Paceco, Inc. v. ISHIKAWAJIMA-HARIMA HEAVY, ETC.

• Decision Date: 22 March 1979
• Docket Number: No. C-78-910 ACW.,C-78-910 ACW.
• Court: U.S. District Court — Northern District of California
• Parties: PACECO, INC., a California Corporation, Plaintiff, v. ISHIKAWAJIMA-HARIMA HEAVY INDUSTRIES CO., LTD., Nissho Iwai American Corp., Hitachi, Ltd., Hitachi America, Ltd., and I. H. I. Inc., a Delaware Corporation, Defendants.

468 F. Supp. 256

PACECO, INC., a California Corporation, Plaintiff, v. ISHIKAWAJIMA-HARIMA HEAVY INDUSTRIES CO., LTD., Nissho Iwai American Corp., Hitachi, Ltd., Hitachi America, Ltd., and I. H. I. Inc., a Delaware Corporation, Defendants.

No. C-78-910 ACW.

United States District Court, N. D. California.

March 22, 1979.

Harold C. Nachtrieb, Nachtrieb, Williams & Streitz, APC, San Francisco, Cal., for plaintiff.

Shigeru Watanabe, Mori & Ota, John J. Quinn, Kadison, Pfaelzer, Woodard, Quinn & Rossi, Los Angeles, Cal., Robert H. Kreutzer, Morton M. Maneker, Proskauer, Rose, Goetz & Mendelsohn, New York City, John A. Edginton, Graham & James, San Francisco, Cal., for defendants.

ORDER

WOLLENBERG, District Judge.

This case involves the jurisdictional requirements of Sections 2(a) and 2(f) of the Robinson-Patman Act that deal with buyer and seller liability for acts of price discrimination. The imprecise language of the statute¹ and the incompleteness of the case law has left undetermined the jurisdictional reach of those sections. Plaintiff's unique factual allegations touch upon several open questions that require determination by this Court.

Plaintiff, Paceco, Inc., initially filed this antitrust action on April 25, 1978, against defendants Ishikawajima-Harima Heavy Industries Co., Ltd. ("IHI"), Nissho Iwai American Corp., Hitachi, Ltd. ("Hitachi"), Hitachi America, Ltd., I.H.I. Inc., and Does 1-100. The original complaint alleged several federal antitrust violations and violations of various state statutes. Jurisdiction of this Court was invoked pursuant to 28 U.S.C. § 1337, Sections 4 and 12 of the Clayton Act (15 U.S.C. §§ 15 and 22), and the doctrine of pendent jurisdiction.

On July 24, 1978, the named defendants filed motions pursuant to Rule 12 of the Federal Rules of Civil Procedure seeking to dismiss Counts III, IV, and V of the complaint and to strike references to "Doe" defendants.² After further briefing and a hearing, this Court ordered the dismissal of Counts III and V and the striking of the fictitious defendants and granted plaintiff leave to amend Count IV.

In anticipation of the Court's order, plaintiff had filed on September 27, 1978, an amended complaint that incorporated certain paragraphs of the original complaint, deleted others, and added new Counts IVa and IVb which, respectively, charged defendants Hitachi and IHI with violations of Section 2(f) of the Robinson-Patman Act. Subsequently, defendants Hitachi and IHI filed the motion presently before the Court seeking to dismiss these counts under Rule 12(b)(6) of the Federal Rules of Civil Procedure for plaintiff's failure to state a claim.

FACTS

Plaintiff's complaint alleges the following factual situation. Defendants IHI and Hitachi are Japanese corporations engaged in the manufacture of large steel cranes used at ports for unloading freight containers from ships. Defendants sell those cranes, which are often taller than fifty feet, to ports and shipping companies in the United States. As a domestic manufacturer of similar cranes, plaintiff competes with defendants for American business.

Steel is the principal component of the cranes. The price at which the parties bought their steel gives rise to the price discrimination claim. Defendants purchase their steel directly from various Japanese steel manufacturers. Plaintiff alleges that it acquires steel from these manufacturers, and it is apparent from its pleadings that it is an indirect purchaser who buys this steel from domestic wholesalers.³ The complaint alleges that defendants, as sellers' favored buyers, knew that the price at which they purchased this steel was lower than the price at which the steel manufacturers sold to the United States market, and as a result of this discrimination, defendants consistently outbid plaintiff on domestic contracts.

The parties dispute the method by which the steel is incorporated into the finished product. To what degree the steel is processed at the premises of the crane manufacturer as opposed to the purchaser's chosen locale bears on several issues before the Court. The complaint alleges — and the Court must accept that allegation as true on a motion to dismiss — that defendants ship the steel in a relatively unprocessed state to the United States and assemble and erect the cranes at the purchaser's premises.

