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November 30, 1994


The opinion of the court was delivered by: DAVID G. LARIMER


 In our economic system, mercantile enterprises are generally left to their own devices to determine how best to make a profit. Certain actions, or inactions, purportedly designed to enhance profits may instead have a potential to harm the public. In such a case, swift action by a governmental agency or a court is necessary to avoid harm both to individuals and to the general public.

 This is such a case. The attempt by a large retail company to purchase all of the assets of its principal competitor, effectively blocking other like competitors from entering the market, will have serious adverse economic effects in the greater Rochester metropolitan area. Whenever competition is substantially reduced, consumers suffer. Lack of choices and higher prices are almost inevitable. In such a circumstance the public interest controls and the acquisition must be vacated and annulled.

 Plaintiffs The Bon-Ton Stores, Inc. ("Bon-Ton") and the State of New York ("the State") commenced these consolidated actions against defendants, May Department Stores Company ("May"), McCurdy & Company, Inc. ("McCurdy's"), and Wilmorite, Inc. ("Wilmorite"), to enjoin the sale of eight McCurdy-owned department stores in the greater Rochester, New York area to May. May presently owns four stores in the area doing business as Kaufmann's.

 Plaintiffs allege that the sale violates both federal and state antitrust laws, specifically Section 7 of the Clayton Act, 15 U.S.C. § 18, Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and § 340 of the New York General Business Law. Bon-Ton seeks an injunction enjoining defendants from concluding and closing on an agreement between McCurdy's and May by which May would acquire the McCurdy's stores in the Rochester area. Bon-Ton also seeks damages as well as costs and attorneys' fees. The State also seeks to block the sale and also seeks civil penalties, costs and attorneys' fees.

 There are several motions pending before the Court. Bon-Ton and the State have moved for a preliminary injunction and all defendants have moved to dismiss the complaints.

 Bon-Ton had sought a temporary restraining order at the time the complaint was filed because closing on the purchase agreement between May and McCurdy's was imminent. In lieu of a hearing on the temporary restraining order application, the parties stipulated that May would maintain three of the acquired stores in the major regional malls, as is, at least until November 1, 1994. Wilmorite likewise agreed to maintain the McCurdy's store site at Eastview Mall, as is, until that date. Under the terms of the challenged acquisition, Wilmorite was to obtain that store.

 The rationale for the stipulation was to maintain the transferred assets, as is, at least pending a determination of the preliminary injunction motion, so that if plaintiff prevailed, a remedy would be readily available and the Court could annul the sale and divest May and Wilmorite of the assets transferred pursuant to the challenged acquisition.

 In that same order, the Court extended the stipulated temporary restraining order until further order of the Court.

 The Court conducted a hearing over three days. Ten witnesses testified at the hearing. All of these witnesses had previously submitted affidavits or declarations to the Court either in support of or in opposition to the pending motions.

 As noted in my October 31 Decision, the record on the motions is quite extensive. Prior to the hearing, the Court had been "carpet bombed" *fn1" with hundreds of pages of documents and exhibits, 42 separate affidavits or declarations, and lengthy legal memoranda on several issues. The Court has heard extensive oral arguments on the motions and also received post-hearing briefs from all of the parties.

 The Parties

 Bon-Ton is an independent regional department store company based in York, Pennsylvania with the majority of its stores in Pennsylvania. In July 1994 Bon-Ton acquired ten stores in the greater Buffalo, New York metropolitan area, giving them 14 stores in upstate New York. In 1993 Bon-Ton had net sales of approximately $ 337 million. Bon-Ton currently has no stores in the Rochester metropolitan area.

 McCurdy's, an independent closely-held department store company based in Rochester, New York, owned and operated 12 stores in New York, nine of which were in the Rochester metropolitan area. McCurdy's, founded in 1901, had been one of Rochester's premier department stores for many years. Eight of the 12 stores were operated under the "McCurdy" name, and four were operated under the name "B. Forman." McCurdy's 1993 net sales amounted to some $ 83 million.

