Hampton v. Graff Vending Company

• Decision Date: 11 June 1973
• Docket Number: No. 72-3276.,72-3276.
• Citation: 478 F.2d 527
• Parties: Kenneth J. HAMPTON, d/b/a Hampton Vending Supply, Plaintiff-Appellant, v. GRAFF VENDING COMPANY et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

478 F.2d 527 (1973)

Kenneth J. HAMPTON, d/b/a Hampton Vending Supply, Plaintiff-Appellant, v. GRAFF VENDING COMPANY et al., Defendants-Appellees.

No. 72-3276.

United States Court of Appeals, Fifth Circuit.

May 9, 1973.

Rehearing Denied June 11, 1973.

COPYRIGHT MATERIAL OMITTED

James L. Branton, San Antonio, Tex., for plaintiff-appellant.

Earl Luna, Dallas, Tex., for defendants-appellees.

Before TUTTLE, THORNBERRY and DYER, Circuit Judges.

DYER, Circuit Judge:

Hampton brought this action under section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C.A. § 13(a),¹ claiming that Graff Vending Company had illegally lowered its prices in the San Antonio and Houston areas. The district court found that Graff's actions did not have the effect of substantially lessening competition, that they did not operate to discriminate against Hampton, and that Graff acted reasonably to meet competition; pursuant to these findings judgment was entered for Graff and Hampton appealed. Because we are of the view that Hampton successfully established a case of primary line price discrimination as to some of Graff's activities, we reverse.

I. Facts

The basic facts are essentially undisputed. Because the application here of the correct principles of law requires an understanding of the competitive situation, however, we must set out an accurate description of the market involved.

Both Hampton and Graff expend their profit making efforts in what is known as the bulk vending supply business. This business consists of the sale of ball gum and charms and of the sale of vending machines through which the gum and charms are sold to the public. The distributive channels for these products are not uniform throughout the industry, but frequently the items are sold by the manufacturer to a functional wholesaler, who in turn resells them to an operator who actually places and fills the machines at their retail locations in grocery stores, gas stations, etc. Additionally, certain wholesalers function partially as operators and certain large operators buy direct from some manufacturers.

Graff, according to its own advertising, is the world's largest bulk vending distributor, with its home office in Dallas, Texas. It has outlets in many states and has several warehouses in Texas, including ones in San Antonio and Houston. Graff functions primarily as a wholesaler, but does operate some retail routes in other parts of the country and does own some retail routes in San Antonio.² The source of most of Graff's gum is W. R. Grace Company of Chicago, Illinois, which manufactures Leaf gum. Graff serves as the almost exclusive distributor of Leaf gum in Texas and purchases at list price less 19% and less some freight allowances.

Hampton's functional role is not as easily characterized and must be viewed, to some extent, historically. Since 1965 Hampton has been an operator of vending machines in the San Antonio area. Sometime in 1969 he became an employee of Graff and ran its San Antonio office, in addition to continuing his own business as an operator. At the end of 1970 Hampton quit working for Graff and added a wholesale element to his business reselling some gum to other operators. From early 1971 to the present, Hampton has maintained this functional stance, working primarily in the San Antonio—south-Texas area with occasional sales to other parts of Texas and to other states.

The heart of this controversy concerns Hampton's source of gum and the price paid for it. When Hampton left Graff's employ and began wholesaling as well as operating, he purchased his gum through his father, who had a large volume contract with Graff. Under this contract Hampton's father purchased Leaf gum from Graff at list price less 10% and he passed this price on directly to his son. Hampton in turn used some of this gum on his own routes and resold the rest to various operators at list.

During 1971 and into the first months of 1972, while Hampton was functioning both as an operator and a wholesaler, Graff experienced a steady decrease in sales in the San Antonio and Houston areas. In February 1972, in the midst of these decreased sales, Graff's contract with Hampton's father came up for renegotiation and Graff decreased the discount it would offer on Leaf gum from 10% to 8%. Hampton's father would not purchase from Graff at this rate and the contractual relationship, and Hampton's source of gum, terminated on May 15, 1972. Efforts by Hampton to negotiate a satisfactory contract with Graff directly also failed.

