UNITED STATES v. GENERAL MOTORS
Legal provision: Sherman
Argument of Daniel M. Friedman
Chief Justice Earl Warren: Number 46, United States, Appellant, versus General Motors Corporation et al.
Mr. Daniel M. Friedman: Mr. Chief Justice, and may it please the Court.
One of the most remarkable developments in retail merchandising since the end of World War II has been the development of the discount house.
Today, throughout the country, there exist a larger number of very good and large establishments which are devoted to selling consumer goods primarily as an -- with an emphasis on discount houses.
The tremendous variety of consumer goods almost every type of thing we can think of with one striking exception and that has been new automobiles.
What this case is about is the legality under Section 1 of the Sherman Act of certain actions taken by General Motors and its automobile dealers in order to stop the sale of new Chevrolet automobiles in the Los Angeles area through discount houses in that area.
The Government's complaint in this case filed in the Southern District of California named as the defendants General Motors and three, the associations of automobile dealers in the Los Angeles area.
The individual dealers in that area were named as co-conspirators but not as defendants.
The charge made by the Government was that they had combined and conspired to induce and persuade Chevrolet dealers in that area to refrain from selling Chevrolets through discount houses.
After a trial, the District Court held in favor of the defendant.
The court ruled there had not been any combination or conspiracy and that everything done by General Motors was a valid attempt to enforce a provision of its franchise agreement which I will come to in a moment.
Justice Byron R. White: Are you asking relief against the association or not?
Mr. Daniel M. Friedman: Yes, we are asking relief primarily against General Motors, Mr. Justice.
Justice Byron R. White: Well -- but you -- yes you are asking relief against the association?
Mr. Daniel M. Friedman: We are, yes Mr. Justice.
The -- there's true in so many of these antitrust cases, the basic facts are really not in dispute.
There's no question as to what the court has did.
The real issue is to what inferences ought to be gone from those facts and what can -- legal conclusions prior.
The way in which new --
Justice John M. Harlan: Are you requesting the findings of fact to the Court?
Mr. Daniel M. Friedman: We are Mr. Justice in few instances.
There are few facts which on one of our theories we would have to overturn and I will come to those a little later on.
We're not making a general attack on the funds.
We are of course challenging the legal conclusions of the District Court.
The way in which these new car discount sales took place is as follows, there were these large discount department stores in the Los Angeles area and within these discount department stores, independent people operated new car departments.
These departments generally occupied a small portion of the premises.
They had available new car literature.
They had in some instances new car models on display.
At no point at any time was there any ads in these sections for particular dealers.
There was no advertisement of Adams Chevrolet or Brown Ford.
That was not present.
The discount department handled all makes and models of automobiles, not just Chevrolet, not just General Motors.
Now, there were two different techniques by which these sales make.
In the first type of technique which might be called the discount house sale itself, the costumer came in and told what particular car he wanted and the discount house then quoted a price to him.
They did not at that point tell him to which dealer the car would be obtained.
They quoted a price when they finally ended into a contract, at that point for the first time the costumer said your car will be supplied for example by Brutus Chevrolet, one of the dealers operating through a discount house.
The car ordinarily was delivered to the costumer at the discount house.
The discount house made the car available -- I'm sorry, the discount house got the car from the dealer with whom it had this arrangement and in turn, turned it over to the costumer.
Justice Potter Stewart: Discount house never owned the car, did it?
Mr. Daniel M. Friedman: The discount house never owned the car.
Title passed directly from the dealer to the costumer.
Justice Potter Stewart: So the discount house was an agent, I suppose, of somebody?
Mr. Daniel M. Friedman: Well, I suppose so, there was an effect comparable to a salesman, we think basically.
In that sense, it was an agent of the dealer.
It was in effect selling cars in behalf of dealers in way of which costumers would obtain for the dealer.
Justice Byron R. White: The discount house was just a stationary salesman for the dealer, is that it?
Mr. Daniel M. Friedman: In effect that's what it was.
Justice Potter Stewart: A sales agent.
Mr. Daniel M. Friedman: Sales agent, yes.
A sale that someone -- I hesitate to use the words sales agent for they have a very special connotation, at least does seem to General Motors, but this is in effect what it was.
There were as a place, the discount house was a place in which the costumers were obtained for certain dealers for the sale of new Chevrolet.
Justice Potter Stewart: And the sale, I think this is clear isn't it, was directly from the dealer to the costumer?
Mr. Daniel M. Friedman: Yes, there's no question about that.
Justice Abe Fortas: Did the discount house bear any of the credit risk?
Mr. Daniel M. Friedman: Yes, yes it may have.
Again, it depends.
The transactions varied.
In some instances, I suppose the costumer paid cash.
In other instances, the discount house undertook to finance the car.
And in some instances, indeed discount houses would take the used car in trade.
Justice Abe Fortas: Would the Chevrolet dealer receive the full amount of the sales price of the car from the discount house at the time that the Chevrolet dealer turned over the car?
Mr. Daniel M. Friedman: Ordinarily, that was the normal situation.
There are a couple of dealers in this case that had some trouble ultimately getting paid, but that was the normal practice.
The discount house would pay for the car at the time the discount house received it from the dealer, and the arrangement was ordinarily that the dealer would sell to the discount house at a certain stipulated mark-up over the dealer's invoice.
Now, there is Mr. Justice another type of arrangement, not just this one.
Justice Abe Fortas: Yes, but just before you leave that, then perhaps I misunderstood you, I thought you said in response to Mr. Justice Stewart or maybe it was Mr. Justice White that at no time did the discount house owned the car.
Mr. Daniel M. Friedman: That is correct.
The title passed from the dealer to the costumer, but the mechanics of paying it where that the costumer paid the discount house which in turns paid the dealer.
Justice Abe Fortas: Well then, the discount house had even a security title?
Mr. Daniel M. Friedman: I don't believe so.
They might have in turn made some further arrangement with the costumer, as far as financing the car was concerned.
But in terms of the relationships between the dealer and the discount house and the costumer, as far as the dealer was concerned, the dealer turned title over to the costumer and in turn received the payment from the discount house.
Justice Abe Fortas: And I suppose all these are set out in the record?
Mr. Daniel M. Friedman: Yes, there is testimony explaining that.
And it's further may -- a little more confusing perhaps by the fact there was another method by which they did business which is perhaps a majority of the situation, and that was the so-called referral situation in which what happened was if a costumer came into the discount house and said he wanted to buy a particular model of a car, they said, “Fine!
We will refer you to a dealer who will sell it to you.”
In that situation, the costumer was not quoted a price at all, he was just referred to a particular dealer, and then he went to the dealer and directly negotiated a sale with the dealer in the same way that any other costumer would.
And the compensation in that arrangement was the dealer paid -- I'm sorry, the dealer -- it's correct, the dealer paid to the discount house a flat fee for each car that was sold under a referral.
Justice Potter Stewart: And in the former case the -- what the discount house got was a commission basically?
Mr. Daniel M. Friedman: Well, it was a mark-up really.
In other words, the dealer said to the discount house for example, “We'll sell you the car for $75 over our invoice.”
So that the discount house's cost was the dealer's cost, invoice cost, plus $75 and then the discount house --
Justice Potter Stewart: I don't quite see why the discount house had any cost if it never owned the car.
Mr. Daniel M. Friedman: Well, in effect Mr. Justice, it operated only a commission --
Justice Potter Stewart: As a commission, wasn't it?
Mr. Daniel M. Friedman: -- in those terms, yes.
Justice Potter Stewart: And in the second case it was a flat fee per reference?
Mr. Daniel M. Friedman: That's right.
But the amount of the difference there, the one difference is in the first case, the discount house had within its control at what level to fix the commission because it had a discretion in quoting the price.
Whereas in the second case, it had a direct arrangement with the dealer how much it was going to get on each particular sale.
Justice Potter Stewart: On each referral if the referral turned into a sale?
Mr. Daniel M. Friedman: That's correct.
Justice Tom C. Clark: In the second arrangement would the costumer get a cut rate or how'd he come on it?
Mr. Daniel M. Friedman: Well, this is a matter of some dispute.
We think that generally speaking, he came out reasonably well and we think that is proven by the evidence, I will to in a minute, about the many complaints from the discount houses, from the dealers in certain areas about the discount house itself.
Now for --
Justice Abe Fortas: Mr. Friedman, excuse me, just one other observation.
I missed the -- I don't remember seeing in your -- in the Government's brief a reference to this question on the precise, exact mechanics of these transactions and so far as I'm concerned at the moment, I think that the question of the title and the legal characterization, the parties to the transaction at various stages in it, is of some importance to me.
Mr. Daniel M. Friedman: Mr. Justice, may I refer you to pages 4 and 5 of the Government's brief in which we summarize the basic distinction that I'm explaining, and there is some testimony in the record which describes in greater detail the way in which these transactions took place.
Justice Abe Fortas: Summary of it but that's not what I'm asking about.
Justice Tom C. Clark: Do you place any significance to the fact that the title doesn't pass to discount houses?
Mr. Daniel M. Friedman: Well, we think Mr. Justice that there is this significance and now from our point of view that General Motors apparently concedes that it would be permissible for the dealer to sell to a discount house.
In other words, they apparently concede that if the transaction took the form of the dealer selling to the discount house and the discount house then immediately turning it over to the costumer, they think they concede that would be permissible.
They say that for a fact that it sold through the discount house.
The title does not directly pass to the consumer.
They think that makes the difference.
And we -- as I shall develop later in my argument, we think that in terms of the basic defense that's offered of the need to preserve the franchise system in terms of the impact on competition, there's no distinction.
So this is why we don't draw any distinction.
I was just trying to explain the mechanics.
And for the sake of simplicity in my argument, I'm going to refer to both of these types of transaction as discount houses rather than separating them out, because we think in terms of the basic issues in the case as this, we don't draw any distinction.
Now, the sales of automobiles through discount houses began apparently around 1957, but they didn't attain any substantial proportions until the middle of 1960.
In that year, 2% of all the Chevrolets sold in Los Angeles, that is approximately 2000 out of a total of 100,000 were sold through these discount houses.
And one significant area which we have focused on because that's most of the evidence relates to is an area called Orange County which was a substantial difference from downtown metropolitan Los Angeles.
And the dealers who were selling in Orange County were not the dealers located in Orange County but dealers located a substantial distance away, sometimes as much as 15 or 20 miles.
Now, in the summer of 1960, a number of dealers who were members of one of the three defendant associations, the so-called Losor Association, became quite concerned about this discount selling.
And in a meeting of the association in June, they appointed a committee to call upon the Los Angeles regional zone manager, a Mr. O'Connor who was in charge with Chevrolet operations in that area in an attempt to induce General Motors as the District Court found in finding 34 to take some action respecting such selling.
They met with Mr. O'Connor.
Mr. O'Connor agreed to do what he could.
He said he would talk to the dealers about it but he pointed out to them that his authority was rather limited, because as of that time, General Motors had not made any definitive announcement of its policy on discount selling and that every dealer was free to sell to whom he pleased.
Mr. O'Connor met with these dealers and the dealers did not indicate that they would stop.
