US DOJ’s no-poach enforcement suffers major setback with judge acquitting six defendants mid-trial

In a rare and painful development for the DOJ today, a federal judge in Connecticut acquitted six aerospace industry executives mid-trial on the grounds that no reasonable juror would have found them guilty.

While it’s far from the first time the DOJ has lost a no-poach trial, todays’ decision is qualitatively different, not only because it didn’t even reach a jury, but because it strikes a blow to the government’s efforts to build case law supporting its arguments that such agreements are criminally illegal by their very nature.

The US Department of Justice’s antitrust division has been eagerly seeking a court ruling that locks in its interpretation of no-poach agreements as ‘per se’ criminal violations of antitrust law which amount to market allocation. While the enforcer has faced a string of losses before juries, it has claimed partial victories because the judges in these cases have agreed at early stages in the litigation that the case can be tried under the per se standard.

This standard in theory makes it much easier for the enforcer to win a case, because it doesn’t need to get caught in the weeds of discussing the effects of the agreements or defining the relevant market.

DOJ antitrust chief Jonathan Kanter and his staff have touted the merits of bringing challenging cases to develop the case law. But what happened today in the multi-week trial was a serious setback for the agency’s enforcement in labor markets, because for the first time the enforcer has, through its pursuit of the case, generated some actively unhelpful case law.

The DOJ declined to comment on the ruling.

How the DOJ lost

Judge Victor A. Bolden acquitted the executives by approving their Rule 29 motion. Such motions ask a judge to dismiss a case based on a lack of evidence. While it's possible to file one at any time, they typically land toward the end of the case, and can even be granted after the jury has had its say.

And the judge made this call in spite of the DOJ’s protests that it would be a “procedural injustice” to grant such a motion at this stage in the trial.

Lawyers will need to dust off old tomes to look up the last time the enforcer suffered such a blow. “It has been many years since a criminal antitrust case was dismissed on a Rule 29 motion,” said Carsten Reichel, a partner at Norton Rose Fulbright.

Put simply, the case was dismissed for lack of evidence. Yet there’s more to it than that. Much of today’s disastrous outcome for the DOJ can be explained by the way the judge handled the critical and difficult question of whether the case was being tried under a "per se" standard.

At the motion-to-dismiss stage, Bolden let the DOJ’s case move forward under a per-se standard because he found the DOJ properly pled conduct amounting to market allocation.

But once it came to admission of evidence before the trial started, the judge allowed evidence and testimony relating to market definition and the effects of the alleged agreements. He also excluded some evidence that the DOJ thought may have helped its case, MLex understands.

The DOJ appears to have spent the last year preparing to try a case where it didn’t have to address certain issues, only to see the goalposts moved at a late stage, where a more stringent "rule of reason" element was introduced into the case.

In today’s order, the judge swerved the question of defining outright when a no-poach is per-se illegal. Instead, he established only that this one was not.

“As a matter of law, this case does not involve a market allocation under the per se rule,” the judge wrote. The agreement, he concluded, appeared not to restrict the executives from hiring each other’s employees outright, and changed over time.

At the very least, the federal judge’s decision suggests that a bright-line rule cannot be applied to whether or not no-poach agreements are per-se illegal. But it also stops short of saying that no such agreement — such as more restrictive "naked" no-poach agreements — can be assessed under the per-se standard.

“Today’s ruling trends away from rulings in some earlier cases and will muddy the waters about the application of per-se rules to no-poach agreements,” Reichel told MLex.

DOJ’s conundrum

With an acquittal of the defendants in a criminal case, the case is dead. The DOJ can't appeal a Rule 29 order. It’s now faced with a decision from a federal judge that strikes a clear blow to its arduous efforts to establish a lower pleading standard in such cases.

The DOJ has failed to win four separate no-poach trials, although in October it did manage to secure the first guilty plea to criminal no-poach charges from Nevada-based VDA OC.

