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Behind the DOJ’s recent antitrust trial losses: an evolving concept of intent

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The aggressive campaign by the U.S. Department of Justice (DOJ) Antitrust Division to reinvigorate criminal enforcement of the antitrust laws has been framed in part by whether it can achieve a measure of success in a series of indictments charging wage suppression in domestic labor markets. In April 2022, that campaign was marred by serious setbacks. In United States v. Jindal et al., the Antitrust Division’s first ever criminal wage-fixing prosecution, a federal jury in Texas acquitted the former owner and the former clinical director of a healthcare staffing company of all substantive antitrust charges. A day later, in United States v. DaVita, Inc. et al., a federal jury in Colorado acquitted a national healthcare provider and its former CEO on charges they engaged in per se illegal market allocation through “no-poach” agreements.

Despite those setbacks, Jonathan Kanter, the Antitrust Division’s head, claimed progress, citing that the Division has been able to establish the necessary principle that wage suppression, as a category of conduct, is per se unlawful under the Sherman Act. In recent remarks, Mr. Kanter explained: “Those cases—which were extremely important cases establishing that harm to workers is an antitrust harm—survived motions to dismiss.” [1] Though true, this assertion fails to capture an important development in the articulation of criminal antitrust intent that, in many ways, has evolved to frustrate the Antitrust Division’s ability to secure convictions at trial.

Wage suppression indictments in labor markets

In Jindal, in December 2020, a federal grand jury in the Eastern District of Texas charged the former owner of a therapist staffing company for participating in a Sherman Act conspiracy to fix prices by lowering the rates paid to physical therapists and physical therapist assistants. The indictment was later superseded to include a second defendant, a physical therapist who contracted with the company.

In November 2021, the district court declined the defendants’ motion to dismiss the indictment, holding that the alleged scheme is properly considered per se illegal price fixing under the Sherman Act. See United States v. Jindal et ano., No. 4:20-CR-00358, slip op. (E.D. Texas Nov. 29, 2021). As part of its ruling, the district court rejected the defendants’ argument that the narrow per se category of antitrust offenses does not cover “an agreement to fix wages.” The district court found that even though “the facts of this case do not present those typical of a price-fixing agreement,” the definition of horizontal price-fixing agreements nevertheless “cuts broadly.” The district court reasoned that “any naked agreement among competitors—whether by sellers or buyers—that fixes components that affect price meets the definition of a horizontal price-fixing agreement,” relying on the Supreme Court ruling in United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940), and its notion that “[a]ny combination which tampers with price structures is engaged in an unlawful activity.” Using this analysis, the district court determined that the Sherman Act’s prohibition against price fixing applies to buyers of services (employers) in the labor market and rates paid to physical therapists and physical therapist assistants.

On April 14, 2022, the jury issued a verdict of not guilty on the substantive antitrust conspiracy counts, acquitting the defendants of orchestrating a wage-fixing scheme. The jury nevertheless convicted the owner of obstructing the government’s investigation of the charged scheme.

The Antitrust Division extended its aggressive position in the domestic labor markets when, in 2021, it announced separate indictments in two related “no-poach” cases, charging two outpatient medical care facilities with allegedly fixing workers’ wages and allocating markets by agreeing not to solicit each other’s workers. In the first of those cases to proceed to trial, on April 15, 2022, the jury in DaVita acquitted a kidney dialysis company and its former CEO on all counts of conspiring with three other companies to suppress competition in the market for employees.

Jury instructions and antitrust intent

The hallmark of per se Sherman Act offenses is that they have been adjudged to be categorically unreasonable restraints on trade. Thereby, in criminal prosecutions under the Sherman Act, the government need only establish the existence of the illegal agreement without further proof of actual anticompetitive effects on the market as a whole. Despite this standard, the jury instructions in both Jindal and DaVita appear to have adopted more stringent elements, highlighting the concept of intent. This real-time development arguably increased the DOJ’s evidentiary burden at trial. In the Jindal case, the district court delivered the following instruction to the jury on the element of conspiracy for the Sherman Act Section 1 count:

A “conspiracy” is an agreement between two or more persons to join together to accomplish some unlawful purpose....  The government must prove, beyond a reasonable doubt, that the members of the conspiracy came to a mutual understanding to accomplish or try to accomplish a goal or unlawful objective. That is, the evidence must show that they had a conscious commitment to a common scheme designed to achieve an unlawful objective. You must find that there was a meeting of the minds as to the objective of the conspiracy. However, the government is not required to provide that the defendant knew his actions were illegal or that he specifically intended to restrain trade or violate the law.

