Court Opinion

ID: 8874551
Source: CourtListenerOpinion
Date Created: 2022-11-26 18:48:29.780024+00
Date Added: 2024-06-11T17:06:17.512697
License: Public Domain

HAYS, Circuit Judge.
The complaint dismissed by the judgment below attacked the validity under the Robinson-Patman Act1 of defendants’ distribution system for rayon yarn. The district court granted summary judgment for the defendants. 238 F.Supp. 556 (S.D.N.Y.1965). We reverse.
The plaintiff Empire Rayon Yarn Co., Inc. (Empire) buys unprocessed rayon yarn from the manufacturers of such yarn. Part of this yarn it converts, or processes, for use in the textile trade and part it resells in the original package and condition as received from the manufacturers. In this latter capacity Empire functions as a jobber, buying the rayon yarn on its own account, warehousing it at its expense and reselling it to wholesalers, other converters and retailers.
The defendant American Viscose Corporation (American) manufactures and sells unprocessed viscose rayon yarn in interstate commerce under the tradename “AVISCO.” As of 1958 American manufactured over thirty-five per cent (35%) of the total production in this country of viscose rayon yarn.
At issue here is the legality of the method of distribution of this yarn established by American. The affidavit of the general sales manager of American stated the fundamentals of that method:
“Many years ago American established a distribution policy for the sale of viscose rayon yarn by direct sales to consumers of most of the product and sales to two jobbers, the defendants Malina and Gutner, of a small percentage of the product. These two jobbers were able to sell and service smaller units of the textile trade at lower selling costs than American and for that reason American established the jobber relation. These jobbers performed such services as the maintenance of substantial inventories of yarn in their plants as well as in warehouses, maintenance of an experienced sell*184ing organization, assumption of ail risk of loss and credit, advertising American products, assumption of all risk of price fluctuation and furnishing of technical assistance to users of rayon. For acting as such jobbers American allowed a discount from list price on all viscose rayon yarn resold by the jobbers. On all sales to these jobbers for processing (not for resale) they pay the current price just the same as the plaintiff [Empire] or any other customer.”
In order to implement this dual distribution system American contracted with the defendant Malina Company (Malina) on May 19, 1949, and with the defendant Gutner Brothers Corporation (Gutner Brothers) on June 2,1949, to act as American’s “appointed Jobbers.”2 Malina combines the functions of converter and jobber, whereas Gutner Brothers is only a jobber.
The contracts which American signed with Malina and Gutner Brothers are virtually identical. The “Whereas” clauses state that American “desires to avail itself of the services of selected Jobbers in selling [viscose rayon] * * * yarn in its original form to bona fide fabric manufacturers who, either because of their inability to produce in bulk or because of their inadequate credit position, are not supplied directly” by American ; and 'that
“the Jobber maintains a large inventory of * * * [American’s] yarn in its natural form; carries all overhead costs such as rentals, insurance costs, salesmen’s commissions, accounting and other general office expenses incident to maintaining its inventory and performing its other functions of creating and maintaining a market, selling and distribution; and assumes both the risks of loss resulting from price fluctuation and the credit risks entailed in the marketing of yarn in its original form * *
Malina and Gutner Brothers undertook to function as jobbers which is defined “to consist of the resale of said yarn in original form to bona fide fabric manufacturers, together with the maintenance at the 'Jobber’s expense of adequate stocks, a warehouse and a sales force.” The contract further stipulates that Malina and Gutner Brothers are not appointed “the agent or legal representative” of American “for any purpose whatsoever.” The contract provides that Malina and Gutner Brothers shall resell the yarn at American’s published list prices and that yarn shall be resold in Fair Trade states at the list price “in effect on the date of acceptance of the order from the Jobber’s customer,” plus taxes. Section IV of the contracts provides that “in consideration of the Jobber functions described herein * * * the Jobber shall be allowed a Functional Discount on all graded rayon yarn purchased hereunder and resold by the Jobber in its original form * * * equal to five per cent (5%) of the list price of such yarn at the date of shipment” by American to the Jobber. Section V sets forth certain conditions “in order to avoid any discrimination against other customers [of American] * * * or against customers of the Jobber through the granting or receiving of said Functional Discount.” It excludes any discount on sales of yarn not resold in the original form or of yarn subsequently processed by the Jobber; sales by the Jobber to customers controlled by the Jobber, its stockholders or employees, unless such resale is bona fide and without price discrimination; sales by the Jobber to other jobbers or to persons other than bona fide fabric manufacturers without American’s specific approval; sales of yarn resold and subsequently purchased by the Jobber; and sales of yarn resold by the Jobber in which he retains more than a credit interest. Section VI of the contract requires that the Jobber report monthly on its sales in detail and that' he permit American to inspect the Jobber’s books and records. The Functional Dis*185count is credited by American to the Jobber’s account, and adjustments are made yearly.
