By Robert Connolly   [email protected]  LinkedIn

These are exciting times for someone (me) obsessed with the idea that there should be financial rewards available for individuals who blow the whistle on antitrust crimes.  Yesterday I submitted an article to a publication that will appear in the next day or two entitled, “When Fishing for Antitrust Cooperation, It’s Good to Have Bait.”  Today there are reports of new proposed legislation to be introduced by Senator Amy Klobuchar.  See e.g., Ryan Tracy, Wall Street Journal, February 4, 2021,  Klobuchar to Introduce Antitrust Bill Raising Bar for Technology Deals (here) (“The senator plans to introduce legislation that would bar companies that dominate their sectors from making acquisitions unless they can prove their deals don’t “create an appreciable risk of materially lessening competition’”); Lauren Feiner, CNBC, February 4, 2021, Klobuchar Unveils Sweeping Revamp of Antitrust  Enforcement (here) (“Sen. Amy Klobuchar, D-Minn., unveiled a sweeping antitrust reform bill on Thursday, setting a tough tone as she becomes chair of the Senate Judiciary subcommittee on antitrust.”)

Senator Klobuchar’s CALERA Bill Summary states, among other things, that the legislation:

• would authorize $300 million increases to each agency’s annual budget, providing $484.5 million to the Antitrust Division and $651 million to the FTC.
• would restore the original intent of Section 7 of the Clayton Act, which was designed stop anticompetitive mergers in order to address competitive problems in their “incipiency” before they ripened and caused harm.
• defines several categories of mergers that pose significant risks to competition and shifts the legal burden to the merging parties to prove that mergers falling into those categories do not create an appreciable risk of materially lessening competition or tend to create a monopoly or monopsony.
• creates a new provision under the Clayton Act to prohibit “exclusionary conduct” (conduct that materially disadvantages competitors or limits their opportunity to compete) that presents an “appreciable risk of harming competition.”
• and to my delight: “establish a bounty system to reward criminal whistleblowers for providing evidence in antitrust cases resulting in the collection of a criminal fines.”

             This is sweeping proposed legislation with severable components. Criminal antitrust whistleblower legislation should be a high priority.  There are at least three trends that make this reform imperative:

            1)  As of September 1, 2020, roughly $2.59 trillion in new budgetary resources have been made available for federal agencies to respond to the pandemic. President Biden is seeking an additional $1.9 trillion.  This is an unprecedented level of federal spending and contracting.

2)  The Antitrust Division has established a Procurement Collusion Strike Force with an information page (here).   There is a “Report Possible Violations” heading with a link to “Report COVID-19 Procurement Collusion” and to “Report Other Procurement Collusion.”  Currently, other than being a good citizen, there is no incentive to offset the likely reluctance to “getting involved” in a federal investigation.

3) When fishing for whistleblowers, it’s good to have bait.  A potential whistleblower reward could reenergize criminal antitrust enforcement, See Cartel Capers, April 9, 2018, It’s A Crime There Isn’t a Criminal Antitrust Whistleblower Statute.

A whistleblower can currently file a qui tam suit under the False Claims Act and receive a financial reward if the government collects damages for bid rigging on federal contracts (see e.g. Cartel Capers, February 1, 2021 An Update on Criminal Antitrust Whistleblower Legislation.  The FCA can be a useful tool for exposing cartels that rig bids on government contracts but it is no substitute for a criminal antitrust whistleblower rewards.  An FCA case is only an option when the government is the victim of collusion.  The false claims are invoices for payments submitted to the United States on contracts that were fraudulently obtained through bid rigging.  If  private contracts are rigged or prices fixed, there are no false claims submitted to the United States, and thus no potential FCA case. Also, even on government contracts, a potential whistleblower may have critical information to start an investigation but not enough, or the personal fortitude, to file a False Claims Act suit.  Lastly, whistleblower legislation can provide a level of confidentiality to a whistleblower that does not exist when a False Claims Act case is filed (while an FCA case is initially filed under seal, eventually the case, and the names of the plaintiffs, can become public).  It can be emotionally and financially draining to be a whistleblower.  Some financial incentive  for coming forward is needed.

The legislation envisioned by Senator Klobuchar is ambitious and passage is no sure thing.  But I hope all parties can rally around the need for criminal antitrust whistleblower rewards.

Robert E. Connolly   [email protected]  LinkedIn

             On Dec. 23, 2020, the Criminal Antitrust Anti-Retaliation Act (the “Act”), finally became law.  The legislation had passed in the Senate several times previously but until this last  Congress, had never been brought up for a vote in the House.  Congratulations to Senators Grassley and Leahy for their persistent advocacy for this legislation.

The Act prohibits employers from retaliating against certain individuals who report criminal antitrust violations.  It allows an individual to file a retaliation complaint with the Secretary of Labor it they are retaliated against for reporting to the federal government information about what they believe to be criminal violation of the antitrust laws.  The remedies include reinstatement, back pay and special damages including litigation costs, expert witness fees and reasonable attorney fees.  This is a positive piece of  legislation.  As discussed below, however, without the potential of a financial reward for being a whistleblower, this legislation alone is unlikely to encourage anyone to come forward.  But, the Act shows that Congress understands the power of whistleblowing, including on criminal antitrust violations, and further legislation will hopefully follow.

The picture facing a potential whistleblower for an antitrust violation is confusing. In the broad sense of “whistleblowing” anyone can make a complaint to the Antitrust Division about what they think might be anticompetitive conduct.  The Antitrust Division has a “Report Violations” page on its website (“Your e-mails, letters and phone call could be our first alert to a possible violations of the antitrust laws and may provide the initial evidence need to begin an investigation.”).  But when it comes to possible whistleblower rewards (i.e. a financial reward  for a successful outcome resulting from the whistleblower’s information), there are several statutes in play.  There is a serious gap in the law because whether a whistleblower can receive financial compensation for reporting a criminal antitrust violation (price fixing bid rigging, market allocation) depends upon whether the victim of the fraudulent scheme was a government entity  or private individuals.

This anomaly is best shown through the Antitrust Division’s criminal cases against South Korean fuel oil dealer who rigged bids on  DOD contracts in South Korea.  In November 2018 the Antitrust Division announced that three South Korean oil refiners had agreed to plead guilty and to enter into civil settlements for rigging bids on United States Department of Defense Fuel Supply Contracts (here).  The investigation was started by a whistleblower filing a False Claims Act case.  The DOJ press release noted, “The United States’ False Claims Act civil investigation resulted from a whistleblower lawsuit filed under the qui tam provisions of the False Claims Act.  Those provisions allow for private parties to sue on behalf of the United States and to share in any recovery.” Claims submitted for payment are “false” if the underlying contract has been fraudulently obtained by rigged. The government has entered into civil settlements of $205 million.  DOJ  Press  Release April 8, 2020 DOJ Agrees to Civil Settlement with Additional Firm Involved in Bid Rigging and Fraud Targeting Defense Department Fuel Supply Contracts for U.S. Military Bases in South Korea.  While the amount awarded to the whistleblower[s] who initiated the investigation is not known, at 15-25% of the total recovery, there was ample reward for coming forward and exposing the scheme.

Suppose, however, the fuel oil dealers fixed prices on contracts on commercial buildings in the United States.  While this would be a criminal price fixing violation of the Sherman Act, there would be no ability for a whistleblower to collect a reward for coming forward.  Being a whistleblower can be a career killing act of public service; a life altering event–and not in a good way.  A criminal antitrust whistleblower is likely to have  criminal exposure if he was involved in the  cartel so the  ability to hire a lawyer on a content fee basis  is crucial.  It  is likely No Potential Reward = No Whistleblower. 

