State of Ariz. v. Shamrock Foods Co.

• Decision Date: 21 June 1984
• Docket Number: No. 82-5875,82-5875
• Citation: 729 F.2d 1208
• Parties: 1984-1 Trade Cases 65,927 STATE OF ARIZONA, Plaintiff-Appellant, v. SHAMROCK FOODS COMPANY, an Arizona corporation; and Beatrice Foods Company, an Illinois corporation, Defendants-Appellees. Darryll J. ALTON, et al., Plaintiffs-Appellants, v. SHAMROCK FOODS COMPANY, an Arizona corporation, and Beatrice Foods Company, an Illinois corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1208

729 F.2d 1208

1984-1 Trade Cases 65,927

STATE OF ARIZONA, Plaintiff-Appellant, v. SHAMROCK FOODS COMPANY, an Arizona corporation; and Beatrice Foods Company, an Illinois corporation,

Defendants-Appellees.

Darryll J. ALTON, et al., Plaintiffs-Appellants, v. SHAMROCK FOODS COMPANY, an Arizona corporation, and Beatrice

Foods Company, an Illinois corporation,

Defendants-Appellees.

No. 82-5875.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 13, 1983.

Decided April 3, 1984.

As Amended June 21, 1984.

J. Michael Hennigan, Bretz & Hennigan, Los Angeles, Cal., for plaintiff-appellant.

Charles R. Hoover, Jennings, Strouss & Salmon, Scottsdale, Ariz., for defendants-appellees.

Appeal from the United States District Court for the District of Arizona.

Before KENNEDY and BOOCHEVER, Circuit Judges, and EAST, ^* Senior District Judge.

BOOCHEVER, Circuit Judge.

This is an action by five certified classes against several Arizona dairy product producers alleging a wholesale price-fixing conspiracy. During the course of the suit, all claims were settled except those by the consumer class against Shamrock Foods Co. and another producer joined six years after initiation of the suit. Shamrock moved for partial summary judgment on the ground that the consumers' claims for pass-on damages from purchases of dairy products through grocery stores were barred by Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977). The consumers contend that they have altered their theory of recovery to allege a retail price-fixing conspiracy including the intermediate grocery stores, thus avoiding Illinois Brick. The district court granted partial summary judgment finding the consumers estopped from changing theories of recovery so late in the litigation. The consumers appeal.

Facts

Following the institution of a federal civil and criminal wholesale price-fixing suit against Shamrock Foods Co., Borden Inc., Carnation Co., Foremost-McKesson Inc. and six of their officers, a number of private suits were filed against the corporations seeking damages and injunctive relief. On December 11, 1974, the district court consolidated the actions and certified plaintiff classes of consumers, grocery stores, hospitals, restaurants, and governmental entities.

The five classes subsequently reached a $4,075,000 settlement with all defendants except Shamrock. The settlement agreement and a separate agreement allocating the fund among the five classes were filed with the district court in April 1978. On September 21, 1979, Shamrock settled with the hospital, restaurant, and governmental classes and in mid-1981 Shamrock settled with the grocery store class. The settlements and the allocation agreement were formally approved by the district court, and each expressly preserved the consumer class claims against Shamrock. Thus, the only remaining claims were the consumer claims against Shamrock. These claims were of two types: for overcharges in sales of dairy products through grocery stores and for overcharges in direct sales from Shamrock by home-delivery.

In mid-1982, Shamrock filed a motion for partial summary judgment to dismiss all claims of the consumers regarding damages for purchases of dairy products through grocery stores. It argued that Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977) required dismissal of the consumers' claims. The consumers responded that they have changed their theory of recovery to allege a price-fixing conspiracy including the dairy producers and the grocery stores to fix the retail price of dairy products.

The consumers point out that Shamrock and the other defendant dairies made retail home delivery sales in addition to wholesale sales to grocery stores and thus were both suppliers to and direct horizontal competitors with the grocery stores. When the grocery store prices fell too low, Shamrock and the other dairy defendants lost home delivery sales to the grocery stores. The consumers contend that the dairy producers conspired among themselves and with the grocery stores to raise and stabilize the retail price of dairy products to maintain more profits for all concerned.

In support of their contention, the consumers cite deposition testimony of employees of several dairy producers including Shamrock President Norman McClelland. This testimony tends to support the consumers' allegations that the dairy producers held meetings to discuss retail prices and regularly had communications with grocery stores with the purpose of acting as a go-between to give assurances that a price increase by one retailer would be met by competing retailers.

The district court granted Shamrock's motion on July 23, 1982 and entered final judgment on those claims pursuant to Fed.R.Civ.P. 54(b) on September 23, 1982. The consumer class now appeals the grant of partial summary judgment to Shamrock. We reverse.

