Opinion
No. C96-334 MJM
March 12, 2001
OPINION AND ORDER
INTRODUCTION
Before this Court is a Renewed Motion for Summary Judgment filed by Defendant Sylvan Learning Systems, Inc. ("Sylvan") (Doc. No. 182) and a Motion for Reconsideration, or, in the alternative, for Interlocutory Appeal filed by Plaintiff ACT, Inc. ("ACT") (Doc. No. 184). For the reasons stated herein, Sylvan's motion is denied, and ACT's motion for reconsideration is denied, while its motion for certification for interlocutory appeal is granted.
PROCEDURAL HISTORY
On November 18, 1996, ACT filed the present lawsuit against Sylvan for alleged violations of § 2 of the Sherman Antitrust Act, 15 U.S.C. § 2, and various concurrent state law claims. (Doc. No. 1) On December 30, 1999, this Court issued an Order, denying in part and granting in part Sylvan's initial motion for summary judgment. (Doc. No. 137) In that Order, the Court granted Sylvan's motion for summary judgment on ACT's state law claims — Count I, tortious interference with ACT's business contract with NASD, Count II, tortious interference with ACT's prospective business contract with NASD, and Count III, tortious interference with ACT's current and prospective contractual relations with Regents College. The Court denied summary judgment on the remaining counts alleging violations of § 2 of the Sherman Act — Counts IV and V.
On March 10, 2000, the Court received multiple motions in limine by Sylvan (Doc. Nos. 146-148). The Court dealt with the most consequential of the three, which sought the exclusion of all damages that flowed from ACT's loss of the NASD contract to Sylvan. (Doc. No. 146). This motion was premised, in part, on the fact that in an earlier Order, the Court found there were undisputed legitimate business reasons for Sylvan's acquisition of the NASD contract. Because conduct with a legitimate business justification cannot, as a matter of law, give rise to a violation of § 2 of the Sherman Act, Sylvan argued ACT cannot recover damages based on the loss of that contract. This Court agreed with Sylvan's analysis and in an Order dated May 8, 2000, precluded any evidence of damages that resulted from ACT's loss of the NASD contract. (Doc. No. 174).
ACT now asks the Court to reconsider its Order granting Sylvan's motion in limine, or, in the alternative, to grant certification for interlocutory appeal. Sylvan filed a cross motion for renewed summary judgment based on the Court's earlier ruling.
DISCUSSION
ACT lodges three challenges to the Court's ruling on Sylvan's motion in limine. First, ACT maintains that the Court procedurally erred when it granted Sylvan's motion because its ruling functioned as an improper grant of summary judgment in response to a motion in limine. Second, ACT contests the Court's substantive analysis of legitimate business reasons as a complete defense to an antitrust claim. Finally, ACT maintains that it has generated an issue of fact with regard to whether those legitimate business reasons are pretextual in the face of Sylvan's other, allegedly anticompetitive conduct. Alternatively, Sylvan moves for summary judgment on largely the same grounds it moved this Court to exclude the damage evidence which flowed from the loss of the NASD contract.
As the Court has recounted the factual background of this case in previous orders, it will rely on its earlier recitation of the facts, addressing only those facts relevant to its present analysis.
A. ACT's Procedural Challenge to Court's Grant of Sylvan's Motion in Limine
ACT maintains that the Court's earlier Order granting Sylvan's motion in limine as to damages that flowed from ACT's loss of the NASD contract, essentially granted summary judgment to Sylvan on ACT's antitrust claim and did so without affording ACT the protections of Federal Rule of Civil Procedure 56.
While it is true that the Court's earlier ruling effectively dismantled ACT's claim for damages due to the loss of the NASD contract, that is merely the consequence of the fundamental legal deficiencies in its claims, and not a procedural error on the Court's part. See, cf., General Electric Co. v. K. Joiner, 522 U.S. 136, 142 (1997) (rejecting argument that because a district court's granting of summary judgment after resolving a Daubert motion is outcome determinative the standard of review should be more stringent than abuse of discretion); accord Jaurequi v. Carter Manufacturing Co., Inc., 173 F.3d 1076, 1081 (8th Cir. 1999). The Court did not, as ACT avers, grant summary judgment on its antitrust claim by simply excluding evidence of damages from the loss of the NASD contract. To the contrary, in both its Summary Judgment Order, as well as its Order on Sylvan's Motion in Limine the Court explained that ACT may rely on "Sylvan's conduct as a whole" including "Sylvan's acquisition of the NASD business . . . ." in proving "whether Sylvan's actions were anticompetitive" in order to establish a violation of the Act. See Limine Order at 4-6; see also Summary Judgment Order at 37. This Court's review of the record to determine whether Sylvan had legitimate business reasons for its acquisition of NASD, in order to assess the admissibility of damage evidence, parallels the analysis undertaken by the Eighth Circuit in a recent antitrust case, Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039 (8th Cir.), cert. denied, 121 S.Ct. 428 (2000). There the Eighth Circuit reversed a lower court's ruling on the admissibility of expert testimony and, after reviewing the record, held an "expert['s] opinion should not have been admitted because it did not incorporate all aspects of the economic reality of the . . . market and because it did not separate lawful from unlawful conduct." Id. at 1057. This Court's decision to exclude damage evidence derived from ACT's loss of the NASD contract was a proper exercise of this Court's discretion in ruling on evidentiary matters prior to trial.
