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Universal Grading Service v. eBay

June 9, 2009

UNIVERSAL GRADING SERVICE, JOHN CALLANDRELLO, JOSEPH KOMITO AND VADIM KIRICHENKO, INDIVIDUALLY AND ON BEHALF OF OTHERS SIMILARLY SITUATED, PLAINTIFFS,
v.
EBAY, INC., AMERICAN NUMISMATIC ASSOCIATION, PROFESSIONAL NUMISMATISTS GUILD, INC., AND BARRY STUPPLER & COMPANY, LLC, DEFENDANTS.



The opinion of the court was delivered by: Sifton, Senior Judge

MEMORANDUM OPINION AND ORDER

Plaintiffs Universal Grading Service ("USG"), John Callandrello, Joseph Komito and Vadim Kirichenko commenced this putative class action*fn1 on August 29, 2008 against defendants eBay, Inc. ("eBay"), American Numismatic Association ("ANA"), Professional Numismatists Guild, Inc. ("PNG"), and Barry Stuppler & Company, LLC ("Stuppler Co.").*fn2 Plaintiffs allege that defendants committed antitrust violations of the Sherman Act, 15 U.S.C. §§ 1 and 2, and the Donnelly Act, N.Y. Gen. Bus. Law § 340, and assert New York common-law claims for civil conspiracy and trade libel. They seek damages, preliminary and permanent injunctive relief, and attorney's fees and costs. Presently before this Court are defendants' motions to dismiss plaintiffs' Second Amended Complaint ("SAC") pursuant to Rules 12(b)(2) (lack of personal jurisdiction), 12(b)(3) (improper venue), and 12(b)(6) (failure to state a claim) of the Federal Rules of Civil Procedure, and, in the alternative, to transfer venue pursuant to 28 U.S.C. § 1404(a), as well as plaintiffs' motion to strike certain documents and arguments from the record. For the reasons set forth below, this action is transferred to the United States District Court for the Northern District of California.

BACKGROUND

The following facts are drawn from the SAC, as well as the parties' affidavits and exhibits filed in connection with this motion. For the purposes of this motion, the facts alleged in the SAC are taken as true.

Plaintiff UGS is a limited liability company organized and operating under the laws of New Jersey and maintaining its principal place of business there. SAC ¶ 2. Plaintiff UGS is in the business of grading coins. Id. Plaintiff Callandrello is the president of UGS, as well as a shareholder in the company. Id. ¶ 3; Declaration of John Callandrello dated April 24, 2009, at ¶ 2. Plaintiffs Komito and Kirichenko are individual coin dealers residing in New Jersey and New York, respectively, who engage in the business of buying and selling coins in forums including, but not limited to, the Internet via defendant eBay. Id. ¶¶ 4-5.

Defendant ANA is a federally chartered not-for-profit Internal Revenue Code § 501(c)(3) entity that acts as "the preeminent trade association in the numismatic hobby and the multi-billion dollar industry associated with the numismatic hobby." Id. ¶ 6. ANA's members are coin collectors, many of whom are sellers of certified coins in online auction market.

Id. ¶ 7. ANA's official grading service, to which "active ANA members may submit coins for grading directly," is NGC, one of eBay's authorized graders. Id. ¶ 70. ANA maintains its headquarters in Colorado, but has members throughout the United States and does business in New York. Id. ¶ 6. At all relevant times, Barry S. Stuppler was a member of defendant ANA's Board of Governors, Chairman of the ANA's Consumer Protection Committee, and is currently the President of defendant ANA. Id.

Defendant PNG is a foreign corporation that "consists of coin dealers" and does business throughout the United States.

Id. ¶¶ 9-11. PNG maintains a website at www.pngdealers.com, which is accessible to Internet users in New York. Id. ¶ 10. In addition, defendant PNG has about 20 coin dealers located in New York, which are listed on its website as PNG dealers. Id. ¶ 12. These 20 coin dealers are all representatives or agents of PNG. Id.

Defendant Stuppler Co., a company based in California, represents on its website that it facilitates coin sales and purchases, including via defendant eBay. Id. ¶¶ 15-16. Defendant Stuppler Co. also sells certified coins on eBay and represents on its website that it has been an "eBay power seller" for over five years. Id. ¶ 16. Stuppler Co. is a member of several grading services, as well as a member and/or director of defendant PNG and founder of the PNG "Internet rules committee." Id. ¶ 17.

