Woodman's Food Market, Inc. v. The Clorox Company et al

Filing 50

OPINION AND ORDER denying 20 Motion to Dismiss. Signed by Magistrate Judge Stephen L. Crocker on 2/2/15. (jat)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
________________________________________________________________________________________
WOODMAN’S FOOD MARKET, INC.,
OPINION AND ORDER
Plaintiff,
v.
THE CLOROX COMPANY and
THE CLOROX SALES COMPANY,

14-cv-734-slc

Defendants.

In this civil action for declaratory and injunctive relief, plaintiff Woodman’s Food
Market, Inc. alleges that defendants The Clorox Company and The Clorox Sales Company have
violated the price discrimination provisions of the Robinson-Patman Act, 15 U.S.C. § 13(d) and
(e), by offering to sell “large pack” products only to “club” retailers such as Costco and Sam’s
Club but not to “general market” stores like Woodman’s.1 Clorox has moved to dismiss
Woodman’s complaint under Fed. R. Civ. P. 12(b)(6) for failure to state a claim. I am denying
this motion for the reasons stated below.

ALLEGATIONS OF FACT
I. The Parties
Plaintiff Woodman's Food Market, Inc. is an employee-owned corporation based in
Janesville, Wisconsin. It operates 15 retail grocery stores in Wisconsin and Illinois and has
approximately 3,200 employees, 2,600 of whom work in Wisconsin.

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Although W oodman’s also refers to § 13(a) in its complaint, dkt. 1 at ¶¶ 57, 59, 77-78, it
states in its response brief that “[t]o be clear, W oodman’s has not, at this time, presented the Court
with a claim that Clorox has violated Subsection 2(a) of the Act.” Dkt. 37 at 17. W oodman’s explains
that a claim under § 13(a) would be premature because W oodman’s intends to pursue such a claim
only if it obtains a declaratory judgment pursuant to § 13(d) or (e). Id. As a result, I have not
addressed Clorox’s arguments regarding the dismissal of this claim. Clorox may renew its arguments if
and when W oodman’s decides to pursue such a claim.

Defendants The Clorox Company and The Clorox Sales Company (hereafter referred to
in the singular as “Clorox”) are Delaware corporations with their corporate offices and
headquarters in Oakland, California. Clorox manufactures and sells a variety of consumer and
professional products, including bleach, cleaning supplies, charcoal, cat litter, sandwich bags,
wraps, containers, water filtration products and personal care products.
Woodman’s has been a customer of Clorox’s for many years. Clorox purchases over 480
different items (known as “stock keeping units” or SKUs) from Clorox.

II. Clorox Changes the Products Offered to Woodman’s
Historically, Woodman’s purchased a number of “large pack” products from Clorox.
These products are larger containers or packages of a product that typically are offered to
customers at a cost savings per unit compared to the price per unit when the product is sold in
smaller containers or packages. On September 9, 2014, Clorox’s Director of Sales, Customer
and Industry Affairs met with representatives from Woodman's to discuss Clorox’s plan for a
“Differentiated Products Offering.” Clorox announced that as of October 1, Woodman’s would
be classified as a “general market retailer” and placed in a different “channel” than Sam’s Club
and Costco, two of Woodman’s competitors. In a document presented to Woodman’s at the
meeting, Clorox explained its goals: “simplify its go to market strategy with Club and General
Market packs”; “streamline [its] operations and deliver [its] best cost to serve by regulating the
products we sell to customers/channels”; “[m]eet[] customer's desire for differentiated products
from manufacturers”; and “[c]reate[] the right assortment of sizes and brands for

