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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 1 of 42

IN THE UNITED STATES DISTRICT COURT


FOR THE DISTRICT OF COLUMBIA

)
WHOLE FOODS MARKET, INC., )
)
)
Plaintiff, )
)
v. ) Case No. 1:08-cv-02121 PLF
)
FEDERAL TRADE COMMISSION, )
)
)
Defendant. )
)

PLAINTIFF WHOLE FOODS MARKET, INC.’S


MOTION FOR A PRELIMINARY INJUNCTION

Plaintiff Whole Foods Market, Inc. (“Whole Foods”), by and through its

undersigned counsel, respectfully moves this Court, pursuant to Federal Rule of Civil Procedure

65(a) and Local Civil Rule 65.1(c), for a preliminary injunction against the Defendant Federal

Trade Commission (“FTC”) enjoining the FTC from any further prosecution of its administrative

action against Whole Foods, pending the resolution of Whole Foods’ Amended Complaint for

Declaratory and Injunctive Relief filed in the above-captioned matter on December 17, 2008. In

support of this Motion, Whole Foods refers this Court to the accompanying Memorandum of

Points and Authorities in Support of Its Motion For a Preliminary Injunction, and the

Declarations of Paul T. Denis and Lanny J. Davis, attached hereto.

Pursuant to Local Civil Rule 65.1(d), for the reasons set forth in the

accompanying Memorandum of Points and Authorities, Whole Foods respectfully requests a

hearing on this motion at the earliest possible date.

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 2 of 42

Pursuant to Local Civil Rule 7(m), counsel for Whole Foods conferred with the

FTC’s counsel by telephone in a good-faith effort to determine whether the FTC opposes the

relief sought herein. The FTC’s counsel indicated that such relief is opposed.

Dated: December 19, 2008 Respectfully submitted,

/s/ Lanny J. Davis


Lanny J. Davis (D.C. Bar No. 158535)
Garret G. Rasmussen (D.C. Bar No. 239616)
Antony P. Kim (D.C. Bar No. 489553) (app. pending)
ORRICK, HERRINGTON & SUTCLIFFE LLP
1152 15th Street, N.W.
Washington, D.C. 20005
Telephone: (202) 339-8400

W. Stephen Cannon (D.C. Bar No. 303727)


Todd Anderson (D.C. Bar No. 462136)
CONSTANTINE CANNON, LLP
1627 I Street, N.W.
Washington, D.C. 20006
Telephone: (202) 204-3500

Attorneys for Plaintiff Whole Foods


Market, Inc.

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 3 of 42

IN THE UNITED STATES DISTRICT COURT


FOR THE DISTRICT OF COLUMBIA

)
WHOLE FOODS MARKET, INC., )
)
Plaintiff, )
)
v. ) Case No. 1:08-cv-02121 PLF
)
FEDERAL TRADE COMMISSION, )
)
Defendant. )
)

PLAINTIFF’S MEMORANDUM OF POINTS AND AUTHORITIES


IN SUPPORT OF ITS MOTION FOR A PRELIMINARY INJUNCTION
Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 4 of 42

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ..................................................................................................... ii


INTRODUCTION..................................................................................................................... 1
STATEMENT OF FACTS ........................................................................................................ 3
ARGUMENT ............................................................................................................................ 9
I. THE DISTRICT COURT HAS JURISDICTION TO HEAR THIS CASE ..................... 9
II. A PRELIMINARY INJUNCTION SHOULD BE GRANTED..................................... 11
A. Whole Foods is likely to prevail on its equal-protection claims......................... 11
1. Fifth Amendment requirements of equal protection prohibit the
federal government from treating similarly situated persons
differently without a rational basis.. ...................................................... 12
2. The FTC Act imposes outcome-determinative differences on
merging parties... .................................................................................. 13
3. There is no rational basis for these outcome-determinative
differences in treatment of similar merging parties.. .............................. 16
B. Whole Foods is likely to prevail on its due-process claims................................ 17
1. The Commission has violated due process by publicly prejudging
the merits of Whole Foods' merger and credibility of its witnesses
and evidence, and thus has in appearance, if not if fact, gutted any
potential for an impartial and disinterested tribunal.. ............................. 18
2. The Commission has violated due process by imposing a
prejudicial Scheduling Order that denies Whole Foods appropriate
discovery to reasonably and adequately prepare for trial........................ 20
C. Whole Foods Has Suffered And Will Continue To Suffer Irreparable
Harm ................................................................................................................ 28
1. Deprivation of constitutional guaranteed rights constitutes
irreparable injury................................................................................... 28
2. Whole Foods has suffered and will continue to suffer irreparable
harm per se because there is no legal avenue by which Whole
Foods could recover any monetary damages against the
Commission.......................................................................................... 29
D. The Commission Will Not Be Harmed By A Preliminary Injunction ................ 30
E. A Preliminary Injunction Will Further the Public Interest in Ensuring That
FTC Proceedings Are Fundamentally Fair to Respondents ............................... 30
RELIEF REQUESTED ........................................................................................................... 32

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 5 of 42

TABLE OF AUTHORITIES
Page

Cases

Allegheny Pittsburgh Coal Co. v. Cty. Comm’r of Webster Cty.,


488 U.S. 336 (1989)............................................................................................................ 12

Amos Treat & Co. v. SEC,


306 F.2d 260 (D.C. Cir. 1962) ............................................................... 10, 17, 18, 19, 28, 31

Bowen v. Massachusetts,
487 U.S. 879 (1988)............................................................................................................ 29

Cinderella Career & Finishing School v. FTC,


425 F.2d 584 (D.C. Cir. 1970) ............................................................................................ 19

Citicorp Services, Inc. v. Gillespie,


712 F. Supp. 749 (N.D. Cal. 1989)...................................................................................... 28

City of Cleburne v. Cleburne Living Center,


473 U.S. 432 (1985).......................................................................................................11, 12

Ellipso, Inc. v. Mann,


480 F.3d 1153 (D.C. Cir. 2007) ............................................................................................ 9

Falls v. Town of Dyer,


875 F.2d 146 (7th Cir. 1989)...........................................................................................13, 16

FTC v. Exxon Corp.,


636 F.2d 1336 (D.C. Cir. 1980) .......................................................................................... 14

FTC v. H.J. Heinz, et al.,


246 F.3d 708 (D.C. Cir. 2001) ............................................................................................ 14

FTC v. Whole Foods Market, Inc.,


502 F. Supp. 2d 1 (D.D.C. 2007)........................................................................................... 3

FTC v. Whole Foods Market, Inc.,


533 F.3d 869 (D.C. Cir. July 29, 2008) ........................................................................... 6, 22

FTC v. Whole Foods Market, Inc.,


No. 07-5276, 2007 U.S. App. LEXIS 20539 (D.C. Cir. Aug. 23, 2007)................................. 4

Feinerman v. Bernardi,
558 F. Supp. 2d 36 (D.D.C. 2008)................................................................................... 2, 29

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 6 of 42

TABLE OF AUTHORITIES
(continued)
Page

Gibson v. Berryhill,
411 U.S. 564 (1973)............................................................................................................ 18

Goldie’s Bookstore, Inc. v. Superior Court,


739 F.2d 466 (9th Cir. 1984)........................................................................................... 2, 28

Grolier Inc. v. FTC,


615 F.2d 1215 (9th Cir. 1980)......................................................................................... 2, 19

Gulf Oil Corp. v. Department of Energy,


663 F.2d 296 (D.C. Cir. 1981) .......................................................................................11, 28

Hosp. Corp. of America v. FTC,


807 F.2d 1381 (7th Cir. 1986)............................................................................................. 15

Jacksonville Port Authority v. Adams,


556 F.2d 52 (D.C. Cir. 1977) .............................................................................................. 31

McClelland v. Andrus,
606 F.2d 1278 (D.C. Cir. 1979) .....................................................................................21, 25

Mercy Hosp. of Laredo v. Heckler,


777 F.2d 1028 (5th Cir. 1985) ............................................................................................ 25

Pepsico, Inc. v. FTC,


472 F.2d 179 (2d Cir. 1972)................................................................................................ 11

Shapiro v. Thompson,
394 U.S. 618 (1969)............................................................................................................ 13

In the Matter of Rambus, Inc.,


2006-2 Trade Cas. P 75, 2006 WL 2330117 (F.T.C. Aug. 2, 2006) ..................................... 16

Sioux City Bridge Co. v. Dakota Cty.,


260 U.S. 441 (1923)............................................................................................................ 12

Standard Oil Co. v. FTC,


475 F. Supp. 1261 (N.D. Ind. 1979) ..................................................10, 17, 21, 22, 25, 28, 31

Telecommunication’s Research and Action Center v. FCC,


750 F.2d 70 (D.C. Cir. 1984) ............................................................................................ 9, 10, 11

Ticor Title Insurance Co. v. FTC,

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TABLE OF AUTHORITIES
(continued)
Page

814 F.2d 731 (D.C. Cir. 1987) ................................................................................................ 10

Time Warner Entm’t Co. v. FCC,


530 F.3d 936 (D.C. Cir. 1996) ................................................................................................ 10

United States v. Baker Hughes, Inc.,


908 F.2d 981 (D.C. Cir. 1990) .......................................................................................... 14, 15

United States v. Gillette Co.,


828 F. Supp. 78 (D.D.C. 1993) ............................................................................................... 14

United States v. S.A. Empresa De Viacao Aerea Rio Grandense,


467 U.S. 797 (1984)................................................................................................................ 30

United States v. State of New York,


708 F.2d 92 (2d Cir. 1983)...................................................................................................... 29

Utica Packing Co. v. Block,


781 F.2d 71 (6th Cir. 1986)..................................................................................................... 19

Village of Willowbrook v. Olech,


528 U.S. 562 (2000)................................................................................................................ 12

Vlandis v. Kline,
412 U.S. 441 (1973)................................................................................................................ 13

Withrow v. Larkin,
421 U.S. 35 (1975) ............................................................................................................18, 19

Zobel v. Williams,
457 U.S. 55 (1982) ........................................................................................................... 12, 13

Statutes

16 C.F.R. § 3.1 ....................................................................................................................... 15, 31

16 C.F.R. § 3.42 ..................................................................................................................... 15, 27

16 C.F.R. 3.54 ........................................................................................................................ 15, 16

16 C.F.R. § 4.7……………………………………………………………………….....17, 25, 26, 27

5 U.S.C. § 702.............................................................................................................................. 29

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TABLE OF AUTHORITIES
(continued)
Page

15 U.S.C. § 18........................................................................................................................ 13, 14, 15

15 U.S.C. § 45........................................................................................................................ 9, 14, 16

15 U.S.C. § 53.............................................................................................................................. 14

15 U.S.C. § 57.............................................................................................................................. 9

28 U.S.C. § 1291 .......................................................................................................................... 15

28 U.S.C. § 2680 .......................................................................................................................... 30

Rules

Fed. R. App. P. 3……………………………………………………………………………………15

Miscellaneous

Declaration of Paul T. Denis dated December 15, 2008.

