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ROORDA v. AMOCO

February 18, 1978

Arthur S. Roorda, and Arthur S. Roorda, Inc., and all others similarly situated within the State of New York
v.
American Oil Co. and Petroleum Sales & Service, Inc.



The opinion of the court was delivered by: ELFVIN

Memorandum and Order

ELFVIN, D.J.: Defendant Petroleum Sales and Service, Inc. ("Petroleum") moved by order to show cause for summary judgment pursuant to Fed. R. Civ. P. rule 56 dismissing plaintiffs' complaint for lack of subject matter jurisdiction on the ground that such complaint fails to satisfy the jurisdictional requirement, set forth in section 2(a) of the Clayton Act as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a), that either or any of the purchases involved in the alleged price discrimination be "in commerce". Thereafter, plaintiffs moved for leave to amend their complaint to allege, in addition to their original claim bottomed on the Robinson-Patman Act, causes of action under section 1 of the Sherman Act, 15 U.S.C. § 1, and under section 3 of the Clayton Act, 15 U.S.C. § 14.

Initially, it should be noted that the jurisdictional requirement of the Robinson-Patman Act is considerably more stringent than that contained in the Sherman Antitrust Act, 15 U.S.C. §§ 1 et seq. Under the Sherman Act, the jurisdictional interstate commerce prerequisite may be satisfied by showing either that the transactions were interstate or, if they were intrastate, that such transactions had "effects on" or "affected" interstate commerce. On the other hand, it is clear that under the Robinson-Patman Act such tests are not sufficient to bring an otherwise purely intrastate sale within the realm of interstate commerce and that a plaintiff has the burden to show that the transactions in question were in interstate commerce. This does not mean, however, that such transactions must in all cases actually cross a state line for the intrastate sale to be considered in interstate commerce. The United States Supreme Court in Standard Oil Co. v. Federal Trade Commission, 340 U.S. 231, 95 L. Ed. 239, 71 S. Ct. 240 (1951), adopted a "flow of commerce" test to determine whether intrastate discriminatory sales were "in commerce" within the meaning of section 2(a) of the Clayton Act, as so amended. Therein, plaintiff obtained gasoline from fields in Kansas, Oklahoma, Texas and Wyoming, refined it in Indiana and distributed it in fourteen states, including Michigan. The gasoline which plaintiff sold in the Detroit area and which was involved in the alleged discriminatory sales was transported by tankers on the Great Lakes from its refinery in Indiana to its marine terminal in River Rouge, Michigan. Sufficient gasoline was accumulated there during each navigation season to supply plaintiff's customers throughout the winter. The gasoline was stored for varying periods at the terminal or in nearby bulk storage tanks and throughout the temporary storage period was owned by plaintiff. Although plaintiff did not ship the gasoline to River Rouge pursuant to orders already taken, the demands of the Michigan market remained fairly constant and plaintiff could accurately estimate its customers' needs. Upon receipt of individual orders, plaintiff would deliver gasoline to the Detroit area from that stored at its River Rouge terminal. Based upon these facts, the Court held that the alleged discriminatory sales of gasoline in the Detroit area were "well within the jurisdictional requirements of the Act." Id., at 237. The court further stated (at page 238) that the temporary storage of the gasoline at the terminal facilities in Michigan did not deprive the gasoline of its interstate character.

 Petroleum contends that the flow of commerce doctrine has been repudiated in Gulf Oil Corp. v. Copp Paving Co., 419 U.S. 186, 42 L. Ed. 2d 378, 95 S. Ct. 392 (1974).This contention is not well taken. The United States Court of Appeals for the Second Circuit in Great Atl. & Pac. Tea Co., Inc. v. F.T.C., 557 F.2d 971 (2d Cir. 1977), did not find the Copp case to be any impediment to application of flow of commerce principles and relied upon such doctrine to find "in commerce" jurisdiction over intrastate sales of milk. The court stated (at page 979) that:

 [The] only remaining question is whether the Illinois-based store's purchases from Borden were interstate transactions * * *. The Commission concluded that they were, inasmuch as Borden acquired most of its milk from Wisconsin and the raw milk was not substantially altered, chemically or otherwise, by processing at the Woodstock plant. We agree. Much as in Foremost Dairies v. FTC, 348 F.2d 674 (5th Cir.), cert. denied, 382 U.S. 959, 15 L. Ed. 2d 362, 86 S. Ct. 435 * * * (1965), a prior price discrimination action action also involving fluid milk, the milk here passed "in a steady flow from the farms in * * * [Wisconsin] through the * * * processing plant, where it underwent a rather negligible processing operation, which did not change its character appreciably, to the shelves of retail grocery establishments in * * *."

