Feesers Inc v. Michael Foods Inc ( 2007 )

Opinions of the United
2007 Decisions States Court of Appeals
for the Third Circuit
8-14-2007
Feesers Inc v. Michael Foods Inc
Precedential or Non-Precedential: Precedential
Docket No. 06-2661
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PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 06-2661
FEESERS, INC.,
Appellant
v.
MICHAEL FOODS, INC.;
SODEXHO, INC.
Appeal from the United States District Court
for the Middle District of Pennsylvania
(D.C. Civil No. 04-cv-00576)
District Judge: Honorable Sylvia H. Rambo
Argued May 10, 2007
Before: RENDELL, JORDAN and
ALDISERT, Circuit Judges.
(Filed: August 14, 2007 )
Jeffrey L. Kessler [ARGUED]
Johns F. Collins
Eamon O’Kelly
Dewey Ballantine
1301 Avenue of the Americas
New York, NY 10019
Steven M. Williams
Cohen, Seglias, Pallas, Greenhall & Furman
240 North Third Street, 8th Floor
Harrisburg, PA 17101
Counsel for Appellant
Brett L. Messinger
Duane Morris
30 South 17 Street
United Plaza
Philadelphia, PA 19103-4196
Margaret M. Zwisler
Latham & Watkins
555 11th Street, N.W., Suite 1000
Washington, DC 20004
Counsel for Appellee Michael Foods Inc.
Matthew M. Haar
Saul Ewing
Two North Second Street
Penn National Insurance Tower
7th Floor
Harrisburg, PA 17101
2
Christopher M. Sheehan
Martin F. Gaynor, III [ARGUED]
Cooley, Manion & Jones
21 Custom House Street
Boston, MA 02110
Counsel for Appellee Sodexho Inc.
OPINION OF THE COURT
RENDELL, Circuit Judge.
I.
Plaintiff Feesers, Inc. appeals the District Court’s grant
of summary judgment in favor of defendants Michael Foods and
Sodexho in this antitrust action. In its complaint, Feesers
alleged that Michael Foods violated section 2(a) of the
Robinson-Patman Act, 15 U.S.C. § 13(a), by selling its potato
and egg products at lower, and thus discriminatory, prices to
Sodexho. It further alleged that Sodexho violated section 2(f)
of the Act, 15 U.S.C. § 13(f), by knowingly inducing the
discriminatory pricing.
The District Court found that Feesers failed to prove the
fourth element of its prima facie case under section 2(a), namely
that the alleged discrimination had a prohibited effect on
competition, because Feesers failed to show that it was in
“actual competition” with Sodexho. See Feesers, Inc. v.
3
Michael Foods, Inc. & Sodexho, Inc., No. 04-Civ-576, slip op.
at 23 (M.D. Pa. May 4, 2006). We will reverse because the
District Court used the wrong standard in making this
determination and we conclude that Feesers has proffered
sufficient evidence of competition between itself and Sodexho
for sales of food products to foodservice facilities to allow a
reasonable factfinder to conclude that these companies are in
“actual competition.” Moreover, the District Court erroneously
put the burden on Feesers to prove not only “actual
competition,” but also that Michael Foods’ discriminatory
pricing caused Feesers to lose sales to Sodexho, rather than
placing the burden on Michael Foods to rebut the inference of
injury to competition that arises from proof of a substantial price
discrimination between competing purchasers over time.
II.
Most of the underlying facts are undisputed. Where there
is a dispute, we view the facts in the light most favorable to
Feesers. Andreoli v. Gates, 482 F.3d 641, 644 (3d Cir. 2007).
The customers of Sodexho and Feesers are foodservice
facilities that sell meals, snacks, and beverages, such as school,
hospital, and nursing home cafeterias. Both Sodexho and
Feesers sell food products to foodservice facilities in the States
of Pennsylvania, New Jersey, Maryland, Delaware, and
Virginia. Feesers is a full-line distributor of food and food-
related products (“products”) that distributes these products to
institutional customers. Sodexho is a foodservice management
company that provides facility management and operation
services to its clients and, in most cases, also sells products to
4
the facilities. Sodexho does not warehouse and deliver products
directly to its clients, but rather contracts with its clients to
procure products for them and then subcontracts with
distributors who distribute the products to the facilities. Both
Feesers and Sodexho contract with foodservice facilities to
provide them with products from Michael Foods. Michael
Foods is a supplier of egg and potato products.
A foodservice facility will contract with either Sodexho
or Feesers, but not both,1 to buy food and food-related products.
A foodservice facility may either contract with Sodexho for
Sodexho to operate the facility and procure products,2 or
1
On a few occasions, both Sodexho and Feesers have served
the same facility at the same time, but the facility contracted
directly only with the foodservice management company, which
in turn contracted with Feesers. Feesers was, at one time, the
prime distributor for a foodservice management company called
The Wood Company. Wood contracted for Feesers to be its
“primary non-exclusive distributor.” However, Sodexho
purchased Wood part-way through the term of the Feesers-
Wood primary distributor contract. The Feesers contract for the
facilities previously serviced by Wood expired at the end of
2002 and was not renewed by Sodexho. Instead, Sodexho chose
Sysco as its prime distributor for the region. App. 8127.
2
When Sodexho takes on a facility as a client, Sodexho
usually contracts with the facility both to procure food on behalf
of the facility and to operate the facility. However, as counsel
for Sodexho acknowledged at oral argument, there are a limited
number of Sodexho-operated facilities for which Sodexho does
5
contract with Feesers for Feesers to procure products and the
facility will self-operate or hire a third-party operator. To
procure products for a facility, Feesers purchases products
directly from Michael Foods and then resells the products to
foodservice facilities.
