CURRENT MONTH (January 2025)
Antitrust Law
FTC Secures Record Gun-Jumping Settlement in Energy Transaction
By Barbara Sicalides, Joe Farside, Van Jolas, and Julian Weiss, Troutman Pepper Hamilton Sanders LLP
The Federal Trade Commission (“FTC”) and the Department of Justice Antitrust Division (“DOJ”) announced a record-setting gun-jumping fine related to Verdun Oil Company II LLC’s acquisition of EP Energy LLC on January 7.[1] The parties agreed to divest certain operations pursuant to a 2022 consent decree to address competition issues, but the current action did not allege new concerns about the postclosing effects of the transaction on competition. Instead, the sole issue raised in the DOJ’s complaint[2] was the manner in which the parties operated during the Hart-Scott-Rodino (“HSR”) Act[3] waiting period and the interim period, between execution of the purchase agreement and closing.
HSR Act
The HSR Act requires that parties to transactions of a certain size submit notification and information to the FTC and the DOJ and to observe an initial thirty-day waiting period while the agencies review the transaction. Before the termination or expiration of the HSR waiting period, the parties are forbidden to shift beneficial ownership, control, risks, or benefits of the to-be-acquired business or assets to the acquirer.
Gun-Jumping Allegations
The FTC alleged that, for a three-week period before the end of the HSR Act waiting period, EP allowed Verdun and an affiliate to assume operational and decision-making control over significant aspects of EP’s day-to-day business operations. Further, the buyer received regular operational reports and had access to EP’s competitively sensitive information (“CSI”) for approximately three months. The FTC pointed to, for example, contractual provisions that gave Verdun approval rights over EP’s ongoing and planned crude oil development production activities and EP’s ordinary-course expenditures exceeding $250,000.
Similar provisions are often included among interim covenants to protect the buyer’s anticipated investment and to ensure that the buyer’s valuation remains valid through closing. Nevertheless, according to the enforcement agencies, the buyer exercised control by forcing the target to change its business plans before the end of the HSR Act waiting period. The complaint quotes an email from the target to the buyer as evidence of the buyer’s control over the target’s operations: “Please confirm that you approve the . . . [s]hut down [of] all currently planned fracs until after the close. [B]y shutting down these fracs we have sold more oil than we will be able to deliver and [you] accept[] the contractual and reputational ramifications of not delivering these barrels.”[4] The agencies alleged that the buyer “began actively supervising [the target]’s well-design and planning activities,” and even changed the target’s site design plans and vendor-selection process.[5] The parties’ employees allegedly coordinated on pricing for certain customers, and neither party allegedly attempted to restrict access to CSI.
Takeaways
The crux of the agencies’ concern is that the parties allegedly disregarded their strategic and operational separateness. This action serves as a reminder that the HSR Act waiting period is mandatory and that the parties must limit disclosure of CSI to only what is essential for valuation, due diligence, and integration planning. Most importantly, the buyer may not control the operations of the target, particularly when the target is an actual or potential competitor.
[1] Press Release, Fed. Trade Comm’n, Oil Companies to Pay Record FTC Gun-Jumping Fine for Antitrust Law Violation (Jan. 7, 2025); Press Release, Off. of Pub. Affs., U.S. Dep’t of Just., Oil Companies to Pay Record Civil Penalty for Violating Antitrust Pre-Transaction Notification Requirements (Jan. 7, 2025).
[2] United States v. XCL Res. Holdings, LLC, No. 1:25-cv-00041 (Jan. 7, 2025) (complaint for civil penalties and equitable relief for violations of the Hart-Scott-Rodino Act).
[3] Pub. L. No. 94-435, 90 Stat. 1383 (1976).
[4] XCL Res. Holdings, LLC, No. 1:25-cv-00041, ¶ 37.
[5] Id. ¶ 39.
