I. Haas Trucking Corp. v. New York Fruit Auction Corp.

• Decision Date: 10 October 1973
• Docket Number: No. 73 Civ. 4046.,73 Civ. 4046.
• Citation: 364 F. Supp. 868
• Parties: I. HAAS TRUCKING CORP. et al., Plaintiffs, v. NEW YORK FRUIT AUCTION CORPORATION and Auction Delivery Corporation, Defendants.
• Court: U.S. District Court — Southern District of New York

364 F. Supp. 868

I. HAAS TRUCKING CORP. et al., Plaintiffs, v. NEW YORK FRUIT AUCTION CORPORATION and Auction Delivery Corporation, Defendants.

No. 73 Civ. 4046.

United States District Court, S. D. New York.

October 10, 1973.

COPYRIGHT MATERIAL OMITTED

Slavin & Hersch, New York City, for plaintiffs; Gilbert M. Hersch, New York City, of counsel.

Cleary, Gottlieb, Steen & Hamilton, New York City, for defendants; James W. Lamberton, George Weisz, George J. Grumbach, Jr., New York City, of counsel.

MEMORANDUM

LASKER, District Judge.

I. Haas Trucking Corp. ("Haas"), L. J.M. Service Inc. ("LJM") and Heyer Forwarding Co. ("Heyer") are small family businesses which, for nearly fifty years, have served in the wholesale fruit and vegetable business either as "Forwarders" or "Loaders" — terms which are elaborated below. New York Fruit Auction Corporation ("Auction") has been in the business of auctioning fresh fruit and produce since 1933, located originally at railroad piers on the Hudson and, since May, 1971, because of the substantial demise of railroad operations, at new leased premises in Hunts Point, Bronx, New York.

The forwarders-loaders are independent contractors appointed by "receivers", who in turn act either as agents for growers and shippers or principals in the sale of wholesale fruit. The forwarders-loaders have always carried on their activities on the premises occupied by Auction: until May, 1971, at the railroad piers of which Auction was a permittee only, after that date and until September 17, 1973 at the Hunts Point facility which Auction controlled as lessee. Although in earlier times at least one other fruit auction company carried on business in New York, in the recent past Auction has been the only fruit auctioneer in the city.

On September 12, 1973, without consultation or notice to Haas, LJM and Heyer, Auction addressed a letter to them and the other companies then serving as forwarders or loaders advising the addressees that at the start of the next business week (September 17), forwarding and loading at Auction's premises would be performed exclusively by its new subsidiary, Auction Delivery Corporation ("Delivery"), and that other forwarders would no longer be allowed to perform such services on Auction's premises. The letter offered to employ the principals and employees of the forwarders and loaders.

On September 21, 1973, the plaintiffs instituted this suit for injunctive and declaratory relief and for damages, alleging that the defendants' actions violate Sections 1 and 2 of the Sherman Act (15 U.S.C. §§ 1 and 2) and Section 7 of the Clayton Act (15 U.S.C. § 18). Simultaneously, the plaintiffs moved for a temporary restraining order and a preliminary injunction restraining the defendants from interfering with the conduct of plaintiffs' business or barring them from access to the Hunts Point facility. A temporary restraining order was granted pending disposition of this application for preliminary relief. An evidentiary hearing was held on October 1 and 2, 1973.

I.

The function of a forwarder is to shepherd the fruit owned by the seller, or "receiver", from the time it is unloaded at Auction until, after sale, it is picked up from Auction's floor for the buyer. While forwarders are appointed or retained by the shipper (receiver), they are not paid by him, but rather by the buyer. The significance of this fact becomes apparent in the discussion that follows. In carrying out its role, the forwarder inspects the commodities, makes samples for examination by possible buyers (in this capacity it is known as a sampler or display agent), designates where boxes are to be stacked in accordance with Auction's catalogue provided for each sale by the auctioneer, receives records of the fruit sold from Auction personnel, and sees to it that the proper lots of fruit are picked up by the buyers by issuing a delivery ticket to the buyer which the latter signs as a receipt.

Loaders, like forwarders, are appointed by a shipper-receiver, but paid by the buyer. The job of a loader is physically to transfer packages or boxes of fruit, after sale, from the floor of the auction building to the tailgate of the buyers' (or buyer-hired) trucks.

