Criminal No-Poach Antitrust Defense Verdict

Key Takeaways

• Colorado federal jury acquitted a healthcare company and its former CEO of antitrust charges that they violated the Sherman Act by entering into agreements with other health care companies not to recruit each other’s employees.
• As an early test of the Antitrust Division’s 2018 commitment to pursue criminal—and not just civil—cases against companies with these so-called “no-poach agreements,” the pro-defense verdict in this case represents a significant setback for the DOJ.
• Despite this and other recent challenges, including an adverse verdict in a criminal wage-fixing case out of the Eastern District of Texas and a second mistrial in a price-fixing case in Denver involving the poultry industry, the DOJ has pledged to continue its aggressive enforcement efforts.
• The power to prosecute is the power to destroy, and companies face significant expense and distraction even if they are acquitted of criminal charges, so executives should take care to avoid problematic no-poach agreements and otherwise seek legal advice to avoid anticompetitive conduct.

A jury in the United States District Court for the District of Colorado acquitted a Denver-based healthcare company, DaVita Inc., and its former CEO on three counts each of conspiracy in restraint of trade under the Sherman Act on April 15, 2022.¹ As a rare federal criminal prosecution based on an agreement among competitors not to recruit each other’s workers (called “no-poach agreements”), this case was closely watched and the defense verdict may well alter how (and if) the government charges similar cases in the future.²

Federal Criminal Prosecutions Involving No-Poach Agreements Hotly Anticipated

The Department of Justice has long brought civil actions against companies that agree not to poach one another’s employees. For example, the DOJ filed a 2010 civil lawsuit against technology giants including Apple Inc. and Google Inc., alleging that their agreements not to “cold call” one another’s employees about job openings were “facially anticompetitive” and “substantially diminished competition to the detriment of the affected employees who were likely deprived of competitively important information and access to better job opportunities.”³ Similarly, the DOJ filed a civil lawsuit against Lucasfilm Ltd, alleging that the company had illegally agreed with Pixar “not to cold call, not to make counteroffers under certain circumstances, and to provide notification when making employment offers to each other’s employees.”⁴ Both these cases were resolved through civil settlements where the companies agreed to be enjoined not to enter into no-poach agreements.⁵

The DOJ has not, however, generally brought criminal charges arising out of no-poach agreements. So it made waves when the DOJ’s Assistant Attorney General for the Antitrust Division announced in January 2018 that no-poach agreements would receive the same criminal treatment as traditional price-fixing and “the coming couple of months [would] see some announcements” of criminal prosecutions.⁶ Legal commentators—including the authors of this OnPoint—warned that the DOJ would soon be targeting no-poach agreements under criminal antitrust theories of liability. As we stated at the time, for example, companies ought “to reassess hiring practices and ensure that recruitment from competitors (or rather, a lack thereof) is not creating unnecessary criminal legal exposure.”⁷

DaVita Indictment & Trial Arguments

A Denver federal grand indicted DaVita and its CEO in July 2021, charging that it had conspired with its competitor in the outpatient medical care business, Surgical Care Affiliates, LLC (SCA), to suppress competition by agreeing not to solicit each other’s senior-level employees between 2012 and 2017.⁸ Among other things, the indictment cited a communication between high-level executives of the two companies acknowledging that they “do not do proactive recruiting into [one another’s] ranks” and an internal SCA agreement about “a gentlemen’s agreement between us and DaVita re: poaching talent.”⁹ A separate count charged a similar conspiracy between DaVita and an unnamed San Francisco health care company, evidenced by an email from that company pledging to “steer clear of anyone at” DaVita.¹⁰ A superseding indictment in November 2021 added a third conspiracy in restraint of trade count against Davita and its CEO, this one involving an unidentified Los Angeles health care company.¹¹ The government claimed these activities “substantially affected interstate trade and commerce” by “restrict[ing] the interstate movement of employees” and thus violated the Sherman Act, 15 U.S.C. § 1.¹²

At trial, the government sought to frame the case as being “about a corporate CEO who wanted control over his employees—not just control over how they did their job, but control over what job opportunities they got and how they’re allowed to leave his company.”¹³ Federal prosecutors argued that, faced with employee departures, “instead of competing openly, [the CEO] cheated.”¹⁴ The defense, meanwhile, portrayed the case as an unjust overreach by prosecutors, arguing that DaVita and the other companies “agreed to ground rules about the way they will compete but they never agreed to stop competing. They did not stop competing with each other or with the hundreds of other companies in the market.”¹⁵ Rather than anticompetitive conduct, the defense argued, DaVita was engaged in reasonable “business collaboration” that did not harm consumers.¹⁶

Verdict & Reactions

The jury agreed with the defense, returning a verdict of not guilty on all counts.¹⁷ Reacting via email, a representative of the DOJ said, “While we are disappointed in the outcome, we respect the jury’s decision and remain committed to enforcing the antitrust laws in the labor markets.”¹⁸ Counsel for DeVita’s CEO, meanwhile, welcomed the verdict, suggesting that it showed the DOJ’s antitrust strategy “needs to be reconsidered.”¹⁹

