Russ' Kwik Car Wash, Inc. Clean Cars, Inc. v. Marathon Petroleum Company Gastown, Inc. Emro Marketing Company

772 F.2d 214, 1985 U.S. App. LEXIS 22717

• Court: Court of Appeals for the Sixth Circuit
• Decided: September 5, 1985
• Docket: 84-3097
• Status: Published

Opinions

PER CURIAM.

Plaintiffs appeal from the summary judgment granted in favor of defendants in this antitrust action. The principal issue on appeal is whether the transfer of a product from a parent corporation to its wholly-owned subsidiary corporation is a “sale” for purposes of section 2(a) of the Clayton Act as amended by the Robinson-Patman Act, 15 U.S.C. § 13(a). We hold that it is not and affirm.

I

This case arises from the operation of a car wash and gasoline station by plaintiffs Russ’ Kwik Car Wash, Inc. and Clean Cars, Inc. The plaintiffs’ facility is located on an “L”-shaped parcel of land adjacent to one corner of a major Toledo, Ohio intersection. On the corner lot, surrounded on two sides by the “L”-shaped lot, is a Gastown service station owned and operated by defendant Emro Marketing Company, a wholly-owned subsidiary of defendant Marathon Petroleum Company. Gastown is an unincorporated division of Emro Marketing Company.¹ The “L”-shaped parcel is owned by Marathon and leased to Russ’ Kwik for a period of fifteen to thirty years, ending in 1995. In conjunction with the lease, Russ’ Kwik and Marathon entered into a supply agreement under which Marathon agreed to supply Russ’ Kwik with Marathon brand gasoline and other petroleum products.

In 1976 Russ’ Kwik changed ownership, and the new owners installed new equipment and decided on a new marketing strategy. Their new policy was to sell their Marathon gasoline a penny per gallon cheaper than any of the four other gas stations at the intersection, thereby attracting gas customers, some of whom would also purchase car washes. In 1977, self-service stations became legal in Ohio, and Emro decided to convert the corner Gas-town station to self-serve. Emro unsuccessfully negotiated with Russ’ Kwik in an effort to obtain some or all of the leased property for use in expanding the Gastown station. When the Gastown began operating on a self-serve basis, a price war broke out between the Gastown station and Russ’ Kwik. Russ’ Kwik alleges that on occasion the Gastown station dropped its retail price beneath the wholesale price that Marathon charged Russ’ Kwik, and that Marathon charged Russ’ Kwik a higher price for gasoline than it charged Emro.

Russ’ Kwik and its owner, Clean Cars, Inc., then brought this antitrust action, alleging violations of sections 1 and 2 of the Sherman Act, section 3 of the Clayton Act, and section 2 of the Robinson-Patman Act, as well as several pendent state claims. The defendants moved for summary judgment on all claims, and both sides submitted affidavits and depositions. The District Court granted summary judgment for defendants on all claims, and plaintiffs appeal. On appeal the plaintiffs do not contest the dismissal of their Sherman Act § 2 monopolization claim or the pendent state claims. Plaintiffs also do not contest on appeal the dismissal of their claims under §§ 2(d) and 2(e) of the Robinson-Pat-man Act. The only remaining Robinson-Patman Act claim is under § 2(a).

Summary judgment is proper when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R. Civ.P. 56(c). “In ruling on a motion for summary judgment the trial court must view the evidence in the light most favorable to the party opposing the motion. On review this Court must do the same.” New Jersey Life Insurance Co. v. Getz, 622 F.2d 198, 200 (6th Cir.1980). With these standards in mind, we will first consider plaintiffs’ Sherman Act § 1 and illegal tying arrangement claims, and then plaintiffs’ Robinson-Patman Act claim.

II

In their memorandum supporting their motion for summary judgment on the Sherman Act § 1 claim, the defendants argued that summary judgment was proper for two reasons: (1) there was no evidence that Marathon had communicated with Emro about plaintiffs, and (2) a corporation is legally incapable of conspiring with its subsidiary. The District Court granted summary judgment on the grounds that “the plaintiffs have produced no evidence of a conspiracy.” We need not consider whether this conclusion was correct, however, since it is clear, after the Supreme Court’s opinion in Copperweld Corp. v. Independence Tube Corp., — U.S. -, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984), that the summary judgment was proper on this claim for the second reason advanced by defendants. A decision below must be affirmed if correct for any reason, including a reason not considered by the lower court. J.E. Riley Investment Co. v. Commissioner, 311 U.S. 55, 59, 61 S.Ct. 95, 97, 85 L.Ed. 36 (1940).

