Citations
- 769 F. Supp. 599
Full opinion text
OPINION
FARNAN, District Judge.
INTRODUCTION
This is one of three related actions involving the contracts which govern the relationship between The Coca-Cola Company (the “Company”) and certain of its bottlers (the “bottlers”). This action, which for convenience will be referred to as the “Elizabethtown” case, arises out of contractual disputes between the Company and the bottlers involving the supply of syrup for the product bottled Coca-Cola. Two related actions, Coca-Cola Bottling Co. of Shreveport, Inc. v. The Coca-Cola Co., C.A. No. 83-95, and Alexandria Coca-Cola Bottling Co., Ltd. v. The Coca-Cola Co., C.A. No. 83-120 (collectively referred to as the “diet Coke cases”), 769 F.Supp. 671, arise from disputes involving introduction by the Company of its new diet product, diet Coke, in 1983.
Litigation of these cases was conducted for eight years before Hon. Murray M. Schwartz, who became unable to see the litigation to its completion when he became ill in the Winter of 1989, after the end of trial on these matters. The cases were reassigned to me in the Spring of 1989. The parties elected to retry the cases rather than to allow decision on the then-existing record, and the Elizabethtown case was retried before me from September 1989-March 1990. This Opinion constitutes the Court’s Findings of Fact and Conclusions of Law pursuant to Fed.R.Civ.P. 52(a) in the Elizabethtown case.
The Elizabethtown litigation began in 1981 and stems from the Company’s decision to substitute high-fructose corn syrup (“HFCS” or “HFCS-55”) for granulated sugar in the syrup for the Coca-Cola beverage drink sold by the Company to the plaintiff bottlers. The dispute centers primarily around the appropriate price of that syrup and evaluation of the Company's conduct in supplying the syrup and negotiating several issues with the bottlers. The Elizabeth-town litigation also involves alleged historical overcharges by the Company to the bottlers in the sucrose component of the syrup.
Plaintiffs are profitable businesses which are presently or were formerly engaged in the bottling of Coca-Cola under contracts which conform to Consent Decrees issued by this Court in 1921. This action involves 30 plaintiffs and 30 bottling contracts. During the course of the litigation, twelve plaintiffs either amended their bottling contracts or sold their rights to bottle Coca-Cola to bottlers who operate under amended bottling contracts. These twelve plaintiffs seek only past damages and make no claims under Count II, which seeks declaratory and injunctive relief. For convenience these twelve will be referred to as the “past damages plaintiffs.” The remaining plaintiffs will be known as full plaintiffs. The full plaintiffs, their principal places of business, and the dates for the beginning of their alleged damage periods are as follows:
STATE OF INCORPORATION OR PRINCIPAL PLACE OF PLAINTIFF BUSINESS BEGINNING OF DAMAGE PERIOD
Coca-Cola Bottling Co. of Magnolia Magnolia, AK February 2, 1976
Sacramento Coca-Cola Bottling Co. Sacramento, CA February 2, 1977
Coca-Cola Bottling Co. of Elizabethtown Elizabethtown, KY January 1, 1969
Coca-Cola Bottling Co. of Shelbyville Shelbyville, KY January 1, 1969
Trenton Coca-Cola Bottling Co. Trenton, MO February 4, 1976
Kelford Coca-Cola Bottling Co. Kelford, NC February 4, 1971
Plymouth Coca-Cola Bottling Co. Plymouth, NC February 4, 1971
Wilmington Coca-Cola Bottling Works Wilmington, NC February 4, 1971
Coca-Cola Bottling Co. of Dickinson Dickinson, ND February 4, 1975
Coca-Cola Bottling Co. of Jamestown Jamestown, ND February 4, 1975
Coca-Cola Bottling Co. of Williston Williston, ND February 4, 1975
Cleveland Coca-Cola Bottling Co. Cleveland, OH January 1, 1969
Coca-Cola Bottling Co. of LeHigh Valley Bethlehem, PA January 1, 1969
Laredo Coca-Cola Bottling Co. Laredo, TX February 4, 1977
Central Coca-Cola Bottling Co. Richmond, VA February 4, 1971
Love Bottling Co. Muskogee, OK July 24, 1982
Coca-Cola Bottling Co. of LaCrosse LaCrosse, WI July 24, 1981
Arkansas-Georgia Nashville, AK July 24, 1982
Consolidated Pretrial Order 2-3 (Dkt. 848).
