Corporate & Securities Law

Whole Foods Brings It.

“Now for the evidence,” said the King. “And then the sentence.”
“No!” said the Queen. “First the sentence, and then the evidence.”

So goes a famous passage of Lewis Carroll’s Alice in Wonderland. And so begins Whole Foods’ new lawsuit against the Federal Trade Commission.

In the lawsuit, filed yesterday in federal court in D.C., Whole Foods compares the FTC to the Queen, maintaining that the FTC’s conduct in its challenge to the Whole Foods/Wild Oats merger has deprived Whole Foods of its due process rights.

I haven’t seen the complaint (if anyone has it, I’d love to see it), but here’s a press release discussing the lawsuit. According to the press release, the complaint has two counts. The first accuses the FTC of “pre-judging” the case that it is now to adjudicate. The second accuses of the FTC of “rushing to trial” — in the words of Whole Foods’ attorney, of “forcing Whole Foods Market to go to trial in just five months and defend itself in 29 separate geographic jurisdictions, … [which is] unreasonable and impossible, and thus, a violation of Whole Foods? due process rights to a fair trial.”

I doubt either of these counts stands a chance (though, again, I haven’t seen the complaint). The lawsuit may succeed, though, in drawing much-needed attention to the unfortunate discrepancy between FTC and Department of Justice procedures for challenging mergers.

The main reason Whole Foods is in the mess it’s now in is because its merger was reviewed by the FTC rather than the DOJ (the other federal agency that reviews mergers). Had the DOJ reviewed the merger, it would have had to prove to the district court — by a preponderance of the evidence — that the merger would violate Section 7 of the Clayton Act. The FTC, by contrast, can obtain a preliminary injunction on a less stringent showing. In addition, the FTC can pursue administrative litigation even after losing a preliminary injunction proceeding. The DOJ lacks that ability. (See here for more detail on the difference between FTC and DOJ adjudication of merger challenges.)

As the Antitrust Modernization Committee recently explained:

Parties to a proposed merger should receive comparable treatment and face similar burdens regardless of whether the FTC or the DOJ reviews their merger. A divergence undermines the public?s trust that the antitrust agencies will review transactions efficiently and fairly. More important, it creates the impression that the ultimate decision as to whether a merger may proceed depends in substantial part on which agency reviews the transaction. In particular, the divergence may permit the FTC to exert greater leverage in obtaining the parties? assent to a consent decree. So long as both agencies retain authority to enforce the antitrust laws, such divergence should be minimized or eliminated.

Hopefully, Whole Foods’ lawsuit against the FTC will draw some attention to the degree to which the deck is stacked in favor of that agency and will lead Congress to adopt the AMC’s proposals.

Full post as published by Truth on the Market on December 09, 2008 (boomark / email).