The opinion of the court was delivered by: GRIESA
GRIESA, D.J.: This is an action under Section 7 of the Clayton Act, 15 U.S.C. § 18, in which the Government attacks certain aspects of the acquisition of defendant EMW Ventures Incorporated by defendant Waste Management, Inc. The acquisition in question was closed on February 27, 1981. Prior to the acquisition EMW owned a company known as Waste Resources Corporation, which provided solid waste (hereafter "trash") collection and disposal service through 28 subsidiaries in 10 states. Waste Management was also in the trash collection and disposal business, providing service at 140 facilities in 27 states.
The Government attack is directed at operations in Dallas and Houston. Waste Management has a subisidary in Dallas known as American Container Service ("ACS"). Waste Management has another subsidiary in a Dallas suburb, Lewisville. The name of this subsidiary is Texas Waste Management. Waste Resources had a subsidiary in Dallas named Texas Industrial Disposal Inc. ("TIDI"), which is now operating as a subsidiary of Waste Management. In Housgon, Waste Management has a subsidiary named Texas Waste Systems. The former Waste Resources subsidiary, now being operated by Waste Management, is named Gulf Coast Disposal. Since the time of the merger all Dallas and Houston entities have maintained their corporate identities and their separate operations, although now all are subsidiaries of Waste Management.
The action has been tried. This opinion constitutes the Court's findings of fact and conclusions of law.
Summary of Parties' Contentions and Court's Conclusions
The applicable language of § 7 of the Clayton Act is well known:
No person engaged in commerce or in any activity affecting commerce shall acquire, directly or indirectly, the whole or any part of the stock or other share capital . . . of another person engaged also in commerce or in any activity affecting commerce, where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisiton may be substantially to lessen competition, or to tend to create a monopoly. 15 U.S.C. § 18 (Supp. V 1981).
The Government contends that greater Dallas and greater Houston are sections of the country within the meaning of the statute. Defendants concede the local nature of trash collection service, and agree that each of these metropolitan areas (consisting of the central city and certain nearby municipalities) is a separate geographic market. The principal issue between the parties on the subject of geographic market is whether Fort Worth should be included in the market in the Dallas area. Defendants contend that Fort Worth should be included. The Government argues that Fort Worth should be excluded.
The issues relating to the relevant "line of commerce" are somewhat complex. In both the Dallas and Houston areas, the arrangements for the collection of trash vary somewhat depending on the particular municipality. In the city of Dallas and certain of its suburbs, trash collection service is performed by both the city and private companies. In some of the Dallas suburbs, the municipality performs all trash collection. In still other suburbs all collection. In still other suburbs all collection is carried out by a private company. The same type of variation apparently exists in the Houston area although the evidence about the Houston area is not as well developed.
Different kinds of equipment are used for different phases of trash collection service in both Dallas and Houston. The typical residential (private home) service is performed by collecting plastic bags, or emptying garbage cans. This is referred to as "hand" collection, because a man in the truck collects the bags or empties the cans by hand. There is also containerized collection. Commercial establishments (including apartments and apartment complexes) frequently accumulate trash in metal containers, which are periodically emptied into a truck by a mechanized process. Certain kinds of relatively large containers are not emptied into a truck, but are rolled onto a truck bed and carried to the disposal area where the containers are emptied.
The trucks into which containers are emptied at the customer's premises -- and the types of containers used in this service -- have a number of variations.The containers vary in size. The trucks vary according to whether they are loaded at the rear, the side, or the front. For obvious reasons, these trucks are referred to as "rear-load," "side-load" and "front-load." The containers which are hauled away to the disposal sites are called "roll-off" containers.
A large body of evidence has been introduced on the subject of the relevant line of commerce or product market, and voluminous briefing has been submitted. The difficulty is that, upon analysis of all these materials, it appears that neither the Government nor defendants have proposed realistic product market definitions.
