187 F.

2d 768

SUNBEAM CORP.
v.
CIVIL SERVICE EMPLOYEES' COOPERATIVE ASS'N.
No. 10344.

United States Court of Appeals Third Circuit.

Argued January 18, 1951.
Filed March 20, 1951.
Rehearing Denied April 12, 1951.

Delbert T. Kirk, Philadelphia, Pa., for appellant.

C. Russell Phillips, Philadelphia, Pa., Herman T. Van Mell, Chicago, Ill.
(Montgomery, McCracken, Walker & Rhoads, Philadelphia, Pa., on the
brief), for appellee.
Before GOODRICH, KALODNER and STALEY, Circuit Judges.
GOODRICH, Circuit Judge.

This case brings before us for the second time this term1 the application of the
provisions of the Pennsylvania Fair Trade Act.2 The litigation is here on
diversity grounds and we are called upon to apply Pennsylvania law. No federal
question is involved.

There are two questions. The first is whether the Act applies to transactions of
the type which will be described in a moment between a cooperative
association and its customers. The second question concerns what remedy the
plaintiff may have if the Act applies. The learned District Court held that the
Act applied to the transactions here involved. He also ordered an accounting of
profits to the plaintiff derived from goods disposed of by the defendant under
plaintiff's trademark below prices established by plaintiff pursuant to the Fair
Trade Act.

The defendant cooperative association maintains a place of business in

Philadelphia which it calls "Exhibitor's House." There it displays miscellaneous

wares for sale, among which, at least prior to this litigation, were several of the
plaintiff's products. Purchasers obtained these products at less than the price
established by fair trade agreements. The defendant never signed a fair trade
contract with the plaintiff, but it knew of the establishment of the price to be
maintained and there is no dispute that the statute applies to it if it is concluded
that defendant's manner of doing business is subject to the fair trade law.3
4

When a customer secures an article from Exhibitor's House, either one of those
on display or one ordered for him, he gets it at less than the prevailing retail
price and, in the case of the plaintiff's goods, less than the established fair trade
price. The customer gets the benefit of this price reduction at the time he gets
the goods. The amount of reduction is dependent upon the usual mark-up
between cost to a retailer and selling price to the consumer. The larger this
margin the greater the discount for the customer. This particular cooperative
thus gives its customers the benefit of lower prices at the time the customer
secures the goods rather than by a distribution of earnings periodically.

There is another combination of facts which we should mention, though we do

not think it is significant in the case. That combination has to do with the
minimal membership qualifications and the extent to which defendant restricts
itself to dealing with members. The association itself is incorporated as a "nonprofit cooperative association" under the laws of the District of Columbia.4 It
has active members who pay $1.00 a year dues. To be an active member one
must be a present or former employee of the federal, state or local government
or of any branch of the military service or national guard. Affiliate members are
members of any association organized on a cooperative basis which has
become affiliated with defendant. Active members may vote; affiliate members
may not. There is evidence in the record, too, that the sales force at Exhibitor's
House is not fussy in requiring a customer to show whether he is either an
active or affiliate member, or neither.5

We do not think that the organization of this particular cooperative is the

significant point in the case. If the statute is applicable to dealings by a
cooperative with its customer we think it is equally applicable to a tightly
formed cooperative society which requires the showing of a membership card
each time a transaction is carried on. In our view, the case for the application of
the statute to the defendant society is no better and no worse because it is easy
to do business with whether a customer is a member or not. It is a cooperative
society run for the benefit of those who do business with it and not for the
purpose of making profit for the organizers.6

Now we proceed to the principal question. Does the statute apply? Section 8 of

the Pennsylvania statute provides:

" 8. Unfair competition, defined

"Wilfully and knowingly advertising, offering for sale, or selling any

commodity at less than the price stipulated in any contract entered into pursuant
to the provisions of section one of this act, whether the person so advertising,
offering for sale, or selling is, or is not, a party to such contract, is unfair
competition and is actionable at the suit of such vendor, buyer or purchaser of
such commodity."

10

It will be noted there is no exception for cooperatives in the quoted section.

