United States Steel Corporation v. Fortner Enterprises, Inc. – Oral Argument – November 01, 1976

Media for United States Steel Corporation v. Fortner Enterprises, Inc.

Audio Transcription for Opinion Announcement – February 22, 1977 in United States Steel Corporation v. Fortner Enterprises, Inc.

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Warren E. Burger:

We will hear arguments next in 75-853, United States Steel Corporation against Fortner Enterprises.

Mr. Flinn, you may proceed whenever you are ready.

Macdonald Flinn:

Mr. Chief Justice, may it please the Court.

This antitrust action is before this Court for the second time on Writ of Certiorari directed by the Court of Appeals for the Sixth Circuit.

In 1969, in a five to four decision, this Court reversed a summary judgment in favor of the present petitioners who are the defendants below.

At the trial which followed in the Western District of Kentucky, a verdict was directed for the plaintiff on the liability issues.

The jury found damages in the amount of some $93,000 before trebling and before the addition of counsel fees and costs.

Upon appeal from that first trial, the Court of Appeals reversed, holding that while the plaintiff had made out a prima facie case of Sherman Act violations, nevertheless there were material facts in dispute and the liability issues as well as the damage issues should have been submitted to the jury.

Upon remand at the second trial, however, both sides agreed to wave the jury.

Following that second trial, the trial judge signed a photocopy of the plaintiff’s proposed findings and conclusions.

In adopting those conclusions, he held that the defendants had violated both Sections 1 and 2 of the Sherman Act.

Upon the appeal from that second trial, the Court of Appeals affirmed, holding that the plaintiff had in fact made out a prima facie case of a proceed time violation of Section 1 of the Sherman Act, and that the findings adopted by the trial judge below were not clearly erroneous.

As the plaintiff urged, however, the Court of Appeals concluded, that having reach the results that it did with regard to the Section 1 findings, it was unnecessary on the appeal to determine whether or not the Section 2 finding of conspiracy to monopolize could be sustained.

It is with the case in that posture that this Court has granted Certiorari.

The plaintiff, Fortner Enterprises is a corporation owned by Mr. A. B. Fortner, a successful Louisville realtor.

The defendants are US Steel, which through its Homes Division sold prefabricated houses and it is wholly owned finance subsidiary, US Steel Homes Credit Corporation which confined its financing services to promoting the sale of Homes Division Houses.

By written agreements executed in the first instance in October 1960, and again in August 1961, Mr. Fortner negotiated with the credit corporation, certain land loans covering the acquisition and development of two neighboring parcels of land and a subdivision owned by another of Mr. Fortner’s corporations Viroqua (ph) Development.

This financing was conditioned upon the agreement by the plaintiff to buy and construct a Homes Division, prefabricated house on each of the lots unless the underlying loans were repaid.

The amount committed under these loan agreements was 100% of the cost at which Mr. Fortner transferred the lots from one corporation to the other, plus the cost of development of some 150 lots which were involved in the first transaction and which were not fully developed at that time.

Mr. Fortner testified that he would not have purchased the defendant’s houses without this land financing which is the challenged subject in this lawsuit.

Mr. Fortner also testified that only when the defendants had finally accepted his terms during extensive negotiations, did he agree to enter into this arrangement.

Fortner contends both below and here that this land financing, conditioned upon the purchase of the prefabricated houses was a per se time violation in that the loans were allegedly unique, because 100% loans on equally favorable, equally cheap terms were not available at that time from traditional Louisville lending sources.

More specifically, Mr. Fortner and other witnesses testified that to the best of their knowledge, 100% loans were not available from conventional lenders in Louisville at the particular time they entered into these two transactions with the defendants.

But as the Court of Appeals noted, soon after the plaintiff had negotiated its 100% terms with the defendants, conventional Louisville lending agencies did in fact begin to grant 100% land loans.

In fact, it is undisputed on this record that within less than a year of the second loan agreement, in response not only to the alleged terms which the Credit Corporation granted to the plaintiff here, but also in response to 100% loans by other prefabricated house manufacturers, the traditional Louisville lending agencies were indeed making 100% land loans.

We contend that Fortner has failed to make out a prima facie case of the requisite economic power over credit in order to establish a per se time violation.

In holding to the contrary, we respectfully submit that the courts below have failed to follow the mandate laid down by this Court.

The Court of Appeals, on the most recent appeal, held that even though Fortner had failed to prove that other lenders were in anyway prevented from making equally favorable or cheap loans, none the less the requisite economic power over credit could be and was held to be in this case established by solely three elements of proof.

First, that the loans were allegedly cheaper or more favorable than available at that time from other sources in Louisville.

Second, based upon the opinion testimony of Fortner’s construction superintendent that the tied product price, the price of the houses charged by the defendants was allegedly higher than the price for a comparable conventional house, and finally mere acceptance of this tying condition in those circumstances.

Macdonald Flinn:

I would turn now to what the petitioners believe this Court held was necessary to establish economic power over credit.

