Jr. v. Safeway Inc.

Decision Date17 August 2010
Docket NumberNos. 08-55671, 08-55708.,s. 08-55671, 08-55708.
Citation615 F.3d 1171
PartiesState of CALIFORNIA, ex rel. Edmund G. BROWN, Jr., Plaintiff-Appellant, v. SAFEWAY, INC., a Safeway Company doing business as Vons; Albertson's, Inc.; Ralphs Grocery Company, a division of the Kroger Company; Food 4 Less Food Company, a division of the Kroger Company; Vons Companies Inc., an indirect, wholly owned subsidiary of Safeway, Inc, Defendants-Appellees, State of California, ex rel. Edmund G. Brown, Jr., Plaintiff-Appellee, v. Safeway, Inc., a Safeway Company doing business as Vons; Albertsons, Inc.; Ralphs Grocery Company, a division of the Kroger Company; Food 4 Less Food Company, a division of the Kroger Company; Vons Companies Inc., an indirect, wholly owned subsidiary of Safeway, Inc., Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

OPINION TEXT STARTS HERE

COPYRIGHT MATERIAL OMITTED.

Edmund G. Brown Jr., Attorney General for the State of California; Kathleen E. Foote, Senior Assistant Attorney General; Barbara M. Motz, Supervising Deputy Attorney General; Cheryl L. Johnson, Deputy Attorney General, and Jonathan M. Eisenberg, Deputy Attorney General, Los Angeles, CA, for the plaintiff-appellants/cross-appellees.

Alan B. Clark, Peter K. Huston, Los Angeles, CA, and Jeremy P. Sherman, Chicago, IL, for respondent-appellees/cross-appellants Safeway Inc. and the Vons Companies, Inc.

Jeffrey A. LeVee, Craig E. Stewart, and Kate Wallace, Los Angeles, CA, for respondent-appellee/cross-appellant Albertson's, Inc.

Robert B. Pringle, San Francisco, CA, for respondent-appellees/cross-appellants Ralphs Grocery Company and Food 4 Less Food Company.

Robin S. Conrad, Shane B. Kawka, Washington, D.C., for amicus curiae Chamber of Commerce of the United States.

Charles I. Cohen, Jonathan C. Fritts and David R. Broderdorf, Washington, D.C., for amici curiae Chamber of Commerce of the United States and Council on Labor Law Equality.

Jeffrey A. Berman, Los Angeles, CA, for amicus curiae Employers Group.

Robert M. McKenna, Attorney General of Washington; and Mark O. Brevard, Assistant Attorney General, Seattle, WA; and Nancy H. Rogers, Attorney General of

Ohio; and Jennifer L. Pratt, Chief, Antitrust Section, Columbus, OH, for amici curiae Arizona, Connecticut, Delaware, Maryland, Massachusetts, Mississippi, Missouri, Montana, Nevada, Ohio, Oklahoma, Oregon, Tennessee, Washington and West Virginia.

Nicholas W. Clark, Washington, D.C., for amicus curiae United Food and Commercial Workers International Union.

Michael D. Four, Los Angeles, CA, for amici curiae UFCW Local Unions 135, 324, 770, 1036, 1167, 1428 and 1442.

Andrew D. Roth, Washington, D.C., for amici curiae United Food and Commercial Workers International Union, UFCW Local Unions 135, 324, 770, 1036, 1167, 1428 and 1442, Change to Win and AFL-CIO.

Patrick J. Szymanski, Washington, D.C., for amicus curiae Change to Win.

Jonathan P. Hiatt, Washington, D.C., for amicus curiae AFL-CIO.

Appeal from the United States District Court for the Central District of California, Andrew J. Guilford, District Judge, Presiding. D.C. No. 2:04-cv-00687-AG-SS.

Before: HARRY PREGERSON, STEPHEN REINHARDT and KIM McLANE WARDLAW, Circuit Judges.

Opinion by Judge REINHARDT; Partial Concurrence and Partial Dissent by Judge WARDLAW.

OPINION

REINHARDT, Circuit Judge:

Our antitrust regime is the embodiment of Congress's judgment that, with rare and specific exceptions, free competition for customers between firms protects and benefits the public by increasing efficiency and output, lowering prices, and improving the quality of the products and services available. 1 Our labor laws exist to reduce strife between workers and employers and to ensure that workers are able to organize, and, by organizing, to promote their interests and protect their rights. 2 These laws are not antithetical, but have been harmonized by Congress and the courts.

