On Appeal from the United States District Court for the Middle District of Pennsylvania District Court No. 04-cv-00576 District Judge: The Honorable Sylvia H. Rambo.
The opinion of the court was delivered by: Smith, Circuit Judge.
Before: SMITH, FISHER, and NYGAARD, Circuit Judges.
This appeal by Feesers, Inc. ("Feesers"), a food distributor, arises out of a Robinson-Patman Act claim for unlawful price discrimination, 15 U.S.C. § 13 (the "RPA"), against Michael Foods, Inc. ("Michaels"), a food manufacturer, and Sodexo, Inc. ("Sodexo"),*fn1 a food service management company. Feesers claims that Sodexo was able to purchase egg and potato products from Michaels at a discounted price that was unavailable to Feesers. Following a bench trial, the District Court entered judgment for Feesers. We will vacate that judgment and instruct the District Court to enter judgment as a matter of law for Michaels and Sodexo. Feesers and Sodexo were not competing purchasers, and, therefore, Feesers cannot satisfy the competitive injury requirement of a prima facie case of price discrimination under § 2(a) of the RPA.*fn2 In doing so, we hold that, in a secondary-line price discrimination case, parties competing in a bid market cannot be competing purchasers where the competition for sales to prospective customers occurs before the sale of the product for which the RPA violation is alleged.
When reviewing a judgment entered after a bench trial, we exercise "plenary review over [the] [D]istrict [C]ourt's conclusions of law" and its "choice and interpretation of legal precepts." Am. Soc'y for Testing & Materials v. Corrpro Cos., 478 F.3d 557, 566 (3d Cir. 2007) (internal quotations omitted). Findings of fact are reviewed for clear error. Id. The District Court had subject matter jurisdiction over this case under 28 U.S.C. § 1331, and we exercise appellate jurisdiction under 28 U.S.C. § 1291.
Michaels and Sodexo raise a host of issues in this appeal, but in light of this Court's decision in Toledo Mack Sales & Service, Inc. v. Mack Trucks, Inc., 530 F.3d 204 (3d Cir. 2008), and the Supreme Court's decision in Volvo Trucks North America, Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164 (2006), we need address only the issue of whether Sodexo and Feesers were "competing purchasers" for purposes of the RPA. Feesers, Inc. v. Michael Foods, Inc., 498 F.3d 206, 213 (3d Cir. 2007) (quoting Falls City Indus. v. Vanco Beverage, 460 U.S. 428, 435 (1983)).*fn3
The following facts were found by the District Court after a bench trial. Feesers, Inc. v. Michael Foods, Inc., 632 F. Supp. 2d 414, 418 (M.D. Pa. 2009).
Structure of the Food Service Industry
The food service industry consists of a three-tier distribution system: manufacturers sell products to distributors, who resell those products to operators, including self-operators ("self-ops") and food service management companies. Id. at 420-21. Self-ops are institutions that perform all dining services internally. Food service management companies perform institutions' dining services for a fee, id., and primarily target schools, hospitals, and nursing homes. Sometimes operators negotiate with manufacturers for discounted prices, known as "deviated prices." Id. at 432. In those instances, the distributor purchases the product at list price from the manufacturer, sells the product to the operator at the deviated price, and receives the difference between the list price and the deviated price from the manufacturer. Id. An operator may also seek discounts from manufacturers by joining a Group Purchasing Organization ("GPO"). A GPO is a collection of operators who negotiate food prices collectively to achieve greater bargaining power against manufacturers and distributors. Id. at 421. "GPOs generally bargain for a lower price, but do not actually purchase the food for resale to institutions." Id.
The Parties in this Appeal
Michaels is a manufacturer of egg and potato products that sells in bulk, nationwide. Id. It is the largest producer of liquid eggs in the United States. Id. Feesers is a regional distributor that distributes Michaels's products, and others, to operators within a 200-mile radius of Harrisburg, Pennsylvania. Id. Sodexo is a multinational food service management company that serves institutions around the world. Id. Its services include planning menus, ordering food, preparing and serving meals, and overseeing labor issues. It is the largest private purchaser of food in the world. Id. Sodexo owns Entegra, a GPO. Id. at 427.
