FTC Revises Rules of Practice: FTC Amends its Rules to Allow Parties that Defeat an FTC Request for Injunctive Relief in Federal Court to Automatically Stay Related Administrative Proceedings Pending an FTC Decision on Whether to Proceed Administratively in Light of the Federal Court DecisionSullivan & Cromwell LLP - March 18, 2015
The FTC has the authority to challenge mergers in an FTC administrative proceeding, but does not have the authority to preclude the merging parties from closing their transaction once the statutory Hart-Scott-Rodino waiting period has expired. These circumstances create the possibility that a transaction is consummated and then found to violate Section 7 of the Clayton Act months later at the end of the administrative proceeding. In such a case, the FTC’s ability to order effective relief could be limited if, for instance, significant reorganization of the two companies has occurred (a scenario that is sometimes referred to as “unscrambling the eggs”). To avoid that scenario, the FTC routinely asks a federal court to enjoin the parties from merging pending the outcome of an administrative review.
If a federal court denies injunctive relief, however, the FTC, while clearly having authority to continue its administrative process, is presented with an obvious opportunity to consider whether to continue the proceeding. The FTC historically has considered whether to do so on a case-by-case basis, informed by the reasoning of the federal court’s denial of injunctive relief. Parties can force this consideration by filing with the FTC a motion to dismiss the administrative proceedings.
In 1995, the FTC instituted a procedural rule that allowed parties, through the filing of a motion to dismiss, to automatically stay administrative proceedings in situations in which the merging parties had prevailed in a related federal court proceeding. The automatic stay thereby eliminates the possibility of potentially costly administrative proceedings during the pendency of a motion to dismiss.
In 2009, the FTC changed the 1995 rule to eliminate the parties’ ability to obtain an automatic stay, but has now reverted to the 1995 automatic-stay process in a rule change announced on March 13, 2015.
The 2015 rule change does not eliminate the FTC’s statutory authority to continue administrative proceedings following a loss in federal court (that is, the FTC can lift the stay). Nor does it alter the FTC’s historical practice of assessing whether to proceed in such a situation on a case-by-case basis. Arguably, the rule change increases the likelihood that the FTC would choose not to pursue administrative proceedings after losing in federal court by empowering parties to automatically stay those proceedings. Nonetheless, the nature of the rule change and the FTC’s re-commitment to assessing the decision to continue the administrative proceedings on a case-by-case basis suggest that the change is more procedural than substantive.