Howell Industries, Inc. v. Sharon Steel Corp.

• Decision Date: 31 December 1981
• Docket Number: Civ. A. No. 75-70319.
• Parties: HOWELL INDUSTRIES, INC., a Michigan corporation, Plaintiff, v. SHARON STEEL CORPORATION, a Pennsylvania corporation, Defendant.
• Court: U.S. District Court — Western District of Michigan

532 F. Supp. 400

HOWELL INDUSTRIES, INC., a Michigan corporation, Plaintiff, v. SHARON STEEL CORPORATION, a Pennsylvania corporation, Defendant.

Civ. A. No. 75-70319.

United States District Court, E. D. Michigan, S. D.

December 31, 1981.

Norman Hyman, Detroit, Mich., for plaintiff.

Robert Cutler, Detroit, Mich., for defendant.

MEMORANDUM OPINION AND ORDER GRANTING DEFENDANT'S MOTIONS FOR SUMMARY JUDGMENT ON ROBINSON-PATMAN CLAIMS

PATRICIA J. BOYLE, District Judge.

Before the Court are two motions by Defendant seeking summary judgment with respect to some of Plaintiff's antitrust allegations under the Robinson-Patman amendments to the Clayton Act ("Act"), 15 U.S.C. § 13. Defendant contends here that the allegations of Count VII of the Complaint, found in Plaintiff's "Amendments to Plaintiff's First Amended Complaint" filed in 1976, do not raise actionable antitrust claims under subsections 2(a), 2(c), 2(d), 2(e), and 2(f) of the Act. The parties have agreed that no violation of subsection 2(f) is raised, and thus the Court addresses only allegations under the remaining subsections.

The Complaint as amended does not refer to specific subsections of the Act. Plaintiff alleges both direct and indirect "price and related discrimination" relating to resale resulting in a competitive injury to Plaintiff, and sets forth a nonexhaustive list of acts complained of:

(a) Defendant sold steel to its subsidiary at a price lower than that charged to Plaintiff;

(b) Defendant provided discounts and services to its subsidiary which were not provided to Plaintiff;

(c) Defendant sold steel to Plaintiff's customers and competitors with discounts and services not provided to Plaintiff;

(d) Defendant provided Plaintiff's customers and competitors with discounts and services not provided to Plaintiff.

Defendant contends here that, even assuming it sold steel to its subsidiary on terms more favorable than those extended to Plaintiff and that it did prefer customers other than Plaintiff in allocation and delivery of steel, Plaintiff's claims of price differentials, preferential allocation and delivery and illegal brokerages fail as a matter of law. Each will be discussed in turn.

1. Price Differentials

In Paragraph 50(a) of its Amendments to Complaint, Plaintiff alleges Defendant violated Robinson-Patman by having charged Plaintiff a higher price for steel than it charged its wholly-owned subsidiary, Ohio Metal Processing Company (OMPC). Defendant's original motion for partial summary judgment, filed in 1980, contended that no liability could attach for transactions between Defendant and OMPC for the reason that Section 2(c), which concerns price differentials that lessen competition, does not apply to transfers by a parent corporation and a wholly-owned subsidiary. The statute requires a sale to a favored buyer, at a low price, and a sale to a disfavored buyer, at a higher price. Defendant contended that transfers between a parent and subsidiary are not, as a matter of law, "sales" within the meaning of the statute, thereby eliminating any claim that Sharon discriminated in sale price in favor of OMPC and against Howell.

Plaintiff responded by citing caselaw suggesting that a per se rule is inappropriate, requiring instead an examination of the extent of control exercised over the subsidiary by the parent. Plaintiff argued that the motion was premature, no such inquiry having been made in the case as yet and the facts being insufficient to support the conclusion that OMPC was not independent of its parent corporation. Following the filing of the original briefs in the motion, however, and upon further discovery, Plaintiff has agreed that the facts here indicate that Sharon and OMPC are "one person" for purposes of Robinson-Patman analysis. Plaintiff's Supplemental Brief of October 8, 1981, at n.1. The factual question having been eliminated, therefore, there is no serious dispute between the parties that where a parent and subsidiary are "one person," the requisite "sale" cannot be found in transfers between the two entities. See Security Tire & Rubber Co. v. Gates Rubber Co., 598 F.2d 962 (5th Cir.), cert. denied, 444 U.S. 942, 100 S.Ct. 298, 62 L.Ed.2d 309 (1979); Parrish v. Cox, 586 F.2d 9 (6th Cir. 1978); Brown v. Hansen Publications, Inc., 556 F.2d 969 (9th Cir. 1977); Brewer v. Uniroyal, Inc., 498 F.2d 973, 977 n.2 (6th Cir. 1974).

