Opinion ID: 2267265
Heading Depth: 1
Heading Rank: 7

Heading: Conflict with the Robinson-Patman Act

Text: Before the trial in this case commenced, the circuit court granted a motion for partial summary judgment filed by Exxon, Shell and Gulf regarding Paragraph D of the Maryland Act which requires that suppliers extend voluntary allowances uniformly to all retail service station dealers supplied. The trial court held that Paragraph D is in conflict with § 2 of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. 13, and is therefore invalid under the Supremacy Clause, Art. VI of the United States Constitution. Section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. 13(a), provides in part that [i]t shall be unlawful for any person ... to discriminate in price between different purchasers of commodities of like grade and quality ... where the effect of such discrimination may be substantially to lessen competition.... However, § 2(b) of the same Act, 15 U.S.C. 13(b), provides a seller with a defense to a charge of price discrimination by showing that his lower price ... to any purchaser or purchasers was made in good faith to meet an equally low price of a competitor.... The oil companies contend, and the court below held, that in requiring that voluntary allowances be extended to all retail service stations within the state, the state Act deprives sellers of a federal right to discriminate in price between purchasers where necessary to meet an equally low price of a competitor as provided by § 2(b) of the federal act. In determining whether a conflict exists between Paragraph D of Ch. 854 and § 2(b) of the Clayton Act, as amended by the Robinson-Patman Act, it is necessary both to determine the meaning of voluntary allowances as used in Paragraph D of the state statute and to ascertain the scope of the meeting competition defense in § 2(b) of the federal statute. Turning to the meaning of voluntary allowances in Paragraph D, where a term used in a statute relating to a particular trade or industry does not have a common usage, then the term is presumed to be used in the commercial sense. As was said in Armco Steel v. State Tax Comm., 221 Md. 33, 41-42, 155 A.2d 678 (1959): When terms in a statute are used relating to trade or commerce, absent legislative intent to the contrary, the terms are presumed to be used in their trade or commercial meaning. 2 Sutherland, Statutory Construction, § 4919 (3d ed. 1943).... [I]t must be presumed that [the Legislature] possessed at least the common knowledge about that industry. See also Perdue v. St. Dep't of Assess. & T., 264 Md. 228, 234-235, 286 A.2d 165 (1972). The State asserts that a `voluntary allowance' is oil industry jargon for a rebate of a portion of the otherwise uniform `tank wagon (wholesale) price' paid by all dealers of a particular brand for their gasoline. (Appellants' brief, p. 40.) The Comptroller's report also defined voluntary allowances as discounts extended by suppliers to certain dealers to enable those dealers to meet competition. The oil companies do not disagree with the State's definition of voluntary allowances. [9] In fact, affidavits filed by the oil companies in support of the motion for partial summary judgment, as well as stipulations of facts, support the State's position. Thus, an affidavit filed by a Shell marketing manager states: Under specified market conditions, Shell grants temporary price reductions, or `competitive allowances,' to its branded retail dealers. Shell's purpose in granting competitive allowances is to provide competitive and equitable assistance in gasoline prices to Shell dealers who are injured by local competitive gasoline price reductions of competing retailers which are subsidized by their suppliers. To similar effect are affidavits filed by Exxon and Gulf. This definition of voluntary allowances is supported by congressional reports dealing with the retail marketing of gasoline. The practice of granting temporary price reductions in the wholesale price to selected dealers to meet competition has long been in use and has been criticized in congressional reports as a means of controlling price competition in small, localized areas. In hearings before the Senate Select Committee on Small Business investigating a gasoline price war, one major oil company official described voluntary allowances as a method of extending price assistance to an individual dealer to assist him in meeting price competition with which he is faced, to aid him in maintaining volume, and to help him, as an independent businessman, stay in business and protect his investment. At the same time, because of its application to dealers on an individual basis, the plan tends to help localize the price disturbance.  