Petition — Mesirow v. Pepperidge Farm, Inc.

Supreme Court brief1983

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i iii i

82-193) FILE

NO.

WAY S1 1983

IN THE SUPREME COURTALEXANOER L STEVAS

CLERK

OF THE pane

UNITED STATES

October Term, 1982

ELI MESIROW and THOMAS MORRIS,

Petitioners,

vs.

PEPPERIDGE FARM, INCORPORATED,

a Connecticut corporation,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Maxwell Keith

(COUNSEL OF RECORD)

1390 Market Street

Suite 908

San Francisco, CA 94102

Attorney for Petitioners,

Eli Mesirow and

Thomas Morris

QUESTIONS PRESENTED

1. Can a manufacturer obtain price

control over a nationwide group of inde-

pendent businessmen by assuming the insur-

ance on the stock while expressly dis-

Claiming most of the significant nroduct

risks?

2. Does the Simpson Rule prevent

judicial analysis of product risk taking

factors when a nationwide manufacturer

uses consignment agreements to fix and

control prices charged by a widespread

group of independent businessmen who are

fully accountable for the success of their

businesses?

3. May summary judgment under the

antitrust laws be granted a manufacturer

who has a scheme to force route splits on

independent distributors who must purchase

the route from an outgoing distributor or

the manufacturer, who exercises pre-

emptory cancellation of agreements in

disputes with independent distributors and

who establishes exclusive territories and

fixes prices from the factory to the con-

sumer although the product passes through

two channels of independent entities?

TABLE OF CONTENTS

I. QUESTIONS PRESENTED....-.eeeees

II. LIST OF PARTIES... cece eecees

III. CITATIONS TO OPINIONS BELOW...

IV. SUMO OLGT LOM eee cevecenseseseenee

V. STATUTES INVOLVED......eeeeeee

VI. CONCISE STATEMENT OF THE CASE

A. The TPO cene a teenewns

: oe

pg >t 245 7 Fe

Defendant Pepperidge

Peis sce aee Coe sianuwes

B. The Distribution System...

Period 1970 to

January 1976......2..

Period 1976 to 1977..

Period 1977 to May

Ws cccveccesesenser

Distribution Contracts

Were Terminable at

S&S eam rm OEE ey

Distributors Were

Forced to Sell

Portions of Their

Territory Because

of Coercive Tactics..

c. Injury to the Petitioners

ARGUMENT

This Court Should Prevent All

Significant Breaches of the

Simpson Rule Prohibiting

Resale Price Fixing on

Independent Businessmen

Whose Livelihoods Depend

on Their Own Initiative,

Effort and Continuing

Investment of Capital Into

Pheir BuSiIN@SSES. ccccsccosececs

A. Simpson Precludes the

Risk Taking Analysis

Undertaken Here, Resale

Price Fixing Being Imposed

on a Widespread System of

Independent Distributors..

Le Petitioners Were

Entitled to Summary

Judgment on the Use

of Express Clauses

in Consignment

Agreements to Fix

Resale Prices, 1974-

WTS csccveseccecevece

B. The Ninth Circuit Is In

Basic Conflict With the

Fifth Circuit on the Issue

of Reserved Accounts......

C. Pepperidge Farm Is Not

Entitled to Summary

Judgment On Any Sherman

AGE CLlOIMs eeccenccecccecse

Le The Courts Could Not

Ignore the Evidence

of Pepperidge Farms'

Purpose to Fix Prices

Through The Distributors

and The Retailers to

The Consumer.......0.-

\# The Basic Risk of The

Products Is Unsold

Product Which is Borne

by the Distributor

Regardless of Billing

PLOCOGULES. ccccccccce

: Pepperidge Farm

Prevents Solicitation

of Accounts Once They

Are Tied to Its

Billing System.......

4. There Are Material

Issues of Fact in

Dispute as to The

Facts Found by the

Gee Gis deetéwoeccens

III The Sherman Act's Protection

of the Rights of Independent

Businessmen From Predatory

Practices Has Been Ignored.....

A. Petitioners Filed Declara-

tions Containing Direct

Evidence of a Plan to

Force the Sales of Portions

of Territories on

Independent Owners of

-) Be, ooh. 3. Sn

1. Pepperidge Farm's

Ex-Managers Have Sworn

that Pepperidge Farm

Had a “One Truck Only"

Policy, Prevented

Territorial Expansion

and Coerced Route

BRE Os ca wteesseetece

CONCLUSION eoeeeeneeeensteeeeeeeeeete

APPENDICES A through I

iii

TABLE OF AUTHORITIES

PAGE

Statutes

Section 1 of the Sherman Act,

BD GuOeGe B devvevcsiesvececeses 3,48

50,53

Section 2 of the Sherman Act,

LO GeblsGo © Se cccesvecvseesecven 2,48

30,524,533

Section 4 of the Clayton Act,

BD WetcGe B Seececeesessesesess 3

The Maguire Act, Section 5(a) of

the Federal Trade Commission

Act. G6 Stat. 631, 15 0.8.C.

SBS =——C HHSC O SEES eet er eees 3

Be WstieGe SB LESS c ces ceevnsececs 3

Cases

Boston Store of Chicago v. American

Graphophone Co., 246 U.S.

- Se sceepeeeseeeeseoeoses 31

California Retail Liquor Dealers

Ass'n. v. MidCal Aluminun,

ii. Bae Bele BF CASE) ccccecs 30

Continental Ore Co. v. Union

Carbide & Carbon Corp.,

5. 2 & Pe Me * ) ee 39

Continental T.V., Inc. v. G.T.E.

Sylvania, Inc., 433 U.S.

ee SEED a6 b 000 084 es see eeces _ 30

Dr. Miles Medical Co. v. John D.

Park & Sons Co., 220 U.S.

373 3 tS See ee eee 28

Greene v. General Foods Corp.,

517 F.2d 635 (5th Cir. 1975)... 33-37

Lessig v. Tidewater Oil Co., 327

Foam S59 (Fen Cif. LISS) ccccese 51

Photovest Corp. v. Fotomat Corp.,

606 F.2d 704 (7th Cir. 1979)... 51

Poller v. Columbia Broadcasting

System, Inc., 368 U.S. 464

(1962) beds ee coutedeeseee ee 38

Simpson v. Union Oil Co. of

California, 377 U.S. 13

(1964), 396 U.S. 13 (1969)..... 1,25=-

31,33,34,51

Straus v. Victor Talking Machine

CO., 2463 UeSe S90 (L9L TF} coceves 31

United States v. General Electric

as BEE Gels S70 CAeeEl 6 ceeees 28,29

United States v. Parke, Davis &

Co., 362 U.S. 29 (1960) -cccvess 39

QUESTIONS PRESENTED

1. Can a manufacturer obtain price

control over a nationwide group of inde-

pendent businessmen by assuming the insur-

ance on the stock while expressly dis-

claiming most of the significant product

risks?

2. Does the Simpson Rule prevent

judicial analysis of product risk taking

factors when a nationwide manufacturer

uses consignment agreements to fix and

control prices charged by a widespread

group of independent businessmen who are

fully accountable for the success of their

businesses?

3. May summary judgment under the

antitrust laws be granted a manufacturer

who has a scheme to force route splits on

independent distributors who must purchase

the route from an outgoing distributor or

the manufacturer, who exercises pre-

emptory cancellation of agreements in

disputes with independent distributors and

who establishes exclusive territories and

fixes prices from the factory to the con-

Sumer although the product passes through

two channels of independent entities?

II.

LIST OF PARTIES

A list of all the parties to the pro-

ceeding is contained in the caption.

IItI.

CITATIONS TO OPINIONS BELOW

The decision of the United States

Court of Appeals for the Ninth Circuit is,

as yet, not officially reported and

appears at 1982-83 Trade Cases 465,164. A

true copy of the opinion of the Court of

Appeals is attached hereto as Appendix

A. A petition for rehearing was denied.

Said order is attached hereto as Appendix

B. The opinion of the trial court which

was affirmed on appeal, is not officially

reported and appears at 1981-82 Trade

Cases 464,292. A true copy of the opinion

of the trial court is attached hereto as

Appendix C.

IV.

JURISDICTION

The judgment of the United States

Court of Appeals for the Ninth Circuit was

entered on January 25, 1983. A Petition

for Rehearing was timely filed. It was

denied on April 5, 1983 (Appendix B

herein). The jurisdiction of this Court

is invoked under 28 U.S.C. § 1254.

Vv.

STATUTES INVOLVED

The statutory provisions are § l,

amended § 1 and § 2 of the Sherman Act, 15

U.S.C. §§ 1 and 2 and § 4 of the Clayton

Act, 15 U.S.C. § 4. The provisions of the

McGuire Act, § 5(a) of the Federal Trade

Commission Act, 66 Stat. 631, 15 U.S.C.

§45 (1952), and its repeal effective

March 12, 1976 are also pertinent. These

statutory provisions are attached hereto

as Appendices D, E, F and G.

VI. CONCISE STATEMENT OF THE CASE

A. The Parties

1. Plaintiffs

Plaintiffs are experienced wholesalers

of goods sold to chain retailers. Mr.

Mesirow became a franchised distributor of

Pepperidge Farm in April, 1970 (Excerpt of

the Record, hereinafter "ER.", 67-77). At

this time he paid the outgoing distributor

$10,000, $5,000 of which he borrowed from

Pepperidge Farm (ER. 627-629). At that

time his franchise included Vallejo, all

of Oakland, all of Contra Costa County,

and all of the heavily populated areas of

Alameda County north of San Lorenzo and

Hayward (ER. 59, 86). The District Sales

Manager at the time was Richard Montreal

(ER. 444).

His step-brother, Thomas Morris, be-

came a distributor of Pepperidge Farm

Products in April, 1970 when he acquired a

part of Mr. Mesirow's territory and

another franchise for $3,500 (ER. 913).

Petitioners formed a partnership to share

expenses and profits of these businesses

(ER. 59-60).

2. Defendant Pepperidge Farm

Pepperidge Farm is a wholly owned

subsidiary of Campbell Soup Company which

bakes and distributes bread, rolls,

English muffins, stuffing, cookies,

crackers, croutons, frozen pastries and

layer cakes (ER. 15). The product lines

involved here are cookies, snack crackers,

stuffings and croutons (ER. 75, 88).

Pepperidge Farm divides its distribution

of these products to two types of distri-

butors: (1) consignee distributors (d/cs)

and (2) specialty distributors (ER.

448). It has distinct arrangements with

consignment distributors with respect to

stuffings and croutons. These are the

subject of a special letter allowing

Pepperidge Farm to discontinue supplying

such dry products on 30 day notice (ER.

88-89, App.I, 28, 29). The same chain

stores billed by specialty distributors

may not be billed by the consignee distri-

butors (ER. 441, 448).

Pepperidge Farm is a nationwide com-

pany with manufacturing facilities in

various places in the United States (ER.

15). It is a dominant company in the

premium cookie business as shown by its

own studies of the San Francisco market

area (ER. 472-481). The San Francisco

market area is defined as Alameda, Contra

Costa, Marin, San Francisco and San Mateo

Counties (Id.). The 1977 Report showed

that Pepperidge Farm is displayed in 86.7%

of the retail market ("% share mkt.").

The directly billed chains constituted

72.5% of the total food market (ER. 475)

and 42% of Pepperidge Farm's sales

(Id.). In this surveyed area, it had an

average of 216 inches of space per store

at Safeway, 24.8% of the market, with

$4.06 sales per foot of store space per

week. Its products are thus prominently

displayed in 769 out of 899 available

stores in this area (Id.).

In the 1979 fiscal year, Pepperidge

Farm's nationwide biscuit sales were

$58,232,000, and its crouton and stuffing

sales were $19,224,000 (ER. 372). It is

undisputed that, at all times herein,

Pepperidge Farm biscuit and dry products

were distributed through persons whom

Pepperidge Farm itself designated as self-

employed, independent businessmen (ER.

373). The 1970 and 1977 Consignment

Agreements are attached hereto as Appen-

dices H and I. They state (ER. 70, H-14;

1977, 414, ER. 84, I-15):

"15. INDEPENDENT BUSINESSMAN.

The Consignee is a self-employed

independent businessman, not an

agent or employee of the Bakery,

and has no authority other than

to sell products consigned to him

hereunder, express or implied, to

do or perform any act or thing or

to make any warranty or represen-

tation or promise or commitment

of any character which will be

binding upon the Bakery or for

which it will be responsible, and

he will refrain from any conduct

inconsistent with the terms of

this paragraph."

B. The Distribution System

1. Period 1970 to January, 1976

During the period 1970 - January,

1976, Pepperidge Farm distributed cookie

products as follows: it printed in inde-

lible ink the consumer price per package,

without the slightest indication it was a

suggested price (ER. 63, 1494); it deli-

vered the ordered quantities to the ware-

house of the independent distributors on

either an order or standard shipment basis

(ER. 63). The independent distributors

were obligated to adequately stock each

store, to take orders from the retail

stores, to deliver the cookies, to unload

them and to sell at the prices instructed

by Pepperidge Farm at wholesale (ER. 59-

65). It purported to utilize Fair Trade

legislation but also disclaimed using Fair

Trade at retail (ER. 1496). Pepperidge

distributed price lists setting forth the

wholesale price the distributor was to

charge and the retail price per package

(ER. 75). The distributors signed Fair

Trade Agreements contemporaneously with

the Consignment Agreement (ER. 76-77).

Paragraph 11 of the Consignment Agreement

specifically reserved the right to fix

prices to the extent permitted by law (ER.

70, 11). Except for theft, accepted

damaged ieturns, and Acts of God, the

distributor was liable for all cases de-

livered to him (ER. 220-226, 444-447).

Other risks assumed by the distributors

are as follows (ER. 437-459, 1493-1500):

1. The inability to obtain credit for

unsold and returned product. This is

provided in a specific letter to be signed

by the distributor. It reads (ER. 68, H-

28):

"Products which you sell to your

customers may not be returned to

us for credit by reason of damage

or by reason of over-code (over-

age) nor will you receive credit

for any complimentary products

you may distribute. We may make

exceptions, of course, by giving

you written notice in particular

cases.

"You agree to continue maintain-

ing an adequate and fresh supply

of franchise products in all

stores and to continue removing

promptly all damaged and over-

code products from the stores.

Over-code products may be sold to

stores dealing exclusively in

stale products, but you agree not

to sell such products to any

other purchaser.

"Please acknowledge recept of

this letter by signing

and re-

turning to us the attached copy

of this letter."

2. Inability to return

wholesale and retail prices

upward and chains refuse to

attempted hiding of the old

see, also, ¥ 18; ER. 438, ¥

cases when

are changed

accept the

price (Id.,

2(g)).

3. The risk of unsold products when

customers do not accept the

pricing.

new increased

4. The receipt of short coded cases

when managers refuse to allow a return.

5. Inability to return cases pur-

chased for new products which are discon-

tinued (See, also, ER. 1498,

q 17).

6. The failure of Pepperidge Farm

managers to carry out promises of credit

for returned goods.

7. Liability for removal of stock

regardless of when payment received from

his accounts.

8. Loss of control of promotional

activities with the individual stores of

the direct billed chains, of whether to

service unprofitable individual chain

stores, of judgment as to the quantity of

cookies to display by variety and place on

the shelf (Id., ER. 438 ¥ 2(e), (h). See,

also, ER. 446, 447).

At least four times a year Pepperidge

Farm engaged in promotions on one or more

of its products. These promotions involv-

ed meeting with distributors by terri-

tory. At these promotion meetings, pro-

duct quotas are assigned by Pepperidge

Farm in writing (ER. 446, 1481-1482).

Assurances were given by the Pepperidge

Farm managers that the quotas are sell-

able; that (as to stuffing) if unsold,

credits will be issued; that unsold pro-

ducts will be removed from the inventory ah

reports, that reporting of removed inven-

tory could be delayed pending payment

(Id.). In order to get rid of the quotas

the distributors were required to unload

on their large accounts and accept back

cases which were unsold (ER. 440, 441;

446, 4 5 (3)).

The only known servicing of the

directly billed accounts by Pepperidge

Farm employees are: (1) discussion of

promotions; (2) obtaining agreement on

shelf space; (3) obtaining agreement on

the individual stores to be serviced.

Promotions are discussed on a chain basis,

but the specific orders by quantity are

made by the individual distributor for the

specific stores who must deliver and fully

stock the store (ER. 437-438).

Distributors were gathered together at

meetings and informed of the new prices

they were to charge all of the accounts

(see ER. 441-442).

Many of the distributor's chain stores

were reserved by Pepperidge Farm for pric-

ing and volume negotiations. Pepperidge

Farm negotiated prices and quantities with

these accounts on a chain basis and then

sent out instructions to the individual

distributor telling him his delivery re-

quirements (ER. 1480-1481). These chain

accounts may be referred to as hybrid

chain accounts. The categories of retail

accounts thus are: Pepperidge Farm Chain

Accounts; Pepperidge Farm Hybrid Chain

Accounts; Distributor Accounts; (a) Indi-

vidual Distributor Chain Accounts and (b)

Distributor Mom and Pop Accounts. The

Pepperidge Farm files admit it engaged in

price negotiations with the Hybrid

Accounts and instructed the distributor on

the quantities he was to deliver to them

(ER. 1437):

"IV. Chain Calls

Payless is set for the ad on the

14th. All orders have been sent

out to the distributors and ini-

tial orders have topped 3,000

cases of Old Fashioned which

should help us turn around a

negative sales trend.

"I have presented Mr. Russell

with our Goldfish promotion and

if everything goes smooth this

month, we should be able to pro-

cure another ad next month."

All during this period of time Pepperidge

Farm sold its cookies direct to the con-

sumer through the Pepperidge Farm direct

mail operation, asserted to be a subsidi-

ary of Campbell Soup (ER. 1055). During

Fair Trade, Pepperidge Farm held me. :ings

between itself, the consignee, distribu-

tors and the specialty distributors to

obtain agreement on the wholesale price of

stuffings and croutons (ER. 441).

2. Period 1976 to 1977

When Fair Trade was terminated it took

Pepperidge Farm considerable time to ob-

tain even a forced acceptance of a new

consignment agreement. Its first agree-

ment in 1976 was so onerous that a nation-

wide revolt of distributors took place.

