Feesers Inc v. Michael Foods Inc

Opinions of the United

2007 Decisions States Court of Appeals

for the Third Circuit

8-14-2007

Feesers Inc v. Michael Foods Inc

Precedential or Non-Precedential: Precedential

Docket No. 06-2661

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 06-2661

FEESERS, INC.,

Appellant

v.

MICHAEL FOODS, INC.;

SODEXHO, INC.

Appeal from the United States District Court

for the Middle District of Pennsylvania

(D.C. Civil No. 04-cv-00576)

District Judge: Honorable Sylvia H. Rambo

Argued May 10, 2007

Before: RENDELL, JORDAN and

ALDISERT, Circuit Judges.

(Filed: August 14, 2007 )

Jeffrey L. Kessler [ARGUED]

Johns F. Collins

Eamon O’Kelly

Dewey Ballantine

1301 Avenue of the Americas

New York, NY 10019

Steven M. Williams

Cohen, Seglias, Pallas, Greenhall & Furman

240 North Third Street, 8th Floor

Harrisburg, PA 17101

Counsel for Appellant

Brett L. Messinger

Duane Morris

30 South 17 Street

United Plaza

Philadelphia, PA 19103-4196

Margaret M. Zwisler

Latham & Watkins

555 11th Street, N.W., Suite 1000

Washington, DC 20004

Counsel for Appellee Michael Foods Inc.

Matthew M. Haar

Saul Ewing

Two North Second Street

Penn National Insurance Tower

7th Floor

Harrisburg, PA 17101

2

Christopher M. Sheehan

Martin F. Gaynor, III [ARGUED]

Cooley, Manion & Jones

21 Custom House Street

Boston, MA 02110

Counsel for Appellee Sodexho Inc.

OPINION OF THE COURT

RENDELL, Circuit Judge.

I.

Plaintiff Feesers, Inc. appeals the District Court’s grant

of summary judgment in favor of defendants Michael Foods and

Sodexho in this antitrust action. In its complaint, Feesers

alleged that Michael Foods violated section 2(a) of the

Robinson-Patman Act, 15 U.S.C. § 13(a), by selling its potato

and egg products at lower, and thus discriminatory, prices to

Sodexho. It further alleged that Sodexho violated section 2(f)

of the Act, 15 U.S.C. § 13(f), by knowingly inducing the

discriminatory pricing.

The District Court found that Feesers failed to prove the

fourth element of its prima facie case under section 2(a), namely

that the alleged discrimination had a prohibited effect on

competition, because Feesers failed to show that it was in

“actual competition” with Sodexho. See Feesers, Inc. v.

3

Michael Foods, Inc. & Sodexho, Inc., No. 04-Civ-576, slip op.

at 23 (M.D. Pa. May 4, 2006). We will reverse because the

District Court used the wrong standard in making this

determination and we conclude that Feesers has proffered

sufficient evidence of competition between itself and Sodexho

for sales of food products to foodservice facilities to allow a

reasonable factfinder to conclude that these companies are in

“actual competition.” Moreover, the District Court erroneously

put the burden on Feesers to prove not only “actual

competition,” but also that Michael Foods’ discriminatory

pricing caused Feesers to lose sales to Sodexho, rather than

placing the burden on Michael Foods to rebut the inference of

injury to competition that arises from proof of a substantial price

discrimination between competing purchasers over time.

II.

Most of the underlying facts are undisputed. Where there

is a dispute, we view the facts in the light most favorable to

Feesers. Andreoli v. Gates, 482 F.3d 641, 644 (3d Cir. 2007).

The customers of Sodexho and Feesers are foodservice

facilities that sell meals, snacks, and beverages, such as school,

hospital, and nursing home cafeterias. Both Sodexho and

Feesers sell food products to foodservice facilities in the States

of Pennsylvania, New Jersey, Maryland, Delaware, and

Virginia. Feesers is a full-line distributor of food and food-

related products (“products”) that distributes these products to

institutional customers. Sodexho is a foodservice management

company that provides facility management and operation

services to its clients and, in most cases, also sells products to

4

the facilities. Sodexho does not warehouse and deliver products

directly to its clients, but rather contracts with its clients to

procure products for them and then subcontracts with

distributors who distribute the products to the facilities. Both

Feesers and Sodexho contract with foodservice facilities to

provide them with products from Michael Foods. Michael

Foods is a supplier of egg and potato products.

A foodservice facility will contract with either Sodexho

or Feesers, but not both,1 to buy food and food-related products.

A foodservice facility may either contract with Sodexho for

Sodexho to operate the facility and procure products,2 or

1

On a few occasions, both Sodexho and Feesers have served

the same facility at the same time, but the facility contracted

directly only with the foodservice management company, which

in turn contracted with Feesers. Feesers was, at one time, the

prime distributor for a foodservice management company called

The Wood Company. Wood contracted for Feesers to be its

“primary non-exclusive distributor.” However, Sodexho

purchased Wood part-way through the term of the Feesers-

Wood primary distributor contract. The Feesers contract for the

facilities previously serviced by Wood expired at the end of

2002 and was not renewed by Sodexho. Instead, Sodexho chose

Sysco as its prime distributor for the region. App. 8127.

2

When Sodexho takes on a facility as a client, Sodexho

usually contracts with the facility both to procure food on behalf

of the facility and to operate the facility. However, as counsel

for Sodexho acknowledged at oral argument, there are a limited

number of Sodexho-operated facilities for which Sodexho does

5

contract with Feesers for Feesers to procure products and the

facility will self-operate or hire a third-party operator. To

procure products for a facility, Feesers purchases products

directly from Michael Foods and then resells the products to

foodservice facilities.

