Atlantic Refining Company v. Federal Trade Commission/Dissent Goldberg

by Arthur Goldberg

United States Supreme Court

381 U.S. 357

Atlantic Refining Company  v.  Federal Trade Commission

 Argued: March 30, 1965. --- Decided: June 1, 1965

Mr. Justice GOLDBERG, dissenting.

I would vacate the judgments below and remand these cases to the Commission, since in my view the Commission has not set forth the basis for its broad orders with sufficient clarity and completeness, so that they can be properly reviewed. Cf. United States v. Chicago, M., St. P. & P.R. Co., 294 U.S. 499, 511, 55 S.Ct. 462, 467, 79 L.Ed. 1023; Phelps Dodge Corp. v. National Labor Relations Board, 313 U.S. 177, 197, 61 S.Ct. 845, 853, 85 L.Ed. 1271; Burlington Truck Lines v. United States, 371 U.S. 156, 83 S.Ct. 239, 9 L.Ed.2d 207; National Labor Relations Board v. Metropolitan Life Ins. Co., 380 U.S. 438, 85 S.Ct. 1061, 13 L.Ed. 951.

Atlantic does not here dispute the fact that it engaged in practices to coerce its dealers into purchasing the sales-commission-sponsored TBA. Moreover, I agree with the Court that the record is sufficient to support the finding that Goodyear participated in these coercive practices. Ante, at 373-375. Therefore, I would have no difficulty in affirming the Commission's orders if the Commission had ordered Atlantic and Goodyear to cease using sales-commission TBA plans as a remedy necessary to cure these coercive practices and prevent their recurrence. See United States v. Loew's, Inc., 371 U.S. 38, 53, 83 S.Ct. 97, 102, 9 L.Ed.2d 11.

The Commission's opinion, however, does not appear to rest these orders on such a basis. Rather, it considered Atlantic's coercive activities 'as mere symptoms of a more fundamental restraint of trade inherent in the sales commission itself.' 58 F.T.C. 309, 348. (Emphasis added.) Apparently it was because the Commission believed that Atlantic's participation in a sales-commission plan inherently restricted its dealers' free choice in TBA purchasing that it enjoined Atlantic and Goodyear from entering into any sales-commission plans, with each other or others. It is on this basis that the Commission action must be reviewed. The propriety of agency action must be judged 'solely by the grounds invoked by the agency,' Securities & Exchange Comm'n v. Chenery Corp., 332 U.S. 194, 196, 67 S.Ct. 1575, 1577, 91 L.Ed. 1995. See National Labor Relations Board v. Metropolitan Ins. Co., supra; Burlington Truck Lines v. United States, supra, 371 U.S. at 168, 83 S.Ct. 239.

When looked at on this basis, however, it becomes obvious that the Commission has not supported its decision with adequate findings and conclusions, set forth with sufficient clarity, so that proper review is possible. This is seen when the Commission's opinion is analyzed and read in conjunction with its orders, particularly its order enjoining Goodyear from participating in sales-commission arrangements with any oil company.

Apparently the Commission's conclusion that the Atlantic-Goodyear sales-commission plan operates as an inherently unfair method of competition was based upon a determination that the Atlantic dealers were in an economically subservient position to Atlantic. This determination in turn was founded upon the facts that the Atlantic lease-franchise arrangements were only for short one-year terms enabling Atlantic to terminate them without cause at the end of any year and that it was the practice of many of the dealers to borrow money from Atlantic in order to stock their inventories. This subservient position of the dealers was held to put them in a position where 'Atlantic has sufficient economic power with respect to its wholesale and retail petroleum distributors to cause them to purchase substantial quantities of sponsored TBA even without the use of overt coercive tactics or of written or oral tying agreements, and this power is a fact existing independently of the particular method of distributing or sponsoring TBA used by Atlantic.' 58 F.T.C., at 364-365.

Though apparently deciding this case on the basis of Atlantic's economic power over its dealers, the Commission then enjoined Goodyear from continuing existing sales-commission arrangements or entering into new ones with any oil company. This was done without any analysis of the relationship which other oil companies may have with their dealers. The Commission determined only the following with respect to other oil companies: (1) the sales-commission contracts between Goodyear and the other oil companies are in all material respects identical to the Goodyear-Atlantic sales-commission contract and (2) one of the other 20 oil companies with which Goodyear has these sales-commission contracts has, in the past, practiced coercion on its dealers. 58 F.T.C., at 352-353. Moreover, in a related case, the Commission expressly held illegal a TBA sales-commission arrangement between Texaco Inc. and the B. F. Goodrich Company without analysis of the relationship between Texaco and its dealers. See Texaco, Inc. v. FTC, 118 U.S.App.D.C. 366, 336 F.2d 754 (C.A.D.C.Cir.). This case and another related case, The Firestone Tire & Rubber Company, 58 F.T.C. 371, resulted in both B. F. Goodrich and Firestone, as well as Goodyear, being enjoined from engaging in any sales-commission plan with any oil company.

