Developments in U.S. Antitrust Criminal Enforcement — 2022 Year in Review

Introduction

The Department of Justice (DOJ) Antitrust Division has continued to be active in criminal enforcement over the last year, with a renewed focus on Section 2 enforcement, continued scrutiny of no-poach agreements and the labor market, the conclusion of its Broiler Chickens prosecutions, and continued activity by the Procurement Collusion Strike Force (PCSF). This Advisory details major developments in US criminal antitrust enforcement for 2022 and offers insights into what to expect in 2023.

Recent Trends and Areas of Focus

Renewed Focus on Section 2 Enforcement

2022 marked the resurrection of criminal enforcement by DOJ for violations of Section 2 of the Sherman Act. Section 2 expressly provides for criminal penalties for three types of conduct: monopolization, attempts to monopolize, and conspiracies to monopolize. But before this year, DOJ had not brought a criminal Section 2 case since the 1970s—choosing to exercise its discretion to pursue Section 2 violations through civil enforcement.

Beginning in fall 2021, DOJ signaled its intention to renew criminal enforcement under Section 2, as reported on Arnold & Porter’s Enforcement Edge blog.¹ This policy became official at the April 2022 DOJ-FTC Enforcer’s Summit, where AAG Kanter stated that he would enforce Section 2 as written and announced DOJ’s policy to return to criminal enforcement of certain Section 2 violations.² As part of that announcement, the Justice Manual was amended to add that DOJ “may also bring, and has brought, criminal charges under Section 2.”³ Despite the significant shift in policy, DOJ has not issued any written guidance specifying what types of conduct constitute criminal—rather than civil—violations of Section 2, instead noting that a “long history of Section 2 prosecutions and accompanying case law show us the way forward.”⁴

DOJ did not wait long to bring cases under the new policy:

• United States v. Zito. In September 2022, DOJ charged Nathan Nephi Zito, owner of a paving and asphalt company, alleging a standalone violation of Section 2 by attempting “to monopolize the markets for highway crack-sealing services in Montana and Wyoming by proposing that his company and its competitor stop competing and allocate regional markets.”⁵ In October 2022, Zito pleaded guilty to attempted monopolization and agreed to pay a $27,000 criminal fine.⁶ Because there is no sentencing guideline for Section 2 offenses, the parties agreed to apply the sentencing guideline for Section 1 violations.

• United States v. Martinez. In November 2022, DOJ filed an indictment against 12 individual defendants for, among other things, a Section 1 violation for conspiring to fix prices and allocate markets for transmigrante forwarding services and a Section 2 violation for conspiring to monopolize transmigrante forwarding services.⁷ If the case proceeds to trial, this will be the first criminal Section 2 trial since the 1970s.

Takeaways

DOJ’s Section 2 enforcement efforts complement and expand its existing Section 1 enforcement program by addressing invitations to collude and other types of horizontal anticompetitive conduct. Zito involved an attempted Section 1 conspiracy; had the rival agreed to Zito’s invitation to allocate the market, the parties could have been charged under Section 1 as well as a conspiracy to monopolize under Section 2. Unlike Section 2, Section 1 does not have an “attempt” prong and therefore does not penalize unsuccessful invitations to collude. Martinez involved both a traditional Section 1 conspiracy as well as a Section 2 conspiracy to monopolize the market through threats of violence.

These developments expand the universe of competitor communications that present potential criminal enforcement risk. Corporate compliance programs should account for these new risks and ensure that antitrust training addresses all communications with actual and potential competitors. Notably, the companies involved in these cases were not large corporations—highlighting that the risk of Section 2 criminal liability applies to companies of all sizes.

No-Poach Agreements and Labor Markets

The Biden Administration has continued the labor-market enforcement focus that began in the Obama Administration. Antitrust concerns involving labor markets were addressed in the President’s executive order⁸ as well as memoranda of understanding among DOJ, the Department of Labor, Federal Trade Commission, and the National Labor Relations Board to cooperate on enforcement relating to labor issues within their respective jurisdictions.⁹

DOJ also brought notable labor market cases in the past year:

Healthcare Industry Cases

• United States v. Jindal. DOJ filed the first wage-fixing indictment in December 2020 in United States v. Jindal, charging the former owner of a therapist staffing company, Neeraj Jindal, with a price-fixing conspiracy aimed at lowering the rates paid to physical therapists and physical therapist assistants.¹⁰ DOJ also charged the defendants with obstructing an FTC investigation into the conduct.¹¹ The court denied the defendants’ motion to dismiss, finding that wage fixing is a form of price fixing and thus is a per se violation of the Sherman Act.¹²

