Dozens of shippers, including some of the largest and best known companies in the United States, filed five new antitrust lawsuits in April seeking damages from carriers Sea Star Line and Crowley over a price-fixing conspiracy in the trade between the U.S. mainland and Puerto Rico.
The latest suits are by shippers that have opted out of earlier class action settlements.
The complaints also contain allegations about not only Sea Star and Crowley, but also Horizon Lines and Trailer Bridge, two other carriers in the U.S. mainland-Puerto Rico trade which have reached settlements with all shippers.
Regardless of whether all the allegations in the complaints are accurate, they may add fuel to the fire for advocates seeking to change the Jones Act, the law that governs cabotage (shipment between two points in the United States) including between the U.S. mainland and Puerto Rico. The Jones Act requires cabotage ships to be built and registered in the United States and employ U.S. mariners.
The Government Accountability Office is currently studying the Jones Act's impact on the economies of Puerto Rico and United States at the behest of Congressman Pedro Pierluisi, Puerto Rico’s member of the U.S. House of Representatives. In an update
to his constituents, in April, he said the GAO study is expected to be completed between Dec. 1, 2012 and Feb. 28, 2013.
Pierluisi has said if “GAO confirms based on its study that the Jones Act is resulting in significant, adverse effect on our economy, I will fight tirelessly until Puerto Rico is exempted from the Act.”
The study will look at both operating costs and the costs and benefits associated with the requirement of the Jones Act as it pertains to the Puerto Rico trade.
One of the complaints, by the food companies Kraft and Kellogg, labeled two groups supportive of the Jones Act — the Maritime Cabotage Task Force and the Transportation Institute — as “co-conspirator industry trade associations.”
It noted senior executives of Saltchuk, Crowley and Horizon were officers of the two groups and claims the Transportation Institute’s Domestic Shipping Council provided executives of the three companies “with cover for additional rump meetings and discussions in furtherance of the conspiracy.”
On Friday, Horizon’s interim Chief Executive Officer and President Stephen H. Fraser issued a statement saying it was a “staunch supporter” of all the requirements of the Jones Act. The company put out the statement in response to rumors that Horizon might not be in support of all aspects of the Jones Act, particularly the U.S.-build requirement.
Plaintiffs in the new lawsuits include Sears, PepsiCo, Coca-Cola, Procter and Gamble, Home Depot, Walgreens, Kimberly Clark, Kraft Foods and Kellogg, and transportation companies such as the trucker YRC Worldwide, and non-vessel-operating common carrier Arrowpac. They say the conspiracy resulted in them paying artificially inflated freight rates, surcharges, and other fees.
The shippers said they are entitled to have their claims heard by a jury and to receive treble damages and reimbursement for attorney fees and other costs under the Clayton Act.
The latest lawsuits: Arrowpac Inc. et al v. Sea Star
, Kraft Foods Group et al v. Sea Star
, Walgreen Co. et al v. Sea Star
, Home Depot U.S.A v. Sea Star
, and Kimberly Clark Corp. v. Sea Star
were filed in U.S. District Court in Charleston, S.C. earlier this month. The overlapping complaints total 334 pages.
All five complaints name Sea Star Line and its parent company Saltchuk Resources Inc. as defendants. But there are some differences both in the content of each complaint and who is named as defendants in each. For example, Arrowpac complaint names, in addition to Saltchuk and Sea Star, a sister company, Totem Ocean Trailer Express (TOTE), Leonard Shapiro, one of the founders of Saltchuk as well as Crowley Maritime and Crowley Liner Services. Other complaints omit TOTE, Shapiro or the Crowley companies as defendants.
The lawsuits come four years after FBI agents raided the offices of shipping companies involved in the U.S. mainland to Puerto Rico trade in an investigation that eventually led to five former employees of Sea Star and Horizon Lines going to jail. (In addition to cases, the government last fall filed a lawsuit against Frank Peake, former president of Sea Star Line. His case has not yet gone to trial.)
Gina Talamona, a Justice Department spokeswoman, said last week that its investigation of the coastal water freight transportation industry is ongoing, but she declined to name any individuals or companies that are targets.
Unlike shipping companies in foreign trade who enjoy some protection from antitrust laws (for example, transpacific carriers that are members of the transpacific stabilization agreement can discuss pricing and set non-binding pricing “guidelines”), Home Depot's complaint said “the Jones Act provides no statutory or other antitrust immunity to defendants for the collusion, customer allocation, bid rigging, or price-fixing of Puerto Rican cabotage as alleged herein.”
The civil lawsuits filed in April contain accounts of meetings and supposed agreements between employees who worked for competing carriers. Some of these involve the employees who reached plea bargain agreements with the federal government in 2008, but others involve executives who have not been charged with any wrongdoing by the government.
Four employees — Peter Baci of Sea Star Line,and Kevin Gill, Gregory Glova, and Gabriel Serra of Horizon Lines - pleaded guilty in 2008 to antitrust violations and were sentenced to jail time. Another Sea Star employee, Alexander Chisholm, pleaded guilty to obstruction of justice for destroying computer files.
But the civil complaints filed earlier this month detail actions by employees of shipping companies other than those five men or Peake, who have not been charged with any wrong doing by the government.
Some of the events recounted in the complaint occurred a decade ago.
For example, the Home Depot complaint said a decade ago, on April 24, 2002, following the bankruptcy of Navieras NPR, a defunct container carrier which also operated in the U.S. mainland-Puerto Rico trade, several Horizon (then known as CSX Lines) employees met with employees of Sea Star at the Park Hotel in Charlotte, N.C.
