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Sunbeam Corp. v. Civil Service Employees' Cooperative Ass'n.

March 20, 1951


Author: Goodrich

Before GOODRICH, KALODNER and STALEY, Circuit Judges.

GOODRICH, Circuit Judge: This case brings before us the second time this term*fn1 the application of the provisions of the Pennsylvania Fair Trade Act.*fn2 The litigation is here on diversity grounds and we are called upon to apply Pennsylvania law. No federal question is involved.

There are two questions. The first is whether the Act applies to transactions of the type which will be described in a moment between a cooperative association and its customers. The second question concerns what remedy the plaintiff may have if the Act applies. The learned District Court held that the Act applied to the transactions here involved. He also ordered an accounting of profits to the plaintiff derived from goods disposed of by the defendant under plaintiff's trademark below prices established by plaintiff pursuant to the Fair Trade Act.

The defendant cooperative association maintains a place of business in Philadelphia which it calls "Exhibitor's House." There it displays miscellaneous wares for sale, among which, at least prior to this litigation, were several of the plaintiff's products.Purchasers obtained these products at less than the price established by fair trade agreements. The defendant never signed a fair trade contract with the plaintiff, but it knew of the establishment of the price to be maintained and there is no dispute that the statute applies to it if it is concluded that defendant's manner of doing business is subject to the fair trade law.*fn3

When a customer secures an article from Exhibitor's House, either one of those on display or one ordered for him, he gets it at less than the prevailing retail price and, in the case of the plaintiff's goods, less than the established fair trade price. The customer gets the benefit of this price reduction at the time he gets the goods.The amount of reduction is dependent upon the usual mark-up between cost to a retailer and selling price to the consumer. The larger this margin the greater the discount for the customer. This particular cooperative thus gives its customers the benefit of lower prices at the time the customer secures the goods rather than by a distribution of earnings periodically.

There is another combination of facts which we should mention, though we do not think it is significant in the case. That combination has to do with the minimal membership qualifications and the extent to which defendant restricts itself to dealing with members.The association itself is incorporated as a "non-profit cooperative association" under the laws of the District of Columbia.*fn4 It has active members who pay $1.00 a year dues. To be an active member one must be a present or former employee of the federal, state or local government or of any branch of the military service or national guard. Affiliate members are members of any association organized on a cooperative basis which has become affiliated with defendant. Active members may vote; affiliate members may not. There is evidence in the record, too, that the sales force at Exhibitor's House is not fussy in requiring a customer to show whether he is either an active or affiliate member, or neither.*fn5

We do not think that the organization of this particular cooperative is the significant point in the case. If the statute is applicable to dealings by a cooperative with its customer we think it is equally applicable to a tightly formed cooperative society which requires the showing of a membership card each time a transaction is carried on. In our view, the case for the application of the statute to the defendant society is no better and no worse because it is easy to do business with whether a customer is a member or not. It is a cooperative society run for the benefit of those who do business with it and not for the purpose of making profit for the organizers.*fn6

Now we proceed to the principal question. Does the statute apply? Section 8 of the Pennsylvania statute provides:

ยง 8. Unfair competition, defined

Wilfully and knowingly advertising, offering for sale, or selling any commodity at less than the price stipulated in any contract entered into pursuant to the provisions of section one of this act, whether the person so advertising, offering for sale, or selling is, or is not, a party to such contract, is unfair competition and is actionable at the suit of such vendor, buyer or purchaser of such commodity.

It will be noted there is no esception for cooperatives in the quoted section.Nor is there anywhere else in the statute. There are provisions for excepting certain sales such as closeout sales, fire sales and execution sales*fn7 and there is a specific exemption for the sale of books to libraries.*fn8

How can one find an exception, then, for a cooperative? The suggestion is made that since some of the goods are on consignment the transaction is not a sale by the cooperative to its customer. That suggestion is trifling and we dismiss it as such. We cannot see how it can possibly be said that the way in which this cooperative does business is anything but a sale by the society to its customer and since the type of transaction is not exempted from the operation of the statute we think it clearly falls within it.The suggestion that the cooperative is merely a purchasing agent, not a seller, seems to us to take us far from realities. Nor do we think piercing the corporate veil so as to disclose a purchase by the member for himself gets us closer to the substance of the thing.

But this is a question of Pennsylvania law and we must, of course, look to Pennsylvania authorities. There is no case in point by either of the Pennsylvania appellate courts.*fn9 There is, however, a decision of a Common Pleas Court of Philadelphia County.*fn10 It is Welch Grape Juice Co. v. Frankford Grocery Co., 36 Pa. D. & C. 653 (1939). In that case defendant was a cooperative association of retail grocers. The court said that the defendant association was merely a purchasing agent for the group of retail grocers who had banded together to eliminate wholesalers' profits and get the advantage of quantity buying.

No doubt we could find a form of words which would make it look as if that case involved different legal points from the one before us. But we have not found a form of words that looks plausible, even to ourselves. We think the Common Pleas decision, made early in the history of this Act in Pennsylvania, treated the statute as "in derogation of the common law" and gave it a ...

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