The automotive industry has historically relied on steel for automotive bodies, but the industry is increasingly adopting lighter weight aluminum instead. Only four companies supply aluminum body sheet (ABS) in North America. In July 2018, two of those companies—Novelis Inc. and a recent competitive entrant, Aleris Corp.—announced plans to merge. Concerned that the merger would likely substantially lessen competition in the manufacture and sale of ABS in the United States, the DOJ’s Antitrust Division filed a challenge. The United States’ Antitrust Division approved closure of the acquisition subject to a requirement to divest certain assets if the division prevailed in an arbitral proceeding. The parties agreed that the United States would file a complaint in federal court following the completion of fact discovery. On September 4, 2019, a civil complaint was filed in the Northern District of Ohio (United States v. Novelis Inc. & Aleris Corp., No. 1:19-cv-02033, ECF. No. 1).
March 15, 2021 Articles
DOJ Approves the Use of Binding Arbitration to Resolve Merger Disputes
Following a successful unprecedented use of binding arbitration to resolve a merger dispute, the department recently issued updated guidance on the use of arbitration and case selection criteria.
By P. Jean Baker
As agreed to by the parties, on September 9, 2019, the United States as the plaintiff filed two documents with the court: Explanation of Plan to Refer This Matter to Arbitration (ECF No. 11) and Arbitration Term Sheet (ECF No. 11-1). The DOJ explained to the court that “because this merger challenge would turn on a single dispositive issue (product market definition),” the parties agreed to refer this single issue to binding arbitration to “lessen the burden on the Court and reduce litigation costs. . . .” According to the term sheet, time limits were placed on the commencement and conclusion of the proceeding. If the DOJ and the parties were unable to agree on a single arbitrator, a panel of three arbitrators would be selected. The award was not to exceed five pages. If the arbitrator determined the relevant market was broader than the DOJ alleged, the complaint would be promptly dismissed. If the arbitrator agreed with the DOJ, the parties would divest certain assets to a buyer that the DOJ deemed acceptable and pay the DOJ’s fees and costs, including expert fees.
A confidential, 10-day hearing in the Antitrust Division’s private auditorium was conducted by a single arbitrator, a former director of the Bureau of Competition at the Federal Trade Commission. Eleven fact witnesses and three experts provided testimony. On March 9, 2020—six months to the day after the division filed its plan to submit the matter to arbitration—the arbitrator issued his decision in favor of the DOJ. (Arbitration Decision (redated public version)). On August 26, 2020, a final judgement was entered and the parties were ordered to divest certain rights or assets to ensure that competition is not substantially lessened regarding the manufacture and sale of ABS in the U.S.
The Antitrust Division Issues Case Selection Guidance
Having prevailed in its unprecedented use of arbitration to resolve a merger dispute, on November 12, 2020, the Antitrust Division issued guidance regarding the use of arbitration and case selection criteria that updated and supplemented previous guidance issued by the division. (See 61 Fed. Reg. 36,896 (July 15, 1996.) While acknowledging that arbitration can help to enhance investigation and negotiation efforts, conserve resources, and achieve better civil antitrust enforcement results, the division indicated that many of the civil cases brought by the division would not be good candidates for arbitration.
When assessing whether a case would be a good candidate for voluntary submission to binding arbitration, the division and parties should consider the following:
- Would use of arbitration conserve enforcement resources while protecting consumers?
- Are the factual or legal issues clear and easily agreed upon for presentation to an arbitrator?
- Would the parties benefit from reliance on the subject matter expertise of an expert arbitrator?
- Is there a particular need for a timely resolution of the dispute?
- Do the parties prefer to decide the range of possible remedies in advance?
Cases that would probably not be good candidates involve those in which a judicial precedent needs to be created or resolution of a significant public interest needs to be conducted in an open forum by a federal judge.
The Division Issues Guidance Regarding the Arbitration Agreement
In addition to guidance on case selection, the Antitrust Division also offered guidance as to how the arbitration should be conducted, starting with the agreement. In accordance with the Administrative Dispute Resolution Act (5 U.S.C. § 575), the agreement to arbitrate must be voluntary, must be in writing, must specify a maximum award that may be issued by the arbitrator, may specify other conditions limiting the range of possible outcomes, and may specify that only certain issues in controversy will be submitted to arbitration. In addition, the agreement should address the confidentiality of evidence and the confidentiality of the proceedings. Finally, although “it is the policy and the strong preference of the Division that the arbitrator’s decision be made public,” confidential information may be redacted.