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customers/channels based on their shoppers [to] maximize[] both the customer and Clorox
sales.” See Compl., dkt.1 at exh. 3.
Clorox announced that as of October 1, Woodman’s no longer could purchase large packs
of any Clorox product except for a Kingsford charcoal 20-lb double pack. Although Woodman’s
still could purchase smaller packages of all of Clorox’s products, Clorox would not sell these
products to Woodman’s at the large-pack unit price that Woodman’s had been paying; in many
cases, the unit price would increase. Clorox would permit only Sam's Club, Costco and BJ's (a
large scale retailer not active in Wisconsin) to purchase Clorox’s large packs, which meant that
these three retailers would be able to buy and resell the large-pack items at a lower unit cost than
Woodman’s could offer on smaller packs of these same products.
Woodman’s believes that many of its large-pack customers are attracted to large packs
not just because the unit price is lower, but also because they don’t have to buy the product and
tote it home as frequently. Further, many of Woodman's customers cannot afford to purchase
memberships in retailers like Sam's Club and Costco. As a result of Clorox’s decision, these
customers will have no choice but to pay higher prices for those products when they buy them
at Woodman’s. On the flipside of this coin, Woodman's also expresses concern that when
customers who can afford club memberships discover that Clorox large packs still are available
at the club stores, these customers will stop shopping at Woodman's and start purchasing those
products (and the other products they need) from the club stores.

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OPINION
I. Legal Standards
Clorox has moved to dismiss each of Woodman’s claims under Fed. R. Civ. P. 12(b)(6)
for failure to state a claim. In ruling on a Rule 12(b)(6) motion, the court accepts all wellpleaded allegations as true and draws all inferences in favor of the plaintiff. Bielanski v. County
of Kane, 550 F.3d 632, 633 (7th Cir. 2008) (citations omitted). The complaint must include
“enough facts to state a claim to relief that is plausible on its face.” Hecker v. Deere & Co., 556
F.3d 575,580 (7th Cir. 2009) (citations omitted). This means that the complaint must allow
“the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted). As the Court of Appeals
for the Seventh Circuit has explained, a complaint “must suggest that the plaintiff has a right
to relief . . . by providing allegations that ‘raise a right to relief above a speculative level.’” Equal
Employment Opportunity Commission v. Concentra Health Servs., Inc., 496 F.3d 773, 777 (2007)
(quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 561-62 (2007)).
In deciding a Rule 12(b)(6) motion, the court may consider documents attached to the
complaint, including letters and contracts, without converting the motion into one for summary
judgment. Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 556 (7th Cir. 2012) (citing Rule 10(c));
Northern Ind. Gun & Outdoor Shows, Inc. v. City of South Bend, 163 F.3d 449, 452-53 (7 th Cir. 1998).
Further, where allegations in the complaint are contradicted by written exhibits attached to the
complaint, the exhibits trump the allegations. Abcarian v. McDonald, 617 F.3d 931, 933 (7 th Cir.
2010).

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Woodman’s has brought its claims under the price discrimination provisions of the
Robinson-Patman Act, 15 U.S.C. § 13, which state:
(d) Payment for services or facilities for processing or sale
It shall be unlawful for any person engaged in commerce to pay or
contract for the payment of anything of value to or for the benefit
of a customer of such person in the course of such commerce as
compensation or in consideration for any services or facilities
furnished by or through such customer in connection with the
processing, handling, sale, or offering for sale of any products or
commodities manufactured, sold, or offered for sale by such
person, unless such payment or consideration is available on
proportionally equal terms to all other customers competing in the
distribution of such products or commodities.

(e) Furnishing services or facilities for processing, handling,
etc.
It shall be unlawful for any person to discriminate in favor of one
purchaser against another purchaser or purchasers of a commodity
bought for resale, with or without processing, by contracting to
furnish or furnishing, or by contributing to the furnishing of, any
services or facilities connected with the processing, handling, sale,
or offering for sale of such commodity so purchased upon terms
not accorded to all purchasers on proportionally equal terms.
These sections generally prohibit a seller from paying allowances or furnishing services to
promote the resale of its products unless the allowances or services are offered to all competing
customers on proportionally equal terms. Guides for Advertising Allowances and Other Merchandising
Payments and Services, 79 FR 58245-01 at 58246, 16 C.F.R. Part 240 (FTC Sept. 29, 2014).
Promotional services or facilities are those that “somehow aid the buyer in reselling the product,
such as advertising, packaging, informational brochures, and the like.” Areeda Hovenkamp, XIV
Antitrust Law ¶ 2363e at p. 291 (3d ed. 2012). Only those services “necessary to facilitate the
reseller’s subsequent marketing” are covered by the two provisions. Id. at p. 292.

