Texaco, Inc. v. Hasbrouck

PETITIONER:Texaco, Inc.
RESPONDENT:Hasbrouck
LOCATION:California Superior Court, Marin County

DOCKET NO.: 87-2048
DECIDED BY: Rehnquist Court (1988-1990)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 496 US 543 (1990)
ARGUED: Dec 05, 1989
DECIDED: Jun 14, 1990

ADVOCATES:
Michael R. Dreeben – on behalf of United States and FTC, as amici curiae, supporting the Petitioner
Peter M. Fishbein – on behalf of the Petitioner
Robert H. Whaley – on behalf of the Respondent

Facts of the case

Question

Audio Transcription for Oral Argument – December 05, 1989 in Texaco, Inc. v. Hasbrouck

William H. Rehnquist:

We’ll hear argument next in Number 87-2048, Texaco, Inc. v. Ricky Hasbrouck.

Mr. Fishbein.

Peter M. Fishbein:

Mr. Chief Justice, and may it please the Court:

The Ninth Circuit below held Texaco liable for violation of 2A of the Robinson-Patman Act for engaging in an age-old practice, indeed one which is economically necessary, of selling to wholesalers at a lower price than it sold to retailers on the condition… on two conditions:

One, that the wholesale discount was not calibrated just to meet the wholesaler’s cost of wholesaling; and–

Two, that the wholesaler, who was an independent business entity, made an independent decision to pass some of that discount on to its retailers; i.e., it sold its retailers at a price that was different from Texaco’s direct sale to its retailers.

The plaintiffs who recovered damages for this are 12 retail service stations in Spokane, Washington.

They were awarded treble damages during a period January 1972 through April 1981, based on Texaco’s sales to Dompier Oil Company, a wholesaler, at a higher price than it sold directly to the Plaintiff retailers.

The record shows that Dompier purchased gasoline from Texaco at the standard wholesale discount off the retail tank wagon price that Texaco gave to all its wholesalers in the Washington and Oregon territory.

Mr. Fishbein, how many wholesalers were there in the territory?

Peter M. Fishbein:

Well, the record indicates that there were two wholesalers in Spokane and a substantial number throughout the states.

I don’t know the exact number, Your Honor.

But does the record show there were any others in the same competitive market?

Peter M. Fishbein:

There was a nonbranded wholesaler in Spokane and one branded wholesaler.

So there are… there are two?

Peter M. Fishbein:

That’s correct.

That… that set the standard.

And both of them also sold at retail, didn’t they?

Peter M. Fishbein:

No, Your Honor.

Dompier, which is the wholesaler at issue here, during part of the period of damages, sold only at wholesale.

During part of the period and a later period it sold both at wholesale and at retail.

Your Honor, the way the damages were advanced by the plaintiffs here is they took four retail stations in Spokane, and the damages were based exclusively on the effect of the consumer sales from these four stations as they affected the plaintiff stations.

Those four were all Dompier-supplied stations.

The record is clear that during the beginning of the damage period, from January 1972 through July ’74, each of those four stations was an independent retailer, had no direct relationship with Dompier, and Dompier bought and then made an independent price decision to sell to those four retail stations.

They, in turn, made an independent price decision as to what price to charge the consumer.

So that for part of the damage period, Dompier acted exclusively as a wholesaler and not a retailer, and the only damages claimed by plaintiffs for that part of the damage period were the sales from Dompier to these four stations.

That is why the district court, in footnote 4 of its opinion, specifically said prior to 1974 Dompier Oil Company did not operate any retail stations but as a distributor sold Texaco gasoline to retail stations.

Now, Your Honor–

Would… would you concede liability for the time when Dompier was acting as a retailer?

Peter M. Fishbein:

–No, Your Honor.

Peter M. Fishbein:

The issue for the time when Dompier was acting as a… both a wholesaler and a retailer is an issue that’s been much debated within the Federal Trade Commission and the courts of appeals which has been recently discussed in Judge Starr’s opinion in Boise Cascade.

It goes back to the FTC’s opinions in Doubleday and Mueller, and it’s a question of when… when an entity is performing both functions, what kind of a discount or what kind of a lower price can the supplier give?

Does it have to cover only the retail functions?

Can it… can it give the wholesale discount for all sales even though some of them are on retail?

That’s an issue that is being much debated in the lower courts and the Trade Commission now which would have to be resolved as to the period subsequent to 1974.

But that issue is not before this Court because that wasn’t addressed in the Ninth Circuit opinion.

That would have to be an issue that the lower courts would have to deal with on remand if the Ninth Circuit decision is reversed.

The issue that the Ninth Circuit opinion presents to this Court, because that’s the way the case was tried and that’s the way the record that clearly is the part of the damage period is directly assailed to an entity Dompier is exclusively a wholesaler and makes an independent decision to sell to its retailers at a certain price.

That is the issue before the Court, and that’s the issue we suggest the Ninth Circuit departed from logic and economics and precedent when it said that alone is sufficient to create a liability under Section 2A.

Mr. Fishbein, I think I understand that the jury was given an instruction at trial, number 20, which told the jury that it could infer the likelihood of injury to competition from evidence that Texaco had discriminated in price in the sale of gasoline between different purchasers who were in competition with each other and that the price difference was substantial and it lasted for a substantial period of time, the so-called Morton Salt type instruction.

Peter M. Fishbein:

Yes.

You may… your client did not object to that instruction, I take it?

Peter M. Fishbein:

That’s correct.

That’s the standard Morton Salt instruction.

What my client did object to, Your Honor, was instruction 23(A) which converted the Morton Salt inference as it was enunciated by this Court in Morton Salt into a very different inference because instruction 23(A) told the jury that Dompier, in effect, would be in competition with the plaintiffs if any of Dompier’s customers were in competition with the plaintiffs.

So when you take instruction 20 and 23(A) together, what the jury was instructed is that the discriminatory price, the price difference between Dompier as a wholesaler and the plaintiffs as a retailer itself and alone would justify the Morton Salt inference because Dompier’s customers, not Dompier, was in competition with the plaintiffs.