The Administrative Dispute Resolution Act requires that arbitrator compensation be “fair and reasonable to the Government.” Division attorneys, therefore, should consider whether a cost-shifting provision in the arbitration agreement would be appropriate under the circumstances. The cost-shifting provision, however, may not provide for reimbursement of private litigants’ fees or expenses if the division does not prevail in arbitration.
The United States May File a Complaint prior to Arbitration
The guidance issued by the division indicates that the United States, although not required to do so, may file a complaint in federal district court prior to commencing arbitration to ensure court oversight of fact discovery if deemed necessary by the division. The United States may also file both a complaint and a proposed consent judgment, thus allowing for court oversight of a remedy the division deemed to be complex or in need of ongoing monitoring.
The Division Issues Guidance Regarding Arbitrator Selection
The Administrative Dispute Resolution Act provides that any individual who is acceptable to the parties may serve as the arbitrator, provided he or she has no conflicts with respect to the issues being arbitrated (unless the conflict is disclosed and all parties agree that the arbitrator may serve). When identifying possible arbitrators, division attorneys will consider the candidates’ antitrust expertise, any economics training (to the extent relevant to the issue to be decided), experience with complex antitrust cases or arbitration, and cost. When possible, the division attorneys should work with the other parties to select a single arbitrator, rather than a panel of arbitrators.
As the Antitrust Division noted in its March 9, 2020, press release, parties are expected to participate in the selection process. Counsel for a party, therefore, “should promptly consider qualified, appropriate candidates that both the party and the Division would find acceptable.”
The American Arbitration Association’s List Only service. Attempting to identify arbitrators who comply with the required qualifications, charge a rate of compensation the government is willing to pay, and have zero potential conflicts of interest can be both costly and time consuming. A better approach might be to use the American Arbitration Association’s (AAA’s) List Only service. Prior to negotiating with division attorneys, a party can request that the AAA provide a list of 5, 10, or 15 arbitrators with zero potential conflicts whose credentials match the specified selection criteria and whose rate of compensation falls within a range specified by the party. The AAA will screen arbitrators on its national mergers and acquisitions roster to identify individuals who meet a party’s selection requirements. Arbitrators who are identified by the AAA as meeting the required search qualifications will be notified by the AAA that their information has been provided to a party seeking an arbitrator and the parties will contact the arbitrator directly if selected to serve on a case.
The fees for the List Only service are as follows: A list of up to 5 arbitrators will cost $750. If needed, an additional 5 names will cost an additional $750. A list of up to 10 arbitrators will cost $1,500. If needed, an additional 10 names will cost an additional $750. A list of up to 15 names will cost $2,000. If needed, an additional 15 names will cost an additional $1,000. If the AAA, in its sole discretion, is unable to compile an appropriate list of arbitrators after completing a search, a minimum non-refundable search fee of $750 will be retained by the AAA and the balance of the List Only service fees will be refunded.
Counsel Should Be Prepared to Negotiate Arbitration Procedures
As noted by the division, parties to an antitrust dispute have the flexibility in arbitration to fashion their own procedures for presenting evidence and resolving the dispute, including exercising more direct control over the remedy. The division’s guidance, therefore, does not specify how arbitration must be conducted. Counsel should be thoroughly prepared to negotiate the procedures their client wants included in an arbitration agreement executed with the division. Counsel who lack experience resolving disputes in arbitration should carefully review a copy of the AAA’s Commercial Arbitration Rules and the AAA’s online ClauseBuilder Tool prior to entering into negotiations. This will provide counsel with insight as to what should be included in an arbitration term sheet. For example, how will a request for removal of an arbitrator based on an undisclosed conflict be resolved?
Conclusion
The division recognizes that arbitration eliminates unnecessary civil litigation, shortening the time it takes to resolve civil disputes and achieving better case resolutions with less cost to the taxpayer. The dissemination of arbitration guidance to all sections of the division “indicates a potential role for arbitration across other civil investigations and matters.”
P. Jean Baker is vice president of the Commercial Division of the American Arbitration Association in Washington, D.C.
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