Judge Easterbrook On Section 8 Director Interlocks And Antitrust Injury

Author:Ms Kathryn Fenton and J. Bruce McDonald
Profession:Jones Day

Although Section 8 of the Clayton Act, 15 U.S.C. § 19, which prohibits competing corporations from sharing directors or officers, is an important concern for the business community, the statute has received surprisingly little attention from government enforcers or judicial opinions in recent years. Therefore, when two of the leading antitrust voices on the federal bench – Judges Easterbrook and Posner of the U.S. Court of Appeals for the Seventh Circuit – offer a perspective on Section 8, it is worth noting. On June 13, 2012, in a unanimous opinion authored by Judge Easterbrook (joined by Judges Posner and Bauer), the Seventh Circuit reversed and remanded with instructions to enter judgment for defendants a shareholders' derivative suit alleging that Sears Roebuck & Co. violated Section 8 by having on its Board of Directors two individuals who also served on the boards of Sears competitors. Robert F. Booth v. Crowley, No. 10-3285 (7th Cir. June 13, 2012) Specifically, the suit asserted that William C. Crowley served on the boards of AutoNation, Inc. and Auto Zone, Inc. and that Ann N. Reese was a member of the board of Jones Apparel Group, Inc., businesses that allegedly competed with Sears, such that the resulting director interlocks violated Section 8. In denying a motion to dismiss, the district court had concluded that Section 8 could be enforced through a shareholders' derivative action even though the alleged coordination with a competitor presumably benefits, rather than harms, the corporation involved. Following this ruling, the shareholder plaintiffs and Sears proposed a settlement under which one of the two contested directors would resign and the plaintiffs' lawyers would receive up to $925,000 in attorneys' fees. (As Judge Easterbrook noted, it is not clear how this settlement could resolve the Section 8 issue since one of the director interlocks would remain.) Another Sears investor, Mr. Frank, sought leave to intervene to oppose the settlement and to seek dismissal of the lawsuit. In ordering dismissal of the derivative suit, Judge Easterbrook reversed the district court and found that neither the plaintiffs (nor any other investor) had suffered the necessary antitrust injury as a result of the alleged Section 8 violation. He also was not persuaded by the argument that the plaintiff shareholders and Sears benefitted from the lawsuit, rejecting their claim that removing the interlocking director from the board...

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