F.T.C. v. Weyerhaeuser Co.

• Decision Date: 01 September 1981
• Docket Number: No. 81-1346,81-1346
• Parties: , 1981-2 Trade Cases 64,263 FEDERAL TRADE COMMISSION, Appellant, v. WEYERHAEUSER COMPANY, et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1072

665 F.2d 1072

214 U.S.App.D.C. 254, 1981-2 Trade Cases 64,263

FEDERAL TRADE COMMISSION, Appellant, v. WEYERHAEUSER COMPANY, et al.

No. 81-1346.

United States Court of Appeals District of Columbia Circuit.

Argued May 26, 1981.

Decided Sept. 1, 1981.

Appeal from the United States District Court for the District of Columbia (CA 80-03175).

Ernest A. Nagata, Deputy Asst. Director, and Michael A. Schlanger, Asst. Director, Federal Trade Commission, Washington, D. C., with whom Howard E. Shapiro, Deputy Gen. Counsel, Federal Trade Commission, were on the brief for appellant.

James H. Sneed and David C. Shonka, Attys., Federal Trade Commission, Washington, D. C., also entered appearances for appellant.

Donald G. Kempf, Jr., Chicago, Ill., with whom Thomas D. Yannucci, Washington, D. C., was on the brief for appellees, Weyerhaeuser Co., et al.

Wayne E. Babler, Jr., Milwaukee, Wis., with whom Paul Noelke, Milwaukee, Wis., was on the brief for appellee, Menasha Corp.

Before MacKINNON, MIKVA and GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge GINSBURG.

Dissenting opinion filed by Circuit Judge MIKVA.

GINSBURG, Circuit Judge:

This is an appeal from a March 25, 1981, district court order denying the application of the Federal Trade Commission (FTC) for a preliminary injunction to block a proposed merger involving Menasha Corp. and Weyerhaeuser Co. The FTC's initial review suggested that the effect of the proposed transaction might be "substantially to lessen competition in the production of corrugating medium in the West Coast region, in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18, and Section 5 of the (Federal Trade Commission (FTC)) Act, 15 U.S.C. § 45." Complaint at 6. Invoking Section 13(b) of the FTC Act, 15 U.S.C. § 53(b) (1976), ¹ the Commission sought to preserve the status quo pending initiation and completion of administrative proceedings and any judicial review subsequent thereto.

The district court, although it determined that the Commission had established "a likelihood of success on the merits," refused to enjoin the merger. Finding that, in the particular circumstances this case presents, the public interest would be "better served by a less drastic remedy," the court ordered Weyerhaeuser to hold separate a portion of the assets acquired from Menasha. FTC v. Weyerhaeuser Co., 1981-1 Trade Cas. P 63,974 (D.D.C. Mar. 25, 1981). We conclude that the manner in which the district court applied Section 13(b) to this case was consistent with the congressional design. Accordingly, we affirm the order on review.

I. BACKGROUND

Weyerhaeuser, a publicly owned corporation, manufactures a variety of forest products. It is the largest producer of corrugated containers in the United States. Before the merger at issue here, Weyerhaeuser was the seventh largest producer of corrugating medium, ² a component of corrugated containers, on the West Coast. Menasha, a privately held family corporation with about ninety shareholders, also manufactures wood products. Before the merger it was the third largest producer of corrugating medium on the West Coast. The merger would place Weyerhaeuser in the lead position among West Coast medium producers. 1981-1 Trade Cas. P 63,974, at 76,044.

In June 1980, Weyerhaeuser and Menasha filed Premerger Notification and Report forms with the FTC. See 15 U.S.C. § 18a (Supp. III 1979). The reports announced Weyerhaeuser's proposed acquisition of Menasha's West Coast paperboard products assets, including a corrugating medium mill in North Bend, Oregon; an unimproved mill site one mile from the North Bend medium mill; and a cardboard container plant in Anaheim, California. In return for the West Coast assets, Menasha shareholders would receive two million shares of Weyerhaeuser stock. ³ On December 12, 1980, the FTC, seeking to halt the acquisition, commenced this action pursuant to Section 13(b) of the FTC Act. Section 13(b) authorizes the Commission to seek a preliminary injunction when it "has reason to believe" that a party is about to violate the antitrust laws and that an injunction pending resolution of the issue "would be in the interest of the public." The court "may" grant a preliminary injunction "(u)pon a proper showing that, weighing the equities and considering the Commission's likelihood of ultimate success, such action would be in the public interest."

