Feesers, Inc. v. Michael Foods, Inc.

• Citation: 498 F.3d 206
• Decision Date: 14 August 2007
• Docket Number: No. 06-2661.,06-2661.
• Parties: FEESERS, INC., Appellant v. MICHAEL FOODS, INC.; Sodexho, Inc.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

498 F.3d 206

FEESERS, INC., Appellant v. MICHAEL FOODS, INC.; Sodexho, Inc.

No. 06-2661.

United States Court of Appeals, Third Circuit.

Argued May 10, 2007.

Filed: August 14, 2007.

Jeffrey L. Kessler

[ARGUED],

Johns F. Collins, Eamon O'Kelly, Dewey Ballantine,

New York, NY, Steven M. Williams, Cohen, Seglias, Pallas, Greenhall & Furman, Harrisburg, PA, for Appellant.

Brett L. Messinger, Duane Morris, Philadelphia, PA, Margaret M. Zwisler, Latham & Watkins, Washington, DC, for Appellee Michael Foods Inc.

Matthew M. Haar, Saul Ewing, Harrisburg, PA, Christopher M. Sheehan, Martin F. Gaynor, III

[ARGUED],

Cooley, Manion & Jones, Boston, MA, for Appellee Sodexho Inc.

Before: RENDELL, JORDAN and ALDISERT, Circuit Judges.

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. Michael Foods, Inc. & Sodexho, Inc., No. 04-Civ-576, 2006 WL 1274088, 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 food service 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 food service facilities that sell meals, snacks, and beverages, such as school, hospital, and nursing home cafeterias. Both Sodexho and Feesers sell food products to food service 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 food service management company that provides facility management and operation services to its clients and, in most cases, also sells products to 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 food service facilities to provide them with products from Michael Foods. Michael Foods is a supplier of egg and potato products.

A food service facility will contract with either Sodexho or Feesers, but not both,¹ to buy food and food-related products. A food service facility may either contract with Sodexho for Sodexho to operate the facility and procure products,² or 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 food service facilities.

Sodexho's process to procure products from Michael Foods for resale to food service 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 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 food service facility customer and charges the cost of the products to the customer as an "operating expense." The food service 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 However, food service 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 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, 2006 WL 1274088, slip op. at 10-18 (M.D.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...