Sodexho’s process to procure products from Michael

Foods for resale to foodservice facilities is a bit more

complicated. Sodexho itself does not purchase products from

Michael Foods, but employs a distributor, such as Sysco

Corporation.3 Although product suppliers like Michael Foods

generate price lists that set forth the prices at which they sell

food to distributors, Sodexho has negotiated lower deviated

pricing with Michael Foods. The transaction proceeds as

follows: Michael Foods sells products to Sodexho’s designated

distributor at list prices and the distributor, which is usually

Sysco, then resells the products to Sodexho and provides

Michael Foods with proof of delivery of products to Sodexho;

Sysco invoices Michael Foods for the difference between the list

price and the Sodexho-negotiated deviated price; Sodexho then

purchases these products from Sysco pursuant to a “prime

not provide procurement services. For some healthcare

facilities, Sodexho provides food management services, but the

facility will handle its own food procurement. App. 1175, 1415

1255.

3

Sysco is the designated “prime distributor” for Sodexho in 48

states. App. 2535. Sodexho usually determines which company

will distribute the products to its facility clients, although in rare

instances the facility may choose the distributor. App. 7920.

6

distributor agreement,” which specifies the price that Sodexho

will pay Sysco for each product. Under the agreement, Sysco

sells the Michael Foods products to Sodexho for the Sodexho-

negotiated price plus an agreed-upon markup. App. 9706.

Sysco’s resale price of Michael Foods’ products to Sodexho

reflects the lower prices in the deviated pricing agreement

between Sodexho and Michael Foods. See Feesers, Inc., slip op.

at 5.

After Sodexho purchases the Michael Foods products

from Sysco at the agreed-upon prices, it resells the products to

a foodservice facility customer and charges the cost of the

products to the customer as an “operating expense.” The

foodservice facility generally does not interact directly with

Sysco or any other Sodexho-designated distributor. Instead, the

facility pays Sodexho for the invoiced cost of the food – plus, in

most cases, a “procurement expense” of 0.9% of the invoiced

amounts – as part of the facility’s reimbursement of Sodexho for

“operating expenses.” Thus, because Michael Foods charges

Sysco less for products resold to Sodexho than it charges

Feesers for the same products, Sodexho’s customers pay less

than Feesers’ customers for these products.

Feesers’ customers are, in general, self-operated

facilities, while none of Sodexho’s customers are self-operated.4

4

Entegra, a group purchasing organization (“GPO”) affiliated

with Sodexho, does serve self-operated facilities. Entegra

provides its clients with access to a portfolio of contracts

negotiated by Sodexho with suppliers of food and food-related

products. A facility employing Entegra’s services may use a

7

However, foodservice facilities may switch from being self-

operated to being operated by a management company like

Sodexho. When a self-operated facility that previously bought

products from Feesers is converted to a Sodexho-operated

facility, Sodexho operates the facility and generally also

procures the new client’s food products, thereby displacing

Feesers. For example, the Jewish Home of Greater Harrisburg

was self-operated and bought its products from Feesers. It then

became a Sodexho-managed facility and stopped buying

products from Feesers. St. Mary’s Catholic School was also a

Feesers customer and self-operated facility, which then switched

to being operated by Sodexho and no longer buys products from

Feesers. Sodexho will approach self-operated (“self-op”)

facilities to convert them to Sodexho-operated facilities. App.

1425 (Deposition of Christophe Rochette of Sodexho) (“[Y]ou

asked me repeatedly, are we interested in converting self-op?

That is what we are. So, I mean, I think that we should [be]

clear that for the record, that yes, we convert self-op. That is

what we do.”). Sodexho has solicited at least five facilities

served by Feesers to become Sodexho customers. Sodexho

customers end up paying less for products from Michael Foods

than they would pay if they were self-operated and purchased

the same products from Feesers.

On the other hand, facilities also switch from being

Sodexho-contracted distributor or its own contracted distributor

to distribute foods that the facility purchases pursuant to

Entegra-negotiated price lists. Entegra, however, is a separate

legal entity from Sodexho and is not a party to this action. App.

9100.

8

operated by Sodexho to being self-operated. In these cases,

Sodexho will no longer procure food for the facility and the

facility will seek out another company, such as Feesers, from

which to buy its food products. The Meadows Nursing Home

was a Sodexho customer and switched to being a self-operated

facility and a Feesers customer, in part because Michael Foods

agreed to give Feesers the same product pricing given to

Sodexho. In 1998, Sodexho lost nine accounts to self-operation.

App. 1426. In 1999, eight Sodexho customers switched to being

self-operated. App. 1427.

Feesers sued Michael Foods and Sodexho in the United

States District Court for the Middle District of Pennsylvania,

alleging that Michael Foods violated section 2(a) of the

Robinson-Patman Act, 15 U.S.C. § 13(a), by selling products at

discriminatory prices to Sodexho and that Sodexho violated

section 2(f) of the Act, 15 U.S.C. § 13(f), by knowingly

inducing the discriminatory pricing. Defendants moved to

dismiss the complaint on the grounds that Feesers had not

adequately pled that it was in actual competition with Sodexho.

The District Court denied the motion and allowed the parties to

proceed to discovery. After discovery, the parties all moved for

summary judgment.

The District Court found that Feesers had established

three out of the four elements of its section 2(a) claim against

Michael Foods: that sales were made to two different purchasers

in interstate commerce; that the product sold was of the same

grade and quality; and that defendant discriminated in price as

between the two purchasers. Feesers, Inc. v. Michael Foods,

Inc. & Sodexho, Inc., No. 04-Civ-576, slip op. at 10-18 (M.D.

