Learning on the job

A new jurist hears Sysco/US Foods

When the Federal Trade Commission attempted to block the merger of Sysco Corporation and US Foods, few in Washington, DC’s close-knit antitrust community were surprised.

In the months leading up to 19 February 2015 – the day the FTC sought a preliminary injunction against the deal in DC federal district court – lawyers, academics and journalists had speculated keenly and openly about the likely fate of the $8.2 billion deal. For many in DC’s antitrust bar, a tie-up of the country’s two largest food distributors could have a serious effect on their clients, who included precisely the roster of national hotel chains, restaurants and hospitals that US Foods and Sysco served. So they followed closely as the story unfolded.

The gossip only increased when, in early February, the two companies took their case up with the FTC’s five commissioners after staff reportedly took “a different view of the potential competitive impacts of the merger”. Chattering sources told GCR at the time that merging parties seldom meet with commissioners – the FTC’s politically appointed leaders – unless the staff has already recommended action. Then, when news broke that Sysco had hired a team of lawyers from O’Melveny & Myers, arguably the go-to antitrust shop in DC for companies in trouble with the government, few doubts remained that a government challenge was imminent.

Yet, for the man who would ultimately decide the deal’s fate, Amit Priyavadan Mehta, this inside-Beltway intrigue probably barely registered.

As lawyers at the top antitrust firms in Washington gobbled up news of Sysco’s ongoing attempts to dodge a legal challenge, Judge Mehta was busy settling into a job he had assumed mere weeks before the FTC’s motion for a preliminary injunction landed on his desk. Nominated by President Obama in July 2014 and confirmed that December, Mehta, a former public defender and white-collar defence lawyer, had just become DC’s newest federal district judge.

Mehta had been in the spotlight before. As a partner at DC litigation boutique Zuckerman Spaeder, he had represented Dominique Strauss-Kahn, the former International Monetary Fund boss, against sexual assault allegations that may have cost Strauss-Kahn the French presidency. Many of Mehta’s clients at DC’s vaunted Public Defender Service stood charged with murders, sexual assaults and other violent crimes. But Mehta’s only antitrust experience had been as counsel to Rosecroft Raceway, a horse-racing track in Maryland, when it sued a jockey club and a trade association for allegedly monopolising betting markets.

And now he was to decide one of the highest-profile antitrust cases to come before the DC court in years.

The generalist

American antitrust is unusual among enforcement regimes in many ways. Whereas most governments police conduct and scrutinise deals through one central body, for instance, the US regime disperses that power among two federal agencies, 50 state attorneys general and innumerable private plaintiffs. Unlike other countries’ prolix competition laws, meanwhile, the US’s principal antitrust statute – Section 1 of the Sherman Act – is a terse and perplexing paragraph.

The US is an outlier in one further regard. Once the government decides a deal has the potential to harm consumers, at some point or other it must convince a judge – often one with no particular antitrust knowledge – to see things the same way.

Europe’s top antitrust enforcer, in contrast, both investigates cases and decides the result. In the UK and Canada, competition cases are heard by special competition tribunals combining expertise in business and economics with legal training. The key antitrust decision makers in the US, on the other hand, often have no expertise or experience in competition law before they come to the bench.

That is not to say that the federal judiciary lacks antitrust nous. The Seventh Circuit Court of Appeals alone contains three renowned scholars of competition law: Richard Posner, Frank Easterbrook and Diane Wood. Several of Obama’s appointments to the lower federal courts litigated antitrust cases in government or private practice. And the Supreme Court’s newest justice, Neil Gorsuch, was reportedly due to teach a law school antitrust class on the day he was nominated. But many lack such experience, and once they don their robes, antitrust cases comprise such a small percentage of the average judge’s docket that they get little opportunity to “refine their antitrust knowledge” on the job, as law professor and former FTC commissioner Joshua Wright wrote in a 2012 paper.1 Judge Mehta, for instance, has heard just one antitrust case in the past 12 months (signing off on a consent decree between the DOJ and Dow and DuPont over their $130 billion deal), compared with almost 30 Freedom of Information Act cases and 15 employment lawsuits.

Of course, there are benefits to having generalist judges – rather than experts in industrial organisation economics – call the shots. Enforcers may be less likely to bring cases based on novel, untested economic or legal theories, for instance. Still, the lack of expertise, sometimes even familiarity with antitrust, poses challenges to litigants.

“It’s a struggle because at the antitrust agencies you have the foremost experts on antitrust theory and jurisprudence. But at trial you need to move away from hardcore economics and focus on telling a story,” said Lawrence Buterman, a former Antitrust Division trial attorney, now at Latham & Watkins. This is especially hard in merger cases, which, prospective in nature, are less sexy than cases of collusion and conspiracy. Further, they often require parties to develop over a few hours an intricate picture of a complex industry, not just as it exists in reality, but also accounting for hypothetical price increases, cost savings, entry and so on.