Nor is there anywhere else in the statute. There are provisions for excepting
certain sales such as closeout sales, fire sales and execution sales7 and there is a
specific exemption for the sale of books to libraries.8

11

How can one find an exception, then for a cooperative? The suggestion is made
that since some of the goods are on consignment the transaction is not a sale by
the cooperative to its customer. That suggestion is trifling and we dismiss it as
such. We cannot see how it can possibly be said that the way in which this
cooperative does business is anything but a sale by the society to its customer
and since the type of transaction is not exempted from the operation of the
statute we think it clearly falls within it. The suggestion that the cooperative is
merely a purchasing agent, not a seller, seems to us to take us far from realities.
Nor do we think piercing the corporate veil so as to disclose a purchase by the
member for himself gets us closer to the substance of the thing.

12

But this is a question of Pennsylvania law and we must, of course, look to

Pennsylvania authorities. There is no case in point by either of the Pennsylvania
appellate courts.9 There is, however, a decision of a Common Pleas Court of
Philadelphia County.10 It is Welch Grape Juice Co. v. Frankford Grocery Co.,
1939, 36 Pa.Dist. & Co. 653. In that case defendant was a cooperative
association of retail grocers. The court said that the defendant association was
merely a purchasing agent for the group of retail grocers who had banded
together to eliminate wholesalers' profits and get the advantage of quantity
buying.

13

No doubt we could find a form of words which would make it look as if that
case involved different legal points from the one before us. But we have not
found a form of words that looks plausible, even to ourselves. We think the
Common Pleas decision, made early in the history of this Act in Pennsylvania,

treated the statute as "inderogation of the common law" and gave it a

construction with which, with due deference, we cannot agree even by the
narrowest construction.11
14

Are we bound by it anyhow? We think not. We are fully conscious, of course,

that a nisi prius court which ranks with an intermediate appellate court of a state
must be followed by a federal court, in the absence of higher state authority.12
But a Common Pleas Court of Pennsylvania has no such position in its judicial
hierarchy.13 The Supreme Court's last word on the subject of the federal court
duty to follow state decisions is King v. Order of United Commercial Travelers
of America, 1948, 333 U.S. 153, 68 S.Ct. 488, 92 L.Ed. 608. There it was held
that the decision of a nisi prius court in South Carolina was not conclusive
authority on a federal court on a matter of state law. The opinion noted that in
South Carolina trial court decisions are not regularly printed and circulated and
so are not generally available. That is not true in Pennsylvania. We cannot
claim lack of knowledge, or means of knowledge, of the actions of the
Common Pleas courts. So that particular point in the Supreme Court opinion is
not available to us.

15

It frequently happens that although there is no appellate case on a point there is

a sufficient body of nisi prius opinion to form a consensus of legal thought on a
given subject. In that case we should, of course, join in the consensus. But a
single Common Pleas decision can be disregarded by another Common Pleas
court of the Commonwealth. We do not think the federal court must be bound
by that which does not bind even another Common Pleas court in Philadelphia
County.14 Therefore, with due respect and high regard for Common Pleas No.
5, we differ with the result reached in the Welch case. 15

16

We have been greatly helped in the consideration of this matter by the scholarly
discussion by Professor Bunn in a paper called "Consumers' Co-operatives and
Price Fixing Laws," 40 Mich. L.Rev. 165 (1941). He puts the problem:16 "The
question then recurs: What is the position of a consumers' co-operative under
this legislation, or of any co-operative under the state fair trade acts outside
Michigan?17 That will depend on what a patronage dividend is. If it is a pricereduction (whether called rebate, refund, or by whatever name) it seems to be
forbidden, for minimum prices are the chief objective of these laws. But
perhaps it is something quite different, namely a distribution of the earnings of
a business among the persons entitled to receive them. That makes a different
story."

17

The distinction made is between price reduction at the time of sale and a
distribution of profits at the end of a given period to the members of a

cooperative. The former, Professor Bunn thinks, comes within the fair trade
statutes; the latter does not.
18

We do not have before us the question whether a year-end distribution of

profits to members can constitute a violation of Fair Trade Acts. We do have
the question of whether a discount at the time of sale is a violation.18 We
conclude that it is and that the learned District Judge was correct in so holding.

