Tuesday, 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

Whole Foods Market, Inc. v. U.S. Federal Trade Commission

Whole Foods Market, Inc.'s legal team (which now totals three big name law firms) from the law firms Orrick, Herrington & Sutcliffe, Dechert and the company's new addition, the Constantine Cannon firm, say they are trying something that hasn't been attempted in half a century--which is suing the FTC.

The law firms, all three outside council to Whole Foods in the case, is calling the lawsuit a "Once-in-every-50-years-lawsuit," meaning that it's been about 50 years since a company has sued the FTC over a legal challenge it has made to a merger or acquisition.

As we written about previously in detail (see the links at the end of this piece), The Whole Foods Market, Inc. lawsuit filed against the FTC on Monday says the company has already spent $16.5 million on legal fees and other costs related to winning approval of the Wild Oats merger and in fighting the FTC's legal case.

The lawsuit also argues, as did Whole Foods CEO John Mackey and Orrick law firm partner Lanny Davis this morning at a press conference in Washington, D.C., that the FTC is so biased against the merger that it should be prohibited from reviewing it. Instead, Whole Foods wants the merger to be decided for a final time by a U.S. federal court rather than at the administrative law trial the FTC has set for February 16, 2009 in Washington, D.C.

In addition, the lawsuit argues new FTC rules that call for an "expedited discovery process" put Whole Foods at an unfair disadvantage by giving the company just five months to prepare its case (Whole Foods wants an additional ten months) for the administrative trial.

The Whole Foods lawsuit filed by Orrick and the partnering firms argues the FTC has violated what is known as the Federal Administrative Procedure Act.

Antitrust lawyers can't recall another lawsuit in modern history that has argued the FTC has violated the act.

For example, well-known antitrust lawyer Steven Newborn, the co-head of the antitrust group at the Weil, Gotshal & Manges law firm says he doubts Whole Foods' lawyers will win on the violation of the Federal Administrative Procedure Act argument. Rather, he thinks Whole Foods Market CEO John Mackey and other executives expect the FTC to force the company to divest itself of some assets ( stores acquired in the merger) and hopes to delay that step as long as possible.

We think Mackey wants to win, which is why Whole Foods is spending what is going to amount to many millions for all the high-priced legal and lobbying talent it's hired over the last few months. But our argument isn't a legal one like Steven Newborn's, who knows the ins and outs of antitrust law much better than we do.

As we've reported, politically-connected Orrick firm partner Lanny Davis, who specializes in the areas of Legal Strategic and Crisis Management , Governmental Affairs and Commercial Litigation at the firm, is heading up the Whole Foods lawsuit against the FTC.

Davis, who from 1996-1998 served as Special Legal Council to former President Bill Clinton and is an advisor to Senator Secretary of State in-waiting Hillary Clinton, who Davis went to Yale Law School with, is the public legal spokesman for Whole Foods on the case, appearing for example at this morning's press conference with Whole Foods' CEO John Mackey. (Look for Lanny Davis to hit the cable news talk show circuit, Larry King Live, ect., in the coming days as well.)

Davis' focus is more on building political support for Whole Foods among the political establishment, U.S. Senators and House of Representatives members, along with overseeing and coordinating the legal work of the three law firms. Lanny Davis is the overall point man on the case.

In addition to Lanny Davis at Orrick, Paul Denis, a partner at the Dechert law firm, and W. Stephen Cannon, a name partner at the Constantine Cannon firm, are heading up the Whole Foods Market, Inc. legal work at those two respective law firms. Heavy, and expensive, hitters all.

W. Stephen Cannon is a respected antitrust lawyer and is a former special counsel to the U.S. Senate Judiciary Committee. Paul Denis, a graduate of the University of Michigan Law School, also is a well-known antitrust lawyer.

Former George W. Bush Administration U.S. Solicitor General Ted Olson, a longtime Washington D.C. attorney, also is a member of the Whole Foods Market, Inc. legal team. Olson has extensive experience with regulatory agencies like the FTC, along with the federal appeals process. His job as solicitor general was to regularly argue the government's cases before the U.S. Supreme Court, for example.

Ted Olson was nominated as U.S. Solicitor General by President Bush in February, 2001, and served in that position for a number of years before leaving. Just seven months after his nomination, Olson's wife Barbara, who was a conservative writer and commentator for cable news channel CNN, was one of the Americans killed in the September 11, 2001 terrorist attacks. She was on Flight 77, the plane that crashed into the field in Pennsylvania after passengers fought the terrorist hijackers, who it is believed were trying to use the plane to attack either the White House or U.S. Capital building in Washington, D.C.

As it deals with its legal challenge from the FTC, which has been going on in one form or another since the summer of 2007, Whole Foods is struggling as a natural foods retailer.

Whole Foods Market Inc. recently reported its consolidated earnings results for the fourth quarter and full year ended September 28, 2008.

For the quarter, the company reported net income of $1.50 million or $0.01 per share on sales of $1,788.91 million compared to net income of $33.92 million or $0.24 per share on sales of $1,743.41 million for the same period of last year. That's a dramatic reduction in net income from the year before.

For the year, the company reported net income of $114.52 million or $0.82 per share on sales of $7,953.91 million compared to net income of $182.74 million or $1.29 per share on sales of $6,591.77 million for the same period of last year, for a drop in annual income of 47-cents per share.

Whole Foods Market, Inc. stock closed today at just slightly over $10 a share. That's about 70% below the company's high last year after its friendly acquisition of Wild Oats Market, Inc.

The natural foods chain recently sold 17% of the company for $465 million to the private equity form Leonard Green & Partners in order to raise cash for ongoing operations, including legal fees, as well as for its modest growth plans for the 2009 fiscal year, which include opening only about half of the new stores (from 30-35 to about 15) it originally had planned on opening in the U.S.

Whole Foods currently operates about 280 natural foods markets in the U.S., Canada and the United Kingdom, the vast majority of which are in the U.S.

Reader Resources

Recent, related posts from Natural~Specialty Foods Memo:

>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

Additionally, we've been writing about the FTC-Whole Foods Market, Inc. issue since last year. You can read a selection of those stories here and here.


Anonymous said...

Perhaps Lanny Davis will be able to do for Whole Foods waht he did for Bill Clinton, which was to help keep him from being impeached. Of course, Lanny couldn't help get Hillary elected President. But as soon as Barack won the nomination Lanny sounded like he was with Obama from the start. Even Larry King was confused. GO Lanny.

Anonymous said...


Have you seen this?
Barry Estabrook in Gourmet-on WF's battle with the FTC, and New Seasons.
With comments from Paige Brady of Whole Foods.


Anonymous Seattle