Lead Opinion
Mayer Paving and Asphalt Company and Lee O. Mayer appealed from a judgment in favor of Material Service Corporation, a subsidiary of General Dynamics Corporation, on its counterclaim and from a judgment n. o. v. in favor of defendants on plaintiffs’ complaint.
Lee O. Mayer and her husband, Sidney R. Mayer, Sr., operated Mayer Paving Company as a partnership until the latter’s death in October 1964. Thereafter, the business was incorporated as
Material Service operates five quarries in the Chicago area and sells to paving and construction contractors in Indiana and Illinois. Mayor Paving alleged and the jury from its verdict apparently concluded that during all relevant times
Following the entry of judgment on the jury’s verdict, General Dynamics and Material Service moved for judgment n. o. v. on the ground that Mayer Paving had not established the jurisdictional prerequisite for a Robinson-Pat-man Act suit. The district court granted the motion in a memorandum opinion dated June 9, 1972. The court based its decision on its opinion that the factual situation here involved fell within the ambit of Borden Company v. Federal Trade Commission,
Section 2(a) of the Clayton Act, as amended, requires three different types of “in commerce” (i.e., interstate commerce) tests to be satisfied before jurisdiction can be established: first, the discriminator must be “in commerce” ; second, the challenged discrimination must occur “in the course of such commerce”; and third, “either or any of the purchases involved in such discrimination are in commerce. . . .” “The first two elements of the statutory ‘commerce’ provision are of lesser import .... Of prime decisional significance ... is the test that the challenged discriminatory transaction must itself occur ‘in’ commerce. Under that test, the applicability of Robinson-Patman is determined by this rule of thumb: at least one of the two transactions which, when compared, generate a discrimination must cross a state line.” Rowe, Price Discrimination Under the Robinson-Patman Act (1962), § 4.9, at 78-79. Such is the case in the present controversy as defendant does not challenge that it is itself “in commerce” and that the discrimination may have occurred in the course of commerce. The parties are deadlocked on whether or not the third “commerce” requirement has been met. Mayer Paving may not avail itself of the seemingly applicable language of § 3 of the Robinson-Patman Act, 15 U.S.C. § 13a, since that section provides no private right of action. Nashville Milk Co. v. Carnation Co.,
Mayer Paving contends in reliance upon Moore that, since Material Service sold to a number of firms in Indiana at prices lower than those given Mayer Paving, the third commerce requirement
General Dynamics, on the other hand, contends that in a case of second-line discrimination, that is, one in which the customers of the discriminator sue for damages to competitive position, such as is alleged by Mayer Paving, one of the discriminatory sales which is “in commerce” must be either to the plaintiff or to a competitor of the plaintiff. “That MS [Material Service] may have made interstate sales to Indiana contractors is irrelevant.
Initially, we should note that the scope of the Robinson-Patman Act amendments to the Clayton Act is significantly different from the Sherman Act’s in this very requirement that one sale be “in commerce.” Lehrman v. Gulf Oil Corp.,
“The Robinson-Patman Act as a whole was the product of such a complex series of interrelated legislative proposals that congressional intent is unusually difficult to decipher.” Recent Cases, 86 Harv.L.Rev. 765, 769 (1973). This is particularly true of the phrase requiring one of the sales to be “in commerce.” Compare Rowe, Discriminatory Sales of Commodities in Commerce: Jurisdictional Criteria Under the Robinson-Patman Act, 67 Yale L.J. 1155, 1166 n. 46 (1958), with Recent Cases, supra, 86 Harv.L.Rev. at 769-771.
