548 F.3d 1028 (D.C. Cir. 2008), 07-5276, F.T.C. v. Whole Foods Market, Inc.

Docket Nº:07-5276.
Citation:548 F.3d 1028
Party Name:FEDERAL TRADE COMMISSION, Appellant v. WHOLE FOODS MARKET, INC., et al., Appellees.
Case Date:July 29, 2008
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit
 
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Page 1028

548 F.3d 1028 (D.C. Cir. 2008)

FEDERAL TRADE COMMISSION, Appellant

v.

WHOLE FOODS MARKET, INC., et al., Appellees.

No. 07-5276.

United States Court of Appeals, District of Columbia Circuit.

July 29, 2008

Argued April 23, 2008.

Amended and Reissued Nov. 21, 2008.

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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Appeal from the United States District Court for the District of Columbia (No. 07cv01021).

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Marilyn E. Kerst, Attorney, Federal Trade Commission, argued the cause for appellant. With her on the briefs were John F. Daly, Deputy General Counsel, and Richard B. Dagen and Thomas H. Brock, Attorneys.

Paul T. Denis argued the cause for appellees. With him on the brief were Paul H. Friedman, Nory Miller, and Rebecca Dick. Cliford H. Aronson and Alden L. Atkins entered appearances.

David A. Balto was on the brief for amici curiae American Antitrust Institute, et al. in support of appellant.

Albert A. Foer was on the brief for amicus curiae American Antitrust Institute in support of appellant.

Before: TATEL, BROWN, and KAVANAUGH, Circuit Judges.

Opinion concurring in the judgment filed by Circuit Judge TATEL.

Dissenting opinion filed by Circuit Judge KAVANAUGH.

OPINION

BROWN, Circuit Judge.

The FTC sought a preliminary injunction, under 15 U.S.C. § 53(b), to block the merger of Whole Foods and Wild Oats. It appeals the district court's denial of the injunction. I conclude the district court should be reversed, though I do so reluctantly, admiring the thoughtful opinion the district court produced under trying circumstances in which the defendants were rushing to a financing deadline and the FTC presented, at best, poorly explained evidence. Nevertheless, the district court committed legal error in assuming market definition must depend on marginal consumers; consequently, it underestimated the FTC's likelihood of success on the merits.

I

Whole Foods Market, Inc. (“ Whole Foods" ) and Wild Oats Markets, Inc. (“ Wild Oats" ) operate 194 and 110 grocery stores, respectively, primarily in the United States. In February 2007, they announced that Whole Foods would acquire Wild Oats in a transaction closing before August 31, 2007. They notified the FTC, as the Hart-Scott-Rodino Act required for the $565 million merger, and the FTC investigated the merger through a series of hearings and document requests. On June 6, 2007, the FTC sought a temporary restraining order and preliminary injunction to block the merger temporarily while the FTC conducted an administrative proceeding to decide whether to block it permanently under § 7 of the Clayton Act. The parties conducted expedited discovery, and the district court held a hearing on July 31 and August 1, 2007.

The FTC contended Whole Foods and Wild Oats are the two largest operators of what it called premium, natural, and organic supermarkets (“ PNOS" ). Such stores “ focus on high-quality perishables, specialty and natural organic produce, prepared foods, meat, fish[,] and bakery goods; generally have high levels of customer services; generally target affluent and well 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 only PNOS. To support this claim, the FTC relied on emails Whole Foods's CEO John Mackey sent to other Whole Foods executives and directors, suggesting the purpose of the merger was to eliminate a competitor. In addition the FTC produced pseudonymous blog postings in which Mr. Mackey touted Whole

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Foods and denigrated other supermarkets as unable to compete. The FTC's expert economist, Dr. Kevin Murphy, analyzed sales data from the companies to show how entry by various supermarkets into a local market affected sales at a Whole Foods or Wild Oats store.

On the other hand, the defendants' expert, Dr. David Scheffman, focused on whether a hypothetical monopolist owning both Whole Foods and Wild Oats would actually have power over a distinct market. He used various third-party market studies to predict that such an owner could not raise prices without driving customers to other supermarkets. In addition, deposition testimony from other supermarkets indicated they regarded Whole Foods and Wild Oats as critical competition. Internal documents from the two defendants reflected their extensive monitoring of other supermarkets' prices as well as each other's.

The district court concluded that PNOS was not a distinct market and that Whole Foods and Wild Oats compete within the broader market of grocery stores and supermarkets. Believing such a basic failure doomed any chance of the FTC's success, the court denied the preliminary injunction without considering the balance of the equities.