John Paul Stevens:

Mr. Flinn, before you do that, is it not correct that there was also at least representing opinion to an additional item approved, namely the fact that there were other times between your credit division and other purchases of Homes?

Macdonald Flinn:

Mr. Justice Stevens, I believe that as correct.

I intended to subsume that holding by the Court in my statement of the third element, customer acceptance.

The plaintiff has contended that uniquely favorable loans were extended by the Credit Corporation to other borrowers.

We urge that there are absolutely no evidences or the records of the terms or conditions on which loans were made by the Credit Corporation to any other borrower.

We contended that there is nothing that shows that loans to any other borrower on land financing were especially unique in the sense, that equally favorable terms were not available from other conventional…

John Paul Stevens:

Is there not evidence that a certain percentage and I do not remember the figure now of your credit company’s loans did have a tie-in feature with it?

Macdonald Flinn:

The plaintiff has I think taken the evidence out of record.

We have treated this point in some detail in the Appendix and the reason that we have put it in the Appendix to our reply brief Mr. Justice, is because we are prepared to stand on our argument today whether or not other customers acquiesced in tie-in arrangements under uniquely favorable loan terms.

Our argument is as a matter of law, that the result is the same for reasons which I will go into in my argument, but we do take factual issue with the state of the record and have detailed the record in that.

John Paul Stevens:

Your point, just so I have clear mind, the customer acceptance feature of the proof is the same whether it is this customer or this customer is?

Macdonald Flinn:

Mr. Justice Stevens, that is my argument today, yes sir.

Unlike a tie-in product which is unique or distinctive and commands a higher price or a premium price thereby yielding an abnormally high profit to the seller, credit or financing by contrasts is the most fungible of all commodities.

$1 is no different than any other dollar and no lender can long command a higher price or more owners or costly terms for selling his credit or his financing services than other lenders are asking.

In recognition to that fact, this Court, both the majority and the dissenting Justices stated that the only thing that can be unique about a loan or financing is that it is offered on cheaper or more favorable terms than other lenders are offering at the particular moment.

Indeed, such cheaper offering of terms is the very crux, the very essence of competition among lenders.

In recognition to that fact and in keeping with that desirable competitive objective, again, both the majority and dissenting Justices of this Court rejected Fortner’s argument that economic power over credit can be established solely by the fact that the terms offered are cheaper or more favorable than available elsewhere.

In fact, both the majority and dissenting Justices recognized that without any economic power over credit, a lender can decide to offer more favorable terms in order to promote the sale of an ancillary or tied product.

Such a lender may simply decide to give up some or all of the profit which other lenders are making on the terms that they ask.

As Justice Black stated for the majority, a seller who lacks economic power in the credit market can lawfully offer advantageous terms on credit as a means of promoting the sale of his tied product, thereby in effect reducing the price of the tied product, engaging in price competition in the tied product market.

In short, this Court concluded that cheaper, more favorable terms for credit neither prove nor disprove the existence of economic power.

They merely pose the decisive question which must then be answered if in fact, the loan terms were cheaper or more favorable than available elsewhere, were they cheaper because the defendants had some unique economic ability, some unique competitive advantage which precluded other lenders from offering equally favorable terms on a profitable basis.

The issue mandated by this Court, therefore, was not whether equally cheap financing was merely unavailable from other lenders at that particular time.

Rather as the majority held, unless other lenders were legally barred from offering 100% loan terms, the issue then is whether in the words of Justice Black, the defendants had a unique economic ability to provide 100% financing at cheap rates because they had some cost advantage or economies of scale in their credit operations, so that other lenders could not profitably lend money on the risks involved.

The Court of Appeals addressed itself to these factual issues.

It correctly concluded that there was no such proof in this trial record.

Many lenders were legally free not subject to any probations upon making 100% land loans.

Similarly, Fortner offered no evidence that the defendants had any cost advantage or economies of scale arising out of their operations in the credit market.

Instead, the record shows affirmatively that the defendants operated at a cost disadvantage and realized a lower rate of profit than conventional lenders did.

Macdonald Flinn:

In fact, what the courts below found was that conventional lenders were not making 100% loans at the time of these transactions only because they were unwilling to take the risk of lower profits.

Now, as proof of economic power as I indicated a moment ago, both of the lower courts relied upon the evidence of the allegedly cheaper more favorable loan terms which are challenged here, coupled with the allegedly higher price for the tied product, the houses and customer acceptance of that tie-in arrangement in those circumstances.

We urge that even if these facts were submitted or supported by the record, they are not proof of power over credit.

Reduced to their lowest common denominator, they are at most consistent with or tend to support the claim that the terms on which the loans were offered were in fact cheaper or more favorable.

Proof of cheaper terms, however, as this Court held does not prove that the defendants had any unique ability to offer loans on such terms.

It does not prove that other lenders were precluded in any way in matching those terms.