So the Losor dealers decided that some stronger measures were important, and at a membership meeting in November of 1960 and the District Court found they agreed at that meeting to write letters or telegrams to the top management at General Motors urging General Motors to do something about this problem.
The result of this was a flood of letters and telegrams to Detroit, total about 200 of them was sent by various salesmen primarily and also some of the dealers in the area.
Now, I think it's significant because the District Court made a finding that in some instances, some of the complainants referred to price.
To point out that this printed record before the Court contains 36 documents in which specific complaint is made by the sellers and the dealers about the price cutting of the discount houses.
And several of these salesmen and dealers specifically complained about losing particular sale of cars to the discounting dealers.
Now, I'd like to just read to the Court a few of some of these comments because I think they, better than anything else, give the flavor of what these complaining dealers in Orange County were concerned about, some of these typical comments.
For example, “Our Chevrolets are being discounted beyond reason.
Cars are being sold at tremendous discounts and to compete, we have to give all the gross profit away.
Discount houses are selling at fabulous discount prices, at huge discounts just over cost, and these discount houses are undercutting your legitimate dealers.”
Another salesman said, “It is impossible to compete with these people on a price basis.”
Another one said, “Their only advantage is cheap price.”
And one dealer made the following statement in a letter to General Motors, a dealer named Hopper, he said and this is at page 635 of the record, “These leeches are selling new Chevrolets 2 to $300 less than I can afford to deliver one.
They informed the people to shop the agencies and get the best price as you can then come back and save hundreds.
What hurts is that it is true.”
Now when General Motors received these communications it took a number of steps.
The first step it took was to call upon the Los Angeles zone headquarters for a complete report on the situation.
Including a statement as explained by Mr. O'Connor, “What action we in the zone we're taking to curb such sales.”
And Mr. O'Connor responded that they had discussed the matter with all of the dealers in an attempt to get them to stop the practice and that indeed the dealer associations have formed a committee to call on the dealers to try to get them to do that.
And then he continued, and this is at 651 of the record, “The people of the Los Angeles zone believed that many of the dealers will cease this type of business if they had any assurance that the account would not be picked up by some other dealer immediately upon relinquishment.”
In other words, what the dealers seem to be concerned about was that if some of them gave up selling these cars through discount houses, other dealers who haven't been doing would pick up the same business.
When General Motors received this report, it conducted its own investigation, conducted extensive study of the matter and then formulated a company policy and sent out a letter to every General Motors dealer in the United States.
The president of General Motors testified in this case that if it hadn't been for the complaints from the dealers in Los Angeles, General Motors would have not promulgated this policy whether at that particular time.
And just about his time, an internal memorandum was written within the General Motors organization which I think shows very clearly one of the things that General Motors was concerned of.
It's only admittedly one sentence in a two or three-page memorandum, but it shows to me General Motors' recognition of what the problem was.
This is the statement, the bottom of page 736 of the record.
This is a letter signed by a Mr. Gilead who was a high official in General Motors, and he said that, “It would appear that one of the real hazards of condoning this type of operation is that discount prices are freely quoted by large portion of the public.”
Now, the letter which General Motors sent out set forth a company policy that it thought selling from discount houses threatened the good will of the dealer organizations.
It said that these sales don't represent an additional iota of business for the dealer organization who off of the factories and that they represent no savings to the public but result only in a delusion of the gross profit on each transaction which otherwise be made by the franchise dealers.
Then the letter went on and pointed out at page 756 of the record, that in some instances these sales through discount houses represent the establishment of a second and unauthorized sales outlet or location contrary to the provisions of the Chevrolet dealers selling agreements.
This was referenced to a provision in the franchise contract which Chevrolet address into every one of its dealers under which the dealer is prohibited without the advanced written approval of Chevrolet from all -- changing his place of business or from opening up any branch location.
And it is this provision which General Motors relies on primarily as a defense in this case.
The letter then concluded that the Chevrolet wholesale organization would discuss this matter with each of the dealers in those areas where such activity is reported to exist and ask them to review their operations in the light of the critical nature of the problem.
In other words, this letter made it quite clear that in the area where discount houses' selling was taking place, that is, at this time Los Angeles, that this matter was being brought to the attention of all the dealers.
The General Motors is making clear to all the dealers in the area that it didn't want them to sell through discount houses.
Apparently, it paid heed to Mr. O'Connor's belief that for the dealers to give this up, they would have to receive some assurances that the others wouldn't pick it up.
And the General Motors management instructed the personnel to meet with every dealer in the office and bring this letter to their attention.
The dealers who were reported to have been selling through discount houses in Los Angeles, there were seven of them who were the principal sellers, were singled out to special treatment.
The manager of the Pacific Coast region for General Motors which is the echelon above the Los Angeles zone was a Mr. Cash.
And Mr. Cash was instructed to meet personally with every one of these dealers.
He met with six or seven of them.
And in addition to that, the lower echelon management people in the Los Angeles office were instructed to get in touch and either meet or call all of the other dealers.
And a General Motors official in Detroit subsequently explained in the memorandum that the reason this was done was that in order that every dealer with whom the subject was discussed would know that a similar discussion being held with all other dealers so that if certain dealers should elect to discontinue their cooperation with the discount house, we might be able to discourage some other dealer who might be solicited from starting the practice, that's at record 874.
And the Los Angeles manager that stated at record 158 to 159 that they knew that 100% cooperation in discontinuing this discount house business was essential to the success of the program to end this type of selling.
In other words, once again, a recognition by the General Motors peak management that everybody had to be assured the problem was being dealt with.
Justice Potter Stewart: These were Los Angeles dealers who were selling through discount houses in Orange County primarily?
Mr. Daniel M. Friedman: Well -- but we have just selected Orange County, Mr. Justice, they were selling in other areas as well.
But Orange County is where most -- the area to which most of the focus was directed because this is the source of the complaints that originated that came to General Motors that led them to act.
Justice Potter Stewart: And that's where most these discount houses were located?
Mr. Daniel M. Friedman: Not most.
There were several of them located.
There is Mr. Justice a map facing page 20 of the appellee's brief, the colored map.
And it shows locations of the Chevrolet dealers and of the discount houses.
The Chevrolet dealers are shown in blue, the discount houses are shown in red and the Orange County area is to the lower right-hand part of the map where you will see five red dots rather clustered.
And General Motors has filed with the court a much larger operation of this map which is legible and there's a key on the record showing the numbers so that you can identify the particular dealers and the particular discount houses with the particular dots.
Justice Potter Stewart: You've been speaking -- what part of my question was that you've been speaking of the Los Angeles dealers and I wonder if you were talking about dealers within the City of Los Angeles or the Los Angeles area dealers or --
Mr. Daniel M. Friedman: Los Angeles area dealers needing to have with every -- there are 85 authorized Chevrolet dealers in this whole area, there's --
Justice Potter Stewart: Consisting of how many counties?
Mr. Daniel M. Friedman: Oh, I don't set a number of them, five or six, at least, I would say.
Now, I think it's something else that is quite significant here that General Motors is very explicit to its dealers and that to its management.
The dealers were all to be met with individually not in groups.
Each dealer was to be met with individually.
And the Vice President of General Motors Mr. Roche pressed on this on the cross-examinations to why this why was done and he finally explained at record 399, at the top of the page, and was asked, “Why was not done in a group basis” and the answer was “Because if it were handled on a group basis, I suppose we could've been charged with a conspiracy, in conspiring with the dealers as a group to accomplish this discount house referral elimination.”
Now, Mr. Cash called in and met with six of the dealers who are the principle people in selling through discount houses.
He had private meetings with every one of them.
He met with them very briefly for about five minutes at his own headquarters.
In each instance, he asked them if they had read the letter they had and reviewed the letter with them, and then he said, “This is our policy and we'd like you to reconsider your discount house operations in the light of this policy.”
And not surprisingly, all of the dealers agreed and indicated in the circumstances, some of them decided, they waited for a few days and see what the others were doing to terminate these actions.
Chief Justice Earl Warren: Were any of the discount houses that were in these transactions in Los Angeles proper?
Mr. Daniel M. Friedman: I don't think so Mr. Justice, let me take a look Mr. Chief Justice.
Chief Justice Earl Warren: Is that because there were no such transactions or because you only choose the Orange County place?
Mr. Daniel M. Friedman: No, I'm sorry I didn't understand your question Mr. Chief Justice.
Your question was whether there were any discount sales -- discount houses located in Los Angeles itself, is that?
Chief Justice Earl Warren: Yes, that's correct.
Mr. Daniel M. Friedman: I don't know.
I believe there were but most of the discount houses, the large discount houses apparently were located in the suburban area and I think this intends to be a phenomenon of this type of operation.
They need a tremendous area and they tend to be located some distance out of the downtown area where they can get a lot of space and have adequate parking facility.
Chief Justice Earl Warren: There's quite a suburban area around Los Angeles in Los Angeles properties.
Mr. Daniel M. Friedman: I know, Mr. Chief Justice, and there are a number of discount houses there too.
There are 23 of them near --
Chief Justice Earl Warren: But I wondered -- my only reason for asking the question is there any reason why if there were any transactions with discount houses in Los Angeles if they are not brought into the case, and that you just brought in Orange County this --
Mr. Daniel M. Friedman: Oh no, Mr. Justice we brought into the case all of the transactions.
There were some apparently transactions with discount houses in Los Angeles.
We put all of them in but all that I said was that the evidence in the case focuses -- tends to focus on Orange County because it was the dealer was in Orange County who brought this matter to the attention of --
Chief Justice Earl Warren: I see.
Mr. Daniel M. Friedman: -- General Motors.
And that's where the principle, at least some of the most objectionable from the point of view of dealers selling was taking place.
And as result of these conferences and these discussions, these dealers terminated selling through discount houses very abruptly in a matter of the week or two that was end of it.
But the mere termination of these practices wasn't enough, because General Motors recognized that even if they got the dealers to stop initially, they'd have to police this matter.
They'd have to make sure that the dealers didn't resume it.
And after Mr. Cash had reported sometime in January to General Motors of the success of these initial meetings in terminating the sales through discount houses, it was then agreed between the parties that after a little time had elapsed, it would be well for Mr. Cash, and this is at record 874 a letter, “It would be well for Mr. Cash to make the necessary arrangements to actually shop some of the discount houses in order to see if any Chevrolet dealers were still corroborating with them.”
And indeed this letter which was dated on January 18 pointed out that Mr. Cash had been asked to start his shopping the next day.
And when Mr. Cash mentioned to Mr. O'Connor the next day, the Los Angeles manager that he had these instruction was about to do it, start it in, O'Connor said there was no need to do it at that time, because he said he had been told that the dealers themselves intended to do some shopping and see if there was still any sales through discount houses.
Now, this was about the time when the three dealer associations hired a professional shopper for a $1000 a month to go out and shop for new Chevrolets.
Each of these associations contributed $5000 to a fund to be used to purchase new Chevrolet.
And in the next three months, the shopper and his assistants purchased seven cars at various discount houses that were supplied by some of the Los Angeles dealers to them.
In each case when the shopper went along he had a little tape recorder with him in which he got a recording of actually what was going on including the identity, of course, of the dealer who was delivering the car.
