CENTRAL RETAILER-OWNED GROCERS, INC. 13. Central Retailer-Owned Grocers, Inc. v. F.T.C., 319 F.2d 410 (7th Cir. 1963) (a) Court Action: Order set aside. (b) Commission Action: 1. On September 10, 1963, directed General Counsel to request Solicitor General to file petition for certiorari. Vote: 5-0, Commissioner Elman noting that while he agreed with the Seventh Circuit's decision, issue should be resolved by the Supreme Court. 2. On September 12, 1963, Mr. Truly authorized to tell anyone making inquiry that Commission was unanimously seeking certiorari. Vote: 5-0. 3. On November 7, 1963, directed General Counsel to prepare letter to Solicitor General for chairman's Signature withdrawing request to petition for certiorari. Vote: 3-2, Commissioners Elman and MacIntyre voting in the negative. 4. On November 12, 1963, approved letter to Solictor General withdrawing request for filing of petition for certiorari. Vote: 3–2, Commissioners Elman and MacIntyre, the former for the minute record only, not concurring. SEPTEMBER 10, 1963. (46) Central Retailer-Owned Grocers, Inc., v. Federal Trade Commission, 7th Cir., No. 13,820 (Docket 7121-National Retailer-Owned Grocers, Inc., et al.) Memorandum of August 23, 1963, from the General Counsel, transmitting draft of proposed letter to the Solicitor General, requesting that he petition the Supreme Court for a writ of certiorari to the United States Court of Appeals for the Seventh Circuit, to review the decision of July 2, 1963, of that Court, setting aside the Commission's order in Docket 7121. On August 23, 1963, the five Commissioners directed that the Solicitor General be requested to petition the Supreme Court for a writ of certiorari to review the judgment in question, and the letter to the Solicitor General, making such request and transmitting pertinent material, as submitted by the General Counsel, was approved and ordered forwarded after signature by the Chairman. As to the foregoing action, Mr. Elman, while agreeing with the decision of the Court of Appeals for the Seventh Circuit, agreed that the questions raised by the decision are important and should be resolved by the Supreme Court and, therefore, joined in the Commission's request that the Solicitor General seek certiorari, and it was directed that Mr. Elman's position be shown on the letter to the Solicitor General. SEPTEMBER 12, 1963. (2) Central Retailer-Owned Grocers, Inc. v. Federal Trade Commission, 7th Cir.. No. 13.820 (Docket 7121-National Retailer-Owned Grocers, Inc., et al.) Mr. Dixon referred to the numerous inquiries from members of the food industry as to the action which the Commission proposes to take in this matter. in which, under the action of August 23, 1963, the Solicitor General was requested to petition the Supreme Court for a writ of certiorari to the United States Court of Appeals for the Seventh Circuit to review the decision of that Court setting aside the order in Docket 7121. After discussion, on motion of Mr. Higginbotham, James B. Truly, Assistant General Counsel for Appeals, was authorized to informally advise anyone making inquiry regarding this matter that the Commission unanimously requested the Solicitor General to seek certiorari. It was further directed that the Solicitor General be advised that the Commission is informing persons, when asked, that this agency has requested the Department of Justice to petition for a writ of certiorari. NOVEMBER 7, 1963. (6) Central Retailer-Owned Grocers, Inc., et al. v. Federal Trade Commission, 7th Cir., No. 13,820 (Docket 7121-National Retailer-Owned Grocers, Inc., et al. Mr. Dixon presented (1) memorandum of October 30, 1963, from the General Counsel to him, setting forth a suggested letter to the Solicitor General in connection with this matter, in which the Commission, under its action of September 10, 1963, directed that the Solicitor General be requested to petition the Supreme Court for a writ of certiorari, and (2) letter of November 4, 1963, from the Solicitor General in which that official stated, among other things in the second paragraph, that he is "still persuaded that this is not an appropriate case for a petition for certiorari”. After consideration, in view of the letter of November 4, 1963, from the Solicitor General, and particularly in view of the second paragraph thereof, Mr. Dixon moved that no further action be taken with respect to seeking certiorari in this matter. The motion was seconded by Mr. Anderson. As to Mr. Dixon's motion, Messrs. Dixon, Anderson and Higginbotham voted in the affirmative, and Messrs. Elman and MacIntyre voted in the negative. The motion was carried, and it was so ordered. The General Counsel was instructed to prepared an appropriate letter for the signature of the Chairman, advising the Solicitor General of the above action. NOVEMBER 12, 1963. (2) Central Retailer-Owned Grocers, Inc., et al. v. Federal Trade Commission, 7th Cir., No. 13,820 (Docket 7121-National Retailer-Owned Grocers, Inc., et al.) Draft of letter to Hon. Archibald Cox, Solicitor General, as submitted by the General Counsel, pursuant to the action of November 7, 1963. After consideration, the letter to Mr. Cox was approved and ordered forwarded after signature by the Chairman. Messrs. Elman and MacIntyre, the former for the minute record only, did not concur in the decision of the Commission not to press further its earlier request that certiorari be sought in this matter. AUGUST 23, 1963. Re Central Retailer-Owned Grocers, Inc., et