As noted last week, the Federal Trade Commission (“FTC”) may challenge conduct when it has “reason to believe” that a violation of the laws that the FTC enforces has occurred. When challenging mergers, the FTC files an administrative complaint and often concurrently goes to federal district court to obtain a preliminary injunction to prevent the parties from consummating the deal before the completion of the administrative process.
If the FTC is successful in its efforts to seek a preliminary injunction, the merging parties must determine whether to (i) appeal the decision to a court of appeals, (ii) litigate the matter in the administrative process and retain the ability to appeal any administrative determination to a court of appeals, or (iii) abandon the transaction (and perhaps evaluate whether settlement and divestiture is possible). If the merging parties decide to proceed through the administrative process, the parties appear before an FTC administrative law judge (“ALJ”). After the proceeding, the ALJ issues an initial decision, which either the FTC staff (who litigated the case on behalf of the FTC) or the merging parties can appeal to the sitting Commissioners of the FTC (“the Commission”). Upon a final decision by the Commission, the merging parties have the opportunity to appeal the decision to an appropriate court of appeals.
Despite the fact that the FTC revised its procedures to increase the speed of the administrative process, it can take years to complete the process—i.e., from the time of the initial filing of the administrative complaint to the final decision of the Commission. In many hospital merger transactions, the parties are unable or unwilling to wait and pay the costs of that process, particularly if one of the merging parties is in need of (or will be soon in need of) a capital infusion. Thus, the outcome of the preliminary injunction is often determinative of whether the parties will proceed with the transaction.
For an overview of the FTC’s enforcement authority and process, see https://www.ftc.gov/about-ftc/what-we-do/enforcement-authority.