Overview
In a yet another setback for the U.S. Department of Justice's (DOJ) ongoing effort to prosecute labor-side violations of the Sherman Act, District of Connecticut Judge Victor A. Bolden granted a motion for a judgment of acquittal on April 28, 2023 in United States v. Patel. The order, which was entered before the jury was given an opportunity to deliberate, is not appealable and therefore brings an end to DOJ’s efforts to prosecute an alleged "no-poach" market allocation agreement. But more significantly, the order sets a high bar for proving a per se unlawful market allocation agreement in criminal no-poach cases, which could hinder DOJ’s ability to use the criminal justice system to police such cases.
The Alleged Conspiracy
The indictment alleged that the defendants — a manager at Raytheon subsidiary Pratt & Whitney, and executives at each of five outsourced engineering service providers used by Pratt & Whitney — typically "competed against one another to recruit and hire engineers and other skilled workers," but participated, between 2011 and 2019, in an agreement "to suppress competition by allocating employees in the aerospace industry working on projects for" Pratt & Whitney.1 Specifically, as alleged, the agreement was a no-poach agreement that prohibited the defendants from contacting, interviewing, recruiting, or hiring each other’s employees.2
The defendants filed an unsuccessful motion to dismiss the indictment last year. We examined the district court’s opinion in a December 19, 2022 blog post. In short, the court held that (1) the no-poach agreement alleged by the indictment would, if proven at trial, amount to market allocation, which is an existing category warranting per se treatment under the Sherman Act,3 and (2) the no-poach agreement was not "ancillary to a legitimate business collaboration” and therefore did not qualify under the "ancillary restraints" exception to the per se rule.4 The case then moved to trial, with jury selection beginning in April 2023.
The Grant of Defendants' Motion for Judgment of Acquittal
After the government presented its case-in-chief, the defendants jointly moved for a judgment of acquittal under Federal Rule of Criminal Procedure 29.5 Nearly a week later, the court granted the motion on the grounds that, as a matter of law, the conduct proven by the government at trial did not amount to a per se violation of the Sherman Act.6
In arriving at this conclusion, the court first reiterated its view that a horizontal market-allocation agreement, including an agreement "allocating or dividing an employment market," is "traditionally subject to per se treatment" under the Sherman Act.7 But it then ruled that, as a matter of law, the instant case did not involve per se market allocation, largely based on its analysis of a Second Circuit case, Bogan v. Nw. Mut. Life Ins. Co.8 That case, which was civil rather than criminal, involved an agreement among "general agents" of Northwestern Mutual Life Insurance Company, who were responsible for hiring district and sales agents to sell Northwestern Mutual life insurance, not to compete for services of existing district and sales agents by restricting their transfer.9 The Second Circuit affirmed the district court’s grant of the Bogan defendants' motion for summary judgment, holding that the per se rule was not applicable.10 The court reasoned that the agreement had too many exceptions to constitute an allocation; it "permitted transfers, and experienced NML agents do not comprise the entire set of supplies for their services" because the general agents were free to compete for new Northwestern Mutual agents. Therefore, while the agreement "may constrain General Agents to some degree, it does not allocate the market for agents to any meaningful extent."11
Focusing on the evidence presented by the government at trial, the Patel court held that this case was on all fours with Bogan.12 Even assuming the government had adequately proven that there was an agreement between defendants to restrict hiring of engineers or other skilled labor employees among the five contractors working on projects for Pratt & Whitney, there were simply too many holes in the bucket — i.e., too many exceptions to the agreement — for it to hold water as a per se market allocation agreement. The court noted that “hiring among the relevant companies was commonplace, throughout the alleged agreement," even citing numerous examples of poaching set forth in pages of string cites to the trial transcript and relevant exhibits that showed that even those who had sent emails that appeared to refer to a bright-line rule against poaching engaged in the practice.13 "Under these circumstances," the court concluded, "the alleged agreement itself had so many exceptions that it could not be said to meaningfully allocate the labor market of engineers from the supplier companies working on Pratt and Whitney projects."14 Like the agreement in Bogan, the agreement here "constrained" the workers "to some degree" but did not allocate the market "to any meaningful extent."15
The court was careful to note that its holding was based on a careful analysis of the extent of enforcement of the agreement; the outcome would not have been the same had the proof allowed only for the "theoretical possibility" of switching employers, or that transfers "occurred in a few exceptional cases."16
The Court's Opinion Increases DOJ's Burden in No-Poach Cases
The court’s ruling ends DOJ's case against Patel and his co-defendants; the Double Jeopardy Clause of the Fifth Amendment does not allow the government to appeal the grant of a Rule 29 motion for judgment of acquittal where, as here, the jury has not already delivered a guilty verdict and a successful appeal would therefore require a retrial.17
Although DOJ has established that "no-poach" agreements can be treated as per se violations of Section 1 of the Sherman Act that may be criminally prosecuted, DOJ has yet to secure a conviction. And the Patel court's opinion could make it more difficult for DOJ to continue to bring criminal no-poach cases as market allocation agreements.18 Under the Patel court's ruling, in cases involving no-poach agreements, the court must "assess whether the agreement meaningfully allocates the market such that this no hire agreement is one that operates as a market allocation agreement and justifies per se treatment."19 In other words, even with evidence of an agreement among defendants to restrict hiring, the court must find that the agreement has the effect of "meaningfully" allocating the market in order to prove a per se unlawful market allocation agreement.
