Earl Warren: Number 439, United States, Appellant, versus the Borden Company, et al. Mr. Ball, you may continue your argument.
Stuart S. Ball: May it please the Court. To sum up what I've covered yesterday, the issues in this case were not those raised by the 1953 evidence, but by the new prima facie case that was presented in 1955. Second, this prima facie case required Borden to do two things, first, cost justify the general discount schedule volume class against volume class; and second costs justify the special discounts to A&P and to Jewel against those granted the eight independent stores listed by the Government. Now, these issues were never broadened. The counsel for the Government in the trial below, for example attack this shows at record 93-94, attacked the Borden cost study because it was made and I quote, “After the particular costumers had been -- who have been discriminated against, have been singled out by the Government”. It was these eight particular stores that were shown to be in commerce and in competition with each other. And this is exactly the prima facie case that Judge Camel described at record page 563 were he summarizes the evidence as follows, that the sales made by the defendants were in commerce, that the defendants discriminated in price, that the costumers or defendants were in competition with each other. In reference, it was only made to the showing with respect to the eight independent stores and the five stores of A&P and Jewel and that there may be an injury to competition. He also found that the published discount quotations on their fees showed discrimination, and that is between the volume class against volume class. Now, Borden having the 13 stores, selected by the Government before it, then made its cost study in defense, because the discounts to A&P and the Jewel were based on total sales to all of those stores in the area. And because we have to justify the volume classes -- volume class against volume class on the published discount schedule, it was necessary to make it an inclusive study. This was done in this way, time study man were placed for one week on each of the trucks on each of the 134 wholesale routes operated in the Chicago area, where that I mean the routes that serviced primarily grocery stores although they have discovered small restaurant and some other costumers. Now, the time spent by the drivers on the routes and at each store or other location were recorded as to more than 40 kinds of activities. At the end of our brief, there is a copy, you will find, of sheets that are photos stand -- these are the actual sheets that cover the time study records made with respect to the deliveries to the Shubert store. Now there were over in 1900 locations. There were four sheets of -- of which this is the set of four for this one location. Four sheets covering the week's deliveries to not more than 1900 locations and the covering sheet, covering each of the 134 routes. These sheets with all of these materials became bulk exhibit number four, that was over 8000 sheets of paper. Similar studies were made with respect to the special deliveries that were made. Those are recorded; they became other bulk exhibit number six of that case. Bulk exhibit number five was the tickets made for each delivery which again was a very bulky exhibit. All of these and then cost studies, time studies were also made of clerical activities in the branches and in four different departments in the central office. All of these -- these documents were then assembled together in bulk exhibits and bulk exhibits four though 13 were identified and became part of the record, they are massive in character. Now, in addition to gathering of this detailed material, a stipulation was drawn out and submitted in draft form to the Government. This made certain information out of the accounting records of the company available. It made certain error for medical -- basic error for medical calculations and tabulations from the basic data. And it also contained extensive information about the operations of the various Borden trucks and of the way in which the Borden Company conducted its business, and various information about the ways in which various of the costumers conducted their business. On the 1950, costumers surveyed in this way, there were 254 stores of A&P and Jewel. There were 1322 independent grocery stores, 374 non-store costumers and the analysis was complete so that with the information in the stipulated sheets in the stipulation with the basic data in this bulk exhibits, a cost analysis could be made costumer by costumer, including the non-store costumers. In other words, costumer by costumer for 1950 costumers and all of these -- all of these basic data is in the record. Now, the -- as I've said, you can find out from this basic data the direct cost of sales and delivery to each costumer on the costumer by costumer basis. You have in the descriptions of the operations the rational basis by which measures can be fixed and selected by which indirect cost can be divided in accordance with sound accounting principles. You can also tabulate from that the total cost of sale and delivery to entire groups of costumers such as those within the four discount brackets in the published discount schedule. And you also have available in this massive material in the record, the facts showing whether any group was properly classified together, whether they have dissimilar characteristics in fact. Now, all of this data was in the record and made available to the Government. The document was treated as if it were the direct testimony of Mr. Malone under whose supervision the study was made, and it was verified by Haskins and Sells. Mr. Malone was then offered to the Government for cross-examination. All of the materials that they asked from Malone both factual and questions about details of operation were then added and added paragraphs to the stipulation which are identified in the record with the letter MD meaning Malone Deposition. But the deposition dropped up because all of the material that the Government's request was included in the stipulated material.
John M. Harlan II: Where is that in the record?
Stuart S. Ball: The stipulation here begins at page 119 of the record and runs to 226 covering all of this material. That was then finally embodied and signed by the Court on September 19th, 1957 as a pre-trial order, and that is the one that identified the bulk exhibits. Now, I want to stress the fact that all of this data was available, because so much of the Government's criticism is based on theoretical instances, hypothetical costumers, not on actual costumers and they make assumptions about hypothetical questions that are contrary to the facts that are shown with respect to the actual costumers in the record. Now, in presenting this case to the District Court, the material was summarized in the form of four summary schedules. You have two kinds of costs those that are very direct and assignable on time or other direct basis. You also have in accounting what you may call direct or joint costs. And the problem there is to allocate by selecting a proper measure of allocation. And incidentally, the best statement of all the principles applicable is in this cost justification study which is in this record which was prepared by a committee appointed by the Federal Trade Commission. The chairman of which and two members were the three experts that the Government used in the case below. And those experts were on -- by the statement of the deposition of Mr. Willy are shown to have been picked by the Government after a counsel and Mr. Willy their economist went to the Federal Trade Commission and these were pointed out as the best witnesses they could have. I think that gives some validity to the cost justification study and points that in following that, we followed the best authority for one due that we could possibly have.
Earl Warren: Mr. Ball --
Stuart S. Ball: Now --
Earl Warren: -- may I ask you --
Stuart S. Ball: Yes.
Earl Warren: -- is the issue are you when the Government agreed that the issue -- one of the issues here is whether under any circumstances the independents would get the same percentage of the credit that the chain stores do or not?
Stuart S. Ball: That is not the issue in this case.
Earl Warren: Well, I understood the --
Stuart S. Ball: The Government is trying to force a general legal issue on the spec setting that doesn't support or raise that issue.
Earl Warren: So you -- it's your position that that is not before us?
Stuart S. Ball: We have a special set of facts, the only problem is whether the special discounts granted to two costumers, A&P and Jewel, were shown to be cost justified as against the specific costumers selected by the Government and whether the classes in the quantity discount schedule generally available were justified one against the other. And there is no general principle involved. It's a pure question of factual justification.
Hugo L. Black: How -- where was it limited in their books?
Stuart S. Ball: Well it's limited -- it's -- it is not limited, it's limited by the nature of the factual limits. There was no policy of selecting chain stores as a class; there was no policy of limiting independents. The question of other delimits -- the independents were so limited never arose. And so I've pointed out the record shows that at the eight stores select -- the eight independent stores selected by the Government, the three largest independent stores got more than the schedule. They've got 5 1/2% as against the 8 1/2% given to the A&P and Jewel. The record is completely silent because the Government never asked how many other stores -- independent stores receive special discounts, or what the amount was. The record is completely silent as to whether they were or were not independent stores had gathered much as the A&P and Jewel store. That is why the record doesn't raise the question. There is no showing that Borden ever intended to place a ceiling upon the discount available to any independent on the face of this record.
Hugo L. Black: Is that the issue raised by the plea?
Stuart S. Ball: That is the issue raised by the prima facie case submitted by the Government.
Hugo L. Black: But does the -- to the pleading was limited to a prima facie related to eight stores -- its not --
Stuart S. Ball: The pleadings do not limit, the pleadings were filed in 1951. This case after remand was reopened at the Government's request and then the Government submitted as their case a selection of 13 stores. And they limited their prima facie case and that was so regarded all the way through as a question of justifying those 13 store discounts between each other. And that is the way the prima facie case and I assume that when you go to trial, the issue as framed by the way that the Government presents its evidence is the issue by which -- which you are called upon to meet. We never undertook to meet a broader issue nor was any broader issue ever raised by the facts.
Hugo L. Black: You mean the entire question of the interpretation of the act regard has to be decided by what happened in connection with the state to all these eight stores?
Stuart S. Ball: I don't think that it was ever intended if the court, if Justice Black please, I don't think it was ever intended when the Government presented this prima facie case to raise any broad issue such as is now raised in the Court here. I think the Government said “We have a burden of showing differences of prices which is the burden upon the Government under the Act. We have the burden of showing that those costumers receiving these different prices and they could've selected two costumers or 10.” We have merely the burden of showing that those customers are in competition that this different surprise on the face of it indicates a difference or discrimination that they are in competition with each other so that there could be the likelihood of an injury to commerce. That is what the Government's prima facie case is under the literal and undisputed meaning of the Robinson-Patman Act, Section 2 (a).
Hugo L. Black: I suppose it's much the same as if the Government has given you to fill a particulars saying which costumers involved.
Stuart S. Ball: I would -- I think the pre-trial order which embodied the stipulations with the two schedules of costumers which the Government selected had exactly the effect that you have suggested. It was an answer; it was a narrowing of the issues by a judge who is very conscious in the extended trials of trying to reduce the issues to the simplest issues. And the Government stipulated its case just as if it had defined its case by a motion for bill of particulars or answers interrogatively.
