The Long Winter Continues: DOJ Antitrust Defeated in Third Consecutive Labor-Side Criminal Trial

The Department of Justice (DOJ) lost its third successive criminal labor-side antitrust trial on March 22, with a jury handing the defendants a full acquittal in United States v. Manahe.¹ This latest defeat leaves DOJ's already-beleaguered labor-side criminal antitrust enforcement initiative in an even more parlous state. And while we don’t doubt that DOJ will continue to bring similar cases, it's hard not to wonder whether DOJ brass is considering (or should consider) a significant course correction.

We have been tracking DOJ's crackdown on wage-fixing and no-poach/non-solicitation agreements, which began during the Obama administration, for several years now. As we noted in a December 18, 2020 client alert, years after the DOJ Antitrust Division and the Federal Trade Commission issued guidance warning that "naked" wage-fixing and no-poach agreements would be criminally investigated and prosecuted for the first time, DOJ secured its first indictment in the space in 2020 in Texas. Since then, though, DOJ has had a difficult time meeting the initiative’s objectives.

A Series of (Mostly) Unfortunate Events

If the idea — using preexisting criminal authority to tamp down on anticompetitive conduct in the labor markets — seems sound, executing on it has proved challenging, and it bears taking stock of DOJ's efforts to take on alleged anticompetitive behavior in labor markets through the criminal justice system:

1. United States v. Jindal:² DOJ charged two executives of a physical therapist staffing company with conspiring with competitors to fix wages of physical therapists and physical therapist assistants. Although DOJ won an important early victory at the motion to dismiss stage (which we wrote about in this December 9, 2021 client alert), at trial, the jury acquitted the defendants of all of the Sherman Act counts, convicting only one defendant on a single obstruction of justice count (see our May 19, 2022 client alert).
2. United States v. DaVita:³ DOJ charged a dialysis company and its CEO with conspiring with competitors not to solicit each other's senior-level employees. DOJ again prevailed over a motion to dismiss (see our February 3, 2022 client alert) and then lost — this time completely — at trial (see our May 19, 2022 client alert).
3. United States v. Hee:⁴ DOJ charged a healthcare staffing company and a former regional manager of the company with conspiring with competitors to fix the wages of and to not solicit certain nurses. One defendant, a healthcare staffing company, pleaded guilty to a Sherman Act charge; the other entered into a pretrial diversion agreement (essentially, a deferred prosecution agreement) with DOJ, which resulted in the dismissal of the indictment on March 14, 20235 (see our January 31, 2023 blog post).
4. United States v. Patel:⁶ DOJ charged high-level employees of defense contractors or subcontractors with conspiring not to hire or solicit each other's employees. DOJ overcame the defendants' motion to dismiss (see our December 19, 2022 blog post); the case is currently pending, with the trial having just begun the week of March 27.⁷ However, on March 28, in a blow to the government, the court ruled that the defendants will be permitted to argue that their alleged conduct was justified, and to offer evidence supporting that argument.

Now, in Manahe, DOJ has once again come up short, with an initial victory over the defendants' motion to dismiss being followed in March by an across-the-board verdict of not guilty. In Manahe, DOJ had alleged that the defendants — a group of Iraqi immigrants, some of whom served alongside U.S. forces in the Iraq War, who had entered into the home health aide business in Maine—conspired to fix wages and not to solicit each other's home health aides.⁸ The defendants even admitted at trial that they discussed setting wage levels and agreeing not to hire each other's health aides, even going so far as to draft a written agreement.⁹ But the jury evidently did not find that the defendants actually signed or otherwise entered into the agreement or abided by it.¹⁰ In persuading the jury that defendants' alleged illegal conspiracy never got past the discussion stage, defense counsel followed an increasingly well-trodden trail, with similar defenses having been successfully deployed in the Jindal and DaVita cases.

Other Cases Afford DOJ Further Opportunities

Undeterred by prior setbacks, DOJ indicted Eduardo Lopez, a healthcare staffing executive, on March 15, 2023 with one count of violating the Sherman Act by allegedly fixing the wages of nurses in Las Vegas.¹¹ As alleged, Lopez, an executive at three home health agencies who oversaw recruitment, hiring, retention, and assignments at each, conspired with unnamed co-conspirators to suppress and to eliminate competition for the services of nurses by fixing nurses' wages.¹²

Lopez is not DOJ's only remaining bite at the apple. Also pending is United States v. Surgical Care Affiliates, LLC and SCAI Holdings, LLC, which concerns an alleged agreement not to solicit senior-level employees in the outpatient medical facilities business.¹³ The defendants' motion to dismiss has been fully briefed since 2021, but it is not clear when the court will rule on the motion. Assuming the motion is denied, this case could head to trial as well — though with corporate defendants, the possibility of a negotiated resolution is higher. At a trial, as always, the devil will be in the details, juries have been quick to accept the holes poked by defense counsel in the government's theories of the cases brought to trial so far.

And as mentioned above, the Patel trial is also underway in Connecticut as of the time of this writing. As we previously observed, the Patel defendants argued in their motion to dismiss that their allegedly illegal agreement fell within the safe harbor provided by the "ancillary restraints" doctrine because it was part and parcel of Pratt & Whitney's outsourcing of engineering services to the other companies, and it was reasonable and natural for companies who were contracting with each other for engineering and other services to agree not to poach each other's employees. The court rejected this argument, noting that (based on the papers before it at the time) Pratt & Whitney's contractors were actually competing with each other, if not with Pratt & Whitney, so the existence of a no-poach agreement among them was not, as a matter of law, ancillary to a legitimate business collaboration.

