RESPONDENT:Union Oil Company of California
DOCKET NO.: 87
DECIDED BY: Warren Court (1962-1965)
LOWER COURT: United States Court of Appeals for the Ninth Circuit
CITATION: 377 US 13 (1964)
ARGUED: Jan 15, 1964 / Jan 16, 1964
DECIDED: Apr 20, 1964
Audio Transcription for Oral Argument – January 15, 1964 in Simpson v. Union Oil Company of California
Number 87, Richard S. Simpson versus Union Oil of California.
May it please the Court.
This is an appeal from a judgment in summary judgment that was entered against the plaintiff below, the petitioner here.
This is an action brought under the provisions of Section 4 of the Clayton Act which allows any person who is injured in trade or rather in his business or property to — by reason of violations of the antitrust laws to sue thereof and obtain his damages to the treble and counsel fees to be granted.
There are six issues that were raised in the petition for a writ of certiorari to the Ninth Circuit.
I think major the issue before the Court is whether or not a major oil company, who is having thousands of service station sites, can regiment a dealer organization admittedly composed of independent businessmen who are in business for their own profit or loss by a scheme which involves the issuing of a one-year lease and then (Inaudible) dependant on whether or not the dealer prescribes or obeys retail price fixing orders.
This is regardless of the fact of whether or not the dealer — regardless of how long he has been on that service station site and regardless of the fact that it is admitted that the respondent does continually renew these one-year leases as a matter of its practice to those dealers who do obey the orders of the respondent Union Oil company.
Arthur J. Goldberg:
Yes, Your Honor.
Arthur J. Goldberg:
That was an allegation in the complaint.
The complaint specifically alleges that he lost his service station business because he did not obey price orders and that he was threatened by respondent’s agents that he would better raise his prices or he would be out of the service station site.
Arthur J. Goldberg:
Your Honor, we are in a situation here where these facts are stipulated by counsel for respondent and let me answer your question by enumerating at this time the stipulations that are in this record as I understand them as a result of the pretrial proceedings in the District Court.
Let me say as to that matter that petitioner had filed interrogatories to the respondent mainly on the interstate commerce issue and that the District Court thereupon entered an opinion in which he said that he did not feel that pretrial discovery should be granted until pretrial conferences which defined the issues.
And thereupon we had two pretrial conferences in which there were suggestions that this case could be first stipulated and then brought to the Appellate Courts.
When that stipulation broke down there was suggestion that counsel for plaintiff file a pretrial statement for a pretrial ruling that counsel for respondent would then admit or deny those facts and that the appeal to be taken in that direction.
Now there — so that pretrial statement or pretrial ruling is in the record.
However, counsel did not or respondent did not accept this pretrial statement and rather he noticed the deposition of the plaintiff for a deposition.
The deposition was taken.
Portions of the deposition were thereafter abstracted and presented to the Court in a motion for summary judgment on all issues and that motion for summary judgment on all issues, stipulations were further continued by respondents and at that conference it was suggested that plaintiff, the petitioner here, file a motion for partial summary judgment on the issue of violation of the antitrust laws, which was done.
Now that motion for partial summary judgment was denied and the motion for summary judgment on all issues was granted by the District Court.
Now these pretrial conferences, including the motion for summary judgment raise five distinct stipulations by the respondent Union Oil company.
As I have urged in my brief these stipulations were inevitable because the records consisting of policy letters concerning this consignment program pretty much corroborated and compelled these stipulations.
Now the first is, there is no question that the only lease that Union Oil would write was the one-year lease.
The only consignment agreement was a one-year consignment agreement.
However, that consignment agreement was carried on year-to-year, assuming the lease was renewed.
It was stipulated that the only manner in which a service station dealer could obtain a lease from Union Oil Company was to subscribe or sign the retail dealer consignment agreement of Union Oil Company.
Now, this particular tie-in affected approximately 2000 service station sites in the eight specific state areas and also the consignment agreement was entered into with other purchase and sales accounts so that there are (Inaudible) here in 2000 tie-in consignment agreements and an additional approximately 1000 consignment agreements with other types of accounts.
It is also stipulated that a lease would not be renewed if the dealer did not carry out the authorized directives of the consignment retail price fixing program.
It was further stipulated that this particular plaintiff’s lease was not renewed at the end of the year because he did in fact disobey the orders of Union Oil Company and I think it is fair to say he did not obey the price fixing order, I think it’s narrowed to that extent, the price fixing orders.
I have in my brief set forth that quotation in full I believe.
I would — the record of 409, “It is a conceded fact in the case that he, the plaintiff, did violate the consignment agreement because he refused the charges which is principal of the Union Oil Company prescribed for him to charge.”
Then he goes on above that and says, “We did not give him a new lease because he violated the consignment agreement” and see also record citation 299, where that stipulation is put into the moving papers of the respondent.
Who is speaking there at Page 409, is that counsel for respondent?
That is counsel for respondent.
That is Mr. Lasky the counsel for respondent.
That is the stipulation, yes and also that stipulation is put in writing at the record 299.
In addition, the last stipulation, I would like to call for the Court’s attention, is the fact that the respondent for — the counsel for the respondent stipulated that a purpose of the retail dealer consignment program was to fix prices.
One state in the record — one section of the record was a purpose and then it was a purpose among other purposes was to fix the retail prices.
Now in addition as I have indicated to these stipulations during the pretrial proceedings counsel for the respondent submitted to the plaintiff’s counsel the so called policy letters, which were letters issued by the general sales manager of the Union Oil Company to the division managers in which he explains in detail, gave instructions to them concerning this consignment program.
Now we were touching upon the issues of the case but believe the major issue would be that first issue whether or not you can regiment a marketing system and cull off independent judgments as to prices by utilizing this one-year lease renewal as a record.
Could I ask you a question?
As I understand it, the Court of Appeals did not reach the substantive question —
The Court of Appeals assumed a violation of the anti-trust laws and went on the ground that there was no actionable damages and utilized the doctrine of consent and ruled that when a dealer entered into the lease consignment structure of Union Oil Company with his eyes wide open, he knew he is going to have to sign this agreement that he could not thereafter obtain damages because he had full knowledge and he walked into the scheme with his eyes wide open.
