Opposition — Fuchs Sugar & Syrups, Inc. v. Amstar Corp.

:

IN THE .

= SEP 29 1979

Supreme Court of the Uuited States

OCTOBER TERM, 1979

No. 79-339

FUCHS SUGARS & SYRUPS, INC. and FRANCIS J.

PRAEL, doing business as LEWIS & COMPANY,

Petitioners,

—against—

AMSTAR CORPORATION,

Respondent.

On PETITION FOR A Writ OF CERTIORARI TO THE UNITED STATES

Court oF APPEALS FOR THE SEconD Circuit

RESPONDENT’S BRIEF IN OPPOSITION

Wuuum E. Wruis

Counsel for Respondent

125 Broad Street

New York, New York 10004

JaMEs H. Carter,

Witiiam M. Datuas, JR.,

Suutiivan & CROMWELL

JoHN C. Reyno.ps,

FrepertcK M. Porter,

Law Department,

AmsTAR CORPORATION

Of Counsel

TABLE OF CONTENTS

PAGE

E.R Sr Par meas 1

eg a ee eee yey e ee 2

Reasons for Denying the Petition ................. 6

I. The Decision Below Does Not Conflict With Any

Decision of This Court or of Other Courts of

BEES Wierik ein chebs cosa tdesasaabedeecsiee 6

II. This Case Presents No Substantial Question

Under the Sherman Act ................006. 10

Ill. The Decision Below Turned Upon Evidentiary

Questions Which Are Inappropriate for Fur-

Se SN, 9:6 cat nein aba pap-oe laa es ane ans 12

Ca aris. aso sind SRR Mek as 12

TABLE OF AUTHORITIES

Cases

Ace Beer Distributors, Inc. v. Kohn, Inc., 318 F.2d

283 (6th Cir.), cert. denied, 375 U.S. 922 (1963) .. 11

Albrecht v. Herald Co., 390 U.S. 145 (1968) ...... 6, 7,9, 11

Anaya v. Las Cruces Sun News, 455 F.2d 670 (10th

CORP, Bee Reis pthread Ws Maa, 3 RES 11

Ark Dental Supply Co. v. Cavitron Corp., 461 F.2d

SERS CU Rati Rta sb wen evead ceawekasesasessa. 11

Blankenship v. The Hearst Corp., 519 F.2d 418 (9th

Ca SP Sains dewiesRan cue euisbwe sie «Sse o 8

Bowen v. New York News, Inc., 522 F.2d 1242 (2d

Cir. 1975), cert. denied, 425 U.S. 936 (1976) ..... 11

Burdett Sound, Inc. v. Altec Corp., 515 F.2d 1245

CERNE COs SINE 5 5 whe eas MERA Gee aca as tls 11

Bushie v. Stenocord Corp., 460 F.2d 116 (9th Cir.

EAE de debs dbkkscesanuksbwheees eekecaeea 9,11

il

PAGE

Clemmer v. North American Van Lines, Inc., 1969

CCH Trade Cas. { 72,936 (E.D. Pa. 1969) ........ 11

Federal Trade Commission v. Beech-Nut Packing

Co., BT CB. 66k CARRS) soca sce inhatinewaes 7

Frey & Son v. Cudahy Packing Co., 256 U.S. 208

CEBGR) i. occa cceksebadehakeweseee es 7

Friedman v. Thorofare Markets, 587 F.2d 127 (3d

Clip. ROPE oe sanancssses ine KER skeen A 9

Greenville Publishing Co. v. Daily Reflector, Inc.,

496 F.2d S01 (4th Cir. 1974) . 2... cccccccsvaceccn 9

Jacobson & Co., Inc. v. Armstrong Cork Co.,548 F.2d.

