Perma Life Mufflers, Inc. v. International Parts Corporation

PETITIONER:Perma Life Mufflers, Inc.
RESPONDENT:International Parts Corporation
LOCATION:Jewelry Store/Post Office Contract Station # 7

DOCKET NO.: 733
DECIDED BY: Warren Court (1967-1969)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 392 US 134 (1968)
ARGUED: Apr 22, 1968 / Apr 23, 1968
DECIDED: Jun 10, 1968

Facts of the case

Question

  • Oral Argument – April 22, 1968
  • Audio Transcription for Oral Argument – April 22, 1968 in Perma Life Mufflers, Inc. v. International Parts Corporation

    Audio Transcription for Oral Argument – April 23, 1968 in Perma Life Mufflers, Inc. v. International Parts Corporation

    Earl Warren:

    Perma Life Mufflers, Incorporated, et al., petitioners versus International Parts Corporation, et al.

    Mr. Rolnick, you may continue with your argument.

    Robert F. Rolnick:

    Mr. Chief Justice and may it please the Court.

    At the time of the recess yesterday, I was at the point where I had described how the respondents had originated their franchise program and formulated a franchise agreement.

    Pursuant to the terms of which, franchisees were required to maintain resale prices, purchased type products, deal exclusively with the franchisor and indeed it also provided that they were subject to certain other territorial restraints.

    These provisions were backed up by a 30-day cancellation provision.

    During the life of the franchisers in question, the franchisor enforced the terms of these agreements rigorously.

    The details of that enforcement are set forth in our appendix beginning at page 175.

    Indeed, the enforcement was so rigorous that the respondents terminated one of the petitioners herein after a series of warnings to him that he was not purchasing tail pipes, exhaust pipes and clamps which they sold from Midas, but was rather — was instead purchasing them from competitors who offered these parts for sale and prices which were substantially below the prices at which respondent sold these products.

    Indeed, during the course of those warnings, there was a colloquy between one of the principal officers of the respondents and this petitioner in which the principal officer said, “You know, your franchise is like a marriage.

    This is like cheating on your wife and it is grounds for divorce,” referring to the fact that he had purchase from outside sources.

    Following this termination, this petitioner, joined by the three other petitioners, initiated this action under Section 4 of the Clayton Act in United States District Court for the Eastern District of Illinois, Northern Division.

    In that action, the petitioners alleged that they were injured as a result of having been compelled to adhere and adhere strictly to the restrictive provisions in these agreements.

    They alleged that these restrictive provisions represented violations of Section 1 of the Sherman Act and Section 3 of the Clayton Act.

    We submit that it was the plainest kind of error for the District Court to dismiss on a motion for summary judgment, this action which had been brought by these petitioners.

    The District Court applied the doctrine of in pari delicto, the doctrine that these petitioners were at equal fault.

    We believe that under the circumstances of this case, the in pari delicto doctrine is not applicable and indeed, we submit that the in pari delicto doctrine is not applicable to any action brought under Section 4 of the Clayton Act.

    The doctrine is not applicable to the facts in this case when it is examined in light of the restrictions which the respondents imposed.

    These restrictions were of no benefit to the respondents — to the petitioners.

    They were in fact of sole benefit, sole and exclusive benefit to the respondents.

    It is difficult to imagine for example how the petitioners could have profited or benefited from the fact that they were forced, forced to pay more for parts which they purchased from the respondents and they would have paid — had they purchased these parts from respondents competitors.

    Potter Stewart:

    Of the exclusive territories where some interest of — some benefit of the petitioners, were they not?

    Robert F. Rolnick:

    The exclusive territories were of benefit to the extent that they authorized the petitioner to sell the respondents’ nationally advertised muffler.

    Potter Stewart:

    No competition in that territory?

    Robert F. Rolnick:

    With no competition in that territory.

    On the other hand, in meeting out the territories, what the respondents did was limit the area within which the petitioner could sell this Midas muffler.

    Now, one has to remember that these Midas mufflers were purchased by the petitioner and that this limitation on territory represented an alienation on the restraint — an alienation restraining the territory within which these petitioners could sell merchandise which they had in fact purchased and paid for.

    Potter Stewart:

    So it goes the alleged antitrust violation.

    I was simply directing myself to your statement that none of these things were of any benefit to the petitioners.

    Robert F. Rolnick:

    The purchase of the muffler was a benefit.

