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Whistleblowers May Spur More Gov’t Contract Antitrust Cases

Whistleblowers May Spur More Gov’t Contract Antitrust Cases

David Caputo

Published: 7.26.2019

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Author: David Caputo | Published: 7.26.2019
Categories: Article | Tags: Antitrust Cases Whistleblowers

In this article, attorneys David Caputo and Zachary Arbitman discuss the Antitrust Division’s renewed commitment to investigating and prosecuting companies cheating the United States government and the expected subsequent influx in whistleblower cases.

Last month, the U.S. Department of Justice’s Antitrust Division secured the largest settlement ever recovered under Section 4A of the Clayton Act, which provides the government with the right to bring claims for damages that it incurs as a result of anti-competitive conduct.[1] On top of $82 million in criminal penalties, three South Korea-based companies agreed to pay $154 million to the United States for civil antitrust and False Claims Act violations stemming from their decade-long conspiracy to rig bids for contracts with the U.S. Department of Defense to supply certain of its branches with fuel.[2]

This resolution is particularly noteworthy not just for its sheer size but because the impetus for the government’s antitrust investigation was a private whistleblower’s qui tam action.[3] Under the False Claims Act, an individual may file a qui tam suit on behalf of the government for certain losses incurred by the government and, if the suit is successful, share in any recovery obtained.[4] Likewise, the sometimes overlooked “alternate remedy” provision of the False Claims Act ensures a whistleblower’s ability to share in some government recoveries achieved through other legal mechanisms.

The day after the settlement was announced in the fuel-supply case, Assistant Attorney General Makan Delrahim noted the Antitrust Division’s renewed commitment to investigating and prosecuting companies cheating the United States government and the American taxpayer. Given this, we may soon see a rise in whistleblowers coming forward with information concerning bid rigging, price fixing or market allocation causing the government to pay improperly inflated prices.

DOJ’s Settlement With Three South Korea-Based Companies Accused of Rigging Bids for Fuel-Supply Contracts With the Department of Defense

On Nov. 14, 2018, the Antitrust Division announced its global settlement with SK Energy Co. Ltd., GS Caltex Corp. and Hanjin Transportation Co. Ltd. to resolve allegations surrounding a bid-rigging conspiracy that targeted contracts to supply fuel to United States military bases in South Korea between roughly March 2005 and 2016.[5] The three companies pled guilty to criminal charges and agreed to pay a total of $236 million in criminal fines and civil damages for antitrust and False Claims Act violations.[6] In the press release announcing these resolutions, the DOJ noted that “[t]hese settlements reflect the important role of both Section 4A of the Clayton Act and the False Claims Act to ensure that the United States is fully compensated when it is the victim of anticompetitive conduct.”[7]

The settlement agreements executed by each of the three companies resolved the government’s claims along with those of the private whistleblower who spurred the investigation.[8] The agreements specifically include resolution of a qui tam action brought in the U.S. District Court for the Southern District of Ohio.[9] Likewise, the agreements describe the “covered conduct” as that concerning the conspiracy alleged by both the United States and the whistleblower in the related False Claims Act suit.[10]

The Clayton Act Provides a Vehicle for the Government to Recover for Financial Harm Incurred as a Result of Anti-Competitive Conduct

In the wake of the fuel-supply settlements, Delrahim noted that “Section 4A of the Clayton Act is a powerful yet historically underused enforcement tool that empowers the United States to obtain treble damages for anticompetitive conduct when the government is itself the victim.”[11] Indeed, in 1955, Congress amended the Clayton Act to add Section 4A to ensure that the government fell within the statute’s scope and could bring claims to recover damages where it was the victim of an antitrust violation.[12] Originally, Section 4A allowed the government to recover only single damages; however, in 1990, Congress further amended the Clayton Act to allow the government to seek treble damages pursuant to that provision.[13]

Since its enactment, enforcement under Section 4A has ebbed and flowed. The Antitrust Division filed numerous Section 4A cases in the 1960s and 1970s.[14] But, Section 4A filings dropped significantly over the next few decades up through the present — with just four cases brought in the 1980s and only three cases brought since 1990 until last month’s fuel-supply settlements.[15] Some reasoned that the U.S. Supreme Court’s 1977 decision in Illinois Brick Co. v. Illinois may have been responsible for this decline. There, the court held that indirect purchasers of goods or services lacked standing under the Sherman Act to bring antitrust actions to remedy their payment of supracompetitive prices.[16] Since many of the Section 4A cases brought before then involved claims by the United States as an indirect purchaser, it makes sense that Illinois Brick would result in fewer Section 4A cases.[17] But, as Delrahim recently noted in remarks presented at the American Bar Association Antitrust Section Fall Forum, the “government … increasingly purchases goods and services directly.”[18]

In conjunction with the fuel-supply settlements, Delrahim declared his intention to continue using Section 4A claims to vigilantly “protect the interests of American taxpayers.”[19] He echoed this sentiment in remarks made at the ABA Fall Forum: “The American Taxpayer deserves to see a revitalization of the government’s Section 4A authority. Going forward, the Division will exercise 4A authority to seek compensation for taxpayers when the government has been the victim of an antitrust violation. We hope that these efforts will also deter future violations.”[20] Though Delrahim did not expressly mention the role he expected whistleblowers to play in this uptick in Section 4A enforcement, the fuel-supply whistleblower’s role as a catalyst for that investigation and related settlements may be a sign of things to come.