19

This brings us to the question of what the remedy shall be, if any, in addition to
the injunction. Plaintiff wants an accounting which will include the sale of all
Sunbeam appliances which defendant has sold below the established fair trade
price. Plaintiff calls our attention to the rule that in unfair trade cases and in
patent infringement cases such accounting generally follows as a matter of
course. This is a perfectly familiar rule as everyone dealing with patent
infringement and unfair competition cases knows.19

20

We think these authorities are not applicable here. In a patent infringement case
the infringer has profited himself by use of another's property right in a patent.
Making him account for what he has made thereby comes as close as we can to
making the plaintiff whole for the harm done him. In the typical unfair
competition case the defendant has deprived the plaintiff of business rightfully
his by passing off his goods as those of the plaintiff or intimidating or
deceiving the plaintiff's possible customers. An accounting here, likewise
comes as close as we can to putting the plaintiff where he would have been had
he not been hurt by the defendant's tort.

21

The case before us is completely different. While it was once suggested that
"predatory" price-cutting could be considered unfair competition20 the argument
made there has no application here. The plaintiff's products have been sold by
the defendant it is true, but there is no suggestion that plaintiff has not been
paid for his wares as much as he was entitled to be paid. If anyone has lost
anything by virtue of price reduction sales by defendant it is other retailers who
might have sold the goods to the purchasers at the regular price and made a
profit. 21 These other retailers are not parties to this lawsuit and who they are
and how good their chances were for making these sales at the regular price are
questions which even a crystal-gazer could not answer.

22

It is to be noted that Section 8 of the statute, which has been quoted earlier,
calls the sale or offering for sale at less than the fair trade price "unfair
competition." It is an easy step to say that because it is called unfair
competition in the statute we apply the well established rule, already discussed

in unfair competition cases. But we are entitled to ask, "Unfair competition with
whom and to whose injury?" Certainly because an epithet has been thrown at a
sale below a fixed price we do not automatically give the measure of relief
which has been worked out in a long series of cases in instances where a
plaintiff has actually suffered demonstrated harm.22
23

The plaintiff has a powerful weapon in the injunctive process to stop this
cooperative society from selling goods to its customers cheaper than other
retailers do. Any claim it may have for pecuniary loss must be supported by a
showing that such loss occurred. There is no such showing.

24

The difficulty of finding any loss to a complaining manufacturer in this type of

case has been met in some of the fair trade statutes by a provision for a fine to
be assessed against the offending seller.23 The imposition of this criminal
sanction is a matter for legislative consideration. The Pennsylvania statute does
not provide for it and we see no occasion to read in a comparable penalty by
judicial fiat.

25

The judgment of the District Court will be affirmed so far as concerns the
provision granting the injunction. It will be reversed as to the order for
accounting.

Notes:
1

The first was Sunbeam Corp. v. Wentling, 3 Cir., 1950, 185 F.2d 903

Act of June 5, 1935, P.L. 266, 1-5 as amended, 73 Purdon's Pa.Stats.Ann.

7-10

73 Purdon's Pa.Stats.Ann. 8

54 Stat. 480, June 19, 1940, 29 D.C. Code, 1940, 801-847

Defendant's articles of incorporation and by-laws contain no restriction on

dealing with non-members, and the Act under which it was incorporated does
not forbid it

See Packel, The Law of Cooperatives 1-36 (2d ed. 1947). There is no
contention that the association is being operated other than in accordance with
the District of Columbia Cooperative Association Act, supra Note 4. Its officers
and directors receive no compensation as such

7
8

73 Purdon's Pa.Stats.Ann. 7
73 Purdon's Pa.Stats.Ann. 9 and 10

Shryock v. Association of United Fraternal Buyers, 1939, 135 Pa.Super. 428,

45 A.2d 581 involved the application of the Fair Trade Act to a consumer's
cooperative, but was decided on the basis of lack of evidence of knowledge of
the plaintiff's fair trade contracts with others