Where the tie-in element is offered at a cheaper price, buyers will inevitably be attracted by that fact, particularly is that true where the tie-in element is fungible, such as money because no borrower, as we have noted, will pay other lenders a high price than he can obtain from some other lender.

In those circumstances, we urge that acceptance of the tie-in condition, even by numerous customers, attracted by the allegedly lower price of the financing, is at most evidence that the credit terms were in fact cheaper or more favorable.

It is not evidence of economic power.

Similarly, I assume that Mr. Fortner had believed that defendant’s houses were over priced or otherwise non competitive at the time he negotiated the loan arrangements which are now challenged.

I would note that the evidence is to the contrary.

Mr. Fortner’s disenchantment with the houses appears to have occurred many months after he had negotiated, requested and entered into the second loan arrangement but…

John Paul Stevens:

Mr. Flinn, let me just interrupt.

Did you said the evidence is the contrary, but did not the judge find that they are $455 more expensive and the witness so testified, so we got its evidence?

Macdonald Flinn:

I agree, I did not mean to say that there was not a finding that the houses were higher priced.

I meant to say there is no evidence that Mr. Fortner was in anyway disenchanted with the houses, deem them higher price…

John Paul Stevens:

But not the (Inaudible) that many.

Macdonald Flinn:

It makes a great deal with difference Mr. Justice Stevens.

I believe that if at the time a buyer who enters into a tie-in arrangement, knowingly takes a product which he does not want, knowingly takes a product which is he believes is over priced, knowingly takes a product which he deems non competitive on any other basis, it can then be urged that on an inference that he has been economically coerced by some uniquely attractive singularly compelling aspect to the tie-in element and an inference of the economic power might be drawn from that.

Now, I am saying first of all in this case, the evidence shows affirmatively though no finding was made on this one way or the other that at the time, Mr. Fortner solicited and negotiated not one but two financing arrangements.

He was in no way convinced that the houses were anything other than supportive, indeed as much as six months after the second loan arrangement, he stated in a letter that his principal competitor, Mr. Swindler, who had houses comparable to his, he was sure anybody who would look at the two houses would conclude that his US Steel Houses were both cheaper and better.

I submit Mr. Swindler in order to survive in the real estate business notwithstanding that unhappy name, must have had very good houses at very low prices, and I think that Mr. Fortner’s own characterization suggests that it was not until long after he had negotiated the loan agreements that he deemed these houses to be in anyway defective or overpriced.

My point is solely that no inference of economic power can be drawn from any disenchantment with the houses, since that disenchantment did not arise until after the loan arrangements had been negotiated but in…

John Paul Stevens:

I must have misunderstood your argument, because I thought you were saying that even if he paid more for the houses and knew it, it really would not make any difference as long as the total package was what the free market would dictate.

Macdonald Flinn:

That is the second part of my argument, Mr. Justice Stevens that even if, at the time, he entered into the loan arrangements, Mr. Fortner deemed the house overpriced or in any other way noncompetitive, he would in the circumstances of this kind of tie-in situations, have agreed to accept that burden of the tied product only if he concluded that the saving on the allegedly cheaper more favorable tie-in element, the loans at least compensated for that burden that he was assuming.

Now, alternatively where the tie-in element is allegedly unique because offered on more favorable or cheaper terms than available elsewhere, the only way that a customer knowingly accepting the tie-in arrangement and knowingly accepting a higher priced tied product could evidence economic power would be if the premium or the over charge on the tied product, the houses exceeded the saving on the tie-in element and the evidence is devoid of any such evidence.

It is directly devoid of any such evidence and I believe that the plaintiff makes no claims along those lines.

Putting your point a little differently, Fortner could afford to pay more, but he has not, as if he paid less for the credit.

Mr. Justice, probably you stated very distinctly that is our position.

Macdonald Flinn:

Even after two trials, there is no evidence here that traditional lenders were ever prevented by a cost disadvantage, legal obstacle or otherwise from making 100% loans at a profit.

Macdonald Flinn:

Nevertheless ignoring this Court’s mandate, we urge the Court of Appeals held as I have noted previously, that Fortner could prevail even though it failed to show that other lenders were unable to make comparable loans.

We submit that the absence of such evidence by itself is sufficient to destroy Fortner’s per se tie-in claim in view of this Court’s mandate on the prior review of this case.

Moreover, there is affirmative proof in the record that other lenders were not prevented from making equally favorable 100% loans.

As I have mentioned before, even though it was ignored by both the trial court and the Court of Appeals, the evidence is undisputed, that traditional lending agencies within a very few months began making 100% land loans.

The Court of Appeals incidentally in its first opinion had correctly concluded that that evidence was relevant to deciding whether other lenders were free and able to make 100% loans.

William H. Rehnquist:

Well, you say that this evidence was ignored by both the District Court and by the Court of Appeals, was it ignored to the extent that they found otherwise?

Macdonald Flinn:

No, there is no contrary finding and it was ignored Mr. Justice Rehnquist by the Court of Appeals only in its second opinion.

