US v. Price Bros. Co., Crim. No. 88-CR-80780-DT.
| Decision Date | 26 September 1989 |
| Docket Number | Crim. No. 88-CR-80780-DT. |
| Parties | UNITED STATES of America, Plaintiff, v. PRICE BROTHERS COMPANY, Superior Products Company, J. Warren Back, Richard U. Rex, and William P. McDermott, Defendants. |
| Court | U.S. District Court — Western District of Michigan |
David F. Hils, U.S. Dept. of Justice, Antitrust Div., Cleveland, Ohio, for U.S.
William A. Sankbeil, Edward C. Cutlip, Jr., Detroit, Mich., for Price Bros. Co.
Leslie W. Jacobs, Thomas F. Zych, Cleveland, Ohio, David F. Dumouchel, Detroit, Mich., for Superior Products Co.
Kenneth M. Mogill, Eugene Driker, Andrew M. Zack, Detroit, Mich., for J. Warren Back.
Leslie W. Jacobs, Thomas F. Zych, Cleveland, Ohio, for Richard U. Rex.
Gregory L. Curtner, S. Allen Early III, Detroit, Mich., for William P. McDermott.
All defendants jointly move this Court, pursuant to F.R.Crim.P. 12(b)(1), to dismiss the indictment in this action. Defendants claim that defects in the institution of the prosecution of this case have resulted in violations of their Fourth and Fifth Amendment rights.
In brief, defendants allege that, for over fifty years, there has been in existence a liaison agreement (the Agreement) between the Federal Trade Commission (FTC) and the Department of Justice (DOJ) which the two agencies use to allocate their dual jurisdiction over the antitrust laws. As described in the Antitrust Division Manual, the Agreement states that before either agency begins an investigation, that agency will inform the other as to the parties, products, geographic area, and probable charges contemplated by the investigation. Under the Agreement, neither agency may begin an antitrust-related investigation until clearance is granted; routine clearance requests are handled within three days to a week. Objections to clearance may arise on various grounds, primarily: Substantially identical investigations may be under consideration in each agency. One agency may have developed what it considers to be a high degree of expertise regarding a particular firm, industry or type of conduct. An agency may have pending litigation or a decree involving the same general area or industry proposed for investigation. Or, one agency may have already done substantial preparatory work on a particular area. Clearance objections and conflicts between the two agencies are negotiated.
Further provisions of the Agreement contemplate that if a matter is before the FTC and the FTC decides that the facts may warrant criminal action, the FTC will refer the matter to the DOJ to determine whether it should be presented to a grand jury. If the DOJ determines that a grand jury investigation is necessary, the DOJ will request that the FTC transfer the matter. Otherwise, the FTC may proceed with its own investigation.
An additional function of the liaison agreement is to exchange evidence and information between the two agencies, in the event that one agency has materials which may be useful for an investigation being conducted by the other.
As to both of the latter two situations, however, the defendants claim that these provisions come into play only when a "cleared" FTC investigation turns up evidence of other criminal activity not originally contemplated by the FTC.
In sum, defendants claim that the process has repeatedly been represented to the public as, and has been faithfully adhered to as, a commitment by the DOJ not to challenge criminally any conduct that has been cleared for investigation by the FTC. In turn, the defendants claim, antitrust practitioners and their clients have long relied on the liaison procedure to ascertain whether a particular investigation is criminal or civil and, in turn, the extent to which the subject of an investigation can cooperate with the government.
Defendants support their motion with affidavits from two former agency heads: Thomas Kauper served as the Assistant Attorney General in charge of the Antitrust Division of the DOJ from 1973-1976, Lewis Engman served as Chairman of the FTC from 1973-1975. Both affidavits state that the Agreement is widely known and relied upon by antitrust practitioners, and that the purpose of the Agreement is to protect defendants from the unfairness of dual or multiple federal government proceedings based on the same conduct. Each affidavit states that under the Agreement, the FTC was obligated to disclose the scope of its proposed investigation in the instant case to the DOJ and that, to the affiant's knowledge, the DOJ has never before instituted criminal proceedings relating to the same conduct and parties previously subject to investigation by the FTC. The Engman affidavit goes further, to state that the two agencies have always agreed that it would be highly improper to use civil process to investigate potential criminal charges, and to opine that "the breach of the Agreement and the resultant inducement of the parties' cooperation in an investigation that culminated in the present criminal prosecution amounted to a violation of the parties' right to due process of law and their right against self-incrimination."
Affidavits submitted by defendants' counsel aver that defendants did in fact rely on the fact that this was a civil investigation only and that defendants cooperated accordingly. As a result, defendants contend, their Fourth Amendment protection against unreasonable search and seizure, their Fifth Amendment rights to due process, and their Fifth Amendment protection against self-incrimination have all been violated.
Defendants rely on case law developed in the area of Internal Revenue Service (IRS) investigations. In United States v. Nuth, 605 F.2d 229 (6th Cir.1979), a taxpayer subject to a criminal investigation complained that the IRS had failed to give him Miranda-type warnings as required by IRS regulations. The Sixth Circuit decided that violations of internal guidelines did not automatically require suppression of the evidence, but added that had the taxpayer claimed that he was aware of and/or relied on the IRS regulations, the analysis might be different. Similarly, numerous other IRS cases from different circuits have suppressed evidence where the agency violated long-standing and public procedures or where the IRS improperly used civil process to obtain evidence for a criminal investigation.
Like the IRS cases, the instant case involves actions which may be investigated civilly or criminally. Defendants claim that therefore, like the IRS cases, this case involves an accepted procedure, well-known to practitioners who, when dealing with a civil investigation, can feel reasonably secure that their clients are not the subject of a criminal investigation, and that free cooperation will not harm their clients' interests. Defendants claim that they did so cooperate without the assertion of any privileges, in reasonable, good faith, and justifiable reliance on the Agreement.
Defendants contend that dismissal of the indictment is the only proper relief. Normally, dismissal of an indictment is not required absent egregious conduct on the part of an agency. United States v. Leahey, 434 F.2d 7 (1st Cir.1970). Rather, a court must examine instances of a government violation of its own procedures on a case-by-case basis. Defendants here contend that the flagrancy of the agencies' violation of their own agreement,...
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...agency he or she represents, the nature of the inquiry, the organization’s connection to the 18. See United States v. Price Bros. Co., 721 F. Supp. 869, 873 (E.D. 1989) (defendant’s cooperation in FTC investigation did not prevent transfer of investigation to Antitrust Division and subseque......