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Arnold Chevrolet LLC v. Tribune Co.

March 2, 2006

ARNOLD CHEVROLET LLC, ET AL., PLAINTIFFS,
v.
TRIBUNE COMPANY, NEWSDAY, INC., AND STALUPPI HOLDING COMPANY, INC., DEFENDANTS.



The opinion of the court was delivered by: Hurley, District Judge

MEMORANDUM OF DECISION AND ORDER

Plaintiffs Arnold Chevrolet LLC, et al. ("Plaintiffs") filed the instant action alleging that defendants Tribune Company ("Tribune"), Newsday, Inc. ("Newsday"), and Staluppi Holding Company, Inc. ("Staluppi") (collectively, "Defendants") engaged in a conspiracy, inter alia, to charge Plaintiffs higher prices for newspaper advertising than Plaintiffs' competitors. Defendants move to dismiss the Complaint pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6). For the reasons that follow, Defendants' motions are granted in part and denied in part.

BACKGROUND

The following facts are drawn from the Amended Complaint. Plaintiffs are owners and operators of automobile dealerships on Long Island who purchased newspaper advertising from Newsday for publication in its newspaper. (Am. Compl. ¶¶ 8, 15.) The ads ran from September 1995 through July 30, 2004. (Id. ¶ 15.) Newsday is "the most widely circulated and read daily newspaper in Nassau and Suffolk Counties, the two counties which comprise that area of New York known as Long Island." (Id. ¶ 10.)

Plaintiffs allege that the rates they paid Newsday for advertising were based on artificially inflated circulation figures represented by Newsday and its distributors to an auditing company known as ABC. (Id. ¶ 18 at 6.)*fn1 Plaintiffs contend that, independently and through its distributors, Newsday falsified the circulation volumes it reported to ABC. (See id. ¶¶ 20, 21.) As a result, Plaintiffs claim to have paid at least ten percent more than they should have for advertising. (Id. ¶¶ 26-28.)

Staluppi owns and operates a number of automobile dealerships on Long Island that "are in direct competition" with those owned and operated by Plaintiffs. (Id. ¶ 11.) Staluppi was part of what the pleading refers to as the "Preferred Group," a group of large automotive dealers located in Long Island who became "disenchanted with Newsday's advertising prices and/or practices." (Id. ¶ 53.) Staluppi created a competing publication for the purpose of advertising automobiles for sale entitled "Price Finder." (Id. ¶ 54.) Newsday, recognizing the potential threat of such a publication to its "dominance of the Long Island automobile advertising market," sought to eliminate Price Finder. (Id. ¶ 55.) To effectuate this goal, Newsday allegedly entered into an agreement with the Preferred Group whereby Newsday provided the Group with discounted advertising rates in return for Staluppi's promise to cease publication of Price Finder. (Id. ¶ 56.) Pursuant to this agreement, Newsday specifically agreed "not to provide such deep discounts for advertising to Plaintiffs and any other dealer not a member of the Preferred Group for advertisements in Newsday." (Id. ¶ 57.) Upon information and belief, Plaintiffs allege that "dealers who are not members of the Preferred Group pay amounts in excess of eight times the amounts paid by members of the Preferred Group for advertisements placed in Newsday." (Id. ¶ 58.)

In addition to the foregoing, Plaintiffs charge Newsday with a variety of anticompetitive conduct, including the acquisition of publications that were actual or potential competitors, (id. ¶ 48), and refusing to accept advertisements from any merchant who advertised in a competing publication known as "Suffolk Life." (Id. ¶ 51.)

Plaintiffs allege that "Newsday is the only meaningful avenue by which automobile dealers including the Plaintiffs may advertise, in the print media or otherwise." (Id. ¶ 89.) In this regard, Plaintiffs claim that "[n]ewspaper advertising for automobile sales is the single most, and in many cases the sole source, of advertising for car sales dealerships." (Id. ¶ 72.) As for the other area newspapers, Plaintiffs allege that "Long Island businesses will not generally seek advertising in the New York Post, New York Times and/or New York Daily News, as these publications are considered 'city papers' and cover too broad a geographic area to be a meaningful source of advertising for Long Island merchants." (Id. ¶ 67.)