Eli Mesirow was one of its leaders (ER.

439-440).

3. Period 1977 to May, 1978

A new franchise agreement was signed

by the petitioners in May, 1977. Few

changes were made. The Pepperidge Farm

directly billed chain accounts were no

longer the subject of an accommodation

agreement between the company and the

distributor but became reserved

accounts. The distributor was required to

solicit the chain on Pepperidge Farm's

behalf, to agree to allow Pepperidge Farm

to price the sales and to send the chain

the invoice (Appendix I, 4 3(f)). The

provision reads, (ER. 83):

"3.(b) The Bakery will bill

directly all chains and military

commissaries that have requested

such direct billing or that re-

quest it in the future. Such

stores in the territory will be

direct customers of Bakery, and

the Consignee will solicit sales

from them and receive product for

delivery to them on the Bakery's

behalf at Bulletin Prices. Con-

signee shall have the exclusive

right to perform the service of

delivery of Consigned Products to

such direct customers of Bakery

and Bakery shall not effect such

delivery except through Consig-

nee, subject to the provisions of

Paragraph 6, 7 and 9. For the

performance of his services of

solicitation and delivery under

this subparagraph (b), Consignee

shall be paid a percentage of net

proceeds paid to Bakery by the

direct billing customers, such

percentage to be calculated at

the rate specified in Schedule

(B)."

References to resale price control

were eliminated. Although Pepperidge Farm

claimed that it shoulders all the risks of

loss of non-payment, in fact the contract

requires the distributor to assume the

risk of his share of the non-payment (ER.

91, Appendix I-31). Mr. Mesirow and Mr.

Morris were required to sign the new

agreement in order to remain distributors

(ER. 61).

Pepperidge Farm continued to print the

consumér prices on each package and to

issue price schedules showing its price to

the distributor and the pre-ticketed price

(ER. 96). For a time its price lists

stated, "P.F,. Price to Retailer" (ER. 61,

96-97).

The accounting was changed to show the

sales to the direct billed accounts (ER.

209). The distributor was credited with

the wholesale price of the deliveries and

granted 20%. Pepperidge Farm continued to

direct the prices the distributors were to

charge all accounts (ER. 61, 439).

4. Distribution Contracts Were

Terminable At Will.

The agreements with the distributors

could be terminated at any time upon writ-

ten notice (ER. 71, 85; Appendices H, I 4q

17, 18, 19). If the termination is with-

Out cause, the distributor is entitled to

payment for his fair market value plus 25%

of such value.

5. Distributors Were Forced to

Sell Portions of Their Terri-

tory Because of Coercive

Tactics.

The distributors were subject to a

scheme to constantly reduce their terri-

tories by means of pressure tactics. The

more business a territory developed, the

lower the number of deliveries per stop

the one truck distributor could make.

Pepperidge Farm then demanded and received

route splits. The means used were opening

new accounts, insisting on more stops,

conducting excessive managerial inspection

trips, issuing of stale credits to the

retailer, charging the distributor at

retail, and demanding immediate payment of

all amounts claimed due. Sales managers

were ordered by national headquarters to

obtain route splits (ER. 1440-1470). An

ex-District Sales Manager and Territorial

Manager of Pepperidge Farm, during the

period 1968 to 1971, Mr. Montreal, so

testified (ER. 444). The National Sales

Manager, Mr. John E. Tierney, whose de-

Claration is the basis of the granting of

summary judgment, told Mr. Montreal that

Pepperidge Farm's policies should be en-

forced on distributors regardless of the

legalities (ER. 1460).

During the period 1970 - May 1978, the

petitioners went through six territorial

splits in order to pay claimed obligations

to Pepperidge Farm for products (ER.

1480). Mr. Mesirow declared (ER. 1480:8-

26):

"4. Each time I sold portions of

my Pepperidge Farm territory, it

was to pay Pepperidge Farm for

amounts claimed due by it. Most

of the sums received were plowed

back into the business. Our

losses on stales was a substan-

tial reason for these sales. I

have prepared an exhibit in this

case, Plaintiffs’ Ex. 315. This

exhibit shows, and I aver, that

my step-brother and I invested at

least $238,024 in the Pepperidge

Farm business; that out of a

franchise sale in October, 1977

for $33,000 Pepperidge Farm re-

ceived $13,000; out of sale in

March, 1978 for $32,000

Pepperidge Farm received $21,736;

and out of a sale in October,

1978 Pepperidge Farm received

$10,000; that in May, 1978

Pepperidge Farm claimed I owed it

another $33,000. I have never,

at any time, been told that

Pepperidge Farm allowed me the

option of putting on additional

trucks or splitting my terri-

tory. On the contrary, I was

told that the route split was the

only way to get out of my finan-

cial difficulties. I applied for

a loan to Pepperidge Farm for

$25,000 in March, 1978, which was

denied. If, in fact, second

trucks were a realistic alterna-

tive, this request should have

been granted."

C. Injury to the Petitioners

The rigid procedures of Pepperidge

Farm were enumerated to Mesirow and

Morris. In 1972, petitioners attempted to

invoice the Long's Drugs chain, their

largest chain account, at prices of their

own choosing. They increased the price in

order to obtain Long's agreement with

respect to promotional advertising for

which they would grant a rebate. Mr.

Wayne Bonesteel, then Pepperidge Farm's

District Sales Manager, told the petition-

ers they were not to charge Long's any

other price than Pepperidge Farm's whole-

sale price and that their franchise would

be terminated if they did so (ER. 64).

About a year later Mr. Mesirow began

billing Safeway for direct payment to his

company. Mr. Bonesteel told Mr. Mesirow

that if he continued to bill the chain

store accounts direct, they would make it

rough on him. Mesirow ignored the warn-

ings, and thereafter Mr. Bonesteel began

checking Mr. Mesirow's accounts. He made

it clear that pressure was being put on

him in order to stop billing Safeway. Mr.

Bonesteel approached Mr. Mesirow at the

warehouse and stated, "You are going to

bring on a lot of trouble for yourself. I

do not advise you to continue to bill the

chains direct." (ER. 60-61.) Mr. Mesirow

stopped the direct billing. (Id.). Mr.

Mesirow's testimony concerning these con-

versations is undisputed.

About 1974 Mr. Morris convinced Long's

Drugs on the advisability of a statewide

advertising for Pepperidge Farm pro-

ducts. Mr. Morris was able to arrange for

delivery to Long's statewide in connection

with the statewide advertising (called

"tab") but was prevented from doing so by

reason of a territorial clause in the

consignment agreement (ER. 1482-83).

About March 1977, Mr. Mesirow sold

some over-codes to a Stale Goods outlet in

California. It had a store in San Fran-

cisco and the desired stales were deli-

vered to San Francisco. He was then told

by Pepperidge Farm that he could not de-

liver stales outside his territory. A

distributor in San Francisco had sent in a

letter of protest (ER. 64).

In 1977 Mr. MesSirow was encouraged by

Pepperidge Farm to open up a Thrift Store

to sell over-code fresh bread products and

over-code biscuits within its policy.

Pepperidge Farm was attempting to get into

the fresh bread market in the San

Francisco Bay Area through independent

distributors (ER. 158). Pepperidge Farm

determined to discontinue these efforts

and the Thrift Store became undesirable

(Id.). Thereafter Pepperidge Farm had no

interest in it. About October, 1977

Pepperidge Farm went to the Mesirow and

Morris Thrift Store and painted out the

Pepperidge Farm trademark (ER. 64). It

later sued petitioners for misuse of its

trademarks at the Thrift Store, but

dismissed its causes of action (ER. 19-26,

1645).

In the Fall of 1977, Mr. Mesirow was

involved in an extensively litigated di-

vorce case. Pepperidge Farm in March 1978

demanded that all the inventory be counted

and all out of code and past dues be

immediately paid for (ER. 336-340).

Demand was made for $33,000.00 (ER. 159,

870-871, 1480). On May 10, 1978, Mr.

Tierney, in Connecticut, addressed a ter-

mination for cause letter to Mr. Mesirow,

in California, effective May 13, 1978 (ER.

871). Demand had been made by Mr. Mesirow

for credits for the unsold over-code pro-

duct (ER. 759). There was $11,000 of

unsold over-code product sitting in the

warehouse which Pepperidge Farm refused to

take back (Id.), although its District

Manager had allowed it to be unaccounted

for (Id.), and under the consignment

agreement they were owned by Pepperidge

Farm.

In a two and a half year period, peti-

tioners' stales amounted to $35,666 (ER.

98). For the four year damage period

Stales were estimated to be $60,000 (ER.

63).

Pepperidge Farm then took the terri-

tory over in May, 1978, and sold it toa

third person for $30,000 (ER. 231-232).

Pepperidge Farm refused to credit the

Mesirow account for this sum and has sued

him for an additional $33,646 on the

alleged rolling account between the par-

ties (ER. 28-29).

After the filing of this complaint,

Mr. Morris was allowed to sell his remain-

ing territory to his ex-distributor, Mr.

Garcia (ER. 1395).

In 1977 the Sacramento Distributor,

Mr. Hubert, was granted a $15,000 loan to

keep his "bill current" (ER. 461-462).

His inventory reports had been used to

cover his accounts receivable. The loan

was to balance the books (Id.). In 1978

Mr. Mesirow's request for a $25,000 loan

was denied (ER. 1480).

ARGUMENT

I. This Court Should Prevent All Signi-

ficant Breaches of the Simpson Rule

Prohibiting Resale Price Fixing on

Independent Businessmen Whose Liveli-

hoods Depend on Their Own Initiative,

Effort and Continuing Investment of

Capital Into Their Businesses.

A. Simpson Precludes the Risk Taking

Analysis Undertaken Here, Resale

Price Fixing Being Imposed on a

Widespread System of Independent

Distributors.

l. Petitioners Were Entitled to

Summary Judgment on the Use

of Express Clauses in Con-

Signment Agreements to Fix

Resale Prices, 1974-1978.

Petitioners are entitled to a per

Curiam reversal; it being undisputed that

Pepperidge Farm's purpose was to control

resale prices among a widespread group of

independent distributors. The current

breach in the wall restraining a manufac-

turer's resale price control mandated by

Congress should be the subject of instant

rejection. Independent businessmen who

invest their capital and labor are pro-

tected from interference with their busi-

ness judgments by those who control the

nation's manufacturing assets. Pepperidge

Farm has thus far been able to obtain an

impermissible exception by the specious

argument that the price fixing accommo-

dates large chain retailers. In fact, it

is relying on the investments and ware-

house distribution of independent enti-

ties. Simpson v. Union Oil Co. of Cali-

fornia, 377 U.S. 13 (1964), 396 U.S. 13

(1969) established the rule which prevents

nationwide manufacturers from controlling

the price judgments of those who are in

business for their own account by consign-

ment agreements. Simpson held: (1) The

promulgation of uniform consignment con-

tracts over a widespread distribution

System by which the manufacturer controls

the resale prices of independent business-

men is a violation of § 1 of the Sherman

Act during Fair Trade and thereafter; (2)

If the consignment contract is being en-

forced in a Fair Trade State, the case

goes to the jury with instructions that

the system is violative of the Sherman

Act, and the burden is on the manufacturer

to prove the applicability of the McGuire

Act, 15 U.S.C. § 45; (3) Whether or not

the widespread utilization of resale price

maintenance on a group of independent

distributors is a violation of the Sherman

Act § 2 raises material issues of fact

which cannot be decided in summary judg-

ment.

Simpson disposes of the distinctions

announced below. Simpson is within a

progeny of cases involving resale price

maintenance in which the manufacturer

specifically declines to distribute

through employees or bona fide agents. If

a manufacturer fears unionization of

employees hired to distribute its products

under its control, it must forego resale

price control of independent contractors.

Simpson is to be read in the light of

Dr. Miles Medical Co. v. John D. Park &

Sons Co., 220 U.S. 373 (1911) and United

States v. General Electric Co., 272 U.S.

476 (1926). In Dr. Miles, the Court held

that a system of controlling prices at

wholesale and retail through the wide-

spread use of consignment or agency agree-

ments was resale price fixing prohibited

by the Sherman Act upon the showing that

the so-called "agents" were not agents but

those who purchased to sell. The Court in

General Electric allowed the use of con-

signment agreements through nationwide

contracts with retailers upon the showing

that the consignment agreement provided

for the following obligations on the part

of the manufacturer: (1) the lamps re-

mained the property of the company until

sold; (2) the proceeds of the sale were

held in trust for its benefit; (3) it paid

all taxes; (4) it assumed the risks of

price decline; (5) and of fire, flood or

obsolescence; and (6) obtained payment

only after the retailer received pay-

ment. On the other hand, the agents

were: (1) responsible for lost, damaged

or missing items from stock; (2) obligated

to pay all expenses of storage, transpor-

tation, handling and distribution; (3)

obligated to pay the manufacturer the

value of all the company's lamps lost or

missing or damaged in the stock in their

custody.

Simpson limited General Electric to a

patent reward case and made the Sherman

Act's prohibition against resale price

maintenance an obstacle to controlling the

prices which clearly separate business

entities charged others.

The learned courts below do not cite

any cases from this Court which allow

manufacturers a gift of resale price fix-

ing if they carry insurance on the stock,

but do not assume most of the risk of the

product. This Court has consistently

Supported a found Congressional intent to

outlaw vertical price fixing which

involves an appreciable amount of inter-

state commerce. Continental T.V., Inc. v.

G.T.E. Sylvania, Inc., 433 U.S. 36 (1977),

California Retail Liquor Dealers Ass'n v.

MidCal Aluminum, Inc., 445 U.S. 97, 102

(1980), wherein the Court stated that it

had "ruled consistently that resale price

maintenance illegally restrains trade".

Indeed, Congress in 1975 outlawed all

federal support of resale price mainte-

nance.

Simpson is thus directly applicable

for the period 1974 to 1976 when

Pepperidge Farm utilized the force of

widespread consignment distribution con-

tracts to enforce resale prices in Fair

Trade States. It is directly applicable

to the period 1976-1977 when Pepperidge

used the consignment agreement to fix

resale prices without the color of fair

trade law or contractual provisions. It

is directly applicable to the 1977 Agree-

ment which expressly took away price juda-

ments for accounts directly serviced by

the independent distributor.

The independent wholesalers are only

the first step in Pepperidge Farm's fixinc

nationwide prices from the factory to the

purchaser. Yet, General Electric, supra,

and Simpson, supra, also prohibit a manu-

facturer from fixing prices through

retailers. Ever since Boston Store of

Chicago v. American Graphophone Co., 246

U.S. 8 (1918) industry was on notice that

it could not maintain resale prices by

notice. See also Straus v. Victor Talkinc

Machine Co., 243 U.S. 490 (1917).

The control of prices on each level of

resale is an objective of a manufacturer

with a dominant position, but an ultimate

purpose of the Sherman Act is to prohibit

such control when goods are put into

distribution by independent business enti-

ties. The only "premium" cookies spon-

sored by one with nationwide deep pocket

power are those of Pepperidge Farm (Depo-

sition testimony of Safeway Merchandise

Manager, ER. 1425-1426). The record shows

that Pepperidge Farm by contract, by di-

rection and by device firmly controls the

wholesale price to 87% of the retail mar-

ket. It enters into agreements with its

direct chain retailers, 50% of the market,

to change prices simultaneously with other

chains (ER. 1481-1492). The Pepperidge

distributor is the means used to accom-

plish this price maintenance. Pepperidge

Farm is shown to have made impressive

profits in its manufacture and distribu-

tion of premium cookies (ER. 372).

Net Pre-Tax

Year Dollar Sales Profit Margin

1973-74 $21,613,000 9.1

1974-75 27,653,000 13.1

1975-76 35,129,000 16.6

1976-77 38,938,000 12.9

1977-78 46,597,000 12.4

1978-79 58,239,000 11.9

These profits are based on the ability

to price without regard to competition

(ER. 1425).

B. The Ninth Circuit Is In Basic

Conflict With The Fifth Circuit

On The Issue of Reserved

Accounts.

In Greene v. General Foods Corpora-

tion, 517 F.2d 635 (5th Cir. 1975), the

Fifth Circuit examined virtually the iden-

tical issue as involved here; the

attempted segregation of multiple chain

purchasers from the general stock used to

service the territory. It held that

Simpson precluded such reservations. The

system involved here is closely anala-

gous. The distributor maintained the

basic stock of goods. He was told to

distribute coffee to General Foods'

accounts (MFSA) at prices it esta-

blished. The chain accounts did not buy

specific quantities from the manufacturer

and were serviced by the distributor.

Conversations took place in which the

distributors were told to sell at the

manufacturer's price. The Fifth Circuit

cca iii

held that the defendant had employed an

impermissible price fixing scheme. The

Fifth Circuit interpreted Simpson as pre-

Cluding any device by which resale prices

are fixed or controlled when it involves a

vast system. The court stated, at p. 653:

"Simpson, even if it did not

intend to outlaw all devices

whereby resale price maintenance

is achieved, must be read to

prohibit it where the risks of

the distribution process are

borne largely by numerous other-

wise independent individuals or

firms in competition with each

other in a product for which

there is a widespread demand on

the level of the individual con-

sumer."

The learned court below attempted to

distinguish Greene on the grounds that

title had passed, that Pepperidge Farm

serviced the chain accounts and that

Greene involved retailers. As to the

latter point, the Fifth Circuit was clear-

ly involved with a distribution contract

in which a portion of the stock was

Claimed to be reserved for chain

accounts. The former points are based on

a misconception of the record. Pepperidge

Farm distributors were fully responsible

for servicing the chain accounts. The

Pepperidge Farm distributor took orders

from the individual stores and had the

responsibility of keeping them adequately

Stocked without regard to his judgment as

to product mix or profitability of the

chain store (ER. 437-438). Pepperidge

Farm did not service, it simply entered

into the central pricing, and developed

promotions on a chainwide basis. When any

servicing had to be done, it was a Pepper-

idge Farm distributor who did it. The

Pepperidge Farm billing was based upon the

delivery tickets of the distributor.

