# Western Sugar Refinery Co. v. Federal Trade Commission

> Court of Appeals for the Ninth Circuit · October 10, 1921 · 275 F. 725

URL: https://www.frixlaw.com/law-library/cases/8822186

## Case

- **Full name:** WESTERN SUGAR REFINERY CO. v. FEDERAL TRADE COMMISSION
- **Court:** Court of Appeals for the Ninth Circuit
- **Decided:** October 10, 1921
- **Citations:** 275 F. 725; 1921 U.S. App. LEXIS 2265
- **Precedential status:** Published
- **Opinion:** Opinion of the court by Morrow
- **Judges:** Morrow, Ross
- **Cited by:** 4 later opinions in the Frix Law Library

## Citator (automated)

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- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/8822186

## Opinion text

MORROW, Circuit Judge.
The above-named petitioners have petitioned this court to review certain orders of the Federal Trade Commission, requiring them and their co-respondents to cease and desist from certain alleged unfair methods of competition in interstate commerce in dealings with the Los Angeles Grocery Company, in violation of the provisions of section 5 of the Federal Trade Commission Act approved September 26, 1914 ( 38 Stat. 717 [Comp. St. § 8836e]).
It appears from the record that the Southern California Grocers’ Exchange was incorporated under the laws of the state of California in July, 1911. By its certificate of incorporation it was authorized, among other things, “to conduct a general merchandise business, buy and sell foodstuffs, hardware, drugs, chemicals, tobacco, and other merchandise.” The stockholders of the corporation were retail grocers exclusively, and the corporation acted as a buying exchange for its stockholders. The name of the corporation was changed by the superior court of Los Angeles county on March 6, 1913, to “Los Angeles Grocery Company.” The business of the corporation was continued on a buying exchange basis until January 2, 1918. During this time goods were bought and afterwards sold or distributed to the stockholders of the corporation at approximately the purchase price. At the end of the month the expense of doing business was divided equally among those having purchased or received goods. On December 27, 1917, the board of directors of the corporation adopted a resolution providing that, commencing January 2, 1918, the corporation would discontinue its nlan of selling merchandise at cost coupled with an expense assessment, and in the future all merchandise would be sold at a jobbing profit and the business conducted as a jobbing business.
*728 On January 4, 1918, the corporation published in the Commercial Bulletin, a trade paper published in Los Angeles, the following notice:
“L. A. Grocery Company Now Jobbing House.
“Beginning January 2, the Los Angeles Grocery Company ceased to operate as a buying exchange and became an out-and-out jobbing house.
“The company has been pricing all sales to members at cost, plus a percentage to cover expenses of operation. This plan has not been favored by manufacturers generally for obvious reasons. It also has made it confusing for the members to compute their costs accurately. Under the new plan, straight list prices will be charged, though naturally on a basis which will enable the company to compete. An annual accounting will be had, as in any tegular business, and eárnings, if any, will be distributed in the form of dividends.
“The fact that the company long has enjoyed the option of selling to anybody—not necessarily a member—plus this change, puts it in the same position as the Girard Grocery Company, Philadelphia, which is grocer-owned and which has been very successful. Its sales have grown from some $15,000 to $18,000 monthly two years ago to $160,000 to $175,000 at the present time. •
The Southern California Grocers’ Exchange was incorporated with a capital stock of $50,000. The capital- stock of its successor, the Los Angeles Grocery Company, on August 1, 1919, was $250,000, of which $90,000 had been paid up. In the proceedings before the Federal Trade Commission Flavel Shurtleff, the manager of the latter corporation, testified that on July 1, 1919, the corporation carried a stock of goods valued at $280,000, and did business during the year 1919 estimated at $1,750,000; that the corporation sold only to retail grocers, having approximately 250 to 275 customers; that of this number 75 or 80 were stockholders of the corporation; the remaining number were not.
It appears from the record that prior to 1918 the Los Angeles Grocery Company had been purchasing from approximately 125 manufacturers and producers direct on regular wholesale terms and rates; that after January 2, 1918, this number gradually increased during the year 1918, but there still remained at the end of the year many standard articles of grocery merchandise, such as sugar, condensed milk, corn products, shredded wheat biscuits, Quaker Oats, baking powder, and other similar products always in demand, and which the wholesale grocer is expected to have for sale to retail dealers. The manufacturers and producers and their brokers, dealing in some of these standard products, did not sell such articles to the Los Angeles Grocery Company direct, upon wholesale rates and terms, even in carload lots, for the reason, as stated, that they did not consider the Los Angeles Grocery Company a regular wholesale dealer in groceries.