He then turned over both the tapes and the cars which have been obtained and the documents of the title to Mr. O'Connor, the zone manager in Los Angeles.
And this of course was the man who told Mr. Cash that there was no need for him at that time to do any shopping because he understood what the dealers were doing.
When the dealers told him about the first car they were shopping and asked him if he'd like to see this evidence, he said he would.
Now, when the zone office in Los Angeles got this material, this proof of the discount house shopping, they then called in, in each case, the dealer who had let the car be sold through the discount house.
They called him into the office, they played the tape recording back to him, to the dealer's apparent embarrassment in many instances, and then they asked him would he like to repurchase the car.
In every instance, the dealer said he would, and the dealers purchased these cars back, even though in several cases, they had to pay to make the check out for more than they had sold it for.
And then after Mr. O'Connor received the money for the repurchase of the car, he in turn turned it over to an attorney who was the agent of the three associations which had arranged for this shopping of cars.
Now these are the basic facts.
Now, there're some details in the record that these were basic facts.
And in discussing the fact, I would like to take two aspects of the case.
First, rather briefly, is what I would call the horizontal aspect of the case.
That is our claim that there was a horizontal conspiracy at the same level of distribution, the conspiracy among the dealers in the association and that General Motors then joined in it and implemented it.
And the second aspect of the case which is -- which most of our brief is directed which is what I will call the vertical.
That is the question of validity of General Motors applying its franchise agreements to prevent the dealers from selling through discount houses.
Now as far as the horizontal aspect of the conspiracy is concerned, what we have here is that as early as June, the Losor deal has all got together and decided they ought to get do something to persuade General Motors to stop this discount house selling.
They went to the local zone manager.
He told them he couldn't do anything about it, they needed stronger -- stronger measures were in order.
Some of the dealers they had spoken to tell them they wouldn't give up discount house selling, it was a profitable business unless they had some assurances that the other people doing the same thing would also give it up and it's obvious, only General Motors itself who would be able to provide that assurance.
Then the dealers decided to send letters -- agreed to send letters and communications to General Motors protesting about it.
In response to these protests, General Motors then implemented and announced this policy against discount housing.
They dramatically brought it home to the offending dealers in the area who were selling through the discount houses by these private meetings with Mr. Cash.
Incidentally, several of the dealers testified, this was the first time they'd ever had a private meeting with that high an official of General Motors.
And it didn't require much in the way of persuasion.
Certainly, no threats turned the trick, five minute meeting was enough.
Mr. Cash indicated the policy and at that point the dealers agreed to go along with it.
And also at the same time, General Motors made it quite clear that it was bringing this policy home to all the dealers in the area.
In other words, dealers who discontinued dealing with discount houses was quite clear to them that a similar pitch was being made to the rest of them.
And the result of all of this was a virtually complete closing off to the discount houses of their sources of supply of new Chevrolets.
And a substantial number of people, 2000 in 1960, who previously had looked to the discount houses for their Chevrolets could no longer look to that source of supply.
And then to make sure that the practice was stopped, General Motors with the help of these three associations vigorously policed the dealers.
They practice a type of enforcement which it did itself recognize was necessary.
So even if what we have in this case here, this aspect of it is joint concerted effort between General Motors and the dealers to stop the sale of new Chevrolets through discount houses and to present -- prevent any resumption of it, it was a plan that was organized, instigated by the dealers but one that could not be made effective without the cooperation and assistance of General Motors.
General Motors, in response to the organizers, requests and protests did bring its power to bear and it therefore effectuated and implemented the plan.
And we think that this comes within the decisions of this Court recognizing that a -- such a concerted refusal to deal is a per se boycott.
The facts in some of the cases, as our opponents point out in their briefs, are different.
Of course, they're different but the basic philosophy of those cases that traders cannot get together and bring and prevent -- themselves get together and prevent dealing with someone else, it seems to us, applies here.
Now, the second issue in the case involves the vertical restraints so-called.
That is the claim of General Motors that by in stopping its dealers from dealing through discount houses, it was merely enforcing the branch location provision.
Now, we consider -- get to this issue for two reasons.
The first is a question of relief.
If the Court were to accept our argument on the horizontal conspiracy, it's not clear to us that that we would be entitled to relief not just against the conspiracy itself, but also the relief which we sought in our complaint limiting General Motors in preventing the -- limiting General Motors from saying to its dealers whom you can deal with.
In other words, the -- we think the vice, the vice of this thing in terms of its impact on competition is stopping the dealers from dealing with the discount houses.
And unless there is some relief that prevents General Motors unilaterally from doing the same thing, we don't think we've accomplished any great deal if all we get is act of relief against concerted action.
We think that the theory of our case is broad enough to give us this relief and we asked for it in the complaint but we don't know whether we would get.
Therefore, we cannot say that getting -- winning -- if we would win the case on the conspiracy ground, that would necessarily give us to all the relief we're entitled and therefore we find ourselves compelled to reach the second issue.
The second point of the case is that this, of course, was the ground on which General Motors defended.
This issue was injected into the case by General Motors, defense of the franchise system.This was the issue to which most of its evidence was introduced.
Now, I have to state, in all candor, that at the trial level, we did state that one or two times that we were basing our case on conspiracy and that we were not attacking the contract as such.
And to that extent, the position here is somewhat inconsistent with that.
On the other hand, it's clear that there's no possible prejudice could result to General Motors from this issue.
They put in their complete defense on this issue.
They put in every possible justification for it, and we think that the record before this Court, these three ones is now fully adequate for the Court to resolve the issue.
Justice Abe Fortas: Are you conceding Mr. Friedman that General Motors was not a party to the vertical conspiracy that you just described, even though of course I know it was not in the vertical line.
But are you saying that the case against General Motors rests exclusively on the franchise agreement?
Mr. Daniel M. Friedman: No, we say that General -- we say the case against General Motors works on two theories.
The first one is the so-called horizontal conspiracy.
The second one is that General Motors has these agreements and by enforcing the agreement against each dealer so as to bar the sales from discount houses, this in effect added into a combination with them.
Chief Justice Earl Warren: We'll recess now.
You may proceed, Mr. Friedman.
Mr. Daniel M. Friedman: Mr. Chief Justice, and may it please the Court.
Mr. Justice Fortas, in answer to your earlier question as to where in the record there is more detailed description of the function into the discount houses system, I'd like to refer you to pages 176 to 178, 183 to 187 and 187 to 188.
The first of these are two bits of evidence presented by people in the discount house and of themselves, and the third one is a statement by a salesman, one of the dealers who dealt with the discount houses.
Justice Abe Fortas: Thank you.
Mr. Daniel M. Friedman: Now, I think it would be helpful in describing the franchise system, first to basically explain to the Court as we understand what General Motors argument is, and then to show why we don't think the argument holds up.
General Motors' argument is basically this.
General Motors said -- says that over the past 30 or 40 years, it has had a great deal of experience and merchandising automobiles.
That it has made great many studies and knows intimately all the details of the marketing practices, the buying practices of costumers, and it is therefore able to pinpoint in a particular area just how many dealers there should be and where the dealers should be put.
In other words, in the Los Angeles area, the General Motors on the basis of all these marketing surveys has concluded that 85 dealers is the optimum number for selling Chevrolets.
And also the places throughout the area where the dealers have been located are the best possible places in terms of providing each dealer with a sufficient profit potential for his market so that he will be willing to make the investment that is required for the premises of a functioning and efficient dealer.
Now, they then say the next thing that the branch location provision which General Motors has put in its dealer franchise since 1940 that is a purpose of avoiding a proliferation of dealer outlets.
In other words, if General Motors decides that in a particular area there should be only five Chevrolet dealers, five authorized Chevrolet dealers, if a dealer were permitted to open three branches you would have not five but seven, and therefore says General Motors that provision is designed to prevent undue proliferation.
They then say that in terms of the impact on the dealers, in terms of the purpose for which the system is set up, permitting sales through discount houses has the identical effect, insofar as the impact in the franchise system is concerned, as opening up a branch house.
And then they conclude --
Justice Byron R. White: Well then, Mr. Friedman, I take it your position is that the first part of their argument that just the ordinary operation, the franchise system, you don't question it here?
Mr. Daniel M. Friedman: We do not question that here.
Justice Byron R. White: But it's just the extra arrangement on the discount houses.
Mr. Daniel M. Friedman: That's correct, Mr. Justice.
We're not --
Justice Byron R. White: So that you -- if the dealer instead of working precisely the way he did through the discount house, has leased some space from the discount house and put his own man out there to manage and there was a percentage lease arrangement with the discount house, you would not question this -- you would have no question to raise here, because that would be another establishment, an open additional establishment.
Mr. Daniel M. Friedman: That would appear to be a branch -- a true branch --
Justice Byron R. White: And you wouldn't question that.
Mr. Daniel M. Friedman: We don't question that here.
We don't find it necessary to question.
We do not concede that in all circumstances even that kind --
Justice Byron R. White: Yes, but how about that circumstance?
Do you concede that or not?
Mr. Daniel M. Friedman: That's -- all we have is the open -- another branch --
Justice Byron R. White: Well, he leases some space in the discount house, like the -- a lot shopping centers where you lease some space and you put your own man out there, and he puts up some signs and would go through the same arrangement except there's no question that the dealer is there.
He has some space and he has an employee there, a salesman making sales.
And the arrangement of the discount house is a percentage lease.
Mr. Daniel M. Friedman: I just don't know that Mr. Justice, what the answer to that.
I think we'd have -- it's a difficult case -- it's a more difficult case from this one.
On the other hand there is the aspect that he is in the discount house itself and to what extent --
Justice Byron R. White: But you wouldn't have any question at all if he went across the street and leased a -- some lot or space and put a man there.
Mr. Daniel M. Friedman: That would seem to be clearly within the type of thing of the branch location provision on its phase is directed against and which we're not attacking here.
Justice Byron R. White: But it might be different if we put it in a discount house.
Mr. Daniel M. Friedman: It might, I don't know.
Justice Hugo L. Black: Does the franchise let you have as many locations as you wish?
Mr. Daniel M. Friedman: No, the franchise is given ordinarily for particular location, and the so-called branch location provision provides that without the written consent of General Motors, the dealer shall not establish another place of business or a branch location.
Justice Hugo L. Black: So all these would come outside the franchise wouldn't it, these examples Mr. Justice White gave?
Mr. Daniel M. Friedman: Yes, they would come within the literal terms of the branch location provision.
Now, I'd like to indicate why we think this application of the branch location provision to barring sales through discount houses is quite a different matter than the typical situation where General Motors says to a dealer, “No, you can't open a branch.”
The basic -- the first thing, of course, is it seems to me it has a quite different effect on competition in this situation.
If General Motors says to a dealer, “Mr. Dealer, we got 85 locations in Los Angeles and we don't think there should be an 86th one.”
Barring the dealer from opening another branch does not in terms directly block off a new method of merchandising which stresses price above all.
All that that really does is preserves General Motors' business judgment that 85 is the maximum number of dealers.
But it seems, and as far as the public is concerned, this additional outlet would appear to be another authorized Chevrolet dealer.