S. Rep. No. 2810, 84th Cong., 2d Sess. 19 (1956). (Emphasis supplied.) See also H.R. Rep. No. 1423, 84th Cong., 1st Sess. 12-17 (1955). There, as here, the practice of granting voluntary allowances to dealers to enable those dealers to meet the price competition of other dealers was justified by the oil companies as being permissible price discrimination within the § 2(b) defense. S. Rep. No. 2810, 84th Cong., 2d Sess. 20. Finally, in addition to the statements of the parties and the congressional reports, the legislative history of the Maryland statute confirms that the term voluntary allowances as used in Paragraph D refers to the pricing practices described by the oil companies. The Comptroller's report refers to the practice of temporary, selective price reductions, and indicates that the amount of these reductions varied considerably. The statement of an oil company executive at the hearings conducted by the Senate Economic Affairs Committee and the House Economic Matters Committee on the Act denies that price assistance is not offered on an equitable basis and takes the position that selective, localized price reductions are necessary and beneficial to dealers. Consequently, it appears that Paragraph D was intended to prevent the practice of localized price discounts, the Legislature believing that all retail service station dealers of the same brand should be treated equally. This is consistent with other provisions of the Act which are intended to eliminate discrimination against retail dealers by their suppliers. Therefore, in view of the principle of statutory construction that terms relating to a particular industry are presumed to be used in their commercial sense in the absence of any common meaning to the contrary, and in light of industry practices and legislative history, we construe voluntary allowances to mean temporary price reductions in the wholesale price to a retail dealer to enable the dealer to meet the lower price of a competing retail dealer. The oil companies do not argue that Paragraph D is in general conflict with the Robinson-Patman Act. Rather their contention is based solely upon the availability of the § 2(b) defense where temporary price reductions are granted to a dealer to enable the dealer to meet the competition of another dealer. Such competition at the retail level would occur basically in two situations. Either a competing retail dealer would lower its price on its own or a competing retailer would lower its price after receiving a reduction in the wholesale price from its supplier. We must determine, then, whether the § 2(b) defense would be available if a voluntary allowance were granted to a retail dealer to meet either one of these competitive situations. It is settled that the § 2(b) defense is not available to a supplier where a discriminatory price cut is granted to a dealer to enable that dealer to respond to a competing dealer's price cut where the competing dealer does not receive a price cut from its supplier. In Federal Trade Comm'n v. Sun Oil Co., supra, 371 U.S. at 505, 83 S.Ct. at 358, Sun Oil Company granted a discriminatory price reduction to one of its retail dealers to enable that dealer to meet the lower price of a retail competitor. There was no showing that the lower price of the retail competitor was supported by an enabling price cut from its own supplier, and therefore the Court assumed that the retail competitor was unaided by its supplier. The Court held that the § 2(b) good faith meeting competition defense was not available to the supplier, as that defense applies only where the seller's reduction in price is made to meet the lower price of his own competitor and not the lower price of his customer's competitor. 371 U.S. at 529. However, the Supreme Court in Federal Trade Comm'n v. Sun Oil Co., supra, 371 U.S. at 512 n. 7, 83 S.Ct. at 363 n. 7, specifically reserved the question of whether the § 2(b) defense is available if the seller's discriminatory price cut to its dealer is in response to a price cut made by a competitor of the seller to the competitor's dealer. There is a conflict in the lower federal courts on this question. In Enterprise Industries v. Texas Company, 136 F. Supp. 420, 421 (D. Conn. 1955), reversed on other grounds, 240 F.2d 457 (2d Cir.), cert. denied, 353 U.S. 965, 77 S.Ct. 1049, 1 L.Ed.2d 914 (1957), the court held that the § 2(b) defense is available to a supplier only where the discriminatory price is offered to a buyer in response to an equally low price offered to that same buyer by a competitor of the supplier. In other words, the § 2(b) defense is available only where the discriminatory price reduction is offered to retain a customer in the face of a price raid