Broadway Properties, Inc. v. Crouch

180 N.E.2d 162, 114 Ohio App. 30, 18 Ohio Op. 2d 310, 1961 Ohio App. LEXIS 631

• Court: Ohio Court of Appeals
• Decided: June 27, 1961
• Docket: 6538
• Status: Published

Opinions

Bryant, J.

This is an appeal on questions of law and fact. Broadway Properties, Inc., an Ohio corporation, herein called Broadway, with its principal office in Cleveland, Ohio, appellant herein, was plaintiff in the court below, and Richard C. Crouch, Director of the Ohio Department of Liquor Control, appellee herein, was defendant in the court below. The petition of plaintiff alleges that Broadway is an Ohio corporation and that Crouch is Director of the Ohio Department of Liquor Control empowered to contract for warehouse space and service to store state-owned liquor and for space for a wholesale store. The petition alleges also that Broadway operates a warehouse at 6114 Broadway Avenue in Cleveland, and since June 1, 1958, has provided such warehouse and wholesale store space for the Cleveland district; that prior to 1958 the contract for such service for a period of 25 years was held by the Otis Terininal Warehouse located at 1300 West Ninth Street, Cleveland, Ohio; that Otis is a division of Gera Corp., a New Jersey corporation, which in turn is a subsidiary of Glen Alden Corporation, a New York corporation; and that Cleveland Arcade Corp. is lessor of the warehouse property located at 1300 West Ninth Street, Cleveland, Ohio, to Otis.

The petition alleges that Albert A. List is the chairman, president and chief executive officer of Glen Alden Corp. and Gera Corp. and a principal shareholder of Cleveland Arcade Corp., that Bernard E. Woeste is vice president of Glen Alden Corporation and general manager of Otis, and that Ellick B. Wasserman is general manager of Cleveland Arcade Corp.

The petition alleges that Otis (now a division of Gera), Glen Alden, Gera and Cleveland Arcade Corporation, List, Woeste, Wasserman and other unnamed officers, agents and employees of the named corporations and divisions “engaged in a conspiracy against trade in violation of Ohio Bevised Code Sections 1331.01 through 1331.99, known as the Valentine Act, and in a combination and conspiracy in restraint of trade and commerce and to monoplize a part of trade and commerce in violation of Sections 1 and 2 of the Sherman Anti-Trust Act of the United States (15 U. S. Code, Sections 1 and 2), by conspiring and combining to put plaintiff out of this warehousing business and to destroy its ability to compete with Otis for the Cleveland District Department of Liquor Control warehousing contracts. ’ ’

The petition alleges that the Department of Liquor Control invited bids for the furnishing of warehouse and wholesale store space for the Cleveland district for the period of three years beginning June 1, 1960; and that Otis on March 15, 1960, submitted a bid “which was substantially below cost, was not a competitive bid and was submitted for the purpose of driving plaintiff out of this business and to re-establish Otis’ twenty-five (25) year control of the Cleveland district warehousing business.”

Beferring to a stipulation in the record it appears that the department asked for quotations for (1) in and out service and first month storage and (2) charge per month for storage after the first month, referred to herein as (1) initial charge and (2) renewal charge. It appears that Broadway’s bid per case stored was as follows: (1) initial charge, $.1245 per case, and (2) renewal, $.055 per case. While Otis’ bid per case stored was as follows: (1) initial charge, $.095 per case, and (2) renewal, $.03 per case.

The petition alleges that the “predatory, monopolistic bid of Otis of 9.5 cents per case of spirituous liquor to be stored in the Cleveland district warehouse was lower than any charge it had made to the state for this warehousing service” in the 15-year period prior to 1958; that Crouch will award the bid to Otis “solely because it is the low bidder”; and that awarding the contract to Otis ‘ ‘ will aid and abet the predatory, monopolistic combination and conspiracy” of Otis, Glen Aldeii, Gera, Cleveland Arcade Corp., List, Woeste, Wasserman and others.

There are also allegations in the petition with reference to (1) amounts spent by Broadway to improve its property and adapt it for use as a liquor warehouse and (2) the superiority of Broadway’s warehouse and the defects and deficiencies in Otis’ warehouse, which we do not consider properly within an action of this sort for the reasons which follow.

Broadway does not and could not base any claim for a new contract upon its additional capital investment made during the two-year life of its 1958 contract.

