There were two things federal prosecutors and lawyers for kidney dialysis company DaVita Inc. agreed on: First, the criminal case involving DaVita's agreement with competitors to not recruit each other's high-level employees is one of the first of its kind brought under century-old antitrust laws.
Second, both parties argued that a federal judge must decide at the outset whether the case can go before a jury.
For nearly two hours on Friday in downtown Denver, U.S. District Court Senior Judge R. Brooke Jackson learned that he would be in largely uncharted waters in determining whether to dismiss the criminal charges against Denver-based DaVita and its ex-CEO and chairman, Kent Thiry. While the Sherman Antitrust Act of 1890 clearly outlaws such anti-competitive practices as price-fixing and bid-rigging, the U.S. Supreme Court and federal courts of appeals have not yet deemed non-recruitment agreements illegal.
"There’s a first time for everything," William J. Vigen of the U.S. Department of Justice's Antitrust Division said. "That doesn’t mean the principles here haven’t remained the same from the very beginning."
Thiry served as head of the 67,000-worker healthcare company for roughly two decades, beginning in 1999. He has long been a political player in Colorado — from mulling a run for governor in 2018 to promoting a pair of successful constitutional amendments creating the current independent redistricting commissions that drew legislative district boundaries this year.
He was also reportedly under initial consideration for the presidency of the University of Colorado in 2019, and financially supported a ballot initiative allowing unaffiliated voters in Colorado to vote in partisan primaries. Kaiser Health News reported that in total, Thiry has given at least $5.9 million toward Colorado ballot initiative campaigns since 2011.
But now he may be facing a prison sentence, if the government's charges stick.
Earlier this year, a grand jury indicted Thiry and DaVita for a conspiracy to reduce competition in the labor market. According to the government's case, DaVita agreed with competitor company Surgical Care Affiliates to avoid soliciting or recruiting each other's senior-level employees. One email from an SCA human resources executive told a recruiter that DaVita was "off limits."
The companies also reportedly required senior-level employees who applied for positions with their competitor to inform their current company that they were seeking other employment. Prosecutors pointed to a message from SCA to a DaVita employee in Dallas claiming that SCA could not recruit from DaVita "unless candidates have been given explicit permission by their employers that they can be considered for employment with us."
In one April 2020 text message that directly implicated Thiry, the CEO of a smaller, unnamed company sought recommendations for customer service employees, but clarified they could not come from a DaVita-owned company because the CEO had "promised Kent."
Prosecutors indicated the penalties for DaVita were up to $100 million for each count and between one to five years of probation. For Thiry himself, he could face up to 10 years in prison and a $1 million fine for each violation.
Notably, on the defendants' side are former Justice Department employees, including John Walsh, the U.S. attorney for Colorado under the Obama administration, and Seth P. Waxman, the U.S. solicitor general for the Clinton administration. They contended that Thiry could not have been on notice that agreements prohibiting the recruitment of senior executives between competitors and requiring employees to disclose their applications are unlawful.
"This indictment is a dangerous and inappropriate overreach of the criminal laws," Waxman told Jackson. "An ordinary businessman could have taken a year off and read the entire 125 years of decisions under the Sherman Act, and never found a single case that ever found an agreement with these two characteristics was even illegal."
Arguments in the courtroom centered around the type of accusations the Justice Department was making. Prosecutors charged DaVita and Thiry with a "per se" Sherman Act violation — meaning if the defendants committed the act, they were effectively guilty by default. In contrast, a "rule of reason" violation would allow an exploration of the non-solicitation agreement's effects to both foster and restrict competition in the labor market.
The defense attempted to argue that the no-solicitation agreements with the employer-notification requirement actually improved competition by allowing companies to invest in training their employees and teaching them trade secrets, knowing they would stick around. But Jackson cast doubt on that theory.
"Those benefits are to the company that retains the employees. Of course there’s gonna be benefits to retaining key employees," the judge said. "But the issue here isn’t whether it’s good for DaVita to retain key employees. The issue is whether it’s unfair to DaVita's senior management people and the other companies’ senior management people to reduce their availability to get a higher paying job at a competitor company or negotiate a higher paying salary with DaVita."
At the same time, Jackson wondered what would happen if he decided the government was justified in charging DaVita and Thiry with per se violations that, by definition, were anticompetitive as to break the law.
"In effect, I’m deciding that these people are guilty," he said.
The government argued that the non-solicitation agreements were plainly anti-competitive, given that the CEOs of the healthcare companies involved had effectively agreed not to compete with each other for something that is normally subject to competition: job candidates.
"If you were looking for a job and you didn’t wanna jump through hoops that the CEOs decided you must jump through to get an offer, all competition ceased," Vigen said.
He clarified that there are circumstances under which direct competitors could have such an agreement, including if they were participating in a business collaboration. Otherwise, the defendants are arguing that "they should have an exception for employer collusion under the Sherman Act. That’s really what they’re arguing. And they should go to Congress and ask for an exemption," Vigen said.
The U.S. Chamber of Commerce, Colorado Chamber of Commerce and the National Association of Criminal Defense Lawyers submitted briefs in support of Thiry and DaVita. All agreed the Department of Justice is covering new terrain with its indictment, and argued against prosecution until the courts or Congress clearly defines non-solicitation agreements as unlawful.
Hours before the hearing, federal prosecutors alerted Jackson to a Nov. 16 decision from the Middle District of Pennsylvania, in which a judge declined to dismiss antitrust charges involving an anti-poaching agreement between two large health systems.
Jackson, in response to the parties' court filings, said he is focused on a handful of questions in deciding whether to dismiss the case. In particular, are anti-poaching and no-hire agreements per se violations? And is DaVita's no-solicitation agreement effectively a no-poaching scheme?
The judge wondered aloud whether the practice of requiring employer notification if an employee wanted to switch companies is, in fact, the piece that stifled the labor market.
"The requirement that you contact your present employer and tell them of your intention to apply at another company seems to me to have a chilling effect on the willingness to do that," he said.
In response to a statement from the judge that DaVita's scheme was, in the government's eyes, a no-hire pact, Waxman issued a challenge.
"Let 'em prove it," he said.
Thiry appeared in person in Jackson's courtroom, along with his attorneys, company representatives and four Justice Department lawyers. A similar case involving SCA is pending before a federal court in Texas, where the company has also filed a motion to dismiss.
The case is United States v. DaVita Inc. et al.