## United States Court of Appeals FOR THE EIGHTH CIRCUIT

___________ No. 98-1487

___________ Midwestern Machinery, Inc.; * Brian F. Gagan; Sharon Tolbert Glover; * Charles M. Koosman; Laurie I. Laner; * Jack Reuler; Michael W. McNabb; * Nigel Linden, * * Appellants. * * v. * * Northwest Airlines, Inc., * Appeal from the United States * District Court for the District Appellee. * of Minnesota.

________________ * * State of Delaware; State of Hawaii; * State of Iowa; State of Michigan; * State of New York; State of North * Dakota; State of Ohio; State of South * Dakota; State of Utah; State of West * Virginia; State of Wisconsin, * * Amici on behalf of Appellants. *

___________ Submitted: October 19, 1998 Filed: February 2, 1999

___________ Before McMILLIAN, FAGG, and BEAM, Circuit Judges.

___________-2-

BEAM, Circuit Judge. Midwestern Machinery, Inc., Brian F. Gagan, Sharon Tolbert Glover, Charles M. Koosma n, Laurie I. Laner, Jack Reuler, Michael W. McNabb, and Nigel Linde n appeal the dismi ssal of their complaint alleging a violation of section 7 of the Clayton Act. The district court dismissed their complaint under Federal Rule of Civi l Procedure 12(b)(6) because it found that a claim under section 7 of the Clayton Act, wh ichprohibits acquisitions of stock or assets that substantially lessen competition , expir es when one corporation merges with another and its stock is turned in an d extinguished. We disagree and reverse.
I. BACKGROUND
In Janu ary 1986, Northwest Airlines (Northwest) reached an agreement with Republic Air lines (Republic) whereby the two airlines would merge. At the time o f merger, Northwest and Republic were respectivelythe nation's eighth and ninth largest airlines and the two largest operators at the Minneapolis-St. Paul International Airport. The merger was approved by t he Department of Transportation, the reviewing agency at the time, but no antitrust immunity was granted f or the transaction. After the merger was completed in August 1986, all of Republic’s stock was turned in and extinguished, and Republic ceased to exist as a separate entity.
The plaintiffs, Midwestern Machinery, Inc., Brian F. Gagan, Sharon Tolbert Glover, Charles M. Koosman, Laurie I. Laner, Jack Reuler, Michael W. McNabb , Nigel Linden (hereinafter Midwestern), all frequent travelers on Northwest since the merger, br ought this action in June 1997, alleging a violation of section 7 of th e Clayton A ct (hereinafter section 7). 15 U.S.C. § 18. Midwestern’s complaint allegesMidwestern challenges the post-acquisition h olding and use of Republic's stock 1 and a ssets. Two previous actions were brought to challenge the acquisition o f Republic. Northwest argues that the previous challenges, International Trave l Arrangers v. NWA, Inc. , 991 F.2d 1389 (8th Cir. 1993) and Fisc her v. NWA, Inc. , 883 F.2d 594 (8th Cir. 1989), preclude this action. The district court correctly rejected this argument. -3- that the merger resulted in Northwest holding and using Republic's stock and assets 1 in violation of the sec tion 7 prohibition against acquisitions which substantially lessen competition. Midwestern alleges that Northwest's disproportionate increases in fares, marke t dominance, and use of entry barriers for new competitors illustrate th e substantial lessening of competition following the merger.
Northwest moved to dismiss Midwestern’s complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). The district court found that, although a post- acquisition claim can exist for holding and using stock and assets in violatio n of section 7, a completed merger precludes such a claim.
In orde r to make out a section 7 claim for post-acquisition holding and use , Midwestern must allege an anti-competitive use of Republic's stock or assets. Th e district c ourt dismissed Midwestern's complaint because it could not "conceive of a post-acquis itionuse when Republic ceased to exist effective of the merger and al l Repu blic stock was turned in and extinguished." Midwestern Machinery Co. v

