U.S. v. Rockford Memorial Corp., 89-1900

• Decision Date: 03 April 1990
• Docket Number: No. 89-1900,89-1900
• Citation: 898 F.2d 1278
• Parties: , 1990-1 Trade Cases 68,978 UNITED STATES of America, Plaintiff-Appellee, v. ROCKFORD MEMORIAL CORPORATION and SwedishAmerican Corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1278

898 F.2d 1278

58 USLW 2605, 1990-1 Trade Cases 68,978

UNITED STATES of America, Plaintiff-Appellee, v. ROCKFORD MEMORIAL CORPORATION and SwedishAmerican Corporation, Defendants-Appellants.

No. 89-1900.

United States Court of Appeals Seventh Circuit.

Argued Dec. 4, 1989.

Decided April 3, 1990.

Robert B. Nicholson, David Seidman, Department of Justice, Antitrust Div., Appellate Section, Richard S. Martin, Seymour H. Dussman, Nancy M. Goodman, Fred E. Haynes, Department of Justice, Antitrust Div., Washington, D.C., for U.S. plaintiff-appellee.

John C. McCarthy, Terry D. Anderson, and Scott C. Sullivan, Williams & McCarthy, Rockford, Ill., Thomas Campbell, Edward S. Weil, Gardner, Carton & Douglas, Chicago, Ill., for Rockford Memorial Corp. defendant-appellant.

Thomas Campbell, L. Edward Bryant, Edward S. Weil, Gardner, Carton & Douglas, Chicago, Ill., for all defendants; John C. McCarthy, Terry D. Anderson, Williams & McCarthy, Rockford, Ill., for defendant Rockford Memorial Corporation; Bradley T. Koch, Philip R. Frankfort, Holmstrom & Green, Rockford, Ill., for defendant SwedishAmerican Corporation; Diane P. Wood, Chicago, Ill., of counsel.

William G. Kopit, Robert W. McCann, Epstein, Becker & Green, Washington, D.C., for Voluntary Hospitals of America, Inc. amicus curiae.

Before POSNER and FLAUM, Circuit Judges, and DUMBAULD, Senior District Judge. ^*

POSNER, Circuit Judge.

The United States brought suit under section 7 of the Clayton Act and section 1 of the Sherman Act (15 U.S.C. Secs. 18, 1) to enjoin a merger of the two largest hospitals--both nonprofits--in Rockford, Illinois, a city of 140,000 people. The district judge held that the merger violated section 7, and issued the injunction; he did not reach the section 1 charge. 717 F.Supp. 1251.

The defendants appeal, arguing first that section 7 does not apply to a merger between nonprofit enterprises. Surprisingly, this is an issue of first impression at the appellate level, with the exception of an unpublished opinion by the Fourth Circuit, of which more later. Section 7 provides that " no person ... shall acquire ... the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another person," where the effect may be substantially to lessen competition, or to tend to create a monopoly. (Emphasis added.) Illinois law forbids a nonprofit corporation to have, and these hospitals do not have, stock or share capital. Ill.Rev.Stat. ch. 32, p 106.05. So the clause we have labeled would seem not to apply. And, the defendants argue, the FTC has no jurisdiction over a nonprofit corporation--so that the merger is not covered by the clause referring to asset acquisitions, clause , either--because section 4 of the Federal Trade Commission Act confines the Commission's jurisdiction under the Act to a "company ... or association, incorporated or unincorporated, which is organized to carry on business for its own profit or that of its members." 15 U.S.C. Sec. 44.

The first argument, knocking out clause , is strong. The second argument, however, in assuming that the reference in section 7 to "person[s] subject to the jurisdiction of the Federal Trade Commission" is to the Federal Trade Commission Act, overlooks the possibility that the reference is actually to the provision in the Clayton Act itself concerning the jurisdiction of the FTC--namely section 11, 15 U.S.C. Sec. 21. Section 11 vests authority to enforce the prohibitions of the Clayton Act in five agencies. These are the Interstate Commerce Commission, with respect to the common carriers regulated by that Commission; the Federal Communications Commission, with respect to the common carriers regulated by it; ditto for the Civil Aeronautics Board (now defunct); the Federal Reserve Board, for banks; and, for everyone else, the FTC: "Authority to enforce compliance with sections 2, 3, 7, and 8 of this Act by the persons respectively subject thereto is hereby vested in ... the Federal Trade Commission where applicable to all other character of commerce." Section 11 goes on to prescribe the procedure to be followed by these commissions and boards that have been given jurisdiction to enforce the Act. The procedure is self-contained and does not depend on particular provisions in the agencies' organic statutes, so that when in 1950 Congress amended section 7 to broaden its reach, it amended section 11 as well. We believe that the force of the assets-acquisition provision in section 7 is, therefore, merely to exempt mergers in the regulated industries enumerated in section 11. Areeda & Turner, Antitrust Law p 906, at p. 797 n. 2 (1989 Supp.). Those industries do not include the hospital industry. The Clayton Act evinces a purpose of limiting the Federal Trade Commission's jurisdiction vis-a-vis that of other federal agencies charged with enforcing the Act in the industries that they regulate, but it evinces no purpose of exempting nonprofit firms in industries within the domain that the Act bestows on the Commission ("all other character of commerce").