Sodexho’s process to procure products from Michael
Foods for resale to foodservice facilities is a bit more
complicated. Sodexho itself does not purchase products from
Michael Foods, but employs a distributor, such as Sysco
Corporation.3 Although product suppliers like Michael Foods
generate price lists that set forth the prices at which they sell
food to distributors, Sodexho has negotiated lower deviated
pricing with Michael Foods. The transaction proceeds as
follows: Michael Foods sells products to Sodexho’s designated
distributor at list prices and the distributor, which is usually
Sysco, then resells the products to Sodexho and provides
Michael Foods with proof of delivery of products to Sodexho;
Sysco invoices Michael Foods for the difference between the list
price and the Sodexho-negotiated deviated price; Sodexho then
purchases these products from Sysco pursuant to a “prime
not provide procurement services. For some healthcare
facilities, Sodexho provides food management services, but the
facility will handle its own food procurement. App. 1175, 1415
1255.
3
Sysco is the designated “prime distributor” for Sodexho in 48
states. App. 2535. Sodexho usually determines which company
will distribute the products to its facility clients, although in rare
instances the facility may choose the distributor. App. 7920.
6
distributor agreement,” which specifies the price that Sodexho
will pay Sysco for each product. Under the agreement, Sysco
sells the Michael Foods products to Sodexho for the Sodexho-
negotiated price plus an agreed-upon markup. App. 9706.
Sysco’s resale price of Michael Foods’ products to Sodexho
reflects the lower prices in the deviated pricing agreement
between Sodexho and Michael Foods. See Feesers, Inc., slip op.
at 5.
After Sodexho purchases the Michael Foods products
from Sysco at the agreed-upon prices, it resells the products to
a foodservice facility customer and charges the cost of the
products to the customer as an “operating expense.” The
foodservice facility generally does not interact directly with
Sysco or any other Sodexho-designated distributor. Instead, the
facility pays Sodexho for the invoiced cost of the food – plus, in
most cases, a “procurement expense” of 0.9% of the invoiced
amounts – as part of the facility’s reimbursement of Sodexho for
“operating expenses.” Thus, because Michael Foods charges
Sysco less for products resold to Sodexho than it charges
Feesers for the same products, Sodexho’s customers pay less
than Feesers’ customers for these products.
Feesers’ customers are, in general, self-operated
facilities, while none of Sodexho’s customers are self-operated.4
4
Entegra, a group purchasing organization (“GPO”) affiliated
with Sodexho, does serve self-operated facilities. Entegra
provides its clients with access to a portfolio of contracts
negotiated by Sodexho with suppliers of food and food-related
products. A facility employing Entegra’s services may use a
7
However, foodservice facilities may switch from being self-
operated to being operated by a management company like
Sodexho. When a self-operated facility that previously bought
products from Feesers is converted to a Sodexho-operated
facility, Sodexho operates the facility and generally also
procures the new client’s food products, thereby displacing
Feesers. For example, the Jewish Home of Greater Harrisburg
was self-operated and bought its products from Feesers. It then
became a Sodexho-managed facility and stopped buying
products from Feesers. St. Mary’s Catholic School was also a
Feesers customer and self-operated facility, which then switched
to being operated by Sodexho and no longer buys products from
Feesers. Sodexho will approach self-operated (“self-op”)
facilities to convert them to Sodexho-operated facilities. App.
1425 (Deposition of Christophe Rochette of Sodexho) (“[Y]ou
asked me repeatedly, are we interested in converting self-op?
That is what we are. So, I mean, I think that we should [be]
clear that for the record, that yes, we convert self-op. That is
what we do.”). Sodexho has solicited at least five facilities
served by Feesers to become Sodexho customers. Sodexho
customers end up paying less for products from Michael Foods
than they would pay if they were self-operated and purchased
the same products from Feesers.
On the other hand, facilities also switch from being
Sodexho-contracted distributor or its own contracted distributor
to distribute foods that the facility purchases pursuant to
Entegra-negotiated price lists. Entegra, however, is a separate
legal entity from Sodexho and is not a party to this action. App.
9100.
8
operated by Sodexho to being self-operated. In these cases,
Sodexho will no longer procure food for the facility and the
facility will seek out another company, such as Feesers, from
which to buy its food products. The Meadows Nursing Home
was a Sodexho customer and switched to being a self-operated
facility and a Feesers customer, in part because Michael Foods
agreed to give Feesers the same product pricing given to
Sodexho. In 1998, Sodexho lost nine accounts to self-operation.
App. 1426. In 1999, eight Sodexho customers switched to being
self-operated. App. 1427.
Feesers sued Michael Foods and Sodexho in the United
States District Court for the Middle District of Pennsylvania,
alleging that Michael Foods violated section 2(a) of the
Robinson-Patman Act, 15 U.S.C. § 13(a), by selling products at
discriminatory prices to Sodexho and that Sodexho violated
section 2(f) of the Act, 15 U.S.C. § 13(f), by knowingly
inducing the discriminatory pricing. Defendants moved to
dismiss the complaint on the grounds that Feesers had not
adequately pled that it was in actual competition with Sodexho.
The District Court denied the motion and allowed the parties to
proceed to discovery. After discovery, the parties all moved for
summary judgment.
The District Court found that Feesers had established
three out of the four elements of its section 2(a) claim against
Michael Foods: that sales were made to two different purchasers
in interstate commerce; that the product sold was of the same
grade and quality; and that defendant discriminated in price as
between the two purchasers. Feesers, Inc. v. Michael Foods,
Inc. & Sodexho, Inc., No. 04-Civ-576, slip op. at 10-18 (M.D.
