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From Antitrust Law Daily, August 15, 2018

Antitrust claims against grocery wholesaler fail where expert testimony was unreliable

By Nicole D. Prysby, J.D.

A grocery retailer produced failed to offer support for its claim that a wholesaler asset exchange agreement caused it to pay higher prices, and therefore its antitrust action could not go forward. The federal district court in Minneapolis granted wholesaler SuperValu, Inc.’s motion for summary judgment (In re Wholesale Grocery Products Antitrust Litigation, August 14, 2018, Montgomery, A.).

The retailer’s case relied on an expert whose methodology was not validated and failed to separate lawful from unlawful conduct; therefore his opinions were excluded. Grocery retailer Village Market sued grocery wholesalers SuperValu, Inc. and C&S Wholesale Grocers, Inc. for conspiring to allocate markets and customers through an asset exchange agreement (AEA). Village Market claimed that it paid higher prices because C&S no longer had to engage in price competition in New England. Village Market sought to introduce testimony from its expert, who used a "competitive benchmark" methodology (using another chain, Stop & Shop) to measure the impact of the AEA on Village Market’s prices. The expert concluded that although Village Market’s delivery costs declined after the AEA, its costs would have declined even further but for the AEA. The court held that the expert’s testimony was unvalidated because he did not establish that the prices paid by Village Market and Stop & Shop were correlated in any way before the AEA. His analysis was also unreliable because it did not control for non-conspiratorial factors, such as a volume pricing discount Stop & Shop received from C&S. With the expert’s testimony excluded, the court held that Village Market produced no admissible evidence from which a reasonable jury could infer that its reduced rates would have been even lower, but for the AEA and therefore, its claims could not go forward.

Several retailers sued grocery wholesalers SuperValu, Inc. and C&S Wholesale Grocers, Inc. for conspiring to allocate markets and customers through an AEA. SuperValu’s business is primarily in the Midwest, and C&S’s business is largely concentrated in New England. Through the AEA, SuperValu sold its New England wholesale grocery operations to C&S, and C&S sold wholesale grocery operations it had recently acquired in the Midwest to SuperValu.

A number of the claims in the case settled; the sole remaining claim was Village Market’s antitrust claim against SuperValu. Prior to the AEA, Village Market used SuperValu as its wholesale grocery supplier. In 2003, Village Market’s accounts were acquired by C&S pursuant to the AEA. Village Market alleged that it then had to pay higher prices because C&S no longer had to engage in price competition in New England with SuperValu. An arbitration agreement prevented Village Market from litigating claims against C&S, therefore Village Market’s claim was asserted only against SuperValu.

The motions at issue relate to prices C&S charged its retail customers for grocery delivery. Village Market retained an expert who used a "competitive benchmark" methodology (using another chain, Stop & Shop) to measure the impact of the AEA on Village Market’s prices and concluded that although Village Market’s delivery costs declined after the AEA, its costs would have declined even further but for the AEA. SuperValu motioned to exclude the expert’s testimony and for summary judgment.

Expert testimony. SuperValu claimed the expert’s testimony was unreliable because (1) it was founded on the unvalidated assumption that in competitive markets, independent retailers’ prices would follow the same trajectory as Stop & Shop’s and (2) it failed to account for nonconspiratorial factors that may have affected Stop & Shop’s fee decline after the AEA.

The court agreed on the first criticism, because the expert had not established that the prices paid by independent grocers and Stop & Shop were correlated in any way before the AEA or in geographic areas unaffected by the AEA. In fact, some of the expert’s analysis of pre-AEA pricing trends showed that independent retailer prices differed from prices of Stop & Shop. His testimony was also inconsistent; he stated that he used data from Connecticut to validate his model, but later stated that Connecticut was not a good benchmark.

The court also found the analysis to be unreliable because it did not control for non-conspiratorial factors. The expert did not analyze what factors caused Stop & Shop’s post-AEA costs to decline below what they paid during the pre-AEA period, and therefore could not exclude lawful factors unique to Stop & Shop. For example, Stop & Shop received some price reductions from C&S under a contract in which it granted C&S the right to supply frozen foods for 200 stores in Mid-Atlantic States. Also, Stop & Shop paid a fixed cost per case delivery fee, so that when food prices went up because of inflation, its delivery costs remained fixed. Village Market and other independent grocers paid a percentage upcharge for delivery. Because the benchmark methodology was not validated and failed to separate lawful from unlawful conduct, the expert’s opinions were excluded.

Antitrust claim. The court held that Village Market failed to demonstrate antitrust injury caused by the AEA. Post-AEA, its contractual upcharge rates declined from the period before the AEA. It produced no admissible evidence from which a reasonable jury could infer that these reduced rates would have been even lower but for the AEA. Although there were minor fluctuations, the overall trend was downward. The court also rejected Village Market’s argument that C&S could have reduced its rates but did not do so until Village Market threatened to leave. Other wholesalers were capable of supplying Village Market and there was evidence that Village Market had leveraged that competition to demand lower prices from C&S.

The case is No. 0:09-md-02090-ADM-TNL.

Attorneys: Edward T. Dangel III (Dangel & Mattchen, LLP) for JFM Market, Inc. and MJF Market, Inc. Stephen P. Safranski, Lisa Beane, and Geoffrey H. Kozen (Robins Kaplan LLP) for Supervalu, Inc.

Companies: JFM Market, Inc.; MJF Market, Inc.; Supervalu, Inc.

MainStory: TopStory Antitrust MinnesotaNews

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