Source: https://law.justia.com/cases/federal/appellate-courts/F2/309/213/455188/
Timestamp: 2019-08-22 20:33:38
Document Index: 218334115

Matched Legal Cases: ['§ 13', '§ 13', '§ 13', '§ 13', '§ 13', '§ 16']

Alhambra Motor Parts et al., Petitioners, v. Federal Trade Commission, Respondent, 309 F.2d 213 (9th Cir. 1962) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Ninth Circuit › 1962 › Alhambra Motor Parts et al., Petitioners, v. Federal Trade Commission, Respondent
Alhambra Motor Parts et al., Petitioners, v. Federal Trade Commission, Respondent, 309 F.2d 213 (9th Cir. 1962)
US Court of Appeals for the Ninth Circuit - 309 F.2d 213 (9th Cir. 1962)
James McI. Henderson, Gen. Counsel, J. B. Truly, Asst. Gen. Counsel, Francis C. Mayer, and Lester A. Klaus, Attys., Federal Trade Commission, Washington, D. C., for appellee.
The Commission order required them to cease and desist the practice of inducing and receiving price discriminations in violation of section 2(f) of the Clayton Act, as amended by the Robinson-Patman Act (Act), 15 U.S.C.A. § 13(f).
SCJ has in the past engaged in two quite distinct types of operations. These are referred to in the record as "brokerage" and "warehouse" operations. In the brokerage operation individual jobber-members order commodities from the manufacturers or suppliers on forms provided by SCJ.1 These orders are sometimes sent directly to the manufacturers and sometimes to the SCJ office for consolidation with orders from other jobber-members before transmittal to the manufacturers. The manufacturers either "drop-ship" the merchandise direct to the ordering jobber-members or allow the SCJ delivery service to make the deliveries. The brokerage operation was utilized in connection with twenty-nine different lines of commodities not stocked by the SCJ warehouse.
SCJ has engaged in its warehouse operation since at least 1955. The warehouse is operated solely for the benefit of its jobber-members and no goods are sold or distributed therefrom to non-group jobbers. However, any jobber in the Los Angeles area who desires to become a member of SCJ is permitted to do so. Total warehouse purchases increased from $297,800 in 1955 to $1,762,346 in 1958. For the first ten months of 1959, warehouse purchases were $2,013,610.
A redistribution discount is a functional discount allowed by manufacturers to all warehouse distributors for warehousing a minimum stock of the manufacturer's products, and for reselling those products to jobbers. These discounts are allowed to SCJ pursuant to contracts entered into between the co-operative and individual manufacturers. The redistribution discount allowed to SCJ on its warehouse purchases is the same as that allowed to independent warehouse distributors.
Most jobber-members buy from SCJ, and sell to their customers, the manufacturers' lines accepted by the group and stocked in the warehouse. This, however, is not a rigid requirement and members are free to handle competitive lines. When a manufacturer's line is accepted notice is sent to all members in the form of a "deal book," giving full particulars as to the contract terms agreed upon.
Each jobber-member receives from SCJ a yearly merchandise statement containing a report of "retained impounds." An "impound" is the difference between the jobber prices, at which the members are originally billed, and the prices which SCJ pays to the manufacturers. This difference is accounted for by the cash and volume discounts allowed by manufacturers on the brokerage operation and the cash and redistribution discounts allowed by manufacturers on the warehouse operation.
Each jobber-member shares in the retained impounds and in the cost of operating SCJ, on the basis of individual purchases (from the manufacturers in the case of the brokerage operation, and from SCJ in the case of the warehouse operation) as compared to total purchases made through or from SCJ by all jobber-members. Delivery charges are separately billed. Each member's allocated portion of net impounds is not actually paid to it but is applied as a credit to reduce indebtedness to SCJ on past-purchased merchandise.
Section 2(f) of the Act, 15 U.S.C.A. § 13(f), provides that it shall be unlawful for any person engaged in commerce, in the course of such commerce knowingly to induce or receive a discrimination in price which is prohibited by that section. The discriminations in price which are thus forbidden to be induced or received are those which are prohibited under section 2(a) of the Act, 15 U.S. C.A. § 13(a), quoted in the margin.2
Section 2(a) contains a proviso to the effect that nothing contained in that section "* * * shall prevent differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered (subject to a further proviso not here applicable) * * *." The Examiner and the Commission found, with respect to both the brokerage and warehouse operations, that petitioners had knowingly induced and received price discriminations prohibited by section 2(a). It was found that, as a result, the prices paid by jobber-members were substantially lower than the prices paid by competing non-group jobbers, and that the latter were injured within the meaning of the Act. It was also found that petitioners knew or should have known that the substantially lower prices, induced and received by them, were not within any of the sellers' defenses provided by the Act. With regard to all such brokerage and warehouse operations whereby income was received by jobber-members as a result of price discounts granted to SCJ, petitioners were ordered to cease and desist.
