Fowler Manufacturing Company v. Gorlick

• Decision Date: 25 September 1969
• Docket Number: No. 22121,22121
• Citation: 415 F.2d 1248
• Parties: FOWLER MANUFACTURING COMPANY, a corporation, Appellant, v. H. H. GORLICK et al., Appellees and Cross-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

415 F.2d 1248 (1969)

FOWLER MANUFACTURING COMPANY, a corporation, Appellant, v. H. H. GORLICK et al., Appellees and Cross-Appellants.

Nos. 22121, 22121-A.

United States Court of Appeals Ninth Circuit.

August 15, 1969.

Rehearing Denied September 25, 1969.

COPYRIGHT MATERIAL OMITTED

Leo M. Koenigsberg (argued), of Koenigsberg, Brown & Sinsheimer, Seattle, Wash., for appellant and cross-appellees.

Edward M. Bensussen (argued), of Franco, Asia, Bensussen & Coe, Seattle, Wash., for appellees and cross-appellants.

Before JOHNSEN^*, MERRILL and CARTER, Circuit Judges.

Rehearing Denied in No. 22121 September 25, 1969.

JOHNSEN, Senior Circuit Judge.

Can the amount of a discrimination in prices or allowances between business competitors be recovered under the Robinson-Patman Act as direct damages? 15 U.S.C. § 13 and § 15.

In the case before us Judge Lindberg of the Western District of Washington, on a jury-waived trial, found that such discriminations had been engaged in by a manufacturer of electric water heaters against a jobber of plumbing supplies in the amount of $8,540.60 and awarded judgment on this basis against the manufacturer for treble damages in the sum of $25,621.80.

We affirm.

I.

The general question posed has not been adjudicatively passed upon by the Supreme Court. The lower federal courts have been divided on it. The two leading cases on the opposing views are Elizabeth Arden Sales Corporation v. Gas Blass Co., 150 F.2d 988, 161 A.L.R. 370 (8 Cir. 1945), and Enterprise Industries, Inc., v. Texas Co., 240 F.2d 457 (2 Cir. 1957).

Arden held that the amount of such a discrimination can properly be made the basis and measure of a general damage award, where the evidence does not establish a greater consequential or special injury. It took the view that, within legal and commercial realities, the non-favored customer would at least "be injured in his business or property". 15 U.S.C. § 15, to the extent of the diminution or deprivation thus occasioned to his treasury or asset position.

Enterprise held, in an opinion written by Judge Learned Hand, that no such direct damage award is entitled to be made under the Act; that the non-favored customer is required to prove consequential injury to his business in loss of customers or profits; and that only such injury can be made the basis and measure of any recovery for a discrimination.¹

We note that in this Circuit Judge Solomon of the District of Oregon has previously taken an opposite view to that of Judge Lindberg, and has followed the Enterprise holding. Youngson v. Tidewater Oil Co., 166 F.Supp. 146 (D.C.Or. 1958). It further may be observed that denial of certiorari was made by the Supreme Court in both the Arden case, 326 U.S. 773, 66 S.Ct. 231, 90 L.Ed. 467, and the Enterprise case, 353 U.S. 965, 77 S.Ct. 1049, 1 L.Ed.2d 914.

But while the Supreme Court has not undertaken to adjudicatively resolve the question, it has engaged in some expression thereon in the rationalization which it made in relation to the Robinson-Patman Act of the result reached by it in Bruce's Juices, Inc. v. American Can Co., 330 U.S. 743, 67 S.Ct. 1015, 91 L.Ed. 1217 (1947). In that case American had sued Bruce's upon some renewal notes covering part of the purchase price of some cans, to which Bruce's had set up the defense that the sales had been the subject of an illegal price-discrimination against it; that the price balance sought to be recovered was substantially equivalent to the amount of the discrimination; and that American therefore was without legal entitlement, either to maintain an action or in any event to claim the existence of any purchase-price balance in the situation.

The Court held, however, that under the Robinson-Patman Act a price discrimination does not have the effect of making the contract of sale or a note given for the purchase price intrinsically illegal so as not to permit of a recovery thereon (which, as the opinion recognized, it is possible for some contracts to be under the Sherman Act); that neither does Robinson-Patman authorize its triple-damage remedy to be used collaterally as a defense otherwise against the purchase price agreed to be paid; and that the price discrimination claimed by Bruce's could therefore only be made the subject of an independent action for triple damages, since "the violation, if there was one, is not inherent in the contract sued upon, whether it be the notes or the sale of the goods, but can only be found in different transactions which a party to the litigation had with third persons who are not parties". 330 U.S. at 755-756, 67 S.Ct. at 1021.

