Community Publishers, Inc. v. Donrey Corp.Community Publishers, Inc. v. Donrey Corp.
AMENDED MEMORANDUM OPINION
This is аn antitrust ease in which plaintiffs are challenging the purchase of a daily newspaper, the Northwest Arkansas Times (the “Times ”), by NAT, L.C. (“NAT”). Plaintiffs contend that NAT’s purchase of the Times is illegal under the antitrust laws, due to the fact that NAT has significant shareholders in common with defendant D.R. Partners d/b/a Donrey Mediа Group (“Donrey”). Donrey owns a competing newspaper, the Morning News of Northwest Arkansas.
Plaintiffs claim that plaintiffs are violating or threaten to violate §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and §§ 7 and 8 of the Clayton Act, 15 U.S.C. §§ 18 and 19. Plaintiffs seek injunctive relief under § 16 of the Clayton Act, 15 U.S.C. § 26.
Defendant Donrey has filed a motion to dismiss on the grounds that no claim for relief has been stated against it. In support of its motion, Donrey argues that plaintiffs have not alleged that Donrey owns the Times so that Donrey cannot be ordered to divest itself. Rather, any such divestiture ordеr would be directed at NAT. Also, plaintiffs have not alleged that Donrey is seeking to purchase the Times so Donrey need not be enjoined from such a purchase. As no relief is available against it, contends Donrey, it must be dismissed from the suit.
Donrey’s motion will be denied. In dealing with the issues raised by Donrey’s motion to dismiss, the court has found it necessary to rely on information outside the pleadings, and has, therefore, converted this motion into one for summary judgment pursuant to Rule 12(b) of the Federal Rules of Civil Procedure. As required by Rule 12(b), the parties have been given an opportunity to supplement their papers and the court is now ready to rule.
I. SECTION 7 OF THE CLAYTON ACT
Plaintiffs have stated a claim under Section 7 of the Clayton Act, 15 U.S.C. § 18, which provides that no person shall acquire, “directly or indirectly,” the whole or part of the stock or other share capital of a person, where the effect of such acquisition may be to substantially lessen competition or tend toward monopoly.
Specifically, the Section 7 claim is that Donrey
indirectly
acquired
Times
stock through NAT and must be enjoined from doing so in the future. First of all, NAT and Donrey have substantially overlapping ownership. Ninety-nine percent (99%) of Don-rey stock is owned by Stephens Group, Inc. (“SGI”). SGI’s stock, in turn, is owned en
In addition to the common ownership of NAT and Donrey, it currently appears that both SGI and Donrey were seriously involved with the process leading up to NAT’s acquisition of the Times, and that a NAT acquisition of the Times was a conscious substitute for a Donrey acquisition. On or about January 19, 1995, Thomson Newspapers publicly announced that it was selling the Times and twenty-four (24) other newspapers. NAT was formed on January 30, 1995, for the specific purpose of acquiring the Times. On February 6,1995, Thomson closed the sale of the Times to NAT. Key SGI and Donrey personnel were involved in the negotiations leading up to this sale, including Jack Stephens (Chairman of SGI, Donrey and NAT), Scott Ford (Assistant to Chairman оf SGI), Darrel Loftin (Chief Financial Officer of Donrey), and Emmett Jones (President and Chief Operating Officer of Donrey). In fact, according to Thomson’s Chief Financial Officer, SGI and Donrey had previously attempted to negotiate a direct Donrey purchase of the Times as early as the Fall оf 1994. (Pls.Resp.Mot.Dism., Ex. 2, Depo. of Robert Daleo at pp. 16-18, 29-31). Furthermore, Jack Stephens, Scott Ford, Emmett Jones and Darrel Loftin were all aware of the possibility that antitrust laws might apply to a Donrey acquisition of the Times, including the possibility that they might have' to file a notice with the Federal Trade Commission under the Hart-Scott-Rodino Act, 15 U.S.C. § 18a, to get such a transaction approved under the antitrust laws. (Pls.Resp.Mot.Dism., Ex. 6, Depo. of Emmett Jones at pp. 93-96; Ex. 8, Depo. of Darrel Loftin at p. 26).
Although the court can find no precedent with identical facts, the court believes that a claim has been stated under Section 7 as to whether Donrey indirectly acquired the Times through NAT. It is clear that an indirect acquisition can take various forms, including acquisition by a subsidiary or affiliate. The Housе Committee Report on the bill that eventually became amended Section 7 is explicit on this point. It states that Section 7 “forbids not only direct acquisitions but also indirect acquisitions, whether through a subsidiary or an affiliate or otherwise.” H.R.Rep. No. 1191, 81st Cong. 1st Sess. 9 (1949) (emphasis added), quoted by, Julian O. von Kalinowski, 3 Antitrust Laws & Trade Regulation § 24.06 (1994).
The inclusion of the catch-all phrase “or otherwise” in the legislative history is very telling, as it indicates that the term “indirectly” must be broadly interpreted, lest persons and firms manipulate corporate structures in order to avoid the appearanсe of direct acquisition. This case provides a perfect example of the fluidity of corporate forms and the potential dangers they present. Donrey and NAT essentially share a common genetic imprint, i.e., ownership by various Stephens family trusts. Such a corporate “cloning” procedure should not be allowed to create large loopholes in Section 7. Although there is no common parent in the sense of a single legal entity that owns both subsidiaries, there is certainly a clаim concerning whether or not Donrey and NAT are actually affiliated corporations.
