Divestiture is the ultimate weapon in the arsenal of government antitrusters -- such other remedies as fines, production limits and requirements to keep supplying certain customers all pale in significance beside the possibility that a court will order a going concern to be dismembered. Now, the U.S. Court of Appeals in Boston says, that weapon is available to private litigants as well as the feds.
The question is one that has been long debated in antitrust circles, but the Feb. 6 Boston decision is important because it is the first time a circuit court has spoken out on the issue in nearly a decade -- and judicial views of antitrust enforcement have been changing fast during that time.
In the first two private cases in which a trial court actually ordered divestiture, the Court of Appeals in San Francisco, in 1975, called the judges mistaken. That remedy cannot be won by private litigants, only by the government, the California judges said. The U.S. Court of Appeals in Cincinnati said two years later that it disagreed with the San Francisco court, but went on to rule that divestiture, while theoretically available, was not appropriate in the case before it.
The Boston judges, in Cia. Petrolera Caribe v. Arco, also did not decide whether U.S.A. Petroleum Corp. should get rid of the Puerto Rican assets it bought in mid-1981 from Atlantic Richfield. But they did rule that Caribe, a small gasoline wholesaler on the island, had a right to press that claim when the case got to trial. And the judges said that the trial should be shifted to someone other than U.S. District Court Judge Jaime Pieras, who had been hearing it previously, because Pieras was too staunchly opposed to the idea of divestiture. Pieras had decided the case in favor of the merger without ever letting it get to trial, a decision that the appeals judges have now reversed.
The Boston judges found that when the Clayton Act in 1914 opened to private suits the antitrust enforcement that previously have been the exclusive province of the government, the legislative drafters left it unclear whether other companies could ask for divestiture in combatting mergers.
But the Boston judges point to the inherent powers of judges to do whatever is needed to right a wrong as evidence that divestiture can be ordered. That may not be what the lawmakers had in mind when they passed the Clayton Act, Judge Hugh H. Bownes admitted. But, he argued, "the Clayton Act is a living statute; the current legal meaning and scope of its words cannot be ignored."
In other cases, courts ruled that:
* Individual citizens can sue manufacturers who do not give the Consumer Product Safety Commission full details on hazardous items. The law setting up the commission authorizes private suits for violation of the agency's safety rules, but the courts are split over whether that provision applies to rules about how the CPSC conducts its own business.
The most recent ruling, however, from the U.S. District Court in South Bend, Ind., takes the more expansive view. Like two other courts in cases against the same maker of machinery controls, the district court told a person injured by an explosion of propane that escaped from a hot water heater that he could file a suit alleging that details on deaths and injuries from similar incidents were concealed from the safety regulators. (Wilson v. Robertshaw Controls, Jan. 8)
* A state can force some stores to shutter on Sunday while competitors remain open. The Louisiana Supreme Court upheld the constitutionality of a complex web of Sunday closing laws, after trial courts in three separate cases had struck down the statutes. The legislature's excuse for the Sunday sales ban is "to inhibit unfair competition among the various businesses in the community," but the lower courts found that the laws actually promoted unfair competition by allowing some outlets to be open while others had to stay closed.
The court justices, however, said that it is reasonable to allow drug and grocery stores to stay open, because shoppers need pharmaceuticals and foods more immediately than they need, say, hardware items. And the decision rejected as marginal the fact that some drug and grocery stores handle some hardware items. (Louisiana v. K mart, Jan. 14)
* Treasury rules that overvalued stock options are invalid. The U.S. Court of Appeals in Denver, agreeing with the Tax Court, found that the Internal Revenue Service had gone beyond the Tax Code in trying to collect taxes on the difference between the option price of stock given to corporate officials and the real value of the stock.
The IRS said that the market value of the stock when it was bought should serve as its real value, but the court said that taxpayers had a right to lower that value to take into account strings placed on the option stock, such as a requirement that it not be sold for a number of years. Only executives who have exercised stock options in the past benefit from the ruling, however, because Congress last year changed the law to make it conform to the IRS policy. (Estate of Gresham v. Commissioner, Jan. 17)