Wednesday Writs Pie Edition

L1: For this Thanksgiving edition of Wednesday Writs, I bring you a sordid tale of ruthless corporate greed, and espionage, a tale of David vs. several Goliaths, one of intrigue and sabotage and pie.

Yes, pie. Cherry, apple, boysenberry, peach, pumpkin, and mince.

Our tale begins in Salt Lake City Utah in 1957, where a small, local bakery owned by the Rigby family ventured into the frozen pie business. Utah Pie Co. was a success, and the family opened a plant to produce its frozen desserts to be sold in grocery stores. Even with the plant, the business was small, with only 18 employees- half of whom were members of the Rigby family. By 1958, Utah Pie had a 65% share of the frozen pie market in the Salt Lake City area.

Even before Utah Pie entered the frozen dessert game, several large corporations were already selling frozen pies in SLC: Continental Baking Company, Carnation Company, and the oddly named Pet Milk Company. Each of the three sold frozen pies in multiple regions across the country and operated their own plants, though none had a plant in Utah and served the state’s market from their respective California plants. Because Utah Pie was local, it was able to sell its frozen pies to grocers for less than its national competitors. When Utah Pie entered the market, it sold its pies for $4.15 per dozen; its closest competitor in price at that time, Carnation, sold its pies for $4.82 per dozen, while Continental was the high end at $5 per dozen.

Over the next three years, the larger companies lowered their pie prices in the SLC area to undercut sales by Utah Pie. By 1961, Utah Pie had to cut its price per dozen to $2.75. Carnation, Continental, and Pet Milk were down to $3.56, $3.46, and $2.85, respectively, per dozen. Claiming unfair competition, Utah Pie filed suit against all three larger companies for conspiracy in violation of the Sherman Act, and for individual violations of the Clayton Act. (It should be noted here, as it is in Footnote 6 of the ensuing Supreme Court opinion, that “the prices discussed herein refer to those charged for apple pies. The apple flavor has been used as the standard throughout this case…” As well it should be. ) This may all sound like normal business competition, but Section 2(a) prohibits the sale of the same goods to different purchasers at different prices, if doing so injures competition in the buyer’s or the seller’s market

When our case of the week, Utah Pie Co. v. Continental Baking Co., et al., went to trial, the jury found for the respondents (defendants) as to the conspiracy claims, but in favor of Utah Pie on the price discrimination counts. Respondents appealed, and the Tenth Circuit Court of Appeals reversed the jury’s verdict, finding that there was insufficient evidence to support the claim of price discrimination as defined in Section 2(a) of the Clayton Act. Utah Pie petitioned for certiorari to the US Supreme Court, which agreed to hear their case.

Writing for a 6-2 Court (with Chief Justice Warren not participating), Justice White began by examining the case against Pet Milk. The company had an arrangement with Safeway grocery stores in which it would sell the grocer pies that the grocer would then sell to customers under its own store brand, Bel-Air. In addition, the company sold pies under its own brands, Pet-Ritz and Swiss Miss (if this is the same as the hot cocoa people, I was not able to chase that link down.) The Bel-Air brand was sold more cheaply than Utah Pies. The Swiss Miss pie, which was a 20 0z “economy” pie, was sold more cheaply in SLC than in other markets, even though the company had a roughly .35 cent freight cost to get its pies to Utah.

The Appeals Court found that, contrary to the jury’s findings, Pet Milk’s pricing practices were reasonable and justified on cost, and the jury could not reasonably have believed that Pet Milk caused injury to Utah Pie. Justice White disagreed, noting that for the several months that Pet Milk’s pies were cheaper in Utah than in California, a reasonable jury could have found that the pricing was discriminatory in comparison. Further, whether the prices Pet Milk charged for the Bel-Air branded pies were cost justified was properly a question for the jury and their resultant verdict was reasonable.

As to Pet Milk’s contract to produce the Bel-Air branded pies for Safeway, the appellate court found no injury to Utah Pies because of some evidence that Utah Pie’s facilities were not up to the standards the grocery chain required. However, Justice White pointed out that Carnation and Continental had interest in the contract as well, and a jury could reasonably conclude that Pet Milk’s actions resulted in their pies being kept off the shelves via discriminatory sales to Safeway.

