U.S. Wholesale Outlet & Distribution, Inc. v. Innovation Ventures, LLC

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8 UNITED STATES DISTRICT COURT

9 CENTRAL DISTRICT OF CALIFORNIA

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11 U.S. WHOLESALE OUTLET & Case No.: CV 18-1077 CBM (Ex)

DISTRIBUTION, INC. et al,

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Plaintiffs, ORDER RE: COURT’S FINDINGS

13 OF FACT AND CONCLUSIONS OF

vs. LAW

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LIVING ESSENTIALS, et al,

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Defendants.

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This Order constitutes findings of fact and conclusions of law pursuant to

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Fed. R. Civ. P. 52(a).

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FINDINGS OF FACT

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1. The seven Plaintiffs are wholesale businesses that sell, among other

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merchandise, 5-hour ENERGY® in California. (Jury Instructions (ECF No. 498)1

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(“Inst.”) No. 3, ¶ 1; Amended Pretrial Conference Order (ECF No. 386) (“Am.

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PTCO”) at ¶ 5.1.)

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2. Defendants Living Essentials, LLC and Innovation Ventures, LLC are

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Michigan limited-liability companies with their principal place of business in

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1 Oakland County, Michigan. (Answer to Second Amended Complaint (ECF No.

2 39) (“Answer”) ¶ 27.)

3 3. Living Essentials, LLC is the manufacturer and distributor of 5-hour

4 ENERGY®, and Innovation Ventures, LLC is its corporate parent. Both

5 companies are referred to together as “Living Essentials.” (Inst. No. 3, ¶ 2; Am.

6 PTCO at ¶ 5.2.)

7 4. Living Essentials has manufactured and sold 5-hour ENERGY®

8 since 2004.

9 5. Living Essentials manufactures all bottles of 5-hour ENERGY® in

10 Wabash, Indiana, and then sells and distributes them around the country, including

11 California.

12 10. Living Essentials uses an independent broker to sell 5-hour ENERGY

13 to Costco Wholesale Corporation. At different times during the relevant period,

14 those brokers were Level One Marketing, Advantage Sales & Marketing, and

15 Innovative Club Partners. (Inst. No. 3, ¶ 6; Am. PTCO at ¶ 5.6.)

16 #*. Living Essential also uses independent broker, Paramount Sales

17 Group, to sell 5-hour Energy to Plaintiffs and other wholesalers in California.

18 11. Costco operates two types of stores, the “regular” Costco stores,

19 which cater to consumers, and a separate type called the Costco Business Centers,

20 which cater primarily—but not exclusively—to small businesses. (Inst. No. 3, ¶ 7;

21 Am. PTCO at ¶ 5.7.)

22 12. From 2012 to December 2015 there were four Costco Business

23 Centers in California (Commerce, San Diego, Hawthorne, and Hayward). In

24 December 2015, the Westminster Costco Business Center was opened. In August

25 2017, Burbank and South San Francisco Costco Business Centers were opened.

26 (Inst. No. 3, ¶ 8; Am. PTCO at ¶ 5.8.)

27 13. There was at least one Costco Business Center in close proximity to

28 each of the Plaintiffs or their customers. (Ex. 364-3 3 (maps showing locations of

1 Plaintiffs’ businesses and Costco Business Centers) & 10/15 Tr. 20:24-21:11; see

2 also 10/3 Tr. 122:12-17 (Mansour); 10/4 Tr. 35:4-25 (Amini); 10/4 Tr. 96:5-97:15

3 (Rashid); 10/4 Tr. 131:10-132:4 (Kohanim); 10/7 Tr. 157:12-19 (Ali); 10/7 Tr.

4 178:4-12, 259:17-260:3, 263:15-18 (Wahidi); 10/10 Tr. 220:15-221:16, 225:1-21

5 (Krishan); 10/10 Tr. 238:25-239:2 (Pae); 10/15 Tr. 69:17-70:6 (Paulus).)

6 14. Living Essentials’ “list price” to Plaintiffs was $1.45 per bottle for

7 regular strength and $1.60 per bottle for extra-strength 5-hour ENERGY® from

8 January 2012 through January 2019. (Answer ¶ 41; Response to RFA (ECF No.

9 179-1) No. 7; Exs. 872-878.)