Now it’s our position… and, of course, the Ninth Circuit dealt with the Morton Salt inference rather extensively in its opinion, and it’s our position, Your Honor, that that is a misapplication of the Morton Salt inference.

In effect, what that does is convert a traditional time-honored, economically required policy of selling to a wholesaler at a lower price than a retailer into an automatic inference that that in itself effects competition at the retail level, whereas Morton Salt, of course, was a sale by a seller to two competing buyers who were competing with each other.

Now it’s one thing to say that it’s self-evident that if over a substantial period of time a seller is selling to two competing buyers at substantially different prices that that is going to affect the competition between them.

It’s wholly different, as the Ninth Circuit did in this case, and as the jury instructions required the jury to do, to say that when a wholesaler… when a retailer, a supplier sells to a wholesaler at one price and a retailer at a lower price, that that in itself said that it self-evidently is going to affect competition between the wholesalers, retailers and the direct buying retail.

Mr. Fishbein, the Robinson-Patman Act does prohibit discrimination in price between different purchasers of commodities of like grade and quality.

Now what was it about this case that prevented that language from applying to your client?

Peter M. Fishbein:

There are two parts of the Robinson-Patman Act language that don’t apply in this instance, Your Honor.

One is, as you pointed out, it has to be the person, i.e. Texaco, has to discriminate in price.

It’s our position that this is not a discrimination because, when you charge different prices to people at different levels of the distribution chain, that is not a discrimination within the meaning of the Robinson-Patman Act.

Our second argument–

Well, you… you think there’s… is there something then invidious in the notion that the word “discriminate” conveys?

Certainly, ordinarily “discriminate” means to differentiate.

Your Honor, in an oft-quoted statement by Representative Utterbach, who was the conference sponsor of the Robinson-Patman Act, he pointed out that discrimination means a difference or a differentiation only in those circumstances where the two people being differentiated have some reason or some justification to be treated the same.

Any difference doesn’t automatically mean a discrimination.

The normal English language use of discrimination seems to us to mean something more than just a difference.

It means a difference in a circumstance where you would expect or require equal treatment.

Now that’s certainly true when you have a supplier selling to two buyers who are at the same level in competing with each other.

We suggest it’s certainly not true where you have a supplier selling on one hand to a wholesaler, on the other hand to a retailer who are at two different levels.

Mr. Fishbein, how many courts have adopted this theory that you’re… it’s not a discrimination?

I know that everybody’s heard Congressman Utterbach’s comment for 50 years, but what… what’s the principal judicial decision that says a mere price difference is not a discrimination?

Peter M. Fishbein:

–Well, Justice Stevens, I’m sure that you’re aware, the principal authority you’re dealing with at this point is this Court’s opinion in Anheuser-Busch, which is its opinion by Justice Warren quite some time ago which has discouraged lower courts from applying this literally.

It’s our position in this case that Anheuser-Busch, while it has language in it that says a difference is a discrimination, is totally distinguishable from this case and shouldn’t be applied–

Well, I understand you can distinguish all or most of these cases, but I was just wondering.

Most of… most… most of the cases seem to say a price differential is a… is a discrimination but it’s not unlawful unless it has the adverse impact on competition at either the first, second or third level.

And you… and why aren’t you also troubled by the language, “customers or either of them”?

Peter M. Fishbein:

–Well, “customers or either of them” is a different issue, Your Honor.

Under the Robinson-Patman Act, as I was saying to Chief Justice Rehnquist, there are two requirements and the language of the act before it applies.

One is there has to be a discrimination.

Correct.

Peter M. Fishbein:

The second, that discrimination has to affect competition.

Correct.

Peter M. Fishbein:

That’s where the “customers of either” come in.

It can affect competition of the customers of either.

Right.

Peter M. Fishbein:

There are two reasons why we say that this practice doesn’t come under the language.

One is discrimination, and the other is it’s not the discrimination between the wholesaler and the retailer that has the effect on competition down at the lower level.

In a case like this, where you have different prices at different levels and you have an independent wholesaler, it’s that separate decision by the independent wholesaler what to charge his retailers that it causes the impact on competition.

Can you give me an example of a case in which the statute would be violated at the second level?

Peter M. Fishbein:

Where it would be violated?

Yeah.

Peter M. Fishbein:

At the second level?

Where you have substantial price difference between the prices charged to a wholesaler and a retailer, could that ever adversely affect competition between the two customers or customers of either… either of them?

Peter M. Fishbein:

Well, Your Honor, it is our position that where you… where you have a difference in price it’s not between people of the same level, two wholesalers or two retailers, but if people in different distribution levels–

You say if they’re different… different functional levels, it never violates the statute?

Peter M. Fishbein:

–It does not violate the standard.

What if there was an agreement, pass-on agreement?

Peter M. Fishbein:

Oh, yes, Your Honor.

If there was a sham or a pass-on agreement or a supplier set up a wholesaler and required him to pass on or it was a phony situation where he was using that to pass on–

Well, what about… what about knowledge over a long period that the pass-on was being given?

Peter M. Fishbein:

–I think, Your Honor, that there are two answers to that.

First of all, knowledge is not an issue in this case based on the Ninth Circuit’s opinion and… and the instructions below.

Beyond that, it’s our position that knowledge is irrelevant to this issue and is not of material fact because knowledge doesn’t add anything.

If the difference at the two levels is not a discrimination, then knowledge is irrelevant, and if it is the independent decision of the wholesaler that causes the effect on competition, knowledge that the wholesaler is going to do that on behalf of the supplier is also irrelevant.

Another way to answer that question, Your Honor, is to ask, what could the supplier do if it has a dual channel distribution system and it is selling to a wholesaler at a price that presumably covers his cost and provides for a profit and that wholesaler is aggressive and either is taking lower margins than other wholesalers or is willing for a period of time to try to expand its business and is selling by passing on the discount.

Given the facts like this situation, where the wholesaler is an independent entity and the supplier is not engaging in vertical price maintenance and the wholesaler has the right to make those decisions, knowledge doesn’t help the supplier at all.

There’s nothing the supplier can do to prevent that other than to cut out the wholesalers or cut out the retailers, which is not what this statute is designed to bring about.

