Iams Co. v. Falduti

974 F. Supp. 1263, 1997 U.S. Dist. LEXIS 10049
District Court, E.D. Missouri·Decided May 20, 1997·No. No. 4:95CV1804 CDP·Published·Cited by 1 cases

Opinion

AMENDED MEMORANDUM AND ORDER

PERRY, District Judge.

This matter is before the Court on plaintiffs motions for summary judgment on both its declaratory judgment action and defendant’s counterclaim. Also before the Court is plaintiffs motion to strike an affidavit submitted by defendant in opposition to plaintiffs motion.

Plaintiff The lams Company (lams) manufactures dog and cat food. Defendant Anthony Falduti owns Countryside Feed and Supply and sells lams pet foods as well as other brands. Falduti previously filed federal and state court actions against lams and other pet-food manufacturers, alleging that their pricing and distribution systems violated the Robinson-Patman Act, 15 U.S.C. § 13, and Missouri’s antitrust laws. Falduti voluntarily dismissed his first federal suit; the state suit is pending. lams seeks a declaratory judgment that its distribution system does not violate federal antitrust laws. Falduti brings a counterclaim seeking injunctive relief under the Robinson-Patman Act, 15 U.S.C. § 18, and treble damages under the Clayton Act, 15 U.S.C. § 15.

I. Relevant Factual Background

This dispute centers upon the relationship among retail-level competitors, a manufacturer, and its St. Louis-area distributor. Defendant/eounterclaim-plaintiff Falduti alleges that plaintiff, The lams Company, engages in price discrimination against him in favor of his competitors, PetsMart and Pet Care, and alleges vertical price and non-price restraints in the operation of lams’ dual-distribution system. lams’ distributor in the St. Louis area is NutriPet.

A. The Competitors

Anthony Falduti owns Countryside Feed and Supply, a sole proprietorship in Florissant, Missouri, which sells large- and small-animal feeds. Countryside sells dog and cat food manufactured by lams and many of lams’ competitors. His competitive strategy is to charge his customers low prices for premium pet foods and rely on volume to secure a profit. At one time, Falduti purchased sufficient quantities of lams’ products to qualify as one of its best customers in the St. Louis area. Between 1991 and 1995, however, his purchase of lams’ products decreased from 65,164 pounds to 5,536 pounds per year. .

Countryside has always operated in Florissant, Missouri, with customers drawn from a forty-mile radius. In May 1993, after approximately ten years in its original storefront, Countryside moved to a new location about three blocks south on the same street. Countryside’s new location was approximately one-and-one-half times the size of the first store and provided better parking for customers.

PetsMart and Pet Care are large multilocation “superstores” selling pet food and related products. PetsMart opened its first St. Louis-area store in October 1991, while Pet Care’s first St. Louis-area store opened in June 1992. There are two PetsMart stores and two Pet Care stores within a 15-mile radius of Countryside. The development of these pet superstores has increased the competition among pet-food retailers. Some retailers have gone out of business while others, including Countryside, have seen their volume and profit margins decrease on sales of pet food.

B. The Manufacturer

lams manufactures premium dog and eat food sold under the brand names lams and Eukanuba. The lams products are sold in specialty retail stores, including Countryside and the superstores. They are generally not available through grocery stores. lams ranks as either the first or second largest seller of premium pet foods.

[1266] At the heart of the present dispute is lams’ distributorship system. lams distributes its product through two routes. First, lams sells ' at wholesale to approximately twenty-five independent distributors1 who sell to retailers such as Countryside. Second, lams makes direct sales to large nationwide accounts such as PetsMart and Pet Care. lams has never sold directly to Countryside.

lams began direct sales to the large multistore accounts in 1991. Previously, the large stores bought lams products through the distributors. Apparently the superstores were dissatisfied with inconsistent delivery schedules and regional differences in pricing, which interfered with their centralized purchasing systems. Under the present system, lams receives orders directly from the superstore and fills them by repurchasing the necessary stock from the area’s independent distributor, who then delivers the order to the superstore. The independent distributor functions as lams’ delivery agent to the superstore and lams pays the distributor a delivery fee. The superstores purchase lams products at a cost that is above the cost paid by lams’ distributors.

C. The Distributor

Since at least 1988, Countryside has purchased its lams pet food almost exclusively from NutriPet. NutriPet was initially an Iams-owned distributor but was purchased by its present owner, Norman Worthy, in 1986. NutriPet sells only lams’ dog and cat foods, though it also carries bird food, cat litter, pet shampoos and pet toys. Another distributor, Bushmill, had previously supplied lams to St. Louis-area retailers, although Countryside only used Bushmill as a “backup” supplier, purchasing lams product from Bushmill on only three or four occasions, or “a handful” of times. In 1993, NutriPet acquired Bushmill’s lams’ territory and accounts and thus became the sole St. Louis-area distributor.

The parties dispute the degree of control that lams exercises over its independent distributors. NutriPet president, Norman Worthy, testified by affidavit and deposition that NutriPet and lams have a non-exclusive agreement under which NutriPet may sell lams’ competitors’ products, but that NutriPet chooses to sell exclusively lams food products. Shortly after he purchased NutriPet from lams, Mr. Worthy exercised his contractual option to sell a competitor’s food. He testified in deposition that in 1987 he added Ralston Purina products because he thought he could expand his rural base by adding large-animal feed. As required by his contract, he gave lams thirty days notice of his intention to carry Purina stock. He testified that he spoke with lams President and owner, Clay Mathile, who was unhappy about his decision to carry a competitor. Worthy also testified that he was aware that, under the terms of his distributorship agreement with lams, lams reserved the right to terminate the agreement if NutriPet carried a competitor’s products. Worthy stated that none of the lams’ representatives with whom he spoke mentioned the termination clause. Nonetheless, within two weeks of adding the Purina line, Worthy decided to drop it because it was not cost effective.

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Iams Co. v. Falduti, 974 F. Supp. 1263, 1997 U.S. Dist. LEXIS 10049 (E.D. Mo. 1997).

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Iams Co. v. Falduti
974 F. Supp. 1263 (E.D. Missouri, 1997)