At trial, though, the defendants appear poised to once again raise the ancillary restraints doctrine, having pressed for, and largely won, a permissive jury instruction that would have had the doctrine apply to nearly any agreement formed in parallel with any "productive relationship" between two or more competitors, as long as the restraint "may contribute to the success of a legitimate business transaction or agreement."¹⁴ The government contested each of these points, arguing for an instruction that limits the doctrine's application to agreements that are imposed by, secondary to, and reasonably necessary to a relationship resembling a joint venture.¹⁵ Although the charging conference has not yet taken place, the court's proposed jury instruction does not augur well for DOJ. While it requires that the ancillary agreement be "subordinate and collateral" to a legitimate business collaboration, it defines "legitimate business collaboration" to include any "business association, joint venture, or other similar productive relationship."¹⁶ In an accompanying order, the Court explained that in addition to propounding pro-competitive benefits evidence to support an ancillary restraints defense, the defendants could do so merely to show that their actions were not consistent with the charged conspiracy in the first place, including because they lacked the requisite state of mind.¹⁷ 

Meanwhile, the Court has repeatedly sustained the defense's hearsay objections at trial, even where the government has represented that a witness had firsthand, personal knowledge of Pratt & Whitney's alleged hiring restrictions under the illegal conspiracy.¹⁸ Given that the facts of the case, the jury instruction and accompanying order, the fact that DOJ has agreed to take on the burden of persuasion on any ancillary restraints defense,¹⁹ and the Court'’s rulings sustaining key defense objections during the trial, we think DOJ faces an uphill battle.

DOJ has made clear that it intends to continue fighting this war. Just last week, on March 31, Assistant Attorney General Jonathan Kanter said during the ABA Antitrust Law Section's Spring Meeting, "the courts have said that as a matter of law, antitrust crimes focused on workers are just as important just as actionable as antitrust crimes focused on consumers. . . . Those are . . . righteous cases, and we will continue, when the facts and the law support it, to bring those cases."²⁰

We would not be surprised to see DOJ subtly adjust its approach in the coming months, especially if things go south in Patel. One option would be to follow the path taken in Hee, in which DOJ pursued a corporate defendant (a class that, as a general matter, is much more likely to seek a negotiated resolution rather than a trial) and entered into a pretrial diversion agreement with the individual defendant, rather than risking a trial. Without a change in course, DOJ's Antitrust Division will face a perilous path ahead.

Endnotes

¹ No. 2:22-cr-00013 (D. Me.).

² No. 4:20-CR-358 (E.D. Tex.).

³ No. 1:21-cr-00229 (D. Colo.).

⁴ No. 2:21-cr-00098 (D. Nev.).

⁵ Order Granting Motion to Dismiss Indictment as to Ryan Hee, United States v. Hee, No. 2:21-cr-00098 (D. Nev. Mar. 14, 2023), ECF No. 118.

⁶ No. 3:21-cr-00220 (D. Conn.).

⁷ See Order Granting Motion to Continue, United States v. Patel, No. 3:21-cr-00220 (D. Conn. Feb. 9, 2022), ECF No. 118.

⁸ Indictment, United States v. Manahe, No. 2:22-cr-00013 (D. Me. Jan. 27, 2022), ECF No. 1.

⁹ Cara Salvatore, Home Health Execs Acquitted In Latest DOJ Antitrust Loss, Law360 (Mar. 22, 2023), https://www.law360.com/articles/1586974.

¹⁰ Id.

¹¹ Indictment, United States v. Lopez, 2:23-cr-055-CDS-DJA (D. Nev. Mar. 15, 2023).

¹² Id.

¹³ No. 3:21-cr-00011 (N.D. Tex. Jan. 5, 2021).

¹⁴ Defendants' Proposed Joint Jury Instructions at 21-22, United States v. Patel, No. 3:21-cr-00220 (D. Conn.), ECF No. 396 (emphasis in original).

¹⁵ United States' Objections to Defendants’ Proposed Jury Instructions at 24-29, United States v. Patel, No. 3:21-cr-00220 (D. Conn.), ECF No. 421.

¹⁶ Proposed Annotated Post-Trial Jury Instructions at 50-52, United States v. Patel, No. 3:21-cr-00220 (D. Conn.), ECF No. 456.

¹⁷ Ruling and Order on Pretrial Motions at 13-18, United States v. Patel, No. 3:21-cr-00220 (D. Conn.), ECF No. 457.

¹⁸ Aaron Keller, Judge Keeps Gov't on Short Leash in No-Poach Criminal Trial, Law360 (Mar. 30, 2023), https://www.law360.com/articles/1592056.

¹⁹ United States' Objections to Defendants' Proposed Jury Instructions at 25 n.8, United States v. Patel, No. 3:21-cr-00220 (D. Conn.), ECF No. 421.

²⁰ Assistant Attorney General for the Antitrust Division Jonathan Kanter Speaks on the "Enforcers Roundtable" Panel at the ABA Annual Antitrust Spring Meeting, DOJ Office of Public Affairs (Mar. 31, 2023), https://www.justice.gov/opa/video/assistant-attorney-general-antitrust-division-jonathan-kanter-speaks-enforcers-roundtable.