Washington State Attorney General Bob Ferguson is saying “Sorry Charlie” to StarKist tuna and the former CEO of competitor Bumble Bee, suing both for price-fixing he contends bilked consumers of millions of dollars.
The lawsuit, filed in King County Superior Court, alleges a three-company price-fixing scheme between 2004 and 2015 cost Washington residents at least $6 million by artificially driving up the cost of canned tuna. As an example, the lawsuit said a resident ordinarily paying $1 for a can of chunk light tuna might have paid $1.08 under the scheme.
“We cannot have a free market where corporate titans are able to tip the scales to their own bank accounts,” Ferguson said Tuesday in a news release, adding he seeks full restitution allowable under state law in addition to court costs. “Washingtonians lost millions as a result of this corporate greed. I intend to get that back for them.”
Washington is the first state seeking compensation from the tuna giants after a U.S. District Court judge in December imposed a $100 million fine against StarKist — the maximum allowable under federal law – for its role in the scheme. Bumble Bee had already paid a $25 million fine in 2017 because the company was judged to be in a rougher financial state — it has since sought bankruptcy protection — and faced additional lawsuits from Walmart and other supermarkets and customers.
Pittsburgh-based StarKist and South Korean parent company Dongwon Industries became ensnared in a larger Department of Justice price-fixing investigation after Thai Union Group Chicken of the Sea tried to purchase Bumble Bee in 2015. At the time, whistle-blowers from inside Chicken of the Sea’s executive ranks alerted federal investigators to a price-fixing scheme involving hundreds of millions of dollars alleged to have occurred nationwide between the three conglomerates controlling roughly 80% of the nation’s tuna market.
Chicken of the Sea was not charged, receiving conditional leniency for helping with the investigation.
Former Bumble Bee CEO Christopher Lischewski, 59, was convicted of helping mastermind the scheme in December after a four-week trial in which a jury took only 30 minutes to render its verdict. Lischewski — the company’s CEO from 1999 until being indicted in May 2018 — faces up to 10 years in prison and a $1 million fine, but his lawyers argued this week ahead of his June 16 sentencing that he should receive 12 months of home confinement and a $100,000 fine.
Ferguson’s lawsuit, alleging facts derived largely from the federal cases, said “slowing and stagnating growth” and profit margins caused the three tuna companies to enter into a conspiracy by 2004 in which they “agreed and conspired to artificially increase prices for packaged tuna to record highs despite reduced consumer interest and falling demand.”
The lawsuit states that Lischewski sounded the alarm at a 1999 industry conference about how company leaders were losing $200 million yearly in potential profits by competing against one another in an “unwinnable” war.
The solution, according to the lawsuit, was the three companies deciding by 2004 to unlawfully coordinate how they priced, packaged and marketed their brands.
This included telephone conversations, email about collusive pricing among senior executives and sales representatives and mutual assurances they would not compete against one another. In addition, the lawsuit states, they agreed not to launch so-called FAD-free tuna products that shun the use of aggregation devices to harvest the fish – a practice that leads to overfishing and ensnares other species in nets as well.
In the early stages of the conspiracy, the lawsuit states, the companies agreed to follow any competitor’s price increase with one of their own. Later, they each downsized their cans from six ounces to five without reducing prices — then later colluded in increasing prices on those smaller containers.
The lawsuit alleges Lischewski was under pressure from his parent company to increase profit margins and stood to personally gain from the price-fixing through executive compensation and his ownership stake in Bumble Bee and several tuna fishing boats.
Though StarKist was owned by Del Monte when the alleged price-fixing plot began, the lawsuit states that Dongwon continued the conspiracy after purchasing a 100% stake in the company for $363 million in 2008. It also states that Dongwon effectively took over the day-to-day operations of its American subsidiary — replacing U.S. executives and top employees with its own Dongwon loyalists — so the parent company could become known as a global tuna giant while furthering the price-fixing plot.
“StarKist earned profits in excess of what it would have earned in a competitive market,” the lawsuit states, adding U.S. demand for tuna fell 31% between 2000 and 2014. “StarKist transferred this ill-gotten gain to its parent, Dongwon, by paying out the unlawfully obtained profits and other conspiracy proceeds to Dongwon in the form of dividends and other transfer payments.
“Dongwon knowingly profited from StarKist’s participation in the conspiracy and knowingly accepted the proceeds of the conspiracy and has been unjustly enriched.”
Though the lawsuit doesn’t say so, the reason it tries to link Dongwon so closely to StarKist is financial. After pleading guilty in 2018 in the federal case, Starkist had unsuccessfully sought a lighter $50 million fine – half of what it was eventually hit with — arguing that anything more might force it into bankruptcy.
Lischewski, who plans to appeal his conviction and faces potential lawsuits as well, could also seek bankruptcy protection if his guilty verdict is upheld.
By alleging Dongwon is just as culpable and didn’t distance itself from StarKist, the lawsuit is setting the stage to potentially recoup money from the parent company if its American subsidiary collapses. Dongwon is a publicly traded fishing conglomerate that derives about $1.4 billion in annual revenue from global packaged tuna companies alone.