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Angela Tese-Milner As Chapter 7 Trustee of the Estate of W.B. v. Diamond Trading Company

September 29, 2011

ANGELA TESE-MILNER AS CHAPTER 7 TRUSTEE OF THE ESTATE OF W.B. DAVID & CO., INC., PLAINTIFF,
v.
DIAMOND TRADING COMPANY, LTD., DEFENDANT.



The opinion of the court was delivered by: Wood, U.S.D.J.:

OPINION & ORDER

On April 13, 2010, Plaintiff Angela Tese-Milner ("Plaintiff"), as Chapter 7 Trustee of the Estate of W.B. David & Co., Inc. ("W.B. David"), filed a Second Amended Complaint ("SAC") in the above-captioned action, alleging, inter alia, violations of various federal and state antitrust laws. (Dkt. No. 262.) Defendant Diamond Trading Company, Ltd. ("Diamond Trading" or "Defendant") moves to dismiss the SAC for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) ("Rule 12(b)(6)"). (Dkt. No. 276)

For the reasons stated below, the Court grants Defendant's motion to dismiss.

I. Factual and Procedural Background*fn1

W.B. David was a corporation located in New York, New York. Diamond Trading is incorporated in the United Kingdom. (SAC ¶ 6.) Diamond Trading is a member of a group of companies affiliated with the De Beers Group ("De Beers" or "De Beers Group"). De Beers is a group of related companies involved in the production, purchase, and sale of rough diamonds, which are diamonds that have not been cut or polished. (SAC ¶¶ 7-10.) From 1969 to 2003, W.B. David was a De Beers' Sightholder-a company selected by De Beers to purchase and sell De Beers' rough diamonds. (SAC ¶ 3.)

A. Original Complaint

On July 1, 2004, W.B. David filed a 140-page Original Complaint ("OC") in this action, asserting 36 claims against over 100 defendants, including Diamond Trading. (Dkt. No. 1.) The OC alleged that De Beers controlled the world diamond market and was engaged in anticompetitive conduct affecting the United States markets for rough and polished diamonds. The OC's allegations focused on two categories of conduct.

First, the OC focused on the Supplier of Choice program, a program that De Beers introduced in 2003 to select its Sightholders. The OC stated that, on June 3, 2003, Diamond Trading had informed W.B. David by letter that it did not qualify as a Sightholder under Supplier of Choice, and that it would lose its Sightholder status after a transitional six-month period (i.e., after December 2003). The OC alleged that De Beers terminated W.B. David as a Sightholder after De Beers used the Supplier of Choice program to reduce the number of Sightholders, thereby restricting the supply of diamonds to the market and raising diamond prices. Second, the OC stated that De Beers had stolen from W.B. David a proprietary diamond marketing campaign titled "Leading Jewelers of the World" ("LJW"). The OC alleged that these two categories of conduct by De Beers-the Supplier of Choice Program and the LJW campaign-violated: (1) federal and state antitrust laws, including Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 & 2; (2) Racketeering Influenced and Corrupt Organizations Act; and (3) state common law.

On January 25, 2006, unsecured creditors filed an involuntary Chapter 7 bankruptcy petition against W.B. David in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). The Bankruptcy Court entered an order of relief on February 8, 2006, and appointed Angela Tese-Miner (Plaintiff) as Trustee of the W.B. David Estate. (SAC ¶¶ 4-5.)

B. Amended Complaint

On July 11, 2007, Plaintiff filed an 11-page Amended Complaint ("AC"), omitting all but seven of the original defendants. (Dkt. No. 151.) In the AC, Plaintiff brought claims against Diamond Trading and six other companies allegedly related to De Beers. Plaintiff abandoned all of the OC's specific allegations regarding the Supplier of Choice program and the LJW campaign. Instead, the AC alleged that De Beers is involved in "an amorphous, world-wide conspiracy with unnamed co-conspirators to control the global diamond market." See TeseMilner v. Diamond Trading Co., No. 04 cv. 05203, at 27 (S.D.N.Y. Feb. 24, 2010). The AC alleged that De Beers' monopolistic conduct has anticompetitive effects in the diamond market and violates Sections 1 and 2 of the Sherman Act and Section 340 of the Donnelly Act. (Id.)

In September 2007, certain defendants filed a motion to dismiss the AC for failure to state a claim, pursuant to Rule 12(b)(6). Other defendants (the "Jurisdictional Defendants") moved to dismiss the AC for lack of personal jurisdiction, pursuant to Federal Rule of Civil Procedure 12(b)(2), and for insufficient service of process pursuant to Federal Rule of Civil Procedure 12(b)(5). (Dkt. Nos. 154 & 162.)

On January 23, 2009, this Court issued an order addressing the Jurisdictional Defendants' motion to dismiss. See Tese-Milner v. De Beers Centenary A.G., et al. ("Tese-Milner I"), 613 F. Supp. 2d 404 (S.D.N.Y. 2009). The Court found, inter alia, that Plaintiff had made a sufficient start toward a showing of jurisdiction, and allowed jurisdictional discovery.

On August 31, 2009, after the completion of jurisdictional discovery, Plaintiff moved for leave to file a Second Amended Complaint pursuant to Federal Rule of Civil Procedure 15(a). (Dkt. No. 235.) Defendants opposed that motion and cross-moved to dismiss the AC pursuant to Rule 12(b)(6). The Jurisdictional Defendants also renewed their motion to dismiss. (Dkt. Nos. 238 & 240.)

