Appendix — Westowne Shoes, Inc. v. Brown Group, Inc.

» \ Supreme Court, U.6.

o} FILED

97-68 JUL 71997

No. 2 «we ULERK

In the

Supreme Court of the United States

OCTOBER TERM 1997

WESTOWNE SHOES, INC.

AND CARL A. BIWER CO.,

Petitioners,

v.

BROWN GROUP, INC., BROWN SHOE

COMPANY, FAMOUS FOOTWEAR COMPANY,

BROWN GROUP RETAIL, INC., WOHL

SHOE COMPANY and BROWN GROUP

INTERNATIONAL, INC.

Respondents.

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE SEVENTH CIRCUIT

KENAN J. KERSTEN

GEORGE P. KERSTEN

Attorneys for Petitioners

Of Counsel:

KERSTEN & MCKINNON, S.C.

231 West Wisconsin Avenue

Milwaukee, Wisconsin 53203

Telephone: (414) 271-0054

voor.

TABLE OF CONTENTS

APPENDIX A: Opinion of the Seventh Circuit

affirming the District Court........ App.

APPENDIX B: Judgment of the Seventh Circuit App.

APPENDIX C: Decision and Order of the District

Court granting summary judgment .... App.

APPENDIX D: Decision and Order of the District

Court denying reconsideration ....... App.

APPENDIX E: Judgment of the District Court App.

APPENDIX FF: Order of the Seventh Circuit

granting motion to file petition for rehearing

RNY eh totee Siete Sty ee a App.

APPENDIX G: Order of the Seventh Circuit

denying motion for rehearing........ App.

APPENDIX H: . Constitutional and Statutory

Provisions Involved ............. App.

APPENDIX I: Complaint ............. App.

APPENDIX J: Excerpts from Affidavit of Rudolph

Schoenecker in opposition to summary

RE Si he eee eg xe oe App.

APPENDIX K: Excerpts from Seventh Circuit Brief

12

14

58

65

67

of the plaintiffs-appellants.......... App. 125

APPENDIX L: Petition for Rehearing .... . App. 168

App. |

APPENDIX A

In the

United States Court of Appeals

For the Seventh Circuit

No. 96-1955

WESTOWNE SHOES, ‘INC.

and CARL A. BIWER Co.,

_ Plaintiffs-Appellants,

Vv.

BROWN GROUP, INC., ef al.,

Defendants-Appellees.

Appeal from the United States District Court

for the Eastern District of Wisconsin.

No. 93 C 720 -- Rudolph T. Randa, Judge

ARGUED OCTOBER 31, 1996--DECIDED JANUARY 17, 1997

Before POSNER, Chief Judge, and FLAUM and EVANS,

Circuit Judges.

POSNER, Chief Judge. In this diversity suit based on

Wisconsin law, affiliated firms, now defunct, that owned

retail shoe stores in Wisconsin and that we shall refer to

collectively as "Westowne" fired a blunderbuss fuil of

App. 2

charges, mostly based on the common law of contracts but

with trademark and antitrust allegations thrown in, against

Westowne’s former supplier, the Brown Shoe Company of

antitrust fame. The district court granted summary judgment

for Brown and we must therefore resolve factual disputes as

favorably to Westowne as the record permits.

S5rown manufactures a popular line of women’s dressy

shoes under the name "Naturalizer." Beginning-in the early

1970s, Brown sold Naturalizers to Westowne for resale. It

also licensed Westowne to use the name "Naturalizer" as part

of Westowne’s trade dress; that is, Westowne was permitted

to use the name on its store signs (Brown even furnished the

signs) and thus represent the stores to the consuming public

as being authorized Naturalizer dealers. Westowne and the

other licensees were not forbidden to sell other brands, and

Westowne supplemented Naturalizers with women’s casual

shoes made by the San Antonio Shoe Company, but 80 to 90

percent of the shoes. that it sold were Naturalizers:

In 1987 Brown instituted (actually reinstituted, but

that is a detail we can ignore) its curiously named "purity"

program, the focus of Westowne’s wrath. Under this

program, any store that wanted to retain "Naturalizer" in its

sign, that is, wanted to represent itself as an authorized

Naturalizer dealer or Naturalizer specialty store, had to cease

selling brands other than Naturalizer. Brown was willing to

continue selling Naturalizers to stores that carried other

brands, but it required them to delete the word "Naturalizer"

from their store signs and gave them a lower priority in the

filling of orders.

—_-

App. 3

The problem with "going pure" was that the

Naturalizer line was not complete. It had dressy shoes, but

not casual ones. So along with or as part of the purity

program -- for all we know, it was a principal purpose of the

program -- Brown developed a line of women’s casual shoes

under the Naturalizer label. It told Westowne that these

shoes would be "stitch-by-stitch knock-offs" -- that is, perfect

imitations -- of the popular SAS shoes. According to

testimony that we must accept as true for purposes of this

appeal, though without vouching for its truth, Brown’s

attempt to develop SAS "knock-offs" was a flop. They were

so bad that not only was Westowne, which wanted to remain

an authorized Naturalizer dealer and therefore stopped buying

from SAS and began buying the knock-offs instead, unable

to sell them; they also degraded the Naturalizer mark,

making it difficult for Westowne to sell even the good

Naturalizers -- the original, dressy line -- at a profit.

Compounding Westowne’s problems, it found it increasingly

difficult to obtain the good Naturalizers. Brown has an "in

stock" program, under which it maintains a large inventory

of shoes from which to restock its dealers, enabling them to

minimize their own inventory expense. As part of what

Westowne describes as Brown’s effort to monopolize the

shoe business, Brown was busy buying up retail outlets and

allocating all available inventory to them, thus starving

independent dealers like Westowne; and it also sold to its

own outlets at a lower price. Eventually Westowne went

under and, owing Brown a considerable sum for shoes

delivered but not paid for, brought this suit.

Westowne argues that Brown committed a breach of

contract by putting Westowne to the miserable choice of

App. 4

losing its Naturalizer dealership (that is, the right to

represent its stores as Naturalizer dealers) or replacing the

SAS shoes that it carried with inferior knock-offs. The only

written contract was the licensing agreement, and it does not

bear on this contract claim. Westowne’s argument is that the

course of dealing between the parties, not any written

contract, gave Westowne a contractual entitlement to remain

a Naturalizer dealer indefinitely and forbade Brown to

impose unreasonable conditions on the retention of the

dealership, such as requiring the dealer to carry a

Substandard product. Westowne points out that the

Wisconsin Fair Dealership Law, Wis. Stat. ch. 135, creates

such an entitlement. True; but this is not a suit under the

dealership act; such a suit would be barred by the act’s one-

year statute of limitations. Wis. Stat. § 893.93(3)(b).

Westowne’s argument that the act creates entitlements which

can then be enforced by a suit under the common law of

contracts, with its six-year statute of limitations, Wis. Stat.

§ 893.43, is a transparent evasion of the statute of limitations

in the dealership act.

The absence of a written contract other than the

irrelevant licensing agreement and the multitudinous sales

contracts, also irrelevant, covering particular shipments of

shoes to Westowne’s stores is not critical to the common law

contract claim, because Brown has not raised a statute of

frauds defense. What is critical is the absence of terms.

Westowne’s principal testified that he had a contract with

Brown, but he was unable to answer such questions as, When

did the contract start? When or under what conditions does

it terminate? Is the "purity" program a violation? Did

Brown so far reiinquish its rights over its trademark as to

App. 5

entitle Westowne to sell another manufacturer’s shoes from

a store that holds itself out to be a Naturalizer dealership?

What consideration did Brown receive for this trademark-

endangering concession? The common law of contracts does

not empower a court to write the parties’ contract for them,

Witt v. Realist, Inc., 118 N.W.2d 85, 93-94 (Wis. 1962);

Messner Manor Associates v. Wisconsin Housing &

Economic Development Authority, 555 N.W.2d 156, 159

(Wis. App. 1996); Goldstick v. ICM Realty, 788 F.2d 456,

461-62 (7th Cir. 1986), but that is what Westowne is asking

us to do.

Westowne also argues, however, that by promising it

perfect imitations of SAS shoes, Brown induced it to forgo

its remedies under the Wisconsin Fair Dealership Law until

the statute of limitations ran out. (Under that law, according

to Westowne, Brown could not have forced Westowne to

give up its Naturalizer dealership just because Westowne

insisted on continuing to carry SAS shoes.) Brown should

therefore be estopped to -- to what? Westowne is not very

clear about this, but the only answer can be -- to plead the

statute of limitations in a suit under the dealership law. A

defendant who takes steps to prevent the plaintiff from suing

within the statute of limitations is equitably estopped to plead

it. Hester v. Williams, 345 N.W.2d 426, 431 (Wis. 1984);

Poeske v. Estreen, 198 N.W.2d 625, 628-29 (Wis. 1972);

Bell v. Employers Mutual Casualty Co., 541 N.W.2d 824,

834 (Wis. App. 1995); Cada v. Baxter Healthcare Corp.,

920 F.2d 446, 450-51 (7th Cir. 1990); Tiberi v. CIGNA

Corp., 89 F.3d 1423, 1429 (10th Cir. 1996). But this

principle presupposes a suit to which the statute of limitations

has been interposed as a defense, in this case a suit under the

App. 6

Wisconsin Fair Dealership Act. Westowne has not sued

under that act. We do not think it is permitted to recycle the

Statutory claim that it failed to make as a common law claim

of promissory estoppel in which damages are sought, much

as in a suit for legal malpractice, for the loss of the Statutory

claim. That approach would require speculation about what

Westowne’s remedies under the dealership law might have

been had it sued under that law. Unnecessary speculation:

unlike a case of legal malpractice, where the suit the lawyer

botched is gone forever, a plaintiff who claims that the

defendant by promises or otherwise prevented him from

bringing a timely suit can bring an untimely suit against that

defendant on the identical claim on which the timely suit

would have been based. To disguise a statutory claim as a

claim for promissory estoppel in an unnecessary effort to

beat a statute of limitations is a formula for confusion, and

the district court is not required to tolerate it. Sams v.

Untied Food & Commercial Workers Int’l Union, 866 F.2d

1380, 1385 (11th Cir. 1989).

Westowne makes the alternative argument for

promissory estoppel -- an argument happily free from any

dependence on the unpleaded dealership law -- that it relied

on the promise of the stitch-by-stitch knock-offs by "going

pure," that is, by discontinuing its purchases of SAS shoes.

Yet at the same time it argues that it had to go pure because

it could not afford to give up the Naturalizer sign. This

means that it would have gone pure even if Brown had not

promised a perfect substitute. So the promise made no

difference. The promise is also the basis for Westowne’s

claim of misrepresentation, and fails for the same reason.

Fraud is not actionable without harm. If,a s Westowne itself

gk OP, A OS IRL LA Rad sO

App. 7

asserts, it would have gone pure to retain its dealership,

regardless of any representation concerning the SAS knock-

offs, those representations caused it no harm. No harm, no

tort. Schicker v. Leick, 162 N.W.2d 66, 69 (Wis. 1968);

Olympia Hotels Corp. v. Johnson Wax Development Corp..,

908 F.2d 1363, 1372 (7th Cir. 1990) (applying Wisconsin

law).

Westowne has other arrows in its quiver. It claims

that Brown violated the trademark license by degrading the

unsalable knock-offs. While a trademark licensee (at least if

he has an exclusive license), as well as the trademark’s

owner, can sue to protect the trademark from infringement,

G.H. Mumm Champagne v. Eastern Wine Corp., 142 F.2d

499, 502 (2d Cir. 1944) (L. Hand, J.); Norman M. Morris

Corp. v. Weinstein, 466 F.2d 137, 142 (Sth Cir. 1972); la

Jerome Gilson, Trademark Protection and Practice

§ 816[1][b], pp.8-360 to 8-361 (1987), he cannot sue the

trademark owner for "infringing" the trademark. Silverstar

Enterprises v. Aday, 537 F. Supp. 236, 240-41 (S.D. N.Y.

1982). There is no basis in either the federal or the state law

of unfair competition for such a claim. The owner can if he

wants, unless contractually committed otherwise, abandon the

trademark, dilute it, attach it to goods of inferior quality,

attach it to completely different goods -- can, in short, take

whatever steps he wants to jeopardize or even completely

destroy the trademark. When cases speak of the trademark

owner’s "duty to ensure the consistency of the trademarked

good or service," Gorenstein Enterprises v. Quality Care-

USA, Inc., 874 F.2d 431, 435 (7th Cir. 1989); see also 2

Thomas J. McCarthy, McCarthy on Trademarks and Unfair

Competition § 18.14[1], pp. 18-64, 18-66 (1996), they mean

ee

App. 8

that it is a condition of the continued validity of the

trademark, see id., § 18.15, pp. 18-74 to 18-74.1, or a

defense to a consumer’s claim of having been fooled by the

substitution of an inferior good, not that it is a ground for a

licensee’s being allowed to sue to force the trademark owner

to take steps to assure the trademark’s continued validity.

We think that Westowne more or less understands all

this, and is making solely a contract claim -- that the

trademark license obligated Brown to keep the Naturalizer

mark up to snuff. A licensor might so promise, but this

licensor did not. Westowne is asking us to make such a

promise an implied term of every trademark licensing

agreement, and that would be absurd. It would give

licensees comprehensive power over the licensor’s business -

- in this case power to tell Brown what kind or quality of

shoes it can manufacture and sell under the Naturalizer label.

‘Few licensors would agree to that, and there is no evidence

that Brown is one of them. The office of implied contractual

terms is to save contracting parties costs of negotiations by

interpolating terms that they are pretty sure to have agreed to

had they thought about the matter, not terms that they would

be almost sure to reject; for the interpolation of such terms

would increase rather than decrease the costs of contracting

as parties busied themselves contracting around the

interpolated terms. We add that Westowne’s trademark

Claim is inconsistent with its other Claims, all of which are

premised on the continued potency of the Naturalizer mark.

Last, Westowne has an antitrust Claim. It bases this

claim -- that Brown impaired competition by conditioning its

dealers’ use of the Naturalizer mark on their agreeing to

a

App. 9

carry the knock-offs, cf. Jack Walter & Sons Corp. v.

Morton Building, Inc. , 737 F.2d 698, 704-06 (7th Cir. 1984)

-- on Wisconsin rather than federal antitrust law. Wis. Stat.

ch. 133. Under federal law, the claim could not take one

step toward first base, since Westowne is unprepared to show

that Brown’s effort to confine Naturalizer dealers to shoes

made by Brown could have any effect on competition in the

; shoe business. It could have an effect, maybe, if Naturalizer

dealers were the only outlets for SAS shoes in Wisconsin and

if having a sign outside your store that says "Naturalizer

Dealer" is such a valuable asset that you’ll replace your SAS

shoes with an unmarketable substitute. Neither condition is

plausible, and concerning the first there is not a shred of

evidence -- not even the self-serving testimony of

Westowne’s principal, which is the only evidence for the

second condition, the immense value of the Naturalizer mark

that Brown with extreme perversity is (according to

Westowne) doing its best to destroy.

Aah ine et a tatitn denice NRO ee

Westowne’s hope is that Wisconsin antitrust law is

more archaic than federal. Since there is much more federal

than state antitrust litigation, a state antitrust case is more

likely to remain unrevisited by the court that rendered it and

therefore untouched by the winds of change that have been

blowing through the antitrust fields in recent decades than a

federal antitrust case. Westowne relies on what it hopes is

such a case, Johnson v. Shell Oil Co., 80 N.W.2d 426 (Wis.

1957). The defendant refused to allow its dealers to use the

Shell trademark in conjunction with the gasoline of its

competitors, but did allow them to sell that gasoline from

other pumps on its premises, pumps not labeled "Shell."

The Supreme Court of Wisconsin held that this arrangement

App. 10

did not violate the state’s antitrust law. The holding is

obviously of no value to Westowne -- in fact is adverse to it

-- but Westowne likes the standard used by the court -- a

"partial restraint of trade, where effected for a proper

purpose and limited in time and scope and otherwise

reasonable[, is] not invalid." Jd. at 429. This is the same

test that is used for covenants not to compete found in

contracts for the sale of a business and in employment

contracts. It is a part of the common law of restraint of

trade rather than of statutory antitrust law, but Johnson

borrowed it for use in interpreting the state’s antitrust statute,

as had an earlier case, Ruhland v. King, 143 N.W. 681

(Wis. 1913). Westowne argues that Brown had an improper,

namely an anticompetitive, purpose in forbidding its

Naturalizer dealers to carry its competitors’ brands, failed to

limit the prohibition in time or scope, and, especially

considering the lousy quality of the SAS knock-offs, acted

unreasonably.

The Johnson case is 40 years old, and Ruhland far

older, and since then the Supreme Court of Wisconsin has

ruled that the decision of the federal courts interpreting

federal antitrust law shall control the interpretation of

Wisconsin’s antitrust law. Grams v. Boss, 294 N.W.2d 473,

480 (Wis. 1980); Ford Motor Co. vy. Lyons, 405 N.W.2d

354, 367 (Wis. App. 1987). But we need not look beyond

Johnson, because it dooms Westowne’s antitrust claim.

Johnson holds that a supplier is not required to allow his

dealers to use his trademark to designate his competitors’

products. Such a requirement would diffuse the goodwill

associated with his trademark by associating it with a

—

App. 11

competitor’s product and would jeopardize the trademark by

allowing it to stand for products of different quality.

AFFIRMED.

Clerk of the United States Court

of Appeals for the Seventh Circuit

pone Pre ae a

App. 12

APPENDIX B

In the

United States Court of Appeals

For the Seventh Circuit

Chicago, Illinois

JUDGMENT -- WITH ORAL ARGUMENT

Date: January 17, 1997

Before: Hon. Richard A. Posner, Chief Judge

Hon. Joel M. Flaum, Circuit Judge

Hon. Terence T. Evans, Circuit Judge

No. 96-1955

WESTOWNE SHOES, INC.

and CARL A. BIWER Co.,

Plaintiffs-Appellants,

v.

BROWN GROUP, INC., et al.,

Defendants-Appellees.

Appeal from the United States District Court

for the Eastern District of Wisconsin.