This situation was brought to the attention of the Federal Trade Commission, which proceeded to investigate the charge that certain of the manufacturers and producers, their brokers, wholesalers, and jobbers, were violating the statute in using unfair methods of competition in commerce in dealing with the Los Angeles Grocery Company. On Friday, February 20, 1919, the Federal Trade Commission issued its complaint against the petitioners and their co-respondents charging them with a violation of the Federal Trade Commission Act (Comp. St. §§ 8836a-8836k). To this complaint all the respondents cited before the *729 commission made answer, with such denials and averments as placed in is .me the material allegations of the complaint. Testimony was thererioou taken upon said issues, and the commission made its findings of fact and its conclusions and order thereon.
Its findings are in substance that the Los Angeles Grocery Company since January 2, 1918, had been and then was engaged in the business o'i purchasing in wholesale quantities goods and commodities, such as are generally carried by those engaged in business as a wholesale grocer, mid"selling the same in wholesale quantities for profit to its customers; that said company sells the goods and commodities dealt in by it to the retail grocery trade only, and docs not sell to consumers; that there are about 80 stockholders of said company, most of whom are retail grocers ; that said company sells to a large number of retail grocers who are not stockholders; that the business of said Los Angeles Grocery Company is separate and distinct from the business of any of its stockholders, and said company has never owned, controlled, or had an interest in any retail grocery or groceries, and has never conducted a retail business ; that the said Los Angeles Grocery Company and the respondent jobbers, namely, Haas, Baruch & Co., Stetson-Barret Company, 'R. L. Craig & Co., M. A. Newmark & Co., United Wholesale Grocery Company, Channel Commercial Company, and California Wholesale Grocery Company, are competitors in the business of buying and selling in wholesale quantities, in the usual course of wholesale trade, groceries, and food products, such as are bought and sold generally by persons, firms, and corporations engaged in the business generally known as that of a wholesale grocer; that the Los Angeles Grocery Company, in the course of its said business, purchases the goods and commodities dealt in by it in the various states and territories of the United States, and said goods and commodities are transported to the said Los Angeles Grocery Company in the state of California, where such goods and commodities are resold in the course of wholesale trade, and there is continuously, and has been at all times mentioned in the complaint, a constant current of . MePheran, representing the grocery company, called on Mr. Hoover by appointment and were able to convince Mm that they are entitled to the jobbers’ classification in connection with all sugar regulation of the present and future. Later in the day further conferences wore held to work out the details of the proposition.”
A telegram dated at San Francisco, July 2, 1918, signed by the California & Hawaiian Sugar Refining Co., and addressed to Andrew A. Brown, Washington, D. C., was also introduced in evidence, as follows:
“Newspaper telegraphic dispatch from Washington this morning states Food Administration rules Los Angeles Grocery Company be classified as a jobber under new sugar regulation. Can you verify?”
Mr. Brown testified that he received this telegram at Washington; that he was the direct representative of the California & Hawaiian Sugar Refining Company upon the American Finance Committee, and was representing general cane and beet arrainements. He testified that he went to the legal deparment of the Food Administration and found that the ruling did not apply to cane sugar at all.
Rollin W. Dole, a buyer for the Ros Angeles Grocery Company, called as a witness for the commission, testified to a conversation with Mr. Brown, of the California '& Hawaiian Sugar Refining Company, wherein Dole made application to have the Ros Angeles Grocery Company put on the direct list for sugar; that Mr. Brown, in denying the application, said:
“Well, if we put you people on the direct list, wo will have to put on a whole lot of people up and down this coast. There are several organizations here in San Francisco, and a lot of big retailers who would claim to be in the same position you are in, * * ” and if we open up all these extra accounts, this building would not hold the office force that I would have to nave.”
*738 Dole testified that during this conversation he said to Brown:
“Our Los Angeles Grocery Company is exactly like the Franklin and Girard Grocery Companies in Philadelphia. They are buying of the Franklin Sugar Refining Company in Philadelphia, and I know that because I have investigated it personally, and I cannot see upon what ground you can base a refusal to sell our compay, if our plan of operation is the same.”