And it also applied the same doctrine of consent to the secondary aspect of the plaintiff’s case which was claiming that prices were fixed during the period of in-station occupancy pursuant to coercive program, which was structured upon lease renewal, and there upon the dealer suffered injurious price fixing orders for which he could be compensated under Section 4 of the Clayton Act.
And as to that the Ninth Circuit Court of Appeals said when the state of the record shows that the dealer does in fact charge his own price and raises the conflict of facts between the supplier and the dealer that he cannot thereafter sue for in-station damages because in fact he could charge his own prices.
The only theory was that he had — he couldn’t get the station the next year, although he had expended substantial money for the service station business.
Arthur J. Goldberg:
It was two one-year leases and the order came in — the letter of non-renewal came in one month before the lease was to terminate.
Arthur J. Goldberg:
He — I think the record will be undisputed that he was to charge on the regular type of gasoline 29.9 that his competitors — his three immediate competitors were charging 27.9 that he asked the respondent’s agents to meet this price and that he was refused and that thereafter he set it at 27.9.
Arthur J. Goldberg:
And that’s what precipitated this matter.
So the second issue before the Court is whether or not the doctrine of consent, a court doctrine has application to a Section 4 action based upon lease, non-renewal or lease cancelation when the dealer did have knowledge of the consignment program of the respondent.
Now I think there should be a distinction made here that’s important and that is whether or not assuming that a consent doctrine can be applied, which I allege cannot be, whether or not that can be made in summary judgment because the consent even in classical tort doctrine has usually been an affirmative defense and has been raised only upon the factual showing at a trial.
Now here the doctrine was applied in a summary judgment situation and here it was applied when the record clearly showed protest by the petitioner against the orders of the defendant or the respondent here.
Now my motion for a partial summary judgment is based upon stipulations and I believe positive and unrefutable proof in the record, the question is whether or not plaintiff is entitled to finding the fact based upon stipulation that lease non-renewal has been used and will be used in order to regiment a price fixed organization.
And I urge that this stipulation constitutes violations of both Sections 1 and Sections 2 of the Sherman Act.
Another issue before the Court is whether or not we are talking about consignment or we are talking about resale price fixing because I urge upon the Court that we don’t have a consignment agreement here at all.
What we have here is a resale price fixing agreement.
Then we have a last issue as to whether or not plaintiff’s right to trial by jury has been violated in view of the fact that counsel at all times herein in his moving papers attempted to preserve a right to trial by jury for the plaintiff below.
As heretofore indicated, the petitioner is a service station dealer and he obtained one of the best available sites that Union Oil Company had in its chain in May of 1956.
He had been employed by the company and upon the termination of his employment, he was offered by his agents his choice of the best available site of the chain and he picked a very good service station site in Fresno where he had a relative.
He got a going business (Inaudible)
I think it was – I am really not too sure of that, but I believe it was a new station that was available at that time.
The petitioner in order to obtain this service station site was handed his one-year lease, was handed his retail dealer consignment agreement, which he signed.
And also I would like to point out that in order to obtain the station he was required to spend approximately $3500 of his own in order to obtain the necessary equipment and supplies to run that service station business.
He was — at the end of the year, as is customary, he was given another one-year lease.
The record shows that that time protested consignment and he did take the lease and continued to be a so called consignment operator during the remainder of that one-year period.
The respondent, Union Oil Company of California, is one of the largest of the seven major fully integrated oil companies on the West Coast.
It explores for oil.
It refines oil into petroleum.
It distributes and retails petroleum products.
The record shows and the complaint alleged that in addition to supplying retailers under the banner of Union Oil company, it distributes substantial quantities of its refined petroleum products to so-called off brand service stations who will sell this gasoline of Union Oil Company under different trade name.
And I think the record also shows by way of depositions that I had taken that these off brand companies attempt to sell their gasoline at $0.01 or $0.02 below the established price that the majors have, the fully integrated companies.
Around 1954, the later part of 1954, the defendant promulgated its retail dealer price fixing consignment program and the ostensible and the written purpose was in order to control prices.
And the letters from the general sales manager say to the people in the field that these agreements are to be used when we want to control prices in a price war situation.
That when the price war situation is over, the dealers will go off, consignment will put them back to purchase and sales, that’s in the beginning of the program.
Respondent points out that around May of 1955 that a change was made and that the respondent company attempted to make the consignment program a permanent measure and not one that was to be temporarily used in a price war situation, but you’ll notice in the record, “The statement continued we will use consignment when we want to control retail pricing.”
Now we have established the policy of the one-year lease and the policy of the tie-in.
The affect of this tie-in policy was to establish uniform and non competitive prices in the eight western states as far as Union Oil Company was concerned and its three thousand dealers under the consignment program.
Because the orders were in the beginning charged one or two cents over your major competitors, and by major they are referring to the fully integrated majors, later the orders were charged the same as the predominant major price which is the major oil companies or charged what Standard Stations, Inc., charges, whichever is the lower price.
And these were the prices that were established in the policy letters, uniform prices based upon what Standard Station was charging.
Now we know that those prices were regimented under the threat of non-renewal of these one-year leases not only by reason of the stipulation of counsel, but by reason of the record, which shows a letter that states that we will refuse – “We will review rather all the dealers who have not agreed to our consignment program even to the extent of losing the business.”
And we know when changes were made in the consignment program, in the consignment agreement itself, the orders were, “Those dealers who do not agree to sign or subscribe to the new agreement, we will send him a letter of cancellation and when that letter — when the time of cancellation has expired, we will then give him the new agreement to be signed and subscribed.”
The obvious inference is if he doesn’t sign or subscribe it, his lease is not going to be renewed.
Now the retail dealer consignment agreement itself places virtually all the risk of the business on the dealer, just as the lease does.
He is responsible to his employees, and Union Oil has no responsibility insofar as the employees of the dealer are concerned.
He is responsible for all the business fees and the license fees and all the taxes except the reserved property taxes which Union Oil claims to pay.
Then all the risks of property damage, personal injury liability are placed right on the dealer.
