White Collar Litigation and Investigations Newsletter: Enhanced Sentencing for Criminal Antitrust Defendants: U.S. v. VandeBrake

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[author: Jeremy D. Frey]

The Eighth Circuit’s recent decision in U.S. v. VandeBrake, 2012 U.S. App. LEXIS 8584 (8th Cir. 2012), which affirmed the sentence of Steven VandeBrake, provides prosecutors new support for seeking enhanced sentences in criminal antitrust cases.

VandeBrake was a criminal price-fixing and bid-rigging case brought under the Sherman Act. U.S. v. VandeBrake, 717 F. Supp. 2d 961 (N.D. Iowa 2011). Steven VandeBrake pled guilty and faced a sentence under the U.S. Sentencing Guidelines (Guidelines) of 21 to 27 months. The trial court about doubled VandeBrake’s sentence to 48 months. The upward variance in sentence was based on the court’s policy disagreement with the Guidelines and the defendant’s lack of remorse.

The trial court examined Guideline Section 2R1.1, which applies to Sherman Act offenses. Finding that the Sherman Act was intended to provide protection against the threat of harm to the "central nervous system of the economy," the court held that the harm caused by price fixing and bid rigging was at least as great, if not greater than, the harm caused by comparable conduct violating the fraud statutes. "[F]raud schemes target only discreet segments of the general population while antitrust violations go the heart of our economic free enterprise system ...." Id. at 1003.

The court compared Guideline Section 2B1.1, applicable to fraud and theft cases, with Section 2R1.1. Though Section 2R1.1 has a higher base offense level (12) than Section 2B1.1 (level 6 or 7), sentencing level increases for antitrust violations turn on the affected amount of commerce involved, while fraud guideline increases are based on the amount of actual or intended "fraud loss." As a result, the offense level for antitrust violations increases less rapidly than for fraud violations "in part because on the average the level of markup from an antitrust violation may tend to decline with the volume of commerce involved." Since VandeBrake’s crimes did not involve a declining markup due to volume, the court found no basis for the sentencing range to increase less rapidly than the offense level for fraud violations. Id. at 1005.

The court also complained that unlike the fraud guideline, Section 2R1.1 did not take account of relevant conduct under Section 1B1.3 nor was there any enhanced punishment for VandeBrake’s multiple conspiracies. In calculating the amount of the upward variance, the court used the higher base offense level of Section 2R1.1, while increasing the sentence by reference to the fraud loss table in Section 2B1.1. Along the way, the court controversially wondered if the antitrust guideline, and comparatively lower sentences for antitrust offenses, were not the result of an "explicit and/or implicit bias" favoring antitrust defendants who historically "were almost exclusively wealthy, white, Anglo-Saxon, protestant males who were politically well-connected." Id. at 1003. In justifying its sentence, the trial court closely tied its justification for an upward variance to the particular facts of VandeBrake’s crimes.

On appeal, VandeBrake centrally argued that his sentence was substantively unreasonable as the "longest sentence ever imposed in an antitrust case." 2012 U.S. App. LEXIS 8584 *19. The Eighth Circuit rejected the appeal and upheld the trial court’s variance based on its policy disagreement with Section 2R1.1. The Appeals Court found that the district court provided cogent reasons for comparing Section 2R1.1 to Section 2B1.1, and that the sentencing judge had "tied its policy disagreement to the specific facts involved in VandeBrake’s case." Id. at *18. One of the judges wrote to disavow the trial court’s references to the characteristics of antitrust defendants. A dissenting judge complained that the trial court simply created its own enhanced version of Section 2B1.1 for antitrust offenses, and impermissibly replaced Section 2R1.1 based on invalid reasons for its policy disagreement.

The sentence and opinions in VandeBrake will surely be used by prosecutors to support claims for enhanced punishment for antitrust defendants. Expect to see VandeBrake cited by the government in future antitrust criminal cases as grounds for sentences at the upper end of Section 2R1.1’s range, and less frequently for upward variances from Section 2R1.1. In such cases, defense counsel should be prepared to argue that the VandeBrake trial court’s view that Sherman Act offenses are the same as fraud crimes requires closer consideration.

In VandeBrake, the trial court explicitly regarded the defendants’ price fixing and bid rigging as forms of fraud, theft and even robbery.1 Robbery involves unlawful taking by use or threatened use of force or violence. Referring to a Sherman Act offense as akin to robbery is over the top. Theft is an unlawful taking without consent, and fraud requires a misstatement or omission of material fact. These elements of theft and fraud are absent in a pure Sherman Act violation.2

Fraud, theft and robbery are malum in se offenses, while a Sherman Act crime is malum prohibitum. The quality of a Sherman Act defendant’s venality is of a different and lesser nature; though the number is increasing, many countries around the world do not regard price fixing or bid rigging even as criminal offenses. Further, the fairness claims of fraud and Sherman Act victims are also different. A Sherman Act victim’s consent to engage in the purchase or sale of goods or services in a manipulated market still implies a willing buyer or seller at the manipulated price. A fraud victim’s consent to pay an inflated price is wholly eliminated by the material misrepresentation.

Though there are similarities between fraud and Sherman Act violations, there are also important differences for sentencing purposes. As a result, VandeBrake should not auger a recalibration of antitrust sentences under the Guidelines. In the past, upward variances in criminal antitrust cases have been rare indeed. After VandeBrake, they will continue to be rare, but perhaps less so.

Endnotes

1 "The defendants (sic) tools of their trade were not dark clothing worn in midnight burglaries facilitated by pry bars and screw drivers. Instead, in ordinary business attire and in the glare of broad daylight, they used the ordinary communication tools of modern commerce and business, cell phones, BlackBerries, and e-mail to rob their victims. Unlike the neighborhood thief who values high-end TVs, computers, jewelry, and furs, the defendants specialized in cold hard cash." 717 F. Supp. 2d at 966.

2 Of course, a Sherman Act case can also involve fraud as a result of such things as false legal compliance certifications in bid submissions, in which case Section 2B1.1 would apply to the fraud conviction.