backIn a recently-settled civil antitrust case, the Department of Justice sent a clear message to energy firms that they should expect close scrutiny of their conduct in bidding for government leases for development rights. Firms should also expect the DOJ to coordinate with other government agencies and use multiple statutes and regulations to pursue and obtain redress for anticompetitive conduct.
On February 15, 2012, the DOJ announced that it had reached a $550,000 settlement with Gunnison Energy and SG Interests (SGI) to resolve alleged violations of U.S. antitrust laws and the False Claims Act. According to a DOJ complaint, Gunnison and SGI (the Companies) were separately developing natural gas resources in the Ragged Mountain region of western Colorado. Starting around October 2004, the Companies had on-again, off-again discussions about forming a broad collaboration to acquire and develop leases and pipelines jointly, but did not reach an agreement until the end of summer 2005. Nevertheless, the Companies entered into a written agreement in February 2005 that only SGI would bid at Bureau of Land Management (BLM) auctions for natural gas leases in the region, and then would assign a 50% interest to Gunnison in any leases that SGI won (the Agreement). SGI and Gunnison then amended that Agreement in May 2005 to include an additional lease. The complaint alleged that the Agreement, which remained in place for a year, applied to four BLM auctions, and that in one instance SCI won a lease for $2 per acre, the BLM minimum bid, even though the parties had been willing to bid up to $300 per acre. If not for the Agreement, the parties, according to the complaint, would have likely bid against each other for the leases.
The DOJ challenged the Agreement as an anticompetitive bid rigging arrangement, which is per se unlawful under Section 1 of the Sherman Act and typically charged criminally. DOJ asserted that the Agreement was not part of a pro-competitive or efficiency-enhancing collaboration. In addition, the DOJ alleged that the Agreement between SGI and Gunnison was fraudulent. Specifically, the Gunnison/SGI Agreement was not disclosed to BLM when the winning bidder, SGI, was required to certify to BLM that its bid was not the product of collusion with another bidder. According to the DOJ, as a result of the Gunnison/SGI Agreement the United States received less revenue than it would have in a competitive bidding environment between SGI and Gunnison for the sale of the natural gas leases. The DOJ investigated this Agreement after a whistleblower lawsuit was filed under the False Claims Act.
Significantly, this action marks the first-ever settlement of False Claims Act and antitrust bid rigging claims in a BLM mineral rights lease auction. Equally important, the settlement suggests increased federal coordination for energy-related matters both within the DOJ between the civil fraud enforcement arm and the Antitrust Division, as well as between the DOJ and other federal agencies such as the BLM. Such coordination, as well as the reliance on multiple statutes other than the Sherman Act, has become commonplace in other areas of antitrust enforcement. In particular, the Antitrust Division has utilized these tactics in investigations and prosecutions of international price fixing cartels, coordinating closely with the DOJ Criminal Division and other federal enforcement agencies to bring charges for violations of the Sherman Act along with allegations of Foreign Corrupt Practices Act violations, mail/wire fraud, tax violations, and violations of other federal statutes.
Clearly, it is not unusual for firms both to compete and to cooperate with each other in developing energy resources. The lesson here is not to confuse the two. Although joint bidding in the context of an efficiency-enhancing joint venture is likely consistent with U.S. antitrust laws, joint bidding by otherwise competitors, outside of any integrated venture, raises serious antitrust concerns and may expose firms to civil damages and fines, as well as potential criminal liability.