CCC’s: Supreme Court Rules on Chinese Vitamin C Case

Posted on July 5, 2018 by Brad Geyer

Yesterday the Supreme Court handed down a decision in the long running Chinese Vitamin C price-fixing case. Plaintiffs had won a verdict in the district court, which when trebled, was $147 million. The Second Circuit reversed, however, holding that the district court should have dismissed the complaint on the grounds that the defendants’ price fixing actions were mandated by Chinese law. The Chinese government had filed declarations to that effect. The Supreme Court reversed the Second Circuit and held that a foreign government’s interpretation of its own law is not “binding” on U.S. courts. ANIMAL SCIENCE PRODUCTS, INC., ET AL. v. HEBEI WELCOME PHARMACEUTICAL CO. LTD. ET AL. The decision can be found here.

According to the Second Circuit, federal courts are “bound to defer” to the foreign government’s construction of its own law, whenever that construction is “reasonable.” The Chinese government had submitted an official statement on the meaning and interpretation of its domestic law [supporting the defendants’ argument that their actions were compelled by Chinese law]. Because the Second Circuit found the Chinese government’s interpretation “reasonable” the district court was required to dismiss the complaint. In re Vitamin C Antitrust Litigation, 837 F. 3d 175, 189 (2016).

SUPREME COURT DECISION EXCERPTS

We hold otherwise. A federal court should accord respectful consideration to a foreign government’s submission but is not bound to accord conclusive effect to the foreign government’s statements. Instead, Federal Rule of Civil Procedure 44.1 instructs that, in determining foreign law, “the court may consider any relevant material or source . . . whether or not submitted by a party.” As “[t]he court’s determination must be treated as a ruling on a question of law,” Fed. Rule Civ. Proc. 44.1, the court “may engage in its own research and consider any relevant material thus found,” Advisory Committee’s 1966 Note on Fed. Rule Civ. Proc. 44.1, 28 U. S. C. App., p. 892 (hereinafter Advisory Committee’s Note). Because the Second Circuit ordered dismissal of this case on the ground that the foreign government’s statements could not be gainsaid, we vacate that court’s judgment and remand the case for further consideration.

As the Court of Appeals correctly observed, Rule 44.1 does not address the weight a federal court determining foreign law should give to the views presented by the foreign government. See 837 F. 3d, at 187. Nor does any other rule or statute. In the spirit of “international comity,” Société Nationale Industrielle Aérospatiale v. United States Dist. Court for Southern Dist. of Iowa, 482 U. S. 522, 543, and n. 27 (1987), a federal court should carefully consider a foreign state’s views about the meaning of its own laws. See United States v. McNab, 331 F. 3d 1228, 1241 (CA11 2003); cf. Bodum USA, Inc. v. La Cafetière, Inc., 621 F. 3d 624, 638–639 (CA7 2010) (Wood, J., concur- ring). But the appropriate weight in each case will depend upon the circumstances; a federal court is neither bound to adopt the foreign government’s characterization nor required to ignore other relevant materials.

Relevant considerations include the statement’s clarity, thoroughness, and support; its context and purpose; the transparency of the foreign legal system; the role and authority of the entity or official offering the statement; and the statement’s consistency with the foreign government’s past positions.

Judged in this light, the Court of Appeals erred in deeming the Ministry’s submission binding, so long as facially reasonable.

The case will now go back to the Second Circuit for ruling in light of the standards set forth by the Supreme Court.

No one should expect a stampede of price-fixing cases against Chinese sellers. This was an unusual case in that much of the evidence the plaintiffs relied on was posted on the Internet. Otherwise, there are obvious high hurdles to obtaining sufficient evidence to prove a Chinese cartel, even assuming there are others.

CCC’s: The Bid Rigging Whistleblower –Part 2

Posted on July 5, 2018 by Brad Geyer

Should the Antitrust Division Have a Whistleblower Czar?