While the functions of forwarder and loader are also performed — indeed, by the necessities of the industry must be performed — at other facilities for the sale of fruit, such as the Hunts Point wholesale fruit market, Auction is the only facility at which these functions are carried out by independent contractors such as Haas, LJM and Heyer.

The parties differ sharply as to whether the businesses of forwarding and loading require skill or expertise. Aside from the generalized opinion testimony of the principals of the plaintiffs that the jobs do require skill, and without denigrating the importance of the work to receiver, buyer and Auction, the evidence establishes that forwarding and loading do not demand expertise. Auction does not, of course, dispute the importance of the work. Indeed, as will be seen, it is precisely because it does regard the work as important that it claims to have been impelled to create its own service company to do the work properly. It is true that the job of sorting and sampling requires expertise, however, Auction has not, and does not propose to bar any of the plaintiffs from continuing this work on its premises or from continuing to truck shippers' goods to Auction or buyers' purchases from there. The value of such a continuing opportunity may be questionable, since the plaintiffs assert that their businesses would not be viable if they were no longer able to forward and load at Auction's premises.

Whatever the historic origin and justification for the forwarding-loading system we have described, Auction claims, and the evidence establishes, that by the time Auction took the action which is the subject of this suit, the old system was plagued with inefficiencies which adversely affected Auction's interests.

The first drawback to the system was the lack of accountability of forwarders and loaders. Although the forwarders' responsibility was to shepherd packages of fruit and release them to buyers by whom they were paid, the forwarders were accountable to their receivers, and the receivers were not motivated to assure the buyers rapid and accurate deliveries. The loaders, too, although appointed by receivers were paid by buyers for services performed for the latter. Since forwarders and loaders were paid on a per-package basis, there was a natural tendency for them to handle the most packages with the least men; a tendency which the buyers dependent on them had no power to correct, since the buyer had no power to choose his own forwarder or loader.

A second defect of the system was the lack of centralized control. The various forwarders and loaders competed with each other. They declined to share labor forces on Auction's premises, causing bottleneck delays which a centrally directed labor force could have overcome. That is, e. g., delays at the station of one checker-forwarder whose fruit was being claimed by buyers, could not be alleviated by assigning (as a single employer could) unoccupied personnel employed by other forwarders.

Furthermore, there was evidence that some checkers made deliveries of fruit to the wrong buyers and occasionally purposely switched fruit to favor particular buyers. The lack of centralized direction made it impossible to control these practices.

The cumulative effect of these deficiencies resulted in serious problems for Auction, including (1) the cost of correcting errors committed by forwarders and loaders, a cost which, in the recent past has run at the rate of $30,000 annually; (2) errors in bills from Auction caused by underlying mistakes of checkers or loaders have resulted in buyers' refusal to pay bills (or to pay them in full) which, in turn, brought about a sharp upturn in Auction's accounts receivables at this time of high interest rates. In August, 1973, "short" remittances were twice the previous month and amounted to $31,000; (3) buyers increasingly deserted Auction and instead bought from its competitors, the approximately 300 wholesale fruit merchants and jobbers doing business in the adjacent Hunts Point Wholesale Market. For example, in 1971, Auction handled 13,000 carlots or 12.5% of physical volume, (10% of dollar volume) of the New York fruit and vegetable business. Wholesalers, jobbers and chain store warehouses handled the remaining 87.5% physical (and 90% dollar) volume. In 1973, Auction's physical volume has dropped from 13,000 to 10,500 carlots, a slippage of 15% although total volume in New York has remained stable.

This statistical information is critical not only because it demonstrates that there were sound business reasons for Auction to take action to restructure its operations, but because the record establishes that Auction clearly competes with the wholesalers, jobbers and chain stores, and the relevant market includes all of them, and is not, as plaintiffs contend, restricted to the auction sale of fruit. Indeed, the plaintiffs' own witnesses testified that Auction's buyers also buy from wholesalers and jobbers, are certainly free to use them as alternate sources and that the various segments of the market are in sharp competition with each other.

Faced with these significant business difficulties and losses Auction determined to take control of forwarding and loading on its own premises. Although Auction obviously intended to increase its own overall profits by the reorganization, we do not find, and plaintiffs have failed to demonstrate by a preponderance of the evidence, that Auction intended to profit or profiteer separately from the forwarding and loading operations which it assumed. It is true that simultaneously with the changeover, Auction raised its own prior charge to the buyer of 10¢ per package to 20¢ per package, but we find credible the...