No. 93 C 720 -- Rudolph T. Randa, Judge

—_ - Sam ee a

0 A TRS satan dest 0.9)

App. 13

) The judgment of the District Court is AFFIRMED,

: with costs, in accordance with the decision of this court

entered on this date.

CAA he ri Kitt PA At nly

Neb G2. Sh oR node

eas Bh Ue Dr dtets eh setennabuit: > «

at

App. 14

APPENDIX C

United States District Court

Eastern District of Wisconsin

WESTOWNE SHOES, INC., and

CARL A. BIWER COMPANY,

Plaintiffs,

v. Case Number: 93-C-720

BROWN GROUP, INC., BROWN SHOE

COMPANY, FAMOUS F OOTWEAR COMPANY,

BROWN GROUP RETAIL, INC., WOHL

SHOE COMPANY and BROWN GROUP

INTERNATIONAL, INC.,

Defendants and Counterclaim

Plaintiffs,

Vv. -

BARBARA B. SCHOENECKER and

RUDOLPH V. SCHOENECKER,

Counterclaim Defendants.

DECISION AND ORDER

This matter comes before the Court on defendants’

(hereinafter, "Brown" or "the Brown Group") motions for

summary judgment seeking dismissal of plaintiffs’ complaint

—

App. 15

in its entirety and for summary judgment on the counterclaim

against plaintiffs and counterclaim defendants Barbara B.

Schoenecker and Rudolph V. Schoenecker.' For the reasons

set forth below, defendants’ motion for summary judgment

on plaintiffs’ seven claims is granted and their motion for

summary judgment on the counterclaim is denied.

FACTUAL BACKGROUND

Westowne Shoes, Inc. and the Carl A. Biwer

Company (plaintiffs") are engaged in the retail shoe business.

Both plaintiff corporations are controlled by Rudolph

Schoenecker, a counterclaim defendant in this case. The

various defendant entities are “engaged in, among other

things, the distribution of footwear and related merchandise

to retail outlets in various product markets across the nation,

including the State of Wisconsin." (Wright Aff. at { 20.

For over twenty (20) years, Brown has had a business

relationship with plaintiffs. Periodic transactions occurred

between the parties whereby Brown sold footwear and other

related merchandise to plaintiffs on account. (Wright Aff, at

{ 4). In addition, plaintiffs received permission to use

Brown-owned trademarks. Attached to the complaint are

three letters from Brown to Schoenecker indicating the

conditions under which plaintiffs could make use of Brown

owned trademarks. For example, a 1978 letter provides in

pertinent part, "[y]ou have requested permission to use our

registered trademarks NATURALIZER and FOOTWORKS

in the trade style of your store located in Bayshore Mall

' On occasion, the Schoeneckers will be referred to as the plaintiffs.

App. 16

Shopping Center...."_ (Exhibit A). In addition, the letter

provides that "use of the trademarks does not affect the right

of Brown... or yourself to terminate the sale of

NATURALIZER or FOOTWORKS shoes to you at any time

either party desires." A 1984 letter regarding a store in the

Fox River Mall sets forth essentially the same conditions.

(Exhibit A). Over the years, plaintiffs have purchased shoes

and other items from Brown and sold them in Naturalizer

"specialty stores". Specialty stores are stores which utilized

the NATURALIZER trademark in the trade dress (as the

sign) of the store. . In addition to the Naturalizer brand,

plaintiffs carried shoes manufactured by, among others, the

San Antonio Shoe Company (SAS").

In June of 1987, Schoenecker received a letter from

Brown which indicated their intention " to return to the

Original Naturalizer Specialty Store standards of purity."

(Exhibit B). The letter recited how successful the specialty

stores have been and how Naturalizer has "led the industry

for a number of years with regard to the funding of

advertising and promotion programs that are designed to

build awareness for the brand and drive customers into the

stores." The very next sentence provides:

Also, recently there has been a focus on

product development to insure that the

Naturalizer line offers a complete and

balanced selection across all the major

classifications of women’s footwear.

The letter provides, "[flor these reasons, we have found it

necessary to adopt a policy of Carrying only Naturalizer

App. 17

footwear in stores identified as Naturalizer Specialty stores -

- and only a combination Naturalizer/Footworks for those

stores identified as Naturalizer/Footworks stores." Finally,

the letter sets a deadline of March 1988 for compliance with

the so-called "purity" requirement. While Schoenecker

argues that removing the Naturalizer sign "was not a viable

option" (Response to Proposed Finding of Fact No. 25), it is

clear that it was an "option", even if not an economically

attractive one. Schoenecker avers that "Brown was insisting

that the plaintiffs either accept the purity program or give up

their franchises." (Schoenecker Aff. at | 42).

Schoenecker’s assertion that he did not have a choice because

the "franchise" would have been terminated is not

persuasive. Plaintiffs argue that "termination" meant that

"Brown could then set up its own Naturalizer specialty store

in the same mall." Plaintiffs’ options were clear: (1) remove

the sign and be exposed to the rigors of the market place

including competition from newly created specialty stores; or

(2) maintain the sign, and sell only Naturalizer shoes. Given

the name recognition that Naturalizer enjoyed, it may not

have been a choice that plaintiffs wanted to make, but it was

a choice nevertheless. Accordingly, the Court accepts the

Brown Group’s PFF No. 25 that plaintiffs were free to sell

other brands of shoes (in addition to Naturalizers) if they

removed the Naturalizer sign. In September of 1987, after

some discussion with Brown officials, Schoenecker decided

to go "pure" by removing other brands and maintaining the

Naturalizer sign over his stores.”

? While there is some disagreement about whether the plaintiffs were in total

compliance with the purity requirement (PFF No. 33), there is no real dispute

that plaintiffs attempted to substantially comply.

App. 18

In a letter dated September 18, 1987, after stating that

the spring 1988 line looked "sensational", Schoenecker

registered his concern that he was "taking the SAS shoes out

of [the] stores hoping to replace them with naturalizers and

this is not happening." (Exhibit C). Over the next number

of years, plaintiffs experienced decreased sales and in fact,

closed a number of stores. Plaintiffs allege that their losses

were the result of the purity program and the Brown Group’s

failure to fulfill certain promises to supply "stitch for Stitch"

knock-offs for the SAS shoes that had been dropped. The

response of the Brown Group Suggests that plaintiffs’

business losses were the result of poor management, a

market-wide decrease in retail sales, and increased

competition from discount malls and department store shoe

departments.

While the parties disagree over the cause of plaintiffs’

losses, it is an undisputed fact that by early 1993, plaintiffs

were indebted to Brown in the amount of $367,900.00.

(Brown’s PFF No. 9).3_ In an effort to resolve this

outstanding debt and maintain business dealings, Westowne,

on June 11, 1993, pledged a promissory note ("Note") to the

Brown Group. The Note was intended to evidence and

establish the terms of repayment for the outstanding

indebtedness. (Schoenecker Dep. (Vol 4) at 4; Wright Aff.

at { 9). Three days before this Note was signed (6/8/93),

the plaintiffs, unbeknownst to Brown, filed the instant suit in

> While plaintiffs "dispute" Brown’s PFF No. 9 concerning their

indebtedness, they can not quarrel with the plain face of the promissory note

which reflects that amount. Whether it was the result of Brown’s alleged

wrongdoing or not, the "fact" of their indebtedness is certain.

App. 19

Waukesha County Circuit Court alleging causes of action for:

(1) breach of contract; (2) promissory estoppel; (3)

negligent and (4) strict responsibility misrepresentation; (5)

common law unfair competition; (6) Wisconsin antitrust

violations and (7) statutory unfair trade practices.

The Brown Group removed the case to this Court on

July 14, 1993 and thereafter filed counterclaims against the

plaintiffs and Barbara and Rudolph Schoenecker.

ANALYSIS

A. SUMMARY JUDGMENT.

Under Rule 56(c), summary judgment is

proper "if the pleadings, depositions, answers

to interrogatories, and admissions on file,

together with the affidavits, if any, show that

there is no genuine issue as to any material

fact and the moving party is entitled to

judgment as a matter of law."

Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

"Summary judgment procedure is properly regarded

not as a disfavored procedural shortcut, but rather as an

integral part of the Federal Rules as a whole, which are

designed “to secure the just, speedy and inexpensive

determination of every action.’" Id. at 327. "[T]he plain

language of Rule 56(c) mandates the entry of summary

judgment, after adequate time for discovery and upon

motion, against a party who fails to make a showing

App. 20

sufficient to establish the existence of an element essential] to

that party’s case, and on which that Party will bear the

burden of proof at trial." Celotex, 477 U.S. at 322. "[T]he

motion for summary judgment: the requirement is that there

be no genuine issue of material fact;" Vv. Libe

Lobby, Inc., 477 U.S. 242, 247-48 (1986). While a material

fact is one that is "outcome determinative under the

jury could return a verdict for the nonmoving party."

of obtaining a verdict." (emphasis added) Palucki v. Sears

Roebuck & C ompany, 879 F.2d 1568, 1573-74 (7th Cir.

1989).

B. THE COMPLAINT

1. Breach of Contract.

Plaintiffs allege that "[t}he dealership relationship

under which Brown and the plaintiffs Operated for many

years was contractual in nature." (opposition at 43). In

addition, "[t]he dealership agreement defining that

Oy Soe i alll

App. 21

Plaintiffs also allege that the June 11, 1987 letter was a

"modification" of the contractual agreement under which the

plaintiffs operated their Naturalizer Specialty Stores and that

"the evidence would support a jury finding of a dealership

agreement which was amended in 1987 and breached in at

least five respects." (opposition at 45). The allegations of

the complaint are that Brown: "(a) failed to supply casual

Naturalizer shoes of the kind and quality promised; (b) made

erratic and unpredictable deliveries; (c) supplied Naturalizer

Shoes that were illfitting (sic), poorly made and in other

respects of poor quality; (d) failed to sell shoes to plaintiffs

at true wholesale prices, and in fact charged plaintiffs a

higher price than it did Wohl, Brown Retail and Famous

Footwear (Brown entities); (e) failed to make available to

plaintiffs the entire Naturalizer line; and (f) Cheapened the

Naturalizer tradename, label, and trademark by attaching

them to poor quality, cheap shoes; and (g) other

misconduct." (Complaint at ¢ 17)

"To be enforceable a contract must be definite and

certain as to its basic terms and requirements. It must spell

out the essential commitments and the obligations of each

party with reasonable certainty." Witt v. Realist. Inc.. 18

Wis. 2d 282, 118 N.W.2d 85, 93 (1962). "The intent of the

parties [to be bound] must necessarily be derived from a

consideration of their words, written and oral, and their

actions. "Skycom Corporation v. Telstar Corporation, 813

F.2d 810, 814 (7th Cir. 1987), citing Household Utilities,

Inc. v. Andrews Co., 71 Wis. 2d 17, 236 N.W.2d 663 ,669

(1976). Finally, an offer must be so definite in its terms and

require such definite terms of acceptance that the promises

and performances required of each party are reasonably

App. 22

certain. Farnsworth, McKoane & Co. v. North Shore

Savings & Loan Assoc., 504 F.Supp. 673, 676 (E.D.Wis.

1981)(Reynolds, J.), citing Goebel v. National Exchangors.,

Inc., 88 Wis. 2d 596, 277 N.W.2d 755 (1979).

Plaintiffs locate the contractual promises in the

"underlying contractual nature of the dealership relationship

between [Brown] and the plaintiffs." (opposition at 46).

Plaintiffs argue that there was contract "definiteness" to the

point of "precision: Brown promised to provide the plaintiffs

with Naturalizer knock-offs that were ‘stitch-for-stitch’

identical with the SAS shoes." (opposition at 46). This

promise was in exchange for the plaintiffs’ promise to “go

pure." (opposition at 45).

First, even though plaintiffs characterize it as such,

there is simply no evidence that a dealership or franchise

agreement was contemplated or agreed to by the parties.

Plaintiffs nowhere undertake a legal analysis of these

respective business forms or demonstrate how the evidence

supports a finding that either existed. There are no

documents to support this finding and while Frank Lemp

("Lemp") uses the term "dealer", he uses it interchangeably

with the phrases "retail outlet" and "retail vehicle." (Lemp

Deposition Tr. at 27-29). Plaintiffs have not directed the

Court to any portion of Lemp’s testimony where he refers to

the Specialty stores at "franchisees." In sum, the record

contains only Schoenecker’s statements and counsel’s

arguments regarding the nature of the business relationship

between the parties. Therefore, the Court agrees with Brown

and finds that the parties’ relationship was that of

vendor/vendee.

i

App. 23

Second, the letter itself does not constitute a

"contract." None of the terms alleged in the complaint are

found therein. The letter constitutes an announcement of

new conditions on use of the trademarks NATURALIZER

and FOOTWEAR. Consider the following, "[flor these

reasons, we have found it necessary to adopt a policy of

carrying only Naturalizer footwear in stores identified as

Naturalizer Specialty stores..." The tenor of that sentence is

straightforward and there is no hint that plaintiffs have any

choice in the decision. (Of course, as discussed elsewhere,

plaintiffs had a choice to comply and maintain their use of

the Naturalizer sign trademark, or remove the sign, and sell

whatever shoes they desired).

Further, the language concerning Brown’s "focus on

product development to insure that the Naturalizer line offers

a complete and balanced selection" is in no way connected to

the "purity" policy. This language does not establish a

promise made by plaintiffs to go "pure" in exchange for

Brown’s promise to provide a "complete and balanced

selection" of " high quality" Naturalizer shoes. Indeed, the

"balanced selection" language is found within a recitation of

Brown’s leadership in the industry.

In addition, Schoenecker’s September 18, 1987 letter

is equally "noncontractual":

I received your letter regarding purity in our

Naturalizer stores several months ago. I sent

a copy of that letter to all our managers with

instructions to eliminate all SAS shoes by

March 1, 1988 and told them we would be

App. 24

replacing these shoes with the Grenada, Utah,

Russett, etc....

Exhibit C, attached to the complaint). While plaintiffs do

not so state, presumably this letter represents Schoenecker’s

"acceptance" of the "contract." But the focus of the letter is

Brown’s failure to provide an adequate supply of the newly

introduced naturalizers and Schoenecker’s request for an

extension of the purity deadline. For example, Schoenecker

writes, "[m]y point is that I am taking the SAS shoes out of

our stores hoping to replace them with naturalizers and this

is not happening." In sum, there are no "definite terms of

acceptance” as required by Farnsworth, supra.

The June 1987 letter was, if anything, a modification

of the conditions under which the plaintiffs couid use the

Brown-owned trademarks. Plaintiffs have offered little or no

evidence to support the existence of a contract with the terms

they suggest. Beyond Schoenecker’s own testimony, the

record is devoid of any evidence that Brown agreed to the

alleged "terms" that were allegedly "breached". As will be

seen below, the alleged oral "stitch for stitch" representations

were not “promises” and Brown did not promise or

"guarantee" the success of the knock-offs.*

There was no "breach" of a contract as neither the

letter nor any alleged oral conversations supplied the

‘ That Schoenecker expected as much is clear from his deposition testimony:

“But they never replaced the sales of the SAS shoes, and the real thing that they

never replaced was the profitability.” (emphasis supplied) (Schoenecker Depo.

at 165; Plaintiffs’ Exhibit 6).

ee

App. 25

necessary “definite and certain" terms to create a contract in

the first instance. Accordingly, plaintiffs’ breach of contract

claims must be dismissed.

2. Promissory Estoppel.

Plaintiffs allege that Brown assured them that they

had developed "stitch for stitch" knock-offs that would "do

the job", i.e.; replace the SAS models that they were

removing from the specialty stores. These promises were

made to induce the plaintiffs to go pure and Brown knew that

these assurances were vital to plaintiffs’ decision to go pure.

(opposition at 71). Schoenecker avers that the "stitch for

stitch” "promises" were made in various conversations prior

to and subsequent to the purity letter and that they induced

him to go pure in September of 1987.

In order to prevail on their promissory estoppel claim,

plaintiffs must show that: (1) a promise was made that the

promisor should have expected would induce action or

forbearance of a definite and substantial character; (2) the

promise did induce the required action or forbearance; and

(3) injustice can be avoided only be enforcing the promise.

v. :, 26 Wis. 2d 683, 133

N.W.2d 267 (1965). A promise is a manifestation of intent

and must be judged by an objective standard. Major Mat

Co. v. Monsanto Co., 969 F.2d 579, 583 (7th Cir. 1992).

Plaintiffs’ promissory estoppel claim fails because

Brown’s alleged statements do not amount to "a

manifestation of intent by the promisor to be bound." Major

Mat, supra. While the issue of whether a statement is a

App. 26

mere prediction or a promise is usually for the jury (Id. at

583), in the case at bar, a reasonable jury could make only

one finding - the ‘"stitch-for-stitch" statements were

“expressions of hope as to future financial success [rather]

than promises to effect that success. “Silberman v. Roethe,

64 Wis. 2d 131, 218 N.W.2d 723, 732 (1974); see also

Major Mat, supra at 583 ("mere predictions or statements of

opinion are not promises supportive of a promissory estoppel

cause of action.") It is certainly possible that Brown officials

attempted to reassure Schoenecker that the Granada,”

Russett, and Utah were capable of supplanting the SAS

shoes, but there is no evidence that Brown "promised" their

success.

In addition, the alleged "promises", or more

precisely, the timing of the alleged promises, undermines the

"inducement" requirement. Schoenecker avers that in late

1986 and early 1987 he was approached by Pinson (of

Brown) who showed him the three models (the Granada,

Russet and Utah) and , at that time, Pinson represented to

Schoenecker that they were "stitch for stitch" knock-offs of

the SAS shoes. (Schoenecker Aff. at ¢ 30) (emphasis

supplied). "Pinson urged me to purchase some of these

shoes for our inventories. I decided to do so."

(Schoenecker Aff. at ¢ 31). Schoenecker avers that by the

time he read the purity letter, "we had already made the

decision to carry those shoes to challenge the SAS shoes, and

as stated above, they were on order." (Schoenecker Aff. at

> While Schoenecker refers to the Grenada shoe, a review of Exhibit 19

indicates that the correct spelling is Granada.

