DOJ Announces Concrete Company’s Deferred Prosecution Agreement: Are Effective Antitrust Compliance Programs Really Less Important Now? Unlikely.
In early January 2021, the U.S. Department of Justice’s (“the DOJ”) Antitrust Division (“the Division”) announced a Deferred Prosecution Agreement (“DPA”) with Argos USA LLC (“Argos” or “the Company”).1 While DPAs have been used to resolve prosecutions in other Divisions of the DOJ, the Antitrust Division has considered DPAs only since a policy shift in 2019. Under the new policy, DPAs were to be applied in limited situations where a company committed an antitrust crime despite having an effective compliance program. Division leadership has further suggested that the compliance program in place at the time of the antitrust violation would need to be robust and thoughtful, and that DPAs would be considered only for companies that self-reported misconduct.2 The Argos DPA suggests, at least during the waning days of the Trump administration, that the policy is more flexible than originally announced. The use of a DPA against Argos seems surprising in at least two important respects. First, Argos operates in the concrete business, which has been a repeated focus of criminal antitrust enforcement over many decades. It is curious that the DOJ would want to apply its novel DPA policy to an industry with such a history. Second, while having an effective compliance program was a prerequisite for the Division to consider a DPA, it appears, based on the public record, that Argos’ compliance program was in need of reform and enhancement. These are not the only oddities of the case, as we will explore in greater detail here.
Case Background & Argos’ Deferred Prosecution Agreement Terms
Argos’ embroilment in a conspiracy to suppress and eliminate competition by agreeing to fix prices, rig bids, and allocate markets for sales of ready-mix concrete in the greater Savannah, Georgia area began nearly a decade ago and ended sometime in 2016.3 In October of 2011, Argos acquired assets of a ready-mix concrete supplier and gained two employees through the same transaction, Gregory Hall Melton (“Melton”) and James Clayton Pedrick (“Pedrick”).4 Melton and Pedrick, unbeknownst to Argos, had been engaging in the illegal anticompetitive conduct described above since sometime in 2010.5 The conduct continued after the asset acquisition.6
Years later, Argos paid the consequences for failing to uncover and remediate the misconduct it had unknowingly acquired. In the DPA, the Company admitted its role in the conspiracy and agreed to pay a monetary penalty in the amount of $20,024,015 to the U.S. Department of the Treasury.7 The criminal antitrust case against Argos may have potential roots in at least two separate civil suits originally brought in 2017 against multiple companies in the concrete business, in which the DOJ later intervened and was granted requests for discovery stays.8 In September of 2020, Evans Concrete LLC, a company named in the original 2017 lawsuits, was indicted along with, among others, Melton and Pedrick.
In its DPA with Argos, the Division lists several facts that it took into account when it decided to enter into the agreement with the Company. The central factors that seem to weigh in favor of a DPA for Argos, in summary form, include:9
- Illegal conduct limited to a small number of employees who joined Argos in an asset acquisition in 2011 — after the conspiracy had already begun — and who worked in a local sales office that employed less than 1% of Argos’ workforce and that was responsible for approximately 1% of Argos’ annual revenues
- Prior indictment of the two former employees — Melton and Pedrick — primarily responsible for the Company’s participation in the charged conspiracy
- Argos’ cooperation with the DOJ since August of 2020 and its agreement to aid the prosecution of its co-conspirators
- Argos’ enhancement of its compliance program and internal controls, ensuring that its compliance program satisfies minimum elements set forth by the Division
- Argos’ remedial actions to address the misconduct, including revising and enhancing its antitrust program, conducting specific antitrust training for Savannah-area employees, and terminating the employees primarily responsible for the Company’s participation in the illegal conduct
Argos’ Compliance Program’s Need for “Enhancement” at Odds with Division Messaging Around Importance of Strong Corporate Compliance Programs
While it is not clear from the DPA the extent to which Argos’ compliance program weighed in favor of the Division’s decision to execute such an agreement with the Company, it seems unlikely that it played a major role. The DPA’s focus on ongoing enhancements to Argos’ compliance program — a focus that is highlighted by two separate addenda: one on improving its compliance program (Attachment C)10 and one on reporting on the effectiveness of its compliance program to the U.S. Government (Attachment D)11 — suggests that Argos’ compliance program’s effectiveness had room for improvement.
This is in tension with compliance policy changes the Division implemented in 2019. As we have previously discussed here, under the new policy, a company that self-reports misconduct, but is not first in the door to self-report, may be eligible to obtain a deferred prosecution agreement if its compliance program resulted in the detection and remediation of the violation and if the company then cooperates with the Division’s investigation.12 Even with a compliance program in place, however, a DPA is not guaranteed.13 While recent antitrust compliance program guidance recognizes that “no compliance program can ever prevent all criminal activity by a corporation’s employees,” it also stresses “whether the program is adequately designed for maximum effectiveness in preventing and detecting wrongdoing by employees,” as a critical factor.14 And yet, Argos’ compliance program requires “continu[ed] enhancement.”15
Based on this, it is fair to conclude that other factors were more important here, such as that: the illegal conduct involved a small number of employees; the illegal conduct began prior to acquisition; Argos management was unaware of any illegal conduct; those employees primarily responsible have already been terminated; and Argos has agreed to cooperate with DOJ in prosecuting the former employees.