            There is no statute to incentivize criminal antitrust whistleblowers that mirrors the SEC’s powerful Dodd-Frank whistleblower legislation which allows whistleblowers who come forward to the SEC to share between 10 and 30 percent of the government’s total monetary recovery, if any. The effectiveness of the SEC program has exceeded expectations in terms a flood of new fraud cases brought to the SEC by individuals willing to stick there neck in return for the possibility of financial incentives offsetting the risks of being a whistleblower.  See SEC Whistleblower Program Ends Record-Setting Fiscal Year With Four Additional Awards, SEC Press Release, September 30, 2020.

The Criminal Antitrust Anti-Retaliation Act is a welcome start towards protecting criminal antitrust whistleblowers.  Further reform is needed to mirror the financial incentives provided by Dodd-Frank for securities violations and the False Claim Act where the government is the victim of fraudulent schemes.   Why should there be financial incentives for whistleblowing if the federal government is the victim of bid rigging, but not if private entities are the target?  There shouldn’t be.  Another point worth highlighting is that there may be many potential whistleblowers who have valuable information  that could form the basis for an Antitrust Division grand jury or search warrant, but not enough to file a False Claims Act case.  This potential whistleblower may well remain silent, even on government contracting fraud.  The False Claims Act can be effective in certain circumstances but also a cumbersome and public tool compared to the SEC whistleblower incentives and anonymity protections.  Criminal antitrust whistleblower legislation that mirrors the SEC legislation could revitalize criminal enforcement in a way not seen since the revised Corporate Leniency Policy of 1993.  Often companies who consider coming forward for leniency decide against it because the collateral consequences can be so severe.  The threat of an individual whistleblower coming forward would reduce the likelihood of  potential corporate leniency applicant turning away from that decision. So come on President Biden, Congress and AG Garland, let’s keep the whistleblower ball rolling and complete the criminal antitrust whistleblower legislation.

In the two decades I was deeply involved in the Crazy Eddie fraud, the only threat made us lose sleep at night was the possibility of a whistleblower blowing the lid on our crimes. Consistent studies by the Association of Certified Fraud Examiners have shown that most frauds are exposed by whistleblowers, far ahead of frauds exposed by any other source  Sam E. Antar, Former Crazy Eddie CFO, former CPA, and a convicted felon. quoted in, Henry Cutter,  SEC Seeks Right to Cut Whistleblower Bounties, Wall Street Journal, June 29, 2019, (comment by Sam E. Antar, Former Crazy Eddie CFO, former CPA, and a convicted felon).

For further reading see, It’s  a Crime There Isn’t a Criminal Antitrust Whistleblower Statute, Antitrust Law Daily, April 2018

Makan Delrahim, USDOJ Assistant Attorney General for the Antitrust Division, tendered his resignation effective January 19, 2021.  Mr. Delrahim has led Antitrust Division for three and a half years.

Most people who practice antitrust law are passionate about the field and grateful to work with other such dedicated professionals.  If you have a career in antitrust, chances are high that you agree with what the Supreme Court stated:

The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions.  Northern Pacific Railway Co. v. United States, 356 U.S. 1, 4-5 (1958).

Mr. Delrahim is one of the passionate advocates in the field.  He has played an extremely important and challenging role in leading the Antitrust Division.  In his resignation letter Mr. Delrahim outlined the many achievements of the Antitrust Division under his leadership.  I invite everyone to read his letter. Delrahim_Resignation_Ltr.

Congratulations Makan.  Thank you for continuing the tradition of excellence and public service at the Antitrust Division.  Best of luck in your future endeavors.

Bob Connolly  [email protected].

On January 5, 2021, a federal grand jury returned an indictment charging a criminal violation of the Sherman Act based on an agreement not to poach each other’s employees.  US. v. Surgical Care Affiliates LLC and SCAI Holdings, LLC, Case 3:21-cr-00011-L, filed January 5, 2021 (N.D. Texas)(SCAI Holdings is the successor corporation to Surgical Care Affiliates). This is the Antitrust Division’s first criminal case targeting employee no-poach agreements between competitors.  According to the DOJ Press Release:

The indictment, filed in the U.S. District Court for the Northern District of Texas, Dallas Division, charges SCA with entering into and engaging in two separate bilateral conspiracies with other health care companies to suppress competition between them for the services of senior-level employees, in violation of the Sherman Act.  Beginning at least as early as May 2010 and continuing until at least as late as October 2017, SCA conspired with a company based in Texas to allocate senior-level employees by agreeing not to solicit each other’s senior-level employees.  Beginning at least as early as February 2012 and continuing until at least as late as July 2017, SCA separately conspired with a company based in Colorado to allocate senior-level employees through a similar non-solicitation agreement.

The SCA indictment follows on the heels of a December indictment of the former owner of a Dallas area therapist staffing company for participating in a wage-fixing conspiracy for therapists (here).  On the surface at least, the two cases appear to be unrelated. But, the cases demonstrate that collusive agreements that restrain, limit or suppress competition for employees, especially in the health care industry, are an Antitrust Division priority.

The SCA indictment contains various examples of the alleged agreement.

• The earliest example is a May 14, 2010 Company A email stating, “I had a conversation w [Individual 1] re people and we reached agreement that we would not approach each other’s proactively.”
• The indictment alleges that on or about November 1, 2013, employees of Company A discussed whether to interview a candidate employed by SCA in light of the “verbal agreement with SCA to not poach their folks….”
• The latest example of the agreement referenced in the indictment is “ believing a candidate to be employed by SCA, a human resources employee of Company A emailed a recruiting coordinator for Company A on or about July 17, 2017, that although the candidate ‘look[ed] great’ she ‘can’t poach her.’”

The 2017 communication is key.  First, it brings the alleged conspiracy within the 5 year Sherman Act statute of limitation.  Equally important, Makan Delrahim and other DOJ officials have been warning for the last several years that naked no-poach agreements that continued past October 2016 would be considered as possible criminal violations of the antitrust laws.  In a speech in January 2018, Principal Deputy Assistant Attorney General Andrew Finch stated that “the Division expects to pursue criminal charges” for agreements that began after October 2016, as well as for agreements that began before but continued after that date.  This case makes good on that warning.

As the press release states, “An indictment merely alleges that crimes have been committed, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt.”  With that caveat, there are a couple of lessons to be learned from the indictment:

• COMPLIANCE! COMPLIANCE! COMPLIANCE!

            As noted, Mr. Delrahim and other Antitrust Division officials have been warning for years that no-poach agreements that continued past October 2016 would be considered as possible criminal cases. In October 2016 the Antitrust Division and Federal Trade Commission issued “Antitrust Guidance for Human Resource Professionals.”  The guidance includes this statement, “Violations of the antitrust laws can have severe consequences. Depending on the facts of the case, the DOJ could bring a criminal prosecution against individuals, the company, or both.”  Judging from the 2017 allegations in the SCA indictment, this message did not seem to reach the employees allegedly involved in this no-poach agreement.  While the indictment is against two corporate entities, individuals can be held accountable and further charges are possible.

When I was an Antitrust Division prosecutor I found it particularly unpleasant to consider indicting, or actually indicting, individuals who had not received any antitrust counseling from their employer.  [Note:  I do not know if the actors in this case had received antitrust training and ignored it.]  But, ignorance of the law is no defense to a Sherman Act indictment and prosecutors will do their job, even if corporate employers had not.  Besides an obligation to its employees, it is also in the corporation’s best interest to have a well-trained, compliant work force. The expense and disruption from a criminal antitrust investigation, not to mention the fines that can be imposed upon conviction, can be devastating.  That is just what awaits behind Doors #1 and 2.  Behind Door #3 is usually lengthy civil litigation on behalf of the victims of the collusion.

It doesn’t take a crystal ball to know that the important work begun under Makan Delrahim to prioritize investigation and deterrence of anticompetitive agreements in labor markets will continue under the new administration.  Especially in light of burden health care workers have endured with the COID-19 pandemic, it is also likely anticompetitive agreements in health care markets will have priority.  Robust and continuing compliance in this area is in everyone’s best interest.

