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ROBBINS FLOORING, INC. v. FEDERAL FLOORS

September 28, 1977

ROBBINS FLOORING, INC.
v.
FEDERAL FLOORS, INC. and JAMES AURINO and LOIS AURINO



The opinion of the court was delivered by: DITTER

 Plaintiff sued on a book account. *fn1" Defendants counterclaimed seeking treble damages in their individual and representative capacities for alleged violations of the antitrust laws. Presently before the court is plaintiff's motion to dismiss portions of the counterclaim under Fed. R. Civ. P. 12(b)(6), defendants' motions for class action certification, and defendants' motion to stay any execution of judgment. For the reasons hereinafter stated, the motions of both parties must be denied.

 1. The Factual Background

 Accepting as true the allegations of the counterclaim and reasonable inferences deducible therefrom, as I must on plaintiff's motion to dismiss the facts giving rise to defendant's *fn2" claim may be summarized as follows. For a period of more than 15 years preceding this controversy, Federal had been an authorized distributor of products sold by plaintiff, Robbins Flooring, Inc. (hereafter "Robbins"), a Tennessee corporation engaged in the manufacture of hardwood and other flooring components. Pursuant to a long-standing arrangement between the parties, plaintiff's credit terms on all purchase orders were 90 days net from the invoice date with a credit limit not to exceed $125,000. However, on December 5, 1974, Robbins unilaterally reduced the terms of payment to 60 days with a limit of $75,000. Thirteen days later, plaintiff wrote to Federal, claiming that $14,042.34 was payable under the new 60 day terms. Federal disputed that this sum was actually due. By mid-January, the amount claimed had increased to over $36,000., even though only $2,842. was actually owed under the 90 day terms. The latter sum was paid on January 31, 1975. On April 9, 1975, Robbins insisted that contractors' checks be made payable to both Federal and Robbins before shipments on existing orders would be made to Federal. Thereafter, by mid-May, plaintiff was requiring advance payments. Robbins, which has a dominant market position in the sale of hardwood flooring, also was refusing to sell its hardwood flooring to its distributors unless they purchased all necessary components. These parts *fn3" were readily obtainable from other sources, and could be secured at a considerably lower price. Finally, the parties' relationship terminated and Federal is no longer a distributor of Robbins' products.

 2. Credit Discrimination as a Form of Price Discrimination under the Robinson-Patman Act

 Section 2 of the Robinson-Patman Act prohibits comprehensively a seller's discrimination, either direct or indirect, between different purchasers of like commodities where the effect of such discrimination may substantially lessen competition, create a monopoly, or injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefits of such discrimination. In particular, this prohibition extends to price (subsection a), commissions, allowances, discounts or other compensation (subsection c), payment for services and facilities (subsection d), and the furnishing of services in connection with the processing, handling, or sale of commodities (subsection e).

 Plaintiff contends that credit differentials have been excluded from coverage under the Act, and it is true that the reported cases involving varying credit terms to competing customers have universally held that such a practice does not violate Sections 2(d) or (e). Skinner v. United States Steel Corp., 233 F.2d 762 (5th Cir. 1956); Clausen & Sons, Inc. v. Theo. Hamm Brewing Co., 284 F. Supp. 148 (D. Minn. 1967), rev'd on other grounds 395 F.2d 388 (8th Cir. 1968); Secatore's, Inc. v. Esso Standard Oil Co., 171 F. Supp. 665 (D. Mass. 1959). But, as the court said in Lang's Bowlarama, Inc. v. AMF Incorporated, 377 F. Supp. 405, 408 (D.R.I. 1974), summary judgment in each case was entered on the ground that the credit policies at issue were not violative of Sections 2(d) and (e) of the Act. Thus, although these cases conclusively establish that credit terms are not services or facilities within the meaning of the Act and preclude defendant's maintaining its Section 2(e) claims, there remains the question of whether the alleged discriminatory policy of plaintiff would violate Section 2(a), the prohibition against price discrimination.