There is no dispute over the fact that

chains are billed pursuant to the indivi-

dual distributor's tickets precisely as

involved in Greene. The issue of title

passing, although discussed in Grosse, was

not decisive. The Court of Appeals agreed

with General Foods' attorney that the

contract reservation of title should not

be decisive. The court stated at p. 657:

General Foods suggests that ‘it

would, of course, be possible to

institute a series of

formalities,’ for example, a

requirement ‘that the distributor

maintain separate inventories

- with no title ever passed to

the distributor with respect to'

the MFSA's, or alternatively, it

would be possible to devise a set

of documents whereby the distri-

butor formally resells stock to

General Foods before he delivers

it on an MFSA order.' But, it

concedes, if employing these

alternatives would achieve a

different antitrust result, the

lawwould turn on meaningless

technicalities. We agree, but it

does not necessarily follow that

antitrust consequences should

depend only upon who are the

parties to the MFSA contract.

Ending the inquiry there would be

as formalistic as the alterna-

tives deprecated by General

Foods."

The Ninth Circuit was faced with vir-

tually the same issue. Title passes under

the Pepperidge Farm scheme for the pur-

poses of stale or damaged goods, for price

declines, for new product failures and for

physical control of the stock. It would

appear that the Fifth Circuit viewed the

risks of the distribution process as a

whole and not on a seriatim analysis of

particular product risks. It is submitted

that the opinion below is inconsistent and

contradictory to the holding in Greene.

C. Pepperidge Farm Is Not Entitled

to Summary Judgment On Any Sher-

man Act Claim.

1. The Courts Could Not Ignore

the Evidence of Pepperidge

Farms’ Purpose to Fix Prices

Through The Distributors and

The Retailers to The Con-

sumer.

It is respectfully submitted that

summary judgment was entered in the favor

of Pepperidge Farm only through the

courts' taking inferences in the favor of

the moving party, of not viewing the evi-

dence as a whole, and of improperly weigh-

ing the evidence in favor of the moving

party. This is contrary to Poller v.

Columbia Broadcasting System, Inc., 368

U.S. 464 (1962).

The learned courts failed to fully

view Pepperidge Farm's total integrated

resale price fixing scheme in which prices

are fixed at the factory to establish what

the consumer will pay at the retail

shelf. A change in Pepperidge Farm's

indelible prices involved the retailer

with incurring costs in order to effect

price changes. This is more than

Suggested prices. Retailers will not

charge more than a pre-set price. The

costs involved in lowering prices by a

large chain of retail stores mitigates

against the change. It was shown to re-

sult in meetings with Pepperidge Farm to

obtain its consent and use of its distri-

butors to change prices free of charge

(ER. 1481, 1485). These retail prices

provide a ceiling on wholesale prices

since the retailer will demand a margin

consistent with his retail price and the

costs incurred in any downward revision.

This is beyond the limited dispensation

allowed in United States v. Parke, Davis &

Co., 362 U.S. 29 (1960). Further, there

was overwhelming evidence that Pepperidge

was actively directing prices charged by

the distributors to retailers. The simple

admonition of Continental Ore Co. v. Union

Carbide & Carbon Corp., 370 U.S. 690

(1962), prevented the courts from isolat-

ing the transactions and conversations

here into separate time periods. The

trial court relied on Mr. Mesirow's testi-

mony in support of an entry of summary

judgment on lack of proof of the control

of the price to Distributor Accounts (ER.

730-731). The following testimony is held

to be supportive of defendant's claim that

it stopped directing wholesale prices to

distributor accounts after 1976 (ER.

1627: 19-20, testimony of Mr. Mesirow

(ER. 730:19-731:6):

"Q. All right. Did Pepperidge

Farm ever tell you after 1972

Or 1973 when Mr. Bonesteel,

according to you, made a

remark about wholesale prices

to Longs, after that time did

Pepperidge Farm ever tell you

that you could not charge

Longs any wholesale price

that you wanted to charge

them?

"A. I'd look like a fool,

wouldn't I, with them getting

a bulletin from Pepperidge

Farm?

"Q. Did Pepperidge Farm ever tell

you you weren't supposed to

charge Long any --

"A, It was an understood fact.

"Q. Did anybody at Pepperidge

Farm ever tell you that you

couldn't do that?

"A. In the year '73?

"Q. After the time which you

testified when you had a

conversation with Mr.

Bonesteel.

"A. Not that I can recall."

Thus, contrary to the rules governing

Summary judgment, a negative becomes a

positive. The positive testimony is that

Pepperidge Farm controlled his price to

Long's (ER. 727).

The trial court and the appellate

court are even in conflict. The trial

court has found that petitioners never

charged a price different from that used

by Pepperidge Farm for its accounts (ER.

1628, App. C, 24). The appellate court

has found that Mr. Mesirow testified that

he always charged Long's a different price

(App. A, p. 11:2-5). It appears to rely

on the following testimony (ER. 726:1-28):

"Q. And did you ever charge Longs

a different price?

"A. Yes.

"Q. Well, then, that was your

price, not Pepperidge Farm's

price?

"MR. DURYEA: Objection,

Counsel. There is no foun-

dation as to time period when

this witness charged his

individually set price to

Longs as opposed to

Pepperidge Farm. The witness

was the distributor from

January, 1970 to 1978. You

have covered a three-year

time period, and now you are

attempting to distort the

witness' testimony.

"MR. HAINLINE: Thank you,

Mr. Duryea.

"Q. Mr. Mesirow, when did you

charge Longs your wholesale

price?

"A. I've already answered these

questions in previous deposi-

tions, but I'm going to an-

swer it once more for you.

"QO. Would you please do that now,

Mr. Mesirow?

"A. When Wayne Bonesteel was my

DSM, I charged Longs Drug

Stores and all the indepen-

dents that I was calling on

ae”

At ER. 727:9-14:

"Q. Mr. Mesirow, from 1976 on,

did you ever charge Longs or

other accounts that you

billed a price different from

the wholesale price that

Pepperidge Farm was charging

the accounts that it billed?

"A. Longs Drug Stores I do not

charge because Pepperidge

Farm sent out their bulletin

price list to them."

At ER. 1513:15-1514:5: petitioners

had informed the trial court as follows:

"As to App. 1, q 40, there is not

one sentence in Tab F. which in

any way indicates that Mesirow &

Morris billed Long's at a price

they choose to bill. Page 62 had

to do with small 'Ma and Pa'

stores, independent stores. Page

416 has to do with the definition

of 'chains.' Mr. Mesirow was

emphatic that defendant fixed his

price to Long's. The specific

testimony of Mesirow at 418:

"QO. ... Pepperidge Farm fixed

what price with Long's?

"A. The wholesale price.

"Q. What years? After Fair Trade

expired?

"A. 1976, 1977, 1978 ... and

prior to that, really."

At page 419, Mr. Mesirow made it

clear that when he charged a

different price than Pepperidge

Farm's to Long's, Mr. Bonesteel

made him stop.

Mr. Mesirow was referring to non-

chain accounts at p. 423 to which

he charged 24 cents a case more

(p. 421).

As to App. 1, 4 41, Mesirow &

Morris complained they were not

free to charge their own price to

their chain accounts. Mesirow

testified at pages 421-426 that

Pepperidge Farm told him the

price to charge his direct

accounts and by the device of

giving price bulletins to them,

it prevented his independent

pricing."

No findings were made as to the Hybrid

Accourncs (ER. 1634). No finding was made

to the proof of the assignment by Pepper-

idge Farm of purchase quotas.

2. The Basic Risk of The Pro-

ducts Is Unsold Product Which

Is Borne By The Distributor

Regardless of Billing Proce-

dures.

The learned court found that the risks

of the entrepreneurship for directly

billed accounts fall on Pepperidge Farm

(App. A, 10). The record contains the

following evidence of its claimed risks:

(1) Risk of non-payment (ER. 1082); total

nationwide loss in 1978: $60,517. In

fact, by contract Pepperidge Farm need not

pay the distributor his share of any non-

payment (ER. 83, 4% 3(b)). There is no

showing that any West Coast account or any

chain account ticketed by Mesirow and

Morris failed to pay; (2) Payment of in-

ventory or personal property taxes; the

record is silent as to dollars involved;

(3) Insurance coverage on warehouse stor-

age; the record is silent on the dollars

involved. ER. 1081 disclosed that Pepper-

idge assumed the loss of $21,366 of stolen

inventory from petitioners' warehouse.

This record does not justify the finding

that Pepperidge Farm shouldered the risks

of the product in the light of $60,000 of

Sstales losses suffered by petitioners in

four years. $11,000 in stales was sitting

in the Mesirow and Morris warehouse in

May, 1978; a risk Pepperidge refused to

take. Yet, under its own argument, title

to this product had not passed. Mr.

Mesirow declared that 80% of his losses on

the stales were from deliveries to

accounts Pepperidge Farm directly con-

trolled (ER. 1484). The findings of pro-

duct risk are contrary to the record.

3. Pepperidge Farm Prevents

Solicitation of Accounts Once

They Are Tied to Its Billing

Systen.

The Pepperidge Farm Agreements speci-

fically require the Distributor to solicit

the direct chain account on behalf of

bakery (ER. 83, 4% 3(b)). The learned

court below has erroneously confused the

historical opening of the accounts with

freedom of solicitation. Once an account

is respondent's it cannot be solicited.

Mr. Mesirow issued invoices to Safeway and

was ordered not to do so (ER. 60-61).

Pepperidge Farm cites evidence only that

the chain stores have an election, not

that the distributor has an election (ER.

561-566, 571, 592, 593, 1314, 1320, 1326,

1333, 1340, 1346, 1352, 1359, 1365, 1371,

1377, 1504). The only exception is a

self-serving conclusion by Mr. Tierney

(ER. 1019-1023; 1051-1053) which is

directly impeached by the contractual

provisions of his company which require

delivery on behalf of Pepperidge Farm.

The claim that distributors were free to

solicit accounts after they became Pepper-

idge Farm's is directly contradicted by

Pepperidge Farm's statement to the trial

court at ER. 491:28-31:

"They have an exclusive right

within their territories to soli-

cit and sell to distributor cus-

tomers and to deliver upon com-

mission to stores of Pepperidge

Farm customers (App. 1, q 44)."

This Court's requirement that the

trial court, at the least, conduct a pur-

pose or effect test was ignored. The

purpose of Pepperidge Farm's price fixing

policy is discussed below. If the distri-

butor were free to solicit the chain

accounts, one would expect significant

variations in the sampling set forth in

the Distributor's Declarations, supra. In

fact, there are no significant variations:

Are Chain

Accounts Billed by

Distributor the Distributor

ER. No. By Name Territory (Listed at 75, 481)

1314 Amador Santa Cruz No

1320 Cox North Central

Bay Area No

1326 Ennor No. Alameda County No

1333 Garcia Alameda County No

1340 ee Palo Alto

San Mateo No

1346 Hermann San Francisco Yes

1352 Karsh San Francisco No

1359 Leavitt Palo Alto No

1365 Lloyd Pacifica, Daly City

So.San Francisco No

1371 Nicholson San Jose No

Milpitas

Santa Clara

1377 Pierce Lake and

Mendocino Counties No

60-61 Mesirow Alameda specifically

& Morris County prohibited

As to purpose, there is a distinction

between selling and pricing. No reason is

advanced to indicate why billing may not

be based on distributor pricing. The

distributor fills out the chain ticket and

price. If it is erroneous, the computer

will not record it, and the distributor

will not receive a credit (ER. 62).

Pepperidge Farm's attorneys have advanced

the position that petitioners were in per

se violation of the Sherman Act in enter-

ing into agreements with their distribu-

tors on the price to be offered to the

chains on non Pepperidge Farm cookies (ER.

503). But this is precisely what Pepper-

idge Farm is doing by not separating cen-

tral billing from price fixing.

4. There Are Material Issues of Fact

in Dispute as to The Facts Found

by The Courts.

Petitioners respectfully urge that

there are material issues with respect to

the facts found by the appellate court.

In addition to the issues described above,

there is bona fide dispute as to the

following findings:

1. Appendix A-3, wholesale prices:

contradicted by the showing of Hybrid

chain accounts, supra.

2. Appendix A-1l, risk of stales:

Pepperidge Farms' employees used petition-

ers as a vehicle to push product at times

of promotions under specific Pepperidge

Farm quotas. These managers allowed peti-

tioners to keep stales in the warehouse,

but then on direction from headquarters,

demanded payment (ER. 1483-1484, 440-441,

447-449, 1498-1550).

3. Appendix A - 12, 14, freedom of

solicitation, discussed, pages 47-48,

Supra.

4. Appendix A - 16, direct mailing of

product: Pepperidge Farm set wholesale

prices and issued pre-ticketed packages

while its parent company Campbell Soup Co.

sold cookies direct to the consumer

through mail order catalogues (ER. 1655).

5. Appendix A - 18, pricing of Long's

Drugs, discussed above, pages 41-44,

Supra.

III. The Sherman Act's Protection of The

Rights of Independent Businessmen

From Predatory Practices Has Been

‘Ignored.

A. Petitioners Filed Declarations

Containing Direct Evidence of a

Plan to Force The Sales of Por-

tions of Territories on Indepen-

dent Owners of the Territories.

1. Pepperidge Farm's Ex-Managers

Have Sworn That Pepperidge

Farm Had a "One Truck Only”

Policy, Prevented Territorial

Expansion and Coerced Route

Splits.

Upon proof that a nationwide manufac-

turer has created a numerous and wide-

spread network of independent businessmen

by solemn contract, but, then, by prac-

tices uses them as employees, subject to

its orders and their rights made termin-

able by it at will, an attempted monopoli-

zation has been shown. Simpson v. Union

Oil Co. of California, supra, 377 U.S. at

24; Lessig v. Tidewater Oil Co., 327 F.2d

459 (9th Cir. 1964); Photovest Corp. v.

Fotomat Corp., 606 F.2d 704 (7th Cir.

1979). The intentions of Pepperidge Farm

to ignore the provisions of non-agency and

independence of its distributors were

fully disclosed. The distributor was to

be a man of small means with a family. He

was not to grow too successful. As his

territory grew in volume and he could not

service it, he was to sell portions of

it. If he did not agree, pressure was to

be brought upon him. He was not assisted

in obtaining another truck or expanding

his staff. The managers were to obtain

executed splits regardless of legality.

The Executive Office did not care how it

was done; the managers were to figure a

way. This was the testimony of a former

Territory Sales Manager of Pepperidge

Farm, Mr. Richard A. Montreal (ER. 1444-

1449, 1453-1467, 1499). It is undisputed

that managers were granted bonuses for

obtaining these splits (ER. 1494).

All of the retailers which utilize its

products are subject to an agreement not

to compete for their business by reason of

the territorial clauses in the consignment

agreement. The deliberate use of the

variety of devices disclosed in this re-

cord should have precluded a summary judg-

ment on the Sherman Act, Section 2 issues.

Pepperidge Farm has successfully ob-

tained permission to carry out a course of

conduct always thought impermissible by

reason of the Sherman Act. It has shown

no tendency not to relentlessly pursue the

control of its product although by con-

tract it relinquishes control to third

parties whose business judgments are the

basis of their success or failure. These

petitioners are to be examples of its deep

pocket power. The Rule against vertical

price fixing prevents the success of its

coercive system of distributor control.

If Pepperidge Farm prevails a whole range

of price control schemes, heretofore be-

lieved closed, will be open to those who

seek to avoid the duties owed to

employees, but who will control price

judgments of independent businessmen.

CONCLUSION

Petitioners are entitled under Simpson

to a summary judgment under the Sherman

Act, Section 1, on all causes of action

raising resale price fixing by consign-

ment. They are entitled to a jury trial

on all remaining issues.

Dated: May 27, 1983

Respectfully submitted,

MAXWELL KEITH

Attorney for Petitioners

FILED

JAN. 25, 1983

PHILLIP B. WINBERRY,

CLERK, U.S. COURT OF APPEALS

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ELI MESIROW AND THOMAS MORRIS,)

)

Plaintiffs-Appellants, ) No.81-4471

) (N.D. Cal.

vs. ) No. C-78-

PEPPERIDGE FARM, INC., a ) 1392 MHP)

Connecticut corporation, )

) OPINION

Defendant-Appellee. )

)

Appeal from the United States District

Court for the Northern District of

California, Honorable Marily Hall Patel,

District Judge, Presiding

Argued and Submitted Sept. 14, 1982

Before: DUNIWAY, FLETCHER and BOOCHEVER,

Circuit Judges

DUNIWAY, Circuit Judge:

Plaintiffs Eli Mesirow and Thomas

Morris appeal from the district court's

dismissal on summary judgment of their

claims against Pepperidge Farm, Inc.,

under §§ 1 and 2 of the Sherman Act, 15

U.S.C. §§ 1 and 2. They also ask us to

review two orders imposing fines on their

APPENDIX A-1l

counsel during discovery. We affirm the

dismissal of the antitrust claims, and

decline to review the discovery sanctions

for lack of jurisdiction.

I. Facts

Plaintiffs distributed Pepperidge Farm

biscuits, cookies and other products from

January 1970 to May 1978, and from April

1970 to November 1978, respectively. The

terms of the relationship between

plaintiffs and Pepperidge were set down in

"consignment agreements" that designated

the distributors as self-employed

independent businesspersons. The

agreements established a dual system of

accounts for Pepperidge distributors,

including plaintiffs: chain stores of

three or more retail stores billed

directly by Pepperidge, and chain or

individual stores that distributors

billed. Pepperidge employees regularly

visited the stores of its direct-billed

accounts to check on service and arrange

promotional displays, but distributors

APPENDIX A-2

such as plaintiffs actually delivered and

installed the Pepperidge Farm products in

these stores, as they did in the other

stores. In all cases, Pepperidge retained

title to the goods until they reached the

retailers' shelves. Accordingly, it bore

the risk of loss or theft of the goods,

even while they were in the hands of the

plaintiffs. It also paid applicable

inventory and property taxes on the goods.

Both during the relevant Fair Trade

period and after, Pepperidge set the

wholesale prices to be charged direct-

billed customers, which paid Pepperidge

directly; plaintiffs were free, however,

to solicit these customers to be their

own. Plaintiffs set wholesale prices for

their own accounts, which included both

chain and individual stores. Pepperidge

employees did not help on these accounts

unless plaintiffs asked them to do so.

