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Acquittals in the First Two Wage-Fixing and No-Poach Criminal Trials

Last month, the first two trials arising from the DOJ’s recent push to criminally prosecute wage-fixing and employee non-solicitation agreements both ended in acquittals on the antitrust charges.  (Check here for our previous coverage of this prosecution trend.)  In United States v. Jindal, the defendants were acquitted on charges of price-fixing, while in United States v. DaVita Inc., DaVita and its CEO were acquitted on charges that they engaged in no-poach agreements with competitors.  Though the DOJ has publicly declared its intent to continue pursuing such prosecutions, these setbacks may affect how it approaches other alleged labor-market antitrust violations.

Jindal: Acquittal on Price-Fixing Charges

Jindal is the DOJ’s first-ever criminal wage-fixing case.  The DOJ charged Neeraj Jindal, the former owner of a Texas healthcare staffing company, and John Rodgers, the company’s former clinical director, with colluding with a competitor to decrease pay rates for physical therapists and their assistants.  United States v. Jindal, et al., No. 4:20-cr-00358 (E.D. Tex.). Recall that the Eastern District of Texas denied Jindal and Rodgers’s motion to dismiss last fall, holding that wage fixing is tantamount to price fixing and is thus per se illegal under the Sherman Act. 

The defendants fared better at trial.  Over the six-day trial, prosecutors argued that Jindal and Rodgers agreed with the owner of a competitor to reduce wages and tried to recruit four other competitors to join them in doing so.  Allegedly, this was part of a scheme to pump up their company’s market value as Jindal tried to sell it.  The government’s star witness was the owner of Jindal and Rodgers’ competitor, with whom they had allegedly colluded, and who received a leniency agreement from the government in exchange for her cooperation.  She testified at trial that she and Rodgers had agreed in text messages to lower wages.  For instance, Rodgers had texted her, “I think we’re going to lower [physical therapist assistant] rates to $45,” and she responded, “Yes I agree,” “I’ll do it with u,” and “I think the PT’s need to go back to 60 … Our margins are disappearing.” 

Defense counsel attacked the cooperator’s credibility by pointing out that her trial testimony differed from what she told the FTC when it investigated this scheme in 2017, before she received leniency.  Transcripts of those proceedings show that she told the FTC she never thought Rodgers was serious about the alleged scheme and that she was just pretending to go along with him.  According to defense counsel, the co-conspirator had been coached by the government in exchange for leniency and, without her testimony, there was no evidence of any deal to lower wages.  In fact, defense counsel contended the co-conspirator did not follow through on this alleged deal, as evidenced by the fact that she never reduced the wages her company paid.  Jindal and Rodgers did not testify. 

The defendants’ strategy appears to have worked: Jindal and Rodgers were acquitted of the wage-fixing charges.  However, Jindal was convicted of obstructing the FTC’s investigation of the allegations by lying to the agency and giving it incomplete documents, for which he faces a maximum of five years in prison. 

DaVita: Acquittal on No-Poach Allegations

Just a day after the Jindal acquittal, a Colorado federal jury found DaVita, a kidney dialysis provider, and its former CEO, Kent Thiry, not guilty of no-poach allegations in another defeat for the DOJ.  Judge Jackson had previously denied DaVita and Thiry’s motion to dismiss, holding that naked[1] no-poach agreements that allocate markets are per se illegal.  But the defendants won two key pretrial victories that may have limited the impact of the per se holding.

First, they persuaded Judge Jackson to instruct the jury that the government had to prove that the defendants entered into the conspiracy “with the purpose of allocating the market”—that is, that they “sought to end meaningful competition for the services of the affected employees.”  The government posited that it only had to prove a “conspiracy to allocate employees,” but the court rejected this, reasoning that “non-solicitation agreements are not per se violations of the Sherman Act, but non-solicitation agreements aimed at allocating markets are” (emphasis added).

