Kelly v. Kosuga

PETITIONER:Kelly
RESPONDENT:Kosuga
LOCATION:Fargo, North Dakota

DOCKET NO.: 267
DECIDED BY: Warren Court (1958-1962)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 358 US 516 (1959)
ARGUED: Jan 22, 1959
DECIDED: Feb 24, 1959

Facts of the case

Question

  • Oral Argument – January 22, 1959 (Part 2)
  • Audio Transcription for Oral Argument – January 22, 1959 (Part 2) in Kelly v. Kosuga

    Audio Transcription for Oral Argument – January 22, 1959 (Part 1) in Kelly v. Kosuga

    Earl Warren:

    Number 267, Jack H. Kelly, Petitioner, versus Vincent W. Kosuga.

    Joseph W. Louisell:

    Mr. Chief Justice —

    Earl Warren:

    Mr. Louisell.

    Joseph W. Louisell:

    — may it please the Court.

    This matter is before the Court on a writ of certiorari issues to review the decision of the Seventh Circuit.

    The action started as a simple suit to recover the purchase price for the quantity of onions claimed to have been sold by the respondent in these proceedings here — to the petitioner in these proceedings here.

    It was a brief complaint in which it was simply alleged that there was a sale of a quantity of onions by Kosuga to Kelly for a stipulated price.

    The complaint alleged that in breach of the contract, Kelly had refused to accept delivery of a portion of this quantity of onions and that there remained due and owing to Kosuga a substantial sum of money on account of that — that transaction.

    The answer filed by the defendant below, Mr. Kelly, denied that this was a simple transaction alleged by the plaintiff in his complaint.

    The defendant alleged in — as an affirmative allegation in his answer and further as an affirmative defense that the cause of acton alleged by the plaintiff was but an integral part of a much broader understanding and agreement between the parties.

    The defendant alleged that the crew undertaking between the parties encompass an agreement whereby Mr. Kosuga, together with his associate, a Mr. Siegel and along with Kelly and a group of persons similarly situated with Kelly, entered into an agreement, a combination and a conspiracy to affect, regulate, modify and influence, manipulate the price of onions on both the cash and the futures markets.

    And the defendant below, Mr. Kelly, further alleged in his affirmative defense to the action, that the incidental purchase by him of 50 carloads of onions from Kosuga was but an integral part of an overall agreement by which those similarly situated with Kelly were to purchase altogether the sum of 287 carloads of onions for the avowed and express purpose of removing not only that quantity of onions but a still larger quantity of onions owned by Kosuga and his associate from the market in Chicago.

    And that it was by this device that it was contemplated that they would effect a manipulation of the market price of onions.

    Kelly specifically further alleged that in consideration of the entire understanding between all of these parties, none of them, whether the buyers or the sellers would deliver any portion of the onions concerning which the entire contract related on either the cash or the futures market.

    Now, upon filing that affirmative defense, the plaintiff below moved to strike it from the grounds that it did not constitute an answer to the allegations of the complaint.

    And this, notwithstanding, it was spelled out in the answer that it was the claim of the defendant Kelly below that in consequence of this entire undertaking, the entire agreement as to a port of — a portion of which, the plaintiff would rely in bringing this suit was illegal as being contrary to the Sherman Antitrust Act in that it was patently but a device by which to fix prices.

    As alleged.

    Joseph W. Louisell:

    As alleged.

    And —

    Earl Warren:

    Did petitioner — did petitioner claim any actual damage by reason of the agreement?

    Joseph W. Louisell:

    The plaintiff below sued to recover the balance of the purchase price —

    Earl Warren:

    Yes.

    Joseph W. Louisell:

    — of the quantity of onions.

    The petitioner here has refused to pay the balance of the purchase —

    Earl Warren:

    Yes.

    Joseph W. Louisell:

    — price now setting forth and as he set forth in his answer below, that the entire understanding and the entire agreement between him and the plaintiff was an illegal agreement.

    That it was an agreement contrary to public policy.

    Earl Warren:

    That I understand, but what I’m asking is does he allege that that resulted in any actual damage to him?

    Joseph W. Louisell:

    In this posture of the case, no, Your Honor.

    Now, the District Court held on that motion to strike the affirmative defense that the remedies supported by the Sherman Act were its —

    William J. Brennan, Jr.:

    How much had Kelly paid him for —

    Joseph W. Louisell:

    Kelly had paid down something like $15,000.

    William J. Brennan, Jr.:

    And what was the total?

    Joseph W. Louisell:

    And he had ordered his portion of the 287 carload order, it was 50 carloads.

    And the product of the mollification of the number of the cars by the stipulated price was something like $50,000 or close to $50,000 so that ultimately, the plaintiff’s security judgment in the sum of $37,000 or approximately $37,000 as representing the balance of the sum claimed to be due and owing under the contract.

    William J. Brennan, Jr.:

    Have the onions been disposed of?