With his source of Leaf gum becoming less attractive Hampton looked elsewhere for gum and contacted American Gum Company. This led to his placing a 1000 case order with American at a price of list less 17% and freight allowances. Because the list prices for American and Leaf gums were approximately equal, this price constituted a substantial savings over the price he previously paid to Graff via his father.³

Shortly after Hampton contracted with American, Graff implemented a previously arranged sale on Leaf gum⁴ for all sales out of its San Antonio and Houston offices. This sale was supported by Leaf who had been asked for help in these two marketing areas⁵ and who had agreed to lower prices to Graff by $1.50 per case on some gum and by $.90 per case on other gum if Graff would pass the savings along. The resulting price at which Graff would sell to anyone, including small operators, was approximately equal to the price American charged Hampton. Correspondingly, Hampton's resale price to operators was now considerably higher than Graff's resale price to operators.⁶

The impact of Graff's new price structure was almost immediate. Its sales recovered sharply from their year and one-half slide and Hampton's sales dropped from previous months. Hampton then filed this suit.

II. The Court Below

Hampton's argument below was tied completely to his status as a wholesaler and a direct competitor of Graff. As a result, he attempted to show a case of primary line discrimination.⁷ Graff, on the other hand, seemed to prefer to view the case as a secondary line case, and then in turn met this argument with the assertion that its lower prices were available to everyone, including Hampton. In the alternative, it argued that its lower prices were justified as a good faith effort to meet competition (said to be that of American) and to regain Hampton and others as customers.

The district court, faced with a complex case involving businesses functioning at more than one level of distribution, framed its findings of fact and conclusions of law in terms of a secondary line case and entered judgment for Graff. While we feel that some of Graff's contentions have merit, we conclude that they must be reevaluated in light of Hampton's primary line argument.

III. Prima Facie Case of Primary Discrimination

The presence of most of the requisite elements in Hampton's case was not questioned below and has not been questioned here. Three elements, however, merit our attention—Hampton's status as a functional competitor, the existence of price discrimination, and the effect on competition.

Hampton's role as a competitor wholesaler is obscured by two other relationships he had with the San Antonio market. First, until just prior to this suit, he had been a customer of Graff. Nevertheless, that position does not bar him now from asserting rights incident to his functional position. In fact, the record clearly shows that even when he was a customer of Graff, he was able to compete successfully with Graff for wholesale business. Furthermore, in his current position, he is a completely independent competitor.

The second relationship Hampton has with the current market that belies his status as a wholesaler is his continuing business as an operator. Graff has not suggested that this in any way bars Hampton from suing as a wholesaler and the fact that 90% of Hampton's business is wholesale indicates that this is his true position in the distributive scheme. We, therefore, consider him to be a functional competitor of Graff.

The occurrence of price discrimination is more easily discerned. Graff readily admitted that it requested support from Leaf for its price cut only for the San Antonio and Houston areas. At its offices throughout the remainder of Texas and in other states, Leaf gum continued to be sold at list price. The fact that within these two Texas markets the prices were the same to all customers is irrelevant. "A price discrimination within the meaning of section 2(a) is merely a price difference," FTC v. Anheuser-Busch, Inc., 1960, 363 U.S. 536, 549, 80 S.Ct. 1267, 1274, 4 L. Ed.2d 1385, and Hampton has shown and Graff has admitted a geographic price difference.

The final element about which there could be a question is whether the effect of Graff's actions "may be to substantially lessen competition." In considering this, we are first met with the district court's finding that the sale "would not" have that effect. This finding, however, is not entitled to the mantle of protection normally afforded district court findings under Rule 52(a), Fed.R.Civ.P., because the court's findings had obvious reference to a case of secondary line discrimination. While we have no quarrel with the finding in that context, it is in no way binding on us when the case is properly construed as primary line discrimination. See Shultz v. First Victoria National Bank, 5 Cir. 1969, 420 F.2d 648. See also United States v. Singer Manufacturing Co., 1963, 374 U.S. 174, 194 n. 9, 83 S.Ct. 1773, 10 L.Ed.2d 823; Manning v. M/V "Sea Road", 5 Cir. 1969, 417 F.2d 603.

When the discrimination alleged here is evaluated at the wholesale level the deleterious impact on competition becomes apparent. This is exemplified by Hampton's personal situation. Before Graff's sale, for example, he was able to purchase his No. 933 gum from American at $7.73 per case and was selling it at...