# Petition for Writ of Certiorari — A. A. Poultry Farms, Inc. v. Rose Acre Farms, Inc.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1990
- **Citation:** 494 U.S. 1019

## Text

No.

(No. A-275) 4n°

Supreme Court of the United States

() oT rere 1QGRQ

4.A. POULTRY FARMS, IN¢
BOOMSMA PRODUCE, IN¢
BOOMSMA PRODUCE OF MISSOURI, IN‘
GRESSEL PRODUCE CO., IN¢
HEMMELGARN & SONS, IN¢
MENDELSON EGG CO. OF WEST UNITY
a/k/a MENDELSON EGG CO.,
PETER PRODUCE, IN¢

ROSE ACRE FARMS, IN¢

PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT

(yr ¢ inSé I B
A FRE! { } ‘ " Vi i, R YAU. A
BRANN & ISAACSON 2070 Ma
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184 Main Street 10 We \
Lewiston, Maine 04240 a

7 7 ‘ hh ‘ 16,4.» *
(207) (86-3506 2's

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WARREN S. RADLE! Re
RIVKIN, RADLER, DUNNI A

;

& BAYH —
30 North LaSalle Street .
Suite 4300
Chicago, Illinois 60602
(312) 782-5680

Midwest Law Printing ‘ Chicago 6061] lz eltice

i

QUESTIONS PRESENTED

1. In the determination of requisite harm to competi-
tion in predatory pricing cases:

(a) Whether monopolistic recoupment should be
adopted as the exclusive measure of harm to com-
petition, even in an oligopolistic market?

(b) Whether the holdings of the Seventh Circuit and
First Circuit that predatory intent is irrelevant to
the issue of harm to competition directly conflict with
this Court’s decision in Utah Pie Co. v. Continental
Baking Co., 386 U.S. 685 (1967), and with decisions
of the Ninth and Eleventh Circuits?

(c) Whether the Seventh Circuit properly rejects all
pricing below-cost standards as evidence of harm to
competition, regardless of cost standard and method-
ology, in light of the long-standing, unanimous deci-
sions of this Court, the circuit courts, and the district
courts attaching substantial, and even controlling,
weight to below-cost sales?

2. Are physically identical goods of “like grade and
quality” under the Robinson-Patman Act, or does the Act
exempt all perishable goods without proof of their condi-
tion and actual or imminent deterioration?

3. Whether a seller who charges uniform base prices
to all customers, but who systematically, over a prolonged
period, gives special discounts to certain targeted cus-
tomers, is charging different prices and engaging in price
discrimination?

il

LIST OF PARTIES AND RULE 28.1 LIST

The parties to the proceeding below were petitioners
A.A. Poultry Farms, Inc.; Boomsma Produce, Inc.; Gressel
Produce Co., Inc.; Hemmelgarn & Sons, Inc.; Mendelson
Egg Company; Peter Produce, Inc.*; Boomsma Produce
of Missouri, Inc; and respondent Rose Acre Farms, Inc.

Pursuant to Supreme Court Rule 28.1, petitioners state
that Boomsma Produce, Inc. and Boomsma Produce of
Missouri, Inc. were subsidiaries of Boom-Co, and they
have now been merged into Boom-Co. None of the other
petitioners is the parent, affiliate or subsidiary of any
other corporation.

* Peter Produce, Inc. was dissolved on May 2, 1989.

ill

TABLE OF CONTENTS

Page
QUESTIONS PRESENTED .................. i
LIST OF PARTIES AND RULE 28.1 LIST ... ii
pe OF 6 et yy 4. y iii
TABLE OF AUTHORITIES ................. V
SEO | occ ccs c ccc cesccccscccs l
ee Ck ne ibaa cs asses scence: 2
STATUTORY PROVISION INVOLVED ...... 2
STATEMENT OF THE CASE ............... 3
OC 6
See Ig cee eens *
REASONS FOR GRANTING THE WRIT .... 10
I(A).
Monopolistic Recoupment Cannot Be The Only
Evidence To Show Harm To Competition In
Predatory Pricing Cases, Particularly When
The Predatory Seller Is Part Of An Oligopo-
Eee wedge wcacucsccceccsccess 10
I(B).
The Square Split Between The Seventh And
First Circuits And The Eleventh And Ninth
Circuits On Whether Predatory Intent Is Rel-
evant As Evidence Of Harm To Competition
Should Be Resolved By This Court ....... 14

iV

I(C).

The Seventh Circuit’s Rejection Of All Cost-
Price Comparisons For Proving Harm To
Competition Conflicts With A Long Line Of
Federal Court Cases Employing Such An
BS i566 Sen cacGianscewatencuauaneres

Il.
This Court Should Resolve Whether Eggs
And Other Grocery Commodities With A Lim-
ited Shelf Life Are Exempt From The Robin-
SRP FN og ose wonncctseascccenrass

ITI.

This Court Should Resolve Whether Price Dis-
crimination Occurs, As A Matter Of Law,
When A Seller Grants To Select Customers
Persistent Special Discounts That Deviate
From The Seller’s Uniform Base Prices ....

sek ee eee Tre errr re re ree

APPENDICES:

Appendix A: Opinion and Order of the United
States Court of Appeals for the Seventh Circuit
CN Pre

Appendix B: Opinion and Order of the United
States District Court for the Southern District
of Indiana (February 3, 1988) ...............

Appendix C: Opinion and Order of the United
States District Court for the Southern District
of Indiana (November 17, 1986) .............

Page

15

18

22
25

A-1

B-1

V

TABLE OF AUTHORITIES

Cases Page
A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc.,
1988-1 Trade Cas. (CCH) $67,999 (S.D. Ind
Taian ds oe be bmalow yy. aes 2,8

A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc.,

683 F. Supp. 680 (S.D. Ind. 1988) (Appendix

MP Pe aC a4 eb Rb KaE ee beekabaaehens bicsaen passim
A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc.,

881 F.2d 1396 (7th Cir. 1989) (Appendix A) ... passim
Arthur S. Langenderfer, Inc. v. S.E. Johnson Co.,

729 F.2d 1050 (6th Cir.), cert. denied, 469 U.S.

PU TIN Coches dy ans cadnenceneseeen pee i6
Barry Wright Corp. v. ITT Grinnell Corp., 724

¢ & .f: 9 Se. Saree 14
Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S.

EE AGG4 x ro W uke 6604 Rko eee ste ccup caer 15, 17

C.A.T. Industrial Disposal, Inc. v. Browning-
Ferris Industries, Inc., 884 F.2d 209 (5th Cir.
Tia Kc tas sound GiehE See nedenscapacess. 15
Ciamp-All Corp. v. Cast Iron Soil Pipe Institute,

851 F.2d 478 (1st Cir. 1988), cert. denied, __
U.S. - eS. Ct. Fad CIB6B) ........00- 15

Continental Baking Co. v. Old Homestead Bread
Co., 476 F.2d 97 (10th Cir.), cert. denied, 414

es iin oo eda ds sb ecnvaenss as 10
D&S Redi-Mizx v. Sierra Redi-Mix and Contracting
Co., 692 F.2d 1245 (9th Cir. 1982) ......... 17

Falls City Industries, Inc. v. Vanco Beverage, Inc.,
4. key ee 5, 6

vi

Federal Trade Commission v. Anheuser-Busch,
Fe., SB UB. GOB CHRD onc cccccccvccseccs

Henry v. Chloride, Inc., 809 F.2d 1334 (8th Cir.
PEGE 0h ckeaw dene nek Lake akercivi ser ensaes

In re American Motor Specialties Co., 55 F.T.C.
1430 (1959), aff'd, 278 F.2d 225 (2d Cir.), cert.
denied, 364 U.S. 884 (1960) ...............

In re D&N Auto Parts Co., 55 F.T.C. 1279
RE 55.chsn ceva seek ea Ubkaaecnbaeeteaeees

(EOD s00e cn eancendeeesstns con ctanveensses

Instructional Systems Development Corp. v. Aetna
Casualty and Surety Co., 817 F.2d 639 (10th
COR. BUG oka 0 hos 560000scacanancacepeeetss

International Air Industries, Inc. v. American Ex-
celsior Co., 517 F.2d 714 (5th Cir. 1975), cert.
denied, 424 U.S. 943 (1976) ...............