It would have the dealer's name to make it clear that he is the Chevrolet outlet.
But it seems to us it's a big jump from that.
It's a big jump from that to say that because General Motors can bar its dealers from opening another location that it could also bar the dealers themselves from a method of merchandising through which they obtain costumers not through the efforts of their own salesman, not through the effort just because people happen to walk in the door of their shop but because the costumers are referred to them by another outlet.
That's really what is involved in this case.
What is involved --
Justice Abe Fortas: I beg your pardon.
Mr. Daniel M. Friedman: Yes.
Justice Abe Fortas: But this is intensely interesting to me as I see the problem now.
Are you conceding that these discount house operations should be looked at as if they were within the branch provisions of the franchise agreements, but contending that the legal implications are different?
In other words, are you conceding that these discount house operations or referral services are to be attributed to the dealer and that they are to be considered as if they were the dealer's operation and in fact part of his establishment?
Mr. Daniel M. Friedman: Well, if I may answer you Mr. Justice with a slight variation of that, the dealer of course does not have any kind of control over the discount house operation.
We are prepared to defend the case.
We don't question the decision -- finding below that we treat the case that General Motors -- we're not questioning the General Motors' interpretation of the branch location provision.
I'll put it this way.
We don't question the interpretation that the branch location provision applies to discount houses sale.
We're not questioning General Motors' statement in the letter that in some instances selling through discount houses may constitute the opening of a second outlet.
We do say that if the contract is thus construed and applied, we don't think it's proper, that's our attack on the contract.
Justice Abe Fortas: Is that the sole basis of your attack?
That is to say, are you suggesting to us that we are to consider this case as if the -- or on the basis of the proposition that these discount house operations are within the scope of the branch provisions of the franchise agreements?
Now, that's my question.
I want to hasten to say that I understand that you're saying that even so there may be different legal consequences.
But I'd like first to find out from you if it's not accessibly awkward or troublesome whether the Government is conceding that these discount house operations are to be considered as branches of the retail dealer's operation?
Mr. Daniel M. Friedman: Well, I think so, Mr. Justice.
We're prepared to treat the case as far as we're concerned.
Analytically, the case we think is no different than if General Motors franchise agreement had in it an explicit provision barring the dealer from selling through discount house.
Justice Abe Fortas: Well, it's not quite the same -- it's not quite responsive.
Mr. Daniel M. Friedman: But we are prepared to concede.
We do not challenge, put it this way, if I may again, we do not here challenge General Motors' view that selling through the discount house may constitute the establishment of a branch.
Justice Hugo L. Black: Suppose they appointed the discount as salesman?
Mr. Daniel M. Friedman: Well, that would seem to me that there would certainly be -- I suppose the General -- or the dealer can appoint anyone as a salesman it wishes.
Justice Byron R. White: Under the establishment of somebody else's territory?
Mr. Daniel M. Friedman: Well if -- I'm sorry, if they had a -- if they appointed -- if for all they said was that we have traveling salesman, it seems to me --
Justice Byron R. White: Yes, but it isn't traveling, he's stationary salesman.
Mr. Daniel M. Friedman: But he's not a -- there's no Chevrolet outlet there, I take it.
I'm not quite -- I'm sorry, I'm not quite clear as to the question.
Justice Hugo L. Black: Well, assuming it doesn't have any automobiles in his stock, that is the discount man, but the dealer just calls him up and said, “Don't you be my salesman, you can just count these cars so much and you keep so much whenever -- whoever you bring over here, well I'll treat you just like that you're any other salesman.”
Mr. Daniel M. Friedman: Well it would seem to me this is very similar to what they're doing.
It's not quite as formal in the sense, but it would see -- it would seem to me that they -- the dealer had --
Justice Hugo L. Black: That would kickback it pretty close.
Mr. Daniel M. Friedman: Pardon?
Justice Hugo L. Black: Perhaps the -- what you call it the --?
Mr. Daniel M. Friedman: Referral fee.
Justice Hugo L. Black: Referral fee.
Well, I thought you crossed your kickback statute a long time ago.
Mr. Daniel M. Friedman: There is a well recognized --
Justice Hugo L. Black: And it's the wrong term for it --
Mr. Daniel M. Friedman: -- there's a well recognized practice in the industry which is referred to in this record, something called bird dogging.
Justice Hugo L. Black: Pardon?
Mr. Daniel M. Friedman: Bird dogging.
Bird dogging apparently is where there's a -- say a gasoline station and one of the fellows there has some arrangement with the dealer and he says to you, “Hey, if you want to get a good bargain and a new Chevy, go see my friend so and so.”
You go see his friend so and so and make a deal, like kickback a few dollars to this fellow who bird dogged a deal to you.
Justice Abe Fortas: May I ask you one more question and I'll leave you alone and I'm sorry.
I want to ask you what happens with respect to the trade-ins.
There is a finding or a completion of the court that to me is ambiguous with respect to trade-in and I haven't had chance to check it.
Does the determination of how much is given in trade-in for the used cars made by the discount houses here?
Mr. Daniel M. Friedman: Well, this would depend on the two types of transactions.
In the so-called discount house, it was the discount house would make the trade-in, the determination of the trade-in on the used cars (Voice Overlap).
Justice Abe Fortas: And there's a -- and then the referral it's the other way.
Mr. Daniel M. Friedman: That's right.
Justice Abe Fortas: Does the discount house then acquire the used car just the way the dealer would?
Mr. Daniel M. Friedman: Yes, they -- apparently they -- I gather from -- the record isn't entirely clear but the discount houses apparently have some kind of relationship frequently with used car owners.
Justice Abe Fortas: But the discount house acquires the used car that's traded in for its own account, is that correct?
Not for the account of the dealer with whom it's working --
Mr. Daniel M. Friedman: Not as far as -- the record isn't clear on that as far as we can tell, it doesn't appear it's for the account of the dealer.
Now, I mean, I don't know, for all I know the discount houses might have some understandings with the dealer about turning them over but the record does not show how it is done.
But the record does indicate if a costumer comes in, in one of these discount house operations with a used car, the discount house will make an arrangement with him on the trade.
Justice Abe Fortas: Well, I take it that the Government is here presenting a case without any differentiation between the referral and the discount houses, number one?
Mr. Daniel M. Friedman: That's correct.
Justice Abe Fortas: And two, that you're willing to submit the case to us on the proposition that where we would -- could appropriately consider the discount houses as if they were just a branch of the retail dealer?
Mr. Daniel M. Friedman: Well, Mr. Justice, you say as if they were, in one sense yes, in another sense no.
I have --
Justice Abe Fortas: I'm trying to get your theory on this.
Mr. Daniel M. Friedman: Well, let me see if I can explain, I -- put my theory this way.
We think there's a tremendously different impact on competition where what is done is prevent selling through a discount house and where what is done is prohibiting the establishment of a branch location.
And the reason for that, we think, is that they're quite more -- far more as the theory has adverse impact on competition when what is done is stopping through discount houses, because this is a manner of merchandising.
Justice Abe Fortas: Still Mr. Friedman you trouble me, because when you made that last statement, you say sell to a discount house.
And what I'm trying to get straight is whether the Government is presenting this case as if the met legal situation is that of a sale from a retail dealer to the discount house, or whether the discount house is in effect an agency for the retail dealer and those are just parts, not the totality of the inquiry that one must make, I think, to determine whether we consider this as a branch perhaps as a franchise agreement.
Mr. Daniel M. Friedman: Well, we don't throw any distinction, Mr. Justice.
Indeed, General Motors concede, General Motors admits, that if the dealer were selling to the discount house there's no way they could stop them.
And yet in terms of the impact of this thing that --
Justice Byron R. White: Well, Mr. Friedman, then you say that there's no way they could stop if there was a franchise agreement?
Mr. Daniel M. Friedman: That's correct.
Justice Byron R. White: Would you say that if they negotiated a new franchise agreement and said that you may not sell for resale, you would challenge that?
Mr. Daniel M. Friedman: I think we might well.
You said you cannot sell for resale -- yes I think one, I think under the antitrust laws, once they parted with all their interest in the car, that's the most they can do.
Now, I would like to refer to a few other points here in connection with the distinction between discount house selling on the one hand and merely establishment of a branch location on the other.
The -- as I've indicated the branch location provision was inserted in the contract 25 years ago at General Motors' own insistence because General Motors apparently believed this was significant in merchandising its cars.
The other provisions of the contract -- I'm sorry, the application of the contract to discount house selling was done by General Motors at the instigation of the dealers.
And indeed, the General Motors' president had testified that they wouldn't have acquired the policy at that time were it not for the dealers pressure.
And the effort seems clear to us that in this particular situation this was -- General Motors applied this not because of any decision on its own that this was necessary for the efficient merchandising of automobiles but in response to the pressure.
Now, I think there's something very significant here in determining just what this franchise -- the effect of this thing is.
The president of General Motors testified, at page 423 of the record, that if a salesman from Glendale County, which Glendale which is a suburb of Los Angeles, came into Orange County.
And if he started to sell there that they say would not pose any threat to the franchise system.
If it seems to us in terms of the concern of deluding the deal of potential, it doesn't make any difference how it gets in.
The important thing is, if dealers for example from outside of the area started to come into Orange County to sell vigorously and if they began to stress price cutting, it seems to us that the impact on the franchise system which is the whole basis on which General Motors attempts to base its case would be the same.
And yet they concede that in that situation, there wouldn't be any impact.
Now, there's plenty of intra-brand competition in Los Angeles that has to be conceded.
There are 85 dealers, and certainly General Motors as the largest manufacturer of automobiles cannot contend that this limitation, this bar in selling through discount houses is necessary for General Motors to compete effectively against the other brands of manufacturers.
Indeed, the record in this case shows that the discount houses were selling all makes of automobiles not just Chevrolets.
And if in fact General Motors starts -- prohibits its dealers from selling to these cars and there's nothing in the record to show that any of the other manufacturers to stop their deals from selling, in the long run, it seems to me it's likely to hurt General Motors in its position against the other cars rather than to help it because people may be prepared to buy a General Motors car when they walk into the discount, but if they find they can't get a Chevy through the discount house, they can only get a Ford or Plymouth.
It seems to me not at all unlikely that they will suddenly decide to shift over, and I'd like to reserve the balance of my time.
Chief Justice Earl Warren: You may.
Argument of Homer I. Mitchell
Mr. Homer I. Mitchell: Thank you.
Mr. Chief Justice, and may it please the Court.
If you carry this all with the aid of the little map that we put in our brief at page 20, I would like to tell you about Los Angeles, because there are some misconceptions about Los Angeles in the argument of the appellant.
The counties involved in this litigation are Los Angeles County and a small part of Orange County.
Orange County extends from the Los Angeles County line down to San Diego County.
All we have involved in this litigation is Los Angeles County and a little piece of Orange County, not several counties.
With respect to the City of Los Angeles, as the Chief Justice knows and no doubt many of you know, the City of Los Angeles is sprawled all over the place.
It surrounds the City of Beverly Hills and it's very difficult as one drives along whether you're in the City of Los Angeles or in one of the suburban towns.
