In the fall of 2008, a California woman, Ekaterini Kottaras, didn’t like what she was seeing on her grocery receipts from Whole Foods.
The natural foods giant had a reputation for being pricier than conventional grocery stores, but Kottaras believed she was paying more because Whole Foods Market Inc. had merged the year before with competitor Wild Oats.
She wasn’t alone. The Federal Trade Commission challenged the merger in U.S. District Court for the District of Columbia after it was announced in early 2007. The $565 million deal went through in August 2007, following an unsuccessful petition by the FTC for a preliminary injunction from U.S. District Judge Paul Friedman.
In an unexpected ruling the following summer, however, the U.S. Court of Appeals for the D.C. Circuit reversed the district court, reviving the FTC’s case. Kottaras filed a class action against Whole Foods several months later, also in Washington.
In the complaint, Kottaras claimed that the merger thwarted competition in the “premium, natural, and organic” products market and forced shoppers to pay higher prices at the checkout — all in clear violation of antitrust laws.
Kottaras didn’t detail her shopping habits or how much more she believes she paid, but noted that before the merger, the Whole Foods and Wild Oats stores in Los Angeles County where she lives “vigorously competed against one another.” Post-merger, she alleged, “Whole Foods stores in Los Angeles County are free to and do exact monopoly pricing.”
The FTC settled with Whole Foods in March 2009, but Kottaras’ case has continued to simmer. The case was reassigned in July from Friedman to U.S. District Judge James Boasberg, who will decide a pending motion to certify the class.
Both parties want oral arguments on class certification, since a denial could effectively kill the case. Antitrust lawyers from both sides of the courtroom say Kottaras faces a tough fight. They point to several recent rulings, notably the U.S. Court of Appeals for the 3d Circuit’s 2008 opinion in In re Hydrogen Peroxide Antitrust Litigation, which set up more rigorous standards for plaintiffs at this stage than in previous years.
Kottaras’ attorneys, solo practitioners Roy Katriel of Washington and Michael Braun of Los Angeles, did not return repeated requests for comment. Whole Foods’ lead attorney, Dechert partner Paul Denis, said that even if the class is certified over his client’s objections, he believes the FTC settlement would make it hard for the class to proceed on the merits. “The FTC has signed off on it,” said Denis, who also served as lead counsel in the FTC case. “I’m not sure why [Kottaras and her attorneys] think it’s a problem.”
Whole Foods and Wild Oats announced the proposed merger in February 2007. An FTC attorney previously told The National Law Journal that the merger appeared to have “potential competitive significance,” so the agency launched an investigation.
In June 2007, the FTC sued Whole Foods and sought a preliminary injunction. Friedman denied the request, finding that the FTC offered too narrow a market definition and that there was no evidence the merger would lessen competition. The merger went through soon after.
The FTC appealed to the D.C. Circuit, which reversed Friedman’s decision on July 29, 2008. Kottaras, in filing her class action that October, acknowledged she wasn’t filing “on a clean slate.” The two cases were based on the same underlying allegations, she noted, but regardless of what happened in the FTC case, she argued it wouldn’t have any bearing on consumers seeking monetary redress.
Baker Botts partner Christopher MacAvoy said plaintiffs in antitrust class actions have traditionally waited to file until the FTC matter is closed. “Private plaintiffs would lay back and wait for the government and jury to do their thing,” he said. As the plaintiffs’ bar became more competitive, however, MacAvoy said filings have been “much more hair-trigger,” with attorneys scanning filings for any mention of an FTC investigation.
MacAvoy entered Kottaras’ case briefly in 2009 after plaintiffs’ counsel subpoenaed Whole Foods for documents produced by third-party supermarkets in the FTC case. The supermarkets, represented by MacAvoy and other lawyers, successfully fought back, arguing that the documents were produced under a strict protective order and had to be returned.
In January 2010, Kottaras filed for class certification under seal, since the motion contains sensitive trade information. Although Kottaras brought the complaint on behalf of Whole Foods shoppers nationwide, later filings show she wants to certify a class of consumers at 20 stores in Los Angeles County.
Whole Foods is arguing that Kottaras’ economic expert can’t show proof of overcharging on an individual basis, instead relying on aggregate calculations that are overbroad and ignore post-merger price benefits for consumers.
Kottaras’ shopping habits are also under scrutiny. Whole Foods argues she’s an inappropriate class representative because she didn’t save receipts until two years after the merger and does her grocery shopping at other stores and farmers’ markets. “The plaintiffs here simply do not maintain the requirements for a class action,” Denis said.
Philip Bartz, co-leader of the antitrust practice at Bryan Cave, said judges were hesitant in the past to consider substantive issues at the certification stage, but “that’s no longer the case.” Judges are expected to “dig down more” to evaluate claims of class size and injury, he said, “and that trend is favoring defendants.”
Michael Hausfeld, name partner of plaintiffs’ firm Hausfeld, said he doesn’t think legitimate antitrust actions are hurt by stricter scrutiny at the certification stage. But he believes supermarket cases are more difficult to pursue as a rule. “The vast majority of other price-fixing cases are concentrated on a fixed price of a specific commodity,” he said. “In a supermarket, you’ve got hundreds of products and the retailer has the absolute discretion to adjust those prices to respond to competitive pressures.”
It’s possible to prevail, Hausfeld said, but “with great difficulty.”
Zoe Tillman can be contacted at firstname.lastname@example.org.