Opinion ID: 531046
Heading Depth: 2
Heading Rank: 3

Heading: the role of the litigation

Text: 31 The district court made several factual findings to support its conclusion that Royal Crown's litigation was a substantial cause of the termination of Coca-Cola's and PepsiCo's acquisitions. Specifically, the district court found that the injunctive relief was the first judicial relief and indeed the controlling relief throughout the legal challenge to the proposed transactions, and that this injunctive relief, along with Royal Crown's vigorous prosecution and discovery efforts, constituted a substantial factor and a catalyst in motivating the defendants to terminate their acquisitions. This latter finding is without any record evidence to support it. The district court further found that the Coca-Cola-Dr. Pepper transaction could not have been completed until [the court] ruled on its merits regardless of any decision made by the District of Columbia court as a result of the July preliminary injunction. (District court op. dated Jan. 16, 1987 at 6-7). 32 We hold that the totality of the circumstances surrounding the proposed acquisitions does not support the district court's findings regarding the role of the Royal Crown litigation in the failure of the acquisitions. In turn, the district court's inaccurate findings cannot support the conclusion that Royal Crown's lawsuit was a substantial factor in the abandonment of the transactions. The district court's holding, therefore, is clearly erroneous. 33
34 First, the district court erred in finding that the Royal Crown litigation constituted the controlling relief against the consummation of the acquisitions. While it is true that the TRO in Georgia was the first judicial relief, it cannot be said to have been the controlling relief. The TRO, granted on June 20, came into effect after the FTC waiting period had been voluntarily extended until June 24. Once the FTC voted, on June 20, to block the mergers, it was clear that the extended waiting period would remain in effect and that the parties would not be able to close prematurely. Thus, the TRO did not forbid the parties from doing anything that they could have otherwise done. 35 One day before the termination of the stipulated waiting period, PepsiCo abandoned its proposal. Furthermore, on the day that the extended waiting period was to expire, Coca-Cola and the FTC entered into an agreement, approved by the D.C. district court, whereby Coca-Cola agreed not to proceed with its acquisition until a hearing was held on the merits in the D.C. court. 3 Finally, on July 31, after a three day hearing, the FTC obtained a preliminary injunction. 36 From the foregoing chronology of events it is evident that even without any TRO or injunction from the Georgia district court, neither PepsiCo or Coca-Cola could have gone forward with their respective acquisitions from the filing of Royal Crown's complaint on June 19 to its dismissal as to Pepsico and Seven-Up on June 26 and as to Coca-Cola and Dr. Pepper on August 25. The FTC first prevented the parties from going forward based on an extended statutory bar and this bar remained in effect until the termination of the PepsiCo acquisition. The FTC next secured a stipulation and then a preliminary injunction both of which prevented the Coca-Cola acquisition from going forward. The Georgia TRO was not the controlling relief that prevented the consummation of the acquisitions. 37
38 In finding that the Royal Crown litigation played a role in the failed transactions, the district court also relied on the fact that Coca-Cola and Dr. Pepper could not have consummated their transaction until the court had ruled on the merits of Royal Crown's claims. (D.Ct. op. dated Jan. 16, 1987 at 7). While this statement is true, the district court failed to put this observation in context. First, this observation has no application to the PepsiCo/Seven-Up transaction because these parties had abandoned their acquisition before the TRO was extended and before a trial date was set. Second, once the July injunction was entered in favor of the FTC, the Coca-Cola/Dr. Pepper transaction was effectively terminated. 