American Savings Life Insurance Company; et al.

Text (OCR of the scan at left; may contain errors)

IN THE ~lA TTER OF Al\1ERIOAN SAVINGS LIFE INSUR,ANCE Camp ANY ET AL.

CONSENT ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COl\Il\IISSION ACT Docket C-1332. Oom,plaint, May B, 19GB-Decision, May 8, 1968 Consent order requiring a Phoenix, Ariz. , mail-order insurance firm to cease misrepresenting its insurance policies by using ":Military Life Insurance Policy, Military Department" and similar terms in its advertising, failing to disclose that the insurance offered is not government sponsored or approved, and using application forms which indicate the policy is already in force.

COl\IPLAINT Pursuant to the provisions of the Federal Trade Commission Act, as that Act is applicable to the business of insurance under the provisions of Public Law 15, 79th Congress (Title 15, U.S. Code, Sections 1011 to 1015, inclusive), and by virtue of the authority vesteclin it by said Act the Federal Trade Commission, having reason to believe that .lunericttn Savings Life Insurance Company, a corporation, and Frihoff N. Allen individually and as an officer of said corporation, hereinafter referred to as respondents, have violated the provisions of said Act, and it appearing to the Col1ll11ission that a proceeding by it in respect thereof would be in the public il1terest, hereby issues its complaint stating its charges in that respect as follows: PARAGRAPH 1. Respondent American Savings Life Insurance Company is a corporation organized, existing and doing business under and by virtue of the laws of the State of Arizona, with its principal office and place of business at 3336 North 7th Street, in the city of Phoenix, State of Arizona.

Respondent Frihoff N. Allen is an officer of said corporation. He formulates, directs and controls the acts and practices of said corpora- 418-345--72---- 842 FEDERAL TRADE COML\lission DECISIONS IComplaint 73 F.

tion, including the acts and practices hereinafter set forth. His address is the same as that of said corporate respondent. ~R. 2. Respondents are now, and for some time last past have been engaged as insurers in the business of insurance in commerce, as ';comlllerce" is defined in the Federal Trade Commission Act. As a part of said business in "commerce " said respondents have entered into insurance contracts with insureds located in various States of the United States other than the State of Arizona in which States the business of insurance is not regulated by State law to the extent of regulating the practices of said respondents alleged in this complaint to be illegal. PAR. 3. Respondents, in conducting the aforesaid business, have sent and transmitted, and have caused to be sent and transmitted, by means of the United States mails and by various other means, letters, application forms, contracts, checks, completed preendorsed policy forms and papers and documents of a commercial nature from their place of business in the State of Arizona to purchasers and prospective purchasers located in various other States of the United States and have thus maintained a substantial course of trade in said insurance contracts, policies and other papers and documents of a commercial nature in commerce between and among the several States of the United States.

PAR. 4. Respondent American Savings Life Insurance Company is licensed, as provided by State law, to conduct the business of insurance only in the States of Arizona and Utah. Said respondent is not now and for some time last past has not been, licensed as provided by State law to conduct the business of insurance in any State other than the ones de.si,gnated in this paragraph.

PAR. 5. Respondents have solicited business by n1ail in various States of the United States in addition to the States named in Paragraph Four above. As a result thereof, they have entered into insurance contracts with insureds located in many States in which they are not licensed to do business. Said respondents' business practices are, therefore, not regulated by State law in any of those States in which respondents are not licensed to do business as they are not subject to the jurisdiction of such States.

PAR. 6. In the course and conduct of the, said business, and for the purpose of inducing the purchase of said policies, respondents have made numerous statements and representations concerning said polides by Ineans of circular letters, policy forms, ownership certificates allotment forms and other advertising material disseminated throughout various States of the United States. Three. mailings were used to 11cit purchases of policies. The original mailing of said ach.ertising , AMERICAN SAVINGS LIFE INSURANCE CO. ET AL. 843 841 Complaint material consisted of n, transmittal window envelope with the name and address of the beneficiary as printed on the policy 101'111 plainly visible as follows.

The envelope described and pictured above contained a "Deal' Parenf' type form letter, "\yhat purported to be a valid completed insurance policy, a so-called O\ynership certificate and a postage, paid self-addressed return envelope directed to the company's "M:ilitary Department" as shown below.

The form letter was addressed to and conta.ined the names and home address of the parents or other relatives of newly inducted servicemen. The name of the serviceman appeared as the "insured" on the face of the policy form, together with the name of the beneficiary, a policy number, dispatch date, face amount of the policy, and signatures and titles of the secretary and president of the corporation. The second mailing did not involve the use of a preenc1orsecl completed policy form but did inelude a transmittal envelope Dear Parent" letter, a return envelope bearing the desigmttion ":Thfilitary Department " and a copy of a form titled "Allotment Certificate " as shown below.":

The third mailing was substantially the same as the second except for a slight ditl'erence in the ';Allotment Certificate" form. PAR. 7. By and through the use of the aforesaid acts, practices, statements and representations and others of a similar nature and import respondents have represented, directly or by implication: 1. That the insurance offered for s~Je by respondents was being made available to servicemen by the United States Government; or that said insura.nce had been approved, endorsed or recOlllmendecl by the United States Government.

2. That the insurance offered for sale by respondents was initiated by the serviceman named as the "insured" therein or was issued with his knowledge and consent.

3. That the policy form offered and sent to the addressees was a valid, completed insurance policy in force at the time of its receipt. 4. That the insurance offered for sale by respondents would be issued regardless of the military status or duty assignment of the insured.

PAR. 8. In truth and in fact:

1. The insurance offered for sale by respondents was not being made available to servicemen by the United States Government n~r had *Pictorial material omitted in printing.

844 FEDERAL TRADE CO:WL7I,.IISSION DECISIONS. Decision and Order 73 F.

Statessaid insurance Government.been approved, endorsed or recommended by the United 2. The insurance offered for sale by respondents was not initiated by the serviceman named as the "insured" therein and it was not issued with his knowledge or consent.

3. The policy fOl'lll offered and sent to the addressees was not an insurance policy in force at the time of its receipt; on the contrary, saiel policy form was merely a proposed or sample policy which did not become effective until the required premium and certificate were recei ved from the addressee.

4. The insurance offered for sale by respondents was not issued rega,rdless of the military status or duty assignment of the insured. Therefore, the statements and representations as set forth in Paragraphs Six a.nd Seven hereof WE're, and a.re, raise, misleading and deceptive.

PAR. 9. In the conduct of its business, at all times mentioned here- , respondents ha.ve been in substantial competition, in commerce with corporations, firms and individuals in the sale of insurance~ of the sa.me genera.l kind and nature as that sold by respondents. PAR. 10. The use by respondents of the aforesaid fa.lse, misleading and deceptive statements, representations and practices has had a.ncl now has, the capacity and tendency to mislead members of the purchasing public into the erroneous and mistaken belief that said statements and representations were a.nd are true and into the purchase of substa.ntial quantities of respondents' policies by reason of said erroneous and mista.ken beliefs.

PAR. 11. The a.foresa.id acts and pra.ctices of respondents, as herein alleged, were all to the prejudice and injury of the public and of respondents' competitors and constituted unfair methods of competition in commerce a.nd unfair and deceptive acts and pra.ctices in commerce, in violation of Section 5 of the Federal" Trade Commission Act..

DECISION AND ORDER The Federal Trade Commission having initiated an investigation of certain acts and practices of the respondents named in the caption hereof, and the respondents having been furnished thereafter with copy of a. draft of complaint which the Bureau of Deceptive Practices proposed to present to the Commission for its consideration and which if issued by the Commission, would charge respondents \\"ith violation of the Federal Trade Commission Act; and , ., Ai\fERICAN SAVINGS LIFE INSURANCE CO. ET AL. 845 841 Decision and Order The respondents and counsel for the Commission having thereafter executed an agreement containing a consent order, an admission by the respondents of all the jurisdictional facts set forth in the aforesaid dra.ft of complaint, a. statement that the sig11ing of said agreement is for se,ttlelnent purposes only and does not constitute an admission by respondents that the law has been violated as alleged in such complaint and waivers and other provisions as required by the Commission Rules; and The Commission having thereafter considered the matter and having c1etC'rnlinC'c1 thflt it h;tcl reason to believe that the respondents have violated the said Act, and that complaint should issue stating its charges in that respect, and having thereupon accepted the executed consent agreement and placed sueIi agreement on the public record for a, period of thirty (30) clays, now in further conformity Irith the procedure prescribed in S 2.34 (b) of its Rules, the Commission hereby issues its complaint, makes the following jurisdictional findings, and enters the following order:

1. Respondent ,l\..meriean Savings Life Insurance Company is a corporation organized, existing and doing business under and by virtue of the laws of the State of Arizona, with its principal office and place of business locateel at 3336 North 7th Street, in the city of Phoenix btate 0 ~i..nzona.

Respondent Frihoff N. Allen is an officer of said corporation and his address is the same as that of said c.orporation..I.. 2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents, and the proceeding is in the. .I..nubJic interest.

