What Happens When a CEO Destroys Evidence in an Antitrust Trial?

During a merger investigation, Albertsons CEO Vivek Sankaran and three other execs deleted text messages the court had ordered preserved. The Federal Trade Commission asked the judge for penalties.

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After two years of investigations and negotiations over court logistics, next week, the Federal trial for the $24 billion Kroger-Albertsons supermarket merger begins. And this one’s really bitter, with new revelations emerging a few days ago from the Federal Trade Commission that a group of Albertsons executives, including CEO Vivek Sankaran, have been deleting text messages relevant to the trial that the court ordered them to preserve. That’s a big legal no-no. Meanwhile, Kroger launched a lawsuit against the FTC, seeking to have the commission deemed unconstitutional.

It’s getting ugly, so let’s dive in.

I’ve written about this merger several times. It matters for a number of reasons. First, it’s a very large and important set of supermarkets who control our food systems.

Kroger and Albertsons are both monsters, and the two of them combining would create the second largest chain in the country, after Walmart, with 15% of the national grocery business. Kroger/Albertsons would employ over 700,000 people, have over $200 billion in revenue and more than 40,000 private label brands, and own and operate brands such as Safeway, Ralphs, Smith’s, Harris Teeter, Dillons, Fred Meyer, Vons, Kings, Haggen, Tom Thumb, Star Market, Jewel-Osco, and Shaw’s.

The merger is happening across the backdrop of consolidation in the industry. “There are already 30% fewer grocery stores than there were a few decades ago,” which impacts pricing, and large chains “not only secure better prices for goods than their smaller counterparts, but can also increase prices faster than costs, contributing to inflation.” This merger will worsen the situation, as “suppliers, consumers, and workers will all feel the pressure from Kroger/Albertsons, and since suppliers buy from farmers, farmers will feel it too, at least indirectly.”

The USDA’s chart on supermarket consolidation shows the pattern.

If the deal goes through, then the rest of the industry, as Supermarket News notes, will follow. “The Kroger-Albertsons deal heralds a ‘new grocery landscape.’ If that deal goes through, other chains might merge, such as Ahold Delhaize USA (East Coast), Publix (Southeast), H-E-B (Texas), Hy-Vee (Midwest) and Wakefern/ShopRite (Northeast, Mid-Atlantic), Wegmans (Northeast, Mid-Atlantic), Giant Eagle (Rust Belt, Mid-Atlantic), Southeastern Grocers (Southeast) WinCo Foods (West), Price Chopper/Market 32 and Tops Friendly Markets (forming Northeast Grocery Inc.) and Raley’s and Bashas’ (forming The Raley’s Cos.).”

Still, so what? So supermarkets get bigger? Who cares? Well the answer is, according to the FTC, that prices will go up and wages will go down.

The two giant chains compete against each other aggressively right now, benchmarking prices against each other, offering promotional pricing discounts to lure shoppers, checking the freshness and quality of each others’ produce, and remodeling stores where there is competition, including extra services like pharmacies. They also hire each others’ workers, and unions, such as the United Food and Commercial Workers, get better collective bargaining agreements by playing the two chains off each other. If Kroger and Albertsons merged, all that goes away.

And the government has evidence, including quotes from executives, and lists of dozens of cities where prices are likely to go up. Indeed the merger is so egregious that CNBC’s Jim Cramer, who has spent a lot of time bashing FTC Chair Lina Khan, said Kroger has no shot of winning. Beyond that, the government got what looks like a good draw in terms of the judge, it was assigned to a Biden-appointee, Adrienne Nelson, who has a background in public service.

Unions are happy with the FTC challenge, with the Teamsters and the United Food and Commercial Workers International Union praising the merger challenge (as did other unions in solidarity.) Politicians from both sides also weighed in, which is unusual. I haven’t done a thorough check, but there are statements from California Senate candidates Katie Porter and Adam Schiff, Nevada Senator Jackie Rosen, Alaska Senators Dan Sullivan and Lisa Murkowski, Minnesota Senator Amy Klobuchar, Utah Senator Mike Lee, Oregon Senator Ron Wyden, and Congressman Chris DeLuzio.