10 15. Living Essentials’ “list price” to Costco was $1.35 per bottle for

11 regular strength and $1.50 per bottle for extra-strength 5-hour ENERGY® from

12 January 2012 through January 2019. (Answer ¶ 41; Response to RFA (ECF No.

13 179-1) No. 8; Ex. 879.)

14 16. On January 14, 2019, Living Essentials increased its “list price” to

15 Plaintiffs and Costco by $.05 per bottle. (Exs. 872-879.)

16 18. Living Essentials sold 5-hour ENERGY® drinks in bottles of like

17 grade and quantity. (Proposed PTCO at 5 (“Defendants do not dispute that 5-hour

18 ENERGY® are sold in bottles of like grade and quantity.”); Order re Motions for

19 Summary Judgment (ECF No. 289) at 4; Answer ¶ 30.)

20 CONCLUSIONS OF LAW

21 I. Robinson-Patman Act

22 315. Under the Clayton Act as amended by the Robinson-Patman Act

23 (“RPA”), 15 U.S.C. §13(d): “Payment for services or facilities for processing or

24 sale. It shall be unlawful for any person engaged in commerce to pay or contract

25 for the payment of anything of value to or for the benefit of a customer of such

26 person in the course of such commerce as compensation or in consideration for

27 any services or facilities furnished by or through such customer in connection with

28 the processing, handling, sale, or offering for sale of any products or commodities

1 manufactured, sold, or offered for sale by such person, unless such payment or

2 consideration is available on proportionally equal terms to all other customers

3 competing in the distribution of such products or commodities.”

4 316. In order to prevail on a Section 2(d) claim, a plaintiff must prove: (1)

5 sales made in interstate commerce; (2) sales of commodities of like grade and

6 quality; (3) actual competition between the alleged favored and disfavored

7 purchaser for the same customers and the same dollars; (4) that the seller paid the

8 alleged favored purchaser for services or facilities (promotional allowances) to be

9 used primarily to promote the resale of the product that were not available on

10 proportionately equal terms and which also requires the purchasers to be operating

11 at the same functional levels in the supply chain; and (5) damages which, in a

12 private plaintiff antitrust case such as this, each plaintiff must prove antitrust

13 injury, which means the type of injury the antitrust laws were designed to prevent,

14 which was a material cause of each plaintiff’s injury. 15 U.S.C. § 13(d); Volvo

15 Trucks N. Am., Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164 (2006); Woodman’s

16 Food Market, Inc. v. Clorox Co., 833 F.3d 743 (7th Cir. 2016); Feesers, Inc. v.

17 Michael Foods, Inc., 591 F.3d 191 (3d Cir. 2010); England v. Chrysler Corp., 493

18 F.2d 269, 271-72 (9th Cir. 1974).

19 318. The RPA protects competition between specific firms competing for

20 the same retail customers for the same product. Volvo, 546 U.S. at 177-79; see

21 also M.C. Mfg. Co. v. Tex. Foundries, Inc., 517 F.2d 1059, 1068 n.20 (5th Cir.

22 1975) (“Competition is determined by careful analysis of each party’s customers.

23 Only if they are each directly after the same dollar are they competing.”)

24 319. One of the foundational analyses in antitrust is the definition of a

25 market, which is based in part on analysis of cross-elasticity of demand between

26 various firms that might potentially compete. United States v. E.I. du Pont de

27 Nemours & Co., 351 U.S. 377, 400 (1956) (cross-elasticity of demand is indicated

28 by “responsiveness of the sales of one product to price changes of the other”);

1 Eastman Kodak Co. v. Image Tech., 504 U.S. 451, 469 (1992) (analysis of

2 competition based on “cross-elasticity of demand,” meaning “extent to which

3 consumers will change their consumption of one product in response to a price

4 change in another”). “[W]hen demand for the commodity of one producer shows

5 no relation to the price for the commodity of another producer, it supports the

6 claim that the two commodities are not in the same relevant market.” Forsyth v.

7 Humana, 114 F.3d 1467, 1477 (9th Cir. 1997), overruled on other grounds, 693

8 F.3d 896, 927 (9th Cir. 2012).

9 320. [T]he disfavored purchaser and the favored purchaser must be in the

10 same geographic market.” Lewis v. Philip Morris Inc., 355 F.3d 515, 521 (6th Cir.

11 2004); accord Tri-Valley Packing Ass’n v. FTC, 329 F.2d 694, 708-09 (9th Cir.