 Copp held that the alleged intrastate discriminatory sales of asphaltic concrete did not fall within the jurisdiction of section 2(a). The court based this conclusion on findings that the asphaltic concrete involved in such sales was made in California wholly from components produced and purchased within California and that due to its peculiar characteristics (its great weight, relatively low value and high temperature application restricted its use to within 35 miles from the hot plant where it was made), the market for asphaltic concrete was exclusively and necessarily within California.Based on these facts, the court concluded that "the alleged restraints of trade in asphaltic concrete could not be deemed within the flow of interstate commerce, despite use of the product in interstate highways." Id., at 192. Thus, the court merely held that the asphaltic concrete was never in interstate commerce at any time and that its purely intrastate character precluded application of the flow of commerce theory. Such holding does not reject flow of commerce principles but, on the contrary, the court utilized such to test the jurisdictional basis of the action and found that flow of commerce did not apply on the facts before it. In addition, throughout the opinion, reference was made to the flow of commerce doctrine without any indication that its viability was being questioned or being rejected. The court (at page 195) specifically interpreted the "in commerce" language of section 2(a) of the Clayton Act as denoting "persons or activities within the flow of interstate commerce - the practical, economic continuity in the generation of goods and services for interstate markets and their transport and distribution to the consumer." Furthermore, the court (at page 198) clearly indicated that by its decision it was not overturning the flow of commerce doctrine but was solely refusing to adopt a nexus approach and to expand the relatively restrictive flow of commerce concept to include categories of activities which were merely connected to interstate instrumentalities. The court's citation of, and quotations from, Hiram Walker, Inc. v. A & S Tropical, Inc., 407 F.2d 4 (5th Cir.), cert. denied, 396 U.S. 901, 24 L. Ed. 2d 177, 90 S. Ct. 212 (1969), and Belliston v. Texaco, Inc., 455 F.2d 175 (10th Cir.), cert. denied, 408 U.S. 928, 33 L. Ed. 2d 341, 92 S. Ct. 2494 (1972), were made in the context of refusing to apply an "effects on commerce" approach to section 2(a). Those cases were relied upon to show only the consistent approach of the courts of appeals in interpreting the section as requiring either or any of the sales involved in the price discrimination to be "in interstate commerce" rather than merely having an "effect on" or "affecting" interstate commerce and not, as Petroleum contends, to demonstrate rejection of the flow of commerce doctrine. *fn1"

 Furthermore, in addition to the decision in Great Atl. & Pac. Tea Co., Inc. and my interpretation of Standard Oil and Copp, the opinion in Hampton v. Graff Vending Co., 516 F.2d 100 (5th Cir. 1975), indicates that the flow of commerce theory remains a viable doctrine despite any doubts expressed in Red Apple Supermarkets, Inc. v. Deltown Foods, Inc., 419 F. Supp. 1256 (S.D.N.Y. 1976). In Hampton v. Graff Vending Co., supra at 102, the court stated that:

 Generally, if it can be shown that goods shipped from outside the state are still within the "practical, economic continuity" of the interstate transaction at the time of the intrastate sale of goods, that latter sale will be considered "in commerce" for purposes of the Robinson-Patman Act.

 The court then noted, citing and quoting from Walker Oil Company v. Hudson Oil Company of Missouri, 414 F.2d 588, 590 (5th Cir. 1969), cert. denied, 396 U.S. 1042, 24 L. Ed. 2d 686, 90 S. Ct. 684 (1970), that three factual situations had been recognized which, if proven by a plaintiff, would establish that goods shipped into a state would remain within the flow of commerce so as to satisfy the jurisdictional "in commerce" hurdle of section 2(a) of the Clayton Act:

 [Where] they are purchased by the wholesaler or retailer upon the order of a customer with the definite intention that the goods are to go at once to the customer; where the goods are purchased by the wholesaler or retailer from the supplier to meet the needs of specified customers pursuant to some understanding with the customer although not for immediate delivery; and where the goods are purchased by the wholesaler or retailer based on anticipated needs of specific customers, rather than upon prior orders or contracts.