Kelco Disposal, Inc. v. Browning-Ferris Industries,
Inc., 845 F.2d 404 (2d Cir. 1988), aff'd on other
grounds, _.__ ~-U.S. ___, 109 S. Ct. 2909
+ Pere errrrrr se: oereey yy eee

Lombino & Sons, Inc. v. Standard Fruit & Steam-
ship Co., 1975-2 Trade Cas. (CCH) 460,527
75% | | ee eer

Matsushita Electric Industrial Co., Ltd. v. Zenith
Radio Corp., 475 U.S. 574 (1986) ..........

McGahee v. Northern Propane Gas Co., 858 F.2d
1487 (11th Cir. 1988), cert. denied, ____ U.S.
me Fe ee ee

MCI Communications Corp. v. American Tel. &
Tel. Co., 708 F.2d 1081 (7th Cir.), cert. denied,
O04 UD. GER GERD 6 ccc cuccuacScvececouses

16

17

21

15

14, 15

Vii

Monahan’s Marine, Inc. v. Boston Whaler, Inc.,
S06 F.2a GSS (ist Cir. 1900) ..........0005.

Moore v. Mead Service [o., 190 F.2d 540 (10th Cir.
1951), cert. denied, 342 U.S. 902 (1952) ....

National Dairy Products Corp. v. Federal Trade
Commission, 412 F.2d 605 (7th Cir. 1969) ...

Northeastern Tel. Co. v. American Tel. & Tel. Co.,
651 F.2d 76 (2d Cir. 1981), cert. denied, 455
Se EE so cca tin We's K Ken kak beke eas

O. Hommel Company v. Ferro Corp., 659 F.2d 340
(3d Cir. 1981), cert. denied, 455 U.S. 1017
SEE. SA vULN Gh PERERA ER RAGKE CRASS Se seh eeen

Southern Pacific Communications Co. v. American

Tel. & Tel. Co., 740 F.2d 980 (D.C. Cir. 1984),
cert. denied, 470 U.S. 1005 (1985) ..........

Times-Picayune Publishing Co. v. United States,

Pree

Transamerica Computer Co., Inc. v. International
Business Machines Corp., 698 F.2d 1377 (9th
Cir.), cert. denied, 464 U.S. 955 (1988) .....

U.S. Philips Corp. v. Windmere Corp., 861 F.2d
695 (Fed. Cir. 1988), cert. denied sub nom.,
North American Philips Corp. v. Windmere
Corp., __. U.S. ___., 109 S. Ct. 2070 (1989) ..

Utah Pie Co. v. Continental Baking Co., 386 U.S.
UTC RGEGA ce USaaaeheceusesenkeksd nes

William Inglis & Sons Baking Co. v. ITT Conti-
nental Baking Co., Inc., 668 F.2d 1014 (9th Cir.

1981), cert. denied, 459 U.S. 825 (1982) ... 14, 15,

—

Page

10,

16

16

16

11

16

14

14

16

Vill
Statutes Page
Section 2(a) of the Robinson-Patman Act, 15 U.S.C.
ti ee errr cree passim

Section 2 of the Sherman Act, 15 U.S.C. §2

NG oc le ee ee er a ee oh ll
Section 4 of the Clayton Act, 15 U.S.C. §15
eRe IEE SR SreGe Pienrt | apie 84 2 Je SRE Nia a ay ne eT ‘
Section 1254(1) of the Judicial Code, 28 U.S.C.
es UR on 2
Rules
Fed. R Civ P. 4(b) Ee a Et ee ESD ee tye 2
Other Authorities
2 P. Areeda & D. Turner, Antitrust Law, 4 404
I ocala cea i a rl ee eee 11, 12

Easterbrook, Predatory Strategies and Counter-
strategies, 48 U. Chi. L. Rev. 263 (1981) ... 5,16

Robinson-Patman Act: Hearings on H.R. 4995,
H.R. 5062 and H.R. 8442 Before the House
Comm. on the Judiciary, 74th Cong., Ist Sess.

1G RR ne ey: 20
E. Kintner, Legislative History of the Antitrust

oe ss eee, 179 U.S. 104
118 n.12 (1986) (quoting Mats ishita Electric Indust !
Ze nith Radio ( ‘Orn : 475 U.S. 57 1 584 nS 1YAH

11 See C.A.T. Industrial Disposal, In Brownina-Fe
dustries, Inc., 884 F.2d 209, 210 (5th Cir. 1989) (predatory pr
iS price below COSL): Monahan ’s Marine I Cc B ston Wi
Inc., 866 F.2d 525, 527 (1st Cir. 1989) (accord); Clamp-All (
Cast Iron Soil Pipe Institute, 851 F.2d 478, 483 (1st Cir. 198
cert. denied, _ US. , 109 S. Ct. 789 (1989) (predatory pr
is a price below some measure of cost set with the intent to eli
nate competition); McGahee v. Northern Propane Gas Co., su)

note 8, 858 F.2d at 1503 (11th Cir.) (prices above average tota
costs not predatory); Henry v. Chloride, Inc., 809 F.2d 1334, 1344
46 (8th Cir. 1987) (price must be below av erage Vamable st

y ‘ ¢ . ? al { ror ¥
(Footnote continued on | wing page

—16—

Here, however, the Seventh Circuit struck out on a con-
trary course which breaks with the established precedent
of price-cost analysis and rejected it as evidence of preda-
tory conduct.!? (A-7-8).

This case is particularly appropriate for review of the
relevance of cost-price standards since the evidence shows
that Rose Acre sold below any of the judicially applied
standards. While the Seventh Circuit opinion mentions

1 continued

be predatory); Instructional Sysiems Development Corp. v. Aetna
Casualty and Surety Co., 817 F.2d 639, 648 (10th Cir. 1987) (pricing
below average variable cost an indicator of predation); Southern
Pacific Communications Co. v. American Tel. & Tel. Co., 740 F.2d
980, 1006 (D.C. Cir. 1984), cert. denied, 470 U.S. 1005 (1985) (criticism
of various cost standards); Arthur S. Langenderfer, Inc. v. S.E. John-
son Co., 729 F.2d 1050, 1056-58 (6th Cir.), cert. denied, 469 U.S.
1036 (1934) (pricing below marginal or average variable cost pre-
sumed illegal); Transamerica Computer Co., Inc. v. International
Business Machines Corp., 698 F.2d 1377, 1386 (9th Cir.), cert.
denied, 464 U.S. 955 (1983) (pricing above average total costs may
be deemed predatory upon showing of predatory intent); William
Inglis & Sons Baking Co., supra note 8, 668 F.2d at 1041 (9th
Cir.) (plaintiff shows predation by price below average variable
cost); Northeastern Tel. Co. v. American Tel. & Tel. Co., 651 F.2d
76, 87-88 (2d Cir. 1981), cert. denied, 455 U.S. 943 (1982) (some
measure of price below cost); O. Hommel Co. v. Ferro Corp., supra
note 3, 659 F.2d at 352 (3d Cir.) (predatory intent not inferred
from sales at or above average variable cost); International Air
Industries, Inc. v. American Excelsior Co., 517 F.2d 714, 724 (5th
Cir. 1975), cert. denied, 424 U.S. 943 (1976) (price above average
variable cost presumed lawful). Similarly, the Seventh Circuit, be-
fore the instant case, also espoused an analysis of price-below-cost
in determining predatory pricing. See MCI Communications Corp.
v. American Tel. & Tel. Co., 708 F.2d 1081, 1111-31 (7th Cir.),
cert. denied, 464 U.S. 891 (1983).

12 This approach is consistent with Judge Easterbrook’s known
views on the issue. See Easterbrook, Predatory Strategies and
Counterstrategies, supra, 48 U. Chi. L. Rev. at 281 (“any approach
to predation emphasizing below-cost pricing as a device to drive
out rivals is umproductive’’).

only the sales below average total cost (A-19), the record
shows that Rose Acre also persistently sold below the
more rigorous standards of long-run incremental and aver-
age variable or marginal costs.1* Thus the issue here is
not which cost standard'4 but whether the courts may
rely on any cost standard to show harm to competition—
with the court below choosing the most extreme position
and answering that question in the negative.

