United States v. Von's Grocery Company/Opinion of the Court

by Hugo Black

United States Supreme Court

384 U.S. 270

United States  v.  Von's Grocery Company

 Argued: March 22, 1966. --- Decided: May 31, 1966

On March 25, 1960, the United States brought this action charging that the acquisition by Von's Grocery Company of its direct competitor Shopping Bag Food Stores, both large retail grocery companies in Los Angeles, California, violated § 7 of the Clayton Act which, as amended in 1950 by the Celler-Kefauver Anti-Merger Act, provides in relevant part:

'That no corporation engaged in commerce * * * shall acquire the whole or any part of the assets of another corporation engaged also in commerce, where in any line of 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.' ^[1]

On March 28, 1960, three days later, the District Court refused to grant the Government's motion for a temporary restraining order and immediately Von's took over all of Shopping Bag's capital stock and assets including 36 grocery stores in the Los Angeles area. After hearing evidence on both sides, the District Court made findings of fact and concluded as a matter of law that there was 'not a reasonable probability' that the merger would tend 'substantially to lessen competition' or 'create a monopoly' in violation of § 7. For this reason the District Court entered judgment for the defendants. 233 F.Supp. 976, 985. The Government appealed directly to this Court as authorized by § 2 of the Expediting Act. ^[2] The sole question here is whether the District Court properly concluded on the facts before it that the Government had failed to prove a violation of § 7.

The record shows the following facts relevant to our decision. The market involved here is the retail grocery market in the Los Angeles area. In 1958 Von's retail sales ranked third in the area and Shopping Bag's ranked sixth. In 1960 their sales together were 7.5% of the total two and one-half billion dollars of retail groceries sold in the Los Angeles market each year. For many years before the merger both companies had enjoyed great success as rapidly growing companies. From 1948 to 1958 the number of Von's stores in the Los Angeles area practically doubled from 14 to 27, while at the same time the number of Shopping Bag's stores jumped from 15 to 34. During that same decade, Von's sales increased fourfold and its share of the market almost doubled while Shopping Bag's sales multiplied seven times and its share of the market tripled. The merger of these two highly successful, expanding and aggressive competitors created the second largest grocery chain in Los Angeles with sales of almost $172,488,000 annually. In addition the findings of the District Court show that the number of owners operating single stores in the Los Angeles retail grocery market decreased from 5,365 in 1950 to 3,818 in 1961. By 1963, three years after the merger, the number of single-store owners had dropped still further to 3,590. ^[3] During roughly the same period, from 1953 to 1962, the number of chains with two or more grocery stores increased from 96 to 150. While the grocery business was being concentrated into the hands of fewer and fewer owners, the small companies were continually being absorbed by the larger firms through mergers. According to an exhibit prepared by one of the Government's expert witnesses, in the period from 1949 to 1958 nine of the top 20 chains acquired 126 stores from their smaller competitors. ^[4] Figures of a principal defense witness, set out below, illustrate the many acquisitions and mergers in the Los Angeles grocery industry from 1954 through 1961 including acquisitions made by Food Giant, Alpha Beta, Fox, and Mayfair, all among the 10 leading chains in the area. ^[5] Moreover, a table prepared by the Federal Trade Commission appearing in the Government's reply brief, but not a part of the record here, shows that acquisitions and mergers in the Los Angeles retail grocery market have continued at a rapid rate since the merger. ^[6] These facts alone are enough to cause us to conclude contrary to the District Court that the Von's-Shopping Bag merger did violate § 7. Accordingly, we reverse.

