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UNITED STATES v. BALTIMORE & OHIO R.R.

July 13, 1982

UNITED STATES of America, Plaintiff,
v.
BALTIMORE AND OHIO RAILROAD, et al., Defendants



The opinion of the court was delivered by: PARKER

MEMORANDUM OPINION

In this antitrust proceeding under the Sherman Act, 15 U.S.C. § 1, five railroads are charged with a 22-year price-fixing conspiracy in the iron ore transportation industry in the Great Lakes region. At the arraignment, one defendant, Consolidated Rail Corporation ("Conrail"), entered a plea of nolo contendere which the Court accepted in November 1981. The remaining defendants plead not guilty and filed unsuccessful pretrial motions challenging jurisdictional and substantive bases for the indictment. *fn1" As the case enters the final pretrial stages, three defendants, Baltimore and Ohio Railroad ("B&O"), Chesapeake and Ohio Railway ("C&O"), and Bessemer and Lake Erie Railroad ("B&LE"), seek to change their pleas from not guilty to nolo contendere. The government opposes those motions. The remaining defendant, Norfolk and Western Railway ("N&W"), does not join in the motions and has announced its intention to proceed to trial.

 After considering the legal memoranda *fn2" and oral argument of counsel, the Court concludes that the motions to enter a plea of nolo contendere to the indictment should be granted.

 I.

 The government opposes the plea request as an effort by the three railroads to maintain their public image by proclaiming their innocence while avoiding the expense of defending a lengthy criminal prosecution. Recognizing the broad discretion vested in the Court under Rule 11, Fed.R.Cr.P., the government nevertheless contends that such discretion should be exercised only in exceptional circumstances. The prosecution argues that an application of the factors discussed by Judge Edward Weinfeld in United States v. Standard Ultramarine and Color Company, 137 F. Supp. 167, 172 (S.D.N.Y.1955), counsels against acceptance of the pleas. See infra at p. 822.

 The government further asserts that acceptance of the pleas will neither eliminate the need for trial nor significantly reduce its length or complexity. As to Conrail's nolo contendere plea, which the government supported, it urges that the situation of the three defendants is distinguishable. It points to the fact that Conrail was formed through a consolidation of several railroads and by virtue of congressional legislation. It also points to Conrail's current financial difficulties and the character and extent of Conrail's cooperation during the grand jury investigation.

 The defendants argue that the Court's discretion under Rule 11 permits acceptance of nolo pleas despite the objection of the government. Acknowledging the relevance of some of the factors set out in Standard Ultramarine, they emphasize the changes in antitrust enforcement in the 25 years since that decision. They note that this case involves antitrust violations in a regulated industry, conduct which terminated prior to indictment, and that the indictment involved corporate rather than individual defendants. They contend that all of these factors support their motions when combined with the fact that acceptance of their pleas would greatly simplify matters for resolution at trial.

 Standard Ultramarine was an antitrust prosecution of six corporations charged with price-fixing under the Sherman Act. After expressing concern over the significant benefits which accrue to defendants who plead nolo contendere in antitrust cases, Judge Weinfeld denied the pleas in light of countervailing public interest considerations. Judge Weinfeld was particularly concerned that acceptance of the nolo pleas would provide a windfall to the defendants in parallel civil damage actions by "depriving parties allegedly injured by (the defendants') conduct of the benefits of the prima facie case under § 5" of the Clayton Act. 137 F. Supp. at 172. Section 5 permits reliance upon a finding of liability in a case brought by the government as prima facie evidence in a civil action for treble damages. 15 U.S.C. § 16(a). Private parties may not invoke the benefit of section 5, however, when defendants enter nolo pleas.

 In addition, Judge Weinfeld expressed concern over allowing large corporate defendants to obtain such an advantage in a corresponding civil suit while paying "token fines" and receiving a mere "slap on the wrist" in the criminal case. 137 F. Supp. at 172. In the following oft-cited passage, a non-exhaustive list of relevant factors was set forth:

 
(T)he nature of the claimed violations; how long persisted in; the size and power of the defendants in the particular industry; the impact of the condemned conduct upon the economy; whether a greater deterrent effect will result from conviction rather than from acceptance of the plea-obviously these will vary from case to case. Another circumstance to be given relative, but by no means controlling weight, is the view of the Attorney General.

 Id. *fn3"

 Application of those factors must take into account modern trends in antitrust enforcement and additional factors relevant to this case. Indeed, each case must be considered on its facts and additional considerations may properly apply. E.g., United States v. Roblin Industries, Inc., 1980-81 Trade Cas. P 63,644 at 77,485 (S.D.N.Y.1980). While the Clayton Act provision still provides an advantage in civil cases to defendants who plead nolo, other aspects of the antitrust laws have changed significantly since Standard Ultramarine. Violations of the Sherman Act are now felonies rather than misdemeanors, and the maximum penalty which may be imposed for a criminal violation has been increased ten-fold to one million dollars. See United States v. Charmer Industries, Inc., 1981-1 Trade Cas. P 64,145 at 76,865 (E.D.N.Y.1981); United States v. Burlington Industries, Inc., 1965 Trade Cas. P 71,376 at 80,615 (S.D.N.Y.1965). In addition, statistics belie the government's argument that exercise of the Court's discretion should be reserved for exceptional circumstances. *fn4"

 Taking these considerations into account, the Standard Ultramarine analysis is not dispositive here. The first factors to be considered under that analysis are the seriousness of the offense and its duration. The alleged price-fixing conduct, as this Court has held, is properly treated according to the per se standard which is reserved for clearly anticompetitive offenses. See Catalano Inc. v. Target Sales, Inc., 446 U.S. 643, 647, 100 S. Ct. 1925, 1927, 64 L. Ed. 2d 580 (1980); United States v. Baltimore & O.R.R., 538 F. Supp. at 209-11. However, acceptance of the plea is not uncommon in antitrust prosecutions in regulated industries in cases involving similarly pernicious conduct. See United States v. Atlantic Container Line, Ltd., Crim.No. 79-00271 (D.D.C., filed June 1, 1979) (allegations of cover-up of wrongdoing before Federal Maritime Commission); United States v. Bates, Crim.No. 79-00272 (D.D.C., filed June 1, 1979) (indictment of individuals in related prosecution); United States v. Morgan Drive-Away, Crim.No. 697-73 (D.D.C., filed August 2, 1973) (providing false and misleading testimony before a government agency). *fn5"


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