Rangen, Inc. v. Sterling Nelson & Sons

• Decision Date: 23 November 1965
• Docket Number: No. 19740.,19740.
• Citation: 351 F.2d 851
• Parties: RANGEN, INC., a corporation, Buhl Feed & Ice Company, a corporation, and Elwood D. Grimes, Appellants, v. STERLING NELSON & SONS, Inc., a corporation, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

351 F.2d 851 (1965)

RANGEN, INC., a corporation, Buhl Feed & Ice Company, a corporation, and Elwood D. Grimes, Appellants, v. STERLING NELSON & SONS, Inc., a corporation, Appellee.

No. 19740.

United States Court of Appeals Ninth Circuit.

October 18, 1965.

Rehearing Denied November 23, 1965.

COPYRIGHT MATERIAL OMITTED

Peter W. Billings, G. Kenneth Handley, Jr., Salt Lake City, Utah, John C. Hepworth, Hepworth & Nungester, Buhl, Idaho, for appellants.

Marvin J. Bertoch, L. Ridd Larson, Ray, Quinney, & Nebeker, Salt Lake City, Utah, Douglas D. Kramer, Lloyd J. Walker, Kramer, Walker, Pope & Plankey, Twin Falls, Idaho, for appellee.

Before HAMLEY, HAMLIN and BROWNING, Circuit Judges.

HAMLEY, Circuit Judge:

A manufacturer of fish food, asserting that a competitor bribed an official of the State of Idaho to prefer the competitor's products, brought this action for damages and an injunction. The plaintiff is Sterling Nelson & Sons, Inc. (Nelson), a Utah corporation licensed to do business in Idaho and other states. The defendants are the competitor, Rangen, Inc. (Rangen), an Idaho corporation, Buhl Feed & Ice Company, a trade name under which Rangen does business, and Elwood D. Grimes, the state official.

In its complaint plaintiff undertakes to state four claims against defendants. The first is based upon section 2(c) of the Clayton Act, as amended by the Robinson-Patman Act, 49 Stat. 1527 (1936), 15 U.S.C. § 13(c) (1964). The second and third claims are based, respectively, upon sections 1 and 2 of the Sherman Act, 26 Stat. 209 (1890), as amended 15 U.S.C. §§ 1 and 2 (1964). As to these three claims, district court jurisdiction is predicated upon 28 U.S.C. § 1331 (1964) — federal question. Plaintiff's fourth claim is based upon Idaho Code, § 48-202(c) (1948), which is virtually a counterpart of section 2(c) of the Clayton Act. As to this claim, plaintiff invokes diversity jurisdiction. 28 U.S.C. § 1332 (1964).

The four claims are in the alternative and under each plaintiff seeks treble damages and injunctive relief. Defendants jointly answered, denying essential allegations of the complaint and raising several other defenses. After a trial the district court, sitting without a jury, entered judgment for Nelson and against all of the defendants awarding actual damages of $18,900, trebled to $56,700, plus attorneys' fees in the amount of $7,500. No injunction was issued. Sterling Nelson & Sons, Inc. v. Rangen, Inc., D.Idaho, 235 F.Supp. 393.

The conclusions of law and accompanying opinion of the trial court indicate that the damages were awarded on the first claim, involving section 2(c) of the Clayton Act. The trial court rejected the second and third claims, based on sections 1 and 2 of the Sherman Act. The court further ruled that it was inappropriate and unnecessary to consider the fourth claim, based on the Idaho counterpart of section 2(c) of the Clayton Act.

Defendants jointly appeal, challenging various findings of fact and conclusions of law. They also question the applicability of section 2(c) under the facts of this case, and argue, additionally, that certain testimony was irrelevant and prejudicial, and should not have been received in evidence.

During the four years immediately prior to July, 1962, eight companies, including Rangen and Nelson, were in competition with each other in the production and sale of fish food in the western states. At various times during the period, Nelson contacted James C. Simpson, Chief of Fisheries Management for Idaho's Department of Fish and Game (Department), in an effort to sell its product to the state. Simpson, however, refused to accept Nelson's offers, and the state did not purchase any fish food from that company during this period. With insignificant exceptions, Rangen was the sole supplier of fish food to the State of Idaho for consumption at fish hatcheries during these four years.

From December, 1955 to June, 1962, Rangen paid Grimes sums aggregating $24,047.80. During that time Grimes was superintendent of the state's fish hatchery at Hagerman, Idaho. He was the authority in the Department with respect to the safe utilization and nutritional value of fish foods and with respect to fish food formulae.