Standard of Review

Reviewing a grant of summary judgment, the appellate court must view the evidence in the light most favorable to the party against whom summary judgment was granted and determine whether the trial court correctly found that there was no genuine issue of material fact and that the moving party was entitled to judgment as a matter of law. Heiniger v. City of Phoenix, 625 F.2d 842, 843 (9th Cir.1980).

Discussion

Shamrock makes two arguments that the grant of summary judgment is correct. First, they argue that when, as alleged in the present case, the policy concerns of Illinois Brick are present, that case bars suit no matter what theory is used. Second, they argue that the consumers relied to their advantage at various times on the wholesale price conspiracy/pass-on theory and may not at this late date change theories to a retail price conspiracy to avoid Illinois Brick. The district court granted summary judgment on the basis of both arguments.

A. Illinois Brick

The consumers do not dispute that at the initiation of their suit, their focus was on a wholesale price-fixing conspiracy. Because this theory of necessity implies a pass-on of damages to the retail level, the consumers do not dispute that Illinois Brick would preclude their recovery on their original theory regarding their purchase of dairy products from grocery stores. But they contend that they have changed their theory; they now allege that the retail intermediates, the grocery stores, were co-conspirators with the dairy producers to fix the price of dairy products at the retail level, and that none of the damages now claimed are attributable to the wholesale conspiracy. The consumers argue that because they allege that the retail price was the one fixed, their theory of recovery does not depend on pass-on of damages; thus Illinois Brick does not apply.

We agree. The plaintiffs have offered to prove that the wholesale conspiracy ended in the early 1960's, and that the conspiracy was ineffective in raising prices charged to retail grocers. In these circumstances, Illinois Brick is no bar since there would be no wholesale overcharge to be passed on to the consumers. Instead, we would be presented with a conspiracy among horizontal competitors at the retail level to fix retail prices. Illinois Brick does not prevent this garden variety price-fixing claim.

Even if the plaintiffs were claiming a two-tier conspiracy, we would hold that Illinois Brick is no bar to the suit. Simply stated, the rule of Illinois Brick is that indirect purchasers in a chain of distribution are precluded from suing for damages based on unlawful overcharges passed on to them by intermediates in the distribution chain who purchased directly from the alleged antitrust violator. 431 U.S. at 746, 97 S.Ct. at 2074. ¹ The Court recognized that indirect purchasers, even when able to trace an injury to an antitrust violation, are not in the "preferred position as private attorneys general" intended by Congress to enforce the antitrust laws. Id. The Court relied on two policy considerations to support its conclusion. First, it found that allowing every person along a chain of distribution to claim damages arising from a single violation of the antitrust laws would create a risk of duplicative recovery against the violator unintended by Congress. 431 U.S. at 730, 97 S.Ct. at 2066. The Court reasoned that direct purchasers absorb at least some and often most of the overcharges and are more likely to come forward to collect their damages. 431 U.S. at 746-47, 97 S.Ct. at 2074-75. Second, the Court sought to avoid increasing the cost and burden of antitrust actions with complicated damage theories necessitating massive evidence to determine how the overcharge was apportioned throughout the distribution chain. 431 U.S. at 731-32, 745, 97 S.Ct. at 2067, 2074.

The Court in Illinois Brick expressly noted, however, that the newly announced rule barring damage suits by indirect purchasers was not absolute. ² Whether allegations of a retail price-fixing conspiracy such as the one alleged by the consumers would avoid the bar of Illinois Brick was expressly reserved by this circuit in In re Coordinated Pretrial Proceedings in Petroleum Products Antitrust Litigation, 691 F.2d 1335, 1341 n. 9 (9th Cir.1982); see also In re Beef Industry Antitrust Litigation, 600 F.2d 1148, 1161-63 (5th Cir.1979) (also reserving issue), cert. denied, 449 U.S. 905, 101 S.Ct. 280, 66 L.Ed.2d 137 (1980). Numerous other courts have found Illinois Brick inapplicable to claims against remote sellers when the plaintiffs allege that the sellers conspired with intermediates in the distribution chain to fix the price at which the plaintiffs purchased. See, e.g., Fontana Aviation, Inc. v. Cessna Aircraft Co., 617 F.2d 478 (7th Cir.1980); In re Mid-Atlantic Toyota Antitrust Litigation, 516 F.Supp. 1287, 1295-96 (D.Md.1981); Reiter v. Sonotone Corp., 486 F.Supp. 115, 119-20 (D.Minn.1980); Abrams v. Interco Inc., 1980-2 Trade Cas. p 63,292 at...