Hugo L. Black: May I ask you this, my trouble which is wholly I'm sure you can claim, am I wrong in thinking if one of the purposes of the chief purposes of this Act, maybe I am, was to prevent the chain store combined goods cheaper than the independents?
Stuart S. Ball: That was not the purpose, and it was expressly stated in the reports to Congress, of the Senate and the House Report. Because we have quoted in our brief the passages from those two reports that said that “Nothing in this Act is intended to prevent a seller from passing on to a list of people including mass distributors others buying in groups and the rest of it the benefits of the economies produced by mass buying and mass distribution.” And there is a passage both in the House Report and the Senate Report to that effect and Congressman Utterback who was the floor manager in the House for the Act -- bill expressly again referred that “Nothing in this Act was intended to prevent those economies which result from mass buying from being passed on so that the public, the consuming public can get the benefit.” The cost proviso was inserted to benefit the ultimate consumer, and as Congressman Utterback said, “It is intended to permit, to be passed on to the ultimate consumer any economy no matter how produced by differences of method in which businesses are conducted.”
Hugo L. Black: May I ask one other question about --
Stuart S. Ball: Yes.
Hugo L. Black: I understand that the Court's provision and I did not mean to say that the Act was drawn in a way so it would say that no sales shall be made to a chain store cheaper than the independent --
Stuart S. Ball: Yes.
Hugo L. Black: -- of course it didn't urge it. He has the provision about cost; I haven't been quite able to follow either of your arguments on this accounting that --
Stuart S. Ball: Oh, yes.
Hugo L. Black: May I ask you this, what you're saying is that you have fixed the classification as I understand, in which classification you put all of the chain stores or independent who are getting sales cheaper on account of volume to that other thing? And if so, what other things?
Stuart S. Ball: Well, I'm -- I've been have misstated the case. We published one schedule only, one discount schedule that said to all stores in different volume branch, we will give you no discount, we will give you 2%, we will give you 3%, we will give you 4%, that was the only published discount schedule, the only discount policy or system. Now, over and above the published discount schedule more than individually gave certain costumers special discounts. The A&P, Jewel T and of the list of eight independents selected by the Government, three of them the three largest also got discounts in excess of the maximum provided in the schedule.
Hugo L. Black: Does that depend on volume?
Stuart S. Ball: The exact reason why these discounts were granted to the special costumers was undoubtedly a combination of I think this is the fair inference from the facts, a combination of two things of volume and of the economies due to the method by which the milk could be delivered to these costumers. Now, the -- you see there were two costumers had 254 of the stores out of the -- roughly 1600 or 1700 independent stores. Those two costumers' aggregates purchases to those stores were twice the dollar aggregate of the 1900 or 1800 whatever the figure is of the independent stores in Tony. The Schubert store which there is a great view -- are talked about in the Government's brief was as the record shows not the record brought up to the Court by but the portions that we have checked for this purpose from the bulk exhibits that the Schubert store was by far and away the largest independent in volume. The volume of Schubert, the volume of the chain stores combined was 190 times the volume of the Schubert. The Schubert store -- the counsel made the statement if there were --
Hugo L. Black: That's one store.
Stuart S. Ball: What?
Hugo L. Black: That's one store.
Stuart S. Ball: That's one store. We have no policy of classifying chain stores or such. It happened that we only had two costumers in the Chicago area were one more than one store was operated under a common management. Those two costumers were A&P and Jewel. That was the happenstance of the study. There wasn't the classification of chain stores was not a classification ever published or announced anywhere. It happened that these two special discounts in the same amount happened to be given by independent separate arrangements to the two costumers. Now, hence where the so-called classification of chain stores came up, they accuses of pacifying costumers irrespective of volume, they accuses of classifying costumers because of the form of ownership, there is not a scintilla of evidence so that's what we did. The evidence is that we took these two costumers. A&P was 75 times the volume of the largest independent, Jewel was 120 times the volume of the largest independent, we took these two costumers and we gave them a discount. Now, there are other factors that were economic in selling those two costumers.
Hugo L. Black: Were they the only one there that gets the discount?
Stuart S. Ball: Are the -- the only ones that the record showed got 8 1/2% but the record did not go into what other special discounts there might have been --
Hugo L. Black: May I --
Stuart S. Ball: I test -- I can tell to the Court, although it's not in the record unless it's hidden somewhere in the sales tickets that I've not check. There were other independent stores getting other special discounts. How many they were and what those discounts were, I do not know. It never was inquired into --
Earl Warren: You mean --
Hugo L. Black: May I ask you --
Earl Warren: -- up to, 8% or --
Stuart S. Ball: What's that?
Earl Warren: -- up to 8 1/2%?
Stuart S. Ball: I do not know, I doubt of any of them got 8 1/2% because there were economists inherent and certain things with respect to the chain store.
Hugo L. Black: May I ask you to get a concrete data?
Stuart S. Ball: Yes.
Hugo L. Black: I don't know many other stores but I have seen two very large stores in Florida and I'm wondering how would you go about to determine whether a store like those two, one at St. Petersburg and one at Miami tremendous volume of purchase of sales that was just having good --
Stuart S. Ball: Yes.
Hugo L. Black: How they would -- how would they be classified? What elements or factors you'd take in consideration in determining whether they would get the same discount to the chain store?
Stuart S. Ball: It varies in communities. I am in a Federal Trade Commission case representing Borden; I know instances in some communities where somebody as independents get as more as much or more than of that A&P or the other chains get because of their volume in the particular circumstances. But --
Hugo L. Black: The circumstances mean more than volume --
Stuart S. Ball: The circumstance --
Hugo L. Black: -- have you said the --
Stuart S. Ball: Yes.
Hugo L. Black: -- amounted cost to deliver that various according to different costumers?
Stuart S. Ball: That's right and you see here were you have -- now if you have a community in which you have three A&P stores and you have one store and I know of a situation where the one store in that community got more milk than the three A&P stores combined, and it gets a bigger discount. Now, those are the -- because in that there were no economies and mass buying. Here you have 254 stores which the contacts in selling were altogether at the joint buying level. Little executive time even if you charged it all, it was be de minimis, we've got the exact figure stated in out brief. However, in order to solicit the 1800 and some independent stores, we have a force of about 30 what we call salesmen and solicitors who were pounding the streets, whose time was devoted to the independents. Now, the record shows and I'm going to cover this now because this was a point that was raised in allocation yesterday and I want to explain how you find this cost. It is obvious that for the week, the $2000 that was spent in salesman and solicitor's time, none of it could be charged against these chain stores all had to go against the independents. Now, it would have been possible to have made a time study of saying what stores those men spent their time in. But unlike deliveries where weeks are repetitious and the week can be a proper sample, you would've had to take a month to two or three months of time studies of those salesmen to balance out and find where they spent their time. Now, these men were not only salesmen. The sales work, and it's all described in the stipulation covered a number of activities. They covered what we called maintaining the accounts. They went into the stores, they listened to the stores complaints, they checked on the kind of service that was being given, they put the in store promotions in the right place, they delivered the point of sale material and so that was mounted, they made helpful suggestions to the sales of the store. Now, we have that 2000 is a cost that we bore with respect to independents and not with respect to chains. It would have been possible to solicit by sending the president of the division around to visit the 1800 independent stores and there would've been no point in having these salesmen calls on the managers of the A&P and Jewel stores who had no right to buy. So there have to a difference in dealing right at that point. Now, this 2000 a week, Mr. Solomon's last point yesterday was that he had found out that we have allocated that he thought improperly. May I call attention to the study of page -- opposite page 13 in the brief which is the summary of our brief, yes in Borden's brief, its opposite page 13 and it folds out.
Earl Warren: Mr. Ball, may I clear up just one matter before we study that.
Stuart S. Ball: Most likely to it.
Earl Warren: When was your study made as to the differential in these accounts that you gave? Was the -- when you decided to give Schubert 5 1/2% as you say it is in some other independent 4% and the chain stores 8 1/2, had you made your studies --
Stuart S. Ball: --(Voice Overlap) -- this study at that time.
Earl Warren: No, no, that wouldn't what I asked you. I was asking you if you had made any study as to those particular stores to indicate that one was entitled to 5 1/2% and other 4% and that the sale -- and that the chains were entitled to 8 1/2% depending upon the economy's effect.
Stuart S. Ball: In the stipulation which I have referred to, in connection with the cost study, it was stipulated that Mr. Malone in charge of this study and who was the district comptroller, had participated in a number of cost studies in different communities including two made in the Chicago area, which had been made prior to this discount schedule, and which gave to the management general information and specific in certain respects with regard to the differences of cost between different types of stores. Now, there -- I was not -- I do not have the details of those studies, whether in that material there would have been enough to study them store-by-store, I don't know. But the point that had brought it is that the general characteristics of different types of stores have been studied and the cost difference is made before the discount schedule was given. Now, this is the same problem of whether you have post litigation justification, the cost justification study and here is a -- of course the Bowman and the Borden situations here are entirely different or a cost studies were independently but not overlapped here on different theories and the details are entirely different. To a certain extent, they had a pre-justification study. We only have ready to submit the post litigation study. Discount schedules in these situations changed from year to year, sometimes from month to month in a community. It would -- when it's figured that this study cost is over 50,000 to mean, it is obvious impossible that every time you shift it made different discount arrangements. And every time you shift to new schedule, you're not going to spend 50,000 in a community and make a cost study to find out just what that discount schedules will be. Management operates on good common sense. Now, the problem comes up if you're in litigation you have to justify it. The experts called by the Government, the cost justification study itself says, “Post litigation studies are perfectly accurate because you can draw the -- you're always dealing in a lawsuit with what the cost justification study calls historical costs.”
