By Glasser LegalWorks
Introduction
The prospect that premerger notification legislation could be adopted by various state legislatures has highlighted: (1) the potential burden that could be imposed on merging parties by separate and, perhaps, inconsistent federal and state premerger filing requirements; (2) the current costs imposed upon parties by separate federal and state merger enforcement schemes; and (3) the fact that separate federal and state enforcement regimes are duplicative and may result in inconsistent determinations. The potentially time-consuming and resource-draining process created by dual federal/state enforcement exists at a time when some United States. antitrust practitioners and scholars advocate adoption of comity principles and rationalization and harmonization of premerger regimes by foreign enforcement agencies. Perhaps, just as the United States served as a model for premerger notification legislation in 1976, the United States should now be a model for the development of a new enforcement order, i.e., an enforcement order that seeks to encourage efficient allocation of enforcement resources and one that seeks to eliminate social costs imposed by multiple reviews and delays in transaction consummation. Such an allocation would not seek to eliminate the role of the states: rather, states should take a lead role in mergers with local market effects and a commentary role in other mergers. This paper discusses the historical role of states in merger enforcement and various options regarding what role states might play in future merger enforcement in a new and, hopefully, improved regime. [2] I.
Background of State Involvement in Merger Review and Access to Information Provided under Hart-Scott-Rodino Antitrust Improvements Act
Since 1914, a federal statute, Section 7 of the Clayton Act, [3] has explicitly provided the basis upon which to challenge mergers and acquisitions that would tend substantially to lessen competition or that would tend to create a monopoly. [4] Section 7 of the Clayton Act has consistently been interpreted to apply to mergers having an effect on interstate commerce. The United States Federal Trade Commission (the "FTC") and the United States Department of Justice (the "DOJ") are the federal government's main enforcement arms in the antitrust arena. However, the United States Supreme Court recognized that the Clayton Act authorizes state attorneys general to pursue injunctive relief, including divestiture and rescission, for transactions that violate Section 7 of the Clayton Act. [5] Since the mid 1980s, states have used the Clayton Act to challenge numerous mergers. [6] In addition, some states have specific laws prohibiting anticompetitive mergers and authorizing their state attorneys general to challenge anticompetitive mergers. [7] When states have used their own laws to challenge mergers, their exercise of authority has survived Supremacy clause challenges. [8]
While Section 16 of the Clayton Act is the governing provision granting state attorneys general with standing to challenge the permissibility of a transaction, it does not, on its face, however, provide states with the right to participate in the federal premerger review process other than those provisions of Section 16 of the Clayton Act existing for all interested third parties, private or otherwise. A.
Direct State Access to Information under Federal Law Not Permitted
In the first six decades of Clayton Act Section 7 enforcement, federal enforcement agencies were hampered in their ability to investigate and challenge mergers prior to consummation. Most mergers were challenged in court after consummation, and, to the extent a court found a violation after a full trial on the merits years later, relief was often ineffective in resetting competitive balance. To address this deficiency in enforcement options, in 1976, the United States Congress promulgated the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (as amended, the "HSR Act"). [9] The HSR Act requires parties to: (1) report transactions of certain specified size thresholds to federal enforcement agencies; (2) provide the applicable reviewing agency with the requisite documents and information needed to analyze a transaction; and (3) comply with prescribed waiting periods designed to permit the applicable federal reviewing agency time to conduct its investigation. Since promulgation of the HSR Act, the process mandated by the HSR Act has been the primary means by which federal enforcement agencies investigate and challenge mergers under Section 7 of the Clayton Act.
The HSR Act, however, does not provide states with any express role in the federal premerger review process or with rights to HSR Act filing information. In fact, the HSR Act contains a confidentiality provision that specifies, in pertinent part, that "[a]ny information or documentary material filed . . . pursuant to this section shall be exempt from disclosure . . . and no such information or documentary material may be made public, except as may be relevant to any administrative or judicial action or proceeding." [10]
In 1985, the United States Courts of Appeals for the Second and Fifth Circuits both held that the HSR Act confidentiality provision prohibited the FTC (and, by extension, the DOJ) from granting state antitrust officials access to HSR Act filings and documents generated by the FTC in connection with two separate oil company mergers. [11] Prior to the contemplated Texaco/Getty Oil and Chevron/Gulf mergers, the FTC "had granted state officials access to premerger materials," although the DOJ had "always denied such access." [12] In both cases, the state attorneys general involved apparently assured the FTC that these premerger materials would be kept confidential.
