By Jeffrey May, J.D.
In an antitrust action against grocery wholesalers SuperValu, Inc. and C&S Wholesale Grocers, Inc. for conspiring to allocate markets and customers through an asset exchange agreement (AEA), the defending wholesalers were unsuccessful in their attempt to enforce each other’s arbitration agreements against complaining retailers under a "successors-in-interest" theory. The wholesalers had contended that were "successors-in-interest, standing in each other’s shoes with respect to the supply and arbitration agreements they exchanged in the AEA." The U.S. Court of Appeals in St. Louis upheld a lower court's decision, rejecting this theory to enforce the arbitration agreements that they had assigned. The appellate court also rebuffed the wholesalers’ argument that they were entitled to directly enforce arbitration agreements to which they were no longer signatories (In re Wholesale Grocery Products Antitrust Litigation, March 1, 2017, Riley, W.).
In this case, several retailers sued SuperValu and C&S, alleging the AEA unlawfully allocated the New England market to C&S and the Midwest market to SuperValu. Under the AEA, there was an exchange of supply agreements and arbitration agreements between each wholesaler and its numerous retail customers. The AEA also contained allegedly secret reciprocal noncompete provisions.
The issue before the court concerned the arbitrability of the claims raised by members of the "Arbitration Subclasses." These were retailers who had arbitration agreements with SuperValu or C&S during the class period. In an effort to avoid arbitration, each Arbitration Subclass sued only its previous wholesaler, with which it no longer had a current arbitration agreement.
Village Market was the representative of the putative New England Arbitration Subclass, and Millennium Operations, Inc. was the representative of the putative Midwest Arbitration Subclass. Village Market asserted an antitrust claim against SuperValu only. Millennium asserted an antitrust conspiracy claim against C&S only.
Successor-in-interest theory. The appellate court rejected the wholesalers’ argument that they could enforce arbitration agreements as nonsignatories under a "close relationship" theory as successors-in-interest. The "nonsignatory" wholesalers, as assignors, were predecessors-in-interest to their assignees, not successors-in-interest, in the court’s view. A predecessor-in-interest did not bear a sufficiently close relationship to a successor-in-interest such that the predecessor-in-interest can compel arbitration under an agreement to which only the successor-in-interest was a signatory, the court concluded.
Direct enforcement. The wholesalers also failed to convince the appellate court that they were entitled to arbitration under the agreements to which they were once signatories "because plaintiffs’ claims are based on an alleged conspiracy that occurred when the original arbitration agreements were in effect between the arbitration plaintiffs and their former suppliers." It was not clear that the parties to a contract intended to be able to compel arbitration even after assigning away the right to do so. While the AEA did not transfer pre-assignment liabilities, the appellate court noted that the wholesalers could have bargained not to transfer the corresponding rights to compel arbitration on disputes regarding pre-assignment liabilities.
Partial dissent. In a partial dissent, Judge Steven Colloton contended that Village Market’s claims against SuperValu were subject to arbitration. "That Supervalu later assigned the arbitration agreement to C&S does not eliminate Village Market’s obligation to arbitrate a dispute that involves facts and occurrences that arose before the assignment," Judge Colloton explained.
Interlocutory appeal, intervention. In a separate decision also issued today, the appellate court dismissed an appeal of the lower court’s decision regarding class certification of New England retailers. The district court had denied New England retailers a "second bite at the class-certification apple." As the appellate court pointed out, the district court "emphatically left the status quo—no class certification for the New England plaintiffs—untouched (and untouchable)." The appellate court explained that an order that leaves class-action status unchanged from what was determined by a prior order is not an order granting or denying class action certification for purposes of Federal Rule of Civil Procedure 23(f) interlocutory review of a class-certification decision. Denial of a motion to intervene to seek certification of a narrower New England class (Greater Boston class) in concert with Village Market, the New England Arbitration Subclass representative, also was upheld.
Attorneys: Kate M. Baxter-Kauf (Lockridge Grindal Nauen PLLP), Richard Bruce Drubel (Boies, Schiller & Flexner LLP) and Dan Kotchen (Kotchen & Low LLP) for Millennium Operations, Inc. Edward T. Dangel, III (Dangel and Mattchen, LLP) for JFM Market, Inc. and MJF Market, Inc. Jeffrey Sullivan Gleason (Robins Kaplan LLP) for SuperValu, Inc. Hugh Hollman (Baker Botts LLP) and Nicole M. Moen (Fredrikson & Byron, P.A.) for C&S Wholesale Grocers, Inc.
Companies: Millennium Operations, Inc.; JFM Market, Inc.; MJF Market, Inc.; SuperValu, Inc.; C&S Wholesale Grocers, Inc.
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