USDOJ accuses Starkist of trying to get out of paying a $100 million fine
Pago Pago, AMERICAN SAMOA — The US Justice Department is asking a federal judge to “reject” StarKist Co’s “attempt to escape punishment for the crime it committed” and to uphold a proposed $100 million fine, as cited in a plea agreement between the parties for the company’s participation in the packaged seafood conspiracy — to fix prices of packaged seafood sold in the United States.
USDOJ’s sentencing memorandum — with many portions redacted, and revealing details of StarKist’s participation — was filed last week at the federal court in San Francisco, where the company will be sentenced next month.
Documents filed in March this year, show the “inability” of StarKist to pay the $100 million criminal fine and the matter — at the time — was referred to the Probation Office for a pre-sentence report to, among other things, determine if StarKist can pay this amount or lower it to $50 million.
In the USDOJ 30-page sentencing memo, trial attorney Andrew J. Mast notes that StarKist “is to take responsibility for selling hundreds of millions of dollars’ worth of price-fixed tuna to consumers” in the US.
Under the plea agreement, StarKist “agreed to a guidelines fine of $100 million”, but for the statutory maximum, StarKist’s guidelines range would be $120 million to $240 million.
The agreement provides that the only dispute between the parties is whether StarKist’s fine should be “further reduced based on its claimed inability to pay,” Mast said, noting that the pre-sentencing report is already filed (under seal) with the court.
“The Court, like Probation, should reject defendant’s attempt to escape punishment for the crime it committed. StarKist’s claimed inability to pay is based on financial projections created during pending litigation that grossly inflate its hypothetical future civil damages and substantially undervalue its estimated future earnings,” Mast argued.
He also addressed “StarKist’s actual financial performance” but a large portion of it, as well as the sentencing document, was redacted before publicly released.
Not redacted however, is Mast’s argument that “StarKist is depleting its cash reserves by accelerating business-related expenditures in an attempt to avoid paying” the fine.
“StarKist, however, committed a crime, and should not be permitted to spend money on itself at the expense of paying the price for its criminal acts,” Mast further argues. “Just as an individual defendant cannot avoid a criminal fine by transferring assets to a spouse, StarKist’s deliberate choice to spend down its cash reserves does not justify an inability-to-pay reduction.”
USDOJ’s sentencing document gives details of StarKist's financial analysis conducted by government expert Dr. Dale Zuehls, a forensic accounting expert, who was hired “to independently evaluate the veracity of StarKist’s claim that it cannot pay the fine of $100 million.”
Zuehls concludes that StarKist “has the ability” to pay the fine in six interest-free installment payments made over a five-year period, make restitution to the victims, “and continue as a viable enterprise,” said Mast.
While Zuehls’ analysis was submitted to court, a large potion of it was redacted.
USDOJ proposed a payment installment schedule, in which StarKist is obligated to pay $10 million within a month of judgment and $18 million paid each year for the next five years. The government recommends that StarKist be exempted from paying interest.
Prosecutors spelled-out in some detail how the participation of StarKist — the national leader in shelf-stable seafood in the US — was necessary in order for the conspiracy to succeed.
Mast notes that executives at Bumble Bee Food have said that it “was particularly important to have StarKist in coordinated list price increases because it was the market leader; [and] a coordinated price increase would not be effective without StarKist.”
(StarKist, Bumble Bee and Chicken of the Sea were all charged separately more than a year ago by USDOJ).
Further, “maintaining agreed-upon pricing guidance and promotion price levels between the three companies also depended on StarKist’s participation,” Mast said, noting that during the conspiracy period, for which StarKist is charged, the company’s “high level executive” Stephen Hodge, then senior vice president of Sales, was involved.
StarKist participation ended when Hodge left the company in December 2013 for “reasons unrelated to [this] investigation.”
However, StarKist did not begin to accept responsibly for its actions until Hodge entered his guilty plea in May 2017.
For its role in the conspiracy, Bumble Bee, was sentenced to pay a fine of $25 million, which escalates to a maximum fine of $81.5 million in the event of a qualifying transaction, according to USDOJ.
According to Mast, Bumble Bee’s $25 million fine was based on its own circumstances and that Bumble Bee “provided substantial and timely assistance in the investigation”.
Mast argues that StarKist has failed to meet its burden of demonstrating that it is unable to pay the fine.
“Instead, StarKist has attempted to obscure its cash flows by paying down its debt and providing disguised dividends to its parent company, without business justification,” he claims. “It has projected massive settlements in private-plaintiff actions that now appear likely to settle for less than a third of initial estimates, even by StarKist’s own admission.”
According to USDOJ, StarKist has projected zero growth in its forecasts at the same time that it has expanded its inventory and allocated cash for significant capital expenditures to expand its capacity.
“StarKist can pay, and deserves to pay, a $100 million fine,” Mast concluded.