, annual re-

port to S. E. C., Radice Realty reported the operation of

9. Butler’s deposition testimony so indicated; his later trial

testimony was that he may have mentioned the Hawkins deal to

several.

District Court Memorandum Opinion Al5

only five motels, and that it was “responsible for construc-

tion financing” of motels, which “together with the cash

payments made by limited partnership” investors “is suf-

ficient to pay for construction and development costs of

the motel.” It was further reported that Radice Realty

officers acted “as general partners for the limited partner-

ships” and were “indemnified for any losses they may sus-

tain as general partners.” The year ended June 30, 1973,

although presenting a better earnings picture, reflected a

further substantial reduction in cash and continued ac-

cumulated deficit. Notes to the motel operating statement

reflected a low rate of occupancy in the Sheraton Motel

(its second largest), necessitating a reduction to one-half

of the fee on gross room sales. The next year, beginning

July 1, 1973, showed large losses and necessary disposition

of the motel division during that fiscal year.

9. There was, according to Radice Realty’s Butler, a

misunderstanding about the Dauphin Island franchise

situation at the time in January, 1973, he wrote to Hawk-

ins. If no franchise were available, as it later devel»ped,

he expressed confidence that the matter could have been

negotiated but the offering price would have been reduced

at least $280,000." Butler considered Hawkins’ mortgages

outstanding at the time to be approximately $2,700,000,

not including an increase due to expansion; Radice Realty

was very interested and concerned about debt service re-

quirements, monthly and annually, particularly in light of

the in-process addition to the Downtown Motel. Radice

Realty was interested in the Hawkins’ Mobile interests

only if the HI franchises were included.

10. Butler testified that Hawkins did not tell him the fourth

franchise had been rejected by HI; that the $4,600,000 offer in-

cluded the fourth franchise and the land on which the fourth

Holiday Inn (Dauphin Island) was to be built.

Al6 District Court Memorandum Opinion

Plaintiff concedes he was free to sell the properties

and assets absent the franchises if he wished, but felt this

would represent loss of 30% to 40% of overall value. Butler

felt Radice Realty had or could obtain the capital for this

Mobile proposed expansion in early 1973 despite its cash

and operating difficulties. Hawkins testified that Radice

Realty (through Butler) would use its own money (ap-

proximately $1.5 million) for the purchase then might syn-

dicate or sell to other partners.

10. This suit was instituted October 3, 1974, while

or immediately after Hawkins had contacted HI about

potential purchase of his Inns. Three of the questions

dealt with the offer by Radice Realty and were answered

by the jury as indicated:

“1. Was there a bona fide offer by Radice Realty

to Hawkins for all of his Mobile motels and property

which offer Radice Realty was capable of carrying

out and qualified to conclude?

Yes X

No

2. If your answer to No. 1 is yes, when, in the

normal course, would Radice Realty and Hawkins

have been able to complete the transaction (after

approval of the franchise application and all other

requirements ) P

DaTE July 1973

3. (a) If your answer to No. 1 is yes, was the

sales agreement subject to a commission?

Yes X

No

If so, how much?

AMoOuNT $276,000

District Court Memorandum Opinion Al7

3. (b) Did the Radice Realty offer include any

value for Hawkins’ 5.6 acres of land?

Yes X

No

If so, how much?

Amount $280,000 ”

11. Hawkins was aware of the required HI procedure

in respect of franchises. The necessary fee was to accom-

pany the completed form—in this case at least $10,000

and the applicant was to submit required financial in-

formation and motel experience, together with other re-

quirements. HI did not receive the application fee from

Radice Realty nor any information dealing with the worth

of Radice Realty nor its principal officer who was to be

proposed as franchisee, Arthur Radice.

