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.
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