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Pundit’s Mailbag — Robinson-Patman
Attorney Weighs In On Ocean Spray

Jim Prevor’s Perishable Pundit, June 5, 2007

We’ve written quite a bit in regard to the dispute between Jim and Theresa Nolan and The Nolan Network with Ocean Spray. The coverage began with an article in Pundit sister publication, PRODUCE BUSINESS, entitled Special Report: Ocean Spray Sued By Longtime Associates. This was followed by our first piece in the Pundit, which we called Ocean Spray Trial Will Shed Light On Business Practices.

Next we asked Will Retailers Wait For A Trial To Act On Ocean Spray Controversy? We then published Ocean Spray Case Delves Into Robinson-Patman and PACA Violations, in which we both reviewed the deposition of the Costco buyer who dealt with Ocean Spray and analyzed the possibility that the USDA ought to investigate the situation as, if the allegations raised in the complaint are true, it appears that growers for the co-op could have paid less than they were entitled to.

Now we have a letter from an attorney who sees no evidence in that deposition from Costco’s employee that Ocean Spray was responding to a competitive offer and who points out the general difficulty of Robinson-Patman litigation:

I am a Robinson-Patman Act lawyer and am currently suing Wal-Mart, Sam’s Club division and others under the RPA, and have brought numerous suits against various mfrs, wholesalers and retailers under the RPA from 1970 to the present. I have learned from this experience that the major retailers are purchasing their goods below the mfrs’ direct costs, so that the mfrs are actually losing money when dealing with the major retailers in most instances. They watch themselves being driven out of business and claim they don’t know what to do about it.

They charge substantially higher prices to smaller competitors to try to make up the losses, but the lower the price to the major retailers (and the higher the price to their competitors), the more they drive their only profitable business (i.e., the smaller distributors, wholesalers, jobbers and retailers) out of business, leaving them with a higher percentage of their business being unprofitable.

On their books, they conveniently forget to allocate “housekeeping” or “administrative” costs to their direct costs. For example, when giving a million dollars in free goods away to a major retailer as a “new store allowance”, or “store expansion allowance” or as an “advertising allowance” or some other type of fee or allowance, they conveniently do not allocate the allowance to past, current or future sales, so the huge allowances are not considered part of any cost of sales and even though they are calculated through the dollar amount of sales, they do not wind up in “cost of sales”. This allows the mfr to pretend they are making a profit on sales to the major retailers when in fact they are losing money.

Getting back to the Ocean Spray matter, the deposition does not seem to provide any support for the claim that Costco was meeting competition when it gave the lower price.

An important point to remember for anyone who feels aggrieved by apparent violations of the RPA: DO NOT WAIT FOR AN ABSOLUTELY CLEAR CUT VIOLATION OF THE RPA. WITH THE VARIOUS DEFENSES AVAILABLE TO THE MFRS AND MAJOR RETAILERS (such as “meeting competition”, “like grade and quality”, “cost justification”, or receiving consideration from the major retailer of equivalent value to the discriminatory part of the price), TO ENFORCE YOUR RIGHTS YOU HAVE TO SUE WHEN YOU HAVE A TRIABLE ISSUE OF FACT (rather than a clear-cut, undisputable claim for violation of the RPA).

There are no clear-cut cases, even when you find documents in discovery which prove your case completely. The other side will come up with testimony, other documents, experts and whatever to offset the proof that they are clearly violating the law.

You have to go into a RPA case knowing that the defendants can create issues of fact to cover up their long-term illegal and continuing efforts to give discriminatory (below-cost) prices to the major retailers and put themselves (i.e., the mfrs) out of business in the process. This is the way things now work in the US since the FTC has stopped enforcing the RPA.

The major retailers deal with mfrs (or at least mfrs who do not have the strongest trademarks) until they soak up whatever assets they can from the mfr, put them out of business, and seek other mfrs to financially rape. The mfrs with the strongest trademarks are able to some extent to withstand the demands to sell below direct cost by refusing to sell at direct cost and much of the time the major retailers (wanting the hot trade-marked products) will agree to pay more to get the product, but attempt to nickel and dime the strong mfrs anyway with “deductions” and demands for various allowances, to reduce the major retailers costs.

