State Merger Enforcement: Trends & Outlook

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Emily Manning:  Hello, everyone, and welcome to this Federalist Society virtual event. My name is Emily Manning, and I’m an associate director of practice groups with The Federalist Society. Today, we’re excited to host a discussion on state merger enforcement looking at trends and outlook. We’re joined today by Andrew Cook, David Shaw, and our moderator today is James Lloyd. James serves as Deputy Attorney General for Civil Litigation in the Office of the Texas Attorney General. If you’d like to learn more about today’s speakers, their full bios can be viewed on our website fedsoc.org.

 

After our speakers give their opening remarks, we will turn to you, the audience, for questions. If you have a question, please enter it into the Q&A function at the bottom of your Zoom window, and we will do our best to answer as many as we can. Finally, I’ll note that, as always, all expressions of opinion today are those of our guest speakers, not The Federalist Society. With that, thank you for joining us today, and James, the floor is yours.

 

James Lloyd:  Thank you very much, Emily. It’s great to be here, and we’re lucky to have a great panel today to help us explore a hot topic these days, not only because we’re starting to see a trend in state enforcement. But it’s a hot topic as they review some active large mergers today, even breaking news as we progress today through mergers that impact consumers from healthcare to consumer products and groceries as you might see in the news. And as we work through those on the enforcer side, it’s great today to have a panel that can help us explore the role of states in merger enforcement, how they take on anticompetitive mergers and either independently or partnering with the federal enforcers.

 

Today, we’re also seeing a trend, and we’re going to explore that today, about if the states are ramping up merger enforcement and how does that impact parties doing mergers. How does that impact the state enforcement or the federal enforcement? To help us understand that we have Andy Cook, who’s a partner with Orrick, Herrington & Sutcliffe, but a key to his background is he’s a former chief deputy of Attorney General for Wisconsin. So he oversaw a large number of these investigations and was integral to them. So he could help us see the state enforcement side.

 

We also have David Shaw who’s a partner at Morrison & Foerster, and he’s the former Deputy Chief of Staff at the DOJ’s Antitrust Division and a liaison to the State Attorneys General. So for us, he helps herd us cats a lot when we go up alongside the federal enforcers. So he’ll be able to provide us with what does that look like when states interface with complex federal enforcement prerogatives.

 

To kick us off, Andy, I was hoping to see -- and I’m actually really excited to learn about this, to hear both of your perspectives because it’s something even as an enforcer I work through on a daily basis what’s the right role for the state. What should we be doing as the right prerogatives for a state enforcer versus what should be left to the feds? And when we do cooperate, what’s the right balance? What’s the right balance of information, and what’s the right balance of getting almost too much information and slowing a deal progress? So to kick us off, Andy, I was hoping to see if you could share a little bit about your perspective from your time in Wisconsin and now your time at Orrick.

 

Andrew Cook:  Yeah. First of all, thank you to The Federalist Society for having me speak today and James for that introduction. So having served as Chief Deputy of Attorney General overseeing the antitrust matters while in office and now representing businesses going through the merger process, I’m able to experience the process pretty much from both sides. So in my opening remarks, I’m going to cover a few main topics kind of to set the stage, and then we’ll have further conversation at the end. But first, I’ll provide a short summary of the state AG’s authority in the antitrust merger review process. And second, I’ll discuss some of the arguments for and against the AG involvement in the merger review process.

 

So let me begin kind of setting the stage up of the current state of law. State antitrust enforcement actually predates federal enforcement. In fact, the author of the antitrust law, Senator John Sherman, declared that the purpose of the Sherman Act was “to supplement the enforcement of state laws.” States can enforce Section 7 of the Clayton Act under the private cause of actions provided in Section 16 of the act that allows injured parties to seek conjunctive relief for violations of the federal antitrust law.

 

Although the statutory text in Section 16 of the Clayton Act creates a private right of action for a person, firm, association, or corporation, federal common law allows states to bring such actions on behalf of consumers in their states on a parens patriae basis. Historically, states have challenged mergers in federal district court by alleging violations of Section 7 of the Clayton Act as opposed to bringing challenges in state court under city law. However, that has changed more recently as evidenced by two recent cases brought in state court by the Attorneys General of Washington and Colorado using their antitrust state laws.

 

States typically rely on federal law in their merger challenges even when federal enforcers have immediately settled their lawsuits through consent orders. This is actually what happened in the T-Mobile/Sprint merger a few years ago, which we’ll have more discussion about later on. So the types of injunctive relief that states can obtain include preliminary injunction to prohibit the parties from closing until trial on the merits is conducted, permanent injunction prohibiting the merger from closing or the transaction has already closed in order of divestiture.

 

So Section 16 of the Clayton Act allows a suit to be brought in any United States court having jurisdiction over the parties. More recently, Congress enacted the State Antitrust Enforcement Venue Act of 2022 which now exempts antitrust cases brought by state attorneys general from being transferred to a different venue through the judicial panel on multidistrict litigation process. So this allows state AG lawsuits to remain in the district in which the state AGs choose to file a complaint.

