Price Fixing Investigations And Litigation Risk Management

Author Richard Solomon is a conflicts and crisis management lawyer with 50 years of experience in business development, antitrust and franchise law, management counseling and dispute resolution including trials and crisis management.

I have been an antitrust lawyer for 53 years and have been involved with many price fixing situations where either the government, a private class action plaintiff group or both the above have been enthused about redress against my clients on claims that they were involved with their competitors in a conspiracy to fix prices.

What is the scope of price fixing conspiracies under the Sherman Antitrust Act? It is more than just a bunch of people in a smoke filled whiskey fueled meeting agreeing to sell at noncompetitive prices and other terms of sale. The mind is far more creative than just that most blatant of scenarios. On the other hand, many price fixing cases are brought on just those simplistic circumstances. Let me give you a very short overview of the parameters of the problem.

Justice William O Douglas said, in the case of United States v Socony Vacuum et al in 1941 that any interference in the market driven price mechanism is price fixing under the Sherman Act. Following that position statement, courts have held that unlawful price fixing exists when competitors fix “asking prices”, discounting progressions, rotating low bids by any formula – like phase of the moon for example, removing product from the market per an agreement with the purpose to cause prices to rise. The list goes on and on.

Remember that we are speaking of horizontal price fixing here – price fixing among competitors. Vertical price fixing – price fixing by suppliers of prices charged down the distribution stream – was once a per se violation of the Sherman Act and probably still is in most instances. The answer to the question whether fixing maximum resale prices is a violation has morphed over time.

The nice thing about price fixing is that it is easy to understand. People know whether they have been price fixing once they understand that “tricks” and funny definitions to disguise price fixing are transparent and fail to exculpate the participants. Leaving one’s price lists in your competitor’s salesman’s mailbox whenever there is going to be a change has only one purpose. It is pursuant to an understanding, express or tacit, that it will be followed by the competitor. For that reason, how one represents a company and its executives in a price fixing investigation is rather straightforward. To be sure, many law firms have enhanced billings with useless exercises that always fail to be of any help.

The principal one of these is the so called “pricing study”. Client management knows whether they have been involved in some price fixing scheme. It is totally misleading to suggest to the guilty that hiring an economist or accounting firm to do a “study” of pricing history may produce exonerating evidence. The “study” always shows pricing patterns consistent with the scheme that the investigation is looking for. It never helps the potential defendants. Worse yet, when you get the study and it shows what everyone knows the truth to be, destroying it presents the danger of obstruction of justice or worse. Why major law firms continue to do this can only be explained, in my mind at least, by the fact that the resource hired to do the study is a friend of the lawyers hiring him. They aint cheap.

So, you get called by a company saying that they are faced with an actual or expected price fixing investigation, usually by the Department of Justice and sometimes by a State Attorney General, using a grand jury and or a civil investigative demand inquiry. You start by asking the caller what communications have been had regarding the investigation to date, and counselling that nothing more should be done until the risks at hand can be sorted out and you agree to the representation. Then what should you do?

Getting relationships under control is the first order of business. I like to account for all communications since receipt of the inquiry and advise that there be no more, with anyone, from now on without counsel first having an opportunity to confer over it and make recommendations. Usually it is better if only counsel speak for the company and the individual potential targets. Restraining clients from talking with the others involved is often a tough row to hoe, mainly because there is initial hysteria. I remind clients that what counsel say to each other enjoys higher protection qualities than what clients say when speaking with any third party. Whatever they say may be used as evidence against them. Everyone should be admonished to say nothing except as agreed to with counsel. Other companies may get different advice from their lawyers, who often have little experience with this kind of investigation, and wonder why it is that I am being so restrictive when others are given more latitude. I explain this and I also make a point of visiting with all other counsel for all other target companies to try to reach proper arrangements about confidentiality and tactical issues. This usually works out well.

Obviously you review the communication the client received, recognizing that the requesting agency has statutory authority to conduct the investigation. This is not the time to get ornery, as you don’t know at this moment whether you will end up going hat in hand to try to negotiate a plea deal or the scope of an injunction, plus other goodies that are often sought by the government in resolving price fixing investigations before the issuance of a grand jury indictment or a civil enforcement complaint.

The request for information will be exceptionally broad. The client will believe it is some “witch hunt” and be very defensive about it all. I counsel the client at this point that we don’t really know whether and to what extent it may be overly broad in scope until we survey what files we have that would be responsive to it. I also go to the issuing authority and obtain additional time if I need it to hunt up the information and review it myself. Reasonable cooperation can be expected, more if you don’t act like someone with no manners and more if you express a willingness to honor the request to the extent that your client has responsive information. How much that is cannot be determined at this point because I have not yet had an opportunity to learn what goodies may be hidden in the files.

