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The Disconnect Between Cartel Guilty Pleas and Class Actions

By Jon Tomlin

August 15, 2019

On July 30, United States District Judge Janis Lynn Sammartino granted class certification to three classes of purchasers of canned tuna in In re Packaged Seafood Products. These class actions followed guilty pleas by Bumble Bee Foods LLC and Starkist Co. in which both pled guilty to fixing prices of canned tuna up to 2013. Yet, the class certifications in In re Packaged Seafood Products cover purchases up to the end of 2016 — three years after the end of the guilty plea periods.[1]

Is this disconnect between guilty pleas and related class actions commonplace? Below, I examine this question by comparing the cartel durations delineated in plea agreements to those in settlement class definitions for companies assessed the 40 largest corporate fines by the U.S. Department of Justice’s Antitrust Division for Sherman Act violations dating from today back to 2005.

The Importance of Determining Cartel Duration

Accurately determining the starting and ending points of a cartel is important for several reasons. In civil litigation, damages models can yield inaccurate results if they are based on an inaccurate assumption regarding the duration of a cartel. This is because damages models in price-fixing cases often rely on identifying a “clean” period free of alleged price – fixing and using the market outcomes during this time period to predict the prices that would have prevailed during the cartel time period.

Government fines may be too large or too small for optimal deterrence of price-fixing cartels if they are based on time periods that are too long or too short. Further, some of the most important academic research on cartels over the past two decades has relied on the cartel time periods specified in DOJ prosecutions.[2] Any inaccuracy in these time frames may call into question some of the results of this research.

The terms of plea agreements, including the specified duration of a cartel, are supposed to reflect “the most serious, readily provable offense,” and “[Antitrust] Division prosecutors will not drop readily provable charges in exchange for a plea of guilty.”[3] However, complaints in subsequent class actions often allege a cartel time period that is longer than that in the associated guilty plea. Thus, an important question is what, if any, relationship exists between the cartel durations specified in plea agreements and the settlements reached in the subsequent civil lawsuits.

The 40 Largest Corporate Fines for Sherman Act Violations

In order to examine the relationship between cartel durations in plea agreements and those in related class settlements, I examine the plea agreements for the 40 largest corporate fines for Sherman Act violations dating from today back to 2005. Perhaps unsurprisingly, each of the companies entering into these plea agreements has faced one or more class actions alleging price-fixing behavior regarding the same product or products described in the plea agreement. Where available, I used information on the end-purchaser plaintiff (i.e., final consumer) settlements in these cases, and, where not available, I used direct purchaser class action settlements.[4]

The plea agreements for t he 40 largest fines were associated with class action for 46 products. Approximately 90% (41) of these class actions have settled as of the time of publication.[5] Most of the settlements occurred several years after the guilty plea (with some occurring more than seven years after the plea agreement). In some cases, the duration of the cartel specified in the settlement is close to the duration specified in the related plea agreement.

In nearly half of the cases (44%), the starting period of the cartel in the settlement is within one year of the starting date specified in the related guilty plea. The same holds true for the ending period — nearly one half (46%) of the ending dates of the cartel in the settlement classes are within a year of the ending date specified in the related guilty plea.

There are, however, a substantial number of cases in which the settlement class period is much longer than the time period identified in the associated plea agreement. As an example, Bridgestone Corp. entered into a guilty plea related to price fixing over anti-vibration rubber parts covering an eight – year time period. Last year, the court approved a settlement between Bridgestone and a class of consumers making purchases of automobiles containing anti-vibration rubber parts over a 22-year time period.

More than half of the settlement class time periods are at least 50% longer than the time period delineated in the corresponding plea agreement. These cases involve a range of different products — dynamic random access memory chips, liquid crystal display panels, some automotive parts, air cargo and foreign currency exchange. The settlement class period is at least double the length of that specified in the associated plea agreement for about a quarter of the cases. The settlement agreement class period length exceeds the plea period length by an average of over nine years for this set of cases.

It may be tempting to try to reconcile the gaps between plea agreement time periods and settlement periods as due to “lingering effects” on prices after the cartel has ended. Put differently, one may wonder if perhaps the cartel duration specified in a plea agreement was accurate, and the class period was longer due to the cartel’s continuing impact on prices after its end (meaning there is no inconsistency between the plea agreement and the class settlement).

However, in all but one of the cases in which the settlement class period was at least double the length of the plea agreement period the settlement class time period had a starting date that predated that specified in the related guilty plea. The earlier starting date in these cases cannot be due to lingering price effects.

Takeaways

Several takeaways emerge from comparing class settlement time periods with related plea agreement time periods for the companies assessed the largest fines by the DOJ. First, the large majority of companies entering into these plea agreements subsequently settled one or more class actions with the settlements typically occurring several years after the plea agreement.

Second, the duration of a price- fixing conspiracy delineated in a plea period agreement is not always an accurate guide to the duration of the price -fixing conspiracy that will appear in subsequent civil complaints or resulting settlements. In about one quarter of the cases examined, the settlement class period length was more than double that specified in the related plea agreement.

Third, the large gap between plea agreement time periods and class periods cannot be reconciled in many instances. In these cases, the plea period must be too short, the class period must be too long, or both. As noted above, an accurately identified cartel duration is important for reliable damages calculations in civil litigation, appropriate government fines, and solid academic research. Future research will hopefully shed more light on the nature of these discrepancies.


[1]   The 2016 ending date is for the “commercial food preparer” class. The other two classes (Direct Purchasers and End Purchasers) have an ending date of 2015.

[2]   See, e.g., “Price Fixing Hits Home: An Empiric al Study of US Price -Fixing Conspiracies,” Margaret C. Levenstein and Valerie Y. Suslow, Review of Industrial Organization, June 2016.

[3]   “Cartel Settlements in the U.S. and EU: Similarities & Remaining Questions,” Ann  O’Brien, Senior Counsel to the Deputy Assistant Attorney General for Criminal Enforcement, Antitrust Division, Annual EU Competition Law and Policy Workshop, June 6, 2008. Plea agreements often specify cartel time periods as extending to “at least” the starting and ending dates they identify.

[4]   Nearly all of the cases in which I use the direct purchaser settlement are in air transportation or cargo in which the indirect purchaser claims were dismissed.

[5]   These are the numbers that result from focusing only on the indirect purchaser cases when available and the direct purchaser case when there was no information an indirect purchaser settlement.