Moreover, the Commission in this case relied upon the facts 'that Atlantic, which describes itself as '* * * a large producer and distributor of petroleum products' whose operating revenue 'totalled more than one half billion dollars' in 1954, distributes gasoline directly to more than 5,500 retail service stations and through wholesale distributors to more than 2,800 additional service stations in 17 states along the Atlantic Seaboard. Approximately 81 percent of Atlantic's total sales of gasoline in 1955 were accounted for by these approximately 8,300 retail service stations.' 58 F.T.C. at 364. These facts were stated to show that Atlantic's position in the petroleum retail market was sufficiently great so as to make its dealerships desirable and unique and that, therefore, Atlantic had power over its dealers sufficient to induce them to buy Atlantic-sponsored TBA. Yet, while relying on these facts about Atlantic, the Commission made no distinction between large or small companies in its order that precluded Goodyear from participating in any sales-commission plan. And, as discussed above, in related cases, B. F. Goodrich and Firestone as well have been enjoined from participating in any TBA sales-commission plan, regardless of the size of the oil company or its relation to its dealers.

An amicus brief filed on behalf of a small oil company asserts, however, that small oil companies need sales-commission TBA plans in order to compete effectively with the large companies. Since the Commission had only large companies before it in these cases, however, this contention has not adequately been explored. Despite this fact, the Commission has clearly precluded Goodyear, Firestone and B. F. Goodrich from entering into sales-commission arrangements with any oil company no matter how small the company and no matter what the competitive factors involved are. Moreover, the Commission's opinion here, while again not unambiguous on the point, indicates that it would be per se an unfair method of competition for any tire company to enter into a sales-commission TBA promotion arrangement with any oil company. Yet the whole basis for such a holding rests upon the limited economic facts of the Atlantic situation. This is not to say that the Commission could not conclude, after adequate factual determinations, that a general rule applicable to all companies is correct. It is to say that the Commission must have before it a sufficient record and must make the necessary findings supportive of a rule of broad application before a reviewing court can adequately perform its function.

Finally, the opinion and order of the Commission seem to draw a distinction between sales-commission and purchase-resale methods of oil company TBA promotion. These are alternative methods by which oil companies sponsor TBA purchasing by their dealers. In fact, prior to 1951, Atlantic distributed TBA through a purchase-resale plan. Atlantic-sponsored TBA was purchased by Atlantic from various manufacturers and distributed to the Atlantic dealers through warehouses owned by Atlantic. In some areas the warehouses were supplemented by Atlantic dealers who acted as supply point subdistributors to other dealers. In March 1951, Atlantic changed from the purchase-resale method to the sales-commission plan for the announced reason that the latter arrangement would produce a substantial saving in operating and capital costs, plus a substantial improvement in service to Atlantic dealers. Under the sales-commission plan, the tire company-rather than the oil company-performs the distribution function. The sponsored TBA is manufactured or purchased by the tire company and is distributed through warehouses owned by the tire company. Also, the tire company uses as supply points its own outlets (both company-owned and independent) as well as some oil company dealers, who are franchised by the tire company for this purpose. Under both purchase-resale and sales-commission plans, the oil company is primarily responsible for selling the TBA to its dealers and assisting them in selling it to their motorist customers. Under both plans the tire company salesman occasionally accompanies the oil company salesman to explain new TBA products, but the day-to-day promoting and selling are done by the oil company salesman.

In its order the Commission enjoined Atlantic from using any sales-commission TBA plan, but expressly excepted from the injunction the use by Atlantic of a purchase-resale TBA arrangement. This exception was mae over the objection of the Commission staff that both methods of TBA sponsorship should be condemned and enjoined. In answer to the argument that it is irrational to condemn sales-commission systems but not purchase-resale plans, the Commission did not even attempt to distinguish the two based on any difference concerning what it considered to be the essential core of the violation by Atlantic, 'the use (by the oil company) of economic power in one market (here, gasoline distribution) to destroy competition in another market (TBA distribution).' 58 F.T.C., at 367. Indeed, it would seem difficult to draw any distinction between the two plans on this basis. While the Commission did attempt to distinguish the two systems on other bases, this crucial aspect of the decision was handled in a short, summary fashion, without factual findings or analysis. Moreover, the Commission did not even discuss the argument that any distinction which permits purchase-resale but prohibits sales-commission plans discriminates against the smaller oil companies in favor of larger companies. It has been argued earnestly by an amicus that the capital investment required for a purchase-resale plan is so great that the smaller oil companies cannot afford it and presently only the very large Gulf and Esso companies use such a method. The record in this case is clear that Atlantic switched from purchase-resale to sales-commission TBA promotion since it found the capital costs of purchase-resale to be unduly onerous.

