Rose v. Vulcan Materials Co.

• Court: North Carolina Supreme Court
• Writing for the Court: HUSKINS
• Citation: Rose v. Vulcan Materials Co., 282 N.C. 643, 194 S.E.2d 521, 67 A.L.R.3d 1 (N.C. 1973)
• Decision Date: 14 February 1973
• Docket Number: No. 41,41
• Parties: , 67 A.L.R.3d 1, 1973-1 Trade Cases P 74,448 T. W. ROSE v. VULCAN MATERIALS COMPANY.

Page 521

194 S.E.2d 521

282 N.C. 643, 67 A.L.R.3d 1, 1973-1

Trade Cases P 74,448

T. W. ROSE v. VULCAN MATERIALS COMPANY.

No. 41.

Supreme Court of North Carolina.

Feb. 14, 1973.

W. F. Maready and James H. Kelly, Jr., Winston-Salem, for plaintiff appellant; Hudson, Petree, Stockton, Stockton & Robinson, Winston-Salem of counsel.

Womble, Carlyle, Sandridge & Rice, by Charles F. Vance, Jr., and John L. W. Garrou, Winston-Salem, for defendant appellee.

HUSKINS, Justice:

Defendant contends that the contract denominated Exhibit B, entered into by its assignor J. E. Dooley and Son, Inc., providing that J. E. Dooley and Son, Inc., would sell stone f.o.b. the Cycle quarry to plaintiff at certain specified prices and would 'not sell any stone to anyone other than the State Highway Commission for prices less than (certain specified higher prices) from the Cycle quarry' was in violation of both the Robinson-Patman Act, 15 U.S.C. § 13(a) (1971) and State antitrust law and so was unenforceable.

Illegality is an affirmative defense, G.S. § 1A--1, Rule 8(c), Rules of Civil Procedure, and the burden of proving illegality is on the party who pleads it. Thus defendant has the laboring oar on this question.

The contract has two distinct features: (1) It establishes the price at which plaintiff may buy stone from defendant, and (2) it fixes another, higher, minimum price at which customers other than plaintiff may purchase stone from defendant. Thus, the contract creates a Price discrimination in favor of plaintiff. Is the contract illegal under federal or state law, or both, by reason of the price discrimination?

The Robinson-Patman Act reads in relevant part as follows:

'It shall be unlawful for any person engaged in commerce in the course of such commerce, . . . to discriminate in price between different purchasers of commodities of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce . . . where the effect of such discrimination may be . . . to injure . . . competition. . . .' 15 U.S.C. § 13(a) (1971).

The words 'in commerce' mean in Interstate commerce. Borden Co. v. F.T.C., 339 F.2d 953 (7th Cir. 1964).

This Act, as prerequisites to its application, requires a showing not only that the price discriminator is engaged in interstate commerce, but also that in the course of such commerce a discriminatory sale occurred in interstate commerce. '. . . (I)t is not enough . . . that the defendant be engaged in interstate commerce but it must also be shown that the sale complained of was one occurring in interstate commerce.' Willard Dairy Corp. v. National Dairy Products Corp., 309 F.2d 943 (6th Cir. 1962). '. . . (A)t least one of the two transactions which, when compared, generate a discrimination must cross a state line.' Hiram Walker, Inc. v. A & S Tropical, Inc., 407 F.2d 4 (7th Cir. 1969), cert. den. 396 U.S. 901, 90 S.Ct. 212, 24 L.Ed.2d 177 (1969). See also Abramson v. Colonial Oil Co., 390 F.2d 873 (5th Cir. 1968); Kintner and Mayne, 'Interstate Commerce Requirement of the Robinson-Patman Price Discrimination Act,' 58 Geo.L.J. 1117 (1970).

In the case before us it was stipulated that 'Vulcan Materials Company is a corporation doing business in interstate commerce in the quarry and sales of stone and gravel in North Carolina and various other states.' This stipulation establishes only that the price discriminator, Vulcan Materials Company, was Engaged in interstate commerce. Nothing in the record establishes the essential additional fact that in the course of such commerce one of the alleged discriminatory sales occurred In interstate commerce. Indeed, all the evidence shows that these sales were wholly intrastate. Therefore, the Robinson-Patman Act can have no applicability here. Accordingly, the issue of the validity of the contract in question is wholly one of state law.

We now consider the impact of G.S. § 75--5(b)(5) on the contract under consideration.

