The agreement states that the plaintiffs were unable to obtain proper bank financing without Fox Grocery's guaranty. The parties agreed that the Deaktors would pay into the corporate plaintiff (E.D. Foods), $14,700.00 for 49% of its stock. Additionally, the Deaktors would loan E.D. Foods $10,300.00. Fox Grocery was to pay into E.D. Foods $15,300.00 for the remaining 51% of its stock. Once this $40,300.00 had been paid into E.D. Foods, Fox Grocery agreed to sublease certain premises to E.D. Foods for use as a supermarket.
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)
and we believe clarity will be served by styling it as such.
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 these proceedings will be brought into better focus by dismissal of any claim under Section 2 of the Sherman Act as against both defendants. This will be done.
Count II of the complaint alleges that the individual plaintiffs suffered a loss of their income and investment as a consequence of the defendants' antitrust violations committed against the plaintiff corporation. In attacking Count II defendants rely principally on the Fifth Circuit's decision in Martens v. Barrett, 245 F.2d 844 (5th Cir. 1957). In Martens, a corporation had been formed by two partners to operate their various businesses including a service station which was leased from Texaco. The two partners were the only stockholders in the corporation. After all their business activities were transferred to the corporation the partners were compensated by salary from the corporation. After two years of operation, Texaco refused to renew the lease of the station. The partners alleged that the refusal came as a result of their refusal to comply with an unlawful tying arrangement, specifically their corporation's refusal to carry certain of Texaco's accessory lines. The partners brought an action in their own right for losses they individually sustained as a consequence of Texaco's antitrust violations. Texaco's motion for summary judgment was granted. On appeal the Fifth Circuit, relying heavily on the decisions of the Third Circuit,
" . . . It is universal that where the business or property allegedly interfered with by forbidden practices is that being done and carried on by a corporation, it is that corporation alone, and not its stockholders (few or many), officers, directors, creditors or licensors, who has a right of recovery, even though in an economic sense real harm may well be sustained as the impact of such wrongful acts bring about reduced earnings, lower salaries, bonuses, injury to general business reputation, or diminution in the value of ownership." Martens v. Barrett, 245 F.2d 844 at 846.
That this doctrine, that injury to a corporation gives a cause of action only to the corporation, not its stockholders, remains vital is clear from the recent decision in Kauffman v. Dreyfus Fund, Inc., 434 F.2d 727, 732-33 (3d Cir. 1970) (citing Loeb v. Eastman Kodak Co., 183 F. 704 with approval). In Kauffman, the court refused to make an exception to the rule for stockholders in mutual funds.
"Conceding the basic vitality of this rule, appellee contends that the mutual fund is a novel corporate structure and that the unique relationship of the shareholder to the corporation confers upon the shareholder a primary right to redress harm to the fund. Since the redemptive value of a mutual fund share bears a direct relationship to the total net assets owned by the fund, the redemptive value is always directly affected by the net value of the total assets. Therefore, it is argued, when an injury to the fund threatens the value of the assets, the shareholder possesses a primary right to sue.