As will be described in more detail later, it is reasonable to argue that the totality of trash collection services in a metropolitan area constitues more than a single product market for § 7 purposes. Sound arguments can be made for differentiating residential collection from collection at commercial establishments (hereafter "commercial trash collection" or "commercial collection"), and for differentiating hand collection from containerized collection. For obvious reasons, there is a great deal of overlap between residential collection and hand collection, and between commercial collection and containerized collection. The activities of defendants' subsidiaries in Dallas and Houston (ACS, TIDI, Texas Waste, and Gulf Coast) are entirely in the commercial and containerized fields. It can be reasonably contended that the product market in which these companies are involved should be defined as either commercial trash collection or containerized trash collection.
It should be noted at this point that in the Dallas area, the former Waste Resources subsidiary TIDI is clearly the largest company in both commercial and containerized trash collection. It is equally clear that the Waste Management subsidiary ACS is the second largest company in both these fields. Their combined share of either theh commercial market or the containerized market in the Dallas area is about 50%. To say the least, the Government has a strong case for defeating the merger in the Dallas area whether the product market is defined as commercial or containerized trash collection.
However, the evidence about the Houston area (and the lack of evidence) produces quite a different picture. There is no evidence which would permit the Court to find an excessive combined market share possessed by defendants' subsidiaries in the Houston area, in respect to either a commercial or a containerized product market.
Since the Government is attaching the merger in both Dallas and Houston, not surprisingly it has come up with product market definitions from which it attempts to argue the merger's illegality in both cities. In order to do this, the Government has chosen to propose product market definitions based upon certain types of trucks and containers. The Government argues that there is a separate market for container collection performed by front-load trucks and another separate market for roll-off container collection. By these narrow market definitions the Government would win both its strong case in Dallas and its weak case in Houston.
The Government presents market share statistics for both the alleged front-load and roll-off markets in Dallas, but only for the alleged front-load market in Houston. Since the Government's market share statistics are so strong in Dallas (i.e., TIDI and ACS are first and second in both "markets" and their combined market share is 50% or more in both ) the differentiation of front-load collection from roll-off collection in Dallas is wholly irrelevant to whether the Government wins or loses as to Dallas. However, the singling-out of the front-load business in Houston is apparently needed to give the Government a product market in which it can argue a combined market share of sufficient size to violate § 7. In the Houston front-load "market" Texas Waste and Gulf Coast rank second and third and have a combined share of about 24%.
Turning to defendants' position on product market definition, defendants were obviously faced with the problem of upholding the merger in Dallas in face of very substantial market shares. The solution arrived at by defendants was to propose that the product market definition should be all trash collection services -- including containerized and non-containerized, commercial and residential, and also including self-hauling and recycling. Defendants contend that, on the basis of this market definition, the Government has failed to show a violation of § 7 in either Dallas or Houston.
The relevant decisions make it clear that the court on a § 7 case is not bound by the market definitions of the parties, but may find markets in accordance with the evidence. United States v. Continental Can Co., 378 U.S. 441, 12 L. Ed. 2d 953, 84 S. Ct. 1738 (1964); United States v. Manufacturers Hanover Trust Co., 240 F. Supp. 867, 911 (S.D.N.Y. 1965). In the present case, the evidence does not support the product market definitions proposed by either the Government or defendants. The Government's attempt to define the market in terms of specific equipment breaks the market down too narrowly. Defendants' proposed definition is too broad.
The Court concludes that the appropriate product market definition for both Dallas and Houston is commercial trash collection -- i.e., trash collection from commercial establishments, including apartments and apartment complexes. As noted earlier, this market largely overlaps containerized trash collection. However, the evidence demonstrates that there is some degree of meaningful competition between hand collection and containerized collection for business at commercial establishments. Consequently, in the Court's view, commercial trash collection is the appropriate product market.
The Court also finds that the relevant product market includes commercial trash collection performed by both private companies and municipalities.
With regard to the question as to whether Fort Worth should be included in the Dallas area geographic market, the Court finds that it should not.
The Court concludes that the merger violates Clayton Act § 7 in respect to the Dallas area, but not as to the Houston area.