In our brief, we have cited to the portion of the record, where in the first Court of Appeals opinion, they specifically adverted to the fact that there was no question, but that other conventional lenders began making 100% loans shortly after Fortner negotiated his transactions with the defenders.

William H. Rehnquist:

And what was Judge Gordon’s finding at his…

Macdonald Flinn:

No finding one way or the other.

The plaintiff did not give him such a finding to sign.

We did, it was rejected.

William H. Rehnquist:

Your inference is that if the plaintiff had given him such a finding to sign, he would have signed it?

Macdonald Flinn:

I cannot speculate to that Mr. Justice.

I am saying the state of the record, however, is clear that other lenders did begin making these loans and indeed even the plaintiff’s expert witness, professor Masten from University of Georgia testified that this became pretty much a general thing, although his testimony as that of the other witnesses was that at the specific time, the particular time of these loan transactions, he did not believe that other Louisville lenders were making 100% loans.

William H. Rehnquist:

Of course Judge Gordon is sitting at the trial, in fact, he is free to disbelieve any expert he wants to.

Macdonald Flinn:

This happened to be the testimony of the plaintiff’s witnesses.

All of the evidence is…

William H. Rehnquist:

He can just believe the testimony of the plaintiff’s witnesses even and find it more – affect more favorably to the plaintiff than the plaintiff’s witnesses if there is other evidence to support it, can he not?

Macdonald Flinn:

The trial judge, however Mr. Justice Rehnquist, predicated none of his findings upon credibility, none of his findings upon disbelieving any of the witnesses, none of his findings upon disallowing any of the evidence that was in the record.

William H. Rehnquist:

Are you suggesting that in order to make a finding of facts that the District Court not only has to find the fact, but has to say I disbelieve what is stated by the contrary?

Macdonald Flinn:

No, I am not.

I am saying that in all the facts and in the procedure of this case, I submit that this is one of those cases where this Court as any appellate court is free to look at facts which are not in dispute on the record even though they have not been found by the trial judge, but let me say this, even without this particular fact, my legal argument remains the same.

I am saying that there was affirmative evidence that other lenders were able to make 100% loans.

I believe that all I have to do to sustain my argument that the plaintiff has failed to make a prima facie case is show that there was no evidence that other lenders were prevented from making 100% loans.

William H. Rehnquist:

So the findings of the District Court are silent on this point?

Macdonald Flinn:

Yes sir.

However, the first opinion of the Sixth Circuit is not silent on this point.

As I also noted, the courts below concluded that conventional Louisville lenders were not making 100% loans earlier only because of their unwillingness to take the risk involved or indeed as Fortner conceded in his brief before the Court of Appeals, because such conventional lenders would not take the chance if the loan is not being profitable.

We urge that the fact that competing lenders simply chose not to run the risk of lower profit until stimulated by competition to do so, demonstrate that they have the ability to offer 100% loans like those allegedly given by the defendants.

Macdonald Flinn:

In conclusion, we would ask the Court to consider the competitive consequences of Fortner’s position adopted by the courts below that economic power over credit is shown where equally favorable terms are merely unavailable and simply because other lenders choose not to run the risk of lower profit, that proposition would mean that the innovator who pioneers lower credit terms to promote the accompanying sale of a product violates the antitrust laws even though his competition stimulates other lenders to lower their prices for financing, a wholly desirable, laudable antitrust and competitive objective.

To sanction that position, we respectfully submit is simply to stand the Sherman Act on its head.

Thank you very much Mr. Chief Justice.

Warren E. Burger:

Mr. Anderson.

Kenneth L. Anderson:

Mr. Chief Justice, may it please Court.

I appear here today for the second time, having been here approximately eight years ago and before I got here, my client asked me a number of questions.

My client said I understood that the Supreme Court had established the basic ground rules for this case eight years ago, did they not and I said, “Yes, I thought they had.”

My client said, “I thought we tried this case twice and had fact findings in our favor, did we not?” and I had to answer, yes, we did.

So rhetorically of course to begin with, we ask why are we here?

What does Justice Black’s opinion, do you find to support the directed verdict on liabilities of the plaintiff?

Kenneth L. Anderson:

I think part of it, we have to blame on Mr. Justice White Your Honor because in his dissent, his interpretation of the majority opinion was in affect that on the basis of the record that we had if there were no countervailing proof, the economic power issue as such had been reduced.

Mr. Justice White felt to a relatively simple level on the scale of things and that basically Judge Gordon at the close of our 30-day trial of this action, felt that we have proved not only all of the evidence which was in the record before this Court at that time, but quite a bit more and that since there was no evidence produced by United States Steel and the Credit Corporation who rebutt that that basically the prima facie case that Judge Gordon felt, Mr. Justice Black had delineated in this Court’s opinion had been and had not been properly rebutted, and therefore, he sustained the motion for direct verdict.

