Grace v. E. J. Kozin Co.

• Decision Date: 22 July 1976
• Docket Number: Nos. 75-1871 and 75-1872,s. 75-1871 and 75-1872
• Citation: 538 F.2d 170
• Parties: 1976-2 Trade Cases 60,992 Gerald P. GRACE, as Trustee in Bankruptcy of S. I. Greene Company, Bankrupt, Plaintiff-Appellee, v. E. J. KOZIN COMPANY et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 170

538 F.2d 170

1976-2 Trade Cases 60,992

Gerald P. GRACE, as Trustee in Bankruptcy of S. I. Greene Company, Bankrupt, Plaintiff-Appellee, v. E. J. KOZIN COMPANY et al., Defendants-Appellants.

Nos. 75-1871 and 75-1872.

United States Court of Appeals Seventh Circuit.

Argued June 8, 1976.

Decided July 22, 1976.

James S. Gordon, Chicago, Ill., Mitchell F. Asher, Palatine, Ill., Alex H. Dolnick, Chicago, Ill., for Kozin.

Robert F. Coleman, Chicago, Ill., for Grace.

Before CUMMINGS, TONE and WOOD, Circuit Judges.

CUMMINGS, Circuit Judge.

Apart from a pendent Count, this treble damage action was brought under Section 4 of the Clayton Act (15 U.S.C. § 15) to recover damages allegedly sustained by plaintiff as a result of defendants' violations of Section 2(c) of the Robinson-Patman Act (15 U.S.C. § 13(c)). Plaintiff is the bankruptcy trustee for S. I. Greene Company (Greene). Greene was a Chicago wholesaler engaged in buying and selling frozen and prepared seafood products during the 1969-1972 period in suit. Defendant E. J. Kozin Company (Kozin) was a competitor of Greene and became incorporated on February 1, 1973. During the years in question, it was operated as a proprietorship by defendant Erwin Kozin, who became a principal shareholder, director and officer of the incorporated company. Defendant Bernard Kane, son-in-law of Greene's president, was sales manager and executive vice president of Greene from 1968 through January 1973, when he became a principal stockholder, director and president of Kozin even though he made no capital contribution. During the complaint period, Greene's sales ranged from a yearly low of $7 million to a high of $12 million. Also during that time Greene and Kozin sold seafood products on occasion to the same customers.

This controversy involves two sets of transactions engaged in by Kozin and Kane. Starting in October 1969, Kane convinced Greene to begin purchasing substantial quantities of seafood from Kozin. ¹ At about that time Kane also convinced Kozin to permit him to represent Kozin as an agent in sales to customers other than Greene. Pursuant to the arrangement, Kozin agreed to pay Kane one-half of all profits Kozin realized on purchases made by Kane on behalf of Greene and also one-half of the profits Kozin made on sales to other customers where Kane sold Kozin products to them. Kane terminated his services with Greene in January 1973.

Count I of the complaint charged that Kozin and the successor corporation paid $19,780.64 in commissions, kickbacks, and brokerage fees to Kane in violation of Section 2(c) of the Robinson-Patman Act, thus compelling Greene to pay unreasonably high prices for seafood products purchased from Kozin by Kane.

Pendent Count II alleged that from November 1969 to December 1972, notwithstanding the fiduciary duty imposed upon him by Illinois law as an officer of Greene, Kane was paid commissions of $80,000 by Kozin, representing one-half of the profits earned by Kozin on sales placed by Kane to third parties during this period. Greene claims to have lost profits of $160,000 during this period because of Kane's wrongful diversion of business opportunities to Kozin while receiving $58,000 in salaries from Greene. ²

After a bench trial, the district court ruled for the plaintiff in most respects. The court found that every witness lied when in his interest to do so, and the judge particularly doubted the credibility of Kane. He found that Kozin and Kane, while Kane represented Greene, bought from and sold products to one another and that Kane's personal profits from these transactions amounted to commercial bribery. He concluded that the three defendants were liable under Section 2(c) of the Robinson-Patman Act.

As to Count II with respect to breach of a fiduciary duty which prohibited Kane, as an agent of Greene, from personally profiting from transactions he handled for Greene, the district court found that Kane had never disclosed his relationship with Kozin to Greene, ³ so that the three defendants were also held liable under Illinois law.

Subsequently the district court entered an unreported memorandum opinion with respect to damages. As to Count I based on federal law, Judge McGarr stated that commissions paid to Kane upon sales of Kozin products to Greene amounted to $19,780.64 which, after trebling, entitled plaintiff to $59,341.92.

As to Count II based on Illinois law, after noting that Kozin paid Kane $60,075 in commissions upon sales made by Kane on behalf of Kozin to third parties (representing an equal split between Kane and Kozin of the profits of $120,150), the court concluded plaintiff should recover those entire profits because its own profits would have been almost identical. However, the court refused to award plaintiff the $58,000 compensation Greene paid Kane during the three years in question.

