John B. Hull, Inc. v. Waterbury Petroleum Products, Inc., No. 21

• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)
• Writing for the Court: Before SMITH, TIMBERS and VAN GRAAFEILAND; J. JOSEPH SMITH
• Citation: 588 F.2d 24
• Parties: , 1978-2 Trade Cases 62,357, 4 Fed. R. Evid. Serv. 313 JOHN B. HULL, INC., The Sandmeyer Oil Company, Community Petroleum Products, Inc., and Dutchess Auto Co., Plaintiffs-Appellees, v. WATERBURY PETROLEUM PRODUCTS, INC., Defendant-Appellant. ocket 78-7136.
• Docket Number: D,No. 21
• Decision Date: 30 November 1978

Page 24

588 F.2d 24 47 A.L.R.Fed. 835, 1978-2 Trade Cases 62,357,
4 Fed. R. Evid. Serv. 313 JOHN B. HULL, INC., The Sandmeyer Oil Company, Community
Petroleum Products, Inc., and Dutchess Auto Co.,
Plaintiffs-Appellees,
v.
WATERBURY PETROLEUM PRODUCTS, INC., Defendant-Appellant. No. 21, Docket 78-7136. United States Court of Appeals,
Second Circuit. Argued Oct. 18, 1978.
Decided Nov. 30, 1978.

Page 25

Michael F. Dowley, Middletown, Conn. (Dzialo, Pickett & Allen, P. C., Middletown, Conn.), for appellant.

James R. Hawkins, II, Stamford, Conn. (Cummings & Lockwood, Stamford, Conn.), for appellee.

Before SMITH, TIMBERS and VAN GRAAFEILAND, Circuit Judges.

J. JOSEPH SMITH, Circuit Judge:

This is an appeal from an order in a civil antitrust action granting a preliminary injunction

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against defendant's pricing practices for heating oil, entered in the United States District Court for the District of Connecticut, T. Emmet Clarie, Chief Judge. We find the scope of the order somewhat broader than justified, modify the order and, as modified, affirm.

This controversy involves five companies engaged in the sale of heating oil (also known as "fuel oil Number 2") to homes, schools and some businesses in an area referred to as the Northwest Corner, which encompasses parts of northwest Connecticut, southwest Massachusetts and the adjacent area of New York. ¹ On one side of the controversy are John B. Hull, Inc., The Sandmeyer Oil Company, Community Petroleum Products, Inc., and Dutchess Auto Company ("the plaintiffs"). Together they account for a substantial portion of the sales of heating oil in the Northwest Corner. ² On the other side is Waterbury Petroleum Products, Inc. ("WPP"), which has about 2% Of the market in the Northwest Corner.

WPP originally operated exclusively in Waterbury, Connecticut, outside of the Northwest Corner. In 1975, it purchased the assets of the Canaan Oil Company, located in Canaan, Connecticut, and thereby expanded its business into the Northwest Corner. For reasons unrelated to this action, all three former employees of the Canaan Oil Company subsequently left WPP and began working for one of its competitors. As a result, WPP started to lose customers in the Northwest Corner. At about the same time, WPP lost the use of its Canaan storage facility in a dispute over the ownership of the property.

In September 1976, WPP sought to reverse its declining fortunes in the Northwest Corner by lowering the price of heating oil there to 35.9 cents per gallon. WPP continued to sell its heating oil in the Waterbury area at a price of 40.9 cents per gallon. Over the next four months, increases in the cost of obtaining oil caused WPP to raise the price charged to Waterbury customers to 48.9 cents per gallon. During the same period, WPP only increased its price in the Northwest Corner to 39.9 cents per gallon.

WPP's new pricing policy proved successful in recapturing old customers and acquiring new ones, some of whom previously purchased oil from the plaintiffs. As might be expected, the plaintiffs were not pleased with the loss of customers that WPP's pricing policy produced. Thus they commenced this action against WPP, alleging that its pricing policy constituted unlawful price discrimination in violation of § 2(a) of the Clayton Act as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a). The plaintiffs sought preliminary and permanent injunctive relief against WPP's pricing policy, as well as trebled damages for the losses which they sustained as a result of that policy.

The district court, pursuant to 28 U.S.C. § 636, referred the matter to a magistrate, who conducted an evidentiary hearing to determine whether a preliminary injunction should be issued. The hearing lasted five days, after which the magistrate submitted his recommended ruling, including specific findings of fact. The district court "adopted, ratified and confirmed" the recommended ruling and issued an order granting the preliminary injunction.