The only insurable risk that the respondent claims to cover are those caused by natural catastrophe, that if there is leakage in the pumps or if a car runs amuck and knocks a pump over and a gasoline is spilled, or if there is theft that the dealer will carry the burdens of that kind of loss and not Union Oil company.
Now the agreement of course expressively provides Union shall fix the price of gasoline and it does so, on the assumed basis that it is giving the dealers a commission upon the sale of the gasoline.
Now this commission when it first came out was very much equivalent to margin.
Now the commission was simply the base — the difference between the authorized consignment price, which is a retail price, and the Union Oil Company’s tank wagon price or the wholesale price.
However, the agreement provided that a commission would be guaranteed, and that will be the 6.5 or 5.5 before rent.
There’s some dispute as to which figure was to be used, which was to be guaranteed.
Later a change was made so that the consignment agreement provided that the dealer would assume 50%, one half of the difference between the authorized consignment price and a so called normal retail price when the consignment price went below this normal retail price.
Then in March of 1958, in a letter written by respondent’s general sales manager, “in order to be on the same basis as purchase and sale of the company and in order to have the dealer participate in price decline, the respondent Union Oil Company determined to have the dealer absorb 20% of the decline in prices” and no more guaranteed commissions.
What they did do is they sent a letter to the dealer saying we are going on this new program, you will have a commission guaranteed, however we reserve the right to cancel this letter at any time.
And as you study the sliding scales of the respondent in March of 1958, you will see that they are all based upon a 20% participation of a price decline, and whereas in the old days the 5.5 or the 6 cents was there, in the new sliding scale they go down to 3.5 cents commission.
I have touched upon the facts relating to the cancellation of the plaintiff for the non-renewal of his one-year lease.
The fact that he was attempting to meet a market situation that he asked to be able to meet this that he was refused.
And I’d like to point out at this point that the answer or the complaint first alleged that plaintiff was threatened with lease cancellation quietly by agents.
And the answer in effect admits that an agent of the Union Oil Company came to petitioner’s service station and told him that they could do what they could — would do in order to raise the price of petitioner.
Now the deposition of the petitioner says that the agent, a district manager, Mr. Kirkberg, came marching in and said, “You had better raise those prices and unless you do, I am going to call Mr. Raff in Los Angeles and we will use the full power of Union Oil Company to make you raise those prices.”
Mr. Simpson held on to his 27.9 price and a short time later he was told that his lease will not be renewed.
This, however, was not the full end of the story because Mr. Simpson had spent 16 hours a day for about two years at that station and he didn’t want to give up and so then the lease —
Under the then existing arrangement between Mr. Simpson and Union Oil at 27.9 a gallon, how did Mr. Simpson bear financially?
I don’t think he did well that money.
Well I mean, how — per gallon was there any profit in it for him, no?
The profit and loss figures are in the record.
That would be his profit figures in March and I believe they show a profit of $266 for March 1958.
From the operation of whole station is it not or —
That that’s on the — that’s in the profit on the station.
What was he getting the gasoline from Union Oil, at what price?
I believe that the record would not indicate that at this stage of proceedings Your Honor.
You probably you told us earlier that the arrangements involving that they — and ended up with an arrangement by which the station operator would share (Inaudible)
This particular change I don’t think affected Mr. Simpson in that month.
This program was to be affected beginning the March of 1958 and the record is uncertain as to whether or not there was any — whether that particular program reached Simpson and I doubt that it did.
He was still operating on this old arrangement of the 50% situation with the guaranteed commission.
What happened all these delivery tickets, gasoline delivery tickets, were submitted to the respondent and they were attached to the deposition that they were not put in the record as part of appellate record.
But we do have that in the record below those gasoline delivery tickets were submitted to the respondent and they were attached to the deposition, but they were not put in the record as part of the appellate record, but we do have that in the record below those gasoline delivery tickets.
Mr. Simpson attempted to convince someone in the Union Oil organization that a wrong had been made, and a wrong was to be done and he urged his customers to send letters of protest to the Chairman of the Board of the Union Oil company.
And Mr. Simpson apparently obtained 230 customers to support his campaign to keep his service station, but this was not going to change anybody’s mind.
As a matter of fact just the opposite occurred.
The General Sales Manager Mr. Rath was dispatched to Fresno and he told Mr. Simpson that he understood, that he didn’t want to leave the station, and he advised Mr. Simpson that Union Oil was going to have to make him leave that station.
He told him about a story about two dealers that had been — had to be bodily turned out of the station and he told Mr. Simpson that he doesn’t have much money and he better not try and tangle with the power of the Union Oil Company and the threat was made good.
He obtained temporary restraining order for approximately five days.
On argument that was canceled, no preliminary injunction was granted and Mr. Simpson left the service station and it has been in the hands of another person ever since.
And it’s interesting also to show that the — at the time of this, desire to have Simpson keep his prices up, there were apparently conversations between the Union Oil Company, representatives of the (Inaudible) company with respect to retail prices.
I think the inference is pretty clear, that there was a situation were prices were to go up on Ventura Avenue in Fresno.
Now the District Court on argument, both the summary judgment and the motion for partial summary judgment ruled that the consignment program was valid and that Dr. Miles and Parke Davis did not affect a consignment situation.
In fact saying that by consignment you can do what you can do by the way resale price fixing.
It also ruled there were no actionable damages and that the damages were speculative and uncertain.
The Ninth Circuit Court of Appeals did not go with the District Court on the issue of validity.
Instead it set forth what it felt were issues of fact and then it announced that the doctrine of consent would bar recovery in this situation and it is interesting to note that the Ninth Circuit distinguished between two kinds of dealers.
The dealers who are on the station at the time of the retail dealer consignment agreement program was originated, and it said as to these dealers there was real — there might be real coercion and they might have an action because they in order to keep their station they might have to sign this agreement against their will, but the Courts of Appeals did not see anything that would match that kind of a situation and a situation where you are told in order to lease the station, you must sign the consignment agreement.
Although I think that in the description of tie-in by this Court that this Court does use the word coercion in describing a tie-in situation or in order to obtain a desired commodity, a purchaser is required to buy another commodity.
