General Electric Company v. Masters Mail Order Company of Washington, D.C., Inc.

244 F.2d 681, 1957 U.S. App. LEXIS 5459, 1957 Trade Cas. (CCH) 68,715

• Court: Court of Appeals for the Second Circuit
• Decided: May 15, 1957
• Docket: 198, Docket 24370
• Status: Published

Opinions

CLARK, Chief Judge.

This is an appeal from a decision, D.C.S.D.N.Y., 145 F.Supp. 57, enjoining a mail order discount house in the District of Columbia from advertising, offering for sale, or selling plaintiff-manufacturer’s products in New York below New York “fair trade” prices.² The action was brought under the New York Fair Trade (Feld-Crawford) Act, N. Y. General Business Law, McK.Consol.Laws, c. 20, §§ 369-a to 369-e, and our jurisdiction rests on the diversity of citizenship of the parties. All the facts were stipulated in advance of trial.

Since the passage of the McGuire Act, 66 Stat. 632, 15 U.S.C. § 45(a) (1)-(5), the plaintiff, General Electric Company, has entered into numerous fair trade agreements with retailers in New York and other states and has systematically given notice of the agreements and the uniform minimum resale prices in effect to the 175,000 known retailers of its products. It has vigorously enforced the agreements, by lawsuits when necessary. The defendant is a retail store in the District of Columbia which sells General Electric appliances both over the counter and by mail order. Two-thirds of its sales are over the counter. It is a wholly owned subsidiary of Masters, Inc., a New York retail corporation, and has been controlled and closely supervised by the parent corporation at all relevant times. The parent is not a party here. In 1952 the parent was enjoined from violating the plaintiff’s fair trade contracts and the following year it was twice fined for violating the injunction. That year the defendant was organized in Maryland and the following year its place of business was moved to the District of Columbia, where there are no fair trade laws. The last move was intended to permit the defendant to sell General Electric appliances to consumers in fair trade states below fair trade prices by direct mail order, the defendant having been advised that such sales would be legal.

Defendant has shipped General Electric appliances from its store to eonsum-ers in New York at prices below those set by the plaintiff with its signatory retailers. These sales were pursuant to orders received in the District of Columbia on order forms marked, “This Order Is Subject To Acceptance By Masters Mail Order Company In Washington, D. C.” and “No Charge For Shipping.” Some of the orders were filled on a C.O.D. basis, but the great majority were filled pursuant to orders which were accompanied by prepayment of the purchase price. Each order blank bore the notation “Sold To” immediately preceding the purchaser’s name, and as one of the terms it announced that the purchaser could return the article purchased for refund or exchange within thirty days of receipt by returning the article in its original condition and carton. In approximately five cases defendant refunded the purchase price upon the customer’s return of the merchandise.

The order blanks were distributed by both the defendant in Washington and its parent, which kept them behind the appliance counter at its place of business in New York for distribution to New York consumers who sought them or tried to buy General Electric appliances for less than fair trade prices. To mail requests for appliances below fair trade prices the New York parent store replied that the items could be purchased from the Washington subsidiary, and it enclosed copies of the mail order form of the defendant. Copies of the defendant’s catalogue were printed by the parent in New York and sent to the defendant in the District of Columbia, whence they were mailed to prospective customers in fair trade states. And the parent distributed other advertising material concerning the defendant’s bargains directly to New York consumers in New York. The appliances sold by the defendant were acquired in part from the parent in New York and in part through purchase from distributors located in the District of Columbia, including a division of General Electric Supply Company, a wholly-owned subsidiary of the plaintiff, which is one of seven franchised General Electric distributors in the District of Columbia.

The district court, relying heavily on the circumstances surrounding the formation of the defendant and its close supervision by the New York parent, held that the defendant advertised, offered for sale, and sold GE appliances in New York below the fair trade prices; that this violated New York’s Feld-Crawford Act; and that the Feld-Crawford Act was sanctioned by the McGuire Act. Judge Bicks’ reasoned opinion, reported at 145 F.Supp. 57-64, is a full exposition of the arguments available for plaintiff’s position and for the rather far-reaching injunction he issued. He distinguished two earlier district court cases upholding the legality of the defendant’s operations in another fair trade jurisdiction on the ground that there no sales had been made within a fair trade state. Bissell Carpet Sweeper Co. v. Masters Mail Order Co. of Washington, D. C., D.C.D.Md., 140 F.Supp. 165, subsequently affirmed, 4 Cir., 240 F.2d 684; Revere Camera Co. v. Masters Mail Order Co. of Washington, D. C., D.C.D.Md., 128 F.Supp. 457. But we are constrained to agree with these decisions, which we think are not properly to be distinguished.

