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Seaboard Supply Co. v. Congoleum Corp.

August 16, 1985

SEABOARD SUPPLY CO., A NEW JERSEY CORPORATION, AND SEABOARD PLASTICS CORP., A NEW JERSEY CORPORATION, APPELLANTS
v.
CONGOLEUM CORPORATION, A DELAWARE CORPORATION, JACK BERK, MANUFACTURERS REPS COMPANY, INC., A NEW JERSEY CORPORATION, AND WILLIAM G. MERRIGAN, SR. AND RICHARD T. LAUGHLIN, APPELLEES



APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

Author: Weis

Before SEITZ, WEIS and ROSENN, Circuit Judges

Opinion OF THE COURT

WEIS, Circuit Judge.

The principal issue in this case is whether a scheme of commercial bribery between an employee of a manufacturer and an entity which acted as a sales agent comes within the prohibition of either the Sherman or Robinson-Patman Acts. The district court found essentially that because a legitimate agency relationship existed between the briber and the manufacturer and no sales occurred between the two, the Acts had not been violated. Although the activity was reprehensible and probably violated state civil and criminal law, we agree that the scheme did not come within the scope of the antitrust laws. Accordingly, we will affirm the summary judgment in favor of the defendants.

Plaintiff Seaboard is engaged in the wholesale distribution of roofing felt in New Jersey, Eastern Pennsylvania, and Southern New York. Defendant Manufacturers Reps Company (MRC) competed with Seaboard initially as a wholesale distributor and as a commissioned-sales agent for Congoleum Corporation, a felt manufacturer.

Before 1975, Seaboard had been Congoleum's only wholesale distributor in the area, and MRC had sold similar products for other manufacturers. In 1975, defendant Jack Berk became a sales manager for Congoleum and set out to increase the volume of felt sales. In the two years that followed, he succeeded in adding four new wholesale distributors, including MRC.

When MRC was added, however, Berk made some unusual arrangements. In 1976, he asked defendant William Merrigan, Sr., the president of MRC, for a participation in the company's business. In return Berk promised to make Congoleum felt available. When Merrigan assented, he and Berk executed a "consulting agreement," which was prepared by defendant Richard Laughlin, Congoleum's in-house counsel.

The agreement provided that MRC would pay Berk $300 per week with a stock participation option in return for "consulting services." As time went on, Berk increased his demands for compensation and fringe benefits. The total payments amounted to $110,637.30, and were augmented by a life insurance policy, leased automobiles, and improvements to Berk's residence. Merrigan did not expect that Berk would actually provide any consulting services.

When MRC was first being considered as a distributor, Congoleum's credit manager investigated MRC's financial profile and allowed only a $25,000 credit line. That limit posed problems because anticipated business volume exceeded the allowance. To overcome the financing restrictions, Berk suggested, and the credit manager recommended, that MRC become a commissioned sales agent for Congoleum.

Under this arrangement, MRC neither received title to the products, nor assumed any of the credit risks. Congoleum prepared the bills and invoices and delivered truckload quantities directly to the customer. MRC's customers were charged five percent over the price at which distributors, including Seaboard, were charged. This five percent differential was paid by Congoleum to MRC as a commission. By contrast, Seaboard and the other distributors bore the entire credit risk and did the billing for all sales to their customers.

After Berk entered into his "consulting agreement" with MRC, Seaboard's long-standing relationship with Congoleum deteriorated. Seaboard's orders were not filled promptly, and its sales of Congoleum felt declined precipitously. As many as thirty of Seaboard's customers transferred their business to MRC. One explanation for this shift was that Berk could cause an order to be cancelled or delayed and could steer customers to another distributor or agent.

By late summer or early fall of 1979, MRC wearied of Berk's escalating demands and discontinued its payments to him. Berk thereupon entered into a new "consulting agreement" with Plymouth Asphalt and MRC's felt business began to collapse. Shortly thereafter, Merrigan's son told Congoleum's management about the payoffs. Congoleum acted promptly and terminated both Berk and Laughlin. Berk was later indicted in a New Jersey state court for embezzlement and theft by deception.

Seaboard brought this suit against Congoleum, Berk, and MRC alleging violations of section 1 of the Sherman Act, sections 2(a), (c), (e), and (f) of the Robinson-Patman Act, and section 3 of the New Jersey Antitrust Act. The complaint also included counts for tortious interference with contractual relationships and prospective economic advantage. Laughlin was charged with fraudulent concealment.

After extensive discovery, all parties filed motions for summary judgment. The district court prepared a comprehensive opinion, discussing each of the federal counts in detail.

Seaboard's contention that section 1 of the Sherman Act had been violated was rejected because the record was insufficient to support the inference that concerted activity by Congoleum and MRC was designed to achieve an "unlawful objective." The facts demonstrated that "Congoleum exercised its independent discretion in making MRC a commissioned sales agent in furtherance of its general marketing strategy to increase sales of its roofing felt product."

Although Seaboard had shown a significant sales decline, intrabrand competition among Congoleum's distributors had increased. Moreover, by using MRC as a commissioned selling agent, Congoleum was able to reduce the price to roofing contractors and compete more effectively with other producers. Thus, interbrand competition was stimulated as well. Consequently, the court concluded that Seaboard had failed to prove either anti-competitive purpose or effect and the Sherman Act count failed.

In count 2, Seaboard charged that Congoleum and Berk had violated sections 2(a) and (f) of the Clayton Act as amended by the Robinson-Patman Act. 15 U.S.C. ยงยง 13(a) and 13(f), by using a sham agency status with MRC in order to give it preferential credit terms and price discounts. The court noted that to establish a violation Seaboard had to prove actual sales to competing purchasers at different prices. Because Congoleum retained title, assumed the credit risks, and controlled the price, the court concluded that MRC was not a purchaser but only a sales agent. The fact that MRC bribed Berk did not convert the transactions into purchases, and hence sections 2(a) and (f) did not apply.

In addition, the court concluded that Congoleum did not compromise its credit standards to treat MRC as a favored distributor. Because Seaboard could not demonstrate either price discrimination or anti-competitive ...


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