Arthur J. Goldberg:
Yes he gets a guaranteed commission, which is very much equivalent to the margin which a resale dealer obtains, the difference between the tank wagon price and the resale price.
Arthur J. Goldberg:
That’s right unless of course the orders were to price yourself above your competition and then you are not going to get any commission because presumably you are not going to be selling any gasoline if you are $0.02 above everybody around you and the commission is based upon the gallons sold.
So that —
Arthur J. Goldberg:
You will have that guaranteed commission.
However, I think as matter of reality there isn’t too much of a distinction between this kind of a guaranteed commission policy and the kind of a situation that the Court faced in the Standard Oil case where attempts are made to give the dealer some kind of a dealer aid or some kind of a subsidy.
In each case, the companies don’t drop their wholesale price.
Now where do they know that these dealers are in a heavy competitive battle and they hold that price up and they come up with some other, which I think we can call a gimmick or a scheme to subsidize the dealer who is facing the price war situation.
Arthur J. Goldberg:
To a particular dealer and we are talking about across the board price reduction to all accounts who are in the competitive — in competition with each other.
Now it is urged that the principle of law used by the Court below is not applicable to Section 4 of the Clayton Act statute as doctrine of consent was not supported below by any decision of this Court.
And if we analyze the facts in the Southern Photo Material Case and the Emich case, Moore versus Mead, we find there plaintiffs who had full knowledge, their eyes were wide open, they dealt with a violator and as soon as the plaintiff attempted to rid himself of the injurious impact of a violation of the antitrust laws and he was threatened with action unless he followed out the illegal scheme and carried it out, we find that a treble damage action has been sustained in that kind of a situation.
In story — in the Southern Photo Material case the plaintiff had dealt with the Eastman Kodak company and had subscribed to it resale price fixing provisions, but then a dispute arose as to selling the business to the Kodak Company and there was a dispute and pursuant to a plan to monopolize the Eastman Kodak Company withdrew its supplies and the treble damage action went to the jury with instructions upon pari delicto.
The jury found for the plaintiff, of course this Court sustained the jury verdict.
In Emich case we have a very similar kind of situation.
There was a General Motors dealer being forced to accept financing arrangements by the General Motors Acceptance Corporation and I think the record shows that the dealer Emich there knew at the time that he obtained the papers from the General Motors Company, giving him the rights to sell the cars, that they had a financing program and during his occupancy, he was warned to continue to obtain more financing through General Motors.
And of course his franchise was terminated and this Court sustained the action although the particular issue before the Court was the effective Section 5 of Clayton Act.
Then the Moore versus, then there was Kiefer-Stewart in which this Court said that the violation of the antitrust laws on the part of the plaintiff did not immunize the defendants for the liability for the injurious acts they committed upon the plaintiff and then in the Moore versus Meads Bakery case this Court held that a plaintiff who enters into unlawful conduct on his own in retaliation for the unlawful conduct of the defendant, thus continues to have a cause of action that his unlawful conduct does not give the defendant any immunity even though the plaintiff enters in the unlawful conduct with full knowledge that there is going to be retaliation by the defendant against him, so I think.
Arthur J. Goldberg:
No I don’t think so.
Arthur J. Goldberg:
Well, I was just coming to that.
Arthur J. Goldberg:
Well they could certainly refuse to renew a lease on somebody that was doing something that the ordinary normal reasonable man wouldn’t do as a service station dealer.
Arthur J. Goldberg:
Arthur J. Goldberg:
I believe under the Clayton Act that would be permissible without being subjected to treble damage action.
Arthur J. Goldberg:
No Your Honor.
I think the central issue in this case is whether or not a dealer go to a jury on the question of he having a weapon, having been subject to a weapon or a clause.
Now this case I believe is premised on the question of coercion.
Now whether or not a company can issue a price fixing order and say either you obey that order or you are going to lose your business.
Now I think that is the central issue and not — whether or not this is a valid consignment or not.
I don’t see how you can do under a consignment anymore than you can do under the Parke-Davis.
You can suggest prices, you can tell these dealers what the prices ought to be and how they – if they want to run their business at a profit, I suppose you could suggest in some general announcement to the trade but the moment you get into an area of threats and the weapons I don’t care whether it’s consignment or not, whether it’s a valid consignment agreement or not because this is precisely where the area of freedom of bargaining breaks down.
As I understand the distinctions that this Court has enunciated through the Parke-Davis and the Beech-Nut and the Colgate decision is we cannot compel the application of price judgments.
Arthur J. Goldberg:
No I think what I’m really saying is this.
Assuming this is a valid consignment agreement and that these are really valid consignees, what I’m saying the minute they go over the boundaries of the agreement and they adopt means which are either illegal per se or they have adopt means which are beyond this Court’s announcements in the Parke-Davis case, in effect they are talking about resale price fixing because the dealer has in effect advocated it, it’s his consignment status, and he is saying I want renunciation and they say you cannot have renunciation, you must obey our price and I think certainly one of the standards of consignment as a common law system is that the agent is always free to abandon a consignment program.
Here they are saying you can only renounce under a fear of losing your business.
And I think that is a distinction and not whether or not this is really consignment or not.
Arthur J. Goldberg:
If the cancelation is stipulated to be for the purpose of controlling price under the Sherman Act because —
Arthur J. Goldberg:
Well I would say that the moment they use this method or means, they are not enforcing the contractual provision.
They are enforcing rather their order upon a dissenting dealer.
Arthur J. Goldberg:
Just as Parke-Davis indicates you make an announcement to the trade, you can indicate, you can refuse to sell supplies, but you cannot take away the business which I think would be the distinction.
Under Parke-Davis you announced that a supplier could refuse the dealer, as a part of a suggested price fixing program, but that’s all and no more and the minute the supplier goes beyond the refusal of the supplies and adopts methods or means which compel that he adheres to a price fix order that it’s going beyond the Colgate case and I guess that’s where we are, It’s a Colgate case.
Arthur J. Goldberg:
I would say they are compelled to give you a lease unless they have some other reason other than the price fixing reasons because then they are subject to the charge that they are regimenting a dealer organization.
Arthur J. Goldberg:
Well now this question was examined in this case of Osborn versus Sinclair Refining Company on the TBA situation where the Fourth Circuit announced that a single supplier did not have protection under Colgate to coerce an arrangement in restraint of trade.