“You only have limited time to educate a judge about the industry and the economics behind it,” one of Sysco’s lawyers, Ted Hassi, told a conference shortly after Judge Mehta ruled against his client. This means lawyers must “ruthlessly simplify the case” and, on the defence side, “demonstrate why the market structure doesn’t matter, why what the government says doesn’t matter and why the customers aren’t going to be harmed”, Hassi said.

The education

After landing Sysco/US Foods, Judge Mehta sought advice from his colleagues in the federal district courthouse, some of whom had handled large merger challenges before. Still, Mehta has said that he learned antitrust law and economics as the eight-day preliminary injunction hearing went on.

During opening arguments, the FTC’s lead trial lawyer Stephen Weissman interrupted his statement to check that Judge Mehta knew what he meant when he spoke of Sysco/US Foods’ sky-high HHIs, a measure of industry concentration.

“I do now,” Mehta drily replied.

Yet despite his self-deprecation, Judge Mehta’s frequent interjections during the hearing showed he had more than a layman’s grasp of the issues at stake. In pretrial briefing and public statements, Sysco and US Foods had hammered the FTC on its market definition, which sought to establish a separate market for nationwide, broadline food distribution, and which Sysco’s lawyer had called “pure mythology”. On the first day of the hearing, Judge Mehta told his packed courtroom that the case would indeed hinge on whether customers need Sysco’s and US Foods’ broadline distribution, or if they could switch to different channels, such as direct purchasing from a manufacturer or going to cash and carry stores.

“It seems to me, this is where the rubber’s going to hit the road here,” Mehta said. During that morning, Mehta repeatedly interrupted Weissman, urging him to clarify the FTC’s position on the relevant markets.

In the end, it was the FTC’s successful definition of a market for national customers of broadline distribution – a market of which Sysco and US Foods controlled over 70% – that won it the case.

Yet if Mehta was already leaning in one direction during the hearing, he kept it to himself throughout proceedings. Some of his comments gave hope to the FTC. During testimony by the FTC’s expert, Mark Israel, Mehta commented that “it seems counterintuitive that more distributors doesn’t lead to lower costs.” Yet other comments augured well for Sysco and US Foods. Amid post-trial arguments, in particular, Mehta once more peppered Weissman with questions about the FTC’s market definition, demanding to know whether any study “not sponsored by the FTC for the purposes of litigation” shed light on the company’s percentage of the broadline market. He also criticised the FTC’s estimates of how many customers would switch between Sysco and US Foods in the event of a price increase because the underlying data, he said, is “not complete” and “really blurry”.

At the end of it all, however, Judge Mehta thanked the parties for their “extraordinary” work, before turning over the baton to him. “Particularly for a new judge,” he added.

Weissman says Mehta’s handling of the case was a “testament to the bench”.

“I don’t know whether it’s because he was new and wanted to prove himself, but he really dug in and showed an interest and ambition to really learn the case,” he told GCR in an interview.

The authority

In the years since Sysco, Mehta’s ruling has been influential on other merger cases. Notably, judges blocked Staples’ acquisition of office store rival Office Depot and Anthem’s merger with health insurance rival Cigna after concluding – as Mehta did in Sysco – that large, national customers had unique characteristics and constituted an independent market.

Perhaps because of this, Mehta has become something of a minor celebrity in antitrust circles, speaking at conferences and dinner events, and offering lawyers dos and don’ts about litigating complex antitrust cases before generalist judges.

In particular, he has advised litigators to watch how much information they give to federal district judges, who often manage more than 100 cases at one time. In Sysco, four experts submitted over 1,000 pages of reports, which, Mehta said, even the most careful judge would have a hard time reading.

“Sometimes less is more when it comes to expert testimony, and I would urge people who are trying these cases to think about your audience and what your audience’s capacity is for digesting this information,” Mehta told a DC audience in April 2016. He has also urged lawyers to pair economic testimony with anecdotes and evidence to help ground complex economics in the real business world.

As someone who went from neophyte to expert in the course of eight days, Mehta spoke from experience.

Notes

  1. Joshua D. Wright & Angela Diveley, Do Expert Agencies Outperform Generalist Judges? Some Preliminary Evidence from the Federal Trade Commission, Journal of Antitrust Enforcement, December 2012, pp. 1-22, available at https://www.law.gmu.edu/assets/files/publications/working_papers/1303DoExpertAgenciesOutperform.pdf.

Get unlimited access to all Global Competition Review content