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From Antitrust Law Daily, May 21, 2014

Grocery wholesalers could have engaged in per se illegal conspiracy to divide markets

By Jeffrey May, J.D.

A small town, family-owned grocery store’s action against the nation’s two largest grocery wholesalers for conspiring to divide markets should be tried to a jury, the U.S. Court of Appeals in St. Louis has ruled. Summary judgment in favor of the wholesalers was reversed (In re: Wholesale Grocery Products Antitrust Litigation, May 21, 2014, Riley, W.).

This long-running dispute began when D&G, Inc., which operates the Gary’s Foods store in Mount Vernon, Iowa, filed a class action complaint in 2008 against SuperValu, Inc. and C&S Wholesale Grocers, Inc. for conspiring to allocate markets and customers. SuperValu and C&S are “full-line” wholesalers that purchase thousands of products directly from manufacturers and suppliers and then distribute them to retailers.

According to D&G, C&S and SuperValu entered into an asset exchange agreement in 2003 that included a non-compete provision with respect to former customers. The wholesalers were theoretically permitted to compete for the business of each other’s new and existing customers; however, D&G alleged that the defendants agreed not to compete with respect to new, former, or existing customers on geographic lines. In exchange for SuperValu’s promise not to compete in New England, C&S would supply only two large Midwest customers, it was alleged. D&G contended that its costs rose as a result of the agreement.

The case presented a factual dispute about the real terms of the wholesalers’ agreement, the appellate court explained. D&G had unsuccessfully argued that the undisputed evidence established a per se violation of the antitrust laws. Although D&G was not entitled to summary judgment on the per se violation question, the wholesalers were not entitled to a summary determination that their agreement deserved rule-of-reason scrutiny.

In granting summary judgment in favor of the wholesalers, the district court looked solely at the written terms of the wholesalers’ non-compete agreement. However, the plaintiff raised a fact question. Even though the written non-compete agreement permitted the wholesalers to compete in each other’s regions for new and existing customers, neither one actually did so.

“Perhaps there are aspiring monopolists foolish enough to reduce their entire anticompetitive agreement to writing, which would make the answer easy,” the appellate court noted. “But most would-be monopolists probably can be expected to display a bit more guile, jotting down only a few seemingly common terms while sealing their true anticompetitive agreement with a knowing nod and wink.”

It was up to a jury to decide whether the wholesalers’ real agreement involved dividing territory and customers along geographic lines. If a reasonable jury were to make this factual finding, then the wholesalers committed a per se antitrust violation, the appellate court explained.

Class certification. In light of the appellate court's holding that the wholesalers were not entitled to summary judgment, the lower court was directed to consider whether to certify a class of SuperValu customers who were charged according to a particular formula and supplied from a Champaign, Illinois, distribution center. The court suggested that there was evidence that fee inputs would be sufficiently standardized for this narrow class to permit classwide damage calculations.

Statute of limitations. Lastly, the Clayton Act’s four-year statute of limitations did not preclude D&G from recovering for inflated prices charged within the four years before its December 31, 2008, complaint. Even though the written agreement was adopted in 2003, the allegedly anticompetitive nature of the wholesalers’ agreement was not revealed until several years later, it was suggested.

The case is No. 13-1297.

Attorneys: W. Joseph Bruckner (Lockridge & Grindal) for D&G, Inc. Martin R. Lueck (Robins, Kaplan, Miller & Ciresi, LLP) for SuperValu, Inc. Charles A. Loughlin (Baker Botts LLP) for C&S Wholesale Grocers, Inc.

Companies: D&G, Inc.; SuperValu, Inc.; C&S Wholesale Grocers, Inc.

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