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July 22, 1966

Reines Distributors, Inc., etc.
Admiral Corporation, et al. v. Empire State Insulation Co., Inc., et al.

Metzner, D.J.

The opinion of the court was delivered by: METZNER


Plaintiff, a franchised distributor of the products manufactured by defendant Admiral Corporation, asserts claims under sections 2(a), (d) and (e) of the Clayton Act (Robinson-Patman Act), sections 1 and 2 of the Sherman Act, and for breach of contract.

 Plaintiff originally moved for a separate trial of the issue as to whether Newark was a purchaser or customer within the meaning of the Robinson-Patman Act, or a distributor within the meaning of the distributor contract between plaintiff and defendant. This motion was granted in order to facilitate the trial of the case. See 257 F. Supp. 619 (S.D.N.Y. 1965). Subsequently the issues to be tried were framed in a pretrial order jointly proposed by the parties and filed May 11, 1966. In the first instance the court was to determine three separate issues, the court's analysis of which is set forth below.

 From January 1, 1957 to December 31, 1957 and from January 31, 1959 to March 31, 1959 (the latter date approximating the termination of the relationship between plaintiff and Admiral), Admiral distributed its products in the metropolitan area of New York City through a division called the Newark branch. From January 1, 1958 to January 30, 1959 the Newark branch was incorporated with other branches into a wholly owned subsidiary of Admiral.


 The first issue is whether from January 1, 1957 to December 31, 1957 and from January 31, 1959 to March 31, 1959 Newark (then operated as a division of Admiral) was a "purchaser" from Admiral within the meaning of sections 2(a) and 2(e), and a "customer" of Admiral within the meaning of section 2(d) of the Clayton Act, as amended by the Robinson-Patman Act.

 For convenience the court will use the word "purchaser" to encompass both "purchaser" and "customer" within the meaning of the act. American News Co. v. FTC, 300 F.2d 104, 109 (2d Cir. 1962).

 The issue as to whether a "division" of a corporation can be a purchaser for Robinson-Patman Act purposes appears to cover untilled ground. See Syracuse Broadcasting Corp. v. Newhouse, 236 F.2d 522, 527 (2d Cir. 1956). Unlike the relation between a subsidiary and a parent, the nexus between a division of a corporation and the corporation has no legal significance vis-a-vis taxing authorities, creditors, or as regards risk of loss. Under the Sherman Act, there has been a district court holding that because the division of a corporation is for all external purposes part of the corporation itself, the division cannot conspire with the corporation for purposes of section 1 of the Sherman Act. Deterjet Corp. v. United Aircraft Corp., 211 F. Supp. 348 (D. Del. 1962). See Timken Roller Bearing Co. v. United States, 341 U.S. 593, 606, 95 L. Ed. 1199, 71 S. Ct. 971 (1951) (Justice Jackson's dissenting opinion indicates that Government conceded this point); Att'y Gen. Nat'l Comm. Antitrust Rep. 35 (1955) ("there would concededly be no liability"). Cf. Zelinger v. Uvalde Rock Asphalt Co., 316 F.2d 47, 52 (10th Cir. 1963); Mackey v. Sears, Roebuck & Co., 237 F.2d 869 (7th Cir. 1956); Nelson Radio & Supply Co. v. Motorola, 200 F.2d 911 (5th Cir. 1952). Compare Poller v. Columbia Broadcasting System, 368 U.S. 464, 469, 7 L. Ed. 2d 458, 82 S. Ct. 486 n. 4 (1962) ("do not pass upon the point"). While this position seems logical in Sherman Act cases, the focus here is on the purposes of Robinson-Patman and the substance of the relevant transactions in this case in relation to those purposes. Cf. Brennan, The Sherman Act and Multi-Corporate Traders: Competition Among Affiliates, 100 U.Pa.L.Rev. 1006, 1010 (1952).

