Wall Street Journal’s “The Americas” Column References WLF Publication on Mexican Antitrust Proposal

Flag_of_Mexico_(reverse)In today’s Wall Street Journal, influential “The Americas” columnist Mary Anastasia O’Grady focuses on a troubling overhaul of Mexico’s competition laws in Mexico’s Anti-Market Antitrust Law ($). Ms. O’Grady references a March 14, 2014 WLF Legal Backgrounder, Proposed Change To Mexican Antitrust Law: Erecting A Barrier To Competition?, in her explanation of why the new law will chill competition and curtail investment.  She writes:

How troublesome are these provisions? A March 14 memo written by antitrust lawyers John Roberti and Meytal McCoy of Mayer Brown in Washington and published by the Washington Legal Foundation helps explain. It points out that a company may be cited for ‘barriers to competition’ if the regulator identifies ‘the existence of market dominance or concentration in a critical input and not necessarily the unlawful exercise of that power.’ In other words, there is no need to commit a violation to qualify as a monopolist. One only has to produce something that many people buy.

Mr. Roberti and Ms. McCoy warn that the law allows for ‘industry-wide investigations.’ These might end in ‘structural remedies and price regulation and could be imposed without any obligation to make company-specific findings of the existence of anticompetitive conduct or agreements.’ They further note that ‘this ‘barriers to competition’ concept is not found in competition regimes elsewhere in the world.’ Revisions to the law’s text in Congress did not resolve these issues.

Update: After Being Steeped in Criticism, FDA Signals Change on Brewers’ Spent Grains

spent brewing grains
spent brewing grains

Last week in FDA’s Proposed Regulation of Brewers’ Spent Grains is All Wet, we explained the deep flaws in the Food and Drug Administration’s proposed application of the Food Safety Modernization Act to the by-products of brewing, distilling, and winemaking when those spent grains and grapes are sold or donated to farmers for livestock feed. We certainly weren’t alone in finding the proposal deeply misguided and entirely counterproductive to other goals such as environmental sustainability, local sourcing, and reducing food prices.

It seems the cacophony and the diversity of voices expressing their disapproval got through to the leadership at FDA. Politico Pro reported in its Morning Agriculture email blast this morning that New York Senator Chuck Schumer had received a call from FDA Commissioner Hamburg assuring him that changes were coming. Sen. Schumer’s office put out this statement. Also, in an April 24 FDA Voice blog post, “Getting It Right on Spent Grains,” Deputy Commissioner for Food Dr. Michael Taylor (who, we noted in our post last week, assured House members FDA would not “impose [food safety] regulations for the sake of regulating”) wrote “we agree with those in industry and the sustainability community that the recycling of human food by-products to animal feed contributes substantially to the efficiency and sustainability of our food system and is thus a good thing. We have no intention to discourage or disrupt it.”

We applaud FDA’s willingness to see reason and admit error here, though we remain puzzled as to how the proposal came about in the first place.

we agree with those in industry and the sustainability community that the recycling of human food by-products to animal feed contributes substantially to the efficiency and sustainability of our food system and is thus a good thing. We have no intention to discourage or disrupt it. – See more at: http://blogs.fda.gov/fdavoice/index.php/2014/04/getting-it-right-on-spent-grains/#sthash.4Tpo3vZV.dpuf
we agree with those in industry and the sustainability community that the recycling of human food by-products to animal feed contributes substantially to the efficiency and sustainability of our food system and is thus a good thing. We have no intention to discourage or disrupt it. – See more at: http://blogs.fda.gov/fdavoice/index.php/2014/04/getting-it-right-on-spent-grains/#sthash.4Tpo3vZV.dpuf
we agree with those in industry and the sustainability community that the recycling of human food by-products to animal feed contributes substantially to the efficiency and sustainability of our food system and is thus a good thing. We have no intention to discourage or disrupt it. – See more at: http://blogs.fda.gov/fdavoice/index.php/2014/04/getting-it-right-on-spent-grains/#sthash.4Tpo3vZV.dpuf

Conflict Minerals, COOL, and Compelled Commercial Speech at the D.C. Circuit

DC CircuitTwo decisions issued a little over two weeks apart by separate U.S. Court of Appeals for the D.C. Circuit three-judge panels have created significant uncertainty on a critically important First Amendment issue. The court’s forthcoming actions in these cases will have a major impact on government regulation and on regulated industries as diverse as livestock, food, tobacco, smartphones, and medical devices.

