Motion to Affirm — United States v. American Bldg. Maint. Industries

4

which were sold or shipped, no patents or scientific

know-how, and no location or business situs advantage.*

: 8. The business of the Benton corporations in pro-

viding janitorial services, and the janitorial service

business generally is an intensely local activity. No com-

odity is sold. The only sale made (if it be a sale) is

the sale of unskilled labor of janitors necessary to clean

buildings. There is no tangible property involved in the

business except insignificant, incidental facilities.*

4. The Benton corporations purchased supplies as

needed. They did not enter into any requirements or.

continuing supply contracts with suppliers. There are

no significant economies to be realized through bulk

or quantity purchase of supplies necessary to the pro-

vision of janitorial services. Supplies represent a minor

part of the total costs of providing janitorial services.

The basic service provided is the labor necessary to

perform the cleaning work. Costs of supplies repre-

sent approximately three percent of the total amounts

paid by customers for janitorial services.’

5. The Benton corporations purchased their sup-

plies from suppliers in California. During the sixteen-

month period prior to the acquisitions Benton Main-

tenance Company purchased no products which were

shipped to it from outside of California and Benton

Management purchased $130.35 of such products, a

de minimis amount.® <

6. The Benton corporations did not advertise na-

tionally. During the eighteen-month period prior to the

5Findings, 5 and 12.

‘Findings, 16.

"Findings, 17.

*Findings, 6, 7, 13 and 18.

a ae

a

acquisitions, these corporations’ total expenses for out-

of-state telephone calls related to business activities

were $19.78, a de minimis amount.®

ae

Janitorial service contractors are merely labor bro-

kers who provide the local unskilled labor necessary

to clean buildings. Equipmént requirements are mini-

mal: mops, pails, sweepers, cleansers and the like. It

is difficult to conceive of industry where entry is.

easier. The industry is therefore characterized by a

high level of competition. -Contracts with — building

owners are generally terminable by the owner upon

thirty days’ notice. Janitorial service contractors com-

pete on the basis of price and quality of service. Such

contractors face the competition of not only other con-

tractors but also of building owners who provide their

own janitorial services in-house."

The Question Presented Is Not Substantial.

The Jurisdictional Statement contends that Congress,

in enacting Section 7 of the Clayton Act, exercised the

utmost extent of its constitutional power to regulate

matters affecting commerce as it did in enacting the

Sherman Act, and, accordingly, the Benton corpora-

tions were “engaged in commerce” because:

(a) They purchased in California supplies orig-

inating in other states;

(b) Certain of their customers sold products

in interstate and foreign commerce; and

*Findings, 8, 14 and 15.

™See generally Urban Business Profile, Building Service Con-

tracting, United States Department of Commerce, EDA-72-59582,

1972, referred to in the Affidavit of Phillip Neff.

— B

(c) They solicited and negotiated contracts

with certain customers through interstate com-

munications.

These contentions do not give rise to a substantial

question warranting review by this Court because:

(1) It is absolutely clear from the language of

Section 7 and the authorities construing that

section that Congress did not therein fully exercise

its constitutional power over commerce;

(2) A corporation cannot be deemed in com-

merce merely because its ag ae and suppliers

may be so engaged; and

(3). Assuming, arguendo, that Congress exer-

cised in Section 7 the same broad control over

matters affecting commerce that it exercised in

the Sherman Act, the facts relied upon by the

Government are. wholly insufficient to establish

jurisdiction.

A. In Section 7 of the Clayton Act Congress Used Only a

Limited Part of Its Constitutional Power to Regulate

Commerce. ss

Section 7 of the Clayton Act was enacted in 1914,

and was amended to its present form in 1950. Both its

original enactment and its amendment came years after

the enactment of Sherman Act Sections 1 and 2. In

the course of the 1950 amendment to Section 7 of the

Clayton Act, Congress considered at length all of the

deficiencies that were claimed to have existed in Sec-

tion 7 as originally enacted. The 1950 amendment,

however, made no change in the jurisdictional require-

ment that the Morano corporation must be “engaged

also in commerce.” Section 7 was in 1950 broad-

ened to allow attacks upon acquisitions made by

| i“

means Off the transfer of assets rather than those mere-

ly accomplished by the acquisition of.stock. Notwith-

standing over fifty years experience under the ‘Sher-

man Acit and thirty-six years experience under the

Clayton Act, the restrictive jurisdictional requirement

that botlh the acquiring and the acquired corporation

must be “engaged in commerce” has remained un-

changed ‘since its original enactment in 1914."