Earl Warren: I can understand that, but what I'd like to know is this, did you have enough information from your cost studies so that if Schubert have been operating exactly as a chain store, if Schubert had dealt directly with your president instead of your salesmen, and if it required no more services, then the chain stores would have gotten that it would likewise have received 8 1/2% discount as did the chain stores. And would it -- and would you have recorded to it 8 1/2%?
Stuart S. Ball: It would -- the facts about Schubert being the largest independent --
Earl Warren: Well I just take that --
Stuart S. Ball: -- were well known to the management --
Earl Warren: Yes.
Stuart S. Ball: -- because they were. Now let me distill the facts about the Schubert store, because they have all occurred in these documents. And these -- these are does away with this myth that there are in-store services that an independent can dispense with. Even chain stores got all of the services to some extent, a man has to walk in and put the milk somewhere, whether he goes farther in one case and another depends in a various store-by-store. There are over 40 of these time factors each representing what the Government wants to follow, in-store or service. These 40 activities that were performed vary in time individually. But there are certain out of the permutations, there are certain general characteristics that are inherit in the nature of an independent business. Now, let me take Schubert, if you will look at the sheets at the back here, you will find on the third sheet, no the second sheet a little diagram --
Tom C. Clark: Of what?
Stuart S. Ball: What's that?
Tom C. Clark: The back of what?
Stuart S. Ball: At the back of the Borden brief --
Earl Warren: That's on what page?
Stuart S. Ball: This is at the very end --
Earl Warren: -- by the very end --
Stuart S. Ball: -- of the Borden brief.
Earl Warren: Yes.
Stuart S. Ball: We have attached, as an appendix, these three sheets covering -- the four sheets covering Schubert. Now, in the second of those fold out sheets, you will see a diagram of the store arrangements, you will also see that there is indicated up above the fact that he have both -- he have two again, this is under item 76, he had a display case and a walk-in cooler. The walk-in cooler, the entrance was at item number one on the diagram, the displayed case at 17, and the walk-in cooler at 12. And in this case, these independents generally operate the store at -- the owner had his brother running this huge store and it was huge for the quantity of milk. This store, if you will also notice, had a very peculiar situation. This was a split stops that means if this store like most independents had two dairies in it, which meant that there was a problem of display -- relative display of two milks. In the Chicago area, there were no split stops among the chain stores that we certain. So this is a characteristic difference between independents. Now in this case, there was 20 feet from the entrance to the display case, 50 feet from the entrance to the walk-in cooler. This store was served six days this is also shown in this -- and it also shows that there were 11 stops which meant that the truck have to come almost twice a day to the store. The average stops for each A&P and Jewel store, the average was only nine and a half. This required more stops of the regular truck to service this store. Schubert required more stops of the regular truck per week than the average of the 80 largest independents which involve a lot of intangible as well as tangible cost, all of these being known. Also, you will notice on the first sheet under item 63 that on five different days, they have to call for special deliveries of milk in addition to these 11 irregular calls. The record at 194 shows that, all of the 254 chain store locations and the aggregate required only 99 special deliveries that the 80 largest independents only required 27 and this store took five. Now again, you conceive the services, this was a large split stop having two kinds of dairies in there, the frequency of delivery and all of these factors came up. There -- you would see that that effect is not only the direct labor cost of the time area but the indirect burden of the special delivery trucks which are expensive to operate and the trucks going back. Now what --
Earl Warren: Mr. Ball, that would lead me to ask this question, before this action was filed, did you have -- did Borden have any formula that an independent might be able to meet that would enable it to get the same discount as a chain. In other words, if it so condition its business that it would eliminate these things that you're talking about to the same extent that the chain stores eliminated these costs to you, could it -- could it by such elimination obtain this 8 1/2%?
Stuart S. Ball: All of the special discounts that went above the published schedule or manners of individual negotiation. Schubert was an individually negotiated discount based on his pitch to the Borden Company of what he could accomplish or how he could handle it. Now, those things have to be studied. Now, there was --
Earl Warren: I thought those things were not specially studied though you said? I thought you said they have been general studies and observations and --
Stuart S. Ball: No, the general studies reveal this kind of facts about stores not about Schubert individually --
Earl Warren: I see.
Stuart S. Ball: -- but about these types of stores.
Earl Warren: Yes, yes, alright.
William O. Douglas: Mr. Ball.
Stuart S. Ball: Yes.
William O. Douglas: Were any of your special discounts to the independents is said to be justified as meeting competition? (Voice Overlap) --
Stuart S. Ball: The Government tries to discount this whole 5 1/2% on the ground that we did have faced with this problem on the prima facie case. One, as Mr. Solomon pointed out, one of the special discounts was to a store that only got approximately more than one who'd only got 4%.
William O. Douglas: But did you in Court attempt to --
Stuart S. Ball: No --
William O. Douglas: -- testify in the --
Stuart S. Ball: -- and I would explain why. We --
William O. Douglas: But as a matter of fact, were they as --
Stuart S. Ball: The record is silent as to whether they were or not, we were prepared to present as to those three stores a second defense a cost defense and a meeting competition to that.
William O. Douglas: And isn't this in a normal occasion for breaking your published --
Stuart S. Ball: The matter of fact is part of the reason that you give special discounts is that the independent comes to you and wants more money and he uses everything including competitive office.
William O. Douglas: Including the fact he's got another dairy in the store.
Stuart S. Ball: That's right, including the fact used a split stop.
William O. Douglas: Did either A&P and Kroger has a house brand of milk?
Stuart S. Ball: No. Not in Chicago this time, there were no split stops in the A&P and Jewel stores.
William O. Douglas: They didn't have their own --
Stuart S. Ball: They did not have their own brand. There were only Borden Milk in those stores. Now, what I'm trying to say at that time there, the stands to reason that if they want more discount and Borden feels competitively you want to give him and Borden could suggest to them. And this is the answer I think to the basic inquiry, it stands to reason Borden have no policy against giving special discounts to independent stores and no limit as to the amount that they would give. There is not a scintilla of evidence they did. The answer about it is it stands the reason that if Borden people could make suggestions to the independent as to how he can operate. Remember that Borden more than makes the difference. This cost study show that on -- as you go out, the over justification tends to increase rather than decrease. So, from the economy of Borden operation, there was every incentive for Borden to suggest to this man here is the way you can reduce our cost and I think you will have to assume that from that, the inference can be drawn that if it had been possible for the independents to do these things the problem would've been offered to them, and they would have been given the discount. There's nothing --
William O. Douglas: Would you say that it was -- that where you gave independents higher than 4%, the cost factor was really irrelevant?
Stuart S. Ball: No, I do not. I think the cost factor was definitely. Schubert, the volume was definitely a factor. He was the biggest independent we have --
William O. Douglas: Aside to the fact that you were -- that the occasion was to meet competition?
Stuart S. Ball: The record does not show the occasion. We were prepared to show that as a second defense.
William O. Douglas: I see.
Stuart S. Ball: The Government stipulated they weren't going to make a battle over the difference between 5 1/2 and 4. Therefore, we never introduced any evidence in the record is cited as to whether we did or did not need to do it for that purpose. The fact is that we are prepared to justify on both grounds if we had to do it. Now, to sum up, I could -- I don't know just what Mr. Solomon may want to point out. Well, I want to cover this matter of the allocation of salesmen's time. The cost justification study points out that you do not even on matters on your subject to exact measurement, have to do that if the cost is great if there are other measures that are equally accurate by which you can divide the time up. In our various accounts, the salesman time was allocated between independent stores for the salesman's cost on the basis in proportion to their volume purchased on the ground that the salesman would be in the store like Schubert. With a split stop with the problem of getting Borden milk in a maximum display, he would probably be there in that store far more often than he would in the average store and in really direct proportion or more to the amount of volume. So volume which is -- and I can -- we can -- the use of volume and all that was -- is justified by several bits of the testimony of the expert witnesses. Volume was a perfectly proper measure by which a cost may be spread. These costs were spread of solicitor's time on that basis --
Earl Warren: Mr. Ball your -- your time --
Stuart S. Ball: Excuse me --
Earl Warren: -- is up but I'm going to give you five minutes --
Stuart S. Ball: Thank you.
