Distributor vs. Contractor: Court Issues Landmark Pricing Ruling

Sodexo and egg/potato supplier Michael Foods have been found guilty of price discrimination by a U.S. District Court. The United States District Court for the Middle District of Pennsylvania found that Michael Foods discriminated against plaintiff Feesers, Inc., a regional foodservice distributor, by charging it higher prices than it charged Sodexo. Sodexo, was found to have “unlawfully induced or received such price discrimination in violation of the Robinson-Patman Act."

The court enjoined Michael Foods from discriminating as to price against Feesers and Sodexo from continuing to receive or induce such price discrimination. Feesers was not seeking any damages, only injunctive relief.

The decision ends more than five years of litigation for Harrisburg-based Feesers, which says it brought the lawsuit in order to level the playing field between broadline food distributors and food management companies/group purchasing organizations.

"We are very happy with this result,” says Feesers Chairman Lester Miller. "I decided to bring this case when I saw competition being destroyed in the industry that had provided me with a living for almost 60 years. Big food management companies and GPOs like Sodexho were getting unbelievable pricing discounts from suppliers like Michael Foods. The same discounts were not available to independent distributors like Feesers, and many of them were being driven out of business."

Feesers filed its complaint against Michael Foods and Sodexho on March 17, 2004, alleging price discrimination in violation of the Robinson-Patman Act. A three-week bench trial took place in early 2008 before Judge Sylvia Rambo in the federal district court in Harrisburg, which resulted in the recent decision.

At the trial, Michael Foods and Sodexho argued that Feesers and Sodexho were not in "actual competition" for purposes of the Robinson-Patman Act because Sodexho provides food management services to its customers, whereas Feesers is a food distributor. The court found, however, that both Feesers and Sodexho procure and distribute food for the same institutional customers and, thus, are in actual competition for the same food dollar.

Although the injunctions issued by the district court are binding only as to Michael Foods and Sodexho, it sets a legal precedent that prices charged by food suppliers to distributors such as Feesers that disadvantage them in favor of large-volume food management companies and GPOs will not be tolerated by the courts.

"Although this is obviously a big victory for Feesers, it is also a victory for the entire industry and will go a long way to restoring a competitive playing field in food distribution,” says Feesers CEO John Tighe. “We at Feesers have grown our business by obtaining the best possible prices for our customers. This decision will allow us to continue to do so."