Mr. Justice Jackson went on to declare that "these characteristics show that the entire basis for judging under the two Acts is different and that the case law as to the Sherman Act does not fit the Robinson-Patman Act." Ibid. He took note that Bruce's had in fact instituted an independent triple-damage suit in respect to the situation and then engaged in expression as to the nature of the remedy which would be available to it therein. The opinion stated (330 U.S. at 757, 67 S.Ct. at 1021-1022):

"We have assumed for the purposes of this case that petitioner could establish that the prices respondent charged were discriminatory so that they violated the Act. But if petitioner can show that, clearly it would be entitled to recovery in a triple-damage suit supported by the same evidence. For despite petitioner\'s plaint on the difficulty of proving damages, it would establish its right to recover three times the discriminatory difference without proving more than the illegality of the prices. If the prices are illegally discriminatory, petitioner has been damaged, in the absence of extraordinary circumstances, at least in the amount of that discrimination".

It will be noted that these statements were made as an answer to Bruce's "plaint on the difficulty of proving damages" and to its argument on that basis against being relegated to the burden of a triple-damage suit. With the utterance having this context, and in the light of the further declaration that "the case law as to the Sherman Act does not fit the Robinson-Patman Act", we think the Court's statement as to Bruce's "right to recover three times the discriminatory difference without proving more than the illegality of the prices" must be regarded as a considered, intended and indicative expression on the nature of the damage right under the Robinson-Patman Act.

Furthermore, in a construction of the Act in relation to its purpose, it would seem apparent that such a direct-damage right would more effectively serve to curb the discriminations which Congress viewed as being most often exercised against smaller competitors, and whose abolition it sought to accomplish primarily for that reason, than the more difficult consequential-damage rule of the Enterprise case. In its significance for obtaining compliance with the Robinson-Patman Act, such a damage thrust is also more fully consonant with the motive which the Court recognized in Bruce's as underlying all private antitrust recovery, when it said: "It is clear Congress intended to use private self-interest as a means of enforcement and to arm injured persons with private means to retribution when it gave to any injured party a private cause of action in which his damages are to be made good threefold, with costs of suit and reasonable attorney's fee". 330 U.S. at 751-752, 67 S.Ct. at 1019.

On all this, we are unable to see any reason for legalistically equating or construing the Robinson-Patman Act upon identical lines with the Sherman Act as to the form of its remedial damage rights.² We thus have no difficulty in agreeing with Judge Lindberg, and we hold that under the Robinson-Patman Act, unless the evidence establishes a greater consequential injury, discrimination in prices or allowances is entitled to be regarded as constituting a direct business injury and that the amount thereof thus properly can be made the basis and measure of a general damage award.³

II.

A few more details as to the parties and the situation involved will be stated.

The suit was one by two partners (H. H. Gorlick and Morris Gorelick) operating under the trade name of Thrifty Supply Co. and under the guise of four corporate structures, each similarly bearing the name of Thrifty Supply Co., but having added to its title the name of the city in which the particular establishment was located. It was stipulated that the five businesses should be treated as constituting a single entity, and the plaintiffs will therefore be referred to here simply as Thrifty.

The named defendants were Fowler Manufacturing Co. (herein Fowler), a subsidiary of Republic Transcon Industries, Inc., and the three principal business competitors of Thrifty (herein Keller, Rosen and Mesher).

Beyond the Robinson-Patman claim made against Fowler, as discussed above, claims also were asserted by Thrifty against both Fowler and the other defendants for violations of the Sherman Act and the Clayton Act, but these claims were dismissed by the court and no cross-appeal has been taken by Thrifty from this action.

Claims further were made against Keller, Rosen and Mesher that each had been the recipient of some or all of the favored prices and allowances involved, with knowledge on the part of each of them that Fowler was engaging in discrimination against Thrifty; and that in these circumstances each had violated 15 U.S.C. § 13(f) of the Robinson-Patman Act and was liable to Thrifty for damages on this basis. The court found, however, that none of these defendants could be said on the evidence to have had knowledge that he was being favored with a discrimination as against Thrifty, and it accordingly dismissed the claims. This dismissal has been made the subject of a cross-appeal by Thrifty, which will be referred to later.

As noted at the start, Fowler was a manufacturer of electric water heaters....