We agree with the district court’s appraisal that the decision of this appeal is
Certainly, the touchstone for analysis in the present area is Justice Douglas’s opinion for a unanimous Supreme Court in Moore. In that case, Moore was engaged in the bakery business in Santa Rosa, New Mexico, with none of its activities being in interstate commerce. The defendant was a corporation in competition with Moore for the local business in New Mexico. In addition to its intrastate business, the defendant was engaged in interstate commerce in that it sold bread in Farwell, Texas, with a truck originating in New Mexico. The plaintiff and the defendant became engaged in a price war in Santa Rosa, New Mexico, during which the defendant cut its price in Santa Rosa while holding its prices up in all other areas in which it was doing business, including its interstate business in Farwell, Texas. The Court held that such activity contravened the Clayton Act, as amended, even though the direct injury was purely intrastate. Mayer Paving relies heavily on the observation in Moore relating to the use of a treasury drawn from interstate business to finance impermissible local competition,
Borden Company v. Federal Trade Commission, supra, which the district court below found to be controlling in the present case, while factually distinguishable is analogous to the present case. In Borden, this court refused to enforce the Commission’s order because the alleged discriminatory sales from Borden’s Portsmouth plant were without interstate indicia. “It [was] undisputed that the sales of milk were negotiated in Ohio, the milk was produced, processed and delivered in Ohio for resale in Ohio.”
However, General Dynamics did sell interstate from its Illinois operations and, as noted, the factual situation differs in this respect from Borden. Similarly, other cases cited by defendant are distinguishable either as involving allegations of purely intrastate sales, e. g., Belliston v. Texaco, Inc.,
In turning then for our decision to the wording of the statute we are reminded of Mr. Justice Frankfurter’s appraisal that “precision of expression is not an outstanding characteristic of the Robinson-Patman Act.” Automatic Canteen Company v. Federal Trade Commission,
For the resolution of the particular dispute we again examine the words of the statute: “where either or any of the purchases involved in such discrimination are in commerce .” It is our view that the word “involved” when read against the underlying purpose of the anti-trust laws, to protect competition, requires that only the purchases by Mayer Paving competitors and by Mayer Paving itself be considered in determining whether “either or any” discriminatory sale is “in commerce.” We are fortified in this conclusion by the fact that § 2(a) specifies that a price discrimination is actionable only “where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them . . . .” Only those purchases which might injure competition are “involved” under the Robinson-Patman Act.
Mayer Paving attempts to argue applicability of Moore by variations of the factual situation here involved. We
We do not find plaintiffs’ reliance on Littlejohn v. Shell Oil Co., supra, persuasive. That case involved what one commentator has called “indirect primary-line competition,” Case Comment, 57 Minn.L.Rev. 1035, 1040 n. 26 (1973). The court was concerned with the “underwriting” theory found in the general language in Moore, discussed above. Here, there is no allegation that the buyers who allegedly received lower, non-justified prices were related to General Dynamics in any way similar to the manner in which the gasoline stations were related to Shell Oil and American Oil in the Littlejohn case.
Once we so limit the referent of “purchases involved," the clear language of the statute requires us to affirm the judgment n. o. v. for defendant since on this appeal Mayer Paving has not contended that any of the sales to its competitors or itself were “in commerce.”
Mayer Paving also challenges the jurisdiction of the district court to enter judgment on the counterclaim. Mayer Paving in its original complaint named only General Dynamics Corporation as a defendant. In its answer, General Dynamics included a counterclaim on behalf of Material Service Corporation. After it filed a reply to the counterclaim, Mayer Paving moved for summary judgment or dismissal of the counterclaim on the ground that Material Service Corporation was not a party to the action. Following some procedural haggling, the district court
General Dynamics referred to this problem as “a quibble as to terminology — a misnomer — which the previous attorneys for the plaintiffs and the attorneys for the defendant had not deemed of sufficient importance to correct by amendment of the complaint to add Material Service Corporation as a
We turn then to the ground upon which the district court relied, that Material Service Corporation should be joined as a party under Rule 19(a) (2) (i) since the disposition of the action “in its absence may as a practical matter impair its ability to protect [its] interest.” The general policy of Rule 19, as with the Federal Rules of Civil Procedure in general, is “the impulse . toward entertaining the broadest possible scope of action consistent with fairness to the parties; joinder of claims, parties and remedies is strongly encouraged.” United Mine Workers of America v. Gibbs,