9
Pa. May 4, 2006). First, the Court noted that there was no
dispute that the goods purchased from Michael Foods were of
the same grade and quality. Feesers, slip op. at 10. The Court
also found that “because the facts that establish that Michael
Foods sold products at different prices are not in dispute . . .
price discrimination exists within the context of the Act.” Id. at
11. Finally, as to the requirement that there be two purchasers
in interstate commerce, the Court concluded that the facts show
that Michael Foods sold to two purchasers, Feesers and Sysco.
The Court concluded that this is a case of “third-line”
discrimination, i.e., when a seller’s price discrimination harms
competition between customers of the favored and disfavored
purchasers. Id. at 12 n.8. The Court did not reach the issue of
whether Sodexho is a direct “economic” purchaser from
Michael Foods, which would, presumably, make this a second-
line discrimination case (i.e., discrimination that harms
competition between two purchasers). Defendants do not
challenge these findings on appeal.5
5
The parties do not debate whether this is a second- or third-
line discrimination case, but we note that the District Court’s
conclusion that this is a case of third-line discrimination appears
to be incorrect. This is not clearly either a second-line or third-
line case, but falls somewhere in between these categories. See
George Haug Co. v. Rolls Royce Motor Cars, Inc., 148 F.3d
136, 141 n.2 (2d Cir. 1998) (noting that “secondary-line price
discrimination[] occurs when a seller’s discrimination impacts
competition among the seller’s customers; i.e. the favored
purchasers and disfavored purchasers . . . tertiary-line
[discrimination] occurs when the seller’s price discrimination
harms competition between customers of the favored and
10
However, the District Court found that Feesers failed to
proffer sufficient evidence to prove the fourth element of its
prima facie case: that the discrimination had a prohibited effect
on competition. Id. at 24. The District Court found that Feesers
did not meet its burden to show that it was in “actual
competition” with Sodexho as of the time of the price
differential. Id. at 23. The District Court noted that Feesers had
disfavored purchasers, even though the favored and disfavored
purchasers do not compete directly against another”). This is a
difficult case to categorize because the discrimination allegedly
impacts competition between the disfavored purchaser (Feesers)
and the customer of the favored purchaser (Sodexho).
This case is most analogous to Texaco v. Hasbrouck, 496
U.S. 543 (1990), in which several gas retail stations brought suit
against Texaco for selling gas to two distributors at discounted
prices. The distributors then resold gas to retail stations that
competed directly with plaintiffs and they also operated their
own retail stations that competed directly with plaintiffs. Id. at
549-51. The Supreme Court did not categorize the case as a
second- or third-line case, but instead observed that “[t]he
additional link in the distribution chain does not insulate Texaco
from liability if Texaco’s excessive discount otherwise violated
the Act.” Id. at 567; see also Perkins v. Standard Oil Co., 395
U.S. 642 (1969) (finding actionable price discrimination
resulting in injury to competition between disfavored purchaser
and customer of customer of favored purchaser, but not
categorizing the case as third-line or fourth-line discrimination).
Regardless, categorizing the discrimination at issue in this case
as second- or third- line is not essential, so long as the there is
a prohibited effect on competition.
11
failed to prove that it competes with Sodexho “at the same
functional level.” Id. at 21. The Court also found that Feesers
failed to proffer evidence that it lost customers to Sodexho
because of food prices, rather than for other reasons relating to
the management services Sodexho provides. Without this
evidence, the Court found that Feesers could not prove that it
competes with Sodexho. Accordingly, because Feesers failed to
establish a prima facie case under section 2(a) of the Act, the
Court granted summary judgment in favor of defendants and
denied Feesers’ motion for summary judgment.6 Id. at 24.
Feesers now appeals.
III.
We exercise plenary review over the District Court's
grant of summary judgment in favor of defendants, and we
apply the same standard that the District Court should have
applied. Andreoli, 482 F.3d at 647. Summary judgment is
appropriate when “the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to a judgment
as a matter of law.” Fed. R. Civ. P. 56(c). We “must view the
facts in the light most favorable to the nonmoving party and
draw all inferences in that party’s favor.” Farrell v. Planters
Lifesavers Co., 206 F.3d 271, 278 (3d Cir. 2000).
6
The District Court noted that, given that Feesers was unable
to establish a section 2(a) claim, its section 2(f) claim against
Sodexho “necessarily fails.” Feesers, slip op. at 24.
12
Section 2(a) of the Robinson-Patman Act, 15 U.S.C.
§13(a), provides in relevant part that:
It shall be unlawful for any person engaged in
commerce, in the course of such commerce, either
directly or indirectly, to discriminate in price
between different purchasers of commodities of
like grade and quality, where either or any of the
purchases involved in such discrimination are in
commerce, where such commodities are sold for
use, consumption, or resale within the United
States or any Territory thereof or the District of
Columbia or any insular possession or other place
under the jurisdiction of the United States, and
where the effect of such discrimination may be
substantially to lessen competition or tend to
create a monopoly in any line of commerce, or to
injure, destroy, or prevent competition with any
person who either grants or knowingly receives
the benefit of such discrimination, or with
customers of either of them.
As the District Court correctly stated, in order to prove a
violation of section 2(a) of the Robinson-Patman Act, a plaintiff
must show (1) that sales were made to two different purchasers
in interstate commerce; (2) that the product sold was of the same
grade and quality; (3) that defendant discriminated in price as
between the two purchasers; and (4) that the discrimination had
a prohibited effect on competition. See Texaco Inc. v.
Hasbrouck, 496 U.S. 543, 556 (1990). This appeal concerns the
fourth element of Feeser’s claim under section 2(a): competitive
injury. Specifically, we must decide whether the District Court
13
applied the correct legal standard to determine whether Sodexho
and Feesers are in actual competition and whether it erred in
holding that Feesers did not proffer sufficient evidence to allow
a reasonable factfinder to conclude that it is in actual
competition with Sodexho.
