A trial is a moral arena in which the character of the players is - PDF document

A trial is a moral arena in which the character of the players is powerful medicine. It is typically the most important thing to think about while planning where on your opponent you want the focus of judgment. “Character Studies”, McElhaney on Litigation We recently completed a four week criminal antitrust trial in federal court in West Palm Beach, Florida in the case of United States v. Val M. Northcutt , et. al . The issues raised by the prosecution in Northcutt were myriad, and several issues were novel. The fact that the jury found the defendants Not Guilty made trial, from the defense perspective, even better. We briefly discuss the case and some of the legal issues below. The Indictment and prosecution in Northcutt focused on the marine hose industry. Marine hose, a large flexible rubber hose used to transfer crude oil between tankers and storage facilities, is an industry operating throughout the world, wherein manufacturers have very different market shares and aggressively compete for business. The Indictment alleged a worldwide conspiracy operating from “at least as early as 1999 and continuing until as late as May 2007.” The Indictment alleged “rigging bids, fixing prices, and allocating market shares for sales of marine hose in the United States and elsewhere.” The government alleged that executives of various marine hose manufacturers including Bridgestone Corporation in Japan, Yokohama Rubber Company in Japan, Trelleborg Industrie S.A. in France, Dunlop Oil & Marine Ltd in the United Kingdom, Parker ITR in Italy, and Manuli Rubber Industries SpA, formed a price fixing “cartel” around 1999. The group members hired a “consultant,” Peter Whittle, a U.K. National, to coordinate activities of the group. Our client, Val M. Northcutt, worked for Manuli Oil and Marine based in Ft. Lauderdale, Florida, a division of Manuli Rubber Industries, an Italian marine hose manufacturer. Mr. Northcutt worked for Manuli as a technical and sales person for approximately 19 years. The

Indictment claimed that our client joined the alleged conspiracy in 2000. Mr. Northcutt maintained his innocence throughout the government investigation and prosecution. The government’s investigation and prosecution was highly coordinated in the United States and with the UK's Office of Fair Trading and the European Commission. In fact, Scott D. Hammond, Deputy Assistant Attorney General for Criminal Enforcement, proclaimed the investigation “a model of international coordination” that achieved “monumental results.” In fact, on the same day that the Division and the FBI arrested eight foreign executives from the United Kingdom, France, Italy and Japan in Houston and San Francisco for their roles in the marine hose conspiracy and conducted multiple searches in the U.S., U.K. and European antitrust authorities searched locations in Europe. The government effected arrests in this case during an industry trade show in Houston, Texas in May 2007, where it had surreptitiously arranged a meeting of the conspirators, attended by others. The government secretly videotaped the meeting, which Mr. Northcutt did not attend, but at which his co-defendant Francesco Scaglia was present. The Antitrust Division investigation was handled by at least 10 prosecutors, four of whom were dispatched to Florida to try this case. Prior to trial, DOJ’s efforts resulted in successfully extracting guilty pleas from almost all individuals and corporations investigated. In fact, Mr. Hammond touted the 30, 24 and 20 month jail sentences which people who pled guilty agreed to serve. The only persons to proceed to trial in this wide-ranging international investigation were Mr. Northcutt and Mr. Scaglia. Several high level Manuli employees, including Robert L. Furness and Charles J. Gillespie, and the cartel coordinator, Peter Whittle, pled guilty and agreed to testify that Mr.