The Court was of the opinion there was a close issue

in light of the proof at the end of plaintiff's proof as to

whether or not there was, in fact, a bona fide offer from

Radice to Hawkins upon which the latter could base his

claim of subsequent loss. There was definite interest on

the part of Radice Realty, and a specific proposal was sub-

mitted through a Florida real estate agent, Arledge, for

four Holiday Inn franchises and properties on which they

were to be located. It was recognized that at least $1.5

million would be required from Radice Realty to conclude

the transaction, even without the fourth Inn’s construction

being accounted for—at least, $1.8 million (to about $2

million) if the cost of the fourth (Dauphin Island) Inn

were to be included, per Arledge’s calculations and pro-

posals to Radice Realty.

Upon a review of the evidence, the Court is of the

opinion that there was not sufficient evidence, as a matter

of law, to treat the Radice Realty offer as a firm contract

proposal. At best, it was an invitation for a return offer

Al8 District Court Memorandum Opinion

since Hawkins did not own the franchises which he rep-

resented to Radice that he owned. Indeed, a part of the

offer the jury found, was for land on which there was no

available franchise with a value attributed by the jury to

be $280,0000. There were many contingencies involved

even in March of 1973 when Hawkins wrote HI not in-

tending to divulge the name of the potential buyer. There

was no fourth HI franchise available to Hawkins; what

adjustment would have been acceptable to the parties is

conjectural at best. Neither Hawkins nor the interested

buyer submitted the franchise application fee and infor-

mation in order to determine whether Radice Realty were

otherwise acceptable to HI without regard to the “non-

Holiday Inn clause”. The jury’s determination that the

matter would have been concluded in July, 1973, is the

earliest that it could reasonably had been believed the

parties would or could have adjusted their contract price;

determined mortgage balances after finishing the Down-

town renovations and improvements then in progress;

worked out a legal contract; submitted necessary informa-

tion to HI; prepared closing papers; adjusted commission

claims of Arledge which Hawkins was not prepared to

accept; and worked out a myriad of other details for a

closing.

Particularly if the Court takes into account the de-

fendant’s proof on this question, it seems entirely specula-

tion to reach a conclusion that Radice Realty’s offer for

four Holiday Inns was ever accepted by Hawkins in the

light of the incontrovertible facts at the time, or that

Hawkins’ ability to sell only three such Inns was finally

acceptable to Radice Realty; and if so, on what terms.

That there was no contract, even conditionally subject to

HI approval, seems inescapable. Furthermore, in view

of all the proof and evidence, it seems also highly conjec-

tural, as a matter of law, to be able to conclude that in

District Court Memorandum Opinion Al19

July of 1973, Radice Realty could have carried out any

agreement (concluded subsequent to March of 1973) to

be responsible for a substantial outlay of cash as specified

at closing." While Radice Realty had been able to inter-

est equity investors previously, reasonable investors, as

well as HI, would necessarily have investigated the rapidly

deteriorating condition of Radice Realty which was then

in the process of beginning to liquidate or dispose of its

motel operations. There was no actual meeting of the

minds, irrespective of the “non-Holiday Inn clause” policy,

regarding the ability of Radice Realty, after July 1, 1973,

to carry out such a substantial acquisition; nor did Hawk-

ins and Radice Realty ever come to a firm agreement about

number of inns, amount of mortgage to be assumed, and

final purchase price, nor commission arrangements. It

was further demonstrated by defendant’s proof that HI

would, in all likelihood, not have approved Radice Realty

as a franchisee, absent the clause in controversy as an ac-

ceptable financial risk. Reasonable minds would have

reached the result indicated; that there was no binding

offer pending when the matter was submitted to HI.

Plaintiff, given the benefit of favorable inferences, failed

to prove a causal connection between the enforcement of

the allegedly illegal clause and plaintiff's asserted damages.