Accordingly, the intent of Congress is clear. Con-

gress did) not in the Clayton Act, = its amendments

thereto, adopt the jurisdictional test’ of the Sherman

Act which calls only for an effect. upon commerce,

but insteiad in the Clayton Act retained and reaffirmed

___ the jurisdictional test which requires,that both the ac-

| quiring Corporation and the acquired corporation be

“engaged! in commerce.” In the Sherman Act, Congress

exercised the utmost extent of its constitutional power

to establish jurisdiction over restraints and monopo-

lies.” In Section 7 of the Clayton Act, by contrast,

Congress acted only to authorize attacks upon mergers

and acquisitions where both parties to the mergers or

acquisitions were “engaged in commerce.”

Under the Sherman Act, with its exercise of the

constitutional power to the ultimate, a defendant’s con-

duct may either occur in or affect commerce. This

dichotomy can be illustrated by reference to Rasmus-

sen v. American Dairy Association, 472 F.2d 517 (9th

: Cir. 1973), where the court stated: :

“The jurisdictional question [tnder the Sher-

man Act] ... concerns Congress’ power to reach

"See discussion ‘of the legislative history in Brown Shoe Co.

v. United Sazes, 370 U.S. 294, 311-323 (1962).

United States v. South-Eastern Underwriters Ass'n, 322 US.

533, 558 (1944).

——

the defendant’s conduct: ‘[T]he restraint must oc-

cur in or affect commerce between the states...

for constitutional reasons.’” (472 F.2d 522, cit-

ing Klor’s Inc. v. Broadway-Hale Stores, 255 F.

2d 214, 224. (9th Cir. 1958), reversed on other

grounds, 359 U.S. 207 (1959), emphasis in orig-

inal). :

The two tests of jurisdiction under the Sherman Act

are defined in Las Vegas Merchant Plumbers Ass'n v.

United States, 210 F.2d 732 (9th Cir. 1954), cert.

den. 348 U.S. 817 (1954), as follows:

“(1) That the acts complained of, occurred

within the flow of interstate commerce. This is

generally referred to as the ‘in commerce’ theory.

“(2) That the acts complained of, occurred

wholly on the state or local level, in‘ intrastate

commerce, but, substantially affected interstate

commerce [the ‘effect on commerce’ -theory].”

(210 F.2d 739, n. 3, emphasis in original).

Of these two theories, Congress adopted only the

“in commerce” test in enacting Section 7 of the Clayton

Act. This is clear from the use of the words “engaged

in commerce” in Section 7, as follows:

“No corporation engaged in commerce shall ac-

quire * * * the stock * * * of another corpora-

tion engaged also in commerce, where in any line

of commerce in any section of the country, the

effect of such acquisition may be substantialty to

lessen competition, or to tend to create a monop-

oly.” (15 U.S.C. §18).

Further, “commerce” is defined in Section 1 of the

Clayton Act as meaning “trade or commerce among

the several States and with foreign nations,” the move-

—_—

e

cmeneinent “Seem

fon

Y a.

__. merce, in the course of such commerce, either directly or

sell

ment of goods and services between states and foreign

nations.

Thus, in the clearest possible language, Section 7 re-

quires that both the acquiring and acquired corpora-

tions be engaged in interstate commerce. This require-

ment is conceded by the Government and is uniformly

recognized. Ekco Prods. Co., CCH Trade Reg. Rep.

416,879 at 21,901 (FTC 1964), affd 347 F.2d 745

(7th Cir. 1965); Golden Grain Macaroni Company v.

F.T.C., 472 F.2d 882, 887 (9th Cir. 1972). This dual

requirement that both corporations be engaged in com-

merce negates any possibility of concluding that Con-

gress intended to exercise its full constitutional powers

over commerce in Section 7.

The words “engaged in commerce” appear elsewhere

in the Clayton. Act and are uniformly interpreted as

adopting the “in commerce” test of jurisdiction. Section

2(a) of the Clayton Act’* was thus construed in Myers

v. Shell Oil Company, 96 F.Supp. 670, 675 (S.D. Cal.

