On May 25, 2005, United States District Judge, Central District of California, denied the defendant supermarkets’ motion for summary judgment, and held that a revenue sharing agreement between three large supermarket chains, alleged to be ancillary to the promotion of employer solidarity within the structure of a multiemployer bargaining unit, was not subject to the nonstatutory labor exemption, and is not immune from scrutiny as a potential antitrust violation. State of California v. Safeway, Inc., United States District Court, Central District of California, CV04-0687-GHK (SSx), 52505.

Vons, Albertsons, and Ralphs operate supermarket chains in southern California. They are members of a multiemployer collective bargaining unit, formed to negotiate a new labor agreement with the United Food and Commercial Workers unions. In order to combat “whipsaw” economic action by the unions, the markets entered into a Mutual Strike Assistance Agreement (“MSAA”), which provided that the markets would lock out union employees at all three chains if one of them were struck to the exclusion of others. In addition, the markets agreed to share revenue according to a fixed formula, in order to compensate the markets for loss of revenue, where targeted by union “whipsaw” selective economic action.¹ The revenue sharing was to continue until two weeks after the end of the strike or lock out. The MSAA revenue sharing formula also included Food 4 Less, a subsidiary of one of the bargaining unit members, but not a prior signatory to the collective bargaining agreement.

The unions struck the markets on October 11, 2003, and engaged in persuader activities to induce customers and suppliers not to deal with all three chains. However, on October 31, the unions halted economic action against Ralphs, while continuing to selectively picket and interfere with the customer and supplier relationships of the remaining two chains. The strike ended in February, 2004. Under the revenue sharing provisions of the MSAA, Ralphs and Food 4 Less paid Vons and Albertsons, pursuant to the negotiated formula, approximately $142 million for the period of the strike, and an additional $4 million for the two week “tail” period following the unions economic action.

While the California Attorney General did not challenge the MSAA as such, he filed an action in the United States District Court challenging its revenue sharing provision, as well as inclusion of Food 4 Less in the revenue formula. The complaint alleged that these provisions violated federal antitrust law. The defendants argued that the MSAA was in furtherance of the integrity of the multiemployer bargaining unit, and that the revenue sharing provision and the inclusion of Food 4 Less in the formula was reasonably ancillary to the multiemployer bargaining unit, and as such, entitled to the protection of the nonstatutory labor exemption, as articulated in Brown v. Pro Football, Inc. 518 US 231 (1996).

In a Memorandum and Order that did not discuss the underlying antitrust liability issues, Judge George H. King denied defendants’ motion for summary judgment. The court stated that the nonstatutory labor exemption is intended to reconcile antitrust and labor law, where there is a conflict between their respective public policy goals. In essence, the nonstatutory labor exemption is a form of implied antitrust immunity. It requires that the constitutional breath of antitrust law reconcile itself to the detailed and congressionally mandated regime for even handedly resolving conflicts between labor and management, particularly where there is a propensity for work stoppages and other interference with commercial enterprise. However, the court determined that there is no such conflict in the present case. A revenue sharing agreement that reallocates receipts among competitors, both during and after a strike, implicates a core concern of antitrust law. The court found no corresponding conflict with federal labor law, administered by the National Labor Relations Board. Thus, defendants have failed to show that there would be any impairment to national labor policy, should antitrust law be applied to the MSAA.

The court found that Brown v. Pro Football, Inc., 518 U.S. 231 (1996) was inapplicable. In Brown, the conduct took place during and immediately after the collective bargaining negotiation. It grew out of, and was directly related to, the lawful operation of the bargaining process. The court also noted that it concerned only the parties to the collective bargaining relationship, and not as here, a wholly owned subsidiary of one of the defendants, which was subject to a separate collective bargaining agreement with its unions. The court held that the criteria set forth in Brown may be an analytical tool, but not applied rigidly.

The court found that the nonstatutory labor exemption is not applicable because the MSAA “is not sufficiently connected to the subject matter of the collective bargaining process, or to matters required to be negotiated collectively.” In the alternative, it found that the nonstatutory labor exemption was not applicable because of the involvement of Food 4 Less and because of the two week “tail” period. This was so notwithstanding the defendants’ argument that the replenishment of an income stream diminished by whipsaw union tactics was sufficiently related to the collective bargaining process, and therefore necessary or implied by the efficient functioning of that process. Again, the court pointed to the inclusion of a nonmultiemployer bargaining unit member, namely Food 4 Less, and the fact that the revenue sharing continued two weeks after the end of the strike. In a nutshell, the court holds that national labor policy cannot justify anticompetitive conduct which occurs after the cessation of a work stoppage.

The court also noted that the MSAA does not concern a mandatory subject of bargaining, which generally include wages, hours, and other terms and conditions of employment. Thus, the court stated, revenue sharing is not connected to a core concern of national labor policy.

Finally, the court declined the defendants invitation to adopt a “parity” rule, that would extend the nonstatutory labor exemption to any multiemployer agreement that was designed to counter a union economic tactic. The court declined to apply the doctrine of ancillary restraints or to find that the MSAA was thus sufficiently close in time and circumstances to be in aid of the collective bargaining process itself, and the multiemployer bargaining unit. The court was not persuaded by opinion letters from the National Labor Relations Board, finding that mutual strike assistance agreements are lawful.

The court should now address the “core” antitrust issues, including a characterization of the restraint, and the purposes, and net competitive effects within a relevant product and geographic market.

1. The record in the district court, largely under seal and redacted, did not disclose the terms of the fixed formula, or allow a determination whether it was proportionately ancillary to the integrity of the MSAA and the multiemployer bargaining unit, or whether it would allow for forward looking coordinated interaction, and have an effect on competition in an antitrust relevant market.

Authored by:
Don T. Hibner, Jr.
213-617-4115
dhibner@sheppardmullin.com