Well, no. Without legislation to create a criminal antitrust whistleblower statute, the Czar might have little to do. But, the Antitrust Division should make some effort, short of Czardom, to encourage bid rigging whistleblowers. As I noted in Part I (here), there is already a mechanism for a whistleblower to claim a reward for prosecuting collusion among contractors/vendors on government contracts. The bid rigging whistleblower can file a False Claims Act (qui tam) case on behalf of the government alleging that the government was ripped off by illegal collusion among the bidders. If the government recovers damages, the person who brought the suit (the Relator) can receive a percentage (10-25%) of the recovery.

As I mentioned in Part I, the Antitrust Division has brought both criminal and civil suits as a result of filed whistleblower cases. This is a pretty well-kept secret because as far as I know, the Division has never encouraged anyone to come forward as a bid rigging whistleblower or done anything to publicize the fact that whistleblowers of collusion on government contracts can and have recovered a portion of the government’s damages. The government should make some effort to attract bid rigging whistleblowers. Doing so would benefit the Antitrust Division in obvious and non-obvious ways. Below are a few ideas I think are worth discussing.

Welcoming Bid Rigging False Claims Act cases

Special Counsel for False Claims Act Cases

Over the years there has been a proliferation of counselors to the Assistant Attorney General for the Antitrust Division. One counsel, with a criminal and civil background, could be designated as the Special Counsel for False Claims Act cases. This would at least be a message to the bar that the Antitrust Division does have an interest in promoting whistleblowing on collusion on federal government contracts. This special counsel could also oversee whatever efforts the Antitrust Division does take to encourage bid rigging whistleblowing.

Create a False Claims Act web page

The Antitrust Division has a page on its website for the Leniency Program. The Antitrust Division promotes the heck out of leniency. This page is an excellent source of information about everything one would need to know about the Corporate and Individual Leniency Programs. There is also a Report Violations page on the Antitrust Division’s website. A False Claims Act page would signal the Division’s interest in possible False Claims cases as well as provide information a potential whistleblower might need to begin.

Better Coordination with Civil Division and United States Attorney’s Offices

When a False Claim Act case is filed, notice of the case and the evidence supporting it must be filed with the Attorney General of the United States. From there, the case will be assigned according to the subject matter of the alleged fraud: (i.e. health care, defense, antitrust). Perhaps this is already being done, but the Antitrust Division might be more aggressive in claiming its seat at the table for bid rigging on government contracts. A whistleblower will not file a Sherman Act case if she has information about collusion on a government contract—because there is no provision for antitrust whistleblowers. The case will be filed as a Conspiracy to Defraud the United States with the bid rigging constituting the fraud. A review of cases False Claims Act Cases on the Department of Justice website indicates that there have been a variety of False Claims Act matters that involved bid rigging yet were handled by local United States Attorney’s offices and the Civil Division of the Department of Justice, instead of the Antitrust Division.[1]

It would be good public policy to have all potential government bid rigging cases be referred to the Antitrust Division. Pardon the institutional pride (I worked there for 34 years), but nobody can spot, investigate and prosecute a viable criminal antitrust violation (i.e. bid rigging) better than an experienced Antitrust Division Attorney. What may look like a bid rig too small for government intervention, may be spotted as the tip of the iceberg by an Antitrust Division prosecutor. Likewise, a case that may appear weak to someone else, may look quite viable to a Division prosecutor that has experience investigating cartels—and tools like the leniency program. A special counselor for False Claims Act cases would raise the profile within the Antitrust Division, the Department of Justice (and the outside bar) and may spur additional viable False Claim Act cases being referred to the Antitrust Division for a decision on whether the government should intervene and take over the prosecution.

2. The Benefits to the Antitrust Division of a Higher Profile for False Claims Act Cases

The Antitrust Division could benefit in both obvious and non-obvious ways from a higher profile on False Claim Act cases.