Earl Warren: -- more to conclude what you want and you may have --
Stuart S. Ball: Yes and thank you very much. I wanted to say on that point that as far as Schubert is concerned, if you will turn to page 60 -- 63 of our brief, you will find a study of the Schubert costs in which we take the direct labor on the route man, the direct labor on special delivery. And then we have allocated the indirect -- direct labor accountant for about two thirds of the cost of the route man's time. We have lift the other third follow which is on accounting method approved in -- by the Government's own experts under many circumstances of letting indirect cost follow direct cost. In this case, we have let wholesale truck cost special delivery indirect in route man's indirect labor follow the direct cost in proportion. If you look at line 10, you will find that either was Schubert, the largest independent and may I say there were not unique independent because, counsel said there were five others beside Schubert and had as much volume as the average A&P store. The answer is there is only one other store, not identified because not part of the eight, that have a volume as much as the average to the A&P and Jewel stores. That -- and that were -- Schubert was third lower in volume than the next largest store and on the selected eight, he was three times as large as the next largest store in the selected eight. Now, if you look at line 10, you will notice a cost of $7.21 just on delivery cost alone on this allocation to the A&P and Jewel and $11.20 to Schubert which means 3.99 or 399 100s of a percent of discount difference that could've been justified on direct cost alone forgetting the solicitor's time. When you look at these others, down below including salesman solicitor's time, you'll find a cost justification an excess of a 5% difference between this largest of the independents. Now, I think it's the very inferential that the cost to stores, the others on the selected list, the nearest of which was only one third of the volume of Schubert were fully cost justified. I want to submit again, there is not a scintilla of evidence in the record that Borden have a policy of favoring chain stores and we are looking solely at the economies of volume and the economies of inherent method of which we've describe in some detail and given the figures on the brief. In the second place, the argument of classification if you have to define as counsel wants you to do classes on them that you have to show as to each member of the class get a subject to exactly the same cost factors to justify the entire cost difference between classes, that means you've got to have a cost study by costumer-by-costumer study which defeats the purposes of classification. But, if you are required to have that under the act, in this case, the Borden cost study mean such a costumer-by-costumer justification, it was up to the Government with this information before it if they were going to take these hard examples instead of dealing with hypothetical cases as they have on their brief to demonstrate that there were independents being unfairly treated. They made no such demonstration. By giving you Schubert we have shown I think that that demonstration was impossible for them to make. There wasn't any way that Schubert could change his method of operation. Now under all of those circumstances, the issues in this case are not a broad issue of law as the Government would like to have you believe, it is that whether the discriminations covered by the Government's prima facie case were as a matter of fact justified by a cost study that was as exhaustive and detailed as any that have been submitted and a cost study that was in accordance with the principles that have been recognized by the decisions of the Federal Trade Commission and of the experts called by the Government. Thank you very much.
Hugo L. Black: One other one -- one question.
Stuart S. Ball: Certainly.
Hugo L. Black: I was looking at this Schubert and the other --
Stuart S. Ball: Yes.
Hugo L. Black: Do I understand correctly that Schubert's volume as compared with the volume of individual A&P and stores in Chicago is equal or superior to it?
Stuart S. Ball: Schubert's volume was about 15% more than the average delivery to the A&P and Jewel stores in the Chicago area. But even with that --
Hugo L. Black: But you have there is a -- question of whether there's a sufficient additional cost delivered to Schubert --
Stuart S. Ball: Yes.
Hugo L. Black: -- over the A&P although you deliver each one to the individual stores or do you deliver to A&P at a central point?
Stuart S. Ball: No. We deliver to the individual stores. The answer about it is that you can have the same truck delivering in the same way to all kinds of stores. But the time taken because the way the independents operate as against the way the chain stores operate and much of that inherent in the nature of being an independent work shop by yourself and needing certainly help but you can't otherwise get. In that, it causes more to deliver to the independent store getting the same volume with the chain store than it does deliver to the chain store and the cost of their -- the kind of cost that are inherent in the type of the economies that Congress intended to be preserved. Thank you.
Earl Warren: Mr. Solomon.
Richard A. Solomon: I gather from Mr. Ball that my main task here is not show that we have correctly stated our theory as to why the decision below was wrong, but to show that the decision below properly reflected their cost study, because he hasn't really attempted to defend the decision below which I think fairly reflects what Borden put up to the court below as their cost justification. If you gentlemen will read the Borden cost justification which is fully set out in their brief and in the record, and if you will read their trial brief which is mostly set out in the record, you won't find any of this discussion that we had here this morning because what Borden attempted to do below and what the court below said was correct was to cost justify by these averaging techniques of all independents in one class as against the chains. Now, it suggested here that really all we were attempting to show was wrong were eight stores at all they were attempting to cost justify were eight stores. And Your Honor Justice Harlan said that was a kind of a bill of particulars and that was what we were limiting ourselves to. But with all due respect, I think that's nonsense. Under the Morton Salt case of this Court, that's 334 U.S., this type of cost discrimination is almost per se a violation at one of defenses can be made. In the Morton Salt case, this Court said the Federal Trade Commission was going away outside what it had to do when it tried to prove and reprove and reprove what is pretty much an obvious fact and when you have a group of retail stores in the city like Chicago competing with one another and some get one price and another get another price, this may tend to substantially lessen competition because after all Clayton Act is a “may” act. But in order to nail this down because we suspected that there would be some objections that they weren't really in competition, objection was made by Bowman not Borden. We, in each case, took a sampling and we use this sampling in course approving our prima facie case to prove what we thought was obvious in the first place but to nail it down to show that where you have independent stores and chain stores within a compact area of a mile or so, some of those customers who go into A&P store shop and go into independent stores sometime and vice versa. And that's all these eight or nine exhibits were used for. They were used as what I can think what's probably an unnecessary nailing down of a prima facie case and this was recognized. Judge Campbell, when you read his opinion does not say we made a prima facie case as effect to these nine stores you don't even mentioned. He recognizes we're making a prima facie case with respect to area. Now, there's been some talk here about this bulk exhibits being part of the record and we could approve everything from this bulk exhibits and leaving out the question of who had the burden of proof of proving a cost justification. It is not a coincidence that these bulk exhibits are not before this Court. In fact it's my why understanding that they were never physically before the District Court. What these bulk exhibits were, were the work papers, the work papers which the Borden people used in making their cost study. They worked as Mr. Ball quite properly said, Bulk up and made available to the Government in checking their work papers. But they were never submitted to the Court either by the Government or by Borden because nobody thought they were relevant except in checking the general figures that Borden was doing because Borden wasn't before that Court making a justification on a store-by-store basis. And that's why those work papers are not before this Court and --
Hugo L. Black: Is that the basis of your contention? That what you have -- what you insist on is that the law requires that they make a cost justification for each store?
Richard A. Solomon: No sir, I do not insist --
Hugo L. Black: You do not --
Richard A. Solomon: I want to make it perfectly clear that I am not insisting if they make a cost justification in each store. As I try to point out yesterday, all we are insisting on is before they classify stores and then make a cost justification by groups that they make sure that the classification reflects the particular cost savings they're talking about specifically as Your Honor said perfectly clear from his whole case that there's a great deal of cost saving as the result of volume.This is particularly true in delivery. Obviously, on a per quart basis or per hundred dollars of sale basis, it cost less to serve big stores and small stores. Well, to the extent that there are volume savings, we don't say that they can't classify for cost justification purposes stores with equivalent volumes. But what we do say is you can't do what Borden did and take all independent stores that have anywhere as from a 150 points a day to 750 points a day and classify them while your classifying the chains separately who as Mr. Ball admits take on the average less than the 750 to the extent of volume as a factor.
Potter Stewart: But that's only one factor.
Richard A. Solomon: That's only one factor.
Potter Stewart: There are --
Richard A. Solomon: That's right.
Potter Stewart: -- factors of billing and of solicitation and what were these other factors?
Richard A. Solomon: All these other fact -- really here, you have about three or four factors. If you read this thing through, what you have here is quantity which is the main factor. Then --
William O. Douglas: You say -- before you finish, what about the decree at -- I wonder what kind of an exposure right, I wonder what kind of a decree would -- would it be a decree written in terms of the statute? And if so, how would you enforce it and what standards was that the --
Richard A. Solomon: We think of it --
William O. Douglas: -- respondents have to how they -- how they can debate intelligible?
Richard A. Solomon: We think a decree which would require the Borden Company to make whatever discount brackets they wish to set up based on whatever differentials they want to set up available to anybody who can qualify. Fairly simply decree of that nature would do the trick. In other words, we -- and this I think I can answer both your question and Justice Stewart's question at the same time. If Borden thinks there are savings and quantities which there obviously are and that's the major one. They can set up a quantity discount which is open to everybody and the decree should say that if they want to have discounts based on quantity, it has to be open to Schubert as well. Now, to the extent that there are other factors, they can also set up their discount on that basis. In store services which Mr. Ball talked about, it's quite true that if a store whether it be an independent or a chain requires the truck driver to bring the milk into the store and deposit it in thing that takes somewhat more time and would be as far as we know, for a fully justifiable basis for having a differential. Now, if they want to say people will take in-store services will be paid, will pay ex -- extra or say the others that don't will get a discount they can do that. We will allow that in the decree. All we're saying is that on these two or three of four major factors which are the only factors Justice Stewart that anybody would really want to set up with discount for, they want to set up as discount for, the decree should simply state that these discounts are to be specified and be available to everybody is eligible. And that's all you did in a decree and that would eliminate all problems, we think. The classification difficulties that we got in cost justification, is merely because they didn't do this in their original method of giving discounts here.
Hugo L. Black: May I ask you of this formula? I don't understand the complete consequence as yet in which you say, does it result in giving a discount of 8% to all chain stores?
Richard A. Solomon: I think -- well, maybe I can take it up on my next argument but --
Hugo L. Black: But I was just asking if you then -- I was asking if you can take it all and if the result it was denying that discounts to all independent or if not something about what the sum total of the actual practical consequences of the way it worked?