The Fifth Circuit held that "language of [the HSR Act's confidentiality provision] and statements of its legislative proponents on their face preclude disclosure of premerger materials to state attorneys general." [13] On the other hand, the Second Circuit, noting "the provision's lack of clarity," found that the language of the provision "does not resolve the issue, but does support our conclusion" that the HSR Act's limitation on disclosure "precludes confidential disclosure to state law enforcement officials." [14]
The Mattox decision emphasized that the HSR Act's "fundamental goal was to improve the efficiency of merger regulation." [15] The Lieberman decision expressed concern about delays in the merger review process that might result from the sharing of HSR Act materials with state attorneys general by either the FTC or the DOJ, "delays [the court said] Congress has not countenanced." [16] Lieberman further states that "we doubt if Congress would have intended to have the staffs of fifty state attorneys general sitting as oversight committees reacting to Commission or Justice Department decisions whether to block large-scale mergers of national or international significance." [17]
Notwithstanding the dicta in Mattox and Lieberman, the United States Supreme Court subsequently held, in American Stores, that Section 16 of the Clayton Act provides states with a basis to seek divestiture and dissolution of a merger, even where the federal agency involved had given its approval to the merger. [18] So, while states have the authority to challenge a merger (as does a private party with antitrust standing), [19] states have no right to information provided to federal enforcers under the HSR Act. B.
Subsequent State Efforts to Obtain HSR Materials
Partly in reaction to the Mattox and Leiberman decisions, states began seeking alternative ways of obtaining access to premerger filings. In particular, states sought to set up a cooperative system among the various state attorneys general and between the state attorneys general and the federal agencies.
In 1987, the National Association of Attorneys General ("NAAG") set up the first incarnation of the General Voluntary Premerger Disclosure Compact, which compact was intended to allow states expedited access to HSR Act filing materials on a consensual and confidential basis (the "Compact").
In May 1992, the federal agencies initiated a program to exchange certain HSR Act filing information and analysis with state enforcement authorities. The program initially provided that, with the consent of merging parties, the federal agencies would provide states with copies of second requests and redacted third-party subpoenas, identify waiting period expiration dates and offer limited analytical assistance with respect to the transaction involved. Each state participating in the program was required to commit to prescribed confidentiality terms.
Both the Compact and the federal/state information exchange program were subsequently modified. For example, in 1994, NAAG amended the Compact to clarify that: (1) the Compact, as amended, can be invoked by less than all the parties to a transaction; (2) participation in the Compact, as amended, obligates the merging parties to provide states with all HSR Act filing materials; and (3) HSR Act filing materials beyond initial filings are to be provided to states contemporaneously with the provision of such filing materials to the FTC and/or the DOJ. In 1995, over the dissent of one FTC Commissioner, the FTC, using Commission Rule 4.11(c) as its vehicle, expanded the information exchange program to include, among other things, certain third-party information and staff analytical memoranda. The dissenting FTC Commissioner believed that the 1995 modifications would increase costs and adversely affect the efficiency of HSR Act enforcement, and would, possibly, discourage efficient and legally unobjectionable transactions because of merger parties' concerns that sensitive information would be released to the states. A majority of the FTC Commissioners did not find these concerns sufficient to outweigh the advantages that expeditious and simultaneous sharing of HSR Act and other material would bring to concurrent state and federal enforcement.
Then, in March 1998, the FTC, the DOJ and NAAG released an even more extensive protocol to cover joint and coordinated merger investigations (the "Protocol"). The Protocol incorporated the Compact, as amended, and the FTC information-exchange program under one clear tripartite (FTC/DOJ/state) process. In accordance with the Protocol, the acquiring and acquired parties must agree to provide states with all information provided to the federal authorities and waive confidentiality to allow communications between the federal agencies and state attorneys general.
The Protocol includes confidentiality requirements that prevent improper disclosure of nonpublic information produced pursuant to a joint federal/state investigation. In particular, state attorneys general who receive confidential documents and other information from federal regulators do so with certain general understandings. First, state attorneys general are to apprise federal regulators of any discovery or public access requests for confidential information in their possession. Second, when confronted with disclosure requests, state regulators are to avail themselves of any and all privileges or exemptions available to federal regulators. Third, state attorneys general are supposed to assert applicable privileges or exemptions in any resulting injunctive proceeding to which they are a party. Fourth, state regulators are to be bound by any conditions imposed on them by federal regulators from whom they receive confidential information. C.
State Access to HSR Act Material in Absence of Express Statutory Authorization or Consent of Parties
There have been instances when parties to a specific transaction have refused to give their consent to access by state attorneys general to information provided by them to federal enforcement agencies, as well as to federal agencies' work product relating to the transactions involved. As a result, some state attorneys general have resorted to their authority under their respective state statutes and regulations to issue subpoenas. Not every state's statutes, however, provide such investigative authority for every transaction that may be subject to HSR Act review. It is unclear why, however, a state attorney general should be entitled to information that such state attorney general's own legislature has not determined should be required of parties to a merger. Perhaps the biggest deficiency of state statutes from the state attorneys generals' perspective is that a state's compulsory process cannot provide a state attorney general with access to federal enforcement agencies' resources or with the ability to engage in a dialogue with federal enforcement agencies regarding a transaction to the extent the dialogue is based on confidential information obtained pursuant to the HSR Act. [20] Such a deficiency, however, may, in part, demonstrate the redundancy of state enforcement in the merger context: to the extent legitimate state concerns exist, there are ways in which these concerns can be addressed through the federal review process. II.
