Feesers v. Michael Foods: Competitive Injury Under the Robinson-Patman Act
July 24, 2009
Copyright 2009. All rights reserved.
The Feesers case arose in the food-service management and distributorship industry. Feesers, is a traditional "middle man" distributor that purchases food products from producers and resells them to institutional end users, such as nursing homes and schools, which prepare their own food on site for large numbers of people.[1] Michael Foods is a producer of egg and potato products. Sodexho is a management company that provides food services to institutions.
Feesers sued Michael Foods and Sodexho in Pennsylvania federal court and alleged that Michael Foods provided a discount to Sodexho that it did not provide to Feesers and other traditional distributors, in violation of Section 2(a) of the Robinson-Patman Act, which governs price discrimination.[2] Feesers argued that it met the "harm to competition" element of Section 2(a) because it competed with Sodexho and its distributors for the business of providing food and related products to institutions. According to Feesers, institutions choose between contracting with a food-service provider such as Sodexho and operating their own food-service programs.[3] The district court granted defendants' motion for summary judgment, concluding that Feesers had not shown that institutions' purchasing decisions between self-operated services and outsourcing were "tied to food cost alone."[4] The district court also concluded that Feesers' failed to present sufficient evidence to show that it "and Sodexho are actual competitors within the meaning of §2(a) of the Robinson-Patman Act."[5]
In a 2-1 decision, the Third Circuit reversed, concluding that Feesers and Sodexho were "in economic reality" acting on the same distribution level because each provided distribution services to their institutional clients, even though Sodexho provided these services only in connection with its full-service food-service management functions.[6] Based on this conclusion, the court held that a fact finder could find that both Sodexho and Feesers compete for the sale of unprepared food to their customers, which when combined with the Morton Salt inference of harm to competition by a difference in price, created a fact issue on the competitive harm element of Section 2(a).[7] The court remanded the case to the district court to determine whether Michael Foods and Sodexho could rebut this inference. In dissent, Judge Jordan criticized the majority for concluding that Sodexho and Feesers actually compete simply because one aspect of the prepared meals that Sodexho serves also include purchasing unprepared foodstuffs.[8]
On remand, the district court held a three-week bench trial and concluded that the Michael Foods discount program violated Section 2(a). At trial, defendants attempted to show a lack of harm to competition because Feesers never participated in the RFP processes, in which Sodexho obtained institutions' food-service business.[9] The court rejected this argument and found that competition in the food-service industry is not limited to the RFP process.[10] In support of its conclusion that the discounting program injured competition between Feesers and Sodexho, the court cited testimony of institutional customers that switched between outsourcing and internal food-service management.[11]
Citing Sodexho documents, the court also noted that the industry was becoming more fragmented, such that an institution might use Sodexho to manage its food service, while utilizing the services of a third-party distributor to procure and deliver products.[12] In light of the trend towards fragmentation, the court concluded that Sodexho actually competes with Feesers in the distribution of food-service products, in that the distribution of products was one element of the service that Sodexho provides to clients.[13] The court distinguished the Supreme Court's decision in Volvo Trucks by concluding that this fragmented industry structure renders insignificant the lack of head-to-head competition between Feesers and Sodexho.[14] The court then addressed and rejected the defendants' meeting-competition defense and concluded that Sodexho unlawfully induced price discrimination under Section 2(f) of the Act. The Court also enjoined Michael Foods from unlawfully discriminating in price between Feesers and Sodexho.
The defendants have indicated their intention to appeal.
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