The past damages plaintiffs, their principal places of businesses, and their alleged damages periods are as follows:
PLAINTIFF STATE OF INCORPORATION OR PRINCIPAL PLACE OF BUSINESS DAMAGES PERIOD
Coca-Cola Bottling Streator, IL Feb. 2, 1971-
Co. of Streator April 30, 1987
Natchez Coca-Cola Natchez, MS Feb. 4, 1975-
Bottling Co. Dec. 31, 1986
Coca-Cola Bottling Jefferson City, MO Feb. 4, 1976-
Co. of Jefferson City April 30, 1987
Coca-Cola Bottling Macon, MO Feb. 4, 1976-
Co. of Macon April 30, 1987
Coca-Cola Bottling Deming, NM Feb. 4, 1975-
Co. of Deming April 30, 1987
Coca-Cola Bottling Tulsa, OK Feb. 4, 1976-
Co. of Tulsa Dec. 31, 1984
Coca-Cola Bottling Brownsville, TX Feb. 4, 1977-
Co. of Brownsville May 31, 1984
Coca-Cola Bottling San Angelo, TX Feb. 4, 1977-
Co. of San Angelo Dec. 30, 1985
Las Cruces CocaLas Cruces, NM Feb. 4, 1975-
Cola Bottling Co. Dec. 30, 1985
Coca-Cola Bottling Tucson, AZ Feb. 4, 1975-
Co. of Tucson Dec. 30, 1985
Coca-Cola Bottling St. Cloud, MN Feb. 4, 1975-
Co. (Alexandria) July 31, 1984
Coca-Cola Bottling Marshall, TX Feb. 4, 1975-
Co. of Marshall Oct. 1, 1987
Consolidated Pretrial Order at 3-4 (Dkt. 848).
The Company is a corporation organized and existing under the laws of the State of Delaware, and having its principal office and place of business in the State of Georgia. Each of the plaintiffs is a corporation that is incorporated in and has its principal place of business in a state other than Delaware or Georgia. Therefore, there is complete diversity of citizenship. The amount in controversy exceeds the sum of $10,000, exclusive of interest and costs, and therefore, the Court has subject matter jurisdiction pursuant to 28 U.S.C.A. § 1332(a)(1).
The factual background of this case has been recited repeatedly in Judge Schwartz’ published opinions and should be familiar to all who have participated; however, for the sake of completeness in this Opinion, it will be repeated generally.
As indicated, the following narrative is intended to provide background only. Specific occurrences which have bearing on the issues pending before the Court will be discussed in greater detail in the Court’s findings of fact under each Count. This narrative is drawn from numerous sources, including evidence presented in the record and Judge Schwartz’ prior opinions.
BACKGROUND
In 1886, Dr. John Smyth Pemberton, an Atlanta pharmacist, developed the formula for a syrup that could be mixed with carbonated water to produce a beverage. He named the beverage “Coca-Cola.” The name “Coca-Cola” derives from two of the ingredients, coca leaves and cola (or kola) nuts, extracts of which were used to manufacture Merchandise No. 5, one of seven compounds or “merchandises” used by Dr. Pemberton in the original formula for Coca-Cola. United States v. Coca-Cola Co. of Atlanta, 241 U.S. 265, 271 & 272, 36 S.Ct. 573, 574 & 575, 60 L.Ed. 995 (1916).
Dr. Pemberton registered the name “Coca-Cola” written in Spencerian script as a trademark “for soda water and other beverages” on June 6, 1887. The original trademark registration dated June 6, 1887, described Coca-Cola as follows:
This “Intellectual Beverage” and Temperance Drink contains the valuable Tonic and Nerve Stimulant property of the Coca plant and Cola (or Kola) nuts and makes not only a delicious, exhilarating, refreshing and invigorating Beverage (dispensed from the soda water fountain or in other carbonated beverages), but a valuable Brain Tonic and cure for all nervous affections — Sick Headaches, Neuralgia, Hysteria, Melancholy, ...
The peculiar flavor of COCA-COLA delights every pallet; it is dispensed from the soda fountain in same manner as any other fruit syrups.
PX87.
In 1888, Asa G. Candler, a pharmacist and owner of a wholesale drug company in Atlanta, acquired a partial interest in the Coca-Cola trademark and formula. He acquired complete ownership in 1891. In 1892, Asa Candler formed the Coca-Cola Company, a Georgia corporation (the “Georgia corporation”), to manufacture and market Coca-Cola syrup for use in the soda fountain business, whereby one ounce of the syrup was to be mixed with eight ounces of carbonated water at the point of sale.