Second, even though this was a per se case, the court permitted the defendants to introduce “evidence of salary increases and other beneficial effects” because, the court found, such evidence was “relevant to disprove that the purpose of the agreement was to allocate a market.”  The court explained that “[s]uch evidence might plausibly show an alternative purpose of the agreement, which would make it less likely that the defendants’ purpose was to allocate the market.”  The government objected that “evidence of an alternative purpose might be used by defendants to argue that the agreement was justified”—which is impermissible in a per se case—or that such evidence might leave the jury with the misimpression that the government had “to prove that the sole purpose of the conspiracy was to allocate the market.”  To address these concerns, the court instructed the jury as follows:

A conspiracy can have multiple purposes. Allocating the market need not have been the conspiracy’s sole purpose for you to conclude that it was the conspiracy’s purpose.

If 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 harm or procompetitive 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).  If there was, in fact, a conspiracy as charged in each count of the Indictment for the purpose of allocating the market, it was illegal. 

At trial, the DOJ accused DaVita and Thiry of bullying three competitors—each run by DaVita alumni—into agreeing to (1) avoid recruiting DaVita’s executives and (2) tell DaVita employees applying to work for any of the three competitors that they had to alert DaVita they were considering leaving before they could receive an offer.  The government put forth several cooperating witnesses from the other companies to testify about these deals, as well as a former DaVita executive who claimed that he stopped pursuing a job with one of the other companies once it asked him to tell DaVita about his application. 

The defense admitted DaVita had entered into these agreements, but disputed whether their purpose was to allocate the market.  One motive of these deals was to increase competition: having DaVita employees tell their bosses they were thinking of leaving enabled DaVita to offer better pay and promotions to try to keep those employees.  As support for this, the defense noted that the former DaVita executive admitted on cross-examination that, in one instance, he had told DaVita about an offer he had received from a competitor and used it to leverage a raise.

Defendants also argued that an agreement involving just four companies was too small to diminish meaningful competition in such a large market.  And their expert witness opined that there was no statistical evidence that the agreements led to a decline in (1) hires from DaVita to the other companies, (2) turnover at DaVita, or (3) compensation at DaVita.  Thiry, who had separate counsel from DaVita, did not testify. 

During deliberations, the jury asked the court to define “meaningful competition.”  The court responded: “‘Meaningful competition’ essentially is another way of saying ‘significant competition’ or ‘competition of consequence.’”  After deliberating for two days, the jury then acquitted DaVita and Thiry on all counts. 

Impact on Labor Market Enforcement Going Forward

DOJ officials have said that these acquittals will not deter the department from continuing to bring criminal labor-market cases.  Assistant Attorney General Jonathan Kanter declared at a conference last week that “we’re not part of the chickenshit club”—a reference to a 2018 book by Jessie Eisinger that accused the DOJ of being soft on white-collar crime—and that the Jindal and DaVita motion-to-dismiss decisions were “extremely important cases establishing that harm to workers is an antitrust harm.”

But these verdicts could make the DOJ more cautious about the labor-market cases it chooses to pursue as criminal violations of the Sherman Act as opposed to civil cases where the burden of proof is lower.  Given these defendants’ success, future defendants facing criminal charges involving alleged labor-market conspiracies may be emboldened to go to trial (rather than settle) and emulate the strategies used in Jindal and DaVita.  In fact, Surgical Care Affiliates—one of DaVita’s alleged co-conspirators, whose motion to dismiss no-poach charges remains pending—recently notified the court about these acquittals, claiming the verdicts support its dismissal bid. 

While the DOJ’s motion-to-dismiss victories were important to establishing the legal framework for such claims, the trial rulings permitting evidence of procompetitive motives and effects may also prove to have a meaningful impact on how these cases play out.  We’ll continue to monitor how the DOJ’s other labor-market prosecutions fare.

[1] As Judge Jackson explained, a “naked” restraint is one that has “no purpose except stifling competition,” in contrast to a restraint that is “ancillary to a legitimate procompetitive business purpose.”