ORDER I t 'is ordered That respondents Anlerican Savings Life Insurance Company, a corporation, and its officers, and Frihoff N. Allen, individually and as an officer of said corporation, and respondents' agents representati,-es and employees, c1imctly or indirectly through any corporate or other device, in connection 'with the advertising, offering for sale, sale or distribution of any insurance policy or policies, in commerce, as "commerce" is defined in the Federal Trade Commission Aet, except in those states where respondents are licensed and regulated by State law to conduct. the business of illsnranee~ do forthwith cease and desist from:

1. Using the expressions "Special $10 000 :i\lilitary Life Insurance Policy, Allotment Certificate "J\1ilitary Department 846 FEDERAL TRADE CO::\IMISSION DECISIONS ,Syllabus 73 F.

No :Military R.estrictions~' or any other words or terms of similar import or meaning.

2. Using any letter or other solicitation material in contacting parents or other relatives of members of the Armed Forces of the United States which does not reveal in a prominent place, in clear language and in type at least as large as the largest type used on said material; (a) that the insurance. offered for sale by respondents is in addition to, and separate from, the insurance made available to servicemen by the United States Government; (b) that said insurance has not been approved or recommended by the lTnited States Armed Forces or any agency of the United States Government; and (c) that said insurance is being offered without the knowledge or consent of the serviceman who appears as the insured the.rein.

3. Using any policy form or similar document, prior to the receipt by respondents of the required premium, which contains the name of the insured~ designation of the beneficiary, policy number, or signature of any representative of respondents ~ or which contains any indicia of an executed, in force insurance policy.

4. Representing, directly or by implication, that the insurance offered for sale by respondents has been made available by, or has been approved, e.ndorsed or recommended by, the United States Government or any agency or office thereof. 5. :Misrepresenting in any manner the conditions or circumstances under which such insurance was initiated or issued. I t is f'u.1'thel? 01'Clel' That the respondent corporation shall forthwith distribute a copy of this order to each of its operating divisions. It i8 fu1?thel' oi'CZered That the respondents herein shall, within sixty (60) days after service upon them of this order, file 'with the Commission a. report in writing setting forth in detail the manner and form in which they have complied with this order. IN TI-IE 1\:L-\ TTER OF ARK-LA-TEX ,VAREHOUSE DISTRIBUTORS, INC., ET AL. ORDER OF DIS:;\IISSAL, ETC., IN REGARD TO THE ALLEGED VIOLATION OF SEC. 2 (f) OF THE CLAYTON ACT Docket 7592. Amendc(l CO 111plaint, Mar. S, 1960-Decislon, Jlay, 1968 Order terminating a proceeding against nine distributors of automotive parts for allegedly inducing discriminatory prices from their suppliers, principal respondent has been dissolved.

ARK-LA-TEX ViTAREHOUSE DISTRIBUTORS , INC. , ET AL. 847 846 Complaint A::.\IENDED CO::\IPLAINT The Federal Trade Commission, having reason to believe that the party respondents named in the caption hereof, and hereinafter more particularly designated and described, have violated and are now violating the pr0\7jsion~ of subsection (f) of Section 2 of the Clayton , Title 15, Act, as amended by the Robinson-Patman Act (D. Sec. 13), hereby issues its complaint stating its charges with respect thereto as follo\ys :

P A&.~GR,~PH 1. Respondent Ark-La- Tex ,y arehous~ Distributors Inc., hereinafter sometimes referred to as respondent Ark-La- Tex is a corporation organized, existing, and doing business under and by virtue of the la.ws of the State of Texas, with its principal office and place of business located at 310 Grand A venne, Paris, Texas. respondent Ark- La- Tex, although using corporate form, is a membership organization, organized, maintained, managed, controlled and operated by and for its members. The membership of respondent Ark- La- Tex is composed of corporations, partnerships, and individuals whose business consists of the jobbing of automotive products and supplies.

Respondent Ark-La-Tex, as constituted and operated, is lwn\yn and referred to in the trade as a buying group. ill. 2. The follo\ying respondent corporations and individuals sometimes hereinafter referred to as respondent jobbers, constitute respondent Ark - La- Tex :

Respondent Automotive Appliance Company, Inc., is a corporation organized, existing, and doing business under and by virtue the laws of the State of Texas, with its principal office and place of business located at 1820 Canton Street. Dallas. Texas. Respondent Auto Parts & Equipment Co. , Inc., is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Oklahoma, with its principal ofiice and place of business located at 18 North Ninth Street, Duncan, Oklahoma. Respondent Ferguson Auto Supply Co., Inc., is a corporation organized, existing, and doing business under and by virtue of the htws of the State of Texas, with its principal office and place of business located at 1710 Avenue J, Lubboek, Texas.

Respondent Harold, Inc., is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Louisiana, with its principal office and place of business located at 1112 Oak Avenue, Lafayette, Louisiana.

IComplaint 73 F.

Respondent Ada l\lotor Sales, Inc., is a corporation organized, exvirtue of the. la'\ys of theisting, and doing business under and by State of Oklahoma, with its principal office and place of business located at 209 East :Main, Ada, Oklahoma.

Respondent Standard Parts Co. of How;ton, Inc., is a corporation virtue of theorganized, existing, and doing business under and by place of busi-laws of the State. of Texas, \with its principal oflice and ness located at 1602l\lc1Cinney, :Houstol1, Texas, Respondent Tri-State Automotive Co., Inc., is a corporation organized, e:-:isting, and doing busine,ss under and by virtue of the laws of the State of Louisiana, with its principal office and place of business located at 953 Louisiana A venue, Shreveport, Louisiana. , 1nc.. is a corporation orga- Respondent 'Vest-brook Supply Co. nized, existing, and doing business under and by virtue of the la\VS of the State of Arkansas, \with its principal office and place of business located at 3rd and I-1azel Streets, Texarkana, Arkansas; Respondents Rezi J. Cogdell, Louis ,V. Barnett 2 and Eleanor R. Bradshaw are copartners doing business under the :firm name and style of Cogdell Auto Supply Co., a partnership, with their office and principal place, of busine,ss located at 301 Calhoun Street, Fort ,y orth Te,xas.

Respondents Leo 1-1. Brac1sha\\", Sr., and Eieanor R. Bradshaw are copartners doing business under the firm name and style of Cogdell principal placeAuto Supply Co., a partnership, \with their oflice and of business located at 1004 FranldinA\'enue, "\Vaco, Texas. Respondents John A. Scarborough and R. Leon Hodges are copartners doing business under the firm name and style of Grand Auto principal place of businessParts, a partnership, with their office and located at 310 Grand Avenue, Paris, Texas.

Respondents Gene l\Iahanay and F. ,Y. l\lahanay are copartners doing business under the firm name and style of l\lahanay Brothers Auto Parts, a partnership, with their office and principal place of business located at 21E. Frisco Avenue, Clinton, Oklahoma. Respondents H. R. ,Yilson: Patricl): Ferehill, and Jack ,V. Durrett Sr., are copartners doing business under the firm name and style. of l\It. Pleasant Sen~ice. Parts Company, a partnership, "\with their offce and principal place of business located at 312-14 North Jefferson l\lt. Pleasant, Texas.

1 The correct name of respondent is Westbrook Supply, Inc., as noted in the initial decision.

2 The correct name of respondent is Louie W. Barnett, as noted in the initial decision. ARK-LA-TEX WAREHOUSE DISTRIBUTORS) INC.) ET AL. 849 846 Complaint Respondents Henry C. Nichols and Percy E. Nichols are copartners doing business under the fi1'1n name and sty Ie of Nichols Brothers, a partnership, with their office and principal place of business located at 310-12 ICansas, Chickasha, Okla.homa.

Respondents ,Yallace :fir. Fontaine and Patrick Ferchill are copartners doing business under the firm name and style of Reliable NIotor Supply Company, a partnership, with their office and principal place of business located at 301 East Broadway, Gladewater, Texas. Respondents Patrick Ferchill, Vic Ferchill, and Joe Ferchill are copartners doing business under the firm name and style of Reliable ~iotor Supply Company, a partnership, with their office and principal place of business located at 201 South High, Longview, Texas. Respondents Sam Bonham and Charles Strickland are copartners doing business under the firm name. and style of Sulphur Springs Parts Company, a partnership, with their office and principal place of business located at l\Iain Street, Sulphur Springs, Texas. Respondent Aubrey ",V. Byrd 3 is a sole proprietor doing business under the firm name and style of Byrd Service Parts, with his principal office and place of business located at 605 East Erwin Street Tyler, Texas.

Respondent \Yilfred L. Smith is a sole proprietor doing business under the firm name and style of The :Motor Supply, with his principal office and place or business loeateel at 124 North Lafayette, :Marshall, Texas.

Respondent ,V. E. Sells is a sole proprietor doing business under the finll name and style of Sells Auto Supply, with his principal office and place of business located at. 519-23 East IGeberg, ICingsville Texas.

Respondent James E. 1Yalker is a sole proprietor doing business under the firm name and style of ,Valkel' Auto Parts, with his princi~ pal office and place of business located at 407-:1:11 East Third Street Big Spring, Texas.

Respondent Dee \Vhite is a sole proprietor doing business under the firm name and style of '\Vhite Auto Supply Company, with his prineipal office and place of business located at 107 Charlevois Street Henderson, Texas.

PAR. 3. The respondent jobbers set forth in Paragraph Two have purchased and now purchase in commerce from suppliers engaged 3 The correct name of respondent is William Aubrey Byrd, fls noted in the initial decision.