Richard A. Solomon: I think the actual consequences of formula that I suggest is one; that the chains will presumably get about what they are getting now. Two, that the bigger independents would probably immediately got a larger discount and three, those bigger independents, the type of people who were trying to compete with change who wanted to take advantage of it could get even larger discounts. Now, it may very well be for example with respect to the Schubert chain but under the present system where it doesn't know and was never been told that the -- it gets a higher discount if it doesn't take in-store services that they are taking in-stores services. But under my plan, of course, they would be told if you take in-store services will cost you a little bit more and they would have the choice of deciding whether they want to take advantage of cost that way you are not. Now, I'm going to sit down and stand up again if you gentlemen don't mind because under -- oh gee, I forgot -- procedures has been established and now going to discuss the Bowman case.
Earl Warren: You may proceed, Mr. Solomon.
Richard A. Solomon: Our problems in Bowman are, we think some similar to those in Borden. Mr. Ball is quite right in saying it's a different type of cost study of I what showed you that this is the same thing. Let me state our general thesis at the beginning again. If you want a class -- if you want to cost justify discrimination between types of store and do so by a cost justification which classifies stores. This classification has to be based upon cost saving factors which are applicable to all of one class and none of the other and which account for the differentials -- a very simple basic position. Now, the Bowman discount schedule appears on page 67 of the record. This is the Bowman discount schedule. Actually there are several Bowman discount schedules in this record they were variation as they went along but I think for present purposes we can stick with the one took in June 1954. There are minor variants and one additional factor which is thrown into the pot and the later schedules to account for somewhat greater differential. But, for our purpose so we can stick with this Exhibit 1 on page 67. You will note that -- this is the published discount schedule unlike the Borden discount schedule in terms applies to everybody but in fact, supplies only to the independents and you'll notice that it's similar to the Borden discount schedule and that for the independents they have a graduated discount except that it's much broader and starts lower and goes by more minute percentages and actually they calculated within these figures. For example, somebody getting 135 points, I gather, would get 6.7 or something in between this and which have more detail breakdown of the independent discounts up until 200 points on page 67 it only goes up to 150 points, but if you will turn over the page on page 68, you'll see that within a month and a half after this discount schedule was put into effect, they actually raised it to 8% for up -- for over 200 points. Now, this was the published schedule. The only published schedule that grocers in Chicago got. But if you like at the letters on page 69 and 70, which are letters to their two chain customers in this case A&P again and the Kroger Company. I gather Justice White that these must be different A&P stores and that much be wide closet there is no split thing. I don't think that these are the same A&P stores, is that correct?
Speaker: Yes.
Richard A. Solomon: These letters indicate that the chains here we're giving an 11% flat discount irrespective of the amount of stuff they took. Now, the critical point I want to make is Bowman had a fairly good quantity discount schedule for independents starting it zero and going right on up 200. When it got to 200 points, that's all apparently cost saving stop there but it still -- the independents stores didn't stop there because the record allow its justice we gone this subject as the Borden record, the record has certain indications of how big some of these independent stores are. If you will turn to page 481 of the record, you will find a chart which pulls out half across the page. This is called Table 12A and it was done for a completely different purpose whether to illustrate my point. This is a one-third sample -- this is a one-third sample of the Bowman routes and therefore recognizing it, it is only a sample into what be an accuracies you can multiply these figures roughly by three. Well, you will note that as you would expect most of the Bowman stores are under 200 points. But, in this one third sample, there were 16 Bowman stores that had over 200 points and four them that had over 400 points, more than twice as much. And if you'll look over to the column under a number of stores South division, you'll see there were two of them in the south division that had over 400 points and if you will go back to the average points delivered daily to the South division, you'll see that the average of those two stores in the South division was 647 points. In other words, assuming if they both got exactly the average at least two stores of this one third sample were not getting 200 points but were getting over three times to this and yet they were cut off -- they were cut off when they reached the 200 point level.
Potter Stewart: -- about 325 points, am I right with --
Richard A. Solomon: Pardon me.
Potter Stewart: Or presumably we're getting 325 points of these were you think?
Richard A. Solomon: No sir.
Potter Stewart: Two or more were getting 647.95.
Richard A. Solomon: No. I calculate just the directly opposite. They're both over 400. It's the average of these two over 400 was 647.
Potter Stewart: I think the average per store.
Richard A. Solomon: Yes. So, I assumed that one of them was over 647 and one is under 647.
Potter Stewart: And that's the average per store?
Richard A. Solomon: Yes. The figures as to the chains by the way in the Bowman settle deal, I can't tell you the breakdown of Kroger and A&P because there was nothing in the record that indicates it. For all we know, Kroger was getting several hundred points on the average more than A&P or vice versa. The record is just silent but the average chain store and so on the next page was, there is no point, no thing the -- a lot of thing to look at it. The average chain store was 500 points more than most independents but less than the some of the independents.
Potter Stewart: And then they showed up that average was 500.
Richard A. Solomon: Average for all of the chain both Kroger and A&P.
Potter Stewart: Average
Richard A. Solomon: Right.
Potter Stewart: How many users were there? How many stores?
Richard A. Solomon: I don't know. There is somewhat larger number -- how many A&P store there was?
John Paul Stevens: Three are plenty of A&P stores about 45 Kroger stores.
Richard A. Solomon: There -- well I don't know. I can't find --
Potter Stewart: Well, it's probably not important.
John Paul Stevens: About 66, 67, I think below the average.
Richard A. Solomon: Well, I don't know. But we are -- I can't point that out for you. Now --
Potter Stewart: To show what the -- how big the largest chain store units were?
Richard A. Solomon: No, but --
Potter Stewart: How many points to get up to?
Richard A. Solomon: No, but we can assume that the -- the essence -- I think it does show bigger up to much bigger than any of them the -- it does show --
Potter Stewart: Well, here to say, out under Table 12B, there are several --
Richard A. Solomon: Yes.
Potter Stewart: -- thousands of --
Richard A. Solomon: Some of them got over two of them or three of them got two of them got over a thousand points.
Potter Stewart: Yes.
Richard A. Solomon: Yes. That's right. And how big, how much over a thousand points, we don't know. Now, Bowman's cost justification before the Court was quite a different animal than the Borden cost justification because Bowman before the Court of Appeals didn't really make any attempt for reason which I do not understand to distinguish volume-wise. Their basic pitch before the Court of Appeals, were there were two essential differences in method of delivery. They said, what they did was they calculated by time studies and other allocations what they figured was a cost per quart of serving the chains and a cost per quart of serving the independents at any given volume level for cost per quarter saving the chains of that volume level and the cost per quart at saving the independents at that volume level. And they compared these two costs per quart of serving these two groups at any volume level and their comparison showed according to their calculations in each instance that there was a sufficient difference of the cost for selling into the chains was sufficiently less to account for the 3% differential between the highest bracket or in fact to account for whatever differential that would be at that volume level for independents. At least this was true above 160 or 180 points. This difference in cost per quart at any volume level was at each case entirely due, entirely due, to two factors which were allocated entirely to the independents and not at all to the chains. But first and the major one of these factors was what they call optional customer services. The word “optional” I suggest gives the game away but we'll get into that in a second. Optional customer services, and there are old friends that we had yesterday and earlier this morning in-store services -- services beyond the back platform and the theory upon which these services are allocated to the independents and not to the chains is that they have an agreement. They've worked it out with the chains were barred they will just drop milk off from the back warehouse and most independents like these services and therefore they will charge them to all the independents. Now, this is really a startling remark so maybe I better read a little bit about what Borden's -- I mean, Bowman's says show that I'm not just making this up. Let me refer you to page 272 of the record which is the basic Borden manual for setting up this cost justification.
William O. Douglas: The Bowman?
Richard A. Solomon: Bowman. I may misstate myself, but I'm talking about Bowman. And you'll see a paragraph about Wilson next to the last of the last full paragraph. How are these differences created? Once the driver arises at the customer's stop, there are some necessary work elements he must perform. Beyond this, there are some optional delivery services that the driver may be requested to do, may be requested to do, such as to deliver the order inside, place the containers in a refrigerator, rearrange the containers so that any product remaining unsold from yesterday will be sold first today, leave case of products at different spots in the store et cetera. The type of service performed varies greatly as does also the extent of the service requested. Very few stores are rendered exactly the same services. But yet, this extensive pool of services must be available for all the drive. In addition, most store customers pay the driver in cash daily rather than paying him by check monthly or semimonthly and the last sentence is the other special factor charged to independents and not to the chains. The independents are all charged with flat fee for the time spent in cash payments daily plus something called delay to collect which I do not understand which is part of the same business whereas none of the chains are because the chains are on a credit basis. Although, admittedly here, all of the chain, all of the independents are not on a credit basis. If you look on page 275, they explained this a little further and they say nearly all stores require the optional delivery services in daily cash payment and therefore have the most expensive type of delivery. A relatively few numbers of stores, require only the necessary work elements and consequently have the cheapest type of delivery. Experience has shown that the independently owned stores generally want the optional services which may include some of the following work elements and then they list this stop again. And if you look over on page 278, I won't take time to read it, you will see that they expressly and explicitly say that it is this customer service element and the collection elements which are responsible for the entire difference in the cost per quart of serving the independents at any volume and the cost per quart of serving the chains at any volume. Now, what kind of studies did the accountants for the Bowman Dairy make to see about these customer services? Let me say that these customer services were charged on a per unit basis. I haven't found much in the record to explain to me why these customer services were supposed to vary with volume particularly since they say that the -- which customer services people take vary from customer to customer but Bowman charged these customer services to the independents on a volume basis with the result that an independent taking 600 points was charged three times as much for these customer services as an independent taking a 200 points even if he -- either did not take any of them or just took a very minor one, or if he had known about this business which of course they never did know, he wouldn't have taken any of them. Now, what type of survey did Bowman's technical expert made to find out about this customer service? Did he speak to the customers and see whether they were taking them? He did not.
