Antitrust and Unfair Competition Law

Antitrust and Unfair Competition Law Section: E-Briefs, News and Notes-September, 2021

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Welcome to the September E-briefs, News and Notes. We hope you find this edition useful. I want to thank Anthony Leon for contributing an E-brief.  E-briefs is in need of additional volunteer authors.  If you would like to be on the email list of attorneys to whom I send out requests for help, please let me know. There is no obligation to take on any particular case, but if you get the email messages about e-briefs, you can jump in when time/interest allows.  Also, please get in touch if you have any comments or suggestions for new features.  Thanks.

eBriefs

Suzanne Somers v. QVC, Inc., Civ. No. 19-cv-04773 (E.D. Pa. August 9, 2021) | Anthony Leon

A reminder for affiliated companies that the joint-client privilege is narrowly construed.

By Anthony Leon

On August 9th, 2021, the Honorable United States District Judge Chad F. Kenney granted in part Suzanne Somers and SLC Sweet, Inc.’s motion to compel, ordering QVC, Inc. to produce certain communications judged improperly withheld on the basis of the attorney-client privilege. Suzanne Somers, et al. v. QVC, Inc., Case 2:19-cv-04773-CFK (E.D. Pa, August 9th, 2021)

The order came in the context of an antitrust, misrepresentation, and breach of contract dispute brought by Suzanne Somers and SLC Sweet, Inc. (Plaintiffs) against QVC, Inc (Defendant). Plaintiffs argue QVC—together with the recently acquired HSN—purposefully plotted Plaintiff’s removal from the dietary supplements market.

American celebrity and businesswoman Suzanne Somers owns SLC Sweet, Inc., a company in the business of health and wellness products such as dietary supplements. Their products were made available through various retail channels, including the internet and television shopping network Evine. In March 2017, Evine’s rival and television shopping network leader QVC entered into an agreement with Plaintiffs for QVC to purchase, market, and sell Plaintiffs’ products. The deal grants QVC an exclusive right to “promote the products through direct response television programs,” as well as stipulates a non-compete clause, Case 2:19-cv-04773-CFK, Exhibit A, at 2, 7.

However, subsequent events led Plaintiffs to believe that QVC, at the time of the agreement, had no interest in honoring the contract. Instead, Plaintiffs allege QVC only entered into the agreement to remove Plaintiff from the dietary supplements market. 

Indeed, before entering into this agreement, QVC’s parent channel Qurate Retail Group initiated negotiations to acquire QVC’s rival home shopping space HSN, where Plaintiffs’ successful competitor Andrew Lessman was the exclusive dietary supplements vendor. Together, not only QVC and HSN would control about 95% of the direct response television programming market, but QVC would also be able to partner with Lessman and sell their dietary supplement. The acquisition occurred in July 2017.

Plaintiffs believe QVC and HSN knew about Qurate’s intention to acquire HSN before QVC contracted with Plaintiffs. Signing this agreement would ensure Plaintiffs would not be able to sell their products through a separate channel. To further attest these allegations, Plaintiffs allege QVC added restrictions on their products that were not applied to competitor Lessman. Due to these restrictions, Plaintiffs claim QVC intentionally breached the contract in several instances. All in all, Plaintiffs believe their deal with QVC was solely intended to benefit Lessman and damage his competitors.

Plaintiffs filed a complaint against Defendant in October 2019 for breach of contract, violation of the UCC, violation of the California Unfair Competition Law, fraud, intentional interference with contractual relations, and violation of Section 2 of the Sherman Act.

During discovery, Plaintiffs sought to establish QVC and HSN’s anticompetitive behaviors through communications between employees of each organization. Specifically, Plaintiffs sought to obtain from Defendant disclosure of two series of communications: (1) communications by and between HSN’s in-house counsel Mr. Gassett, and employees of QVC, about HSN’s contract with Mr. Lessman; and (2) communications from QVC attorney Mr. LaMonaca and employees of HSN pertaining to compliance with regulations and assessment of legal risks associated with approving on-air claims for the Plaintiffs’ nutritional supplements. Defendant argues these communications are protected by attorney-client privilege, which is also confirmed by their “Affiliate Company Shared Services Agreement.” Suzanne Somers, et al. v. QVC, Inc. at 2.

As Defendant refused to produce the communications they claim are privileged, Plaintiffs filed in May 2021 the present motion to compel. They request the Court to order Defendant to produce these communications. On August 9th, 2021, the Court granted in part the motion to compel, only requesting select communications to be produced to Plaintiffs.

Communications between a company’s counsel and its sister company’s employees are privileged if they were about a shared legal interest.

