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Brown Won't Deliver On Property Rights

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05/26/2009

The conservative and Beltway libertarian crowds are appalled by the nomination of Sonia Sotomayor to the Supreme Court. The early commentary has focused on Sotomayor’s role in Ricci v. DeStefano, a federal Civil Rights Act lawsuit brought by New Haven, Connecticut, firefighters against the city. The plaintiffs, who are white, said the city broke the law when it refused to certify the results of a promotion exam because, well, no blacks passed. Sotomayor was part of a Second Circuit Court of Appeals panel that upheld a lower court’s decision to grant summary judgment to the city. The Supreme Court is now reviewing the case.

I’m sure Sotomayor opponents will unearth other examples of her callousness and depravity. But if that’s the worst example of Sotomayor’s jurisprudence, then I’m not exactly quaking in my boots. Especially since a judge who has long been touted by many conservatives and libertarians (not just the Beltway ones) as a model advocate of individual rights and private property has committed a far worse offense on the bench. That judge is Janice Rogers Brown, who sits on the D.C. Circuit Court of Appeals.In a recent Reason survey of Illuminati regarding the Supreme Court vacancy, former judge Andrew Napolitano said Brown would make an excellent Supreme Court justice because “she understands federalism and the Constitution.” Brown has been popular in libertarian and free-market conservative circles since her highly contested nomination to the federal bench six years ago. The Mises Institute’s own Doug French wrote in a 2003 LewRockwell.com article that Brown, then a California Supreme Court justice, “could serve the cause of freedom mightily”:

Just what makes Justice Brown so horrifying? It must be statements like; “Where government moves in, community retreats, civil society disintegrates, and our ability to control our own destinies atrophies.” In that same speech Brown went on to say, “The result is a debased, debauched culture which finds moral depravity entertaining and virtue contemptible.”

Unlike other judges, Brown typically upholds property rights against government regulation – interference which, she believes, has helped turn “democracy into a kleptocracy.”

[ . . . ]

An example of Justice Brown’s clear and biting prose: “Judicial activism is real and it has produced many jurists who see themselves less as judges than philosopher-kings ready to rule and dispense their wisdom to the great unwashed masses.”

Clint Bolick of the Institute for Justice – a group known for its lawsuits against eminent domain – also wrote an elegant, persuasive defense of Brown in a 2003 Reason article:

What is most remarkable about Brown’s jurisprudence is that she sees all basic individual rights as equally fundamental. Unlike many liberals, she counts property rights and economic liberties as deserving of judicial protection. In Santa Monica Beach, Ltd. v. Superior Court (1999), for instance, she dissented from a decision upholding a rent control ordinance, declaring that “[a]rbitrary government actions which infringe property interests cannot be saved from constitutional infirmity by the beneficial purposes of the regulators.”

In a dissent in San Remo Hotel v. City and County of San Francisco (2002), which upheld the city’s sweeping property restrictions, Justice Brown expanded on that theme. “Theft is still theft even when the government approves of the thievery,” she declared. “The right to express one’s individuality and essential human dignity through the free use of property is just as important as the right to do so through speech, the press, or the free exercise of religion.”

When Justice Sandra Day O’Connor retired in 2005, there was some buzz for elevating Judge Brown to the Supreme Court. Republican Senator John Cornyn singled out Brown’s support for property rights in the wake of the court’s pro-eminent domain opinion in Kelo v. City of New London as an argument in favor of her elevation:

In a way, the Kelo decision at least vindicates supporters of the nomination of Justice Janice Rogers Brown to the U.S. Court of Appeals for the D.C. Circuit. That nomination attracted substantial controversy in some quarters, because of Justice Brown’s personal passion for the protection of private property rights. The Kelo decision announced last Thursday demonstrates that her concerns about excessive government interference with property rights is well-founded and well within the mainstream of American jurisprudence.

With all of this praise for Brown, her love of property rights, and her aversion to socialism, it should have been a slam dunk last year when the Federal Trade Commission appeared before the judge (and two of her colleagues) demanding the right to confiscate private property belonging to Whole Foods Markets, Inc. The FTC threw a temper tantrum when Whole Foods completed its acquisition of Wild Oats markets without the agency’s permission. A lower court judge had earlier rejected the FTC’s nonsensical claim that stopping the merger was necessary to prevent Whole Foods from acquiring “market power” in the distinct market for “premium, natural, and organic supermarkets.” The FTC wanted the court of appeals to overturn that judge and allow the government to seize Whole Foods stores and reopen them under the now-defunct Wild Oats name. Obviously, Janice Rogers Brown would not stand for this.