Pepperidge gave each of its

distributors, including plaintiffs, the

exclusive right to solicit and sell to

APPENDIX A-3

stores within a specific geograhpical

territory. Though distributors were thus

prohibited from selling to retailers

outside their territories, they were

permitted to, and plaintiffs did, within

those areas, distribute other

manufacturers' goods in addition to

Pepperdige's. Distributors paid their own

Operating costs of deliveries to the

customers Pepperidge billed directly as

well as to their own customers. In

addition, they were required to absorb the

cost of products that went stale while

sitting in their warehouses or on

retailers' shelves in their territories.

Plaintiffs, who are step-brothers,

operated their Pepperidge distributorships

jointly. They several times "split" their

territories by selling to others the right

to deliver Pepperidge Farm products within

portions of those areas. Pepperidge

terminated Mesirow's franchise for cause

in May 1978. Morris sold his franchise

later that year.

APPENDIX A-4

Plaintiffs' complaint alleged that

Pepperidge violated §§ 1 and 2 of the

Sherman Act both during and after the Fair

Trade period, and breached its contracts

with plaintiffs. Pepperidge

counterclaimed, alleging trademark

infringement, breach of contract, fraud

and money due on rolling account. On

cross motions for summary judgment, the

trial court dismissed plaintiffs'

antitrust claims, and entered judgment

under Fed. R. Civ. P. 54(b). Plaintiffs

filed a timely appeal from that

judgment. The notice refers only to "the

judgment entered pursuant to Fed. R. Civ.

P. 54(b) . . . On September 4, 1981."

II. The Antitrust Claims.

A. Pepperidge Farm Accounts: Post-Fair

Trade Period.

Plaintiffs first contend that

Pepperidge's practice, after the repeal of

Fair Trade laws, of fixing the wholesale

prices charged its direct-billed customers

was a per se violation of § 1 of the

APPENDIX A-5

Sherman Act as defined by Simpson v. Union

Oil Co. of California, 1964, 377 U.S. 13,

84 S. Ct. 1051, 12 L. Ed. 2d 98. That

case held a purported "consignment"

arrangement between an oil company and a

retailer illegal because it prohibited the

retailer from setting its own resale

prices for the oil company's product.

Simpson, however, does not outlaw

every consignment arrangement. There is

"nothing illegal" about a system in which

an owner of an article sends it to a

dealer who undertakes tc sell it only at a

price determined by the owner. 377 U.S.

at 21. Three factors disinguish the

Pepperidge consignment agreement at issue

here from the Simpson arrangement: the

agreement here set wholesale, not retail

prices; Pepperidge, not the plaintiffs,

bore the greater burden of risk during the

consignment period; and the agreement did

not coerce the plaintiffs as the Simpson

contract did. We need not decide here

whether any of these factors alone would

APPENDIX A-6

prevent application of the Simpson rule to

the consignment agreement here. Together,

they bar a finding that the Pepperidge

agreement was per se illegal.

1. Wholesale price fixing.

Simpson was a retailer of the

defendant oil company's products.

Plaintiffs were wholesale distributors of

Pepperidge procucts. The trial court

concluded that Simpson "is not a holding

that may be extended automatically to the

wholesale level," and we have been unable

to find express authority to the contrary.

Plaintiffs argue that Greene v.

General Foods Corp., 5 Cir. 1975, 517 F.

2d 635, supports the application of

Simpson to a wholesale distributorship.

Plaintiff Greene in that case distributed

coffee goods to “large institutional

buyers" such as motel chains. Id. at 639,

642 n. 4. But the court clearly assumed

that he was a retailer, not a

wholesaler. Id. at 652. We have once

considered applying Simpson to a contract

APPENDIX A-7

between a producer and wholesalers. In

Westinghouse Electric Corp. v. CX

Processing Laboratories, Inc., 9 Cir.,

1975, 523 F. 2d 668, a wholesale

distributor alleged per se antitrust

violations in the form of vertical price

fixing by a manufacturer. Citing Simpson,

we affirmed the dismissal of the claim for

lack of evidence. 523 F.2d at 674. See

also, American Oil Co. v. McMullin, 10

Cir. 1975, 508 F.2d 1345, 1351-1352,

affirming a judgment against a bulk

distributor of oil products that had

charged a producer with Simpson

violations. In neither case did the court

specifically decide whether Simpson could

bar a consignment agreement involving a

wholesaler instead of a retailer. Thus,

we are not prevented from holding that the

wholesale context of the agreement in the

case before us is at least a factor in

immunizing Pepperidge from Simpson

illegality.

Language in Simpson itself supports

APPENDIX A-8

such a conclusion. As the trial court

noted, the Court in that case repeatedly

used the term "resale price maintenance,"

which is a term of art usually referring

to the retail level. At one point, the

Court explicitly stated: "Nor does § l of

the Sherman Act tolerate agreements for

retail price maintenance." 377 U.S. at 18

(emphasis added). Plaintiffs attempt to

represent the Simpson holding as a ban on

"resale pricing," but there is nothing in

that opinion, which speaks, e.g., of a

"retail merchant," 377 U.S. at 18, and

"retail sales," Id. at 21, to directly

Support its application to wholesalers.

2. Allocation of risk.

Another factor in our decision is the

Significantly greater risks borne by

Pepperidge than were borne by the

@sfendant in Simpson. The Simpson Court

reviewed various "indicia of

entrepreneurs," 377 U.S. at 20, possessed

by the plaintiff there, concluding that

Simpson was in fact an independent

APPENDIX A-9

businessman burdened illegally by his

contract with defendant. Here, however,

the risk of entrepreneurship with regard

to the direct-billed accounts falls mainly

on Pepperidge.

In Simpson, although the defendant

paid property taxes on the goods and

retained title to them until they were

finally sold by the retailer Simpson, the

retailer was liable for losses or damage

to the product while it was in his

possession, and was required to insure

against such loss. 377 U.S. at 15.

Plaintiffs were not burdened with the

risks and responsibilities imposed on

Simpson. Title to the baked goods

remained with Pepperidge until delivery to

a retailer--and so did liability for

losses and damage. Pepperidge, not

plaintiffs, purchased insurance against

such risks. Although plaintiffs, like

Simpson, were responsible for their own

operating costs and received a commission

on deliveries, Pepperidge was liable for

APPENDIX A-10

the risk and expense of billing the

customers. Plaintiffs make much of their

liability for stale goods, a risk that the

trial court found to be "beyond the usual

consignment responsibility of properly

caring for the consigned product." We do

not find incorrect her conclusion that as

the risk of stales was one peculiarly

within plaintiffs’ control, it was not

sufficient to make the arrangement per se

illegal.

Plaintiffs' reliance on Greene v.

General Foods Corp., supra, on this issue

is misplaced. The court in that case

found that the defendant had engaged in

conduct per se illegal under Simpson, but

the agreement's allocation of the risks of

the arrangement was far different from the

allocation in the Pepperidge agreement.

In Greene, plaintiff distributor purchased

the goods from defendant manufacturer and

resold them. 517 F.2d at 640-641. The

distributor held title to the goods and

bore the risk of loss or damage to them

APPENDIX A-1l

until they were delivered to his

customers. Id. The distributor also was

responsible for billing the accounts,

although the manufacturer bore the risk of

default on credit sales. Id. Finally,

the distributor was charged with promoting

the goods and performing the day-to-day

tasks necessary to maintain customer

Satisfaction. Id. at 657-658. As we have

noted, Pepperidge, in the agreement with

plaintiffs, retained title to the

consigned goods and bore the risk of loss

Or damage to them. The goods were

consigned to the distributors, not sold

the them. The goods were consianed to the

distributors, not sold to them. In

addition, Pepperidge, not the

distributors, promoted the goods to the

direct-billed accounts and had the sole

responsibility of routinely servicing

those accounts. And unlike the plaintiffs

in Greene, Pepperidge'’s distributors were

free to solicit the direct-billed accounts

to be their own.

APPENDIX A-12

3. Coercion.

The third factor that distinguishes

the consignment arrangement at issue here

from that in Simpson is the absence of

coercion in the Pepperidge agreement.

Simpson held that "a supplier may not use

coercion on its retail outlets to achieve

price maintenance. .. . [I]t matters not

what the coercive device is." 377 U.S. at

17. The vice of the consignment in issue

_ there was that it "coercively laced

[dealers] into an arrangement under which

their supplier is able to impose non-

competitive prices on thousands of persons

whose prices otherwise might be

competitive.” 377 U.S. at 21. The

agreement bound Simpson so tightly that it

took from him his "only power" to be a

wholly independent businessman--the power

to set his retail price. Id.

Plaintiffs are unable to demonstrate

such coercion here. The Simpson Court was

concerned with preventing a producer from

curbing competition among the sellers of a

APPENDIX A-13

Single brand of product. Here, on the

contrary, the evidence shows that

Pepperidge distributors were free to

solicit the producer's customers to be

their own. They were not necessarily

bound, therefore, to sell to retailers at

prices specified by Pepperidge.

In view of these three factors,

therefore, we affirm the trial court's

dismissal of plaintiffs' § 1 per se claim

covering the post-Fair Trade period.

B. Pepperidce Farm Accounts: Fair Trade

Period.

Plaintiffs also challenge the legality

of Pepperidge's consignment agreements

during the Fair Trade period, from June,

1974 through March, 1976. These

agreements set the prices at which

distributors sold Pepperidge goods to

reatilers.

Before 1976, federal law permitted

fair trade agreements in which producers

set resale prices for their goods. 15

U.S.C. § 1 (relevant part repealed by Pub.

APPENDIX A-14

L. 94-145, 89 Stat. 801 (1975)); 15 U.S.C.

§ 45 (a) (2)-(5) (repealed by Pub. L. 94-

145, 89 Stat. 801 (1975)). Plaintiffs,

however, argue that the Pepperidge

agreements were illegal because they fixed

prices horizontally, in violation of 15

U.S.C. §§ 1 and 45(A) (5), which, before

the 1975 amendments, prohibited fair trae

agreements "between manufacturers, or

between producers, or between wholesalers,

Or between brokers, or between factos, or

between retalers, or between persons,

firms, or corporations in competition with

each other." They contend that when

Pepperidge set wholesale prices, it

competed with its distributors, "who also

had potential to set a wholesale price."

Plaintiffs' contention is not, as they

Claim, supported by United States v.

McKesson & Robbins, Inc., 1956, 351 U.S.

305. The Court in that case held that §§

1 and 45(a) did not exempt from antitrust

prohibitions an agreement between a

producer and a distributor who in fact

APPENDIX A-15

competed against each other. Defendant

manufacturer in McKesson sold goods under

Fair Trade agreements both to independent

distributors and to retailers. As a

wholesaler, it competed directly,

therefore, with the independent

distributors on whom it imposed price

restrictions. Pepperidge, on the other

hand, sold only through its distributors,

who, as the trial court found, profited

from all Pepperidge sales, even those that

Pepperidge directly billed.

The trial court also found that

Pepperidge did no mail order or retail

business in competition with its

distributors, and plaintiffs have directed

Our attention to no evidence to the

contrary. Pepperidge therefore did not

compete "at the same functional level"

with its distributors, McKesson, 35l U.S.

at 313. As a result, summary judgment for

Pepperidge on the antitrust claim covering

the Fair Trade period was proper.

C. Pepperdige Farm Accounts: Interim

APPENDIX A-16

Violations.

Plaintiffs complain that the trial

court did not respond to their claim that

Pepperidge's practice of setting wholesale

prices for its direct-billed customers

between March 1976, when Fair Trade ended,

and May 1977, when Pepperidge consignment

agreements were signed, violated § 1 of

the Sherman Act. Though the trial court's

decision did not discuss the interim

allegations specifically, it dismissed

them along with plaintiffs' other

antitrust claims. We affirm because we

find nothing improper in Pepperidge's

conduct after the repeal of Fair Trade.

D. Distributors' Accounts.

Plaintiffs argue that although

Peppridge claims that distributors were

free to set the prices they charged all

customers other than those the

manufacturer billd directly, Pepperidge

used varous methods to render that freedom

illusory. For example, they refer to a

APPENDIX A-17

type of account they term a “hybrid direct

chain account," in which, they say, the

distributor billed at prices set by

Pepperidge. But plaintiffs' contention

that distributors were not free to set

prices for their own accounts is set forth

only in Mesirow's declaration fled in

opposition to Pepperidge's motion to

dismiss. It directly contradicts

Mesirow's own earlier deposition testimony

that he "always" priced products he sold

to stores he billed directly at amounts

different from any price that Pepperidge

might have specified. Mesirow's

conflicting statements do not create a

fatual dispute sufficient to avoid summary

judgment. They raise sham issues.

Radobenko v. Automated Equipment Corp., 9

Cir. 1975, 520 F.2d 540, 544.

Plaintiffs also say that Pepperidge

sent price lists to distributors’

customers as a means of controlling

wholesale prices. But the one relevant

piece of evidence they submitted is

APPENDIX A-18

hearsay, and insufficient to create a

genuine factrual dispute because i: was

not made on personal knowledge. Fed. R.

Civ. P. 56(e). Plaintiffs further argue

that Pepperidge controlled its

distributors' wholesale prices by pre-

printing a suggested retail price on the

pakcages of its baked goods. But they

have not contradicted Pepperidge's showing

that retailers could change the pre-

printed prices. By itself, the pre-

printed price did not violate antitrust

restrictions. Bailey's Bakery, Ltd. v.

Continental Baking Co., D. Hawaii, 1964,

235 F. Supp. 705, 722, aff'd, 9 Cir.,

1968, 401 F.2d 182.

E. § 2 Claims.

Plaintiffs also assign the trial

court's dismissal of their claims that

Pepperidge monopolized and attempted to

monopolize, in violation of § 2 of the

Sherman Act as error. They apparently

base their § 2 allegations on the price-

fixing claims discussed above and on

APPENDIX A-19

Pepperidge's practice of encouraging the

division of distributors' sale and

delivery territories into smaller

geographical areas.

1. Monopolization.

Monopoly power in the relevant market

is one of the three essential elemens of §

2 monopolization. Forro Precision, Inc.

v. International Business Machines Corp.,

9 Cir., 1982, 673 F.2d 1045, 1058. The

trial court found that Pepperidge was not

a dominant factor in the relevant

market. Plaintiffs argue that the judge's

finding should be overturned because she

failed to consider the proper

submarkets. But the relevant market is a

question of fact, and the trial court's

finding should not be overturned unless it

is clearly erroneous. Twin City

Sportservice, Inc. v. Charles 0. Finley &

Co., 9 Cir., 1982, 676 F.2d 1291, 1299.

We do not find it clearly erroneous.

2. Attempted monopolization.

Specific intent and anticompetitive

APPENDIX A-20

conduct are essential elements of a claim

of attempted monopolization. Forro,,

Supra, 673 F.2d at 1059. Here, plaintiffs

tried to prove the required specific

intent with evidence of Pepperidge's

anticompetitive conduct. See id.;

California Computer Products, Inc. v.

International Business Machines Corp., 9

Cir., 1979, 613 F.2d 727, 736-737. Where

there is no proof of market power,

however, the conduct to support an

inference of specific intent to monopolize

should be of a kind clearly threatening to

competition or clearly exclusionary.

Forro, supra, 673 F.2d at 1059.

Plaintiffs' claims fall far she .t. We

disposed of their price-fixing claims

above. As to the splits of territory, as

the trial court found, they showed only

that Pepperidge encouraged its managers to

promote such divisions of distributors

territories. Pepperidge introduced

evidence showing the legitimate intent and

effects of such conduct, and plaintiffs

APPENDIX A-21

offered no relevant evidence to contradict

that conclusion. Their citation to

Photovest Corp. v. Fotomat Corp., 7 Cir.,

1979, 606 F.2d 704, is not in point

because there the franchisor solicited its

franchisee's customers for itself. Here,

other distributors are the beneficiaries

of route splits.

III. Discovery Sanctions.

Finally, plaintiffs ask us to review

the discovery sanctions totalling $750

assessed against their counsel. Counsel

was ordered to pay $250 in expenses and

attorneys' fees following denial of a

motion to compel production of documents,

and $500 when the trial court denied a

request to redepose, after the close of

discovery, a Pepperidge employee who had

since been discharged from his job.

Leaving aside the question of whether

our jurisdiction is proper in view of the

fact that plaintiffs' notice of appeal did

not mention the discovery sanctions, we

lack jurisdiction for another reason. An

APPENDIX A-22

order imposing a sanction upon counsel, a

non-party, is final and appealable by the

person sanctioned, when imposed, Reygo

Pacific Corp. v. Johnston Pump Co., 9

Cir., 1982, 680 F.2d 647, 648; Liew v.

Breen, 9 Cir., 1981, 640 F.2d 1046,

1048. No such appeal was taken. The

order imposing the $250 fine was filed

June 23, 1980; the order imposing the $500

fine was filed March 16, 1981.

Plaintiffs' notice of appeal was not filed

until September 10, 1981. We note that in

both Reygo Pacific Corp. and Liew, supra,

the appeal was by the non-party who was

Sanctioned. Assuming, without deciding

that the client can appeal from an order

imposing a sanction on his attorney, the

appeal is too late. Fed. R. App. P.

4(a). Therefore, we lack jurisdiction to

consider the validity of the sanctions.

The judgment appealed from is

affirmed.

APPENDIX A-23

FILED

APRIL 5, 1983

PHILLIP B. WINBERRY

CLERK, U.S. COURT OF APPEALS

Mesirow v. Pepperidge Farm, No. 81-4471

BOOCHEVER, Circuit Judge, concurring.

I would not address the issue of

whether an attorney in a case may wait

until final judgment to appeal sanctions

imposed during the earlier course of

proceedings. We have permitted attorneys

to file appeals within thirty days from

the entry of orders imposing such

sanctions, Reygo Pacific Corp. v. Johnston

Pump Co., 680 F.2d 647, 648 (9th Cir.

1982); Liew v. Breen, 640 F.2d 1046, 1048

(9th Cir. 1981); until now, we have never

ruled on whether the attorney's appeal may

also be joined with that of the party at

the conclusion of the case. There are

strong policy reasons against piece-meal

appeals which weigh in favor of

encouraging the joinder of the attorney's

APPENDIX A-24

appeal with that of his client.1l 1

believe, however, that we have no

jurisdiction to resolve the issue at this

time.