39 The purposes of the Hart-Scott-Rodino Act's notification procedures and subsequent waiting period are twofold. First, the information submitted pursuant to the statute is intended to provide the FTC with sufficient data for a preliminary determination of whether the proposed merger may violate the antitrust laws. Second, the procedure is intended to allow the FTC enough time to analyze the reported data and seek a preliminary injunction without the difficulties attendant upon unscrambling a consummated transaction. Once the FTC votes to oppose a merger, it will file an administrative complaint. While the complaint is being prepared, the FTC often seeks a judicial TRO or preliminary injunction to enjoin the transaction pending an administrative resolution on the merits. This injunctive relief, authorized by 15 U.S.C. Sec. 53(b), serves to avert post acquisition alterations which may make divestiture impractical or less effective and serves to undercut the economic incentives a firm might have to undertake the acquisition despite the odds that divestiture will eventually be ordered. Injunctions also create a significant impediment to the ultimate consummation of the merger. In order to obtain an injunction, the FTC need only show a likelihood of success on the merits and that the public equities justify such relief. In a practical sense, the granting of this injunction tolls the death knell for the challenged transaction because the parties to the merger usually cannot sustain its financial arrangements and terms for the period of years necessary for an administrative resolution. See ABA Antitrust Section, Monograph 5, the FTC as an Antitrust Enforcement Agency: Its Structure, Powers & Procedures 36, 73-74 & n. 273, Volume II (1981). 40 Because an FTC injunction indefinitely stalls an acquisition, once the FTC obtained such an injunction in this case, the existence of any other lawsuit challenging the propriety of the Coca-Cola/Dr. Pepper acquisition became a redundancy. In context, the fact that Coca-Cola and Dr. Pepper could not close before resolution on the merits of the Royal Crown litigation is irrelevant to the question of causation. A plaintiff may not collect attorney's fees for demanding of the defendant that which the defendant would have done in any case. Doe v. Busbee, 684 F.2d 1375, 1380 (11th Cir.1982) (in civil rights case, plaintiffs may not recover attorney's fees where suit merely demands a state officer to do what officer would have done in any case). 41
42 The district court also considered the vigorous prosecution of Royal Crown to be factually important in determining causation. Royal Crown did put a considerable amount of resources into its challenge to the PepsiCo and Coca-Cola acquisitions. From January to April 1, 1986, Royal Crown evaluated the competitive effects of the acquisitions. In April, Royal Crown prepared and submitted an amicus curiae brief to refute the government's amicus position in Cargill, Inc., 107 S.Ct. 484. Royal Crown believed the brief necessary to protect its standing to challenge its competitors' acquisitions. This preparation preceded the complaint and application for a TRO in this case and the direct impact of this work on the appellants is questionable. 43 By May, 1986, Royal Crown began to identify witnesses and documentary evidence by interviewing various bottlers across the country. In June, Royal Crown filed a complaint and an application for a TRO. It then launched full-scale discovery dispatching teams of lawyers to a number of locations to review the [appellants'] documents and simultaneously scheduled and commenced depositions of [appellants'] key officials and experts. 4 (D.Ct. Order at 3). This discovery effort resumed against Coca-Cola and Dr. Pepper after the district court's temporary stay of discovery expired. 44 While Royal Crown did expend a substantial amount of time, money and expertise, we find that its prosecution was not as vigorous or resolute as it might otherwise appear. Much of Royal Crown's time and money was spent in endeavors that preceded its application for a TRO. The mere threat of litigation does not entitle a party to attorney's fees. Braafladt, 778 F.2d at 1444. By the time Royal Crown filed its complaint, proceedings with the FTC had been continuing for some four or five months with all of the involved parties submitting thousands of documents. In fact, much of Royal Crown's document requests were for documents already produced to the FTC. (R4-81-83). 45 This is not a case in which the plaintiff acted swiftly and decisively to enjoin the acquisitions in question. Cf. Grumman, 533 F.Supp. at 1390 (plaintiff's swift action prevented takeover). Rather, Royal Crown elected to postpone litigation and to maintain trial readiness for some four or five months. Royal Crown admits that it did not immediately file its complaint because it feared that the FTC would not vote to block the mergers if the FTC believed that Royal Crown had already initiated such a challenge. On the other hand, Royal Crown states that it eventually had to file the motion for a TRO because it could not know how the FTC would vote and, therefore, it had to assume that the FTC would not oppose the mergers. 