Overview
The Department of Justice (DOJ) Antitrust Division's ongoing effort to police anticompetitive activity in labor markets suffered two major setbacks when federal juries in Texas and Colorado acquitted defendants charged with allegedly violating the Sherman Act by conspiring to fix employee wages or not to compete to hire employees. The losses may prompt DOJ to rethink its aggressive agenda to prosecute such alleged labor market conspiracies.
As we noted in prior client alerts (here and here), the two courts, respectively, previously held in United States v. Jindal, the wage-fixing case in Texas, and United States v. DaVita, the non-solicitation case in Colorado, that the conduct alleged in the underlying indictments could amount to per se violations of the Sherman Act. As a result, the government was, in large part, able to focus at each trial on proving that the alleged conspiracies existed and that the defendants joined them — though as we have pointed out, the DaVita court held that the government also had to show that the agreement was market-allocating.[1]
At the respective trials, the defense teams effectively chipped away at the government's theories, primarily by calling into question the existence of anticompetitive agreements and by casting doubt on the credibility of the government's witnesses, many of whom testified as cooperators. Those attacks evidently created sufficient doubt in the minds of jurors, and DOJ walked away nearly empty-handed, securing a single conviction for obstruction of justice in Jindal, and – importantly – no convictions for Sherman Act violations to speak of in either case.
The cases are not total losses for DOJ, however. DOJ's twin motion-to-dismiss victories, which essentially validated DOJ's overarching theory that conspiracies to fix wages or to not compete for employees can be prosecuted as per se violations of Section 1 of the Sherman Act, will endure as precedents.[2] And the obstruction conviction will give the FTC's investigatory efforts more bite in the future.[3]
Still, the string of acquittals represents a twist in the road for DOJ as it seeks to use the Sherman Act as a vehicle for tamping down on anticompetitive behavior in labor markets, prompting questions about whether DOJ will be able to be persuade juries to return convictions in these types of cases. We do not expect that DOJ will back down entirely. In response to these and other setbacks, Assistant Attorney General (AAG) Jonathan Kanter, who leads the Antitrust Division, recently told an audience that "we're not part of the chickenshit club . . . we're going to stick with it."[4] Kanter's statement echoed an earlier sentiment expressed by AAG Lisa Monaco when she stated in October 2021 that bringing cases against corporate executives, which are inherently difficult, "means that the government may lose some of those cases," but that she has told prosecutors "fear of losing should not deter" them from bringing such cases.[5] Still, DOJ may need to rethink its litigation strategy, and defendants will be emboldened to take their cases to trial rather than enter into a plea deal — significantly raising the costs of enforcement for DOJ.
Jindal Trial
The Jindal indictment presented a straightforward fact pattern that made it a sensible first wage-fixing case for DOJ. The defendants, Neeraj Jindal and John Rodgers, were the owner and clinical director, respectively, of a physical therapist and physical therapist assistant staffing company. As alleged, Rodgers, acting on behalf of Jindal and the company, texted a competitor to ask if it had "considered lowering PTA reimbursement," adding that his company was going to "lower PTA rates to $45." The competitor replied, "Yes I agree, I'll do it with u." Rodgers responded with a thumbs-up emoji and wrote, "I feel like if we're all on the same page, there won’t be a bunch of flip flopping and industry may stay stable." Jindal and Rodgers’ company thereafter lowered its pay rates. Jindal then texted other competitors, seeking to secure a similar agreement with each of them.[6]
The government built on this narrative during its case-in-chief, explaining during its opening statement that Jindal was actively attempting to sell the company during the relevant period, and when he learned that his largest client would be cutting its rates by 23%, he became desperate to lower costs to maintain his company's value. Jindal’s desperation spurred him to action, prompting the outreach to competitors and the wage-fixing conspiracy that ensued.[7]
The defense, however, successfully muddied the waters, attacking both the import of the text messages and the credibility of the government's witnesses. To blunt the force of the text messages, the defense argued that although "foolish," they did not evidence a wage-fixing agreement, and that there could not have been any such agreement because only 13 of the company's 68 contractors ultimately received a pay cut, 4 of the 5 competitors that Jindal and Rodgers texted never responded to their messages, and the owner of the company that did respond had previously told the FTC, which conducted the investigation that resulted in DOJ's prosecution of Jindal and Rodgers, that she never agreed to go through with the alleged scheme.[8] Moreover, with respect to Rodgers, the defense argued that his intent in texting a competitor was not to conspire to fix wages but rather to find himself a new job, in light of the imminent sale by Jindal of the business.[9]