• Any Agreement that Tampers….

            The agreement alleged in this case was not a complete prohibition on companies hiring each other’s employees.  The agreement was “that SCA and Company A would allocate senior-level employees by not soliciting each other’s senior level employees across the United States.”  If I understand the indictment correctly, an employee from one company could apply to the other company and be considered if the employee told his current employer of his job inquiry. United States v. Socony Vacuum, 310 U.S. 150 (1940) held, “Any combination which tampers with price structures is engaged in an unlawful activity. Even though the members of the price-fixing group were in no position to control the market, to the extent that they raised, lowered, or stabilized prices they would be directly interfering with the free play of market forces.”  The agreement alleged in the SCA indictment, if proved, certainly “directly interfer[ed] with the free play of market forces.”

• Corporate Leniency 

            Many criminal antitrust investigations begin when a corporation, during an internal investigation, discovers the firm may have been engaged in illegal conduct. The SCA indictment may be the product of a corporation seeking leniency from the Division in return for cooperation.  The Antitrust Division has a policy of according leniency to corporations reporting their illegal antitrust activity at an early stage, if they meet certain conditions. “Leniency” means not charging such a firm criminally for the activity being reported.  Current and former employees also may get protection from criminal prosecution if they meet certain conditions.  The Antitrust Division has a “Leniency Program” web page that contains the Corporate and Individual Leniency Policy as well as a FAQ section. (here).

A key feature of the Corporate Leniency Policy is that it is available only to the first corporation to qualify.  Acting quickly can be the difference  between being thee “first in” and qualifying for leniency or missing out and facing criminal charges.

Thanks for reading.

PS.    There is more information and links relating to no-poach and wage fixing cases and policies in an earlier Cartel Capers blog post: A Look Back at the Road to the Antitrust Division’s First Criminal Wage-Fixing Case. 

Bob Connolly  [email protected].

As far as  criminal price fixing cases brought by the Antitrust Division, the indictment in US. v.. Neeraj Jindal, Case 4:20-cr-00358 (E.D. Texas, filed 12/9/20)(press release and indictment link here) would seem remarkable only in how insignificant the alleged conspiracy time period and volume of commerce are.  Jindal was the owner of  a therapist staffing company in the Dallas-Fort Worth metropolitan area.  He is charged with conspiring  “from in  or around March 2017 to in  or around August 2017” by “agreeing to fix prices by lowering the pay rates” to physical therapists and physical therapists  assistants.  The indictment  does not  allege a volume of commerce.  The  indictment charges a second count of obstruction of justice alleging, “Specifically, the Defendant made false and misleading statements to the FTC and withheld and concealed information from the FTC.”  The obstruction involved lying to the FTC, which began the wage-fixing investigation.  The Department of Justice became involved since the FTC cannot bring criminal cases.

This is a small case with big implications.  First, and this cannot be repeated enough, lying to federal agents during the investigation is a sure way to make a criminal prosecution attractive.  Destroying documents, allowing yourself to be questioned without an attorney present (or lying about a material fact even if one is present) are all very bad ideas.  This is an old message that is worth repeating.  The real significance of the case, however, is that it is a partial answer to the question “Whatever happened to the criminal antitrust no-poach/wage fixing cases the Antitrust Division was warning about for the last several years?” This wage-fixing case, while very small in scope and commerce, speaks loudly of the Antitrust Division’s prosecutorial intent in this area.  A little bit of the history of the Antitrust Division’s prosecutorial intent with respect to no-poach cases follows.

In 2010, Adobe, Apple Google, Intuit and Pixar entered into settlement agreements with the Department of Justice. The Antitrust Division reached settlements with six high technology companies – Adobe Systems Inc., Apple Inc., Google Inc., Intel Corp., Intuit Inc. and Pixar – that prevented them from entering into no solicitation agreements for employees. According to the civil complaint, the six companies entered into agreements that restrained competition between them for highly skilled employees. The agreements between Apple and Google, Apple and Adobe, Apple and Pixar and Google and Intel prevented the companies from directly soliciting each other’s employees. An agreement between Google and Intuit prevented Google from directly soliciting Intuit employees. The investigation uncovered evidence such as an email exchange wherein Steve Jobs asked Eric Schmidt to stop Google from trying to hire one of Apple’s engineers: “I would be very pleased if your recruiting department would stop doing this,” Jobs wrote to Schmidt on March 7, 2007.  Schmidt then sent the request to his HR department, saying “I believe we have a policy of no recruiting from Apple and this is a direct inbound request. Can you get this stopped and let me know why this is happening? I will need to send a response back to Apple quickly so please let me know as soon as you can.” A civil class action case followed the government’s case (as they usually do) which the companies later settled for $415 million.  CNET, September 3, 2015,  Lance Whitney,  Apple, Google, others settle antipoaching lawsuit for $415 million. 

Fast forward to October 2016, when the United States’ Department of Justice’s Antitrust Division and Federal Trade Commission issued guidance regarding the application of U.S. antitrust laws to no‑poaching and wage-fixing agreements between employers. This joint guidance indicated that “Going forward, the Justice Department intends to criminally investigate naked no-poaching or wage-fixing agreements that are unrelated or unnecessary to a larger legitimate collaboration between the employers.” DOJ/FTC Press Release, October 20, 2016 Justice Department and Federal Trade Commission Release Guidelines for Human Resource Professionals on How Antitrust Law Applies to Employee Hiring and Compensation.   In a speech in January 2018, Principal Deputy Assistant Attorney General Andrew Finch stated that “the Division expects to pursue criminal charges” for agreements that began after October 2016, as well as for agreements that began before but continued after that date. On April 3, 2018, the Antitrust Division filed a civil antitrust lawsuit against Knorr-Bremse AG and Westinghouse Air Brake Technologies Corp. (“Wabtec”), and with it simultaneously filed a civil settlement. The complaint alleged that these companies and a third company, Faiveley, reached naked no-poach agreements beginning as early as 2009 and continuing until at least 2015. Because the conduct ended before the Division’s guidance of October 2016 regarding possible criminal prosecution, the case was pursued civilly.

The Antitrust Division, however, continued to warn about potential criminal actions in this area.  The Antitrust Division Spring Update 2018 stated, “Market participants are on notice: the Division intends to zealously enforce the antitrust laws in labor markets and aggressively pursue information on additional violations to identify and end anticompetitive no-poach agreements that harm employees and the economy.”  At a January 19, 2018 Antitrust Research Foundation Conference, Assistant Attorney General Makan Delrahim, announced that the DOJ would bring its first criminal cases involving alleged “no poaching” agreements in violation of the Sherman Act in the coming months. In particular, AAG Delrahim warned that if such activity “has not been stopped and continued from the time when the DOJ’s [new antipoaching] policy was made” in October 2016, “we’ll treat that [conduct] as criminal.” He added, “I’ve been shocked about how many of these [agreements] there are, but they’re real.”

While the Antitrust Division has not filed any criminal no-poach cases, it did intervene in a private no-poach case in November 2019.  A November 8, 2019 DOJ Press Release recounted that a on Sept. 25, 2019, a federal district court in North Carolina entered a unique final judgment in a private no-poach class action that approved the parties’ settlement agreement and allowed the United States to enforce the injunctive relief and compliance provisions of the settlement agreement. The settlement followed the Justice Department’s successful intervention in the case, which challenged alleged agreements between Duke University and the University of North Carolina not to compete for each other’s medical faculty.  Seaman v. Duke University and Duke University Health System, Case No. 1:15-cv-000462-CCE-JLW (M.D.N.C.).

