STATE OF CAL. BY VAN de KAMP v. American Stores, CV 88-5331 KN.

• Decision Date: 29 September 1988
• Docket Number: No. CV 88-5331 KN.,CV 88-5331 KN.
• Parties: The STATE OF CALIFORNIA, by Its Attorney General John K. VAN de KAMP, Plaintiff, v. AMERICAN STORES COMPANY, Alpha Beta Acquisition Corp., Lucky Stores, Inc., Defendants.
• Court: U.S. District Court — Central District of California

697 F. Supp. 1125

The STATE OF CALIFORNIA, by Its Attorney General John K. VAN de KAMP, Plaintiff, v. AMERICAN STORES COMPANY, Alpha Beta Acquisition Corp., Lucky Stores, Inc., Defendants.

No. CV 88-5331 KN.

United States District Court, C.D. California.

September 29, 1988.

John K. Van de Kamp, Los Angeles, Cal., pro se.

Andrea Sheridan Ordin, Sanford N. Gruskin, Owen Lee Kwong, H. Chester Horn, Jr., Lawrence R. Tapper, Ernest Martinez, Los Angeles, Cal., for State of Cal.

Frank Rothman, Stephen M. Axinn, Paul T. Denis, Skadden, Arps, Slate, Meagher & Flom, Los Angeles, Cal., for defendants.

ORDER RE PRELIMINARY INJUNCTION; PRELIMINARY INJUNCTION

KENYON, District Judge.

The Court, having received and considered Plaintiff State of California's Application for a Preliminary Injunction and the papers filed in support thereof and in opposition thereto, HEREBY GRANTS Plaintiff's application.

I. BACKGROUND

Plaintiff, State of California, through its Attorney General, John K. Van de Kamp, ("State") brought this action to enjoin the merger of the assets and businesses of Lucky Stores, Inc. ("Lucky") and American Stores Company, Alpha Beta Acquisition Corporation, and their respective subsidiaries ("Alpha Beta").

The parties to this proposed merger are the first and fourth largest supermarket chains in California and two of the ten largest grocery chains in the United States. Both Alpha Beta and Lucky are principally engaged in the retail sale of food and related products for off-premises consumption. In California, Alpha Beta operates 252 "Alpha Beta" and "Skaggs Alpha Beta" retail supermarkets. Lucky operates 340 "Lucky Stores" and "Lucky Food Basket" retail supermarkets. Memorandum In Opposition to Motion For Preliminary Injunction at 4 ("Opp. to Inj."). The proposed Lucky/Alpha Beta acquisition follows on the heels of a merger by the second and third largest grocery chains in California, Vons and Safeway.

The State's purpose in seeking the preliminary injunction is "to maintain the status quo for consumers — the existence of at least three competing supermarket chains." Memorandum of Points and Authorities in Support of Application for Temporary Restraining Order at 4 ("TRO Application"). The State maintains that the effect of the Lucky/Alpha Beta proposed merger may be substantially to lessen competition in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18; Section 1 of the Sherman Act, 15 U.S.C. § 1; the Cartwright Anti-Trust Act, California Business and Professions Code, sections 16770, et seq.; and the Unfair Business Practices Act, California Business and Professions Code, sections 17200, et seq.

II. DISCUSSION

In order to grant a preliminary injunction, the Court must consider the following factors: (1) Whether plaintiff has demonstrated, at the minimum, a fair chance of success on the merits. Benda v. Grand Lodge of Int'l Ass'n of Machinists & Aerospace Workers, 584 F.2d 308, 315 (9th Cir. 1978), cert. dismissed, 441 U.S. 937, 99 S.Ct. 2065, 60 L.Ed.2d 667 (1979); (2) Whether plaintiff has demonstrated a significant threat of irreparable injury. Oakland Tribune, Inc. v. Chronicle Publishing Co., 762 F.2d 1374, 1376 (9th Cir.1985); and (3) Whether plaintiff has demonstrated at least a minimal tip in the balance of hardships even when the strongest showing on the merits is made. Los Angeles Memorial Coliseum Comm'n v. National Football League, 634 F.2d 1197, 1203-04 (9th Cir.1980). As the Ninth Circuit stated in William Inglis & Sons Baking Co. v. ITT Continental Baking Co., 526 F.2d 86, 87 (9th Cir.1975), a court may issue a preliminary injunction if the moving party demonstrates "either a combination of probable success on the merits and the possibility of irreparable injury or that serious questions are raised and the balance of hardships tips sharply in his favor." The court has stated that these two tests are not inapposite but merely extremes of a single continuum:

The critical element in determining the test to be applied is the relative hardship to the parties. If the balance of harm tips decidedly toward the plaintiff, then the plaintiff need not show as robust a likelihood of success on the merits as when the balance tips less decidedly.

