Supreme Court Ruling Complicates FTC’s Bid to Block Tapestry-Capri Merger

The Federal Trade Commission’s (FTC) efforts to halt an $8.5 billion merger between fashion giants Tapestry Inc. and Capri Holdings Ltd. have encountered a significant legal challenge, with a recent Supreme Court ruling emerging as a focal point of contention. This dispute centers on the implications of a June 2024 Supreme Court decision that limited the power of a labor agency to secure immediate court orders, raising questions about its relevance to the FTC’s case.

Tapestry — the parent company of Coach and Kate Spade — and Capri — which owns Michael Kors and Versace — argue that the Supreme Court’s ruling complicates the FTC’s ability to obtain a preliminary injunction to temporarily freeze the deal. According to Bloomberg, the companies claim that the ruling places a higher burden on the FTC to demonstrate a “likelihood of success on the merits” in federal court, a requirement that could make it more difficult to pause the merger while legal proceedings unfold.

The FTC, however, has dismissed the relevance of the Supreme Court case, which involved the National Labor Relations Board (NLRB), to its own statutory authority. Per Bloomberg, the agency maintains that the Supreme Court decision does not undermine decades of legal precedent that specifically govern FTC actions under the FTC Act. The agency contends that the legal standards applicable to the NLRB and the FTC differ significantly, and that the court should continue to weigh the FTC’s likelihood of success along with public interest considerations when deciding on an injunction.

This procedural battle is taking place ahead of a September 9 trial in the U.S. District Court for the Southern District of New York, where the FTC will argue that Tapestry’s acquisition of Capri would stifle competition in the luxury handbag market, ultimately harming consumers and workers. In cases like this, the FTC typically seeks a preliminary injunction to prevent the merger from proceeding until its internal review process is complete.

The fashion companies, represented by high-profile law firms Latham & Watkins LLP and Wachtell Lipton Rosen & Katz, are challenging the FTC’s interpretation of the law, citing the recent Supreme Court ruling in Starbucks Corp. v. McKinney. That case involved a temporary order to reinstate pro-union workers at Starbucks and resulted in the Court insisting that NLRB petitions be evaluated under a more stringent four-part test rather than a previously used two-part standard.

Legal experts suggest that while the companies’ argument is a strategic attempt to leverage the Supreme Court’s ruling, its impact on the FTC’s case remains uncertain. Stephen Calkins, a law professor at Wayne State University and former FTC general counsel, noted that administrative agencies like the FTC have gradually been losing some of the procedural advantages they once enjoyed. However, the ultimate success of the FTC’s challenge may depend more on the substantive evidence presented during the trial rather than the specific legal standards being debated.

Source: Bloomberg