In his brief in this Court the Solicitor General, on behalf of the Commission, did not even argue that there was a rational distinction between purchase- resale and sales-commission TBA plans. Rather he argued that the Commission had not really approved the purchase-resale plan in failing to enjoin Atlantic's use of it. This argument fails to account for the language of the Commission opinion and the fact that the Commission rejected the staff recommendation, both of which to me are quite persuasive for the conclusion that the Commission has approved purchase-resale. Moreover, it ignores the fact that in the related Firestone case the Commission distinguished its earlier decision in General Motors Corp., 34 F.T.C. 58, which, while condemning and enjoining coercion, did not condemn General Motors' plan of inducing its dealers to buy General Motors automotive parts and accessories. A major ground used by the Commission in distinguishing the General Motors case from the TBA cases, was that the General Motors case involved a purchase-resale plan whereas the TBA cases before the Commission involve sales-commission arrangements. While it would therefore seem to me on the current state of the record that the Commission has approved purchase-resale TBA promotion by oil companies while condemning similar sales-commission promotions, at the very least, this is yet another ambiguity in the opinion.

In short, the Commission opinions in this and the related cases are bathed in confusion and leave unanswered a number of questions necessarily involved in the decision of these cases. Are TBA sales-commission plans only unfair methods of competition if the oil company has used coercive tactics on its dealers? If they are illegal without past or present evidence of coercion, are they illegal for oil companies which do not have the same relation with their dealers as Atlantic has with its dealers? Are they illegal for oil companies which do not have the same market position as Atlantic? Has the Commission drawn a distinction between sales-commission and purchase-resale TBA promotion plans, condemning the former but approving the latter? If it has, is there a rational basis, consistent with the policies of § 5, for such a distinction? All of these questions appear to me to be inadequately answered by the Commission's opinion.

I do not mean to imply what the answers to any of these questions should be. Congress has entrusted the initial and primary responsibility for answering them to the Commission. However, as this Court has recognized, 'We must know what a decision means before the duty becomes ours to say whether it is right or wrong.' United States v. Chicago, M., St. P. & P.R. Co., supra, 294 U.S. at 511, 55 S.Ct. at 467. 'The administrative process will best be vindicated by clarity in its exercise.' Phelps Dodge Corp. v. National Labor Relations Board, supra, 313 U.S. at 197, 61 S.Ct. at 853. When the Commission 'exercises the discretion given to it by Congress, it must 'disclose the basis of its order' and 'give clear indication that it has (properly) exercised the discretion with which Congress has empowered it." National Labor Relations Board v. Metropolitan Ins. Co., supra, 380 U.S. at 443, 85 S.Ct. at 1064. See Burlington Truck Lines v. United States, supra, 371 U.S. at 167-169, 83 S.Ct. 245, 246. Administrative agency action is not to be sustained where 'its explication is * * * inadequate, irrational or arbitrary * * *.' National Labor Relations Board v. Erie Resistor Corp., 373 U.S. 221, 236, 83 S.Ct. 1139, 1149, 10 L.Ed.2d 308.

Moreover, if in these and the related cases the Commission is laying down the broad rule that all sales-commission TBA promotion arrangements in the oil industry are per se unfair methods of competition, such a rule has neither been clearly articulated nor supported with adequate economic analysis. In White Motor Co. v. United States, 372 U.S. 253, 83 S.Ct. 696, 9 L.Ed.2d 738, this Court reversed a district court that had developed a per se rule of antitrust liability without regard to an analysis of the economics of the situation. The Court stated, 'This is the first case involving a territorial restriction in a vertical arrangement; and we know too little of the actual impact of both that restriction and the one respecting customers to reach a conclusion on the bare bones of the documentary evidence before us.' 372 U.S., at 261, 83 S.Ct. at 701.

Similarly in this case, the Commission has not provided us with a factual record or analysis sufficient to reach the conclusion that sales-commission plans are per se illegal in the oil industry. In condemning such arrangements the Commission would be upsetting long-established practices prevalent in the oil industry. It would be affecting the entire oil industry, small companies as well as large, not just the particular parties involved in these cases. Finally, it must be remembered that the Commission is an expert administrative body set up by Congress in order to provide adequate economic fact finding and analyses of complicated problems such as the ones here presented. The integrity of this congressional scheme is violated by the Commission's entering and the courts' affirming broad industry-wide orders the meaning and bases of which are unclear and the factual and economic analysis of which is inadequate.

I do not mean by this that the Commission is required to use a rule-making rather than a case-by-case approach to decision-making in this area, although it would seem that rule-making would here be the preferable approach. Cf. Elman, Comment, Rulemaking Procedures in the FTC's Enforcement of the Merger Law, 78 Harv.L.Rev. 385 (1964). The Commission has the general power to choose to proceed in this field, as in others, through either rule-making or the process of case-by-case adjudication. See Securities & Exchange Comm'n v. Chenery Corp., supra, 332 U.S. at 201-202, 67 S.Ct. 1579, 1580, 91 L.Ed. 1995; California v. Lo-Vaca Gathering Co., 379 U.S. 366, 371, 85 S.Ct. 486, 489, 13 L.Ed.2d 357. Whichever method the Commission chooses to use, however, it seems obvious to me that the Commission must formulate a clear rational rule which is based on an adequate economic explication and takes into consideration, the situation of all industry members affected by the rule. Since its failure to do so precludes proper judicial review of these cases, I would vacate the judgments below and remand these cases to the Commission so that it can, with clarity, exercise the administrative process entrusted to the Commission by Congress.

Notes