The Obvious

Filing a False Claims Act case is a risky proposition for any potential whistleblower. The blowback from being a whistleblower will likely be severe and the chances for success, especially if the government does not intervene, are far from certain. Modest changes like these suggestions are not going to lead to an avalanche of new cases. (Thus, the need for an SEC like criminal antitrust whistleblower statute as I argue in this article (here)). But, it is certainly worth a try. Nothing suggested above, and others may have additional/better suggestions, costs the government a nickel and the return on the investment may be substantial, even if just one additional cartel is uncovered. Also, while a different subject, many believe that the value of leniency has been decreasing and the number of viable leniency applications is down. While this may be coincidence, not causation, the Antitrust Division’s statistics for cases and jail sentences and fines are way down. It may be an opportune time to launch a new, if modest, initiative.

Good Cases

One benefit of publicizing the potential benefits of being a bid rigging whistleblower is that even if only one new case emerges, these are great cases for staff to work on. Here I speak from personal experience and my views may not be universally held, but I’m pretty sure they are held by most trial attorneys in the Antitrust Division. Government bid rigging cases are great cases to work on. They are much lower profile than say a Forex or Libor or other international cartel matters. These “big” cases have their own allure, but the front office, the Criminal Division, SEC, CFTC, foreign agencies, Batman and Robin and others all have a hand in these investigations. While it is exhilarating to work on a matter that makes the front page of the Wall Street Journal, a staff member is a small cog in the big wheel. On a government contract matter, generally speaking, the staff has more responsibility and more ownership of the matter, including possible trial experience on manageable cases. It’s a great way to learn how to investigate, take chances and take ownership. These cases also involve working with agents across the federal spectrum. These relationships can last a career and produce results over a long period of time.

Deterrent Effect

Finally, one of the most important reasons for robust antitrust prosecutions is deterrence. If the Antitrust Division starts whistleblowers and prosecuting bid rigging cases, it should have a deterrent effect on all the bid riggers out there that are not currently being detected. Whistleblower awards on bid rigging matters should be well-publicized. There is great satisfaction in seeing taxpayer money restored (with appropriate penalties) if a successful case is brought. In a cartel case like capacitors the price of an input is raised but the impact on the final cost to consumers is small. The cumulative harm is great (and should be prosecuted), but it is very diffused. With bid rigging on government contracts the harm is focused and the recovery can be significant with both criminal and civil penalties. Also, many government bid rigging investigations can lead to finding more bid rigging and what often looks like a small matter can proliferate into a major investigation. Road construction, school milk, Defense Department contracts are just a few of the government contract cases that led to uncovering “way of life” collusion in certain industries.

Part III

Special Issues with A Big Rigging Whistleblower

Thanks for reading. Please come back for Part III.

Bob Connolly

CCC’s: The Bid Rigging Whistleblower–Part 1

Posted on July 5, 2018 by Brad Geyer

I have been writing, along with my co-author Kimberly Justice, about the desirability of a criminal antitrust whistleblower statute. Besides many blog posts, we have written a few articles such as It’s a Crime There Isn’t an Antitrust Whistleblower Statute, Wolters Kluwer, Antitrust Law Daily, April 8, 2018.

A principle objection to an antitrust whistleblower statute is that it would undermine the credibility of a witness if she received compensation for exposing a cartel. Superficially that sounds right but doesn’t hold up when you consider the success of the Antitrust Division’s Corporate Leniency Program. Simply change “leniency applicant” to “whistleblower” and one can see that the Antitrust Division already has a form of whistleblowing; the Corporate Leniency Program which bestows rich rewards on the whistleblower. As the Antitrust Division has stated repeatedly, the value of leniency is the tens of millions of dollars it can save a company. Leniency/whistleblowing saves not only the leniency company money, but it can save multiple culpable executives from jail time in return for their cooperation: “When Calculating The Costs And Benefits Of Applying For Corporate Amnesty, How Do You Put A Price Tag On An Individual’s Freedom?” So, the government is rightfully not skittish about paying for information. It’s a necessary evil to breaking up secret cartels and hopefully deter their inception.

