General Supply Deck Fl. Underlayment v. Maxxon Southwest

Full title: GENERAL SUPPLY DECK AND FLOOR UNDERLAYMENT COMPANY, INC., Plaintiff, VS…

Court: United States District Court, N.D. Texas

Date published: Nov 19, 2001

CIVIL ACTION NO. 3:00-CV-2745-G (N.D. Tex. Nov. 19, 2001)

Opinion

CIVIL ACTION NO. 3:00-CV-2745-G

November 19, 2001

MEMORANDUM ORDER

A. JOE FISH, Chief Judge, District

Before the court is the motion of the defendants, Maxxon Southwest, Inc. ("MSI"), Gypsum Floors of Texas, Inc. ("Gypsum Floors"), Maxxon Corporation ("Maxxon"), and Raymond Brekke ("Brekke") (collectively, "the defendants"), for partial summary judgment on certain aspects of the claims made against them by the plaintiff General Supply Deck and Floor Underlayment Company, Inc. ("Gensco") in Counts I and II of the complaint. For the reasons discussed below, the motion is granted.

I. BACKGROUND

Maxxon is a Minnesota corporation in the business of supplying various grades of gypsum cement, usually to distributors who, in turn, sell the product to licensed dealers. Defendants' Memorandum of Points and Authorities in Support of Motion for Partial Summary Judgment on Counts I and II ("Motion") at 3; Motion, Exhibit A, Declaration of Phillip Turner ("Turner Declaration") ¶¶ 2-3. Gypsum cement is a powdered material which, when mixed with water and sand, makes a liquid substance that is spread on subfloors for leveling and other purposes. After application, it hardens and a permanent floor cover (e.g., tile or carpet) is then put on it. Motion at 3; Complaint ¶ 10. The dealer (e.g., Gensco, Gypsum Floors) mixes the cement and applies it at the location of the construction job. Motion at 3; Complaint ¶ 11.

In Texas, Maxxon sold to a distributor, MSI, until July 2000. Motion at 3; Turner Declaration ¶ 3. At all relevant times up to July 2000, MSI sold gypsum cement to Gensco and Gyspum Floors, licensed dealers in Texas. Motion at 3; Turner Declaration ¶ 4; Motion, Exhibit B, Declaration of Raymond Brekke ("Brekke Declaration") ¶ 9.

From their creation until July 2000, MSI and Gypsum Floors were wholly owned either by Brekke, the JCJR Trust, the Brekke Business Partnership, or the Brekke Living Trust, all entities controlled by Brekke alone or by Brekke with his wife Janice.¹ Brekke Declaration ¶ 3; Supplement to Defendants' Motion for Partial Summary Judgment on Counts I and II ("Defendants' Supplement") at 1-2. Brekke is the president of Gypsum Floors and was also the president of MSI until it was sold. Motion at 3-4; Brekke Declaration ¶¶ 1, 4, 6. During the entire period up to July 2000, MSI and Gypsum floors, therefore, had common ownership and identical ultimate operational authority, and thus a unity of interest. Motion at 4; Brekke Declaration ¶¶ 10-11. MSI and Gypsum Floors shared the same president (Brekke), directors (Brekke and his wife), and shareholders (first Brekke and then the Brekke Living Trust) at all times prior to July 2000. Motion at 4; Brekke Declaration ¶¶ 1-3, 6-7.

1 Until December 1, 1989, Brekke was the sole stockholder of Gypsum Floors. Amended Declaration of Raymond Brekke ¶ 4, attached as Amended Exhibit B to Supplement to Defendants' Motion for Partial Summary Judgment on Counts I II. On that date, all of the stock of Gypsum Floors was transferred to the JCJR Trust, of which Brekke was grantor and co-trustee with his wife Janice. Id. MSI was incorporated on December 6, 1989. Id. ¶ 5. All shares of MSI that were ever issued were issued to the JCJR Trust. Id. On November 11, 1997, all MSI stock was transferred to the Brekke Living Trust. Id. ¶ 6. On November 13, 1997, all of the stock in Gypsum Floors was transferred to the Brekke Living Trust. Id. Brekke and his wife Janice are the co-trustees of the Brekke Living Trust. Id. The Brekke Living Trust remains today the sole stockholder of Gypsum Floors. Id. ¶ 7. For tax planning purposes and in anticipation of the sale of MSI to Maxxon, all of the stock of MSI was transferred to the Brekke Business Partnership on June 26, 2000. Id. ¶ 8. The Brekke Business Partnership then transferred the stock of MSI back to the Brekke Living Trust on June 30, 2000. Id. Brekke and his wife Janice are 50-50 partners in the Brekke Business Partnership, a general partnership. Id.