The Court reminded the four elements required for a communication to be privileged “: (1) a communication, (2) made between an attorney and client, (3) in confidence, and (4) for the purpose of obtaining or providing legal assistance for the client.” Id. at 6. Although the privilege is waived when the communication is shared with a third party, an exception to this rule can apply when the third party is a “joint-client.” This situation occurs when a single legal department represents affiliated companies, for example, when a parent’s legal department also represents its subsidiaries. Id. at 6. But the Court reminded that this joint-client privilege can only apply if the parties can show that the communication is “predominately of a legal character,” and the clients “share a common legal interest.” In other words, if the communication is not about a legal interest, or if the legal interest is not shared between the entities, then the privilege would not apply. Id. at 6.

Here, the Court found that only one of the two series of communications Plaintiffs requested to be produced is protected by the joint-client privilege. Id. at 8. The Court considered that communications from Mr. Gassett—HSN’s counsel—to QVC employees about HSN’s contract with Mr. Lessman are not protected by the joint-client privilege. Defendants have failed to show a common legal interest in knowing that a sister company complies with its contracts. While this may be a business interest for sister companies, this is not a legal interest. Therefore, even if the companies have a private agreement that stipulates they share legal representation, communications that pertain to business interests are not protected by the attorney-client privilege. The Court, however, found that the second series of communications involving QVC attorney Mr. LaMonaca and employees of HSN should be protected by the attorney-client privilege. Affiliated companies have a legal interest in knowing each of them is complying with the law. They also have a shared legal interest in communicating about defense in potential litigation. Because this second series of communications were related to compliance with regulations and assessment of legal risks associated with approving on-air claims for the Plaintiffs’ nutritional supplements, they are privileged. Id. at 9.

Plaintiffs failed to show Defendant waived the privilege.

In Rhone-Poulenc, the Third Circuit found that a party can have waived the attorney-client privilege by asserting defenses that put the attorney’s advice in issue in the litigation. Rhone-Poulenc Rorer Inc. v. Home Indem. Co., 32 F.3d 851, at 863 (3d Cir. 1994). This occurs, for example, if the client places at issue its counsel’s advice attempts to prove a claim or defense by disclosing or describing an attorney-client communication.

In this case, the Court found that the two elements Plaintiffs used to support their claim that Defendants waived the privilege were not sufficient at this point in the litigation. They speculated that “QVC will argue at trial that the claims review process was done in good faith,” using Mr. Gassett’s declaration that he “did his job in good faith” and that he did not use the claims review process to keep Plaintiffs’ products off the air. Id. at 10. However, for the privilege to be waived, the party invoking it must take an “affirmative step” in the litigation to place the attorney’s advice at issue. In this situation, Defendant has yet to assert a good faith or reliance on counsel defense. As a result “unless Plaintiffs can bring forward citations to the record showing that Defendant put Mr. Gasett’s conduct in the claims review process at issue as a defense, Defendant has not waived privilege at this time.” Id. at 11.

The Court finally notes if Defendant wanted to assert a good faith defense or reliance on advice of counsel, they have ten days to indicate it to the Court. Indeed, asserting such defenses would put advice of counsel at issue and waive the privilege over Mr. Gassett’s communications regarding the claims review process.  Id. at 12.

Conclusion

At this point of the litigation, the Court only granted the motion in part. Documents that were improperly withheld must be produced. This order should remind affiliated companies not to rely on a private services agreement they may have to ensure their communications are privileged.

On August 24th, the Court denied Plaintiffs’ motion for summary judgment on their breach of contract claim against Defendants, as well as Defendants’ motions for summary judgment on claims of fraud, breach of contract, interference with contracts, violations of the UCC. Judge Kenney will be deciding Plaintiffs’ motions for summary judgment on the antitrust and unfair competition claims on September 20th.

Animal Science Products, Inc. v. Hebei Welcome Pharma Co. Ltd., North China Pharmaceutical Group Corporation, Case No. 13-4791 (2d Cir. August 8, 2021)

This is an important case to review for anyone contemplating suing Chinse companies for price-fixing.  After a very lengthy history, including a trip to the Supreme Court, the plaintiffs will not be able to collect damages awarded by a jury. The Second Circuit held:

“Applying the Supreme Court’s instructions, we conclude once again that this case should be dismissed on international comity grounds. Giving careful consideration but not conclusive deference to the Ministry’s views, we read the relevant Chinese regulations—as illuminated by contemporaneous administrative documents and industry reports—to have required the defendants to collude on Vitamin C export prices and quantities as part and parcel of China’s export regime for Vitamin C. Balancing this true conflict between U.S. and Chinese law together with other established principles of international comity, we decline to construe U.S. antitrust law to reach the defendants’ conduct.”

Animal Science Products, Inc. v. Hebei Welcome Pharma Co. Ltd., North China Pharmaceutical Group Corporation,  Case No. 13-4791 (2d Cir. August 8, 2021)(hereinafter “Animal Science”

at 2-3.

