American Distilling Co. v. Wisconsin Liquor Co.

• Decision Date: 06 June 1939
• Docket Number: No. 6698.,6698.
• Parties: AMERICAN DISTILLING CO. v. WISCONSIN LIQUOR CO.
• Court: U.S. Court of Appeals — Seventh Circuit

104 F.2d 582 (1939)

AMERICAN DISTILLING CO. v. WISCONSIN LIQUOR CO.

No. 6698.

Circuit Court of Appeals, Seventh Circuit.

April 15, 1939.

Rehearing Denied June 6, 1939.

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George I. Haight and John Wm. Chapman, both of Chicago, Ill., and John A. Kluwin and Gerald P. Hayes, both of Milwaukee, Wis., for appellant.

William B. Rubin and Matthew R. Derzon, both of Milwaukee, Wis., for appellee.

Before EVANS, SPARKS, and TREANOR, Circuit Judges.

TREANOR, Circuit Judge.

Plaintiff prosecutes this appeal from a judgment for the defendant which was entered upon a verdict directed by the District Court at the close of all the evidence. The plaintiff, a Maryland Corporation, is engaged in the business of producing and selling liquor products, and the defendant, a Wisconsin Corporation, is a wholesaler of liquor products. Plaintiff sold liquor products to the defendant between October, 1935, and August 15, 1936, and the suit below was an action at law for goods sold and delivered. The ground for the directed verdict was the court's holding that plaintiff had violated Section 5 of the Federal Alcohol Administration Act¹ and that such violation rendered the contract of sale and purchase illegal and unenforcible.

The Alcohol Administration Act sets up an administrative commission and provides a system of regulation for interstate and foreign commerce in alcoholic beverages. Section 205, 27 U.S.C.A. which is directly involved in this case, is in effect a code for regulation of trade practices and declares certain conduct to be unlawful. Subsection (c) of Section 205, 27 U. S.C.A. seeks to eliminate from interstate and foreign commerce the use of certain unfair trade practices which have for their purpose interference with competition in such commerce.

Section 205(c), 27 U.S.C.A. makes it unlawful for any person engaged in business as a distiller, brewer, etc., either (1) by commercial bribery, or (2) by offering or giving a bonus, premium, or compensation to any officer, or employee, or representative of the trade buyer,

(a) to induce the trade buyer to purchase from the seller to the exclusion in whole or in part of the products of another seller in commerce; or

(b) to employ such means to such an extent as substantially to restrain or prevent transactions in interstate or foreign commerce in such products; or

(c) to use such means of inducement if the direct effect is to prevent, deter, hinder, or restrict another person from selling or offering for sale any such products to such trade buyer.

The evidentiary facts relied upon for the finding that plaintiff violated Section 205 are as follows:

1. Plaintiff gave the defendant one case of goods for each ten cases purchased by defendant.

2. A salesman for plaintiff gave one salesman of defendant a traveling bag, and to another salesman of defendant a shirt, a $5 bill, and, on another occasion, a $5 or $10 bill. The reason for such gifts was to induce defendant's salesmen to make a strong effort to sell goods which plaintiff had delivered to defendant under the contract of sale. The salesmen of defendant in their line of duty sold on behalf of defendant the goods which defendant purchased from plaintiff and other distillers.

3. The manager of the Chicago division of plaintiff company paid $1.35 for a parlor car seat for the Vice President of defendant company on a train trip from Chicago to Milwaukee.

In support of its contention that the trial court erred in directing a verdict for defendant the plaintiff urges, first, that its conduct and that of its salesmen did not constitute a violation of the Federal Alcohol Administration Act, 27 U.S.C.A. § 201 et seq., and second, that such conduct, even if in violation of the Act, would not vitiate the contract of purchase and sale.

