Below is a post that I wrote with a friend and former Antitrust Division colleague, Karen Sharp. The post originally appeared in Law 360 Competition (here). I am reposting for those that don’t have access to the article.
Was Heir Locators Indictment a Hair Too Late?
by Robert Connolly and Karen Sharp
On August 17, 2016, a Utah grand jury returned a one count Sherman Act indictment against Kemp & Associates, Inc. and Daniel J. Mannix, a Kemp corporate officer. According to the indictment, the conspiracy was an agreement to “allocate customers of Heir Location Services sold in the United States” that began as early as September 1999 and continued as late as January 29, 2014.
Heir location service companies identify heirs to estates of intestate decedents and, in exchange for a contingency fee, develop evidence and prove heirs’ claims to an inheritance in probate court. The indictment charged that there was an allocation scheme whereby the defendants agreed with a competing heir location service company that the first company to contact an heir would be allocated certain remaining heirs to the estate and, in return, would pay the other company a portion of the collusive contingency fees collected from the heirs.
In pretrial orders issued last August, U.S. District Court Judge David Sam, 1) dismissed the indictment as time barred by the five-year statute of limitations; and 2) held that if there were a trial, the agreement would not be considered per se, but instead judged by the jury under the Rule of Reason. The Antitrust Division is challenging both rulings on appeal in the Tenth Circuit. In this article we discuss the court’s ruling that the indictment was time barred by the statute of limitations.
A full exposition of the facts can be found in the indictment, Judge Sam’s Memorandum Decision and Order, the government’s opening brief in the Tenth Circuit, and the defendants’ response. But in short, the relevant facts are these:
- There was a written allocation agreement between competing heir location service companies to divide certain customers.
- On July 30, 2008, defendant Mannix wrote to Kemp & Associates colleagues in an email: “The ‘formal’ agreement that we have had with [Blake & Blake] for the last decade is over.”
- There were in fact no other heirs allocated after July 30, 2008.
- Payments made by previously allocated customers, however, occurred within the Sherman Act five-year statute of limitations period preceding the indictment.
The government argues on appeal that the conspiracy did not end on July 30, 2008 when the agreement was abandoned but continued based on the “payments theory.” The payments theory is straightforward: conspirators rig bids, fix prices and/or allocate customers to reap the higher prices that come from eliminating/restraining competition. As long as a conspirator is being paid as a result of the illegal agreement, the conspiracy continues.
The government has the weight of authority and specifically, Tenth Circuit precedent, on its side. The government argues on appeal that Judge Sam “mistakenly concluded that the alleged conspiracy ended after the last customers were allocated, rather than continuing as long as the conspirators collected and distributed payments from the contracts with the allocated customers.” The indictment specifically alleged that as part of the customer allocation conspiracy, the defendants “accepted payment for Heir Location Services sold to heirs in the United States at collusive and noncompetitive contingency fee rates.” The indictment alleges that the conspiracy continued at least as late as January 29, 2014, which is the date when, according to the defendants’ motion to dismiss the indictment, “a large team of law enforcement agents and prosecutors served subpoenas on, and sought to interview, many of the Company’s employees.”
The payments theory is well accepted, including in the Tenth Circuit. United States v. Evans & Associates Construction Co. was a bid-rigging case where the contract was rigged outside the statute of limitations, but the defendant received payments for the work done on the contract within the statute period. The Tenth Circuit in Evans concluded that “the statute did not begin to run until after the successful contractor accepted the last payment on the contract.” According to the court, “the Sherman Act violation was ‘accomplished both by the submission of noncompetitive bids and by the request for and receipt of payments at anti-competitive levels.’” Similarly, in the more recent case of United States v. Morgan, the Tenth Circuit held that “the distribution of the proceeds of a conspiracy is an act occurring during the pendency of the conspiracy.”
Judge Sam did not agree that the indictment before him alleged a conspiracy that would properly invoke the payments theory. He concluded that the primary purpose of the anticompetitive agreement was the allocation of customers. According to Judge Sam, “[i]t then follows that any conspiratorial agreement ceased to exist once the allocation of customers through the [agreed-upon] Guidelines ceased.” Judge Sam distinguished the heir locators’ agreement from the bid-rigging agreement in Evans, stating, “[T]he evidence in Evans and Morgan shows that the central purpose of the conspiracy was to obtain wrongful proceeds or money. While the Indictment here mentions the payment of proceeds, Ind. ¶¶ 11 (h), (i), the central purpose of the conspiracy charged was not ‘economic enrichment.’” Judge Sam found, without even a hearing or trial, that the “central purpose” of the heir locators’ allocation agreement was not “economic enrichment.” The statute of limitations, therefore, expired on July 30, 2013, five years after defendant Mannix sent an internal Kemp & Associates email abandoning the allocation agreement.
