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Monday’s Argument: Volvo Trucks v. Reeder-Simco

Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., No. 04-905, will be the first case argued on Monday. This case involves two questions about the application of the Robinson-Patman Act:

1. Whether an unaccepted offer that does not lead to a purchase – so that there is not “discriminat[ion] * * * between different purchasers” as the statutory language contemplates – may be the basis for liability under the Act.
2. Whether the Act permits recovery of damages by a disfavored purchaser that does lose sales or profits to a competitor that does not purchase from the defendant, but does not lose sales or profits to any purchaser that “receives the benefit of” defendant’s price discrimination.

The petitioner will be represented by Roy T. Englert, Jr. The respondent will be represented by Carter G. Phillips. Thomas G. Hungar will argue on behalf of the United States as amicus curiae in support of the petitioner.

The Eighth Circuit opinion can be found here.
The petitioner’s brief can be found here.
The petitioner’s reply brief can be found here.
The petitioner’s supplemental brief can be found here.
The government’s brief can be found here.
The respondent’s brief can be found here.

Statutory Background: The Robinson-Patman Act (“RPA”) provides in relevant part that:

“It shall be unlawful for any person engaged in commerce . . . 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, . . . and 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.”

As both sides would agree (I think), the paradigm case contemplated by Congress when this statute was passed in 1936 involved two purchasers of identical goods, say salt. One purchaser, say a large chain store, would receive a discount and another, say a small independent store, would not, thereby injuring the small store. The small store could sue under the Act for treble damages and attorney’s fees. This case poses the question of how and if this Act is to be applied in the context of an industry in which, according to the respondent Reeder, price discrimination often prevented it from purchasing the goods in the first instance.

Factual Background: Respondent, Reeder-Simco GMC, Inc. (“Reeder”), is a dealer in the heavy truck market. In 1995, Reeder signed a franchise agreement with Volvo for a five-year term ending in 2000. The agreement provided for automatic one-year extensions if Reeder met certain sales targets. According to Reeder, in 1992 it was awarded Volvo’s “second to none” award for top performance, but by 1999 its sales had fallen to eight trucks and it received a termination letter from Volvo. These were not lean times for Volvo generally; rather, according to Reeder, its decline was a result of systematic discrimination by Volvo. Specifically, Volvo had announced its “Volvo Vision” in December 1997, and this vision saw only half of its dealers surviving. Reeder presented evidence both that numerous other dealers had received termination letters during this boom time, and that Reeder had been marked as “not a long-term dealer.” In February 2000, Reeder filed its suit under the RPA and the Arkansas Franchise Practices Act.

Heavy truck dealers do not generally sell these trucks from inventory. Not only would doing so be very expensive, but individual purchasers generally have specific requirements and so trucks are made to order, with potential customers generally contacting many vendors to find the best prices. Volvo dealers would all receive a wholesale price 80% of the published retail price, but Volvo would generally offer additional concessions that could then be passed onto the consumer or retained as profits for the dealer. The concessions were supposedly based on economic variables like the size of the sale, factory capacity. etc. Although Volvo dealers were assigned an area of responsibility where another dealer would not be located, these areas were not “exclusive,” so that it would be possible for different Volvo dealers actually to be competing with each other as well as with dealers selling the trucks of other manufacturers (e.g, Ford). Volvo’s official policy was to offer two of its dealers competing for the same customer the same concession; there was dispute as to how consistently this policy was executed.

Reeder alleged that, once it was marked as a dealer to be eliminated, it consistently received lower concessions. This harmed Reeder primarily by preventing it from closing sales in the first instance, but also because it earned a smaller profit on the sales that it did make. Finally, in a handful of instances, Reeder may have lost out on sales to other Volvo dealers that received a larger concession.

Proceedings Below: Reeder filed suit in the U.S. District Court for the Western District of Arkansas, where it prevailed on both its RPA claims and its state law claims. For the RPA claim, the jury awarded $1,358,000. The judge trebled that award and added attorney’s fees. Reeder won $513,750 on its state law claim.

