Lycon Inc v. EVI Oil Tools Inc

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 00-30595

LYCON INC,

Plaintiff-Appellant,

VERSUS

MICHAEL S. JUENKE, individually and
as corporate officer of EVI Oil Tools Inc; EVI OIL TOOLS INC,

Defendants-Appellees.

Appeal from the United States District Court
For the Western District of Louisiana
April 27, 2001
Before STEWART and PARKER, Circuit Judges, and GOLDBERG, Judge.*
ROBERT M. PARKER, Circuit Judge:

Plaintiff Lycon, Inc. appeals the summary judgment entered in

favor of Defendants EVI Oil Tools, Inc. and Michael S. Juenke

(collectively “EVI”) in this price discrimination action. Finding

no error, we affirm.

FACTS AND PROCEDURAL HISTORY

*
Judge of the United States Court of International Trade, sitting
by designation.

1
 Lycon sued EVI, alleging that EVI had violated federal

antitrust laws by engaging in price discrimination in violation of

15 U.S.C. § 13, as well as asserting claims under Louisiana law for

price discrimination, unfair trade practices, unfair sales, trade

secrets violations, tortious interference, and breach of implied

contract. EVI moved for summary judgment.

Viewing the summary judgment evidence in the light most

favorable to Lycon, the non-movant, the record reveals the

following facts. In April 1996, EVI purchased the assets of

Production Specialties, Inc. (“PSI”) of Lafayette, Louisiana, which

manufactured gas lift equipment for use in oil production. EVI’s

purchase of PSI was its initial entry into the gas lift equipment

market. From July 1, 1994 until the acquisition of PSI by EVI, Ron

Massicot and R. Greg Maxwell worked as commissioned salesmen for

PSI in Southwest Louisiana. Shortly after the purchase of PSI,

Massicot and Maxwell met with EVI representatives who explained

that EVI intended to sell its gas lift equipment to end users

through independent wholesale distributors. EVI offered Massicot

and Maxwell the opportunity to operate as such distributors to the

retail market. Massicot and Maxwell accepted the offer. They

reactivated Lycon, a dormant corporation owned by Massicot, hired

former PSI employees, opened an office, secured warehouse

facilities, obtained the necessary insurance and began selling EVI

gas lift equipment to retail clients such as oil production and

operating companies.

2
 In October 1997, EVI began making direct sales to retail

customers. In the Spring of 1998, EVI merged with Weatherford

Enterra, Inc., another corporation with subsidiaries in the gas

lift equipment manufacturing business, becoming one of two

remaining manufacturers of gas lift mandrels in the world.

Effective April 1998, EVI amended its wholesale price list, raising

wholesale prices of gas lift equipment and reducing retail prices,

resulting in retail prices substantially lower than wholesale

prices. Wholesale prices were raised again in October 1999. At

this point, wholesale distributors, including Lycon, were paying

more for EVI’s gas lift equipment than end users who bought the

equipment directly from EVI.

The district court granted summary judgment for EVI, reasoning

that “Lycon cannot prove that EVI’s alleged price discrimination

had a prohibited effect on competition . . . .” Having disposed of

the only claim that provided a basis for federal question

jurisdiction, the district court dismissed Lycon’s remaining state

law claims without prejudice pursuant to 28 U.S.C. § 1367(3).

DISCUSSION

A. Standard of Review

Summary judgment is reviewed de novo, applying the same

standard on appeal that is applied by the district court. See,

e.g., Reliance Nat’l Ins. Co. v. Estate of Tomlinson, 171 F.3d

1033, 1035 (5th Cir. 1999). Under Federal Rule of Civil Procedure

3
56(c), summary judgment is appropriate when there is no genuine

issue as to any material fact and the moving party is entitled to

judgment as a matter of law. See Celotex Corp. v. Catrett, 477

U.S. 317, 322-23 (1986).

B. Prohibited Effect on Competition

Lycon contends that the district court erred in holding that

it could not prove that the difference between EVI’s wholesale and

retail pricing of gas lift equipment had a prohibited effect on

competition, either directly or indirectly. This claim requires

interpretation of section 2(a) of the Clayton Act, as amended in

1936 by the Robinson-Patman Act, 15 U.S.C. § 13(a), which provides:

It shall be unlawful for any person engaged in commerce,
in the course of such commerce, either directly or
indirectly, to discriminate in price between different
purchasers of commodities of like grade and quality,
where either or any of the purchases involved in such
discrimination are in commerce, where such commodities
are sold for use, consumption, or resale within the
United States . . . and where the effect of such
discrimination may be substantially to lessen competition
or tend to create a monopoly in any line of commerce, or
to injure, destroy, or prevent competition with any
person who either grants or knowingly receives the
benefit of such discrimination, or with customers of
either of them...

According to the Supreme Court, establishing a violation of §

13(a), requires Lycon to prove four facts: (1) sales made in

interstate commerce; (2) the commodities sold to Lycon were of the

same grade and quality as those sold to other purchasers; (3) that

EVI discriminated in price between Lycon and other purchasers; and

(4) that the discrimination had a prohibited effect on competition.

4
Texaco, Inc. v. Hasbrouck, 496 U.S. 543, 556 (1990). The parties

do not dispute that Lycon submitted evidence sufficient to survive

summary judgment on the first three factors. The fourth factor –

whether the discrimination had the prohibited effect on competition

– is the focus of the district court’s summary judgment analysis

and of this appeal.

The district court reasoned that the price discriminations

between end users and wholesale distributors, including Lycon,

favored only retail purchasers that were not in competition with

Lycon and that such price discrimination was not actionable,

relying principally upon Eximco, Inc. v. Trane Co., 737 F.2d 505

(5th Cir. 1984).