In our opinion the judge was grasping at straws to distinguish (and extinguish) this case from Evans to avoid application of the payments theory. Payments by allocated heir locator customers seem like payments made on rigged contracts. Since the judge also found this to be a Rule of Reason case, he apparently felt that the agreement on balance was procompetitive–and not designed to generate supra competitive profits. The court’s logic seems to be a real-life application of the “bad facts make bad law” principle. But, there was simply no record on which to base a finding that the payments made and accepted by defendants and their co-conspirators within the statute were merely administrative tasks that “bore no relation to customer allocation.”
A Better Way to Judge The Validity of Using a Payments Theory To Extend the Statute
- The Judicial Concern with Prosecutorial Delay
Judge Sam was clearly troubled by the fact that the defendants were indicted in August 2016, several years after the five-year statute of limitations would have appeared to have run on an agreement that was abandoned in July 2008. Moreover, since there was no fixed time when an estate distribution would be finalized, there was no telling when the statute of limitations would begin to run in this type of case. The court noted:
“Additionally, the government has identified 269 allegedly affected estates, the administration of which consisted of a series of ordinary, non-criminal events that could last many years. In contrast, Evans involved the bid for one contract which was bid, granted, completed and fully paid within the two years. [citation omitted] . . .. This arbitrariness is not consistent with the very reasons limitations periods exist in criminal cases.”
In bid-rigging cases, the outer limits of the statute of limitations is at least defined by the length of the contract. But here, as the court noted, the payments theory could extend the statute of limitations for an unknown, and possibly very long time.
2. The “Payments Theory” as a Due Process Violation
A more direct and fair method to address the concern that Judge Sam and other courts may have with an indefinite extension of a statute of limitations is to consider the application of the payments theory as a possible violation of due process. Does extending the statute of limitations for an indefinite and arbitrary period deprive the defendants of due process?
The Supreme Court has recognized that prosecutorial delay may constitute a due process violation but has set an extremely high bar for a would-be successful defendant. In United States v. Marion, the Court held that in order for the Due Process Clause of the Fifth Amendment to require dismissal of an indictment the defendant must show that the pre-indictment delay:
1) caused substantial prejudice to the defendant’s rights to a fair trial; and
2) that the delay was an intentional device to gain tactical advantage over the accused.
There is a critical difference, however, between the facts in Marion and the heir location services case. In Marion there was a three-year delay between the commission of the crime and the charged case. The defendants alleged this delay was a prejudicial due process violation. But, the case was still brought within the statute of limitations. However, where, as here, the application of a payments theory leads to an arbitrary and indefinite extension of the statutorily set limitations period, Marion can be distinguished. We suggest it would be appropriate to apply a different/lesser test in this case. The near-impossible-to-meet prong of showing that the prosecution intentionally engaged in delay tactics to gain an advantage should be dropped. Instead, the defendants should be required to make the Marion showing of substantial prejudice suffered by the application of the payments theory. A showing of substantial prejudice would require for example a witness’ death or illness, loss of physical evidence, or a witness who was once available is now not available; i.e., something more than a general allegation that memories fade with time.
Another aspect of due process that can arise in payments theory cases, and may be what really troubles courts, is that an individual who is the subject or target of a criminal antitrust investigation is often without a job and can find it difficult to get one while possible legal charges hang over his or her head. A company may also suffer negative financial consequences while a “cloud of suspicion” from a grand jury investigation lingers. Being a subject/target of an antitrust criminal investigation is an incredibly stressful and expensive ordeal. If this status is going to continue, perhaps indefinitely, past the traditional statute of limitations, there should be a very good reason. Depending on the circumstance, a judge, like Judge Sam, may find that the delay in bringing a case was a due process violation of the defendants’ property rights—the right to earn a living.
We also suggest, however, that if the defendant can make a showing of substantial prejudice, the government should have the opportunity to explain why there was a need to resort to a payments theory. Was the crime or industry investigated very complex? Did the subjects themselves stonewall the investigation and cause delays? Did the defendants successfully conceal the conspiracy until very near the typical running of the statute? If the government has a satisfactory explanation of why it has resorted to the payments theory, and especially if the defendant’s conduct during the investigation contributed to the delay, then the court should find no due process violation.
The due process analysis we are suggesting is, of course, a deviation from the two-step test the Supreme Court established in Marion, but it is based on a valid distinction from Marion—but for the payments theory, the heir locators’ indictment is barred. A balancing of the prejudice to the defendant versus the government’s need to use the payments theory, is a more appropriate way for a court to decide whether a case is time-barred than by finding that the ultimate goal of a customer allocation scheme was not economic enrichment.