The issue in both cases before the court is when can government compel businesses to provide information about their products or themselves. The U.S. Supreme Court held in Zauderer v. Office of Disciplinary Counsel that government can constitutionally require disclosures of a “purely factual” nature which are “reasonably related to the State’s interest in preventing deception of consumers.” The Court has repeatedly reaffirmed Zauderer, most recently in the 2010 case Milavetz, Gallop & Milavetz, P.A. v. U.S., where Justice Sotomayor wrote for a unanimous Court that a low level of scrutiny applies only in cases where the compelled speech is “directed at misleading commercial speech” (italics in opinion).

COOLCountry of Origin Labeling Rule. On March 28, a three-judge panel of Senior Judge Williams, Chief Judge Garland, and Judge Srinivasan upheld the Department of Agriculture’s country-of-origin labeling (COOL) rule in American Meat Institute v. U.S. Dept. of Agriculture. AMI argued that the compelled origin disclosure impinged on its members’ First Amendment rights, and because the information was not meant to prevent deception, the court should review the rule under the heightened scrutiny of Central Hudson v. Public Service Commission, and not the “reasonableness” standard of Zauderer. In upholding the COOL rule, the panel concluded that Zauderer encompassed government interests beyond just preventing consumer confusion, and thus it applied the minimal scrutiny of Zauderer rather than Central Hudson.

That conclusion rejected years of D.C. Circuit precedent (including last year’s R.J. Reynolds Tobacco Co. v. FDA) and instead embraced rulings from the First and Second Circuits. The panel acknowledged in a footnote that “reasonable judges” may read Reynolds as limiting Zauderer review to deception, and suggested en banc review for American Meat Institute. On April 4, the D.C. Circuit sua sponte vacated the panel decision and ordered en banc review. Oral argument is set for May 19. Continue reading “Conflict Minerals, COOL, and Compelled Commercial Speech at the D.C. Circuit”

FDA’s Proposed Regulation of Brewers’ Spent Grains is All Wet

spent brewing grains
spent brewing grains

During his February 5, 2014 appearance at a House Energy and Commerce Committee hearing, Food and Drug Administration (FDA) Deputy Commissioner Michael Taylor stated that “the whole goal of [the Food Safety Modernization Act (FSMA)] is to achieve the food safety goal without imposing regulations, just for the sake of regulation.” Dr. Taylor must have been unaware of his agency’s proposal to require that brewers, distillers, and vintners develop extensive hazard analysis and control plans before selling or donating their spent grains or grape pomace to farmers for livestock feed. This proposal seems to be the epitome of regulating for the sake of regulating.

Farmers have been procuring and feeding their livestock spent brewing grains and grapes for centuries. These livestock “happy hour” arrangements advance environmental sustainability, engender bonds among local businesses, and financially benefit both parties. Farmers get low cost whole grain feed packed with fiber, protein, and, of particular importance to livestock in arid climates, moisture. Alcohol makers save millions by not having to landfill the by-products.

FSMA Section 116 exempts activities at facilities which “relateto the manufacturing, processing, packing, or holding of alcoholic beverages.” In a proposed animal food safety regulation, FDA essentially nullifies this statutory exemption. The agency “tentatively concludes” that when brewers or distillers go through the “mashing” process—soaking grains in hot water—and then offer the by-product to farmers, they suddenly become food producers. The same goes for winemakers and their grape pomace. FDA’s conclusion has sparked a deserved firestorm of opposition from the affected industries as well as members of Congress. Continue reading “FDA’s Proposed Regulation of Brewers’ Spent Grains is All Wet”

Eighth Circuit Creates New Class Action Fairness Act Requirement, Sends Case to State Court

Cruz-Alvarez_FFeatured Expert Contributor – Civil Justice/Class Actions

Frank Cruz-Alvarez, Shook, Hardy & Bacon, L.L.P. (co-authored with Talia Zucker, Shook, Hardy & Bacon, L.L.P.)