. To which Brown answered;
“Yes, in the Bast that is probably true. There are lots of people upon the sugar refining companies’ direct list, but back East the sugar refiners have a lot of business men with whom they are dealing. They are not interested in whether Tom Brown, at the corner, buys a case of some kind of cereals, or a bag of salt, or a bag of sugar direct or not, or to whom he sells it. They are too busy attending to their own business; but out on this coast we have a lot of jobbers who are damned babies.”
Dole further testified to a conversation with Cosmo Morgan; that Morgan came down to look over the Dos Angeles Grocery Company, with a view to considering their application to get upon the direct list on sugar and other commodities represented by Morgan; that Morgan stated that he could not see any difference between the Dos Angeles Grocery Company and Ralph’s Grocery Company, or Albert Cohn, or Sam Seelig Company, or any of the big chain stores; that they were retailers, and that he did not believe they were entitled to buy sugar direct ; that Morgan said:
“Well, if you can bring about the result that you desire, namely, getting on the direct list, it certainly will revolutionize conditions up and down this coast in a business way.”
On Fébruary 20, 1919, Schiff-Dang Company, of Dos Angeles, one of the original respondents in this case before the Federal Trade Commission, addressed a letter to F. E. Booth Company, San Francisco, as follows:
“We beg to acknowledge receipt of your favor of February 19th, in reference to the Los Angeles Grocery Company, and, in reply, wish to say that these people are not legitimate jobbers, but are virtually a buying exchange for about 88 retailers. For your information, wish to say that we do not sell these people for any of our principals, and that none of the leading manufacturers of the country recognize them as jobbers. It is possible for the Los Angeles Grocery Company to buy, as they have been in the past, through any of the jobbers in this city.
“The status of this company was clearly established by the Sugar Administration Board, who refused to recognize them as jobbers, according to the best information we have been able to obtain. And, further, the Southern California Association of Manufacturers’ Representatives, as a body, are on record as against soliciting business from this firm. For your further information, would advise that, if sales were made direct to this concern, it would undoubtedly very seriously affect your present pleasant relations with all our Los Angeles jobbers.”
On March 3, 1919, Schiff-Dang Company wrote F. E. Booth Company, correcting their former letter, as follows:
“AVe have for acknowledgment your favor of the 1st and are returning herewith communication, as requested. In looking over ours of the 20th, in order to answer your letter, we note that we made a statement that ‘the Southern California Association of Manufacturers’ Representatives, as a body, are on record as against soliciting business from this firm.’ We wish to ad *739 vise that this statement is not a fact, and was made, on onr part, entirely without authorization or full knowledge. To the best of our knowledge, this Association is not on record in any way as affects the Los Angeles Grocery company. Wo further, though, repeat our statement that, to the best of our knowledge and belief, there is not a jobber in this city but that will sell the Los Angeles Grocery Company.
‘•As it is evident that our original letter to you was forwarded to this company, we would ask that you forward this letter to them, in order to correct the wrong statement as contained in ours of the 20th.”
John J. Wattman, vice president of Johnson, Carvell & Murphy, one of the original respondents before the Federal Trade Commission, was called as a witness for the respondents. He testified that his house sold to the jobber and manufacturing trade, but that it did not sell the Dos Angeles Grocery Company; that whenever the question came up between him and his principals, he recommended practically in all instances that no sale be made direct to the Dos Angeles Grocery Company.
C. M. Gair, secretary and treasurer of Johnson, Caryell & Murphy, was called as a witness by the commission upon a subpoena to produce certain records. He produced a letter to the Royal Baking Powder Company, New York, dated January 17, 1918, and signed by Johnson, Carved & Murphy, which reads in part as follows:
“W(> inclose herewith copy of a letter which was received from the Los Angelos Grocery Company, and desire to say that this letter was sent to us with the request that we put before our different principals the question of selling this concern their products direct. * * * While we do not desire to offer any particular recommendation, it does not seem as though an additional wholesale distributor of groceries was a necessity in this market at this time, and it would occur also to ns, from the manner in which the Los Angeles Grocery Company has been, and is now, acting as a buyers’ exchange for this chain of retailers, that putting them on the direct buying list might be looked upon as rather an unfriendly act by both Hie regularly qualified jobbers now covering this territory, and also by many of the large i-etailers, who have no connection with the Los Angeles Grocery Company, and who might feel they were equally entitled to me same consideration.”
