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Deaktor v. Fox Grocery Co.

March 27, 1973

HARRY DEAKTOR, EDITH DEAKTOR, AND E. D. FOODS, INC., PLAINTIFFS-APPELLANTS
v.
FOX GROCERY CO., A PENNSYLVANIA CORPORATION AND JOHN F. FOX, DEFENDANTS-APPELLANTS



Van Dusen and Adams, Circuit Judges, and Broderick, District Judge.

Author: Adams

Opinion OF THE COURT

ADAMS, Circuit Judge:

The basic issue on this appeal is whether plaintiffs' evidence regarding damages was adequate to support a claim for alleged antitrust violations.

Fox Grocery Company (Fox), franchisor of retail supermarkets doing business under the "Foodland" name in Western Pennsylvania, discussed with Harry Deaktor, an experienced supermarket operator, the possibility of opening a Foodland franchise store, in the Squirrel Hill section of Pittsburgh, under the management of Mr. Deaktor. E.D. Foods, Inc. was formed to operate the proposed supermarket, and in November, 1966, Harry Deaktor and his wife Edith signed an agreement prepared by Fox dealing with the ownership of E.D. Foods, Inc. and the operation of the store.

Under the agreement, the supermarket was financed by an investment by the Deaktors of $14,700. for 49% of the issued stock, and an investment of $15,300. provided by Fox for 51% of the issued stock. The Deaktors also lent E.D. Foods, Inc. $6,300. in cash and approximately $6,000. worth of equipment. Substantial corporate borrowings were secured by the guaranty of Fox and the Deaktors and by a pledge of the Deaktors' assets. The agreement provided in part that if after one year E.D. Foods, Inc. did not show a net profit of 1% on sales before taxes, Fox had the right, among other alternatives, to purchase the Deaktors' stock in the corporation at its then book value.

The supermarket was opened on November 30, 1966. On March 17, 1968, Fox advised the Deaktors that because the store had failed to produce a 1% net profit, as provided by the agreement it was exercising the option to purchase the Deaktors' stock.

Suit was brought in the district court by the Deaktors individually and derivatively on behalf of E.D. Foods, Inc. against Fox and its president, John Fox. The complaint contained five counts:

I. Derivative action on behalf of E.D. Foods, Inc. for alleged violations of the antitrust laws, including price-fixing and tie-in sales.

II. Action on behalf of Harry and Edith Deaktor for damages allegedly caused to them by the same alleged antitrust law violations.

III. Action on behalf of Harry and Edith Deaktor for violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. ยง 78j(b), and Rule 10b-5 of the Securities and Exchange Commission by the alleged publication of false and misleading information in connection with the acquisition of the Deaktors' stock in E.D. Foods, Inc. by Fox.

IV. Action on behalf of Harry and Edith Deaktor for alleged common law fraud on the same facts as Count III.

V. Action on behalf of Harry and Edith Deaktor for alleged breach of the fiduciary duty owed a minority shareholder by a majority shareholder based upon the alleged antitrust violations in Counts I and II.

After extensive discovery, both defendants moved for summary judgment or dismissal of the complaint. By opinion and order dated October 12, 1971, the district court, 332 F. Supp. 536, dismissed Count II of the complaint for failure to state a claim upon which relief can be granted, granted summary judgment for the defendants on Count III, and ...


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