Declaration of Lanny J. Davis dated December 18, 2008:

Exhibit 1 - FTC Order Staying Administrative Proceedings, FTC Docket No.


9324 (Aug. 7, 2007)

Exhibit 2 - Brief for Appellant FTC (D.C. Cir. Jan. 14, 2008)

Exhibit 3 - Emergency Motion of the FTC for an Injunction Pending Appeal


(D.C. Cir. Aug. 17, 2007)

Exhibit 4 - Reply Brief for Appellant FTC (D.C. Cir. Feb. 27, 2008)

Exhibit 5- FTC Order Rescinding Stay of Administrative Proceeding, Setting


Scheduling Conference, and Designating Presiding Official, FTC
Docket No. 9324 (Aug. 8, 2008)

Exhibit 6 - Motion To Disqualify The Commission As Administrative Law


Judge
And To Appoint A Presiding Official Other Than A Commissioner,
FTC Docket No. 9324 (Aug. 22, 2008)

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 9 of 42

TABLE OF AUTHORITIES
(continued)
Page

Exhibit 7- FTC Order Denying Respondent’s Motion To Disqualify The


Commission, FTC Docket No. 9324 (Sept. 5, 2008)

Exhibit 8 - Transcript of FTC Scheduling Conference, FTC Docket No. 9324


(Sept. 8, 2008)

Exhibit 9 - FTC Scheduling Order, FTC Docket No. 9324 (Sept. 10, 2008)

Exhibit 10 - FTC Order Designating Administrative Law Judge (Oct. 20, 2008)

Exhibit 11 - Respondent’s First Status Report, FTC Docket No. 9324 (Nov. 21,
2008)

Exhibit 12 - Notice of Proposed Rulemaking in the Federal Register, 73 Fed.


Reg. 58832 (Oct. 7, 2008)

Exhibit 13 - Comments of ABA Section of Antitrust Law (Nov. 6, 2008)

Exhibit 14 - Comments of Chamber of Commerce of the United States of


America (Nov. 6, 2008)

Exhibit 15 - Comments of Robert Pitofsky and Michael N. Sohn (Nov. 6, 2008)

Exhibit 16 - Joint Case Management Statement, FTC Docket No. 9324 (Aug.
28, 2008)

Exhibit 17 - Report of the Antitrust Modernization Commission, Section II


(April 2007).

Exhibit 18 - Complaint Counsel’s Response to Respondents’ Motion For


Recusal of Commissioner Rosch, In the matter of Inova Health
System Foundation, et al., FTC Docket No. 9326, at 5 (May 27,
2008)

Exhibit 19 - Response of FTC to Petition for Rehearing En Banc, No. 07-5276


(D.C. Cir. 2008).

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 10 of 42

INTRODUCTION

Plaintiff Whole Foods Market, Inc. (“Whole Foods”) requests a preliminary injunction

staying the Federal Trade Commission’s (“FTC” or “Commission”) administrative proceeding

against Whole Foods pending this Court’s consideration of the constitutional claims alleged in

Whole Foods’ Amended Complaint for Declaratory and Injunctive Relief (“Amended

Complaint”). As discussed below, Whole Foods has raised two constitutional issues.

First, Whole Foods has challenged on equal-protection grounds provisions of the Federal

Trade Commission Act (“FTC Act”) regarding merger challenges to which Whole Foods is now

subject. The FTC’s merger challenges subject parties like Whole Foods to materially different

standards and processes than do merger challenges by the U.S. Department of Justice (“DOJ”).

More specifically, if the FTC challenges a particular merger rather than the DOJ, the challenge

will be adjudicated under a different substantive legal test, using a different preliminary

injunction standard, in a different forum with a greater potential for prejudice to due process

rights (as explained below), using different procedural rules. Even after the initial proceeding

concludes, whereas a challenge by DOJ in U.S. district court will be reviewed by a circuit court,

the FTC can conduct an internal follow-on administrative proceeding – and even then can

completely change an adverse merits decision before appeal to the circuit court. There is no

rational basis for subjecting merging parties to different outcome-determinative standards and

legal processes.

Second, even if there were no equal-protection violations at issue, the Commission has

irreversibly deprived Whole Foods of its fundamental due process rights by:

· Prejudging, in appearance if not in reality, the outcome of Whole Foods’ case as


evidenced by its categorical, unqualified conclusions on the ultimate merits of the
Whole Foods/Wild Oats merger made prior to commencing what is required to be a
fair and impartial administrative proceeding;

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 11 of 42

· Failing to keep separate its investigative/prosecutorial functions from its adjudicative


functions; resulting, upon information and belief, in Commissioners conferring with
and giving guidance to the attorneys drafting the Commission’s aforementioned legal
briefs;
· Imposing an unreasonably truncated and arbitrary discovery schedule that was
developed by a Commissioner (not an independent Administrative Law Judge) acting
as Presiding Official over the proceedings, and that prejudices Whole Foods by
giving it just five months to defend its merger in 29 separate geographical markets
across the United States; and
· Appointing as Presiding Official of the administrative proceeding one of its own
Commissioners who had prejudged the case, and then subsequently replacing the
Commissioner with an Administrative Law Judge (“ALJ”) and stripping the ALJ of
his independence to modify the truncated schedule without the full Commission’s
permission.

Each of the foregoing violations alone constitutes sufficient grounds for this Court to

immediately bar the Commissioners from adjudicating the merits of Whole Foods’ case. The

Commissioners have developed an improper “will to win” and are acting not as impartial

adjudicators but like partisans on a mission – like the “the man who has buried himself in one

side of an issue.” See Grolier Inc. v. FTC, 615 F.2d 1215, 1220 (9th Cir. 1980) (condemning

such conduct). The Commissioners’ “will to win” is evidenced by the Commission’s published

prejudgments on the crucial factual and legal issues in this case, its imposition of an unfairly

truncated schedule and its failure to separate investigative/prosecutorial functions from its

adjudicative functions.

As discussed further below, the deprivation of constitutional rights constitutes irreparable

injury. See Goldie’s Bookstore, Inc. v. Superior Court, 739 F.2d 466, 472 (9th Cir. 1984).

Moreover, Whole Foods’ injuries cannot be addressed by monetary damages since Whole Foods

cannot recover damages from the FTC. See Feinerman v. Bernardi, 558 F. Supp. 2d 36, 51

(D.D.C. 2008)

Thus, for the reasons set forth below, preliminary relief staying the FTC’s adjudicatory

proceedings pending resolution of Whole Foods’ constitutional claims is fully warranted.

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 12 of 42

STATEMENT OF FACTS

On February 21, 2007, Whole Foods executed an agreement to acquire Wild Oats

Markets, Inc. (“Wild Oats”), and subsequently notified the Commission of the proposed merger

pursuant to the Hart-Scott-Rodino Act. Am. Compl. ¶¶ 14-15; see also Declaration of Paul T.

Denis dated December 15, 2008 ¶ 4 (“hereinafter “Denis Decl.”). The Commission commenced

an investigation, issued a Request for Additional Information and Documentary Material, and

conducted extensive one-way discovery over the next three months. Am. Compl. ¶ 15; see also

Denis Decl. ¶ 5.

On June 27, 2007, the Commission voted unanimously to issue an administrative

complaint challenging the merger. Am. Compl. ¶ 19; see also Denis Decl. ¶ 6. On August 7,

2007, the Commission unilaterally stayed the administrative proceedings “[i]n light of the

pendency of the related federal court proceedings,” i.e., the Commission’s motion for a

preliminary injunction pending its FTC administrative proceedings before the U.S. District Court

for the District of Columbia (the “District Court”). Am. Compl. ¶ 20; see FTC Order Staying

Administrative Proceedings, FTC Docket No. 9324 (Aug. 7, 2007) (attached to Declaration of

Lanny J. Davis dated December 19, 2008 (hereinafter, “Davis Decl.”) at Exhibit 1).

On August 16, 2007, the District Court, after expedited discovery and hearings, denied

the Commission’s motion for a preliminary injunction, finding that the FTC had failed to prove

that it was “likely to prevail on the merits at an administrative proceeding and subsequent appeal

to the court of appeals.” FTC v. Whole Foods Market, Inc., 502 F. Supp. 2d 1, 49 (D.D.C. 2007).

Thereafter, on August 23, 2007, the U.S. Court of Appeals for the District of Columbia Circuit

(the “D.C. Circuit”) unanimously denied the Commission’s emergency motion for an injunction

pending appeal for failing to make a “strong showing that it is likely to prevail on the merits of

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 13 of 42

its appeal.” FTC v. Whole Foods Market, Inc., No. 07-5276, 2007 U.S. App. LEXIS 20539

(D.C. Cir. Aug. 23, 2007) (per curiam).

On August 28, 2007, Whole Foods — under obligation to its best efforts to close by

August 31, 2007 and facing a potential $4 million breakup fee if it failed to do so — closed its

merger with Wild Oats. Am. Compl. ¶ 25.

