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Third Circuit Rules that Food Service Management Companies and Distributors are Not Competitors for Robinson-Patman Act Analysis

By Richard Goldfarb

If a manufacturer is selling the exact same goods to someone else for 59% less than it will sell to you, it would seem natural that you'd pick up the phone and call your lawyer and sue someone, wouldn't it?  In particular, this would seem to be a classic violation of the Robinson-Patman Act,15 U.S.C. Section 13.  Feesers, Inc., a food distributor, found itself in just that situation in buying liquid eggs from Michael Foods, Inc.  It sued Michael Foods and Sodexo, Inc., the food service management company that was getting that huge discount, in federal court.  Both sides brought high-priced legal talent to bear and the case marched up and down the federal courts until, on January 7, the U.S,. Court of Appeals for the Third Circuit ruled that Feesers was wrong.  Because Sodexo was not, in its opinion, a competitor of Feesers, the Robinson-Patman Act was not violated.

The case is complex, as is much Robinson-Patman litigation, but essentially it hinges on when the actual sales to Feesers or Sodexo might occur.  Feesers is a classic food distributor.  In connection with liquid eggs, that means that it sells to what are called "self-ops", or businesses that run their own food services, such as a college dorm or a retirement home.  Sodexo, on the other hand, is a food service management company, which provides essentially turnkey services to businesses that are not interested in running their own food services.  The critical fact, to the Third Circuit, is this:  while Feesers and Sodexo may compete for the same customers, the competition between them is over when the customer decides to be a self-op or to use a food service management company.  And, critically, that competition takes place before as single liquid egg is sold to the winner by Michael. 

The Third Circuit relied on a recent U.S. Supreme Court case, Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc. and its own decision in Toledo Mack Sales & Service, Inc. v. Mack Trucks, Inc., both of which had held that the question of whether two entities were in competition was to be construed both narrowly and formally. 

In sum, because any competition between Feesers and Sodexo occurred at the time an institution was deciding whether to self-operate or hire a food service management company, and any resulting sale of Michaels's products would have to occur after that competition, Feesers cannot show that it was a competing purchaser of Sodexo. The evidence produced by Feesers only further confirms the futility of its RPA claims, because such evidence—evidence showing consistent favoring of another purchaser over the plaintiff over time by a manufacturer in a bid market—was rejected in Toledo Mack.  Such evidence cannot support an inference of competitive injury in a bid market. Finally, the Supreme Court's instructions to narrowly construe the RPA also compel us to reject Feesers's RPA claims.

Future plaintiffs faced with what seems to be a price differential for what they consider at first glance to be their competitiors will be well-served to engage in a deeper analysis prior to suit.  Where you stand in the food chain will need to be pretty much exactly where your price-advantaged competitor stands or the benefit of Robinson-Patman may be denied you.

Full post as published by Food Liability Law Blog on January 08, 2010 (boomark / email).