The parties agreed that the alleged Vitamin C price fixing actually occurred.  The corporate defendants that went to trial (other defendants settled) argued that Chinse export laws required the Chinese companies to agree on Vitamin C export prices.  Defendants claimed that the case was, therefore, barred by international comity because Chinese law made it impossible for the defendants to comply with US antirust laws.  The question was whether Chinse law in fact made it impossible for the defendants to comply with U.S. antitrust law, such that a so-called “true conflict” existed. Animal Science at 4.  The Second Circuit concluded that a “true conflict” did exist and in light of this conflict, the court applied “principles of international comity to balance the United States’ interest in the enforcement of its antitrust laws abroad against the international comity concerns implicated when those laws conflict with the laws of China. We conclude that principles of international comity required the district court to dismiss this action.” Id. at 5.

Plaintiffs filed their price fixing action against four Chinse companies in 2005.  Defendants moved to dismiss based on the foreign sovereign compulsion doctrine, the act of state doctrine, and principles of international comity.  China’s Ministry of Commerce (the “Ministry”) filed an amicus curiae brief and several other submissions in support of the motion to dismiss.  The district court determined that there had been no foreign sovereign compulsion because the defendants’ anticompetitive conduct was voluntary, not compelled, and the defendants had not shown that they faced a risk of severe sanctions for noncompliance. 

The Second Circuit  reversed, finding that the district court erred, or “abused its discretion,” by failing to abstain on international comity grounds in light of the Ministry’s submissions showing a true conflict between U.S. antitrust law and Chinese export regulations for Vitamin C. In re Vitamin C Antitrust Litig., 837 F.3d 175, 189 (2d Cir. 2016). In this first review of the case, The Second Circuit held that when a foreign government directly participates in U.S. court proceedings by providing an official representation regarding the proper interpretation of its laws, the U.S. court is bound to defer to that interpretation so long as it is reasonable under the circumstances.  The Supreme Court reversed, holding that the Second Circuit gave too much deference to the Ministry’s submissions, and remanded to the circuit court to carefully consider the Ministry’s views without giving them dispositive effect. Animal Sci. Prods., 138 S. Ct. 1865, 1873 (2018).

Considering the case again, the Second Circuit found that a “true conflict between Chinese and US law existed and the district court should have dismissed this antitrust action based on international comity. Animal Science at 10.  The interest of the Chinse government in regulating its economy outweighed the interest  of the United States in enforcing its antitrust laws. Id. at 12.

The Second Circuit applied a multi-factor balancing test, mindful of the Supreme Court’s’ explanation in Hartford Fire that, to warrant dismissal on the basis of international comity, the two countries’ legal demands must be irreconcilable. The Court reviewed the history of Chinese export regulations regarding Vitamin C, including the submissions by the Chinese government, id. at 23-53, and concluded “[t]aking Chinese law at face value, and having given careful consideration to the Ministry’s statements about what the applicable laws required, we conclude that defendants were required to engage in price-fixing conduct violative of U.S. antitrust law.” Id. at 53.

Other factors weighed by the Second Circuit in upholding its finding that international comity precluded the price fixing action are:

            1.          Nationality of the Parties and Site of the Anticompetitive Conduct

            2.         Effectiveness of Enforcement and Alternative Remedies

            3.         Foreseeable Harms to American Commerce

            4.         Reciprocity

            5.         Possible Effect upon Foreign Relations

Id. at 56-63.

The Second Circuit also considered that the Department of Justice had not brought a criminal action against the defendants who conceded price fixing. The court also noted the US had other possible remedies such as the World Trade Organization or diplomatic efforts. 

Conclusion

The Second Circuit concluded “While the stakes are high for both countries, we conclude that the United States’ concern with extraterritorial enforcement of a private civil judgment under its antitrust laws is substantially diminished in these circumstances. In light of these considerations of international comity, we do not construe the Sherman and Clayton Acts to reach the present controversy.”  Id. at 65-66.

Top Agent Network, Inc. v. National Association of Realtors, Case No. 20-cv-03198-VC, (N.D. Cal., August 16, 2021)

This case involved a challenge to a National Association of Realtors (NAR) rule that prevented its subscribers from withholding available properties from the listing service.  In essence, if subscriber realtor was marketing a property in any way, that realtor needed to include that listing on the local MLS listing service so that all other agents could see it.  Failure to do so would result in losing access to the listing service.  A relatively new company called Top Agent Network (“TAN”) offers a competing listing service. But it only makes the service available to a small minority of agents—ones that the company has deemed “top agents.” These TAN members are also subscribers to NAR’s listing service.  TAN wanted its members to be able to list properties on its own service without also being required to list them on NAR’s service.  TAN filed a Sherman Act “group boycott” suit claiming that NAR’s policy violates the antitrust laws.  The suit was dismissed with prejudice: “although the policy presumably causes real estate agents to be less interested in using TAN’s service and becoming TAN members, this is not the type of harm that the antitrust laws are designed to prevent.” Top Agent Network, Inc. v. Nat’l Ass’n of Realtors, 20-cv-03198-VC (N.D. Cal. Aug. 16, 2021)(hereinafter “Top Agent”) at 2.