Of course, she wasn’t the only judge hearing the case, and the panel ultimately ruled for the FTC by a 2-1 vote. As you might expect, there was a blistering dissent attacking the majority for ignoring property rights, due process, and limits on government power. But that dissent was written by Judge Brett Kavanaugh, a former associate White House counsel to George W. Bush. Janice Rogers Brown wrote the opinion of the court, ruling against property rights and for government planning of the economy.

Brown may hate the New Deal and eminent domain, but when it comes to antitrust, she’s much more trusting of government power. The Whole Foods case proved to be her Kelo. She didn’t simply uphold state aggression – she went out of her way to manufacture a justification for it. In the process, she helped further weaken property rights across the board and set the stage for the Obama administration’s promised antitrust resurgence.

In fictional antitrust economics, a merger is “bad” if the regulator believes customers won’t respond to a hypothetical post-merger price increase by switching to another product (or simply not spending the money.) If a price increase is expected to be profitable, the merger is illegal, and the government may seize the private property of the merging firms and give it to another firm. Property rights are subordinate to the state’s subjective belief as to what might happen in the future.

Antitrust rules heavily favor the state. Thomas Lambert, writing about the Whole Foods case, noted that the statute allowing the FTC to seek court injunctions against mergers sets an abysmally low burden of proof:

The FTC must establish only a 50 percent likelihood that there is a 50 percent chance that the merger would substantially lessen competition. This effectively means that a preliminary injunction may be granted if the FTC can show facts establishing a 25 percent likelihood that the challenged merger will substantially reduce competition.

The FTC couldn’t prove a Whole Foods-Wild Oats merger would reduce competition. The government’s argument – that Whole Foods competed in a separate market that excluded all other grocery stores – was facially absurd. Nor was there any evidence that the presence or absence of a Wild Oats store in any given market affected Whole Foods’ pricing decisions. As the district judge who denied the FTC’s injunction wrote, “Whole Foods prices are essentially the same at all of its stores in a region, regardless of whether there is a Wild Oats store nearby.” Judge Kavanaugh, in his dissent at the D.C. Circuit level, added, “In the four cases where Wild Oats exited and a Whole Foods store remained, there is no evidence in the record that Whole Foods then raised prices. Nor was there any evidence of price increases after Whole Foods took over two Wild Oats stores.”

In the absence of any pricing evidence, the FTC relied heavily on product differentiation and subjective intent. The FTC argued that the unique atmosphere of Whole Foods itself placed in a separate market that was economically distinct from regular supermarkets. The Commission also selectively presented private emails seized from Whole Foods during the merger investigation to paint the company – and particularly its CEO, John Mackey – as having anti-competitive intent with regard to the Wild Oats acquisition. Judge Kavanaugh dismissed this, saying, “[I]ntent is not an element of a §7 claim, and a CEO’s bravado with regard to one rival cannot alter the laws of economics: Mere boasts cannot vanquish real-world competition – here, from Safeway, Albertson’s, and the like.”

Despite all this, Janice Rogers Brown still ruled for the FTC. She said the district court “analyzed the product market incorrectly.” But she didn’t adopt the FTC’s exact view that there was a distinct market for premium, natural, and organic supermarkets. Instead, she adopted an argument the FTC never made – that there was a

core group of particularly dedicated, ‘distinct customers,’ paying ‘distinct prices,’ may constitute a recognizable submarket, whether they are dedicated because they need a complete ‘cluster of products,’ because their particular circumstances dictate that a product ‘is the only realistic choice,’ or because they find a particular product ‘uniquely attractive.’

Since the “core” customers might pay higher prices while “marginal” customers would switch to another store, there’s an antitrust violation, according to Brown. Even accepting all the ludicrous premises of antitrust law, there’s no basis for this argument. As Judge Kavanaugh said,

[T]he FTC never once referred to, much less relied on, the distinction between marginal and core consumers in 86 pages of briefing or at oral argument. The terms “marginal consumer” and “core consumer” are nowhere to be found in its briefs.

[ . . . ]

[T]here is no support in the law for that singular focus on the core customer. Indeed, if that approach took root, it would have serious repercussions because virtually every merger involves some core customers who would stick with the company regardless of a significant price increase. So under this “core customer” approach, many heretofore permissible mergers presumably could be blocked as anticompetitive. That cannot be the law, and it is not the law.

Brown’s “core customer” theory reflects the views of certain rent-seekers in the antitrust community who, for obvious reasons, want to encourage more government challenges to mergers. Indeed, Brown’s opinion took its cues from an amicus brief filed by a pro-antitrust group represented by David Balto – the same man who now advocates 100% government control of the healthcare industry. This is strange company for a purported champions of free markets and the constitution to keep.

Brown also wasn’t content to simply invent a new standard of antitrust liability. She also wrote that it should be even easier for the FTC to obtain preemptive injunctions against mergers – even easier than the “25 percent likelihood” described by Thom Lambert. Brown said the FTC was entitled to an injunction if

the FTC has raised questions going to the merits so serious, substantial, difficult and doubtful as to make them fair ground for thorough investigation, study, deliberation and determination by the FTC in the first instance and ultimately by the Court of Appeals.

