Pacific Stationery & Printing Co., an Oregon Corporation v. Northwest Wholesale Stationers, Inc., an Oregon Cooperative Corporation

NORRIS, Circuit Judge,

dissenting:

The majority holds that a nonprofit cooperative association commits a per se violation of the antitrust laws if it expels a member without giving notice of • the grounds for the expulsion and an opportunity to be heard. I find that ruling to be unprecedented and the rationale behind it remarkable.

After Northwest terminated Pacific’s membership, Pacific could have continued to purchase supplies from Northwest. But as a nonmember, it was not entitled to rebates. The termination of membership thus resulted in price discrimination against Pacific, which would normally constitute a violation of the Robinson-Patman Act, 15 U.S.C. § 13a (1976). As the majority concedes, however, the method of price discrimination at issue here is condoned by Congress, for an explicit exemption allows a cooperative to return

to its members, producers or consumers the whole, or any part of, the net earnings or surplus resulting from its trading operations, in proportion to their purchases or sales from, to, or through the association.

15 U.S.C. § 13b (1976). I see no ground for believing that Congress intended to qualify *1399 that exemption by requiring cooperatives to provide recipients of rebates with notice and a hearing before cutting off their entitlement to rebates by terminating their membership. The majority nevertheless declares that a cooperative that expels a member without affording such procedural safeguards not only loses the Robinson-Pat-man Act exemption, but in addition incurs per se liability for treble damages under the antitrust laws.

In the majority’s view, Pacific is entitled to the procedural safeguards whether or not it is entitled to the rebates. Indeed, the majority baldly states: “Pacific’s complaint is not that, as a non-member, it has been denied rebates available to members.” 1 At 1394-1395. I must disagree. As Pacific states in its brief, the competitive advantages enjoyed by members in the form of rebates constitute the “primary focus of this litigation.” Opening Brief for Appellant at 7.

It is true that when Pacific was expelled, it lost such ancillary benefits as warehousing facilities and opportunities for expedited orders in addition to the rebates. And perhaps the loss of incidental competitive advantages is more troublesome than the loss of the rebates, since the Robinson-Pat-man Act exemption covers only rebates. I note, however, that in conceding that the expulsion of Pacific could be treated as the equivalent of price discrimination, the majority implicitly suggests that if loss of rebates alone were at issue, the per se rule might be inappropriate. Yet in assessing the probability of anticompetitive effect, and deeming it high enough to justify per se illegality, the majority factors in the eleven to fourteen percent price differential between members’ and nonmembers’ prices. In any event, I believe that by authorizing disparate treatment in the form of price discrimination, the Robinson-Patman Act exemption casts considerable doubt on the propriety of applying a per se rule in this sort of case at all. Here the “group boycott” consists not in a refusal to do business, but in expulsion from a cooperative; the principal economic effect of the boycott is Congressionally sanctioned price discrimination against a nonmember. In my view, the loss of the incidental benefits of membership, never emphasized by Pacific, provides woefully inadequate justification for rewriting the exemption.

Moreover, I think the cases on which the majority relies are inapposite. Neither Silver v. New York Stock Exchange, 373 U.S. 341 , 83 S.Ct. 1246 , 10 L.Ed.2d 389 (1963), nor Denver Rockets v. All-Pro Management, 325 F.Supp. 1049 (C.D.Cal.1971), provides authority for burdening the Robinson-Patman Act exemption with a judicially-mandated, extrajudicial hearing, for neither case dealt with disparate treatment that Congress had expressly sanctioned. In Silver , the Supreme Court rejected the New York Stock Exchange’s claim that the Securities Exchange Act of 1934 granted it an exemption from antitrust liability. Therefore, in holding that the New York Stock Exchange violated the antitrust laws when it divested a securities dealer of the means to communicate directly with members of the Exchange, the Court itself had to reconcile the Securities Exchange Act with the antitrust laws. In so doing, it found the imposition of procedural safeguards necessary to carry out the purposes of the Exchange Act — purposes peculiar to that Act, which appear to have nothing to do with *1400 the legislative purposes underlying the express exemption created for cooperatives under the Robinson-Patman Act. Denver Rockets , the majority’s only other precedent for imposing procedural safeguards, dealt with a professional football league that made no claim it had been granted an antitrust exemption by Congress. Thus, neither Silver nor Denver Rockets provides authority under the federal antitrust laws for denying a cooperative the protection of an express antitrust exemption permitting it to accord rebates to members but not to nonmembers.