The Georgia corporation did not attempt to bottle the syrup for Coca-Cola prior to 1899. In 1899, B.F. Thomas and J.B. Whitehead, two lawyers from Chattanooga, Tennessee, approached Candler about obtaining the right to sell Coca-Cola in “bottles and other receptacles.” On July 21, 1899, Candler executed on behalf of the Georgia corporation a contract granting to Whitehead and Thomas the exclusive right to bottle and sell Coca-Cola throughout the United States, with the exception of six New England states, Mississippi and Texas (the “1899 contract”). The 1899 contract also gave Whitehead and Thomas exclusive right to use the trademark “Coca-Cola” on bottles in the territories covered by the contract.
The 1899 contract contemplated that Whitehead and Thomas would form a corporation to be known as the “Coca-Cola Bottling Company” to which their rights under the 1899 contract would be assigned. Whitehead and Thomas formed the Coca-Cola Bottling Company as a Tennessee corporation in December, 1899. It became the first “parent bottler” of Coca-Cola and built plants in Atlanta and Chattanooga.
The 1899 contract required Whitehead and Thomas to meet consumer demand for bottled Coca-Cola, to purchase all syrup for the production of bottled Coca-Cola from the Coca-Cola Company, to refrain from using substitutes for the syrup, to refrain from using the syrup in any way other than that specified, and to sell unbottled syrup only with the written consent of the Company. At the same time, the Company was obligated to sell Whitehead and Thomas their requirements of Coca-Cola syrup at a fixed price as shown on the wholesale price list of fountain syrup in effect at the time, which was attached as an exhibit to the 1899 contract. By an undated amendment, the Whitehead-Thomas contract was amended to fix the syrup price at $1.00 per gallon, less a 10if per gallon rebate to pay for “labels and advertising matter” to be provided by the Company at its actual cost. The syrup was to be bottled under pressure of one atmosphere in proportions of not less than one ounce of syrup to eight ounces of water.
The 1899 contract also contemplated that Whitehead and Thomas would, at their own expense, construct a bottling plant in Atlanta and as many additional bottling plants as were needed to meet demand in the territories. Demand grew rapidly, and the two bottling plants built in Atlanta and Chattanooga were soon unable to meet demand outside their respective cities. Other than the Atlanta and Chattanooga plants, the Coca-Cola Bottling Company did not actually bottle the beverage itself. Rather, beginning in 1900, the Coca-Cola Bottling Company entered into contracts wherein Thomas and Whitehead assigned certain of their rights under the 1899 Contract to individuals, partnerships, and corporations (referred to hereinafter as “actual” bottlers), who built bottling plants and promoted and sold bottled Coca-Cola in exclusive territories assigned to them by Coca-Cola Bottling Company.
A dispute arose between Whitehead and Thomas over the desirable contract period with the actual bottlers. While Thomas favored a two-year term, Whitehead favored perpetual contracts. With the Georgia corporation’s permission, Whitehead and Thomas divided the rights granted to them under the 1899 contract. Thomas retained ownership of Coca-Cola Bottling Company (referred to hereinafter as the “Thomas Company”). The Thomas Company conveyed to Whitehead and his new business associate, J.T. Lupton, its rights under the 1899 contract for all territories except the District of Columbia and the states of New York, New Jersey, Pennsylvania, Delaware, Maryland, Virginia, West Virginia, North Carolina, Tennessee, Kentucky, Indiana, Ohio, Washington, Oregon, California, and small portions of Georgia and Alabama. Whitehead and Lupton then formed a Tennessee corporation called Dixie Coca-Cola Bottling Company, the name of which was thereafter changed to The Coca-Cola Bottling Company (referred to hereinafter as “Whitehead-Lupton Company”). The Georgia corporation, Thomas Company, and Whitehead-Lupton Company joined in amending the 1899 agreement to reflect the division. The Thomas Company and the Whitehead-Lupton Company were known as “parent bottlers.”
The Whitehead-Lupton Company and the Thomas Company further divided their territories among other parent and “subparent” bottlers. Subparent bottlers of the Whitehead-Lupton Company included Western Coca-Cola Bottling Company and The Coca-Cola Bottling Company (1903). Subparent bottlers of the Thomas Company were Coca-Cola Bottling Works, Coca-Cola Bottling Works the 3d, and Pacific Coca-Cola Bottling. The bottling plants built by Whitehead and Thomas in Atlanta and Chattanooga were sold to the actual bottlers to whom the rights for those territories were assigned. Thereafter the parent bottlers did not own any Coca-Cola bottling plants, nor were they engaged in the actual bottling or sale of Coca-Cola beverage, which was left entirely to the actual bottlers. The actual bottlers were also primarily responsible for developing a market for bottled Coca-Cola in their respective territories, although the Georgia corporation apparently contributed funds to help develop a market.