Northcutt and Mr. Scaglia were involved in their conspiracy. In exchange for their testimony, the antitrust division agreed to reduced sentences. As we prepared for trial, the government engaged in a document production of unprecedented scope. Skeptics regarded the government’s tactics as the proverbial document dump. We believed haystacks sometimes contain needles. For the year leading to trial, the government produced 207 CDs each containing thousands and thousands of pages of documents, nine VHS tapes, and five hard drives. Additionally, the Government made available in the Department of Justice’s basement in Washington, D.C. over 400 boxes of documents seized, produced voluntarily or pursuant to subpoena. In spite of the magnitude of the document production, and numerous specific Brady requests, the government failed to produce exculpatory Brady materials, including statements from the alleged cartel coordinator, Peter Whittle, stating that Mr. Northcutt was not involved in the conspiracy and was just a technical person. These violations continued throughout the trial. At the trial, the government presented the biased testimony of Messrs. Whittle, Furness and Gillespie. It was on the character of these cooperating individuals that we focused the jury’s attention. At trial, Whittle admitted to making almost 7 million dollars from his criminal conspiracy (none of which he forfeited to the United States), some of which he pocketed by lying to and cheating the other members of his cartel by taking double-secret kickbacks. He even confessed at trial, apparently for the first time, to having made more money than he admitted. Furness treated his employer’s bank accounts as his personal piggy bank, enjoying his private yacht and exclusive country club memberships at the expense of his employer. He ordered others to create false financial documents during audits, and to destroy documents establishing his guilt. Gillespie at times seemed to be devoid of a moral compass, and unable to understand

how to tell the truth. Judging by the jury’s Not Guilty verdict, rendered after two hours of deliberation following a four week trial, the testimony of these government witnesses was not truthful and not credible to the jury. The government also presented the testimony at trial of one United States customer of marine hose. The testimony, however, failed to establish that the United States related marine hose transactions were anything more than a de minimis aspect of the alleged cartel’s activities Because both civil and criminal violations of the Sherman Act are referenced in 15 U.S.C. § 1, the statute is hardly a model of clarity for criminal actions. For example, the statute is silent as to what the requisite scienter is to constitute a criminal violation, and most courts have determined that the government need only prove a “knowing” participation in an antitrust conspiracy and not “willful” participation. Another problem with criminal antitrust prosecutions under the Sherman Act is that while the statute proscribes conspiracies to restrain trade, to trigger the Act’s application, the prosecution must show a substantial effect on interstate and foreign trade and commerce. See United States v. Aqua Fredda, 834 F.2d 915 (11th Cir. 1987); United States v. Fitapelli, 786 F.2d 1461 (11th Cir. 1986). Moreover, in 1982, Congress passed the “Foreign Trade Antitrust Improvements Act,” 15 U.S.C. 6a, which provides: [The Sherman Act] shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless – (1) such conduct has a direct, substantial, and reasonably foreseeable effect (A) [on domestic commerce] or on import trade or import commerce with foreign nations; or

(B) on export trade … of a person engaged in such trade or commerce in the United States [only if that exporter’s business is injured]. Under the FTAIA, the antitrust laws do not apply to conduct involving “foreign trade,” unless that conduct has a “direct and substantial” harm on imports to the U.S., domestic commerce, or American exporters. F. Hoffman-Laroche Ltd. v. Empagran S.A., 542 U.S. 155, 158, 161 (2004). That is, “there [is] no American antitrust jurisdiction absent a direct, substantial and reasonably foreseeable effect on domestic commerce or a domestic competitor.” Id. at 163 (quoting legislative history of the FTAIA). Thus, in a case involving foreign commerce, the Government must prove that the defendant intended to produce, and his conduct did produce, a “substantial effect in the United States.” United States v. Nippon Paper Industries Co., 109 F.3d 1, 9 (1st Cir. 1997). A question raised by the Northcutt case was whether merely conspiring in the United States was enough to sustain a Sherman Act prosecution where the activities and the anti- competitive effects arguably happened almost exclusively outside the Untied States. In Dee-K Enters v. Hveafil SDN, 299 F.3d 281 (4th Cir. 2002), the Fourth Circuit considered a conspiracy that was “mostly” foreign but also occurred partly within the United States – even from offices located in the U.S. – and caused price-fixed goods to be imported into the United States. It held that a “substantial effect” on U.S. commerce was required. The Fourth Circuit’s reasoning is supported by two later cases – the Supreme Court’s decision in Empagran, supra, and the New jersey case Emerson Electric Co. v. Le Carbone Lorraine S.A., 500 F. Supp. 2d 437 (D.N.J. 2007). In Empagran, the Supreme Court noted that the Sherman Act does not reach conspiracies occurring in the United States that affect foreign commerce. 542 U.S. at 161. In Emerson Electric, the Court held that the Sherman Act does not