There were multiple claims and

counterclaims filed in this case. On

September 4, 1981, the trial judge ruled

only on plaintiff's antitrust claims and

entered judgment under Fed. R. Civ. P. §

54(b) as to those claims alone. Moreover,

the notice of appeal refers only to “the

judgment entered pursuant to Fed. R. Civ.

P. § 54(b) . . . on September 4, 1981."

Thus, our jurisdiction is limited to

review of those antitrust claims and we

have no authority to consider the appeal

from imposition of sanctions.

. Eastern Maico Distributors, Inc. v.

Maico-Fahrezeugfabrick, 658 F.2d 944

(3d Cir. 1981). See also Cc. Wright,

A. Miller, C. Cooper 15 Federal

Practice and Procedure, § 3911, 498-99

(1976).

APPENDIX A-25

FILED

APRIL 5, 1983

PHILLIP B. WINBERRY

CLERK, U.S. COURT OF APPEALS

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

ELI MESIROW and

THOMAS MORRIS,

Plaintiffs-Appellants,

Vv. No. 81-4471

PEPPERIDGE FARM, INC.,

a Connecticut corp.

ORDER

Defendant-Appellee.

meee ee ee

Before: DUNIWAY, FLETCHER and BOOCHEVER,

Circuit Judges

The petition for a rehearing is

denied.

APPENDIX B-1

FILED

AUGUST 31, 1981

IN THE UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

---600---

ELI MESIROW, THOMAS MORRIS,

Plaintiffs

No. C-78-

vs. 1392-MHP

PEPPERIDGE FARM, INC., MEMORANDUM

a Connecticut corporation, DECISION

)

Defendant. )

)

This action is before the Court on

cross-motions for partial summary judgment

and motions in limine. Oral argument was

heard on June 19, 1981. Plaintiffs

complain against Pepperidge Farm, Inc. for

violations of §§ 1 and 2 of the Sherman

Act, 15 U.S.C., and for breach of

contract. Defendant counterclaims for

breach of contract (causes of action 3

and 5), fraud (cause of action 4) and

money due on a rolling account (cause of

action 6).1/ plaintiffs seek summary

judgment against defendant on their § l

antitrust claim and causes of action 4

and 6 of defendant's counterclaim.

Defendant in turn seeks summary judgment

on plaintiff's antitrust allegations.

Having considered all pleadings,

documents and oral argument presented in

these cross-motions, the court finds that

there remain no genuine disputes of

material fact and that summary judgment

for defendant is appropriate on the

antitrust claims. While the parties

manifest disagreement on a number of

issues, a careful search of the record

reveals that many assertions are not

adequately supported by proper evidence or

that if a genuine factual dispute exists,

it is not over a necessary fact. Further,

the court grants summary judgment for

plaintiffs on the fraud claim and denies

it as to the rolling account allegation.

I. BACKGROUND

Plaintiffs, Mesirow and Morris,

distributed Pepperidge Farm products from

January 1970 to May 1978 and from April

1970 to November 1978 respectively.

During that time, each plaintiff entered

into several "Consignment Agreements" with

defendant in which they were designated at

self-employed, independent business-

persons. During the relevant Fair Trade

period, 1974 to January 1976, defendant's

contracts with plaintiffs allowed it to

set wholesale prices for products

distributed by plaintiffs to retailers.

Both during the Fair Trade period and

after, a dual system of distributor and

direct accounts was established. Direct

billed accounts were those chain stores

(three or more retail stores) for which

plaintiffs acted as commissioned delivery-

persons. Defendant was responsible for

billing the account and received payment

directly. Pepperidge Farms employees

regularly visited the stores of its chain

customers to check on service and arrange

promotional displays. Plaintiffs were not

to negotiate prices although defendant

asserts that plaintiffs were free to

solicit these accounts to be their

own.2/ The distributor accounts were

chain or individual stores serviced and

billed by distributors. Defendant's

employees did not provide assistance

unless requested to do so by the

distributor. According to defendant,

plaintiffs were free to negotiate prices

with these latter accounts. At all times,

plaintiffs were responsible for costs of

their business operation, delivery of

products, and for servicing grocery

shelves of all accounts. Further, they

were required to absorb the costs for

products that had gone over-code.

Defendant retained title to the consigned

goods until they were placed on retail

shelves. Defendant bore the risk of loss

or theft of the goods and paid applicable

inventory and property taxes.

II. PLAINTIFFS' SUMMARY JUDGMENT MOTION

Plaintiffs allege unlawful restraint

of trade by various means, including

vertical price maintenance, conspiring to

restrain trade and reservation of

exclusive territories. After considerable

effort sorting out counsel's theories of

antitrust violations, the court finds that

plaintiffs' arguments lack merit and that

partial summary judgment for plaintiffs on

the antitrust claims should be denied.

Per Se Illegality

The backbone of plaintiffs’ motion for

summary judgment on the antitrust claims

is the assertion of a per se vertical

price-fixing violation under the authority

of Simpson v. Union Oil Co., 377 U.S. 13,

84 S. Ct. 1051 (1964) and Greene v.

General Foods Corp., 517 F.2d 635 (5th

Cir. 1975), cert. denied, 424 U.S. 942, 96

S. Ct. 1409 (1976).3/ For the reasons set

forth below, plaintiffs' per se theory of

liability must be rejected.

Simpson v. Union Oil involved a

"consignment" agreement providing for

defendant Union Oil to set the prices at

which plaintiff retailer sold gasoline.

Title to the consigned gasoline remained

with Union Oil until sold by consignee.

Union Oil paid all property tax on the

gasoline in Simpson's possession. By the

terms of the agreement, Simpson was

required to carry personal liability and

property damage insurance and was

responsible for loss of the consigned

gasoline in his possession. Simpson

received a minimum commission and paid all

costs of operation. While recognizing the

legitimacy of consignment agreements as a

risk-of-allocation device, the Court held

that when "a 'consignment' device is used

to cover a vast gasoline distribution

system, fixing prices through many retail

outlets, the antitrust laws prevent

calling the ‘consignment’ an

agency. . ." Simpson v. Union Oil, 377

U.S. at 21, 84 S. Ct. at 1057. The Court

was particularly concerned that a

consignee, selling only defendant's brand

of gasoline, would be prevented from

controlling the important economic factor

ee eT

of gasoline prices while being required to

accept the risks and responsibilities of

an independent business operation. See

id. at 21, 84 S. Ct. at 1056-57.

Simpson stands for the proposition

that consignment agreements are not to be

shielded from application of antitrust

principles. Consignment agreements are

not to be used to effectuate otherwise

improper resale price maintenance.

However, the Simpson holding is not as

firm or far-reaching as plaintiffs

suggest. E.g., see discussion in

Greene v. General Foods Corp., 517 F.2d at

652-55.4/ Cf. Hardwick v. Nu-Way Oil Co.,

Inc., 589 F.2d 806, 809 (Sth Cir. 1979);

American Oil Co. v. McMullin, 508 F.2d

1345, 1351-52 (10th Cir. 1975). Simpson

is not a holding that may be extended

automatically to the wholesale level.

Simpson was a retailer of gasoline and the

Court refers disapprovingly to "resale

price maintenance" - a term of art usually

referring to the retail level, not to

“resale pricing” as plaintiffs

represent. While plaintiffs’ attorney may

be prescient in discerning the unspoken

extent of the Court's concern, this court

is unwilling to claim such powers.

Plaintiffs' argument on this point is

notably deficient in their failure to cite

any authority in support of their

interpretation.

In addition to the retail-wholesale

distinction, the present case involves

parties in a significantly different

contractual relationship from that in

Simpson. Plaintiffs here are not

restricted to dealing only in the goods of

defendant, but in fact act as distributors

for a number of other manufacturers.

(Def's App. 2, Mesirow Dep., Tab F,

6:11-22, 9:7-11). While plaintiffs pay

most operational expenses of their

business, they are not liable for losses

of defendant's products even while those

products are located in plaintiffs’ own

warehouse. It is expected that

independent business people cover

operational expenses of their business.

While plaintiffs were required to absorb

the "risk of loss” for stale products,

this risk was peculiarly within

plaintiffs’ control. (Id. Erdelen Dep.,

Tab D, 79:17-80:15, 92:2-7; id. McGovern

Dep., Tab E, 367-68; id. Montreal Dep.,

Tab G, 112:8-21; id. Morris Dep., Tab lI,

100:14-20.) The overwhelming evidence in

the record is that loss of revenue from

stale products was and should have been

less than two percent for distributors

throughout the region.2/ (Id. Wilson

Dep., Tab K, 35-36, 157-58.) Plaintiffs

present evidence that the “volume of

stales was high in certain geographic

areas where the individual incomes were

low." (Plaintiffs' Memorandum of Law in

Opposition to Pepperidge Farm's Motion for

Summary Judgment, Erdelen Decl.,

5:24-25). However this kind of

generalization does little to overcome the

specific evidence produced by defendant.

Piaintiffs point out that the staie

factors of the larger-volume distributors

in the area are not included in the

record. However, it is incumbent upon

Plaintiffs to supply that information

rather than attempt to support their

assertion by an absence of such evidence.

While Greene v. General Foods Corp.

presents facts closer to the present case,

it is not dispositive. Greene was an

independent distributor of defendant's

coffee products who also distributed the

products of other manufacturers. Unlike

in Simpson or the present case, title to

all goods passed to Greene at the time he

acquired possession. Additionally, Greene

bore the risk of loss of those products.

Plaintiff's complaint centered around a

dual distribution system whereby defendant

reserved large institutional accounts

(MFSAs) to itself for billing purposes.

While Greene solicited and serviced these

accounts to the same extent he did his

own, he was not free to negotiate his own

price. The MFSA was directed to make its

payments to defendant although plaintiff

submitted the invoice and received a

"delivery allowance" based on the size of

the order and credit to his account with

defendant for the payments received from

the MFSAs.

The court upheld the trial court

finding that General Foods' distribution

system was a per se price-fixing

violation. The court found evidence that

defendant had gone far beyond a simple

announcement of terms and refusal to deal

with non-complying independent

distributors still permissible under

United States v. Colgate & Co., 250 U.S.

300, 39 S. Ct. 465 (1919). The court

noted that Greene was required to shoulder

substantially the same risks and

responsibilities as he did for his other

accounts whose prices he was allowed to

negotiate. The court particularly noted

that title to the goods passed to Greene

at the time he acquired possession. By

way of contrast, the court suggested that

because of retaining title to its goods,

the defendant in Simpson "had a greater

claim to dictate the price to the

consuming public." Greene v. General

Foods Corp., 517 F.2d at 656-57.

While the distribution system of

Pepperidge Farms and of General Foods bear

a number of similarities, the distinctions

are significant. Plaintiffs in the

present case do not acquire title to

defendant's goods and are not required to

assume the risk of loss. These

distinctions are not mere formalities. At

one point, plaintiffs reported the loss of

a substantial quantity of defendant's

goods from their warehouse and were fully

credited for the loss.§/ Additionally,

defendant bears the risk of non-payment

from retailers on the chain-store acounts

and is actively involved in the sales

process. See Overhead Door Corp. v.

Nordpal Corp., 1979-1 Trade Cas. ¥ 62,595

at 77,431 (D. Minn. 1978).

In both Simpson and Greene, the court

found that a distribution system involved

illegal price-fixing. Plaintiffs seek the

same relief here. However each case is

distinguishable on its facts, as discussed

above. Although the distribution system

in. Greene bears a resemblance to that of

Pepperidge Farms, the Simpson case

provides the closest analogy to the

precise issue before us here - whether the

economic risks and responsibilities

established by a "consignment agreement”

so alter the basic nature of consignment

as to render the agreement susceptible -

an illegal resale price fixing allega-

tion. The material facts surrounding the

present "consignment agreement” are not in

dispute and the court finds as a matter of

law that the distribution system at issue

is a valid consignment arrangement.

Fair Trade Period

Plaintiffs argue that during the

relevant Fair Trade period, 1974-1976,

Pepperidge Farm was not entitled to the

protection of the Fair Trade laws, 15

U.S.C. §§ 1, 45; Cal. Bus. & Prof. Code

§ 16902, because of wholesale price

discrimination, retail price-fixing

through use of pre-ticketing and engaging

in horizontal competition with the

independent distributors.

The Court is unpersuaded that

plaintiffs' complaint of price

discrimination is sufficient to deny

defendant the protection of the Fair Trade

laws. In General Electric Co. v. Federal

Employee's Distributing Co., 45 Cal.2d

891, 291 P.2d 942 (1955), the court

considered a challenge of discriminatory

application to fair trade contracts and

found that

parties are left to their discre-

tion as to whether they should

enter into fair trade contracts

at all, whether they should enter

into contracts for the sale of

certain commodities and not

others, and apparently whether

they should enter into contracts

for certain sales of the same

commodity and not others.

Id. at 894 (emphasis added). The facts of

that case involved a company making

exceptions to its resale contracts for

certain classes of retail purchasers.

However the court believes the rationale

expressed in General Electric is

applicable to the present situation and

plaintiffs have submitted no authority to

dissuade it from that view. Also see

J.W.T., Inc. v. Kobrand Cornp., 1973-2

Trade Cas. 4 74,7226 at 95,181 (N.D. Ill.

1973).

Plaintiffs are likewise unpersuasive

on the wholesale competition claim. Their

reliance on United States vs. McKesson &

Robbins, Inc., 351 U.S. 305, 76 S. Ct. 937

(1956) is unavailing. In McKesson,

defendant employed a multitiered

distribution system including sales to

retailers from its wholesale division and

to independent wholesalers through its

manufacturing division. Resale prices in

each of these relationships were set by

McKesson. Independent wholesalers were in

direct competition with McKesson's own

wholesale division and lost economic

advantage from defendant's wholesale

operations. In the present case,

Pepperidge Farm's distribution system is

distinguishable in significant respect.

While defendant is involved in direct

billing of chainstore accounts, the

independent distributors participate in

the scheme and stand to profit from

increased sales.

Contrary to plaintiffs' assertion,

defendant does no mail order business in

competition with its distributors.

Defendant's parent company owns a separate

subsidiary mail order company that sells

"specialty items," including Pepperidge

Farm Cookies, by mail directly to the

public. None of these items are sold to

wholesalers, distributors or retailers.

(Def's App. 2, Tierney Decl., Tab L,

q 17.) Plaintiffs do not raise a genuine

dispute of fact. They merely reiterate

the facts put forth by defendant and state

that these facts raise the question of

"whether Pepperidge Farm operates a mail

order business." (Plaintiffs' Opposition

to Defendant's Statement of Undisputed

Facts, ¥ 17.)

Plaintiffs' attempt to show horizontal

competition is rejected. There is no

evidence that Pepperidge Farm had a

wholesale division set up to service and

coordinate distribution and sales to

retailers as existed in McKesson.

Plaintiffs and defendant do not stand at

the same " 'functional level' as one

another, see United States v. McKesson &

Robbins, Inc., 351 U.S. at 313, 76 S. Ct.

at 942, and there is not showing of

vertical integration. See Westpoint

Pepperell, Inc. v_ Rea, 1980-2 Trade Cas.

q 63,341 (N.D. Cal. 1980). See generally

Altschuler, "Sylvania, vertical

restraints, and dual distribution," 25

Antitrust Bull. 1 (1980).

Rolling Account

Plaintiffs' motion for summary

judgment on cause of action six of

defendant's counterclaim is denied.

Mr. Tierney may have believed that the

$30,000 received by defendant for sale of

Mesirow's territory was to be credited to

plaintiff's account. (Plaintiffs' Motion

for Partial Summary Judgment (1/19/81),

Tierney Dep.)). However, assuming that

Mr. Mesirow's distributorship was

terminated with good cause and without

improper motive, he no longer had a legal

interest in the sale of the territory.

See Noble v. McClatchy Newspapers, 533

F.2d 1081 (9th Cir. 1975), remanded on

other grounds, 433 U.S. 904, 97 S. Ct.

2966 (1977). If the agreement between

plaintiffs and Pepperidge Farm was to

credit the franchise sale price to

plaintiffs' account, that remains to be

shown at trial. Plaintiffs' showing on

this part of the motion is insufficient.

Exhibit 4, of Plaintiffs' Motion for

Partial Summary Judgment has not been

properly authenticated and does not

specify what time period is affected.

Fraud

Plaintiffs have attempted to show that

the reliance element of a cause of action

for fraud cannot be shown by defendant.

Defendant did not dispute plaintiffs'

argument and it is therefore accepted as

true by the court for purposes of this

motion. Plaintiffs' motion on cause of

action four of defendant's counterclaim is

granted.8/

III. DEFENDANT'S SUMMARY JUDGMENT MOTION

Defendant asserts that as to the post-

Fair Trade period, (1) maintaining direct

accounts with established prices was not

illegal price-fixing, and (2) that it did

not impermissibly coerce distributors or

their accounts to adhere to fixed

prices. The court agrees with defendant

cn both issues and therefore grants

summary judgment in its favor on the

antitrust claims. While summary judgment

-_ . <_ - = = 7 7 ~— .

is not a favored vehicle for resolution of

antitrust allegations, its use is not

foreclosed and can be "a valuable means to

avoid squandering judicial time and

resources." Mutual Fund Investors,

Inc. v. Putnam Management Co., Inc., 553

F.2d 620, 622 (9th Cir. 1977). It is the

responsibility of plaintiffs to set forth

facts that will support a viable legal

theory upon which it can recover. They

have failed to do so upon any version of

the facts before this court even when

reviewed most favorably to them.

Direct Accounts

A manufacturer bearing the economic

risks of distributing is permitted to

control the resale price of its products

without running afoul of price-fixing

prohibitions. See Greene v. General Foods

Corp., supra; Overhead Door Corp. v.

Nordpal Corp., supra; Hardin v. Houston

Chronicle Publ. Co., 434 F. Supp. 54 (S.D.

Tex. 1977), aff'd per curiam, 572 F.2d

1106 (5th Cir. 1978). The issue here is

ADDOaMrTrvy m7 *H

whether Pepperidge Farm in practical

effect bears the economic risks of

distribution or whether a significant

share of those risks lie with plaintiffs.

The essentially undisputed facts are

that, as to Pepperidge Farm's direct

accounts, distributors delivered products,

serviced the shelves, and took orders for

the direct account customers. (Def's

App. 2, Bonesteel Dep., Tab A, 33:7-15).