 

So that’s the federal law. Moving over to the state antitrust law, most states have their own antitrust laws, but these antitrust laws tend to be phrased identically to their federal [inaudible 00:06:23] counterparts. When state law is identical to federal antitrust law, state courts frequently apply federal case law, and thus the analytical framework will be identical. Almost most states have adopted versions of the Sherman Act, and not all states have adopted equivalents of the merger prohibitions in Section 7 of the Clayton Act. For example, California, which has no Clayton Act equivalent and hence no other statute that specifically impresses further enforcement, but nonetheless mergers can generally be challenged on the state’s antitrust laws equivalent to Section 2 of the Sherman Act, which prohibits [inaudible 00:07:01] mergers that results in a monopoly or Section 1 of the Sherman Act, which prohibits agreements, including merger agreements that unreasonably restrain trade.

 

So state AG antitrust enforcement was very active, especially from the beginning of the 1890s to 1920, but then there was a period of relative inaction by the state AGs. This changed in the 1970s when the Hart-Scott-Rodino Act directed the U.S. Department of Justice to share investigations with the nation. Both the state AGs and authorized state AGs enforced the Sherman Act with parens patriae of local damages actions on behalf of state residents. Throughout the 1980s, state AGs became very active with the perceived slowdown in antitrust enforcement on the Reagan administration.

 

During that time, the National Association of Attorneys General Multistate Antitrust task force was formed to help the states coordinate with one another to work on the antitrust cases. Specifically, this task force does the following. It drafts guidelines and amicus briefs, coordinates multistate investigations of litigation, often [inaudible 00:08:09] core group of states taking the lead, and provides funding for economists and experts in the multistate litigation. So that’s a background to kind of give you a high level of the current federal and state law.

 

So let me turn to some of the advantages and disadvantages of state AG involvement, some of the arguments made by multiple commentators. So state AG antitrust enforcement doesn’t come without some controversies. As I previously noted, state attorneys general have become more active than ever when it comes to antitrust enforcement, and they show no signs of flattening out.

 

In fact, just last week the Democratic Attorneys General Association held its winter conference in Seattle. One of the panels was titled “The Rise of Antitrust Leadership by State AGs.” Last August, the National Association of Attorneys General held an antitrust bootcamp where attorneys general from both sides of the aisle were in attendance, including New York Attorney General Letitia James, Connecticut Attorney General William Tong, and Tennessee Attorney General Jonathan Skrmetti. Given that state AGs have explicit antitrust enforcement authority, both under federal state laws, they will continue to exercise their powers, especially the larger offices with more resources.

 

So I want to start with some of the arguments against the states. I’ll begin with some particularly harsh arguments against state AG antitrust enforcement by former Seventh Circuit Court of Appeals Judge Richard Posner in an article he wrote titled “Antitrust in the New Economy.” In that article, Judge Posner stated that he would “like to see the states stripped of their authority to bring antitrust suits, federal or state, under their parens patriae authority.” According to Judge Posner, “the states do not have the resources to do more than free ride on federal antitrust litigation, complicating its resolution. In addition, they are subject to influence by interest groups that may represent a potential antitrust defendants’ competitors.”

 

Judge Posner further argued that “this is a particular concern when the defendant is located in one state and one of its competitors in another and the competitor who’s pressing the state’s attorney general to bring suit is a major political force in that state.” Finally, Judge Posner stated “a situation in which the benefits of a government action are concentrated in one state and the costs in other states is a recipe for irresponsible state action. This is a genuine downside of federalism. The federal government having larger and more diverse constituency is, as James Madison recognized in arguing the benefits of a large republic, less subject to takeover by a faction. I am not myself inclined to make a fetish out of federalism.”

 

Former Deputy Assistant Attorney General Deborah Platt Majoras had similar criticism of state AGs involved in antitrust enforcement. She argued that states’ role adds a significant layer of uncertainty with businesses in their consideration of class mergers and in their business conduct, uncertainty that may chill pro-competitive mergers in conduct and adds significant pause.”

 

Actually similarly, the U.S. Department of Justice in the Sprint/T-Mobile merger had similar criticisms. There in a brief responding to the states that brought a lawsuit trying to block the merger, the DOJ made some of the following arguments. They said “In particular with states that do not possess the expansive view of federal enforcers who regularly oversee antitrust investigations and make remedy and recommendations on a national scale, they have neither the authority nor the responsibility to act on behalf of the nation, and while their concerns are not invalid, they are bound by state borders.” The DOJ went on to say, “The states’ strong interest in this merger does not justify their attempt to substitute their judgment for the nationwide perspective of the United States.” The DOJ went further along to say “When a group of states that attempts to do so by seeking relief that quite arguably benefits certain citizens while harming others, such a remedy is not in the public interest and respectfully should not satisfy this court’s test for objectivity.”

 

So let me turn real quickly before handing it back over to James to some of the advantages. So others take the opposite view, including Colorado Attorney General Phil Weiser who previously served in the Department of Justice as Senior Counsel in the Assistant Attorney General in Charge of Antitrust Division. According to Attorney General Phil Weiser states are well situated to handle antitrust mergers based on, first, their familiarity with and representation of state and local institutions; second, their understanding of affordable markets. For example, almost half of the FTC’s merger complaints make the allegations involving local markets, including broker stores, gasoline, retail, and construction, natural gas transportation, and healthcare.

