South Carolina Council of Milk Producers, Inc. v. Newton

• Decision Date: 04 April 1966
• Docket Number: No. 10138.,10138.
• Citation: 360 F.2d 414
• Parties: SOUTH CAROLINA COUNCIL OF MILK PRODUCERS, INCORPORATED, et al., Appellants, v. Joseph T. NEWTON, Jr., et al., Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

360 F.2d 414 (1966)

SOUTH CAROLINA COUNCIL OF MILK PRODUCERS, INCORPORATED, et al., Appellants, v. Joseph T. NEWTON, Jr., et al., Appellees.

No. 10138.

United States Court of Appeals Fourth Circuit.

Argued January 4, 1966.

Decided April 4, 1966.

Lynn C. Paulson, Washington, D. C., and John C. West, Camden, S. C. (T. Allen Legare, Jr., Charleston, S. C., H. W. C. Furman, Camden, S. C., Legare & Hare, Charleston, S. C., and Murchison & West, Camden, S. C., on brief, for appellants.

Ernest F. Hollings, Charleston, S. C., and Ellis T. Fernandez, Jr., Jacksonville, Fla. (Falcon B. Hawkins and Hollings & Hawkins, Charleston, S. C., and Hazard & Fernandez, Jacksonville, Fla., on brief), for appellees.

Before HAYNSWORTH, Chief Judge, and BRYAN and BELL, Circuit Judges.

ALBERT V. BRYAN, Circuit Judge:

The Clayton Act, Section 4, 15 U.S.C. § 15,¹ the Federal District Court in South Carolina has held, does not in the circumstances here authorize an action by appellant milk producers against appellee wholesale and retail grocers. The complaint charged them with combining and conspiring in restraint of trade and commerce in groceries, including milk and dairy products, in an attempt to monopolize trade and commerce in these commodities in violation of the Sherman Act, 15 U.S.C. §§ 1 and 2² and to the injury of the plaintiffs.

Accordingly, on motion for summary judgment, the Court dismissed the suit of the South Carolina Council of Milk Producers, Incorporated, its president and secretary, against Joseph T. Newton and others, who were as owners, franchisers or operators doing business in South Carolina under the trade name Piggly Wiggly. The District Judge reasoned that because of "lack of privity of contract, direct relationship or mutual competition" between the milk producers and the defendants, the producers were not persons injured "by reason of anything forbidden in the antitrust laws", the predicate of liability under the Clayton Act. Concluding that the complaint states a case upon which relief can be granted, we reverse and remand the case for trial.

The South Carolina Council of Milk Producers, Incorporated, is a non-profit organization chartered by South Carolina with about 400 members who are milk producers in that State as well as in North Carolina and Georgia. The president and secretary of the Council, who are members and also milk producers, sue here as individuals and as representatives of all other members.

The defendants and their connections as alleged in the complaint are as follows:

1. Commodore Points Terminal Corporation, chartered in Florida with its principal place of business there, is engaged in the manufacture of store fixtures. It owns and controls

2. Piggly Wiggly Corporation, known as Trade Name Corporation, chartered by Delaware with its principal establishment in Florida and the owner of the trade name Piggly Wiggly. It grants franchises throughout the country for the use of the trade name and renders assistance to the franchisees, including extension of credit and guaranteeing their financial obligations. This corporation also empowers wholesale grocers to franchise retail grocery stores and assists the latter in the conduct of their businesses, receiving a percentage of the gross sales of all franchised Piggly Wiggly Stores. It authorized

3. Piggly Wiggly Wholesale, Inc., which is engaged in buying and selling groceries with its principal location in South Carolina, to award franchises for the use of the Piggly Wiggly trade name. At the same time it performs various services for the franchised retail stores, for which Wholesale receives a percentage of their sales as its compensation.

4. Joseph T. Newton, Jr., whose office is in South Carolina, is alleged to be "an owner, officer, director or stockholder of some or all of the corporations defendant" here.

5. Paradise Ice Cream Co., Inc., a South Carolina corporation with its principal place of business there, was purchased within the two years preceding the institution of this suit by defendant Wholesale and other defendants herein, and is now operated by them as a milk processing plant.

6. Greenbax Stamp Co., incorporated in South Carolina with its office at Charleston, is owned by defendant Wholesale and/or defendant Newton and it primarily engages in issuing and handling trading stamps for use by the franchised Piggly Wiggly stores. At times it has loaned money or extended credit to the defendant Paradise.