Defendant eBay is a foreign corporation that provides a forum for the purchase and sale of merchandise, including coins, over the Internet. Id. ¶ 18. At all relevant times, plaintiffs UGS and Callandrello have graded coins that were bought and sold over eBay, or bought and sold coins on eBay as a substantial part of their business activities. Id. ¶ 18. There have been no customer complaints about the authenticity of coins graded by plaintiff UGS and listed on eBay. Id. ¶ 24.

In 2001, defendant PNG formed a group known as the "Internet rules committee," which is composed of coin industry insiders including the following: Barry Stuppler, in his capacity as then-ANA Governor and chairman of the ANA Consumer Protection Committee; Doug Winter, a PNG dealer; and R. Steven Ivy, a Principal of Heritage Solution, one of the largest coin auctioneers in the United States. Id. ¶ 25. According to plaintiffs, from 2001-2004, a primary purpose of the "Internet rules committee" was "to interfere with and obstruct the ability" of smaller coin grading services, including plaintiff UGS, to participate in the then-burgeoning coin marketplace on eBay. Id. To this end, the "Internet rules committee" formally and informally accused plaintiffs of selling counterfeit coins and otherwise engaging in fraudulent conduct. Id.

In 2004, defendants ANA and eBay officially formed the "Coins Community Watch group" (the "CCW"), describing it as "a collaborative effort among a team of [h]obby experts, the ANA, and eBay for the purpose of combating misrepresented or fraudulent listings involving coins and other numismatic items." Id. ¶ 26; see also id. Ex. B at 1 (ANA Consumer Awareness publication dated April 2006 including citation). The industry experts of which the CCW was composed included the same individuals that made up the "Internet rules committee." Id. ¶ 29. An ANA publication describes CCW procedure as follows: (1) CCW experts or members of the eBay community submit reports of potentially fraudulent or misrepresented listings to the CCW; (2) reports corroborated by two or more CCW experts are submitted to the ANA for further review; (3) the ANA verifies the claims and tries to resolve the issues with the sellers; (4) unresolved issues are referred to eBay for an appropriate remedy. Id. Ex. B at 2. On August 30, 2004, defendant eBay conducted a workshop entitled the "Coins Community Watch Program," in which it described the CCW program in a similar manner. Id. ¶¶ 27-28.

In 2006, defendant PNG, in conjunction with the Industry Council for Tangible Assets ("ICTA") and led by defendant Stuppler Co., commissioned a survey of rare coin authentication and grading services. Id. ¶ 30. The survey respondents were asked for their professional opinions of 11 grading services based on 12 different, weighted criteria, such as grading and authentication accuracy. Id. The survey results were publicized on defendant PNG's website, defendant ANA's website, defendant Stuppler Co.'s website, and elsewhere. Id. Smaller, more economical coin grading services, like plaintiff UGS, were deliberately excluded from the survey by defendant PNG, whose members were aware that such exclusion would have an adverse economic effect on such companies and their dealers. Id. Small coin grading services like plaintiff UGS were never referenced in the survey. Id. ¶ 31.

On September 17, 2007, defendant eBay, "in complicity with" defendants ANA and PNG, promulgated a new policy that created standards under which coins sold via eBay may be listed as "certified" coins (the "Policy"). Id. ¶ 33. The Policy was enacted pursuant to defendant ANA's recommendations and was based on, among other things, the 2006 coin grading survey commissioned by defendant PNG and spearheaded by defendant Stuppler Co. Id. ¶ 39. The Policy permits only coins that have been graded by one of five "approved" grading services (referred to by plaintiffs as "NGC, NCS, PCGS, ICG, and ANACS") to be listed for sale on eBay as "certified" coins. Id. ¶ 34. In addition, under the Policy, defendant eBay designated coins that were not graded by the "approved" grading services as "counterfeit." Id. ¶ 35. Therefore, under the Policy, coins graded by plaintiff UGS and other small grading companies cannot be listed or sold on eBay as "certified" coins and are referred to as "counterfeit" by defendant eBay. Id. ¶ 36. According to plaintiffs, the policy reflects input from "big" coin grading companies faced with the challenge of competing with smaller coin grading companies like plaintiff UGS. Id. ¶ 43. Plaintiffs also allege that the Policy "arose from a history of prejudice and animosity on the part of Defendant ANA (led by Barry Stuppler and PNG (led by Barry Stuppler and Ivy) against smaller grading services like Plaintiff UGS." Id. ¶ 51.

