Kirby v. PR Mallory & Co., Inc.

• Decision Date: 27 November 1973
• Docket Number: No. 72-1779.,72-1779.
• Citation: 489 F.2d 904
• Parties: John S. KIRBY, d/b/a Quik-Chek of Indiana and Quik-Chek, Inc., Plaintiffs-Appellants, v. P. R. MALLORY & CO., INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

489 F.2d 904 (1973)

John S. KIRBY, d/b/a Quik-Chek of Indiana and Quik-Chek, Inc., Plaintiffs-Appellants, v. P. R. MALLORY & CO., INC., Defendant-Appellee.

No. 72-1779.

United States Court of Appeals, Seventh Circuit.

Argued September 12, 1973.

Decided November 27, 1973.

COPYRIGHT MATERIAL OMITTED

William F. LeMond, Terrence P. Pehler, Indianapolis, Ind., for plaintiffs-appellants.

Thomas M. Scanlon and Herbert C. Snyder, Jr., Indianapolis, Ind., for defendant-appellee.

Before CASTLE, Senior Circuit Judge, and FAIRCHILD and PELL, Circuit Judges.

CASTLE, Senior Circuit Judge.

Plaintiff John S. Kirby (doing business as Quik-Chek of Indiana and Quik-Chek, Inc.) appeals from an order granting summary judgment to Defendant P. R. Mallory & Co. in an action in which Kirby sought $500,000 for damages allegedly sustained by Mallory's violation of antitrust law. On this appeal, Kirby claims several sources of district court error: the determination that no violation of the Robinson-Patman Act occurred, the finding that Kirby's complaint failed to state a claim under section 3 of the Clayton Act, the denial of Kirby's motion for leave to amend his pleadings, the granting of Mallory's motion for summary judgment after its previous denial, and the finding that no genuine issue as to any material fact existed. We find no error, and we affirm the order of the district court.

Kirby is a rack jobber of principally Eveready batteries. He wholesales batteries to retail stores for resale to consumers, and he also services the stores' battery display racks. Prior to 1968, Kirby's chief customer was the Hook Drug Co., the largest retail drug chain in Indiana, which represented about 50% of Kirby's business. Mallory, Eveready's primary competitor in the manufacture of batteries, had sought the Hook account for some years. It had been rebuffed by Hook, because Mallory offered sales without service. Kirby also refused Mallory's request to change Hook's battery inventory to Mallory. In late 1967 or early 1968, Hook altered its policy and decided to service its own battery display racks. Hook then requested Eveready, Mallory and Kirby to submit bids for only the sale of batteries. Hook accepted Mallory's offer. As set forth in a May 2, 1968 letter from Mallory's sales manager McKinley, to Roesch, Hook's vice president, Mallory's terms to Hook corresponded with its terms to Kirby, with three exceptions: Hook was given a cooperative advertising allowance of up to 71/2% of Hook's net purchases from Mallory, payable on proof of actual expenditure; Hook was to be "tagged" in 621/2% of Mallory's Indianapolis radio advertising per year; and Hook was to be paid the construction cost of battery display racks conforming to Hook's decors. While the agreement was effected on September 10, 1968, the cooperative advertising allowance aspect was terminated on December 31, 1968. Hook's net purchases during this period were $81,494, entitling it to a $6,100 allowance. Mallory offered the allowance to other direct-purchase retailers, but it excluded wholesalers like Kirby who did not sell to the public. Mallory tags its largest retailers (direct-buying retailers and wholesalers' customers) within the "Indianapolis advertising market." Mallory has not extended this offer to either its direct-purchase retailers outside the Indianapolis market or to Kirby's 125 retailers throughout the state. Mallory also furnishes battery display racks of various sizes and kinds to its customers, both direct-buying retailers and wholesalers.

I.

Kirby alleged in his complaint that Mallory contracted to sell its batteries to Hook "at prices below which products of like grade and quality" were sold to Kirby, a violation of Robinson-Patman Act § 2(a).¹ During discovery, it became evident that Mallory had offered identical price schedules and discounts to Hook and Kirby, and Kirby shifted the basis of his complaint to §§ 2(d) and 2(e) of the Act.² Specifically, Kirby argued that Mallory's cooperative advertising allowance was contrary to § 2(d) in that it was a payment to Hook as compensation for services furnished by Hook in connection with the offering for sale of Mallory's products not proportionally available to Kirby, a customer competing in the distribution of the product. Kirby also argued that the radio tagging and the display units were unlawful under § 2(e), which prohibits discrimination among purchasers (such as Kirby and Hook) of batteries bought for resale by contracting or contributing to the furnishing of services or facilities connected with the offering for sale of batteries on terms not accorded on a proportionally equal basis.

