G.K.A. Beverage Corp. Staten Island Beverage Corp. Clover Beverage Dist. Corp. Prince Beverage Dist. Corporation Gicci Beverage Corporation v. Iocolano Distribution Corporation R-Ket Corporation P. Lautao Corporation Vin-Mare Distribution Corporation Manuel Nieves Limited Vincent Lautato Corporation Rockville Distribution Corporation Lynvey Beverage Corporation Pa Distribution Corporation Starlite Beverage Corporation 396 6th Avenue Systems Corp. Rapitz Beverage Corporation Rinda Beverage Corporation R & E Wolderich Corporation Windy Hills Corp. Victoria Heights Corporation Domino Beverage Corporation Westerleigh Beverage Corporation Quinco Beverage Corporation Rodan Beverage Corporation Kare-Fre Beverage Corporation by Sum Beverage Corporation Breit Distribution Corporation Titan Beverage Corporation Lundon Beverage Distribution Corporation El-Len Beverage Corporation Scognamiglio Beverage Corporation Joseph Cauciella, Inc. Breitinger Distribution Corporation Filmar Distribution Limited J. Mulvey Distributio
Docket: 421
Court: Court of Appeals for the Second Circuit; June 1, 1995; Federal Appellate Court
Eighty-nine former distributors of Seven-Up soft drinks and other beverages appeal the dismissal of their complaint by Judge Glasser. The distributors allege violations of state and federal antitrust laws, as well as claims of interference with contractual relations. The case is presented before the United States Court of Appeals for the Second Circuit, with the appeal argued on December 5, 1994, and decided on June 1, 1995. The plaintiffs-appellants include multiple beverage distribution corporations, while the defendants-appellees are Harold Honickman and Dr. Pepper/Seven-Up Companies, Inc. and its corporation, represented by various legal counsels.
Distributors allege that Dr. Pepper/Seven-Up Companies, Inc., Dr. Pepper/Seven-Up Corporation, Harold Honickman, and Lance T. Funston intentionally drove Seven-Up Brooklyn Bottling Company, Inc. out of business to eliminate competition and allow Honickman to acquire its assets without distribution agreements with the distributors. They claim this behavior violates antitrust laws. However, the district court dismissed the antitrust claims, ruling that the distributors lack standing, and also dismissed the state law claims regarding interference with contractual relations.
The case arises from a Fed. R. Civ. P. 12(b)(6) dismissal, presuming the amended complaint's allegations are true. The soft drink industry structure is outlined, detailing relationships between concentrate companies, bottlers, and distributors. In the early 1990s, there were three primary bottlers in New York City: Coca-Cola Bottling Company, Honickman (distributing PepsiCo and other brands), and Seven-Up Brooklyn. Seven-Up Brooklyn had contracts with independent distributors for exclusive territorial rights. Honickman, who entered the soft drink industry in 1977, is alleged to control over 64% of the carbonated soft drink market in New York City, reaching 95% when combined with Coca-Cola.
The litigation stems from events in July 1987 when Long Island Acquisition Company (LIA), with a majority share held by Honickman and a minority by Funston, acquired Seven-Up Brooklyn's non-cola soft drink rights and associated assets. The acquisition involved financial support from Canada Dry Bottling of New York, a company owned by Honickman. Honickman also facilitated the purchase of Seven-Up Brooklyn's facilities by associated partnerships and companies, indicating a strategic consolidation of control over the soft drink market.
Honickman's control of Seven-Up Brooklyn prompted an investigation by the Federal Trade Commission (FTC) due to potential anticompetitive effects of his acquisition. To avoid legal conflict, Honickman and his family sold their interest in LIA, which operated Seven-Up Brooklyn, to Funston in late 1988. However, allegations suggest Honickman retained secret control and structured the transfer to allow future reclamation of the assets. In November 1989, the FTC filed an administrative complaint against Honickman, leading to an agreement restricting his acquisition of any carbonated soft drink operations in the New York area for ten years without FTC approval.
