Ideal Plumbing Co. v. Benco, Inc.

• Decision Date: 02 February 1976
• Docket Number: No. 74--1891,74--1891
• Parties: , 1976-1 Trade Cases 60,701 IDEAL PLUMBING COMPANY, Appellant, v. BENCO, INC., and Zapata Warrior Constructors, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 972

529 F.2d 972

42 A.L.R.Fed. 266, 1976-1 Trade Cases 60,701

IDEAL PLUMBING COMPANY, Appellant, v. BENCO, INC., and Zapata Warrior Constructors, Appellees.

No. 74--1891.

United States Court of Appeals,

Eighth Circuit.

Submitted April 17, 1975.

Decided Feb. 2, 1976.

Nicholas H. Patton, Texarkana, Ark., for appellant.

E. Lawrence Merriman, Texarkana, Tex., for Benco.

Austin C. Wilson, Houston, Tex., for Zapata.

Before ROSS, STEPHENSON and WEBSTER, Circuit Judges.

WEBSTER, Circuit Judge.

Ideal Plumbing Company initiated this antitrust and unfair trade practice action against Benco, Inc., and Zapata Warrior Constructors, claiming that it was illegally deprived of the mechanical subcontract on the construction of an addition to Saint Michael Hospital in Texarkana, Arkansas. Following a jury trial in which Ideal obtained a favorable verdict on two counts, the District Court ¹ entered judgment for defendants notwithstanding the verdict and this appeal followed. Ideal Plumbing Co. v. Benco, Inc., 382 F.Supp. 1161 (W.D.Ark.1974).

Zapata, a general contractor, had solicited bids from three mechanical subcontractors, including Ideal and Benco, for the installation of plumbing, ventilation, and heating and air conditioning systems in the expansion of Saint Michael Hospital. Ideal and Benco submitted bids on the subcontract of $698,729.00 and $699,000.00 respectively, while the third bid received by Zapata was substantially in excess of these amounts. ²

Zapata's bid for the prime contract was based in part upon the low base bid it had received from Ideal. Following the bid opening, the prime contract was awarded to Zapata. Zapata, however, did not immediately award the mechanical subcontract. After further analysis of the bids, an employee of Zapata requested Benco to reduce its bid to $697,900.00, a reduction of $1,100.00. Benco advised Zapata that this reduction would be accepted if Zapata undertook the responsibility for performing certain concrete work and painting that had been initially included in the bid by Benco. After agreement on these modifications, Benco was awarded the mechanical subcontract for the project on the basis of its reduced bid.

Ideal thereafter brought an action against Benco and Zapata alleging violations of Sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1, 2; Section 2(c) of the Robinson-Patman Act, 15 U.S.C. § 13(c); and Section 7 of the Arkansas Unfair Trade Practices Act, Ark.Stat.Ann. § 70--307. In its complaint, Ideal further contended that the conduct of the defendants constituted a tortious interference with Ideal's reasonable expectation of a contractual relationship with Zapata and that Zapata was in breach of an implied contract to award the project to the lowest responsible bidder.

At trial, Ideal abandoned its claim under Section 2 of the Sherman Act, and the case was submitted to the jury on the remaining five claims by special interrogatories. See Fed.R.Civ.P. 49. The jury found that the defendants had not unreasonably restrained trade in violation of Section 1 of the Sherman Act, that they had not tortiously interfered with any reasonable contractual expectation of Ideal, and that there was no breach by Zapata of any implied contract. On the other hand, the jury found that both Benco and Zapata had violated Section 2(c) of the Robinson-Patman Act as well as Section 7 of the Arkansas Unfair Trade Practices Act. Damages on both counts were assessed by the jury at a pre-trebled total of $28,000.00.

On defendants' motion for judgment notwithstanding the verdict or for new trial, the District Court set aside the verdict for Ideal in its entirety, and entered judgment for the defendants. See Fed.R.Civ.P. 50(b). The District Court held, as a matter of law, that the Robinson-Patman Act had not been violated by the defendants for three independent reasons: (1) there had been no sale of 'goods, wares, or merchandise' by Benco to Zapata; (2) there had been no payment by Benco to Zapata of any sum 'in lieu of commission or brokerage'; and (3) the reduction in price was made in exchange for services rendered by Zapata, thus invoking the statutory exception contained in Section 2(c). With respect to the state law claim, the District Court held that there was no 'rebate, refund, commission, or unearned discount' within the meaning of the Arkansas Unfair Trade Practices Act, and that, in any event, any payment made by Benco to Zapata was not 'secret' within the meaning of that statute. The District Court further held that Ideal had failed to prove injury to itself under either statute, and thus that the damage award was unsupported by the evidence.

