IN THE UNITED STATES DISTRICT COURT
`FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
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`Case No. 1:20-cv-00442
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`Food Lion, LLC, and Maryland and
`Virginia Milk Producers Cooperative
`Association, Inc.,
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`Plaintiffs,
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`v.
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`Dairy Farmers of America, Inc.,
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`Defendant.
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`
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`
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`PLAINTIFFS’ MEMORANDUM IN OPPOSITION TO MOTION TO DISMISS
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`HUNTON ANDREWS KURTH LLP
`
`A. Todd Brown, Sr., N.C. State Bar No. 13806
`Ryan G. Rich, N.C. State Bar No. 37015
`101 South Tryon Street, Suite 3500
`Charlotte, North Carolina 28280
`Telephone: (704) 378-4700
`tbrown@huntonak.com
`rrich@huntonak.com
`
`Ryan P. Phair (admitted pro hac vice)
`John S. Martin (admitted pro hac vice)
`Kevin Hahm (admitted pro hac vice)
`Carter C. Simpson (admitted pro hac vice)
`2200 Pennsylvania Avenue, NW
`Washington, DC 20037
`Telephone: (202) 955-1500
`rphair@huntonak.com
`martinj@huntonak.com
`khahm@huntonak.com
`csimpson@ huntonak.com
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`Attorneys for Food Lion, LLC
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`TROUTMAN PEPPER HAMILTON
`SANDERS LLP
`
`Jason D. Evans, N.C. State Bar No. 27808
`301 S. College Street, 34th Floor
`Charlotte, NC 28202
`Telephone: (704) 916-1502
`jason.evans@troutman.com
`
`James A. Lamberth (admitted pro hac vice)
`600 Peachtree Street, NE, Suite 3000
`Atlanta, GA 30308
`Telephone: (404) 885-3362
`james.lamberth@troutman.com
`
`Attorneys for Maryland and Virginia Milk
`Producers Cooperative Association, Inc.
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`B.
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`C.
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`D.
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`2.
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`TABLE OF CONTENTS
`INTRODUCTION ............................................................................................................... 1
`ARGUMENT ....................................................................................................................... 2
`I.
`PLAINTIFFS’ ALLEGATIONS OF THREATENED INJURY ARE MORE
`THAN SUFFICIENT UNDER SECTION 16 OF THE CLAYTON ACT. ............ 2
`A.
`The Clayton Act Is Designed to Stop Anti-Competitive Acquisitions in
`Their Incipiency. ........................................................................................... 3
`DFA Improperly Conflates the Antitrust Injury Standards for Damages
`and Injunctive Actions................................................................................... 4
`Plaintiffs Adequately Allege Antitrust Injury Under Section 16. ................. 6
`1.
`Plaintiffs sufficiently pled that MDVA has been foreclosed and
`that such foreclosure is made permanent by the Asset Sale. ............. 7
`Plaintiffs sufficiently pled a significant threat of Food Lion
`being forced to incur higher prices because of the Asset Sale. .......... 9
`DFA’s Antitrust Injury Arguments Would Render the Clayton Act
`Useless. ........................................................................................................ 11
`DFA’S GENERALIZED ATTACKS ON VERTICAL MERGER
`CHALLENGES HAVE NO PLACE IN A RULE 12(b) MOTION. ..................... 12
`“FAILING COMPANY” IS AN AFFIRMATIVE DEFENSE THAT IS NOT
`SUITABLE FOR DETERMINATION ON THE PLEADINGS. .......................... 14
`PLAINTIFFS ALLEGE A PLAUSIBLE GEOGRAPHIC MARKET. ................. 18
`IV.
`CONCLUSION ................................................................................................................. 22
`
`
`
`II.
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`III.
