United States: "Individualized Proof Of Harm" Required In Robinson-Patman Secondary-Line Claim Prevents Class Certification

On April 7, 2017, the Northern District of California denied class certification to two proposed classes of wholesalers in ABC Distributing, Inc. v. Living Essentials LLC, Case No. 15-cv-02064 NC (N.D. Cal.), a secondary-line Robinson-Patman price discrimination case. Small wholesalers alleged that Living Essentials LLC (Living Essentials), maker of 5-Hour ENERGY® drinks, was giving preferential pricing for the supplement to larger wholesalers such as Costco. Judge Nathaniel Cousins held that the plaintiff wholesalers' class definitions were too vague and necessarily required proof of individualized harm for the proposed class, rendering class certification inappropriate.

The Lawsuit

ABC Distributing, Inc. (ABC) and Pittsburg Wholesale Grocers, Inc., among others, filed suit against Living Essentials and its holding company Innovation Ventures LLC in April 2015, in the Northern District of California. Each plaintiff is a Californian small wholesale food and sundry goods distribution company that provides products to various California shops, such as grocery stores. One of the many items that plaintiffs acquire for distribution is 5-Hour ENERGY drink, manufactured by Living Essentials. 5-Hour ENERGY drink is a liquid dietary supplement, sold in 1.93-ounce bottles. Living Essentials sells 5-Hour ENERGY drink in either a package of 12 bottles or a master case of 18 12-packs. In California, Living Essentials negotiates its sales of 5-Hour ENERGY drink through its distributor, Paramount.

As set forth in the second amended complaint, the plaintiffs alleged that their prices were being undercut by other wholesalers between 2011 and 2015. Upon request, these plaintiffs received a seven-cent-per-bottle "everyday" discount from Paramount. ABC later learned, in 2013, that Sam's Club (a larger wholesaler) was selling 5-Hour ENERGY drink for less than what ABC could buy it for from Paramount — one of ABC's customers even offered to resell the 5-Hour ENERGY drink to ABC, which it had purchased from Costco, because the customer purchased the product at such a favorable, lower price from Costco. Other wholesalers and retailers followed this trend in selling 5-Hour ENERGY drink for less than what the plaintiff-wholesalers could buy it for from Living Essentials.

The plaintiffs sued in April 2015, alleging that Living Essentials engaged in unlawful price discrimination under the Robinson-Patman Act. They alleged a secondary-line Robinson-Patman claim whereby the defendants discriminated against their competing resellers, the wholesalers, when selling 5-Hour ENERGY drink. Specifically, the bigger wholesalers (i.e., the Costcos of the world) allegedly were "favored" customers, whereas the smaller wholesalers (i.e., the plaintiffs) were "disfavored" customers, who paid more for the same products.

To succeed on a secondary-line Robinson-Patman claim, the plaintiffs needed to prove that (1) the relevant 5-Hour ENERGY drink was sold in interstate commerce, (2) the 5-Hour ENERGY drink sold to both favored and disfavored customers was of "like grade and quality," (3) the defendants "discriminate[d] in price between" the plaintiffs and other purchasers of 5-Hour ENERGY drink, and (4) "the effect of such discrimination may be . . . to injure, destroy, or prevent competition," to the advantage of those wholesalers who "receive[d] the benefit of such discrimination," i.e., the favored purchasers. (See Volvo Trucks N. Am., Inc. v. Reeder-Simco GMC, Inc., 546 U.S. 164, 176-77 (2006); 15 U.S.C. § 13(a).)

In response, the defendants moved to dismiss the first complaint, which was denied when the plaintiffs amended the complaint. The defendants then moved to dismiss the amended complaint, which the court denied on January 25, 2016, holding that the plaintiffs' allegations were sufficient to support a claim. Following their successful defense against a motion to dismiss, the plaintiffs sought class certification.

Class Certification

According to Rule 23(a) of the Federal Rules of Civil Procedure, to obtain the sought-after class certification, the plaintiffs needed to show that (1) the class was so numerous that joinder of all members would be impracticable, (2) there were questions of law or fact common to the class, (3) the claims or defenses of the representative parties were typical of the claims or defenses of the class, and (4) the representative parties would fairly and adequately protect the interests of the class.