Section 1 of the Sherman Act, 15 U.S.C. § 1, provides:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal____

This section applies only to action by at least two separate entities that form a contract, combination, or conspiracy. E.g., Copperweld, 104 S.Ct. at 2740. In Copperweld the Supreme Court overruled earlier cases that had supported the “intra-enterprise conspiracy” doctrine, and held that “the coordinated activity of a parent and its wholly owned subsidiary must be viewed as that of a single enterprise for purposes of § 1 of the Sherman Act.” Copperweld, 104 S.Ct. at 2742. The only conspiracy alleged in this case is one between Marathon and Emro. There is no dispute that Emro is a wholly-owned subsidiary of Marathon. Judgment for defendants on the section 1 conspiracy claim must therefore be affirmed.

Ill

Plaintiffs alleged that the defendants improperly tied the lease of the “L”-shaped parcel to the sale of Marathon gasoline, in violation of § 3 of the Clayton Act. The District Court correctly granted summary judgment for defendants in the Clayton Act § 3 claim because that section applies only to sales of “commodities,” which do not include the lease of real property. See Northern Pacific Railway Co. v. United States, 356 U.S. 1, 13 & n. 1, 78 S.Ct. 514, 522 & n. 1, 2 L.Ed.2d 545 (1958) (Harlan, J., dissenting); Lessig v. Tidewater Oil Co., 327 F.2d 459, 469 n. 24 (9th Cir.), cert. denied, 377 U.S. 993, 84 S.Ct. 1920, 12 L.Ed.2d 1046 (1964); Tire Sales Corp. v. Cities Service Oil Co., 410 F.Supp. 1222, 1227 (N.D.Ill.1976), rev’d on other grounds, 637 F.2d 467 (7th Cir.1980), cert. denied, 451 U.S. 920, 101 S.Ct. 1999, 68 L.Ed.2d 312 (1981).

In their complaint plaintiffs expressly based their tying claim on § 3 of the Clayton Act. In their motion for summary judgment, defendants argued that the tying claim could not proceed under the Clayton Act since a lease of real property is not covered by that statute. In response, plaintiffs specifically argued that their tying claim should be allowed to proceed under § 3 of the Clayton Act. In their reply defendants reiterated their argument that the Clayton Act does not apply to a lease of real property. Plaintiffs then brought their own motion for summary judgment in which they again pressed the validity of their tying claim under § 3 of the Clayton Act.

In their briefs on appeal, plaintiffs have abandoned the theory of their tying claim that they repeatedly urged in the District Court, and now contend that the District Court erred in granting summary judgment because the tying claim should be allowed to proceed under § 1 of the Sherman Act. This Court, however, will generally not consider questions not raised in the court below. E.g., Brown v. Marshall, 704 F.2d 333, 334 (6th Cir.1983), cert. denied, — U.S.-, 104 S.Ct. 120, 78 L.Ed.2d 119 (1984); Ruip v. United States, 555 F.2d 1331, 1337 (6th Cir.1977); Bannert v. American Can Co., 525 F.2d 104, 111 (6th Cir.1975), cert. denied, 426 U.S. 942, 96 S.Ct. 2662, 49 L.Ed.2d 394 (1976); Dupes v. Johnson, 353 F.2d 103, 105 (6th Cir.1965). Plaintiffs’ arguments concerning the sufficiency of pleadings are inapposite; although it is possible that plaintiffs would have been allowed to raise a Sherman Act § 1 tying claim in the District Court, the fact is that they made no attempt to raise such a claim even after defendants twice argued that the tying claim could not proceed under the Clayton Act. Our refusal to consider this claim is particularly appropriate here because defendants have not had the opportunity to submit affidavits in support of summary judgment on a Sherman Act tying claim. A Sherman Act tying claim requires a showing of monopoly power in the tying product, which is not needed under the Clayton Act if a substantial volume of commerce in the tied product is restrained. Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 608-09, 73 S.Ct. 872, 880-81, 97 L.Ed. 1277 (1953). The rule that this Court will not consider questions not presented below “applies with particular force when the new issue requires development of additional facts.” Brown v. Marshall, 704 F.2d 333, 334 (6th Cir.1983), cert. denied, — U.S. -, 104 S.Ct. 120, 78 L.Ed.2d 119 (1984). The District Court did not err in granting summary judgment for defendants on plaintiffs’ tying claim.