Based on the dismissal order, the DOJ may have prepared for a much less complex trial, only to find evidence admitted that allowed the jury to consider the details and effects of the agreement, rather than the simple question of whether one existed at all.

If the writing was on the wall before the trial started that the case was going to be very different from the one the DOJ thought it would fight, this raises the question of why it pushed ahead.

The enforcer knew from the first day of the trial that it now faced an uphill battle, MLex understands. But true to the bullish attitude of DOJ antitrust chief Jonathan Kanter, who has vowed to pursue tough cases or risk underenforcement, it opted to fight regardless.

The enforcer could have dropped the case, but instead it stuck to its guns and got a stinging and historic rebuke from the judge, who essentially found its case meritless, and gave the DOJ a solid piece of case law that is exactly the opposite of what it was looking for.

Today’s ruling could perhaps give the DOJ pause to reflect on how it litigates such cases.

"Where you have a pattern of your legal framework at some point not holding up against the facts, you should reevaluate whether those are the kinds of cases that you ought to be bringing in the absence of truly egregious facts that are not so reliant on a stretch, potentially, of the legal theory on which you're bringing the claim," said Chris Robertson, a partner at Seyfarth Shaw LLP.

Robertson represented the Society for Human Resource Management in this case, who weighed in with an amicus brief arguing the DOJ’s current criminal prosecution of no-poach agreements creates a degree of uncertainty that effectively bans human resources practices from utilizing multiple staffing agencies.

“Something has gone seriously wrong over at the Antitrust Division,” said Michael Tubach, a partner at O'Melveny & Myers, said. “They are making bad charging decisions, and it’s showing in the results.”

“Rather than tell his prosecutors to ‘dance like no one’s watching,' Mr. Kanter should be doing a deep dive on why his Division keeps losing. Maybe that is something the new criminal leadership in the Division will undertake,” added Tubach, who represented Pilgrim's Pride CEO Jayson Penn in a chicken price-fixing case that the DOJ took to trial three times.

Tubach was referring to public remarks made by Kanter about how he motivates staff at the antitrust division to keep fighting cases.

Upcoming cases

It’s not the end of the DOJ’s fight against no-poach agreements. A criminal case against Surgical Care Affiliates is still sitting at a Texas federal court, and the planned trial has faced delays.

While Texas belongs to a different Circuit Court than the Connecticut court, it’s likely the defendants in that case will point to today’s ruling to boost their motion to have it dismissed, which is still pending.

Meanwhile, civil litigation presses ahead. The US Court of Appeals for the Seventh Circuit is currently mulling an appeal in a no-poach case involving McDonalds and its hiring agreements with franchisees, the outcome of which could provide some much-needed guidance from a federal appeals court.

Parallel civil litigation against the companies the individuals acquitted today worked for — including Raytheon subsidiary Pratt & Whitney, QuEST Global Services, and Cyient — recently survived a motion to dismiss at the same court

The effect of today’s ruling on that case is unclear at this stage. Civil plaintiffs have a lower bar to prove their case. The reasoning set out by the judge for acquitting the defendants — that there were exemptions to the agreement, meaning it didn’t amount to a naked no-poach restriction — would likely go more to the question of damages than of overall guilt in a civil case. Whether the acquittal of the criminal defendants would be admitted into the trial record, potentially influencing the jury, is also an open question.

The illegality of no-poach agreements is a separate question to that of whether they can be prosecuted as a crime. The executives acquitted today may have won their freedom, but the companies they worked for are still facing the prospect of damages. And the criminal case law could still evolve in the DOJ's favor in the longer-term.

Whether the DOJ will change its litigation approach to no-poach agreements in the aftermath of today's decision remains to be seen.

The DOJ hasn’t filed a new no-poach case, or announced a new indictment, in some time. But despite the setbacks, the enforcer is still committed to litigating no-poach cases, MLex understands.

—With additional reporting by Khushita Vasant