The plaintiffs sought to certify two classes under Rule 23(b) of the Federal Rules of Civil Procedure, which allows for class certification in instances including where "the party opposing the class has acted or refused to act on grounds that apply generally to the class" (i.e., Rule 23(b)(2)) or when "questions of law or fact common to class members predominate" (i.e., Rule 23(b)(3)). The first class that the plaintiffs sought to certify under Rule 23(b)(3), the CBC Competitor Class, consisted of "All California wholesale businesses that purchased for resale, during the applicable limitations period, 5-Hour ENERGY drink through Living Essentials' broker Paramount Ventures, Inc., where such wholesaler received Living Essentials' $0.07/bottle 'Everyday Discount,' and were located in a zip code to which Costco Business Centers offered delivery." The second class was defined as the Costco Competitor Class, which the plaintiffs tried to certify under Rule 23(b)(2), as "All California wholesale businesses that purchased for re-sale, during the applicable limitations period, 5-Hour ENERGY drink through Living Essentials' broker Paramount Ventures, Inc., where such wholesalers received Living Essentials' $0.07/bottle 'Everyday Discount.'" The plaintiffs' expert estimated 82 and 114 members in each class, respectively.

The court determined that the plaintiffs satisfied only the first element of Rule 23(a): There were enough members of each proposed class to render joinder impracticable. However, the court further held that there could be no questions of law or fact common to the class: "Here, Plaintiffs' proposed classes both suffer from the same fatal flaw — a Robinson-Patman case is not well suited for class certification because its analysis is 'singularly individualistic.'" In reaching this conclusion, the court found analysis from a 2008 Central District of California, Mad Rhino, Inc. v. Best Buy Co., instructive. There, the court noted that a successful Robinson-Patman claim required a plaintiff to show that there was actual competition between favored and disfavored customers and that competition was harmed by the defendant's discriminatory practices. This proof, the Mad Rhino court held, was "singularly individualistic."

Agreeing with the Mad Rhino court's analysis, the ABC court held that class certification in ABC Distributing, Inc. was inappropriate for two reasons. First, the type of individual proof required for the plaintiffs to sustain the Robinson-Patman claims made the class definitions "impermissibly vague and confusing," and one that only the plaintiffs' expert, or "possibly Living Essentials," could identify; it would not be apparent to individual plaintiffs whether they qualified for the class. To be a part of the proposed class, one would have to be (1) disfavored by the defendants and (2) competing with a third-party favored competitor. Though the plaintiffs drew the court's attention to internal emails from Living Essentials, suggesting that Costco did, in fact, receive a pricing advantage on 5-Hour ENERGY drink, this was not enough. Instead, the court would have hoped to see "an internal pricing document where defendants clearly distinguished between two categories of wholesale customers."

Second, to succeed on their Robinson-Patman claims, the plaintiffs would have to show that each class member paid a higher price than Costco during the class period and that class members competed with Costco during that time period. The plaintiffs tried to use a class member's zip code as a sufficient basis to show whether it competed with Costco, but the court thought this was an "oversimplification" of the proof required in a Robinson-Patman case. Moreover, the proof would be individual to each plaintiff, because no plaintiff can be assumed to have competed with Costco based on location alone.

In short, because the plaintiffs' additional claims hinged on their price discrimination claim, the court held class certification was wholly inappropriate and denied the plaintiffs' motion. (The plaintiffs have stated they intend to appeal the decision to the Ninth Circuit.)

Conclusion

In its denial of class certification, the court did not signal that every second-line Robinson-Patman price discrimination claim is incapable of class certification. However, it followed a path that some courts have already taken to deny class certification to plaintiffs for Robinson-Patman claims because of the individualistic nature of proof involved. Worth noting, though, the court specifically stated that an "internal pricing document" indicating different treatment of wholesalers would have been a more convincing document to support the class definition. This suggests that businesses dealing with customers of varying sizes, which arguably compete on the same functional level for the same customers, should be mindful of the antitrust risks associated with their pricing practices for these customers in light of potential price discrimination claims.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions