U.S. v. Heffernan

• Decision Date: 27 December 1994
• Docket Number: No. 94-1080,94-1080
• Citation: 43 F.3d 1144
• Parties: 1994-2 Trade Cases P 70,831 UNITED STATES of America, Plaintiff-Appellee, v. James P. HEFFERNAN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1144

43 F.3d 1144

1994-2 Trade Cases P 70,831

UNITED STATES of America, Plaintiff-Appellee, v. James P. HEFFERNAN, Defendant-Appellant.

No. 94-1080.

United States Court of Appeals, Seventh Circuit.

Argued Oct. 5, 1994.

Decided Dec. 27, 1994.

Barry Rand Elden, Asst. U.S. Atty., Crim. Receiving, Appellate Div., Chicago, IL, John J. Powers, III, Dept. of Justice, Antitrust Div., Appellate Section, Andrea Limmer (argued), Dept. of Justice, Antitrust Div., Washington, DC, for U.S.

George Murtaugh, Jr., Lydon & Griffin, Royal B. Martin, Jr., Daniel T. Hartnett (argued), Martin, Brown & Sullivan, Chicago, IL, for James P. Heffernan.

Before POSNER, Chief Judge, and ENGEL ^* and EASTERBROOK, Circuit Judges.

POSNER, Chief Judge.

James Heffernan, vice-president of a company that makes steel drums, conspired with executives of competing companies to sell the most common type of drum at identical prices to two large buyers. He was convicted of violating section 1 of the Sherman Act, 15 U.S.C. Sec. 1, and was sentenced to 24 months in prison. He would have received a shorter sentence had the judge not found that his offense was "bid-rigging" rather than simple price fixing. The federal sentencing guideline applicable to "Bid-Rigging, Price-Fixing, or Market-Allocation Agreements Among Competitors," U.S.S.G. Sec. 2R1.1--the antitrust guideline, as it is known--imposes a one-level increase in the base offense level of a defendant whose offense involves the submission of "noncompetitive bids." Sec. 2R1.1(b)(1). The commentary, oddly, does not repeat the term "noncompetitive bids." Instead, like the title of the guideline, it uses, evidently as a synonym for "noncompetitive bids," the term "bid rigging." This is clearest in the background commentary, which states flatly: "the [Sentencing] Commission has specified a 1-level increase for bid-rigging." The government, too, treats the terms as synonyms. Its brief states: "bid rigging is simply the submission of any 'subverted' or 'collusive,' i.e., 'noncompetitive' bid"; "the identical bids submitted by Heffernan and his cohorts were surely non-competitive; indeed, they were plainly rigged." And at oral argument, the government's lawyer said, "I think the terms are meant synonymously, and there's nothing in the guidelines that suggests otherwise." The question presented by the appeal is whether Heffernan is indeed a bid rigger or, equivalently, a noncompetitive bidder, and this turns on what the term "bid rigging," or the less common term "noncompetitive bids," means.

The background commentary explains that the purpose behind the antitrust guideline is to specify the punishment for those antitrust violations about which there is "near universal agreement" that they "can cause serious economic harm." These violations--the core per se offenses that no (well, very few) economists believe can be justified--are comprised of "restrictive agreements among competitors, such as horizontal price-fixing (including bid rigging) and horizontal market-allocation." See generally Joseph C. Gallo et al., "Criminal Penalties under the Sherman Act: A Study of Law and Economics," 16 Research in Law and Economics 25 (1994). Heffernan argues that the term "bid rigging" and its synonym should be confined to bid rotation, what Application Note 6 calls the submission of "complementary bids": for each job the competitors agree which of them shall be the low bidder, and the others submit higher bids to make sure the designated bidder wins. There was no bid rotation here; two purchasers solicited bids and the conspirators submitted identical bids. The government argues that "bid rigging" includes all forms of collusion in a bidding process.

The sentencing guideline and its commentary do not define "bid rigging." For that matter they do not define "noncompetitive bids," but as we have said they appear to treat these terms as synonyms. No case before today has had to decide what either term means in the guidelines. We affirmed the convictions of Heffernan and two of his coconspirators in United States v. Rubin, 999 F.2d 194 (7th Cir.1993), but vacated the sentences because the defendants had been sentenced under the mail-fraud guideline rather than under the antitrust guideline, which we believed was error; so there was not yet any issue of adjusting a price-fixing sentence because of bid rigging.