7. The remaining defendants are thirteen Piggly Wiggly retail stores located in South Carolina and franchised by Wholesale. They are alleged to own an interest in the defendant Paradise and to be representative of all the other franchisers, as a class, doing business in South Carolina. Leave is asked to join the unnamed retailers as defendants as and when they become known to the plaintiffs.

Alleging that all of the defendants are "regularly engaged in interstate commerce in groceries and other items customarily sold in grocery stores including milk and milk products", the complaint accuses them of engaging, since January 1963, in a combination and conspiracy in restraint of trade and commerce in groceries, especially milk and dairy products, in an attempt to monopolize such trade and commerce, contrary to sections 1 and 2 of the Sherman Act.

After describing the interstate phases of the operations, the aim of the combination, conspiracy and attempted monopolization and its accomplishment are next outlined, as follows. The sale of milk and its products is not used by the defendants for immediate profit but rather as a "drawing card" or "attraction" to bring trade in all groceries to the Piggly Wiggly stores. The strategy was to provide milk to these retailers for sale to the public below cost or well under the market price. To this end they acquired a milk processing plant — the defendant Paradise Ice Cream Co., Inc. — at Orangeburg, South Carolina, and there processed what was trade named "Paradise" milk. This commodity was employed as a "loss leader". It was priced to Piggly Wiggly stores at such a low figure as to cause the Paradise plant to operate at a loss.

Further, when the giving of extra or "bonus" stamps issued by defendant Greenbax Stamp Company, with purchases of Paradise milk, did not lure grocery patrons in sufficient numbers, Piggly Wiggly stores were directed to sell half-gallons at 39 cents, despite the prevailing price of 53 cents. The milk was invoiced to the stores at 48 cents with a discount of 10 cents. When the South Carolina Milk Commission forbade defendant Paradise to sell for less than 48 cents a half-gallon wholesale, Paradise billed the retailers at 48 cents; retailers sold at 44 ½ cents; and Paradise rebated them the amount of their loss.

Supplementary allegations charge the defendants with persisting in these practices and in selling at "unreasonably low prices", each playing a part in the scheme to his or its advantage. The consequences of this conduct, the complaint summarizes, have been and are the unlawful diversion to defendants of "trade and commerce in milk and milk products between producers and processors and between processors and retailers and consumers".

According to the complaint, the result of the conspiracy has been to destroy the market price of milk in South Carolina to the point of threatening the economic existence of the dairy industry. This campaign, it is stressed, has caused milk and milk products to be sold in many South Carolina markets at destructively low prices contrary to the public policy of the State. Particularly, the grievance of the plaintiffs is that the program of the defendants "has caused the producers such as themselves in the State of South Carolina to have to sell their products at prices below cost or so near cost as to make their operations unprofitable". In this particular, the plaintiffs plead that as producers they have sustained losses on some milk sold and have been deprived of profits they would otherwise have realized on other milk, to their damage in the sum of $500,000.

The motions to dismiss were grounded, and sustained by the District Judge, on a conclusion from the following undisputed facts. The plaintiffs did not directly sell to the defendants, the defendants were not producers in competition with the plaintiffs, and the plaintiffs' commodity was raw milk while the defendants' commodity was processed milk. The conclusion was that in these circumstances no "privity of contract, direct relationship, or mutual competition" existed between the plaintiffs and the defendants, hence there was "no directness of injury", without which no antitrust cause of action arose, regardless of the illegality of the alleged combination, conspiracy or attempted monopolization.

This application of the Federal statutes is, in our judgment, too narrow. The Clayton Act, § 4, 15 U.S.C. § 15, gives relief by way of damages to "any person who shall be injured in his business * * * by reason of anything forbidden in the antitrust laws." Section 4 does not in its terms limit relief to persons in a direct contractual or competitive status with the persons whose conduct allegedly violates the proscriptions of the Sherman Act. Moreover, while there are to be found authorities upholding as essential in an antitrust cause those elements now pressed by the defendants as absent here, we do not think the predominant decisional law so straitens the intent of the Clayton Act.

To begin with, the reliance on Loeb v. Eastman Kodak Co., 183 F. 704 (3 Cir. 1910) for this contention is not secure. It involved an attempt by a stockholder-creditor-employee of a corporation to sue individually for antitrust injuries inflicted upon the corporation. Plainly, the injury to the plaintiff was derivative and the corporate entity intervened to suffer the damage immediately and entirely.

Snow Crest Beverages, Inc. v. Recipe Foods, Inc., 147 F.Supp. 907 (D.Mass. 1956) is...