Stephen Taufen | MORE THAN ANTITRUST: Deconcentration & Lender Liability

A public watchdog and advocate for fishermen and their coastal communities. Taufen is an "insider" who blew the whistle on the international profit laundering between global affiliates of North Pacific seafood companies, who use illicit accounting to deny the USA the proper taxes on seafood trade. The same practices are used to lower ex-vessel prices to the fleets, and to bleed monies from our regional economy.

April 23rd

MORE THAN ANTITRUST: Deconcentration & Lender Liability

"If effective and workable relief requires a radical structural reformation of the industry, this indicates that it was the structural situation, not the behavior of the industry members, which was fundamentally responsible for the unsatisfactory results." – Donald F. Turner, economist & antitrust expert.

In 1999, we instructed the fish Council about Antitrust and related concerns, but the words floated away like jetsam. A lot of legal protections were deliberately being jettisoned back then in the authoritarian rise of a greedy ruckus over the American Fisheries Act (AFA). Now, you're all left clinging to the regulatory flotsam of Crab Ratz, and to the rejected legal organs of the regulatory Frankenstein pictured in that early warning.

Yes, general counsel (including Lisa Lindemann) was present. So much for any excuses for NOAA, which also should also have contained the conflicts-of-interest from the start. You may want to revisit that free advice, and for AFA and other captive fleets, read the related Lender Liability article below, too.

If you are a crab vessel owner, skipper or deckhand, you got caught in a predictable trap of antitrust forces and surgically deficient lawyering and intrusionary bureaucratizing, from which you must now extract yourselves. That is, if 85-cent Opilio crab prices don't prevent you from gathering the ducats together to initiate a long overdue legal battle. But price arbitration attempts will probably elevate your blood pressures enough to inflate financial capillaries to bursting levels soon.

We hope it does more good to remind folks today than it did to forewarn the North Pacific Fishery Management Council of 'hear no evil monkeys,' seven years ago. Here are some excerpts of that profoundly prophetic public comment. No apologies for length, because this institutional memory needs to be passed along to current readers.

"Groundswell met with Dept. of Justice Antitrust division enforcement staff in Seattle in early 1993. In 1995, US Trade Ambassador Mickey Kantor's office also reviewed Groundswell information and concerns, and forwarded them to Department of Justice and Commerce (erroneously calling our predatory dumping concerns not part of their duty). By 1999, we had also provided NOAA General Council with public information on Lender Liability law, since the issue for shoreside-controlled Catcher Vessels goes far beyond mere Antitrust. We also suggested that they have Justice contact the IRS international Seafood Specialties Group in Seattle on the issues of abusive tax practices which helped fund capital investment in many of these vessels and ensured their often dominant position over other independent catcher vessels. And we advised that Council members would do well to heed such facts, as well."

"While not an attorney, to me the antitrust issue is whether we let the AFA immunize behaviors otherwise prosecutable as anti-competitive in restraint of trade. Fishermen should consider that Processors are already thinking way ahead on this topic, to avoid you taking them to court for their transgressions. Under the AFA's socialistic legal umbrella, there may be three or more ways to get around the Sherman Act guideline."

"One would be under the 'State action doctrine' under Alaska state approval and conditions with economic tests to satisfy compliance. Another is under the "Applied Preemption Doctrine," say in using other federal agency regulations or statutes - where such policy reflects an implied judgment by Congress that Antitrust enforcement cannot then be exercised against these AFA approved processor trusts."

Some of you will recall when we later wrote about how Senator Patty Murray and Ted Stevens had a little quid pro quo session so that Boeing could sell unneeded military jets. Ted got the Crab Corleones what amounted to an 'exemption memoranda' from the American Law Division of the Congressional Research Service that allowed people who could not legally meet to sit and design arbitration and cooperatives for Crab Ratz, in what I believe was a violation of several laws. The only reason we got the species-by-species march was Mitsui and Maruha backed off the Antitrust Division on early-1990's RICO charges. That failure looms rather large, now that the industry has and is getter more consolidated each day.

After this April's Council meeting in Anchorage, where non-AFA CVs outlined the antitrust implications of AFA-qualified vessels having already covered fixed or overhead costs, now being able to act in predatory fashion, the early warnings loom as all the more prophetic. Here's more of what we said in 1999.

