Parish Oil Co., Inc. v. Dillon Companies, Inc.

• Decision Date: 25 April 2008
• Docket Number: No. 07-1032.,07-1032.
• Citation: 523 F.3d 1244
• Parties: PARISH OIL CO., INC., and Ray Moore Tire & Petroleum Service, Inc., Plaintiffs-Appellees, v. DILLON COMPANIES, INC. d/b/a City Market, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

523 F.3d 1244

PARISH OIL CO., INC., and Ray Moore Tire & Petroleum Service, Inc., Plaintiffs-Appellees, v. DILLON COMPANIES, INC. d/b/a City Market, Defendant-Appellant.

No. 07-1032.

United States Court of Appeals, Tenth Circuit.

April 25, 2008.

Timothy R. McDonald (Timothy G. Atkeson, Jessica Brody, and Brittany K.T. Kauffman on the brief), Arnold & Porter LLP, Denver, CO, for Defendant-Appellant.

Alphonse M. Alfano, Bassman, Mitchell & Alfano, Chartered, Washington, D.C. (Andrew R. Shoemaker and Tamera D. Westerberg, Hogan & Hartson LLP, Denver, CO, with him on the brief), for Plaintiffs-Appellees.

Before TACHA, HARTZ and McCONNELL, Circuit Judges.

McCONNELL, Circuit Judge.

We must decide, under a now-amended Colorado unfair competition statute, whether a grocery store may sell gasoline below cost if such sales are conditioned on the purchase of enough groceries above cost that the entire series of transactions comes in at a profit. We hold that it may, and therefore reverse a jury's judgment in favor of the competitors who challenged this practice.

I.

A.

Defendant Dillon Companies, a Kansas corporation and subsidiary of the Cincinnati-based Kroger Co., operates two of the four full-service grocery stores in the city of Montrose, Colorado, under the name City Market. One is in "downtown" Montrose; the other, two miles down Townsend Avenue on the south end of town. At those locations it also operates retail gasoline filling stations. Plaintiffs are competitors in the retail gasoline business. Parish Oil is a gasoline jobber, or wholesaler, and also operates retail filling stations in Montrose under the Phillips 66 Food Plaza and Conoco-Humdinger's Travel Shoppe names. Ray Moore Tire & Petroleum Service ("Ray Moore") operated a filling station downtown until closing shop in November, 2004.

On December 3, 2003, City Market kicked off a new promotion, the "Grocery Discount Program," allegedly intended as a pilot for a Kroger-wide plan to boost grocery sales. Under the Program, a customer who purchased a qualifying amount of goods at a City Market grocery store using his store loyalty card would receive a one-time per-gallon discount on gasoline on his next visit to a City Market filling station, redeemable by swiping his loyalty card at the pump. The terms of the deal changed with time. From December 3, 2003 to March 2, 2004, a purchase of $25.00-$49.99 in groceries earned the customer 4¢ per gallon off the posted price of gasoline, and a purchase of $50 or more earned 8¢ off. The qualifying amount of groceries had to be purchased in a single transaction, and the gasoline discount was available only at the filling station at City Market's south store. From March 3 to November 9, 2004, a purchase of $35 or more in groceries earned 15¢ per gallon off gasoline. Separate grocery purchases over any seven-day period could be accumulated to reach the qualifying amount, and the discount could be redeemed at either City Market location. From November 10, 2004 to February 28, 2005, a purchase of $50 or more in groceries in a single transaction netted the customer a whopping 20¢ per gallon off the price of gasoline. Since March 1, 2005, any customer with a City Market loyalty card has received 3¢ per gallon off at the pump without the need to buy groceries, and those customers who buy $100 or more of City Market groceries over a calendar month have received a discount of 7¢ per gallon. In every incarnation of the program, the discount could be used only once; it applied to every grade of gasoline, expired if not redeemed within two weeks, and required that the same loyalty card be used in the grocery store and at the pump.

On the ledgers, City Market kept its groceries' and filling stations' accounts separate, so at the end of each four-week accounting period the gasoline end of the business would bill the grocery end for the total value of the discounts it had honored. It is stipulated that the Grocery Discount Program operated at a total profit; that is, "[t]he margin of profit on qualifying grocery sales, when viewed in the aggregate, fully covered the cost of the aggregate discounts offered under these programs at City Market's Montrose, Colorado stores." App. 577. But because City Market kept only aggregate figures, it is unknown how many individual customers, if any, received more in discounts at the pump than City Market had earned on their qualifying purchases of groceries.

B.

