Wednesday, December 17, 2008

Breaking News: Judge Orders New Seasons Market to Comply With Whole Foods' Subpoena and Submit Sales Data, Financial Records and Other Trade Secrets

A U.S. Federal Trade Commission (FTC) Administrative Law Judge today rejected Portland, Oregon-based New Seasons Market's legal request to quash Whole Foods Market, Inc.'s subpoena of the nine-store natural grocery chain's private sales and financial records, along with other related proprietary information, which Whole Foods says it needs to fight its case against the FTC, which is seeking to overturn its 2007 acquisition of Wild Oats Market, Inc.

"The implied allegations that Whole Foods may be using the document requests to gain a competitive advantage over New Seasons are without support," wrote Administrative Law Judge D. Michael Chappell in his decision today.

Judge Chappell said in his ruling that New Seasons' "information would be protected by the and that complying with Whole Foods' subpoena and turning over the information was not a burden" on the Portland, Oregon natural foods retailer.

In its motions to quash the subpoena, New Seasons Market argued doing so presented an extreme financial burden to the company, saying its lawyers told it gathering the information required could cost the grocer as much as $250,000.

Additionally, in its legal brief, New Seasons Market said: "If New Seasons is required to produce the information Whole Foods seeks, it would provide Whole Foods with a blueprint to New Seasons' success and the means for Whole Foods to engage in anti-competitive conduct against one of its primary competitors in the Portland market."

In filing the legal challenge against the subpoena with the FTC, New Seasons also argued that it should not have to turn over its most closely held business secrets to Whole Foods, which, it said, "has a history of taking a predatory approach toward its competition."

The natural grocer also said in its legal challenge to the subpoena that it was not confident that its trade secrets would be protected as promised, describing an incident in which the FTC accidentally disclosed confidential business information earlier in the case, while other sensitive information was given to a Whole Foods in-house lawyer.

New Seasons Market CEO Brian Rohter said earlier this month, after filing the legal brief with the FTC, that the grocer was afforded no guarantees by either Whole Foods or the FTC that members of Whole Foods Market, Inc.'s executive team wouldn't be able to view his company's sales, financial and related information if New Season's complied with the subpoena.

Whole Foods' lawyers, along with the company's co-president Walter Robb, have said the law is clear that no Whole Foods Market, Inc. employees other than its legal council can review New Seasons' information -- and that they won't. The judge today sided with them.

The FTC administrative law judge rejected all of New Seasons Markets' arguments today though, and has ordered New Seasons Market to comply with Whole Foods' subpoena and submit the information, which includes any plans the natural foods grocer has to open additional new stores in the Portland market in the future.

As we've reported, Whole Foods Market, Inc. issued the subpoenas to 93 natural foods retailers in about 29 U.S. markets where the FTC argues the merged Whole Foods-Wild Oats has a monopoly in what the regulator calls the "premium organic retailing segment." as a way to argue its case that the FTC is wrong at an administrative trial the FTC has set for February of next year. [Note: in some previous pieces on the issue we've written Whole Foods Market, Inc. has issued subpoenas to 95-96 retailers, a number that came from a Whole Foods Market senior administrative staff member originally. We are told 93 is the correct number.]

Meanwhile, as we've been writing about extensively, Whole Foods' has filed a lawsuit against the FTC arguing the regulator has deprived the Austin-Texas-based natural foods chain of its due process rights in how it has gone about its case against the Wild Oats' acquisition since the summer of 2007.

Whole Foods' is asking a U.S. federal court to stop the FTC from holding that February, 2009 administrative trial, and for the federal court to hear the case and decide once and for all whether the acquisition holds or is overturned.

A U.S. federal court in Washington D.C. has twice given Whole Foods the green light that it could go forward with the acquisition-merger. However, the federal rules on mergers and acquisitions as they pertain to the FTC allow the regulatory agency to reopen such cases and seek appeals of previous court decisions on acquisitions or mergers. That is just what the FTC did earlier this year, it reopened its administrative case against Whole Foods and then won the right from a federal court to go forward and hold its administrative hearing/trial on the acquisition in February.

If Whole Foods loses the FTC administrative trial in February (assuming the federal court doesn't rule in favor of Whole Foods in its current lawsuit against the FTC's holding the trial and order the decision to be made by a federal court as the grocer is requesting) and the acquisition is overturned, it can appeal that decision by the FTC Administrative Law Judge to a U.S. federal court.

In terms of the New Seasons Market aspect of the case -- today's ruling that it must comply with the subpoena -- the Portland natural grocer must either turn over its sales and financial records and related information to Whole Foods' lawyers or not do so and be in legal violation of the judge's order issued today.

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