The Seventh Circuit silently ignored that Rose Acre’s
prices on all eggs sold during the entire fiscal year from
July 1, 1979 to June 30, 1980 were below its average
variable cost for that period. (PExs. 96, 97, 98; Tr. 10/8/87
A.M., 96, 112-113; Tr. 10/13/87 A.M., 22-23). This time
period is far longer than periods of below-cost special pric-
ing other federal courts have held establish Robinson-
Patman liability.15

Plaintiffs’ extensive proof of below-cost pricing under
even the most rigorous analyses employed by the federal

13° PExs. 52-8a, 52-8b, 52-8c, 96, 97, 98; Tr. 10/7/87 A.M.,~75-%1;
Tr. 10/8/87 A.M., 96, 112-113; Tr. 10/13/87 A.M., 22-23, 65-6.

14 Petitioners are not suggesting that this Court address the ques-
tion of the exact measure of cost to be employed in the price-
below-cost analysis. It is unnecessary to do so here and the issue
may best be left to a case by case determination which can re-
spond to the variety of factors inherent in a particular market.
Whatever the cost measurement, as the Seventh Circuit in the
case below noted, this Court has indicated in the Utah Pie and
Matsushita cases, “that the relation between price and cost mat-
ters.” (A-19). See also Cargill, supra note 10, 479 U.S. at 118 n.12.

15 See National Dairy Products Corp. v. Federal Trade Commis-
sion, 412 F.2d 605, 609, 610, 615 (7th Cir. 1969) (26 days). See also
Kelco Disposal, Inc. v. Browning-Ferris Industries, Inc., 845 ¥ .2d
404 (2d Cir. 1988), aff'd on other grounds, __. ~ U.S. ___, 109 5.
Ct. 2909 (1989) (six months); D&S Redi-Mix v. Sierra Redi-Mir
and Contracting Co., 692 F.2d 1245, 1248-49 (9th Cir. 1982) (max-
imum of nine months).

en

- =

courts shows the inappropriateness of the decision below.
The elimination of below-cost pricing analysis by the court
below was the only means by which it could find that
Rose Acre had not injured competition. Absent total aban-
donment of all cost-price tests, plaintiffs’ evidence would
have prevailed under any cost-price measure, even the
stringent test of consistent and prolonged pricing below
average variable cost. Rose Acre sold its eggs below any
of the judicially established cost-price standards, and, after
the decision below, the federal courts need the direction
of this Court as to whether price below any measure of
cost can now ever be considered evidence of predation.

Il.

This Court Should Resolve Whether Eggs And Other
Grocery Commodities With A Limited Shelf Life Are
Exempt From The Robinson-Patman Act.

The decision below warrants review by this Court be-
cause it effectively exempts all commodities with a finite
shelf life from being of “like grade and quality” under
Section 2(a) of the Robinson-Patman Act, though the goods
are physically indistinguishable. (A-23). This analysis re-
verses the statutory burden of proof under Section 2(a)
and thereby reverses the Act’s terms and purposes. The
Fourth Proviso exception to Section 2(a) for the chang-
ing marketability of goods is an affirmative defense to be
proved by a defendant as to the condition of particular
lots of goods which were sold at lower prices allegedly
because they were actually or imminently perishing.'®

16 Section 2(a) carves out certain exceptions for pricing activities

which, upon proper proof, will not be considered discriminatory.

One such exception, the so-called “Fourth Proviso” of the Act,
(Footnote continued on following page)

However, the lower court’s treatment of perishability—
the potential to perish sometime in the future—as creating
a per se exception improperly shifts to plaintiff a burden
of proving that there were not changes in the physical
condition of particular lots of goods that were otherwise
indistinguishable from identical goods produced and sold
simultaneously. Such a clearly erroneous departure from
the language of the Robinson-Patman Act, a statute en-
acted primarily to protect the sale of grocery products,
merits review by this Court.

The Seventh Circuit broadens the district court’s anom-
alous ruling that all ‘the sales made by Rose Acre dur-
ing the relevant period [were] within the Fourth Proviso
of the Robinson-Patman Act” (B-49), i.e., that each egg
sale for five years was the result of actual or imminent
deterioration. Consequently, both opinions below exclude
all eggs (and, by analogy, all goods with a limited shelf
life) from the Robinson-Patman Act. The decisions below
permit even one-hour old eggs—not to mention Rose Acre’s
discriminatorily priced “specials” promised to be filled
with as-yet-unlaid eggs—to be sold at predatory prices to
selected purchasers as a means of lessening competition.
Such an all-encompassing exclusion for an entire commod-
ity is contrary to the statutory terms, reason, and legis-
lative history. The Robinson-Patman Act was clearly in-

16 continued

is that occasional price changes in response to changing market
conditions or the marketability of particular goods may not be
discriminatory. A circumstance wherein the Fourth Proviso excep
tion may apply is where there is the “actual or imminent deteriora-
tion of perishable goods.” 15 U.S.C. § 13(a).

—20—

tended to apply to the pricing of groceries to wholesalers
and retailers.!7

The Robinson-Patman Act proviso exempts only price
changes that occur “from time to time,” but Rose Acre
regularly and persistently granted special discounts, often
guaranteeing special prices months in advance of delivery.
(Tr. 10/8/87 A.M., 78). Imminent deterioration of eggs
played no part in Rose Acre’s guaranteed specials. As
Rose Acre’s Sales Manager, Charles Waltman, testified,
“a guaranteed special means that no matter whether we
have got any eggs or whether we have to pay a dollar
a dozen, we still do this.” (Tr. 10/16/87 A.M., 16; PEx.
103 at 104).

Rose Acre produced no evidence that any specific lots
of eggs were in danger of imminent deterioration, let
alone evidence that for at least five years all “specials”
were imminently deteriorating. The opinions below silently
attempt to avoid this complete failure of proof by revers-
ing the burden of proof and requiring the plaintiffs to
prove a negative, i.e., that none of the eggs sold over
those years was in danger of imminent deterioration. The
Robinson-Patman exemption deals with “‘situations in con-
nection with specific lots of goods”’:'® i.e., detailed evi-
dence that those particular goods are imminently threat-

17 The bill itself, introduced in the House on June 11, 1935 by
Rep. Wright Patman, H.R. 8442, 74th Cong., Ist Sess. (1935), was
sponsored by the United States Wholesale Grocers Association, see
Hearings on H.R. 4995, H.R. 5062 and H.R. 8442 Before the House
Comm. on the Judiciary, 74th Cong., 1st Sess. 17 (1935), and was
drafted by H.B. Teegarden, counsel for the United States Whole-
sale Grocers Association. H.R. 8442, 74th Cong., 1st Sess. 8232
(1935).

18 See Moore v. Mead Service Co., 190 F.2d 540, 541 (10th Cir.
1951), cert. denied, 342 U.S. 902 (1952) (emphasis added).

=

ened with spoilage must be shown in order to take ad-
vantage of this affirmative defense.'9

The Seventh Circuit’s opinion assumes that the “special”
or discriminatory prices resulted from temporary or seéa-
sonal imbalances in supply, because “the chickens don’t
lay to order.” (A-22). That simple biological fact cannot
obscure the record showing that the years of persistent
specially priced sales of millions of eggs to targeted
customers were unrelated to any short-term egg-laying.
First, the pattern of “specials” by Rose Acre did not
reflect any seasonal or temporary variation, but involved
huge quantities from 1978 through 1981 and eventually
none after this suit was filed. In both 1980 and 198] “spe-
cials” amounted to over 35% of all the eggs sold to the
ten targeted customers, 400 or 500% more specials than
sold to other customers. (PEx. 30 at ex. B: 95). Second,
the quantity of eggs Rose Acre sold to a customer re-
mained the same for weeks, regardless of whether the
customer was receiving specials during that period. (Tr.
10/8/87 A.M., 110-11). The “specials” were a means to lure
ten customers from plaintiffs; they certainly were not a

19 See Lombino & Sons, Inc. v. Standard Fruit & Steamship
Co., 1975-2 Trade Cas. (CCH) 4 60,527 (S.D.N.Y. 1975) (bananas).
See also In re American Motor Specialties Co., 55 F.T.C. 1430.
1447 (1959), aff'd, 278 F.2d 225 (2d Cir.), cert. denied. 364 US.
884 (1960); In re D&N Auto Parts Co., 55 F.T.C. 1279, 1301 (1959)
(“the substance of the proviso appears to be that a defense may
be made out in occasional and temporary situations”); Jn re Fruit-
vale Canning Co., 52 F.T.C. 1504, 1514-15 (1956) (finding the de-
fense not supported, because “‘it is clear that respondent granted
favored buyers the advantage of discriminatory prices as a cus-
tomary Ke f normal method of business, not in response to any
averred changing market conditions”). “The changing conditions
proviso” of the Robinson-Patman Act is to deal with “distress mer-
chandise.”” Scher, How Sellers Can Live With The Robinson-
Patman Act, 41 Bus. Law. 533, 542 ( 1986).

ti

- =

way to sell to those favored targeted customers, or to
anyone else, temporary surplus or imminently deterio-
rating eggs. Third, the plaintiffs, like Rose Acre, were
obligated to accept and market all the eggs as and when
laid by the hens. The plaintiffs had to buy “all” the eggs
“that a given farmer produced” or be cut off from reli-
able sources of eggs. (Tr. 10/14/87 A.M., 11). Rose Acre’s
situation with respect to what hens laid was not unique.

