Champion Laboratories Inc. and other oil-filter makers asked a judge to require more than 50 class- action lawsuits to be refiled to remove any reference to a former employee who pleaded guilty to fabricating a document that triggered a U.S. antitrust probe.
Champion, Honeywell International Inc. (HON) and other companies made the request Nov. 1 in federal court in Chicago, after the Oct. 26 sentencing of William G. Burch to two years in prison. Burch, 53, pleaded guilty on June 29 in Philadelphia, admitting he concocted evidence in a 2008 whistle-blower lawsuit claiming Champion and its competitors fixed prices on automobile aftermarket filters.
Burch, who was fired by Champion, admitted he altered a price-increase letter on Honeywell stationery to create a “smoking gun” that made the case more enticing to a law firm he hired. He said he lied to Justice Department prosecutors who opened a grand jury investigation based on his phony claims. The companies also claim he doctored conversations he recorded.
Lawyers for the filter makers urged the judge overseeing the civil litigation to bar those suing on behalf of direct and indirect purchasers of filters from “benefiting from Burch’s fraud by using his manipulated tapes and perjured testimony to support their case,” according to the filing.
“This court has the inherent power to do much more; courts have appropriately dismissed cases based on misconduct this egregious,” wrote the attorneys, who amplified an earlier request made in court papers before the Burch sentencing hearing.
Lawyers for plaintiffs say they have substantial evidence independent of Burch to show that the companies engaged in a price-fixing scheme that began in 1999. In a Sept. 26 court filing, they urged U.S. District Judge Robert Gettleman to allow the case to proceed so that they can conduct pre-trial depositions of witnesses.
“We believe that based on material independent of Mr. Burch and certain material that corroborates what he says that the case should continue,” said attorney Bernard Persky of Labaton Sucharow LLP in New York, who represents direct purchasers. “We should be allowed to do discovery.”
An attorney who represented Burch in his whistle-blower lawsuit, G. Steven Stidham of SneedLangHerrold in Tulsa, Oklahoma, didn’t immediately return a call seeking comment yesterday.
Burch’s criminal attorney, Robert Nigh Jr. of Tulsa, said in an interview that his client “has attempted to remove himself from that litigation, but that shouldn’t have an impact on legitimate claims by others.”
In a pre-sentencing memo filed Oct. 19, Nigh wrote: “This was a situation in which price-fixing had actually occurred and could be established with evidence independent of Mr. Burch and the altered document.”
Rob Ferris, a spokesman for Morris Township, New Jersey- based Honeywell, said yesterday in an e-mailed statement: “Mr. Burch admitted to providing false evidence when he was sentenced last week.”
“This case began with and remains based on a fraud,” Ferris said. “There is no case against Honeywell apart from Mr. Burch and his fake evidence. Honeywell will continue to defend itself and is confident in the outcome.”
“While obviously the litigation is still ongoing, we don’t believe that it should be,” said Keith Zar, general counsel for Evansville, Indiana-based UCI International Inc., which owns Champion Laboratories, based in Albion Illinois. Champion is one of the world’s largest suppliers of filters.
“We’re outraged that the illegal acts of one individual could result in a case like this being brought in the first place,” Zar said. “We don’t believe that there is any evidence of price-fixing activity without Mr. Burch’s fabricated evidence.”
Burch, of Tulsa, had worked as a division sales manager at Champion when he was fired in January 2006 over what the company said were expense report fabrications, court records show. He filed a wrongful discharge lawsuit days later.
On March 30, 2008, he filed a lawsuit under the False Claims Act, which lets citizens sue on behalf of the government and share in any recovery. On that day, a lawsuit seeking class- action status was filed against Champion and others that was based on many of the facts alleged by Burch, records show.
On April 24, 2008, he was interviewed by Justice Department prosecutors. He gave them a Honeywell price increase letter dated Oct. 11, 2004, that he falsified by adding a facsimile header dated Sept. 24, 2004, he admitted as part of his guilty plea.
On June 7, 2008, the Justice Department’s antitrust division opened a grand jury investigation, which prosecutors say would not have begun without the phony letter. Burch settled his wrongful termination case on Sept. 5, 2008, with Champion paying him $450,000, according to court documents.
At his sentencing, Assistant U.S. Attorney Mary Crawley said Burch sought to “deceive the antitrust division, to have a criminal investigation opened, to get his enemies prosecuted and then to make money out of the whole thing.”
U.S. District Judge Timothy Savage in Philadelphia said: “What we see here is a crime that undermines our system of justice that was motivated by both greed and spite. It was calculated, it was manipulated. It was not an isolated incident.”
Aside from the prison term, Savage ordered Burch to pay a $30,000 fine and restitution of $83,669 to cover the salaries of prosecutors who worked on the case.
The criminal case is United States v. William G. Burch, 11- cr-334, U.S. District Court, Eastern District of Pennsylvania (Philadelphia). The civil case is In Re: Aftermarket Filters Antitrust Litigation, 08-cv-4883, U.S. District Court, Northern District of Illinois (Chicago).
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