Warren E. Burger:

Do you think that takes under account adequately, the existence of other resources of financing and the fact that the high price, if it was high, was offset by the more favorable interest rates?

Kenneth L. Anderson:

All of these matters were argued ad nauseum before Judge Gordon at that time, Your Honor.

Now, this is at the time that he gave the directed verdict.

One of the very interesting things about this is that what you have heard today and what you have read in the briefs, are great deal, are Mr. Flinn’s and his covert economic theories that are not supported by the record.

But we have argued this case and we argued this case time and time again before Judge Gordon in the intervening eight years up to the time that we got here and he was quite familiar in great depth with all of the facts and all of the evidence that had been established.

Judge Gordon was not impressed at all with the very meager evidence that had been presented for example about the subsequence events, involving basically the Lowable Mortgage Service Company (ph) and its president testifying that on a few occasions they had from their own company’s money made some 100% loans, but that those loans were not similar to the Fortner’s loans with which he was familiar and very importantly those loans involved personal guarantees by principals of the borrower which clearly made those loans distinguishable.

Now, the only other testimony Mr. Flinn refers to undisputed evidence, that the only other testimony about 100% loans at a later time was some very general testimony, that was not pinpointed, but it is obvious that it involves loans made a number of years later at a time when we were in an inflationary spiral and in circumstances totally different than those which existed at the time these loans remain.

The only expert in this field and he says, as Mr. Justice Rehnquist pointed out, the Judge Gordon was free to ignore or accept his testimony, but the only competent expert who testified in this case was Dr. Masten who had been with the University of Kentucky, who at the time of our last trial in the form of the supplemental evidence that we presented was that a professor of banking at the University of Georgia and Dr. Masten laid out the framework of the economics of this case for Judge Gordon and of course to judge it was quite obvious at the trial itself when Dr. Masten testified that Judge Gordon was very much impressed by Dr. Masten’s testimony which buttressed in many ways the arguments that we had previously made and I respectfully submit that many things that you have been hearing are Mr. Flinn’s economic theories.

We give back to basic proposition that what you have heard today involves arguments as to facts.

As Mr. Justice Rehnquist pointed out in any earlier argument today, normally this Court does not when a District Judge acts as a fact finder, make fact determinations and when those fact determinations have been affirmed by the circuit court, this Court does not go behind those.

Basically it is our position that what Mr. Flinn is asking you to do is to go behind the court’s fact findings.

You think that Court file a mandated of this court?

Kenneth L. Anderson:

Yes Your Honor, I do.

I would like to hear you on it.

Kenneth L. Anderson:

Alright sir.

First of all, the gist of petitioner’s argument is that this Court’s 1969 opinion indicated that the only way that we could establish economic power was to establish that the Credit Corporation had some cost advantage in what is described as the credit market.

I would respectfully submit to start out with that and they rely very heavily on the concept of fungibility of money.

I would point out to the Court that the record does not support this concept of fungibility when it is applied to loans.

Kenneth L. Anderson:

This Court in the Philadelphia Bank case for example, pointed out that money is the raw material and that loans are the finished product.

So we start out, and respectfully submit, with the basic proposition that you have loans on particular terms, not just cheap loans, because again, I submit that while the term, ‘Cheap’ is used, we are talking about loans that are on particular terms.

One of the unique aspects of the loans in question here was the 100% aspect.

A 100% of the cost of acquiring the land and of developing it and of building the prefabricated house packages that were bought were loans.

We are talking about $2,500,000 worth of loans to generate purchases of house packages of about $700,000.

Mr. Anderson, although you dislike the word, ‘Cheap’ as to the loans, we do not agree that the record indicates that these loans were on more favorable terms than were available elsewhere.

Kenneth L. Anderson:

These loans certainly were on, it depends on we have a series of terms, Your Honor.

But cutting through the whole thing, what is your position with respect to the net value of these loans to your client, were they more favorable or less favorable?

Kenneth L. Anderson:

They were more favorable.

So there is more, we could translate that that is a cheaper and we would not be found wrong.

Kenneth L. Anderson:

Well, I think that it is, yes.

I think that it is a misnomer to transfer more favorable into cheaper because if you got a $2 million loan versus a $1.5 million loan, the $2 million loan may be at same interest rate as the $1.5 million loan, but the $2 million loan in certain circumstances may be more favorable and that is exactly the situation here.

The volume of money being loaned was just as important as the interest rate and the discount rate.

The interest rate was comparable, 6% at that time was comparable.

I realize that, but cutting through it all, is it not it one of the facts that we start with on this posture of the case that everybody agrees these were favorable loans for your client.

Kenneth L. Anderson:

Yes sir, but I would like to emphasize favorable as opposed to cheap.

One of the reasons for that being the fact that in most instances of this nature, you have a requirement that there be guarantees of the loan by the persons, the individuals involved in the procedure, the borrower, Mr. Fortner, in the sense.

In this case, you have something entirely different which created again a more favorable situation.