From this country's beginning there has been an abiding and widespread fear of the evils which flow from monopoly-that is the concentration of economic power in the hands of a few. On the basis of this fear, Congress in 1890, when many of the Nation's industries were already concentrated into what it deemed too few hands, passed the Sherman Act in an attempt to prevent further concentration and to preserve competition among a large number of sellers. Several years later, in 1897, this Court emphasized this policy of the Sherman Act by calling attention to the tendency of powerful business combinations to restrain competition 'by driving out of business the small dealers and worthy men whose lives have been spent therein, and who might be unable to readjust themselves to their altered surroundings.' United States v. Trans-Missouri Freight Ass'n., 166 U.S. 290, 323, 17 S.Ct. 540, 552, 41 L.Ed. 1007. ^[7] The Sherman Act failed to protect the smaller businessmen from elimination through the monopolistic pressures of large combinations which used mergers to grow ever more powerful. As a result in 1914 Congress, viewing mergers as a continuous, pervasive threat to small business, passed § 7 of the Clayton Act which prohibited corporations under most circumstances from merging by purchasing the stock of their competitors. Ingenious businessmen, however, soon found a way to avoid § 7 and corporations began to merge simply by purchasing their rivals' assets. This Court in 1926, over the dissent of Justice Brandeis, joined by Chief Justice Taft and Justices Holmes and Stone approved this device for avoiding § 7 ^[8] and mergers continued to concentrate economic power into fewer and fewer hands until 1950 when Congress passed the Celler-Kefauver Anti-Merger Act now before us.

Like the Sherman Act in 1890 and the Clayton Act in 1914, the basic purpose of the 1950 Celler-Kefauver Act was to prevent economic concentration in the American economy by keeping a large number of small competitors in business. ^[9] In stating the purposes of their bill, both of its sponsors, Representative Celler and Senator Kefauver, emphasized their fear, widely shared by other members of Congress, that this concentration was rapidly driving the small businessman out of the market. ^[10] The period from 1940 to 1947, which was at the center of attention throughout the hearings and debates on the Celler-Kefauver bill, had been characterized by a series of mergers between large corporations and their smaller competitors resulting in the steady erosion of the small independent business in our economy. ^[11] As we said in Brown Shoe Co. v. United States, 370 U.S. 294, 315, 82 S.Ct. 1502, 1518, 8 L.Ed.2d 510, 'The dominant theme pervading congressional consideration of the 1950 amendments was a fear of what was considered to be a rising tide of economic concentration in the American economy.' To arrest this 'rising tide' toward concentration into too few hands and to halt the gradual demise of the small businessman, Congress decided to clamp down with vigor on mergers. It both revitalized § 7 of the Clayton Act by 'plugging its loophole' and broadened its scope so as not only to prohibit mergers between competitors, the effect of which 'may be substantially to lessen competition, or to tend to create a monopoly' but to prohibit all mergers having that effect. By using these terms in § 7 which look not merely to the actual present effect of a merger but instead to its effect upon future competition, Congress sought to preserve competition among many small businesses by arresting a trend toward concentration in its incipiency before that trend developed to the point that a market was left in the grip of a few big companies. Thus, where concentration is gaining momentum in a market, we must be alert to carry out Congress' intent to protect competition against everincreasing concentration through mergers. ^[12]

The facts of this case present exactly the threatening trend toward concentration which Congress wanted to halt. The number of small grocery companies in the Los Angeles retail grocery market had been declining rapidly before the merger and continued to decline rapidly afterwards. This rapid decline in the number of grocery store owners moved hand in hand with a large number of significant absorptions of the small companies by the larger ones. In the midst of this steadfast trend toward concentration, Von's and Shopping Bag, two of the most successful and largest companies in the area, jointly owning 66 grocery stores merged to become the second largest chain in Los Angeles. This merger cannot be defended on the ground that one of the companies was about to fail or that the two had to merge to save themselves from destruction by some larger and more powerful competitor. ^[13] What we have on the contrary is simply the case of two already powerful companies merging in a way which makes them even more powerful than they were before. If ever such a merger would not violate § 7, certainly it does when it takes place in a market characterized by a long and continuous trend toward fewer and fewer owner-competitors which is exactly the sort of trend which Congress, with power to do so, declared must be arrested.