I suppose you could also say there’s an independent retailer?

Peter M. Fishbein:

Well, there might be.

I mean, I don’t know that it’s relevant to this.

No, but an independent retailer might not pass it on.

Peter M. Fishbein:

Yes, that’s right.

That is exactly right, Your Honor.

He might prefer a profit.

Peter M. Fishbein:

Yes.

When a supplier sells to a wholesaler, it sets that… that price presumably based on what it has to pay in a competitive market to get the wholesaler to do the work, plus it has to add enough on so the wholesaler will have a profit which will encourage the wholesaler to carry out those functions.

Mr. Fishbein, how do we know who’s a wholesaler and who’s a retailer?

Peter M. Fishbein:

Well, Your Honor–

And certainly in this case there was some… I guess Gull and Dompier were doing both?

Peter M. Fishbein:

–Your Honor, again, in this case the damages are based solely on the activities of Dompier.

There’s no question that until the middle of 1974 Dompier was exclusively a wholesaler.

We know he was a wholesaler.

Subsequently, he was both a wholesaler and a retailer.

And… and if we had that subsequent situation in front of us, how do you distinguish?

I mean, your rule couldn’t apply.

Peter M. Fishbein:

No.

That is what the D.C. Circuit has been grappling with in Boise Cascade, that one has to separate out the wholesale and the retail functions and make a determination as to what kind of price discounts can be given overall for each one.

But that is clearly not our case in the period through the middle of 1974, and since the plaintiffs’ damage evidence consisted of a single damage number for each plaintiff through the entire period, and there was no evidence presented or no way the jury or anybody else could break out the damage during various subsets of this period, necessarily part of the damages that the jury found was for this period from January 1972 through July of 1974, and necessarily that depended on a legal conclusion that it was a violation of the act for Texaco to sell to Dompier exclusively as a wholesaler.

Therefore, if that proposition of law that the Ninth Circuit enunciated is incorrect, this… this judgment has to be reversed.

Your Honors, I would like to reserve a few minutes for rebuttal.

Very well, Mr. Fishbein.

Mr. Dreeben.

Michael R. Dreeben:

Thank you, Mr. Chief Justice, and may it please the Court:

The Ninth Circuit ruled that a supplier’s use of a functional discount constitutes price discrimination when the wholesaler passes on a portion of the discount to retailers.

The supplier cannot show that the functional discount is cost based, and the retailers who buy from the wholesaler compete with other retailers who buy directly from the supplier.

The United States and the Federal Trade Commission believe that the Ninth Circuit’s rule should be rejected.

A supplier should not be held liable for the independent pricing decisions made by a wholesaler who receives a legitimate functional discount.

Mr. Dreeben, is this some sentence or paragraph of the Robinson-Patman Act that the Federal Trade Commission has interpreted to reach this conclusion?

Michael R. Dreeben:

Yes, Your Honor.

The interpretation of the language of the Robinson-Patman Act that’s in question here is Section 2(a), which, as you read, provides that it’s unlawful for a person engaged in commerce to discriminate in price where the effect of such discrimination may be substantially to lessen competition and to cause the competitive effects described in the statute.

We believe that the… the word and the language of the statute that should be interpreted here are the effect language.

The question is whether a discrimination between a wholesaler and a retailer in a legitimate functional discount causes the requisite anticompetitive effect described in the statute.

The Federal Trade Commission believes that it does not because the primary purpose of a functional discount is to shift distribution functions from a supplier to a middleman who assists in getting the goods to market.

The interpretation of the language effect is that… is the identical interpretation given by the 1955 report of the Attorney General’s national committee to study the antitrust laws.

That committee also took a look at these issues and felt that the appropriate interpretation of the statute is to look to the word “effect” and to hold that a legitimate functional discount does not cause the requisite anticompetitive effects.

There are two reasons primarily–

How do you identify a legitimate functional discount?

Michael R. Dreeben:

–Yes, Your Honor.

The… the interpretation of legitimate functional discount that we bring to those words involves three elements.

The first is that the wholesaler is not in fact competing with retailers for–

Did the wholesaler here satisfy that test?

Michael R. Dreeben:

–As to the early marketing period in which Dompier was selling to independent retailers, we believe that he does.

Yes, and what about the latter period?

Michael R. Dreeben:

As to the latter period, we believe that he does not.

He integrated vertically–

Do you agree there was a violation of law during the latter period?

Michael R. Dreeben:

–Well, the Federal Trade Commission hasn’t taken a position on that, but I believe–

But under your test, would–

Michael R. Dreeben:

–Under… under the test that we proposed, the discount, once Dompier is performing the retail functions, would disqualify him from the discount.

–So you agree that at least as to liability for a part of the period, the judgment should be affirmed?

Michael R. Dreeben:

Justice Stevens, we do believe that as to part of the liability period–

And specifically what error was made in the trial court, in your view, if any?

Michael R. Dreeben:

–The instructions to the jury, Justice Stevens, did not isolate any point at which Dompier was selling only to retailers for purposes of damages and instruct the jury that… that it should not impose damages unless it concluded that the function–

Is it your view there was a… a necessary instruction was omitted, or was there any error in the instructions that were given?

Michael R. Dreeben:

–I think the instructions that were given were extraordinarily vague on the point and that there–

Was any of the instructions, in your view, erroneous?

Michael R. Dreeben:

–Yes.

The instruction to the–

Which one?

Michael R. Dreeben:

–I believe that if the combination of jury instructions 18 and 23(A) would permit the imposition of liability on Dompier for the time when he sold to retailers even when the discount that he received which occasioned the price discrimination was, in our view, a legitimate functional discount, and since the jury wasn’t told to exclude that portion of damages, to that extent the judgment is infirm.

The second–

Mr. Dreeben, at the petition stage, I thought the brief of the Solicitor General said they thought that they were acting as retailers during that early period, and the position taken by the Solicitor General in the brief at that stage is quite different than what it is now.

Michael R. Dreeben:

–Justice O’Connor, to clarify our position–

I would appreciate it if you would.

