Federal Court Calls AAI a “Titan in the Antitrust Arena”; Cites AAI Letter in Refusing to Dismiss Fast Food No-Poaching Case

In a May 21, 2019 Memorandum and Order, Chief Judge Rosenstengel of the U.S. District Court for the Southern District of Illinois relied on AAI’s legal analysis in denying a motion to dismiss an antitrust class action against the fast food franchise Jimmy John’s.

The plaintiffs challenged no-poaching agreements between Jimmy John’s and its franchisees that prevent franchisees from hiring each others’ workers. They alleged that the agreements were illegal under the per se rule or a quick look standard.

The defendants argued that the plaintiffs’ claim was subject to the full-blown rule of reason, citing a Statement of Interest filed by the Antitrust Division of the Department of Justice (DOJ) in a similar case in the Eastern District of Washington. The DOJ argued that vertical franchise no poaching agreements are likely subject to the ancillary restraints doctrine and are properly reviewed under the full-blown rule of reason.

In ruling for the plaintiffs, the court said the following:

“The DOJ’s Antitrust Division is certainly a titan in this arena and carries a considerable burden in interpreting open questions in antitrust jurisprudence – that is without question.  But DOJ is not the ultimate authority on the subject, especially in situations like this one: after the DOJ submitted its Statement of Interest, the American Antitrust Institute – another titan in the antitrust arena – penned a letter in staunch opposition to the DOJ. . . .  This dichotomy shows that the legal questions here are in their infancy, and this battle looks like one that will make its way through the courts for years to come.”

The court held that a prior denial of the defendants’ motion to dismiss therefore was not “clearly erroneous.”

In denying the prior motion to dismiss, a different district judge had held that factual issues could inform the proper liability standard applied to the no-hire agreements, including because the agreements were alleged to contain horizontal enforcement mechanisms.  The judge therefore did not decide the issue at the motion to dismiss stage but allowed the case to proceed on a per se or quick look theory.  That judge subsequently retired, however, and the case was reassigned. Jimmy John’s then renewed its motion to dismiss in light of the DOJ’s Statement.

In the May 2, 2019 letter referenced by the court, AAI argued that the approach outlined in the DOJ’s Statement is unsound.  AAI believes that, absent per se treatment, an abbreviated rule of reason is entirely appropriate for vertical no-poaching agreements that have horizontal anticompetitive effects and make no economic sense on their face.