Appeal from a judgment of the United States District Court for the District of Connecticut (Jose A. Cabranes, Judge), granting defendants-appellees' motion for summary judgment on plaintiff-appellant's challenge to a proposed merger under section 7 of the Clayton Act, and thereby dismissing plaintiff-appellant's claim for preliminary injunctive relief under section 16 of the Clayton Act. Reversed and remanded.
Lumbard and Altimari, Circuit Judges, and Dearie, District Judge.*fn*
Plaintiff-appellant R.C. Bigelow, Inc. appeals from a judgment of the United States District Court for the District of Connecticut (Cabranes, J.), 689 F. Supp. 76 (1988), granting defendants-appellees' motion for summary judgment for failure to raise a genuine issue of material fact sufficient to establish standing to challenge proposed merger under sections 7 and 16 of the Clayton Act, 15 U.S.C. § 18, 26. The question presented in the district court and on this appeal is whether, in order to survive a motion for summary judgment, plaintiff demonstrated a sufficient factual basis indicating a substantial likelihood that the proposed merger of defendant-appellee Celestial Seasonings, Inc. by defendant-appellee Thomas J. Lipton, Inc. would threaten plaintiff with "antitrust injury" as required by Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 93 L. Ed. 2d 427, 107 S. Ct. 484 (1986) and Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 50 L. Ed. 2d 701, 97 S. Ct. 690 (1977). Because we find that there is a genuine issue of material fact regarding the threat of "antitrust injury" to plaintiff, we reverse.
On December 8, 1987, Thomas J. Lipton, Inc. ("Lipton"), a wholly-owned subsidiary of Unilever N.V., announced that it had agreed to purchase Celestial Seasonings, Inc. ("Celestial") from Kraft, Inc. In 1984, Celestial was sold by its founder to Kraft, a diversified consumer food products company. Celestial is the largest United States producer, with approximately 52% of the market, of "herbal teas," a special blend of caffeine-free ingredients. These "teas" actually are not derived from the "tea plant," which is the source of what is better known simply as "tea," or "black tea," but contain such herbs and natural ingredients as peppermint, spearmint, hibiscus flowers, camomile, orange peel, lemon rind, blackberry leaves, licorice roots, rosehips, and lemon verbena. Although herbal teas are ancient in origin, they have only within the last decade or so become widely available in supermarkets and grocery stores across the country to those who desire caffeine-free hot beverages. Herbal teas account for some $90 million in annual sales and represent over 90% of Celestial's current sales.
Lipton is a competitor of Celestial in the national market for herbal teas. It controls the second largest herbal tea market share at 32% while at the same time being the largest seller of black tea in the United States. In the early 1980s, Lipton entered the herbal tea market and for a brief time was the market leader; but since 1985 its market share has been dwindling. Lipton's parent, Unilever N.V., a Netherlands corporation, is one of the world's largest distributors of grocery products with worldwide sales in excess of $30 billion and, as a result, has gained substantial access to the all-important shelf space of supermarkets across the country.
The third largest producer of herbal teas is plaintiff-appellant R.C. Bigelow, Inc. ("Bigelow"). Bigelow is a family-owned corporation founded in 1945 by Ruth C. Bigelow in her kitchen in Manhattan. Today her son, company president and chief executive officer David C. Bigelow, his wife and their two daughters run the family business employing about 260 people from the company's headquarters in Norwalk, Connecticut. The company started out by making flavored black teas such as "Constant Comment," a tea blend with orange peel and spices. Then in 1979, Bigelow entered the herbal tea market and now has garnered a market share of 13%, accounting for approximately one-third of the company's sales. With an initial investment of under $100,000, Bigelow's herbal tea sales have increased to about $10 million annually.
Within a week following Lipton's announcement that it planned to acquire Celestial, Lipton allegedly approached Bigelow expressing an interest in negotiating the purchase of plaintiff, the only remaining competitor in the herbal tea market with a significant market share. Bigelow did not respond to Lipton's offer. Meanwhile, in accordance with the premerger notification requirements of 15 U.S.C. § 18a, Lipton informed the Department of Justice and the Federal Trade Commission ("FTC") of the proposed merger involving Celestial. The FTC conducted a full review of the transaction over a period of six months, and Bigelow by all accounts was an active complainant in objecting to consummation of the impending deal.