Michaels's Pricing of Food Products
Michaels sells sixty percent of its products at deviated prices. Id. at 432. It has offered deviated pricing to self-ops since the mid-1990s and to food service management companies, like Sodexo, since at least 1999. "[O]n average from 2000 until 2004, Feesers paid $9.56, or 59% more than [Sodexo] for [Michaels's] eleven top selling products." Id. at 434. This pricing difference was described as "stunning" by Feesers's expert witness. Id. The deviated pricing Sodexo received from Michaels was not institution-specific, so Sodexo could "use its low deviated price . . . to win new accounts and to keep current customers." Id. at 432.
Competition between Feesers and Sodexo
Feesers sells food to self-op institutions and food service management companies.*fn4 Id. at 421-22. Sodexo sells food in conjunction with its food service management services. Id. at 422. Institutional customers "regularly switch [between] self-op [and] management," and at least three institutions have switched between Feesers and Sodexo. Id.*fn5 Both companies regularly seek self-op business. Id. Feesers tries to distribute for self-ops while Sodexo tries to convert self-ops to food service management.
When a self-op switches to Sodexo, it relies on Sodexo to handle all dining services functions, such as procurement and distribution of food. Id. Sodexo itself is not a distributor, but it decides which distributors its customers will use. Id. Thus, when an institution switches from self-op to Sodexo, the incumbent distributor who distributed for the self-op may be replaced. Id. Because Feesers could be displaced by Sodexo's chosen distributor if Sodexo wins a self-op's business, the two companies compete "when a customer considers switching from self-op to food service management, or vice versa." Id. at 430.*fn6 Accordingly, Feesers and Sodexo "compete[d] for the same portion of an institution's food service budget." Id. at 420.
Competition between Feesers and Sodexo occurred informally prior to the request for proposal ("RFP") process ordinarily required by large institutions.*fn7 Id. at 428. To grow its client base, Sodexo identifies institutions that meet its client profile and then builds relationships with those institutions. Id. at 428-29. During informal contacts with a prospective institutional customer, Sodexo "gauges the institution's interest in management and determines whether there are any particular problems to be solved." Id. at 428. If the institution is interested in management, it will then put out a RFP and Sodexo will follow through in that process. Id. Aside from seeking new clients, Sodexo also touts its access to discounted foods to its existing customers that utilize it for preparation and ordering of food, but not for distribution. Id. at 429. This is done, in part, to encourage those customers to switch to Sodexo's chosen distributor. Id.*fn8
On March 17, 2004, Feesers sought a declaratory judgment stating that (1) Michaels unlawfully discriminated in price under § 2(a) of the RPA by selling egg and potato products to Sodexo at significantly lower prices than it did to Feesers and (2) Sodexo violated § 2(f) of the RPA by knowingly inducing those discriminatory sales. 15 U.S.C. § 13(a) and (f). Feesers also sought permanent injunctive relief under § 16 of the Clayton Act. 15 U.S.C. § 26. On May 4, 2006, the District Court granted summary judgment for the defendants, concluding that Feesers had satisfied the first three elements of a prima facie case of price discrimination, but not the fourth element, competitive injury. "The District Court was concerned that [Sodexo] and Feesers [we]re not at the same 'functional level' and [we]re therefore not in 'actual competition' in the same market." Feesers, Inc., 498 F.3d at 214.
Feesers appealed and this Court reversed.*fn9 We held that the District Court had applied the wrong standard in concluding that Feesers and Sodexo were not in competition. Id. at 208. The panel explained the proper standard and remanded the case to the District Court for further proceedings.*fn10
On remand, after a bench trial, the District Court entered judgment for Feesers and enjoined Michaels from engaging in unlawful price discrimination. Michaels then suspended all sales to Feesers. In response, Feesers sought an order of contempt and a permanent injunction forbidding Michaels from refusing to deal with Feesers. On May 26, 2009, the District Court held Michaels in contempt and enjoined it from refusing to "sell its products to Feesers on the same terms as they are sold to [Sodexo], so long as Feesers ...