Our first question is whether the Feld-Crawford Act, so applied, conflicts with the Sherman Antitrust Law’s ban on enforcement of resale price maintenance agreements as to goods moving in interstate commerce. Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502. Although the McGuire Act carves some exceptions to this long-standing national policy against restraints on trade, we are “bound to construe them strictly, since resale price maintenance is a privilege restrictive of a free economy.” United States v. McKesson & Robbins, Inc., 351 U.S. 305, 316, 76 S.Ct. 937, 943, 100 L.Ed. 1209.

Subsections (a) (2) and (3) of § 2 of the McGuire Act, 15 U.S.C. § 45(a) (2) and (3), are printed in the margin.³ The last part of subsection (a) (2) restricts the exception for resale maintenance contracts to contracts governing resales in jurisdictions that have adopted “fair trade” as a policy. A contract made in a fair trade state, but governing a resale in a non-fair trade state, would be illegal by the terms of the subsection. Subsection (a) (3) creates an exception for enforcement actions only when the price-cutter is undercutting “prices prescribed in such contracts” — that is, the contracts described in the previous subsection. Therefore no enforcement action lies unless the resales in question occur in a fair trade state.

This was the construction given the statute by Judge Chesnut in Revere Camera Co. v. Masters Mail Order Co. of Washington, D. C., supra, D.C.D.Md., 128 F.Supp. 457, 462, and by Judge R. Dorsey Watkins in Bissell Carpet Sweeper Co. v. Masters Mail Order Co. of Washington, D. C., supra, D.C.D.Md., 140 F.Supp. 165, 178; and see also the opinion of Judge Soper affirming the latter decision, 4 Cir., 240 F.2d 684. This construction is supported by the legislative history of the McGuire Act, carefully detailed in these opinions.

Plaintiff protests that our reading of the statute will allow the District of Columbia to impose its policies on economic activities in New York. But the opposite construction will simply allow New York to dominate the economic activities of the District of Columbia (and other like free trade areas). Since Congress has left the regulation of this part of interstate commerce to the option of the individual states, it is inevitable that when a single transaction affects states with conflicting policies one state or the other must see its policies slighted. We have no clearer guide in choosing the dominant state than the language of the statute itself. The trial judge attempted to weigh the defendant’s contacts in New York against its contacts in the District, but this approach has no warrant in the congressional language or legislative history.⁴ From all that appears Congress was concerned with the place where resales occurred, rather than the place where the retailer’s owner resided and exercised supervision over operations.

Nor do we think that advertisements and offers to sell are to be treated differently from sales themselves. The critical question is still the place of resale, and no enforcement action may be brought for advertising or offering goods for sale below fair trade prices unless the ad or offer contemplated resales in a fair trade jurisdiction. There is a practical advantage to having all three stages of the seamless process of merchandising governed by the same law, and the wording of the McGuire Act suggests that the three are to be handled together. This was the conclusion of Judge Watkins in Bissell Carpet Sweeper Co. v. Masters Mail Order Co. of Washington, D. C., supra, D.C.D.Md., 140 F.Supp. 165, affirmed 4 Cir., 240 F.2d 684, noted in 57 Col.L.Rev. 292; and we are in entire agreement with his comprehensive opinion. Hence an enforcement action under the New York statute is valid only if the resales occurred in New York.

The parties disagree as to whether the defendant’s order blanks were offers or only advertisements soliciting offers. Plaintiff views them as offers which were accepted when consumers in New York signed them and put them in the mail. Defendant contends that the consumers’ actions were the real offers which the defendant accepted in the District. We need not resolve the dispute, since Judge WATERMAN and I are agreed that the place where the contract was made is not controlling. In my view the place where title passed is critical.