. .

850 FEDERAL TRADE CO::'BlIS3ION DECISIONS ,Complaint 73 F.

commerce numerous automotive products and supplies for use, consumption, or resale within the lTnited States. Respondent jobbers and said suppliers cause the products and supplies so purchased to be shipped and transported among and between the several States of the United States from the respective State or Sta,tes of location of said suppliers to the respecting~ different States of location of the said respondent jobbers.

PAR. 4. In the purchase and the resale of said automotive products and supplies, respondent jobbers are in active competition \"with independent jobbers not affiliated with respondent Ark-La-Te,x; and the suppliers selling to respondent jobbers and to their independent jobber competitors are in active competition with other suppliers of similar automotive products and supplies.

PAR. 5. Respondent Ark-La- Tex, since its formation in 1!)48, has been and is now maintained, managed, controlled, and operated by and for the respondent jobbers set forth in Paragraph Two and each said respondent has participated in, approved, furthered, and cooperated with the other respondents in the carrying out of the procedures and activities hereinafter described.

In praetiee and effect, respondent Ark-IJa- Tex has been and is now serving as the medium or instrumentality by, through, 01' in conjunction with, which said respondent jobbers exert the influence of their combined bargaining po',\er on the competitive suppliers hereinbefore described. As a part of their operating procedure, said respondent jobbers direct the attention of said suppliers to their aggregate pl).rchasing power as a buying group and, by reason of such, have knowingly demanded and received, upon their individual purchases diseriminatory prices, discounts, allowances, rebates, and terms and conditions of sale. Suppliers not aeceding to such demands are usually replaced as sources of supply for the commodities concerned and such market is dosed to them in fa, or of such suppliers as can be and are induced to afford the discriminatory prices, discounts, allowances rebates, and tenl1S ~nd eonc1itions of sale so demanded. Respondent jobbers demand that those suppliers who sell their products pursuant to a quantity discount schedule shall consider their several purchases in the aggregate as if made by one purchaser and grant quantity discounts, alloy,ances, or rebates on the resultant combined purchase volume in accordance with said suppliers' schedule. This procedure e.ffeets a discrimination in price on goods of like grade and quality between respondent jobbers and competing independent jobbers whose quantity discounts, allowances, or rebates from such suppliers are based upon only their individual purchase volumes. Froln ARK-LA-TEX WAREHOUSE DISTRIBUTORS, INC. ) ET AL. 851 846 Complaint other suppliers the respondent jobbers demand the payment or allowance of trade discounts, allowances, or rebates which such suppliers do not ordinarily payor allow to jobber customers. This procedure effects a discrimination in price on goods of like grade and. quality between respondent jobbers and competing independent jobbers who are not afforded such trade discounts, allowances, or rebates. ,Yhen and if a demand is acceded to by a particular supplier, the subsequent purchase transactions between said supplier and the individual jobber respondents have been and are billed to, and paid for through, the aforesaid organizational de,vice of respondent Ark-La- Tex. Said corporate organization thus purports to be the purchaser \yhen in truth and in fact it has been and is now serving only as agent for the several respondent jobbers and as a mere bookkeeping device for facilitating the inducement and receipt. by the aforedescribed respondent jobbers of the price discriminations concerned. PAR. 6. Respondents have induced or received frOlTI their suppliers in the manner aforedescribed, favorable prices, discounts, allowances rebates, terms and conditions of sale which they knew or should have known constituted discriminations in price prohibited by subsection (a) of Section 2 of the Clayton Act, as amended by the Robinson- Patman Act.

PAR. 7. The effect of the knowing inducement or receipt by respondents of the discriminations in price as above alleged has been and may be substantially to lessen, injure, destroy, or prel,-ent competition between suppliers of automotive products and supplies arid between respondent jobbers and independent jobbers. PAR. 8. The foregoing alleged acts and practices of respondents in knowingly inducing or receiving discriminations in price prohibited by subsection (a) of Section 2 of the Clayton Act, as anlended by the Robinson-Patman Act, are in violation of subsection (f) of Section 2 of said Act.

1111'. Hugh B. H el17~ and 1111' Roy O. Paln'ier, Jr. supporting the complaint.

Fishe?' 1/1 cLaug hlin H a1' ?'ison Paris Texas, by illi'. J. D. ill Laughlin originally counsel for all respondents except respondents illi'. J aclc, TV. D1.trrett, S1' 1111'. Dee 1Vhite, IVestbl'ook Supply, Inc. and i1l1'. Leo H. B1'Ctdsha~o, S1'.

Goodwin Owcin Tyler, Texas, for respondent i11T. Jack TV. Drtu'l'ett, Sr.

1li?. Gonlon R. TIT ellbol'n Henderson, Texas, for respondent illr. Dee 1Vhite.

Smith Sandel' son Texarkana, Arkansas, for respondent TVestb?ook Supply, Inc.

, 852 FEDERAL TRADE COMMISSION DECISIONS, ITni tial Decision 73 F.

INITL\L DECISION BY EDWARD CREEL, HEARING EXAMINER FEBRUARY 18 , 1965 The Federal Trade Commission on September 22, 1959, issued its original complaint and on niarch 8, 1960, its amended complaint against the respondents herein, charging them with knowingly inducing or receiving discriminations in price prohibited by subsection (a) of Section :2 of the Clayton Act, as amended by the Robinson-Patman Act, in violation of subsection (f) of Section :2 of the Clayton Act, as amended. The complaint charged specifica.lly that the respondent job- . bel's induced manufacturer-suppliers of automotive products and supplies to grant preferential prices to theIll for the commodities they purchased through their "' holly owned and controlled organization Ark-La-Tex 1V warehouse Distributors, Inc. The complaint alleged that the effect has been and may be to adversely affect competition between suppliers of automoti\Te products and supplies, and between respondents and competing inclepe,ndent jobbers.

After the ans\"'\ers \ye,re filed, the case was tried t\nd an initial decision was issued October 13, 1961 which included an order prohibiting respondents from inducing or receiving price discriminations. On June 5, 1963 (62 F. C. 1557J, the Commission vacated the initia.l decision and remanded the case to the hearing examiner, ordering that the hearing examiner Iurt her consider this matter in the light of the opinion of the Court of Appeals in Al1wlnb'i' a 111oto'i' Parts, et ell. v. 309 F. 2d 213 (1~)(',:~), \which \yas issued subsequent to the initial decision herein, and that the new initial decision inclnc1e specific findings and references to the evidence reJiec1l1pon "ith respect to nil issues 111c1 Heling five specified issues, and provide for the reception of such further evidence as may be necessary. A prehearing conference and hearings "ere thereafter held and the record was closed October 23, 1964. Thereafter, proposed findings of fact, conclusions of b\Y, and order were filed by the parties on December 10 , H) ()4, and replies thereto were also filed. Such proposals, including supporting briefs, h11\-e been considered, and those findings not herein adopted either in form or in substance, are rejected as not being supported by the record or as involving immaterial matters, and the hearing examiner, having considered the entire record herein, makes the following findings of fact, conclusions drawn thel'efrOln, and order:

FINDINGS OF FACT In this industry, which includes respondents and is sometimes referred to as the automotive aftermarket industry, manufacturers gener- .

ARK-LA-TEX WAREHOUSE DISTRIBUTORS, INC., ET AL. 853 846 fInitial Decision ally sell to wholesalers, wholesalers sell to dealers, and dealers sell to motorists. There are two levels of wholesalers; one is the warehouse distributor who ~:general1v sells onlv to the other level of wholesalers known .as jobbers find bath levels of wholesalers buy from nlannfacturers.

Respondent Ark - La- Tex ,Yarehouse Distributors, Inc., hereinafter sometimes referred to fib Ark-La- Tex, ,yas a Texas corporation with its principal office and place of business located at 310 Grand Avenue Patis, Texas. This corporation was dissolved on i\Iay 1 , 1963, under the Texas la,,\'s and no longer exists. (Exhibit A to motion filed August. 31 , 1964.

,A_t the time of the issuance of the complaint in this proceeding, or for a substantial period of time after its organization, the niembers of Ark-La-Tex were as follows:

Respondent Automotive Appliance Company, Inc., a Texas corporation, with its principal office and place of business located at 1820 Canton Street, Dallas, Texas.

Respondent Auto Parts &: Equipment Co. Inc., an Oklahoma corporation, with its principal office and place of business located at 18 North Ninth Street, Duncan, Oklahoma.

Respondent Ferguson Auto Supply Co., Inc., a Texas corporation1 with its principal office and place of business loeateel at 1710 A venue J, Lubbock, Texas.

Respondent Harold, Inc., a Louisiana corporation, with its principal office and place of business located at 1112 Oak Avenue, Lafayette Louisiana.

Respondent Ada l\lotor Sales, Inc., an Oklahoma corporation, with its principal office and place of business located at 209 East l\lain, Ada Oklahoma.

Respondent Standard Parts Co. of Houston, Inc., a Texas corpora~ tion, with its principal office and place of business located at 1602 )IcIGnney, Houston, Texas.

Respondent Tri-State Automotive Co., Inc., a Louisiana corporation, with its principal office and place of business located at 953 Louisiana Avenue, Shreveport, Louisiana.