Michael R. Dreeben:

–At the petition stage, the question was whether this Court’s review was warranted, and we believed that the ultimate importance of the issue that is raised by Petitioner to the judgment in this case is somewhat minor because the damages period ran from 1972 to 1981, and the portion of that period during which we believe Dompier’s discount was lawful was only a very early part of the period.

Notwithstanding that, the jury was not given any way to break out the lawful period from the unlawful period, and thus, we believe on remand, the court of appeals might conclude that the entire period is tainted.

This Court might also reach that judgment.

Did the… did the defendant tender instruction which would have required them to break out those two periods?

Michael R. Dreeben:

The defendant objected to the instructions that were given–

No, that’s not my question.

Michael R. Dreeben:

–Justice Stevens, I’m not aware that they proposed a specific instruction that said you have to look at the discount–

There’s a material legal difference between the two periods of time.

Michael R. Dreeben:

–Well, yes, the defendant did object to having any liability imposed on it for that period, but it didn’t request an instruction to the jury to make that determination.

It simply said the jury shouldn’t be given that information to decide.

At the cert stage, we also–

Do you take the position that the size of the discount and its duration and effects would ever matter?

Michael R. Dreeben:

–Yes, they would matter.

They would bear, Your Honor, on the question of whether the discount was indeed a legitimate functional discount.

We think that in addition to a requirement that the wholesaler and the retailer not compete, there is also a requirement that the wholesaler have to be performing some functions that are characteristic of a wholesaler, such as distributing the product, absorbing credit risks, actually searching out customers to sell to on resale, and that that inquiry is a qualitative kind of judgment that is made, could be made by a court in the summary judgment context and would not be difficult to administer.

But once it’s determined that in fact a wholesaler is receiving a functional discount, we don’t believe that there should be a further inquiry that requires the supplier to justify that discount based on the costs incurred by the wholesaler.

We think that would be completely impracticable.

Mr. Dreeben, you… you answered the Chief Justice, but… I mean, you said it but I don’t understand why it’s so.

You say that the word “effect” of such a discrimination, you say that it has no effect of injuring the customers of… why doesn’t it have an effect of injuring the customers of the seller if you sell it to a wholesaler at a lower price who can thereafter sell it at a lower price to other customers of his who compete with customers of yours?

Michael R. Dreeben:

Well, there are two reasons, Justice Scalia.

The first is that there is the independent decision of the wholesaler which the supplier cannot control.

That’s… that’s the same case when you… when you sell it to two individual people who then resell.

I mean, that happens often.

Michael R. Dreeben:

It’s not quite the same as… as the case that this Court confronted in Falls City v. Vanco, where there, in fact, were two different prices given to people at the same functional level.

It’s different when you give a cheaper price to a wholesaler.

That’s the only way the wholesaler can be in business.

But more fundamentally, we think the word “effect” has to be read in light of the purposes of the Robinson-Patman Act.

Congress passed this for the purpose of protecting multi-leveled distribution systems.

Wholesalers were the very persons who came forward and requested the act in the first place.

You’re not relying on the language then.

You’re just telling me, you know, effect doesn’t mean effect.

Michael R. Dreeben:

We’re relying on an interpretation of the language that would construe it in light of Congress’ purposes, which is pretty much the way this Court has handled a number of Robinson-Patman issues in the past.

The language of the statute has been recognized to be somewhat inexact, and in order to give effect to what Congress intended, the Court has… has taken a close look at the precise types of pricing arrangements.

Now a discount to a wholesaler being exactly what Congress wanted to foster and preserve multi-layered distribution systems, it seems to me that it would be inconsistent with that intent to then give effect the kind of reading that was given to it by the court of appeals.

Maybe… maybe Congress only wanted to foster such discounts to the extent that the discounts take into account the function that the distribution system performs, which means to the extent that they’re properly price based.

Michael R. Dreeben:

Well, to the extent that Congress took a look at that issue, it did not prescribe any kind of a test that would be workable.

It would not be a workable test for suppliers to have to investigate the cost of their wholesalers.

Wholesale discounts are set with the aggregate… I see that my time is up.

Finish answering the question.

Michael R. Dreeben:

Thank you, Your Honor.

Wholesale discounts are set in the aggregate looking at the average cost that a supplier is going to face looking at a number of different wholesalers who he deals with over a long period of time.

Michael R. Dreeben:

The Ninth Circuit’s test really requires an ongoing adjustment of the wholesale discount as the wholesaler becomes more efficient.

So to the extent that the wholesaler decides to become price aggressive or more efficient in… in performing his distribution function, the Ninth Circuit would require that the wholesale discount be contracted, and then you would have wholesale discounts that varied between every different wholesaler, and you would be right back in the situation of price discrimination between wholesalers, which is something that the act also prohibits.

Thank you, Mr. Dreeben.

Mr. Whaley, we’ll hear now from you.

Robert H. Whaley:

Mr. Chief Justice, and may it please the Court:

I want to divert from my prepared remarks for a moment to answer a couple of questions I think were important that were asked by the Justices.

First, there is no instruction before this Court that you are asked to rule should have been given and was not given.

The only objection to the instruction that permitted damages to be awarded for the pass-on of a discount to the retail level was instruction 18.

Texaco proposed an instruction that was virtually identical to that instruction, and it’s attached to our brief.

Texaco’s only objection to that instruction was based upon proximate cause.

Justice O’Connor, you asked about instruction 20 and whether there was a proper objection in 23(A).

You were told by Texaco that they objected to 23(A) and that is before the Court.

That is not true.

If you go to the transcript of the testimony at pages 3156 through 3158, you will find that the day before, Texaco had proposed a factual functional discount instruction that the… that the jury should be given to review the functional discount as a matter of fact.

The next day… the court the day before refused to give that instruction.

The next day the court wrote its own instruction, and it became 23(A).

I asked the court not to give the instruction unless Texaco wanted it to be given because it would just create error if they didn’t want it.

It would be unnecessary.

The judge then asked Texaco on the next page… we’re now looking at 3156 through 3158… whether or not that instruction should be given.

This is what the court said.

Coming back to the court’s proposed instruction, then–

Where are you reading from, Mr. Whaley?

