Red Apple Companies, Inc., et al.; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[Dkt. 9266]

Red Apple Companies, Inc., et al.; Proposed Consent Agreement

With Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting

unfair acts and practices and unfair methods of competition, this

consent agreement, accepted subject to final Commission approval, would

require, among other things, three New York-based companies and their

officer to divest six supermarkets, within 12 months, to a Commission-

approved acquirer or acquirers. If the respondents fail to satisfy the

divestiture requirements, the proposed order would permit the

Commission to appoint a trustee to divest supermarkets to satisfy the

terms of the order. The consent agreement also would prohibit the

respondents, for ten years, from acquiring, without prior Commission

approval, any supermarket or any interest in an entity that owns or

operates a supermarket in New York County south of 116th Street. In

addition, the respondents, for ten years, would be prohibited from

entering into or enforcing any agreement that restricts the ability of

any person acquiring any supermarket owned or operated by any

respondent in New York County south of 116th Street.

DATES: Comments must be received on or before February 17, 1995.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

Ronald Rowe, FTC/S-2105, Washington, DC 20580. (202) 326-2610.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 3.25(f) of

the Commission's rules of practice (16 CFR 3.25(f)), notice is hereby

given that the following consent agreement containing a consent order

to cease and desist, having been filed with and accepted, subject to

final approval, by the Commission, has been placed on the public record

for a period of sixty (60) days. Public comment is invited. Such

comments or views will be considered by the Commission and will be

available for inspection and copying at its principal office in

accordance with Sec. 4.9(b)(6)(ii) of the Commission's rules of

practice (16 CFR 4.9(b)(ii)).

Agreement Containing Consent Order To Divest and to Cease and Desist

In the matter of Red Apple Companies, Inc., a corporation; John

A. Catsimatidis, an individual; Supermarket Acquisition Corp., a

corporation; and Designcraft Industries, Inc. (d/b/a Sloan's

Supermarkets, Inc.), a corporation. Docket No. 9266.

The agreement herein, by and between Red Apple Companies, Inc.

(``Red Apple''), a corporation, John A. Catsimatidis, an individual,

Supermarket Acquisition Corporation (``SAC''), a corporation, and

Sloan's Supermarkets, Inc. (a/k/a Designcraft Industries, Inc.)

(``SSI''), a corporation, by their duly authorized officers, hereafter

sometimes referred to as ``respondents,'' and their attorney, and

counsel for the Federal Trade Commission, is entered into in accordance

with the Commission's rule governing consent order procedures. In

accordance therewith the parties hereby agree that:

1. Respondent Red Apple is a corporation organized, existing and

doing business under and by virtue of the laws of the State of New

York, with its executive offices located at 823 Eleventh Avenue, New

York, New York 10019-3535.

2. Respondent John A. Catsimatidis is the Chairman, Chief Executive

Officer, and sole shareholder of Red Apple Companies, Inc., and

Chairman, Chief Executive Officer, Treasurer, and the largest

shareholder of Sloan's Supermarkets, Inc., with his office and

principal place of business at 823 Eleventh Avenue, New York, New York

10019-3535.

3. Respondent SAC is a corporation organized, existing and doing

business under and by virtue of the laws of the State of New York, with

its executive offices located at 823 Eleventh Avenue, New York, New

York 10019-3535.

4. Respondent SSI is a corporation organized, existing and doing

business under and by virtue of the laws of the State of Delaware, with

its executive offices located at 823 Eleventh Avenue, New York, New

York 10019-3535.

5. Respondents have been served with a copy of the complaint issued

by the Federal Trade Commission charging them with violation of section

7 of the Clayton Act, as amended, 15 U.S.C. 18, and section 5 of the

Federal Trade Commission Act, as amended, 15 U.S.C. 45, and have filed

an answer to said complaint denying said charges.

6. Respondents admit all the jurisdictional facts set forth in the

Commission's complaint in this proceeding.

7. Respondents waive:

a. Any further procedural steps;

b. The requirement that the Commission's decision contain a

statement of findings of fact and conclusions of law;

c. All rights to seek judicial review or otherwise to challenge or

contest the validity of the order entered pursuant to this agreement;

and

d. Any claim under the Equal Access to Justice Act.