IV

Section 2(a) of the Clayton Act, as amended by the Robinson-Patman Antidiscrimination Act, 15 U.S.C. § 13(a), provides in part:

It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce ... where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or with customers of either of them____

The essence of plaintiffs’ Robinson-Patman Act claim is that Marathon sold gasoline at a cheaper price to Emro for its Gastown station than to Russ’ Kwik for its Marathon station, and that such discrimination entailed the possibility of an adverse effect on competition. At least two separate sales to different purchasers must take place in order to constitute discrimination under the Robinson-Patman Act. Bruce’s Juices, Inc. v. American Can Co., 330 U.S. 743, 755, 67 S.Ct. 1015, 1020, 91 L.Ed. 1219 (1947). The District Court, relying on the Fifth Circuit’s decision in Security Tire & Rubber Co. v. Gates Rubber Co., 598 F.2d 962 (5th Cir.), cert. denied, 444 U.S. 942, 100 S.Ct. 298, 62 L.Ed.2d 309 (1979), held that a transfer from a parent corporation to a wholly-owned subsidiary corporation could not be considered a sale for purposes of the Robinson-Patman Act. We must, therefore, consider whether the District Court used the correct standard in determining that a transfer from Marathon to Emro did not constitute a sale.

A

In Security Tire & Rubber Co. v. Gates Rubber Co., 598 F.2d 962 (5th Cir.), cert. denied, 444 U.S. 942, 100 S.Ct. 298, 62 L.Ed.2d 309 (1979), the Fifth Circuit reversed a judgment for plaintiff on a Robinson-Patman Act § 2(a) claim, where the alleged favored sale consisted of a transfer from a tire manufacturer to a wholly-owned subsidiary retailer. The court held that “transfers from a parent corporation to its wholly-owned subsidiary corporation can never be considered separate sales to a favored customer in a Robinson-Patman Act discrimination suit.” 598 F.2d at 965. The court reasoned that:

The Robinson-Patman Act separates out and makes illegal competitively harmful discrimination. Intra-corporate transfers between parent and wholly-owned subsidiary are not the type of transactions the Robinson-Patman Act meant to regulate. The realistic effect on competition should control rather than esoteric and theoretical possibilities under the Danko [v. Shell Oil Co., 115 F.Supp. 886 (E.D.N.Y.1953) ] theory couched in terms of “control” and “arm’s length dealings.”

Id. at 967.²

The essence of the Security Tire holding is summarized by the Fifth Circuit in Eximco, Inc. v. Trane Co., 737 F.2d 505, 516 (5th Cir.), reh’g denied, 748 F.2d 287 (1984).

The court in Security Tire specifically rejected legal authority holding that a manufacturer’s company-owned outlet competed in an antitrust sense with other outlets who purchased the manufacturer’s products for resale. See id. at 965-66 and n. 1. In rejecting this authority, the court looked behind distribution structure to ascertain the identity of the true competitors. “Realistically,” the court determined, “the competition here was between [the manufacturer and its subsidiary outlet] as a single economic unit, on the one hand, and Plaintiffs, on the other hand.” Id. at 967. “Internal transfers” between the two levels in the distribution chain, were “of no real competitive consequence” to the alleged disfavored buyer. Thus, the price differential was not the kind of economic injury protected by the antitrust laws, because the transfer between a corporation and its subsidiary could not be considered a favored sale. Id. Accord Brown v. Hansen Publications, Inc., 556 F.2d 969 (9th Cir.1977); Uniroyal Inc. v. Hoff and Thames, Inc., 511 F.Supp. 1060, 1067 (S.D.Miss.1981). See also ABA Antitrust Section, Monograph No. 4, The Robinson-Patman Act: Policy and Law, Yol. 1, 48-50 (1980).

Plaintiffs argue that the earlier Sixth Circuit decisions that have considered this question have applied the control test and indicated that, at least under some circumstances, a transfer to a subsidiary corporation can constitute a sale.

The first Sixth Circuit decision to address this question was Brewer v. Uniroyal, Inc., 498 F.2d 973 (6th Cir.1974). In Brewer the plaintiff was a tire retailer who sold tires made by Uniroyal. The plaintiff claimed that Uniroyal gave United Tire, plaintiffs competitor, favorably discriminatory prices both before and after United Tire was purchased by Uniroyal. The jury awarded damages only for the price discrimination that occurred before Uniroyal acquired United Tire. This Court upheld the jury verdict of “damages for a period during which Uniroyal did not control the day-to-day operations of United.” 498 F.2d at 977. Although we expressly declined to decide the question, in a footnote the Court discussed the “control” test for determining whether a transfer to a subsidiary constitutes a sale:

We agree that a sales subsidiary could be found to be independent of its parent and thus be considered a “purchaser” or “customer” under the Act____ [I]t has been held that in determining whether a seller-purchaser relationship exists, the critical factor is the exercise of domain and control over the subsidiary by the parent, not the competitive relation-ship____ This standard is used in determining whether a parent and its subsidiary are a single entity and can be considered a single seller under the Robinson-Patman Act ... and in determining whether a buyer from a distributor is an “indirect purchaser” from the supplier of the distributor____ Thus, the courts which have ruled on the question have found it appropriate that the same standard be applied to determine whether a sales subsidiary can be deemed a purchaser from its parent.

498 F.2d at 977 n. 2 (citations omitted).

This Circuit was more directly faced with the present question in Parrish v. Cox, 586 F.2d 9 (6th Cir.1978). Parrish was the operator of one of six service stations supplied by Cox. Four of the stations had been taken over by Cox when abandoned by their operators. This Court affirmed the District Court’s judgment in favor of defendant Cox, relying on the District Court’s finding “that Cox exercised such control over the company-managed stations that there could be no sales between them within the meaning of the Act.” 586 F.2d at 12 (footnote omitted). The District Court’s holding was premised on its view that “even if the company-managed stations were deemed subsidiaries of defendant, they must be operated independently of dominion and control of defendant in order for there to be a sale between them.” Id. The Court cited the District Court’s findings that the parent maintained daily supervision over the stations, kept business records for the stations, and made all management and pricing decisions for the stations. 586 F.2d at 12 n. 7.

The most recent Sixth Circuit case on point is Shavrnoch v. Clark Oil & Refining Corp., 726 F.2d 291 (6th Cir.1984). In Shavrnoch an independent station operator complained that Clark Oil sold gas more cheaply to company-owned stations than to the plaintiff. In upholding summary judgment in favor of Clark Oil, this Court reasoned as follows:

We hold that Parrish should be followed in this case. Clark presented un-controverted evidence that it maintained complete dominion and control over its company-operated stations. All of the employees who work at these stations are Clark employees. Clark determines the amount of gasoline sent to these stations and sets the retail prices. Clark also maintains the business records of the company-operated stations and maintains complete supervisory authority over the stations. Under these circumstances, we hold that the intra-corporate transfers of gasoline from Clark to its company-operated stations are not sales within the meaning of the statute.

726 F.2d at 295.

Each of the three Sixth Circuit cases that have considered the question, therefore, have espoused a “control” standard for determining whether two entities are so closely related as to preclude the possibility that a transfer of goods from one to the other is a “sale” for Robinson-Patman Act purposes, a standard unnecessary to consider under the per se rule of Security Tire.

We first consider whether, as defendants contend, the District Court may be affirmed on the ground that even under the Parrish control test there is no issue of fact but that there was no “sale” from Marathon to Emro. If this is the case, we need not reach the question of whether the Security Tire per se rule is correct.

Defendants rely on deposition statements, made by two of plaintiffs’ officers, to the effect that they considered Marathon and Emro to be the same entity. However, we do not consider thé impressions of plaintiffs’ officers to be dispositive of the legal question of whether Marathon and Emro were operated as a single integrated enterprise.³ The plaintiffs’ officers were not addressing themselves to this particular question, and in any event could not be expected to have detailed personal knowledge concerning the relationship between Marathon and Emro. The plaintiffs’ complaint clearly alleged the existence of a sale from Marathon to Emro.

We must decline to decide at this stage whether summary judgment for either party would be proper under the Parrish control standard. The District Court did not address this question, and the parties’ arguments in this Court have been primarily directed at other issues. The record already consists of thirteen volumes of depositions and two volumes of pleadings. If the case is to be decided on the control issue basis we think the District Court should make the determination in the first instance whether the record at this point supports summary judgment. See Kverages v. Scottish Inns, Inc., 733 F.2d 409, 415-16 (6th Cir.1984). We find it necessary, therefore, to resolve whether we should adopt the per se no sale rule of Security Tire.

This Court has never been required to decide whether a per se standard should be adopted. There was no occasion to consider the proper standard in Brewer, and the discussion of the control standard in that case is dicta. In Parrish where the Court assumed that the company run stations were incorporated subsidiaries the Court needed only to decide whether the lower court’s findings concerning control were sufficient to mandate judgment for defendants. In Shavmoch the Court could have held that a transfer to an unincorporated company-owned station was not a “sale” since the purchaser was not a separate legal entity. In none of our earlier opinions did we directly address the question of whether a transfer to a wholly-owned subsidiary is never a sale for Robinson-Patman Act purposes. Since the lower court had in each of these three cases found that the control test was met, it was not necessary to go beyond a review of that finding.