Defendant American sold unprocessed rayon yarn under the terms of this contract to both Malina and Gutner Brothers from 1949 through 1955 in large amounts totalling in value over $17,855,000 and $5,074,000, respectively. To the plaintiff Empire, American sold at list price without discount about $62,000 worth of unprocessed rayon yarn from 1953 through the first nine months of 1959. However, Empire during this same period bought from other manufacturers and resold in the original package unprocessed rayon yarn to a value of over $1,600,000.
Empire’s president repeatedly asked American for treatment equal to that given Malina and Gutner Brothers and in 1956 American responded by submitting for Empire’s approval a contract virtually identical to those accorded Malina and Gutner Brothers; but shortly thereafter American withdrew the offer. American’s general sales manager stated that its “officers * * * in the exercise of their own business judgment decided that the volume of yarn sold by the jobbing trade did not, and does not [as of January 1958] * * *, justify the appointment by American of more than three jobbers.” 3
Empire had made demands in 1953 on two other manufacturers of rayon yarn, American Enka Corporation and E. I. du Pont de Nemours, for similar discounts ; American Enka Corporation agreed in May or June 1958 (after Empire’s complaint was filed) to grant a five per cent (5%) discount “for all graded viscose rayon yarn,” but du Pont refused. During 1958 and the first nine months of 1959 Empire received about $32,000 in discounts on its purchase of yarn from American Enka Corporation.
Shortly after American’s refusal to grant Empire the same discounts provided for American’s “appointed Jobbers,” Empire brought suit against American, Malina, Gutner Brothers and Shawmut, Inc.,4 claiming violations of the Robinson-Patman Act, specifically Sections 2(a) (price-discrimination),5 2(c) (false brokerage),6 2(d) (discriminatory allowances),7 and 2(e) (discriminatory services),8 and seeking treble damages *186and injunctive relief under Sections 49 and 16 10 of the Clayton Act.
In 1958 a motion and a cross-motion for summary judgment were made. Both motions were denied by the district court because of the existence of challenged issues of fact. 160 F.Supp. 334 (S.D.N.Y. 1958).
After additional discovery and abandonment of the § 2(a) claim, the present motions and cross-motions for summary judgment were made in 1964.
The district court believed that, although the payments made to Malina and Gutner Brothers come within the scope of the statute as “a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof,” they escaped the statutory prohibition because they were made “for services rendered in connection with the sale or purchase of goods, wares, or merchandise.”11 The court said:
“In the instant case, viewing the jobber defendants as buyer, such services are rendered. They resell at American’s list price. Viewed another way, they bring buyer and seller together for a commission and the fact that they take title in the interim does not detract from the value of this service.” 238 F.Supp. 556, 560 (S.D.N.Y.1965).
Reselling at American’s list price is not a service rendered to American, but merely a condition of the buyer’s contract of purchase. If Malina and Gutner Brothers chose to resell at American’s list price they became entitled to a discount. Obviously the resale itself was not a service rendered to American. Quite as clearly the price charged for such resale was no more a service rendered than any other condition of the resale, such as the fact that the buyers were entitled to the discount only on unprocessed yarn.
There is no evidence whatsoever that Malina and Gutner Brothers brought “buyer and seller together.” They bought goods from American, kept on hand a stock of these goods, and sold them to the purchasers they found ready to buy. In reselling the goods which they bought from American they were no more acting as brokers than are retailers who buy goods from wholesalers and sell them to consumers. See Western Fruit Growers Sales Co. v. FTC, 322 F.2d 67, 68 (9th Cir. 1963), cert. denied, 376 U.S. 907, 84 S.Ct. 661, 11 L.Ed.2d 606 (1964); Southgate Brokerage Co. v. FTC, 150 F.2d 607, 609 (4th Cir. 1945). The- retailers do not bring the wholesalers and the consumers together.