The False Claims Act Provides Incentives for More Whistleblowers to Come Forward with Information Concerning Section 4A Violations

The False Claims Act imposes civil liability on any person who “knowingly presents … a false or fraudulent claim for payment or approval” to the federal government.[21] A private person, called a relator, may bring a False Claims Act action “in the name of the Government,” also known as a qui tam action.[22] The government may intervene to take over a qui tam action from the relator, but the relator “shall have the right to conduct the action” if the government opts not to intervene.[23]

A relator in a successful qui tam action is entitled to a share of any recovery by the government.[24] If the government intervenes in the case and successfully prosecutes or settles the action, the relator is entitled to between 15 and 25 percent of the government’s recovery.[25] If the government declines to intervene and the relator successfully prosecutes the case on his or her own, the relator is entitled to between 25 and 30 percent of any sums obtained on the government’s behalf.[26] The rewards offered, in both
intervened and nonintervened cases, encourage private individuals to come forward with evidence of fraud perpetrated on the government.[27] Whistleblowers often come forward at great risk to their careers and livelihoods, so such incentives are often necessary to offset that risk at least to some degree.

When a private individual brings a qui tam action, the False Claims Act also authorizes the government to pursue remedies beyond simply intervening in that case. Indeed, “the Government may elect to pursue its claim through any alternate remedy available to the Government, including any administrative proceeding to determine a civil money penalty.”[28] If the government opts for an “alternate remedy,” the False Claims Act gives relators “the same rights in such proceeding as such person would have had if the action had continued under this section.”[29]

Making sure qui tam relators are fully compensated for their courage in bringing to light antitrust conspiracies is crucial, as those individuals put their careers and reputations on the line to expose frauds on the American taxpayer. The alternate-remedy provision of the False Claims Act assures potential antitrust whistleblowers that their right to recover will be preserved even if the government decides to pursue its damages through a different legal vehicle, such as Section 4A. For this reason, relators with information concerning anticompetitive conduct causing the government to pay improperly inflated prices can continue to come forward with the knowledge that their potential rewards may include some financial benefit in addition to the satisfaction of having done the right thing.


David J. Caputo is a founding partner and Zachary Arbitman is a senior associate at Youman & Caputo LLC.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] § 4A Clayton Act, 15 U.S.C. § 15a.

[2] Press Release, U.S. Dep’t of Justice, Three South Korean Companies Agree to Plead Guilty and to Enter into Civil Settlements for Rigging Bids on United States Department of Defense Fuel Supply Contracts (Nov. 14, 2018), available at https://www.justice.gov/opa/pr/three-south-korean-companies-agree-plead-guilty-andenter-civil-settlements-rigging-bids

[3] We did not represent the whistleblowers in this case.

[4] 31 U.S.C. § 3730(b)(1), (d)(1-2).

[5] Press release.

[6] Id.

[7] Id.

[8] See GS Caltex Settlement Agreement (redacted); Hanjin Settlement Agreement (redacted); SK Energy Settlement Agreement (redacted), all available
at https://www.justice.gov/opa/pr/three-south-korean-companies-agree-plead-guilty-andenter-civil-settlements-rigging-bids

[9] GS Caltex Settlement Agreement, Recitals § B; Hanjin Settlement Agreement, Recitals § B; SK Energy Settlement Agreement, Recitals § B.

[10] GS Caltex Settlement Agreement, Recitals § E; Hanjin Settlement Agreement, Recitals § E; SK Energy Settlement Agreement, Recitals § E.

[11] See Press Release.

[12] Makan Delrahim, “November Rain”: Antitrust Enforcement on Behalf of American Consumers and Taxpayers (Nov. 15, 2018) (Remarks as Prepared for Delivery at the American Bar Association Antitrust Section Fall Forum), available at https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahimremarks-american-bar-association-antitrust.

[13] Id.

[14] Id.

[15] Id.

[16] See Illinois Brick, 431 U.S. at 746-47.

[17] Id.

[18] Press Release.

[19] “November Rain.”

[20] Id.

[21] 31 U.S.C. § 3729(a).

[22] Id. § 3730(b)(1).

[23] Id. § 3730(b)(2), (b)(4), (c)(3).

[24] Id. § 3730(d)(1-2).

[25] Id. § 3730(d)(1).

[26] Id. § 3730(d)(2).

[27] See, e.g., United States ex rel. Williams v. NEC Corp., 931 F.2d 1493, 1496–97 (11th Cir. 1991); United States ex rel. Dick v. Long Island Lighting Co., 912 F.2d 13, 18 (2nd Cir. 1990) (quoting H.R.Rep. No. 660, 99th Cong., 2d Sess. 22 (1986)) (citing Senate Report at 14, 1986 U.S.Code Cong. & Admin.News 5279 (quoting testimony before Senate Judiciary Committee’s Subcommittee on Administrative Practice and Procedure stating that the amended False Claims Act rewards those who “bring … wrongdoing to light.”)).

[28] 31 U.S.C. § 3730(c)(5).

[29] Id.

 

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