It said Serra and Gill were joined by Jim McKenna, then chief operating officer of Horizon, and Chuck Raymond, who retired as CEO of Horizon in February 2011 and Baci by Shapiro and the late Robert Magee who was CEO of Saltchuk’s Totem Ocean Trailer Express.
Home Depot's complaint alleges “the general purpose of the meeting was to discuss how to effectively operate the Puerto Rico market going forward, including how to address the Navieras business, ships and sailings that Sea Star would obtain. The conspirators particularly focused on controlling oversupply of shipping capacity in the Puerto Rican cabotage market. The leadership of Sea Star and CSX Lines discussed how many ships were needed to support the Puerto Rico trade and how they could work together to prevent excess capacity.”
The complaint said “the result of the meeting was an agreement, memorialized in a handwritten contract, whereby none of the four vessels that Sea Star was to acquire from Navieras would be used to service Puerto Rico. Under the agreement, Sea Star would simply scrap three of the ships. Consequently, it would not – and could not – provide the additional sailings that it previously announced and that were formerly offered by Navieras.”
The Home Depot complaint added that “the only known copy of the handwritten agreement arising from the Park Hotel meeting and initialed by participants was in the possession of Gill, who retained it despite being instructed by Raymond to destroy it.” It adds that “after this initial meeting Gill and Baci continued to communicate on these issues through frequent emails and phone conversations.”
At a 2003 meeting, Shapiro is said in the Home Depot complaint to have “proposed that the Puerto Rico market adopt what he called the ‘Alaska Model.’ In Alaska, Horizon and TOTE were the only competitors, and they shared the cabotage business equally. This resulted in stable market shares, loyal customers, and very little price competition.”
The complaint says Serra and Shapiro agreed “Horizon and Sea Star would each be entitled to a 50 percent share of the southbound ‘blue water’ vessel business on sailings from Jacksonville, Florida to Puerto Rico."
The complaint makes a distinction between what it calls “blue water” services operated by Horizon and Sea Star using self-propelled ships and the tug-barge units utilized by Crowley and Trailer Bridge.
That Home Depot complaint also alleged “Crowley and Trailer Bridge also participated in this conspiracy soon after it began.”
It further said a Crowley employee Tom Farmer “communicated regularly with Baci, Gill, and later Glova and agreed to fix prices for Puerto Rico cabotage and participated in the allocation of customers among Sea Star and Horizon” and also that “Crowley’s CEO Tom Crowley, Jr. also met or talked with Horizon’s Chuck Raymond on several occasions in an effort to coordinate the market, stabilize shares and increase prices particularly when issues arose that their subordinates could not resolve.”
And it adds “Baci had discussions with David Miscoweic, vice president of sales for Trailer Bridge, who he previously knew from working together at Crowley. These discussions included plans for pricing to customers, categories of customers and bunker fuel surcharges and directly resulted in Trailer Bridge raising its prices and surcharges.”
Contacted by American Shipper
, Raymond declined to comment on the lawsuits. Sea Star and Saltchuk did not respond to a request for a comment.
A spokesman for Horizon said the allegations were contained in cases filed against carriers other than Horizon and that it had earlier reached settlements with plaintiffs in the cases.
“Horizon was the first company to accept responsibility in this matter and the first company to settle with shippers in the Puerto Rico trade and Horizon has endeavored to from the outset to make things right with its customers and appreciates the support they have given the company. Regarding allegations concerning individuals who are no longer with the company, we have no comment,” the spokesman added.
The suits don’t make a claim for specific dollar amounts, but David C. Eddy, attorney for the Arrowpac plaintiffs, said his clients “opted out of the class settlements because they believed they were inadequate.”
In November 2010, many shippers reached a $52 million settlement announced in November 2010 by Horizon, Sea Star, and Crowley with other shippers moving cargo between the mainland and Puerto Rico.
Horizon reached a settlement with some shippers individually and late last year announced a $13.75 million settlement with opt-out shippers and is not named as a defendant in the round of lawsuits. Trailer Bridge also reached a settlement with the “opt-out” shippers.
Eddy said the 123-page Arrowpac complaint was developed with information gleaned from prior litigation as well as information supplied by companies and individuals not named as defendants.
“You can assume we spoke with the persons who admitted their guilt and went to jail,” he said.
As the litigation proceeds, Eddy said “we anticipate there will be deposition and discovery of relevant personnel down the road.”
However, he indicated the cases might not necessarily go to trial, saying “almost four years after the FBI raids, we have made efforts to resolve this, and those efforts may bear fruit down the road. We’ll see,” Eddy added.
“Defendants who go to trial are jointly and severally liable for treble damages, so the numbers can get very large, very quickly,” Eddy said. Plaintiffs are also able to recover costs and reasonable attorney fees.
Crowley said in a statement that "these lawsuits concern allegations that first surfaced four years ago. The company has resolved about 80 percent of the potential claims related to this matter in order to avoid the expense and burden of litigation. We are disappointed these lawsuits were filed, and will aggressively pursue our defenses."
Trailer Bridge CEO William Gotimer said his company had been dismissed from the earlier class action suit by shippers against Puerto Rico carriers and settled with the opt out shippers for a total of $275,000. He said neither the company nor Miscoweic have ever been told that they are targets of an investigation by the Justice Department. — Chris Dupin