    Joseph W. Louisell:

    The onions were disposed of ultimately by the — the plaintiff below, the respondent here, after he had notified Kelly as he had notified all of the others who entered into this arrangement with him that he was going to dispose of the onions because they were deteriorating.

    Earl Warren:

    Because what?

    Joseph W. Louisell:

    They were deteriorating —

    Earl Warren:

    All right.

    Joseph W. Louisell:

    — and hadn’t been picked up by either Kelly or by all of these others who entered into simultaneously the same arrangement and undertaking with Mr. Siegel and Mr. Kosuga.

    And the amount that was ultimately arrived at in entering the judgment represented the balance owing less what was salvaged by Kosuga on a — a sale of those that remained in — remained on hand.

    Charles E. Whittaker:

    Was there any question about the price owing under or over in the market?

    Joseph W. Louisell:

    None, Your Honor.

    Charles E. Whittaker:

    It was at a market price.

    Joseph W. Louisell:

    It was at a market price, at the then existing market price at the time of the contract —

    Earl Warren:

    Do the others —

    Joseph W. Louisell:

    — of the undertaking.

    Earl Warren:

    — who joined in the purchase of these 267 carloads also repudiate their contract?

    Joseph W. Louisell:

    They did, Your Honor.

    And this is the only suit that has thus far been commenced against any of those similarly situated as was Kelly.

    Now, the District Court held that the remedy afforded by this — the remedies afforded by the Sherman Act were exclusive of non-collectability of the purchase price of the contract and predicated it’s decisions upon that ground.

    The District Court seemingly concluded that the rule of this Court in the Connolly-Sewer Pipe case had either been abrogated — or strike that, that the rule of the Connolly-Sewer Pipe case was the true rule and that the rule of this Court in the Continental Wall Paper Company case had either been abrogated or modified by the decisions of this Court in the so-called Wilder case and in the so-called Bruce’s Juices case.

    Following the action of the District Court in that respect in striking the affirmative answers, a summary judgment was entered.

    On appeal to the Seventh Circuit, that Court, relying upon the same authorities as the District Courts principally, the Connolly-Sewer Pipe case, the Wilder case and Bruce’s Juices case, they seemingly concluded that the rule of the Continental Wall Paper case which they recognized was contrary in its result from that reached in the Connolly case was a rule that could be applied only where the members of an antitrust combination were particularly vicious.

    And that unless the combination relied upon by the defendant in seeking avoidance of the obligation was a particularly vicious combination that the rule of the Continental Wall Paper case wouldn’t apply.

    And it is in substance with this finding and disposition of the cause by the Seventh Circuit with which petitioner here takes exception.

    This Court granted certiorari on the petitioner’s application and representation that the decision of the Seventh Circuit erroneously construed the decisions of this Court in holding that a contract, illegal because of the Sherman Act, could not be defended against by a party thereto upon those grounds.

    It is agreed in this proceeding by the brief filed by the respondent herein that the virtue of the issue is not to be tested by the technicalities or the niceties of the pleading.

    But that squarely presented is the fundamental and the germane issue as to whether or not it is the rule of this Court that in a suit to recover the purchase price of a commodity involved in interstate commerce where the defendant alleges that the very contract upon which the suit is brought to recover that purchase price is violative of the Sherman Act whether such a defense is or is not a good defense or is a defense that can be interposed.

    Potter Stewart:

    Mr. Louisell, in addition to the affirmative defense, there was a — took hold, there was a counterclaim, was there?

    Joseph W. Louisell:

    That has been dismissed on motion in the District Court.

    The disposition of that motion was affirmed by the Court of Appeals and no reliance upon that matter is placed by the petitioner herein at this stage.

    Potter Stewart:

    That’s — that’s not —

    Joseph W. Louisell:

    That is the damage.

    Potter Stewart:

    — before us at all.

    Joseph W. Louisell:

    That’s the damage.

    Potter Stewart:

    Thank you.

    Joseph W. Louisell:

    The courts below as does the respondent in the brief filed herein placed a great weight upon the so-called non-delivery aspect of the agreement.

    Your Honors will note that one of the integral and essential aspects of the agreement as alleged by the defendant was that neither they as purchasers of these 287 carloads nor the — the plaintiff, Kosuga and his associate Siegel would deliver any of the onions aggregating in total about 1000 car loads of onions for the balance of the trading season.

    Now, the court below without deciding whether or not that non-delivery feature of the contract was or was not illegal, without squarely so deciding as seemingly emphasized that as justifying a disposition to segregate the non-delivery aspect of the entire undertaking from what was in truth and in fact the real undertaking of the parties, namely, an undertaking to affect prices, to fix prices.

    That was the purpose of the agreement.

    In the brief which the respondent here has filed with this Court, i.e., is undertaken to state the position of the petitioner here to be that the contract was violative of Section 1 by reason of the non —

    Earl Warren:

    We’ll — we’ll recess now, Mr. —