United States v. Borden Company

• Decision Date: 25 June 1962
• Docket Number: No. 439,439
• Citation: 82 S.Ct. 1309,370 U.S. 460,8 L.Ed.2d 627
• Parties: UNITED STATES, Appellant, v. The BORDEN COMPANY et al
• Court: U.S. Supreme Court

370 U.S. 460

82 S.Ct. 1309

8 L.Ed.2d 627

UNITED STATES, Appellant,

v The BORDEN COMPANY et al.

No. 439.

Argued April 24 and 25, 1962.

Decided June 25, 1962.

Richard A. Solomon, Washington, D.C., for appellant.

Stuart S. Ball, Chicago, Ill., for appellee, The Borden Co.

John Paul Stevens, Chicago, Ill., for appellee, Bowman Dairy Co.

Mr. Justice CLARK delivered the opinion of the Court.

This is a direct appeal¹ from a judgment dismissing the Government's Section 2(a) Clayton Act² suit in which it sought an injunction against the selling of fluid milk products by the appellees, The Borden Company and Bowman Dairy Company, at prices which discriminate between independently owned grocery stores and grocery store chains. The District Court in an unreported decision found the pricing plan of each dairy to be a prima facie violation of § 2(a) but concluded that these discriminatory prices were legalized by the cost justification proviso of § 2(a), which permits price differentials as long as they 'make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered.' To review the Government's contention that the District Court had improperly permitted cost justifications based on the average cost of dealing with broad groups of customers unrelated in costsaving factors,³ we noted probable jurisdiction, 368 U.S. 924, 82 S.Ct. 361, 7 L.Ed.2d 189, and directed the parties to brief and argue the case separately as to each appellee, 368 U.S. 963, 82 S.Ct. 438. However, finding the same problem at the root of the cost justifications of each appellee, we have dealt with both in this single opinion. We have concluded that the class cost justifications submitted to the District Court by the appellees did not satisfy their burden of showing that their respective discriminatory pricing plans reflected only a 'due allowance' for cost differences.

By way of background, we first point out that the present appeal is merely a glimpse of protracted litigation between the parties which began in 1951 and which has not yet seen its end. The original complaint charged violations of §§ 1 and 2 of the Sherman Act, 15 U.S.C.A. §§ 1, 2 and § 2(a) of the Clayton Act. The District Court dismissed the suit, holding that there was no proof of the alleged Sherman Act violations and that no equitable relief was necessary under the Clayton Act charge because appellees were already restrained by a consent decree entered in a private antitrust case. D.C., 111 F.Supp. 562. On direct appeal we affirmed the dismissal of the Sherman Act charges but held erroneous the refusal to grant an injunction on the Clayton Act claim solely because of the existence of the private decree. 347 U.S. 514, 74 S.Ct. 703, 98 L.Ed. 903. On remand the case was reopened and on its prima facie case the Government introduced recent general price schedules and illustrated their effect on sample stores to show that each appellee was still engaged in illegal price discrimina- tions notwithstanding the consent decree. In defense the appellees each introduced voluminous cost studies in justification of their pricing systems. The entire case was submitted via stipulations, depositions, and briefs. There was no dispute as to the existence of price discrimination; the sole question was whether the differences in price reflected permissible allowances for variances in cost.

In view of our disposition, we need not relate the facts in detail. Both appellees are major distributors of fluid malk products in metropolitan Chicago. The sales of both dairies to retail stores during the period in question were handled under plans which gave most of their customers—the independently owned stores—percentage discounts off list price which increased with the volume of their purchases to a specified maximum while granting a few customers—the grocery store chains—a flat discount without reference to volume and substantially greater than the maximum discount available under the volume plan offered independent stores. These discounts were made effective through schedules which appeared to cover all stores; however, the schedules were modified by private letters to the grocery chains confirming their higher discounts.⁴ Although the two sets of discounts were never officially labeled 'independent' and 'chain' prices, they were treated, called, and regarded as such throughout the record.