B. ACT's Challenge to Sylvan's Legitimate Business Reasons for the Acquisition of the NASD Contract
On a more substantive note, ACT challenges this Court's interpretation of the legal effect of a legitimate business reason as a defense to an antitrust claim, and, concomitantly, this Court's conclusion that Sylvan did indeed have legitimate business reasons for its acquisition of the NASD contract. Having thoroughly reviewed the parties' briefs and the evidence advanced in support of their respective positions, this Court continues to stand by its earlier ruling on these issues. Again, as this Court reads the case law, "anticompetitive conduct is conduct without legitimate business purpose that makes sense only because it eliminates competition." Trace X Chemical, Inc. v. Canadian Industries, 738 F.2d 261, 266 (8th Cir. 1984), cert. denied, 469 U.S. 1160 (1985); see also Eastman Kodak Co. v. Image Technical Services, 504 U.S. 451, 483, n. 32 (1992) (denoting inference of exclusionary conduct maybe refuted by "legitimate competitive reasons"); Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 604-605 (1985); Concord Boat Corp., 207 F.3d at 1059; Midwest Radio Co. v. Forum Publishing Co., 942 F.2d 1294, 1298-99 (8th Cir. 1991) (finding valid business reason for alleged anticompetitive conduct cannot support inference of § 2 violation); Bell v. Dow Chemical Co., 847 F.2d 1179, 1185 (5th Cir. 1988) (finding valid business justifications for refusal to deal allow for judgment as a matter of law that defendant did not have requisite intent to perpetuate a monopoly); General Industries Corp. v. Hartz Mountain Corp., 810 F.2d 795, 804 (8th Cir. 1987). The record reflects Sylvan did in fact have legitimate business reasons for its acquisition of the NASD contract and Sylvan's conduct was not only to "eliminate competition." Trace X, 738 F.2d at 266. Accordingly, that particular conduct cannot give rise to a claim for damages. See Amerinet, Inc. v. Xerox Corp., 972 F.2d 1483, 1491 (8th Cir. 1992), cert. denied, 506 U.S. 1080 (1993) (stating "[i]f a plaintiff has suffered financial loss from the lawful activities of a competitor, then no damages may be recovered under the antitrust laws").
Likewise, for the reasons stated in its earlier ruling, the Court rejects ACT's contention that there is a question of material fact about the legitimate business reasons for Sylvan's acquisition of NASD and its contention that Sylvan's proffered reasons were pretextual for otherwise anticompetitive motives.
Having said all this, however, the Court does find a grant of summary judgment, as urged by the Defendant, would be improper in this case. This is because a violation of § 2 of the Sherman Antitrust Act can be proven through legal as well as illegal conduct, see, e.g., Sanitary Milk Producers v. Bergjans Farm Dairy, Inc., 368 F.2d 679, 691 (8th Cir. 1966), ACT can rely on Sylvan's acquisition of NASD, in conjunction with other allegedly illegal anticompetitive conduct, in proving its antitrust claims. With regards to proving damages, while it does appear the bulk, if not all, of ACT's original claim for damages flows from its loss of the NASD contract, it is possible that ACT could be entitled to injunctive relief. See, e.g., Blue Cross Blue Shield v Marshfield Clinic, 152 F.3d 588, 591 (7th Cir. 1998), cert. denied, 525 U.S. 1071 (1999) (holding as far as equitable relief is concerned, "a plaintiff has to prove that he is likely to be harmed by the defendant's wrongful conduct unless that conduct is enjoined" and not that there was actual damage); see also Ocean State Physicians Health Plan, Inc. v. Blue Cross Blue Shield, 883 F.2d 1101, 1106 (1st Cir. 1989), cert. denied, 494 U.S. 1027 (1990) (stating "a finding of damages is not a necessary prerequisite to injunctive relief"). Therefore, a grant of summary judgment in favor of Sylvan would be improper on this record.
