California v. American Stores Company

Background

The State of California, through its attorney general acting for state consumers, sued after American Stores completed a hostile takeover of Lucky Stores, two of the largest grocery chains in California. The Federal Trade Commission had negotiated a consent order requiring some divestitures and that the companies be kept separate, but California sued to stop full integration, and the district court ordered the chains to operate independently pending the case. The Court of Appeals agreed that the State was likely to win on the merits but said the district court’s separation order amounted to an indirect breakup that private plaintiffs could not get under the statute, and it sent the case back and raised a bond requirement.

Reasoning

The central question was whether a state acting as a private plaintiff can obtain a breakup (divestiture) as an equitable remedy under the federal antitrust statute. Justice O’Connor found the State had shown likely irreparable harm to consumers if the merger proceeded. She noted a real disagreement among lower courts about whether private plaintiffs can win divestiture, and cited scholarly support for allowing it. Balancing the harms, she concluded the public interest and risk of consumer injury outweighed the financial burden on the companies. For those reasons she granted a temporary stay of the appeals court’s mandate while the Supreme Court considers the State’s petition, conditioned on an appropriate bond.

Real world impact

The order keeps the two grocery chains operating separately while the high court decides whether states can force breakups in private antitrust suits. The ruling is temporary, not a final decision on the merits, and is conditioned on the district court approving a bond to protect the companies from loss.