Security Tire & Rubber Co. v. Gates Rubber Co., 77-1943

• Decision Date: 12 July 1979
• Docket Number: No. 77-1943,77-1943
• Citation: 598 F.2d 962
• Parties: 1979-2 Trade Cases 62,773 SECURITY TIRE & RUBBER COMPANY, a Texas Corporation, and Security Tire & Rubber Company, a Virginia Corporation, Plaintiffs-Appellees, v. The GATES RUBBER COMPANY, a Colorado Corporation, Defendant-Appellant. The GATES RUBBER COMPANY, a Colorado Corporation, Plaintiff-Appellant, v. SECURITY TIRE & RUBBER COMPANY, a Texas Corporation, and Security Tire & Rubber Company, a Virginia Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 962

598 F.2d 962

1979-2 Trade Cases 62,773

SECURITY TIRE & RUBBER COMPANY, a Texas Corporation, and

Security Tire & Rubber Company, a Virginia

Corporation, Plaintiffs-Appellees, v. The GATES RUBBER COMPANY, a Colorado Corporation,

Defendant-Appellant.

The GATES RUBBER COMPANY, a Colorado Corporation, Plaintiff-Appellant, v. SECURITY TIRE & RUBBER COMPANY, a Texas Corporation, and Security Tire & Rubber Company, a Virginia

Corporation, Defendants-Appellees.

No. 77-1943.

United States Court of Appeals, Fifth Circuit.

July 12, 1979.

Thomas L. Case, Louis P. Bickel, Dallas, Tex., for defendant-appellant.

David B. Kultgen, Waco, Tex., for plaintiffs-appellees.

Appeals from the United States District Court for the Western District of Texas.

Before SIMPSON, TJOFLAT and HILL, Circuit Judges.

JAMES C. HILL, Circuit Judge:

This is primarily a price discrimination case brought under Section 2(a) of the Robinson-Patman Act. 15 U.S.C.A. § 13. We hold that Plaintiffs have failed to allege or prove a discriminatory sale to a favored customer.

I.

The factual background and the course of proceedings relevant to our decision today may be briefly summarized.

In 1964, Plaintiffs, Security Tire & Rubber Company, a Texas Corporation (Security-Texas) and Security Tire & Rubber Company, a Virginia Corporation (Security-Virginia), embarked on a course of dealing with the Defendant, The Gates Rubber Company, a Colorado Corporation (Gates). This course of dealing eventually led to the present litigation.

Defendant Gates is in the rubber manufacturing business. Gates' product line included tires for motor vehicles until the Fall of 1973, when it sold its Nashville, Tennessee tire manufacturing facility to Armstrong Rubber Company. Gates completely ceased tire manufacturing by the Spring of 1974. Plaintiffs, Security-Texas and Security-Virginia were "private brand" sellers of tires, although Security-Texas was not actively selling tires after early 1970. A "private brand" is a line of tires produced for a customer with a brand name, imprinted on the tires, which is owned by and identified with that customer. The Plaintiffs commenced in their venture in 1964, and from then until the Fall of 1973 they purchased most of their tires from Gates. The Plaintiffs marketed tires under the label of "Security" and did business predominantly in the Southeast United States.

At the outset, the parties operated under a verbal understanding. Subsequently, they reduced certain terms of their dealing to a written contract on July 17, 1969. The written contract did not set the prices of the tires to be manufactured by Gates and bought by Plaintiffs, nor did it require Plaintiffs to purchase any given number of tires. It merely provided that Plaintiffs were to purchase eighty percent of their requirements from Gates, if Gates produced the type of tire required by Plaintiffs. The written contract also provided for cancellation by any party upon one-hundred and eighty days notice.

During the period relevant to this lawsuit, 1969-73, there also existed a wholly-owned subsidiary of Gates, National Tires, Inc. (National). In effect, Gates marketed tires under the National label.

The somewhat complicated procedural history of this suit began on February 8, 1974, when Plaintiffs, Security-Texas and Security-Virginia, instituted a lawsuit in the Western District of Texas against Defendant Gates, filed as No. W-74-CA-9. The complaint alleged several different causes of action, including a treble damage action under the Robinson-Patman Act alleging a secondary line discrimination, a claim for a breach of warranty for an alleged failure to manufacture tires properly and a claim for a breach of contract for Gates' alleged failure to give timely notice of the cancellation of the July 17, 1969, contract. The complaint also alleged, and thus admitted, that Plaintiffs were indebted to Gates for tires and demanded that the debt be offset against their damages and that recovery be allowed for damages in excess of the debt. On February 22, 1974, Gates instituted a suit on an account against Security-Virginia in the Chancery Court of Davidson County, Tennessee which was removed to the federal court for the Middle District of Tennessee. By court order, Gates' action was transferred from the Middle District of Tennessee to the Western District of Texas on June 4, 1974, and it was assigned No. W-74-CA-41. The answer in No. W-74-CA-41 incorporated the complaint filed in No. W-74-CA-9 and demanded an offset of damages against the debt owed Gates. The Plaintiffs' cause, No. W-74-CA-9, and Gates' cause, No. W-74-CA-41, were consolidated for purposes of pretrial proceedings and trial.

