Ninth Circuit Rejects Sherman Act Challenge To Non-Solicitation Provision In Contract Between Traveling Nurse Staffing Firms
08/31/2021On July 19, 2021, the United State Court of Appeals for the Ninth Circuit affirmed summary judgment in favor of defendant/appellee healthcare staffing firm, holding that the non-solicitation provision in defendant’s contract with plaintiff/appellant to provide traveling nurse services did not amount to a naked restraint on trade because it was ancillary to the overall pro-competitive agreement between the parties and plaintiff had not shown harm to competition. Aya Healthcare Servs., Inc. v. AMN Healthcare, Inc., No. 20-55679, 2021 WL 3671384 (9th Cir. Aug. 19, 2021).
Both parties are staffing agencies that provide hospitals and other healthcare facilities with travel nurses on temporary assignments. Defendant places travel nurses both directly and indirectly through other agencies such as plaintiff. The parties entered into their first contract in 2010, agreeing that defendant would assign “spillover assignments” that defendant was unable to fulfill to plaintiff. When plaintiff began soliciting defendant’s customers in apparent violation of a non-solicitation provision in the contract, the business relationship between the parties began to erode, eventually leading to the termination of their contract.
Plaintiff then filed suit, alleging that the non-solicitation provision in the parties’ contract, which prohibited solicitation of both nurses and customers, violated Sections 1 and 2 of the Sherman Act, as well as California law. Plaintiff claimed both exclusionary and retaliatory damages. Following discovery, defendant moved for summary judgment. As to retaliatory damages, the district court found that plaintiff failed to demonstrate “evidence of a cartel of healthcare staffing agencies that all agreed to refrain from soliciting or hiring each other’s employees or to retaliate against [plaintiff] for reneging on such an agreement.” The court also found the non-solicitation provision of the parties’ agreement was properly analyzed under the rule of reason, not the per se rule, and that plaintiff had failed to meet its burden to proffer evidence that defendant had sufficient market power in the alleged relevant markets, or that defendant’s conduct had harmed competition. Based on these findings, the court granted summary judgment on the Sherman Act claims and declined to exercise jurisdiction over the state law claims.
On appeal, plaintiff argued that the Ninth Circuit should “recognize a per se rule against naked no-poaching restraints pursuant to Section 1 of the Sherman Act,” and in the alternative that it had established a triable dispute as to whether the non-solicitation provision violates Section 1 under the “quick look” or rule-of-reason standard. It abandoned its Section 2 claims on appeal. In response, defendant argued that the district court appropriately applied the rule of reason because the non-solicitation provision “was ancillary to a pro-competitive collaboration” and correctly found that plaintiff failed to present sufficient evidence of competitive harm as required under the rule of reason. The Ninth Circuit agreed, finding that the non-solicitation agreement was an ancillary restraint that was “reasonably necessary to the parties’ pro-competitive collaboration” to provide nurses to hospitals, and thus subject to a rule of reason analysis of its legality, not a per se bar. The Ninth Circuit rejected plaintiff’s argument that the non-solicitation provision’s unlimited duration post-termination rendered it a naked restraint unrelated to a procompetitive purpose after the collaboration ended, finding that the restriction must be evaluated based on the conditions at the time the contract was entered. Viewed through that lens, the panel wrote, the restraint “promoted enterprise and productivity at the time it was entered” by enabling the parties to meet the demand from defendant’s hospital customers for traveling nurses. The Ninth Circuit also rejected the suggestion from the amicus curie U.S. Department of Justice’s Antitrust Division that the district court must consider whether a less restrictive means of achieving the procompetitive purpose is available in determining whether the restraint should be considered ancillary to the pro-competitive agreement.
Turning to the analysis of the restraint under the rule of reason, the Ninth Circuit agreed with the district court that plaintiff had failed to demonstrate a triable issue of fact with regard to harm to competition. Reviewing the evidence, the court ruled that plaintiff failed to demonstrate that defendants possessed market power in any relevant market. Further, the Ninth Circuit found that the district court correctly rejected plaintiff’s purported evidence of direct anticompetitive effects—expert testimony of alleged supracompetitive pricing—as unsupported and unreliable. Finally, the Ninth Circuit rejected plaintiff’s contention that it was entitled to the retaliatory damages because plaintiff failed to present any evidence of concerted activity in connection with its termination of its contract with plaintiff.
The issue of no-poach and non-solicitation agreements has received a great deal of attention in the last few years and is expected to continue to be a priority for the Department of Justice. As this opinion demonstrates, however, non-solicitation agreements can serve important pro-competitive benefits in enabling joint ventures, subcontracting arrangements, and other collaborative endeavors among competitors. The Ninth Circuit’s opinion here is a careful step-by-step guide to the proper antitrust analysis of non-solicitation provisions in this context.