The simple fact a commodity has a finite shelf life is
insufficient to remove the commodity’s sales from the
Robinson-Patman Act, a statute expressly enacted to cover
grocery products. Consistent with Judge Easterbrook’s
abhorrence of the Robinson-Patman Act, the Seventh Cir-
cuit shifted the burden of proof on an affirmative, statu-
tory defense (imminent deterioration) so that the exception
now consumes the statute. The court below has parlayed
the reality that eggs, like all agricultural items, are
perishable commodities, into a per se exception for perish-
able goods from the Act. Such a drastic excision should
be addressed by this Court.

Ill.

This Court Should Resolve Whether Price Discrimina-
tion Occurs, As A Matter Of Law, When A Seller
Grants To Select Customers Persistent Special Dis-
counts That Deviate From The Seller’s Uniform Base
Prices.

Rose Acre used the same base prices for all customers,
and, when it changed those base prices, it changed them
for all. As Rose Acre’s Director of Marketing explained,
the base prices changed only three times in the five-year
period, and each time a new pricing letter was sent to
all customers. (Tr. 10/16/87 A.M., 16-17; PEx. 103 at 9).
Those base prices were not long-term commitments but,

—23—

instead, were admittedly not “in effect for any particular
length of time” and were subject to “modification” at
any time. (Tr. 10/6/87 A.M., 146; PEx. 93 at 94). Because
each customer paid the same base price, the so-called
““specials’’ were discriminatory prices—being as much as
60-70% of Rose Acre’s sales in a given year to some fa-
vored customers—not offered to all customers but heavily
concentrated on the ten targeted customers. For exam-
ple, in 1980-1981 the specials represented over 35% of all
eggs Rose Acre sold to the small group of ten targeted
customers and less than 10% of its sales to all others.
(PEx. 95). Thus, the variations in the value of the specials
measured the extent of price discrimination among cus-
tomers.

Rose Acre’s business records documented. through hun-
dreds of thousands of transactions, its persistent discrim-
inatory use of specials with respect to the targeted cus-
tomers. This was analyzed and confirmed by days of
expert testimony.

In dismissing the specials as not being proof of different
or discriminatory prices, Judge Easterbrook relied not
upon the record but upon a hypothetical supposition. He
wrote that one might “suppose”’ as follows:

Suppose in July 1981 Rose Acre offers all of its cus
tomers a price 6 [cents] back of Urner Barry for
truckload quantities of large eggs, and in Januar)
1982 a discount of 8 [cents] for the same quantities.
This is not discrimination but uniformity. But if one
supermarket takes the offer in July 1981 and signs
up for a year, and another takes the offer in January
1982, the prices paid by the two will differ--but with-
out legal price discrimination. No one supposes that a
seller must charge the same price on contracts signed
at different times, or on long-term contracts and spot
sales.

~24—

(A-21) (emphasis added). Thus, Judge Easterbrook “sup-
posed” a situation that did not exist and one about which
the plaintiffs did not complain. His hypothesis was twice
flawed: (1) Rose Acre price letters were not “long term”
agreements, such as “a year,”’ but admittedly were sub-
ject to ‘‘modification’”’ at any time; and (2) the base price
did not vary among customers or depend on when a price
agreement was made. (Tr. 10/6/87 A.M., 146; PEx. 93 at
94; Tr. 10/16/87 A.M., 16-17; PEx. 103 at 9).

Despite the baseless hypothetical or supposition, the
record extensively demonstrated that Rose Acre persis-
tently and discriminatorily departed from its uniform base
prices to grant special lower prices to the ten targeted
customers and did so with eggs that were indistinguish-
able from any other eggs Rose Acre sold.2° No view of
the Robinson-Patman Act can justify holding that, as a
matter of law, petitioners failed to demonstrate any price |
differences or discrimination. The Seventh Circuit’s radical
disregard for the evidence of record mandates review by
this Court.

20 There was no question before the trial judge or jury in the
district court that Rose Acre had committed price discrimination.
Even in its decision granting Rose Acre’s judgment n.o.v., the dis-
trict court did not suggest —s had not established an unre-
butted prima facie case 0

price difference. (B-22-27).

—25--

CONCLUSION

For the foregoing reasons, the petitioners respectfully
request that a writ of certiorari be granted to review the
judgment of the United States Court of Appeals for the
Seventh Circuit.

Respectfully submitted,

Of Counsel: LEE B. McTurRNAN
ALFRED C. FRAWLEY McTURNAN & TURNER
BRANN & ISAACSON 2070 Market Tower

184 Main Street 10 West Market Street
Lewiston, Maine 04240 Indianapolis, Indiana 46204

WaRrREN S. RADLER Counsel of Record and
RIVKIN RADLER DUNNE Attorney for Petitioners

& BAYH A.A. Poultry Farms, Inc.,
30 North LaSalle Street et al.
Suite 4300

Chicago, Illinois 60602
(312) 782-5680

Dated: December 29, 1989

APPENDICES

APPENDIX A

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5 At trial the plaintiffs objected
to the grouping of them together to
illustrate that they, as a group, had
increased revenues or egg sales. Because
the Robinson-Patman Act is concerned with
the detrimental effects on competition
rather than on individual competitors, it
is appropriate in this case to look at
the total sales of all the plaintiffs in
combination to demonstrate that growth
within the industry and among Rose Acre's
competitors was occurring during the
period it was alleged that Rose Acre had

B-25
evidence also showed that the plaintiff
Hemmelgarn grew almost as fast as Rose
Acre did during the relevant period,
increasing its eggs sales from about 13
million dollars to over 30 million
dollars in 1983. Experts for both
parties testified that according to
industry publications, 34 new egg
companies entered the market during the
period from 1977-1983. While some of
these companies were not successful, the
average growth of these new entrants was
approximately 220% during the relevant
time. Companies located in the areas in
which Rose Acre sold its eggs which
entered the market or expanded
significantly include Wabash Valley
Produce which grew from 2 million to 3.3
million layers; Midwest Poultry Services

which grew from under 1 million to 2.25

engaged in predatory pricing.

B-26
million layers by 1983; Croton Egg Farm
entered the market and grew to 2.8
million layers by 1983; Daylay Egg Farm
also entered the market and grew to 1.2
million layers by 1983. Additionally,
Creighton Brothers and Weaver Brothers,
both located in Indiana, expanded
operations and grew during this period of
time.

Even the most favorable viewing of
the evidence in favor of the plaintiffs
indicates a healthy, competitive market,
marked by the growth of the plaintiffs
and the entry and growth of other egg
processors in the area. The contention
that Rose Acre's expansion and growth
harmed competition during this period is
untenable. The evidence is insufficient
to support any such contention.

Nor was there any evidence of the

trend toward monopolization of the market

B-27

by Rose Acre. Dr. John Umbeck, expert
witness for the defendant, testified that
at the beginning of the relevant period,
Rose Acre produced about 4% of all eggs
in the four state area of Ohio, Indiana,
Illinois and Michigan where Rose Acre
sold most of its eggs. By the end of the
relevant period Rose Acre's share had
only increased to 8%. Dr. Umbeck
calculated Rose Acres' share of egg
production nationally to be about 1%
during the middle of the relevant period.

