Antitrust Law Daily Wrap Up, ANTITRUST—DMinn: Target Fails to Allege Bid Rigging Scheme Involving Paving Contractors, (Jun 10, 2013)

By Jody Coultas, J.D.

Target Corporation could not state antitrust or RICO claims against LCH Pavement Consultants, LLC or paving contractors that Target alleged engaged in a big rigging scheme, the federal district court in Minneapolis has held (Target Corp. v. LCH Pavement Consultants, LLC, June 7, 2013, Ericksen, J.).

LCH was hired by Target to act as its paving consultant for the majority of its stores, a job that included identifying the quantity and type of work needed at the various stores, soliciting bids from paving contractors, and overseeing the paving and maintenance work as a construction manager. Target alleged that LCH and a number of paving contractors engaged in bid rigging whereby paving projects were allocated among the paving contractors on a territorial basis rather than inviting other contractors to submit bids. The paving contractors allegedly submitted high bids that were uncompetitive and bids that were falsely inflated.

Target also alleged that the paving contractors and LCH engaged in a scheme involving nonperformance of work. The paving contractors allegedly performed less work than they had contracted to do but billed Target as if they had completed all the work. Target also alleged that the contractors falsified documents to make it appear that LCH was present on the project sites and acted as a construction manager when in fact LCH was not present.

The court dismissed bid rigging claims under Sec. 1 of the Sherman Act because the court could not infer a horizontal agreement between the paving contractors. Target alleged a “hub-and-spoke” conspiracy, which required Target to show that a horizontal agreement connected the companies. Allegations of parallel conduct under Sec. 1 require the plaintiff to present evidence that raises a suggestion of a preceding agreement, rather than merely parallel conduct that could be independent action. Target alleged that there was an agreement among the companies to allocate territories among themselves and to fix prices for repairs and maintenance. Target failed to present evidence that supported an inference of a horizontal agreement among the paving contractors. Rather, the evidence showed vertical agreements between LCH and the paving contractors. Target failed to explicitly allege a horizontal agreement and failed to place the allegations in a context that suggested one.

Because Target could not show that LCH and the paving contractors were an “enterprise” as defined by RICO, the court dismissed the RICO claims. In its claim under § 1962(c) of RICO, Target was required to show conduct of an enterprise through a pattern of racketeering activity. An “enterprise” is “any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” Target was unable to show an association-in-fact enterprise comprising all parties where LCH was the hub and the paving contractors were the spokes. An association-in-fact enterprise is an enterprise consisting of a continuing unit that functions with a common purpose. Such associations require relationships among those associated with the enterprise, and require those associated with the enterprise to function as a unit put together to form a whole. The paving contractor’s argument that additional structural elements were required to show an association-in-fact was rejected based on a Supreme Court ruling in Boyle v. United States, 556 U.S. 938, 948 (2009). However, Target’s claims failed because there were no allegations to support a reasonable inference of relationships among the paving contractors. There was no evidence that the paving contractors knew that the others were underperforming the work or that a relationship existed between the contractors. LCH was the only party to have contact with the others. Target was only able to prove there were multiple enterprises consisting of LCH and a paving contractor: Therefore, the claims based on an enterprise consisting of every defendant were dismissed.

The case is No. 12-1912 (JNE/JJK).

Attorneys: James J Hartnett, IV (Faegre Baker Daniels LLP) for Target Corp. Aaron D Hall (Twin Cities Law Firm, LLC) for LCH Pavement Consultants, LLC.

Companies: Target Corp.; LCH Pavement Consultants, LLC.

Cases: Antitrust RICO MinnesotaNews