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`INTRODUCTION
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`On May 19, 2020, Plaintiffs Maryland and Virginia Milk Producers Cooperative
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`Association, Inc. (“MDVA”) and Food Lion, LLC filed a Complaint under Section 16 of
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`the Clayton Act alleging that Defendant Dairy Farmers of America, Inc. (“DFA”)’s
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`continuing course of anti-competitive conduct, including its acquisition of three Dean
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`Foods processing plants in North and South Carolina (the “Carolinas plants”) out of
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`bankruptcy, violates the antitrust laws. At an initial June 4th hearing, DFA requested the
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`opportunity to provide a “quick peek” of its defenses through a motion to dismiss before
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`proceeding in earnest on Plaintiffs’ request for expedited discovery and preliminary
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`relief. The Court refused DFA’s offer to slow the progress of the case, but did afford
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`DFA the opportunity to present its arguments for dismissal. DFA has now done so, and
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`its motion confirms that DFA lacks any viable argument for dismissal.
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`First, DFA conjures up a new argument not previously mentioned in its papers or
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`at the hearing—antitrust injury—as a way to insulate the Asset Sale from antitrust
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`scrutiny. But DFA’s argument badly confuses the relevant legal standards and, if
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`accepted, would turn the Clayton Act on its head. It also ignores controlling Supreme
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`Court precedent directly on point, Brown Shoe Co. v. United States, 370 U.S. 294 (1962),
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`as well as numerous detailed allegations in the Complaint establishing the actual injury
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`already incurred by DFA’s conduct and the future injury that will result if this conduct is
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`not arrested in its incipiency.
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`DFA then turns to its “failing company” defense and market definition arguments.
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`Both foreshadow what DFA will argue at trial, but are premature here. Each argument
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`necessarily requires consideration of significant, complex factual and legal issues for
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`which discovery and expert testimony will be necessary. It is well established that
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`neither should be resolved on a motion to dismiss. Indeed, as to its previously
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`ballyhooed “failing company” defense, DFA remains unable to point to a single case in
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`which this defense has been established on a motion to dismiss.
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`The inescapable reality is that the Clayton Act was designed for precisely this
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`situation, and the only way to resolve the issues presented by DFA is through a trial on
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`the merits. With the benefit of discovery, expert opinions, and trial testimony, the Court
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`will be able to make a judgment based on a fully developed record instead of abstract
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`arguments. At the Court’s urging, the parties have now agreed upon an expedited
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`discovery schedule and a consolidated Rule 65(a)(2) proceeding. Plaintiffs respectfully
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`suggest that this is where the parties’ efforts should now be focused.
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`ARGUMENT
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`I.
`
`PLAINTIFFS’ ALLEGATIONS OF THREATENED INJURY ARE MORE
`THAN SUFFICIENT UNDER SECTION 16 OF THE CLAYTON ACT.
`The primary argument advanced by DFA in support of its motion to dismiss is that
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`Plaintiffs’ claims of antitrust injury are speculative because they allege anti-competitive
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`effects that “might” happen in the future. ECF No. 31 (“Br.”), at 1. This argument seems
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`to have been manufactured only recently, as it was not included in DFA’s claimed
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`“threshold legal issues” that needed to be addressed before expedited discovery could be
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`ordered.1 Its conspicuous prior absence was for good reason. As explained below,
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`1 See ECF No. 25, DFA Resp. to Mot. for Expedited Disc., at 8-13.
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`DFA’s argument ignores fundamental principles of antitrust law and is an apparent
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`attempt to insulate the Asset Sale from antitrust scrutiny entirely.
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`A. The Clayton Act Is Designed to Stop Anti-Competitive Acquisitions in
`Their Incipiency.
`Count I asserts a claim under Section 16 of the Clayton Act to enjoin DFA from
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`violating Section 7 of the Clayton Act, which prohibits mergers and acquisitions whose
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`effect “may be substantially to lessen competition, or to tend to create a monopoly.”
