Monday, December 15, 2008

Retail Memo: Eight Members of U.S. Senate Judiciary Committee Send Letter to FTC Chairman Regarding FTC's Legal Case Against Wild Oats' Acquisition

FTC v. Whole Foods Market - Whole Foods Market v. FTC

Whole Foods Market, Inc.'s Washington, D.C. lobbying blitz against the U.S. Federal Trade Commission (FTC) may be baring its first fruit.

Late Friday (December 12) afternoon eight members of the U.S. Senate Judiciary Committee, including Democratic Chairman Patrick Leahy (D-Vt) and Republican Ranking Member Arlen Spector (R-Pa), sent a letter to FTC Chairman William Kovacic in which they say the committee is concerned that the FTC has unfairly shortened the window for proposed changes to its standard Rules of Practice. This is one of the side arguments Whole Foods makes in the lawsuit it filed against the FTC last Monday.

The Senate Judiciary Committee's letter to the FTC Chairman says: "The procedure by which the Federal Trade Commission introduced proposed changes to Part 3 of its Rules of Practice was flawed, and those flaws diminish the FTC’s credibility and raise doubts about the substance of the rules themselves."

In addition to Chairman Leahy and Ranking Member Spector, the letter is signed by Sen. Tom Harkin (D-Iowa), Sen. Dianne Feinstein (D-Ca.), Sen. Charles Schumer (D-N.Y.), Sen. William Nelson (D-Fla.), Sen. John Cornyn (R-Texas), and Sen. Benjamin Cardin (D-Md.).

As we've reported, Whole Foods Market filed a lawsuit in U.S. federal court in Washington, D.C. last week to have the legal dispute removed from the FTC’s jurisdiction. The FTC argues Whole Foods' acquisition of Wild Oats Market, Inc. last summer has resulted in Whole Foods Market, Inc. having a monopolist position in about 29 U.S. markets in what the regulator calls the "premium organic retailing segment," meaning by the FTC's definition food retailers that specialize in selling premium organic food, grocery and related products. The issue comes under antitrust law.

In a related development, last Friday (December 12), the FTC filed a motion with the U.S. federal court to have Whole Foods Market's lawsuit against the regulatory agency dismissed. The court has yet to rule on the FTC's request.

A Senate Judiciary spokesperson for the chairman said today the letter from the eight committee members was not a result of lobbying efforts on behalf of Whole Foods Market, Inc.

Those efforts, as Natural~Specialty Foods Memo has reported and written about extensively, are being led by politically-connected Democratic lawyer-lobbyist Lanny Davis, former Special Counsel to President Bill Clinton. Whole Foods also has retained the well-connected (mostly Democrat) Washington, D.C. lobbying firm The Glover Park Group to plead its case with members of the U.S. Senate and U.S. House of Representatives.

The Senate committee spokesperson says: "The concerns expressed in this letter have been circulating in the antitrust community for some time, and so these members (of the Judiciary Committee) sent a letter to the FTC in order to receive some answers to those concerns."

The concerns have been around for sometime in the antitrust community. However, until lawyers and lobbyists for Whole Foods' brought them up in a big way in the lawsuit filed last Monday against the FTC, which was followed by a high profile press conference on Capital Hill the following day, and which since then has been what amounts to a massive lobbying campaign on the hill and via the media, they were essentially back burner concerns.

We doubt the chairman and members of the Judiciary Committee would have sent the letter late Friday afternoon absent the publicity Whole Foods Market's legal team and lobbyists have been able to create in the last week. That's how Washington, D.C. works after all -- the louder the noise, particularly noise made by well-connected Washington lawyers and lobbyists, the faster a response is obtained.

The letter from the committee members only expresses "concern" however. It has no legal bearing on any decisions FTC members may or may not make. And, the letter does not argue favorably for Whole Foods Market, Inc., or against the FTC's case against the natural grocery chain, or in favor of Whole Foods' lawsuit against the FTC.

The letter from the eight committee members does however mention another issue that Whole Foods Market, Inc. raised in its civil complaint lawsuit against the regulator -- that the FTC’s practice of removing jurisdiction to hear pre-trial dispositive motions from administrative law judges and giving it to the commissioners could violate due process rights. This is the central argument by Whole Foods' lawyers that the FTC has violated the natural grocery chain's due process rights.

The letter to the FTC from the eight members of the Senate Judiciary Committee says in this regard: "The opportunity for an administrative law judge to independently review Commissioners' decisions is a feature, not a flaw, of the present system.'

What the committee members are questioning is something others representing corporations and businesses, such as the U.S. Chamber of Commerce, also are questioning: proposed changes to the standards the regulator uses in reviewing mergers and acquisitions. These rule changes figure in Whole Foods' arguments in its lawsuit against the FTC.

For example, in November the U.S. Chamber of Commerce blasted the FTC for what it called unfair proposed changes to regulations.

Additionally, there's a growing coalition of U.S. companies that's gearing up to oppose these FTC rule changes as they pertain to acquisitions, mergers and antitrust issues.

While it appears to us the letter from the eight members of the Senate Judiciary Committee was prompted by the lobbying campaign for Whole Foods Market, Inc. -- a campaign that includes the natural foods grocery chain having thousands of its store-level employees throughout the U.S. contact their local elected leaders in Washington, D.C., asking for "Fair Play For Whole Foods By FTC" -- Whole Foods' lead council Lanny Davis, who is a partner in the Washington, D.C. office of the Orrick, Herrington & Sutcliffe law firm, one of three firms working on the case for the natural grocer, said today: "Whole Foods did not ever ask Congress to take sides in the FTC case to block the merger of Whole Foods and Wild Oats, but rather to express concern about the FTC's procedural unfairness toward Whole Foods."

