Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Albertson’s allegedly diminished economic viability of grocery stores sold to competitor Haggen , (Sep 3, 2015)

By Linda O’Brien, J.D., LL.M.

A large supermarket chain has engaged in anticompetitive conduct to destroy or substantially diminish the economic viability, marketability, and competitiveness of the grocery stores it sold to a competing regional grocery chain as part of an FTC divesture order, according to a complaint filed in the federal district court in Wilmington, Delaware (Haggen Holdings, Inc. v. Albertson’s LLC, September 1, 2015).

Albertson’s LLC is one of the largest food and drug retailers in the United States and operates over 2,200 stores across 33 states under 18 brands. Haggen Holdings is a regional grocery store chain with locations in Washington, Oregon, California, Nevada, and Arizona.

According to the complaint, in March 2014, Albertson’s announced its acquisition of Safeway, Inc., its largest and only competitor in the certain local markets. The merger created one of the largest food retailers in the United States. To address FTC concerns that the merger could eliminate substantial competition in the affected markets, Albertson’s agreed to sell some existing Albertson’s and Safeway stores to competing grocers. Under the FTC order, Albertson’s was required to take the actions necessary to maintain the full economic viability and competitiveness of the divested stores.

Albertson’s success in the divesture hinged on its ability to convince a prospective buyer and the FTC that the store transition would be supported by a highly-integrated electronic infrastructure platform in a very short time frame. Subsequently, Albertson’s entered into negotiations with Haggen regarding the purchase of 146 stores. Albertson falsely represented that it was committed to a seamless transformation of the stores into viable competitors under the Haggen banner and would use a proven business process outsourcing (BPO) service provider in order to combine a vast array of functional areas, the complaint states.

The plaintiff alleges that the capability of the BPO provider to deliver a common suite of business processing systems depended on Albertson’s cooperation with the provider and Haggen. Albertson’s was aware that “no immediate price change” was a key part of Haggen’s transition strategy. Despite this knowledge, and with disregard of the representations made to Haggen, Albertson’s allegedly had no intention to provide relevant, necessary, and active data or the level of cooperation necessary for the BPO provider to furnish Haggen with accurate pricing information for Haggen to implement the business processing systems.

Albertson’s similarly made misleading representations with respect to certain underperforming stores included among the stores purchased by Haggen, the lawsuit claimed. In reliance on those representations, Haggen entered into a purchase agreement with Albertson’s to purchase 146 stores for $300 million, subject to FTC approval. The purchase agreement also contained a confidentiality provision whereby the parties agreed to treat all information received by the other party as confidential. However, Albertson’s allegedly used the confidential information to time an aggressive and unprecedented marketing campaign to undercut customer loyalty and undermine the Haggen store reopenings. Albertson’s also intentionally timed large scale remodeling and rebranding projects for certain retained stores to closely coincide with Haggen store reopenings in order to divert customer traffic away from Haggen to Albertson’s, the complaint states.

Additionally, Albertson’s intentionally overstocked perishable inventory immediately prior to the stores’ transition dates, which expired quickly and caused preventable loss to Haggen, the plaintiff claimed. Store fixtures and inventory were removed from transitioned stores, which also caused preventable loss to Haggen. Furthermore, Albertson’s provided false, misleading, and incomplete retail pricing data to the BPO in order to undermine Haggen’s pricing strategy at the reopening of the transitioned stores, the complaint charges.

The complaint also alleges that Albertson’s coordinated efforts to eliminate competition by Haggen in over 130 local grocery markets were calculated to circumvent Albertson’s obligations under federal antitrust laws, FTC orders, and contractual commitments to Haggen. As a result of Albertson’s conduct, competition purportedly has been reduced in the affected local markets; consumers have experienced reduced choice, decreased quality, and price increases; and Haggen has suffered severe brand, reputation, and financial harm.

The plaintiff asserts claims for breach of contract, breach of implied covenant of good faith and fair dealing, fraud, conversion, unfair competition, misappropriation of trade secrets, and attempted monopolization in violation of Section 2 of the Sherman Act. The action seeks rescission, indemnification, treble damages, pre- and post-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 1:15-cv-00768.

Attorneys: S. Mark Hurd and Ryan D. Stottmann (Morris, Nichols, Arsht & Tunnell LLP) for Haggen Holdings, LLC.

Companies: Haggen Holdings, LLC; Albertson’s LLC; Albertson’s Holdings LLC

News: Antitrust DelawareNews