NLRB finds Las Vegas casino violated labor law in prohibiting access to off-duty restaurant employees

In a case returned by the United States Court of Appeals for the District of Columbia Circuit for further consideration, the National Labor Relations Boardin a 3-1 decision, found that a Las Vegas casino violated federal labor law by prohibiting off-duty employees of restaurants inside the casino from distributing handbills on casino property.

The handbills sought public support for the organizing efforts of employees of the restaurants, which are operated by a contractor inside the New York-New York Casino. They were distributed to customers at restaurant entrances and at the casino’s main entrance.

In addressing questions posed by the Court of Appeals, the NLRB solicited statements from the parties and amicus curiae, and held oral argument in November 2007. Based on this input, the Board modified the standard used to determine the rights of a contractor’s off-duty employees to access the property owner’s premises.

In their decision, Chairman Liebman and Members Becker and Pearce stated, “We strike an accommodation between the contractor employees’ rights under federal labor law and the property owner’s state-law property rights and legitimate managerial interests.”  They concluded that:

“[T]he property owner may lawfully exclude such employees only where the owner is able to demonstrate that their activity significantly interferes with his use of the property or where exclusion is justified by another legitimate business reason, including, but not limited to, the need to maintain production and discipline…”.

In dissent, Member Hayes wrote that the majority’s decision “artificially equates the Section 7 rights of a contractor’s employees with those of the property owner’s employees, pays only lip service to the owner’s property interests, and gives no consideration to the critical factor of alternative means of communication.” He would have found only that the casino acted unlawfully in excluding the handbillers from the sidewalk area outside its main entrance, but that it was within its rights to expel them from the interior of the casino.

Court Approves Disgorgement of Profits from Anticompetitive Behavior in Electricity Market

On February 2, 2011, the U.S. District Court for the Southern District of New York affirmed the right of the Department of Justice (“DOJ”) to seek disgorgement of profits for a violation of the Sherman Act. This case, involving the electric power industry, marks the first decision regarding a federal district court’s power to order disgorgement as a remedy for an antitrust violation under the Sherman Act. Click here to read the Court Order.

The case arose out of allegations that KeySpan Corporation (now part of National Grid USA), an electricity generator, manipulated electricity prices in the New York City area. According to the complaint filed by the DOJ’s Antitrust Division, KeySpan and a financial services company entered into a financial swap agreement in January 2006, giving KeySpan an indirect financial interest in the sale of generating capacity by its largest competitor in the New York City market. This financial interest had the anticompetitive effect of incentivizing KeySpan to withhold significant generating capacity from the retail auctions while profitably bidding capacity at the price cap, despite the addition of significant new third party generating capacity in New York City that otherwise likely would have caused prices to drop. According to the DOJ, this arrangement led to higher capacity prices in New York City and, in turn, higher electricity prices for consumers than would have prevailed otherwise, thereby violating Section 1 of the Sherman Act.1 The DOJ calculated that KeySpan earned approximately $49 million in net revenues under the swap.2 Interestingly, the Federal Energy Regulatory Commission (“FERC”) had previously investigated the same conduct and concluded that KeySpan’s actions did not violate its market manipulation rules.

In February 2010, the DOJ announced a settlement with KeySpan providing for disgorgement of profits and requiring KeySpan to pay $12 million to the U.S. Treasury. The DOJ filed a proposed consent decree with the federal district court, as required by the Antitrust Procedures and Penalties Act (the “Tunney Act”). This was the first time the DOJ had ever pursued disgorgement as a remedy for a Sherman Act antitrust violation. Subsequently, the New York State Public Service Commission (“PSC”) filed comments with the district court objecting to the DOJ settlement, arguing that $12 million was far too small an amount as it was not commensurate with KeySpan’s wrongful gains or the total harm to consumers, and that the settlement proceeds should be returned directly to consumers that were harmed by KeySpan’s anticompetitive behavior. Meanwhile, several private class action lawsuits were filed against KeySpan, alleging violations of the Sherman Act and New York state law.3

Judge William H. Pauley III, in granting the DOJ’s motion for entry of the consent decree, held that district courts have the authority, as part of their inherent equitable powers, to order disgorgement of profits to remedy a Sherman Act violation, and that disgorgement is consistent with the goals of remedies in antitrust cases, which include depriving defendants of the benefits of their anticompetitive conduct and deterring similar conduct in the future. The Court found disgorgement to be particularly appropriate in the present case because the anticompetitive conduct had ceased (the swap had expired) and, unlike in many other antitrust actions, there were no assets to be divested. Thus, absent disgorgement, the DOJ would be without recourse to remedy the antitrust violation.

Responding to the New York PSC’s concerns, the Court noted that the primary purpose of disgorgement is not to compensate victims but to deprive a wrongdoer of its ill-gotten gains, hence the disgorgement amount should be measured against KeySpan’s net revenues under the swap, not the estimated harm to New York City electricity consumers. Moreover, in the context of a settlement that avoids the need for a trial, it is unrealistic to expect a disgorgement figure equal to full damages, the Court explained, and the $12 million amount, representing 25% of KeySpan’s net revenues under the swap, was reasonable. Judge Pauley also noted that while direct payment of the disgorged proceeds to consumers might be optimal, this could violate the filed-rate doctrine,4 and payment to the U.S. Treasury was simpler and served the public interest.

This case demonstrates the U.S. antitrust authorities’ willingness to scrutinize and challenge potentially anticompetitive conduct arising out of complex commercial arrangements even where other federal or state regulators have looked at the same set of facts and found no violation of the laws and rules they administer. It also affirms disgorgement as part of the government’s broad arsenal of tools against such conduct and serves as a reminder that companies may face potential legal exposure not only to government agencies but to private plaintiffs. This has practical implications for electric power companies, other energy companies, and the broader business community. It reinforces the need for companies to be conscious of the antitrust laws when entering into business arrangements and to consult with experienced antitrust counsel whenever in doubt regarding the propriety of proposed conduct under the antitrust laws.