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GM Battles Shippers on Price-Fixing in 3rd Circuit

The Third Circuit heard arguments Thursday that threaten to open the door on a massive antitrust action against foreign companies that ship American cars overseas.

NEWARK, N.J. (CN) – The giants of the automotive industry contend that international shipping companies have been fixing the prices on vehicle transport for years, reaping hundreds of millions of dollars. With their eye on treble damages available under federal law, they pushed the Third Circuit on Thursday to put gas in the case.

As laid out in the early lawsuits, various automotive companies and manufacturers claimed that they paid excessive fees to ship vehicles from overseas.

General Motors, for example, claims to have overpaid one Japanese shipping company nearly $1 million a year annually in excessive car-shipping costs.

U.S. District Judge Esther Salas dismissed the multidistrict litigation last year, however, sending GM and the other to make do with administrative relief before the Federal Maritime Commission.

Salas had dismissed the case on the grounds that shipping-capacity restrictions and antitrust allegations are covered under the 1984 Shipping Act, a maritime law, and not the Clayton Act.

U.S. Circuit Judge Julio Fuentes laid out the problem succinctly. “It seems to me you have a major problem with regard to conflict,” he told an attorney for the auto companies.

Pushing for a reversal, GM and the others argue that the price-fixing was so egregious that it should be actionable under federal antitrust laws.

The difference could mean a difference between double and treble damages if the shipping companies lose before the commission rather than in U.S. District Court.

In multimillion-dollar settlements with the Justice Department, most of the defendants already have admitted to the conspiring with other maritime companies to form a cartel and rig bids, fix prices, and overcharge for their vehicle-transportation services to automotive companies and manufacturers.

Thursday’s hearing brought a three-judge panel of the Third Circuit from their normal courthouse in Philadelphia to a special seating in Newark, New Jersey.

U.S. Circuit Judge Thomas Ambro emphasized the a “longstanding tradition” of states staying out of maritime commerce, but an attorney for the automakers argued that Congress clearly intended for maritime regulations to be separate and not to supplant state laws.

“Congress knows how to pre-empt state law, it knows how to pre-empt antitrust laws,” said Warren Burns, of the Dallas firm Burns and Charest.

Judge Fuentes echoed this point later in the hearing. “Congress knows how to pre-empt state laws … and it hasn’t done so in this case,” Fuentes said, noting that state laws are intended to protect consumers, whereas shipping laws are intended regulate shipping.

Attorneys for the automakers also argued that unfiled agreements between defendant shippers should be considered ineffective and thus nullify any Shipping Act supremacy. Maritime regulators often fail to uncover such collusion, but a whistleblower brought it to light in this case, the court heard.

Richard Kilsheimer, an attorney for the plaintiffs with the Manhattan firm Kaplan Fox & Kilsheimer, noted that the administrative penalties for not filing effective agreements are less harsh than under antitrust laws.

This provides an incentive for shipping companies not to file them in the first place.

“They make hundreds of millions of dollars … and they go on their happy way,” Kilsheimer said of the shipping companies.

Roberto Rivera-Soto, an attorney for two of the defendant shippers, disputed this characterization of the administrative penalties.

He said failure to file such agreements exposes shippers to hundreds of millions of dollars in criminal fines and jail time.

The “plain language” of the Shipping Act prohibits antitrust damages under the Clayton Act or private lawsuits, added Rivera-Soto, whose clients include Norwegian company Wallenius Wilhelmsen Logistics.

An attorney with the New Jersey firm Ballard Spahr, Rivera-Soto said that the Shipping Act creates “a place where these people can go, a cause of action … and a series of remedies.”

The Shipping Act, which was amended in 1998, has been somewhat controversial in the antitrust realm. Under the law, shipping companies are regulated via the Federal Maritime Commission, exempted from federal antitrust laws and granted some leeway to engage in "horizontal collusion."

The American Bar Association's antitrust commission has complained that the Shipping Act "continues broadly to exempt harmful anticompetitive collusion by ocean carriers." That group has said that the act’s antitrust exemptions "ought to be known as privileges rather than rights."

According to the underlying lawsuits, high-ranking executives at the shipping companies had near-daily conversations with each other to share shipping volumes, bids and confidential customer data to set shipping prices.

GM says its tender for car-shipping services prompted the companies to discuss and agree upon bids to ensure the incumbent company won the business, thereby stifling competition.

Executives allegedly would "respect" current and agreed-upon business arrangements and shipping routes, such as those between Thailand and Europe or the Middle East and the United States, so that other shipping companies never had a chance to win GM's tenders.

During this process, GM says, the shipping companies occasionally engaged in "courtesy bidding," in which conspirators submitted higher bids to give the impression of a legitimate competition for services and to make it seem the lower bidder's price was fair.

General Motors also alleges the defendant companies artificially reduced their shipping fleets by scrapping and permanently dry-docking vessels in order to boost shipping prices.

Japanese shipping giant Nippon Yusen Kabushiki Kaisha already has pleaded guilty to price-fixing and in 2014 paid a nearly $60 million fine.

Earlier this month, the company merged with two other Japanese shipping companies.

“If we don’t want the number of Japanese shipping companies to be zero, we need to create one strong, splendid company,” NYK President Tadaaki Naito said during a news conference announcing the merger.

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Categories / Appeals, Business, International

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