December 13, 2007

FEDERAL COURT ENFORCES

ANTITRUST AMNESTY AGREEMENT,

DISMISSES INDICTMENT

A federal district court has dismissed the indictment that charged
Stolt-Nielsen S.A. (Stolt-Nielsen) and its officers and affiliates with violations of Section 1 of the Sherman Act.

In dismissing United States v. Stolt-Nielsen S.A., the district court held the federal government to the terms and provisions of its antitrust amnesty agreement with the defendants formed under the Corporate Leniency Program of the Antitrust Division of the US Department of Justice.

The precedential decision, handed down on November 29, 2007, signals to companies and individuals considering entry into the DOJ’s Corporate Leniency Program that amnesty agreements will ultimately be fully enforced by the courts. It also strikes a blow against the government’s attempt to abandon the terms of the amnesty agreement it had signed with Stolt-Nielsen—a move that had cast doubt over the entire Corporate Leniency Program. Furthermore, the decision emphasizes how important it is for companies to develop and enact comprehensive antitrust compliance policies and programs.

The Corporate Leniency Program

The Antitrust Division of the US Department of Justice initiated the Corporate Leniency Program in 1993 to provide an incentive—i.e., immunity from criminal prosecution—for companies to self-report anticompetitive activity that violates the antitrust laws. Under the program, when anticompetitive activity is occurring, the first company to come forward and meet the case-specific conditions of the program receives immunity from prosecution. Terms and conditions for immunity from prosecution are then usually clearly spelled out in an amnesty agreement between the reporting company and the government. These amnesty agreements are binding contracts between the company and government. Therefore, courts look to general principles of contract law when interpreting these agreements.

The Amnesty Agreement

Stolt-Nielsen, a Luxembourg parcel tanker shipping company, engaged in anticompetitive behavior by entering into a customer allocation conspiracy with two of its primary competitors, Odfjell Seachem AS (Odfjell) and Jo Tankers B.V. (Jo Tankers). In March 2002, Stolt-Nielsen, realizing that the anticompetitive agreement with its competitors was illegal, initiated an antitrust compliance policy and sought entry into the US government’s Corporate Leniency Program. On January 15, 2003, the government and Stolt-Nielsen entered into an amnesty agreement drafted by the government. In the agreement, Stolt-Nielsen represented that it “took prompt and effective action to terminate its part in the anticompetitive activity being reported upon discovery of the activity.”

Notably, Stolt-Nielsen made no representation that its participation in the illegal activity wholly terminated in March 2002, nor did the DOJ require the company to so state in the agreement. In exchange for cooperating with the government by providing self-incriminating information and assistance, the government promised “not to bring any criminal prosecution against [Stolt-Nielsen] for any act or offense it may have committed prior to . . . [January 15, 2003] in connection with the anticompetitive activity being reported.”

Based largely on information provided by Stolt-Nielsen and its officers and employees, the government successfully prosecuted Odfjell, Jo Tankers, and their respective executive officers. Odfjell received a fine of $42.5 million and Jo Tankers received a fine of $19.5 million. Their respective executive officers also received individual fines and prison time. In its decision in late November, the district court noted that the government received the full benefit of the amnesty agreement: “Without Stolt-Nielsen’s cooperation, the [Antitrust] Division did not have sufficient evidence to sustain a conviction of any company in the parcel tanker industry.”

The Government’s Revocation

Acting on evidence that Stolt-Nielsen had not completely ceased participating in illegal activities by March 2002, in April 2003, without even first speaking with Stolt-Nielsen and its officers (as the court stressed in its decision), the government abruptly suspended the amnesty agreement.

Several months later, the government arrested Stolt-Nielsen’s managing director. Thereafter, the government officially revoked the amnesty agreement, thus exposing Stolt-Nielsen and its officers to criminal prosecution.

The Decisions of the Federal Courts

In response, Stolt-Nielsen initially filed a civil action in the United States District Court for the Eastern District of Pennsylvania for declaratory and injunctive relief, seeking to bar the government from prosecuting the company and its officers. The Honorable Timothy J. Savage concluded that Stolt-Nielsen had not breached the amnesty agreement and enjoined the government from revoking the agreement and indicting the company and its officers.

On appeal, the United States Court of Appeals for the Third Circuit reversed the lower court ruling, on the grounds that the district court’s injunction violated the principle of separation of powers.

Next, the government indicted Stolt-Nielsen and its officers and affiliates for violating Section 1 of the Sherman Act. Defendants moved to dismiss this indictment in light of the amnesty agreement.

Court Commends Defendant for Prompt, Effective Compliance

After an evidentiary hearing, the Honorable Bruce W. Kauffman, assigned to the criminal case, found that in early 2002 Stolt-Nielsen took “prompt and effective action to terminate [its] part in the anticompetitive activity being reported upon discovery of that activity.” The court emphasized that Stolt-Nielsen promptly instituted a comprehensive and effective antitrust compliance policy “in a genuine effort to eliminate anticompetitive behavior at all levels of the company, including senior management.”

Specifically, the court commended the fact that Stolt-Nielsen had:
“(1) instituted a comprehensive Antitrust Compliance Policy documented in a . . . Handbook; (2) promptly distributed the Handbook to employees and competitors; (3) held a series of mandatory seminars [] at offices around the world . . . to inform its executives and employees of the necessity of antitrust compliance; (4) required all relevant employees to sign certifications . . . that they would comply strictly with all terms of the . . . Policy or risk demotion or termination; and (5) informed its competitors of the [] Policy and the company’s intention to comply with it.”

Notably, in examining the provisions of the amnesty agreement, the court criticized the government for drafting an agreement that contained several ambiguous provisions. Stolt-Nielsen, the court ultimately concluded, never breached the amnesty agreement. Therefore, the government was fully bound by the provisions of the amnesty agreement, and the indictment against the defendants was dismissed.

It is unclear whether the DOJ will appeal the dismissal of the indictment to the Third Circuit.

Courts Will Hold All Parties to the Agreement’s Terms

The Stolt-Neilsen case demonstrates that the Corporate Leniency Program remains a viable option for companies that uncover antitrust violations. The decision also shows that courts will hold all parties, including the government, to the terms of the amnesty agreement where there has been no breach of contract.

The decision also highlights the importance of a comprehensive antitrust compliance policy or program. For example, the decision illustrates that effective antitrust compliance programs assist companies seeking entry into the Corporate Leniency Program and are widely commended by the courts. Indeed, it is doubtful that the district court would have dismissed the indictment if Stolt-Neilsen did not have a strong antitrust compliance program in force. In addition, under the advisory federal sentencing guidelines, an effective compliance program can, inter alia, reduce the amount of the fines imposed upon a company found to be in violation of the antitrust laws.

The government’s actions before the dismissal of the Stolt-Nielsen indictment had cast a pall over the Corporate Leniency Program and the enforceability of amnesty agreements with self-reporting, compliant companies. If the government could choose to ignore agreements signed with self-reporting, compliant companies, where was the value in compliance? Fortunately, Judge Kauffman’s decision in the
Stolt-Neilsen matter reinforces the viability of the Program and the enforceability of amnesty agreements. The lessons learned by the DOJ in this matter should be manifest.