So, as long as we do not have a federal, state or city governmental agency or official trying to stop violations of the FTC, the enforcement of the FTC is left up to the victims, who should bring actions at least when they are so close to being put out of business that they no longer care if the mfr drops them as a customer (and refuses to deal with them).

Another point for a victimized retailer or jobber to remember: you don’t have to sue the mfr. you can sue the major retailer instead, but with certain limitations: (i) if you are not buying directly from the same source (i.e., the mfr), you would not have a claim under 2(a), 2(f) for discriminatory prices from the same seller; (ii) instead, you would have a 2(d)/2(e) claim for not getting the same allowances; and a 2(a)/2(f) claim for injunctive relief against the major retailer for knowingly inducing or receiving the illegal prices. [Note: 2(a) is a claim only against the seller; and 2(f) is the corresponding claim only against the buyer/major retailer.]

Finally, I’m trying to create a governmental agency in NYC which I call the New York City Attorney General through a ballot initiative to be presented to the voters in NYC. The NYC Attorney General would, at public expense, enforce the rights of small businesses, citizens, other residents, homeowners and employees against the illegal practices of major corporations, overzealous prosecutors, and even governmental agencies no longer acting on behalf of voters, but devoting their energies to making the major corporations far richer through stealing from the public.

Some sources: for a copy of the RPA see http://newrules.org/retail/robinson.html; for discussion of the ballot initiative in NYC see www.nyc911initiative.org/ and www.ny911truth.org/ and www.townattorneygeneral.com

What we need is a new sheriff in town, and the next best thing, I believe, is a “town attorney general” or “city attorney general” or “county attorney general”, to enforce the legal rights of citizens at governmental expense.

Carl E. Person
Attorney at Law
New York, New York

Mr. Person is actually a well known gadfly who tried to get on the ballot to run for New York State Attorney General and who has strongly-held views opposing Wal-Mart and large retailers in general.

Yet, he is not an expert in produce, and most of his arguments don’t really apply to fresh produce or this case.

For example, H.E. Butt is not the largest supermarket chain, and although Costco is larger than Sam’s Club, it is smaller than Wal-Mart of which Sam’s is a division.

Our own assessment is that large retailers, unable to be as flexible as smaller buyers, consistently pay more for fresh produce than do smaller buyers.

Besides, this situation doesn’t play out as one in which retailers seem to be compelling Ocean Spray to do anything — this is a case in which the implication is that Ocean Spray, for its own reasons, elected to make “below published price” offers to certain customers and prospects .

The shame of this situation is that it is playing out as a legal matter, when it is really a matter of ethics and good business practices:

  1. Did Ocean Spray publish prices yet not honor those published prices uniformly and thus deceive its most loyal and trusting customers into believing that they could buy with the assurance than nobody was paying less?
  2. Did Ocean Spray expect its employees and agents to lie and engage in deception to cover up this preferential pricing?
  3. Did Ocean Spray use its influence with other companies to harm the Nolans and their business interests?
  4. When C&S raised the issue of BJs getting charged higher prices than Costco, did Ocean Spray advise C&S to resolve the matter by falsely claiming that it had received cranberries of low quality?
  5. Did Ocean Spray always treat its own growers fairly — both in terms of allocating the “high price” sales to most retailers and the “low price” sales to H.E. Butt and Costco along with making sure that any false “low quality” claims didn’t impact any grower’s individual returns?

We wonder why Ocean Spray has let the situation get this far. They may be under the mistaken impression that if they win the lawsuit, the issues will go away.

We doubt it.

Maybe Ocean Spray can afford better attorneys and might get some bias from its hometown judicial system, but C&S didn’t need a legal judgment to demand recompense and neither will Wal-Mart, Safeway, Kroger or Supervalu.

The smartest thing for Ocean Spray to do right now would be to settle fast with the Nolans, then go hat in hand to all the retailers and settle with them. Ocean Spray needs to double check its grower payments and make it up to any grower who was cheated.

The questions here are really not technical issues of law. They are questions of right and wrong and Ocean Spray owes the industry an explanation.

If they don’t get this behind them, next time they announce a price — is there one retailer in American who will pay it?

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