On appeal, a split panel of the Eighth Circuit affirmed. Writing for the majority, Judge Bye held that Reeder’s actual purchase of trucks from Volvo satisfies the requirement that the plaintiff be a purchaser. Furthermore, a reasonable jury could have found that Reeder was competing against the favored Volvo dealers in the same market; that the trucks at issue, though customized for different purchasers, were of “like grade and quality”; that Reeder’s evidence of other sales by other dealers (with larger concessions) occurred at roughly the same time; and “that the favored competitor received a substantial price reduction over a substantial period of time, which gives rise to a permissible inference of competitive injury.” The court was clearly impressed by the fact that Volvo had announced and executed a plan to reduce the number of dealers, as well as the fact that Reeder, marked for termination, had seen its sales decline in a boom time. As for the actual instances of differential concessions, the court saw them as examples of the larger competitive injury rather than (as Volvo had argued) defining the limit of the injury for which a plaintiff may collect.

Judge Hansen, in his dissent, accused the majority of “trying to fit a square peg into a round hole.” The competitive bidding process at issue in this case could not be remedied by the RPA, which only protects actual purchasers – i.e., “purchasers that carry inventory or deal in fungible goods.” In the market for heavy trucks, the end-users hold an auction and only one seller of this custom product will emerge. Thus the only cases in which there could be an RPA injury are those in which Reeder actually bid against a favored dealer and did not just lose, but actually was stuck with the purchased trucks in inventory. There was no such case and only one case in which Reeder even arguably lost business directly to a favored dealer. Judge Hansen did not seem to believe that Reeder’s case is wholly meritless, as he had no quarrel with upholding the state law judgment against Volvo. It seems rather to be that the drastic federal remedy of treble damages is to be construed more narrowly.

The Briefs: The petitioner’s brief tracks Judge Hansen’s dissent, with a particular emphasis on the language of the statute, namely that there must be a “purchaser . . . who receives the benefit of discrimination.” Again, for the vast majority of cases in which Reeder claims an injury, Reeder either lost the sale to a non-Volvo dealer or made the sale but did not profit as much as it believed it should have. In no single case was Reeder as an actual purchaser in competition with favored purchasers who were benefiting from Volvo’s alleged discrimination. Respondent thus labels the Eighth Circuit’s opinion, in which certain transactions satisfy the purchase requirement, others the competition requirement, and still others allowed to be relevant to calculate the injury, a “sleight of hand.”

The most notable of the many amici on both sides is the United States, which filed a brief in support of petitioner. The government emphasizes that the Court has already established that the RPA is to be interpreted consistently with broader anti-trust policy and that this policy is aimed at encouraging competition for the benefit of consumers. There is no suggestion that the actions of Volvo hurt customers. Indeed, it is not clear how it could have: Volvo had a small share of a very competitive market, and it initiated “Volvo Vision” in order, presumably, to be more competitive. Perhaps Volvo’s strategy was foolish and it needlessly lost sales through its undermining of Reeder; even supposing that it did, the RPA is not a “guarantee of equitable treatment to franchisees” and should not become one.

Respondent’s brief largely follows the reasoning of the Eighth Circuit and could be paraphrased as “come on.” The RPA contains broad language that is consistent with the broadly preventive purpose for which it was enacted, namely the protection of small, independent businesses. “Competition” need only be in the same market, not individualized to specific transactions. Reading in a requirement that the favored purchaser participate in the same transaction limits the reach of the statute in an absurd way, withdrawing RPA protection from the many kinds of businesses that do not maintain a large inventory at a time when technology is allowing (and competition is forcing) more industries to adopt “just-in-time” manufacturing and “build-to-order” business models. Adopting petitioner’s reading would not only deprive those industries of RPA protection, but would do so in a way that makes little sense. Reeder’s allegation is that the price discrimination to favored purchasers was so severe that it did not even make economic sense to purchase the goods to begin with – why should Reeder have been required to buy trucks it knew it could not sell in order to be protected by the law? Respondent also emphasizes that it did suffer injury in the many purchases that it did actually make. Insofar as it lost profits on these sales relative to other dealers, it was thereby limited in the capital it had to reinvest in advertising and services and even in concessions it could make on its own profit margins. Respondent also argues that the judiciary should not narrow the reach of the statute – this is not only Congress’s prerogative in general, but in fact Congress is currently considering revising the RPA.

Final Aside: The RPA is a piece of New Deal legislation that involves federal courts in a shifting economic landscape. It seems to me that the more jurisprudentially aggressive position, that of the petitioner, is also the one that would in the end give the federal courts a more limited role. Given this paradox, one has to wonder what a modest Justice is to do.