The intent of the parties governs the passage of title between them, although statutes and case law provide guides for ascertaining such intent. Here the predominant interest of both the seller and buyers was to take advantage of the absence of resale price maintenance legislation in the District of Columbia. The defendant’s history and operations testify to its concern, and its various pieces of advertising brought home the same desire to New York consumers. For example, one of its order blanks announced ■“discounts on all the ‘fair-traded’ brands of merchandise that are being sold only at list price in 45 states.” Since the parties had the power to determine for themselves where title would pass, they indubitably selected the District of Columbia, where their agreements would be enforceable, rather than New York, where they would not.

Where there is no contrary evidence, the fact that the seller pays the carrier suggests that title is intended to pass when the carrier delivers the goods to the buyer, Uniform Sales Act § 19, Rule 5; but only slight evidence of a contrary intent rebuts the presumption of this rule. Williston, Sales § 279b (Rev.Ed.1948). Here the cost of transportation was being passed on to the mail order consumer in any event, so that little is to be inferred from the fact that the seller’s catalogue price included the cost of transportation, instead of treating it as a separate item which the customer must also prepay. The customers’ prepayment of the price is more evidence that title passed before the buyer received the goods, Madeirense Do Brasil S/A v. Stulman-Emrick Lumber Co., 2 Cir., 147 F.2d 399, 402, certiorari denied 325 U.S. 861, 65 S.Ct. 1201, 89 L.Ed. 1982, and the vast bulk of mail order sales were thus prepaid.

But even the C.O.D. sales were made in the District of Columbia, we feel. C.O.D. customers, as well as customers who prepaid, placed their orders on blanks which proclaimed the advantages of sales in the District of Columbia; and they, too, if asked, would have expressed a desire to pass title in a place where it was legal. Nor would the defendant be prejudiced by passing title before payment, for it could retain a seller’s lien, entitling it to keep possession of the goods until paid. See Ponder v. Beeler Motor Co., 186 Okl. 88, 96 P.2d 65. Defendant’s failure to pay the District of Columbia sales tax is irrelevant to the intent of the parties, since this fact was never communicated to purchasers. Under the defendant’s arrangement for doing business, title passed in the District of Columbia. Revere Camera Co. v. Masters Mail Order Co. of Washington, D. C., supra, D.C.D.Md., 128 F.Supp. 457, 462; Bissell Carpet Sweeper Co. v. Masters Mail Order Co. of Washington, D. C., supra, D.C.D.Md., 140 F.Supp. 165, 174, affirmed 4 Cir., 240 F.2d 684.

Quite apart from the McGuire Act, the same result is compelled by New York law. Sec. 369-b of New York’s FeldCrawford Act, N. Y. General Business Law,⁵ cannot be distinguished from the Maryland Fair Trade Act, which the Court of Appeals for the Fourth Circuit recently construed. Bissell Carpet Sweeper Co. v. Masters Mail Order Co. of Washington, D. C., supra, 4 Cir., 240 F.2d 684. A unanimous court of' appeals agreed with the two district judges earlier construing the Act that it covered only those advertisements and offers which referred to resales in Maryland. This narrow construction was adopted because the statute was in derogation of the common ■ law and imposed a burden on interstate commerce — considerations which would weigh heavily with" New York courts, as well, e. g., General Electric Co. v. R. H. Macy & Co., 199 Misc. 87, 95-96, 103 N.Y.S.2d 440, 449, appeal dismissed 278 App.Div. 939, 105 N.Y.S.2d 1003.