The set-up of this industry is quite different from a genuine brokerage. A broker assumes no obligation and runs no risks. Malina and Gutner Brothers purchase the yarn from American. They are required by their contracts with American to maintain “a large inventory of * * * [American’s] yarn.” They must pay for the storage of their inventory until they have found buyers. If the yarn cannot be sold Malina may choose to process it rather than to pay out more for storage. It runs the risk of loss on the processed yarn. Gutner Brothers may find that they are selling yarn at a loss when they have held it for a long period of time, incurring large warehousing charges. If the yarn does not move promptly Malina and Gutner Brothers may have to seek to persuade American to lower the list price or American may do so of its own accord. In either event *187Malina and Gutner Brothers may suffer a loss on their inventoried yarn. Malina and Gutner Brothers assume the risk involved in extending credit to the firms to which they sell. That this may be considerable is indicated by the fact that “inadequate credit position” of the firms to which Malina and Gutner Brothers sell is one of the reasons given in the contracts between American and Malina and Gutner Brothers for instituting the method of distribution provided by the contracts. This list of differences between the functions of brokerage and the functions performed by Malina and Gutner Brothers need not be prolonged. It is quite clear that these two firms were not rendering ordinary broker’s services to their seller.
It is no answer to Empire’s complaint to say that American need not deal with Empire if it chooses not to do so. Whether or not this is true as a general proposition, it is quite clear in this case that American is excluding Empire from the market solely by means of a price differential which is effected by means of payments forbidden under Section 2(c). Empire can purchase all the yarn it wants from American and can sell it (except where it is fair-traded), for any price it can get. But in practice Empire cannot sell yarn at a competing price because of the discount granted to the other buyers and refused to Empire. The legislative purpose which led to the enactment of Section 2(c) was the elimination of payments which had that result. “Congress in its wisdom phrased § 2(c) broadly, not only to cover the other methods then in existence but all other means by which brokerage could be used to effect price discrimination.” FTC v. Henry Broch & Co., 363 U.S. 166, 169, 80 S.Ct. 1158, 1161, 4 L.Ed.2d 1124 (1960).
If, as we hold, the discounts granted to Malina and Gutner Brothers are not true brokerage because there is no brokerage relationship, objection may be made that the payments, since they are not called brokerage by the parties, do not come within the scope of Section 2(c) at all. But the impact of Section 2(c), as we read it, is on discounts which are granted in connection with sales brought about by the persons who receive the discounts. The prohibition of the statute is not confined to brokerage but extends also to commissions and, indeed, to “other compensation, or any allowance or discount in lieu thereof.” While the discount here involved is a discount from the price charged to the jobbers, it is payable only if and when they have sold the purchased yarn at a price set by American, and is therefore in an important sense incidental to such sale.
Discrimination in price, as such, is governed by Section 2(a). Where the price discrimination is effected by a discount which is related to a sale by the person receiving the discount (i. e. a commission or brokerage or other similar compensation), Section 2(c) is applicable.
A “functional discount” which is paid, like commissions and brokerage, in connection with such a sale, may be used to mask price discrimination in violation of the legislative purpose of Section 2(c).
“The ‘unqualified’ prohibition of Section 2(c), legislatively aimed at brokerage devices for the concealment of price discriminations, was designed to force these price differentials ‘into the open’ for measurement and adjudication under the price discrimination provisions.” Rowe, Price Discrimination Under the Robinson-Patman Act 331 (1962), citing FTC v. Simplicity Pattern Co., 360 U.S. 55, 68, 79 S.Ct. 1005, 3 L.Ed.2d 1079 (1959); Biddle Purchasing Co. v. FTC, 96 F.2d 687, 692 (2d Cir.), cert. denied, 305 U.S. 634, 59 S.Ct. 101, 83 L.Ed. 407 (1938); H.R.Rep. No. 2966, 84th Cong., 2d Sess. 97-98 (1956).
Therefore, the payments made to Malina and Gutner Brothers fall within both the language and the legislative intent of Section 2(c). It follows that they are prohibited by that Section.
We are cited to no authority supporting defendants’ claim that plaintiff’s complaint, because of plaintiff’s arrangement with American Enka, is barred by the doctrine of unclean hands, and we *188find none. Plaintiff’s authorities support its position that the doctrine is inapplicable in this kind of case. American Co-op. Serum Ass’n v. Anchor Serum Co., 153 F.2d 907, 912 (7th Cir.), cert. denied, 329 U.S. 721, 67 S.Ct. 57, 91 L.Ed. 125 (1946); O. & W. Thum Co. v. Dickinson, 245 F. 609, 622-623 (6th Cir. 1917), cert. denied, 246 U.S. 664, 38 S.Ct. 334, 62 L.Ed. 928 (1918); Revlon, Inc. v. Regal Pharmacy, Inc., 29 F.R.D. 169, 177 (E.D.Mich.1961).
In view of our determination that the payments in question violate Section 2 (c), there is no occasion for considering the allegations as to Sections 2(d) and 2(e). See Rowe, op. cit. supra, 337-338.
The order granting summary judgment for the defendants is reversed and the case is remanded with directions to ascertain plaintiff’s damages and to enter summary judgment for the plaintiff.

