Texas Gulf Sulphur Company v. JR Simplot Company, 22829.

• Citation: 418 F.2d 793
• Decision Date: 24 October 1969
• Docket Number: No. 22829.,22829.
• Parties: TEXAS GULF SULPHUR COMPANY, a corporation, Defendant and Appellant, v. J. R. SIMPLOT COMPANY, a corporation, Plaintiff and Appellee, and John Hancock Mutual Life Insurance Company, a corporation, Intervener and Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

418 F.2d 793 (1969)

TEXAS GULF SULPHUR COMPANY, a corporation, Defendant and Appellant, v. J. R. SIMPLOT COMPANY, a corporation, Plaintiff and Appellee, and John Hancock Mutual Life Insurance Company, a corporation, Intervener and Appellee.

No. 22829.

United States Court of Appeals Ninth Circuit.

October 24, 1969.

John D. Hartigan (argued), New York City, Elam, Burke, Jeppesen & Evans, Boise, Idaho, for appellant.

Jess B. Hawley, Jr. (argued), Paul B. Ennis, of Hawley, Troxell, Ennis & Hawley, Boise, Idaho, Carl J. Schuck (argued), of Overton, Lyman & Prince, Los Angeles, Cal., Eberle & Berlin, Boise, Idaho, for appellee.

Before HAMLIN, BROWNING and CARTER, Circuit Judges.

JAMES M. CARTER, Circuit Judge:

This action was started by J. R. Simplot Company, a corporation (hereafter Simplot), to obtain a judgment that Texas Gulf Sulphur Company, a corporation (hereafter Texas Gulf), was obligated under an option clause in a 1963 contract to deliver each year to Simplot 40,000 long tons of sulphur. Texas Gulf's answer denied Simplot's interpretation of the option clause and by affirmative defense claimed a different price was involved or alternately that no price was provided for option sulphur. Texas Gulf also set up a defense that a Robinson-Patman Act violation would result if Texas Gulf was required to provide option sulphur at $11.00(C) per ton.¹

Thereafter Texas Gulf filed an amended answer and in a counterclaim for the first time asserted fraud in the procurement of the contract. The case was pretried and trial was to commence August 29, 1966. On August 25, Texas Gulf gave notice it was shutting off Simplot's sulphur supply and was rescinding the contract. The rescission was on the ground of fraud by Simplot and that Simplot induced or caused discrimination in violation of the Robinson-Patman Act.

The trial date was vacated and Simplot filed a supplemental complaint. It sought an adjudication concerning (1) Texas Gulf's discontinuance of sulphur shipment, (2) the validity of the purported rescission, (3) Simplot's rights under the contract, (4) judgment compelling performance by Texas Gulf or damages in lieu thereof, and (5) judgment quieting title to real property in which Texas Gulf had security rights under the contractual agreements.

In November 1966 the district judge made an interim order preserving the status quo on the basis of provisional shipments and provisional payments. The case was further pretried, then tried to the district court without a jury. The judgment was in favor of Simplot on all issues. The trial court found that the contract and all the financing instruments were lawful and binding; and that the purported rescission was a nullity on both its asserted grounds of fraud and violations of the Robinson-Patman Act. By judgment Texas Gulf was ordered to perform its sulphur delivery obligations, to reconvey real property when a loan was paid and to comply with all other provisions of the contract. Jurisdiction was retained to make determinations or orders designed to carry out the judgment including those pertaining to the final accounting and the adjustments contemplated by the interim order.

QUESTIONS PRESENTED

Although the briefs and the record are voluminous, the questions presented for decision on this appeal are in substance, —

1. Whether the evidence supports the findings, conclusions and judgment that (a) Simplot did not induce or cause discrimination violative of the Robinson-Patman Act; (b) the contract was not induced by Simplot's alleged fraud.

2. Whether discrimination on the part of a seller under the Robinson-Patman Act occurs when a contract is executed or as of the date that it is performed.²

3. Whether Simplot was entitled to the option sulphur provided in the contract.

THE FACTUAL BACKGROUND

Many of the findings of the district court are unchallenged by Texas Gulf but we view the facts, where disputed, in the light most favorable to Simplot, the prevailing party. We have adopted generally the summary of the facts as prepared by Simplot, since our review of the record shows they are supported by the record.

(1) The Background as to Simplot and Its Representatives.

Simplot engages in the manufacture and sale of various chemical fertilizers from Idaho. At all times material, Kilbourne has been Simplot's Vice President in charge of the fertilizer operation and Dunn has been the plant manager. (Findings 3-4.)