9

Pa. May 4, 2006). First, the Court noted that there was no

dispute that the goods purchased from Michael Foods were of

the same grade and quality. Feesers, slip op. at 10. The Court

also found that “because the facts that establish that Michael

Foods sold products at different prices are not in dispute . . .

price discrimination exists within the context of the Act.” Id. at

11. Finally, as to the requirement that there be two purchasers

in interstate commerce, the Court concluded that the facts show

that Michael Foods sold to two purchasers, Feesers and Sysco.

The Court concluded that this is a case of “third-line”

discrimination, i.e., when a seller’s price discrimination harms

competition between customers of the favored and disfavored

purchasers. Id. at 12 n.8. The Court did not reach the issue of

whether Sodexho is a direct “economic” purchaser from

Michael Foods, which would, presumably, make this a second-

line discrimination case (i.e., discrimination that harms

competition between two purchasers). Defendants do not

challenge these findings on appeal.5

5

The parties do not debate whether this is a second- or third-

line discrimination case, but we note that the District Court’s

conclusion that this is a case of third-line discrimination appears

to be incorrect. This is not clearly either a second-line or third-

line case, but falls somewhere in between these categories. See

George Haug Co. v. Rolls Royce Motor Cars, Inc., 148 F.3d

136, 141 n.2 (2d Cir. 1998) (noting that “secondary-line price

discrimination[] occurs when a seller’s discrimination impacts

competition among the seller’s customers; i.e. the favored

purchasers and disfavored purchasers . . . tertiary-line

[discrimination] occurs when the seller’s price discrimination

harms competition between customers of the favored and

10

However, the District Court found that Feesers failed to

proffer sufficient evidence to prove the fourth element of its

prima facie case: that the discrimination had a prohibited effect

on competition. Id. at 24. The District Court found that Feesers

did not meet its burden to show that it was in “actual

competition” with Sodexho as of the time of the price

differential. Id. at 23. The District Court noted that Feesers had

disfavored purchasers, even though the favored and disfavored

purchasers do not compete directly against another”). This is a

difficult case to categorize because the discrimination allegedly

impacts competition between the disfavored purchaser (Feesers)

and the customer of the favored purchaser (Sodexho).

This case is most analogous to Texaco v. Hasbrouck, 496

U.S. 543 (1990), in which several gas retail stations brought suit

against Texaco for selling gas to two distributors at discounted

prices. The distributors then resold gas to retail stations that

competed directly with plaintiffs and they also operated their

own retail stations that competed directly with plaintiffs. Id. at

549-51. The Supreme Court did not categorize the case as a

second- or third-line case, but instead observed that “[t]he

additional link in the distribution chain does not insulate Texaco

from liability if Texaco’s excessive discount otherwise violated

the Act.” Id. at 567; see also Perkins v. Standard Oil Co., 395

U.S. 642 (1969) (finding actionable price discrimination

resulting in injury to competition between disfavored purchaser

and customer of customer of favored purchaser, but not

categorizing the case as third-line or fourth-line discrimination).

Regardless, categorizing the discrimination at issue in this case

as second- or third- line is not essential, so long as the there is

a prohibited effect on competition.

11

failed to prove that it competes with Sodexho “at the same

functional level.” Id. at 21. The Court also found that Feesers

failed to proffer evidence that it lost customers to Sodexho

because of food prices, rather than for other reasons relating to

the management services Sodexho provides. Without this

evidence, the Court found that Feesers could not prove that it

competes with Sodexho. Accordingly, because Feesers failed to

establish a prima facie case under section 2(a) of the Act, the

Court granted summary judgment in favor of defendants and

denied Feesers’ motion for summary judgment.6 Id. at 24.

Feesers now appeals.

III.

We exercise plenary review over the District Court's

grant of summary judgment in favor of defendants, and we

apply the same standard that the District Court should have

applied. Andreoli, 482 F.3d at 647. Summary judgment is

appropriate when “the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment

as a matter of law.” Fed. R. Civ. P. 56(c). We “must view the

facts in the light most favorable to the nonmoving party and

draw all inferences in that party’s favor.” Farrell v. Planters

Lifesavers Co., 206 F.3d 271, 278 (3d Cir. 2000).

6

The District Court noted that, given that Feesers was unable

to establish a section 2(a) claim, its section 2(f) claim against

Sodexho “necessarily fails.” Feesers, slip op. at 24.

12

Section 2(a) of the Robinson-Patman Act, 15 U.S.C.

§13(a), provides in relevant part that:

It shall be unlawful for any person engaged in

commerce, in the course of such commerce, either

directly or indirectly, to discriminate in price

between different purchasers of commodities of

like grade and quality, where either or any of the

purchases involved in such discrimination are in

commerce, where such commodities are sold for

use, consumption, or resale within the United

States or any Territory thereof or the District of

Columbia or any insular possession or other place

under the jurisdiction of the United States, and

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, or with

customers of either of them.

As the District Court correctly stated, in order to prove a

violation of section 2(a) of the Robinson-Patman Act, a plaintiff

must show (1) that sales were made to two different purchasers

in interstate commerce; (2) that the product sold was of the same

grade and quality; (3) that defendant discriminated in price as

between the two purchasers; and (4) that the discrimination had

a prohibited effect on competition. See Texaco Inc. v.

Hasbrouck, 496 U.S. 543, 556 (1990). This appeal concerns the

fourth element of Feeser’s claim under section 2(a): competitive

injury. Specifically, we must decide whether the District Court

13

applied the correct legal standard to determine whether Sodexho

and Feesers are in actual competition and whether it erred in

holding that Feesers did not proffer sufficient evidence to allow

a reasonable factfinder to conclude that it is in actual

competition with Sodexho.

