Stakes Rising in West Coast Food Dispute with New Hampshire Company in the Middle | Business

It turns out that fighting potential monopolists in the food industry is not cheap.

Under the state’s June 21 authorization for fees, Washington now expects to pay up to $6 million to an outside law firm handling the state’s Jan. 16 lawsuit against the proposed merger of Kroger and Albertsons.

That’s twice the money previously approved for Los Angeles-based Munger, Tolles & Olson, which the state Attorney General’s Office hired last August to help block the merger. It’s also about a quarter of the state’s total antitrust budget for 2023-25.

Washington maintains that the $24.6 billion deal will result in higher grocery prices for consumers in Washington, where Kroger, owner of QFC and Fred Meyer, and Albertsons, owner of Safeway, have a large presence.

Similar lawsuits have been filed by Colorado and the Federal Trade Commission.

Kroger and Albertsons say the merger will lower grocery prices, in part because the combined company will have the scale to compete with giants like Walmart and Costco.

Trials in all three cases are scheduled to begin in August or September.

Hiring outside firms is not uncommon for state attorneys general. Washington state currently has about 750 contracts with outside firms or attorneys. And while the Munger, Tolles & Olson contract is quite large, the fees will not be paid directly by Washington taxpayers.

Instead, those expenses are being paid for with funds received from defendants in the state’s 2020 price-fixing lawsuit against chicken and tuna producers, a spokesman for the attorney general’s office said Monday. The recoveries also cover the costs of the office’s 15 in-house antitrust lawyers, including eight assigned to the merger case, along with the rest of the antitrust division’s $22.4 million two-year budget. The agency’s total two-year budget is $704.1 million.

But the steadily rising costs of the lawsuit underscore the priority of the case for the state, as well as the challenges of pursuing a complex, high-profile antitrust lawsuit against two domestic companies in an election year.

Attorney General Bob Ferguson is the Democratic candidate for governor.

While the Washington lawsuit has been popular with consumers there, it has produced mixed results in court.

On April 26, the King County Superior Court denied Kroger and Albertsons’ motion to dismiss the lawsuit. A hearing is scheduled for September 16.

But Judge Marshall Ferguson, who is not related to the attorney general, expressed doubt that he would be able to block the nationwide merger.

“I have serious concerns about my authority as a district court judge to issue an injunction prohibiting this transaction from taking effect nationwide,” the judge said during his ruling.

He added that he allowed the proceedings to continue, in part because the state’s concerns could still be addressed with a more specific remedy.

That could include earlier proposals by Krogers and Albertsons to sell more than 100 Washington stores to rival New Hampshire-based C&S Wholesale Grocers in a bid to maintain competition in local grocery markets.

But it is not clear how a narrower solution would resolve Washington’s issue.

The state has repeatedly argued that C&S, which is primarily a wholesaler with a relatively small number of retail outlets, could not operate the divested stores efficiently enough to provide real competition. The FTC has made similar arguments.

If the court finds that the remedy is simply more asset sales in Washington, “that would be a win for Kroger and a loss, as far as I know, for the state, because the state doesn’t want the deal to go through and be done with,” said Doug Ross, an antitrust expert at the University of Washington School of Law.

Some legal experts say Washington’s best hope is the federal lawsuit that was filed Feb. 26.

On August 26, the FTC will ask a federal court in Oregon to temporarily halt the merger until the federal regulator completes a comprehensive merger review.

Some experts believe that if the court grants a temporary injunction, known as a preliminary injunction, Kroger and Albertsons could back out of the deal rather than wait for the FTC review, which begins later this month and could take many months.

That’s because temporary injunctions are issued when the litigants — in this case, the FTC — show a “substantial likelihood of success” if the case were taken to court, said Daniel Rubinfeld, an antitrust expert at New York University School of Law.

Historically, when merging companies lose a preliminary injunction case, “they almost always give up because (the government agencies) have already demonstrated that they are likely to win if they go to a full trial,” said Rubinfeld, who is also a former deputy assistant attorney general for antitrust at the U.S. Department of Justice.