Despite failing to obtain an injunction from either the District Court or the D.C. Circuit,

and despite knowing about the August 31, 2007 closing deadline for the merger, the Commission

did not lift its stay of the administrative proceedings, nor did it request that the D.C. Circuit

expedite the Commission’s appeal. Am. Compl. ¶ 26; see also Denis Decl. ¶ 10. Rather, the

Commission continued to stay its administrative proceedings during the 11 months while its

appeal to the D.C. Circuit was pending.

In its briefs filed with the D.C. Circuit, the Commission categorically stated that it had

a. “established that premium natural and organic supermarkets constitute a distinct

market for antitrust purposes.” See Brief for Appellant FTC, at 40 (D.C. Cir. Jan.

14, 2008) (Davis Decl. at Exhibit 2) (emphasis added).

b. “proved that the premium natural and organic supermarkets market is the

appropriate relevant product market in which to analyze the Whole Foods-Wild

Oats merger.” See Emergency Motion of the FTC for an Injunction Pending

Appeal, at 6-7 (D.C. Cir. Aug. 17, 2007) (Davis Decl. at Exhibit 3) (emphasis

added).

c. reached the “conclusion that the relevant product market is premium natural and

organic supermarkets is supported by extensive evidence presented to the district

court.” See Davis Decl. at Exhibit 3, at 8 (emphasis added).

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d. concluded that “the combination of Whole Foods and Wild Oats will substantially

lessen competition.” See Davis Decl. at Exhibit 3, at 5 (emphasis added).

e. concluded that Whole Foods’ expert economic analysis was “garbage,” a “sheer

guess” and lacked “any” empirical foundation. See Davis Decl. at Exhibit 2, at

52, 24 (emphasis added).

f. concluded that Whole Foods’ industry expert, Dr. Stanton, was a “paid industry

expert” whose testimony “carried no weight.” See Reply Brief for Appellant FTC,

at 12 n.8 (D.C. Cir. Feb. 27, 2008) (Davis Decl. at Exhibit 4) (emphasis added).

g. concluded that Whole Foods’ employees gave “exceptionally unreliable”

testimony and allowed themselves to be “subject to manipulation.” See Davis

Decl. at Exhibit 2, at 24 (emphasis added); Davis Decl. at Exhibit 4, at 10 n.7

(emphasis added).

The above statements were made in briefs to the D.C. Circuit that were worked on, and

jointly signed by, the General Counsel of the Commission and the Bureau of Competition. Am.

Compl. ¶ 31. According to the FTC’s website, members of the Bureau of Competition are the

Commission’s investigative and prosecutorial staff. Thus, upon information and belief,

Commissioners have conferred with and given guidance to the attorneys drafting the

aforementioned briefs, which were communications to the FTC’s investigative and prosecutorial

staff regarding the merits of the Whole Foods merger case. Am. Compl. ¶ 96. In addition, some

of the very same counsel prosecuting the administrative case against Whole Foods were also

counsel for the Commission in the federal court proceeding challenging exactly the same Whole

Foods merger. Am. Compl. ¶ 97.

On July 29, 2008, almost one year after the merger closed, the D.C. Circuit issued an

opinion reversing the District Court and remanding with instructions that the District Court

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balance the equities in determining whether any remedy should issue or the merger should be

allowed to “proceed immediately.” FTC v. Whole Foods Market, Inc., 533 F.3d 869, 891 (D.C.

Cir. July 29, 2008) (J. Tatel, concurring).

Nine days later, on August 8, 2008, the Commission issued an order unilaterally

rescinding its stay of the administrative proceedings. See FTC Order Rescinding Stay of

Administrative Proceeding, Setting Scheduling Conference, and Designating Presiding Official,

FTC Docket No. 9324 (Aug. 8, 2008) (Davis Decl. at Exhibit 5). In that same order, the

Commission set a Scheduling Conference and appointed FTC Commissioner J. Thomas Rosch

(“Commissioner Rosch”) as the Presiding Official. Id. Commissioner Rosch, without recusing

himself from participating in the case as a Commissioner, assumed the role of presiding official

for scheduling purposes. Am. Compl. ¶ 42.

On August 22, 2008, Whole Foods filed a motion to disqualify Commissioner Rosch and

the Commission and to appoint an independent administrative law judge. Whole Foods cited the

Commission’s statements in its D.C. Circuit briefs evidenced impermissible prejudgment and

bias on the merits of Whole Foods’ case and its witnesses and evidence. See Respondent’s

Motion To Disqualify The Commission, FTC Docket No. 9324 (Aug. 22, 2008) (Davis Decl. at

Exhibit 6). That motion was denied on September 5, 2008. See FTC Order Denying

Respondent’s Motion To Disqualify The Commission, FTC Docket No. 9324 (Sept. 5, 2008)

(Davis Decl. at Exhibit 7). Commissioner Rosch participated in that Commission decision. Am.

Compl. ¶ 44.

On September 8, 2008, the Commission issued an amended administrative complaint

challenging the Whole Foods/Wild Oats merger in 29 separate geographical markets across the

country. Am. Compl. ¶ 45; see also Denis Decl. ¶ 14. That same day, Commissioner Rosch

convened a Scheduling Conference. Am. Compl. ¶ 46; see also Denis Decl. ¶ 15.

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 16 of 42

Commissioner Rosch rejected the discovery and trial timelines that Whole Foods requested both

in its Joint Case Management Statement and at the Scheduling Conference. Am. Compl. ¶¶ 49-

50; see also Denis Decl. ¶¶ 20-21. Over Whole Foods’ objection, Commissioner Rosch declared

that fact discovery would close by December 19, 2008, depositions would be completed by

January 30, 2009, and trial would commence on February 16, 2009. See Transcript of FTC

Scheduling Conference, FTC Docket No. 9324, at 44-47 (Sept. 8, 2008) (Davis Decl. at Exhibit

8).

On September 10, 2008, the Commission, with Commissioner Rosch participating,

ordered a Scheduling Order that mirrored Commissioner Rosch’s schedule, and expressly

provided that the Scheduling Order “shall not be altered absent leave of the Commission.” See

FTC Scheduling Order, FTC Docket No. 9324 (Sept. 10, 2008) (Davis Decl. at Exhibit 9).

On October 20, 2008, the Commission appointed Administrative Law Judge D. Michael

Chappell to conduct the administrative trial, and noted that all four members of the Commission

would retain jurisdiction to review the ALJ’s Initial Decision. See FTC Order Designating

Administrative Law Judge, FTC Docket No. 9324 (Oct. 20, 2008) (Davis Decl. at Exhibit 10).

However, the Commission precluded Judge Chappell from altering the Commission-set

schedule.

To date, Whole Foods has served third-party subpoenas duces tecum on 96 third parties

who either compete with Whole Foods in some of the 29 alleged geographical markets or supply

Whole Foods and competing firms. See Respondent’s First Status Report, FTC Docket No.

9324, at 3 (Nov. 21, 2008) (Davis Decl. at Exhibit 11). Under the rules governing the

administrative proceeding, third-party depositions cannot start until all parties review the related

documents. Am. Compl. ¶ 64; see also Denis Decl. ¶ 24 Accordingly, Whole Foods has been

unable to take any third-party deposition to date, and it will be impossible to conclude third-party

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 17 of 42

discovery before the Commission-imposed discovery cut-off of January 30, 2009. Am. Compl. ¶

64.

On October 7, 2008, the Commission published a Notice of Proposed Rulemaking in the

Federal Register (the “Proposed Rule”), proposing fundamental changes to the Commission’s

administrative proceedings for reviewing merger cases. See Notice of Proposed Rulemaking in

the Federal Register, 73 Fed. Reg. 58832 (Oct. 7, 2008) (Davis Decl. at Exhibit 12). The

Proposed Rule, which virtually mirrors the Scheduling Order in the Whole Foods case, marks

such a fundamental change to existing Commission procedures that the Commission saw fit to

seek public comment on it before applying it to any future cases. Am. Compl. ¶ 69.

The Proposed Rule has drawn negative criticism from such organizations as the

American Bar Association’s Antitrust Section and the U.S. Chamber of Commerce, as well as

from a former Chairman and General Counsel of the Commission — all of whom flagged

potential due process concerns. See Comments of ABA Section of Antitrust Law, at 2, 5-6 (Nov.

6, 2008) (Davis Decl. at Exhibit 13) (the Rule could “compromise respondents’ rights and ability

to mount an effective defense”); Comments of Chamber of Commerce of the United States of

America, at 1-2 (Nov. 6, 2008) (Davis Decl. at Exhibit 14) (“while the additional changes may

speed up certain parts of the process in certain circumstances, they should not be undertaken at

the expense of companies’ due process rights;” the proposed rules eliminate “a vital check on

potential unfairness inherent in the FTC’s administrative procedure.”); Comments of Robert

Pitofsky and Michael N. Sohn, at 8-9 (Nov. 6, 2008) (Davis Decl. at Exhibit 15) (cautioned the

Commission to “review carefully those comments that raise questions as to whether respondents

may be unfairly limited in their pretrial rights” and noting that “the Commission’s interest in

preserving its role as a fair minded expert administrative adjudicator is best served if it abstains

from exploring the outer limits of what is statutorily and constitutionally permissible.”).

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 18 of 42

On December 3, 2008, Whole Foods filed a motion requesting a stay of the

Commission’s administrative proceeding until after the remand proceeding in the District Court

and a continuation of the administrative trial to no earlier than September 14, 2009. (Am.

Compl. ¶ 66; see also Denis Decl. ¶ 28. On December 8, 2008, the FTC Complaint Counsel

opposed Whole Foods’ motion. Am. Compl. ¶ 67. Before filing this suit, Whole Foods asked

the Commission to recuse itself from this case, but the Commission did not do so.

ARGUMENT

As discussed in Section I below, this Court has jurisdiction to immediately review Whole

Foods’ constitutional challenges to the Commission’s procedures and proceedings in this case.