In the Division Update Spring 2019, the Division noted that it had filed statements of interest in civil cases.  Many private litigants brought no-poach cases after the Division had brought the issue to light. In its statement of interest, the Division argued that a franchisor and franchisee are not automatically deemed to be a single entity and can be separate entities capable of conspiring within the meaning of Section 1. The United States also argued that naked, horizontal no-poach agreements between rival employers within a franchise system are subject to the per se rule. A restriction in a franchise agreement that forbids franchisees from poaching each other’s employees, however, is subject to the rule of reason in the absence of agreement among the franchisees because it is a vertical restraint. If there is alleged agreement among the franchisees, the restraint is subject to the rule of reason so long as it is ancillary; that is, separate from, and reasonably necessary to, the legitimate franchise collaboration. Moreover, the Division argued that the “quick-look” form of rule of reason analysis is inapplicable because the court should weigh the anticompetitive effects against the procompetitive benefits of franchise no-poach agreements that qualify as either vertical or ancillary restraints.

Many State AG’s also began investigating no-poach agreements, particularly in the fast-food industry.  In a March 12, 2019 press release, California Attorney General Xavier Becerra announced that the State of California, as part of a multistate effort, had entered into agreements with four major fast food companies that prohibit those franchise corporations from continuing to employ “no-poach” policies. “Many of these anticompetitive no-poach provisions required franchise operators to contractually agree to not hire or solicit the employees of another franchise operator. As a consequence, employees, many of whom are low-wage workers, may have been unable to seek better pay and benefits by going to work for a competing franchise. Workers are often unaware of these provisions in the contracts. As a result of the settlements, Arby’s, Dunkin’, Five Guys, and Little Caesars will no longer include no-poach provisions in any of their franchise agreements in the United States.”

While there still had not been any criminal antitrust no-poach indictments, as late as October 29, 2019, an Antitrust Division official testified before Congress that, “The Division has a number of active criminal investigations into naked no-poach and wage-fixing agreements.  While we cannot comment on the status or the timing of these investigations, I want to reaffirm that criminal prosecution of naked no-poach and wage-fixing agreements remains a high priority for the Antitrust Division.”

As of this date, December 2020, the Antitrust Division still has not brought a criminal prosecution of a no-poach agreement.  There has been no public announcement as to why the promised cases have not materialized. It’s possible that there are no-poach agreements still being considered for possible criminal prosecution. It is my guess, and it is only a guess, that upon final examination, and with the threat of a vigorous defense challenge in court, the Division decided not to risk any assault on the per se rule by bringing a no-poach case that a defense team might successfully characterize as having some pro-competitive benefits.  A naked wage-fixing indictment, such as the Jindal indictment the Division just announced, pretty clearly falls in to the per se box.  There is no arguable pro-competitive benefits from an agreement simply to fix/reduce employees’ wages.  No-poach agreements, however, may contain some arguably pro-competitive benefits such as inducing a franchise owner to train employees, secure in the knowledge that they won’t be “poached” away with the employer losing the benefit of the training.  The Antitrust Division will no doubt be very careful to indict only clearly per se cases. The per rule is under enough attack in traditional price fixing/bid rigging cases without pressing the issue with arguably ambiguous or novel cases.   See, Robert E. Connolly, Competition, Spring 2020, Volume 30, No 1, at 177, In the Clash Between the Venerable Per Se Rule and the Constitution, The Constitution Shall Prevail (In Time)   

            SOME TAKEAWAYS

1. If you want to make yourself a test case establishing a prosecutorial principle,  do what this defendant allegedly did.  Leave a text/email trail memorializing the agreement to lower employees’ wages.  Then, while representing yourself during the investigation, make false statements to the FTC denying the agreement.  If the defendant had had an attorney, cooperated with the FTC and admitted his conduct, it is quite possible this matter may have been resolved as a civil case.

2.   This is a very small case in terms of commerce for the Antitrust Division.  But the indictment has put the business community on notice that naked wage-fixing agreement may be  prosecuted as criminal      matters.  The Antitrust Division will commit resources, even in relatively small markets, to protect workers when the facts show a naked restraint.  This statement from the Antitrust Division’s Spring Update 2018 is undoubtedly still true today, “Market participants are on notice: the Division intends to zealously enforce the antitrust laws in labor markets and aggressively pursue information on additional violations to identify and end anticompetitive no-poach agreements that harm employees and the economy.”

3. The COVID pandemic has further focused the government’s attention on protecting labor markets from unlawful restraints.  On April 13, 2020 the FTC and DOJ Issued a Joint Statement announcing that they are on the  alert for Collusion in the US Labor Markets.  According to a press release, challenges to anticompetitive conduct in labor markets by the DOJ and FTC agencies will include:

• Unlawful wage-fixing and “no-poach” agreements
• Anticompetitive non-compete agreements
• Unlawful exchange of competitively sensitive employee information
• Inviting other individuals and companies to collude
• Actions and conduct that harms competition

“The Division will use its enforcement authority to ensure that companies and individuals who distort the free market for labor are held to account,” said Assistant Attorney General Makan Delrahim of the DOJ’s Antitrust Division. The Agencies made it clear that “COVID-19 does not provide a reason to tolerate anticompetitive conduct that harms workers, including doctors, nurses, first responders, and those who work in grocery stores, pharmacies, and warehouses, among other essential service providers on the front lines of addressing the crisis.

No one should assume that because no criminal antitrust case has been brought based on a no-poach agreement that one will never be. And even if a criminal per se case is not brought, no-poach agreements may be challenged as civil antitrust violations.  And now, a wage-fixing case has been brought criminally.  The DOJ and FTC will be on the look-out for any anticompetitive agreements that victimize front line Covid-19 workers. A criminal case, where one is justified, would certainly be a strong deterrent because penalties for individuals for a criminal conviction include a jail sentence of up to 10 years and a criminal fine oof $100,000.  Corporations can be fined up to $100 million, and in certain situations, possibly even more.

If you are interested in an article recounting the history of no-poach agreement as antitrust violations, see, “No-Poach Agreements as Sherman Act Violations: How We Got Here and Where We’re Going, Jamie Chen, Competition: Fall 2018, Vo. 28, No.1.

Thanks for reading

Bob Connolly  [email protected].

Congratulations to Senator Chuck Grassley and Patrick Leahy for the passage in the House of Representatives of their bipartisan legislation that has already passed the Senate that aims to protect whistleblowers who come forward with information on criminal antitrust violations.  In a December 8, 2020 Press Release  Senator Grassley said, “The Criminal Antitrust Anti-Retaliation Act encourages and shields from reprisal private sector employees to shine a light on activities that violate our antitrust laws. This bipartisan bill is an important step to safeguarding fair marketplaces as well as the whistleblowers who support them. It’s earned broad support in both chambers of Congress, and I urge President Trump to sign it into law without delay.”  The Criminal Antitrust Anti-Retaliation Act, which unanimously passed the Senate last year, must now be signed by the President to become law.

The bill allows an employee who believes he or she is the victim of retaliation for providing information to the Department of Justice related to criminal antitrust violations to file a complaint with the Secretary of Labor.  The bill does not provide potential compensation to a whistleblower.  A whistleblower, however, may be reinstated to their former status if the Secretary finds in their favor. “The Criminal Antitrust Anti-Retaliation Act encourages and shields from reprisal private sector employees to shine a light on activities that violate our antitrust laws,” Grassley said in the statement.

Additional original cosponsors of the legislation are: Sens. Richard Blumenthal (D-Ct.), John Kennedy (R-La.), Chris Coons (D-Del.), Amy Klobuchar (D-Minn.), Dianne Feinstein (D-Calif.) and Elizabeth Warren (D-Mass.).

This legislation, if signed by the President, is an important, but modest, step in the right direction of establishing whistleblower incentives for criminal antitrust violations on par with incentives for exposing violations of the SEC and other financial regulation statutes.  The SEC, CFTC and other agencies regularly report massive enforcement actions spurred on by whistleblowers.  A major difference, however, is that whistleblowers in these other areas are incentivized to take the risk and expense of coming  forward by having the potential to receive financial awards as part of any settlement the government recovers.  If you believe, as I do, that it is an extremely difficult thing for a whistleblower to come forward, often with devastating financial and career consequences, these financial incentives are necessary.  The Grassley-Leahy bill, if signed into law, is a good start.  It shows Congressional awareness of the lack of whistleblower protection for criminal antitrust violations and hopefully will be the beginning of a movement that will eventually also offer potential financial award for whistleblowers who successfully expose criminal antitrust violations.