8. This agreement shall not become part of the public record of the

proceeding unless and until it is accepted by the Commission. If this

agreement is accepted by the Commission it will be placed on the public

record for a period of sixty (60) days and information in respect

thereto publicly released. The Commission thereafter may either

withdraw its acceptance of this agreement and so notify the

respondents, in which event it will take such action as it may consider

appropriate, or issue and serve its decision, in disposition of the

proceeding.

9. This agreement is for settlement purposes only and does not

constitute an admission by respondents that the law has been violated

as alleged in the complaint, or that the facts as alleged in the

complaint, other than jurisdictional facts, are true.

10. This agreement contemplates that, if it is accepted by the

Commission, and if such acceptance is not subsequently withdrawn by the

Commission pursuant to the provisions of Sec. 3.25(f) of the

Commission's rules, the Commission may without further notice to

respondents, (1) issue its decision containing the following order to

divest and to cease and desist in disposition of the proceeding, and

(2) make information public in respect thereto. When so entered, the

order shall have the same force and effect and may be altered, modified

or set aside in the same manner and within the same time provided by

statute for other orders. The order shall become final upon service.

Delivery by the U.S. Postal Service of the complaint and decision

containing the agreed-to order to respondents' addresses as stated in

this agreement shall constitute service. Respondents waive any right

they might have to any other manner of service. The complaint may be

used in construing the terms of the order, and no agreement,

understanding, representation, or interpretation not contained in the

order or in the agreement may be used to vary or to contradict the

terms of the order.

11. Respondents have read the complaint and the order contemplated

hereby. They understand that once the order has been issued, they will

be required to file one or more compliance reports showing that they

have fully complied with the order. Respondents further understand that

they may be liable for civil penalties in the amount provided by law

for each violation of the order after it becomes final.

Order

I

It is ordered that, as used in this order, the following

definitions shall apply:

A. ``Commission'' means the Federal Trade Commission.

B. ``Red Apple'' means Red Apple Companies, Inc., its parents,

predecessors, subsidiaries, divisions, groups and affiliates (including

Red Apple Supermarkets, Inc., Gristede's Supermarkets, Inc., and

Supermarket Acquisition Corp.), and their directors, officers,

employees, agents, partners, and representatives (including John A.

Catsimatidis), and their respective successors or assigns.

C. ``John A. Catsimatidis'' means John A. Catsimatidis, an

individual and Chairman and Chief Executive Officer of Red Apple

Companies, Inc., and Chairman, Chief Executive Officer, and Treasurer

of Sloan's Supermarkets, Inc. (a/k/a Designcraft Industries, Inc.).

D. ``SAC'' means Supermarket Acquisition Corp., its parents,

predecessors, subsidiaries, divisions, groups and affiliates, and their

directors, officers, employees, agents, partners, and representatives,

and their respective successors or assigns.

E. ``SSI'' means Sloan's Supermarkets, Inc. (a/k/a Designcraft

Industries, Inc.), its parents, predecessors, subsidiaries, divisions,

groups and affiliates, and their directors, officers, employees,

agents, partners, and representatives, and their respective successors

or assigns.

F. ``Respondents'' mean Red Apple, John A. Catsimatidis, SAC, and

SSI.

G. ``Assets to be divested'' means the assets described in

Paragraphs II. A. and II. B. of this order.

H. ``Supermarket'' means a full-line retail grocery store that

carries a wide variety of food and grocery items in particular product

categories, including bread and dairy products; refrigerated and frozen

food and beverage products; fresh and prepared meats and poultry;

produce, including fresh fruits and vegetables; shelf-stable food and

beverage products, including canned and other types of packaged

products; staple foodstuffs, which may include salt, sugar, flour,

sauces, spices, coffee, and tea; and other grocery products, including

nonfood items such as soaps, detergents, paper goods, other household

products, and health and beauty aids.

II

It is further ordered that respondents shall divest six

supermarkets in the following manner:

A. Respondents shall divest, absolutely and in good faith, within

twelve months from the date this order becomes final, four of the

following listed supermarkets, with one supermarket located in each of

the four areas identified below within New York County, New York:

1. Upper East Side:

a. Sloan's located at 1407 Lexington Avenue (store no. 425);

b. Sloan's located at 1343-1347 Lexington Avenue (store no. 437);

or

c. Gristede's located at 1356 Lexington Avenue (store no. 52).