Respondent 1Vestbrook Supply, Inc. (erroneously named in the complaint as 1Vestbrook Supply Co. , Inc.), an Arkansas corporation, with its principal office and place of business located at Third and Hazel Streets, Texarkana, Arkansas.

respondents Rezi J. Cogdell, Louie ",V. Barnett (erroneously named in the complaint as Louis \iV. Barnett), ~nd Eleanor R. Bradshaw eopart.ners~ doing business under the firm name and style of Cogdell ...

854 FEDERAL TRADE CO~l1nSSION DECISIONS, ,Initial Decision 73 F.

Auto Supply Co. ,,-ith their office and principal place or business 10cateel at 301 Calhoun Street, Fort"'iV orth, Texas. Respondents Leo H. Bradshaw, Sr., and Eler.nor R. Bradshaw copartners, doing business under the firm name and sty Ie of Cogdell Auto Supply Co" with their office and principal place of business located at 1004 Franklin Avenue, ,Yaco, Texas. Respondents John A. Sc~ll'borough al1c~ R. Leon Hodge8, copartners eloin. .Q' blsiness under the firm name and style cf Grand Auto Parts. ith their office ancllwincipcl1 place or bnsiness located at 310 Grand venne,0Paris, Texas. ~ Respondents Gene jUahanay and F. "\' . l\Iahmlay:, copartners, doing business under the fir111 name and style, of JHahanay Brothers Auto Parts, ,,-ith their office and principal place of business locutecl at 215 Frisc.o Avenue, Clinton, Oklahoma.

Respondents 11. R.. ,Yilson, Patrick Ferc.hill, and Jack ",V. Durrett Sr., copartners, doing busine,ss under' the firm name and style of !\it. placePleasant Se,ryice Parts Company, with their office and 'principal of business located at 312-14 North Jefferson, lilt. Pleasant, Texas. Respondents Henry C. Nichols and Percy E. NichoJ~, copartners doing: business under the firm name, and st-de, of Nichols Brothers. ith their office and Drinci )al Dlace. of business located at 310-1:2 ICansas, Chickasha, Okhthoma.

Respondents \Valbce :1\1. Fontaine ~nd Patrick FerchilL copartn2rs cloil1!t business under the firm name and style of Reliable ?101:01' Supply Company, with their office and principal place 0:( business lccatec1 at 301 East. Broadway, Glade-water, Texas. Respondents Patrick Ferchill, \Tic Ferchill, and J 00, Fm.'Child. cofinll l1C1me and sty Ie of Reliable,partners, doing business under' the principal place of lotOl' Supply Company, with their office ~nc1 business Joe-flied Gt 201 South High, Longview, Texas. copartners Respondents Sam Bonham and Charles Strickland, doing: business under' the firm name and style of Sulphur Springs principal place of business 10, Parts Company, with their office and cated f!t l\Iain Street, Sulphur Springs, Texas. Respondent '\Villianl Aubrey Byrd (e1'roneon21y named in the com. plaint as Aubrey ",V. Byrd), a sole proprietol'j doing business under the firm name and style of Byrd Service Parts, \with his principal office. and place of business locate,d at 605 East Erwin Street ~ Tyler. Texas.

Respondent ,Yilfred L. Smith, a sole proprietor, doing busine::;s with his principal under the firm name and style of The :Motor Supply, office and phce af bU'3iness located at 124 North LaInyette, J\1:arshall Texas.

. .. (! ,:; , , ARK-LA-TEX "\VAREHOUSE DISTRIBUTORS , INC., ET AL. 855 846 iInitial Decision Respondent ,V. E. Sells, a sole proprietor, doing business under the firm name and style of Sells Auto Supply, with his principal office and place of business located at 519-:23 East Kleberg, IGngsville Texas.

Respondent James E. ,Valker, a sole proprietor, doing business under th~ firnl name and style of ,Yalker Auto Parts, with his principal office and place of business located at 407-411 East Third Street Big Spring, Texas.

Respondent Dee ,Yhite, a sole proprietor, doing business under the firm name and style of ,Yhite Auto Supply Company, "with his principal oflice and place of business located at 107 Chnrlevois Street Henderson, Texas. (Answers, CXs 4, 602.

ATl:c-La- Tex ,vas l11r"intained, managed, controlled, and operated by and for the members above-named, and each member actively participated in, approved, furthered, and cooperated with the other members in carrying out the acts and practices hereinafter found which were knowingly designed and intended to induce the. granting or discriminatory and illegal prices, discounts, allo"\'Iances, rebates, terms and conditions of sale to the members. Such participation included service as officers and c1irectOl\; of AI'1\:- La - Tex and as members of ~'7atiol1 ' ry'" ~. \,"s 4-0D--c' ,L.Ll\)LU;'i' l" ' .Lllnitteec.:~ ..Lo ~(L.L'-~"l 'TOP')Lo ' .:.Oln"bll~.L'-" 112 595 821 835. ) At dl times, the. jobber-members had complete control of their cellt:!:al organization, )Llk-Lu- Tex. Each member of Alk-Lft- Tex lias director of Ark-La- Tex, and itll or the business of Ark-La- Tex lias conducted 1""\7 its board of directors. The membel'shi ), as ft I\"'hole, fjl)proved the f~cceptance o:r new lines of ll1erchallc1i~e and the tenns and conditions with respect the:i:eto; and approved the admission of new members. The members retained the right to withdrR"\v 11'0111 the group at any time and to dissolve the corporation. The, members of ..'-b'k- La- Tex were corporations~ partnerships, and individuals whose business eonsi::t.ed principally of the jobbing of automotive products and supplies. ~\rk-La-Tex, as constituted and operated, "as known and re- 9, 172-felted to in the trade as a buvin Q: ,Q,TO1.1D. C:X:s 1 The. lIleTnbers of Ark-La, Tex purchased.L.in interstate, eoll11l1erce from suppliers engngecl in interstate commerce numerous antornotiye products and supplies for resale "ithill their trade, areas. (ex:::. 36- 143 , 1~14- , 601, 608. ) One situation which sho\\'s that the members were, in fact, the buyers from suppliers rather tb,all Ad\:- Lfl- Tex. and Sllpplie.rs allthat Ark-La-Tex, the. members of Ark-La-Tex, and the rec.ognized this fact, "Was tl, dispute. which arose regarding the acceptance of a ne\y grol~p member as a customer of one. of the suppliers. In a \Initial Decision 73 F.

letter from the supplier to Ark-La-Tex, dated :M:arch 11, 1954, it was stated:

Acceptance of a new group member is at our discretion, and until we can talk with the Ferguson Auto Supply, we will not accept Ark-La-Tex purchase orders for this new member. (OX 183- In a letter of Th1arch 16, 1955, the member wrote to this supplier: Enclosed is our signature on your form #4427. ,Ve want to protest again the fact that we are not allowed to buy through Ark-La-Tex ' warehouse Distributors, Inc. , our buying group. Your line is included in our group and we are buying your merchandise and have been for years. There is no real re::.son why we should not be allowed to buy through our group in order to obtain the better rebates that are extended to others. (CX 183-B. ) On :March 18, 1955, the president of Ark-La-Tex wrote to this supplier:

I ha,e a copy of the letter )fr. Fred Pinkston, of Ferguson Auto Supply, Lubbock, Texas, wrote you on )Iareh 16, with reference to buying Federal- JIogul through Ark-La-Tex.

As you know, Mr. Pinkston has been a member of our organization for quite some time, and I am at a loss to understand why you do not honor Ark-La-Tex. purchase orders issued by him.

Since I am completely in the dark on this situation, I shall appreciate your bringing me up to date. (OX 183- The Jllembers and suppliers caused the automotive, products and supplies, so purchased, to be shipped and transported among and bet\ye.en the several States of the lTnited States from the respective State or States of location of the suppliers to the respective dift'el'ent States of location of the members. (CXs 5, 150. The members of Ark-La-Tex, in the purchase and resale of auto- Jllotive products and supplies, \were in active and substantial competition with other corporations, partnerships, firms, and individuals who ere also engaged in the purchase and resale of such automotive products and supplies of like grade and quality, in interstate commerce which automotive products and supplies had been purchased IrOJll the same and competlllg sellers. It is appa-rent frolll the nature of the automotive jobbing business and from the testimony of jobbers that automotive jobbers located in the same. towns and even those located in cities as large as Dalla.s are in competition with each other in such towns and cities selling to dealers and fleets. (Tr. 129, 599, 648, 704 754, 782, 820, 1503 , 1548.) The suppliers selling to the members and to their competitors were also in active and substantial competition with other suppliers of like or similar automotive products and supplies in interstate commerce. (Tr. 212, 368, 445, 537, 585. , , ARK-LA-TEX warehouse DISTRIBUTORS , INC. , ET AL. 846 Initial Decision The member-o"\vners organized, maintained, controlled, and operated Ark-La- Tex for the purpose of inducing the granting or allowance of lower and more fa varable prices by manufacturers and sellers of automotive products and supplies. It was a membership corporation serving only members. Participation of the members in the net income of Ark-La-Tex was based on a percentage of their individual purchases through the group organization. (CX 2: Tr. 1241.) Ark-La- Tex had no capital stock, and the purpose of its organization was not to make a profit as a corporation but., as stated in the, bylaws The purpose of this association shall be to purchase from manufacturers goods, \yares and merchandise for such of its members who desire the same, in order to receive quantity-purchase discounts or prices." It \vas referred to in its bylf\wS as an association and was referred to by its members as an nssoeiation, and its directors were referred to as members. (CXs 1 , 2. ) The ownership of Ark-La- Tex \vas not a transferable asset of its members ancl membership in Ark-La- 1'ex was not subject to sale or transfer. (CX 2- The members paid an entrance fee. which ",vas sometimes referred to as a "deposit " and such funds \Were used by )~,-rk-La-Tex to pay for the products ordered h:- its members. One l'E'~ult. of this met hod of inventory financing ,vas that the products ordered by the members ,Y8l' paid for in a d \~ance. (eX 2- F. ) In accordance ,,-ith its b~~ht\Ys, Ark-La- Tex did not order products except. upon preTious order from its members, until after it had established a, ,,-warehouse. ~c\.after it commenced '\val'ehousing products some orders \were sent by Ark-La- Tex to the suppliers. (eX 2- ) Ark- La- Tex did not enter into a contract for the purchase of products from suppliers l1n1ess nt least 7.:5 percent of its members voted to accept the contract and unless at least 75 percent. of its members voted to sup- Doll the line. luk-La-Tex did not enter into contracts until it had the agreement just stated (CX 2-D), and, in nccorcbncE' \with the bvhtws,0.1 the members became bound by such contracts. (OX 2-1. ') Ark-La, Tex did not deal \with or sell to any jobbers except its own me,mber-owne.rs. (1'1'. 149, 1812.