On June 2, 1959, in the case of Canton Storage, Inc., v. Moon, Dir., 110 Ohio App., 7, this court held that the Director of the Department of Liquor. Control “is not required by statute to let a contract for warehouse space pursuant to competitive bidding.” The case further decided that in letting the contract for warehouse space, such director “is free to exercise his own discretion,” in the absence of fraud or abuse of discretion. It would appear that the director has uncontrolled discretion, as the petition nowhere alleges that any act of the director constitutes either fraud or abuse of discretion. We conclude therefore that questions relating to the comparative merits of the two warehouses, the question of Broadway’s additional investment and the desirability of the two locations are not properly before us.

The petition alleges also that, if the warehouse contract is awarded to Otis, Broadway will suffer “irreparable harm and damage” and that it has no other adequate remedy at law. The prayer of the petition is as follows:

“Wherefore, plaintiff prays for an order of the court enjoining the defendant from awarding, letting, signing, executing or entering into any contract with Otis Terminal Warehouse Division, Glen Alden Corporation, Gera Corporation, or any of them, for the Cleveland district warehouse and wholesale store and for such other relief as it may be entitled to, and for its eosts herein.”

An answer was filed on behalf of Crouch as Director of Liquor Control. It admits (a) the corporate capacity of Broadway; (b) that Crouch has the authority to enter into warehouse leases and contracts for wholesale store space; (c) that for two years Broadway has had the contract for the Cleveland District Warehouse and Wholesale Liquor Store; (d) that Otis, a division of Gera Corporation, operates a warehouse at 1300 West Ninth Street, Cleveland, Ohio; (e) that Cleveland Arcade Corporation and others lease the warehouse tp Otis; and (f) that List and Woeste hold the offices alleged in the petition. The answer admits also that invitations for sealed bids were issued on February 11, 1960, for the Cleveland District Warehouse and Wholesale Store and that Broadway and Otis submitted the following bids:

“Broadway Properties, Inc. Otis

“Unloading $0.025 $0.02

Inspection .00 .00

Placing in Storage .0095 per case .01 per case

Handling Out .03 " " .03 " "

First Month’s Storage .055 .035

Reporting Serial Numbers .005 " " .00 " "

Totals $0.1245 per case $0.095 per case

Renewal Storage per month .055 .03

Recoopering .50 .50

Wholesale Storage .648 per sq. ft. .69 per sq. ft.

General Labor Charges 3.00 per hour 3,00 per hour”

. The answer denies £ £ for want of knowledge ’ ’ the, allegations of the petition as to a conspiracy between Gera and.the:other corporations, and List and the other officials; that Otis ’ bid was substantially below cost and not a competitive bid; .and that ■.«uch bid-was submitted for the purpose of driving Broadway, -out of business. The answer denies also that Otis’ facilities '-fail to meet bid specifications,. that it is illegal to enter into-a contract with Otis and that maldng such a contract would be an abuse of-discretion.

The answer alleges that the Otis’ bid for warehousing and wholesale store space was “the lowest and best bid”; that awarding the bid to Otis instead of Broadway will effect a, saving of $200,000 in the three-year life of the contract; and that ■on April 6, 1960 (five days prior to the filing -of the petition on April 11, 1960), Otis was notified that its bid had been accepted. This was followed by a general denial and a prayer that the petition and temporary injunction be dismissed. ' . =

.' . Perhaps at the outset it will be well to recall.that the state ,of Ohio in creating the Department of Liquor Control in December 1933, in express language created a liquor monopoly,-of its own. The, Act which created the department (115 Ohio Laws, Pt.-2, 118) is entitled: ■

£.£To provide a system of control of the manufacture and importation of and traffic in beer and intoxicating liquors.in this state, including a state monopoly of the distribution and sale of spirituous liquor; for that purpose to create the Department of Liquor Control, to consist of the Board of Liquor Control and the Director of Liquor Control and define their respective powers and duties; * * *.” (Emphasis added.)

