Bell v. Fur Breeders Agr. Co-Op.

• Decision Date: 13 April 1998
• Docket Number: No. 2:96-CV-0939-S.,2:96-CV-0939-S.
• Citation: 3 F.Supp.2d 1241
• Court: U.S. District Court — District of Utah
• Parties: John M. ("Jack") BELL and John Robert ("Bob") Bell, Plaintiffs, v. FUR BREEDERS AGRICULTURAL COOPERATIVE, a cooperative organized under the laws of Utah; Dane Dixon, Jack Marchant, Lynn Mathews, Stan Peterson, Stan Stuart, Kent Vernon, Rick Westwood, and John Does 1 through 15 being former director/members of Fur Breeders Agricultural Cooperative, Defendants.

Page 1241

3 F.Supp.2d 1241

John M. ("Jack") BELL and John Robert ("Bob") Bell, Plaintiffs, v. FUR BREEDERS AGRICULTURAL COOPERATIVE, a cooperative organized under the laws of Utah; Dane Dixon, Jack Marchant, Lynn Mathews, Stan Peterson, Stan Stuart, Kent Vernon, Rick Westwood, and John Does 1 through 15 being former director/members of Fur Breeders Agricultural Cooperative, Defendants.

No. 2:96-CV-0939-S.

United States District Court, D. Utah, Central Division.

April 13, 1998.

Roy B. Moore, Steven Day, Roy B. Moore PC & Associates, Salt Lake City, UT, Barry N. Johnson, Salt Lake City, UT, for Plaintiffs.

Perrin R. Love, Campbell Maack & Sessions, Salt Lake City, UT, R. Scott Rawlings, Salt Lake City, UT, for Defendants.

ORDER

SAM, Chief Judge.

This matter is before the court for resolution of defendants' motion to dismiss plaintiffs' antitrust claims under Section 2(a) and (f) of the Clayton Act, as amended by the Robinson-Patman Act. The court has received and reviewed substantial briefing on the issues presented, including briefs filed in connection with plaintiffs' motions to amend their complaint which also addressed the arguments regarding dismissal of the antitrust claims. In addition, counsel were present for oral argument on April 1, 1998. Having heard and considered the parties' arguments the court issues the following memorandum decision.

The court previously allowed plaintiffs to file the second amended complaint. In the briefing relative to the proposed amendments, counsel for all parties updated their arguments relating to the defendants' motion to dismiss. Hence, while defendants' motion to dismiss initially related to the original complaint, defendants, as well as plaintiffs, have had a full and fair opportunity to brief all issues as they apply to the second amended complaint. Therefore, the issue before the court is whether the antitrust claims contained in the Second Amended Complaint are sufficient to withstand the motion to dismiss.¹

In all areas of the law, "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). The standard is even more rigorous in antitrust cases "where `the proof is largely in the hands of the alleged conspirators,'...." Hospital Building Co. v. Trustees of Rex Hospital, 425 U.S. 738, 746, 96 S.Ct. 1848, 48 L.Ed.2d 338 (1976), citing Poller v. Columbia Broadcasting, 368 U.S. 464, 473, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962). In such cases, "dismissals prior to giving the plaintiff ample opportunity for discovery should be granted very sparingly." Hospital Building, 425 U.S. at 746, 96 S.Ct. 1848.

Section 2(a) makes it unlawful "for any person engaged in commerce to discriminate in price between different purchasers of commodities of like grade and quality where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination." 15 U.S.C. Sec. 13(a). The first point of contention between the parties is whether plaintiffs were discriminated against "in price" as is meant under the statute. There is no allegation they paid a higher invoiced price; rather they are saying that when you add the cost they incur to pick up the feed, they are in effect paying a higher price. The Tenth Circuit has given instruction on defining "price discrimination" under Section 2(a):

Section 2(a) is directed to price discrimination and nothing more. Price is to be determined by reference to the invoice submitted to the buyer, and "any discounts, offsets, or allowances not reflected in the invoice price." 4 J. von Kalinowski, supra § 27.03[2]. Some delivery practices may constitute a violation of section 2(a) because they directly or indirectly affect the price paid for the goods. See, e.g., Corn Products Refining Co. v. FTC, 324 U.S. 726, 740, 65 S.Ct. 961, 968, 89 L.Ed. 1320 (1945); 4 J. von Kalinowski, supra § 27.03[3], § 27.03[4] n. 45 and text accompanying. However, a violation of section 2(a) only arises when "discriminations in the terms of sale [operate] to permit the favored customers to purchase at a lower price than other customers, so that their only practical effect [is] to establish discriminations in price, precisely the evil at which the statute was aimed." Corn Products, 324 U.S. at 740, 65 S.Ct. at 968. "[T]he act is inapplicable to `terms of sale except as they amount in effect to the indirect discriminations in price within the meaning of the remainder of subsection (a).'" Id. (quoting H.R.Rep. No. 2951, 74th Cong., 2d Sess. 5) (emphasis added).

