Letter from Daniel P. Ducore, Deputy Assistant Director for BC Compliance, to John Mee re Godfrey Company, Docket C-3066

.
9UR£AU Of COMPETITION
UNITED STATES OF AMERICA
FEDERAL TRADE COMMISSION
WASHINOT01', D.C. 20SBO
John M. 	Mee, 	Esquire
McAfee 	& Taft
Tenth Floor
Two Leadership Square
Oklahoma City, 	Oklahoma 	7·3102
Re: 	Godfrey Company
Docket 	No. 	C-3066
Mr. 	Mee:
This 	is 	in 	response 	to your 	letter 	of August 	19, 	1987,
requesting 	the 	Bureau 	of 	Competition's opinion as 	to whether
Fleming Companies, 	Inc. 	(•Fleming•) 	would 	be 	deemed a
•successor" 	to Godfrey Company 	(•Godfrey•) 	under 	the order
, in Docket No. 	C-3066, 	as 	a 	result of 	Fleming's 	acquisition
of 	Godfrey 	stock 	and 	the 	proposed merger 	of 	a 	subsidiary 	of
Fleming 	with 	and 	into Godfrey.
Your 	request, 	and 	information we 	received 	from Godfrey,
represent 	that 	the 	transaction will 	be 	accomplished 	by 	the
merger 	of 	Transitory 	of Wisconsin, 	Inc. 	(•Transitory•), 	a
newly-formed 	subsidiary 	of Fleming 	with 	no 	assets 	or
business, 	with 	and 	into Godfrey. 	Subsequently, 	the 	separate
corporate 	existence-of 	Transitory will 	cease 	and 	Godfrey, 	as
the 	surviving 	corporation, 	will 	become a 	wholly-owned
subsidiary of 	Fleming. 	The 	Godfrey common 	stock 	held by
Godfrey's 	public 	shareholders 	will 	be 	converted 	into common
stock 	of 	Fleming.
You 	have 	also 	provided Fleming's 	Guidelines 	for 	the
Operation 	of 	Godfrey Company, 	(•Guidelines•), 	and 	the
Agreement 	and 	Plan 	of 	Reorganization 	(• Agreement•)
concerning 	the 	proposed 	transaction, 	which 	indicate, 	among
other 	things, 	that 	following 	consummation of 	the 	proposed
transaction, 	Godfrey will maintain 	separate 	offices, 	which
will 	be 	located 	in Waukesha and Marshfield, 	Wisconsin.
Further, 	the 	retail grocery 	stores, 	both 	affiliated 	and
corporately owned 	by Godfrey, 	will 	continue 	to be 	supplied
from Godfrey's 	warehouses. 	The 	books 	of 	account, 	records,
minute 	books, 	accounting 	documentation, 	and 	fixed 	asset
records 	of Godfrey 	will 	be 	held 	by 	and maintained 	by Godfrey
SEP 2 B ·1981

John M. 	Mee, 	Esquire 	Page 	-2-
management 	in Waukesha, 	Wisconsin. 	Godfrey 	will maintain
its 	own 	bank 	accounts 	from 	which 	it will pay 	invoices, 	local
statements of 	account 	and 	payroll. 	The management of
Godfrey will 	be 	free 	to 	hire 	and 	fire 	personnel, 	and 	will -be
able 	to draw 	upon 	the 	human 	resources of 	Fleming 	to 	fill
positions 	as 	it 	sees 	fit. 	•Matters 	pertaining 	to 	sales
policies, 	credit practices, 	product prices 	and 	fees 	for
services• 	will 	be 	set 	by 	local 	Godfrey management. 	In
addition, 	following 	consummation of 	the 	proposed merger,
there 	will 	be 	no 	common off-icers 	or 	directors 	between
. 	Godfrey and 	Fleming, 	although 	an officer 	of 	Fleming 	may
serve 	as 	a 	Godfrey 	board member. 	Day-to-day management
decisions 	of 	Godfrey will be made 	by 	its 	current President
and 	Chief Executive 	Officer, 	James B. 	DeWees, 	and 	his
staff. 	The 	operating 	and 	capital 	budgets of 	Godfrey 	will 	be
developed 	by Godfrey's management, 	but will 	be 	forwarded 	to
Fleming 	for 	review, 	modification 	and 	integration with
Fleming's 	corporate 	goals. 	Finally, 	in 	regard 	to matters
concerning 	taxes, 	local 	Godfrey management will be
responsible 	for 	local 	property 	tax matters, 	state 	income 	tax
returns 	and 	the 	franchise 	tax 	returns. 	Matters 	concerning
federal 	taxation 	will 	be 	reported 	on 	a 	consolidated 	basis
with 	Fleming.