    Robert F. Rolnick:

    The right to sell the muffler was a benefit and I believe that was independent of the territorial restriction.

    It was the muffler which we chose to sell.

    It was the muffler which carry with it the national advertising and the consumer demand which in fact made it pre-sold and it was this that we chose to sell.

    The territory happened to be something which was of benefit to the respondents because they limited the area, and by limiting the area could presumably have more franchisees.

    Profitable franchisers?

    Robert F. Rolnick:

    These franchisers were very profitable franchises.

    They could have been and would have been much more profitable had they not been subjected to the exclusive dealing, tying and place fixing restraints.

    The profit was derived independently of the restraints.

    The profit did not arise out of the restraint.

    The profit arose exclusively out of the sale of the Midas muffler which is I say, carried a very unique guarantee and a vast amount of national advertising.

    Abe Fortas:

    Suppose one of these petitioners decided to go under the automobile muffler business that he have a realistic economic choice between entering into this franchise arrangement with Perma Life or whatever the name of this —

    Robert F. Rolnick:

    Midas.

    Abe Fortas:

    — Midas or entering into an arrangement with other suppliers?

    Robert F. Rolnick:

    At that time he entered — these particular petitioners entered into these franchise agreement, there was no other franchise system which had been developed for sale of mufflers.

    Abe Fortas:

    Well, I think I’d like you to broaden your answer to the question whether or not it involved the franchise arrangement.

    Was there some other way in which a petitioner who felt a call to enter the muffler business could enter the muffler business in his locality without entering into this franchise arrangement with Midas?

    Robert F. Rolnick:

    There is no question about the fact that any particular petitioner could have entered into the retail sale and installation of mufflers without entering into a franchise arrangement which the respondents offered.

    On the other hand —

    Abe Fortas:

    He would have had adequate supplies available to him on a competitive basis that would enable him to upgrade in the marketplace.

    Robert F. Rolnick:

    He would have had the opportunity to operate in the marketplace but he would not have had a nationally advertised muffler with a unique lifetime guarantee which was — which — under which the purchaser could replace that muffler anywhere in the United States.

    Abe Fortas:

    I remember seeing somewhere in the briefs that Midas was about a number of what was it, four or five?

    Robert F. Rolnick:

    Number 5.

    Abe Fortas:

    Number 5 in the share of market?

    Robert F. Rolnick:

    They had 11% of the market.

    Abe Fortas:

    So that there were four companies that were bigger in terms of manufacture and supply of mufflers to the retailers?

    Robert F. Rolnick:

    They were, and this isn’t in the record, there were four other companies; two or three of which were approximately the size of Midas or a little larger, one of which was substantially much larger with 40% or 50% of the market.

    None of these companies, however, had the type of guarantee which these respondents offered and it was the romance of this guarantee which was advertised on a national scale with over $3.5 million worth of national advertising which created the demand which made this a profitable franchise.

    Without this advertising and without this guarantee, I doubt and doubt very seriously whether anyone could have entered this business and profited from it.

    There is one more point I —

    Abe Fortas:

    Well, while the other companies must have sold their mufflers to somebody?

    Robert F. Rolnick:

    The other companies sell their mufflers to automobile dealers, to gasoline stations and that type of thing — that type buyer — few of any of them sold them to exclusively muffler installation shops.

    This was the concept and this was the concept which respondents developed through national advertising.

    Abe Fortas:

    I’m sure you see what’s bothering me that is assuming that in pari delicto has a role, a significant role in this field, if you make that assumption and there is a next question I think which is whether in determining in a particular case the retailers in pari delicto whether he had available to him an alternative or whether because of the economic power of the franchiser, he had no alternative except to enter into this particular agreement.

    I’m not saying that that’s a controlling consideration, but to my mind, it has a bearing from the resolution of the problem.

    Robert F. Rolnick:

    Well, I think that the answer to that question consists of a multiplicity of factors, one of which is that this again is the one that had the national advertising.

    The other factor, I think, is the position that we take that the restrictive provisions in this agreement were not essential to the franchise and to the franchise concept.

    Indeed they had nothing to do with the franchise concept.

    These restrictive provisions were solely for the benefit of the respondents so that the respondents could feather their own nest so to speak.

    Abe Fortas:

    Now, what’s that got to do with pari delicto?