12 1964).

13 323. A proper analysis of the existence of competition involves a

14 systematic study of sales and pricing – a determination of consumer price

15 sensitivity and demand substitution - to show actual linkage between the two firms

16 in terms of whether they are competing for the same dollar. Volvo, supra at 179-

17 81; Hasbrouck v. Texaco, Inc., 842 F.2d 1034, 1041 (9th Cir. 1987).

18 A. Implicit Findings by the Jury

19 324. To state a claim, Plaintiffs have the burden to prove that Plaintiffs

20 competed with Costco. Whether Plaintiffs and Costco are competing with each

21 other is an overlapping factual determination for both the claims under 15 U.S.C.

22 §13(a) and 13(d) (the Section 2(a) and 2(d) claims) of the RPA. Volvo Trucks

23 N.Am., Inc., v. Reeder-Simco GMC, Inc., 546 U.S. 164 (2006); England v.

24 Chrysler Corp., 493 F.2d 269, 271-72 (9th Cir. 1974); Tri-Valley Packing Ass’n v.

25 F.T.C., 329 F.2d 694, 707 (9th Cir. 1964).

26 325. The dominant issue addressed in one form or another by almost every

27 witness was the issue of whether Plaintiffs compete with Costco.

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1 326. The Jury’s rejection of liability in Question 1 of the Verdict on the

2 2(a) claim implicitly rejected Plaintiffs’ theory that Plaintiffs and Costco are

3 competing with each other. In cases where legal claims are tried by a jury,

4 equitable claims are tried by a judge, and the claims are based on the same facts,

5 the “Seventh Amendment requires the Court to follow the jury’s implicit or

6 explicit factual determinations” in deciding the equitable claims. Los Angeles

7 Police League v. Gates, 995 F.2d 1469, 1473 (9th Cir. 1993).

8 327. Therefore, this Court will follow the jury’s implicit finding of a lack

9 of competition and hold that Plaintiffs did not prove, as they must, that they were

10 in competition with Costco.

11 328. This Court has also twice denied Plaintiffs’ motion for judgment as a

12 matter of law [ECF No. 550 at 144:7-14 and ECF No. 589 (Minutes of Telephone

13 Status Conference)] and denied Plaintiffs’ motion for a new trial on the Section

14 2(a) claims. [ECF No. 589 (Minutes of Telephone Status Conference)] Since

15 liability was not established, Plaintiffs are not entitled to any relief, whether legal

16 or equitable, under Section 2(a).

17 B. The Court’s Independent Review of the Evidence on the Question

18 of Competition Results in a Finding that Plaintiffs Have Not

19 Proven the Existence of Competition and Defendants Have

20 Proven the Lack of Competition

21 350. This Court finds that Defendants proved that Plaintiffs and

22 Costco were not in competition with each other.

23 C. Plaintiffs Did Not Prove Antitrust Injury

24 352. “Absent actual competition with a favored dealer ...[Plaintiffs] cannot

25 establish the competitive injury required under the” RPA. See Volvo, 546 U.S. at

26 177. Having concluded that Plaintiffs have not proven they competed with

27 Defendants, it follows that Plaintiffs likewise cannot prove an antitrust injury.

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1 D. Plaintiffs and Costco Do Not Operate on the Same Functional

2 Level

3 367. In order to prevail, Plaintiffs must show that promotional allowances

4 are not available on proportionally equal terms to competing customers. 15 U.S.C.

5 §13(d). The trial record shows that Defendants made promotional allowances

6 available on proportionally equal terms here. The evidence was unrebutted at trial

7 that Defendants treated participants within the relevant distribution channels (the

8 C-Store channel on the one hand and the Club channel on the other) the same,

9 offering the same pricing, discounts, and promotions within each channel.

10 368. If Plaintiffs and Costco occupy different places in the channels of

11 distribution, they do not operate at the same functional level. If they do not operate

12 at the same functional level, Plaintiffs cannot prevail on their claim. Plaintiffs must

13 show that they and Costco “are operating solely on a particular functional level

14 such as wholesaler or retailing.” Tri-Valley, supra, at 708 (bold added)

15 (competitors at issue were both wholesalers).

