WASHINGTON — The Federal Trade Commission has taken the unusual step of seeking to unravel last year's merger of Whole Foods and Wild Oats, but sources said the effort could be as much about clarifying how the courts should handle such cases as it is about killing the deal.
In a brief filed with the U.S. District Court of Appeals here seeking an order compelling Whole Foods not to close or convert any more Wild Oats locations, the FTC basically argues that the lower court did not show enough deference to the evidence presented by the government when the court ruled that the merger could go forward.
Austin, Texas-based Whole Foods Market completed the nearly $700 million acquisition of Wild Oats Markets, Boulder, Colo., last September after it prevailed against the FTC's original challenge. It plans to convert or close the 74 acquired stores. The FTC had argued that the two chains compete in a class of food retailing it called “premium natural and organic” that is distinct from traditional supermarkets.
In its latest filing, the FTC argues that the lower court needed only to find that the FTC raised “serious, substantial, difficult and doubtful” questions that would create “fair ground” for a full administrative proceeding to block the merger. District Court Judge Paul Friedman, according to the FTC, gave too much weight to the chains' evidence in favor of the merger and not enough weight to the FTC's case. The FTC's evidence included studies gauging the impact of the two chains on each other's sales and profits compared with the impact on other supermarkets, as well as seemingly anticompetitive statements made by Whole Foods Chairman and Chief Executive Officer John Mackey and other executives.
The FTC claims that the court essentially saddled the Commission with the burden of proving that the two chains should be considered together as a distinct class of retailing. The FTC argues that it should not have had to provide such proof, but instead only raise enough serious questions about the potential for Whole Foods to raise its prices and thus harm the consumer.
“The FTC doesn't spend a lot of time in its summary of the argument quoting wrong standards of law by the lower court,” said Stephen Calkins, professor of law at Wayne State University Law School, Detroit. “Instead, they make the argument that it didn't treat the FTC's argument with enough deference.”
Calkins said the FTC has a difficult battle ahead in trying to win a reversal of the district court's decision.
“The FTC is trying to point to the district court's failure to look at different kinds of evidence and show that the district court wasn't properly deferential to the FTC, but it's hard to base an argument on the failure to discuss something,” he said. “It's hard to base an argument on nuances and subtlety, so it will be a trick to convince the court of appeals that this is so egregious as to require a reversal.”
One indication that the FTC is seeking legal clarification of the way the lower court handled the case, according to Calkins, is that it is continuing to pursue a preliminary injunction against the merger rather than seeking a full administrative hearing. By pursuing the course of action it is taking through the court system, the FTC appears to want the appeals court to find fault in the way the lower court handled the case and thus establish a precedent for future antitrust efforts.
Last week, the American Antitrust Institute filed an amicus brief siding with the FTC and asking the court to show more deference to the government in its cases against mergers.
Whole Foods is expected to file a response by Feb. 13. A spokeswoman for Whole Foods declined to comment on the case.
The company, after completing the acquisition, had filed to have the case deemed “moot,” which would have ended the FTC's efforts to block the deal. However, the FTC on Oct. 22 filed a motion to keep the case open, arguing that because of the long time frame required to convert the stores, the deal could still be undone.