To establish the fourth element of its prima facie case

against Michael Foods, Feesers was required to show that there

is “a reasonable possibility that [the] price difference may harm

competition,” i.e., “competitive injury.” Falls City Indus., Inc.

v. Vanco Beverage, Inc., 460 U.S. 428, 434-35 (1983) (emphasis

added). As we stated in J.F. Feeser, Inc. v. Serv-A-Portion,

Inc., “[i]n keeping with the Act’s prophylactic purpose, designed

to prevent the occurrence of price discrimination rather than to

provide a remedy for its effects, section 2(a) does not require

that the discrimination must in fact have harmed competition.

Instead, a reasonable possibility of harm, often referred to as

competitive injury, must be shown.” 909 F.2d 1524, 1531 (3d

Cir. 1990) (internal citations and brackets omitted).

“Competitive injury” is established prima facie by proof

of “a substantial price discrimination between competing

purchasers over time.”7 Falls City Indus., 460 U.S. at 435

7

Although the purchasers in Falls City Industries were in

actual competition with one another, injury to competition

between a purchaser and a customer of a purchaser is also

actionable under the Act. As the Supreme Court made clear in

Perkins v. Standard Oil Co., 395 U.S. 642 (1969), there is no

basis in the Act for immunizing price discrimination “simply

because the product in question passed through an additional

14

(citing FTC v. Morton Salt Co., 334 U.S. 37, 46, 50-51 (1948); id.

at 60 (Jackson, J., dissenting in part)) (emphasis added). In

order to establish a prima facie violation of section 2(a), Feesers

does not need to prove that Michael Foods’ price discrimination

actually harmed competition, i.e., that the discriminatory pricing

caused Feesers to lose customers to Sodexho. Rather, Feesers

need only prove that (a) it competed with Sodexho to sell food

and (b) there was price discrimination over time by Michael

Foods.8 This evidence gives rise to a rebuttable inference of

“competitive injury” under § 2(a). See Morton Salt, 334 U.S. at

formal exchange before reaching the level of [the plaintiff’s]

actual competitor.” Id. at 648.

8

In Volvo Trucks North America, Inc. v. Reeder-Simco GMC,

Inc., the Supreme Court reiterated that “a permissible inference

of competitive injury may arise from evidence that a favored

competitor received a significant price reduction over a

substantial period of time.” 126 S. Ct. 860, 870 (2006). In that

case, the jury verdict for the plaintiff was overturned because the

plaintiff’s evidence, which compared “occasions on which it

competed with non-Volvo dealers for a sale to Customer A with

instances in which other Volvo dealers competed with non-

Volvo dealers for a sale to Customer B” failed to show that, over

time, the defendant consistently favored other Volvo dealers

over the plaintiff. Id. at 871. The plaintiff’s evidence showed

that the plaintiff competed directly with other Volvo dealers for

a sale to a particular customer on only two occasions and failed

to show that the price discrimination on those two occasions was

significant. Id. at 872. Thus, the plaintiff’s evidence was

insufficient to raise an inference of competitive injury.

15

46. The inference, if it is found to exist, would then have to be

rebutted by defendants’ proof that the price differential was not

the reason that Feesers lost sales or profits. See Falls City

Indus., 460 U.S. at 435.

The District Court required Feesers to prove too much.

It placed the burden on Feesers to show not only that it “actually

competes” with Sodexho, but also that “food costs and

distribution are the determining factors” in a consumer’s choice

between hiring Sodexho or Feesers, i.e., that Sodexho’s lower

food prices are why customers switch from buying products

from Feesers to buying products and management services from

Sodexho. Feesers, slip op. at 45 (emphasis added). In the

absence of such evidence, the District Court concluded that

Feesers failed to establish “actual competition.”

The District Court was concerned that Sodexho and

Feesers are not at the same “functional level” and are therefore

not in “actual competition” in the same market. This concern is

understandable given that the facts of this case are somewhat

unusual. First, the involvement of Sysco creates an additional

link in the chain of distribution between Michael Foods and

Sodexho, which does not exist in Feesers’ distribution chain.

Second, most alleged violations of section 2(a) of the Robinson-

Patman Act involve competition between two traditional

resellers, such as two food distributors or two retail gas stations,

that buy commodities from a seller and then resell the

commodities to customers. Here, however, Feesers is a

traditional commodity reseller, while Sodexho resells

commodities to clients only in conjunction with the sale of

services, such as food preparation and facility management

16

services.

However, as we observed in Stelwagon Manufacturing

Co. v. Tarmac Roofing Systems, Inc., the relevant question is

whether two companies are “in economic reality acting on the

same distribution level,” rather than whether they are both

labeled as “wholesalers” or “retailers.” 63 F.3d 1267, 1272 (3d

Cir. 1995). To determine whether Sodexho and Feesers

compete to resell food products to the same group of customers,

we must conduct a “careful analysis of each party’s customers.

Only if they are each directly after the same dollar are they

competing.” M.C. Mfg. Co. v. Tex. Foundries, Inc., 517 F.2d

1059, 1068 n.20 (5th Cir. 1975); see also George Haug Co. v.

Rolls Royce Motor Cars, Inc., 148 F.3d 136, 141-42 (2d Cir.

1998) (noting that determining “the presence or absence of

functional competition between purchasers of a commodity is

simply a factual process which focuses on whether these

purchasers were directly competing for resales among the same

group of customers”).9 The District Court did not view the

9

With due respect to our dissenting colleague, that Sodexho’s

business is of a “different character” than Feesers’, Dis. Op. at

24, is beside the point when we are evaluating whether Feesers

has established that it is in “actual competition” with Sodexho.

The threshold question is whether a reasonable factfinder could

conclude that Sodexho and Feesers directly compete for resales

of Michael Foods products among the same group of customers.