App. 27

{ 34) (emphasis added). Therefore, by the time he received

the purity letter, Schoenecker had seen the shoes, had

ordered them, and had heard the "stitch for Stitch"

comments. Given this chronology, plaintiffs’ argument that

Brown’s promises "induced them to go pure is undercut.

Plaintiffs do not argue, and have presented no evidence, that

the shoes ultimately delivered were different in any way from

the samples Schoenecker had seen in late 1986 and early

1987. The evidence suggests that Schoenecker’s decision to

80 pure was made with the hope that the knock-offs would

replace the loss of the SAS shoes. They apparently did not.

But again, the evidence supports only one conclusion -

plaintiffs’ decision to stay pure was not the result of Brown

"promises", but instead a measure of how badly plaintiffs’

wanted to keep the Naturalizer sign over their stores.

Finally, equity should not rescue the plaintiffs since,

after receiving the allegedly poor quality knock-offs, they

could have, but chose not to, remove the sign and

reintroduce the more successful SAS shoes. Plaintiffs’

repeated argument that this choice was unavailable because

their "franchise" would have been terminated has no support

in the record. (See page 4, infra). This fact reinforces the

conclusion that the plaintiffs’ decision to go pure was a

business decision unrelated to anything Brown might have

promised. Accordingly, plaintiffs’ promissory estoppel claim

must be dismissed.

App. 28

a Negligent and Strict Responsibility

Misrepresentation.

Plaintiffs allege that Brown, in the June 11, 1987

letter and "related communications," made representations

that "comfort casual shoes with traditional Naturalizer

comfort and fit, constituting a reasonable replacement for the

SAS casual shoes ‘were available and could be provided.’"

(opposition at 64, citing the complaint at ¢ ¢ 7,8 and 9). As

argued by plaintiffs:

Brown knew SAS-type comfort casual shoes

were needed desperately by Brown’s retailers,

who could not survive without them, and that

dealers therefore would not cave in to

Brown’s "purity" demand unless assured

Naturalizer had an adequate substitute.

Brown also knew but did not disclose that its

fitted upper program was a disaster and the

shoes failed their quality control tests, but

simply told the dealers the SAS shoes had

been duplicated "stitch for stitch."

(Opposition at 66, citing Schoenecker Aff. at { { 36-40;

Brimer, at 17). Wisconsin recognizes three types of

misrepresentation: intentional, negligent, and strict

responsibility. In order to succeed on a claim for negligent

misrepresentation, plaintiffs must show that: (1) there was a

duty of care or a voluntary assumption of a duty; (2) the

representation must be of fact and made by the defendant;

(3) the representation must be untrue; and (4) the plaintiff

must believe such representation to be true and rely thereon

App. 29

to his damage; and (5) the defendant must have failed to

exercise ordinary care in making the misrepresentation or in

ascertaining the facts. Schweiger v. Loewi & Co., 65 Wis.

2d 56, 221 N.W.2d 882, 887 (1974); ipp v. Iverson, 43

Wis. 2d 166, 168 N.W.2d 201, 203-204 (1969).

Strict responsibility misrepresentation requires a

finding that Brown made a representation based upon

personal knowledge or in circumstances in which they

necessarily ought to have known the truth or untruth of the

statement and the defendant must have an economic interest

in the transaction. "Strict responsibility misrepresentation

applies in Situations where public opinion calls for placing

the loss on the innocent defendant rather than on the innocent

plaintiff." v. Colgate-Palmolive Co., 1

F.3d 621, 627 (7th Cir. 1993), citing Gauerke v. Rozga, 112

Wis. 2d 271, 332 N.W.2d 804, 808-809 (1983). In addition,

while a plaintiff’s reliance must be justifiable under strict

responsibility misrepresentation, there is no such requirement

under negligent misrepresentation. Imark Industries, Inc. v.

Arthur Young & Company, 141 Wis. 2d 114, 414 N.W.2d,

57, 64 (Ct.App. 1987): accord, Wentzka v. Gellman, 991

F.2d 423, 426 (7th Cir. 1993).

Schoenecker avers that even though he had ordered

the Naturalizer knock-offs, "we had not yet received any,

and so we had no market experience with them as of that

time." He further avers that he received assurances that with

the Naturalizer knock-offs, the “corresponding SAS patterns"

had been duplicated and that "Naturalizer could support them

with a strong in-stock and delivery program so that we need

App. 30

have no concerns about agreeing to eliminate SAS shoes and

going pure." (Schoenecker Aff. at 4 ¢ 37-38).

As a threshold matter, the rule in Wisconsin is that

when two business entities negotiate at arms length, neither

Owes nor assumes a duty to disclose information to the other.

Badger Pharmacal, supra at 627, citing Kanack v. Kremski,

96 Wis. 2d 426, 291 N.W.2d 864, 866-868 (1980).

Plaintiffs argue that the debtor-creditor relationship between

the parties established a fiduciary "duty" or, at least "a jury

issue on whether Brown was a fiduciary." Plaintiffs have

cited no authority for this rule which would make a

"fiduciary of every vendor who delivers goods on account.

Plaintiffs’ second argument that "Brown’s possession of

extensive confidential information and Brown’s assertion of

control over the dealers by imposition of the purity program"

creates a jury question on whether Brown was a "fiduciary"

is equally unavailing. (opposition at 66). Simply because

Brown may have confidential information, or put conditions

on dealers utilizing its trademarks, does not give rise to

disclose information. .

Even assuming that Brown had a "duty" to disclose,

plaintiffs cannot show that Brown’s misrepresentations were

misrepresentations of fact. "[S]tatements of fact ordinarily

must relate to present or preexisting facts, not future ones."

Hartwig v. Bitter, 29 Wis. 2d 653, 139 N.W.2d 644, 646

(1996); Consolidated Papers, Inc. v. Dorr-Oliver, Inc., 153

Wis. 2d 589, 451 N.W.2d 456,459 (Ct.App.1989)

(expressions of judgment relating to quality are not

actionable); Badger Pharmacal, supra at 627, citing Dresser

Industries Inc., Waukesha Engine Div. v. Gradall Co., 702

_App. 31

F.Supp. 726, 736 (E.D.Wis.1988) (Warren, J.) ("An

unfulfilled promise or statement of future events cannot

provide the basis of a misrepresentation claim. ") The only

present or preexisting facts that Brown allegedly

misrepresented were the "complete and balanced" selection

of Naturalizers, whether the SAS shoes had been duplicated

"stitch-for-stitch," and the status of the "fitted upper

program."

As Brown points out, Schoenecker’s deposition

testimony suggests (although he disputes it - Aff. at | 46)

that he did not believe Brown maintained a balanced selection

across the major classifications of women’s footwear. (reply

at 13, Schoenecker deposition (Vol. 11) at 168-169).°

Essentially, Schoenecker avers that despite his prior

testimony, he believed certain representations in subsequent

conversations that Brown could provide "knock-offs" in

accordance with Naturalizer’s "high standard of quality and

fit." (Schoenecker deposition of 4/21/94 at page 60).

Indeed, Schoenecker states that Ed Enslin "guaranteed" the

"knock-offs would fit well and be good-selling."

(Schoenecker deposition of 4/18/94 at 104-105).

° Q: As of June 11, 1987, ... did you believe that Naturalizer offered a

complete and balanced selection across all the major classifications of women’s

footwear?

A: No

Q: You did not believe that?

A: No, I did not.

Schoenecker deposition, Volume II at 168-169.

App. 32

—

With respect to the "complete and balanced selection"

representation, Schoenecker’s attempt to distance himself

from the cited testimony is not persuasive. First

Schoenecker does not aver that he was told of particular

models that did not exist. Not does he suggest that Brown

represented to him that they would manufacture certain shoes

and never did. At root, plaintiffs are attempting to craft a

misrepresentation claim from the failure of the Granada,

Russett, and Utah to profitably replace the SAS shoes that

were dropped. In addition, the alleged "stitch-for-stitch"

misrepresentation claims are undermined by the fact that

Schoenecker had seen samples of the shoes prior to his

receipt of the purity letter and thereby would have been able

to evaluate whether they were indeed "stitch-for-stitch"

knock-offs. These facts together compel only one conclusion

- Schoenecker knew whether or not Brown offered a

"complete and balanced selection" and he had some

knowledge as to whether the Granada, Russett, and Utah

were indeed "stitch-for-stitch" knock-offs. See Kanack,

supra, 291 N.W.2d at 867 (In claiming misrepresentation, an

individual "must exercise reasonable diligence and [can] not

close [his] eyes to means of information readily accessible to

ascertain the facts.") The only thing Schoenecker didn’t

know, and neither did Brown, was whether the Naturalizer

models would replace the profitability of the SAS models.

Plaintiffs allege that Brown knew its fitted upper

program was a "disaster" but failed to disclose this

information. The only citation in support of this "fact" is the

deposition testimony of Larry Brimer. Plaintiffs cite to -

Brimer at 17 - for this proposition, but pages 16-17 are

missing from the excerpted deposition. (the Brimer

App. 33

deposition can be found in Volume III of plaintiffs’ exhibits).

After reviewing additional portions of Brimer’s testimony,

there is no support for plaintiffs claim that Brown knew its

fitted upper program was a "disaster." Brimer, who is no

longer employed by Brown, testified that initial "mother-in-

law" surveys produced some good, some fair, and some not-

so-good reports which "is not abnormal." (Brimer Depo. at

18). Brimer further testified that at the time of the June 11,

1987 letter, Brown was experiencing "production problems"

and that they were trying to "get the kinks worked out of the

product". Brimer acknowledged that the shoes were

"there, "But they weren’t necessarily good quality, fit, along

those lines. But we did have product." (Brimer Depo. at

25). In quantifying the production difficulties, Brimer stated,

. "we probably didn’t know to what magnitude at that point [as

of June 11, 1987], but we definitely would have known that

we were experiencing somewhat of a problem." (Brimer

Depo. at 25)

Nowhere does Brimer testify that the fitted upper

program was a "disaster" or that production difficulties were

concealed from retail dealers. Other comments in the record

are those of independent dealers, but not Brown officials.

(See opposition at 31-32 containing references to the shoes as

"terrible", a "disaster," and "extremely bad.") Brown

documents, such as Exhibit 72, show that Brown was aware

that "[t]he need for casuals within the line is well known by

everyone within Naturalizer and is really a manufacturing

issue." But that document is from 1992. It simply does not

support the allegation that Brown had knowledge of any

relevant "fact" in June of 1987. There is simply no evidence

App. 34

that Brown, at the time it announced the purity requirement,

knew its fitted upper program was a "disaster."’

Assuming that plaintiffs could show that Brown owed

a duty to disclose, there are simply no facts to support

plaintiffs’ claims that Brown misrepresented any "fact" that

was present or preexisting. Plaintiffs’ claims for negligent

and strict responsibility misrepresentation must be dismissed.

4. Common Law Unfair Competition.

Plaintiffs allege that Brown extended to its affiliates,

Wohl, Brown Retail, and Famous Footwear, preferential

pricing and treatment; that Brown engaged in deceptive

advertising and debased the Naturalizer trademark by

labeling cheap shoes as Naturalizers; and other unspecified

unfair competition. Because plaintiffs’ discriminatory pricing

and preference claims.are the focus of their statutory unfair

trade claims and because they do not fall within Wisconsin’s

definition of common law unfair competition, the Court’s

analysis is limited to the deceptive labeling claims.*

’ The other alleged statements that plaintiffs label as "facts" are too vague and

speculative to support a claim for misrepresentation. The allegation that Ed

Enslin “guaranteed” the "knock-offs would fit well and be good-selling is simply

not a representation of "fact". Badger Pharmacal infra at 627 ("statements of fact

ordinarily must relate to present or preexisting facts, not future ones") Citing,

Hartwig infra at 646.

* The plaintiffs have not elaborated on the “other acts of unfair competition,"

and therefore they are not before the Court.

App. 35

Plaintiffs admit that this case presents the "unusual

situation" of a "franchisor [who] has a financial incentive to

deceive the public as to the quality and consistency of goods

marketed under the Naturalizer mark,.... to the injury of the

public and its licenses." (opposition at 73-74). In addition,

plaintiffs allege that Brown should not be permitted to make

a "quick profit at the expense of the licensees by labeling

cheap shoes which are mass marketed through discount

stores." (Id.) Finally, plaintiffs allege that

"franchisees/licensees and customers will suffer from the

increasing debasement of the Naturalizer label and associated

loss of goodwill..." (Id.) (emphasis added).

Common law unfair competition in Wisconsin

involves the misrepresentation or misappropriation of

another’s product. Desclee & CIE, S.A. v. Nemmers, 190

F.Supp. 381, 386 (E.D.Wis. 1961)(Grubb, J.); Mercury

i _V ] .» 64

Wis. 2d 163, 218 N.W.2d 705, 709-710 (1974) cert. denied,

420 U.S. 914 (1975) ("[T]he essence of the cause of action

in misappropriation is the defendant’s use of the plaintiff’ s

product, into which the plaintiff has put time and skill. -

Despite plaintiffs’ lengthy argument, Brown’s practice of

labeling allegedly cheap shoes as Naturalizers is not

misappropriation or misrepresentation. They are Naturalizer

shoes.

In support of their claim here plaintiffs again allege

the existence of a franchise without offering legal or

evidentiary support. Second, even accepting plaintiffs’

argument that Brown would risk the long-term profitability

of shoes sold under the Naturalizer trademark for a short-

App. 36

term financial windfall, Brown is certainly entitled to do so.

They own the mark. Despite plaintiffs’ argument, Brown is

indeed "free to injure or destroy the Naturalizer trademark

and goodwill associated with it." The goodwill belongs to

Brown, not the retail dealers who sell shoes under that

trademark. Simply because plaintiffs have realized

significant profit selling shoes with the Naturalizer label does

not mean that they can prevent Brown from changing the

design or quality of shoes sold under that label.°

The notion that customers will "suffer" if a

manufacturer debases its trademark is indeed "unusual."

While customers may have an interest in not being mislead,

they have no guarantee that a product will forever maintain

its high quality. Customers who buy the allegedly inferior

Naturalizers will of course be disappointed with their

purchase, but their "remedy" against Brown is in declining

to purchase Naturalizers (of whatever quality) in the future.

Plaintiffs cannot escape the fact that the allegedly inferior

Naturalizers are nonetheless Naturalizers. Accordingly, their

claim for common law unfair competition must be dismissed.

‘

licensees have standing to sue for trademark infringement and/or false

representation. (opposition brief at 75-76). Those cases say nothing about a

cases which permit the franchisee/licensee to sue the franchisor/licensor are

Clearly imapposite. Silverstar Enterprises, Inc. v. ADAY. 537 F.Supp. 236

(S.D.N.Y. 1982); A to Z Rental Inc. v. Wison, 413 F.2d 899 (10th Cir. 1969).

Both cases permit a franchisee/licensee to sue for breach of a licensing or

franchise agreement. Even if plaintiffs were franchisees, this claim is one of

misappropriation or misrepresentation, not breach of contract.

App. 37

5. Wisconsin Antitrust claims.

Wis. Stat. 133.03 Unlawful contracts; conspiracies

(1) Every contract, combination in the form of trust

or otherwise, or conspiracy, in restraint of trade or

Plaintiffs ailege that the purity requirement

“constituted a contract in restraint of trade and commerce, in

violation of Wisconsin Statutes Section 133.03." (Complaint

at ¥ 36)."°

° As a threshold matter, plaintiffs’ complaint appears facially deficient under

§ 133.03 in that it alleges a "contract" or “combination” in restraint of trade

solely against Brown. Section 1 of the Sherman Act reaches only concerted

activity, not activity which is wholly unilateral. The conduct of a parent

corporation and its wholly owned subsidiaries (or unincorporated divisions) is

unilateral activity and therefore not assailable under § 1 of the Sherman Act.

‘opperw oratic yependence Tube Corporation, 467 U.S. 752

(1984); Ford Motor Company v. Lyons, 137 Wis.2d 397, 405 N.W.2d. 354,

367 (Ct.App. 1987)applying Copperweid to § 133.03 because “our interpretation

of § 133.03 is controlled by federal court decisions under the Sherman Act...”)

In the case at bar, the allegation of the complain is that “[t}he agreements

438.477 ik

=

ae OTT

appear to preclude the application of § 133.03.

A possible “escape hatch” for plaintiffs was noted by the Seventh

Circuit in i ; . 776 F.2d 665, 669-670 (7th

Cir. 1985)cert. denied,475 U.S. 1129 (1986). In Will, the Seventh Circuit cited

(continued...)

App. 38

The parties disagree over which methodology the

Court should employ in analyzing the antitrust implications

of the purity requirement. Plaintiffs’ argue that the Court

Should consider whether the restriction is effected for a

Proper purpose and limited in time and scope and otherwise

reasonable. See e.g., Ruhland v. King, 154 Wis. 545, 546-

47, 143 N.W. 681 (1913); Rose v. Gordon, 158 Wis. 414,

149 N.W. 158 (1914); Johnson v. Shell Oil Co., 274 Wis.

375, 80 N.W.2d 426, 429 (1957) citing, Wisconsin

which look to federal antitrust law and apply the "rule-of-

reason" to this case. See e.g.,

Pulp Wood Company v.

Green Bay Paper & Fiber Company, 157 Wis. 604, 147

combined. Accordingly, plaintiffs do not appear entitied to the “escape hatch”

menuoned in Will. Nevertheless. because the Brown Group has not raised this

issue, the Court must proceed as though plaintiffs have properly alleged

concerted, as distinct from unilateral, activity.

App. 39

N.W. 1058 (1914)(holding that § 1747e (now § 133.03) must

be given the same interpretation as Supreme Court opinions

construing the Sherman Act): Vv wis and

Leidersdorf Co., 201 Wis. 543, 549, 230 N.W. 692

(1930)(noting that Pulp Wood "expounded" upon the "rule of

reason" adopted by the United States Supreme Court); Reese

Vv i i 1 , 45 Wis.2d 526, 173

N.W. 661 (1970); 1

v i , 480 F.Supp. 124

(E.D. Wis. 1979) ( Warren, J.): i

Co-op v. Stoffel, 102 EWis.2d 1, 298 N.W.2d 102 (Ct.App.