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`California v. Am. Stores Co., 485 U.S. 271, 284 (1990) (quoting 15 U.S.C. § 18)
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`(emphasis in opinion). The Supreme Court has repeatedly recognized that the use of the
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`words “may be” reflect Congress’ conscious decision to enact a prophylactic antitrust
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`statute. See Brunswick Corp. v. Pueblo Bowl-O-Mat, 429 U.S. 477, 485 (1977). Enacted
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`against the backdrop of “a rising tide of economic concentration in the American
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`economy,” Section 7 was designed to “clamp down with vigor” on anticompetitive
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`mergers to arrest “this rising tide towards concentration into too few hands and to halt the
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`gradual demise of ... small business[].” United States v. Von’s Grocery Co., 384 U.S.
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`270, 276 (1966). Congress accomplished this goal by empowering plaintiffs to use
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`Section 7 to “arrest[] mergers at a time when the trend to a lessening of competition …
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`was still in its incipiency” in order “to brake this force at its outset and before it gathered
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`momentum.” Brown Shoe, 370 U.S. at 317-18.
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`By its nature, the “incipiency” doctrine is forward looking; it requires “a
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`prediction of [the acquisition’s] impact upon competitive conditions in the future.”
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`United States v. Phila. Nat’l Bank, 374 U.S. 321, 362 (1963). In other words, it
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`specifically protects against future injury that might occur. F.T.C. v. Procter & Gamble
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`Co., 386 U.S. 568, 577 (1967) (“there is certainly no requirement that the anticompetitive
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`power manifest itself in anticompetitive action before §7 can be called into play”).
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`Indeed, “[i]f the enforcement of § 7 turned on the existence of actual anticompetitive
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`practices,” as DFA contends, “the congressional policy of thwarting such practices in
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`their incipiency would be frustrated.” Id. at 577.
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`Section 16 works in tandem with Section 7 and other antitrust laws, including the
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`Sherman Act, by extending the availability of injunctive relief to private parties for
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`“threatened” injury. 15 U.S.C. § 26; Zenith Radio Corp. v. Hazeltine Research, Inc., 395
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`U.S. 100, 130 (1969). By creating this private right of action, Congress intended to
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`“enlist the business public as private attorneys general to aid the government in achieving
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`the broad social object of the statute.” Cia. Petrolera Caribe, Inc. v. Arco Caribbean,
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`Inc., 754 F.2d 404, 415 (1st Cir. 1985). As with Section 7, Section 16 has a
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`“prophylactic purpose” and “is designed to stop anticompetitive behavior in its
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`incipiency.” Christian Schmidt Brewing Co. v. G. Heileman Brewing Co., 753 F.2d 1354,
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`1357-58 (6th Cir. 1985).
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`B. DFA Improperly Conflates the Antitrust Injury Standards for Damages
`and Injunctive Actions.
`Plaintiffs are seeking only injunctive relief under Section 16 here to reverse and
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`arrest the anti-competitive effects of DFA’s past and future conduct, respectively. As
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`such, the prophylactic, “threatened injury” standard for injunctive relief under Section 16
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`applies to Plaintiffs’ claims under both Section 7 of the Clayton Act and Section 2 of the
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`Sherman Act.2 Tellingly, DFA never acknowledges that Plaintiffs seek only injunctive
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`relief under Section 16, not damages under Section 4 of the Clayton Act. This distinction
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`matters because the injury requirements are dramatically different. See Cargill, Inc. v.
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`Monfort of Colo., 479 U.S. 104, 110-11 (1986); Hawaii v. Standard Oil Co. of Cal., 405
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`U.S. 251, 260 (1972). Indeed, courts have repeatedly recognized that there is “a lower
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`threshold standing requirement for Section 16 than for Section 4.” Schoenkopf v. Brown
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`& Williamson Tobacco Corp., 637 F.2d 205, 210 (3d Cir. 1980).
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`A treble damages claim under Section 4 requires an “actual injury,” 15 U.S.C. §
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`15, which is what DFA criticizes Plaintiffs for not showing.3 But a Section 16 claim for
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`injunctive relief requires only “a significant threat of injury,” Zenith Radio, 395 U.S. at
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`130, which is a “less stringent” requirement. In re New Motor Vehicles Can. Exp.