The difference in the character of these two businesses might

very well be determinative at the next stage of the analysis

discussed below, namely, in evaluating defendants’ evidence

that facilities choose to buy from Sodexho rather than Feesers

17

evidence, as it should have, in the light most favorable to

Feesers, and instead found that Feesers and Sodexho do not

compete, without giving due consideration to the evidence of

actual competition proffered by Feesers.

The evidence here could lead to a different conclusion

than that reached by the District Court. Although Sodexho

resells Michael Foods products to foodservice facilities that it

operates, while Feesers resells Michael Foods products to self-

operated foodservice facilities, the evidence, viewed in the light

most favorable to Feesers, shows that Feesers’ customers and

Sodexho’s customers are not two separate and discrete groups

of foodservice facilities. Feesers proffered evidence that

customers may be self-operated for some time, then switch to

Sodexho, or, alternatively, may be operated by Sodexho and

then switch to self-operation. Two foodservice facilities, St.

Mary’s Catholic School and the Jewish Home of Greater

Harrisburg, were Feesers customers and self-operated facilities,

but then switched to being operated by Sodexho and no longer

buy food from Feesers. App. 7072, 7139. Feesers also

proffered evidence that the Meadows Nursing Home was a

Sodexho customer and switched to being a self-operated facility

and a Feesers customer, in part because Michael Foods agreed

for reasons unrelated to Sodexho’s lower food prices. It may

well be found, based on defendants’ evidence, that the different

character of Sodexho’s business, rather than its lower food

prices, causes customers to buy food from Sodexho rather than

Feesers. If this is the case, then Feesers’ claim under the

Robinson-Patman Act fails. However, this is not the same as

finding that they are not in “actual competition.”

18

to give Feesers the same pricing as it gives to Sodexho. App.

7073. There is also evidence that Sodexho actively solicits self-

operated facilities to become Sodexho-operated, and also loses

some customers each year that decide to self-operate instead of

using Sodexho’s operation services.

Our dissenting colleague attributes customers’ decisions

to switch from buying products from Feesers to buying products

from Sodexho to the fact that “clients may choose to switch

between the market for unprepared food stuffs and the market

for prepared meals.” Dis. Op. at 33. He suggests that Sodexho

does not sell unprepared food, but rather “prepared meals,” and

that we are confusing “cost accounting with actual business

transactions” by concluding otherwise. Id. at 25. However, the

record in this case belies that assertion. To the contrary, a

factfinder could conclude that Sodexho sells unprepared food to

its customers. The record is replete with agreements between

facilities and Sodexho wherein the facilities are not charged for

“prepared meals,” but rather for the cost of unprepared food and

supplies, the cost of labor, and a management fee. Sodexho in

fact promotes its ability to get lower prices for the food products

that its customers use in their facilities. Sodexho notes in its

promotional materials that “food and supplies are a major

portion of the cost of a food service program.” App. 5121. It

goes on to boast that its “extensive network of purchasing

resources can lower the prices of food and supplies . . . while

actually improving the quality of the products you use.” Id. In

its promotional materials and proposals to potential clients,

Sodexho could not be more clear that it sells food products to its

clients and passes along the price discounts that it is able to

secure from its product suppliers in the price that it charges its

19

clients for the products.10 In fact, Sodexho’s superior product

prices are touted as resulting from Sodexho’s “leveraging [its]

procurement power as the industry’s largest purchaser of food.”

App. 3806 (Proposal for Abington Friends School). This is a

major thrust of its sales pitch.11 Sodexho’s charging its

10

See App. 5121 (Proposal for Northern Burlington County

Regional School District) (“Our reputation and size give us

advantages over smaller food service management

organizations. In turn, the savings in which [sic] we obtain will

be passed on to your District. You will be charged the same

prices as Sodexho Marriott Services pays for all products. Your

District will receive all the benefits of our volume and trade

discounts, except for cash discounts.”).

11

See App. 3622 (Proposal for Beth Sholom Home of Eastern

Virginia) (“Utilization of the Sodexho purchasing program

provides great financial benefits to our partner facilities. As the

industry leader in food procurement with purchasing

responsibility for approximately 5,300 facilities throughout the

United States, Sodexho is able to purchase food at pricing that

is not able to be realized by smaller organizations.”); App. 3650

(Proposal for Lancaster Regional Medical Center) (“Sodexho

Marriott Services clients benefit from the combined purchasing

power of our company with Marriott International, Inc. and

Sodexho Alliance. Our food and supply prices are exceptional,

as are the quality and systems used to support the purchasing

function. In addition to those savings, you enjoy discounts on

many other items you buy, such as food service equipment,

laboratory sinks, uniforms for front desk or security personnel,

light bulbs, carpet, etc. Our prices for most items range from 5

20

customers for the cost of food products cannot be characterized

as mere “cost accounting” any more so than any other business’

charging a customer for invoiced goods is just “cost

accounting.” At minimum, Feesers has proffered sufficient

evidence to create a genuine factual dispute as to whether

Sodexho and Feesers both resell food products to the “same

group of customers.”

If substantial price discrimination between competing

purchasers over time is established, then the inference of

competitive injury arises. See Morton Salt, 334 U.S. at 46.