2. Upper West Side:

a. Sloan's located at 530-34 Amsterdam Avenue (store no. 435); or

b. Gristede's located at 251 West 86th Street/2361 Broadway (store

no. 56).

3. Chelsea:

a. Gristede's located at 188 Ninth Avenue (store no. 441, formerly

under the Sloan's trade name) or the nearest alternate supermarket

owned or operated by any respondent.

4. Greenwich Village:

a. Sloan's located at 585 Hudson Street (store no. 410) or the

nearest alternate supermarket owned or operated by any respondent; or

b. Gristede's located at 25 University Place (store no. 82) or the

nearest alternate supermarket west of Broadway owned or operated by any

respondent.

The assets to be divested shall consist of the grocery business

operated, and all assets, leases, properties, business and goodwill,

tangible and intangible, utilized in the distribution or sale of

groceries at the listed locations that are divested.

B. Respondents shall also divest, absolutely and in good faith,

within twelve months from the date this order becomes final, two of the

following listed supermarkets, with one supermarket from one area

identified below within New York County, New York, and the other

supermarket from a different area identified below within New York

County, New York:

1. Upper East Side:

In addition to one of the three Upper East Side supermarkets listed

in Paragraph II.A.1., either one other supermarket listed in Paragraph

II.A.1., or one of the following:

a. Sloan's located at 1245 Park Avenue (store no. 38, formerly

under the Red Apple trade name);

b. Gristede's located at 205 East 96th Street (store no. 98);

c. Gristede's located at 350 East 86th Street (store no. 50);

d. Sloan's located at 1668 Second Avenue (store no. 434);

e. Gristede's located at 1644 York Avenue (store no. 53); or

f. Sloan's located at 1637 York Avenue (store no. 507).

2. Upper West Side:

In addition to one of the two Upper West Side supermarkets listed

in Paragraph II.A.2., either one other supermarket listed in Paragraph

II.A.2., or the following:

a. a supermarket owned or operated by any respondent and located

within four blocks of either of the two supermarkets listed in

Paragraph II. A. 2.

3. Greenwich Village:

In addition to one of the four Greenwich Village supermarkets

listed in Paragraph II. A. 4., either one other supermarket listed in

Paragraph II. A. 4., or one of the following:

a. Gristede's located at 77 Seventh Avenue (store no. 37) or the

nearest alternate supermarket owned or operated by any respondent; or

b. Gristede's located at 311 Bleecker Street (store no. 83) or the

nearest alternate supermarket owned or operated by any respondent.

The assets to be divested shall consist of the grocery business

operated, and all assets, leases, properties, business and goodwill,

tangible and intangible, utilized in the distribution or sale of

groceries at the listed locations that are divested.

C. Respondents shall divest the assets to be divested only to an

acquirer or acquirers that receive the prior approval of the Commission

and only in a manner that receives the prior approval of the

Commission. The purpose of the divestiture of the assets to be divested

is to ensure the continuation of the assets to be divested as ongoing,

viable enterprises engaged in the supermarket business and to remedy

the lessening of competition resulting from the acquisitions as alleged

in the Commission's complaint.

D. Pending divestiture of such assets to be divested to comply with

Paragraphs II. and III. of this order, respondents shall take such

actions as are necessary to maintain the viability and marketability of

such assets to be divested to comply with Paragraphs II. and III. of

this order and to prevent the destruction, removal, wasting,

deterioration, or impairment of such assets to be divested to comply

with Paragraphs II. and III. of this order except in the ordinary

course of business and except for ordinary wear and tear.

