Class Action Filed - A consumer antitrust class action lawsuit was filed against Whole Foods Market, Inc. earlier this week, alleging that it sold premium, natural, and organic produce at anti-competitive prices after its acquisition of Wild Oats, in violation of Section 7 of the Clayton Act (for an acquisition that substantially lessens competition and tends to create a monopoly), Section 2 of the Sherman Act (for monopolization), Section 1 of the Sherman Act (for entering into an agreement in restraint of trade), and Section 3 of the Clayton Act (for allegedly foreclosing competition in the relevant market). See Kottaras v. Whole Foods Market, Inc., No. 1:08-cv-1832-PLF (D.D.C. filed Oct. 27, 2008).
Although the named plaintiff in the lawsuit is a resident of Glendale, California, the case was filed in federal court in Washington, DC, as a related lawsuit to the Federal Trade Commission's action that opposed the merger. The Kottaras case follows the D.C. Circuit's recent decision finding that the merger between Whole Foods and Wild Oats was likely anti-competitive (previously discussed here).
Courts Had Permitted the Merger - Given the unusual proceedings that have unfolded in the FTC case, some would consider the Kottarras lawsuit unfair or unwarranted. The class action is based on the allegedly anti-competitive merger between Whole Foods and Wild Oats, which was only consummated after two courts denied injunctive relief. The FTC initially challenged the merger on June 5, 2007. The district court denied the FTC's request for a preliminary injunction on August 16, 2007, and the D.C. Circuit denied the FTC's motion for an injunction pending appeal on August 23, 2007. Thus, the merger had the implicit blessing of the district court and the D.C. Circuit, and Whole Foods reasonably anticipated that it would be allowed to proceed with the merger without facing antitrust liability.
Merger Likely Anti-Competitive - On the other hand, the complaint suggests that Whole Foods intended for the merger to be anti-competitive. For example, it quotes Whole Foods' CEO as stating:
[The merger] will self-evidently lessen competition in those markets that we are
competing with Wild Oats in when we are going to intend to close stores. Again,
isn't that true in any of the acquisitions that any of these guys do? One of the
motivations is to eliminate a competitor. I will not deny that. That is one of
the reasons why we are doing this deal. That is one of the reasons we are
willing to pay $18.50 for a company that has lost $60 million in the last six
years. If we can't eliminate those stores then Wild Oats, frankly, isn't worth
(Complaint ¶ 23). Moreover, the D.C. Circuit reversed the lower court's opinion on July 29, 2008, finding that the merger would likely be anti-competitive in certain markets.
Pricing - In the consumer class action, one of the key issues is whether there was a large jump in Whole Foods' pricing in the relevant markets after the merger. If so, such evidence may not only establish civil liability, but will help vindicate the D.C. Circuit's ruling reversing the lower court's denial of injunctive relief.