By on July 26th, 2015. This post currently has no responses.

CCC’s: Some Thoughts On Two Recent Cases

by Robert Connolly

There are two recent cases that got me thinking a bit, and for what its worth, I’ll pass along those thoughts.

7th Circuit Affirms Downward Departure to Sentence of Probation

The first case is a sentencing case in the Seventh Circuit, U.S. v Warner, No. 14-1330 (7th Cir. July 10, 2015). Warner, the billionaire creator of Beanie Babies, evaded $5.6 million in U.S. taxes by hiding assets in a Swiss bank account. He pled guilty to one count of tax evasion, made full restitution, and paid a $53.6 million civil penalty. Warner had a plea agreement with an agreed upon level of 23 with a range of 46-57 months.   Each side was free to argue for an appropriate sentence. The government sought incarceration in excess of a year and a day. But the district court judge gave Warner a more lenient sentence: two years’ probation with community service, plus a fine. The district court found, among other findings, that “Mr. Warner’s private acts of kindness, generosity and benevolence are overwhelming.” Moreover, many of them took place long before Warner knew he was under investigation; the court found they were “motivated by the purest of intentions” and “without a view toward using [them] at sentencing.” The government appealed, arguing the sentence was unreasonable because there was no term of incarceration to reflect the seriousness of the offense and to avoid sentencing disparity.

The Court of Appeals upheld the sentence imposed by the district court finding that the District Court followed the appropriate sentencing procedure and made the required findings. The other question was whether the district court findings were reasonable and supported by the evidence. The Seventh Circuit noted that the advisory guidelines range is but a starting point. The appellate decision is lengthy, discussing at length the requirements of 18 USC Section § 3553(a) factors to be weighed in determining a sentence that is “sufficient but not greater than necessary.” The Court concluded: “District courts enjoy broad discretion to fashion an appropriate, individualized sentence in light of the factors in 18 U.S.C. § 3553(a). The court here did not abuse its discretion. Rather, it fully explained and supported its decision and reached an outcome that is reasonable under the unique circumstances of this case. We therefore affirm Warner’s sentence.”

District courts are often receptive to argument for departure from draconian, mechanical guidelines sentences that take no account of the individuals characteristics of the defendant. I wold file this decision and use as an excellent roadmap to follow for any defense lawyer seeking a below guideline range, particularly if it is a significant departure requesting no incarceration.

The Spiderman Case Discussion of Antitrust Precedent

In Kimble v. Marvel Entertainment the sole question presented was whether the Supreme Court should overrule a patent/royalty precedent. “Adhering to principles of stare decisis, we decline to do so.”  The Court noted that stare decisis would have received less deference had the issue been application of the Sherman Act, noting that Congress “intended [the Sherman Act’s] reference to ‘restraint of trade’ to have ‘changing content,’ and authorized courts to oversee the term’s ‘dynamic potential.’” As a result, the Court has “felt relatively free to revise our legal analysis as economic understanding evolves.” The dissent agreed, saying, “we have been more willing to reexamine antitrust precedents because they have attributes of common-law decisions.” My fellow blogger, Steve Cernak, wrote an article, “Three Antitrust Precedents Ripe for Overturning,” identifying three antitrust precedents that may no longer merit deference: 1) baseball’s antitrust exemption; 2) the per serule as applied to tying cases; and 3) Philadelphia National Bank’s holding that merger is presumptively anticompetitive if it results in an undue share of the market and significant increase in concentration.  Steve has written an interesting article (but subscription required).

The Supreme Court spoke more at length about the antitrust precedent and the per se rule in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), where the Court overturned 100 years of precedent in ruling that vertical price-fixing was to be judged under the rule of reason instead of being condemned as per se illegal. In Leeginthe Court said:

Stare decisis is not as significant in this case, however, because the issue before us is the scope of the Sherman Act. Khan, supra, at 20 (“[T]he general presumption that legislative changes should be left to Congress has less force with respect to the Sherman Act”). From the beginning the Court has treated the Sherman Act as a common-law statute. See National Soc. of Professional Engineers v. United States, 435 U. S. 679, 688 (1978); see also Northwest Airlines, Inc. v. Transport Workers, 451 U. S. 77, 98, n. 42 (1981) (“In antitrust, the federal courts . . . act more as common-law courts than in other areas governed by federal statute”). Just as the common law adapts to modern understanding and greater experience, so too does the Sherman Act’s prohibition on “restraints] of trade” evolve to meet the dynamics of present economic conditions.

How does this relate to cartels?  I’d add one other antitrust precedent that maybe due for a tweaking: the per se rule in criminal antitrust cases. Recently I wrote an article that was published in ANTITRUST magazine titled: Per Se “Plus:” A Proposal to Revise the Per Se Rule in Criminal Antitrust Cases.  (ABA subscription required). The basic theme of the article is that the penalties for a criminal violation of the Sherman Act have escalated so dramatically that the per se rule is no longer a fair standard of culpability. When the per se rule was first articulated inUnited States v. Socony Vacuum, the most severe penalty imposed on any of the individual defendants was a fine of $1,000. The Sherman Act was a misdemeanor (up to 6 months) but until modern times, jail was merely a theoretical possibility. Today, individual defendants are subject to up to ten years in prison (and the Antitrust Division has strongly argued for this sentence in several cases.) Also, indicted foreign defendants are placed on Red Notices and subject to arrest, detention and possible extradition anywhere in the world. There are also severe immigration consequences that limit an international business executives’ ability to remain employed. Despite the severe sanctions, juries are still charged that “good intentions” and even “good results” are irrelevant if the jury finds an agreement to fix prices was reached. Further, ignorance of the law is no defense. In the article I argue that the per se rule should be modified in a criminal case so that the government must prove beyond a reasonable doubt that the defendants in someway deceived or misled customers into believing there was competition when in fact there was an agreement to fix prices. This deception proves a “bad” intent. What makes price-fixing an unreasonable restraint of trade is not the price level, but an agreement that deceives customers (or sellers) into believing market forces set prices, when in fact secret collusion was at work. Price is the “central nervous system” of the economy, and when buyers do not know that the price was set by collusion, the free market is restrained.   (Where buyers know of the restraint i.e. an open joint venture, the agreement may restrain competition, but the agreement is judged under a rule of reason standard.)

It may well be that the per se rule against price-fixing, even in a criminal case, will be the one per se rule endures for as long as the Sherman Act does. But, I think the issue is worth considering. If you don’t subscribe to ANTITRUST and would like a copy of the article, please email me, or give me a call at (215) 219-4418. This is an area of continued interest to me and I would greatly appreciate any feedback or other comments.

Thanks for reading.