The Court notes that ACT contends its claim for damages is not premised solely on its loss of the NASD contract. Referring to its expert's report, ACT alleges "Sylvan has entered into contracts with NASD, ETS, and others, that contain provisions significantly impeding the entry of rivals."
C. Remaining Motions in Limine
Also pending before this Court is Sylvan's "Daubert/Kuhmo" motion seeking to exclude certain testimony of ACT's expert (Doc. No. 147), Sylvan's motions in limine with regard the summer intern's report, ACT's market reports, and various issues that relate to Sylvan's acquisition of the NASD contract (Doc. No. 148), and ACT's motion in limine to exclude testimony of Sylvan's proposed expert (Doc. No. 150). It is this Court's understanding that ACT's only evidence with respect to damages from the loss of the NASD contract is found in its expert's report and his proposed testimony. Therefore, Sylvan's "Daubert/Kuhmo" motion seeking to exclude ACT's expert testimony is granted with regards to his expert opinion about any damages ACT may have suffered due to the loss of the NASD contract. In all other aspects, Sylvan's motion is denied. Likewise, to the extent Sylvan's remaining motions are implicated by the Court's earlier ruling on damages, that is, they seek to enter into evidence proof of damages that flow from ACT's loss of the NASD contract, they are granted. In all other respects, the motions are denied without prejudice.
D. Certification for Interlocutory Appeal
As an alternative to reconsidering its earlier motion, ACT urges this Court to certify the order for interlocutory appeal. Title 28 U.S.C. § 1292(b) permits district courts to certify an order for interlocutory appeal "in exceptional cases where a decision on appeal may avoid protracted and expensive litigation, as in antitrust and similar protracted cases." White v. Nix, 43 F.3d 374, 376 (8th Cir. 1994) (quoting S.Rep. No. 2434, 85th Cong., 2d Sess. (1958), reprinted in 1958 U.S.C.C.A.N. 5255, 5260; accord In re San Juan Dupont Plaza Hotel Fire Litig., 859 F.2d 1007, 1010 n. 1 (1st Cir. 1988). Title 28 U.S.C. § 1292(b) states:
When a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation, [s]he shall so state in writing in such order. The Court of Appeals which would have jurisdiction of an appeal of such action may thereupon, in its discretion, permit an appeal to be taken from such order, if application is made to it within ten days after the entry of the order: Provided, however, That application for an appeal hereunder shall not stay proceedings in the district court unless the district judge or the Court of Appeals or a judge thereof shall so order.
Pursuant to this statute, the Eighth Circuit delineated "three criteria for certification: the district court must be `of the opinion that' (1) the order `involves a controlling question of law'; (2) `there is substantial ground for difference of opinion'; and (3) certification will `materially advance the ultimate termination of the litigation.'" White, 43 F.3d at 377 (quoting Paschall v. Kansas City Star Co., 605 F.2d 403, 406 (8th Cir. 1979), cert. denied, 469 U.S. 872 (1984)). All three factors are met in the present case.
First, the order involves a controlling question of law; namely whether evidence of legitimate business justifications is a defense to a § 2 claim, with respect to isolated conduct, notwithstanding other evidence of allegedly anticompetitive conduct. In other words, can Sylvan offer a legitimate business reason for its acquisition of the NASD contract as a complete defense to damages which flow from that particular conduct, even if it is part of a pattern of conduct that is ultimately found to be anticompetitive.
