The opinion of the court was delivered by: LEVET
This is an action for treble damages under the antitrust laws. The case was tried before a jury after a preliminary trial in reference to the statute of limitations, likewise before a jury, pursuant to Bertha Building Corporation v. National Theatres Corporation, 2 Cir., 1957, 248 F.2d 833, certiorari denied April 28, 1958, 78 S. Ct. 777. On the basis of the jury's factual conclusions in the preliminary trial this court determined that a three-year New York statute, Civil Practice Act, § 49, controlled. See Banana Distributors Inc., v. United Fruit Company and Fruit Dispatch Company, D.C.S.D.N.Y.1958, 158 F.Supp. 153; 158 F.Supp. 160. After a trial of the main issues lasting some thirty-nine court days, the jury disagreed. Motions by defendants under Rule 41(b) and Rule 50 of the Federal Rules of Civil Procedure, 28 U.S.C.A. are now to be determined.
The only litigants involved at the conclusion of the trial were Banana Distributors Incorporated, plaintiff, and United Fruit Company and Fruit Dispatch Company, defendants, the action having been dismissed as to all other parties. The plaintiff, Banana Distributors Incorporated, is a banana jobber, with its business located in Hartford, Connecticut. Defendant United Fruit Company produces bananas in the Central American tropics and transports them to the United States, where the defendant Fruit Dispatch Company distributes the fruit.
On January 24, 1958, at the close of plaintiff's case, pursuant to Rule 41(b) of the Federal Rules of Civil Procedure, the defendants severally moved for dismissal upon the merits on the ground that upon the facts and the law the plaintiff had shown no right to relief. Following argument, decision was reserved. At the close of all the evidence, the defendants renewed their previous motions and further moved for a directed verdict pursuant to Rule 50 of the Federal Rules of Civil Procedure, on which, after argument on February 11, 1958, decision was also reserved. After disagreement of the jury, these motions were renewed by the defendant on February 20, 1958. Subsequently, briefs and arguments thereon were presented on March 3, 1958.
Plaintiff claims that defendants, United Fruit and Fruit Dispatch, have monopolized and have conspired to monopolize and to restrain trade with respect to the importation and distribution of quality green bananas in the United States, and more particularly, in the Eastern Division of Fruit Dispatch and the State of Connecticut. Plaintiff alleges that United Fruit and Fruit Dispatch had monopoly control over the supply of bananas and have abused their monopoly power in various unlawful ways, described hereinafter, thereby causing damage to plaintiff.
Plaintiff contends that the evidence sustains the following claims against the defendants:
(1) That the defendants maintained and conspired to maintain an allocation system in the sale of bananas which deprived plaintiff of competitive access of the market;
(2) That as a result of this allocation system, defendants refused to sell plaintiff an adequate supply of bananas to operate its plants at a profit;
(3) That the defendants monopolized and conspired to restrain trade and monopolize --
(a) By fixing and stabilizing prices;
(c) By coercing jobbers to buy during periods of glut;
(d) By granting rebates to certain customers;
(e) By forcing jobbers to accept bananas either greater in quantity or lower in quality than such person would otherwise accept;
(f) By penalizing jobbers because of purchases by them from competitors of defendants; (g) By dumping bananas in order to fix and stabilize prices;
(h) By selling bananas on the condition or understanding that the jobber will comply with any instructions of the defendant Fruit Dispatch Company as to persons to whom the bananas may be sold by the jobber or the areas in which the jobber may sell the bananas purchased by him;
(i) By allocating bananas;
(j) By refusing to grant competitive access to defendants' banana supply;
(k) By requiring jobbers to buy inferior bananas at first-class prices;
(4) That Fruit Dispatch Company and United Fruit Company, defendants, and Thomas Kalliches, Inc., not a defendant, conspired to refuse to sell bananas or to reduce sales to plaintiff in order to restrain and suppress competition between plaintiff and other jobbers;
(5) That United Fruit Company and Fruit Dispatch Company, defendants, and Canadian Banana Company and Meloripe Company, not defendants, conspired to fix and stabilize prices by dumping bananas. (See Plaintiff's Requested Instructions to Jury, Nos. 3 and 4.)
In substance, the plaintiff has advanced two legal theories upon which to predicate a recovery for but a single set of allegedly illegal practices. The gravamen of plaintiff's action, whether viewed from the standpoint of alleged monopolization or conspiracy is:
(3) Use of an allocation system which, it is claimed, involved both of the above in such a manner as to preserve defendants' effective market control over both the supply and price of quality green bananas.
The defendants contend, and sought at the trial to prove, that their distribution system did not involve price fixing or any illegal refusal to sell but, on the contrary, represented a legitimate business practice necessitated by the nature of the banana business; that it was established to distribute bananas as equitably as possible among all of defendants' customers during periods of shortage; and that the plaintiff at all times received a fair and equitable share of the available banana supply.