On September 18, 2007, defendant ANA publicly announced the new Policy in a press release that was published and remains posted on its website. Id. ¶¶ 40, 47; see also id. Ex. F (copy of press release). Defendant ANA prefaced the identification of the grading services qualifying for the certified classification (which did not include plaintiff UGS) by defining consumer fraud as involving a seller's "desire, ability, and opportunity." Id. Defendant ANA then stated that the new eBay/ANA/PNG Policy was an effort to "try to remove the opportunity" to commit consumer fraud. Id. The press release contains a link to the 2006 grading services survey, which does not elicit any opinion as to plaintiff UGS. Id. ¶ 48.

After the institution of the Policy, coin sellers like plaintiff Komito who utilized eBay to list coins not graded by "approved" grading services were notified directly by defendant eBay that their listed products had been "removed because [they] violated the eBay Counterfeit Currency and Stamps policy. . . . eBay does not permit the sale of currency that is improperly described, fraudulent or counterfeit." Id. ¶¶ 36, 44. The subject line of defendant eBay's emails to these third-party dealers states: "eBay Listing Removed: Counterfeit Currency and Stamps." Id. ¶¶ 36, 41; see also id. Ex. D (copy of October 13, 2007 email from defendant eBay to coin dealer who attempted to list a coin graded by plaintiff UGS bearing cited subject line). Bidders on removed listings are also notified of the listing's cancellation for violation of the Policy. Id. ¶¶ 44-45. Plaintiff UGS's listings disclose that UGS is the grading entity for the advertized coin(s), and bidders on cancelled UGS listings are therefore on notice that the cancelled listings relate to coins graded by plaintiff UGS. Id. ¶ 49.

According to plaintiffs, the "certified" designation is critical in the market for numismatics. Id. ¶ 45. Plaintiffs allege that the Policy has already caused defendant eBay's customers to assume that dealers who use plaintiff UGS's services trade in counterfeit coins, thereby harming plaintiffs by making it less likely that customers will purchase UGS-graded coins and less likely that dealers will send coins to UGS for certification for fear that their auctions will be cancelled. Id.; see also id. Ex. E (eBay discussion thread dated October 10, 2007, in which one poster criticizes the policy because it "distorts [the] marketplace by implying that 'everything' in the approved slabs*fn3 is the truth and 'nothing' in the non-approved slabs is true").

Plaintiffs Komito and Kirichenko possess thousands of coins graded by plaintiff UGS and other "unauthorized" grading companies that cannot now be sold on eBay. Id. ¶ 46. Since enactment of the Policy, plaintiff Komito has lost all of his United States customers and sustained a pecuniary loss of $300,000. Id. ¶¶ 186-87. In the same period, plaintiffs UGS and Callandrello have suffered substantial pecuniary harm, lost valuable customers, and seen a general diminution in business. Id. ¶ 53. Their business reputations have also suffered. Id. ¶ 180.

Prior to defendant eBay's September 17, 2007 enactment of the "Policy," a previous policy was in place under which coin dealers trading coins graded by plaintiff UGS were favored sellers on eBay. Id. ¶ 52. Under the previous policy, plaintiff UGS listed its coins on eBay without authenticity complaints or other incident for almost three years. Id. Over 5,000 of plaintiff UGS's coins were listed on eBay by an individual named Paul Reine, and were not the subject of any customer complaints. Id. Mr. Reine had a 99.8% positive feedback rate with respect to UGS-graded coins sold on eBay. Id.; see also id. Ex. G (copy of Paul Reine's eBay feedback page).

Plaintiffs allege that the eBay Policy "harms the competition in the relevant market -- the market for all online auctions of certified coins [in the United States]." Id. ¶¶ 38, 67. According to plaintiffs, the market for online auctions of certified coins is "virtually the only possible way for traders of certified coins to successfully introduce their product to public," and "eBay has a monopoly in the market for on-line auctions in the United States." Id. ¶¶ 68, 72. Plaintiffs allege that the policy harms competition in the relevant market "by prohibiting consumers and dealers from purchasing or dealing in certified coins graded by any coin grading service except for the ones listed in eBay's policy."