On the little map up in the left hand corner where there are quite a number of discount houses, that's San Fernando Valley that's at City of Los Angeles, several discount houses.
Actually, there are 18 discount houses in Los Angeles County of which several of them, quite a number of them, were within the city limits of Los Angeles, if that's of any importance.
Commercially, as everyone knows, commercially this metropolitan area is one commercial area and the boundary lines don't make much difference except for political purposes.
Looking at the name Los Angeles there, just to the left of the name Los Angeles is a discount house 4A, just below that is another discount house called Fleet Sales Inc. just below that is another discount house called Bedco, just off to the left of that in the City of Los Angeles is another discount house called Castle Sales.
So this matter occurring to make Orange County heavy in this matter is just a red herring.
Actually, 85% of the transactions certainly, we can tell for sure 70% of the discount house transactions took place in Los Angeles County, and because several of these operations had places of business both in Los Angeles County and Orange County, we can't be sure.
But a fair estimate is that about 15% of the discount house transactions took place in Orange County, and about 85% took place in Los Angeles County.
With respect to the complaining dealers, nine of them -- nine of the dealers whose salesman complained or the dealers complained, nine were in Los Angeles County, six in Orange County.
Justice Tom C. Clark: Where does Orange begin?
Mr. Homer I. Mitchell: Where is Orange County?
Justice Tom C. Clark: Begin, I know where it is but I can't see the beginning.
Mr. Homer I. Mitchell: Well, Mr. Justice Clark, it comes down in a jagged line there.
I -- it's so hard to tell you on this little map, we'll print you a larger map.
It runs down on a diagonal line, it runs down to sea or beach area.
Justice Tom C. Clark: New Port is in -- that's in Orange isn't it?
Mr. Homer I. Mitchell: New Port is in Orange County yes, but they --
Justice Tom C. Clark: Then that takes Huntington?
Mr. Homer I. Mitchell: Is in Orange County.
Santa Ana, Anaheim, City of Orange, well the place is up there where those several -- those five discount houses are, are located around the Santa Ana, Orange, Garden Grove, Orrington area.
Justice Tom C. Clark: Now, the left of that you have two together in one of the -- which county is that in?
Mr. Homer I. Mitchell: Two together --
Justice Tom C. Clark: Two red ones and then one above it.
Mr. Homer I. Mitchell: Two red ones together that's in Orange County.
Justice Tom C. Clark: The one above is in Orange too?
Mr. Homer I. Mitchell: Well, maybe we're not looking at the same one Mr. Justice Clark.
The -- if you start over at the right hand side, there are one, two, three in a kind of a straight line perpendicular, they're in Orange County.
Then there are two together, they're in Orange County, no more in Orange County.
All the rest are in Los Angeles County.
Justice Tom C. Clark: What about Long Beach, it's in Los Angeles?
Mr. Homer I. Mitchell: Los Angeles County, yes sir.
Chief Justice Earl Warren: I don't know that it has any materiality but why is it cost more -- why does it cost more for a Chevrolet from a dealer in Orange County than from a dealer in Los Angeles?
Mr. Homer I. Mitchell: There's no evidence to support that statement of the Government at all.
Chief Justice Earl Warren: I see.
Mr. Homer I. Mitchell: You can not ascertain -- the Government has tried to ascertain the price of Chevrolets by looking at the dealer's gross profits, the dealer's gross profits on new cars.
On the dealer financial statement it's separated.
So you can tell what the dealer's gross profit is every gross profit for new cars.
Discount houses, Your Honor, are selling to the public.
They aren't making commercial sales, but dealers make huge numbers of commercial sales.
So you really can't make a comparison of how the dealer sells to the public and they should think out the commercial sales, because those commercial sales tend to drag down the average price for car.
You see, in the City of Los Angeles, there are tremendous numbers of commercial sales.
Naturally, in that vast industrial area the dealers are selling people like (Inaudible) drive yourself, leasing corporations, Los Angeles Police Department, Avis Rent-a-Car Corporations and so on and they sell with respect to the seven dealers studied by Price Waterhouse for us, they sell 28% of their cars commercially.
So if you add those in at very little mark ups, then that makes it look as though the Los Angeles dealers are selling very cheaply.
When in point of fact, when you take those out and if you are able to take them out as we did in the Price Waterhouse study, you may well find that the Los Angeles County or City dealers are selling to the public as cheaply or even cheaper, I mean, that the Orange County dealers are selling to the public as cheap or cheaper than the Los Angeles County dealers.
The figures are not in the record to make the kind of an argument that the Government's making.
And I think one of Your Honors asked whether we're prejudiced by it if they had chosen this course, you know we went through this twice a criminal case and a civil case.
And the complaint in the civil case is identical with the indictment in the criminal case.
And never did they talk about attacking the vertical agreement as an unreasonable restraint.
They refused to do it.
If such a thing had been done, we could've had what White Motors said to require an economic study of the whole thing and found out the correct answer to your question, but it isn't in the record.
Mr. Justice Fortas asked about the transaction, perhaps I can assist you.
The car is owned by the dealer.
In the State of California, only the dealer can transfer title to the car.
We have a system of registration by the state.
When the discount house, I'm not talking about the referral type sale, and there are even variations of this but a typical method at least is for the discount house to have an arrangement with the dealer to furnish a car to his costumer.
And the -- he gets a power of attorney from the costumer to sign the contract at a price that he establishes.
This price is over and above what the dealer is wiling to let go of the car for, and it can be any sum of money.
He can add to it and that's why not all these discount house sales were so cheap.
He can add to it what he chooses.
The dealer signs the contract to the costumer for the total price which includes the discount house fellow's profit and the discount house fellow takes that contract and signs on behalf of the costumer, takes it to the finance company and discounts the paper, takes the money, hands it to the dealer.
In most instances of this kind, he handle, he the discount house fellow, handled the trade-in car.
Which again, it makes all these talk about what the discount house is selling for, is a little hard to find out.
Because as -- anybody that's bought a car well knows the seller of the car can take your trade-in car in under its real value and pretend to give you a great bargain by selling you a car at a very low markup and all of a sudden really the real transaction is not a bargain at all.
So this matter of talking about discount house bargains can not be done in a breeze.
It requires a careful study and again --
Justice Tom C. Clark: The dealer could discount it too, couldn't he?
Mr. Homer I. Mitchell: Yes he can.
Justice Tom C. Clark: He can up the price with the -- I mean --
Mr. Homer I. Mitchell: The dealer can do the same thing and in order to find the dealer's price, Mr. Justice Clark, the true price you must make a careful study which we did of the dealers who sold through discount houses.
And our study shows that the dealers who sold for discount houses sold directly to costumers out of their own dealership at about the same price they sold through discount houses.
There's no real profit to the costumer in buying through discount houses.
Justice Abe Fortas: Well on the basis -- excuse me Mr. Mitchell.
Mr. Homer I. Mitchell: Yes sir.
Justice Abe Fortas: On the basis of what you say as a typical discount house transaction, would it be within reason in legal logic, in your opinion, to regard the discount house as either an independent contractor here or as agent for the buyer?
Mr. Homer I. Mitchell: No, he's really the agent for the -- he's the agent for anybody.
He's the agent for the dealer.
He is disposing of the dealer's cars for him.
Justice Abe Fortas: But he's doing --
Mr. Homer I. Mitchell: But you could try to turn it upside down, I suppose if you want to, but the --
Justice Abe Fortas: I don't want to --
Mr. Homer I. Mitchell: No, I mean if -- well I don't mean --
Justice Abe Fortas: I'm just trying to get this straighten out.
Mr. Homer I. Mitchell: I don't mean that personally, I mean it's possible to argue it upside down but the reality of it was that the dealer made an arrangement with the discount house to whereby the discount house would dispose of the dealer's cars for him.
And it really was his agent or broker.
Justice Abe Fortas: And then he obtains a power of attorney from the buyer and he proceeds to obtain the car pursuant to that power of attorney and he also proceeds to make the arrangement at the finance company.
Mr. Homer I. Mitchell: Yes, he does.
Justice Abe Fortas: And so I suppose -- well, we all know how vague these concepts are and how difficult it is to make legal characterizations in this field.
I suppose it would be possible to look on the discount house as either an independent -- as an independent contractor or certainly as an agent for both.
Justice Byron R. White: Well, what if he were one of those that Mr. Justice Fortas suggests Mr. Mitchell, what then under your franchise agreement?
Mr. Homer I. Mitchell: Well, the franchise agreement contemplates that the dealer shall have a place of business agreed upon.
Justice Abe Fortas: I understand that.
Mr. Homer I. Mitchell: And that's for -- not for any competitive purposes but for competitive purposes.
And having established that place of business, he shall not make arrangements for another place of business without the consent of Chevrolet.
So, as you asked, if he actually puts a place of business across the street from a discount house, that surely is a violation of the dealer selling agreement.
Justice Byron R. White: Well, what if the discount house just went to the dealer and said, “Sell me ten cars a month, and sell them to me.
I'll take the responsibility for them,” then he gets -- resold them, is there something in your franchise agreement to prevent that?
Mr. Homer I. Mitchell: Nothing in the franchise agreement prevents that but --
Justice Byron R. White: Would you prevent it?
I mean would you be legally entitled to do so?
Mr. Homer I. Mitchell: I think we're legally entitled to do so, but --
Justice Byron R. White: Contrary to what Mr. Friedman said.
Mr. Homer I. Mitchell: Contrary to what Mr. Friedman said, yes.
Of course it's one step further than the use of a discount house as a sales outlet.
You have the transfer of title, but actually --
Justice Byron R. White: Or on the antitrust laws down here, it shouldn't make much difference to you whether this fellow was an independent contractor, an agent or anything else.
I mean, if he's an agent of the dealer, you can stop him under your franchise agreement if you -- if it isn't within your franchise agreement, you can unilaterally stop him any way if you can persuade him without violating the antitrust laws.
Mr. Homer I. Mitchell: Well, as for the first part we certainly tried to stop him as a violation of the agreement.
And as to the second part, there were no sales in the metropolitan area of Los Angeles, two discount houses for resale.
Justice Byron R. White: Well yes, but as Mr. Justice Fortas suggest you've got sort of at least a mixed transaction here whether discount house actually assumes some risk in the matter and does a little bit more than just selling like an ordinary salesman does.
Mr. Homer I. Mitchell: Yes, he's more and some instances, the one that I was describing to Mr. Justice Fortas, it's more like a broker which is a form of an agent.
But all we tried in this case Mr. Justice White was the matter of sales to discount house outlets or sales through discount house outlets used by dealers.
The matter of selling to discount houses was not involved in Los Angeles and it has some aspects that need to be studied before we, you know, try to deal with it.
And when you sell to a discount house, it kind of tends to become a --
Justice Byron R. White: Some judge somewhere might think that what actually is going on there is pretty much like it as if they actually sold it through discount houses.
Mr. Homer I. Mitchell: Well, if they sold it to a discount house for resale, it tends to become a used car.
So it's quite a different transaction commercially and it makes quite a bit of difference to Chevrolet.
Justice Tom C. Clark: Mr. Mitchell, would that effect the servicing of the car?