Appellees' primary argument is that the merger between Von's and Shopping Bag is not prohibited by § 7 because the Los Angeles grocery market was competitive before the merger, has been since, and may continue to be in the future. Even so, § 7 'requires not merely an appraisal of the immediate impact of the merger upon competition, but a prediction of its impact upon competitive conditions in the future; this is what is meant when it is said that the amended § 7 was intended to arrest anti-competitive tendencies in their 'incipiency." United States v. Philadelphia Nat. Bank, 374 U.S. 321, 362, 83 S.Ct. 1715, 1741. It is enought for us that Congress feared that a market marked at the same time by both a continuous decline in the number of small businesses and a large number of mergers would slowly but inevitably gravitate from a market of many small competitors to one dominated by one or a few giants, and competition would thereby be destroyed. Congress passed the Celler-Kefauver Act to prevent such a destruction of competition. Our cases since the passage of that Act have faithfully endeavored to enforce this congressional command. ^[14] We adhere to them now.

Here again as in United States v. El Paso Gas Co., 376 U.S. 651, 662, 84 S.Ct. 1044, 1050, 12 L.Ed.2d 12, since appellees 'have been on notice of the antitrust charge from almost the beginning * * * we not only reverse the judgment below but direct the District Court to order divestiture without delay.' See also United States v. E. I. du Pont De Nemours & Co., 366 U.S. 316, 81 S.Ct. 1243, 6 L.Ed.2d 318; United States v. Alcoa, 377 U.S. 271, 281, 84 S.Ct. 1283, 1289.

Reversed and remanded.

Mr. Justice FORTAS took no part in the consideration or decision of this case.

Table 1.

Food store acquisitions in the Los Angeles metropolitan area 1954-61

Year Acquiring firm Acquired firm of stores

acquired

1957......Piper Mart..........Bi-Right & Big Bear.

1958......Mayfair.............Bob's Supermarket.

1961......Better Foods........Border's Markets.

1954......Kory's Markets......Carty Brothers .

1958......Fox.................Iowa Pork Shops.

1961......Food Giant (and others).McDaniels's Markets.

1957......Food Giant..........Panorama Markets.

1958......Alpha Beta..........Raisin Markets.

1960......Piggly Wiggly.......Rankins Markets.

1959......Pix.................Shop Right Markets.

1957......Mayfair.............U-Tell-Em Markets.

..........Total ..............

Food store acquisitions in the Los Angeles metropolitan area 1961-64 ^[15]

acquisition

1961 Acme Markets.Alpha Beta Food Markets 45 $79.042 --- X

Boys Markets.......Korys Markets.5.10,000.X

Food Giant Markets.McDaniels Markets.9.21,500 X

Mayfair Markets....Yorway Markets.1.1,500.X

1962 Mayfair Markets.Schaubs Market.1.1,800 X

Ralph's Grocery Co..Imperial Supreme Markets 1 916 X

1963 Food Fair Stores.Fox Markets.22.44,419 --- X

KrogerMarket Basket...........53.110,860.--- X

Mayfair Markets....Bi Rite Markets.1.2,569 X

1964 Albertson's, Inc..Greater All American 14 30,308 --- X

Mayfair Markets....Gateway Market.4.8,000.X

Ralph's Grocery Co..Cracker Barrel Supermarket. 1 1,000 X

Food Giant Markets.McDaniels Markets.7.18,350 X

Total horizontal...------------------------ 38 83,835 ---

mergers.

Total market.......------------------------ 134 264,629 ---

extension mergers.

Given a trend towards fewer and fewer sellers which promises to continue, it is clear to me that where the eight leading firms have over 40% of the market, any merger between the leaders or between one of them and a lesser company is vulnerable under § 7, absent some special proof to the contrary. Here Von's acquired Shopping Bag. Both were among the eight largest companies, both had grown substantially since 1948 and they were substantial competitors. After the merger the four largest firms had 28.8%, the eight largest had 44% and the 12 largest had 50%. The merger not only disposed of a substantial competitor but increased the concentration in the leading firms. In my view the Government sufficiently proved that the effect of this merger may be substantially to lessen competition or to tend to create a monopoly.