1951) as follows: -

“In enacting the Sherman Act, Congress in-

- tended to exercise all the power it possessed over

interstate commerce. Congress has the power to

regulate intrastate activities which affect interstate

18Section 2 of the Clayton Act as amended by the Robinson-

Patman Act (Act of June 19, 1936, c. 592, 49 Stat. 1526, 15

U.S.C. §13(a)) provides in pertinent part:

“(a) It shall be unlawful for any person engaged in com-

indirectly, to discriminate in price between different pur-

chasers of commodities of like grade and quality, where

either or any of the purchases involved in such discrimina-

tion are in commerce, * * * where the effect of such dis-

crimination may be substantially to lessen competition or

tend to create a monopoly in any line of commerce * * *,”

commerce or trade, if the regulation of intrastate

activities is necessary and approprate [sic] to pro-

tect the free flow of interstate commerce. In short,

any intrastate activity is subject to the regulatory

power of Congress if it affects interstate commerce

in any way in a substantial manner, and Congress

in enacting the Sherman Act intended it to apply

to such activity or conduct.

“Section 2(a, c, d, f), 15 U.S.C.A. § 13 (a,

c, d, f), and Section 3 of the Robinson-Patman

Act, 15 U.S.C.A. § 13a, contain, however, the

specific language that it shall be unlawful for any

person ‘engaged in commerce’ to do any of the

prescribed acts ‘in the course of such commerce’.

Thus, in enacting the provisions of the Clayton

and Robinson-Patman Acts here under considera-

tion, Congress did not_exercise all of its power over

commerce, but dealt only with persons engaged in

commerce and with restraints in the course of com-

merce.” (Emphasis in original.)

Also in Rosemound Sand and Gravel Co. v. Lambert

Sand and Gravel Co., 469 F.2d 416, 418 (Sth Cir.

1972), the court stated “failure of any party to have

any interstate business disposes of the Clayton Act and

Robinson-Patman Act claims.” It is for this reason that

the courts have held that at least one of the discrimina-

tory sales must cross a state line to fulfill the statutory ©

requirement of Section 2(a) that the sales be “in com-

merce.” Littlejohn v. Shell Oil Company, 483 F.2d

1140, 1144 (Sth Cir. en banc 1973), cert. den. 414

U.S. 1116 (1973); Belliston v. Texaco, Inc., 455 F.2d

175, 178 (10th Cir. 1972), cert. den. 408 U.S. 928

(1972).

oo ee

The jurisdictional. phrase “engaged in commerce” or

“in commerce” appears in other legislation and has uni-

formly been recognized by the Court as ineffective to

establish an “effect on commerce” test of jurisdiction.

In Mitchell v. Lublin, McGaughy & Assoc., 358

U.S. 207 (1959), the Court was called upon to de-

termine whether certain non-professional employees

were “engaged in commerce”, as that phrase was used

in Section 6 of the Fair Labor Standard Act.* The

Court, per Chief Justice Warren, stated:

“We start with the premise that Congress, by

excluding from the Act’s coverage employees whose

activities merely ‘affect commerce,’ indicated its

intent not to make the scope of the Act coextensive

with its power to regulate commerce.” (358 U.S.

at 211). —

In Federal Trade Commission v. Bunte Brothers, Inc.,

312 U.S. 349 (1941) the Court interpreted the words

“in commerce” as they appear in Section 5(a) of the

Federal Trade Commission Act,”” and concluded, per

Mr. Justice Frankfurter:

“This case presents the narrow question of what

Congress did, not what it could do. And we mere-

Prior to its amendment in 1966, Section 6 of the Fair Labor

Standards Act (Act of June 25, 1938, c. 676, 52 Stat. 1060,

29 U.S.C. §206), provided:

“(a) Every employer shall pay to each of his employees

who is engaged in commerce or in the production of goods

for commerce wages at the following rates: * * *”

Section 5(a) of the Federal Trade Commission Act (Act of

September 26, 1914, c. 311, 38 Stat. 719, as amended, 15 U.S.

§45) provides in pertinent part that:

“Unfair methods of competition in commerce, and unfair

or deceptive acts or practices in commerce, are hereby de-

clared unlawful.”