The per se rule of Security Tire has simply not been examined by our Court. We are not precluded from examining it now. The Supreme Court has repeatedly stated that in the antitrust area we apply an economic reality test. United States v. Concentrated Phosphate Export Assn., 393 U.S. 199, 208, 89 S.Ct. 361, 366, 21 L.Ed.2d 344 (1968). (“In interpreting the antitrust laws, we are not bound by formal conceptions of contract law. Simpson v. Union Oil Co., 377 U.S. 13, 84 S.Ct. 1051, 12 L.Ed.2d 98 (1964). We must look at the economic reality of the relevant transactions.”) When we look at economic reality we must agree with the Fifth Circuit. The Robinson-Patman Act’s prohibition of price discrimination extends to discrimination in other services. It is impossible for parent corporations to avoid giving special benefits to their subsidiaries. Here parent Marathon paid the salary of Emro’s president. Parent corporations without exception pro-vide capital for their subsidiaries. The price at which the product is transferred from parent to subsidiary may be only a small part of what is contributed by the parent to the subsidiary and to the subsidiary’s ability to compete. Price, which within the parent’s actual control, is only one factor in the complex relationship between parent and subsidiary.

The Court in its recent decision in Copperweld Corp. v. Independence Tub Corp., — U.S. -, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984), noted at 2743, “Antitrust liability should not depend on whether a corporate subunit is organized as an unincorporated division or a wholly owned subsidiary.” Admittedly, the Court was dealing there with combinations or conspiracies between parent and subsidiary. However, the Court stated without qualification, that “a subsidiary acts for the benefit of the parent.” 104 S.Ct. at 2743. Again, in footnote 18 the Court states:

At least when a subsidiary is wholly owned, however, these factors [“separateness” of the subsidiary: whether it has separate control of its day-to-day operations, separate officers, separate corporate headquarters, and so forth] are not sufficient to describe a separate economic entity for purposes of the Sherman Act. The facts simply describe the manner in which the parent chooses to structure a subunit of itself. They cannot overcome the basic fact that the ultimate interests of the subsidiary and the parent are identical, so the parent and the subsidiary must be viewed as a single economic unit.

So here, the parent and subsidiary are a single economic unit. The Robinson-Pat-man Act is not concerned with transfers between them.

V

The District Court correctly granted summary judgment for defendants on all claims. Accordingly, the judgment of the District Court is affirmed.

1 . Defendant Gastown, Inc. is a name-holding corporation that performs no services.

2 . Apparently no other United States court of appeals has either adopted or rejected the Fifth Circuit’s holding in Security Tire. No other circuit court has been faced with the question or offered an opinion in dicta. In Schaben v. Samuel Moore & Co., 606 F.2d 831, 833 n. 3 (8th Cir.1979), the Eighth Circuit expressly found it unnecessary to adopt Security Tire because of a factual finding that the subsidiary was treated as a profit center or division rather than as a separate corporation. In O’Byrne v. Checker Oil Co., 727 F.2d 159 (7th Cir.1984), the Seventh Circuit, citing Security Tire, held that there was no violation because there was no sale from seller to seller-owned stations. Prior to Security Tire, the Ninth Circuit held in Brown v. Hansen Publications, Inc., 556 F.2d 969 (9th Cir.1977), that a transfer between sibling corporations was not a "sale” for Robinson-Patman Act purposes because the siblings were operated as a single integrated enterprise.

The limited number of opinions expressed by commentators on this question have been mixed. See III E. Kintner & J. Bauer, Federal Antitrust Law § 21.15 (1983) (“If the subsidiary really is an independent, profit-making center, with an ability to make its own pricing and resale decisions, and if goods indeed are sold to it, i.e., if title and risk of loss have passed, the likelihood of substantial injury to competition may be as great as with sales to a completely unrelated company.’’); Comment, Application of the Robinson-Patman Act to Price Discrimination in Intra-Enterprise Transactions, 53 N.W.U.L.Rev. 253 (1958). But see Adelman, Effective Competition and the Anti-Trust Laws, 61 Harv.L. Rev. 1289 (1948).

3 . We also do not consider dispositive the admission in an affidavit by a Marathon employee that "Marathon sells gasoline to Emro.” Stub-bins affidavit, Supplemental Joint Appendix 59, 60.