With the gathering of files, the people who may have had something to do with the activity being investigated must be accounted for. I meet privately with them and ask general questions about the history of the activity being investigated. If I get an impression of potential culpability on the part of anyone, I need to deal with the extent that they should possibly advised to retain their own separate counsel. How that is handled, and paid for, is not complicated. Even where someone needs his own lawyer, cooperation can be had to some extent working exclusively through his attorney. Obviously, if there are files with his name on them that have to be turned over to the investigators, his lawyer will need a copy set in advance and interviews regarding those documents need to be held with attorneys present to protect the person’s 5th Amendment rights against self-incrimination. A sticky wicket presents because corporations do not have a right against self-incrimination and company files cannot be withheld because they may tend to incriminate some person. I always make – for myself – a “hot documents” file. That gives me a very focused stock of information regarding the extent of risk I am dealing with, and it is extremely helpful when talking with clients about issues that have arisen.

I get the job completed so that I now know what our document production should be and who is likely to be a prosecutorial target. My client needs to be advised that one or more employees and officers may be target indictees and may be advised by their own counsel to consider talking with the government in connection with making a plea deal where it is clear that liability is a real risk. Price fixing is a felony with potential prison time. For a well-respected business person this presents all sorts of reputational issues. Not infrequently someone will “roll over” and provide important evidence, including personal testimony in exchange for favorable treatment. That just cannot be helped, and my client will be told about it ASAP when I become aware of that potential. I also advise that there be no recriminations about this, as alienating a potential government witness often has the effect of causing hostility and increased scope of testimony being given.

The first target, company or individual, to “roll over” and help the government is more valuable to the prosecutor than late comers, and there is sometimes a race to confess in order to get a better deal. The client needs to be aware of this, and there have to be decisions made about what to do and how soon to do it.

I now may need more time to respond to the inquiry and, if so, visit with the government to explain why and see what is available. In that meeting I will provide information about what I know I will be producing and what I may need, if anything, by way of scope modification. Scope modification is harder to get, as you may well imagine. It must be dealt with professionally and responsibly. Obstruction of justice is a felony – for the client and for the lawyer.

You cannot stall an investigation in the hope that a statute of limitation of private civil money claims may have run out by the time action is taken. The government investigation tolls the limitations statutes during the pendency of the government proceeding – including the investigation.

There will have been meetings with counsel for other involved parties, and different law firms will want to do different things, some believing that pricing history surveys may produce exculpatory evidence. That is rarely true. It is more likely that the survey resource is a client of that law firm or at least a friend. That make work needs to be resisted. By then you know a great deal about the extent of potential exposure and about who is open to it. Sometimes you just have to be firmly resistant to such a suggestion and refuse to contribute information to it or participate in it or aid in paying for it. Surveys are dangerous things that more often than not can come back and bite you. Believe it or not, some of the target may advise retention of some politically connected firm to try to use influence to kill the investigation. I have seen that work, and I have seen it backfire and make matters much worse. You know that the prosecutor is going to go ballistic if his boss tells him to back off from a “hot” investigation. Having been a prosecutor in just that situation, I can tell you that if the government does not then back off, life for all of you is going to become much more difficult.

By now you also have a good idea about the prospects for civil lawsuits by people impacted by conduct that could be found to be unlawful. Many things have to be accounted for now. If your client is a public company, it will have been asked by the financial press and possibly also by the stock exchange where its securities are listed to make a statement. Counsel has to carefully participate and advise about this. There may be contractual obligations to give notice of risk at some point when a large risk is identifiable at a reportable scale – think insurance coverage, for example. This too must be handled delicately. Your client’s public accounting firm may need to be brought into the loop and will want to make its own decision about potential impact upon upcoming audits and whether recent accounting activity may need to be revisited in light of this event. If there are impending transactions that call for material disclosures, this investigation could be one of those – think mergers and acquisitions.

You are now at decision time about making plea deals. You may even be late, as others may already have gone in to see the prosecutors about rolling over on everyone else. What plea deals are worth depends upon who the confessing parties are, how early they have come in to do that and the quality of the testimonial proffer that will have to be made – what areas he might be able to give evidence about if a deal is reached.

If a plea deal is reached, preparations for giving notice about that need to be made. Notices this time may need to deal with possible civil financial liability, as you may rest assured that plaintiff’s/plaintiff class’ attorneys are up to speed on it and preparing to pounce. Reserves may be demanded by your client’s auditors.

This could go on much farther, but this is sufficient to leave the reader with the impression that only experienced antitrust counsel – litigation and prosecutorial experience, not just compliance wonks – should be considered. The earlier the attorney is selected and brought in, the more valuable his professional assistance will be.