California Assistant Attorney General (AAG) Paula Blizzard recently announced that the California Attorney General's Office (AGO) intends to "reinvigorat[e] criminal prosecutions" under California's Cartwright Act, Cal. Bus. & Prof. Code §§ 16700 et seq. Her announcement signals a significant change from long-standing California antitrust enforcement—the California AGO has not brought a criminal prosecution under the Cartwright Act in 25 years. But this shift is consistent with a trend among state attorneys general to play a more active role in criminal antitrust enforcement. Gwendolyn Cooley, chair of the Multistate Antitrust Task Force for the National Association of Attorneys General and Wisconsin's AAG for antitrust, pointed out at the 2024 ABA Antitrust Spring Meeting that 44 states have the authority to bring criminal charges for antitrust violations and suggested that there would likely be more state criminal enforcement in the coming year.1
AAG Blizzard did not provide details regarding where the California AGO will focus criminal antitrust enforcement efforts. But examining prior enforcement in California and federal antitrust enforcement priorities can help us predict where criminal enforcement under the Cartwright Act may be headed.
The Cartwright Act
The Cartwright Act, California's primary antitrust statute, generally prohibits agreements that restrain trade or limit production, and agreements to increase or fix prices or otherwise prevent competition.2 As with Section 1 of the Sherman Act, price fixing, market allocations, bid rigging and certain group boycotts are per se illegal under the Cartwright Act.3
Despite the significant parallels, AAG Blizzard asserted that the Cartwright Act is "broader in range and deeper in reach" than the Sherman Act, which some California cases interpreting the Cartwright Act have also said.4 The cases do not, however, explain how the Cartwright Act's scope exceeds that of the Sherman Act. And it is not clear whether the California AGO might use the Cartwright Act to pursue types of conduct that are not criminally prosecuted at the federal level. Criminal violations of the Cartwright Act are punishable by fines and imprisonment, as with federal antitrust law.5
Criminal Prosecutions Under the Cartwright Act
Prior, albeit rare, criminal prosecutions under the Cartwright Act may provide some insight into the types of conduct the California AGO may pursue.
- People v. Sacramento Butchers' Protective Ass'n et al. (1910): One of the earliest Cartwright Act prosecutions alleged a conspiracy among the Western Meat Company, its managing agent and the Sacramento Butchers' Protective Association "for the purpose of destroying full and free competition in the retail meat business."6 In furtherance of the conspiracy, association members could purchase meat from Western at prices lower than their retail meat-business competitors could, thereby "practically confining the business of selling meat at retail to only those who were, fortunately, members of said association."7 Defendants were convicted, and the California Third District Court of Appeal upheld the decision, finding that the agreement between Western and the association, as articulated by the district attorney, was a "clearly stat[ed] offense" under the Cartwright Act.8
- People v. H. Jevne Co. et al. (1919): Wholesale bakers were indicted for allegedly entering into an agreement to fix the minimum price at which retailers could sell their bread.9 As part of the agreement, defendants refused to sell bread to any retailer that set its price lower than the fixed minimum price.10 A jury convicted the defendants, and the companies were fined $1,000 while most individual defendants were fined $100.11
- People v. Athens Disposal Co., Inc., et al. (1988): The California AGO alleged that competing waste disposal companies and their employees engaged in a conspiracy to allocate the market for commercial solid waste disposal services.12 The alleged co-conspirators agreed not to bid on each other's commercial accounts and to compensate each other if such accounts were taken. According to the indictment, defendants rigged bids for various waste collection contracts.13 Defendants pled guilty and were sentenced to probation, community service and/or fines ranging from $2,000 to $500,000.
- People v. Waste Mgmt. of California, Inc., et al. (1989): Similar to the conspiracy alleged in People v. Athens, the defendants agreed to allocate the market and fix prices for commercial solid waste disposal services.14 The alleged co-conspirators allocated customer accounts among themselves and paid restitution to one another for taking one another's contracts, in violation of the agreement. The defendants also allegedly fixed prices by exchanging granular information about current commercial customer prices. The defendants' sentences varied, but at least one defendant was fined $900,000 and another was sentenced to 90 days in county jail.
