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KRUG v. IT&T

June 20, 1956

Henry KRUG, Sylvia Krug, Norman Krug and Adele Krug, Sole Surviving Directors, as Trustees in Dissolution of Krug Distributors, Inc., Plaintiffs,
v.
INTERNATIONAL TELEPHONE & TELEGRAPH CORPORATION, Vim Electric Co., Inc. and Vim Television and Appliance Stores, Inc., Defendants



The opinion of the court was delivered by: WORTENDYKE

The second amended complaint in this action seeks treble damages for alleged violations of Sections 2(a), 2(d) and 2(f) of the Robinson-Patman Act, 15 U.S.C.A. §§ 13(a), 13(d) and 13(f), and Sections 1 and 2 of the Sherman Act, 15 U.S.C.A. §§ 1 and 2. The statutory provisions are set forth below. *fn1"

 For a third time the complaint is attacked as failing to state any claim at all upon which relief can be granted against any defendant. On the occasion of each prior attack, decision upon the sufficiency of the pleadings was avoided by the acquiescence of the defendant in the service of an amended complaint.

 The basic facts alleged in each complaint are that in June 1953 the Capehart-Farnsworth Corporation (hereinafter referred to as C-F) entered into a franchise agreement with Krug Distributors, Inc. (hereinafter referred to as Krug) under the terms of which Krug, a wholesaler, was designated as the sole distributor to sell C-F products, including radios, radio-phonographs and television products, to retail dealers franchised by C-F within the 'Newark Territory.' In August 1953 C-F was merged with the International Telephone & Telegraph Corporation (hereinafter referred to as I.T. & T.), and I.T. & T. continued Krug as a distributor until August 1954. The products which Krug distributed were manufactured by C-F and I.T. & T. in Indiana and New Jersey. What plaintiffs complain of is that while Krug was a wholesale distributor for I.T. & T. the latter sold directly to retailers at lower prices than to Krug or with allowances not granted to Krug. *fn2"

 The second amended complaint, to which the present motions are addressed, sets forth five causes of action, though it provides less detail as to the nature of the acts complained of than did its immediate predecessor. *fn3" As additional background to the various claims for relief, the plaintiffs now allege that defendants Vim were owners and operators of approximately 56 retail radio, television and appliance stores in New York and New Jersey and that Krug, C-F, I.T. & T. and Vim were all engaged in interstate commerce. *fn4" Following these introductory allegations, the plaintiffs set up their five causes of action the nature and sufficiency of which will be discussed seriatim.

 The First Cause of Action Under Section 2(a) of the Robinson-Patman Act.

 The allegations to be considered are these: in 1953 and until August 1954, Krug was the sole wholesale distributor in the 'Newark Territory' for radio and television products of C-F and its successor, I.T. & T. During this time, I.T. & T. sold and shipped merchandise to Krug from factories in New Jersey and Indiana for resale to retailers. I.T. & T. knew that Vim was among Krug's customers or prospective customers. While Krug was the sole franchised wholesaler of I.T. & T. in the 'Newark Territory', I.T. & T. sold merchandise of like grade and quality as that sold to Krug directly to Vim and other 'favored retailers' at prices substantially lower than those charged to Krug. Such retailers were in competition with Krug's customers. Plaintiffs further allege that as a result of the foregoing 'non-favored retailers were unable effectively to compete with, and had to sell at higher prices than Vim and other favored retailers; competition between Krug's customers and favored retailers was substantially lessened; the favored retailers tended to and did receive a monopoly in the retail sale of I.T. & T. products; and the public, in order to obtain the benefits of the above price reductions, were compelled to divert their patronage from retailers in their normal purchasing areas to the stores of favored retailers, wherever they happened to be located.' As a direct consequence, the plaintiffs claim that Krug was injured in its business and property 'by reason of loss of profits and sales and losses and expenses necessarily incurred in connection with going out of business (as compelled by such loss of profits and sales) and otherwise.'

 Defendant I.T. & T. bases its motion to dismiss the first cause of action upon two grounds: (a) the complaint still does not charge that I.T. & T. discriminated in price in contemporaneous sales of goods of like grade and quality, and (b) the complaint alleges that Krug is a wholesaler and Vim a retailer and prospective customer of Krug, hence sales by I.T. & T. to Vim and other favored retailers at prices less than those charged to Krug could not possibly constitute a violation of the Act because there was no price discrimination between competitors.

 A fair reading of the complaint gives the impression that all sales referred to occurred within such a limited period of time so as to be sufficiently contemporaneous to satisfy the Robinson-Patman Act. The necessary relationship of two sales to bring them within the scope of Section 2(a) is a matter of many facts, and a cause of action should not be dismissed for failure to plead complete details such as specific dates of sales.

 Turning to the defendant's second ground for dismissal, the defendant cites certain language in Chicago Sugar Co. v. American Sugar Refining Co., 7 Cir., 1949, 176 F.2d 1, 7, 10 and refers to Federal Trade Commission v. Morton Salt Co., 1948, 334 U.S. 37, 45, 68 S. Ct. 822, 92 L. Ed. 1196, both of which opinions at the pages indicated clearly reflect what is readily apparent from the Act itself that a violation occurs when a seller has charged one purchaser a higher price than he charged one of the purchaser's competitors, the requisite effect upon competition being present. Falling victim to the suggestion that price discrimination violates the Act only when it involves sales made directly to two competitors or purchasers in the same level of the distribution process, the plaintiffs attempt to overcome the supposed deficiency by arguing that Krug was in competition with both I.T. & T. and Vim.

 But there can be no doubt that a violation of Section 2(a) may occur when a manufacturer sells his products to a retailer at a lower price than that charged to a wholesaler whose customers compete with the retailer. Federal Trade Commission v. Morton Salt Co., 1948, 334 U.S. 37, 55, 68 S. Ct. 822, 92 L. Ed. 1196. Certainly, one of the well-known purposes of the Robinson-Patman amendment to the Clayton Act was to protect independent wholesalers from discriminatory concessions given by manufacturers to retailers whose size and volume of sales lead to a by-passing of the wholesaling function. In the Morton Salt case, the Supreme Court had before it a cease-and-desist order issued by the Federal Trade Commission. Of paragraph (c) of the order the Court said, 334 U.S. at page 55, 68 S. Ct. at page 832:

 'This leaves for consideration the objection to paragraph (c) of the order which reads: 'By selling such products to any retailer at prices lower than prices charged wholesalers whose customers compete with such retailer.' The only criticism here urged to (c) is that it bars respondent from selling to a retailer at a price lower than that charged a wholesaler whose customers compete with the retailer. Section 2(a) of the Act specifically authorizes the Commission to bar discriminatory prices which tend to lessen or injure competition with 'any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them.' This provision plainly supports paragraph (c) of the order.'

 The only question which is posed as to the sufficiency of the complaint seems to be whether a wholesaler can maintain an action for treble damages under Section 2(a) when his injury arises not because the price discrimination destroys his competitive ability vis-a-vis others on the same distributive level but because the discrimination renders his customers unable to compete with favored purchasers on the retail level. Regardless of the scanty allegations of the complaint as to the nature of the injuries suffered by Krug, the first cause of action surely claims that Krug's position as a franchised wholesaler was such at the time I.T. & T. sold merchandise of like grade and quality directly to Vim and other retailers at lower prices that the latter transactions had serious financial impact upon Krug. The details are ...


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