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`Antitrust Litig., 522 F.3d 6, 13 (1st Cir. 2008). The differing standards reflect Congress’
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`intent that injunctive relief serve as “a more flexible and adaptable tool for enforcing the
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`antitrust laws than the damage remedy.” B-S Steel of Kan. v. Tex. Indus., 439 F.3d 653,
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`
`2 While DFA treats its standing argument under Article III separately, it is more
`properly viewed as encompassed by and built into the antitrust injury requirements under
`the Clayton Act. See Novell, Inc. v. Microsoft Corp., 505 F.3d 302, 310 n.16 (4th Cir. 2007)
`(“[T]he concept of antitrust standing [e.g. antitrust injury] is narrower than constitutional
`standing. Harm to the antitrust plaintiff is sufficient to satisfy the constitutional standing
`requirement of injury in fact.”). Regardless, as demonstrated below, the threatened injuries
`alleged in the Complaint are more than sufficient to demonstrate both Article III standing
`and antitrust injury.
`3 DFA repeatedly characterizes Plaintiffs’ injuries as “speculative” because they
`involve “allegations of future injury,” Br. at 7, but all Section 7 cases seeking injunctive
`relief under Section 16 are predicated upon a court’s determination of the likelihood of
`future harm, typically with the benefit of a full evidentiary record. See Phila. Nat’l Bank,
`374 U.S. at 362. According to DFA, only an injury that has already resulted in damages
`can violate antitrust law.
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`667 (10th Cir. 2006). As such, injunctive relief under Section 16 is “available even
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`though the plaintiff has not yet suffered actual injury.” Zenith Radio, 395 U.S. at 130.
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`DFA is either confused by the different standards or attempting to conflate the two
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`for argument’s sake. In nearly five pages devoted to its antitrust injury argument, DFA
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`cites only one case discussing standing under Section 16 and, in that case, the court
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`rejected a similar attempt to conflate the standards for antitrust injury under the Clayton
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`Act. See B-S Steel, 439 F.3d at 666 (reversible error to apply Section 4 standing analysis
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`to Section 16 claim). Similarly, DFA’s heavy reliance upon Sureshot Golf Ventures v.
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`Topgolf Int’l, Inc., 754 F. App’x 235 (5th Cir. 2018), is misplaced. Sureshot involved a
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`Section 4 claim for damages, not a Section 16 claim for injunctive relief. DFA is left
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`without a single argument under the applicable legal standard, or a single citation to an
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`applicable Section 16 case, to support its motion.
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`C. Plaintiffs Adequately Allege Antitrust Injury Under Section 16.
`Although there are a wide variety of recognized antitrust injuries, the classic type
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`in vertical merger and attempted monopolization cases is either the potential foreclosure
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`of competitors or higher prices paid by customers. As the Supreme Court recognized in
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`Brown Shoe, the “primary vice” of the type of conduct at issue here is foreclosure;
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`specifically, by foreclosing competitors from a segment of the market that otherwise
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`would be open to them, the conduct may act as a “clog on competition,” which
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`“depriv[es] rivals of a fair opportunity to compete.” 370 U.S. at 321 n.36, 323-24.4
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`4 Foreclosure is also sufficient antitrust injury to support a violation of Section 2 of
`the Sherman Act. United States v. Microsoft Corp., 253 F.3d 34, 70 (D.C. Cir. 2001) (a
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`Similarly, anti-competitive conduct that results in higher prices to customers is also a
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`paradigmatic example of antitrust injury. See U.S. Gypsum Co. v. Ind. Gas. Co., 350
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`F.3d 623, 627 (7th Cir. 2003). Plaintiffs have pled both types of threatened antitrust
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`injury in significant detail. See ECF No. 1 (“Compl.”), ¶¶114, 121, generally ¶¶97-151.
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`The facts supporting these claims are presumed true on a motion to dismiss and all
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`reasonable inferences are drawn in Plaintiffs’ favor. Nemet Chevrolet, Ltd. v.
