Jim Walter Corp. v. F. T. C.

• Citation: 625 F.2d 676
• Decision Date: 12 September 1980
• Docket Number: No. 78-1669,78-1669
• Parties: 1980-2 Trade Cases 63,535 JIM WALTER CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

Page 676

625 F.2d 676

1980-2 Trade Cases 63,535

JIM WALTER CORPORATION, Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

No. 78-1669.

United States Court of Appeals Fifth Circuit.

Sept. 12, 1980.

Schiff, Hardin & Waite, William A. Montgomery, W. Donald McSweeney, Walter C. Greenough, Joseph P. Collins, Chicago, Ill., Thomas C. MacDonald Jr., Tampa, Fla., James W. Kynes, Tampa, Fla., for petitioner.

David C. Shonka, FTC, W. Dennis Cross, Asst. Gen. Counsel, Washington, D. C., for respondent.

Petition for Review of an Order of the Federal Trade Commission.

Before COLEMAN, Chief Judge, TJOFLAT, Circuit Judge and MITCHELL ^*, District Judge.

TJOFLAT, Circuit Judge:

Jim Walters Corporation (JWC) appeals from a Federal Trade Commission (FTC) decision (and related divestiture order), finding that JWC's acquisition of Panacon Corporation violated section 7 of the Clayton Act, 15 U.S.C. § 18 (1976). Although JWC contends that the FTC committed numerous errors, both procedural and substantive, we find it necessary to resolve only two of the issues raised: first, whether the FTC had jurisdiction in the case, which we find it did; and, second, whether the FTC's conclusion that the relevant geographic market is national was based on a correct legal analysis of the facts before it. Because we find that it was not, we remand the case to the FTC for such proceedings, not inconsistent with this opinion, as may be appropriate.

I

JWC is a holding company incorporated under the laws of Florida. Celotex Corporation, in turn, is a wholly-owned and closely supervised subsidiary of JWC. Celotex manufactures and retails several lines of construction materials, including a line of asphalt and tar roofing products.

In 1972, Celotex acquired the stock of Panacon Corporation. Panacon, like Celotex, was a manufacturer and retailer of construction materials; and, like Celotex, Panacon had a product line that included tar and asphalt roofing products, which were manufactured by a Panacon division, Philip Carey. ¹ Another Panacon division, Carey-Canadian Mines, Ltd., mined asbestos, a product used in the manufacture of a particular type of asphalt roofing. Of the eight Philip Carey roofing plants, one plant manufactured this type of asphalt roofing, and purchased 41% of its asbestos from Carey-Canadian. Panacon was merged into Celotex on April 17, 1972.

Prior to the stock acquisition and merger, Celotex's tar and asphalt roofing operations accounted for 8.83% of all domestic sales, making it the fifth largest producer in the United States. Philip Carey, the sixth largest producer, with an 8.79% share of all domestic sales, was close behind. Following the merger, Celotex became the nation's second largest producer of tar and asphalt roofing, with 17.62% of all sales. With Celotex as the second largest firm, the concentration ratio of the nation's two largest firms was increased from 29.94 to 35.71%, and of the eight largest, from 51.76 to 59.21%.

In 1973, the FTC initiated an investigation into the acquisition, which culminated in a complaint alleging that JWC violated section 7 of the Clayton Act. In particular, the complaint alleged that the effect of the acquisition "may be substantially to lessen competition or to tend to create a monopoly in the manufacture, sale, and distribution of all asphalt roofing materials and of built-up roofing and shingles in the United States." Complaint at P 15. The appropriate remedy, according to the government, was for JWC to divest all former Panacon operations as going concerns. ²

During hearings before an Administrative Law Judge (ALJ), JWC contended: (1) that its subsidiary, Celotex, was the proper party-respondent, and in any event, an indispensable party to the proceedings; (2) that JWC could not be the primary respondent because, as a holding company, it was not engaged in interstate commerce within the meaning of section 7 of the Clayton Act; (3) that the relevant product market included not only tar and asphalt, but also wood, concrete and clay tile roofing products; (4) that the entire United States was not a proper market for section 7 purposes; and (5) that the acquisition would not have anticompetitive or probable anticompetitive effects. If, however, the ALJ found a violation of section 7, JWC argued for a remedy short of divestiture, or, if divestiture were ordered, a remedy limited to the sale of Philip Carey's roofing operations.

