Fortner Enterprises, Inc. v. United States Steel Corp., 4392.

• Decision Date: 07 September 1966
• Docket Number: No. 4392.,4392.
• Citation: 293 F. Supp. 762
• Court: U.S. District Court — Western District of Kentucky
• Parties: FORTNER ENTERPRISES, INC., Plaintiff, v. UNITED STATES STEEL CORPORATION and U. S. Steel Homes Credit Corporation, Defendants.

293 F. Supp. 762

FORTNER ENTERPRISES, INC., Plaintiff, v. UNITED STATES STEEL CORPORATION and U. S. Steel Homes Credit Corporation, Defendants.

No. 4392.

United States District Court W. D. Kentucky, Louisville Division.

September 7, 1966.

Kenneth L. Anderson, A. Scott Hamilton, Jr., Louisville, Ky., for plaintiff.

Albert F. Reutlinger, Louisville, Ky., for defendants.

MEMORANDUM OPINION

JUDGMENT DISMISSING COMPLAINT AND AMENDED COMPLAINT

JAMES F. GORDON, District Judge.

Preliminary Statement

This is a civil anti-trust action brought under the Clayton Act, §§ 4 and 16, 38 Stat. 731, 737, 15 U.S.C. §§ 14 and 26, for alleged violation by the defendants of Sections 1 and 2 of the Sherman Act, 26 Stat. 209, 15 U.S.C. §§ 1 and 2. Although the complaint states that the action is instituted under 15 U.S.C. § 14, which is Section 3 of the Clayton Act, plaintiff now asserts that this was a typographical error. For the purpose of deciding the motion before the Court, this representation of the plaintiff has no bearing however in view of the court's opinion as set forth below.

The case is before the Court upon a motion for summary judgment for defendants, pursuant to Rule 56 of the Federal Rules of Civil Procedure and involves the legality of a provision in two loan agreements between the plaintiff, Fortner Enterprises, Inc. and U. S. Steel Homes Credit Corporation (sometimes hereinafter Credit Corporation), requiring plaintiff to erect a prefabricated dwelling house manufactured by United States Steel Homes Division (sometimes hereinafter Homes Division) of United States Steel Corporation (sometimes hereinafter Steel Corporation) on each of 219 lots in Jefferson County, Kentucky, with respect to which Credit Corporation agreed to loan money to plaintiff to assist in the acquisition and development of the property and the construction of dwellings. The first loan agreement, dated October 28, 1960, involved 187 lots, and was the subject of the plaintiff's original complaint, filed July 19, 1962. The second loan agreement, dated August 2, 1961, involved 32 lots, and was included within plaintiff's amended complaint, filed January 21, 1966.

Statement of the Case

Plaintiff, in the early part of 1960 was a dormant corporation with a substantial (over $16,000) deficit. It was owned entirely by A. B. Fortner, Jr., of Louisville, Kentucky, with the possible exception of one share of common stock held by Mr. Fortner's wife. Until October 27, 1960, it was not authorized to engage in the building or real estate business. The defendant United States Steel Corporation had its manufacturing plant in New Albany, Indiana across the Ohio River from Louisville, Kentucky, There its Homes Division manufactured component parts for prefabricated dwelling houses. These component parts of prefabricated dwelling houses, sometimes called "home packages", are sold by the defendant Steel Corporation generally throughout the United States east of the Mississippi River and in a tier of states just west of that river. The defendant Credit Corporation is a wholly owned subsidiary of the other defendant Steel Corporation. Its sole business function is to furnish financial assistance to customers or dealers of the parent corporation's Homes Division, in instances in which they apply for such assistance and seem to be unable to obtain the same sort of assistance on reasonable terms from normal sources. The underlying purpose of the Credit Corporation's function is to enable its parent, in the sale of home packages, to compete with other building material manufacturers, sellers, lumber yards, brick factories and other prefabricated house manufacturers, who provide similar assistance to their customers.