And in that particular case, the Court approached it on the basis that there was a one-year lease, it had another — it went from year-to-year that at least the dealer would have had it for an additional year and it based damages upon one-year occupancy.
I had urged or have urged that this is a question for a jury, in the ordinary situation it goes to damages, you present all your available data, how long would the dealer have stayed in because in this case we have the testimony of Mr. Rath, the President of Union Oil Company, later the Chairman of the Board that they continually give leases.
Now it’s clearly the jury who is going to be able to have that kind of evidence and is going to be — have available towards the evidence of the respondent that for some other reasons we could have cancelled this man and let the jury decide how long.
But we know dealers, under Mr. Rath’s testimony, have been in the station 15 to 20 years.
We know that advertisement of Union Oil boast of this fact that if you are a Union leader you are going to have a long time occupancy and you are going to be a respected businessman making profit and loss of your own.
Now I urge that this Court has indicated in the Masonite case that regardless of whether or not this is consignment or resale price fixing that the terms of an agreement are not going to hide the basic anti-trust restraining effects of a program from the Court.
If we are going to go behind the façade, we are going to see does this restrain trade the scheme, does it regiment, does it create in effect a price fixing combination and if it does, it’s going to be held in violation of the anti-trust laws regardless of whether or not you have a common law agency or you are a common law consignment arrangement.
And I also urge that even if Masonite doesn’t apply we clearly have a limited dispensation of Colgate that Colgate does not in anywise allow dealer or a supplier to utilize a refusal to sell in order to perpetuate a price fixing program.
We do have — we do know this in the record.
There is a letter that’s signed by the agent of Union Oil Company that we are going to police prices and we know from the record here the extend which prices were policed, we know that agents do go on the premises, do talk to these dealers and do utilize the threat of the cancellation in order to carryout this scheme.
I also urge upon the Court, a violation of Section 2 that these are predatory weapons that you do not use under Colgate the power of lease cancellation in order to perpetuate a price fixing program and that the use of these weapons is a Section 2 violation and it shows a specific intent to monopolize that these dealers are independent businessmen, they invest their personal fortunes to go into the business and they are to be free of this kind of a plan to control not only their judgments as to prices but their judgments as to gasoline products.
And I would urge that the Court remand this case to the District Court in order that the question of findings as fact on the use of lease cancellation as a weapon maybe settled in view of the stipulations of the counsel for respondent and I would urge that at any rate the case be remanded for a jury trail on all issues.
And I would like to urge on this question of consignment as such that the dealers were required to sustain a substantial portion of price declines, the risks of insurance were on the dealers, the risks of loss or theft were on the dealers that in the General Electric case when this Court sustained the General Electric consignment program, this seemed to be the very ratio decidendi of the opinion that the company assume all the risks.
And I submit to you that in the consignment agreement of the Union Oil Company especially as it was modified to require the dealers to observe price declines that these risks were placed upon the dealers and therefore that we have in fact a resale price fixing agreement.
Byron R. White:
I think under the per se announcements of this Court, the White Motor case that when a company — I think combination of Moore versus Mead and White Motor that if an interstate oil company compels the acceptance of a price order that you would have a section 4 action.
Byron R. White:
Well, I have not taken that position.
I have attacked this as a total regimented system in which all the dealers are treated in this manner of being compelled to sign the price fixing agreement in order to get the station, that’s stipulated here and I have attempted to show that this was a vast pricing scheme in the interstate commerce which is applicable to 3000 dealers.
I think the — I have not placed the case in the posture that Mr. Justice White indicates, but I do think I could based upon Moore versus Mead that if an interstate company utilizes unlawful means, it maybe subject to Section 4 of Clayton Act, by action by an injured single individual.
I would like at this time to call for the attention of the Court, the late decision of the Ninth Circuit Court of Appeals in a service station case called Paul Lessig versus Tidewater Oil Company, which was issued January 2nd 1964.
Paul Lessig versus Tidewater Oil Company.
L E S S I G, versus the Tidewater Oil Company, which is similar to Osborn case in holding that Colgate does not allow an oil company to use the lease cancellation as a device to require the dealer to subscribe to orders which restrain trade.
It’s — there is no citation, it’s slip opinion that came out January 2nd, it’s numbered 17924, 1924, the case was argued by this counsel and Mr. Lasky was the attorney.
Mr. Chief Justice and if the Court please.
Counsel has been presenting this case to the Court in a screen of derogatory attitude and in the setting of some rather general antitrust conceptions.
Now it seems to me and I submit, the case is one of the utmost simplicity.
The facts could quickly be stated and in our submission would dispose of this case as a matter of common sense and so with the Court’s permission I shall try to sum up the facts very quickly.
There are of course many ways in which a manufacturer may lawfully merchandise his product.
He may sell it to a middleman and that the middleman resells and in this manner the product will eventually get to the public or he may choose to sell it directly to the public himself bypassing the middleman entirely.
The Antitrust law doesn’t prohibit, any — either one of these anymore than it does the other, it permits both.
Now in the oil industry refiners have used both methods.
Many of them, perhaps most of them, have chosen to sell to middlemen and the middleman resells and in some cases there are a chain of middlemen.
Some like the largest refiner on the West Coast, Standard Oil of California chooses to sell, as this record shows, chooses to sell both ways.
Through its sovereign stations, these sovereign stations it sells to a middleman and the middleman resells, but it also through its Standard’s stations sells directly to the public.
Now if a manufacturer chooses to sells directly to the public obviously he must sell through agents.
And those agents maybe wage paid employees as in the case Standard stations, but they need not be and in selling directly to the public Standard stations obviously fixes the price at which each one of those stations is going to sell gasoline to the public and that does not violate the antitrust law as a price fixing arrangement because it is a case of the owner of the property determining the price at which he himself by his agents will sell to the public.
Now there is another ancient, well tried traditional method of selling.
It’s not a lawyer’s conception and that’s the use of commission paid agents.
This is the old consignment method.