Potter Stewart: Was this Mr. Bergfeld?
Richard A. Solomon: Mr. Bergfeld.
Potter Stewart: Was this -- this is that you've been referring to 272 and so on, material that was prepared then for the purposes this lawsuit.
Richard A. Solomon: As I understand that it was -- yes. He did not. He made no story. They asked him, "Did you speak to the customers?" And he said, "I certainly did not." This is all on page 1238 of a second volume of the record. Do you see? We didn't talk of Bowman customers at all. What did they do? We asked the Bowman Dairy staff and employees what service arrangements were and asked them to arrive at a considered standard practice which would be the thing to be expected to be done most of the time and most of the cases. Now that's how this cost study was set up. Did you ask any official at the Bowman Dairy Company whether or not any of the independents have been notified that if they do not want the services that they could get a discount comparable to the chains if they took comparable volume? We didn't ask that question. Do you know -- have you ever seen any bulletins or communications to independents that they did not desire the services listed in paragraph 2 (a) which is the service that they would be submitted the same discount as chains provided they took a comparable volume. We did not ask for such bulletin, we did not ask to see them. In other words, this entire business is pure speculation based upon advised to the alleged accountant in setting up the service from the Bowman officials as to what they thought was a standard practice. And this was the entire basis except for this collection cost which they also admit are not applicable to some of the independents. It's the entire basis for these difference and cost per quart upon which they then base their entire discount schedule and cost justification according to their theory. Now, in view of all this --
Hugo L. Black: May I ask you if that argument is any more than the argument that although you can see that there can be categories and classification? They're not sufficient evidence to support a particular classification which they made.
Richard A. Solomon: Our entire argument sir is that, there can be classifications if they are based upon actual cost differences between the types of people put into a class. But we do not say there is not sufficient evidence here. We say that they have conclusively proved in this case that what they have done is flown independents who are taking these services into the same part with independents who are not taking these services. They have thrown independents who wouldn't think of taking these services they knew it's going to be -- the result is going to be that they won't have to face 3% more for their milk into those who would necessarily have to take it anyway. Our problem is that, they have cost justified on a classification which includes all independents in one group. Although the facts make perfectly clear that all independents don't belong in this group.
Hugo L. Black: And somehow, the sum total of your argument that is that they have discriminated against independents as such, is that it?
Richard A. Solomon: Well, the sum total of --
Hugo L. Black: Is it what I think?
Richard A. Solomon: The sum total of our argument is that if they have discriminated against independents who are in a position to take in the same volumes by the same methods as the chains. They have precluded them from getting the same discounts because they have charged to those independents whether or not they take them and whether or not they would take them if they knew about this system. They have charged to these independents cost which are true of a group, of a class.
Hugo L. Black: In this case, what is the practical result of reference?
Richard A. Solomon: The practical result is -- the practical result is that if one of these large independents which I pointed to which has the same volume as a chain or a higher volume of chain, were tomorrow to come to -- the were tomorrow to say to the truck driver, “We have decided that we don't want to take any of these in-store services and we're already paying by credit or we go by credit.” Under the Bowman system, they would still get 8% rather than 11% which their competitors, the chains were getting.
Hugo L. Black: Your argument being then -- it is or is it not that under this as it functions, no independent can get 11% discount while all the chains can. Is that it?
Richard A. Solomon: That's exactly right, exactly right. And these gentlemen, unlike our friends in Borden, don't claim that the independents were getting special deals that there is no such claim here, but that's exactly right.
Hugo L. Black: The argument that the basis being for that -- that the systems are so different that an independent cannot possibly --
Richard A. Solomon: Well the system is a very simple --
Hugo L. Black: -- (Voice Overlap) --
Richard A. Solomon: The system of how they pay is very simple. They have a system which cuts off 200 points up to 200 points as you take more volume when independent gets a higher discount, but when he gets 200 points, that's all. But as to the chains, they simply give them 11% which is 3% higher than any independent to get. The system is that the justification is improper in our opinion because it justifies by throwing into the pot these extra cost which the independent some of them don't take and many others wouldn't take if they knew that this was the basis upon which they are being discriminated against.
Hugo L. Black: Suppose they've been able to prove that all no independent is entitled the more than the critical number of points you suggested at least 200, suppose they may be able to prove that, would you say then they could be classified this way?
Richard A. Solomon: If they can prove that this was an inherent aspect of cost savings to independent as a group, as against chains as a group, of course they can do it. If they can prove that there are something inherent in the fact that you are a chain which makes it cheaper to sell than to an independent because of your type of ownership or because you are a chain or an independent, then under the statute, they are entitled to have a discount. But what we are saying is they can't prove it this way. They can't prove that it's inherently cheaper to sell the chains than the independents by factors which are not true of all the independents and wouldn't be true of many more independents if they knew what was going on.
Hugo L. Black: Would that impose the duty on a court trying one of these cases to look to see if justification for the classification is supported by evidence in that case?
Richard A. Solomon: Absolutely. It poses upon the Court the duty of looking at the classification and saying now, does this classification reflect cost savings which are applicable to one class and not applicable to the other or does it merely reflect groupings which are not applicable class against class but are mixed between the classes.
Hugo L. Black: But that different -- different community?
Richard A. Solomon: Of course, it could. What is true in Chicago may not be true on some other places. But the importance of this Justice Black is that, the Court here has approved a system of cost justification which if this opinion has approved, will mean in the future, they won't have to worry about rational classification as long as things average out, that would be good enough and this will mean in the future that this type of system can be used by all sorts of chains to persuade big sellers to gets them real advantages. And with all due respect to Mr. Borden, I always thought the Robinson-Patman Act was passed primarily to make sure that chains don't get unfair advantage of their large buying power.
Hugo L. Black: Upon which part of it that burden risk in connection to that proof?
Richard A. Solomon: Perfectly clear on Section 2 (b) of the Clayton Act that the burden of proving cost justification rests with the seller. The burden proving a prima facie case rests with the Government. A burden then shifts under 2 (b) expressly to the seller.
Hugo L. Black: Do you mean the burden of proving prima facie that that has been a difference in cost?
Richard A. Solomon: The burden of proving that there's been a price differential which may tend to lessen competition is on the Government. The burden of proving that that is cost justified is expressly made upon the defendant.
Hugo L. Black: Under that classification, what is the cost differential? What value? What is the amount to on a quart of milk?
Richard A. Solomon: Well, a quart of milk costs 20 cents and they give the chain 11% discount from that 20 cents and they give an independent 8% discount of fees in the highest bracket.
Hugo L. Black: Difference of 3%.
Richard A. Solomon: -- if that's they were doing on this study, then it varies to some but there is a differential. In fact, this is one of the lesser of the differential.
Hugo L. Black: Is there any claim that that would not be a factor of importance of selling in the price in which they could sell competitively?
Richard A. Solomon: Yes, there was a claim and that gets back into this prima facie case which I'd like to discuss if I may. Because Bowman even more than Borden argues that the prima facie case that the Government made here was limited to a similar list, I think it's nine stores in this case and that's all we prove and they claim that they cost justified these nine stations on an individual basis. Now --
Hugo L. Black: That in fact, if it's on in individual basis, that would mean that you have to decide in each case on an individual basis?
Richard A. Solomon: No sir. It wouldn't mean that all. They claim that -- they claim that they did something was unnecessary because they wanted to prove beyond doubt that their general classification, which I've argued, was improper actually works out in practice to be proper. I'll get in to the fact of their alleged proof of these nine stores in a few minutes. But I just want to make perfectly clear that -- as in Borden, these nine stores were not the prima facie case. But Government here wasn't wasting its time bringing an action against these people to have fairness with respect to nine stores, two A&P stores and five or four, eight independent stores. What we are interested in -- what we were attempting to get and what everybody recognize below was this entire differential broken down for the Chicago area. What we did with Bowman as with Borden is have an example of a nine stores in two parts of two routes stores close together. For the same purpose and doing the same thing to show, again, what we thought was obvious and what we think is unnecessary under this Court's decision in the Morton Salt case that these stores were in competition because our friends in Bowman argued vociferously that they weren't in competition, that this whole business of competition was beloning that people don't shop from supermarket to supermarket, that they have their own favorite stores and that they extent of competition and therefore the effect of this price differential was meaningless. Well, as again, we thought that was unnecessary to really prove but to prove it conclusively, we took a sampling. We could have taken the whole city of Chicago if we want and done and made a much broader sample but that would have been exactly to fly into the phase of what this Court said in Morton Salt, the Federal Trade Commission we shouldn't do and just wasting time in doing. But we took a small sample of two routes and said, “All right now, you say that they're not in competition, here is the people that go into both stores” and that all there to this alleged fact that we prove this case -- we proved a prima facie case solely with respect to nine stores. The Court didn't think so and we didn't think so. You'll read the Government's trial brief which is not printed in the record but which is before this Court. You'll find that our prime facie case discuss this primarily as our prima facie case the discount schedule and then uses these nine stores as an example to prove it. And you'll find that Bowman's reply to these things treats it the same way. Let me say briefly about the alleged proof store to store with respect to the nine stores. This appears in Exhibit 14. Exhibit 14 starts at page 328 of the record and chapter one of that is what purports to be a test of these individual stores. Now, let's see what Mr. Bergfeld who is making the report here, says he did and remember that Mr. Bergfeld is that he never spoke to any of the individual store about anything, and I just got this information from Bowman. Now, what did he do in this test? Did he speak to people or didn't? Well, reading at the bottom of page 329 here what he said he did, “Well each store on this route, all deliveries during the week of March 14th to 19th were included in the study. This accounted for a variations and order of size throughout a weekly period. Each store -- each customer's actual volume and product mix were used as the basis for computing delivery cost, platform cost and list prices.” In other words, they did find out what the average actual volume and product mix of these stores were. Did they make a survey of their customer services? They did not. Turn to page 330. Delivery cost was based on a regular service available and generally provided to the type of store. Since the driver and its equipment must be prepared to perform any or all the group of services setup for independent stores. The cost of that group is calculated as part of delivery cost and it's incorporated into the discount schedule. This includes daily cash payment, any optional services, beyond a sidewalk on floor delivery, conversely only of the essential element, services are provided for chain store outlets. It is understood that additional time is considered unavailable to them and further that the store manager will expedite delivery. In other words, this alleged store to store survey is no more a valid in their general store to store survey because it's based on an assumption with respect to these customer services. And my time is --
Potter Stewart: All the independents were on COD basis, were they?
