Criminal Antitrust Update - July 2011

    15 July 2011

    INDUSTRY SCORECARD

    Air Cargo: Eva Airways Corporation, the Taiwanese-based airline, is the latest defendant to plead guilty in the airline air cargo price-fixing conspiracy. In May 2011, Eva pleaded guilty to participating in a worldwide conspiracy to fix cargo prices for international shipments, including those to and from the United States, and agreed to pay a $13.2 million criminal fine. To date, the Department of Justice (DOJ) investigation of air cargo price fixing has resulted in 22 airlines being charged and more than $1.8 billion in criminal fines imposed.

    On-Line Ticketing/Global Ticketing Distribution Systems: DOJ has initiated an investigation of alleged anticompetitive conduct by global distribution systems. Global distribution systems are centralized reservation networks that link information about flights from air carriers with travel agencies. DOJ has reportedly issued a Civil Investigative Demand to American Airlines seeking information relating to the GDS investigation. Earlier this year, American filed a civil antitrust lawsuit in federal court in the Northern District of Texas against several significant GDS companies, including Travelport Ltd., Sabre and Orbitz Worldwide LLC, alleging that the companies retaliated against the airline after it entered the GDS market through its “AA Direct Connect” system. In a separate contract dispute between American, Travelport and Orbitz, American stopped making its fares available to Travelport and Orbitz. In June 2011, an Illinois state judge entered a permanent injunction requiring the air carrier to honor its agreements with Travelport and Orbitz by resuming flight listings through the GDS companies.

    Auto Safety Systems: In June 2011, the European Commission (EU) raided several auto safety system suppliers for evidence of possible anticompetitive conduct. The raids included Sweden’s Autoliv Inc. and the German offices of U.S.-based TRW Automotive Holdings Corp. The raids came on the heels of two earlier EU raids in the automotive industry. In January 2011, EU authorities raided several large truck manufacturers, including Daimler AG and Volvo AB, for possible cartel behavior. Also, in May 2011, EU regulators raided the offices of manufacturers, distributors and suppliers of industrial piston engine manufacturers.


    COMPLIANCE TIP: GRAND JURY CRIMINAL SUBPOENAS VS. CIVIL PROTECTIVE ORDERS

    The Supreme Court recently declined to review an appeal of a Ninth Circuit decision that may have a profound influence on legal representation in antitrust matters going forward. The Ninth Circuit permitted DOJ to subpoena documents obtained in discovery during a class action antitrust lawsuit from a law firm notwithstanding the fact that the documents were protected by a protective order.1 The Supreme Court’s refusal to hear this case adds to the ongoing debate among courts on how to resolve disputes between grand jury subpoenas and civil protective orders. This issue is particularly relevant in antitrust matters because criminal investigations and civil class actions often run parallel and proceed simultaneously. Corporations defending parallel criminal and civil antitrust matters need to be aware of the potential for discovery requests in both directions – civil litigants who may seek documents obtained during the government investigation, and prosecutors seeking to piggyback on civil discovery. The recent case illustrates that protective orders on the civil side may not adequately protect documents from disclosure on the criminal side of the equation.

    Federal courts have applied three distinct lines of reasoning when evaluating whether a grand jury subpoena should take precedence over a civil protective order.2 Some courts have used a per se rule that a grand jury subpoena will always be enforced over a civil protective order. One circuit thus far has ruled that a grand jury subpoena should not be enforced over a civil protective order unless: (1) the protective order was “improvidently granted;” and (2) there is a compelling need for the disclosure of the documents pursuant to the federal subpoena.3 Lastly, other courts have developed an intermediate test, holding that a defendant may rebut the per se enforcement of a federal subpoena based on individual circumstances of a particular case.4

    The recent case before the Supreme Court was even more controversial because the documents at issue were originally located outside of the U.S. and therefore outside the reach of the DOJ subpoena. The documents came within the jurisdiction of the subpoena after they were produced in civil discovery and placed in the possession of law firms based in the United States. The lesson is clear: if you succeed in obtaining overseas documents in a civil antitrust dispute, the Justice Department may be watching and will likely try to reap the benefit for its own purposes.

    Although the issue of whether a civil protective order can shield documents from disclosure pursuant to a federal subpoena remains unresolved, defendants in parallel civil and criminal antitrust proceedings that implicate foreign conduct and documents need to be extremely careful about civil discovery. A civil protective order will most likely not shield the documents from the federal government.

    [1] See In re Grand Jury Subpoenas, 627 F.3d 1143 (9th Cir. 2010), cert. denied by White & Case LLP v. U.S., 564 U.S. ---, 2011 WL 972608 (June 27, 2011).