In California it is recognized by one of the sections of the civil code which is quoted in the brief, which describes a consignee, and I think I am quoting from memory, an agent who in the pursuit of an independent calling is entrusted with the possession of property of his principle, which he therefore sells on his principle’s directions and at the prices directed by his principle.
That code section comes out of the old field draft codes of New York of over a 100 years ago and thence can be traced right back to Blackstone.
Now if the Court pleases, Union Oil Company used to, used to sell to the middlemen and in 1955, it decided it would discontinue that procedure and in 1955, late in 1954 it thought it would go on to consignment in the case of price war emergencies.
It never put that policy into effect.
Instead it decided early in 1955, it would adopt that as a permanent system, system wide and it’s thus completely unlike the Atlantic Refining case reasoned before the Federal Trade Commission where the commission said Atlantic Refining would be on consignment one day and purchase and sale another.
Union doesn’t do that.
Now let me get over to the question of leasing.
On the West Coast there are over 36,000 service stations according to the statistics in this record.
In about two-thirds of those 36,000, no refiner has any possessory interest whatever.
That is to say the service station is owned by the man who operates it or he leases it from some one who has no connection with the refiner.
Less than a third are owned by refiners, because in the severe competition among the traditional seven or eight majors and the eight or nine or ten additional refiners who have been in there since the war, it has been imperative for the refiner to find an outlet for his gasoline.
And in that process many of these refiners have gone out and bought the fee in service station sites or else they have leased possessory interest.
They have built service station sites and then they have turned around, in case of Standard operated by employees, in case of others they have leased them to operators.
Perhaps one-third of the stations in the West Coast are in this category.
There are 21,000 service stations at least in California on the statistics on this record.
About 1/10th, 2400, sell Union’s gasoline up and down in California, but of this number a little less than half Union has no possessory interest at all in it, no lease, no fee, it simply deals with the dealer.
Slightly over half of this 2400, Union does own the property or has a lease on it and sub leases these to dealers.
The reason for that is just historical or — what’s the reason that Union has half of its outlets are independent, completely independent operators —
Well, because most service stations sites are held by the dealer or held by independent people who think it’s a good investment and lease directly to the dealer.
This is competition between various factors between the various refiners competing for sites and various interests, who think it’s a good investment to own a service station site directly so the company doesn’t get it.
And I think these figures will vary, but this is a pretty much the position in the whole industry, little less, as I say only about a third of the stations are owned or have any interest in the refiner themselves.
Now as I say in 1955 Union decided that it would not sell gasoline to its lessees anymore.
It continued to lease out its stations but it discontinued selling gasoline to the lessees and adopted the policy of supplying gasoline to these stations only as its agents to sell for it.
I think the record shows at the time of the hearing there were just three lessees who were still purchase and sale.
Arthur J. Goldberg:
Yes, Your Honor.
Arthur J. Goldberg:
No they sell to, they will sell to independent stations, but it is very interesting that they also consign and in the so called West Coast Oil case which was suit brought by the United States in 1950, the Court commented that more than 1200 of the people who owned their own stations preferred to be Union Oil consignees because he said and I quote, I’ve got it in the brief, “The factory setup may provide a security for these dealers, which they find more desirable than the rough and tumble of operating their own business.”
So this is how it turns out to be.
There are approximately 1300.
Little over half.
That’s right and that’s — that’s correct, that’s correct.
Now let’s get down to the terms of the consignment agreement, which have not at all been adequately presented to the Court.
The consignment agreement does not provide that the dealer must or will take any gasoline at all from Union Oil Company.
It doesn’t provide you must take one gallon, it doesn’t provide that Union must provide any gasoline to him.
All it says is that whatever gasoline Union he sees fit to take and whatever gasoline Union sees fit to supply will be handled by him as an agent.
In other words, when a man become a lessee the consignment agreement made clear, that if he was going to get gasoline from Union, he will be handling it as an agent.
He didn’t have to take any.
It didn’t preclude him from going out and buying gasoline from anybody else.
Although I should not be surprised if at the end of his one-year lease he had been getting all his gasoline from someone else, I would hardly be surprised that the company might decide that it wouldn’t lease to him again and this to me is just commonsense.
Why should it, why should it, it’s in business to find outlets for its gasoline.
The same thing would be — obviously be true if he didn’t take any gas.
If he didn’t take any.
(Inaudible) say operating a shoe store on the property instead of a gas station.
Exactly so and as a matter of fact, if the Court pleases, when a man comes to Union Oil and says I want to be a Union dealer, I want your station painted with all your colors, he is doing it because he wants to handle Union gasoline and not Joe Dox’s gasoline.
Now this brings me to Richard Simpson.
Richard Simpson was thoroughly familiar with Union system because Richard Simpson for eight years before 1956 was a wage paid employee of Union and his last job was retail representative, that is to say he was Union’s contact to the dealers.
And he was a man in his district, who put into effect the consignment system.
He knew all about it.
He knew that consignment was the only way that Union would merchandise its branded gasoline through its leased out stations.
In 1956, he had an unfortunate automobile accident.
He lost his job with the company and then he came to Union and says well I’ve lost my job but I would like to be a Union dealer.
I would like to have a station and Union said well we have one in Fresno and he said I want it and he got it, on their standard one-year lease and he signed the consignment agreement.
He brought no inventory to gasoline at that time, yes there was a dealer there was another dealer in there before him and the testimony shows Simpson said no, I didn’t buy the gasoline because gasoline was always consigned to me, I didn’t have to buy that.
He did put up 15 — $1300 to buy the tools from the former person.
It was some greases and stuff and Union Oil bought those from the former dealer and sold it to him on a conditional sales contract (Inaudible).
Now nobody coerced this gentleman into taking this station, the word ‘coercion’ is being used, nobody coerced him, he wanted to be a Union dealer, he wanted to operate a Union station.
He knew the terms on which it would deal, he took the deal.
Now he testified during the deposition that before the expiration of his one-year term, somewhere he gathered the idea that because Union directed the prices at which he as its agent was to sell its gasoline consignment was illegal, pursued as pricing fixing agreement.
Now – one of the Court asked how long was it he observed consignment?
He filed an affidavit in which he said he observed it, too much — 57 less then one-year after he first went in.