438 (38 Che. BORG} a.. 6.5 sss bee ecnketeueeiibnes 8

Joseph E. Seagram & Sons, Inc. v. Hawaiian Oke &

Liquors, Ltd., 416 F.2d 71 (9th Cir. 1969), cert.

denied, 396.U.S. 1062 (1970) .....ccccccweccecss 9

Knutson v. Daily Review, Inc., 548 F.2d 795 (9th

Cir. 1976), cert. denied, 433 U.S. 910 (1977) ....8,10,11

Pacific Coast Agricultural Export Ass’n v. Sunkist

Growers, Inc., 526 F.2d 1196 (9th Cir. 1975), cert.

denied, 425 U.S. 959 (1976) ............ ccc ee eee 9

Simpson v. Union Ou Co., 377 U.S. 13 (1964) ...... 11

United States v. Bausch & Lomb Optical Co., 321

UB. Fe CISGRS oc ccc Neca Vine 7

United States v. Johnston, 268 U.S. 220 (1925) ...... 12

United States v. Parke, Davis & Co., 362 U.S. 29

(WOOD. cick. cs cckadacsedp tus calc eee 7,8

United States v. Schrader’s Son, Inc., 252 U.S. 05

(1900) ......0.<.0008s Gosia eee 7

Statutes

Sherman Act, §1 (15 U.S.C. §1) .............. 2, 5, 8, 10

Sherman Act, §2 (15 U.S.C. $2) ................ 2,5

IN THE

Supreme Court of the United States

October Term, 1979

No. 79-339

a

-

Fucus Sugars & Syrups, Inc. and Francis J. Prakt,

doing business as Lewis & Company,

Petitioners,

—against—

AmstTarR CORPORATION,

Respondent.

On PETITION For A Writ OF CERTIORARI TO THE UNITED STATES

Court oF APPEALS FOR THE SECOND CIRCUIT

a

4

RESPONDENT’S BRIEF IN OPPOSITION

This brief is submitted in opposition to a petition for a

writ of certiorari to the United States Court of Appeals

for the Second Circuit seeking review of a judgment of

that court which dismissed a broker termination complaint

cast as an antitrust claim.

Question Presented

The single issue raised by the Petition does not merit

review by this Court. That issue is:

Did the Court of Appeals correctly decide, after review-

ing the trial record, that insufficient evidence was presented

to support a finding that Amsta:’s termination of its use

of general sugar brokers was the product of an unlawful

combination or conspiracy in violation of Section 1 of the

Sherman Act?

Statement of the Case

Petitioners (“plaintiffs”) commenced this action on July

10, 1974 in the Southern District of New York, claiming that

Amstar’s termination of its employment of general sugar

brokers some three months earlier had violated Sections

1 and 2 of the Sherman Act.* The complaint sought dam-

ages as a result of the termination and mandatory rein-

statement of plaintiffs’ employment relationship with

Amstar. Plaintiffs’ claims, which are based on termination

of employment services, were framed as antitrust issues

because they had no employment contracts with Amstar and

were retained as agents at will.

Plaintiffs are two “general” sugar brokers with offices

in the New York metropolitan area who are employed as

sales agents by various sellers of refined sugar and pre-

viously were so employed by Amstar (A4).** They are not

“distributors,” as the Petition erroneously states (p. 4).

The Court of Appeals correctly described them as “manu-

facturers’ agents” who “do not purchase or take possession

of the manufacturers’ goods, bear any of the financial risk

for these goods, or possess any discretion as to the pricing

of the goods” (A3).

As general sugar brokers, plaintiffs act as sales agents

simultaneously for a number of competitors in the sale of

refined sugar.*** In contrast, the much more numerous

“direct” sugar brokers represent only one principal at a

time in the sale of refined sugar products (A4). Amstar

* 15 U.S.C. §§ 1 and 2.

** References to pages of the appendix to the Petition are preceded

by the letter “A”.

*** Plaintiffs have continued as agents for cam | sugar sellers other

than Amstar. At the time of trial, plaintiff Fuchs represented

a sugar suppliers, and plaintiff Prael represented 13 (A6,

n.3).

pays its broker agents commissions on Amstar’s sales of its

sugar for which they submit customers’ orders. These com-

missions customarily are based on the volume of sugar sold

rather than on the selling price Amstar receives (A5, n.2).

Sugar brokers (both general and direct) are unlike

traditional middlemen, such as dealers and distributors.

Ordinarily they merely make telephone calls to attempt

to locate customers for their principal, the manufacturer/

seller. As the Court of Appeals put it, the function of

sugar brokers “is simply to bring a buyer and seller

together in the hope of initiating a sale at a price and

terms agreeable to both” of the participants (.44).