On August 17, the FTC filed an emergency motion for an injunction pending appeal, which this court denied on August 23. FTC v. Whole Foods Market, Inc., No. 07-5276 (D.C.Cir. Aug. 23, 2007). Freed to proceed, Whole Foods and Wild Oats consummated their merger on August 28. The dissent argues that a reversal today contradicts this earlier decision, but our standard of review then was very different, requiring the FTC to show “ such a substantial indication of probable success" that there would be “ justification for the court's intrusion into the ordinary processes of ... judicial review." Wash. Metro. Area Transit Comm'n v. Holiday Tours, Inc., 559 F.2d 841, 843 (D.C.Cir.1977). It is hardly remarkable that the FTC could fail to meet such a stringent standard and yet persuasively show the district court erred in applying the much less demanding § 53(b) preliminary injunction standard.

II

At the threshold, Whole Foods questions our jurisdiction to hear this appeal. The merger is a fait accompli, and Whole Foods has already closed some Wild Oats stores and sold others. In addition, Whole Foods has sold two complete lines of stores, Sun Harvest and Harvey's, as well as some unspecified distribution facilities. Therefore, argues Whole Foods, the transaction is irreversible and the FTC's request for an injunction blocking it is moot.

Only in a rare case would we agree a transaction is truly irreversible, for the courts are “ clothed with large discretion" to create remedies “ effective to redress [antitrust] violations and to restore competition." Ford Motor Co. v. United States, 405 U.S. 562, 573, 92 S.Ct. 1142, 31 L.Ed.2d 492 (1972). Indeed, “ divestiture is a common form of relief" from unlawful mergers. United States v. Microsoft Corp., 253 F.3d 34, 105 (D.C.Cir.2001) (en banc). Further, an antitrust violator “ may ... be required to do more than return the market to the status quo ante. " Ford Motor, 405 U.S. at 573 n. 8 92 S.Ct. 1142.Courts may not only order divestiture but may also order relief “ designed to give the divested [firm] an opportunity to establish its competitive position." Id. at 575, 92 S.Ct. 1142. Even remedies which “ entail harsh consequences" would be appropriate to ameliorate the harm to competition from an antitrust violation.

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United States v. E.I. du Pont de Nemours & Co., 366 U.S. 316, 327, 81 S.Ct. 1243, 6 L.Ed.2d 318 (1961).

Of course, neither court nor agency has found Whole Foods's acquisition of Wild Oats to be unlawful. Therefore, the FTC may not yet claim the right to have any remedy necessary to undo the effects of the merger, as it could after such a determination, du Pont, 366 U.S. at 334, 81 S.Ct. 1243. But the whole point of a preliminary injunction is to avoid the need for intrusive relief later, since even with the considerable flexibility of equitable relief, the difficulty of “ unscrambl[ing] merged assets" often precludes “ an effective order of divestiture," FTC v. Dean Foods Co., 384 U.S. 597, 607 n. 5, 86 S.Ct. 1738, 16 L.Ed.2d 802 (1966). Section 53(b), codifying the ability of the FTC to obtain preliminary relief, FTC v. Weyerhaeuser Co., 665 F.2d 1072, 1082 (D.C.Cir.1981), preserves the “ flexibility" of traditional “ equity practice," id. at 1084. At a minimum, the courts retain the power to preserve the status quo nunc, for example by means of a hold separate order, id., and perhaps also to restore the status quo ante.

Thus, the courts have the power to grant relief on the FTC's complaint, despite the merger's having taken place, and this case is therefore not moot. See Byrd v. EPA, 174 F.3d 239, 244 (D.C.Cir.1999) (“ The availability of a partial remedy is sufficient to prevent [a] case from being moot." ). The fact that Whole Foods has sold some of Wild Oats's assets does not change our conclusion. To be sure, we have no “ authority to command return to the status quo," Weyerhaeuser, 665 F.2d at 1077, in a literal way by forcing absent parties to sell those assets back to Whole Foods, but there is no reason to think that inability prevents us from mitigating the merger's alleged harm to competition. The stores Whole Foods has sold are only those under the Harvey's and Sun Harvest labels, which were never relevant to the anticompetitive harm the FTC fears. Our inability to command their return does not limit the relief available to the FTC. As to the distribution facilities, neither party has described what they are, suggested Wild Oats would not be a viable competitor without them, or explained why the district court could not order some provisional substitute. Moreover, the FTC is concerned about eighteen different local markets. If, as appears to be the situation, it remains possible to reopen or preserve a Wild...

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