Kroger's fight against a federal agency could turn antitrust law on its head

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CNN
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Supermarket chain Kroger has sued a federal agency in a bold move aimed at weakening Washington's crackdown on mergers that could drive up prices for consumers.

The lawsuit alleges that the Federal Trade Commission (FTC) is violating the U.S. Constitution by using an internal court to challenge Kroger's $25 billion mega-merger with Albertsons – the largest proposed supermarket deal in American history.

The FTC typically enforces antitrust laws in two ways: It can sue companies and take them directly to court, or it can try to use its own internal administrative law judges to issue a judgment or reach an out-of-court settlement. In the Kroger case, the FTC actually pursued both options: It tried to block the merger in court and use its internal administrators to issue a judgment on it.

Companies can challenge the FTC's administrative decisions in court, but Kroger claimed the process was unconstitutional.

Kroger's lawsuit, filed Monday in federal court in Cincinnati, relies in part on a landmark Supreme Court ruling in June that further limited the power of regulators. The new lawsuit is an important precedent and the latest attempt to reshape the administrative state in America.

Experts say a Kroger victory would usher in a radical shift in the way the federal government challenges mergers. U.S. officials fear that weakening regulators' ability to fight monopolies could harm consumers by giving companies too much power to raise prices and close stores.

“This is huge. If they succeed and the appeals courts agree, one of the most important arms of antitrust enforcement will literally be cut off at the elbow,” said Christine Bartholomew, a law professor at the University of Buffalo School of Law. “It would be a radical change in the way we handle antitrust in this country.”

Bartholomew said the lawsuit “worries” her because if the FTC can no longer use its own internal arbitration panels, there will likely be less stringent antitrust scrutiny of corporate mergers.

“The risk is more deals, more concentration and potentially higher prices and less choice for the consumer,” she said.

In February, the FTC filed a lawsuit to block the $25 billion deal between Kroger and Albertsons announced for 2022. The agency argued that the merger would drive up prices, close stores and eliminate jobs.

Kroger argues that the deal would do just the opposite, helping the supermarket chains compete against non-union giants like Amazon, Costco and Walmart.

The FTC challenged the Kroger deal on two fronts: in federal court and in an administrative proceeding.

Next week, Kroger will go to court in Portland, Oregon, over the deal. The FTC has asked the judge in the case to temporarily block the deal between Kroger and Albertsons while the internal court reviews the transaction.

In the new lawsuit, Kroger argues that the FTC is “clearly violating the Constitution” in two ways: the administrative law judge cannot be removed by the President of the United States and the case is being tried by the executive branch rather than in court.

Kroger is citing the Supreme Court's landmark decision in June in which judges limited the Securities and Exchange Commission's (SEC) power to enforce regulations through internal reviews instead of jury trials.

“We are prepared to defend this merger in the upcoming trial in federal court – the appropriate venue to litigate this case,” Kroger CEO Rodney McMullen said in a statement. “We urge the court to stop the proceedings in the FTC's internal tribunal, which amounts to an improper process.”

McMullen added that the focus of the Kroger-Albertson's merger is “entirely on offering our customers lower prices on day one while securing the future of good-paying union jobs.”

The FTC declined to comment on Kroger's lawsuit.

A source familiar with the matter dismissed Kroger's lawsuit as a “desperate last resort.”

The move is part of a broader effort by American business to fight back against what some see as overregulation.

Even some major Democratic donors (who have their business interests at stake) argue that the FTC's anti-monopoly efforts during the Biden administration have gone too far.

The Supreme Court recently ruled in favor of companies fighting regulations. In its landmark decision in June, the court struck down the Chevron doctrine, among other things, thereby weakening the authorities' power to approve regulations.

“The entire administrative structure is currently under legal attack,” said Rebecca Haw Allensworth, an antitrust professor at Vanderbilt Law School.

Allensworth said a victory for Kroger would represent a “seismic shift” in the way the FTC and other federal agencies operate.

“That would definitely be an arrow from the FTC’s quiver,” she said.

Allensworth pointed to the Supreme Court's recent series of rulings against federal agencies and said a Kroger victory could not be ruled out.

“The law is what the Supreme Court says. We cannot be sure that such a lawsuit will be dismissed,” she said.