On November 14, the DOJ's Antitrust Division entered into a settlement agreement that requires Exelon Corporation (“Exelon”) to pay $400,000 for a civil contempt violation of a consent decree.
A consent decree is a binding agreement between the Antitrust Division and a defendant that is filed in federal district court and, upon entry, becomes a binding court order. Consent orders are the Antitrust Division's most important enforcement tool used for resolving antitrust issues that harm competition. Government antitrust litigation is at an all time low. Consent orders, on the other hand, are now the government's primary tool of antitrust enforcement and key mode for setting problematic mergers and conduct violations. Enforcement of consent orders is critically important to overall antitrust policy. Settlement negotiations take a significant amount of time and the DOJ expects merging parties to comply with its consent orders.
Exelon entered into a consent decree with the Antitrust Division regarding its acquisition of Constellation Energy (“Constellation”) in December of 2011. The consent decree resolved the Antitrust Division's concerns with the transaction by requiring the divestiture of three generating units. In connection with the settlement, the Antitrust Division also submitted a Hold Separate Stipulation and Order (“Hold Separate”), agreed to by Exelon and Constellation, which provided in part that Exelon would offer certain generating units into the PJM wholesale energy auction at or below cost from the time Exelon's acquisition of Constellation closed until the time the three generating units were sold. In other words, the Hold Separate would protect competition during the time period in which Exelon would own the combined assets of both companies.
The Antitrust Division alleges that Exelon violated the district court's Hold Separate and Final Judgment entered in United States v. Exelon Corp., Civil No. 1:11-cv- 02276, by submitting certain offers to sell electricity at prices higher than the cost-based limits required by the Hold Separate and by failing to take all steps necessary to comply with the Hold Separate.
Allegedly, Exelon inadvertently made above-cost offers and then took remedial steps, including notifying the Antitrust Division and market regulators of the offers, agreeing with market regulators to return any incremental revenues Exelon earned and to redress any harm. Exelon also implemented measures to ensure that no additional above-cost offers occurred. The settlement, which includes a $400,000 civil penalty, remedies the violation and unjust enrichment by depriving Exelon of ill-gotten gains. The $400,000 penalty is separate from any other payments that Exelon may have to pay to other regulators.
This enforcement action is noteworthy because it demonstrates that the Antitrust Division will not hesitate to bring actions to enforce consent decrees through the use of a civil contempt proceeding. While the $400,000 penalty may appear to be steep, the penalty amounts to a disgorgement of profits and a reimbursement to the Antitrust Division for the cost of its investigation. Executives should be aware that there are two types of contempt proceedings, civil and criminal, and either or both may be used. Civil contempt, which was used in this instance, has a remedial purpose. Criminal contempt, on the other hand, is not remedial. Its purpose is to punish the violator. In the past, the Antitrust Division has instituted a number of contempt proceedings both civil and criminal to enforce its judgments and will continue to do so where appropriate in the future.
Here, Exelon was cooperative and alerted the Antitrust Division to the inadvertent mistake that had no impact on competition, therefore, a civil contempt proceeding was appropriate. That being said, the enforcement action sends a strong message to all corporate executives and their lawyers that the Antitrust Division does not accept a “no harm — no foul” defense nor does it care whether a consent order violation is unintentional or inadvertent. The Antitrust Division's action sends the message that it will not only challenge problematic mergers, but it will also act to protect the integrity of the consent order process and that its negotiated consent orders will be fully enforced.