Source: https://casetext.com/case/seaboard-supply-co-v-congoleum-corp
Timestamp: 2019-05-25 05:16:47
Document Index: 773998191

Matched Legal Cases: ['§ 13', '§ 13', '§ 13', '§ 12', '§ 33', '§ 3', '§ 24']

Seaboard Supply Co. v. Congoleum Corp, 770 F.2d 367 | Casetext
Seaboard Supply Co. v. Congoleum Corp.
Seaboard Supply Co.v.Congoleum Corp.
United States Court of Appeals, Third CircuitAug 16, 1985
Decided August 16, 1985.
Daniel D. Caldwell (argued), John J. Barry, Wolff Samson, Roseland, N.J., for appellants.
Irvin M. Freilich (argued), Joseph J. Fleischman, Hannoch, Weisman, Stern, Besser, Berkowitz Kinney, P.A., Newark, N.J., for appellee Congoleum Corp.
George R. Hirsch (argued), Peter R. Sarasohn. Bernard Schenkler, Ravin, Sarasohn, Cook, Baumgarten Fisch, West Orange, N.J., for appellees Manufacturers Reps Co., Inc. and William G. Merrigan, Sr.
After Berk entered into his "consulting agreement" with MRC, Seaboard's longstanding relationship with Congoleum deteriorated. Seaboard's orders were not filled promptly, and its sales of Congoleum felt declined precipitously. As many as thirty of Seaboard's customers transferred their business to MRC. One explanation for this shift was that Berk could cause an order to be cancelled or delayed and could steer customers to another distributor or agent.
In count 2, Seaboard charged that Congoleum and Berk had violated sections 2(a) and (f) of the Clayton Act as amended by the Robinson-Patman Act, 15 U.S.C. §§ 13(a) and 13(f), by using a sham agency status with MRC in order to give it preferential credit terms and price discounts. The court noted that to establish a violation Seaboard had to prove actual sales to competing purchasers at different prices. Because Congoleum retained title, assumed the credit risks, and controlled the price, the court concluded that MRC was not a purchaser but only a sales agent. The fact that MRC bribed Berk did not convert the transactions into purchases, and hence sections 2(a) and (f) did not apply.
In addition, the court concluded that Congoleum did not compromise its credit standards to treat MRC as a favored distributor. Because Seaboard could not demonstrate either price discrimination or anticompetitive effect, the section 2(a) count could not be sustained.
"(a) It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, . . . where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them: Provided, . . . ."
15 U.S.C. § 13(a) (1982).
Seaboard also alleged that MRC and Merrigan had violated section 2(f) of Robinson-Patman because they solicited and knowingly accepted price discrimination. The court held that a section 2(f) claim is derivative of section 2(a), and since plaintiffs had failed to establish a cause of action against the seller under 2(a), there could be none against a buyer under 2(f). The court cited Great A P Tea Co., Inc. v. FTC, 440 U.S. 69, 99 S.Ct. 925, 59 L.Ed.2d 153 (1979), in which the Supreme Court held that liability under section 2(f) is limited to the situation where a case against a seller under 2(a) can be established.
The district court also examined Seaboard's claim that the payments by MRC and Merrigan to Berk and Laughlin violated section 2(c), the brokerage provision of the Robinson-Patman Act. That section prohibits unearned payments to the other party to a transaction or to an agent who is subject to the control of a person other than the one making the payment. After a review of case law and legislative history, the district court concluded that 2(c) "applies only to unlawful payments which pass between sellers and purchasers." Because MRC was an agent of Congoleum and not a purchaser, the payments made to Berk did not violate 2(c).
15 U.S.C. § 13(c) (1982).
According to the terms of section 2(c), it is unlawful for any person to either pay or receive —
Although this practice was the chief target of section 2(c), it was not the only way in which the brokerage process was used to effect price discrimination. To prohibit such practices Congress used broad language to cover not only the methods then in existence but others that might be devised. See FTC v. Henry Broch Co., 363 U.S. 166, 169, 1160, 4 L.Ed.2d 1124, 80 S.Ct. 1158 (1960); FTC v. Simplicity Pattern Co., Inc., 360 U.S. 55, 65, 79 S.Ct. 1005, 1011, 3 L.Ed.2d 1079 (1959). The statutory text has been criticized however — "Section 2(c) is undoubtedly the most ambiguous and faultily drafted section of the Act." C. Austin, Price Discrimination, 106 (1959).
