Anderson Foreign Motors v. NEW ENG. TOYOTA DISTRIB.

• Decision Date: 10 July 1980
• Docket Number: Civ. A. No. 76-417-Mc.
• Citation: 492 F. Supp. 1383
• Parties: ANDERSON FOREIGN MOTORS, INC., et al., Plaintiffs, v. NEW ENGLAND TOYOTA DISTRIBUTOR, INC., et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

492 F. Supp. 1383

ANDERSON FOREIGN MOTORS, INC., et al., Plaintiffs, v. NEW ENGLAND TOYOTA DISTRIBUTOR, INC., et al., Defendants.

Civ. A. No. 76-417-Mc.

United States District Court, D. Massachusetts.

July 10, 1980.

Donald B. Gould, Goodwin, Proctor & Hoar, Boston, Mass., for plaintiffs.

James D. St. Clair, Robert W. Mahoney, Hale & Dorr, Boston, Mass., for N. E. Toyota.

James F. McHugh, John J. Curtin, Jr., Bingham, Dana & Gould, Boston, Mass., for Toyota Motor Sales, U.S.A., Inc.

Allen Kezsbom, Steven Glickstein, Kaye, Scholer, Fierman, Hays & Handler, New York City, for New England Toyota.

MEMORANDUM AND ORDER

GARRITY, District Judge.

After extensive briefing, affidavits and legal arguments, this court entered, on August 29, 1979,¹ a memorandum of decision on plaintiffs' motion, pursuant to Fed.R. Civ.P. Rule 64, for approval of the attachment of certain real property and assets, and their motion pursuant to Fed.R.Civ.P. Rule 65, for a preliminary injunction to limit the disposition of certain stock and assets of the defendant corporation. Anderson Foreign Motors v. New England Toyota, D.Mass.1979, 475 F.Supp. 973. At that time we approved the proposed attachment and conditionally granted the motion for preliminary injunction. In a procedural order entered contemporaneously with our decision we directed that no preliminary injunction would issue until evidence of (or a stipulation as to) the fair market value of the defendants' stock was filed with the court. Plaintiffs thereafter perfected attachments of $1,000,000 each on real property owned by New England Toyota (NET), and on the residence of George Butler, president of NET and a defendant in this suit.

On December 7, 1979, plaintiffs moved for approval of an attachment of additional real property, and for an equitable attachment in the form of a preliminary injunction directed to additional assets held out-right and in trust by George Butler.² The procedural order referred to had not been implemented and a preliminary injunction had not yet issued.

In January 1980, new lead counsel entered their appearance on behalf of the defendants. Thereafter, in response to plaintiffs' December 1979 motions for additional relief, the defendants: (1) moved that the preliminary injunction granted by the August 29, 1979 decision not be entered; (2) moved that the attachment approved by the August 29, 1979 decision be vacated; and (3) opposed plaintiffs' motions to increase the amounts subject to attachment and preliminary injunction. As grounds for the motions to vacate our prior decision, defendants stated that their motions were based on issues of law and fact not previously presented to the court. When both parties' motions came on for hearing before Judge McNaught, he entered an order dated March 21, 1980, of which a self-explanatory copy is hereto attached as Appendix A. On March 27, 1980, defendants refiled their motions in this session and they were separately briefed.

At the commencement of our hearing on the various motions, plaintiffs filed notice that they were withdrawing their two motions seeking additional security, filed on December 7, 1979, and their motion for a Rule 65 preliminary injunction, which our August 29, 1979 decision had provisionally granted but which never was entered.³ This rendered moot certain aspects of the defendants' pending motions. Still other aspects of defendants' motions raised issues that the parties had fully argued and briefed when plaintiffs first moved for preliminary relief — issues specifically addressed in the court's August memorandum of decision. To the extent the defendants here renew old arguments, or raise legal theories that could fairly have been presented when the court considered these questions nearly one year ago, we will not undertake once more a full dress explanation of the court's position except with respect to the critical question of "the power of the court". We have, however, given fresh consideration to all grounds put forth by the defendants in their recent motions.

Delivered Pricing and the Robinson-Patman Act

Defendants challenge the soundness of our prior finding that plaintiffs are likely to succeed on the merits of their claim that NET's practices constitute an illegal tie-in. Their main argument, based on selective citations from case law on the Robinson-Patman Act, suggests that by ruling that NET's sales and delivery practices might violate the Sherman Act, we condemn all delivered pricing systems and we force the defendants to adopt pricing practices that violate the Robinson-Patman Act. In our view, this argument misconceives the law on delivered pricing and misapprehends the proper relation of the Sherman Act to the Robinson-Patman Act.