Under the Rule, Material Service Corporation would seem to be an interested party. The disposition of the action may collaterally affect its rights since it is the successor to the alleged principal violator of the law, Material Service Division. Thus, Material Service Corporation is arguably suitable for joinder under Rule 19(a) (2) (i). The only question is does it meet the general requirement of Rule 19(a) that “joinder will not deprive the court of jurisdiction over the subject matter of the action.” Thus, joinder may be inappropriate if it destroys diversity of citizenship. Jurisdiction in the present case is founded upon 28 U.S.C. § 1337, which gives the district courts original jurisdiction to hear cases arising under Acts of Congress “regulating commerce or protecting trade and commerce against restraints and monopolies.” Normally, this jurisdictional basis would be lacking since the present Material Service Corporation did not come into existence until after the date at which Mayer Paving stopped making the purchases alleged in the complaint. If we construe the assumption of the assets and liabilities
Once we can determine that Material Service Corporation was properly joined as a party defendant, it is clear that the counterclaim was properly within the jurisdiction of the district court. A compulsory counterclaim under Rule 13(a), Fed.R.Civ.P., “may be interposed without meeting jurisdictional requirements because it is auxiliary to the original action. . . . ” Chance v. Country Board of School Trustees of McHenry County, Ill.,
However, we need not rest our decision solely on the foregoing analysis supporting joinder of Material Service Corporation as a defendant. Disregarding form for substance, the court could have treated the motion as a motion under Rule 14(a), Fed.R.Civ.P., to implead Material Service Corporation as a third-party defendant. Had counsel for defendant in terms chosen this possibly preferable course the entire matter would have been considerably simplified. On the facts of this case, especially after our review of the pleadings and briefs, it would seem that the third-party complaint was what was really involved since General Dynamics was in effect saying that its new subsidiary, Material Service Corporation, had assumed all of the liabilities of the old Material Service Division and was, therefore, liable over to it for any violations of the Robinson-Patman Act committed by Material Service Division.
The sixth sentence of Rule 14(a) then provides the basis for Material Service Corporation’s claim against Mayer Paving: “The third-party defendant may also assert any claim against the plaintiff arising out of the transaction or occurrence that is the subject matter of the plaintiff’s claim against the third-party plaintiff.” The courts have split on the question of whether separate subject matter jurisdiction must be shown to sustain the third-party defendant’s claim against the plaintiff. See 6 Wright & Miller, Federal Practice and Procedure: Civil § 1458, at 311 n. 69 and § 1444, at 229-234, esp. nn. 90 & 91. Even the commentators are in disagreement. Wright and Miller favor ancillary jurisdiction in this type of claim, 6 Wright & Miller, supra, § 1444, at 234, and Moore indicates that it is inappropriate, 3 Moore, Federal Practice ¶ 14.27 [2] (2d ed.). We are persuaded that the better theory is to allow the claim to be brought under the ancillary jurisdiction power, especially since here the claim would have been a compulsory counterclaim subject to ancillary jurisdiction if the successor corporation had been originally named as a defendant. We agree with and adopt the reasoning of Circuit Judge Morgan in Revere Copper & Brass Inc. v. Aetna Casualty and Surety Co.,
Thus, we affirm the district court’s jurisdiction of the counterclaim on the alternative grounds that Material Service Corporation was properly joined as a defendant or that it was properly made a third-party defendant.
For the reasons given hereinbefore, the judgment of the district court is affirmed.
Affirmed.
Notes
While this cause was on appeal, Lee O. Mayer died and Continental Illinois National Bank & Trust Company of Chicago, as administrator of the estate of Lee O. Mayer, deceased, was substituted in her place.
. 15 U.S.C. § 13 provides in pertinent parts: “(a) It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce, where such commodities are sold for use, consumption, or resale within the United States or any Territory thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the United States, and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them. . . ."
. The district court ruled that only the period within the four year statute of limitations, i. e., subsequent to August 29, 1965, would be considered, as Mayer Paving had failed to establish fraudulent concealment. Because of the conclusion we have reached on the scope of the Act, we do not find it necessary to consider this point.
. This apparent concession by General Dynamics is obviously of an arguendo nature for it is footnoted in the brief as follows: “Actually, since the Indiana contractors picked up their stone at MS’s Thornton [sic] Quarry, it is hard to see how even those sales can be ‘in commerce.’ ” Noting that this factual assertion was not denied in Mayer’s reply brief, we agree that the sales to Indiana contractors, as to whom Mayer did not claim any status of competition or even potential competition, were not sales “in commerce.” The sales transactions completed at the quarries, all of which were in the state of Illinois, were clearly intrastate sales.