In a much more intriguing facet of the case against Pet Milk, Justice White describes evidence of the company’s “predatory intent” to injure Utah Pie. Evidence showed that Pet Milk zeroed in on Utah Pie early on as a major hinderance to their success in the Salt Lake City pie market, and even sent a spy to work for Utah Pie to gather information about its factories that could be used to dissuade Safeway from choosing the smaller company to make its Bel-Air brand. Pet milk admitted to doing so, but denied that they used any of the information they gleaned from their double agent. In sum, the Court found, evidence was sufficient for a jury to find that Pet Milk “engaged in predatory tactics in waging competitive warfare” on the frozen pie business scene, and that “the evidence as a whole established, rather than negated, the reasonable possibility that Pet’s behavior produced a lessening of competition proscribed by the Act.”

As for Continental, it could not deny selling its pies more cheaply in SLC than in other markets, selling its 22 oz pie for $2.85 per dozen, which amounted to less than Continental’s direct cost plus overhead. This caused Utah Pie to lower its price to $2.75. The Appeals Court found that Utah Pie had not shown injury because it “was not deprived of pie business” and its sales actually increased during the relevant time period. However, the Court pointed to the forced reduction of price by Utah as evidence of injury upon which a jury could reasonably base a verdict. “It could also have reasonably concluded that a competitor who is forced to reduce his price to a new all-time low in a market of declining prices will, in time feel, the financial pinch, and will be a less effective competitive force.” Notably, Continental counter-claimed against Utah Pie, claiming that it was injured by the smaller company’s discriminatory pricing (forcing Continental to drop its price to $2.75;) the jury found in Continental’s favor.

Finally, the Court turned to Carnation. Carnation sold its frozen pies under the brand “Simple Simon” and had a smaller share of the market than the others at only 8.6% in 1959. However, by slashing its prices to below cost in Salt Lake City, much lower than its prices in other markets, it managed to increase its market share. Just as this conduct by Continental and Pet Milk was evidence a jury could fairly consider as supporting the claims of pricing discrimination, the Court held that a jury could so find against Carnation, too.

Justice Stewart dissented, joined by Justice Harlan. Stewart agreed with the Tenth Circuit’s reasoning and added that he did not think the evidence showed the requisite anticompetitive effect, pointing to Utah Pie’s large share of the Salt Lake City pie market. Prior to the actions complained of, Utah Pie had a greater than 60% share of the market; after the pricing wars it still had 45%, which Stewart describes as “a near monopoly.” In other words, they had more than their share of the… pie.

L2: The 30-year-old “Stark Law”, the self-referral law which prohibits physicians from referring patients to certain health services payable by Medicare or Medicaid- radiology, labs, and physical therapy, among others- in which the physician or their family has a financial interest, has been loosened a bit under a new revised rule issued by the Center for Medicare and Medicaid Services. The changes are intended to allow exceptions for certain “value based” such as fee arrangements in which services are bundled. For the medical industry tries to find new ways to curb costs, the changes are welcome, though some say they don’t go far enough.

L3: Having received heavy criticism- and, she says, threats- over her refusal to release funds to the Biden transition team, the head of the Government Services Administration Emily Murphy calls on Congress to revise the Presidential Transition Act to clarify the relevant “procedures and standards”. In finally agreeing to release the funds, Trump appointee Murphy cited the legal challenges over the election results as the reason for her initial refusal.

L4: Anna Sacoolas, who killed a 14 year old boy on a motorbike when she drove her car on the wrong side of the road in the UK, is entitled to immunity for her actions, according to a high court in Britain. The family maintains that Sacoolas, wife of a US diplomat, was not covered by immunity under a 1995 treaty between the US and the UK covering her husband’s post, which did not extend immunity to family members or for acts committed outside of official duties. The court rejected the argument, finding that Sacoolas was immune under the Vienna convention. Sacoolas is back in the US, which has refused extradition.

L5: Alan Dean Foster, author of the Star Wars novelizations as well as many others, says Disney has failed to pay him royalties since purchasing Lucasfilms in 2012. Disney says they bought the rights, not the responsibilities, and refuses to pay Foster. No lawsuit yet, but looks to be headed that way. h/t @edwards_editor.

L6: ICYMI: SCOTUS announced its new circuit assignments last week. Each justice is responsible for overseeing one or more of the 11 regional circuits, plus the DC and federal circuits. The justices handle emergency requests in their circuits or choose which should be referred to the full court. Justice Barrett will oversee the 7th Circuit on which she sat until last month. Sotomayor will take over for Ruth Bader Ginsburg on the 2nd, while Kavanaugh takes over the 6th.

L7: Before you pay $104 for a “thoughtfully raised” turkey at Whole Foods this Thanksgiving, you should read this.

L8: Pennsylvania has issued a ban on alcohol sales on the night before Thanksgiving, traditionally known as the biggest night of the year for going out, in an attempt to prevent COVID infection. It’s being as well-received as you might imagine.

Happy Thanksgiving OTers!