The above discussion indicates that the term “directly or indirectly” should be interpreted as broadly as necessary to accomplish the purposes of the antitrust laws, and the cases have held accordingly. In varying con
c. Attribution of Market Share to Mi-norco. Minorco also contends that the District Court erred in attributing to Mi-norco the power of the Oppenheimer family and Anglo in the gold market. [Minor-eo] contends that there was no evidence that Minorco was dominated or controlled by outside entities and that the District Court should have respeсted Minorco’s separate corporate existence. Despite [Minorco’s] assertions, we think the evidence in the record adequately supports Judge Mukasey’s conclusion that the intertwined relationships among Anglo, De Beers, Minorco, and the Oppenheimer family warrant attribution of aggregate market power to Minorco.
Id.
Another ease that illustrates the principle that corporate forms should not be used to flout the antitrust laws is
Jim Walter Corp. v. F.T.C.,
First of all, the original section 7 “was designed primarily to deal with the еvil of the secret acquisition by one corporation of the stock of another corporation, principally those acquisitions by ‘holding companies,’ ” United States v. Celanese Corp. of Am.,91 F.Supp. 14 , 17 (S.D.N.Y.1950). It is illogical to suggest that Congress directed section 7 “primarily at the development of holding companies,” Brown Shoe Co. v. United States,370 U.S. 294 , 314,82 S.Ct. 1502 , 1518,8 L.Ed.2d 510 (1962), but chose a jurisdictional scheme in which holding companies could not be defendants. ******
[We thus refuse to hold that] the corporate veil of a holding company can become an impregnable shield against section 7 actions. To approve such a hard-and-fast • rule would be to deny the commercial realities of the day, and to place some of the nations’s largest corporations beyond section 7’s important control on acquisitive behavior in our national marketplace.
Id.
Another instructive ease is
Minpeco, S.A. v. Hunt,
The common strand in thesе cases is the refusal to allow corporate forms to be used as a tool to flout antitrust laws. One final case that illustrates this principle is
United States v. Tidewater Marine Serv., Inc.,
In so holding, we reject the defendants’ contention thаt the West Coast is not a relevant geographical market, which contention is based on the fact that Twenty Grand operates its West Coast chartering business through Twenty Grand Pacific, a corporation 50% owned by Twenty Grand and 50% owned by an individual named Kenneth Elmes. The very terms of § 7 defeat this argument since the Act proscribes the acquisition “directly or indirectly [of] the whole or any part of the stock ” (emphasis added) of another corporation if the effect may substantially lessen competition in any section of the country. Thus, the fact that Twenty Grand Pacific is only 50% owned by Twenty Grand is irrelevant inasmuch as Tidewater will acquire 50% ownership of Twenty Grand Pacific through the acquisition of Twenty Grand’s stock.
Id.
Once again, the basic principle of these cases is that formal corporate structures should not be used as a tool to flout the antitrust laws. Of course, there is no end to the possible factual situations to which this principle must be applied, because there is no end to the ways in which cоrporate structures can be manipulated. As such, the court is not bothered that there is no direct precedent dealing with identical facts. The court thus concludes that plaintiffs have stated a. cause of action against Donrey, because available precedent dictates a pragmatic interpretation of the term “indirect acquisition” that preserves the force of Section 7 of the Clayton Act. 3 See generally Julian O. von Kalinowski, 3 Antitrust Laws & Trade Regulation § 24.06 (1994).
II.SECTION 8 OF CLAYTON ACT
The court also notes that plaintiffs have alleged a cause of аction against Donrey under Section 8 of the Clayton Act, 15 U.S.C. § 19, which prohibits interlocking directorates and officers, where such interlocking may substantially lessen competition or tend toward monopoly. Even if NAT’s purchase of the Times is upheld, this cause of action may be available. Although by its terms, Section 8 appears to apply only to persons who simultaneously serve as directors in competing corporations, virtually all cases instituted under the statute to date have also named the interlocked corporations as defendants. In recent years, several district court, appellate court and FTC decisions have resolved that corporations can indeed be held liable and enjoined under Section 8. See Earl W. Kintner, Volume V Federal Antitrust Law § 42.13 (1984).
III.REMEDIAL CONSIDERATIONS
As a further grounds for keeрing Donrey in this suit, the cases are clear that the court has broad powers in equity to fashion such relief as is necessary to remedy the antitrust violations at hand and to prevent future violations.
See e.g. California v. American Stores Co.,
IV.CONCLUSION
For the above stated reasons, Donrey’s motion to dismiss will be denied in its entirety. A conforming order will be entered by the court.
Notes
. Ownership of SGI:
40% J.T. Stephens Trust One
40% Bess Stephens Trust
10% Warren A. Stephens Trust
3.3% W.R. Stephens Jr. Rev. Trust
3.3% Pamela Stephens Rose Trust One
3.4% Elizabeth Ann Stephens Campbell Rev.
Trust One
. Ownership of NAT
12.075% J.T. Stephens Trust One
12.075% Bess Stephens Trust
35.675% Warren A. Stephens Trust
11.892% W.R. Stephens Jr. Rev. Trust
11.892% Pamela Stephens Rose Trust One
11.892% Elizabeth Ann Stephens Campbell Rev. Trust One
. Section 7 of the Clayton Act is the principal antitrust statute applicable to mergers and acquisitions. Julian O. von Kalinowski, 3 Antitrust Laws & Trade. Regulation § 23.01 (1994). However, Sections 1 and 2 of the Sherman Act are applicable as well. Id. at § 23.01[1], [2]. This motion, however, is not the proper time or place for delineating the substantive differences that may exist, or not, under the different sections.