And then his affidavit said from then on for a while he generally observed it and then beginning about March of 1958, he did anything he pleased absolutely.
Although he got the idea that this was illegal nevertheless he asked for another one-year lease and got it.
He choose to continue with the consignment agreement believing it to be illegal and then he began to violate that agreement, ignoring his instructions that were given to him as the company’s agent, he charged more or less as he saw fit when he saw fit.
Now what did Union do?
It didn’t sue him, to try to compel him to honor the agreement.
It didn’t try to cancel the lease for the consignment, it did not refuse to supply him with gasoline, it suffered the whole thing very patiently outside of protesting to him and waited the passage of time and waited the efflux of time and when his term expired, when on the evening of May 22nd 1958 under the laws of the State of California, he no longer had any tenure or a stake in this property as was later adjudicated in an unlawful detainer suit, Union with prior notice declined to give him a new lease.
It declined to give him a further stake in its California real property.
And when — he refused to vacate, he brought this suit and got a temporary restraining order against our — throwing him out and so waited patiently till we had a hearing and then the injunction was denied and then we got — we sued him in the State Court, got a unlawful detainer and we recovered possession.
Now those are the facts of this case.
Having been denied an injunction to keep him in permanent possession, he amended the complaint to ask for damages.
And the damages he asked for were $150,000 treble because Union refused to give him a new lease on its property.
Now stripped of all verbiage what is Mr. Simpson’s grievance?
It is if Union refused to do business with him on his terms, he wanted to do business with the Union, he wanted to occupy its valuable service station site in which it had invested maybe $70,000, he wanted to sell its gasoline but on his terms.
Well there is no foundation in California law for that kind of claim, and so he turned to a federal antitrust violation and he added to makeweight claim.
And when he first sued, his contention was that on March 1958 he wanted to lower his price and we won’t let him do it on appeal to the idea that maybe we were over pricing the public, but when he amended, it flipped the other way entirely.
His compliant is that he lost a $1,000 during the term of the two years because he could not charge more than we would allow him, that we made him keep his prices down.
That is of course a makeweight and an afterthought.
Now if the Court pleases this is in my mind a remarkable antitrust case, because it is an antitrust case without monopolization charge and without conspiracy charge.
There is not only but one defendant, which you could have it a conspiracy case, but the case involves the conduct of that one defendant acting alone and it is neither conspiracy or monopolization.
The complaint does not charge conspiracy and in the course of the pretrial conferences counsel told the Court repeatedly, this is not, I am quoting now, “This is not a conspiracy case.
This is a case of the action and activities of a single defendant,” and he said again, “the complaint does not charge conspiracy,” it says “These contracts are in restraint of trade.”
And so the issue of legal validity in this case comes down to one thing, is the consignment agreement between Union and a counselee a violation of the Sherman Act either taken alone or in conjunction with the fact of a lease.
There is no conspiracy with any other manufacturer.
There is no conspiracy charge, factual conspiracy charge with the dealers.
Now, there are two basic reasons, why in our judgment and our submission the plaintiff is not entitled to recover.
As I have just submitted both claims for 150,000 and for the 1,000 start with premise that consignment agreement was unlawful under the antitrust laws as a price fixing agreement.
With that premise gone, the case is gone obviously.
If consignment is valid, it was his duty to observe the prices and he couldn’t complain because he couldn’t charge more.
Obviously if consignment was valid, he violated it.
Union Oil Company would have been idiotic to continue to give leases to a man who had breached a legal agreement.
So I say that this is the basic premise of the case.
Now the Court of Appeals, however, it didn’t reach these questions.
To it there was another ground for why the plaintiff could not recover and so it assumed, it did not decide it assumed arguendo these claims of illegality.
It said, it simply stated it’s this, “That whether Union did in someway or other violate the antitrust laws by virtue of consignment and lease, neither the lease, nor the consignment agreement inflicted any damage on Simpson.”
Now this is not a question of how much.
This is a question of causation, namely, that the two items of damage which he claimed are not the result of the, of supposed illegal violations.
Now I must confess that I very much dislike discussing this case in the context of an assumption that we violated the law.
And yet the Court of Appeals did it and I suppose that the questions which appeal to this Court on petition for certiorari must have had some relation to what the Court of Appeals did.
And so with just a slight touch upon validity for the moment I am going to move over to the second aspect of the case and come back to the questions of violation later.
I submit if the Court pleases that consignment in which of course is implicit that the consignor determines the price at his property sold is not remotely illegal.
There is nothing illegal —
If my words meant to say that an owner or consignor always sets the price, I of course overstated it.
It is true that sometimes a consignor will allow the consignee his discretion in determining the price.
But it’s more frequently the owner himself who determines the price.
Now there is no cases that talk about price fixing or horizontal conspiracy have nothing to do with this case and cases that talk about the illegality of vertical price fix, the fixing of someone’s resale price had nothing to do with this because we do not hear have a sale and resale.
There was not sale to Mr. Simpson and a resale by him.
Even if there were, as we have submitted in the brief it would be validated by the California Fair Trade Act and the McGuire Act.
Now with that just so I don’t leave the impression that this — that we’ve done anything illegal, let me move on to the second aspect of this case.
Did he sustain any damage caused by the alleged illegality?
Now no matter how phrased Mr. Simpson’s main claim is a claim for damages for Union’s refusal to give him a new lease.
Now suppose when Mr. Simpson first saw the lease in 1956 he had said to Union I want a lease, but I won’t be consignee.
I insist on buying your gasoline and Union said sorry, we are not selling gasoline to lessees, we only make them agents and suppose he said, I’m not going to be a consignee, because a consignment agreement is illegal and Union said, well we are not going to lease to you and didn’t.
Could Mr. Simpson have come in to sue it and compel it to lease a station to him or could he have claimed damages for its refusal to give him a station, because for suit it’s reasons for not wanting to lease to him was his unwillingness to enter into an agreement which arguendo we assume for the purposes would be illegal.
Now I submit our answer is obviously not, he could not recover.
Antitrust law imposes no duty on A to deal with B.
Whatever A’s reasons maybe so long as it’s A’s unilateral decision, and so long that there is no monopoly of course, and there is no illegal monopoly of ones own brand.