• United States v. DaVita and United States v. Surgical Care Affiliates, LLC. DOJ filed the first no-poach indictment in January 2021 in United States v. Surgical Care Affiliates, LLC for alleged non-solicitation agreements between competing healthcare companies.¹³ Surgical Care Affiliates, LLC (SCA) was alleged to have joined two conspiracies in which it agreed with competitors that the companies would not solicit each other’s senior-level employees in the outpatient medical care sector. In July 2021, DOJ indicted DaVita Inc. and a former senior executive for allegedly participating in three separate bilateral conspiracies with competing employers, including SCA, not to solicit each other’s senior-level employees.¹⁴
  
  The DaVita defendants moved to dismiss the charges, arguing that non-solicitation agreements are not per se violations of the Sherman Act, while DOJ argued that non-solicitation agreements fit within traditional per se market allocation. The court declined to dismiss the case, but took a middle ground approach, finding that not all non-solicitation agreements are per se illegal market allocations.¹⁵ The court ruled that in order to prevail, DOJ would need to prove at trial that the “defendants entered into [the non-solicitation] agreement with the purpose of allocating the market.”¹⁶ By requiring the government to prove that defendants intended to allocate the market rather than proving simply that defendants intended to enter into a non-solicitation agreement, the court opened the door to a defense that the non-solicitation agreements were entered for other—permissible—purposes.
  
  And on consecutive days in April 2022, DOJ was dealt setbacks in its two first criminal labor market trials. On April 14, the Jindal defendants were acquitted of the Sherman Act charges.¹⁷ And on April 15, DaVita and its former CEO were acquitted of all charges.¹⁸ One Jindal defendant was convicted of obstructing the FTC investigation and was sentenced in December 2022 to three years of probation.¹⁹

• United States v. Hee. In March 2021, DOJ charged Ryan Hee and his former employer, VDA, with participating in a wage-fixing and no-poach conspiracy affecting school nurses.²⁰ VDA moved to dismiss the charge, raising similar arguments as in the previous two cases.²¹ After the court declined to dismiss the case, VDA pleaded guilty and agreed to pay a fine and restitution totaling $134,000.²² VDA is the first criminal defendant to be convicted of a labor-market antitrust offense. Hee recently entered into a pre-trial diversion agreement, which allows him to resolve the case without a criminal conviction.²³

• United States v. Manahe. On January 27, 2022, DOJ indicted managers of home health care agencies in Maine, alleging a wage-fixing and no-poach conspiracy taking place during the pandemic. Echoing the charges in Jindal and VDA, DOJ alleged that in virtual and in-person meetings and in group text messages, defendants discussed “fixing the hourly rates for PSS [Personal Support Specialist] workers and refraining from hiring each other’s PSS workers.”²⁴ Trial is scheduled for March 2023.²⁵

Aerospace Industry Case

While many of the first criminal labor market cases have been in the healthcare space, DOJ also has been active in other industries. In United States v. Patel, DOJ alleges that an aerospace company executive, along with several suppliers of engineering services, engaged in a conspiracy to restrict hiring and recruiting of engineers and other skilled workers.²⁶ The indictment alleges that Patel, who worked for the customer company, orchestrated a conspiracy among his engineering suppliers to restrict them from poaching each other’s employees. As with the previous cases, defendants moved to dismiss the indictment, but the government again prevailed in opposing the motion.²⁷

The court held that no-poach conspiracies may be subject to per se treatment as a form of market allocation of employees. But the court acknowledged that whether per se treatment is appropriate in a given case is a fact-specific inquiry and indicated that the per se rule would be appropriate if the agreement had the potential to result in suppressed wages.²⁸

Because Patel’s employer and its suppliers had legitimate business relationships, the defendants argued that the ancillary-restraints doctrine precluded application of the per se rule in this case, but the court declined to resolve that issue at the dismissal stage. The court noted a circuit-split regarding which party carries the burden to prove that an alleged restraint is ancillary, and thus not appropriate for criminal prosecution. DOJ has taken the position that ancillarity is an affirmative defense, and reserved the right to argue at trial that defendants bear the burden of proof. We expect the application of the ancillary-restraints doctrine to be a central issue in this case, with potential precedential effect in other cases.

