Friday, January 23, 2009

Retail Memo: Three Judge Federal Appeals Court Panel Rules Against Whole Foods' FTC Lawsuit Today; What's Next?

Whole Foods Market, Inc. v. FTC: The Lawsuit

A three-judge panel of the United States Court of Appeals for the District of Columbia didn't waste anytime in rejecting today the legal petition filed late last week by Whole Foods Market, Inc. in which the natural grocery chain asked the court to block the U.S Federal Trade Commission (FTC) from holding its planned April 6, 2008 Administrative trial on the Whole Foods-Wild Oats merger. [The FTC's Bureau of Competition is the agency department responsible for contesting the merger.

In a brief, one page ruling released by the court this afternoon, it denied Whole Foods' request to remove the FTC from jurisdiction over deciding the legality and status of its 2007 friendly acquisition of then Wild Oats Market, Inc. and refused to bar the regulatory agency from holding its April 6 Administrative trial. In short, the appeals court dismissed Whole Foods' lawsuit against the FTC.

As we reported and wrote about in this January 19, 2009 piece [Retail Memo: Concerned With Fast-Looming FTC Hearing Date Whole Foods Re-Files Lawsuit Taking it Directly to Washington, D.C. Federal Appeals Court], late last week Whole Foods Market, Inc. filed an emergency petition with the federal court of appeals, asking it to decide on its lawsuit to remove the FTC from the case and stop the April 6 Administrative trial. Whole Foods said it filed the petition with the appeals court rather than let the motion remain to be decided in the court of U.S. Federal Judge Paul Friedman, where it was pending, because with the April 6 FTC trial date looming it needed to get a decision on the petition as fast as possible.

The federal appeals court did just that -- ruling in favor of the FTC just one week after Whole Foods filed the petition with the court.

In its lasuit Whole Foods argued that the FTC already has prejudged the merger case and can't possibly give the company a fair hearing. And that in doing so the FTC has deprived the retailer of its due process rights, the lawsuit argued. [Read our December 8, 2008 on the filing: Retail Memo: Breaking News - Whole Foods Market, Inc. Files Lawsuit Against the FTC; Argues the Regulator Violated the Company's Due Process Rights.]

Natural~Specialty Foods Memo (NSFM) predicted in our January 19 story that the three-judge federal appeals court panel would do just what it did do today, which is to rule against Whole Foods' petition and in favor of the FTC. Below (in italics) is what we wrote in our January 19 story:

"It's our analysis that Whole Foods' outside legal council, led by Washington, D.C.-based lawyers Lanny Davis and Paul Denis -- the attorney who will be arguing the natural grocery chain's case at the April 6 FTC hearing/trial -- believe the petition won't be granted and that the hearing will go forward. We suggest this because all indications are that will be the case, based on our extensive research on FTC v. Whole Foods Market, Inc. at this point in time. This is our independent analysis. None of the members of Whole Foods' outside legal council has suggested to us it's their opinion.

Whole Foods' outside legal council has about two months to prepare for the FTC Administrative hearing/trial. Obviously the natural grocery chain's lawyers would like to have a ruling on the lawsuit petition as soon as possible because if, for example, they were to get a ruling in the company's favor by the appeals court that means instead of preparing for the FTC Administrative hearing they would need to rapidly shift gears and prepare for a hearing back in the courtroom of Federal Judge Paul Friedman, which is where the case would most likely go if the federal appeals court removes the FTC's jurisdiction. That's why it makes logical sense to us that Whole Foods Market re-filed the case in the federal appeals court."

Whole Foods' lead lawyer in the case, Lanny Davis of the Orrick law firm, said today in a statement that the natural grocery chain is studying the appeals court ruling and might refile its lawsuit against the FTC. As mentioned above, the lawsuit was first filed in Judge Friedman's courtroom and then refiled with the court of appeals late last week.

"There is no question our due (Whole Foods market, Inc.) process and equal protection rights have been violated and we intend to pursue this case until we can get a hearing in a federal court about those violations," Davis said in a statement today after the appeals court ruling.

We tried to get hold of a spokesperson at the FTC this afternoon, interested in the agency's take on the decision today, but were told it had no immediate comment on the decision.

At this point Whole Foods might be able to refile a lawsuit against the FTC. But its unlikely a court would hear and rule on it before the scheduled April 6, 2009 FTC trial, which is just a bit over two months away. After all, now that the appeals court has ruled, Judge Friedman won't likely entertain the lawsuit since the reason Whole Foods' took it out of his court in the first place was because the company wanted a rapid decision, which they got today. Also the FTC had already said that if Judge Friedman ruled in favor of Whole Foods, the regulator would have appealed it to the federal appeals court anyway.

Additionally, since it is the U.S. Federal Appeals Court that ruled today, it appears unlikely that same court would hear and rule on the same, or a similar, lawsuit once again.

As a result, it seems Whole Foods most likely will have to resign itself to face the April 6 FTC Administrative trial, even if it does refile the lawsuit.

We talked to an experienced antitrust lawyer today who basically agreed with our analysis, saying he couldn't see any quick alternatives for Whole Foods Market, Inc. in terms of beating the April 6 deadline considering the appeals court's ruling today, particularly because Whole Foods has asked for a speedy decision.

We suspect Whole Foods' outside legal council will attempt to find a way to refile the lawsuit however. But its our analysis that unless something dramatic happens between now and April, that April 6 FTC Administrative trial is going to happen. Stay tuned.

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