Plaintiffs commenced this action on July 21, 2004. On August 12, 2004, Plaintiffs brought a motion for a temporary restraining order and preliminary injunction, seeking to prevent Newsday from not running Plaintiffs' advertisements as a result of this litigation. On September 1, 2004, the parties entered into a stipulation pursuant to which Plaintiffs would be permitted to advertise in Newsday during the pendency of this litigation.

Plaintiffs filed their Amended Complaint on August 23, 2006. The Amended Complaint asserts fifteen causes of action. Specifically, Plaintiffs bring claims under the Sherman Act for (1) unlawful conspiracy/restraint of trade; (2) conspiracy to monopolize; (3) attempt to monopolize; (4) monopolization; and (5) predatory pricing in the "Long Island Automobile Advertising Market," and (6) unlawful conspiracy/restraint of trade; (7) conspiracy to monopolize; and (8) attempt to monopolize the "Long Island New Automobile Sales Market." These claims, as well as Plaintiffs' state law antitrust claims brought pursuant to the Donnelly Act, are asserted against all Defendants. Plaintiffs also bring one claim for false advertising under the Lanham Act and state-law claims for fraud, unjust enrichment, negligent misrepresentation and breach of contract. This latter group of claims is asserted against Newsday and Tribune only. (See Pls.' Mem. in Opp'n to Staluppi's Mot. at 17.)

DISCUSSION

I. Standard of Review

The court may not dismiss a complaint under Rule 12(b)(6) unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief. King v. Simpson, 189 F.3d 284, 286 (2d Cir. 1999); Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir. 1996). The Court must accept all factual allegations in the proposed complaint as true and draw all reasonable inferences in favor of the plaintiff. King, 189 F.3d at 287; Jaghory v. New York State Dep't of Educ., 131 F.3d 326, 329 (2d Cir. 1997).

II. All Antitrust Claims Against Tribune (Counts One through Ten) are Dismissed

Tribune argues that all claims against it should be dismissed because the Amended Complaint is devoid of any factual allegations that Tribune participated in or controlled Newsday's allegedly wrongful conduct. In response, Plaintiffs contend that Tribune "overlooks" Plaintiffs' allegations that Tribune, the parent company of its wholly-owned subsidiary Newsday, "has participated in the acts, practices, schemes and violations of law attributed to defendant Newsday, and has conspired with others in furtherance of the unlawful acts described below." (Am. Compl. ¶ 9.) Plaintiffs' contention is unavailing.

Plaintiffs' failure to articulate any specific allegations against Tribune is fatal to their claims. "As a general matter [and absent any allegations of piercing the corporate veil], a corporate relationship alone is not sufficient to bind a parent corporation for the actions of its subsidiary." De Jesus v. Sears, Roebuck & Co., 87 F.3d 65, 69 (2d Cir. 1996) (citation and internal quotation marks omitted). More specifically, in the antitrust context, courts have held that absent allegations of anticompetitive conduct by the parent, there is no basis for holding a parent liable for the alleged antitrust violation of its subsidiary. See Invamed, Inc. v. Barr Labs., Inc., 22 F. Supp.2d 210, 299 (S.D.N.Y. 1998) ("[T]hat the Affiliates possess market power through their alleged ownership interests in Brantford, standing alone, does not satisfy the pleading requirements of a monopolization or attempted monopolization claim."); Gemco Latinoamerica, Inc. v. Seiko Time Corp., 685 F. Supp. 400, 403 (S.D.N.Y. 1988) ("Thus, in the absence of a basis for piercing the corporate veil, the parent or grandparent may be held liable only if shown to have acted independently to affect the market [at issue]."). Here, there are no allegations in the Amended Complaint that even suggest that Tribune was involved in Newsday's actions in any way. Accordingly, Plaintiffs' antitrust claims (counts one through ten) are dismissed as against Tribune.*fn2

In their opposition papers, Plaintiffs assert that "discovery will demonstrate that Tribune employees directed and controlled the activities of Newsday employees and themselves engaged in overt acts in furtherance of the antitrust violations." (Pls.' Opp'n to Tribune's Mot. at 6.) This argument puts the cart before the horse and ignores the fact that discovery has to be tied to a pleading which passes muster under Rule 12(b)(6). As discussed infra, however, the Court grants Plaintiffs leave to amend so that they may cure any pleading defects consistent with this decision. Accordingly, to the extent any such amendment asserts antitrust claims against Tribune, the allegations shall be sufficiently particularized so as to delineate Tribune's role in any alleged anticompetitive conduct.