On April 4, 2014, the U.S. Court of Appeals for the Eighth Circuit breathed new life into a proposed consumer class action lawsuit that was previously—and properly—dismissed with prejudice by the U.S. District Court for the District of Minnesota.     Instead of affirming the district court’s decision, the Eighth Circuit, in an attempt to save the lawsuit, reversed and remanded Melvin Wallace v. ConAgra Foods, Inc., — F.3d —-, 2014 WL 1356860 (8th Cir. Apr. 4, 2014), to the Minnesota state court where it originated. In doing so, the court’s ruling, either by design or by accident, undermined the framework and legislative purpose of the Class Action Fairness Act (“CAFA”).

The case originated in May of 2012, when a group of consumers purporting to represent a putative class sued ConAgra Foods, alleging that some of the company’s Hebrew National beef products are not 100% kosher, as the label claims. 2014 WL 1356860 at *1.ConAgra manufactures Hebrew National meat products using beef slaughtered by AER Services, Inc. (AER). Id. The slaughtering takes place in the facilities of American Foods Group, LLC (AFG), which sells kosher meat to ConAgra and any remaining meat to third parties. Id. AER employs the religious slaughterers, and a third party kosher certification entity named Triangle K, Inc., monitors whether AER, AFG, and ConAgra comply with the kosher rules. Id.

ConAgra promotes the kosher requirements as a reason to purchase Hebrew National products, which cost more than similar non-kosher products. Id. The consumers claim, however, that manufacturing quotas—not kosher rules—is the deciding factor in whether certain meat is certified as kosher; and with a quota of 70% for kosher meat, the kosher inspection process has become defective and unreliable. Id. at *2. Consequently, the consumers maintain they have been misled into paying an “unjustified premium for Hebrew National’s ostensibly kosher beef.” Id. at *1. Continue reading “Eighth Circuit Creates New Class Action Fairness Act Requirement, Sends Case to State Court”

Does FTC Glass Settlement Break the Efficiencies Mold?

amurinoFeatured Expert Column – Antitrust/Federal Trade Commission

Andrea Agathoklis Murino,Wilson Sonsini Goodrich & Rosati

(Editors note: The Legal Pulse would like to (belatedly) congratulate Andrea on her promotion to partner, the announcement for which at the end of last year escaped our discovery)

As expected, on April 11, 2014, the Federal Trade Commission (“FTC”) announced the resolution of their investigation and administrative court challenge into the $1.7 billion acquisition of Saint-Gobain Containers, Inc. (“St. Gobain”) by Ardagh Group SA (“Ardagh”). In order to allow the transaction to proceed and resolve the pending administrative trial, Ardagh agreed to sell six of its nine glass container manufacturing plants in the United States to an FTC-approved buyer within six months, including all tangible and intangible assets, and customer contracts. (All pleadings and filings for all parties, including the original complaint, which argued that the acquisition would harm competition in the markets for glass containers used to package beer and spirits, are available online.)

The fact that this litigation was resolved via a divestiture of brick-and-mortar facilities in an industry like glass manufacturing is not news of note to this FTC observer. What is worthy of pause, however, is that the vote to approve this consent was not unanimous (it was 3-1) and that the efficiencies defense stands front-and-center in the dispute between the majority and minority.

For the majority, Chairwoman Ramirez and Commissioners Brill and Ohlhausen, found that the transaction as originally structured would have resulted in a violation of Section 7 of the Clayton Act. When presented with a carefully crafted remedy, these Commissioners believed that the remedy would “fully replace[ ] the competition that would have been lost in both the beer and spirits glass container markets had the merger proceeded unchallenged.” Thus, they voted to accept the settlement. Continue reading “Does FTC Glass Settlement Break the Efficiencies Mold?”