Pepperidge Farm employees also call upon

these customers in order to promote sales

and arrange for displays. These accounts

are billed directly by defendant;

distributors receive a percentage of

defendant's wholesale prices as a

commission. Pepperidge Farm bears the

risk and expense of billing the direct

customers. (See discussion infra.)

Chains may choose to require direct

billing. (Id. Carhuff Dep., Tab. B,

185-86.

While the distributor's role here

involves greater participation than in

some of the cases cited by defendant,

plaintiffs have failed to articulate any

specific economic risks they are forced to

bear as a result of the direct-account

distribution system. The risk of stale

products is a risk beyond the usual

consignment responsibility of properly

caring for the consigned product.

However, as mentioned earlier, this

responsibility does not create the kind of

economic risk associated with a finding of

impermissible price controls.

Distributor Accounts

Plaintiffs argue that although they

should have been able to negotiate their

own prices on the distributor accounts, in

fact defendant used various methods to

render this freedom illusory. Defendant

relies on the factual record to show that

no coercive tactics were employed.

Plaintiffs agrue that at the least,

Material questions of fact remain for

trial. Keeping in mind the restricted

role of summary disposition, the court is

unable to find genuine issues of material

fact. On close examination, much of

plaintiffs' record can be reduced to

unsupported assertions, improper attempts

to alter or ignore sworn deposition

testimony, or factual distinctions without

substantive impact. Particularly, the

court finds that plaintiffs failed to

controvert defendant's showing of

permissible conduct. Defendant provides

evidence that its policy was to stop

directing wholesale prices to distributor

accounts after 1976. (Def's App. 2,

Dundon Dep., Tab C, 216:20-218:20; id.

Mesirow Dep., Tab F, 425:19-426:6.)

Plaintiffs have not produced legally

sufficient evidence from which the court

can find a pattern of coercion in the

setting of wholesale prices. See Mutual

Fund Investors, Inc. v. Putnam Management

Co., Inc., supra, 553 F.2d 620; Westpoint

Pepperell, Inc. v. Rea, 1980-2 Trade Cas.

at 75,744.

Plaintiffs rely heavily on their

assertion that Pepperidge Farm sent price

lists to distributor chain accounts as a

means of controlling wholesale prices. In

Support of this claim, plaintiffs submit

one piece of hearsay testimony. (Def's

App. 2, Mesirow Dep., Tab F, 426:7-22.)

This evidence is not sufficient to create

a genuine factual dispute against the

showing by defendant that the policy and

Practice of Pepperidge Farm was to send

such lists only to its direct chain

accounts. (Id. Dundon Dep., Tab C,

283:8-27.) One former district sales

Manager stated that from 1968 to 1971 he

delivered Pepperidge Farm price lists to

non-chain accounts “when requested."

(Decl. Montreal in Support of Plaintiffs'

Motion for Summary Judgment, 6:27-30.)

Again, such an assertion is vague and not

relevant to claims arising between 1974

and 1979.

Even assuming that such evidence was

sufficient, plaintiffs admit that they

never attempted to charge Long's a price

different from that used by Pepperidge

Farm for its direct accounts. (Mesirow

Dep., supra, Tab F, 421:18-422:4.)

Plaintiffs have made no showing that the

price negotiations between plaintiffs and

its own chain accounts were not the result

of those parties' respective bargaining

power.

As to the pre-ticketing allegation,

defendant has submitted evidence that in

spite of its practice of pre-ticketing its

products, retailers may initiate a change

in prices. (Def's App. 2, Morris Dep.,

Tab I, 133:1-12, id., Tab J, Tierney Dep.,

385-86; id., affidavits of defendant

distributors, Tabs R-CC, ¥ 7.) Plaintiffs

have submitted no proper evidence to

contradict defendant's showing and thus

there is no genuine issue of fact.9/

Distributor Territories

Plaintiffs argue both that defendant

impermissibly required exclusive

territories and that it coerced

distributors to split their routes in

order to maintain price controls.

Territorial restraints must be judged

under a rule of reason as to whether they

create a substantially adverse effect on

interbrand competition in the relevant

market. See Continental T.V., Inc. v. GTE

Sylvania, Inc., 433 U.S. 36, 97 S. Ct.

2549 (1977), overruling United States v.

Arnold, Schwinn & Co., 388 U.S. 365, 87 S.

Ct. 1856 (1967); Cowley v. Braden

Industries, Inc., 613 F.2d 751 (9th cir.),

cert. denied, 446 U.S. 965, 100 S. Ct.

2942 (1980).

In Cowley v. Braden Industries, the

court upheld the trial court's findings

that defendant's near-exclusive territory

restrictions did not harm interbrand

competition. Id. at 755. Defendant

represented approximately 70% of the

nation's windmill market. The appellate

court held that plaintiff failed to meet

its burden of proving that defendant's

vertical territorial restriction was

.— -_ — +. — 7 2 ~- are

unreasonable. As in Cowley, defendant has

submitted evidence that requiring

exclusive territories was necessary for

assuring active interbrand competition.

(Def's App. 2, Tierney Decl., Tab L,

q 8.) Defendant bolsters its argument of

encouraging competition by presenting

evidence that plaintiffs preferred to

acquire exclusive territories. (Def's

App. 2, Mesirow Decl., Tab F, 17:27-18:7,

725-21-25.) While the legality of

territorial restrictions does not depend

on whether the restriction is initially

attractive to distributors, the preference

of plaintiffs for exclusivity does lend

support to defendant's claim that such

restrictions improved defendant's (and

distributors') position in the relevant

market. The desire to obtain and maintain

an exclusive distributorship is a

legitimate goal and does not, without more

of a showing, suggest any forbidden

anticompetitive motive. See Westpoint

ADMPPAWIATY ©4979.

Pepperell, Inc. v. Rea, 1980-2 Trade Cas.

at 75,744.

Plaintiff relies solely on Industrial

Building Materials, Inc. v. Interchemical

Corp., 437 F.2d 1336 (9th Cir. 1970) for

its argument that Pepperidge Farm's

dominant market position requires denial

of defendant's motion for partial summary

judgment. In Industrial Building

Materials, defendant, a dominant

manufacturer of sealing products, was

accused of driving plaintiff out of

business through unlawful means including

distribution of its own products. The

court relied heavily on the fact that even

if defendant did not hold a monopoly

position in the sealant industry, it was

at least a strongly dominant factor.

Defendant here asserts that its United

States market share for biscuit products

(cookies and crackers) is between three

and four percent.19/ plaintiffs object to

the -inclusion of crackers in the

definition and percentage calculation of

the relevant product market. (Plaintiffs'

Opposition to Defendant's Statement of

Undisputed Facts, 3:23-27.) However they

offer no evidence to support this claim or

statistics showing defendant's percent of

the cookie market. Plaintiffs contend

that Pepperidge Farm is a monopoly or

dominant power in the “premium cookie

industry." (Plaintiffs' Opposition to

Defendant's Motion for Partial Summary

Judgment, Exh. 1, Patch Dep.,

60:7-20.)11/ The distinction between

cookies "made with top quality ingredi-

ents" and cookies of more pedestrian qual-

ity may be susceptible of subjective taste

but it is not susceptible of objective

evaluation. The relevant market is not to

be defined by advertising slogans and

plaintiffs have submitted no authorities

to help in this process. For instance

there is no attempt to show that this

distinction falls outside the standard of

"commodities reasonably interchangeable by

consumers for the same purposes..."

ALW, Inc. v. United Air Lines, Inc., 510

. F.2d 52, 56 (9th Cir. 1975), citing United

States v. E.I. DuPont de Nemours & Co.,

351 U.S. 377, 395, 76 S. Ct. 994, 1007

(1956).

In Industrial Building Materials,

defendant clearly held a dominant market

position and was alleged to have driven

its major independent distributor out of

business. The court noted that this

combination of factors resulted in a

foreclosure of competition and was an

unreasonable restraint of trade.

Industrial Building Materials, 437 F.2d at

1342-43. We are not faced here with the

special circumstances of that case. There

is no evidence that Pepperidge Farm is a

dominant factor in the relevant market;

there is no allegation that defendant

Planned to reduce competition by

eliminating distributors; and defendant

did not engage in horizontal competition

as a means of driving its major

distributor out of business. "The intent

of [defendant] is not at issue. Rather

the issue is whether plaintiff has alleged

| any facts demonstrating a violation that

"fits" within the requirements for an

antitrust recovery, a question of law that

can be answered by the court." Lupia v.

Stella D'Oro Liscuit Co., Inc., 586 F.2d

1163, 1166 (7th Cir. 1978), cert. denied,

440 U.S. 982, 99 S. Ct. 1791 (1979).

Pepperidge Farm admits that its

economic interests are served not only by

an increase in sales of its products,

brought about by route expansion, but also

by quality service to existing accounts,

sometimes brought about by route

splitting. Plaintiffs argue that

defendant impermissibly encouraged route

splits to prevent the formation of

powerful distributors and to maintain

control over resale prices. Evidence

presented by plaintiffs to demonstrate

improper motive shows only that defendant

encouraged its managers to induce route

splits. (Plaintiffs' Opposition to

ERE EE EEE OO OOO

Defendant's Motion for Partial Summary

Judgment, Exh. 6, Montreal Dep., 49=57,

78-79; id., Erdelen Decl., 2:16-20,

7:16-29.) Defendant provides support for

its assertion that suggesting or

encouraging route splits was done for the

legitimate purpose of improving service.

(Def's App. 2, Dundon Dep., Tab C,

307:18-308:19, 315:19-316:16; id., Tierney

Dep., Tab J, 267.) Alleging improper

motives is not by itself sufficient to

raise a genuine dispute of fact or to

adequately support a reasonable inference

in plaintiffs' favor. There is a

deposition testimony from a former

Pepperidge Farm territorial sales manager

(whose position with defendant is not

properly established in plaintiffs'

exhibit) that pressure was put on him to

get a route split from one of the

distributors because the distributor was

becoming "too successful." (Montreal

Dep., Exh. 6, supra, 51-56, 61-66.)

However this incident cccurred in 1970 and

the same deponent testified that such

conduct was exceptional. Mr. Montreal

reiterated the testimony of others that

the major concern in route splits was

encouraging distributors to improve

service.

While the burden of proof is not on

plaintiffs to demonstrate the existence of

a material issue of fact, once defendant

has made a showing of understandable and

legitimate business practices, plaintiffs

must come forward with specific facts

showing that there remains a genuine issue

for trial. First National Bank of

Arizona v. Cities Service Co., 391

U.S. 253, 288-90, 88 S. Ct. 1575, 1592-93

(1968); Blair Foods, Inc. v. Ranchers

Cotton Oil, 610 F.2d 665, 672 (9th Cir.

1980). This they have not done after

ample opportunity to do so but have relied

on a record lacking significant probative

evidence to support their factual

contentions or connect these contentions

to plausible legal theories.

Section 2 Claim

The elements of a § 2 claim for

attempt to monopolize are "(1) specific

intent to control prices or destroy

competition in some part of commerce;

(2) predatory or anticompetitive conduct

directed to accomplishing the unlawful

purpose; and (3) a dangerous probability

of success." William Inglis & Sons Baking

Co. v. ITT Continental Baking Co., Inc.,

Slip. op. 3917 (9th Cir. Aug. 7, 1981).

Although defendant's motion on the § 2

claim could have been more clearly

enunciated in its moving papers, the

record is sufficient to dispose of this

claim as well. Plaintiffs rely on the

substantive allegations of their § 1 claim

to demonstrate predatory or

anticompetitive conduct. The court's

findings with regard to the § 1 claim

apply to the § 2 claim and lead to the

conclusion that anticompetitive conduct

has not been shown. Additionally, while

not indispensable, market power is a

relevant factor in determining probability

of success. Blair Foods, Inc. v. Ranchers

Cotton Oil, 610 F.2d at 669. As discussed

earlier, plaintiffs' unsupported

assertions do not withstand summary

disposition of that issue. Even under the

"short-cut method" of this circuit

enunciated in Gough v. Rossmoor Corp., 585

F.2d 381 (9th Cir. 1978), cert. denied,

440 U.S. 936, 99 S. Ct. 1280 (1979),

plaintiffs would need to present

sufficient evidence of predatory

conduct. Plaintiffs having failed in this

showing, the court finds that no purpose

would be served by going to trial on the

§ 2 claim and therefore grants summary

judgment to defendant on plaintiffs'

allegation of attempt to monopolize

trade.12/

For all of the above reasons, the

court denies plaintiffs' motion for

summary judgment on the antitrust claims

and the rolling account, and grants the

motion as to the fraud claim. Further,

the court grants summary judgment to

defendant on the various antitrust

Claims. Parties are to prepare for trial

only on the breaches of contract and |

rolling accounts claims.

Dated: 31 AUG 1981

[s/

MARILYN HALL PATEL

United States District Court Judge

FOOTNOTES

i/ Defendant's first two causes of action

relating to trademark infringement have

been dismissed without prejudice.

2/ While this point is disputed by

plaintiffs, they offer no evidence to

Support their position. Long's Drug

Stores and Payless Drugs are examples of

"chain" stores that remained distributor

accounts. (Def's App. 2, Tierney Decl.,

Tab L, 4 15; id. Mesirow Dep., Tab F,

415:10-416:14.)

3/ Attorney for plaintiffs has had great

difficulty clarifying his antitrust

claims. The court is preceding on its

assumption of what the claims are meant to

be. However it is the responsibility of

plaintiffs to clearly articulate their

claims and set forth in a comprehensible

fashion the facts in support. It is not

the court's responsibility to create a

comprehensible claim out of chaos -- a

predicament in which another court

apparently found itself. Zoslaw v.

Columbia Broadcasting System, Inc., 1978-2

Trade Cas. ¥ 62,269 (N.D. Cal. 1978).

4/ The court in Greene v. General Foods

Corp., 517 F.2d 635 (5th Cir. 1975), cert.

denied, 424 U.S. 942, 96 S. Ct. 1409

(1976) interpreted Simpson v. Union Oil

Co., 377 U.S. 13, 84 S. Ct. 1051 (1964) as

prohibiting devices resulting in resale

price maintenance "where the risks of the

distribution process are borne largely by

numerous otherwise independent individuals

or firms in competition with each other in

a product for which there is a widespread

demand on the level of the individual

consumer." Greene v. General Foods Corp.,

517 F.2d at 653. The Greene court found

substantial support for its interpretation

in United States v. Arnold, Schwinn & Co.,

388 U.S. 365, 87 S. Ct. 1856 (1967) in

which the court upheld a finding of per se

Sherman Act violations in a vertical

territorial restriction scheme. However,

the vitality of this suggested trend is

seriously undermined by the return to the

rule of reason standard enunciated in

Continental T.V., Inc. v. GTE Sylvania

IMG. 2 35 Ucbe SOc Ft Be CE. 2949 (L977).

5/ It is difficult to escape the

conclusion that plaintiffs' lax business

methods did little to reduce the

possibility of goods going stale on the

shelf. (Def's App. 2, Mesirow Dep.,

Tab F, 343:20-344:15, £94:22-405:2,

518:28-519:11, 618:1-5; id. Morris Dep.,

Tab I, 86:28-87:12.)

&/ In 1975, plaintiffs reported a loss of

and received credit for goods worth

$21,386.88. Pepperidge Farms recouped

approximately half this amount from their

insurer. (Def's App. 2, Silk Decl.,

Tab O, ¥ 3.)

q/ Therefore the only sale that takes

place is between defendant and the

retailers and the transactions between

defendant and distributors does not

involve resale pricing. See Overhead Door

Corp. v. Nordpal Corp., 1979-1 Trade Cas.

| 5555 at Le (D. Minn. 1978).

8/ Plaintiffs have filed two motions in

limine. Portions of the 1978 Reny Morris

deposition are prejudicial to plaintiffs

within the meaning of Fed. R. Evid. 403.

However none of the information contained

in the deposition is relevant to the

issues in this case. This is especiallly

so because plaintiffs’ motion for summary

judgment on the fraud claim has been

granted by the court.

Plaintiffs' motion in limine as to the

Dutch Boy Cookies is rendered moot by the

court's decision not to address the

damages issue.

2/ It is not inconceivable that such

evidence does exist somewhere in the

record. But after a more-than-diligent

search, the court is unable to discern

any. As with many evidentiary issues in

this action, plaintiffs' papers are a

jumble of incomplete cross-references and

unsupported assertions. For instance,

plaintiffs' attorney states "Pepperidge

Farm's pre-printed retail prices are not

Sulggested at all, but are firmly in place

printed prices whiclh establish a ceiling

on a distributor's abililty to negotiate

prices and profit margins with

retailers." (Plaintiffs' Opposition to

Defendant's Statement of Undisputed Facts,

14:7-10.) ~ Such an assertion fails to meet

the most minimum standard for presenting

proper evidence to raise a disputed issue

of fact on a motion for summary judgment.

10/ tn 1980, defendant's share of the

U.S. biscuit market was 3.64%; its share

of the San Francisco market was 3.2%. The

respective 1975 shares were less than 3%

and less than 2.5%. (Def's App. 2,

Tierney Decl., Tab L. q¥ 7.)

il/ Plaintiffs' Opposition to Defendant's

Statement of Undisputed Facts, states

"Ti]jt is further demonstrated that

Pepperidge Farm is a dominant company in

the sale of dessert and party cookies, as

distinguished from crackers. See,

Declaration of Maxwell Keith, Exh. l

herein." Aside from the fact that "Exh. l

herein" is inexcusably imprecise, this

factual assertion simply distorts and

exaggerates the testimony of one Safeway

manager (taken in Utah) that to his

knowledge Pepperidge Farm is the only

company that makes a "premium" cookie. It

appears that the deponent worked at a San

Francisco Safeway division between 1972

and 1975 but no proper foundation was laid

clarifying that point.

12/ Because the court has determined that

no anticompetitive behavior has been

shown, it is unnecessary to decide the

issue of damages and the court declines to

do so.