    Robert F. Rolnick:

    Well, I think it has this to do with pari delicto and that is that in as much as the petitioners had nothing at all to do with the formulation of his program, they cannot be considered equally a fault by having done no more than accept the program which the respondent espoused.

    Abe Fortas:

    You would confine pari delicto to situations where there’s so to speak a partnership with respect to the —

    Robert F. Rolnick:

    A formulation.

    Abe Fortas:

    — illegal restraints?

    Robert F. Rolnick:

    I would — if there is a pari delicto doctrine applicable to this kind of action, I would find it to a true co-conspiracy case where the conspirators divided up the market amongst themselves.

    Thank you.

    Earl Warren:

    Mr. McGee?

    Glenn W. McGee:

    Mr. Chief Justice and may it please the Court.

    The issue before us this morning is really a narrow issue, but it is not quite as narrow as my brother, Mr. Rolnick implied yesterday. The court below did not hold that simply by the execution of these franchise arrangements that the plaintiffs became in pari delicto.

    In the opinion, a portion of which we have set out at page 23 of our brief, the Court specifically states the factors which to it rendered these plaintiffs in pari delicto.

    In addition to the initial entering into the agreement, the Court says, “Each plaintiff thereafter eagerly sought additional shops.

    Furthermore, each plaintiff cooperated with the defendants and all other Midas dealers in the conduct which plaintiffs now assert was illegal.

    Each plaintiff accepted the benefits arising out of the franchise agreements.

    Byron R. White:

    You suggest that the — that the franchisee benefited from the restrictions which they have now objected to?

    Glenn W. McGee:

    Mr. Justice White, it is our position that this entire franchise concept which was created by the defendants and in which the plaintiffs joined by its very nature carried with it certain restrictions and that these restrictions in turn created additional restrictions so that each of the parties —

    Byron R. White:

    Let’s assume for the moment that these were not found below, but assume for the moment that these restrictions have violated the Sherman Act.

    I suppose they were for the benefit of at least the Midas?

    Glenn W. McGee:

    Mr. Justice White, we think they were for the benefit of both Midas and the dealer.

    Byron R. White:

    Well, show me how they benefited the dealers that this exclusion from purchasing from others for example?

    Glenn W. McGee:

    The Midas concept was that specialization in exhaust system parts backed by national advertising would bring in to the point of shops people who were never before had been conscious of automotive exhaust systems.

    This emphasis on exclusivity, this advertising by the plaintiffs and by the defendants of the advantages or specialization —

    Byron R. White:

    But why wouldn’t it — they will be wholly consistent with that for a franchisee to be able to purchase a similar part or a similar system from the competitor and also a specialist.

    Glenn W. McGee:

    The concept envisioned that the Midas trade and service marks which each plaintiff displayed in his place of business would be part of the attraction of this whole arrangement.

    That the plaintiffs in exchange for Midas giving up the right to sell the muffler to other dealers in their territory would concentrate on Midas.

    That the dealers, being protected from intra-brand competition of course would have to prohibit wholesale sellers among the dealers in order to be sure of that protection from competition.

    Byron R. White:

    But I suppose the government — would you concede or not that the government could have gotten an injunction against this agreement?

    Glenn W. McGee:

    Mr. Justice White, we have to realize that we are talking in this case about 1955 and not 1968.

    And certainly in 1968, we are not upholding the legality of the provisions of this franchise agreement.

    We have assumed that for purposes of this motion that the arrangement was illegal.

    Byron R. White:

    Now what if a franchisee comes to Midas and says, “Look, we find this profitable arrangement.

    The Midas has a good, very good product and we can make money on it, lots of money even by living up to this provision, but we don’t like them.

    And we want to be able to buy a competing system and have Midas on one side of the shop and XYZ on the other side and we’ll advertise both and both companies are going to advertise” and that the Midas says “Sorry, no.

    You might make more money that way, but you’re either with us 100% or not at all”.

    Glenn W. McGee:

    Well, Mr. Justice White —

    Byron R. White:

    Do you say then that in pari delicto would still apply if the —

    Glenn W. McGee:

    No, I — well, we would —

    Byron R. White:

    If the franchisee said, “Well, if that’s the way it is.

    I’d rather have you this way than not at all”.

    Glenn W. McGee:

    No, it isn’t Mr. Justice White.

    We wouldn’t say that in pari delicto would apply to that case.