You have United Steel…

Mr. Anderson, I do not mean to get interrupting, but in terms of analyzing the case under the Antitrust Laws, does it matter in your position as to whether the more favorable aspect was simply a reduction in interest rate or a combination of other factors, would we not have the same legal issue either way?

Kenneth L. Anderson:

Not necessarily, Your Honor, I do not think.

Then you have to help me because I do not understand your position.

Kenneth L. Anderson:

Well, my position is that a favorable interest rate can be one of the factors that makes a loan under these peculiar types of circumstances more favorable, but there are many other circumstances that can add to it, that could even create a situation where the interest rate would be higher, but yet would make the loan more unique, more desirable to the consumer than the interest rate, than the cost of the money, depending on the volume of the money that is involved, and the circumstances of obtaining it.

Eliminating the personal risk is a very important factor.

(Inaudible) some chances on the 100%.

Kenneth L. Anderson:

Yes Sir, that is one of the reasons that we put so much emphasis.

In fact the other fact puts so much emphasis on fact that others continue to give on 100% afterwards.

Kenneth L. Anderson:

Others gave a 100% afterwards, Your Honor, a few others did under the evidence, but under conditions where a personal guarantees were required by the principals of the borrowers.

Do you think that is enough of it?

Kenneth L. Anderson:

No, I do not think that is enough of it.

Kenneth L. Anderson:

I think that is a distinguishing factor as between the loans that were made to my client and offered to my client and my client was sold out and they kept asking him what will it take for you to get you to go with it Mr. Fortner not the…

It seems to me all you are saying is that there are number of ways that a seller can cut the price of the tie-in product.

He can cut the interest rate,he can eliminate personal guarantees, he can make the principal larger, he can do all sorts of things.

But in terms of antitrust consequences what difference does it make which means he takes to cut the price, it is still the same element.

Kenneth L. Anderson:

Well, it could get to that Your Honor and let us follow that up a little bit.

If you have someone then who cuts the price as you say to the point that he is has cut the price of his loan below his cost then regardless how he got at the level of the cost that he got to, if he is cutting the effective price of his loan below that cost then we are back to the basic proposition or this is a parallel to a creditory type action on his part he has created for himself, economic power.

Just as the man with the widget which cost him a dollar to produce, if he decides that he is going to sell his widget for 80 cents, he has created economic power for himself.

This is exactly what happened in this situation.

Again accepting your premise that however you cut it, the combination of terms…

You do not continue to loan below cost.

Kenneth L. Anderson:

I do not contend that as such they were below cost.

The US Steel and the Credit Corporation has contended that they come close to it, but my point is they got themselves down to a level where economic point, the competitors at that time and the economy that existed at that time were simply unwilling because of risk of loss to make such loans, to offer such loans to people.

This is the record, this is what is in the record in this case.

These are the facts in this case, this is what Judge Gordon adopted as a binding effect and I submit that those were the facts, economically and factually.

The problem was compounded by the – again, in talking about the creation of economic power, the problem was compounded in this situation by the fact that United States Steel itself guaranteed to the Credit Corporation the loans and I emphasize that we have two different separate corporate entities in this case not willing and that when they elected to operate under the separate corporate entity principals, they are bound by that.

Now, in this situation, United States Steel Corporation and we have cited the figures in the brief with its vast resources, its retained earnings that it had in its kitty to use, put itself again in the same type situation as your creditory price cut in, by making available very necessary funds from other sources to recompense the Credit Corporation if it got into trouble in a particular loan such as it did with Fortner.

So that what we have is if a bank were making a loan or a savings and loan association were making a loan to a developer and that bank or savings and loan association said development loan like this, $2,500,000 loan said to that developer, “You have got to buy United State Steels’ prefabricated houses.”

Clearly we have two separate entities, we have the tie created and then, okay, so United States Steel comes back and says, alright Mr. Bank, I will guarantee this loan to ensure achieving the tie.

This is the very principal that it seems to me the antitrust law is designed to prevent because we are not talking about a simple credit transaction, a simple sale of a product on a differed time payment basis.

We are talking about a set of loans under particular circumstances.

And let us turn that around.

United States Steel was primarily interested in selling those houses, were they not?

Kenneth L. Anderson:

Yes sir.

And so if they find a customer who wants to buy, however, they came together and they are ready to buy, let us say we have it kind of financed and US Steel says alright we will finance it for you.

Kenneth L. Anderson:

The purchase of the houses.

Yes Sir, that is the one product that the principal alluded to in Mr. Justice Stewart’s dissent and rather in Mr. Justice Porter’s dissent in which Mr. Justice Stewart referred and this was one of the fears that Mr. Justice White had in his dissent that this type of transaction would be the simple what I call sale of the product on credit transaction would be attacked under Fortner.

This is not proven to be the case at all.

We do not have a series of cases that have been filed over the last eight years, applying this decision in that fashion and I respectfully submit that they are entirely different situations.

