Kan. SC: Retail price maintenance illegal under state law

By Jessica M. Karmasek | May 15, 2012


TOPEKA, Kan. (Legal Newsline) - The Kansas Supreme Court said in a recent ruling there is plenty of evidence showing that a fashion accessories company engaged in price-fixing in violation of state law.

The Court, in its May 4 ruling, reversed the Sedgwick County District Court's grant of summary judgment in favor of defendant Leegin Creative Leather Products Inc., the maker of Brighton handbags, luggage, jewelry and other accessories.

The company primarily markets its accessories to independent retailers, but it also maintains retail stores of its own called Brighton Collectibles.

In Kansas, most of Brighton's retailers are small boutiques or specialty stores. However, the company also sells to certain department stores and specialty chains. There is only one Brighton Collectibles in the state, in Leawood, and it opened in December 2006.

In the case at issue, named plaintiff Sue O'Brien and a class of consumers sued Leegin over its retail pricing practices.

Since April 1997, the company has provided its retailers with copies of its suggested pricing and promotional policy. The policy calls for retailers to sell Brighton products at "keystone," or an amount equal to twice wholesale plus a small amount that varies by product.

Leegin also ships its products to its retailers with tags displaying the manufacturer's suggested retail price, or MSRP.

Also under the policy, retailers may only discount out-of-season products and products that are not selling well that the retailer will not reorder.

The class alleges that Leegin's pricing policy violates the Kansas Restraint of Trade Act, or KRTA.

In particular, the plaintiffs allege that the "arrangements made between (Brighton) and its retailer dealers are made with the purpose of controlling the price of Brighton goods to the customer, and are prohibited trust arrangements outlawed in Kansas."

In response, the company moved for summary judgment in district court. In the alternative, it sought partial summary judgment and moved to decertify the class.

District Judge Jeffrey E. Goering granted Leegin's motion for summary judgment, granted its motion for partial summary judgment in part, and did not reach the issue of decertification.

Goering had concluded that the class was "vulnerable" to summary judgment in favor of the company because the plaintiffs had to have some "concrete evidence" that they paid higher prices for Brighton products as a result of the company's resale price maintenance, or RPM, policy.

Viewing the evidence in the light most favorable to the class, the judge said it had not demonstrated that it paid higher prices for Brighton's products than it would have paid absent the company's policy.

Thus, in Goering's view, the class was unable to prove "antitrust injury."

The class appealed, and Leegin cross-appealed.

The state's high court then had the case transferred from its Court of Appeals on the class' unopposed motion.

The Court, in its 55-page ruling, reversed and remanded the case.

Justice Carol A. Beier explained that under the KRTA it is enough to show that such an arrangement is "designed to" or "tends to" control prices. "A plaintiff does not have to show that the arrangement actually succeeds in increasing prices," she wrote.

"The language of Brighton's pricing policy certainly is subject to an inference that it was for the purpose of fixing prices and was designed to and tended to control the prices of Brighton's goods," Beier continued.

"While some discounting is allowed under the policy, it is permitted only under terms set by Brighton. Moreover, discounting is intended to be the exception rather than the rule, and discounting approval must be granted in advance by Brighton.

"Ensuring that prices are the same each day and at each store where Brighton goods are sold is a part of Brighton's business strategy to build consumer confidence by letting the customers know that they do not need to hunt for deals."

Evidence of the company's enforcement practices also is relevant to its "subjective intention," the Court said.

"Although Brighton insisted that it has 'never undertaken any systematic, comprehensive effort aimed at determining whether its retailers are following the (suggested retail price) policy,' it does maintain a file titled 'Pending Pricing Issues,' in which it keeps complaints from retailers and customers, as well as advertisements offering discounts of Brighton products," Beier wrote.

"In addition, it maintained a specific file on a particular Kansas retailer. It contains one entry stating that Brighton received a tip on the retailer's discounting and a later entry stating that, after a Brighton representative visited the store, it determined that no discounting was occurring.

"Also, logs produced by Brighton show a notation that one of Brighton's Kansas retailers reported another for discounting; the log also shows that a Brighton representative would be notified of the report."

In addition to tracking potential violations, the company's management actively discouraged departures from its pricing policy and pricing agreements, the Court said.

"If controlling prices was not at least part of Brighton's intent, then enforcement would be unnecessary," Beier noted.

As for proof of injury or damage, "O'Brien has directed the Court's attention to adequate circumstantial evidence that consumers actually paid prices for Brighton goods inflated by its pricing combinations or arrangements with retailers, and the district judge erred in ruling otherwise."

The Court said the company also was not entitled to summary judgment under a "rule of reason," which is not applied in a price-fixing action brought under the KRTA.

The district judge also erred in ruling that the claims of the class do not involve horizontal price-fixing, it said.

In addition, the Court affirmed in part and reversed in part the lower court's statute of limitations rulings.

"The limitations provision applicable to the class claims for both full consideration damages and treble damages is the three-year statute of K.S.A. 60-512(2)," Beier explained.

The Court also ruled that the "insufficiency" of the district judge's findings on class certification "preclude meaningful appellate review" of the predominance issue raised in the company's cross-appeal.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.

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