 Several cases in dealing with the problem of whether a purchase has occurred within the meaning of Robinson-Patman look exclusively to indicia of sales law and transfer of title. See, e.g., Students Book Co. v. Washington Law Book Co., 98 U.S. App. D.C. 49, 232 F.2d 49 (Cir. 1955), cert. denied, 350 U.S. 988, 100 L. Ed. 854, 76 S. Ct. 474 (1956) (upheld jury finding of consignment); Loren Specialty Mfg. Co. v. Clark Mfg. Co., 241 F. Supp. 493 (N.D. Ill. 1965). But cf. Simpson v. Union Oil Co., 377 U.S. 13, 12 L. Ed. 2d 98, 84 S. Ct. 1051 (1964) (Sherman Act §§ 1, 2). If such an approach were taken here, the conclusion is clear that the answer to the question posed is "no " as title does not pass for sales law purposes when goods are transferred within the same corporation.

 It has been plaintiff's contention, however, that since the division functioned during 1957 and the first three months of 1959 in the same manner as when it was a corporate subsidiary in 1958, the court should look to substance rather than form and find that Newark was a purchaser throughout the period. The court agrees that substance rather than form should govern. This leads to a consideration of the intracorporate relationships during the periods that Newark was a division.

 There is no proof that Newark held itself out to be separate and apart from Admiral Corporation. Compare Kiefer-Stewart Co. v. Seagram & Sons, 340 U.S. 211, 215, 95 L. Ed. 219, 71 S. Ct. 259 (1951). Moreover, the operation of the business was interlocked with the home office in Chicago to such a degree that Newark could not be deemed a separate entity. The division was headed by a branch manager under the jurisdiction of "Head of Branches" located in Chicago. It was staffed by an accounting department headed by an accounting manager who was subject to the authority of both the branch manager and the central branch accounting office in Chicago. There was also a branch credit manager accountable to both the branch manager and to the central branch credit department in Chicago. Lines of credit extended to retailers needed approval from Chicago. Labor relations and real estate transactions of Newark were handled through Chicago.

 Merchandise was usually shipped to the warehouse in Newark and stored there until sold to the dealers. The merchandise was invoiced to Newark, and this served the purpose of internal bookkeeping to show where the merchandise was. Newark had a separate set of books which was separately audited by a firm of accountants who audited all the books of Admiral and its branches. The separate set of books allowed Admiral to know just how efficiently its branches were operating since the invoice price from Chicago was a purchase entry and Newark's invoice to its dealers a sales entry. A bank account was maintained in Newark, but it was under the control, in the main, of the home office, to which the monthly statements were sent. Newark had no funds of its own and checks of dealers to Newark for payment of merchandise were deposited in this account. Newark did not merely turn over to Chicago Admiral's invoice price to Newark, but rather the money in the account was disbursed by the home office as it saw fit. For example, Chicago transferred monies from the bank account of one branch to another as necessary. Newark's payroll was made up in Chicago and sent to the branch for delivery to the employees.

 The branch manager generally had to take the merchandise that was given to him and had less power than an independent distributor to reject merchandise. Prices were fixed for Newark by Chicago, except that within certain categories the branch manager did have some flexibility in setting prices. Nevertheless, he could not dump goods on the market for quick sale.

 The sections involved herein of the Robinson-Patman Act when considered in relation to injury to competitors of a favored buyer (the so-called secondary line competition case) seem directed at discrimination by a seller caused by the size and strength of an independent buyer. See S. Rep. No. 1502, 74th Cong., 2d Sess. 1-8; H.R. Rep. No. 2287, 74th Cong., 2d Sess. 1-20; FTC v. Anheuser-Busch, Inc., 363 U.S. 536, 544, 4 L. Ed. 2d 1385, 80 S. Ct. 1267 & n. 7 (1960); FTC v. Henry Broch & Co., 363 U.S. 166, 174, 4 L. Ed. 2d 1124, 80 S. Ct. 1158 (1960). Compare 15 U.S.C. § 13a and FTC v. Anheuser-Busch, Inc., supra at 546 (injury to competitors of seller, primary line case). The Robinson-Patman claim asserted here was not meant to turn on the bookkeeping practice of a single corporate entity, which is all that plaintiff has shown here to ...

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