"A third method would be under other federal Acts such as the Capper-Volstead Act of 1922 [twisting cooperatives of producers - allowed an antitrust exemption - into means to allow processors (who are not allowed such benefits) to put controls in place so the cooperatives themselves become mechanisms of monopolies: an example being in the cranberry industry, where exemptions went beyond 'farmers' into agribusiness combines, where voting blocks controlled situations]. Or it might be something like using McCarren-Ferguson provisions [the ridiculous premise that lack of competition would facilitate market stability in the industry; that regulation should occur at the state level, and moving antitrust review to a federal level would cause massive disruptions], or in some similarly deceptive way. Still, Groundswell's question re the AFA is how far does this plutocratic act go in immunizing ill-behaving Foreign Controlled Corporations from antitrust review, and why should we even do this after we already know about their widespread tax abuse behavior?"

"All these industry-paid economists are really something as they line up to pontificate to the Council - so I'll leave it to you to sort out what's good and what's bad in their ideas. A real economist would check their books! They spout neo-classicist theory arguments on top of the AFA's collective, socialist mechanisms and then have the gall to insult us by mixing-in the otherwise promising marginal decision words of Austrian School economists, as if the fleets may then somehow exercise 'purposeful human action' [praxeologic] within an information vacuum riddled with tax frauds and other lies, and then presuming that they could magically make free choices on that regulation-corrupted margin."

"They expect the fleets to do this in the middle of the heat of actual fisheries while facing anti-competitive price-setting powers, fuel and other logistical problems, and punishing fleet loyalty delivery schedules. These economists sure are academic - but they are in large part wrong! They apparently have no idea what it really means to have exercisable rights and workable abilities to make independent, praxeological decisions in the face of anti-competitive processor conduct."

"In 1997, I advised you about the Trojan Horse of foreign investment in North Pacific fisheries, rolled inside our 200-mile walls, and that within it were global tax strategists who were intent on ripping-off U.S. fisheries resources on the cheap. And that IT'S AMERICA'S FAULT if we failed to do something about it. Congress certainly does not intend tax cheating by foreign corporations that serves to take away U.S. resources on the cheap!"

"In April of 1998, the industry Advisory Panel advised you to take a serious look at Abusive Transfer Pricing, and its market implications and grounds price effects. You glossed over it."

- - - -

Of course, at the time, Groundswell was worried about future AFA economics, but hardly knew all the forms it could take regarding non-AFA qualified vessels, etc. We just knew what had to be forewarned, and thus avoided: hegemonic maritime power, indentured servitude or debt peonage, plenary power to price-fix, and the destruction of the free market. And we could smell slave ships from over the horizon.

At the February 2006 meeting, we reminded the Council about aspects of several Antitrust laws, which apparently sent their economists and fish lawyers scrambling to do a review. During staff tasking, the factory trawler boys put on a cover-show about antitrust letters from 1997 by the Department of Justice, as well. Apparently, they not realize that we had just set them all up.

Those old memorandum (same as the CRS's faulty legal memo on crab rationalization, by Janice Rubin - an otherwise astute antitrust mind) are nearly as useless as the decayed premises of the questions posed within, and do not reflect actual antitrust action on the economic structures that actually resulted and operate today. Likewise, the Council and NOAA GC, who came back to the April meeting with some amount of review about antitrust concerns, didn't realize we'd also set them up for a test run, too. They did not realize that Groundswell public comments had conveniently left out references to the more key sections that we believe will eventually be applied. As the cliche goes, "you should be scared, very scared" if the folks who have sat in control of all these rationalization schemes could not even do one better than Groundswell.

We sat at the April meeting and watched their struggles to deal with the upcoming nightmare. Their struggles are merely the result of their perspective or approach - they believe in finding ways to regulate a complex fish economy, instead of believing in what not to do, preventing it, and thus preserving a free market. Maybe when Ted Stevens gave the Council $5.9 million to administer the AFA it caused some kind of transfusion dependency, and the regulatory Frankenstein now can't live without pork blood. Or without the 10,000 pages of paper it takes to ensure no one can move without violating some regulation. But we happen to know that Enforcement doesn't want this unmanageable nightmare, either.