However, this inference is not irrebuttable. As the Supreme

Court stated in Falls City Industries, Inc. v. Vanco Beverage,

Inc., 460 U.S. 428 (1983):

In Morton Salt this Court held that, for the

purposes of § 2(a), injury to competition is

established prima facie by proof of a substantial

price discrimination between competing

purchasers over time. 334 U.S., at 46, 50-51, 68

S.Ct., at 828, 830-831; see id., at 60, 68 S.Ct., at

835 (Jackson, J., dissenting). In the absence of

direct evidence of displaced sales, this inference

may be overcome by evidence breaking the causal

connection between a price differential and lost

sales or profits. F. Rowe, Price Discrimination

Under the Robinson-Patman Act 182 (1962); see

Chrysler Credit Corp. v. J. Truett Payne Co.,670

F.2d 575, 581 (CA5 1982).

to 25% lower than the next best price.”).

21

Id. at 435 (emphasis added). The inference could be rebutted

with evidence proffered by defendants that the price

discrimination does not cause foodservice facilities to decide to

buy food from Sodexho rather than Feesers. However, the

District Court improperly put the burden on Feesers to prove

that a difference in the price of products causes facilities to

switch from buying from Feesers to buying from Sodexho.

Feesers, slip op. at 22 (“It is undisputed that Michael Foods

offered Feesers pricing that matched its pricing to Sodexho

because the Meadows was a Sodexho client, however, Feesers

failed to establish that the availability of that pricing was the

determining factor for the Meadows in making the switch.”).

This was error. The burden is on defendants to show the

absence of the causal link.

Our dissenting colleague takes issue with the Robinson-

Patman Act on policy grounds and urges that we are applying it

too broadly, so as to render price discrimination between non-

competitors a violation of the Act. We reject this

characterization of the record before us, and suggest that

Congress has written the law, and courts have construed it, to

apply to situations where discriminatory pricing poses a threat

to competition. Viewing the evidence in the light most

favorable to Feesers, a factfinder could conclude that this is such

a situation. Therefore, it is for the factfinder, here the District

Court, to decide whether defendants’ actions fit within the

contours of what Congress has proscribed. We will remand for

it to do so.

IV.

22

Accordingly, for the reasons set forth, we will reverse

the grant of summary judgment in favor of defendants and

remand for further proceedings consistent with this opinion.

JORDAN, Circuit Judge, dissenting.

To prove its case under the Robinson-Patman Act,

Feesers has tried to show that it is in actual competition with

Sodexho. Feesers has argued at length about customers

switching from self-operation to outsourcing and back again.

Those arguments, however, start with the premise that Feesers

and Sodexho sell the same products. The evidence is to the

contrary, and, in my view, Feesers has failed to raise a genuine

issue of material fact on this crucial point. Because summary

judgment for Michael Foods and Sodexho is proper on that basis

alone, I respectfully dissent.

I

The undisputed evidence in this case demonstrates that

Sodexho’s business is of a very different character than

Feesers’s. Feesers buys unprepared food from suppliers, such

as Michael Foods, and resells that unprepared food to its

institutional clients. Feesers’s involvement ends there. Its

clients then take the unprepared foods and prepare meals for

their individual customers. Sodexho, on the other hand, is a

food management company that contracts with institutions to

manage food service operations. Its institutional clients do not

themselves provide food service. Instead, Sodexho buys the

unprepared food, prepares meals, and sells the prepared meals

23

to individual customers. Unlike Feesers, Sodexho does not sell

unprepared food.12

Feesers inaccurately claims the contrary is true. Relying

on a contortion of terms in Sodexho’s contracts with some of its

institutional clients, Feesers says that Sodexho does distribute

unprepared foods. More specifically, because Sodexho is

sometimes reimbursed by its customers for certain operating

expenses, including the cost of food, Feesers contends that

Sodexho is selling unprepared food products to its clients. The

District Court agreed, stating that Sodexho sells food to its

institutional clients, because “[t]he Sodexho proposals and

contracts that Feesers has provided as evidence establish that

Sodexho, at least in some cases, accounts for food costs as a

separate line item within operating costs when billing accounts.”

Feesers’s argument and the District Court’s conclusion, which,

I regret, my colleagues in the majority have accepted, confuses

cost accounting with actual business transactions. There is a

world of difference between the two. Cf. Creque v. Texaco

12

I agree with the majority, Maj. Op. at note 4, that we should

not consider the activities of Entegra Procurement Services,

LLC. While it is a wholly-owned subsidiary of Sodexho,

Entegra is a separate legal entity. Feesers has not presented a

sufficient basis for piercing the corporate veil and holding

Sodexho liable for Entegra’s actions. That leaves the question

of whether Michael Foods could be liable for discriminating in

favor of Entegra rather than Sodexho. However, Feesers has not

made out a prima facie case of price discrimination based on

sales made to Entegra, because Feesers has failed to present any

evidence of such sales.

24

Antilles Ltd., 409 F.3d 150, 154 (3d Cir. 2005) (holding that a

conveyance of property was not actually a sale despite the use

of accounting formalities, because “we must look beyond

formalities and accounting entries to the true nature of the

conveyance”).

Sodexho and its clients agree to allocate costs and profits

in various ways. For some of its clients, Sodexho operates the

food service and assumes all responsibility for either making a

profit or losing money. (Appx. at A1545, 12:5-8.) If sales are

less than costs for those accounts, Sodexho bears the loss. (Id.

at A1545, 12:9-11.) For other clients, Sodexho is reimbursed

for operating costs and charges a management fee, with the

remaining profit or loss either going to the client or being shared

between the client and Sodexho. (Id. at A1546-48, 13:10-

15:21.) In those cases, Sodexho invoices the client for specified

operating expenses, including software, information systems,

decorations, delivery services, unprepared food stuffs, and

salaries for Sodexho employees. (Id. at A2160-61, A2177-78,

A2195-96, A2215-16, A2233-34; see also id. at A1256-66.)