Brekke remains the president of Gypsum Floors, he and his wife are the only directors, and the Brekke Living Trust is the sole shareholder. Motion at 4; Brekke Declaration ¶¶ 1-2, 5.

In July 2000, Maxxon acquired MSI from the Brekke Living Trust. Motion at 4; Turner Declaration ¶ 4. When Maxxon acquired MSI, it closed MSI's distribution operations and began to sell its gypsum cement products directly to Gensco and Gypsum Floors. Motion at 4; Turner Declaration U 5. Prior to July 2000, Maxxon never sold its products directly to Gensco or Gypsum Floors. Motion at 4; Turner Declaration ¶¶ 3, 4.

Gensco filed this case against Maxxon, MSI, Gypsum Floors, and Brekke for alleged violations of the Robinson-Patman Act, 15 U.S.C. § 13, arising out of the sale of gypsum cement floor underlayment products ("gypsum cement") supplied by Maxxon. Gensco also alleged a conspiracy to violate the Robinson-Patman Act.

II. ANALYSIS A. Evidentiary Burdens on Motion for Summary Judgment

Summary judgment is proper when the pleadings and evidence on file show that no genuine issue exists as to any material fact and that the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c).² "[T]he substantive law will identify which facts are material." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. The movant makes such a showing by informing the court of the basis of its motion and by identifying the portions of the record which reveal there are no genuine material fact issues. Celotex Corporation v. Catrett, 477 U.S. 317, 323 (1986). The pleadings, depositions, admissions, and affidavits, if any, must demonstrate that no genuine issue of material fact exists. FED. R. CIV. P. 56(c).

2 The disposition of a case through summary judgment "reinforces purpose of the Rules, to achieve the just, speedy, and inexpensive determination of the actions, and, when appropriate, affords a merciful end to litigation that would otherwise be lengthy and expensive." Fontenot v. Upjohn Company, 780 F.2d 1190, 1197 (5th Cir. 1986).

Once the movant makes this showing, the nonmovant must then direct the court's attention to evidence in the record sufficient to establish that there is a genuine issue of material fact for trial. Celotex, 477 U.S. at 323-24. To carry this burden, the "opponent must do more than simply show . . . some metaphysical doubt as to the material facts." Matsushita Electric Industrial Company, Ltd. v. Zenith Radio Corporation, 475 U.S. 574, 586 (1986). Instead, the nonmovant must show that the evidence is sufficient to support a resolution of the factual issue in her favor. Anderson, 477 U.S. at 249.

While all of the evidence must be viewed in a light most favorable to the motion's opponent, Anderson, 477 U.S. at 255 (citing Adickes v. S.H. Kress Company, 398 U.S. 144, 158-59 (1970)), neither conclusory allegations nor unsubstantiated assertions will satisfy the non-movant's summary judgment burden. Little v. Liquid Air Corporation, 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc); Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir.), cert. denied, 506 U.S. 825 (1992). Summary judgment in favor of the movant is proper if, after adequate time for discovery, the motion's opponent fails to establish the existence of an element essential to his case and as to which he will bear the burden of proof at trial. Celotex, 477 U.S. at 322-23.

B. Count I Against MSI and Brekke for Discriminatory Sales Must Be Partially Dismissed Because Intra-Enterprise Transfers Are Not "Sales" Under the Robinson-Patman Act

The defendants contend that Gensco has failed to state a claim for price discrimination, in Count I of its complaint, against Gypsum Floors and MSI for the time period up to July, 2000. Motion at 5. To state a claim for price discrimination under the Robinson-Patman Act, a plaintiff must plead, inter alia, that a seller has made at least two contemporaneous sales to two competing buyers at different prices. Security Tire Rubber Company v. Gates Rubber Company, 598 F.2d 962, 964 (5th Cir.), cert. denied, 444 U.S. 942 (1979). In Security Tire, the Court of Appeals held that "transfers from a parent corporation to its wholly-owned subsidiary can never be considered separate sales to a favored customer in a Robinson-Patman discrimination suit." Id. at 965. The court in Security Tire determined that "[i]nternal transfers" between a parent and its subsidiary, two levels in the same distribution chain, were "of no real competitive consequence" to the allegedly disfavored buyer. 598 F.2d at 967. Thus, in the Fifth Circuit, transactions within the same enterprise do not qualify as favored sales for purposes of applying the Robinson-Patman act. Eximco, Inc. v. Trane Company, 737 F.2d 505, 516 (5th Cir. 1984). The Court of Appeals expanded Security Tire's holding in Eximco, holding that transfers between a manufacturer and a sales agent presented an even more compelling fact situation for holding that the two enterprises were one than did the facts in Security Tire. Id. ³ In Count I, Gensco alleges:

3 Similarly, in City of Mt. Pleasant, Iowa v. Associated Electrical Cooperative, Inc., 838 F.2d 268 (8th Cir. 1988), the Eighth Circuit applied the Security Tire rule to an intra-enterprise transfer between a power cooperative and its members. The court reasoned that calling transfers between members of a cooperative association "sales" under the Act would "make antitrust liability hinge on the happenstance of the enterprise's internal organization and management practices, which in themselves have no economic significance." Id. at 279.

70. Defendant MSI has violated the Robinson-Patman Act by selling to Gensco two or more products or commodities in interstate commerce at prices higher than the prices charged to and paid by other dealers, including Gypsum Floors of Texas, for products of like grade and quality, which price differences had a prohibited effect on competition.

Complaint ¶ 70.

The defendants assert that Gypsum Floors is a "sister company" that shared the same ownership, president, and directors as MSI. Motion at 5; Brekke Declaration ¶¶ 1, 2, 3, 6, 7, 10. Therefore, the defendants argue, the sales from MSI to Gypsum Floors were transactions within the same enterprise and do not qualify as "sales" under the Robinson-Patman Act. Motion at 5-6. The court agrees with the defendants, Motion at 6, that the transfers between MSI and Gypsum are no less an intra-enterprise transfer than a transfer between a parent and a subsidiary. Because the undisputed facts show that MSI and Gypsum Floors were sister companies, both of which were operated under the authority of Brekke, had the same officers, and were owned at all relevant times by Brekke alone, by Brekke and his wife, or by a trust controlled by Brekke and his wife, they had a unity of interest and were thus a part of the same enterprise. Hence, transfers between them cannot be considered "sales" under the Robinson-Patman Act. MSI and Brekke are entitled to summary judgment on Gensco's claims of price discrimination with respect to transfers to Gypsum Floors for all time periods earlier than July 2000.

C. Counts I and II Must Be Partially Dismissed Because "Inducement" Claims Under § 13(f) are Predicated on an Illegal Price Discrimination

The defendants contend that Gensco's claims in Counts I and II that Gypsum Floors and Brekke (until July 2000) induced unlawful price discrimination depend on a showing that MSI engaged in unlawful price discrimination under 15 U.S.C. § 13(a). Motion at 8. See Harbor Banana Distributors, Inc. v. Federal Trade Commission, 499 F.2d 395, 399 (5th Cir. 1974). ("A prohibited discrimination is a condition precedent to a finding of unlawful conduct under § 2(f) [of the Robinson-Patman Act]."

In Counts I and II, Gensco alleges:

72. Defendants Gypsum Floors of Texas and Raymond Brekke have violated 15 U.S.C. § 13(f) by knowingly inducing and receiving a discrimination in price from MAXXON Corporation and/or MSI, which is prohibited by 15 U.S.C. § 13.

* * *

77. Defendants Brekke and Gypsum Floors are guilty of violating 15 U.S.C. § 13(f) by knowingly soliciting and/or receiving illegal pricing and discounts from Defendants MSI and MAXXON Corporation, and by conspiring to do same. Defendants MSI, Brekke, Gypsum Floors of Texas and MAXXON Corporation also knowingly conspired to provide and obtain discriminatory pricing and discounts, which actions violated the Robinson-Patman Act and proximately caused injury and damages to Gensco in an amount to be determined at time of trial, for all of which Gensco hereby sues.

Complaint ¶¶ 72, 77.

As discussed above, because MSI and Gypsum Floors were units of the same common enterprise, transfers between them prior to July 2000 were not "sales" under the Robinson-Patman Act and do not provide a basis for Gensco's price discrimination claim. Consequently, just as Gensco's claim of price discrimination for the period up to July 2000 must be dismissed, so Gensco's claim of inducement by Gypsum Floors and Brekke for claims arising before July 2000 must also be dismissed. See, e.g., Aviation Specialties, Inc. v. United Technologies Corporation, 568 F.2d 1186, 1191 (5th Cir. 1978) (where summary judgment is proper as to price discrimination claim, summary judgment is also proper as to claim of inducement).