Certain suppliers granted annual volume discounts to joblJer-CustomeI's. At the end of the year a. discount \yas rebated to these customers based on their volume of purchases during: the preceding year. It had been one of the original purposes in organizing Ark-La-Tex to enable its members to receive the benefit of the aggregate, quantity of purchases made, by all of its members from suppliers who granted volume discounts or who could be persuaded to grant such disoounts. (eX 2-A. Through the operation of Ark-La-Te.x as their buying 418-345--72----55 , ..

858 FEDERAL TRADE COIvIMISSION DECISIONS Jnitial Decision 73 F.

agent, the members were granted a volume discount by certain suppliers based on the total volume of purchases of all the members. This percentage discount "as greater than the percentage discount which would have been granted by the suppliers based on the individual volume of purchases made by each member and was greater than the percentage discounts granted to independent jobbers who competed with the members of Ark-La- Te,x. (CXs 79, 127, 150-A to 150- , 151, 276-79; Tr. 105.

It was the regular procedure for the members, acting through Ark-La- Tex, to either notify or allow competing manufacturers of various lines of automotive products and supplies to submit prices and to 'appear before the members of the. group. The so-called "product committee" of Ark-La- Tex first investigated the lines. If the lines were acceptable to this committee, it related its approval to the president. of ~~rk-La- Tex, "ho in turn, notified the suppliers to appear before the group members and explain their group deals. The members then considered the o:fl:'ers and voted to accept certain of the lines to the exclusion of the lines of these. manufacturers' competitors. A majority vote of 75 percent ,ras necessary before the lines were. approved and adopted as group lines. Although it ~-as not a rigid requirement that the member.rs handle all of the group lines, in actual pradice almost all of the members of t.he group purchased and sold the particular manufacturers' lines aec€pted and handled by the group. (CXs 6-29.

,Yhen and if a demand "Ias acceded to by a particular supplier the subsequent purchase transactions between.n the supplier and the indi\-idual melnbers "ere bille.d to and paid for through the organizational device of ~L~l'k- La-Tex which purported to be the purchaser "hen in fact. it had been. and was. serving only as agent for the. seteral mmnbe.rs and as a, device for faeilitating the inducement and receipt by the members of the price discriminations concerned. In ejfect, the members were pooling their bargaining po"\\er to obtain , 2.better deals than they could obtain separately. (CXs 1 The members ordered the lines, which were. billed to Ark-La- Tex from their suppliers by using a standard form of order blank The suppliers granted to the respondents discounts and rebates on their purchases in va-rious ways. Some suppliers deducted the discount and billed Ark-La- Tex at "net price; some gave the discounts on the face. intervals of time.of the invoice; and some allowed rebates at various Ark-La-Tex, in turn, billed its members monthly and remitted the , 3, 35; Tr. 50- , 91rebates due the members semiannually. (CXs 2 103 1228. ) ARK-LA-TEX WAREHOUSE DISTRIBUTORS, INC. , ET AL. 859 846 Initial Decision After a. seller s line was accepted by Ark-La.- Tex, notice was sent to all members giving full information as to the contract terms agreed upon. These notices were in the form of "Approval Sheets" which were supplied to the members. Each member was supplied with a discount book in which all these group arrangements were kept. when purchasing lines not handled by Ark-La-Tex, the members dealt directly "ith the suppliers. (CXs 36-143 185-C; Tr. 45, 72, 79, 113, 124, 625, 772, 799 1166 1186 1199 1218.

There were approximately 115 suppliers that sold the group lines to respondents, Rnd the purchases of the members of group lines through or from Ark-La-Tex \' ere substantial. (Tr. 1211.) The. rebates and discounts received from the various suppliers by respondents on these purchases 'were also substantial. For the years 1955 through 1960, they were as follows:

Group n:batcs in Group rebates Years Group purchases dollars as percentage of purchases 1905__ $696 17. $87, 713. 12. 1956___- -- -- 704, 48. 86, 091. 12. 1957 - - - - - - - - - - - - - - - - - - - - - - - - 759 203. 103 ....Uc0" 13, 1958_- - - - - - - - - - - - - - - - - - - - - - - 0;)7 324. 147 538. 13. 1959__- - ---- ;)15 ;)97. 222 623. 14. 1960_- - - - - - - - - - - - - - - - - - - - - - - "143 360. 219 498. 15. (CXs 30- , 145-50- , 597, 599, 604.

The figures for several months of 1961 showed a comparable volume and percentage rebate. (CXs 607-09.

A. substantial number of lines accepted by the group were not stocked in the group warehouse. ,Yhen a member wished to purchase products from the warehouse, an order was sent to Ark-1..a- Tex, which either procured the merchandise frolll the supplier or filled the order AI'1\:-from its o\yn \yarehouse stock. ,Yhen R delivery had been made., 1..a- Tex billed the member receiving the merehanc1ise. l\Iany suppliers also "drop shipped" directly to the members. Approximately 48 percent of the members' purchases through Ark- La- Tex were "drop shipped" to the members. Each member settledlllonthly with Ark-La- Tex for his own individual purchases. The group office, in turn, made monthly settlements "ith the suppliers for the aggregate purchases oJ all djs-all members and semiannua.lly distributed to the member,rs counts and rebates received, less operating expenses, in proportjon to , . / , ... . .., 860 FEDERAL TRADE cO?vH.nSSION DECISIONS iInitial Decision 73 F.

the amount of each member s individual purchases. (CXs 2, 3; Tr. 50- 91- 147 1226 1241.) The members demanded that those suppliers who sell their products pursuant to a quantity discount schedule consider their several purchases in the aggregate, as if made by one purchaser, and grant quantity discounts, allowances, or rebates on the resultant combined purchase volume in accordance with said suppliers' schedules. This procedure effected a discrimination in price on goods of like grade and quality bet~Yeen members of Ark-La-Tex and competing independent jobbers ,yhose qua11tity discounts, allowances, or rebates recei\from such suppliers were based upon only their individual purchase volumes. From other suppliers, the members demanded the payment or allowance of trade discounts, allowances, or rebates which such suppliers did not ordinarily pay or allow to jobber-customers. The members demande,d that Ark-La-Tex be classified as a warehouse distributor. This procedure effected a discrinlination in price on goods of like grade and quality between the members and competing inc1ependput jobbers who ,were not afforded such trade discounts, allowances, or rebates. (CXs 6-29.

