ADV I SO RY August 2012

Federal Court Consents to Antitrust Defendants Contacts

Nolo Contendere Plea Over Department of Justice
Objections in United States v. Florida West
International Airways
Introduction
James W. Cooper
A recent decision by the United States District Court for the Southern District of Florida to +1 202.942.6603
accept a price fixing defendants nolo contendere plea, over the strenuous objection of the
Department of Justice Antitrust Division (the Division), may at first blush appear to have
significantly expanded the menu of options for firms facing investigation and prosecution
by the Division. However, the idiosyncratic nature of the case and the narrowness of the
courts opinion may lessen the practical impact of the ruling.

The facts and circumstances of U.S. v. Florida West International Airways are at a minimum
highly idiosyncratic and may be even properly characterized as bizarre. The government
alleged that Florida West, by and through its employee Rodrigo Hidalgo, conspired with certain Frank Liss
+1 202.942.5969
other air cargo carriers, including LAN Cargo, S.A. (LAN Cargo), to eliminate competition by
fixing and coordinating certain cargo rates in violation of Section 1 of the Sherman Act, 15
U.S.C. 1.1 During the course of the litigation, however, the court found that Florida Wests role
in the conspiracy was perpetrated by Mr. Hidalgo alone, who, unbeknownst to Florida West,
served as a secret employee of LAN Cargo.2 Furthermore, it was revealed that LAN Cargo
had previously entered into a plea agreement with the government whereby the company
pled guilty to being part of the same air cargo price-fixing conspiracy as Florida West, in
exchange for, among other things, immunity for certain employeesincluding Mr. Hidalgo.3

The Basics of Nolo Contendere Pleas

When faced with criminal prosecution, a defendant typically pleads either guilty and accepts
responsibility for the underlying facts, or pleads not guilty and contests the matter at trial.
The Federal Rules of Criminal Procedure, however, provides that criminal defendants
may also plead nolo contendere (I will not contest), whereby the defendant does not
expressly admit guilt, but nonetheless waives its right to a trial and authorizes the court to
treat the defendant as if it were guilty for purposes of the instant case.4 For the purposes

1 U.S. v. Florida West International Airways, --- F.Supp.2d ---, 2012 WL 3000250 (S.D. Fla. July 20, 2012).
2 U.S. v. Florida West International Airways, --- F.Supp.2d ---, 2012 WL 442750 (S.D. Fla. Feb. 20, 2012).
3 Id.
4 Fed. R. Crim. P. 11; North Carolina v. Alford, 400 US 25, 35-36, n.8 (1970).