Antitrust Division’s Help Regarding Argos’ Potential Debarment at Odds with Procurement Collusion Strike Force’s Mission
The Division in recent years has been very focused on potential collusion in government contracting. In November 2019, for example, the Division formed the Procurement Collusion Strike Force (the “PCSF”) — an interagency partnership formed to sniff out antitrust crimes in government contracting.16 As we have previously explained here, the Division launched the PCSF out of concern that the volume of federal dollars spent on procurement rendered it a top enforcement priority.17
In light of the PCSF, the Division’s inclusion in the Argos DPA of provisions to help defend against debarment are notable. Specifically, while the agreement does not protect Argos against an exclusion, suspension, or debarment action by federal agencies, the United States “agrees that . . . it will advise the appropriate official of any governmental agency considering such action of the fact, manner, and extent of the cooperation and remediation of” Argos.18 Bearing in mind that the concrete business is heavily involved in government contracting, this helping hand language, albeit subtle, is curious. Indeed, in the press release announcing the DPA, Director Steven Stuller of the U.S. Postal Service Office of the Inspector General commented that Argos’ involvement in the conspiracy may have affected construction-related contracts held with the U.S. Mail agency.19 Given the Division’s focus on government contract collusion, the debarment provisions in the DPA for Argos are somewhat surprising.
Antitrust Historical Justification for Entering into DPAs — Industries Offering Unique, Government-Sought Products — Missing in Argos Case
Unlike companies subject to other recent DPAs agreed to by the Antitrust Division, Argos does not provide products or services to the government that are not readily available from other sources. This stands in notable contrast, for example, to recent DPAs issued with manufacturers in the pharmaceutical space.20 A significant justification for those DPAs appeared to be that the recipients were important partners to the U.S. government, including as participants in federal healthcare programs.21 There is a puzzling difference, then, between Argos and the pharmaceutical DPAs: there is no suggestion in the record that Argos supplies to the government unique or important products that might be of limited supply or sourcing.
What This Means for You
This is an unusual case in which the Division adopted a DPA resolution outside of bounds of its original policy. Factors other than an effective compliance policy appear to have led the DOJ to conclude a DPA was an appropriate resolution. As we turn the page from the Trump administration to the Biden administration, we will continue to report on the viability of DPAs to resolve antitrust crimes.
Regardless of any policy shifts, however, having an effective compliance program to prevent and detect antitrust crimes remains critical for companies doing business in the United States. The Argos case illustrates the potential consequences of failing to uncover and address antitrust liabilities before the completion of an acquisition (or shortly thereafter). In effect, Argos missed this problem twice — it failed to uncover the illegal conduct in the deal due diligence and it failed to uncover the illegal conduct for several years thereafter. It is therefore critical that companies considering an acquisition conduct thorough due diligence, no matter how big or small the deal.
1 See Press Release, U.S. Dep’t of Justice, Ready-Mix Concrete Company Admits to Fixing Prices and Rigging Bids in Violation of Antitrust Laws (Jan. 4, 2021), https://www.justice.gov/opa/pr/ready-mix-concrete-company-admits-fixing-prices-and-rigging-bids-violation-antitrust-laws [hereinafter “DOJ Argos Press Release”].
2 See Makan Delrahim, Assistant Att’y Gen., U.S. Dep’t of Justice, Wind of Change: A New Model for Incentivizing Antitrust Compliance Programs, Remarks at the New York University School of Law Program on Corporate Compliance and Enforcement (July 11, 2019), https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-new-york-university-school-l-0. For an overview of DPAs, see Daniel T. Wallmuth and Lindsey R. Vaala, What’s in a DPA? Breaking Down Deferred Prosecution Agreements in Light of New Antitrust Division Policy, The V&E Report (Jul. 18, 2019), https://www.velaw.com/insights/whats-in-a-dpa-breaking-down-deferred-prosecution-agreements-in-light-of-new-antitrust-division-policy/.
3 See Deferred Prosecution Agreement ¶¶ 1, 5(a), United States v. Argos USA LLC, 4:21-002-RSB-CLR (S.D. Ga. Jan. 4, 2021), https://www.justice.gov/opa/press-release/file/1350481/download [hereinafter “Argos DPA”].
4 See Argos DPA, Attach. A: Statement of Facts, at 24.
5 See Argos DPA ¶ 1 (noting that the “conspiracy began as early as 2010”); see also Argos DPA ¶ 5(b) (“[T]he illegal conduct was limited to a small number of employees who joined the Company through an asset acquisition of another company in October 2011, after the conspiracy had already begun.”).
