United States v. Bns Inc. Gifford-Hill & Co., Inc. v. Koppers Company, Inc., Participant-Appellee. United States of America v. Bns Inc. Gifford-Hill & Co., Inc. v. Koppers Company, Inc., Participant-Appellee
Docket: 88-5849
Court: Court of Appeals for the Ninth Circuit; September 15, 1988; Federal Appellate Court
BNS Inc. and Gifford-Hill Co., along with the United States government, are engaged in consolidated appeals regarding a preliminary injunction issued on April 4, 1988, which prevents BNS from completing a $1.7 billion hostile takeover of Koppers Co. The injunction is pending a review under the Antitrust Procedures and Penalties Act (APPA) to assess the public interest in relation to a proposed antitrust consent decree involving BNS and the government. Koppers was allowed to participate in these proceedings and requested the injunction to maintain the status quo during the court's evaluation.
On May 27, 1988, the Ninth Circuit upheld the district court's jurisdiction to issue the preliminary injunction but modified it significantly. The modified order stipulated that the injunction would remain effective only until a trustee was appointed to manage Koppers' subsidiary, Sully-Miller, at BNS's expense. If BNS acquired Koppers, the trustee would operate Sully-Miller independently from other BNS and Koppers assets, ensuring the confidentiality of operational records.
BNS, a Delaware corporation created for the purpose of acquiring Koppers, is owned by Beazer PLC and investment firms. Koppers, a leading producer of construction materials, includes Sully-Miller, which operates in Southern California's aggregate and ready-mix markets. BNS initially offered $45 per share for Koppers, later increasing the offer to $60 per share, totaling $1.7 billion, and complied with premerger notification requirements under the Hart-Scott-Rodino Act.
The Justice Department took on the investigation of BNS's proposed acquisition of Koppers due to prior knowledge of the Southern California road and building material markets from 1987's United States v. Industrial Asphalt case. The investigation revealed a competitive overlap between Beazer and Koppers affiliates in the aggregate market in Irwindale, California, indicating a potential antitrust violation. The government identified this overlap as the sole affected market, and BNS agreed to divest Koppers' Irwindale aggregate facility to resolve the issue. On March 18, the government filed a lawsuit against BNS under section 7 of the Clayton Act, alleging that the acquisition would significantly reduce competition in the extraction and sale of aggregates in the region.
The proposed consent decree required BNS to divest Koppers' facility by January 1, 1989, with provisions to appoint a trustee if this deadline was not met. Additionally, the decree included a 'Preservation of Assets' clause, mandating that BNS maintain the facility as a separate operation and prevent the transfer of assets until divestiture. The APPA, enacted in 1974, necessitates public notice of consent decrees, a competitive impact statement, a 60-day comment period, and judicial evaluation to ensure that consent judgments serve the public interest.
Koppers, the acquisition target, was permitted to participate in the proceedings and sought a temporary restraining order to block BNS's tender offer. Chief Judge Manuel L. Real granted the TRO and scheduled a preliminary injunction hearing. Koppers contended that the government’s investigation was insufficient, divestment was not feasible, and the acquisition would harm competition in the cement and ready-mix concrete markets.
The hearing addressed the government's investigation, the aggregate market, and the 'hold separate' provision of the consent decree, with significant focus on a recently filed divestiture agreement between BNS and the California Attorney General's office regarding the ready-mix market. Judge Real expressed disapproval of this 'separate deal' and granted a preliminary injunction to maintain jurisdiction over the consent decree related to the merger. BNS and the government promptly filed interlocutory appeals under 28 U.S.C. Sec. 1292(a)(1).
Koppers submitted proposed findings of fact and conclusions of law, which the court adopted verbatim after reviewing objections. The appellate review of the preliminary injunction is limited, primarily assessing whether the district court made erroneous legal conclusions, relied on clearly erroneous facts, or abused its discretion. While the appellate court found a proper basis for the injunction issuance, it deemed the order overly broad, constituting an abuse of discretion, thus warranting modification.
