May 06, 2009

Food and Ag Antitrust Case Update: Feeser's v. Michael Foods

Following a bench trial, a federal judge in Pennsylvania issued a rare plaintiff's judgment in a Robinson-Patman Act case, Feeser's Inc. v. Michael Foods, Inc. and Sodexho, Inc., Civ. No. 1:CV‑04‑0576 (M.D. Pa. Apr. 27, 2009). The court found that Feeser's, a local food service distributor in Harrisburg, Pennsylvania, had proved its claim that Michael Foods had discriminated against it in the pricing of egg and potato products sold to both Feeser's and Sodexho, a multinational food service company.

Proof of Competitive Injury Key

The district court in 2006 found Feeser's had established a prima facie case on three of the four elements of price discrimination—sales in interstate commerce to two purchasers, of goods of like grade and quality, with a difference in price—but granted summary judgment to the defendants on the final element: proof of competitive injury.

The Third Circuit reversed and remanded for trial on the issue of competitive injury, which it defined as requiring (a) proof that Feeser's competed with Sodexho to sell food; and (b) proof of price discrimination over time by Michael Foods.

Food Service Managers, Food Distributors Compete for Sales

Sodexho insisted at trial that, as a food service manager, it did not compete against Feeser's food distribution business, claiming it had never faced off against Feeser's in responding to an RFP from a customer. However, in a lengthy opinion, the court found that institutions serving food regularly switch back and forth from self-managing their food service operations and buying from the likes of Feeser, to contracting out the service to Sodexho. Witnesses and documents showed Sodexho competing with distributors such as Feeser's for the business of "self-operators," and that such competition occurred regularly outside of formal RFP processes.

In finding competition, the court distinguished the Supreme Court's 2006 Volvo Trucks v. Reeder-Simco decision. The court found Volvo inapplicable because "[f]ood service management companies, distributors, and [Group Purchasing Organizations] all compete formally and informally for the sale of food to institutions." However, the court identified only four instances of customers switching between Feeser's and Sodexho.

Whether the court's finding on competition is too vague in light of Volvo's focus on identifying instances of head-to-head competition affected by price discrimination could be an important issue in any appeal by the defendants.

Price Disparities Indicative of Intent to Discriminate

The court went on to find substantial price discrimination in the prices Michael Foods charged Feeser's as compared to Sodexho—59 percent higher on the 11 top-selling Michael Foods products taken together. These price disparities were passed on by Sodexho to its customers. The price discrimination had gone on for at least five years, a period of time more than long enough to bring into play the inference of competitive injury, based on the FTC v. Morton Salt doctrine.

The court then rejected the defendants' rebuttal argument that non-price factors such as superior service had swayed customers to Sodexho, finding ample evidence that low prices were key to Sodexho's marketing efforts.

The court also found no credible evidence that Michael Foods was merely meeting competition, finding perhaps ominously that a most-favored-nations clause in Sodexho's contract with Michael Foods was indicative of an intent to offer unlawful discriminatory pricing.

Finally, the court held that Sodexho had unlawfully solicited discriminatory prices from Michael Foods.

Remedy Limited to Injunctive Relief

The only bright spot for the defendants was the court's limitation of remedy to a prospective injunction against Michael Foods engaging in price discrimination in favor of Sodexho and enjoining Sodexho from seeking discriminatory pricing from Michael Foods. The court did not find sufficient direct evidence of lost sales to Feeser's to support an award of money damages.

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