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#141 - GSX, Waste Management Convicted Of Price-Fixing Conspiracy In California, 07-Aug-1989

The "largest criminal antitrust case in California history" broke open
in the spring of 1989 and gave the public a rare glimpse inside the
garbage hauling industry, thanks to aggressive detective work by the
district attorney's office in Los Angeles County.

It all started back in 1985 when the DA received a letter from a small
waste hauler (Carry All Disposal) complaining of harassment from
competitors. Carry All said its trucks were being followed by GSX
Corp., a major competitor. Once GSX learned their names, GSX "blitzed"
Carry All's customers, offering belowmarket prices for waste hauling--
an offer they couldn't refuse. Pretty soon Carry All started receiving
cancellations from customers.

The DA had tried to investigate the trash hauling business a few years
earlier but hadn't gotten to first base because it's a clannish
industry, interwoven with family connections. Nevertheless, an
investigator was assigned to look into Carry All's allegations. The
investigator quickly discovered a goldmine--a Carry All employee who
used to be sales manager for GSX. Armed with specific inside
information and a search warrant, the DA found eight to 10 boxes of
internal memos and expense vouchers. With the help of the former GSX
employee, the DA deciphered the documents, many of which were only
cryptic or partial notes.

They found telephone receptionist notes spelling out the firm's illegal
contacts with competitors. Among the memos were some from GSX
competitors asking, "Why are you talking to my clients?"

"It's rare to find the smoking gun," says assistant DA Tom Papageorge.
"The challenge of these cases is having to prove a conspiracy when
agreements are mostly verbal."

What the documents showed was that GSX and their competitors often met
surreptitiously to eliminate competition and control prices. The
conspiracy included agreements not to take away each other's customers.
The firms often used "blitzes," or below-cost sales pitches, to take
customers from haulers who insisted on trying to compete.

When a commercial customer sought to change haulers, the current and
the prospective hauler often would get together and have the latter
offer a "highball" price to the customer. Then the two firms would
divide the profits, often with payoffs from one hauler to the other as
high as $10,000. In the meantime, customers who did not change haulers
were "stung" regularly with annual price hikes of 15 to 20%. There was
open competition only when a new customer, such as a new mini-mall,
came into being. "The standing rule was non-competition," says
Assistant DA Papageorge.

The solid waste industry in Los Angeles County was highly competitive
with 400 small haulers making a living providing service to local
businesses and residents. But about 10 years ago, BFI, Waste
Management, Inc., and Laidlaw discovered that environmental laws favor
bigness. You have to have enormous resources (money in the bank, or
borrowing power) to build a double-lined landfill or a solid waste
incinerator. (Ironically, these expensive technologies don't protect
the environment any better than the older technologies--they simply
make it too costly for the little person to compete anymore.)

So the big firms have muscled their way into city after city, pushing
little people aside. And the big firms have created their own kind of
stability: the basic idea is to divide up the market for waste hauling
services among a few competitors, and to fix prices for those services
among competitors, eliminating competition. The waste firms operate
secret cartels, dividing up commercial accounts so they can charge any
price without fear of competition. "The crime here amounts to a theft
from the public which uses the myriad of businesses which are paying
artificially high fees to have their trash hauled away," says District
Attorney Ira Reiner. "The high prices ultimately are passed on to the
public."

When it became clear to GSX that the DA had the goods on them, they
offered a deal--they would rat on their friends in return for leniency
in court. GSX ultimately paid a $236,500 fine in 1989 but in return for
this light penalty, they implicated three other companies in antitrust
(price-fixing) crimes. GSX is a subsidiary of Laidlaw, a Canadian firm
that is the third largest waste hauler in the world, after Waste
Management and BFI.

GSX turned states evidence and nailed their friends, who then pleaded
no contest, resulting, in March, 1989, in a record fine of $1 million
for California Waste Management--the Los Angeles subsidiary of the
nation's largest waste hauler ($4 billion per year), Waste Management
of Oak Brook, IL. Western Waste Industries, a large ($50 million per
year) local hauler, paid a $900,000 fine in the antitrust case and
another $100,000 for hiding hazardous wastes under household trash,
dumping them illegally in three Los Angeles landfills. The Western
Waste sales manager got 45 days in jail for his part in the antitrust
conspiracy. A third firm, Angelus-Hudson paid a $75,000 fine. A plea of
"no contest" amounts to saying "I am not admitting guilt but I don't
think I can beat the rap, so convict me--I accept the consequences."

In an earlier (Jan., 1989) case, federal authorities fined GSX $500,000
for "blitzing" competitors' customers; in addition, GSX and unnamed
others were accused of conspiracy, quoting inflated prices to each
other's customers to mislead them into believing they were getting good
deals.

Three years earlier, in 1986, a GSX employee was charged with
laundering $1500 in political contributions to two Orange County, CA,
supervisors.

Thus we can see that GSX Corp., like Waste Management and BFI, is
basically a parasitic firm, preying on the public while claiming to
provide a needed service. The basic problems are the same with all
these large haulers: they learned their business practices by observing
organized crime, which has dominated portions of the waste hauling
industry for years. (See RHWN #40.) They use their economic power to
destroy small businesses in a targeted area; then they establish an
"understanding" between themselves and the other giant firms, avoiding
competition and bleeding their customers by charging inflated rates,
which the public ultimately pays.

The net effect is to eliminate one more underpinning of community life,
to remove from local control one more essential community service, to
reduce opportunities for local business people, to inflate the cost of
waste disposal, and to reinforce the sense that there is no justice for
the little person. The centralization of the garbage industry into the
hands of a few enormous, unscrupulous firms is not yet an accomplished
fact in many areas, but the published plans of the giant haulers
indicate that their goal is nothing short of complete control, coast to
coast. It is a trend that should be resisted vigorously at the local
and state levels by every means possible. Now that the huge predatory
haulers have formed alliances with the purveyors of mass burn
incinerators, the importance of stopping this industry has grown. The
titans of trash are now in a position not only to squeeze the small
waste hauler, but also to put a deadly bear hug on the general public.
What's at stake is not only the quality of community life, but also the
health and safety of the American people, and the long-term stability
of the planet.

WHO HOLDS THE GARBAGE CONTRACTS IN YOUR COMMUNITY? DO YOU KNOW?

See: Paul Feldman, "Reiner Sees Pervasive Cartel Conspiracy by Trash
Hauling Firms," LOS ANGELES TIMES, June 10, 1987, pg. 6; John Spano,
"Firm Admits to Price Fixing in Trash Business," LOS ANGELES TIMES,
Orange County Edition, Jan. 24, 1989, pg. 1; and Edwin Chen, "Waste
Hauler Fined $1 Million in PriceFixing Case," LOS ANGELES TIMES Mar.
14, 1989, pg. 1.

--Peter Montague

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Descriptor terms: antitrust; price fixing; bid rigging; criminal
conspiracies; fines; jail; felonies; prosecution; enforcement;
investigations; ca; los angeles, ca; gsx; wmi; solid waste industry;
competition; trials; laidlaw; canada; msw; organized crime; illegal
dumping;