16 369. The evidence showed that Plaintiffs and Costco do not occupy the

17 same functional level. Unlike Costco, Plaintiffs are not retailers. Plaintiffs are

18 wholesalers that resell to convenience stores, jobbers, and other wholesalers,

19 rather than to the ultimate consumer. On the other hand, the vast majority of

20 Costco’s sales were made to ultimate consumers. Because Plaintiffs and Costco

21 are on different functional levels, Plaintiffs have not met the requirements under

22 §2(d). See also, Bryant Corp., 1994 WL 745159 at *5 granting summary judgment

23 to defendant on RPA claim, in part, because the plaintiff “failed to show that . . . an

24 Oregon retail dealer selling to consumers, and . . .a Washington wholesale

25 distributor selling to retail dealers, were in actual, functional competition with one

26 another as required to establish price discrimination under the Robinson-Patman

27 Act.”).

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1 II. California Unfair Competition Law (“UCL”) Cal. Bus. & Prof. Code §

2 17200 and §17205

3 382. In order to succeed on a UCL claim, Plaintiffs must prove “unfair

4 competition,” which “shall mean and include any unlawful, unfair or fraudulent

5 business act or practice and unfair, deceptive, untrue or misleading advertising and

6 any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of

7 Division 7 of the Business and Professions Code.” Cal. Bus. & Prof. Code §

8 17200.

9 383. “An action for unfair trade practices under [Cal. Bus. & Prof. Code] §

10 17200, arises when a business practice offends an established public policy or

11 when the practice is immoral, unethical, oppressive, unscrupulous, or substantially

12 injurious to consumers.” Wolfe v. State Farm Fire & Casualty Ins. Co., 46 Cal.

13 App. 4th 554, 562 (Cal. App. 1996).

14 386. Plaintiffs have long maintained that the conduct underlying their UCL

15 claim is the same conduct that underlies their RPA claims. Since the jury already

16 returned a verdict against Plaintiffs as to their Section 2(a) claim, and Plaintiffs

17 similarly failed to establish liability on their Section 2(d) claim, they are therefore

18 not entitled to any relief on their UCL claim. The law is clear that where the same

19 underlying conduct is alleged to underlie a UCL claim and an RPA claim, the

20 claims will rise and fall together. See Consumer Def. Group v. Rental Hous. Indus

21 Members, 137 Cal. App. 4th 1185, 1220 (2006) (dismissing UCL claim where

22 predicate claims were dismissed); LiveUniverse, 304 Fed. App’x. at 557–58

23 (2008); Chavez, Cal. App. 4th at 375.

24 389. The Court therefore concludes that, because Plaintiffs’ unfair

25 competition claim under the UCL is predicated on the same conduct that underlies

26 Plaintiffs’ price discrimination claims under the RPA, Plaintiffs’ UCL claim fails if

27 their price discrimination claims fail. Petroleum Sales, Inc. v. Valero Ref. Co., 304

28 F. App’x. 615, 617 (9th Cir. 2008).

1 393. Conduct determined not to violate antitrust laws cannot be considered

2 unfair under the UCL where the same underlying conduct underlies both claims.

3 “If the same conduct is alleged to be both an antitrust violation and an ‘unfair’

4 business act or practice for the same reason—because it unreasonably restrains

5 competition and harms consumers—the determination that the conduct is not an

6 unreasonable restraint of trade necessarily implies that the conduct is not ‘unfair’

7 toward consumers.” Chavez v. Whirlpool Corp., 93 Cal. App. 4th 363, 375 (Cal.

8 Ct. App. 2001). California courts have noted that permitting a separate inquiry

9 into conduct that was held not to violate federal antitrust prohibitions but that

10 presents essentially the same question under the UCL only invites conflict and

11 uncertainty and could lead to enjoining procompetitive conduct. See id. (citing

12 Cel-Tech Comms. v. Los Angeles Cellular Tel. Co., 20 Cal. 4th 163, 185 (1999)).

13 394. Plaintiffs argue that a “court’s finding under the ‘unfair’ prong can be

14 based merely on conduct that ‘violates the policy or spirit of one of th[e]

15 [antitrust] laws,” and that the Court is therefore free to find Defendants liable

16 under the UCL even if Defendants are not liable under Plaintiffs’ federal antitrust

17 claims and therefore are not liable under the UCL’s “unlawful” prong. [Pls’ Reply

18 Br. in Supp. of Relief Mot. at 9:2–7 (citation omitted).] This is not correct.

19 “Where … the same conduct is alleged to support both a plaintiff’s federal

20 antitrust claims and state-law unfair competition claim [under the UCL], a finding

21 that the conduct is not an antitrust violation precludes a finding of unfair

22 competition.” LiveUniverse Inc. v MySpace, 304 Fed. App’x. 554, 557–58 (9th

23 Cir. 2008); see also Chavez, Cal. App. 4th at 375. There, the UCL claim failed

24 because the federal claim failed where both were predicated on the same

25 allegations. LiveUniverse, 304 Fed. App’x at 558.