Mr. Homer I. Mitchell: Well sure, if they are the sale to someone and the title to the car is gone, there's no obligation on the dealer to worry about that car anymore.
Justice Tom C. Clark: It might be that this, the method that they use in order to save the servicing in the new purchaser.
Mr. Homer I. Mitchell: Yes, that might be sir.
Yes it might be.
Justice Tom C. Clark: I wondered if the salesman on the dealer and I was --
Mr. Homer I. Mitchell: I didn't understand you.
Justice Tom C. Clark: Suppose I was the dealer in Los Angeles and I knew that there was an organization, we'll say, of Standard Oil station employees and managers.
And I went to the managers meeting one day at noon and I said, “I want to appoint each of you managers, you see every cars, everyday people come in and buy gasoline.
I want to appoint each one of you managers and not salesman.”
Would that violate your franchise?
They wouldn't have any cars on their lots or on their stations at all but whenever I came in -- another person came in to buy gas, why don't you go down to Clark's place and get your car?
Mr. Homer I. Mitchell: Well, it might under these circumstances.
The thing that we're objecting to about discount houses is not for discount houses because dealers are discounter also.
What we're objecting to is another place of business at which cars can be purchased, because by putting in another place of business next door to dealers, 23 or something, but supposing they fully operate and becomes 50 or 75 and it can in that area.
You put in other places of business and you cut up the pie so that somebody is not going to survive and these discount houses don't have much of an operation as you suggested.
And so the people who are not going to survive are the small dealers whose -- who provide a very important competitive service to Chevrolet in the selling of cars.
And so there'll be a lot of big dealers using discount houses to the detriment of Chevrolet's ability to compete.
And that is primary affecting them so far as Standard Oil Company employees are concerned, if they're really setting up a place of business there where cars can be purchased, yes they violate the location clause.
Justice Tom C. Clark: They don't have any cars, no salesman, they don't have any place where they show the car --
Mr. Homer I. Mitchell: No, but if they advertised cars are available here for purchase, you know, I'm -- the reason I don't answer your question directly because I don't what those Standards Oil dealer or service station men are going to do.
Justice Tom C. Clark: Or they just -- can that and they say, “Say, a truck pretty old, it got a lot of knots in it.
I got a friend old Clark down the street here and he just been part of the sales commission, won't you go down there I think may be he'd give you a good deal.”
Mr. Homer I. Mitchell: I don't think that violates the location clause.
I think you have to have and the way we have construed the location clause.
The casual sale makes no difference.
A so-called bird dog which is a kind of a situation you're describing perfectly legitimate.
But where the dealer sets up an arrangement, a regular arrangement where the place of business which advertises Chevrolets for sale, as the discount houses did, where people come to make merchandising transactions of a wired character, sets up an automobile department that's another place of business.
And that is a violation of the dealer selling agreement.
Justice Tom C. Clark: They don't have any exhibit room, a studio or showrooms?
Mr. Homer I. Mitchell: No, there was some exhibiting of cars done, but some do -- I can't answer the question directly because some showed cars.
Most of them didn't.
The reason that Chevrolet has this plan is that they try to have dealer outlets where they will be conveniently available for the servicing of automobiles because by keeping automobiles in good order, you satisfy the costumers and they come back again, 70% of the Chevrolet costumers are repeat costumers.
You do that by satisfying them and the dealer does that at convenient location.
He also furnishes the factory with a great deal of information which by reasonably close contact with costumers, he's able to do which enables the factory to prevent fluctuations in their schedule.
Keeps a constant employment, keeps the costs down, a very important competitive factor to keep the cost down.
And then at the same time it provides a method of completely pre-competition.
It's really the minimal restriction, if you want to call it that, or obligation, the minimal obligation under which a franchise plan can operate.
Appellant makes the concession that if the dealer were himself to establish another outlet, it would violate the dealer selling agreement and there would be no objection on his part.
They say at page 33, “We may concede arguendo that a proliferation of branch locations may impair General Motors' plans basing of franchise dealers, as it contends, by depriving some individual dealers of a sufficient profit opportunity for them to bear the burdens imposed by the franchise contract in regard to, for example servicing, showroom display, inventory and periodic reports.”
What we have here if a dealer can't himself establish an outlet but can simply make an arrangement of the discount house to sell his cars for him, however you characterize the legal terms of the transaction, if he can make another -- make an arrangement with another place whether it's a discount house or supermarket or what, to sell a dealer's car for him, the dealer has got another business location to which he sells cars.
And it's just as destructive and as -- if I have time, I can show you in doing the brief, it is more destructive of the Chevrolet franchise plan because it just happens that these concessionaires and discount houses have no ability to perform the competitive operations which any dealer-owned outlet would have.
And the -- sir?
Justice Byron R. White: Let's suppose I'm not in the business of renting cars like cars for someone.
So having this independent and I started business in Los Angeles renting cars and I need ten Chevrolets a month that I buy from one of the GM dealers, and I pay them cash for the cars and at least a month.
One time I say, “Instead of selling me ten cars and let's -- sell me 20, the same price.
I've been getting a pretty good price for.”
And the Chevrolet dealer says, “Well what do you need it for?”
“Well, I'm going to resell them with a little profit over the point price you sell them to me.
And all I want you to do is just deliver the cars to me.
I'll give you a note for them.
I pay you cash for them on the Barrel Avenue, deliver them to my establishment.
And the only thing is I want you to transfer title directly to any costumer that I've got.”
Now, would that be -- that kind of an arrangement be another establishment of yours?
Mr. Homer I. Mitchell: I want -- he says to the dealer, “I want you to transfer title to my costumer.”
Yes if he is --
Justice Byron R. White: But I -- but he says, “I will already have paid you for them, you already have the cash in your pockets.”
Mr. Homer I. Mitchell: Yes, but if he's running that from a place of business and thereby selling cars for the dealer that violates the location clause.
But if he takes title to the cars, it immediately becomes a used car and this is another problem.
Justice Byron R. White: Well, you say that you could stop him under your present franchise agreement from doing that and do it legally, but you also say that you, General Motors, could come around to your dealer and say, “By the way, we know we can't stop you under our present franchise agreement, let's sign up a new one that says that you will stop and you'll never do it again.”
And your dealer who doesn't want to get in trouble with you, signs that agreement, now you would say you could do that too, wouldn't you?
Mr. Homer I. Mitchell: Stop the dealer from selling cars or will say --
Justice Byron R. White: Well, the dealer sit down say a new agreement to say and the dealer promises faithfully he will never sell in that manner again.
Mr. Homer I. Mitchell: Well I think -- I personally think so, but we haven't studied that problem in this case, Mr. Justice White.
We have quite a large problem with this one situation.
And that presents some different commercial aspect that would --
Justice Byron R. White: Well, I'm not sure it becomes any different problem than what you have before us.
Mr. Homer I. Mitchell: Well, it does in the sense that the car tends to become a used car, and so --
Justice Byron R. White: Well, that isn't what I thought.
I'm leasing cars and I find that I can sell new cars to my costumers and have a little -- and they'll pay a little bit more than I paid for whether they're used or not.
Well go ahead.
Mr. Homer I. Mitchell: Well, we do not stop them from selling cars for resale used or otherwise, I mean that problem was not involved here and is not involved in this case.
Justice William O. Douglas: And they can sell at any price, is that right?
Mr. Homer I. Mitchell: Chevrolet dealers can sell at any price they want to.
They can sell wherever they want to.
Their area of sales responsibility is the entire area metropolitan area, but if they want to sell in San Diego or San Francisco cars to people there, send salesmen, there they can do it.
There's no territorial restriction whatsoever.
There is no restriction whatsoever on to whom they may sell, anybody they want to, any costumer they can find at any price.
They sell at discounted prices regularly and although the entire 85 dealers were not studied, those selling through discount houses sold at the same price to their regular costumer as they sold them through the discount houses.
Justice Tom C. Clark: They don't yet charge at any cheaper by the dozen, do they?
Mr. Homer I. Mitchell: What is it sir?
Justice Tom C. Clark: I say the dealer doesn't buy them any cheaper and in the number you buy them out?
Mr. Homer I. Mitchell: No, no.
Justice Tom C. Clark: Same price?
Mr. Homer I. Mitchell: Same price.
Justice Abe Fortas: Mr. Mitchell, forgive me but to me, your response to Mr. Justice White's last question would be quite important as I see the case now and I want to be sure that I understand your viewpoint.
You said earlier that you did or some of these dealers did furnish cars to Avis, is that true?
Mr. Homer I. Mitchell: Yes, yes dealers --
Justice Abe Fortas: Now, let us assume --
Mr. Homer I. Mitchell: -- sell them to Avis.
Justice Abe Fortas: Thats right, now let us assume, if you will, as to take Mr. Justice White's illustration that Avis decides to go into the business of reselling some of those cars.
In other words, it buys cars from a dealer there and as some of those cars had re-serviced.
Now, is it your position that you would have (a) power under your franchise agreement, and (b) assuming that you had the power under your franchise agreement that you could lawfully exercise that power under the antitrust laws and prevent dealers from selling cars to Avis for resale?
I've tried to make this very specific so I can get your answer to it.
Mr. Homer I. Mitchell: Another terms of the dealer selling agreement, Chevrolet cannot prevent its dealers and doesn't attempt to from selling cars to Avis.
Justice William J. Brennan: Well, is there any servicing --
Mr. Homer I. Mitchell: Well they sell to Avis and if Avis wants to resale them under the terms of the dealer selling agreement that can't be stopped.
That apparently doesn't answer your question that they can -- there is no restriction on to whom they may be sold or for what purpose for that matter under the terms of the dealer selling agreement.
You asked me, second, whether that could be stopped by amending the dealer selling agreement, that's a subject which they haven't dealt with.
Justice Abe Fortas: Alright, now tell me what, in your view, are the differences between that hypothetical situation and the one with which we're here confronted.
Now, Avis is an established company and has places of business and under my question to you from those places of business they were obtaining cars from your dealers and reselling them.
Now, it would help me if you would tell me in what material respects that illustration differs from the case that is before us.
Mr. Homer I. Mitchell: Well, when Avis buys the car and takes title, any sale thereafter becomes a used car sale.
Justice Abe Fortas: I understand that you said it several times.
Mr. Homer I. Mitchell: Why?
Because under the law, at least of the State of California, when a car is sold, title is transferred on a little pink slip on our state and registered in the State of California, the title is transferred to the costumer, Avis.
And Avis now owns the car and it's a used car because it is second sale and he can not retail it as a new car.
Justice Abe Fortas: So you think that discount houses could not use that double title of transfer device here because they wouldn't be able to represent that the car was a new car, is it?
Mr. Homer I. Mitchell: That's one reason they couldn't.
Justice Abe Fortas: Is that what you're relying on?
Mr. Homer I. Mitchell: That's one reason they could not.
There are other practical reasons.
These discount house operations are sort of shoestring affairs and I don't know that it's practical for them to do that, but commercially I don't believe that it would work.
And therefore, it hasn't of recent years any way presented a problem.
And it's a problem that we didn't have to face here.