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`Consumeraffairs.com, Inc., 591 F.3d 250, 253 (4th Cir. 2009).
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`1. Plaintiffs sufficiently pled that MDVA has been foreclosed and that such
`foreclosure is made permanent by the Asset Sale.
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`The Complaint alleges not only that MDVA faces a significant threat of
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`foreclosure, but also that DFA has already foreclosed MDVA from access to the
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`Carolinas plants and thus 59% of the milk-processing market. Compl. ¶¶61-63, 70. The
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`Asset Sale serves to continue to foreclose MDVA and puts the final nail in the coffin by
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`making that foreclosure permanent. Id. ¶¶96, 101, 109-11. The Complaint alleges that,
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`consequently, MDVA is unlikely to survive as the sole regional competitor to DFA. Id.
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`¶¶139-40.
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`The Complaint’s allegations of actual current foreclosure, presumed true on a
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`motion to dismiss, are alone sufficient to satisfy Section 16’s standing requirements. See
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`Zenith Radio, 395 U.S. at 143. As for MDVA’s additional claims about the threat of
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`continued and permanent foreclosure, the significance of this threat—called “customer
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`“monopolist’s use of exclusive contracts ... may give rise to a § 2 violation even though
`the contracts foreclose less than [a] roughly 40% or 50% share”).
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`foreclosure” in antitrust parlance—is supported by numerous factual allegations,
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`including DFA’s prior actions in other regions (Compl. ¶112), its prior conduct with
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`respect to the Carolinas plants (id. ¶¶61-63), its intention in acquiring the Carolinas plants
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`(id. ¶¶88, 137), and the likelihood that the Asset Sale will further DFA’s existing anti-
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`competitive campaign (id. ¶147). See generally id. ¶¶97-148. Such allegations are
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`plainly sufficient to establish antitrust injury. See Zenith Radio, 395 U.S. at 130 (plaintiff
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`entitled to injunctive relief where future unlawful conduct could “fairly be anticipated
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`from the defendant’s conduct in the past”); Union Carbide Corp. v. Montell N.V., 944 F.
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`Supp. 1119, 1148-49 (S.D.N.Y. 1996) (competitor has standing to challenge proposed
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`merger based on defendants’ past actions).
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`
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`DFA claims this injury is “speculative” because it allegedly would not occur until
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`2021. Not true. As an initial matter, the Complaint alleges that, but for the Asset Sale,
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`MDVA would have been able to compete to supply the Carolinas plants as of May 1,
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`2020.5 Compl. ¶¶105, 139. Moreover, DFA itself acknowledges that it acquired the
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`Carolinas plants to ensure an outlet for its members’ raw milk. Br. at 16. Having paid
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`hundreds of millions of dollars to acquire all forty-four Dean plants, including the
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`Carolinas plants, it defies logic to suggest that DFA would now allow its primary
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`competitor to source those plants instead. See Compl. ¶110. Far from being speculative,
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`5 Because Dean’s bankruptcy allowed it to sell the Carolinas plants free of any
`obligations to DFA, Compl. ¶96, the Complaint alleges that any non-DFA purchaser would
`have been free to make competitive raw-milk-purchasing decisions on the date the sale
`closed. Id. ¶¶105, 139.
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`therefore, this is the unique case in which MDVA’s alleged injury is already being
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`inflicted and is almost certain to become permanent.
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`
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`DFA’s arguments cannot be squared with Supreme Court precedent. The seminal
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`case on vertical mergers is Brown Shoe, which DFA tellingly never mentions. There, the
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`Supreme Court condemned a vertical merger between a shoe manufacturer and the
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`nation’s largest independent shoe retailer because, in the future, the combined entity was
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`likely to foreclose other manufacturers from its retail stores. 370 U.S. at 331-32. This is
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`precisely the antitrust injury MDVA alleges.
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`2. Plaintiffs sufficiently pled a significant threat of Food Lion incurring
`higher prices because of the Asset Sale.
