United States: Cross Subsidization For Purpose Of Enhanced Grocery Sales Through Alleged Below Cost Gasoline Discounts Found Not To Violate California Unfair Practices Act

Injury to competing retail fuel stations is non-actionable where market conditions demonstrate that an "incipient antitrust violation" is not imminent. Dixon Gas Club LLC v. Safeway Inc., Case No. A139283 (Court of Appeal 1st Dist. July 20, 2015) (not for publication).

Dixon Gas Club LLC brought an action against defendant Safeway Inc. under the California Unfair Practices Act and Unfair Competition Law. To enhance its supermarket grocery sales, Safeway granted its grocery customers discounts at retail service stations with whom it had discount contracts. It thus rewarded purchasers of its grocery products with cents-off on their fuel purchases. The discount resulted in fuel sales to grocery customers that were below "total cost." The trial court dismissed the claims and the Court of Appeal (First Appellate District) affirmed, in a not-for-publication opinion.

Plaintiff Dixon filed an action alleging violations of California Business and Professions Code sections 17043 and 17045. Section 17043 provides, in relevant part:

It is unlawful for any person engaged in business within this State to sell any article or product at less than the cost thereof to such a vendor, or to give away any article or product, for the purpose of injuring competitors or destroying competition.

Section 17044 provides in relevant part:

It is unlawful for any person engaged in business within this State to sell or use any article or product as a "loss leader" as defined in . . . this chapter.

Dixon's complaint also alleged violations of the California Unfair Competition Law (UCL), Business and Professions Code Section 17200.

Much has been written as to the legislative and judicial history of the UCL. Most commentators have argued that it is designed to protect both consumers and businesses from "unlawful, unfair or fraudulent business acts or practices and unfair, deceptive, untrue or misleading advertising." The UCL is expansive in its application, as intentionally framed in its broad, sweeping language, precisely to enable judicial tribunals to address the innumerable "new schemes which the fertility of man's invention would contrive". 1 Its purpose has been said to protect consumers and competitors by promoting fair competition in markets for goods and services, extending to the entire consuming public protection traditionally afforded only to business competitors.2 As a strict liability statute, it has not been necessary under the UCL to show that a defendant "intended" to injure anyone.3The UCL was added to the California Business and Professions Code in 1997, to immediately follow the Unfair Practices Act. The California Supreme Court has stated that the UCL's intended breadth was such that (at least through its earliest years) "whenever the legislature has acted to amend the UCL, it has done so only to expand its scope, never to narrow it.4
However, a good argument can be made that by embracing more modern economic theory of the purpose of antitrust law to prevent against monopolistic practices that would raise price and reduce output, and thus retransfer economic rents from consumers to producers, the California courts may have subverted or at least sidetracked this "purpose". Thus, the California Supreme Court, in Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co.5 may have turned the statute on its head, and turned its back on disadvantaged consumers and smaller, and arguably less efficient, competitors. An "incipient violation of an Antitrust law" is a sine qua non to a finding of Section 17200 "unfairness".

After a bench trial, the Dixon trial court dismissed the action. It held that there was no evidence that the "purpose" rather than the "intent" of Safeway was to injure competitors and destroy competition. Absent such a "purpose", it was immaterial that it would seem intuitive that the granting of fuel saving discounts to customers of Safeway's food markets would tend to cannibalize fuel sales that would otherwise have gone to smaller competing retail service stations in the area. This was of no moment, as the court found that the "purpose" of Safeway's discount fuel program was to enhance its sales of groceries. It did not matter that the cross-subsidization would "injure" smaller competitors in the retail fuel service station market, where the "purpose"of Safeway's below cost selling was to enhance its grocery business.6 The court was careful to note that during the relevant time period, there were at least eleven, if not more, retail fuel stations operating in the same general area. In essence, it found that the relevant market was competitive, that barriers to entry were low, and that there had been a history of actual entry. In addition, other competing supermarkets had comparable promotions in place with contract fuel stations. Internal Safeway documents, verified by Safeway witnesses, referenced that the "goal" or "purpose" of Safeway's fuel business program was to "help maximize traffic in the main store, not necessarily to maximize revenue per gallon of gas sold." Thus, as the "purpose" was to maximize profits for its core business, and not to injure competitors or competition, the seemingly intuitive result that smaller marginal competitors would necessarily be injured through the loss of sales opportunities and actual sales was immaterial. "Purpose" means "purpose", and does not mean "intent".

