Published on Dec 07, 2022
State efforts to stop Albertsons (ACI) from issuing a $4 billion special dividend to shareholders ahead of its planned merger with rival supermarket Kroger (KR) could complicate a potential federal challenge of the deal itself.
The Washington, D.C., California, and Illinois attorneys general suing to block the dividend in a federal Washington, D.C., district court made another attempt to pause the payment, filing a motion for a preliminary injunction Dec. 1, after the judge on Nov. 8 denied their motion for temporary restraining order. The payment was originally slated for Nov. 7, but delayed until at least Dec. 9 by a temporary restraining order in a separate Washington state lawsuit.
The Federal Trade Commission recently issued a second request, Kroger announced Tuesday, bringing the agency one step closer to a possible challenge as unions, farming groups, and members of Congress call on it to block the deal.
Should the state efforts to block the dividend both fail and wrap up in the near term, they may have no impact on any future FTC litigation. But if the case in the Washington, D.C., federal district court meaningfully proceeds, it could have implications for an FTC challenge of the merger in the same court.
The important question for a potential FTC merger challenge in the Washington, D.C., court is whether FTC litigation be considered “related” to the Washington, D.C., AG-led litigation to stop the dividend in that same federal court.
If the case were considered “related,” the FTC’s lawsuit to block the deal would go to Judge Carl Nichols, a Trump-nominated judge presiding over the litigation against the dividend in the Washington, D.C., court. Nichols recently decided against the Justice Department in its effort to block the UnitedHealth/Change Healthcare merger.
According to the court’s local rules, when attorneys for the plaintiffs file a civil complaint, they can file a form to notify the court of a related case. Rather than assigning a judge at random, the clerk of the court will then assign the case to the judge presiding over the older related one.
For a case to be “related,” it must be “pending” and “involve common issues of fact” or “grow out of the same event or transaction,” among other factors. If the plaintiffs do not file the form and defendants believe there is a related case, attorneys for the defendants can still notify the court. From there, a decision would be made by the court’s Calendar and Case Management Committee on whether the case is “related” and, accordingly, whether the judge should be randomly assigned or if Nichols should hear the case.
So whether the Washington, D.C., AG’s case is still pending at the time of potential FTC litigation would likely determine whether a judge is randomly assigned or Nichols is assigned the case. If the states lose, the dividend is paid in short order, Nichols dismisses the case in the Washington, D.C., court, it’s difficult to see how the case would still be considered pending, or how an appeal would factor into that determination.
However, though the Washington, D.C., federal district court’s rules say that cases must be pending to be considered “related,” litigators who’ve practiced before the court said defendants can still argue that their litigation is “related” even if a case isn’t pending, as the judge who presided over the earlier case is more familiar with the facts and can handle it more efficiently.
The merging parties have good reason to avail themselves of any procedural opportunity to ensure that Nichols hears an FTC challenge, while the FTC would likely want a randomly-assigned judge instead.
Nichols presiding over the case would almost certainly be bad news for the Federal Trade Commission if the agency sued to block the deal, according to antitrust experts. His general comments on Kroger and Albertsons during the Nov. 8 hearing on the dividend suggest he doesn’t see the merger as having a significant threat to local store-to-store competition.
“The record shows that Albertsons and Kroger are only direct competitors in a few markets,” Nichols said, according to a transcript of the hearing. “Most of their geographic markets do not overlap.”
Spokespeople for the Washington, D.C., and Illinois AGs’ offices declined to comment or respond to the question of whether their attorneys had considered the likelihood of Nichols being assigned a merger challenge under the federal court’s judge selection rules for related cases. A spokesperson for the California AG’s office did not respond to requests for comment.
The prospect of arguing before Nichols doesn’t mean they wouldn’t file in Washington, D.C., as “other factors may be more important,” said Douglas Ross, an antitrust law professor at the University of Washington School of Law in Seattle. “But I imagine that smart lawyers at the FTC will think about ‘Should we file somewhere else in the country?’”
“I’m sure they would not be happy to be in front of Nichols,” said Stephen Calkins, a professor of law at the Wayne State University Law School in Detroit and former general counsel to the FTC. Still, he and others said, there are advantages to the agency of litigating in the district—namely, that FTC attorneys are based there.
Government plaintiffs could sue to block the merger in other federal district courts, including where the companies are headquartered or where there is significant overlap among the merging parties’ stores.