FTC and DOJ Jointly Issue Antitrust Guidelines Related to Labor
By Barbara Sicalides, Troutman Pepper Hamilton Sanders LLP
Practically on the eve of the Donald Trump presidential inauguration, the Federal Trade Commission (“FTC”) and the U.S. Department of Justice Antitrust Division (“DOJ”) jointly issued antitrust guidelines for business activities affecting workers (“Guidelines”).[1] The FTC’s vote to approve the Guidelines was split 3–2 along party lines, with the Republican commissioners issuing a brief dissenting statement. The Guidelines, which replace the 2016 Antitrust Guidance for Human Resource Professionals,[2] explain how the agencies identify and assess whether business practices affecting workers violate the antitrust laws. As Doha Mekki, the acting assistant attorney of the DOJ, noted, “[f]or more than a century, the antitrust laws have protected workers from unlawful schemes, abuses of bargaining power, and restrictions on their mobility.”[3]
Specifics of the Guidelines
The Guidelines outline specific types of arrangements or business practices that may violate the antitrust laws, such as no-solicitation agreements between two companies; no-poach agreements between a franchisor and franchisee or among franchisees of the same franchisor; information exchanges involving compensation or other sensitive terms of employment; restrictions on workers’ freedom to leave their jobs; and “[o]ther restrictive, exclusionary, or predatory employment conditions that harm competition.”[4]
The Guidelines provide limited explanation regarding assessment of “other restrictive” provisions:
- Non-disclosure agreements can violate the antitrust laws when they span such a large scope of information that they function to prevent workers from seeking or accepting other work or starting a business after they leave their job. . . .
- Training repayment agreement provisions are requirements that a person repay any training costs if they leave their employer. . . . [T]hese provisions can be anticompetitive . . . [i]f they function to prevent a worker from working for another firm or starting a business.
- Non-solicitation agreements that prohibit a worker from soliciting former clients or customers of the employer . . . can . . . be anticompetitive . . . if they are so broad that they function to prevent a worker from seeking or accepting another job or starting a business.
- Exit fee and liquidated damages provisions requir[ing] workers to pay a financial penalty for leaving their employer . . . can be anticompetitive . . . if they prevent workers from working for another firm or starting a business.[5]
Perhaps the most interesting section of the Guidelines relates to false claims regarding workers’ potential earnings. Specifically, the Guidelines note that “[t]he [a]gencies may investigate and take action against businesses that make false or misleading claims about potential earnings that workers (including both employees and independent contractors) may realize.”[6] The role of the antitrust laws in such situations is not entirely clear, but the Guidelines relate such false claims to competition by noting that “honest businesses are less able to fairly compete” when workers are attracted to companies by false earnings promises.[7]
Dissent
The Republican commissioners’ dissenting statement, penned by Republican Commissioner Andrew Ferguson, was succinct: “[T]he lame-duck Biden-Harris FTC . . . announcing its views on how to comply with the antitrust laws in the future is a senseless waste of Commission resources. The Biden-Harris FTC has no future.”[8] While Ferguson has been leading the FTC since the inauguration, the agency will not fully transition to a Republican majority until the anticipated confirmation of Mark Meador as an FTC commissioner. Regardless, the Guidelines provide case citations and interpret case law consistent with the Biden administration’s enforcement priorities in an effort to encourage the continuation of those priorities beyond the transition.
[1] U.S. Dep’t of Just. & Fed. Trade Comm’n, Antitrust Guidelines for Business Activities Affecting Workers (rev. Jan. 2025) [hereinafter Guidelines].
[2] Dep’t of Just. Antitrust Div. & Fed. Trade Comm’n, Antitrust Guidance for Human Resource Professionals (Oct. 2016).
[3] Press Release, Off. of Pub. Affs., U.S. Dep’t of Just., Justice Department and Federal Trade Commission Issue Antitrust Guidelines on Business Practices That Impact Workers (Jan. 16, 2025).
[4] Guidelines, supra note 1, at 2.
[5] Id. at 9 (emphasis in original) (internal citations omitted).
[6] Id. at 11.
[7] Id.
[8] Fed. Trade Comm’n, Dissenting Statement of Commissioner Andrew N. Ferguson Joined by Commissioner Melissa Holyoak Regarding the Antitrust Guidelines for Business Activities Affecting Workers (Jan. 16, 2024) (Matter No. P251202).
FTC Takes Another Shot at Private Equity Roll-Ups
By Barbara Sicalides, Daniel Anziska, and Samantha Weber, Troutman Pepper Hamilton Sanders LLP
At the Biden administration’s end, the Federal Trade Commission (“FTC”) announced a settlement with private equity firm Welsh, Carson, Anderson, and Stowe and several of its affiliates (“Welsh Carson”), resolving what the FTC dubbed “a multi-year anticompetitive scheme.” The settlement put an end to a potential administrative proceeding against Welsh Carson, following the FTC’s failed attempt to sue them in a 2023 federal court lawsuit. The federal court granted Welsh Carson’s motion to dismiss, finding that the FTC lacked the authority to bring a case against the private equity firm, while allowing the case to proceed against its portfolio company, U.S. Anesthesia Partners (“USAP”).