    We say, our position in our Brief that the three circumstances have to coincide before there’s pari delicto.

    There has to be a voluntary arrangement containing certain restrictions on both parties which entered into in the expectation of profit.

    They have to participate in that arrangement —

    Byron R. White:

    But it was such a loaded word, that “voluntary” but —

    Glenn W. McGee:

    We concede that, they have to enter into that arrangement and they have to accept the benefits from the arrangement.

    Then, there comes a disagreement and a falling out and one sues the other on the basis that the arrangement was illegal and claiming that he might have made more profits if he had not been subject to those restrictions in the first place.

    And we say that only then, only in the circumstances really of this case does pari delicto apply.

    You have to have full and voluntary participation.

    It’s not enough that they merely enter into an agreement or consent to these restrictions of which you’re speaking.

    They have to cooperate, they have to work with them and they have to profit from them.

    Byron R. White:

    Well, you don’t think it’s essential to where in pari delicto to apply that it would be shown that the person who is suing benefited himself from the restrictions which he is now objecting to.

    Glenn W. McGee:

    We don’t think that’s essential, but we think that (Voice Overlap) happened here.

    Byron R. White:

    In Balance do you think it’s enough if it’s just shown that he made a profit out of the whole arrangement?

    Glenn W. McGee:

    Yes, sir.

    Byron R. White:

    Even if it was not to his economic benefit to live up to the restriction?

    Glenn W. McGee:

    We say that it had to be that as economic benefit to live up to the restrictions because rightly or wrongly, no matter what they thought, all of these restrictions were in equitably, interwoven in the program from which they obtained profit.

    And who can tell whether or not they would’ve obtained profit absent one or more of these restrictions.

    And it is the fact that —

    Byron R. White:

    Well, that’s a matter — that might be a matter of proof on damages but I don’t know why should it be in pari delicto, why should they be precluded from proving that by a defense like this?

    Glenn W. McGee:

    Because they did give up these rights voluntarily to accept the benefits of the entire program.

    If they wanted to renounce, they should renounce the whole program or if they perhaps if they had come to the defendants in the way that Your Honor described, we would not be here today, but the point is that they didn’t.

    That in this particular case, these particular plaintiffs terminated Midas.

    We did not terminate them.

    What they wanted was not relief from these restrictions.

    What these plaintiffs wanted was still more franchise agreements.

    They wanted still more exclusive territories.

    Byron R. White:

    Will you, in a word, then you say that in pari delicto — pari delicto applies even though a plaintiff can show that he would have made more money absent to these restrictions with them, but that he certainly voluntarily went along with the scheme because he could still make a pretty good profit with restrictions.

    You think that’s part of the suit on those facts?

    Glenn W. McGee:

    On the facts that he could — he thinks he could show that he could make more money absent the restriction.

    Byron R. White:

    But if I have to make a choice which I obviously do, I’m going to do — live up to this restriction.

    Glenn W. McGee:

    Well, let me say in this case that that they did make that choice when they terminated Midas.

    They went into a program sponsored by Midas competitors.

    That program did not contain these allegedly illegal restrictions.

    That program gave them the exclusive territories for the whole State of Michigan for one, for all of Washington D.C. for another and that program did not prove successful and it was only then that they brought the suit.

    Byron R. White:

    That might be a matter of proof as to — but what about the defense on those facts?

    Glenn W. McGee:

    The defense that they could have made more money elsewhere?

    Byron R. White:

    The defense in pari delicto that they participated in the scheme itself.

    Glenn W. McGee:

    I think it’s enough.

    If they participated in a scheme if they accepted the benefits if they later renounce and sued claiming that they could have made more, but that’s enough to apply in pari delicto irrespective of what the proof might have been as to what they could have done elsewhere.

    Byron R. White:

    So you have to make your objection known and then all you can sue for later is what happens to you after that objection.

    Glenn W. McGee:

    I don’t — I didn’t quite comprehend your question Mr. Justice White.

    Byron R. White:

    Well, a while ago I thought you’ve said that if the franchisee makes his objection known to the — to Midas, he had made his objection known to Midas and said “I could make more money without these restrictions but if you insist, I will stick with it.”

    You wouldn’t insist on in pari — you said you wouldn’t be here on that?

    Glenn W. McGee:

    I said there is possibility that we wouldn’t be here because that is not the facts that we have that what their — these plaintiffs’ particular objections were directed to were not the restrictions but the fact that we didn’t give them even more territories.

