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Supreme Court Set To Make Cert Decision On Per Se Battle

November 5, 2024 by Bob Connolly

On February 1, 2022, Brent Brewbaker, a former executive of Contech Engineered Solutions LLC was convicted by a jury for his participation in bid-rigging and fraud schemes targeting the North Carolina Department of Transportation (NCDOT). The conviction seemed an unremarkable event at the time.  “Evidence showed that Brewbaker instructed a co-conspirator to submit non-competitive bids to NCDOT and to hide his bid rigging and fraud by varying the amount of inflated bids submitted.” The jury had been given a per se instruction [the agreement, if proved, was a restraint of trade]. The Fourth Circuit, however, found that the per se rule was inapplicable because, while Brewbaker’s company submitted a complementary/cover bid for the winning bidder Pomona, Pomona purchased an input [aluminum structures] from Contech creating a vertical relationship. In the Fourth Circuit’s view, the fact that the companies had a vertical relationship as well as being horizontal competitors created a “hybrid” horizontal and vertical restraint of trade with possible procompetitive benefits. This put the restraint outside the bounds of the per se rule and Brewbaker’s bid rigging conviction was overturned. United States v. Brewbaker, 87 F. 4th 563 (4th Cir. 2023).

The Fourth Circuit’s novel view of the scope of the per ser rule set up a battle of petitions for certiorari in the Supreme Court.  The DOJ’s Antitrust Division sought to preserve the Sherman Act conviction and filed a Petition for a Writ of Certiorari,  No. 23-1365, June 28, 2024 with the question presented as: “Whether the existence of a vertical relationship between the competing bidders precluded the application of the established per se rule against horizontal bid rigging to [Brewbaker’s] conduct.”  Brewbaker fired back with a cross cert petition, arguing that if the Fourth Circuit improperly overturned his conviction on per se rule grounds, his conviction should remain overturned on constitutional grounds.  Brewbaker presented this question: “Does the criminal provision of Section 1 of the Sherman Act violate Article 1 of, and the Fifth and Sixth Amendments to, the United States Constitution?” Brewbaker v. United States, Conditional Cross-Petition for Writ of Certiorari, No. 23-1365, filed August 5, 2024.

On October 23, 2024 the United States filed the final brief in the matter:  Reply Brief for the Petitioner which opens with “Since the enactment of Section 1 of the Sherman Act, 15 U.S.C. 1, courts have understood that ‘an agreement between intending bidders at a public auction or a public letting not to bid against each other, and thus to prevent competition, is per se unlawful.” United States v. Addyston Pipe & Steel Co., 85 F. 271, 293 (6th Cir. 1898)(Taft, J.), aff ’d as modified, 175 U.S. 211 (1899).

  1. Was the Scheme in Brewbaker a Per Se Violation?

            The government is correct that a vertical relationship between bidders does not by itself take the agreement outside the per se rule.  The government cited U.S. v Socony Vacuum, 310 U.S. 150 (1940) to highlight that some vertical relationship between conspiring bidders is not at all unusual. In a classic bid rigging scheme, the company agreeing to bid high and lose is often “paid off” via a vertical relationship–a subcontract or by selling an input to the winning bidder.  The creation of a vertical relationship is a way to share the illegal profit generated by the collusion. Why would a losing bidder (i.e. Brewbaker’s company] even submit a bid?—to restrain trade by creating the appearance of competition when there is none. See Cartel Capers, December 13, 2023 you are A Competitor If You Say So—My Disagreement with the Fourth Circuits Brewbaker Opinion.

     The Fourth Circuit bought the red herring argument that because Pomona was a distributor for Contech, their bidding agreement potentially had the pro-competitive benefits of a dual distribution arrangement. Whether the conspirators had a dual distribution relationship [they did not], however, is irrelevant to the nature of the horizontal agreement to collude on their bid.  Contech and Pomona were not bidding to simply sell aluminum structures o NCDOT.   The Brewbaker indictment reads:

“From at least as early as 2009 and continuing through at least June 2018, Defendant BRENT BREWBAKER and Defendant … obtained bid prices from [Pomona] and submitted bids to NCDOT for aluminum structure projects that were intentionally higher than [Pomona’s] bids.” (emphasis added).

Pomona was not a distributor for completing government aluminum structure projects–it was a competitor.   The Fourth Circuit, however, thought the bid rigging scheme could have pro-competitive benefits by strengthening the relationship between Contech and Pomona.  I’m sure it did—until they got caught. But pro-competitiveness is measured by impact on the consumer.  The lengths that the Brewbaker and his conspirators went to hide the scheme from the consumer is a sure tip off that “consumer welfare” was not enhanced by the secret agreement.

