Morton v. National Dairy Products Corp.

• Decision Date: 17 July 1968
• Docket Number: Civ. A. No. 30594.
• Citation: 287 F. Supp. 753
• Parties: Eleanor G. MORTON et al. v. NATIONAL DAIRY PRODUCTS CORP.
• Court: U.S. District Court — Eastern District of Pennsylvania

287 F. Supp. 753

Eleanor G. MORTON et al. v. NATIONAL DAIRY PRODUCTS CORP.

Civ. A. No. 30594.

United States District Court E. D. Pennsylvania.

July 17, 1968.

William S. Rawls, Philadelphia, Pa., for plaintiffs.

Owen B. Rhoads, Philadelphia, Pa., for defendant.

OPINION

JOHN W. LORD, Jr., District Judge.

This suit involves an alleged violation of the Clayton Antitrust Act, as amended by § 2(a) of the Robinson-Patman Act. 38 Stat. 730 (1914); 49 Stat. 1526 (1936), 15 U.S.C. § 13(a). Specifically, plaintiffs contend that the defendant violated these antitrust statutes through its out-of-state sales of milk to Pennsylvania chain store purchasers at prices in variance with those prices the defendant charged on Pennsylvania into-the-store sales made pursuant to the Pennsylvania Milk Control Act. The case was tried by the Court, without a jury, during the course of a fifteen day trial, whereupon the Court makes the following Findings of Fact and Conclusions of Law:

FINDINGS OF FACT

The Parties

1. The plaintiffs (hereafter "Pennbrook") are a partnership operating the Pennbrook Milk Company, a milk processing concern with its single plant located in Philadelphia, Pennsylvania. Pennbrook Milk Company is a family owned and operated business. The owners also operate Pennbrook Vending Company and Pennbrook Ice Cream Company. The Milk Company owns the Vending Company. The Ice Cream Company is owned by Mrs. David M. Gwinn, the wife of the managing partner of the Milk Company.

2. The three Pennbrook enterprises are conducted on a combined basis, in a single building, with the same processing, office, sales and distribution personnel.

3. The defendant National Dairy Products Corporation (hereafter "Sealtest") is a major national dairy corporation and operates the division of Sealtest Foods which conducts a milk processing and sales business in southeastern Pennsylvania, southern New Jersey and Delaware.

Relevant Geographic Market

4. The relevant geographic market, in which Pennbrook, Sealtest, and other milk companies compete in the sale of milk and dairy products, as demonstrated by the evidence produced during the course of the trial, is the distinct geographic market encompassing southeastern Pennsylvania, southern New Jersey and Delaware, termed the lower Delaware Valley.

Relevant Functional Market

5. Functionally, the above geographic market breaks down into two categories: (1) retail, consisting of home delivered or home service sales, and (2) wholesale, consisting of sales to hotels, restaurants, hospitals, industrial plants, vending customers, food service customers and stores.

6. The usual industry practice of milk companies dealing in the relevant geographic market is not to divide the wholesale market into classes or types of customers, but to treat all wholesale customers as one functional market.

7. Pennbrook does not compete with Sealtest in the retail market because Pennbrook does not make any retail sales, although both compete in the wholesale market for a variety of customers.

8. Milk companies such as Pennbrook and Sealtest are subject to stringent price regulation in both Pennsylvania and New Jersey. These companies are regulated in Pennsylvania by the Pennsylvania Milk Control Commission (hereafter "PMCC") and by the Office of Milk Industry (hereafter "OMI") in New Jersey.

Market Conditions

9. Milk companies do compete within the relevant market, although free price competition is hampered in the intrastate New Jersey and Pennsylvania markets as each seller must conform to the price floors established under the aegis of the local milk control laws.

10. From Pennbrook's inception in 1941, its largest single customer was Penn Fruit, a Pennsylvania corporation, which operates a chain of supermarkets in Pennsylvania, New York, New Jersey, Delaware and Maryland.

11. Wholesale customers of milk companies demonstrate market mobility in changing their sources of supply from one milk company to another within the relevant market.

12. Although Pennbrook, Sealtest and several other milk companies agreed in writing, in July 1961, to eliminate advertising payments to wholesale customers, Pennbrook subsequently made substantial advertising payments in breach of this agreement.

13. In addition, Pennbrook made loans of capital and refrigeration equipment in attempts to side-step the impact of the uniform price floors imposed by the PMCC.

14. Pennbrook acquired the business of the Quaker City Wholesale Grocers Association (Penn Treaty Stores) through advertising payments and in 1962 Pennbrook's volume of business with these stores increased three-fold to $343,000.00 per year. By 1964 Pennbrook was paying in excess of $100,000.00 to its customers per year.

