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 July 20, 2015) (not for publication).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
24 Oct 2017, Seminar, Los Angeles, United States

Presented by The American Bar Association White Collar Crime Committee.

24 Oct 2017, Conference, Los Angeles, United States

Corporate transactions are not just in the domain of M&A corporate attorneys. This program will cover the important role of employment and benefits counsel in shaping mergers and acquisitions. The presenters will provide practical guidance on conducting due diligence of labor, employment, employee benefits and executive compensation arrangements of target companies.

25 Oct 2017, Business Breakfast, New York, United States

Please join us for a complimentary breakfast program and networking with private equity investment banking professionals to discuss private equity activity and prospective deal flow opportunities in the technology industry.

In association with
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
Check to state you have read and
agree to our Terms and Conditions

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.


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.


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 by clicking here .

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.


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.


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.


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.


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.