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December 6, 1982

GIANNA ENTERPRISES, a New Jersey Corporation, for itself and on behalf of all other franchisees of the MISS WORLD-AMERICA PAGEANT, and on behalf of all the state contest winners of the MISS WORLD-AMERICA PAGEANT, Plaintiffs,

The opinion of the court was delivered by: SOFAER



 Until 1981, two international beauty pageant systems held national beauty contests in the United States. The most well-known of the two, the Miss Universe contest, continues today as it did then, choosing its winner from among the winners of statewide contests, and sending her to compete in the International Miss Universe competition. The Miss World pageant used to work in much the same way. Miss World (U.K.), Miss World (Jersey) Ltd., and Eric Morley, owners of the Miss World competition, would franchise an American company to procure, in accordance with certain prescribed rules and regulations, a contestant for the international competition. The American franchisee, in turn, would assign to state franchisees the right to run state Miss World contests, and would then conduct a national competition among the state contest winners in order to choose Miss World (U.S.A.), who would enter the Miss World contest in London as this nation's contestant against the representatives of other nations.

 In 1980, the Miss World owners sold the rights to operate the Miss World pageant in America to Miss World-America Pageant and World-Wide Pageant Corporation (the "Miss World-America" defendants) which fully performed their franchise obligations. These companies were again to purchase the 1981 national Miss World franchise from the owners of Miss World, see Affidavit of E. Morley at 3-4 (Apr. 5, 1982), and, in keeping with standard practice, they executed franchise agreements that directed state franchisees to hold state beauty contests and send the winners to the national competition. The complaint alleges that, to induce potential franchisees to purchase and undertake the 1981 franchise agreements, the World America defendants represented that they had plans to televise the national pageant, to hold the pageant in Florida or Las Vegas, and to make available to these franchisees the 1982 franchise at the same price as 1981. Amended Complaint para. 12. The state franchisees in turn relayed these representations to potential contestants to induce their entry into the state Miss World pageants. Id. at PP 14-15. No 1981 National pageant took place, however, no state winner of a Miss World pageant went to the international competition, and no 1982 franchise was offered to any 1981 franchisee. Id. PP 13-19. Instead, the World defendants, through an agreement with the owners of the Miss Universe pageant, obtained as their United States representative to the international competition the runner-up of the 1981 national Miss Universe-America beauty pageant, the winner of which went on to the Miss Universe International competition. In exchange for obtaining the Miss Universe runner-up, the Miss World defendants agreed not to hold or authorize any Miss World competitors with the United States.

 Plaintiff Gianna Enterprises ("Gianna") commenced this action on behalf of itself and others to recover damages arising out of these changes in the running of the Miss World beauty pageant. Gianna was the 1981 New Jersey franchisee of the Miss World system, and had expected to be able to place its winner in the national contest, and to become the Miss World franchisee for New Jersey in 1982.

 Gianna also seeks to represent a class of all state Miss World franchisees and all winners of the state pageants. Gianna claims that the state franchisees "suffered severe damage to their credibility, reputation and goodwill" in their home states and also lost the sponsorship revenues expected to be generated through national television and newspaper exposure. Amended Complaint at paras. 17-18, 23-30. The contestants, Gianna claims, lost valuable newspaper and television publicity, which "has the effect of launching a girl's career like a star blazing across the midnight sky." Id. at PP 19, 36, 40. In addition, under an antitrust theory, Gianna seeks treble the damages that it alleges under its contract and fraud theories. The suit names as defendants on all claims the owners of Miss World, and the Miss World America national franchisees; on the antitrust claim the complaint also joins Miss Universe, Inc., its owner Gulf and Western Industries, Inc., and its director Harold Glasser (the "Miss Universe defendants"). Plaintiff asserts both diversity and federal question jurisdiction.

 Five motions are now pending: (1) all the defendants have moved to dismiss plaintiff's antitrust claim; (2) plaintiff has moved for class certification; (3) the Miss Universe defendants seek an award of attorneys' fees under 28 U.S.C. § 1927 (Supp. IV 1980) and the court's general equitable power for costs borne in defending the antitrust claim; (4) the Miss World defendants have moved to dismiss the complaint under Fed. R. Civ. P. 12(b) (2) for lack of personal jurisdiction; and (5) defendant Morley has moved to quash the service made upon him.

 I. Motion to Dismiss the Antitrust Claim

 Plaintiff claims that the agreement between the owners of Miss World and the Miss Universe defendants violates the Sherman Act, 15 U.S.C. § 1 (1976), which makes illegal "every contract, combination . . ., or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations . . . ." In general, plaintiff's claim falls victim to the basic tenet that "the antitrust laws . . . were enacted for 'the protection of competition, not competitors.'" Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 478, 50 L. Ed. 2d 701, 97 S. Ct. 690 (1977) (emphasis in original) (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320, 8 L. Ed. 2d 510, 82 S. Ct. 1502 (1962); see Copy-Data Systems, Inc. v. Toshiba America, Inc., 663 F.2d 405, 410-11 (2d Cir. 1981).

