CARTEL CASE STUDY John W. McReynolds Assistant Chief New York Field Office Antitrust Division U.S. Department of Justice [email protected].

CARTEL CASE STUDYJohn W. McReynolds

Assistant Chief

New York Field Office

Antitrust Division

U.S. Department of Justice

[email protected]

Case Study

• Customer allocation conspiracy• The industry

• The investigation

• The evidence– Particular emphasis on documents & trial exhibits

Linen Supply Market

• Products– Table linens– Napkins– Chef’s uniforms– Aprons– Waiter’s uniforms

Linen Supply Market

• Services– Deliver clean linen products – Pick up dirty & soiled linens– Bring dirty linens back to their plants for

washing & ironing – Deliver clean linens the following week

Linen Supply Market

• Customers– Restaurants– Cafeterias– Caterers – Food shops– Delicatessens– Pizzerias

Linen Supply Market

• Geographic area– New York City metropolitan area

Linen Supply Market

• Size of market– Over $200 million annually– Thousands & thousands of customers

Linen Supply Market

• Competitors– 6 large local– 2 national – Hundreds of small

Linen Supply Market

• Duration of conspiracy– Early 1994 through October 2002– Individual agreements dating back to 1980s

Linen Supply Market

• The customer allocation conspiracy– All 6 large local competitors– Agreed to not compete for each others’ existing

customers• Instruct salesmen not to solicit

• Put in high quotes or refrain from quoting

• Phone each other when a customer is looking to switch

Linen Supply Market

• Rules– OK to compete for newly opened businesses– If owners open up another location, it is

“protected”– If a conspirator “cheats” by taking a customer,

you can retaliate by taking a customer of equal size

Linen Supply Market

• Conditions favorable to collusion• Standardized products• Products do not have close substitutes• High entry costs for large scale operation• Few firms that can service large & upscale

restaurants• High market shares• Detection of cheating & enforcement

Linen Supply Market

• Other conditions favorable to collusion– 6 largest competitors:

• Fathers & grandfathers knew each other• Many were immigrants from eastern Europe• Union negotiations• Industry association meetings• Helped each other when in need• Bought & split up linen supply companies together• Purchased linens from same manufacturers

Linen Supply Market

• History of industry

• Antitrust violations• 1958 consent decree

• Terminated in 1992

• Arson• Violence• Organized crime

Linen Supply Market: Investigation

• How investigation began:• Late 1999 - new entrant: Linens Inc.

• Over the next 2 years took 20 top New York City restaurants

• Disrupted cartel


• Retaliation, beginning early 2002• Threatening phone calls

• Threatening emails

• Truck break-ins

• Assault

• Complaints to National Labor Relations Board

• Union organizing efforts

• Picketing at major restaurants


• Linens Inc. contacted Antitrust Division in April 2002• General manager interviewed

• Last worked in the industry in the 1980s

• Background/historical/anecdotal information

• No first-hand knowledge


• Covert stage• Threatening phone calls: trap & trace• Threatening emails: trace• Consensual monitoring

– meetings with 1 of the 6 conspirators – the “peacemaker”

– group meeting with the “peacemaker” & most aggressive of the conspirators


• Overt stage – part 1• October 2002 issued to 6 largest linen supply

companies• Amnesty applicant


• Overt stage – part 2• Beginning March 2003 - witnesses

– 4 Voluntary without attorney

– 3 Voluntary with attorney – statement protection

– 6 Compelled – grand jury, under oath & immunity


• December 2003• President & his company

• Cooperate

• Both plead guilty

• Company pay $3.5 million fine


• Overt stage – part 3• Issued subpoenas to

• 6 additional linen supply companies

• 2 credit reporting agencies

• 6 credit card companies

• 6 restaurants

• 1 union

• 1 car leasing company


• Overt stage – part 3, continued• Witnesses

– 10 Voluntary without attorney

– 2 Voluntary with attorney – statement protection

– 15 Compelled – grand jury, under oath & immunity

Linen Supply Investigation Summary

• Documents • 350 boxes, containing over 25,000 pages

• Witnesses - 40

Linen Supply Investigation Summary

• 1 amnesty applicant• 2 individuals & companies pleaded guilty to

antitrust & cooperate • 1 individual pleaded guilty to perjury &

cooperate• 1 individual & company pleaded guilty to

antitrust; individual also pleaded guilty to obstruction of justice

• 2 individuals & companies were indicted – just recently changed pleas to guilty

Linen Supply Market: Trial

• Direct evidence

• Circumstantial evidence

• Corroborative evidence