Although the purpose of that section was to eliminate unfair price discrimination, existence of that factor is not a prerequisite to liability. In FTC v. Henry Broch Co., 363 U.S. 166, 80 S.Ct. 1158, 4 L.Ed.2d 1124 (1960), the Supreme Court held that section 2(c) was independent of 2(a). Hence the presence of anti-competitive effect is not necessary to prove a violation of section 2(c). Id. at 170-71, 80 S.Ct. at 1161-62. See also Great A. P. Tea Co. v. FTC, 106 F.2d 667 (3d Cir. 1939).
The expansive language of the section has led some courts to apply its proscriptions to commercial bribery even though no actual antitrust interests are present. In Grace v. E.J. Kozin Co., 538 F.2d 170 (7th Cir. 1976), the court allowed recovery under 2(c) where an agent in violation of his fiduciary duty received commissions from another on the sale of goods to his employer. Section 2(c) was also successfully invoked by a competitor against a seller who bribed a state purchasing official. Rangen, Inc. v. Sterling Nelson Sons. Inc., 351 F.2d 851 (9th Cir. 1965). Similarly in Fitch v. Kentucky-Tennessee Light Power Co., 136 F.2d 12 (6th Cir. 1943), section 2(c) was applied where the seller paid bribes to the president of the purchasing company for his personal use.
There is good reason to question whether Congress intended to sweep commercial bribery within the ambit of section 2(c). As one commentator expressed it, the cited cases "are simple cases of commercial bribery — a competitive wrong in and of itself — thus they need no antitrust crutch for condemnation." He illustrated commercial bribery's uncomfortable situs within Robinson-Patman: "If a kickback or bribe were outside the pale only by virtue of its discriminatory thrust, then its taint could be removed if the bribe were made available to all takers on `proportionately equal terms.'" 2 L. Altman, Callmann Unfair Comp. Trademarks Monopolies, § 12.01-02 (4th ed).
Unquestionably, commercial bribery is an indefensible practice needing no further condemnation by this court — statutory and common law remedies do exist. The question before us is not whether the conduct here was good or evil — or whether it was legal or illegal. The issue is whether the wrongful activity comes within the scope of Robinson-Patman.
The cautionary note we sounded in Sitkin Smelting Refining Co., Inc. v. FMC Corp., 575 F.2d 440 (3d Cir. 1978), is appropriate here. "Conduct not within the scope of the Act is not made into an antitrust violation by accompanying conduct which is reprehensible under some moral or ethical standard or even illegal under some other law." Id. at 447. "[T]he Sherman Act may not be extended beyond its intended scope and used to police the morals of the marketplace." Id. at 448. See also Parmelee Transp. Co. v. Keeshin, 292 F.2d 794, 804 (7th Cir. 1961) ("The antitrust laws were never meant to be a panacea for all wrongs."). "It is, of course, immaterial that the appeal of treble damages and attorneys' fees afforded by federal law may be more attractive than the simple compensatory damages available under state law." Norville v. Globe Oil Refining Co., 303 F.2d 281, 283 (7th Cir. 1962).
Nevertheless, we are not inclined to take issue with three Courts of Appeals which found that certain events constituting commercial bribery came within the terms of 2(c). See Grace, 538 F.2d 170 (7th Cir. 1976); Rangen, 351 F.2d 851 (9th Cir. 1965); Fitch, 136 F.2d 12 (6th Cir. 1943). These decisions, the oldest of which dates back to 1943, have been generally accepted and are supported by the statutory language. We are not convinced, however, that the scope of 2(c) covers the conduct here.