on that customer by a competitor of the seller. In Bargain Car Wash, Inc. v. Standard Oil Co. (Indiana), 466 F.2d 1163, 1175 (7th Cir.1972), on the other hand, the court held that the defense is available if the supplier's lower price is offered to its dealer to meet the equally low price offered by a competitor of the supplier to its dealer. The court relied on the Federal Trade Commission's most recent interpretation of § 2(b) as announced in the Commission's Report on Anti-Competitive Practices in the Marketing of Gasoline, 3 Trade Reg. Rep., ¶ 10,373 at 18,245 (1967), where the Commission reversed its position on § 2(b) and abandoned its support of the Enterprise holding on which it had relied in Federal Trade Comm'n v. Sun Oil Co., supra . See Note, Gasoline Marketing and the Robinson-Patman Act, 82 Yale L.J. 1706, 1713 n. 44 (1973). Although the question is not without doubt, based upon the limited nature of the § 2(b) defense and the purposes of the Robinson-Patman Act as discussed in Federal Trade Comm'n v. Sun Oil Co., supra , and Standard Oil Co. v. Trade Comm'n, 340 U.S. 231, 71 S.Ct. 240, 95 L.Ed. 239 (1951), we agree with the interpretation of § 2(b) set forth in Enterprise Industries v. Texas Company, supra . As the Court observed in Federal Trade Comm'n v. Sun Oil Co., supra , the purpose of the Robinson-Patman Act was to obviate price discrimination practices threatening independent merchants and businessmen.... 371 U.S. at 520, 83 S.Ct. at 367. To accomplish this goal, the Robinson-Patman Act amended the Clayton Act to limit the § 2(b) defense to only those situations where the discriminatory price was offered to meet an equally low price of a competitor. Prior to the Robinson-Patman Act, a defense was available where the discriminatory price concession was made in good faith to meet competition. The House Committee in its report on the Act, said of this revision (H.R. Rep. No. 2287, 74 Cong., 2d Sess. 16 (1936)): This proviso represents a contraction of an exemption now contained in section 2 of the Clayton Act which permits discriminations without limit where made in good faith to meet competition. It should be noted that while the seller is permitted to meet local competition, it does not permit him to cut local prices until his competition has first offered lower prices, and then he can go no further than to meet those prices. If he goes further, he must do so likewise with all his other customers, or make himself liable to all of the penalties of the act, including treble damages. In other words, the proviso permits the seller to meet the price actually previously offered by a local competitor. It permits him to go no further. (Emphasis supplied.) This, in combination with the qualified wording of the § 2(b) defense when compared with the more expansive prohibition against price discrimination contained in § 2(a), led the Supreme Court to conclude that the defense was available only where the grantor of the discriminatory price was responding to price competition at his own level and not that at the level of the buyer who receives the discriminatory price. 371 U.S. at 514-515, 83 S.Ct. at 364-365. Although the Court in Sun Oil Company did not decide if the § 2(b) defense is available only where two sellers are competing for the same customer, it did observe that this is the more normal circumstance where the § 2(b) defense is applicable. 371 U.S. at 526. See, e.g., Krieger v. Texaco, Inc., 373 F. Supp. 108 (W.D.N.Y. 1973). The purpose of the § 2(b) defense was discussed in these terms in Standard Oil Co. v. Trade Comm'n, supra, 340 U.S. at 249-250, where the Court stated that the § 2(b) defense is available to a seller to prevent a price raid by permitting a seller to retain a customer by realistically meeting in good faith the price offered to that customer, without necessarily changing the seller's price to its other customers. To expand the § 2(b) defense beyond this situation, allowing a supplier selectively to reduce its price to a dealer where that dealer faces competitive pressures from another retail dealer aided by lawful reductions from its supplier, would frustrate the overall purpose of antitrust laws to promote competition. Selective price discounts allow sellers to suppress competition, especially from independent, non-branded dealers, in a relatively small area without offering lower prices on a more generalized basis. The use of voluntary allowances to enable petroleum suppliers to inhibit rather than foster competition has been recognized in studies on the retail marketing industry. H.R. Rep. No. 1423, 84th Cong., 1st Sess. 12017; S. Rep. No. 2810, 84th Cong., 2d Sess. 19023. As the Supreme Court said in Federal Trade Comm'n v. Sun Oil