III

It is further ordered that:

A. If respondents have not divested, absolutely and in good faith

and with the Commission's prior approval, such assets to be divested to

comply with Paragraph II. of this order within twelve months from the

date this order becomes final, the Commission may appoint a trustee to

divest any of the supermarkets listed in Paragraph II. (and all assets,

leases, properties, business and goodwill, tangible and intangible,

utilized in the distribution or sale of groceries at the listed

locations) that are owned or operated by any respondent at the time of

the appointment of the trustee in order to satisfy the requirements of

Paragraph II. A. and II. B. of this order. In the event that the

Commission or the Attorney General brings an action pursuant to section

5(l) of the Federal Trade Commission Act, 15 U.S.C. 45(l), or any other

statute enforced by the Commission, respondents shall consent to the

appointment of a trustee in such action. Neither the appointment of a

trustee nor a decision not to appoint a trustee under this Paragraph

shall preclude the Commission or the Attorney General from seeking

civil penalties or any other relief available to it, including a court-

appointed trustee, pursuant to section 5(l) of the Federal Trade

Commission Act, or any other statute enforced by the Commission, for

any failure by the respondents to comply with this order.

B. If a trustee is appointed by the Commission or a court pursuant

to Paragraph III. A. of this order, respondents shall consent to the

following terms and conditions regarding the trustee's powers, duties,

authority, and responsibilities:

1. The Commission shall select the trustee, subject to the consent

of respondents, which consent shall not be unreasonably withheld. The

trustee shall be a person with experience and expertise in acquisitions

and divestitures. If respondents have not opposed, in writing,

including the reasons for opposing, the selection of any proposed

trustee within ten (10) days after written notice by the staff of the

Commission to respondents of the identity of any proposed trustee,

respondents shall be deemed to have consented to the selection of the

proposed trustee.

2. Subject to the prior approval of the Commission, the trustee

shall have the exclusive power and authority to divest any of the

supermarkets listed in Paragraph II (and all assets, leases,

properties, business and goodwill, tangible and intangible, utilized in

the distribution or sale of groceries at the listed locations) that are

owned or operated by any respondent at the time of the appointment of

the trustee in order to comply with Paragraph II. of this order.

3. Within ten (10) days after appointment of the trustee,

respondents shall execute a trust agreement that, subject to the prior

approval of the Commission and, in the case of a court-appointed

trustee, of the court, transfers to the trustee all rights and powers

necessary to permit the trustee to effect the divestitures required by

Paragraph II. of this order. Such trust agreement may include a

confidentiality agreement.

4. The trustee shall have twelve (12) months from the date the

Commission or court approves the trust agreement described in Paragraph

III. B. 3. to accomplish the divestitures, which shall be subject to

the prior approval of the Commission. If, however, at the end of the

twelve-month period, the trustee has submitted a plan of divestiture or

believes that divestiture can be achieved within a reasonable time, the

divestiture period may be extended by the Commission, or, in the case

of a court-appointed trustee, by the court; provided, however, the

Commission may extend this 12-month period only one (1) time for one

(1) year.

5. The trustee shall have full and complete access to the

personnel, books, records and facilities related to any of the

supermarkets listed in Paragraph II. (and all assets, leases,

properties, business and goodwill, tangible and intangible, utilized in

the distribution or sale of groceries at the listed locations) or to

any other relevant information, as the trustee may request. Respondents

shall develop such financial or other information as such trustee may

reasonably request and shall cooperate with the trustee. Respondents

shall take no action to interfere with or impede the trustee's

accomplishment of the divestitures. Any delays in divestiture caused by

respondents shall extend the time for divestiture under this Paragraph

in an amount equal to the delay, as determined by the Commission or,

for a court-appointed trustee, by the court.

6. The trustee shall use his or her best efforts to negotiate the

most favorable price and terms available in each contract that is

submitted to the Commission, subject to respondents' absolute and

unconditional obligation to divest at no minimum price. The

divestitures shall be made in the manner and to the acquirer or

acquirers as set out in Paragraph II. of this order; provided, however,

if the trustee receives bona fide offers, for any particular

supermarket to be divested, from more than one acquiring entity, and if

the Commission determines to approve more than one such acquiring

entity for such supermarket, the trustee shall divest to the acquiring

entity or entities selected by respondents from among those approved by

the Commission.