As discussed in Section II below, a preliminary injunction pending the resolution of Whole

Foods’ claims is proper here because: (1) Whole Foods has a substantial likelihood of success

on the merits; (2) Whole Foods will be irreparably harmed if the injunction is not granted; (3) the

injunction would not prejudice Commission; and (4) the injunction would further the public

interest. See Ellipso, Inc. v. Mann, 480 F.3d 1153, 1157 (D.C. Cir. 2007).

I. THE DISTRICT COURT HAS JURISDICTION TO HEAR THIS CASE

Telecommunications Research and Action Center v. FCC, 750 F.2d 70 (D.C. Cir. 1984)

(“TRAC”), held that where “a statute commits review of agency action to the Court of Appeal,

any suit seeking relief that might affect the Circuit Court’s future jurisdiction is subject to the

exclusive review of the Court of Appeal.” TRAC is inapplicable for at least three reasons.

· First, unlike the statute at issue in TRAC, the Federal Trade Commission Act (the “FTC

Act”) does not provide exclusive review in the circuit courts for all cases and all agency

actions. Rather, the FTC Act provides that the circuit courts are the exclusive forum only

for (i) appeals from cease and desist orders and (ii) appeals based on FTC rules. See 15

U.S.C. §§ 45(c), (d), 57a. Neither of the foregoing applies here.

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 19 of 42

· Second, unlike TRAC, this case presents “questions of constitutional law, which require

no special administrative expertise to resolve, and do not fall within the ‘class of claims’

covered by the typical statutory grant of appellate review power.” 1 Ticor Title Insurance

Co. v. FTC, 814 F.2d 731 (D.C. Cir. 1987) (Green, J., concurring).2 Moreover, Whole

Foods’ equal-protection claim directed at Sections 5 and 13 of the FTC Act (and the

regulations pursuant to those sections) is analogous to the facial constitutional claim at

issue in Time Warner Entertainment Co., v. FCC, 530 F.3d 936 (D.C. Cir. 1996), where

the D.C. Circuit held that the district court had jurisdiction to consider the constitutional

challenge.

· Third, to the extent that this Court determines that the first two reasons set forth above

are insufficient, Whole Foods’ Amended Complaint requests that this Court enjoin the

Commissioners who voted out the Complaint and who participated in the appellate court

briefing from participating in the administrative proceeding or from reviewing de novo

the decision of an independent ALJ, thus making the ALJ decision the final Commission

order appealable to a circuit court of appeals. Such relief would not implicate TRAC.

This case is also ripe for review. When, as here, “an agency violates a clear right of a

petitioner by disregarding a specific and unambiguous . . . constitutional directive, a court will

not require the petitioner to exhaust his administrative remedies and will intervene

immediately.” Standard Oil Co. v. FTC, 475 F. Supp. 1261, 1267 (N.D. Ind. 1979) (intervening

and granting preliminary injunctive relief against FTC on due process grounds) (emphasis

added); accord Amos Treat & Co. v. SEC, 306 F.2d 260, 264 (D.C. Cir. 1962). As the D.C.

1
The TRAC court stated that “appellate courts develop an expertise concerning the agencies assigned them for
review . . . [e]xlusive jurisdiction promotes judicial economy and fairness to the litigants by taking advantage of that
expertise.” TRAC, 750 F.2d at 78.

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 20 of 42

Circuit held in Gulf Oil Corp. v. Department of Energy, 663 F.2d 296 (D.C. Cir. 1981),

“interlocutory review of non-final administrative action” is proper where the plaintiff is denied

“a fair proceeding” due to a “fundamental infirmity” in the administrative process. Id. at 312

(citations omitted); accord, Pepsico, Inc. v. FTC, 472 F.2d 179, 187 (2d Cir. 1972) (“one can

find final agency action . . . if an agency refuses to dismiss a proceeding that is . . . being

conducted in a manner that cannot result in a valid order”).

II. A PRELIMINARY INJUNCTION SHOULD BE GRANTED.

A. Whole Foods is likely to prevail on its equal-protection claims.

Count I of the Complaint alleges that provisions of the FTC Act regarding merger

challenges (and regulations promulgated pursuant to those provisions) violate Whole Foods’

right to equal protection under the Fifth Amendment.3 The Fifth Amendment to the U.S.

Constitution guarantees American citizens, including corporate entities, equal protection under

the law, requiring that “persons similarly situated be treated alike.” City of Cleburne v. Cleburne

Living Ctr., 473 U.S. 432, 440 (1985).

The FTC and DOJ are the only two federal enforcement agencies. They allocate mergers

between themselves so that only one of them will challenge any given merger. Merging parties

subject to FTC challenge, however, are treated differently than merging parties subject to

challenge by DOJ. Specifically, the disparate treatment here is based upon specific provisions of

Sections 5 and 13 of the FTC Act (and regulations promulgated pursuant to those provisions)

which impose more onerous legal standards and processes on parties subject to FTC merger

challenge than on parties subject to DOJ merger challenge, and these differences can be outcome

2
In his concurring opinion in Ticor, Judge Edwards, in dicta, incorrectly noted that TRAC covered constitutional
challenges. TRAC did not involve a constitutional challenge, and further, it cited cases based on constitutional law
claims as correctly brought in the district courts. TRAC 814 F.2d at 78.
3
This equal protection challenge is limited to federal merger enforcement only, and does not extend to provisions of
the FTC Act related to consumer protection or other aspects of unfair competition.

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 21 of 42

determinative. Because there is no rational basis for treating these similarly situated parties

differently, the statutory scheme violates the Fifth Amendment equal protection rights of

merging parties like Whole Foods.

1. Fifth Amendment requirements of equal protection prohibit the


federal government from treating similarly situated persons
differently without a rational basis.

The purpose of the equal-protection clause is to secure every person against intentional

and arbitrary discrimination, whether caused by the express terms of a statute or by its improper

execution through duly constituted agents. See Sioux City Bridge Co. v. Dakota Cty., 260 U.S.

441 (1923) (violation of equal protection to assess bridge at a higher rate than other property in

county). The equal-protection test relevant in this case involving a non-suspect class is whether

the disparate treatment is rationally related to a legitimate government end, interest, purpose, or

objective. See, e.g., Zobel v. Williams, 457 U.S. 55, 60 (1982); Cleburne, 473 U.S. at 440.

While the equal protection clause allows the government wider latitude in cases involving

social or economic legislation, courts nevertheless have struck down economic regulation that

lacks a rational basis. Id.. For example, in Allegheny Pittsburgh Coal Co. v. County

Commissioner of Webster County, 488 U.S. 336 (1989), the Court found a violation of the Equal

Protection clause where a county assessed property taxes on recently-acquired property at

significantly higher valuations than valuations of comparable long-held property. Id. at 336. Id.

Similarly, in Village of Willowbrook v. Olech, 528 U.S. 562, 564 (2000), the Court acting per

curiam affirmed that a plaintiff stated an equal-protection claim based upon a municipality’s

demand for a wider easement to connect to a water supply than was required of other property

owners. “Our cases have recognized successful equal protection claims brought … where the

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plaintiff alleges that she has been intentionally treated differently from others similarly situated

and that there is no rational basis for the difference in treatment.”4

Moreover, the courts will scrutinize whether the proffered purposes underlying the

statutory, regulatory or enforcement scheme are, in fact, rationally related to a legitimate state

purpose. In Zobel v. Williams, for example, the Court invalidated on equal-protection grounds an

Alaska dividend distribution plan based on the length of residency, where two of the three

asserted statutory goals advanced by the state did not rationally promote the asserted interest, and

the third purported interest was held not to be legitimate. Zobel, 457 U.S. at 65; accord, Vlandis

v. Kline, 412 U.S. 441, 449-50 (1973) (apportioning state tuition rates by length of residence

contravenes the equal-protection clause); Shapiro v. Thompson, 394 U.S. 618, 632-633 (1969)

(equal-protection clause prohibits apportionment of welfare services based on length of

residency).

2. The FTC Act imposes outcome-determinative differences on merging


parties.

The disparate treatment here is based upon specific provisions of Sections 5 and 13 of the

FTC Act (and regulations promulgated pursuant to those provisions) which impose more onerous

legal standards and processes on parties subject to FTC merger challenge than on parties subject

to DOJ merger challenge, and these differences can be outcome determinative. These

differences in treatment disadvantage and have a disparate impact on merging parties, like Whole

Foods, whose merger is being reviewed by the FTC. These differences can affect whether a

merger challenge succeeds or fails; they can create disparate levels of uncertainty in the

4
Arbitrary enforcement of otherwise lawful statutory or regulatory schemes also will run afoul of the equal-
protection mandate. See, e.g., Falls v. Town of Dyer, 875 F.2d 146, 147 (7th Cir. 1989) (noting that a lawful
ordinance against a business display of portable signs would contravene equal-protection rights if selectively
enforced against one individual or only “one whose last name starts with ‘F’,” and would be just as “whimsical,
capricious, [and] without a rational basis for support” as an unconstitutional ordinance expressly targeting only such
persons).