SHERMAN ANTITRUST ACT

Act of July 2, 1890, c. 647,26

Stat. 209; 15 U.S.C. §§1, 2,

August 17, 1937, 50 Stat. 693,

July 7, 1955, 69 Stat. 282

Sec. l. Every contract, combination

in the form of trust or otherwise, or

conspiracy, in restraint of trade or

commerce among the several States, or with

foreign nations, is declared to be

illegal: Provided, That nothing contained

in sections 1 to 7 of this title shall

render illegal, contracts or agreements

prescribing minimum prices for the resale

of a commodity which bears, or the label

of container of which bears, the

trademark, brand, or name of the producer

or distributor of such commodity and which

is in free and open competition with

commodities of the same general class

produced or distributed by others, when

contracts or agreements of that

description are lawful as applied to

intrastate transactions, under any

statute, law, or public policy now or

hereafter in effect in any State,

APPENDIX D-1

Territory, or the District of Columbia in

which such resale is to be made, or to

which the commodity is to be transported

for such resale, and the making of such

contracts or agreements shall not be an

unfair method of competition under section

45 of this tited: Provided further, That

the preceding proviso shall not make

lawful any contract or agreement,

providing for the establishment or

maintenance of minimum resale prices on

any commodity herein involved, between

manufacturers, or between producers, or

between wholesalers, or between brokers,

or between factors, or between retailers,

Or between persons, firms, or corporations

in competition with each other. Every

person who shall make any contract or

engage in any combination or conspiracy

declared by sections 1 to 7 of this title

to be illegal shall be deemed guilty of a

misdemeanor, and, on conviction thereof,

shall be punished by fine not exceeding

fifty thousand dollars, or by imprisonment

APPENDIX D-2

not exceeding one year, or by both said

punishments, in the discretion of the

court.

Sec. 2. Every person who shall

monopolize, or attempt to monopolize, or

combine or conspire with any other person

Or persons, to monopolize any part of the

trade or commerce among the several

States, or with foreign nations, shall be

deemed guilty of a misdemeanor, and, on

conviction thereof, shall be punished by

fine not exceeding fifty thousand dollars,

or by imprisonment not exceeding year, or

by both said punishments, in the

discretion of the court.

Sections 1 of the Sherman Act, as

amended December 4, 1974, 88 Stat. 1708;

December 12, 1975, 89 Stat 801, to delete

the two provisions granting antitrust

exemption to State fair trade laws

effective ninety days from December 12,

1975; see Appendix G herein, has provided

Since December 14, 1975, as follows:

APPENDIX D-3

Section 1. Every contract,

combination in the form of trust or

otherwise, or conspiracy, in restraint of

trade or commerce among the several

States, or with foreign nations, is hereby

declared to be illegal. Every person who

shall make any contract or engage in any

combination or conspiracy hereby declared

to be illegal shall be deemed guilty of a

felony and, on conviction thereof, shall

be punished by fine not exceeding one

million dollars if a corporation, or, if

any other person, one hundred thousand

dollars, or by imprisonment not exceeding

three years, or by both said punishments,

in the discretion of the court.

Section 2 of the Sherman Act, 15

U.S.C. 2, aS amended December 21, 1974, 88

Stat. 1708.

Every person who shall monopolize, or

attempt to monopolize or combine or

conspire with any other person or persons,

to monopolize any part of the trade or

commerce among the several States, or with

foreign nations, shall be deemed guilty of

APPENDIX D-4

a felony, and, on conviction thereof,

shall be punished by fine not exceeding

one million dollars if a corporation, or,

if any other person, one hundred thousand

dollars, or by imprisonment not exceeding

three years, or by both Saidgunishments,

in the discretion of the court.

APPENDIX D-5

Section 4 of the Clayton Act

Oct. 15, 1914, 38 Stat. 731;

15 U.S.C. §15

eeeeided anti Uke. 12, 1900:

"That any person who shall be injured

in his business or property by reason of

anything forbidden in the antitrust laws

may sue therefor in the district court of

the United States in the district in which

the defendant resides or is found or has

an agent, without respect to the amount of

controversy and shall recover three-fold

the damages by him sustained, and the

costs of suit, including a reasonable

attorney's fee."

APPENDIX E-1

THE MCGUIRE AMENDMENT TO

SECTION 5(a) OF THE FEDERAL

TRADE COMMISSION ACT,

July 14, 1952, 66 Stat. 631

(repealed Dec. 12, 1978,

effective March ll, 1976)

Section 5(a) Unfair methods of

competition in commerce and unfair or

deceptive acts or practices in commerce,

are hereby declared unlawful.

(2) Nothing contained in this Act or

in any of the Antitrust Acts shall render

unlawful any contracts or agreements

prescribing minimum or stipulated prices,

Or requiring a vendee to enter into

contracts or agreements prescribing

minimum or stipulated prices, for the

resale of a commodity which bears, or the

label of container of which bears, the

trade mark, brand, or name of the producer

Or distributor of such commodity and which

is in free and open competition with

commodities of the same general class

produced or distributed by others, when

contracts or agreements of that

description are lawful as applied to

APPENDIX F-1

intrastate transactions under any statute,

law, or public policy now or hereafter in

effect in any State, Territory, or the

District of Columbia in which such resale

is to be made, or to which the commodity

is to be transported for such resale.

(3) Nothing contained in this Act or

in any of the Antitrust Acts shall render

unlawful the exercise or the enforcement

of any right or right of action created by

any statute, law, or public policy now or

hereafter in effect in any State,

Territory, or the District of Columbia,

which in substance provides that willfully

and knowingly advertising, offering for

sale, or selling any commodity at less

than the price or prices prescribed in

such contracts or agreements whether the

person so advertising, offering for sale,

Or selling is or is not a party to such a

contract or agreement, is unfair

competition and is actionable at the suit

of any person damaged thereby.

APPENDIX F-2

(4) Neither the making of contracts or

agreements as described in paragraph (2)

of this subsection, nor the exercise or

enforcement of any right or right of

action as described in paragraph (3) of

this subsection shall constitute an

unlawful burden or restraint upon, or

interference with, commerce.

(5) Nothing contained in paragraph (2)

of this subsection shall make lawful

contracts or agreements providing for the

establishment or maintenance of minimum or

Stipulated resale prices on any commodity

referred to in paragraph (2) of this

subsection, between manufacturers, or

between producers, or between wholesalers,

or between brokers, or between factors, or

between retailers, or between persons,

firms, or corporations in competition with

each other.

APPENDIX F-3

CONSUMER GOODS PRICING ACT OF 1975

Act of December 12, 1975, 89 Stat.

801, Effective March ll, 1976:

AN ACT

To amend the Sherman Antitrust Act to

provide lower prices for consumers.

Be it enected by the Senate and House

of Representatives of the United States of

America in Congress assembled, That this

Act may be cited as the "Consumer Goods

Pricing Act of 1975".

Section 2. Section 1 of the Act

entitled "An Act to protect trade and

commerce against unlawful restraints and

monopolies", approved July 2, 1890 (15

U.S.C. 1), is amended by striking out the

colon preceding the first proviso in the

first sentence and all that follows down

through the end of such sentence and

inserting in lieu thereof a period.

Section 3. Paragraphs (2) through (5)

of section 5(a) of the Federal Trade

Commission Act (15 U.S.C. 45(a)) are

repealed and paragraph (6) of such section

5(a) is redesignated as paragraph (2).

Appendix G-l

Section 4. The amendents made by

sections 2 and 3 of this Act shall take

effect upon the expiration of the ninety-

day period which begins on the date of

enactment of this Act.

Appendix G-2

PEPPERIDGE FARM

CONSIGNMENT AGREEMENT

Pepperidge Farm, Incorporated

of Norwalk, Connecticut

HEREBY GRANTS

EXCLUSIVE FRANCHISE

Name: ELI ALBERT MESIROW

Address: 809 Seminole Drive,

Livermore, California

AS A

CONS IGNEE

within the territory and upon the

terms stated in the following pages.

APPENDIX H-1l

DEFINITIONS

(a) BAKERY - refers to PEPPERIDGE

FARM, INCORPORATED, the grantor of this

franchise, a Connecticut corporation

having its principal office in Norwalk,

Connecticut.

(b) CONSIGNEE - refers to the grantee

of this francise.

territory described in Schedule A hereto.

(d) CONSIGNED PRODUCTS - refers to

those products listed in Schedule B hereto

(subject to modification per Paragraph 10)

but only when packaged or wrapped under

the brand name "Papperidge Farm" and sold

or intended to be sold to retail stores as

fresh (i.e. not preserved or stale), first

quality (i.e. not seconds) merchandise and

does not include (a) any of such products

sold, or intended to be sold, to retail

stores frozen, canned, or otherwise

preserved, (b) stale products, (c)

seconds, or (d) merchandise of others

APPENDIX H-2

containing Consigned Products as

components.

(e) STALE PRODUCTS - refers to

Consigned Products whose shelf life has

expired, as determined by the Bakery's

Stale policy existing from time to time.

(£) SECONDS - refers to Consigned

Products which do not meet the high

standards required by the Bakery for

distribution in the ordinary manner and

thus are deemed by the Bakery, in its sole

discretion, to be unsuitable for that

purpose.

(g) DISTRIBUTION OR DISTRIBUTE -

refers to the sale and delivery of

Consigned Products to retail stores within

the teritory and to such hotels,

restaurants, etc, as may be authorized by

the Bakery per Paragraph 9.

TERMS

1. EXCLUSIVENESS OF FRANCHISE. The

Consignee will have the exclusive right to

distribute Consigned Products to retail

APPENDIX H-3

stores within the territory, and the

Bakery will not sell or deliver or

authorize any others to sell or deliver

the same products to retail stores within

the territory except in connection with

temporary sales programs; provided,

however, that the Bakery will have the

exclusive right to distribute Consigned

Products to retail facilities woned or

Operated by the Bakery or by any

corporation controlled by the Bakery. The

terms of this paragraph are subject,

however, to the terms of Paragraphs 6, 7

and 9.

2. QUANTITIES CONSIGNED. Bakery will

consign and deliver to Consignee and

consignee will accept sufficient

quantities of Consigned Products to

maintain at all times an adequate and

fresh supply thereof in all retail stores

in the territory which requests such

products and whose accounts are not

demonstrably unprofitable; provided,

however, that Bakery reserves the right to

APPENDIX H-4

allocate its products as nearly

proportionately as practicable if the

overall demand for its products exceeds

its production. Consignee shall hold and

care for all Consigned Products as the

sole and exclusive property of Bakery.

Title to all Consigned Products shall be

vested in, subject to, and under the

control of Bakery until sold by Consignee.

3. PROCEEDS AND RECORDS OF SALES.

The Consignee will pay promptly each week

on the day specified by the Bakery for all

Consigned Products sold by him during the

preceding week. If any chain store

Organization refuses to pay or to permit

its store managers to pay the Consignee

directly for Consigned Products

distributed by him and, instead, requires

the Bakery to submit a consolidated bill

to a central or district office of such

chain, the Consignee shall be entitled to

deliver to the Bakery for credit to his

account all charge tickets signed by such

store managers; provided, however, that

APPENDIX H-5

the Bakery may in its discretion (a)

refuse such credit on any charge ticket

not received by the Bakery within the time

prescribed in its published billing

schedule then in effect and (b) debit the

Consignee's account with any charge ticket

which it is unable to collect within a

reasonable time. Consignee guarantees the

payment of all bills and accounts for

Consigned Products sold by Consignee under

this agreement. Consignee will keep such

records of Consigned Products received and

sales made as Bakery may from time to time

request; Bakery may inspect such records

and Consigned Products at such times as

Bakery may select. Without limiting the

generality of the foregoing, Consignee

agrees that Bakery may take physical

inventory of Consigned Products in

Consignee's possession whenever and as

often as Bakery desires such to be

advisable, and that Consignee will keep

such records of his operation and will

APPENDIX H-6

furnish Bakery such copies thereof as

Bakery may reasonably require.

4. DISTRIBUTION EFFORTS. The

Consignee will use his best efforts to

realize the full sales potential of the

territory for Consigned Products. To this

end, he will (a) actively solicit all

retail stores whose accounts can be

profitably handled, (b) use his best

efforts to maintain at all times an

adequate and fresh supply of consigned

Products in all such stores, (c) co-

Operate with the Bakery in the effective

utilization of the Bakery's advertising

and sales-promotion programs and (d) keep

fully informed of the Bakery's

recommendations of policies and methods

for increasing sales and improving

distribution service.

5. DISTRIBUTION SERVICE AND

FACILITIES. The Consignee will maintain

efficient distribution service throughout

the territory in keeping with the

established reputation of the Bakery and

APPENDIX H-7

the high quality of its products. To this

end, he will (a) provide adequate

facilities and equipment for the receipt,

handling and delivery of Consigned

Products, (b) comply with all applicable

health and sanitary laws and regulations

and (c) maintain such route books and

other records as are required by Bakery

from time to time.

6. EMERGENCY SERVICE. If, by reason

of illness or vacation or any other cause,

the Consignee shall be unable at any time

to maintain the efficient distribution

service contemplated by this agreement, he

will make other suitable arrangements at

his own expense for the maintenance of

such service; but, if he is unable or

fails to do so, the Bakery is authorized

in its discretion to provide such service

as his agent and at his expense and

‘risk. Upon the request of the Consignee,

the Bakery will endeavor in any emergency

to provide such service as his agent and

at his expense and risk.

APPENDIX H-8

7. FAILURE TO SERVE PARTICULAR

STORES. If the Consignee fails for any

reason to maintain satisfactory

distribution service to any retail store

within the territory and such failure is

not remedied within five days after

written notice therof from the Bakery, the

Bakery may make other arrangements, on

either a permanent or temporary basis in

the discretion of the Bakery, for the

service of such store.

8. CHAIN STORE ACCOUNTS. If any

chain store orgainzation requires that

authorization for the distribution of

Consigned Products to the chain's retail

stores in the territory shall be obtained

through a central or district office

located outside of the territory, or only

in conjunction with the distribution of

Consigned Products to its retail stores in

other territories, the Bakery will co-

Operate with the Consignee in procuring

such authorization. If any chain store

Organization refuses to pay or to permit

APPENDIX H-9

its store managers to pay any Consignee

directly for Consigned Products and,

intead, requires the submission of a

consolidated bill to central or district

office of the chain, the Bakery will

handle the billing and the collections for

all such products, subject to the terms of

Paragraph 3.

9. PROHIBITED SALES AND DELIVERIES.

The Consignee will not sell or deliver any

Consigned Products directly to consumers

Or to any other purchasers except retail

stores within the territory and such

hotels, restaurants, clubs and similar

Orgainzations within the territory as the

Bakery may authorize in writing. Also,

the Consignee will not, without like

authorization, make deliveries of

Consigned Products to any chain store

Organization via a central or district

warehouse or in any manner other than

directly to its retail stores. If,

despite the best efforts of the Consignee

and the Bakery to obtain permission from

APPENDIX H-10

any chain to make deliveries directly to

its retail stores, such chain refuses to

handle Consigned Products except via

warehouse deliveries, the Bakery shall

have the right in its discretion to sell

and deliver its products directly to such

chain for its own account via warehouse

deliveries as long as such refusal remains

in effect.

10. MODIFICATION OF LIST OF

PRODUCTS. The list of Consigned Products

set forth in Schedule B hereto may be

modified or changed by the Bakery from

time to time by (a) adding such other

products as it may deem advisable among

those which it now or hereafter produces,

(b) withdrawing any products (whether

Originally listed or subsequently added)

which it discontinues producing or selling

Or (c) adding or withdrawing at any time

with or without notice and for any reason

any product designated as "test product,"

"for market test" or the like. In

addition, the Bakery shall have the right

APPENDIX H-1l

from time to time to change the

ingredients, the method of production or

the labelling or packaging of any

Consigned Products.

11. RESALE PRICES. To the extent

permitted by law, the Bakery reserves the

right to fix prices for its products from

time to time and to require the Consignee

and his customers to maintain the prices

so fixed. If the Bakery decides to

exercise such right, it will give to the

Consignee reasonable notice with respect

to the date on which the exercise will

take effect. On or before the effective

date, the Consignee will execute the

deliver to the Bakery, and will cause his

customers to execute and deliver to him or

to the Bakery, such agreements and other

documents as the Bakery may reasonably

require and will perform and cause his

customers to perform any and all acts and

things deemed advisable by the Bakery in

the exercise of such right.

APPENDIX H-12

12. SALES DATA. The Consignee will

furnish to the Bakery such sales data as

it may reasonably require for the planning

of its production schedules, the expansion

of its operations and the planning and

conduct of sales promotion programs.

13. TRADE NAME, ETC. The Consignee

may use the Bakery's trade name, trade-

mark and distinguishing colors on his

trucks and other equipment and supplies;

provided, however, that (a) the Bakery's

trade name may not be used as a part of

any business name or trade name of the

Consignee without the written consent of

the Bakery or in any other way which will

tend to confuse the separate identities of

the Bakery and the Consignee, and (b) the

Bakery shall have the right at any time to

revoke the permission granted in this

paragraph if, in its opinion, the general

appearance of the Consignee's trucks or

other equipment or his own general

appearance or deportment or that of his

helper or helpers, if any, shall fall

APPENDIX H-13

below standards in keeping with the

established reputation of the Bakery and

the high quality of its products.

14. NON-PERFORMANCE FOR REASONS

BEYOND CONTROL. Neither the Bakery nor

the Consignee shall be liable for any

failure to comply with the terms of this

agreement if such failure shall have been

caused primarily by fire, labor dispute,

Strike, war, insurrection, governmental

restriction or any other cause beyond the

control of the party so failing.

15. INDEPENDENT BUSINESSMAN. The

Consignee is a self-employed independent

businessman, not an agent or employee of

the Bakery, and has no authority other

than to sell products consigned to him

hereunder, express or implied, to do or

perform any act or thing or to make any

warranty or representation or promise or

commitment of any character which will be

binding upon the Bakery or for which it

will be responsible, and he will refrain

APPENDIX H-14

from any conduct inconsistent with the

terms of this paragraph.

16. LIEN OF BAKERY ON FRANCHISE. The

Bakery shall have a first lien on this

franchise as security for all indebtedness

of the Consignee to the Bakery at any time

outstanding. Any sale, transfer or

assignment of this franchise (invalid per

Paragrah 17 without the written approval

of the Bakery) shall be subject to such

lien unless such lien shall be expressly

released by the Bakery in writing.