    [2] See In re Grand Jury Subpoenas, 627 F.3d 1143, 1144 (9th Cir. 2010); In re Grand Jury Proceedings (Williams), 995 F.2d 1013, 1015 (11th Cir. 1993); see also In re Grand Jury Subpoena, --- F.3d ---, 2011 WL 2349222 (4th Cir.).

    [3] In re Grand Jury Subpoena Duces Tecum Dated April 19, 1991, 945 F.2d 1221, 1224 (2d Cir. 1991).

    [4] See In re: Grand Jury, 286 F.3d 153, 157-158 (3d Cir. 2002); In re Grand Jury Subpoena, 138 F.3d 442, 445 (1st Cir.), cert. denied by Doakes v. U.S., 524 U.S. 939 (1998).


    COMMENT: READY-MIX CONCRETE CRIMINAL INVESTIGATION--LESSONS LEARNED

    The DOJ’s ongoing investigation into price-fixing and collusion in the ready-made concrete industry should be viewed as a cautionary tale for all companies and their executives. It demonstrates DOJ’s continued use of criminal sanctions for companies and prison terms for corporate individuals engaged in criminal wrongdoing, regardless of the size of the conspiracy or global reach.

    DOJ’s investigation, conducted by the Antitrust Division’s Chicago Field Office and the U.S. Attorney’s Office in Sioux City, IA, stems from alleged bid-rigging and price-fixing among ready-made concrete manufacturers in Iowa and surrounding states. Ready-mix concrete is produced at a plant and then transported to and mixed at construction sites.

    To date, three executives at three different ready-mix concrete companies have entered guilty pleas to Sherman Act Section 1 violations. One executive, Steven VandeBrake, a sales manager at GCC Alliance Concrete, Inc. (GCC), pleaded guilty in February 2011 to participating in three separate conspiracies with three different ready-mix concrete companies to fix prices and rig bids for the sale of ready-mix concrete in Iowa. VandeBrake was sentenced to a particularly severe prison term of 48 months and a criminal penalty of over $829,000. Interestingly, VandeBrake’s sentence is much longer than the May 2010 plea deal VandeBrake agreed to with DOJ. Judge Mark W. Bennett of the U.S. District Court for the Northern District of Iowa found the scope of VandeBrake’s role in the ready mix concrete conspiracy particularly troubling due to the number of seemingly distinct conspiracies. Judge Bennett found that the circumstances warranted a more severe penalty than outlined in the plea deal. Under the antitrust laws, VandeBrake faced a maximum penalty of 10 years in prison and a $1 million criminal penalty.

    Two other executives, both presidents of separate Iowa ready-mix concrete companies, Great Lakes Concrete Inc. and Tri-State Ready Mix Inc., were sentenced for their roles in conspiring with GCC Alliance. One executive was sentenced to a 12 month term of incarceration and an $83,000 criminal penalty, while the second received a forty-five day jail sentence and $50,000 fine.

    In May 2011, GCC pleaded guilty to entering into three separate conspiracies with ready-made concrete companies in violation of Section 1 of the Sherman Act. Tri-State Ready Mix also pleaded guilty in June 2011 to one count of violating Section 1 of the Sherman Act. According to DOJ, GCC and Tri-State agreed to fix prices of ready-made concrete, and GCC made payments designed to secure favorable fixed pricing for concrete. GCC and Tri-State will face a maximum fine of $100 million each.

    Not surprisingly, purchasers of ready-made concrete have filed class actions against five of the State of Iowa’s ready made concrete manufacturers for price fixing, including GCC Alliance, Great Lakes, and Tri-State.

    DOJ’s investigation of the Iowa ready-made concrete market is notable for several reasons. The concrete companies involved were not part of a global cartel like many of the conspiracies we have seen recently. Rather, this price-fixing conspiracy involved the major players in a fairly confined local market. It appears increasingly clear DOJ’s cartel investigations will not only focus on alleged international conspiracies, but will also aggressively investigate and seek to punish suspected price-fixing on a state or local level. The results also show DOJ continues its trend of seeking to hold executives personally accountable and, in this case, obtained a very substantial prison sentence and fine from the apparent ringleader. Finally, the case shows that antitrust compliance is not only necessary for large corporations; smaller regional or local corporations need to be concerned about antitrust issues as well. Smaller companies would be well-advised to evaluate the strength and implementation of their existing antitrust compliance programs, or work with competent professionals to establish a compliance program if none exists.