Sun Oil Company v. FTC

• Decision Date: 24 July 1961
• Docket Number: No. 17658.,17658.
• Citation: 294 F.2d 465
• Parties: SUN OIL COMPANY, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: U.S. Court of Appeals — Fifth Circuit

294 F.2d 465 (1961)

SUN OIL COMPANY, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 17658.

United States Court of Appeals Fifth Circuit.

July 24, 1961.

Henry A. Frye, Philadelphia, Pa., H. P. Osborne, Jr., Jacksonville, Fla., Leonard J. Emmerglick, Washington, D. C., Richard L. Freeman, Philadelphia, Pa., Perlman, Lyons & Emmerglick, Washington, D. C., Moffett, Frye & Leopold, Philadelphia, Pa., Osborne, Copp, Markham & Ehrlich, Jacksonville, Fla., of counsel, for petitioner.

James E. Corkey, Asst. Gen. Counsel, Alan B. Hobbes, Francis C. Mayer, Washington, D. C., Daniel J. McCauley, Jr., General Counsel, Ralph S. Cunningham, Jr., Attorneys for Federal Trade Commission, Cambridge, Mass., for respondent.

Before JONES, BROWN, and WISDOM, Circuit Judges.

WISDOM, Circuit Judge.

This controversy between Sun Oil Company, petitioner, and the Federal Trade Commission was generated by a price battle between two filling stations. The issues relate to an alleged secondary-line price discrimination violative of the Robinson-Patman Act, 15 U.S.C.A. § 13-13b, 21a and the Federal Trade Commission Act, 15 U.S.C.A. § 41 et seq. The key question is whether the defense of meeting competition in good faith is available to a supplier of gasoline when the supplier reduces the wholesale price of its gasoline to one of its filling stations engaged in a price battle at the consumer level with a station owned and operated by a competing supplier. We hold for the petitioner.

Sun, a major oil company, refines, sells, and distributes gasoline throughout the United States. It sells only one grade, Blue Sunoco. In 1955 Gilbert McLean, one of Sun's thirty-eight retail dealers in Jacksonville, Florida, operated a filling station on the corner of 19th and Pearl streets in Jacksonville.¹ McLean was an independent contractor² but, like virtually all filling station operators, he sold gasoline purchased from only one supplier. He bought gasoline from Sun Oil Company at 24.1 cents a gallon and sold it at 28.9 cents a gallon, then the prevailing price in the Jacksonville area for gasoline sold under a major supplier's brand. Late in June 1955 Super Test Oil Company, a "non-major"³ competitor of Sun's, opened a filling station across the street from McLean's station and began selling Super Test "regular" gasoline at 26.9 cents a gallon, then the prevailing price in Jacksonville for off-brand gasoline. McLean testified that he was not hurt competitively as long as the differential between Sunoco and Super Test was two cents.⁴ In August the Super Test station commenced a series of price cuts which were advertised on curb signs in front of the station and also in the newspapers. August 27 Super Test dropped its posted price to 21.9 cents a gallon and August 28 dropped its price to 20.9 cents a gallon. Then and later, whenever Super Test cut its prices McLean's sales declined substantially.⁵ On a number of occasions, after reducing prices and gaining customers at McLean's expense, Super Test reestablished the customary two-cent price differential between its gas and Sunoco. On at least one occasion Super Test maintained its low price for a week.

McLean and Super Test competed for gallonage with McLean always the loser. He was a sitting duck. Super Test, a vertically-integrated company⁶ operating its own filling stations, could fix any retail price it pleased; McLean's price to the public was dependent on Sun's price to him. The Examiner found that McLean made it clear to Sun that unless something could be done to meet the Super Test competition he would be forced out of business. In the four months following Super Test's August "Grand Opening Special" McLean repeatedly asked Sun to reduce its wholesale tank-wagon price to him to a level that would allow Sunoco to compete with Super Test. Sun carefully considered the situation, but for four months gave no price allowance to McLean.