 

Further, state attorneys general are more likely than federal enforcers to know and to be known and be trusted by state and local enforcement officials and government officials. And finally, Attorney General Weiser argues that states can fill a void by reviewing and challenging mergers that to date have not attracted much attention from the FTC or the DOJ’s Antitrust Divisions such as healthcare mergers. So despite concerns raised by state attorneys general antitrust enforcement authority, states have become more active in the area of antitrust, and this trend is unlikely to subside soon. So with that, I’ll turn it back to you, James and David.

 

James Lloyd:  Yeah. Andy, that was really helpful too because I think as a moderator who couldn’t help lend some perspective to the conversation I think for us as enforcers is it’s important to strike that balance. And I think that understanding the criticisms that are out there helps to direct better enforcement, so for example, knowing how you can be valuable to the process. And I think that’s where the states end up shining, when they’re able to provide that value.

 

For instance, we work closely with our federal partners on a lot of cases that don’t even make the news, right down to does this impact a neighborhood. And no one better knows than people in that neighborhood. So it ends up having a much more local perspective, a much more -- perspective tied to consumers to determine the impact on the consumers and the industries at play. So for example, for us in Texas, we know the industries that are going to be impacted, and we can actually work directly with them and get that perspective and bring that perspective to the federal enforcers when we’re contributing to them.

 

And I think that the other concern that you raise is actually really helpful because it helps us understand what’s the right role for a state enforcer. A lot of times I argue that could be really small mergers that could impact one city alone, and maybe the FTC or the DOJ might not have the resources to focus on, for example, a small town that has two hospitals that merge into one. Will you have some concessions as part of that merger?

 

It’s a small merger. It’s not going to trigger Wall Street Journal coverage, but for that neighborhood, for that community it can have an outsized impact. And I think that’s where a lot of the states, we work together and we really try to make sure that we’re still focusing on the bread and butter issues that are closer to communities because that is our role.

 

So I’m glad you raised that there’s a balance to not always spend so much time on the federal side but really focus on what’s happening in your own backyard because if you don’t do it, who is? So I think that balance is helpful. And I think to see that balance, David, I think it’s a great segue to your experience on the federal side to see what it’s like to interface with state enforcers on what is that right balance. So I’ll turn it over to you, David.

 

 

David Shaw:  Sure. Well, thanks. Thanks, James, and thanks to The Federalist Society for having me here. I’m delighted to be a part of this, and, Andy, I really enjoyed that overview -- very erudite, very helpful. I’ll focus my remarks so I’m not really repeating kind of anything that you’ve said.

 

But I’ll start. As James noted in his introduction, I spent some time at the Department of Justice, and one of the hats I wore was liaising with the states where there was opportunity to liaise. And so I really got a firsthand view on some pretty significant matters of what it was kind of like to work with states, with a wide variety of states, sometimes very friendly, sometimes less friendly. But it was a great experience for me. It got me a lot of exposure to a lot of really great individuals working at different state AGs.

 

While I was always wearing the federal hat, it kind of opened my eyes to kind of the perspective of the state AGs. I certainly won’t say I have a better or more in depth perspective than James or Andy who’ve actually been in the trenches and know exactly what it’s like to have to brief an attorney general and take that through. But I think I saw some small glimpse of that.

 

So I’ll offer kind of my perspective from the federal side, and this is -- I’ve continued to observe. But my inside knowledge comes from probably about three or four years ago. So there might be some changes since then.

 

But I would say on the whole there’s a good relationship between the federal antitrust enforcement agencies and the state AGs, and I think both view each other as sort of fundamentally being on the same side and having the same interests and wanting to sort of be aligned in terms of upholding competition, protecting consumers from potentially anticompetitive effects that come as a result of a merger or really potentially anticompetitive activity. And I think that the closeness and the smoothness is at its height kind of in that investigative process as everyone is learning the facts and trying to formulate the theories and kind of understand how the law applies to the facts of the specific merger. And of course, antitrust is you sort of have these very high level statutes.

 

You have no merger that tends substantially to lessen competition or no unreasonable restraint on trade, and then you have the facts. And so there’s just a lot of work that has to be done in order to understand the market, understanding the facts in order to apply those very broad statutes to the particularities of the case. And I think it’s helpful to have a partner, and it’s helpful to have people to talk to. It’s helpful to share ideas and information between the federal government and between the state AGs when there is an example like that.

 

Typically, in my experience the federal government was taking the lead as you might expect. There tends to be -- both DOJ and FTC have a lot of manpower devoted specifically to merger enforcement. And there are certainly very large states with a lot of capacity, but there are also a lot of states, as I’m sure Andy and James will tell, you who are resource constrained. Everyone’s resource constrained, but that resource constraint is more readily apparent.