Possible Changes in State Merger Enforcement A.
Maintain the Status Quo
States currently play a very active role in merger review under Section 7 of the Clayton Act. As described below, states are not shy about making their views known to federal enforcement agencies, and, furthermore, states have succeeded in ensuring the federal agencies challenge major transactions that they believed were anticompetitive. For instance, in the Rite Aid/Revco transaction, several states expressed concerns about the $1.8 billion transaction and were, reportedly, very involved in the investigation and decision to block the transaction. [21] Indeed, within a day of the FTC announcing that it would sue to enjoin the merger, the State Attorneys General of New York, Ohio, Pennsylvania and West Virginia indicated that they, too, would take a legal action to stop the merger. The parties abandoned the transaction.
As demonstrated by a stream of consents in the last few years, states routinely participate in the federal investigative process and enter into consents as a result of "joint" investigations. For instance, California, Connecticut, Illinois, Massachusetts, New York, Washington and Wisconsin joined the DOJ in investigating and settling concerns arising from the Thomson/West legal publishing industry merger. [22] In the Cargill/Akzo transaction, involving bulk deicing salt, New York, Ohio and Pennsylvania joined with the DOJ in a consent requiring Cargill to divest a plant. [23] Interestingly, four other states (and Ohio again) filed a separate consent agreement involving the same Cargill/Akzo transaction, but one that required Cargill to divest a long-term bulk deicing salt supply contract to a third party, subject to approval by the states. [24]
Perhaps the record for the company with the highest number of federal/state merger-related consents in two years is held by USA Waste Services: Pennsylvania and Texas joined the DOJ in resolving concerns in one USA Waste Services transaction; [25] Pennsylvania alone joined the DOJ in resolving concerns in a second USA Waste Services transaction; [26] and Texas alone joined the DOJ in a third USA Waste Services transaction. [27] In addition to the above-referenced consents, in July 1998, 13 states joined the DOJ in a fourth consent decree relating to the USA Waste Services/Waste Management merger. [28]
In 1997, Colorado joined the DOJ in a consent involving water rights for snow making at ski resorts following the acquisition by Vail Resorts, Inc. of the Arapaho Basin. [29] In the entertainment industry, Ohio joined the DOJ in investigating and obtaining relief in a radio station merger [30] and New York and Illinois joined the DOJ in the Loews/Cineplex movie theaters consent. [31] In retail mergers, states have been active participants in federal enforcement efforts. Montana participated in the FTC investigation of the Albertson's/Buttrey's supermarket transaction. [32] Similarly, in Stop & Shop's acquisition of Purity Supreme, "the FTC teamed with the Massachusetts Attorney General ... to fashion divestiture relief involving 17 stores," [33] and, in the Ahold NV/Stop & Shop merger, Ahold was required "to divest a fistful [in actuality, 32 stores were divested] of supermarkets to Star Markets, Shaw's Supermarkets and a variety of wholesale grocers under fix-it-first [34] settlement with the FTC and the Connecticut attorney general" [35] as well as the Massachusetts and Rhode Island attorneys general. Indeed, in the Schnuck/Schwegmann transaction, one article reported:
"I am convinced it pays to be aggressive in these matters," -Missouri Attorney General Jay Nixon announcing FTC and Missouri state settlement agreements with Schnuck supermarkets.
Nixon - unsatisfied with an FTC staff settlement proposal of charges relating to Schnuck Markets'..., personally traveled to Washington late last month to lobby Commissioners for additional relief... in Missouri.
Nixon successfully lobbied the Commissioners to provide more relief, in the form of additional and different divestitures. Both staffers and state AG attorneys returned to Schnuck to renegotiate settlement terms. The joint efforts of the state and the FTC provided a strong bargaining position for negotiating a settlement that really serves consumers," Nixon said. [36]
In both the Shell/Texaco and BP/Amoco transactions, the states were involved in the FTC investigation.
