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FLM Collision Parts Inc. v. Ford Motor Co.

decided: September 30, 1976.


Appeal and cross-appeal from a decision and judgment entered after a non-jury trial in the United States District Court for the Southern District of New York, by Thomas P. Griesa, Judge, finding that Ford's allowance of certain discounts on automobile parts constituted price discrimination in violation of § 2(a) of the Robinson-Patman Act, dismissing Sherman Act claims based on the same discount system, and awarding plaintiff treble damages, attorneys' fees and injunctive relief. See 406 F. Supp. 224.

Mansfield, Oakes and Gurfein, Circuit Judges.

Author: Mansfield

Mansfield, Circuit Judge:

In this civil anti-trust suit for damages in the Southern District of New York by FLM Collision Parts, Inc. an independent wholesaler of automobile parts, against Ford Motor Co. and its wholly owned subsidiary, Ford Marketing Corporation (herein collectively referred to as "Ford"), the subject of attack is a Ford incentive allowance plan under which Ford grants to each of its franchised dealers a discount on the dealer's purchases of "crash parts" for resale to independent automobile repair shops but not on the dealer's purchases for its own use or for resale to other classes of customers, including FLM FLM claims that this pricing practice amounts to a price discrimination in violation of § 2(a) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a), and also constitutes a conspiracy in restraint of trade violative of § 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, and a monopolization of the market in violation of § 2 of the Sherman Act, 15 U.S.C. § 2.

After trial of the action before Thomas P. Griesa, Judge, sitting without a jury, he handed down an opinion, reported at 406 F. Supp. 224, agreeing with FLM that the incentive payment plan was a form of price discrimination and thus a violation of § 2(a) of the Robinson-Patman Act. He dismissed FLM's Sherman Act claims, however, finding that the plaintiff had failed to prove its allegations of conspiracy and monopolization. A supplemental opinion awarded FLM treble damages of $874,506, $135,000 in attorneys' fees, and injunctive relief. Ford appeals from this judgment, and FLM cross-appeals from the dismissal of its Sherman Act claims. We hold that the district judge erred in finding price discrimination in violation of § 2(a), since Ford's incentive plan treated all of its purchasers equally, and accordingly we reverse the judgment in favor of FLM. We affirm the dismissal of the Sherman Act claims.

The Facts

"Crash parts", as the name indicates, are fenders, grills, and other sheet metal parts used principally to repair automobiles damaged in collisions. They are custom-designed for particular years and models of automobiles, and Ford is the sole source of such parts for Ford cars. The distribution system of the parts thus begins with Ford, which makes some parts itself and licenses the manufacture of other parts. Ford sells its crash parts exclusively to its franchised Ford dealers, of which there are some 6800 in the United States. The dealers use some of the parts in their own repair shop operations, in effect selling them directly to the car owner and to this extent functioning as retailers. With respect to the balance the Ford dealers function as wholesalers, reselling the parts to independent auto repair shops for use in those shops' repair operations and to other users such as owners of large fleets of automobiles and insurance companies.

FLM entered the crash parts business in 1965 as an independent wholesaler. Its request to buy crash parts directly from Ford was refused, since Ford sold parts only to its franchised Ford dealers. FLM then made arrangements to buy Ford parts from a franchised Ford dealer, Central Lincoln Mercury Corp. ("Central"). The FLM-Central agreement allowed FLM to buy the parts at 2% above the price Central paid Ford for them. FLM then in turn resold the parts to independent repair shops.

Prior to 1968, Ford priced its crash parts to its franchised dealers at approximately 60% of Ford's suggested list price.*fn1 Thus, a part retailing at $10.00 would be sold by Ford to its dealers, including Central, at $6.00, which was described as the "dealer net" price (i.e., 40% off the suggested list price). Central would resell the part to FLM at $6.12. (Dealer net plus 2%). While FLM was thus at a slight price disadvantage in competing with Ford dealers for sales of crash parts to independent repair shops, its sales grew from $245,738 in the fiscal year ending Sept. 30, 1966 to $389,987 in the fiscal year ending Sept. 30, 1968. However, FLM did not show any net profit over this period.