Accordingly, under Count I, judgment was entered for plaintiff in the amount of $59,341.92, plus interest, and under Count II, $120,150, plus interest. Subsequently, the court awarded plaintiff statutory attorney's fees under Count I in the amount of $18,690.

Defendants have appealed from the judgments against them under Counts I and II, and plaintiff has cross-appealed from the district court's refusal to allow plaintiff to recover the $58,000 compensation paid Kane during the period of his breach of fiduciary relationship.

Defendants' liability and the amount of damages in this case depend upon the characterization of the transactions involved. The defendants contend, and we agree, that Kozin and Kane had embarked upon a joint enterprise whereby they purchased seafood products and resold them to Greene and other companies (Br. 37). Under this analysis, the district court was clearly correct in concluding that Kane breached his fiduciary duty to his employer by not offering Greene the opportunity to participate in the joint venture. Vendo Co. v. Stoner, 58 Ill.2d 289, 303-305, 321 N.E.2d 1 (1974). Our duty is to determine the legal consequences of that breach of duty.

From this viewpoint, the district court correctly concluded that Kozin's inducement to Kane to participate in the joint venture constituted "commercial bribery." In Section 2(c) of the Robinson-Patman Act, ⁴ Congress concluded that under certain circumstances it is an unfair trade practice for an agent to serve two masters. See Federal Trade Commission v. Henry Broch & Co., 363 U.S. 166, 169, n. 6, 80 S.Ct. 1158, 4 L.Ed.2d 1124; H.R.Rep.No.2287, 74th Cong., 2d Sess., pp. 14, 15 (1936). One of the purposes of this Section is to protect the integrity of the principal-agent relationship where a violation has an anti-competitive effect. Calnetics Corp. v. Volkswagen of America, Inc., 532 F.2d 674, 696 (9th Cir. 1976); Modern Marketing Service, Inc. v. Federal Trade Commission, 149 F.2d 970, 978 (7th Cir. 1945). Therefore, although defendants argue that Section 2(c) of the Robinson-Patman Act does not reach commercial bribery cases such as this, we agree with the Sixth and Ninth Circuits that it does. Kentucky-Tennessee Light & Power Co. v. National Coal Co., 37 F.Supp. 728 (W.D.Ky.1941), affirmed sub nom., Fitch v. Kentucky-Tennessee Light & Power Co., 136 F.2d 12 (6th Cir. 1943); Calnetics Corp. v. Volkswagen of America, Inc., supra, 532 F.2d at 696; Rangen Inc. v. Sterling Nelson & Sons, 351 F.2d 851 (9th Cir. 1965), certiorari denied, 383 U.S. 936, 86 S.Ct. 1067, 15 L.Ed.2d 853.

Defendants next contend that plaintiff failed to prove that Greene suffered an injury to its business cognizable under the antitrust laws. However, had Greene participated in the joint venture instead of Kane, Greene would have received the commissions. Quite logically, the district court concluded that as a result of Kozin's payments to Kane of commissions on sales to Greene, Greene paid a price for the products it purchased from Kozin which was higher than it would otherwise have paid except for the $19,780.64 in illegal commissions which Kozin paid Kane. From this evidence, the court could reasonably infer an injury to Greene. Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 114, 89 S.Ct. 1562, 23 L.Ed.2d 129; Holleb & Co. v. Produce Terminal Cold Storage Co., 532 F.2d 29, 35 (7th Cir. 1976). The presence of the kickback effectively precluded the realization of Greene's maximum profit potential, so that the fact of damage was adequately established. Further, the net effect of Kozin's bribery was indirect price discrimination with regard to the prices charged Greene by suppliers potentially common to Kozin and Greene. Thus because of Kane's interest in the transactions, Greene acquired goods at a price higher than that paid by Kozin or than that which would have been paid by Greene purchasing independently or as Kozin's equal partner. This injury is entitled to redress under Section 2(c). Federal Trade Commission v. Henry Broch & Co., supra, 363 U.S. at 174, 80 S.Ct. 1158; see also Rangen, Inc. v. Sterling Nelson & Sons, supra, 351 F.2d at 857. ⁵

Defendants finally contend that the services rendered defense to a Section 2(c) violation was established (see note 4 supra ) on the ground that Kane clearly rendered economically valuable services to Kozin. This defense is inapplicable where, as here, an agent violates his fiduciary duty. Rangen, Inc. v. Sterling Nelson & Sons, supra, 351 F.2d at 859; Modern Marketing Services, Inc. v. Federal Trade Commission, supra, 149 F.2d at 978-979; Great Atlantic & Pacific Tea Co. v. Federal Trade Commission, 106 F.2d 667, 674 (3d Cir. 1939), certiorari denied, 308 U.S. 625, 60 S.Ct. 380, 84 L.Ed. 521. Since there was no proof that if Kozin had not paid Kane commissions, the lower price to Greene would have violated Section 2(a) of the Robinson-Patman Act, it is unnecessary to consider that the holding below...