Robert H. Whaley:

–The record, Your Honor.

It’s not in the joint appendix.

Not the appendix?

Robert H. Whaley:

No, sir.

The record is downstairs.

The question was asked whether that… that instruction, the court’s instruction 23(A), should be given.

The court said, coming back to the court’s proposed instruction, even though Texaco does not agree with the language, what is Texaco’s position as to whether or not it should or should not be given.

Texaco replied that they reserve their objection to the instruction had not been given the day before.

Robert H. Whaley:

So without waiving the argument as to that prior instruction, I would prefer that this instruction be given rather than no instruction.

There is no instruction here.

You are being asked to grant an immunity as a matter of law that Congress didn’t grant to assail to a purchaser that Texaco denominates as a wholesaler regardless of the impact on the retail level of competition.

This immunity has never been extended by the Court in the past.

This Court is loathe to grant immunities to antitrust statutes.

It typically looks at the language of the statute to see if the violation fits within the statutory language.

xxx that you rely on especially for your position?

Robert H. Whaley:

Yes, Your Honor.

There’s at least two.

Perkins v. Standard Oil, this Court considered a varied distribution circumstance that’s involved in this case.

That’s the closest?

Robert H. Whaley:

That’s the closest.

A lower court in FTC v. Standard Oil took the same position.

I might tell the Court that the FTC has not been consistent in its position on this type of injury.

Prior to the passage of the Robinson-Patman amendments, that FTC took the position that mere pricing at wholesale versus retail versus the jobber level was unlawful unless it was cost-justified because it could impact competition.

You will find those cases in South Bend Bake Company v. FTC in the 1920s.

The FTC took the exact same position in 1941 when it sued Standard Oil.

It has taken the same position in the Doubleday case, saying that a functional discount must be viewed under the statutory language, does it impact competition?

In the Mueller case, it held that a functional discount was not immune as a matter of law because it could be abused.

In the latest Boise Cascade case the Ninth Circuit said… excuse me.

The FTC said that a functional discount should be reviewed by the cost justification language of the statute.

If this Court is disposed to consider whether or not a 12(b)(6) type motion could be made in these circumstances, it should look at the evidence in this case of what type “legitimate functional discount” was allegedly involved.

For instance, Texaco’s president said in a letter that the distributors such as Mr. Dompier had shed their wholesaler functions and were no longer performing those functions, and they were not using them in the distribution process itself.

He said, the president of Texaco, that the magnitude of that discount which was not being used was causing dramatic shifts of sales from the two classes of trade we have in conflict right here; and he said that it was threatening the viability of thousands of Texaco retailers.

Was that after ’74?

Robert H. Whaley:

He said that this trend had begun in several years–

The letter was after 1974?

Robert H. Whaley:

–Yes, ma’am, the letter was–

And… and is it true that the district court found that Dompier was selling only as a wholesaler prior to July ’74?

Is that correct?

Robert H. Whaley:

–Justice O’Connor, I believe that was a factual issue in the… in the district court–

And that was the finding of the district court?

Robert H. Whaley:

–The district court never had to enter a finding on that because the jury considered that.

The evidence was that Dompier was retailing since about 1969 through two stations known as Red Carpet where his father set the price at both retail and wholesale, and that was a… that was a highly protested issue.

Can we accept it as a fact that they were acting only as wholesalers during that interval of–

Robert H. Whaley:

You certainly can’t accept it as to Gull Oil Company.

–Based on this record?

Robert H. Whaley:

No, ma’am.

Dompier?

Robert H. Whaley:

I believe it doesn’t make any difference to the outcome of this case, but I–

Well, be that as it may, may we accept that as a given in our resolution of it?

Robert H. Whaley:

–You can if you so desire.

I believe it was a factual issue that was highly contested.

The… there was a contention that… that… that Red Carpet was not a… a retail outlet, and it was obvious that from the evidence that it was completely controlled by Dompier, and he set the price at the retail pump.

Gull distributed it at retail throughout the period of time from 1972 until 1981.

The… the evidence also showed that Texaco’s vice president–

Excuse me.

I’m just a little unclear to your answer to Justice O’Connor.

Do you say that the question whether the… if it was a mixed function for both Gull and Dompier was… there was… there was a dispute between the parties on that issue for the entire period?

Robert H. Whaley:

–Yes.

We contended that Gull–

Then… then doesn’t your answer have to be that no, we cannot assume there was a period in which it was exclusively a wholesaler?

Robert H. Whaley:

–Well, I don’t believe you can from the evidence.

I believe it was a jury issue.

She asked me what the district judge did, and it… it was not a judge-tried case.

I understand that.

Robert H. Whaley:

And so I believe from the evidence that went to the jury that the jury could properly, as the Solicitor General pointed out, have concluded that Dompier and Gull were retailing throughout the case, and they were.

Red Carpet was owned solely by Mr. Dompier.

He said that–

So that we cannot accept as a fact the essential predicate of your opponent’s argument is what–

Robert H. Whaley:

–That’s correct.

I don’t believe you can.

–And the jury made no finding on it, and the district judge didn’t… didn’t assume that the jury made a finding on it?

Robert H. Whaley:

Well, I don’t know.

There was no specific finding with respect to Red Carpet or any of the stations.

There were no interrogatories.

Robert H. Whaley:

There were no interrogatories.

There were none asked for.

Now, there’s no issue up here about special interrogatories.

When determining whether Congress would have wanted to exempt this, this type of conduct, you should consider this.

In the evidence in this case, Texaco’s own market study showed that the entire discount, the 4 cent discount, was being passed on by some wholesalers, and they were only taking their wholesale profit from the hauling allowance; that the hauling allowance alone that was given separate from the discount was sufficient for them to take a wholesale profit.

Query whether Congress ever would have contended or suggested that that type of discount would be immune from scrutiny by this Court.

We know that the… the storage facilities of Dompier Oil Company were smaller than the storage facilities of the plaintiffs’ own stations.

There was no bulk storage that was used in the distribution of gasoline.

Aren’t you saying this is… that this is just sort of a sham wholesaler?