1980); Grams v. Boss, 97 Wis.2d 332, 294 N.W.2d 473,

480 (1980\(§ 133.01 is a reenactment of the Sherman Act

applicable to intrastate activity and is "controlled" by federal

court decisions under the Sherman Act.); Ford Motor

Company v. Lyons, 137 Wis.2d 397, 405 N.W.2d. 354, 367

(Ct. App. 1987)(“our interpretation of § 133.03 is controlled

by federal court decisions under the Sherman Act...")

The Plaintiffs antitrust claims must be reviewed under

the rule of reason. The “ otherwise reasonable" test of Shell

Oil is not applicable to the facts and allegations of this case.

The most recent Wisconsin case to cite Shell Oi] and apply

the “otherwise reasonable” test was Rei

y. R/A Advertising. Inc. 102 Wis.2d 305, 306 N.W.2d 292

(Ct. App. 1981). The Court of Appeals stated:

Defendants’ reliance on Grams v. Boss, 97

Wis.2d 332, 294 N.W.2d 473 (1980) is

misplaced. That case arose under Wisconsin’s

muini-Sherman Act, sec. 133.01 et seq., Stats. ,

and involved an agreement amounting to a

App. 40

conspiracy among defendants to drive the |

plaintiff out of business. Here, we are

concerned with a limited covenant not to

compete incidental to the sale of a business

entered into freely by the party now

complaining and given in exchange for a

similar covenant.

(Reiman at 297-298.)

The converse is true in the case at bar. Plaintiffs’ have pled

a § 133.03 claim and Grams compels the application of the

"rule of reason" because this is a "“mini-Sherman" case.

Wisconsin courts would apply federal antitrust principles to

§ 133.03 claims such as those presented in the case at

bar."

The Restraint of Trade Claim.

Plaintiffs have alleged a vertical restraint of trade and

its validity must be analyzed under the "rule of reason".

Vv , 433 U.S. 36,

59 (1977); v_ Uni , 246 U.S. 231

(1918). In a rule of reason analysis, the threshold inquiry is

“

~

Even if the Shell Oil test were applied to the case at bar, it is no help to

the plaintiffs. While the Wisconsin Supreme Court used the “otherwise

reasonable” test plaintiffs ask this Court to adopt, it held that, “[a]

restriction. ..prohibiting the disposing of anything but She! products under Shell's

trade-marks and trade-names...is nonviolative of a statutory provision such as that

in question. “Id. at 429 (citation omitted). The same can be said of the facts

before this Court.

App. 41

“whether the defendant ha[s] market power..." Valley

a .,822 F.2d 656, 666

(7th Cir.), cert. denied, 484 U.S. 977 (1987)("Valley II).

"Market power is ‘normally inferred from the possession of

a substantial percentage of the sale in a market carefully

defined in terms of both product and geography.’" Id. at 666,

citing Valley Liquors, Inc. v. Renfield Importers, Lid., 678

F.2d 742 (7th Cir. 1982)("Valley I"). The geographic

market is defined as the area in which the defendant

competes for consumers’ business. Tampa Elec. Co. v.

Nashville Coal Co., 365 U.S. 320, 327 (1961). Product

market, or the "line of commerce," must also be determined.

Id. Should a plaintiff fail to show that the defendant has

market power, “the inquiry is at an end: the practice is

lawful." W. a i

Ass'n, 744 F.2d 588, 596 (7th Cir. 1984): Valley Liquors,

("Valley II" at 666)(only if market power is shown should a

court proceed to balance the effects of the vertical restraint

on intra/interbrand competition).

Brown argues that the plaintiffs have failed to identify

either the relevant product or geographic market and any

facts which suggest that Brown enjoys market power. (Brief

at 16-17). In addition; plaintiffs’ complaint alleges only that

the restraining took place in Wisconsin. (Complaint at ¢ 3).

In its own analysis, Brown asserts that, in 1986, there were

823 retail shoe outlets in Wisconsin, not including

department stores and discount malls. (Corbet Aff. at q 5;

PFF No. 29). Only 15 Naturalizer stores were asked to

carry Naturalizer brands exclusively. Therefore, the purity

requirement affected 1.8% of the total shoe outlets. By

1992, there remained only 10 stores (or 1.4% of the total

App. 42

shoe outlets) that were affected. (Corbet Aff. at € 6: PFF

No. 30). 13

1. Market Power

Plaintiffs do not dispute Brown’s 1.8% or 1.4%

calculations, but instead a1gue that the figures are irrelevant

because they do not reflect the relevant market. (Response

to Brown’s PFF Nos. 29-30; Duncan Declaration ¢ ¢ 4, 9-

12; Kormos testimony and charts, Exhibit 94, pp 148-49;

Exhibit 96, 18, 22). Plaintiffs argue that they have "given

repeated descriptions of the three geographic market{s] and

submarkets." (opposition at 61). Plaintiffs describe the

" Plaintiffs’ objections to these Proposed Findings of Fact will be discussed

below.

° As will be discussed infra, plaintiffs’ opposition to Brown's analysis of the

vertical restraint of trade devolves into an attempt to amend the complaint and

proceed on a “tying claim." Plaintiffs do not succeed even if the clain is

considered as such. In responding to Brown's restraint of trade anabsis,

plaintiffs first argue that Grams v. Boss, supra does not require that “maket

definition be pleaded.“ (opposition at 61) Plaintiffs’ argument misreads Gums

and seems to suggest that this Court should apply Wisconsin's summary judgnent

standards. However, Grams explicitly follows the federal “rule of reaon”

requirement that a plaintiff show market power to succeed on an antitrust clim.

Id. at 481. Further, Grams reversed the trial court's grant of summary judgnent

which was based on a failure to plead that the “conduct charged had an adv-rse

anticompetitive effect." Jd. at 483. In doing so, the Wisconsin Supreme Curt

applied Wisconsin's pleading and summary judgment standards.

that [Brown] had sufficient market power..." summary judgment nay

appropriately be entered. Valley Liquors, (“Valley II”) at 666.

App. 43

markets as: the malls in which each Westowne store

competes, a neighborhood surrounding the mall; and a

somewhat broader area. (Id.) Plaintiffs further state that:

[mJarket definition here would also reflect

other competitive circumstances in the case,

including a product submarket (women’s

comfort casual shoes), market structure

(unique qualities of mall-based specialty

Stores) and customer definition (mature

women, for whom comfort and fit rather than

high fashion are the primary buying criteria.)

Id.

Plaintiffs’ principal objection to the calculations is that they

fail to “differentiate among varying retail outlets, as to

whether they are men’s and women’s shoes, in or not in

malls, and numerous other things that make the statistic

meaningful." (Plaintiffs’ response to Brown’s Pff No 29).

While plaintiffs fail to cite any case law in support of their

argument, the Supreme Court’s opinion in Brown Shoe

Company v. United States, 370 U.S. 294, 326 (1962),

recognized that men’s, women’s, and children’s shoes make

up separate "submarkets." The factors considered were:

Separate manufacturing facilities, public recognition of

separate submarkets, peculiar characteristics of each type of

shoe, and distinct customer groups. Id. See also, Sargent-

Vv ion, 567 F.2d

701 (7th Cir. 1977) cert. denied, 439 U.S. 822 (1978);

: Vv ‘ ., 875

F.2d 1369 (9th Cir. 1989).

mal

Q

App. 44

Brown arrives at the 1.8% and 1.4% figures by

analyzing the number of Naturalizer stores affected by the

purity requirement as a percentage of "retail store outlets,"

not including department and discount stores. (Brown’s brief

at 18; Corbet Aff. at ¢ ¢ 6,7). Plaintiffs define the relevant

market, or submarket, as those stores which sell women’s

comfort casual shoes. Under Brown Show, the plaintiffs’

definition of the relevant submarket as "women’s comfort

casual shoes" has some merit. Accordingly, the record

before the Court presents a factual dispute over the proper

definition of the relevant market. i

Chemical Corp. v. FTC, 652 F.2d 1324, 1329 (7th Cir.

1981)(citations omitted)("The definition of relevant markets

within which to measure the effects on competition... is a

question of fact.)

In the case at bar, Brown identifies the market as

retail shoe stores in Wisconsin. In light of Brown Shoe, the

Court finds that Brown’s proposed market is too broad in

that it fails to take into account a distinct submarket -

women’s shoes. Because a “natural barrier" exists which

insulates competition between men’s, women’s, and

maeesened s shoes, each ge a oe eee.

Corp., 518 F.2d 913, 933 Oh, Cir. 1975) ination

Brown Shoe.) Accordingly, the Court cannot accept Brown’s

1.8% and 1.4% market share calculations because they are

based on the general market for retail Shoes.

Plaintiffs’ proposed market definition suffers its own

weakness in that it identifies a classification of women’s

shoes. "comfort casual," which they have not supported by

App. 45

argument, case law, or evidence. First, with resect to their

submarket classification, plaintiffs fail to discuss or offer

facts that might show that comfort casual shoes are not

"reasonably interchangeable" with other types of women’s

Shoes. See Sargent-Welch, supra at 710, citing United States

vy. E. I. Du Pont de Nemours & Co., 351 U.S. 377, 395

(1956)("If two products are ‘reasonably interchangeable by

consumers for the same purposes,’ they are considered to be

in the same market,") While plaintiffs have repeatedly

referred to the targeted customers as "women, usually mature

women for whom fit and comfort rather than high fashion or

bargain prices were primarily important" (Schoenecker Aff.

at 25), they have failed to make a showing (beyond

Schoenecker’s testimony) on the fundamental issue of

whether these shoes are ( or are not) “reasonably

interchangeable" with other types of women’s shoes.

Plaintiffs’ failure on this critical point leaves the relevant

submarket indistinct and therefore unresolved.

While this dispute involves an issue of fact, it is not

a material one. Even if the Court accepts plaintiffs’

submarket definition of "women’s comfort casual shoes,"

they have failed to identify the Wisconsin stores which

compete in this submarket and, most importantly, what

percentage thereof were effected by the Brown purity policy.

Plaintiffs have alleged only that "SAS lost thirty percent of

its national market share and that there was a restriction in

overall supply to the market by virtue of Brown’s purity

program, because the SAS shoes were not supplanted by a

comparable volume of the quickly doomed Brown ’knock-

offs.’" (opposition at 62). Even accepting the evidence

regarding SAS’s decreases sales, summary judgment must be

App. 46

entered in Brown’s favor because plaintiffs have presented no

"evidence that tends to exclude the possibility the defendant’s

conduct was as consistent with competition as with illegal

conduct." Indiana nc. Vv. Super Valu Stores. Inc.,

864 F.2d 1409, 1412-1413 (7th Cir. 1989); see also, Ball

i Vv , 784 F.2d

1325 (7th Cir. 1986); Great Escape, Inc. v. Union city

Body Co., 791 F.2d 532, 540 (7th Cir. 1986). In

conclusion, plaintiffs have failed to "suppl{y] even the basic

facts and figures necessary...,let alone a sophisticated

econometric analysis normally necessary to show market

power." Valley Liquors, ("Valley II" at 669). The failure

to raise an inference that Brown enjoyed "significant market

power," compels summary judgment on plaintiffs’ claim that

the purity requirement restrained trade in violation of §

133.03. Id."

‘* Even if the Court proceeded to analyze the purity policy, it is doubtful that

plaintiffs would be able to show that "the anticompetitive effects (if any) of the

exclusion outweigh any benefits to competition from it.". Roland Machinery Co.

y. Dresser Industries, Inc., 749 F.2d 380, 394 (7th Cir. 1984). First, in light of

the Court's previous discussion of the voluntary nature of the purity policy

(Decision and Order at 4), it seems unlikely that plaintiffs were "restrained within

the meaning of the antitrust laws. See f

Ophthalmology, Inc., 870 F2d 397, 399 (7th Cir. 1989); Empire Volkswagen,

Inc. v. World-Wide Volkswagen Corp., 814 F.2d. 90, 97 (2d Cir. 1987)(The

Second Circuit found no antitrust restrain where defendant did not prevent

plaintiff from purchasing other products, but instead required "merely [that where

defendant did not prevent plaintiff from purchasing other products, but instead

required “merely [that plaintiff] sell other manufacturers’ products from a

separate salesroom facility.") Second, plaintiffs have offered no case law which

holds that conditions placed on the use of a trademark, such as those involved in

this case, implicate the antitrust laws. In this regard, almost the entirety of

plaintiffs’ antitrust analysis (pages 47-62) is directed to the “otherwise reasonable”

(continued...)

App. 47

The Tying Claim.

The plaintiffs did not allege a "tying" claim in the

complaint and therefore it could be dismissed for that reason.

Thomason _v_Nachtrieb, 888 F.2d 1202, 1205 (7th Cir.

1989); Car Carriers, Inc. v. Ford Motor Co., 745 F.2d

1101, 1107 (7th Cir. 1984)(the complaint must be judged as

framed without reference to un-pled assertions).

Nevertheless, the Court will examine Brown’s motion on the

merits.

Plaintiffs’ "re-characterization" of their "restraint of

trade" claim as one of unlawful “tying” permits the

application of a less onerous "per se" test. Tying

arrangements are "per se" illegal. A tying claim requires:

(1) two distinct products; (2) a sale or agreement to sell one

product (the tying product) on the condition that a second

product (the tied product) be purchased or excluded;'> (3)

the seller must have sufficient economic power in the tying

product market to force the buyer to buy or refrain from

buying the tied product; and (4) the arrangement affects a not

insubstantial amount of commerce in the tied product market.

(opposition at 54, citing

2_v. Hyde, 466 U.S. 2, 9-18 (1984)). Plaintiffs have

identified the Naturalizer specialty store "franchise" as the

tying product and all "non-Naturalizer shoes" as the tied

product. (opposition at 56).

(.. continued)

and “per se” tests rejected by the Court.

'S As discussed infra, plaintiffs’ “or excluded” phrase is inaccurate.

App. 48

Brown points out that plaintiffs’ identification of the

tying product as the Naturalizer "franchise" is incorrect as a

matter of fact and law. The Court has already rejected

plaintiffs’ unsubstantiated allegation that they enjoyed a

franchisor/franchisee relationship with Brown. (Decision and

Order at 8-9). Moreover, the Seventh Circuit in Jack

Walters & Sons, Corp. v. Morton Bldg. Inc., 737 F.2d 698,

704-705 (7th Cir.) cert. denied, 469 U.S. 1018 (1984),

considered a similar claim and rejected it. In Jack Walters,

the Seventh Circuit held that a kit of prefabricated building

components and its tradename were "inseparable." Id. In

doing so, the Seventh Circuit considered plaintiffs’

"franchise" cases and distinguished them by considering

Whether the trademark identified a "product" or an

"operation." Id. Judge Posner reasoned that the purpose of

a franchise is "not to distribute the trade-marked goods of the

franchisor, but... to conduct a certain business under a

common trade-mark or trade name." Id. Just as the plaintiff

in Jack Walters could not separate the trade-mark from the

product, plaintiffs can not separate the Naturalizer trade-mark

from the Naturalizer shoes. In accordance with Jack

Walters, the Court concludes that the Naturalizer specialty

stores, such as those owned by plaintiffs, serve merely to

"distribute the trade-marked goods" of Brown. Therefore,

even assuming that plaintiffs were Naturalizer franchisees,

the Naturalizer trademark is not a distinct product for

purposes of a tying claim.

Not only does the Naturalizer trademark not constitute

a "tying" product because it is indistinct from the Naturalizer

Shoe itself, the allegedly "tied" product is not a product at

all. Plaintiffs do not allege that the Naturalizer shoes

App. 49

constitute the "tied" product, but rather "all non-Naturalizer

shoes." In distinguishing the trademark (or franchise) from

the product to which it refers, the typical plaintiff seeks to

have the now separate product considered the "tied" product,

i.e; the trademark (or franchise) becomes the "tying" product

and the shoes become the "tied" product. In the case at bar,

plaintiffs do not claim that the Naturalizer shoes are the tied

product. Instead, they claim that the tied product is a

promise to refrain form buying non-Naturalizer shoes. In

support of this argument, plaintiffs cite Northern P.R. Co. v.

United States, 356 U.S. 1, 5-6 (1958), in which the Supreme

Court stated that an illegal tying occurs where a buyer must

"purchase[] a different(or tied) product, or at least, agree[]

that he will not purchase that product from any other

supplier." (emphasis added by plaintiffs). Because they have

defined the tied product as "all non-Naturalizer shoes,"

plaintiffs seize upon the second portion of the above

sentence. But standing alone, and on the facts of the cases

cited by plaintiff, it makes no sense to promise to refrain

from buying another supplier’s product without the

understanding (either explicit or implicit) that one will

therefore purchase that product from the seller of the "tying"

product.

In apparent recognition of this fact, plaintiffs argue

that "[iJn none of these cases were the buyer/lessees required

to purchase any minimum amount from the sellers/lessors.

The ‘tie’ existed purely because of the agreement’s

requirement excluding other supplier’s products." (Opposition

at 57-58). But the cases cited plaintiffs involve more than

a mere "promise to exclude." h case involved a "tied"

product. For example, in Northern Pacific, supra, the

App. 50

United States challenged Northern Pacific’s attempt to lease

valuable property abutting the railroad on the condition that

the lessees promise to use only Norther Pacific as their

carrier. In United Shoe Machinery Corp v. United States,

258 U.S. 451 (1922), the patentee of certain shoe

manufacturing machines miade numerous conditions on the

lease of their equipment, including among other things, that

supplies (the "tied" product) must be purchased from the

patent holder. In International Business machines Corp. v.

United States, 298 U.S. 131 (1936), IBM "tied" the purchase

of its own punch cards to the lease of its tabulating

machines. In International Salt Co. v. United States, 332

U.S. 392 (1947), the petitioner was found to have "tied" the

purchase of salt (from itself) to the lease of its salt machines.

All of these cases involve a "tied" product, not simply a

promise to exclude. Even in Northern Pacific, which

contains the cited language, putative lessees were required to

use Northern Pacific as their exclusive rail carrier.’

