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DOJ Faces Setbacks in Labor Market Prosecutions but Remains Determined

WHAT HAPPENED

  • On back-to-back days this month, defendants charged and prosecuted by the US Department of Justice’s Antitrust Division (the DOJ) were acquitted on all Sherman Act charges in first-of-their-kind criminal antitrust trials involving labor markets.
  • On April 14, 2022, in United States v. Jindal, a federal jury in the US District Court for the Eastern District of Texas found two defendants not guilty of violating the Sherman Act by agreeing with competitors on wages they would pay their employees. The jury found one of the defendants guilty of obstructing a Federal Trade Commission (FTC) investigation by making false and misleading statements to the FTC and concealing information.
  • The following day, in United States v. DaVita, Inc., a Colorado federal jury acquitted DaVita, Inc. and its former chief executive on all counts of violating the antitrust laws by entering into non-solicit agreements with other employers.
  • The Jindal case was the DOJ’s first attempt to criminally prosecute so-called alleged “wage-fixing” agreements. Similarly, the DaVita case was DOJ’s first criminal trial targeting alleged no-poach or non-solicit agreements between employers.
  • Historically, the DOJ pursued enforcement of alleged anticompetitive labor market practices in the civil context rather than criminally. But in 2016, the DOJ did an about-face and warned employers in its 2016 Antitrust Guidance for Human Resource Professionals that it intended to proceed criminally against “naked wage-fixing or no-poach agreements” between horizontal competitors in labor markets. The DOJ’s efforts to investigate and criminally prosecute such agreements under this new policy started ramping up publicly in late 2020.
  • The DOJ filed an indictment against Jindal in December 2020 and a superseding indictment against Jindal and another defendant in April 2021. The DOJ alleged that the defendants participated in a conspiracy to lower the rates paid to physical therapists and physical therapist assistants in north Texas. A few months later, in July 2021, the DOJ filed an indictment against DaVita and its former CEO, alleging that they conspired with competitors in the healthcare industry not to solicit each other’s employees. The DOJ returned a superseding indictment in November 2021.
  • In both cases, the district courts denied the defendants’ motions to dismiss. The Jindal court held—for the first time ever—that an alleged wage-fixing conspiracy could constitute a per se criminal violation of the Sherman Act. Similarly, the DaVita court held that no-poach and non-solicit agreements could constitute per se violations—but only if the alleged naked agreements allocate the employment market. The DaVita court refused to announce a blanket rule that all no-poach or non-solicit agreements are subject to per se
  • Despite these rulings, the juries in both cases ultimately acquitted the defendants of all antitrust charges brought by the DOJ.

WHAT’S NEXT

  • The DOJ remains committed to investigating and criminally prosecuting wage-fixing and no-poach agreements despite these early setbacks. Since the Jindal indictment in December 2020, the DOJ has [...]

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Views and Lessons from the Trenches of the First Criminal No-Poach Trial

In a landmark case of first impression, the US Department of Justice’s (DOJ) Antitrust Division (Division) indicted and brought to trial a federal criminal prosecution alleging agreements between DaVita, Inc., its former CEO Kent Thiry and other companies not to solicit each other’s employees. The case was the first criminal trial of its kind in the Division’s recent efforts to expand Sherman Act liability under Section 1 to include so-called no-poach and non-solicit agreements. Following an eight-day jury trial and two days of deliberation, a Denver jury acquitted Thiry and DaVita on all counts of the unprecedented “no-poach” conspiracy. As the district judge himself succinctly put it to the jury: this case was “a unique case in the field of antitrust law.”

This criminal prosecution in the labor markets reflects a novel and aggressive stance on expanding Sherman Act criminal liability. In pursuit of this policy shift, the Division is trying to jam a square peg into a round hole by characterizing non-solicit and no-poach agreements as per se market allocation agreements. The per se rule creates a judicial shortcut of sorts that makes it easier for the government to prosecute classic cartel conduct such as price-fixing and bid rigging. This case, and related cases, are the first time the per se shortcut has been used in a so-called labor market allocation case. This unprecedented litigation created a watershed moment for the Division’s views that non-solicit and no-poach agreements are per se illegal. The complete acquittal of both defendants and the rulings of the district judge before trial cast doubt on whether the per se standard is appropriate for “no-poach” agreements and whether such agreements should be prosecuted criminally at all.

WHERE DID THIS COME FROM?