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marketplace that have direct financial impacts on the merging parties; and they can substantively

impact material terms of settlement agreements entered into by merging parties and federal

antitrust enforcers. See generally Antitrust Modernization Commission, Report and

Recommendations (April 2007) at Ch. II.A.3. (Davis Decl. at Exhibit 17).5

The specific outcome-determinative differences in treatment of similarly-situated

merging parties include the following:

a. Differences in the substantive test of a violation. The substantive test in a DOJ


merger challenge is whether or not the merger substantially lessens competition.
United States v. Baker Hughes, Inc., 908 F.2d 981, 982 (D.C. Cir. 1990) (citing
Clayton Act § 7). In contrast, the FTC can choose to use the substantially-
lessens-competition standard or an “unfair competition” standard having different
elements. See 15 U.S.C. § 45(n) (defining an “unfair” act or practice as one that
“causes or is likely to cause substantial injury to consumers which is not
reasonably avoidable by consumers themselves and not outweighed by
countervailing benefits to consumers or competition”). Thus, it is easier for the
FTC than for the DOJ to challenge mergers.

b. Differences in the preliminary injunction standard. The preliminary injunction


standard facing DOJ in a merger challenge includes elements of the traditional
test such as likelihood of success on the merits and balancing of the equities.
United States v. Gillette Co., 828 F. Supp. 78, 80 (D.D.C. 1993). In contrast the
D.C. Circuit has held that the preliminary injunction standard facing the FTC in a
merger challenge “depart[s] from . . . the more stringent, traditional ‘equity’
standard” faced by the DOJ and instead focuses on “a unique ‘public interest’
standard.” FTC v. Heinz, 246 F.3d 708, 714 (D.C. Cir. 2001); FTC v. Exxon
Corp., 636 F.2d 1336, 1343 (D.C. Cir. 1980).6

c. Differences in the forum for adjudicating the merits. The DOJ must adjudicate
the merits of the merger challenge, if at all, in a U.S. district court. 15 U.S.C. §
18(f). In contrast, the FTC can choose to adjudicate the merits of the merger
challenge at an administrative proceeding within the FTC itself as well as in U.S.
district court. Id.; 15 U.S.C. § 53(b).

5
The Antitrust Modernization Commission (“AMC”) was a bipartisan federal commission of antitrust experts
appointed by the President and Congress to undertake a comprehensive review of the nation’s federal antitrust laws.
The AMC’s report included, inter alia, a recommendation to prohibit the FTC from pursuing administrative
litigation within the FTC to challenge mergers under the FTC Act. See AMC Report at 140 (Davis Decl. at Ex. 17).
On this point, the AMC concluded that “[t]he FTC’s ability to pursue administrative litigation even after losing a
preliminary injunction proceeding can impose unreasonable costs and uncertainty on parties whose mergers are
reviewed by the FTC, as compared to the DOJ.” Id.
6
It was Whole Foods’ position during the FTC’s appeal of this Court’s denial of a preliminary injunction of the
Whole Food/Wild Oats merger that these standards should be, and are, the same for DOJ and the FTC. The D.C.
Circuit did not agree.

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d. Differences if a U.S. district court rules against the merger challenge. If a U.S.
district court rules against DOJ’s challenge of a merger, DOJ has no legal
recourse except to appeal to the circuit court. 28 U.S.C. § 1291; Fed.R.App.P.
3(a)(1); see also AMC Report at 139 (Davis Decl. at Exhibit 17)(“the decision of
the district court in a consolidated DOJ proceeding is final (barring an appeal) . . .
.”). In contrast, if the FTC chooses to challenge a merger in U.S. district court –
which the FTC need not do at all – and that U.S. district court rules against the
challenge, the FTC subsequently can retry the entire merits proceeding in an
administrative proceeding within the FTC itself. 15 U.S.C. § 45(b); see also
AMC at 139 (Davis Decl. at Exhibit 17)(“if the DOJ loses [in district court], the
parties can be certain that the challenge is finished. In contrast, if the FTC fails to
obtain a preliminary injunction, it may pursue relief in a potentially lengthy and
costly internal administrative proceeding”).

e. Differences in independence of the merits fact finder. In adjudicating the merits


of a merger challenge and making a trial record, DOJ must face an independent
fact finder who is a confirmed federal judge, unbiased, and has no allegiance to
DOJ. 15 U.S.C. § 18(f). In contrast, the FTC can choose to avoid facing an
independent fact-finder altogether. The FTC can perform the fact-finding itself
without any input or oversight from any independent fact-finder. The presiding
officer at an administrative proceeding within the FTC is determined by the FTC,
and can be an individual Commissioner, all of the Commissioners collectively, or
an ALJ who the Commissioners can constrain or replace at any time and can
reverse on a de novo review. 16 C.F.R. § 3.42 (“Hearings in adjudicative
proceedings shall be presided over by a duly qualified Administrative Law Judge
or by the [Federal Trade] Commission or one or more members of the
Commission sitting as ALJs; and the term Administrative Law Judge as used in
this part means and applies to the Commission or any of its members when so
sitting”); 16 C.F.R. § 3.54.

f. Differences in applicable procedural rules. Because merger challenges by DOJ


must be adjudicated in U.S. district court, the Federal Rules of Civil Procedure
and Federal Rules of Evidence govern. 15 U.S.C. § 18(f); Fed. R. Civ. P. 1
(“These rules govern the procedure in all civil actions and proceedings in the
United States district courts . . . “); Fed. R. Evid. 101 (“these rules govern
proceedings in the courts of the United States”). In contrast, the FTC can choose
to ignore the Federal Rules of Civil Procedure and the Federal Rules of Evidence,
relying instead on different rules the FTC itself created by regulation that are
codified in 16 C.F.R. Part 3 and govern administrative hearings held within the
FTC. 16 C.F.R. § 3.1 (“The rules in this part govern procedure in adjudicative
proceedings”). Indeed, the FTC has proposed a rule permitting hearsay testimony.

g. Differences in appellate standards. A circuit court cannot reverse a successful


merger challenge by DOJ unless it is clearly erroneous. Baker Hughes, Inc., 908
F.2d at 983. In contrast, a circuit court cannot overturn a merger challenge by the
FTC if there is substantial evidence supporting it. Hosp. Corp. of America v.
FTC, 807 F.2d 1381, 1385 (7th Cir. 1986) (“Our only function is to determine

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 25 of 42

whether the Commission’s analysis of the probable effects of these acquisitions . .


. is so implausible, so feebly supported by the record, that it flunks even the
deferential test of substantial evidence.”).

h. Difference in ability to change merits decision prior to appeal to a circuit court.


DOJ has no ability to make any changes to the merits decision by the fact-finder
in U.S. district court before that decision is appealed to the circuit court. In
contrast, the FTC can completely change an adverse merits decision prior to
appeal to the circuit court. 15 U.S.C. § 45(c) (“The Commission may modify its
findings as to the facts, or make new findings, by reason of the additional
evidence so taken, and it shall file such modified or new findings, which, if
supported by evidence, shall be conclusive, and its recommendation, if any, for
the modification or setting aside of its original order, with the return of such
additional evidence. “); 16 C.F.R. § 3.54(b) (“In rendering its decision, the
Commission will adopt, modify, or set aside the findings, conclusions, and rule or
order contained in the initial decision, and will include in the decision a statement
of the reasons or basis for its action and any concurring and dissenting opinions”);
In the Matter of Rambus, Inc., 2006-2 Trade Cas. P 75,634, 2006 WL 2330117
(F.T.C. Aug. 2, 2006). Even where the presiding officer in an administrative
proceeding is an independent ALJ, the Commissioners can ignore that ALJ’s
determinations in their entirety and substitute the Commission’s own legal and
factual findings. It is those substituted legal and factual findings that are subject
to appeal to the circuit court. 16 C.F.R. § 3.54.

Any one of these differences makes it substantially more onerous for a merging party

subject to FTC merger review than to DOJ merger review. Taken together, there can be no

doubt that some or all of these indisputable differences in treatment are material and arbitrary

with no rational basis under equal-protection jurisprudence.

3. There is no rational basis for these outcome-determinative differences


in treatment of similar merging parties.

The equal protection violation at issue here is based upon differences in how federal

antitrust enforcers challenge similar mergers. There is no rational basis for this difference in

treatment. The government has no legitimate end, interest, purpose, or objective in treating

merging parties in certain industries, such as the grocery industry, differently from merging

parties in other industries. Like the hypothetical in Falls v. Town of Dyer in which the

government treated persons differently depending on whether or not their last name started with

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 26 of 42

the letter “F,” there is no rational basis for the difference in treatment of merging parties under

the statutory scheme at issue here.

The mere identity, per se, of the specific antitrust enforcement agency challenging any

given merger is irrelevant to this equal protection analysis. In fact, there would be no equal

protection violation if the same legal standards and processes applied regardless of whether the

DOJ or the FTC was challenging a merger. Whole Foods is not challenging the allocation of

mergers between DOJ and the FTC. Standing alone, that allocation of mergers so that only one

of the agencies will challenge any given merger – apparently based upon relative agency

expertise regarding the industry at issue – may be rational. The constitutional infirmity is that

there is no rational basis for the differences in the treatment of merging parties.

Even if the FTC has relatively more expertise than DOJ in certain industries, that does

not provide any rational basis for subjecting merging parties in those industries to more onerous

and outcome-determinative legal standards and processes than merging parties in other

industries. Such a difference in treatment is arbitrary and has no fair or substantial relation to the

object of merger policy.

In sum, these outcome-determinative differences in the legal standards and processes

between merger challenges by DOJ and the FTC violate the merging parties’ guarantee of equal

protection under the Fifth Amendment of the U.S. Constitution.

B. Whole Foods is likely to prevail on its due-process claims.

Count II of Whole Foods’ Complaint alleges that the Commission has unconstitutionally

denied Whole Foods the appearance, if not the reality, of an administrative proceeding before

“an impartial and disinterested tribunal,” and has denied Whole Foods the right to “appropriate

discovery in time to reasonably and adequately prepare” for trial. See Amos, 306 F.2d at 264;

Standard Oil, 475 F. Supp. at 1274. It has also impermissibly failed to respect the Commission’s

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firewall between the investigative and prosecutorial functions and adjudicatory functions. See 16

C.F.R. § 4.7. As set forth below, Whole Foods is likely to prevail on the merits.

1. The Commission has violated due process by publicly prejudging the


merits of Whole Foods’ merger and credibility of its witnesses and
evidence, and thus has in appearance, if not in fact, gutted any
potential for an impartial and disinterested tribunal.

An “essential” requirement of due process in an agency proceeding is “the resolution of

contested questions by an impartial and disinterested tribunal.” Amos, 306 F.2d at 264 (D.C.