In 1919, the property, good will, and business of the Georgia corporation founded by Candler was acquired by a Delaware corporation also called “The Coca-Cola Company,” which assumed the Georgia corporation’s outstanding contracts and liabilities. Thereafter, the Georgia corporation surrendered its charter.
Between 1899 and 1920 there were several changes in the formula for Coca-Cola syrup. Most notable of these was the elimination of saccharin as a sweetening ingredient in the syrup produced after 1907. Prior to 1906, the syrup was sweetened with a combination of sugar and saccharin. Following the passage of the Pure Food and Drug Act, the Company began using granulated sugar in place of saccharin. Refined granulated sugar became the most expensive ingredient in the manufacture of the syrup. The parties agreed to an increase in the fixed price of the syrup to reflect the higher sweetener cost.
The onset of World War I brought with it sugar rationing and rigid price controls which held the price of sugar at nine cents per pound. At the end of the War, a severe sugar shortage combined with removal of the price controls caused the price of sugar to skyrocket from nine cents per pound in September 1919 to over twenty-seven cents per pound by June 1920. This extreme rise in the price of sugar caused the parent bottlers in late 1919 to agree to a temporary amendment to their contracts allowing the Company to pass sugar price increases in excess of nine cents per pound to the actual bottlers. This was the first time the parties agreed to a fluctuating price based upon the actual cost of an ingredient.
The Company in January 1920 sought relief from the fixed price contract and proposed a fluctuating price tied to the cost of manufacture of the syrup. The parent bottlers advised that they would not enter into negotiations to amend their contracts with the Company until the Company provided itemized information concerning the cost of manufacturing the syrup. Except for providing cost statements prepared by its accountants, the Company refused to disclose the cost information, informing the bottlers they should rely on “the integrity and good faith of The Coca-Cola Company.” The parent bottlers’ rejection of the flexible pricing proposal precipitated a confrontation between themselves and the Company concerning the nature of the bottling contracts. The Company took the position that the contracts were terminable at will. The parent bottlers, on the other hand, insisted their contracts were perpetual. The Company informed the parent bottlers that their contracts would be terminated as of May 1, 1920. On April 9, 1920, the Company notified all actual bottlers that its negotiations with the parent bottlers had ceased, that the parent bottlers’ contracts would be terminated on May 1, 1920, and that the Company would contract directly with the actual bottlers as soon as circumstances permitted.
On April 13, 1920, the two principal parent bottlers filed suit in Fulton County, Georgia Superior Court to enjoin the Company from terminating their contracts. A temporary restraining order was entered which prohibited the Company from selling Coca-Cola syrup to anyone other than the parent bottlers. The actual bottlers employed J.B. Sizer, a Chattanooga lawyer, to represent their interests in the litigation. Sizer reported to a special committee appointed by the Coca-Cola Bottlers’ Association, the trade organization to which the actual bottlers belonged. Sizer’s fees were paid by the Association and by assessments of the actual bottlers in the WhiteheadLupton and Thomas territories based upon the gallonage of syrup used by each bottler. Six actual bottlers intervened in the litigation in support of the parent bottlers. The Georgia suit was voluntarily dismissed by the parent bottlers on May 20, 1920 and refiled on June 1, 1920 in the United States District Court for the District of Delaware.
The parties agreed to the entry of an order on June 10, 1920 (the “June 10 order”) requiring the Company to supply the parent and actual bottlers’ requirements of Coca-Cola syrup during the pendency of the litigation. The order set the price of syrup paid by the actual bottlers at $1.72 per gallon until November 1, 1920, by which time final decision in the litigation was expected. The June 10 order further provided that if the court had not rendered final decision by November 1, 1920, the syrup price would be increased or decreased based upon the Company’s actual costs of manufacturing the syrup.
In May 1920 the Company purchased a year’s supply of refined cane sugar at a cost of about twenty cents per pound. During negotiations leading to the entry of the June 10 order, the Company failed to disclose that it had entered into this long-term sugar contract at a price near the top of the market. Beginning in June 1920, the market price of sugar began to decrease steadily. It fell to eleven cents per pound by November 1920 and continued to decline to five and one-half cents per pound by July 1921. From June to November 1920, however, the bottlers’ syrup price remained fixed under the June 10 order. Thus, while the prices of competing soft drinks fell, the retail price of Coca-Cola remained high, causing a sharp decline in sales volume. Although the bottlers expected price relief on November 1, the Company announced a price increase in order to recoup the cost of its inventories of high-priced sugar. The bottlers learned that by agreeing to the June 10 order basing the price of syrup on the Company’s actual costs, they had unwittingly exposed themselves to and insulated the Company from the hazards of the marketplace and the Company's apparent poor judgment in making long-term sugar purchases near the top of the market.