Never in the short run or long run
did Rose Acre ever dominate the egg
market. Nor was there a time when Rose
Acre could increase its prices to benefit
from alleged predatory pricing. Rose
Acre made a profit every year except one
during the years in question which belies

the charge of selling eggs before cost.

The Supreme Court has defined

B-28

monopoly power as "the power to control
prices or exclude competition." U.S. v.

Grinnel Corp., 384 U.S. 563, 570-71, 86

S. Ct. 1698, 1703-04, 16 L. Ed.2d 778

(1966) quoting U.S. v. E.I. du Pont De

Nemours & Co., 351 U.S. 377, 391, 76 S.

Ct. 994, 1005, 100 L. Ed. 1264 (1956).
"The existence of such power ordinarily
may be inferred from the predominant
share of the market." Id. Rose Acre's
actual share of the market during this
period in no way reflected monopoly

power. See American Tobacco Co. v. U.S.,

326 U.S. 781, 797, 66 8. CG. 1325, 1333,
90 L. Ed. 1575 (1946) (two-thirds of
domestic field of cigarettes, and 80% of
field of comparable cigarettes
constituted a substantial monopoly) ;

Grinnell Corp., 384 U.S. 570, 86 S. Ct.

1698 (87% of central station business is

monopoly power). An 8% share of the

shell egg market is simply insufficient

|

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to establish that Rose Acre had the powe?

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APPENDIX C

Opinion and Order of the United States District
Court for the Southern District of Indiana

C-1

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION

A.A. POULTRY

FARMS, INC., BOOMSMA
PRODUCE, INC., GRESSEL
PRODUCE CO., INC.
HEMMELGARN & SONS,
INC., MENDELSON EGG
COMPANY, PETER
PRODUCE, INC., and
BOOMSMA PRODUCE OF
MISSOURI, INC.

Plaintiffs,

CAUSE NO.
IP 81-466-C

Vv.

ROSE ACRE FARMS, INC.,

me ee ee ee ee ee ee ee ee ee ee”

Defendant.

ORDER RESOLVING ALL
OUTSTANDING MOTIONS

This cause is before the Court upon
the multiple motions filed by the various
parties in this case.

Whereupon the Court, having
considered the memoranda filed in support
and opposition to the parties' respective

positions, and being duly advised in the

premises, hereby rules as follows:

C-2

The defendant's motion for summary
judgment is DENIED;

The plaintiffs' motion to dismiss
the defendant's counterclaim is
DENIED;

The defendant's motion to reconsider
the Magistrate's ruling to defer the
discovery of the plaintiffs' costs
of production is GRANTED, and
production of said documents is no
longer deferred;

The defendant's motion to compel
production of documents is DENIED;

The plaintiffs' motion for a
procedural order in contemplation of
the defendant's motion for summary
judgment is DISMISSED as moot, and
if the requested documents have not
yet been produced, the parties
should bring the same to the Court's
attention in an appropriate motion;
and

The defendant's motion for
attorney's fees pertaining to motion
no. 5 supra is DENIED.

IT IS SO ORDERED.

DATED this 17th day of November, 1986.

James E. Noland
U.S. District Judge

MEMORANDUM ENTRY
I. FACTUAL BACKGROUND

C-3

Summary judgment is appropriate when
there exists "no genuine issue as to any
material fact and... the moving party
is entitled to judgment as a matter of
law." Fed. R. Civ. P. 56(c). In
determining whether a genuine issue of
material fact exists, a court must
construe the facts alleged in a light
most favorable to the party opposing the
motion for summary judgment. United

States v. Diebold, Inc., 369 U.S. 654,

655, 82 S. Ct. 993, 994, 8 L. Ed.2d 176

(1962) (per curiam); Hermes v. Hein, 742
F.2d 350, 353 (7th Cir. 1984).

Accordingly, the facts, for the purposes
of this motion, are as follows:

This is an action between egg
processors involving the pricing
practices of one egg processor, the
defendant, Rose Acre Farms, Inc. ("Rose

Acre"). Participants in the egg industry

C-4
can be generally categorized into five
separate groups:

1. Producers: Producers actually
maintain the live, egg-laying hens
and sell the eggs laid by such hens
to the processors. In most cases,
these producers are small,
independent farmers.

26 Processors: Processors purchase
eggs directly from the producers,
clean, carton, and grade the eggs.
Processors have three separate
groups to which to sell their eggs:
wholesalers, retailers and "market
facilitators."

3. Wholesalers: Wholesalers are the
most common mechanism by which the
eggs are placed in the retail
market. Wholesalers purchase the
eggs from the processors and
sell/distribute those eggs to the
retailers.

4. Retailers: Retailers are the retail
stores that actually sell the eggs
to the public consumer. Ideally, a
processor would prefer to sell his
eggs directly to the retailer in
order to avoid the “middle man"
wholesaler. When this is not
possible, which is normally the
case, the processor usually prefers
to sell his eggs to the wholesaler.
Generally, when a processor is not
able to sell his eggs to a retailer
or a wholesaler, then the processor
must sell his surplus eggs to the
"market facilitators."

C-5

5. Market Facilitators: Market
facilitators represent an
alternative, ancillary market that
provides an outlet for eggs that are
not disposable along traditional
selling lines. This group includes
egg breakers which are egg product
factories that actually use
("break") the egg to produce other
goods; egg clearing houses which
match suppliers and customers in
other geographic markets; and egg
exporters who sell the eggs in the
international market. Generally,
egg breakers represent the least
attractive alternative to the
processors as their prices are
customarily lower. As a result,
producers do not normally sell their
eggs to the breakers unless such
producer possesses a surplus or
excess supply.

Based upon the information presented
to the Court, it would appear that the
foregoing is a fair statement of ‘ne egg
market industry. The plaintiffs in this
case are processors that are located in
various parts of the midwest. As
processors, they purchase their eggs from

producers, usually small independent

farmers, and sell them to either

C-6
wholesalers, retailers, or market
facilitators. The defendant, Rose Acre,

on the other hand, is an integrated

producer and processor of eggs located in
southern Indiana. Because it produces
and processes eggs at a single location,
it may enjoy certain efficiency benefits
not available to the plaintiff
processors. Rose Acre is the largest
integrated producer-processor in Indiana,
Illinois, Iowa, Michigan, Missouri and
Ohio.

The price obtained by an individual
processor of eggs in the short run is
dependent on the supply and demand of the
egg industry in his location. Moreover,
because eggs come in different grades and
different sizes, each grade or size or
combination of both has an individual
supply if not an individual demand. In

addition, because eggs do not have an

C-7
indefinite shelf life, the price of a
processor's eggs are affected by the age
of the egg (the older the egg, the lower
the value). Because there are no close
substitutes for eggs, the demand curve is
downward sloping which means that as the
supply of eggs in the processor's market
increases, the price of the eggs
decreases (i.e., the eggs are more
plentiful and thus less expensive). This
price structure is further complicated by
the infusion of the market facilitators,
each with their own independent supply
and demand markets.

The simplified picture in the egg
industry is this. Taking a specific
point in time, as the egg supply in the
local market begins to exceed the finite
demand of the wholesalers and retailers

(the primary market) in that locale at

the market price, then those "surplus"

C-8
eggs must be disposed of through market
facilitators (the secondary market). The
price customarily obtainable from the
facilitators is lower than that available
from the wholesalers/retailers. These
dynamics are further exacerbated by the
fact that the eggs' shelf life is not, as
was noted above, indefinite. As the
supply of eggs in a given market begins
to exceed the demand of the wholesalers
and retailers, a processor may be forced
to sell eggs in a single batch at
different prices in order to distribute
an entire batch before they "expire."
This type of price differentiation is
both an accepted and legal practice in
the egg industry. It is illegal,
however, simultaneously to sell similar
eggs to members of the same level of the
egg industry (e.g., wholesalers) at

different prices.

C-9

The plaintiffs allege that Rose Acre
has engaged in such illegal "price
discrimination" or "predatory pricing" in
violation of § 2(a) of the Clayton Act of
1914, as amended by the Robinson-Patman
Act of 1936, 15 U.S.C. § 13 (1982).1+
Generally, this section forbids a seller
from simultaneously charging two similar
buyers different prices for the same

products. The plaintiffs allege that

1 The Robinson-Patman Act provides
in part:

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 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 then.

