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The DOJ & FTC’s enforcement push targeting director interlocks raised several unanswered questions, including whether Section 8 of the Clayton Act applied to interlocks involving non-corporate entities. Last week, the FTC answered that question with a resounding “Yes!” when it announced the terms of a consent order resolving antitrust issues associated with the proposed acquisition of EQT Corporation by funds affiliated with Quantum Energy Partners.

The Quantum/EQT settlement was the FTC’s first enforcement action targeting interlocks in 40 years, but that didn’t discourage the agency from staking a broad – and controversial – claim to authority to pursue interlocks enforcement actions against non-corporate entities. The excerpt from Davis Polk’s memo on the FTC’s action explains:

By its terms, Clayton Act Section 8 applies to “corporations (other than banks, banking associations, and trust companies)” without reference to LLCs or partnerships or other forms of organization.  Here, Quantum is organized as a limited partnership and the two acquisition vehicles owned by Quantum were structured as a limited partnership and an LLC.  As such, we believe it is the first challenge by either the FTC or the DOJ of an interlock involving an LLC or partnership.

FTC Chair Lina Khan, joined by the two other Democratic commissioners, issued a statement that “[the consent order] makes clear that Section 8 applies to businesses even if they are structured as limited partnerships or limited liability corporations.”  This follows comments from the former head of the Antitrust Division, Makam Delrahim, in 2019 that the DOJ may also be considering enforcing Section 8 against non-corporate entities.

This is a controversial position to take. The Supreme Court has previously held that Section 8 does not apply to banks because they are not “corporations” and commentators have suggested that the same reasoning should exclude partnerships and LLCs from coverage under Section 8.

The memo also notes that the FTC’s complaint claimed that the interlock was independently an “unfair or deceptive act or practice” that violated Section 5 of the FTC Act.  Last year, the FTC issued a policy statement asserting that Section 5 provided it with broad authority to target alleged violations that have historically been addressed through other provisions of the antitrust laws. This enforcement action demonstrates that this policy statement wasn’t just an academic exercise on the FTC’s behalf.

The DOJ also made some interlocks news last week when it announced that two NextDoor directors had resigned from the board “in response to the Antitrust Division’s ongoing enforcement efforts around Section 8 of the Clayton Act.” The DOJ’s announcement added that the interlocks initiative has led to 15 interlocking director resignations from 11 boards and closed with a statement encouraging anyone with information on companies with interlocking directorships to drop a dime on them.

– John Jenkins