  1. Is the Section 1 of the Sherman Act Unconstitutional?

            Should Brewbaker’s conviction stand under the per se rule?  No.  I side with Brewbaker on this point, though my position is more narrow.  The per se rule when applied in criminal cases is unconstitutional, but not Section One of the Sherman Act itself. For further discussion see Brewbaker Strikes Back: The DOJ’s Per Se “Death Star” Attacked,Cartel Capers, August 13, 2024.

The government’s Reply Brief states:  “He [Brewbaker] never disputes that the type of agreement alleged in the indictment would have been per se unlawful at common law. He instead contends, in his cross-petition for a writ of certiorari, that the common law is “irrelevant.” 24-124 Pet. 6 n.2 (citation omitted).” Reply Brief for Petitioner at 2.  It is disputable whether the type of agreement alleged in the indictment would have been per se unlawful at common law.[1] But whatever the common law, Brewbaker is correct that it is irrelevant.  The common law was developed with courts, not juries, being the fact-finder of what is lawful. Brent Brewbaker was charged with a criminal violation of the Sherman Act for an agreement in restraint of trade. Where the critical element of a criminal offense is whether the defendant restrained trade, it seems inescapable that the defendant must be found, by a jury, to have restrained trade.

In Addyston Pipe, Judge Taft explained the fact-finding the court undertakes in deciding whether a restraint is unlawful or a pro-competitive ancillary restraint.[2]  The government expands on this in its reply brief:

“Under that approach [ancillary restraints doctrine], a court first decides whether the challenged restraint is ancillary to a legitimate collaboration and then (if the court answers that question in the affirmative) determines whether the overall arrangement is procompetitive under the rule of reason.”  Reply Brief of United States at 4. (emphasis added).

But “a court first decides….” is inconsistent with constitutional law which requires that a jury find every element of the offense in a criminal case.

Per se rules were developed largely in the context of civil cases but even in a criminal case like Socony-Vacuum no analysis was given to a defendant’s constitutional right to have a jury decide every element of the offense.  This constitutional issue is now before the Supreme Court and it’s a critical question because: “[T]he per se rule is the trump card of antitrust law. When an antitrust [party] successfully plays it, he need only tally his score.” Med. Ctr. At Elizabeth Place, LLC v. Atrium Health Sys., 922 F.3d 713, 718 (6th Cir. 2019) (quoting United States v. Realty Multi-List, Inc., 629 F.2d 1351, 1362–63 (5th Cir. 1980).

There is another section of the government’s brief that sheds light on the constitutional breach in applying the per se rule in criminal felony cases.  In its brief the government quotes Arizona v. Maricopa County Medical Society, 457 U.S. 332, 351 (1982):

“The anticompetitive potential inherent in all [such] agreements justifies their facial invalidation even if procompetitive justifications are offered for some.”  Respondent therefore cannot avoid per se liability by asserting (Br. in Opp. 5-6) procompetitive justifications.” Reply Brief for Petitioner at 3-4.

That explanation of the per se rule in essence states: “Respondent cannot avoid liability for restraining trade by asserting that he did not restrain trade.”  The constitution says otherwise.  The rest of the quote from Maricopa County Medical Society further highlights why the per se rule has no place in a criminal prosecution:  “Those claims of enhanced competition are so unlikely to prove significant in any particular case that we adhere to the rule of law that is justified in is general application.” Id. The defendant might respond: “My defense may be unlikely to succeed your Honor but I’d like to give it a go anyway.” [By the way, had Brewbaker had been permitted to present evidence to the jury regarding why the scheme was not a restraint of trade, I have no doubt the jury would have still found him guilty of the Sherman Act offense, as evidenced by the fact Brewbaker was found guilty of submitting false non-collusion certifications.]

The briefing is concluded and the Supreme Court Docket No. 23-1365, of October 23 2024 reads: DISTRIBUTED for Conference of 11/8/2024.  While this could be the most important criminal antitrust decision since Socony Vacuum there is also good chance cert will be denied to both parties.

[1] See Morris, Arval (1958) Is Price-Fixing Per Se Reasonable? A Discussion, Kentucky Law Journal: Volume 47: Issue1, Article 5 at 71 (with numerous citations).

[2] United States v. Addyston Pipe & Steel Co., 85 F. 271, 282 (6th Cir. 1898), aff’d as modified, 175 U.S. 211, 20 S. Ct. 96, 44 L. Ed. 136 (1899).