Here we have got the Credit Corporation being instructed to stand or to commit itself to spend to put forward $2.5 million to obtain $700,000 worth of sales.

We not only have them doing it with us and again this – they all did not even had to be 100% loans to be attractive to people.

Kenneth L. Anderson:

The question is what was sufficient as their own documents pointed out that we have quoted in our brief, what is enough they said?

What is sufficient to do the job?

How much is enough to get you to take our product and in some instances, it may have been 80%, in some instances it may have been 70%, in some instances it may have been 90% and in some instances it may be a 100%, but we do know this, this is an un-contradicted fact in the record, and is found by the court that all the loans that were made, I mean, all of the loans that were made whether under the special financing program or under the general financing program of US Steel contains a tie-in about which we are complaining here today and that is un-contradicted in the record.

We do know that the special financing program which is described by their own documents was the program in which they deliberately set out to attain additional sales of house packages and we do know that there were 43 loans involving the special terms necessary to obtain sales in situations that were not otherwise generally acceptable and of those 43 loans we know that they involved $7,700,000 worth of loans, again involving the land acquisition and development aspects only of this situation.

So it can be seen from the very record and the findings of the trial court that many, many other ties were created by this program and not just Fortner.

Fortner happens to be the one that got heard in his complaining but there were many others that were affected by this program while it was in effect.

The higher price for the product is as established.

Justice Black in the majority opinion in this case held in essence that this is evidence for the finder of fact to consider; the finder of fact considered that evidence and found it to be significant.

Mr. Justice Black said of these other factors that I have referred to were evidence to be considered.

I did not read this Court’s opinion as a saying and nor has the Sixth Circuit in either of its opinions where this Court’s opinion as saying that the only way that you can prove market power in the lending situation is to prove some cost advantage on the part of the lender, because and I think if you analyze it, it is obvious that there are many other factors.

There are many other pieces of evidence that can prove that economic power just as will is a cost advantage.

You can deliberately do something and create an advantage for yourself and as Mr. Justice Black points out in his opinion, where a large company has tremendous resources behind itself, it can do things that smaller companies that do not have these tremendous resources behind them cannot do and this is exactly the guarantee program that I described in my argument here.

They were able to underwrite to the extent necessary, this program if they wanted to and they elected to do so from funds from other areas of their business.

I think your position is that Fortner – our opinion and Mr. Justice Black’s opinion to the Court that Fortner did not purport to water down the necessity for proving sufficient amount of economic power in the tie-in product?

Kenneth L. Anderson:

That is correct Your Honor, I have never considered the Supreme Court’s decision in this case in the slightest to eliminate the requirement of proof of economic power.

You have the reference and the opinion to the various factors that Mr. Justice Black in writing the opinion referred to as being indicia of economic power when he held that we had enough proof to go to trial.

He lists in various manners the indicia, of some indicia of economic power.

What do you think the critical evidence is of economic power in this case?

Kenneth L. Anderson:

To summarize Your Honor I think that Mr. Justice Black points out that…

Well, I do not know about Mr. Justice Black, but in this case what do you think that critical evidence is of economic power in the credit market over the credit market?

Kenneth L. Anderson:

Alright, yes sir.

First of all the nature of the terms of the loans are…

they are just the low credit terms, no favorable credit terms…

Kenneth L. Anderson:

Favorable credit terms offer Your Honor because…

Not even cheap.

Kenneth L. Anderson:

Right, including the elimination of the guarantees, the US Steel guarantees.

The favorable guarantee.

Kenneth L. Anderson:

The increased price…

You do not think that would be enough by itself, do you?

Kenneth L. Anderson:

Yes I do, but…

Do you think that is apparent from Mr. Justice Black’s opinion?

Kenneth L. Anderson:

Mr. Justice Black’s opinion indicates that the uniqueness is evidence of the economic power.

He does not say that it is the only thing.

Well, I know that, but so you think he says it would be sufficient by itself?

Kenneth L. Anderson:

It is in the context of our proof.

Do you think it is?

Kenneth L. Anderson:

Yes, I have always thought it is because of loans.

You almost must say so in this case.

Kenneth L. Anderson:

Well, no because I think I have…

What’s the other evidence?

Kenneth L. Anderson:

But I have other evidence.

What is that?

The fact that the higher price for the tied product.

You would not think that would be enough in itself?

Kenneth L. Anderson:

No sir.

And Mr. Justice Black did not suggest it.

Kenneth L. Anderson:

He did not suggest that that was enough by itself, no sir.

But he said it might be evident.

Kenneth L. Anderson:

He said that it may well be I believe is the frame…

Alright, what else have you got?

Kenneth L. Anderson:

We have got the number of times created by the special financing program, in this case, the numbers of ties.

The opinion in this case indicates that the numbers may again be evidence of economic power.

What are the numbers in this case?

Kenneth L. Anderson:

The numbers Your Honor are depending on how you want to look at

One bit of evidence is that all of loans that they made involved the time.