Second, a review of the case law reveals two legal paradigms that are arguably inconsistent when applied to the facts of this case. A violation of § 2 of the Sherman Antitrust Act may be proven through legal and illegal conduct to establish a pattern of monopolization or attempt at monopolization. See Sanitary Milk Producers, 368 F.2d at 691. In 1966, the Eight Circuit spoke directly to this issue in Sanitary Milk Producers, where it explained that "an act in itself may be legal, but it still may become involved in an antitrust violation when it is `part and parcel of unlawful conduct or agreement with others or . . . conceived in a purpose to unreasonably restrain trade, control the market, or monopolize'" Id. (quoting Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 468-469 (1962)). Likewise, the Supreme Court explained in a case four years prior to Sanitary Milk Producers that when proving an antitrust violation, "plaintiffs should be given the full benefit of their proof without tightly compartmentalizing the various factual components and wiping the slate clean after scrutiny of each." Continental Ore Co. v. Union Carbide Carbon Corp., 370 U.S. 690, 699 (1962). Some twenty years later, the Eighth Circuit, in revisiting this concept in National Farmer's Organization v. Associated Milk Producers, Inc., explained "the fact that the appellees' illegal conspiracy was composed of lawful and unlawful conduct so tightly intertwined as to make it difficult to determine which portion of the damages claimed were caused by the unlawful conduct should not diminish the recovery." 850 F.2d 1286, 1307 (8th Cir. 1988), cert. denied, 489 U.S. 1081 (1989). The National Farmer's Organization Court then further went on to add, that "the Court should recognize that the harmful consequences of certain unlawful conduct may have been exacerbated by otherwise lawful conduct. In such a situation, the fact that lawful conduct contributed to additional injury should not prohibit recovery for that injury." Id.
A more recent Eighth Circuit opinion stands in contrast to this previous line of cases. See Concord Boat, 207 F.3d at 1057. In Concord Boat, the Eighth Circuit reversed a jury award for the plaintiff based in part on its holding that an "expert opinion should not have been admitted . . . because it did not separate lawful from unlawful conduct." Id. The need to parcel legal conduct from illegal conduct when proving damages in an antitrust claim has been articulated in numerous cases in this Circuit. See Amerinet, 972 F.2d at 1494 (holding plaintiff "may not recover for losses due to factors other than the defendant's anticompetitive violations"); accord National Assoc. of Review Appraisers, 64 F.3d 1130, 1135 (8th Cir. 1995), cert. denied, 577 U.S. 1189 (1996); cf St. Louis Convention Visitors Commission v. National Football League, 154 F.3d 851, 864 (8th Cir. 1998) (finding in a § 1 case that plaintiff must prove injury derived from the defendants anticompetitive violation).
These two lines of cases have a particularly convoluted effect on the present case given Sylvan's legitimate business reasons for its acquisition of the NASD contract appears to render that conduct legal under antitrust law, regardless of other evidence which suggests that the acquisition may have been part of a pattern to monopolize or an attempt to monopolize. See Aspen Skiing Co., 472 U.S. at 604-605; Concord Boat Corp., (holding "A Section 2 defendant's proffered business justification is the most important factor in determining whether its challenged conduct is not competition on the merits"); Midwest Radio Co., 942 F.2d at 1298-99; Bell, 847 F.2d at 1185; General Industries Corp., 801 F.2d at 804; Trace X, 738 F.2d at 268. Put more succinctly, there is a seeming inconsistency between the concept that a legitimate business reason is sufficient to render particular conduct legal under antitrust law, and thereby shielding the defendant from paying any damages which might flow from that conduct, and the notion that a court can consider legal and illegal conduct is determining whether there has been a violation of § 2 of the Sherman Antitrust Act.
With regards to the third factor considered in granting certification for interlocutory appeal, the Court believes an immediate appeal would advance the disposition of this litigation. Under the current circumstances, ACT would need to go to trial and prove an antitrust violation to be entitled to injunctive relief (and possibly money damages flowing from conduct other than the NASD contract). To collect damages on the NASD contract, ACT would then need to appeal the Court's subsequent final judgment, and were it to succeed, return to this Court to prove damages. The procedural complexity is further complicated by the fact that the first trial for injunctive relief would be to the Court while the trial on damages (and possibly re-litigation of liability) would be to a jury. Because interlocutory appeal would avoid the need of two trials on largely the same issues, the litigation would be materially advanced.
CONCLUSION
For the reasons stated herein, the Court stands by its earlier ruling which excludes any evidence of damages derived from ACT's loss of the NASD contract to Sylvan. Sylvan however, is not entitled to summary judgment on those grounds, and the Court finds certification for interlocutory appeal is appropriate.
ORDER
Defendant's renewed motion for summary judgment is DENIED. (Doc. No. 182).
Plaintiff's Motion for Reconsideration is DENIED, but its Motion for Certification for Interlocutory Appeal is GRANTED. (Doc. 184).
Defendant's first Motion in Limine is GRANTED. (Doc. No. 146).
Defendant's remaining Motions in Limine are DENIED without prejudice. (Doc. Nos. 147 148).
Plaintiff's Motion in Limine is DENIED without prejudice. (Doc. No. 144).
Done and so ordered this 12th day of March, 2001.