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Antitrust conspiracy suit vs. union denied

A union’s “job-targeting program” that subsidized union employers’ bids for steel-erecting jobs did not violate antitrust laws, even though a jury found that the union engaged in illegally coercive tactics in implementing the program, a U.S. District Court judge in Boston has determined.

Under the program, the union pooled member dues and distributed them to certain unionized employers to cover the difference between union-level wages and nonunion wages. As a result, the employers could factor lower labor costs into their bids and compete with nonunion shops.

A group of nonunion employers argued that the program constituted a conspiracy to freeze them out of the Boston structural steel erection market.

But Judge Richard G. Stearns disagreed, finding no evidence of collusion resulting in anti-competitive activity.

The nonunion employers “portray the alleged conspiracy as a wheel with [the union] at the hub and the individual agreements with signatory [unionized] erectors serving as the spokes,” the judge wrote, granting the union’s motion for summary judgment. “In response, [the union] makes the apt point that what is missing is a rim — that is, that the signatory erectors acted collusively in entering into the job targeting agreements, rather than engaging in independent, if parallel, conduct.”

The 23-page decision is American Steel Erectors, Inc., et al. v. Local Union No. 7, International Association of Bridge, Structural, Ornamental & Reinforcing Iron Workers.

Pro-competitive behavior

Paul F. Kelly of Segal Roitman in Boston, who represented the union, said the ruling recognized that even if the union’s conduct was not exempt from antitrust laws, it was actually “pro-competitive” and not in violation of those laws.

“The judge accurately describes antitrust laws as a ‘labyrinth,’” Kelly said. “And it’s very difficult to reconcile a public policy that favors union monopolization of the labor market while [not allowing] businesses to monopolize the business market. That’s why so few antitrust cases involve labor unions.”

Kelly said the impact of the ruling will be felt in industries in which unions use market recovery programs like the job-targeting program at issue in American Steel Erectors.

“[The decision] clearly states the premise that a plaintiff can’t just complain that a union somehow injured him,” Kelly said. “Instead, in order to sustain an antitrust claim, you have to show that the union conduct was anti-competitive to the market itself. And the whole point of market recovery programs is to reduce cost and therefore prices, which is classically pro-competitive.”

Boston lawyer Lisa C. Wood, an expert in antitrust law who was not involved in the case, said the decision was based on “well-recognized antitrust principles” that apply outside the organized labor context as well.

“The decision illustrates well that for all their complexity … antitrust cases are often appropriate for summary disposition,” said Wood, who practices at Foley Hoag. “The court recognized that heavy-handed competitive tactics alone do not an antitrust case make.”

Instead, Wood said, an antitrust plaintiff must establish harm to competition itself, an issue that often can be addressed at the motion to dismiss or summary judgment stage.

Because the opinion was well written and easy to follow, Wood added, “it will be cited often in future antitrust briefs.”

Michael E. Avakian of Wimberly, Lawson & Avakian in Washington represented the plaintiff nonunion employers. He said the decision creates a “conundrum.”

“These payments — job target money which is, by definition, deducted as dues from employees that go back to employers — constitute illegal and criminal activity under the Davis-Bacon Act,” Avakian said, referring to a federal law barring the “kickback” of any portion of a worker’s wages on projects financed at least in part with federal funds. “From our perspective, Congress has already decided whether or not this activity can be called legitimate.”

As a result, Avakian said, “we now have something that’s obviously, on its face, inimical to public policy being considered a protected act. How can this admittedly illegal activity be considered protected when no court, nor the National Labor Relations Board, has ever said this before?”

Job-targeting program

The defendant, Local Union No. 7 of the International Association of Bridge, Structural, Ornamental and Reinforcing Iron Works, represents steel erection workers in eastern Massachusetts.

In 1990, the union established the “Market Recovery Program,” a job-targeting program intended to enable unionized steel erectors to compete with nonunion counterparts in bidding for subcontracts on multi-story building projects that use structural steel.

The MRP subsidized the bids of unionized companies competing for union-targeted jobs by paying the difference between union-scale wages and the lower wages earned by workers in nonunion shops.

Union members funded the MRP with their dues, which their employers would withhold from their paychecks and pay over to Local 7. The union would then deposit the monies into an MRP fund.

In 1993, the union and the Building Trades Employers’ Association of Boston and Eastern Massachusetts, an organization of union contractors, incorporated that system into their master collective bargaining agreement.

The plaintiffs, a group of five nonunion steel erection companies, claimed in a federal lawsuit that the MRP constituted a conspiracy with union contractors to freeze nonunion competitors out of the Boston market in violation of federal antitrust laws.

Additionally, the plaintiffs claimed the union engaged in coercive tactics, including threats of violence, to pressure steel fabricators and others who control the job sites into breaking their contracts with nonunion erectors and replacing them with unionized BTEA members. According to the plaintiffs, the agreements violated §8(e) of the National Labor Relations Act.

In 2009, a jury in U.S. District Court found that the union did indeed commit labor violations. However the verdict left open the question of liability on the antitrust claims. The union moved for summary judgment on those claims.

No illegal conspiracy

Stearns found that the plaintiffs failed to show any antitrust violations on the union’s part.

In doing so, he rejected the plaintiffs’ argument that the §8(e) agreements amounted to a “group boycott” that constituted a per se violation of the Sherman Antitrust Act.

The per se rule applies only to “horizontal” market restraints, which involve agreements between competitors at the same level of market structure, as opposed to “vertical” restraints, which involve combinations of players at different levels, such as manufacturers and distributors, the judge said.

“The four [§8(e)] agreements at issue here are between Local 7, as a supplier of labor, and the fabricators, as suppliers of steel,” Stearns said. “These parties do not compete against one another and occupy different tiers of the structural steel market.”

Neither did the §8(e) agreements violate antitrust law under the “rule of reason standard,” the judge said.

“To make out a claim of exclusive dealing under the rule of reason, plaintiffs are required to show that they were prohibited from competing in at least 30-40 percent of the relevant market,” Stearns said. “[S]teel erection spending in the locally defined market has exceeded [$200 million] each year since 1999. The four [§8(e)] agreements, which the jury found to be valued at something less than $300,000 in toto, constitute only a fraction of a percent of the defined market.”

Turning to the MRP itself, the judge found no showing that the program was the product of a conspiracy between the union and the union contractors who signed on.

The plaintiffs characterized the alleged conspiracy as a wheel, with the union constituting the hub and its agreements with the union erectors as the spokes.

But the wheel was missing its rim, the judge remarked, referring to the plaintiffs’ failure to show that union erectors actually colluded with each other rather than each signing onto the MRP independently.

“Moreover, even assuming a rimmed wheel, plaintiffs have failed to produce evidence that the job targeting agreements with the signatory erectors had any unlawful anticompetitive effect,” Stearns said. “Although the use of MRP funds lowered the signatories’ costs on targeted jobs, the resulting lower bids were not unlawful because they have not been shown to have amounted to predatory pricing.”

In essence, the judge said, “the MRP is simply a mechanism by which union members agree to work for lower wages than the negotiated rates of the CBA to help their employers to become more competitive. The court sees no principled distinction between a union worker’s agreement to pay dues to the MRP to preserve his job and a nonunion worker’s agreement to work for a lower wage to save hers.”

Because the plaintiffs could not demonstrate an unlawful anti-competitive effect, Stearns concluded, the union was entitled to summary judgment on the antitrust claims.

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