TAN is comprised of “elite” realtors and homeowners who prefer not to broadcast the fact that they are selling or don’t wish to publicize pictures of their home.  These sellers would prefer to engage a seller’s agent who would go about finding a buyer more quietly.  Essentially, TAN is offering a platform for a select group of agents to conduct off-MLS sales for their clients.  In 2019, the NAR took decisive action to limit the ability of subscribing agents (and so, effectively, all licensed agents) to engage in private, off-MLS transactions. The organization adopted a rule called the “MLS Clear Cooperation Policy” (“hereinafter “Policy”) that essentially prohibits MLS subscribers from marketing listings anywhere else unless they also post the listing to their local MLS.  In practice, almost as soon as a home is listed for sale in any form, it must be listed on the MLS.  The rule requires that if you want benefit from the information available on the MLS, you can’t withhold information from the MLS.  Since TAN members are also MLS subscribers (that is how they got to be “elite” realtors), it means that every listing posted on TAN’s exclusive service must also be posted on the MLS.  Under the NAR rule, the sale cannot be “quiet,” consequently there is no reason to belong to TAN. Id at 6-7.  TAN alleged this rule was designed by the NAR to eliminate competition from TAN and other alternative listing services and constitutes a violation of the Sherman Act as a “group boycott.” TAN alleged that the Clear Cooperation Policy constitutes an agreement among NAR member agents not to compete with each other through off-MLS marketing, thereby cutting off TAN and other private listings services from the supply of agent memberships. Top Agent at 8.

The court dismissed the complaint for failure to allege “antitrust injury” noting that the canonical rule is that an antitrust injury must be an injury that flows from the anticompetitive aspect of the defendant’s activity. Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334 (1990). The court stated that a company should only be able to invoke the antitrust laws to recoup its own losses when those losses result from harm done to competition in the market, “since it is inimical to the antitrust laws to award damages for losses stemming from continued competition.” (internal quotations omitted). Top Agent at 8.  If a company harms a competitor, the competitor must explain why the company’s actions ultimately result in higher prices, lower quality, or reduced choice, to the consumer. Id. The court stated, “One helpful rule is that an injury can never be an antitrust injury if it flows from an aspect of the defendant’s activity that actually benefits competition.” Pool Water Products v. Olin Corporation, 258 F.3d 1024, 1034 (9th Cir. 2001) (citing Rebel Oil Co. v. ARCO, 51 F.3d 1421, 1433 (9th Cir. 1995)).” Top Agent. at 9.

Antitrust injury is a threshold issue, meaning that if a plaintiff cannot allege an antitrust injury, the suit cannot proceed no matter how egregious the defendant’s alleged antitrust violation may be.  The court found that the complaint, taking the allegations as true, “lays out a reasonable argument that the [NAR] policy is so broad that its overall effect on the market for homes is anticompetitive.” Id. at 10-11.  But the court dismissed the suit because even assuming that the required MLS policy constitutes an antitrust violation, “TAN has failed to state antitrust injury because its alleged harm—the loss of agent members—does not flow from effects of the Policy that are harmful to competition. Moreover, taking the allegations in the complaint as true, TAN could never allege an antitrust injury from the Policy, because TAN’s business model is itself anticompetitive in a way that the Policy would tend to remedy. Id.at 11. 

The court noted that “to the extent the Policy prevents an exclusive network like TAN from operating the way it seeks to operate, it is not harmful to competition, even assuming the truth of the complaint’s well-pled allegations.” Id. at 12.  TAN is an exclusive listing service so that when a seller’s agent lists a home on TAN without listing it on the MLS, competition for that home is decreased. “TAN seems unwilling to recognize the reality of how its “elite” members earned their status as “top agents” in the first place.” Id.  TAN agents are free to drop their MLS subscription, and thus not be bound by those rules, but for homes listed by sellers’ agents who are TAN members, the Policy ensures that buyers represented by both TAN and non-TAN agents are able to view their listings. And better information is available to the market, as agents are equally able to compare price and quality across all listings and use that information to create listings and negotiate sales.” Id. at 13.  The court concluded that “when the allegations in the complaint show that the plaintiff’s desired business model is harmful to competition, injury resulting from the aspect of a competitor’s practice that interferes with that business model cannot be antitrust injury.” Id at 14.