Cir. 1962) (emphasis added). This is impossible where, as here, the Commission has already

“made exceedingly important findings of fact [and] already thrown [its] weight on the other

side.” Id. The Commission reached conclusions on the ultimate factual and legal issues on the

merits of Whole Foods’ case before the administrative trial had even scheduled. For example,

the Commission stated in public briefs to the D.C. Circuit that it had “proved that the premium

natural and organic supermarkets market is the appropriate relevant product market” and that

“the combination of Whole Foods and Wild Oats will substantially lessen competition.” See,

e.g., Davis Decl. at Exhibit 2, at 40 and Exhibit 3, at 5 (emphasis added).

The Commission, like every other administrative agency, must respect and comply with

the strictures of Due Process. See Gibson v. Berryhill, 411 U.S. 564, 579 (1973). As the D.C.

Circuit has held, the minimum requirement is “fair play.” Amos, 306 F.2d at 264; see also

Grolier Inc. v. FTC, 615 F.2d 1215, 1220 (9th Cir. 1980) (“Congress intended to preclude from

decision-making in a particular case not only individuals with the title of ‘investigator’ or

‘prosecutor,’ but all persons . . . who had developed, by prior involvement with the case, a ‘will

to win.’”); Withrow v. Larkin, 421 U.S. 35, 58 (1975) (“risk of bias or prejudgment” deemed

“intolerably high” where “adjudicators would be so psychologically wedded to their complaints

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 28 of 42

that they would consciously or unconsciously avoid the appearance of having erred or changed

position”).

As itemized above, the Commission’s legal briefs to the D.C. Circuit — submitted well

before the administrative trial was ever scheduled — contained multiple, unqualified statements

of prejudgment and bias on “exceedingly important findings of fact” and law pertaining to the

merits of Whole Foods’ case, and the application of the law to those facts. The Commission

declared that it had proven not only the relevant market but also that competition had been

harmed in that market. These statements demonstrate that the Commission had prejudged the

merits of the merger, not just the merits of the preliminary injunction that was on appeal to the

D.C. Circuit, and had developed an improper “will to win.” Grolier, 615 F.2d at 1220.7

Even assuming the Commission had not in fact prejudged Whole Foods’ case, its

statements create the improper “appearance” of prejudgment and bias. “[A]n administrative

hearing . . . must be attended, not only with every element of fairness but with the very

appearance of complete fairness.” Amos, 306 F.2d at 267 (emphasis added); see also Withrow,

421 U.S. at 47 (“Not only is a biased decision-maker constitutionally unacceptable but ‘our

system of law has always endeavored to prevent even the probability of unfairness.’”); Utica

Packing Co. v. Block, 781 F.2d 71, 77 (6th Cir. 1986) (noting that due process “requires the

appearance of fairness . . . it does not require proof of actual partiality”).

7
In contrast, in past legal briefs to the federal courts, the Commission has demonstrated greater care to qualify
important assertions of facts and law regarding merger cases that were still pending on its administrative docket.
For example, in FTC v. H.J. Heinz, et al., 246 F.3d 708 (D.C. Cir. 2001), the Commission’s brief referred to “a
reasonable probability” that the merger would “increase[] the likelihood” of anticompetitive conduct. (Emphasis
added.). In FTC v. Arch Coal, No. 04-5291, 2004 WL 2066879 (D.C. Cir. 2004), the Commission’s brief in support
of an injunction pending appeal stated that “[t]he testimony of numerous customers confirmed that the SPRB coal
market is susceptible to coordinated interaction and the proposed acquisition is likely to increase the risk of such
coordination” and “that acquisition makes anticompetitive coordination among the major producers more profitable
and easier, and thus more likely.” (Emphasis added.) In FTC v. Tenet Health Corp., et al., 186 F.3d 1045 (8th Cir.
1998), the Commission’s brief stated that “plaintiffs made an extensive factual showing, uncontradicted by credible
evidence from defendants, that it was unlikely there would be such defections [to alternative hospitals to make a
price increase unprofitable].” (Emphasis added.)

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The Commission itself acknowledges that disqualification would be proper “if a

Commissioner [gave] a speech discussing the merits of a pending case.” See Davis Decl. at

Exhibit 7, at 3 (citing Cinderella Career and Finishing School v. FTC, 425 F.2d 584 (D.C. Cir.

1970). The conduct here is worse. If a single Commissioner’s public speech on the merits of a

case is proper grounds for disqualification, then so is an entire Commission’s prejudgments on

the merits of a case made in public legal briefs — precisely what occurred here.

Notwithstanding, the Commission refused to remove itself from serving as the Presiding Official

over scheduling and the ultimate adjudicator in this case. See Davis Decl. at Exhibits 7, 10.

“The test for disqualification has been succinctly stated as being whether ‘a disinterested

observer may conclude that (the agency) has in some measure adjudged the facts as well as the

law of a particular case in advance of a hearing.’” Cinderella, 425 F.2d at 591. Here, instead of

disqualifying itself, the Commission appointed Commissioner Rosch as the Presiding Official,

locked in a prejudicial Scheduling Order, and will retain jurisdiction to hear any appeal from the

ALJ’s Initial Decision. See Davis Decl. at Exhibits 7, 10. Absent immediate relief from this

Court, “the ultimate determination of the merits [of Whole Foods’ administrative case] will move

in predestined grooves.” Cinderella, 425 F.2d at 590.

2. The Commission has violated due process by imposing a prejudicial


Scheduling Order that denies Whole Foods appropriate discovery to
reasonably and adequately prepare for trial.

Any doubt that the Commission has prejudged the ultimate outcome of Whole Foods’

case is put to rest by the Commission’s September 10, 2008 Scheduling Order — which deprives

Whole Foods of needed discovery and thus of a reasonable opportunity to prepare its defense.

Indeed, the Commission’s failure to permit Whole Foods “appropriate discovery in time to

reasonably and adequately prepare” for trial — standing alone — is sufficient to (i) establish a

violation of due process and (ii) justify immediate judicial review and preliminary relief. See

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Standard Oil, 475 F. Supp. at 1274-75 (N.D. Ind. 1979) (“it is, and only is, the matter of

discovery that compels the court to intervene”); cf. McClelland v. Andrus, 606 F.2d 1278, (D.C.

Cir. 1979) (“discovery must be granted if in the particular situation a refusal to do so would so

prejudice a party as to deny him due process”).

In Standard Oil, the district court intervened in an ongoing FTC administrative

proceeding because the ALJ refused to allow the respondents any discovery until they complied

with the complaint counsel’s subpoenas. Standard Oil, 475 F. Supp. at 1277. In noting that the

issue was “one of timing,” the court found that a delay of several years before the respondents

might obtain discovery was problematic because evidence could be lost. Id. More

fundamentally,

. . . what troubles the Court is that the [ALJ], according to the


terms of his orders . . . is no longer making individual
considerations and rulings; he is no longer “exercising his
discretion to move this case along as expeditiously as is possible.”
He has, in effect, decided to quit deciding, at least as regarding
plaintiffs’ discovery requests, all of which must be channeled
through him. . . . the [ALJ] cannot simply turn his head to
plaintiffs’ requests. . . . if the [ALJ] refuses to listen, there can be
no [] mitigation of the danger of plaintiffs losing their rights to a
fair hearing.

Id. at 1278-79 (emphasis added). Thus, the court vacated the ALJ’s discovery orders as

“tantamount to depriving plaintiffs of a fair opportunity to be heard” and ordered the ALJ to

proceed in a manner that “acknowledges plaintiffs’ constitutional rights.” Id. at 1278, 1280.8

The present case is arguably worse than Standard Oil. While the ALJ in Standard Oil

improperly delayed plaintiffs’ discovery under a schedule that was too long, the Commission

here, as discussed below, has denied Whole Foods critical discovery under a schedule that is too

short.

8
Notably, the Standard Oil court rejected the FTC’s arguments that plaintiffs were “merely challenging the legality
of a series of discovery rulings.” Id. at 1276.

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The Commission and Commissioner Rosch have repeatedly rejected Whole Foods’

requests for appropriate time to reasonably and adequately prepare for trial — they simply

refused to “listen” and “turned [their] head[s] to [Whole Foods’] requests.” See Standard Oil,

475 F. Supp. at 1278-79. As stated above, the administrative case alleges antitrust violations in

29 separate geographical markets across the country. Whole Foods must conduct fact discovery

and expert analyses on the competitive dynamics (e.g., products, prices, competitors, re-

positioning, entry barriers, and efficiencies, etc.) that exist in each of the 29 alleged markets.

This is equivalent to litigating 29 antitrust cases in 29 separate markets.9

Based on this immense task, Whole Foods explained in a Joint Case Management

Statement (“JCMS”) that “Complaint Counsel’s proposed schedule -- 2 months of fact discovery

beginning in 11 days after the scheduling conference -- does not provide sufficient time for third

party discovery, which is critical to the defense in this matter.” See Joint Case Management

Statement, FTC Docket No. 9324, at 15-16 (Aug. 28, 2008) (Davis. Decl. at Exhibit 16); see also

Denis Decl. ¶ 18. Whole Foods argued that, unlike Complaint Counsel, it took “no discovery

during the Commission’s Second Request investigation, and had only two weeks in which to

conduct fact discovery in the district court proceeding.”10 (Davis Decl. at Exhibit 16). It further

explained that Whole Foods “in advance of the only plenary trial on the merits,” needed an

“opportunity to obtain evidence from third parties in each of the markets contested by the

Commission.” Id. This would require “issuing subpoenas to third parties throughout the land,

negotiating the scope of the subpoenas, potentially litigating motions to enforce or to quash,

collecting, reviewing and analyzing documents, and subpoenaing third party witnesses for

9
Indeed, Circuit Judge Brown in ruling on the District Court’s denial of the Commission’s preliminary injunction
action held that “if . . . it remains possible to reopen or preserve a Wild Oats store in just one of these markets, such
a result would at least give the FTC a change to prevent a [Clayton Act] § 7 violation in that market.” FTC v. Whole
Foods Market, Inc., 533 F.3d 869, 875 (D.C. Cir. 2008) (Emphasis added.)

