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Janel Sales Corp. v. Lanvin Parfums, Inc., 396 F.2d 398 | Casetext Search + Citator
Janel Sales Corp. v. Lanvin Parfums, Inc.
The Court held that the agreements were contracts "between wholesalers," refusing to accept an argument that…
However, whatever reach the New York courts might give the New York Fair Trade Laws is subject to McGuire Act…
Full title:JANEL SALES CORP., Plaintiff-Appellant, v. LANVIN PARFUMS, INC. by change…
Date published: Jun 5, 1968
396 F.2d 398 (2d Cir. 1968)
In Janel Sales Corp. v. Lanvin Parfums, Inc., 396 F.2d 398 (2d Cir.), cert. denied, 393 U.S. 938, 89 S.Ct. 303, 21 L.Ed.2d 275 (1968), we applied McKesson to prohibit enforcement by a perfume manufacturer of a resale price maintenance agreement against a perfume retailer where the evidence indicated that the manufacturer was also engaged in retail operations, holding that the contract was prohibited as one "between retailers" even though there was no showing that the retailers were in actual competition with each other. 396 F.2d at 403.
Summary of this case from Bowen v. New York News, Inc.
Decided June 5, 1968. Certiorari Denied November 12, 1968. See 89 S.Ct. 303.
MacDonald Flinn, New York City (White Case, Thomas McGanney, and Fred Greene, New York City, of counsel), for defendant-appellee.
Before MOORE, WOODBURY and SMITH, Circuit Judges.
Prior to the bringing of this suit, Lanvin had entered into fair trade agreements with several retailers in New York. The standard contract provided, inter alia, that:
1. No contract relating to the sale or resale of a commodity which bears, or the label or content of which bears, the trade mark, brand, or name or the producer or owner of such commodity and which is in fair and open competition with commodities of the same general class produced by others shall be deemed in violation of any law of the state of New York by reason of any of the following provisions which may be contained in such contracts:
Most of their sales were to individuals; in some instances, they sold to the same people who bought perfume from Lanvin at 40% off the fair trade price. Plaintiffs also sold cosmetics in bulk to various firms for gifts and promotional campaigns. Usually these businesses were in the neighborhood. Lanvin also sold its products to several businesses in plaintiffs' vicinity, including one company in plaintiffs' building (e.g., Pop's Textiles). These sales were for promotional campaigns and Lanvin made them at 40% off the fixed resale price. Nevertheless, Lanvin sought to enjoin plaintiffs from selling Lanvin perfumes to any of these customers at a price below the stipulated fair trade price. The New York court issued the injunction. Lanvin Parfums, Inc. v. Carlton Drug, Inc., 1962 Trade Cases ¶ 70,563 (N.Y. Sup.Ct.); Lanvin Parfums, Inc. v. Carlton Drug, Inc., 1963 Trade Cases ¶ 70,645 (N.Y. Sup.Ct.) aff'd 24 A.D.2d 935, 264 N.Y.S.2d 212 (1965).
Plaintiffs brought this action (before Court and jury) for treble damages and for injunctive relief, 15 U.S.C. § 15, 26, based on Lanvin's alleged violation of the Sherman Act, 15 U.S.C. § 1. The district judge correctly ruled that the New York State decisions enjoining plaintiffs are not binding on the federal court, Lyons v. Westinghouse Electric Corp., 222 F.2d 184 (2 Cir.), cert. den. 350 U.S. 825, 76 S.Ct. 52, 100 L.Ed. 737 (1955). Furthermore, he correctly recognized that whatever reach the New York courts might give the New York Fair Trade Laws, such decisions are subject to McGuire Act limitations. Sunbeam Corp. v. Masters, Inc., 157 F. Supp. 689, 691 (S.D.N.Y. 1957). Nevertheless, in our opinion he incorrectly ruled (1) that Lanvin was not a "retailer" as a matter of law, and even if it were, the quantity of accommodation-retail sales was de minimis and (2) that as a matter of law the amount of competition between Lanvin and plaintiffs was irrelevant.
Of course, there can be no damages arising from the state court injunction, even if the issuance of it was in error. Plaintiffs' remedy for an erroneous state court decision rests in the state courts. See Di Gaetano v. Texas Co., 300 F.2d 895 (3 Cir. 1962); Fiumara v. Texaco Inc., 204 F. Supp. 544 (E.D.Pa.), aff'd 310 F.2d 737 (3 Cir. 1962).