DOJ's failure to prove that the Patel defendants actually allocated the market may portend questions about future criminal enforcement of alleged “no-poach" agreements. Proving the existence of naked "no-poach" agreements in court has been more challenging than DOJ likely anticipated.
Currently, DOJ has another criminal no-poach case, United States v. Surgical Care Affiliates, LLC and SCAI Holdings, LLC,20 heading toward trial. If nothing else, that case, which concerns an alleged agreement not to solicit senior-level employees in the outpatient medical facilities business, will be an opportunity for DOJ to prove an unlawful agreement and finally secure a victory.
Endnotes
1 Indictment ¶¶ 4, 10-16, 19, United States v. Patel, 3:21-cr-00220 (D. Conn. Dec. 15, 2021), ECF No. 20.
2 Id. ¶¶ 20-21.
3 United States v. Patel, No. 3:21-CR-220, 2022 WL 17404509, at *7 (D. Conn. Dec. 2, 2022).
4 Id. at *11.
5 Order Granting Motion for Acquittal at 3, United States v. Patel, 3:21-cr-00220 (D. Conn. Apr. 28, 2023), ECF No. 599.
6 Id. at 11.
7 Id. at 9.
8 166 F.3d 509 (2d Cir. 1999)
9 Id. at 511–12.
10 Id. at 513–16.
11 Id. at 515–16. The court also noted that, consistent with Bogan, the jury instructions in United States v. DaVita Inc. stated that "a horizontal market allocation requires cessation of 'meaningful competition' in the allocated market." No. 1:21-cr-00229-RBJ, 2022 WL 1288585, at *3 (D. Colo. Mar. 25, 2022).
12 Order Granting Motion for Acquittal at 12, United States v. Patel, 3:21-cr-00220 (D. Conn. Apr. 28, 2023), ECF No. 599.
13 Id. at 18.
14 Id. at 17.
15 Id. (citing Bogan, 166 F.3d at 515). In his December 2022 motion to dismiss ruling, Judge Bolden distinguished Bogan from the facts alleged in the Patel indictment on the grounds that (1) the Northwestern Mutual agents were all paid on a uniform rate schedule, so a no-poach agreement could not negatively affect their wages and (2) the agreement in Bogan did not "allocate the market . . . to any meaningful extent," and "permitted transfers." Patel, 2022 WL 17404509, at *10 & n.2.
16 Id. at 18.
17 See United States v. Martin Linen Supply Co., 430 U.S. 564 (1977).
18 See US Dep't of Justice, Justice Manual at 7-2.200 (April 2022), available at https://www.justice.gov/jm/jm-7-2000-prior-approvals#7-2.200 ("While a violation of the Sherman Act may be prosecuted as a felony, in general, the Department reserves criminal prosecution under Section 1 for 'per se' unlawful restraints of trade among competitors, e.g., price fixing, bid rigging, and market allocation agreements.").
19 Order Granting Motion for Acquittal at 12-13 n.3, United States v. Patel, 3:21-cr-00220 (D. Conn. Apr. 28, 2023), ECF No. 599 (emphasis added).
20 No. 3:21-cr-00011 (N.D. Tex.).