Indeed, this unfavorable verdict came on the heels of other recent setbacks for the Antitrust Division. Just a day earlier, on April 14, a jury in the Eastern District of Texas found two defendants not guilty of violating the Sherman Act in the DOJ’s first criminal wage-fixing case.²⁰ And a month before that, in March, the Antitrust Division obtained a second mistrial in its high-profile Colorado case charging price fixing in the poultry industry.²¹ The judge in that case took the unusual step of ordering the Assistant Attorney General for the Antitrust Division to appear before him to explain why “the government thinks that the 10 defendants and their attorneys and my staff and another group of jurors should spend six weeks retrying this case after the government has failed in two attempts to convict even one defendant.”²²

But despite these significant setbacks, corporations and those who represent them should not expect the DOJ’s Antitrust Division to back down any time soon. In response to the wage-fixing loss in Texas, a DOJ official cautioned against “the verdict today be[ing] taken as a referendum on the Antitrust Division’s commitment to prosecuting labor market collusion, or on [its] ability to prove these crimes at trial.”²³ Similarly, when the AAG for the Antitrust Division appeared before the Colorado court in its poultry price-fixing case, he suggested that the DOJ would move forward with a third trial in the poultry case, albeit with fewer defendants.²⁴ As the DOJ told the court in a brief opposing the defendants' motions for judgment of acquittal that would spare them a third trial, “multiple hung juries” don’t mean that the government had insufficient evidence to convict.²⁵ Instead, according to DOJ, “the outcome of the two prior trials is irrelevant to the court’s determination of the instant motions, as the law remains that a hung jury serves as no basis for an acquittal.”²⁶ And, despite a Denver jury handing the government a significant trial loss in its DaVita prosecution, the DOJ is still set to try one of that company’s alleged co-conspirators on a criminal no-poach theory in January 2023,²⁷ and has other similar cases pending in Connecticut and Nevada.²⁸

Conclusion

As we predicted several years ago, the government would move aggressively in prosecuting no-poach agreements as violating the nation’s antitrust laws. Despite a string of losses in that space and other antitrust areas, it does not appear that the government intends to back down from its robust prosecution of criminal antitrust cases. In light of that, companies and their executives should take note that strongly pushing back against the government—and taking the appropriate criminal antitrust case to trial—is a legal strategy that should not be taken off the table. But, companies and their executives should also remember that the power to prosecute is the power to destroy. That is so because an indictment alone could wreak havoc on a company and its executives in untold ways. As a result, an ounce of prevention may well be worth a pound of cure—meaning, executives must still take care to avoid problematic no-poach agreements and otherwise seek legal advice to avoid anticompetitive conduct.

Footnotes

1. Sam Tabachnik, Jury acquits DaVita, ex-CEO Kent Thiry in landmark antitrust prosecution of non-poaching agreements, DENVER POST (April 15, 2022).
2. Id. at 4.
3. United States v. Adobe, No. 1:10-cv-1629, at Dkt. 1 (D.D.C. Sept. 24, 2010).
4. United States v. Lucasfilm, No. 1:10-cv-2220, at Dkt. 1 (D.D.C. Dec. 21, 2010).
5. Adobe, No. 1:10-cv-1629, at Dkt. 17 (March 18, 2011); Lucasfilm, No. 1:10-cv-2220, at Dkt. 7 (June 3, 2011).
6. Matthew Perlman, Delhraim Says Criminal No-Poach Cases Are in the Works, LAW360 (Jan. 19, 2018).
7. Andrew S. Boutros et al., Hunting Season Begins: DOJ Warns of Criminal Actions Against Companies with Agreements Not to Poach Competitors’ Employees, Bloomberg Law (Feb. 12, 2018).
8. Indictment, United States v. DaVita, Inc., No. 1:21-cr-229, at Dkt. 1 (July 14, 2021).
9. Id.
10. Id.
11. Indictment, United States v. DaVita, Inc., No. 1:21-cr-229, at Dkt. 74 (Nov. 3, 2021).
12. Id.
13. Mike Scarcella, U.S. prosecutors, DaVita clash at novel antitrust trial over hiring practices, Reuters (April 5, 2022).
14. Id.
15. Id.
16. Id.
17. Verdict, United States v. DaVita, Inc., No. 1:21-cr-229, at Dkt. 262 (April 15, 2022).
18. Cara Salvatore, DaVita, Ex-CEO Acquitted In Antitrust No-Poach Trial, Law360 (April 14, 2022).
19. Id.
20. Ben Penn, DOJ’s First Criminal Wage-Fixing Case Ends Mostly in Defeat, BLOOMBERG LAW (April 14, 2022).
21. Matthew Perlman & Brian Koenig, Despite 2 Mistrials, DOJ Won’t Say Chicken Case Is Done, LAW360 (March 31, 2022).
22. Id.
23. Penn, supra note 20.
24. Matthew Perlman, DOJ Told To Think Over 3rd Chicken Price-Fixing Trial, LAW360 (April 15, 2022).
25. Bryan Koenig, DOJ Says Hung Juries In Chicken Price-Fixing Trial ‘Irrelevant’, LAW360 (April 18, 2022).
26. Id. (emphasis added)
27. Order, United States v. Surgical Care Affiliates LLC, No. 3:21-cr-11, at Dkt. 108 (March 8, 2022).
28. United States v. Hee, No. 2:21-cr-00098, at Dkt 1 (D. Nev. March 26, 2021); United States v. Patel, No. 3:21-cr-220, at Dkt. 20 (D. Conn. Dec. 15, 2021).