In the appellate decisions which have found commercial bribery within the ambit of section 2(c) the common thread has been the passing of illegal payments from seller to buyer or vice versa. Adherence to the requirement that payments cross this seller-buyer line is consistent with the interpretation of 2(c) in nonbribery cases. For example, in Cornwell Quality Tools Co. v. C.T.S. Co., 446 F.2d 825 (9th Cir. 1971), the court affirmed a directed verdict for the defendant manufacturer where persons receiving unearned commissions from the manufacturer were not under the control of purchasers or acting on their behalf. See also Burch v. Goodyear Tire Rubber Co., 420 F. Supp. 82 (D.Md. 1976), aff'd, 554 F.2d 633 (4th Cir. 1977).
As the district court in the case at hand observed, Congress intended that legitimate brokerage relationships not be affected. But if a broker receives payments from a party for whom the broker has performed no services, then the payments are simply a sham for unlawful price discrimination. See 5 Von Kalinowski, Antitrust Law Trade Regulation § 33.01[1] at 33-9 to 11.
From this general intent, the courts have found liability under 2(c) when the seller-buyer line has been passed — but not otherwise. Here, that line has not been crossed. MRC, a sales agent of the seller Congoleum, bribed Berk, the seller's employee. MRC was not a purchaser, and consequently, the statutory requisites have not been met.
It is true that Berk suggested the use of the commissioned-sales agency arrangement when it became apparent that MRC did not have the financial strength to be an independent distributor for Congoleum. Had this alternate arrangement not been used, Berk's ability to carry out his scheme was doubtful. Nevertheless, the record demonstrates that the commissioned-sales agency was legitimate. See Fuchs Sugars Syrups, Inc. v. Amstar Corp., 602 F.2d 1025 (2d Cir. 1979); Katinsky v. Radio Shack, 524 F. Supp. 807 (D.N.J. 1980).
Seaboard's situation was substantially different. It acquired title to the goods, set the price, and assumed the costs and risks of extending credit to the customers. See Western Fruit Growers Sales Co. v. FTC, 322 F.2d 67 (9th Cir. 1963).
Seaboard also presented claims under sections 2(a), (e), (f) of the Robinson-Patman Act, contending that Congoleum extended preferential treatment and a number of promotional services to MRC. Recognizing that all three subsections of the Act require that the preferences be extended to buyers, Seaboard argues that in reality MRC received the goods in that capacity.
Preferences granted to a legitimate sales agent are not actionable because there is no sale to the agent. See United States v. GTE, 272 U.S. 476, 47 S.Ct. 192, 71 L.Ed. 362 (1926) (distinction between agency relationship and sales contract); Edward J. Sweeney Sons, Inc. v. Texaco, Inc., 637 F.2d 105, 119 (3d Cir. 1980) (Act requires at least two completed sales by the same seller at different prices to different purchasers). Accord, FTC v. Curtis Publishing Co., 260 U.S. 568, 43 S.Ct. 210, 67 L.Ed. 408 (1923) (agency relationship does not violate § 3 of Clayton Act). See also 4 Von Kalinowski, § 24.03[2]; ABA, Antitrust Law Developments (Second) 223-24 (1984). To succeed in these counts, therefore, it was necessary for Seaboard to show that the sales agency status was merely pretextual and in reality MRC was a competing distributor.
The unilateral decision of a single manufacturer to rearrange its distribution structure by limiting or increasing the number of its dealers or transferring its business to different dealers does not violate the Sherman Act. Ark Dental Supply Co. v. Cavitron Corp., 461 F.2d 1093 (3d Cir. 1972). In Cernuto, Inc. v. United Cabinet Corp., 595 F.2d 164 (3d Cir. 1979), however, we held that if the manufacturer's decision was the result of pressure from a retailer-competitor of the plaintiff, the restraint was horizontal and a per se violation.
In Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984), the Supreme Court discussed the plaintiff's burden of proof to show that a manufacturer's conduct was not unilateral. "There must be evidence that tends to exclude the possibility that the manufacturer and non-terminated distributors were acting independently." The Court quoted with approval Judge Aldisert's opinion in Edward J. Sweeney Sons, "The antitrust plaintiff should present direct or circumstantial evidence that reasonably tends to prove that the manufacturer and others `had a conscious commitment to a common scheme designed to achieve an unlawful objective.'" At ___, 104 S.Ct. at 1471.