The FTC’s administrative allegations parallel those made in its federal litigation except that USAP is not a named respondent here. In essence, the FTC claims that Welsh Carson developed and executed a “scheme,” through USAP, to consolidate anesthesia practices, stifle competition, and drive up costs for patients in Texas. According to the FTC, Welsh Carson created USAP in 2012 to execute its roll-up strategy, including the purchase of large anesthesia practices in Texas and creating one dominant provider. As often occurs with subsequent provider acquisitions, USAP allegedly raised the rates for each office it purchased to match USAP’s higher price point. The FTC also alleged that USAP entered into or maintained several arrangements with other independent anesthesia groups, setting their rates and allocating markets.
The FTC’s proposed consent agreement requires Welsh Carson to freeze its investment in USAP and reduces its board representation to a single, nonchair seat; obtain prior approval for any future investments in anesthesia and certain acquisitions by any Welsh Carson–controlled anesthesia group across the country; and give thirty days advance notice for certain transactions involving other hospital-based practices such as pathology, anesthesia, or emergency medicine.
Although the FTC vote to approve the consent agreement was unanimous, Commissioner Ferguson, who became FTC Chair shortly after the inauguration, issued a concurrence “to pierce through this breathless rhetoric to make clear that this case is an ordinary application of the most elementary antitrust principles.” Specifically, he took issue with the “suggest[ion] that this case is extraordinary because it involves ‘private equity’ and ‘serial acquisitions,’ and [the] hint at antipathy toward private equity.” Commissioner Ferguson made clear that Welsh Carson’s private equity status is “irrelevant” to the antitrust analysis.
The concurrence further noted the serial acquisition provisions of the 2023 Merger Guidelines played no special role. Rather, he wrote that the public should disregard the Democratic commissioners’ “clumsy attempt to make a run-of-the-mill enforcement matter seem like an avant-garde application of novel provisions of the 2023 Guidelines.” While the concurrence suggests a change in tone and maybe even in process or priorities, it does not necessarily suggest less enforcement.
Cannabis Law
What Trump’s Pick for the Drug Enforcement Administration Means for the Cannabis Industry
By Daniel Shortt, Salzhauer & Shortt P.C.
President Donald Trump has announced the new acting administrator of the Drug Enforcement Agency (“DEA”): Derek Maltz. This appointment comes at a key turning point as the move to reschedule marijuana from Schedule I to Schedule III of the Controlled Substances Act (“CSA”), while delayed, is still technically in process. On January 13, 2025, Chief Administrative Law Judge John Mulrooney issued an order pausing the ongoing hearings on rescheduling for a period of at least ninety days.
Donald Trump supported Florida’s Amendment 3, which would have legalized adult-use cannabis in the state. However, the support may have been related to former challenger for the Republican presidential nomination Ron DeSantis’s opposition to Amendment 3 as, according to Politico, Trump posted a message on Truth Social in support of Amendment 3 only three hours after DeSantis expressed his opposition to the measure in a church in Tallahassee.
Trump has also stated his support for federal reform. On September 9, 2024, Reuters reported that Trump expressed support for rescheduling on Truth Social:
As President, we will continue to focus on research to unlock the medical uses of marijuana to a Schedule 3 drug, and work with Congress to pass common sense laws, including safe banking for state authorized companies.
The process to reschedule started under Joe Biden’s administration, and although Donald Trump has expressed his support, it remains to be seen whether or not the Trump administration will show that support to this proposed rescheduling that began with his political opponent. If Trump was willing to support Amendment 3 to oppose DeSantis, he may take the opposite approach to rescheduling given that it started with Biden.
The DEA plays a key role in the rescheduling process under the CSA, which makes the appointment of Maltz important. According to Marijuana Moment, Maltz has made some negative comments about cannabis, at one point linking marijuana use to school shootings and asserting that cannabis is a gateway drug, meaning that users of marijuana are more likely to use other drugs in the future.
Reading the tea leaves on Trump’s position on marijuana reform in 2025 is very challenging. Cannabis reform is not a pressing issue for Trump and is unlikely to drive his policy decisions. Additionally, under Biden much of the push for marijuana reform focused on criminal justice reform and social justice. It is unlikely that these will be nearly as persuasive issues under the Trump administration. If we are reading the tea leaves correctly, the appointment of Maltz does not signal positivity.
However, during his first administration, Trump appointed anti-cannabis zealot Jeffrey Sessions as attorney general but no crackdown on state-legal cannabis ever materialized. The bottom line for the cannabis industry is to expect the unexpected with Trump and to closely monitor how his administration moves when it comes to cannabis.