it appears from the evidence that Fred Fear & Co., of New York, produced an article known as “My Wife’s Salad Dressing.” Their agent in Dos Angeles about August 1, 1918, was Mr. Crawford. He called upon Mr. Arthur Dee, a buyer for the Dos Angeles Grocery Company, and informed the latter that Fred Fear & Co. had placed the Dos Angeles Grocery Company on the direct list. The Dos Angeles Grocery Company had a letter from Fred Fear & Co. at that time, to the same effect. Crawford and Dee proceeded in the matter of price and quantity of the commodity to be purchased. The matter was continued until the next day, when Crawford informed Dee that the order from Fear & Co. had placed him in a peculiar predicament; that it was absolutely necessary for him to protect or take off the hands of the jobbers who had “My Wife’s Salad Dressing” all of that commodity they had on hand. Those who had the goods gave as reason that, inasmuch as the Dos Angeles Grocery Company was to receive that article direct, it would be impossible for them to handle the goods, and they would expect Crawford, as a broker, to relieve them of such goods. The negotiations resulted in the taking over by the Dos Angeles Grocery Com *740 pany of all the cases of this article in the hands of the jobbers in Dos Angeles—from Haas, Baruch & Co. 5 cases of small, 2 cases of medium, and 2 cases of large; from Stetson-Barret Company 10 cases of small, 10 of medium, and 5 of large; from the United Wholesale Grocery Company 10 cases of small, 10 of medium, and 5 of large—making a total of 25 small, 23 medium, and 12 large', or a total of 60 cases.
It further appears from the testimony of Arthur Dee that the Channel Commercial Company objected to “My Wife’s Salad Dressing” being sold direct to the Dos Angeles Grocery Company. Mr. Dee testified:
“On Friday, August 2d, when Mr. Crawford came in, he says, ‘Mr. Lee, I thought that this matter that we had yesterday regarding My Wife’s Salad deal was in confidence.’ I said, ‘I assure you, Mr. Crawford, it was, so far as I am concerned.’ I says, ‘What is the trouble now? Has somebody caught you at it?’ He said, ‘Yes; as I told you, I was going to explain to all the jobbers what my principals had instructed me to do, in order to clear my skirts for future transactions, but I had intended only to confess to those whom I knew hau merchandise.’ I said, ‘If anybody else knows of that, I can’t imagine who it is, Mr. Crawford, unless it be the Channel Commercial Company. * * * ’ ‘Well,’ he says, ‘when I went into the office of the Channel, either that afternoon or that morning, Mr. R. J. Porter, immediately jumpeu on me,’ as Mr. Crawford expressed it, ‘and said, “X understand you have changed your policy from that of selling to wholesale grocers to that of selling to retailers.” ’”
Flavel Shurtleff testified that the Dos Angeles Grocery Company bought direct certain cereal products sold by Colbert & Co. William Russell Walters, connected with Colbert & Co. from April, 1917, to June, 1917, as salesman, and until November, 1918, as manager, called as a witness by the commission, testified that he was the agent of Colbert & Co. at Dos Angeles, and that while he was such agent and representative of Colbert & Co. he told Shurtleff that he was afraid he was going to lose his job if he did not discontinue selling to the Grocery Company direct. Walters further testified to a conversation with Hunt, of Stetson-Barret Company, wherein Hunt said that he (Walters) would get in bad if he sold direct to the Dos Angeles Grocery Company.
Arthur C. Chase, manufacturers’ agent, selling breakfast food, health food, and canned goods, a witness for the commission, testified that Hunt said to him:
“If you sell the. Los Angeles Grocery Company, you will be dropped, by the jobbers like a hot potato.”
Walters also testified to a conversation with a representative of the Stetson-Barret Company, Mr. Gough; that Gough asked him if he sold the Dos Angeles Grocery Company direct, and he denied doing so. The denial he said was untrue, tie gave as a reason for the denial that he did not want the jobbers to know that he was selling the Dos Angeles Grocery Company direct. He (Walters) said his company could not afford to incur the jobbers’ displeasure.