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`The Complaint also alleges that, because of the Asset Sale and related conduct,
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`Food Lion will incur higher prices, which consumers will ultimately feel at the retail
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`level. Compl. ¶¶142-43. The Asset Sale combines DFA’s market power over an input
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`(raw milk) with legacy Dean’s market power over a product made from that input
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`(processed milk). DFA therefore now has both the ability and incentive to engage in
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`“input” foreclosure in an attempt to raise its rivals’ costs in the processed milk market
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`where Food Lion procures its milk. Id. ¶¶99, 121-24. DFA can either raise raw milk
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`prices to processing plants competing with the legacy Dean plants, or refuse to sell to
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`competing plants altogether. Id. ¶143.6 By raising its rivals’ costs, DFA will reduce or
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`eliminate competition, which will result in higher prices to customers like Food Lion. Id.
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`6 DFA argues that charging higher prices to downstream rivals would advantage
`MDVA. Br. at 10. This ignores Plaintiffs’ allegations that MDVA has already been
`foreclosed from the Carolinas plants, that its current “patchwork system” of selling its raw
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`The Complaint alleges that DFA will inevitably engage in such tactics because
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`excess capacity in the Carolinas plants ensures an outlet for any diverted DFA milk, and
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`any profits that DFA would lose by not selling its milk to rivals could be more than offset
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`by the higher prices it can charge customers because of decreased competition. Id.
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`¶¶122, 126. While DFA may dispute these allegations, a motion to dismiss is not the
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`proper vehicle for litigating that dispute. For now, it is enough that Food Lion has
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`plausibly alleged legally cognizable antitrust injury based on the likelihood of higher
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`prices through input foreclosure. See, e.g., Sprint Nextel Corp. v. AT & T Inc., 821 F.
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`Supp. 2d 308, 321 (D.D.C. 2011) (mobile wireless carriers sufficiently pled antitrust
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`injury by alleging that a AT&T/T-Mobile would be able to coerce exclusionary deals
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`from suppliers of wireless devices, who would then refuse to sell those devices to carriers
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`like plaintiffs); see also DOJ & FTC, Vertical Merger Guidelines, Example 2 (2020)
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`(“Vertical Merger Guidelines”), available at https://www.ftc.gov/system/files/documents/
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`reports/us-department-justice-federal-trade-commission-vertical-merger-guidelines/
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`vertical _merger_guidelines_6-30-20.pdf.
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`Finally, DFA’s recycled claims of speculative injury as applied to Food Lion
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`repeat its misstatement of the legal standard. The harm to Food Lion may occur in the
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`future, as it does in all Section 16 cases, but that does not render it speculative. As the
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`milk is “not sustainable,” and that “many MDVA farmers will be forced to leave MDVA
`and join DFA.” Compl. ¶¶115-16; see also id. ¶¶73-78. The Complaint further alleges
`that DFA will wait until it has sufficiently weakened MDVA before taking advantage of
`its power to raise raw-milk prices (id. ¶117), just as it waited until it had capacity to supply
`Dean’s plants, and until the prior class litigation was over, to exercise its right to kick
`MDVA out of the Dean plants beginning in 2015. Id. ¶¶59-62.
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`Supreme Court has recognized, the injury analysis in every Section 16 case requires
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`“prediction,” Phila. Nat’l Bank, 374 U.S. at 362, and this one is no different. If DFA
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`wishes to contest Plaintiffs’ predictions, it may do so. But not on a motion to dismiss.
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`D. DFA’s Antitrust Injury Arguments Would Render the Clayton Act
`Useless.
`To put DFA’s motion in context, it is important to highlight that DFA is
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`essentially claiming that the Asset Sale is immune from antitrust scrutiny by private
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`parties. Indeed, in order to push the deal through, DFA and Dean successfully convinced
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`the bankruptcy court that it should neither consider the antitrust aspects of the Asset Sale
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`nor lift the automatic stay of bankruptcy for Plaintiffs to pursue this case before the
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`transaction closed. In so doing, both DFA and Dean repeatedly emphasized that
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`Plaintiffs “remain[ed] free to pursue” their antitrust claim as well as “the very same
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`divestiture remedy” after the Asset Sale closed.7 Ultimately, the parties entered into a
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`stipulation approved by the bankruptcy court preserving Plaintiffs’ rights “to challenge
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`the Sale Transaction under the antitrust laws.” Compl. ¶93.