This is an area that I have written abut extensively because I believe financial incentives for antitrust whistleblowers can be just as successful as the financial incentives awarded to SEC whistleblowers.  For some previous articles, see:

• Cartel Capers, July 22, 2020, Happy 10^th Birthday SEC Whistleblower Statute.
• It’s A Crime There Isn’t a Criminal Antitrust Whistleblower Statute, Robert Connolly and Kimberly Justice, April 5, 2018, Antitrust Law Daily
• The Political Stars Align for a Criminal Antitrust Whistleblower Statute,Robert Connolly and Kimberly Justice, Antitrust Law Daily, February 2019
• Cartel Capers, September 25, 2018, A (Hypothetical) Whistleblower Story,
• Cartel Capers, June 20, 2018, “Benefits of a Criminal Antitrust Whistleblower Statute–Part 1

There is already a legal path for a whistleblower to expose criminal antitrust violations where the federal government is the victim.  Where the federal government is the victim, a whistleblower can file a False Claims Act qui tam action and alert the government to a bid rigging scheme.  If the government successfully prosecutes the case and recovers damages, the whistleblower is entitled to a portion of the recovery.  That happened in 2018 when the  Antitrust Division announced that three South Korean companies had agreed to plead guilty and to enter into civil settlements for rigging bids on United States Department of Defense Fuel Supply Contracts (here).  The case was discussed in a speech by Makan Delrahim (here).  The investigation was started by a whistleblower filing a False Claims Act complaint.  The whistleblower(s) is in line to collect a significant award.  It simply makes no sense to incentivize whistleblowers to come forward when the federal government is the victim of illegal collusion but not have similar legislation that provides a financial incentivize for coming forward with information about criminal antirust violation victimizing the private sector.

More to come.  Thanks for reading.

Bob Connolly  [email protected]

            Below is information about the Antitrust, UCL & Privacy Section of the California Lawyers’ Association’s 30^th Annual Golden State Institute!  Everything has a silver lining the silver lining here is that due to the pandemic, this is a Zoom conference, available worldwide without the need to travel.  The program panels have interest and practical use for anyone/anywhere in the practice of competition law.  The program should have particular interest to students–on account of it is free!  Please take a look at the information below and see if the Golden State Institute may be for you.

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Please join the Antitrust, UCL & Privacy Section of the California Lawyers’ Association for the 30^th Annual Golden State Institute!  This year’s program will be virtual taking place over three days, October 27-29, and includes the following sessions:

• Recent Developments in Antitrust and Unfair Competition Law
• A Conversation with California Supreme Court Justice Joshua P. Groban
• Big Stakes Antitrust Trial: New York v. Deutche Telecom AG (S.D.N.Y.)
• Antitrust and Social Justice
• Cartel Enforcement
• A Conversation about Diversity, Racism, and Equality in the Legal Profession
• Networking Sessions

Earn 5.0 hours MCLE credits, including 1.0 hour Recognition and Elimination of Bias in the Legal Profession and Society.  Registration is $50 for Private Practice Attorneys, $25 for Government, Academic, and Non-Practicing Attorneys, and free for Law Students.  Find out more here: https://calawyers.org/event/30th-annual-golden-state-institute/.

A few programs that are of particular interest to me are:

Tuesday, October 27                                                            1:10pm-2:10pm

A Conversation With California Supreme Court Justice Joshua P. Groban

• Justice Joshua P. Groban, California Supreme Court Justice
• Cheryl Johnson, Deputy Attorney General, Antitrust Section, Department of Justice, Office of the Attorney General, State of California
• Courtney A. Palko, Baute, Crochetiere, Hartley & Velkei LLP

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Wednesday, Oct 28               1:10-2:10pm

Antitrust and Social Justice

MCLE: 1.0 Hour Recognition and Elimination of Bias in the Legal Profession and Society

• Doug Melamed, Professor , Stanford University
• Mandy Chan, DLA Piper
• Sandeep Vaheesan, General Counsel, Open Markets Institute

With increasing attention to social justice, those on both sides have started to shine the light on the role of antitrust in shaping our society. Does more conservative antitrust policy lead to greater social injustice? Does the emphasis of antitrust on efficiencies lead to increasing inequality? Should the law on mergers and dominant firm conduct take into account social welfare concerns? Is antitrust a form of “public interest” law? What is the relationship between competition and the promotion of our democratic ideals? The panelists will engage in a lively discussion of issues related to the interplay of antitrust and social justice.

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Thursday, Oct 29      12:00pm-1:00pm

Cartel Enforcement

Enforcement officials and private practice attorneys discuss cartel enforcement in the United States.  MCLE: 1.0 Hour

• Bonny Sweeney, Partner, Hausfeld LLP
• Emilio Varanini, California Deputy Attorney General, Antitrust Section
• Manish Kumar, Chief of the San Francisco Office, Antitrust Division, U.S.D.O.J.
• Niall Lynch Partner, Latham & Watkins LLP
• Robert McNary, Crowell & Moring LLP

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Other programs include several networking receptions and:

• Recent Developments in Antitrust and Unfair Competition Law;
• Big Stakes Antitrust Trial: New York v. Deutche Telecom AG (S.D.N.Y.), and
• A Conversation About Diversity, Racism and Equality in the Legal Profession.

Full details for the conference can be found here: https://calawyers.org/event/30th-annual-golden-state-institute/

Thanks for reading

Bob Connolly    [email protected]

On the 10th  anniversary of the Dodd-Frank  Act, which provided the SEC with a whistleblower reward, leading whistleblower attorneys Matt Stock and Jason Zuckerman published an opinion piece on Market Watch titled:  More than 33,000 tips, $2.5 billion in financial remedies and $500 million in awards to investors — the SEC’s whistleblower program turns 10 years old today.  After recounting the success of the program [“…we’ve learned during this time is that there’s strong consensus that the whistleblower-rewards provisions are effective in detecting and combatting fraud and conserving limited public resources”] the article persuasively explains “five ways in which the SEC whistleblower-reward program promotes the public interest:”

1. It protects investors
2. It detects violations, strengthens capital markets and diverts investment resources to more productive uses
3. It conserves precious enforcement resources.
4. Whistleblower rewards strengthen corporate compliance and deter fraud.
5. Incentives compensate whistleblowers for the enormous risk to their career and livelihood.

The short article is well worth the read.

I’ve written and co-authored a number of articles explaining why I believe there should be a criminal antitrust whistleblower statute similar to the one enjoyed by the Securities Exchange Commission. Two such articles are:  It’s a Crime There Isn’t a Criminal Antitrust Whistleblower Statute; and Benefits of a Criminal Antitrust Whistleblower Statute, (Cartel Capers). A criminal antitrust whistleblower program would  produce all the same benefits derived from the SEC program. A whistleblower reward would not only generate new leads but the heightened risk of cartel detection will increase application for corporate leniency.  Think of your average price fixing/bid rigging cartel and we know there is no shortage of potential whistleblowers from sales staff, estimators, support staff and even customers.  Currently, it would take a strong sense of civic duty and a very large trust fund for an individual to seriously consider becoming a criminal antitrust whistleblower.  It’s all pain and no reward. But, someday I believe SEC-style criminal antitrust whistleblower legislation will reignite criminal antitrust enforcement the way the 1993 Corporate Leniency Program did.

PS.     While there is no general criminal antitrust whistleblower, individuals with information about bid rigging fraud against the government can consider bringing a False Claims Act case.  A successful whistleblower can receive a share of the damages recovered on behalf of the government. See Cartel Capers, DOD Bid Rigging Whistleblower and Related Antitrust Division Criminal Cases.

