Antitrust Law Daily Wrap Up, ANTITRUST—DMinn: Grocery Wholesalers’ Asset Exchange Did Not Amount to Unlawful Restraint of Trade, (Jan 14, 2013)

By E. Darius Sturmer, J.D.

The nation’s two largest full-line grocery wholesalers—Minnesota-based SuperValu, Inc. and New Hampshire-based C&S Wholesale Grocers, Inc., each of which supplies thousands of grocery stores in a dozen or more states—did not engage in an unlawful allocation of markets or customers by entering into an asset exchange agreement involving the ceding of facilities in each other’s home territories, the federal district court in Minneapolis has ruled (In re Wholesale Grocery Products Antitrust Litigation, January 11, 2013, Montgomery, A.). Two complaining retail grocers were therefore not only denied summary judgment on their federal antitrust claims, but the wholesalers’ cross-motion for summary judgment was granted.

The asset exchange agreement (AEA) in question arose in the aftermath of a competing wholesaler’s bankruptcy in 2003. C&Sagreed to buy the wholesale grocery operations of that competitor, Fleming Companies, including its three distribution facilities in the Midwest. Shortly after that purchase, C&S and SuperValu began negotiating an asset transfer that ultimately amounted to a trade of the recently acquired Fleming assets—its Midwest operations—from C&S to SuperValu in exchange for SuperValu’s New England operations. The agreement also included non-compete provisions, which stipulated that neither company could compete for the customers it had just traded away to the other wholesaler for a specified period.

The plaintiffs—one of whom (D&G) operates a grocery store near Cedar Rapids, Iowa, while the other (DeLuca’s) runs two small specialty food and wine shops in Boston—contended that the apparent swap enabled each wholesaler to charge supracompetitive prices.

Motion to Defer

At the outset, the court disposed of a motion by D&G to defer consideration under Federal Rule of Civil Procedure 56(d), a rule that allows plaintiffs to defer defendants’ motions for summary judgment until the completion of adequate discovery. D&G argued that deferral was warranted to allow its expert witness more time to work on his analysis. The court disagreed, finding that the grocer failed to satisfy the requirements of Rule 56(d) because it did not show that the defendants withheld any information. The expert had had enough time to finish his report already, given that he had all the information he allegedly needed 19 months before D&G moved for deferral. “The time for discovery has been liberally granted and more time to devise new theories of the case is not the purpose of Rule 56(d),” according to the court.

Per se vs. Rule of Reason Analysis

An argument by the complaining grocers that the asset exchange agreement and non-compete provisions amounted to a per se unlawful antitrust violation was rejected by the court. It had already been decided in the same case two years ago that the non-compete provisions were not per se unlawful, in part because they did not entirely prohibit competition between C&S and SuperValu, the court noted, and no facts or law had changed that would affect the prior legal analysis of that matter, the court held.

The plaintiffs’ new wrinkle on the argument—that the entire AEA constituted a per se violation, notwithstanding the non-compete agreements—did not solve this problem. Since the AEA did not bar SuperValu and C&S from competing for customers not covered by the AEA, it did not make an exclusive market allocation; thus, it did not fall into an established per se category of conduct. The plaintiffs failed to offer any undisputed proof that the AEA was of a type that was presumptively anti-competitive. To the contrary, the defendants had offered evidence that the acquisition of distribution facilities was a precompetitive benefit to the transaction, allowing customers to be served more efficiently. Communications between the defendants regarding the closing of the distribution centers each was acquiring as part of the AEA could be plausibly read as part of negotiations about the value of the assets being exchanged, in the court’s view.

The defendants’ proffering of plausible, pro-competitive justifications for pursuing the AEA and non-compete provisions contained therein created “a factual dispute which preclude[d] a finding of presumptive anti-competition,” the court stated. “Accordingly, an abbreviated analysis of the AEA’s anti-competition impact under either the ‘per se’ or ‘quick look’ standard is inappropriate,” it concluded.

Relevant Market Analysis

Analyzing the claims under the rule of reason, the court found that neither D&G nor DeLuca’s had produced evidence sufficient to allow a reasonable jury to find in its favor on its Sherman Act claims.

The relevant market alleged by D&G was improperly defined because considered only the AEA’s affect on competition between SuperValu and C&S, rather than its effect on competition among all wholesale grocers in the Midwest. The evidence on record indicated that “wholesalers clearly had a competitive market with or without C&S” in the years following the defendants’ entry into the AEA. “Looking at the properly defined market—the area which consumers can practically seek alternative sources of the product—D&G did not present evidence for a reasonable jury to conclude that practical alternative wholesalers were not available in the Midwestern market,” the court remarked. Moreover, D&G did not submit evidence of detrimental effects on competition resulting from the AEA. The assumption that SuperValu and C&S, as the biggest wholesalers in the country, necessarily obtained the market power to charge supra-competitive prices after the AEA did not suffice for a finding of unreasonable restraint of trade or detrimental effects.

While DeLuca’s may have been injured by the failure of SuperValu or C&S to honor an upcharge rate that it had negotiated before the AEA was executed, this alleged injury amounted only a contract dispute. Even though DeLuca’s was unsatisfied with the upcharge rate and certain delivery problems, it brought forth no evidence that the prices it was given by its eventual supplier C&S were supra-competitive. The “[d]efendants, on the other hand, made undisputed claims that C&S offered lower prices and other financial instruments to prevent customers from jumping to competitors,” the court observed.

Without satisfaction of these requisite elements of a Sherman Act claim, summary judgment for the defendants was appropriate, the court concluded.

The case is Court File No. 09-MD-2090 ADM/AJB.

Richard B. Drubel (Boies Schiller & Flexner LLP) for the plaintiffs. Stephen P. Safranski (Robins, Kaplan, Miller & Ciresi, LLP) for SuperValu, Inc. Charles A. Loughlin (Baker Botts LLP) for C&S Wholesale Grocers, Inc.

Cases: Antitrust MinnesotaNews