Because TAN lacks antitrust injury, its three claims under California state laws also fail. A plaintiff bringing claims under the Cartwright Act must meet the same antitrust injury requirement as under the Sherman Act. Kolling v. Dow Jones & Co., 137 Cal. App. 3d 709, 723-24 (1982). 

Aya Health Services v. AMN Health Care, Case No., 20-55679 (9th Cir., August 19, 2021)

The Ninth Circuit panel affirmed the district court’s summary judgment in favor of AMN Healthcare, Inc., in Aya Healthcare Services, Inc.’s antitrust action involving the non-solicitation provision within AMN’s contract with Aya to provide travel nursing services to hospitals and other healthcare facilities.  The non-solicitation agreement was ancillary to a procompetitive collaboration between the parties so the per se rule did not apply.  The plaintiff failed to produce required economic evidence under the rule of reason and the case was, therefore, properly dismissed. Aya Health Services v. AMN Health Care, Case No., 20-55679(9th Cir. August 19, 2021)(hereinafter “Aya9th Circuit”).

Both parties are health care staffing agencies that place travel nurses on temporary assignments.  AMN was not always able to fulfill the demand for travel nurses and needed a backup for demand it could not meet.  AMN contracted with AYA and the contract included a provision prohibiting AYA from soliciting AMN’s employees. AYA alleged that the non-solicitation provision is an unreasonable restraint of trade prohibited by the Sherman Act.

The panel held that the per se rule did not apply because the non-solicitation provision was ancillary and reasonably necessary to the parties collaboration which was pro-competitive.   Judged under the rule of reason, AYA failed to raise an issue of material fact with respect to whether the non-solicitation agreement had a substantial anticompetitive effect that harmed consumers in the relevant market.

It was undisputed that the parties non-solicitation agreement was an agreement between horizontal competitors.   The panel agreed with the district court that the non-solicitation agreement was reasonably necessary to allow the collaboration between AMN and Aya to provide an adequate supply of travel nurses to hospitals (consumers).  The non-solicitation agreement was necessary to allow AMN to collaborate with Aya without risking losing its own personnel during the collaboration.  The panel agreed with the district court’s finding; “The non-solicitation agreement, therefore, promotes “competitiveness in the healthcare staffing industry”—more hospitals receive more traveling nurses because the non-solicitation agreement allows AMN to give spillover assignments to Aya without endangering its “establish[ed] network[] [of] recruiters, travel nurses, AVs, and of course, hospital customers.” Aya Healthcare, 2020 WL 2553181, at *14.”  Aya–9th Circuit at 12-13.   The restraint therefore qualified as an ancillary restraint, which triggered rule of reason analysis.

The panel found that the restraint was ancillary even though it was of unlimited duration because the ancillary restrain doctrine does not require that the restraint meet a “least restrictive alternative” test.  Id. at 15.

The complaint failed under rule of reason analysis because Aya failed to satisfy its initial burden: it did not demonstrate that a triable issue of fact exists with respect to harm to competition.  Quoting from Am. Express v. Ohio 138 S.Ct. 2274, 2284 (2018), the panel stated there are two ways a plaintiff may prove that the relevant restraint has a substantial anticompetitive effect that harms consumers: “First, the plaintiff may provide the court with “[d]irect evidence of anticompetitive effects,” which would include “proof of actual detrimental effects [on competition], such as reduced output, increased prices, or decreased quality in the relevant market. Second, the plaintiff may provide “[i]ndirect evidence,” which “would be proof of market power plus some evidence that the challenged restraint harms competition.” Aya–9th Circuit at 16.

Aya’s direct evidence of harm to competition was a claim of supracompetitive pricing in certain regional markets. The district court found that Aya’s economic expert’s pricing study was flawed and failed to demonstrate any anticompetitive effects.  Aya, thus provided no evidence “from which a reasonable juror could conclude that prices in certain markets are supracompetitive or that rival agencies are otherwise prevented from undercutting AMN on price.” Id. at 17.  And with respect to indirect evidence, Aya failed to make the requisite showing of market power plus harm to competition. Id at 17-18.  In summary, the panel agreed with “the district court’s conclusion that Aya did not carry its initial burden to prove that AMN’s non-solicitation agreement has a substantial anticompetitive effect that harms consumers in the relevant market. Aya therefore cannot demonstrate that the restraint violates the rule-of-reason standard.”   Id. at 19.

The case shows that if the plaintiff cannot meet the per se standard, or put another way, if the defendants can persuade the court that the restraint was ancillary to a por-competitive agreement, the obstacles in proving a case under the rule of reason are difficult, and expensive to surmount.