The Government didn't charge us with restraining sales to Avis for resale and it's something that we didn't try.
And therefore, when all its commercial effects are and wherein they may differ from this, from the violation of the present provision, I can't tell you.
Justice Abe Fortas: I'm really not interested in the commercial aspects of this, I'm sure you know.
Mr. Homer I. Mitchell: Oh no!
No, but I think -- well, I think the commercial aspects affect the legal position of the parties and the validity of the restriction.
If the restriction unreasonably restrains competition, it's invalid.
If the restriction does not do so, it's not invalid.
And I think the commercial aspects of a transaction, I believe, are extremely important to that question.
That's what this Court held in White Motor.
You take a look at the economic and business stuff of -- out of which the restriction arises.
I think it's very important.
Justice Tom C. Clark: This is not a per se.
Mr. Homer I. Mitchell: Pardon me?
Justice Tom C. Clark: They don't claim this as per se violation, what is this.
Do you have evidence here in the --
Mr. Homer I. Mitchell: Well, it depends on what we're talking about.
On their new theory that the vertical -- the contract is invalid, they don't claim that's a per se violation.
They claim that's with the contract by restricting dealers from having -- from using discount houses or other places of business for second outlet, they claim that's an unreasonable restraint of trade.
And we say that it's not an unreasonable restraint because it would destroy the franchise system.
Justice Tom C. Clark: Well, you talked about White that was per se violation.
Here, you had evidence of all these transactions, as I understand it, that's right, isn't it?
Mr. Homer I. Mitchell: Yes, but I don't exactly see what you mean.
We had evidence of the way the transactions took place you mean, and other transactions?
Justice Tom C. Clark: Yes, how they did it.
Mr. Homer I. Mitchell: Yes.
Justice Tom C. Clark: All about it.
Mr. Homer I. Mitchell: Yes.
Justice Tom C. Clark: What effect it had on your dealership arrangement?
Mr. Homer I. Mitchell: Yes, we showed that.
We showed that the result of dealers using these extra outlets would be to have more outlets than the sales potential would support that somebody would --
Justice Tom C. Clark: They did it in White and that was permitted, it went on the pleadings.
Mr. Homer I. Mitchell: Well, we put this in not to fight this vertical restriction Mr. Justice White, because they didn't even talk about this in the trial court.
This is -- we're trying this for the first time in this high Court.
At the trial court level, they didn't claim that the contract was invalid.
They said that the contract had nothing to do with it.
What they were claiming was a per se violation which they call a boycott because we enforced our contract and required the dealers to abide by it, they said that that got us into a boycott.
Justice Tom C. Clark: What part of the conspiracy, from General Motors?
Mr. Homer I. Mitchell: Conspiracy to prevent sale through discount houses which they characterized as a boycott.
That was what we tried at the trial court level and we put in this evidence of the importance of the location clause to us and of the effect that it would have if dealers were allowed to use these extra outlets.
And now they would run the small dealers out of business and we showed by a study of Price Waterhouse that it would be the little ones that would first have to cave and then we get left with areas in this vast postal claim where there won't be any dealers having service facilities or providing the factory with information to hold down cost.
And that the result would be a very detrimental to General Motors.
And we put in that evidence because we were not just sure that the trial judge would believe the -- Mr. Roach who is now the president of General Motors but who is at the time of the transaction, vice president in charge of distribution.
He said, he testified that General Motors acted not to help out the dealers, not under pressure of the dealers.
Now General -- what General Motors did was to send this letter to every General Motors dealer in the United States, Pontiac, Cadillac, Volvo, Buick, Chevrolet and 15 dealers out in Los Angeles County, 15 dealers didn't pressure General Motors into doing this.
General Motors did this because it believed that it was exceedingly detrimental to its franchise system that was going on.
Justice Abe Fortas: What -- that was a letter telling them not to deal with discount houses?
Mr. Homer I. Mitchell: That's right.
Justice Abe Fortas: And they sent it to every dealer.
Mr. Homer I. Mitchell: Every dealer in the United States, that's right.
And not under pressure of 15 complaining dealers out there in Los Angeles at all.
Justice Abe Fortas: Did General Motors bring suit against any of these -- any of its dealers for violation of franchise agreement in this respect?
Mr. Homer I. Mitchell: No sir, they did not.
They talked to them and pointed out what they were doing and that it could be a violation of the franchise agreement.
General Motors, the evidence shows, General Motors values its dealers very highly.
These are very important people and they're hard to come by.
Justice Abe Fortas: I'm sure the feeling is mutual.
Mr. Homer I. Mitchell: Yes, I hope so.
I hope so.
And so they just don't go to them and sue them, they try to work with them and that's what they did here.
And the -- you asked whether the Government accepted the findings in this case, well having heard the testimony of Mr. Roche and of Mr. Gordon, who was then president and had something to do with the sending out of this letter, and then Mr. O'Connor who had to do with effectuating the policy, as he was directed to do, out in Los Angeles.
Having heard these three witnesses testify as to why they did it, which was nothing to do with any pressure for many dealers, but in an effort to carry out this policy of General Motors to prevent sales not by discount houses particularly, but by other -- by unauthorized outlets.
And thus proliferates a number of outlets.
Having heard that testimony and understanding perfectly well as is shown by an excerpt that I included in the brief, that there was a close question for Judge Carr to decide, a very close question whether General Motors or Chevrolet was acting jointly with the dealers or was acting independently.
And having examined that question which he understood he had to decide, he made a finding that General Motors was acting independently.
We considered under Rule 52 (a) not the function of this Court to try to retry that issue of fact, because it is an issue of fact.
Judge Carr saw the witnesses.
He heard them.
He examined them himself and the question of whether General Motors acted independently or in some kind of a combination or a conspiracy with the dealers is a question which a finding which he made.
And the Government must attack that finding to prevail on the conspiracy issue.
So far as price competition is concerned, they make a great deal of the fact that the -- of their claim based on the average growth profits per car.
They make a great deal of their claim that the costumer could purchase for less through a discount house.
Actually the only way we can make any price comparison is to look at the Price Waterhouse study, because that is the only study which compares retail prices to ordinary costumers.
And we find there as these seven dealers, five of them in the City of Los Angeles, one in Glendale, one in Pasadena.
We find there that there are variances in the prices at which they sell to their regular costumers.
A citizen Chevrolet located up there in Eagle Rock, which Chief Justice I'm sure knows where it is, between Pasadena and Glendale.
Of the man studied, he's the low, low dealer.
And remember, these men are all selling through discount houses, out of what is supposedly low prices.
Mr. Biggs is the second in Vermont, he's $54 higher than on the average than a citizen.
So that there is a spread normally, a differentiation of -- differential of prices normally within the City of Los Angeles and that the dealer -- the costumer has plenty of opportunity to get a price.
If he wants to -- if he lives near Biggs and is dissatisfied because Biggs is higher, then two miles away which is about four or five minutes driving in Los Angeles, easy driving, he is over at Courtesy Chevrolet who is still -- who is lower than Biggs, considerably lower, $28 lower.
Or he can go over to Brooder on Hollywood Boulevard which is about six minutes away.
Or if he really wants to get the low, low man of those studied up at Eagle Rock, this is about six miles away, 12 to 15 minutes and here's a man buying a car on the order of $3000 which he buys on the average once every 3 1/2 years, so he has plenty of opportunity even among these seven dealers to -- and in an easy manner to find a better price.
I'm sure that the -- if the entire area were studied, then there would be a great variation.
I can't whether citizens would be the lowest or whether Biggs would be the highest, perhaps some were even higher.
But there would be adequate opportunity within the Los Angeles area for the costumer to find a price.
So far as Orange County is concerned, Orange County is -- you can't tell when you go from Los Angeles County to Orange County anymore, it's all build up.
And if there are not dealers in Orange County, we don't know what they were selling their retail costumers for.
But if by any chance who were not a dealer there satisfactory to the costumer, it's very easy to drive 15 miles in the Los Angeles metropolitan area.
Very easy indeed, I do it every morning and every night, and it takes no time at all to get to dealers within the 15-mile radius of the average dealer in the Los Angeles metropolitan area.
There are 34 other dealer outlets where he can find a bargain, 34 opportunities.
It's very simple matter and the franchise system is so designed as to enable the prospective costumer to find a bargain.
No dealer sells regularly at any price.
Every transaction is a new bargain and every costumer in the area has an adequate opportunity to purchase, and actually, the discount house does not introduce any new competition in the area.
All the discount house does is to provide a place of business where some of these large dealers, most of them rather large dealers to have another outlet perhaps near some smaller dealer at which to do business.
And it's not just a matter of Orange County.
Actually, there were discount house outlets near these larger dealers who were selling through discount houses supposedly at low prices.
So every costumer has an opportunity to purchase at a low price.
I have a point --
Justice Byron R. White: So that in your view -- excuse me --
Mr. Homer I. Mitchell: Excuse me?
Justice Byron R. White: In your view, this really wasn't of -- the effectiveness of this arrangement wasn't price at all.
It was just what people thought their price was.
Mr. Homer I. Mitchell: There's no question about it.
The -- there is a psychology and there was testimony about this.
There is a psychology that you get a bargain out of discount house.
It's perhaps true --
Justice Byron R. White: And the advantage of it was so that either was using it was that he didn't sell it in a lower price, he was just getting more value.
Mr. Homer I. Mitchell: That's why he got another outlet, he got another place of business just the same as if he did establish it himself, he got another outlet.
Justice Byron R. White: Or just likely his salesman that were cruising around in those other areas where he is specially affected.
Mr. Homer I. Mitchell: Well, but salesman cruising around, Mr. Justice White, don't produce that psychology that drags people into discount houses thinking they can purchase for less.
They don't purchase automobiles for less but they must purchase some other merchandise for less or think they do.
And actually automobiles are sold on the basis of contact, so the witnesses testify.
If you could get the costumer in there, you could probably sell him the -- any dealer ever has a hand on it.
So that's the -- that was what was happening was that these dealers were using this psychology of cut rate prices.
And they couldn't use that psychology by having a -- sending a salesman out, so they were really sticking an outlet in the discount house.
That's a fact.
Chief Justice Earl Warren: Judge Hansen.
Argument of Victor R. Hansen
Mr. Victor R. Hansen: Mr. Chief Justice, and may it please the Court.
The three appellee dealers association, Losor is made up of a group of small businessmen who are Chevrolet dealers in a portion of Los Angeles County and a portion of Orange County.
The other dealer association, Dealer Service, is made up also of a group of independent businessmen who are Chevrolet dealers in the Los Angeles City area.
The Foothill Dealers Association is made up of also Chevrolet dealers partially in Los Angeles County, San Bernardino County and a couple in Riverside County.
These organizations were formed many years ago.
They are not in any way connected with, controlled by or supervised by General Motors.
They were organized for three main purposes.
There are so many different models and colors and accessories that can be placed on Chevrolet automobiles that were enable for a dealer to get the model that he desires for his costumer.
He can call his dealers association that maintains what is known as a trading bureau or information bureau.
They have a list of the inventory of all the dealers in the association and can readily make known to the inquiring dealer where he might purchase or trade with another dealer to get the automobile that he wants.
