On April 25, 2008, the U.S. Tenth Circuit Court of Appeals found that Colorado’s Unfair Practices Act permits the bundling of below-cost and above-cost sales. Specifically, the court found that the defendant, Dillon Companies—a subsidiary of Kroger—could sell gasoline below cost if those sales were conditioned on the purchase of groceries at regular cost and the combined sales of gasoline and groceries were profitable. Arnold & Porter retained Cornerstone Research on behalf of Dillon in the case (Parish Oil Co., Inc., and Ray Moore Tire & Petroleum Service, Inc., v. Dillon Companies, Inc. d/b/a City Market).
The lawsuit was brought by two gasoline retailers that competed with Dillon in Montrose, Colorado. Plaintiffs claimed that they had been injured by Dillon’s bundling program and sought monetary damages to compensate them for alleged lost sales and lower profits. Plaintiffs also requested an injunction barring Dillon from making further below-cost sales.
In 2006 the U.S. District Court for Colorado denied Dillon’s motion for summary judgment, finding that the Unfair Practices Act required comparing the company’s prices and costs on an item by item basis. At trial the jury found Dillon liable for injuries to both plaintiffs.
Dr. Michelle Burtis of Cornerstone Research analyzed plaintiffs’ claims of below-cost sales and injury. Her analysis showed that there was no correlation between the timing of plaintiffs’ lower revenues and Dillon’s gasoline discount program. The district court found Dr. Burtis’s testimony “credible and compelling,” denied plaintiffs’ motion for a preliminary injunction, and ruled that plaintiffs had identified a pattern of below-cost sales but had not proven that these sales had caused them injury.
In its recent decision the Tenth Circuit Court of Appeals found that the appropriate test for predatory, below-cost sales required comparing the combined costs of all the items involved in a transaction with all the revenue earned from them. Ruling that the district court had erred in denying Dillon’s motion for summary judgment, the appellate court nullified the jury’s decision.