. Clayton Act §§ 2(e), (d), (e), 49 Stat. 1527 (1936), 15U.S.C. §§ 13(c), (d), (e) (1964), quoted in notes 6-8 infra.

. American also entered into a third contract with Shawmut, Inc. on December 30,1953.

. See note 2 supra.

. Empire dismissed its action as against Shawmut, Inc., without prejudice as to its action against the other defendants in 1963.

. 49 Stat. 1526 (1936), 15 TJ.S.C. § 13(a) (1964).

. “That it shall he unlawful for any person engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares, or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediary therein where such, intermediary is acting in fact for or in behalf, or is subject to the direct or indirect control, of any party to such transaction other than the person by whom such compensation is so granted or paid.” 49 Stat. 1527 (1936), 15 TJ.S.C. § 13(c) (1964).

. “That it shall be unlawful for any person engaged in commerce to pay or contract for the payment of anything of value to or for the beneft of a customer of such person in the course of such commerce as compensation or in consideration for any services or facilities furnished by or through such customer in connection with the processing, handling, sale, or offering for sale of any products or commodities manufactured, sold, or offered for sale by such person, unless such payment or consideration is available in proportionally equal terms to all other customers competing in the distribution of such products or commodities.” 49 Stat. 1527 (1936), 15 TJ.S.C. § 13(d) (1964).

. “That it shall be unlawful for any person to discriminate in favor of one' purchaser against another purchaser or purchasers of a commodity bought for resale, with or without processing, by contracting to furnish or furnishing, or by contributing to the furnishing of, any services or facilities connected with the processing, handling, sale, or offering for *186sale of such commodity so purchased upon terms not accorded to all purchasers on proportionally equal terms.” 49 Stat. 1527, 15 U.S.C. § 13(e) (1964).

. 38 Stat. 731 (1914), 15 U.S.C. § 15 (1964).

. 38 Stat. 737 (1914), 15 U.S.C. § 26 (1964).

. The district court’s opinion is confusing on this point, because at another place (in the discussion of Sections 2(d) and (e)) the court says: “American pays no money as compensation for services or facilities furnished by the jobber defendants. Empire’s * * * contention under § 2(d) that the discount represents a payment for services * * * is specious.” 238 F.Supp. at 560-561.