Manufacturers’ sales of refined sugar products with the

assistance of general brokers, as plaintiffs observe in their

Petition (p. 4), is a vestige of the nineteenth century and

in many respects is sui generis to the sugar industry and

contrary to trends in other food manufacturing sectors.

Indeed, one of plaintiffs’ own experts at trial characterized

the use of general brokers as an “anachronistic way of

merchandising” (227a-28a).*

In addition, sales through common sales agents may pre-

sent antitrust perils due to such brokers’ simultaneous

access to pricing information from Amstar and its com-

petitors. The trial court found this set of distribution ar-

rangements a “potentially anti-competitive system” (1987a)

and therefore declined to order plaintiffs’ reinstatement.

Moreover, although plaintiffs were paid commissions by

Amstar and purported to act as its agents, they and other

general brokers engaged in activities which were solely for

the benefit of Amstar’s customers and which at times de-

pressed the price Amstar received for its sugar. These

* Citations to “a” pages refer to the Joint Appendix filed with the

Court of Appeals.

activities included giving gratutitous recommendations to

customers as to the quantity, price and terms for sugar for

which they felt such customers should bargain; assisting

buyers to “shop” among various sugar sellers for the best

prices; obtaining special discounts and allowances from

Amstar for certain customers; and advising selected cus-

tomers of the prices and terms offered by Amstar to other

customers. These activities of general brokers sometimes

reduced the selling price of Amstar’s sugar and Amstar’s

profit margins, and they prompted the Court of Appeals to

conclude that general brokers “at times acted more nearly

as purchasing agents for Amstar’s customers” than as sales

agents for Amstar (A5).

Over a number of years and due to a variety of problems,

Amstar had sought to reduce its reliance upon this anach-

ronistic, unprofitable and potentially anti-competitive

sales system by hiring more salesmen on its own payroll

and hiring additional direct brokers. By the late 1960’s,

Amstar had increased substantially its employment of

direct sugar brokers who represented it in particular geo-

graphic areas (A5) and had correspondingly pared down

the number of its general brokers.* On March 22, 1974,

Amstar announced to the handful of its remaining general

brokers that it would terminate use of their services

effective March 30 (A5).**

* This evolution is characterized by plaintiffs in their Petition

(p. 7) as a “multi-phase five year plan for the control and

eventual elimination of general sugar brokers.” Contrary to

plaintiffs’ contention (p. 14), the Court of Appeals did review

the rather colorfully-presented evidence concerning Amstar’s in-

ternal ‘‘multi-phase five year plan” and concluded that “the

record before us shows no more than a unilateral decision by

Amstar to substitute one distribution system for another” (A3).

** Amstar’s various distributors, who purchase sugar for resale in

the traditional role of middlemen, were unaffected by this broker

termination decision.

In the area of plaintiffs’ primary activity, New York City,

Amstar replaced the brokers with its own salaried salesmen.

In certain midwestern and southern cities, a few brokers

who formerly had represented others besides Amstar were

offered the opportunity to become Amstar direct brokers

in their areas (A5). Some rejected the offer and remained

the representatives of Amstar’s competitors, while others

accepted (id.).

None of the general brokers terminated by Amstar in

April 1974 went out of business, and ali continued to repre-

sent Amstar’s competitors (A6, n.3). Competition among

sugar sellers therefore was unaffected. Indeed, senior exe-

cutives of Amstar’s primary competitors in the northeastern

United States testified at trial that, rather than suffering

adverse effects from Amstar’s action, their sales instead

promptly increased as a result of efforts by general brokers

to shift business away from Amstar and to them (1671a-

72a, 1710a, 1765a-66a).

At the conclusion of a three-week trial, the jury rejected

plaintiffs’ claim that Amstar’s termination of general

brokers was an attempt to monopolize the sugar market in

violation of Section 2 of the Sherman Act (A2). However,

upon instruction from the trial court to which Amstar took

timely exceptions, the jury found that Amstar’s action

amounted to a conspiracy in restraint of trade in violation

of Section 1 of the Sherman Act and awarded single dam-

ages of $150,000 (:d.).

