Judge tosses $44 million antitrust verdict over newly charged criminal conduct

Calling the court "a victim of fraud," a federal judge this week vacated a $44 million antitrust jury verdict against a cigarillo manufacturer for a second time after the plaintiff company's founder was arrested in a criminal tax evasion case deemed relevant to the civil proceedings.

U.S. District Judge James V. Selna's order granting Swisher International Inc. relief from a 2016 judgment in favor of Trendsettah USA Inc. is the latest twist in what Swisher's attorney Daniel G. Swanson described Tuesday as a "procedural unicorn" worthy of a law school exam.

"It is not an everyday occurrence ... for the evidence to disclose a level of misrepresentation that rises to this degree," commented Swanson, a partner at Gibson, Dunn & Crutcher LLP who is handling the case with Theodore J. Boutrous Jr. "We're definitely pleased that the judge delved into it and came to the conclusion that he did."

Trendsettah's lawyer, Mark W. Poe of Gaw Poe LLP, said he's frustrated by Selna's decision, which is the judge's second dismantling of the verdict and comes six months after the 9th U.S. Circuit Court of Appeals ordered it reinstated.

"Instead of doing that, the court vacated the verdict again," Poe said in an email. "Of course, we find this frustrating, but at the end of the day, we expect the 9th Circuit to repeat that the verdict must be reinstated."

The appellate court in February overturned Selna's order for summary judgment on Swisher's antitrust claims. Selna issued it post trial, cutting the verdict to about $9 million, after reconsidering Swisher's summary judgment motion in light of another appellate ruling that limited the definition of an attempted monopoly, Aerotec Int'l Inc. v. Honeywell Int'l, Inc., 836 F.3d 1171 (9th Cir. 2016). The 9th Circuit concluded he was wrong to do so because he cited evidence from Swisher, which the jury "clearly had rejected."

But instead of reinstating the verdict, Selna was soon faced with an unusual development: Akrum Alrahib, the chief executive of Trendsettah, was charged with 30 federal crimes, including wire fraud and conspiracy, and Swisher's defense team wanted a new trial because of it.

Swanson's motion for relief of judgment quoted Poe's March 29, 2016 closing argument: "False in one, false in all."

"That's what we have here," Swanson wrote, describing how Trendsettah presented to jurors and Selna "a falsely inflated picture of the profitability of its cigarillo sales out of which its expert constructed a largely, if not entirely, sham claim for 'lost profits.'"

Poe's opposition described Swanson's accusations as "breathless" and "a reckless ploy to yet again undermine the jury's verdict."

Poe said Swanson failed to identify "even one false statement that was made in written discovery, at deposition, in expert reports or at trial." Swanson's request "disregards its own responsibility for advocacy," Poe argued, by blaming Trendsettah's counsel for failing to elicit information about excise taxes.

"What about Swisher's counsel? Were they potted plants?" Poe wrote. Swisher was represented at trial by Akerman LLP. The company switched to Gibson Dunn for the appeal.

Poe also said Swanson's argument treats Alrahib's indictment as fact, "despite the oft-repeated warning that a prosecutor can indict a sandwich."

Siding with Swanson in an order finalized Monday, Selna agreed he can't consider the facts contained in the indictment "for their truth" but said he can consider the existence of the indictment "and its contents as a public record, the accuracy of which cannot reasonably be questioned." That includes government briefings detailing Alrahib's purported confession.

According to Selna's order, Alrahib admitted to a scheme involving falsified invoices that wasn't disclosed to Swisher in pretrial discovery. Swisher sought information about Trendsettah's federal excise tax payments, but Trendsettah successfully argued the request was burdensome and irrelevant.

That would have changed had Trendsettah disclosed the tax scheme, Selna said, and questions to Alrahib about tax evasion "absent perjury, would likely have led to the disclosure of the fraudulent scheme he later disclosed." Instead, Trendsettah pushed a narrative about lost profits that used "inaccurate data which was a product of a fraudulent tax evasion scheme."

"Therefore, [Trendsettah's] conduct tainted the integrity of the trial and interfered with the judicial process, and the judgment must be set aside," Selna wrote.

Selna scheduled a status conference regarding the new trial for Sept. 23. Trendsettah USA, Inc. v. Swisher International Inc., 14-CV01664 (C.D. Cal., filed Oct. 14, 2014).

Meanwhile, Swanson is preparing a petition for a writ of certiorari to the U.S. Supreme Court about two aspects of the February appellate ruling that could affect the new trial, including the absence of a jury instruction regarding when a company has a duty to fulfill obligations to a competitor.