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Tuna’s Downfall Seen as Antitrust Warning to Chicken, Beef CEOs

June 5, 2020, 4:33 PM

The Justice Department’s antitrust probes of the nation’s leading beef and chicken producers will likely turn to its successful litigation playbook against tuna giant Bumble Bee Foods LLC.

Last December’s price-fixing conviction of Chief Executive Officer Chris Lischewski was based on troves of internal communications and documents that the DOJ used to paint a picture of collusion at Bumble Bee. Prosecutors also obtained early plea agreements with other executives and had them testify against Lischewski.

“You could see the investigative model being used in tuna and now poultry, being applied to meat,” said Vic Domen, an antitrust partner at Norton Rose Fulbright US LLP who specializes in government-led cases.

The DOJ Wednesday charged four chicken industry executives, including the CEO of Pilgrim’s Pride Corp, with fixing chicken prices. The move was followed by subpoenas to the country’s biggest meatpackers—Tyson Foods Inc., JBS SA, Cargill Inc. and National Beef Inc.—late Thursday.

With chicken, it appears the same investigative steps used in the Bumble Bee case are already in motion.The DOJ’s latest federal indictment points to text message exchanges between executives at Pilgrim’s Pride Corp. and Claxton Poultry Farms Inc.

“They are listening to my direction,” an unnamed supplier said via text message to Pilgrim’s Pride CEO Jayson Penn, according to the DOJ’s indictment.

“Who is they?” Penn replied. “If they is illegal don’t tell me,” Penn said in the exchange.

Three out of the four poultry executives, including Penn, have pleaded not guilty as of Thursday, according to court documents.

“If I were in the meat industry, I would be following those investigations and proceedings closely,” Domen said.

‘Top of Mind’

Federal price-fixing cases rarely go to trial, as a vast majority are resolved through negotiated plea agreements.

Several Bumble Bee executives who were charged in the price-fixing scheme pleaded guilty early on to avoid trial. Those individuals, including Bumble Bee’s senior vice president of sales Walter Scott Cameron, agreed to cooperate with the government’s probe and ended up testifying at Lischewski’s trial.

Typically “the DOJ has always gone after the most culpable, the most guilty party first and hardest,” said Robert Lande, an antitrust professor at the University of Baltimore School of Law.

That strategy is driven in part by setting the bar high in terms of prison time and then expecting reduced sentences for those less culpable, he said.

In Lischewski’s case, the government is arguing for the maximum sentence, 10 years in jail and a $1 million fine, as the former CEO has been portrayed as the ringleader of the price-fixing scheme that also involved Starkist Co. and Thai Union International Inc.'s Chicken of the Sea.

Lischewski’s attorneys have recommended he serve 12 months of home confinement. Sentencing is set for June 16.

The fact that the government won in the tuna trial and is pushing for the maximum sentence “has to be top of mind” for the chicken industry executives facing the same decision, said Fiona Schaeffer, an antitrust partner at Milbank LLP.

The government is signaling that if an executive faces an indictment, they should cooperate and take a plea rather than fight the case, she said. “The message is that if you go to trial and you lose we are going to throw the book at you.”

Win Amid Losses

The DOJ’s win in the tuna case is a notable victory considering a recent string of losses in similar antitrust trials.

In 2018, a jury acquitted three London-based former foreign exchange traders of price-fixing charges brought by the DOJ. The government similarly lost a price-fixing case involving several Japanese auto parts makers and a U.S. subsidiary in 2017 after a jury returned a not guilty verdict.

But in the case of Bumble Bee’s Lischewski, a federal jury found the former CEO guilty after just a few hours of deliberation.

Price-fixing cases involving the food industry are often more straightforward in comparison to other industries, such as financial markets, where the DOJ has lost, Schaeffer said.

In cases like the Bumble Bee trial, its easier for jurors to understand the alleged harm because higher prices at the store impact all consumers, Schaeffer added.

“I think these are not very sympathetic defendants to U.S. judges or juries and the harm to consumers is apparent,” she said.

To contact the reporter on this story: Victoria Graham in Washington at vgraham@bloomberglaw.com

To contact the editors responsible for this story: Michael Ferullo at mferullo@bloomberglaw.com; Seth Stern at sstern@bloomberglaw.com