 The May Department Stores Company is a holding company based in St. Louis, Missouri that owns and operates over three hundred department stores throughout the country. *fn2" It is one of the largest department store companies in the United States. Its stock is traded on the New York Stock Exchange and in 1993 it had net sales of approximately 11 billion dollars. One of the department stores owned by May is Kaufmann's, which operates forty stores in Pennsylvania, West Virginia, Ohio and New York. Kaufmann's presently operates four department stores in the Rochester, New York metropolitan area. All of these stores are located in major shopping malls: The Mall at Greece Ridge ("Greece Ridge"), Marketplace, Irondequoit and Eastview Malls.

 Wilmorite, Inc., founded in 1950 with headquarters in Rochester, New York, is involved in large-scale real estate development, generally in the northeast United States. It has developed twenty-three large retail centers in New York, Connecticut, New Jersey and Illinois, including regional shopping malls and community shopping centers.

 In the greater Rochester area, Wilmorite has developed the five largest shopping malls, including Greece Ridge, Eastview, Marketplace, and Irondequoit Malls and Pittsford Plaza.

 In addition to the development of shopping malls, Wilmorite has developed other types of property, including apartments, office buildings and urban redevelopment projects.

 McCurdy's Decision To Close

 In the spring of 1994, after a series of financial misfortunes, McCurdy's determined to close its retail operation and sell its assets, including all of its twelve stores.

 McCurdy's retained TM Capital Corp. ("TM"), an investment banking firm in New York City, to arrange the sale of its department store assets. TM recommended a "controlled auction" sale where numerous potential purchasers are courted simultaneously. Affidavit of Michael S. Goldman, sworn to October 5, 1994, PP 7-8. Thirty-six potential purchasers throughout the United States and Canada were notified and sixteen were sufficiently interested to obtain a Confidential Descriptive Memorandum, prepared by TM, which described the operations of the McCurdy's and B. Forman stores and contained detailed historical and financial information about the stores.

 Both Bon-Ton and May obtained this information and these two firms were the only two engaged in serious negotiations with TM for the purchase of McCurdy's. There were extensive discussions among TM and representatives of Bon-Ton, McCurdy's and May. Apparently neither May nor Bon-Ton were informed by TM as to each other's interest as a potential bidder.

 On June 1, 1994, McCurdy's accepted May's offer to buy eight of the 12 McCurdy's department stores, six of which are in the Rochester area, for $ 17.75 million. On June 3, 1994, this agreement was memorialized in a letter of intent between McCurdy's and May. An Asset Purchase Agreement dated July 1, 1994, specifying the terms of the sale was executed on September 19, 1994.

 Asset Purchase Agreement

 May agreed to purchase a total of eight McCurdy's stores, six in the Rochester area, one in Elmira, New York, and one in Syracuse, New York. The six stores in the Rochester area are the McCurdy's sites at Marketplace, Irondequoit, Greece Ridge and Eastview Malls and the B. Forman Stores at Pittsford Plaza and Marketplace Mall. The Elmira and Syracuse stores are not at issue here.

 It is clear that May never intended to operate all six of the new stores as Kaufmann's stores. May had discussions with Wilmorite, and it was agreed that contemporaneously with May's purchase from McCurdy's, the McCurdy's store at Eastview and both B. Forman stores at Pittsford Plaza and Marketplace Mall would be conveyed to Wilmorite, without restriction. Wilmorite was free to dispose of those sites as it saw fit.

 The three other McCurdy's sites at the regional malls were to be remodeled and converted to Kaufmann's stores as follows: the former McCurdy's sites at Marketplace and Irondequoit Malls were to be remodeled and used as an expansion of the existing Kaufmann's store in the mall. In other words, Kaufmann's intended to do business in two separate buildings at these malls. The third former McCurdy's store at Greece Ridge was to be remodeled for use as a Kaufmann's store and when the remodeling was completed, May intended to convey the present Kaufmann's store at that mall to Wilmorite. *fn3"

 The upshot of the purchase from McCurdy's and the transfers to Wilmorite is that Kaufmann's would operate a store in each of the four major malls and at two of those malls, Kaufmann's would operate a store at two separate locations in the mall. In addition, May will soon open a new Lord & Taylor store at the Eastview Mall site.

 Bon-Ton and the State claim that the asset purchase agreement between McCurdy's and May will have significant anti-competitive effects and will allow May to dominate the traditional department store market in the metropolitan Rochester area. Bon-Ton claims in its First Amended Complaint that the acquisition "creates a monopoly" (P 3) in the traditional department store market in the Rochester area, and violates federal and state antitrust laws.

