Seaboard Supply Co. v. Congoleum Corp., 84-5630

• Decision Date: 16 August 1985
• Docket Number: No. 84-5630,84-5630
• Citation: 770 F.2d 367
• Parties: , 1985-2 Trade Cases 66,744 SEABOARD SUPPLY CO., a New Jersey Corporation, and Seaboard Plastics Corp., a New Jersey Corporation, Appellants, v. CONGOLEUM CORPORATION, a Delaware Corporation, Jack Berk, Manufacturers Reps Company, Inc., a New Jersey Corporation, and William G. Merrigan, Sr. and Richard T. Laughlin, Appellees.
• Court: U.S. Court of Appeals — Third Circuit

Page 367

770 F.2d 367

54 USLW 2141, 1985-2 Trade Cases 66,744

SEABOARD SUPPLY CO., a New Jersey Corporation, and Seaboard Plastics Corp., a New Jersey Corporation, Appellants, v. CONGOLEUM CORPORATION, a Delaware Corporation, Jack Berk Manufacturers Reps Company, Inc., a New Jersey Corporation, and William G. Merrigan Sr. and Richard T. Laughlin, Appellees.

No. 84-5630.

United States Court of Appeals Third Circuit.

Argued April 29, 1985.

Decided Aug. 16, 1985.

Daniel D. Caldwell (argued), John J. Barry, Wolff & Samson, Roseland, N.J., for appellants.

Irvin M. Freilich (argued), Joseph J. Fleischman, Hannoch, Weisman, Stern, Besser, Berkowitz & Kinney, P.A., Newark, N.J., for appellee Congoleum Corp.

George R. Hirsch (argued), Peter R. Sarasohn, Bernard Schenkler, Ravin, Sarasohn, Cook, Baumgarten & Fisch, West Orange, N.J., for appellees Manufacturers Reps Co., Inc. and William G. Merrigan, Sr.

Before SEITZ, WEIS and ROSENN, Circuit Judges.

OPINION OF THE COURT

WEIS, Circuit Judge.

The principal issue in this case is whether a scheme of commercial bribery between an employee of a manufacturer and an entity which acted as a sales agent comes within the prohibition of either the Sherman or Robinson-Patman Acts. The district court found essentially that because a legitimate agency relationship existed between the briber and the manufacturer and no sales occurred between the two, the Acts had not been violated. Although the activity was reprehensible and probably violated state civil and criminal law, we agree that the scheme did not come within the scope of the antitrust laws. Accordingly, we will affirm the summary judgment in favor of the defendants.

Plaintiff Seaboard is engaged in the wholesale distribution of roofing felt in New Jersey, Eastern Pennsylvania, and Southern New York. Defendant Manufacturers Reps Company (MRC) competed with Seaboard initially as a wholesale distributor and as a commissioned-sales agent for Congoleum Corporation, a felt manufacturer.

Before 1975, Seaboard had been Congoleum's only wholesale distributor in the area, and MRC had sold similar products for other manufacturers. In 1975, defendant Jack Berk became a sales manager for Congoleum and set out to increase the volume of felt sales. In the two years that followed, he succeeded in adding four new wholesale distributors, including MRC.

When MRC was added, however, Berk made some unusual arrangements. In 1976, he asked defendant William Merrigan, Sr., the president of MRC, for a participation in the company's business. In return Berk promised to make Congoleum felt available. When Merrigan assented, he and Berk executed a "consulting agreement," which was prepared by defendant Richard Laughlin, Congoleum's in-house counsel.

The agreement provided that MRC would pay Berk $300 per week with a stock participation option in return for "consulting services." As time went on, Berk increased his demands for compensation and fringe benefits. The total payments amounted to $110,637.30, and were augmented by a life insurance policy, leased automobiles, and improvements to Berk's residence. Merrigan did not expect that Berk would actually provide any consulting services.

When MRC was first being considered as a distributor, Congoleum's credit manager investigated MRC's financial profile and allowed only a $25,000 credit line. That limit posed problems because anticipated business volume exceeded the allowance. To overcome the financing restrictions, Berk suggested, and the credit manager recommended, that MRC become a commissioned sales agent for Congoleum.

Under this arrangement, MRC neither received title to the products, nor assumed any of the credit risks. Congoleum prepared the bills and invoices and delivered truckload quantities directly to the customer. MRC's customers were charged five percent over the price at which distributors, including Seaboard, were charged. This five percent differential was paid by Congoleum to MRC as a commission. By contrast, Seaboard and the other distributors bore the entire credit risk and did the billing for all sales to their customers.

After Berk entered into his "consulting agreement" with MRC, Seaboard's long-standing relationship with Congoleum deteriorated. Seaboard's orders were not filled promptly, and its sales of Congoleum felt declined precipitously. As many as thirty of Seaboard's customers transferred their business to MRC. One explanation for this shift was that Berk could cause an order to be cancelled or delayed and could steer customers to another distributor or agent.