Seaboard also contends that defendants conspired to boycott. The decisional law, however, does not support that position. As we said in Larry V. Muko, Inc. v. Southwestern Pennsylvania Building Constr. Trades Council, 670 F.2d 421, 430 (3d Cir. 1982), this court "is among those that have attempted to limit the application of the per se rule to the `classic' boycott." In commenting on this reference and consistent with Cernuto, in Malley-Duff Assoc., Inc. v. Crown Life Ins. Co., 734 F.2d 133, 142 (3d Cir. 1984), we said, "[A] boycott is made out where there is concerted action with `a purpose either to exclude a person or group from the market, or to accomplish some other anti-competitive objective, or both.'"
In Northwest Wholesale Stationers, Inc. v. Pacific Stationery Printing Co., ___ U.S. ___, 105 S.Ct. 2613, 86 L.Ed.2d 202 (1985), the Court cautioned against an overly expansive application of the per se rule in the context of concerted refusals to deal. In that case, the plaintiff charged that its expulsion from a purchasing cooperative was a group boycott that limited the opportunity to compete. The Court found that a per se rule was not appropriate in the circumstances.
In reviewing cases where the per se rule was applied, the Supreme Court noted that in those instances the boycotts "often cut off access to a supply, facility, or market necessary to enable the boycotted firm to compete, [citations omitted] and frequently the boycotting firms possessed a dominant position in the relevant market." Id. at ___, 105 S.Ct. at 2619. The Court also observed that if a concerted refusal to deal on equal terms is alleged, per se invalidation might be in order "if it placed a competing firm at a severe competitive disadvantage." Id. at ___ n. 6, 105 S.Ct. at 2620 n. 6. The record does not demonstrate any such scenario in the case at hand.
In Northwest Power Products, Inc. v. Omark Indus., Inc., 576 F.2d 83 (5th Cir. 1978), the Court of Appeals refused to apply the per se rule when the plaintiff was replaced by a new distributor. The plaintiff alleged that it had been stripped of its position as the result of a conspiracy between the manufacturer and the new distributor. The scheme was to take away the plaintiff's customers by hiring a contingent of its employees, together with a customer list. The new distributor gained 11.5 percent of the local market while the plaintiff's share plummeted to 2 percent. The court held that even though unfair means may have been used, the antitrust laws did not prohibit the manufacturer from replacing its distributor. See also Dunn Mavis, Inc. v. Nu-Car Driveaway, Inc., 691 F.2d 241 (6th Cir. 1982).
Moreover, that a manufacturer may give preferential pricing and delivery terms to one distributor does not establish a per se violation of the section 1 of the Sherman Act even though other distributors suffer losses in sales. USM Corp. v. SPS Technologies, Inc., 694 F.2d 505, 512 (7th Cir. 1982). See Contractor Utility Sales Co., Inc. v. Certain-Teed Products Corp., 638 F.2d 1061, 1073 (7th Cir. 1981). Northwest Power Products, Inc. v. Omark Indus., Inc., 576 F.2d 83 (5th Cir. 1978). Accord, O. Hommel Co. v. Ferro Corp., 659 F.2d 340, 346 (3d Cir. 1981) (Section 2(c) of Robinson-Patman).
The district court also found that Seaboard had failed to present evidence which would establish anti-competitive effect and therefore could not prevail on a rule of reason analysis. Plaintiff produced evidence only of its own decrease in sales of Congoleum products. The defendants' evidence showed, however, that intrabrand competition increased and, by using a sales agent, Congoleum was able to reduce its market prices and compete more effectively with other manufacturers. In this situation we must not overlook the Supreme Court's admonition in Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488, 97 S.Ct. 690, 697, 50 L.Ed.2d 701 (1977), "The antitrust laws, however, were enacted for `the protection of competition, not competitors.'" We noted earlier the absence of evidence tending to show an anti-competitive effect. On this record, the district court did not err in finding that plaintiff had failed to present a rule of reason claim under section 1 of the Sherman Act.
Plaintiff contends that the district court erred in finding that Berk's actions in diverting customers away from Seaboard were not attributable to Congoleum. Even if plaintiff is correct on this point, diversion of customers does not amount to a per se violation and no rule of reason claim has been established. See Northwest Products, 576 F.2d at 90.