Likewise, the defendants claim and sought to prove that they attained their position of leadership in the banana market by superior skill, efficiency and scientific application. They assert that their dominance, if any in the banana business was thrust upon them. However, the question is not how the defendants acquired their position of leadership, but, rather, whether that position gave them monopoly control over the market. If so, such dominance may have made otherwise valid business practices actionable. Congress, in the passage of the anti-trust laws, has adopted a policy of control of economic organization and business practice to which all must adhere. The purposes of Congress in passing this legislation was to use its constitutional power 'to make of ours, so far as Congress could under our dual system, a competitive business economy.' United States v. South-Eastern Under-writers Ass'n, 1944, 322 U.S. 533, 559, 64 S. Ct. 1162, 1177, 88 L. Ed. 1440.
For the purposes of determination of these motions, it appears that there was evidence from which a jury might conclude that during the pertinent three-year period, September 3, 1950 to September 3, 1953, (1) the defendants possessed monopoly power over the supply of quality green bananas in the connecticut market; (2) the defendants exercised allocation or partial refusal to sell; (3) the defendants fixed prices; (4) the defendants' distribution system was operated in such a manner as to preserve United Fruit's effective market control over both the supply and price of quality green bananas.
By reason of the foregoing considerations with respect to alleged monopolization, dismissal is not appropriate. Consequently, a review by the court of the sufficiency of plaintiff's claims with respect to conspiracy is unnecessary to the decision of the present motions. Accordingly, the discussion which follows is devoted exclusively to a consideration of plaintiff's claims with respect to defendants' alleged monopoly power and the asserted abuse thereof.
Legal v. Illegal Refusal to Sell
In the absence of conspiracy or monopoly, an individual trader has full freedom to refuse to sell to any person for any reason. See United States v. Colgate & Co., 1919, 250 U.S. 300, 307, 39 S. Ct. 465, 63 L. Ed. 992. The exercise of control over customers to protect the seller's goodwill and his product is not illegal per se. It has been said that it is of the essence of competition that the manufacturer or wholesaler should and does have wide freedom in maintaining the quality of his distribution system. See 103 University of Pennsylvania Law Review 847, 859, 'Refusals to Deal under Federal Antitrust Law,' by Charles F. Barber. Refusals to sell without more do not violate the law. Times-Picayune Publishing Company v. United States, 1953, 345 U.S. 594, 624-625, 73 S. Ct. 872, 97 L. Ed. 1277. A trader or manufacturer has a right to develop its enterprise intelligently by promoting productive business relationships and channels of distribution, while abandoning those which are relatively barren. See Miller Motors, Inc., v. Ford Motor Company, D.C.M.D.N.C.1957, 149 F.Supp. 790, 808-809, affirmed 4 Cir., 1958, 252 F.2d 441.
A single producer in a purely competitive market will ordinarily sell to all comers and is free not to do so if it chooses; but the situation is different when the producer has a substantial degree of monopoly power stemming from comparative size. 'Within the limits of his monopoly position the producer can use refusal to sell as a device to influence prices. Moreover he has a weapon with which to extend his power over the market.' See 58 Yale Law Journal 1121, 'Refusals to Sell and Public Control of Competition.' Refusal to sell on the part of a producer having monopoly control in order to influence prices or to maintain or extend its effective market control is illegal, as is any other device designed to accomplish these ends. See United States v. Griffith, 1948, 334 U.S. 100, 107, 68 S. Ct. 941, 92 L. Ed. 1236; United States v. Aluminum Co. of America, 2 Cir., 1945, 148 F.2d 416, 427-428.
Whether or not the defendants may be considered as a 'single trader' is, therefore, not decisive. Even if the relationship of United Fruit Company and its subsidiary sales agent, Fruit Dispatch Company, by reason of the agency contract (Defendants' Exhibit A-4), constitutes only one unit -- that is, a single trader -- the defendants might still be liable under proof of monopoly power, exercised to accomplish an illegal purpose.
In Klor's, Inc., v. Broadway-Hale Stores, Inc., 255 F.2d 214, decided by the United States Court of Appeals for the Ninth Circuit on March 28, 1958, a distinction was drawn between a refusal to sell which might result in an invasion of a private right without constituting a public wrong, and a refusal to sell which constituted both a private and a public wrong. The former was held not to be actionable under the antitrust laws. No question of monopoly power or the illegal abuse thereof was involved, nor was it there alleged that the refusal to sell affected the price, quantity or quality of the product either directly or indirectly.
In the case at bar, there is proof from which a jury might conclude that the defendants engaged in refusals to sell which may have served to perpetuate defendants' market status and to affect the price of bananas ultimately charged to the consuming public. It is clear, therefore, that, at least for the purpose of these motions, the refusals to sell (or partial refusals to sell) with which the defendants are charged, when considered with attendant facts and circumstances here present, may have constituted, per se, both a private wrong to the plaintiff and a public wrong actionable under the treble damages provision of the antitrust law (Title 15 U.S.C.A. § 15).
There was, as I have said, sufficient evidence from which the jury could have held that the defendants had a monopoly power over the importation of bananas into the State of Connecticut in the period involved in this law suit. According to Plaintiff's Exhibit 53, the importations by water of bananas into the United States by the United Fruit Company constituted the following percentage of all such water-borne imports of bananas:
1950 ... 73%
1951 ... 70.3%
1952 ... 65.5%
1953 ... 65.2%
Plaintiff's Exhibit 58 showed the weekly imports of bananas into the Eastern Division based on weight and compares the United Fruit Company importations with those of Standard Fruit Company and other competitors.