To establish the fourth element of its prima facie case
against Michael Foods, Feesers was required to show that there
is “a reasonable possibility that [the] price difference may harm
competition,” i.e., “competitive injury.” Falls City Indus., Inc.
v. Vanco Beverage, Inc., 460 U.S. 428, 434-35 (1983) (emphasis
added). As we stated in J.F. Feeser, Inc. v. Serv-A-Portion,
Inc., “[i]n keeping with the Act’s prophylactic purpose, designed
to prevent the occurrence of price discrimination rather than to
provide a remedy for its effects, section 2(a) does not require
that the discrimination must in fact have harmed competition.
Instead, a reasonable possibility of harm, often referred to as
competitive injury, must be shown.” 909 F.2d 1524, 1531 (3d
Cir. 1990) (internal citations and brackets omitted).
“Competitive injury” is established prima facie by proof
of “a substantial price discrimination between competing
purchasers over time.”7 Falls City Indus., 460 U.S. at 435
7
Although the purchasers in Falls City Industries were in
actual competition with one another, injury to competition
between a purchaser and a customer of a purchaser is also
actionable under the Act. As the Supreme Court made clear in
Perkins v. Standard Oil Co., 395 U.S. 642 (1969), there is no
basis in the Act for immunizing price discrimination “simply
because the product in question passed through an additional
14
(citing FTC v. Morton Salt Co., 334 U.S. 37, 46, 50-51 (1948); id.
at 60 (Jackson, J., dissenting in part)) (emphasis added). In
order to establish a prima facie violation of section 2(a), Feesers
does not need to prove that Michael Foods’ price discrimination
actually harmed competition, i.e., that the discriminatory pricing
caused Feesers to lose customers to Sodexho. Rather, Feesers
need only prove that (a) it competed with Sodexho to sell food
and (b) there was price discrimination over time by Michael
Foods.8 This evidence gives rise to a rebuttable inference of
“competitive injury” under § 2(a). See Morton Salt, 334 U.S. at
formal exchange before reaching the level of [the plaintiff’s]
actual competitor.” Id. at 648.
8
In Volvo Trucks North America, Inc. v. Reeder-Simco GMC,
Inc., the Supreme Court reiterated that “a permissible inference
of competitive injury may arise from evidence that a favored
competitor received a significant price reduction over a
substantial period of time.” 126 S. Ct. 860, 870 (2006). In that
case, the jury verdict for the plaintiff was overturned because the
plaintiff’s evidence, which compared “occasions on which it
competed with non-Volvo dealers for a sale to Customer A with
instances in which other Volvo dealers competed with non-
Volvo dealers for a sale to Customer B” failed to show that, over
time, the defendant consistently favored other Volvo dealers
over the plaintiff. Id. at 871. The plaintiff’s evidence showed
that the plaintiff competed directly with other Volvo dealers for
a sale to a particular customer on only two occasions and failed
to show that the price discrimination on those two occasions was
significant. Id. at 872. Thus, the plaintiff’s evidence was
insufficient to raise an inference of competitive injury.
15
46. The inference, if it is found to exist, would then have to be
rebutted by defendants’ proof that the price differential was not
the reason that Feesers lost sales or profits. See Falls City
Indus., 460 U.S. at 435.
The District Court required Feesers to prove too much.
It placed the burden on Feesers to show not only that it “actually
competes” with Sodexho, but also that “food costs and
distribution are the determining factors” in a consumer’s choice
between hiring Sodexho or Feesers, i.e., that Sodexho’s lower
food prices are why customers switch from buying products
from Feesers to buying products and management services from
Sodexho. Feesers, slip op. at 45 (emphasis added). In the
absence of such evidence, the District Court concluded that
Feesers failed to establish “actual competition.”
The District Court was concerned that Sodexho and
Feesers are not at the same “functional level” and are therefore
not in “actual competition” in the same market. This concern is
understandable given that the facts of this case are somewhat
unusual. First, the involvement of Sysco creates an additional
link in the chain of distribution between Michael Foods and
Sodexho, which does not exist in Feesers’ distribution chain.
Second, most alleged violations of section 2(a) of the Robinson-
Patman Act involve competition between two traditional
resellers, such as two food distributors or two retail gas stations,
that buy commodities from a seller and then resell the
commodities to customers. Here, however, Feesers is a
traditional commodity reseller, while Sodexho resells
commodities to clients only in conjunction with the sale of
services, such as food preparation and facility management
16
services.
However, as we observed in Stelwagon Manufacturing
Co. v. Tarmac Roofing Systems, Inc., the relevant question is
whether two companies are “in economic reality acting on the
same distribution level,” rather than whether they are both
labeled as “wholesalers” or “retailers.” 63 F.3d 1267, 1272 (3d
Cir. 1995). To determine whether Sodexho and Feesers
compete to resell food products to the same group of customers,
we must conduct a “careful analysis of each party’s customers.
Only if they are each directly after the same dollar are they
competing.” M.C. Mfg. Co. v. Tex. Foundries, Inc., 517 F.2d
1059, 1068 n.20 (5th Cir. 1975); see also George Haug Co. v.
Rolls Royce Motor Cars, Inc., 148 F.3d 136, 141-42 (2d Cir.
1998) (noting that determining “the presence or absence of
functional competition between purchasers of a commodity is
simply a factual process which focuses on whether these
purchasers were directly competing for resales among the same
group of customers”).9 The District Court did not view the
9
With due respect to our dissenting colleague, that Sodexho’s
business is of a “different character” than Feesers’, Dis. Op. at
24, is beside the point when we are evaluating whether Feesers
has established that it is in “actual competition” with Sodexho.