There was no firm value to be established without com-

plete speculation in the Radice Realty negotiations for

four Holiday Inns. Even if plaintiff is found to have

failed, as a matter of law, to have proved a contract upon

which to base his action, there are other serious stumbling

blocks to the recovery sought by plaintiff in light of the

1l. The asserted fact that the Radice Realty Board in 1971

had authorized Butler to move ahead with motel acquisitions is no

basis to conclude in the face of seriously declining financial circum-

stances in 1973 that it was economically in a position to approve or

accept a final contract calling for large cash outlays.

A20 District Court Memorandum Opinion

jury’s response to interrogatories. Plaintiff argues that the

jury has found that the enforcement of the “non-Holiday

Inn clause” was an unreasonable restraint of trade and

that plaintiff was injured by it and that he should be

found entitled to $2,022,000, applying a treble damages

standard. Plaintiff is correct in his assertions if there

were a legitimate and legal basis for the jury's findings.

If the “non-Holiday Inn clause worked a restraint of

trade, and if the question then is whether or not the re-

straint is unreasonable, plaintiff has persuaded the jury

that there was an unreasonable restraint insofar as Hawk-

ins was concerned, although the Court’s judgment, if it

were the trier of fact, would have been that the evidence

preponderated against such a result. Did it also appear

from the evidence that the policy tended to prejudice or

was reasonably calculated to prejudice the public interest?

See Lamb Enterprises v. Toledo Blade Co., 461 F. 2d 506,

515 (6th Cir. 1972); Malamud v. Sinclair Oil Corp., 521

F. 2d 1142, 1151 (6th Cir. 1975). The record here shows

that Holiday Inns represented only 17% of the market;

that there was vigorous and active competition among

various large operators in motel franchising; that there

were hundreds and even thousands of potential investors

interested in HI franchises, both those who were already

involved in the HI operations in some way, and others

who were not. The jury found that about 15% of the mar-

ket was foreclosed to Hawkins for competitive buying of

his Mobile interests under the policy in dispute. The law

recognizes a right in the franchisor of a service mark to

participate in negotiations of a franchise sale and that a

franchisor may restrict the franchisee’s sale. Kestenbaum

v. Falstaff Brewing Corp., 514 F. 2d 690 (5th Cir. 1975).

12. This case was cited and relied upon in memoranda by

both parties; indeed, plaintiffs counsel described it as “similar

factually” to this case.

District Court Memorandum Opinion A2l

As stated in that case, the franchisor “has a strong interest

in the vitality of a new franchisee;” thus it may restrain

franchise sales “for good business reasons” so long as it

does not unreasonably injure competitors. It is also stated

in Kestenbaum, supra, that “the test of anti-trust legality

of such a restraint is whether the effect upon competition

in the marketplace is substantially adverse. United States

v. Arnold Schwinn & Co.”, 388 U. S. 365 (1967).

If the restraint be considered with respect to Radice

Realty, plaintiff has failed to make out a case; Radice has

not shown that it has been damaged and plaintiff has no

right or standing to claim damage on Radice Realty’s be-

half. The plaintiff has no complaint based upon any al-

leged restraint upon him not to engage in operating or

owning non-Holiday Inn motels or hotels; there has been

no proof whatever showing any damage in this respect.

The only restraint that can be claimed by plaintiff under

the jury’s finding is that 15% of the market was foreclosed

to him with respect to a desired sale. This does not, as a

matter of law, constitute a substantially adverse effect

upon the public, or tend to indicate eliniination or destruc-

tion of competition, where plaintiff has not shown that he

had a firm contract with a segment of that fifteen per cent

(15%) of the market.

The fact that HI competitors did not require in their

franchises non-ownership in competitive Inns or hotels is

not, in the Court’s opinion, proof that the clause in con-

troversy is illegal, invalid, or unreasonable, particularly

in light of the success of defendant in maintaining its suc-

cessful Holidex referral system, an end fervently desired

by plaintiff and other HI franchisees.