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Subsection (d) covers situations in which the seller pays a favored buyer for promotional
services performed by the buyer; subsection (e) covers situations where the seller provides such
services directly to the buyer. Julian Von Kalinowski, 1 Antitrust Laws and Trade Regulation: Desk
Edition § 5.10[2] (2d ed. 2014) (citing FTC v. Simplicity Pattern Co., 360 U.S. 55, 65 (1959)).
The two subsections are similar in all other respects and have been interpreted virtually
identically. Id. at § 5.10[1]. I note that Woodman’s has alleged violations of both subsections
but in opposition to dismissal has advanced arguments only with respect to subsection (e), which
seems to fit the facts of this case more closely. Because Clorox has advanced the same arguments
with respect to both subsections, it is unnecessary to distinguish between the two.

II. Analysis
The crux of the parties’ dispute is whether the large packs offered by Clorox only to the
club stores can be considered a promotional service under the act. Woodman’s argues that the
large packs constitute special packaging that helps Clorox’s retail customers resell the product
to the general public. Clorox argues that package size is not a service—a 42-pound bag of cat
litter is just a product—so that Woodman’s complaint fails because Clorox cannot be held liable
for merely refusing to sell its products to a particular retailer. See Harper Plastics, Inc. v. Amoco
Chemicals Corp., 617 F.2d 468, 470 (7th Cir. 1980) (Section “2(e) does not prohibit a seller from
choosing its customers and from refusing to deal with prospective purchasers to whom, for
whatever reason, it does not wish to sell”).
Clorox points out that no federal court has addressed whether a special package size
constitutes a promotional service under subsection (d) or (e) of the act. In the absence of case

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law, Woodman’s relies on a pair of old-but-never-revoked administrative decisions and a series
of more recent FTC guidelines. See In The Matter of General Foods Corporation, 52 F.T.C. 798
(1956); In the matter of Luxor, Ltd., 3l F.T.C. 658 (1940); Guides for Advertising, 79 FR 58245-01.
In Luxor, the FTC found that because the “junior” size cosmetic products offered by Luxor were
more convenient to carry, reduced waste and promoted freshness, the special packaging size
facilitated the resale of the products and constituted a promotional service or facility under
subsection (e). 31 F.T.C. at 63. Similarly, in General Foods, the hearing examiner determined
that the corporation’s decision to offer an institutionalized size package of Maxwell House
Coffee to only some of its customers violated subsection (e). 52 F.T.C. at 816-17. In both
cases, the products at issue were of the same grade and quality irrespective of the size of the
container in which they had been packaged.
Subsequent to these decisions, the FTC published guidelines in 1969 to help businesses
comply with subsections (d) and (e). These guidelines were revised in 1990 and again in 2014.
79 FR at 58245. Section 240.7 of the guidelines recognizes that “‘services’ or ‘facilities’ have
not been exactly defined by the statute or in decisions” and sets forth a non-exhaustive list of
activities that the FTC considers to be promotional services under subsections (d) and (e); the
list expressly includes “special packaging, or package sizes.” 16 C.F.R. § 240.7. The guidelines
explain that one example of “special packaging” is a seller providing its regularly offered
multi-packs of individually wrapped candy bars to retailers in Halloween-themed packaging
during the Halloween season. Id. In commentary to the 2014 guidelines, the FTC explained its
decision to keep special packaging and package sizes on its list of covered promotional services:
The Antitrust Section urged that "special packaging and package
sizes" be deleted from the list because "the established law is now