None of the payments which Rangen made to Grimes were disclosed to any other employee of the state prior to their discovery in February, 1962. The trial court found that these payments were made pursuant to an understanding between Rangen and Grimes that the latter would use his best efforts to obtain for Rangen the fish food business of the State of Idaho. The trial court further found that Grimes did influence the responsible officials of the state to purchase substantially all of its fish food requirements from Rangen.

The trial court also found that, during the four-year period prior to July, 1962, and as a direct and proximate consequence of the described conduct of Rangen and Grimes, Nelson was precluded from the opportunity to bid for the supply of the state's fish food requirements. The trial court found that, except for the described interference, Nelson would have made gross sales to the State of Idaho aggregating $126,000 during the period in question, and would have realized a net profit of fifteen per cent, or $18,900 thereon.

On this appeal defendants challenge the findings of fact regarding Rangen's purpose in making payments to Grimes. They point to testimony which indicates that Rangen's purpose was to compensate Grimes for experimentally developing the fish food formula which Rangen produced and sold generally, and to finance further experiments and research by Grimes. Attention is called to the fact that both Grimes and Thorleif Rangen, secretary-treasurer of Rangen, expressly denied that Grimes was paid to influence other Idaho officials. Defendants note that Nelson and other dry fish food manufacturers did not come into the market with a complete trout diet until one or two years after Rangen began making payments to Grimes. The secrecy of the payments was explained by Grimes as due to his fear that state authorities would not approve his "moonlighting" activities in developing fish food formulae.

Had the trial court accepted defendants' explanation of the transaction, there would have been evidence to support that view. But the trial court was not required to accept Grimes' stated reason for the secrecy, especially in view of the obvious impropriety, and patent conflict of interest, inherent in any undisclosed payment arrangement between Rangen and Grimes. Moreover, under the evidence, the trial court was justified in finding that Grimes did very little in the way of research for Rangen during the period 1958 through 1962 which would have justified "royalties."

The trial court was also warranted in attaching significance to the fact that the payments to Grimes ended in 1962, the year Rangen ceased selling fish food to Idaho. Another suspicious circumstance was that Rangen made the payments to Grimes' wife, rather than to Grimes directly. Additionally, the evidence reveals that Rangen's agreement with Grimes was similar to the technique Rangen was using in Utah for the purpose of attempting to monopolize the sale of fish food to that state.

The finding of fact that Rangen's payments to Grimes were intended as commercial bribes is not clearly erroneous.

Defendants question the finding of fact that Grimes influenced Simpson to purchase fish food from Rangen. Examination of the record convinces us that this finding is not clearly erroneous.

Defendants next contend that Nelson failed to meet the requirements of proof as to the amount of damages. In particular, defendants question the sufficiency of the evidence to support the findings that: (1) except for the payments by Rangen to Grimes, Nelson would have sold to Idaho approximately one fourth of its fish food requirements during the four-year period; (2) Nelson would have grossed $126,000 on these sales; and (3) Nelson would have made a net profit of approximately fifteen per cent, or $18,900 on the gross sales.

When the first bids were let by Idaho, following discontinuance of the exclusive arrangement with Rangen, there were four bidders. Nelson was the successful bidder on the first of such public offers in 1962. Whether Nelson would have been the low bidder on one fourth of the business during 1958 through 1962, assuming a climate of free competition, is not susceptible of tangible proof. But considering Nelson's position in the industry, and its success in bidding when public offers were invited in 1962, we think the trial court was justified in finding that Nelson would have obtained one fourth of the business.

Nelson would have grossed $126,000 on sales amounting to one fourth of Idaho's fish food requirements, if Nelson had made the sales at its list prices. Although these prices were below the prices for which Rangen obtained the business in the four-year period, Rangen's prices in the competitive market were well below Nelson's list prices. Moreover, there is no evidence that, for competitive bidding purposes, Nelson ever utilized its list prices.

In the light of past practice, however, the trial court was not required to find that Nelson could have obtained a share of Idaho's fish food business in the 1958 through 1962 period only by reducing its list prices. Having in view Rangen's preferred position with Idaho up to that time, Nelson and other competitors might well have concluded, and correctly, that all they had to do to get a share of the business, was to underbid Rangen's preexisting actual prices to Idaho.

The trial court's finding that Nelson would have made a net profit of fifteen percent is conservative when compared to estimates, presented by Nelson's witnesses, that the company made from 16.5% to 20% on this kind of business. Defendants assert that estimates of net profit will not do, and that actual accounting records supporting a claimed...