Before the guidelines were promulgated (and since, in cases that do not involve sentencing), the term "bid rigging," though much bandied about in antitrust cases, did not denote a distinct offense. It was merely a descriptive term for a subset of price-fixing cases, so no one bothered with a careful definition. Nevertheless, for what it is worth, we point out that the vast majority of cases in which the term has appeared have treated it as a synonym for bid rotation. See, e.g., United States v. Broce, 488 U.S. 563, 565, 577, 109 S.Ct. 757, 760, 766, 102 L.Ed.2d 927 (1989); United States v. Ward Baking Co., 376 U.S. 327, 328, 332, 84 S.Ct. 763, 765, 767, 11 L.Ed.2d 743 (1964); United States ex rel. Marcus v. Hess, 317 U.S. 537, 539 n. 1, 63 S.Ct. 379, 382 n. 1, 87 L.Ed. 443 (1943); United States v. Alex Janows & Co., 2 F.3d 716, 718 (7th Cir.1993); Moore v. United States, 865 F.2d 149, 151 (7th Cir.1989); United States v. Walker, 653 F.2d 1343, 1345 (9th Cir.1981); United States v. All Star Industries, 962 F.2d 465, 470, 472 (5th Cir.1992); United States v. MMR Corp., 907 F.2d 489, 493 (5th Cir.1990); United States v. Pippin, 903 F.2d 1478, 1479 (11th Cir.1990); New York v. Hendrickson Bros., Inc., 840 F.2d 1065, 1084 (2d Cir.1988). We have mostly cited recent cases but could cite as many decided before the antitrust guideline was promulgated on November 1, 1987. Consistently with the fact that the antitrust guideline equates "noncompetitive bids" to "bid rigging," many of the cases we have cited, and others we could cite, use the terms interchangeably to mean bid rotation. See, e.g., United States v. Broce, supra, 488 U.S. at 565, 577, 109 S.Ct. at 760, 766; United States v. Ward Baking Co., supra, 376 U.S. at 328, 332, 84 S.Ct. at 765, 767; United States v. Alex Janows & Co., supra, 2 F.3d at 718; United States v. All Star Industries, supra, 962 F.2d at 473; United States v. MMR Corp., supra, 907 F.2d at 494; United States v. Pippin, supra, 903 F.2d at 1479; New York v. Hendrickson Bros., Inc., supra, 840 F.2d at 1084; United States v. Evans & Associates Construction Co., 839 F.2d 656, 657, 661 (11th Cir.1988).

The cases the government cites for a broader usage of the term "bid rigging" are inapt. The government's favorite case, United States v. Portsmouth Paving Corp., 694 F.2d 312, 325 (4th Cir.1982), defines bid rigging as "any agreement between competitors pursuant to which contract offers are to be submitted to or withheld from a third party." That is not remotely what happened in the present case. There was no agreement on who would bid, only on what the bid would be. The court in Portsmouth did say that "a requirement that coconspirators agree to reciprocate by submitting complementary bids on future projects" is not part of the definition of bid rigging, id. at 325 (emphasis added). But the case was in fact a standard bid rotation case, see id. at 316 and n. 2, and the court thought the defendants' violation more serious precisely because bids were rotated, which eliminated all competition rather than just price competition. Id. at 317. The other cases that the government cites either quote Portsmouth but then go on to make clear that they understand bid rigging to mean bid rotation, as in United States v. Mobile Materials, Inc., 881 F.2d 866, 869, 871 (10th Cir.1989), and United States v. Reicher, 983 F.2d 168, 170 (10th Cir.1992), or simply do not indicate what they mean by bid rigging, as in Ramsay v. Vogel, 970 F.2d 471, 474 (8th Cir.1992). We have found only one case in which "bid rigging" is used to mean some other kind of interference with the integrity of a bidding system. It is Harkins Amusement Enterprises, Inc. v. General Cinema Corp., 850 F.2d 477, 487 (9th Cir.1988), and it happens to be a post-guidelines case, so it could not have influenced the Sentencing Commission in the drafting of the antitrust guideline. What is more, it was a case that involved an agreement to exclude a competitor from bidding--a little like bid rotation--not an agreement to submit identical bids.

Given that "bid rigging" appears to have had a reasonably settled meaning at the time the guidelines were promulgated, it is plausible (no stronger word is possible) that the draftsmen of the antitrust guideline meant to incorporate that meaning, in which event Heffernan would be entitled to be resentenced. (At the risk of becoming tedious, we repeat that the operative term in the guideline itself, as distinct from the title and commentary--"noncompetitive bids"--cannot be given a broader meaning.) But we should also consider the draftsmen's purpose in singling out bid rigging for more severe punishment than other forms of price fixing, for that purpose might point to a broader meaning. The background commentary explains that "volume of commerce is liable to be an understated measure in some bid-rigging cases. For this reason, and consistent with pre-guidelines practice, the [Sentencing] Commission has specified a 1-level increase for bid-rigging." Application Note 6 further explains that "understatement of seriousness is especially likely in cases involving complementary bids." It gives as an example a defendant who agrees not to submit a bid, or to submit an unreasonably high bid, on one occasion, in exchange for his being the designated low bidder on another occasion. If he doesn't get the second bid, he will not have any "volume of commerce"; and even if he does get the second bid, his volume of commerce will understate the volume affected by his participation in the bidding scheme. "The court should...