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DEAKTOR v. FOX GROCERY CO.

October 12, 1971

Harry Deaktor, Edith Deaktor, and E.D. Foods, Inc., a Pennsylvania Corporation, Plaintiffs
v.
Fox Grocery Co. and John F. Fox, Defendants


Barron P. McCune, District Judge.


The opinion of the court was delivered by: MCCUNE

BARRON P. McCUNE, District Judge:

 This action was commenced on May 15, 1968, by Harry and Edith Deaktor as individual plaintiffs and derivatively on behalf of E.D. Foods, Inc., a Pennsylvania corporation in which the individual plaintiffs are minority shareholders within the comprehension of Rule 23.1 of the Federal Rules of Civil Procedure. *fn1" Defendants are Fox Grocery Company, a Pennsylvania Corporation and its controlling stockholder, John F. Fox. The complaint charges violations of the United States anti-trust and securities laws, common law fraud and breach of fiduciary duty. Jurisdiction is conferred on this court by 15 U.S.C.A. §§ 15 and 78aa and the doctrine of pendent jurisdiction. The parties have completed discovery and filed their pretrial narrative statements. What is presently before us are defendants' motions for summary disposition.

 The complaint in this case contains five counts. The individual defendant has moved for judgment on all of them. The corporate defendant has moved for judgment against the individual plaintiffs on Count I, and for judgment against both individual and corporate plaintiffs on Counts III, IV, and V. There is also a motion to dismiss Counts I and II as to both defendants for failure to state a claim.

 Count I of the complaint alleges antitrust violations under sections 1 and 2 of the Sherman Act and section 3 of the Clayton Act. Count II alleges consequential damage to the individual plaintiffs as a result of the alleged anti-trust violations. Count III alleges a purchase of stock in violation of 15 U.S.C.A. § 78j and Rule 10(b)(5). Count IV is a common-law fraud count. Count V alleges a breach of the fiduciary duty owed by a majority shareholder to minority shareholders, and the corporation.

 The individual plaintiff Harry Deaktor had for some years prior to 1967 been engaged in the food supermarket business. During the 1950's he had been an executive with Star Markets. He subsequently acted as a supermarket consultant and for several years had an interest in a store known as the Squirrel Hill Food Farm.

 The records of this case show that in November of 1966 all plaintiffs entered into an agreement with the corporate defendant (Fox Grocery), the object of which was to bring about the operation of a supermarket to be known as Deaktor's Foodland. "Foodland" is a trademark franchised in this jurisdiction by Fox Grocery.

 In order to finance the operation initially, the Deaktors and Fox Grocery agreed to join in guaranteeing a loan to E.D. Foods by a banking institution for the amount of $314,000.00. The Deaktors agreed to indemnify and hold Fox Grocery harmless from any and all liability incurred by it on account of its guarantee to the aforementioned banking institution.

 The Deaktors and E.D. Foods agreed to enter into a Foodland Franchise agreement with Fox and to maintain that agreement until the $314,000.00 loan was paid.

 The operation of E.D. Foods was to be carried out by the Deaktors with the supervision and assistance of Fox Grocery. The agreement required Fox Grocery to use its best efforts to aid the operation of E.D. Foods. The agreement also provided that if E.D. Foods on or after one year "from the date hereof, does not have a net profit of 1% on sales before taxes," then Fox Grocery may elect to take over operation of E.D. Foods or in lieu of the said takeover, "purchase from their forty-nine percent (49%) of the stock of said corporation at the then book value and thereafter [the Deaktors] shall have no interest in the corporation."

 It appears that the agreement was executed in all respects. In March of 1968 Fox purported to assume 100% ownership of E.D. Foods, Inc., asserting that E.D. Foods had failed to earn 1% on gross sales before taxes. Shortly thereafter plaintiffs commenced this action.

 The initial motion of defendants asked first for judgment in favor of John F. Fox on all counts, second for judgment against the individual plaintiffs and in favor of Fox Grocery on Count I and finally for judgment against both the individual and corporate plaintiffs and in favor of Fox Grocery on Counts III, IV, and V. Subsequently in their supplemental brief in support of their motion, the defendants argue for dismissal of Counts I and II as against both defendants for failure to state a claim upon which relief may be granted. This appears to be a motion to dismiss under Rule 12(b)(6) *fn2" and we believe clarity will be served by styling it as such. *fn3" On oral argument plaintiff objected to the motion to dismiss in that it was not contained in the original motion for summary judgment. While plaintiff's objection to this mixed procedure is understandable, we note that plaintiffs briefed and argued both the motion to dismiss and the motion for summary judgment. We therefore conclude that both motions are in a posture for disposition.

 I. Motion to Dismiss Counts I and II for Failure to State a Claim

 Defendants' objection to Count I is directed first at its failure to specify any conspirators other than John F. Fox and Fox Grocery Company. Defendants contend that Section 1 of the Sherman Act requires independent business entities as co-conspirators, that is to say that a corporation and its own officers cannot conspire to violate the antitrust laws. But we conclude that this issue does not really confront us. Defendants' position might have had merit at the time this suit was commenced. However a substantial record has accumulated since commencement. This record cannot be ignored and from an examination of this record it is obvious that plaintiffs contend that a conspiracy existed by and between Fox Grocery Company, John F. Fox, E.D. Foods, Inc., Harry Deaktor, Edith Deaktor and the various other Foodland stores.

 Defendants do not seriously otherwise attack the sufficiency of Count I to allege an unlawful tying arrangement. In view of decisions such as Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495, 22 L. Ed. 2d 495, 89 S. Ct. 1252 (1969) (tying product credit) and Siegel v. Chicken Delight, Inc., 311 F. Supp. 847 (N.D. Cal. 1970), aff'd, 448 F.2d 43, 1971 TRADE CASES 703 (9th Cir. 1971) (tying product trademark) we conclude that the complaint is sufficient in this regard.

 Defendants do raise a question with regard to the charge in Count I of violations of Section 2 of the Sherman Act. They point to the absence of any averment that the defendants either monopolized or attempted to monopolize. We have examined the record of this case including plaintiffs' briefs and pretrial narrative. From these we must conclude that plaintiffs have not and do not intend to pursue any claim under Section 2 of the Sherman Act. With the exception of the pertinent statutory citation in the original complaint, plaintiffs have not elsewhere even alluded to any monopolization issue. We therefore conclude that ...


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