Section 205(c), 27 U.S.C.A. denounces two practices, (1) commercial bribery, and (2) the offering or giving of any bonus, premium or compensation to any officer, or employee, or representative of the trade buyer. The act does not define "commercial bribery" and its intended meaning must be sought in its normal meaning and usage. The most instructive usage is found in the work of the Federal Trade Commission. The Commission has applied the term "commercial bribery" to the practice of sellers of secretly paying money or making gifts to employees or agents to induce them to promote purchases by their own employers from the sellers offering the secret inducements. The vice of conduct labeled "commercial bribery," as related to unfair trade practices, is the advantage which one competitor secures over his fellow competitors by his secret and corrupt dealing with employees or agents of prospective purchasers.²

In view of the general acceptance of the Federal Trade Commission's definition of "commercial bribery," and because of the further fact that such definition expresses its normal meaning, we conclude that Congress intended the term to have that meaning in 5(c) of the Alcohol Administration Act, 27 U.S.C.A. § 205(c). But we do not think that the conduct of plaintiff comes within the foregoing definition. The gift of the case of goods was made directly to the employer and is in substance a trade discount. None of the gifts was made secretly to an officer or employee or representative of the trade buyer for the purpose of inducing the donee to promote directly purchases by his employer, which is the characteristic vice of commercial bribery.

While we hold that no act of the plaintiff constitutes "commercial bribery" we cannot say that the giving of the various gifts was not a giving of a "bonus, premium, or compensation." Plaintiff characterizes the giving of the gifts as acts of everyday courtesies and says they are not the "dishonest payments which the framers of the Act intended to prohibit." The magnitude of a gift is not material in determining whether it is a "bonus, premium or compensation" and it is not necessary that the offering or giving be tainted by corruption or dishonesty. As stated above we assume that Congress intended to attribute to "commercial bribery" the meaning which had been given it in connection with unfair trade practices and which included the secret corrupting of employees and agents of buyers. But when Congress adds to the practice of "commercial bribery" the "offering or giving any bonus, premium, or compensation" we see no justification for our imposing qualifying adjectives, and especially so since the qualification suggested is covered in "commercial bribery." The offering or giving of a bonus, premium or compensation is broader than commercial bribery and need not be for the purpose of directly influencing a buyer to purchase from the seller. It would include a case in which a seller influences an officer or employee of a buyer to push sales of the seller's goods to the exclusion of goods of competitors and thereby indirectly induces the buyer to buy from the seller. It is significant that the section makes it unlawful for a seller "directly or indirectly" by commercial bribery or by offering or giving of any bonus, premium or compensation to induce any buyer to buy to the exclusion of the goods of competitors, etc.

But assuming that there was an offering or giving of a bonus, premium or compensation within the meaning of Section 205(c), such conduct was not unlawful unless the trade buyer was induced to buy plaintiff's goods to the exclusion in commerce of goods of other sellers or unless the practice was continued to such extent that substantial interference with commerce in trade products resulted, or unless "the direct effect of such inducement is to prevent, deter, hinder, or restrict other persons from selling or offering for sale any such products to such trade buyer in interstate or foreign commerce."

Plaintiff insists that the evidence does not establish even one of the foregoing essential facts, but we shall not attempt to determine that factual question since we are of the opinion that a violation of Section 205 by plaintiff is not a defense to plaintiff's claim for the price of the goods sold to defendant.

The right to sell goods in interstate commerce is not conditioned upon the vendor's not engaging in any of the acts condemned in Section 205(c), and no provision of the Federal Alcohol Administration Act purports to make contracts for sale and purchase of goods unlawful or illegal in case the vendor engages in any of the practices which are declared to be unlawful in Section 205. Other sections carry necessary implications of invalidity of contracts for sales made without compliance with the section. Section 203, 27 U. S.C.A. is entitled "Unlawful businesses without permit"; and provides that "it shall be unlawful, except pursuant to a basic permit issued * * * to engage in the business" etc., and for "any person to sell * * *."

Section 206, 27 U.S.C.A., relates to bulk sales and provides that "It shall be unlawful for any person * * * to sell or offer to sell, contract to sell, or otherwise dispose * * *" without conforming to the provisions of the section. In contrast to the foregoing provisions the language of Section 205 declares certain acts to be unlawful but there is no declaration that such acts affect the lawfulness of selling or contracting to sell. Commercial bribery, or the offering or giving of a bonus, etc., under the conditions named, is declared unlawful; but it is only the conduct which is declared unlawful. The suggestive difference in expression is made obvious by rewording 205(c) to read: "Any sale of, or contract to sell distilled spirits which is influenced by commercial bribery shall be unlawful." The distinction is that in Sections 203 and 206 the selling or the contracting to sell is declared unlawful and in Section 205 only certain means of competing for sales are declared unlawful.

The Sherman Anti-Trust Act, 15 U.S. C.A. §§ 1-7, 15 note, renders certain conduct affecting interstate...