F. T. C. v. National Tea Co.

• Decision Date: 16 July 1979
• Docket Number: No. 79-1503,79-1503
• Citation: 603 F.2d 694
• Parties: 1979-2 Trade Cases 62,755 FEDERAL TRADE COMMISSION, Appellant, v. NATIONAL TEA COMPANY, National (Holding) Company, National Supermarkets, Inc., and Applebaums' Food Markets, Inc., Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 694

603 F.2d 694

1979-2 Trade Cases 62,755

FEDERAL TRADE COMMISSION, Appellant, v. NATIONAL TEA COMPANY, National (Holding) Company, National Supermarkets, Inc., and Applebaums' Food Markets Inc., Appellees.

No. 79-1503.

United States Court of Appeals Eighth Circuit.

Submitted June 29, 1979.

Decided July 16, 1979.

Edward F. Glynn, Jr. and W. Dennis Cross, Gen. Counsel, Federal Trade Commission, Joseph Tasker, Jr., Atty., Bureau of Competition, Federal Trade Commission, Washington, D. C., and Stephen G. Palmer, Asst. U.S. Atty., Minneapolis, Minn., for Federal Trade Commission.

Francisca A. Sabadie, James T. Halverson, Gregory S. Bentley and Thomas M. Geisler, Jr., Shearman & Sterling, New York City, and Robert F. Henson, Henson & Efron, Minneapolis, Minn., for National Tea Company.

Victor S. Friedman, Fried, Frank, Harris, Shriver & Jacobson, New York City, and Milton H. Altman, Altman, Weiss & Bearmon, St. Paul, Minn., for Applebaums' Food Markets, Inc.

Before HEANEY, BRIGHT and STEPHENSON, Circuit Judges.

HEANEY, Circuit Judge.

The Federal Trade Commission asks this Court to reverse a judgment of the United States District Court for the District of Minnesota. That court refused the FTC's request to temporarily enjoin National Tea Company, a large retail grocery chain, operating stores in the Minneapolis-St. Paul metropolitan area, from acquiring Applebaums' Food Markets, Inc., another retail grocery chain operating in the same area. We refuse to reverse because we are convinced that the District Court's decision to deny the preliminary injunction was not based on an erroneous view of the law and was not an abuse of discretion.

I. PROCEDURAL BACKGROUND

Applebaums operates a chain of twenty-six retail grocery stores in the five-county Minneapolis-St. Paul metropolitan area. National ¹ operates nineteen similar stores in the same area. On February 2, 1979, National and Applebaums entered into a merger agreement by which National would acquire Applebaums.

The FTC issued a complaint on April 17, 1979, charging that this acquisition would substantially lessen competition or tend to create a monopoly in the Minneapolis-St. Paul area in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18, and Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45.

On April 19, 1979, the FTC, pursuant to Section 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 53(b), sought a preliminary injunction in the District Court for the District of Minnesota to restrain the merger during the pendency of the administrative proceedings. The District Court referred the matter to a magistrate who conducted a six-day evidentiary hearing. On June 15, 1979, the magistrate filed his findings of fact and conclusions of law. He concluded that a likely effect of the merger may be to substantially lessen competition and recommended that a preliminary injunction issue. On June 21 and 22, 1979, the District Court considered the magistrate's findings and recommendations, the respondent's objections thereto, and heard additional oral arguments. Three days later, on June 25, 1979, the District Court denied the FTC's motion for a preliminary injunction. Thereafter, the FTC petitioned the District Court for an injunction pending appeal. This, too, the District Court denied.

On June 26, 1979, the FTC petitioned this Court for an injunction pending appeal which Stephenson, J., then issued for a three-day period. On June 29, 1979, after oral argument, this panel continued that injunction until we could review the record and briefs and reflect on the oral arguments. We have decided to forego the question of whether an injunction pending appeal should issue and to reach the question as to whether the District Court erred in denying the preliminary injunction. We do so because the record is extensive, the briefs are thorough, the oral argument was comprehensive and no useful purpose would be served by delaying a resolution of this issue until this Court meets in September. ² We, of course, do not determine in this proceeding the ultimate question of whether the acquisition is violative of either the Clayton or Federal Trade Commission Acts. These questions are to be decided in the first instance by the FTC.