With respect to the brokerage operation, the Commission's order finds support in recent decisions in the Fifth and Second Circuits. See Mid-South Distributors v. Federal Trade Commission, 5 Cir., 287 F.2d 512; American Motor Specialties Co. v. Federal Trade Commission, 2 Cir., 278 F.2d 225. On this review petitioners concede that their brokerage business conducted through SCJ, as described above, is in violation of the applicable provisions of the Act, as construed in these decisions. Accordingly, petitioners do not seek a review of the Commission order insofar as it is directed to the brokerage phase of their operations.
What the Commission staff undertook to prove was that: (1) the jobber-members, rather than SCJ, were the buyers from the manufacturers of the commodities handled in the warehouse operation and were accordingly the recipients of the redistribution discount; (2) such discount effectuated a price differential in favor of the jobber-members, as compared to independent jobbers; (3) this price differential tended to lessen competition and to injure, destroy, or prevent competition between the jobber-members and independent jobbers; and (4) the jobber-members, knowingly induced and received such price differential.
If it be assumed that the Examiner and the Commission correctly decided these four issues, this still might not be dispositive of the case if the price differential was cost justified within the meaning of the first proviso of section 2 (a). In that event petitioners would have a complete defense unless the Commission is able to establish that such differential is not available on proportionally equal terms to independent jobbers competing with the jobber-members.3
The only reference to this defense in the Examiner's decision is the statement, quoted in the margin, contained in paragraph 6 of his conclusions.6 This is not a clear-cut finding on the issue. It was made, not with specific reference to the defense of cost justification, but in dealing with the different question of whether jobber-members "knowingly" induced or received price discriminations. In addition, the Examiner here seemed to be primarily concerned with volume discounts, which are not in question in this review proceeding.
Moreover, this statement, if regarded as a finding, appears to be predicated on the idea that in order to be cost justified, the pro rata part of the price differential received by individual jobber-members must be offset by some cost-saving service performed by them individually for the manufacturers, apart from any service rendered for the manufacturers by the SCJ warehouse operation. This is the only possible explanation for the Examiner's observation, in the course of the quoted statement, that the jobber-members "knew that no cost justification could be maintained by the sellers since no difference in the cost of manufacture, sale, or delivery was involved." (Emphasis supplied.)
"* * * Petitioners presented no evidence showing their activities provided cost savings [25] to the suppliers, or benefited anyone other than themselves * * * [Footnote 25. Indeed, in sharing the expenses of warehousing to them as buyers, petitioners were able to demonstrate a maximum merchandise expense to purchases of only 1.13% for any one calendar year between 1940 and 1950. See apdx. 26; Cx 58D.]."
Besides being factually inaccurate, since petitioners presented a great deal of evidence on this point, the quoted assertion indicates that the Commission regarded petitioners as having the burden of coming forward with evidence that the price differential was cost justified. In a section 2(f) case, however, the burden is upon the Commission. Automatic Canteen Co. v. Federal Trade Commission, 346 U.S. 61, 73 S. Ct. 1017, 97 L. Ed. 1454.7
In its own name SCJ ordered commodities in large quantities from the manufacturers. It accepted financial responsibility for payment, took title in its own name, and paid from its own account.
The warehouse operation was characterized in the record as an "occasional" method of doing business of comparatively "recent" origin. It was in effect regarded by the Examiner as virtually ancillary to the brokerage business and as a means of assisting the members in obtaining rebates principally through the brokerage operation.
For this and perhaps other reasons, there are neither findings, conclusions nor discussion by the Examiner or the Commission regarding the economic and legal significance of the facts: (1) that this group buying organization performed substantially the same economic function as other warehouse distributors who received the same functional discount; (2) that the performance of this function resulted in cost savings to the sellers; and (3) that the distribution to the jobber-members of the net gain from the functional discounts in accordance with the volume of their purchases was within the apparent protection of section 4 of the Act, 15 U.S.C.A. § 13b.14
These matters lie in the area in which the Commission's accumulated experience should provide the helpful guidance which Congress expected the Commission to furnish to the courts. They are obviously relevant to the proper disposition of the case. Adequate analysis, findings and conclusions with respect to these matters seem to us to be essential to a proper review of the Commission's order. As stated by the Supreme Court in Securities and Exchange Commission v. Chenery, 318 U.S. 80, 94, 63 S. Ct. 454, 462, 87 L. Ed. 626: " [T]he orderly functioning of the process of review requires that the grounds upon which the administrative agency acted be clearly disclosed and adequately sustained."15
In its brief in this court, the Commission has dwelled at length on the illegality of the so-called SCJ brokerage operation and the "volume" discount allowed thereon. More pages, by far, are devoted to this subject than to the validity of the warehouse redistribution discount.17
"* * * respondent, Southern California Jobbers, Inc. is a legitimate co-operative business organization, conducting a bona fide business operation and rendering valuable services to its suppliers and to its member customers in connection with the purchase, transportation, warehousing, advertising, selling, educating purchasers in the use of new products, paying all purchase invoices directly to the suppliers, breaking bulk, facilitating and expediting delivery of merchandise to the various jobbers, saving in volume and expense of processing orders and invoices, and that said services and others, as will appear, enable the suppliers to save large sums of money, the exact extent of which is unknown to respondents but which respondents allege upon information and belief to be more than sufficient in amount to make due allowance for any price differential which may be found to have been granted; * * *."