Co., supra, 371 U.S. at 523, 83 S.Ct. at 369, [s]o long as the wholesaler can meet challenges to his pricing structure by wholly local and individualized responses, it has no incentive to alter its overall pricing policy. [10] Commentators have also concluded that to expand the § 2(b) defense to permit petroleum suppliers to extend localized, discriminatory price cuts to a retail dealer to enable that dealer to meet the lower price of a competing retail dealer, which is subsidized by a price cut by the supplier's competitor, would be inconsistent with the purpose and legislative history of the Robinson-Patman Act. Note, Gasoline Marketing and the Robinson-Patman Act, supra; The Supreme Court, 1962 Term, 77 Harv. L. Rev. 81, 173-176 (1963). Consequently, we believe that the § 2(b) defense is available only where the discriminatory price reduction is to meet the equally low price offered to the same buyer by a competing seller. The oil companies, by relying on Cadigan v. Texaco, Inc., 492 F.2d 383 (9th Cir.1974), seem to suggest that even in this situation, where a discriminatory price reduction is offered to a dealer to meet an equally low price offered to that same dealer by a competing supplier, Paragraph D of the Maryland Act would require that the discount be offered to all retail service station dealers supplied. However, we have construed voluntary allowances in the state Act to mean only those price reductions offered to retail dealers to enable the dealer to meet the lower price of a competing retail dealer. Thus, there is no conflict between Paragraph D and § 2(b) of the Clayton Act as amended by the Robinson-Patman Act. Paragraph D of the state Act encompasses only the situation where temporary price reductions are given to a dealer to meet the lower price of a competing dealer, and, in our view, § 2(b) of the federal Act does not extend to that situation. Moreover, even if the Legislature were to extend the concept of voluntary allowances to include the situation where a price reduction is offered to a retail dealer to meet the equally low price offered to that same dealer by a competing supplier, there has been no suggestion that such a situation occurs with any frequency in the oil industry. Consequently, in most situations where temporary price reductions are extended, there would be no conflict between the Maryland statute and the federal statute. If, however, a conflict did arise, the Maryland statute would be preempted only to the extent necessary to avoid the conflict and not in its entirety as the oil companies suggest. DeCanas v. Bica, 424 U.S. 351, 96 S.Ct. 933, 937 n. 5, 47 L.Ed.2d 43 (1976); Kewanee Oil Company v. Bicron Corp., 416 U.S. 470, 491-492, 94 S.Ct. 1879, 1891, 40 L.Ed.2d 315 (1974); State v. Texaco, Inc., 14 Wis.2d 625, 111 N.W.2d 918, 923 (1961) (concurring opinion). As previously indicated, the contention of the oil companies on appeal that Paragraph D is in conflict with the Robinson-Patman Act is premised solely upon the availability of the § 2(b) defense where voluntary allowances are granted. Nevertheless, the trial court in its opinion had also found that Paragraph D would obstruct the accomplishment and execution of the purposes of the Robinson-Patman Act. Where a state law `stands as an obstacle to the accomplishment and execution of the full purposes and objective of Congress,' it is void under the Supremacy Clause, Kewanee Oil Company v. Bicron Corp., supra, 416 U.S. at 479, 94 S.Ct. at 1885, quoting Hines v. Davidowitz, 312 U.S. 52, 61 S.Ct. 399, 85 L.Ed. 581 (1941). However, the objectives of both laws must be examined, Kewanee Oil Company v. Bicron Corp., supra, 416 U.S. at 480, 94 S.Ct. at 1885, and, where possible, the operation of both should be reconciled so as to avoid preemption, Merrill Lynch, Pierce, Fenner & Smith v. Ware, 414 U.S. 117, 127, 94 S.Ct. 383, 389-390, 38 L.Ed.2d 348 (1973). But it is not necessary to attempt to reconcile Paragraph D and the Robinson-Patman Act as the purpose and objectives of both are the same. The purpose of the Robinson-Patman Act was `the preservation of equality of opportunity' by assuring that businessmen at the same functional level would start on equal competitive footing so far as price is concerned. Federal Trade Comm'n v. Sun Oil Co., supra, 371 U.S. at 520, 83 S.Ct. at 367. This is precisely the purpose of Paragraph D: to insure that all retail service station dealers are afforded equal treatment and to prevent discrimination among dealers of the same supplier. Therefore, Paragraph D is not an obstacle to the accomplishment of the same objective. Consequently, we hold that Paragraph D of the Maryland Act is not invalid under the Supremacy Clause of the United States Constitution.