The Commission's 13(b) action challenged only Weyerhaeuser's acquisition of the North Bend corrugating medium mill. Acquisition of the unimproved mill site and the container plant stimulated no objection. Acquisition of the medium mill, the Commission contended, would eliminate Menasha as a competitor in the already concentrated West Coast corrugating medium market, ⁴ significantly increase concentration in that market, ⁵ and increase the likelihood that West Coast corrugating medium producers would collude to raise medium prices. Complaint at 6; Plaintiff Federal Trade Commission's Proposed Findings of Fact and Conclusions of Law (hereinafter "FTC's Proposed Findings") at 21, Joint Appendix (J.A.) 841. ⁶

After five days of testimony, preceded and punctuated by the submission of numerous exhibits, the district judge concluded that, although the Commission had demonstrated "a likelihood of success on the merits," the merger should not be stopped. Instead, the judge granted interim relief in the form of a hold separate order ⁷ pending the outcome of FTC-initiated administrative proceedings challenging Weyerhaeuser's acquisition of the North Bend medium mill. ⁸ FTC v. Weyerhaeuser Co., 1981-1 Trade Cas. P 63,974 (D.D.C. Mar. 25, 1981).

The district judge identified three equitable considerations that weighed against enjoining the merger: the merger would give Menasha shareholders a liquid asset and thus end erosion of the closely held company's capital base through forced redemption of shares; Weyerhaeuser's strong economic incentive to build a new linerboard mill on the North Bend undeveloped site, if pursued, would yield an "almost certain" increase in the supply of linerboard (a cardboard box component distinct from corrugating medium) on the West Coast and for export; construction of the linerboard mill would ease unemployment in North Bend. Id. at 76,047-48. (Weyerhaeuser's anticipated construction and operation of a new linerboard plant, in contrast to its acquisition of the medium mill, occasioned no FTC concern.)

In addition to these equities, the district judge further found that eventual divestiture of the North Bend corrugating medium mill would be a "feasible remedy" if the FTC ultimately succeeded in its administrative complaint, since the mill was "an integrated operation" that "would not be 'scrambled' with Weyerhaeuser's (other) assets." Id. at 76,048-49. Finally, the judge indicated that a hold separate order could prevent interim anticompetitive harm during the pendency of FTC proceedings by "assuring that the North Bend mill's management, supply, production, sales, and pricing decisions are insulated from Weyerhaeuser, and ... that the mill is guaranteed sufficient capital to maintain its operations and expand its capacity as demand requires." Id. at 76,049. Considering the equities weighing against a full stop preliminary injunction as well as the potential of a rigorous hold separate order to alleviate the Commission's concerns, the judge permitted the merger to proceed, but directed Weyerhaeuser to "cause the North Bend mill to be maintained and operated as a separate and ongoing entity in order that the mill will be capable of being divested as a viable competitor in the West Coast corrugating medium market pursuant to a subsequent order of the Federal Trade Commission." J.A. 1035B.

The FTC immediately asked the district judge to stay the merger pending appeal, or for thirty days, or even for seventy-two hours to permit the Commission to seek an injunction from this court pending appeal. The judge denied these requests as well as a final Commission plea to stay the merger until the following morning. He rejected the plea for an overnight stay despite FTC representations that, absent a holding order, Weyerhaeuser and Menasha might consummate the merger before the Commission could apply to the court of appeals for emergency relief. J.A. 1063-64.

On the evening of March 25, 1981, less than three hours after the district court had refused to grant any restraint against the merger, the FTC filed in this court an emergency motion for an injunction pending appeal. Approximately seventy minutes later this court granted a temporary stay. Before the FTC had even filed its emergency motion, however, Weyerhaeuser and Menasha had consummated the merger.

On April 7, 1981, a motions panel of this court granted the FTC's motion for an injunction pending appeal. FTC v. Weyerhaeuser Co., 648 F.2d 739 (D.C.Cir.1981). The Commission emphasized then, as it does now, that preliminary injunctions rather than hold separate orders had issued in every known horizontal merger case in which the government sought injunctive relief, demonstrating both (1) a likelihood of ultimate success, and (2) the prospect of interim anticompetitive harm in the absence of any restraint. See Brief of Appellant at 54. Finding that the FTC had met the standards of Virginia Petroleum Jobbers Ass'n v. FPC, 259 F.2d 921, 925 (D.C.Cir.1958), ⁹ for an injunction pending appeal and that the companies "acted at their peril in completing the act that the FTC sought to enjoin," 648 F.2d at 742, ¹⁰ the motions panel directed the parties "to return to the status quo existing at the time when the motion for injunctive relief was denied in the District Court." Id. The panel explained that its direction to undo the merger was designed to preserve this court's ability to review in full on the merits the district court's denial of the FTC's request for a preliminary injunction. An order of that...