The court also rejected arguments that, because the suppliers had a vertical relationship with their common customer, the restraints were not purely horizontal. The court emphasized that, although there may have been vertical relationships, the alleged restraint was purely horizontal.²⁹ The court found that, according to the indictment, the common customer allegedly served as the hub in a horizontal hub-and-spoke conspiracy. Trial is currently scheduled for March 2023.

Takeaways

DOJ has been successful defending its legal theories against motions to dismiss, but DOJ so far has been unsuccessful persuading juries at trial. The only labor-market antitrust conviction resulted from a guilty plea by a defunct company (VDA), while the defendant employee in that case will be able to escape a criminal conviction if he satisfies the terms of his pretrial diversion agreement. Going forward, the Patel case may bring more clarity on the application of the ancillary-restraints doctrine in criminal antitrust cases. In any event, companies—particularly those in industries involved in current DOJ investigations—need to remain vigilant with their compliance efforts as labor-market antitrust enforcement remains a top DOJ priority.

Procurement Collusion Strike Force

PCSF is an interagency partnership led by the Antitrust Division to detect, investigate, and prosecute antitrust and related fraud offenses in government procurement. PCSF includes 22 US Attorney’s Offices across the country, as well as 34 federal, state, and local government agencies.

PCSF was active in the past year, with some notable cases below:

• United States v. Contech Engineered Sols. LLC. In October 2020, an engineering firm and its former executive were indicted for conspiring to rig bids for aluminum structure projects for the North Carolina Department of Transportation. The firm pleaded guilty in June 2021 and was sentenced to pay $7 million in criminal fines and over $1.5 million in restitution.³⁰ In February 2022, the executive was found guilty at trial of antitrust and fraud charges,³¹ and he was sentenced to 18 months’ imprisonment.³²

• United States v. Dornsbach. In March 2022, DOJ indicted Steven Dornsbach and his concrete repair and construction company Kamida Inc. for allegedly agreeing to rig bids for concrete repair and construction contracts in the state of Minnesota.³³

• United States v. Kwon. In March 2022, DOJ indicted two officers of a South Korean construction company, alleging a conspiracy to rig bids on repair and maintenance work on US military bases in South Korea.³⁴

• United States v. Yong. In April 2022, a former contract manager for the California Department of Transportation (Caltrans) pleaded guilty for his role in a bid-rigging and bribery scheme involving Caltrans’ improvement and repair contracts.³⁵ Two co-conspirators pleaded guilty for their roles in the same conspiracy in October and November 2022.³⁶

• United States v. Langan Insulation LLC. In 2020, an insulation company and its co-owner pleaded guilty to conspiring to rig bids for contracts to install pipe and duct insulation in Connecticut. They were sentenced in September 2022 to a $150,000 fine and one year and a day in prison, respectively.³⁷ Another company pleaded guilty in August 2022 to the same conspiracy and was sentenced in November 2022 to a fine of $1,001,989 and roughly $313,000 in restitution.³⁸

Takeaways

These cases demonstrate that PCSF scrutiny is not limited to any particular industry or geography—it reaches anyone who sells goods and services to US local, state, or federal government entities, whether domestically or abroad. In addition to criminal penalties, PCSF prosecutions often result in significant collateral consequences. The government may pursue parallel civil damages actions under the Clayton Act, which is enforced by the Antitrust Division, as well as the False Claims Act, which is enforced by the DOJ Civil Division. And administrative enforcement may lead to potential suspension and debarment from government contracting. Accordingly, PCSF cases require a comprehensive strategy addressing not only the criminal investigation but also any related actions that may follow.

Broiler Chicken Industry Prosecutions

DOJ’s high-profile prosecutions alleging a sprawling price-fixing and bid-rigging conspiracy among the largest companies in the broiler chickens industry started with a bang and ended with a whimper. Between June and October 2020, DOJ indicted several high-level executives,³⁹ and, in February 2021, DOJ secured a guilty plea from Pilgrim’s Pride, which agreed to pay a fine of $107.9 million.⁴⁰

DOJ’s subsequent enforcement efforts were less successful. After trials of industry executives in December 2021 and March 2022 resulted in hung juries,⁴¹ DOJ dismissed its case against five of the ten defendants. The remaining executives were acquitted by a Denver federal jury after a third retrial in July 2022.⁴² In a related prosecution of four executives in United States v. McGuire et al., DOJ dismissed charges against two executives in August 2022 and against the remaining two executives in October 2022.⁴³ And in United States v. Norman W. Fries, Inc. et al., DOJ moved to dismiss charges against Claxton Poultry and Koch Foods in September 2022.⁴⁴

