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Tracy E. Reichmuth represents major retail clients in an array of commercial litigation matters, including lease and other contract disputes. She is a counsel in Crowell & Moring’s San Francisco office and is a member of the Litigation Group. Her practice focuses on complex commercial litigation, including antitrust law, unfair competition, commercial contract disputes, business torts, and consumer class action defense. Tracy represents both corporate plaintiffs and defendants, and has experience in all aspects of litigation from pre-litigation investigation and counseling to appellate practice.

Crowell & Moring is pleased to sponsor “Regulatory Trends Facing Retailers in the Areas of Consumer Products, Tax and Consumer Privacy,” the second one-hour web seminar in a 3-part series with the Association of Corporate Counsel.  The webinar will take place on Wednesday, September 28th, at 2pm ET/11 pm PT.

The panel includes Crowell & Moring attorneys Greg Call, Bridget Calhoun, Howard Weinman, and Josh Tzuker, as well as Gina Brickley Beredo, Litigation Counsel & Director of Product Compliance at American Greetings Corp.  They will examine important regulatory developments affecting retailers in three legal areas: federal consumer product safety laws, taxation, and consumer privacy.  The speakers will discuss the substantive developments in these areas, as well as trends they are seeing in the current political landscape.

For more information or to register, please visit this link.

In a pro-business and pro-arbitration decision, the United States Supreme Court on April 27 struck down as preempted by federal law the California rule that class arbitration waivers in consumer adhesion contracts are unconscionable and thus unenforceable.  The Court’s decision in AT&T Mobility LLC v. Concepcion, 563 U.S. ___ (2011), hinged on Section 2 of the Federal Arbitration Act (“FAA”), which provides that agreements to arbitrate are “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  In a 5-4 decision, the divided Court, in an opinion authored by Justice Scalia, concluded that the FAA prohibits states from conditioning the enforceability of certain arbitration agreements on the availability of class arbitration procedures.  The majority reaffirmed its recent pro-arbitration leanings, while at the same time seeming to reject arbitration as an appropriate venue for class claims.

The named plaintiffs, Vincent and Liza Concepcion, alleged that they entered into an agreement with AT&T Mobility LLC to purchase mobile phone service that was advertised as including free phones.  The Concepcions sought to represent a class of AT&T Mobility customers and alleged that AT&T Mobility had engaged in false advertising by charging sales tax based on the value of the phones it advertised as free.

Continue Reading Supreme Court Upholds Arbitration Agreement Waiving Customers’ Ability to Bring Class Actions

In a decision sure to affect the way retailers do business in California, the California Supreme Court has held that asking for and recording a customer’s zip code during a credit card transaction violates California law. Specifically, in Pineda v. Williams-Sonoma Stores, Inc. (Case No. S178241), the Court held that requesting such information violates the section 1747.08 of the Song-Beverly Credit Card Act of 1971 (the “Credit Card Act”), which, among other things, prohibits businesses from requesting and recording “personal identification information” during credit card transactions.

In the Pineda case, the plaintiff alleged that she was asked for her zip code while making a credit card purchase, which she provided, believing it was required to complete the transaction. She further alleged that the store recorded the zip code in its database together with her credit card number and name, and that the retailer used that information to search databases to find her previously undisclosed address.  (Because the trial court dismissed plaintiff’s claims based on the complaint itself, none of these allegations have been proven.)

Continue Reading California Supreme Court Holds that Collecting and Recording Zip Codes During Credit Card Transactions Violates California Law

As previously reported, Simon Property Group, Inc. recently acquired Prime Outlets Acquisition Company, LLC. This gained the attention of the FTC, which determined that the merger would result in reduction or elimination of competition among outlet centers in southwest Ohio; Chicago, and Orlando. Now, as part of a settlement with the FTC, Simon will divest some of its property and modify certain tenant leases.

Continue Reading Simon Reaches Agreement with FTC over Prime Outlets Acquisition; Comments Due December 10

Traditionally, retail tenants have sought to include provisions in their leases explicitly giving them the right to audit landlords’ books, particularly with regard to common area maintenance (CAM) charges. However, case law suggests that a retailer may not be out of luck if its lease is silent as to audit rights. Tenants should also be aware that even where audit rights are set out in a lease, landlords often insert restrictive clauses that seek to limit tenants’ rights to recover overcharges in court.

Continue Reading The Effect of CAM Audit Clauses in Retail Leases

On July 20, 2010, Representative Bobby Rush (D-Ill.) introduced a new bill aimed at regulating privacy issues. On the heels of recent privacy controversies involving companies like Facebook and Google, the bill would place restrictions on collection and sharing of personal information.

The “Best Practices Act” would apply to businesses (and “persons”) that store personal information, including names, addresses, e-mail address, or phone numbers. It exempts certain small business if they store information of fewer than 15,000 persons.

Continue Reading New Privacy Legislation Introduced

Case: Federal Trade Commission v. Whole Foods Market, Inc., No. 07-5276 (D.C. Cir. 11/21/08)

The One Sentence Summary: The Federal Trade Commission sought a preliminary injunction to block the merger of premium supermarket chains Whole Foods and Wild Oats; after the trial court denied the injunction and the merger took place, a sharply divided three-judge panel of the Court of Appeals for the District of Columbia Circuit reversed the trial court’s order, possibly signaling a lower threshold for the FTC to obtain a preliminary injunction to block potential mergers.

What They Were Fighting About: There were two key issues in this case: (1) the standard the FTC must meet in order to show it is entitled to preliminary injunction to block a merger; and (2) what role customers’ particular preferences play in determining what is a “relevant market” (the market in which competition takes place) for purposes of antitrust analysis.