The health care industry is particularly ripe with examples of active state participation in premerger review. In the Columbia/HCA merger, for instance, the FTC received assistance from the state attorneys general of several states affected by the merger, including the State Attorneys General of Florida and Texas. [37] States have obtained a number of separate consents in health care industry mergers. [38]
Federal enforcement agencies have taken state concerns into account, even in industries in which it is not clear that states have standing to challenge mergers. In the banking industry, for example, the federal regulatory process may preempt state challenge. [39] Yet, the Board of Governors of the Federal Reserve System and the DOJ have consistently responded to state concerns. In the Fleet/Shawmut transaction, for example, Fleet committed to make $370 million available in small business loans and affordable housing in Massachusetts and $207 million in additional business and housing loans in Connecticut, notwithstanding that such relief had questionable relevance to alleged anticompetitive efforts. Of these loans, $100 million would be small business loans at the prime rate. As noted by George Weber, the Chief of the Massachusetts Attorney General's Antitrust Division, "Getting the prime rate is unprecedented." [40] Prior to Fleet/Shawmut reaching this agreement with Massachusetts and Connecticut, both State Attorneys General threatened the transaction on antitrust grounds, and, as indicated by Anne Bingaman, then DOJ Assistant Attorney General for Antitrust, the DOJ worked with such State Attorneys General "to resolve the competitive problems and protect small businesses while still allowing the rest of this deal to go forward." [41] Similarly, in the Banc One/First Chicago NBD Corp. merger, the DOJ and the State Attorney General of Indiana jointly investigated and negotiated an agreement that required the sale of $1.47 billion in Indiana deposits and 39 branches in Indiana to Union Planters. [42]
State enforcement agencies also have sued to block transactions after the federal government has cleared the transactions. For example, the State of New York and one of the defendant's competitors sued to enjoin an asset sale of a local department store to the May Company, a national department store. [43] New York was able to convince the court that the sale would have an anticompetitive effect by raising entry barriers in the "six-county Rochester metropolitan region." [44] States have also been successful in obtaining consent decrees in cases in which the federal agencies decided to take no action. [45]
While states may have been helpful in identifying issues and obtaining effective curative relief with respect to certain mergers, their participation can result in significant expense and delay, without any counterbalancing societal benefit, in transactions with broader geographic impact. In most instances in which the states are identified as active participants, the federal government played a key role in assisting the states in identifying, investigating and obtaining relief in areas of concern, but permitted states to proceed with separate consents. In other instances, merger parties agreed to consent terms with state enforcement agencies, not because there was a problem cognizable under state antitrust laws but in order to close transactions without delay. Further, states have not always been victorious in challenging mergers on their own (i.e., without federal agency assistance). For example, New York lost in its attempt to enjoin Kraft's acquisition of Nabisco's cereal assets in a suit brought after the HSR Act waiting period had expired without action from the FTC. [46]
In sum, as evidenced by the above discussion of the multiple federal/state investigations and consents, federal antitrust authorities have made it standard procedure, when practicable, to work closely with state attorneys general in undertaking merger investigations. [47] This cooperative approach preserves resources by allocating responsibilities among state and federal regulators to avoid duplicative efforts and should be the preferred method of state participation in the premerger process in sales transactions that do not involve localized markets. B.
State Premerger Notification Statutes
In recent years, certain state legislatures (most recently, the Texas Assembly) have considered promulgating premerger notification statutes. While there are some potential benefits to state premerger notification statutes, if states are to have a role in merger enforcement, on balance, the substantial likelihood of problems arising from adoption of such legislation far outweighs any potential benefits. Moreover, to the extent that a transaction is publicly announced (as are most significant transactions among public companies and even private companies), and significant antitrust issues, if any, would likely delay the federal review process (giving states additional time to act), it is unclear why state premerger notification is necessary.
State premerger notification legislation would provide notice to the state attorneys general of any transaction that is reportable under the HSR Act. Some HSR Act reportable transactions may raise significant antitrust issues uniquely affecting a particular state. The industries most likely to affect a state uniquely typically involve local geographic markets, such as the markets typically alleged for hospitals, grocery stores, pharmacies and other retail businesses. A state attorney general, by receiving notice of an HSR Act filing with the FTC and the DOJ at the same time such filing is made with the FTC and the DOJ, presumably should be able to make contact and begin coordinating with federal antitrust authorities earlier than it would absent such notice. Such coordination might enable a state attorney general to perform such state attorney general's review under the same timetable as the FTC and the DOJ. In contrast, without such notice, a state attorney general might not learn of a nonpublic transaction until much later than the FTC and the DOJ learn about such transaction. (Again, this "advantage" only applies in transactions that would otherwise be unknown to state enforcement officials.) A state attorney general's office then may be able to coordinate with the FTC or the DOJ in an investigation, both in terms of the timing of the investigation and the substantive analysis of a transaction.
