California v. American Stores Co.
495 U.S. 271, 109 L. Ed. 2d 240, 1990 U.S. LEXIS 2214 (1990)
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Rule of Law:
Section 16 of the Clayton Act, which authorizes private parties to seek "injunctive relief" against antitrust violations, encompasses the remedy of divestiture. Courts may therefore order a defendant to sell off assets or stock to undo an anticompetitive merger in a suit brought by a private plaintiff.
Facts:
- American Stores Co. was the fourth largest supermarket chain in California, operating 252 stores.
- Lucky Stores, Inc. was the largest supermarket chain in the state, with 340 stores.
- On March 21, 1988, American notified the Federal Trade Commission (FTC) of its intention to acquire all of Lucky's stock for $2.5 billion.
- The FTC negotiated a settlement with American, which included a "Hold Separate Agreement" that prevented the operational integration of the two companies until American divested certain supermarkets.
- In early June 1988, American acquired Lucky's stock and consummated a legal merger, forming a single corporate entity.
- Despite the legal merger, the business operations of American and Lucky remained separate and distinct due to the ongoing Hold Separate Agreement.
Procedural Posture:
- The State of California sued American Stores Co. in the U.S. District Court for the Central District of California, alleging the merger with Lucky Stores violated federal antitrust laws.
- The District Court granted California's motion for a preliminary injunction, which required American to operate the acquired Lucky stores separately pending a final decision.
- American Stores Co., as appellant, filed an interlocutory appeal of the injunction to the U.S. Court of Appeals for the Ninth Circuit.
- The Court of Appeals affirmed the district court's finding that the merger was likely illegal, but it vacated the injunction, holding that divestiture (whether direct or indirect) is not an available remedy for private parties under Section 16 of the Clayton Act.
- The U.S. Supreme Court granted certiorari to resolve a conflict among the circuit courts on whether divestiture is a permissible remedy under Section 16.
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Issue:
Does the term "injunctive relief," as used in Section 16 of the Clayton Act, encompass the remedy of divestiture, thereby allowing private parties to sue to force the undoing of an anticompetitive merger?
Opinions:
Majority - Justice Stevens
Yes, divestiture is a form of "injunctive relief" available to private parties under Section 16 of the Clayton Act. The plain text of § 16, which grants the right to "have injunctive relief," is broad and does not contain any restrictions that would exclude divestiture. The Court reasoned that § 16 was intended to be interpreted flexibly according to traditional principles of equity. The distinction between prohibitory injunctions (stopping conduct) and mandatory injunctions (ordering an action like divestiture) is illusory in this context, as an order to keep assets separate effectively functions as an "indirect divestiture." Furthermore, construing § 16 to include divestiture is consistent with the Clayton Act's overall statutory scheme, which encourages vigorous private enforcement of antitrust laws and recognizes divestiture as the most effective remedy for an unlawful merger.
Concurring - Justice Kennedy
Yes, divestiture is an available remedy under Section 16. However, the Hart-Scott-Rodino Act's pre-merger review process, which occurred in this case, is relevant to the equitable analysis. While the FTC's review and settlement with American does not legally bar a subsequent private suit for divestiture, a private plaintiff's delay in bringing suit until after that process concludes may be a critical factor. The lower court should consider whether California's decision to wait several months before filing suit, after having notice of the merger and while the FTC was negotiating, should give rise to an equitable defense like laches, which could bar the divestiture remedy.
Analysis:
This decision significantly empowers private antitrust enforcement by confirming that the most effective remedy for an illegal merger—divestiture—is available to private plaintiffs, not just the federal government. It creates a second line of defense against anticompetitive mergers, allowing states and private companies to challenge transactions even after federal regulators have approved them or entered into a settlement. The ruling increases the risk and uncertainty for merging parties, as they must now account for potential challenges from private litigants who can seek to fully unwind a completed transaction.