    Their complaint, paragraph 22m, specifically says that one of the plaintiffs’ claims for damages is that these defendants refused the repeated request of the plaintiffs for additional franchises.

    It was not the restrictions to which they were objecting.

    Abe Fortas:

    As I read your brief, I would call your attention to Simpson against Union Oil Company.

    As I read your brief you distinguished that case solely on the grounds that in pari delicto as such was not discussed in this Court’s opinion.

    Simpson against Union Oil Company did deal with the question of whether the plaintiff was barred triple damage action by a consent.

    There was a franchise arrangement, was it not?

    Glenn W. McGee:

    Yes, Mr. Justice Fortas.

    Abe Fortas:

    Now forgetting about the technical point as to whether in pari delicto was adjudicated, is there a material difference in the basic factual situation in your mind between Simpson and your case?

    Glenn W. McGee:

    We think that there is both a factual and a legal distinction of Simpson.

    Certainly on the legal grounds there, there was purely consent and passive acceptance by Simpson of the terms imposed by Union Oil Company.

    There was not the participation which we have shown here by Simpson in the terms of his agreement with Union Oil.

    Abe Fortas:

    I don’t understand that.

    What participation?

    Glenn W. McGee:

    We have set forth in our brief in some detail the testimony of the plaintiff, Mr. Max Ross who explained that these dealers, as members of the National Advisory Counsel, which were the top ten Midas dealers, and in regional and national dealer meetings as the elder statesman of this group in counseling dealers, discussed all aspects of this program.

    Mr. Ross specifically said that these were very comprehensive discussions lasting from morning to night.

    Abe Fortas:

    Alright, you say in number one, the point of distinction is that in the present case, the franchisees did participate in the discussion or something of the sort of the terms of the arrangement.

    What’s the other distinction?

    Glenn W. McGee:

    In more than just the terms in developing the entire concept and how it would work.

    As the other distinction is concerned that there of course factually the Oil Company had terminated the dealer.

    The dealer did not terminate the franchisor.

    Abe Fortas:

    And that happened in one of the cases before us?

    Glenn W. McGee:

    In this case, Mr. Pierce first terminated a franchise Adamira and later on we followed up with terminations of the rest of his franchise although he initiated the first one —

    Abe Fortas:

    What difference does that make, to be terminated?

    Glenn W. McGee:

    Actually, it makes a difference only and that it shows that these plaintiffs were not subject to the restrictions.

    It wasn’t the restrictions which really decided the issue.

    They were voluntarily getting rid of Midas.

    They thought they could earn more in another program.

    Glenn W. McGee:

    Now in addition, of course, the comparison in size and equality of bargaining power between a corner gas station and Union Oil Company and these plaintiffs and Midas, which at the time we’re talking about, were selling $5 million in total sales, not Midas but in total sales, simply doesn’t match up.

    There’s too much power in the hands of Union Oil and the Court rightly said there that this implied a certain lack of freedom to deal on the part of the dealer.

    Whereas here, I think we have shown that they all were not — may be not of equal bargaining power but certainly capable of bargaining for themselves and which is also shown by the fact that they terminated us rather than our terminating them.

    Abe Fortas:

    And those are the three points of distinction and any others between this case and Simpson against Union Oil?

    Glenn W. McGee:

    I think that the fact that in Union Oil and Simpson and all the gas station cases, the dealer there is tied to the oil company, to the supplier by a lease of real state or equipment so that when either the real state lease is terminated or the sales agreement is terminated, that dealer is out of business.

    He has no choice.

    Whereas in our case, there is no lease of real state; there is no lease of equipment.

    And as shown here, the dealers did continue in business from the same exact places selling mufflers and other additional products in competition with Midas which certainly didn’t happen in Simpson.

    Byron R. White:

    Well, if the franchisee had simply violated the exclusive dealing condition of the franchise and it simply bought from a competitor and sold the competitors goods along with Midas and Midas had terminated the franchise at that time for violation of the exclusive dealing provision, would you still have the same argument?

    Glenn W. McGee:

    If the dealer, if you’re talking about one of these plaintiffs and that were the only circumstance, I think that it would be irrelevant to pari — in pari delicto as to the reason for its termination.

    Byron R. White:

    You don’t think Simpson would even apply then?

    Glenn W. McGee:

    Pardon me, sir?