To support their defense that the disparities in price between independents and chains were attributable to differences in the cost of dealing with the two types of customers, the appellees introduced cost studies which will be described separately because of their differing content and analytical approach.

The Borden pricing system produced two classes of customers. The two chains, A & P and Jewel, with their combined total of 254 stores constituted one class. The 1,322 independent stores, grouped in four brackets based on the volume of their purchases, made up the other. Borden's cost justification was built on comparisons of its average cost per $100 of sales to the chains in relation to the average cost of similar sales to each of the four groups of independents. The costs considered were personnel (including routemen, clerical and sales employees), truck expenses, and losses on bad debts and returned milk. Various methods of cost allocation were utilized: Drivers' time spent at each store was charged directly to that store; certain clerical expenses were allocated between the two general classes; costs not susceptible of either of the foregoing were charged to the various stores on a per stop, per store, or volume basis.

Bowman's cost justification was based on differences in volume and methods of delivery. It relied heavily upon a study of the cost per minute of its routemen's time. It determined that substantial portions of this time were devoted to three operations, none of which were ever performed for the 163 stores operated by its two major chain customers.⁵ These added work steps arose from the method of collection, i.e., cash on delivery and the delayed collections connected therewith, and the performance of 'optional customer services.' The customer services, performed with varying frequency depending upon the circumstances, included 'services that the driver may be requested to do, such as deliver the order inside, place the containers in a refrigerator, rearrange containers so that any product remaining unsold from yesterday will be sold first today, leave cases of products at different spots in the store, etc.' The experts conducting the study calculated as to these elements a 'standard' cost per unit of product delivered: the aggregate time required to perform the services, as determined by sample time studies, was devided by the total number of units of product delivered. In essence, the Bowman justification was merely a comparison of the cost of these services in relation to the disparity between the chain and independent prices. Although it was shown that the five sample independents in the Government's prima facie case received the added services,⁶ it was not shown or found that all 2,500 independents supplied by Bowman partook of them. On the basis of its studies Bowman estimated that about two-thirds of the independent stores received the 'optional customer services' on a daily basis and that 'most store customers pay the driver in cash daily.'

On these facts, stated here in rather summary fashion, the trial court held that appellees had met the requirements of the proviso of § 2(a) on the theory that the general cost differences between chain stores as a class and independents as a class justified the disparities in price reflected in appellees' schedules. In so doing the trial court itself found 'the studies * * * imperfect in some respects * * *.' It noted the 'seemingly arbitrary' nature of a classification resulting 'in percentage discounts which do not bear a direct ratio to differences in volume of sales.' But it found 'this mode of classification is not wholly arbitrary—after all, most chain stores do purchase larger volumes of milk than do most independent stores.'⁷ We believe it was erroneous for the trial court to permit cost justifications based upon such classifications.

The burden, of course, was upon the appellees to prove that the illegal price discrimination, which the Government claimed and the trial court found present, was immunized by the cost justification proviso of § 2(a). Such is the mandate of § 2(b) as interpreted by this Court in Federal Trade Comm'n v. Morton Salt Co., 334 U.S. 37, 44—45, 68 S.Ct. 822, 827, 92 L.Ed. 1196 (1948).⁸ There can be no doubt that the § 2(a) proviso as amended by the Ribinson-Patman Act contemplates, both in express wording and legislative history, a showing of actual cost differences resulting from the differing methods or quantities in which the commodities in question are sold or delivered.⁹ The only question before us is how accurate this showing must be in relation to each particular purchaser.

Although the language of the proviso, with some support in the legislative history,¹⁰ is literally susceptible of a construction which would require any discrepancy in price between any two purchasers to be individually justified, the proviso has not been so construed by those charged with its enforcement. The Government candidly recognizes in its briefs filed in the instant case that '(a)s a matter of practical necessity * * * when a seller deals with a very large number of customers, he cannot be required to establish different cost-reflecting prices for each customer.' In this same vein, the practice of grouping customers for pricing purposes has long had the approval of the Federal Trade Commission.¹¹ We ourselves have noted the 'elusiveness of cost data' in a Robinson-Patman Act proceeding....