Despite this, it is alleged that Honickman and Funston conspired to let Seven-Up Brooklyn fail, intending to use the failing company defense to circumvent antitrust issues. Seven-Up Brooklyn filed for Chapter 11 bankruptcy in October 1990 after losing a line of credit. During the bankruptcy proceedings, two bids were presented for the company's assets: one from Kenneth Kraus and another from a partnership of Dr. Pepper/Seven-Up and Honickman. The distributors supported Kraus's bid, which aimed to maintain Seven-Up Brooklyn as a separate entity, alleging that Honickman and others colluded to manipulate the bidding process.
The bankruptcy court rejected both bids and later, Dr. Pepper/Seven-Up claimed that Seven-Up Brooklyn owed over a million dollars, which reportedly dissuaded other bidders, allowing Honickman to succeed in acquiring the assets. Although the FTC initially denied Honickman's acquisition based on the failing company defense, it later permitted him to acquire licenses to distribute the former Seven-Up Brooklyn brands. Distributors alleged that Honickman’s acquisition efforts led to monopolization in the carbonated soft drink market and intentional interference with contracts. However, the district court ruled that these claims were barred by res judicata, as they were based on issues previously raised in the bankruptcy court under different legal theories.
The district court dismissed the distributors' complaint on three alternative grounds: (i) the distributors failed to demonstrate the requisite antitrust injury to establish standing under antitrust laws; (ii) their claim for tortious interference with existing contracts was insufficient as they did not show that Honickman's actions caused Seven-Up Brooklyn to breach its contract with them; and (iii) their claim for tortious interference with prospective contracts failed because they did not allege any action by Honickman regarding the third parties involved in these relationships.
The complaint included three antitrust claims: (i) that the appellees conspired to eliminate both the distributors and Seven-Up Brooklyn as competitors to monopolize the carbonated soft drink market in violation of Section 2 of the Sherman Act; (ii) that they conspired to restrain trade at the bottler and distribution level, violating the Donnelly Act; and (iii) that they attempted to monopolize the New York carbonated soft drink market, also under Section 2 of the Sherman Act. However, the court concluded that all claims were barred due to the distributors lacking antitrust standing.
Antitrust standing requires demonstrating antitrust injury, which is not satisfied by mere derivative injuries to employees or stakeholders of an affected company. Therefore, the distributors could not claim antitrust injury as their losses stemmed from the failure of Seven-Up Brooklyn, not from an antitrust violation. Consequently, they lacked grounds to pursue claims against the appellees, who assumed control of Seven-Up Brooklyn's business without hiring the distributors.
Distributors suffered injury due to an alleged antitrust violation, but this injury is derivative of the harm suffered by Seven-Up Brooklyn, which is the proper party to bring the action. Following its bankruptcy, the estate's trustee should pursue the claim. The case A.G.S. Electronics, Ltd. v. B.S.R. U.S.A. Ltd. illustrates that a distributor lacks standing when injuries arise from the termination of a distributorship rather than direct anticompetitive effects. The distributors' attempt to claim antitrust injury from the elimination of competition with Honickman fails, as the alleged "distribution monopoly" stems solely from Honickman's bottling market share. A vertically structured monopoly can only yield one profit, and once a bottling monopoly is established, the incentive shifts to the cheapest distribution method, benefiting consumers through competition. Additionally, the claim for tortious interference with contractual relations was dismissed. Under New York law, to establish this tort, a valid contract, knowledge of the contract, intentional breach procurement, and resulting damages must be shown. The distributors did not demonstrate that appellees intended to interfere with Seven-Up Brooklyn's contracts, as their focus was solely on achieving a bottling monopoly, rendering the distribution agreements irrelevant to their goals.
The district court properly dismissed the distributors' claim for tortious interference with prospective business relations due to inadequate pleading. Under New York law, a plaintiff must prove that the defendant intentionally interfered with existing business relations with a third party, either to harm the plaintiff or through dishonest or improper means. The distributors alleged that appellees interfered with their relationships with retailers and purchasers of soft drinks, but the appellees' goal was to establish a monopoly in bottling, making the distributors' relationships irrelevant to this objective. The distributors failed to provide evidence of any direct contact or attempts by appellees to persuade their customers to breach contracts with them. Therefore, the distributors could not demonstrate intentional interference, leading to the failure of their claim. The dismissal of the complaint was affirmed by Judge William C. Conner of the United States District Court for the Southern District of New York.