The authority of the Department of Liquor Control to enter into leases] for state liquor stores and warehouses' arises in part from the provisions of Section 4301.10, Revised Code (128 Ohio Laws, 1282, 1285), which reads in part as follows :

“(A) The Department of Liquor Control shall:

“(3) Put into operation, manage, and control a system of state liquor stores for-the sale of spirituous liquor at..retail and to holders of permits authorizing the sale of such liquor, and by means of such stores, and such * * *, warehouses.,, and other facilities as it deems expedient, establish and maintain a .state monopoly of the distribution of such liquor and its sale in ,¡packages or containers; * * * lease, or in any manner acquire the use of any land or building required for any such purposes; * * *

“(B) The department may:

“(2) Enter into leases and contracts of all descriptions within the scope of its functions # # (Emphasis added.)

The warehouse service in question will serve the Cleveland .district, and whichever bidder is successful there will be only one such warehouse in the Cleveland district and all or substantially all the spirituous liquor in cases o,f .the district will be .received at one and only, one warehouse in the Cleveland district.

The state has thus.monopolized the handling,, distribution .and. sale of spirituous liquor in packages or containers. It would appear therefore that, so far as the quantity, flow .or movement of spirituous liquor in packages, approximately the same amount will be handled whether it be through Broadway’s warehouse or through the Otis warehouse, and whether the .initial charge for warehousing is $.1245, as bid by Broadway, or ,$.095 as bid by Otis, or whether the renewal charge is $,055, as bid by Broadway, or $.03, as bid by Otis.

The invitation for bids in this .case called not only for warehouse service but also for a wholesale store. It should be pointed put that competitive bidding is required in the case of state .liquor stores and all liquor store leases .are required to be .made “in writing with the lowest and best bidder” after publication of a legal advertisement, under the provisions of Section 4301.11 of the Revised Code. That section provides in part.as follows:

“All contracts of lease for a state liquor store entered into by the Department of Liquor Control shall be made in writing with the lowest and best bidder after an advertisement in a newspaper of general circulation in the community wherein it is proposed to establish such store., In. determining the lowest and best bid, the department shall consider the. length .of the lease, the location,, size, character, and quality of the construction, and the general fitness for use as such .store of; the pr.emisas. for which alfid is submitted.” ...

As we view it, the mandate above set forth has equal force with the provisions contained in Chapter 1331, known as the “Valentine Act.” Being specific as to subject mattér and a much more recent enactment, it would, in our opinion, prevail in the event of any conflict.

Plaintiff, in its notice as to evidence in this court, made reference to the bill of exceptions from the court below, the depositions of Bernard E. Woeste and a stipulation of counsel; while counsel for defendant in its notice made reference to evidence in the record of depositions, papers, stipulations and exhibits. The pleadings, entries, evidence, exhibits, depositions, briefs and oral arguments have been given careful attention and consideration.

It is only proper that we compliment counsel for plaintiff and defendant on the capable and thorough manner in which •the oral and written arguments were presented. The issues'in this casé are unusual, and counsel have materially assisted the court with their research upon the many issues involved.

A great déal of plaintiff’s case is founded upon the allegation that Otis’ bid, both for initial charge and the renewal eharge, was substantially below cost, was not competitive and was for the purpose of driving Broadway out of business. The issue presented by this allegation has to do with the cost in the three-year period beginning June 1, 1960, of rendering this service. We do not regard evidence or proof of what Otis charged in previous years as establishing Otis’ costs during a three-year period on and after June 1, 1960. Likewise, we do do not believe that much significance can be attached to the fact or claim that Otis’ charge tó other customers was more than the amount, of its bid in this case.

We do not recall any showing that the facts and circumstances with reference to these other customers and the state liquor department were identical, nor do we regard thát as important. The only item to be handled by a warehouse under the proposed léasé wás spirituous liquor in bottles enclosed in cases. As a substántial portion of the liquid in each bottle was alcohol, we assume that keeping it warn! while in storage was of minor importance, if ahy at all. Proof as to the heating cost in the case of spirituous liquor is of little concérn. Likewisé, the length of time a particular case is in the warehouse could affect in á substantial degree the cost to the warehouse. For example, if we assume that case A, ah average case of spirituous liquor, and case B, also an average case of spirituous liquor, are identical in every respect sofar as size, weight, handling and other factors áre concerned, but thát case A arrives and leaves the warehouse on the first day of the month, while case B arrives on the first day of the month and leaves on the last day, the great differential will become apparent. So far as the requirement for storage is concerned and omitting the difference of cost for handling, the warehouse during a month would receive thirty times as much in storage charges eárned for space in the warehouse used by cases in and out in one day’s time when compared to cases which remain in the warehouse for the full thirty-day period. It must bé remembered that, both in. the answer filed by the defendant and in the evidence submitted on behalf of the defendant, it was denied that Otis’ bid was below cost. This is quite understandable in view of the testimony that during the preceding two years when Otis had none of the liquor storage business, a substantial part of its warehouse space was empty and earning nothing. Under such circumstances, Otis was compelled to allocate all its fixed charges to the business it had as well as expenses arising from the handling of the other business.