The courts and commentators have developed several shorthand terms describing the various forms that price discrimination may take. The line of competition between the seller (Vulcan) and its competitors is called the 'primary line'; that between the buyer (Rose) and his competitors, the 'secondary line.' When a seller varies his price for a given commodity from one regional market or locality to another, he has engaged in 'geographic' or 'area' discrimination. See Comment, Unlawful Primary Line Price Discriminations: Predatory Intent and Competitive Injury, 68 Colum.L.Rev. 137 (1968).

The record in this case establishes, at best, only price discrimination in the secondary line. The effect of the contract in question was to give plaintiff a favorable price for the stone used in his ready-mix cement business. As a result of that favorable price differential as to that stone, one of the components of his resale product, plaintiff gained a competitive edge of undemonstrated magnitude over his competitors in the ready-mix cement business. On this record, only these competitors, the secondary line of competition, could have been adversely affected by the price differential in question. This is so for the reason that the uncontroverted evidence shows that J. E. Dooley and Son, Inc., had No competition from the date of execution of the contract in question until it assigned that contract to Vulcan Materials Company, and that Vulcan Materials Company had no competition from then until 1962. There is some slight evidence, controverted by plaintiff, that after 1962 Vulcan Materials Company had at least one competitor 'around there operating a quarry,' but the trial court found to the contrary. Thus, in this record there is little evidence of even the Existence of a primary line of competition; there is no evidence at all that the favorable price was given plaintiff for the purpose of injuring competition in the primary line. In addition, there is no evidence of area discrimination on the part of J. E. Dooley and Son, Inc., or Vulcan Materials Company, for nothing in the record shows that either charged a lower price generally at the Cycle quarry than it charged at any other quarry it was operating in a different locality.

Accordingly, the issue presented by this record is quite simply stated: Does price discrimination in the secondary line violate any law of the State of North Carolina?

G.S. § 75--5(b)(5) provides:

'. . . (I)t is unlawful for any person directly or indirectly to do, or to have any contract express or knowingly implied to do, any of the following acts:

'. . . (I)t is unlawful for any person directly or indirectly to do, or to * * * * * *

(5) While engaged in dealing in goods within this State, at a place where there is competition, to sell such goods at a price lower than is charged by such person for the same thing at another place, when there is no good and sufficient reason on account of transportation or the expense of doing business for charging less at the one place than at the other, or to give away such goods, with a view to injuring the business of another.'

We think this statute is aimed at Predatory area discrimination in the primary line. It was not intended to outlaw price discrimination in the secondary line, and no Reasonable construction of the statute produces that result. Apparently, the purpose of G.S. § 75--5(b)(5) is to prevent a seller with several distribution points from predatorily lowering his prices in one locality where he has competition, while maintaining his prices at another locality in order to continue to generate an acceptable overall profit margin, thereby destroying his competitor in the low priced locality. Such practices would be area discrimination in the primary line and are illegal under G.S. § 75--5(b)(5). Beyond such practices G.S. § 75--5(b)(5) does not reach. The statute simply has no applicability to price discrimination in the secondary line. Since defendant, having at best made out an inferential case of price discrimination in the secondary line, has not shown the contract in question to be predatory area discrimination in the primary line, his defense based on G.S. § 75--5(b)(5) was improperly sustained by the Court of Appeals.

The California Supreme Court has reached an analogous interpretation of its Business and Professional Code §§ 17031 and 17040, statutes similar to G.S. § 75--5(b)(5). See Harris v. Capital Records Distributing Corp., 64 Cal.2d 454, 50 Cal.Rptr 539, 413 P.2d 139 (1966), quoting Bermingham, 'Legal Aspects of Petroleum Marketing under Federal and California Laws,' 7 U.C.L.A.L.Rev. 161, 246: ". . . (The) act protects only first-line competition against predatory price cutting on an area basis and does not make illegal price discrimination which only injures second or third line competition at the buyer level or lower."

Defendant also argues that the contract in question was illegal under G.S. § 75--1, which says: 'Every contract . . . in restraint of trade or commerce in the State of North Carolina is hereby declared to be illegal. . . .'

This section of our law was based upon section one of the Sherman Act, 15 U.S.C. § 1 (1971), which reads as follows: 'Every contract . . . in restraint of trade or commerce among the several States . . . is declared to be illegal. . . .'

There has been little litigation as to the various kinds of contracts that may constitute illegal restraints of trade under G.S. § 75--1. However, G.S. § 75--2 says that '(a)ny . . . contract . . . in restraint of trade or commerce which violates the principles of the common law is hereby declared to be a violation of § 75--1.' Thus, the common law on restraint of trade is determinative of at least the minimum scope of G.S. § 75--1. And, the body of law applying the Sherman Act, although not binding upon this Court in applying G.S. § 75--1, is nonetheless instructive in determining the full reach of that statute.

Under the common law at a...