C-10
Rose Acre has employed this technique to
solicit the plaintiffs' customers by
offering such customers illegally low
prices. The plaintiffs accuse the
defendant of charging the plaintiffs'
customers lower prices than it was
charging its own customers. The
plaintiffs seek treble damages for the
economic injury they are alleged to have
suffered because of this discriminatory
pricing.

The Court now addresses the pending
motions. The defendant has filed (1) a
motion for summary judgment, (2) a motion
to compel the production of certain
documents, (3) a motion to reconsider the
Magistrate's ruling to defer the
discovery of plaintiffs' costs of
production, and (4) a request for

attorney's fees in regard to one of the

plaintiffs' motions. The plaintiffs have

C-11
filed (1) a motion to dismiss the
defendant's counterclaim and (2) a motion
for a procedural order in contemplation
of the defendant's motion for summary
judgment.

II. DISCUSSION

A. Summary Judgment

The defendant raises three distinct
arguments in support of its motion for
summary judgment. First, the defendant
argues that its method of disposing of
surplus eggs was not unlawful. Secondly,
it argues that some of the plaintiffs
lack standing to maintain a claim against
Rose Acre. Thirdly, the defendant argues
that its practices have not injured
competition; thus, they are entitled to
judgment as a matter of law.

i Pricing of surplus eggs

Part of the complaint pertains to

Rose Acre's method of distributing its

C-12
surplus eggs. The parties concede that
on many occasions during the relevant
time period, Rose Acre produced a surplus
of eggs and those surplus eggs were sold
at a price below that of the non-surplus
eggs. Rose Acre maintains that rather
than distributing its surplus eggs to the
secondary market, the facilitators, it
sold its surplus eggs to its existing and
potential wholesale/retail customers at a
“special discount." Rose Acre reasons
that any savings discount should be
passed along to the primary market (its
customers) rather than the secondary
market. Rose Acre also contends that
because eggs are “perishable goods," the
Fourth Proviso of the Robinson-Patman Act

permits price discrimination. 2

2 The Fourth Provision of the
Robinson-Patman Act provides in pertinent
part:

And _ provided further, That nothing

C-13

Summary judgment on this issue is
precluded, however, as the following
genuine issues of fact remain in dispute.
First, the parties substantially disagree
as to the "perishability" and acceptable
shelf-life of eggs. Construing the facts
most favorable to the plaintiffs, Rose
Acre has overstated the urgency of
distribution; thus, the appropriateness
and extent of the statutory distress
exemption is subject to determination
after presentation of evidence which may

be conflicting.

herein contained shall prevent price
changes from time to time where in
response to changing conditions
affect the market for or the
marketability of the goods concerned
such as but not limited to actual or
imminent deterioration of perishable
goods, obsolescence of seasonal
goods, distress sales under court
process, or sales in good faith in
discontinuance of business in the
goods concerned.

15 U.S.C. § 13(a) (1982).

C-14
Secondly, the plaintiffs have
submitted materials that create a genuine
issue of fact as to whether Rose Acre
intentionally maintained a perpetual
surplus of eggs in order to justify a
constant "special discount" to certain

customers. In Continental Baking Co. v.

Old Homestead Bread Co., 476 F.2d 97

(10th Cir.), cert. denied, 414 U.S. 975
(1973), a bakery substantially expanded
production during saturated market
conditions and sold the excess under a
private label at a lesser prices. After
the baker had eliminated some of the
competition, it raised its prices and
eliminated all discounts. The court
concluded that such conduct was "based on
more than 'fierce competitive
instincts,'" id. at 104, and constituted
illegal price discrimination pursuant to

the Robinson-Patman Act. Although Rose

C-15

Acre's conduct in this case has not
caused a similar result, a genuine issue
of fact exists as to whether Rose Acre
expanded and maintained its production
with the intent to destroy competition.

Finally, the parties disagree as to
whether sale of surplus eggs to (a) the
primary market at a discount, or (b) the
secondary market at the secondary market
rate, maximizes profits. Construing the
facts in favor of the plaintiffs, Rose
Acre has failed to maximize its profits
by foregoing the comparatively higher
prices offered by the secondary market.
Although it is possible that Rose Acre's
sales tactics merely constitute fierce
competition for the retailer/wholesaler
market (designed to disrupt cartel
pricing), for the purposes of summary

—

judgment this Court concludes that a

genuine issue of fact exists as to Rose

C-16

Acre's intent in failing to maximize its
profits.

2. Standing of some plaintiffs

Rose Acre challenges portions of the
plaintiffs' complaint on the grounds that
those plaintiffs lack standing to pursue
those claims. Rose Acre asserts four
reasons in support of its position: (a)
because Willowbrook was a wholly-owned
subsidiary of one of the plaintiffs, A.A.
Poultry, then A.A. Poultry could not
allege that Rose Acre affected A.A.
Poultry's sale to its own subsidiary; (b)
a supplier does not have standing to
challenge Rose Acre's sales to customers
of that supplier's customers; (c)
certainly plaintiffs lost no sales
because of Rose Acre's conduct; and (d)
Rose Acre never consummated some of the
alleged sales, thus those sales cannot be

challenged. With regard to "(a)", a

C-17
genuine issue of facts exists as to
Willowbrook's status as an alter ego of
A.A. Poultry, thus summary judgment based
on that rationale is inappropriate.

The issue of supplier standing
("(b)" supra), however, is a question of
law that merits some discussion. Rose
Acre contends that because many of the
sales the plaintiffs are challenging were
made to the customers who were customers
of the plaintiffs rather than the
immediate customers of the plaintiffs,
the plaintiffs are too remote to
challenge those sales and thus lack
standing. Rose Acre reasons that the
plaintiffs' customers constitute the more
appropriate plaintiffs to pursue any
antitrust litigation against Rose Acre.
Rose Acre concludes that suppliers as a
Class lack standing to challenge

discriminatory sales to customers of

C-18
their customers.

It appears, however, that there is
no "black letter" standing rule which can
be flatly applied to all antitrust
circumstances. See Associated General
Contractors of California v. California
"State Council of Carpenters, 459 U.S.
519, 536 & n.33, 103 S. Ct. 897, 907-08 &
n.33, 74 L. Ed.2d 723 (1983) (each case
should be analyzed independently). In
Local Beauty Supply, Inc. v. La Maur,
Inc., 787 F.2d 1197 (7th Cir. 1986), the
court indicated that in order to satisfy
antitrust standing a plaintiff must have
suffered an “antitrust injury” and be a
"proper party" to bring the action. Id.
at 1201.

An antitrust injury is an “injury of
the type the antitrust laws were intended
to prevent and that flows from that which

makes the defendants’ acts unlawful."

C-19

Brunstvick v. Pueblo Bowl-O-Mat, Inc., 429

U.S. 477, 489, 97 S. Ct. 690, 697, 50 L.

Ed.2d 701 (1977). The Seventh Circuit,
like almost all of the other circuits,
has not yet applied the teachings of
Associated General, the most recent
Supreme Court antitrust standing
decision, to a Robinson-Patman Act case;
thus, there are no controlling decisions
as to what constitutes a Robinson-Patman
“antitrust injury." The Third Circuit
has recently addressed this issue,

concluding that although Asscciated

General was a Sherman Act case, "the
general principles developed in the
Sherman Act cases {should be applied] in
light of the particular law creating the
antitrust violation-" Gregory Marketing

Corp. v. Wakefern Food Corp., 787 F.2d
92, 95 n.5 (3d Cir. 1986). As a result,

the question in Robinson-Patman Act

C-20
standing cases is what "injury" was the
Robinson-Patman Act "intended to

forestall." Associated General, 459 U.S.

at 540, 103 S. Ct. at 909. It was noted

in American Oil Co. v. F.T.C. that the

"protection intended to be afforded by
the statute is directed to the

preservation of competition. The

statute's concern with the individual
competitor is but incidental." 325 F.2d
101, 104 (7th Cir. 1963), cert. denied,
377 U.S. 954 (1964) (emphasis in

original); see also Lloyd A. Fry Roofing

Co. v. F.T.C., 371 F.2d 277, 281 (7th

Cir. 1966). Because the defendant has
independently contested the injury to
competition issue and such issue involves
identical considerations, the question of
whether an "antitrust injury" has
occurred will be considered in the

ensuing section of this order. The

LK

C-21
question remaining in this section, is
whether the plaintiffs are the "proper
parties" to pursue this antitrust
litigation in the sense of causation and
the directness of the injury alleged.

