Price Discrimination Claims Against Electricity Service Provider Revived

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

The U.S. Court of Appeals in Cincinnati has ruled that Robinson-Patman Act claims should not have been dismissed against retail electricity service provider Duke Energy Corporation for discriminating in price between different purchasers through Duke subsidiaries and an affiliated company.

Dismissal of the action (2009-1 Trade Cases ¶76,595) brought by individuals and businesses based in Ohio was reversed, and the case was remanded. The antitrust claims were not barred by the filed-rate doctrine and were adequately stated.

The complaining customers adequately alleged injury and competitive disadvantage sufficient to survive a Rule 12(b)(6) motion to dismiss, the court ruled. The complaining customers alleged that they suffered competitive disadvantage compared to certain favored companies as a result of alleged “indirect rebates to General Motors Corporation and other large consumers in exchange for their withdrawal of objections to a rate-stabilization plan under review by the Public Utilities Commission of Ohio (PUCO). The complaining customers would have had to pay substantially more for electricity than their competitors due to the rebates.

The court also rejected Duke’s argument that electricity was not a commodity within the scope of the Robinson-Patman Act. The defendants suggested that electricity was not a commodity because the Act used terms such as “goods, wares, or merchandise to refer to commodities, and these terms were not commonly applied to electricity. Moreover, the complaining customers were not required to purchase for resale in order to pursue a Robinson-Patman Act claim, the court held. The defendants’ contention that the Robinson-Patman Act applied only to the resale of a purchased product was not consistent with case law.

Filed-Rate Doctrine

The complaining customers’ federal claims against Duke were not barred by the filed-rate doctrine, the court ruled. The filed-rate doctrine barred challenges to the reasonableness of a filed rate. The complaining customers’ claims did not concern the particular rate set by the PUCO, but rather payments made outside of the rate scheme. The complaining customers argued that the side agreements were not filed with any agency, including the PUCO, and are unlawful. The allegation that certain large consumers, by receiving a rebate, effectively paid a lower rate than the complaining customers did not transform the action into an attack on filed rates.

The June 4 decision is Willams v. Duke Energy International, Inc., 2012-1 Trade Cases ¶77,913.

Gas Distributor Failed to Show Actual Injury from Alleged Price Discrimination

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

In a long-running dispute between natural gas supplier Dynegy Marketing and Trade and a natural gas distributor, the U.S. Court of Appeals in Chicago today upheld summary judgment in favor of Dynegy on the distributor’s price discrimination counterclaim under Sec. 2 (a) of the Robinson-Patman Act.

The distributor failed to offer evidence that it suffered an actual injury as a result of Dynegy’s purported price discrimination to support treble damages, the court held.

The distributor alleged that the supplier charged it more for gas than it charged one of the distributor’s competitors. The distributor pointed to price differentials of up to ten cents per therm and contended that it was injured by them.

On appeal, the distributor argued that it had established a prima facie violation of the Robinson-Patman Act. The appellate court suggested that the distributor should have focused on establishing an actual injury resulting from the alleged price discrimination. Mere demonstration of a “competitive injury” was not sufficient to recover treble damages.

The distributor dedicated a mere five sentences to the issue of injury between its opening and reply briefs, the court noted. In those five sentences, the distributor contended that it had “identified evidence of lost sales and profits resulting from Dynegy’s price discrimination” and evidence of lost sales and profits resulting from the alleged price discrimination. However, there was no indication of what that evidence was, or how it tied to the supplier’s actions.

The August 4 decision in Dynegy Marketing and Trade v. Multiut Corporation, No. 10-2811, will appear at CCH 2011-2 Trade Cases ¶77,554.

Mowing Equipment Maker's Pricing Practices Not Discriminatory

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A mowing equipment manufacturer and its exclusive wholesale distributor in the Louisville, Kentucky area did not violate the Robinson-Patman Act through an alleged discriminatory pricing scheme, the U.S. Court of Appeals for the Sixth Circuit in Cincinnati has ruled.

A federal district court's dismissal of a dealer's secondary-line price discrimination claim against the manufacturer and its distributor with prejudice (2010-1 Trade Cases ¶76,894) was proper.

The trial court initially declined to dismiss the price discrimination claim based on the belief that the dealer was alleging that the manufacturer actually set or controlled the distributor's prices. The court subsequently vacated that decision, however, after it determined that such a belief was incorrect. Based upon this determination, there were insufficient factual allegations to support the dealer's claim, the lower court held. The appellate court agreed.

Indirect Purchaser Doctrine

The complaining dealer did not plausibly allege the existence of a dummy or strawman arrangement that could satisfy the Act's different purchasers requirement using the "indirect purchaser" doctrine. That doctrine prevented a manufacturer from insulating itself from Robinson-Patman Act liability by using a dummy wholesaler to make sales at terms actually controlled by the manufacturer.

Following the U.S. Supreme Court's tightening of the pleadings standards in Bell Atlantic Corp. v. Twombly (2007-1 Trade Cases ¶75,709) and Ashcroft v. Iqbal(2009-2 Trade Cases ¶76,785), a plaintiff could no longer use the discovery process to obtain the pricing information it needed to make its case after filing suit, the appellate court said.

The dealer's allegation that the manufacturer monitored the distributor's prices was insufficient. Simply providing advertising and warranty programs, or giving suggested retail prices, could not be enough to satisfy the indirect purchaser doctrine.

The June 21 decision in New Albany Tractor, Inc. v. Louisville Tractor, Inc., No. 10-5100, will be reported at 2011-1 Trade Cases ¶77,498.