10

We set aside, because a wholly different type of question is involved, the cases
holding that a cooperative association was not a "dealer" within the meaning of
the mercantile license tax statute. See, e.g., Commonwealth of Pennsylvania v.
Wyoming Valley Dist. Co. Inc., Pa.C.P. 1944, 37 Luz.Leg.Reg.Rep. 228;
Lehigh Wholesale Grocery Co.'s Appeal, Pa.C.P. 1942, 20 Leh.L.J. 210. But cf.
Appeal of Beaver County Co-op. Ass'n, 1935, 118 Pa.Super.305, 180 A.98
Likewise not in point is Mennen Co. v. F T C, 2 Cir., 1923, 288 F. 774, 30
A.L.R. 1120, certiorari denied, 1923, 262 U.S. 759, 43 S.Ct. 705, 67 L.Ed.
1219.

11

The Pennsylvania Statutory Construction Act, passed in 1937, says that statutes
in derogation of the common law are to be strictly construed only if enacted
prior to 1937. 46 Purdon's Pa.Stats.Ann. 558. The Fair Trade Act was enacted
in 1935, but has been amended since 1937, one amendment exempting certain
sales. An interesting philosophical query is whether, for purposes of
construction of the amended section, it is to be considered as enacted since
1937. The answer is not necessary to our decision since in our opinion
defendant's activities come within the Act even construed strictly

12

Fidelity Union Trust Co. v. Field, 1940, 311 U.S. 169, 61 S.Ct. 176, 85 L.Ed.
109

13

The Common Pleas courts of Pennsylvania have only county-wide jurisdiction

in most cases, not state-wide as did the Court in the Fidelity case. See 17
Purdon's Pa.Stats.Ann. 251; Pa.R.C.P. 1006, 1042, 12 Purdon's Pa.Stats.Ann.
Appendix

14

In the King case the Court stated, 333 U.S. at page 161, 68 S.Ct. at page 493,
92 L.Ed. 608, "it would be incongruous indeed to hold the federal court bound
by a decision which would not be binding on any state court."

15

The Ninth Circuit has recently stated that a federal court is not bound by
decisions of state trial courts unless "a goodly number of the trial courts of the
state generally and for a considerable period of time have adhered to a common

interpretation of the point." State of California v. Fred. S. Renauld & Co., 9

Cir., 1950, 179 F.2d 605, 609
16

Bunn, supra at 172

17

The Michigan Fair Trade Act expressly provides that the payment of patronage
dividends by farmers' cooperatives shall not be construed as a violation of the
Act. Mich.Comp.Laws, 1948, 445.153. The section of the Wisconsin Act
exempting all sales by cooperatives was held unconstitutional in Weco
Products Co. v. Reed Drug Co., 1937, 225 Wis. 474, 274 N.W. 426

18

For a comparable situation under the NRA, see Bunn, Consumers' Cooperatives and Price Fixing Laws, 40 Mich.L. Rev. 165, 170, 173 (1941).
Compare the OPA order discussed in Lehigh Valley Cooperative Farmers v.
Bowles, Em.App. 1945, 148 F.2d 828

19

2 Nims, The Law of Unfair Competition and Trademarks 1324 et seq. (4th ed.
1947); Restatement, Restitution 136 (1937)

20

Rogers, E.S., Predatory Price Cutting as Unfair Trade, 27 Harv.L.Rev. 139

(1913)

21

Even in trademark infringement and traditional unfair competition cases the

right to an accounting of profits is hedged about with many restrictions, and is
often denied when inappropriate. See Nims, supra Note 19, especially at 13781379. At page 1379 the author points out that one of the times when it is denied
is when others than plaintiff have a right to receive the profits

22

The Unfair Sales Act, 73 Purdon's Pa. Stats.Ann. 213, declares it "an unfair
method of competition" to sell below cost with intent to injure a competitor.
The Act provides for criminal sanctions and injunctive relief. Could it be
argued that an accounting of profits will also be given merely because a
violation of the Act is labeled "unfair competition?"

23

G.L.(Ter.Ed.) c. 93, 14B, as added by St.1937, c. 398, as amended by

St.1939, c. 313, 3 Mass.Ann.Laws 1946, c. 93, 14B; Wyoming Comp.Stats.
1945, 39-309