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United States v. Kemp & Associates, Inc.

United States District Court, D. Utah, Central Division

February 20, 2019

UNITED STATES OF AMERICA,
v.
KEMP & ASSOCIATES, INC. AND DANIEL J. MANNIX Defendants.

          MEMORANDUM DECISION AND ORDER

          DAVID SAM, U.S. DISTRICT COURT SENIOR JUDGE

         In this motion to reconsider, the United States of America asks the court to readdress whether the Rule of Reason or the Per Se approach should apply in the present case. In light of guidance given by the Tenth Circuit, and with the benefit of full briefing, the court grants this motion and finds that the Per Se approach should apply in this case.

         I. BACKGROUND

         This case began on August 17, 2016 when the United States of America indicted Kemp & Associates, a Utah Corporation, and Daniel J. Mannix, Chief Operating Officer of Kemp (Collectively “Defendants”) on one count of violating § 1 of the Sherman Act. Indictment, 3. The indictment accused Defendants of seeking to suppress and eliminate competition by agreeing to allocate customers of Heir Location Services sold in the United States. Id. On June 21, 2017, the parties appeared before Judge Sam to argue several motions, including a motion to order that the case be subject to the Rule of Reason, and a motion Dismiss the Indictment. Upon completion of oral testimony on the matter, Judge Sam ruled from the bench that the case should be subject to the Rule of Reason and not the Per Se approach, while the Motion to Dismiss was taken under advisement. On August 28, 2017, Judge Sam issued a written order that the Indictment be dismissed as barred by the statute of limitations. Memorandum Decision and Order, 2:16CR403 DS (Utah, 2017). Following Judge Sam's decision, the United States appealed to the Tenth Circuit Court of Appeals on September 26, 2017. On October 31, 2018, the Tenth Circuit issued a decision reversing the district court regarding the statute of limitations issue, and ruling that while it did not have statutory authority to overturn the district court's decision regarding application of the Rule of Reason, it would encourage the court to reconsider its decision with the advantage of more complete briefing on the matter. United States v. Kemp & Assocs., Inc., 907 F.3d 1264, 1278 (10th Cir. 2018). On December 14, 2018, the United States filed a Motion to Reconsider whether the Rule of Reason or the Per Se approach should apply in the case.

         II. ANALYSIS

         A. Overview

         The United States asks the court to reconsider whether the Rule of Reason or the Per Se approach should apply in the present case. Although the Sherman Act could be read more broadly, the Supreme Court has consistently ruled that it outlaws only unreasonable restraints of trade. Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 885 (2007). In determining whether a particular restraint is unreasonable, courts generally apply the “Rule of Reason.” Kemp, 907 F.3d at 1272. In applying the Rule of Reason, the factfinder weighs all attendant circumstances of a case, and then decides whether the practice imposes an unreasonable restraint on competition. Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977). Thus, under the Rule of Reason, a defendant can introduce evidence of the challenged restraint's positive effects on competition, and if the good outweighs the bad, a court can find that the practice does not violate the Sherman Act.

         However, an exception to the Rule of Reason exists for “agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use.” Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958). Under this exception, called the “Per Se” approach, the government prevails merely by proving the existence of a prohibited arrangement. Id. If the government can prove that such an agreement exists, then the analysis ends without inquiry into the possible economic benefits the agreement could bring. In re Cox Enters., Inc., 871 F.3d 1093, 1097 (10th Cir. 2017). This provides an evidentiary shortcut through the Rule of Reason's minutiae; in such cases, the Per Se approach is justified based on efficiency. Arizona v. Maricopa Cty. Med. Soc'y., 457 U.S. 332, 344 (1982).

         Because the Per Se approach creates such an uphill battle for defendants, its application is limited solely to agreements that are “so plainly anticompetitive that no elaborate study of the industry is needed to establish illegality.” Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006). Thus, “[i]t is only after considerable experience with certain business relationships that courts classify them as per se violations of the Sherman Act.” United States v. Topco, Inc., 405 U.S. 596, 607-08 (1972) (emphasis added). This requires that the court have experience with the particular practice being challenged, and need not have experience within the specific industry in which the allegedly unlawful practice was used. Maricopa Cty. Med. Soc'y, 457 U.S. at 351. The Per Se approach need not be “justified” for every industry that has not been subject to significant antitrust litigation. Id. However, when special circumstances so dictate, the Per Se approach may be rendered inapplicable where it would otherwise apply but for those special circumstances. This order will analyze (1) whether the agreement is one to which the Per Se approach normally applies, and (2) if so, whether any special circumstances exist that could render it inapplicable. See, Nat'l Collegiate Athletic Ass'n v. Bd. of Regents of Univ. of Oklahoma, 468 U.S. 85, 103 (1984).

         B. Authority over the Motion to Reconsider

          This Court has authority over the United States' motion for reconsideration. A motion for reconsideration should be granted only to correct errors of law, or to present newly discovered evidence. Phelps v. Hamilton, 122 F.3d 1309, 1324 (10th Cir. 1997). A motion for reconsideration should not be granted merely to give the moving party a second bite at the apple. Mantle Ranches, Inc. v. U.S. Park Service, 950 F.Supp. 299, 300 (D. Colo. 1997). Furthermore, such motions are granted or denied at the discretion of the district court judge as every order short of a final judgement is subject to reopening at their discretion. Price v. Philpot, 420 F.3d 1158, 1167-68 (10th Cir. 2005). The application of the Rule of Reason or the Per Se rule is a question of law. In re Sulfuric Acid Antitrust Litigation, 703 F.3d 1004, 1008 (7th Cir. 2012).

         Since motions for reconsideration can be granted to correct errors of law, and since the application of the Rule of Reason or the Per Se rule is a question of law, this Court has the authority to grant the motion now before it.

         C. Whether the “Guidelines” is an Agreement Subject to the Per Se Approach

         The court finds that the agreement in question, known as the “Guidelines, ” is a horizontal customer allocation agreement, and thus subject to the Per Se approach. Horizontal customer allocation agreements are normally subject to the Per Se approach. United States v. Kemp & Assocs., Inc., 907 F.3d 1264, 1273 (10th Cir. 2018). To prove that such an agreement exists, a plaintiff must show: (1) An agreement between competitors (2) at the same level of the market structure (3) to allocate territories (4) in order to minimize competition. United States v. Topco Assocs., 405 U.S. 596, 608 (1972). Allocation of territories includes agreements to allocate or divide customers between competitors within the same horizontal market. United States v. Suntar Roofing, Inc., 897 F.2d 469, 473 (10th Cir. 1990). Such agreements constitute per se violations of the Sherman Act except in rare circumstances in which cases their legality should be determined applying the Rule of Reason. See, e.g., Nat'l Collegiate Athletic Ass'n v. Bd. of Regents of Univ. of Oklahoma, 468 U.S. 85, 103 (1984). In determining whether a specific arrangement qualifies as a customer allocation agreement, it is immaterial whether the agreement applies to new or existing ...


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