al. v. Federal Trade Commission, 7th Cir. No. 13.820 (decided July 2, 1963)-FTC Docket 71221. Hon. ARCHIBALD COX, The Solicitor General, Department of Justice, DEAR MR. SOLICITOR GENERAL: On July 2, 1963, the United States Court of Appeals for the Seventh Circuit filed its opinion and judgment in the aboveentitled case, setting aside an order to cease and desist issued by the Federal Trade Commission. The Court's opinion, while superficially based upon a finding of a lack of substantial evidence to support the Commission's decision, actually, the Commission believes, is the result of an erroneous conclusion of law. The Commission's efforts to enforce Section 2 of the Clayton Act, as amended, may seriously be hampered if this decision stands. For the reasons stated below, we request that a petition for a writ of certiorari be filed. The case arose under the brokerage section of the Clayton Act, as amended by the Robinson-Patman Act (Section 2(c); 15 U.S.C. 13(c)). Involved is the determination of the nature of certain allowances, discounts and price reductions induced and received from certain suppliers by Central Retailer-Owned Grocers, Inc. ("Central"), a retailer-owned wholesale group buying organization. The Commission found (Pet. Apdx. 458) that Central was a "controlled intermediary of its member-wholesalers for the purpose of purchasing private label merchandise" and that it "clearly acts in the capacity of a buyer's broker." The Commission further found (Pet. Apdx. 458-459) that the price concessions obtained by Central in its purchases from certain of its suppliers were in effect discounts in lieu of brokerage paid for services rendered by Central for its members. The Commission held (Pet. Apdx. 459-460) that the receipt of such discounts, allowance and price reductions violated Section 2(c) of the Clayton Act. In setting aside the Commission's order to cease and desist, the Court held that the "inference" of the Commission that the price concessions received by Central were discounts in lieu of brokerage was "improperly drawn from comparisons of brokerage paid by such dealers on sales which they made through brokers, with the price reductions granted to Central" (Slip Opinion p. 7). The Court further held (ibid.) that the "fact that Central, because of its strong purchasing power, was able to buy at favorable prices, or on discounts and allowances by its suppliers, is not proof that Central was rendering a brokerage service." The Court added (ibid.): "... Central was able to secure favorable prices from its suppliers, because of (1) their assured volume of business, (2) their lack of any credit risk, (3) a reduction in their billing work, and (4) Central's advance cimmitments for later requirements. The result was that the suppliers knew that. in selling to Central, they were for these reasons realizing savings in their business operations, which enabled Central's members, in turn to benefit when they purchased from Central." Although the decision of the Court of Appeals is phrased in terms of the substantiality of the evidence, the Court has decided an important legal question without considering the obvious savings in brokerage which accrued to the suppliers on sales to Central. The Court has in effect ruled that a seller's payment to a buyer for benefits resulting in cost savings to the seller arising from services performed by the buyer for itself is not a "commission brokerage, or other compensation, or an allowance or discount in lieu thereof" within the meaning of Section 2(c). The Court has evinced a misunderstanding of the purposes of Section 2(c): its decision, we believe, is in conflict with the decisions of others of appeals and of the Supreme Court. 1. The Court of Appeals held that "it was established that lower prices were obtained from suppliers because of advantages to the suppliers resulting from the cooperative buying efforts of the members through Central" (Slip Opinion p. 6). The Court held that each element of savings arose from Central's “‘unique' way of doing business," i.e., buying and selling merchandise to themselves (Slip Opinion p. 5). Central's "unique way of doing business" is to make "private label" merchandise available to its members at a reduced cost. To accomplish this its members furnish it with estimates of how much "private label" merchandise they will probably need during the ensuing year. On the basis of these advance estimates Central solicits its suppliers to obtain price concessions, and enters into understandings with the suppliers covering the anticipated needs. Thereafter, as members require quantities of the "private label" merchandise, they submit orders to Central. Central then transmits the orders to a supplier and the supplier ships the products ordered directly to the ordering member (Slip Opinion pp. 4–5). Central's services to its members in this respect are essential to the acquisition and distribution of "private label" merchandise. Central's receipt of lower prices from its suppliers in connection with such services, described as the "unique" way of doing business, is tantamount to the receipt of allowances in lieu of brokerage. As stated in the House Report on the "brokerage section” (H.R. 2951, 74th Cong., 2d Sess. 15 (1936)): "This subsection permits the payment of compensation by a seller to his broker or agent for services actually rendered in his behalf: likewise by a buyer to his broker or agent for services in connection with the purchase of goods actually rendered in his behalf; but it prohibits the direct or indirect payment of brokerage except for such services rendered. It prohibits its allowance by the buyer direct to the seller, or by the seller direct to the buyer; and it prohibits its payment by either to an agent or intermediary acting in fact for or in behalf, or subject to the direct or indirect control, of the other.1 The scope of the "for services rendered" exception is limited. In Great Atlantic & Pacific Tea Co. v. Federal Trade Commission, 106 F. 2d 667, 674 (3d Cir. 1939) the Court said: 1 Courts of Appeals have consistently applied this clear Congressional mandate in construing and applying Section 2(c): Southgate Brokerage Co. v. Federal Trade Comixsion, 150 F. 2d 607. 