By late summer or early fall of 1979, MRC wearied of Berk's escalating demands and discontinued its payments to him. Berk thereupon entered into a new "consulting agreement" with Plymouth Asphalt and MRC's felt business began to collapse. Shortly thereafter, Merrigan's son told Congoleum's management about the payoffs. Congoleum acted promptly and terminated both Berk and Laughlin. Berk was later indicted in a New Jersey state court for embezzlement and theft by deception.

Seaboard brought this suit against Congoleum, Berk, and MRC alleging violations of section 1 of the Sherman Act, sections 2(a), (c), (e), and (f) of the Robinson-Patman Act, and section 3 of the New Jersey Antitrust Act. The complaint also included counts for tortious interference with contractual relationships and prospective economic advantage. Laughlin was charged with fraudulent concealment.

After extensive discovery, all parties filed motions for summary judgment. The district court prepared a comprehensive opinion, discussing each of the federal counts in detail.

Seaboard's contention that section 1 of the Sherman Act had been violated was rejected because the record was insufficient to support the inference that concerted activity by Congoleum and MRC was designed to achieve an "unlawful objective." The facts demonstrated that "Congoleum exercised its independent discretion in making MRC a commissioned sales agent in furtherance of its general marketing strategy to increase sales of its roofing felt product."

Although Seaboard had shown a significant sales decline, intrabrand competition among Congoleum's distributors had increased. Moreover, by using MRC as a commissioned selling agent, Congoleum was able to reduce the price to roofing contractors and compete more effectively with other producers. Thus, interbrand competition was stimulated as well. Consequently, the court concluded that Seaboard had failed to prove either anti-competitive purpose or effect and the Sherman Act count failed.

In count 2, Seaboard charged that Congoleum and Berk had violated sections 2(a) and (f) of the Clayton Act as amended by the Robinson-Patman Act, 15 U.S.C. Secs. 13(a) and 13(f), by using a sham agency status with MRC in order to give it preferential credit terms and price discounts. The court noted that to establish a violation Seaboard had to prove actual sales to competing purchasers at different prices. Because Congoleum retained title, assumed the credit risks, and controlled the price, the court concluded that MRC was not a purchaser but only a sales agent. The fact that MRC bribed Berk did not convert the transactions into purchases, and hence sections 2(a) and (f) did not apply.

In addition, the court concluded that Congoleum did not compromise its credit standards to treat MRC as a favored distributor. Because Seaboard could not demonstrate either price discrimination or anti-competitive effect, the section 2(a) count could not be sustained. ¹

Seaboard also alleged that MRC and Merrigan had violated section 2(f) of Robinson-Patman because they solicited and knowingly accepted price discrimination. The court held that a section 2(f) claim is derivative of section 2(a), and since plaintiffs had failed to establish a cause of action against the seller under 2(a), there could be none against a buyer under 2(f). The court cited Great A & P Tea Co., Inc. v. FTC, 440 U.S. 69, 99 S.Ct. 925, 59 L.Ed.2d 153 (1979), in which the Supreme Court held that liability under section 2(f) is limited to the situation where a case against a seller under 2(a) can be established.

The district court also examined Seaboard's claim that the payments by MRC and Merrigan to Berk and Laughlin violated section 2(c), the brokerage provision of the Robinson-Patman Act. ² That section prohibits unearned payments to the other party to a transaction or to an agent who is subject to the control of a person other than the one making the payment. After a review of case law and legislative history, the district court concluded that 2(c) "applies only to unlawful payments which pass between sellers and purchasers." Because MRC was an agent of Congoleum and not a purchaser, the payments made to Berk did not violate 2(c).

Finally, Seaboard alleged that section 2(e) was violated by Berk's actions in providing preferential promotion and delivery services to MRC. That count was also found to be deficient because section 2(e) applies only to purchasers. Since MRC did not fall in that category, no violation had occurred.

Having determined that summary judgment should be entered on the federal claims and that no diversity jurisdiction existed, the court dismissed the pendent state claims. Seaboard has appealed from each of the court's rulings on the federal claims.

THE ROBINSON-PATMAN CLAIMS

Seaboard's first contention is that the proscriptions of section 2(c) are absolute and establish a per se rule for commercial bribery of the sort presented here. Seaboard asserts that 2(c) is not limited to "dummy" brokerage schemes but reaches other practices such as the bribing of a seller's broker by the buyer.

According to the terms of section 2(c), it is unlawful for any person to either pay or receive--

(1) anything of value as a commission, brokerage, or other compensation, or

(2) any allowance or discount in lieu of brokerage, except for services rendered...