Kroger and Albertsons have not responded to questions about the outcome of the FTC case. However, in recent public comments, company executives have continued to promote the merger as the best way to keep prices low and have repeated promises that they will not close stores or lay off front-line workers as a result of the merger.

The discrepancies between federal and state remedies for mergers underscore another, more delicate challenge facing Washington.

Ferguson raised eyebrows among legal experts when he filed a lawsuit in January seeking to block the merger, weeks before the FTC filed its widely expected lawsuit.

The FTC has traditionally preferred to coordinate antitrust cases with states rather than see parallel cases filed simultaneously in state and federal courts, legal experts said. Nine other states have joined the FTC lawsuit.

Washington’s lawsuit also raised speculation that the attorney general hoped to bolster his gubernatorial campaign with a high-profile, popular case. Ferguson announced the lawsuit with much fanfare on Martin Luther King Jr. Day.

When The Seattle Times asked readers for comments on the lawsuit, most of the more than 600 responses supported Ferguson’s actions.

Some legal experts also question whether Washington is devoting so many resources, including more than half of its antitrust staff, to a fight that the FTC, with far greater resources and expertise, is already fighting and is in a much better position to win.

“Is it good public policy to bring your own lawsuit in state court when there is an aggressive federal regulator filing a lawsuit that has broader scope and can get better relief?” said UW’s Ross, adding that an FTC victory would block the merger nationally.

However, in some circumstances it may be justified for individual states to file separate lawsuits, some legal experts say.

Washington is home to an unusually large number of Kroger and Albertsons stores — about 329 in total, or about 10% of all Albertsons locations and 4% of all Kroger locations, according to the companies’ websites.

By filing the lawsuit on its own, NYU’s Rubinfeld said, Washington may have sought to prevent the FTC from negotiating a deal with Kroger and Albertsons that would have been satisfactory to regulators from a national perspective but would not have adequately protected Washington’s particular circumstances.

Federal regulators “tend not to focus as much (on local problems),” Rubinfeld said. “They don’t have the comparative advantage of knowing on the ground what the real problems are.”

Some legal experts say separate state and federal lawsuits, while burdensome for federal regulators, could help squeeze more concessions from the merging companies.

It’s worth noting that when Kroger and Albertsons recently increased the number of proposed sales from 413 to 579, both Washington and Colorado saw big increases. Washington would now see 124 C&S store sales, or nearly 40% of the state’s total, up from 104.

The fact that Kroger and Albertsons have stepped up divestitures “is a pretty strong signal” that the companies realize their merger “raises significant antitrust issues,” said John Kirkwood, an antitrust expert and former FTC official who teaches law at Seattle University.

Last week, the Denver District Court also denied Kroger and Albertsons’ motion to dismiss the state’s lawsuit.

The data shows the opposite picture: Arizona, which did not file a separate lawsuit, saw the largest increase in the number of stores proposed for sale – from 24 to 101.

Still, given Washington’s mixed record so far, some legal experts wonder whether it would be more beneficial for the state to join the FTC’s case.

If Washington did so, it could draw on the FTC’s resources and antitrust expertise rather than replicating federal action on a smaller budget, according to Ross of the UW.

“Why not (get) the same experts, be in the same courtroom, in front of the same judge, presenting a consistent set of arguments?” Ross said.

Some legal experts also wonder whether Washington will drop its own case if the FTC wins a preliminary injunction case next month and it is upheld on appeal.

So far, however, there is no indication that the Attorney General’s Office intends to withdraw from any action.

On the contrary, the attorney general’s request for additional spending authority for the law firm Munger, Tolles & Olson, which now bills more than $400,000 a month, reflects the state’s intense preparations for a September merger trial that is expected to last three weeks.

“Our case is separate from the FTC’s case in federal court,” Dan Jackson, a spokesman for the office, said in an emailed statement Tuesday. “We will continue to press our case in King County Superior Court regardless of the outcome of that hearing.”

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