—>

See a wee on Fey ae we wane:

-

OIE EI TN A ISP OR oa

—]2—

ly hold that to read ‘unfair methods of competi-

tion in [interstate] commerce’ as though it meant

‘unfair methods of competition in any way affect-

ing interstate commerce,’ requires, in view of all

of the relevant considerations, much clearer mani-

festation of intention than Congress has furnished.”

(312 U.S. 355).

There is no reason to believe that Congress intended

the phrase “engaged in commerce” to have a broader ;

meaning in 1914 when it enacted the Clayton Act or in

1950 when it amerded the Act than the meaning in-

tended for the phrase in 1938 when it enacted the Fair

Labor Standards Act. Further, those words manifest no

different or broader Congressional intent than the words |

“in commerce” used in the Federal Trade Commission

Act.

Accordingly, it is manifest from the language of the

statute that Congress did not fully exercise its constitu-

tional power to regulate matters affecting commerce in

enacting Section 7 of the Clayton Act.

The Appellant’s Jurisdictional Statement advances

three equally untenable arguments in support of its con-

tention that jurisdiction under Section 7 can be estab-

lished by showing the acts complained of affected com-

merce.

First, the Government refers to the Section 7 lan-

guage which prohibits acquisitions “where in any line of

commerce in any section of the country, the effect of

the acquisition may be substantially to lessen competi-

tion, or tend to create a monopoly” and argues that

this language gives the Court jurisdiction if the “effect

of the acquisition” is to lessen competition substantially

or tend to create a monopoly in a line of commerce.

en, ae

The argument, however, ignores the fact that Section 7

is explicitly limited to acquisitions by a corporation

“engaged in commerce” of the stock of another cor-

poration “engaged also in commerce.” For the Gov-

ernment’s argument to have any validity whatever, it

would be necessary to give no recognition at all to the

phraseology in Section 7 making the section applicable

only when there is an acquisition by a corporation en-

gaged in commerce of the stock of another corporation

engaged in commerce. Congress was remarkably ex-

plicit in defining in the jurisdictional sense those whose

transactions are subject to the prohibitions of the sec-

tion. Unlike other anti-trust laws, which apply without

limitation to the complete spectrum of natural persons

and artificial entities,’* Section 7 is limited at the outset

to corporations, another evidence that Congress did not |

fully exercise“the utmost extent of its constitutional

power over commerce. Congress not only limited the

application of Section 7 to a class consisting solely of

corporations, but further limited that class to corpora-

tions engaged in commerce. It is only after the parties

to the acquisition are determined to be parties made

subject to Section 7 that the transaction can be put

to the test proscribed by the section.

Second, the Government asserts that in 1950 when

Congress strengthened Section 7 to prohibit in their

incipiency anticompetitive activities it must have in-

tended to exercise the full reach of its commerce pow-

er, otherwise its attempt to deal with incipient anticom-

petitive practices would have been weakened. As noted

above, Congress did not change in any way the jurisdic-

'6Western Laundry and Linen Rental Co. y. United States,

424 F.2d 441, 443 (1970), cert. den. 400 U.S. 849 (1970).

PELE AR CRE PRE ote: PIL OTL CESS SP EP OE ar NS oft

aie.

tional requirements of Section 7 when it amended that

statute in 1950. It would be peculiar statutory interpreta-

tion indeed to conclude that Congress intended to ex-

pand the jurisdictional test created by the words “en-

gaged also in commerce” by reenacting those words

without change. Such statutory interpretation is exactly

what the Court condemned in Kirschbaum y. Walling,

316 U.S. 517 (1942), per Mr. Justice Frankfurter, as

follows:

“The history of ‘Congressional legislation regulat-

ing not only interstate commerce as such but also

activities intertwined with it, justifies the generali-

zation that, when the Federal Government takes

over such local radiations in the vast network of

our national economic enterprise and thereby radi- —

cally readjusts the balance of state and national

authority, those charged with the duty of legislat-

ing are reasonably explicit and do not entrust its

attainment to that retrospective expansion of mean-

ing which properly deserves the stigma of judicial

legislation.” (316 U.S. 522).

Third, the Government cites Transamerica Corp. v.