 

And in some states there might only be one lawyer who’s actually kind of on antitrust. There might not even be a full time lawyer kind of specifically on antitrust issues. And so in the federal government when you’re doing a merger investigation you have at least one, often a team of three or four or even larger who are full time devoted to doing that investigation and driving it forward. And there are not many states that can do that on any merger.

 

Correct me if I’m wrong guys. I think there’s probably no state that could do that at the breadth that the federal government has to do that in terms of there’s mergers. And so inevitably, naturally as a general rule, at least in investigation, the federal government is sort of the one really pushing it forward and devoting the bulk of resources but in consultation and in conversation with the states. And I know that when I was there—and I’m sure this has continued—there was a very strong effort to try to kind of keep the states in the loop and informed.

 

It wasn’t perfect. I’m not saying that there was never some tension there, but I think there was a desire to kind of do that and to make sure that everyone was kind of on the same page and had that same information, that no one was sort of surprised when something happened. And in my experience that worked not always, but that generally worked well.

 

I think where the tension really comes at the state and federal level is when you get to that endgame and there’s a decision to be made, whether it’s a decision to close the investigation, whether there’s a decision to have some sort of remedy, whether it’s a divestiture, whether it’s some other remedy, or a decision to sue. And there, there really is a tension, and I think that tension is just inevitable because now we have a lot of independent decisionmakers.

 

The AAG or the chair of the FTC in consultation with the rest of the commissioners, that’s their decision. They’re not going to defer to anyone. But likewise, an attorney general is the highest law enforcement officer in a state, more often than not elected to serve that role. And that person is not interested in deferring to anyone either, as you may expect and as you’d understand.

 

And so where I would see kind of tension is around that decision making process to kind of make that decision and to make sure staff -- staff can tell their counterparts at the state here’s what we’re seeing, here's what we’re learning, here’s some kind of theories that may or may not work. That’s all very easy to do. What staff can’t say is it can’t say here’s what my decisionmaker’s going to decide on either side because staff’s not the decisionmaker. And so that’s where I think you really see that tension, and that’s where it helps to have goodwill.

 

It helps to have had -- it probably gets kind of the messiest where there is distrust, whether justified or unjustified kind of between decisionmakers. And I’m sure that James and Andy can -- I would imagine there’s a similar dynamic at play sometimes even within state coalitions when there is kind of multistate. And so that’s I think where everyone involved, you need to be kind of on the lookout. You need to be thinking about how can you kind of try to tamp down on that inherent tension, and then also just accept that there is going to be some level of tension there because if you have independent decisionmakers who are jealous to make their own decisions, as they should be, and that is going to result in some level of -- at least the potential for kind of mismatch or divergence.

 

Now, let me kind of take off my federal enforcer hat that I used to wear and kind of put on kind of my private party representing hat and just talk about what is it like, and of course, I know Andy has a good perspective here as well -- what is it like representing a merging party in front of the federal government and state AGs. And so I think as a general rule for a lot of the reasons already discussed the first tension goes to the federal enforcer because the federal enforcer investigates everything. Every merger over a certain threshold ends up in front of them.

 

If there is an investigation, you know that you’re going to have to deal with the FTC or the DOJ depending on which agency has it. What you don’t necessarily know is you don’t know whether -- what level of state interest is going to be, at least not as a private party kind of looking out . You can guess. You might have a sense that this really implicates one particular state. For instance, there’s a very important industry in that state.

 

This is the sort of thing that makes headlines, and so state AGs know they’re going to be held accountable for what happens there. And so they’re naturally going to be kind of paying attention to that. So you might be able to guess that, but you don’t know that until you get the phone call from the state AG. And so as a result, as a merging party, you’re more focused on the federal government in the first instance.

 

I think it’s also fair to say that at least traditionally the federal government was perceived as sort of the bigger hurdle. If you got past the federal government, if they were going to let the merger go through either by some sort of remedy or just by closing the investigation, then you could have a sigh of relief because it was not unheard of, not impossible, but it was pretty rare for a state taking action where the federal government has let it go. Now, we talked about T-Mobile/Sprint, and there are other examples where that is not the case. But that has traditionally been the exception.

 

And so again, I think a lot of people are focused on if we can solve kind of our federal problem, then the state problem will sort of go away with it. I think where that gets people in trouble is where they then take the perspective that means the states don’t matter. Do you know what I mean? And so I’m just going to kind of shove them aside. I’m going to try to just minimize my interaction with them.

 

And the truth is that states can and do bring challenges, and you don’t want to -- and states are also staffed by human beings. And so you don’t want to create a scenario where you’ve gotten -- even if you’ve got good arguments and the federal government decides not to do it where you’ve got someone really pissed off who maybe doesn’t even understand all those arguments because you haven’t been engaging with them and kind of create additional risk. And so I think states can do it independently. They are their own decisionmakers. I think it’s very important if a state is involved to take that state or states seriously and to treat them respectfully.