Verne M. Osborne, a merchandise broker residing in Dos Angeles, a witness for the respondents, testified to a conversation with Mr. Tuttle, of R. D. Craig & Co.; that Tuttle asked him if he sold the Dos •Angeles Grocery Company, and that he replied he would sell, if he had anything to sell them.
*741 Harry A. Pierce, representing Bixby & Co., of Los Angeles, a witness for the commission, testified that he sold the- Los Angeles Grocery Company direct, and that he had received a letter from R. L. Craig & Co., asking if he had sold the Grocery Company direct; that later he had a conversation with Mr. Hartford, of R. L. Craig & Co., wherein Mr. Hartford explained to him that the Los Angeles Grocery Company were retailers, and not wholesalers, and that he did not think retailers ought to buy on the wholesale list.
Arthur C. Chase also testified to a conversation with Mr. Robert New-mark, of M. A. Newmark & Company, one of the original respondents, and that Mr. Newmark inquired of him if he were selling the Los Angeles Grocery Company direct. That was the end of the conversation.
C. H. Snead, a merchandise broker residing, at Alhambra, representing Kelley Clarke Company, testified that Mr. Robert Newmark inquired of him if he were selling the Los Angeles Grocery Company direct.
Henry A. Sloss, salesman for Woodman Packing Company and their agent, a witness for the commission, testified • that he sold the Los Angeles Grocery Company direct, and that Mr. Sprouse, of the California Wholesale Grocery Company, said to him he had heard—-the rumor had been spread—that he (Mr. Sloss) was selling the Los Angeles Groceiy Company direct.
The Western Sugar Refinery Company and the California & Hawaiian Sugar Refining Company sold their sugar to the Los Angeles jobbers, and they, in turn, sold or would sell to the Los Angeles Grocery Company as to a retail dealer, but the refiners would not sell direct to the Los Angeles Grocery Company at the usual rates and terms to jobbers, for the reason, as stated by them, that they did not regard the Los Angeles Grocery Company as a wholesale dealer or jobber. There is no testimony in the record that this course of. action on the part of the two sugar refiners arose from any actual understanding or agreement between them or with the Los Angeles jobbers. The testimony proves that it was a concurrence of opinion as to the classification to be given to the Los Angeles Grocery Company, but we do not find anything more in the testimony. This classification appears from the testimony fo have been erroneous, but as long as it was the individual opinion and action of the refiners, it could not be made the basis of a finding of conspiracy or combination between the two refiners, or between them and the jobbers, or between them and the brokers.
f 61 The difficulty has long been recognized of drawing a definite line between the innocent act of an individual and the same act made unlawful by reason of its being the joint or combined act of two or more; but whenever this question arises there must he some legal evidence to establish the unlawful combination or conspiracy, or facts from which that inference may be legally drawn, or the charge must fail. We do not find such evidence in this record with respect to the two sugar refiners.
[7] With respect to the Los Angeles jobbers, we think the testimony is more definite and clear, and does tend to support the finding of a *742 combination or conspiracy between them to prevent manufacturers and producers from selling directly to the Los Angeles Groceiy Company as to a wholesale dealer or jobber. This conclusion relates to the respondents Haas, Baruch & Co., Stetson-Barret Company, R. L. Craig & Co., M. A. Newmark & Co., United Wholesale Grocery Company, Channel Commercial Company, and California Wholesale Grocery Company.
[8] With respect to the acts of Mailliard & Schmiedell, the only brokers seeking a review of the order of the Commission, we do not find that the testimony supports the finding that they combined or conspired with other brokers, or with the refiners, or with the jobbers, or that they were' induced by coercion, persuasion, boycott, or threats, to prevent the Los Angeles Grocery Company from purchasing direct from the manufacturers and producers at jobbers’ rates and terms.
The order of the court will be to affirm the order of the Federal Trade Commission with respect to the finding and conclusion that the Los Angeles Grocery Company has been a wholesale dealer or jobber since January 2, 1918. The order will also provide for the affirmance of the order of the Federal Trade Commission with respect to the seven jobbers, namely, Haas, Baruch & Co., Stetson-Barret Company, R. L. Craig & Co., M. A. Newmark & Co., United Wholesale Grocery Company, Channel Commercial Company, and California Wholesale Grocery Company, and to reverse it as to the Western Sugar Refinery Company, the California & Hawaiian Sugar Refining Company, and Mailliard'& Schmiedell.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/8822186. Public record. Not legal advice.