Section News

31st Annual Golden State Antitrust and Unfair Competition Law Institute and the Antitrust Lawyer of the Year Reception and Dinner Honoring Daniel M. Wall

Wednesday, November 17, 2021, 6:00 – 8:00 p.m.
GSI Welcome Reception
Faegre Drinker Biddle & Reath LLP
Four Embarcadero Center, 27th Floor
San Francisco, CA

Thursday, November 18, 2021
GSI & Antitrust Lawyer of the Year Reception and Dinner
Honoring Daniel M. Wall
The Julia Morgan Ballroom
Merchant Exchange Bldg., 15th Floor
465 California Street
San Francisco, CA.

2021 Antitrust Lawyer of the Year: Daniel M. Wall

The Antitrust and Unfair Competition Law Section of the California Lawyers Association is pleased to honor Daniel M. Wall of Latham & Watkins LLP as the 2021 Antitrust Lawyer of the Year. Dan is widely recognized as one of the leading antitrust lawyers in the United States. Throughout his 40 years in the antitrust bar, Dan has litigated landmark antitrust matters, including before the United States Supreme Court, as well as guided clients through cutting-edge government investigations and merger reviews.

Many Thanks To Our GSI Sponsors

The Antitrust & Unfair Competition Law Section wants to thank the following firms for their sponsorship of the 31st Annual Golden State Institute of Antitrust, which will be held on November 18, 2021 at the Julia Morgan Ballroom in San Francisco:

Event Sponsors

A.B. Data
Analysis Group
applEcon
Huntington Bank
NERA

OSKR
Rust Consulting
The Brattle Group
U.S. Legal Support
Western Alliance Bank

Law Firm Sponsors

Cotchett Pitre & McCarthy LLP
Covington & Burling LLP
DLA Piper LLP
Faegre Drinker Biddle & Reath LLP
Farella Braun + Martel LLP
Farmer Brownstein Jaeger Goldstein Klein & Siegel LLP
Freitas & Weinberg LLP
Gibson, Dunn & Crutcher LLP
Hausfeld
Jones Day
Joseph Saveri Law Firm
Kesselman Brantly Stockinger LLP

Lieff Cabraser Heimann & Bernstein LLP
Morgan, Lewis & Bockius LLP
Morrison & Foerster LLP
O’Melveny & Myers LLP
Pillsbury Winthrop Shaw Pittman LLP
Pritzker Levine LLP
Robins Kaplan LLP
Sheppard Mullin
Wilson Sonsini Goodrich & Rosati
Winston & Strawn LLP
Zelle LLP

Students Can Join the Section for Free

Law students can join up to three sections of the California Lawyers’ Association (CLA) for free?  We’d love to have you. Find more information here.

A Deeper Dive: The Antitrust Division Should Reconsider Its Policy on No Notice/No Target Letter Indictments

By Bob Connolly

On July 21, 2021 Acting Assistant Attorney General Richard Powers delivered (virtually) prepared remarks (here) covering several criminal enforcement topics including: Compliance; Deferred Prosecution Agreements and Engagement with Targets on Charging Decisions.[1]

In his remarks about “Engagement With Targets on Charging Decisions” Mr. Powers explains that an individual about to be indicted may not receive notice via a target letter if the Division staff believes defense counsel has not been “interested in meaningful good-faith interactions.”  While there have always been exceptions to sending a target letter based on the need for secrecy, it has, to my knowledge, never been the Antitrust Division’s policy to not issue a target letter based on what staff attorneys believe to be uncooperative conduct by defense counsel. This is too subjective a standard, improperly punishes an individual about to be indicted, and is inconsistent with the Antitrust Division’s well-earned reputation for civility and fair play.

The Target Letter

A “target letter” typically informs the subject of a grand jury investigation that he has graduated from being a subject (falling within the scope of the conduct of the grand jury investigation) to “target“ status.  Target status means that the Antitrust Division believes the investigation has produced indictable evidence linking an individual to a price-fixing/bid rigging scheme. The target letter also typically notifies the target that he may appear before the grand jury provided: he waives his Fifth Amendment privilege, consents to a full examination under oath and understands that anything the target says before the grand jury may be used against him.

While under no obligation to notify a target prior to indictment, the government typically does so, only refraining in the rare case where, “notification…might jeopardize the investigation because of the likelihood of flight, destruction or fabrication of evidence, endangerment of other witnesses, undue delay or otherwise would be inconsistent with the end of justice.”  JM 9-11.153-Notifcation of Targets[2].  In his speech, Mr. Powers laid out another basis upon which the Antitrust Division may decline to issue a target letter:

“Occasionally, we cannot delay our investigation for targets to be notified, and sometime situations arise where notification creates other risks we cannot bear.  Otherwise, the Antitrust Division typically takes a generous approach, particularly when a subject and counsel have engaged productively and affirmatively with staff throughout the investigation.[3]  But this process is a two-way street.  When a subject and counsel make clear they are not interested in meaningful, good-faith interactions—the kind that enhance the Division’s ability to reach a just result rather than serving as a distraction—the Division’s prosecutors are under no obligation to notify a target of its status. (emphasis added).