The threshold question is whether a reasonable factfinder could
conclude that Sodexho and Feesers directly compete for resales
of Michael Foods products among the same group of customers.
The difference in the character of these two businesses might
very well be determinative at the next stage of the analysis
discussed below, namely, in evaluating defendants’ evidence
that facilities choose to buy from Sodexho rather than Feesers
17
evidence, as it should have, in the light most favorable to
Feesers, and instead found that Feesers and Sodexho do not
compete, without giving due consideration to the evidence of
actual competition proffered by Feesers.
The evidence here could lead to a different conclusion
than that reached by the District Court. Although Sodexho
resells Michael Foods products to foodservice facilities that it
operates, while Feesers resells Michael Foods products to self-
operated foodservice facilities, the evidence, viewed in the light
most favorable to Feesers, shows that Feesers’ customers and
Sodexho’s customers are not two separate and discrete groups
of foodservice facilities. Feesers proffered evidence that
customers may be self-operated for some time, then switch to
Sodexho, or, alternatively, may be operated by Sodexho and
then switch to self-operation. Two foodservice facilities, St.
Mary’s Catholic School and the Jewish Home of Greater
Harrisburg, were Feesers customers and self-operated facilities,
but then switched to being operated by Sodexho and no longer
buy food from Feesers. App. 7072, 7139. Feesers also
proffered evidence that the Meadows Nursing Home was a
Sodexho customer and switched to being a self-operated facility
and a Feesers customer, in part because Michael Foods agreed
for reasons unrelated to Sodexho’s lower food prices. It may
well be found, based on defendants’ evidence, that the different
character of Sodexho’s business, rather than its lower food
prices, causes customers to buy food from Sodexho rather than
Feesers. If this is the case, then Feesers’ claim under the
Robinson-Patman Act fails. However, this is not the same as
finding that they are not in “actual competition.”
18
to give Feesers the same pricing as it gives to Sodexho. App.
7073. There is also evidence that Sodexho actively solicits self-
operated facilities to become Sodexho-operated, and also loses
some customers each year that decide to self-operate instead of
using Sodexho’s operation services.
Our dissenting colleague attributes customers’ decisions
to switch from buying products from Feesers to buying products
from Sodexho to the fact that “clients may choose to switch
between the market for unprepared food stuffs and the market
for prepared meals.” Dis. Op. at 33. He suggests that Sodexho
does not sell unprepared food, but rather “prepared meals,” and
that we are confusing “cost accounting with actual business
transactions” by concluding otherwise. Id. at 25. However, the
record in this case belies that assertion. To the contrary, a
factfinder could conclude that Sodexho sells unprepared food to
its customers. The record is replete with agreements between
facilities and Sodexho wherein the facilities are not charged for
“prepared meals,” but rather for the cost of unprepared food and
supplies, the cost of labor, and a management fee. Sodexho in
fact promotes its ability to get lower prices for the food products
that its customers use in their facilities. Sodexho notes in its
promotional materials that “food and supplies are a major
portion of the cost of a food service program.” App. 5121. It
goes on to boast that its “extensive network of purchasing
resources can lower the prices of food and supplies . . . while
actually improving the quality of the products you use.” Id. In
its promotional materials and proposals to potential clients,
Sodexho could not be more clear that it sells food products to its
clients and passes along the price discounts that it is able to
secure from its product suppliers in the price that it charges its
19
clients for the products.10 In fact, Sodexho’s superior product
prices are touted as resulting from Sodexho’s “leveraging [its]
procurement power as the industry’s largest purchaser of food.”
App. 3806 (Proposal for Abington Friends School). This is a
major thrust of its sales pitch.11 Sodexho’s charging its
10
See App. 5121 (Proposal for Northern Burlington County
Regional School District) (“Our reputation and size give us
advantages over smaller food service management
organizations. In turn, the savings in which [sic] we obtain will
be passed on to your District. You will be charged the same
prices as Sodexho Marriott Services pays for all products. Your
District will receive all the benefits of our volume and trade
discounts, except for cash discounts.”).
11
See App. 3622 (Proposal for Beth Sholom Home of Eastern
Virginia) (“Utilization of the Sodexho purchasing program
provides great financial benefits to our partner facilities. As the
industry leader in food procurement with purchasing
responsibility for approximately 5,300 facilities throughout the
United States, Sodexho is able to purchase food at pricing that
is not able to be realized by smaller organizations.”); App. 3650
(Proposal for Lancaster Regional Medical Center) (“Sodexho
Marriott Services clients benefit from the combined purchasing
power of our company with Marriott International, Inc. and
Sodexho Alliance. Our food and supply prices are exceptional,
as are the quality and systems used to support the purchasing
function. In addition to those savings, you enjoy discounts on
many other items you buy, such as food service equipment,
laboratory sinks, uniforms for front desk or security personnel,
light bulbs, carpet, etc. Our prices for most items range from 5
20
customers for the cost of food products cannot be characterized
as mere “cost accounting” any more so than any other business’
charging a customer for invoiced goods is just “cost
accounting.” At minimum, Feesers has proffered sufficient
evidence to create a genuine factual dispute as to whether
Sodexho and Feesers both resell food products to the “same
group of customers.”
If substantial price discrimination between competing
purchasers over time is established, then the inference of
competitive injury arises. See Morton Salt, 334 U.S. at 46.