To manufacture some of its products Simplot uses sulphuric acid which is either purchased or which is produced from sulphur. This acid is combined and reacted with phosphate rock and other raw materials to produce the fertilizer. If sulphur is used, it is first converted into sulphuric acid. This is done by Simplot in its sulphuric acid plants at its fertilizer complex at Don (near Pocatello), Idaho. These plants went "on stream" in the following years and have the following output and consumption capacities:

                               Year        Daily Acid        Annual Sulphur
                             Operation       Output           Consumption
                   Plant     Commenced    (Short tons)        (Long tons)
                   ________________________________________________________
                     1         1959            400               40,000
                     2         1963            700               70,000
                     3         1966        Not less than     Not less than
                                              1,000             100,000
                                                             (Findings 4-5)
                

Before it had Plant 1 in 1959, Simplot bought acid produced as a by-product from smelter gases, which could be obtained "very, very cheap." Thereafter, sulphur became available in Idaho at an economic price leading to the construction of the acid plants. Simplot was able to continue purchasing smelter acid to supply some of its needs, but did so on a continually declining basis due to diminishing availability and the unreliability of supply.

Simplot's fertilizer marketing area is defined by paragraph 7.2 of the Contract which specifies it to be "North Dakota, South Dakota, Nebraska, Kansas, Oklahoma, the Panhandle of Texas, and all States west of these States to the Pacific Ocean (except Alaska)." East of the Rockies, however, Simplot must absorb freight and is at a competitive disadvantage because of materially adverse operating and raw material cost factors.

Simplot's fertilizer competitors include Consolidated Mining & Smelting Company operating out of British Columbia and Western Phosphates (a part of Stauffer Chemical) operating from Salt Lake City, neither of which buy sulphur but manufacture their product from cheap smelter acid. As of the time of the trial — but not in 1963 when the transactions in issue took place Finding 46, another competitor was the El Paso Products Company (El Paso) which had a decided advantage over Simplot because, unlike Simplot, it did not have to transport its phosphate rock to the plant, and had a freight advantage on movement of finished product east.

(2) The Background as to Texas Gulf and its Representatives.

Texas Gulf by its own pronouncement, is the "world's largest supplier of sulphur."

As all times material, the sulphur consumed commercially in the United States has been of two types, Frasch (or Gulf Coast) sulphur and recovered sulphur, each produced in widely separated areas. Frasch sulphur is mined from underground deposits in the Gulf Coast area of Texas and Louisiana, while recovered sulphur is obtained from gas fields in Alberta, Canada (with only a small quantity derived from fields in Wyoming). It is "recovered" by a process whereby the hydrogen sulphide in sour natural gas flowing from gas wells is extracted, making the gases "sweet", and thereby saleable. Recovered sulphur is a by-product of the production of natural gas. Finding 10.

More than half the 156,000,000 long tons of the United States' Frasch (or Gulf Coast) sulphur from the turn of the century through 1963, has been produced and marketed by Texas Gulf; and, by 1963, Texas Gulf had produced and marketed almost a quarter of the 1.3 million long tons of recovered sulphur produced in Canada.

From the early 1950s Myers has been in charge of and has supervised Texas Gulf's sulphur sales, pricing and marketing worldwide. This included the formulation of policy and final responsibility for the negotiation of sulphur contracts. The Court found that at all times "Myers has been thoroughly experienced in the sale and marketing of sulphur." Finding 11.

Gillette, since 1959, has been Myers' assistant sales manager with responsibility for western United States, including the Simplot account. He regularly negotiated and executed sulphur sales for Texas Gulf. He has been in sulphur marketing since 1957 and has kept himself informed on the business and market conditions. At all times pertinent, he too, as the Court found, was thoroughly experienced in the sale and marketing of sulphur. Finding 11.

At all material times Texas Gulf collected, analyzed and disseminated information regarding production, sales, inventories, as well as past, present and anticipated market conditions in the sulphur business in the United States, Canada and world-wide. Its personnel continually obtained market information regarding competitive sales and routinely as part of sales planning kept themselves informed on what their competitors were doing, regularly maintaining files on their competitors respecting such data. Texas Gulf has a market research department which collects, analyzes, and disseminates that information in annual reports, press releases and trade journals.

As the Court found, "Texas Gulf was well informed on the industry conditions bearing upon the marketing of sulphur and as to prices, terms and conditions at any given time which sulphur could command on the market." Finding 14.

Myers and Gillette travelled extensively throughout the United States and Canada making customer contacts and becoming acquainted with market...