Asheville Tobacco Board of Trade, Inc. v. FTC

• Decision Date: 20 January 1959
• Docket Number: No. 7678.,7678.
• Citation: 263 F.2d 502
• Parties: ASHEVILLE TOBACCO BOARD OF TRADE, INC., a corporation, et al., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Fourth Circuit

263 F.2d 502 (1959)

ASHEVILLE TOBACCO BOARD OF TRADE, INC., a corporation, et al., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.

No. 7678.

United States Court of Appeals Fourth Circuit.

Argued November 10, 1958.

Decided January 20, 1959.

COPYRIGHT MATERIAL OMITTED

Harold F. Baker, Washington, D. C. (Williams & Williams, Clinton, N. C., R. R. Williams, Asheville, N. C., Howrey & Simon, and Richard L. Perry, Washington, D. C., on the brief), for petitioners.

Malcolm B. Seawell, Atty. Gen. of North Carolina, for the State of North Carolina, amicus curiae.

J. B. Truly, Atty., Federal Trade Commission, Washington, D. C. (Earl W. Kintner, Gen. Counsel, James E. Corkey, Asst. Gen. Counsel, and Henry G. Pons, Atty., Federal Trade Commission, Washington, D. C., on the brief), for respondent.

Before SOPER, Circuit Judge, and THOMSEN and BOREMAN, District Judges.

THOMSEN, District Judge.

This petition to review a "cease and desist" order of the Federal Trade Commission raises two principal questions: (1) whether the case is within the jurisdiction of the Commission; and (2) whether there is substantial evidence in the record considered as a whole which supports the finding of the Commission that certain regulations adopted by petitioner Asheville Tobacco Board of Trade, Inc. (Board) unreasonably and unduly restrain trade in the purchase and sale of tobacco on the Asheville market and constitute unfair methods of competition and unfair acts or practices in commerce within the meaning of § 5 of the Federal Trade Commission Act, 15 U.S.C.A. § 45.

Tobacco, the principal agricultural commodity produced in North Carolina, is sold at auction through the facilities of tobacco warehouses by farmers to manufacturers of tobacco products and to independent buyers for shipment in interstate and foreign commerce. A tobacco market consists of a group of warehouses, which operate under public license. Burley tobacco of the North Carolina type is grown in eight states. There are three Burley tobacco auction markets in North Carolina, of which Asheville is by far the largest, and there are several such markets in eastern Tennessee. In 1954 about 11.5 million pounds of producers' tobacco were sold at Asheville, and in 1955 about 9.2 million pounds.¹

Various aspects of the production and marketing of tobacco are subject to state or federal regulation. N.C.Gen.Stat. § 106-465 authorizes local tobacco boards of trade to make reasonable rules and regulations for the economical and efficient handling of the sale of leaf tobacco at auction, but does not authorize the control of prices or the making of rules and regulations in restraint of trade. The boards adopt regulations governing the allotment of selling time to the warehouses on the market, and to new warehouses. The need for such allocation is well settled. Rogers v. Douglas Tobacco Board of Trade, 5 Cir., 244 F.2d 471; In the Matter of Wilson Tobacco Board of Trade, F.T.C.Dkt.No.6262, 1956-57, C.C. H.Trade Reg.Rep. paras. 25,808, 26,180.

Petitioner Board is a non-stock corporation organized in 1931. Membership is open to warehousemen and purchasers of leaf tobacco. The twelve auction warehouses in the market are members, entitled to one vote each. Purchasers may hold either participating or nonparticipating memberships; participating members are entitled to vote, but only warehousemen or their general managers are eligible for membership on the Board of Directors, which is the governing body of the Board.

By common consent the Burley Tobacco Association, a voluntary interstate organization, assigns selling time to the several Burley tobacco markets. The auction season at Asheville begins around December 1 and lasts about six weeks. The major tobacco companies added a second set of buyers to the Asheville market in 1953, making possible two simultaneous auctions. Thereafter the total selling time available was eight hours a day, four hours for each set of buyers. A rotation system is used, each warehouse received its allotted percentage of selling time each day. If a warehouse does not have enough tobacco on its floor to consume all of its allotted time, "free time" results and passes on until the sale reaches a warehouse which has enough tobacco on hand to use the free time on that day. A warehouse is said to be "blocked" when it has more tobacco on its floor than can be sold in its allotted time.