City Market's competitors cried foul. Over this period of time Parish Oil and Ray Moore had been losing substantial amounts of business, both in volume and in profit. (The amounts and causes of their losses are in contention, but when the matter came to trial a jury calculated Parish Oil's losses due to City Market's discount program at $200,000 and Ray Moore's at $281,250.) On January 14 2005, Plaintiffs sued City Market in federal district court under Colorado's Unfair Practices Act (UPA). The UPA, Colo.Rev. Stat. § § 6-2-101 to-117, was enacted in 1935 "to safeguard the public against the creation or perpetuation of monopolies and to foster and encourage competition by prohibiting unfair and discriminatory practices by which fair and honest competition is destroyed or prevented." Id. § 6-2-102. The Act has subsequently been amended by the legislature, but at the times relevant to this case it contained two prohibitions on selling items below cost: a general prohibition against below-cost sales or gifts where the seller has a "purpose of injuring competitors and destroying competition," id. § 6-2-105(1)(a) (2002), and a specialized prohibition, added in 1993, applicable only to below-cost motor fuel sales and omitting the intent requirement:

It is unlawful for any person, partnership, firm, corporation, joint stock company, or other association engaged in business within this state to engage in a pattern of selling, offering for sale, or advertising for sale motor fuel for less than the cost thereof to such vendor, when such pattern has the effect of injuring one or more competitors or destroying competition.

Id. § 6-2-105(1)(b) (2002), repealed by Act of April 16, 2007, 2007 Colo. Legis. Serv. Ch. 140, § 2 (West) (effective April 16, 2007). A below-cost sale is permissible if it is part of "an endeavor made in good faith to meet the legal prices of a competitor." Id. § 6-2-110(1)(d) (2002), amended by Act of April 16, 2007, supra, § 4. A violation is a misdemeanor, id. § 6-2-105(1)(b), and the UPA creates a private right for any person or company "injured thereby" to maintain an action for treble damages and to "enjoin the defendant from a continuance of the violations," id. § 6-2-111(1).

This case was brought under Section 105(1)(b), the special motor-fuel provision. The complaint accused City Market of carrying on a pattern of illegal sales of gasoline below cost, in that City Market's posted prices were often below both City Market's cost and the prices of its competitors, and actual selling prices under the Grocery Discount Program were even lower. For instance, according to the complaint, City Market's posted price for regular unleaded gasoline was below its cost on 171 out of the 365 days between December 5, 2003 and December 3, 2004. This pattern, it was charged, had a "dramatic adverse impact on [City Market's] competitors," reducing gross margins on gasoline sales at Parish Oil's Phillips 66 station by almost 43 percent, and forcing Ray Moore out of the general gasoline retail business it had been in for 36 years. App. 31-32. The two-count complaint sought both treble damages and preliminary and permanent injunctions to bar City Market from further below-cost selling.

The district court denied the preliminary injunction. After discovery, City Market moved for summary judgment. It asserted that its Grocery Discount Program fell into an exception for combined sales. That provision, Section 113 of the UPA, which is at the heart of this appeal, provided at the times relevant to this case:

For the purpose of preventing evasion of the provisions of this article in all sales involving more than one item or commodity and in all sales involving the giving of any concession of any kind, whether it be coupons or otherwise, the vendors' or distributors' selling price shall not be below the cost of all articles, products, commodities, and concessions included in such transactions.

Colo.Rev.Stat. § 6-2-113, amended by Act of April 16, 2007, supra, § 5.

According to City Market, this provision allows a vendor to "bundle" products, so that one item may be sold below cost if its sale is tied in an appropriate way with another item or items such that the total price is above the combined costs. Under this interpretation, a City Market gasoline sale would be bundled with the related qualifying grocery sales, if any, to determine whether the transaction as a whole generated a profit or a loss. Because, City Market argued, it was stipulated that the Grocery Discount Program operated at a net profit, there could be no "pattern" of below-cost gasoline sales, and Plaintiffs must lose.

The district court disagreed. Although it admitted that, "read literally," Section 113 supported City Market's view, it found the statute "internally and irreconcilably inconsistent" because allowing below-cost bundled sales would permit an "end-run around the underlying purposes of the UPA" in contravention of the provision's stated purpose of "preventing evasion" of the Act.App. 315-16. The court held instead that Section 113 must be read to require consideration of prices and costs item-by-item, and thus to forbid a sales scheme like the Grocery Discount Program. It therefore denied summary judgment for City Market.

The case proceeded to a three-day trial, held on October 30 — November 1, 2006, whereupon the jury found City Market liable for injuries to both Parish Oil and Ray Moore. It fixed Parish Oil's damages at $200,000 and Ray Moore's at...