 

Now, you’ve got to balance different considerations. I think Ben Franklin said three people can keep a secret if two are dead, and so there always is confidentiality. So the more kind of entities that are involved in that there are confidentiality concerns that are just baked into human nature. And I think you also have to factor in kind of a level of state interest because it does cost money to engage with them. It does cost money to -- every time it’s a phone call with the states that’s separate from a call with DOJ or FTC there is marginal cost associated with that. And how much and how big depends on a lot of things and whether it’s worth it or not I think really depends on that level of state interest. But if that state interest is real and if that’s being communicated to you and signaled to you, then I think it’s a mistake as a merging party not to reciprocate that level of seriousness and that level of interest and to engage with them.

 

I’ll just offer one more kind of observation on kind of the level of state activity and then, James, hand it back to you for questions or Andy or whoever we want to go next. So I 100 percent agree with Andy’s take that we are kind of seeing a very aggressive level of state engagement in the antitrust writ large, and honestly, that’s not an outlier. We’re seeing a very high level of antitrust engagement and aggressiveness at the federal level as well with both the FTC and DOJ.

 

In my kind of observation, I think what really matters is the delta. So if the feds are more aggressive and the states are more aggressive, then what are the states adding on top of that? And it’s not nothing, but I think what really matters is where are the states being more aggressive than the federal government.

 

And in my observation I have generally not seen that kind of in the past, say, three and a half years. I have not seen that at the merger level, so I don’t have any doubt the states are very focused on mergers, that they are kind of participating, that they are dialed in and they’re taking it seriously. But I don’t think they’re doing that kind of at a quantum that is greater than what we’re seeing at the federal government.

 

Where we are seeing -- and I know this is outside the scope of this panel. Where we are seeing that is in more the unilateral conduct, and there we are seeing a high level of aggressiveness at the federal level. But we’re actually seeing I think even higher aggressiveness at the state level, and that involves bringing certain lawsuits. I won’t get into specific names -- but bringing lawsuits that the federal government hasn’t brought or maybe the federal government ends up bringing a year or two later. And so that is sort of a very interesting dynamic, and I think if I had to guess, I would guess that’s probably where the bulk of the state resources are going is into that level of antitrust enforcement as opposed to merger enforcement. So let me stop there, and happy to take it wherever you want to take it next, James.

 

James Lloyd:  Yeah. I’ll bring up one point that would’ve been addressed by an additional panelist we had planned, Emilio Varanini from the Supervising Deputy Attorney General for California with a focus in healthcare antitrust. And I think the one piece we’re starting to see, the trend is -- it continues a trend that was in the 2010s. I think in the 2010s there were 25 challenges that were -- well, 35 challenges that were brought to hospital mergers by states alone without the feds. And I think that’s continuing.

 

We’re seeing that continue to be an interest, particularly in states that have the ability to bring their own large scale merger challenges, which we have seen in the last couple of years a concerted interest in them as consolidation in the healthcare market continues to draw added interest from enforcers. So I think that’s one that folks in the healthcare space have been cognizant of, and I think we’ve started to see that interest continue but also kind of reverberate through some of the FTC’s recent actions. But I think we’re all lucky too to get David’s perspective because I know you don’t get to hear that sort of inside guidance, so for practitioners who are able to either watch now or stumble across the recording later that was a tremendously valuable insight primarily because you get to see how the enforcers contribute in a room with federal enforcers.

 

And sometimes it’s so cooperative that the federal enforcers will say do you see something here? And it’s your city that this is impacting. And we’ll sit there on a call and say our economists, our teams are not coming up with that harm theory that we thought at the beginning and we’re good. And I think getting that back and forth we’re always there until the end.

 

And then there’s actually a really important piece too that we see play out in national mergers where the states can have a really strong voice in divestiture or any sort of proposed remedy, either a divestiture ahead of time, a divestiture package that maybe helps the deal get cleared or a challenge not be brought. I think those are where you start to see the state saying okay, I can sign off on that. I’m not going to be angry. And I think if the federal enforcers get that sign off from the states, that goes a long way to relieving what is their primary concern, which is how is this going to impact that local market. So I think that’s been kind of a new thing we’re seeing.

 

And I will say I think we’re seeing a trend to speak to that healthcare of states trying to build up their healthcare practices more. I know even in Texas we had in the last legislative session considerable interest from legislators who said this is a priority and what resources can we provide to strengthen the skillsets and the resources you have to bring those cases? Because I think for state enforcers they do come up against a certain resource constraint.

 

So Andy, did you have any thoughts on states when they break off and bring their own because I think you worked on Sprint/T-Mobile, so you saw that firsthand where states took a different path than the federal enforcers? I think it's interesting because even the consent decrees and the fallout from that continue today with separate tracks of compliance with I think various settlement agreements, let’s say, that are out there. So Andy, can you share a little bit about your perspective about when states go and do their own thing?

 

Andrew Cook:  Yeah. And before I do that I just want piggyback on one thing David talked about which is how to deal with states, and I agree wholeheartedly with what he said in terms of addressing the states and properly having a gameplan with the states. Clearly, obviously any merger review process needs to go through either the Department of Justice or the FTC first and foremost, and what David said is correct. In the past I think it was kind of the theory that if you got it done there, you kind of deal with the states at a different time.