7. The trustee shall serve, without bond or other security, at the

cost and expense of respondents, on such reasonable and customary terms

and conditions as the Commission or a court may set. The trustee shall

have the authority to employ, at the cost and expense of respondents,

such consultants, accountants, attorneys, investment bankers, business

brokers, appraisers, and other representatives and assistants as are

necessary to carry out the trustee's duties and responsibilities. The

trustee shall account for all monies derived from the sale and all

expenses incurred. After approval by the Commission and, in the case of

a court-appointed trustee, by the court, of the account of the trustee,

including fees for his or her services, all remaining monies shall be

paid at the direction of the respondents, and the trustee's power shall

be terminated. The trustee's compensation shall be based at least in

significant part on a commission arrangement contingent on the

trustee's divesting the assets to be divested to satisfy Paragraph II.

of this order.

8. Respondents shall indemnify the trustee and hold the trustee

harmless against any losses, claims, damages, liabilities, or expenses

arising out of, or in connection with, the performance of the trustee's

duties, including all reasonable fees of counsel and other expenses

incurred in connection with the preparation for, or defense or any

claim, whether or not resulting in any liability, except to the extent

that such liabilities, losses, damages, claims, or expenses result from

misfeasance, gross negligence, willful or wanton acts, or bad faith by

the trustee.

9. If the trustee ceases to act or fails to act diligently, a

substitute trustee shall be appointed in the same manner as provided in

Paragraph III. A. of this order.

10. The Commission or, in the case of a court-appointed trustee,

the court, may on its own initiative or at the request of the trustee

issue such additional orders or directions as may be necessary or

appropriate to accomplish the divestiture required by this order.

11. The trustee shall have no obligation or authority to operate or

maintain the assets to be divested.

12. The trustee shall report in writing to respondents and the

Commission every ninety (90) days concerning the trustee's efforts to

accomplish divestiture.

IV

It is further ordered that, for a period of ten (10) years

commencing on the date this order becomes final, respondents shall not,

without the prior approval of the Commission, directly or indirectly,

through subsidiaries, partnerships, or otherwise:

A. Acquire any stock, share capital, equity, or other interest in

any supermarket or leasehold interest in any supermarket located in New

York County, New York, south of 116th Street, including any facility

that has operated as a supermarket in this area within six (6) months

of the date of the proposed acquisition; or

B. Acquire any stock, share capital, equity, or other interest in:

(1) Any entity that owns any interest in or operates any supermarket

located in New York County, New York, south of 116th Street, or (2) any

entity that owned any interest in or operated any supermarket located

in New York County, New York, south of 116th Street with six (6) months

of the date of the proposed acquisitions.

Provided, however, that an acquisition otherwise covered by the

requirements of this Paragraph shall be exempt from the requirements of

this Paragraph if it is an acquisition by John A. Catsimatidis or by a

respondent corporation from a respondent corporation or from John A.

Catsimatidis.

V

It is further ordered that, for a period of ten (10) years

commencing on the date this order becomes final, respondents shall

neither enter into nor enforce any agreement that restricts the ability

of any person (as defined in section 1(a) of the Clayton Act, 15 U.S.C.

12(a)) acquiring any supermarket owned or operated by any respondent,

any leasehold interest in any supermarket, or any interest in any

retail location that formerly operated as a supermarket in New York

County, New York, south of 116th Street, to operate a supermarket or

retail food store.

VI

It is further ordered that:

A. Within sixty (60) days after the date this order becomes final

and every sixty (60) days thereafter until respondents have fully

complied with the provisions of Paragraph II. or III. of this order,

respondents shall submit to the Commission verified written reports

setting forth in detail the manner and form in which they intend to

comply, are complying, and have complied with Paragraphs II. and III.

of this order. Respondents shall include in their compliance reports,

among other things that are required from time to time, a full

description of the efforts being made to comply with Paragraphs II. and

III. of the order, including a description of all substantive contacts

or negotiations for the divestiture and the identity of all parties

contacted. Respondents shall include in their compliance reports copies

of all written communications to and from such parties, all internal

memoranda, and all reports and recommendations concerning divestiture.

B. One year (1) from the date this order becomes final, annually

for the next nine (9) years on the anniversary of the date this order

becomes final, and at other times as the Commission may require,

respondents shall file verified written reports with the Commission

setting forth in detail the manner and form in which they have complied

and are complying with this order.