Almost all of the lines handled by Ark-La- Te:: were purchased at the equivalent of ,varehouse distributor prices. (Tr. 12:29. The volume rebate granted by certain suppliers to members "as a retroactive volume rebate based upon the aggregate purchases of all the members. Typical of such practices was the agreement with Standard :L\fotor Products, Inc., which generally maintained a slieling scale of volume rebates on net amount purchased per year as follolrs: Under: Percen t $1,800----- - --- --- -- --- $4,200__------ ------------ --- - 200----- --- $9,000------- -- - -- $12 000 - -- - - -- - $25,000 --- --- $50.000-- -- - -- - -- $75,000 -- $100,000 - - In the case of Ark- La- Tex, the:::e rebates were not based on the purchases of the indi,.idual member, but instead were based upon the total purchases of all the members of the group organization. (CXs .1 ;--- g,-t)on 0:.. Ii")')- -:t:

supplier for purcha~es ynle11 Arlc-La-Tex made payment to this made during the month by the members. it "\I-as permitted to deelliei'. the. maximum rebate of 20 percent on paying the invoices. \Vhile the a~~regate nurchases of the memlJel':3 reached the maximum volume of , ; :/ , \ \ , :......, ARK-LA-TEX WAREHOUSE DISTRIBUTORS , INC. , ET AL. 861 846 Initial Decision $100 000 required for the :20 percent discount, no individual nlember purchased near this amount.. In fact, in 1959 the purchases of only two members reached the. 1 () percent bracket, two reached the 15 percent bracket, one member earned no discount whatever, and yet all members received the maximum 20 pe-recent volume rebate. In the same . trading area there \were competitors of respondent members purchasing Inerchandise of like grade and quality from Standard Motor Products, Inc., \yho received no discount, or a lower discount, based upon the actual amount of their Qlyn individual purchases as provided by Standard's volume re.bate discount schedule. (CXs 276. 278: Tr. 463-502. ) Certain manufacturer-suppliers sold their products on a two-price basis. Jobbers were sold at a, price that is generally termed as the jobber price. A discount of approximately 20 percent was offered toa class of customers generally termed ,,-warehouse distributors. ~lembers of Ark-La- Tex, purchasing through Ark-La- Tex, purchased at a price approximately 20 percent lo"er than the normal jobber price, said price being termed the "arehonse distributor price. (CXs 36-148 150-A through 150- , 203 ~ 231, 278- 284 292, 626-1492. Independent jobbers, competing with members of Ark-La-Tex and purchasing products of like. grade. and quality as those purchased by members of Ark-La-Tex, purchased at the normal jobber price. Independent jobbe:rs purchased said products at the jobber prices during the same time period that members of ~~\.Tk-La-Tex purc.hasecl said products through .:lrk-La- Tex at 20 percent discount off the jobber pl'lces.(CX~ , ..;..00'1 :"0 , ~ I - , I , ~()D:I~- 00 :"u One of the matters that. \' as of concern to the Conrt of Appea.ls in the Alhambra. c~se, \which the Commission referred to in its remand orde.r was whether the jobber-members of the buying-group organization involved in that case "-ere ~ in fact, the. buyers from the manufacturers and ,,-ere, accordingly, the recipients of the redistribution discount. or 1vhether the Q:roup-buying".J.. . orzanization should be considered under the statute to be the buyer. In this case, it is clear from the original plan of the buying organization, as ,,-ell as the methods employed in its operation, that the members of the organization \were the buyers. It is not. necessary to disregard the fiction of the separate corporate entity of Ark- La- Tes hic.h c.oulc1 be done, because it is obvious that it was org' anized solely as a buvim!L-'aQ'ent~ for the members. Co-'Originally, the orders "ere actual.lly sent by the members to the suppliers and the goods "ere ordered in the name of the members. So by any standa-rd, since the goods were. bought by the members and the Initial Decision 73 F.

discriminatory discounts "ere paid to the members 'after subtracting expenses, it is clear that the members \\ere, in fact, the buyers. (CX 2. another issue which conce.rned the court in the Alhwm,bl'acase was \vhether the price differentials before the court were cost justified within the meaning of the first proviso of Section 2 (a) of the Clayton Act. In this case the custs to be compared are the costs of suppliers in manufacturing, selling, or delivering to independent jobbers who competed with the me,mbers of Ark-La- Tex and the costs incurred by these supplie.rs in selling the members of Ark-La- Tex. There is no indie-ation that any goods \were manufactured specially for either group of customers, since both purchased suppliers' regular lines. The evidene-e does not-indie-ate any substantial difference in the costs of selling to the classes of buyers. In some instances it appears that the suppeers' salesmen called on the members less frequently than other jobberB, but this applied only to a fe'." suppliers. The suppliers maintained sales representatives to call on members purchasing through Ark-La- Tex, and to call on direct-buying, competing jobbers. These sales representatives generally treated these h\'o classes of customers about the same way. Since Ark-La-Tex did not employ salesmen, all sales work, stock checking, explaining, and other missionary work, that \,as clone had to be clone by the suppliers; salesmen who were in many instances also required to call regularly on Ark-La- 'Iex in Paris, Texas as ,yell as to attend to the sales and promotional meetings held for the members of Ark-La- Tex. ('II'. 1631 , 1701- , 1756, 2006. Respondents contend that the furnishing of catalogs to the group nwmbersthrough the group-buying organization resulted in a savings. Ark-La- Tex neither printed1nor caused to be printed any price lists or catalogs for its manufacturer-suppliers products. All Price lists and e-atalogs relating to products that members purchased through Ark-La- Tex were provided by the manufacturer-suppliers. In many cases the manufacturer-suppliers distributed the price lists and catalogs dire,ctly to members of Ark-La-Tex. (Tl'. 67:2 , 1635, 1703-0+., 1756, 1801-0"1 1857 , 2007.

I t is contended with regard to the portion of purchases w hieh was \yaTehousecl by Ark-La- Tex that such \yal'ehousing resulted in sa\-ings to suppliers as opposed to shipments made directly to the independent jobbers. ,Yhile. it might appear at first blush that this is true, an analysis of the jobber agreements with suppliers, in the record, will show that whe,n the jobber buys a smaller quantity than the seller \vill ship from the factory or when for some other reason the buyer desires not. to recel've direct. shipments he pays a higher priceusually about 5 percent-for the privilege of buying through a factory .. \..

ARK-LA-TEX WAREHOUSE DISTRIBUTORS, INC. , ET AL. 863 846 Initial Decision warehouse or through a eommercial warehouse so that the granting of the privilege of buying in small quantities from the suppliers does not result in additional costs to the suppliers. It is also contended that there was a difference in transportation costs to the suppliers, but if the independent jobber purchased sufficient quantities to obtain a supplier s prepayment of freight, which was in many instances 200 pounds, the independent jobber had the freight paid by the supplier the same as the members of Ark-La- Tex, regardless of whether the shipment went to the Ark-La-Tex warehouse or direedy to the member. If the independent jobber bought less than the minimum amount required to obtain freight, then the jobber paid the freight which, of course, was not a cost to the supplier. (Tr. 1638- , 1706- , 1759- , 1849- , 1856. ) Bills were sent to Ark- La-Tex and were paid by Ark-La-Tex, but copies of all bills ,,-ere sent to the members who ordered the merchandise. It would thus appear that there was no saving in billing costs to the suppliers by virtue of the bills having been paid by Ark-La-Tex.

It appears from the foregoing that there is little, if any, difference between costs of selling and delivering to independent jobbers and to members of . rk-La-Tex. In any event, sneh difference could not. approximate the discounts-usually about 20 percent-which were granted to the members of Ark-La-Tex. Even if all of the costs which Ark-La-Tex incurred, including its payments to members for attending meetings, could be considered as costs which suppliers would have borne but for the existence of Ark-La-Tex, the costs would still not have approached the amount of the discounts, because approximately 11 to 12 percent of net purchases ,,-as rebated to the members. There are references in this cleeision, and contentions by the parties with respect to the similarity of the functions of Ark-La- Tex to the functions of a so-called legitimate warehouse distributor. This brought about, in part, because many of the discounts received by the members of Ark-La-Tex ,,-ere referred to by the suppliers and by the members as warehouse distributor discounts. It is also true that some of Ark-La- Tex s functions were similar to the functions of the \\(wehouse distributor, but the relevant comparison of costs ,,-ere those which the sellers incurred in dealing with independent. jobbers and with respondents because the complaint alleged that the independent jobbers who pay higher prices ,\were the competitors of respondents. The members of Ark-La-Tex at all times had complete kno\vledge or had access to complete knowledge of every detail of the operations of Ark-La-Tex. Alk-La-Tex furnished each member with a monthly report, sho\ving purchases of each member from each supplier. Twice 864 FEDERAL TRADE COM1HSSION DECISIONS, Initial Decision 73 F.

a year Ark- La- Tex furnished each member \-dth a statement showing Ark-La-Tex s expenses and each member s "profif' on the lines which the member had purchased through Ark-La-Tex during the preceding six-month period. Twice a year Ark-La- Tex rebated to each member the difference bet\\'een the discriminatory and preferential ,,-warehouse distributor functional allowance granted to members on the product lines "\which they purchased through Ark-La- Tex and the normal jobber price, less the member proportionate share of Ark-La- Tex expenses. Each year Ark-La-Te.x furnished each member "\with a certified audit of its operations for the. year. (CSs 2-1; Tl'. 92-94:, 1785- 1880- 9092 075-76.

