‘Seismic shift.’ Kroger’s fight against a federal agency could upend antitrust

New York (CNN) — Supermarket chain Kroger is suing a federal agency in a daring move that aims to weaken how Washington fights mergers that threaten to jack up prices on consumers.

The lawsuit alleges the Federal Trade Commission is violating the US Constitution by using an in-house tribunal to challenge Kroger’s $25 billion mega-merger with Albertsons — the biggest proposed supermarket deal in American history.

The FTC typically enforces antitrust in one of two ways: It can sue companies and take them to directly to court, or it can attempt to use its own in-house administrative law judges to issue a ruling or reach a settlement outside of court. In the case of Kroger, the FTC actually pursued both options, seeking to block the merger in court and make a ruling on it with its in-house administrators.

Companies can challenge the FTC’s administrative decisions in court. But Kroger claimed that tribunal process is unconstitutional.

The Kroger lawsuit, filed Monday in federal court in Cincinnati, relies in part on a landmark Supreme Court ruling in June that further curbed the power of regulatory agencies. The new lawsuit represents a key test case and the latest effort to reshape the administrative state in America.

Experts say a Kroger victory would usher in a seismic shift in how the federal government challenges mergers. US officials fear that weakening regulators’ ability to fight monopolies could hurt consumers by giving corporations too much power to raise prices and close stores.

“It’s huge. If they are successful and appellate courts agree, one of the primary arms for antitrust oversight is literally being cut off at the elbow,” said Christine Bartholomew, a professor of law at the University of Buffalo School of Law. “It would be a radical shift in the way we do antitrust in this country.”

Bartholomew said she’s “troubled” by the lawsuit because if the FTC is no longer able to use its own in-house tribunals, there would likely be less antitrust scrutiny of corporate mergers.

“The risk is more deals, more concentration and potentially higher prices and less consumer choice,” she said.

In February, the FTC sued to block the $25 billion deal between Kroger and Albertsons that was announced in 2022. The agency argued the merger would lift prices, shut stores and wipe out jobs.

Kroger has argued the deal would do the exact opposite, helping the supermarket chains compete against non-union giants including Amazon, Costco and Walmart.

The FTC is challenging the Kroger deal on two fronts: in federal court and via an administrative trial.

Next week, Kroger faces the court in Portland, Oregon on the deal. The FTC has asked the judge in that case to temporarily block the Kroger-Albertsons deal while the in-house tribunal weighs the transaction.

In the new lawsuit, Kroger argues that the FTC “clearly violates the Constitution” in two ways: The administrative law judge is not removable by the President of the United States and the case is being fought in the executive branch instead of the courts.

Kroger cites the landmark Supreme Court decision in June where justices limited the power of the Securities and Exchange Commission to enforce rules with in-house reviews instead of jury trials.

“We stand prepared to defend this merger in the upcoming trial in federal court — the appropriate venue for this matter to be heard,” Kroger CEO Rodney McMullen said in a statement. “We are asking the Court to halt what amounts to an unlawful proceeding before the FTC’s own in-house tribunal.”

McMullen added that the merger between Kroger and Albertson’s is “squarely focused on ensuring we bring customers lower prices starting day one while securing the future of good-paying union jobs.”

The FTC declined to comment on the Kroger lawsuit.

A source familiar with the matter dismissed the Kroger lawsuit as a “desperate Hail Mary.”

The move comes as part of a broader effort by corporate America to push back on what some view as regulatory overreach.

Even some Democratic megadonors (ones with business interests at stake) have argued that the FTC’s efforts to fight monopolies have gone too far during the Biden administration.

The Supreme Court has recently ruled in favor of businesses fighting regulations, including overturning the Chevron Doctrine in its blockbuster June decision that weakens the ability of agencies to approve regulations.

“The whole administrative structure is under legal attack right now,” said Rebecca Haw Allensworth, an antitrust law professor at Vanderbilt Law School.

Allensworth said a Kroger victory would amount to a “seismic shift” in how the FTC and other federal agencies operate.

“It would definitely take an arrow out of the quiver of the FTC,” she said.

Noting the recent series of Supreme Court decisions against federal agencies, Allensworth said a Kroger victory can’t be ruled out.

“The law is whatever the Supreme Court says it is. We can’t be sure a claim like this would be rejected,” she said.

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