When Mike Delaney and Tom Papageorge got a letter from a small Los Angeles commercial-waste hauler in October, 1985, complaining of harassment from competitors, the two Los Angeles County prosecutors were not surprised.
Several years earlier, Papageorge had looked into similar allegations of price-fixing and conspiracy against trade in the cutthroat multimillion-dollar industry. But he didn’t get very far because of the industry’s unusually clannish nature, reinforced by many familial ties.
“It’s a difficult industry to break into,” the deputy district attorney recalled.
But this time, Papageorge and Delaney got a big break. Their investigator turned up an insider who spilled the beans.
That touched off a wide-ranging investigation that culminated Monday with a record $1-million fine to be paid by Waste Management of California Inc., the local branch of the nation’s largest solid-waste disposal firm.
The case is the largest criminal antitrust case in California history.
In addition to Waste Management’s no-contest plea, two of its officials and several other defendants also entered no-contest pleas in Los Angeles Municipal Court on Monday.
Waste Management and several other large haulers were accused of plotting to eliminate competition and charging inflated prices. In addition, the firms were accused of “blitzing” competitors who refused to go along by offering their customers lower, often “predatory,” below-cost rates. These arrangements led to higher prices that “affect all of us,” Papageorge said.
The case began more than three years ago when the district attorney’s office received a letter from Carry All Disposal, a Pico Rivera firm that picks up trash from commercial outlets in South Gate and Cudahy.
Carry All said its trucks were being followed by agents of GSX Corp., a chief competitor. Once GSX learned of Carry All’s customers, GSX then “blitzed” Carry All’s customers, offering better prices in an attempt to eliminate its competitor.
At one point, a Carry All driver stopped his truck and confronted the man who was tailing him, who said, “ ‘I’m just trying to learn the business,’ ” according to Delaney.
But it wasn’t long before Carry All began receiving cancellations from customers.
The break in the case came when this particular GSX blitz against Carry All was well-documented by internal documents that turned up during a search of GSX premises, Delaney said.
After reviewing Carry All’s letter, the prosecutors assigned investigator Dewain E. Barrett to look into the allegations. Within weeks, Barrett found an employee at Carry All who had once been the sales manager at GSX. The new Carry All employee began detailing GSX’s predatory tactics.
Using this information and, after obtaining a search warrant, Delaney and Papageorge found eight to 10 boxes of detailed GSX internal memos and expense vouchers.
“We got much more at GSX than we had anticipated,” Delaney recalled.
The former GSX sales manager then sat down with the two county prosecutors and explained the documents, many of which contained only cryptic or partial notes.
Papageorge and Delaney were especially surprised to find numerous notes, made by diligent GSX telephone receptionists, spelling out the firm’s illegal contacts with competitors. Among the messages recorded by receptionists were some from GSX competitors demanding, “Why are you talking to my clients?” according to Delaney.
“It’s rare to find the smoking gun,” Papageorge said. “The challenge of these cases usually is having to prove a conspiracy when agreements are mostly verbal.”
What the documents clearly showed was that GSX, and many of its competitors, often got together surreptitiously to eliminate competition and control prices.
According to the prosecutors, the conspiracy included agreements not to take away one another’s customers. The firms often resorted to below-cost sales pitches, or blitzes, to take away customers from haulers who did not go along with the arrangement to divide up customers.
Other evidence of collusion, Delaney and Papageorge said, were GSX “hit lists,” in which the firm had targeted competitors for blitzes.
According to the prosecutors, 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, according to Delaney.
In the meantime, customers who did not change haulers were “stung” regularly with annual price increases of 15% to 20%, the deputy district attorney said.
There was open competition only when new accounts were available, such as when a mini-mall opened, Delaney said.
“The standing rule was non-competition,” he said.
As a result of the wealth of GSX documents confiscated by Delaney and Papageorge, the firm in April, 1986, came forth seeking a deal, offering to help “clean up” the industry.
“It was a big break for us,” Delaney said.
GSX made available to the two prosecutors numerous company officials who “essentially bared their souls,” pleading that they had inherited these practices, Delaney said.
Grand Jury Testimony
The GSX officials also testified at a county grand jury investigation in early 1987, in which they freely named names.
That led to the June, 1987, charges filed against the defendants, who pleaded no-contest.
Until the GSX break came, Delaney said, “we didn’t even know” about Waste Management and the other firms. “You just never know where a conspiracy will lead,” he said.
The prosecutors alleged that the defendants, along with other, smaller, uncharged firms, operated what amounted to a secret cartel, dividing up commercial accounts “so they could charge any price . . . without fear of competition.”
Their customers included restaurants, gas stations, theaters and other businesses throughout the county.
GSX eventually was fined $236,500 for its part in the conspiracy. In a separate, ongoing federal antitrust investigation in nearly a dozen other cities, GSX earlier this year also paid a $500,000 fine.
In addition to Waste Management, Western Waste Industries Inc., and Angelus-Hudson Inc. and five of their employees also have pleaded no-contest to similar charges.
Wiley A. Scott Jr., 33, Waste Management’s operations manager in Sun Valley, faces up to 60 days in jail. And Clifford R. Chamblee, 65, the firm’s former general manager in Gardena, faces up to 250 hours of community service.
John Marderosian, 56, an official of System Disposal Service Inc., which was bought by GSX, also faces up to 60 days in jail.
Angelus-Hudson has agreed to pay a $75,000 fine. And Western Waste has agreed to pay $900,000 in the antitrust case, plus another $100,000 for an unrelated toxic waste violation in which it allegedly hid hazardous wastes in household trash, dumping them illegally in three county landfills.
At the same time, Western Waste’s sales manager, Ishkan (Ara) Gordian, 44, agreed to a 45-day jail sentence for his no-contest plea in the antitrust prosecution--the first such penalty to be imposed under the felony provisions of the Cartwright Act, the state’s basic antitrust law, according to Dist. Atty. Ira Reiner.
Still facing criminal charges in the illegal dumping case is Western Waste’s vice president and manager, Hacob (Jack) Shirvanian. His trial is set for April 24 in Los Angeles Superior Court.