Benda, 584 F.2d at 315. In FTC v. Warner Communications Inc., 742 F.2d 1156, 1162 (9th Cir.1984), the Ninth Circuit reversed the district court's denial of the Federal Trade Commission's ("FTC") application for a preliminary injunction on the grounds that the government had adequately met its burden of demonstrating likelihood of success on the merits. The FTC brought an action to block a proposed joint venture involving two record companies. In determining whether `likelihood of success' had been established, the court noted that its task was "not to make a final determination on whether the proposed merger violates Section 7 (of the Clayton Act), but rather to make only a preliminary assessment of the merger's impact on competition." Id.

A. The Prima Facie Case

Case law has established guidelines for determining whether the effect of a proposed merger may be "substantially to lessen competition" in violation of the Clayton Act.

A merger which produces a firm controlling an undue percentage share of the relevant market, and results in a significant increase in the concentration of firms in that market, is so inherently likely to lessen competition substantially that it must be enjoined in the absence of evidence clearly showing that the merger is not likely to have such anticompetitive effects.

United States v. Philadelphia National Bank, 374 U.S. 321, 363, 83 S.Ct. 1715, 1741, 10 L.Ed.2d 915 (1963) (finding that where top four firms had market share of 78%, post-merger market share raised inference merger was anticompetitive). The Court further stated that "if concentration is already great, the importance of preventing even slight increases in concentration and so preserving the possibility of eventual deconcentration is correspondingly great." Id. at 365 n. 42, 83 S.Ct. at 1742-43 n. 42. Statistical evidence of market share and concentration resulting from a merger can establish a prima facie case or the presumption that the proposed merger would substantially lessen competition in violation of the Clayton Act. United States v. Marine Bancorporation, Inc., 418 U.S. 602, 631, 94 S.Ct. 2856, 2874, 41 L.Ed.2d 978 (1974). The presumption of a Clayton Act violation based on the post-merger market statistics is not conclusive and can be overcome, but only by a showing that the statistics do not accurately reflect the probable effect of the proposed merger on competition. Id. See also United States v. General Dynamics Corp., 415 U.S. 486, 94 S.Ct. 1186, 39 L.Ed. 2d 530 (1974).

Recent cases use a variety of statistical indicators to determine whether a proposed merger can be presumed to substantially lessen competition. Post-merger market share is one indicator. Indicators of market concentration can be developed by determining the total percentage of market share held by the top two, three, four, etc. firms before and after the merger. The Herfindahl-Hirshman Index, ("HHI"), is another means to analyze market concentration. The HHI is calculated by summing the squares of the percentages of market share held by each of the firms in a given market, and therefore reflects the distribution of the market shares of the entire market, not just the top few firms.

Under the 1984 version of the Merger Guidelines of the United States Department of Justice, an HHI between 1000 and 1800 suggests a moderately concentrated market, and an HHI above 1800 suggests a highly concentrated market. Where the post-merger market would be in the moderately concentrated range, a merger that increases the HHI by more than 100 points will, absent other factors, present serious antitrust questions. Where the post-acquisition market would be highly concentrated, an increase of more than 50 HHI points will present serious antitrust questions. Dept. of Justice, Merger Guidelines, ¶ 2, 49 Fed.Reg. 26823 (1984). See, e.g., RSR Corp. v. FTC, 602 F.2d 1317 (9th Cir.1979) (merger of second and fifth largest firms found anticompetitive where result was post-merger market share increase from 12% to 19%, four-firm concentration increase from 65% to 72%, and eight-firm concentration increase from 81% to 84%); Christian Schmidt Brewing Co. v. G. Heileman Brewing Co., Inc., 600 F.Supp. 1326 (E.D.Mich.), aff'd, 753 F.2d 1354 (6th Cir.1985) (proposed merger found to substantially lessen competition based on statistical evidence of post-merger market share of 31%, four-firm concentration increase from 78% to 89%, HHI increase from 1746 to 2120, and general trend toward concentration); Marathon Oil Co. v. Mobil Corp., 530 F.Supp. 315 (N.D.Ohio), aff'd, 669 F.2d 378 (6th Cir.1981) (acquisition enjoined based on post-merger combined market share of 10-20% in relevant markets, four-firm concentration increase from 48% to 53% on average, and general trend toward concentration.) Cf. United States v. Waste Management, Inc., 743 F.2d 976 (2d Cir.1984) (prima facie illegality of merger based on post-merger market share of 49% successfully rebutted by evidence that market power did not result).

In order to analyze whether the statistical evidence of market concentration resulting from a particular proposed merger establishes a presumption that the merger may substantially lessen competition in violation of the Clayton Act, the relevant product and geographic markets in which competition may be affected must be defined. Marine Bancorporation, 418 U.S. at 618, 94 S.Ct. at 2868. "The outer boundaries of a product market can be determined by the `reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it.'" RSR, 602 F.2d at 1317, 1320, citing Brown Shoe Co. v. United States, 370 U.S. 294, 325, 82 S.Ct. 1502, 1523-1524, 8 L.Ed.2d 510 ...