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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386013_1039%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1997
- **Citation:** 522 U.S. 861

## Text

» \ 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
materiall

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386013_1039%3A2. Public record. Not legal advice.