A unanimous Court of Appeals panel* reversed the find-

ing of a violation of Section 1, and a petition for rehearing

and suggestion of rehearing en banc were denied. After a

* The panel was composed of Judges Lumbard, Moore and Mans-

field. Judge Lumbard wrote the court’s opinion.

review of the 2307-page record, the Court of Appeals con-

cluded that insufficient evidence was presented to support

the jury’s finding of a Section 1 conspiracy between Amstar

and anyone else to terminate general brokers. As an al-

ternative holding, the Court of Appeals held that sugar

brokers were not independent entities with whom Amstur

could conspire under Section 1.*

Reasons for Denying the Petition

I.

The Decision Below Does Not Conflict With Any

Decision of This Court or of Other Courts of Appeals.

Straining to find some inconsistency between the Court

of Appeals’ ruling and the decision of this Court in Albrecht

v. Herald Co., 390 U.S. 145 (1968), plaintiffs have seized

upon the Court of Appeals’ use of the word “coerce” in its

opinion (A13). They have wrenched this single word en-

tirely from its context as the basis for their claim that the

court below misapplied Albrecht by supposedly ruling that

proof of “coercion” is necessary to give rise to a Section 1

* Because of the Court of Appeals’ reversal on a finding of an

absence of any combination or conspiracy, it did not reach or

pass upon other issues raised by Amstar, such as the lack of

evidence that Amstar’s actions harmed competition or that plain-

tiffs suffered antitrust injury. Even if the Court of Appeals’

judgment were reversed, it would be necessary for that court to

address these matters before plaintiffs would be entitled to any

reinstatement of the trial court’s judgment.

The District Court’s statement suggesting that Amstar does

not “challenge the sufficiency of the evidence with respect to

anti-competitive purpose or effect” (A19) is in error, as is plain-

tiffs’ unsupported statement to this Court that “There is no ques-

tion that the measures taken by Amstar resulted in a significant

reduction of competition in the sugar industry” (p. 16).

—

agreement (Petition, pp. 16-23). The Court of Appeals

made no such ruling, and no inconsistency exists.

The Court of Appeals correctly read Albrecht to hold

that an unlawful conspiracy may be found on evidence of a

joint effort to secure compliance by a terminated distributor

(who was in that case an independent economic entity, not

_a@ mere broker agent) in some unlawful activity such as

resale price maintenance (A113). It is the collaborative~

effort to extract “some collateral anticompetitive advan-

tage” which the Court of Appeals found essential (A8,

A13), not the means by which such advantage was extracted.

“Coercion” was not an issue below at all.

Applying Albrecht to the facts of this case, the Court of

Appeals found no evidence in the record of any attempt by

Amstar to secure any anticompetitive advantage. Not only

was there no “coercion,” but there was not even any joint

effort to engage in any conduct which could be illegal:

there was no claim that Amstar engaged in any resale price

fixing with any of its brokers (A13), nor was there any

support for vague allegations that Amstar sought by its

termination of general brokers to secure compliance by

plaintiffs or any other brokers in any unlawful activities

(A13-A14).*

These findings distinguish Albrecht and the other deci-

sion of this Court cited by plaintiffs in their Petition.** In

* In the principal geographic area served by these plaintiffs,

metropolitan New York City, Amstar replaced the general

brokers with its own salaried salesmen. By definition, they could

' not be involved in an improper combination wth Amstar.

** In addition to Albrecht, plaintiffs cite (pp. 17, 20-21): United

States v. Schrader’s Son, Inc., 252 U.S. §8 (1920) ; Frey & Son

v. Cudahy Packing Co., 256 U.S. 208 (1921); Federal Trade

Commission v. Beech-Nut Packing Co., 257 U.S. 441 (1922);

United States v. Bausch & Lomb Optical Co., 321 U.S. 707

(+060) ; and United States v. Parke, Davis & Co., 362 U.S. 29

(1 3

each of those cases the challenged activity involved an

attempt by a manufacturer to secure adherence by its deal-

ers in an unlawful scheme of resale price maintenance. In

the instant case, Amstar sought nothing from its brokers

except loyal service as sales agents who did not have a

conflict of interest. Such exclusive agency arrangements are

long-established and of unquestioned legality, and the false

issue of “coercion” is irrelevant. Nothing in the decisions

of this Court outlaw a manufacturer’s efforts to achieve this

goal by unilaterally changing its distribution system.