The reward of leniency does, of course, undermine the credibility of witnesses just as a whistleblower reward will ding the credibility of any whistleblower who testifies. If the government has only the cooperation of a leniency applicant, it is likely to: a) not bring a case; or b) lose the case it brings. But, that flaw in leniency that does not outweigh the benefits! Leniency whistleblowing almost always leads to cooperation from other subjects of the investigation. The value of leniency whistleblowing is that it starts the dominos falling of companies/individuals coming in to cooperate for the next best deal available. You don’t see many criminal antitrust trials based on a grant of leniency, because the grant of leniency to one company leads to many guilty pleas and an overwhelming case against whomever is left.[1] A criminal antitrust whistleblower statute for individuals will work the same way.

Pardon the advertisement for a criminal antitrust whistleblower statute because this post is not about that. In writing about the need for a whistleblower statute, I may have given the impression that it is not currently possible to be a whistleblower on cartel cases. This is not true. An individual whistleblower already has a way to help the government recover damages from bidding collusion, while at the same time getting some reward for the great expense and risk in doing this. If there is bid rigging or price-fixing and the federal government is a victim of the collusion, a qui tam(whistleblower) suit can be brought seeking damages on behalf of the government. A whistleblower can file a False Claims Act case alleging that a defendant (or group of defendants as in a cartel) obtained a federal contract by means of making a material false statement. If a bid was rigged, the false statement would likely be the non-collusion affidavit filed with a vendor’s bid package. This is typically referred to as a Certificate of Independent Price Determination, or something similar. But, even without such a certification, in the context of a competitive bidding situation, there would be an implied certification that each vendor submitted his bid independently and without collusion with the other bidders, or even non-bidders if the scheme involved payoffs to a potential competitor to not bid).

A couple of things to note. To get a reward for this type of whistleblowing, it is not sufficient to simply go into the prosecutor’s office and lay out the evidence you have.[2] Under the False Claims Act, the “Relator” [as the whistleblower is called] must file a qui tamsuit on behalf of the government alleging the government suffered damages as a result of the fraud.[3] If damages are awarded as a result of the qui tamsuit, the Relator is entitled to between 15-25% of the amount the government recovers as a result of the bid rigging. As an example, if a Relator files a qui tamaction alleging bid rigging on a $50 million contract and the contractor repays the government $10 million in overcharges, the whistleblower should recover between $1.5 million and $2.5 million.[4]

Once a qui tam suit is filed, the Relator’s attorneys must present the evidence they have to the government. The government will decide whether they want to intervene and take over prosecution of the fraud. If the government declines to intervene, (and the reason for declination can range from the government thinks your case is weak, or your case is fine, but they are just too busy with other matters). Even if the government declines to intervene, the Relator can still prosecute the case, and some do, but it is obviously more difficult without the government’s assistance. And in some fairly rare instances, the government can seek to have the Relator’s case dismissed if they believe it is without evidentiary merit or based on a legal theory the government doesn’t agree with.

The Antitrust Division has actually had successful criminal prosecutions that began based on evidence provided by a whistleblower who had filed a False Claims Act suit. The Antitrust Division neither publicizes the fact that whistleblowing rewards are available for exposing bid rigging on government contracts (and most states have similar False Claims Act statutes) and does not publicize when a whistleblower has successfully recovered damages for the government or himself. When I was Chief of the Philadelphia Office of the Antitrust Division we prosecuted several cases where the investigation began as a result of a whistleblower False Claims Act case. A publicly documented example of this was in 2012 when the Antitrust Division settled a civil bid rigging case where two companies were charged with rigging contracts for Bureau of Land Management gas leases.[5] Because of the collusion, SG Interests and Gunnison Energy Corp. overcharged the government for leases by bidding less than they would have if they bid competitively. Each company paid a settlement of $550,000 in a civil case brought by the Antitrust Division. The government’s case was based on a qui tamcase filed in 2009 by a former vice president of one of the companies.[6] See, Justice Department Settlement Requires Gunnison Energy and SG Interests to Pay the United States a Total of $550,000 for Antitrust and False Claims Act Violations.