BNS argued that the court lacked jurisdiction to grant the injunction against the government's objection, and even if jurisdiction existed, the injunction was improper. BNS contended that the court and Koppers had limited roles under the APPA and that Koppers lacked standing to challenge the acquisition under the Clayton Act. Koppers, while not disputing these points, asserted they were irrelevant to the court's power to issue a preliminary injunction. The appellate court concurred, clarifying that Judge Real did not compel a different consent judgment but issued an interim order to maintain the status quo during the public interest review. Koppers' status as a non-party did not prevent the court from considering its arguments as an interested participant, as the APPA allows for participation beyond formal party status.
Koppers opted to inform Judge Real of its opposition to a proposed consent decree rather than intervene and seek injunctive relief. This approach aimed to maintain the status quo regarding a nearly two billion dollar merger, preventing complications if the court later found the decree contrary to public interest. Koppers' actions were deemed permissible, countering BNS's and the dissent's interpretation of United States v. Stroh Brewery Co., which held that Heileman Brewing Co. lacked standing to prevent a merger due to failure to meet intervention criteria under Fed. R. Civ. P. 24. However, the Stroh court did not restrict jurisdiction to parties; it stated that Heileman could express concerns through comment procedures under the APPA, and its motivation appeared self-interested rather than public-spirited.
The court emphasized that it need not define all permissible participation forms under the APPA, but affirmed its authority to issue a preliminary injunction if such actions serve the public interest, based on 15 U.S.C. § 16(f)(3). The All Writs Act, 28 U.S.C. § 1651(a), allows federal courts to issue necessary writs to support their jurisdiction without expanding their powers. The court argued that Congress intended to empower district courts to effectively review consent decrees, as allowing mergers to proceed while reviews are ongoing could irreparably harm competition. The dissent acknowledged Congress's ability to limit federal court remedies but argued that, in this case, no such limitations were imposed, countering the dissent's view that the lack of an injunction provision implied congressional intent to withhold that authority.
Authority to issue injunctions under the All Writs Act exists without specific statutory authorization when a district court's jurisdiction is established. Relevant case law includes DeNardo v. Murphy, where an injunction was issued to prevent relitigation to uphold res judicata and collateral estoppel, and SEC v. G.C. George Secs. Inc., which allowed an injunction of an administrative proceeding under both the All Writs Act and specific statutes. The district court is affirmed to have the authority to issue a preliminary injunction to maintain its jurisdiction under the All Writs Act, rejecting claims of reversible error related to reliance on matters outside the antitrust complaint.
The legal basis for injunctions is reviewed de novo, and when assessing proposed consent decrees, courts may evaluate several factors: competitive impact, public benefit, and the specific injuries claimed by individuals. The scope of inquiry under the APPA allows courts to consider broader implications beyond the complaint's strict relationship to the remedy, as indicated in United States v. Bechtel Corp. However, the courts should not base public interest determinations on antitrust issues outside the complaint's parameters. The court's role is to ensure that the government has not failed its public duty in consenting to a decree, while the Attorney General maintains discretion over balancing related social and political interests. The statute permits consideration of the consent judgment's impact on public interest, even if it relates to different economic activities, such as the potential rise in bread prices from competition issues in grain marketing.
The government found that a merger between BNS and Koppers would negatively impact competition specifically in the Irwindale area’s aggregate market, while determining that the ready-mix concrete sector would not face significant competitive harm. Consequently, the government’s complaint focused solely on the alleged violation of the Clayton Act concerning the Irwindale aggregate market. During a preliminary injunction hearing, the court’s inquiries primarily revolved around a separate agreement between BNS and the California Attorney General related to the ready-mix market, reflecting confusion due to the state's unexpected divestiture announcement, despite having previously supported Koppers' injunction request.
Appellants and dissenting opinions cited statements from the hearing to argue that the judge improperly considered competitive concerns in the ready-mix market instead of the Irwindale aggregate market. However, the court’s written findings did not mention the ready-mix market; it focused on the potential competitive harm from the merger, detailing risks such as the unauthorized acquisition of confidential information by a competitor, hindrance to pro-competitive initiatives, and adverse effects on Koppers' operational capabilities in Southern California.