Further elaboration regarding the factual and legal issues is presented in the following material.
Waste Management has its headquarters in Oak Brook, Illinois. Before the acquisition, Waste Management was, depending on the criteria used, either the nation's largest trash collection company, or the second largest. In 1980 Waste Management's revenues from trash service were $422 million.
EMW had its headquarters in New York City. EMW's subsidiary Waste Resources was the fourth largest trash disposal company in the United States, with trash service revenues in 1980 amounting to $54 million.
Waste Management's Dallas subsidiary, ACS, had 1980 revenues of about $8.2 million. As to the other subsidiary in the Dallas area, Texas Waste Management, the record does not contain revenue figures. However, it is apparently about 1/4 the size of ACS. Waste Resources' Dallas subsidiary, TIDI, had 1980 revenues of about $9.6 million.
With regard to Houston, the 1980 revenues of Waste Management Houston subsidiary, Texas Waste Systems, were $5.7 million. The 1980 revenues for the Waste Resources' Houston subsidiary, Gulf Coast Disposal, were $3.3 million.
The Government's proposed geographic market in the Dallas area consists of Dallas County (which contains the city of Dallas) plus a margin of 10 miles outside of the county -- except that the 10-mile increment is not added on the west where Dallas County borders Tarrant County. Fort Worth is located in Tarrant County, and the Government takes the position that Fort Worth and Tarrant County belong in a different market from the market it proposes.
Defendants urge that Dallas and Fort Worth, and their environs, are one market. The center of Dallas is about 30 miles from the center of Forth Worth. The city of Dallas is surrounded, along most of its perimeter, by suburbs which are separate municipalities. The principal direction of growth for Dallas is to the north, including the cities of Farmers Branch, Carrollton, Richardson, and Garland. Farther out -- ranging from the northwest to the northeast -- are the cities of Coppell, Lewisville, The Colony, Plano, and Rowlett. Lewisville is in Denton County and Plana is in Collin County, but both these cities are within the Government's proposed market area. To the east of Dallas is the city of Mesquite. To the south are the cities of Duncanville, Cedar Hill, De Soto, Lancaster and Hutchins. On the west -- or Fort Worth side -- of Dallas are the cities of Irving and Grand Prairie. Irving is in Dallas County. Grand Prairie is mostly in Dallas County, although it extends into Tarrant County. Farther to the west, bordered on one side by Grand Prairie and on the other side by Fort Worth, is the city of Arlington. Arlington is entirely in Tarrant County.
Within the limits of the city of Dallas, and entirely surrounded by that city, are the residential cities of Highland Park and University Park.
The Dallas-Fort Worth airport covers a sizable area straddling the line between Dallas County and Tarrant County.
The Government is correct insofar as it asserts that there is a market for trash collection centered in Dallas, which does not include Forth Worth. The actual boundary drawn by the Government is obviously for purposes of illustration. No one, including the Government, would imagine that this market has a fixed and definite boundary like that of a potential subdivision. However, the evidence shows that there is a group of trash collectors which serves Dallas and its suburbs and that their activity diminishes to the vanishing point as the populous areas of Dallas and its environs turn into rural countryside. On the south and east this happens long before the Government's proposed market boundary is reached. On the north -- the direction of greatest growth -- the populous areas reach farther, but are generally well inside the Government's boundary.
On the west, in the direction of Forth Worth, it is true, as defendants contend, that Dallas-based trash collectors have done, and continue to do, some business across the Tarrant County line (the Government's proposed market border). For instance, Dallas companies have at times had the trash collection contract for the Dallas-Forth Worth airport. However, because the area generally becomes somewhat rural before Fort Worth is reached, and because on both sides of the county line there are certain cities which give exclusive franchises to a Tarrant County trash collector, the activity of the Dallas collectors is greatly reduced by the time Tarrant County is reached. Moreover, the Dallas collectors as a rule do not do business in Fort Worth itself.
There is an abundance of evidence showing the rather local nature of the trash collection business, and further showing the distinctness of ...