It appears that this Circuit adheres
to the "target area" test to determine
whether the plaintiffs are too remote to
pursue their claims.2 "The target area
test focuses on the area affected by the
anticompetitive conduct, requiring that
the plaintiff be within the area of the
economy which was endangered by the
breakdown of competition and that

plaintiff's injury be a direct result of

3 There is some doubt as to the
vitality of the "target area" test after

the Associated General decision. See

Associated General, 459 U.S. at 536 n.33,
103 S. Ct. at 907 n.33; Haff v. Jewelmont

Corp., 594 F. Supp. 1468, 1473 & n.3
(N.D. Cal. 1984). Neither the Supreme
Court nor the Seventh Circuit have
expressly repudiated it, thus this Court
will employ it to guide its decision.

C-22
the lessening of that competition." In

re Industrial Gas Antitrust Litigation
(Bichan), 681 F.2d 514, 516 (7th Cir.

1982), cert. denied sub nom. Bichan v.

Chemetron Corp., 460 U.S. 1016 (1983) .4

Assuming, arguendo, that the

plaintiffs can establish a competitive
injury for the purposes of summary
judgment, the injury to competition is
occurring at the processor level of the
egg production chain. As Rose Acre
captures more of the egg market through
its alleged price discrimination, the

individual processors may well lose their

4 The other distinct test mentioned
by the Bichan court is the "direct
injury" test--which involves notions of
privity, focusing upon the injured party,
and the antitrust malefactor. Bichan,
681 F.2d at 516. This approach, however,
has also been criticized for its
inflexibility. See In re Multidistrict
Vehicle Air Pollution, M.D.L. No. 31, 481
F.2d 122, 127 (9th Cir.), cert. denied
sub nom. Morgan v. Automobiles Mfq.
Ass'n., 414 U.S. 1045 (1973).

C-23

ability to compete with Rose Acre.
Moreover, the very purpose of the alleged
price discrimination was to capture the
business of the wholesale and retail
markets. Thus, the area affected by the
alleged illegal expansion of Rose Acre is
that of the egg processors. >

In addition, the recent standing
decisions have emphasized the importance
of the competitive relationship between
the plaintiff and the defendant in order

to determine directness. See Associated

General, 459 U.S. at 539, 103 S. Ct. at
809 (Union "neither a consumer nor a
competitor" in the restrained market) ;

Gregory Marketing, 787 F.2d at 97

(Defendant's “competitors felt the

° This conclusion is supported by
the fact that Rose Acre has repeatedly
emphasized that the efficiency it
obtained because of its integration gives
it a special advantage in the processing
market.

C-24

effects of the injury most directly").
As noted above, Rose Acre and the
plaintiffs are in direct competition in
the egg processing market and that market
is the market endangered by the alleged
price discrimination.

Moreover, the unique features of the
egg industry warrant consideration.
Unlike other industries, the processors

directly compete with one another in the

wholesale, retail and facilitator
markets. Because of this factor, illegal
price discrimination in any one of these
three markets could result in direct
competitive harm to other processors.
Furthermore, because the egg is a
"finished product" when it leaves the
hands of the processor, any injury
inflicted upon his distribution chain
(wholesaler, retailer or facilitator) is

inflicted upon the processor. Because

NO

C-25
(a) the plaintiffs all fall within the
"target area;" (b) they would be the
direct victims of any alleged price
discrimination by Rose Acre; and (c)
their alleged injury is precisely that
for which the Robinson-Patman Act was
intended to remedy, they have standing to
pursue their complaint. ©

Ds Injury to competition

The defendants are correct in
arguing that in order to establish any
Robinson-Patman Act case for price
discrimination, the plaintiffs must show
that the "price differences [create] a
reasonable probability of injury to

competition." Lloyd A. Fry Roofing Co.

v. F.T.C., 371 F.2d 277, 281 (7th Cir.

6 Because each individual plaintiff
has standing and has alleged a
compensable claim for damages, the
question as to the actual amount of
damages each plaintiff has incurred, if
any, will be resolved at trial.

C-26
1967). A plaintiff can satisfy the
competitive injury requirement
establishing “actual competitive injury
shown by market analysis; [or] (2)
predatory intent from which competitive

injury may be inferred." 0. Hommel Co.

v. Ferro Corp., 659 F.2d 340, 347 (3rd

Cir. 1981), cert. denied, 456 U.S. 965

(1982); see also 4 Von Kalinowski,

Antitrust Laws and Trade Regulation, §

29.02 n.l & 2 (1984).

In this case, the defendant has
argued that during the alleged "predatory
period" the plaintiffs have all enjoyed
economic success that exceeded that of
the average egg processor nationally. In
addition, the defendant asserts that
rather than moving seneins a stage of
concentration during the pertinent time
frame, the relevant egg processor market

has expanded because of the entrance of

C-27
five new egg processors. Thus, a serious
question is raised as to whether Rose
Acre's conduct has inflicted any
significant injury upon competition in
the relevant market.’

As a result, in order for the

7 The underlying principle of price
discrimination (i.e., the reason it is a
target of the antitrust laws) is that one
competitor with significant market power
will use that power to eliminate his
competitors and thereby reduce
competition overall. From an economic
standpoint, in a competitive market this
result can be achieved only if the
predatory competitor sacrifices present
revenues in that market in order to
underprice his competitors and achieve
monopoly power in that market at some
subsequent point. Once monopoly power is
obtained, then the price discriminator
substantially raises his prices in order
to recoup his "lost revenues."

Because all of the plaintiffs have
flourished financially, and because five
new competitors have recently entered the
relevant market without apparent
difficulty, either Rose Acre's alleged
predatory scheme was an ill-conceived
business maneuver, or Rose Acre will have
to wait quite a long time to recoup any
financial advantages from "decreased
competition."

C-28
plaintiffs to survive this motion for
summary judgment, they must do so by
establishing predatory intent.
"Predatory intent can be shown by two
means: (a) by express evidence; and (b)
by inference from 'below cost' pricing."

O. Hommel Co., 659 F.2d at 347. The

plaintiffs have suggested two instances
of "express evidence" of Rose Acre's
predatory intent but the Court believes
it is unnecessary to address those
instances at present.

The focus therefore shifts to the
question of "below cost" pricing. "[A]}
finding of below cost pricing permits the
jury to infer; or even presume
anticompetitive intent." M.C.I.

Communications v. A.T.&T. Co., 708 F.2d

1081, 1111 (7th Cir.), cert. denied, 464

U.S. 891 (1983); see Utah Pie Co. v.

Continental Baking Co., 386 U.S. 685,

C-29
701, 87 8&8. C8. 1326, 1335, 18 L. Ed.2d
406 (1967) .8 Unfortunately, however,
"cost" is not a self-defining term
because businesses classify their costs
into a number of categories, e.g., fixed
cost, variable cost, marginal cost, total
cost, fully distributed cost, average
total cost, average variable cost, and
incremental cost. All of these cost
standards have their own deficiencies for
Robinson-Patman Act purposes, but because
the Seventh Circuit recently adopted a
long-run incremental cost standard
("LRIC") as its cost measure, A.T.&T.,

708 F.2d at 1114-20, this Court will

adopt it as well.

8 This methodology employs the
"double inference" test. Predatory
intent is inferred from below cost
pricing, and competitive harm, in turn,
is inferred from the predatory intent.
See O. Hommel, 639 F.2d at 347; Pacific
Engineering & Prod. Co. v. Kerr-McGee

Corp., 551 F.2d 790, 798 (10th Cir.),
cert. denied, 434 U.S. 879 (1977).

C-30
In the A.T.&T. case, the Seventh
Circuit accepted the following definition
of LRIC: "'total company cost minus what
total cost of the company would be in
absence of production of X, all divided

by the quantity of X being produced.’