arnoldporter.com
of sentencing, a nolo plea has the same effect as a guilty
plea and the defendant is subject to the same maximums
and minimums of punishment.5 Unlike a guilty plea which
requires the court to determine that a factual basis for the
plea exists,6 there is no similar requirement for a nolo plea.7
Moreover, while a guilty plea is admissible in subsequent
civil litigation against the defendant, a nolo plea is not.8
A criminal defendant does not have an absolute right to plead
nolo contendere and may only do so after receiving consent of
the court.9 Courts are granted discretion in deciding whether
to accept the plea, but are required to consider the parties
views and the public interest in the effective administration
of justice prior to accepting the plea.10 In exercising this
discretion, courts have considered, among other things, the
following factors in evaluating the public interest:
nature of the offense;
duration of the violations;
size of the defendants;
impact on the economy;
deterrent effect;
views of the government;
cost-benefit of certain collateral consequences (e.g., the
inadmissibility of the plea in a civil trial) on a plaintiffs
ability to recover in a civil trial; and
potential conservation of judicial resources11
As a general rule, the United States Department of Justice
(DOJ) instructs its U.S. Attorneys to routinely oppose nolo
contendere pleas in all but the most unusual circumstances
and only after approval from high-level DOJ officials.12 The
governments opposition stems from the belief that, among
other things, nolo pleas permit defendants to avoid certain
5 Bell v. C.I.R., 320 F.2d 953, 956 (8th Cir. 1963).
6 Fed. R. Crim. P. 11(b)(3).
7 N.C. v. Alford, 400 U.S. at 36 n.8.
8 Fed. R. Evid. 410(a).
9 Fed. R. Crim. P. 11.
10 U.S. v. Yonkers Contracting Company Inc., 689 F. Supp. 339, 341
(S.D.N.Y. 1988).
11 U.S. v. H&M, Inc., 565 F.Supp.1, 2 (M.D. Pa. 1982) (citing U.S. v.
Standard Ultramarine & Color Co., 137 F. Supp. 167, 172 (S.D.N.Y.
1955); U.S. v. Yonkers, 689 F. Supp. at 341.
12 United States Attorneys Manual 9-16.010 and 9-27.500.
Federal Court Consents to Antitrust Defendants Nolo Contendere Plea Over Department of Justice | 2
collateral consequences of pleading guilty (e.g., use of the
plea in subsequent litigation), lead to shorter sentences
and insignificant fines thereby limiting the deterrent effect
of the agencys action, and cause the public to think the
government has only a technical case due to the fact that
the defendant is allowed to persist in its claim of innocence.13
Proponents of the plea argue that nolo pleas promote the
efficient use of judicial resources by avoiding a lengthy trial. In
addition, by removing the collateral consequences of a guilty
plea, some defendants might be encouraged to capitulate
and pay criminal fines that could be smaller than potential
civil liability.14 Moreover, although a nolo defendant does not
admit guilt, the deterrence effect is fulfilled because, for the
purposes of sentencing, the defendant must face similar fines
and punishment to those he would face had he pled guilty.
Finally, defendants might also receive reputational benefits as
a result of avoiding a potentially damaging discovery process,
and maintaining the ability to assert their innocence.
In practice, nolo pleas are rarely employed successfully by
federal defendants. For instance, from 2005 to 2010, out of
497,002 federal convictions, only approximately 0.45 percent
(or 2,237) were the result of successful nolo pleas.15 Of this
group, approximately 45 percent (or 984) were the result of
drunk driving and other traffic offenses, 10 percent (or 231)
for drug related offenses, and 3 percent (or 67), were the
result of traditional white-collar offenses (i.e., fraud, forgery,
counterfeiting and embezzlement).16 Moreover, during this
same time period, only 8 defendants successfully entered
the plea with respect to regulatory felonies (e.g., Antitrust (0),
Food And Drug (1), Transportation (3)).17 While these figures
do not account for all instances in which federal courts
rejected a defendants nolo plea, they are helpful in showing
13 Id. at 9-27.500.
14 U.S. v. Yonkers, 689 F. Supp. at 341.
15 BJS Federal Justice Programs Website (http://bjs.ojp.usdoj.gov/
fjsrc/). Data Source: Administrative Office of the U.S. Courts -
AOUSC Criminal master data file: 2006 , 2007 , 2008 , 2009, 2010
(as standardized by the FJSRC). The universe of cases reported
above is identical to the universe used in the FJSPs annual statistical
tables but may differ from the total number of cases obtained using
the FJSP standard analysis files (SAFs) available for download from
ICPSR, because of slight differences in scope.
16 Id.
17 Id.
Objections in United States v. Florida West International Airways
the types of cases in which nolo pleas have the highest
likelihood of success.
The Antitrust Divisions Policy on Nolo
Contendere Pleas
The DOJ has a long-standing policy of opposing nolo
contendere pleas in the antitrust context as well. The
Divisions policy follows the United States Attorneys Manual
guidance on nolo contendere pleas,18 providing that Division
attorneys should oppose such pleas unless the Assistant
Attorney General of the Division concludes that the
circumstances of the case are so unusual that acceptance
of such a plea would be in the public interest.19 We are not
aware of a case in the past twenty years where the Division
has not opposed a nolo plea, and indeed the Florida West