17. SALE OF FRANCHISE. Subject to

the terms of Paragraph 16, this franchise

may be sold by the Consignee as a whole at

any time with the written approval of the

Bakery, and the Bakery will grant such

approval with respect to a proposed sale

if the purchaser meets the requirements of

the Bakery as to character, ability,

financial responsibility and adequate

facilities. In addition, this franchise

may be sold in part on similar terms and

conditions if the Bakery also gives its

APPENDIX H-15

written approval to the division of

territory sought to be effected thereby.

The Bakery will notify the Consignee with

reasonable promptness of its approval or

disapproval of any proposed purchaser and,

if applicable, of any proposed division of

the territory. Any transaction or

instrument which purports purchaser and,

if applicable, of any proposed division of

the territory. Any transaction or

instrument which purports to constitute a

sale, transfer or assignment of this

franchise as a whole or in part without

such written approval shall be void. Any

valid sale of this franchise as a whole

shall operate to release the Consignee

from all obligations to the Bakery

hereunder except the obligation to pay in

full any adverse balance in his account

with the Bakery, and the Bakery shall have

the right in its discretion to require the

purchaser to accept a new consignment

agreement in substantially the same form,

except for a description of the territory

APPENDIX H-16

in the case of a sale of a part of the

franchise, in lieu of continuing this

agreement in effect in whole or in part on

an assigned basis.

18. TERMINATION OF CONSIGNMENT

AGREEMENT FOR CAUSE. The Bakery shall

have the right in its discretion to

terminate this agreement at any time, upon

written notice to the Consignee, for any

of the following causes:

(a) failure of the Consignee

adequately to realize the sales potential

of the territory and his failure to make

Satisfactory improvement within thirty

days after notice of inadequacy from the

Bakery.

(b) failure of the Consignee to

perform or comply with any other material

term of this agreement and the continuance

of such failure for seven days after

written notice thereof from the Bakery,

maintain the general appearance and

condition of his trucks or other equipment

APPENDIX H-17

Or his own general appearance or

deportment or that of his helper or

helpers, if any, in accordance with

standards in keeping with the established

reputation of the Bakery and the high

quality of its products and the

continuance of such failure for more than

five days after written notice therof from

the Bakery, or repeated failures of such

character even though a previous failure

or failures have been temporarily

corrected after notice,

(d) any dishonesty of the Consignee

in his dealings with the Bakery or with

others in connection with his distribution

services under this agreement,

(e) the Consignee's insolvency or

admission in writing of his inability to

pay his debts as they mature,

(£) the filing of a voluntary

bankruptcy petition by the Consignee or

his failure to vacate an involuntary

bankruptcy petition within sixty days

after date of filing,

APPENDIX H-18

(g) failure of the Consignee to

vacate the appointment of a receiver or

trustee of his business or assets within

Sixty days after the date of appointment,

(h) a general assignment by the

Consignee for the benefit of his

creditors.

Termination pursuant to this paragraph

shall operate to release all rights and

obligations hereunder of both the Bakery

and the Consignee except the right to

receive any favorable balances and the

Obligation to pay any adverse balances.

19. TERMINATION OF CONSIGNMENT

AGREEMENT WITHOUT CAUSE. The Bakery shall

have the right in its discretion to

terminate this agreement at any time

without cause upon written notice to the

Consignee. Upon termination pursuant to

this paragraph the Bakery will pay to the

Consignee a sum equal to the fair market

value of this franchise on the termination

date plus 25% of such value, such value to

APPENDIX H-19

be determined either by agreement between

the Bakery and the Consignee or, if they

shall be unable to agree, by three

arbitrators, one of whom shall be chosen

by the Bakery and one by the Consignee and

the third by the two first chosen. The

determination of fair market value by a

majority of the three arbitrators shall be

final and binding upon both the Bakery and

the rights and obligations hereunder of

both the Bakery and the Consignee except

(a) the right to receive any favorable

balances and the obligation to pay any

adverse balances and (b) the rights and

obligations with respect to payment and

arbitration stated in this paragraph.

20. TERMINATION OF CONSIGNMENT

AGREEMENT BY CONSIGNEE. The Consignee

shall have the right in his discretion to

terminate this agreement at any time upon

thirty days' written notice to the

Bakery. Termination pursuant to this

paragraph shall operate to release all

rights and obligations hereunder of both

APPENDIX H-20

the Bakery and the Consignee except the

right to receive any favorable balances

and the obligation to pay any adverse

balances.

21. DEATH OF CONSIGNEE. In case of

the Consignee's death, all the terms of

this agreement (see particularly Paragraph

6) shall continue in effect during the

next 90 days, and shall inure to the

benefit of and be binding upon the legal

representatives of his estate during such

period. If the legal representatives of

the Consignee's estate shall not have sold

this franchise pursuant to Paragraph 17

within such 90-day period, all rights and

obligations hereunder of both the Bakery

and the Consignee's estate shall terminate

at the expiration of such period except

(a) the right to receive any favorable

balances and the obligation to pay any

adverse balances and (b) the right of the

Consignee's estate to receive and the

obligation of the Bakery to pay to his

estate the entire proceeds subject,

APPENDIX H-21

however, to the Bakery's lien per

Paragraph 16) of any sale of this

franchise (in whole or in part) made or

contracted to be made by the Bakery within

the next 90 days; provided, however, that,

if the Bakery shall have provided

distribution services within all or any

portion of the territory during all or any

portion of the period from any excess of

its expense over income in providing such

services. If the Bakery provides

emergency distribution services under

Paragraph 6 during all or any portion of

th first 90-day period, any excess of its

income over expense in providing such

service shall be paid to the Consignee's

estate (subject to any right of set-off

that may exist), but his estate shall not

be liable to the Bakery for any excess of

its expense over income in providing such

services, although any such excess of

expense may be deducted from the proceeds

of sale.

APPENDIX H-22

22. NOTICES. All notices which are

required to or which may be given under

the terms hereof shall be in writing and

shall be deemed given when deposited in

the United States mail, postage prepaid,

and addressed to the other party at the

address designated for such party on the

cover page hereof. Either party may

change such address by giving notice of a

new address.

23. DURATION OF CONSIGNMENT

AGREEMENT. This agreement shall continue

in effect until terminated in the manner

provided in Paragraph 18, 19, 20 or 21.

24. GENERAL. The terms of this

agreement shall be construed so as to

Carry into effect its true intent and

meaning, and any ambiguities shall be

contrued and any inconsistencies shall be

reconciled accordingly. Any consent,

permission, authorization or waiver given

hereunder with respect to any continuing

act or condition may be subsequently

revoked in the same manner as given.

APPENDIX H-23

25 ENTIRETY OF CONSIGNMENT

AGREEMENT. This agreement represents the

entire agreement between the Bakery and

the Consignee and supersedes any and all

prior franchises, agreements or

understandings between “he Bakery and the

Consignee, whether written or oral,

regarding distribution of Consigned

Products. This agreement may not be

amended orally or by custom or conduct but

only by a writing signed by both the

Bakery and the Consignee.

An additional provision of this

franchise is written on the back.

Dated at Norwalk, Connecticut, April

25, 1970.

April 25, 1970

This consignment agreement is accepted

upon the term stated above.

By __/s/

Consignee

Eli Albert Mesirow

April 25, 1970

PEPPERIDGE FARM, INCORPORATED

By _ /s/

Its Vice-President - Marketing

(Title)

APPENDIX H-24

SCHEDULE A

DESCRIPTION OF TERRITORY

In the State of California, in the

Counties of San Joaquin, Alameda, Contra

Costa and Solano, all that territory

described as follows:

North - From a point directly north of

Main Street in Port Chicago and the Solano

County-Contra Costa County line; west on

the Solano-Contra Costa County line to

Highway 21 (Alternate 680); northwest on

Highway 21 (Alternate 68) to the junction

of State Highway 21 and Interstate 80;

northeast on State Highway 21 to U.S. 80;

southwest on U.S. 80 to the Napa-Solano

County line to San Pablo Bay and Sonoma

Creek.

South - From a point at the San Francisco

Bay and High Street in the City of

Oakland; northeast on High Street (not

including) to Interstate 580; southeast on

APPENDIX H-25

Interstate 580 to State Highway 13; north

on State Highway 13 (including) to Redwood

Road; southeast on Redwood Road

(including) to the Alameda-Contra Costa

County line; east-southeast on the

Alameda-Contra Costa County line to

Interstate 680; south on Interstate 680 to

U.S. 50; east on U.S. 50 (not including)

to County Road J4.

East - North on County Road J4 (from Route

50) to State Route 4; northwest on State

Route 4 to State Route 160 at Antioch;

north on State Route 160 to the Solano-

Contra Costa County line; west on the

Contra Costa-Solano County line to a point

directly north of Main Street in Port

Chicago.

West - From a point of the San Pablo Bay

and Sonoma Creek; south on the eastern

shores of San Pablo Bay to the point of

San Pablo Canal; then a straight line east

to MacDonald Avenue and Garrard Road; east

APPENDIX H-26

on MacDonald Avenue (not including) to

Interstate 80; north on Interstate 80 to

San Pablo Avenue; northwest on San Pablo

Avenue (including) to San Pablo Dam Road;

east on San Pablo Dam Road (including) to

Valley View Road; continue along San Pablo

Dam Road (including) to Camino Pablo;

south on Camino Pablo to State Highway 24;

west on State Highway 24 through Caldecott

Tunnel to Warren Freeway (Highway 13);

south on Warren Freeway (Highway 13) to

Moraga Avenue; west on Moraga Avenue

(including) to Grand Avewnue; continue

west on Grand Avenue (including) to the

San Francisco Bay; along the shoreline of

San Francisco Bay to High Street in the

City of Oakland.

, 19

APPROVED:

Ls/

Consignee

Eli Albert Mesirow

, 19

APPROVED:

PEPPERIDGE FARM, INCORPORATED

By _/s/

Its Vice-President - Marketing

(Title)

Pepperidge Farm, Inc.

Downers Grove, IL 60515

(312) 968-4000

April 25, 1970

Mr. Eli Albert Mesirow

809 Seminole Drive

Livermore, CA

Dear Mr. Mesirow,

Products pore you sell to your

customers may not be returned to us for

credit by reason of damage or by reason of

over-code (over-age) nor will you receive

credit for any complimentary products you

may distribute. We may make exceptions of

course, by giving you written notice in

particular cases.

You agree to continue maintaining an

adequate and fresh supply of franchise

products in all stores and to continue

removing promptly all damaged and over-

code products from the stores. Over-code

products may be sold to stores dealing

exclusively in stale products, but you

agree not to sell such products to any

other purchaser.

Please acknowledge receipt of this

letter by signing and returning to us the

attached copy of this letter.

ACCEPTED:

April 25, 1970

[s/f

Eli Albert Mesirow

PEPPERIDGE FARM, INCORPORATED

By [s/f

Its Vice President - Marketing

Date: April 25, 1970

PEPPERIDGE FARM

CONSIGNMENT AGREEMENT

Pepperidge Farm, Incorporated

of Norwalk, Connecticut

HEREBY GRANTS

EXCLUSIVE FRANCHISE

Name: ELI ALBERT MESIROW

Address: 809 Seminole Drive,

Livermore, California

AS A

CONSIGNEE

within the territory and upon the

terms stated in the following pages.

APPENDIX I-1

DEFINITIONS

(a) BAKERY - refers to PEPPERIDGE

FARM, INCORPORATED, the grantor of this

franchise, a Connecticut corpozation

having its principal office in Norwalk,

Connecticut.

(b) CONSIGNEE - refers to the grantee

of this francise.

territory described in Schedule A hereto.

(d) CONSIGNED PRODUCTS - refers to

those products listed in Schedule B hereto

(subject to modification per Paragraph 10)

but only when packaged or wrapped under

the brand name "Pepperidge Farm" and sold

Or intended to be sold to retail stores as

fresh (i.e. not preserved or stale), first

quality (i.e. not seconds) merchandise and

does not include (a) any of such products

sold, or intended to be sold, to retail

stores frozen, canned, or otherwise

preserved, (b) stale products, (c)

seconds, or (d) merchandise of others

APPENDIX I-2

containing Consigned Products as

components.

(e) STALE PRODUCTS - refers to

Consigned Products whose shelf life has

expired, as determined by the Bakery's

Stale policy existing from time to time.

(£) SECONDS - refers to Consigned

Products which do not meet the high

standards required by the Bakery for

distribution in the ordinary manner and

thus are deemed by the Bakery, in its sole

discretion, to be unsuitable for that

purpose.

(g) DISTRIBUTION OR DISTRIBUTE -

refers to the sale and delivery of

Consigned Products to retail stores within

the teritory and to such hotels,

restaurants, etc, as may be authorized by

the Bakery per Paragraph 9.

(h) BULLETIN PRICES - refers to the

prices for Consigned Products charged by

the Bakery and published from time to

time.

APPENDIX I-3

(i) CHAIN - refers to any person,

firm, corporation or other legal entity

that owns or operates three or more retail

stores.

TERMS

1. EXCLUSIVENESS OF FRANCHISE. The

Consignee will have the exclusive right to

distribute Consigned Products to retail

stores within the territory, and the

Bakery wili not sell or deliver or

authorize any others to sell or deliver

the same products to retail stores within

the territory except in connection with

temporary sales programs; provided,

however, that the Bakery will have the

exclusive right to distribute Consigned

Products to retail facilities woned or

operated by the Bakery or by any

corporation controlled by the Bakery. The

terms of this paragraph are subject,

however, to the terms of Paragraphs G, 7

and 9.

2. QUANTITIES CONSIGNED. Bakery will

consign and deliver to Consignee and

APPENDIX I-4

consignee will accept sufficient

quantities of Consigned Products to

maintain at all times an adequate and

fresh supply thereof in all retail stores

ir the territory which request such

products and whose accounts are not

demonstrably unprofitable; provided,

however, that Bakery reserves the right to

allocate its products as nearly

proportionately as practicable if the

overall demand for its products exceeds

its production. Consignee shall hold and

care for all Consigned Products as the

sole and exclusive property of Bakery.

Title to all Consigned Products shall be

vested in, subject to, and under the

control of Bakery until sold by Consignee.

3. PROCEEDS AND RECORDS OF SALES.

(a) Except as provided in

subparagraph (b), Consigned Products shall

be sold and delivered on consignment to

Consignee at Bulletin Prices, less the

percentage specified in Schedule B, for

APPENDIX I-5

resale and delivery to retail stores at

such prices as Consignee may determine.

(b) The Bakery will bill directly all

chains and military commissaries that have

requested such direct billing or that

request it in the future. Such stores in

the territory will be direct customers of

Bakery, and the Consignee will solicit

sales from them and receive product for

delivery to them on the Bakery's behalf at

Bulletin Prices. Consignee shall have the

exclusive right to perform the service of

delivery of Consigned Products to such

direct customers of Bakery and Bakery

shall not effect such delivery except

through Consignee, subject to the

provisions of Paragraph 6, 7 and 9. For

the performance of his service of

solicitation and delivery under this

subparagraph (b), Consignee shall be paid

a percentage of net proceeds paid to

Bakery by the direct billing customers,

such percentage to be calculated at the

rate specified in Schedule (B).

APPENDIX I-6

extend credit to Consignee for Consigned

Products to be resold to retail stores on

credit extended by Consignee; provided

Bakery has approved in advance the stores

to receive such credit and the amount and

terms thereof. Notwithstanding the

foregoing, any credit extended by

Consignee shall be at consignee's risk.

(d) (1) Consignee shall pay promptly

each week on the day specified by Bakery

for all Consigned Products sold and

delivered by Consignee during the

preceding week, less any amounts which

would be otherwise due on such sales as to

which Bakery shall have extended credit to

Consignee under (c) above, plus any

amounts becoming due during such week

under the terms of credit extended during

any previous week.

(2) The Consignee shall promptly

deliver to Bakery each week on the day

specified by Bakery all charge tickets for

all deliveries of Consigned Products to

APPENDIX I-7

direct customers of Bakery for direct

billing by Bakery.

(e) Consignee will keep such records

of Consigned Products received and sales

and deliveries made as Bakery may from

time to time request; Bakery may inspect

such records and Consigned Products at

such times as Bakery may select. Without

limiting the generality of the foregoing,

Consignee agrees that Bakery may take

physical inventory of Consigned Products

in Consignee's possession whenever and as

often as Bakery deems advisable and that

Consignee will keep such records of his

operation and will furnish Bakery such

copies thereof as Bakery may reasonably

require.

4. DISTRIBUTION EFFORTS. The

Consignee will use his best efforts to

realize the full sales potential of the

territory for Consigned Products. To this

end, he will (a) actively solicit all

retail stores whose accounts can be

profitably handled, (b) use his best

APPENDIX I-8

efforts to maintain at all times an

adequate and fresh supply of consigned

Products in all such stores, (c) co-

operate with the Bakery in the effective

utilization of the Bakery's advertising

and sales-promotion programs and (d) keep

fully informed of the Bakery's

recommendations of policies and methods

for increasing sales and improving

distribution service.

5. DISTRIBUTION SERVICE AND

FACILITIES. The Consignee will maintain

efficient distribution service throughout

the territory in keeping with the

established reputation of the Bakery and

the high quality of its products. To this

end, he will (a) provide adequate

facilities and equipment for the receipt,

handling and delivery of Consigned

Products, (b) comply with all applicable

health and sanitary laws and regulations

and (c) maintain such route books and

other records as are required by Bakery

from time to time.

APPENDIX I-9

6. EMERGENCY SERVICE. If, by reason

of illness or vacation or any other cause,

the Consignee shall be unable at any time

to maintain the efficient distribution

service contemplated by this agreement, he

will make other suitable arrangements at

his own expense for the maintenance of

such service; but, if he is unable or

fails to do so, the Bakery is authorized

in its discretion to provide such service

as his agent and at his expense and

risk. Upon the request of the Consignee,

the Bakery will endeavor in any emergency

to provide such service as his agent and

at his expense and risk.

7. FAILURE TO SERVE PARTICULAR

STORES. If the Consignee fails for any

reason to maintain satisfactory

distribution service to any retail store

within the territory and such failure is

not remedied within five days after

written notice therof from the Bakery, the

Bakery may make other arrangements, on

either a permanent or tempor

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