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clear that partial refusals to deal with particular resellers, including
refusals to sell them particular products in a product line, are not
covered by the [R-P Act]." NGA opposed that suggestion, stating
that the discriminatory provision of special packaging and package
sizes continues to be used to advantage "power buyer[s]" when
they are given the option to purchase special packaging or package
sizes and competing customers are not, thereby creating "class of
trade distinctions."
All of the decisions cited by the Antitrust Section predate the
Commission's 1990 revision of the Guides, and none of them
squarely addressed the question of whether the provision of special
packaging or package sizes to only some competing customers may
violate section 2(e) of the Act.
79 FR at 58248.
Clorox argues that, unlike the Halloween-themed packaging described in the guidelines,
its large-size products are not a temporary gimmick to drive up business during a particular
season. That’s true but unpersuasive. Nothing in the guidelines or the FTC decisions indicates
that the statutory prohibitions on price discrimination apply only to seasonal or temporary
promotions. In fact, both Luxor and General Foods involved specially-sized products that were
offered on a year-round basis, just like Clorox’s large-size products. As in Luxor and General
Foods, it is reasonable to conclude that the special size of Clorox’s large-packs is connected to the
resale of those products. Woodman’s has alleged that it is more convenient for customers to
purchase and carry home large-pack products, and the large-packs can be (and are) offered to
customers at a lower cost per unit than the smaller packs of the same product.
Although Luxor and General Foods seem dispositive, Clorox dismisses these decisions as
non-binding and antiquated, asserting that they do “not provide a sound basis for asking this
Court to adopt a sweeping expansion of the Robinson-Patman Act.” Dkt. 21 at 8-9. According
to Clorox, the FTC has been backing away from its decision in Luxor for decades. To illustrate

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its point, Clorox cites In re Gibson, 95 F.T.C. 553 (1980), in which the commissioner stated:
“Because of the easier threshold of proof carved out for Sections 2(d) and 2(e), the Commission
and the courts have an obligation to ensure that the jurisdictional prerequisites of those sections
are reasonably, and not expansively, construed.” Id. at *92.
In Gibson, however, the FTC was grappling generally with whether Gibson’s actions in
inducing their suppliers to offer payments and special pricing only to Gibson’s family-owned and
franchised stores at a trade show constituted violations of subsection (a) versus subsections (d)
and (e). See id. at 93-4 (noting purpose of (d) and (e) is “prohibiting outright hard-to-detect,
disguised [price] discrimination in the form of promotional allowances” to encourage resale and
not initial purchase of product). Nothing in Gibson addresses Luxor or the question whether
offering different sizes of the same product can be construed as special packaging. Id. at 94
(finding (d) and (e) did not apply because trade show perks benefitted Gibson stores with initial
purchase and not ultimate consumers on resale).
Clorox also mentions in a footnote that the Supreme Court has overturned decisions
similar to Luxor as inconsistent with the antitrust law’s goal of protecting competition. See Leegin
Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 889–92 (2007); State Oil Co. v. Khan,
522 U.S. 3, (1997); Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 54–57 (1977).
However, as Woodman’s points out, these decisions addressed whether various forms of vertical
price restraints are per se violations of § 1 of the Sherman Act2 ; none involved any provision of
the Robinson-Patman Act. Id.

2

Section 1 of the Sherman Act generally prohibits agreements or contracts that restrain
interstate trade or commerce. Leegin, 551 U.S. at 885.

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In sum, the FTC’s decisions in Luxor and General Foods are directly on point in this case,
and Clorox has failed to persuade me that they are no longer good law. Further, the FTC has
made clear in its recently revised guidelines that even though Clorox may refuse to deal with a
particular retailer, Clorox cannot use special packaging and package sizes to benefit only certain
customers. Woodman’s allegations are sufficient to state a claim under the Robinson-Patman
Act.

ORDER
IT IS ORDERED that defendants’ motion to dismiss this lawsuit, dkt. 20, is DENIED.

Entered this 2nd day of February, 2015.
BY THE COURT:
/s/
STEPHEN L. CROCKER
Magistrate Judge

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