DOJ Agreement to Use Binding Arbitration to Resolve Merger Dispute Could Herald New Approach in Antitrust Enforcement

By Alex Cohen

Federal antitrust enforcers may be increasingly looking to arbitrators—instead of federal courts—to be the arbiters of competition law if a new approach in enforcement takes hold.

This approach was highlighted on September 4, 2019, when the Antitrust Division of the United States Department of Justice (“DOJ”) filed a complaint in the U.S. District Court for the Northern District of Ohio challenging Novelis Inc.’s proposed $2.6 billion acquisition of Aleris Corporation.

Upon filing of its complaint, the DOJ issued a press release announcing that it had reached an agreement with defendants to use binding arbitration “to resolve the dispositive issue” of product market definition in the DOJ’s challenge to the acquisition.  While the Administrative Dispute Resolution Act of 1996 authorizes the use of arbitration for such purposes, the DOJ has never elected to use this authority until now.

Assistant Attorney General Makan Delrahim explained that arbitration would allow the Antitrust Division to resolve the issue of market definition “efficiently and effectively” and that arbitration “is an important tool that the Antitrust Division can and will use, in appropriate circumstances.”

While the announcement included some ambiguity over the type of “appropriate circumstances” under which the DOJ will pursue arbitration – which is a significant departure from its standard practice of litigating all aspects of a case in federal court – the DOJ’s move signals an opportunity for companies involved in enforcement actions to avoid trial by opting for alternative remedies.

In this case, the DOJ alleged that the transaction threatened competition because it would combine two of only four North American producers of aluminum body sheet, material used in cars to make them lighter, more fuel-efficient, safer and more durable.  According to a court filing made shortly after the DOJ’s September 4 announcement, the parties have agreed to file a joint motion to stay the litigation following the completion of fact discovery, and refer the matter to binding arbitration on the issue of market definition.

Under the terms of the agreement, if the DOJ prevails in arbitration the department will file a proposed Final Judgment that requires Novelis to divest certain assets.  Notably, any proposed settlement would be subject to the Tunney Act, which requires federal court review for consideration of whether the judgment is “in the public interest.”  If the defendants prevail in arbitration, the DOJ will voluntarily dismiss the complaint.

In a recent speech, Assistant Attorney General Makan Delrahim provided some additional color on the decision to pursue arbitration.  Delrahim said he believed that antitrust legal proceedings could be improved through alternative mechanisms and that antitrust enforcers should consider ways to make merger and conduct investigations processes more efficient.  He raised the question of whether a generalist judge or lay jury are always the optimal decision-maker for antitrust cases involving complex economics, and noted that one benefit of arbitration is that it could include an antitrust specialist or former judge with experience handling complex antitrust cases.

While arbitration may be an appropriate avenue in both merger and conduct cases, Delrahim noted that “the efficiency analysis could differ between the types of cases, and that “[a]rbitration may be more appropriate for important or dispositive issues rather than entire cases, or for specific issues that lend themselves to resolution by a specialist.”  Delharim concluded his remarks by noting that the DOJ would continue to explore opportunities for arbitration where (1) there are efficiency gains relative to the alternatives, (2) the disputed question the arbitrator will be asked to resolve is clear and can be agreed upon by the parties, and (3) arbitration would not result in a lost opportunity to create valuable legal precedent.  The third point is significant as arbitration is typically confidential and result in non-public decisions.  By contrast, federal court proceedings and decisions are public and provide valuable insights and precedents for future antitrust cases.

While how the agreement in the Novelis will affect future merger and conduct cases remains to be seen, companies facing antitrust enforcement action from the DOJ should consider whether the facts and issues presented in their cases are suitable for arbitration.  For example, in merger cases involving multiple dispositive antitrust issues, or where no structural remedy is available, arbitration may not be appropriate.

While arbitration has not yet been used in the context of a conduct investigation, this development portends increased use of arbitration from antitrust authorities.  Notably, however, the policy laid out in the Novelis only applies to DOJ and has no bearing on matters under investigation by the Federal Trade Commission.

Edited by Gary Malone