Similarly, there is no conflict between this case and the

decisions of other courts of appeals. The decisions cited by

plaintiffs are either inapposite or entirely consistent with

the holding below.

In Blankenship v. The Hearst Corp., 519 F.2d 418 (9th

Cir. 1975), and Jacobson & Co., Inc. v. Armstrong Cork Co.,

548 F.2d 438 (2d Cir. 1977) (Petition, pp. 24-25), former

distributors (who were middlemen with pricing discretion

and not mere broker sales agents) brought antitrust actions

against their former suppliers claiming that they had been

terminated because of their refusal to adhere to certain

unlawful restrictions (respectively, resale price mainte-

nance and the allocation of sales territories). Citing Al-

brecht and United States v. Parke, Davis & Co., 362 U.S.

29 (1960), the Ninth and Second Circuits held that retalia-

tory terminations violated Section 1 if motivated by the

dealers’ refusal to adhere to unlawful price or territorial

restrictions. In contrast here, no distributors were involved

at all, no brokers were selectively terminated, and no broker

was asked to help Amstar do anything illegal. Rather, an

entire segment of a sales system, composed of all general

brokers, simply was discontinued. As the Ninth Circuit

observed in Knutson v. Daily Review, Inc., 548 F.2d 795,

805 (9th Cir. 1976), cert. denied, 433 U.S. 910 (1977):

“[A] complete conversion is not an enforcement

mechanism [for an unlawful restraint], but a choice

of an alternative form of distribution.”

The decisions in Bushie v. Stenocord Corp., 460 F.2d 116

(9th Cir. 1972), and Joseph E. Seagram & Sons, Inc. v.

Hawaiian Oke & Liquors, Ltd., 416 F.2d 71 (9th Cir. 1969),

cert. denied, 396 U.S. 1062 (1970) (Petition, p. 24), are in

accord with the holding below. In both of those cases, the

Ninth Circuit upheld as lawful decisions by suppliers to

replace distributors in order to improve their respective

distribution systems.

Plaintiffs also point to Pacific Coast Agricultural Export

Ass’n v. Sunkist Growers, Inc., 526 F.2d 1196 (9th Cir.

1975), cert. demed, 425 U.S. 959 (1976), as a factually

similar case (Petition, pp. 24-25); but plaintiffs’ reliance

is wholly misplaced. In that case the defendant, an exporter

of oranges, was found to have conspired with a broker to

refuse to deal with competing exporters of oranges in an

effort to drive the latter out of business. There is no claim

by plaintiffs in this case that Amstar’s termination of

general brokers had the purpose or effect of driving any

competitor out of business, nor of achieving any other

identifiable violation of law. To the contrary, Amstar’s

competitors became the beneficiaries of Amstar’s action and

enjoyed increased sales after the termination (1671la-72a,

1710a, 1765a-66a).*

* Friedman v. Thorofare Markets, 587 F.2d 127 (3d Cir. 1978),

and Greenville Publishing Co. v. Daily Reflector, Inc., 496 F.2d

391 (4th Cir. 1974), cited by plaintiffs at pp. 24-25 of their

Petition, have no bearing on the issues involved in this case. In

Thorofare Markets, the Third Circuit ruled that the legality of

a restrictive covenant in a shopping center lease should be tested

under the rule of reason (587 F.2d at 142-43) ; and in Greenville

the Fourth Circuit cited Albrecht for the proposition that an

officer of a corporation may be found to be a co-conspirator with

his corporation if he has an independent personal stake in

achieving the corporation’s illegal objective. (496 F.2d at 399).

10

This Case Presents No Substantial Question Under

the Sherman Act.

