Antitrust Law Daily Wrap Up, ANTITRUST—Cal. App.: Baked goods distributor fails to state Cartwright Act claim against Sara Lee, (Oct 8, 2013)

By Tobias J. Gillett, J.D., LL.M.

A distributor of Sara Lee baked goods failed to allege class action claims that Sara Lee and related companies violated California’s Cartwright Act by setting the prices at which she could sell the baked goods to chain stores, a California Court of Appeal has ruled (Alsheikh v. The Superior Court of Los Angeles County, October 7, 2013, Mosk, R.). However, the appellate court granted the distributor’s petition for a writ of mandate to the extent that she was permitted to amend her claims or add a new class representative.

Sylvia Ingoglia had agreements with Sara Lee Corp. to distribute Sara Lee’s baked goods in California. Sara Lee Fresh Inc. was Sara Lee’s alter ego; Earthgrains Distribution, LLC operated Sara Lee’s distribution system; and Grupo Bimbo S.A.B. De. C.V. assumed all of Sara Lee’s rights and obligations under the distribution agreements. Along with three other plaintiffs that later settled their claims, Ingoglia filed suit against Sara Lee and the other companies, alleging alternatively that she was an employee who had been denied wage and hour benefits, or that she was an independent contractor, and that the defendants had violated the state antitrust laws.

According to Ingoglia’s complaint, the defendants had negotiated agreements with chain stores concerning the prices of the defendants’ products that were sold to the stores by Ingoglia. Ingoglia alleged that that the distribution agreement required her to comply with the terms negotiated by the defendants, but the court noted that “[t]his was at odds with the actual terms of the distribution agreement allowing plaintiff to negotiate the price.” In addition, Ingoglia alleged that she was effectively “required to comply with the defendants’ price because she was provided computerized devices that were preprogrammed with the prices fixed between defendants and the chain stores.”

Ingoglia asserted that the defendants had violated California’s Cartwright Act by fixing the price at which she sold baked goods to chain stores and by imposing territorial and customer restrictions on her. She further claimed that these actions also constituted an unfair business practice in violation of California’s Unfair Competition Law (UCL), among other claims. The trial court sustained without leave to amend a demurrer to the Cartwright Act claim, and granted a motion to strike the UCL claim. The present decision addressed Ingoglia’s petition for a writ of mandate compelling the trial court to vacate the Cartwright Act and UCL portions of its order.

The appellate court concluded that Ingoglia did not sufficiently allege her price fixing claim. Although she claimed that the defendants had controlled the prices she could charge chain stores “by including provisions in the Distribution Agreements which require plaintiff and the class members to comply with the terms of the agreements reached between defendants and the chain stores,” Ingoglia’s distribution agreement expressly gave her the rights “to negotiate prices and terms directly with a chain” and to sell “products to the chain at whatever prices and terms [she could] negotiate.” Moreover, her further allegations that the defendants had controlled prices through “hand-held devices and computer systems that are pre-programmed with the prices fixed between defendants and the chain stores” were unsupported by any allegations “that those devices must be used, or how they are used, or that the prices in them cannot be altered.”

Therefore, Ingoglia did not allege facts sufficient to state a cause of action for vertical price fixing in violation of the Cartwright Act, according to the court. The court noted that vertical price fixing would be a per se violation under the Cartwright Act, regardless of its treatment under the Sherman Act. However, the court granted the petition for writ of mandate, but “only to allow plaintiff the opportunity to amend or add a new class representative.”

The case is No. B24982.

Attorneys: Mike Arias (Arias, Ozzello & Gignac), George A. Kaufman (Law Offices of George Kaufman), Gretchen M. Nelson (Kreindler & Kreindler), and Jonathan Weiss (Law offices of Jonathan Weiss) for Eddie Alsheikh. Donna Melby, Elizabeth Brown, Holly House, and Sean Unger (Paul Hastings LLP) for Sara Lee Fresh, Inc.

Companies: Sara Lee Corp.; Earthgrains Distribution, LLC; Grupo Bimbo S.A.B. De. C.V.

Cases: Antitrust FranchisingDistribution StateUnfairTradePractices CaliforniaNews