Federal Workplace Police Have a Tough Week in Court

6th CircuitIf anyone doubts our democracy’s need for an independent judiciary to check the executive and legislative branches, consider two federal court opinions issued last week. Federal workplace police at the Equal Employment Opportunity Commission (EEOC) and the Department of Labor (DOL) each received a thorough (and richly deserved) judicial slapdown for arrogantly flouting the rule of law.

EEOC v. Kaplan Higher Education Corp. The unanimous U.S. Court of Appeals for the Sixth Circuit panel set the tone of this seven-page opinion by declaring, “In this case the EEOC sued the defendant for using the same type of background check that the EEOC itself uses.”

Kaplan implemented vigorous screening of job applicants, including the use of credit checks, in response to several instances of employee theft. Such increased self-policing earned the company an EEOC legal action. The Commission argued that Kaplan’s credit checks had a disparate impact on minorities.

To support its case, EEOC hired a psychologist to perform statistical studies using Kaplan’s applicant data. The “expert” filed numerous reports with the trial judge, most of which were either late or contrary to the judge’s demand that he cease providing reports. The judge found that the psychologists’ reports were unreliable under Federal Rule of Evidence 702 and dismissed EEOC’s case.

The Commission fared just as poorly on appeal. The Sixth Circuit agreed with the lower court’s conclusion that EEOC’s “expert” and his methodology failed every factor that courts utilize to assess expert testimony under the Supreme Court’s Daubert v. Merrell Dow opinion. The judges agreed that a court could neither test the psychologist’s technique, nor could it evaluate the test’s error rate. EEOC argued that its “expert’s” theory did not have to be subject to peer review. The Sixth Circuit found the argument “meritless.” As for the other Daubert factors, EEOC essentially argued that the burden fell on Kaplan to prove they had been met. The court pointedly retorted, “The law says to the contrary.”

The opinion ended as sharply as it began:

We need not belabor the issue further.  The EEOC brought this case on the basis of homemade methodology, crafted by a witness with no particular expertise to craft it, administered by persons with no particular expertise to administer it, tested by no one, and accepted only by the witness himself.

Gate Guard Services v. Perez. Here, the Department of Labor lost more than just a case.  Because of its antics, American taxpayers had to shell out $565,527.61 in attorneys’ fees to the enforcement target.

DOL accused Gate Guard Services (GGS) of misclassifying gate sentries as independent contractors. GGS counter-sued and sought a declaratory judgment. In February 2013, U.S. District Court for the Southern District of Texas Senior Judge John Rainey granted GGS summary judgment and dismissed DOL’s claims against the company. GGS then sought attorneys’ fees under the Equal Access to Justice Act (EAJA).

Under that statute, the government must prove that its position in a lawsuit had a reasonable basis in both fact and law (“substantially justified”) at every stage of the action. Judge Rainey agreed with GGS that DOL’s lead investigator departed from DOL enforcement procedures when he destroyed interview notes and assessed a $6 million fine after he had interviewed only three gate sentries.

“Had the DOL interviewed more than just a handful of GGS’s roughly 400 gate attendants,” Judge Rainey wrote, “it would have known [they] were not employees.” He listed ten different factors that DOL failed to reasonably consider, including “the federal government itself, via the ACE [Army Corps of Engineers] uses the services of gate attendants at federal parks and classifies these individuals as independent contractors.”

The court concluded that DOL’s actions both before and during the suit were not substantially justified and awarded fees to GGS.

Checked and Balanced. But for an independent judiciary, the executive branch would be free to engage in the type of hypocrisy and disrespect for rules that were on display in these two cases. It might routinely label employers’ credit checks discriminatory while utilizing the very same screening method, or it could categorize a company’s gate sentries “employees” while other federal agencies consider similarly situation workers “independent contractors.” Agencies would prosecute businesses for destroying internal documents while permitting federal investigators to freely do the same.

We should all be grateful that our federal courts did not tolerate such behavior from EEOC and DOL, and instead reminded them of principles most of us learned in kindergarten: play by the rules and live by the same rules you expect others to abide by.

Also posted at WLF’s Forbes.com contributor page