STANDARD OF REVIEW

The Supreme Court set out the standard test used to determine the sufficiency of a complaint in Conley v. Gibson, 355 U.S. 41, at 45-46, 78 S.Ct. 99, at 102, 2 L.Ed.2d 80 (1955) when it stated that:

In appraising the sufficiency of the complaint we follow, of course, the accepted rule that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.

On a motion to dismiss, material allegations of the complaint are taken as admitted, and the complaint is to be liberally construed in plaintiff's favor. Jenkins v. McKeithen, 395 U.S. 411, 421, 89 S.Ct. 1843, 23 L.Ed.2d 404 (1969); Kennedy v. H. & M. Landing, Inc., 529 F.2d 987 (9th Cir. 1976). The question presented is whether in the light most favorable to plaintiff, and with every doubt resolved in its behalf, the complaint states any valid claim for relief.

DISCUSSION

Section 2(f) of the Robinson-Patman Act renders it "unlawful for any person engaged in commerce, in the course of such commerce, knowingly to induce or receive a discrimination in price which is prohibited by this section." The last clause of that section makes buyer liability dependent upon plaintiff's ability to meet the requirements of Section 2(a) dealing with seller liability. Thus to state a claim based on buyer liability for price discrimination, plaintiff must allege the jurisdictional requirements of Sections 2(a) and (f) of the Act. See Great Atlantic & Pacific Tea Co. v. F. T. C., ___ U.S. ___, ___ - ___, 99 S.Ct. 925, 59 L.Ed.2d 153 (1979); Automatic Canteen Co. of America v. F. T. C., 346 U.S. 61, 70-71, 73 S.Ct. 1017, 97 L.Ed. 1454 (1953).

Defendants base their motion to dismiss on plaintiff's failure to allege three jurisdictional elements required by those sections. First, they claim that plaintiff's complaint does not cover transactions that have occurred in the course of commerce as required by Section 2(f). Second, they argue that the complaint admits that the commodity allegedly sold at a discriminatory price was not sold "for use, consumption, or resale within the United States" as required by Section 2(a). And, finally, they argue that plaintiff lacks standing to sue because Section 2(a) allows only direct purchasers from the discriminatory seller to prosecute a price discrimination claim.

1. Commerce Requirements of Section 2(f)

Defendants claim that the fact that the purchase and delivery of their steel occurred solely within the boundaries of Japan demonstrates that the actions complained of herein do not involve commerce. Commerce, as used in the Clayton Act, which includes Section 2 of the Robinson-Patman Act, refers to trade or commerce among the states and among the states and foreign nations.⁴ Section 2(f) covers persons "engaged in commerce, who in the course of such commerce" commit the proscribed acts. Defendants read this language to require that the discriminatory sale to the buyer must occur in the course of commerce and that since a sale and delivery within Japan does not occur in commerce, plaintiff has failed to state a claim.⁵

Case law demonstrates that transactions that initially or subsequently fail to cross state or international boundaries may still fall within the course of commerce as that term is used in the Robinson-Patman Act. The Supreme Court recently directed that the commerce requirements of the Robinson-Patman Act must be strictly construed; however, the Court noted that seller liability under Section 2(a) extends to activities that occur "in the flow of commerce." Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 195, 95 S.Ct. 392, 42 L.Ed.2d 378 (1974).⁶ One treatise has described the operation of the flow of commerce test as follows:

A sale across state lines can carry the flow back to the initial shipment of the goods after manufacture and carry the flow forward to transformation or storage in the state of resale, embracing every transaction in between.

P. Areeda & D. Turner, Antitrust Law 1, ¶ 233 (1978). Thus, subsequent transactions that fall within commerce may bring into the flow of commerce earlier transactions that considered on their own would not be viewed as within commerce.

In this case plaintiff argues that defendants' shipment to the United States of the unassembled steel cranes brings their purchases of steel into the flow of commerce. Plaintiff relies on a line of cases holding that the flow of commerce continues through the intrastate aspect of the transaction in cases in which raw materials purchased interstate and sold intrastate are not substantially altered by processing or manufacturing. See Dean Milk Co. v. F. T. C., 395 F.2d 696 (7th Cir. 1968); Foremost Dairies, Inc. v. F. T. C., 348 F.2d 674 (5th Cir.), cert. denied, 382 U.S. 959, 86 S.Ct. 435, 15 L.Ed.2d 362 (1965); Baldwin Hills Building Material Co. v. Fiberboard Paper Products Corp., 283 F.Supp. 202 (C.D.Cal.1968). Plaintiff and defendants dispute the degree of processing of the steel that occurs in Japan. Because on a motion to dismiss the Court must resolve every doubt in the plaintiff's behalf, the allegation that the cranes are assembled and erected in the United States and the implication that the steel is not substantially altered in Japan must be accepted as true. On this basis, the Court finds that the complaint sufficiently alleges that defendants' activities fall within commerce.⁷

2. The Use, Consumption, or Resale Requirement of Section 2(a)

One of the jurisdictional elements of Section 2(a) is...