Robert H. Whaley:

Your Honor, I believe he is.

I believe the only thing you can say that he is doing at wholesale is he is technically selling the product, but he… he’s being paid for the delivery separately, and he’s performing no other function.

In fact, the functions are… are totally meaningless in this transaction.

This discount was not cost-justified, although Texaco asserted that… that defense.

Cost-justified by what?

Robert H. Whaley:

By the… the statutory defense that if… if a discount takes into account the seller’s cost, then it’s cost-justified.

They were unable to do that.

They were unable to show their competitors required them to do it, that they were meeting the competitive offer of Exxon or Shell or someone else.

And there is a substantial injury to competition; that is, the economic viability of thousands of stations were admittedly affected by this.

Given that posture, it is… it seems to me beyond dispute that a court could not say that you would consider that type of discount as a matter of law would be immune from scrutiny by this Court.

The Robinson-Patman Act’s language prescribes by its very terms this type of discount, this type of price difference.

This Court in Morton Salt in 1947 said that Congress’ intention that they… that they… that Congress considered it an evil that large purchasers could get discounts merely because of their size over small retail purchasers, and they prescribed such price differences unless they were cost-justified under the statute or meeting competition.

This Court later, in Henry Broch and Fred Meyer, said that it was Congress’ intention to outlaw all devices by which larger purchasers could get better prices.

In this case, Texaco is submitting to the Court that it has come up with a device that will work; and that is, it can favor large retail purchasers by calling the discount a legitimate functional discount.

In this case, the Court will find the evidence, in fact, involved Texaco in the very effort to have this discount reach the retail level.

Robert H. Whaley:

Texaco in the early 1970s wanted to begin to supply a high volume market in Spokane and elsewhere.

They knew from their own records that it could not be done by anyone who was paying retail tank wagon, which our clients were paying.

That retail tank wagon was… in Spokane was the highest traditionally posted retail tank wagon in town.

How did they go about doing–

But suppose… suppose that you did show that?

To what legal theory does that go?

Knowledge isn’t required, is it, for a violation here?

Robert H. Whaley:

–The… the knowledge element is… is being addressed, Your Honor, one, because Texaco is saying they have a 12(b)(6) defense, and I’m showing the facts of this case.

And secondly, where they say that they should be immune from the independent decision of an intervening buyer, I want to show that they were involved in that decision.

They knew about it.

They intended to start supplying a volume market; and thereby to suggest that it is somehow an intervening independent decision–

Well… well… well, how do you formulate the legal theory that makes that inquiry relevant?

What do we… what do we… what does that go to show?

Robert H. Whaley:

–It goes to show that this Court should not grant an immunity as a matter of law because in this… on the facts of this case you have a seller that was intentionally trying to serve a market by secretly giving discounts.

It’s not necessary for liability, but it seems to me it is if you were… the United States has not given you any other rules you should put in here except absolute immunity, and what I’m suggesting is this record would never justify immunity because you had a seller that in fact was intentionally trying to get this price to large chain buyers.

But… but is there anything in the language of the statute that justifies that?

Robert H. Whaley:

The statute doesn’t require that for liability, Your Honor, no.

It only requires a price difference that affects competition.

xxx ask you about what you were saying before about… about whether these people were wholesalers or not.

The opinion of the Ninth Circuit that we’re concerned about here certainly discussed the case as though it involved a case of sales to wholesalers.

We recognize that generally selling at different prices to customers who at different levels of distribution… who are at different levels will not constitute a violation, blah blah blah, and then they go on to analyze that.

The question presented by your opponent in this case was whether the Robinson-Patman Act is violated by selling to wholesalers at a lower price.

Your opposition to that petition for writ of certiorari, as… as I read it, did not come in and say this is not a case involving sales to wholesalers, and now you’re raising this… this issue for the first time here, as far as I can understand it, telling us that we… we have before us a case quite different from what we… what we thought we had.

Robert H. Whaley:

Justice Scalia, the way I read our brief was that we specifically said this did not involve general wholesale discounts, that it… that it was not’ the case that had been presented–

General wholesale discounts, but I… I’d like to know the part of it where you say that these individuals who got the discounts were not wholesalers.

I don’t see it.

Robert H. Whaley:

–It’s… Your Honor, it would take me some time to dig it out of the Respondent’s petition.

Are you sure it’s in there?

Robert H. Whaley:

Yes.

We… We contended that there was a basic sham, that the discount was just a conduit to… to get a lower price to the… to the retail class of trade.

Contended that in your response, your opposition to the petition for certiorari?

Robert H. Whaley:

Yes, Your Honor.

The… even if that’s not true, the only defense that Texaco has… has suggested to you–

Even if what’s not true?

Robert H. Whaley:

–Even if the mere resale of a product would say someone is a wholesaler.

In other words, if you accept the government’s position, the functions make no difference.

If he has resold the product, he’s a wholesaler.

And so we… we said that what he was doing was no more than being a conduit, but if you accept that proposition that if you have resold the product you’re a wholesaler, then you must consider whether that as a matter of a law gives you an immunity.

And it does not.

And that, it seemed to us, was the question you granted certiorari on, was whether a wholesale discount that… that was immune as a matter of law regardless of whether or not the discount was justified under the statute or whether an impact of competition.

In this case, the very evil that Congress was attempting to remedy occurred.

Large chains in 1971 in Spokane in the Spokane… in the Texaco brand received lower prices.

Their sales soared 270 percent.

The sales at the stations operated by my clients declined.

Old, favored customers who purchased business volumes of gasoline a day testified that they stopped doing business with our clients because of the price difference.

That information was put on by 10 or 15 witnesses.

An example was a man named Leo Green that had a produce company, and he had eight or ten vehicles that he was using one of my clients for.

He stopped buying gasoline there because of a 3 to 5 cent price difference between the stations that Mr. Dompier supplied and my clients.

The stations supplied by Mr. Dompier, if you assume he was a wholesaler, got a 3.5 cent discount off of retail tank wagon, and when they opened in 1971 the price was.7 of a cent above my clients’ cost.

The consequences were obvious.

By the end of the damage period, eight of my clients were out of business.