court notes that the Divisions attorney conceded that in
his twenty-plus year career with the Department of Justice,
there was not a single case where he had agreed that a nole
contendere [sic] plea would be appropriate.20 Further, we
are aware of only one other case since the implementation
of the current cartel enforcement regime where a court
accepted a nolo plea over the objections of the Division.21
The Divisions opposition to Florida Wests motion for consent
to enter a nolo contendere plea provides useful insight into
the Divisions policy reasons for opposing all such pleas. First,
the Division argues that to permit a defendant in a price-fixing
case to plead nolo contendere would be a judicial blessing
of a special windfall in the criminal justice process.22 These
windfall benefits of a nolo plea include the following:
avoiding any admission or determination of guilt while
retaining the ability to deny participation in the price-
fixing conspiracy;
18 U.S. Department of Justice, Antitrust Division Manual IV.F.3
(Dec. 2008 ), available at: http://www.justice.gov/atr/public/
divisionmanual/index.html (citing United States Attorneys Manual
9-27.500 - .530).
19 United States Attorneys Manual 9-27.500.
20 U.S. v. Florida West, 2012 WL 3000250 at *1.
21 See U. S. v. Alaska Brokerage International, Inc., No. CR 06-11 JLR
(W.D. Wa. 2006).
22 Governments Opposition To Defendant Florida Wests Motion
to Enter Plea of Nolo Contendere at 1, 4-5, U.S. v. Florida West
International Airways, No. 1:10-cr-20864 (S.D. Fla. May 10, 2012)
ECF No. 250 (hereinafter Oppn Br.).
Federal Court Consents to Antitrust Defendants Nolo Contendere Plea Over Department of Justice | 3
barring the introduction of the nolo plea in any other
criminal or civil proceeding;
avoiding any collateral estoppel effects that typically
result from a conviction by plea or trial;
avoiding the antitrust-specific statutory prima facie
price-fixing showing;
reducing the possibility of treble damages envisioned
by Congress; and
avoiding adverse corporate publicity from the disclosure
of further details about the price-fixing conspiracy in a
trial or by admission of guilt.23
The Division views such benefits to be wholly contrary to
the public interest in the fair administration of justice, as
they unfairly accrue to one defendant among many similarly
situated defendants that have pled guilty and have been
sentenced to pay substantial fines.24
While the Division, in keeping with DOJ policy, disfavored
nolo contendere pleas long before the inception of its current
enforcement regime based on the DOJs leniency program,25
the impact nolo pleas may have on its criminal antitrust
enforcement efforts is central to the Divisions policy views
behind its opposition of such pleas. The Divisions Leniency
Program in its current incarnation was implemented in August
1993.26 Under the leniency program, the first corporate
conspirator that self-reports an antitrust crime and cooperates
fully and truthfully with the government in its investigation
may avoid prosecution.27 The Divisions administration of
the program draws a bright line between the conspirator
who is first in the door, and everyone else, even where the
second company to inquire about a leniency application has
23 Oppn Br. at 4-5.
24 Oppn Br. at 1.
25 See Section 5 of the Clayton Act and the Nolo Contendere Plea,
75 Yale L.J. 845, 848-49 (Apr. 1966) (recounting the DOJ and the
Divisions reversing the former practice of acquiescence in all
cases where nolo pleas were entered pursuant to the Attorney
Generals introduction in 1953 of a policy of opposing nolo pleas
except in the most unusual circumstances.)
26 U.S. Department of Justice, Corporate Leniency Policy, Aug. 10,
1993, http://www.justice.gov/atr/public/guidelines/0091.htm; see
also Scott Hammond, The Evolution of Criminal Antitrust Enforcement
Over the Last Two Decades, Feb. 25, 2010 at 1-2, http://www.justice.
gov/atr/public/speeches/255515.pdf.
27 Oppn Br. at 6.
Objections in United States v. Florida West International Airways
been beaten by a prior applicant by only a matter of hours.28
Accordingly, companies have a huge incentive to make a
leniency application as quickly as possible because there
have been dramatic differences in the disposition of the
criminal liability of corporations whose respective leniency
applications to the Division were very close in time.29
The leniency program is widely viewed as a success and has
led to a nearly twenty-fold increase in the leniency application
rate and a steady trend toward higher corporate fines for
cartel offenses and longer jail sentences for individuals.30
From FY2006 through early 2010, the Division has collected
fines of more than US$5 billion, with over 90 percent of this
total tied to investigations assisted by leniency applicants.31
Representatives of the Division have on a number of
occasions expressed their view that the success of their
enforcement efforts is rooted in the appropriate use of both
carrots and sticks.32 The carrot is the leniency granted
to the first cooperating firm. The stick is the imposition of
more severe sanctions, including increased corporate fines
and increases in both the number of individuals sentenced
to jail and the length of the jail sentences.33
In the view of the Division, should nolo pleas become
a valid option for conspirators, both the carrot and the
stick associated with the leniency program will lose their
potency. Although they can reap significant benefits, firms