 A violation of Section 2(a) cannot occur unless two or more buyers are charged different prices. FTC v. Anheuser-Busch, Inc., 363 U.S. 536, 80 S. Ct. 1267, 4 L. Ed. 2d 1385 (1960). Because price has not been specifically defined in the Robinson-Patman Act, the courts have had to develop their own definition, and, in general, they have held that it is the amount actually paid or laid out for goods by the buyer. This approach has resulted in a formula: price is the actual invoice quotation by a seller less any discounts, offsets, or allowances against the invoice amount. Guyott Co. v. Texaco, Inc., 261 F. Supp. 942, 948 (D. Conn. 1964).

 As the section provides, price discrimination may be direct or indirect. Direct price discrimination occurs when a seller charges different prices to different purchasers, Anheuser-Busch, Inc., supra, but it can also result from the offering of discounts and allowances. Bargain Car Wash, Inc. v. Standard Oil Co. (Indiana), 466 F.2d 1163 (7th Cir. 1972). Indirect price discrimination, on the other hand, arises when one buyer receives something of value not offered to other buyers. National Dairy Products Corp. v. FTC, 412 F.2d 605 (7th Cir. 1969) (free goods and cost payments); Guyott, supra (discriminatory use of freight or delivery terms of sale); B & W Gas, Inc. v. General Gas Corp., 247 F. Supp. 339 (N.D. Ga. 1965) (furnishing extra labor in customer installations could amount to price discrimination).

  Plaintiff asserts that defendant's allegations amount to nothing more than a mere difference in credit arrangements, which is not per se discriminatory, and, therefore, that defendant has failed to state a claim of price discrimination. Although I have found no case where a party's credit policies were found violative of Section 2(a), the possibility remains that the withdrawal of credit Federal alleges was used in such a manner as to substantially lessen competition or injure, destroy, or prevent competition. In fact, the court in Craig v. Sun Oil Company of Pennsylvania, 515 F.2d 221, 224 (10th Cir. 1975), relied on by Robbins, recognized that in an extreme situation there might be a violation of the Act by reason of the magnitude or nature of discrimination in the extension of credit. Credit is in effect an allowance: the buyer is permitted to delay payment, obtain financing that might not otherwise be available, and save the interest charges on the amount due for the period of time involved. Credit may be an important item in the survival of many businesses. Without it, distributors such as Federal are often unable to pay for orders due to the cash flow problems that result from the delay in securing payment from their own customers. Therefore, the extension of credit can be a powerful weapon, and the potential exists for its use as an indirect discriminatory practice.

 Of course, there are certain pressures on a seller which might lead him to extend different credit terms to different purchasers, as the court pointed out in Craig, supra, 515 F.2d at 224:

 
It is obvious that differences in the borrower's financial strength, business experience, and many other factors bring about differences in the terms of credit, security required, guarantees, and other devices used by creditors under these circumstances. *fn5"

 In addition, Congress recognized that market conditions could dictate the necessity for price differentials by providing in Section 2(a) that

 
. . . nothing herein contained shall prevent price changes from time to time where in response to changing conditions affecting the market for or the market ability of the goods concerned; . . .

 But these business stresses and changing conditions are more properly a matter of defense, and should not be considered when disposing of a motion to dismiss. Glowacki v. Borden, Inc., 420 F. Supp. 348, 353-54 (N.D. Ill. 1976), in distinguishing Craig, supra, and Lang's Bowlarama, supra, both of which found no illegal discrimination in the granting of differing credit terms, concluded that whether differential credit lines would affect the prices paid by buyers so as to constitute a form of price discrimination is a factual question to be resolved at trial, absent an affirmative showing that the different terms resulted from legitimate business factors. Of course, Robbins on a motion to dismiss cannot make such a factual showing here.

 In the absence of authority stating that credit differences can never be a form of price discrimination, I decline to hold that defendant's allegations fail to state a claim under Section 2(a). The general rule is that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102, 2 L. Ed. 2d 80 (1967). Here, Federal contends that the credit terms imposed upon it were different from those imposed upon other purchasers of commodities of like grade and quality, a practice which violated the Act. While this blanket assertion fails to identify the commodities involved or state that the effect of plaintiff's acts was to lessen competition or injure defendant, it does sufficiently apprise plaintiff of its alleged improper conduct. It is difficult to see how expanded pleadings would substantially add to the notice provided by the counterclaim.

 Accordingly, plaintiff's motion to dismiss the Section 2(e) action for failure to state a claim is granted, but defendant may pursue its cause of action under Section 2(a) ...


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