Putting FLM to one side for the moment, Ford's pre - 1968 distribution system for crash parts clearly put independent auto repair shops at a disadvantage in competing with Ford-franchised dealers for repair jobs on Ford cars. This arose from the fact that while Ford dealers could buy the parts needed for such repairs from Ford at the "dealer net" price (e.g., $6.00 for a part with a $10.00 suggested retail) the independent repair shops had to buy the same part from a Ford dealer at dealer net plus whatever markup the Ford dealer might choose to add. Thus, if a Ford dealer charged a 10% markup on the parts it resold, an independent repair shop would have to pay $6.60 for the part which the Ford dealer could buy for $6.00. This situation attracted the attention of the Federal Trade Commission, which informed Ford that it considered the prices charged to independent repair shops to be an unfair trade practice in violation of § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. The F.T.C. never began formal proceedings against Ford; the matter was settled when Ford adopted the "wholesale incentive" allowance to dealers which was designed to equalize the prices at which independent repair shops could obtain Ford parts with the prices paid by Ford dealers for the same parts.*fn2

Under the wholesale incentive plan Ford sold crash parts to its dealers at lower prices when they were resold to independent auto repair shops than when they were retained by the Ford dealer for use in his own repair operations. For a part having a $10.00 suggested retail list price the Ford dealer would still pay $6.00 when he bought it for use in his own repair shop. However, when he bought it for resale to an independent repair shop he would receive back from Ford an incentive allowance of 20% of the dealer net price, reducing the Ford dealer's bottom line price to $4.80 (dealer net of $6.00 less 20%).*fn3 Thus, under the plan the independent repair shop would be able to buy the part at $4.80 plus the Ford dealer's markup, which allowed him to compete effectively for repair business with the Ford dealer who would have a dealer net cost of $6.00 for the same part when retained for use in his repair operations.

The incentive payment plan as originally adopted in 1968 allowed sales of crash parts by Ford dealers to independent wholesalers to qualify for the incentive payments to the dealers. Central, which now charged FLM a 3% markup over dealer net on crash parts, simply paid over to FLM the incentive payments it received on parts sold to FLM Thus FLM's cost for the part with a $10.00 suggested retail price was now $4.68. [$6.00 dealer net plus $.18 (Central's 3% markup) less $1.20 (the 20% incentive payment)]. However, the objective of the incentive plan, which was to reduce prices to independent repair shops, was not initially achieved, principally because neither Ford dealers nor FLM made any appreciable reduction in their resale prices to such shops. The principal effect of the flow-through of the incentive payments to FLM was to increase its profitability dramatically; from a net loss of $769 in fiscal 1968 FLM leaped to a net profit of $25,418 in fiscal 1969, and enjoyed similar profits in the next three years. Thus FLM rather than the independent repair shops became a principal beneficiary of the plan.

Beginning in 1969, the amounts Ford paid out in wholesale incentive allowances on crash parts, and on other types of parts for which it made similar incentive payments, ran higher than expected. Worried that Ford dealers might be claiming incentive allowances to which they were not entitled, Ford audited the accounts of 37 dealers whose claims for incentive payments ran especially high. Central was one of the dealers selected for an audit; Ford examined its books and those of FLM as well. While the audit of Central and FLM disclosed some improper claims, they were insubstantial in amount, and Ford concedes that this audit and a similar one made in 1970 showed that Central and FLM were complying with the terms of the incentive program.

While Central and FLM may not have been engaged in any improper use of the incentive plan, the same could not be said of all of Ford's dealers. Ford's statistical analysis of the overall results of the 37 audits conducted in 1969 indicated that as much as $2.1 million of the $44.5 million in incentive payments claimed might be improper. Among other things, some dealers were selling parts to wholesale intermediaries and then claiming an incentive allowance for doing so, even though the wholesaler then resold the part to another Ford-franchised dealer. As a result of the audit, Ford began considering ways to alter the incentive payment plan to avoid the use of such tactics. In July 1971, it promulgated a revised version of its incentive plan, under which Ford dealers would be eligible for the payment only when they resold parts to an independent repair ...

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