In the light of all the evidence as to a broad and wide-

spread availability of potential purchasers, and the plain-

tiff’s failure to prove that he was damaged by reason of a

failure to conclude a firm contract for his three Holiday

A22 District Court Memorandum Opinion

Inns for a firm price with Radice Realty, reasonable minds

could not conclude that the defendant’s practice with re-

gard to the “non-Holiday Inn clause” resulted in public

injury or destructive competitive practices. Even plain-

tiff's counsel concedes HI has valid and strong interests in

its service mark; it may refuse to license or franchise its

use unless “conceived to achieve forbidden ends” or “ac-

companied by unlawful conduct or agreement” or “con-

ceived in monopolistic purpose or market control.” Times-

Picayune Publishing Co. v. United States, 345 U. S. 594

(1953); see United States v. Colgate Co., 250 U. S. 300

(1919); Continental TV v. GTE Sylvania, — U. S. —, 5

Trade Reg., Reg. § 61,488 (1977).

“Even where a manufacturer or supplier has a policy

aimed at a result, which, if accomplished through an agree-

ment or combination would amount to an unreasonable

per se restraint of trade, he nevertheless may, in the

absence of such agreement or combination, refuse to deal

with a purchaser in accordance with the announced

policy .. .” Amplex of Maryland v. Outboard Marine

Corp., 380 F. 2d 112, 116 (4th Cir. 1967), cert. den., 389

U. S. 1036 (1968); see Osborn v. Sinclair Refining, 286

F. 2d 832 (4th Cir, 1960), cert. den., 366 U. S. 963 (1961).

Plaintiff did not show that the clause in question operated

to deprive him of his property or business as an operator

of Holiday Inns.

For the indicated reasons, even if plaintiff is given

favorable inferences in support of proof adduced in the

face of a motion for directed verdict or by judgment not-

withstanding a verdict, this Court is disposed to grant the

motion made by defendant. If, however, in the event of

an appeal, the responses of the jury indicating an unrea-

sonable restraint were found to be supported by sufficient

evidence, and if there were sufficient proof of causal con-

nection and resulting damages to plaintiff and/or injury

District Court Memorandum Opinion A23

to the public under the Sherman Act, Section One, require-

ments, this Court would still conclude that the damages

indicated are excessive, unsupported by proof and

unjustified.

There is no credible proof justifying plaintiffs pro-

spective receipt of any amount above a net of $750,000

from Radice Realty, taking into account commission owed,

closing expenses, and the recovery Hawkins has already

effected from defendant in another suit, and the effect of

taxes on any gain realized by plaintiff.

Neither could any reasonable conclusion be reached

but that plaintiff did not lose by the continued operation

of his Holiday Inns after the abortive effort to sell to

Radice Realty. His profits continued during and after

1973, and his cash flow continued to be satisfactory into

1977. At a maximum, assuming that Radice Realty had

been able after mid-1973 to carry out the purported nego-

tiation for purchase, plaintiff could not have lost by reason

of continued operation more than $10,000 a year for three

years, a total of $30,000 (not $230,000) in contrast to in-

vestment of the net amount received during that period.

The jury found a maximum $500,000 present net value to

Hawkins of his interest in the Mobile Inns. The more

logical and reasonable proof was, if the Court were to

exercise a factual judgment, nearer $750,000 as a minimum.

Giving a maximum and fair appraisal and estimation of

damage, and eliminating speculation as much as possible,

plaintiff should be awarded demonstrated damages of a

maximum of $280,000, if any at all.

The jury was unduly influenced by the sketchy and

short-term figures pertaining to Mobile East after the

change of location of the principal highways, a change

which should have been anticipated by any reasonable

prospective purchaser for several years before 1976. While

the Court has concluded that a judgment for plaintiff

A24 District Court Memorandum Opinion

should not be entered, it should at the same time compli-

ment plaintiff's counsel on the good presentation made on

Hawkins’ behalf in these extended proceedings.

Let a Judgment be entered noting plaintiff's excep-

tions accordingly. Each party will bear his or its own

costs under the circumstances.

