U.S. Supreme Court Lets Stand Fourth Circuit’s Brewbaker Decision
The U.S. Supreme Court has allowed a U.S. Court of Appeals for the Fourth Circuit ruling that limits the U.S. Department of Justice's (DOJ) ability to bring criminal charges for antitrust violations to stand. On November 12, 2024, the Court denied the DOJ's petition for certiorari in U.S. v. Brewbaker, which ruled that the criminal per se standard under the Sherman Act does not apply where companies have both a vertical and horizontal relationship. The Supreme Court's denial of the DOJ's petition means it will be more difficult for the DOJ to prosecute bid-rigging or price-fixing conduct as a per se violation of Section 1 of the Sherman Act where the competing companies have a vertical component to their relationship.
Background
In October 2020, the DOJ's Antitrust Division brought charges against Contech Engineered Solutions LLC and a former executive, Brent Brewbaker, for rigging bids for public infrastructure projects solicited by the North Carolina Department of Transportation (NCDOT).1The indictment alleged that Contech and Brewbaker conspired with Pomona Pipe Products, a Contech distributor, to submit hundreds of collusive bids to the NCDOT for nearly a decade. While Contech pled guilty in June 2021,2Brewbaker went to trial and was convicted of bid-rigging and fraud in February 2022.3He was sentenced to 18 months in prison and a $111,000 criminal fine.4
Brewbaker appealed his convictions, contesting the application of the per se standard under the Sherman Act to the alleged bid-rigging scheme.5Under the per se standard, the DOJ must only prove that the competitors entered into an agreement to rig bids or fix prices; the DOJ need not prove the agreement actually affected competition. Brewbaker argued that the bid-rigging agreement alleged in the indictment should have been analyzed under the "rule of reason" because of the vertical relationship between Contech and its distributor, Pomona.6Under the "rule of reason," the DOJ would need to prove that the anti-competitive effect of the agreement outweighed any benefits to competition.
The Fourth Circuit Reverses Brewbaker’s Bid-Rigging Conviction
On December 1, 2023, the Fourth Circuit reversed Brewbaker's bid-rigging conviction because the indictment failed to allege a per se violation under the Sherman Act.7The Fourth Circuit found that because Contech and Pomona were not purely horizontal competitors, but also vertically related companies with complementary offerings, the conduct alleged in the indictment did not necessarily amount to a per se antitrust violation. In particular, the Fourth Circuit highlighted the hybrid relationship of the two companies, where the two could serve each other as a customer and a supplier (i.e., a vertical relationship) and also directly compete against each other for contracts (i.e., a horizontal relationship).8Contech sold aluminum while Pomona provided installation services, but both companies competed for NCDOT contracts. Contech routinely bid above Pomona's final bid to ensure Pomona won the business, with the understanding that Contech would supply Pomona with aluminum as a sub-contractor. The fact that Contech was both supplying aluminum to Pomona and competing with Pomona to sell aluminum to the NCDOT meant they had a vertical and horizontal, or hybrid, relationship.
The Fourth Circuit held that the per se rule only applies when demonstrable economic evidence shows that the restraint on competition at hand "always or almost always" has "manifestly anticompetitive effects" and "lack[s] … any redeeming virtue."9In this case, the Fourth Circuit found that there was insufficient economic evidence to warrant per se treatment of the agreement between Contech and Pomona. Although the two companies competed for contracts, they had a hybrid relationship with both vertical and horizontal restraints that had "possible procompetitive effects."10Because the indictment failed to allege a per se violation of the Sherman Act, the court reversed Brewbaker's bid-rigging conviction.11
The DOJ submitted a petition for rehearing to the Fourth Circuit, arguing that the Fourth Circuit panel should not have exempted a "textbook" horizontal bid-rigging conspiracy from per se scrutiny due to the competitors' vertical relationship.12The Fourth Circuit nonetheless denied the DOJ's petition for rehearing.13
The Supreme Court Declines to Review the Fourth Circuit’s Decision
On June 28, 2024, the DOJ petitioned the Supreme Court for a writ of certiorari, arguing that the Fourth Circuit improperly reversed the conviction stemming from the century-old per se rule against bid-rigging, recognized in common law even before the passage of the Sherman Act in 1890.14The DOJ argued that a vertical relationship between competing bidders does not preclude application of the per se rule and that the conduct should be analyzed, not the relationship between the parties to the agreement.15 The DOJ asserted that the Fourth Circuit's opinion "distorts established antitrust doctrine, and defies common sense."16
Brewbaker filed a cross petition in which he raised questions about the constitutionality of the criminal provisions of Section 1 of the Sherman Act, which has not been examined for 50 years.17The Supreme Court declined to certify both petitions for writs of certiorari filed by the DOJ and Brewbaker without comment on November 12, 2024.18
Legal Implications
As the DOJ acknowledged in its petition for certiorari, the Fourth Circuit's ruling in Brewbaker will make it more difficult for the DOJ to charge companies and individuals with a per se criminal antitrust violation in situations where the competitors have a vertical relationship.19Corporate and individual defendants can use the Brewbaker decision to argue that courts should examine the full scope of the competing companies' business relationships to determine which standard to apply in analyzing bid-rigging or price-fixing allegations: per se or rule of reason. Where, as here, the competitors have a relationship with both vertical and horizontal aspects, their conduct should be analyzed under the rule of reason.