 According to Bon-Ton and the State, the "relevant product market" within the meaning of both state and federal antitrust laws is what they denominate as "traditional department stores." Although plaintiffs do not concede that J.C. Penney should be in this group, apparently because it is a "national chain" department store, if J.C. Penney is included in the relevant product market, May would control over 50% of the traditional department store market in the Rochester metropolitan area. (First Amended Complaint, P 12).

 Bon-Ton and the State also claim that the acquisition is anti-competitive because it effectively obstructs entry into the market by Bon-Ton or any other department store. By virtue of this purchase, May's will have acquired all of the available space for a department store in the four major regional malls in the metropolitan Rochester area. Bon-Ton and the State claim that effective competition can only be accomplished if Bon-Ton is allowed access to these regional malls.

 Defendants dispute all of plaintiffs' claims, in large part because they proceed from a different premise. Defendants contend that the relevant product market definition espoused by plaintiffs is fatally flawed. They challenge plaintiffs' assertion that the appropriate relevant market is "traditional department stores." In defendants' view, such a definition is under-inclusive because it overlooks numerous businesses that compete with department stores.

 In defendants' view, once the relevant product market is properly defined as all stores selling general merchandise, apparel and furniture ("GAF"), the competition among entities selling such merchandise is so great that the merger at issue between McCurdy's and May's would have a minimal effect on May's market share and virtually no effect on competition.

 Defendants also dispute Bon-Ton's assertion that its entry into the market is precluded because of May's potential dominance at the four regional malls. Defendants claim that there are numerous other suitable sites in other shopping malls, strip malls and "stand-alone" locations where space is available for a department store.

 Defendants also contend that Bon-Ton has no standing to maintain this antitrust action since it has not and will not suffer any antitrust injury. Defendants contend that the claimed injuries suffered by Bon-Ton would have occurred independent of the alleged anti-competitive acts charged in the complaint. Because McCurdy's went out of business, its sale to any competitor of Bon-Ton, including May, would have the same effect on Bon-Ton, which is not now in the Rochester market.


 After considering all of the materials submitted, I conclude that plaintiffs have established a likelihood of success in proving at trial that the proposed sale of McCurdy's assets to its principal competitor, May, violates both federal and state antitrust laws. It is clear that the challenged acquisition may substantially lessen competition in the relevant market in the Rochester, New York area. Plaintiffs have, therefore, made out a proper case for issuance of a preliminary injunction to vacate and annul the sale and to enjoin May from acquiring McCurdy's assets.

 Plaintiff has met the requisite standards for issuance of a preliminary injunction in an antitrust action where the public interest is involved. Under the appropriate standards, which will be discussed in detail, the Court is charged with enjoining acquisitions in commerce which "may" substantially decrease competition in the market. The probability of such a deleterious effect, not the certainty of it, is all that is required. In my view, it is clear that competition will be affected - significantly - by this acquisition. Plaintiffs have clearly met their burden and, therefore, they are entitled to a preliminary injunction vacating and nullifying the entire sale of assets from McCurdy's to May.

 Standards For Granting A Preliminary Injunction

 In the Second Circuit a court may issue a preliminary injunction upon a showing of irreparable harm and either (1) a likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation with a balance of the hardships tipping decidedly toward the party requesting the injunction. Acquaire v. Canada Dry Bottling Co. of New York, 24 F.3d 401, 409 (2d Cir. 1994); Consolidated Gold Fields PLC v. Minorco, S.A., 871 F.2d 252, 256 (2d Cir.), cert. dismissed, 492 U.S. 939, 110 S. Ct. 29, 106 L. Ed. 2d 639 (1989); Jackson Dairy, Inc. v. H.P. Hood & Sons, 596 F.2d 70, 72 (2d Cir. 1979).

 The applicant for such an injunction must show "injury for which a monetary award cannot be adequate compensation . . . [because] where money damages is adequate compensation a preliminary injunction will not issue." Jackson Dairy, 596 F.2d at 72.

 The seminal Second Circuit case on the subject of preliminary injunctions in antitrust actions is Gulf & Western Indus., Inc. v. Great A.& P. Tea Co., Inc., 476 F.2d 687 (1973). The court there took great pains to explain the standards ...

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