Sodexho’s receiving reimbursement of such expenses

according to these contracts is nothing more than an accounting

method that allows Sodexho and its clients to allocate potential

profits or losses. The accounting method does not mean that

Sodexho is in the business of selling unprepared food, any more

than it means Sodexho is a a seller of computer software, or of

accounting services, or decorations, or any other specifically

listed operating expenses. If Microsoft tried to claim Sodexho

was competing with it for software sales, it would be only

marginally more of a stretch than Feesers’s claim. There is no

25

evidence supporting the notion that any Sodexho client calls and

asks for a hundred bags of frozen potatoes, as they might when

calling Feesers. They call Sodexho when they want prepared

french fries and other ready-to-eat food for their customers. The

cost accounting provisions in the Sodexho contracts simply do

not support the conclusion that Sodexho sells unprepared food

products in competition with Feesers.13

We are left, then, with the following facts. Feesers buys

and resells unprepared food. Sodexho buys unprepared food,

prepares meals, and then sells the prepared meals. The precise

legal issue presented is whether those facts raise a genuine issue

as to “actual competition” between Feesers and Sodexho, as that

requirement is properly understood under the Robinson-Patman

Act. As discussed below, I do not believe they do.

13

Likewise, Sodexho’s promotional materials, which tout its

ability to negotiate low acquisition prices for unprepared foods,

do not demonstrate that it sells unprepared food to its clients.

Those materials do not change the fact that Sodexho buys

unprepared food and, instead of reselling it, uses it in a business

that changes it into a different product, namely prepared meals.

That Sodexho is able to operate at lower cost is important to its

institutional clients not because those clients have any interest

in repurchasing unprepared food. They do not, since they are

not self-operating cafeterias. It is important because lower

operating costs translate into more profit to be shared by

Sodexho and the clients. Thus, the majority opinion is, I

believe, mistaken to rely on those promotional materials as

showing that Sodexho is in the business of reselling the

unprepared food stuffs it acquires from Michael Foods.

26

II

Some historical perspective is in order. The Robinson-

Patman Act has been called the “Wrong Way Corrigan” of

antitrust, because it “often operates to harm consumers for the

benefit of weaker or less efficient dealers. It moves antitrust

policy in precisely the wrong direction.” Herbert Hovenkamp,

The Antitrust Enterprise 192 (2005). That this case is now

moving forward for trial highlights both the misguided policy

behind the Robinson-Patman Act and the blunt mechanisms

used to enforce it. Summing up the virtually uniform disdain

which antitrust experts have long had for the Act, Judge Robert

Bork wrote almost thirty years ago that “[a]lthough [the Act]

does not prevent much price discrimination, at least it has stifled

a great deal of competition.” Robert H. Bork, The Antitrust

Paradox 382 (1978). This case demonstrates the Act’s

exceedingly counter-productive character.

First of all, as a theoretical matter, there is no reason to

presume that price discrimination poses a threat to competition.

Price discounts are generally good for consumers. The theory

behind the Act is that one competitor may use a price difference

to drive its (presumably smaller and weaker) competitors out of

the market. In the absence of market power, however, such a

scheme is highly unlikely to succeed. A manufacturer like

Michael Foods generally has no interest in shutting down

efficient distribution channels for its products, because it is

locked in competition with other food suppliers. Distributors

like Feesers that are unhappy with the prices charged by

Michael Foods have the option, in a competitive market, to get

eggs and potatoes elsewhere. Thus, any real threat to

27

competition requires monopolistic market power and could be

dealt with under the Sherman Act, with the accompanying

requirement for proof of such power.

That difference in required proof is crucial, and

highlights why, even if price discrimination were a real threat to

competition, the Robinson-Patman Act is not a good means to

stop it. The Morton Salt inference discussed by the majority,

Maj. Op. at Sec. III, allows plaintiffs to proceed to trial in a

Robinson-Patman case without any proof that competition has

been or will be harmed. Instead, such plaintiffs rely on the

threat of harm to themselves as a proxy for threatened harm to

competition. The difficulty is that a competitor will also be

harmed by vigorous competition, if that competitor cannot

adjust by becoming more efficient. The Act provides no way of

distinguishing between an inefficient competitor and one that is

harmed by an actual threat to competition itself.

These logical flaws in the Act have led to considerable

academic criticism of it and have recently prompted the

Antitrust Modernization Commission, which was created by

statute and appointed by the President and the leadership of

Congress, to recommend that Congress repeal the Act in its

entirety. Antitrust Modernization Commission, Report and

Recommendations, April 2007, at iii, 317-26. According to the

Commission, the Act is “antithetical to core antitrust principles,”

because it “protects competitors over competition and punishes

the very price discounting and innovation in distribution

methods that the antitrust laws otherwise encourage.” Id. at iii.

Now, I readily acknowledge that these policy concerns

28

cannot override the will of Congress, and I do not suggest that

this Court should attempt to repeal the Act by construing it into

the oblivion it so richly deserves. But, given the threat that an

overly broad reading of the Act poses to desirable competition,

this Court certainly should not read the Act to cover factual

situations where only a tenuous argument can support its

application.

That the Act should be construed relatively narrowly is

not a radical approach. On the contrary, the Supreme Court has

recently emphasized that the Act should be construed

“consistently with broader policies of the antitrust laws.” Volvo

Trucks N. Am., Inc. v. Reeder-Simco GMC, Inc., 126 S. Ct. 860,

873 (2006) (internal quotation marks omitted). Because lower

prices are generally good for consumers, applying the Act

broadly threatens to dampen desirable price competition, forcing

consumers to pay higher prices for goods. To avoid that threat,

the Supreme Court has stated that it will “resist interpretation [of

the Act] geared more to the protection of existing competitors

than to the stimulation of competition.” Id. at 872 (emphasis in

original). In particular, an interpretation of the Act that protects

individual distributors rather than competition between brands

ignores the “primary concern” of the antitrust laws with

interbrand, rather than intrabrand, competition. Id.; see also

Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 127 S. Ct.