Business Implications
Although Brewbaker ultimately prevailed in overturning his bid-rigging conviction, companies should take into account the following do's and don'ts to reduce the risk of violating the criminal antitrust laws.
- If your company engages in bidding as either a prime contractor or sub-contractor, do not share your bids with companies competing for the same level of business as your company.
- If you are a sub-contractor competing for allocation from a prime contractor's business, do not share the terms of your bid with another sub-contractor bidding for the same business.
- If you are a prime contractor bidding for business, do not share the terms of your offer with another prime contractor or any company capable of bidding as a prime contractor for that business.
- Carefully review statements of work before signing and submitting them in response to any request for proposal, whether the request is from a public or private entity. Regardless of whether collusive activity is analyzed as a per se violation or under the rule of reason, a signed statement attesting that bids were "submitted competitively and without collusion" is still a fraudulent statement if there was indeed collusive activity.
Companies should also be aware that the DOJ is actively investigating and prosecuting government procurement collusion and fraud with its Procurement Collusion Strike Force; therefore, any company that bids for government contracts at the federal, state, or local level should be particularly vigilant.20
For any questions about the implications of this case and how it could affect you or your company, please contact any member of Wilson Sonsini Goodrich & Rosati's antitrust and competition practice, including Brent Snyder, Jeff VanHooreweghe, and Jindrich Kloub.
[1] Contech and Brewbaker were also charged with defrauding the NCDOT. See Press Release, U.S. Dep’t of Just., “Engineering Firm And Its Former Executive Indicted On Antitrust And Fraud Charges” (Oct. 23, 2020), https://www.justice.gov/opa/pr/engineering-firm-and-its-former-executive-indicted-antitrust-and-fraud-charges.
[2] Press Release, U.S. Dep’t of Just., “Engineering Firm Pleads Guilty to Decade-Long Bid Rigging and Fraud Scheme” (June 7, 2021), https://www.justice.gov/opa/pr/engineering-firm-pleads-guilty-decade-long-bid-rigging-and-fraud-scheme. Contech was sentenced to pay a $7 million criminal fine and over $1.5 million in restitution.
[3] Press Release, U.S. Dep’t of Just., “Former Engineering Executive Convicted of Rigging Bids and Defrauding North Carolina Department of Transportation” (Feb. 1, 2022), https://www.justice.gov/opa/pr/former-engineering-executive-convicted-rigging-bids-and-defrauding-north-carolina-department. See United States v. Brewbaker, 2022 U.S. Dist. LEXIS 23609 (E.D.N.C. Feb. 8, 2022) (denying defendant’s motion for judgment of acquittal).
[4] Press Release, U.S. Dep’t of Just., “Former Engineering Executive Sentenced for Rigging Bids and Defrauding North Carolina Department of Transportation” (Sept. 8, 2022), https://www.justice.gov/opa/pr/former-engineering-executive-sentenced-rigging-bids-and-defrauding-north-carolina-department.
[5] Opening Brief of Appellant at 13, Brewbaker v. United States, No. 5:20-cr-00481 (4thCir. Feb. 14, 2023), ECF No. 24.
[7] See United States v. Brewbaker, 87 F.4th 563 (4th Cir. 2023).
[9] Id. (citing Leegin Creative Leather Prods, Inc. v. PSKS, Inc., 551 U.S. 877, 886-87 (2007)).
[11] Id. at 578-83. The Fourth Circuit affirmed Brewbaker’s fraud convictions and remanded the case to the district court for resentencing.
[12] Petition of the United States for Panel Rehearing and Rehearing En Banc at 3, United States v. Brewbaker, No. 5:20-cr-00481 (4th Cir. Jan. 16, 2024), ECF No. 60, https://www.justice.gov/d9/2024-01/419419.pdf.
[13] Order Denying Petition for Rehearing, United States v. Brewbaker, No. 5:20-cr-00481 (4th Cir. Feb. 15, 2024), ECF No. 68; see also, M. Perlman, “4th Circ. Won't Rethink Overturning Bid-Rigging Conviction,” Law360 (Feb. 16, 2024), https://www.law360.com/articles/1803910/4th-circ-won-t-rethink-overturning-bid-rigging-conviction.
[14] Petition for a Writ of Certiorari at 2, United States v. Brewbaker, No. 23-1365 (June 28, 2024), https://www.supremecourt.gov/DocketPDF/23/23-1365/316053/20240628180340088_Brewbaker_Petition.pdf.
[17] Cross-Petition for Writ of Certiorari at 1, 12, Brewbaker v. United States, No. 24-124 (Aug. 1, 2024), https://www.supremecourt.gov/DocketPDF/24/24-124/321365/20240801100408564_23-1365%20Abrams.Brewbaker%20X-Pet%20RET%20ALL%20CENTERED%20PDFA.pdf.
[18] Summary Disposition of Petitions for Writs of Certiorari at 2, denying certiorari for United States v. Brewbaker, 23-1365 (Nov. 12, 2024); Brewbaker v. United States, 24-124 (Nov. 12, 2024), https://www.supremecourt.gov/orders/courtorders/111224zor_4fci.pdf.
[19] See supra, note 13 at 23.
[20] See Press Release, U.S. Dep’t of Just., “Readout of Justice Department’s Procurement Collusion Strike Force’s Summit in Atlanta” (March 28, 2024), https://www.justice.gov/opa/pr/readout-justice-departments-procurement-collusion-strike-forces-summit-atlanta. The Brewbaker case was the result of the PCSF’s efforts.
