Appellate courts in two different states recently issued rulings on resale price maintenance claims under their respective state statutes within the course of five days. On May 4, 2012, the Kansas Supreme Court reversed a summary judgment ruling issued in favor of Leegin Creative Leather Products, Inc. and remanded the case for further proceedings regarding a putative class action alleging price fixing in the form of resale price maintenance. O’Brien v. Leegin Creative Leather Products, Inc., 2012 Kan. LEXIS 246 (May 4, 2012) (“O’Brien”). On May 8, the Supreme Court of New York, Appellate Division, affirmed a lower court ruling dismissing a petition by the state Attorney General against Tempur-Pedic International, Inc. for allegedly violating New York General Business Law 369-a by entering into resale price maintenance agreements with its retail distributors. New York v. Tempur-Pedic International, Inc., 2012 N.Y. App. Div. LEXIS 3528 (May 8, 2012) (“Tempur-Pedic”).
In O’Brien, the Kansas Supreme Court interpreted two Kansas statutes, K.S.A. 50-101 and K.S.A. 50-112. The former statute makes illegal any trust (“a combination of capital, skill, or acts, by two or more persons”) which exists for any of a number of different purposes, including: (1) “to increase or reduce the price of merchandise, produce, or commodities”; and (2) “to fix any standard or figure, whereby such person’s price to the public shall be, in any manner, controlled or established, any article or commodity of merchandise, produce or commerce intended for sale, use or consumption in this state.” K.S.A. 50-101. The latter provides that “all arrangements, contracts, agreements, trusts or combinations between persons, designed or which tend to advance, reduce or control the price or the cost to the producer or to the consumer of any such products or articles . . . are hereby declared to be against public policy, unlawful and void.”
The court held that neither of these statutes is subject to any rule of reason limitation, so a plaintiff is not required to show that any agreement, combination, or arrangement that falls within the terms of either is unreasonable in order to prevail. To the contrary, the court held that these statutes prohibit all arrangements, contracts, agreements, trusts, or combinations that fall within their terms, whether or not they are reasonable or unreasonable. In effect, the court applied a per se rule to these statutes. Moreover, the court held that the statutes did not distinguish in any way between horizontal and vertical price-fixing or allow for any exceptions to the per se rule for dual-distribution arrangements.
In addition, the court found that neither statute requires an actual agreement to show a violation, as all that is required is a “combination” or an “arrangement.” The court found that there was ample evidence of a combination and an arrangement between Leegin and its retail distributors for the plaintiff to avoid summary judgment, including that: (1) Leegin’s pricing policy was distributed to all of its retailers; (2) for at least a year, Leegin required its retailers to acknowledge in writing that violation of its pricing policy was grounds for dismissal; (3) Leegin’s owner testified that it required all of its retailers to charge the same price; (4) Leegin did not allow unauthorized promotions by its retailers; (5) Leegin maintained a “Pending Pricing Issues” file; and (6) Leegin conducted investigations into the pricing practices of retailers suspected of discounting.
The court also held that neither of the Kansas statutes at issue requires a showing that prices were actually increased but only that the agreement, combination, or arrangement was for the purpose of or designed to fix prices, which was to be judged by a subjective standard. Once again, the court found that there was ample evidence of Leegin’s intent to fix the prices that retailers charged for its products, including: (1) the language of its pricing policy that required Leegin’s advance consent to make exceptions or grant discounts and that stated its express goal for prices to be the same for all of its retailers, (2) Leegin’s rejection of a retailer’s request to hold a promotional event, and (3) Leegin’s enforcement practices of keeping files on retailer pricing and investigating retailers suspected of discounting.
In summary, it is clear from the O’Brien case that Kansas law treats resale price maintenance as a per se violation of its antitrust statutes, and that the law in Kansas is essentially what it was under federal law prior to the U.S. Supreme Court’s decision in Leegin to discard per se treatment of resale price maintenance under federal law.
Less than one week after the Kansas Supreme Court issued its opinion in O’Brien, a bill was introduced in the Kansas legislature to overturn O’Brien in order “to prevent wasteful litigation” and prevent businesses potentially affected by O’Brien from refusing to do business in Kansas. The bill was written to prohibit any arrangement, contract, agreement, trust, understanding, or combination from being deemed an unlawful, wrongful, or prohibited trust under Kansas law if it would be deemed a reasonable restraint under federal law as interpreted by the federal courts. The bill was later amended to exempt from the reach of the Kansas statutes any arrangement, contract, agreement, trust, understanding, or combination that constitutes a reasonable restraint of commerce. On May 10, 2012, the Kansas House of Representatives passed the amended bill 96 to 18, but the Kansas Senate voted in favor by only 19 to 16, which did not meet the statutorily mandated majority. Both those in favor and those against the bill characterized the bill as effectively dead.
In Tempur-Pedic, the New York appellate court affirmed an earlier ruling by the trial court interpreting New York General Business Law 369-a, which provides that “contract provisions” that impose minimum resale prices “will not be enforceable or actionable at law.” The court agreed with the prior ruling that, while this statutory language makes it clear that such contractual provisions cannot be enforced, it does not declare them to be illegal or unlawful.
The court further held in Tempur-Pedic that, even if the statute did render such contractual provisions unlawful or illegal, the two types of evidence tendered by New York were insufficient to come within the statute. The first, an agreement signed by Tempur-Pedic and its retailers entitled “Retail Partner Obligations and Advertising Policies, was insufficient because it contained restrictions only on retailer advertising, not pricing. The second, Tempur-Pedic’s minimum price policy, was insufficient because it was not contained in any agreement between Tempur-Pedic and its retailers or otherwise agreed to by the retailers. Rather, Tempur-Pedic’s retailers “independently determined to acquiesce to the pricing scheme in order to continue carrying Tempur-Pedic’s products.” In essence, the court found that an agreement could not be inferred from a manufacturer’s enforcement of its unilateral pricing policy.
- Defendant in this case is the same Leegin Creative Leather Products that convinced the U.S. Supreme Court to discard per se treatment of resale price maintenance under federal law in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007).
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