By way of an Amended Complaint in No. W-74-CA-9, which was filed on January 18, 1977, the Plaintiffs abandoned all but three of their claims. The claims contained in the Amended Complaint and tried in the District Court were: (1) the Robinson-Patman treble damage claim; (2) the breach of contract claim for the alleged failure of Gates to manufacture tires in accordance with the warranty and standards of the Federal Department of Transportation; and (3) the breach of contract claim for the alleged failure of Gates to provide Plaintiffs with six months notice of cancellation of the July 17, 1969 contract. Gates' claim on the account against Security-Virginia was asserted in No. W-74-CA-41 and also as a counterclaim in No. W-74-CA-9, but was tried as a companion or consolidated case along with No. W-74-CA-9.

Both of the above cases were tried to a jury commencing on March 8, 1977. Gates' claim on the account against Security-Virginia, No. W-74-CA-41, was not submitted to the jury inasmuch as Security-Virginia admitted the account and stipulated that Gates had proven all the elements of its claim on the account. Upon Gates' motion, the District Court entered a judgment on the account. Plaintiffs' claims, No. W-74-CA-9, were submitted to the jury on a general charge, and the jury rendered a general verdict. The jury found for the Plaintiffs on the antitrust claim in the amount of $100,000 and for the Plaintiffs on the claim of breach of contract for failure to give timely notice on the cancellation of the contract in the amount of $3,667. The jury rendered a general verdict for Gates on the Plaintiffs' claim for breach of warranty.

On March 23, 1977, the District Court entered a single judgment under both cause numbers. The judgment awarded the Plaintiffs the sum of $303,667, representing the $100,000 on the antitrust claim trebled plus $3,667 on the breach of contract claim for failure to give notice of cancellation. The judgment also awarded Plaintiffs their costs and attorneys' fees, with the proviso that the amount of attorneys' fees would be determined at the conclusion of any appeal which might be taken from the judgment or at such time as the judgment became final. The judgment further awarded Gates $458,235.69, together with interest at the legal rate until paid, on the account against Security-Virginia. The judgment failed to award Gates prejudgment interest, attorneys' fees or costs. An amended judgment was entered on April 20, 1977, which deleted Security-Texas as a prevailing party in No. W-74-CA-9, pursuant to a postjudgment motion made by Gates. However, the amended judgment failed to make any disposition of Security-Texas. To that end, a second amended judgment was entered on May 27, 1977, which provided that Security-Texas take nothing for its causes of action.

II.

Section 2(a), in pertinent part, reads: "It shall be unlawful for any person . . . to discriminate in price between Different purchasers of commodities . . . where Such commodities are sold for use, consumption, or resale within the United States." 15 U.S.C.A. § 13(a) (emphasis added). Courts have interpreted the Section 2(a) language to require that a plaintiff establish two separate and contemporaneous sales transactions made by the same seller to two distinct purchasers. "(N)o single sale can violate the Robinson-Patman Act." Bruce's Juices, Inc. v. American Can Co., 330 U.S. 743, 755, 67 S.Ct. 1015, 1021, 91 L.Ed. 1219 (1947). Besides being suggested by the very language of the statute, the requirement of two transactions is implicit in the purpose of the Robinson-Patman Act. Anticompetitive price discrimination among competing buyers is the evil the statute prohibits. For price discrimination to occur, it is axiomatic that one purchaser must pay more than another purchaser; there must be two or more transactions at different prices. See generally Areeda, Antitrust Analysis PP 701-740 (2d ed. 1974); Kitner, A Robinson Patman Primer 77-78 (1970); Rowe, Price Discrimination under the Robinson Patman Act (1964); Sullivan, Antitrust §§ 217-19, 222-25 (1977); Von Kalinowski, Antitrust Laws & Trade Regulations § 24.03 (1975). See also generally, e. g., Hampton v. Graff Vending Co., 516 F.2d 100, 102 (5th Cir. 1975); Cliff Food Stores, Inc. v. Kroger, Inc., 417 F.2d 203, 208 (5th Cir. 1969); Hiram Walker, Inc. v. A & S Tropical, Inc., 407 F.2d 4, 7 (5th Cir.), Cert. denied, 396 U.S. 901, 90 S.Ct. 212, 24 L.Ed.2d 177 (1969); Hartley & Parker Inc. v. Florida Beverage Corp., 307 F.2d 916 (5th Cir. 1962).

The theory and proof of Plaintiffs' case assigned National the role of their competitor and the beneficiary of Gates' price discrimination the so-called "favored customer." Plaintiffs sought to assign themselves the roles of the victims of Gates' price discrimination the so-called "disfavored customers." It is important to note that National, the wholly-owned subsidiary of Gates, was the only customer of Gates alleged to have been favored; there was neither any further allegation nor proof of any other beneficiary of Gates' alleged price discrimination.

Assuming Arguendo that Plaintiffs established the other prerequisites for a recovery, their theory and proof would support the jury's verdict only if the...