You 	further 	represent 	that 	approximately 	20 percent 	of
Godfrey's 	needs 	will 	be 	purchased 	through 	Fleming's 	central
procurement 	program 	in an 	effort 	to 	reduce 	Godfrey's 	costs
and 	produce 	efficiencies 	consistent with 	Fleming's 	buying
power. 	Godfrey may 	also 	avail 	itself 	of 	numerous other
services 	and 	assistance offered 	to Godfrey 	by Fleming,
specifically: 	a 	cash management 	program, 	central 	accounts
payable 	system, 	fixed 	assets 	and 	payroll 	accounting, 	risk
management 	and 	insurance, 	distribution 	and marketing 	advice,
and 	retail 	service 	programs.
Consideration 	of 	whether 	a 	purchaser 	of 	a 	corporate
respondent 	becomes 	bound 	as 	a 	successor 	to 	the 	order 	begins
with Golden 	State 	Bottling Co. 	v. 	NLRB, 	414 	U.S. 	168
(1973). 	There 	the 	Supreme Court 	balanced 	the 	interests 	of
the 	independent 	entity whose 	rights 	had 	not 	been 	adjudged
and 	the 	interest 	in effectuating 	the 	policies 	of 	the 	agency
as 	embodied 	in 	its 	order. 	As 	the Court 	observed 	regarding
NLRB 	orders, 	•[t]he Board's 	orders 	run 	to 	the 	evader 	and 	the
bona 	fide 	purchaser, 	not 	because 	the 	act of 	evasion or 	bona
fide 	purchase 	is 	an 	unfair 	labor 	practice, 	but 	because 	the
Board 	is 	obligated 	to effectuate 	the 	policies 	of 	the 	Act.•
414 	u.s. 	at 	177. 	Certain 	factors 	have 	been 	considered 	by
courts 	passing 	on 	the 	question whether 	a parent 	becomes
bound 	as 	a 	successor 	to 	the 	respondent 	subsidiary. 	In
United 	States 	v. 	Swingline, 	Inc., 	1972 Trade 	Cas. 	(CCB)
174,102, 	p.92,601 	(E.D.N.Y. 	1972), 	the 	court 	looked 	at 	the
operational 	relationship between 	the 	acquiring 	and 	acquired
entities, 	citing 	NLRB 	v. 	Deena Artware, 	Inc., 	361 	U.S. 	398
at 	403 	(1960').

John M. 	Mee, 	Esquire 	Page -3-
Whether 	Fleming 	is 	bound 	as 	a 	successor 	depends 	in
part, 	therefore, 	on 	the 	purpose 	of Paragraph 	III 	of 	the
order 	in 	this 	matter. 	That 	paragraph, 	arising 	from 	the
Commission's 	section 7 concerns, 	requires 	Godfrey 	to 	submit
for 	the 	Commission's 	prior 	approval 	acquisitions 	of 	four 	or
more 	retail 	grocery 	stores. 	Because Godfrey will 	remain
subject 	to 	the 	order 	in 	any 	event, 	achieving 	the 	purposes 	of
the 	order 	is 	not 	necessarily 	dependent 	upon Fleming 	being
bound 	as 	a 	successor. 	Nevertheless, 	the 	relationship
between 	Fleming 	and 	Godfrey 	could 	become 	such 	that 	Fleming
becomes 	the 	•principal 	and 	[Godfrey] 	the 	agent•. 	In 	that
event, 	it might 	become 	necessary 	to 	hold 	Fleming 	as 	a
successor 	to 	effectuate 	the 	purposes 	of 	the 	order.
