F.T.C. v. Arch Coal, Inc.

• Decision Date: 16 August 2004
• Docket Number: No. CIV.A.04-0534 JDB.,No. CIV.A.9409535 JDB.,CIV.A.04-0534 JDB.,CIV.A.9409535 JDB.
• Parties: FEDERAL TRADE COMMISSION, Plaintiff, v. ARCH COAL, INC., et al., Defendants. State of Missouri, et al., Plaintiffs, v. Arch Coal, Inc., et al., Defendants.
• Court: U.S. District Court — District of Columbia

329 F.Supp.2d 109

FEDERAL TRADE COMMISSION, Plaintiff, v. ARCH COAL, INC., et al., Defendants.

State of Missouri, et al., Plaintiffs, v. Arch Coal, Inc., et al., Defendants.

No. CIV.A.04-0534 JDB.

No. CIV.A.9409535 JDB.

United States District Court, District of Columbia.

August 16, 2004.

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Rhett Rudolph Krulla, Federal Trade Commission, Bureau of Competition, Marc I. Alvarez, Federal Trade Commission, Washington, DC, Counsel for plaintiff Federal Trade Commission.

Anne E. Schneider, Office of the Attorney General, State of Missouri, Jefferson City, MO, Counsel for plaintiff States and State of Missouri.

Bradford J. Phelps, Office of the Attorney General, Little Rock, AR, Counsel for plaintiff State of Arkansas.

Karl R. Hansen, Office of the Kansas Attorney General, Topeka, KS, Counsel for plaintiff State of Kansas.

Robert W. Pratt, Illinois Office of the Attorney General, Chicago, IL, Counsel for plaintiff State of Illinois.

Thomas J. Miller, Iowa Department of Justice, Layne M. Lindebak, Iowa Department of Justice, Des Moines, IA, Counsel for plaintiff State of Iowa.

Rebecca Fisher, Office of the Attorney General of Texas, Austin, TX, Counsel for plaintiff State of Texas.

Stephen Weissman, Howrey Simon Arnold & White, LLP, William Bradford Reynolds, Howrey Simon Arnold & White LLP, Washington, DC, Counsel for defendant Arch Coal, Inc.

Charles Edward Bachman, O'Melveny & Myers, LLP, New York, NY, Richard G. Parker, O'Melveny & Myers LLP, Washington, DC, Counsel for defendants New Vulcan Coal Holdings, LLC and Triton Coal Company, LLC.

Kenneth George Starling, Piper Rudnick LLP, Washington, DC, Counsel for movant Peter Kiewit Sons, Inc.

MEMORANDUM OPINION

BATES, District Judge.

Coal is the primary fuel that produces electric power for residential and business consumers across the United States. It is mined in various regions across the country, in either surface or underground mining operations, after which the coal is transported by rail, truck or barge to electrical generating plants. One-third of the coal produced annually in the United States — over 360 million tons — is produced from large-scale surface mining operations in the Southern Powder River Basin ("SPRB") region of Wyoming. Seven companies operate fourteen mines in the SPRB at this time.

In May of 2003, Arch Coal, Inc. ("Arch"), the owner and operator of two SPRB mines (Black Thunder and Coal Creek) as well as other mining operations across the United States, and New Vulcan Coal Holdings, LLC ("New Vulcan"), the owner of two SPRB mines (North Rochelle and Buckskin), which it operates through its subsidiary Triton Coal Company, LLC ("Triton"), entered into a merger and purchase agreement under which Arch would acquire Triton and its two SPRB mines. Hart-Scott-Rodino pre-merger notification was provided to the Federal Trade Commission ("FTC"), which in August 2003 requested additional information from Arch and New Vulcan. Arch subsequently informed the FTC that it intended to divest one of the acquired mines (Buckskin) to Peter Kiewit Sons, Inc. ("Kiewit"), a large company with some mining interests outside the SPRB, and in January 2004 a firm asset purchase agreement was entered by Arch and Kiewit.

After a nine-month review, the FTC voted on March 30, 2004, to commence this action seeking to enjoin the proposed acquisition under Section 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 53(b), as violative of Section 7 of the Clayton Act, 15 U.S.C. § 18. The FTC seeks to preliminarily enjoin Arch's proposed acquisition of Triton until an administrative FTC proceeding challenging the transaction under Section 7 can be completed. A parallel suit was also filed on April 1, 2004, by the States of Missouri, Arkansas, Kansas, Illinois, Iowa, and Texas (the "States") seeking both preliminary and permanent injunctive relief. The two actions were consolidated by this Court on April 21, 2004.¹

