Antitrust Law Daily U.S. challenges dismissal of indictment against heir location service
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Tuesday, January 9, 2018

U.S. challenges dismissal of indictment against heir location service

By Nicole D. Prysby, J.D.

The Justice Department has appealed the dismissal of an indictment against an heir location service and its executive, who were charged with conspiring with a competitor to allocate customers. A federal district court in Utah dismissed the indictments in 2017, finding that they were barred by the five year statute of limitations. The district court also found that the government could not proceed on a per se theory. In its appellate brief, the government argued that the district court’s decision violated existing precedent, which holds that the statute of limitations for Sherman Act violations is based on receipt of payments, and that there was no basis on which to remove the restraint analysis from the per se rule (U.S. v. Kemp Associates, Inc., Case No. 17-4148).

In August 2016, the government had charged that the heir location service conspirators agreed that when both companies contacted the same, unsigned heir, the company with first contact would be allocated certain remaining heirs to that estate who had not yet signed a contract with an heir location service. In exchange for a portion of the contingency fees collected by the first company, the second company agreed not to compete for that heir or certain other unsigned heirs to the same estate. Therefore, the first company was able to sign customers at noncompetitive prices, according to the Justice Department. The indictment charged that the conspiracy continued until January 2014. The heir location service company conceded that payments were made into the limitations period.

Indictment was timely. The court based the statute of limitations decision on its conclusion that the conspiracy ceased in 2008 when the last customer was allocated, even though the conspirators continued to collect payments under the allocated customer contracts and shared those payments with each other within five years of indictment. The government argued that the district court’s conclusion was contrary to Tenth Circuit precedent, which has held that a Sherman Act conspiracy to suppress competition for contracts continues until the last conspirator accepts the last payment on the contract. If a conspirator receives any money from a contract, that receipt is sufficient to delay the start of the statute of limitations. Although the last customer was allocated in 2008, and no additional competition was eliminated after that point, the conspirators collected and distributed payments under the contracts they had made with the allocated customer until 2014. Thus, the case was within the limitations period, in the government’s view. The Justice Department argued that the district court offered no basis to distinguish this case from precedent holding that continued receipt of proceeds of a Sherman Act conspiracy delays the start of the limitations period.

Per se rule. As to the appropriate analysis of the restraint, the district court found that the conspiracy should be analyzed under the rule of reason, which requires consideration of the anti and pro-competitive effects of a restraint. The court based that determination on its conclusion that the conspiracy applied only to new customers, affected only a small part of society, arose in a unique and unusual industry, and had efficiency-enhancing potential. Again, the government asserted that the court’s conclusion was contrary to established precedent in the Tenth Circuit, which has held that agreements to allocate or divide customers between competitors in a horizontal market are, as a category, subject to condemnation under the per se rule. Whether the agreement relates to allocation of new customers, takes place in an obscure industry, or is not implemented on a geographical basis does not make it an exception to the per se rule. The numbers of estates affected is also irrelevant; the Tenth Circuit has applied the per se rule to conduct affecting only a single purchaser, it was suggested.

The government noted that it was of no consequence if the agreement had the potential to create increased efficiency, because when a restraint of trade is per se unlawful, no efficiency justifications can salvage it. The conspirators argued that their agreement had a pro-competitive effect, because without it, they would have lower profits and would be unable to research lower-value estates. But the government pointed out that courts have repeatedly held that the elimination of the evils of competition is not a justification for per se illegal conduct.

Finally, the government noted that the ancillary restraints doctrine, in which an otherwise per se unlawful agreement that is ancillary to a legitimate joint venture is analyzed under the rule of reason, was inapplicable to this case because the indictment charged a standalone customer allocation agreement. Without a legitimate collaboration to which the allocation agreement was ancillary, the ancillary restraints doctrine cannot apply.

This case is No. 17-4148.

Attorneys: Jonathan Lasken for U.S. Department of Justice. Jason D. Boren (Ballard Spahr LLP) and Devin Michael Cain (Morvillo Abramowitz Grand Iason & Anello PC) for Kemp & Associates, Inc.

Companies: Kemp & Associates, Inc.

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