II. STANDARD OF REVIEW

The standard of review is a relatively simple one. The denial of a preliminary injunction may be reversed only if the trial court abused its discretion or based its decision on an erroneous legal premise. See Modern Controls, Inc. v. Andreadakis, 578 F.2d 1264, 1270 (8th Cir. 1978); Waste Management, Inc. v. Deffenbaugh, 534 F.2d 126, 129 (8th Cir. 1976). Accord, F.T.C. v. Simeon Management Corp., 532 F.2d 708, 711 (9th Cir. 1976). In our view, the District Court did neither.

A. The Legal Standard

We first consider whether the District Court applied the proper legal standard. Section 13(b) of the Federal Trade Commission Act, under which the Commission seeks relief, sets out that standard:

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(.)

15 U.S.C. § 53(b).

1. The Equities

The magistrate held that public and private equities were to be considered. He found that the principal public equity was that an after-the-fact remedy of divestiture would be inadequate because the merged entity would "truly be a whole whose original parts will, practically speaking, not be capable of distinction." He recognized that there were private equities as far as Applebaums was concerned. He found that:

Applebaums' faces serious problems in terms of continuity of its top-level management. Of its five top executives, three have serious health problems. Singer (the Chairman of the Board) himself joined the company in 1934. To obtain outside professional management would require payment of salaries at least double those presently drawn by Applebaums' management. Further, the board of Applebaums' is reluctant to turn over to outside management a company in which various members of the family have invested most of their lives.

Except for one offer made by Lucky Stores in 1976 and National's offer, Applebaums' management has not had any opportunity to merge or sell the company. National's offer is $15.25 per share, while Applebaums' stock was trading, prior to the offer, at $6 per share.

He concluded, however, that the equities failed to compare as neither Applebaums nor National would fold if the merger fell through, and that the worst that could happen to either was financial losses resulting from past business judgments.

The District Court agreed that public and private equities were to be considered but rejected the magistrate's finding that the public equities predominated. He found the equities to be "close." He reasoned that divestiture would probably not be a severe problem as National has agreed that "if, after final judgment, divestiture is ordered in this matter, National Tea will divest Applebaums' as 'Applebaums', within six months after such final judgment is entered," to a FTC-approved purchaser, and National stipulated that, if divestiture is ordered after final judgment, it will not assert difficulty of divestiture as a defense. ³

In our view, the District Court properly considered public and private equities. See F.T.C. v. Simeon Management Corp., supra, at 717. Moreover, there is nothing in its opinion that would indicate that it did not agree that public equities are to be given the greater weight. See id. ⁴ It simply didn't agree with the magistrate's findings, particularly the finding that divestiture would cause serious problems. We cannot say that its findings were clearly erroneous or its decision an abuse of discretion. National has agreed to divest itself of Applebaums within six months of a final judgment and the FTC has indicated that the matter can be fully decided by the Commission within eight months from the date of this opinion. Not many fundamental changes can be made in the operation of the merged stores during this short period. Moreover, it will be to National's self interest to cooperate in achieving an early disposition because, if the merger is ultimately disapproved, the full burden of divestiture falls on it. The longer the delay in achieving a final disposition in the matter, the greater will be the difficulty and the cost National may incur. ⁵

2. Likelihood of Ultimate Success

Having held that the trial court's finding that the equities were close and did not tip the scale in either direction was not an abuse of discretion, we turn to review the District Court's decision regarding the FTC's showing of likelihood of ultimate success.

The magistrate and the District Court did not entirely agree on the standard to be used in determining the likelihood of ultimate success. The magistrate concluded that the FTC must 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.

Federal Trade Com'n v. Beatrice Foods Co., 190 U.S.App.D.C. 328, 332, 587 F.2d 1225, 1229 (1978) (statement of Circuit Judges MacKinnon and Robb). Accord, F.T.C. v. Rhinechem Corp., 459 F.Supp. 785 (N.D.Ill.1978); F.T.C. v. Lancaster Colony Corp., Inc., 434 F.Supp. 1088, 1091 (S.D.N.Y.1977).

The District Court indicated that it felt that a standard somewhat higher than that articulated by the magistrate ought to be used. It failed, however, to delineate what that higher standard was, stating that even if the magistrate's standard was applied, the FTC had failed to make a showing sufficient to entitle it to injunctive relief.

We believe that the standard articulated by the magistrate is the proper...