Plaintiffs have presented no authority for the

proposition that a promise to exclude, absent a concomitant

agreement, either express or implied, to purchase the

"excluded" product from the sellers/lessors constitutes a

‘© Further, in each of these cases, without purchasing the "tied" product, the

"tying" product had no value. For example, if the lessee of a salt machine

promised not to buy salt from any other supplier, the salt machine would have no

value unless he purchased (to use plaintiffs’ phrase) “some minimum amount" of

salt from the lessor. By contrast, in the case at bar, assuming the trade-mark (or

franchise) was the “tying” product and "the promise to exclude all non-

Naturalizer shoes" was the "tied" product, plaintiffs’ promise to exclude non-

Naturalizer shoes does not. render the trade-mark (or franchise) useless because

the plaintiffs will continue to sell the Naturalizer shoes.

App. 51

"tied" product. Accordingly, plaintiffs’ allegation that “all

non-Naturalizer shoes" constitute a "tied" product is rejected.

Under the facts and allegations of this case, plaintiffs have

failed to show the existence of two distinct products and their

tying claim must be dismissed.

7. Statutory Unfair Trade Practices. { { 39-42.

Plaintiffs’ final claim, under Wis. Stats. § 133.05,

alleges that Brown extended to its various subdivisions and

entities "special services or privileges not extended to the

plaintiffs purchasing under like terms and conditions."

(Complaint at {| 40).”’ Section 133.05 represents

Wisconsin’s version of the Robinson-Patman Anti-

discrimination Act, 15 U.S.C. § 13, et. seq. Obstetrical &

Gynecological Assocs. v. Landig, 129 Wis.2d 362, 384

N.W.2d 719 (Ct.App. 1986); Carlson & Erickson _v.

Builders v. Lampert Yards, Inc., 183 Wis. 2d. 220, 515

N.W.2d 305, 307 (Ct.App.1994)("[C]h. 133, STATS., is

drawn largely from federal antitrust law...") Brown argues

that a § 133.05 claim does not lie where the beneficiary of

the alleged preferential treatment is a subdivision or

subsidiary of the alleged wrongdoer. (brief at 30 citing

Landig supra; Security Tire & Rubber Co. v. Gates Rubber

'7 § 133.05 provides in pertinent part: Secret rebates; unfair trade practices.

(1) The secret payment or allowance of rebates, refunds, commissions or

unearned discounts, whether in the form of money or otherwise, or the secret

extension to certain purchasers of special services or privileges not extended to

all purchasers purchasing upon like terms and conditions, such payment,

allowance or extension injuring or tending to injure a competitor or destroying

or tending to destroy competition, is an unfair trade practice and is prohibited.

App. 52

Co., 598 F.2d 962, 965 (5th Cir.) cert. denied, 444 U.S.

942 (1979)); see also, Russ’ Kwik Car Wash, Inc, v

Marathon Petroleum Co., 772 F.2d 214 (6th Cir. 1985)(per

curiam); Mt. Pleasant v. Associated Electric Cooperative,

Inc., 838 F.2d 268, 278-279 (8th Cir. 1988); Emil J. Lauter

Co. _v. Brunswick Corporation, 532 F.Supp. 983, 985

(N.D.III. 1982) (following Gates Rubber); Stamp v. Inamed

Corporation, 777 F.Supp. 623, (N.D.III. 1991) (declining to

apply Gates Rubber and Copperweld Corp. v. Independent

Tube Corp, 467 U.S. 752 (1984) in a breach of contract

action, but acknowledging their applicability in antitrust

cases). While no cited Wisconsin case specifically applies

Gates Rubber, Wisconsin’s adoption of federal antitrust

principles in general, and Copperweld in particular, suggest

that Wisconsin courts would follow Gates Rubber.

Plaintiffs appear to have conceded this point by

arguing that the cited authority is "academic" because they

have now discovered that non-Brown entities

(Dayton/Hudson/Marshall Fields) were given "secret

allowances, rebates, refunds, unearned discounts and other

secret extension of special services and privileges, including

return of goods..." (opposition at 76). Plaintiffs further

argue that Brown is not prejudiced by this newly asserted

claim because "the complaint did put defendants on notice

(sic) they were being charged with price discrimination'®

and unfair trade practices in Brown’s relationship with

'§ Price discrimination in Wisconsin is governed by Wis. Stats. §133.04.

Plaintiffs’ complaint at { { 39-42 does not allege price discrimination or invoke

§ 133.04. Whether plaintiffs allege violations of § 133.04 (price discrimination)

or § 133.05 (secret preferences), Gates Rubber, infra, is equally applicable.

ee ee ee ee

App. 53

department stores." (opposition at 77). But a § 133.05 claim

involving a non-Brown affiliated shoe department clearly is

significantly different from a claim involving a shoe

department run by a subsidiary or subdivision of Brown.

Plaintiffs have not sought leave to amend their complaint and

legal memoranda are not the proper method for doing so.

(Decision and Order at 30). Accordingly, Brown’s motion

for summary judgment on plaintiff's § 133.05 claim, as set

forth in the complaint must be granted.’

In conclusion, the evidence of record supports only

one finding - the plaintiffs made a business decision that the

value of using the Naturalizer in the trade dress of their

stores outweighed the risk that the "knock-offs" would fail to

replace the SAS models removed from the stores. That

decision provides no basis for the success of any of the

causes of action advanced in the complaint. Accordingly, the

Brown Group’s motion for summary judgment dismissing the

complaint in its entirety is granied.

C. THE COUNTERCLAIM.

Brown has also moved the Court for summary

judgment on its counterclaim alleging that the plaintiffs have

'9 If the Court were to consider plaintiffs’ newly crafted claim, summary

judgment would still be appropriate. Plaintiffs cite the Court to Schoenecker’s

affidavit at ¢ 51 and Exhibits 44 and 101. Even if this evidence were sufficient

to show that Dayton/Hudson/Marshall Field’s receive "secret rebates, unearned

discounts, return privileges, and massive advertising allowances...," plaintiffs

have offered no evidence or argument that theses entities are “purchasers

purchasing upon like terms and conditions..." as required by § 133.05 (1).

App. 54

failed to abide by the terms of a promissory note (_ the

"Note") and that the Schoeneckers have personally

guaranteed payment thereunder. As stated above, by early

1993, plaintiffs were indebted to Brown in the amount of

$367,900.00 and Westowne, in an effort to resolve this

outstanding debt and maintain business dealings, pledged a

Note to Brown. Brown alleges that the Schoeneckers have

personally guaranteed the indebtedness evidenced by the

Note. The first guarantee, signed by the Schoeneckers on

August 24, 1980, guarantees the indebtedness of "C.A.

Biwer Inc., of La Crosse Wisconsin" in the amount of

$50,000. (Wright Aff., Exhibit C). The second, executed on

August 16, 1991, guarantees the indebtedness of "Westowne

Shoes, Inc. of Waukesha, WI (all locations)"in the amount

of $250,000. (Wright Aff., Exhibit B). While both

guarantee indebtedness to Brown Shoe on “heretofore or

hereafter contracted on any open or stated account,

promissory note or acceptance, or for any unpaid balance on

any account, promissory note or acceptance", both are

triggered by the debtor’s default. (opposition at 5; reply at

5-6; Wright Aff., Exhibits B & C).

As required by the summary judgment methodology

set forth on pages 5-6 of this opinion, for the Brown Group

to succeed on the motion, there must be no genuine issue of

material fact as to Westowne’s default on the Note and non

as to the scope of the personal guarantees.

THE NOTE

The terms of the Note are relatively simple and

straightforward. (Wright Aff., Exhibit A). The Note

Li aemsnemiiiiiatiiiiidadiaial

App. 55

provides that "for value received," the sum of $367,900.00

will be paid on or before April 1, 1998. Further, "payments

are to be 20% of purchases for a period of five (5) years

with no interest charged." In short, the parties contemplated

that Westowne would pay down the Note by paying 20%

more than its actual purchases, with the difference being

applied to the Note. According to Reginald Wright, Director

of Credit for Brown Shoe Company, "the fundamental basis

of the note was that Westowne Shoes would do substantial

future business with Brown Shoe at the dollar volume level

that it had in the past." Wright Aff. at ¢ 10). The Brown

Group alleges that Westowne is in default because "it failed

to do business at the dollar level contemplated by the Note

(with its total purchases down approximately 40 percent for

the level for the prior year) and as a result, has failed to

make payments at the level contemplated under the Note.

(emphasis supplied)(brief at 4; Wright Aff. at q 18). In this

regard, the Brown Group alleges that Westowne and the

Schoeneckers failed to disclose that they were "ending or

substantially limiting [Westowne’s] future business

relationship with Brown Shoe..." (brief at 4, n. 6; Wright

Aff. ¢ 14). In addition, the brown Group alleges that

Westowne "has also failed on certain transactions." (brief at

4). Finally, the Brown Group argues that the Note is tainted

with "misrepresentation" because Westowne and the

Schoeneckers failed to disclose that they intended to

commerce a lawsuit in Waukesha County, and in fact, had

already done so. (brief at 4, n. 6).

With respect to the "level of business that Westowne -

was intended to maintain, the Note is silent. In addition,

Schoenecker avers that he requested that paragraph six (6) of

App. 56

the Note be stricken because it appeared to give Brown Shoe

the option of collecting the balance of the Note if, in its

opinion, there was a substantial change in Westowne’s

business. (opposition at 7; Schoenecker Aff. at 7).

Schoenecker avers that he specifically told Wright that he

was concerned about this provision because it seemed

probable that he would be closing the East Towne store. The

provision was stricken. Despite the Brown Group’s

argument, the "level" of business that Westowne needs to

maintain under the Note is not readily ascertainable on the

record before the Court. Accordingly, a genuine issue of

maierial fact exists as to whether the decline in Westowne’s

purchases represents a default on the Note.

With respect to the allegation that Westowne "has also

failed on certain transactions to pay the additional 20 percent

of purchases which was to be applied to the Note on all

transactions," plaintiffs point out that the "sole" transaction

referred to was a $25,000 “transcan" automated purchase

posted in October of 1993. Schoenecker avers that he and

Wright reached a separate agreement that Westowne would

discontinue its participation in transcan system because the

automated system could not accommodate the required

payment in advance and surcharge arrangements of the Note.

(opposition at 6; Schoenecker Aff. at ¢ ¢ 21, 22). Further,

Schoenecker avers that this debt has been paid down pursuant

to this separate agreement. (Id.) Accordingly, a genuine

issue of material. fact exists regarding Westowne’s

compliance with the "20% of purchases" payment required

under the Note. Because the Brown Group has not presented

sufficient evidence for the Court to conclude that Westowne

is in default on the Note, an examination of the

tl a Oe tis ok in te

App. 57

Schoeneckers’ obligations under the personal guarantees is

necessary.

In conclusion, because genuine issues of material fact

concerning the issue of Westowne’s default on the Note

remain, the Brown Group’s motion for summary judgment

must be denied.

NOW THEREFORE, BASED ON THE FOREGOING, IT

IS HEREBY ORDERED THAT:

1. The Brown Group’s motion for summary

judgment dismissing plaintiffs’ complaint in its entirety is

GRANTED;

2. The Brown Group’s motion for summary

judgment on its counterclaim is DENIED; and

3. City Insurance’s motion for a stay of the trial

pending the Court’s ruling on the Brown Group’s motion to

reconsider its declaratory judgment of non-coverage is

DENIED AS MOOT.

Dated at Milwaukee, Wisconsin, this 13th day of

December, 1994.

SO ORDERED.

HON. RUDOLPH T. RANDA

U.S. District Judge

App. 58

APPENDIX D

United States District Court

Eastern District of Wisconsin

WESTOWNE SHOES, INC., and

CARL A. BIWER COMPANY,

Plaintiffs,

v. Case Number: 93-C-720

BROWN GROUP, INC., BROWN SHOE

COMPANY, FAMOUS FOOTWEAR COMPANY,

BROWN GROUP RETAIL, INC., WOHL

SHOE COMPANY and BROWN GROUP

INTERNATIONAL, INC.,

Defendants and Counterclaim

Plaintiffs,

V.

BARBARA B. SCHOENECKER and

RUDOLPH V. SCHOENECKER,

Counterclaim Defendants.

DECISION AND ORDER

This matter comes before the Court on plaintiffs’,

Westowne Shoes, Inc. and the Carl A. Biwer Company

("plaintiffs"), motion for reconsideration of the Court’s

App. 59

December 13, 1994 Decision and Order wherein the Court

granted the defendants’ ("Brown Group") motion for

summary judgment dismissing the complaint in its entirety.

For the reasons set forth below, the motion is denied.

ANALYSIS

A motion to reconsider is appropriate where the Court

has "patently misunderstood a party, or has made a decision

outside the adversarial issues presented to the Court... or has

made an error not of reasoning but of apprehension." Bank

of Waunakee v. Rochester Cheese Sales, Inc., 906 F.2d

1185, 1191 (7th Cir. 1991). Much of plaintiffs’ sixty-six

(66) page motion for reconsideration is a re-examination of

the evidence and arguments that the Court has already

considered and rejected. Nevertheless, there are some issues

which require discussion.

First, the Court must consider plaintiffs’ argument

regarding the business relationship between the plaintiffs and

the Brown Group. The plaintiffs argue that the Court was

incorrect in its characterization of that relationship as one of

vendor/vendee. (Decision and Order at 9). In commenting

on the plaintiffs’ repeated reference to their "dealership" or

franchise, the Court noted that the plaintiffs, "nowhere

undertake a legal analysis of these respective business forms

or demonstrate how the evidence supports a finding that

either existed." (Id.) Plaintiffs argue that neither party

discussed this matter "because the existence of a dealership

was not challenged in Brown’s brief, [and therefore] the

plaintiffs’ legal argument did not focus on that issue, but

App. 60

rather simply on the existence of a contract." (plaintiffs’

motion for reconsideration at 19.)

The extensive analysis of the Wisconsin Fair

Dealership Law ("WFDL") in plaintiffs’ motion does not

undercut the Court’s reasoning or its conclusion. This is not

a "dealership" case and therefore the extensive protections

available thereunder are not available to the plaintiffs. The

Court examined plaintiffs’ breach of contract claims in light

of their business relationship with the Brown Group prior to

and after the 1987 "purity" letter. With respect to the prior

agreements, the plaintiffs do not quarrel with the Court’s

examination of the various letters which supported the

existence of a "contractual relationship" including a 1978

letter which provides that, "use of the trademarks does not

affect the right of Brown... or yourself to terminate the sale

of NATURALIZER and FOOTWORKS shoes to you at any

time either party desires." (Decision and Order at 2, citing

Exhibit A). Despite the plaintiffs’ extensive discussion of a

"community of interest" which may be (or may have been)

protectable under the WFDL, this is not, as stated above, a

dealership case.

The Court’s review of the factual and legal

relationship of the parties based on the letters prior to and

including the 1987 purity letter compelled a conclusion that

the conditions placed on the use of the trademarks subsequent

to the 1987 letter did not give rise to contractual rights that

the plaintiffs may now sue upon. Indeed, if the 1978 letter

gave either party the right to "terminate" the relationship at

"any time," it seems clear that the 1987 letter which

modified the conditions under which the trademarks could be

a in ol i te i rl ee

a

ee

aS eee ©

a ee a

App. 61

used was equally permissible. In conclusion, the

characterization of the contractual relationship as that of a

"dealership" under the WFDL does not change the Court's

breach of contract analysis as the extensive protections of the

WEDL are not before this Court.”

Plaintiffs also argue that the Court improperly

characterized as an "option," the choice to go pure and keep

the NATURALIZER sign, or remove the sign and convert to

a "multi-line" store. (plaintiffs’ motion at 46-49). Extensive

reargument is made of the fact that going to a multi-line store

would result in a loss of the "franchise" because other

specialty stores would move into the same malls and take the

Naturalizer business. Removing the Naturalizer sign "would

be like closing our doors." (plaintiffs’ brief at 47) (citation

omitted). Plaintiffs argue that the "cruciality of being able

to continue operations under the Naturalizer sign and as a

Naturalizer Specialty Store is confirmed by defendants’ own

documents." (Id. at 48) One reason is that the sign is "so

important to bringing customers into the store." (Id.) By

way of analogy, plaintiffs argue:

If the operator of a McDonald’s hamburger

store contended it would be a_ serious

economic detriment to him to change the

name of his operation to Joe’s Hamburger

20 Neither does it change the Court’s analysis on the remaining causes of

action because, where relevant, the Court weighed plaintiffs’ arguments as if a

franchise or (dealership) did exist. See Decision and Order at 20; 21-22, n.10;

30-31.

App. 62

store and lose the benefit of both local and

national McDonald advertising and _ its

established reputation, no reasonable person

would argue with him.

(Id.) The weakness in plaintiffs’ analogy is that it works

both ways. No "reasonable person" would argue with

McDonald’s if it required, as it plainly does, that in

exchange for using the Golden Arches trademark, a

franchisee may not sell food items from Wendy’s.

McDonald’s can impose such a condition even if Wendy’s

makes better hamburgers; meaning that Joe must chose

between using the trademark and selling McDonald’s food

and not using the trademark and selling whatever food he

desires. The same is true of the case at bar. Even if the

Naturalizer "knock-offs" were not as good as the other lines

of shoes that were dropped, the Brown Group certainly can

put conditions on the use of its trademark including, "you

can only sell Naturalizers." Consistent with the Court’s

earlier determination, and despite plaintiffs’ "reargument,"

an option did exist, no matter how unattractive.

Of the remaining challenges, the only one which is

proper on reconsideration is the plaintiffs’ argument that the

court impermissibly rejected Schoenecker’s affidavit as "not

persuasive." (plaintiffs’ brief at 60). As pointed out in the

Brown Group’s opposition, the Court was within prevailing

summary judgment standards in rejecting the affidavit which

contradicted his earlier deposition. Diliberti_v. United

States, 817 F.2d 1259, 1263 (7th Cir. 1987) ("It is well-

established that a party cannot create a genuine issue of fact

by submitting an affidavit containing conclusory allegations

“oe

—— a

App. 63

which contradict plain admissions in prior depositions or

otherwise sworn testimony. ")

Finally, the plaintiffs’ have requested oral argument

on this motion and certification to take an interlocutory

appeal pursuant to 28 U.S.C. 1292 (b). With respect to oral

argument, the Court is satisfied that the record in this case

has been fully developed both factually and legally.

Accordingly, the request for oral argument will be denied.

The Brown Group opposes plaintiffs’ motion for certification

citing the “strong policy against piecemeal appeals."