The Court held a two-week trial commencing on June 28, 2004, during which it heard from more than twenty witnesses and received hundreds of exhibits, many of them lengthy, including deposition and affidavit testimony of several additional witnesses. The parties have submitted well over 700 pages of post-hearing proposed findings of fact and briefs. The Court has reviewed that substantial body of evidence and argument in assessing the FTC's challenge to the proposed acquisition of the North Rochelle and Buckskin mines by Arch, and the simultaneous transfer of Buckskin to Kiewit, and the probable effect of those transactions on competition in the SPRB.² The case is complex, and represents an attempt by the FTC to enjoin transactions that do not reduce the number of competitors and only modestly increase the concentration in what has been a very competitive market. Moreover, the case rests on a novel FTC theory of likely future "tacit coordination" among competitors to restrict production, as opposed to direct coordination of prices. In the end, the Court concludes that the FTC and the States have not met their burden under Section 7 of the Clayton Act and (for the FTC) Section 13(b) of the FTC Act to show a likelihood that the challenged transactions will substantially lessen competition in the SPRB. The requested preliminary injunctive relief will therefore be denied.³

I. APPLICABLE LAW

Section 7 of the Clayton Act, 15 U.S.C. § 18, prohibits a merger between two companies "where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition ... may be substantially to lessen competition, or tend to create a monopoly." The Supreme Court has observed that Section 7 "deals in probabilities, not certainties." United States v. General Dynamics Corp., 415 U.S. 486, 505, 94 S.Ct. 1186, 39 L.Ed.2d 530 (1974); see also Brown Shoe Co. v. United States, 370 U.S. 294, 323, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962); United States v. El Paso Natural Gas Co., 376 U.S. 651, 658, 84 S.Ct. 1044, 12 L.Ed.2d 12 (1964). As defendants also correctly stress, however, "Section 7 deals in probabilities not ephemeral possibilities." FTC v. Tenet Health Care Corp., 186 F.3d 1045, 1051 (8th Cir.1999). To warrant injunctive relief under the Clayton Act, the challenged acquisition must be likely substantially to lessen competition. Although certainty is not required, Section 7 does demand that a plaintiff demonstrate that the substantial lessening of competition will be "sufficiently probable and imminent" to warrant relief. United States v. Marine Bancorporation, 418 U.S. 602, 618, 94 S.Ct. 2856, 41 L.Ed.2d 978 (1974); see United States v. Baker Hughes, Inc., 908 F.2d 981, 984 (D.C.Cir.1990) ("Section 7 involves probabilities, not certainties or possibilities.").

Congress has empowered the Federal Trade Commission to seek preliminary injunctive relief preventing parties from consummating a merger until the FTC has had an opportunity to adjudicate the merger's legality. Section 13(b) of the FTC Act "provides for the grant of a preliminary injunction where such action would be in the public interest — as determined by a weighing of the equities and a consideration of the Commission's likelihood of success on the merits." FTC v. H.J. Heinz Co., 246 F.3d 708, 714 (D.C.Cir.2001); see 15 U.S.C. § 53(b). The FTC "is not required to prove, nor is the court required to find, that the proposed merger would in fact violate Section 7 of the Clayton Act." FTC v. Staples, Inc., 970 F.Supp. 1066, 1070 (D.D.C.1997) (citations omitted); see FTC v. University Health, Inc., 938 F.2d 1206, 1218 (11th Cir.1991) (court's task is to make preliminary assessment of impact on competition). Rather, the FTC "need only show that there is a `reasonable probability' that the Acquisition may substantially lessen competition." Staples, 970 F.Supp. at 1072. Proof of actual anticompetitive effects is not required; instead, the FTC must show "an appreciable danger" of future coordinated interaction based on a "predictive judgment." Heinz, 246 F.3d at 719 (quoting Hosp. Corp. of Am. v. FTC, 807 F.2d 1381, 1389 (7th Cir.1986)). While proof of prior cooperative behavior is relevant, it is not a necessary element of likely future coordination in violation of Section 7. The FTC, then, 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." Id. at 714-15 (citations omitted).

Given the stakes, the FTC's burden is not insubstantial, and "[a] showing of a fair or tenable chance of success on the merits will not suffice for injunctive relief." Tenet Health Care, 186 F.3d at 1051; see Fruehauf Corp. v. FTC, 603 F.2d 345, 351 (2d Cir.1979) ("mere possibility" will not justify preliminary injunction). Because the public interest in effective enforcement of the antitrust laws is of primary importance, a showing of likely success on the merits will presumptively warrant an injunction. See Heinz, 246 F.3d at 726; University Health, 938 F.2d at 1225; Staples, 970 F.Supp. at 1091. Conversely, absent a likelihood of success on the merits, equities alone will not justify an injunction. See FTC v. PPG Indus., Inc., 798 F.2d 1500, 1508 (D.C.Cir.1986).

This Circuit has articulated an analytical approach by which the FTC may establish a Section 7 violation. First, the FTC must show that the merger would produce a firm controlling an undue share of the relevant market and would result in a significant increase in the concentration of the market. Heinz, 246 F.3d at 715 (citations omitted). "Such a showing establishes a presumption that the merger will substantially lessen competition." Id. (citing Baker Hughes, 908 F.2d at 982). Defendants can then rebut the presumption by producing evidence that...