Board of Governors, 206 F.2d 163 (3rd Cir. 1953)

for the proposition that Section 7 represents the broadest |

possible exercise of Congressional power over com-

merce. The most that can be said of that case is that

it held that banking is commerce, a fact recognized in

United States v. Philadelphia National Bank, 374 U.S.

321, 336, n. 12 (1963). Moreover, because commer-

cial banking is of necessity interstate it was conceded

that the acquired: banks were corporations engaged in

commerce. Clearly, there is nothing in Transamerica

Corp. from which it can be argued that language in

—15— .

Section 7 can be disregarded that expressly makes the

sectior applicable only when the acquired corporation is

“engaged also in commerce.”

B. The Purchase of Supplies Originating in Other States Is

Insufficient to Establish Jurisdiction.

The Government contends that the acquired Benton

corporat’ons were engaged in commerce because they

purchased supplies within California which originated

outside of California. It is, of course, fundamental that

goods once in commerce do not remain in commerce in-

definitely. The interstate commerce in goods does ter-

minate. United States v. Employing Plasterers A ss’n, 347

U.S. 186, 189 (1954).

The court below reviewed the voluminous briefs and

affidavits of the parties, applied the rules as to when

commerce in goods ceases, and concluded that none of

the supplies that originated out of California were in

commerce when purchased by the Benton corporations.

The Government’s appeal does not question this. Instead

the Government contends that the simple fact that the

Benton corporations purchased goods originating out-of-

state establishes jurisdiction because such purchases have

been recognized in Sherman Act cases as sufficient to

establish the requisite effect upon interstate commerce.

As noted above, jurisdiction under Section 7 can-

not be established by a showing of an effect on com-

merce. However, even assuming arguendo that it did,

the purchase by the Benton corporations in California

of supplies originating out-of-state is wholly insufficient

to establish jurisdiction under that test. The Sherman

Act cases cited by the Government, Burke v. Ford, 389

U.S. 320 (1967), and United States v. Emploving Plas-

terers Ass'n, 347 U.S. 186 (1954), do not hold that the

a iat

inline

in-state purchase of goods originating out-of-state estab-

lishes Sherman Act jurisdiction; they hold that local re-

straints which do not occur in interstate commerce

come within the scope of the Sherman Act if they

substantially affect interstate commerce.

In the present case the Government failed to plead or

prove any effect, let alone a substantial effect, on

the interstate commerce in janitorial supplies arising

from the acquisition of the Benton corporations. The

complaint alleges only that the “effect of the afore-

said acquisition and merger may be to substantially

lessen competition or tend to create a monopoly in

the sale of janitorial services in Southern California and

the Los Angeles area: . . .” The court below found, and

the Government does not contest, that supplies repre-

sent a minor part of the total costs of providing jani-

torial services, approximately three percent of the total

amounts paid by customers for janitorial services.’

In United States v. Frankfort Distilleries, 324 U.S. :

293 (1945), a Sherman Act case, Mr. Justice Black

noted:

“* * * [The Supreme] Court has on occasion de-

termined that local conduct could be insulated

from the operation of the Anti-Trust laws on the

basis of the purely local aims of a combiriation, in-

sofar as those aims were not motivated by the

purpose of restraining commierce, ‘and where the

means used to achieve the purpose did not directly

touch upon interstate commerce.” (324:U.S. 297).

The effect, if any, of the acquisition of the Benton

corporations upon the interstate commerce in supplies

was neither substantial nor direct. The local purchase of

17Findings, 17.

supplies by the Benton corporations raises no substantial

questions warranting review under either the “effect

on commerce” or “engaged in commerce” jurisdictional

tests.

Cc. The Acquired Benton Corporations Were Not Engaged in

Commerce Merely Because of the Commerce Carried on

by Their Customers,

The Government’s Jurisdictional Statement indicates

that a corporation performing janitorial services for

companies that sell products in interstate and foreign

commerce is itself engaged in commerce for purposes

of Section 7 of the Clayton Act. This simply is not

so. The normal and spontaneous meaning of the words

“another corporation engaged also in commerce” is

that the corporation itself must be engaged in interstate

commerce.