As the Justice Manual further provides, “[i]n investigations handled by the Antitrust Division, a target’s counsel is usually afforded an opportunity to meet with staff and the office or section chief regarding the recommendation being considered.”[4]  But that is far from absolute.  If the target and counsel have declined to engage throughout the investigation, or made apparent to staff that further engagement will not be productive, then the Division will not continue to spend its valuable time and resources on pointless meetings—and if we have decided not to notify the target of its status, of course there will not be an opportunity for a meeting.”(emphasis added).

The Justice Manual does not list “productive and affirmative” engagement by defense counsel with the staff as a criteria for issuing a target letter. This subjective standard could be interpreted as an attempt to chill vigorous representation by a defense attorney of her client.  Below are a few additional thoughts on why I believe target letters should be sent unless doing so would threaten the integrity of the investigation.

Issuing A Target Letter And Affording A Staff Meeting Is The Right Thing To Do

  1. Sending a target letter and granting a meeting are two different things. A target letter gives to request a meeting, but even if the request is denied the target has been informed that indictment may be imminent. The target letter gives the individuals’ counsel an opportunity to prepare the “target” for the negative publicity that is about to come his way. Getting indicted is a traumatic event for any person.  It is important to remember that it is not the defense counsel who will be indicted–it is an individual, who at this point, is presumed to be innocent. That individual most likely will have a family who will also be severely impacted by the publicity of the indictment.  Prior notice of indictment is an act of civility; warranted even if thought to be unearned.

    To my knowledge, it has been the Antitrust Division’s long-standing practice that a target letter will be sent, unless there is a threat to the integrity of the investigation as noted above.  I have never seen public remarks by the Antitrust Division’s leadership indicating that a target letter may not be sent based on staff’s perception of the defense counsel’s conduct. It has long served the Antitrust Division’s best interest to take the high road of fairness, decency and civility, even if that level of professionalism is not being reciprocated.  In that sense, it is not “a two-way street.”  Prosecutors are public servants and sometimes you have to take some, um, stuff, and still do the right thing.
  2. There are good reasons for staff to grant a meeting with defense counsel if one is requested.[5] Previously stated defense arguments may sound different at this stage of the investigation. A new argument/position may be advanced. It is to the prosecutors’ advantage to learn what they can in these meetings, even with all due caution that defense counsel will not be putting all their cards on the table. The Division staff lawyers may sit stone silent in this meeting, or choose to provide some feedback which possibly may encourage a pre-indictment plea.  Indicting without notice “poisons the well” and, to state the obvious, removes the possibility of a pre-indictment plea.
  3. Humility also compels a prosecutor to sit through a “don’t indict my client” pitch meeting, even if it seems likely to be a waste of time and perhaps not a very cordial event. Indicting an individual is a tremendous responsibility and while every Antitrust Division prosecutor I have ever known has tried their best to make the right decision, no one is infallible. A boring or even contentious pitch meeting is the price to pay to take every measure to ensure that the momentous decision to indict is the correct one and is in the interests of justice.

Conclusion

There is no dispute that target letters are not a matter of right. The perceived conduct of defense counsel, however, should not be the basis for declining to give notice of indictment.  Granting a pre-indictment meeting is a separate question, but one that should also be answered in the affirmative.  It is not only in the interest of the particular case in question, but in the long-term interest of the Antitrust Division as an institution to maintain its reputation of conducting itself with the highest level of fairness, decency and civility.


[1] Criminal Antitrust Enforcement: Individualized Justice in Theory and Practice, July  21, 2021, Acting Assistant Attorney General Richard A. Powers Delivers Remarks at the Symposium on Corporate Enforcement and Individual Accountability Hosted by the University of Southern California Gould School of Law.

[2]  When a target is not called to testify pursuant to JM 9-11.150, and does not request to testify on his or her own motion (see JM 9-11.152), the prosecutor, in appropriate cases, is encouraged to notify such person a reasonable time before seeking an indictment in order to afford him or her an opportunity to testify before the grand jury, subject to the conditions set forth in JM 9-11.152. Notification would not be appropriate in routine clear cases or when such action might jeopardize the investigation or prosecution because of the likelihood of flight, destruction or fabrication of evidence, endangerment of other witnesses, undue delay or otherwise would be inconsistent with the ends of justice.

[3] U.S. Dep’t of Justice, Antitrust Div., Antitrust Division Manual, Ch. 3 § G.2.c (updated July 2019) (“Staff ordinarily will inform defense counsel that it is seriously considering recommending indictment.”).

