US v. Rockford Memorial Corp.

• Citation: 717 F. Supp. 1251
• Decision Date: 23 February 1989
• Docket Number: No. 88 C 20186.,88 C 20186.
• Parties: UNITED STATES of America, Plaintiff, v. ROCKFORD MEMORIAL CORPORATION and SwedishAmerican Corporation, Defendants.
• Court: U.S. District Court — Northern District of Illinois

717 F. Supp. 1251

UNITED STATES of America, Plaintiff, v. ROCKFORD MEMORIAL CORPORATION and SwedishAmerican Corporation, Defendants.

No. 88 C 20186.

United States District Court, N.D. Illinois, W.D.

February 23, 1989.

Richard S. Martin, Seymour H. Dussman, Nancy M. Goodman and Fred E. Haynes, Antitrust Div., Dept. of Justice, Washington, D.C., for plaintiff.

Gardner, Carton & Douglas, Chicago, Ill., Holmstrom & Green, and Williams & McCarthy, Rockford, Ill., for defendants.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

MEMORANDUM OPINION AND ORDER

ROSZKOWSKI, District Judge.

NATURE OF THE CASE

On September 27, 1987, the defendants Rockford Memorial Corporation ("RMC") and SwedishAmerican Corporation ("SAC") executed a Memorandum of Understanding agreeing, in principle, to form a new corporation which would become the sole member of and control RMC and SAC and all their affiliate corporations including their respective principal subsidiaries, Rockford Memorial Hospital ("RMH") and SwedishAmerican Hospital ("SAH"). The consolidation was originally scheduled to take place June 1, 1988. On June 1, 1988, the United States of America ("government") filed a verified complaint, to prevent and restrain the merger of RMC and SAH and to adjudge the transaction to be in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18, and Section 1 of the Sherman Act, 15 U.S.C. § 1. The government also moved for a preliminary injunction to enjoin RMC and SAC from taking any action to proceed with the consolidation.

Subsequent to the hearing on the government's motion for a preliminary injunction, the defendants agreed to voluntarily refrain from proceeding with the consolidation until a ruling on the motion for a preliminary injunction. Beginning on June 20, 1988 and concluding on July 14, 1988 the court heard the parties on the government's motion for a preliminary injunction. Subsequently, the parties have stipulated to a consolidation of the preliminary injunction hearing with a trial on the merits. The defendants have also moved to dismiss the government's Section 7 Clayton Act claim.

APPLICABILITY OF SECTION 7 OF THE CLAYTON ACT

As a preliminary matter, the court must decide if section 7 of the Clayton Act, 15 U.S.C. § 18, applies to the parties and transaction in question. The defendants have moved this court to dismiss the government's Section 7 claim for lack of subject matter jurisdiction. In essence, the defendants contend that Section 7 does not reach a non-stock consolidation between not-for-profit hospitals.¹

The government disputes the defendants' conclusion and points to the United States Supreme Court's decision in United States v. Philadelphia National Bank, 374 U.S. 321, 83 S.Ct. 1715, 10 L.Ed.2d 915 (1963), to support their contention that Section 7 does indeed apply to the instant transaction. The defendants, on the other hand, do not view the Philadelphia decision as dispositive on the issue of Section 7 applicability and instead primarily rely on a reading of the language in Section 7, itself.

Section 7 of the Clayton Act states as follows:

No person shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of one or more persons engaged in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition of such stocks or assets, or of the use of such stock by the voting or granting of proxies or otherwise, may be substantially to lessen competition or to tend to create a monopoly.

15 U.S.C. § 18.

At the risk of oversimplifying their position, the defendants read the first part of Section 7 as being made up of two provisions —the first provision referring to an acquisition of "stock" or "share capital" and the second provision referring to an acquisition of "assets." This first provision, according to the defendants, applies to all "persons" whether or not they are under the Federal Trade Commission's ("FTC") jurisdiction, while the second "asset acquisition" provision applies only to persons under the jurisdiction of the FTC.

The defendants contend that the first provision applies only to consolidations accomplished through an acquisition of stock or share capital. Furthermore, the defendants argue that this first provision is dispositive in the instant case since the second provision only applies to persons under the FTC's jurisdiction, and not-for-profit companies such as the defendants in this case, are not under the aegis of the FTC. Accordingly, the defendants reason that since the consolidation of Rockford Memorial Corporation and SwedishAmerican Corporation does not involve a transfer of stock or share capital, and neither entity is under the FTC's jurisdiction, the transaction here is not reached by either the first or second provision of Section 7 and hence the Section is inapplicable to the defendants' consolidation.