This 25th day of January, 1978.

/s/ Harry W. WELLFoRD

Harry W. Wellford, Judge

UniTEp STATEs District Court

Court of Appeals Judgment A25

UNITED STATES COURT OF APPEALS

For THE SIxTH CIRCUIT

Nos. 78-1244

78-1245

FRANK L. HAWKINS,

Plaintiff-Appellant,

Cross-Appellee,

v.

HOLIDAY INNS, INC.,

Defendant-Appellee,

Cross-Appellant.

Before: KrerrH, KENNEDY, and Martin, Circuit Judge.

JUDGMENT

(Filed Nov. 5, 1980)

AppEAL from the United States District Court for the

Western District of Tennessee.

THIs CAUSE came on to be heard on the record from

the United States District Court for the Western, District

of Tennessee and was argued by counsel.

ON CONSIDERATION WHEREOF, It is now here ordered

and adjudged by this Court that the judgment of the said

District Court in this cause be and the same is hereby

affirmed.

It is further ordered that Defendant-Appellee,

Cross-Appellant recover from Plaintiff-Appellant, Cross-

Appellee the costs on appeal, as itemized below, and that

A26 Court of Appeals Judgment

execution therefor issue out of said District Court if neces-

sary.

ENTERED BY ORDER OF THE COURT

/s/ Joun P. HEHMAN

Clerk

A True Copy.

Attest:

/s/ (Ilegible )

, Deputy Clerk

Issued as Mandate: DECEMBER 30, 1980

Costs: NONE

Filing fee ..... $

Printing $

Total $

District Court Judgment A27

UNITED STATES DISTRICT COURT

FOR THE

WESTERN DisTRICT OF TENNESSEE,

WESTERN DIvISION

Civil Action File No. 74-521

FRANK L. HAWKINS,

Plaintiff,

v.

HOLIDAY INNS, INC.,

A Tennessee Corporation,

Defendant.

JUDGMENT

This action came on for trial before the Court, Hon-

orable Harry W. WELLFoRD, United States District Judge,

presiding, and the issues having been duly tried and a

decision having been duly rendered, it is Ordered and

Adjudged that in accordance with the Memorandum

Opinion dated January 25, 1978, entered by the Court,

Judgment is entered on behalf of the defendant notwith-

standing the jury verdict in this cause. Furthermore, in

the event this Judgment for the defendant be set aside,

the Court reduces the amount of the verdict to a maximum

of $280,000, subject to the treble damage provision of

the Act. The verdict is unfounded on the proof and evi-

dence submitted, involves speculation and is against the

weight and effect of the evidence to the extent it exceeds

A28 District Court Judgment

the amount indicated, and further is indicative of passion

and caprice against defendant under all the circumstances.

APPROVED:

/s/ Harry W. WELLFORD

Harry W. Wellford, Judge

United States District Court

Dated at Memphis, Tennessee, this 7th day of Feb-

ruary, 1978.

J. FRANKLIN REID

Clerk of Court

Court of Appeals Order A29

UNITED STATES COURT OF APPEALS

For THE SIxTH CIRCUIT

Nos. 78-1244

78-1245 |

FRANK L. HAWKINS,

Plaintiff-Appellant,

Cross-Appellee

v.

HOLIDAY INNS, INC.,

Defendant-Appellee,

Cross-Appellant.

ORDER

(Filed Dec. 23, 1980)

Before: Krr1H, KENNEDY, and Martin, Circuit Judges.

On receipt and consideration of a petition for rehear-

ing and suggestion for rehearing en banc in the above-

styled case; and

No judge in active service in this Court having moved

for rehearing en banc and the motion therefore having

been referred to the panel which heard the case; and

The panel having noted nothing of substance in said

motion for rehearing which had not been carefully con-

sidered before issuance of the Court’s opinion;

Now, therefore, the motion for rehearing is hereby

denied.