When it became clear to Bigelow that the FTC would take no action challenging the acquisition, Bigelow filed an action in the district court seeking, inter alia, a temporary restraining order and preliminary injunction under section 16 of the Clayton Act, 15 U.S.C. § 26, to prevent the proposed merger from going forward. On May 31, 1988, the district court temporarily enjoined the merger pending a hearing on defendants' motion for summary judgment set for June 10, 1988. At that hearing, defendants informed the court that the FTC apparently had decided against challenging the merger since it let the final time extension of the statutorily required waiting period lapse without taking any enforcement action. See 15 U.S.C. § 18a(e). The parties also represented that discovery had been completed and that, if necessary, they were ready to proceed with a trial on the merits for permanent injunctive relief.
In considering Bigelow's claim that the proposed combination of the country's two largest producers of herbal tea would substantially lessen competition and tend to create a monopoly, the district court was asked to decide as a matter of law whether a competitor, who faces the prospect of competing against an alleged monopolist controlling 84% of the relevant market, has sufficiently demonstrated a threat of "antitrust injury" to establish standing under section 16 of the Clayton Act. See Cargill, 479 U.S. at 113; Brunswick, 429 U.S. at 489. The district court held that Bigelow failed to raise a genuine issue of material fact with respect to whether it was threatened with antitrust injury. While the court indicated that a post-acquisition market share of 84% was "more than sufficient to establish a prima facie showing of 'monopoly power,'" 689 F. Supp. at 79; see United States v. Waste Management, Inc., 743 F.2d 976, 981 (2d Cir. 1984), it concluded that "the mere fact that Lipton will possess monopoly power after the proposed acquisition is not a sufficient showing that Lipton will exercise that power in a way that will cause injury to Bigelow." 689 F. Supp. at 79; see Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 275 (2d Cir. 1979) ("mere possession of monopoly power does not ipso facto condemn a market participant"), cert. denied, 444 U.S. 1093, 62 L. Ed. 2d 783, 100 S. Ct. 1061 (1980). Relying on the Fifth Circuit's observation in Phototron Corp. v. Eastman Kodak Co., 842 F.2d 95 (5th Cir.), cert. denied, 486 U.S. 1023, 108 S. Ct. 1996, 100 L. Ed. 2d 228 (1988) that the Supreme Court's decision in Cargill "has imposed significant barriers to competitor attempts to enjoin merger transactions," id. at 102, the district court found plaintiff's allegations of the threat of injury resulting from anticompetitive or predatory activity to be merely speculative. In the court's judgment, absent some evidence of past instances of predatory pricing or present intent to engage in predatory behavior following the merger, plaintiff's claim for injunctive relief under section 16 of the Clayton Act must fail. Accordingly, the district court granted defendants' motion for summary judgment.
Following the entry of judgment in favor of defendants, plaintiff immediately filed a notice of appeal and requested a stay pending appeal from the district court. The court denied the stay pending appeal but preserved the status quo until this court could rule on Bigelow's motion for a stay. On June 21, 1988, this court heard argument on plaintiff's motion and ordered from the bench that a stay be granted during the pendency of this appeal. We heard oral argument on the merits of Bigelow's appeal on July 21, 1988.
Subsequent to oral argument, on September 12, 1988, the court was informed by counsel for defendants that Kraft had elected to cancel the proposed sale to Lipton of Celestial pursuant to the terms of a purchase agreement between Kraft and Lipton. Defendants thereupon moved to dismiss the appeal as moot since "[t]he transaction at issue--the acquisition by Lipton of Celestial Seasonings from Kraft--has been abandoned by Kraft [who] has sold Celestial Seasonings to another group not presently in the tea or herb[al] tea business." The moving papers indicated that on September 12, 1988, Kraft entered into an agreement with an investment unit of Vestar Capital Partners, Inc. ("Vestar"), a firm specializing in leveraged buyouts, for a management-led buyout of Celestial.
On October 3, 1988, after consideration of the motion to dismiss the appeal and supporting and opposition papers filed together therewith, we granted the motion subject to agreement by the parties to reasonable conditions terminating the appeal. After the parties were unable to agree to reasonable conditions, we denied defendants' motion to dismiss the appeal as moot on November 1, 1988. At that time, we indicated that in our judgment the case was not moot given the uncertainty of cessation of the alleged anticompetitive activity against Bigelow. Thereafter, defendants moved for reconsideration of the denial of their previous motion to ...