The defendants continue that such an interpretation is not unreasonable even after a reading of the Philadelphia National Bank decision. The government contends that the case law in Philadelphia and subsequent decisions does not support the defendants' position.

In Philadelphia National Bank, supra, two banks, not under the jurisdiction of the FTC, intended to consolidate in a manner that had not been traditionally reached by the pre-1950 amended "stock" or "share" acquisition provision in Section 7. Thus, the Philadelphia court embarked on an analysis of the post-1950 amended section 7 and its applicability to a merger of two entities outside the FTC's jurisdiction. Philadelphia, 374 U.S. at 337, 83 S.Ct. at 1727.

The Philadelphia Court reviewed the history of Section 7 from the time of its enactment to the Supreme Court's decisions which effectively rendered it useless on all manner of mergers and consolidations.² The Court then proceeded to review the effect of the 1950 amendment that added the "asset acquisition" provision.³ Based on this review, the Philadelphia Court concluded that through the 1950 amendment "congress primarily sought to bring mergers within § 7 and thereby close what it regarded as a loophole in the section." Philadelphia, 374 U.S. at 341, 83 S.Ct. at 1729. The Court continued that not only was Section 7 amended to reach mergers but, in some cases, also transactions which simply involve a purchase of assets unaccompanied by an exchange of shares or alteration of corporate identity. Philadelphia, 374 U.S. at 341-42, n. 20, 83 S.Ct. at 1729-30, n. 20.

After determining the intent of the amendment, the Court explained how this intent was carried out through the insertion of the "asset acquisition" provision. The Court noted that in order to bring the "entire range of corporate amalgamations from pure stock acquisitions to pure assets acquisitions, within the scope of § 7, the stock acquisition and asset acquisition provisions must be read together in order to reach mergers, which fit neither category perfectly but lie somewhere between the two ends of the spectrum." Philadelphia, 374 U.S. at 342, 83 S.Ct. at 1730. This interplay between the "asset acquisition" provision and the "stock acquisition" provision expands the meaning of § 7 in general and, importantly for our purposes, the "stock acquisition" provision in particular, to include acquisitions by merger or consolidation. Philadelphia, 374 U.S. at 346, 83 S.Ct. at 1732.

Besides providing the interplay with the "stock acquisition" provision, Congress also intended the "asset acquisition" provision to cover pure asset acquisitions such as the type of transaction found in the Columbia Steel case which involved a cash purchase by United States Steel Corporation of the physical assets of Consolidated Steel. There was no exchange of shares and no alteration of Consolidated's corporate identity. Philadelphia, 374 U.S. at 341-42, n. 20, 83 S.Ct. at 1720-30, n. 20; See also United States v. Columbia Steel Co., 334 U.S. 495, 68 S.Ct. 1107, 92 L.Ed. 1533 (1948). Of course, Section 7 qualifies its reach of simple asset acquisitions to "persons subject to the jurisdiction of the Federal Trade Commission." 15 U.S.C. § 18. "So construed, the specific exception for acquiring corporations not subject to the FTC's jurisdiction excludes from the coverage of § 7 only asset acquisitions by such corporations when not accomplished by merger." 374 U.S. at 343-44, 83 S.Ct. at 1730 (emphasis added).

In sum, the only difference in the reach of amended § 7 with regard to persons under, or not under, FTC jurisdiction is that Section 7 does not reach non-merger asset acquisitions accomplished by persons not under the FTC's jurisdiction.⁴ What is covered by amended § 7 for all "persons" is the entire amalgamation of corporate mergers, from pure stock acquisitions to everything up to, but not including, a pure asset acquisition not accomplished by merger. Philadelphia, 374 U.S. at 383-44, 83 S.Ct. at 1730-31.

The Philadelphia Court's interpretation of § 7 essentially refutes the defendants' argument that the "first provision" of § 7 only reaches consolidations accomplished through an acquisition of "stock" or "share capital." Aware that the court may interpret the Philadelphia case to hold that corporate mergers accomplished by persons outside the FTC jurisdiction are subject to § 7, the defendants attempt to limit the reach of the Philadelphia Court's decision.

First, the defendants assert that the Philadelphia decision only applies to bank mergers, presumably since that is the type of merger involved in the case. The defendants cite several references to the terms "bank merger" in the text of the decision as proof of the exclusivity of the decision. Even a cursory review of that portion of the Philadelphia Court's opinion relevant to the...