F.T.C. v. Whole Foods Market, Inc., Civil Action No. 07-1021(PLF).

Citation502 F.Supp.2d 1
Decision Date16 August 2007
Docket NumberCivil Action No. 07-1021(PLF).
PartiesFEDERAL TRADE COMMISSION, Plaintiff, v. WHOLE FOODS MARKET, INC., and Wild Oats Markets, Inc., Defendants.
CourtUnited States District Courts. United States District Court (Columbia)

Michael Bloom, Amanda L. Wait, Catharine Mary Moscatelli, Eric Matthew Sprague, Marilyn E. Kerst, Matthew James Reilly, Reid Brian Horwitz, Thomas H. Brock, Thomas J. Lang, Federal Trade Commission, Washington, DC, for Plaintiff.

Alden Lewis Atkins, John Martin Faust, John David Taurman, Neil W. Imus, Vinson & Elkins, LLP, Paul H. Friedman, Rebecca Powers Dick, James A. Fishkin, Jeffrey W. Brennan, Michael D. Farber, Paul T. Denis, Dechert LLP, Gary Alan MacDonald, Skadden, Arps, Slate, Meagher & Flom, LLP, Washington, DC, Clifford Hank Aronson, Matthew P. Hendrickson, Thomas Pak, Skadden, Arps, Slate, Meagher & Flom, LLP, New York, NY, Terrence J. Wallock, Law Office of Terrence J. Wallock, Corona Del Mar, CA, for Defendants.

PUBLIC VERSION

PAUL L. FRIEDMAN, District Judge.

OPINION

This matter is before the Court on plaintiff's motion for a preliminary injunction.1 Plaintiff, the Federal Trade Commission ("FTC"), filed this lawsuit on June 6, 2007 seeking to enjoin defendant Whole Foods Market, Inc. from acquiring defendant Wild Oats Markets, Inc. during the pendency of an administrative proceeding to be commenced by the FTC pursuant to Sections 7 and 11 of the Clayton Act, 15 U.S.C. §§ 18, 21, and Section 5(b) of the Federal Trade Commission Act ("FTCA"), 15 U.S.C. § 45(b). See Complaint at 2, 6.2 The FTC believes that the acquisition of Wild Oats by Whole Foods "would violate Section 7 of the Clayton Act and Section 5 of the Federal Trade Commission Act because [it] May substantially lessen competition and/or tend to create a monopoly in the operation of premium natural and organic supermarkets across the United States." Complaint ¶ 15.

This lawsuit has been litigated on a very fast track. Fact discovery took place in the space of 30 days, expert reports were exchanged three days after the close of fact discovery, and rebuttal expert reports and expert depositions took place within nine days thereafter. Initial briefs were filed two days later and reply briefs five days after that. The Court held a two-day hearing six days later. The parties' respective economists, Dr. Kevin M. Murphy and Dr. David T. Scheffman, Jr., were examined by counsel and by the Court on July 31, 2007, and counsel presented their final arguments on the record in Court on August 1, 2007.

The evidence presented by the parties consists of: (1) transcripts of the testimony of 13 lay witnesses taken by the FTC at investigational hearings before it filed suit; (2) transcripts, of the deposition testimony of 22 lay witnesses and five expert witnesses taken after suit was filed;3 (3) the declarations of 16 lay witnesses submitted by defendants and of one lay witness submitted by plaintiff;4 (4) the expert reports (and exhibits thereto) of five expert witnesses; (5) 19 volumes of exhibits submitted by plaintiff, consisting of approximately a total of 700 exhibits; (6) 27 volumes of exhibits submitted by defendants, consisting of 811 exhibits; and (7) the examination and cross-examination of two of the expert witnesses in CourtDr. Kevin M. Murphy and Dr. David T. Scheffman, Jr. The Court has also considered the written and oral arguments presented by counsel and the exhibits and demonstrative exhibits used in connection with their arguments.