26 395. The Court further finds that Plaintiffs waived this claim based on the

27 UCL’s unfairness prong by their previous repeated pronouncements that their UCL

28 claim asserts the same liability theory as their RPA claim and covers no additional

1 ground. [See Pls.’ Br. in Opp. to Defs.’ Mot. for Sum. J., ECF No. 200, at 25:12–

2 13; Pls.’ Post-Trial Br., ECF No. 495, at 12:21–13:1 & n. 6; Pls.’ Mot. for Perm.

3 Injunction, ECF No. 582, at 25:12–13].

4 396. Moreover, Plaintiffs’ rely on the same factual pattern of conduct to

5 support their liability claims under the UCL’s unfairness prong as they point to on

6 their RPA claims. [See Pls’ Mot. for Perm. Injunction, ECF No. 582, at 17:10–22.

7 III. Plaintiffs Fail to Establish Entitlement to Any Relief

8 398. Plaintiffs seek injunctive relief under both Section 2(d) and the UCL.

9 399. Injunctive relief is an extraordinary remedy that is “never awarded as

10 of right” but is relief that should be carefully crafted and awarded only when

11 absolutely necessary. Winter v. NRDC, 555 U.S. 7, 24 (2008).

12 400. The plaintiff bears “the heavy burden of establishing they are entitled

13 to injunctive relief.” Blizzard Ent. Inc. v. Ceiling Fan Software, LLC, 28 F. Supp.

14 3d 1006, 1018 (C.D. Cal. 2013). A plaintiff seeking a mandatory injunction has a

15 doubly demanding burden because the relief “goes well beyond simply

16 maintaining the status quo pendente lite [and] is particularly disfavored.” Garcia

17 v. Google, Inc., 786 F.3d 733, 740 (9th Cir. 2015). Plaintiffs here seek a

18 “mandatory injunction,” which is “injunction that orders an affirmative act or

19 mandates a specified course of conduct.” Black’s Law Dictionary (11th ed. 2019),

20 “Injunction.” Mandatory injunctions should be avoided “unless the facts and law

21 clearly favor the moving party.” Id.

22 403. Although an injunction is an available remedy under the RPA, see

23 Hasbrouck v. Texaco, Inc., 842 F.2d 1034, 1042 (9th Cir. 1987), injunctive relief

24 must still be analyzed through the framework of equitable principles governing

25 equitable relief. See Ingram v. Phillips Petroleum Co., 259 F. Supp. 176, 183

26 (D.N.M. 1966) (“General equitable principles governing the granting of relief in

27 other equity cases apply to the so-called trade cases,” including an action for

28 injunction under the RPA)).

1 405. Before the Court can grant a permanent injunction, Plaintiffs must

2 meet their burden to establish four elements: (1) irreparable injury; (2) inadequate

3 legal remedies; (3) a balance of the hardships that weighs in their favor and

4 against Defendants; and (4) a public interest that a permanent injunction will not

5 disserve. Blizzard Entert. Inc. v. Ceiling Fan Software, LLC, 28 F.Supp.3d 1006,

6 1018 (C.D. Cal. 2013); eBay, Inc. v. MercExchange, LLC, 547 U.S. 388, 391

7 (2006); see also Monsanto Co. v. Geertson Seed Farms, 561 U.S. 139, 156-57

8 (2010); Perfect 10 v. Google, Inc., 653 F.3d 976, 979 (9th Cir. 2011).

9 Since Plaintiffs did not prevail on either the Section 2(a) claim, the 2(d)

10 claim or the § 17200, there is no evidence that would support the issuance of a

11 permanent injunction.

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14 IT IS SO ORDERED.

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16 DATED: August 5, 2021

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18 CONSUELO B. MARSHALL

UNITED STATES DISTRICT JUDGE

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