Three manufacturers' representative agencies in the Minnesota lighting market are facing charges that they conspired to fix prices and rig bids on a public construction project. The case, filed in March by the Minnesota Attorney General's office, is the second such case in six months to investigate pricing practices in the Minnesota lighting market and involves some of the same agencies named in the first case.
The Minnesota Attorney General's office filed civil complaints and criminal charges in the Sixth Judicial District Court of Minnesota in Carlton County related to a street lighting job in downtown Cloquet, Minn. The state alleges that the reps and individuals conspired to overcharge the city for products used in the street project.
The state charged three Minnesota-based agencies with criminal price fixing and bid rigging: Luma Sales Associates, Bloomington; Jordano Associates Ltd., Brooklyn Center; and R.L. Mlazgar Associates, Inc., Eden Prairie. Two individuals also were charged with price fixing and bid rigging: Daniel Arthur DeLong of Jordano Associates and Carriane Maki of Luma Sales Associates. One lighting wholesaler, Liteco, Inc., Eden Prairie, also was charged with the same crimes. If convicted, defendants face a maximum of seven years in prison, a fine of up to $50,000, or both, for each charge.
The state also filed civil complaints of conspiracy to fix prices and rig bids and unreasonable restraint of trade against the same firms and individuals, seeking treble damages and civil penalties.
All the defendants pleaded not guilty to all charges. Attorneys for the defendants filed a motion for a change of venue from Carlton County to Hennepin County, the venue of the earlier, related case (see "News Watch", EW Feb. 98, page 10), so that the two cases may be heard in the same court, said Terry Fleming of Lindquist & Vennum, an attorney for R.L. Mlazgar Associates. The court had not yet ruled on the change-of-venue motion at press time.
Thomas Kelly of Kelly and Jacobson, Minneapolis, attorney for Daniel DeLong and Jordano Associates, said the defendants are disputing the claim that there was a conspiracy, and said that the circumstances outlined in the charges describe traditional and legal practices in the Minnesota lighting market.
In the civil case, the state alleges that DeLong, president of Jordano Associates, orchestrated the conspiracy with the help of Gerry Pelletier, a quotation specialist for Viking Electric Supply Co.'s branch in Duluth, Minn. According to the court papers, DeLong contacted Pelletier after learning about the street-lighting project in Cloquet, and asked Pelletier to contact officials at R.L. Mlazgar Associates and Luma Sales Associates--the other two rep firms capable of supplying the Cloquet job--to secure their cooperation in a plan to fix prices on the project.
According to the complaints, Luma, Mlazgar and Jordano gave Pelletier their lowest feasible prices for the job. Pelletier allegedly calculated an inflated quote $80,000 above the quoted prices and submitted that quote to Viking Electric Supply. The three reps allegedly agreed to quote all other wholesalers an even more inflated price so that Viking would have the winning quote. The four alleged conspirators would split the $80,000, regardless of which rep got the order.
The alleged deal got complicated when a lighting contractor who could not buy from Viking due to credit problems sought a direct quote from Mlazgar Associates. Mlazgar quoted the contractor an inflated price, but by cutting costs in other areas that contractor was able to enter the lowest bid and win the job. The complaint alleges that Mark Mlazgar, owner of R.L. Mlazgar Associates, agreed that the firms would still split the extra money because it had benefited from the alleged conspiracy.
To avoid having R.L. Mlazgar Associates buying and reselling product, Mark Mlazgar set up a new company, Liteco, Inc., to act as the wholesaler in the contract. According to the complaint, the reps agreed that Liteco would buy just over $4,000 worth of lamps and equipment from Viking Electric Supply and pay $54,000. Of the extra $50,000, $17,000 would go to Viking Electric Supply and the rest would be split between Jordano Associates and Luma Sales for "project assistance." When the group heard about the state's investigation into the alleged conspiracy in Hennepin County, they stopped the transaction and Liteco returned approximately $75,000 to the City of Cloquet.
Jim Schacker, president of Viking Electric Supply, said Pelletier refused to participate in the planned sale of product to Liteco because it "didn't pass the smell test." Pelletier took the proposal to his boss, who agreed that the sale was improper, and at that point Viking took the case to the Attorney General.