Wolfe v. National Lead Company

• Decision Date: 22 August 1955
• Docket Number: No. 13966.,13966.
• Citation: 225 F.2d 427
• Parties: Bernard Mitchell WOLFE and Frederick J. Dannenfelser, Individuals and Co-Partners Doing Business Under the Name and Styles, "Dutch Paint Co." and "Manning-Mitchell Paint Co.," Appellants, v. NATIONAL LEAD COMPANY, a New Jersey Corporation; E. I. du Pont de Nemours and Company, Inc., et al., Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

225 F.2d 427 (1955)

Bernard Mitchell WOLFE and Frederick J. Dannenfelser, Individuals and Co-Partners Doing Business Under the Name and Styles, "Dutch Paint Co." and "Manning-Mitchell Paint Co.," Appellants, v. NATIONAL LEAD COMPANY, a New Jersey Corporation; E. I. du Pont de Nemours and Company, Inc., et al., Appellees.

No. 13966.

United States Court of Appeals Ninth Circuit.

June 27, 1955.

Rehearing Denied August 22, 1955.

Joseph L. Alioto, Maxwell Keith, San Francisco, Cal., for appellants.

Robert E. Burns, Crimmins, Kent, Draper & Bradley, San Francisco, Cal. (James D. Ewing, Milton Handler, John B. Henrich, Eugene Z. DuBose, Stanley D. Robinson, New York City, of counsel), for appellee Nat. Lead Co.

Eugene D. Bennett, Francis R. Kirkham, James Michael, San Francisco, Cal. (James P. Kranz, Jr., New York City, Pillsbury, Madion & Sutro, San Francisco, Cal., of counsel), for appellee E. I. du Pont.

Before DENMAN, Chief Judge, and HEALY and McALLISTER, Circuit Judges.

McALLISTER, Circuit Judge.

This is an appeal from a decree dismissing a private action brought under the antitrust act, and based upon the claim that appellants suffered damage as the result of appellees' conspiracy to restrain trade and to fix prices.

The background of the controversy is as follows: After World War II, the government instituted certain programs designed to help returning veterans get started in business. To the Civilian Production Administration was confided general charge of the plan for allocation of scarce materials to such veterans during the years of post-war shortages. With respect to veterans who desired to enter the paint manufacturing business, the above Administration had charge of planning the allocation of titanium pigment, a product made from ilmenite ore, and used in the manufacture of paints, paper, rubber, ceramics, and other products. By far the largest producers of titanium pigment in the United States are appellees, E. I. du Pont de Nemours and Company and the National Lead Company.

Having ascertained that the supply of titanium pigment was in 1946 substantially below minimum requirements, and that the shortage was so serious as to threaten the increased production of peacetime products, the Civilian Production Administration called a joint meeting in February of its Industry Advisory Committee for the titanium pigment and zinc sulphide industries. At this meeting, there was established a veterans' quota program in which it was determined that the industries involved should be required to furnish assured minimum quotas to bona fide veterans entering the paint business.

The evidence discloses that during the years 1947 and 1948, the scarcity of titanium which was under consideration by the Civilian Production Administration in 1946 continued and, in conformity with the program above mentioned, the producers, including appellee companies, allocated the product manufactured by them to the different paint manufacturers, including veterans who were engaging in the business for the first time.

Among these veterans who were commencing the paint manufacturing business were appellants and their associates who entered the industry in 1946. They had launched their enterprise with an initial capital contribution of $10,000. Within a space of four years, their business had a net worth of $132,000 and, within that time, it had yielded total profits of $392,000, of which $262,000 was paid to them in salaries, bonuses, and partners' drawings, and of which $23,000 was paid out in dividends.

However, in spite of their successful operations, appellants claimed to be injured by the wrongful conduct on the part of appellee companies who were supplying them with titanium. This conduct, they say, consisted of a conspiracy on the part of appellees, who control the sale and distribution of titanium in the United States, to restrict appellants to a fixed and arbitrary supply of titanium and to fix the prices in violation of the Sherman Act, 15 U.S.C.A. § § 1-8, 15 note; and they alleged that they suffered great injury as a result of such conspiracy. Accordingly, they brought a private antitrust action against appellees under the provisions of the Clayton Act, 15 U.S.C.A. § 12 et seq., for an injunction and for the recovery of treble damages.