The Court has taught that “interstate commerce is an

intensely practical concept drawn from the normal and

/ aecepted course of business.” United States v. Yellow

Cab Co., 332 U.S. 218, 231 (1947). It is not a practi-

cal concept to consider a local janitorial service corpo-

ration is engaged in the interstate and foreign com-

merce in such products as petroleum, milk and space-

craft simply because the corporation cleans buildings

operated by customers who sell those products in inter-

state and foreign commerce.

As in the case of supplies originating out of state,

the Government contends that the Benton corporations

were engaged in the commerce of their customers be-

cause their acquisition affected that commerce. Here

also, the Government failed to plead or prove any sub-

stantial or direct effect on commerce arising from the

acquisition.

Se eR “

—,

D. The Acquired Benton Corporations Were Not Engaged in

Commerce by Reason of Their Use of Interstate Com-

munications.

The Government’s Jurisdictional Statement further

indicates that a corporation which solicits and nego-

tiates contracts by means of interstate communications

is “engaged in commerce” for purposes of Section 7

of the Clayton Act. Specifically, it is asserted that the

janitorial services contract. with Tishman “was

executed by Tishman executives based in New York”

and a New York Life Insurance contract “was the

product of interstate negotiations.”**

As to this the record shows only a de minimis use

of interstate communications by the acquired Benton

corporations. Their total expenses for out-of-state tele-

phone calls relating to business activities during the

period of eighteen months preceding the acquisition

amounted to only $19.78." A total of 203 interstate

mail items were sent or received by those corporations,

only a few of which related to the solicitation or nego-

tiation of contracts.” The total expenditures during

the eighteen-month period for all of those mail items

would amount to only $22.33, assuming an 11¢ air-

mail stamp was used for each of the 203 items.

Aside from the de minimis nature of the acquired

Benton corporations’ use of interstate communications,

it is clear that in any event jurisdiction cannot be

based upon the mere use of interstate communications.

18Jyrisdictional Statement, page 6.

19Findings, 15.

2 Affidavit of John D. Gaffey.

ee

a: SE wrey PRR TIES * VEE NTI NE TTI ETE ge

,

0 10 Ce eM EN

.

— |

This is illustrated by John Kalin Funeral Home, Inc.

v. Fultz, 313 F.Supp. 435 (W.D. Wash. 1970), aff'd

442 F.2d 1342 (9th Cir. 1971), cert. den. 404 US.

881 (1971), in which the Court stated:

“No authority has been cited or found directly or

indirectly sustaining Sherman Act jurisdiction

based merely upon interstate communications con-

ducted in the regular course of an otherwise pure-

ly local business.” (313 F.Supp. 438-439).

E. The Question Presented in This Case Is Not the Same as

the Question Presented in Gulf Oil Corp. v. Copp Paving,

mr

While in both this case and Gulf Oil Corp. v. Copp

Paving, Inc., No. 73-1012 now pending before this

Court, there is an unwarranted effort to misread Sec-

tion 7 of the Clayton Act, it would serve no purpose

to allow this appeal in order to have the cases heard

together as the Government suggests. In Gulf Oil Corp.

the question is whether the intrastate manufacture and

sale of a commodity used in the construction of an

interstate highway makes the supplier a corporation

“engaged also in commerce.” Unlike Gulf Oil Corp.

there is here no instrumentality of interstate commerce

to which any commodity is furnished. Determination of

the question in this case should not be confused by

having thé cases heard together. The questions involved

in the two cases being different, it would not be useful

or appropriate under Supreme Court Rule 43(5) for

them to be argued or heard together as one case.

x

LRTI T IO LE TT Pe TE BS

<——20—

Conclusion.

Since federal courts have limited jurisdiction the

party seeking to invoke that jurisdiction must plead

and show by preponderance of the evidence facts es-

tablishing that jurisdiction. McNutt v. General Motors,

298 U.S. 178, 189 (1936). The court below ap-

plied the well-established jurisdictional standards of

Section 7 of the Clayton Act to the facts shown by

the Government and properly concluded it lacked juris-

diction. Specifically, the court held it is without juris-

diction in a case arising under Section 7 unless both

the acquired corporation and the acquiring corporation

were engaged in commerce. The Jurisdictional Statement

raises no substantial question of law regarding those

standards warranting review by this Court and points to

no substantial competent evidence that the acquired

corporations in this case were engaged in commerce.

