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Tuesday, May 21, 2024 | Back issues
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Sysco Insider Kept Out of Acquisition Lawsuit

WASHINGTON (CN) - Some attorneys helping Sysco and US Foods overcome the government's challenge to their merger deserve access to confidential records, a federal judge ruled.

The Federal Trade Commission originally filed the antitrust complaint under seal last month, joined by 10 states and the District of Columbia.

Claiming that the merger of Sysco and US Foods would cause prices for food-service customers to soar, as the companies represent "by far" the two leaders of their industry, the government quickly secured a restraining order against the March 2 merger.

The court had also previously placed a protective order over confidential material in the case, but Sysco, US Foods Inc., and USF Holding Corp. complained that this order denied access to their own officers and employees.

Noting a lack of objection from the government, U.S. District Judge Amit Mehta last week approved of three of the four in-house attorneys that the companies nominated for access.

Sysco's second nominee - chief legal officer Russell Libby - failed to win access, however, because he also holds the title of executive vice president of corporate affairs.

This position makes Libby privy to meetings involving discussion of Sysco's "competitive decision-making" strategies, according to the March 12 ruling.

As such there is a risk that Libby's access to confidential information in the case will lead to an inadvertent disclosure because of his role in Sysco's business decisions.

Mehta emphasized that the integrity of Libby, "a member in good standing of the Georgia bar," is not in dispute.

"The primary concern underlying the 'competitive decision-making' test is not that lawyers involved in such activities will intentionally misuse confidential information; rather, it is the risk that such information will be used or disclosed inadvertently because of the lawyer's role in the client's business decisions," Mehta wrote.

There is no such concern when it comes to Sysco's other nominee, attorney Barrett Flynn, and his US Foods counterparts, Dorothy Capers and Andrew Nelson.

Any disclosure of the sensitive information contained in the documents could result in the attorneys facing a $250,000 and even disbarment, the ruling states.

Sysco can still nominate another attorney in Libby's place, Mehta said.

Two food-service competitors that intervened in the government's case - Reinhart Foodservice and Shamrock Food - failed to persuade Mehta that Flynn, Capers and Nelson should be denied access to any discovery material contained in the confidential material.

Mehta said "it would be unfair ... for the government to attempt to prevent a private business transaction based, even in part, on evidence that is withheld from the actual defendants."

"Broadline foodservice businesses" like Sysco and USF cater both to national restaurant chains, mom-and-pop restaurants and other of operators.

In the FTC's complaint, it noted that the five-member commission voted 3-2 vote to block the merger. A merits trial before an FTC administrative law judge will begin on July 21.

Sysco controls 40 percent of the foodservice market in question, with US Foods close behind at 35 percent. The next largest broadliner in terms of market share is Distribution Market Advantage, a consortia of regional distributors that makes up 11 percent of the market, according to the complaint.

As part of the merger, US Foods had planned to sell 11 of its regional distribution centers to Performance Food Group, another competitor that makes up 5 percent of the total market.

Calling this divestment an insufficient concession, the FTC noted that

Performance Food would still lack the major geographical influence needed to serve national customers, as well as the industrywide recognition and reputation to earn recognition as a major competitor in the market.

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