III. Interstate Commerce

Newsday asserts that all of Plaintiffs' antitrust claims should be dismissed for failure to allege subject matter jurisdiction. To assert a claim under the Sherman Act, a plaintiff must establish jurisdiction by satisfying the Act's commerce requirement. See 15 U.S.C. §§ 1 and 2 (governing "commerce among the several States").*fn3 The "scope of antitrust jurisdiction is broad indeed and 'encompasses far more than restraints on trade that are motivated by a desire to limit interstate commerce or that have their sole impact on interstate commerce.'" Hamilton Chapter, 128 F.3d at 66 (quoting Hospital Building Co. v. Trustees of Rex Hosp., 425 U.S. 738, 743 (1976)). "The commerce requirement of the Sherman Act may be satisfied in two distinct ways: (1) where the defendant's conduct directly interferes with the flow of goods in the stream of commerce (the 'in commerce test'); or (2) where the defendant's conduct has a substantial effect on interstate commerce (the 'effect on commerce' test)." Id. at 66-67 (quoting McLain v. Real Estate Board of New Orleans, Inc., 444 U.S. 232, 242 (1980)). With regard to the latter standard, Plaintiffs are not required to demonstrate a "causal link between the unlawful conduct and interstate commerce." Id. at 67; see also McLain, 444 U.S. at 242-43 ("Petitioners need not make the more particularized showing of an effect on interstate commerce caused by the alleged conspiracy . . .or by those other aspects of respondents' activity that are alleged to be unlawful."). Rather, "the inquiry is whether the aspects of the defendant's business that are infected by the allegedly unlawful conduct can reasonably be expected, as a matter of practical economics, to have a not insubstantial effect on interstate commerce." Id. (citations omitted).

Here, Plaintiffs rely on the following allegations in the Amended Complaint to demonstrate jurisdiction:

[Newsday and Tribune] (1) publish substantial quantities of state[,] national and international news, (2) pay substantial sums for such news and for material shipped to it from various parts of the United States and the rest of the world, (3) carry a substantial quantity of national advertising sent throughout the United States, (4) are involved in many transactions in interstate or foreign commerce regarding shipments and payments for the foregoing, and (5) place their product in an online format intended especially for individuals or groups located in states other than New York and countries other than the United States. (Am Compl. ¶ 4.) In addition, in their memorandum of law in opposition to Newsday's motion, Plaintiffs assert that to the extent the Court finds Plaintiffs' allegations lacking, they can easily cure any defect by amending their allegations to state that "the purchase of new automobiles by the automobile dealer parties . . . from manufacturers in Detroit, Michigan; Japan; Korea; Germany; France; Italy; and The United Kingdom, for resale from their Long Island automobile dealerships, is in interstate commerce." (Pls.' Mem. in Opp'n to Newsday's Mot. at 9-10.)

Accepting Plaintiffs' allegations as true, the Court finds that they are sufficient to establish antitrust jurisdiction. Although Defendants correctly point out that there are other allegations in the pleading that suggest that the effects of Defendants' conduct are felt on a purely local level, (see Am. Compl. ¶¶ 80-81 (noting that the geographical market is limited to Long Island as most car customers on Long Island typically do not travel outside Long Island to locate a new car dealer)), the jurisdictional allegations do suggest that there are "aspects of [Newsday's] business that are infected by the allegedly unlawful conduct," Hamilton Chapter, 128 F.3d at 667, i.e., its advertisements, that can reasonably be expected to effect interstate commerce in a substantial way. (See, e.g., id. ¶ 4 (alleging that Newsday carries a "substantial quantity of national advertising sent throughout the United States").)

Moreover, the facts Plaintiffs have articulated in support of a potential amendment lend further support to a finding that Defendants' activities implicate interstate commerce. Cf. Lorain Journal Co. v. United States, 342 U.S. 143, 150-52 (1955) (finding local newspaper's actions affected interstate commerce where paper disseminated significant amounts of news from out-of-state and advertised many goods manufactured out-of state); Taxi Weekly, Inc. v. Metropolitan Taxicab Bd. of Trade, Inc., 539 F.2d 907, 910 (2d Cir. 1976) (because advertisers of local paper were "largely manufacturers of cars and automotive parts who produced at and delivered from plants outside of New York state, . . . [local paper] was an instrument of interstate commerce."). Although these facts are not pled in the Amended Complaint, because the Court is granting Plaintiffs leave to amend, any further amendment shall include these additional jurisdictional allegations.