The defendants, by Exhibit W-3, entitled, 'Water-Borne Arrivals of Bananas into the Port of New York in Terms of Stems,' contend that importations of Fruit Dispatch in percentage in relation to competitors declined from 80% of all banana importations in 1948 to 61% in 1952, while competitors' importations increased from 20% in 1948 to 39% in 1952. Thus, at least 61% of total imports in stems into the Port of New York were brought in by the defendants.
It appears that in 1950, Standard Fruit sold 3,501,605 pounds of bananas in Connecticut from their port of entry in New York, including 16,702 stems listed as being other than green bananas. (Plaintiff's Exhibit 57, p. 12) In the fiscal year ending October 31, 1950, plaintiff purchased 6,014,188 pounds of green bananas. (Plaintiff's Exhibit 97)
In 1951, the total poundage of Standard Fruit bananas entered at New York and sold in Connecticut, including 34,663 stems listed as being other than green bananas, was 6,152,335 pounds. (Plaintiff's Exhibit 57, p. 29) Plaintiff's purchases of green bananas for the fiscal year ending October 31, 1951 was 5,926,852 pounds. (Plaintiff's Exhibit 97)
In 1952, the total poundage of Standard Fruit bananas entered at New York and sold in Connecticut, including 40,690 stems listed as being other than green bananas, was 7,339,553 pounds (Plaintiff's Exhibit 57, p. 46) Plaintiff's purchases of green bananas for the fiscal year ending October 31, 1952 was 4,611,053 pounds. (Plaintiff's Exhibit 97)
From January through September of 1953, Standard Fruit sold in Connecticut 4,451,066 pounds of bananas entered at New York, including 30,466 stems listed as being other than green bananas. (Plaintiff's Exhibit 57, p. 58) Plaintiff's purchases of green bananas for the fiscal year ending October, 31, 1953 was 4,889,660 pounds. (Plaintiff's Exhibit 97)
In respect to monopoly power of the defendants and its effect upon Banana Distributors Incorporated, the plaintiff submited certain other evidence, including the following: Cos Masters, president of Thomas Kalliches, Inc., testified that in his opinion it would not have been possible during the period 1946 to 1953 for a substantial jobber to have conducted his business in supplying customers in the Eastern Division of the United States without getting supplies of bananas from Fruit Dispatch. (S.M. 162) Percival B. Elbaum, president of the plaintiff, also testified to a similar condition. (S.M. 3186) Out of many importers, only R. B. Dixon & Company, Standard Fruit and Steamship Company and Eastern Banana Company were able to bring in comparatively regular supplies. (See Plaintiff's Exhibits 29, 54, 56, 58, 60) Elbaum apparently purchased some bananas from competitors in 1951, 1952 and 1953. (S.M. 816-817) In the opinion of Masters, the general quality of the fruit imported by Standard Fruit, for example, was far below that of United Fruit. (S.M. 136-138) Masters, in comparing the quality of bananas imported by Fruit Dispatch and Standard Fruit, said that the Standard bananas had more gold than green, were horribly marked, bruised, scarred, contained insect marks, maceration marks, etc. (S.M. 138) and that the Standard Fruit company's best, the Frisco, was not comparable to United Fruit Company's Fortuna. (S.M. 140) R. B. Dixon & Company brought in Ecuador bananas, which did not have the desirability of the Central American varieties. (S.M. 158-159)
Defendants' profit margin is another factor which may properly be considered by a jury in determining whether the defendants had monopoly power. See United States v. General Electric Co., D.C.D.N.J.1949, 82 F.Supp. 753, 895. In this regard, plaintiff contended that the profit per dollar of sales by United Fruit in the United States rose from 20% in 1941 to 47% in 1947, although receding to 31% in 1952. (See Plaintiff's Exhibits 63, 64, 115) On the other hand, defendants claimed that United Fruit's profits, calculated upon its net worth, asserted to be a more reliable basis, were not at all unreasonable. See Defendants' Exhibits D-3A, J-3, K-3, I-3; S.M. 4421-4428.
The exact proportion of defendants' share of the market may be open to some question. For example: (1) There is some uncertainty by reason of the use of varying comparisons based upon terms of weight and those based upon number of stems. The defendants contend that number of stems afford a more accurate basis of comparison, while the plaintiff urges the use of weight; (2) The defendants point out that arrivals for Canadian and Southern Division customers are excluded and that shipments into the Eastern Division from the Southern Division arrivals are excluded, referring to minutes, pp. 987-989, Plaintiff's Exhibit 60; (3) The defendants assert that Plaintiff's Exhibits 53 and 58 not only are fallacious because of the weight as against stems alleged inaccuracy, but because the testimony in respect to the quantity brought in by other importers is conjectural, referring to minutes, pp. 327-328.
While the proof which was adduced is subject to certain attack, it is my opinion that a factual issue thereon exists which, for the purposes of ...