Thanks for reading.  Bob Connolly   [email protected]

A.      The Broiler Chicken Civil Litigation/Criminal Indictment

 On June 3, 2020, a grand jury in Colorado returned an indictment charging executives from Pilgrim’s Pride Corporation and Claxton Poultry Farms with fixing prices and rigging bids nationwide for broiler chickens  [I wonder how the grand jury met? Zoom?] The case was filed in the District of Colorado, where Pilgrim’s Pride is headquartered. The individual defendants are Pilgrim’s President and CEO, Jayson Penn and former Vice President, Roger Austin. Claxton’s President, Mikell Fries, and Vice President, Scott Brady were also named in the indictment.

The DOJ Press Release [which did not use the companies’ names] stated:  “According to the indictment, from at least as early as 2012 until at least early 2017, Jayson Penn, Roger Austin, Mikell Fries, and Scott Brady conspired to fix prices and rig bids for broiler chickens across the United States.  Penn is the President and Chief Executive Officer, and Austin is a former Vice President, of a chicken supplier headquartered in Colorado [Claxton Poultry Farms. Pilgrim’s Pride].  Fries is the President and a member of the board, and Brady is a Vice President, of a broiler chicken producer headquartered in Georgia [Pilgrim’s Pride Claxton Poultry Farms].”  See also, Wall Street Journal, June 3, 2020, Chicken Industry Executives, Including Pilgrim’s Pride CEO, Indicted on Price-Fixing Charges

The chicken industry is dominated by a handful of companies after decades of consolidation. The five largest companies control 61% of U.S. chicken production, according to Watt Global Media, an industry publication. Pilgrim’s Pride, majority owned by Brazilian meat conglomerate JBS SA, is the nation’s second-largest chicken producer.  Claxton Poultry Farms may have as little as less than 1% of the market.  The largest producer, with approximately 21% of the market, is Tyson Foods Inc.

On June 10, 2020, Tyson released a statement saying the company “has been fully cooperating with the DOJ as part of its application for leniency under the DOJ’s Corporate Leniency Program.”  Tyson noted that on April 26, 2019 the company was served with a grand jury subpoena from the Antitrust Division, and “Tyson uncovered information in connection with that investigation, which we immediately self-reported to the DOJ.” The statement added: “”Our swift and decisive actions demonstrate our steadfast commitment to treating suppliers, customers and partners with integrity and to fostering a free and fair competitive environment.” (emphasis mine).

A look at the instant replay might draw a flag for the use us the words “immediately” and “swift and decisive action.”   A civil price fixing action had been filed in September 2016 accusing chicken producers, including Tyson the ones referred to in the recent indictment, with a cartel spanning at least 8 years that fixed the price of broiler chickens by reducing output.  The civil litigation was far along when, on June 21, 2019, the government filed a motion to intervene and stay the discovery in the litigation because it was now conducting a grand jury investigation.  The stay motion acknowledged:

“The government recognizes the maturity of discovery in this well-publicized case and the court’s substantial investment of resources to keep the case moving forward in a timely fashion.  Nevertheless, the investigation has reached a point… where the government’s interests now warrant a temporary and tailored discovery stay.”  In re Broiler Chicken Antitrust Litigation 1:16-cv-08637 (ND Ill.),  The United States’ Motion to Intervene and Stay Discovery, Dkt. #2268. Filed 6/21/2019.

I have no information about this case other than what is public, but given the fact that Tyson sought leniency in what was a mature investigation, the company likely has Part  B conditional leniency under the Antitrust Division’s Corporate Leniency Policy.  Part A is available only as long as “At the time the corporation comes forward to report the illegal activity, the Division has not received information about the illegal activity being reported from any other source.”  The biggest difference between Part A and Part B is the treatment of individual.

Leniency for Corporate Directors, Officers, and Employees

If a corporation qualifies for leniency under Part A, above, all directors, officers, and employees of the corporation who admit their involvement in the illegal antitrust activity as part of the corporate confession will receive leniency, in the form of not being charged criminally for the illegal activity, if they admit their wrongdoing with candor and completeness and continue to assist the Division throughout the investigation.

 If a corporation does not qualify for leniency under Part A, above, the directors, officers, and employees who come forward with the corporation will be considered for immunity from criminal prosecution on the same basis as if they had approached the Division individually.

B.     Some Thoughts on the Leniency Program

The Corporate Leniency Program is the most effective cartel busting tool in the Antitrust Division’s criminal enforcement arsenal. Nonetheless, in recent times there have been a plethora of ABA and other Bar Association programs and articles questioning whether leniency has lost is effectiveness as the number of cases, particularly international cartel cases, has dropped off.  There are a number of possible reasons for the drop off in leniency applications (if you agree there has been a drop off). Some attribute the drop off to the success of the program; perhaps, hopefully, deterrence has had an effect and there are fewer cartels to report.  Or, perhaps after years of prosecutions, extraditions, jail sentences etc., price-fixers are far more careful and don’t send the damming emails that may cause counsel to go running for leniency when they are discovered.  The cost of leniency has also increased significantly with the number of jurisdictions aggressively pursuing cases against cartels and the expansion around the globe of class action damages cases.  As a corollary, firms have complained that the ACPERA promise of single damages for a leniency applicant has been too difficult to obtain.  Some believe it has been more difficult to secure a leniency from the Antitrust Division.  For further reading see,  Some Theories on Why Antitrust Division Case Filings Are Down, Cartel Capers, October 9, 2018 https://cartelcapers.com/blog/some-theories-on-why-antitrust-division-cartel-case-filings-are-down/; Robert B. Bell and Kristin Millay, The Antitrust Division’s Corporate Leniency Program, Learn from the Past or Be Condemned to Repeat it, https://files.hugheshubbard.com/files/Antitrust-Division’s-Corporate-Leniency-Program.pdf;  Interview with Donald C. Klawiter, WhosWhoLegal: Thought Leaders, Competition 2020,  available at https://whoswholegal.com/donald-c-klawiter.

This is not an note about disincentives to leniency, but a reminder that leniency can still be the best deal in town.  Do disincentives exists? Sure, but do not forget what made leniency a great cartel busting tool in the first place.  The first firm to successfully apply and receive conditional leniency will receive a pass from criminal prosecution and its cooperating executives are also eligible for immunity from prosecution.  Moreover, while ACPERA has its critics, in theory it grants the winner of the “leniency race to the courthouse” the additional benefit [if conditions are met] of limiting liability in civil follow on cases to only single damages and damages caused by that company’s own conduct (rather than joint and several liability).

Unless you are Tyson Foods and any of its executives who might obtain leniency, you might think it is not a great result that the largest member of the alleged cartel will receive immunity from criminal prosecution.  And it is possible the plaintiffs in the civil case, which led to the criminal investigation, are not pleased that a deep pockets defendant has the ability to limit its civil exposure to single actual damages attributable to the applicant’s commerce in the affected market. Co-conspirators remain liable for treble damages on a joint and several basis for all damages caused by the cartel.  The hallmark of the Corporate Leniency program, however, and the policy that has made it so successful, is the transparency of the conditions and the certainty of obtaining leniency if these conditions are met.  The Corporate Leniency Policy has some conditions related to culpability an applicant must clear: “The corporation did not coerce another party to participate in the illegal activity and clearly was not the leader in, or originator of, the activity. [Part A, Condition 6]” or “The Division determines that granting leniency would not be unfair to others, considering the nature of the illegal activity, the confessing corporation’s role in it, and when the corporation comes forward. [Part B, Condition 7].   Given the fact that the civil litigation had been ongoing for years with extensive discovery already in the books, every defendant had the opportunity to seek leniency.  This equal opportunity likely contributed to the Division concluding that granting leniency to Tyson’s was not unfair.