What we did tell the Council - in the context of industry consolidation, where economic structure implies strategy - was to carefully consider the words of an economist and antitrust expert, Donald F. Turner, who said that,

"If effective and workable relief requires a radical structural reformation of the industry, this indicates that it was the structural situation, not the behavior of the industry members, which was fundamentally responsible for the unsatisfactory results."

Given the resulting structures, there might be an implementation of a "deconcentration" approach to these fishing oligopsonies, at any time. Or we might just be pulling your crab legs. In either case, structures both reflect strategies and can cause counter-strategies. And 100-year plans leave room for generations of challenges, like stripping away the counterfeit ownerships behind shoreside CVs, and even booting a few racketeers out of our country. Overturn AFA Decay, overturn Crab Rottenization. Like following a mathematical progression, it comes as no surprise to us that Gulf of Alaska privatization has become stymied.

Meanwhile, we offer another reminder, that if your boat is financed by one of the companies or its financial affiliates, and if they also demand unwarranted loyalty of you such as in "multispecies tied-delivery contracts" (formal or informal), then you want to read this old article on Lender Liability. If you have any other concerns, and still believe in Liberty, maybe you should read our earlier posts and try the suggested email complaint address for the Department of Justice, too.

Thanks.

Lender Liability & Your Boat Loan:

In 2000, the Bristol Bay salmon antitrust lawsuit had been making progress for the class action plaintiffs. At its heart, this kind of case on restraint of trade and price-fixing is about collective activities, against any potential competitors or economic players who are not members of "the trust". Among the less than five-percent who opted out, many now question their decision, and wonder if they gave away all of their legal rights. Well, if they are borrowers from their processor, they probably haven't.

If the Bay case were to find price-fixing, then Pandora's box would be opened, and many lender liability lawsuits could follow, from jilted borrowers who opted-out before discovering "bad faith" dealings by their 'bankers'. Also, since the case's filing, there has been much speculation about falling fish prices throughout Alaska being tied to the case - in retaliation. As a result, curiosity about 'lender liability law' is rising.

Likewise, as the effects of the ill-named American Fisheries Act become known, many pollock and crab fishermen are also now reviewing the trust-level powers of several processors who are leading defendants in this case. Given that independent catcher boats develop financial problems they, too, could become highly interested in such legal recourse.

One also wonders if lender liability law will come into play in S.1221 processor-fleet "cooperatives", as well. Without a doubt, a fifteen percent vessel-owner/driver may well end up the one who's worrying the most about his legal standing - when up against processor/co-owner/lenders - especially when it's a foreign-owned subsidiary who financed the vessel. In any case, as vessel finance borrowers, fishers should be aware of lender liability law and the duties which such lenders owe you. It may also be wise to keep a written record of all your financial dealings and discussions, as diligently as if your vessel log.

What follows is an article (revised) that first appeared in The Bristol Bay Times, in September 1997, just prior to the opt-out deadline. The article hit a raw nerve with certain processors. They were bothered by its legal implications about "having used economic duress to force the borrower to take action it would not have otherwise taken, such as pressures to belong to or not to groups or actions" (such as opting out). Obviously, like antitrust, these powerful laws can work to the favor of fishermen.

We think the topic is essential education for all fleets; and many eyes will be on the Bay antitrust trial this October.

Many processors chose to write letters to their fleets expressing their views on the Bristol Bay antitrust case. When the Alaska court ruled that they have legitimate legal rights to such 'opinions', the processors got even more communicative. But, if they are also moneylenders to their fleets, they may have created a whole other problem.

A key concept is that the lender cannot act for its own benefit to the disadvantage of the borrower, and can owe borrowers "legally imposed fiduciary duties which extend beyond negotiated terms of the loan agreements".

While it may be legitimate under one legal context - antitrust - to write a certain letter to one's fleet, that same letter might not fit into legal allowances under what is known as lender liability law. So, while the judge might not have censured their communications under antitrust guidelines, the court has not necessarily given the processors a full 'green light' to selectively say only just what they want.

Lender liability is "pattern" law. This pattern includes legal concepts such as the "breach of duty of good faith and fair dealing; breach of contract; and "tortious interference with the contractual and business relationships and unlawful control over the borrower's business, domination, and improper interference with the governance of one's business."

So, where the processors are "the only bank in town" it creates a special situation. And lender liability law may apply in any situation where a company acts like a subsidiary finance company. These lenders must disclose all material facts they know to have importance to their debtors.

