United States District Court, N.D. California
ORDER DENYING PARTIES' MOTIONS FOR SUMMARY
JUDGMENT RE: DKT. NOS, 218, 219, 224, 228, 229
NATHANAEL M. COUSINS, United States Magistrate Judge
price discrimination case, several wholesaler plaintiffs
allege that defendants Living Essentials LLC and Innovation
Ventures LLC sold the dietary supplement 5-hour Energy to
Costco Wholesale Corp. at a lower price than they offered to
Plaintiffs. Plaintiffs' claims arise from Sections 2(a)
and 2(d) of the federal Robinson-Patman Act, which proscribes
price discrimination that is likely to have an
anticompetitive effect. Plaintiffs' fundamental burden is
to show that Living Essentials charged Plaintiffs a higher
price for 5-hour Energy than it charged to Costco, and that
the price discrimination could be harmful to competition.
the requisite competitive injury, Plaintiffs must demonstrate
that they actually competed with Costco for 5-hour Energy
sales and that they experienced substantial price
discrimination over a significant period of time.
Plaintiffs' best evidence to that end is a set of
statements by employees of Living Essentials and its broker,
Paramount Sales Group. Those employees express their concern
that promotional pricing given to Costco has negatively
affected 5-hour Energy sales to and by wholesale distributors
primarily on these statements, Plaintiffs now move for
partial summary judgment on their RPA and related state law
claims, leaving out the damages amount. Living Essentials
moves for summary judgment on all of Plaintiffs' claims.
Fatal to Plaintiffs' motion, the evidence on record
leaves open a genuine factual dispute whether Plaintiffs
actually competed with Costco for 5-hour Energy sales.
Conversely, Plaintiffs offer sufficient evidence of actual
competition, discriminatory pricing, and anticompetitive
effect to thwart Living Essentials' motion. Accordingly,
both parties' motions for summary judgment are DENIED.
following facts are undisputed, except where noted.
ABC Distributing, Inc., Elite Wholesale, Inc., and Tonic
Wholesale, Inc. dba Ace Wholesale are small wholesale
distribution corporations with their principal place of
business in Los Angeles, California. While all three
plaintiffs sell general merchandise to small shops and
convenience stores, ABC is primarily a tobacco business and
promotes its own brand of cigars, called
“Splitarillos.” ABC offers delivery to its
customers. Elite and Ace do not offer delivery, so their
customers tend to be nearby grocery and convenience stores.
During the relevant time period, between May 7, 2011 and when
this action was filed, Elite handled Ace's 5-hour Energy
sales; Ace never purchased the product for itself.
Living Essentials LLC and its parent company Innovation
Ventures LLC (collectively, “Living Essentials”)
have their principal place of business in Michigan. Living
Essentials manufactures and distributes 5-hour Energy, a
popular dietary supplement. 5-hour Energy is sold as a liquid
1.93-ounce bottle, and all bottles that Living Essentials
sold were of like grade and quality. From 2011 to when this
action was filed in 2015, Living Essentials sold 5-hour
Energy to California wholesalers, including Plaintiffs,
through Paramount Sales Group, a commissioned, third-party
the relevant time period, third party Costco Wholesale Corp.
operated four Costco Business Centers (CBCs) located in
California, including two in Los Angeles. The parties dispute
the exact nature of Costco's role in the supply chain.
Plaintiffs assert Costco is a “convenience store
wholesaler” (“C-store wholesaler”), on par
with Plaintiffs. Living Essentials contends Costco is not a
C-store wholesaler, but is instead a “Club Store,
” with a unique sales channel that differentiates it
from Plaintiffs. It is undisputed that, during the relevant
time period, the CBCs offered both “cash and
carry” service, as well as delivery service to
customers within certain zip codes in an approximately
25-50-mile radius. Several of Plaintiffs' customers were
located in zip codes to which Costco offered delivery.
Essentials sold 5-hour Energy to wholesalers in various
configurations. Most wholesalers could purchase “master
cases” containing 18 twelve-packs of a single flavor
and strength, and “display racks” containing
multi-flavored packages in both “regular
strength” and “extra strength.” Costco was
limited to purchasing, by the pallet, “club
packs” containing 24 bottles, in a limited selection of
flavors. The list price for the master cases and display
racks was $1.45/bottle for regular strength flavors and
$1.60/bottle for extra strength, and the list price for club
packs was $1.35/bottle for regular strength and $1.50/bottle
for extra strength.
these list prices, Living Essentials offered various
discounts to both Plaintiffs and Costco. For example,
Plaintiffs received for at least some of the limitations
period a $0.07/bottle “everyday discount” off of
the list price, and were offered (though on a limited basis)
an additional $0.07/bottle “display allowance.”