Freeman v. Kohl & Vick Machine Works, Inc., 673 F.2d

196, 201 (7th Cir. 1982) (citation omitted). The Court

agrees. The plaintiffs have not made the required showing

that there is a "substantial ground for difference of opinion"

on a “controlling question of law." See 28 U.S.C. 1292

(b). Moreover, the Brown Group has represented that it can

present its case-in-chief on the counterclaims in a single day.

(The Brown Group’s opposition at 9, n.3). The Court will

initiate a telephonic conference call on Friday, June 23, 1995

at 2:00 p.m. to set final pretrial and trial dates in this

matter.”

NOW THEREFORE, BASED ON THE

FOREGOING, IT IS HEREBY ORDERED THAT:

1. Plaintiffs’ motions to file an amended and

oversized brief is GRANTED;

21 The Court declines to discuss the plaintiffs’ "re-crafted" tying claim

because it remains subject to dismissal under Jack Walters & Sons v. Morton

Building, Inc., 737 F. 2d 698 (7th Cir.) cert. denied, 469 U.S. 1018 (1984).

App. 64

2. Plaintiffs’ motion for reconsideration is DENIED;

3. Plaintiffs’ motion for oral argument is DENIED;

4. Plaintiffs’ motion for certification to take an

interlocutory appeal is DENIED; and

5. The Court will initiate a scheduling conference

call on Friday, June 23, 1995 at 2:00 p.m.

Dated at Milwaukee, Wisconsin, this 16th day of

May, 1995.

SO ORDERED,

HON. RUDOLPH T. RANDA

U.S. District Judge

App. 65

APPENDIX E

United States District Court

Eastern District of Wisconsin

JUDGMENT IN A CIVIL CASE

WESTOWNE SHOES, INC., and

CARL A. BIWER COMPANY,

Plaintiffs,

v. Case Number: 93-C-720

BROWN GROUP, INC., BROWN SHOE

COMPANY, FAMOUS FOOTWEAR COMPANY,

BROWN GROUP RETAIL, INC., WOHL

SHOE COMPANY and BROWN GROUP

INTERNATIONAL, INC.,

Defendants and Counterclaim

Plaintiffs,

Vv.

BARBARA B. SCHOENECKER and

RUDOLPH V. SCHOENECKER,

Counterclaim Defendants.

Decision by Court. This action came on for

consideration and a decision has been rendered.

IT IS ORDERED AND ADJUDGED that the motion for

summary judgment of defendants Brown Group, Inc.,

App. 66

Brown Shoe Company, Famous Footwear Company,

Brown Group Retail, Inc., Wohl Shoe Company, and

Brown Group International Inc., (Brown Defendants)

against plaintiffs Westowne Shoes, Inc. and Carl A. Biwer

Company is GRANTED.

Pursuant to stipulation of the parties filed March 19,

1996, JUDGMENT is entered in favor of the Brown

Defendants on their amended counterclaim against

Westowne Shoes, Inc., in the amount of $333,138.81

without further costs. JUDGMENT is also entered in

favor of the Brown Defendants on their amended

counterclaim against Carl A. Biwer Company in the

amount of $5,821.64 without further costs. The Brown

Defendants amended counterclaim against Barbara B.

Schoenecker and Rudolph V. Schoenecker is DISMISSED

WITHOUT PREJUDICE.

This action is hereby DISMISSED.

March 19, 1996

SOFRON B. NEDILSKY

Clerk

App. 67

APPENDIX F

In the

United States Court of Appeals

For the Seventh Circuit

Chicago, Illinois 60604

March 14, 1997

Before

Hon. RICHARD A. POSNER, Chief Judge

No. 96-1955

WESTOWNE SHOES, INC.

and CARL A. BIWER Co.,

Plaintiffs-Appellants,

V.

BROWN GROUP, INC., ef al.,

Defendants-Appellees.

Appeal from the United States District Court

for the Eastern District of Wisconsin.

No. 93 C 720 -- Rudolph T. Randa, Judge

Upon consideration of the "MOTION OF

PETITIONERS-PLAINTIFFS-APPELLANTS TO

PERMIT FILING OF THEIR PETITION FOR

REHEARING INSTANTER" filed on February 4, 1997, by

counsel for the plaintiffs,

App. 68

IT IS ORDERED that the clerk file instanter the

tendered copies of the Petition for Rehearing of the

appellants.

App. 69

APPENDIX G

In the

United States Court of Appeals

For the Seventh Circuit

Chicago, Illinois

April 7, 1997

Before

Hon. Richard A. Posner, Chief Judge

Hon. Joel M. Flaum, Circuit Judge

Hon. Terence T. Evans, Circuit Judge

No. 96-1955

WESTOWNE SHOES, INC.

and CARL A. BIWER Co.,

Plaintiffs-Appellants,

v.

BROWN GROUP, INC., ef al.,

Defendants-Appellees.

Appeal from the United States District Court

for the Eastern District of Wisconsin.

No. 93 C 720 -- Rudolph T. Randa, Judge

ORDER

On March 14, 1997, plaintiffs-appellants filed a

petition for rehearing. All the judges on the original panel

App. 70

have voted to deny the petition. The petition is therefore

DENIED.

App. 71

APPENDIX H

CONSTITUTIONAL AND

STATUTORY PROVISIONS INVOLVED

AMENDMENTS TO THE

UNITED STATES CONSTITUTION

- ARTICLE VII

"In Suits common at law, where the value in

controversy shall exceed twenty dollars, the right of trial by

jury shall be preserved, and no fact tried by a jury, shall be

otherwise re-examined in any Court of the United States,

than according to the rules of the common law."

Rule 56(b), (c) and (e), Federal Rules of Civil Procedure:

"(b) For Defending Party. A party against whom

a claim, counterclaim, or cross-claim is asserted or a

declaratory judgment is sought may, at any time,

move with or without supporting affidavits for a

summary judgment in the party’s favor as to all or

any part thereof.

"(c) Motion and Proceedings Thereon. The

motion shall be served at least 10 days before the

time fixed for the hearing. The adverse party prior

to the day of hearing may serve opposing affidavits.

The judgment sought shall be rendered forthwith if

App. 72

the pleadings, depositions, answers to interrogatories,

and admissions on file, together with the affidavits, if

any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to

a judgment as a matter of law. A summary

judgment, interlocutory in character, may be rendered

on the issue of liability alone although there is a

genuine issue as to the amount of damages.

* * KK *

"(e) Form of Affidavits; Further Testimony;

Defense Required. Supporting and opposing

affidavits shall be made on personal knowledge, shall

set forth such facts as would be admissible in

evidence, and shall show affirmatively that the affiant

is competent to testify to the matters stated therein.

Sworn or certified copies of all papers or parts

thereof referred to in an affidavit shall be attached

thereto or served therewith. The court may permit

affidavits to be supplemented or opposed by

depositions, answers to interrogatories, or further

affidavits. When a motion for summary judgment is

made and supported as provided in this rule, an

adverse party may not rest upon the mere allegations

or denials of the adverse party’s pleading, but the

adverse party’s response, by affidavits or as otherwise

provided in this rule, must set forth specific facts

showing that there is a genuine issue for trial. If the

adverse party does not so respond, summary

judgment, if appropriate, shall be entered against the

adverse party.

App. 73

Rule 3(a), Federal Rules of Appellate Procedure:

Rule 3. Appeal as of Right -- How Taken

(a) Filing the Notice of Appeal. An appeal

permitted by law as of right from a district court to

a court of appeals must be taken by filing a notice of

appeal with the clerk of the district court within the

time allowed by Rule 4. At the time of filing, the

appellant must furnish the clerk with sufficient copies

of the notice of appeal to enable the clerk to comply

promptly with the requirements of subdivision (d) of

this Rule 3. Failure of an appellant to take any step

other than the timely filing of a notice of appeal does

not affect the validity of the appeal, but is ground

only for such action as the court of appeals deems

appropriate, which may include dismissal of the

appeal. Appeals by permission under 28 U.S.C.

§ 1292(b) and appeals in bankruptcy must be taken in

the manner prescribed by Rule 5 and Rule 6

respectively.

Rule 28(a)(3), (4), (5) and (6), Federal Rules of Appellate

Procedure:

(a) Appellant’s Brief. The brief of the appellant

must contain, under appropriate headings and in the

order here indicated:

*x** *k * *

(3) A statement of the issues presented for review.

App. 74

(4) A statement of the case. The statement shall

first indicate briefly the nature of the case, the course

of proceedings, and its disposition in the court below.

There shall follow a statement of the facts relevant to

the issues presented for review, with appropriate

references to the record (see subdivision (e)).

(5) A summary of argument. The summary should

contain a succinct, clear, and accurate statement of

the arguments made in the body of the brief. It

should not be a mere repetition of the argument

headings.

(6) An argument. The argument must contain the

contentions of the appellant on the issues presented,

and the reasons therefor, with citations to the

authorities, statutes, and parts of the record relied on.

The argument must also include for each issue a

concise statement of the applicable ‘standard of

review; this statement may appear in the discussion of

each issue or under a separate heading placed before

the discussion of the issues.

Rule 40(a), Federal Rules of Appellate Procedure:

(a) Time for Filing; Content; Answer; Action by

Court if Granted. A petition for rehearing may be

filed within 14 days after entry of judgment unless

the time is shortened or enlarged by order or by local

rule. However, in all civil cases in which the United

States or an agency or officer thereof is a party, the

App. 75

time within which any party may seek rehearing shall

be 45 days after entry of judgment unless the time is

shortened or enlarged by order. The petition must

state with particularity the points of law or fact which

in the opinion of the petitioner the court has

overlooked or misapprehended and must contain such

argument in support of the petition as the petitioner

desires to present. Oral argument in support of the

petition will not be permitted. No answer to a

petition for rehearing will be received unless

requested by the court, but a petition for rehearing

will ordinarily not be granted in the absence of such

a request. If a petition for rehearing is granted, the

court may make a final disposition of the cause

without reargument or may restore it to the calendar

for reargument or resubmission or may make such

other orders as are deemed appropriate under the

circumstances of the particular case.

28 U.S.C. § 1291. Final decisions of district courts.

The courts of appeals (other than the United States Court

of Appeals for the Federal Circuit) shall have jurisdiction of

appeals from all final decisions of the district courts of the

United States, the United States District Court for the

District of the Canal Zone, the District Court of Guam, and

the District Court of the Virgin Islands, except where a

direct review may be had in the Supreme Court. The

jurisdiction of the United States Court of Appeals for the

Federal Circuit shall be limited to the jurisdiction described

in sections 1292(c) and (d) and 1295 of this title.

App. 76

APPENDIX I

STATE OF WISCONSIN

CIRCUIT COURT

WAUKESHA COUNTY

WESTOWNE SHOES, INC.,

a Wisconsin corporation,

and CARL A. BIWER COMPANY

a Wisconsin corporation, Case Classifications:

244 West Main Street Breach of Contract,

Waukesha, Wisconsin 53186 Case Code: 30303

Intentional Tort,

Plaintiffs, Case Code: 30106

Unclassified,

VS. Case Code: 30703

BROWN GROUP, INC., a Missouri

corporation, Case No. 93-CV-1291

8400 Maryland Avenue,

St. Louis, Missouri, 63166;

BROWN SHOE COMPANY, a Missouri

corporation, 8400 Maryland Avenue,

St. Louis, Missouri, 63166;

FAMOUS FOOTWEAR COMPANY, a Wisconsin

association, 208 East Olin Avenue,

Madison, Wisconsin 53713;

BROWN GROUP RETAIL, INC., a

Pennsylvania corporation; 8400 Maryland

Avenue, St. Louis, Missouri, 63166;

WOHL SHOE COMPANY, a Missouri

App. 77

association, 8400 Maryland Avenue,

St. Louis, Missouri 63166; BROWN GROUP

INTERNATIONAL, INC., a Delaware

corporation, 8400 Maryland Avenue,

St. Louis, Missouri 63133;

ABC, XYZ, and INSCO,

Defendants.

COMPLAINT

The plaintiffs complain against the defendants as

follows:

INTRODUCTION AND DESCRIPTION OF PARTIES

1. This is an action by two retail shoe companies

to recover damages from the Brown Shoe Company, its

corporate parent Brown Group, Inc. ("Brown Group") and

other Brown Group subsidiaries, divisions and related

entities, which engage in the manufacture, wholesaling and

retailing of shoes, including Naturalizer and other lines of

women’s shoes. The plaintiffs allege causes of action for

breach of contract, promissory estoppel, negligent

misrepresentation, misrepresentation/strict liability, unfair

competition, violation of Wisconsin’s antitrust laws and

unfair trade practices, all arising out of conduct engaged in

by the defendants on and after June 11, 1987.

App. 78

2. The plaintiff Westowne Shoes, Inc.

("Westowne") and the plaintiff Carl A. Biwer Company

("Biwer") are Wisconsin corporations, whose principal

offices are located at 244 West Main Street, Waukesha,

Wisconsin 53186. At all relevant times: the owners of

Westowne have owned a substantial interest in Biwer;

Westowne has operated Naturalizer Specialty Stores in the

Bayshore Mall, Glendale, Wisconsin, in the Fox River mall

in Appleton, Wisconsin, and in the East Town Mall and

West Town Mall in Madison, Wisconsin; and Biwer has

(until January 1991) operated a Naturalizer Specialty Store

in La Crosse, Wisconsin, plus a multi-line family shoe store

in Waukesha, Wisconsin and a multi-line women’s shoe

department in a women’s ready to wear store in Madison,

Wisconsin.

3. The defendant Brown Group, Inc. ("Brown

Group") is a $1.8 billion corporation with world-wide

operations in footwear and specialty retailing. Its principal

offices are located at 8400 Maryland Avenue, St. Louis,

Missouri, 63166, and its agent for service in Wisconsin is

C.T. Corp. System, 44 East Mifflin Street, Suite 1000,

Madison, WI 53703. The other defendants are its

subsidiaries or divisions. The defendant Brown Shoe

Company is either a corporation or an association. Its

principal offices are also located at 8400 Maryland Avenue,

St. Louis, Missouri, 63166. It operates as a division of

Brown Group and is engaged principally in the manufacture

and wholesale of shoes, including the line of women’s shoes

known as Naturalizer shoes, and it (or its parent, Brown

Group) owns and exploits the Naturalizer tradename and

trademark. The defendant Famous Footwear Company

App. 79

("Famous Footwear") is either a corporation or an

association; its so-called "corporate offices" and principal

place of business are located at 208 East Olin Avenue,

Madison, Wisconsin 53713. The defendant Brown Group

Retail, Inc. ("Brown Retail") is a Pennsylvania corporation.

Its principal offices are located at 8400 Maryland Avenue,

St. Louis, Missouri, 63166. Wohl Shoe Company ("Wohl")

is either a corporation or an association. Its principal offices

and place of business are located at 8400 Maryland Avenue,

St. Louis, Missouri 63166. The defendant Brown Group

International, Inc. is a Delaware corporation. Its principal

offices and place of business are located at 8400 Maryland

Avenue, St. Louis, Missouri 63166. Its agent for service in

Wisconsin is C.T. Corp. System, 44 East Mifflin Street,

Suite 1000, Madison, Wisconsin 53703. The defendants

ABC, XYZ and INSCO are named pursuant to the Wisconsin

fictitious name statute, § 807.12 Stats. ABC and XYZ are

named as parties herein because they are divisions or

affiliates of Brown Group, Inc. which participated in the

misconduct complained of below. They are either

corporations or associations. INSCO is named as a party

herein because it is the insurance company which provided

public liability insurance to one or more of the defendants

covering conduct complained of herein. All of the

defendants at all relevant times have done and do business in

Wisconsin and are found in Wisconsin, and the events

complained of herein occured principally in Wisconsin. The

agreements establishing the plaintiffs’ Naturalizer Specialty

Stores were made in Wisconsin, their underlying purpose

was to provide for retail shoe sales in Wisconsin and the

trade and competition referred to herein, and restraints

thereon alleged below, took place in Wisconsin.

App. 80

ALLEGATIONS APPLICABLE TO ALL CLAIMS

4. Prior to June 11, 1987, the defendant Brown

Group through its division known as Brown Shoe Company,

entered into a series of agreements with the plaintiffs, under

which the plaintiffs became Naturalizer dealers and operated

Naturalizer Specialty Stores. The dealership agreements

between the plaintiffs and Brown Group/Brown Shoe

Company were contained in letters, bills of sale and other

documents, samples of which are attached hereto as Exhibit

A. These authorized the plaintiffs to use the Naturalizer

tradename and trademark and display a Naturalizer sign, and

to sell women’s shoes manufactured by the Brown Shoe

Company under the Naturalizer tradename and with the

Naturalizer trademark. Pursuant to these agreements, the

plaintiffs established Naturalizer Specialty Stores during the

1970’s and early 1980's.

> 3 As of June 1987, all of the stores operated by

Westowne pursuant to these agreements and the La Crosse

store operated by Biwer pursuant to these agreements were

so-called "Naturalizer Specialty Stores." This meant that,

pursuant to the plaintiffs’ agreements with Brown

Group/Brown Shoe Company referred to above, the stores

featured a Naturalizer sign and identified themselves as

Naturalizer shoe stores, and Naturalizer was the principal

line of shoes sold in the stores. Naturalizer was a high-

quality line of women’s shoes, but the defendants did not

produce Naturalizer shoes in certain important classifications

of women’s casual shoes, especially the so-called "comfort

casual" classification and moccasins. In order to have

quality shoes in those classifications available for sale,

App. 81

Naturalizer Specialty Stores, including those owned and

operated by the plaintiffs, obtained and sold casual shoes

manufactured by others, including such lines known as

"SAS" and "Sebago." The profitability of the specialty

stores depended heavily upon having casual shoes of such

quality and acceptance available for sale to retail customers.

A total of 621 Naturalizer Specialty Stores were established

in various states throughout the United States as of June

1987. About half of these were owned by the defendant

Wohl and the remaining half by independent dealers such as

the plaintiffs.

