Zoslaw v. MCA Distributing Corp.

• Decision Date: 04 September 1984
• Docket Number: No. C-75-0007 RFP.,C-75-0007 RFP.
• Court: U.S. District Court — Northern District of California
• Parties: Charles ZOSLAW and Jane Zoslaw, husband and wife, d/b/a Marin Music Centre, Plaintiffs, v. MCA DISTRIBUTING CORP., et al., Defendants.

594 F. Supp. 1022

Charles ZOSLAW and Jane Zoslaw, husband and wife, d/b/a Marin Music Centre, Plaintiffs, v. MCA DISTRIBUTING CORP., et al., Defendants.

No. C-75-0007 RFP.

United States District Court, N.D. California.

September 4, 1984.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Maxwell Keith, Oakland, Cal., for plaintiffs.

Rene P. Tatro, Heller, Ehrman, White & McAuliffe, Jack W. Londen, Morrison & Foerster, Jeffrey Williams, Morgenstein, Ladd & Jubelirer, Alf R. Brandin, Lillick, McHose & Charles, San Francisco, Cal., for defendants.

MEMORANDUM AND ORDER RE MOTIONS FOR SUMMARY JUDGMENT AND MOTION TO STRIKE CLAIMS FOR DAMAGES

PECKHAM, Chief Judge.

INTRODUCTION

This lengthy antitrust dispute has involved many claims against many different defendants. Most of the claims have already been resolved, but certain Robinson-Patman allegations remain undecided. Defendants Warner/Elektra/Atlantic Corp. ("WEA"), Polygram Distribution, Inc. ("Polygram"), and MTS, Inc. ("MTS") have now moved for summary judgment on the Robinson-Patman claims against them. WEA and Polygram have also moved to strike plaintiffs' claims for damages. This memorandum and order discusses and disposes those motions.

FACTS

Plaintiffs Charles and Jane Zoslaw are the former operators of Marin Music Centre, a retail store in Marin County that sold records, tapes, and related items. The store commenced operations in 1965, and went out of business in 1977.

The Zoslaws filed this lawsuit in 1975. It was originally assigned to the late Chief Judge Emeritus George Harris, but was reassigned to this court in July of 1978. Among the numerous defendants were several record distributors, including WEA, Polygram, ABC Records, Inc. ("ABC"), and MCA Distributing Corp. ("MCA"). In their complaint, the Zoslaws alleged that the record distributors had violated section 2(a) of the Robinson-Patman Act, 15 U.S.C. § 13(a), by selling records and tapes to retail chain stores at lower prices than those offered to single outlet stores, such as Marin Music Centre. Plaintiffs also claimed that the distributors had violated sections 2(d) and 2(e) of the Act, 15 U.S.C. §§ 13(d) and 13(e), by discriminating in favor of retail chain stores in granting promotional allowances and furnishing special services. Finally, Mr. and Mrs. Zoslaw charged the distributors with violations of the Sherman Act.

The Zoslaws also brought Sherman Act claims against a record retailer, MTS. They further accused MTS of violating sections 2(d), 2(e), and 2(f) of the Robinson-Patman Act, 15 U.S.C. §§ 13(d), 13(e), and 13(f), by knowingly inducing and receiving the alleged discriminations in price and other terms, allowances, and services.

After allowing extensive discovery, this court granted motions for summary judgment on behalf of MTS, WEA, Polygram, ABC, and MCA. See Zoslaw v. Columbia Broadcasting System, 533 F.Supp. 540, 556 (N.D.Cal.1980), aff'd in part and rev'd in part, 693 F.2d 870 (9th Cir.1982), cert. denied, 460 U.S. 1085, 103 S.Ct. 1777, 76 L.Ed.2d 349 (1983); Zoslaw v. MCA Distributing Corp., 693 F.2d 870, 875-76 (9th Cir.1982), cert. denied, 460 U.S. 1085, 103 S.Ct. 1777, 76 L.Ed.2d 349 (1983). Plaintiffs appealed those adverse rulings to the Ninth Circuit.

The Ninth Circuit affirmed this court's disposition of the Sherman Act claims, but reversed the judgments in favor of WEA, Polygram, ABC, and MCA on the Robinson-Patman Act claims. See Zoslaw, 693 F.2d at 874. The Ninth Circuit also reversed the decision in favor of MTS on the claim under section 2(f) of the Robinson-Patman Act. See id. at 882. The Court of Appeals did, however, sustain this court's determination that there was no merit to plaintiffs' claims against MTS under sections 2(d) and 2(e) of the Robinson-Patman Act. See id. at 882 n. 15.¹

In reversing this court's rulings on the Robinson-Patman claims against WEA, Polygram, ABC, and MCA, the Ninth Circuit explained that this court had used an improper test in deciding whether the jurisdictional prerequisite of the Robinson-Patman Act was met. See id. at 876-80. Understanding that ruling requires familiarity with the basic principles of Robinson-Patman jurisdiction.

