Rose Confections, Inc. v. Ambrosia Chocolate Co., a Div. of W.R. Grace and Co.

• Decision Date: 12 May 1987
• Docket Number: 86-5079,Nos. 86-5011,s. 86-5011
• Citation: 816 F.2d 381
• Parties: , 1987-1 Trade Cases 67,522 ROSE CONFECTIONS, INC., Appellee, v. AMBROSIA CHOCOLATE COMPANY, A DIVISION OF W.R. GRACE AND CO., Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 381

816 F.2d 381

55 USLW 2597, 1987-1 Trade Cases 67,522

ROSE CONFECTIONS, INC., Appellee, v. AMBROSIA CHOCOLATE COMPANY, A DIVISION OF W.R. GRACE AND CO., Appellant.

Nos. 86-5011, 86-5079.

United States Court of Appeals Eighth Circuit.

Submitted Nov. 13, 1986.

Decided April 13, 1987.

Rehearing Denied May 12, 1987.

Randolph S. Sherman, New York City, for appellant.

Phillip A. Cole, Minneapolis, Minn., for appellee.

Before McMILLIAN, ARNOLD, and WOLLMAN, Circuit Judges.

ARNOLD, Circuit Judge.

This is a price-discrimination case under section 2 of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. Sec. 13(a). The jury found that Ambrosia Chocolate Co. violated the Act, and it awarded plaintiff Rose Confections, Inc., $545,500 in damages. The District Court trebled the damages under section 4 of the Clayton Act, 15 U.S.C. Sec. 15, and entered judgment against Ambrosia for $1,636,500. After the District Court denied Ambrosia's motion for a new trial or judgment n.o.v., Rose Confections moved for $340,812.49 in attorney's fees and costs under section 4; the District Court awarded $195,852.99. In No. 86-5011 Ambrosia appeals from the judgment and from the denial of its motion for a new trial or judgment n.o.v., and in No. 86-5079 it appeals from the award of fees and costs. We affirm the jury's finding of liability under the Robinson-Patman Act, but we reverse the judgment and remand for a new trial on damages. Of the two damages theories Rose Confections presented at trial, one was erroneous as a matter of law because it assumed that Rose received the same price that it claimed, and the jury found, to be discriminatory. A correct theory would have been based, instead, on an assumption that neither Rose nor its favored competitor had received a price concession from Ambrosia. Since we reverse the judgment and remand for a new trial on damages, we also reverse the award of attorney's fees and costs and remand for redetermination in light of the additional proceedings.

I.

Ambrosia, the nation's largest manufacturer of cocoa-based products at the time of trial, makes a wide range of chocolate products at plants in Milwaukee, Wisconsin, Newark, New Jersey, and Charlotte, North Carolina. Tr. VI:538. We are concerned with only one of its products--chocolate chips. Ambrosia sells chips to industrial customers for use as ingredients in other products, such as ice cream and baked goods, and to "rebaggers," who package bulk chips in 12-18 ounce bags and sell them to retailers, such as grocery chains. Rose Confections is a rebagger located in Plymouth, Minnesota. It sells rebagged chips under its own "control" label, "Log House" (which is the company's present corporate name), and under the "private" labels of many of its retail customers, such as Jewel Foods in Chicago. Tr. II:65. Barg & Foster, one of Rose Confections' primary competitors in the private-label market, is a rebagger with facilities originally in Milwaukee. Before 1980, both Rose Confections and Barg & Foster bought the great majority of their bulk chips from Ambrosia.

The product market here is the market in rebagged, private-label chocolate chips. Rebagging private-label chips is essentially a process of buying bulk chips from a manufacturer, making cellophane bags bearing the retailer's private label, and sealing the chips in the bags. The most significant direct costs of production are the cost of the bulk chips, the cost of transporting them from the manufacturer to the rebagging facility (called "freight in"), and the cost of transporting the finished product from the plant to the retail customer (called "freight out"). Tr. II:127. Thus a rebagger has a competitive advantage over other rebaggers if it is located close to its source of supply or close to its retail customer, so that it can eliminate these freight costs. Tr. II:91-92; III:215. Similarly, a chocolate-chip manufacturer has a competitive advantage over other manufacturers if it is located near rebaggers who sell in high-volume markets. In addition to freight savings, having a plant near the customer enables a seller, either a manufacturer selling to a rebagger, or a rebagger selling to a retailer, to provide better service and to fill orders more quickly, both of which are important factors in the private-label chip market. Tr. VI:540-41; III:224.

