DeLuca's Market Corp. v. SuperValu, Inc.

752 F.3d 728, 2014 WL 2109122
CourtCourt of Appeals for the Eighth Circuit
DecidedMay 21, 2014
DocketNo. 13-1297
StatusPublished
Cited by24 cases

This text of 752 F.3d 728 (DeLuca's Market Corp. v. SuperValu, Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eighth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
DeLuca's Market Corp. v. SuperValu, Inc., 752 F.3d 728, 2014 WL 2109122 (8th Cir. 2014).

Opinion

RILEY, Chief Judge.

This antitrust case pits a small town, family-owned grocery store against the two largest grocery wholesalers in the United States. D & G, Inc., operates the Gary’s Foods store in Mount Vernon, Iowa. In 2003, D & G’s wholesaler, Super-Valu, Inc., agreed to a geographic asset exchange with C & S "Wholesale Grocers, Inc., and its subsidiaries. SuperValu took the Midwest, while C & S took New England. According to D & G’s expert, the asset exchange agreement expectedly would increase wholesale prices in the Midwest. Unsurprisingly, the wholesalers and their expert disagree. D & G sued the wholesalers under the first section of the Sherman Act, 15 U.S.C. § 1, and the fourth section of the Clayton Act, 15 U.S.C. § 15(a), and moved for class certification. The district court denied the certification motion and, on cross-motions for full and partial summary judgment, granted summary judgment to the wholesalers. D & G appeals. We affirm in part, reverse in part, vacate in part, and remand.

I. BACKGROUND

A. Factual History

C & S and SuperValu are the two largest grocery wholesalers in the United States. Grocery wholesalers are a critical link in the grocery supply chain, purchasing thousands of products directly from manufacturers and suppliers before distributing them to retailers. “Partial-line” wholesalers specialize in a handful of specialty product categories, while “full-line” wholesalers like C & S and SuperValu distribute tens of thousands of products spanning every category. To stock the thousands of products Americans expect to find in their local grocery store, small retailers like D & G need one full-line wholesaler in addition to partial-line wholesalers and direct suppliers.

Before June 2002, SuperValu was C & S’s “largest” and “closest” competitor in New England, where C & S was the primary wholesaler. C & S did not compete at all with SuperValu in the Midwest, where SuperValu was the dominant wholesaler. In June 2002, C & S acquired a [730]*730distribution center in Ohio dedicated to serving a regional grocery chain, and eyed expansion into the rest of SuperValu’s Midwestern market. Less than a year later, SuperValu’s main competitor in the Midwest, Fleming Companies, filed for bankruptcy. SuperValu submitted a regional bid for Fleming’s Midwestern business, but C & S announced its intention to acquire Fleming’s wholesale assets nationwide, positioning C & S to become Super-Valu’s top competitor in the Midwest. When this news became public, Market-Watch reported SuperValu’s stock price “tumbl[ed] ... as investors worried that a stronger rival was stepping into the wholesale grocery picture.” SuperValu Subtracts 8% as Competition Heats Up, Mark-etWatch (June 30, 2003, 11:25 AM), http:// www.marketwatch.com/story/supervalu-subtracts-8-as-competition-heats-up.

Even as C & S and Fleming negotiated, SuperValu was involved in negotiations of its own — with C & S. In May 2003, C & S formally offered to acquire SuperValu’s entire wholesaling operation in New England. On July 7, 2003, C & S and Fleming reached a final agreement, allowing C & S, if it so chose, to designate a third party to acquire Fleming’s Midwestern assets. On July 20, 2003, C & S executive vice president Mark Gross informed SuperValu senior corporate counsel Sheila Hagen, by email, that C & S and SuperValu “ha[d] always been discussing your departure from New England. No carve-outs. The purchase price/swap only makes sense with your departure.” (Emphasis added). Hagen replied, indicating SuperValu’s willingness “to discuss the issue of New England sales w/ [sic] you.” The following morning, Gross replied:

We are not interested in a transaction that leaves Supervalu in New England. ... [W]e have been discussing this for months. This is the basis of the deal. Finally, you should look at [the letter of intent], it says you won’t compete with us in New England.

(Emphasis added).

In September 2003, the two wholesalers reached an agreement: C & S agreed to designate SuperValu to receive Fleming’s Midwestern assets, and in exchange Su-perValu agreed to transfer all of its New England assets to C & S. The agreement also contained reciprocal non-compete provisions. C & S agreed not to sell without SuperValu’s prior approval to certain former Fleming customers in the Midwest for two years and not to solicit business from any of those customers for five years. Su-perValu, meanwhile, agreed not to sell, without C & S’s prior approval, to any of its former New England customers for two years and not to solicit their business for five years.

The parties generally agree that the written terms of the non-compete provisions were limited to former customers in the regions, theoretically permitting each wholesaler to compete for the business of each other’s new and existing customers. But, if D & G’s evidence is believed, the two wholesalers conformed more closely to the sentiment expressed in Gross’s emails — the “basis of the deal” being Super-Valu’s promise not to “compete ... in New England” — than to the letter of the agreement. SuperValu sought no customers in New England — new, former, or existing— and in the Midwest C & S supplied only two customers whose operations spanned several geographic regions.

Shortly after completing the transaction, both wholesalers closed all the distribution centers they had acquired through the deal. SuperValu’s market share in the Midwest increased from 40% to 65%, and [731]*731the market concentration1 of the Midwestern wholesale grocery market almost doubled. According to D & G’s expert, this increase in market concentration was ten times the amount deemed “likely to create or enhance market power” by the Department of Justice (DOJ) and Federal Trade Commission (FTC), the agencies charged with enforcing federal antitrust laws.

Until August 2005, SuperValu was D & G’s full-line wholesale supplier. SuperVa-lu charged D & G using a pricing formula called “activity based sell” (ABS). According to D & G, almost all SuperValu customers in the Midwest were subject to the ABS formula. The ABS price varied by product and distribution center, such that D & G would pay more for the same product if supplied from SuperValu’s Minnesota distribution center than if supplied from SuperValu’s center in Illinois. Before the beginning of the putative class period (December 31, 2004), D & G convinced SuperValu to change its supply center from Minnesota to Illinois.

Despite the change in supply centers, D & G’s evidence indicates that its costs actually rose. During the class period, D & G’s ABS fees increased thirty basis points. According to economic analysis conducted by D & G’s expert, SuperValu’s gross profit margins at the Illinois center were higher than possible in a competitive market, increasing seventy basis points following the agreement with C & S during a period when profits fell at the SuperValu centers that competed with C & S.

B.

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752 F.3d 728, 2014 WL 2109122, Counsel Stack Legal Research, https://law.counselstack.com/opinion/delucas-market-corp-v-supervalu-inc-ca8-2014.