Case Information
*1 Before McMILLIAN, FAGG, and BEAM, Circuit Judges.
___________
BEAM, Circuit Judge.
Midwestern Machinery, Inc., Brian F. Gagan, Sharon Tolbert Glover, Charles M. Koosman, Laurie I. Laner, Jack Reuler, Michael W. McNabb, and Nigel Linden appeal the dismissal of their complaint alleging a violation of section 7 of the Clayton Act. The district court dismissed their complaint under Federal Rule of Civil Procedure 12(b)(6) because it found that a claim under section 7 of the Clayton Act, which prohibits acquisitions of stock or assets that substantially lessen competition, expires when one corporation merges with another and its stock is turned in and extinguished. We disagree and reverse.
I. BACKGROUND
In January 1986, Northwest Airlines (Northwest) reached an agreement with Republic Airlines (Republic) whereby the two airlines would merge. At the time of merger, Northwest and Republic were respectively the nation's eighth and ninth largest airlines and the two largest operators at the Minneapolis-St. Paul International Airport. The merger was approved by the Department of Transportation, the reviewing agency at the time, but no antitrust immunity was granted for the transaction. After the merger was completed in August 1986, all of Republic’s stock was turned in and extinguished, and Republic ceased to exist as a separate entity.
The plaintiffs, Midwestern Machinery, Inc., Brian F. Gagan, Sharon Tolbert Glover, Charles M. Koosman, Laurie I. Laner, Jack Reuler, Michael W. McNabb, Nigel Linden (hereinafter Midwestern), all frequent travelers on Northwest since the merger, brought this action in June 1997, alleging a violation of section 7 of the Clayton Act (hereinafter section 7). 15 U.S.C. § 18. Midwestern’s complaint alleges *3 that the merger resulted in Northwest holding and using Republic's stock and assets in violation of the section 7 prohibition against acquisitions which substantially lessen competition. Midwestern alleges that Northwest's disproportionate increases in fares, market dominance, and use of entry barriers for new competitors illustrate the substantial lessening of competition following the merger.
Northwest moved to dismiss Midwestern’s complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). The district court found that, although a post-acquisition claim can exist for holding and using stock and assets in violation of section 7, a completed merger precludes such a claim.
In order to make out a section 7 claim for post-acquisition holding and use,
Midwestern must allege an anti-competitive use of Republic's stock or assets. The
district court dismissed Midwestern's complaint because it could not "conceive of a
post-acquisition use when Republic ceased to exist effective of the merger and all
Republic stock was turned in and extinguished." Midwestern Machinery Co. v.
Northwest Airlines, Inc.,
II. DISCUSSION
We review the district court’s 12(b)(6) dismissal de novo. See Springdale Educ.
Ass'n v. Springdale Sch. Dist.,
Northwest argues, consistent with the district court opinion, that when the two airlines became fully merged, no section 7 claim is possible since all of Republic's stock is turned in and extinguished. In essence, Northwest argues that no Republic stock or assets are left to substantially lessen competition. We hold that a section 7 cause of action can exist even though a merger occurs and two corporations effectively become one. We reach this conclusion because: (1) the language of section 7 expressly covers acquisitions of all the stock and assets of a corporation; and (2) section 7 has been interpreted to extend a cause of action beyond the completion of an acquisition or merger.
A. Acquisitions of All or Part
The starting point for interpreting a statute is always the language of the statute
itself. See Norwest Bank v. Doth,
As noted, after the merger was completed, Republic's stock was turned in and extinguished. Northwest views this action as significant for purposes of section 7. If extinguishing stock eliminated section 7 claims, corporations could seek to use this shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of another person engaged also in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.
No person shall acquire, directly or indirectly, the whole or any part of the stock or other share capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets of one or more persons engaged in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition, of such stocks or assets, or of the use of such stock by the voting or granting of proxies or otherwise, may be substantially to lessen competition, or to tend to create a monopoly.
15 U.S.C. § 18.
approach as an antitrust shelter and the speed at which it is accomplished would control the existence of a claim. The plain language of section 7 does not support such a result. The district court's concern that it could not "conceive" of how Republic's stock or assets could be used to substantially lessen competition and thereby violate section 7 centers around the fact that the two corporate entities are no longer distinct, and therefore the use of Republic's stock or assets is unclear and difficult to trace. However, this is a matter for discovery, proof, summary judgment or trial and not a matter for decision on a motion to dismiss. Midwestern's complaint should not be dismissed simply because Northwest acquired all of the assets of Republic and then Republic's stock was turned in and extinguished.
B. Completed Acquisitions
Northwest further argues that completion of a merger forecloses section 7 claims for post-acquisition activities. However, Midwestern contends that even though the merger was completed in 1986, subsequent holding and use can violate section 7. Section 7 is primarily aimed at arresting, at their incipiency, acquisitions and mergers that substantially lessen competition or tend to create a monopoly. See Du Pont, 353 U.S. at 589. For this purpose, the language of section 7 is structured such that a violation can occur when there is a threat or possibility of substantially lessening competition or creating a monopoly. See id. at 607. No restraints, monopolies, or substantial lessening of competition need actually occur to violate section 7. Cf. Carlson Co. v. Sperry and Hutchinson Co., 507 F.2d 959, 961-62 (8th Cir. 1974) (finding section 7 primarily aimed at arresting the possibility or threat). However, the primary purpose of section 7 does not preclude a claim once the merger or acquisition is complete. Midwestern's section 7 claim is not lost because the Northwest-Republic merger is complete.
The underlying rationale for extending section 7 liability beyond completion of
the acquisition or merger is that "as a practical matter it often may be difficult to
foresee and evaluate the real impact and effect of an acquisition until the transaction
has been completed and the aggregate combine is operating." Id. at 962. Therefore,
"while the primary thrust of § 7 is to prohibit and thus to forestall anti-competitive and
monopolistic acquisitions," id., completed acquisitions and "post-acquisition conduct
may amount to a violation of § 7." Federal Trade Comm'n v. Consolidated Foods
Corp.,
The Supreme Court's decision in Du Pont aptly illustrates the vitality of a section
7 claim after acquisition is completed. See Du Pont,
Case law is clear that "holding as well as obtaining assets" is potentially
violative of section 7. ITT,
III. CONCLUSION
For the foregoing reasons, we reverse and remand to the district court for further proceedings.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
Notes
[1] Midwestern challenges the post-acquisition holding and use of Republic's stock
and assets. Two previous actions were brought to challenge the acquisition of
Republic. Northwest argues that the previous challenges, International Travel
Arrangers v. NWA, Inc.,
[2] The relevant portions of section 7 of the Clayton Act provide: No person engaged in commerce or in any activity affecting commerce
[3] This might seem to open up a merger or acquisition to continual challenge under section 7. However, there are limits such as the statute of limitations, the doctrines of laches and problems of proof and causation.
[4] Northwest argues that a post-acquisition claim is properly brought pursuant to
other antitrust sections such as the Sherman Act. In Carlson we found that although
a private action for damages under section 7 "may provide a double basis for liability
in a factual situation that also is violative of § 1 and § 2 of the Sherman Act, the action
is not precluded by statutory exception, statutory language, nor the legislative history
of the Clayton Act." Carlson,
[5] The district court found that merely holding stock does not violate section 7.
It concluded that there must also be some anti-competitive use. There is no
requirement that one intend to restrain competition, but only that the acquisition of
stock or assets threatens or actually lessens competition. See Du Pont,