The geographic market involved is the West Coast of the United States, which, the parties agree, includes California, Oregon, Washington, Nevada, and Arizona. Before 1980, Ambrosia, Rose Confections, and Barg & Foster each sold their products, with varying degrees of success, in the West Coast. Ambrosia had a strong position in the markets near its plants in the Midwest, Southeast, and East Coast, but it was in a "precarious" position in the West Coast market because it did not have a manufacturing location there. Addendum to Appellant's Brief ("Add."), at A14.2; Tr. VI:538-41. In 1980 it decided to "buy" sales on the West Coast by reducing its prices to West Coast customers, with the goal of raising its West Coast sales to a volume that would justify building a manufacturing plant there. Add. at A14.2; Tr. VI:542-43. The price reduction took the form of a "freight absorption"; on sales to West Coast customers from its Milwaukee plant, Ambrosia would charge the same price that it charged other buyers, but it would deliver the product for free to the customers' West Coast facilities. On sales to other buyers, the buyers had to pay for shipping. Ambrosia called this strategy its "West Coast project," and it made this offer to three West Coast customers during 1980 and early 1981. Tr. VI:607-10. None of these, however, was a rebagger.

In spring 1981, Ambrosia approached Barg & Foster with the proposal that is at the center of this lawsuit: If Barg & Foster would build a rebagging plant on the West Coast, Ambrosia would sell Barg & Foster chips under the terms of the "West Coast project." Joint Appendix ("J.A.") at 7. By contrast, its existing supply contracts with Barg & Foster and Rose Confections called for delivery F.O.B. Ambrosia's Milwaukee plant, with no option for delivery to the buyer's plant. Tr. III:278. Under this new agreement, Barg & Foster established a rebagging plant at Sparks, Nevada and took delivery of more than 5 million pounds of freight-free chips there between July 1981 and October 1983. ¹ Ambrosia never offered a similar deal to Rose Confections. As a result, Rose Confections competed directly against Barg & Foster in the West Coast private-label market for more than two years while at a two-pronged competitive disadvantage. First, Rose Confections had to pay freight-in costs from Milwaukee to Plymouth, while Barg & Foster did not have any freight-in costs at its Sparks plant. The freight savings to Barg & Foster amounted to about $1 per case of finished product, or $309,609.48 in all. Tr. III:215, 275; J.A. at 10.3. Second, Rose Confections had higher freight-out costs from Plymouth to its West Coast customers than did Barg & Foster, which could ship from Sparks.

Rose Confections brought its Robinson-Patman action against Ambrosia, but not Barg & Foster, alleging that the free-freight arrangement was an illegal price discrimination that injured secondary-line competition between Rose Confections and Barg & Foster in the West Coast market. After a jury trial over the course of two weeks, the jury returned a damages verdict in favor of Rose Confections.

Ambrosia attacks the judgment and the award of fees and costs on many different fronts. In the next two parts of the opinion, we discuss the issues relating to liability under the Robinson-Patman Act. We affirm on those issues. Then we discuss the issue on which we reverse and remand for a new trial, Rose Confections' damages under section 4 of the Clayton Act. Finally, we discuss the award of attorney's fees and costs.

II.

To establish liability under the Robinson-Patman Act, one of the elements that plaintiff must demonstrate is a reasonable possibility that the price discrimination may substantially injure competition. This burden may be met in two ways. First, plaintiff may introduce direct evidence that disfavored competitors lost sales or profits as a result of the discrimination. See Falls City Industries, Inc. v. Vanco Beverage, Inc., 460 U.S. 428, 437-38, 103 S.Ct. 1282, 1290, 75 L.Ed.2d 174 (1983). Second, he can show that the favored competitor received a substantial price reduction over a substantial period of time, which gives rise to a permissible inference of competitive injury. FTC v. Morton Salt Co., 334 U.S. 37, 50-51, 68 S.Ct. 822, 830-31, 92 L.Ed. 1196 (1948). Ambrosia argues that Rose Confections' evidence fails under either standard. We disagree.

A.

There was direct evidence at trial that Rose Confections lost profits and sales as a result of the freight absorption. Rose Confections' president, Alan Kasdan, testified that his company had to reduce prices to its customers on the West Coast in response to low-price offers made by Barg & Foster. ² Its West Coast sales broker, John Pfeifer, testified by deposition that Rose Confections lowered its price to one of its longstanding West Coast clients, Ralph's Supermarket, as a result of price competition from Barg & Foster. Pfeifer Depo. at 14-17. Mr. Kasdan also testified to this price reduction. Tr. II:157-59. There was also testimony that Rose Confections lost potential clients to Barg & Foster because of these lower prices. Mr. Pfeifer stated that Rose Confections unsuccessfully solicited the accounts of Thrifty Drug, Sav-On Drugs, and Fedmart, and, after the solicitations, the stores carried chips prepared by Barg & Foster. Pfeifer Depo. 18-21. In addition, Mr. Kasdan related Rose Confections' extensive, seven-year efforts to obtain the largest West Coast account, Safeway, which he thought it had finally won:

Q: At the time of the first offer, May of 1981, you had...