Leniency in this case may have been attractive to Tyson despite the potential downsides of leniency for some/all of these reasons:

• Most importantly, conditional leniency provides Tyson executives with the opportunity to obtain immunity from prosecution. This should be the dominant consideration of any company in a position to seek leniency as noted in a Division speech: When Calculating the Costs and Benefits of Applying for Amnesty, How Do You Put a Price Tag on An individual’s Freedom, Scott Hammond, March 8, 2001, Former Deputy Assistant Attorney General, Antitrust Division.  This calculus has only increased in favor of seeking leniency with the massive volume of commerce that could easily push convicted defendants into a sentencing guidelines range reaching the Sherman Act maximum of 10 years in prison.  See Upcoming Sentencing of Former Bumble Bee CEO Christopher Lischewski, Cartel Capers, June 4, 2020,
• As noted, Tyson’s has the opportunity under ACPERA to limit its civil damage to single damages–not joint and several liability (trebled) for the entire cartel.
• Another factor in play here is that the alleged cartel seems to be domestic in geographic scope. A deterrent to seeking leniency is the fact that for international cartels, leniency may have to be sought in numerous jurisdictions. Moreover, civil class action damages are now possible in many foreign jurisdictions–not just the United States.  If this is a purely domestic cartel, that removed one major downside to seeking leniency.

It would only be speculation as to why other companies did not apply for leniency, or did, but lost the race to Tyson’s.But one condition of leniency is that the applicant “confess” a per se violation of the Sherman Act. It may be that no other company (and its executives) was willing or able to confess a violation.  As the DOJ press release states: “An indictment alleges that crimes have been committed, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt.”  As a side note: One tool in the Division’s leniency arsenal is known as “affirmative leniency.”  Under certain conditions, the Division may approach an attractive leniency candidate, make a reverse proffer and offer a limited time to apply for the one leniency available in the investigation.  An attractive leniency candidate is generally a company that is involved enough in the cartel to provide indictable evidence, but reasonably far down the culpability scale to limit the credibility cross-examination concerns should immunized executives have to testify at trial.

Another aspect of DOJ’s leniency policy that may come into play as this investigation moves forward is “Leniency Plus.”  As described in the Antitrust Division’s  Frequently Asked Questions About the Antitrust Division Leniency Program and Model Leniency Letter, revised, January 26, 2017:

“Leniency Plus”

8. If a company is under investigation for one antitrust conspiracy but is too late to obtain leniency for that conspiracy, can it receive additional credit for substantial assistance in its plea agreement for that conspiracy by reporting its involvement in a separate antitrust conspiracy?

Yes. Many of the Division’s investigations result from evidence developed during an investigation of a completely separate conspiracy. This pattern has led the Division to take a proactive approach to attracting leniency applications by encouraging subjects and targets of investigations to consider whether they may qualify for leniency in other markets where they compete.

The auto parts investigation is an example of how leniency plus allowed the investigation/prosecutions to roll along over many years to cover virtually every part of an automobile.  Some of the defendants in the chicken case are diversified in the food industry and the Division’s investigation may expand. It may have already if Tyson’s expanded the investigation and received conditional leniency for more products than just chickens.

C.  Conclusion

Clearly, leniency is not dead.  The decision to seek leniency is a very fact specific pro/con decision.  And while there are perhaps increasing negatives, the “race to the courthouse” which Tyson seems to have won in this case, will only go to one company per investigation.

Thanks for reading.

Bob Connolly  [email protected].

US v. Lischewski, Case No. 3:18-cr-00203-EMC (N.D. Cal.)

Christopher Lischewski, the former CEO of Bumble Bee who was convicted of price fixing after a trial last December, is scheduled to be sentenced on June 16, 2020.  The government has requested a guidelines sentence of eight to ten years in prison and a $1 million  fine.  The sentencing guidelines range is  97 to 121 months, but the Sherman Act has a ten year maximum.  Lischewski has asked the Court for a sentence of one year of home detention and a $25,000 fine.  Lischewski argued incarceration was wrong because at age [nearly] 60 he shouldn’t be subjected to the high risk of contracting COVID-19.

There was a hearing [via Zoom] on June 3, 2020 wherein Judge Chen asked the parties for their views on the burden of proof the government bears to  obtain a sentencing guidelines upward departure.  The standards at issue are “clear and convincing evidence” or “preponderance of the evidence.”  I’m not sure it would make a difference (except possibly on appeal) as the defense claimed “Whatever the burden, the government hasn’t met it” while the government argued it has met its burden under either standard.

The enhancements the government seeks in the guidelines calculation are: “Role in the Offense–Organizer or Leader +4; Obstruction +2; and Volume of Commerce +12.  The Volume  of Commerce adjustment is huge and, in my humble opinion bears very little relationship to culpability.  In a Sherman Act criminal trial the jury is asked to find only whether the defendant at some point joined the charged conspiracy.  Findings of fact on these enhancements are left to the sentencing judge.

Background.

The indictment in the case charged Lischewski with fixing the price of tuna from November 2010 and continuing until December 2013. His trial lasted four weeks.  The jury heard from all the major players in the tuna industry.  Chicken of the Sea and its executives, including  former Chicken of the Sea CEO Shue Wing Chan who testified, received amnesty.  StarKist  pled guilty and was sentenced to pay a fine of $100 million.  StarKist Vice President of Sales Stephen Hodge pled guilty and is awaiting sentence under a 5K1 cooperation downward departure deal.  Bumble Bee pled guilty and was fined $25 million.  Bumble Bee’s former senior vice presidents Kenneth Worsham and Walter Scott Cameron, have also pled guilty and are also awaiting sentence pursuant to 5K1 downward departure plea agreements.  Both testified that Lischewski had directed them during the conspiracy.

Lischewski is requesting a massive departure from the voluntary sentencing guidelines that place his recommend sentence at up to the ten year Sherman Act maximum.  Lischewski has also raised and preserved for appeal his challenge to the per se rule.

A.      Ten Years in Prison Under the Sentencing Guidelines

Mr. Lischewski, a first time offender, has a recommended sentencing guidelines term of custody of 97-120 months.  The Guidelines imprisonment range is actually 97 to 121 months; however the Sherman Act maximum is ten years.

From the Government’s sentencing Memo:

Defendant’s Total Offense Level Is 30

Base Offense Level (§2R1.1(a))                                                                                   12

Volume of Affected Commerce (§2R1.1(b)(2)(F))                                                     +12

Total Adjusted Offense Level 24

Role in the Offense Adjustment (§3B1.1.(b))                                                              +4

Obstructing or Impeding the Administration of Justice (§3C1.1)                             +2

Acceptance of Responsibility (§3E1.1)                                                                       _ 0

Total Offense Level                                                                                                        30

As the table illustrates, the main driver of the maximum guideline sentence is the volume of commerce.  I have written before that, in my opinion, the  volume of commerce is a poor proxy for culpability and should be greatly deemphasized, when sentencing antitrust offenders.  In 2014, I wrote to  the Sentencing Commission my opinion that the Sherman Act maximum should only be applied for the most egregious cases; perhaps recidivism; coercion of subordinates or other cartel members; or a particularly vulnerable victim.  In short, some kind of “culpability Plus” factor other than volume of commerce should be needed to approach the 10 year Sherman Act maximum.  Robert E. Connolly, Comments and Proposed Revisions Submitted to U.S. Sentencing Commission Regarding USSG 2R1.1 (Antitrust Offenses), July 29, 2014, available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2474608.