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`Now, however, DFA takes the opposite position, arguing that this Court lacks
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`even subject matter jurisdiction to hear the case. Br. at 7. To do so, DFA is forced to
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`take the extreme position that neither a competitor nor a customer has standing to assert
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`their claims. But, if neither competitors nor customers have standing, and others in the
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`supply chain are even more remote, then the natural consequence of DFA’s position is
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`7 See, e.g., In re Southern Food Grps., No. 19-36313 (Bankr. S.D. Tex.) (“Bankr.
`Dkt”), ECF No. 1804, at 10.
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`that no private party has standing to challenge the Asset Sale. This argument directly
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`contradicts the plain language of the Clayton Act and undermines its aim of empowering
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`a private party to have its day in court to arrest an anti-competitive acquisition in its
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`incipiency, thereby furthering the public interest.
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`II.
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`DFA’S GENERALIZED ATTACKS ON VERTICAL MERGER
`CHALLENGES HAVE NO PLACE IN A RULE 12(B) MOTION.
`DFA eventually resorts to an abstract and highly generalized attack on all vertical
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`merger challenges and seems to be asking the Court, on a motion to dismiss no less, to
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`accept that all vertical mergers are pro-competitive. Br. at 12-13. The Supreme Court,
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`however, has never adopted such an extreme view. To the contrary, in Brown Shoe, the
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`Supreme Court held that a vertical merger presenting far less extreme circumstances than
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`the Asset Sale violated the antitrust laws.
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`In Brown Shoe, the nation’s fourth-largest shoe manufacturer sought to merge with
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`the nation’s largest independent chain of family shoe stores. Id. at 331. In declaring the
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`merger unlawful, the Court relied on both the sizeable market share foreclosed to
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`competing manufacturers by the sale and the trend toward concentration in the industry.
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`Id. As here, the industry had been for years consolidating as a “result of deliberate
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`policies of Brown and other leading shoe manufacturers,” which caused the “acquiring
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`manufacturers to become increasingly important sources of supply for their acquired
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`outlets.” Id. at 332. Against this backdrop, the Court was troubled by the manufacturer’s
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`historic practice of “forcing its own shoes upon its retail subsidiaries” and determined
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`that the merger was clearly designed to allow the manufacturer to do the same with the
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`nation’s largest shoe retailer. Id. at 332-34.
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`Plaintiffs’ case is even stronger than Brown Shoe. While many of the same factors
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`are present here—decades of consolidation (Compl. ¶¶68, 134), significant barriers to
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`entry (id. ¶¶129-34), an intent to foreclose competition by securing exclusive supply
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`rights to downstream outlets (id. ¶44), and a history of doing same (id. ¶¶61-62)—the
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`amount of permanent market foreclosure here far exceeds that deemed problematic in
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`Brown Shoe. At the time of the Asset Sale, DFA was already an industry behemoth, far
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`larger in size and market share than the manufacturer in Brown Shoe. Id. ¶¶33, 65. DFA
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`has now grown even bigger and secured control over a majority of both the raw and
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`processed milk markets. Indeed, the Complaint alleges that MDVA will be foreclosed
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`from over half of the market—a far greater “clog on competition” than the Court was
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`concerned about in Brown Shoe or the other cases cited by DFA.8
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`DFA has no answer to this. It cannot distinguish Brown Shoe and therefore has
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`not deigned to try. Instead, DFA ignores it, trying to distract the Court’s attention with
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`broad-based attacks on vertical mergers and false statements about DOJ enforcement
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`priorities.9 Br. at 13. To be clear, Plaintiffs do not dispute that some vertical mergers are
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`8 A degree of foreclosure greater than 50% is far more than in any of the cases cited
`by DFA, including Alberta Gas (3% foreclosure) and Freuhauf (5.8%), and is
`presumptively sufficient foreclosure. See Microsoft, 253 F.3d at 70.