Ideal appeals, claiming that the District Court erred in entering judgment for defendants notwithstanding the verdict. We affirm the judgment of the District Court, although on somewhat more narrow grounds.

I

Section 2(c) of the Robinson-Patman Act, 15 U.S.C. § 13(c), provides:

It shall be unlawful for any person engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares, or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediary therein where such intermediary is acting in fact for or in behalf, or is subject to the direct or indirect control, of any party to such transaction other than the person by whom such compensation is so granted or paid.

The wake of the Supreme Court decision in Federal Trade Commission v. Henry Broch & Co., 363 U.S. 166, 80 S.Ct. 1158, 4 L.Ed.2d 1124 (1960), produced considerable uncertainty with respect to the intended scope of this broadly worded section. ³ See Rowe, Price Discrimination Under the Robinson-Patman Act 330 (1962); Rill, Brokerage Under the Robinson-Patman Act: Toward a New Certainty, 41 Notre Dame Law. 337 (1966). It seems reasonably clear, however, that a principal objective of the section was to prevent the payment of 'dummy commissions' to an agent of a seller or a buyer with sufficient leverage to compel a price concession. ⁴ See Federal Trade Commission v. Henry Broch & Co., supra, 363 U.S. at 168--69, 80 S.Ct. at 1160; Federal Trade Commission v. Simplicity Pattern Co., 360 U.S. 55, 69, 79 S.Ct. 1005, 3 L.Ed.2d 1079 (1959). Historically, chain operations and other large buyers were able to reclaim such concessions through 'dummy' brokers or, alternatively, to deal directly with the seller and demand a price concession in lieu of the brokerage which the seller was otherwise prepared to pay for independent brokerage services. In each instance, no real services were performed by the broker, and competitive price discrimination was the necessary result.

Congress also intended Section 2(c) to reach price arrangements equivalent to illicit brokerage, such as commercial bribery, which it deemed contrary to public policy in a manner distinctly independent of such considerations as adverse impact upon competition. See Rangen, Inc. v. Sterling Nelson & Sons, Inc., 351 F.2d 851, 858--59 (9th Cir. 1965), cert. denied,383 U.S. 936, 86 S.Ct. 1067, 15 L.Ed.2d 853 (1966); Fitch v. Kentucky-Tennessee Light & Power Co., 136 F.2d 12, 15--16 (6th Cir. 1943). Thus, a defense based upon meeting competition, such as is available under Section 2(b) in Section 2(a) cases, is no defense in a Section 2(c) case. Federal Trade Commission v. Washington Eish & Oyster Co., 271 F.2d 39, 44 (9th Cir. 1959). See also Federal Trade Commission v. Simplicity Pattern Co., supra, 360 U.S. at 65--67, 79 S.Ct. at 1011--12.

Despite the apparently broad reach of the Section 2(c) terminology 'commission, brokerage, or other compensation', these words do not automatically act to prohibit all forms of negotiated price reduction. The words 'or other compensation' are intimately related to the purpose of the section and should be construed to mean compensation in the nature of a commission or brokerage--in other words, compensation for placing or obtaining an order for the purchase or sale of goods. See Austin, Price Discrimination and Related Problems under the Robinson-Patman Act 104 (ALI--ABA, 2d ed. 1959).

Likewise, for a discount or allowance in lieu of 'commission, brokerage, or other compensation' to be actionable under Section 2(c), it must be a substitute payment for that which the Act forbids. See Federal Trade Commission v. Henry Broch & Co., supra, 363 U.S. at 173--76, 80 S.Ct. at 1163--64; Robinson v. Stanley Home Products, Inc., 272 F.2d 601, 603--04 (1st Cir. 1959). While proof of sale or purchase transactions with third parties is not required in order to establish a Section 2(c) violation, see Jarrett v. Pittsburgh Plate Glass Co., 131 F.2d 674 (5th Cir. 1942), there must nonetheless be some evidence that the discount or allowance was in fact in lieu of a brokerage commission. No such evidence was present in this case. ⁵

Contracts for construction work on projects of the type involved in this case are normally awarded on the basis of competitive bids. The general contractor, in developing its bid, solicits bids from potential subcontractors to determine the cost of the performance of various specialty work. If the general contractor is awarded the prime contract, it is then in a position to control its costs by accepting certain bids on its subcontracts. In this case, the jury found, and on appeal Ideal does not contest, that Zapata was under no legal obligation to accept Ideal's bid. Whatever might be said about Zapata's business practices in 'shopping' Ideal's bid in order to obtain a lower figure from Benco, there is nothing in the record with respect to these negotiations which could even remotely be considered analogous to or 'in lieu of' compensation for placing or obtaining an order for the...