Wednesday, November 26, 2008

D.C. Circuit Denies Rehearing of Whole Foods Case

Rehearing En Banc Denied - On November 21, the D.C. Circuit issued an order denying a petition for rehearing en banc of the Whole Foods decision, and issued an amended opinion, which reversed an earlier decision not to enjoin the merger between Whole Foods Markets and Wild Oats, as previously discussed here. The denial of rehearing en banc means that the full court will not reconsider the opinion of the three-judge panel that issued the D.C. Circuit opinion, and the Federal Trade Commission will proceed with hearing the case on the merits.

The Acting Director of the Bureau of Competition at the FTC, David Wales, commented, “the decision rendered by the majority of the appellate panel reaffirms that the proper role of the district court in considering whether to grant the Commission’s request for a preliminary injunction is limited to whether the case raises sufficiently serious and substantial issues so as to make them fair ground for litigation during the full trial on the merits in the administrative proceedings.” He added that “we look forward to presenting our evidence as to why this merger is unlawful and should be undone at the plenary trial in a few months.”

FTC Case to Proceed - The scheduling order in the case, available here, indicates that a hearing on the merits will be held on February 16, 2009. Because of the unusual procedural sequence of events, the merger has already been completed and the assets of the organizations combined, meaning that the putative injunction will be difficult to comply with and enforce, at least in the short term. Assuming that the FTC prevails on the merits, a significant issue in the case will be how to undo the completed merger.

Cautionary Lessons - This case will almost certainly be used as a cautionary tale by antitrust enforcers and lawyers for years to come: parties to a proposed merger will likely be advised to reconsider combining assets even if a district court decides a preliminary injunction to enjoin the merger is not warranted. In the past, parties to a proposed merger treat a preliminary injunction decision as a final decision on the merits, as one inquiry the court must address in deciding whether to enjoin a merger is assessing the likelihood that the merger will ultimately be found by a judge or jury to be anticompetitive. Parties to a proposed merger that are successful at the preliminary injunction stage have typically combined assets following the court’s decision. That is precisely what happened here. Now that the D.C. Circuit has reversed the district court’s preliminary injunction decision, Whole Foods and Wild Oats must grapple with an extraordinarily complicated exercise – undoing the steps that have been taken to combine the two organizations’ assets. Ironically (and unfortunately), this exercise will likely prove to weaken both organizations’ competitive positions, at least in the short term.

Related posts: D.C. Circuit Reverses Ruling That Allowed Whole Foods Merger with Wild Oats; Whole Foods Faces Consumer Class Action.


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