In 1953 the Asheville market had eleven warehouses, with a total of 475,182 square feet of floor space; four firms operated all of them. During the 1953 market season and for several years prior thereto, the Board, to the satisfaction of all members, had allotted selling time on the "floor space system", i. e. the percentage of the selling time allotted to each warehouse was in direct proportion to its floor space. However, members of the Board and their attorney had discussed possible amendments to its by-laws, including a change in the method of allotting sales time. They feared a building war like those which had taken place elsewhere under the floor space system. On January 2, 1954, some of the warehouse members entered into a written agreement to govern the allotment of selling time among the warehouses for the 1954 and succeeding seasons, provided no new warehouse was built. They also petitioned the Board to adopt a regulation which would give new warehouses during their first year selling time based on 50% of their floor space, increasing to 75% during the second year, and to 100% in subsequent years. The proposed regulation was adopted, but never went into effect.

On January 14, 1954, C. T. Day, an independent buyer of tobacco, who had been a member of the Board for many years, announced his intention of building a warehouse containing enough floor space to capture 25% of the total available selling time. Petitioner Walker took up Day's challenge, saying that every time Day drove a nail he would drive one too. During 1954 Day did build a new warehouse, which contained 125,000 square feet of floor space. Consequently, on October 2, 1954, the Board adopted new bylaws which (1) discarded the floor space system, (2) adopted a modified "performance system" for the allotment of selling time to existing warehouses, and (3) set up a "unit" system for the allocation of selling time upon the entry of a new warehouse. Under a pure performance system selling time is allotted to each warehouse in direct proportion to producers' sales in such warehouse during the year preceding the allotment. The Board, however, modified the performance system by a "gain or loss proviso": that the selling time allotted to any warehouse shall not vary more than 3½% from the selling time allotted to such warehouse for the preceding season. The "new warehouse proviso" adopted by the Board allots to a new warehouse a unit of selling time equal to the average of the selling times of all warehouses on the market, unless the new warehouse is smaller than the average, in which event its allotment is reduced.

After the meeting, the Board of Directors allotted selling time for the 1954 season in accordance with the new by-laws. Since Day's new warehouse raised to twelve the number on the market, it was allotted 8.33% of the selling time, i. e. one-twelfth of the total time available, although it contained 20.83% of the total selling space. The remainder of the time was divided among the other warehouses in accordance with their sales during the 1953 season.

Immediately after the allocation of his 1954 selling time, Day filed suit in the Superior Court of North Carolina for an injunction against enforcement of the new regulations. In November, 1954, that court denied the injunction after conducting a hearing and making findings of fact. Day appealed to the Supreme Court of North Carolina, which affirmed the judgment below, stating that "the rule by which the allotment was made to plaintiff by the Board appears fair and equitable. Indeed, it does not appear that there is any restraint of trade in the rule." Day v. Asheville Tobacco Board of Trade, 242 N.C. 136, 144, 87 S.E.2d 18, 24. During the 1954 season, despite the fact that Day's warehouse was blocked more often and for longer periods than any other warehouse, he succeeded in selling 20.19% of all producers' tobacco sold on the Asheville market. He was able to sell more tobacco than could be sold in his allotted selling time because of free time accruing to him on days when the other warehouses had sold all the tobacco they had on hand before their allotted time expired. The gain or loss proviso, however, limited any possible increase in Day's 1955 allotment to 3½% of the 8.33% allotted to him in 1954, so his allotment for the 1955 season was only 8.64% of the total selling time. Nevertheless, he sold 21.4% of the total tonnage in the 1955 season and over 27% in the 1956 season.

After the decision of the Supreme Court of North Carolina in Day v. Asheville Tobacco Board of Trade, Day lodged a complaint with the Federal Trade Commission. Hearings were held before an examiner. In his initial decision the examiner found that the acts and practices complained of "have had and now have a tendency and capacity to, and do, unreasonably and unduly restrain trade in the Asheville tobacco market in the purchase, sale and distribution of tobacco in commerce, and constitute unfair methods of competition and unfair acts and practices in commerce within the intent and meaning of § 5 of the Federal Trade Commission Act", and issued an order to cease and desist. On appeal the Commission modified one paragraph in that decision, restricting its scope; otherwise, the Commission adopted the hearing examiner's decision.

The Commission's order requires petitioners, in connection with the movement of tobacco in interstate commerce, to cease and desist from "devising, adopting, using, adhering to, maintaining or cooperating in the carrying out of any plan, system,...