Quality Bakers of America v. Federal Trade Commission, 3481.

• Decision Date: 06 September 1940
• Docket Number: No. 3481.,3481.
• Citation: 114 F.2d 393
• Parties: QUALITY BAKERS OF AMERICA et al. v. FEDERAL TRADE COMMISSION et al.
• Court: U.S. Court of Appeals — First Circuit

114 F.2d 393 (1940)

QUALITY BAKERS OF AMERICA et al. v. FEDERAL TRADE COMMISSION et al.

No. 3481.

Circuit Court of Appeals, First Circuit.

September 6, 1940.

Guy C. Heater, of New York City (Oscar B. Frazer, Arnold L. Davis, and Davis, Wagner, Heater & Hallett, all of New York City, on the brief), for petitioners.

Allen C. Phelps, Sp. Atty., Federal Trade Commission, of Washington, D. C. (W. T. Kelley, Chief Counsel, Federal Trade Commission, of Washington, D. C., on the brief), for respondent Federal Trade Commission.

Before MAGRUDER and MAHONEY, Circuit Judges, and PETERS, District Judge.

PETERS, District Judge.

This is a petition to review and set aside an order of the Federal Trade Commission directing petitioners, Quality Bakers of America, an unincorporated association, and Quality Bakers of America, Inc., a corporation, in connection with the purchase of commodities in interstate commerce by any member of the former or stockholder of the latter, to cease and desist from accepting brokerage fees, or allowances in lieu thereof, and from paying the same, directly or indirectly, to their members and stockholders; and directing other petitioners, certain baking companies, members of the said association, in connection with their purchases of commodities in interstate commerce, to cease and desist from accepting such fees or allowances, in any form, either from sellers from whom they purchase, or from the petitioners, Quality Bakers of America or Quality Bakers of America, Inc.

The order of the Commission was based upon its findings of facts and conclusion that the facts showed a violation of Section 2(c) of the Clayton Act, as amended by the Robinson-Patman Act, 49 Stat. 1527, 15 U.S.C.A. § 13(c), which reads as follows:

"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 complaint of the Commission, initiating the proceeding, alleged that Quality Bakers of America, Inc., accepted for the benefit of its members, respondents in the complaint, and petitioners herein, prohibited brokerage fees and allowances from various sellers of merchandise, including certain flour-mill companies, also named as respondents in the complaint. Subsequently, the Commission dismissed its complaint as against the flour-mill companies for the stated reason that some of them had gone out of business and others had ceased their alleged improper practices and there was no reason to apprehend that they would be renewed, and those companies are no longer parties to the proceeding.

The petitioners, in their answer to the complaint, denied that their business practices constituted any violation of the Clayton Act as amended and also claimed to be exempted from its provisions by Section 4 of the Robinson-Patman Act which provides that a cooperative association shall not be prevented from returning to its members any part of its net earnings in proportion to the business done by them. Constitutionality of the Act as well as the jurisdiction of the Commission is also attacked.

From findings as to the facts made by the Commission, it appears that the voluntary, unincorporated association known as "Quality Bakers of America", having its headquarters in New York City, has a membership comprising some seventy wholesale baking concerns located in various parts of the country, who are and agree to be non-competitive among themselves so long as their membership continues.

The active, operating agent of the association of bakers, referred to as the Association, is a Delaware corporation, organized under the mercantile corporation law of that State and called Quality Bakers of America, Inc. The officers of the corporation and of the Association are the same persons. All the stock of the corporation is owned by members of the Association and cannot be otherwise owned without the consent of the corporation.

The corporation, referred to as the Service Company, acts as purchasing agent for the members of the Association and also renders them various other services and benefits, including assistance in management and services in connection with production, engineering, accounting and advertising.

The lines of merchandise purchased by the Service Company for its stockholders include flour and other food materials, as well as machinery and a variety of equipment and supplies used in the manufacture, storage and distribution of wholesale bakery products. Some of the merchandise is bought outright by the Service Company and resold to its stockholders. In other cases the Service Company as a broker effects the purchase in behalf of the stockholders.

The stockholders of the Service Company, a representative group of whom, together with the corporation and the Association, and their officers, are named as respondents in the complaint of the Commission, are found by the Commission to be, severally, "* * * engaged in purchasing commodities from sellers located in states other than the states in which such Service Company and said stockholders individually maintain their respective principal places of business. Said stockholders, or some of them, daily transmit orders for the purchase of merchandise to respondent Service Company and such orders in nearly every case are transmitted by mail or other means of communication across state lines. In executing said orders and in purchasing the commodities specified therein, respondent Quality Bakers of America, Inc., transmits such orders and purchases commodities from one or more of a group of over 200 manufacturers, processors, producers or distributors, located in many different states, and who in a large majority of cases are located in a state other than the State of New York, where the Service Company has its principal office and place of business. As a result of such purchase and sale transactions, respondent Quality Bakers of America, Inc., and each of its said stockholders transport or cause to be transported baker's supplies and commodities from the sellers thereof, located in many different states, to, through and into states other than the state of origin or shipment of such commodities. Said stockholders habitually transmit money or the equivalent thereof in payment of the purchase price for such commodities by United States mail and other means, from their individual places of business, usually across state lines, to the sellers of such merchandise and products, and the Service Company daily receives brokerage fees on purchases made by its stockholders through it, which are transmitted to it by such sellers located in states other than the State of New York, through the medium of the United States mails and otherwise, most of such remittances crossing state lines between the offices of such sellers and the offices of the Service Company. Such purchases by the Service Company's stockholders through the Service Company, and the collection of such brokerage fees by said Service Company, in the manner stated, cannot be accomplished or brought about and is not effectuated except by the use of interstate channels of communication, nor are such commodities so purchased obtained, nor can they be obtained in most cases except by the transportation of the same, at the instance and request of the Service Company and its stockholders, from one state to, into, or through other states of the United States. In using such methods of ordering, purchasing, and making payment for commodities so purchased and in obtaining and collecting such brokerage fees, respondent Service Co. and its stockholders operate in the channels of interstate commerce and are engaged in such commerce. Respondent Service Company is an indispensable interrelated instrumentality in the course of such commerce, and its operations cannot be conducted except by means of the use of facilities available in the channels of interstate trade, communication and commerce. * * * The operations of respondent Service Company are centered in its offices in New York, but extend into every state in which one or more of its stockholders and the sellers of commodities with whom it negotiates purchases of commodities are located. The plan of operation of the Service Company and its stockholders, above described, is an integral whole which cannot be separated into constituent parts without destroying the whole. Said plan of operation contemplates the use of and uses the facilities and instrumentalities of interstate commerce and is effectuated almost entirely through the means and channels of traffic and commerce among and between the several states."

Brokerage fees and commissions collected by the Service Company from the concerns selling merchandise to it or to its stockholders on its order are not paid over to the stockholders directly, the procedure being substantially as follows: The stockholders, members of the Association, agree to pay to the Service Company certain dues, measured by the baking capacity of the member's plant, the minimum being $25 per week. These dues are charged to the several stockholders on the books of the Service Company. The stockholders are also charged with the price of services and benefits rendered to them by the Service Company, including the use of its purchasing department and certain other special services of value to the bakers.

The brokerage fees and commissions collected by the Service Company from...