[4] Justice Manual § 7-3.400.

[5]   I am not advocating that further requests by defense counsel for meetings with the front office be routinely granted.  The Deputy Assistant Attorney General for Criminal Enforcement rightly relies on staffs’ recommendations.

Agency Updates

This feature includes selected press release from the Antitrust Division, USDOJ, the Federal Trade Commission and the California Attorney General’s Office. It does not include all press releases issued by those offices.  This appears to be a truly transitional time in antitrust enforcement and reading the press releases can be very helpful to stay on top of changes.

Antitrust Division, US Department of Justice

  • August 30, 2021 | Commercial Flooring Company Pleads Guilty to Antitrust and Money Laundering Charges
    Mr. David’s Flooring International LLC (Mr. David’s), a Chicago-based commercial flooring contractor, pleaded guilty after being charged for its role in a long-running conspiracy to rig bids and fix prices for commercial flooring products and services, and for its role in a money laundering conspiracy involving kickbacks.  Mr. David’s agreed to pay at least a $1.2 million criminal fine for its role in the conspiracies. Mr. David’s is the third corporation charged in the ongoing investigation; five individuals have also been charged to date.

Federal Trade Commission

  • August 19, 2021 | FTC Alleges Facebook Resorted to Illegal Buy-or-Bury Scheme to Crush Competition After String of Failed Attempts to Innovate 
    Today, the Federal Trade Commission filed an amended complaint against Facebook in the agency’s ongoing federal antitrust case. The complaint alleges that after repeated failed attempts to develop innovative mobile features for its network, Facebook instead resorted to an illegal buy-or-bury scheme to maintain its dominance. It unlawfully acquired innovative competitors with popular mobile features that succeeded where Facebook’s own offerings fell flat or fell apart. And to further moat its monopoly, Facebook lured app developers to the platform, surveilled them for signs of success, and then buried them when they became competitive threats. Lacking serious competition, Facebook has been able to hone a surveillance-based advertising model and impose ever-increasing burdens on its users.  

California Department of Justice

  • August 27, 2021 | Attorney General Bonta Announces Final Approval of $575 Million Settlement with Sutter Health Resolving Allegations of Anti-Competitive Practices
    California Attorney General Rob Bonta today lauded Judge Massullo’s final approval of a landmark $575 million settlement with Sutter Health (Sutter). The settlement agreement was reached in 2019, and resolves allegations by the Attorney General’s office, the United Food and Commercial Workers and Employers Benefit Trust (UEBT), and class action plaintiffs that Sutter’s anticompetitive practices led to higher healthcare costs for consumers in Northern California compared to other places in the state. The settlement requires Sutter to pay $575 million in compensation, prohibits anticompetitive conduct, and requires Sutter to follow certain practices to restore competition in California’s healthcare markets.         
  • August 17, 2021 | Attorney General Bonta Announces $75 Million Nationwide Settlement with Global Pharmaceutical Company Bristol Myers Squibb
    California Attorney General Rob Bonta today announced a $75 million nationwide settlement with global pharmaceutical company Bristol Myers Squibb (BMS), resolving allegations that BMS underpaid the drug rebates owed to Medi-Cal and other state Medicaid programs. According to a complaint filed by a whistleblower, BMS overcharged the states for its pharmaceuticals by decreasing the rebate amount the company, like other drug manufacturers, must periodically pay to ensure that states pay competitive prices for pharmaceuticals.

Other News and Notes

  • ‘Exclusionary and classist’: Why the legal profession is getting whiter, Reuters, by Hassan Kanu, August 10, 2021
    “A recent American Bar Association study found that the legal profession in America has remained overwhelmingly white and male over the last decade and that racial diversity among lawyers has actually regressed in some respects.”
  • Home Depot Beats Worker Injury Suit Due to Attorney Email Snafu, Bloomberg News, August 10, 2021
    “Home Depot USA Inc. will escape an employee’s personal injury lawsuit because the plaintiff’s lawyer missed a key deadline due to an email mix-up, the Fifth Circuit affirmed, citing the incident as a “cautionary tale.”

    Kevin Rollins sued Home Depot for an on-the-job injury he sustained while moving a bathtub. Home Depot filed a motion for summary judgment. The notification of the filing was inadvertently filtered into a part of Rollins’ counsel’s email system marked “other,” instead of the main email box where all prior filings in the case had been received.

    As a result, the counsel missed the deadline to respond to any motions. The district court granted summary judgment to Home Depot, and later denied Rollins’ motion to alter the judgment.”  The case is Rollins v. Home Depot USA, Case No. 20-50736 (August 8, 2021) (5th Cir. August 9, 2021).

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