- People v. Sherwin et al. (1995): The most recent criminal Cartwright Act case involved allegations that defendants rigged bids for the purchase of various food items by the state of California.15 The indictment was ultimately dismissed after the court granted the defendants' motion to suppress evidence based on a claim that it was illegally seized, and without such evidence, the indictment could not be supported.16
The Future of Cartwright Act Criminal Enforcement
The California AGO has not announced where it will focus its criminal Cartwright Act enforcement efforts, but prior cases as well as recent federal enforcement trends may inform the possible areas of focus.
Government Procurement. California could resume prosecuting antitrust crimes impacting government procurement, consistent with its prior practice. The last known criminal Cartwright Act prosecution, in 1995, People v. Sherwin, involved a conspiracy between several business owners to rig bids submitted to the State of California Department of General Services, Office of Procurement.17 Similarly, People v. Athens Disposal Company, Inc. alleged that defendants rigged bids for waste collection contracts, including ones for public facilities.18
Investigating and prosecuting antitrust crimes in government procurement are currently a priority at the federal level. The Procurement Collusion Strike Force (PCSF) was formed in 2019 as a coordinated cross-agency response to combat such crimes. And the federal government is not acting alone. Cooley recently confirmed that states are working actively with the PCSF.19 The PCSF's prosecutions have often involved conspiracies to rig bids for military or state or local government contracts. California was the focus of a recent PCSF prosecution alleging a bid rigging and bribery conspiracy in which defendants submitted inflated bids for California Department of Transportation contracts in exchange for kickbacks.20 Though this case was prosecuted federally, the alleged conduct would also violate the Cartwright Act and is an example of the type of conduct the California AGO might well pursue.
Agriculture and Supply Chain. Antitrust violations affecting the supply chain are another federal and state enforcement priority because of their direct impact on consumers. Past Cartwright Act prosecutions focused on crimes impacting the supply chain, including People v. H. Jevne Co. (sale of bread from wholesale bakers to retail dealers) and People v. Sherwin (contracts for the purchase of food items from several distributors).21 The Department of Justice (DOJ) has also recently focused on supply chain issues and in 2022 announced an initiative to investigate and prosecute cases where competitors may be exploiting supply chain disruptions to fix prices and overcharge consumers.22 In addition, the Biden Administration has prioritized antitrust enforcement in the meat and poultry supply chain and announced a joint initiative between DOJ and the US Department of Agriculture to facilitate online reporting of potentially unfair and anticompetitive practices in the poultry and livestock sectors.23 There have been several enforcement actions in the meatpacking industry, including a 2020 indictment alleging price fixing among broiler chicken producers.24 More recently, California was one of four states to join DOJ's lawsuit against Agri Stats, alleging information sharing in violation of Section 1 of the Sherman Act, harming competition in the meat processing industry.25
Labor Markets. Protecting competition in labor markets has been a significant DOJ enforcement priority, and states have also been involved in prosecuting related conduct. DOJ remains committed to antitrust enforcement against wage and hiring restrictions despite recent losses in criminal no-poach prosecutions. The Federal Trade Commission (FTC) has also focused on labor markets with its rule banning most employee noncompete clauses. States have also actively pursued antitrust violations affecting competition in labor markets. The Washington attorney general filed a civil complaint against Jersey Mike's in 2018 alleging that its franchise agreements containing no-poach clauses constituted agreements that were per se violations of the Washington state antitrust laws.26 Several other franchises agreed to end their practice of including no-poach agreements in their franchise agreements to avoid a similar lawsuit by the Washington AGO.27
California has also been in the forefront of antitrust enforcement against labor market restrictions. In 2022, the California AGO joined a coalition of 21 state attorneys general in filing an amicus brief in Deslandes v. McDonald's arguing that the no-poach provisions contained in McDonald's franchise agreements violated state and federal antitrust laws.28 And before the FTC did so, California enacted a ban on employee noncompetes that Blizzard described as including "some of the strongest prohibitions against noncompetes in the country."29 The California AGO may decide to take its labor market enforcement a step further and pursue criminal action under the Cartwright Act.
Footnotes
1 Alex Wilts and Chris May, mLex, US states 'very interested' in staying on top of criminal enforcement, antitrust task force chair says (Apr. 12, 2024).