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 32 of 42

deposition throughout the nation.” Id. Complaint Counsel’s proposed schedule for fact

discovery was “not sufficient for Whole Foods to conduct all of the necessary fact witness

depositions in the proposed time period, especially when many third party witnesses require

substantial advance notice prior to a deposition in a matter in which they are not a party.” Id.

Thus, Whole Foods requested that fact discovery close in or around May 2009, and that

trial commence in or around October 2009. See Davis. Decl. at Exhibit 16, at 17. Commissioner

Rosch rejected this timetable at the September 8, 2008 Scheduling Conference. He declared that

fact discovery would close on December 19, 2008 (i.e., four weeks later than Complaint

Counsel’s request) and trial to commence on February 16, 2009 (i.e., three weeks later than

Complaint Counsel’s request). See Davis Decl. at Exhibit 8, at 44, 46-47. Whole Foods

reiterated on the record that the schedule “circumscribed” the ability of Whole Foods to “marshal

the evidence and present the evidence” necessary from potentially over 100 third-party witnesses

in a complex case involving 29 separate markets. Id. at 50-51. Commissioner Rosch did not

change his mind.

The Commission went still further. The full Commission (including Commissioner

Rosch), issued a Scheduling Order on September 10, 2008 that mirrored Commissioner Rosch’s

schedule. See Davis Decl. at Exhibit 9. It then, in a highly irregular move, cemented the order in

place by providing that it “shall not be altered absent leave of the Commission.” Id.

Confronted by the futility of requesting additional time from the Commission for

appropriate discovery, Whole Foods attempted to comply in good faith with the Scheduling

Order. However, it is now clear that it is impossible for Whole Foods to reasonably and

adequately prepare for an antitrust trial encompassing 29 alleged geographical markets across the

10
Moreover, in the District Court proceeding, 11 of the 29 markets that the Commission now challenges were either
not contested (4 markets) and/or no evidence was presented on them (7 markets). Davis Decl., at Exhibit 16, at 14.

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 33 of 42

country and nearly 100 third-party witnesses by the scheduled February 16, 2009 trial date, much

less the January 30, 2009 discovery cut-off date. See Denis Decl. ¶¶ 24-26.

In its November 24, 2008 Status Report, Whole Foods informed the ALJ that it had

issued third-party subpoenas duces tecum on 96 third parties — representing only a subset of the

total number of firms that either compete with Whole Foods in some of the 29 alleged markets or

supply Whole Foods and competing firms. See Davis Decl. at Exhibit 11, at 3; see also Denis

Decl. ¶ 25. As of that date, only 37 out of the 96 subpoenaed parties (and currently, still less

than 40% of the parties) have even partially complied by producing documents, which had only

recently begun to trickle in to Whole Foods’ counsel. Id. Given that the Scheduling Order

requires depositions to occur only after the produced documents are given to Complaint Counsel,

and due to the intervening holidays and other scheduling difficulties on the part of the third

parties, Whole Foods has been unable to even notice, much less take, a single third-party

deposition. See Davis Decl. at Exhibit 11, at 4-5 (One of the third-party supermarkets, New

Season’s Market, Inc., has moved to quash its subpoena.); see also Denis Decl. ¶¶ 4-5.

The foregoing says nothing of Whole Foods’ additional obligations to among other

things, respond to Complaint Counsel’s voluminous document and interrogatory submissions

(which to date have totaled over 1.6 million pages and 53 gigabytes of data providing over 300

million records of weekly transaction prices, and 280 spreadsheets). See Davis Decl. at Exhibit

11, at 1-2. It must also depositions noticed by Complaint Counsel; work with experts on

reviewing evidence, preparing reports and depositions; prepare for direct and cross examinations;

identify and mark trial exhibits; and engage in pre-trial and dispositive motions practice.

These duties, along with the limited time for third-party discovery under the Scheduling

Order — e.g., all depositions must be completed by January 30, 2009 — make it impossible for

Whole Foods to adequately prepare its defense by February 16, 2009. See Davis Decl. at Exhibit

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 34 of 42

11 at 3. The foregoing is a denial of Due Process under any test. Cf. McClelland v. Andrus, 606

F.2d 1278, (D.C. Cir. 1979) (holding that “discovery must be granted if in the particular situation

a refusal to do so would so prejudice a party as to deny him due process” and finding that Civil

Service Commission improperly denied plaintiff certain key evidentiary materials).

As in Standard Oil, despite Whole Foods’ best efforts to obtain relief in the

administrative forum, Commissioner Rosch and the Commission have “clearly said what [they]

had to say and [have] made up [their] mind . . . [and] that decision is final.” Standard Oil, 475 F.

Supp. at 1280; cf. Mercy Hosp. of Laredo v. Heckler, 777 F.2d 1028, 1033-34 (5th Cir. 1985) (“it

would be futile to comply with the administrative procedures because it is clear that the claim

will be rejected”) (citation omitted). The ALJ, of course, has been stripped of his independence

to conduct the proceedings in light of the facts and circumstances of the case. Thus, absent

immediate relief from this Court, it is guaranteed that Whole Foods will be denied its rights to a

fair proceeding.

3. The Commission has violated due process by failing to separate its


prosecutorial/investigative functions from its adjudicatory functions.

The Commission’s Rules of Practice provide that “[w]hile a proceeding is in adjudicative

status within the Commission,”

[n]o member of the Commission, the Administrative Law Judge, or


any other employee who is or who reasonably may be expected to
be involved in the decisional process in the proceeding, shall make
or knowingly cause to be made to . . . any employee or agent of the
Commission who performs investigative or prosecuting functions
in adjudicative proceedings, an ex parte communication relevant
to the merits of that or a factually related proceeding.

16 C.F.R. § 4.7(b)(2) (emphasis added); see also id. at § 4.7(b)(1) (same prohibition on

communications from investigative/prosecutorial staff to the Commission or ALJ). An

administrative proceeding enters “adjudicative status” as soon as “the complaint has issued and

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 35 of 42

the adjudication phase has begun.” See Complaint Counsel’s Response to Respondents’ Motion

For Recusal of Commissioner Rosch, In the matter of Inova Health System Foundation, et al.,

FTC Docket No. 9326, at 5 (May 27, 2008) (Davis Decl. at Exhibit 18). “For this reason, after a

Part III complaint is voted out, the Commissioners, ALJ, and staff adhere to a strict firewall that

prohibits ex parte communications.” Id. (emphasis added).

Here, the Commission voted out the administrative complaint against Whole Foods on

June 27, 2007 — at which time the case entered “adjudicative status” and a “firewall” was

erected between the Commissioners and the investigative/prosecutorial staff. See 16 C.F.R. §

4.7(b)(1). However, subsequently, both the General Counsel of the Commission (thus the

Commissioners) and the investigative/prosecutorial staff (including the Bureau of Competition)11

worked on and jointly signed briefs to the D.C. Circuit that contained the statements of

prejudgment and bias on the factual and legal merits of Whole Foods’ case. (Am. Compl. at

¶94.) Upon information and belief, Commissioners conferred with and gave guidance to the

counsel drafting and working on these legal briefs. (Id. at ¶95.) In addition, some of the exact

same Complaint Counsel that are prosecuting the administrative action against Whole Foods also

served as counsel and signed at least one brief to the D.C. Circuit along with the Commission’s

General Counsel. See Response of FTC to Petition for Rehearing En Banc, No. 07-5276 (D.C.

Cir. 2008)(Davis Decl. at Exhibit 19).

11
The D.C. Circuit briefs were signed by both the Director and Deputy Director of the Bureau of Competition, and
the Bureau’s Director of Litigation. According to the FTC’s website: “[t]he Bureau of Competition investigates
potential law violations and seeks legal remedies in federal court or before the FTC’s administrative law judges.”
Statement by David Wales, Acting Director of Bureau of Competition, “About the Bureau of Competition,”
available at http://www.ftc.gov/bc/about.htm (last accessed Dec. 13, 2008) (emphasis added).

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 36 of 42

While in certain contexts it may be proper for the Commissioners to confer with and give

guidance to federal court counsel (e.g., where the counsel are not also prosecuting an

administrative action against the same respondents and same merger), it is not proper here, where

some FTC attorneys serve as both federal court and administrative complaint counsel. By

communicating with the foregoing counsel, the Commissioners have effectively “ma[de] or

knowingly caused to be made” communications to the FTC’s investigative and prosecutorial

staff regarding the merits of the Whole Foods/Wild Oats merger. See 16 C.F.R. § 4.7(b)(1).

Indeed, the Complaint Counsel in the Inova Health case, supra, stated that there, “the

Commission ha[d] gone out of its way to limit the conflict inherent in every proceeding before

the members of an administrative body which both votes out and adjudicates complaints.” See

Complaint Counsel’s Response to Respondents’ Motion For Recusal of Commissioner Rosch,

Inova, at 5-6 (May 27, 2008) (Davis Decl. at Exhibit 18). No such limitations on this “inherent”

conflict were implemented in the Whole Foods case, as demonstrated below:

Inova Health - FTC Docket No. 9326 Whole Foods - FTC Docket No. 9324
Commissioner Rosch did not participate in the Commissioner Rosch participated in the
Commission’s issuance of the administrative Commission’s issuance of the administrative
complaint. complaint. (June 27, 2008)

Commissioner Rosch did not participate in the Commissioner Rosch participated in the
Commission’s order appointing him as the Commission’s order appointing him as the ALJ
Administrative Law Judge (“ALJ”). for the Scheduling Conference.12 (Aug. 8,
2008)

12
The Commission’s Rules of Practice provide in § 3.42 (titled “Presiding officials”) provides:
(a) Who presides. Hearings in adjudicative proceedings shall be presided over by a duly qualified
Administrative Law Judge or by the Commission or one or more members of the Commission
sitting as Administrative Law Judges; and the term Administrative Law Judge as used in this part
means and applies to the Commission or any of its members when so sitting.
16 C.F.R. §3.42(a) (emphasis added).