Some Thoughts on the Case as Former Prosecutors
Another benefit of a due process analysis is that it would help explain why the government brought a case that is facially so far out of the statute of limitations. One might conclude, and perhaps Judge Sam did, that the government was simply negligent, and the defendants should not bear the cost of that negligence. After all, the allocation agreement itself was in the form of written “Guidelines,” and the directive ending the “formal” agreement was in a July 2008 email. The defendants further allege that two disgruntled former Kemp & Associates employees (and potential witnesses) first approached the Antitrust Division in 2008 or 2009. By all appearances, this seems like a relatively easy conspiracy to “uncover” and prove, so why did the Antitrust Division wait until it had to rely on a payments theory to bring an indictment?
As former prosecutors we can speculate—and it is just speculation– as to why the case was brought using a payments theory to extend the statute. One possibility that comes to mind is that the government believes that the conspiracy was not abandoned in July 2008. Perhaps the government has evidence that additional customers were allocated after July 2008 and that the conspiracy in fact continued until the date the defendants received the subpoenas. Was the Mannix email withdrawing from the conspiracy just a cover and the allocation actually continued “underground?” The government may simply have found it expedient to go with the payments theory rather than disprove the withdrawal email beyond a reasonable doubt. This, of course, is just speculation–there may be other valid reasons why a payments theory was necessary. But, often the public facts do not tell the entire story. The Antitrust Division brought a case that appeared to be a straightforward per se customer allocation agreement and used the well accepted payments theory to bring the case within the statute of limitations. Without a trial or a record of any sort, there is no way to tell whether this was a sound exercise of prosecutorial discretion or not.
The Tenth Circuit may reverse Judge Sam on the statute of limitations issue, in which case the rule of reason versus per se issue will take center stage. Or the appeals court may agree with Judge Sam and limit the payments theory to situations, like Evans, where there is a fixed contract performance time that limits the payments theory extension of the statute of limitations. But, even in this situation, contracts typically have delays, so the idea of a “fixed contract time” may be somewhat illusory. While it is not the law currently, our suggestion is that rather than have courts chip away at the legally sound payments theory based on dubious distinctions, defendants should challenge, and courts should assess the fairness of, the government’s use of the payments theory on the basis of due process; i.e., balancing the harm to the defendants against the justification offered by the government for relying on this theory to extend the statute.
 Bob Connolly is a partner with GeyerGorey LLP. He is the former chief of the Antitrust Division’s Philadelphia Field Office and served for 34 years in the Antitrust Division. He publishes a blog, Cartel Capers.
Karen Sharp is a former trial attorney with the DOJ Antitrust Division, where she investigated and prosecuted national and international antitrust matters for 25 years. She also served as a special assistant United States attorney in the Eastern District of California. Most recently she was counsel for Wilson Sonsini Goodrich & Rosati in San Francisco. Ms. Sharp can be reached at [email protected].
 United States v. Kemp & Associates, Inc., et al., No. 2:16-cr-00403 (D. Utah Aug. 17, 2016) (David Sam J.)16-
 The indictment can be found on the Antitrust Division’s website at https://www.justice.gov/atr/file/887761/download.
 Judge Sam’s memorandum opinion is linked at Law 360, Aug. 29, 2017, Antitrust Charges Against Heir-Tracker Co. Dismissed, available at https://www.law360.com/articles/958574/doj-antitrust-charges-against-heir-tracker-co-dismissed. It can also be found here JudgeSamSOLOrderandMemorandum.
 Opening Brief for the United States, (corrected) (filed January 3, 2018), available at https://www.justice.gov/atr/case-document/file/1020466/download.
 The defendants’ brief is linked at Law 360, February 5, 2018, Heir-Tracking Firm Urges 10th Circ. to Refuse Antitrust Case, available at https://www.law360.com/competition/articles/1009042/heir-tracking-co-urges-10th-circ-to-refuse-antitrust-case. It can also be found here defendants’ kemp-brief.
 United States v. Evans & Associates Construction Co., 839 F.2d 656 (10th Cir. 1988).
 Id. at 661.
 Id. (quoting United States v. Northern Improvement Co., 814 F.2d 540 (8th Cir. 1987)).
 United States v. Morgan, 748 F.3d 1024, 1036-37 (10th Cir. 2014).
 United States v. Marion, 404 U.S. 307 (1971).
 Id. at 324.
 The Antitrust Division already had a significant setback on the “payments theory” in United States v. Grimm, 738 F.3d 498 (2d Cir. 2013), a case where the jury returned guilty verdicts for fixing of municipal bonds. The last bond fixed was outside the five-year statute of limitations, but payments on the fixed bonds could extend over the life of the bonds—up to thirty years. The Second Circuit could not accept this extreme extension of the statute of limitations and reversed the convictions ruling that a “[criminal] conspiracy ends notwithstanding the [later] receipt of anticipated profits where the payoff merely consists of a lengthy, indefinite series of ordinary, typically noncriminal, unilateral actions.” Id. at 502 (quotation marks, ellipses, and brackets omitted).