2705, 2715 (2007) (“[T]he primary purpose of the antitrust laws

is to protect this type of [interbrand] competition.” (internal

citation and quotation marks omitted)). We should be following

the Supreme Court’s lead in resisting such an interpretation.

Instead, the decision today goes beyond even the protection of

competitors to the protection of non-competitors.

29

The requirement that a claimant show actual competition

limits the Act to its proper scope. “Mindful of the purposes of

the Act and of the antitrust laws generally,” the Supreme Court

has explained that the Act “does not ban all price differences

charged to different purchasers of commodities of like grade and

quality.” Volvo Trucks, 126 S. Ct. at 870 (internal quotation

marks omitted). “[R]ather, the Act proscribes price

discrimination only to the extent that it threatens to injure

competition.” Id. Therefore, while “a permissible inference of

competitive injury may arise from evidence that a favored

competitor received a significant price reduction over a

substantial period of time,” such an inference only arises if the

two purchasers are in “actual competition.” Id.; see also

Stelwagon Mfg. Co. v. Tarmac Roofing Sys., Inc., 63 F.3d 1267,

1271 (3d Cir. 1995).

The competitive injury inference was first discussed

some sixty years ago in the Morton Salt case. 334 U.S. 37, 50-

51 (1948). There, small grocery stores were allegedly harmed

by volume discounts on Morton brand salt that were given to

large chain grocery stores. Id. at 41. That situation presented

the paradigmatic set of facts that Congress was attempting to

address with the Robinson-Patman Act. Congress sought to

address the perceived evil of large chain stores securing volume

discounts not available to small independently-owned stores.

Volvo Trucks, 126 S. Ct. at 869 (“Congress responded to the

advent of large chain stores . . . .”); see also Richard A. Posner,

The Robinson-Patman Act 25-26 (1976) (calling the Act “the

high-water mark of the anti-chain-store movement”). In Morton

Salt, the competing stores purchased and resold the same

commodity, table salt, to the same group of customers.

30

Last year, in Volvo Trucks, the Supreme Court declined

to apply the Morton Salt inference, because the plaintiff, a

Volvo dealer, had failed to show that it actually competed with

the other dealers who allegedly received more favorable prices

on trucks made by Volvo. 126 S. Ct. at 870-72. In a market that

operates by bidding, the plaintiff could not show that it had ever

directly competed on a bid with a favored dealer. Id. at 871.

The Court compared the situation to the Morton Salt paradigm,

stating that “there [was] no discrete ‘favored’ dealer comparable

to a chain store or a large independent department store.” Id.

Thus, the Act did not prohibit the different prices offered to the

Volvo dealers.

Until now, we too have limited the Morton Salt

competitive injury inference to cases like Morton Salt. In J.F.

Feeser, Inc. v. Serv-A-Portion, Inc., we held that the plaintiffs,

including the same Feesers we see here,14 competed with other

distributors to buy and resell the same portion-controlled food

products. 909 F.2d 1524, 1526-27 (3d Cir. 1990). More

recently, in Stelwagon Mfg. Co. v. Tarmac Roofing Sys., Inc., we

held that the plaintiff, a distributor of roofing products, could be

in actual competition with a company that, although it was

known as a manufacturer, actually purchased the identical

roofing products and resold them to the same group of

customers as did the plaintiff. 63 F.3d 1267, 1271-72 (3d Cir.

1995). In both cases, the “actual competition” arose from the

resale of identical products to the same group of customers, just

as in Morton Salt.

14

By the time the J.F. Feeser case reached this Court, J.F.

Feeser, Inc. had been renamed Feesers, Inc. 909 F.2d at 1526.

31

Similarly, the Court of Appeals for the Second Circuit

has stated that “[d]etermining the presence or absence of

functional competition between purchasers of a commodity is

simply a factual process which focuses on whether these

purchasers were directly competing for resales among the same

group of customers.” George Haug Co. v. Rolls Royce Motor

Cars Inc., 148 F.3d 136, 141-42 (2d Cir. 1998) (citing FTC v.

Fred Meyer, Inc., 390 U.S. 341, 349 (1968)). In the George

Haug case, a service station purchased and resold the same Rolls

Royce automobile parts as a Rolls Royce dealer that allegedly

received more favorable prices from the manufacturer. Id. at

141. Such direct competition for the resale of the same product

to the same customers qualifies as “actual competition” under

the Act.

In this case, Feesers has succeeded in removing the

concept of “actual competition” from its foundations in Morton

Salt. The undisputed facts show that Sodexho and Feesers do

not sell the same products, not even some of the time. Feesers

sells unprepared foodstuffs, while Sodexho prepares and sells

meals. Sodexho does not provide unprepared food in addition

to other services; it operates strictly in the separate market for

prepared meals. The fact that clients may choose to switch

between the market for unprepared food stuffs and the market

for prepared meals does not make the markets the same and is,

therefore, beside the point. To conclude that Feesers and

Sodexho are in actual competition to sell to the same market, we

would also have to conclude that grocery stores are in actual

competition with restaurants because both types of businesses

sell food. Even if, in the abstract, that could be called

competition, the situation is far removed from the one in Morton

32

Salt and should not be held to satisfy the requirement for “actual

competition” under the Act. By sending this case back for trial,

we wrongly give credence to a theory of “actual competition” so

broad as to effectively read the requirement out of the Act.

Because the facts here fail to show actual competition, as

required for Feesers to prove its case, I would affirm the grant

of summary judgment for the defendants, and I therefore dissent.

33