As before stated, the principal claim on which Broadway rests its ease is that Otis’ bid of 9.5 cents for initial storage and 3 cents for renewal storage is below cost. As we view the record, plaintiff has failed to produce a preponderance of the evidence that such is the case. Plaintiff has used the below-cost claim as the basis for its inferences that Otis and the others associated with it entered into an illegal conspiracy, that the bid submitted by Otis was monopolistic, predatory and unlawful and that the acceptance of this bid by Crouch would be an abusé óf discretion. The failure of proof as to the primary fact obviously carries with it a fáilure of inferences arising théréfrom.

Much emphasis was placed upon the conferences, telephone calls, méetings and discussions which were held in advance of .and in preparation for the submission of the bid by Ótis. Even if the bid was below’ cost, and we do not believe it was, plaintiff also would have the burden of showing that it was fixed at that figure for the purpose of driving plaintiff out of business. .

Broadway got the Cleveland district warehouse and wholesale store business in 1958 by underbidding Otis. Since losing this .business, Otis operated this warehouse at considerably, under, capacity... .The record shows that Otis was aware of what happened in 1958 in the Canton district where the rate dropped sharply in 1958 and. the initial rate per case* which had been 14 cents .per case prior thereto, dropped to. 10 cents per case in 1958, and the renewal storage, which had been 5% cents per case prior, to 1958, dropped to 4 cents per case. Thus it is not surprising that Otis in its bid dropped %. cent per. case below the initial rate at Canton and 1 cent per case below the renewal rate-.per case at Canton.

In the brief on behalf of defendant, many reasons are urged why the petition should be dismissed and the temporary injunction dissolved. Among these are the contention that plaintiff .is .not entitled to injunctive relief unless defendant either has abused his discretion or acted in a fraudulent manner '.(See Canton Storage, Inc., v. Moon, supra); that defendant is under no .duty, to investigate and make determinations with respect to. claimed violations of Chapter 1331, supra, known as. the “Valentine Act”; that Chapter 1331, supra; does not apply to the state; that Otis’ intent in submitting the bid in question was lawful and not below cost; and that there is no evidence of conspiracy, and proof of actions of the various corporate officers ,aud employees does not show a conspiracy.

. .■ Without attempting to answer each of these questions we feel.there are two fatal defects in addition to the matters set forth above which must be mentioned.

, In the first place,, the awarding of the contract had been .made and.notice of. it given to Otis five days before, this suit was filed. It is true that the transaction remains to be finalized, but it is ..plain that pursuant to advertisement an offer had been received and that offer was accepted prior to the filing of this suit. It is of . course obvious that equity cannot enjoin that which .has been accomplished, and the important fact was whether an offer had been made and accepted. No one disputes this, and .this is another reason why the petition.must fail.

4 The other-and even, more compelling reason is that -Broadway has thoroughly litigated the rights of Otis-.and -seeks an order which will deprive Otis of any of the benefits arising from the acceptance, of Otis’ offer, although Otis-is .nowhere a. party .to, this, case. The- real parties in interest in this litigation are Broadway -and'Otis.: ■■ Nowhere-in the petition , or evidence is there, any suggestion or claim that the director has .been, guilty ■of any dereliction, omission or fraud of any character whatsoever. : If. that be true, the proper party defendant would be .Otis and such other corporations and individuals acting for them as plaintiff’s evidence warranted, and.there was.no necessity whatsoever for even naming the director as a party defendant. This' latter ground, in our opinion, is a further reason, and a compelling. one, why the petition must be dismissed and the injunction dissolved. ■ .

In closing we wish -to compliment Judge Reynolds of the Common Pleas Court for the careful and scholarly opinion he wrote in this case, which well expresses our ideas, and which we will not repeat here..

Petition dismissed.

Duffey, P. J., concurs. Duffy, J., concurs in judgment.