. Northwest Airlines, Inc. , 990 F. Supp. 1128, 1138 (D. Minn. 1998).
II. DISCUSSION We review the district court’s 12(b)(6) dismissal de novo. See Springdale Educ. Ass'nv. Springdale Sch. Dist. , 133 F.3d 649, 651 (8th Cir. 1998). When ruling on a motionto dismiss, courts are required to accept the complaint's factual allegations as true and to construe them in the light most favorable to the plaintiff. In essence, thisThe relevant portions of section 7 of the Clayton Act provide: 2 No person engaged in commerce or in any activity affecting commerc e -4- mandates that a complaint should not be dismissed "unless it appears beyond doubt that the pla intiff can prove no set of facts in support of his claim that would demonstrat e an entitlement to relief." Id. As indi cated, Midwestern alleges a substantial lessening of compe tition shown by Northwest's disproportionate increases in fares, marke t dominance, and use of entry barriers for new competitors following the merger

. Acc epting these factual allegations as true, we are left with the issue of whether a completed merger, where all the stock of one corporation is turned in and extinguished, can violate section 7.
Nort hwest argues, consistent with the district court opinion, that when the two airlines became fully merged, no section 7 claim is possible since all of Republic' s stock is t urned in and extinguished. In essence, Northwest argues that no Republi c stock or assets are left to substantially lessen competition. We hold that a section 7 cause of action can exist even though a merger occur s and two corporations effectively become one. We reach this conclusion because: (1) the language of se ction 7 expressly covers acquisitions of all the stock and assets of a corporation; and (2) section 7 has been interpreted to extend a cause of action beyond the completion of an acquisition or merger.
A. Acquisitions of All or Part The starting point fo r interpreting a statute is always the language of the statute itself. See Norwest Bank

v. Doth , 159 F.3d 328, 333 (8th Cir. 1998). We are guided by the plain language of section 7 of the Clayton Act which prohibits acquisitions of the " w hole or any part

of the stock" or assets of a company, where the effect may be to su bstantially lessen competition or tend to create a monopoly. 15 U.S.C. § 1 8 (emphasi s added). The language of section 7 expressly provides for a claim eve n 2shall ac quire, directly or indirectly, the whole or any part of the stock or

other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets o f anoth er person engaged also in commerce or in any activity affectin g commerce, where in any line of commerce or in any activity affectin g commerc e in any section of the country, the effect of such acquisitio n may b e substantially to lessen competition, or to tend to create a monopoly. No person s hall acquire, directly or indirectly, the whole or any part o f the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of one or more persons engag ed in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of suc h acqui sition, of such stocks or assets, or of the use of such stock by th e voting or granting of pr

oxies or otherwise, may be substantially to lessen competition, or to tend to create a monopoly. 15 U.S.C. § 18. -5- when all ("wh ole") of the stock or assets are acquired. The existence of a section 7 clai m does not rise or fall with the percentage of the corporation acquired—whethe r itbe a merger of all or acquisition of only part. Compare United States v. Von' s Groc ery Co. , 384 U.S. 270, 278 (1966) (finding a violation of section 7 wher e competing grocery store chains completely merged) with United States v. E.I. Du Pont De Nemours & Co. , 353 U.S. 586, 588 (1957) (finding a violation of section 7 where one company acquired only part of another company's stock). Thus, although th e merger of Republic and Northwest resulted in the acquisition of all of Republic's stock and assets, it did not cut-off a section 7 claim.
As noted, after the merger was completed, Republic's stock was turned in and extinguished . Northwest views this action as significant for purposes of section 7. If exting uishing stock eliminated section 7 claims, corporations could seek to use thi sThis mi ght seem to open up a merger or acquisition to continual challeng e 3 unde r section 7. However, there are limits such as the statute of limitations, th e doctrines of laches and problems of proof and causation. -6- approach as an antitrust shelter and the speed at which it is accomplis hed would control the existence of a claim. The plain language of section 7 does not support such a result. The district court's concern that it could not " conceive" of how Republic's stock or assets could be use d to substantially lessen competition and thereby violate section 7 centers around the fact that the two corporate entities are no longer distinct, an d therefore the use of Republic's stock or assets is unclear and difficult to trace