On November 8, 1920 the Delaware District Court granted the parent bottlers’ motions for a preliminary injunction preventing the Company from terminating the contracts. The court held that the contracts were perpetual and that the parent bottlers had received from the Company property rights in the business of bottling Coca-Cola beverage. The Coca-Cola Bottling Co. v. The Coca-Cola Co., 269 F. 796 (D.Del.1920) (cited hereinafter as “Coke 1920 at_”). The parties resumed settlement negotiations. After the exchange of numerous proposals between the two litigants, as well as from the actual bottlers, settlement negotiations reached an impasse on March 8, 1921.
The Company appealed the District Court’s preliminary injunction ruling to the United States Court of Appeals for the Third Circuit. The Company’s appeal was argued on May 3, 1921, at which time the presiding judge recommended that the parties consider settlement. New negotiators were appointed. While the appeal was pending, the parties entered into two settlement agreements, one between the Company and the Thomas Company, and the other between the Company and the WhiteheadLupton Company. The Delaware District Court formally incorporated those agreements as final judgments on October 4, 1921. The decrees incorporating the settlement agreements (the “Consent Decrees”) are identical with the exception of two paragraphs in the Whitehead-Lupton agreement not relevant here. The Consent Decrees read in pertinent part as follows:
It appearing to the Court that the above stated cause is now ripe for final decree; that the parties thereto, including all of the Intervenors actually intervening in said cause, have entered into an agreement settling and compromising said case and all questions of difference thereon arising, an original signed copy of which contract has been exhibited to the Court and a true and correct copy of which is hereto attached as Exhibit 1, and Counsel representing the several parties to said cause moving the Court to make said agreement of compromise and settlement the decree of the Court in said cause, and all parties in open court consenting thereto,
IT IS ORDERED, ADJUDGED AND DECREED: That said agreement or settlement and compromise, as the same appears attached hereto as Exhibit 1, be and the same is made the decree of this Court; and that it is so accordingly adjudged and decreed by the Court.
The settlement agreement incorporated in the Thomas Company case is reproduced in pertinent part below:
THIS AGREEMENT, made and entered into on this the 6th day of July, A.D. 1921, by and between COCA-COLA BOTTLING COMPANY, a corporation under the laws of the State of Tennessee, party of the first part, and THE COCA-COLA COMPANY, a corporation under the laws of the State of Delaware, party of the second part:
WITNESSETH:
1: It being recognized that the primary obligation of all parties hereto, as well as all other individuals and Bottling Companies who employ the name Coca-Cola, in their corporate or trade name, is to promote the sale of Coca-Cola, and in consideration of the benefits to be derived by the parties to this instrument from the settlement of all matters of controversy between them in the above stated case, said case is hereby compromised and settled and this agreement is to be presented to the Circuit Court of Appeals and be made the judgment and decree of the proper Court.
2: The present contract between the said parties described in the pleadings in the above entitled cause, as hereby expressly modified and changed, shall remain of full force and effect, and is hereby agreed to be perpetual, and the same shall apply to the parties hereto and their respective successors and assigns; but no assignment shall be made by the party of the first part without the consent of the party of the second part, as provided in the original contract.
3: The said contract, as hereby modified shall operate perpetually, but if abnormal or burdensome conditions or occurrence prevail and the said parties fail to agree on a modification of prices and terms to meet such abnormal or burdensome conditions or occurrence and to continue during the same, then either party shall have the right to demand arbitration as to the price and terms; and if they disagree as to whether or not abnormal or burdensome conditions or occurrence exist, then that question shall also be arbitrated.
4: No forfeiture of any kind shall ever take place under the said contract as hereby amended until after the party of the first part shall have ninety (90) days written notice and opportunity to correct the conditions complained of, and if not corrected within said time and grounds of forfeiture exist, such forfeiture shall then occur; and if any forfeiture should ever arise as to any territory by reason of the act of any actual or sub-bottler, said forfeiture shall only apply to and embrace the territory supplied by the bottling plant of said offending actual or sub-bottler, and shall not extend to, nor cover, territory covered by the territory of any other bottler, even though said territory was obtained from or through the offending bottler.
5: The parties hereto raise the contract price of Coca-Cola Bottlers Syrup as fixed by said existing contract to one dollar and seventeen and one-half cents ($1.17) per gallon delivered as heretofore, including five cents (5