Next, the Court had to determine whether, notwithstanding that Safeway could not be held liable for practices under either Section 17043 or 17044, it had nevertheless engaged in a practice that was "unfair" within the meaning of the UCL. The court held that anecdotal evidence that Safeway's below-cost sales harmed its smaller fuel station "competitors" was not evidence of the species of competitive harm for which a business may be held liable under the "unfair" prong of the UCL. This, of course, was on the authority of Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co.7 In Cel-Tech, the California Supreme Court held that:

When a plaintiff who claims to have to have suffered injury from a direct competitor's "unfair" act or practice invokes Sections 17200, the word "unfair" in that section means conduct that threatens an incipient violation of an antitrust law, or violates the policy or spirit of one of those law because its effects are comparable to or the same as a violation of the law, or otherwise significantly threatens or hides competition.8

The Court explained:

Courts must be careful not to make economic decisions or prevent vigorous, but fair, competitive strategies that all companies are free to meet or counter with their own strategies.9

As stated by Ninth Circuit Court of Appeals Chief Judge Kozinski in Freeman v. San Diego Association of Realtors:10

Inefficiency is precisely what the market aims to weed out. The Sherman Act, to put it bluntly, contemplates some roadkill on the turnpike to Efficiencyville.

Thus, the Dixon court found no "incipient antitrust violation". The evidence tended to show that the relevant geographic market for fuel sales was healthy and competitive, with relatively low barriers to entry. The court found that the evidence tended to disprove plaintiff's theory that Safeway's below-cost pricing was stifling robust competition. The court concluded:

Pricing practices are not unfair merely because a competitor may not be able to compete against them. Low prices often benefit consumers and may be the very essence of competition.


1 Barquis v. Merch's Collection Ass'n of Oakland, Inc., 7 Cal. 3d 94, 112 (1972).

2 See id.

3 See Stop Youth Addiction, Inc. v. Lucky Stores, Inc., 17 Cal. 4th 553 (1998).

4 Stop Youth Addiction, 17 Cal. 4th at 570.

5 20 Cal. 4th 163 (1999).

6 Not at issue was whether it would be appropriate to consider Safeway's sales as not "below cost" when its profitable grocery sale margins were combined with the below-acquisition price of its fuel sales. Compare Fisherman's Wharf Bay Cruise Corp. v. Superior Court, 114 Cal. App. 4th 309 (2003) with Western Union Fin. Servs., Inc. v. First Data Corp., 20 Cal. App. 4th 1530 (1993). Fisherman's Wharf refused to permit the averaging of sales across product lines, where Western Union allowed the averaging of above and below cost sales through time for a unitary service.

7 28 Cal. 4th 163 (1999).

8 Cel-Tech at 187.

9 Id. at 185.

10 322 F. 3d 1133 (2003).

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.

Events from this Firm
13 Sep 2018, Other, Los Angeles, United States

Liisa will be giving opening remarks and presenting, "Big Data and Online Behavioral Advertising (OBA): An Advertiser’s Perspective Origins of big data and how to legally acquire data."

26 Sep 2018, Seminar, San Francisco, United States

Please join us for Sheppard Mullin's Labor & Employment Law Update & Happy Hour Seminar Series.

28 Sep 2018, Other, Los Angeles, United States

Leaders today don't just have to worry about nefarious cybercriminals getting "inside" their firewalls; there's an entire ecosystem of SAAS partners, third party vendors and suppliers, and all the hardware from switches to POS terminals that need to be monitored.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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