EB Muller & Co. v. Federal Trade Commission

• Decision Date: 13 April 1944
• Docket Number: No. 9046.,9046.
• Parties: E. B. MULLER & CO. et al. v. FEDERAL TRADE COMMISSION.
• Court: U.S. Court of Appeals — Sixth Circuit

142 F.2d 511 (1944)

E. B. MULLER & CO. et al. v. FEDERAL TRADE COMMISSION.

No. 9046.

Circuit Court of Appeals, Sixth Circuit.

April 13, 1944.

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Hal H. Smith, of Detroit, Mich. (F. E. Robson, Joseph A. Vance, Jr., Frank E. Cooper and Beaumont, Smith & Harris, all of Detroit, Mich., on the brief), for petitioners.

Joseph J. Smith, Jr., of Washington, D. C. (W. T. Kelley, of Washington, D.C., on the brief), for respondent.

Before HICKS, ALLEN, and HAMILTON, Circuit Judges.

ALLEN, Circuit Judge.

Petitioners, E. B. Muller & Company and Heinr. Franck Sons, Inc. (hereinafter called Muller and Franck respectively), manufacturers and sellers of granulated chicory, were charged by the Federal Trade Commission with engaging in unfair methods of competition in commerce, in violation of the Federal Trade Commission Act, Title 15 U.S.C. § 41 et seq., 15 U.S. C.A., § 41 et seq., and with unlawful discrimination in price, in violation of the Clayton Act, as amended by the Robinson-Patman Act, Title 15 U.S.C. § 12 et seq., 15 U.S.C.A. § 12 et seq. Hearings were held in 1937 and 1939, and at intervals until August 2, 1940. The Commission found the petitioners' practices were unlawful in the respects charged and entered a cease and desist order, from which this petition to review is prosecuted. Petitioners contend that the findings are not supported by substantial evidence; that the order is not authorized by the statutes, and that they were denied a full and fair hearing before the Commission.

The petitioners have been engaged in business in the United States since 1902 and 1895 respectively. During the period up to 1926 they manufactured and sold the greater part of all the domestic granulated chicory marketed in the United States. At the present time there are no manufacturers or sellers of granulated chicory in this country except the petitioners and R. E. Schanzer, Inc., of New Orleans, Louisiana (hereinafter called Schanzer), so that Schanzer is petitioners' only competitor.

The root of chicory, dried, roasted and granulated, is mixed with coffee either as a blend or a "filler." In the United States chicory is grown only in Michigan where the petitioners and Schanzer, under contract with various farmers, grow chicory for their own use in the trade and process it in their individual factories. Of late years there has been no substantial importation of foreign chicory into the United States.

Seventy-five per cent of all domestic chicory sold in the United States is consumed in the New Orleans trade area, comprising Florida, Alabama, Mississippi, Louisiana, Texas and Tennessee. Muller sells about forty per cent of its product and Franck about seventy-five per cent of its product in the southern territory. In the South chicory is used as a blend, and at times it is sold at a higher price than coffee, but outside of the South the roasters use it simply as a filler in order to lower the cost of pure coffee.

The Commission found that the petitioners do not compete with each other, but that the business of each is supplementary to that of the other, and in substance that they constitute a single enterprise, directed and controlled by David McMorran, Franck's president. This finding is supported by an abundance of evidence. David McMorran owns all of Franck's outstanding common stock, and all of the stock of the Michigan Debenture Corporation, which owns 4,400 of Franck's outstanding 5430 shares of preferred stock. David McMorran's wife, Charlotte H. McMorran, holds the legal title to five-sixths of the 30,000 outstanding shares of capital stock in Muller. The officers of Muller are Gordon McMorran, president, Charlotte H. McMorran, secretary-treasurer, and Charlotte C. McMorran, vice-president. Gordon McMorran and Charlotte C. McMorran are son and daughter of David McMorran and Charlotte H. McMorran. While prior to 1919 these two businesses were owned by different individuals and probably competed with each other, in that year the situation changed. David McMorran, who was then an officer of Muller and together with his father owned a controlling interest therein, purchased the stock of Franck at public auction from the United States Alien Property Custodian. The sale was made after a hearing by the Federal Trade Commission, upon condition imposed that David McMorran resign as officer and director of Muller and dispose of his stock in that company. David McMorran sold his Muller stock to his father, to his attorney, and to a personal friend. In the period between 1919 and 1924 all of the Muller stock disposed of by David McMorran, together with the stock previously owned by David McMorran's father, was acquired by Charlotte H. McMorran, with funds furnished by David McMorran. It was understood that the stock was to be placed in trust for David McMorran and Charlotte H. McMorran for life, and that the trust could be terminated either by the beneficiaries jointly or the survivor of them. This trust was thereafter established with the Detroit Trust Company.

The circumstance that the trust was set aside by a decree of the Michigan state court in 1939 does not overcome the evidence of close relationship between the corporations, arising from Charlotte H. McMorran's ownership of the controlling interest in Muller, which was purchased with David McMorran's funds. The record clearly shows that Charlotte H. McMorran takes little active part in the business, and that David McMorran dominates both companies. Muller furnishes David McMorran with an office and stenographic help at its principal place of business in Port Huron, Michigan, for which it receives no compensation. David McMorran is usually present at Muller's stockholders and directors' meetings and actively participates in the discussion and shaping of Muller's general business policies. He has permissive access to Muller's files at Port Huron.

The companies are so operated that they assist and benefit each other in their business. In 1920 Muller made an arrangement to supply the Michigan Debenture Company, whose stock was wholly owned by David McMorran, with $440,000, so that the Debenture Company could purchase from Franck $440,000 of its preferred stock. The arrangement was carried through contemporaneously and Muller was thus shown to be one of the principal factors in furnishing Franck with $440,000 of working capital. A practical division of business has been set up between Muller and Franck under which the latter concentrates upon packaged goods, retaining only a small number of old customers of bulk goods, while Muller manufactures very few packaged goods and confines itself mainly to the sale of chicory in bulk. A similar practical division of territory is made between Muller and Franck. Franck operates principally in New Orleans, New York, San Francisco and Los Angeles, selling through brokers. Muller uses traveling salesmen and covers the entire country. The South in general is covered by Muller, with the exception of New Orleans, Atlanta and Memphis, where Franck retains some old customers. Schanzer's sales are in general confined to the southern states.

A noncompetitive relationship has existed between Muller and Franck for over twenty years. Since 1921 Van Slambrouck, Muller's vice-president and production manager, has been in the habit of consulting with David McMorran as to Muller's business. These consultations were more frequent up to 1929, when Gordon McMorran became president of Muller, and specifically included the subject of prices to be instituted by Muller. Petitioners contend that the close relationship ceased in 1929, but the record does not sustain this contention. In 1930 David McMorran instructed Beitter, Franck's manager, to consult with Muller's sales manager "before making the change" in prices. In 1932 Van Slambrouck wrote to Eisinger, Muller's sales manager in New York, suggesting that Eisinger go to New Orleans and talk with one of Muller's important customers, and said, "before doing so it might be well for you to write D. David McMorran and frankly ask him what you are authorized to do in the matter of further price concessions in New Orleans proper and out of town to combat the Schanzer competition." Letters written in 1934 by both the sales manager and the president of Muller contain statements to the effect that Muller does not desire any of Franck's business. When Maxwell House, which had been a customer of Franck from 1930 to 1934, began to do business with Schanzer in 1934, Muller competed for the account, and Franck dropped any attempt to retain it.

Petitioners concede that the ownership is such as might give David McMorran and his family control of both corporations. They do not contend that the evidence summarized and much other evidence referred to in the findings was not presented before the Commission, but state that certain contradictory evidence presented by petitioners requires a contrary conclusion. However, the findings of the Commission on issues of fact are controlling here, "So long as there is warrant in the record for the judgment of the expert body. * * *" Rochester Tel. Corp. v. United States, 307 U.S. 125, 145, 59 S.Ct. 754, 764, 83 L.Ed. 1147. The evidence presented fully warranted the finding of unitary domination and control. Consequently petitioners' contention that the order of the Commission is unauthorized in that it orders "both petitioners" to cease disparagement of Schanzer's product, and to cease misrepresentations as to the color of their granulated chicory, being based upon the premise that no unitary control exists, has no merit and will not be further considered.

The finding that Muller obtained substantially lower freight rates than those properly applicable, falsely and fraudulently representing to the railroads that certain of its cars, which contained large quantities of chicory and similar quantities of coffee substitutes,...