The only person selling Texaco gas today is the John Dompier Oil Company of Spokane.

Texaco defended this case as a matter of fact.

They… they… they put up three factual defenses: cost justification; meeting competition, both of which were rejected; and that the discount did not affect competition because the services would have eaten up the discount.

They were all rejected by the jury.

The legislative history of this statute, if one needs to get to it, clearly supports liability in this case.

The Congress was asked by specific language to exempt discounts based upon the level of resale, wholesaler, wholesaler, retailer, retailer and rejected it in the 1936–

Mr. Whaley, can I ask you a question?

I can’t seem to find it in the opinion right now, but there was a good deal of argument to the effect that the rule the Ninth Circuit laid down, or seemed to be laying down, was that one of the important elements of the issue was whether or not the discount was justified by the costs of the wholesaler, not the costs of the seller, and that… that in order to show that it was unlawful, the plaintiff had the burden of showing that the wholesaler’s cost somehow didn’t justify it.

Do you… first of all, do you agree that’s what the court of appeals either said or held; and secondly, do you think that’s correct?

What relevance, of any, is the… are the costs of the wholesaler?

Robert H. Whaley:

–The Ninth Circuit was faced with this argument.

Texaco could not justify its discount based upon its own costs.

Right.

Robert H. Whaley:

It could not justify its discount based upon meeting competition.

Right.

Robert H. Whaley:

And it could not justify its discount on the basis that it didn’t impact competition at the customer level.

So Texaco then said that, well, the discount was eaten up by the cost of… to the favored purchaser and, therefore, it didn’t affect competition.

The Ninth Circuit said that would be a factual matter if that were true, and you didn’t prove it because the costs that you say would have been eaten up were not performed.

There was nothing there.

And so Texaco sort of created this issue by suggesting that factually a functional discount would not affect competition.

Well, whether… whether Texaco created it or you created it, do you think it is… that the Ninth Circuit, there are portions of the Ninth Circuit’s opinion that can be read to indicate that that is a relevant test in determining whether a functional discount is lawful or not?

Robert H. Whaley:

I believe this, Your Honor, that… that the determination of what a legitimate functional discount is, the only thing being presented to this Court is what is it not, and it’s… it’s been said to you that it’s not a discount that is based upon the buyer’s cost.

And the Ninth Circuit didn’t say it was based on the buyer’s cost.

They’re just saying that if that’s how you define it, you didn’t prove it.

I see.

Is that the same as basing it on the wholesaler’s cost… the same thing as inquiring about what services the wholesaler performs?

Robert H. Whaley:

You mean would basing it on the wholesaler’s cost require you to–

No.

Would… would you be saying the same thing if you say that, well, to justify the discount you have to at least show what services the wholesaler performed?

Robert H. Whaley:

–If… if you are not justifying a discount under the statute… and that is, you couldn’t cost justify, you weren’t meeting competition, then all you’d be trying to do is say, well, it didn’t affect competition between the favored and disfavored purchaser or their customers, and the inquiry then would be, what costs did the purchaser have that would have eliminated the impact on competition.

And which… and I suppose to figure his costs you’d have to figure out what he was doing?

Robert H. Whaley:

That’s correct.

What functions he was performing in the distribution chain.

Robert H. Whaley:

Yes.

What was it that caused you to give him this discount that… that you contend would mean that it does not impact competition.

The issue has not been really given to you as to what is a legitimate functional discount, at least by the government or by Texaco, and I don’t believe you have to reach that because of a narrow issue that the United States said was here, which is the knowing passing on of this discount.

Well, I… I suppose in your position the… any functional, any discount to a wholesaler that is passed on that affects competition is going to be actionable.

Robert H. Whaley:

No, Your Honor.

At least there’s two… two stages you have to get through before you get there.

Robert H. Whaley:

If… if Texaco had a difference in cost of dealing with the wholesaler of 4 cents and they based their price on that, then if he was able to pass it on there’d be no liability.

In other words, if he’s more efficient than Texaco, then there is no liability for that… that discount whatsoever.

If competition requires them to do that, if Exxon says we’re giving our distributors that and we’ll take this one away from you, then there’s not any liability even if it’s passed on.

It’s only when they give a discount that exceeds their own cost of doing the… the function and now they’re paying for something different that this problem could ever arise, and that would only–

Unless they can cost justify within the means of the statute or meet… or prove you have to meet competition, any discount that is passed on is actionable.

Robert H. Whaley:

–I… I would not say it’s actionable, Your Honor.

It may result in an inquiry.

The burden on the plaintiff to show that it impacted competition and then show that it proximately caused damage to him is… is substantial.

That’s why you don’t see any of these cases since Perkins v. Standard Oil in 1969.

The burden on the plaintiff to show that that discount impacted competition and then that there were damage is extraordinary.

Summary judgments are given routinely on that basis.

The… if you reach the issue of what is a legitimate functional discount, it certainly isn’t one such as here that… that the defendant admits that the functions were not performed at all.

The amicus brief filed by 35 states tells you that it’s cost-justified, that that is a legitimate functional discount.

They say it’s administratively easy to administer, requires no Sherman Act problems, and that would be what is a legitimate functional discount.

Well, costs justified in that sense would be relying on the language of the statutory proviso, then, wouldn’t it?

Robert H. Whaley:

Yes, sir.

On the statutory proviso that it was cost-justified, it… it’s legitimate.

The Texaco wholesalers who were the ones that were getting the discount in this case surprisingly filed a brief saying the same thing; and that is, that they felt that the only functional discount that was valid was one that was based upon the savings to Texaco by dealing with them; that anything else would not be a valid functional discount.

And that would be something that would have to be proved in every case, the amount of the… the amount of the savings to the supplier?

Robert H. Whaley:

If the… if the supplier gave a price difference and was trying to justify it in some action, the wholesalers say that their defense would be their own cost.

They would know their own costs of distribution.

Their cost savings would be available to them.

They could easily put that forward.

Well, they could put it forward.

One might question how easily.

Robert H. Whaley:

Well, that is the… the statutory harbor for a… a seller, which is cost justification of meeting competition.