Id. ¶¶ 37, 42. According to plaintiffs, defendants' conduct has "reduced output in the market for online auctions of certified coins" and has "caused [an] increase in current and future prices for certified coins, to the detriment of customers, and [has] thereby reduced customer demand for certified coins." Id. ¶ 75. In addition, it has "allowed five authorized graders to maintain market power (collectively to control virtually 100% share) in the market for the sale of certified coins." Id. ¶ 79. Absent defendants' conduct, plaintiffs allege that they would be able to participate in the relevant market, which "would force the five authorized graders to improve their own cost structures and performance." Id. ¶ 76.

Plaintiffs commenced this action by filing their initial complaint on August 29, 2008. On February 6, 2009, defendants ANA, PNG, and eBay moved to dismiss the First Amended Complaint ("FAC"). On February 24, 2009, plaintiffs moved for leave to amend the FAC, and on April 1, 2009, I granted leave to file the SAC and permitted the moving defendants to file additional letter briefs addressing the new allegations in the SAC.

DISCUSSION

I. Jurisdiction

Of the defendants, only defendant PNG has moved to dismiss the claims against it for lack of personal jurisdiction.*fn4

Because the defense of lack of personal jurisdiction is waived if not timely asserted, see Ins. Corp. of Ir. v. Compagnie des Bauxites de Guinée, 456 U.S. 694, 704 (1983) (noting that unlike subject matter jurisdiction, the failure to raise personal jurisdiction is waived if not timely raised in an answer or responsive pleading), I need only determine whether I have personal jurisdiction over defendant PNG.

A. Standard for Motion to Dismiss for Lack of Personal Jurisdiction

"The requirement that federal courts have personal jurisdiction over the litigants before them arises from an individual's liberty interest in not being subject to the binding judgments of a forum with which he has established no meaningful contacts, ties, or relations." Arar v. Ashcroft, 532 F.3d 157, 173 (2d Cir. 2008) (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471-72 (1985)) (internal quotation marks omitted). In opposing a motion to dismiss for lack of personal jurisdiction, "the plaintiff bears the burden of showing that the court has jurisdiction over the defendant." Kernan v. Kurz-Hastings, Inc., 175 F.3d 236, 240 (2d Cir. 1999) (internal citation omitted). However, prior to discovery, the plaintiff need only make a prima facie showing of jurisdiction. See Jazini v. Nissan Motor Co., 148 F.3d 181, 184 (2d Cir. 1998).

"[A] prima facie showing of jurisdiction . . . means that plaintiff must plead facts which, if true, are sufficient in themselves to establish jurisdiction." Bellepointe, Inc. v. Kohl's Dep't. Stores, Inc., 975 F.Supp. 562, 564 (S.D.N.Y. 1997). "Eventually, of course, the plaintiff must establish jurisdiction by a preponderance of the evidence, either at a pretrial evidentiary hearing or at trial. But until such a hearing is held, a prima facie showing suffices, notwithstanding any controverting presentation by the moving party, to defeat the motion." Marine Midland Bank, N.A. v. Miller, 664 F.2d 899, 904 (2d Cir. 1981). A court addressing a 12(b)(2) motion may consider matters outside the pleadings, and the complaint and any affidavits are to be construed in the light most favorable to the plaintiff. PDK Labs v. Friedlander, 103 F.3d 1105, 1108 (2d Cir. 1997).

District courts resolving issues of personal jurisdiction engage in a two-part analysis. Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 171 F.3d 779, 784 (2d Cir. 1999). First, courts consider the application of state law, as "personal jurisdiction of a federal court over a non-resident defendant is governed by the law of the state in which the court sits[.]" Kronisch v. U.S., 150 F.3d 112, 130 (2d Cir. 1998) (citation omitted). Second, the court "must determine whether an exercise of jurisdiction under these laws is consistent with federal due process requirements." Bank Brussels, 171 F.3d at 784 (citing Metro. Life Ins. Co. v. Robertson-Ceco Corp., 84 F.3d 560, 567 (2d Cir. 1996)). Due process requires that an out-of-state defendant have "certain minimum contacts with [the forum] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice." Int'l Shoe Co. v. Wash., 326 U.S. 310, 316 (1945) (internal citation omitted).

If the plaintiff fails to make the requisite showing, the court may dismiss the claims against the defendant(s) over which it lacks personal jurisdiction pursuant to Rule 12(b)(2). In addition, the Second Circuit has held that a district court also has the "power to transfer venue even it if lacks personal jurisdiction over defendants," if the requirements of the governing statute, 28 U.S.C. ยง 1404(a), are met. Fort Knox Music, ...


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