On the other hand, if many states adopt premerger notification schemes, there is likely to be substantial increased burden on merging parties, without any clear corresponding improvement in antitrust policing of mergers. Moreover, the burden and complexity would increase exponentially if states imposed varying standards for their respective premerger notification programs. In many cases, HSR Act filing materials are not voluminous. In some cases, however, an HSR Act filing, with documentary attachments, may constitute several thousand pages. Production of premerger notification materials to multiple states as well as to federal enforcement agencies clearly would add work and expense for the parties to the transaction (at least in those cases where states would not otherwise seek to obtain these or different materials using existing state processes). Indeed, even determining whether a filing would be required under various state statutes could requires analysis by counsel. The resulting burden would likely exceed any benefit in terms of improved antitrust enforcement. The FTC and the DOJ have been aggressive in challenging mergers that may substantially lessen competition in a relevant market, and FTC and DOJ actions (both litigated cases and consent decrees) have demonstrated their willingness and ability to analyze and challenge transactions that are likely to substantially lessen competition in many local markets.
Also, some parties to mergers, especially those parties that are not familiar with the HSR Act process, are often reticent to disclose their closely-held, proprietary information to the FTC and the DOJ. These concerns may be magnified greatly by having to disclose this type of information to yet another myriad group of reviewing agencies. As the disclosure burden increases, the incentives for these parties to avoid disclosure requirements, i.e., by shutting down subsidiaries before merging or foregoing a transaction altogether, also grows. Although many states provide protection for civil investigative demand ("CID") materials, and the same protections could be included in state premerger notification statutes, these protections often are not as broad as those provided at the federal level. For example, under Section 10 of the Federal Trade Commission Act, [48] there are criminal sanctions for unauthorized disclosure of HSR Act filing materials. No comparable penalties are available in certain state CID statutes. C.
Federal Legislation to Amend HSR Act to Provide States Rights to HSR Act Materials.
A possible resolution proposed several years ago to address the state premerger notification problem is to amend the HSR Act to include the provisions of the NAAG State Statute Governing Premerger Notification. Every state in the United States conceivably could enact legislation similar to that proposed in the fall of 1998 in Texas, or, more ominously, legislation containing widely varying premerger notice and filing requirements. National legislation would obviate the need for the 50 states to enact individual statutes providing the states with authority to receive premerger notification to which they are entitled but that, potentially, could contain different reporting requirements than those of the HSR Act. Amendment of the HSR Act to provide a uniform right to HSR Act information by the states, however, would also greatly expand the potential for duplicative and conflicting merger enforcement activity by the states and by the federal government. Such legislation, therefore, does not appear to be an improvement over the status quo but, rather, a move in the wrong direction. D.
Federal Legislation to Curtail States' Rights to Obtain HSR Act Material in Any Form.
Conversely, federal legislation could be enacted to curtail or eliminate the states' power to obtain material filed under the HSR Act. The United States. Congress has the authority, under the Commerce clause, to preempt state review of mergers that affect interstate commerce (or, for that matter, other antitrust violations). In particular, the United States Congress may regulate any activity that "substantially affects" interstate commerce. [49] State merger enforcement efforts can have a significant impact on interstate commerce, [50] and transactions that are the subject of enforcement actions by several states could be delayed or be subjected to inconsistent obligations. The authority of the United States Congress in the exercise of its commerce power is well established. [51] To avoid disputes over preemptive effect, any federal legislation restricting state antitrust enforcement needs to contain an express statement of the United States Congress' intent to preempt state laws in the covered field.
Two approaches to limit state activity might be proposed: curtailing state premerger review activities or eliminating all state regulation of mergers that affect interstate commerce. If the United States Congress' goal is to prevent state interference with transactions that are subject to federal review, then legislation under either approach could preclude state action involving only those mergers subject to HSR Act reporting requirements.
The narrower of the two approaches would prevent states from requiring separate premerger notification of transactions subject to the HSR Act. Such legislation could be modeled on existing federal statutes that directly prohibit states from imposing requirements in addition to or different from those imposed by federal law. [52] This prohibition may prevent states from obtaining information necessary to conduct extensive premerger review of large transactions. However, states would retain their power to challenge such transactions under state antitrust law if they learn of the transaction through some source other than HSR Act premerger notification, and states would also retain the power to challenge mergers after federal regulators act or decide not to act.
