Federal court nixes consumer lawsuit to stop Kroger-Albertsons merger

A federal court in California has dismissed a six-month-old lawsuit by a group of 25 consumers from 11 states to block the Kroger-Albertsons supermarket mega-merger.

In an order on Wednesday, U.S. District Judge Vince Chhabria of the U.S. District Court in Northern California in San Francisco tossed the suit after determining that the consumers lacked standing and a plausible claim for relief to request an injunction against the merger, which was announced last fall. The Kroger Co.—which under the $24.6 billion deal aims to acquire Albertsons Cos.—had filed a motion with the court to dismiss the case on similar grounds back in April.

“The plaintiffs—25 individuals scattered throughout the United States—allege that a proposed merger between Albertsons and Kroger will harm competition among grocery stores throughout the country. But they have made no effort to explain how the merger would affect any one of them personally, in the area where they live and shop for groceries,” Judge Chhabria stated in the order. “Indeed, in their opposition to the motions to dismiss, the plaintiffs do not even attempt to explain how they might have Article III standing. They simply intone that the federal antitrust statutes give them the right to sue, which of course is beside the point for purposes of constitutional standing.”

For Article III standing, a plaintiff needs a personal stake in a lawsuit’s outcome to be able to bring the suit to federal court, whether that person is suing on an individual or class-member basis.

Grocery competition: National vs. market-by-market jurisdiction

The consumer group had filed its lawsuit with the Northern California district court in early February. They claimed in the complaint that the Kroger-Albertsons merger—by combining the two biggest U.S. supermarket companies—would violate antitrust law because it would stifle competition, reduce consumer choice and raise prices in the grocery store sector, as well as trigger job cuts from store closings. The action called for the court to suspend the merger and permanently block Kroger from acquiring Albertsons under Section 7 of the Clayton Antitrust Act.

“If Kroger’s proposed acquisition of Albertsons is consummated, the companies’ combined power will be used to increase prices for groceries, decrease the quality of food, eliminate jobs, close stores and offer less choice for consumers due to the overlap in geographic areas,” the consumer lawsuit stated.

The 25 consumers filing the suit—which described each as a “consumer and customer of the defendants” [i.e. Kroger and Albertsons]—came from Louisiana, Massachusetts, Nevada, California, Texas, Ohio, Colorado, Michigan, Florida, Pennsylvania and Washington. In its April 12 motion to dismiss, Kroger argued that the consumers’ claim “fails because plaintiffs fail to plead a plausible relevant market or the requisite harm in any such market” and that “their alleged harm is supported by the lone allegation that they shopped at some Albertsons or Kroger store at some point in the past four years.”

Judge deems lawsuit “not ripe”

Kroger’s motion, too, alleged that the consumer group’s anticompetitive claims weren’t “ripe” because the merger with Albertsons is neither a done deal nor guaranteed while under review by federal and state regulators. “No court has ever enjoined a merger in circumstances such as these, where private individuals have challenged a merger months before its planned consummation date,” Kroger said in its filing.

Judge Chhabria agreed with Cincinnati-based Kroger on the “ripeness” issue in his order this week.

“Even if the plaintiffs had adequately alleged standing, the lawsuit would be dismissed or stayed on the ground that it is not ripe. The contours of the merger have not yet become clear enough to adequately assess the effects it will have on competition—whether that assessment needs to be done nationally or on a market-by-market basis,” he explained in the order. “The merger contemplates that as many as 650 stores, yet to be specified, will be divested before the merger is consummated. Presumably, divestiture will be designed to address potential antitrust concerns and therefore could have a significant effect on the analysis.

“Relatedly, the Federal Trade Commission is currently in the process of reviewing the merger, and the companies may agree to changes as a condition of the commission’s approval,” Chhabria added. “And for these reasons, as the defendants have stipulated, the earliest the proposed merger could be consummated is January 2024. Under these circumstances, it would be premature to adjudicate the antitrust claims.”

Albertsons dividend claim also dismissed

In addition, the consumer suit had requested that Albertsons be prevented from paying out a $4 billion special dividend announced with the merger deal and that any funds already paid be disgorged. But after a series of legal challenges, Albertsons paid the dividend to shareholders on Jan. 20. In connection with that matter, Boise, Idaho-based Albertsons had filed a separate motion to dismiss the consumer suit against the merger in the U.S. District Court for Northern California, noting that the dividend issue was moot because it had been paid nearly two weeks before the consumers filed their claim.

Chhabria ruled in his order that the consumer group also lacked legal foundation to ask the court to halt the Albertsons dividend.

“The plaintiffs also lack standing to challenge the dividend payment. They allege that the dividend payment will financially weaken Albertsons, resulting in higher prices, worse services, and the possibility that Albertsons will make a ‘failing firm defense to support the merger,” the judge wrote. “But the plaintiffs offer no credible allegations to ground these predictions. They say nothing about Albertsons’ financial strength before the dividend or how Albertsons has fared after. Because they have failed to plausibly allege that they face a substantial risk of harm, the plaintiffs lack Article III standing.”

The order gave the consumer plaintiffs until Oct. 2 to file an amended claim against the merger and/or dividend payment. That deadline also stands for a request for an extension. If an amended claim is filed, the parties must file a joint status report by Oct. 9, and a videoconference on the matter would be held Oct. 16.