Abadir & Co. v. First Mississippi Corp.

• Decision Date: 24 July 1981
• Docket Number: No. 80-3403,80-3403
• Citation: 651 F.2d 422
• Parties: 1981-2 Trade Cases 64,180 ABADIR & COMPANY and Bush Y. Abadir, d/b/a Abadir & Company, Plaintiffs-Appellees, Cross-Appellants, v. FIRST MISSISSIPPI CORPORATION, Defendant-Appellant, Cross-Appellee. . Unit A
• Court: U.S. Court of Appeals — Fifth Circuit

Page 422

651 F.2d 422

1981-2 Trade Cases 64,180

ABADIR & COMPANY and Bush Y. Abadir, d/b/a Abadir & Company Plaintiffs-Appellees, Cross-Appellants, v. FIRST MISSISSIPPI CORPORATION, Defendant-Appellant, Cross-Appellee.

No. 80-3403.

United States Court of Appeals, Fifth Circuit.

Unit A

July 24, 1981.

Butler, Snow, O'Mara, Stevens & Cannada, Alan W. Perry, Lawrence J. Franck, Jackson, Miss., Robert H. Bork, New Haven, Conn., for defendant-appellant, cross-appellee.

Thomas, Price, Alston, Jones & Davis, Charles R. Davis, Kenneth A. Rutherford, Jackson, Miss., for plaintiffs-appellees, cross-appellants.

Appeals from the United States District Court for the Southern District of Mississippi.

Before CHARLES CLARK and RANDALL, Circuit Judges, and SHARP, ^* District Judge.

SHARP, District Judge:

Defendant-appellant, First Mississippi Corporation (First Mississippi), appeals from a judgment that First Mississippi violated Section 1 of the Sherman Anti-Trust Act (15 U.S.C. § 1). The issues on appeal are (1) whether there was insufficient evidence for the jury to find that First Mississippi had entered into a market-distributing agreement with Plaintiffs-Appellees, Abadir & Company and Bush Y. Abadir (collectively referred to herein as "Abadir"), and (2) whether the District Court erred in applying the horizontal market-distribution per se antitrust test that market-distributing agreement between First Mississippi and Abadir.

In the Complaint, Abadir alleged (1) that First Mississippi had breached a contract to sell 15,000 tons of urea to Abadir, and (2) that First Mississippi had violated Section 1 of the Sherman Act by limiting the geographical area in which, or the customers to whom, Abadir could resell the urea. The case was tried before a jury. Answering written questions, the jury found that First Mississippi had breached its contract with Abadir by failing to deliver the urea. First Mississippi does not appeal that portion of the judgment relating to the contract claim.

The District Court ruled that if First Mississippi had imposed any market-distributing agreement on Abadir, then First Mississippi had committed a per se violation of the antitrust laws. The jury found that First Mississippi had imposed such a restriction and that Abadir and acquiesced therein. The issues involved in this appeal grow out of this determination that First Mississippi committed a per se violation of the antitrust laws.

I

Abadir & Company is a corporation owned by Dr. Bush Y. Abadir. In 1972, Dr. Abadir commenced business as an independent trader, dealing in various commodities including chemicals, fertilizers, and industrial chemicals. A trader buys and sells products for its own account or acts as a broker on behalf of other companies buying and selling products needed by the client. Typically, a trader has no warehouse facilities, distributor or retail outlets, and does not purchase with the intent of taking physical possession of the product. Abadir had no manufacturing, storage, or transportation facilities for urea or any other fertilizer or chemicals.

First Mississippi is a publicly held corporation listed on the New York Stock Exchange. First Mississippi's primary business is the production and sale of fertilizer and chemicals, including urea. In 1973, the time of the transaction in question, First Mississippi's primary source of urea was Triad Chemicals, a joint venture of First Mississippi and Mississippi Chemical Corporation. Mississippi Chemical was a cooperative in which First Mississippi owned a minor interest. First Mississippi and Mississippi Chemical were each responsible for fifty percent of the costs of Triad's operation and were each entitled to withdraw fifty percent of Triad's production. As a stockholder of Mississippi Chemical, First Mississippi had rights to purchase some smaller quantities of urea from Mississippi Chemical. Thus, First Mississippi acquired slightly more than fifty percent of the urea produced by Triad.