Mr. Justice STEWART, with whom Mr. Justice HARLAN joins, dissenting.

Notes

1. Consists of Los Angeles and Orange Counties. (1963 census defined the Los Angeles metropolitan area as Los Angeles County only.)
2. In most cases, sales are for the 12-month period prior to acquisition. as a 7.5% share of the relevant market. But here, in 1958 before the merger, the largest firm had 8% of the sales, Von's was third with 4.7% and Shopping Bag was sixth with 4.2%. The four largest firms had 24.4% of the market, the top eight had 40.9% and the top 12 had 48.8% as compared with 25.9%, 33.7% and 38.8% in 1948. All but two of the top 10 firms in 1958 were very probably also among the top 10 in 1948 or had acquired a firm that was among the top 10. Further, all but three of the top 10 had increased their market share between 1948 and 1958 and those which gained gained more than the three lost. Also, although three companies declined in market share their total sales increased in substantial amounts.
3. Despite this steadfast concentration of the Los Angeles grocery business into fewer and fewer hands, the District Court, in Finding of Fact No. 80, concluded as follows:
4. Appellees, in their brief, claim that 120 and not 126 stores changed hands in these acquisitions:
5. These figures as they appear in a table in the Brief for the United States show acquisitions of retail grocery stores in the Los Angeles area from 1954 to 1961: See Appendix, Table 1, substantially reproducing the above-mentioned table.
6. See Appendix, Table 2.
7. Later, in 1945, Judge Learned Hand, reviewing the policy of the antitrust laws and other laws designed to foster small business, said, 'Throughout the history of these statutes it has been constantly assumed that one of their purposes was to perpetuate and preserve, for its own sake and in spite of possible cost, an organization of industry in small units which can effectively compete with each other.' United States v. Aluminum Co. of America, 2 Cir., 148 F.2d 416, 429.
8. Thatcher Manufacturing Co. v. Federal Trade Commission, 272 U.S. 554, 560, 47 S.Ct. 175, 178, 71 L.Ed. 405.
9. See, e.g., United States v. Philadelphia Nat. Bank, 374 U.S. 321, 362-363, 83 S.Ct. 1715, 1740-1741, 10 L.Ed.2d 915; United States v. Alcoa, 377 U.S. 271, 280, 84 S.Ct. 1283, 1289, 12 L.Ed.2d 314.
10. Representative Celler, in introducing the bill on the House floor, remarked:
11. H.R.Rep.No.1191, 81st Cong., 1st Sess., p. 3, U.S.Code Congressional Service, p. 4293, described this characteristic of the merger movement as follows:
12. See, e.g., Brown Shoe Co. v. United States, 370 U.S., at 346, 82 S.Ct., at 1535; United States v. Philadelphia Nat. Bank, 374 U.S., at 362, 83 S.Ct., at 1740. See also United States v. E. I. du Pont De Nemours & Co., 353 U.S. 586, 597, 77 S.Ct. 872, 879, 1 L.Ed.2d 1057, interpreting § 7 before the Celler-Kefauver Anti-Merger amendment.
13. See Brown Shoe Co. v. United States, 370 U.S., at 319, 82 S.Ct., at 1521.
14. See, e.g., Brown Shoe Co. v. United States, 370 U.S. 294, 82 S.Ct. 1502; United States v. Philadelphia Nat. Bank, 374 U.S. 321, 83 S.Ct. 1715; United States v. El Paso Gas Co., 376 U.S. 651, 84 S.Ct. 1044; United States v. Alcoa, 377 U.S. 271, 84 S.Ct. 1283; United States v. Continental Can Co., 378 U.S. 441, 84 S.Ct. 1738, 12 L.Ed.2d 953; FTC v. Consolidated Foods, 380 U.S. 592, 85 S.Ct. 1220, 14 L.Ed.2d 95.
15. 38 Stat. 731, as amended by 64 Stat. 1125, 15 U.S.C. § 18 (1964 ed.).