Moreover, it seems apparent that New York would apply the substantive law of the District of Columbia to the facts of this case. Whether it regarded the place where title passes as critical (to keep the Feld-Crawford Act consistent with the McGuire Act) or saw the retailer’s location as controlling, • the result would be the same here. In an action for unfair competition by a manufacturer against a ■ New York retailer engaged in direct mail sales of fair trade items to out-of-state consumers the New York courts have applied New York law without discussing our present problem. Raxor Corp. v. Goody, Sup., 121 N.Y.S.2d 882, affirmed 282 App.Div. 921, 125 N.Y.S.2d 643, affirmed 307 N.Y. 229, 120 N.E.2d 802, certiorari denied Goody v. Raxor Corp., 348 U.S. 863, 75 S.Ct. 88, 99 L.Ed. 680. The instant case is almost identical except that the retail store is located in the District of Columbia; and there is no reason to suspect that the New York courts, which have been scrupulous to apply principles of comity, would adopt a different conflicts rule here merely in order to govern all multi-state transactions by New York law, e. g., People ex rel. Kirkman v. Van Amringe, 266 N.Y. 277, 194 N.E. 754; Van Voorhis v. Brintnall, 86 N.Y. 18, 40 Am.Rep. 505. The fact that the defendant’s owner is located in New York is as irrelevant under the FeldCrawford Act as under the McGuire Act; the state judges will not distinguish between two mail order houses located in the District of Columbia solely because the owner of one resided in New York and the owner of the other lived in Florida.⁶ That construction would invite serious enforcement problems, since service of process on the Florida owner cannot be made in New York on the mere fact of advertisement in New York; and the courts of Florida might refuse to entertain actions for unfair competition under the Feld-Crawford Act on grounds of public policy. See Note, 57 Col.L.Rev. 292, 296.

My brother WATERMAN criticizes use of the concept of title in determining the place of “resale” and suggests that we look instead to the situs of the retailer. The title approach seems required by the congressional language and the case law; in reality it adds precision to the statutory term by drawing upon precedents from the law of sales, e. g., Bissell Carpet Sweeper Co. v. Masters Mail Order Co. of Washington, D. C., supra, D.C.D.Md., 140 F.Supp. 165, 172, note 12, where Judge Watkins relied on a state case involving passage of title in finding that the defendant’s resales are made in the District of Columbia. I see no difficulty with this construction, but am convinced that the novel retailer-situs rule would introduce much uncertainty into the law. For example, it would be difficult to know how much paraphernalia a seller must have in a state to be “located” there. Similarly, it would be hard to fix the “location” of a large mail order house which has numerous warehouses and retail outlets in both free trade and fair trade states.

The criticisms of the construction here employed are two: that it facilitates evasion of fair trade regulation and that it may create inconsistencies between the McGuire Act and the state fair trade laws. Obviously some manipulation is possible under both approaches. The one here adopted would permit no more latitude than the familiar doctrine that parties to a multi-state contract can agree as to which state’s law will govern, provided the state selected has a direct and substantial relation to the transaction. Seeman v. Philadelphia Warehouse Co., 274 U.S. 403, 47 S.Ct. 626, 71 L.Ed. 1123; 6 Corbin on Contracts § 1509 (1951). Of course the parties, under well recognized principles set forth in more detail in the footnote, are limited in their choice of law as to the passage of title, and cannot elect to be governed by the law of some jurisdiction with which they have no connection.⁷ Consequently any fear that New York retailers and consumers can subjeet local sales to foreign fair trade laws is groundless. Inasmuch as Judge Watkins has already read the title concept into the federal and Maryland statutes in Bissell Carpet Sweeper Co. v. Masters Mail Order Co. of Washington, D. C., supra, D.C.D.Md., 140 F.Supp. 165, and the only possibly contrary authority is Raxor Corp. v. Goody, supra, where the law of the forum was applied without discussion, it seems most likely that uniformity will come about as the state courts read the title concept into their statutes to make them agree with the federal act from which their validity is derived. Congressional disapproval of Sunbeam Corp. v. Wentling, 3 Cir., 185 F.2d 903, vacated 341 U.S. 944, 71 S.Ct. 1012, 95 L.Ed. 1369, does not bear on the present controversy nor does it lend support to the retailer-situs construction.

Because Judge FRANK died before casting his final vote, his views on this case are not official; but it is reassuring that his memorandum and tentative vote agreed so closely with the views I have expressed in calling for reversal on both state and federal grounds and in suggesting that we might reverse on the “persuasive and exhaustive” district court opinions in Bissell Carpet Sweeper Co. v. Masters Mail Order Co. of Washington, D. C., supra, D.C.D.Md., 140 F.Supp. 165, and Revere Camera Co. v. Masters Mail Order Co. of Washington, D. C., supra, D.C.D.Md., 128 F.Supp. 457. In accordance with these views the order of injunction must be reversed and the action must be dismissed on the merits.