66 Stat. 631 (1952), 15 U.S.C. § 45(a)(1)-(a)(5):
Price maintenance agreements are per se violations of the Sherman Act § 1. This is true for horizontal contracts, as, for example, where two competing manufacturers contract not to sell below a specified price, United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129 (1940); Kiefer-Stewart Co. v. Joseph E. Seagram Sons, Inc., 340 U.S. 211, 71 S.Ct. 259, 95 L.Ed. 219 (1951); it is also true for vertical agreements, as, for example, when a retailer of a specified product agrees with the manufacturer of the product not to sell it below a specified price. Dr. Miles Medical Co. v. John D. Park Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911). However, such agreements, otherwise per se violations of the antitrust laws, may be immunized by federal statute. See United States v. McKesson Robbins, Inc., 351 U.S. 305, 76 S.Ct. 937, 100 L.Ed. 1209 (1956). And the Miller-Tydings Act was Congress' first immunizing statute in this area. In amending the Sherman Act § 1, this Act provided for legal resale price maintenance in states in which such vertical contracts were allowed, providing, however, that the prior prohibition on per se horizontal agreements would be retained. But in Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384, 71 S.Ct. 745, 95 L. Ed. 1035 (1951), the Supreme Court held that this Act did not permit a producer to enforce a resale price maintenance contract against nonsigning retailers. In that Court's opinion, not only was such an interpretation not intended by Congress, but it would also be "price-fixing by compulsion."
50 Stat. 693 (1937), 15 U.S.C. § 1.
"* * * That the preceding proviso shall not make lawful any contract or agreement, providing for the establishment or maintenance of minimum resale prices on any commodity herein involved, between manufacturers, or between producers, or between wholesalers, or between brokers, or between factors, or between retailers, or between persons, firms, or corporations in competition with each other." 15 U.S.C. § 1.
Congress reacted to the Schwegmann case with the McGuire Act. It was passed as an amendment to the Federal Trade Commission Act, and its primary purpose was to reverse the limiting features of the Schwegmann decision. The Report of the House Committee on Interstate Commerce, which accompanied the McGuire Act, declared that:
38 Stat. 711 (1914).
"The primary purpose of the bill is to reaffirm the very same proposition which, in the committee's opinion, the Congress intended to enact into law when it passed the Miller-Tydings Act * * *, to the effect that the application and enforcement of State fair-trade laws — including the non-signer provisions of such laws — with regard to interstate transactions shall not constitute a violation of the Federal Trade Commission Act or the Sherman Antitrust Act. This reaffirmation is made necessary because of the decision of a divided Supreme Court in Schwegmann v. Calvert Distillers Corporation ( 341 U.S. 384 [71 S.Ct. 745, 95 L.Ed. 1035] May 21, 1951). In that case, six members of the Court held that the Miller-Tydings Act did not exempt from these Federal laws enforcement of State fair trade laws with respect to nonsigners. Three members of the Court held that the Miller-Tydings Act did so apply."
Paragraphs (3) and (4) were newly added (paragraphs (2) and (5) were almost identical to the Miller-Tydings Act) to provide that if the State statutory scheme permitted price maintenance against nonsigners, such contracts would be immunized from antitrust violations. It was clear, however, that Congress purported to do no more. It did not intend to immunize additional horizontal arrangements. United States v. McKesson Robbins, Inc., supra, 351 U.S. at 310-311, 76 S.Ct. 937. Paragraph (5) of the McGuire Act, as with the Miller-Tydings Act before, explicity excepted contracts which fixed prices on a horizontal level.
It is arguable that if the phrase "in competition with each other" modifies "retailers," there must be a showing, as there was not in this case, of some quantum of competition between the signing retailers and the manufacturer-retailer before the contract falls within the scope of paragraph (5). As a point of grammar, this interpretation is possible. However, even though the Supreme Court did not find it necessary to answer this question, see United States v. McKesson Robbins, Inc., supra, the legislative history supports the conclusion that it is immaterial whether a manufacturer-retailer and a signing retailer are in actual competition. As Senator Tydings, the author of the proviso, said:
Debate on HR 5767, 82nd Cong., 2d Sess., 1952.
If two retailers sign a price maintenance contract, regardles of whether they are competitors, then the contract is within paragraph (5) and, therefore, excluded from McGuire Act immunization from the Sherman Act. Johnson Johnson v. Avenue Merchandise Corp., 193 F. Supp. 282 (S.D.N.Y. 1961).
"[A]s a matter of human nature all manufacturers could be expected to follow this practice, and that they do so would not change their status from a manufacturer to that of a retailer."