With this background of the general situation, the court now turns to the precise point in issue which is whether the defendants, parent and subsidiary, allegedly "conspired to establish an unlawful tying agreement between the defendant Credit Corporation and the plaintiff Fortner Enterprises, Inc., which required the plaintiff to purchase and build homes manufactured and sold by U. S. Steel Corporation in plaintiff's subdivision in violation of Sections 1 and 2 of the Sherman Act". See Paragraph 1, Plaintiff's tendered instructions furnished the court pursuant to pre-trial order. In the light of this succinct statement of the plaintiff's basic claim, the court now examines in more detail the uncontroverted facts surrounding the execution of the first questioned contract, dated October 28, 1960. Shortly prior to that date plaintiff was a dormant corporation, controlled by A. B. Fortner, Jr. and had a substantial financial deficit. The defendant Homes Division was in the business of selling home packages. Plaintiff had available to it property in Jefferson County, Kentucky, suitable for subdivision purposes. This property was readily available to plaintiff because of Mr. Fortner's interest in another corporation then holding title to same. The plaintiff however had no funds to purchase or develop land or purchase home packages or otherwise build homes or indeed engage in any business. There were ample funds available in Louisville, Kentucky during 1960 for borrowers. From local sources alone the figure exceeds $163,330,000. In addition to this figure $133,316,000 in real estate mortgages were recorded in Jefferson County, Kentucky in 1960. Credit Corporation had no monoply or "corner" on money at that time, nor does plaintiff contend to the contrary. Mr. Fortner was not then disposed to provide plaintiff with funds from any other source, including a personal investment, but instead applied for money from the Credit Corporation with which to buy property from the other corporation in which he had an interest. Thereafter plaintiff, using funds also borrowed from the Credit Corporation completed or at least partially completed the development of that property. And finally, again using funds borrowed from the Credit Corporation, constructed homes on part of the property thus acquired and developed utilizing in the construction thereof home packages purchased from the Steel Corporation. Plaintiff concludes in affidavits furnished by it that all of this was to the sole advantage of the defendants. The court finds however that in this particular transaction, (as in most transactions), both parties to the transaction felt it would be to their mutual advantage. Certainly the plaintiff was not coerced nor compelled to enter into the contract about which it now complains. Prior to the execution of the first contract it was not transacting any business of substance and entered into the arrangement with the expectation that it would be profitable to it.

The particular transaction is evidenced by three types of written documents. There are notes which are evidence of the debts incurred or to be incurred as funds were advanced. There is a mortgage in recordable form and a loan agreement which is the tie-in contract about which plaintiff now complains. All of these three types of documents are part of the same transaction. Indeed the loan agreement on its face recites that these documents constitute the "agreement" between the parties. The loan agreement in substance requires that while there is money due the Credit Corporation from the plaintiff the property encumbered by the mortgage shall be developed with single family dwellings utilizing as a component part thereof home packages purchased from the United States Steel Corporation, Homes Division. The property encumbered by the mortgage and hence subject to the provisions of the loan agreement consisted of approximately 55 acres in Jefferson County, Kentucky. At the time this contract was made, Jefferson County, Kentucky contained approximately 240,000 acres, of which approximately 171,484 acres were suitable for subdivision into single family lots or were then being so developed. In essence the arrangement between the plaintiff and the Credit Corporation is one of borrower-lender, with the lender imposing certain restrictions on the plaintiff's property purchased with the borrowed funds, but only while the debt remains unpaid. For our purposes here, the principal restriction while the debt is outstanding is the requirement that plaintiff utilize home packages purchased from the Credit Corporation's parent, when it constructs dwellings on the 55 acres purchased and developed with funds obtained from the Credit Corporation. The loan agreement is not an exclusive dealing contract within the normal use of that term. Plaintiff is not prohibited from purchasing prefabricated homes from the Steel Corporation's competitors or building conventional homes or engaging in any other business, competitive to the defendants or not, except on the 55 acres here involved. The day following the execution of this loan agreement, plaintiff under a similar arrangement with defendants' competitors, could well have purchased additional property, developed it and built homes on it, in competition with the defendants. As any time, plaintiff could have liquidated the debt to defendant Credit Corporation and be relieved from all obligation to it, including the restriction or encumbrance affecting the 55 acres.

On October 31, 1960 plaintiff entered into a franchise contract with the Homes Division. But none of this transaction between the plaintiff and the defendant Credit Corporation affected in any way that franchise with the Homes Division. The Homes Division would sell home packages to anyone who could pay for same. It was not a requirement to become a franchise dealer or to buy home packages that any would be purchaser, including plaintiff, borrow money from the Credit Corporation. Nor was it a requirement if the would be purchaser, including plaintiff, needed to borrow money that it borrow money from the Credit Corporation. Nor would the plaintiff or any other franchise dealer lose his franchise because having once borrowed...