A broader approach would be for the United States Congress to preempt any state action challenging a merger that is subject to review by federal antitrust authorities. Such legislation would simply provide that federal regulators have exclusive power to review and challenge certain mergers under federal law. This approach would preempt both premerger and postmerger enforcement by state authorities, essentially eliminating state counterparts to Section 7 of the Clayton Act. [53] Alternatively, a potential solution to balance the interests and needs of federal enforcement agencies, state enforcement agencies and industry would be to provide an express carve out from any limitations in federal legislation for those transactions in which there are legitimate relevant geographic markets of local scope (e.g., health care mergers). States are better situated in many of these mergers to determine the likely effect in the local market than the federal enforcement agencies in Washington, D.C. (arguably, the regional offices of the FTC and the DOJ are more attuned to local conditions, but the same issues of resource allocation exist). In United States v. Long Island Jewish Medical Center, for example, the State Attorney General of New York entered into an agreement with two merging hospitals to limit the combined hospital's ability to raise prices for two years. [54] The DOJ, nevertheless, challenged the merger. The court denied the preliminary injunction, finding that the State Attorney General of New York's relief was adequate. [55]
Under either of the proposals described above, the United States Congress could consider granting states greater participation in the federal review process in order to maintain some state role in merger enforcement. States may have legitimate interests in monitoring merger activity within their borders. Granting states an institutional role in the federal process would recognize those interests while, at the same time, would make proposals for restricting state merger enforcement more politically palatable. Affected states might be granted a formal right to comment during the federal review of a proposed merger. To enhance this right to comment, federal agencies might share some HSR Act filing information with the states, which would require amending the HSR Act's confidentiality provision but might be the quid pro quo for redefining the role of the states to that of commenter rather than arbiter.
Conclusion
The current political climate may suggest that more, rather than less, state involvement in the premerger review process would be the course of least resistance. However, the politically expedient path is not always the preferred one. There are substantial benefits to be gained from streamlining the merger review process. The prospect of every state crafting a premerger review procedure, even a uniform one, would have some extremely unfortunate potential consequences, with no apparent accompanying gain in merger review. The impetus for creating a premerger review process was to provide courts with the ability to fashion adequate remedies (i.e., postmerger divestitures were equivalent to "unscrambling the eggs"). The federal premerger review process created with the HSR Act has adequately remedied this shortcoming.
In a vast majority of transactions, concurrent federal/state premerger review is not only unnecessary, it is potentially harmful. The current system is adequate to ensure that states affected by a transaction can provide input to the federal agencies, as can other potentially aggrieved parties. Currently, the FTC and the DOJ review mergers that have national and local consequences, with state enforcement agencies serving as a backstop for mergers that affect predominantly local markets. Rather than provide states with further oversight authority for interstate or global mergers, the wise course might be to remove their right to halt mergers with only an interstate impact, while, perhaps, leaving an express state role for mergers affecting markets of a more localized nature.
[1] ©1999 I.K. Gotts. Mrs. Gotts is a partner in the Antitrust Department of Wachtell, Lipton, Rosen & Katz. These remarks were prepared for the session of the American Bar Association (the "ABA") Antitrust Section's Spring Meeting, April 15, 1999, entitled "State and Federal Allocation of Enforcement Responsibility: Does Market Allocation Exist and, If Not, Should It?" Return to Text
[2] This debate is not entirely new; see R. Lande, "When Should States Challenge Mergers: A Proposed Federal/State Balance," 35 N.Y.L. Sch. L. Rev. 1047 (1990). Return to Text
[3] 15 U.S.C. § 18 (1997). Return to Text