"To prove jurisdiction under section 2(a) of the Robinson-Patman Act, a plaintiff must demonstrate (1) that the defendant is `engaged in interstate commerce;' (2) that the price discrimination occurred `in the course of such commerce;' and (3) that `either or any of the purchases involved in such discrimination are in commerce.'" Id. at 877. The jurisdictional "in commerce" language in section 2(a) is not as broad as the "affecting commerce" language in the Sherman Antitrust Act. See Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 95 S.Ct. 392, 42 L.Ed.2d 378 (1974). In particular, the "purchases ... in commerce" requirement limits the section's application to cases "where `at least one of the two transactions which, when compared generate a discrimination, ... crosses a state line.'" Id. at 200, 95 S.Ct. at 401. If goods from out-of-state are still within the "practical, economic continuity" of an interstate transaction at the time of an intrastate sale, the latter sale is considered "in commerce" for purposes of the Robinson-Patman Act. See Zoslaw, 693 F.2d at 877.

In determining whether the sales of records in Zoslaw were within the "practical, economic continuity" of an interstate transaction, this court relied on an intent test, which dictated that the flow of commerce ends when goods reach their intended destination. See id. at 877-78. Under that test, "goods leave the stream of commerce when they are stored in a warehouse or storage facility for general inventory purposes, that is, with no particular customer's needs in mind." Id. at 878. This court held that WEA, Polygram, ABC, and MCA stocked their California warehouses for general inventory purposes, and thus that the subsequent sales to Bay Area retailers were not in the flow of commerce. See id.

But the Ninth Circuit concluded that the court's focus on intended destination was misplaced. See id. at 878-79. Relying on a Supreme Court decision, Standard Oil Co. v. FTC, 340 U.S. 231, 71 S.Ct. 240, 95 L.Ed. 239 (1951), it asserted that "interstate producers of goods produced out-of-state do not meaningfully interrupt the flow of commerce by simply storing them in the state of eventual sale." Zoslaw, 693 F.2d at 879. Accordingly, it held that purchases of records and tapes from the California warehouses of ABC and MCA were "in commerce," because ABC and MCA manufactured those items out-of-state and simply stored them in California before selling them to retailers. See id. at 879.

It did not decide, however, whether purchases from the WEA and Polygram California warehouses were "in commerce." See id. at 879-80. Rather, it noted that "WEA and Polygram did not themselves manufacture records, but they were wholly owned subsidiaries of companies engaged in record and tape production." Id. at 879. It then asserted that "sales to subsidiaries do not necessarily remove such transactions from Robinson-Patman jurisdiction." Id. It explained that in deciding whether a sale to a subsidiary meaningfully interrupted the flow of commerce, a court must examine "the extent to which the subsidiaries acted as independent distributors in their pricing and marketing decisions, in effect, breaking the flow of commerce between the manufacturer and the local retailer." Id. at 880. Because this court had not conducted such an examination, the Ninth Circuit reversed the grants of summary judgment in favor of WEA and Polygram. Id.

After the Ninth Circuit discussed the Robinson-Patman claims against ABC, MCA, WEA, and Polygram, it turned to this court's ruling on the section 2(f) claim against MTS. It concluded that the court was correct in holding that MTS could not be liable under section 2(f) unless the distributors were liable under section 2(a). See id. at 882. But because it had reversed the judgments in favor of the distributors under section 2(a), it also reversed this court's ruling on the section 2(f) claim against MTS. See id. The Ninth Circuit then devoted the remainder of its opinion to analysis and rejection of plaintiffs' Sherman Act claims. See id. at 882-90.

Mr. and Mrs. Zoslaw, unhappy with the Ninth Circuit's resolution of their Sherman Act claims, appealed to the Supreme Court. But the Court denied their petition for certiorari. See Zoslaw v. MCA Distributing Corp., 460 U.S. 1085, 103 S.Ct. 1777, 76 L.Ed.2d 349 (1983). Thus, the Sherman Act claims were fully adjudicated, and only Robinson-Patman allegations were remanded to this court.

Following remand, MTS, WEA, and Polygram brought new motions for summary judgment. WEA and Polygram have also moved to strike the plaintiffs' claims for damages. The court has received extensive briefing on those motions, has heard lengthy oral argument, and has carefully considered the contentions of the parties. It analyzes the issues as set forth below.

LEGAL ANALYSIS

I. Motions for Summary Judgment

A. Arguments based on lack of jurisdiction.

1. WEA's argument for summary judgment on ground that there is no Robinson-Patman jurisdiction because WEA is an independent distributor.

Undaunted by the Ninth Circuit's ruling that this court erred in granting WEA summary judgment for lack of Robinson-Patman jurisdiction, WEA again seeks summary judgment on that basis. It contends that it has established as a matter of law that it functioned as an independent distributor in its pricing and marketing decisions, and thus that there is no jurisdiction under the test that the Ninth Circuit propounded on appeal. In support of that argument, it has submitted considerable information about its corporate structure and functioning.

But in the text of its Zoslaw opinion, the Ninth Circuit, after describing the jurisdictional test, declared that "such threshhold issues of jurisdiction are normally...