California Judge Sweetens Antitrust Action For Sara Lee

The prices for products freshly baked by Sara Lee can be negotiated without violating California’s Cartwright Act a state court judge has ruled, throwing out antitrust class action claims against the food company.

Distributors that buy the baked goods and sell them to stores throughout California filed Kaewsawang v. Sara Lee Corp. in 2006.  The Fourth Amended Complaint alleged that Sara Lee fixed prices and illegally divided territory through anticompetitive agreements.

Sara Lee entered into “Customer Marketing Agreements,” with retailers who agreed to sell the baked goods at certain prices, offer certain discounts, and meet display and freshness requirements.

Because both Sara Lee and the retail stores negotiated the marketing agreements, Judge Jane Johnson of the Los Angeles County Superior Court concluded the secrecy and deception required for conspiracy under the Cartwright Act could not be met.

“California requires a high degree of particularity in the pleading of Cartwright Act violations and therefore generalized allegation of antitrust violations are usually insufficient,” Judge Johnson wrote, citing Marsh v. Anesthesia Service Medical Group Inc.

The plaintiffs also argued Sara Lee violated antitrust laws through distribution agreements that required distributors to sell to stores located within a specified geographic area.  Distributors were unable to negotiate prices, and the agreements prohibited them from selling any competing products to the stores.

Judge Johnson ruled Sara Lee’s territorial division was not an antitrust violation because the contracts were signed in a competitive baked goods market free from monopoly.  In addition, the plaintiffs voluntarily signed the distribution agreements, giving Sara Lee the ability to assign sales areas and set prices.  Instead of citing antitrust law, the plaintiffs need to use legal remedies to revise oppressive contracts, Johnson concluded.

The complaint has now been narrowed to just one class claim for breach of the implied covenant of good faith and fair dealing and two individual claims for misclassification.

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