From time to time each member of ~\..rk-La- Tex "as provided in writing with a. complete description of the terms and conditions of sale, on the items that the members purchased through .Axk-La-Tex. The prices were described in terms of discounts off the jobber prices. TheTe.fore, eac.hmember of Ark-La-Tex knew not only the prices paid on purchases through )l..rk-La-Tex, but also exactly how much more advantageous these prices were than the prices generally paid by nonaffiliated, competing jobbers. (CXs 13-143; Tr. 79, 87 , 88 , 1810. Approximately 48 percent of the. members purchases through Ark- La- Tex did not pass through J.rk-La- Tex s \'":arehonse in P~tris, Texas. These products "ere shipped c1ire,ctly from the suppliers to the 111elllbel's. This type of shjpping is soe1etimes called drop shipping. Indepenc1e, , c.competing, direct-buying jobbers "e-re also shipped directly, although they could in some instances take delivery at a "a.re,house. Dea.ling "ith the, members of Ark-La-Tex did not save the,se suppliers money in warehousing, handling, or shipping because Ark-La- Tex neither warehoused, handled nor shipped these products. (CAS 36-143 604-06; Tr. 145-49 1898. Ark-La- Tex did not. maintain delivery trucks. All products purc hasec1 by the members through Ark-La - Tex ,,-ere either drop shipped directly from the manufacturer or sent. as commercial freight from Ark-La- Tex s building in Pnris Texas. (Tr. 19, 20, 1215 , 31. The members of AI'1\:- La- Tex "\were. experienced opera tors in the l1tomoti,-e parts aftermarket and 1were generall~~ aware of market c.onc1itions and pre,-aiEng jobber and dealer prices in their trade areas. The members kne\\' that the prices they pnic1 for the products purchased through Ark- Lfl- Tex were lower than the prices charged the jobbers who competed "ith them. They knew this because they had previously purchased as jobbers themsel,- , bec~use the catalogs they receiyec1 from the suppliers sho\\'ec1 current jobber pric.es: and because the presentations made to them by the suppliers' representa.- ARK-LA-TEX warehouse DISTRIBUTORS) INC.) ET AL. 865 846 Initial Decision tives spelled out the advantages they "ere obtaining, which jobbers did not normally obtain. They knew that the quantity rebates allowed thenl were not based upon the quantities or other factors involved in a particular sale and ",ere not based upon the quantities sold by then1 to other jobbers; but they "\were based on the combined dollar amount of all sales to all of them, because of their membership ill Ark-La-Tex without any regard to the actual cost of production, sale, or delivery. The members knew or should have known that the discounts "which they received, Ifhich ,were comparable to warehouse distributor discounts did not renresent a saving"s in like amount to the sellers. because some of thmll had previously bought comparable quantities directly from .L the same suppliers at jobber prices. They knew that the discounts which they receivedresultecl in profits to ,yarehonse distributors who received the same or comparable discounts after warehousing and sales expenses were incnrrecL and they kne,,- that they had no sales e, pense. They kneiv that the pelli11ty payment for drop shipments directly to them. instead of to the Ark-La-Tex i\warehouse. \yas frequently 5 percent, ancl they kne\y or should have known that the suppliers who charged this percentage considered this to approximate their difference in cost between selling and delivering to jobbers generally and to warehouse distributors. (C:X:s :W-C, 13-143~ 172, 173, 181- , 186- A; Tr. 8'7 , '730, 1173, 1197, 1229- 1810- 2074-77; See Ame1'ican illot01' Specialties Co., Inc. , et aZ. v. 278 F. 2d, 225 (2d Gir. The automotive p~nts industry is a highly competitive business involving small margins or profit. The net margin of profit of number of member witness::es, as well as nonmember "\yitllesses~ who testified, \yas from :2 percent to 4 percent after taxes. (Tr. 48 , 123, 133 , 615 , 645, 720, 734, 755 , 840 860 892 , 922. ) The importance of the discriminatory prices allo\yec1 by the various suppliers is pointed up by the importance. given by the. witnesses to the :2 percent cash discount they received from their suppliers which, they testified, increased their margin of profit and reduced the cost of acquisition of their l11erchalldise. This :2 percent discount Wc1S considered by the jobber witnesses to be an important factor in determining their profit margins, and they took advantage of this discount \vhen their n.nanc.ial position pe-rmitted them to do so. Through the lower cost of merchandise resulting from such discriminatory prices, the members obtained a substantial competitive ach-antage over their competitors who sell the same 01' comparable l11ercht1llcJise in the same trade areas and ,rho receive cliseounts or rebates based only upon their own individual1 purchases. (Tr. 47, 124, 133- , 618, 770, 800, 817, 860~ 892- , 9:23. 957, 979, 1004 ~ 1020, 1048, 1067, 1118.

866 FEDERAL TRADE COMMISSION DECISIONS, Initial Decision 73 F.

The Conllnission s reasoningln the 111attei' of National p(l1'ts 1Va1' hO1.tse et al. Docket No. 8039 (63 F. C. 169:2, 17:28), seems appropriate here. In that. case the Commission said: Those who receive price con~essions of this magnitude can use the money they pocket in a 110st of ,rays, by the opening of "branch" stores, to gain competiti\e ad.antages that cannot fail to make them, in the end, .ictors over their nonfa.ored competitors. The amended Clayton Act, unlike the Sherman Act, looks not merely to results that have already come to pass, but also to those that can be reasonably anticipated in the future, "The statute is designed to reach such discriminations ;in their incipiency.' before the harm to competition is effected. It is enough that they 'may ' have the prescribed effect." Corn Prod1wts Refining Co. v. Fed,eml Trade Connnlssion, supra 324 U. S. at 738. See also Federal Trade Colllllli8sio/l v. JJorton Salt Co. 334 D.S. 37, 46 (1948) ; Forster Mfg. Co.. Ii/c. Dkt. 7207, Opinion of the Commission, 21-22 (January 3. 1963) (62 F. C. 888, 904). We do not see how a price advantage of 11.430/0 in an indu~try "here net profit margins rarely e:s::eeec1 3 percent, could fail to injure competition over a sufficient period of time.

Ark-La-Tex performs several of the flUlctions of an autOlllotive warehouse distributor. It warehouses a portion of the products purchased by its members; this portion grew from nothing up to about 52 percent of the total volume of purchases. It also billed its members and collected from them.

The principal function of a warehouse. distributor, for which suppliers usually pay about 20 percent, is the selling function, and this is a function which Ark-La-Tex did not perform. The sellers sold their product lines to the members of Ark-La-Tex at regular meetings, and the warehouse distributor discounts and quantity discounts were granted in antieipation of large sales. (Tr. 149, 1041, 1056, 1063, 1078 1089, 1104, 122. , 1845, 1936, 1937, 1943, 1970, 2041, 2042, 2064; CXs 605, 606.

One important function of a warehouse distributor was to keep up to date the catalogs used by the jobbers by making necessary changes in the products as well as in the prices. This function was not performed by Ark-La-Tex for its members.

Another function normally performed by a warehouse distributor was the delivery of goods from the warehouse to the jobber-customer place of business. This function was not performed by Ark-La-Tex. The importance of the functions performed by a warehouse distributor was shown by thefaet that it normally spends approximately 17 percent of its 20 percent discount in selling and servicing its jobber aecounts. The cost of operating Ark-La-Tex was about 8 percent.; the rema.ining profit was pa.id to the members in the form of a rebate based on their volume of pureha.ses. The effect of this was for the. nlembers to ARK-LA~TBX WAREHOUSE DISTRIBUTORS) INC. , ET AL. 867 846 Initial Decision receive an extra 11 or 12 percent discount from the suppliers which their jobber.competitors did not receive. (CXs 36-143, 144-50, 603, 608; Tr. 1042, 1064, 1090, 1825, 1964, 2054- , 2075. ) This extra disc.count, added to their normal profit, enabled the members to net profit of 14 to 15 percent on their purchases through Ark-La-Tex, as c.mnpared to the net profit of 2 to 4 percent earned by their independent jobber-competitors. The result of the members purchasing through lrk-La-Tex \yt1.S that they were able to produce a net profit several times greater than that of their direct-buying jobber-competitors who purchased the same lines during the same period of time. (Tr. 6-7, 644 701, 753, 807, 819, 859- , 892- : 922, 956-57 979, 1388- , 1447- 1506- , 1548- , 1600- , 1660-62.

Respondents ha ,-e contended that since warehouse distributors own or have a major financial interest. in jobbers, and sell through such jobbers, p:oocls bought at warehouse distributor prices, to dealers at jobber selling prices (which apparently occurs in the trade areas of some of the respondent jobbers), the law should permit jobbers to own a warehouse distributorship lilm Ark-La-Tex and purchase the goods which thej' resell to dealers at wftrehouse distributor prices. The fault with this argument is that under normal circumstances, warehouse distributors cannot lawfully buy at wareJlOuse distributor prices the goods which they resell in competition with jobbers. (See The She)' n+n lVillia.m.s Co., et al. 36 F. C. 25. Evidence received since the remand sho,,'s that the jobbers who were members of Ark- La- Tex became members or customers of a new organization which was incorporated under the name of Alto ,Yarehouse Inc. (Tr. 1807. ) This organization acquired all of the asset~ of Ark-Lfl- Tcx for the. sum of $156 000, which sum was pledged by notes of Alto ,Yarehonse, Inc., to each of the stockholders of Ark-La-Tex in the sum of 500, bearing interest from September 1, 1961. ,Yhile there may ha,ve been some changes, the lnembers of Ark-La- Tex became customers or members of the new organization which apparently has been engaged in business as a buying organization for its members or customers and has operated in a mflnner similar to the manner in which Ark-La-Tex had been operated. The former manager and president of Ark-La-Tex became president of the new organization. (CX 1493. The questions on which the Commission requested specific findings are included generally in the foregoing in some detail, but additional findings are also made at this point.

1. Respondents' suppliers discriminated between respondents and other customers in the sale of goods of like grade and quality, and , . .