The defense was aided substantially by the fact that a key witness — Sheri Yarbray, the competitor who allegedly agreed to the conspiracy via text message — substantially changed her testimony in a way supportive of the government's case, after entering into a leniency agreement with the government. In 2017, during the FTC's investigation, she told the government that she and Rodgers had not agreed to lower rates; instead, she was simply pretending to agree, and she did not think Rodgers was being serious.[10] At trial, though, she testified that she and Rodgers had agreed to lower wages.[11] The defense hammered her for this discrepancy, telling the jury at closing arguments that her testimony was "canned," and a result of coaching by the government.[12] The government was forced to concede that Yarbray was less than truthful, but asserted that she lied during the FTC investigation, not at trial.[13] This about-face, combined with an unforgiving jury instruction concerning cooperating witnesses, likely damaged the credibility of the government's case.[14]
DaVita Trial
The conspiracy in DaVita centered on alleged non-solicitation (or "no poach") agreements, rather than wage-fixing agreements, among the defendants and their competitors. Here, as in Jindal, the indictment was relatively straightforward, alleging that dialysis provider DaVita Inc. and its former CEO, Kent Thiry, entered into an agreement with several other competitors to prevent competition for workers. Under the alleged agreement, the companies could not solicit each other’s employees, and if an employee somehow decided to move from one conspiring company to another, the employee would need to first tell his/her current boss, thereby jeopardizing his or her current job before the new one had been fully secured — a significant deterrent against switching jobs.[15]
At trial, the government built out a narrative around these agreements, presenting evidence that Thiry became "outraged" after learning of efforts by DaVita's competitors to poach its employees.[16] The government told jurors that, rather than competing to retain his employees, Thiry "got together with three competitor CEOs, and they agreed that they would put employees off-limits and take steps to stop them from moving between their companies."[17]
The defense's two primary responses were, essentially, the same as those deployed in Jindal: there was, in fact, no anticompetitive agreement, and the government's witnesses were untrustworthy.
To create doubt as to the existence of an anticompetitive agreement, the defense argued that there was no agreement at all, and that any arrangement between the competitors was, in fact, pro-competitive. First, the defense characterized Thiry's actions as mere "pushy conduct" directed at CEOs with whom he had personal and professional relationships. The other CEOs agreed to Thiry's terms only to accommodate his anger and maintain the relationship.[18] Second, the defense made the case that Thiry’s terms amounted to "ground rules" for "compet[ing] without hard feelings" — not an anticompetitive conspiracy.[19] To constitute a criminal conspiracy, the agreement would have needed to "end meaningful competition" in the market.[20] But according to the defense, it had the opposite effect, creating opportunities for competition over employees. For instance, the employer-notification requirement gave the current employer a chance to try to beat its competitor's offer.[21] Similarly, the defense's economic expert witness attempted to demonstrate statistically that the agreement did not suppress employee movement among the allegedly conspiring companies.[22] The jury was apparently intrigued by these arguments, as it asked the court for clarification as to the meaning of "meaningful competition" during its deliberations.[23]
In response, the government argued that friendship or hurt feelings are simply "motives for committing the crime," and not excuses.[24] As one of the prosecutors stated during closing arguments, "There’s not a bro code exception to the Sherman Act."[25] And further, it sufficed that the agreements were understood to be real by those involved; it did not matter whether they worked perfectly in practice.[26]
The defense also managed to turn a legal troublespot to its advantage, brushing up in doing so against Judge Jackson's prior rulings. At trial, the defense argued that because there were hundreds of companies in the market for these employees’ labor, any agreement among a handful of competitors clearly could not have been aimed at allocating the market.[27] This argument is only very subtly different from an argument Judge Jackson ruled out multiple times before trial: that the relevant market is the national market for the competitors' employee’s labor. First, the defense had argued in a pretrial motion that the unlawful alleged conduct should be described in the jury instructions as an "agreement to allocate the market for employees across the United States," but the court rejected this argument for wrongly "impl[ying] that the market allocated needed to be national."[28] Second, the court held before trial that "the government need not prove that defendants allocated the entire market for employees."[29] Third, the final jury instructions stated, "There are other companies in the health care industry and other industries that potentially would hire these same senior level employees, but that is not the market that is the subject of this case."[30] The defense skirted these rulings by using the existence of a national market as evidence of lack of motive.