 

Filed Under: Blog Tagged With: bid rigging, per se rule, price fixing

Brewbaker Strikes Back: The DOJ’s Per Se “Death Star” Attacked

August 13, 2024 by Bob Connolly

     No jail sentences were imposed on individual defendants convicted in the 1940 Supreme Court case of United States v. Socony Vacuum Oil Co.  The individuals were each fined $1,000.  In 2014, Romano Pisciotti, an Italian citizen, was indicted under seal for violating Section One of the Sherman Act, seized by Interpol while changing planes in Germany and eventually extradited to the United States.[1]  Even before conviction:

            Romano Pisciotti spent 669 days in custody. This included two hours in a police station in Lugano, Switzerland; 10 months in  a jail in Frankfurt, Germany fighting extradition  [on a Sherman Act indictment]; and eight months in a US federal prison in Folkston, Georgia, in a room with around 40 mainly Mexican inmates and a single corner toilet.” [2]

This is no longer your grandfather’s “gentleman’s crime” with a slap on the wrist (wallet).[3]

            The law has also developed since Socony Vacuum.  Today’s textualist Supreme Court is unlikely to agree that three words “restraint of trade” gives rise to two distinct rules: the per se rule and the rule of reason.  If the Sherman Act truly could not possibly mean what it says, [because it would outlaw all commercial contracts], this Court would likely say the remedy is with Congress. As Justice Gorsuch wrote in his dissent in Perry v. Merit Systems Protection Board:  “If a statute needs repair, there’s a constitutionally prescribed way to do it. It’s called legislation.”[4] Finally, the Supreme Court has been vigilant to protect defendant’s constitutional rights, including proving every element of the offense.  The Supreme Court may well find that the per se rule which allows the trial court, not the jury, to make the factual finding that an agreement restrains trade, is unconstitutional.

Is It Time for the Supreme Court to Review the Constitutionality of the Per Se Rule?

            Brent Brewbaker thinks so; that is if the Supreme Court accepts the Department of Justice’s cert petition. Cartel Capers, DOJ Filed Cert Petition in US v. Brewbaker, July 15, 2024.   The DOJ presented the question: “Whether the existence of a vertical relationship between the competing bidders precluded the application of the established per se rule against horizontal bid rigging to [Brewbaker’s] conduct.” Brewbaker fired back presenting this question: “Does the criminal provision of Section 1 of the Sherman Act violate Article 1 of, and the Fifth and Sixth Amendments to, the United States Constitution?” Brewbaker v. United States, Conditional Cross-Petition for Writ of Certiorari, No. 23-1365, filed August 5, 2024.

            Justice Gorsuch has recently argued that the United States has too many laws. “Americans are ‘getting whacked’ by too many laws and regulations: Justice Gorsuch”, Mark Sherman, ABC News, August 4, 2024.  In all these laws is there any criminal statute where the court, after having considerable experience with a type of scheme, can instruct the jury, “Don’t worry about that element of the offense, I’ve seen this one before.” Even if a certain type of restraint always or almost always restrains trade, doesn’t the constitution require that the defense be allowed to argue: “Your Honor, the defendant understands that this agreement looks like the type that restrains trade but, nonetheless, we’d like to dispense with the per se short cut and assert our conditional right that the government prove beyond a reasonable that this agreement restrained trade.”  See The End Is Near For the Per Se Rule in Criminal Antitrust Prosecutions, Cartel Capers, March 21, 2019.[5]  This is not an exaggeration (well, maybe a little) but the per se rule “avoids the necessity for an incredibly complicated and prolonged economic investigation into the entire history of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable….”[6] But juries in criminal cases are constitutionally charged with making the determination of whether an agreement restrained trade even if it slows trials down or seems futile. The Federal Rules of Evidence, not conclusive presumptions, can limit the scope of the evidence.  Per se rules have a place in civil litigation where the court is a fact finder (i.e. summary judgment), but not in criminal prosecutions

            Another point made in Brewbaker’s cross petition is that Section One of the Sherman Act lacks objective standards and impermissibly allows the courts to define the contours of prohibited conduct.  It’s hard to argue with that since, without a single vote by Congress, the Supreme Court has a history of creating and then dismantling per se rules:

Restraint                                                        Per Se Born                            Per Se Deceased

 Vertical Minimum Price Fixing                      1911[7]                                       2007[8]

Vertical Non-Price Restraints                         1967[9]                                       1977[10]

Vertical Maximum Price-fixing Agreements  1968[11]                                     1997[12]

Group Boycotts                                                 1959[13]                                     1985[14] (life support)

Tying                                                                    1947[15]                                     1992[16] (life support)

            The DOJ took a chance in petitioning for cert in this case arguing that the 4th Circuit was in error for not applying the per se rule to the indictment.  The DOJ must have seen this possibility and was willing to take the chance. The argument against the per se rule is evident in the DOJ’s cert petition where it describes the factual finding the trial court, not the jury, should have made and then used to apply the per se rule.  The DOJ describes the ancillary restraints doctrine: “Under that approach, a court first decides whether the challenged restraint is ancillary to a legitimate collaboration and then (if the court answers that question in the affirmative) determines whether the overall arrangement is procompetitive under the rule of reason.” DOJ cert petition at 16.  That’s a lot of judicial fact finding on a crucial element of a criminal Sherman Act prosecution.