On the trial, the district court, without passing upon the question whether there was proof of a conspiracy, granted appellees' motion to dismiss, on the ground that after an extended hearing in which many witnesses testified and numerous exhibits were introduced in evidence, there was no proof that appellants had suffered injury from any acts or alleged acts of appellees.

On review, appellants contend that they were discriminated against by the allocation of titanium made to them which was a result of conspiracy in restraint of trade. It appears that 1947 and 1948 were years of scarcity during which titanium was allocated to appellants according to a quota. In 1949, there was no longer any shortage of the product and appellants could secure all the titanium they wanted.

The record shows that appellants' net income in each of the three years above mentioned was as follows:

                     1947         1948          1949
                  $102,671.60   $154,393.78   $81,784.46
                

It will be seen from the above that appellants' net profits were much greater in the years 1947 and 1948 when the allocation of titanium was made to them under quota because of scarcity than in 1949 when they could get all the titanium they wanted. In other words, the peak years of appellants' business success were during the time they claimed to be damaged by appellees' conspiracy. Yet the first year in which they could buy the titanium without restriction, in 1949, their net income dropped and was much less than during the restricted years.

It would seem that if appellants had conducted a more profitable business during the period of scarcity than they did in the subsequent year in which there was no scarcity, they would not have been injured by the shortage or by the allocations made to them. The district court expressed itself as curious as to how appellants were injured by reason of the allocation to them of the scarce materials, when they were making much greater profits during that period than they were making immediately afterward at a time when they could get all the material they desired. Appellants' explanation why they were making greater profits in the years of shortages and quotas was as follows: "During the years of the shortage," appellants' counsel explained to the court, "because they did not have the titanium pigment to make all the paints that the National Lead was making, that du Pont was making, they had to engage in a lot of special business, that is, the purchase of surplus and the remanufacture of purchased surplus products, and a resale of those products, and that is where their profits came from. It did not come from titanium pigments." Counsel thus accounts for appellants' phenomenal success during the years of post-war scarcity, but by what he would appear to consider a rag-tag dealing in odds and ends, and attributes no profit to the very large business they carried on in the manufacture and sale of titanium paint. Accordingly, appellants, in effect, ask the court to disregard the apparent probative effect of their net profit figures for the three years in question, and to consider only that portion of their business related to titanium pigments, and in this, they seek to have the court isolate the titanium pigment portion of their business and consider it separate and apart from their other operations. In this way, they attempt to establish the fact that they received a higher return on the titanium pigment which they were able to secure in 1949 than upon that which they were able to secure in 1947 and 1948. The claim of appellants that they earned more profits on titanium in 1949 than in each of the two preceding years — and thus were injured by the alleged conspiracy — is based upon what they call their "gross profit on materials handled." This "gross profit" is merely their gross sales less their total purchases. They estimate that the manufactured items containing titanium constituted 42% of their gross sales in 1947, 58% in 1948, and 76% in 1949. They then apply these percentages to their total "gross profit" in those years, and, as a result, show a larger "gross profit" on this part of their business in the year 1949.

Appellants' "gross profit on materials handled" has no probative value. It does not even represent true gross profit. All cost except cost of merchandise sold, is eliminated, including labor, depreciation, maintenance, repairs, and all the other expenses of doing business. The fact that appellants' "gross profits" — or even net profits — on titanium paint might have increased during the so-called free period of 1949 is not, without taking into consideration other factors in their business operations, proof that they were damaged by the allocation of quotas during the shortage period. If they abandoned or curtailed other lines of production in order to concentrate their efforts and the use of their facilities on titanium paint after the period of shortages, the result would give a completely distorted picture. For the profit in one line of business might have increased only at the expense of the other, rather than because of the abolition of the restricted quotas. The claimed injury of appellants cannot be arrived at by considering the growth of one line of business without making allowance for the diminution of the other. It thus appears that there was no real comparison made by appellants between their operations in 1949 and those in the preceding years. For a multitude of factors was missing which might have accounted for the difference in their profits, not the least being different costs of operations for the different periods, as well as the abandonment or curtailment of...