Antitrust Law Daily Wrap Up, ANTITRUST—E.D. Mich.: Subcontractor lacked standing to bring antitrust, RICO actions against competitors engaged in bid-rigging conspiracy, (Dec 23, 2013)

By Edward L. Puzzo, J.D.

A subcontractor bidding for government contracts did not have standing to bring antitrust and civil RICO actions against competitors who had allegedly fraudulently excluded bidders outside of their conspiracy from being awarded contracts, the federal district court in Detroit has ruled (Willie McCormick & Associates v. Lakeshore Engineering Services, December 20, 2013, Cleland, R.).

Willie McCormick & Associates was a water and sewer contractor that had done work for the Detroit Water and Sewerage Department (DWSD). McCormick brought this antitrust and RICO action, alleging that defendants—consisting of a number of competing contractors—had engaged in a secret scheme involving bribes, kickbacks, and bid-rigging. They allegedly conspired to distribute Detroit water and sewer subcontracts among themselves to the exclusion of subcontractors, such as plaintiff, who were not part of the conspiracy, regardless of whether their bid was lowest during the contract bidding process.

Constitutional standing. Defendants argued that McCormick lacked constitutional standing because it was not entitled to selection as a DWSD subcontractor, and its damages were speculative. The court disagreed, ruling that McCormick’s allegations of a conspiracy involving bribes, kickbacks, and bid-rigging presented a case for damages sufficient for constitutional standing.

Antitrust standing. Antitrust standing is distinct from constitutional standing, the court stated. Antitrust laws were enacted for the protection of competition, not for the protection of competitors, the court explained. Assuming the truth of plaintiff’s allegation that all honest subcontractors were barred from the market due to defendants’ conspiracy, this harmed them as a competitor, rather than harmed competition itself, the court opined.

McCormick alleged indirect injury in the form of sub-contracts it would have earned had there been no conspiracy among defendants. But the direct injury was to the government agency that paid inflated prices for its contracts with defendants. Bid-rigging is illegal because it increases prices to the consumer, which in this case was the DWSD. The DWSD was better suited to bring suit against the defendants, stated the court.

McCormick’s allegations that it would have been granted sub-contracts were it not for defendants’ conspiracy was speculative, the court stated, as there was no reason to believe that it would have won these sub-contracts over other competitors. Thus, the court ruled, McCormick was not able to allege an injury protected by antitrust laws, and therefore does not have standing to proceed on its antitrust claims.

RICO standing. To pursue a civil Racketeer Influenced and Corrupt Organizations Act (RICO) claim, a plaintiff must allege an injury to business or property. McCormick’s complaints concerned both contracts for which it had never been a subcontractor, and contracts for which it had.

In the first category, McCormick alleged that it was unable to obtain certain subcontractor contracts because it was not a member of defendants’ conspiracy and that, had the bidding been conducted on a fair and equitable basis, it would have received subcontractor work for these DWSD projects. This expectation of future contracts was not enough to provide RICO standing, the court ruled. Even where it had obtained initial approval as a subcontractor, later rescinded, McCormick did not have a protected business or property interest in the anticipation that it would be a subcontractor. Michigan courts have rejected the idea that a disappointed bidder has a valid business expectancy in a potential government contract, the court stated.

In the second category, contracts for which it had been a subcontractor in the past, McCormick may have not been awarded new contracts because of a negative assessment of its past work. This is a subjective evaluation, not a protected interest under RICO, the court stated.

It was the DWSD, not McCormick, which was most directly injured by defendants’ alleged conspiracy, the court stated. Its contract prices were inflated, and it was robbed of honest competition in the bidding process due to collusion between defendants, as opposed to McCormick’s injury, which was attenuated and indirect, stated the court. As with the antitrust claims, McCormick also lacked standing to pursue civil RICO claims, the court ruled.

The case is No. 12-15460.

Attorneys: Robert G. Lahiff (Foster Meadows & Ballard, PC) for Willie McCormick and Associates, Inc.

Companies: Willie McCormick and Associates, Inc.; Ferguson’s Enterprises, Inc.; Xcel Construction Services, Inc.; Lakeshore Engineering Services, Inc.

Cases: Antitrust RICO MichiganNews