The fast track on which this litigation has proceeded has put immense pressure on counsel for the parties and their teams who, despite these pressures, have all acted professionally, civilly, effectively, and in a timely manner in presenting their evidence and argument. Unfortunately, the Court, too, has had to act under severe time constraints (and with fewer resources than counsel has had) in evaluating the evidence and arguments, reaching its decision and attempting quickly to articulate that decision in a reasonably thorough and comprehensible opinion — so as to provide the losing side (as the Court promised it would) sufficient time to proceed promptly to the court of appeals for a decision before the consummation of the proposed merger, scheduled for August 31, 2007.

For the reasons set forth in this Opinion, the Court will deny plaintiff's motion for a preliminary injunction.

I. BACKGROUND

Defendant Whole Foods Market, Inc. ("Whole Foods") is a Texas corporation which opened its first store in 1980. Whole Foods operates approximately 194 stores in North America and the United Kingdom. Defendant Wild Oats Markets Inc. ("Wild Oats") is a Delaware corporation founded in 1987 and headquartered in Colorado. Wild Oats operates approximately 110 stores in the United States and Canada. Both firms are engaged in the business of selling grocery products, with an emphasis on natural and organic foods. In February 2007, the defendants announced that Whole Foods planned to acquire Wild Oats, and the two companies entered into a formal merger agreement on February 21, 2007.

The FTC alleges that the "operation of premium natural and organic supermarkets is a distinct `line of commerce' within the meaning of Section 7 of the Clayton Act." Complaint ¶ 34. The FTC further alleges that Whole Foods and Wild Oats are "the only two nationwide operators of premium natural and organic supermarkets in the United States[,]" and "are one another's closest competitor in twenty-one geographic markets." Id. ¶¶ 37-38. According to the FTC, "[c]onsumers in those markets have reaped price and non-price benefits of competition between Whole Foods and Wild Oats." Id. ¶ 38. "[T]hose benefits will be lost if the acquisition occurs in the markets where the two currently compete and they will not occur in those markets where each is planning to expand." Id. ¶ 42.

II. LEGAL FRAMEWORK

Section 13(b) of the Federal Trade Commission Act provides:

Whenever the Commission has reason to believe ... that any person, partnership, or corporation is violating, or is about to violate, any provision of law enforced by the Federal Trade Commission, and ... that the enjoining thereof pending the issuance of a complaint by the Commission and until such complaint is dismissed by the Commission or set aside by the court on review, or until the order of the Commission made thereon has become final, would be in the interest of the public ... the Commission ... may bring suit in a district court of the United States to enjoin any such act or practice.

15 U.S.C. § 53(b). "Upon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest, and after notice to the defendant, a temporary restraining order or a preliminary injunction may be granted...." Id.; see also FTC v. Libbey, Inc., 211 F.Supp.2d 34, 43 (D.D.C.2002). In contrast to the four-part equity standard for the granting of a preliminary injunction in other contexts, "[1]n deciding whether to grant preliminary injunctive relief under section 13(b), the court evaluates whether it is in the public interest to enjoin the proposed merger." FTC v. H.J. Heinz Co., 246 F.3d 708, 713 (D.C.Cir.2001). "This standard is broader than the traditional equity standard that is normally applicable to requests for injunctive relief and is consistent with Congress' intention that injunctive relief be broadly available to the FTC." FTC v. Libbey, Inc., 211 F.Supp.2d at 44 (quoting and citing FTC v. Weyerhaeuser, 665 F.2d 1072, 1080-81 (D.C.Cir.1981)) (internal quotations omitted).