But it’s not just a problematic merger, Kroger and Albertsons were found to be colluding on prices and wages during strikes, which is, you know, a crime. The FTC doesn’t have criminal jurisdiction, so that’s on the Antitrust Division. But it’s a scandal-ridden merger.

And with that, let’s go to the new revelations of wrongdoing. When this merger was first announced, the FTC immediately started investigating. And antitrust lawyers know their clients must preserve all relevant documents the moment their clients start discussing mergers. Here, for instance, is a slide from a marketing presentation from big law firm Gibson Dunn explaining how to break the law without being caught.

Still, the FTC and Kroger/Albertsons negotiated over how many and what kind of documents to turn over, which is standard procedure in litigation. Starting in October of 2023, government lawyers noticed that Albertsons wasn’t turning over relevant texts from a Colorado executive. A month later, Albertsons confirmed that his iPhone was automatically deleting messages.

There was an ensuing fight over what documents should be turned over. Kroger/Albertsons wanted to preserve Microsoft 360 documents, the FTC asked for text messages among executives as well. Eventually, the FTC demanded a court order, and the court decided that, yes, text messages were relevant to the merger, and so the merging parties had to hand over text messages. And yet, when the FTC asked for a detailed accounting of what messages had been lost, Albertsons didn’t even bother responding for four months.

Four days ago, the FTC and eight states claimed in a filing that, well, four out of eight executives for Albertsons didn’t preserve their text messages. We don’t know what those messages said, but it doesn’t seem accidental. The FTC wrote, “At least one thread - although stripped of its full context - still reveals one Albertsons executive's assessment that the merger will likely increase prices.”

It gets worse. “Of the eight Albertsons’ executives set to testify at this evidentiary hearing,” the FTC claimed, “four exhibited a pervasive practice of deleting business-related text messages.”

I can’t emphasize enough how bonkers it is to delete evidence the way Albertsons executives were doing. It’s far worse than what Google did, when that company had settings for employees to not retain chats but with an instruction to manually retain them if the conversations related to antitrust. No, these are Albertsons executives, witnesses at trial, explicitly deleting their written communications while under investigation.

Why would well-manicured executives who can afford the best lawyers in the country fail to preserve documents? I’m guessing they were texting stuff to each other about what they are going to do if the merger goes through. And the stakes are high for these guys if that evidence came out. The two companies have spent $864 million just on costs related to the merger, which is 3.5% of the whole deal. And Sankaran alone will make $43 million in payment upon completion of the deal, and the whole executive team will get $146 million.

So what happens now? Well, the FTC requested what’s called an adverse inference, which means that the judge should assume the defense was naughty and either rule against them straight-up or strongly presume they are engaged in unlawful behavior. Basically, the party who didn’t get access to evidence that was destroyed gets to ask the judge to put her thumb on the scale on their behalf. That’s what Judge Donato did in California in jury instructions to Google, and that’s one reason the jury found Google liable. In a different suit, Google had to pay $1 million in sanctions over such misconduct.

So how are the merging parties responding? On Monday, Kroger filed a lawsuit in Ohio saying that the FTC is unconstitutional, mostly for irrelevant reasons having to do with the merger challenge process. While there’s a slight chance it could succeed, the complaint also looks a bit like a desperation move. It is clearly going to anger Judge Nelson, since she’s been presiding for two years in Portland and has done a lot of work on the case, and now Kroger is essentially trying to take the decision out of her hands through a court in Ohio because they don’t like how she’s handling it. At any rate, it’s a go-for-broke moment for a badly conceived merger attempt.

In terms of the document deletions, I hope the judge really comes down on Albertsons and their lawyers, who are Debevoise & Plimpton’s Ted Hassi, White & Case’s George Paul, and Dechert partners Mike Cowie and James Fishkin. This stuff is completely outrageous, and if judges don’t crack down, more corporations are going to flout the law. It’s not just Google and Albertsons; Amazon execs are also being accused of destroying evidence. And this Friday, in yet another antitrust case against Google, a judge is hearing arguments over, yes, sanctions for deleting evidence.

At some level, the point is simple. Crime shouldn’t pay. Or as Congressman Wright Patman once put it about monopolists, “They only believe in law and order if they write the law and give the order.”

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cheers,

Matt Stoller