More pointedly in DaVita, the district court delivered the following instruction on the per se standard for the offense of conspiracy to allocate the market:

If the defendants entered into an agreement or understanding with the intent to allocate the market, it is immaterial whether such an agreement or understanding was actually good for the company or even good for the market as a whole. However, evidence of lack of intent of harm or competitive benefits might be relevant to determining whether defendants entered into an agreement with the purpose of allocating the market for senior executives (Count 1) and other employees (Counts 2 and 3).

Presumably, the focus on intent, and by extension the purpose of the conspiracy, permitted defense counsel to argue to the jury that the object of any agreement or arrangement was driven by market-based intentions and other competitive aims, not an improper purpose to fix wages or allocate markets.

U.S. v. Aiyer and antitrust intent

This precise point of intent, as an element of a per se Sherman Act Section 1 offense, was endorsed recently by the Second Circuit Court of Appeals in its ruling in United States v. Aiyer, No. 20-3594-cr (2d Cir. May 2, 2022). In Aiyer, the Second Circuit affirmed the conviction of a former JP Morgan Chase trader for his participation in a Sherman Act conspiracy to fix prices and rig bids in connection with his trading activity in the foreign currency exchange market. As its core holding, the Second Circuit found no error “in the district court’s conclusion that it was not required to review Aiyer’s proffered evidence of competitive effects of his trading activity in the FX market or to make a threshold determination as to whether, under the Sherman Act, the per se rule or rule of reason applied at his criminal trial.”
With its decision, however, the Second Circuit elaborated on the circumstances in which a criminal defendant may “legally and factually” challenge each of the elements of an “alleged per se charge in full accord with due process.” The Court of Appeals highlighted that a defendant is permitted (i) “to challenge the application of the per se rule to his offense conduct by arguing to the jury that such conduct fell within one of the exceptions to the per se rule,” such as the ancillary restraint doctrine or furthering permissible joint venture activity; (ii) “to present some competitive effects evidence on the intent element by cross-examining witnesses regarding the actual effects of the co-conspirators’ trading activity”; and (iii) “to ensure that the government’s proof met the correct legal standard for a per se violation by challenging the district court’s jury instruction with respect to the elements.” 

With particular detail, the Second Circuit explored the second point—the element of intent—and how the concept of anticompetitive intent may be parsed at trial as an evidentiary matter. The Court of Appeals rejected any argument that a per se Sherman Act offense requires proof of “specific intent” to join a conspiracy that “result[s] in anticompetitive effects.” But, importantly, the court expressly accepted that “evidence of the lack of an effect on price during a conspiracy could be relevant on the issue of intent.” That is, to convict, a jury must find that an antitrust defendant “had known the objective of the conspiracy” and “had intentionally become a member of it.” 

Lessons learned?

The Antitrust Division’s aggressive push into domestic labor markets shows no signs of abating, having filed six new indictments charging market allocation in the aerospace engineering services industry in December 2021. In real time, the federal courts are reacting to the Antitrust Division’s expansive use of the limited categories of conduct deemed per se illegal under the Sherman Act. As these cases progress, it will be a test of whether the Division can learn from its recent challenges at trial and whether new guardrails will emerge to delimit core per se antitrust offenses from those categories of conduct that require more dynamic scrutiny based on the complexities of particular markets and business relationships. 

[1] Despite Defense Verdicts in Healthcare Wage-Fixing Suits, Feds Remain Resolute, The National Law Review (May 3, 2022).