However, this inference is not irrebuttable. As the Supreme
Court stated in Falls City Industries, Inc. v. Vanco Beverage,
Inc., 460 U.S. 428 (1983):
In Morton Salt this Court held that, for the
purposes of § 2(a), injury to competition is
established prima facie by proof of a substantial
price discrimination between competing
purchasers over time. 334 U.S., at 46, 50-51, 68
S.Ct., at 828, 830-831; see id., at 60, 68 S.Ct., at
835 (Jackson, J., dissenting). In the absence of
direct evidence of displaced sales, this inference
may be overcome by evidence breaking the causal
connection between a price differential and lost
sales or profits. F. Rowe, Price Discrimination
Under the Robinson-Patman Act 182 (1962); see
Chrysler Credit Corp. v. J. Truett Payne Co.,670
F.2d 575, 581 (CA5 1982).
to 25% lower than the next best price.”).
21
Id. at 435 (emphasis added). The inference could be rebutted
with evidence proffered by defendants that the price
discrimination does not cause foodservice facilities to decide to
buy food from Sodexho rather than Feesers. However, the
District Court improperly put the burden on Feesers to prove
that a difference in the price of products causes facilities to
switch from buying from Feesers to buying from Sodexho.
Feesers, slip op. at 22 (“It is undisputed that Michael Foods
offered Feesers pricing that matched its pricing to Sodexho
because the Meadows was a Sodexho client, however, Feesers
failed to establish that the availability of that pricing was the
determining factor for the Meadows in making the switch.”).
This was error. The burden is on defendants to show the
absence of the causal link.
Our dissenting colleague takes issue with the Robinson-
Patman Act on policy grounds and urges that we are applying it
too broadly, so as to render price discrimination between non-
competitors a violation of the Act. We reject this
characterization of the record before us, and suggest that
Congress has written the law, and courts have construed it, to
apply to situations where discriminatory pricing poses a threat
to competition. Viewing the evidence in the light most
favorable to Feesers, a factfinder could conclude that this is such
a situation. Therefore, it is for the factfinder, here the District
Court, to decide whether defendants’ actions fit within the
contours of what Congress has proscribed. We will remand for
it to do so.
IV.
22
Accordingly, for the reasons set forth, we will reverse
the grant of summary judgment in favor of defendants and
remand for further proceedings consistent with this opinion.
JORDAN, Circuit Judge, dissenting.
To prove its case under the Robinson-Patman Act,
Feesers has tried to show that it is in actual competition with
Sodexho. Feesers has argued at length about customers
switching from self-operation to outsourcing and back again.
Those arguments, however, start with the premise that Feesers
and Sodexho sell the same products. The evidence is to the
contrary, and, in my view, Feesers has failed to raise a genuine
issue of material fact on this crucial point. Because summary
judgment for Michael Foods and Sodexho is proper on that basis
alone, I respectfully dissent.
I
The undisputed evidence in this case demonstrates that
Sodexho’s business is of a very different character than
Feesers’s. Feesers buys unprepared food from suppliers, such
as Michael Foods, and resells that unprepared food to its
institutional clients. Feesers’s involvement ends there. Its
clients then take the unprepared foods and prepare meals for
their individual customers. Sodexho, on the other hand, is a
food management company that contracts with institutions to
manage food service operations. Its institutional clients do not
themselves provide food service. Instead, Sodexho buys the
unprepared food, prepares meals, and sells the prepared meals
23
to individual customers. Unlike Feesers, Sodexho does not sell
unprepared food.12
Feesers inaccurately claims the contrary is true. Relying
on a contortion of terms in Sodexho’s contracts with some of its
institutional clients, Feesers says that Sodexho does distribute
unprepared foods. More specifically, because Sodexho is
sometimes reimbursed by its customers for certain operating
expenses, including the cost of food, Feesers contends that
Sodexho is selling unprepared food products to its clients. The
District Court agreed, stating that Sodexho sells food to its
institutional clients, because “[t]he Sodexho proposals and
contracts that Feesers has provided as evidence establish that
Sodexho, at least in some cases, accounts for food costs as a
separate line item within operating costs when billing accounts.”
Feesers’s argument and the District Court’s conclusion, which,
I regret, my colleagues in the majority have accepted, confuses
cost accounting with actual business transactions. There is a
world of difference between the two. Cf. Creque v. Texaco
12
I agree with the majority, Maj. Op. at note 4, that we should
not consider the activities of Entegra Procurement Services,
LLC. While it is a wholly-owned subsidiary of Sodexho,
Entegra is a separate legal entity. Feesers has not presented a
sufficient basis for piercing the corporate veil and holding
Sodexho liable for Entegra’s actions. That leaves the question
of whether Michael Foods could be liable for discriminating in
favor of Entegra rather than Sodexho. However, Feesers has not
made out a prima facie case of price discrimination based on
sales made to Entegra, because Feesers has failed to present any
evidence of such sales.
24
Antilles Ltd., 409 F.3d 150, 154 (3d Cir. 2005) (holding that a
conveyance of property was not actually a sale despite the use
of accounting formalities, because “we must look beyond
formalities and accounting entries to the true nature of the
conveyance”).
Sodexho and its clients agree to allocate costs and profits
in various ways. For some of its clients, Sodexho operates the
food service and assumes all responsibility for either making a
profit or losing money. (Appx. at A1545, 12:5-8.) If sales are
less than costs for those accounts, Sodexho bears the loss. (Id.
at A1545, 12:9-11.) For other clients, Sodexho is reimbursed
for operating costs and charges a management fee, with the
remaining profit or loss either going to the client or being shared
between the client and Sodexho. (Id. at A1546-48, 13:10-
15:21.) In those cases, Sodexho invoices the client for specified
operating expenses, including software, information systems,
decorations, delivery services, unprepared food stuffs, and
salaries for Sodexho employees. (Id. at A2160-61, A2177-78,
A2195-96, A2215-16, A2233-34; see also id. at A1256-66.)