Volume of commerce is an inappropriate measure of an individuals’ culpability in that it is only based on an estimate of the harm done by a conspiracy. “The purpose of specifying a percent of the volume of commerce is to avoid the time and expense that would be required for the court to determine the actual gain or loss.” USSG 2R1.1 application note 3.  The background notes to the antitrust guideline reads: “The offense levels are not based directly on damage caused or profit made by the defendants because damages are difficult and time consuming to establish.” Id.  But, before sentencing anyone to 10 years in jail, some  time and expense should  be made examining the motives for and effectiveness of the cartel.  An individual’s commitment to the goal of the conspiracy–fixed prices–should be relevant to sentencing.  Interestingly, this volume of commerce short cut is not acceptable if the Government is relying on the alternative maximum fine provision of 18 U.S.C. § 3571(d) to impose a fine above the Sherman Act maximum of $100 million. See; Southern Union Co. v. United States, 132 S. Ct2344 (2012).  In that situation the jury must make a gain or loss finding.  Perhaps in order to get a volume of commerce enhancement, jurors should  be asked to assess the impact  of  a cartel.

At least in this case, the defendant was the CEO of his company.  The volume of commerce enhancement, which can push the guidelines sentence to the Sherman Act maximum, can apply equally to the lowest level employee of a company who may have had a role in the conspiracy. To the extent the volume of commerce has any relation to culpability,  it is not the same for the CEO of a  company and a lower level sales  person who may have been directed to exchange prices with a competitor.

The relation between volume of commerce and culpability is further weakened by the fact that courts have taken an expansive view of what commerce should be included in the guidelines calculation. Courts have uniformly held that all sales made by a defendant during the price fixing conspiracy should be presumed affected by the conspiracy.  See United States v. Giordano, 261 F.3d 1134, 1146(11th Cir. 2001)(presuming all sales within conspiracy period were affected unless the conspiracy was a ‘non-­‐starter” or “ineffectual.”); United States v. Andreas, 216 F.3d 645, 678 (7th Cir. 2000)(holding that “the presumption must be that all sales during the period of the conspiracy have been affected by the illegal agreement since few if any factors in the world of economics can be held in strict isolation; United States v. Hayter Oil. Co, 51 F.3d 1265, 1273 (6th Cir. 1995)(concluding that “the volume of commerce attributable to a particular defendants…includes all sales of the specific goods or services which were made by the defendant or his principal during the period of the conspiracy.).  The Sherman Act is a prosecutor friendly tool in that the government can argue to the  jury that they do not have to prove the conspiracy had any effect; cheating is no defense; the agreement is the crime, etc.  But, at sentencing it is presumed the cartel affected all sales.

A prison sentence for Mr. Lischewski seems highly approaching ten years seems highly unlikely.  Pursuant to 18 U.S.C. § 3553, a district court must strive to “impose a sentence sufficient, but not greater than necessary” to reflect the seriousness of the offense, promote respect for the law, and provide just punishment.  Several years ago, the government requested a sentence of up to ten years after the conviction at trial of AU Optronics CEO’s.  Judge Illston imposed 36-month sentences on the defendants in the case the government described as “the largest, most egregious antitrust conspiracy that the Department of Justice has ever prosecuted.” United States v. AU Optronics Corp., No. 09-cr- 00110-SI, ECF 948 at 51 (N.D. Cal. Sept. 11, 2012).

Even though the guidelines are voluntary, there is another negative consequence from the draconian nature of the volume of commerce enhancement. The government uses the Sentencing Guidelines when negotiating plea agreements. For the most part, the government can gain cooperation by avoiding the long recommended sentences the guidelines may call for by the volume of commerce enhancements by negotiating deals; amnesty, immunity, non-prosecution and 5K1 cooperation departures with conspirators.  The government identified 16 co-conspirators in the tuna price fixing scheme but made deals in return for cooperation with them.  But, Lischewski, as the “last man standing” so to speak–had no cooperation to offer.  A defendant facing an 8-10 year recommended  guidelines prison sentence has very  little to lose by going to trial.  In one sense, the trial can be viewed as a prolonged sentencing hearing, allowing the defendant to demonstrate how disproportionate his sentence is compared to other conspirators.   Other trial evidence may “humanize” the defendant or mitigate the conduct and result in a shorter sentence. On the other hand, if the defendant testifies untruthfully, as the government alleges Mr. Lischewski did, the trial may not sway the court in the defendant’s favor.  The government has requested a two point “obstruction of justice” enhancement for Mr. Lischewski in this case.

B.     JURY INSTRUCTION–PER SE RULE

 Defendant Lischewski preserved an objection to the Court giving a “per se rule” jury charge.  Over the defendant’s objection, the Court gave the following standard instruction on the per se rule:

                                    PER SE VIOLATION OF THE ANTITRUST LAWS

Section 1 of the Sherman Act makes unlawful certain agreements that, because of their harmful effect on competition and lack of any redeeming virtue, are unreasonable restraints of trade. Conspiracies to fix prices are deemed to be unreasonable restraints of trade and therefore illegal, without consideration of the precise harm they have caused or any business justification for their use.

Therefore, if you find that the government has met its burden with respect to each of the elements of the charged offense, you need not be concerned with whether the agreement was reasonable or unreasonable, the justifications for the agreement, or the harm, if any, done by it. It is not a defense that the parties may have acted with good motives, or may have thought that what they were doing was legal, or that the conspiracy may have had some good results. If there was, in fact, a conspiracy to fix the prices for canned tuna as alleged, it was illegal.

The Supreme Court recently denied cert. in a case challenging the constitutionality of the per se rule.  See, https://cartelcapers.com/blog/first-per-se-rule-assault-turned-away-the-battle-will-go-on/.  But the issue will continue to be raised until the high court does address the issue.  Perhaps this will be the case; especially if the defendant receives a very long prison sentence.

I’ve addressed my view of the unconstitutionality of the per se rule in “The End is Near For the Per Se Rule in Criminal Sherman Act Cases and more recently in IN THE CLASH BETWEEN THE VENERABLE PER SE RULE AND THE CONSTITUTION, THE CONSTITUTION SHALL PREVAIL (IN TIME).”  In a nutshell, the argument is that the Sherman Act requires the government to prove, beyond a reasonable doubt, that the agreement in question restrained trade.  In a price fixing case, the jury is instructed as it was here, that the agreement charged is illegal per se: “you need not be concerned with whether the agreement was reasonable or unreasonable.”   The jury never answers the question of whether the agreement restrained trade.

This is a brief excerpt from the “In the Clash Between the Per Se Rule and Constitution…,” the most recent article I have written on the per se rule:

The first problem with the per se rule is that it cannot be found in Section One of the Sherman Act. Section One condemns agreements in “restraint of trade.” From a textualist point of view, the very same words cannot create the per se rule and the rule of reason. The Supreme Court has created, and later reversed, most per se violations while the operative language of the Sherman Act, “restraint of trade,” has not changed.   The per se rule against horizontal price fixing is the last per se rule standing. The Antitrust Division argues that the per se rule is not an evidentiary presumption but an interpretation of the statute: “it is as if the Sherman Act reads price fixing and bid rigging are illegal.” But, it doesn’t. Textualism will prevail over the “it is as if the Sherman Act read” rule of statutory construction.

The second problem with the per se rule is that it clashes with constitutional protections enjoyed by a defendant in a criminal case. The Sixth Amendment provides that those “accused” of a “crime” have the right to a trial “by an impartial jury.” This right, in conjunction with the Due Process Clause, requires that each element of a crime be proved to the jury beyond a reasonable doubt. Under the per se rule, however, once the court makes the factual determination that the per se rule applies, the jury is instructed that the government has proven a restraint of trade beyond a reasonable doubt because price fixing is per se illegal.

One last thought:  It is odd that the Volume of Commerce enhancement can so dramatically escalate the defendant’s potential sentence when the jury is charged: It is not a defense that the parties may have acted with good motives, or may have thought that what they were doing was legal, or that the conspiracy may have had some good results.”

 We will find out what Judge Chen thinks on June 16, 2020.  The sentencing hearing will be available  for watching on ZOOM.  I am glad I am not the judge.  These are tough cases.

Thanks for reading.

Bob Connolly  [email protected]