Whole Foods sues FTC, says agency violated rights

PORTLAND — Natural grocer Whole Foods filed a federal lawsuit Monday against the Federal Trade Commission, claiming the regulator violated its due process rights in a dispute over its acquisition of rival Wild Oats.

Whole Foods Market Inc. bought Wild Oats Markets Inc. of Boulder, Colo. in 2007 for $565 million. But since then, the deal has been embroiled in an antitrust challenge that has Austin, Texas-based Whole Foods' biggest acquisition in legal limbo.

The FTC thought the deal could create a natural food monopoly, but federal judges determined the acquisition could move forward. More than a year later, as Whole Foods was already swapping out signs and training staff, an appeals court decision threw it all back into question.

The commission is conducting administrative proceedings in the case that are scheduled to go to trial in February. The proceedings are intended to be an impartial inquiry into whether a deal violates antitrust laws.

But Austin, Texas-based Whole Foods said in a lawsuit filed in U.S. District Court for the District of Columbia on Monday that the FTC is hopelessly biased, has already prejudged the outcome of the case and can't be expected to oversee an impartial administrative proceeding.

The lawsuit argues that the commission also violated the company's due process rights by setting a rapid schedule for the trial that won't allow Whole Foods adequate time to prepare its defense.

Whole Foods wants the court to require the FTC to terminate its administrative trial. Instead, the company wants the case to be resolved finally in federal court.

Representatives from the FTC were not immediately available to comment.

Attorneys for Whole Foods said the suit is the first of its kind against the commission in nearly 50 years and it also challenges what some see as an inherent flaw in the way antitrust cases are handled in the U.S.

Companies fall under the oversight of either the FTC or the Justice Department based on various criteria when it comes to mergers, acquisitions and antitrust issues in the U.S. But they face slightly different processes for scrutiny under each body.

The key difference is that the Justice Department simply asks for a permanent injunction, which is a one-step effort to stop the deal; the FTC can seek a preliminary injunction, then an administrative proceeding, which can then be appealed to a circuit court if necessary.

Whole Foods' attorneys and company leaders argue that the FTC process is unfair. The company says it has already spent $16.5 million working with the FTC on the case and could lose millions more if it drags on.

If Whole Foods fails at the administrative proceeding they could appeal to a federal appeals court.

It's a high-stakes issue for Whole Foods — the $565 million acquisition also involved the assumption of Wild Oats debt, bringing the price tag to more than $700 million. The transition to Whole Foods ownership is well under way and if the deal is scuppered, they face trying to unwind the acquisition in a market short of buyers and financing.

Whole Foods also says the businesses are fully merged, proving that the deal has not had the antitrust impact that the originally raised the FTC's concern.

"It's frustrating as a business person out there competing ... in a very challenging marketplace to spend our time defending ourselves against something that is fundamentally, not common sense," said Walter Robb, co-president and chief operating officer of Whole Foods.

Whole Foods says its experience highlights the added hurdles for FTC-tied companies and has spoken out about the different standards and some proposed rule changes at the FTC that they say will discourage companies from seeking acquisitions that might be challenged

Representatives from the grocer are meeting Tuesday with members of Congress and their staffs to consider legislative changes that would end some of the disparity between the two regulating bodies.

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AP Business Reporter Christopher S. Rugaber in Washington, D.C., contributed to this report.

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