By Jeffrey May, J.D.
In a rare victory for private plaintiffs in a merger challenge, the U.S. Court of Appeals in San Francisco has upheld a preliminary injunction against seafood processor Pacific Seafood’s acquisition of rival Ocean Gold in an action brought by West Coast fishermen. The appellate court also affirmed the district court’s order denying the defendants' motion to compel arbitration in the antitrust action pursuant to a settlement agreement reached in an earlier dispute (Boardman v. Pacific Seafood Group, May 3, 2016, Tashima, A.).
The current dispute followed an antitrust action brought in 2010 by a group of West Coast fishermen who sell their catch to Pacific Seafood entities and Ocean Gold, alleging that the seafood processors had engaged in an antitrust conspiracy and monopolization in multiple West Coast seafood markets. The suit was settled in 2012, and the settlement was documented in a Resolution Agreement.
In 2015, a second group of West Coast fishermen filed a suit after learning of Pacific Seafood’s plan to acquire Ocean Gold. The plaintiffs moved for a preliminary injunction to enjoin the acquisition, which the district court granted. The deal was later abandoned.
About a month after the preliminary injunction was granted, the defendants unsuccessfully moved to compel arbitration in the case. They argued that the dispute should be arbitrated pursuant to a provision in the Resolution Agreement.
Motion to compel. At the outset, the court rejected the defendant's call for arbitration. Whether or not the Resolution Agreement constituted a valid agreement to arbitrate, the plaintiffs’ claims were not fairly encompassed by its purported arbitration provision, the appellate court ruled. The Resolution Agreement did not require that objections to a proposed merger or other combination of Pacific Seafood and Ocean Gold be submitted to arbitration. Instead, the provision was limited to a new agreement that would require Pacific Seafood to act as the exclusive marketer of Ocean Gold’s products. The parties could have drafted the provision more broadly, but they did not, the appellate court noted.
Release. Moreover, the plaintiffs did not release their current claims in the Resolution Agreement. The claims in this case arose after the Resolution Agreement was executed, the court noted. The appellate court agreed with the plaintiffs that the entire release was temporally limited, such that only claims arising between June 21, 2006 and December 31, 2011 were released.
Merger challenge. For purposes of seeking a preliminary injunction, the complaining fisherman adequately demonstrated that the proposed transaction could substantially lessen competition, according to the appellate court. They “adduced evidence that, if Pacific Seafood were to acquire Ocean Gold, Pacific Seafood’s market power in seafood input markets on the West Coast would increase significantly, to the point that the markets would become ‘highly concentrated.’” The defendants contended that that the acquisition would merely continue the companies’ joint efforts and not change the current market structure. However, despite the cooperation in other areas, the companies were competing in West Coast input markets for trawl-caught groundfish, Pacific whiting, and Pacific coldwater shrimp.
Furthermore, the plaintiffs adequately demonstrated a threatened irreparable injury, even though the deal has been called off. The defendants argued that there was no immediate danger of irreparable harm because they had terminated the planned deal and because they had stipulated with the Oregon Attorney General that they would not proceed with the deal while the Attorney General’s investigation was pending. The court noted, however, that Pacific Seafood and Ocean Gold could have combined their operations in a number of ways to lessen competition. It also pointed to the defendants' history of secret acquisition negotiations. Thus, the appellate court held that the district court did not abuse its discretion in finding a threat of irreparable harm. In addition, the balance of equities tipped in the plaintiffs' favor, and a preliminary injunction was demonstrated to be in the public interest.
The appellate court also concluded that the district court did not issue an overly broad preliminary injunction. The court rejected the defendants' argument that the preliminary injunction prohibited not only the ultimate acquisition, but also lawful preparatory conduct, such as negotiating an acquisition, signing a letter of intent, or entering into an agreement contingent on resolution of the plaintiffs’ antitrust claims. “[T]he district court thus did not abuse its discretion by prohibiting Pacific Seafood from undertaking any further acts to acquire Ocean Gold’s stock or assets, as opposed to prohibiting only an actual acquisition,” the appellate court concluded.
Concurring/dissenting opinion. Writing separately, Judge Ronald Lee Gilman said in an opinion, concurring in part and dissenting in part, that he would have granted Pacific Seafood’s motion to compel arbitration. The scope of the arbitration agreement was ambiguous, in his view.
The cases are Nos. 15-35257, 15-35504.
Attorneys: Michael E. Haglund (Haglund Kelley LLP) for Jeff Boardman. Kim T. Buckley (Esler Stephens & Buckley) and Rachel C. Lee (Stoel Rives LLP) for Pacific Seafood Group, Ocean Gold Holding Co., Inc. and Dulcich Inc.
Companies: Pacific Seafood Group; Ocean Gold Holding Co., Inc.; Dulcich Inc.
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