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Feesers, Inc. v. Michael Foods

May 26, 2009

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 is Feesers' motion to find Michael Foods in contempt of this court's April 27, 2009 order, and for permanent injunctive relief. For the reasons that follow, the motion will be granted.

I. Background

A. Procedural History

On May 5, 2009, Feesers filed a motion to find Michael Foods in contempt, and for temporary and permanent injunctive relief barring Michael Foods from refusing to do business with Feesers. (Doc. 397.) A supporting brief, (Doc. 400), and declarations by Eamon O'Kelly, (Doc. 398), and John Tighe (Doc. 399) were filed the same day. On May 11, 2009, Michael Foods filed a brief in opposition (Doc. 409), which was supported by a declaration by Michael Elliott (Doc. 410). Feesers filed a reply brief on May 13, 2009 (Doc. 418) supported by a declaration by Thomas Brandt (Doc. 417). Michael Foods has sought leave to file a surreply (Doc. 420), which the court now grants. On May 15, 2009, the court held a hearing on Feesers' motion for contempt and permanent injunctive relief, at which both parties were represented by counsel and presented the testimony of a number of witnesses.*fn1 Accordingly, the motion is ripe for disposition.

B. Factual Findings*fn2

On April 27, 2009, following five years of litigation and a three week bench trial, this court found that Defendant Michael Foods violated the RobinsonPatman Act by selling its products to Defendant Sodexho at lower prices than its competitor, Plaintiff Feesers. The court granted injunctive relief to Feesers and enjoined Michael Foods "from discriminating unlawfully in price in favor of Sodexho and against Feesers." (Apr. 27, 2009 Order, Doc. 395 at 84.) Rather than seek a stay of that order pending appeal pursuant to Federal Rule of Civil Procedure 62(c), Michael Foods chose to terminate its direct sales to Feesers effective immediately, including orders already in transit, unless Feesers agreed to pay the national list price for Michael Foods products pending appeal. (See Contempt Hrg. Exs. P3, P4.) Under duress, Feesers signed the agreement, and an order of food that had been delayed was released and shipped on May 4, 2009. However, upon notice that Feesers was filing the instant motion, Michael Foods terminated its direct sales to Feesers at any price. As a result, Feesers was unable to completely fill a number of customer orders for Michael Foods products. (See Ex. P5 (listing shortages in customer deliveries).)

Michael Foods also sent letters to four of Feesers' largest customers informing them that it would no longer directly supply Michael Foods products to Feesers, and providing a list of other competing distributors from whom they could obtain Michael Foods products. (Contempt Hrg. Ex. P8.) Additionally, Michael Foods wrote to UniPro, a group purchasing organization of which Feesers is a member, to inform it that going forward Michael Foods would refuse to honor any discounts or rebates for products resold to Feesers.*fn3 (Contempt Hrg. Ex. P6.) Finally, in anticipation of the fact that Feesers would purchase its products through a third party, Michael Foods also wrote to Dot Foods, a redistributor, to inform it that Michael Foods would honor no deviations or discounts on Michael Foods products resold to Feesers. (Contempt Hrg. Ex. P7.)

Feesers employee John Tighe testified that Feesers has obtained some Michael Foods products from Dot Foods, which purchases Michael Foods products at the national distributor list price, the same price that Feesers previously paid when it purchased products from Michael Foods. Dot Foods then resells the products to Feesers at a higher price than the national list price. However, as it promised in its letter to Dot Foods, Michael Foods refuses to honor any rebates or allowances on its products resold to Feesers. This includes not only the rebates Feesers would otherwise be entitled to as a member of UniPro, but also customer-specific deviated prices which were separately negotiated between Michael Foods and certain institutional food service customers. Thus, in order to obtain Michael Foods products, Feesers must now pay more than the national list price paid by other distributors-the very price that the court found to violate the Robinson-Patman Act-and it can no longer obtain UniPro rebates and customer-specific deviated pricing. Tighe testified that for the time being Feesers is honoring customer-specific price deviations in its resales of Michael Foods products to customers by selling these products at a loss. However, this practice is financially unsustainable for Feesers in the long term.

The court also heard testimony about the impact of the loss of Michael Foods products on Feesers' business. Tighe testified that although Michael Foods products constitute only a small portion of Feesers' sales to any one customer, they are nonetheless important to customers. Michael Foods is one of the nation's leading suppliers of egg and potato products. Its products are often included in market baskets demanded by customers to determine product availability of potential suppliers. Additionally, many of Feesers' customers negotiate agreements with Michael Foods for discounts on their products. Michael Foods presented testimony that customers may obtain similar egg and potato products from Michael Foods' competitors such as Sunnyfresh, and Cargill Kitchen Solutions, which Feesers also carries. However, due to the factors cited above, there is a significant risk that Feesers' customers will choose to purchase Michael Foods products from Feesers' competitors rather than switch products. Indeed, in its letters to four of Feesers' customers informing them that Michael Foods had terminated its relationship with Feesers, Michael Foods attached a list of distributors from whom the customers could still obtain Michael Foods products. For these reasons, the court finds that Michael Foods' termination of sales to Feesers will likely result in lost sales and customers for Feesers.

Michael Foods employee Michael Elliott testified at the hearing about Michael Foods' decision to terminate its direct sales to Feesers. According to Elliott, Michael Foods believed it had four options available to comply with the court's order: (1) offer the Sodexho price to Feesers; (2) offer the national distributor list price to Sodexho; (3) lower the national list price for all distributors; or (4) terminate its business with Feesers. Michael Foods found the first option unappealing because it believed that due to contracts with other distributors, it would be forced to provide lower pricing to other distributors if it offered such prices to Feesers. This would result in lower profits to Michael Foods. Michael Foods rejected the second option because it believed that raising Sodexho's prices would cause Sodexho to purchase its egg and potato products from a competitor. Michael Foods also considered lowering the national list price, but decided against it after estimating that it would cost over $20 million to do so. (May 15, 2009 Hrg. Transcript at 121:12--15.)

Ultimately Michael Foods chose to terminate its direct sales to Feesers. Although Michael Foods has done business with Feesers for many years, Feesers has no supply contract with Michael Foods, nor does it have a standing order. However, as noted above, Michael Foods remains willing to sell its products to Feesers, albeit at the unlawful higher prices. Additionally, Michael Foods continues to sell products to Feesers through a third-party redistributor, and refuses to honor any discounts or price deviations to Feesers, thereby ensuring that Feesers could get Michael Foods products only at unlawfully higher prices. Thus, Michael Foods' decision to terminate business with Feesers was solely motivated by Michael Foods' desire to avoid changing its pricing system to comply with the court's order. Michael Foods has no other business reason for terminating its relationship with Feesers, and it would resume doing business with Feesers if Michael Foods prevails in its appeal of the court's April 27, 2009 decision.

In sum, Michael Foods' conduct following this court's April 27, 2009 opinion and order has placed Feesers in a far worse position than it would have been in had it never sought to vindicate its rights under the Robinson-Patman Act. Sodexho continues to enjoy lower prices on Michael Foods products, and Feesers is ...


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