Sodexho’s receiving reimbursement of such expenses
according to these contracts is nothing more than an accounting
method that allows Sodexho and its clients to allocate potential
profits or losses. The accounting method does not mean that
Sodexho is in the business of selling unprepared food, any more
than it means Sodexho is a a seller of computer software, or of
accounting services, or decorations, or any other specifically
listed operating expenses. If Microsoft tried to claim Sodexho
was competing with it for software sales, it would be only
marginally more of a stretch than Feesers’s claim. There is no
25
evidence supporting the notion that any Sodexho client calls and
asks for a hundred bags of frozen potatoes, as they might when
calling Feesers. They call Sodexho when they want prepared
french fries and other ready-to-eat food for their customers. The
cost accounting provisions in the Sodexho contracts simply do
not support the conclusion that Sodexho sells unprepared food
products in competition with Feesers.13
We are left, then, with the following facts. Feesers buys
and resells unprepared food. Sodexho buys unprepared food,
prepares meals, and then sells the prepared meals. The precise
legal issue presented is whether those facts raise a genuine issue
as to “actual competition” between Feesers and Sodexho, as that
requirement is properly understood under the Robinson-Patman
Act. As discussed below, I do not believe they do.
13
Likewise, Sodexho’s promotional materials, which tout its
ability to negotiate low acquisition prices for unprepared foods,
do not demonstrate that it sells unprepared food to its clients.
Those materials do not change the fact that Sodexho buys
unprepared food and, instead of reselling it, uses it in a business
that changes it into a different product, namely prepared meals.
That Sodexho is able to operate at lower cost is important to its
institutional clients not because those clients have any interest
in repurchasing unprepared food. They do not, since they are
not self-operating cafeterias. It is important because lower
operating costs translate into more profit to be shared by
Sodexho and the clients. Thus, the majority opinion is, I
believe, mistaken to rely on those promotional materials as
showing that Sodexho is in the business of reselling the
unprepared food stuffs it acquires from Michael Foods.
26
II
Some historical perspective is in order. The Robinson-
Patman Act has been called the “Wrong Way Corrigan” of
antitrust, because it “often operates to harm consumers for the
benefit of weaker or less efficient dealers. It moves antitrust
policy in precisely the wrong direction.” Herbert Hovenkamp,
The Antitrust Enterprise 192 (2005). That this case is now
moving forward for trial highlights both the misguided policy
behind the Robinson-Patman Act and the blunt mechanisms
used to enforce it. Summing up the virtually uniform disdain
which antitrust experts have long had for the Act, Judge Robert
Bork wrote almost thirty years ago that “[a]lthough [the Act]
does not prevent much price discrimination, at least it has stifled
a great deal of competition.” Robert H. Bork, The Antitrust
Paradox 382 (1978). This case demonstrates the Act’s
exceedingly counter-productive character.
First of all, as a theoretical matter, there is no reason to
presume that price discrimination poses a threat to competition.
Price discounts are generally good for consumers. The theory
behind the Act is that one competitor may use a price difference
to drive its (presumably smaller and weaker) competitors out of
the market. In the absence of market power, however, such a
scheme is highly unlikely to succeed. A manufacturer like
Michael Foods generally has no interest in shutting down
efficient distribution channels for its products, because it is
locked in competition with other food suppliers. Distributors
like Feesers that are unhappy with the prices charged by
Michael Foods have the option, in a competitive market, to get
eggs and potatoes elsewhere. Thus, any real threat to
27
competition requires monopolistic market power and could be
dealt with under the Sherman Act, with the accompanying
requirement for proof of such power.
That difference in required proof is crucial, and
highlights why, even if price discrimination were a real threat to
competition, the Robinson-Patman Act is not a good means to
stop it. The Morton Salt inference discussed by the majority,
Maj. Op. at Sec. III, allows plaintiffs to proceed to trial in a
Robinson-Patman case without any proof that competition has
been or will be harmed. Instead, such plaintiffs rely on the
threat of harm to themselves as a proxy for threatened harm to
competition. The difficulty is that a competitor will also be
harmed by vigorous competition, if that competitor cannot
adjust by becoming more efficient. The Act provides no way of
distinguishing between an inefficient competitor and one that is
harmed by an actual threat to competition itself.
These logical flaws in the Act have led to considerable
academic criticism of it and have recently prompted the
Antitrust Modernization Commission, which was created by
statute and appointed by the President and the leadership of
Congress, to recommend that Congress repeal the Act in its
entirety. Antitrust Modernization Commission, Report and
Recommendations, April 2007, at iii, 317-26. According to the
Commission, the Act is “antithetical to core antitrust principles,”
because it “protects competitors over competition and punishes
the very price discounting and innovation in distribution
methods that the antitrust laws otherwise encourage.” Id. at iii.
Now, I readily acknowledge that these policy concerns
28
cannot override the will of Congress, and I do not suggest that
this Court should attempt to repeal the Act by construing it into
the oblivion it so richly deserves. But, given the threat that an
overly broad reading of the Act poses to desirable competition,
this Court certainly should not read the Act to cover factual
situations where only a tenuous argument can support its
application.
That the Act should be construed relatively narrowly is
not a radical approach. On the contrary, the Supreme Court has
recently emphasized that the Act should be construed
“consistently with broader policies of the antitrust laws.” Volvo
Trucks N. Am., Inc. v. Reeder-Simco GMC, Inc., 126 S. Ct. 860,
873 (2006) (internal quotation marks omitted). Because lower
prices are generally good for consumers, applying the Act
broadly threatens to dampen desirable price competition, forcing
consumers to pay higher prices for goods. To avoid that threat,
the Supreme Court has stated that it will “resist interpretation [of
the Act] geared more to the protection of existing competitors
than to the stimulation of competition.” Id. at 872 (emphasis in
original). In particular, an interpretation of the Act that protects
individual distributors rather than competition between brands
ignores the “primary concern” of the antitrust laws with
interbrand, rather than intrabrand, competition. Id.; see also
Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 127 S. Ct.