Another bit of evidence is that the special financing program, which was the program intended to get the business when good banking principles were not applicable involved that we know of 43 loans concerning over $7,700,000 in loans and which obviously had to affect a very, very substantial numbers of house packages because these $7,700,000 of loans only involved the land acquisition and development aspect of the program owner.

Just so I have it, are these 43 loans that you refer to companies other than Fortner and are they 43 different builders or 43?

Kenneth L. Anderson:

Yes sir, they are 43 different builders.

I see,

Kenneth L. Anderson:

Obviously, I isolated the – I did not duplicate.

Kenneth L. Anderson:

There were more loans than that because they may have had three loans to one builders, but I cut it down.

This is the finding of the trial court also Your Honor.

In what geographical areas were those 43 people are having institutions located?

Kenneth L. Anderson:

West to the Mississippi.

And Fortner is east of the Mississippi?

Kenneth L. Anderson:

No, I am sorry, east of the Mississippi, excuse me.

So these are 43, are east of the Mississippi, that is much as we know about them.

Kenneth L. Anderson:

Yes sir.

Our discovery as to them was limited to their identity.

We got the list because it is an attachment to the underwriting agreements in which the guarantees were made by US Steel to the Credit Corporation which is a part of the record and we were limited in our discovery in that area.

So we did not get into a great deal of depth in the discovery concerning them.

What are the (Inaudible).

Kenneth L. Anderson:

Well, again…

You got the favorable credit terms, you got the higher price of the tied product and you have got the fact that US Steel managed to make a fair number of some other loans, 43 other loans.

Kenneth L. Anderson:

Yes sir.

That is it?

Kenneth L. Anderson:

No Sir, well, I again apply the same principle of this guarantee by US Steel itself to the Credit Corporation as being separate evidence of economic power.

It is recognized very strongly by Judge Gordon in his findings, simply because there was not anybody else in this business that was in a position to…

This was a deep business, it sort of the deep pocket approach.

Kenneth L. Anderson:

Yes sir.

If you are rich enough, you have got economic power.

Kenneth L. Anderson:

Well, the way they did it here.

If loans, if sour loans would not really break you, you have got enough economic power.

Kenneth L. Anderson:

Where you deliberately set out to achieve a purpose with a particular program and are willing to backup that program with funds generated from other aspects of your business and where it is obvious that because of the risks involved others at that time and under those circumstances are not in a position to do this, yes sir.

I think this is very strong evidence of economic power, exercised in this situation at this time and at this place.

This is just like a – this is similar to situation with a trademark or a patent, the trademark or a patent.

The gist is it exists, is not really significant unless and until it is promoted, advertised or whatever and you have to have money to do that.

So you take your money and your patent and you create not just with the patent alone, but the money and the patent are the situations that create the demand that allow you in those situations to create a tie-in or with a trademark in our franchising cases, but in all of these situations, money is the root, the base that establishes what you can do with it and if you do not create the consumer acceptance by letting people know that you got this patent and what it will do or by establishing through advertising the acceptability of the trademark you still do not have any economic base to have a tie-in.

Thank you.

Warren E. Burger:

Do you have anything further Mr. Flinn?

Macdonald Flinn:

Mr. Chief Justice, I will add up only one thing.

These loans were not $2 million for the financing of land.

There is a challenge interposed by the plaintiff in this case only to the land financing.

The two land financing transactions together totaled less than $380,000.

So I submit that on the record its clear even on the findings adopted by Judge Gordon it is clear, US Steel did not use $2.2 million worth of its assets to promote the sale of what turned out to be 70 prefabricated houses to this plaintiff.

Thank you.

Mr. Flinn, before you sit down, now these 43 other loans that your opponent referred to, were they contemporaneous or were they spread over, created?

Macdonald Flinn:

They were spread over roughly a five-year period according to the face of the particular exhibit.

That exhibit is dated in late 1962, it picks up loan commitments not even loans made Mr. Justice, but commitments made as early as 1958.

These two loans that are listed on that particular document for Fortner enterprises show that the other listings were commitments rather than amounts actually loaned because of the record here clearly demonstrates Mr. Fortner did not take down full amount of the $380,000 land loans committed to him.

He gave up his project before the development had run its course.

Does the record show whether or not there was a tie with respect to those 43 other loans?

Macdonald Flinn:

I am sure the record does show that.

No land financing was extended other than on the basis that each lot would have a Homes Division house built upon it.

So we raised no issue about that.

We do, however, point out that the $19 million loan which my friend Mr. Anderson says was the tie is erroneous of that 19 million, some $13 or $14 million was for the purchase of the houses themselves.

Those were not land loans, then when we get down to the roughly $5 million of land loans which were outstanding in one of the two years when these loans were negotiated, there is no showing on the record is that how many of those were special land loans and therefore by the plaintiff’s argument allegedly unique in any sense.

The record is silent on those facts.

Warren E. Burger:

Thank you gentleman.

The case is submitted.