Federal Trade Commission v. Weyerhaeuser Company

648 F.2d 739, 208 U.S. App. D.C. 366

• Court: Court of Appeals for the D.C. Circuit
• Decided: June 1, 1981
• Docket: 81-1346
• Status: Published

Opinions

ORDER

PER CURIAM.

On consideration of appellant’s motion for injunction pending appeal, and of the responses filed with respect thereto, and for the reasons set forth in the attached per curiam opinion to be published at a later date, it is

ORDERED by the Court that appellant’s motion for injunction pending appeal is granted. It is

FURTHER ORDERED by the Court, sua sponte, that the parties are directed to return to the status quo existing at the time when the motion for injunctive relief was denied in the District Court. It is

FURTHER ORDERED by the Court that this ease will be expedited on the merits.

Opinion PER CURIAM.

Dissenting opinion filed by Circuit Judge MacKINNON.

This case is before us on a motion of the Federal Trade Commission for injunctive relief pending appeal. For reasons set forth below, we grant the motion for injunctive relief pending appeal. In addition, we order the parties to return to the status quo existing on March 25,1981, just prior to the time when the District Court denied the FTC’s motion for injunctive relief.

The FTC asked the District Court to enjoin the proposed acquisition by Weyerhaeuser Company and its wholly-owned subsidiary, Weybuy, Inc. of certain assets of Menasha Corporation. Weyerhaeuser is the seventh largest producer of corrugating medium on the West Coast, and the largest producer of corrugated containers in the United States; Menasha is the third largest producer of corrugating medium on the West Coast. District Court Findings of Fact and Conclusions of Law, If 5, 7. The District Court Judge found that the proposed merger “will significantly increase concentration in the market; it will result in the elimination of a substantial competitor; and it will increase the likelihood of collusion.” Id., f 42. Judge Pratt thus concluded that “the Commission has established a likelihood of success on the merits.” Id., 156.

Despite these findings, the District Court determined that private equities favoring defendant Menasha’s shareholders militated against the issuance of a preliminary injunction. Id., 1157-56. Because Menasha is a privately held, family-owned corporation, its shareholders have few opportunities to realize the value of their stock. Id., 158. The District Court concluded that the benefits to Menasha and its shareholders were “important equities favoring denial of a preliminary injunction.” Id., 165.

We believe that there are significant reasons to suggest that the District Court misapplied Section 13(b) of the Federal Trade Commission Act, 15 U.S.C. § 53(b), and misinterpreted the recent decision of this court in FTC v. Exxon Corp., 636 F.2d (D.C.Cir.1980). In essence, the District Court has ruled that if the shareholders of a company to be acquired stand to gain substantial financial benefits from a proposed transaction, that transaction should be allowed to proceed — subject only to a “hold separate” order — even though found in ail likelihood to be unlawful. We do not so read Section 13(b). While we agree that private equities may be considered in a motion for injunctive relief, we do not believe that those equities may be given conclusive effect at the nearly complete expense of the public interest also present. As a result, we find that there is a strong likelihood that the FTC will prevail on the merits of its appeal.

A strong showing has been made that the merger in this ease violates Section 7 of the Clayton Act. Therefore, this case is unlike the decision in Exxon, supra, where the District Court found that the FTC had failed to show that “the public interest entitle[d] it to the [preliminary injunction] relief sought under Section 13(b)” (emphasis added). No such finding was made by the District Court in this case. Indeed, the District Court found that “eventual divestiture would not prevent interim competitive harm during the pendency of the FTC administrative proceedings,” and sought to mitigate this harm by entering its “hold separate” order. Findings of Fact and Conclusions of Law, 1171-73. But it is far from clear that a “hold separate” order will be adequate, and the financial interest of Menasha shareholders is an insufficient reason for preferring such an order to a preliminary injunction. The FTC has met the heavy standard set forth in Virginia Petroleum Jobbers Ass’n v. Federal Power Comm’n, 259 F.2d 921, 925 (D.C. Cir.1958), and we accordingly grant the FTC’s motion for an injunction pending appeal. We refer this case to a merits panel to determine on an expedited basis whether the District Court abused its discretion in denying the request for a preliminary injunction.

Enjoining the proposed acquisition is made more difficult, however, by the parties’ determination to present the merger to this court as a fait accompli. On the evening of^ March 25, 1981, only a few hours after the District Court had denied the preliminary injunction, Weyerhaeuser and Menasha took the formal steps necessary to consummate their transaction before this court could grant a stay. Weyerhaeuser admits:

Weyerhaeuser and Menasha, advised by counsel that there was no injunction pending appeal [granted by the District Court], then undertook to decide whether they would proceed to consummate the merger. While that was being determined counsel for Weyerhaeuser were contacted by Mr. Daniel Cathey of the office of the Clerk of this Court [of Appeals] and were told that the FTC would, upon filing papers at the Courthouse, seek an administrative injunction from this Court.

Defendants’ Memorandum in Opposition to the FTC’s motion for Injunctive Relief Pending Appeal, p. 10 (emphasis supplied).

The defendants acted at their peril in completing the act that the FTC sought to enjoin. See Jones v. SEC, 298 U.S. 1, 18, 56 S.Ct. 654, 658, 80 L.Ed. 1015 (1936). It is well established that “where a defendant with notice in an injunction proceeding completes the acts sought to be enjoined the court may by mandatory injunction restore the status quo.” Porter v. Lee, 328 U.S. 246, 251, 66 S.Ct. 1096, 1099. 90 L.Ed. 1199 (1956). See Industrial Bank of Washington v. Tobriner, 405 F.2d 1321, 1323 (D.C.Cir.1968); Ramsburg v. American Investment Co., 231 F.2d 333 (7th Cir. 1956) (mandatory injunction may issue to dissolve merger completed on same day motion for temporary injunction denied, where parties had notice that denial of injunction would be appealed). Moreover, in Ramsburg, the court noted that such an injunction has issued in cases “without considering the ultimate rights of the parties in the controversy.” 231 F.2d at 337. Given the circumstances of this case and our disposition of the FTC’s motion, we believe it appropriate to order the parties to return to the status quo existing at the time when the motion for injunctive relief was denied in the District Court. The necessary parties, appellees Weyerhaeuser, Weybuy, and Menasha, are all present before this court.

We acknowledge that there is some possibility, albeit speculative, that shareholders of appellee Menasha may be harmed if the proposed merger is barred by injunctive relief. In this case, however, such harm results from the strong showing that has been made that the proposed transaction is unlawful, and not from the issuance of an injunction. Furthermore, whatever need Menasha shareholders may have to liquify their assets, that need cannot be satisfied through a potentially illegal merger that is subject to the strictures of Section 13(b). Additionally, our order requires expedition to ensure a prompt resolution of this matter. We believe that the standards of Virginia Petroleum Jobbers have been met in this case, and that an injunction pending appeal must issue. The actions of the parties cannot be allowed to frustrate the public interest by completing a transaction of such dubious validity.