In Eximco, a wholesale distributer (Eximco), which took title

to air conditioning and heating equipment from the manufacturer

(Trane), challenged as discriminatory the alleged “sale” by Trane

of similar products to Shepherd, an agent of Trane. Id. at 508-

509. In competition with Eximco, Shepherd arranged retail sales to

customers; Trane shipped the equipment and passed title directly to

the customer. Id. Relying on Security Tire & Rubber Co. v. Gates

Rubber Co., 598 F.2d 962 (5th Cir. 1979), which established the

rule that “transfers from a parent corporation to its wholly owned

subsidiary corporation can never be considered separate sales to a

favored customer in a Robinson-Patman Act discrimination suit,” id.

at 965, we found that Shepherd functioned as a subsidiary of Trane.

5
Eximco, 737 F.2d at 516. It follows, we held, that Trane and

Shepherd were acting as a “single unit,” and thus, no predicate

“sale” was made between Trane and Shepherd. Id.

While acknowledging that Eximco is factually similar to the

present case, Lycon argues that the district court erred in

applying its ruling here because Lycon challenges the sale of gas

lift equipment from EVI directly to Lycon’s retail customers,

rather than a transfer between EVI and its own subsidiary. Lycon

is correct that Eximco did not challenge the sale by Trane to the

retail customer as discriminatory, and thus Eximco’s ruling is not

directly controlling.

Nevertheless, we are compelled to follow Eximco’s reasoning,

which explained that injury under § 13(a) “will be one of two basic

types: primary line or secondary line.” Eximco, 737 F.2d at 515.

Primary-line injury, which occurs at the level of direct

competition, customarily results when a seller uses predatory

pricing policies to enhance his market position over competitors,

while secondary line injury customarily results when a large

purchaser uses its vast purchasing power to obtain low prices from

the manufacturers or distributors whose products it stocks, thereby

enabling it to undersell competitors. Id.

Lycon argues that EVI’s price structure caused injury to Lycon

in a “dual-role context” as a purchaser from EVI and as a

competitor against EVI in the retail market. Because Lycon is both

6
EVI’s competitor and customer, it suffered both primary and

secondary line injuries. Lycon also argues, somewhat

inconsistently, that the primary/secondary dichotomy is a useless

abstraction in this situation.

Because the record discloses no injury to Lycon that § 13(a)

contemplated protecting against, we will affirm the district court.

Lycon does not compete with EVI in manufacturing gas lift equipment

and Eximco forecloses any cause of action based on EVI’s transfers

to its wholly owned retail outlet. Id. at 516 (holding that a

transfer of inventory from a manufacturer to a wholly owned

subsidiary corporation was not a “purchase” for purposes of §

13(a)).

2. Continued vitality of Eximco

Lycon next contends that, even if Eximco forecloses its cause

of action, the Supreme Court’s 1990 analysis in Hasbrouck

undermines or limits the Fifth Circuit interpretation of § 13(a)

set out in Eximco. In Hasbrouck, independent Texaco retailers, who

bought gasoline directly from Texaco, sued Texaco claiming that the

sale of gasoline at lower prices to wholesale distributors, who in

turn sold to retailers who competed with the plaintiffs,

constituted price discrimination in violation of the Robinson-

Patman Act. Hasbrouck, 496 U.S. at 547. The Supreme Court held

that the substantial lessening of competition between the favored

wholesale distributors’ customers (retailers in direct competition

7
with the independent Texaco retailers) and the independent Texaco

retailers constituted a violation of § 13(a)(§ 2(a) of the

Robinson-Patman Act). Id. at 571. The Supreme Court focused on

whether the price discrimination caused injury to competition

regardless of whether the favored purchaser was a direct competitor

at the same functional level as the disadvantaged purchaser. Id.

Insofar as Hasbrouck addresses competitive consequences at

different levels of distribution, it recognizes that anti-

competitive effects can occur based on price discrimination between

distributors and retailers who both buy from a single manufacturer.

Id. at 557-59. Hasbrouck does not discuss Eximco, nor does it call

Eximco’s holding or analysis into question. Rather, it examines

the effects on competition growing out of a differently arranged

market.

Similarly, Lycon’s reliance on Caribe BMW, Inc. v. Bayerische

Motoren Werke Aktiengesellschaft, 19 F.3d 745 (1st Cir. 1994), is

misplaced. As in Hasbrouck, the plaintiffs in Caribe BMW were

retailers who bought directly from the manufacturer. Id. at 748.

They challenged BMW’s practice of selling cars to a distributor at

a discounted price; in turn the distributor resold the cars to

other retailers who competed with the plaintiffs for sales to end

users and enjoyed a price advantage based upon the discount that

was passed along to them by the distributor. Id. at 748-49. Far

from supporting Lycon’s position, Caribe BMW serves to highlight

8
the distinction between Hasbrouck and the case at bar. Antitrust

concerns about competitive effects based on prices paid by buyers

who compete for resale at different levels are irrelevant here

because Lycon and the end users who buy directly from EVI do not

compete for resale at any level.

In sum, Lycon’s allegation of price discrimination between

itself and end user customers of EVI, who are not retailers and do

not resell the product, does not raise the specter of real or

potential injury to competition. Lycon has no § 13(a) cause of

action because it is not in competition with the allegedly

advantaged end users. See Security Tire & Rubber, 598 F.2d at 964

(holding that the Robinson-Patman Act targets anti-competitive

price discrimination among competing buyers). We therefore find no

merit in Lycon’s invocation of Hasbrouck and Caribe BMW.

CONCLUSION

Based on the foregoing, we conclude that the district court

did not err in granting summary judgment to EVI based on its

holding that, as a matter of law, Lycon could not prove that EVI’s

discriminatory pricing of gas lift equipment had a prohibited

effect on competition.

AFFIRMED.

9