 

Those days I think have changed. I’d be curious about what James’ thoughts are on that as well being in the office. But what I often counsel clients is state AGs are enormously important. You can’t neglect them. You have to go right to them. You have to have a game plan for all the reasons that David really set out nicely. And they have their own separate interests, so having a game plan put in place is really important.

 

And then even within the state AGs themselves in the office, you have to manage how you communicate with the attorney general himself or herself, senior staff, and the assistant AG. So there’s really a kind of delicate balance of communicating and understanding how those offices each work, and that ties into, James, your question on what happens once states get involved and start essentially kind of doing their own thing. And that actually happened considerably in the T-Mobile/Sprint case.

 

It was very complicated procedurally what happened, but essentially kind of a rough outline, the U.S. Department of Justice and roughly five Republican states—not that it matters, but it was five Republican state AGs—entered into a settlement agreement with T-Mobile. And then separately roughly 17 states sued to try to block the merger as well. So you had one set of settlement conditions with the Department of Justice and five Republican states, and then you had all these moving parts with the 17 other states.

 

And then to make things even somewhat more complicated, you had states who broke off of that [inaudible 00:37:19] lawsuit and entered into their own deals and their own settlement agreements. I won’t go into all the nitty-gritty details of each of those, but you can look at certain states like Nevada that got certain settlement agreements that went beyond Department of Justice’s settlement agreement. For example, they received a commitment to preserve Nevada jobs that -- I’ll just read real quickly from it. Under the agreement, the new T-Mobile must maintain existing Sprint call center in Las Vegas by converting it into a new T-Mobile customer experience center, continue to employee at least 450 employees for the six year term of the agreement.

 

So that’s just one provision that’s above and beyond what was under the Department of Justice. California similarly got separate provisions as well. So the point is it’s really important to have a game plan, to know that there’s going to be a lot of moving parts in the states. So I kind of turn it back to you James, maybe get your thoughts on how businesses should be dealing with the states as well if you’re willing to offer that up.

 

James Lloyd:  Yeah. No, I think I’d love it. It’s helpful because I think, Andy, you’ve laid a good groundwork for it including in the work I’ve seen with you, which is the level of engagement to know they’re going to need the information a lot of times. And if you hide the ball, it just takes longer to find the ball.

 

And I think that the states for the most part have an interest in moving these along. At least, I hope they do. I hope we have as a group the goal of being efficient as possible because I think that’s the risk is if you add more parties, more processes to reviews you slow the process. And myself having advised on deals every week, every month adds uncertainty to deal processes, and that has consequences in markets. It has consequences in industries, and it could end up harming consumers if you slow the process.

 

So I think that’s where even on calls we’re on, we really do try to say let’s move this along. And I do think if you’re proactive upfront, you say what you’re doing, you see how it’s going to benefit -- and I think what’s really important for the states because their perspective is so close to consumers in the industries themselves is to speak to that, to speak to how does it impact them, how is it going to benefit your state. Because I’ll speak for Texas, when we advised the attorney general, our bottom line is how does it impact Texas consumers first and Texas businesses as well.

 

And I think that’s where we have to have that answer, and that’s all we’re looking for. So we’re sort of groping around trying to find it, and the easier it is to find it we’re the first too then. If you help them get to that conclusion faster, why not?

 

But I do think that does raise a question I have for y’all that I was hoping Emilio could help us with, but he’s unfortunately not able to join us today. But one of the questions I had was we’re starting to see new access to information. We can get it. We don’t get HSR filings, but the federal authorities can work with us. Or we hope that if it’s a small state merger that we’ll see it and we can catch it. But sometimes we don’t, and I think some states were hoping that Emilio was going to help us understand how California and New York, mostly New York in particular, have proposed their own state HSR processes. So it’s adding a new layer of state review where you have to provide directly to the state.

 

Now, I know at times I have my own wish that we had got things earlier and had a chance to review them, but so far in our world we’ve had a pretty good working process that didn’t involve the need for more direct filings to the AG’s office. But have y’all heard any of that debate and kind of what your thoughts are on that?

 

David Shaw:  Sure. So I’m happy to go first. I have been following that debate closely, and that could have very serious implications on merger reviews in general. So kind of stepping back, I think it’s important to bear in mind -- because we talk about T-Mobile/Sprint, we talk about these headline deals where maybe the right answer isn’t obvious but the fact that there is kind of an antitrust issue, kind of as issue spotters, is very obvious.

 

But of course, just like only a fraction of cases that are litigated end up in front of the Supreme Court, only a fraction of mergers that happen end up in that funnel of resulting in some sort of resolution other than simply kind of closing it and letting it through. And so there are thousands -- the HSR, it’s really a monetary kind of threshold, and so every deal that’s over a certain dollar amount -- and it’s essentially inflation adjusted, and I think it’s about the $115, $120 million this year. Every deal over that you end up having to fill out a form, potentially a much more in depth form depending on how things shake out, and then you have to pay a fee, a pretty large fee actually if the dollar threshold is sufficiently high.