Consideration 	of 	that 	relationship 	is 	therefore 	necessary.
Based 	upon 	the · assumption 	that 	the 	information 	and
representations 	set 	forth 	in 	your 	request 	are 	accurate 	and
complete, 	I 	am of 	the 	opinion 	that, 	following 	consummation
of 	the 	proposed 	transaction, 	Fleming 	would 	not 	be 	a
successor 	to Godfrey within 	the 	terms 	of 	the 	order 	in 	Docket
No. 	C-3066. 	My opinion 	relies 	on 	the 	fact 	that 	Godfrey will
remain a 	separate 	corporation with 	relative 	autonomy 	from
Fleming 	(especially 	in 	that 	Godfrey will 	retain 	full 	control
over 	•sales 	policies, 	... 	product prices 	and 	fees 	for
services"). 	Further, 	Godfrey will 	remain 	subject 	to 	all 	of
the 	provisions 	of 	the 	order, 	and 	Fleming's 	interest 	in
Godfrey 	will 	be 	essentially 	that 	of 	a 	parent. 	Of 	course,
Godfrey would 	continue 	to 	be bound 	by 	the 	order 	for 	the
duration 	of 	the 	order's 	existence.
This 	opinion 	i~ 	restricted 	to 	the 	particular 	facts 	of
this 	proposed 	transaction 	as 	you 	have 	represented 	them 	in
your 	request. 	It 	assumes 	also 	that Fleming's 	relationship
to Godfrey 	as 	described 	in your 	submission 	would 	not 	result
in Fleming 	having 	such 	involvement 	in Godfrey's 	business
that 	it 	would 	be 	necessary 	to 	bind Fleming 	as 	a 	successor 	in
order 	to effectuate 	the 	purposes 	of 	the Commission's
order. 	Moreover, 	I 	must 	emphasize 	that 	certain 	acquisitions
by 	Fleming may 	be 	subject 	to 	the 	Commission's prior 	approval
pursuant 	to 	Paragraph 	III 	of 	the 	order 	if 	they 	constitute
indirect 	acquisitions 	by Godfrey, 	whether 	or 	not Fleming 	is
a 	successor 	to Godfrey.
Your 	letter 	states 	that Fleming 	voluntarily agrees
that, 	for 	the 	remaining 	term of 	the 	order, 	Fleming 	will 	not
acquire 	an 	entity owning 	four 	or 	more 	retail 	grocery 	stores
located 	within 	the Milwaukee 	Standard Metropolitan
Statistical Area 	c•sMsA•), 	without first 	seeking 	and
obtaining 	the 	Commission's 	approval, 	if 	the Bureau 	agrees 	to
render 	the 	opinion 	that 	the 	order 	would 	not 	apply 	to Fleming
after 	consummation 	of 	the proposed 	transaction. 	However,
the 	Bureau 	cannot 	agree 	to 	render 	a 	particular 	opinion 	based
upon 	such 	a 	commitment. 	Therefore, 	we 	have 	not 	accepted
your 	offer 	to enter 	into such 	an agreement.

'
John M. 	Mee, 	Esquire 	Page 	-4-
This 	staff opinion 	is 	not 	binding 	upon 	the Commission,
and 	the 	Bureau may 	at 	any 	time 	reconsider, 	revoke, 	or
rescind 	its 	opinion · should 	it subsequently 	appear 	that 	the
information 	submitted 	on 	beha!f 	of 	the 	parties 	is 	inaccurate
or 	incomplete, 	or 	if 	action 	has 	been 	taken 	in violation of
the 	terms 	of 	the 	order. 	Further, 	this 	opinion 	will 	not
preclude 	the 	Commission 	from 	taking 	any 	action 	it 	deems
appropriate, 	including 	an 	action 	for 	civil penalties, 	for
any 	violation of 	the 	order~
Sincerely yours,
Daniel 	P . 	Ducore
Deputy Assistant 	Director
Bureau of 	Competition
cc: 	David 	L. 	Foster
Willkie, 	Farr 	& Gallagher
One Citicorp Center
153 East 	53rd 	Street
New York, 	N.Y. 	10022-4669
BC/DDucore/cm/9-28-87