Baumal, Quasi~Permanence of Price
Reductions: A Policy for Prevention of
Predatory Pricing, 89 Yale L.J. 1, 9 n.26
(1979)." A.T.&T., 708 F.2d at 1115 n.45.
This standard is particularly appropriate
in the instant case because Rose Acre
undertook an ambitious program of
capacity expansion during the relevant
time period. The LRIC standard
determines the cost of this expansion in
order to establish whether the sale of
the “expanded eggs" exceeds the cost of
the expansion. "The use of long-run cost
analysis may be particularly appropriate

to capital-intensive processes where

C-31

growth of plant and equipment is marked."
A.T.&T., 708 F.2d at 1115.

The question of whether Rose Acre's
price exceeded LRIC is one of fact.
Taking into consideration the affidavits
of the expert for the plaintiffs--Dr.
Mueller, the complicated dynamics of egg

pricing, the admonitions of Poller v.

Columbia, 368 U.S. 464, 473, 82 S. Ct.
486, 491, 7 L. Ed.2d 458 (1962), Havoco
of America, Ltd. v. Shell Oil Co., 626
F.2d 549, 553 (7th Cir. 1980), and Kaplan
Vv WwW j o-o0 - Corp., 567
F. Supp. 53, 55 (N.D. Ill. 1983), and
construing the facts in light most
favorable to the plaintiffs, this Court
believes that a genuine issue of fact
exists as to whether Rose Acre's prices
were below its long run incremental

costs.

B. Rose Acre's Counterclaim

C-32

Rose Acre filed a counterclaim

against the plaintiffs alleging that such
plaintiffs had conspired with one another
to force Rose Acre to abandon its
competitive conduct and join the
plaintiffs in an illegal anticompetitive
conspiracy. Rose Acre further alleges
that when it refused to join the
conspiracy, plaintiff Boomsma-Missouri
and others brought this lawsuit to harass
Rose Acre, thereby compelling Rose Acre
to terminate its competitive conduct.
The plaintiffs filed a motion to dismiss
the defendant's counterclaim for failure
to state a claim upon which relief can be
granted. Fed. R. Civ. P. 12(b) (6).

A complaint or countercomplaint
should not be dismissed for failure to
state a claim unless it appears beyond
doubt that the complainant can prove no

set of facts in support of his claim

_

C-33
which would entitle him to relief.

Conley v. Gibson, 355 U.S. 41, 45, 78 S.

Ct. 99, 102, 2 L. Ed.2d 80 (1957).
Furthermore, for the purposes of a motion
to dismiss made pursuant to Rule 12(b) (6)
of the Federal Rules of Civil Procedure,
this Court accepts as true all of the
facts alleged by the complainant. United
Independent Flight Officers, Inc. v.

United Air Lines, 756 F.2d 1262, 1264
(7th Cir. 1985).

The general rule is that an
antitrust litigant can petition or
attempt to influence governmental action
with complete immunity from the antitrust
laws because of the First Amendment. See
Eastern Railroad Presidents Conference v.
Noerr Motor Freight, Inc., 365 U.S. 127,
81S. Ct. 523, 5 L. Ed.2d 464 (1961).

This doctrine applies to adjudicatory

proceedings. See California Motor

C-34

Transport Co. v. Trucking Unlimited, 404

U.S. 508, 92 S. Ct. 609, 30 L. Ed.2d 642
(1972). Such petitioning, however, is
not protected if the petitioning is
merely used as a "sham" to harass the
defendant (the "sham exception"). Id.
The Seventh Circuit has determined that
the filing of a single lawsuit may
constitute such a sham, thereby
subjecting the complainant to antitrust

liability. M.C.I. Communications v.

A.T.&T. Co., 708 F.2d 1081, 1153-55 (7th

Cir. 1983).

In that case, the Seventh Circuit
recognized the following definition of a
sham litigation:

Without a doubt, the intention
tc harm a competitor is not
sufficient to make litigation or
administrative proceedings a shan.
That anticompetitive motive is the
very matter protected under Noerr-
Pennington. Rather, the requisite
motive for the sham exception is the
intent to harm one's competitors not
by the result of the litigation but

C-35

by the simple fact of the
institution of litigation.

A.T.&T., 708 F.2d at 1156 (quoting

Gainsville v. Florida Power & Light Co.,

488 F. Supp. 1258 (S.D. Fla. 1980).

Thus, this Court is unable to conclude
that Rose Acre cannot prove any set of
facts to support its counterclaim. Asa
result, the plaintiffs' motion to dismiss
Rose Acre's counterclaim is denied.

—- Motion to Reconsider
Magistrate's Ruling

A pretrial conference in this case
was held before Magistrate J. Patrick
Endsley on November 4, 1981. A paragraph
of the order issued at that conference
provided "[p)laintiffs will produce
documents relating to the sale and
purchase of eggs where these documents
are relevant to damages. The production

of these documents relating to cost of

production will be deferred until the

C-36
Court's ruling on the motion to strike."
The motion to strike subsequently became
moot, and the defendant then filed a
motion to reconsider the Magistrate's
ruling.

Initially, the Court notes that
Magistrate Endsley's decision to defer
the costs of production until the motion
to strike was resolved was neither
clearly erroneous nor contrary to the
law. Moreover, because the purpose of
the deferral no longer persists, and
because the plaintiffs' cost of
production is relevant to the claim (and
perhaps the counterclaim as well), the
plaintiffs are ordered to produce their
costs of production for the relevant time
period. The Court further orders that
the plaintiffs will have seventy-five
(75) days from the date of this Order

within which to respond.

C-37

D. Motion to Compel Production

The plaintiffs plan to use an
expert, Dr. Wiliard Mueller, during the
trial of this case. In preparation for
trial, the plaintiffs gave Dr. Mueller
various documents for his review. The
defendant filed a motion, pursuant to
Rule 37 ci the Federal Rules of Civil
Procedure, to compel the production of
such documents.

This Court, having reviewed the
memoranda and documents filed both in
support and in opposition of the motion,
now concludes that the documents in
question fall within the work-product
privilege of Rule 26(b)(3) and (4). Fed.
R. Civ. P. 26(b). The Court holds that
the defendant has not made a sufficient
showing to justify the discovery of the

relevant materials.

E. Plaintiffs! Motion for
A Procedural Order

C-38 :

The plaintiffs requested this Court
to issue a novel procedural order
pertaining to certain portions of the
defendant's cost data. The plaintiffs
allege that certain critical cost data of
the defendant has been withheld from
them. The plaintiffs asked this Court to
postpone its decision on the summary
judgment issue until the plaintiffs
obtained the cost data. Rose Acre
contended (a) that it was willing to
provide the relevant documents, (b) that
it had made such documents available for
quite some time, and (c) that the
plaintiffs could glean the requested
information from other documents.

Because the Court is denying the
defendant's motion for summary judgment,
the plaintiffs' motion for a procedural
order to postpone summary judgment is

mooted and therefore dismissed.

C-39
Furthermore, because the motion has not
been updated for quite some time and the
parties disagree as to whether the
disputed documents are available, the
Court rules as follows. If the
plaintiffs' dissatisfaction with the
discovery of the cost data and related
items continues, then appropriate motions
for discovery should be filed with this
Court. The motions should update the
Court on the present status of discovery,
as well as setting forth the reasons why
the discovery should or should not occur.

F. Motion for Attorney's Fees

The defendant filed a motion for
attorney's fees pursuant to Rule 11 of
the Federal Rules of Civil Procedure in
response to the plaintiffs' motion for a
procedural order. The defendant contends
that the plaintiffs' motion for a

procedural order "was based on totally

C-40
groundless charges." In reviewing the
motions and the memoranda pertaining
thereto, this Court concludes that the
plaintiffs' motion possessed sufficient
merit to withstand a request for
attorney's fees.

III. CONCLUSION

For the reasons stated above, the
defendant's motion for summary judgment
is denied; the plaintiff's motion to
dismiss the defendant's counterclaim is
denied; the defendant's motion to
reconsider the Magistrate's ruling is
granted; the defendant's motion to compel
the production of documents is denied;
the plaintiffs' motion to obtain a
procedural order is dismissed as moot
with instructions; and the defendant's

motion for attorney's fees is denied.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_0881%3A1. Public record. Not legal advice.