609 (4th Cir. 1945); Quality Bakers of America v. Federal Trade Commission, 114 F. 2d 393, 398-399 (1st Cir. 1940): The Great Atlantic & Pacific Tea Co. v. Federal Trade Commission, 106 F. 2d 667, 674 (3d Cir. 1939); Oliver Bros. v. Federal Trade Commission, 102 F. 2d 763, 766 (4th Cir. 1939); Biddle Purchasing Co. v. Federal Trade Commission, 96 F. 2d 687, 691 n. 63 (2d Cir. 1938). 2 In Federal Trade Commission v. Washington Fish & Oyster Co., 282 F. 2d 595, 597 n. 4 (9th Cir. 1960), the Court stated: "This exception, however, does not include services of a kind which a buyer normally performs for himself, such as warehousing and reselling *** or which ares of a merely incidental nature * The phrase 'except for services rendered' is employed by Congress to indicate that if there be compensation to an agent it must be bona fide brokerage, viz., for actual services rendered to his principal by the agent. ** While the phrase, 'for services rendered,' does not prohibit payment by the seller to his broker for bona fide brokerage services, it requires that such service be rendered by the broker to the person who had engaged him. * * *" Payment by a seller to a buyer in compensation for the type of service rendered by Central for its members are not payments that are excepted by the "for services rendered" proviso. See Modern Marketing Service, Inc. v. Federal Trade Commission, 149 F. 2d 970, 978 (7th Cir. 1945). In Southgate Brokerage Co. v. Federal Trade Commission, 150 F. 2d 607, 609 (4th Cir. 1945), cert. denied, 326 U.S. 994, Southgate asked that it be permitted to show that for the payments it received from its suppliers it "renders services consisting of 'promoting, offering for sale, selling, ordering, receiving, adjusting shortage or damage claims, handling, warehousing, distributing, invoicing. collecting, assumption of credit risks.'" The Court said: "The services which the company proposes to show by the evidence that was excluded are services rendered to itself, as purchaser, and not to those from whom it has purchased them." In Oliver Bros. v. Federal Trade Commission, 102 F. 2d 763, 766 (4th Cir. 1939), the Court said: ". . . In furnishing the service which it has contracted to furnish the buyers, it affords to the sellers facilities for placing their goods before the buyers and obviates the necessity of their employing brokers to reach these customers; but this is a service rendered the buyers which Oliver has bound itself to render them under their subscription contracts. The benefit to the sellers is incidental to this service rendered the buyers and is not the result of a service undertaken for the benefit of the sellers." And in Quality Bakers of America v. Federal Trade Commission, 114 F.2d 393, 398 (1st Cir. 1940), the Court said: "... Undoubtedly the sellers received valuable benefits and advantages from the business given them by the Service Company, other than the ordinary profits on the sales. For instance, they were saved the expense incident to obtaining the business and dealing separately with numerous customers taking a large amount of merchandise. In that way and to that extent the Service Company rendered services and had contractual relationships with the sellers. For those benefits the sellers were willing to pay and did pay and, no doubt, after such a course of dealing had been established, it was considered by all parties that there was an implied agreement to pay, but it is a mistake to assume that the payments made were other than essentially commissions on the sales or to suppose that such a practice was lawful after the passage of the Robinson-Patman Act." Although the Supreme Court in Federal Trade Commission v. Broch, 363 U.S. 166, 173 (1960), may have indicated that a buyer may be compensated by a seller for services rendered by the buyer to the seller, there is nothing in that opinion which would validate Central's receipt of payment for services rendered to itself which only incidentally benefited the seller. We believe that receipt of payments for the reasons stated by the Court of Appeals, as a matter of law, constitutes the receipt of a "commission, brokerage or other compensation, or any allowance of discount in lieu thereof" within the meaning of Section 2(c). 2. Petitioners argued in the Court of Appeals that from their "unique" method of doing business the sellers realized cost savings other than savings in brokerage and that only such savings were reflected in the price concession that such suppliers granted to them. But petitioners did not offer a "cost justification" defense to show such savings. While cost studies may be admissible in a 2(c) case, they are admissible only for the purpose of showing that savings in costs were legitimate savings which might have been proved in defense of a 2(a) case, and that, accordingly, the reduced price was not the result of payments in lieu of brokerage. Compare Commission's decision in Thomasville Chair Co., 58 F.T.C.