Antitrust Review of Mergers by State Attorneys General: the New Cops on the Beat
| Jurisdiction | Connecticut,United States,Federal |
| Publication year | 2021 |
| Citation | Vol. 67 Pg. 1 |
| Pages | 1 |
67 CBJ 1. ANTITRUST REVIEW OF MERGERS BY STATE ATTORNEYS GENERAL: THE NEW COPS ON THE BEAT
Connecticut's Attorney General recently achieved a major victory in an antitrust challenge to the Newell Company's ("Newell") attempted takeover of The Stanley Works ("Stanley"). Under the Stipulation and Order entered in the United States District Court, Newell must divest all Stanley stock it currently owns and is prohibited from acquiring any Stanley stock and from attempting to influence Stanley in any way for ten years.(fn1)
Connecticut v. Newell involved Illinois-based Newell's takeover attempt of Connecticut-based Stanley. In May of 1991, Newell heralded its intent to acquire an interest in Stanley by filing a pre-merger notification under the Hart-Scott-Rodino Antitrust Improvements Act.(fn2) Stanley responded by filing an antitrust suit, alleging that Newell's acquisition of Stanley's stock violated Section 7 of the Clayton Act.
While Stanley did all it could do to use the antitrust laws to protect itself, antitrust suits by targets of hostile takeover attempts most often end when they are dismissed for lack of standing, when the target is acquired by a white knight, or when the target is no longer able to resist the ever sweeter offer. Initially, both Stanley and Newell approached the Connecticut Attorney General with pleas for help. Stanley also sought assistance from the Antitrust Division of the United States Justice Department. The justice Department investigated but allowed the Hart-Scott-Rodino waiting period to pass without taking action. Connecticut's Attorney General decided that Stanley had the better legal as well as public policy arguments, and filed suit to prevent Newell's acquisition of Stanley's stock.
The case, however, is significant for more than its procompetitive result. It reaffirms the increasingly significant role played by state attorneys general in merger enforcement and highlights the factors which impel a state attorney general to challenge a particular merger. The important new role played by state attorneys general in merger enforcement has been shaped by several historical factors and has now created an antitrust enforcement environment in which the views of state attorneys general must be considered whenever a merger is contemplated.
It has been well-settled law for nearly fifty years that a State may sue under federal antitrust law for injunctive relief as parens patriae for threatened harm to its general economy and welfare.(fn3) Antitrust laws, which seek to prevent anticompetitive conduct, are "the Magna Carta of free enterprise."(fn4) And free enterprise is the sine qua non of a healthy state economy. Harm to the general economy of the State encompasses harm felt by all classes of citizens resulting from anticompetitive conduct. As explained by the Supreme Court, when anticompetitive effects are felt in a State, they "may stifle, impede, or cripple old industries and prevent the establishment of new ones" and "limit the opportunities of her people, shackle her industries [and] retard her development."(fn5) Those types of harms "are matters of grave public concern in which [a state] has an interest apart from that of particular individuals who may be affected."(fn6)
Additionally, Connecticut, like virtually all states, has a state antitrust act(fn7) which in large measure parallels the federal antitrust laws and empowers the Attorney General to challenge anticompetitive practices that threaten Connecticut.(fn8) State antitrust laws have long been utilized to protect against anticompetitive conduct, wherever occurring, which have an adverse effect in the state. The Supreme Court in California v. Arc America Corp.(fn9) has recognized that antitrust is an area 11 traditionally regulated by the states"(fn10) and that "Congress intended the federal antitrust laws to supplement, not displace, state antitrust remedies."(fn11) The Connecticut Antitrust Act demonstrates a clear intent that the Attorney General be imbued with full authority, in every conceivable capacity (including sovereign, proprietary and parens patriae capacities), to bring actions for all types of relief (including injunction, damages and civil penalties) under both federal and state antitrust laws.(fn12) Protecting the State's economy through federal and state antitrust law is, thus, a significant responsibility of the Attorney General.
Although Connecticut's Attorney General has used both federal and state antitrust authority to prevent a wide variety of horizontal and vertical restraints of trade,(fn13) challenging mergers under the antitrust laws was not historically an area of great activity. Today, evaluation of mergers under the antitrust laws is a significant portion of Connecticut's antitrust enforcement activity.
Events in the 1980s changed radically the states' interest in merger enforcement. From the outset of the Reagan Administration, federal oversight of mergers and acquisitions under Section 7 of the Clayton Act(fn14) declined precipitously. The new economic thinking that swept Washington meant that far more corporate mergers went unchallenged by the federal government.(fn15) This shift away from federal enforcement of the antitrust laws against mergers prompted unprecedented numbers of mergers - many theretofore unthinkable. With the withdrawal of the f federal government from this important enforcement area, responsibility for protection of the competitive arena rested squarely upon the states.
Paradoxically, also during the 1980s, the states were cut off from access to important information necessary to effective merger enforcement: the pre-merger notification and market information mandated to be filed with the federal government under the Hart-Scott-Rodino Antitrust Improvements Act.(fn16) In Lieberman v. FTC(fn17) and Mattox v. FTC,(fn18) the courts ruled that State Attorneys General were no different than the general public in their ability to have access to Hart-Scott-Rodino pre-merger
notification materials. Therefore, the states were denied access to such materials - the very materials on which the federal government relies in deciding whether to challenge a particular merger. Thus, the states were at once called upon to take a greater role in merger enforcement and stripped of one of the most useful tools for being able to do so.(fn19)
Without pre-merger notification, the states were often left to attempt to challenge mergers after their consummation. In effect, they were assigned the task of seeking to unscramble the egg. Incredibly, the 1980s heralded yet another obstacle to undoing the anticompetitive effects of a merger. The Circuit Courts of Appeals split over whether states could seek divestiture. Without such a remedy, mergers could not be undone. In 1989, the Supreme Court granted certiorari in California v. American Stores, Inc.(fn20) to decide whether divestiture was a remedy available to the States and other nonfederal government litigants. In American Stores, the Supreme Court reversed the Ninth Circuit and squarely held that divestiture was an available and proper remedy.
Drawn into the enforcement vacuum and armed with clear remedial authority, states accepted their new role as combatants against anticompetitive mergers.(fn21) To meet this new role, however, new tools had to be forged. States moved creatively to solve the pre-merger notification problem that had been created by Lieberman and Mattox and to find efficient ways to enhance scarce resources that would be needed to challenge mergers.
The National Association of Attorneys General ("NAAG") for years served as a clearinghouse - exchanging information and ideas about antitrust enforcement policy and practice by the various state attorneys general. In the 1980s, NAAG formally created the Multistate Antitrust Task Force (the "NAAG Task Force").(fn22) This NAAG Task Force, under the auspices of NAAG's
Antitrust Committee,(fn23) has served not only as a clearinghouse but more as the coordinating body of its member states.(fn24) NAAG also participates in the Executive Working Group on Antitrust ("EWG-A"), which is comprised of representatives from NAAG's Antitrust Committee,(fn25) the Chairman of the Federal Trade Commission, and the Assistant Attorney General of the Antitrust Division of the United States justice Department. EWG-A, created as an informal mechanism for communication among the...
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