    Byron R. White:

    You don’t think Simpson would apply then?

    Glenn W. McGee:

    Well, Simpson, Mr. Justice White, was the mere passive acceptance by that plaintiff, by that dealer of the conditions laid down.

    That is not the fact here.

    That is not the case here.

    Mr. Ross explained how they discussed these things from morning to night, how this thing was a program, a society, an affiliation and how it was a group of people with a common interest in mind and that all of them worked together to develop this concept.

    They all thought again, rightly or wrongly, that exclusive dealing was necessary.

    It is not much different from the situation which the Court faced in United States versus General Motors in the Los Angeles situation where there, it was the dealers who initiated the Boycott against the sales to discounters and the Court there said that this amounted to a horizontal conspiracy among the dealers and the company so that if you followed it to its logical conclusion, General Motors would be able to sue the dealers for that violation.

    I don’t think that the Court would want to come to that result and yet in pari delicto, it doesn’t apply in this case.

    In an antitrust cases, the result is reached not only in General Motors, but that any two horizontal price fixers, competitors — each of whom gives up his right to fix his prices in the expectation that the group action will prove profitable, but sue the other because the other does not comply with the agreement.

    Byron R. White:

    You mean like the franchisee could sue Midas here for — if it happened to sell to somebody else in the exclusive territory?

    Glenn W. McGee:

    No, what I mean is that if the franchisee here can sue Midas for the exclusive arrangement, then Midas can sue the dealer for keeping him — for not allowing Midas to put other dealers in that territory and I don’t think that that either makes more effective law enforcement or makes much sense economically or judicially.

    We think that it is clear that the application of the in pari delicto defense here will further the policies of the antitrust laws.

    Petitioners have urged that affirmance to the Court of Appeals would mean that the Court has legitimate ties to immunize franchisees.

    But that is not at all so.

    That is not our position; we know that is not the law.

    The true victim, the true person who enters into these contracts solely because it’s the only one available, still has the right under Simpson and under the other coercion cases.

    But when they have participated to the extent they have participated here, when they have asked for additional franchises, when they have met and decided on such parts of the program as prevention of wholesale sales.

    When, as Mr. Ross said, “It’s a society, it’s a group”, then you don’t have that situation.

    Glenn W. McGee:

    And we think that those people who participate actively in these violations should also be precluded from suing under the antitrust laws.

    It was not the mere execution of the franchise arrangement which rendered the plaintiffs in pari delicto here.

    Petitioners own authorities recognize that there is a place for in pari delicto in the antitrust laws.

    The authors of both the law review articles which the petitioners cite in both of their briefs indicate that in pari delicto should be retained as a defense against Section 4 actions in order to discourage persons from participating in illegal activities.

    Denying the defense will encourage them to remain in these illegal arrangements and to enter into them in the expectation that if the thing doesn’t work out, they might secure treble damages.

    Way back in 1899, this Court explained in McMillan v. Hoffman that if parties’ two illegal arrangements recognize that one may enter into them, they place themselves outside the protection of the law, the less inclined will they be to enter into such arrangements.

    And in that way, the public will secure rigid adherence to the law.

    I would also like to point out that the facts here —

    Byron R. White:

    I suppose you would argue then on — on the basis here that if a competitor sued, one Midas competitor sued, he should be able to sue both Midas and the franchisees as co-conspirator?

    Glenn W. McGee:

    We say that for purposes of in pari delicto that the dealer amounts to a co-conspirator.

    The determination of a substantive liability in a conspiracy case by a competitor is not within the purview of our contention here, Mr. Justice White.

    Byron R. White:

    You don’t think he has — you wouldn’t think you would have to attain the status of a co-conspirator to — before he was barred by pari delicto.

    Glenn W. McGee:

    No, we say that he has to meet those three requirements.

    He has to voluntarily participate, actively promote and accept the benefits and then sue alleging that it was illegal and that he might have done better elsewhere, only under those circumstances will in pari delicto apply.

    Potter Stewart:

    I don’t see why he wouldn’t be a co-conspirator as a defendant in a suit by a plaintiff competitor of Midas but that’s not your case?

    Glenn W. McGee:

    No, but certainly the facts here and to me at least indicate that these plaintiffs would have mean as much a co-conspirator as were the gear defendants in General Motors in the Los Angeles Boycott case.