 

And then you have to wait for 30 days. And you have to understand that time is the enemy of a transaction and that the longer you go from kind of agreeing in principle that this party is going to buy these assets or the entirety of this company subject to these terms at this price -- the longer you go from kind of like we’ve signed the agreement to here’s where we’re actually able to kind of consummate that and close just the more chance there is for something to go wrong and the more chance there is for mischief in some form or another. And that can take so many different -- it’s almost like buying a house.

 

Do you know what I mean? If you had to wait a year between saying I’m going to buy that house and I’m going to move into it and actually pay it, interest rates can go up. There’s all sorts of problems. And so the result is you have to wait 30 days in order to kind of get past that. In the vast majority of deals it’s just a 30 day speed bump. There is a provision for early termination, but this administration has essentially turned off kind of the early termination spigot for lack of a better term. And so every single deal it’s essentially 30 days of waiting.

 

Now, obviously that’s completely justified if the deal has problems, and many take much longer than that if there is an in depth investigation. But what ends up happening is all these deals that are really not anticompetitive in any sense end up just getting slowed down. And so I would be concerned about kind of multiplying that kind of HSR, that kind of premerger notification process at a state level because it just creates more kind of complexity and delay, not for the big horizontal mergers where it’s going from four to three or something like that.

 

There’s a public interest in preserving competition and making sure that those are not anticompetitive and if they are finding ways to stop it or remedy it. But just every other deal out there that’s not like that you really don’t want to kind of cause those problems. And so I would be -- if there were kind of state level prenotification, I would want to make sure that that was very kind of tightly focused to be additive to kind of the HSR process and not simply sort of duplicative. And I’d want to make sure that it captured deals that were very influential or significant for that state and hopefully had some sort of kind of screen beyond just a dollar threshold to kind of make sure that it’s actually capturing competitively significant deals and not just everything. So I’ll stop there, but that’s sort of my perspective.

 

James Lloyd:  Andy, do you have anything on that?

 

Andrew Cook:  One thing I’ll add real quickly is healthcare -- we did talk about healthcare [inaudible 00:45:56] here too. And just this week Attorney General Bonta partnering with Assembly Speaker Pro-Temp Jim Wood introduced AB3129 which authorizes the Attorney General to grant, deny or oppose conditions to a change of control or acquisition between a private equity group or hedge fund in a healthcare facility or provider group. So it’s in fact a national healthcare deal, huge issue, a local issue. And this being more authority for state AGs to have at the front end of what David was talking about.

 

James Lloyd:  Yeah. I think both of the comments go towards how did the state AGs find where they can be most useful, and I think we have a comment and a question from an attendee that I see that says -- let me read it so we can get a sense of what the comment was. It says “It seems like states have a useful enforcement niche in analyzing smaller, especially non HSR reportable deals with primarily local or in state implications. But how much are states focused on those sorts of deals as opposed to larger deals that are already being scrutinized by federal enforcers? Given that those larger deals are more high profile, AGs might have more political incentive to focus more on them as opposed to smaller local deals.” What are y’all’s thoughts? I know I have some.

 

Andrew Cook:  Why don’t you go first, James, given you’re in the office [inaudible 00:47:24]?

 

James Lloyd:  Yes. I think my internet’s a little choppy, but it’s not on purpose. I think for us one of them is that hits at the key issue which is making sure that the state AGs focus on what they can do best which is local to their communities while also staying heavily involved. We’re in merger reviews right now at a national scale, and I’ll tell you the contributions that the states play to them are invaluable because otherwise you’re asking someone in D.C. to understand 50 different states with potentially up to 3,000 different markets.

 

There’s just no way to know if you’re getting it right or wrong. And frankly in some instances in recent ones, we can better articulate what the local priorities of communities are, even right down to, uh-uh, that divestiture package Texans are going to hate because they’re going to get mad at me if I block this because that divestiture package is not something that people in this area want to do, particularly if that impacts consumer preferences or agriculture. Everything’s different. All politics is local, but a lot of antitrust can be too. So I think he raises a really good point that says when do they need to know to not miss those.

 

And I think that is where if we had a California or New York rep we would hear from them saying that’s what we’re missing and we need help identifying those smaller deals that are not being reported but have a huge impact, an outsized impact particularly in agriculture and in healthcare is what we’re seeing a lot. But it could extend to any other sort of consumer facing industry. So those are kind of my thoughts, but I think that is a good observation. It’s a good warning for us to get it right.

 

David Shaw:  Yeah. I agree. I think there’s a lot of value add on kind of the smaller deals with hyper local impacts that the federal government either isn’t going to know about or just doesn’t -- if you don’t make a federal case out of it; right? Do you know what I mean? It might not warrant kind of an intervention at the federal level, and yet there might be real genuine kind of issues and concerns that could be very well addressed kind of by a state AG. But I do think there is a tension. And that’s not to say there’s not a role for states in large national deals because many of those do have very local effects, so I think there can be value added kind of at both levels.

