On April 28, 2023, a US District Court for the District of Connecticut judge dismissed the US Department of Justice’s (DOJ) criminal non-solicitation case against six aerospace industry employees, acquitting all the defendants in U.S. v. Patel, et al. Importantly, the court held that the case, as a matter of law, “does not involve a market allocation under the per se rule.” In reaching this stinging decision, the trial court seized on many of the key arguments, themes and rulings that the defense made in the U.S. v. DaVita, Inc. and Kent Thiry criminal non-solicitation trial from 2022. In that case, McDermott represented DaVita’s former CEO, who was acquitted on all counts along with DaVita.
In 2021, DOJ indicted six aerospace industry employees, alleging that they engaged in a hub and spoke conspiracy between a manager at an aerospace firm and executives at five other engineering service providers to that firm. DOJ charged that the defendants allegedly agreed to refrain from hiring engineers and/or other skilled workers from each other relating to projects for an aerospace firm.
The timing of the court’s dismissal under Federal Rule of Criminal Procedure 29—at the conclusion of DOJ’s evidence and before the case reached the jury—is quite rare. Dismissing under Rule 29 requires a court, viewing the evidence in the light most favorable to the government, to determine the evidence that the defendant committed the crime alleged is nonexistent or so insignificant that no reasonable jury could find guilt beyond a reasonable doubt. It is a heavy burden for a defendant to successfully challenge the sufficiency of the evidence—and one that the Patel defendants were able to satisfy. DOJ cannot appeal this Rule 29 order.
In its ruling dismissing the case against the six defendants, the court cited as precedent several of the key arguments and rulings from the DaVita and Thiry criminal trial. For example, the Patel court highlighted that—citing DaVita and Thiry—workers were still able to switch between different engineering staffing companies and that hiring “among the relevant companies was commonplace throughout the alleged agreement.” In addition, the court found that the “alleged agreement itself had so many exceptions that it could not be said to meaningfully allocate the labor market of engineers.” Given this—and again relying on DaVita and Thiry—the court ruled that “no reasonable juror could conclude that there was a ‘cessation of “meaningful competition” in the allocated market.’”
The Patel court’s order dismissing the charges against the defendants was not the only significant ruling in the case. Just prior to trial, the court denied DOJ’s motion to prevent defendants from presenting evidence of the procompetitive justifications for their alleged conduct at trial. The court noted that such evidence was relevant to the defendants’ planned ancillarity defense, writing that “the procompetitive evidence at issue here is relevant because it relates to whether defendants joined the charged conspiracy, whether the conspiracy existed as alleged, and whether defendants had the requisite intent to join such a conspiracy.” This permitted the defendants to introduce evidence that any alleged restrictions were ancillary, or reasonably necessary, to achieving the legitimate and procompetitive purposes of a business collaboration; this is significant because if the restraint is ancillary, the alleged violation would not be per se unlawful but would be subject to the far more lenient rule of reason review. Importantly, the court’s proposed jury instructions demonstrated the importance of this planned defense: “Even if the government proves the three elements beyond a reasonable doubt, if the charged agreement is ancillary to a legitimate business collaboration you must find the defendants not guilty. The government bears the burden of proving the charged agreement is not ancillary.” Finally, the court also denied DOJ’s request to exclude evidence from three experts; this provided the defendants the opportunity to present evidence from experts relating to the lack of harm from the alleged conduct.
The Patel decision marks DOJ’s fourth consecutive loss in its alleged labor market collusion trials against companies and individuals. Despite the losses, DOJ has trumpeted its success in its labor market prosecutions because judges have thus far declined to grant motions to dismiss (finding that the government had adequately pled its case) and allowed prosecutions to proceed on a per se or categorically illegal standard. This result is different, and DOJ will not be able to advance its prior assertions of success here. And that is because the court explicitly stated—after DOJ’s evidence had been presented—that the alleged market allocation conduct in the Patel matter did not fall under the per se rule. This reflects a rebuke of DOJ’s arguments in the labor market space and raises questions about the viability of its criminal labor market investigations and prosecutions, particularly as it relates to alleged non-solicitation agreements.
Of note, the court’s pretrial ruling on ancillarity placed an additional evidentiary burden on DOJ. In other words, the court required DOJ to prove beyond a reasonable doubt that the alleged agreement was not subordinate and collateral to a separate, legitimate business collaboration, and that the alleged agreement was not reasonably necessary to achieving the legitimate and procompetitive purposes of the business collaboration. This additional burden of proof for the government is substantial and reflects a potential shift further away from the traditional per se standard in the labor market context.
Both the April 28, 2023, dismissal and the pretrial ruling discussed above puts the Patel matter closely in line with ordinary rule of reason litigation (weighing the procompetitive benefits against the anticompetitive harm) that allows defendants to justify their conduct or assert that, on balance, it did not actually harm competition. This is in sharp contrast with DOJ’s assertions that criminal labor market prosecutions are subject to the traditional per se standard and that evidence relating to procompetitive benefits, lack of harm, or the definition of the market is irrelevant.
Although the losses mount, DOJ has provided no signal that it intends to back off its aggressive posture in labor market investigations. To the contrary, recent statements from Assistant Attorney General Jonathan Kanter indicate that labor market investigations and prosecutions remain a top priority for prosecutors, and he referred to the prosecutions as “righteous.” In response to this approach, companies should remain vigilant and stay current with their antitrust compliance. Moreover, groups and individuals involved in hiring and compensation-related decisions may benefit from antitrust training relating to these issues, and they should ensure that direct and third-party employment agreements and arrangements are made with antitrust laws in mind.