On the flip side, Living Essentials gave Costco, but not
Plaintiffs, a “business scan promotion” in the
form of an instant rebate to Costco customers that ranged in
value from $0.15/bottle to $0.30/bottle. And Living
Essentials offered other promotional discounts to Costco,
including a “fence program, ” where stores
displayed 5-hour Energy as a promotional product along the
fence at the front of the store, and “endcap
promotions, ” where stores displayed the product at the
end of an aisle where it was more visible to customers. While
there is no dispute that a given purchaser rarely paid the
original list price, the parties dispute which discounts
should be factored into Plaintiffs' and Costco's net
prices for purposes of Plaintiffs' price discrimination
claim, and whether the discounts were offered on fair and
this litigation, both sides submitted expert reports.
Plaintiffs' expert, Dr. DeForest McDuff, generated a
damages model that compares five hypothetical but-for prices,
ranging from a weighted average of the favored and disfavored
prices, to a hypothetical world in which Plaintiffs received
a price identical to Costco's. The report's basis for
inferring competition between Plaintiffs and Costco is the
fact that some of Plaintiffs customers are located in a zip
code to which CBCs offer delivery. See Dkt. No.
220-11 (McDuff Report).
part, Living Essentials submitted two expert reports. Dr.
Darrell Williams rebutted Dr. McDuff's analysis largely
in the context of class certification, criticizing Dr.
McDuff's analysis of causality between Living
Essentials' allegedly illegal conduct and Plaintiffs'
harm, the scale at which competition allegedly occurred, and
the commonality of impact on the plaintiffs. See
Dkt. No. 179-11 (Williams Rebuttal Report). Dr. Glenn
Woroch's report critiqued the methodology Dr. McDuff used
to calculate net prices, arguing that many of the discounts
Living Essentials offered should be excluded from price
comparisons, and criticized the economic assumptions Dr.
McDuff used to define a geographic market and infer
competition between Plaintiffs and Costco. See Dkt.
No. 221-1 (Woroch Report).
a now-dismissed plaintiff originally filed this action
against Living Essentials alleging violations of the
California Unfair Competition Law (“UCL”),
California Business & Professions Code § 17200, and
“Unjust Enrichment / Quasi-Contract /
Restitution.” See Dkt. No. 1 (Compl.). The
first and second amended complaints were filed as
class-actions, adding named plaintiffs Elite and Ace, and
adding additional claims under the Robinson-Patman Act
(“RPA”), 15 U.S.C. §§ 13, 15, and the
California Unfair Practices Act, California Business &
Professions Code § 17045.
moved to certify two different classes. The first proposed
class comprised any California wholesaler located within a
zip code to which a Costco Business Center (CBC) offered
delivery, and that purchased 5-hour Energy from Paramount
during the limitations period and received a $0.07/bottle
“Everyday Discount.” See Dkt. No. 151
(Mot. Class Cert.). The second proposed class was defined
identically to the first, minus the zip code limitation; it
encompassed wholesalers in the entire state of California.
Id. The Court denied class certification and denied
Plaintiffs' request for reconsideration. Dkt. Nos. 192,
241. Plaintiffs submitted a petition the Ninth Circuit for
permission to appeal the certification order, which was
denied. Dkt. No. 281.
now move for summary judgment on all claims. Dkt. No. 218
(Defs.' Mot. Summ. J. (“D. Mot.”)).
Plaintiffs also move for summary judgment on all claims,
except the damages portion of their claim under RPA §
2(a). Dkt. No. 224 (Pls.' Mot. Summ. J. (“P.
Mot.”)). Each party opposes the other's motion.
Dkt. No. 244 (P. Opp.); Dkt. No. 254 (D. Opp.). All parties
have consented to the jurisdiction of a magistrate judge.
Dkt. Nos. 14, 15, 34.
moving to the merits, the Court addresses three evidentiary
motions. Living Essentials moves to exclude the testimony of
Dr. McDuff. Dkt. No. 219. Plaintiffs move to exclude the
testimony of Dr. Woroch, Dkt. No. 229, and to exclude certain
evidence related to Living Essentials' responses to
interrogatories. Dkt. No. 228. The Court addresses the expert
witnesses first, then the interrogatory-related evidence.
702 of the Federal Rules of Evidence permits expert witness
testimony “if (1) the testimony is based upon
sufficient facts or data, (2) the testimony is the product of
reliable principles and methods, and (3) the witness has
applied the principles and methods reliably to the facts of
the case.” The Ninth Circuit has interpreted Rule 702
to require that such testimony “be both relevant and
reliable.” Estate of Barabin v. AstenJohnson,
Inc., 740 F.3d 457, 463 (9th Cir. 2014) (quoting
United States v. Vallejo, 237 F.3d 1008, 1019 (9th
Essentials' motion to exclude Dr. DeForest McDuff's
expert opinon is DENIED. While the report uncompellingly
assumes that geographic proximity equals competition, Dr.