    So that extent, Mr. Justice White, yes I think that they could be properly joined if I were suing Midas as a competitor of Midas.

    And after all, it is the public which is damaged by Section 3 and that the public has been damaged as much by the action of the dealer as the supplier, certainly the dealer should be held responsible.

    As to our alternative defense, the fact that the petitioners here also maintain that we should be precluded from establishing that we were a single traitor.

    Here, all the corporate defendants were owned by Nathan and Gordon Sherman; each of the individual defendants operated only in it’s corporate capacity.

    There was no holding out of separate corporations.

    Midas did not sell any goods or hire any people.

    This was not the same as the keeper-steward situation where there were separate divisions, separate executives who dealt separately with the plaintiffs.

    This was purely a single unit, a small family owned business.

    And before I sit down, I should like to report, Mr. Justice Fortas, in response to your question to Mr. Rolnick that the figures which he is relying on here are contained in an antitrust complaint filed by the United States against one of Midas’ competitors and that those figures indicate sales, total sales of automotive exhaust products in the United States of sum of $160 million.

    In 1955, Midas’ total sales or international parts total sales, not just Midas sales were some $5 million which means that most we were around 3% of the market.

    His complaint alleges that we tripled our sales from 1955 to the time that this case was decided and I also think that it’s important that that case refers to the fact that the manufacturers of passenger automobile such as General Motors, Ford, Chrysler and Studebaker are in this business, are particularly in the installation business.

    And although it doesn’t reveal any figures in that complaint for what they have sold or what their dealers sold, saying that they get their mufflers from some of Midas’ competitors, I think that the fact that these large companies are in this business, makes clear that what we’re trying to do is enable ourselves to compete with this new concept and with this new idea.

    Abe Fortas:

    You mean those figures don’t cover all replacement mufflers and exhaust systems?

    Glenn W. McGee:

    Frankly, I’m not sure.

    Glenn W. McGee:

    I think what they do is, they are the manufacturing figures of the companies that they say comprise the industry, but they don’t at all purport to deal with figures for installation sales.

    Abe Fortas:

    Oh well, the question is whether General Motors and Ford and so on buy at least replacement mufflers from these companies, the sales which included in those figures?

    Glenn W. McGee:

    I can’t answer that and I can answer from the complaint which of course is not in the record.

    Finally, we think that the case is right for summary judgment.

    We don’t believe that they have raised any issue as to any material fact in accordance with the requirements of section — of Rule 51e.

    We filed an Affidavit which was consisted solely of their testimony in the court below.

    And we filed an Affidavit of the Shamans, which was not contradicted.

    Throughout the proceedings below, they did not challenge the statement in our appendix summarizing the plaintiffs’ testimony nor did they challenge the Sherman Affidavit.

    These counsels thoroughly, familiar with both the rules on the facts by assertions have said that there are factual issues.

    But here again, in the briefs before this Court, there are no citations to the record.

    There are no indications of true evidence with respect to the issues which they attempt to raise respecting coercion, Mr. Pierce’s termination and our conspiracy.

    By their motion to the District Court to secure additional discovery only on the matter of trademarks, they recognized that everything necessary for this decision was before the District Court and the Court’s decision should be affirmed.

    Thank you.

    Earl Warren:

    Mr. Rolnick?

    Robert F. Rolnick:

    The statement was made earlier that these petitioners cooperated with the respondents and the enforcement or in the publication of these restrictive arrangements.

    Now, this just isn’t so.

    It is inaccurate and the record doesn’t bear that out.

    The record is plain, absolutely plain that these petitioners were coerced into buying exclusively from the respondents.

    At page 194 in the record, there is a —

    Byron R. White:

    Coerced into accepting exclusive territories?

    Robert F. Rolnick:

    They were offered the franchise which contained an exclusive territory and they had the freedom either to accept the exclusive territory as it was proposed or reject it.

    Byron R. White:

    You are not suggesting that this exclusive territory was not of benefit to —

    Robert F. Rolnick:

    The exclusive territory was a benefit.

    The limitation upon the exclusive territory was a detriment.

    The right to sell this muffler per se was a benefit because it carried with it again national advertising but the restriction (Voice Overlap).

    Byron R. White:

    But it wasn’t going to have any Midas competition in its own territory?

    Robert F. Rolnick:

    That is absolutely true Your Honor, but the territory which was granted was restricted and this restriction on the territory which constituted the detriment.