The Court of Appeals held that Amstar did not violate

Section 1 of the Sherman Act when it unilaterally discon-

tinued its use of general brokers in the sale of its sugar

products. That holding was predicated on two grounds:

first, that Amstar acted unilaterally in arriving at its deci-

sion to terminate its use of general brokers (A10) ;* and

second, that following the termination Amstar did not con-

spire with anyone in restraint of trade (A10-A11).

Based on its review of the extensive record, the Court of

Appeals ruled that the trial court had misapplied applicable

standards and that Amstar lawfully could change its distri-

bution system in order to improve its profitability and could

at the same time offer employment to some of its former

agents as direct brokers within the new system (A7-A8).

As the Court of Appeals stated, “if it is not an antitrust

violation for a manufacturer to change his distribution

system, then it can hardly be evidence of an illegal con-

spiracy that the manufacturer seeks merely to secure the

personnel to man this new system” (A11).

The Court of Appeals’ holding is fully in accord with the

long-established principle that a unilateral decision to

change distributors does not give rise to a claim under

Section 1 of the Sherman Act. See, e.g., Knutson v.

Daily Review, Inc., 548 F.2d 795 (9th Cir. 1976), cert.

* The Court of Appeals cited as evidence of the unilateral nature

of Amstar’s termination decision the fact that Amstar maintained

tight security precautions within the corporation concerning the

decision and that none of the “co-conspirators” proposed by

plaintiffs either took part in the decision or even had advance

knowledge of it (A10).

’ 11

denied, 433 U.S. 910 (1977) ; Bowen v. New York News, Inc.,

522 F.2d 1242 (2d Cir. 1975), cert. denied, 425 U.S. 936

(1976) ; Burdett Sound, Inc. v. Altec Corp., 515 F.2d 1245

(5th Cir. 1975); Ark Dental Supply Co. v. Cavitron Corp.,

461 F.2d 1093 (3d Cir. 1972); Anaya v. Las Cruces Sun

News, 455 F.2d 670 (10th Cir. 1972); Bushie v. Stenocord

Corp., 460 F.2d 116 (9th Cir. 1972) ; Ace Beer Distributors,

Inc. v. Kohn, Inc., 318 F.2d 283 (6th Cir.), cert. denied, 375

U.S. 922 (1963).

As an alternative holding, the Court of Appeals ruled that

the sugar brokers identified by plaintiffs as alleged co-

conspirators were incapable of conspiring with Amstar as

a matter of law because they were not distributors or other

independent economic entities (A9). This ruling was based

on the evidence presented at trial, which established that

the relationship between Amstar and its brokers was one

of principal and agent (A9 n.5) and that the function of

brokers in sales of Amstar sugar was identical to that of

employee salesmen, Such a ruling is entirely consistent

with this Court’s decisions recognizing that a Section 1

agreement does not arise when an agent simply “agrees”

to provide selling services for his principal. Simpson v.

Union Oil Co., 377 U.S. 18, 20-21 (1964) ; Albrecht v. Herald

Co., 390 U.S. 145, 160-61 (1968) (Harlan, J. dissenting) ;

see also, Knutson v. Daily Review, Inc., supra, 548 F.2d at

801-02; Clemmer v. North American Van Lines, Inc. 1969

CCH Trade Cas. 72,936 (E.D. Pa. 1969).

In sum, the Court of Appeals correctly applied settled

legal principles to the facts of this case. There is no

Sherman Act issue which merits this Court’s review.

12

The Decision Below Turned Upon Evidentiary Ques-

tions Which Are Inappropriate for Further Review.

In essence, plaintiffs take issue with the Court of Appeals’

review of the trial record. By their petition, they ask this

Court to sift the evidence anew in search of sufficient factual

indicia of improper joint activity. That is not the function

of this Court. As Mr. Justice Holmes noted over 50 years

ago, “We do not grant a certiorari to review evidence and

discuss specific facts.” United States v. Johnston, 268 U.S.

220, 227 (1925).

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be denied.

Respectfully submitted,

Wii E. Wixis

Counsel for Respondent

- 125 Broad Street

New York, New York 10004

James H, Carrer,

WititiaM M. Dattas, JR.,

Sutiivan & CROMWELL

Joun C, Reynowps,

Freperick M. Porter,

Law Department,

Amstark CORPORATION

Of Counsel

September 19, 1979