Whole Foods Seeks to Stop Administrative Proceedings Before FTC

Whole Foods Market, Inc., concluding that it cannot get a fair hearing before the Federal Trade Commission (FTC) in proceedings over the competitive effect of its merger with Wild Oats Markets, Inc., has filed a lawsuit in federal court seeking to terminate the proceedings as fundamentally flawed under the Due Process Clause. Whole Foods Market, Inc. v. FTC, No. 08-02121 (D.D.C., filed December 8, 2008).

The FTC lifted a stay on its administrative proceedings shortly after a federal appeals court, reversing a district court ruling denying the FTC’s request to stop the merger, ruled that the commission could proceed with its preliminary-injunction proceeding in the courts. The appeals court remanded the case for the district court to consider whether the equities favor the FTC now that the merger has taken place and Whole Foods has closed or sold a number of Wild Oats stores.

Among other matters, Whole Foods claims that (i) the FTC has prejudged the case and is on record as declaring the merger anticompetitive and Whole Foods’ witnesses and evidence unreliable; (ii) the FTC locked in an unreasonable scheduling order, signed by a commissioner, who initially served as the presiding judge, before appointing an administrative law judge to preside over the hearings; and (iii) the procedures the FTC has instituted in the case were proposed as a “fundamental change” to existing procedures in an October 2008 Federal
Register notice for public comment, which proposal has been criticized by the American Bar Association, U.S. Chamber of Commerce and former FTC commissioners and counsel.

Whole Foods alleges that it was given only a few months to conduct discovery and subpoena third parties in the 29 geographic markets the FTC identified in its challenge to the merger. Apparently, a number of competitors have balked at providing any trade secret information, and the list of witnesses that Whole Foods seeks to depose has grown to more than 100.

The FTC hearing is currently set for February 2009, which means, according to Whole Foods, that it will take place before the district court makes its post-merger findings on remand, which findings “would illuminate, if not determine, many of the issues that will be addressed at the administrative proceedings. A remand before the District Court will consider the benefits to consumers and the public in general arising from the Whole Foods/Wild Oats combination. A finding that such benefits resulted from the merger would gut the Commission’s case.”

Whole Foods chief executive John Mackey conducted a rare press conference about the lawsuit, accusing the FTC of conducting a “vendetta” against his company. According to Mackey, “From the very beginning, I think (the FTC) treated Whole Foods Market very disrespectfully. I
don’t understand what is motivating them.” In 2007, a federal court allowed Whole Foods to proceed with the merger, a ruling that was reversed a year later, after the merger had already been consummated.

Legal costs to the company have been mounting, reportedly standing at $16 million at this stage of the proceedings, while the company’s stock has lost 75 percent of its value this year. Mackey also said, “At a time when our economy is under pressure, Whole Foods Market is under more competitive stress than it has before. We’re having to waste our time dealing with regulators.” See Austin American-Statesman,
December 9 and 10, 2008.

Meanwhile, a California resident filed a putative class action lawsuit aainst Whole Foods in the D.C. District Court, alleging that the company violated federal antitrust laws and “acquired an unlawful monopoly” in the premium, natural and organic food market. Kottaras v. Whole Foods Market, Inc., No. 08-01832 (D.D.C., filed October 27, 2008). According to the complaint, which seeks class certification, treble compensatory and statutory damages, fees, and costs, Whole Foods and Wild Oats controlled more than a 90 percent share of their relative market and that the merger has injured putative class members “by causing them to overpay for their purchases.”