In addition to that, the dealers association enables the dealers to have joint advertisers.
And as a third reason or purpose for the association, they are able to study the problems of automobile merchandising and recommend legislation.
And in this case, there is evidence of the effect that such association did recommend legislation to the state legislature.
Now, we are making two points.
The first point is that the appellant had raise no question whatsoever which relates to the dealers association.
The question in the notice of appeal, the question in the jurisdictional statement and the questions in the brief they were one each in the former and there are two in the brief.
Whether the agreement between General Motors and each of its Chevrolet dealers, the Los Angeles area forbidding the dealer to sell cars to discount houses unreasonably restrains trade in violation of Section 1 of the Sherman Act.
And second, whether the Chevrolet dealers in the Los Angeles area illegally conspired among themselves and with General Motors to suppress such sale.
There is not an iota of evidence of any agreement, association or conspiracy as between General Motors and the dealers association.
There is no contention made but there was and there is no evidence of any association agreement or conspiracy between the Chevrolet dealers, General Motors and the Chevrolet dealers association.
Justice Byron R. White: Well, Mr. Friedman says the Government is still seeking relief against the association.
Mr. Victor R. Hansen: Mr. Justice White, I heard that, but there's nothing in their brief there's nothing in their argument, there's nothing in the evidence that would justify any relief and it's my understanding the rule is equally applicable to the Government as it's applicable to private parties that the Court will only consider those matters which are included in the question presented to the Court.
We are not included in the question present to the Court.
Now, our second point is the fact that let's assume for argument only that this question might probably -- pardon me.
Justice Byron R. White: You don't think it's included in the idea that each of the dealers in Los Angeles conspired with General Motors if we're suddenly shown that the way they did it was through their association?
Mr. Victor R. Hansen: No, there's no showing that they did it through the association then all dealers are not members of the association.
Justice Byron R. White: Well, that may be so and that may be the record, that may be what the record is but that's a little bit different from saying they're not entitled to urge it here.
Mr. Victor R. Hansen: But they haven't urged.
They haven't urged it any where.
Justice Byron R. White: Well, I suggest they're urging it by saying that all of the dealers have conspired with General Motors.
Mr. Victor R. Hansen: Well, for the first time I heard it today that Mr. Friedman said that they were hoping to get relief against the association.
Nowhere have they --
Justice Byron R. White: Well, but may be the record --
Mr. Victor R. Hansen: Pardon?
Justice Byron R. White: May be the record doesn't sustain their contention if you suggest, but you think they're even entitled to have us consider it here?
Mr. Victor R. Hansen: I don't think so because I don't think it's within the question.
The associations hardly even mentioned in there, the associations are corporations, nonprofit corporations and there are many other members of the dealers who are dead since this thing started.
And they are not all members of the association.
Now, as to our second point --
Justice Tom C. Clark: Are they a party to the suit?
Mr. Victor R. Hansen: Pardon?
Justice Tom C. Clark: Are they a party to the suit?
Mr. Victor R. Hansen: They are not -- the dealers are not parties to the suit.
Justice Tom C. Clark: I mean the --
Mr. Victor R. Hansen: The associations are.
Justice Tom C. Clark: They are the ones that are alleged who policed the understanding policy?
Mr. Victor R. Hansen: They were in the lower court were contended to be at parties that part of the alleged conspiracy, but not before this Court.
Justice William J. Brennan: Will you rely, Judge Hansen, primarily on the finding that there was no conspiracy?
Mr. Victor R. Hansen: Well, the finding was the appellee dealer association, did not act in combination, conspiracy or concert with General Motors.
There was no agreement between the defendant dealers association or any of them, and General Motors as to what action General Motors would take or whether General Motors would take any action at all with respect to the practice by some Chevrolet dealers of selling through discount houses or referral services.
In Finding 44, there was no expressed or implied agreement between defendant associations or between any of them or any of their dealer members that any of said dealer members should refrain from selling through discount houses or referral services.
Justice William J. Brennan: Well, I suppose those findings were not acceptable?
Mr. Victor R. Hansen: Well, my understanding is if they must be found to be --
Justice William J. Brennan: Well, I know, clearly erroneous, but suppose on the premise that they were found to be clearly erroneous --
Mr. Victor R. Hansen: Well --
Justice William J. Brennan: -- would then the association --
Mr. Victor R. Hansen: -- but there is Your Honor --
Justice William J. Brennan: -- adhere on the Government's argument?
Mr. Victor R. Hansen: There is no iota of evidence to show that, as a matter of fact --
Justice William J. Brennan: I know, Judge Hansen, I know your position on it.
I'm asking you if we were to say they were, would the association then be here in the context the Government insisted?
Mr. Victor R. Hansen: I think not.
Justice William J. Brennan: Not even that?
Mr. Victor R. Hansen: Not even that.
Now, as far as the facts are concerned, the facts are uncontradicted that the first meeting of the dealers association occurred on December 15, 1960 and that General Motors had already established its policy and announced it on December 14th.
And in that first meeting of the associations, all that was done was to appoint a committee to investigate, report back and determine what legislative action might be taken to solve this problem.
And there's not an iota of evidence that the association requested General Motors or any of the associations to take any action whatsoever.
I see my time is --
Justice Abe Fortas: Is there finding -- Judge Hansen, is there a finding that the effect of the association participated in the inspection or policing or whatever it may be called?
Mr. Victor R. Hansen: The associations did after the policy had been announced the following year, did employ an investigator and did shop for the purpose of whether or not there were sales -- still sales through discount houses.
And there also is evidence uncontradicted that as a result of this investigation, a representative appeared before the state legislator committee hearings and submitted the evidence and that that legislative committee passed the Bill involving the problem of sales through discount houses.
Justice Abe Fortas: But what was that legislation?
Mr. Victor R. Hansen: The legislation was promotion or establishment of the commission.
Presently, the dealers are under the Motor Vehicle Party and this was a Bill that established a commission and that commission was to have representation on it of dealers.
And the purpose of it was, was to require one selling new automobiles must have a service establishment.
None of the discount houses or several referral services do have service facilities.
Justice Abe Fortas: Well, that doesn't make this whole question practically academic?
Was that Bill passed --
Mr. Victor R. Hansen: Not here because it passed the lower house but did not pass the Senate.
But had it, if one of the purposes to see that there was a proper dealer locations services rendered and service available and parts available.
Justice Abe Fortas: Now, did the associations also advise General Motors of the results of the surveys made by their hired man?
Mr. Victor R. Hansen: They did after, not the association as such, but members of the association did advise General Motors of it but only after the alleged conspiracy to call General Motors to prevent dealers from selling through discount houses.
Chief Justice Earl Warren: Mr. Friedman.
Rebuttal of Daniel M. Friedman
Mr. Daniel M. Friedman: Yes, I believe, I have a couple of minutes.
Chief Justice Earl Warren: Yes you have.
Mr. Daniel M. Friedman: Just like, two things, first to refer briefly to this question of the participation of the associations, I'd like to provide the Court's attention to Finding 42 which specifically refers to the association's participation in the policing.
And in addition to that, of course, the associations acted through the members.
That was what happened was the associations that met them and the members went on.
Now, coming to the merits of the thing, I'd like to make --
Justice William J. Brennan: Pardon, just one last thing, Mr. Friedman.
That is to say then the Government's position is that you may have relief against the association without disturbing any findings in 44.
Mr. Daniel M. Friedman: Well, 42, we think, supports us because it shows that the associations did participate in --
Justice William J. Brennan: My question is does anything have to be done the finding in 44 can stand and yet you say --
Mr. Daniel M. Friedman: Yes.
Justice William J. Brennan: Alright.
Mr. Daniel M. Friedman: Now, the final thing -- point I'd like to make is this, there's been a lot of discussion here as to whether discount houses do give peoples bargains or don't give people bargains.
If they don't, if in fact the discount houses aren't charging more than the other dealers, it seems to me sooner or later they're going to go by the way side.
You can fool some of the people some other time, but we know you can't fool them all of the time, and over a long period of time, these discount houses are not going to be able to survive if the people who believe they're getting bargains find out they're not.
Now, on the other hand, if what all of these complaining dealers and salesman said about this situation was true that the discount houses were undercutting, that the dealers were unable to make sales because of the lower prices given by the discount houses, then it seems to me they chose one of two things.
Either it indicates that somehow the franchise method of distribution is not as efficient as it supposed to be or alternatively, it suggests that perhaps the competition among the dealers isn't as vigorous as it should be.
Because the discount house starts, it starts its competitive position under a very great financial handicap.
The dealer buys his car from General Motors at a stated price.
The discount house, in order to compete against the dealer, pays not only the price that the dealer paid, because the dealer turns it over to him, but also another profit for dealer and enters into, so that makes out of the deal, so that the discount house starts with a distinct competitive advantage.
Now, if in fact over a period of time, these discount houses despite that competitive handicap are able to prosper, if a large number of people prefer to buy cars that way, if they think they're getting bargains they continue to get those bargains, it seems to us that this is basically what the antitrust law is designed to permit, to allow a new type of merchandising.
To allow a situation which although like in some respectsa branch location, it is a place where cars are sold in a terminal location, there's many difference as far as the public are concerned.
And it seems to us that the whole thing about this is to impact on competition and if in fact these discount houses are able to survive despite these competitive handicaps, it suggests to us quite clearly and they're popular that if General Motors tries to eliminate them, this we think does constitute an unreasonable restraint of trade
Justice Byron R. White: Mr. Friedman, just one question.
Did you say that you could -- you thought you could get relief against the association even though you convinced this Court only on the -- not on the conspiracy in the end of your case, but on the franchise agreement end.
Mr. Daniel M. Friedman: No, I think as far as the franchise agreement is concerned, we do not -- that is not -- would not give us relief against the associations, because the associations we don't think --
Justice Byron R. White: Your conspiracy case has to stand before you reach the association.
Mr. Daniel M. Friedman: Yes, I think so.
Justice William J. Brennan: Well then, I don't follow, yet you say we can let Finding 44 stand.
Justice Byron R. White: That's my -- what it confused me --
Mr. Daniel M. Friedman: That -- I'm sorry -- as far as the --
Justice William J. Brennan: Can you prevail under conspiracy aspect of your case if we don't disturb Finding 44?
Mr. Daniel M. Friedman: No, I'm sorry Mr. Justice.
On our conspiracy aspect of the case, we do have to overturn 44 because we think there was a conspiracy at an implied --
Justice William J. Brennan: And the finding in policing in 42 does you no good.
Mr. Daniel M. Friedman: That's right, because --
Justice William J. Brennan: Without upsetting Finding 44.
Mr. Daniel M. Friedman: That's right.
Justice William J. Brennan: So that you got to upset 44 to reach the association, that's the short of it, isn't it?
Mr. Daniel M. Friedman: That's right, but not to reach General Motors on the franchise.
Justice Hugo L. Black: You mean just as to the conspiracy?
Mr. Daniel M. Friedman: Pardon?
Justice Hugo L. Black: You mean as to the conspiracy?
Mr. Daniel M. Friedman: Yes, yes.
Chief Justice Earl Warren: Very well.