Wednesday, June 03, 2009

Food Products Maker Held in Contempt for Discriminatory Pricing

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Michael Foods, Inc., a national food products manufacturer, has been held in contempt of a recent order (2009-1 Trade Cases ¶76,609), enjoining it from discriminating in price for the sale of food in favor of Sodexho, Inc., the world’s largest food service management company, and to the detriment of a complaining wholesale food distributor.

The federal district court in Harrisburg, Pennsylvania, found that Michael Foods required the complaining distributor to accept unlawfully higher prices as a condition of continued sales pending appeal of a judgment against it and ultimately terminated its direct sales to the complaining distributor after the distributor sought relief from the court.

As a remedy, Michael Foods was enjoined from refusing to sell its products to the complaining distributor on the same terms as they were sold to Sodexho, so long as the complaining distributor otherwise met its standards as a customer.

(For details regarding the decision and order, see Trade Regulation Talk, May 18, 2009.)

Disobedience With Court Order

Because the order was valid and known to Michael Foods, the only issue was whether the manufacturer’s conduct constituted disobedience with the order. With respect to pricing pending appeal, Michael Foods was aware that the proper course of action would have been to seek a stay of the injunction, according to the court.

Instead, it chose a path intended to circumvent the court’s order and to continue its unlawful price discrimination by selling its products to the complaining distributor at a higher price than Sodexho.

As for Michael Foods’s termination of direct sales to the complaining distributor, the manufacturer was not in contempt of the order for refusing to deal, but rather for its continued dealings with the complaining distributor in defiance of the order. Michael Foods continued to violate the order through its ongoing sales to the complaining distributor through third parties.

Additional Link in Distribution Chain

Michael Foods attempted to avoid its obligations under the Robinson-Patman Act in defiance of the injunction by inserting an additional link into the distribution chain through its sales to a third party for resale to the complaining distributor, in the court’s view.

Meanwhile, Michael Foods continued to sell products to Sodexho (through its distributor) at the far lower prices. Thus, the court rejected Michael Foods’s argument that the order did not specifically prohibit it from refusing to deal with the complaining distributor, and that the court would have had no power to do so.

The May 26 decision in Feesers, Inc. v. Michael Foods, Inc., will appear at 2009-1 Trade Cases ¶ 76,628.

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