cartel case study john w. mcreynolds assistant chief new york field office antitrust division u.s....

CARTEL CASE STUDYJohn W. McReynolds

Assistant Chief

New York Field Office

Antitrust Division

U.S. Department of Justice

[email protected]

Case Study

• Customer allocation conspiracy• The industry

• The investigation

• The evidence– Particular emphasis on documents & trial exhibits

Linen Supply Market

• Products– Table linens– Napkins– Chef’s uniforms– Aprons– Waiter’s uniforms

Linen Supply Market

• Services– Deliver clean linen products – Pick up dirty & soiled linens– Bring dirty linens back to their plants for

washing & ironing – Deliver clean linens the following week

Linen Supply Market

• Customers– Restaurants– Cafeterias– Caterers – Food shops– Delicatessens– Pizzerias

Linen Supply Market

• Geographic area– New York City metropolitan area

Linen Supply Market

• Size of market– Over $200 million annually– Thousands & thousands of customers

Linen Supply Market

• Competitors– 6 large local– 2 national – Hundreds of small

Linen Supply Market

• Duration of conspiracy– Early 1994 through October 2002– Individual agreements dating back to 1980s

Linen Supply Market

• The customer allocation conspiracy– All 6 large local competitors– Agreed to not compete for each others’ existing

customers• Instruct salesmen not to solicit

• Put in high quotes or refrain from quoting

• Phone each other when a customer is looking to switch

Linen Supply Market

• Rules– OK to compete for newly opened businesses– If owners open up another location, it is

“protected”– If a conspirator “cheats” by taking a customer,

you can retaliate by taking a customer of equal size

Linen Supply Market

• Conditions favorable to collusion• Standardized products• Products do not have close substitutes• High entry costs for large scale operation• Few firms that can service large & upscale

restaurants• High market shares• Detection of cheating & enforcement

Linen Supply Market

• Other conditions favorable to collusion– 6 largest competitors:

• Fathers & grandfathers knew each other• Many were immigrants from eastern Europe• Union negotiations• Industry association meetings• Helped each other when in need• Bought & split up linen supply companies together• Purchased linens from same manufacturers

Linen Supply Market

• History of industry

• Antitrust violations• 1958 consent decree

• Terminated in 1992

• Arson• Violence• Organized crime

Linen Supply Market: Investigation

• How investigation began:• Late 1999 - new entrant: Linens Inc.

• Over the next 2 years took 20 top New York City restaurants

• Disrupted cartel


• Retaliation, beginning early 2002• Threatening phone calls

• Threatening emails

• Truck break-ins

• Assault

• Complaints to National Labor Relations Board

• Union organizing efforts

• Picketing at major restaurants


• Linens Inc. contacted Antitrust Division in April 2002• General manager interviewed

• Last worked in the industry in the 1980s

• Background/historical/anecdotal information

• No first-hand knowledge


• Covert stage• Threatening phone calls: trap & trace• Threatening emails: trace• Consensual monitoring

– meetings with 1 of the 6 conspirators – the “peacemaker”

– group meeting with the “peacemaker” & most aggressive of the conspirators


• Overt stage – part 1• October 2002 issued to 6 largest linen supply

companies• Amnesty applicant


• Overt stage – part 2• Beginning March 2003 - witnesses

– 4 Voluntary without attorney

– 3 Voluntary with attorney – statement protection

– 6 Compelled – grand jury, under oath & immunity


• December 2003• President & his company

• Cooperate

• Both plead guilty

• Company pay $3.5 million fine


• Overt stage – part 3• Issued subpoenas to

• 6 additional linen supply companies

• 2 credit reporting agencies

• 6 credit card companies

• 6 restaurants

• 1 union

• 1 car leasing company


• Overt stage – part 3, continued• Witnesses

– 10 Voluntary without attorney

– 2 Voluntary with attorney – statement protection

– 15 Compelled – grand jury, under oath & immunity

Linen Supply Investigation Summary

• Documents • 350 boxes, containing over 25,000 pages

• Witnesses - 40

Linen Supply Investigation Summary

• 1 amnesty applicant• 2 individuals & companies pleaded guilty to

antitrust & cooperate • 1 individual pleaded guilty to perjury &

cooperate• 1 individual & company pleaded guilty to

antitrust; individual also pleaded guilty to obstruction of justice

• 2 individuals & companies were indicted – just recently changed pleas to guilty

Linen Supply Market: Trial

• Direct evidence

• Circumstantial evidence

• Corroborative evidence