In sum, the Court finds that Plaintiffs have adequately alleged antitrust jurisdiction under the Sherman Act but may amend their pleading to further particularize their jurisdictional claims.

IV. Standing

Newsday argues that Plaintiffs lack standing to assert antitrust claims relating to the "newspaper advertising sales market." In order to have standing to bring a private antitrust action, a plaintiff must allege both antitrust injury and antitrust standing. See Balaklaw v. Lovell, 14 F.3d 793, 798 n.9 (2d Cir. 1994). Antitrust injury signifies more than just a personal injury. See id. at 797. Rather, "'Plaintiffs must prove antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful. The injury should reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation.'" Id. (quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977)). This requirement "underscores the fundamental tenet that [t]he antitrust laws . . . were enacted for the protection of competition, not competitors." Id. (citations and internal quotation marks omitted); see also Capital Imaging Assocs., P.C. v. Mohawk Valley Med. Assocs., Inc., 996 F.2d 537, 543 (2d Cir. 1993) ("Insisting on proof of harm to the whole market fulfills the broad purpose of the antitrust law that was enacted to ensure competition in general, not narrowly focused to protect individual competitors. Were the law construed otherwise, routine disputes between business competitors would be elevated to the status of an antitrust action, thereby trivializing the Act because of its too ready availability.").

Once a plaintiff has established an antitrust injury, he must then demonstrate that he is a "proper plaintiff," i.e., that based on factors such as the directness and identifiability of his injuries, the plaintiff will be "an efficient enforcer of the antitrust laws." See Balaklaw, 14 F.3d at 798 n.9. The Supreme Court has identified several factors to consider in determining whether a particular plaintiff has "antitrust standing." Associated General Contractors of Ca., Inc. v. California State Council of Carpenters, 459 U.S. 519, 537-44 (1983). They include:

(1) the causal connection between an antitrust violation and the alleged harm suffered by the plaintiff; (2) the nature of plaintiff's antitrust injury; (3) the directness or indirectness of the asserted injury; (4) the existence of an identifiable class of persons other than plaintiff who were more direct victims of the antitrust violation, and (5) the potential for duplicative recovery or complex apportionment of damages. Id. at 537-44; see also Balaklaw, 14 F.3d at 798 n.9.

Under these analyses, Plaintiffs have standing as they allege both that Defendants' conduct violated the antitrust laws and that Plaintiffs were directly injured by that conduct when they purchased advertisements at artificially inflated prices. As to the first requirement, antitrust injury, Plaintiffs allege more than a personal injury; rather, they allege that Defendants' actions have had an actual adverse effect on competition as a whole in the relevant market, i.e., the newspaper advertising sales market. (See, e.g., Am. Compl. ¶¶ 48-49 (alleging that Newsday acquired publications that were actual or potential competitors in the relevant market thereby reducing competition); id. ¶ 51 (alleging that Newsday refused to accept advertisements from any merchant who advertised in a competing publication known as "Suffolk Life"); id. ¶ 56 (alleging that Newsday's agreement with the Preferred Group resulted in termination of a competing publication Price Finder); id. ¶¶ 57-58 (detailing alleged agreement between Newsday and Preferred Group which resulted in artificially inflated prices for any advertiser not part of preferred Group).)

As to antitrust standing, Defendants argue that Plaintiffs are not proper plaintiffs because they do not allege that they were injured as a result of Newsday's alleged anticompetitive conduct. In this regard, Defendants assert that Plaintiffs have not alleged that they ever sought to advertise in the publications Newsday allegedly sought to injure/acquire. The flaw in this argument, however, is that regardless of this omission from the pleading, Plaintiffs still allege direct injury resulting from Defendants' actions in the form of being charged higher prices as a result of reduced competition for advertising. Accordingly, the Court finds that Plaintiffs have set forth sufficient facts to ...


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