Accordingly, Appellee’s motion to affirm should be

granted.

Respectfully submitted,

Marcus MATTSON,

ANTHONIE M. Voocp,

Attorneys for Appellee.

Of Counsel:

LAWLER, FELIX & HALL.

du the Supreme Court of the United States

OCTOBER TERM, 1974

No. 73-1689

UNITED STATES OF AMERICA, APPELLANT

Vv.

AMERICAN BUILDING MAINTENANCE INDUSTRIES

ON APPEAL FROM THE UNITED STATES DISTRICT

COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA

MEMORANDUM FOR THE UNITED STATES IN

OPPOSITION TO MOTION TO AFFIRM

' Appellee’s principal legal argument that in Section 7 of

the Clayton Act Congress did not fully exercise its power to

regulate commerce is answered in our jurisdictional state-

ment and our brief amicus curiae in Gulf Oil Corp. v. Copp

Paving Co., No. 73-1012 (a copy of which has been served

upon appellee’s counsel). The Fair Labor Standards Act

cases upon which appellee relies are irrelevant because in

_ that Act Congress did not exercise its power to regulate

local activities affecting commerce (see Kirschbaum Co. v.

_ Walling, 316 U.S. 517), while in Section 7 of the Clayton

Act it did.

We are filing this brief to answer appellee’s contentions

that the particular activities involved in this case did not

significantly affect commerce.

(1)

2

The activities of Benton, the acquired firm, affect com-.

merce because of Benton’s purchase of goods originating

in other states. Appellee’s attempt to avoid this basis for

_ applying the statute on the ground that Benton purchased

through local suppliers (Motion to Affirm, pp. 15-16) is

unsound. The distinction between direct and indirect pur-

chases would be relevant only in determining “flow of com-

. merce” jurisdiction. See Burke v. Ford, 389 U.S. 320, 321;

Rasmussen v. American Dairy Assoc., 472 F.2d 517, 526

(C.A. 9). Both direct and indirect purchases may substan-

tially “affect” commerce. See, e.g., wickard v. Filburn,

317 U.S, 111. |

Appellee also asserts that Beinon'e perchases did not

have a significant effect upon commerce because they rep-

resent a relatively small portion of Benton’s costs*(Motion

to Affirm, p. 16). The effect of Benton’s purchases cannot

be determined on that basis, however; the proper inquiry is

the substantiality of the purchases in dollar amount. Ben-

ton paid more than $150,000 per year to purchase or lease

goods manufactured in other states. Such expenditures rep-

resent a substantial amount of interstate commerce. See

Katzenbach v. McClung, 379 U.S. 294; cf. Fortner Enter-

prises v. U.S. Steel, 394 U.S. 495.!_- |

The services that Benton performed for its customers also

had a significant. effect upon the flow of commerce. Ben-

ton’s customers included several of the country’s leading

corporations, which had substantial interstate and inter-

national sales. The price and quality of the janitorial ser-

vices those corporations purchase necessarily have an im-

pact on their~uperations.

'In Katzenbach v. McClung this Court upheld the application of the

Civil Rights Act of 1964 to a restaurant which purchased $70,000 worth

of meat per year which had originated in other states. All purchases

were made through a local supplier. In Fortner Enterprises the Court

concluded that a tying arrangement involving annual sales of $190,000

represented a substantial volume of commerce in the tied product. The

Court said that “we cannot agree with respondents that a sum of al-:

most $200,000 is paltry or ‘insubstantial’.” Jd. at 502.

_——

3

Finally, although Benton’s janitorial services were per-

formed locally, Benton was nevertheless engaged in inter-

state commerce because it conducted interstate negotiations

in selling its services. Appellee claims that these inter-

state negotiations are not a significant factor since the

cost of the interstate messages was de minimis (Motion to

Affirm, p. 18). We submit that the significant fact is the

existence of such interstate negotiations rather than their

;

cost.

j Ww ’ |

Benton was “engaged in commerce” within the meaning

of Section 7 of the Clayton Act for the reasons stated here-,

in and in the jurisdictional statement. .

It is therefore respectfully submitted ‘that the motion

to affirm be denied and probable jurisdiction noted.

: a

RoserT H. Bork,

Solicitor General.

A

DECEMBER 1974. '

DO5J-1974-12