ENTERED BY ORDER OF THE COURT

Joun P. HEHMAN

Clerk

A30 Jury Interrogatories

IN THE

UNITED STATES DISTRICT COURT

For THE WESTERN DisTRICT OF TENNESSEE

WESTERN DIVISION

No. C-74-521

FRANK L. HAWKINS,

Plaintiff,

e.

HOLIDAY INNS, INC.,

Defendant.

JURY INTERROGATORIES

1. Was there a bona fide offer by Radice Realty to

Hawkins for all of his Mobile motels and property which

offer Radice Realty was capable of carrying out and quali-

fied to conclude?

Yes V

No

2. If your answer to No. 1 is yes, when, in the normal

course, would Radice Realty and Hawkins have been able

to complete the transaction (after approval of the fran-

chise application and all other requirements )?

DaTE July 1973

3. (a) If your answer to No. 1 is yes, was the sales

agreement subject te a commission?

YEs V

No

If so, how much?

AmMounT $276,000

Jury Interrogatories A31

3. (b) Did the Radice Realty offer include any value

for Hawkins’ 5.6 acres of land?

Yes V

No

If so, how much?

Amount $280,000

4, If your answer to No. 1 is yes, was the offer frus-

trated by the Holiday Inns use of the so-called “non-

Holiday Inn clause”?

Yes V

No

5. If you find Holiday Inns enforced the “non-Holi-

day Inn clause”, was the action of Holiday Inns in enforc-

ing this clause as to Hawkins reasonably calculated

adversely to affect the public interest (prospective pur-

chasers of and/or investors in motels, hotels and motor

lodges), or did it tend adversely to affect the public in-

terest?

Yes V

No

6. If your answer to No. 4 is yes, was the effect of the

“non-Holiday Inn clause”, under the circumstances, an

unreasonable restraint of trade?

Yes V

No

7. If your answer to No. 6 is yes, did the restraint

have a not insubstantial effect on interstate commerce?

YEs V ;

No

8. (a) Plaintiff contends that the relevant market

within which trade or commerce has been unreasonably

restrained is the purchase by those owning interests in

and/or operate hotels, motels and motor lodges.

A32 Jury Interrogatories

Defendant contends that the relevant market to which

you should direct your attention is the investment in

hotels, motels and motor lodges by any eligible investor.

Do you agree with the contention of:

PLAINTIFF V

DEFENDANT

8. (b) Whichever relevant market you determine to

be appropriate, what percentage of that market, if any, do

you find has been foreclosed to competition?

15+%

9. If your answer to No. 1 and No. 4 is yes, what was

the net amount to be realized by Hawkins from this sale

to Radice Realty of the three Holiday Inns in Mobile?

Amount $944,000

10. Has Hawkins made good-faith efforts to sell his

Mobile Inns to a purchaser acceptable to Holiday Inns

since April 4, 1973?

Yes V

No

11. What is the present net value to Hawkins of his

three Mobile Holiday Inns (the fair market value of his

interest aside from his mortgage commitments )?

Amount $500,000

12. Did Hawkins lose or gain by the operation of his

Holiday Inns during the interim period between the pro-

posed Radice Realty sale and the present time in contrast

to his investing conservatively the proposed net proceeds

from Radice Realty during that same period?

Loss V

GAIN

How Mucx? $230,000

13. If your answer to No. 4 and No. 6 is yes, what

was the damage, if any, actually and directly suffered by

°

Jury Interrogatories A33

Hawkins from Holiday Inns’ refusal to consider the Radice

Realty proposal, taking into account:

(a) Loss, if any, in value of the three Holiday

Inns (the difference between Interrogatory No. 9 and

Interrogatory No. 11)?

Amount $444,000

(b) Any other proximate loss or damage, if any,

(refer to Interrogatory No. 12)?

Amount $674,000

/s/ Wit~t1AM DwaynE KELLEY

FOREMAN

Date: Sept. 15, 1977