. Mayer Paving has not argued in this court that its activities in Indiana, which might be characterized as de minimis, brings it iiito competition with Indiana contractors. At trial, counsel for defendants established on cross-examination that Mayer Paving’s Indiana contracts barely involved purchases from Material Service, with most of the work being sublet.
Further, Mayer Paving does not. rely in this court on the fact that one of its competitors, Rock Road Construction Co., Des Plaines, Illinois, did work in Wisconsin, Illinois, Iowa, and Indiana, since it was established that Mayer Paving was not a competitor of Rock Road on any of its out-of-state work.
. Subsequent to the time that the drafting of this opinion was completed and the opinion had been circulated, this court learned that the Fifth Circuit, en banc, had vacated the earlier panel opinion insofar as it indicated a lack of necessity for at least one discriminatory interstate sale.
. As will be indicated later in this opinion, attention must be directed to the exact factual situation creating the issue for determination. Thus, it was stated that it is “too well known to require extensive exposition —that the 1936 Robinson-Patman amendments to the Clayton Act were motivated principally by congressional concern over the impact upon a secondary-line competition of the burgeoning of mammoth purchasers, notably chain stores.” Federal Trade Commission v. Anheuser-Busch, Inc.,
. Because of the result we have reached on this issue we find it unnecessary to consider Mayer Paving’s arguments as to fraudulent concealment, statute of limitations, and re-coupment. Similarly, we need not consider General Dynamics’ cross-appeals as to the insufficiency of Mayer Paving’s proof at trial.
. District Judge Bernard M. Decker, to whom the case was then assigned.
. The record is not entirely clear on the matter of assumption of liabilities although the liabilities frequently are travelling companions of the assets, which here were assumed. Nevertheless, the matter was not disputed by Mayer Paving.
Dissenting Opinion
(dissenting):
This is the first dissent that I have filed in my several sittings with this Circuit, and it is, therefore, with regret that I find myself in disagreement here. However, the appellant, Mayer Paving and Asphalt Company, has been deprived of a $498,204.00 verdict and judgment by the granting of a motion non ob-stante veredicto, and, in my judgment, the sole ground for such precipitous action is entirely unsupportable. Indeed, if finally sustained, it will operate as a repealer of Section 2(a) of the Clayton Act as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a) (1970), and will severely restrict the holding in Moore v. Mead’s Fine Bread Co.,
1. I say the ground upon which the motion non obstante veredicto was granted is unsupportable because the learned trial judge misapplied the holding of this court in Borden Company v. FTC,
2. Here exactly the opposite is shown by the record. Mayer’s claim and proof were based on the shipments of crushed limestone by General Dynamics
Mayer’s purchases from General Dynamics during the decade involved ran $5.4 million alone. This large volume, it was claimed, resulted from a requirements contract
It appears to me that a plain reading of § 2(a) prohibits such discrimination. It provides that if “either or any of the purchases involved in such discrimination are in commerce” then all are prohibited. The majority interprets the all-inclusive phrase “either or any” to apply to sales to Mayer only insofar as the presence of commerce is concerned. Mead’s Fine Bread holds the opposite. Here the allegation and proof, uncontra-dicted, are that some local sales (from the same Illinois quarries) in Illinois as well as interstate ones to Indiana customers were at much lower prices than like sales to Mayer and other Illinois customers. I always thought that this was a practice that § 2(a) was specifically intended to prohibit. Here, while the quarry involved was only a few miles from Indiana, still Illinois customers were charged more for like material than were Indiana ones, without respect to delivery costs, etc. General Dynamics answers that Mayer was not a competitor in Indiana. Although this is not strictly true since it did compete somewhat unsuccessfully with A. Metz Inc., still Mayer was prevented from effectively competing across the border in Indiana because of the higher charges exacted from it. After preventing it from competing, General Dynamics now says that Mayer is deprived of the protections of § 2(a) because he did not compete. Such an interpretation transposes § 2(a) into a tool of discrimination rather than a protection. The result is that interstate competition is lessened and Mayer is destroyed.