In other words, Whole Foods, through its lawyers and lobbyists has asked the Senate Judiciary Committee to express concern to the FTC about the "procedural unfairness" to Whole Foods, according to Lanny Davis. Since this is a key strategy of Whole Foods' lawsuit against the FTC -- to legally question the procedures -- we suggest its a first win for the natural grocery chain in terms of seeing some early fruit bare from its week-old lobbying campaign.

As an old Washington hand, Lanny Davis isn't going to ask key members of the committee to address the FTC by directly focusing on the Whole Foods case. Doing so would backfire. Instead he is focusing on the "procedural unfairness" issue, which allows the members of the committee to not seem like they are directly taking a stance in favor of Whole Foods,' which they really can't so.

Additionally, since there is growing corporate community support against the FTC's proposed rule changes, the timing for the committee members to express their "concern" makes sense. We suspect this is the reason two Republicans, Sen. Spector and Sen Cornyn, signed the letter to the FTC Chairman, along with the six Democrats.

Judiciary Chairman Leahy and Ranking Member Spector, who was the Chairman with Leahy as the Ranking member for the first six years of the George W. Bush Administration when the Republicans held a senate majority, work closely together in a strong bipartisan manner. Therefore it's not surprising to see both signed the letter to the FTC Chairman.

Whole Foods' lead counsel Lanny Davis didn't elaborate any further on the specifics of the letter today. He did however say: "We (Whole Foods market, Inc.) share the senators' concern that the new rule of the FTC could be just as unfair to others as the FTC has been unfair to Whole Foods."

This offers a hint into the Whole Foods' legal strategy: don't just argue the FTC has only violated Whole Foods Market, Inc.'s due process, but that the new rules also violate those of other corporations as well. This is why the lobbying campaign is integral for Whole Foods along with its lawsuit against the FTC.

This also is why we will see Whole Foods' legal, lobbying and public relations firms ratchet up their efforts, and the noise level, on the issue in the days and weeks to come. Stay tuned.

FTC v. Whole Foods - Whole Foods v. FTC: Recent Natural-Specialty Foods Memo linkage:

December, 13, 2008: Retail Memo - Analysis & Commentary: More On FTC v. Whole Foods Market, Inc. and Whole Foods Market, Inc. v. FTC.... December 9, 2008: Organics Category Memo: Wither Organics? Organic Food & Grocery Category Sales Down; But Double-Digit Growth Still Likley With Mass Market Lift....December 9, 2008: Retail Memo: Whole Foods Markets' 'Whole Legal Paycheck:' Three Top Washington, D.C. Law Firms Teaming Up On The Natural Grocery Chain's FTC Lawsuit....

December 9, 2008: Retail Memo: Whole Foods Market CEO John Mackey and Team Launch First Aggressive Attack Against the FTC's Legal Case at Press Conference This Morning....December 8, 2008: Retail Memo: Mr. Mackey (and the Whole Foods Market Troops) Goes to Washington....

December 8, 2008: Retail Memo: Breaking News - Whole Foods Market, Inc. Files Lawsuit Against the FTC; Argues the Regulator Violated the Company's Due Process Rights.... December 7, 2008: Retail Memo: New Seasons Market CEO Brian Rohter and Whole Foods Market Co-President Walter Robb Discuss and Debate the Subpoena Issue Online....December 7, 2008: Retail Memo: New Seasons Market CEO Brian Rohter Speaks Out Again Today on the Whole Foods Market, Inc. Subpoena of His Company's Data....

December 7, 2008: Retail Memo: Whole Foods Market Retains Top Washington D.C. lawyers and Politically-Connected Lobbyists to Plead its Case Against the FTC....December 6, 2008: Retail Memo: Fast-Growing and Scrappy Sunflower Farmers Market Ventures Deep in the Heart of (Whole Foods Country) Texas....December 6, 2008: Retail Memo: Fast-Growing NF Chain Sunflower Farmers Market Responds to Whole Foods Market, Inc. Subpoena For Sales, Financial and Related Information....

December 3, 2008: Retail Memo: More on the Whole Foods Market-New Seasons Market Subpoena Issue; FTC Holding Firm For February, 2009 Hearing....December 2, 2008: Retail Memo: Whole Foods Market, Inc. Closes $425 Sale of Stock to Private Equity Firm; Adds Members of the Firm to its Board of Directors....December 2, 2008: Retail Memo: Portland, Oregon-Based New Seasons Market CEO Brian Rohter Responds to Whole Foods Market's Paige Brady....

December 2, 2008: Retail Memo: Whole Foods' Paige Brady Responds to Yesterday's New Seasons Market Piece; Lots of E-Mails; Issue Heats Up On the New Seasons Market Blog....December 1, 2008: Retail Memo: Whole Foods Wants A Court-Mandated Financial Records Dump from Portland-based New Seasons Market; it Says For its Battle Against the FTC.

FTC v. Whole Foods: Linkage from the Natural~Specialty Foods Memo archives:

Click here, here and here for stories about the FTC-Whole Foods issue from our archives.

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