Queen City Pizza, Inc. v. Domino's Pizza, Inc.

Opinions of the United
1997 Decisions States Court of Appeals
for the Third Circuit

10-27-1997

Queen Cty Pizza Inc v. Dominos Pizza Inc
Precedential or Non-Precedential:

Docket
96-1638

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Recommended Citation
"Queen Cty Pizza Inc v. Dominos Pizza Inc" (1997). 1997 Decisions. Paper 253.
http://digitalcommons.law.villanova.edu/thirdcircuit_1997/253

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Filed October 27, 1997

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 96-1638

QUEEN CITY PIZZA, INC.; THOMAS C. BOLGER; SCALE
PIZZA, INC.; BAUGHANS, INC.; CHARLES F. BUCK; F.M.
PIZZA, INC.; ROBERT S. BIGELOW; BLUE EARTH
ENTERPRISES, INC.; KEVIN BORES; DAVIS PIZZA
ENTERPRISES, INC.; DIANE A. DAVIS; FISHER PIZZA,
INC.; JAMES B. FISHER, JR.; SEPCO, INC.; S&S PIZZA
CORP.; G&L PIZZA CO.; STEPHEN D. GALLUP; LUGENT
PIZZA, INC.; JOSEPH J. LUGENT; BILLIO'S PIZZA, INC.;
WILLIAM J. MURTHA; SPRING GARDEN PIZZA, INC.;
BRAD L. WALKER; JRW PIZZA, INC.; JAMES R. WOOD,
Individually and as Class Representatives of a Class
Consisting of All Present and Certain Former Domino's
Franchisees in the United States; INTERNATIONAL
FRANCHISE ADVISORY COUNCIL, INC.

v.

DOMINO'S PIZZA, INC.

Queen City Pizza, Inc.; Thomas C.
Bolger; Scale Pizza, Inc.; Baughans,
Inc.; Charles F. Buck; F.M. Pizza, Inc.;
Robert S. Bigelow; Blue Earth
Enterprises, Inc.; Kevin Bores; Davis
Pizza Enterprises, Inc.; Diane A. Davis;
Fisher Pizza, Inc.; James B. Fisher, Jr.;
SEPCO, Inc.; S&S Pizza, Inc.; G&L
Pizza, Inc.; Stephen D. Gallup; Lugent
Pizza, Inc.; Joseph J. Lugent; Billio's
Pizza, Inc.; William J. Murtha; Spring
Garden Pizza, Inc.; Brad L. Walker;
JRW Pizza, Inc.; James R. Wood; and
International Franchise Advisory
Council, Inc.,

Appellants

(D.C. Civ. No. 95-cv-03777)

SUR PETITION FOR REHEARING

Present: SLOVITER, Chief Judge,
BECKER, STAPLETON, MANSMANN, GREENBERG,
SCIRICA, COWEN, NYGAARD, ALITO, ROTH, LEWIS,
McKEE and LAY,* Circuit Judges

ORDER

The petition for rehearing filed by appellants in the
above-entitled case having been submitted to the judges
who participated in the decision of this Court and to all the
other available circuit judges of the circuit in regular active
service, and no judge who concurred in the decision having
asked for rehearing, and a majority of the circuit judges of
the circuit in regular service not having voted for rehearing,
the petition for rehearing by the panel and the Court in
banc, is denied. Chief Judge Sloviter and Judges Becker,
Mansmann, Nygaard and Roth would grant rehearing.

BY THE COURT,

/s/ Anthony J. Scirica
Circuit Judge
Dated: October 27, 1997
________________________________________________________________

*The Honorable Donald P. Lay, United States Circuit Judge for the
Eighth Judicial Circuit, who sat by designation, as to panel rehearing
only.

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BECKER, Circuit Judge, Statement Sur Denial of the Petition
for Rehearing.

The majority opinion's interpretation of the Supreme
Court's decision in Eastman Kodak Co. v. Image Technical
Servs., Inc., 504 U.S. 451 (1992) has serious consequences
for our future examination of franchisor/franchisee
relationships in the context of the antitrust laws. The
majority states that

Kodak does not hold that the existence of information
and switching costs alone, such as those faced by the
Domino's franchisees, renders an otherwise invalid
relevant market valid.

Queen City Pizza, Inc., et al. v. Domino's Pizza, Inc., No.
96-1638. Slip op. at 16. Instead the majority believes that
the ratio decidendi of the Kodak case is that the
aftermarket commodity or service alleged to constitute a
single brand market must be unique. Slip op. at 15-16.
When this view is combined with the majority's further
holding that uniqueness must come from the nature of the
product, not the franchise agreement, slip op. at 13-14, the
result is that the franchisor/franchisee relationship is
rendered virtually immune from antitrust scrutiny.

Judge Lay's splendid dissenting opinion fully exposes the
flaws in the majority's relevant product market analysis,
and I need not labor the point. I do, however, write
separately to elucidate a concern about the majority's
approach to antitrust policy in the franchising area that
Judge Lay discusses only briefly, slip op. at 34-35, but
which also strongly counsels that this case be heard en
banc.

I have long believed that "The way you come out in [a]
case depends on how you go in." See Larry Muko, Inc. v.
Southwestern Pa. Bldg. & Constr. Trades Council, 609 F.2d
1368, 1377 (3d Cir. 1979)(Aldisert, J., dissenting). The
majority's holdings stem, I believe, from how it has gone
into the case, i.e. from the fact that the majority has bought
into the oft-heard paeans of praise for franchising:

Franchising is a bedrock of the American economy.
More than one third of all dollars spent in retailing

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transactions in the United States are paid to franchise
outlets. We do not believe the antitrust laws were
designed to erect a serious barrier to this form of
business organization.

Queen City Pizza, Inc., et al. v. Domino's Pizza, Inc., No.
96-1638. Slip op. at 18. It also has endorsed the
questionable theory that the kind of tying arrangements
involved here "are an essential and important aspect of the
franchise form of business organization." Id. But these
theories are also flawed.

I believe that the approach endorsed by the majority
might have been acceptable two decades ago, see Ungar v.
Dunkin' Donuts, 531 F.2d 1211 (3d Cir. 1976), when
franchising was in its nascent, or at least its growing stage.
But now the food franchisors are leviathans, and I am
underwhelmed by the suggestion that they may be
permitted with impunity to perpetuate the type of
arrangements pled in the complaint. These arrangements
are clearly quite onerous to the average franchisee, a
relatively small business person whose sunk costs in the
franchise represent all or most of his or her assets and who
lacks the considerable resources necessary to switch or
defranchise. Moreover, the amount of commerce that the
franchisors are foreclosing in the tied product market -- for
the pizza sauce, flour and other supplies (for which non-
franchisor dominated suppliers, be they individualfirms or
a franchise cooperative, could easily meet quality control
specifications) is enormous.

Additionally, to the extent that the plaintiffs have alleged
coercion in connection with their acceptance of a
burdensome tie, a Rule 12(b)(6) dismissal would be
inconsistent with Ungar. Indeed, even if the majority's legal
position is correct, it can only be sustained if it were an
affirmance of a summary judgment on a full record, which
is how the opinion seems to read. It can not stand under its
actual procedural status -- review of a Rule 12(b)(6)
dismissal.

For all the foregoing reasons, I dissent from the denial of
rehearing en banc.

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A True Copy:
Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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