The defense also sought to diminish the credibility of the government's witnesses by noting that many of them were parties to immunity or leniency agreements, and that even then, the government was apparently unable to secure a witness from one of the alleged co-conspirators, relying instead on documentary evidence introduced through the testimony of an FBI agent.[31]
Trouble Behind, Trouble Ahead
DOJ's Antitrust Division has had a difficult run as of late. Beyond the aforementioned labor-side acquittals, DOJ Antitrust prosecutors suffered a second mistrial in a case alleging a wide-ranging conspiracy to fix chicken prices between 2012 and 2019 — meaning DOJ will need to commence a rare third trial in that case.[32] In all, more antitrust grand jury investigations are open now than at any time in the past three decades,[33] and the division has nearly 20 pending cases, leading some to conclude that it’s overstretched.[34]
Several of those cases bear more than a passing resemblance to Jindal and DaVita. United States v. Hee is, like Jindal, a wage-fixing case. United States v. Surgical Care Affiliates, LLC and SCAI Holdings, LLC is a no-poach case centered on the same conspiracy alleged in DaVita. Motions to dismiss are pending in both Hee and Surgical Care Affiliates, and the cases are calendared for trials in July 2022 and January 2023, respectively.[35] Two other cases, United States v. Patel and United States v. Manahe, are not as far along, but involve alleged wage-fixing and no-poach conspiracies as well.[36]
Notwithstanding DAAG Kanter's avian-focused comment, the recent setbacks are likely to prompt DOJ leadership to rethink how to litigate these cases and others like them. Indeed, DOJ would be wise to reconsider how it uses cooperating witnesses — especially those whose stories have changed — and to focus on cases in which evidence of intent to collude is strongest. In the meantime, defendants charged with labor-side violations of the Sherman Act may feel emboldened to fight the charges — further complicating DOJ's ability to execute on its agenda.
[1] Jury Instructions at 12, United States v. Jindal, No. 4:20-cr-00358 (E.D. Tex. Apr. 14, 2022), ECF No. 111; Jury Instructions at 15, United States v. DaVita, 1:21-cr-00229 (D. Colo. Apr. 13, 2022), ECF No. 254.
[2] Under the alternative “rule of reason” standard under Section 1 of the Sherman Act, the government would need to make the much more complex factual showing that “under all the circumstances of the case the restrictive practice imposes an unreasonable restraint on competition.” Arizona v. Maricopa Cty. Med. Soc’y, 457 U.S. 332, 343 (1982).
[3] The Jindal prosecution was a product of an antitrust investigation initiated by the FTC. During that investigation, Jindal allegedly made numerous false or intentionally incomplete statements to the FTC and deleted text messages relevant to the investigation. Superseding Indictment, United States v. Jindal, No. 4:20-cr-00358 (E.D. Tex. Apr. 15, 2021). After Jindal was convicted of obstructing the FTC’s investigation, Holly Vedova, director of the FTC Bureau of Competition, stated, “[t]oday’s guilty verdict should serve as a warning to companies and their top executives that contemplate obstructing FTC investigations. The FTC will continue to work closely with the DOJ and will not hesitate to refer companies and executives for criminal prosecution for obstructing FTC investigations and threatening the Agency’s ability to protect competition and American consumers.” Press Release, Federal Trade Commission, Statement Regarding Texas Jury’s Verdict that Former Owner Neeraj Jindal Obstructed FTC’s Antitrust Investigation into Physical Therapy Staffing Company (Apr. 14, 2022), https://www.ftc.gov/news-events/news/press-releases/2022/04/statement-regarding-texas-jurys-verdict-former-owner-neeraj-jindal-obstructed-ftcs-antitrust.
[4] Guy Rolnik, Asher Schechter, Brooke Fox, DOJ Antitrust Head Jonathan Kanter: “We Are Making It Very Clear: We’re Going to Hold Individuals Accountable”, ProMarket (Apr. 28, 2022), https://www.promarket.org/2022/04/28/kanter-interview-antitrust-consumer-welfare-criminal-individuals/.
[5] Press Release, U.S. Department of Justice, Deputy Attorney General Lisa O. Monaco Gives Keynote Address at ABA's 36th National Institute on White Collar Crime (Oct. 28, 2021).
[6] Superseding Indictment, United States v. Jindal, No. 4:20-cr-00358 (E.D. Tex. Apr. 15, 2021).
[7] Katie Buehler, DOJ Tells Texas Jury Staffing Firm’s Wage Fixing Was A Crime, Law360 (Apr. 5, 2022), https://www.law360.com/articles/1480041/doj-tells-texas-jury-staffing-firm-s-wage-fixing-was-a-crime.
[8] Id.
[9] Id.
[10] Katie Buehler, DOJ Coached Key Witness In Wage-Fixing Case, Jury Told, Law360 (Apr. 13, 2022), https://www.law360.com/articles/1483532/doj-coached-key-witness-in-wage-fixing-case-jury-told.
[11] Id.
[12] Id.
[13] Id.