The term "retailer" is to be understood in its normal and customary manner. United States v. McKesson Robbins, Inc., supra at 388, 76 S.Ct. 937. Indicia of a retail sale are the actual size of the sale, the dollar value of the sale, and the number of similar sales that are made. However, the principal focus must be whether "* * * the purchaser is actuated solely by a desire to satisfy his own personal wants or those of his family or friends through the personal use of the commodity * * purchased." Roland Electric Co. v. Walling, 326 U.S. 657, 674, 66 S.Ct. 413, 421, 90 L.Ed. 383; Parke, Davis Co. v. Janel Sales Corp., 328 F.2d 105, 106 (2 Cir.), cert. denied, 379 U.S. 835, 85 S.Ct. 67, 13 L.Ed.2d 42 (1964).
Nevertheless, it seems only common sense to exclude legitimate accommodation sales to employees from this general definition. These sales are merely incidental and accessory. General Electric Co. v. Kimball Jewelers, 333 Mass. 665, 132 N.E.2d 652, 657 (1956); General Electric Co. v. Hess Brothers, Inc., 155 F. Supp. 57, 62 (E. D.Pa. 1957). However, as the sales spectrum broadens, the alleged accommodation sales may become a subterfuge for retail selling. For example, are sales to typewriter repairmen and Pepsi-Cola delivery men truly akin to employee accommodation sales in this case? And in what niche do Lanvin's sales to its attorneys fall? Are all these sales merely incidental and accessory? At some point, and this is a question of fact, these allegedly incidental "accommodation" sales may become true retail sales. And since reasonable men may differ as to the precise spot along the spectrum where the distinguishing line should be placed, the jury should have an opportunity to draw it. Reasonable men may also differ as to what quantum of retail sales is necessary to change the status of a producer to a functional retailer. Certainly $1 would be de minimis. But this is a case involving tens of thousands of dollars worth of accommodation sales. Again, the jury should have the opportunity to determine where the line is best drawn. If it is found, as a matter of fact, that Lanvin is a retailer, the resale price maintenance contract falls within paragraph (5) of the McGuire Act and the contract loses its statutory immunization.
First, Lanvin contends that the paragraph (5) exclusion was intended to exclude resale price contracts only in situations in which the signing parties are competitors. Primary reliance is placed on language in United States v. McKesson Robbins, Inc., supra, 351 Mass. at 313, 76 S.Ct. 937, 942, in which the Supreme Court, in striking down a wholesaler's resale price agreement with competing, signing wholesalers, said:
However, the Court was concerned with competing signers. From the whole opinion, it is clear that the Supreme Court was principally interested in horizontal competition. See G.E.M. Sundries Co. v. Johnson Johnson, Inc., 283 F.2d 86, 92 (9 Cir. 1960).
Second, Lanvin relies on the statutory construction of paragraph (5) espoused in Johnson Johnson v. Janel Sales Corp., 192 F. Supp. 780 (S.D.N.Y. 1961). In that case, the court observed that paragraph (5) referred specifically, and only, to paragraph (2) — which protects fair trade contracts. On the other hand, paragraph (4) referred to both paragraphs (2) and (3). Therefore, it reasoned, paragraph (5) only exempts paragraph (2) contracts between competing parties from the McGuire Act immunization.
The court recognized, however, that such an interpretation opened a wide loophole. A producer might enter into a single resale price maintenance contract with a retailer. As long as the producer itself did not become a retailer in fact, it could enforce this fixed price against all sellers of its product, even though they might be competitors for commercial accounts or bulk sales. A producer might go further and attempt to hold the bulk sales competitor to the fair trade price while at the same time setting his own price below that level. This is what allegedly happened in this case. The court thought, however, that a "surgical operation too serious for the judiciary to perform" would be necessary to close the loophole.
Case comment, 75 Harv.L.Rev. 842 (1962).
We do not believe that the statutory language is so compelling. Underlying the court's reasoning is the assumption that the phrase "in competition with each other" refers to the parties who sign the "contracts or agreements." It is possible that the phrase refers to those parties for whom the resale "prices" are stipulated. If this interpretation were accepted, paragraph (5) would still exclude only paragraph (2) contracts, but the issue would be whether these contracts provided for the establishment of prices between competitors.
Of course, we do not refer to the maintenance of a stipulated price among retailers when such a resale price is based on a legal vertical contract between a retailer and a producer. We are here concerned only with the situation in which it is the producer who may actively compete with parties bound, by State law, to the stipulated price.