that cooperate must abide by the leniency programs
requirements, which include admission of participating in
28 U.S. Department of Justice, Antitrust Division Frequently Asked
Questions Regarding the Antitrust Divisions Leniency Program and
Model Leniency Letters (Nov. 19, 2008), available at: http://www.
usdoj.gov/atr/public/criminal/239583.htm.
29 Id. Firms that are not first in the door may also receive benefits for
cooperating with the investigation. The nature of these benefits
varies greatly, but firms may be rewarded with reduced fines and
more favorable treatment of its culpable executives if the company
offers timely and substantial cooperation against remaining subjects
in an investigation. Scott Hammond, Measuring the Value of
Second-In Cooperation in Corporate Plea Negotiations, Mar. 29,
2006, at 14, http://www.justice.gov/atr/public/speeches/215514.
pdf.
30 The Evolution of Criminal Antitrust Enforcement Over the Last Two
Decades at 3, 5.
31 Id. at 3.
32 See generally id.
33 Id. at 4-12.
Federal Court Consents to Antitrust Defendants Nolo Contendere Plea Over Department of Justice | 4
the collusion, payment of restitution, [and] cooperation in
the investigation and often at their own great expense.34
The reward for cooperation will be much less sweet if the
status granted to the first in is less favorable than the nolo
plea one of the other conspirators can enter down the line.
Similarly, the stick will be less fearsome if non-cooperating
conspirators can limit their potential damages in follow on
civil litigation and receive just a slap on the wrist.
The Parties Arguments in the Florida West
Case
In Florida West the defendant airline and the Division argued
whether entry of a nolo contendere plea was appropriate
in the context of the Divisions price fixing investigation.
Florida West moved for consent to enter a nolo contendere
plea based on two primary grounds. First, the airline argued
that the company was in a precarious financial condition
and continued prosecution of this matter would require
additional expenditures that threatened the viability of the
airline.35 Second, Florida West argued that the courts
finding that Mr. Hidalgo was immune from prosecution
because he was a secret executive of another company,
left Florida West unable to enter a guilty plea because the
company lacked a corporate representative with sufficient
knowledge to admit to the facts underlying the offense as
required by Rule 11(b)(3).36 In its opposition, as detailed in
the previous section, the Antitrust Division outlined its policy
reasons for opposing Florida Wests plea in particular, and
nolo contendere pleas in general.37 The Division countered
Florida Wests arguments, asserting that Florida Wests
financial condition should have no bearing on whether
a nolo plea should be entered and is only relevant to the
amount of its corporate fine at sentencing.38 The Division
also argued that a corporate officer or director could obtain
34 Oppn Br. at 7.
35 Florida Wests Motion for Consent to Enter Plea of Nolo Contendere
at 1-6, U.S. v. Florida West International Airways, No. 1:10-20864
(S.D. Fla. Feb. 20, 2012) ECF No. 249.
36 Id. at 6-8; Florida Wests Reply to Governments Opposition To
Consent to Enter Plea of Nolo Contendere, No. 1:10-20864 (S.D.
Fla. July 20, 2012) ECF No. 258.
37 Oppn Br. at 3-15.
38 Oppn Br. at 15-16.
Objections in United States v. Florida West International Airways
the requisite knowledge and capacity to plead on behalf of
Florida West by overseeing an investigation of the facts.39
Judge Scola issued a rather brief opinion granting Florida
Wests motion for consent to enter a nolo plea. In that
opinion he said the Divisions rote opposition to the entry
of a nolo plea [was] not helpful, and he found that the
circumstances at issue, where Mr. Hidalgo was secretly
working for LAN at the same time he was employed by
Florida West, to be the type of unusual circumstances
where a nolo plea is appropriate, as contemplated by the
U.S. Attorneys Manual.40 Judge Scola addressed the
Divisions arguments that the nolo plea would undermine
its leniency program, finding that the unique nature of the
facts of the case made it very unlikely it would affect the
Divisions administration of the program. He also found the
Divisions arguments that a nolo plea would allow Florida
West to escape future liability in civil cases to be hollow
because the statute of limitations had likely passed and
there were no pending civil actions.41
Implications Going Forward
While the decision in Florida West gives corporate defendants
more to consider when determining how to respond to a
criminal prosecution, it is likely that the idiosyncratic nature
of the case, as emphasized by the courts narrow opinion,
will limit its practical impact with respect to corporate
defendants in general and antitrust defendants in particular.
Most telling is the courts silence with respect to Florida
Wests substantive arguments regarding the companys dire
financial conditions and its inability to produce a corporate
defendant with sufficient knowledge of facts to plead guilty.
Instead of affirmatively addressing these concerns, the court
emphasized the extremely unique circumstances of the
case and downplayed the idea that allowing Florida West
to plead nolo contendere would negatively affect the public
interest.42 Indeed, in rejecting the Divisions arguments,
Judge Scola emphasized that [t]he fact that this case
literally involves cloak and dagger-like facts makes it highly
