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Feesers, Inc. v. Michael Foods

May 4, 2006

FEESERS, INC., PLAINTIFF,
v.
MICHAEL FOODS, INC. AND SODEXHO, INC., DEFENDANTS.



The opinion of the court was delivered by: Judge Sylvia H. Rambo

MEMORANDUM

Before the court are the following motions: 1) Plaintiff Feesers, Inc.'s Motion for Summary Judgment (Doc. 128); 2) Defendant Michael Foods, Inc.'s Motion for Summary Judgment (Doc. 116); and 3) Defendant Sodexho, Inc.'s Motion for Summary Judgment (Doc. 110). All of the motions have been briefed and are ready for disposition. For the following reasons, the court will deny Plaintiff's motion and grant Defendants' motions.

I. Background

The following facts are undisputed, except where noted.

A. The Parties

Plaintiff Feesers, Inc. (hereinafter "Feesers") is a full line (also called "broadline") food service distributor that carries over 13,000 products and maintains a client base in Pennsylvania, New Jersey, Maryland, Delaware, and Northern Virginia. The products consist of a full range of food and other products used by customers that prepare and serve food on their premises. Feesers' customers include institutions such as public and private elementary schools, college and university dining services, healthcare facilities (such as hospitals, nursing homes, and assisted-living facilities), corporate cafeterias, and restaurants and other customers that cook and serve prepared foods.

Defendant Michael Foods, Inc. (hereinafter "Michael Foods") is a manufacturer of egg and potato products, which the company packages and sells in bulk to wholesale food distributors throughout the United States. Defendant Sodexho, Inc. (hereinafter "Sodexho") is an international food service management company that operates and manages food service operations for other companies and institutions. In the course of providing such services, Sodexho contracts with broadline distributors to procure the required food and food-related products (e.g. paper goods, cleaning supplies, etc.).

B. The Food Service Industry

The court will not attempt to describe the food service industry in full detail, but will introduce some relevant aspects here. The food service industry encompasses all of the business forms that participate in providing institutional end users with the products and services required to maintain their food service operations. For example, some relevant end users here are institutions that provide prepared meals such as acute care facilities or nursing homes and corporations or universities that offer cafeterias or more commercialized dining options on site.*fn1

End users have a number of choices in determining both how they provide food services and how they get products from the manufacturers. One option is for end users to handle all aspects of their food service operations themselves. These end users are known as "self-operators," or "self-ops." Another option is to outsource all aspects of food service, including product procurement, preparation, sales, and staffing, to a foodservice management company like Sodexho. Even where end users contract with Sodexho or similar companies, they may still choose a variety of options with respect to specific staffing and sales arrangements.

Yet another option for end users is to remain a "self-op" but contract with a group purchasing organization, or "GPO," that negotiates various agreements with manufacturers and distributors then makes the terms of those agreements available to its clients. GPOs do not provide or otherwise arrange for food management services. Clients choose which entities they purchase from and place their own orders, but obtain any benefits of the agreements that the GPO has negotiated with the chosen vendor. Sodexho has a subsidiary, Entegra, that operates as a GPO.

Regardless of which business arrangement an end user chooses, manufacturers and distributors are required parts of the chain. Food and food-related products are produced and packaged by manufacturers which then sell in bulk to distributors. Neither food service management companies (like Sodexho) nor GPOs (like Entegra) warehouse or distribute food and food-related products themselves.

In the food service industry it is not uncommon for management companies to enter into "prime distributor agreements" with distributors. Feesers was the primary distributor for a food service management company called The Wood Company (hereinafter "Wood") for many years; Feesers' last such agreement with Wood covered the time period from January 1, 1998 until December 31, 2002 (hereinafter "the 1998 agreement"). In 2001, Sodexho acquired Wood and Feesers became a prime distributor for Sodexho under the terms of the 1998 agreement. Despite Feesers' efforts to extend this prime distributor relationship with Sodexho when the 1998 agreement terminated, Sodexho chose Sysco Corporation (hereinafter "Sysco") as its prime distributor in central Pennsylvania. However, Sodexho did not do so until 2003; Feesers continued to sell certain food and food-related products to Sodexho from 2002 (when the 1998 agreement expired) until 2003 (when Sodexho chose Sysco).