3. Strangely enough, the majority relies on the old and honored doctrine of standing to deprive Mayer of its jury verdict and judgment. The majority says: “The customer has standing only to raise and compare those sales which are injurious to his competition.” Mayer does not compete in Indiana, it finds. Under the circumstances here this conclusion which the majority says is critical to its decision is a non sequitur. This record shows that General Dynamics sold all of the four Indiana operators involved in the discriminatory activity at such a lower rate per ton than it sold Mayer that the latter could not compete with them in Indiana. The record also shows that Mayer tried to compete in Indiana with A. Metz but failed. Indeed on one job there Mayer was obliged to sublet and buy the necessary material from a supplier other than General Dynamics. Finally, the record clearly shows that General Dynamics’ action prevented Mayer and other Illinois asphalt manufacturers and paving contractors from competing in Indiana by its discriminatory pricing to favored customers. To hold that Mayer had no standing to sue in such a factual situation is to repudiate the mandate of Congress in § 2(a) and creates a barrier that in the final analysis will operate as a repealer of this important section of the Act insofar as discrimination among customers of the same seller is concerned. The intent of the Congress in this regard is clearly stated by Congressman Utterback, manager of the bill in the House:
“Where, however, a manufacturer sells to customers both within the State and beyond the State, he may not favor either to the disadvantage of the other; he may not use the privilege of interstate commerce to the injury of his local trade, nor may he favor his local trade to the injury of his interstate trade . . . ” 80 Cong.Rec. 9417. (Emphasis supplied).
4. The majority also adopts the argument of General Dynamics that Moore v. Mead’s Fine Bread Co., supra, is inappo-site because it involved primary competition between Moore and Mead. I find nothing in § 2(a) that limits its coverage to primary competition cases. On the contrary, the Act’s purpose was to prevent all discriminatory pricing “where the effect of such discrimination may be substantially to lessen competition . . .” That interstate competition was substantially lessened in the particular geographical situation in
5. General Dynamics makes no further attack on the judgment other than the sufficiency of the proof of damages and its asserted good faith effort to meet competition. There is no evidence in the record supporting the latter claim that would grant General Dynamics forgiveness under the Act. The proof on damages appears, as the jury found, quite sufficient under the decided cases and should not be disturbed.
6. This case was submitted to a jury after three weeks of testimony. No point is made of any error in the instructions or the theory upon which the case was submitted, other than the jurisdictional point as to the existence of interstate commerce about which I have spoken. I find that it has no merit.
The Seventh Amendment provides that “no fact tried by a jury, shall otherwise be re-examined in any Court of the United States,” U.S.Const, amend. VII. As I see it the verdict of this jury should not have been “re-examined” and overturned nor the judgment set aside. It is late enough now to correct this mistake. The original judgment should be reinstated.
. Throughout my dissent I have adopted the designation “General Dynamics” given by the majority to the appellees and cross-appellants. Originally the company was known as Material Service Corporation; General Dynamics Corporation obtained the assets of Material Service in 1959 and the latter was operated as a division of General Dynamics, known as Material Service Division. In 1969 the latter was re-incorporated as a wholly owned subsidiary.
. The five quarries were Riverside, Federal, Stearns, Romeo and Thornton. The latter was regarded as the largest commercial quarry in the world and is located a few miles from the Indiana border at the intersection of the Tri-State.
. The contract was dated April 15, 1957, and its original draft provided that Mayer would purchase all of its requirements from Material Service Corporation for the ensuing five years but the final draft was changed to 80 percent of Mayer’s requirements. The consideration was a loan or line of credit for $300,000 made by Material Service Corporation. The validity of such an arrangement is suspect. See my opinion in Twin City Sportservice, Inc. v. Charles O. Finley & Co., Inc.,
. The majority also emphasizes that the “pattern for the growth of monopoly” found to be present in Mead’s Fine Bread is nonexistent here. While this is true, we must remember that § 2(a) was also specifically aimed at discriminations which may “substantially . . . lessen competition or to injure, destroy or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them.”
. With reference to the counterclaim of General Dynamics, I agree with the majority that it should be affirmed.