Tuesday, December 04, 2007

Revocation of Antitrust Immunity Held Unfair; Indictment Dismissed

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reports.

The federal district court in Philadelphia has dismissed an antitrust indictment against London-based Stolt-Nielsen S.A., two of its subsidiaries, and two company executives for conspiring to restrain trade in the parcel tanker shipping industry.

The court ruled that the indictment followed an unreasonable and unfair decision by the Department of Justice Antitrust Division to revoke its promise of immunity granted to Stolt-Nielsen for the company's cooperation with the government's investigation into a parcel tanker shipping cartel. The Antitrust Division failed to meet its burden of demonstrating that Stolt-Nielsen materially breached the agreement, according to the court.

Conditional Leniency Agreement

In 2003, the Justice Department entered into a conditional leniency agreement with Stolt-Nielsen under the Antitrust Division's corporate leniency program. The corporate leniency program provided an opportunity and incentive for companies to cooperate with the government’s criminal investigations into violations of the antitrust laws. Under the program, the Antitrust Division would agree not to prosecute companies that report their illegal antitrust activity to the Antitrust Division and meet all of the program's conditions. Only the first company to report a cartel is eligible to qualify for leniency.

Stolt-Nielsen provided the Antitrust Division with incriminating evidence of the cartel. In exchange for the cooperation, the Antitrust Division promised not to prosecute Stolt-Nielsen or its directors, officers and employees for the reported conduct. Ultimately, the government successfully prosecuted the company's co-conspirators.

Withdrawal of Leniency

The government withdrew its grant of conditional leniency to Stolt-Nielsen in March 2004, after concluding that the defendants had not fulfilled their obligations under the leniency agreement. In January 2005, the court attempted to block the government's indictment (2005-1 Trade Cases 74,669); however, the U.S. Court of Appeals in Philadelphia ruled that the district court lacked the power to enjoin the filing (2006-1 Trade Cases 75,172). The Third Circuit instructed Stolt-Nielsen to assert the agreement as a defense after indictment. A grand jury returned the indictment on September 6, 2006.

There was “no evidence that the defendants breached the agreement by failing to cooperate,” the court held. Thus, there was no reasonable basis upon which to revoke the agreement, and fundamental fairness demanded that the indictment be dismissed.

Benefit of Bargain

The government was able to dismantle a cartel and secure guilty pleas from Stolt- Nielsen’s co-conspirators, which included prison terms and fines totaling $62 million. Thus, the Antitrust Division obtained the benefit of its bargain. The defendants, however, were not afforded the benefit of their bargain, in the court's view.

The government solicited “the cooperation of the very co-conspirators whom the defendants had reported to the Division in reliance on its promise of immunity, and used the co-conspirators’ testimony to prosecute the defendants.”

The November 29, 2007, decision in U.S. v. Stolt-Nielsen, S.A., Criminal No. 06-cr-466, will appear in CCH Trade Regulation Reports.

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