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PLASTIC PACKAGING MATERIALS v. DOW CHEM. CO.

May 26, 1971

Plastic Packaging Materials, Inc.
v.
The Dow Chemical Co.


John W. Lord, Jr., Chief Judge.


The opinion of the court was delivered by: LORD, JR.

JOHN W. LORD, JR., Chief Judge:

 After a ten day hearing on plaintiff's motion for a preliminary injunction and a careful consideration of both plaintiff's and defendant's suggested findings of fact, conclusions of law and briefs, the Court makes the following:

 Findings of Fact

 1. Plastic Packaging Materials, Inc. (PPMI) is a corporation organized and existing under the laws of the Commonwealth of Pennsylvania with a principal office and place of business at 2235 North Bodine Street, Philadelphia, Pennsylvania 19133.

 2. PPMI has been primarily engaged in the business of (1) buying material from the Dow Chemical Company (Dow) known as Expandable Polystyrene Strands (EPS); (2) processing it through steam heat expanders which expand the material into a loose fill type of packaging product; and (3) the sale of that product under the Dow trademark, Pelaspan-Pac, and in some cases, the sale of unexpanded EPS.

 3. In December 1969, the stock of PPMI was acquired by Dimode Industries, Inc. with the knowledge and approval of Dow.

 4. The Dow Chemical Company is a corporation organized and existing under the laws of the State of Delaware with a principal office and place of business at 2030 Dow Center, Midland, Michigan 48640.

 5. Dow manufactures and sells, among its many products, expandable polystyrene strands and flowable material (EPS).

 6. Both Dow and PPMI conduct business in interstate commerce, including specifically, the products and markets involved in this proceeding.

 8. Plaintiff has acted as a distributor of Pelaspan-Pac for Dow under successive agreements dated December 8, 1965, January 1, 1967, February 20, 1968 and November 25, 1969.

 9. Under the terms of the agreements each distributor is assigned a primary geographic territory. The November, 1969 contract between Dow and PPMI, which was in effect prior to Dow's attempt to terminate, provided: "Pursuant to your appointment hereunder, you shall use your best efforts to promote the resale and distribution of products hereunder in your primary sales area." Within this area PPMI was required to meet a set amount of sales each year.

 10. There is no language in the contract which expressly limits the distribution to sales within the designated "primary area" and, in fact, the use of the adjective primary, rather than sole or exclusive, implies that sales outside this area are contemplated.

 11. PPMI has consistently and extensively promoted and sold EPS and Pelaspan-Pac in areas which were outside its "primary area" and within the "primary area" of other Dow distributors of Pelaspan-Pac.

 12. At the time of the attempted termination, PPMI was the leading distributor of Dow EPS and Pelaspan-Pac in the United States. In 1969 PPMI's purchases of EPS from Dow constituted approximately one-third the total amount purchased by all of the Dow distributors and was about twice the amount purchased by the next leading distributor.

 13. Until the end of 1967 the Plastics Department of Dow had the responsibility for the distribution of EPS. The Plastics Department did not market any other product through a network of distributors.

 14. During 1967 other distributors of Pelaspan-Pac, including Mr. Roberts of Roberts Paper Co. and Mr. Scherl of Norel Paper complained to Dow representatives about PPMI "pirating" their accounts and setting up subdistributors in their primary areas. The establishment of United Packaging as a sub-distributor in the Boston area by PPMI was one such incident.

 15. On March 13, 1967, Dow informed PPMI that they had discontinued their previous practice of allowing dropshipments, which PPMI had been utilizing in supplying United Packaging. Under this procedure Dow had been sending material directly to United Packaging under PPMI's purchase order. However, since Dow has consistently allowed PPMI to pick up EPS in its own trucks, PPMI still did not have to pay two freight costs (one to Philadelphia and then to Boston) to supply United Packaging.

 16. On April 19, 1967, Mr. Garrett, the Dow salesman who serviced the PPMI account at that time, called on PPMI at Philadelphia.

 16(a). The substance of this meeting was communicated by letter dated April 25, 1967, to Mr. Hornsby, Credit Manager for Molding and Extrusion Sales, which at this time was in charge of distributing EPS. Copies of this letter were also sent to Mr. Klose, District Sales Manager, and Mr. Scott, Market Manager for Pelaspan-Pac.