[14] Jury Instructions at 11, United States v. Jindal, No. 4:20-cr-00358 (E.D. Tex. Apr. 14, 2022), ECF No. 111 (“In evaluating Yarbray’s testimony, you should consider the extent, if any, to which or whether Yarbray’s testimony may have been influenced by the grant of corporate leniency. You should bear in mind that testimony from such a witness is always to be received with caution and weighed with great care. You should never convict any defendant upon the unsupported testimony of such a witness unless you believe that testimony beyond a reasonable doubt.”)
[15] Indictment, United States v. DaVita, 1:21-cr-00229 (D. Colo. July 14, 2021), ECF No. 1.
[16] Mike Scarcella, U.S. Prosecutors, DaVita Clash at Novel Antitrust Trial over Hiring Practices, Reuters (Arp. 5, 2022, https://www.reuters.com/legal/government/us-prosecutors-davita-clash-novel-antitrust-trial-over-hiring-practices-2022-04-05/.
[17] Matthew Perlman, ‘Outraged’ DaVita CEO Plotted To Keep Employees, Court Told, Law360 (Apr. 4, 2022), https://www.law360.com/articles/1480374.
[18] Cara Salvatore, Ex-DaVita CEO’s ‘Feelings’ Drove No-Poach Crimes, DOJ Says, Law360 (Apr. 13, 2022), https://www.law360.com/articles/1483840/ex-davita-ceo-s-feelings-drove-no-poach-crimes-doj-says.
[19] Perlman, supra note 13.
[20] Jury Instructions at 19, United States v. DaVita, 1:21-cr-00229 (D. Colo. Apr. 13, 2022), ECF No. 254.
[21] Salvatore, supra note 15.
[22] Michael Karlik, Jurors in DaVita Trial Quiz FBI Agent about Investigation Tactics, Colorado Politics (May 18, 2022), https://www.coloradopolitics.com/jurors-in-davita-trial-quiz-fbi-agent-about-investigation-tactics/article_15def50e-ba19-11ec-9042-033d98158580.html.
[23] Cara Salvatore, DaVita, Ex-CEO Acquitted In Antitrust No-Poach Trial, Law360 (Apr. 15, 2022), https://www.law360.com/articles/1484766/davita-ex-ceo-acquitted-in-antitrust-no-poach-trial.
[24] Michael Karlik, DaVita Case Heads to Jury: ‘There’s Not a Bro Code Exception’, Colorado Politics (Apr. 14, 2022), https://www.coloradopolitics.com/courts/davita-case-heads-to-jury-theres-not-a-bro-code-exception/article_e40cdf9a-bb59-11ec-9bb1-df32b09b3f0d.html.
[25] Id.
[26] Salvatore, supra note 15.
[27] Perlman, supra note 13.
[28] Order Resolving Disputes on Proposed Jury Instructions at 4, United States v. DaVita, No. 1:21-cr-00229 (D. Colo. Mar. 25, 2022), ECF No. 214.
[29] Id. at 4, 8.
[30] Jury Instructions at 19, United States v. DaVita, 1:21-cr-00229 (D. Colo. Apr. 13, 2022), ECF No. 254.
[31] Salvatore, supra note 15.
[32] Diane Bartz, U.S. Drops Price-Fixing Charges against Chicken Executives after Mistrials, Reuters (Mar. 31, 2022), https://www.reuters.com/legal/government/us-drops-price-fixing-charges-against-chicken-executives-after-mistrials-2022-03-31/.
[33] Press Release, U.S. Department of Justice, Attorney General Merrick B. Garland Delivers Remarks to the ABA Institute on White Collar Crime (Mar. 3, 2022), https://www.justice.gov/opa/speech/attorney-general-merrick-b-garland-delivers-remarks-aba-institute-white-collar-crime.
[34] Jack Queen, DOJ Antitrust Trial Setbacks Could Prompt Soul-Searching, Law360 (Apr. 14, 2022), https://www.law360.com/texas/articles/1484279/doj-antitrust-trial-setbacks-could-prompt-soul-searching-.
[35] Order to Continue, United States v. Hee, No. 2:21-cr-00098 (D. Nev. Jan. 14, 2022), ECF No. 67; Order, United States v. DaVita, No. 3:21-cr-00011 (N.D. Tex. Mar. 8, 2022), ECF No. 108.
[36] Press Release, U.S. Department of Justice, Four Individuals Indicted on Wage Fixing and Labor Market Allocation Charges (Jan. 28, 2022), https://www.justice.gov/opa/pr/four-individuals-indicted-wage-fixing-and-labor-market-allocation-charges (United States v. Manahe); Press Release, U.S. Department of Justice, Former Aerospace Outsourcing Executive Charged for Key Role in a Long-Running Antitrust Conspiracy (Dec. 9, 2021), https://www.justice.gov/usao-ct/pr/former-aerospace-outsourcing-executive-charged-key-role-long-running-antitrust-conspiracy (United States v. Patel).
