Asheville Tobacco Board of Trade, Inc. v. FTC

• Decision Date: 20 September 1961
• Docket Number: No. 8288.,8288.
• Citation: 294 F.2d 619
• 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

294 F.2d 619 (1961)

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

No. 8288.

United States Court of Appeals Fourth Circuit.

Argued June 19, 1961.

Decided September 20, 1961.

Harold F. Baker, Washington, D. C. (Richard L. Perry and Howrey, Simon, Baker & Murchison, Washington, D. C., on brief), for petitioners.

J. B. Truly, Attorney, Federal Trade Commission, Washington, D. C. (James McI. Henderson, General Counsel, and Alan B. Hobbes, Asst. General Counsel, Federal Trade Commission, Washington, D. C., on brief), for respondent.

Before SOPER, HAYNSWORTH and BOREMAN, Circuit Judges.

SOPER, Circuit Judge.

This petition for review of an order of the Federal Trade Commission brings before the court for the second time certain regulations or bylaws adopted by the Asheville Tobacco Board of Trade, Inc., to control the purchase and sale of tobacco on the tobacco market at Asheville, North Carolina. In our prior decision on January 20, 1959, Asheville Tobacco Board of Trade, Inc. v. Federal Trade Commission, 4 Cir., 263 F.2d 502, 506, we reviewed an order entered by the Commission on February 14, 1958, which directed the Board to cease and desist from carrying out in certain respects a plan for the regulation of the tobacco market in Asheville which the Board had devised. We held that there was substantial evidence to support the Commission's order in some respects, but remanded the case for further proceedings in respect to a provision of the order which seemed to us ambiguous and also in order that the Commission might give further consideration to certain questions discussed in our opinion. In response to the remand the Commission, after extensive consideration, entered an order on October 18, 1960, which is now before us for review.

As will appear from our former opinion, the regulations of the Board which gave rise to the first order of the Commission were passed in an effort to solve a problem caused by the activities of one C. T. Day, an independent buyer of tobacco and a member of the Board, who announced on January 14, 1954 that he intended to build a new warehouse in Asheville, containing 125,000 feet of floor space, much larger than any of the eleven existing warehouses in the city which had a total floor space of 475,182 sq. ft. Under the regulations of the Board then in existence selling time for the auctions conducted in the Asheville warehouses was allotted amongst them in proportion to their respective floor space; but the Board became apprehensive that a building war would take place in view of Day's announcement, which he actually carried out in 1954. "Consequently, (as we said in our opinion, 263 F.2d 502, 506) 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 bylaws. 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."

After this allocation of selling time, Day filed a suit against the Board in the State court of North Carolina to restrain the enforcement of the new regulations, but the suit was unsuccessful. See Day v. Asheville Board of Trade, 242 N.C. 136, 87 S.E.2d 18. He then lodged a complaint with the Federal Trade Commission and after a hearing the Commission issued its order of February 14, 1958, wherein it required the Board to cease and desist from using any plan which:

"1. Allots selling time to new entrant warehouses on the Asheville tobacco market on any basis or in any manner which fails to take into account and give reasonable credit for the full size and capacity of a new entrant;

"2. Limits the possible gain or loss in selling time allotted to any warehouse, under the performance system or any other system, for any one selling season to 3½%, or any other specific percentage, of the selling time so allotted to such warehouse for the preceding selling season; or "3. Has the purpose or effect of foreclosing or preventing any new entrant warehouse on the Asheville tobacco market, or any other warehouse doing business on that market, from competing therein on a fair and equal basis."

We reviewed this order upon petition of the Board in our earlier decision and reached the following conclusions.

(1) The Commission was clearly justified in condemning the modification of the performance system adopted by the Board whereby the gain or loss in selling time allotted to any warehouse for any one season was limited to 3½% of the selling time allotted to the warehouse for the preceding season.

(2) We pointed out that the Commission had not disapproved the performance system as opposed to the floor space system, and we showed that if a performance system is based on business done in the past some provision must be made when a new warehouse is built. We added that the provision made by the Board for a new warehouse might be a reasonable restraint of trade if combined with some reasonable gain or loss provision. We suggested that a performance system should be so planned that it would neither allow existing owners to prevent the erection of desirable new warehouses nor encourage overbuilding, and that in considering the reasonableness of such a regulation it would be proper to take into account the fact that free time acquired by a warehouse may furnish a new warehouse with a reasonable opportunity for expansion under the performance system.

(3) We pointed out that the Supreme Court of North Carolina, in its decision, had considered and approved the new warehouse provision and we suggested, while holding that this decision is not binding upon the Commission, that it should be considered in reaching a final conclusion.

(4) Finally, we showed that the first paragraph of the Commission's order, which held that any plan was invalid which allots selling time to a new warehouse on any basis which fails to take into account the full size of the warehouse, raised a doubt in our minds whether it required that credit be given for the full size of the new warehouse or that such size should be taken into account in determining the allotment of time. Accordingly, we remanded the case to the Commission for further proceedings in order that it might correct this ambiguity and give further consideration to the questions discussed in the opinion.

Upon the remand, the Commission gave consideration to our decision and filed an opinion and a tentative order with leave to the Board to object. Objections together with an offer of proof of subsequent developments on the Asheville tobacco market were filed, and thereupon the Commission reopened the proceeding and additional evidence was taken. Finally, on October 18, 1960, the Commission issued an opinion and a modified order wherein it ordered the Board to cease and desist from adopting any plan which:

1. Allots selling time to new entrant warehouses on the Asheville tobacco market on any basis or in any manner which fails to take into account and give reasonable credit for the size and capacity of a new entrant;

2. Limits the possible gain or loss in selling time allotted to any warehouse for any one selling season to 3½%, or any other unreasonably low percentage, of the selling time allotted to such warehouse for the preceding selling season, or in any other manner unreasonably limits the possible gain or loss in selling time allotted to any warehouse.

3. Has the purpose or effect of foreclosing or preventing any new entrant warehouse on the Asheville tobacco market, or any other warehouse doing business on that market, from competing therein on a fair and equal basis.

It will be observed that in its new order, the Commission removed the ambiguity from its prior order but maintained and reasserted its former position to the extent of (1) requiring that reasonable credit be given to the size and capacity of a new entrant; (2) prohibiting a gain or loss provision limiting any warehouse to 3½% or any other unreasonably low percentage of the allotment of selling time for the preceding season or in any other manner unreasonably limiting the possible gain or loss in selling time allotted to any warehouse; and (3) prohibiting restrictions which prevent a warehouse from competing on a fair and equal basis. The Commission eliminated its former prohibition against limiting the selling time to any specific percent of the selling time allotted for the preceding season and gave its approval to a reasonable limitation of gain or loss in this respect.

The Commission also ordered the Board to file with the Commission a report in writing within sixty days setting forth in detail the manner and form in which they had complied with the order.

The Board, in the pending proceeding for review,...