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Western District Of Washington Rejects Per Se Rule, But Allows Cinnabon Worker’s No-Poach Class Action To Proceed After “Quick Look” Analysis
11/20/2018On November 13, 2018, Judge Robert J. Bryan of the United States District Court for the Western District of Washington denied a motion to dismiss a class action complaint by a former fast-food worker alleging that the company’s agreement to prohibit the re-hiring of one franchisee’s employees by another franchisee violates the Sherman Antitrust Act. Yi v. SK Bakeries LLC, et al., No. 3:18-cv-05627, Dkt. No. 33 (W.D. Wa. Nov. 13, 2018). Judge Bryan did, however, caution plaintiff against relying solely on a “quick look” theory, and suggested that whether franchisees are, in fact, a “single entity” incapable of conspiring with one another is a fact-specific question that did not merit a pleading-stage dismissal.
Plaintiff’s complaint alleges that the company’s franchises have agreed that they would “not employ or seek to employ an employee of [company], of another franchisee, or attempt to induce such employee to cease his/her employment without prior written consent of such employee’s employer.” Id. at 2 (alteration in original). Defendants challenged the core premise of plaintiff’s allegations: that two franchisees can conspire with one another to violate the antitrust laws, as they are part of a “single entity” and thus immunized from liability under Section 1 of the Sherman Act (which requires an agreement in restraint of trade). Judge Bryan disagreed, distinguishing a Ninth Circuit decision and a district court decision to conclude that it would be “premature” to dismiss the case on this basis before factual discovery sheds light on whether the franchisees are, in fact, a single entity.
Once the Court established that defendants were capable of agreeing to violate the Sherman Act, the next question was whether plaintiff sufficiently alleged an unlawful agreement. Plaintiff contended that defendants’ “no-poach” agreement was per se illegal under the antitrust laws, relieving plaintiff of any requirement to show anticompetitive effects. Judge Bryan held the “no-poach” agreement was not per se illegal because the agreement has a “vertical” component among different levels of the company’s distribution chain and it was not clear that defendants’ agreements “lack any redeeming virtue.”
Alternatively, plaintiff alleged that the “no-poach” agreement violated the antitrust laws via a “quick look” analysis, which penalizes agreements that show an anticompetitive effect on customers and markets, even to someone with “a rudimentary understanding of economics.” Id. at 10. Judge Bryan found that plaintiff’s “quick look” claim was plausibly alleged because even a “rudimentary understanding of economics” would indicate that an agreement not to hire each other’s employees would likely cause wages to stagnate. Given the “quick look” analysis at the pleading stage, Judge Bryan concluded he would not consider the procompetitive justifications defendants argued outweighed the alleged anticompetitive effects. Accordingly, Judge Bryan denied defendants’ motion to dismiss.
While Judge Bryan sustained plaintiff’s allegations under the “quick look” analysis, he cautioned plaintiff about proceeding without also pleading “a full rule of reason claim.” Id. at 11. The Court indicated that plaintiff acknowledged “that she has failed to allege sufficient facts to support a full rule of reason analysis” and that “[s]he does so at her own risk (and perhaps those she seeks to represent) if she is unable to prevail under a “quick look” rule of reason analysis.” Id.
Finally, Judge Bryan’s analysis about when, factually, a complaint may be dismissed based on the “single entity” exemption to antitrust liability under Section 1 of the Sherman Act could spawn disparate decisions even within the Ninth Circuit — potentially prompting appellate resolution in an appropriate case.
Antitrust Litigation