15. A significant factor in the relevant wholesale market in recent years has been a rapid increase in the volume of milk sold in vending machines. Pennbrook gives large discounts to its vending customers and this practice has enabled Pennbrook's share of the wholesale vending business to increase at a faster rate than the increase in the volume of the overall vending business sales. Pennbrook now handles approximately 60 to 70% of the vending business in the relevant wholesale market.

16. Clearly, the two major market factors in the lower Delaware Valley milk market in the past ten years have been the trend toward the vertical integration of wholesale marketing facilities and the attempts to avoid local milk price floors through devices involving interstate sales of milk.

17. Since the Food Fair Stores vertical integration by acquiring the Hernig Milk Company in 1957, there has been a clear trend in the lower Delaware Valley wholesale market toward vertical integration and consolidation. Chain stores have acquired milk companies, milk companies have opened stores, milk companies have used facilities in other states to serve regional or national chains of stores, farmer cooperatives have acquired milk companies, milk companies have acquired other milk companies and chain stores have constructed their own milk plants.

18. When Food Fair acquired Hernig Milk Company and then worked out its arrangement with Abbott's in New Jersey, first Pennbrook and then Sealtest lost the Food Fair business.

19. When Frankford-Unity Stores acquired Quaker Dairy in 1963 or 1964, Pennbrook lost that wholesale business. When Southland Corporation acquired Harbison's Dairy, Sealtest lost that wholesale business. When A & P built its own milk plant, Sylvan Seal "practically lost" its milk producing business.

20. The data compiled in Exhibit D-27 is correct and Sealtest's percentage of the relevant milk market (total) was 18.13% in 1963 and 17.25% in 1965.

21. In view of the continuing changes in the market and the loss by Sealtest of Food Fair, 7-11 Stores, Molish, Martel and others, there is no basis to conclude that Sealtest dominates the wholesale market.

22. Changes in transportation and refrigeration of milk have led to less dependence on local milk supplies and milk is sold and distributed on a multi-state basis.

23. It is not unusual for a large chain of supermarkets to buy all of its milk and dairy products from one milk company.

24. When the supermarket chains in the lower Delaware Valley, such as Penn Fruit, faced the competition from Food Fair's acquisition of Hernig Milk Company in the late 1950's they recognized the advantages of acquiring milk in states not subject to the price and other regulations which existed in Pennsylvania.

State Regulation

25. Price floors and methods of distribution vary between southeastern Pennsylvania, southern New Jersey and Delaware either because of variations in the scheme of state milk regulation or the absence of state regulation, as in Delaware.

26. Because of such variations both Pennbrook and Sealtest have been able to charge customers in different states different prices.

27. During the period from 1960 to date the wholesale prices in Pennsylvania have been the highest of the three states and Delaware the lowest.

28. At time of trial a half-gallon of milk was selling out-of-the-store in Pennsylvania at 57 cents and in New Jersey at 45 cents—a price difference of over 26%.

29. In addition, New Jersey had a platform price which permitted a milk company to sell at a lower price at its plant in New Jersey than it could sell in Pennsylvania.

30. Since 1957 Sealtest has operated a milk plant in Camden, New Jersey, from which Sealtest distributes milk to the three-state Delaware Valley area.

31. Sealtest's Camden plant was designed and built to handle distributors' vehicles in an economic fashion.

32. Since 1958 some of Sealtest's Pennsylvania distributors have been picking up milk at its Camden platform.

33. These Pennsylvania distributors purchased milk at the New Jersey OMI distributor (or subdealer) price, which was lower than the Pennsylvania price.

34. The OMI order (Exhibit D-22) established quantity pricing for the distributors —the greater the quantity purchased, the lower the per unit price.

35. Also, under the OMI order the distributor was granted a hauling allowance which varied with the distance it transported the milk.

36. To meet the competition from Pennbrook and others, in August 1961 Sealtest began to sell milk at its Camden platform to Penn Fruit.

37. Under the OMI order Sealtest charged Penn Fruit 18¾ cents per quart less a hauling allowance of ¾ cents per quart, or a net price of 18 cents per quart.

38. Pennsylvania did not have a platform price comparable to the price in New Jersey—the Pennsylvania price established by PMCC was 24 cents per quart.

39. In 1960 and 1961 milk companies, including Pennbrook and Sealtest, believed that the Pennsylvania wholesale prices were too high.

40. These milk companies supported price relief to the chain stores in Pennsylvania in the form of quantity discounts and platform pricing.

41. Quantity discounts were adopted by PMCC in 1964, but ...