868 FEDERAL TRADE cO::.nnSSION DECISIONS Initial Decision 73 F.

such sales ,were sufficiently contemporaneous to be comp::tre.c1 lor purposes of determining whether the cliscTiminntions and proscribed effects on competition existed. The. total purchases in selected cities "ere. prepared by certain suppliers on an allium I basis, but all the evidence points to the, conclusion that jobbers maintained represelltative stocks to keep their dealer-customers adequately supplied ,,-ith parts needed for popular makes of automobiles and trucks. (CXs 202~ 231 , 256, 276- , 285, 291.

2. Respondents and nonfavored jobber-customers or their suppliers competed in the sale of the, products "which ""ere the subject of the alleged price discriminations. (Tr. 129 70-1, 820, 1503 , 15-:1:8; CXs 202 231 256 276- 285 291. ) 3. The direct-buying, independent competitors or the members or Ark-La-Tex were not able to purchase the same products at the prererential prices charged the lllembers: either from Ark-La- Tex as a lllember of it or rrom a similar group or as member or a similar group. This is not to say, however, that it would have been impossible for these, independent competitors to rorm a similar group or groups to buy directly from manufacturers at warehouse distributor prices or to join one of the, buying groups alreacl::- in existence. Some of these independents could have j oinecl or formed such ;1 group if they had chosen to do so, although it is doubtful that enough groups could have secured sources of supply to accommodate all of the, independents. They were not able to pnrc.hase from Ark-La- Tex, because Ark-La- Tex acted only as an agent for its members in the. purchase of merc.handise and did not sell to others at any pric.e. They could not ha.ve joined Ark-La-Tex, because Ark-La-Tex was selective about whom it admitted to l11el11bership~ and its membership committee. was composed of those located near the. applicant. The original bylaws limited the membership in Ark-La-Tex to 20 111e,mbers, but there "as an amendment to the. bvla"s all Februarv 10, 1~\3;). abolishillQ,' this limitation, andin 1960 there were about 27 members. (CXs 5 602.c..-During the period 1955 through 1959, only a few jobbers were a,dmittecl to membership in Ark-La-Tex. (Tr. 1802; ex There is no evidence from which it can be concJnc1ed that at least some of these independent jobbers could not have joined or formed a bu:-ing group "which Ironlc1 have enabled them to purchase the same products at prices charged the respondents. There is testimony that. some jobbers \'i-ere not oftered an opportunity to join a buying"gl'ollp organization. (Tr. 1403- 1458, 1515 , 1608 , 1664.

, . . ARK-LA-TEX WAREHOUSE DISTRIBUTORS , INC. , ET AL. 869 846 Initial Decision 4. Ark-La-Tex was not a legitimate wholesale distributor entitled as such, to a wholesale distributor discount, as the term is ordinarily used, because, as hereinabove found, it did not perform the usual function of selling. It was merely a sham and the alter ego or its jobbermembers, who should be viewed as the actual purchasers or the products involved for purposes of Section 2 (f) of the Robinson-Patman Act. (CXs 6-29. ) It is clear from the articles of incorporation and byla'ivs of the organization that the sole reason for the existence of Ark- La- Tex was to induce lower prices for its members and it is clear from the entire record that it operated solely for tills purpose. (CXs 5. As hereinabove found respondents knew or should have known that the quantity and warehouse distributor discounts" induced and received by them could not be cost justified. (Tr. 87 1810- 2074-77; CXs 13-143.

CONCLUSIONS 1. The manufacturer-suppliers of members of Ark-La-Tex discriminated in price in the sale of goods of like grade and quality, in interstate commerce, by selling said goods to the members of Alk- La-Tex through Ark-La- Tex, at lower prices than the prices charged directbuying, competing jobbers, during the same period of time. 2. The effect of the receipt by the nlembers of Ark-La-Tex of discriminatory prices was or may have been substantially to lessen, injure, destroy, or prevent competition between the members of Ark- La-Tex and competing, nonfa\-ored jobbers in trade areas served by respondents. The evidence does not support the allegation that competition between suppliers was or may have been substantially affected. 3. The members of respondent Ark-La- Tex purchasing through Ark-La-Tex, knew or should have known that the quantity discounts and \yarehouse distributor discounts induced and received by them "ere not differentials ,,'which made only due allowance for c1ifferenres in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities were sold or delivered to them.

4. The acts and practices of respondent members of respondent AI'1\:- La- Tex in kno\'\ingly inducing or receiving discriminations in price prohibited by subsection (a) of Section 2 of the Clayton Act, as amended bv the Robinson-Patman Act. \\"ere in violation of subsection (f) of Section 2 of said Act, as amended.

5. Ark-La-Tex ,Yarehouse Distributors, Inc. , a corporation, was dissolved under the provisioi1s of the laws of Texas, and a Certific.ate \\\ Initial Decision 73 F.

of Dissolution was issuec1l\fay 1, 1963, by the Secretary of the State of Texas.

ORDER It -is ordered That respondents ~-\lltomotiYe Appliance Company, Inc., a corporation; Auto Parts & Equipment Co., Inc., a corporation; Ferguson Auto Supply Co. Inc.., a corporation; IIaro1cl, Inc., a corpolution; Ada :Motor Sales~ Inc., a corporation; Standard Parts Co., of I-Ionston, Inc., a corporation; Tri-State Automoti\"e Co., Inc., a corporation; ,Vest-brook Supply, Inc., a corporation; Rezi ,T. Cogdell, Louie 'V. Barnett, and Eleanor R.. Bradshaw, copartners doing business un. del' the firm name and style of Cogdell Auto Supply Co. (Fort ,Yorth) ; Leo 1-1. Bradshaw, Sr., and Eleanor R. Bradslul \Y, copartners doing business under the firm name and style of Cogdell Auto Supply Co. (,Yaco) ; J 01)11 A.. Scarborough and R. Leon Hodges, copartners doing business under the firm name and style of Grand Auto Parts; Gene l\Iahanay and F. ,V. l\Iahanay, copartners doing business under the 111'111 name ancl style of :l\Iahanay Brothers ~ uto Parts; H. R. ,Vilson Patrick Ferchill, and Jack ,V. Dul'l'ett, Sr., copartners doing business 11miler the firm name and style of l\rt. Pleasant Service Parts Company; IIenry C. Nichols and Percy E. Nichols, copartners doing business under' the fill11 name and style of NicllOls Brothers; ,Yallace 1\1. Fontained and Patrick Fel'chi1J , copartners doing business under the firm name and style of Reliable l\Iotor Supply Company (Gladewater); Patrick Fel'chill, Yic Ferchill, and ,Joe Ferchill, copartners doing business under the firm name and style of Reliable l\Iotor Supply Company (Longview); Sam Bonham and Cha-rules Strickland, copartners doing business under the firm name and style of Sulphur Springs Parts Company: ,Villiam Aubrey Byrd, doing business under the firm name and style, of Byrd Sen-ice Parts, a sole proprietorship: ,Vilfred L. Smith, doing business under the firm name a,nd stvle of The :Motor Supply: fl, sole. proprietorship; ,V. E. Sells, doing business under the. L...111'111 n11111e and style of Sells .:\..uto Supply, a sole proprietorship: .T ames E. ,Ya lker, doing business under' the firm name and sty Ie of alker Auto Parts, a sole proprietorship; Dee ,Yhite, doing business under the firm name and style of ,Vhite Auto Supply Company, a sole proprietorship; Hnclrespondents' agents, representati," , and employees, directly or through nn)" corporate or other device, in connection ith the ofiering to pnrcbase 01' purchase of any automoti'~e products ARK-LA-TEX .WAREHOUSE DISTRIBUTORS ) INC. , ET AL. 871 846 Order 01' supplies in c.commerce, as "commerce" is defined in the Clayton Act RS amended, do forthwith cease and desist from: (1) I\::nowingly inducing or knowingly receiving or acc.epting, nny discrimination in the price of such products and supplies, by directly or indirectly inducing, receiving, or accepting from any seller a net price \which respondents know 01' should know is helmV' the net price at which said products and supplies of like grade and quality are being ' sold by such seller to other customers \yho compete with respondents.

(:2) ~Iaintaining, operating, or utilizing any organization as a n1cans or instrumentality to induce or receive discounts or rebates \\"which result in a net price respondents know or should know is below the net price at \which said products of like grade and quality:.y are being sold by such seller to other customers who compete \with respondents in the resale and distribution of such products.

For the purpose of determining "net, price under the te-rms of this 'Order, there shall be taken into account discounts, rebates, allowances deductions or other terms and conditions of sale by which net prices are effected.

I t is flldhe'l' Oi'dercd That the complaint be: and it hereby is, dismissed as to Ark - La- Tex ,Yarehouse Distributors, Inc., a corporation ,which has been dissolved.

ORDER TERl\IIN A TING PROCEEDING Because of the pendency of related proceedings, the disposition of this case-in which the amended com~plaint ,vas issued on ~larch 8 ID60-\yas held in suspense by the Commission. It no,y appears that the principal respondent, Ark-La- Tex ,Varehouse Distributors, Inc. has been dissolved; that. many of the individual respondents are deceased or no longer in business; and that the acts and practices challenged in the complaint have been discontinued with no likelihood of resumption. In these circumstances, no useful purpose would be served by continuation of the proc.eeding. Aecordingly, It is on! el' That. this proceeding be, and it hereby is, terminated. Commissioner :MacIntyre not participating.

872 .FEDERAL TRADE CO1\I:MISSION DECISIONS Complaint 73 F.