2 . We use the terms which seem to be current, viz., “fair trade," as opposed to “free trade.”

3 . Ҥ 45. Unfair methods of competition unlawful; prevention hy Commission

“(a) (1) * * *

“(2) Nothing contained in this section or in any of the Antitrust Acts shall render unlawful any contracts or agreements prescribing minimum or stipulated prices, or requiring a vendee to enter into contracts or agreements prescribing minimum or stipulated prices, for the resale of a commodity which bears, or the label or container of which bears, the trade-mark, brand, or name of the producer or distributor of such commodity and which is in free and open competition with commodities of the same general class produced or distributed by others, when contracts or agreements of that description are lawful as applied to intrastate transactions under any statute, law, or public policy now or hereafter in effect in any State, Territory, or the District of Columbia in which such resale is to be made, or to which the commodity is to be transported for such resale.

“(3) Nothing contained in this section or in any of the Antitrust Acts shall render unlawful the exercise or the enforcement of any right or right of action created by any statute, law, or public policy now or hereafter in effect in any State, Territory, or the District of Columbia, which in substance provides that willfully and knowingly advertising, offering for sale, or selling any commodity at less than the price or prices prescribed in such contracts or agreements whether the person so advertising, offering for sale, or selling is or is not a party to such a contract or agreement, is unfair competition and is actionable at the suit of any person damaged thereby.”

4 . Its weakness from a realistic point of view is highlighted by the fact that here more than two-thirds of defendant’s sales were made over the counter in its extensive three-stoi-y store in the District, while the remaining or mail-order sales were by no means limited to New York customers; witness the two federal cases in Maryland that we have cited which also involve this defendant.

5 . Ҥ 369-b. Unfair competition defined and made actionable

“Wilfully and knowingly advertising, offering for sale or selling any commodity at less than the price stipulated in any contract entered into pursuant to the provision of section three hundred sixty-nine-a, whether the person so advertising, offering for sale or selling is or is not a party to such contract, is unfair competition and is actionable at the suit of any person damaged thereby.”

6 . Florida is one of the twelve states where resale price maintenance legislation has been declared invalid either in whole or in part by the state courts. See 1 CCH Trade Reg.Rep. H3,003; Sievert, “‘Fair Trade’ Tottering, But Hope Still Lingers,” N. Y. World-Telegram and Sun, Feb. 22, 1957.

7 . “fTlhe parties may elect between the different systems of law, which the law would construe as competing systems; but they cannot elect the law of any other jurisdiction.” C Page, Law of Contracts § 3571. “The courts have * * * generally confined the parties in their choice of law either to the law of the place of making or to the law of the place of performance.” 2 Beale, Conflict of Laws 1081. “It is almost universally held that the parties, in exercising the power to select the jurisdiction whose law they intend to have control the obligations, rights, and duties under their contract, must act in good faith and with no purpose of evasion or of avoiding some provision of the law of the place of making.” Owens v. Hagenbeck-Wallace Shows Co., 58 R.I. 162, 192 A. 158, 164, 112 A.L.R. 113. See also E. Gerli & Co. v. Cunard S.S. Co., 2 Cir., 48 F.2d 115; Brierley v. Commercial Credit Co., 3 Cir., 43 F.2d 730, certiorari denied 282 U.S. 897, 51 S.Ct. 182, 75 L.Ed. 790; Palmer v. Chamberlin, 5 Cir., 191 F.2d 532, 536, 27 A.L.R.2d 416; Duskin v. Pennsylvania-Central Airlines Corp., 6 Cir., 167 F.2d 727, 730, certiorari denied Pennsylvania-Central Airlines v. Duskin, 335 U.S. 829, 69 S.Ct. 56, 93 L.Ed. 382; In re Sik’s Estate, 205 Misc. 715, 129 N.Y.S.2d 134; Annotation, Validity and effect of stipulation in contract to the effect that it shall be governed by the law of a particular state which is neither the place where the contract is made nor the place where it is to be performed, 112 A.L.R. 124.