`9 Notably, since DFA filed its motion, DOJ and FTC issued new guidelines, see
`Vertical Merger Guidelines, supra p.10, reflecting their continued emphasis on vertical
`merger enforcement. See also S. Salop & D. Culley, Vertical Merger Enforcement Actions:
`1994–April 2020, available at https://scholarship.law.georgetown.edu/facpub/1529
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`pro-competitive, but—as Brown Shoe proves—some are also anti-competitive. This is
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`why this case needs to be litigated: to determine, based on the facts and expert evidence
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`presented, whether the Asset Sale is pro- or anti-competitive. Trials, not motions to
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`dismiss, are the appropriate venues for such determinations.
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`III.
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`“FAILING COMPANY” IS AN AFFIRMATIVE DEFENSE THAT IS NOT
`SUITABLE FOR DETERMINATION ON THE PLEADINGS.
`Once presented as DFA’s primary argument—indeed, its silver bullet—DFA’s
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`“failing company” argument has now been relegated to an afterthought. And rightfully
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`so. DFA’s “failing company” argument is an affirmative defense upon which DFA bears
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`the burden of proof, see United States v. Gen. Dynamics Corp., 415 U.S. 486, 507 (1974),
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`and is inappropriate for determination on a motion to dismiss.
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`The Supreme Court, moreover, has emphasized that the defense has a “narrow
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`scope.” Citizen Pub. Co. v. United States, 394 U.S. 131, 139 (1969). To establish the
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`defense, DFA must show that (1) Dean faced “a grave probability of a business failure”;
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`(2) Dean’s prospects for reorganization in bankruptcy were “dim or nonexistent”; and (3)
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`Dean “tried and failed to merge with a company other than the acquiring one.” Steves &
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`Sons v. JELD-WEN, Inc., 290 F. Supp. 3d 507, 511-12 (E.D. Va. 2018) (internal citations
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`omitted). For the third element, DFA must typically show that it was “the only available
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`purchaser” and that Dean did not have alternative offers that “pose a less severe danger to
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`(detailing 66 vertical merger challenges since 1994, including several divestiture orders
`obtained over the past two years).
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`competition.” Id. at 512 n.2 (quoting DOJ & FTC, Horizontal Merger Guidelines § 11
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`(2010) (“Horizontal Merger Guidelines”)).
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`Given these strict requirements, the failing company defense “rarely succeeds.”
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`Id. at 512 (quoting P. Areeda & H. Hovenkamp, Antitrust Law 951e (4th ed. 2016)). The
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`chances of success, moreover, are far bleaker on a motion to dismiss. Indeed, DFA is
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`unable to cite a single case that has ever granted a motion to dismiss based on the
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`defense.10 This is because any evaluation of the defense is necessarily a complex, fact-
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`intensive exercise, requiring findings as to the viability of reorganization, the extent of
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`the search for other purchasers (and attempts to stifle such offers), the existence and
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`earnestness of alternative purchasers, and the comparative competitive effects of
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`alternative purchasers. It is unsurprising, therefore, that courts typically view this issue
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`as more properly suited for trial. See, e.g., United States v. Diebold, Inc., 369 U.S. 654,
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`655 (1962) (material questions of fact existed as to whether defendant “was the only bona
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`fide prospective purchaser for [the company’s] business”); U.S. Steel Corp. v. F.T.C., 426
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`F.2d 592, 606-10 (6th Cir. 1970).
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`DFA, moreover, has not—and cannot in the context of this motion—establish the
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`elements of the defense. As an initial matter, a bankruptcy alone is insufficient to
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`10 None of the cases cited by DFA were decided on motions to dismiss. See Cal. v.