46 Timing the filing of a private antitrust suit does involve complex considerations. Mergers first challenged in private suits have but rarely been attacked in independent [FTC] actions.... Conversely, few Government Section 7 proceedings have been followed by private ... actions. ABA Antitrust Section, Monograph No. 1, Mergers and the Private Antitrust Suit: The Private Enforcement of Section VII of the Clayton Act Policy and Law, 19-20 (1977). In addition, where the Government has sued or not sued to halt a given merger, the appropriate party [may seek] advantage from this fact, and courts may be inclined to give deference to the FTC's assessment of the propriety of a merger. Id. at 28. A court, however, is not required to give deference to an FTC assessment, and the FTC does sometimes bring its own action against acquisitions regardless of the existence of a private action. Compare e.g., Missouri Portland Cement Co. v. Cargill, Inc., 498 F.2d 851 (2d Cir.), cert. denied, 419 U.S. 883, 95 S.Ct. 150, 42 L.Ed.2d 123 (1974) with FTC Dkt. No. 9005, Cargill, Inc., Trade Regulation Reporter, transfer binder, Federal Trade Commission Complaints and Orders, 1976-1979, p 20, 745 (January 21, 1975); see also Grumman, 533 F.Supp. at 1390 n. 10. 47 We appreciate that in knowing the workings of the FTC, Royal Crown felt obliged to make some tactical decisions. Royal Crown reasonably decided to maximize the chance that the FTC would take some action by postponing private litigation and, at the same time, filing its own complaint at the last minute to serve as insurance that the transactions would be challenged by someone in the event that the FTC failed to act. Justifiable strategy, however, does not justify attorney's fees. Under the statute, only proof that an individual has substantially prevailed will entitle that individual to an attorney's fee award. Royal Crown urged the FTC to act; it should not now be surprised that that action proved decisive. 48 Under Royal Crown's strategy, we recognize that the TRO was a necessary precaution. Had the FTC voted not to block the PepsiCo and Coca-Cola transactions and had the FTC agreed that under such circumstances it was unnecessary to hold the parties to their June 24 closing date, the TRO could have played a crucial role because it would have prevented the parties from completing the transactions. The FTC, however, did oppose the transactions and did follow-up this opposition with a request for injunctive relief. The legal inquiry we make is based on whether the Royal Crown litigation was, in fact, a substantial factor causing the appellants' actions, not whether the litigation was prudent or would have been a substantial factor under a different set of circumstances. 49 Royal Crown urges us to consider the strength of the opposition to its motion for a TRO. See F & M Schaefer Corp., 476 F.Supp. at 207. Royal Crown points to the very prominent attorneys who were dispatched from New York, Washington and Atlanta to argue against the TRO. How could it be, Royal Crown asks, that all these powerful attorneys would fly down to Columbus, Georgia to oppose a TRO that they considered inconsequential? 50 The answer, of course, is that at the time of the TRO hearing, the appellants had no way of knowing whether the TRO would be inconsequential or not. On the one hand, if the FTC voted not to block the mergers, the TRO would have been the only barrier preventing the appellants from closing. On the other hand, if the FTC voted to block the mergers, the TRO would add nothing to the closing equation. The appellants decided to fight the TRO in the hopes that the FTC would decide not to oppose the transactions. (R7-Tr. 63). Once again, we must decide the question of causation based on what actually occurred and not on what might have occurred. 51 Royal Crown chose to wait in the wings in the hopes that the FTC would take some definitive action. While such a strategy is sound in obtaining the ultimate results, it is not without consequences. The legal basis of Royal Crown's claim is that it was a catalyst in getting the appellants to terminate their acquisitions. A lawsuit filed to safeguard one's position does not become a catalyst simply because the lawsuit serves as protection in the event that the FTC fails to act. If Royal Crown wished to play understudy to the FTC instead of taking the lead role, then it ran the risk that, despite its time and preparation, it would never have the opportunity to perform. Without a performance, Royal Crown cannot now expect a curtain call. Royal Crown filed a precautionary lawsuit and started the litigation wheels moving after much of the desired information had already been produced to the FTC. Such action is neither swift nor decisive and it is not enough to confer upon Royal Crown the status of prevailing party.