Richard A. Solomon: All of the independents were.
Potter Stewart: Well, did they pay cash?
Richard A. Solomon: Do you mean in these nine or in the entire independents?
Potter Stewart: Entirely.
Richard A. Solomon: No. All independents were not on the COD basis.
Potter Stewart: Were these nine?
Richard A. Solomon: What?
Potter Stewart: Were these nine?
Richard A. Solomon: I don't know. But all the independents were not.
Potter Stewart: They were not?
Richard A. Solomon: Definitely not admittedly.
Potter Stewart: How many were and how many weren't?
Richard A. Solomon: Well, the only figures I can give you sir are and this definitely is not too accurate but the nearest thing to accuracy on this I have is Exhibit 4 on page 286 which Appendix A there has a standard time allowances for 1949 time study. This is before this particular case but I think these are the time studies upon which a lot of these calculations were based. Not on whether this proves anything but you'll know that, when they are talking about number of customers at the top here on this other items, they mentioned 1265 and 189 look at that (Voice Overlap) 943. Now, whether that barely reflects the situation or not, I don't know.
Potter Stewart: This is 1949 that you point out.
Richard A. Solomon: Yes. All I can say is it's admitted in the record that all do not and beyond that I don't know.
Potter Stewart: All the chains or that rather the two chains were on a billing system.
Richard A. Solomon: That's right. But the main factor here Your Honor actually the main differential is this customer service. The collection cost are an additional factor but at least the collection cost were charged on per store basis, it didn't have this volume factor which made them out off as the stores got bigger and bigger.
Potter Stewart: I suppose, this delay to collect, is part of this collection, isn't it?
Richard A. Solomon: I never understood what delay collect was.
Potter Stewart: Probably was waited to see the man for whom they collect.
Richard A. Solomon: I guess so but --
Potter Stewart: It took 13 one-hundredths of a minute and I guess it took their minute 19 one-hundredths to actually make their collection.
Richard A. Solomon: Now, my friend here I'm sure is going to say that the record indicates although a lot of the independents didn't take any customer services. But the record -- the one-third sample which is the only thing we have in the record does indicate that the very biggest independents took some customer services. I have two things to say to that. I think that's probably true as long as this discount system doesn't distinguish between what they can get and what they can't get. But there isn't any indication that these biggest stores would take these services if they knew that this was going to be the difference between 8% and 11% discounts. Moreover, again, it doesn't really mean anything to show that a store took collect a customer services. Because this customer service category includes so much which they say vary so much from store to store. But a big store may take a very minor item and yet they will be listed as having taken customer services in charge for the entire business. The fact is that 32% of the stores didn't take any customer services and we suggest many more wouldn't if they knew this was going to be the basis.
Potter Stewart: Well this business has taken customer services to these customer services, the various ones, something that varied in a store from day to day?
Richard A. Solomon: That's what they say.
Potter Stewart: That some day it wants this --
Richard A. Solomon: That's what they say.
Potter Stewart: -- and then the same store would not want it?
Richard A. Solomon: I should imagine so. I should imagined --
Potter Stewart: That this was a cost, the very cost of keeping this available having this available is it continuing cost, wasn't it?
Richard A. Solomon: Well, I think that -- I think that's a right --
Potter Stewart: It's fully fair, isn't it?
Richard A. Solomon: I think that's a fair statement of their argument. Their argument is we don't know what this going to be, what we make this available to everybody, we don't tell them we're making available to them our charging point. We make them available to everybody and I guess their theory of why it should be on a volume basis is that theoretically since these services are available to people to people in the biggest stores who would ask for huge services because they have more problems. But there is not any showing if that's what happens and --
Potter Stewart: Did they have different route men serving the independents?
Richard A. Solomon: Oh no, oh no, (Voice Overlap) oh no, these were all both Bowman and Borden. The trucks on these roads --
Potter Stewart: The same driver would call on both.
Richard A. Solomon: Right.
Potter Stewart: Is this idea that all independents will want this more expensive service all independents are the same and their efficiency and their desires to cut down cost.
Richard A. Solomon: As I told you Your Honor, it's based upon the assumptions made by the Bowman executives of what they thought was the standard practice and not based on anything else because nobody ask the independents. Obviously, a large independent can set himself up if he wants in a matter to a very close to A&P and the chains deal. Small corner grocery man I presume would be very difficult. A Mom and Pop store, he may have to use some services. But a large independent can, if he wants, set himself up to operate exactly like A&P and Kroger. No he doesn't have to -- and they can make a differential on this basis too if they want or say we're going to charge so much per quart if you take in-store services and less if you don't. And then they can give these large independent supermarkets a choice and they could either try and compete pricewise getting the full discount that the A&P and Kroger chain do, or they can try to compete service-wise and try to forget about the price differential take these extra services so they could cut down on the people they hire, but they don't give them that choice and that's our problem. There's one other point which I haven't enough time to reach which is whether this whole case is here or whether we stipulated the case out of Court. I can only say that we've explained that thoroughly in our brief and that if you read the colloquy between the judge and the United States in this case, it will be perfectly clear that, two things, First of all, the judge thought he was only stipulating as to admissibility in information. And secondly, that the United States stressed over and over again that it was going to raise these basic points as well as technical points which we haven't bothered this Court with and we did raise. We raise this very point with respect to the falsity of this classification based upon the customer service and collection which didn't apply to all independents. We raise this in our brief below and Borden responded and they did not suggest to the court below that we stipulated this out of Court because of course we hadn't.
Earl Warren: Mr. Stevens.
John Paul Stevens: Mr. Chief Justice, may it please the Court. The issues which were raised by the Bowman cost study are materially different from those raised by the Borden study. For that reason, I shall, of course, be talking only about the aspects of the case which are unique as to Bowman. To start with, I'd like to call the Court's attention to the first graduated discount schedule which Bowman put into effect in January of 1953 which is found at page 311 or the record. The record shows that the time studies on which the independent cost experts employed by Bowman calculated their cost curve were conducted in 1949. I think, I thought it was clear in the District Court that there is no dispute over the fact that our basic cost studies had anticipated the litigation that made in advance and the cost curves were subsequently developed. I think that shown in the colloquy at pages 97 and 98 of the record, if we need documentation of it.
Potter Stewart: It is true, isn't it, however that the Exhibit number 4 was prepared for the purpose of --
John Paul Stevens: Subsequently, that's correct, Your Honor, and of course our specific studies of March 1955 differentials were had to be made after March of 1955. They gave a specific comparison and we then applied the principles which had been developed previously and showed the cost differentials which related to those specific price differential. Those studies were naturally made after the fact because they are based on actually transactions.
Hugo L. Black: May I ask you one question --
John Paul Stevens: Yes sir.
Hugo L. Black: -- before you start. So I could understand your argument further, do you agree that -- or disagree with what I understood to be the statement if your formulization works out and certainly that no independent I gets the benefit of the full discount?
John Paul Stevens: No Your Honor, I do not agree with the statement and I would like an opportunity to explain that and --
Hugo L. Black: I just want to --
John Paul Stevens: -- that the appropriate point I'm trying to show that our cost study specifically differentiates between the classes of stores taking extensive delivery services which include for the most part independents but it says also in any other group and therefore it include the chain. And on the other hand, the classes of stores taking the less extensive delivery services which are simplified by the chains but the study makes it perfectly clear that if other stores met that standard, it would fall into that class and I will direct Your Honors at page 328 of the record. It is said in so many words that that is the differential. So I violently disagree and as I go along I would like to point out that with respect to the actually comparisons which were made, there were in fact these differences and they again as I interpret the Government's position, the actual cost differences fully justify the actually price differences which have been shown.
Hugo L. Black: Do you believe that such a result would be proper under the Act?
John Paul Stevens: Such a result Your Honor? I want to be sure I understand the question.