Apart from the absence of any indication that Congress intended to qualify the exemption by requiring cooperatives to provide procedural safeguards, I find support for my view in the fact that state law ordinarily governs the relationship between a cooperative and its members. Here the Oregon Cooperative Corporation Act, under which Northwest is organized, does not require a cooperative to give notice and an opportunity to be heard before expelling a member. Rather, the statute expressly provides:

Bylaws may provide for termination of membership and the conditions and terms thereof.

62.145(3). The majority effectively writes into all state laws governing nonprofit cooperatives a federally mandated hearing. For the federal judiciary to engraft such a requirement to state cooperative laws is an intrusion on state law wholly unwarranted by the federal antitrust laws.

Finally, the majority attempts to justify the imposition of procedural safeguards because such safeguards “are necessary ... both in order to allow a reviewing court to determine whether the association has, in a particular case, exceeded the scope of justified self-regulation and to prevent such regulation from encroaching on vigorous competition.” At 1397-1398. I find this rationale to be rather curious. I see no reason for reading into the antitrust laws a requirement that expelled cooperative members be granted extrajudicial opportunities to develop a record. I should think that the federal rules of discovery are more than adequate for that purpose.

In disagreeing with the majority, I recognize that the Robinson-Patman exemption does not cloak Northwest with absolute antitrust immunity. See, e.g., Mid-South Distributors v. FTC, 287 F.2d 512, 516 (5th Cir.), cert, denied, 368 U.S. 838 , 82 S.Ct. 36 , 7 L.Ed.2d 39 (1961); American Motors Specialties Co. v. FTC, 278 F.2d.225, 229 (2d Cir.), cert, denied, 364 U.S. 884 , 81 S.Ct. 169 , 5 L.Ed.2d 105 (1960). Cf. United States v. Borden Co., 308 U.S. 188 , 60 S.Ct. 182 , 84 L.Ed. 181 (1939) (limited antitrust exemption for agricultural cooperatives under Capper-Volstead Act, 7 U.S.C. §§ 291 , 292 (1976)). I merely agree with the district court that Northwest’s conduct in expelling Pacific should be judged directly under the rule of reason; I think that the majority’s intervening per se analysis is unnecessary and unwarranted. Under the rule of reason, of course, Northwest could not seek refuge in the Robinson-Patman exemption if it conspired with some members to terminate other members for anticompetitive purposes and thereby achieved anticompetitive results. I see no justification, however, for converting the expulsion of Pacific into a per se violation, entitling Pacific to treble damages, simply because Northwest has not adopted a bylaw providing notice and an opportunity to be heard before terminating a membership. In short, I cannot support an antitrust analysis that ends once it has been determined that the cooperative has failed to provide the expelled member with a hearing.

. Instead, the majority reasons, Pacific’s complaint is that “it has, as a member, been expelled from membership without the safeguards necessary to assure that cooperatives not expand their limited exemption under the Robinson-Patman Act to a general exemption from antitrust regulation.” Id.

I confess I fail to understand the distinction between the complaint the majority ascribes to Pacific and the complaint it disclaims on behalf of Pacific. The procedural safeguards the majority writes into the law are valuable to Pacific only to the extent that they safeguard benefits Pacific deems valuable. As I understand it, Pacific seeks a hearing in order to safeguard its status as a member, primarily so that it will receive rebates. To treat the procedural safeguards as a substantive right — or even a substantive desire on the part of Pacific — merely confuses the issue.