Before their merger, Whole Foods and Wild Oats were the largest operators of what the FTC called “premium, natural and organic supermarkets” (or “PNOS”). In February 2007, they announced they would be merging, a move the FTC alleged would create monopolies in eighteen cities where Whole Foods and Wild Oats operated the only PNOS. The FTC sought a temporary restraining order and preliminary injunction to stop the merger while it conducted an administrative proceeding to decide whether to block the merger permanently under the federal antitrust laws. The FTC argued that in order to assess the anticompetitive effects of the merger, the “relevant market” included only PNOS. The defendants disagreed, arguing that PNOS compete in a larger market including other grocery stores and supermarkets and, accordingly, that the merger did not pose antitrust concerns.

The U.S. District Court for the District of Columbia denied the injunction, holding that the FTC failed to meet the standard required to obtain a preliminary injunction under the Federal Trade Commission Act, 15 U.S.C. section 53(b). Specifically, the District Court held that because PNOS compete with regular supermarkets and grocery stores, PNOS were not themselves a distinct market in which Whole Foods and Wild Oats would actually have market power. Thus, the District Court reasoned, the FTC was not entitled to an injunction because it could not show that it was likely to succeed on the merits of its case.

Although the merger actually took place in August 2007, the FTC nevertheless appealed to the U.S. Court of Appeals for the District of Columbia Circuit, arguing that the District Court applied the wrong legal standard. On July 29, 2008, a three-judge panel of the Court of Appeals reversed, sending the case back to the District Court for further proceedings. Although it first appeared that there was a majority opinion filed by Judge Janice Rogers Brown, the Court of Appeals subsequently issued an amended opinion on November 21, 2008 that made it clear that Judge David S. Tatel concurred in the judgment only, not Judge Brown’s opinion. Thus, although two Circuit Judges formed a majority in reversing the decision of the District Court, there were three separate opinions filed: Judge Brown’s opinion, Judge Tatel’s opinion concurring in the judgment, and Judge Brett M. Kavanagh’s dissenting opinion. Accordingly, it is difficult to know what weight will be given to the decision of the Court of Appeals and its reasoning in future cases.

Both Judge Brown and Judge Tatel stated that section 53(b) set a lower threshold for the FTC to obtain a preliminary injunction than, say, a private litigant seeking an injunction would face. Both also concluded that the FTC will usually be able to obtain a injunction by raising questions as to the merits “so serious, substantial, difficult and doubtful as to make them fair ground for thorough investigation. . . .”

Judge Brown characterized the proper analysis as to whether a merger should be enjoined as a “sliding scale” under which a court should balance the FTC’s likelihood of succeeding on the merits of its case against the “equities” resulting from an injunction. Under this sliding scale test, Judge Brown determined that the District Court had erred by underestimating the FTC’s likelihood of succeeding on the merits of its case. Specifically, the District Court had considered only “marginal consumers” — those who would switch to other non-PNOS stores in response to a price increase by PNOS. According to Judge Brown, the District Court should have also considered “core customers” of the PNOS — those who were committed to natural and organic products, health and ecological sustainability. Judge Brown seemingly concluded that because these core customers were unlikely to switch to standard grocery stores should prices increase, the relevant market could be limited to PNOS. Moreover, the FTC’s evidence suggested that although Whole Foods and Wild Oats competed with other grocery stores on prices of “dry goods,” they did not compete with regard to the natural and organic perishable goods that made up the bulk of their business.

Judge Tatel relied on evidence presented by the FTC suggesting that customers did not consider the products of PNOS reasonably interchangeable with those of other stores. He also cited evidence that Whole Foods and Wild Oats could sustain “statistically significant non-transitory increase in price,” including evidence that indicated that defendants raised their prices when they operated the only PNOS in particular cities.

Notably, the majority rejected defendants’ arguments that the issue was moot because the merger had been consummated. The majority noted that if a preliminary injunction issued, the status quo could be preserved (for example, by preventing future actions taken to close additional stores).

Although the majority held that the District Court erred, the Court of Appeals remanded for further proceedings because the District Court had not yet examined the “equities” involved in granting a preliminary injunction. Thus, the Court of Appeals directed the District Court to examine and weigh those equities against the FTC’s likelihood of success.

Judge Kavanagh strongly dissented, accusing the majority of diluting the requirement that the FTC show a likelihood of success on the merits. Judge Kavanagh further criticized the majority for relying on older cases such as Brown Shoe Co. v. United States, 370 U.S. 294 (1962) while ignoring more modern cases such as Munaf v. Geren, 128 S. Ct. 2207 (2008), which Judge Kavanagh argued rejected the “serious questions” standard cited by the majority.

On November 21, 2008, the same day the revised opinions were issued, the Court of Appeals denied Whole Foods’ petition to have the entire Court of Appeals rehear the appeal en banc. In denying the petition, two Circuit Judges expressly stated that the judgment set no precedent beyond the facts of the case.

Key Points:

  • Although there is no majority opinion, both Judge Brown and Judge Tatel suggested that the FTC should be entitled to a presumption (which defendants could rebut) that an injunction should issue if the FTC can establish that there are “serious, substantial, difficult and doubtful” questions as to the merits.
  • The opinions also indicate that even if a merging businesses compete for customers in a larger market, a court may consider whether they have “core,” dedicated consumers that prefer their specialized or premium products even when prices increase.
  • Because there is no actual opinion of the Court of Appeals stating the bases for reversing the District Court’s denial of an injunction, it is unclear what weight the D.C. Circuit, let alone other federal courts, will give to the reasoning set forth in Judge Brown’s and Judge Tatel’s opinions.