Historically, the Division pursued enforcement of alleged anticompetitive labor market practices in the civil context, meaning fines for companies and individuals. In fact, that was the approach the Division took with no-poach and no cold call agreements entered into by major technology and railway companies. The Division engaged in a volte-face and declared it would criminally prosecute such labor market agreements for the first time in October 2016. Without an intervening act of Congress, executive order or ruling by any court, the Division warned that going forward it intended to proceed criminally against “naked wage-fixing or no-poach agreements” between horizontal competitors in the labor market. The Division declared that investigating alleged “naked wage-fixing or no-poach agreements” was a top priority. Ignoring concerns related to the separation of powers, the Division unilaterally cited its discretion and put the full weight of the government into labor market no-poach agreements. That momentum accelerated in December 2020 and continued throughout 2021, with the Division bringing 12 criminal cases against nine individuals and three companies. In short, aggressive and expansive antitrust enforcement from the DOJ is now the new normal.

DOJ SEEKS TO CREATE A NEW CATEGORY OF PER SE LIABILITY AND USES DAVITA AND THIRY AS A TEST CASE

The Division returned a superseding indictment against DaVita, Inc. and Kent Thiry on November 4, [...]

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Former Government Contractor Executive Convicted of Procurement Fraud

On February 1, 2022, a federal jury found a former engineering firm executive guilty of conspiring to rig bids and defraud the North Carolina Department of Transportation (NCDOT) of hundreds of public works contracts worth more than $23 million. From at least 2009 through fall 2018, Brent Brewbaker was responsible for crafting and submitting bids to NCDOT on behalf of Contech Engineered Solutions LLC, an engineering firm that makes products used in bridge construction, water drainage and other public works projects.

Read more here to learn how companies can minimize the risk that they are investigated by the Procurement Collusion Strike Force (PCSF).




Government Contractor Pleads Guilty to Bid-Rigging and Procurement Fraud

On June 7, 2021, as part of the US Department of Justice’s (DOJ) continuing commitment to prosecuting cases where the government is a victim, a government contractor pleaded guilty to one count of bid-rigging and one count of conspiracy to commit mail and wire fraud in connection with the DOJ’s ongoing investigation into public works contracts for the North Carolina Department of Transportation (NCDOT).

Ohio-based Contech Engineered Solutions LLC (Contech) entered its plea of guilty before a federal judge in the US District Court for the Eastern District of North Carolina and was sentenced to pay a $7 million criminal fine. Contech was also ordered to pay an additional $1,533,988 in restitution to the NCDOT. Notably, the DOJ did not impose a term of probation on Contech because Contech agreed to improve its compliance program to prevent recurrence of anticompetitive conduct. Contech, however, is required to cooperate with the DOJ, including producing documents and making witnesses available for interviews or testimony.

Contech and its former executive were indicted in October 2020 on six counts of alleged bid-rigging, conspiracy to commit fraud and mail and wire fraud in connection with a decade-long conspiracy involving public works projects in North Carolina.

This prosecution highlights the DOJ’s ongoing commitment to the Procurement Collusion Strike Force (PCSF) and its efforts to scrutinize public procurements and combat collusion and related fraud in government contracting.

The PCSF has conducted extensive training of law enforcement officers and procurement officers, among others, to help identify scenarios and situations where collusion is more likely to occur. The PCSF is also utilizing data analytics to advance its investigations, building on technological advancements and more useable data sets to target and prosecute anticompetitive conduct.

Importantly, the PCSF has recently doubled in size and has gone global just as the United States has approved unprecedented stimulus spending in response to the global COVID-19 pandemic and as the Biden administration is poised to approve a new infrastructure plan. The PCSF has provided tools that allow any individual to report suspected collusion via email or an online tip center. Enforcers’ renewed commitment to procurement collusion—coupled with increased government spending—will likely lead to more investigations and additional prosecutions in 2021.

Contech, a manufacturer of aluminum and other products, conspired with its supplier in bidding on numerous NCDOT public works projects. According to the indictment, the former Contech executive would obtain (or direct his subordinate to obtain) the supplier’s total bid price in advance. Using that information, Contech then submitted bids to be intentionally higher than its supplier. The indictment also alleged that Contech submitted false certifications that its bids were competitive and free of collusion throughout the conspiracy.

The indictment alleged bid-rigging between a manufacturer and its supplier, which is typically a vertical relationship and generally subject to the Rule of Reason rather than per se criminal analysis. Under the Rule of Reason, antitrust enforcers balance the anticompetitive effects of the conduct in question against the procompetitive benefits. Certain anticompetitive conduct, however, [...]

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If Past is Prologue, Ramped up Antitrust Compliance is Critical

The COVID-19 pandemic has brought not only a healthcare crisis, but also one of the worst economic downturns in history. As businesses emerge from this crisis, there may be increased risk that employees may cross the line and engage in anticompetitive conduct. Therefore, it is critical that companies and individuals prepare now to ensure that antitrust compliance and, if necessary, reporting of conduct through internal hotlines are strongly encouraged. In this article, published on Bloomberg Law, our authors explore the risks associated with antitrust cartel conduct, review enforcement by government authorities following past economic crises, and outline compliance steps companies and individuals should take to minimize enforcement risks.

