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MCCARTHY v. ARNOLD FOODS CO.

July 7, 1989

FRANCIS J. McCARTHY
v.
ARNOLD FOODS COMPANY, INC. and BEST FOODS BAKING GROUP, a division of CPC INTERNATIONAL, INC. and CPC INTERNATIONAL, INC.



The opinion of the court was delivered by: VAN ANTWERPEN

 FRANKLIN S. VAN ANTWERPEN, UNITED STATES DISTRICT JUDGE

 This matter comes before the court upon the motion of the plaintiff, Francis J. McCarthy, for a preliminary injunction against the proposed termination of his wholesalership by Best Foods Baking Group, a division of CPC International, Inc., which includes Arnold Foods Company, Inc. A hearing and oral argument was held on this motion in Easton, Pennsylvania, on June 23, 1989. Pursuant to Fed.R.Civ.P. 52(a), we make the findings of fact and conclusions of law set forth below.

 FINDINGS OF FACT

 1. The plaintiff, Francis J. McCarthy, is a resident of Pennsylvania. In 1975, he purchased an Arnold Foods Company, Inc. ("Arnold") wholesalership from another Arnold wholesaler for $ 175,000. He currently owes $ 18,000 out of that sum. Mr. McCarthy is presently sixty-four years of age and has completed high school to the tenth grade. In 1981, he suffered a stroke which left him in poor health and unable to drive.

 2. In his wholesalership, Mr. McCarthy buys bread and baked goods from defendant Arnold on consignment. He stores these goods in a warehouse from which he distributes them to individual distributorships, who are also known as "routemen". These distributors then deliver the goods to retail outlets like supermarkets, where the goods are available to the consumer. The area serviced by this wholesalership is comprised of suburban counties outside Philadelphia, Pennsylvania. Gross yearly profits are estimated to be around $ 98,000 to $ 100,000.

 4. The McCarthy wholesalership deals practically exclusively in Arnold baked products. A small ($ 3,000 a year) amount of money was also made from Craig's sales of Dutch Mill Baking Company donuts.

 5. Craig testified that he spends approximately three to five minutes a piece, with each of his Arnold distributors each day.

 6. Since 1984, plaintiff McCarthy has subleased the warehouse he uses from the defendant Arnold who leases it directly from the landlord. This sub-lease was not introduced into evidence at the hearing but is before the court by stipulation of counsel. Mr. McCarthy pays $ 650 a month in rent and has overhead expenses, such as telephone, electric and water bills. These aggregate approximately $ 150 to $ 200 each month. Other additional costs are $ 25 a week for gas for the business' trucks plus other monies for insurance on those vehicles. These expenses come to another $ 5,000 to $ 8,000 a year.

 7. In the past, Mr. McCarthy also purchased a spare truck, and a coffee machine and bulletin board for the routemen.

 8. Craig testified that, at the time his father took over the wholesalership in 1975, the business was purchasing around $ 17,000 worth of merchandise a week. Currently, it is buying almost $ 40,000 worth of merchandise a week. Craig acknowledged, however, that his sales figures made no adjustment for inflation.

 9. Craig stated that plaintiff's Exhibit 1, a copy of the Wholesaler's Agreement, was the agreement under which his father and the defendant had been operating. (The exhibit was an unsigned copy of the Wholesaler's Agreement).

 10. In late 1986, defendant CPC International, Inc. ("CPC") acquired defendant Arnold. Best Foods Baking Group is only a division of CPC; it is not a corporation. Plaintiff's counsel concedes this and agrees that Best Foods Baking Group is not a proper party to this suit.

 11. As part of a reorganization plan, after its acquisition of Arnold, CPC, in 1987, decided to eliminate the middle-level of wholesalerships and to deal directly with the distributors as a professional sales force.

 12. As part of the implementation of this reorganization plan, Kenneth Traenkle, Division Sales Manager of Best Foods Baking Group of CPC, sent a letter, dated March 20, 1989 to Mr. McCarthy informing him of the company's decision to terminate his wholesalership, effective ninety days from March 20, 1989. In another letter from Mr. Traenkle to Mr. McCarthy, also dated March 20, 1989, Mr. Traenkle, on behalf of Arnold, offered McCarthy $ 325,000 for his wholesalership. On April 25, 1989, Margaret L. Sanner, an attorney with Morgan, Lewis & Bockius, the law firm representing Best Foods Baking Group and CPC, sent a letter to Mr. McCarthy advising him that her client would not renew the sublease on the warehouse which expired on May 31, 1989. Her client did, however, agree to extend the terms of the sublease, on a day-to-day basis, from June 1, 1989 through June 18, 1989 to coincide with the termination of the plaintiff's wholesalership.

 13. Mr. McCarthy rejected the offer of $ 325,000 and counter-offered for $ 1,000,000. He is the last wholesaler in this phase of the reorganization to be bought out.

 14. Thomas Echsner, a Vice-President of Sales with the Best Foods Baking Group of CPC, testified that the decision to terminate the wholesalerships was made so that the company could develop the distributors as a professional sales force. The bread industry, he said, is a highly competitive one and most of the competition is on the retail store level. Competition is against various national brands like Pepperidge Farm and Wonder Bread, as well as store, in-house brands. Dealing directly with the distributors, he explained, means a better ability to train and to develop them so as to increase contact with store managers and sales to the stores. Continuous training is vital because the bread business constantly changes.

 15. Mr. Echsner explained that if some company-owned wholesalerships had higher "stale rates" than the plaintiff's that could be accounted for by a "push" to be sure that there were ample products on the shelves and that no sales were missed.

 16. Mr. Traenkle, Division Manager of Best Foods Baking Group, testified that the plaintiff hindered his managers from talking with the distributors. He also said that not all of plaintiff's distributors were using their "route books" which he described as a basic tool of the industry. This book is used to keep track of sales, "stales", and individual accounts. He also testified that, to the best of his knowledge, the defendant is, today, the only baking company left with a middle-tier of distribution.

 17. Mr. Traenkle testified as to the intensity of competition in his industry. He considered on-going training a necessity, since mistakes are costly in a business with a highly perishable product like bread.

 18. Mr. Traenkle also testified that the warehouse used currently by the plaintiff is not large enough to meet the company's anticipated needs. The company wants a larger facility with better access to major highways. More routes and more men will come out of one place. He further stated that there were times when the distributors were discouraged by the plaintiff from coming to company training sessions. These sessions were held to keep the men current with changes in the ...


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