 16(b). In response to a complaint by PPMI that Dow would not financially support their efforts in a Canton, Ohio trade show, Mr. Garrett stated that Dow encouraged concentration of promotional efforts of distributors in their immediate sales area and, that while Dow would not financially support this effort of PPMI, it was not restricting PPMI to selling only in the Philadelphia area.

 17. On April 27, 1967, Mr. Garrett and Mr. Scott made a joint call on PPMI.

 17(b). Mr. Garrett wrote Mr. Scott on May 5, 1967, regarding the meeting and communicated that while he thought that the meeting generally had been profitable he wanted to make sure that PPMI was not left with the impression that Dow was "openly" going to allow PPMI to set up United Packaging as a subdistributor in the Boston area.

 17(c). Mr. Scott agreed with this and noted that the trade license and distributorship agreement were not transferable.

 18. On August 11, 1967, Mr. Garrett visited PPMI. In a Salesman Call Report sent to Mr. Klose and Mr. Scott, Mr. Garrett reported that PPMI had approached Rock City Box's subdistributor in the upper New York State area and that he did not approve of this. At this meeting Mr. Garrett made his position quite clear to PPMI and sought "a little understanding" from the principals at PPMI regarding the fact that Rock City Box was a new distributor and therefore PPMI should not attempt to take away their subdistributors by underselling them.

 19. After another meeting with PPMI during the week of August 28, 1967, Mr. Garrett reported to Mr. Klose and Mr. Scott in his salesman report that while PPMI was quite aware that Dow felt PPMI was primarily responsible for the Greater Philadelphia area and that there should be a concentration of sales effort in that area, they did not take Dow's position seriously.

 20. On August 31, 1967, Mr. Scott wrote Mr. Hornsby another internal memorandum in which he enumerated the general problems associated with the PPMI account. Among those discussed were: (1) an over-aggressive marketing approach which had had a disrupting effect on the Pelaspan-Pac distributor organization; (2) a poor marketing operation; (3) allegedly misleading statements made by PPMI personnel regarding Dow policy; and (4) the fact that while PPMI was by volume one of the largest purchasers of EPS, most of it was the result of taking existing customers away from other distributors rather than generating new end users of the product. Mr. Scott recommended a meeting with PPMI at which time Dow would " expressly" state that they had reservations about continuing the business relationship with PPMI and "implicitly" press for an immediate withdrawal of the personnel and marketing efforts from the Boston and upper New York areas. Mr. Scott called for a review of the situation two months after this meeting and if it had not improved he recommended that Dow cancel PPMI's distributorship. Mr. Scott concluded by stating "in implementing this plan, we must be extremely careful of the 'anti-trust' and ' restrain of trade' legal ramifications as I am thoroughly convinced we will be sued by PPMI if a parting of the way is affected."

 20(a). The notes for the final draft of this memorandum, which were not communicated to anyone, listed the alternatives available to Dow, as well as the pros and cons of each. These alternatives ranged from "do nothing" to "talk with PPMI" to "threaten PPMI" to "cancel PPMI." The second and third alternatives listed above both had the notation "have to watch legal problems" noted beside them.

 21(a). In a letter dated November 13, 1967, Mr. Lehman related to Mr. Garrett the substance of a phone conversation with Mr. Stolper of PPMI where Mr. Stolper "gave me his unqualified word that they were going to stay out of the upper New York state . . . . He said they were willing to live within their territory. . . ."

 21(b). In April, 1968, Mr. Garrett wrote a report to Mr. Paul Santee, who was about to assume the responsibility of servicing the PPMI account, and stated, inter alia, "since December of 1967, (PPMI) has seemed to have turned a new leaf and have ceased to be a major problem in other distributor territories." A copy of this report was sent to Mr. Bader, and while he had discussed some of the problems enumerated in the report as they had come up he did not discuss the report with either Mr. Bader or Mr. Santee.

 22. In January, 1968, Dow Chemical transferred the responsibility for the sales of EPS from the Plastic Division to the Packaging Division. This transfer of responsibility was completed in the Midland Office in January, 1968, and at the district level by the spring of 1968.

 22(a). Mr. Bader took over from Mr. Lehman as the Product Manager for EPS. Mr. Garrett continued to service the account until June, 1968, when he was replaced by Mr. Santee, a salesman from the Packaging Division.

 23. During this transitional stage the distributor contract with PPMI was renewed (February, 1968) and its "primary area" enlarged to include the New York City area.

 24. At least by June, 1968, other distributors again began to complain to Dow about PPMI's ...


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