WPP appeals from that order, arguing that the district court lacked subject matter jurisdiction, that there was manifest error in the issuance of the injunction, and that the injunction as issued is too broad and

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should be modified. We find no merit in appellant's first two contentions, but agree that the relief granted was too broad and therefore modify the preliminary injunction and, as modified, affirm.

WPP contends that the district court lacked jurisdiction of the subject matter of this action because there was no proof of injury to competition. We of course must consider this argument although it was not raised below, Woodward v. D. H. Overmyer Co., 428 F.2d 880, 882 (2d Cir. 1970), Cert. denied, 400 U.S. 993, 91 S.Ct. 460, 27 L.Ed.2d 441 (1971), as jurisdiction over the subject matter provides the basis for the court's power to act, and an action must be dismissed whenever it appears that the court lacks such jurisdiction. Fed.R.Civ.P. 12(h)(3).

WPP cites several cases from the Fifth Circuit for the proposition that proof of injury to competition is a jurisdictional requirement under the Robinson-Patman Act. This element was explicitly described as a prerequisite to jurisdiction in Hampton v. Graff Vending Co., 516 F.2d 100, 101-02 (5th Cir. 1975), which relied on Cliff Food Stores, Inc. v. Kroger, Inc., 417 F.2d 203, 208 (5th Cir. 1969). In neither case, however, was the existence of an adverse effect on competition in issue. Moreover, the court in Cliff Food Stores did not speak in terms of jurisdiction, but rather in terms of the proof necessary to "maintain an action." ³

We know of no other court which has adopted the position taken in Hampton. Commentators have concluded that proof of injury to competition is not a jurisdictional requirement. See, e. g., 16B J. Von Kalinowski, Business Organizations: Antitrust Laws and Trade Regulation, ch. 23; Rowe, Discriminatory Sales of Commodities in Commerce: Jurisdictional Criteria Under the Robinson-Patman Act, 67 Yale L.J. 1155, 1156 (1958). We respectfully decline to follow the Fifth Circuit's dictum. Proof of injury to competition is not a jurisdictional prerequisite, but instead is part of a Robinson-Patman plaintiff's substantive burden in demonstrating a violation of the Act. ⁴

The district court applied the proper standard for the issuance of a preliminary injunction, requiring the plaintiffs to demonstrate "either (1) probable success on the merits And possible irreparable injury, Or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation And a balance of hardships tipping decidedly toward the party requesting the preliminary relief." Sonesta International Hotels Corp. v. Wellington Associates, 483 F.2d 247, 250 (2d Cir. 1973). (Emphasis in original.) The court determined that the plaintiffs had satisfied both prongs of this test. Our review is limited to a consideration of whether there was an abuse of discretion, Doran v. Salem Inn, Inc., 422 U.S. 922, 931-32, 95 S.Ct. 2561, 45 L.Ed.2d 648 (1975), or a clear mistake of law, 414 Theater Corp. v. Murphy, 499 F.2d 1155, 1159 (2d Cir. 1974), in the district court's application of the Sonesta test.

15 U.S.C. § 13(a) requires a plaintiff to show that a defendant, (1) who was engaged in commerce, (2) has discriminated in price between purchasers of commodities (3) of like grade and quality, (4) where the effect may be substantially to lessen competition. WPP admitted that it was engaged in commerce and that the sales in question took place in commerce. The district court adopted the magistrate's findings of fact that the other three elements were also

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satisfied. We conclude that the district court acted well within its discretion in finding a probability that the plaintiffs ultimately will succeed on the merits of their claim.

Price discrimination, for the purposes of the Robinson-Patman Act, is "merely a price difference." FTC v. Anheuser-Busch, Inc., 363 U.S. 536, 549, 80 S.Ct. 1267, 4 L.Ed.2d 1385 (1960). WPP concededly charged different prices to different customers at the same time. The district court found that WPP was selling a commodity of like grade and quality in Waterbury and the Northwest Corner. In so finding, the court rejected as factually unsupported WPP's contention that the products sold in the two areas were different in that the price charged in Waterbury purportedly included 24-hour burner service and easier credit terms, not offered in the Northwest Corner. The court also rejected WPP's defense that the price difference was justified by a difference in the costs of providing heating oil to the two areas. The court characterized the testimony of WPP's expert as "beyond the realm of believability" and...