Dr Pepper/Seven-Up Companies, Inc. v. F.T.C.

Decision Date16 April 1993
Docket NumberSEVEN-UP,No. 92-5308,92-5308
Citation991 F.2d 859
Parties, 1993-1 Trade Cases P 70,189 DR PEPPER/COMPANIES, INC., et al., Plaintiffs-Appellants, v. FEDERAL TRADE COMMISSION, Defendant-Appellee.
CourtU.S. Court of Appeals — District of Columbia Circuit

Appeal from the United States District Court for the District of Columbia (Civil No. 91cv02712).

Philip D. Bartz, with whom Micki M. Chen, Washington, DC, Peter E. Greene, New York City, and Gary A. MacDonald were on the brief, for appellants. Alan Kriegel, Washington, DC, also entered an appearance for appellant Harold A. Honickman.

Jeffrey T. Sprung, Asst. U.S. Atty., with whom Jay B. Stephens, U.S. Atty. at the time the brief was filed, John D. Bates, and R. Craig Lawrence, Asst. U.S. Attys., and James M. Spears, Gen. Counsel, Jay C. Shaffer, Deputy Gen. Counsel, Ernest J. Isenstadt, Asst. Gen. Counsel, and Melvin H. Orlans, Atty., F.T.C., Washington, DC, were on the brief, for appellee.

W. Foster Wollen, New York City, entered an appearance for intervenor Cadbury Beverages, Inc.

Before: EDWARDS, SENTELLE, and HENDERSON, Circuit Judges.

Opinion for the court filed by Circuit Judge EDWARDS.

HARRY T. EDWARDS, Circuit Judge:

This case involves a suit brought by the Dr. Pepper/Seven-Up Companies, Inc., et al. ("DPSU") challenging a decision by the Federal Trade Commission ("FTC" or "the Commission"). In the decision at issue, the FTC denied an application by Harold Honickman ("Honickman") for prior approval to acquire Brooklyn Bottling Company. The District Court granted summary judgment in favor of the FTC, see Dr Pepper/Seven-Up Cos. v. FTC, 798 F.Supp. 762 (D.D.C.1992), and DPSU now seeks review.

Upon consideration of the record before us, we reject DPSU's claim that the "prior-approval" procedures followed by the FTC are legally infirm. We also find that the FTC was fully justified in concluding that Honickman failed to carry the prescribed burden of proof in his application for prior approval to acquire Brooklyn Bottling Company. However, because the Commission did not provide a reasoned explanation for its conclusion that the proposed transaction should not be approved pursuant to the "failing company" doctrine, we reverse in part and remand the case for further proceedings.

I. BACKGROUND

The underlying facts of this case are recited in detail in the opinion of the District Court. See id. at 764-68. Therefore, we will not repeat this background, save as necessary to highlight matters of significance for this appeal.

Briefly, this case involves a challenge to the FTC's denial of Honickman's application for prior approval to acquire Brooklyn Bottling. The application was made pursuant to a 1991 consent agreement under which Honickman was required to get Commission approval prior to acquiring any soft drink company in the New York area. In his application, Honickman asserted that his acquisition of Brooklyn Bottling would be procompetitive because it would enable him to achieve economies of scale in the marketing and distribution of Dr Pepper/Seven-Up brands. In the alternative, Honickman argued that his application should be approved under the "failing company" doctrine, notwithstanding any anticompetitive effects of the acquisition.

The FTC considered Honickman's application over an eight-month period, using informal "notice and comment" procedures. Subsequently, in a four-page opinion letter, the FTC denied the application on the principal ground that Honickman had failed to demonstrate that the proposed acquisition would not violate the antitrust laws or otherwise conflict with the remedial purposes of the consent agreement. See Letter from Donald S. Clark, Secretary, FTC, to Peter E. Greene, Attorney for Harold Honickman (Oct. 3, 1991) ("Letter Opinion "), reprinted in Joint Appendix ("J.A.") at 96. The Commission also rejected Honickman's claimed reliance on the "failing company" doctrine, explaining that it "had no adequate basis to determine whether Honickman [was] the sole plausible acquirer." Id. at 3.

Thereafter, Honickman and DPSU filed suit in the District Court, arguing (1) that the Commission's failure to hold a hearing on Honickman's application violated both the Administrative Procedure Act ("APA") and the due process clause of the Constitution; (2) that the Commission's refusal to grant prior approval was otherwise arbitrary and capricious; and (3) that, in any event, the application should have been approved pursuant to the "failing firm" doctrine. On cross motions for summary judgment, the District Court held in favor of the FTC and dismissed Honickman's challenge. This appeal followed.