Although some of the findings discussed broader impacts that extended beyond the aggregate market, they were not sufficient to demonstrate that the preliminary injunction was based on antitrust concerns in markets other than those specified in the government's complaint. The court was allowed to evaluate the public interest in Koppers' operational viability and the implications of reduced competition in the Irwindale aggregate market, including the effects on employee morale and recruitment across Koppers' Southern California operations.
Appellants argue that the district court's findings of fact are clearly erroneous. However, the court determined that findings (a) and (b), based on R. Kenneth MacGregor's affidavit, are supported by the record and pertain to the potential loss of confidential information and the hindrance of acquiring additional resources. In contrast, findings (c) and (d) lack evidentiary support, which could necessitate reversal if they influenced the injunction decision. Despite this, the court concluded that findings (a) and (b) sufficiently justified the injunction, and any errors regarding findings (c) and (d) were deemed harmless, as Judge Real likely would have issued the injunction regardless.
The court's discretion in issuing the order was examined under the abuse of discretion standard, which requires a clear error of judgment to warrant reversal. A party seeking a preliminary injunction must demonstrate either a likelihood of success on the merits with potential irreparable injury or serious questions on the merits with a favorable hardship balance. For this case, Koppers established serious questions about potential irreparable harm to competition in the Irwindale aggregate market if the acquisition occurs before the APPA evaluation is complete.
The district court does not have the authority under the APPA to issue a permanent injunction against the proposed acquisition, as its role is limited to approving or rejecting the consent decree. Koppers, not being a party, makes the first test of success on the merits inapplicable. However, the second test indicates that Koppers has raised serious issues concerning the risk of irreparable harm.
The 'hold separate' requirement is noted to mitigate complications if the consent decree is rejected, but it also presents a risk of transferring confidential information that could undermine competition. The court expressed concern that Gifford-Hill's access to Koppers' confidential information, prior to the court's APPA review, poses a legitimate threat of immediate irreparable injury to the market, despite claims that the aggregate industry does not rely on high-tech information. The information in question is considered substantial and valuable.
Plans to acquire additional aggregate sources and processing methods could give a competitor an unfair edge, potentially causing irreparable harm if Koppers' acquisition efforts are disrupted. The dissent claims the district court's concerns about public hardship are speculative and suggest that Koppers' management aims to entrench itself at the expense of shareholders, which is contested as it may also be motivated to benefit both shareholders and the public interest. The court agrees that the district court misjudged the relative hardships associated with the preliminary injunction, noting that BNS, the defendant, would not suffer irreparable harm if the acquisition is delayed for a thorough antitrust review, despite having been aware of possible antitrust issues at the time of its tender offer. This dismissal of potential hardship contradicts the court's obligation to balance the interests of all parties before issuing an injunction. BNS argues that time is critical in tender offers, and delays could lead to significant financial losses. The dissent believes that, under proper hardship evaluation, BNS should prevail, while the majority emphasizes the substantial competitive threat posed by BNS's acquisition of Koppers, which jeopardizes effective antitrust review. To mitigate harm to the market and BNS, the court modifies the injunction, allowing it to be lifted upon appointing a trustee for Sully-Miller, ensuring confidentiality of Koppers' records and permitting business activities while maintaining oversight over the entire subsidiary, not just the aggregate facility, due to its smaller size and separate management.
BNS is allowed to proceed with its tender offer with minimal delay, benefiting both BNS as the acquirer and Koppers shareholders who tender their shares at a premium. If the district court rejects the consent decree, a trustee will manage Sully-Miller for an additional fourteen days, permitting BNS, Gifford-Hill, and the government to take further actions, including possible appeals or new consent decrees. The government may also consider modifying or dismissing its antitrust complaint. The dissent raises concerns about the court's authority to appoint a trustee, but it is noted that federal courts possess broad equitable powers to tailor decrees to specific cases, with trustee appointments falling within this scope. The decision emphasizes that the court's jurisdiction under the APPA should not be misused as a blanket review of mergers or antitrust violations beyond the government's allegations. The district court's preliminary injunction, aimed at preserving its jurisdiction under the All Writs Act, was deemed appropriate but has been modified for a narrower scope. A dissenting opinion expresses concern over potential delays affecting Koppers' shareholders' opportunity to accept BNS's offer, which was subsequently accepted for a higher price.