[4] Mergers and acquisitions may also be challenged as unreasonable restraints of trade or as monopolization or attempted monopolization under Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2 (1997). However, the required showing may be higher under Sections 1 and 2 of the Sherman Act than under Section 7 of the Clayton Act. See generally ABA, Section of Antitrust Law, Antitrust Law Developments, 307-08 (4th ed. 1997) ("ALD IV"). Return to Text
[5] See, e.g., California v. American Stores Co., 495 U.S. 271 (1990). See generally ABA, Section of Antitrust Law, Monograph No. 21, State Merger Enforcement (1995). Return to Text
[6] See, e.g., Washington v. Texaco Marketing and Refining, Inc., 1990-1 Trade Cas. (CCH) ¶ 69,346 (W.D. Wash. 1991); Connecticut v. Wyco New Haven, Inc., 1990-1 Trade Cas. (CCH) ¶ 69,024 (D. Ct. 1990). Stanley Works v. Newell, 1992-2 Trade Cas. (CCH)¶ 70,008 (D. Conn. 1992) (consent decree). See generally, Blumenthal, Langer, and Rubenstein, "Antitrust Review of Mergers By State Attorneys General: The New Cops On The Beat," 67 Conn. B.J. 1 (1993). Return to Text
[7] See generally ALD IV at 307, n. 2, and 3I7. Return to Text
[8] See, e.g., State v. Coca-Cola Bottling Co., 697 S.W.2d 677, 678-80 (Tex. Ct. App. 1985, writ ref'd n.r.e.) (State of Texas challenge to acquisition by Coca-Cola Bottling of Dr. Pepper under Texas antitrust statutes was not unconstitutional under Supremacy or Commerce clauses), appeal dismissed, 478 U.S. 1029 (1986). Article VI, Clause 2 of the United States Constitution (commonly referred to as the "Supremacy clause") places the laws of the United States above those of individual states and implicitly provides for preemption of state law to the extent in conflict with United States federal law. Similarly, Article I, Section 8 of the United States Constitution (commonly referred to as the "Commerce clause") grants the United States Congress express authority to regulate interstate commerce. The Supremacy clause and the Commerce clause, read together, can invalidate state action that burdens interstate commerce. However, in Coca-Cola, the court found that the United States Congress had not acted to remove states from the field of regulation. Coca-Cola, 697 S.W.2d at 682. Return to Text
[9] 15 U.S.C. § 18a (1997). Return to Text
[10] 15 U.S.C. § 18a(h) (1997). Return to Text
[11] See Lieberman v. FTC, 771 F.2d 32 (2d Cir. 1985); Mattox v. FTC, 752 F.2d 116 (5th Cir. 1985). Return to Text
[12] See Lieberman, 771 F.2d at 34. Return to Text
[13] See Mattox, 752 F.2d at 116. Return to Text
[14] See Lieberman, 771 F.2d at 38-39. Return to Text
[15] See Mattox, 752 F.2d at 122. Return to Text
[16] See Lieberman, 771 F.2d at 40. Return to Text
[18] California v. American Stores Co., 495 U.S. 271, 283 (1990). In this transaction, the FTC entered into a consent agreement with American Stores. The day after the FTC approved the merger based on the consent order, the State of California filed suit to enjoin the merger. Id. at 276. Return to Text
[19] Section 16 of the Clayton Act authorizes preliminary injunctive relief when there is a showing of threatened loss or injury cognizable under antitrust laws, i.e., injury that is proximately resulting from the alleged antitrust violation. See Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104 (1986). Clayton Act Section 16 plaintiffs must demonstrate that injunctive relief is necessary to prevent injury to their own interest as opposed to the interests of others. Return to Text
[20] See Langer, "Commentary: The Impact of Antitrust On Merger Activity In the 1980s - Suggestions For Change," 29 Washburn L.J. 290, 291-92 (1990) for a discussion of why state attorneys general should be able to get HSR Act materials. Return to Text
[21] See George S. Cary, Staying Ahead of the Merger Wave, Remarks before the 15th Annual Corporate Counsel Institute (December 12, 1996) ("[The Rite Aid/Revco investigation] accomplished another goal...which is working more cooperatively with State Attorneys General."). Return to Text
[22] See United States v. Thomson Corp., 61 Fed. Reg. 35250-02 (1996). Return to Text
[23] United States v. Cargill, Inc., 62 Fed. Reg. 26559 (1997). Return to Text
[24] Missouri v. Cargill, Inc., 4: 97CV0087SNL (E.D. Mo., Apr. 25, 1997). Return to Text
[25] United States v. USA Waste Services, 1997 - 61 Fed. Reg. 48971-02 (1996). Return to Text
[26] United States v. USA Waste Services, 62 Fed. Reg. 47680 (1997). Return to Text
[27] United States v. Allied Waste Services, 62 Fed. Reg. 44138 (1997) . Return to Text
[28] United States v. USA Waste Services, 63 Fed. Reg. 51125 (1998) . Return to Text
[29] United States v. Vail Resorts, Inc., 62 Fed. Reg. 5037 (1997) . Return to Text
[30] United States v. Jacor Communications, Inc., 1997-1 Trade Cas. (CCH) ¶ 71,671 (S.D. Ohio 1996). Return to Text
[31] U.S. v. Sony Corp. Of America, No. 98-CIV-2716 (S.D.N.Y. Nov. 9, 1998). Return to Text
[32] In re Albertson's, Inc., et al., 63 Fed. Reg. 51,933 (1998). Return to Text