2705, 2715 (2007) (“[T]he primary purpose of the antitrust laws
is to protect this type of [interbrand] competition.” (internal
citation and quotation marks omitted)). We should be following
the Supreme Court’s lead in resisting such an interpretation.
Instead, the decision today goes beyond even the protection of
competitors to the protection of non-competitors.
29
The requirement that a claimant show actual competition
limits the Act to its proper scope. “Mindful of the purposes of
the Act and of the antitrust laws generally,” the Supreme Court
has explained that the Act “does not ban all price differences
charged to different purchasers of commodities of like grade and
quality.” Volvo Trucks, 126 S. Ct. at 870 (internal quotation
marks omitted). “[R]ather, the Act proscribes price
discrimination only to the extent that it threatens to injure
competition.” Id. Therefore, while “a permissible inference of
competitive injury may arise from evidence that a favored
competitor received a significant price reduction over a
substantial period of time,” such an inference only arises if the
two purchasers are in “actual competition.” Id.; see also
Stelwagon Mfg. Co. v. Tarmac Roofing Sys., Inc., 63 F.3d 1267,
1271 (3d Cir. 1995).
The competitive injury inference was first discussed
some sixty years ago in the Morton Salt case. 334 U.S. 37, 50-
51 (1948). There, small grocery stores were allegedly harmed
by volume discounts on Morton brand salt that were given to
large chain grocery stores. Id. at 41. That situation presented
the paradigmatic set of facts that Congress was attempting to
address with the Robinson-Patman Act. Congress sought to
address the perceived evil of large chain stores securing volume
discounts not available to small independently-owned stores.
Volvo Trucks, 126 S. Ct. at 869 (“Congress responded to the
advent of large chain stores . . . .”); see also Richard A. Posner,
The Robinson-Patman Act 25-26 (1976) (calling the Act “the
high-water mark of the anti-chain-store movement”). In Morton
Salt, the competing stores purchased and resold the same
commodity, table salt, to the same group of customers.
30
Last year, in Volvo Trucks, the Supreme Court declined
to apply the Morton Salt inference, because the plaintiff, a
Volvo dealer, had failed to show that it actually competed with
the other dealers who allegedly received more favorable prices
on trucks made by Volvo. 126 S. Ct. at 870-72. In a market that
operates by bidding, the plaintiff could not show that it had ever
directly competed on a bid with a favored dealer. Id. at 871.
The Court compared the situation to the Morton Salt paradigm,
stating that “there [was] no discrete ‘favored’ dealer comparable
to a chain store or a large independent department store.” Id.Thus, the Act did not prohibit the different prices offered to the
Volvo dealers.
Until now, we too have limited the Morton Salt
competitive injury inference to cases like Morton Salt. In J.F.
Feeser, Inc. v. Serv-A-Portion, Inc., we held that the plaintiffs,
including the same Feesers we see here,14 competed with other
distributors to buy and resell the same portion-controlled food
products. 909 F.2d 1524, 1526-27 (3d Cir. 1990). More
recently, in Stelwagon Mfg. Co. v. Tarmac Roofing Sys., Inc., we
held that the plaintiff, a distributor of roofing products, could be
in actual competition with a company that, although it was
known as a manufacturer, actually purchased the identical
roofing products and resold them to the same group of
customers as did the plaintiff. 63 F.3d 1267, 1271-72 (3d Cir.
1995). In both cases, the “actual competition” arose from the
resale of identical products to the same group of customers, just
as in Morton Salt.
14
By the time the J.F. Feeser case reached this Court, J.F.
Feeser, Inc. had been renamed Feesers, Inc. 909 F.2d at 1526.
31
Similarly, the Court of Appeals for the Second Circuit
has stated that “[d]etermining the presence or absence of
functional competition between purchasers of a commodity is
simply a factual process which focuses on whether these
purchasers were directly competing for resales among the same
group of customers.” George Haug Co. v. Rolls Royce Motor
Cars Inc., 148 F.3d 136, 141-42 (2d Cir. 1998) (citing FTC v.
Fred Meyer, Inc., 390 U.S. 341, 349 (1968)). In the George
Haug case, a service station purchased and resold the same Rolls
Royce automobile parts as a Rolls Royce dealer that allegedly
received more favorable prices from the manufacturer. Id. at
141. Such direct competition for the resale of the same product
to the same customers qualifies as “actual competition” under
the Act.
In this case, Feesers has succeeded in removing the
concept of “actual competition” from its foundations in Morton
Salt. The undisputed facts show that Sodexho and Feesers do
not sell the same products, not even some of the time. Feesers
sells unprepared foodstuffs, while Sodexho prepares and sells
meals. Sodexho does not provide unprepared food in addition
to other services; it operates strictly in the separate market for
prepared meals. The fact that clients may choose to switch
between the market for unprepared food stuffs and the market
for prepared meals does not make the markets the same and is,
therefore, beside the point. To conclude that Feesers and
Sodexho are in actual competition to sell to the same market, we
would also have to conclude that grocery stores are in actual
competition with restaurants because both types of businesses
sell food. Even if, in the abstract, that could be called
competition, the situation is far removed from the one in Morton
32
Salt and should not be held to satisfy the requirement for “actual
competition” under the Act. By sending this case back for trial,
we wrongly give credence to a theory of “actual competition” so
broad as to effectively read the requirement out of the Act.
Because the facts here fail to show actual competition, as
required for Feesers to prove its case, I would affirm the grant
of summary judgment for the defendants, and I therefore dissent.
33