Common Procedural Issues

• Pages: 15-40

CHAPTER II

COMMON PROCEDURAL ISSUES

Litigation involving claims under Section 8 can raise a number of

procedural issues. Common issues concern the types of entities that can

be held liable for violations of the statute, the various litigation contexts

in which Section 8 claims may arise, the extent to which the mootness

doctrine may apply when an interlock is terminated, who has standing to

bring claims under Section 8, and what remedies are available to public

and private plaintiffs. Each of these issues is discussed below.

A. Who is Liable?

The language of Section 8 itself makes it clear that a natural person

who serves as an officer or director of two or more competing

corporations may be liable under Section 8. The “competing

corporations” that are “interlocked” are often also named as defendants

in Section 8 cases. Because Section 8 does not explicitly address

whether the interlocked corporations can be liable under the statute,

however, that issue is sometimes litigated. As discussed below, while

the issue has not yet been conclusively resolved by the Supreme Court,

lower courts have had little difficulty holding that interlocked

corporations may be liable under Section 8. In a small number of cases,

another entity—a private equity firm, union, or bank—has also been

named as a defendant when that entity is involved in creating an

interlock between two other corporations. The rationale behind these

decisions is that these entities are in some sense serving as officers or

directors of interlocked corporations through the appointment of agents

or representatives. But this “deputization” theory remains controversial.

1. Directors and Officers

By its own terms, Section 8 applies to natural persons who serve as

directors or board-elected officers of competing corporations. The

statute begins with the words “[n]o person shall, at the same time, serve

as a director or officer in any two corporations.”1Often, an individual

1. 15 U.S.C. § 19(a)(1).

16 Interlocking Directorates: Handbook on Section 8 o f the Clayton Act

will already be an officer or director of one corporation, and the

appointment of the individual to serve as an officer or director of a rival

corporation is the event that creates the interlock and gives rise to

liability. Similarly, the resignation of the individual from serving as an

officer or director on one or the other corporation is the event that cures

the interlock (although it may not render pending litigation moot, as

discussed below). It is therefore not surprising that in many Section 8

cases, natural persons are named as defendants.2When courts enter

injunctive relief, the injunctions may apply to the individuals whose

service created the interlock.3

2. Corporations

An important procedural issue is whether corporations are proper

defendants in Section 8 cases. Interpreted literally, the language of

Section 8 would appear to apply only to natural persons who would be

capable of serving as directors or officers of competing corporations. In

United States v. W. T. Grant Co.,4the first Section 8 case to reach the

Supreme Court, the Court assumed that the interlocked corporations were

properly joined as defendants in the government case but noted that

“[w]e should not be understood as deciding whether corporations can

violate § 8 or, for other reasons, be enjoined under the statute.”5

The issue was first litigated at the appellate level in SCM Corp. v.

Federal Trade Commission.6The Second Circuit held in that case that

2. See, e.g., Borg-Warner Corp. v. Fed. Trade Comm’n, 746 F.2d 108 (2d

Cir. 1984); TRW, Inc. v. Fed. Trade Comm’n, 647 F.2d 942 (9th Cir.

1981); SCM Corp. v. Fed. Trade Comm’n, 565 F.2d 807 (2d Cir. 1977);

United States v. Culbro Corp., No. 77 Civil 3149, 1977 U.S. Dist. LEXIS

15166 (S.D.N.Y. 1977); United States v. Newmont Mining Cor p., 34

F.R.D. 504 (S.D.N.Y. 1964); United States v. Sears, Roebuck & Co., 111

F. Supp. 614 (S.D.N.Y. 1953).

3. See, e.g., United States v. Sears, Roebuck & Co., 165 F. Supp. 356, 357

(S.D.N.Y. 1958) (granting a motion to compel an individual to resign as

director); see also Kraftco, Inc., 87 F.T.C. 809, 811 (1976) (consent order

requiring individual to cease serving on a board and as a director).

4. 345 U.S. 629 (1953).

5. Id. at 634 n.9.

6. 565 F.2d at 807.