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 37 of 42

Commissioner Rosch participated in the


Commission’s issuance of the amended
administrative complaint during his service as
the ALJ. (Sept. 8, 2008)

Commissioner Rosch (as the ALJ) set the Commissioner Rosch (as the ALJ) set the
discovery/trial schedule and the Commission discovery/trial schedule and participated in the
did not issue a binding Scheduling Order that Commission’s issuance of a Scheduling Order
limited the ALJ’s discretion to change the that precluded any subsequent modifications to
schedule in any manner. the schedule absent leave of the Commission.
(Sept. 10, 2008)
Commissioner Rosch did not participate in the Commissioner Rosch participated in the
Commission’s order that stated Commissioner Commission’s order that stated Commissioner
Rosch would not participate in any appeal from Rosch would participate in any appeal from
ALJ’s initial decision. the newly-appointed ALJ’s initial decision.
(Oct. 20, 2008)

C. Whole Foods Has Suffered And Will Continue To Suffer Irreparable Harm.

1. Deprivation of constitutional guaranteed rights constitutes


irreparable injury.

Abridgements of Constitutional rights “give rise to a presumption of irreparable harm.”

See Citicorp Servs., Inc. v. Gillespie, 712 F. Supp. 749, 753-54 (N.D. Cal. 1989); see also

Goldie’s Bookstore, Inc. v. Superior Court, 739 F.2d 466, 472 (9th Cir. 1984) (“[a]n alleged

constitutional infringement will often alone constitute irreparable harm”). Thus, in Amos, the

D.C. Circuit found irreparable injury “solely on due process grounds” without even referring to

irreparable injury. Amos, 306 F.2d at 267. Similarly, the district court in Standard Oil made no

mention of “irreparable harm,” but ordered injunctive relief in ongoing FTC proceedings to

protect the plaintiffs’ rights to appropriate discovery to prepare their defenses. See Standard Oil,

475 F. Supp. at 1274; see also Gulf Oil, 663 F.2d at 307 (holding in case where parties alleged

that Department of Energy caused inter alia “irremediable injury by depriving them of

substantial procedural rights . . . the district court . . . acted in an appropriately limited way to

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 38 of 42

protect the litigants’ rights to a fair proceeding”). The reasoning in Amos, Standard Oil, and

Gulf Oil applies equally to the present case.

2. Whole Foods has suffered and will continue to suffer irreparable


harm per se because there is no legal avenue by which Whole Foods
could recover any monetary damages against the Commission.

Whole Foods has suffered irreparable injury for a second reason – the monetary damages

it is suffering cannot be recovered against the FTC. “[W]here, as here, the plaintiff in question

cannot recover damages from the defendant due to the defendant’s sovereign immunity . . . any

loss of income suffered by a plaintiff is irreparable per se.” Feinerman v. Bernardi, 558 F. Supp.

2d 36, 51 (D.D.C. 2008) (granting preliminary injunction against Secretary of HUD from

effectuating HUD’s debarment determination even though plaintiff “hardly present[ed] an

overwhelming case for a finding of irreparably injury”) (emphasis added); see also United States

v. New York, 708 F.2d 92, 93-94 (2d Cir.1983) (finding irreparable injury where plaintiff unable

to recover damages due to defendant’s invocation of Eleventh Amendment protections).

Neither the Administrative Procedure Act (“APA”) or the Federal Tort Claims Act

(“FTCA”) provides any legal avenue for recovering money damages against the Commission.

The APA provides that “[a]n action in a court of the United States seeking relief other than

money damages and stating a claim that an agency or an officer or employee thereof acted or

failed to act in an official capacity or under color of legal authority shall not be dismissed . . . on

the ground that it is against the United States or that the United States is an indispensable party.”

5 U.S.C. § 702 (emphasis added); see also Bowen v. Massachusetts, 487 U.S. 879, 893-95 (1988)

(confirming that APA does not waive sovereign immunity for actions seeking “money damages”

as compensatory relief). Thus, the APA permits actions against the Commission solely for non-

money-damages relief.

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 39 of 42

The FTCA is equally unavailing to Whole Foods. Although the FTCA waives sovereign

immunity for certain damage suits against the agencies, that waiver does not apply to claims

“based upon the exercise or performance or the failure to exercise or perform a discretionary

function or duty . . . whether or not the discretion involved be abused.” 28 U.S.C. § 2680

(emphasis added); see also United States v. S.A. Empresa De Viacao Aerea Rio Grandense, 467

U.S. 797, 808 (1984) (holding that the discretionary acts of federal officials are immune from

actions for money damages under the FTCA).

Whole Foods’ monetary damages are substantial. Whole Foods has spent more than $12

million dollars in legal and expert fees and costs in complying with the Commission’s Second

Request and investigation and defending the merger through September of 2007 — and has spent

through September 2008 an additional $4.5 million in defending the merger. Am. Compl. ¶16.

Whole Foods has also incurred over $2 million in vendors’ costs and fees — not including

outside counsel’s fees and costs — just in responding to Complaint Counsel’s voluminous

document requests and interrogatories. See Davis Decl. at Exhibit 11, at 2. These injuries are

irreparable per se because the Commission is immune in this case from suits for money damages.

D. The Commission Will Not Be Harmed By A Preliminary Injunction.

There is no colorable argument that the Commission could possibly be injured in any way

by a preliminary injunction that briefly delays the administrative proceedings pending resolution

of Whole Foods’ Complaint. Indeed, the Commission stayed the administrative proceedings on

its own motion for just over 12 months due to “the pendency of the federal court proceedings.”

Davis Decl. at Exhibit 1. Moreover, despite failing to obtain a preliminary injunction from the

District Court or an emergency injunction pending appeal from the D.C. Circuit, and despite

knowing about the August 31, 2007 closing deadline for the merger, the Commission did not lift

its stay on the administrative proceedings, nor request expedited briefing or oral argument on its

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 40 of 42

appeal to the D.C. Circuit. It was only after the D.C. Circuit reversed the District Court some 11

months later that the Commission rushed to restart its administrative action despite the continued

“pendency” of the District Court remand proceedings

To be sure, the Commission has an interest in expeditious decision-making. The

Commission’s Rule 3.1 for adjudicative proceedings provides that Commission’s policy is that

“to the extent practicable and consistent with requirements of law, such proceedings shall be

conducted expeditiously.” 16 C.F.R. § 3.1 (emphasis added). However, there is no “practical”

need for an accelerated schedule in this case where the Whole Foods/Wild Oats merger closed

over 15 months ago, and Whole Foods is seeking an adequate opportunity to take third-party

discovery.

E. A Preliminary Injunction Will Further the Public Interest in Ensuring That


FTC Proceedings Are Fundamentally Fair to Respondents.

There is a strong public interest in ensuring that the Commission, as an administrative

agency of the United States, complies with its duty to respect respondents’ due process rights and

to comply with the APA in its adjudicatory proceedings. See, e.g., Jacksonville Port Auth. v.

Adams, 556 F.2d 52, 59 (D.C. Cir. 1977) (“there is an overriding public interest . . . in the

general importance of an agency’s faithful adherence to its statutory mandate”).

The public interest also demands that the constitutional rights of a respondent be

protected by the courts before the administrative proceedings conclude. As noted above, courts

routinely hold that immediate judicial intervention is proper to rectify fundamental infirmities in

agency proceedings without the need to “exhaust remedies” or await “final agency action.” See,

e.g., Amos, 306 F.2d at 264; Standard Oil, 475 F. Supp. at 1274.

Finally, the public interest weighs in favor of bringing to light that the one-size-fits-all

approach of the Commission’s new Proposed Rule could — as it has in Whole Foods’ case —

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 41 of 42

violate fundamental due process rights. As discussed above, the Proposed Rule has drawn a

series of high-profile negative comments that collectively express a near consensus concern that

the new adjudicatory structure could undermine the ability of respondents to defend themselves

in a fair proceeding before the FTC.

RELIEF REQUESTED

For the foregoing reasons, Whole Foods respectfully requests that this Court enter a

preliminary injunction order staying the Commission from any further prosecution of its

administrative action against Whole Foods pending the resolution of the constitutional claims

alleged in Whole Foods’ Amended Complaint For Declaratory And Injunctive Relief.

Dated: December 19, 2008 Respectfully submitted,

/s/ Lanny J. Davis


Lanny J. Davis (D.C. Bar No. 158535)
Garret G. Rasmussen (D.C. Bar No. 239616)
Antony P. Kim (D.C. Bar No. 489553) (app. pending)
ORRICK, HERRINGTON & SUTCLIFFE LLP
1152 15th Street, N.W.
Washington, D.C. 20005
Telephone: (202) 339-8400

W. Stephen Cannon (D.C. Bar No. 303727)


Todd Anderson (D.C. Bar No. 462136)
CONSTANTINE CANNON, LLP
1627 I Street, N.W.
Washington, D.C. 20006
Telephone: (202) 204-3500

Attorneys for Plaintiff Whole Foods


Market, Inc.

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Case 1:08-cv-02121-PLF Document 12 Filed 12/19/2008 Page 42 of 42

CERTIFICATE OF SERVICE

Pursuant to LCvR 5.3, I hereby certify that on the 19th day of December, 2008, I
electronically filed the with the Clerk of the Court Plaintiff Whole Foods Market, Inc.’s Motion
for a Preliminary Injunction, a supporting memorandum and declarations, and a proposed order,
using the CM/ECF system, which will automatically send notification of the filing to the
following counsel of record:

W. Mark Nebeker
Assistant United States Attorney
Civil Division
U.S. Attorney’s Office for the District of Columbia
555 4th Street, NW
Washington, DC 20530

/s/ Lanny Davis___________________


Lanny J. Davis (D.C. Bar No. 158535)
Orrick, Herrington & Sutcliffe LLP
1152 15th Street, NW
Washington, DC 20005
(202) 339-8400

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