The Administrative Law Judge ruled that JWC was engaged in interstate commerce, that Celotex was not an indispensable party, that tar and asphalt roofing products composed the relevant product market, and that both the United States as a whole and a 26-state region of the United States were proper geographic markets. Because he also found that Celotex's acquisition of Panacon would have anticompetitive effects, the ALJ concluded that JWC had violated section 7. Accordingly, he ordered JWC to divest Panacon's tar and asphalt roofing operations in one or more units.

JWC appealed the order to the FTC. While the FTC found insufficient evidence to support a regional market, it adopted the ALJ's findings of fact and conclusions of law in all other respects. The FTC modified the ALJ's order so as to require that Philip Carey be divested as a single unit, and expanded the order to include Philip Carey's Elizabethtown, Kentucky, polyurethene insulation materials plant ³ and Carey-Canadian Mines, Ltd.

JWC next petitioned the FTC for reconsideration of its decision and order, raising two contentions concerning the divestiture order: first, that divestiture of Carey-Canadian Mines, Ltd. and the polyurethene plant should not have been ordered because it was superfluous to the purposes of the remedy, and, in fact, would make compliance with the order more difficult, since a Philips-Carey/Carey-Canadian package would be unattractive to potential purchasers; ⁴ second, that the FTC should have prepared an environmental impact statement before issuing its order. The FTC ruled that these issues were untimely raised on reconsideration, since JWC had ample opportunity to present them during the initial hearings. But, even had it resolved these issues on the merits, the FTC indicated that it would have held against JWC.

JWC then appealed from the FTC's final order to this Court, contending that the FTC had incorrectly resolved each of the various contested factual and legal issues. We have already indicated that we need consider only two of those issues on this appeal.

II

A

The first issue on appeal is whether the FTC had jurisdiction over this action. Section 7 states that,

No corporation engaged in commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no corporation subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another corporation engaged also in commerce, where in any line of commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.

The jurisdictional prerequisites imposed by this language are that the acquiring and the acquired corporation each be engaged in interstate commerce. See United States v. American Building Maintenance Industries, 422 U.S. 271, 95 S.Ct. 2150, 45 L.Ed.2d 177 (1975). JWC contends that it is not engaged in interstate commerce and thus, that the FTC lacks jurisdiction over the action. We proceed to a determination of whether JWC was engaged in interstate commerce. ⁵

Section 7's "engaged in commerce" jurisdictional standard is less encompassing than the "affecting commerce" test that sets the jurisdictional reach of the Sherman Act. Id. A corporation is engaged in commerce only if it is "directly engaged in the production, distribution or acquisition of goods or services in interstate commerce." Id. at 283, 95 S.Ct. at 2150. JWC argues that because it has no commercial activities except through its subsidiaries, it is not directly involved in the production, distribution or acquisition of goods or services in interstate commerce or otherwise. Thus, according to JWC, the commercial activities of a subsidiary cannot be imputed to its parent in determining whether section 7 jurisdiction exists.

We disagree. First of all, the original section 7 "was designed primarily to deal with the evil of the secret acquisition by one corporation of the stock of another corporation, principally those acquisitions by 'holding companies.' " United States v. Celanese Corporation of America, 91 F.Supp. 14, 17 (S.D.N.Y.1950). It is illogical to suggest that Congress directed section 7 "primarily at the development of holding companies," Brown Shoe Co. v. United States, 370 U.S. 294, 314, 82 S.Ct. 1502, 1518, 8 L.Ed.2d 510 (1962), but chose a jurisdictional scheme in which holding companies could not be defendants.

Moreover, the issue in United States v. American Building Maintenance Industries, supra, the case on which JWC relies, was whether the activities of an acquired janitorial services business, operating intrastate but affecting commerce, satisfied the jurisdictional requirements of section 7. The Supreme Court held that they did not, but nowhere suggested what JWC would have us hold here that the corporate veil of a holding company can become an impregnable shield against section 7 actions. ⁶ To approve such a hard-and-fast rule would be to deny the commercial realities of the day, and to place some of the nation's largest corporations beyond section 7's important control on acquisitive corporate behavior in our national marketplace. ⁷

We would also be reluctant to sanction the converse proposition, i. e., that a parent corporation and its subsidiaries are always a single entity for determining jurisdiction under section 7. Such a holding is not, however, required here. JWC was, as the FTC found, actively involved in the...