Thompson v. T. F. I. Co.

64 F.R.D. 140, 19 Fed. R. Serv. 2d 76, 1974 U.S. Dist. LEXIS 6978
District Court, N.D. Illinois·Decided August 28, 1974·No. No. 72 C 3105·Published·Cited by 23 cases

Opinion

MEMORANDUM OPINION

DECKER, District Judge.

This is an antitrust action under sections 4 and 16 of the Clayton Act, 15 U. S.C. §§ 15, 26, seeking injunctive and treble damage relief against various corporate entities in the Tastee-Freez franchise system for alleged violations of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, and section 3 of the Clayton Act, 15 U.S.C. § 14.1

The amended complaint alleges that defendants have conspired to restrain and monopolize trade, and have attempted to monopolize or substantially lessen competition in the market for “Tastee Shake Mix and supplies used in and incidental to the preparation and sale of Tastee-Freez, including but not limited to toppings, fountain supplies, paper and plastic containers and utensils, and all foods and related items used in the preparation and sale of Tastee-Freez products.” These unlawful objects are alleged to be accomplished by conditioning a license to operate, and thus, the privilege to use the valuable Tastee-Freez trademark and tradename, upon the prospective licensee’s agreement to accept contractual provisions requiring him to purchase the foregoing essential products and supplies from the defendants or sources designated by them, and [143] by a program of promotion and coercion to enforce those agreements.2

Plaintiff purports to bring this action individually and as representative of all persons “similarly situated who have entered into an Operator’s License Agreement containing provisions similar to those entered into by plaintiff . with one or more of the named defendants.”

This court previously has denied defendants’ motions to dismiss the amended complaint for lack of subject matter jurisdiction, pursuant to Rule 12(b)(1), F.R.Civ.P., and for entry of summary judgment in their favor under Rule 56, F.R.Civ.P. Presently before the court are defendants’ motions, pursuant to Rule 23(c), for an order striking the class action allegations of the amended complaint on the ground that this litigation and the named plaintiff do not satisfy the prerequisites for the maintenance of a class action prescribed by Rules 23(a) and 23(b).

Resolution of the class action issue here, as in other franchise cases, requires an analysis of the particular questions to be litigated and of the proof that will be required at trial. Smith v. Denny’s Restaurants, Inc., 62 F.R.D. 459 (N.D.Cal.1974); Abercrombie v. Lum’s, Inc., 345 F.Supp. 387, 390 (S.D.Fla.1972); DiCostanzo v. Chrysler Corp., 57 F.R.D. 495, 498 n. 9 (E.D.Pa. 1972). In addition, some understanding of the Tastee-Freez franchise system, and the relative positions of defendants therein, is necessary to place the parties’ contentions in their proper perspective. As indicated by the amended complaint, and as more particularly set forth in an affidavit of the chairman of the board of one of the defendants, the Tastee-Freez franchise system is triple-tiered. At the apex is defendant T.F.I. Companies, Inc., a conglomerate engaged in the business of owning stock in several different types of companies. One of the concerns which it wholly owns is Tastee-Freez International, Inc. (“Tastee-Freez”), an Illinois corporation with its principal place of business in Chicago, Illinois, and sole owner of the Tastee-Freez trademark. Typically, Tastee-Freez enters into agreements with individuals or companies, known as “franchisees”, whereby the latter assume responsibility for developing the Tastee-Freez business in a designated geographic territory by arranging for the opening and operation of Tastee-Freez stores therein. In their assigned territories, the area franchisees, not Tastee-Freez, enter into license agreements authorizing the operation of Tastee-Freez establishments; plaintiff is one such “licensee” or “operator”. In those territories in which Tastee-Freez does not have an independent franchisee, Tastee-Freez itself enters into license agreements with applicants. Plaintiff is a licensee of defendant Chicago Tastee-Freez Corporation (“Chicago TF”), the area franchisee for four northern Illinois counties.

There are approximately 1300 Tastee-Freez establishments licensed throughout the United States. Of those, about 150 operate in non-franchisee territories under direct license agreements with ■ Tastee-Freez. The remaining 1150 operators function under license agreements with approximately 45 different area franchisees, such as Chicago TF.3 Approximately 42 licensees, including plaintiff, have contracted with Chicago TF. Thus, more than 1100 of the total 1300 licensees in the purported class appar[144] ently have not contracted with either defendant Tastee-Freez or Chicago TF.

With respect to the 190-200 operators who have entered into agreements with Tastee-Freez or Chicago TF, their contracts vary in significant respects. Tastee-Freez has published or prepared 19 different operator’s license agreement forms; evidently, all but one has been used in contracting with the 150 operators in the non-franchisee territories. Tastee-Freez has recommended and made available all 19 of these forms to the area franchisees, who use their discretion in utilizing these models in negotiating with prospective licensees. However, the franchisees are not under any obligation to Tastee-Freez to use any particular form of agreement, including the 19 suggested models, in establishing contractual arrangements with their licensees. Tastee-Freez asserts that the only requirements it imposes upon franchisees are that the ultimate license agreements be substantially consistent with the recommended forms and adhere to the provisions in the models concerning quality maintenance, protection of the Tastee-Freez trademark, and calculation of royalties payable to the store operators.4

As might be expected from defendant Tastee-Freez’ liberality on contract provisions, there exist within the franchise system franchisees which have used the license agreement models supplied by Tastee-Freez without change; there are other franchisees which have used the forms with minor or substantial modification ; there are other franchisees which have used their own or other corporate forms of agreement; 5 and there are still other franchisees which have allowed licensees to operate without any written license agreements.

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Thompson v. T. F. I. Co., 64 F.R.D. 140, 19 Fed. R. Serv. 2d 76, 1974 U.S. Dist. LEXIS 6978 (N.D. Ill. 1974).

64 F.R.D. 140 (Thompson v. T. F. I. Co.) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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