D. Count I Against Maxxon for Discriminatory Sales Must Be Partially Dismissed Because It Did Not Sell to Gensco or to Gypsum Floors Prior to July 2000

The defendants contend that Count I against Maxxon for discriminatory sales must be dismissed as to all alleged sales prior to July 2000, because Maxxon did not sell to Gensco or Gypsum Floors before that date. Motion at 9. To violate Section 2(a) of the Robinson-Patman Act, the party charged has to sell at a discriminatory price or exercise control over the price in such a sale. See Hiram Walker, Inc. v. A S Tropical, Inc., 407 F.2d 4, 8 (5th Cir.), cert. denied, 396 U.S. 901 (1969). Gensco does not controvert the defendants' assertion that the undisputed facts make it clear that Maxxon, prior to July 2000, did not sell to Gensco or Gypsum Floors, or exercise control over the prices charged by MSI in sales to Gensco or Gypsum Floors. Thus, Maxxon, which is charged in Count I (Complaint ¶ 71) with discriminatory pricing in favor of Gypsum Floors, was not — prior to July 2000 — a seller of the products to Gensco or Gypsum Floors. Count I is therefore dismissed, as it pertains to Maxxon, for all transactions prior to July 2000.

E. The Part of Count II Alleging a Conspiracy to Violate the Robinson Patman Act Must Be Dismissed As to All Defendants Because There is No Cause of Action for Conspiracy Under the Robinson-Patman Act The defendants contend that this part of Count II, alleging a conspiracy to violate the Robinson-Patman Act, must be dismissed as to all defendants because there is no cause of action under the act for conspiracy. Motion at 9-10. In Count II, Gensco alleges in part:

76. Defendants MSI, Brekke, Gypsum Floors of Texas and MAXXON Corporation are independent businesses or individuals who have engaged in an unlawful combination or conspiracy to violate the antitrust laws by intentionally and knowingly offering, granting, providing, inducing, soliciting and/or receiving discriminatory pricing and discounts in violation of the Robinson-Patman Act.

Complaint ¶ 76.

In its response to the defendants' claim that there is no cause of action for conspiracy under the Act, Gensco — rather than trying to refute the defendant's assertion—counters that its allegation is an allegation of conspiracy under Texas common law. Plaintiff's Brief in Support of Response to Defendants' Motion for Partial Summary Judgment at 2 (conceding that the defendant's assertion "may be true"). The court agrees with the defendants that Gensco never pled a common law conspiracy in its complaint. See Defendants' Reply in Support of their Motion for Partial Summary Judgment ("Reply") at 9; see also Complaint ¶¶ 75-78. In its complaint, Gensco never notes a common law basis for conspiracy. Complaint ¶¶ 75-78. Furthermore, in the jurisdictional allegations in paragraph 2 of the Complaint, Gensco cites only 28 U.S.C. § 1331 for federal question subject matter jurisdiction. There is no mention of any supplemental jurisdiction for a state common law claim under 28 U.S.C. § 1367.⁴ As noted in O'Connor's Federal Rules — Civil Trials 2001, "To comply with FED. R. ClV. P. 8(a)(1), the plaintiff should specifically plead supplemental jurisdiction." O'Connor's at 46. Gensco never alleged a common law conspiracy; rather it alleged a purported conspiracy under the antitrust laws. There is no provision in the Robinson-Patman Act providing for such a claim — "[t]he Act is aimed at price discrimination, not conspiracy." Federal Trade Commission v. Henry Broch Company, 363 U.S. 166, 174 (1960). As a result, the "combination or conspiracy" claim in Count II is dismissed as to all defendants.

4 While this memorandum order was being drafted, the court received a letter from Gensco's counsel citing Gaming Corporation of America v. Dorsey Whitney, 88 F.3d 536 (8th Cir. 1996), for the proposition that "since Plaintiff pleaded federal-question jurisdiction in this case, . . . Plaintiff's pleadings are just fine." Letter from James A. Pikl to the court dated 15 November 2001. The court is of the opinion that Gaming Corporation does not assist Gensco here. In that case, the plaintiff explicitly pleaded a claim of Minnesota common law conspiracy to violate a federal statute. 88 F.3d at 541 and n. 5. Here, Gensco has not pled such a common law conspiracy. The issue is not, as counsel frames it in his letter, whether Gensco could have pled such a claim and survived summary judgment; rather, the issue is whether Gensco did plead such a claim.

III. CONCLUSION

For the reasons discussed above, the defendants' motion for partial summary judgment on certain aspects of the claims asserted against them by Gensco in Counts I and II of the complaint is GRANTED.

SO ORDERED.