II. DISCUSSION
A. Standards of Review

Although this is an appeal from a judgment of the District Court, we review the Commission's action in this case de novo. Where "the decision under review [is] the district court's assessment of the legal sufficiency of [an] agency's action in light of the record[,] our task [is] precisely the same as the district court's." Occidental Petroleum Corp. v. SEC, 873 F.2d 325, 340 (D.C.Cir.1989). Like the District Court below, our review of the Commission's informal adjudication is limited to determining whether the Commission's decision is arbitrary and capricious. See 5 U.S.C. § 706(2)(A) (1988); Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415-16, 91 S.Ct. 814, 823-24, 28 L.Ed.2d 136 (1971). Therefore, "[t]he District Court's decision is not entitled to any particular deference." Hennepin County v. Sullivan, 883 F.2d 85, 91 (D.C.Cir.1989), cert. denied, 493 U.S. 1043, 110 S.Ct. 837, 107 L.Ed.2d 833 (1990). Similarly, we review de novo the District Court's conclusions regarding the constitutionality of the Commission's prior approval procedures. Propert v. District of Columbia, 948 F.2d 1327, 1331 (D.C.Cir.1991). Hence, notwithstanding the intervening step, we proceed as if the Commission's decision had been appealed to this court directly.

B. Procedural Issues

DPSU has attacked several aspects of the FTC's prior approval procedures. First, DPSU complains that the Commission improperly placed the burden of proof on Honickman to demonstrate that the proposed acquisition would not violate the relevant antitrust laws. Second, DPSU contends that, under the APA, the Commission was required to hold an on-the-record hearing regarding Honickman's application. Third, DPSU maintains that Honickman's Due Process rights were violated by the Commission's failure to hold a more formal hearing on his application. We find these arguments to be meritless.

Under applicable FTC regulations, all requests for "prior approval" are governed by Commission Rule 2.41(f). 16 C.F.R. § 2.41(f) (1992). 1 Indeed, Honickman apparently understood that rule 2.41(f) governed his application since he sought approval "[p]ursuant to Section 2.41(f)." See Harold Honickman's Application for Approval of the Acquisition of Certain Assets of 7-Up Brooklyn Bottling Company, Docket No. 9233 (Feb. 12, 1991) ("Honickman Application "), reprinted in J.A. at 43. As the District Court explained, the Commission's regulations require the party seeking Commission approval to show that the proposed acquisition would not violate the antitrust laws. See Dr. Pepper/Seven-Up, 798 F.Supp. at 771-72; see also West Texas Transmission L.P. v. Enron Corp., 1989-1 Trade Cas. (CCH) p 68,424 at 60,334, 1988 WL 156330 (W.D.Tex.1988), aff'd, 907 F.2d 1554 (5th Cir.1990),cert. denied, --- U.S. ----, 111 S.Ct. 1105, 113 L.Ed.2d 215 (1991). Thus, the "prior approval" proceeding is not the equivalent of a new adjudicative procedure in which the Commission must prove that the proposed transaction may substantially lessen competition in the relevant market. Rather, prior approval proceedings are used by the Commission to determine whether and how to exercise regulatory discretion that has been created pursuant to a consent agreement. In such circumstances, the burden of proof is on the party seeking "prior approval." Any party desiring to avoid this burden may simply decline to execute a consent agreement with the Commission (or seek to execute an agreement with more favorable terms).

Furthermore, we concur in the District Court's rejection of DPSU's claim that Honickman was entitled to an on-the-record hearing under the APA. See Dr. Pepper/Seven-Up, 798 F.Supp. at 773-76. Suffice it to say that the FTC's disposition of this matter was not governed by the Clayton or FTC Acts, but by FTC regulations, which do not require an on-the-record hearing for the disposition of prior approval applications. Since it is fundamental that the APA only requires on-the-record hearings on matters "required by statute to be determined on the record after opportunity for an agency hearing," 5 U.S.C. § 554, the notice and comment procedures used by the FTC were adequate in this case. See Pension Ben. Guaranty Corp. v. LTV Corp., 496 U.S. 633, 653-56, 110 S.Ct. 2668, 2679-81, 110 L.Ed.2d 579 (1990).

Finally, we agree that DPSU's Due Process argument is specious. Assuming, arguendo, that Honickman had a constitutionally protected interest at stake, we would nonetheless conclude that it was adequately protected by the informal procedures provided. We find entirely convincing the District Court's balancing of the asserted interests under the test described in Mathews v. Eldridge, 424 U.S. 319, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976). See Dr. Pepper/Seven-Up, 798 F.Supp. at 775-76. In this case, the alleged private interest in protecting Honickman's freedom to contract is unusually weak because of his voluntary agreement to get FTC approval prior to any acquisition in the soft drink industry. On the other hand, the Government has a substantial interest in expediting prior approval applications and resolving formal complaints through negotiated settlement rather than litigation. Cf. United States v. ITT Continental Baking...

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