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Ocean Spray May Have
More To Lose Than Lawsuit

The Chicago Tribune picked up on the Pundit’s coverage of the Ocean Spray controversy and mentioned the lawsuit between the Nolans and Ocean Spray in a piece discussing the Robinson-Patman Act, entitled Why it’s all in the packaging.

The question of the efficacy of the Robinson-Patman Act in producing lower prices for consumers is an interesting one, but we suspect this reporter’s claim that the reason warehouse clubs carry larger package sizes is to avoid Robinson-Patman isn’t often true. The nature of the warehouse club business model, where margins are so low, favors selling products in larger volumes and thus generating fewer expenses per unit handled.

The interesting thing about this case, though, is that though nominally a Robinson-Patman case, it really speaks to different issues. The Chicago Tribune article explains:

Chris Phillips, a spokesman for Lakeville-Middleboro, Mass.-based Ocean Spray, said: “This case has nothing to do with our competitive practices which abide with all laws and standards. It is a case of a disappointed former employee whose contract was not renewed,” he said

He was unwilling, however, to discuss the company’s marketing practices outlined in the case

prevor said he was fascinated by the suit’s depiction of the cutthroat nature of competition and what it means for business ethics.

“You just can’t favor one customer over another when you are selling the same item and maintain any customer loyalty,” he said.

Mr. Phillips is correct that the proximate cause of the lawsuit is a disappointed former employee and a disappointed former contractor to Ocean Spray electing to file the lawsuit. This is both true and obvious. This is also why all business operators who do business in our litigious society know that it is a good idea to do all you can to have employees who leave your organization leave on good terms.

The bigger issue, though, is whether the allegations made by the Nolans are true. If they are true, we can’t imagine one person or organization that Ocean Spray does business with that would care less if the Robinson-Patman Act was violated or not.

Here are the big produce-relevant issues:

  1. Did Ocean Spray provide a better price to Costco than to Sam’s Club or BJs?
  2. Did Ocean Spray provide H.E. Butt better prices than competitive retailers in Texas, such as Wal-Mart, Kroger, Safeway, etc.
  3. Did Ocean Spray treat its growers unfairly and violate the PACA? For example, how did Ocean Spray decide who got credit for a high priced sale to Sam’s Club and a low priced sale to Costco? Did Ocean Spray urge and allow C&S to claim “bad quality” on fruit Ocean Spray knew was in good condition — and did this impact grower returns? Did Ocean Spray offer deals to Costco and H.E. Butt on fresh product to assist with the marketing of processed product — and did this impact grower returns?
  4. Did Ocean Spray publish official price lists and then not follow them, thus deceiving its best and most loyal customers into believing that everyone was paying the same price?
  5. Did Ocean Spray expect employees to lie or to fail to disclose to customers that competitors were receiving special treatment?

Even if it turned out that the Nolans were dismissed in accordance with the law, it strikes us that the industry would still demand answers to these five questions and Mr. Phillips’ unwillingness to “discuss the company’s marketing practices” will not stand.

There is a quick way that might resolve all this without a trial. When this situation started to heat up, Ocean Spray commissioned a special investigation conducted by a big-time law firm.

If Ocean Spray had retained a management consulting firm to do the investigation, the results of the report would already be public record through the lawsuit. But because Ocean Spray had a law firm write the report, it can claim attorney-client privilege and refuse to reveal the findings.

Yet, clearly, in an issue that has caused such controversy it would behoove Ocean Spray to clear its name by waiving attorney-client privilege and making public the results of the report.

It seems doubtful that growers and retailers alike, all of whom are being denied access to this document, are going to conclude that it exonerates Ocean Spray. That may be unfair but, by simply publishing the report, Ocean Spray could reassure the industry that it is being upfront about this entire matter.

You can find a continuously updated “hot topic” summary of our writings on this lawsuit right here.

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