[33] "Stop & Shop to drop & divest," FTC: Watch (Nov. 6, 1995). Return to Text
[34] In many transactions, the FTC requires the parties to identify divestiture buyers before the FTC accepts the consent decree. Return to Text
[35] "Merger Watch," FTC: Watch (July 17, 1996). Return to Text
[36] "Schnuck/Schwegmann Supermarkets: Missouri Convinces FTC to Order Extra Relief," FTC: Watch, (March 13, 1995). Return to Text
[37] See Federal Trade Commission, Columbia/HCA to Divest Seven Hospitals to Restore Competition Allegedly Lost in Merger With Healthtrust (Press Release, April 21, 1995), available at . Return to Text
[38] See, e.g., United States and State of Florida v. Morton Plant Health Sys., Inc., 1994-2 Trade Cas. (CCH) ¶ 70,759 (M.D. Fla. 1994) (joint FTC/Florida consent); Commonwealth of Pennsylvania v. Capital Health Systems Services/Polyclinic Health Systems, 1995-2 Trade Cas. (CCH) ¶ 71,205 (M.D. Pa. 1995); Commonwealth of Pennsylvania v. Providence Health System, Inc./North Central Pennsylvania Health Systems, 1994-1 Trade Cas. (CCH) ¶ 70,603 (M.D. Pa. 1994); see also United States v. Long Island Jewish Medical Center (1997-2 Trade Cas. (CCH) ¶ 71, 960 (EDNY 1997) (Attorney General of the State of New York entered into an agreement with the parties that court found had adequately addressed the competition issues); Wisconsin v. Marshfield Clinic, et al., 1997-1 Trade Cas. (CCH) ¶ 71,855 (W.D. Wis. 1997); Wisconsin v. Kenosha Hospital and Medical Center, et al. 1997-1 Trade Cas. (CCH) ¶ 71,669 (E.D. Wis. 1996) . Return to Text
[39] See P. Greene and G. Macdonald, "The Jurisdiction of State Attorneys General to Challenge Bank Mergers Under the Antitrust Laws," 110 Banking Law J. 500 (1993). Return to Text
[40] C. Stein "Fleet Reaches Accord with State...," The Boston Globe 89 (Sept. 15, 1995). Return to Text
[41] Sniffen, "Justice Approves Bank Merger after $3 Billion Divestiture," AP (Nov. 1, 1995). Return to Text
[42] See "Justice Department, Indiana Attorney General Approve Asset Sale," AP (Sept. 8, 1998). Return to Text
[43] Bon-Ton Stores, Inc. v. May Dept. Stores, 881 F. Supp 860 (W.D.N.Y. 1994). Return to Text
[44] Id. at 867. Return to Text
[45] See, e.g., Mass v. Campeau Corp., 1988 -1 Trade Cas. (CCH) ¶ 68,093 (D. Mass 1985) (consent decree in action brought by Massachusetts, Maine and New Hampshire against department stores); Washington v. Texaco Ref & Mktg, Inc., 1991-1 Trade Cas. (CCH) ¶ 69,346 (W.D. Wash. 1991) (consent decree in action brought by the State of Washington against oil companies); Connecticut v. Wyco, 1990 -1 Trade Cas. (CCH) ¶ 69,024 (D. Conn 1990) (consent decree in action brought by Connecticut and Massachusetts against petroleum shipping and storage companies). Return to Text
[46] New York v. Kraft Foods, 926 F. Supp. 321 (S.D.N.Y. 1995). Return to Text
[47] See FTC, "Columbia/HCA to Divest Seven Hospitals to Restore Competition Allegedly Lost in Merger With Healthtrust (Press Release, April 21, 1995) ("The FTC received assistance in [the Columbia/HCA] case from the Attorneys General of several states affected by the merger, including Florida and Texas."). Return to Text
[48] 15 U.S.C. § 50 (1997). Return to Text
[49] United States v. Lopez, 514 U.S. 549, 559 (1995) (establishing the "substantial affects" standard for subjecting conduct to federal regulation). Return to Text
[50] See Edgar v. MITE Corp., 457 U.S. 624, 643 (1982) (Illinois tender offer notification and approval requirement burdened interstate commerce). Return to Text
[51] See, e.g., California v. ARC America Corp., 490 U.S. 93, 100 (1989). Return to Text
[52] E.g., 21 U.S.C. § 678 (1996) (preemption provision of Federal Meat Inspection Act). Return to Text
[53] This broad approach is superior to intermediate measures that would prohibit only premerger challenges while allowing states to bring postmerger challenges, which would increase the uncertainty faced by merging parties and may give states an incentive to increase their postmerger scrutiny of interstate transactions. Return to Text
[54] 1997-2 Trade Cas. (CCH) ¶ 71,960 (E.D. N.Y. 1997). Return to Text
[55] See also Wisconsin v. Kenosha Hosp. & Med Center, 1997-1 Trade Cas. (CCH) ¶ 71,669 (E.D. Wis. 1996); Wisconsin v. Marshfield Clinic, 1997-1 Trade Cas. (CCH) ¶ 71,855 (W.D. Wis. 1997). For two articles debating the role of the states in health care mergers, see Robert M. Langer, "State Attorneys General and Hospital Mergers," ABA Antitrust Section, Health Care Committee, The Antitrust Health Care Chronicle Vol. 11/No. 3 (Summer 1997), and Carl S. Hisiro & Kevin J. O'Connor, "State Attorneys General and Hospital Mergers: A Response," ABA Antitrust Section, Health Care Committee, The Antitrust Health Care Chronicle Vol. 11/No. 4 (Fall 1997). [none1] Scanned - cleanup tools run Long Agreement Template Font: Times New Roman 12 Styles: Body Text, Normal, Centered Heading,