The week-end of December 3, 1955 Super Test dropped its price to 21.9 cents a gallon. A few days later the price went up again but after a short lull, with Sunoco still at 28.9 cents a gallon and Super Test at 26.9 cents a gallon, Super Test dropped its price to 24.9 cents a gallon. This was the last straw. McLean told Sun's regional manager that he was going out of business. The manager reported to his home office that the situation was "desperate." McLean informed the manager that to meet the competition he would have to post a price of 25.9 cents a gallon, but he could not afford to do so unless Sun gave him some relief. He followed this with a request by letter for assistance that would enable him to sell at 1.8 cents a gallon above the posted dealer tank-wagon price of 24.1 cents a gallon.⁷ December 27, 1955, Sun gave a discount to McLean of 1.7 cents a gallon.⁸ Sun reached this decision after a study of gallonage records of its Jacksonville dealers and a report from its regional manager, familiar with the local situation, led it to conclude that only McLean was affected adversely by Super Test's price-cuts and a price allowance could be made to McLean to put Sunoco on a competitive level with Super Test at 19th and Pearl streets without adversely affecting any other Sun dealer in Jacksonville. McLean cut his price three cents, to 25.9 cents, thereby absorbing 1.3 cents of the cut and reducing his normal gross profit from 4.8 cents to 3.5 cents. Sun officials and McLean testified that there was no agreement or understanding to fix his retail price. The Examiner found, however, that there was such an agreement. The next day or one day thereafter Super Test reduced its price to 23.9 cents, reestablishing the 2-cent differential. McLean maintained his price at 25.9 cents and kept it there until he went out of business. Shortly after Sun reduced its tank-wagon price to McLean, other dealers in the Jacksonville area complained about not being given the same allowance.⁹ Then, February 16, 1956, what had been a skirmish on the corner of 19th and Pearl became a full-scale price war in the Jacksonville area. February 16 Super Test lowered its price to 22.9 cents for its regular gasoline and 25.9 cents for ethyl. Then, after several major suppliers reduced their tank-wagon price, Sun dropped its tank-wagon price to all of its dealers in the area.

Sun's price allowance to McLean on December 27, 1955, came too late to help him. February 18, 1956, he went out of business. It was just as well; February 28, Super Test cut its regular gasoline to 19.9 cents and its ethyl to 22.9 cents.

September 28, 1956, the Federal Trade Commission filed a complaint against Sun charging it with having violated Section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act,¹⁰ by selling gasoline to McLean at a lower price than Sun charged other retail dealers in the same market area. In defense, Sun asserted that the allowance to McLean was a good faith price reduction to meet competition, as permitted under Section 2(b) of the Robinson-Patman Act. The complaint charged also that Sun violated Section 5 of the Federal Trade Commission Act by conspiring with McLean to fix the retail price of Sunoco at McLean's station.¹¹ Sun denied this charge. The Commission, adopting in full the Hearing Examiner's findings and conclusions, issued a broad order against Sun, directing it to cease and desist from discriminating in prices; the order applies not only to the sale of gasoline but also to the sale or distribution of any Sun products. On Sun's petition to review and set aside the Commission's cease and desist order, we grant review and set aside the order.

I.

The Commission contends that the defense of meeting competition is available to a seller only to meet direct competition for the business of his customer; that Sun could reduce its price to McLean only if Super Test offered gasoline to McLean at prices cheaper than Sunoco. Here, however, so the Commission argues, the seller granted a price deduction to a favored dealer in order to help that dealer meet his retail competition.¹² Respect for a federal agency's unquestioned expertise does not require the Court to abdicate its judicial responsibility of construing the statute in the factual setting, strongly as counsel for the Commission argues that the weight to be given the facts and inferences is for the Commission.¹³ We consider the Commission's construction of the Act unnecessarily narrow, unrealistic in terms of the facts of life in marketing gasoline, and inconsistent with the purposes of the Robinson-Patman Act.

Section 2(a) of the Robinson-Patman Act requires a seller to charge uniform prices to competing purchasers; proof of a price discrimination establishes a prima facie violation of Section 2(a). "A price discrimination within the meaning of that provision is merely a price difference." Federal Trade Commission v. Anheuser-Busch, Inc., 1960, 363 U.S. 536, 80 S.Ct. 1267, 1274, 4 L.Ed. 2d 1385. However, as the Seventh Circuit pointed out in Anheuser-Busch on remand; the "Supreme Court, at page 553, 80 S.Ct. at page 1277, disclaimed any flat prohibition of price differentials, recognizing that price differences constitute but one element of a § 2(a) violation". Anheuser-Busch, Inc. v. Federal Trade Commission, 1961, 289 F.2d 835, 836. Other parts of the statute allow price reductions which meet established criteria; the Act clearly "places emphasis on individual competitive situations".¹⁴

Section 2(b), on which Sun relies, allows a seller, in an individual competitive situation, to rebut a prima facie violation of Section 2(a) by showing that his "lower price * * * was made in good faith to meet an equally low price of a competitor". This proviso creates a substantive defense or "justification" that overrides the importance of any competitive injury and is absolute in nature.¹⁵ The Section 2(b) defense raises a question of fact in each case as to whether the competition justifies the discrimination.¹⁶

In...