In a theoretical sense, delivered pricing, whether it takes the form of a basing point price, equalized freight, or a uniform delivered price, discriminates among purchasers of the delivered product. Buyers closest to the seller's plant pay more than the actual cost to the seller of transporting the product. Buyers furthest from the plant pay less than the actual cost — the seller and nearby buyers in effect absorb the excess cost of freight. See generally, Von Kalinowski, 9 Antitrust Laws and Trade Regulation, § 68.02. Generally, where one competing purchaser is favored over another, directly or indirectly, in the price of a product, the seller may be in violation of section 2(a) of the Robinson-Patman Act. 15 U.S.C. § 13(a). But where a uniform delivered pricing system makes the actual or final price the same for all buyers, at all points of delivery, then competing buyers pay the same "delivered" price, and it is the position of the Federal Trade Commission that the Robinson-Patman Act is not violated. Von Kalinowski, supra, § 68.024, n. 34; Federal Trade Comm'n v. A. E. Staley Mfg., 1945, 324 U.S. 746, 757, 65 S.Ct. 971, 976, 89 L.Ed. 1338.

From this proposition, that a uniform delivered pricing system does not violate section 2(a) of the Robinson-Patman Act, defendants have, in effect, derived two corollaries: (1) if delivered pricing is legal conduct for purposes of the Robinson-Patman Act, it must be legal for purposes of all other anti-trust laws; and (2) because delivered pricing (in its purest form) has been given FTC approval, sellers who deviate from a delivered pricing system do so at the peril of violating the Robinson-Patman Act.

To hold that certain business conduct is legal under the Robinson-Patman Act neither immunizes that conduct from Sherman Act scrutiny, nor makes such conduct, in every one of its manifestations, legal under the Robinson-Patman Act. For example, competing sellers who through collusion adopt delivered pricing systems in order to maintain uniform pricing in the industry violate both the Sherman Act and the Federal Trade Commission Act. Federal Trade Comm'n v. Cement Institute, 1948, 333 U.S. 683, 691, 720, 68 S.Ct. 793, 798, 799, 92 L.Ed. 1010; Chain Institute v. Federal Trade Comm'n, 8 Cir. 1957, 246 F.2d 231, 236-38. When delivered pricing takes the form of a basing point system that includes unearned or phantom freight, the resulting price differentials violate section 2(a) of the Robinson-Patman Act. Corn Products Co. v. Federal Trade Comm'n, 1945, 324 U.S. 726, 734, 65 S.Ct. 961, 965, 89 L.Ed. 1320; Federal Trade Comm'n v. A. E. Staley Mfg., 1945, 324 U.S. 746, 758, 65 S.Ct. 971, 976, 89 L.Ed. 1338. And where a seller deviates from an otherwise legal, uniform, and consistently applied delivered pricing schedule, in order to grant a favored customer a special freight allowance, that conduct is also actionable price discrimination.⁴Guyott v. Texaco Inc., D.Conn.1966, 261 F.Supp. 942, 949; American Can Co. v. Bruce's Juices, 5 Cir. 1951, 187 F.2d 919, cert. den. 342 U.S. 875, 72 S.Ct. 165, 96 L.Ed. 657; FTC Advisory Opinion No. 147, October 24, 1967, Statement of Clarification, December 26, 1973, 1973-1976 Transfer Binder, Trade Reg.Rep. (CCH) ¶ 20,498. Thus, even though delivered pricing, when properly applied, has received the tentative approval of the FTC, the fact that certain aspects of a firm's conduct are legal under one body of antitrust law does not make the sum of a firm's conduct immune from scrutiny according to other standards of competitive conduct contained in the antitrust laws. It is noteworthy that in the cases defendants cite for a line of authority on this question, the delivered pricing practices at issue in each case were held to violate one or more provisions of the antitrust laws.

It makes even less sense to argue that because uniform delivered pricing is legal under the Robinson-Patman Act defendants are required to engage in it. It is not the position of the FTC, as defendants state in their memorandum, that a seller violates the Robinson-Patman Act when it makes allowances based on actual freight cost, or when it offers a price based on f. o. b. shipping point. Rather, it is the position of the FTC that once the choice is made to offer uniform delivered price, the seller cannot depart from the established price schedule to grant freight allowances selectively to individual, favored purchasers.

Although the granting of "backhaul" allowances (based on the customer's actual freight costs) by a seller using a uniform zone delivered pricing could indeed raise Robinson-Patman questions, a non-discriminatory option offered by such a seller to all customers to purchase at a true f. o. b. shipping point price would not.

Clarification of Ruling, "Backhaul" Allowances, 1975, 85 F.T.C. 1176.⁵

NET had the choice of a number of alternative systems of delivery pricing. Its pre-1972 practice was to subcontract the transportation function and bill the dealers for the costs. NET could have selected among independent carriers chosen by the dealers themselves, or it could have selected the independent common carriers according to certain identifiable standards, thus allowing for...