Tuesday, December 9, 2008

Whole Foods Files Suit Against FTC

Whole Foods Counter-Suit Against the FTC: Whole Foods is pursuing a rare challenge to the FTC: a suit filed in United States District Court in Washington, D.C. alleging due process violations, including prejudgment of the merits and inadequate time to prepare for trial. (See Whole Foods' press release; WSJ story). Whole Foods is also petitioning Congress to seek a change of venue of a trial from the FTC to federal court.

Assertion That Process Is Unfair: Whole Foods' suit challenges an administrative process that Whole Foods believes is unfair: a "home court advantage" for FTC staff attorneys who litigate cases. This home court advantage functions as follows: Before filing a lawsuit, FTC staff attorneys have to present a proposed case to the FTC Commissioners. The majority of the Commissioners then have to approve the staff attorneys' filing a lawsuit. If a majority of the Commissioners approve, the staff attorneys file the suit. In cases challenging mergers – barring a stipulation by the merging parties to delay a merger pending resolution of an FTC challenge (which could take years) – the suit is initially filed in federal court, where the FTC staff attorneys seek injunctive relief (a preliminary injunction). The FTC does not have the authority to enjoin mergers pending resolution of an FTC challenge, which is why it sues initially in federal court. If the staff attorneys are successful in seeking a preliminary injunction in federal court, the merits of a proposed merger are then litigated administratively within the FTC. The case is tried initially before an administrative law judge and then "appealed" to the Commissioners of the FTC. Thus, the same Commissioners who approved filing a suit in the first place, are then charged with reviewing the legality of a merger they initially decided to challenge. That's where the FTC staff attorneys' home court advantage exists.

Defendants' Procedural Advantage: But the FTC staff attorneys (as well as the agency itself) also face a significant disadvantage: a decision by the Commissioners on the legality of a proposed merger can be appealed to any federal appeals court. The parties to a proposed merger can freely forum shop. This ability to forum shop has proven costly to the FTC. For example, after an administrative trial, the FTC found in late 2003 that agreements involving Schering Plough and Upsher-Smith Laboratories violated of the antitrust laws. Schering and Upsher Smith appealed the FTC decision to a favorable jurisdiction: the 11th Circuit Court of Appeals, which overturned the FTC decision and ruled in favor of Schering and Upsher Smith. See Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005).

Lobbying Effort: Representatives of Whole Foods are meeting today with members of Congress to consider legislative changes to the process, seeking to change the venue of the proceedings from the FTC to a federal court. Whole Foods has criticized as unfair the FTC's ability to proceed first in an administrative hearing, whereas cases brought by the DOJ are heard initially by federal courts.

Analysis: Whole Foods' challenges to the FTC process are highly unlikely to succeed. The process was created by Congress and has been in place since the 1930s. Whole Foods' goal in pursuing the challenge is likely to seek a settlement with the FTC so that Whole Foods can move beyond the Wild Oats acquisition and re-focus its efforts on growing its business in a difficult economy. As we previously reported here, Whole Foods is currently facing an extraordinarily difficult task: undoing steps that have been taken to combine its assets with Wild Oats. (The combination followed a district court decision denying the FTC staff attorneys' efforts to preliminarily enjoin Whole Foods acquisition of Wild Oats, which was subsequently overturned by the D.C. Circuit Court of Appeals). Whole Foods' CEO, John Mackey, now believes that the organization is worse off having decided to acquire Wild Oats.

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


 

The Law Firm of Kotchen & Low LLP - Civil Litigation, Counseling, and Representation Before Government Agencies


This work is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States License.