United States v. SOUTHERN CALIFORNIA WHOLESALE GROCERS'ASS'N

• Decision Date: 28 August 1925
• Citation: 7 F.2d 944
• Court: U.S. District Court — Southern District of California
• Parties: UNITED STATES v. SOUTHERN CALIFORNIA WHOLESALE GROCERS' ASS'N et al.

7 F.2d 944 (1925)

UNITED STATES v. SOUTHERN CALIFORNIA WHOLESALE GROCERS' ASS'N et al.

District Court, S. D. California, S. D.

August 28, 1925.

James M. Beck, Acting Atty. Gen., A. T. Seymour, Asst. Atty. Gen., Henry A. Guiler, Sp. Asst. Atty. Gen., Herbert N. Ellis, Sp. Asst. U. S. Atty., of Los Angeles, Cal., and Harry H. Atkinson, Sp. Asst. Atty. Gen, for the United States.

Lawlor & Degnan, of Los Angeles, Cal., for defendant Southern California Wholesale Grocers' Ass'n.

Flint & MacKay, of Los Angeles, Cal., for defendant Southern California Ass'n of Manufacturers' Representatives.

Wright & McKee, of San Diego, Cal., for defendants Delta Mercantile Co. and Klauber-Wangenheim Co.

JAMES, District Judge.

By the bill in equity, filed herein on April 2, 1924, on behalf of the United States, defendants are charged with having engaged in a conspiracy to restrain trade and commerce, contrary to the provisions of section 1 of the Act of Congress approved July 2, 1890, commonly referred to as the Sherman Anti-Trust Law (Comp. St. § 8820). It is alleged that the illegal acts were engaged in for a period of three years prior to the filing of the bill of complaint, and that the defendants continue therein. An injunction is prayed for to restrain the defendants from further continuing in the alleged conspiracy. The government further asks that by the decree the voluntary associations named as defendants be dissolved, and that the members thereof be enjoined from again organizing any like or similar "association, exchange, corporation, company, or concern." In the complaint there are described a series of acts which it is alleged the defendants, by concert and agreement, have done and agreed to do, all of which it is charged were and are in violation of the prohibitory terms of the law referred to.

The business of all of the defendants, as the bill of complaint describes it, has to do with the transportation, handling, and marketing of staple lines of groceries.

The defendants may be divided into two general classes: First, The Southern California Wholesale Grocers' Association and its members; that organization being engaged in handling in wholesale quantities, and distributing to retail dealers, grocery commodities. Second, the organization and its members once called the Southern California Association of Manufacturers' Representatives and now known as the Los Angeles Food Brokers' Association; that organization being a brokerage concern and an intermediary between the manufacturer and the jobber or wholesaler. The two principal associations named operate separately, and their organizations are distinct. The brokers' field of patronage necessarily is limited to the wholesalers or jobbers, who in turn confine their market to the retailer.

The charge of the government may be very generally summarized as follows: (1) That the defendants by their organizations and through various means sought to monopolize the business of distribution of commodities referred to and to enhance the prices charged; (2) that, as a part of the plan, and as effective means to the end sought, they influenced manufacturers to refuse to sell directly to other distributors, particularly to what are called the "chain stores," and refused to buy from any manufacturer who did so sell to independent buyers.

The testimony and exhibits offered in this case fill many hundreds of pages; the trial having lasted approximately four weeks. It will not be of any advantage to attempt to present more than the briefest summary of the evidence addressed to the pivotal propositions involved. The decision in this case is to be controlled by that evidence, and the inferences legally deducible therefrom, which affect the questions as to whether, by the maintaining of uniform prices by the wholesalers' association, and the action of the wholesalers and brokers in discouraging the manufacturers from selling to the chain stores, interstate commerce was interfered with.

It was admitted that, in the commodities described in the complaint and dealt in by the defendants, a substantial volume was carried into and out of the state of California to and from the Southern District thereof. The bulk or greater quantity of such commodities brought into the state was disposed of by marketing to retailers in Southern California. The wholesalers made no attempt to secure a market in California outside of the principal southern counties, but several of them had a small trade in Arizona, with some sales in the state of Nevada. The testimony was that from several of the wholesaler members shipments to points outside of the state amounted to from 3 to 5 per cent. of their gross business.

The wholesalers' association issued a regular price list which was in the hands of all of the salesmen; the prices contained in which each member was bound to maintain. The testimony was that the maintaining of this list was compulsory only within the territory comprising Southern California, and that traveling representatives of the different members soliciting business in Arizona and Nevada were not required to use it, although it was shown that they did carry it and looked to its quotations as furnishing a general basis for the price charged. There was evidence that in the outside territory those prices were followed, and there was evidence that there were exceptions when different prices were made. The association fixed a summer vacation period of about a week, during which time no salesman was allowed to solicit trade. This vacation period was observed both as to the representatives of the wholesalers working in Southern California and those working in Arizona and Nevada. Members of the wholesalers' association made a cash deposit with the secretary, against which fines might be levied in the judgment of the secretary where a violation of the regulations of the association had been committed, including deviations from the price schedule. It may be here pertinent to state, in view of certain decisions referred to hereinafter, that, all of the evidence being considered, it cannot be found as a fact that the prices charged by the wholesalers and fixed in their schedules were excessive, or the profits accruing disproportionate to a fair and reasonable return from the business when handled and managed with reasonable prudence and economy.

Counsel for the government contend, in relation to the wholesalers and their price-fixing agreement, that interstate restraint of trade in the commodities concerned would result whether there were any shipments out of the state or not; secondly, that, if the lists were used and prices maintained outside of the state, this outflowing commerce would, without question, be restricted. The court is asked to conclude, from the fact that the acknowledged effort of the wholesalers was to maintain schedule prices among their members, and from the fact that the list prices were used as a basis by the traveling men working in Arizona and Nevada, together with the fact that a vacation period was observed in the trade territory outside of the state, that necessarily the understanding and agreement was to make effective the price-fixing plan in the outside territory as well as in the state of California. To reach this conclusion we must give no weight to the affirmation of the wholesalers themselves that prices were not maintained outside of the District of Southern California; also give no effect to the fact as shown that there were variations made by member wholesalers in Arizona and Nevada from the schedule price list; also discard from consideration the fact that some issues at least of the price lists bore upon their face the printed notice that the prices appended were effective only in Southern California. Such a conclusion is justified only by adopting the assumption that every operation of the wholesalers in the prosecution of their business and the securing of profits is clouded with suspicion and doubt as to the good faith of their asserted efforts to keep within the law, and that the exceptional circumstances shown regarding the business done in other states are...