6 See Argos DPA ¶ 1 (stating that the “conspiracy . . . continued until in or about July 2016 . . . .”).
7 See Argos DPA ¶¶ 2, 8.
8 See Mot. to Intervene at 3, Pro Slab, Inc. v. Argos North America Corp., 2:17-cv-03185-BHH (D.C.S. Nov. 11, 2019), ECF No. 189; see also Order Granting Mot. to Stay Disc., Pro Slab Inc. v. Argos North America Corp., 2:17-cv-03185-BHH (D.S.C. Dec. 5, 2019), ECF No. 208; Order Granting Mot. to Stay Disc., Southeast Ready Mix, LLC v. Argos North America Corp., 1:17-cv-02792-ELR (N.D. Ga. July 23, 2019), ECF No. 143. One other apparently related case in which the DOJ intervened and was granted a discovery stay, Argos USA LLC v. Young, is a trade secrets case brought by Argos against a former employee and Southeast Ready Mix, LLC. See Mot. to Intervene at 3, Pro Slab, Inc. v. Argos North America Corp., 2:17-cv-03185-BHH (D.C.S. Nov. 11, 2019), ECF No. 189; see also Order Granting Mot. to Stay Disc., Argos USA LLC v. Young, 1:18-cv-02797-ELR (N.D. Ga. Oct. 10, 2019), ECF No. 45.
9 See Argos DPA ¶ 5(a)-(f).
10 See Argos DPA Attach. C: Corporate Compliance Program, at 33-35.
11 See Argos DPA Attach. D: Compliance Reporting Requirements, at 36-37.
12 Craig P. Seebald, Lindsey R. Vaala, and Morgan A. Kelley, Winning the Leniency Race No Longer the Only Avenue for Avoiding Criminal Antitrust Prosecution, V&E Antitrust Update (July 15, 2019), https://www.velaw.com/insights/winning-the-leniency-race-no-longer-the-only-avenue-for-avoiding-criminal-antitrust-prosecution/.
14 See U.S. Dep’t of Justice, Evaluation of Corporate Compliance Programs in Criminal Antitrust Investigations at 3 (July 2019), https://www.justice.gov/atr/page/file/1182001/download (citing to the Justice Manual § 9-28.800); see also Seebald et al. supra, note 12.
15 See Argos DPA ¶ 5(e).
16 See U.S. Dep’t of Justice, Assistant Attorney General Makan Delrahim Delivers Remarks at the Procurement Collusion Strike Force Press Conference, Remarks at the Procurement Collusion Strike Force Press Conference (Nov. 5, 2019), https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-procurement-collusion-strike/; see also Richard A. Powers, Deputy Assistant Att’y Gen., U.S. Dep’t of Justice, A Matter of Trust: Enduring Leniency Lessons for the Future of Cartel Enforcement, Remarks at the 13th International Cartel Workshop (Feb. 19, 2020), https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-richard-powers-delivers-remarks-13th-international.
17 Lindsey R. Vaala, Morgan A. Kelley, and Laura K. Muse, Deterrence and Detection: Antitrust Division Reaffirms Commitment to Cartel Enforcement, Employing Corporate Compliance Policy and Strike Force, The V&E Report (Feb. 27, 2020), https://www.velaw.com/insights/deterrence-and-detection-antitrust-division-reaffirms-commitment-to-cartel-enforcement-employing-corporate-compliance-policy-and-strike-force/.
18 See Argos DPA ¶ 12.
19 See DOJ Argos Press Release (“Activities relating to collusion, bid rigging, and market allocation do not promote an environment conducive to open competition . . . . The U.S. Postal Service spends hundreds of millions of dollars on new construction, maintenance, and renovation of U.S. Postal Service facilities.”).
20 See, e.g., Deferred Prosecution Agreement, United States v. Sandoz Inc., 2:20-cr-00111-RBS (E.D. Pa. Mar. 2, 2020), https://www.justice.gov/atr/case-document/file/1256306/download. For insight into DPAs with pharmaceuticals in 2019, see Hill Wellford and Ryan Will, Heritage Pharmaceuticals Under Fire, Settles Criminal and Civil Charges with DOJ, The V&E Report (June 6, 2019), https://www.velaw.com/insights/heritage-pharmaceuticals-under-fire-settles-criminal-and-civil-charges-with-doj/.
21 See, e.g., Deferred Prosecution Agreement ¶ 1, United States v. Apotex Corp., 2:20-cr-00169-RBS (E.D. Pa. May 7, 2020), https://www.justice.gov/opa/press-release/file/1274706/download (“Among the facts considered were the following: (a) a conviction (including a guilty plea) would likely result in Apotex’s mandatory exclusion from all federal health care programs under 42 U.S.C. § 1320a-7 for a period of at least five years, which would result in substantial consequences to the corporation’s employees and customers outside the federal health care programs . . . .”).
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.