2 Cal. Bus. & Prof. Code § 16720.
3 Oakland-Alameda Cnty. Builders' Exch. v. F.P. Lathrop Constr. Co., 4 Cal. 3d 354, 361 (1971) (citing N. Pac. Ry. Co. v. United States, 356 U.S. 1, 4–5 (1958)); People v. Santa Clara Val. Bowling Proprietors' Ass'n, 238 Cal. App. 2d 225, 234–35 (Ct. App. 1965).
4 See In re Cipro Cases I & II, 348 P.3d 845, 872 (2015).
5 Cal. Bus. & Prof. Code § 16755(a).
6 People v. Sacramento Butchers Protective Ass'n et al., 12 Cal. App. 471, 480 (1910).
7 Id. at 481.
8 Id. at 480.
9 People v. H. Jevne Co. et al., 179 Cal. 621, 624 (1919).
10 Id.
11 Roger Grase, Metropolitan News-Enterprise, Woolwine Prosecutes Jevne, Others Over the Price of Bread (June 11, 2007), http://www.metnews.com/articles/2007/perspectives061107.htm.
12 People v. Athens Disposal Co., Inc., et al., Case No. A972331 (1988).
13 Id.
14 Felony Complaint for Arrest Warrants, People v. Waste Mgmt. of California, Inc., Case No. A952588 (Mar. 10, 1989).
15 Indictment, People v. Sherwin et al., No. 95F00913 (1995).
16 People v. Sherwin et al., 82 Cal. App. 4th 1404, 1406–07 (2000).
17 Indictment, People v. Sherwin et al., No. 95F00913 (Feb. 3, 1995).
18 People v. Athens Disposal Co., Inc., et al., No. A972331 (July 19, 1988).
19 Alex Wilts and Chris May, mLex, US States 'very interested' in staying on top of criminal enforcement, antitrust task force chair says (Apr. 12, 2024).
20 Press Release, Dep't of Justice, Former Contractor Pleads Guilty to Bid Rigging and Bribery (Oct. 3, 2022), https://www.justice.gov/opa/pr/former-contractor-pleads-guilty-bid-rigging-and-bribery.
21 Indictment, People v. Sherwin et al., No. 95F00913 (1995).
22 Press Release, Dep't of Justice, Department of Justice Announces Initiative to Protect Americans from Collusive Schemes Amid Supply Chain Disruptions (Feb. 17, 2022), https://www.justice.gov/opa/pr/department-justice-announces-initiative-protect-americans-collusive-schemes-amid-supply-chain.
23 Press Release, White House, FACT SHEET: The Biden-Harris Action Plan for a Fairer, More Competitive, and More Resilient Meat and Poultry Supply Chain (Jan. 3, 2022), https://www.whitehouse.gov/briefing-room/statements-releases/2022/01/03/fact-sheet-the-biden-harris-action-plan-for-a-fairer-more-competitive-and-more-resilient-meat-and-poultry-supply-chain/.
24 Indictment, US v. Penn et al., No. 1:20-cr-00152 (June 2, 2020). Following two mistrials, DOJ ultimately dismissed charges against certain defendants, and other defendants were acquitted by a third jury.
25 Press Release, State of California Department of Justice, Attorney General Bonta Joins Lawsuit Against Agri Stats for Facilitating Meat Processors' Unlawful Increase of Chicken, Pork and Turkey Prices (Nov. 6, 2023), https://oag.ca.gov/news/press-releases/attorney-general-bonta-joins-lawsuit-against-agri-stats-facilitating-meat#:~:text=U.S. DOJ filed its original,1 of the Sherman Act.
26 Complaint, State of Washington v. Jersey Mike's Franchise Systems, Inc., et al., No. 8-2-25822-7 (Oct. 15, 2018).
27 Press Release, Washington State Office of the Attorney General, AG Ferguson announces fast-food chains will end restrictions on low-wage workers nationwide, https://www.atg.wa.gov/news/news-releases/ag-ferguson-announces-fast-food-chains-will-end-restrictions-low-wage-workers.
28 Brief of Amici Curiae Illinois, California, Colorado, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Maryland, Massachusetts, Minnesota, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island and Washington in Support of Plaintiffs-Appellants and Reversal, Deslandes v. McDonald's USA LLC, et al., Nos. 22-2333 and 22-2334 (7th Cir. 2022).
29 Alex Wilts, mLex, US state enforcers voice concern over FTC noncompete rulemaking (Apr. 11, 2024).
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