Hobart Brothers Company v. Malcolm T. Gilliland, Inc.

471 F.2d 894
CourtCourt of Appeals for the Fifth Circuit
DecidedFebruary 26, 1973
Docket72-1064
StatusPublished
Cited by86 cases

This text of 471 F.2d 894 (Hobart Brothers Company v. Malcolm T. Gilliland, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Hobart Brothers Company v. Malcolm T. Gilliland, Inc., 471 F.2d 894 (5th Cir. 1973).

Opinion

COLEMAN, Circuit Judge:

Hobart Brothers Company sued Malcolm Gilliland, Inc. for monies owed on open account in the sum of $21,184.44.

Gilliland admitted the alleged indebtedness, but filed a three-count counterclaim. The counterclaim alleged a breach of the distributorship agreement, the failure of Hobart to credit a return of defective goods, and the negligence of Hobart in filling a particular order.

Nine months after filing its original answer, Gilliland amended by adding anti-trust counterclaims that (1) enforcement of an illegal contract placed geographical restrictions on Hobart’s distributors in violation of § 1 of the Sherman Act; (2) cancellation of Gilliland’s distributorship because of Gilliland’s breach of Hobart’s territorial sales restrictions was in violation of § 1 of the Sherman Act; and (3) cancellation of Gilliland’s distributorship becaues of Gilliland’s breach of Hobart’s resale price restrictions was in violation of § 1 of the Sherman Act.

Hobart was granted summary judgment on its original complaint.

The issues raised in this appeal involve Gilliland’s anti-trust claims.

We affirm the judgment of the District Court.

The Facts

Hobart Brothers Company, located in Troy, Ohio, is a manufacturer of welding equipment and consumable welding supplies.

In February, 1960, Malcolm Gilliland signed a distribution agreement with Hobart whereby Gilliland became a distributor of Hobart equipment for Northern Georgia. Under this distribution agreement Gilliland was limited territorially as to where he could sell. The agreement stated:

“Territorial arrangements are covered by correspondence, approval of which is indicated by the distributor’s *897 acceptance of this General Policy Outline. The extent to which a distributor may be protected in a territory is established by correspondence
“The Distributor shall not solicit orders outside his assigned territory.”

In June, 1964, a new distribution agreement was substituted. It did not contain outright territorial restrictions but instead only gave the distributor primary responsibility for certain territories. The policy stated:

“All territories have previously been assigned to distributors, and those which Hobart shall assign hereafter, the geographical areas in which distributorships shall be primary responsible for the sale and distribution of Hobart products [sic] . . . Hobart shall refer inquiries from these areas to the appointed distributor, so long as the distributor adequately represents Hobart in the area designated as his primary responsibility and promotes the sale of all Hobart’s products.
“Hobart cannot assume responsibility for sales made by independent distributors outside their assigned territories.”

Gilliland bore a dual relationship to Hobart. First, Gilliland was a distributor of Hobart’s products, and, second, Gilliland competed with Hobart in the manufacture and sale of continuous wire feeder mechanisms. Gilliland used a Hobart power source in his wire feeder. This dual relationship existed from the time Gilliland accepted the distributorship. Hobart knew from the beginning that Gilliland was constructing equipment that competed with Hobart’s. Hobart, according to the testimony, was never concerned with this minor competition as long as Gilliland’s actions were compatible with the sale of Hobart products. Moreover, Hobart sold its products directly from the home office in competition with its own distributors.

In April, 1964, Hobart became alarmed when Gilliland began selling products in Tennessee that competed directly with Hobart. Tennessee was outside Gilliland’s assigned territory. Hobart received similar reports of Gilliland competing directly with Hobart in May and September, 1964. Hobart’s Tennessee district representative in an intraoffice memo suggested that Hobart “counter” by selling directly in Gilliland’s territory. On May 11, 1964, Hobart became aware that Gilliland was making disparaging remarks to some of Hobart’s direct customers and at the same time was promoting his own products.

In September, 1964, Hobart was notified that the General Electric plant in Rome, Georgia, (which was in Gilliland’s territory) was having trouble with Hobart products that Gilliland supplied. A Hobart sales representative, Wendell Jones, went to this General Electric plant on September 23, 1964, at General Electric’s request, to examine the Hobart products. Jones discovered in General Electric’s stock that electrodes of other manufacturers were mixed with Hobart electrodes in Hobart boxes and that some Hobart flux was mislabeled. Jones told the management of General Electric of these facts. General Electric at this meeting asked Jones if Hobart would be interested in handling the General Electric account directly. Hobart began doing so.

Jones took samples of the electrodes to have them tested by a Hobart chemist. The chemist’s report showed that sample batches of electrodes reported as “bad” by General Electric welders were good workable electrodes. A second sample of electrodes was taken by Hobart, but no Hobart official could recollect the outcome of this second test. Until pre-trial discovery Gilliland was never aware of the Hobart reports or of the meeting at General Electric relating to Gilliland’s handling of the General Electric account.

Gilliland claims that Hobart twice disparaged Gilliland on another occasion. These two disparagements occurred at a meeting on October 28, 1964, at the General Electric plant at Rome, Georgia. A *898 Hobart representative, W. R. Stevens, told the management of General Electric that Gilliland was supplying General Electric with Hobart 24A type electrodes contrary to the purchase orders which specified type 24 electrodes. Gilliland offered proof which showed that Hobart had recommended and developed the 24A type electrode at General Electric’s request after General Electric had encountered problems with the 24 type electrode. According to his testimony W. R. Stevens was not aware of General Electric’s request to Hobart. Stevens also told the management of General Electric that Gilliland was not supplying General Electric with the high grade MIG 18 welding wire which General Electric had ordered. Stevens told General Electric that Gilliland was substituting a less expensive grade MIG 25 type wire. A General Electric employee, Ben James, testified that he had ordered the change in wire type, but that he had not put through the necessary paper work to show that the change had been made.

Gilliland’s sales to General Electric amounted to $63,410.97 in 1963. Gilliland’s sales to General Electric in 1964, up to the time that General Electric can-celled its account, amounted to $36,843.-81.

In September, 1966, Hobart cancelled its distributorship agreement with Gilliland.

Gilliland claims it was damaged on another occasion when the American Buildings Company of Eufaula, Alabama, in 1964, cancelled an order for a continuous wire feeder.

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