More Evidence that California May No Longer Follow the Per Se Rule in Vertical Pricing Fixing Cases


In Kaewsawang v. Sara Lee Fresh, Inc., Case No. BC360109 (Cal. Los Angeles Superior Ct. May 6, 2013), the trial court dismissed a challenge to Sara Lee’s pricing practices brought under California’s state antitrust law, the Cartwright Act.

The plaintiffs were a purported class of distributors of Sara Lee products, and challenged Sara Lee agreements with chain retailers that gave Sara Lee the right to set pricing (to the chain stores) for Sara Lee products. The distributor agreements required the distributors to comply with the terms of the Sara Lee-chain store agreements.

In dismissing the claim, the court first ruled that plaintiffs had not alleged a price-fixing allegation. The court’s discussion is somewhat unclear, but it appears to have rejected an argument that there was some sort of horizontal agreement between and among Sara Lee and the chain stores.

The court then turned to the question of per se unlawful vertical price-fixing, and held that, despite the California Supreme Court’s decision in Mailand v. Burckle, 20 Cal. 3d 367 (1978), following the U.S. Supreme Court’s decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), “it remains unlikely that the Mailand’s court holding is still applicable . . . .”

The court then rejected the plaintiffs’ rule of reason claim for vertical price fixing.

It is conceivable that the court did not even need to reach the issue.  Unlike the traditional vertical price-fixing scenario, Sara Lee apparently did not agree with its distributors on downstream pricing — it had the power to set the downstream pricing directly.  The distributors were more similar to middlemen or agents than true distributors with pricing authority.

Sara Lee is but one trial court decision, but it is further evidence that California courts will be receptive to arguments based on developments in federal law that vertical price-fixing is not per se unlawful.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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