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paid off in antitrust fight

Bon-Ton’s court gamble
paid off in antitrust fight

Hailed as a victory for shoppers, Monday’s settlement giving the Bon-Ton Stores Inc. entree into the Rochester retail market was less big deal than big relief to some of the attorneys involved in the case.
Like most landmarks, the antitrust case was a crapshoot all the way for Bon-Ton, the booming Pennsylvania-based retail chain that entered federal court last September to oppose purchase of former McCurdy & Co. Inc. stores by the May Department Stores Co. No clear case law existed on the question of whether department stores occupy a distinct market slot, and no private plaintiff had persuaded a judge to undo a deal on a bid for a preliminary injunction in an antitrust case, said Marc Schildkraut, Bon-Ton attorney.
And, although the state attorney general’s office had been investigating the anticompetitive potential of the planned sale of eight McCurdy stores to May Co., the state had not yet taken a stand. Nothing was in the bag when Bon-Ton went to court.
Bon-Ton had lost out to May Co. in a bidding war over the McCurdy stores in early 1994. McCurdy never got back to Bon-Ton on “our third or fourth best and final offer,” said Stephen Evans, Bon-Ton’s senior vice president for real estate, legal and governmental affairs.
At the time, the retail chain based in York, Pa., expected the Federal Trade Commission to hold the May/McCurdy deal off until Bon-Ton could come up with a strategy to get back in the game, Evans said.
“Bon-Ton couldn’t beat May in face-to-face negotiations, so it shanghaied the courts to accomplish its business objectives,” said Gregg Jarrell, professor of finance and economics at the William E. Simon Graduate School of Business Administration.
“This case shows the fundamental confusion over antitrust laws. They are designed to protect competition, not protect competitors.”
The FTC allowed May Co. to proceed with the McCurdy purchase on the “failing firm doctrine.” McCurdy was at the point of watching its stores go down when it put them up for grabs. When the alternative to selling a store is liquidating it, the FTC doctrine holds, anticompetitive concerns go by the boards.
But Bon-Ton turned to Schildkraut, who had been with the FTC for 17 years before going into private practice.
“We knew pursuing an antitrust suit would be an uphill battle,” Evans said. “Maybe because antitrust is extremely expensive litigation, it is highly unusual for a department store to push an antitrust claim so far.”
One week after Bon-Ton filed its antitrust suit against May Co., McCurdy and Rochester mall developer Wilmorite Inc., the attorney general’s office moved to protect the “broader public interest perspective,” even though its arguments echoed Bon-Ton’s, said Assistant Attorney General Robert Hubbard.
Like Bon-Ton, the office wanted to break ground in the law of retail antitrust, but it “was most fundamental to us to get a competing department store into Rochester,” Hubbard said.
Settlement terms transfer four stores from May Co. to Bon-Ton and require May to pay $75,000 to cover the attorney general’s costs of investigating and prosecuting the case. But May Co. escaped the additional cost of going to trial or appealing Judge David Larimer’s Nov. 30 decision and order as well as possible antitrust damages that Hubbard estimated could run into the millions.
Larimer ordered May Co. and McCurdy to wipe out their deal on a finding that it would give May illegal dominance over what he held was a separate niche in the retail market for department stores. The St. Louis-based May Co. owns a number of chains across the country, including four Kaufmann’s stores in the Rochester area. Larimer’s decision came after, as the judge put it, the lawyers “carpet-bombed” him with papers arguing out the place of department stores in the retail economy.
If Larimer’s preliminary decision and order broke ground, the same is true of May Co.’s attempt to close the McCurdy deal without first sitting down to satisfy the court it would maintain retail competition in the area.
“May brazenly went out of its way to ignore the precedent set in years of department store acquisitions activity, where people announce a deal is in the works but nothing changes hands until the acquirer sits down and discusses the antitrust implications with legal authorities right up front,” said Julian Yudelson, associate professor of marketing at Rochester Institute of Technology.
“May just walked right in without talking to everybody and it got caught.”
Besides its business goals, Bon-Ton was interested in pursuing the principle that department stores need competition from other department stores in the same retail market, Schildkraut said.
“But as a private litigant, we may have had a much more difficult time convincing the judge we were also acting in the public interest in trying to stop the sale if the attorney general hadn’t acted in tandem with us,” he added.

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