Price Discrimination is Back: Feesers, Inc. v. Michael Foods, Inc. and Sodexho, Inc.
By: RICHARD J. WEGENER
July 2009
If the Robinson-Patman (price discrimination) Act constitutes what has been referred to as “antitrust’s least glorious hour,” then this summer’s most talked about antitrust proceeding in the Middle District of Pennsylvania and the Third Circuit has become “the moment’s” cause for concern among all manufacturers who sell products to customers for resale. The case is Feesers, Inc. v. Michael Foods, Inc., 2009 WL 1138126 (M.D. Pa. 2009), 96 BNA ATRR 477.
In order to understand this lawsuit, you first have to understand how the food that you eat in a school cafeteria or other institutional feeding environment makes its way to your table.
The school cafeteria is a “food service provider.” Food service providers are organized in one of two ways. They may either be a “self-operator,” that is, they run the dining service themself (buying the food, hiring the kitchen and wait staff, printing the menus) doing everything it takes to serve you dinner; or the food service provider may contract out all of the food operations to a food service management company, who will buy the food, hire the employees, and run the dining operation for the school, frequently guaranteeing the school against any loss and splitting any profits with the school.
How does the food get to the cafeteria? The manufacturer sells to two different distribution channels: (1) food service distributors that resell to self-operators; and (2) food service management companies. To make things a little more complicated, the school may be a self-operator today and buy its food from a food service distributor; but by the time students return to the campus this fall, the school may have decided to hire a food service management company and contract out the food service operation.
This case involves the pricing of eggs and potatoes produced by Michael Foods and sold both to Feesers (a regional food service distributor based in Harrisburg, PA) and Sodexho, Inc. (a multinational food service management company). Feesers claimed that Sodexho obtained favorable pricing from Michael Foods and that such pricing gave Sodexho an unfair advantage in winning business from food service providers. Feesers sued Michael Foods for violating Sec 2(a) of the Robinson-Patman Act, and Sodexho for inducing discriminatory prices from Michael Foods, in violation of Sec. 2(f).
Where this case deviates from the vast majority of R-P cases is that Feesers did not seek damages. Instead, it sought and obtained an order from the court enjoining Sodexho from inducing or receiving discriminatory pricing from Michael Foods, and Michael Foods from unlawfully discriminating in price in favor of Sodexho and against Feesers.
Michael Foods had a number of options for responding to the injunction. It chose to simply stop selling its products to Feesers, making it impossible for there to be any price discrimination between Sodexho and Feesers. Michael Foods also offered that if Feesers would agree to a stay of the injunction pending appeal, it would continue selling products to Feesers at historic prices. Feesers responded with a motion for contempt, alleging that by suspending sales to Feesers, Michael Foods was failing to observe the injunction. Feesers, Inc. v. Michael Foods, Inc., 2009 WL 1475270 (M.D. Pa. 2009), 96 BNA ATRR 529.
The trial court found that by requiring Feesers to accept the historic, higher prices as a condition of continued sales pending appeal, Michael Foods had defied the court’s order. Additionally, the court held that it had the authority to issue a permanent injunction prohibiting Michael Foods from refusing to sell its products to Feesers on the same terms as they are sold to Sodexho.
Michael Foods filed an immediate appeal of the second injunction, noting that Robinson-Patman Act specifically allows a business to choose its customers. The Third Circuit Court of Appeals stayed the lower-court mandate that Michael Foods continue to deal with Feesers and ordered that all appeals be consolidated and expedited. How the Third Circuit handles the lower court’s order compelling sales to Feesers, as well as the underlying price discrimination decision, promises to be very interesting.