Black Gold Ltd. v. Rockwool Industries, Inc., 729 F.2d 676, 682 (10th Cir.1984). In Black

Gold the plaintiff did not claim that the untimely deliveries had any effect upon the price it paid for the product at issue. Hence the court concluded there was no section 2(a) violation.

In contrast, the plaintiffs in the case before this court have alleged that the additional cost they incur to pick up the feed results in indirect price discrimination. They allege the Coop's practice of delivering feed free of charge to all other members of the Coop permits those members, plaintiffs' competitors, to in effect purchase the feed at a lower price and hence, the result is a discrimination in price in violation of section 2(a).

Accordingly, the court finds defendants' delivery practices as alleged in the Second Amended Complaint are within the prohibition of section 2(a). Furthermore, the court finds plaintiffs have sufficiently alleged that the discrimination was substantial in terms of amount and duration. See Second Amended Complaint at paras. 19 and 30. The court then turns to whether, as a matter of law, plaintiffs have alleged that the discrimination at issue has the prescribed effect on competition. As noted above, section 2(a) only prohibits discriminations whose effect may be to substantially lessen competition. It is important to note, however, that "the statute does not require that the discriminations must in fact have harmed competition, but only that there is a reasonable possibility that they `may' have such an effect." Corn Products, 324 U.S. 726, 743, 65 S.Ct. 961, 89 L.Ed. 1320 (1945). See also, J. Truett Payne Co. Inc., v. Chrysler Motors Corp., 451 U.S. 557, 561, 101 S.Ct. 1923, 68 L.Ed.2d 442 (1981) ("By its terms § 2(a) is a prophylactic statute which is violated merely upon a showing that `the effect of such discrimination may be substantially to lessen competition.'") (Emphasis supplied in original). "This reasonable possibility of harm is often referred to as competitive injury." Falls City Industries, Inc. v. Vanco Beverage, Inc., 460 U.S. 428, 435, 103 S.Ct. 1282, 75 L.Ed.2d 174 (1983).

With those statements of law in mind, the court looks at the allegations of the Second Amended Complaint and reasonable inferences to be drawn therefrom. Plaintiffs allege intense competition in the fur breeding industry and relatively low profit margins. Second Amended Complaint at para. 31. In addition, the price discrimination results in even lower profit margins for plaintiffs which affects their ability to compete and gives their competitors an advantage. Second Amended Complaint at paras. 21 and 40. Plaintiffs cite to Falls City, 460 U.S. at 435, 103 S.Ct. 1282, for the statement of what amounts to competitive injury. "[F]or purposes of § 2(a), injury to competition is established prima facie by proof of a substantial price discrimination between competing purchasers over time." Id. (citations omitted). The court finds this presumption applicable and facts supporting it adequately alleged in the Second Amended Complaint. Defendants don't argue with this presumption, but rather are quick to point out that "[i]n the absence of displaced sales, this inference may be overcome by evidence breaking the causal connection between a price differential and lost sales or profits." Id. (citations omitted).

It is undisputed that defendants' practices have not resulted in displaced sales or lower retail prices, due in large part to the fact that "[i]n the fur breeding line of commerce, the final product is sold at auction, thereby eliminating any possibility of lowering resale prices or diverting sales." Second Amended Complaint at para. 38. This does not, however, end the inquiry or completely rebut the presumption of competitive injury. The court finds the causal connection between the price differential and plaintiffs' lower profits due to increased costs caused by the defendants' acts is not broken by the auction scenario. Rather, plaintiffs' allegation that the "industry operates on relatively low profit margins such that the alleged discrimination provided plaintiff's competitors with a significant competitive advantage even if it did not directly affect retail prices" is enough to justify the court's inference of competitive injury. See Foremost Pro Color, Inc. v. Eastman Kodak Co., 703 F.2d 534, 548 (9th Cir.1983). See also Motive Parts Warehouse, v. Facet Enterprises, 774 F.2d 380 394-395 (10th Cir.1985).²

Accordingly, the court finds plaintiffs' allegations demonstrate a reasonable possibility of competitive injury and that, consistent with the authority cited by the parties and relied upon by the court, competitive injury can be inferred in injunctive actions brought to enforce section 2(a).

Having concluded that plaintiffs' claims under section 2(a) for injunctive relief can survive the motion to dismiss, the court will look at the remaining issue involving plaintiffs' damages claim under section 4 of the Clayton Act. J. Truett Payne effectively highlights the differences between the "competitive injury"...