The Per Se Rule May Be Unconstitutional but Not Criminal Sherman Act Prosecutions

            The Brewbaker cert petition challenges the constitutionality of the criminal application of Section One of the Sherman Act.  I believe that is going too far.  The per se rule, not the Sherman Act itself, is unconstitutional.  It would take more space than this already long blog post, and more brain power than I have at the moment, for me to flesh out this argument.Further, while the lack of a per se rule would hamper the Antitrust Division in certain criminal prosecution (heir locators and the labor market collusion cases come to mind), “hard core” cartel prosecutions would still be winnable and constitutional.  And marginal cases (yes, that is in the eye of the beholder) could still be prosecutable as civil offenses.  I believe that the Sherman Act can mean what it says and that a conspiracy to restrain trade can be a criminal violation.  The problem with the per se rule is that the courts have never made a sufficient distinction between a civil case and a criminal case (more to come).

            Brewbaker’s defense team and the DOJ are more than capable adversaries to present the per se issue, though there is no pressing reason to for the Supreme Court accept cert in this case.   The Court has denied cert in two previous criminal matters challenging the per se rule.  Cartel Capers, February 1, 2022 “Will the Supreme Court Grant Certiorari and Review the Per Se Rule?”[17]  It may well deny cert again.

            That’s it for now.  Thanks for reading.  Any feedback is always greatly appreciated.

Bob Connolly   bob@reconnollylaw.com

[1]  Lewis Crofts and Leah Nylen, December 9, 2015, Mlex Interview with Romano Pisciotti, available at https://mlexmarketinsight.com/insights-center/reports/interview-with-Romano-Pisciotti,

[2] Id.  See also See Plea Agreement with Roman Pisciotti, https://www.justice.gov/atr/case-document/file/507541/download, which was discussed by Renata Hess in her remarks. See Remarks of Renata Hess,  https://www.justice.gov/opa/speech/acting-assistant-attorney-general-renata-hesse-antitrust-division-delivers-remarks.

[3]   Fines have also dramatically increased. The largest corporate fine in Socony Vacuum was $5,000.  The largest corporate fine today stands at $925 million![3]  See SHERMAN ACT VIOLATIONS RESULTING IN CRIMINAL FINES & PENALTIES OF $10 MILLION OR MORE, available at https://www.justice.gov/atr/sherman-act-violations-yielding-corporate-fine-10-million-or-more.

[4]   137 S. Ct 1975, 1990 (2017) (Gorsuch dissenting).

[5]   This blog post is an abbreviated version of a longer article of the same title.  The full article can be found at https://ssrn.com/abstract=3356731.

[6]  Northern Pac. Ry. v. United States, 356 U.S. 1, 5 (1958).

[7] Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U. S. 373 (1911).

[8] Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007).

[9] United States v. Arnold, Schwinn & Co., 388 U. S. 365 (1967).

[10] Continental T.V., Inc., v. GTE Sylvania Inc., 433 U. S. 36 (1977).

[11] Albrecht v. Herald Co., 390 U.S. 145 (1968).

[12] State Oil Co., v. Khan, 522 U.S. 3 (1997).

[13]  Klor’s Inc. v. Broadway-Hale Stores., Inc., 359 U.S. 207 (1959).

[14]  Northwest Wholesale Stationers, Inc. v. Pacific Statioanery & Printing Co. 472 U.S. 284 (1985).

[15]  International Salt. Co. Inc v. United States, 332 U.S. 392 (1947).

[16]  Eastman Kodak Co. v. Image Tech. Serv. Inc. 504 U.S. 451 (1992).

[17] The blog post discusses the cert petition of Christopher Lischewski, [the tuna guy] which the Supreme Court later turned down.

Filed Under: Blog Tagged With: cartels, per se, price fixing

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The US Supreme Court has called cartels "the supreme evil of antitrust." Price fixing and bid rigging may not be all that evil as far as supreme evils go, but an individual can get 10 years in jail and corporations can be fined hundreds of millions of dollars. This blog will provide news, insight and analysis of the world of cartels based on the many years my colleagues and I have as former feds with the Antitrust Division, USDOJ.

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