McDuff's testimony “logically advance[s] a material
aspect” of Plaintiffs' case, Cooper v.
Brown, 510 F.3d 870, 942 (9th Cir. 2007), by opining on
economic impacts that could occur if his assumptions are
true. And the testimony has “a reliable basis in the
knowledge and experience of the relevant discipline, ”
Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137,
149 (1999), because Dr. McDuff's conclusions stem from
his expertise in economic markets.
motion to exclude Dr. Woroch's expert opinion is also
DENIED. Plaintiffs argue that Dr. Woroch's opinion is
inadequately supported by facts and contradicts legal
precedent regarding rebates and competition. However, the
Court is persuaded that Dr. Woroch's opinion responds to
facts in the record, and the Court is capable of determining
for itself or a jury what the law is. The report otherwise
satisfies the relevance and reliability requirements of Rule
702, so the report is admissible.
Motion to Exclude Evidence
Federal Rule of Civil Procedure 37(c), “[i]f a party
fails to provide information or identify a witness as
required by Rule 26(a) or (e), the party is not allowed to
use that information or witness to supply evidence on a
motion, at a hearing, or at a trial, unless the failure was
substantially justified or is harmless.” Plaintiffs
assert Living Essentials was required to, but did not,
disclose certain evidence relevant to the parties'
summary judgment motions, and it seeks sanctions excluding
motion to exclude evidence is GRANTED in part and DENIED in
part. First, Living Essentials' response to Interrogatory
No. 7 does not preclude it from introducing evidence
regarding functional discounts, because the interrogatory
asked for information about price differences justified by
Living Essentials' “cost of manufacture, sale, or
delivery, ” i.e. a cost justification defense.
Functional discounts like rebates or advertising promotions
do not fall within the cost justification defense, so
sanctions are not warranted here. As it pertains to
Interrogatory No. 7, the motion to exclude is DENIED.
Plaintiffs' motion to exclude evidence related to
Interrogatory No. 20 is GRANTED. Living Essentials may not
introduce evidence that it offered to sell 5-hour Energy to
Plaintiffs at a lower list price than the list price at which
it sold to Costco. For purposes of this order, “list
price” does not include rebates or discounts given as
payment for services, like advertisements. While the Court
agrees with Plaintiffs that rebates must be factored into the
net price for purposes of RPA § 2(a), see Fred
Meyer, Inc. v. F.T.C., 359 F.2d 351, 362 (9th Cir.
1966), Living Essentials claims to have believed in good
faith that rebates and certain other discounts are external
to a “list price.” The Court cannot say that
Living Essentials clearly did not believe this in good faith,
so its non-substantive response to a question about
Costco's list price does not warrant
sanctions. Thus, Living Essentials is barred only
from introducing evidence that Plaintiffs' list price, as
defined above, was lower than Costco's.
third and final set of disputed evidence relates to net
pricing and Plaintiffs' Interrogatory No. 21. Plaintiffs
argue that Living Essentials' non-substantive response
warrants sanctions barring evidence that Plaintiffs were
charged a net price equal to or lower than the net price
charged to Costco. Living Essentials argues that its response
to Interrogatory No. 10, dated October 14, 2016, directed
Plaintiffs to already-disclosed documents that, according
to Living Essentials, allowed Plaintiffs to deduce
Costco's net price. These same documents, according to
Living Essentials and Dr. Woroch's expert report, include
the specific evidentiary claim Plaintiffs seek to exclude:
that Living Essentials gave retailers buying 5-hour Energy
from Plaintiffs a rebate of $0.07 per bottle and offered them
a “2 for $5” promotion. See Mot to Excl.
Living Essentials did not submit these documents with any
filing, so the Court cannot determine whether the documents
say what Living Essentials claims they do, or whether, as
Plaintiffs claim, they do not speak to net pricing. Thus, the
Court rules as follows: Living Essentials may not use or
introduce evidence that it gave Plaintiffs' customers a
$0.07 per bottle rebate or offered a 2-for-$5 deal, beyond
what is contained in the bate stamped documents it cited to
in its October 14, 2016, response to Interrogatory 10.
Because those documents are not before the Court at this
time, the Court will not consider the evidentiary claim on
the specific figures above for summary judgment purposes.
the evidentiary issues resolved, the Court turns to the
judgment may be granted only when, drawing all inferences and
resolving all doubts in favor of the nonmoving party, there
is no genuine dispute as to any material fact. Fed.R.Civ.P.
56(a); Tolan v. Cotton, 134 S.Ct. 1861, 1863 (2014);
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
A fact is material when, under governing substantive law, it
could affect the outcome of the case. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute about a
material fact is genuine if “the evidence is such that
a reasonable jury could return a verdict for the ...