. Howe ver, this is a matter for discovery, proof, summary judgment or trial and not a matter for decision on a motion to dismiss. Midwestern's complaint should not b e 3 dismissed s imply because Northwest acquired all of the assets of Republic and the n Republic's stock was turned in and extinguished.
B. Completed Acquisitions Northwest further argues that completion of a merger foreclo ses section 7 claims forpost- acquisition activities. However, Midwestern contends that even though th e mer ger was completed in 1986, subsequent holding and use can violate section 7

. Section 7 i s primarily aimed at arresting, at their incipiency, acquisitions and mergers that subst antially lessen competition or tend to create a monopoly. See Du Pont , 353 U.S. at 589. For this purpose, the language of section 7 is structured such that a violation can occur when there is a threat or possibility of substantially lessenin g competitio n

or creating a monopoly. See id. at 607. No restraints, monopolies, o r su bstantial lessening of competition need actually occur to violate section 7. Cf

. Carl son Co. v. Sperry and Hutchinson Co. , 507 F.2d 959, 961-62 (8th Cir. 1974 ) (finding section 7 prim arily aimed at arresting the possibility or threat). However, the primary purpose of section 7 does not preclude a claim once the merger or acquisitionNorthwest argues that a post-acquisition claim is properly brought pursuant to 4 other antitrust sections such as the Sherman Act. In Carlson we found that althoug h a priva te action for damages under section 7 "may provide a double basis for liability in a factual situation that also is violati ve of § 1 and § 2 of the Sherman Act, the action is not precluded by statutory exception, statutory language, nor the legislative history of the Clayton Act." Carlson , 507 F.2d at 962. -7- is complete. Midwestern's section 7 claim is no t lost because the Northwest-Republic

4 merger is complete. The underly ing rationale for extending section 7 liability beyond completion of the acquisition or merger is that "as a practical matter it often may be difficult t o fo resee and evaluate the real impact and effect of an acquisition until the transactio n has been completed and the aggregate combine is operating." Id. at 962. Therefore, "while the primary thrust of § 7 is to prohibit and thus to forestall anti-competitive and monopolistic acquisitions," id. , completed acquisitions and "post-acquisition conduct ma yamount to a violation of § 7." Federal Trade Comm'n v. Consolidated Food s Corp. , 380 U.S. 592, 598 (1965). An "acquisition," for purposes o f section 7, extends, and ther efore can be challenged, until the deal is undone. See United States v. IT T Continental Baking Co. , 420 U.S. 223, 242 (1975). The Supreme Court's decision in Du Pont aptly illustrates th e vitality of a section 7 claim afteracquisition is completed. See Du Pont , 353 U.S. 586. In Du Pont , a section 7 violation was established even though it was not manifest at the time of initial acquisition and over thirtyyears had passed since the actual acquisition of stock. The Supreme Court analogized section 7 to a fire which, although smoldering, may blaze into ant i-competitive activity at any time and thereby give rise to a claim. See id. a t 607. Un der Du Pont , a Clayton Act violation may occur "at or any time after th e acquisition, depending upon the circumstances of the particular case." Id. at 597; see ITT , 420 U .S. at 242 (finding that a cause of action arises even if at the time of th eThe district court found that merely holding stock does not violate section 7

. 5 It concluded that there must also be some anti-competitive use. There is n o requir ement

that one intend to restrain competition, but only that the acquisition o f stock or assets threatens or actually lessens competition. See Du Pont , 353 U. S. at 607. -8- i n itial acquisition there was no realistic threat or restraint of commerce or creation of a monopoly).
Case law is clear that "holding as well as obtaining assets" is potentiall y viol ative of section 7. ITT , 420 U.S. at 240. It is an artificial limitation to eliminate 5 the possibilit

y of a section 7 claim because a merger is completed and all the stock of the merging company is turn ed in and extinguished. The continuing "fire" of potential illegal activity described in Du Pont cannot so easily be extinguished. The distric t court erred by dismissing the complaint for failure to state a claim.
III. CONCLUSION For the foregoing reasons, we reverse and remand to th e district court for further proceedings. A true copy.
Attest: CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.