"The FTC is not required to establish that the proposed merger would in fact violate section 7 of the Clayton Act." FTC v. H.J. Heinz Co., 246 F.3d at 713 (emphasis in original) (citing FTC v. Staples, Inc., 970 F.Supp. 1066, 1071 (D.D.C.1997) and FTC v. Food Town Stores, Inc., 539 F.2d 1339, 1342 (4th Cir.1976) ("The district court is not authorized to determine whether the antitrust laws have been or are about to be violated. That adjudicatory function is vested in the FTC in the first instance.")); see also FTC v. Swedish Match, 131 F.Supp.2d 151, 155 (D.D.C. 2000). It is required only to show that it is "likely" to succeed in showing under Section 7 of the Clayton Act that the proposed merger "may substantially lessen competition" or "tend to create a monopoly." 15 U.S.C. § 18; see also FTC v. H.J. Heinz Co., 246 F.3d at 714; FTC v. Libbey, Inc., 211 F.Supp.2d at 44; FTC v. Staples, Inc., 970 F.Supp. at 1071 (citing cases). The FTC must show a "reasonable probability" that the proposed merger may substantially lessen competition in the future. See FTC v. Arch Coal Inc., 329 F.Supp.2d 109, 116 (D.D.C.2004); FTC v. Swedish Match, 131 F.Supp.2d at 156; FTC v. Staples, Inc., 970 F.Supp. at 1072 (citing cases). "[T]he FTC's burden is not insubstantial, and `[a] showing of fair or tenable chance of success on the merits will not, suffice for injunctive relief.'" FTC v. Arch Coal, Inc., 329 F.Supp.2d at 116 (quoting FTC v. Tenet Health Care Corp., 186 F.3d 1045, 1051 (8th Cir.1999)).

To meet its burden to establish its likelihood of success on the merits, the FTC may raise questions "going to the merits so serious, substantial, difficult and doubtful as to make them fair ground for thorough investigation, study, deliberation and determination by the FTC in the first instance and ultimately by the Court of Appeals." FTC v. H.J. Heinz Co., 246 F.3d at 714-15 (citing, inter alia, FTC v. Beatrice Foods Co., 587 F.2d 1225, 1229 (D.C.Cir.1978); FTC v. Staples, Inc., 970 F.Supp. at 1071: FTC v. Warner Communications, Inc., 742 F.2d 1156, 1162 (9th Cir.1984)) (internal quotations omitted). "[T]he FTC does not have to prove ... that the proposed merger will in fact violate Section 7 of the Clayton Act because the Congress used the words may be substantially to lessen competition ... to...

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4 cases
  • F.T.C. v. Whole Foods Market, Inc.
    • United States
    • U.S. Court of Appeals — District of Columbia Circuit
    • July 29, 2008
    ...educated customers [and] ... are mission driven with an emphasis on social and environmental responsibility." FTC v. Whole Foods Market, Inc., 502 F.Supp.2d 1, 28 (D.D.C.2007). In eighteen cities, asserted the FTC, the merger would create monopolies because Whole Foods and Wild Oats are the......
  • F.T.C. v. Whole Foods Market, Inc.
    • United States
    • U.S. Court of Appeals — District of Columbia Circuit
    • July 29, 2008
    ...educated customers [and] ... are mission driven with an emphasis on social and environmental responsibility." FTC v. Whole Foods Market, Inc., 502 F.Supp.2d 1, 28 (D.D.C.2007). In eighteen cities, asserted the FTC, the merger would create monopolies because Whole Foods and Wild Oats are the......
  • F.T.C. v. Whole Foods Market, Inc.
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    • U.S. District Court — District of Columbia
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    ...a dissenting opinion by Circuit Judge Kavanaugh. The panel reversed this Court's decision of August 16, 2007, see FTC v. Whole Foods Market, Inc., 502 F.Supp.2d 1 (D.D.C.2007), and specifically rejected this Court's conclusion that the FTC showed no "likelihood of success" on the merits wit......
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    ...by Judge Paul Friedman of this District because the FTC had not shown a likelihood of success on the merits. FTC v. Whole Foods Market, Inc., 502 F. Supp. 2d 1, 49-50 (D.D.C. 2007). His decision was based on a finding that the relevant product market was broader than PNOS and at least inclu......
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