Hugo L. Black: As he said that your comment they result in excluding all independents and that giving discounts greater than to all chain stores.
John Paul Stevens: I would agree that if there are in fact two stores which are equally costly to serve and if my client adopted the policy of saying you're a chain and I'll give you a better discount from the other even though you are alike in all respects, I would agree that it would violate the statute.
Hugo L. Black: Therefore, it --
John Paul Stevens: But I said that did not have to be.
Hugo L. Black: It could be shown in some ways that such a result is not necessarily under your formulization.
John Paul Stevens: That's correct, Your Honor. That's correct. That our -- our study was made in advance and that the arrangement of the cost is such that in any store regardless of whom who might own it could qualify. And I also would like to point out as I go along that I think Government counsel doesn't have the proper respect for the acumen of the independent businessman who run these stores and the knowledge which they have of the cost factors which are involved. Unfortunately, as I also point out, the record is thinner than I would like on this point because it is a point which is really being argued here and was not developed during the trial. But I'd like to bring that out as I go along. We are somewhat limited by the record we have because of the manner in which the case developed. As I first indicated at page 311 of the record is the first discount schedule which Bowman put into effect adopting these principles and it was put into effect in January of 1953 about a month after the entry of the Dean decree which the Court will recall Judge Campbell relied on when the case was previously up here. Probably after the Dean decree relying on the time studies which had previously been made Bowman adopted it dramatically new type of discount schedule. And I think it's significant to note that this schedule avoids a problem which is frequently present in classification cases of whether the person who buys 99 points and gets into one bracket is being unfairly treated as against someone who buys 101 points because sometimes you get a sharp, you have the problem of drawing the line. Now, we don't say that we are by law compelled to do this, but I say that we were advised by our independent experts it would be good business and it would be a lawful way to do it. So that, you'll note there are these probably 40 different would appear to be brackets on the schedule. But even within the schedule, for example, if you'll note between 210 and 220 points, the percent of discounts is 6.1 to 6.2 which in turn means that there is variation even within that range. So that if the volume was increased to 215, for example, with discount would have been 6.15% or 217, 6.17% every additional quart of milk because of the paralleling of the graduated scale would cost curve entitled the customer to a slightly larger discount.
Hugo L. Black: That's customer per store?
John Paul Stevens: Per store. Per store, Your Honor and I might say that our entire study is based on delivery expenses, based on individual store analysis with no aggregation of different units because -- simply because of multiple store ownership. That doesn't involve in our case at all. Now, this is significant for this reason which I think goes to the integrity of the entire system and I also would like to say, that it had been my understanding that no challenge was made to the good faith our system. I interpret Solomon -- Mr. Solomon's remark as perhaps suggesting the contrary, but it's my understanding that the position of the Government throughout the litigation has not doubted the good faith of the manner on which the Bowman Dairy Company attempted to comply with the law. Now, the reason this is significant, the reason I want to stress it before the Court is that, Bowman had hundreds of customers and it is almost literally true that every customer receive a different net price. They were -- because of these graduating changes and discounts, you have literally hundreds of different net pricing being charged to the Bowman customers. And therefore, there was a myriad of prima facie price differentials and price discriminations which was incumbent upon Bowman to be in the position to justify. And with respect to that myriad of price differentials ranging all the way from no discount at the very bottom level all the way up to 8% at the 400 and over level which was in effect at this time, there is no question raised by the Government as to the integrity or validity of the system by making all of these price differentials. The case which is presented is solely relating to the possibility that there may be a few extremely large independents who should have got an even larger discount which would have made them exactly equal to the chains. So they were concerned not with the large body of customers served by Bowman but rather with the possibility of a few independents who have been denied to fair opportunity to qualify for the same discount as a chain. And I'll try and show that they have been denied any such opportunity.
Hugo L. Black: If they had been, what would you say?
John Paul Stevens: As I said Your Honor, if the cost of serving them were the same as the cost of serving a chain, you could not -- unless there was some other defense under the statute like good faith meaning of competition. If the costs are the same, certainly the price has to be the same. We don't dispute that in the slightest. Now, so our discount schedule is rather dramatically different. We believe that it's the kind of bracket discount schedule which is usually presented. Now, I'd also like to show the prima facie case which the Government developed in this connection and again, I said it doesn't matter when I talked about the prima facie case whether I'm saying they proved nine stores and nine price differentials or whether they are taken as illustrative of the problem as a whole because either way, we met their case. First of all, bear in mind that this schedule went into effect in 1953 and after this Court remanded the cost to the District Court, on January 11, 1955 the Government moved to reopen the record for the taking of additional evidence. And the Court granted the motion and advised the Government they would have wide latitude in presenting such case as they needed. I might say parenthetically, the Government in effect abandoned the evidence that had been involved before which related to many years previously. The case really started all over as a new lawsuit. The Government then took the period from January of 1955 to November of 1955 when the pre-trial order containing their prima facie case was stipulated and entered. And that entire prima facie case is found at the record and the record beginning at page 57 and it runs through page 61 with some schedules and exhibit attached thereafter. The heart of the case is in the two schedules on pages 62 and 63. And I'd like to point out that during this time, the Government at an ample opportunity to select stores which would fairly present the problem which they felt needed to be presented to the Court. And what kind of stores did they select? They selected two delivery routes, each of which contains examples of chain store units and independents store units. The independents as it would be natural presenting the plaintiff point of view on the independents in which they particularly rely are among the 2% of the largest stores served by Bowman. The -- a rebuttal exhibit put in subsequently by the Government in its own -- when it came to rebuttal time and I might say all the evidence relating to average cost and average classification is the Government rebuttal exhibit evidence, our evidence is not based on any kind of averaging of the size of the stores or anything of that character. The stores which they selected, as I say, excuse me, this rebuttal exhibit shows that 98% of the independent stores purchase less than 200 points per day. So naturally, they selected independents which purchase in excess of 200 points to present their case.
Potter Stewart: The structured points, it's your maximum discount stops you get, is that right?
John Paul Stevens: Well, it varies from time to time, Justice Stewart. The schedules, the different schedules which have been in effect have a different top correct it might presume the reason for that is it varies with the customers then being served.
Potter Stewart: What are we just looking at? I can't find -- what page is that?
John Paul Stevens: The one on 311 goes up to 400 points.
Potter Stewart: So 400 points.
John Paul Stevens: The most recent one I believe goes to 355.
Potter Stewart: 400 points.
John Paul Stevens: The one which was in effect at the time the case was brought originally went to 150 and then there was an amendment on page 68 carrying it up to 200. In fact, I believe although the record doesn't show this that that should be up to 300 because if one performs the arithmetical calculation in the bracket between 150 and 300, that require to show up the discount should have been for Charlie's Market in (Inaudible) and the record on page 62 and 63, it will be seen that the discounts granted would only make sense if the top bracket were 300 obviously there is typographical error.
Potter Stewart: Why should it stop anywhere? Well I guess you're going to tell us that because that's the basic attack that the Government makes, isn't it?
John Paul Stevens: That's correct Your Honor.
Potter Stewart: But there's any ceiling at all.
John Paul Stevens: That's correct. Well, this is the discount here. I should answer that directly right now I believe, Your Honor. There is no purpose in publishing a discount schedule containing brackets in which no one falls. And a logical reason for stopping is this is the group of customers who buy pursuant to this published discount schedule distributed throughout the markets. And these particular customers, the best examples the Government could find in the Chicago area and I might point out the Government's complaint is limited to Chicago area as specifically defined. I assume where this particular stores, I would assume they would go out in this year in which they had to developed their case and find the biggest stores and the best examples to support their position. It is true and I might jump ahead a moment to point out that the rebuttal exhibit which was put in three years later, the day the record closed identified some stores purchasing over 400. But it doesn't show where those are. And that rebuttal exhibit applies to the entire area served by the Bowman Dairy Company. It is not confined to the Chicago area about which the price stipulations and other stipulations relate. So that we don't know on the basis of this record whether there is a single additional store in the Chicago area larger than those identified in the Government's prima facie case. And we hadn't -- there were just not an opportunity to go into that because that wasn't considered to be part of the lawsuit.
Earl Warren: And what were those largest ones?
John Paul Stevens: The largest ones are those referred to on the exhibit of page 481, I believe it is, of the record Mr. Chief Justice. And Mr. Solomon did correctly point out.
Earl Warren: 600 and some, wasn't it?
John Paul Stevens: Pardon. That there were --
Earl Warren: 647.
John Paul Stevens: There were two stores in September of 1955 whose aggregate purchases the two stores average out to 647.
Earl Warren: That was in what year?
John Paul Stevens: In September of 1955.
Earl Warren: Well, why wouldn't -- why wouldn't they have been considered in this because there the various stores that would have competed with the -- for the chain stores, wouldn't they?
John Paul Stevens: Well, Your Honor we do not know for this reason. As I say this was exhibit was put on the record the day that the case was close. We don't know whether these stores are within the area described in the complaint. We, therefore, do not know whether they were charged a different price than the chain stores. There is no evidence as to what price these stores paid or what discount was given to them. The record does show that all large stores which are -- which were considered, all stores over the 160 points level way down the line took the customer services. So there is a cost factor which differentiates all large stores, all large independent stores, from all large, from all chain stores. So we have two points of doubt here. One, I assume they fall into the category of those that took the customer services and I also we don't know what their prices were.
Earl Warren: We'll recess now.