6. Operating under this arrangement with the

Brown Shoe Company/Brown Group in the years prior to

June 1987, the plaintiffs invested hundreds of thousands of

dollars in advertising and marketing efforts to promote the

Naturalizer trademark and tradename as referring to high-

quality shoes, all as contemplated by their contractual

arrangements with Brown Shoe Company/Brown Group. In

accordance with these contractual arrangements, the plaintiffs

during that period also relied on their right to stock and sell

casual shoes made by manufacturers other than Brown Group

or its affiliates, and the plaintiffs planned their marketing and

merchandizing accordingly.

7. Sometime shortly after June 11, 1987, the

plaintiffs received from the defendant Brown Group and its

Brown Shoe Company division a letter purporting to amend

the terms of their agreements with Naturalizer Specialty

Store owners. That letter, attached hereto as Exhibit B,

required that specialty stores must thereafter fulfill what

these defendants characterized as a "standard of purity," by

App. 82

which they meant that Naturalizer Specialty Stores were

forbidden to sell any line of shoes other than Naturalizer.

The same letter represented that Brown Group and Brown

Shoe Company had developed their product line in a way that

insured a complete and balanced selection of Naturalizer

shoes across all the major classifications of women’s

footwear, in recognition of the need in the marketplace for

a single line specialty store serving the consumer with a

broad selection of well styled footwear in sizes and widths

manufactured to a high standard of quality and fit.

Moreover, by this letter, together with the earlier agreements

referred to above and the related communications between

the plaintiffs and the defendants, these defendants promised

that they would supply to the plaintiffs casual Naturalizer

shoes comparable to the other Naturalizer classifications in

fit, size, service and fashion, constituting an adequate

replacement for the casual lines of other manufacturers being

carried up to that point by the Naturalizer Specialty Stores.

8. In reliance upon the defendants’ said

representations and promises and as shown in Exhibit C

hereto, the plaintiffs agreed to comply with the "standard of

purity," proceeded to eliminate the non-Naturalizer casual

lines from their Naturalizer Specialty Stores, ordered the

Naturalizer casual shoes, continued to operate as Naturalizer

Specialty Stores and spent additional large sums of money

advertising and otherwise promoting the Naturalizer

tradename and trademark.

9. The defendants failed to supply to the plaintiffs

the casual Naturalizer shoes of the quality and types the

defendants had represented were available and could be

App. 83

provided. The defendants in fact had not developed an

adequate, complete and balanced selection of Naturalizer

shoes across all the major classifications of women’s

footwear, particularly in that they had not developed casual

shoes (especially .in the so-called "comfort casual"

classification and moccasins) reasonably comparable in

quality to the rest of the Naturalizer line. The casual shoes

defendants did produce were of poor quality and shipped

sporadically, disrupting the plaintiffs’ business operations,

antagonizing and disappointing retail customers, and

effectively depriving the plaintiffs of the benefits of having

a complete and balanced selection across all the major

classifications of women’s footwear. The defendants thus

failed to comply with their promise to market and provide

Naturalizer shoes in the complete and balanced selection of

styles and of the standard of quality and fit they had

represented were available and had promised they would

provide. The defendants further injured the plaintiffs’

business by repeatedly misleading them as to the quality and

availability of shoes the defendants had available for sale.

10. +‘ Further, at all relevant times the defendants

Brown Retail and Wohl operated retail shoe departments

(under lease with department stores) in most of the same

shopping malls where the plaintiffs’ stores were located,

selling Naturalizer shoes in direct competition with the

Naturalizer Specialty Stores operated by the plaintiffs. These

shoe departments operated by those defendants sold casual

shoes made by manufacturers unaffiliated with Brown Group,

notwithstanding that after June 11, 1987 Brown Group and

Brown Shoe Company were prohibiting the plaintiffs from

selling such shoes.

App. 84

11. Also, Naturalizer Specialty Stores owned and

operated by Wohl and Brown Retail in direct competition

with the plaintiffs’ stores were permitted by Brown

Group/Brown Shoe Company to sell non-Naturalizer shoes

with the Naturalizer label inserted, though the plaintiffs were

not permitted by Brown Group/Brown Shoe Company to

market these. Further, the defendants Brown Shoe Company

and ABC were selling Naturalizer shoes to the shoe

departments being operated by Brown Retail and Wohl, and

to discount shoe stores being operated by Famous Footwear,

at wholesale prices less than the prices being charged to the

plaintiffs’ Naturalizer specialty stores and on more favorable

terms, so that the retail shoe departments and stores

obtaining the shoes at lower wholesale prices and on better

terms were able to and did charge retail prices less than the

plaintiffs’ stores had to charge. This price discrimination

materially injured competition and injured the plaintiffs’

ability to compete in the retail sale of women’s shoes.

12. In addition, Brown Shoe Company and other

divisions of Brown Group provided and sold to Naturalizer

Specialty Stores owned and operated by Wohl and Brown

Retail, and shoe departments leased and operated by them,

Naturalizer patterns and classifications not available to the

plaintiffs.

13. | The defendants since June 11, 1987 have also

engaged in false and deceptive labelling. This includes such

activities, among others, as pasting Naturalizer labels into

cheap shoes made in China and marketing those as supposed

"Naturalizer" shoes being offered at substantial discounts.

These and similar activities have not only resulted in the

App. 85

plaintiffs’ shoes being undersold, (or being undersold by an

ostensibly equivalent shoe), but have also materially injured

the quality image of the Naturalizer trademark promoted and

established over many years by the plaintiffs, at great

expense to them, and relied upon by them.

14. As a proximate result of the defendants’

conduct alleged above and as further alleged below, the

plaintiffs were and are being injured and damaged in their

business and property, including the loss of ability to

compete, past and future loss of profits, incurring debt, loss

in the capital value of their stores and business operation,

and other damages. These damages are ongoing and are in

such amount as will be determined at trial herein.

BREACH OF CONTRACT

15. The allegations in paragraphs 1 through 14

above are incorporated by reference here as though pleaded

verbatim.

16. From and after the June 11, 1987 modification

of the agreements under which the plaintiffs operated their

Naturalizer Specialty Stores, and the plaintiffs’ consent to

and compliance with that modification, the defendants were

under contractual obligations: (a) to supply to the plaintiffs’

specialty stores casual classifications of Naturalizer shoes

comparable in quality to the other Naturalizer shoes and to

the non-Naturalizer casual shoes (such as the SAS and

Sebago lines) which the plaintiffs had theretofore sold in

their Naturalizer Specialty Stores, (b) to maintain Naturalizer

as a high-quality line, (c) to sell shoes to the plaintiffs at a

App. 86

fair and true wholesale price, and (d) to otherwise act in

accordance with their promises alleged above. At the time

the parties entered into those agreements and particularly

when the defendants Brown Group and Brown Shoe

Company initiated the "purity standard" modification on and

after June 11, 1987, it was understood, foreseeable and

foreseen by all parties that the profitability of the plaintiffs’

specialty stores was dependent upon their having an

adequate, consistent and predictable supply of such quality

women’s shoes in all classifications, as alleged above, and

that a breach by the .2fendants of their contractual

obligations would materially injure and damage the plaintiffs’

entire business and would probably destroy their profitability.

17. The defendants breached their contractual

obligations in each of the following respects, among others:

a. The defendants failed to supply casual

Naturalizer shoes of the kind and quality promised.

b. The defendants made deliveries of

shoes in an unpredictable, tardy and erratic manner,

so that the plaintiffs could not engage in reasonable

business planning.

¢. The defendants supplied Naturalizer

shoes in supposed fulfillment of their contractual

obligations that were illfitting, poorly made and in

other respects of poor quality.

d. The defendants failed to sell shoes to

plaintiffs at’ a true wholesale price, and in fact

App. 87

charged plaintiffs a higher price than it did to Wohl,

Brown Retail and Famous Footwear Company.

e. The defendants failed to make available

to plaintiffs the entire Naturalizer line.

f. The defendants cheapened the

meaning of the Naturalizer tradename, label

and trademark by attaching them to poor

quality, cheap shoes.

g. The defendants breached their

contractual obligations by their other misconduct

alleged in this Complaint.

18. | The defendants’ breach of contract caused the

damages to the plaintiffs alleged above and in an amount

exceeding Two Million Dollars ($2,000,000).

PROMISSORY ESTOPPEL

19. The allegations in paragraphs 1 through 18

above are incorporated by reference here as though pleaded

verbatim.

20. The defendants should reasonably have

expected that their promise to supply the quality, casual

Classifications of Naturalizer Shoes to the plaintiffs for sale

in the plaintiffs’ specialty stores would induce both action

and forbearance of a definite and substantial character by the

plaintiffs in the following respects, among others: dropping

SAS, Sebago and other non-Naturalizer lines; continuing to

App. 88

operate as a Naturalizer Specialty Store; advertising and

other promotion of the Naturalizer trademark, and

forbearance from seeking legal relief.

21. The defendants’ promises did in fact induce

such action and forbearance, in that, among other things, the

plaintiffs dropped the SAS and Sebago lines from their

Naturalizer Specialty Stores, they complied with the "purity

standards" imposed by. the defendants, they spent substantial

sums of money promoting the Naturalizer name and

trademark; they forbore seeking legal relief, and in other

respects.

22. Injustice can be avoided only by enforcement

of the defendants’ promise, through this damage action.

Accordingly, under the doctrine of promissory estoppel, the

plaintiffs are entitled to the damages complained of above.

NEGLIGENT MISREPRESENTATION

23. The allegations in paragraphs 1 through 22

above are incorporated by reference here as though pleaded

verbatim.

24. The representations of fact made by Brown

Group/Brown Shoe Company in their June 11, 1987 letter to

the plaintiffs that these defendants had achieved product

development to insure that the Naturalizer line then offered

a complete and balanced selection across all the major

classifications of women’s footwear in a broad selection of

well-styled footwear in sizes and widths, manufactured to

App. 89

high standards of quality and fit that would meet the

expectations of plaintiff's customers, were untrue.

25. These defendants were negligent in making

these representations in that they should have reasonably

foreseen that such misrepresentations would subject the

interests of the plaintiffs to an unreasonable risk of damage.

26. The plaintiffs believed, were materially

induced by and relied on these misrepresentations to their

damage.

MISREPRESENTATION: STRICT RESPONSIBILITY

27. The allegations in paragraphs 1 through 26

above are incorporated by reference here as though pleaded

verbatim.

28. The representations of fact made by Brown

Group/Brown Shoe Company in their June 11, 1987 letter to

the plaintiffs that these defendants had achieved product

development to insure that the Naturalizer line then offered

a complete and balanced selection across all the major

classifications of women’s footwear in a broad selection of

well-styled footwear in sizes and widths, manufactured to

high standards of quality and fit that would meet the

expectations of plaintiff's customers, were untrue.

29. These defendants made_ these

misrepresentations as facts based on their own personal

knowledge or in circumstances in which they ought to have

known the truth or untruth of their representations because

App. 90

they were so situated that they either had particular means of

ascertaining the pertinent facts, or their position made

sufficient knowledge possible and their statements fairly

implied that they had such knowledge.

30. These defendants had an economic interest and

stood to make financial gain if the plaintiffs acted upon these

representations.

31. The plaintiffs believed, were materially

induced by and relied on these misrepresentations to their

damage.

COMMON LAW UNFAIR COMPETITION

32. The allegations in paragraphs 1 through 31

above are incorporated by reference here as though pleaded

verbatim.

33. | The defendants Wohl, Brown Retail, Famous

Footwear and XYZ were at all relevant times in competition

with the plaintiffs in the retail sale of women’s shoes. From

June 11, 1987 to the present the defendants have engaged in

unfair competition by virtue of the facts, circumstances and

misconduct alleged above, and particularly because of the

following:

a. Throughout the period just alleged,

Brown Shoe Company and Brown Group

discriminatorily imposed upon the plaintiffs the

prohibition that they could not sell non-Naturalizer

lines in their Naturalizer Specialty Stores, even

App. 91

though Wohl, Brown Retail, Famous Footwear and

XYZ were operating women’s shoe departments in

the same shopping malls, and Naturalizer Specialty

Stores in other nearby locations, where both

Naturalizer and other lines were being sold.

b. Brown Shoe Company, ABC and other

divisions of Brown Group engaged in_ the

discriminatory pricing referred to above.

. Wohl, Brown Retail, Famous Footwear

Company and XYZ sold Naturalizer shoes at retail

~ prices which the plaintiffs, in view of the wholesale

prices they were paying and other terms imposed on

them by the defendants, could not reasonably match.

d. The defendants engaged in false and

deceptive ‘abelling and other false and deceptive

marketing practices, such as labelling cheap and low

, quality merchandise as "Naturalizer" shoes and then

offering them at supposed large discounts to the

consuming public.

e. Brown Shoe Company, Brown Group

International, Inc., other divisions of Brown Group

and ABC secretly extended to Brown Retail, Wohl,

Famous Footwear and XYZ, and to stores in which

those companies operated women’s shoe departments,

special services and privileges not extended to the

plaintiffs purchasing under like terms and conditions,

which tended to injure and did injure the plaintiffs.

App. 92

2 The defendants engaged in the other

acts of unfair competition alleged above.

34. The unfair competition engaged in by the

defendants was a proximate cause of the injuries and

damages sustained by the plaintiffs.

ANTITRUST VIOLATIONS

35. The allegations in paragraphs 1 through 34

above are incorporated by reference here as though pleaded

verbatim.

36. | The agreements between the defendants Brown

Group/Brown Shoe Company and the plaintiffs, and

particularly the provisions therein relating to the so-called

"standard of purity" and prohibition against the plaintiffs

marketing lines other than Naturalizer lines constituted a

contract in restraint of trade and commerce, in ‘violation of

Wisconsin Statutes Section 133.03. This restraint was

unreasonable in that, among other things, it was without any

restriction as to time or place, it was greater than required

for the protection of the person for whose benefit the

restraint was imposed, it imposed undue hardships and losses

upon the plaintiffs and the Naturalizer Specialty Stores they

operated, it injured competition generally and resulted in

higher prices being charged to the public, resulted in certain

products being foreclosed from purchase by the public, and

was applied discriminatorily against the plaintiffs.

App. 93

37. | The defendants’ said violation of Wisconsin

Statutes Section 133.03 was a proximate cause of the injuries

and damages alleged above.

38. By reason of the defendants’ violations of

Wisconsin Statutes Section 133.03 as alleged above, the

plaintiffs were injured both directly and indirectly in their

business and property, sustaining the damages alleged above,

which damages are ongoing and exceed Two Million Dollars

($2,000,000). | Accordingly, under Wisconsin Statutes

Section 133.18, the plaintiffs are entitled to treble their

damages, or an amount exceeding Six Million Dollars

($6,000,000), plus the cost of suit including reasonable

attorney’s fees.

STATUTORY UNFAIR TRADE PRACTICES

39. The allegations in paragraphs 1 through 38

above are incorporated by reference here as though pleaded

verbatim.

40. In the course of their misconduct alleged

above, the defendants Brown Shoe Company, Brown Group

International, Inc., other divisions of Brown Group and ABC

secretly extended to the defendants Brown Retail, Wohl,

Famous Footwear and XYZ, and to stores in which they

operated women’s shoe departments, special services or

privileges not extended to the plaintiffs purchasing under like

terms and conditions, which injured and tended to injure a

competitor, namely, the plaintiffs and each of the Naturalizer

Specialty Stores operated by the plaintiffs, all in violation of

Wisconsin Statutes Section 133.05.

App. 94

41. The defendants’ misconduct was a proximate

cause of the injuries and damages sustained by the plaintiffs.

42. By reason of the misconduct of the defendants

alleged above, prohibited by Wisconsin Statutes Section

133.05, the plaintiffs sustained the injuries and damages

alleged above, entitling the plaintiffs under Wisconsin

Statutes Section 133.18 to treble their damages, or an amount

exceeding Six Million Dollars ($6,000,000), plus the cost of -

suit including reasonable attorney fees.

WHEREFORE, the plaintiffs demand judgment

against the defendants as follows:

(1) For damages on their claims for breach of

contract, for antitrust violations and for unfair trade practices

in an amount exceeding Two Million Dollars ($2,000,000),

trebled pursuant to Wisconsin Statutes Section 133.18.

(2) For damages on their other claims stated

herein in the amount to be determined at trial.

(3) For costs and disbursements herein, including

reasonable attorney fees pursuant to Wisconsin Statute

Section 133.18.

App. 95

Dated: June 8, 1993.

KERSTEN & McKINNON, S.C.

Attorneys for the Plaintiffs

By: George P. Kersten

State Bar No. 1008099

Kenan J. Kersten

State Bar No. 1008505

OF COUNSEL:

KERSTEN & McKINNON, S.C.

231 West Wisconsin Avenue

Suite 1200

Milwaukee, WI 53203

Tel. No. 414-271-0054

Fax No. 414-271-7131

App. 96

APPENDIX J

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF WISCONSIN

WESTOWNE SHOES, INC.,

and CARL A. BIWER COMPANY,

Plaintiffs,

VS. Case No. 93-CV-0720 (RTR)

BROWN GROUP, INC., BROWN SHOE

COMPANY, BROWN GROUP RETAIL,

INC., BROWN GROUPINTERNATIONAL,

INC., ABC, XYZ and CITY INSURANCE

COMPANY,

Defendants,

VS.

BARBARA B. SCHOENECKER and

RUDOLPH V. SCHOENECKER,

Counterclaim-Defendants.

Excerpts from

AFFIDAVIT OF RUDOLPH V. SCHOENECKER

IN OPPOSITION TO DEFENDANTS’

MOTIONS FOR SUMMARY JUDGMENT

STATE OF WISCONSIN )

) ss.

COUNTY OF MILWAUKEE )

Rudolph V. Schoenecker, being first duly sworn, on

oath, deposes of his personal knowledge and avers as

follows:

-B I am one of the parties in the above entitled

action. I am a shareholder in Westowne Shoes, Inc.

("Westowne") and Carl A. Biwer Company ("Biwer"), the

plaintiffs, and I am also the president and chief executive

officer of both companies. I am the husband of Barbara B.

Schoenecker, also a party in this case. I reside at W278

N2780 Rocky Point Road, Pewaukee, Wisconsin 53072. I

make this affidavit of my personal knowledge. To the extent

any contents of this affidavit constitute an opinion, that

opinion is based upon my background and experience in the

footwear industry, in which I have spent substantially my

entire life as more particularly described below, and I hold

those opinions to a reasonable degree of probability. I make

this affidavit in opposition to the affidavits and other papers

filed by the defendants in support of their motions for

summary judgment.