 

But I do think where -- so in Europe, if a deal’s over a certain threshold, it ends up in front of the European Commission. But if it’s below a certain threshold, it can end up -- like a member state can take it. But you almost never have a circumstance where both the member state and the European Commission are looking at it. Now, there’s not many things I would suggest we kind of look to Europe for, but there is some logic to that sort of deal. And I think there might be some -- there might be lessons that can be learned.

 

James Lloyd:  Yeah. Understanding the predictable federalism effect on your deal flow.

 

David Shaw:  Right.

 

Andrew Cook:  One thing I’ll add real quickly --

 

James Lloyd:  Go ahead, Andy.

 

Andrew Cook:  Real quickly I’d add all politics is local, even the law. When I was in office, the healthcare mergers, hospital mergers were always front and center. I keep going back to healthcare. So we didn’t miss those. Those were either brought to us by other interests, but those are always front and center. And as a matter of fact I just read that Pennsylvania’s AG’s offices has for the last 20 years been involved with 80 hospital mergers.

 

So states are very involved at the state level. I think where you’re seeing a lot of -- it goes back to what David said. A lot of the more political bigger conduct, anticompetitive conduct cases are political -- that’s outside this discussion, but that’s where you’re seeing a fair amount of action as well. And that’s where it’s getting -- the states are becoming more active as well.

 

 

James Lloyd:  So I think as we narrow down -- our time is wrapping up, but we could talk about this for a long time. I know a lot of our folks watching will have some questions, but we have a couple that we can get to. Here’s one.

 

Have any state courts recognized an implied private right of action in this area, or do any states have a statute recognizing an express private right of action? I think this is helpful for us to answer so people can understand that a lot of these enforcement -- the mechanisms can be challenged by -- addressed down the line usually with anticompetitive effects later. But how can they be addressed earlier by private right of action? So I’ll hand it over to Andy if you can help us out with that.

 

Andrew Cook:  Yeah. Most states have private rights of action. You will typically see cases brought, class actions brought to challenge mergers. So yes, states typically do have private rights of action is the short answer to that.

 

David Shaw:  As does at the federal level as well and so you’ll often see a federal antitrust lawsuit will include ancillary state claims. The flip side is antitrust is one of the few areas of federal law where there is exclusive federal court jurisdiction over it, so you cannot bring -- this goes back -- you dust off your Hart and Wechsler fed courts kind of textbook. So this goes back -- what this means is you can’t bring a federal antitrust claim in state court. And so that’s why it’s really interesting as Andy mentioned we’re now seeing a very early trend of some state AGs bringing purely under state law claims in state court. And that’ll be interesting to see how that shakes out or whether that turns into a bigger, broader trend, which I think could have significant implications going forward, or whether that is a little bit more of an outlier that is happening for a variety of reasons.

 

James Lloyd:  Awesome. I think that actually segues into another question we have from the audience which is what about situations in which the federal agency wants to challenge the conduct in question but the state seeks to immunize it by state action doctrine or, in the case of mergers, a certificate of public advantage?

 

David Shaw:  So this is a very interesting live issue, and we’re actually seeing it -- we’ve seen it in Louisiana where there were two hospitals that wanted to merge. And they had gotten a state certificate of need or state certificate of public advantage certification, so they did not file an HSR. And the FTC went and said you have to do this. By the way, there are big fines for not doing it. And it got litigated, and a federal judge held that they essentially were immunized from the HSR requirements. And so that has significant implications on a federal enforcement agenda because feds are very reliant on HSR, on these deals going forward.

 

And it’s a huge difference to be able to investigate and potentially challenge before a deal is closed as opposed to trying to unwind a closed transaction. And so I think that will be interesting to see. My understanding is that the FTC did not appeal that district court decision, and I don’t know -- I don’t have any insight into that. But it might be that they’re waiting for a different vehicle to kind of look to challenge that. But I can’t imagine that the FTC and the DOJ will not -- we’ll see some tension -- will very much want to kind of stop that from becoming a trend.

 

James Lloyd:  That’s as great an answer as you could get from somebody who has clearly been in the trenches of that. I know for us it is something to continue to have those conversations because you’ll see across the states these certificates of public advantage, and it’s one of those that the states do continue to monitor them as they -- that’s one of the prerogatives that we have in our office at the Texas Attorney General’s Office. But I think it looks like we’re running low on time, unless Andy or David, if y’all had any more comments? No?

 

Andrew Cook:  Not on my end. Thank you very much for having us.

 

David Shaw:  Yeah. Thanks.

 

James Lloyd:  Thank you so much. Really grateful for y’all taking the time to share with everyone a conversation that’s exciting for us to be able to have. And I know it doesn’t get explored a lot out there in the interwebs and in panels. And so I think it’s good to bring some light to it and hopefully provide a resource to everyone who’s watching. So thank you to everyone who joined us today and thank you to our panelists as well. And Emily, thank you for being our host here.

 

Emily Manning:  Absolutely. On behalf of The Federalist Society, thank you all for joining us for this great discussion today. And thank you also to our audience for joining us. We greatly appreciate your participation. Check out our website, fedsoc.org, or follow us on all major social media platforms @fedsoc to stay up to date with announcements and upcoming webinars. Thank you once more for tuning in and we are adjourned.