Price Discrimination Judgment Against Food Manufacturer, Food Service Vacated

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

Because a complaining regional food distributor and the world’s largest food service management company were not “competing purchasers” for purposes of the Robinson-Patman Act, the U.S. Court of Appeals in Philadelphia has reversed a judgment in favor of the complaining distributor on its price discrimination claims against food manufacturer Michael Foods, Inc. and favored food service management company Sodexo, Inc.

The complaining distributor, Feesers, Inc., could not satisfy the competitive injury requirement of a prima facie case of price discrimination under Sec. 2(a) of the Robinson-Patman Act.

Because a prima facie case of price discrimination under Sec. 2(a) could not be established against Michael, Sodexo could not be held liable for inducement under Sec. 2(f) of the Act. The appellate court instructed the district court to enter judgment as a matter of law for
Michael and Sodexo.

Competing Purchasers

“[T]he timing of the competition and the nature of the market” compelled the appellate court to conclude that Feesers and Sodexo were not competing purchasers. The setting for the dispute was the food service industry.

The appellate court explained that the food service industry consists of a three-tier distribution system. Manufacturers sell products to distributors, who resell those products to operators, including self-operators, and food service management companies.

Feesers sold food to self-operator institutions and food service management companies. Sodexo sold food in conjunction with its food service management services. Feesers alleged that Michael Foods offered Sodexo egg and potato products at a discounted price that was unavailable to Feesers.

Inference of Competitive Injury

The district court had decided that Feesers was entitled to an inference of competitive injury, even though Sodexo sold food only to institutional customers in conjunction with its food management services, while Feesers primarily supplied institutional customers that self-operated their dining services programs. According to the district court, the defendants were
unable to rebut the presumption.

The appellate court held that any competition between Feesers and Sodexo occurred at the time a potential customer was deciding whether to self-operate or hire a food service management company. However, Michael did not make a sale until the institutional customer chose a particular distributor or food service management company.

Any resulting sale of Michael’s products would have occurred after that competition had ended. Therefore, Feesers and Sodexo were not competing purchasers.

The January 7 decision in Feesers, Inc. v. Michael Foods, Inc., will appear at 2010-1 Trade Cases ¶76,865.

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.

Food Products Maker Engaged in Price Discrimination

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

Michael Foods, Inc., a national food products manufacturer, engaged in price discrimination 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, has ruled.

The court enjoined Michael Foods from discriminating in price for the sale of food in favor of Sodexho over the complaining wholesale food distributor. In addition, Sodexho was enjoined from inducing or receiving discriminatory pricing from Michael Foods.

The complaining food distributor, Feesers, Inc., initiated the Robinson-Patman Act lawsuit in 2004. The company alleged that Michael Foods offered lower prices on its egg and potato products to Sodexho. It contended that it had lost some of its institutional customers to Sodexho as a result of the price discrimination.

In May 2006, the district court found that Feesers had established the first three elements of the prima facie case of price discrimination, but had failed to offer sufficient evidence to establish competitive injury resulting from the conduct (2006-2 Trade Cases ¶ 75,335).

On appeal, the U.S. Court of Appeals in Philadelphia reversed and remanded the case for trial (2007-2 Trade Cases ¶ 75,822). After a three-week trial, the district court concluded that Michael Foods and Sodexho violated the Robinson-Patman Act.

Competitive Injury

Feesers was entitled to an inference of competitive injury resulting from the price discrimination, and the defendants were unable to rebut the presumption, the
court held.

Sodexho and Feesers were in competition, even though Sodexho only sold food to institutional customers in conjunction with its food management services, while Feesers primarily supplied institutional customers that self-operated their dining services programs. Further, Michael Foods’ discount to Sodexho was sufficiently substantial and sustained to cause competitive injury.

The defendants failed to show an absence of a causal link between the discrimination and lost sales or profits to rebut the presumption of competitive injury, the court concluded. They claimed that the lower price that Sodexho received played no role in a customer’s choice between food service management or self-operating its dining services program.

However, the evidence presented at trial demonstrated that food costs constituted a significant portion of institutional food service budgets, and that lower food costs were an important part of a Sodexho’s strategic plans to win and retain customers, and improve its profit margin.

Meeting Competition Defense

Michael Foods failed to demonstrate a good faith effort to meet competition by other suppliers when it offered lower prices to Sodexho to rebut Feesers’s prima facie case of price discrimination, according to the court.

A seller invoking the meeting competition defense must establish that a price concession was granted in order to meet—and not beat—a lower price offered by a competitor, the court explained. In this case, the discounts were made to win the business of a large and powerful buyer, rather than to meet competition.

Michael Foods did not have enough information about competitive offers from competing manufacturers to craft an offer calculated in good faith to meet, and not beat the competition, in the court’s view.

Its main negotiator testified that the discounts were necessary to meet competition, even though the negotiator did not know of a particular competitor’s offer. The negotiator assumed that competitors offered similar prices because Sodexho was such a large and attractive customer.

Accepting such an assumption, however, would be contrary to the primary purpose of the Robinson-Patman Act, which was to prevent large buyers from utilizing their purchasing power to secure lower prices than their smaller competitors. If the meeting competition defense could be satisfied merely by showing that a particular customer was large and therefore likely to receive lower prices from competitors, then the Act’s purpose would be largely thwarted, according to the court.

The April 27, 2009, decision in Feesers, Inc.v. Michael Foods, Inc. and Sodexho, Inc., appears at 2009-1 Trade Cases ¶ 76,609.