The government amazingly has failed to make this argument (thus waiving it), substituting an unnecessarily venturesome argument that the acquisition of control of a nonprofit corporation is the acquisition of that corporation's stock or share capital within the meaning of section 7 (and hence comes within clause , even though a nonprofit corporation does not have any stock or share capital and could not under relevant state law. The government points out that in United States v. Philadelphia National Bank, 374 U.S. 321, 335-49, 83 S.Ct. 1715, 1726-33, 10 L.Ed.2d 915 (1963), the Supreme Court held that a bank merger was a stock acquisition for purposes of section 7, though in corporate law it is an asset acquisition. There was no indication, the Court pointed out, that Congress had by its references to the FTC in sections 7 and 11 intended to exempt mergers by regulated firms; and while the acquiring firm in a merger does not actually acquire the stock of the acquired firm--it acquires the assets, in exchange either for stock of the acquiring firm or, in the case of a consolidation (the actual transaction in that case), for new stock--the effect is the same. Id. at 336-38, 83 S.Ct. at 1726-27.

The approach to statutory interpretation that informs Philadelphia National Bank is controversial, but it is neither indefensible nor irrelevant to the interpretive question in the present case. The approach, premised on recognition that legislative draftsmanship is often a rushed and clumsy process, deficient in foresight, tries to carry out the purposes of the statute insofar as these can be inferred, even if the result is a wide departure from literal meaning. But whatever its merits, it is not an approach in vogue in the Supreme Court at the moment and we hesitate to push it further than it was pushed in Philadelphia National Bank. We would be pushing it further if we read the words "stock" and "share capital" in section 7 as if they were synonyms for "control" (which is what would be acquired by this merger), although there are passages in the Philadelphia Bank opinion that can be quoted in support of the extension. E.g., id. at 338, 83 S.Ct. at 1727.

We are especially reluctant to test the elasticity of our interpretive powers without good reason, the only reason here being that the government overlooked a solid argument, based on section 11 of the Clayton Act, which would eliminate the loophole that the government rather desperately asks us to fill by a far-out interpretation of section 7. We decline the invitation, and conclude that as the parties have framed the issues the merger is not subject to section 7. The qualification is important, for we believe (contrary to United States v. Carilion Health System, 707 F.Supp. 840, 841 n. 1 (W.D.Va.), aff'd without opinion, 892 F.2d 1042 (4th Cir.1989)) that the merger is subject to section 7, once the reference in that section to the jurisdiction of the FTC is understood, as we think it should be understood, to refer to section 11 of the Clayton Act rather than to section 4 of the FTC Act.

The government has a fallback position, however: the merger violates section 1 of the Sherman Act, as charged alternatively in the complaint. Although the district judge did not find it necessary to reach the issue, we can do so, without impropriety, since the subordinate findings that the judge made demonstrate a section 1 violation. We can affirm a decision by a district court on an alternative ground that has not been waived, Martinez v. United Automobile Workers, 772 F.2d 348, 353 (7th Cir.1985); LaSalle National Bank v. General Mills Restaurant Group, Inc., 854 F.2d 1050, 1052 (7th Cir.1988), and this ground has not been; it has been briefed and argued by both sides.

We doubt whether there is a substantive difference today between the standard for judging the lawfulness of a merger challenged under section 1 of the Sherman Act and the standard for judging the same merger challenged under section 7 of the Clayton Act. It is true that the operative language of the two provisions is different and that some of the old decisions (old by antitrust standards anyway) speak as if that should make a difference. E.g., Minnesota Mining & Mfg. Co. v. New Jersey Wood Finishing Co., 381 U.S. 311, 323, 85 S.Ct. 1473, 1479, 14 L.Ed.2d 405 (1965); United States v. Penn-Olin Chemical Co., 378 U.S. 158, 170-71, 84 S.Ct. 1710, 1716-17, 12 L.Ed.2d 775 (1964). A transaction violates section 1 of the Sherman Act if it restrains trade; it violates the Clayton Act if its effect may be substantially to lessen competition. But both statutory formulas require, and have received, judicial interpretation; and the interpretations have, after three quarters of a century, converged. 2 Areeda & Turner, Antitrust Law, p...