"6. The respondent jobber members know that the rebates allowed were based not on the quantities or other factors involved in a particular sale, and not upon quantities sold by them to other jobbers, but rather upon the combined dollar amount of all sales to the respondent jobber members through the group organization and bear relationship to factors other than the actual costs of production and delivery. The respondent jobbers were successful operators in a highly competitive market and knew the facts of life so far as the automotive parts market was concerned and knew that no cost justification could be maintained by the sellers since no difference in the cost of manufacture, sale or delivery was involved * * *." (Emphasis added.)
As the Supreme Court said in Automatic Canteen at page 80, 73 S. Ct. 1027, 1028:
"* * * The Commission need only show, to establish its prima facie case, that the buyer knew that the methods by which he was served and quantities in which he purchased were the same as in the case of his competitor. If the methods or quantities differ, the Commission must only show that such differences could not give rise to sufficient savings in the cost of manufacture, sale or delivery to justify the price differential, and that the buyer, knowing these were the only differences, should have known that they could not give rise to sufficient cost savings. * * *"
None of the cases cited in the briefs dealt with this question as related to a cooperative whose members received pro rata distribution, according to their respective purchases, of the net proceeds of a redistribution discount allowed by manufacturers to the cooperative which conducted a cost-saving warehouse and re-distribution service
In E. Edelmann & Co. v. Federal Trade Commission, 7 Cir., 239 F.2d 152, the Examiner found that one of the six co-operative buying groups there involved maintained neither warehouse nor stock of the manufacturer's products and that "the record is silent as to the other five." Southgate Brokerage Co. v. Federal Trade Commission, 4 Cir., 150 F.2d 607, did not involve a cooperative buying group and arose under section 2(c) of the Act, relating to brokerage. In American Motor Specialties Co. v. Federal Trade Commission, 2 Cir., 278 F.2d 225, the question was whether members of buying groups which received pro rata volume discounts had received unlawful price discriminations. These groups rendered no warehouse redistribution service.
In holding that the corporate identity of SCJ, and the fact that it rather than the jobber-members entered into contracts of purchase with the manufacturers, should be disregarded and the jobber-members should be considered to be the actual buyers from the manufacturers, the Examiner relied on these circumstances: (1) SCJ is owned by the jobber-members; (2) SCJ deals only with jobber-members and operates in a manner expressly designed to meet only their needs; and (3) SCJ distributes to its jobber-members, in proportion to their individual purchases of warehouse stock, all proceeds of the redistribution allowance received from manufacturers, after deduction of operating expenses
As additional support for their view that SCJ is the buyer, petitioners point to these factors: (1) SCJ makes its purchases of warehouse stock, not to fill orders already received, but in anticipation of future orders from jobber-members which the latter are not required to place; (2) SCJ provides a bona fide warehousing and distribution service of value to manufacturers of a kind which individual jobbers do not ordinarily provide and which manufacturers would otherwise have to provide at their expenses; (3) the relationship between SCJ and its jobber-members does not prevent SCJ from rendering a cost-saving function for manufacturers commensurate with that rendered by independent warehouse distributors who receive a like redistribution discount; and (4) in view of section 4 of the Act, 15 U.S.C.A. § 13b, relating to cooperative associations, the fact that SCJ returns to its members the net earnings resulting from the warehouse distribution operation does not prevent SCJ from being regarded as the buyer from the manufacturers.
See also, Davis, Administrative Law Treatise (1958), Volume 2, § 16.13, pp. 485-486
Concerning the American Motor Specialties case, where no warehouse operation was involved, it is asserted in the Commission brief that the decision is "fully dispositive of all the issues in the present proceeding * * *."
At one point in its brief on this review the Commission states that complaints in thirteen proceedings instituted by the Commission involving asserted section 2 (f) violations by groups of automotive jobbers alleged violations "similar to the alleged violation in the instant case." Of the eight proceedings so listed which have been reported and are available for our examination, not a single one, with the exception of the instant proceeding involved a warehouse operation or a redistribution discount. Only a discount for so-called brokerage service was involved. See Warehouse Distributors, Inc. et al., 55 F.T.C. 188 (1958); Midwest Warehouse Distributors, Inc. et al., 55 F.T.C. 414 (1958); Hunt-Marquardt, Inc. et al., 55 F.T.C. 910 (1958); Borden-Aicklen Auto Supply Co., Inc. et al., 55 F.T.C. 1279 (1959); D & N Auto Parts Co., Inc. et al., 55 F.T.C. 1279 (1959); American Motor Specialties Co., Inc. et al., 55 F.T.C. 1430 (1959); Allbrights et al., 55 F.T.C. 1556 (1959)