 See also, Food Basket, Inc. v. Albertson's, Inc., 383 F.2d 785, 788 (10th Cir. 1967). I do not read these tree factual examples as comprising an exclusive list of what circumstances will satisfy the flow of commerce principles when goods are shipped from outside a state. The standard to be applied is whether such goods sent across state lines at a prior time remain within the "practical, economic continuity" of the interstate transaction at the time of the subsequent intrastate sale. The particular facts and circumstances which a plaintiff must prove to meet his jurisdictional burden will, of course, differ depending upon the economics of a particular industry such as where and how the goods are manufactured or processed, the source of the raw materials, the type of distribution and marketing system used, and the degree of control retained by the manufacturer or supplier over the ultimate terms of the sale by the wholesaler or retailer.

 In Red Apple Supermarkets, Inc. v. Deltown Foods, Inc., supra, a retail supermarket chain which operated stores in New York brought suit under section 2(a) of the Clayton Act against Kraftco Corporation ("Kraftco") and Deltown Foods, Inc. ("Deltown"), a licensee authorized by Kraftco to manufacture and distribute Light n' Lively low-fat milk in the New York City area. On defendants' motion to dismiss for failure to satisfy the jurisdictional "in commerce" requirement, plaintiff, unable to assert that any of its or its competitors' purchases of low-fat milk had crossed state lines, attempted to invoke the stream of commerce doctrine. The court assumed, though not without hesitation after the decision in Copp, that the flow of commerce theory remained a viable doctrine, but found that the processing in New York of Light n' Lively made a significant physical change to the raw, whole milk shipped into the state whereby such milk became merely an ingredient in the finished low-fat milk sold within New York. In accord with the factual analysis of Red Apple is Scranton Construction Co, Inc. v. Litton Industries Leas. Corp., 494 F.2d 778, 781 (5th Cir. 1974), wherein the court stated that the "interstate movement of mere ingredients" which are then processed into a finished product in one state and sold within that state is insufficient to confer "in commerce" jurisdiction over such instate sales.

 In Belliston v. Texaco, Inc., supra, fifteen Texaco service station dealers in Utah filed suit against Texaco alleging, inter alia, that Texaco sold gasoline to a wholesaler who also operated several retail service stations at a price less than charged to plaintiffs in violation of section 2(a) of the Clayton Act. All of the gasoline sold and distributed by Texaco to its dealers in Utah was purchased by Texaco from American Oil Company which had refined the gasoline at its facilities in Utah from crude oil shipped via pipeline from other states. The court held that the refinement of gasoline in Utah precluded application of the flow of commerce theory because the character of the crude oil had been so changed by the highly technical refinement process that the resultant gasoline was in effect a new product which did not retain the interstate characteristics of the unrefined crude oil.

 In McGoffin v. Sun Oil Co., 539 F.2d 1245 (10th Cir. 1976), a retail service station dealer alleged that the defendant sold gasoline to another service station dealer who was one of plaintiff's secondary line competitors (both stations being located approximately two miles apart on the same highway in Oklahoma) and that this price discrimination between them violated section 2(a). Defendant moved to dismiss the discriminatory price claims alleging that none of the discriminatory purchases was in interstate commerce because the gasoline sold by defendant to the competing service stations was refined in Oklahoma and that any sales of gasoline to plaintiff or his competitor by defendant were made solely within the State of Oklahoma. The court held that jurisdiction was lacking under section 2(a) because the gasoline in question was refined in Oklahoma and the sales involved in the discrimination were also made there. The flow of commerce theory was not available to plaintiff and thus, in order to meet the "in commerce" requirement, plaintiff would have had to prove that either or any of the discriminatory sales had crossed state lines, which he was unable to do. Similarly, the court in Bacon v. Texaco, Inc., 503 F.2d 946 (5th Cir. 1974), held the flow of commerce theory to be unavailable to plaintiff because the gasoline in question was refined within the same state as the alleged discriminatory sales and thus there was never any interstate commerce from which a flow of commerce could be derived. In Borden Company v. F.T.C., 339 F.2d 953 (7th Cir. 1964), appellant's alleged discriminatory sales of milk to grocery stores in Portsmouth and New Boston (both in Ohio) were found to be beyond the jurisdiction of section 2(a) because the negotiations for such sales took place in Ohio and the milk was produced, processed and delivered to customers in Ohio for resale in Ohio. See, also, Central Ice Cream Co. v. Golden Rod Ice Cream Co., 287 F.2d 265 (7th Cir.), cert. denied, 368 ...


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