DOJ’s efforts demonstrate that it is willing to pursue cases aggressively, even when facing significant litigation risk. In addition, despite prevailing in the criminal cases, companies and executives nevertheless faced significant collateral consequences as a result of being charged. These types of enforcement actions typically expose companies and executives to follow-on civil litigation and to significant reputational harm.⁴⁵ 

What to Expect in 2023

New Leadership at the Antitrust Division

Assistant Attorney General Jonathan Kanter has been at the helm of the Antitrust Division (Division) for a little over a year. It is now clear that the new leadership’s approach is very aggressive and litigation-focused. Under AAG Kanter, the Division has shown an increased appetite for trial and a willingness to absorb losses without being deterred. As a result, we expect more criminal antitrust indictments and trials in 2023.

DOJ recently appointed a new Deputy AAG for criminal enforcement, Manish Kumar. Deputy AAG Kumar was the Chief of the Division’s San Francisco office and previously led the price-fixing case against Bumble Bee Foods CEO Christopher Lischewski.⁴⁶ Deputy AAG Kumar is an experienced criminal antitrust prosecutor and should bring continuity to the Division’s ongoing matters.⁴⁷

AAG Kanter and Deputy AAG Kumar will lead DOJ’s criminal antitrust enforcement program at a time when criminal fines are at a multi-decade low. The Division reported criminal fines totaling $2 million for 2022—which is lower than in any other year since at least 2010.⁴⁸ The total number of criminal cases filed also is at the lowest number over the same period.⁴⁹ As leniency applications have dropped worldwide over the past several years,⁵⁰ DOJ has taken an increasingly litigation-focused approach to enforcement, and its 2022 statistics show that this approach comes at a cost. Litigating cases requires a significant investment in staff time and resources, which in turn limits the number of matters the Division is able to bring. Litigating cases also brings the risk of trial losses, which result in no penalties. Nevertheless, the Division appears committed to its current approach and successful results in upcoming trials may reverse these statistics.

Upcoming Trials

Several criminal antitrust trials are currently scheduled for 2023:

• United States v. Patel. Trial is set for March 2023.

• United States v. Manahe. Trial is set for March 2023.

• United States v. Harwin. The retrial of this case is set for April 2023.⁵¹ This case involves allegations that two medical centers conspired to allocate the market for cancer treatments in south Florida. It was originally tried last year, but the court declared a mistrial when deliberations were disrupted by Hurricane Ian before the jury was able to reach a verdict.

• United States v. Martinez. Trial is set for August 2023.

• United States v. Aprahamian. As part of the Division’s long-running generic drug price-fixing investigation, a former pharmaceutical executive is scheduled for trial in October 2023.⁵²

• United States v. Surgical Care Affiliates, LLC. No trial date has been set.

Risk Areas to Watch in 2023

Continued Attention to Labor Markets. Labor market antitrust enforcement remains a top priority, and it appears DOJ may be considering additional theories of liability. In February 2022, DOJ filed a statement of interest in a private civil action taking the position that a non-compete agreement with an employee can be a per se violation of Section 1. DOJ’s theory was that employee non-competes that prohibit the employee from competing directly with the employer are horizontal agreements potentially subject to per se treatment (while acknowledging that an agreement with the employee that prevents the employee from working for another employer would be a vertical agreement subject to the rule of reason).⁵³ Relatedly, FTC recently proposed a rule banning non-compete clauses in employment contracts under most circumstances; FTC is currently seeking public comments on the proposed rule.⁵⁴ These recent agency actions demonstrate that companies should be focused on all agreements that may restrict competition in labor markets, including non-solicitation agreements and non-compete agreements.

Environmental, Social, and Governance (ESG) Initiatives. Increasing attention to ESG-related efforts has been accompanied by concerns about antitrust risk. For example, several state attorneys general have argued that certain climate initiatives to reduce fossil-fuel use constitute group boycotts in violation of antitrust laws.⁵⁵ Other jurisdictions, such as the European Union, have pursued cartels restricting innovation in environmental technologies.⁵⁶ Whether DOJ would pursue ESG-related agreements as per se violations of the Sherman Act likely will depend on the facts of each case, but AAG Kanter has made clear that there is no ESG exception to the antitrust laws.⁵⁷

Section 2 Enforcement. Having gotten its Section 2 initiative off the ground in 2022, DOJ will be emboldened to increase its momentum in this area. Companies should expect scrutiny for “attempt” violations involving unconsummated invitations to collude, as well as conspiracy violations involving agreements among competitors to divide markets and/or to exclude others from the market.

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.