And again, they’ve got even a much bigger calm water, and that is the area of does it impact competition.

It’s very difficult to prove.

For instance, Mr. Calvani says that a legitimate functional discount is cost-justified plus a reasonable profit.

If that’s what a legitimate functional discount is, it doesn’t apply to this case, but if that’s what it is, it would be very difficult to prove any injury of meeting competition… excuse me, injury to yourself or to competition by that type of functional discount.

Robert H. Whaley:

Texaco and the government are contending that any functional discount, 25 cents, 50 cents, is legitimate.

If the Court finds that the… as a matter of law you cannot excuse the price difference in this case; the damages in this case, and the other questions upon which certiorari were granted, really fall as well.

The… the damage… damages sought by the plaintiffs were only those damages that were caused to them by the discount that was passed through.

And if you look at the record, there was a period of time when Mr. Dompier at the encouragement of Texaco bought these stations, and the method he’d use was to raise the price to them until they paid retail tank wagon.

They couldn’t compete on the volume level, and then he bought them.

In that circumstance, we claim no damage when the price reduction was reduced to nothing because it wasn’t being passed through the retail level.

The final portion of the damage claim that was challenged by Texaco pertained to how did this Court mean that competition… excuse me, that a violation-free environment would be tested.

In J. Truett Payne, you said that a plaintiff can recover those damages that they would have not suffered had there been no violation; in other words, the lost sales and profits they would have had had there been no violation in the market.

Texaco had a number of ways that it considered eliminating the… the violation, one of which was to raise the wholesaler’s price some, one of which was to lower the retail price some, and one is to do a combination of the two.

The jury was merely given a number of calculations based upon Texaco’s own methods of eliminating the–

Is a… is a discount for a wholesaler ever justified just because he buys a lot of volume at discount?

Robert H. Whaley:

–No, Your Honor, unless it’s cost-justified.

This Court rejected that specifically in Morton Salt.

In that case, they tried to justify the discounts because the… the chains were buying an awful lot of… of salt, and this Court specifically and Congress said that’s not a good enough reason to discriminate against a smaller seller.

If the smaller seller, if you have cost savings in dealing with the… the volume buyer, then it’s okay.

In conclusion, under the first issue that you granted certiorari on, I don’t believe you can reverse this verdict without finding as a matter of law that a legitimate functional discount is not judged by any facts.

It’s merely judged by the fact that it’s given to someone that’s nominated a wholesaler regardless of the functions that have been performed.

xxx on who isn’t competing with the plaintiff.

Robert H. Whaley:

I would contend that it’s violated even if the–

I know you would, but the… the position to reverse… you, you could just say if it’s given to someone who isn’t competing with the plaintiff, then there’s no violation.

Robert H. Whaley:

–The Court could do that, but it would be inconsistent–

Yes.

Robert H. Whaley:

–with the Court’s own opinion in the Fred Meyer v. FTC, and that is where you had a promotional allowance that was given to a retailer but not a wholesaler that was then, this Court said that you could not avoid the prescriptions of the Robinson-Patman Act merely because the wholesaler and the retailer didn’t compete with each other.

That would certainly give a huge loophole, it would be a truck through which one could drive to avoid the Robinson-Patman Act.

Where you wanted to sell to a retailer at a lower price, all you would need to do is put another link in the chain and sell at a lower price to that link and have it passed on.

That’s exactly what happened in Perkins v. Perkins.

In Perkins.

Robert H. Whaley:

Yes, sir.

In conclusion, as I said, the Robinson-Patman Act’s language and its legislative history and its policy were designed to protect the small retailer such as I represent in this case.

The legitimate functional discount has to be viewed by the statutory language of either cost justification meeting competition or effect on competition and injury.

Robert H. Whaley:

It cannot be given a per se immunity.

The other issues involved in the case really fall if that issue falls.

The Morton Salt argument has not been properly preserved.

If it had been properly preserved, it’s a proper statement of the law as applied to the facts of this case.

This verdict, after two trials, two trips to the Ninth Circuit, a petition for certiorari here that was denied nine years ago, and this current petition should stand.

Texaco’s defenses were nothing but a flimsy piece of paper, and this Court should not accept them.

Thank you, Mr. Whaley.

Robert H. Whaley:

Thank you.

Mr. Fishbein, you have two minutes remaining.

Peter M. Fishbein:

To get to Justice Stevens’ earlier question about the premise of this case, Your Honor, I think it is undisputed that the only damages on which the plaintiffs have asserted bases for damages are the sales by four stations which are supplied exclusively by Dompier.

Therefore, if the sales to Dompier are not illegal, the damages for the early damage period for the middle of 1974 cannot stand.

Since the damage evidence was presented from a whole period without breakout, the entire judgment cannot stand if the sales to Dompier solely as a wholesaler as an… who independently then sold to his retailers, it did not violate the Robinson-Patman Act.

In terms of the post-1974 period, we do not agree that it is automatically unlawful for a supplier to give a wholesale discount to someone at the lower level who operates both as a wholesaler and a retailer.

The case was not presented to the jury or tried on that basis.

Mr. Whaley, in his arguments to the jury at the close, said specifically… it’s cited in our brief… it doesn’t matter if Dompier operated these stations directly or was selling to them independently.

He had the same theory, which was if there’s a pass-through, there’s a violation.

Therefore, the jury was never instructed, the court never dealt with the, the district court in the Ninth Circuit never discussed the Boise Cascade issue which that would deal with, and the case has to be remanded for that reason.

Finally, what’s really at stake here is the fact that anytime a supplier deals with wholesalers and retails in a dual channel of distribution, it must charge a high… a lower price to the wholesaler; otherwise, the wholesaler will not be in business.

It cannot monitor the costs of the wholesaler.

The reason for the wholesale discount is not to compensate for any particular functions.

It’s a market idea.

It’s a free market.

It’s the supplier’s concept of what he has to pay to the wholesaler to induce the wholesaler to engage in those functions and up to the point where the wholesaler is giving value.

There’s no way of getting around that.

William H. Rehnquist:

Thank you, Mr. Fishbein.

The case is submitted.