    Byron R. White:

    What will be your damage claim if this case is reversed? Now what would you claim damages from?

    Robert F. Rolnick:

    I will claim damages from the price fixing, exclusive dealing, the tying and if we can prove damages from the territorial arrangement, we will allege damages with respect to that too, but our primary claims are based on exclusive dealing, tying and place fixing.

    Byron R. White:

    Well, I suppose Midas could sensibly ask you to the damages for restricting them from selling in your territory?

    Robert F. Rolnick:

    It possibly could but they haven’t done so.

    There was a reference in argument to the fact that we cooperated in formulating this plan and the reference was to a National Advisory Council.

    I want to point out that this National Advisory Council was created 22 months, 22 months after.

    This franchise agreement was offered and accepted by any of the petitioners here and at the time that franchise agreement was accepted — the time it was accepted, these very restrictions were in the agreement.

    That National Advisory Council didn’t discuss the restrictions that were in this agreement.

    They didn’t promulgate these restrictions.

    What the National Advisory Council discussed and what the record shows they discussed was how to increase your sales?

    What kind of advertising to use?

    What kind of people to employ?

    They didn’t discuss whether we should buy exclusively from Midas.

    They didn’t discuss whether we should maintain prices fixed by Midas.

    They discussed the plain everyday operation of the Midas Muffler Shop.

    Now, there was a reference, Mr. Justice Fortas, to the complaint in the AP Parts case and the extent of the market.

    And the complaint there reads, paragraph 14 and I think it’s plain from the complaint what the scope of the market is, “The Gorlick group is the largest supplier of automotive exhaust systems and parts for the replacement trade accounting from more than 42% of a total dollar volume of such manufacture and sale in 1959.”

    I want to point out that the comparison of Mr. McGee made was between 1959 sales or $160 million in 1955 sales of $5 million when an accurate comparison should be a $160 million in 1959 against $17 million by the respondents, which makes approximately 11% of the market.

    During the same year, Walker Manufacturing Company, Meremade Automotive and International Parts Corporation, accounted for approximately 22%, 13% and 11% respectively.

    Approximately 95% of Orban industries exhaust systems and parts sold for the replacement trade in that year were sold by Orban to automobile manufacturers.

    And I submit that on the basis of that complaint where the government carefully showed the sales to automotive manufacturers that this encompasses the entire market.

    Simpson versus Union Oil which was referred to is directly applicable to the present situation.

    In that case, this Court said that a franchisee had standing to sue.

    We think we have the same standing.

    We have done nothing more, nothing more than accept the restrictions which these franchisors placed in their agreements to start with and we submit they had no right to tie these restrictions to the sale of their Midas Muffler and that in fact is what they did.

    Hugo L. Black:

    What are the restrictions?

    Robert F. Rolnick:

    The restrictions are resale price maintenance which applied to trademarks as well as non-trademarks tail pipes, exhaust pipes and clamps. In other words, they required as to maintain the price.

    Hugo L. Black:

    What about the purchase of clamps?

    Robert F. Rolnick:

    They required us to purchase clamps and maintain the price on them despite the fact that those parts were not trademarked and were readily available from other sources of supply.

    Hugo L. Black:

    Is that a part of the Midas Muffler?

    Robert F. Rolnick:

    It is not a part of the Midas Muffler.

    Hugo L. Black:

    Entirely separate?

    Robert F. Rolnick:

    Entirely separate and distinct.

    Robert F. Rolnick:

    Now, as I said, Simpson versus Union Oil is directly applicable.

    We did nothing more than to accept these franchises with the restrictions which they imposed.

    We had nothing to do with the restrictions.

    I think the necessity for allowing this type of action is well-stated in our petition for writ in which we said and I think it sums up our theory behind this.

    I see my time is up so —

    Earl Warren:

    You may state that if it’s brief?

    Robert F. Rolnick:

    The drastic implications of the Seventh Circuit’s holding can be partially measured by reference to its perspective application to franchising, which is one of the most rapidly going methods of distribution today in the United States.

    Franchising is currently a $70 billion a year industry with 450,000 franchisees.

    The point being that if the franchisors are allowed to use their agreement as a shield to protect themselves, they have the ability to enforce restrictions which violate the antitrust laws by claiming later that the signature to that agreement constituted consent or in pari delicto.

    We do not think this proposition can stand.

    Thank you.