Urea is an inorganic chemical compound containing approximately forty-five percent nitrogen, and is used worldwide for fertilizer and for various industrial purposes. Urea is manufactured to specifications, and is sufficiently homogeneous to be fungible in most applications. The estimated annual worldwide production capacity of urea in 1973 was 30 million tons. United States capacity was 4.5 million tons. First Mississippi's share of the Triad production was approximately 220,000 tons in 1973, approximately 0.74% of world production and 5% of United States production. In 1973, First Mississippi also purchased from Transnitro, another manufacturer, 48,000 tons of urea, which was delivered to First Mississippi at the rate of $4,000 tons per month. First Mississippi presented evidence showing that the reason for this purchase was to cover anticipated production shortages at the Triad plant. First Mississippi's only other transaction in urea was a 15,000 ton exchange with another urea supplier, an exchange, common in the urea market, made for mutual convenience in meeting delivery contracts.

At the relevant time, First Mississippi distributed its products primarily through its own employees. But First Mississippi also used brokers to reach certain customers and to develop new markets.

In March of 1973, First Mississippi agreed to sell Abadir 15,000 tons of urea at $75.00 per ton. First Mississippi's position in the court below was that Abadir had specifically represented to First Mississippi at the time of the agreement that the urea would be sold only to a principal in Asia, and that the representation was a material part of the contract. The jury found that the contract did not contain any provision requiring that Abadir resell only to such a purchaser. First Mississippi does not challenge the sufficiency of the evidence to support this finding of fact.

At about the same time that Abadir entered into the contract with First Mississippi, Abadir agreed to sell 10,000 tons of urea to Sumitomo Shoji America, Inc. Sumitomo agreed to sell the 10,000 tons of urea to International Commodities Export, Inc., which agreed to sell the urea to Cities Service Export, Inc. At the end of the chain, Cities Services agreed to sell the urea to Transamonia Export Corporation.

The jury found that at some point between the time First Mississippi agreed to sell the urea to Abadir and the time that the urea was to be delivered, First Mississippi imposed on Abadir, and Abadir acquiesced in, an agreement that Abadir could only resell the urea for consumption in Asia. First Mississippi learned from Transamonia that Abadir had resold the urea without that limitation. First Mississippi refused to deliver any of the 15,000 tons of urea. In August of 1973, First Mississippi sold 15,000 tons of urea directly to Transamonia. The parties stipulated that Abadir was damaged in the amount of $57,500.

II

In order to recover damages for a violation of Section 1 of the Sherman Act, a plaintiff must prove (1) the existence of an agreement (2) which unreasonably restrains trade (3) to the damage of the plaintiff.

First Mississippi first challenges the sufficiency of the evidence to support the jury's determination that there was a market-dividing agreement between First Mississippi and Abadir. On re-direct and re-cross examination, Dr. Abadir insisted that he had acquiesced in First Mississippi's requirement that he only resell the urea for consumption in Asia. (See transcript of trial at pages 275 and 280-85) That testimony was sufficient for the jury to find that there was a market-dividing agreement between First Mississippi and Abadir.

III

First Mississippi's primary argument is that any market-distributing agreement between First Mississippi and Abadir is vertical, in spite of First Mississippi's practice of distributing urea, in competition with its distributors, including traders like Abadir.

This issue is virtually controlled by Red Diamond Supply, Inc. v. Liquid Carbonic Corp., 637 F.2d 1001 (5th Cir. 1981). ¹ In that case, Red Diamond had argued that a market-dividing agreement between Liquid Carbonic and Liquid Carbonic's distributors was a horizontal agreement because Liquid Carbonic also distributed some of its own goods. As Judge Gee wrote in that case Since the allegation here is that Liquid imposed an agreement upon its distributors to abide by territorial and customer restrictions, that agreement is a vertical one, and the restrictions imposed are vertical restrictions.

That Liquid also distributed some of its own goods does not alter the situation. (Citations omitted.) When a producer elects to market its goods through distributors, the latter are not, in an economic sense, competitors of the producer even though the producer also markets some of its goods itself; rather, the distributors are "agents" of the producer, employed because the producer has determined that it can supply its goods to consumers more efficiently by using distributors than it can by marketing them entirely by itself. (Citation omitted.) While it is possible that a nominally vertical arrangement may in fact be a horizontal one in disguise, (Citations omitted.) such is not the case here.

637 F.2d at 1004-05.

As Judge Gee noted, this holding is supported by the Supreme Court's decision in Continental T. V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977). In Sylvania, the Supreme Court expressly reversed United States v. Arnold, Schwinn & Co., 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249 (1967). In Schwinn, the Supreme Court held that vertical territorial agreements were per se antitrust violations. The Supreme Court expressly reversed Schwinn even though Schwinn could have been distinguished on the grounds that Arnold, Schwinn & Co. also competed with its distributors by selling some of its bicycles directly to retailers. ²

IV

This case can be distinguished from Red Diamond because...