California v. Am. Stores Co. - 495 U.S. 271, 110 S. Ct. 1853 (1990)

Rule:

The Clayton Act's provisions manifest a clear intent to encourage vigorous private litigation against anticompetitive mergers. 15 U.S.C.S. § 18 itself creates a relatively expansive definition of antitrust liability: To show that a merger is unlawful, a plaintiff need only prove that its effect may be substantially to lessen competition. 11 U.S.C.S. § 26, construed to authorize a private divestiture remedy when appropriate in light of equitable principles, fits well in a statutory scheme that favors private enforcement, subjects mergers to searching scrutiny, and regards divestiture as the remedy best suited to redress the ills of an anticompetitive merger. 

Facts:

Shortly after respondent American Stores Co., the fourth largest supermarket chain in California, acquired all of the outstanding stock of the largest chain, the State filed suit in the District Court alleging, inter alia, that the merger constituted an anticompetitive acquisition violative of § 7 of the Clayton Act and would harm consumers throughout the State. The court granted the State a preliminary injunction requiring American to operate the acquired stores separately pending resolution of the suit. Although agreeing that the State had proved a likelihood of success on the merits and the probability of irreparable harm, the Court of Appeals set aside the injunction on the ground that the relief granted exceeded the District Court's authority under § 16 of the Act to order "injunctive relief." The court relied on an earlier decision in which it had concluded on the basis of its reading of excerpts from subcommittee hearings that § 16's draftsmen did not intend to authorize the remedies of "dissolution" or "divestiture" in private litigants' actions. Thus, held the court, the "indirect divestiture" effected by the preliminary injunction was impermissible.

Issue:

Is divestiture a form of "injunctive relief" authorized by § 16?

Answer:

Yes.

Conclusion:

The Supreme Court reversed the decision of the appeals court and remanded. The Court held that divestiture is a form of injunctive relief within the meaning of 16, and that the District Court, with respect to the case at hand, had the power under 16 to divest the acquirer of any part of the acquirer's ownership interest in the acquired company--either by forbidding the exercise of the owner's normal right to integrate the operations of two previously separate companies, or by requiring the acquirer to sell certain assets located in California--because (1) if the merger violated antitrust laws, and if it were correctly found that the conduct of the merged enterprise threatened economic harm to California consumers, then the literal text of 16 was sufficient to authorize injunctive relief, including an order of divestiture, that would prohibit that conduct from causing that harm; (2) such a construction harmonizes 16 with its statutory context, which (a) favors private enforcement, (b) subjects mergers to searching scrutiny, and (c) regards divestiture as the remedy best suited to redress the ills of an anticompetitive merger; (3) even though it was alleged that excerpts from subcommittee hearings on the adoption of the Act demonstrated that a conduct-structure distinction had been recognized and that Congress had rejected a private dissolution remedy, and thereby had rejected divestiture as well, such allegations were not confirmed by anything that had been called to the Supreme Court's attention in the committee reports, floor debates, conference report, or contemporaneous judicial interpretations concerning the Act, given the historical importance of the distinction between dissolution and divestiture; (4) the equitable principles that govern 16 support a construction that would enable a chancellor to impose the most effective, usual, and straightforward remedy to rescind an unlawful purchase of assets; and (5) the fact that the term "divestiture" is used to describe what is typically no more than the familiar remedy of rescission does not place the remedy beyond the normal reach of the chancellor.