Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS—D.D.C.: Sysco entitled to identities of declarants to defend merger with US Foods, (Mar 20, 2015)

By Greg Hammond, J.D.

The identities of more than 90 confidential declarants—including customers, distributors, and other participants in the broadline food industry—may be learned by Sysco, Corp. for the limited purpose of preparing a defense to the FTC’s challenge of a merger between Sysco and US Foods, Inc. In partially granting Sysco’s motion to make public declarant names and affiliations, the federal district court in Washington, D.C. determined that Sysco’s significant interest in preparing for trial outweighed any alleged harm to the FTC (FTC v. Sysco Corp., March 18, 2015, Mehta, A.).

Sysco and US Foods are the largest broadline foodservice distributors in the United States. Broadline distributors offer national-brand and private-label food products, and provide frequent and flexible delivery, customer service, and other value-added services such as order tracking, menu planning, and nutritional information. The FTC is challenging the proposed merger, alleging that a combined Sysco-US Foods would account for 75 percent of the national market for broadline distribution services.

The FTC and various states filed more than 90 declarations of customers, distributors, and other participants in the industry as exhibits to a preliminary injunction motion filed in February 2015. The identities of the declarants have been treated as “confidential” under a Protective Order, also entered in February. Defendants Sysco, USF Holding Corp., and US Foods moved to make public the declarant names and affiliations.

In opposition to the defendants’ motion, the FTC acknowledged that the identities of the declarants may become public at a later stage of the proceedings, but that the identities should remain confidential at the current stage of litigation because: (1) declarants might face retaliation from the defendants; and (2) the disclosure would have a chilling effect on witnesses in future investigations.

The court rejected the FTC’s arguments, finding that the Commission’s concerns were unsubstantiated and outweighed by the defendants’ substantial interest in learning the identities of the declarants for purposes of building a defense. Specifically, the court found that it would not impose a discovery restriction based on speculation of retaliation by an unspecified number of unidentified declarants. Further, the court found that similar disclosures in previous merger cases had little or no chilling effect, as argued by the FTC.

The court therefore partially granted the defendants’ motion, modifying the protective order to allow defense counsel to disclose the identity of a third-party submitter to an employee of a defendant. However, defense counsel must first give notice to the FTC of the intent to make the disclosure for the purpose of preparing a defense. The FTC or third-party submitter must then petition the court for a protective order within 24 hours after receipt of notice from defendants’ counsel.

On March 18, the defendants informed the FTC of their intent to disclose the names and affiliations of all 92 declarants to their employees, in light of the modified protective order. According to a March 19 minute order, the plaintiffs were required to notify defendants today whether any of the third-party declarants intend to file a motion for protective order seeking non-disclosure of their identities to the defendants’ employees.

The case number is 1:15-cv-00256-APM.

Attorneys: Stephen Weissman for Federal Trade Commission. Haidee L. Schwartz (O'Melveny & Myers LLP) and Joseph F. Tringali (Simpson, Thacher & Bartlett LLP) for Sysco Corp., USF Holding Corp., and US Foods, Inc.

Companies: Sysco Corp.; USF Holding Corp.; US Foods, Inc.

Cases: AcquisitionsMergers Antitrust DistrictofColumbiaNews