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From Antitrust Law Daily, November 1, 2018

Indictment against heir location service was timely, based on payments

By Nicole D. Prysby, J.D.

Because payments under an alleged conspiracy to allocate customers in the heir location service market continued into the limitations period, an indictment was timely, according to the U.S. Court of Appeals in Denver, even though the alleged agreement between the services ended outside the limitations period. The conspiracy continued so long as the co-conspirators were receiving and distributing contingency fees on the allocated estates. Therefore, a federal district court should not have dismissed the indictment as time-barred. However, the Tenth Circuit also held that it lacked jurisdiction to review the district court’s decision that the case should proceed under a rule of reason and not per se analysis. The order may have the practical effect of dismissing the case unless the government chooses to depart from its position of declining to prosecute under a rule of reason approach, but the order did not have the necessary effect of dismissing the indictment. It simply placed the government in a scenario in which it would prefer not to litigate. The court also held that granting a writ of mandamus to correct the district court was not appropriate, although it strongly suggested to the lower court that it could reconsider the issue on remand (U.S. v. Kemp & Associates, Inc., October 31, 2018, Ebel, D.).

Background. In August 2016, the Justice Department brought a Sherman Act claim against an heir location service and its executive, alleging that they and a competitor 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. Although the formal agreement between the parties ended in 2008, the indictment charged that the conspiracy continued until January 2014. The heir location service company conceded that payments were made into the limitations period.

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. The government appealed the dismissal, arguing 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.

Indictment not time-barred. The Tenth Circuit reversed the district court’s ruling on the statute of limitations. Looking at the face of the indictment, the court held that it could not conclude that no overt acts in furtherance of the scope of the alleged conspiracy occurred in the five years prior to August 2016. The district court held that the alleged conspiracy ended in 2008 because the purpose of the conspiracy was "to suppress and eliminate competition by agreeing to allocate customers of Heir Location Services sold in the United States" and the allocation of customers ended when the formal agreement ended in 2008. However, the district court should have considered the government’s argument that one object of the conspiracy was "economic enrichment." The alleged customer allocation was not an end unto itself, but rather a means to reducing overhead and increasing profit, particularly by giving the conspirators power to charge higher contingency fees unhindered by the competition that allegedly ensues when two Heir Location Services firms contact the same heir. Therefore, the conspiracy continued so long as the co-conspirators were receiving and distributing contingency fees on the allocated estates. Because the indictment alleged that payments between the companies occurred, when the firms distributed money amongst each other after 2011, they committed overt acts of the alleged conspiracy within the limitations period.

Jurisdiction. The court held that it had no jurisdiction to review the district court’s order that the case should be considered under the rule of reason analysis. The district court concluded that because the agreement applied only in limited circumstances in a relatively obscure industry, the agreement on its face would not necessarily restrict competition or decrease output, but contained efficiency-enhancing potential. The Tenth Circuit pointed out that it is undisputed that an agreement to allocate customers is a per se violation of the Sherman Act. But the court held that it was powerless to review that order, because the district court did not dismiss the indictment. The government may have the case set for trial, albeit not under its preferred avenue for trying the case. Although it has taken an institutional stance (as stated in its Antitrust Manual) that it will only bring cases under the per se rule, it has the prosecutorial discretion to proceed. The order may have the practical effect of dismissing the case unless the government chooses to depart from its position of declining to prosecute under a rule of reason approach, but the district court’s order did not have the necessary effect of dismissing the indictment. Rather, it simply placed the government in a scenario in which it would prefer not to litigate.

The government asked the court to interpret its brief, in the alternative, as a petition for a writ of mandamus. The Tenth Circuit agreed that the government has no further grounds for relief, given that it intends to follow the guidance contained in the U.S. Attorney’s Antitrust Manual which instructs that antitrust prosecution of claims such as this one is only appropriate when the alleged restraint is governed by the per se rule. The court also explained that were the merits of the rule of reason order before it, it might very well reach a different conclusion than did the district court. The defendants’ efforts to distinguish their agreement from a traditional customer allocation agreement were unpersuasive and the industry is not unique, as they represented. And even if the agreement could potentially bring net economic benefits to some part of the market, that does not change the application of the per se rule. However, the district court’s decision was not the gross abuse of discretion required to support a mandamus order from an appellate court and therefore, mandamus is not appropriate. The Tenth Circuit did strongly suggest to the district court that it could reconsider its rule of reason order, now that the issue has been more fully briefed.

This case is No. 17-4148.

Attorneys: Adam D. Chandler, U.S. Department of Justice, for the United States. 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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