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Spokane, Washington  Est. May 19, 1883

Stakes, and costs, growing in WA’s fight against Kroger-Albertsons merger

By Paul Roberts Seattle Times

Battling potential grocery monopolies, it turns out, isn’t cheap.

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

That’s double the money previously authorized 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 around of a quarter of the state’s total antitrust budget for the 2023-25 biennium.

Washington contends that the $24.6 billion deal would raise grocery prices for consumers in Washington, where Kroger, which owns QFC and Fred Meyer, and Albertsons, which owns Safeway, both have a heavy presence.

Colorado and the Federal Trade Commission have filed similar suits.

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

Trials in all three cases are set to start in August or September.

Hiring outside firms isn’t unusual for state attorneys general. Washington’s currently has around 750 contracts with outside firms or attorneys. And though the Munger, Tolles & Olson contract is on the large side, the fees won’t be paid directly by Washington taxpayers.

Instead, those expenses are paid out of funds received from defendants in the state’s 2020 price-fixing suit against chicken and tuna producers, an Attorney General’s Office spokesperson said Monday. Recoveries also pay for the office’s 15 in-house antitrust attorneys, including the eight assigned to the merger case, along with the rest of the antitrust division’s two-year budget of $22.4 million. The agency’s overall biennial budget is $704.1 million.

Still, the suit’s steadily rising expenses highlight the case’s priority for the state, but also the challenges of a complex, high-profile antitrust suit against two national companies in an election year.

Attorney General Bob Ferguson is a Democratic candidate for governor.

Although Washington’s lawsuit appears popular among Washington consumers, it has seen mixed results in court.

On April 26, a King County Superior Court rejected efforts by Kroger and Albertsons to dismiss the suit, which is scheduled to go to trial Sept. 16.

But Judge Marshall Ferguson, no relation to the attorney general, questioned whether he could block a national merger.

“I have serious doubts about my authority as a state court trial judge to issue an injunction that bars this transaction from going into effect nationwide,” the judge said during a ruling from the bench.

He let the suit continue, he said, in part because the state’s objections might still be addressed through a more narrowly tailored remedy.

That could include previous proposals by Kroger and Albertsons to sell off more than 100 stores in Washington to a rival, New Hampshire-based C&S Wholesale Grocers, to preserve competition in local grocery markets.

But it’s not clear how a narrower remedy would resolve Washington’s case.

The state has repeatedly argued that C&S, which is primarily a wholesaler with relatively few retail outlets, couldn’t run divested stores effectively enough to provide real competition. The FTC has made similar arguments.

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

Some legal experts think Washington’s best hope lies with the federal suit, which was filed Feb. 26.

On Aug. 26, the FTC will ask a federal court in Oregon to temporarily halt the merger until the federal regulator can complete a full review of the merger.

If the court grants that temporary hold, known as a preliminary injunction, some experts think Kroger and Albertsons might abandon the deal rather than wait for the FTC’s review, which starts later this month and could last many months.

That’s because preliminary injunctions are granted when litigants — in this case, the FTC — have demonstrated “a substantial likelihood of success” if the case went to trial, said Daniel Rubinfeld, an antitrust expert at New York University School of Law.

Historically, when merging companies lose on a preliminary injunction, they “almost always give up, because [the government agencies] have already proven that they’re likely to win if they have a full trial,” said Rubinfeld, who is also a former deputy assistant attorney general for antitrust in the U.S. Department of Justice.

Kroger and Albertsons did not respond to questions about the outcome of the FTC case. But in recent public comments, company executives have continued to promote the merger as the best way to keep prices low and have reiterated promises not to close stores or cut front-line workers as a result of the merger.

The disparity between the federal and state remedies in merger cases underscores another, more delicate challenge for Washington.

Ferguson raised eyebrows among legal experts when he sued to block the merger in January, weeks before the FTC filed its own widely expected suit.

The FTC officially typically prefers to coordinate antitrust cases with states, rather than see parallel cases running simultaneously in state and federal courts, legal experts said. Nine other states joined the FTC’s suit.

Washington’s suit also prompted speculation that the attorney general hoped to boost his gubernatorial campaign with a high-profile case and a popular cause. Ferguson announced the suit, with considerable fanfare, on Martin Luther King Jr. Day.

When The Seattle Times asked for reader comments on the lawsuit, most of the more than 600 responses were in favor of Ferguson’s action.

Some legal experts have also questioned whether Washington should devote so many resources, including more than half of its antitrust attorney staff, to a battle that the FTC, with its vastly greater resources and expertise, is already waging and is much better positioned to win.

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

Yet separate state suits can make sense in some circumstances, several legal experts said.

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

By suing on its own, Washington may have sought to keep the FTC from negotiating a deal with Kroger and Albertsons that satisfied regulators from a national standpoint, but didn’t adequately protect Washington’s specific circumstances, said NYU’s Rubinfeld.

Federal regulators “tend not to be as focused [on local issues],” said Rubinfeld. “They don’t have the comparative advantage of knowing, on the ground, what the real issues are.”

Separate state and federal lawsuits, though irksome to federal regulators, may also help squeeze more concessions from the merging companies, some legal experts say.

It may be notable that when Kroger and Albertsons recently boosted the number of proposed divestitures, from 413 to 579, both Washington and Colorado saw large increases. Washington would now see 124 stores divested to C&S, or nearly 40% of the state’s total, up from 104.

The fact that Kroger and Albertsons raised the number of divestitures “is a pretty powerful signal” the companies realize their merger “presents significant antitrust issues,” said John Kirkwood, an antitrust expert and former FTC official who teaches law at Seattle University.

Last week a Denver District Court also rejected a motion by Kroger and Albertsons to dismiss the state’s lawsuit.

A contrary data point: Arizona, which hasn’t filed a separate lawsuit, nonetheless saw the biggest increase in proposed stores to be divested, from 24 to 101.

Still, given Washington’s mixed results thus far, some legal experts wonder if the state would have been better off joining the FTC case.

If Washington had done so, UW’s Ross said, it could access the FTC’s resources and antitrust expertise, rather than having to essentially duplicate the federal effort on a smaller budget.

“Why not [get] the same experts, be in the same courtroom, in front of the same judge, making a consistent set of arguments?” Ross said.

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

But so far, there is little to suggest the Attorney General’s Office is preparing to drop anything.

To the contrary, the attorney general’s request for additional spending authority for Munger, Tolles & Olson, which is currently billing more than $400,000 a month, reflect the state’s extensive preparations for its September merger trial, which it expects could run three weeks.

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