With respect to the cooperative advertising allowance, the question of liability depends on the applicability of § 2(d) to customers on different functional levels who compete in the distribution of Mallory's products. That issue was decided in F. T. C. v. Fred Meyer, Inc., 390 U.S. 341, 88 S.Ct. 904, 19 L.Ed.2d 1222 (1968), a case involving a direct-buying retailer who induced his suppliers to grant him promotional allowances not proportionally available to the suppliers' wholesale customers or the wholesalers' retail customers. The Federal Trade Commission found this practice violated the statutory language of § 2(d) that allowances be "available on proportionally equal terms to all other customers competing in the distribution of such products" and required that the suppliers' wholesale customers be granted proportional allowances. The Supreme Court held, however, that § 2(d) did not require proportional equality between Meyer, the direct-purchase retailer, and the wholesalers; rather, retailers purchasing from wholesalers are the suppliers' "customers" for purposes of the Act and are entitled to proportionally the same allowance received by the competing direct-buying retailer. The Court responded to the Commission's interpretation of § 2(d):

The Commission believed it found support for its position in the language of § 2(d) itself which requires that promotional allowances be accorded on proportionally equal terms to "customers competing in the distribution" of a supplier\'s product rather than merely to customers competing in resales. The majority reasoned that the wholesalers, when they resold to Meyer\'s retail competitors, were competing with Meyer in the distribution of the suppliers\' products because the two wholesalers were "seeking the same consumer dollars that respondents are after." 63 F.T.C., at 43. While it cannot be doubted that Congress reasonably could have employed such a broad concept of competition in § 2(d), we do not believe that the use of the word "distribution" rather than "resale" is a clear indication that it did, and . . . the congressional hearings indicate that the section was meant to impose proportional equality only where buyers competed on the same functional level. 390 U.S. at 355-356, 88 S.Ct. at 912.

Thus, even though Kirby and Hook are customers competing in the distribution of Mallory products in an ultimate sense, Kirby cannot rely on the literal statutory language to assert liability, because Kirby, a wholesaler, and Hook, a direct-buying retailer, do not compete on the same functional level.

Kirby replies that even if Meyer limits the scope of § 2(d) to customers competing on the same functional level, Mallory is still liable because Hook is not only a direct-buying retailer but also a wholesaler, like Kirby. Kirby argues that when labels are disregarded, Hook's wholesaling nature is revealed by its performance of the following wholesaling functions: the chain buys directly from manufacturers, obtains a wholesaler's discount, warehouses the goods, distributes the goods to many outlets, and services the outlets' displays. We agree that a functional analysis is necessary to determine whether customers are in fact competing on the same distributive level. F. T. C. v. Simplicity Pattern Co., 360 U.S. 55, 62-63, 79 S.Ct. 1005, 3 L.Ed.2d 1079 (1959). However, even before the Robinson-Patman Act, it was well-settled that the litmus test of a wholesaler is the character of his selling, not his buying. Mennen Co. v. F. T. C., 262 U.S. 759, 43 S.Ct. 705, 67 L.Ed. 1219 (1923); see A. Neale, The Law of Anti-Trust in the U. S. A. 252-253 (2d ed., 1969). F. T. C. v. Rubberoid Co., 343 U.S. 470, 72 S.Ct. 800, 96 L.Ed. 1081, on which Kirby relies, supports this finding. Rubberoid holds that traders, whatever their designations, who compete at the same level must be granted the same discount. In looking through form to substance, the Court found that a Rubberoid customer who claimed to be an "applicator" (a contractor who uses the product himself) was in fact a wholesaler, because he resold the product to other applicators. Unlike both Rubberoid's applicator and Kirby, Hook is not reselling Mallory batteries to retailers; Hook sells solely to ultimate users. Hook's internal economies through the provision of services formerly performed by a wholesaler do not in themselves transform a retailer into a wholesaler. Since § 2(d) mandates proportional equality only between customers on the same functional level, we hold that Mallory was not required to grant the cooperative advertising allowance to Kirby.

Kirby next argues that even if Meyer limits the applicability of § 2(d) to customers competing at the same level, this restriction does not apply to § 2(e), which protects "purchasers of a commodity bought for resale." As this language resembles that found in § 2(a) ("purchasers of commodities . . . sold for . . . resale") and as Congress intended to expand the meaning of competition in § 2(a) to include more than resellers operating on the same functional level, see F. T. C. v. Fred Meyer, Inc., supra at 355 of 390 U.S., at 912 of 88 S.Ct., the scope of § 2(e) must therefore be similarly expansive. Kirby's reliance on the disparities in statutory language fails to account for the...