Judge Kavanaugh disagreed with Brown’s “overly lax preliminary injunction standard”:

This “serious questions” standard is inconsistent with the relevant statutory text. The statute unambiguously requires that courts consider “the Commission’s likelihood of ultimate success” when the FTC seeks to preliminarily enjoin a merger.

Brown’s standard is intellectually dishonest. Granting an FTC injunction request never leads to “thorough investigation, study, deliberation and determination by the FTC in the first instance and ultimately by the Court of Appeals.” Once again, I’ll turn to Thom Lambert for an explanation of what happens after a preliminary injunction is granted or denied:

When regulators lose, they generally don’t appeal because mergers usually close shortly after the district court rules, and most consummated mergers are quite difficult to undo. When the parties to a merger agreement lose, they usually give up because they know they can’t hold the merger agreement together for the duration of an appeal.

In other words, a “preliminary” injunction in merger review almost always serves as final disposition. That’s exactly what happened to Whole Foods. After Brown’s decision, the company was forced to sign an FTC consent order giving up several stores. A commenter at the Reason blog explained the “settlement” and its consequences:

The antitrust challenge never made sense. And the settlement proves that. Having Whole Foods sell 13 operating stores — and many aren’t even in the markets in which the FTC said it was a monopoly — plus selling the Wild Oats’ brand and 19 stores already closed, won’t hurt Whole Foods one bit.

But Whole Foods spent $28 million on the FTC antitrust challenge ($11 million in Q1-2009 alone). To put that in perspective, the 13 stores to be sold did $31 million in total sales (out of $2.5 billion overall for WFM) in Q1-2009.

One can only speculate as to how many millions in taxpayer dollars the FTC spend in the 20-month legal challenge, since the agency doesn’t release such data. That’s a misuse of public funds, in our analysis and opinion.

Few companies – particularly ones that are publicly traded – will spend years fighting the FTC in a full-blown administrative trial. Especially when the FTC appoints the prosecutors and judges and hears the initial appeal.

Brown knew this. Her opinion would effectively allow the FTC to stop any merger at will. This is not a situation where a libertarian-leaning jurist is forced to uphold a bad yet constitutional law. This is a case where a judge actively rewrote the law to further an anti-libertarian outcome. If Sonia Sotomayor had written this opinion, every libertarian and conservative would be howling at the moon today. But in the months since the Whole Foods case was decided, I can’t recall reading any serious criticism of Brown outside of antitrust circles.

Compounding Brown’s aggression was the unusual steps taken after the initial decision to issue amended opinions. Brown’s original opinion was joined by the third judge on the panel, David Tatel. But several months later, Tatel issued a separate opinion, still supporting the FTC while distancing himself from Brown’s “core customer” argument. Brown and Tatel did this deliberately to sabotage Whole Foods’ chances of obtaining further review. The full D.C. Circuit declined rehearing, and two judges cited the lack of a clear majority opinion as the reason. Whole Foods’ attorneys also realized the Supreme Court would not review a splintered, three-way opinion.

This isn’t an academic point. As Judge Kavanaugh observed, “The splintered panel opinions will create enormous uncertainty, debate, and litigation over the meaning and effect of this decision.” This means more money for the antitrust establishment, and less capital for businesses to invest in production. All thanks to a judge who “typically upholds property rights against government regulation.” Shockingly, Brown never acknowledged any negative impact on Whole Foods’ property rights. Her only concern was protecting her precious “core consumers” from the consequences of their own economic decisions.

Compared to Brown’s pro-FTC, anti-property rights activism in Whole Foods, Judge Sotomayor’s alleged offense in the New Haven case was trivial. Sotomayor was part of a three-judge panel that issued an unsigned opinion affirming a lower court’s grant of summary judgment. But more importantly, the case itself should not concern libertarians. The plaintiffs are government firefighters who claim their federal civil rights were violated when city officials tossed out the results of a promotion exam. This immediately raises two alarms: First, there is no libertarian “right” to government employment or promotions; second, the authority of the federal government – including federal courts – to regulate hiring practices within a single city is based on what is, at best, a questionable reading of the 14th Amendment.

In contrast, the Whole Foods case involved a straightforward violation of property rights by the federal government. The court of appeals had proper jurisdiction to prevent this aggression, but instead endorsed the violation and encouraged the government to commit additional violations in the future.

The lesson here is that the conventional labels assigned to judges like Sonia Sotomayor and Janice Rogers Brown aren’t terribly useful from a libertarian perspective. Nor can one rely on libertarian — more accurately, libertarian-sounding — judges to “restore” liberty via the federal bench.

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