39 Id. at 16-17.
40 U.S. v. Florida West, 2012 WL 3000250 at *1.
41 Id. at *2.
42 Id. at *1.
Federal Court Consents to Antitrust Defendants Nolo Contendere Plea Over Department of Justice | 5
unlikely that permitting Florida West to enter a nolo plea will
have any effect on the Governments Corporate Leniency
Program going forward. 43
More specifically, and within the antitrust context in
particular, a defendant must carefully consider the
speculative benefits of pleading nolo contendere against
the concrete and predictable benefits of the Governments
Corporate Leniency Program and cooperating with the
Division. For the first in, the rewards for cooperation are
set forth clearly in the Divisions guidance documents.
And, while the benefits for cooperating firms that lose the
race to report vary considerably, the antitrust bars nearly
two decades of experience with the Divisions criminal
enforcement regime provides such firms with a relatively
clear idea of the treatment they are likely to receive. The
consequences of withdrawing from (or bypassing altogether)
cooperating and negotiating with the Division, however,
are much less certain. First, the likelihood of succeeding
is low, particularly if the defendant cannot point to truly
unusual circumstances. In recent years only two courts have
accepted nolo contendere pleas from antitrust defendants.
In U.S. v Alaska Brokerage, the defendant was bankrupt,
its sole employee had already pled guilty, and it was an
extremely small player.44 And in Florida West, the court
expressly emphasized the unique nature of the defendants
situation.45 And even if a defendant is permitted to plead nolo
contendere, the upside of doing so is highly speculative,
while the downside is substantial. Because a nolo defendant
is subject to the same sentencing guidelines as a defendant
that pleads guilty, a nolo defendant may face significantly
stiffer penalties than a defendant that receives cooperation
credit in a plea bargain with the Division. And, while the nolo
plea may not have a collateral effect on subsequent civil
litigation, private plaintiffs will still have the opportunity to
prove liability and collect substantial damages.
43 Id.
44 U.S. v. Alaska Brokerage International, Inc., No. CR 06-11 JLR,
Alaska Brokerage International, Inc.s Motion and Memorandum
to Withdraw Not Guilty Plea and Enter Plea of Nolo Contendere,
(W.D. Wa. May 16, 2006) ECF No. 90. The court granted Alaska
Brokerages motion in a minute order and did not issue a written
opinion. See Minute Order, May 17, 2006, ECF No. 93.
45 See U.S. v. Florida West, 2012 WL 3000250 at *1 (It is difficult to
imagine a case involving more unusual circumstances.);
Objections in United States v. Florida West International Airways
Despite the opinions focus on Mr. Hidalgos extremely If you have any questions about any of the topics discussed in
unique status as a double agent, however, the basic facts this advisory, please contact your Arnold & Porter attorney or
underlying Florida Wests arguments that a nolo plea is any of the following attorneys:
appropriate are not that unusual. It is not uncommon for James W. Cooper
a corporate defendant in a DOJ antitrust or other criminal +1 202.942.6603
James.W.Cooper@aporter.com
investigation to lack the resources to mount an effective
defense. In fact, in the only other recent antitrust case where Frank Liss
+1 202.942.5969
the court accepted a nolo contendere plea, the defendant Frank.Liss@aporter.com
had already declared bankruptcy and argued that given Lauren K. Peay
its bankrupt and defunct status such a trial would be +1 202.942.5512
Lauren.Peay@aporter.com
a hugely inefficient and unnecessary waste of the Courts
and the taxpayers resources.46 Florida Wests second Derrick L. Williams
+1 202.942.5346
argument--that no individual presently with the company Derrick.Williams@aporter.com
could attest to facts supporting a guilty pleaalso is not
unheard of in the context of price fixing investigations
where either the government reaches a separate deal with
the individual in question, or that individual simply refuses
to cooperate with the company. Accordingly it is likely that
other defendants will find themselves similarly situated and
may assert the same arguments as the ones put forth by
Florida West.

At the margin the Florida West decision also may have an

impact on interactions with the Division. Firms may consider
raising the possibility of entering a nolo contendere plea
during negotiations with the Division. While we do not foresee
the Division reversing course given its longstanding policy of
opposing nolo pleas, a discussion of the option may be useful
in plea negotiations. And, should a firm find itself abandoning
plea negotiations with the government but interested in
avoiding a trial on the merits, the firm may look to Florida
West for guidance in crafting such a motion.

46 U.S. v. Alaska Brokerage International, Inc., No. CR 06-11 JLR,

Alaska Brokerage International, Inc.s Motion and Memorandum
to Withdraw Not Guilty Plea and Enter Plea of Nolo Contendere, 2
(W.D. Wa. May 16, 2006) ECF No. 90.

2012 Arnold & Porter LLP. This Advisory is intended to be a

general summary of the law and does not constitute legal advice.
You should consult with counsel to determine applicable legal
requirements in a specific fact situation.

Federal Court Consents to Antitrust Defendants Nolo Contendere Plea Over Department of Justice | 6
Objections in United States v. Florida West International Airways