It’s not illegal for one to refuse to deal with another even though his reason is that the other refuses to follow a course of conduct which would be illegal to bind him to buy agreement.
I take it that, that is what Parke-Davis held.
So much of the Colgate doctrine Parke-Davis has still maintained.
Now then what greater right to future leases did Mr. Simpson get, because instead of refusing to sign a consignment agreement, he signed it and then ignored it.
Certainly his rights were not enlarged by the fact that he did enter into that consignment agreement for a space of time.
I submit he did not thereby acquire the right to still further leases.
During the existence of his consignment agreement and lease, if they were illegal, Simpson could have repudiated them, but even so while repudiating them he could not continue to exercise rights that he had acquired from him, he could not say they are illegal, but I still insist upon the rights I got from them and as I take it that is the reasoning of, I believe it was Judge Learned Hand in Ring versus the Authors League of America which we cite in our brief.
Your Honors will perceive that Simpson’s business as a dealer was created by the very documents he now challenges as illegal.
Until that lease and that consignment Mr. Simpson never was, and without that lease and consignment he never would have been a Union dealer.
Now the rationale of the Ring decision is that one may not voluntarily put himself into a position or relation, then claim it be illegal and yet insist upon maintaining rights derived solely from them, but Simpson’s case is even weaker than that.
Here the duration of the lease and of consignment ended by their own terms in the passage of time and I submit that Simpson cannot claim a right to a new lease by virtue of the fact that for a season in the past he had been a Union dealer, solely by force of a now expired lease and agreement which he claims to be illegal.
Midnight May 22, 1958 Simpson no longer had any estate or tenure in Union’s Property under the laws of State of California and the essential question therefore in this branch of the case is whether federal antitrust law somehow imposed on Union a duty to do what state law did not require him to do, give him a further term.
You see what Mr. Simpson seeks is much more than a declaration that his consignment contract was illegal, that’s a moot question, because that consignment no longer exists.
No doubt the Attorney General of the United States could bring a prosecution against Union criminal or sue to enjoin the consignment arrangements if it thinks its illegal, but so far as Simpson is concerned, the question of whether his agreement was legal or illegal is a moot question.
I submit that the consignment and lease even granted and assumed to be illegal did not cause your supposed damage of not getting a new lease.
Byron R. White:
Byron R. White:
Yes, I would — yes Your Honor.
Byron R. White:
He could break it.
I would make exactly the same argument whether it’s consignment or resale, because for the purposes of this argument I have assumed arguendo that consignment is illegal and the only basis on which I can make that assumption is if you are free to —
Byron R. White:
Byron R. White:
Let’s assume if the Court please, I’ll take that up now while we’re on it.
Let’s assume if fixing the sale price under consignment violates the antitrust laws, it must do so because the antitrust law conceives of consignment as sale and resale.
So let’s assume that’s what it was.
We have in California a fair trade law, quoted in the appendix to our brief which says that you can buy your agreement fixed demands resale price and of course the McGuire Act recognizes that wherever you have a state law.
Now here is an agreement that says a written agreement that says, he’ll honor this price.
Counsel in his reply brief has said well something about non-signers, but I’m not talking about non-signers.
In all these consignment agreements they are all signers and the question is could we have enforced that against him.
Counsel has also said well the McKesson & Robbins case says you can’t enforce a fair trade agreement where you sell in competition and I don’t dispute that, but we don’t sell in competition.
The record shows if Union has 12 stations in California maintained by it’s own employees, training stations, 11 of them in Los Angeles area one in San Francisco.
Now as the Chief Justice knows the City of Fresno where this station of Mr. Simpson was located is about 200 miles from the one and about 200 miles from the other, they are not in competition, in other words Union Oil Company is not selling to the public in Fresno unless I am right that it was selling to it’s agent in which event Mr. Simpson was not it’s competitor and if Mr. Simpson bought from them and resold then Union was not selling in Fresno and so I’ve always contended that even if consignment was resale and even if we did have a resale price fixed here it was perfectly legal under the California Fair Trade Act and the McGuire Act.
I’ve taken up that point out of order, but I was addressing it to a comment of Your Honors.
Now let me take the second aspect of this case, the claim $1,000 damages.
Still assuming that the consignment agreement violated the law, the Court of Appeals said the man says he suffered a $1,000 damages because he couldn’t charge what he wanted, but he said he did charge what he wanted whenever he wanted to charge more or less he did it, how could he say he could not?
Well Mr. Simpson says well the contract bound me, but if the contract was illegal he wasn’t bound to or pay any attention to it and he didn’t.
Then counsel says or his client says well I thought that if I didn’t observe the prices I wouldn’t get a new lease and so we’re back to the first point again.
Certainly people in business are constantly confronted with economic choices, business relations if they follow one course the relation will exist, if they follow another will not, and I assume that Parke-Davis in saying that you could announce to your customers if you have a policy and that you won’t deal with them if they ignore the policy, would give us a right at the end of the one-year lease if we didn’t like his pricing policies to discontinue.
There is on this one more point if the Court pleases?
Where A agrees with B to perform a certain line of conduct and from time-to-time it does so, he cannot then recover damages from B on the theory that B could not have compelled him to perform the contract for illegality, I submit that to be true.
A party to an illegal contract may ignore it if he wishes.
If sued illegality would be a defense, he cannot however observe the contract and then recover treble damages or having done so.
Now this isn’t a question of pari delicto and it isn’t a question of unclean hands.
Counsel has tried to inject those issues into this case, they are not here.
The point is that when I as Mr. Simpson choose to sell at a certain price I’m selling at that price, it is my act not somebody else’s act.
And so I submit that the Court of Appeals was entirely correct in both of its decisions on the $1,000 damage and $150,000 which is assuming that somehow we violated the Sherman Act arguendo, nevertheless there could be no recovery because the aspects of damage which he claimed are not caused by the alleged illegality.
Byron R. White:
There’s quite a history.
Byron R. White:
He was motivated by — in part by McKesson & Robbins.
McKesson & Robbins would give them a problem, for example in Los Angeles.
They could not have fair traded in my judgment because they had 12 stations there of their own.
We will recess now.