Antitrust Law Daily Wrap Up, ANTITRUST—WDWash: Contractual Bar on Building New Store Within the Same Region as Existing Store Did Not Constitute Unreasonable Restraint on Trade, (Jun 19, 2013)

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

A contract clause preventing a chain of sporting goods stores from opening a new store within the same region as a previously built store for a set period did not unreasonably restrain trade in violation of the public policy embodied in the prohibition on unreasonable restraints of trade in Washington’s Consumer Protection Act, the federal district court in Tacoma has ruled (Cabela’s Retail, Inc. v. Hawks Prairie Investment, LLC, June 18, 2013, Leighton, R.).

In 2006, Hawks Prairie Investment, LLC and sporting goods retailer Cabela’s Retail, Inc. entered into an agreement under which Hawks Prairie agreed to pay Cabela’s $5 million, transfer 27 acres of land to the retailer for $10, and begin construction of commercial space around the store by set intervals. In exchange, Cabela’s agreed to a radius restriction clause barring it from opening another Cabela’s store within Western Washington for five years from the date its store opened, among other things.

Cabela’s opened the store, and Hawks Prairie paid the $5 million. In April 2010, however, Hawks Prairie entered bankruptcy, and in a settlement transferred its property to a bank. Cabela’s filed a lawsuit seeking a declaratory judgment that the radius restriction clause was unenforceable, but six months before the restriction was to expire Cabela’s opened a new store within the restricted territory.

Among other arguments, Cabela’s contended that the radius restriction was an unreasonable restraint on trade due to its harm to “substantial job opportunities in a depressed area,” but did not cite statutory or case law support for that argument. The court observed that the only limits on restrictive covenants are those imposed by public policy, but that Washington’s Consumer Protection Act contained a policy against unreasonable restraints of trade that was “essentially identical” to Section 1 of the Sherman Act.

However, only “unreasonable” restraints on trade were barred, the court observed. Nothing indicated that the radius restriction constituted a per se unreasonable restraint, and thus the court would have to apply the rule of reason. Cabela’s had not defined the relevant product or geographic markets, and “the radius restriction [did] nothing to affect market power or prices.” Prices for outdoor goods would not be higher in the absence of Cabela’s new store. Moreover, the new store did not compete with its previous store, since both were owned by Cabela’s. Since the radius restriction would not affect prices, the court concluded that it was a reasonable restraint on trade.

The case is No. 11-cv-5973-RBL.

Attorneys: Bart J. Freedman (K&L Gates LLP) for Cabela’s Retail, Inc. Arnold Michael Willig (Hacker & Willig) for Hawks Prairie Investment LLC.

Companies: Cabela’s Retail, Inc.; Hawks Prairie Investment, LLC

Cases: Antitrust WashingtonNews