C. Pricing in the Food Service Industry

The most basic approach to pricing within the food service industry involves the manufacturers generating price lists that set forth the prices at which they sell food and food-related products to distributors. Distributors in turn sell to GPOs, food service management companies, and self-ops at the manufacturer list prices plus a percentage mark-up that reflects the distributors' costs in procuring and delivering the commodities; this is called "cost plus" pricing. However, the basic pricing arrangement is subject to a number of variations, including deviated prices or deviated bill-backs, rebates, and allowances. Distributors and food management service companies may avail themselves of any and all of these variations through agreements with manufacturers.

Sodexho has negotiated deviated pricing from Michael Foods. Michael Foods sells products to Sysco at list prices; however, Sodexho and Michael Foods have negotiated deviated pricing for all products that Sysco distributes to Sodexho.

Sysco provides Michael Foods with proof of delivery of products to Sodexho or Sodexho accounts*fn2 and then invoices Michael Foods for the difference between the list price and the negotiated deviated price. Sysco and Sodexho negotiate Sysco's cost plus pricing based on Sodexho's deviated pricing agreement with Michael Foods. Thus, although Sysco is not involved in the negotiation of the Michael Foods-Sodexho pricing agreement, Sysco's resale price of Michael Foods' products to Sodexho reflects that agreement.

Similarly, some of Feesers' customers have negotiated deviated billback programs with Michael Foods. Such arrangements result from negotiations between the Feesers customer and Michael Foods, and Feesers, like Sysco with respect to its Sodexho sales, provides proof of sales to Michael Foods and invoices the manufacturer for the difference. In addition, in October 2003, Michael Foods offered to provide Feesers with Sodexho-equivalent deviated pricing on Michael Foods products that Feesers attempts to sell to any existing Sodexho customer, as well as for any potential customer that is considering proposals from both Feesers and Sodexho.

Another pricing variation is the direct rebate. A rebate is determined in much the same way as deviated billing. However, the management company pays a rebate directly to the food service management company, or whichever entity negotiated the below list pricing. Rebates are not funneled through a distributor. In addition to deviated pricing and rebates, entities within the food service industry also frequently receive allowances based upon marketing and earned income programs where various allowances and rebates are earned based on purchases from manufacturers.*fn3 Marketing allowances, however, are not considered "pure" discounts because manufacturers provide them in return for reciprocal promotion or marketing of the manufacturer's brand of products. Distributors are expected to use the allowances to support these promotional activities and, therefore, rarely pass the allowances on to their customers.

The parties do not dispute that the pricing arrangement between Michael Foods and Feesers is different from the one governing the relationships among Michael Foods, Sysco, and Sodexho. Pricing agreements, be they deviated bill-backs, rebates, or allowances are negotiated on a case-by-case basis by the parties involved. As a result, it is not uncommon for different entities to receive different pricing arrangements. Both Feesers and Sodexho participate in various allowance programs in order to receive allowances from Michael Foods. Feesers is also a member of UniPro Food Services, Inc. (hereinafter "UniPro"), a food distributor consortium that negotiates allowances from Michael Foods for all of its members, including Feesers. However, the product prices that Feesers used as a basis for comparison in the instant matter do not reflect any such rebates or allowances,*fn4 and the parties agree that neither company is obligated to pass on such allowances to their customers. Rather, the Feesers prices used here are the list prices that Michael Foods provides to all distributors and the Sysco-Sodexho prices used reflect only the deviated pricing arrangement between Michael Foods and Sodexho, not any additional allowances.*fn5

D. Procedural History

On March 17, 2004, Feesers filed a two-count complaint against Michael Foods and Sodexho. In Count I, Feesers alleged that Michael Foods violated section 2(a) of the Robinson-Patman Act, 15 U.S.C. § 13(a), by selling goods to Sodexho at more favorable prices than those made available to Feesers. In Count II, Feesers alleged that Sodexho violated section 2(f) of the Robinson-Patman Act, 15 U.S.C. § 13(f), by improperly inducing Michael Foods to engage in price discrimination. Defendant Sodexho filed a motion to dismiss on May 12, 2004, which the court denied on October 27, 2004.

On May 19, 2005, Michael Foods filed a motion for summary judgment, which was subsequently continued and ultimately terminated by Michael Foods on October 13, 2005. The instant summary judgment motions were filed by Plaintiff Feesers and Defendants Michael Foods and Sodexho on November 17, 2005. On March 29, 2006, the ...


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