Accordingly, the Court concludes that Plaintiff's claim of price discrimination through more favorable prices to OMPC than those extended to Howell does not state a claim under Section 2(a), and Defendant's motion with respect to that claim is hereby GRANTED.

2. Preferential Allocation and Delivery

In response to interrogatories propounded by Defendant, Plaintiff stated that the phrases "indirect discrimination" and "other services" in the Complaint as amended included preferential allocation and delivery of steel by Defendant. In its briefs and argument in connection with these motions, however, Plaintiff has abandoned any claim of preferential allocation of steel, relying solely on an allegation of preferential delivery to customers and competitors of Plaintiff, thus making consideration by this Court of allocation claims unnecessary.

Plaintiff contends that Defendant Sharon, in delivering steel to Plaintiff in accordance with the requirements contract agreed upon by the parties, did not make timely deliveries. Because the market price for steel was rising at the time in question, and because Defendant charged Plaintiff the price applicable on the actual delivery date rather than that applicable on the promised delivery date, Plaintiff Howell paid a higher price for steel than it would have had the delivery been timely and had it been billed as of that earlier date. Plaintiff contends that other customers of Sharon were preferred by being afforded timely deliveries and by being charged the price applicable on the promised delivery date. See Affidavit of Herbert Freedland, filed June 19, 1980.

Defendant contends here, assuming for the purpose of the motion it did prefer other customers in its steel deliveries, that such preferential delivery does not state a cause of action under sections 2(d) or 2(e) of the Robinson-Patman Act. Urging that the act be narrowly construed, Defendant argues that these two subsections prohibit only discriminatory practices relating to resale, an element not alleged by Plaintiff, and that the subsections have been construed to exclude claims of preferential allocation and delivery. Plaintiff responds by arguing that delivery by a seller is a "service" within the meaning of subsections 2(d) and 2(e) and that, in addition, the claims of preferential delivery sound under subsection 2(a) for the reason that the alleged late delivery by the seller affected the price of the steel upon resale.

An examination of the legislative history and of subsequent judicial interpretation of sections 2(d) and 2(e) reveals that the primary purpose of those provisions was to preclude the granting or demanding of special allowances and collateral privileges that have the effect of price discrimination by virtue of selective application. In its report on the Robinson-Patman amendments, the House Committee on the Judiciary stated that the law was intended to stem not only direct price discrimination but also "advertising and other service allowances unless such allowances are made available to all purchasers on proportionally equal terms." H.R.Rep.No.2287, 74th Cong., 2d Sess. 3 (1936) hereinafter "House Report". Discussing what is now subsection 2(d), the Report stated:

Still another favored medium for the granting of oppressive discriminations is found in the practice of large buyer customers to demand, and of their sellers to grant, special allowances in purported payment of advertising and other sales-promotional services, which the customer agrees to render with reference to the seller's products .... Such an allowance becomes unjust when the service is not rendered as agreed and paid for, or when, if rendered, the payment is grossly in excess of its value, or when in any case the customer is deriving from it equal benefit to his own business and is thus enabled to shift to his vendor substantial portions of his own advertising cost, while his smaller competitor, unable to command such allowances, cannot do so.

Sections (c) and (d) of this bill address this evil by prohibiting the granting of such allowances, ... except when accorded or made available to all competing customers on proportionally equal terms.

Id. 15-16. In defining the term "proportionally equal terms," the Committee used an example of the granting to a chain distributor of "an advertising allowance of a stated amount per month per store," and later in the report added the caveat that the bill was not intended to limit the industry practice of manufacturers renting exhibit space at trade association exhibitions, "or for advertising space in trade-association publications, nor to limit the freedom of newspaper or periodical advertising generally so long as not employed in ways calculated to defeat the purposes of this bill." Id. 16.

Courts that have construed section 2(d) and 2(e) have noted the sections' focus on merchandising or promotional allowances, whether through advertising or related services, and have, with few departures, confined the application of the statute to that context. See, e.g., FTC v. Fred Meyer, Inc., 390 U.S. 341, 88 S.Ct. 904, 19 L.Ed.2d 1222 (1968); FTC v. Simplicity Pattern Co., 360 U.S. 55, 69-70, 79 S.Ct. 1005, 1013-1014, 3 L.Ed.2d 1079 (1959); Kirby v. P. R. Mallory & Co., 489 F.2d 904, 910 (7th Cir. 1973); Southgate Brokerage Co. v. FTC, 150 F.2d 607, 611 (4th Cir. 1945); Ben B. Schwartz & Sons, Inc. v. Sunkist Growers, Inc., 203 F.Supp. 92, 99 (E.D.Mich.1962). See also Corn Products Co. v. FTC, 324 U.S. 726, 744, 65 S.Ct. 961, 970, 89 L.Ed. 1320 (1945). In addition, the...