2. My wife Barbara and I were married in

December, 1957 and we both graduated from Marquette

University in 1958. Immediately upon graduation I joined

my father-in-law, Carl A. Biwer, in the management and

operation of his family shoe store business headquartered in

downtown Waukesha, Wisconsin. Biwer had other stores,

and I participated in the management of those stores as well.

App. 98

From the time I began work with Biwer and thereafter, those

stores always carried the Naturalizer line of shoes, so that

over the years I became very familiar with the Naturalizer

line.

3. In approximately 1970 representatives of

Brown Shoe Company approached us proposing that we open

a Naturalizer specialty store in a mall being developed in

Madison, known as West Towne. As we investigated the

possibility of doing so, we learned that another mall on the

east side of Madison was being developed by the same

’ people, and we advised Brown we would be willing to open

Naturalizer specialty stores in both malls, which Brown

wanted us to do. Brown explained to us that each of these

would be a Naturalizer dealership. I was present at the

deposition in this case of Marcus Lemp, and have also read

the transcript of his deposition, and I agree with his

description of the agreement between Brown and the

Naturalizer dealers. That description is accurate also in

describing the agreement between Brown and Westowne for

each of the Naturalizer specialty stores ultimately opened and

operated by Westowne. The same dealership agreement was

made between Brown Shoe Company and Biwer for the

Naturalizer specialty store (in La Crosse) which Biwer

opened and operated.

4. Of particular importance to me in this

agreement as the chief executive officer of the Naturalizer

dealerships Westowne was opening, were the following:

First, the use of the Naturalizer sign on the store front,

which identified the store as a Naturalizer dealership.

Naturalizer was already known as a quality shoe, very

App. 99

comfortable and well-fitting, but one of our objectives was

to help develop the brand identification for Naturalizer by

having the store front sign display the name in the high-

traffic area where the store would be located, namely a mall.

The Naturalizer name at the time we began our stores was

not nearly so well known as it is now, and there was not at

that time the extent of public awareness as there later was,

that the name stood for a quality line of women’s shoes. In

fact, Naturalizer was not even Biwer’s number one women’s

brand at the time (Life Stride was), but we felt that by

having the store front sign and providing high level service

to the customers at the specialty stores, we could promote the

Naturalizer brand effectively, and it was apparent that Brown

wanted to support us in that effort and wanted the brand

promoted as well. Ultimately, through our efforts and the

efforts of the other dealers, the Naturalizer name became

much better known, as described by Mr. Lemp in his

deposition, until, as of 1987, it was the number one name in

women’s shoes, both in terms of brand identification and

brand loyalty.

5. Secondly, it was important for me that Brown

would be supporting our specialty store with a very good

inventory system, which made it economically feasible for

the specialty store to carry a broad range of inventory in

terms of patterns, sizes and colors. This was crucial to the

concept of a specialty store, because the specialty store’s

emphasis was and is on servicing the customer. As soon as

popular patterns were sold, Brown’s inventory system on the

most important patterns permitted us to immediately

replenish our inventory. This was called an "in-stock

program" and meant that Brown would carry a large back-up

App. 100

inventory of shoes likely to be reordered, and would fill

reorders on shoes immediately. Thus, the dealers, including

Westowne, could concentrate on breadth and variety of

inventory, knowing that they could always call upon Brown’s

in-stock program for the key shoes to replenish the

inventory.

6. Another very important part of the agreement

was that we had access to the entire Naturalizer line,

understanding that we would be in malls that would include

transient traffic, as well as women who would be familiar

generally with the Naturalizer line and its advertising, and

we wanted to be able to respond to customer requests for

patterns, having available in the store at least the patterns

that we judged from year to year would be those likely to be

sold.

7. It was recognized by both Brown and us from

the very start that Naturalizer was not a complete line, and

had voids in certain important classifications of women’s

shoes. It was therefore also very important to us as dealers,

and Brown agreed, that to the extent we felt it important to

respond to the market, we were entitled as Naturalizer

dealers to supplement the Naturalizer line by outside lines.

These outside lines varied from time to time depending on

market demand. For example, when we first opened the

West Towne and East Towne stores in Madison, we carried

over 500 pairs of Sandler stretch boots, which were not

manufactured by Brown or a Brown affiliated company.

When, within approximately a year, Brown began

successfully to produce a stretch boot in the Naturalizer line,

we purchased and sold those and discontinued the Sandler

App. 101

line. Similarly, our specialty stores carried Bandolino

sandals for most of the 1970’s, until the market changed and

Bandolino dropped that line. We also carried Sebago

moccasins through the 1970’s until the mid-1980’s, since

those shoes were not produced in a Naturalizer version. As

described more fully below, during the 1980’s the comfort

casual classification of women’s shoes became increasingly

important, and beginning in 1984 our Naturalizer specialty

stores began carrying the comfort casual shoe line

manufactured by San Antonio Shoe Company ("SAS").

8. As an additional part of our dealership

agreement with Brown, Westowne and Biwer agreed that

each of its dealerships would market the Naturalizer line as

its principal line and carry an adequate stock in the

Naturalizer line, so as to have Naturalizer shoes available

across a good spectrum of customer needs. Throughout the

entire relationship between Westowne and Biwer on the one

hand and Brown on the other in respect to these Naturalizer

specialty stores, our stores were never once criticized by

Brown for not having an adequate inventory of Naturalizer

shoes, either in terms of variety or amount. To the contrary,

Brown from time to time would comment (always favorably)

on our inventory and selection of patterns, sizes and colors,

and was consistently complimentary about the product mix

and size of our inventory, the management and appearance

of our stores and the personnel. Brown had a special

marketing organization trained for and concentrating on

support of the Naturalizer specialty stores, and also had

regular contact with our stores through their sales

representatives who serviced the stores. These sales

representatives would regularly be in our stores often,

App. 102

frequently on a once or twice a week basis, so that there was

substantially continuous contact between our stores and these

Brown representatives and they knew essentially at all times

how our stores were being operated. Brown also supplied

us, as dealers, with credit and provided support to us for

store design, advertising assistance and other, similar

support.

9. I was the principal person dealing on behalf of

the Westowne and Biwer stores with Brown home office

personnel on matters of credit, ordering shoes and other

typical contacts between a wholesaler and a retailer.

Westowne and Biwer regularly bought shoes from Brown on

a credit basis and I regularly supplied to Brown Westowne

financial statements and other financial information in

connection with that credit relationship.

* * *K *

14. Starting with the first Naturalizer stores

opened by Westowne and continuing into the 1980’s, Biwer

and Westowne contributed in a significant way to the image,

popularity and brand loyalty of Naturalizer shoes. This was

done primarily by developing our Naturalizer stores and in

the process providing, through training and management,

effective service and offering merchandise to meet customer

expectations. In providing effective service for our

customers, our sales people were trained to counsel

customers on style and color coordination as well as on fit

and comfort. They did minor repairs such as replacing

buckles and eyelets or sewing up stitching free of charge.

They arranged for major repairs, telephoned customers to

advise them of incoming shoes the customer liked and they

made special orders for shoes requested by the customer.

App. 103

Biwer and Westowne additionally contributed to the

Naturalizer image and reputation by annually investing -

approximately $65,000 in advertising the Naturalizer name

and Naturalizer shoes. By concentrating on selection and

service for the customer, our specialty stores, like others

throughout the country, became, according to Brown, "one

of the most sought after entities" in the shoe industry (see,

Exhibit 15).

* * KK

20. In 1984, when SAS shoes were introduced into

the inventory at each of the Naturalizer stores, they quickly

became an important and profitable part of our product mix.

21. As of the time we introduced SAS shoes in our

inventories at the Naturalizer stores, to my observation as an

experienced person in the shoe business, the trend among the

customers at our Naturalizer stores, like consumers

elsewhere, was towards a more comfortable casual shoe.

The SAS shoe, particularly for the typical customer at our

Naturalizer stores became a very popular and successful

shoe. Typically, SAS. shoes constituted approximately 10%

of the inventory but produced at least 20% of total sales

volume. Based on the growth of popularity and acceptance

of SAS shoes among our customers, and in view of the

extent to which sales volume from relatively small

percentages of SAS inventory has increased in Naturalizer

stores that have continued to carry SAS shoes through the

1980’s and into the early 1990’s, I would estimate that if our

Naturalizer specialty stores had been allowed to continue

carrying SAS shoes as approximately 10% of our inventory,

it would have, by 1990 and beyond, accounted for at least

30% of total volume such as has occurred in other

App. 104

Naturalizer stores which have continued to carry SAS shoes

as approximately 10% of total inventory. We found in our

Naturalizer stores when we were carrying SAS shoes that

they seldom had to be discounted because they became

"classics" that stayed in style and in demand year after year.

They were easily reordered and readily delivered. Selling

SAS shoes with such regularity and replacing them as they

became sold, particularly because they did not have to be

marked down in order to be sold, made the sale of SAS

shoes especially prefitable.

22. Further, having an accepted quality comfort

casual shoe regularly sought by our customers assisted in the

sale of our Naturalizer shoes, which was the bulk of the

inventory at our stores. Largely because having SAS shoes

in our stores we achieved "multiple sales" which resulted

from customers coming into the stores to buy SAS comfort

casual shoes, with the customers then being shown and

ultimately sold a pair of Naturalizer dress shoes as well. On

the other hand, customers would come in looking for a

Naturalizer dress shoe and would also be shown the SAS

comfort casual shoe. Very frequently, even customers who

had never tried on SAS shoes in our stores would be shown

and would try on an SAS shoe, would find it extremely

comfortable and would thereafter be a regular purchaser of

SAS shoes at our store, often purchasing a Naturalizer dress

shoe as part of a multiple sale. This combination of having

a quality, comfortable, popular comfort casual shoe such as

SAS and a recognized line of quality Naturalizer shoes

contributed substantially to the success and profitability of all

of our Naturalizer stores.

App. 105

23. In operating our Naturalizer stores and

selecting the product mix for inventories in those stores, it

was important to respond to changing market demands and,

as of the middle 1980’s, carrying SAS shoes was one of the

ways in which Biwer and Westowne were responding to the

current market demands.

24. As of 1987, it was important for the economic

viability of all of our Naturalizer specialty stores to have, in

regular supply, a comfort casual shoe like SAS shoes

acceptable to our customers and at the same time, to have in

regular supply adequate stocks of popular Naturalizer dress

shoes delivered timely, particularly to meet advertised sales

and, importantly, to get timely replacement or replenishment

in inventory in Naturalizer shoes when inventory became

depleted by sales of shoes.

25. With the ability to maintain a product mix to

meet customer demands, a regular customer base consisting

of women, usually mature women for whom fit and comfort

rather than high fashion or bargain prices were primarily

important, and who wanted a good price/value relationship,

our Naturalizer stores were maintaining good volume and

profitable operations on a consistent basis and SAS comfort

casual shoes contributed significantly to that volume and

those profits.

* * * K :

30. In late 1986 and very early 1987 I became

aware that Naturalizer would be introducing its own comfort

casual shoe styled after the SAS comfort casual shoes we had

been selling successfully since 1984. Our Naturalizer sales

representative, Jim Pinson, told me of these shoes and

App. 106

showed our store managers and me samples of new

Naturalizer comfort casual shoes. The Naturalizer comfort

casual shoes were called the Grenada, Russett and Utah,

duplicating and styled after corresponding SAS styles known

as the Bounce, Magic and the Classic. When he showed us

these samples, Pinson informed us that Naturalizer had set

about to achieve and had successfully achieved making a

"stitch-for-stitch" knock-off of the SAS comfort casual shoes

we had been carrying in our Naturalizer stores. In

discussing with Pinson whether or not we should add

Naturalizer’s Grenada, Russett and Utah series along with

SAS shoes, I discussed with him the importance of the fact

that SAS shoes had been so successful for us because they

remained in style and in demand each year and that with the

continuing production of these shoes by their manufacturer,

San Antonio Shoe Company, we were able to get timely

delivery on our orders of these shoes, including fill-ins to

replenish inventory. Pinson acknowledged this was

important and told us Brown’s Naturalizer division was

committed to its Grenada, Utah and Russett series, that

Naturalizer wanted its dealers to carry this series on a

continuing basis and that this series of shoes could and would

be supported by a strong in-stock program through which

Naturalizer could fill our orders and reorders as effectively

as SAS had filled them.

31. Pinson urged me to purchase some of these

shoes for our inventories. I decided to do so. While it was

my intention to continue carrying the SAS styles we had

carried since 1984 because of our success with those shoes,

I thought it would be good to also carry Naturalizer’s version

of these comfort casual shoes to challenge the SAS shoes, by

SS ne Fe TPN SR IN REE Oth OR a

App. 107

offering customers a choice between SAS comfort casuals

and the Naturalizer version Pinson was presenting on behalf

of Brown.

32. Attached hereto as Exhibit 2 is a copy of the

Naturalizer price list, revised as of March 24, 1987, in

which Brown’s Naturalizer division identified the Naturalizer

shoes that were available at that time for the dealers to order

for delivery. This document was obtained in discovery in

this case; copies of it were given to us by Pinson in early

1987. This document, at pp. 012014, 012023 and 012025,

represents that Naturalizer’s Grenada, Russett and Utah

series, its "knock-offs" of corresponding SAS patterns, were

represented as available for delivery in che fall of 1987 in a

good variety of colors.

33. Shortly after June 11, 1987, I received and

read Exhibit 3 which is the June 11, 1987 letter to me from

Edgar Enslin, Jr., vice president and director of specialty

stores for Brown Shoe Company. In that letter Enslin

referred to Brown’s early identification of the need for its

specialty stores to serve their customers “with a broad

selection of well-styled footwear in sizes and widths,

manufactured to the Company’s high standard of quality and

fit." The letter also stated that "significant capital

investments have been made to maintain a strong domestic

production resource augmented by import capabilities that

enables us to maintain our competitive advantage on product,

in-stock programs, delivery and so on." The letter also

stated, "Also, recently there has been a focus on product

development to insure that the Naturalizer line offers a

complete and balanced selection across all the major

App. 108

classifications of women’s footwear." The letter went on to

state Brown had adopted a policy under which Naturalizer

stores would be allowed by Brown to carry only Naturalizer

shoes and that we would be expected to be in compliance

with this policy on or before March 1, 1988.

34. By the time I read Enslin’s letter, Naturalizer

sales representative Pinson had already shown our managers

and me a sample of the Grenada, Russett and Utah,

Naturalizer’s new SAS type comfort casual shoes, and we

had already made the decision to carry those shoes to

challenge the SAS shoes, as stated above, and they were on

order. Accordingly, consistent with the testimony I

personally heard Enslin give in his deposition in this case,

that by his statements in his June 11, 1987 letter he intended

to communicate to the Naturalizer dealers that Brown had

and could offer an SAS type comfort casual shoe meeting

Naturalizer’s usual standard of quality and fit and that Brown

was in a position to support the shoes with regard to delivery

and an in-stock program (Enslin testimony at p. 78), I

understood Enslin to be telling me in this letter that

Naturalizer had achieved making an SAS-type comfort casual

shoe meeting Naturalizer standards of quality and fit, that

Naturalizer was in a position to offer these shoes at that time

and could support the dealers’ purchase of that product with

a strong in-stock delivery program.

35. | When I first received Enslin’s June 11, 1987

purity letter from Brown, I was concerned about Brown’s

representations that it now had a Naturalizer line

("manufactured to the Company’s high standard of quality

and fit") offering "a complete and balanced selection across

App. 109

all the major classifications of women’s footwear." I knew

the growing importance of the comfort casual classification,

and the danger of discontinuing the high profit SAS shoes

without first being confident Brown was in a position to

supply Naturalizer comfort casuals “manufactured to the

Company’s high standard of quality and fit," so that Brown

truly could "insure" that Naturalizer could meet market

demand “across all the major classifications of women’s

footwear."

36. | Accordingly, I made numerous phone calls to

Brown Officials and conferred in Madison with the Brown

sales representative, Pinson. In these conferences Pinson and

the other Brown officials repeatedly described the new

Naturalizer comfort casual patterns (the "Grenada, "Russett"

and "Utah"), as "stitch-for-stitch" copies of the SAS shoes

our stores had been successfully selling.

37. Although we had ordered the Naturalizer

versions to "challenge" the SAS shoes we regularly were

carrying, we hac not received any, and so we had no market

experience with them as of that time. I therefore sought and

received direct assurances from these Brown officials that

Naturalizer indeed had and could supply Naturalizer-level

quality “stitch-for-stitch" duplicates of the SAS shoes.

38. | From reviewing my date book for the year

1987, I can state that it was on June 17, 1987 that we met

with Pinson. At that time he gave our managers and me the

latest Naturalizer price list dated June 11, 1987, effective

June 6, 1987 which depicted the various Naturalizer products

that could be-ordered for delivery for early spring 1988. A

App. 110

copy of that document is attached as Exhibit 4. In addition

to showing the products and stating the cost and suggested

retail prices, this document also indicated the colors and sizes

in which the shoes depicted therein would be available. As

they had been in Exhibit 2, Naturalizer’s Grenada, Russett

and Utah series were also included in Exhibit 4, showing

these shoes as being available in a wide variety of colors and

sizes. In these discussions among Pinson, our managers and

me, Pinson repeated his assurances that with the Grenada,

Russett and Utah series, Naturalizer had duplicated the

corresponding SAS patterns "stitch-for-stitch," that they were

excellent shoes and that Naturalizer could support them with

a strong in-stock and delivery program so that we need have

no concerns about agreeing to eliminate SAS shoes and going

pure. 3

39. In addition to these discussions with Pinson in

which I participated, I had a series of telephone discussions

with Brown executives, including Ed Enslin and Walter

Nizinski, then vice president and general manager of

Brown’s Naturalizer division, about Naturalizer’s new

comfort casual shoes and Brown’s ability to support delivery

of these shoes to us through an in-stock program.

40. In these discussions, both Enslin and Nizinski

repeated the assurances we had been given by Pinson that the

Naturalizer division had successfully "knocked-off"

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