—(1961) [CCH Trade Reg. Rep. Par. 29,510, p. 37,808 (Transfer binder 1961)], order set aside, Thomasville Chair Co. v. Federal Trade Commission, 306 F.2d 541 (5th Cir. 1962). Section 2 (a) of the Clayton Act provides: "That nothing here contained shall prevent differentials which make only due allowance for differences in the cost of manufacture, sale or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered." The Court of Appeals held that Central's suppliers realized savings because of Central's assured volume of business and Central's advance commitments for later requirements. The Court specifically referred to the testimony of Robert Gordon (of W. O. Sommers, Inc.) who related the price concessions that his company granted to Central to savings realized on Sommer's purchases of raw materials at the start of the brining year (Slip Opinion p. 6). The savings here could not have been used as a part of such a cost justification under Section 2(a). This alleged cost saving depends upon "incremental" or "marginal" costs-i.e., "the additional cost to the seller in producing those product units involved in the particular price quotation." Rowe, Price Discrimination Under the Robinson-Patman Act 281 (1962). As a matter of law, such "incremental" cost considerations are not available in justifying price discriminations between a supplier's customers. Ibid.; H.R. Rep. No. 2287, 74th Cong., 2d Sess. 10 (1936); 80 Cong. Rec. 9417 (1936); Goodyear Tire & Rubber Co., 22 FTC 232, 289 (1936). The fact that the supplier's payment to Central was based in part upon savings resulting from "incremental" costs, and thus not "cost justifiable" under Section 2(a), supports the Commission's conclusion that the payment was "a commission, brokerage, or other compensation," or "an allowance in lieu thereof" within the meaning of Section 2(c). We believe that the Court's reliance upon such savings in reaching a conclusion contrary to the Commission's, is erroneous. Further, it is undisputed that when the member wholesalers "require quantities of the private label merchandise, they submit orders to Central. Central then, in each instance prepares a combination confirmation order form, sending a copy of the order to the supplier of the particular product ordered and the confirmation to the ordering member... Upon receipt of the order, the designated supplier ships the product ordered directly to the member and bills Central" (Slip Opinion p. 5). This parallels the method of delivery when "packer label" merchandise is sold through brokers, i.e., the supplier ships the products ordered directly to the wholesaler. Accordingly, it is clear that no differences exist as to the method in which the commodities are delivered within the meaning of the "cost justification proviso." Any difference in the method in which the commodities were sold would reflect the normal brokerage saved by eliminating the broker from the transaction. 3. To be considered in determining whether this is an appropriate case in which to seek Supreme Court review is the fact, contrary to the Court's opinion, that the record in this case clearly shows that the price concessions granted to Central by its suppliers reflected savings in brokerage realized by the suppliers when they sold direct to Central. This fact is supported by the testimony of suppliers and by comparison of the monetary amount of the savings in brokerage with the monetary amount of the price concessions. Although purportedly relying upon the "specific testimony of many individual representatives of the various suppliers" (Slip Opinion p. 6), the Court of Appeals quotes only the testimony of one of them to the effect that his lower price to Central was due to the fact that Central's assured quantity of purchases "took a certain amount of the speculation out of our business." The Court does not refer to the testimony of other seller representatives (see Commission's brief at pp. 26-27): Steffen of M. Steffen, Inc., testified (Pet. Apdx. 279–280) : We handle the shipments: [Central] handles the orders, gives us the order. We ship and paid their bills. We don't have to make any calls on the customer." [Emphasis added.] Chalmers of Olds Products Company testified (Pet. Apdx. 125, 126, 181, 183) : "The difference is the saving we make in their solicting and their selling and getting the orders for us and in the volume they do... We just give them a special price for the volume of business they give us, the work they do in soliciting, the prompt payment, no credit losses. . . [Central] looks after the getting of orders and selling them; and we cannot afford to pay any brokers anything for work that is not done . . . We save every kind of selling expense, everything in connection with anything that might be expense in the business." [Emphasis added.] Luehrig of Tharinger Macaroni Company testified (Pet. Apdx. 247): "By figuring our costs on the volume of business we get from [Central] and our regular overall picture of all distributors." [Emphasis added.] This testimony, apparently ignored by the court of appeals, plainly shows that the services rendered by Central for its members were considered by some suppliers to be the equivalent of brokerage services. These sellers have specifically |