Esso Standard Oil Co. v. Secatore's Inc., 246 F.2d 17 (1 Cir.), cert. denied 355 U.S. 834, 78 S.Ct. 54, 2 L.Ed.2d 46 (1957) supports our interpretation. In that case, Esso was denied an injunction against a nonsigning service station which sold to commercial accounts, for Esso also sold to commercial accounts. Therefore, since Esso and Secatore's were "corporations in competition with each other," the resale price maintenance contract entered into between Esso and other retailers could not support an injunction. The concurring opinion makes it clear that the crucial fact for the majority was that Esso and the nonsigning Secatore's were competitors. Accord, Texas Co. v. Di Gaetano, 39 N.J. 120, 187 A.2d 721 (1963); Gulf Oil Corp. v. Mays, 401 Pa. 413, 164 A.2d 656 (1960). But cf. Parke, Davis Co. v. Janel Sales Corp., supra. However, this last case is distinguishable, for the only question on appeal was whether Parke, Davis was a retailer. Moreover, there was no proof of any competition between Parke, Davis and a retailer.
Thus, the question is one of contractual interpretation. Does this resale price maintenance contract provide for the establishment of resale prices between Lanvin and its competitors? Although in some cases this might call for a more elaborate factual inquiry, see Snap-On Tools Corp. v. F.T.C., 321 F.2d 825, 834-835 (7 Cir. 1963), in this case, assuming arguendo that Lanvin and plaintiffs are competitors, there is no doubt. First, there was no contractual limitation on the type of sales to which resale price maintenance was to apply. Lanvin could easily have contracted, for example, not to fix resale prices for bulk sales to businesses for their promotional campaigns. Of course, if Lanvin had done that, it would not have been able to enjoin Janel from selling at a discount to these concerns. Such contractual limitations are not uncommon. For example, in General Electric Co. v. Hess Brothers, Inc., supra, 155 F. Supp. at 62 n. 6, the court commented:
Accord Parke, Davis Co. v. Rocket Drugs, Inc., 214 F. Supp. 937, 939 (S.D.N.Y. 1963) (contractual exclusion of sales to hospitals, clinics, etc., from the minimum stipulated).
Furthermore, the State court has issued an injunction against plaintiffs. Lanvin Parfums, Inc. v. Carlton Drug, Inc., supra. Still assuming that plaintiffs and Lanvin are competitors, this action must have been based on an interpretation of the contract which allowed for the establishment of a resale price between Lanvin and its competitors. See Port Chester Wine Liquor Shop, Inc. v. Miller Bros. Fruiterers, Inc., 281 N.Y. 101, 22 N.E.2d 253 (1939). We are of course obligated to accept the State's interpretation of the contract.
Therefore, there is a question of fact — are Lanvin and plaintiffs in competition with each other? A determining factor might well be whether or not there may be a substantial number of customers who might buy from either. Of course, they are not competitors simply because they share a common customer. However, as the number of customers grows, the more probable it is that reasonable men might find that the supposed accommodation sales were a subterfuge and that the companies were in competition with each other. Furthermore, the fact that Lanvin has termed many of these sales "promotional" does not necessarily prevent them from being competitive sales. It is for the jury to look behind the labels. Lanvin is, of course, free to advertise and promote its own products as it wishes. But sales to Goldman Sachs Co. for gifts at a dinner or sales to American Airlines for distribution in jet plane seats, both at 40% off the list price, are not solely for Lanvin's own promotional purposes. As these sales tend to benefit the purchaser's own promotional campaign, these buyers grow more willing to purchase the product from other available and competitive sources. Thus, they might become potential buyers from companies like the plaintiffs here. This is even more certain when these purchasers do business in plaintiffs' neighborhood. (E.g., Pop's Textiles).
In the second place, the existence of such a contractual clause does not necessarily imply a per se violation. In United States v. Arnold Schwinn Co., 388 U.S. 365, 372, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1965), the Supreme Court premised its finding of a per se violation on the fact that Schwinn had been "firm and resolute" in insisting on compliance. Here, the evidence was conflicting on that issue. Plaintiffs' principal witness claimed that he was unable to buy Lanvin products from various retail stores; he claimed that the owners were afraid to sell to him, for if they did, they would lose the Lanvin line. Lanvin's witnesses contradicted this story. Moreover, Lanvin suggested that it never had, and never enforced, a policy against diversion. Consistently with the rest of this decision, we believe that this type of question, with the proper guidance from the judge, is best settled by the jury.
In Janel Sales Corp. v. Lanvin Parfums, Inc., 396 F.2d 398 (2d Cir.), cert. denied, 393 U.S. 938, 89 S.Ct. 303, 21 L.Ed.2d 275 (1968), the Second Circuit considered this specific question and concluded that "the legislative history [indicates] that it is immaterial whether a manufacturer-retailer and a signing retailer are in actual competition."
In Janel, the defendant was a widely known manufacturer of perfumes and other toiletries which sold its products directly to retail outlets pursuant to a fair trade agreement.