In this case, the three largest supermarket chains in Southern California agreed to share profits amongst themselves and with a fourth supermarket chain during the indeterminate term of, and for a short period after, an anticipated labor dispute. The central issue here is whether a profit sharing agreement that would ordinarily violate the antitrust laws is excused from compliance under the nonstatutory labor exemption because it constitutes an economic weapon used by the employers in their efforts to prevail in a labor dispute. Alternatively, defendants contend that because the agreement will aid them in achieving lower labor costs, it results in a procompetitive benefit that outweighs its anticompetitive effects, and thus is not unlawful under Section 1 of the Sherman Act. See 15 U.S.C. § 1. The defendants also contend that the agreement is not anticompetitive because it may be of relatively short duration and because defendants between them control less than a 100% share of the market. Although we devote a considerable part of our discussion to explaining why the profit sharing agreement is anticompetitive, we doubt that anyone would seriously suggest that the agreement was lawful if it had been adopted simply in order to benefit defendants economically, and there had been no impending labor dispute. The most important part of our discussion, therefore, deals with the central issue: whether the fact that defendants' agreement was designed for use as an economic weapon in a labor dispute changes or excuses the anticompetitive nature of the agreement.

I.

Defendants Albertson's, Vons (for which defendant Safeway, Inc. is the parent company), Ralphs and Food 4 Less are supermarket chains operating in Southern California. Ralphs, Albertson's and Vons, which are the three largest supermarket chains in that region, and possess a commanding share of the market, had a collective bargaining agreement with various unions affiliated with the United Food and Commercial Workers (“UFCW”) that was set to expire on October 5, 2003. Food 4 Less had a separate contract with the same unions that did not expire until four months later, the successor to which was to be reached through a separate negotiation. In July and August 2003, Ralphs, Albertson's and Vons agreed with the unions that the three chains would act as a multiemployer bargaining unit for the purpose of negotiating a successor to their expiring contract. Among other goals, these firms sought terms that would decrease the costs of labor, in particular the cost of providing health coverage to workers.

In anticipation of the unions using whipsaw tactics (in which unions strike or picket only one employer in a multiemployer bargaining unit), Ralphs, Albertson's and Vons, along with Food 4 Less, entered into a Mutual Strike Assistance Agreement (hereinafter, the MSAA). In the MSAA, the four supermarket chains agreed that they would all lock out their union employees within 48 hours of a strike against any one or more of them, a traditional tactic in labor disputes. More significantly, in what defendants term a “revenue sharing provision,” the MSAA provided for the sharing of profits during the strike, regardless of its length. This provision stated that, in the event of a lockout or strike, any firm that earned revenues above its historical share of the combined revenues of all four firms would redistribute 15% of those surplus revenues among the other chains according to a fixed formula. According to Richard Cox, a Safeway (Vons) vice president who helped draft the MSAA, the 15% number was intended as an estimate of the profit that a chain would earn on increased sales without having to increase fixed costs. The purpose of the profit sharing provision was to maintain each defendant's pre-labor dispute market share. Food 4 Less was included in the agreement to share profits despite being outside the multiemployer bargaining unit and despite having a separate collective bargaining agreement with the UFCW-affiliated unions that was expiring at a different time, the successor to which was to be negotiated separately. Additionally, the chains agreed to share profits according to the same formula in the event that Food 4 Less was struck during its later, separate collective bargaining process. Under the terms of the agreement, profit sharing was to continue for two full weeks after the termination of any strike or lockout. Thus, in the event that a strike or lockout involving the three largest supermarket chains in Southern California caused members of the public to patronize Food 4 Less, one of the next largest supermarket chains in the region, Food 4 Less was required to share its extra profits with the strike-bound firms.

The profit sharing agreement covered 859 Ralphs, Albertson's and Vons stores in Southern California, as well as 101 Food 4 Less stores that operated in the same area. According to data collected by AC Nielsen, Albertson's, Ralphs, Vons, and Food 4 Less accounted for at least 55% and as much as 64% of the Los Angeles-Long Beach metropolitan area market during every quarter of 2003-04, including the quarters during which the labor dispute occurred, and between 66% and more than 75% of the San Diego metropolitan area market during the same period. See Declaration of Thomas R. McCarthy, exs. 3A-3D. A fair estimate of the four chains' collective market share of the Los Angeles-Long Beach portion of the Southern California market both before and after the strike would appear to be at least 60% and of the San Diego area portion at least 70%.

On October 11, 2003 the unions struck local Vons stores. Pursuant to their agreement, Ralphs and Albertson's (but not Food 4 Less) locked out their union employees the next day. The unions initially picketed all three supermarket chains but stopped picketing Ralphs stores on October 31, 2003. The strike received extensive news coverage, including a front page story in the Los Angeles Times on November 1, 2003 that reported the existence of a plan for the...

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