Also, there was a False Claim Act case filed in the Puerto Rican ocean shipping cartel matter. That investigation resulted in the longest jail sentence ever received by an individual convicted of a Sherman Act violation–5 years[7]. Again, the fact that a whistleblower case was filed is not well known, but the following is an excerpt from an Antitrust Division appellate brief as Mr. Peake appealed his conviction:

Stallings, a former Sea Star executive, was the government’s first cooperator in its investigation into the shipping conspiracy, although he did not testify at Peake’s trial. Stallings’s [whistleblower] lawsuit sought damages for “injuries to the United States Government resulting from Defendants’ fraudulent course of conduct and conspiracy to allocate customers, rig bids, fix rates, surcharges and other fees for Puerto Rican Cabotage which resulted in the submission of false or fraudulent claims to the Government. [8]

The Antitrust Division noted in its brief:

The qui tam provisions of the False Claims Act permit whistleblowers (known as “relators”) to bring certain fraud claims on behalf of the United States. 31 U.S.C. § 3730(b). These actions “are filed under seal and remain that way for at least 60 days” to give “the government an opportunity to assess the relator’s complaint and decide whether to intervene and assume primary responsibility for prosecuting the case.” United States ex rel. Heineman-Guta v. Guidant Corp., 718 F.3d 28, 30 (1st Cir. 2013) (citing 31 U.S.C. § 3730(b)(2), (b)(4), (c)(1)). Regardless of whether the government intervenes, a relator is entitled to a portion of the proceeds from the lawsuit. 31 U.S.C. § 3730(d).

Coming Next in Part II: Should There Be an Antitrust Division “Whistleblower Czar?”

Thanks for reading. Please come back. Bob Connolly

[1] To be honest, another reason there are so few criminal antitrust trials is the prohibitive cost and the draconian “trial penalty” a convicted defendant is likely to face for demanding his day in court.

[2] It would be far more efficient if a whistleblower could simply provide the information he has to the government and cooperate in the investigation. This is among the reasons Ms. Justice and I are advocating an SEC style whistleblower statute.

[3] It is unquestioned that a scheme to rig bids not only violation the Sherman Act, but is a conspiracy to defraud the government where the government’s money is at stake.

[4] 31 U.S. Code § 3730 (d)Award to Qui Tam Plaintiff. — (1) If the Government proceeds with an action brought by a person under subsection (b), such person shall, subject to the second sentence of this paragraph, receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action. Where the action is one which the court finds to be based primarily on disclosures of specific information (other than information provided by the person bringing the action) relating to allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government  Accounting Office report, hearing, audit, or investigation, or from the news media, the court may award such sums as it considers appropriate, but in no case more than 10 percent of the proceeds, taking into account the significance of the information and the role of the person bringing the action in advancing the case to litigation. Any payment to a person under the first or second sentence of this paragraph shall be made from the proceeds. Any such person shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys’ fees and costs. All such expenses, fees, and costs shall be awarded against the defendant.

[5] https://www.justice.gov/atr/case-document/file/510616/download.

[6] https://www.justice.gov/opa/pr/justice-department-settlement-requires-gunnison-energy-and-sg-interests-pay-united-states.

[7]. https://www.justice.gov/opa/pr/former-sea-star-line-president-sentenced-serve-five-years-prison-role-price-fixing-conspiracy.

[8] US v. Frank Peake, Antitrust Division brief available at,https://www.justice.gov/atr/case-document/file/936611/download.