VII

It is further ordered that respondents shall notify the Commission

at least thirty (30) days prior to any proposed change in the corporate

respondents such as dissolution, assignment, sale resulting in the

emergency of a successor corporation, or the creation or dissolution of

subsidiaries or any other change in the corporation that may affect

compliance obligations arising out of the order.

VIII

It is further ordered that, for the purpose of determining or

securing compliance with this order, respondents shall permit any duly

authorized representative of the Commission:

A. Upon five days' written notice to respondents, access, during

office hours and in the presence of counsel, to inspect and copy all

books, ledgers, accounts, correspondence, memoranda and other records

and documents in the possession or under the control of any respondent

relating to any matters contained in this order; and

B. Upon five days' written notice to respondents and without

restraint or interference from them, to interview respondents or

officers, directors, or employees of respondents in the presence of

counsel.

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission (``Commission'') has accepted for

public comment from Red Apple Companies, Inc., John A. Catsimatidis,

Supermarket Acquisition Corporation and Sloan's Supermarkets, Inc. (a/

k/a Designcraft Industries, Inc.) (collectively referred to as the

``Red Apple respondents'') an agreement containing a proposed consent

order. The Commission is placing the agreement containing a proposed

consent order on the public record for sixty (60) days for receipt of

comments by interested persons.

Comments received during this period will become part of the public

record. After sixty (60) days, the Commission will again review the

agreement and the comments received and will decide whether it should

withdraw from the agreement or make final the agreement's proposed

order.

The Commission issued a complaint in this matter on May 27, 1994,

stating that it has reason to believe that the Red Apple respondents'

acquisitions of Sloan's supermarkets between 1991 and 1993 in

residential neighborhoods in New York County, New York, located within

the Upper East Side, the Upper West Side, Chelsea, and Greenwich

Village would substantially lessen competition in violation of section

7 of the Clayton Act, as amended, 15 U.S.C. 18, and section 5 of the

FTC Act, as amended, 15 U.S.C. 45. The agreement containing a proposed

consent order would, if issued by the Commission, settle the charges

alleged in the Commission's complaint.

The proposed consent order requires the Red Apple respondents to

divest a combination of six supermarkets from two lists of supermarkets

organized by geographic market. The listed supermarkets are all located

in the Upper East Side, the Upper West Side, Chelsea, and Greenwich

Village. Under the proposed consent order, the Red Apple respondents

must divest one supermarket within each of the four geographic markets

and two additional supermarkets in those geographic markets. The

proposed consent order gives the Red Apple respondents 12 months to

divest these supermarkets to an acquirer or acquirers that receive the

prior approval of the Commission. Under the proposed consent order, if

the Red Apple respondents fail to satisfy the divestiture provisions,

the Commission may appoint a trustee to divest supermarkets to satisfy

the terms of the order.

The proposed consent order also prohibits the Red Apple

respondents, for a ten-year period, from acquiring, without prior

approval from the Commission, any supermarket (or leasehold interest in

a supermarket, or stock, share capital, equity or other interest in an

entity that owns or operates a supermarket) located in new York County

south of 116th Street. The word ``supermarket'' is defined in the

order.

The proposed consent order also prohibits the Red Apple

respondents, for a ten-year period, from entering into or enforcing any

agreement that restricts the ability of any person acquiring any

supermarket owned or operated by any respondent in New York County

south of 116th Street to operate a supermarket or retail food store.

Under the proposed consent order, the Red Apple respondents are

required to provide to the Commission a report of compliance with the

order within sixty (60) days following the date the order becomes

final, every sixty (60) days thereafter until the divestitures are

completed, and annually for a period of ten years.

It is anticipated that the order will resolve the competitive

problems alleged in the complaint. The purpose of this analysis is to

invite public comment on the proposed consent order to aid the

Commission in its determination of whether it should make final the

proposed consent order contained in the agreement.

This analysis is not intended to constitute an official

interpretation of the agreement and proposed consent order, nor is it

intended to modify the terms of the agreement and proposed consent

order in any way.

Donald S. Clark,

Secretary.

[FR Doc. 94-31129 Filed 12-16-94; 8:45 am]

BILLING CODE 6750-01-M