Judge Reconsiders and Finds Per Se Rule, Not Rule of Reason, Applies to Customer Allocation Scheme: United States v. Kemp Associate and Daniel Mannix, Case No. 2:16-CR-403 (DS), United States District Court for the District of Utah | Feb 20, 2019 | 2019 U.S. Dist. LEXIS 28231

Robert Connolly
Law Office of Robert E. Connolly

The United States District Court for the District of Utah granted the United States’ Motion to Reconsider and found the per se rule applies to the horizontal customer agreement alleged in the indictment of heir location service providers Kemp & Associates and its Chief Operating Officer, Daniel J. Mannix.  The indictment alleges that the conspirators agreed to suppress and eliminate competition between them on estates they both pursued.  Specifically, the indictment alleges that they agreed that the second company to solicit an heir on an estate would allocate that heir and the business of certain remaining heirs to the first company.  In exchange for backing off, the first company would then pay the second company a portion of the contingency fees ultimately collected from the allocated heirs.  See Department of Justice Press Release, February 22, 2019, available at, https://www.justice.gov/opa/pr/se-rule-applies-heir-location-prosecution-judge-grants-united-states-motion.

Judge David Sam initially agreed with the defendants that the case should be tried under the Rule of Reason.  Fortunately for the Antitrust Division, Judge Sam also created an appealable issue by granting the defendants’ motion to dismiss the indictment based on the statute of limitations. The Tenth Circuit issued a decision reversing the statute of limitations dismissal.  The Tenth Circuit also strongly encouraged the court to reconsider its Rule of Reason decision.  While noting that it did not have statutory authority to overturn the district court’s decision regarding application of the Rule of Reason, the appellate court highlighted Supreme Court and Tenth Circuit cases finding customer allocation schemes to be per se Sherman Act violations. United States v. Kemp & Assocs., Inc., 907 F.3d 1264, 1278 (10th Cir. 2018).  On February 20, 2019, upon the government’s motion for reconsideration, the District Court reversed itself and held that the case would be tried under the per se rule. 

On reconsideration, the court found the per se rule applied because: 1) the agreement was between competitors at the same level of the heir location market; 2) the agreement sought to allocate territories; and 3) the agreement sought to minimize competition. 2019 U.S. Dist. LEXIS 28231 at *8-*9.  The court summarized the reasons why he originally found the case should be tried under the Rule of Reason: 1) unusual structure of the agreement that applied only to new customers; 2) only a small number of customers affected; and 3) in an obscure industry with an unusual manner of operation. Id. at *13.  The court concluded, however, that “the decision[s] handed down by the Supreme Court and the Tenth Circuit make it clear that these reasons should not keep this court from now ruling the Per Se approach applies to the present case. Id. at *14.