What seems especially important is that "lender silence regarding material facts otherwise available to the borrower in an arm's length transaction is not legally actionable" but that "this is not true in a relationship of trust and confidence where the trusted party (i.e. the lender) has superior knowledge of the facts." Note also that "the longer the relationship continues, the greater the likelihood a court will find the borrower justified in relying on the lender for information and services. Perhaps of greater importance [to the court] is the sophistication level of the borrower."

Courts are particularly concerned when the debtor's level of knowledge is understood by the lender to render that borrower helpless without the lender's representations, due to the borrower's insufficient training and experience or outside knowledge, and the borrower's troubles later stem from that reliance. How appropriate regarding Bristol Bay native permit holders, if processor financed.

Indeed, it is a special consideration "when the lender knows a great deal about the borrower's business and ability to pay back the loan, especially when the lender represents to the borrower that proposed business operations will generate sufficient cash to service the loan while failing to disclose the nature and extent" of other problems. This could be interpreted to mean that multinational corporations who act as finance companies owe borrowers detailed information about any of their operations which negatively affect their loans.

So, wouldn't the special role of Japanese fishing giants, as parent-firms and purchasers of the products from their own US subsidiaries, also mean obligations to disclose facts they know to be of importance to you as a down-the-line borrower? Didn't they owe you more complete answers to their role in Chilean salmon farms, for example?

Strictly speaking, one might conclude that these Japanese multinational fishing corporations also owe you a substantial level of information about their involvement in any interceptions of Bay salmon in Russian waters by all of their affiliates, preventing fish from returning to Alaska. Otherwise, they would be deliberately withholding information upon which you base your abilities to make loan repayments to their other affiliates, fundamentally violating lender liability laws.

It makes good sense, then, that any processor-lender should also encourage its fishermen-borrowers to obtain the highest prices possible for all fish catches, at all times, since that enhances their ability to repay any loans. It would seem an obvious violation of such law when a processor/lender, while knowingly paying a lower price, also demands fleet loyalty that subsequently affects one's debtor status by diminishing the overall revenues available to you as a fisherman/borrower to repay that loan. On their face, such "family" agreements would seem legally challengeable, and processor loyalty demands therefore totally unenforceable, unless negotiated under full disclosure in a truly open climate.

Another interesting point is that "false threats may be the basis of a claim of fraud, even if the communications were based on legitimate legal rights". So, conditionally withholding seasonal financing based on a borrower's capitulation to a processor's demands may be illegal under certain conditions. Subsidiary financiers risk violating lender liability laws if they interfere with a debtor's ability to repay loans by obtaining financing (or maximizing catch revenues) elsewhere.

Accordingly, superior knowledge of such a lender, which is not openly and honestly communicated to a borrower, can represent "a breach of good faith in fair dealing." For example, if a fisherman opts out of the antitrust action, he could learn during the trial about an important fact that would have allowed him to avoid a debtor's problem: had it simply been disclosed earlier. Not sharing in a court award due to reliance on a processor's word to "trust me, we're innocent" could take on a whole new meaning in the context of lender liability.

So, it is interesting to note that processor communications which are claimed to be opinions in the antitrust suit could be seen as company-level "misrepresentations or incomplete disclosures" in the context of bankruptcy or debt problems under lender liability.

Fishermen must note their dual position. You are not just dealing with your market price and related income issues, but may be dealing with borrower issues, too. It is hard when both occur at once. But, all you need from your processor are "ALL THE MATERIAL FACTS which 'a lender-in-good-conduct' knows." As a borrower, it doesn't seem too much to ask for, legally.

Please consult an attorney about 'lender liability law', if needed.

- - - -

A lazy jury that saw so much smoke they couldn't see the hegemonic gun scuttled the salmon antitrust case. But the evidence of massive Abusive Transfer Pricing and product laundering to parent companies still lies in the court records, nonetheless. In today's context of the AFA and Crab Ratz, Coops and linkages, arbitration and predatory dumping, and the severe drop to 85-cent Opilio crab prices accompanied by $2.69 FOB Alaska transfer prices to Tokyo parents, versus $3.50 crab at U.S. wholesale options, crabbers might say of this economic war that, 'We've only just begun to fight!'

Stephen Taufen - Groundswell Fisheries Movement

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MORE THAN ANTITRUST: Deconcentration & Lender Liability