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2019 in Review: Overview of Cartel Investigations

The Department of Justice Antitrust Division (DOJ) was active in 2019. At the beginning of 2019, the DOJ was preparing for trial in six matters and had 91 pending grand jury investigations. Throughout 2019, the DOJ made public several new investigations, including in the commercial flooring industry, online auctions for surplus government equipment, the insulation installation industry and suspension assemblies used in hard disk drives. The DOJ also announced developments in other ongoing investigations.

Meanwhile, the European Commission (Commission) entered into settlements with parties in three cartel cases: Occupant Safety Equipment, FOREX and Canned Vegetables. The Commission imposed total fines of €1,469 million in 2019. In March 2019, the Commission launched an online tool to submit documents and information in the context of leniency and settlement proceedings.

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Procurement Collusion Strike Force’s Focus on Detection Yielding New Investigations

On March 3, 2020, the American Bar Association (ABA) hosted a Q&A with two members of the Procurement Collusion Strike Force (PCSF)—Mark Grundvig, the Assistant Chief of the DOJ Antitrust Division’s Criminal II section, and Marcus Mills, Special Agent, Major Fraud Investigations Division, USPS Office of Inspector General.

During the course of the Q&A, Mr. Grundvig and Mr. Mills provided their perspective on the goals and progress of the PCSF.

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Cartel Snapshot: Mid-Year Update

2019 MID-YEAR UPDATE

The Department of Justice (DOJ) Antitrust Division announced three new investigations and several developments in its other investigations, including new investigations in the commercial flooring industry, online auctions for surplus government equipment and insulation installation contracts. The Antitrust Division also released its Spring 2019 Division Update, which notes that the Division “is preparing for trial in six matters and had 91 pending grand jury investigations at the close of FY 2018.”

In April 2019, the Division held a public roundtable discussion on the Antitrust Criminal Penalty Enhancement & Reform Act (ACPERA), which is due to sunset next year. ACPERA reduces the criminal liability and civil damages exposure of companies and individuals who are granted leniency under the Division’s Leniency Program for cooperating in investigations into cartel and other anticompetitive conduct. The roundtable consisted of a series of panel discussions allowing judges, attorneys, economists, academics, the business community and other interested stakeholders to weigh in on how the law can be improved. The Division was particularly interested in the public’s views on whether ACPERA has properly incentivized the self-reporting of criminal conduct and whether there are issues that have impeded the law’s intended effect.

The European Commission (Commission) announced developments in ongoing investigations in the auto parts industry, and in its government bonds and car emissions cases. The Commission also launched a new online tool to make it easier for companies to submit statements and documents as part of leniency and settlement proceedings in cartel cases.

US DEVELOPMENTS

  • The first new investigation disclosed by the DOJ is in the commercial flooring industry. The DOJ charged a former vice president of a commercial flooring contractor in Chicago of exchanging price information with its rivals to fix prices of contracts for removal and installation of commercial flooring. Assistant Attorney General Delrahim of the Antitrust Division said that the indictment “is the first of what we expect to be many in this ongoing investigation into bid rigging” in the commercial flooring industry.
  • The DOJ disclosed a second new investigation into bid rigging of Government Services Administration (GSA) contracts. The owner of a Texas company pleaded guilty to rigging bids for surplus government equipment—computers for resale and for recycling—in online GSA auctions.
  • The DOJ announced a third new investigation into bid rigging by insulation installation contractors. A manager for a Connecticut-based insulation contractor pleaded guilty for his role in rigging $45 million worth of bids for insulation installation contracts in New England from 2011 to 2018.
  • The DOJ’s investigation into fuel-supply contracts for the armed services remains active. Two more Korean companies pleaded guilty for their involvement in a bid-rigging conspiracy that targeted contracts to supply fuel to US Armed Forces in South Korea.
  • The DOJ’s investigation into price fixing in the promotional products space appears quite active.
  • In May 2019, state attorneys general for 43 states and Puerto Rico brought federal and state antitrust, consumer protection and common law claims against 18 generic [...]

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Recent Indictments Demonstrate Increased Focus on Bid-Rigging in Government Procurements

Companies involved in the government contracting industry should take note that the government is honing in on anticompetitive conduct affecting government procurements. The federal government has demonstrated an increased interest in this area, and companies should refresh and audit their compliance programs to avoid hefty civil and criminal penalties and potential prison terms for implicated employees.

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Joint FTC / DOJ Guidance: Hurricanes Harvey and Irma

Businesses and individuals in Texas, Florida, the Southeast, Puerto Rico and the Virgin Islands are preparing for a massive recovery and reconstruction effort in the wake of Hurricanes Harvey and Irma. The Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC) have issued antitrust guidance that reiterates key principles of permissible and impermissible competitor collaboration and provides useful examples related to disaster recovery. (more…)




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