 To state an antitrust claim, plaintiff must show that defendants acted to restrain competition. To do so, plaintiff must first identify the relevant product market and the alleged restraint. Nifty Foods Corp. v. Great Atlantic & Pacific Tea Co., 614 F.2d 832, 840 (2d Cir. 1980); Coniglio v. Highwood Services, Inc., 495 F.2d 1286, 1292 (2d Cir.), cert. denied, 419 U.S. 1022, 42 L. Ed. 2d 296, 95 S. Ct. 498 (1974). Plaintiff defines the relevant product market as one for international beauty pageants. It alleges that the consumers in this service market are the state franchisees and the beauty pageant contestants, and as thus defined Miss World and Miss Universe are its only competitors. Plaintiff has failed, however, to attempt to explain why this market excludes other state and national beauty pageants, of which there are dozens if not hundreds. Moreover, it has made no attempt to explain why beauty pageants alone can be treated as a separate market for competition to obtain modelling or other positions in the advertising or entertainment world. Plaintiff admits that the contestants compete primarily for the opportunity to gain access to such careers. See Conference Transcript at 4-5 (Sept. 17, 1982). Plaintiff simply delineates the product market based on the perceived similarity of services offered. This bears no rational relation to the methodology courts prescribe to define a market for antitrust purposes -- analysis of the interchangeability of use or the cross-elasticity of demand for potential substitute products. See Brown Shoe v. United States, supra, 370 U.S. at 325; Nifty Foods Corp. v. Great Atlantic & Pacific Tea Co., supra, 614 F.2d at 840. The Court cannot accept the market boundaries offered by plaintiff without at least a theoretically rational explanation for excluding the publicity potential offered by lesser pageants or different media.

 The absence of an adequate market definition makes it impossible even to approximate the market effect of defendants' allegedly anticompetitive agreement. Plaintiff concedes that the Miss World beauty contestants can all compete in the Miss Universe contest, and that the Miss World state franchisees can bid for franchises to operate the statewide contests for Miss Universe. Plaintiff asserts only that the entry fees for contestants went up from $350 in 1981 to $500 in 1982 as a result of the agreement, see Amended Complaint para. 42(b), and that the opportunities to be a state franchisee will be reduced from two per state to one. These claims fail to satisfy the requirement that a section 1 claimant allege how the net economic effect of the alleged violation is to restrain trade in the relevant market, and that no reasonable alternate source is available. Oreck Corp. v. Whirlpool Corp., 579 F.2d 126, 132-33 (2d Cir.) (en banc), cert. denied, 439 U.S. 946, 58 L. Ed. 2d 338, 99 S. Ct. 340 (1978). The entry fee for Miss Universe is de minimus and does not even approach a level that would cover the costs of processing each contestant. That the number of state franchise opportunities is reduced does not significantly affect commerce insofar as it reduces the opportunities of would-be franchisees to obtain franchises, though not to compete for them.

 Plaintiff seeks to neutralize the inadequacy of its pleadings by characterizing the agreement as a per se violation. Per se violations do not require a showing of deleterious impact on competition. The acts involved are considered so repugnant to the policies underlying antitrust law that they create a presumption of anticompetitive effect. See Klor's Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 212-13, 3 L. Ed. 2d 741, 79 S. Ct. 705 (1959); Copy-Data Systems, Inc. v. Toshiba America, Inc., 663 F.2d 405, 408 (2d Cir. 1981). Only a narrow class of practices, however, warrant classification as per se violations. Continental T.V., Inc., v. GTE Sylvania Inc., 433 U.S. 36, 49-50, 53 L. Ed. 2d 568, 97 S. Ct. 2549 (1977); Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5, 2 L. Ed. 2d 545, 78 S. Ct. 514 (1958). In Klor's, for example, a group of retailers combined for the sole purpose of eliminating competition from a retailer who sold competing products at a discount. 359 U.S. at 212-13. Agreements that lack an obvious anticompetitive effect, and that may be supported by rational business planning, cannot be treated as per se violations. Rather, Section 1 challenges to these agreements must be resolved under a rule of reason approach which weighs all relevant circumstances to decide whether they justify the practice notwithstanding demonstrated anticompetitive effects.

 Plaintiff has failed to provide evidence of anticompetitive effect. That Gianna and the other former state franchisees lost their franchises is insufficient. See Copy-Data, Systems, Inc. v. Toshiba America, Inc., supra, 663 F.2d at 408; Nifty Foods Corp. v. Great Atlantic & Pacific Tea Co., supra, 614 F.2d at 841; Oreck Corp. v. Whirlpool Corp., supra, 579 F.2d at 133. Plaintiff cannot convert the losses it may have sustained as a result of alleged breaches of contract and misrepresentations into an antitrust claim, without demonstrating the type of injury against which the antitrust laws were intended to protect.

 Plaintiff also lacks standing to assert its antitrust claim. Courts circumscribe narrowly the types of antitrust injuries that will support standing to sue for money damages. Plaintiffs must establish more than a causal link between the damages alleged and the illegal market practice; plaintiff must prove antitrust injury, i.e. injury emanating directly from the anticompetitive practice. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 50 L. Ed. 2d 701, 97 S. Ct. 690 (1977). In the beauty pageant market proffered by plaintiff, those that would suffer directly from the anticompetitive effects, and thereby come within the target area test applied by the Second Circuit, see Calderone Enterprises Corp. v. United Artists Theatre Circuit, 454 F.2d 1292, 1295-96 (2d Cir. 1971), cert. denied, 406 U.S. 930, 92 S. Ct. 1776, 32 L. Ed. 2d 132 (1972); NAACP v. New York Clearing House Ass'n., 431 F. Supp. 405, 408 (S.D.N.Y. 1977), are franchisees and contestants in the Miss ...

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