Appeals court allows antitrust count in Gosselin-Pasha case
The U.S. Court of Appeals for the Fourth Circuit on June 14 reversed in part a district court's decision in the case of the 'United States v. Gosselin Group World Wide Moving and The Pasha Group,' ruling that the defendant freight forwarders could not claim antitrust immunity under the Shipping Act.
When personnel of the Department of Defense (DOD) are posted to foreign countries, the International Through Government Bill of Lading program covers their moving expenses. The DOD contracts with private companies to provide this service. Under the Military Traffic Management Command (MTMC), bids are solicited for 'through rates' from U.S. freight forwarding companies. A through rate is a payment encompassing all the costs involved in a door-to-door move.
Bidding for through rates occurs biannually and involves a two-step process. In the first step, or 'initial filing,' the freight forwarders file a bid for a through rate associated with a particular route, or channel. The low bid that emerges is referred to as the 'prime through rate.' MTMC publishes this bid and the next four lowest bids. The company that bids the prime bid is entitled to a set percentage of DOD freight business for the associated channel.
In the second step, other freight forwarders resubmit bids in light of the published prime. The remaining companies may match, or 'me-too,' the prime bid for each channel, or they may bid a higher rate. When the channel at issue operates in a competitive market, a forwarder must typically 'me-too' the prime to receive any DOD business. Forwarders that 'me-too' the prime are also entitled to a set portion of DOD business for the cycle and channel for which they have bid.
Because through rates are unitary, they include many costs, all of which U.S. forwarders become responsible for when the DOD accepts their bids. Some of the costs relate to moving services undertaken by other firms along the channel. Costs of this sort cover five general categories of service: the carriage of goods between inland U.S. cities and U.S. ports; services performed at U.S. ports; ocean transportation between U.S. and foreign ports; foreign port services; and carriage of goods between foreign ports and foreign inland points. U.S. freight forwarders must consider these costs in setting their bids.
Gosselin World Wide Moving, a Belgian corporation, and The Pasha Group, a U.S. company, operate in the channels between the United States and Germany. Both companies provide a package covering local German moving agent services, European port services, and ocean transport services in this market. Gosselin and Pasha offer a 'landed rate,' which is a fee that covers all of the moving costs involved in the portion of the channels they service.
Gosselin and Pasha also act as the exclusive agents of the International Shippers Association (ISA), a conference of freight forwarders organized to negotiate collectively with shippers operating in the through transportation market. Many of the freight forwarders who place bids in the MTMC are also ISA members. In their capacity as ISA agents, Gosselin and Pasha negotiate service contracts with the Trans Atlantic American Flag Line Operators (TAAFLO), a group of U.S. ocean carriers. TAAFLO's service contract with the ISA entitles all ISA members to ocean transportation with TAAFLO memberships at a predetermined rate.
In late 2001, initial filings for the summer bidding cycle of 2002 occurred. A U.S. freight forwarder, unnamed in court papers, filed prime through rates with the MTMC for 26 of the channels between Germany and the United States. This freight forwarder did not use the landed rate offered by either Gosselin or Pasha. Instead, by negotiating separately with each service provider at every step of the transportation chain, this freight forwarder was able to undercut its competitors by $3 per hundredweight in 12 of the 26 channels. In December 2001, the DOD published this freight forwarder's prime bid along with the next four lowest bids. The remaining forwarders then had until Jan. 12, 2002, to file their second-round bids.
Alarmed that the freight forwarder had been able to low-bid for the 12 channels without using Gosselin's bid, Gosselin's general manager sent an e-mail late in December to another landed rate provider, inviting the provider to collude with Gosselin to prevent the 'me-too' rates for the 12 routes at issue from converging to the prime. In an e-mail reply the same day, an executive at the competitor agreed, noting that 'if we do not react and give the industry a clear message which rate to base the ('me-too' bids) on, then everyone will use the low rate and later expect us to reduce our rates so those carriers can work under their ('me-too') rates.'
Shortly after that exchange, Gosselin's managing director forwarded the e-mails to the president of Pasha. The Gosselin executive identified the 12 channels, which had 'quite some money on the table,' and inquired 'what rate levels would you be able to support if those (channels) go to the second level?' Pasha later indicated its willingness to cooperate.
In January 2002, Gosselin agreed in writing to pay 12 of the largest German moving agents a specified fee. The German agents, for their part, agreed not to handle business from freight forwarders unless the forwarders submitted 'me-too' bids at the second lowest level or above. Not content with securing their share of DOD business designated for the second-round bids, Gosselin and Pasha went on to persuade the unnamed freight forwarder and the remaining forwarders to withdraw their competitive bids below the second-low level.
According to court papers, the result was that a good deal of household goods during the 2002 summer cycle moved at or above the second-low rate. The net financial result of the conspiracy was to cause the DOD to pay substantially more than if the unnamed freight forwarder's original prime rate had prevailed.
Gosselin and Pasha were subsequently charged by the Justice Department on one count alleging an antitrust conspiracy to restrain trade, and on one count alleging a conspiracy to defraud the United States. Both defendants filed a motion to dismiss the government's case against them on the basis of immunity under the Shipping Act. U.S. District Judge Gerald Bruce Lee granted their motion in regard to the antitrust count, but denied it with respect to the conspiracy to defraud count.
According to a plea agreement, Gosselin and Pasha pled guilty to the conspiracy to defraud count, and the district court imposed on each defendant a criminal penalty of $4.6 million. After the final sentencing order, the Justice Department appealed the dismissal on immunity grounds of the antitrust count, and both defendants cross-appealed their convictions on the conspiracy to defraud count.
The Fourth Circuit appeals court noted in its ruling that Gosselin and Pasha claimed immunity under U.S. law (46 U.S.C. app. 1706) that exempts from antitrust liability 'any agreement or activity concerning the foreign inland segment of through transportation that is part of transportation provided in a United States import or export trade.'
'Defendants argue that this provision covers all aspects of their scheme to rig bids,' the appellate panel said. 'We do not believe that the statutory exemption extends as far as Gosselin and Pasha would have it ' the (law cited) does not immunize defendants' scheme to raise 'through rate' bids in the 12 channels at issue.'
Finding that three immunity provisions of the Shipping Act 'under which Gosselin and Pasha claim antitrust immunity afford them no relief,' the appeals court reversed the district court's decision regarding the antitrust count and remanded the case to the lower court 'for resentencing in light of our immunity holding and the entirety of each plea agreement's sentencing provisions.'
The appeals court affirmed the district court's 'adjudication of guilt on the conspiracy to defraud count.'
The full case title is 'United States of America vs. Gosselin World Wide Moving and The Pasha Group,' docket numbers 04-4752, 04-4876, 04-4877, U.S. Court of Appeals for the Fourth Circuit. The case was argued before the appeals court on March 18, with the ruling coming on June 14. The appeal was from the Eastern District of Virginia, in Alexandria.