On February 24, 2010, the Court issued an opinion and order, inter alia, (1) granting the Jurisdictional Defendants' motion to dismiss the AC; (2) denying Plaintiff's motion for leave to amend; and (3) granting defendants' motion to dismiss the AC pursuant to Rule 12(b)(6). See Tese-Milner v. Diamond Trading Co. (Tese-Milner II), No. 04 cv. 05203 (S.D.N.Y. Feb. 24, 2010); see also Dkt. Nos. 259 & 267.*fn2 The Court held that, because the AC omitted "almost all of the OC's factual allegations," and instead introduced a new set of operative facts, the AC did not relate back to the OC for statute of limitations purposes. Tese-Milner II at 27. The Court noted that there was "not a single reference in the AC to the Supplier [of] Choice Program or De Beers' U.S. marketing, advertising, or retail claims." Id. The Court thus found that the AC's claims were limited to conduct that occurred on or after February 8, 2002-which is four years prior to the filing of the AC and an additional two years from the order of relief in the bankruptcy proceeding, which was entered on February 8, 2006.*fn3 The Court also found that the Plaintiff had failed to: (1) identify specific conduct by Diamond Trading that violated antitrust laws; (2) allege an agreement between Diamond Trading and a non-De Beers Group organization; and (3) allege a relevant market in which the conduct had occurred. Finally, the Court held that Plaintiff could replead her claims against Diamond Trading. See Tese-Milner II at 36 ("If Plaintiff can make out more specific, factual allegations about the role of Diamond Trading in De Beers' alleged monopoly, however, then Plaintiff may be able to state a claim against the company.").

C. Second Amended Complaint

On April 13, 2010, Plaintiff filed the instant SAC, asserting the following: (1) combination and conspiracy to restrain trade in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1; (2) monopolization in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2; (3) attempt to monopolize in violation of Section 2 of the Sherman Act; (4) conspiracy to monopolize under Section 2 of the Sherman Act; (5) combination and conspiracy to restrain trade in violation of the Wilson Tariff Act, 15 U.S.C. § 8 et. seq. (the "Wilson Act"); and (6) combination and conspiracy to monopolize and restrain trade in violation of the Donnelly Antitrust Act, N.Y. Gen. Bus. Law § 340 (the "Donnelly Act"). (SAC ¶¶ 123-161.)

The SAC challenges four categories of alleged conduct by Defendant. First, Plaintiff asserts that Defendant horizontally restrained the supply in the U.S. rough diamond market, in violation of Section 1 of the Sherman Act, when members of the De Beers Group entered into agreements with ALROSA, a Russian diamond mining company and a competitor of the De Beers Group. (SAC ¶¶ 35-47.) Second, Plaintiff asserts that Defendant vertically restrained trade, in violation of Section 1 of the Sherman Act, by entering into curtailment agreements with De Beers Consolidated Mines, Ltd. ("DBCM"), a member of the De Beers Group, and by entering into sales agreements with the Government of Botswana. (SAC ¶¶ 48-62.) Third, Plaintiff challenges various elements of Defendant's advertising and marketing campaigns, including its U.S. Carat Club, and its De Beers Limited Edition of Millennium Diamonds Campaign ("Millennium Campaign"), as violations of Section 2 of the Sherman Act. (SAC ¶¶ 68-94.) Finally, Plaintiff resurrects her claims related to Defendant's Supplier of Choice program that were included in the OC, but not in the AC. Plaintiff alleges that the program violated Section 2 of the Sherman Act. (SAC ¶¶ 95-122.)

On May 7, 2010, Defendant moved to dismiss the SAC pursuant to Rule 12(b)(6). (Dkt. No. 264.) Defendant asserts that the SAC fails to allege any specific, actionable conduct by Defendant. Defendant also asserts that the conduct alleged by Plaintiff as unlawful falls outside of the applicable limitations period. Specifically, Defendant contends that Plaintiff must allege wrongful conduct by Defendant that took place between February 8, 2002, the limitations period identified in the Court's February 24, 2010 opinion dismissing the AC, and December 2003, when W.B. David ceased to be a Sightholder. With respect to that latter date, Defendant contends that Plaintiff may assert only those claims that are based on purchases that it made as a Sightholder, because Plaintiff's non-Sightholder claims (all claims arising after 2003, when Plaintiff's Sightholder status was terminated) are covered by a class action settlement release in a related case, Sullivan v. DB Inv., No. 04 cv. 2819 (D.N.J. June 14, 2004) (the "Sullivan release").

The Sullivan release covers two settlement classes: the Direct Purchaser Class and the Indirect Purchaser Class. The Direct Purchaser Class includes all persons who purchased a rough or polished diamond directly from a defendant, including any affiliate of a defendant, or a defendant's competitor. The Indirect Purchaser Class includes persons who purchased a rough or polished diamond from someone other than a defendant, an affiliate of a defendant, or a defendant's competitors.*fn4 Plaintiff admits to being a member of both settlement classes. See Letter for John A. Wait, August 12, 2010.

The Release contains an exception for direct purchaser claims of Sightholders. See Am. Settlement Agreement § V(A) ("Nothing in the Settlement is intended to release any direct purchaser claim of any Sightholder."). A "sightholder" is defined as "a customer . . . entitled to purchase Rough Diamonds from [De Beers Defendants] as a regularly scheduled Sight or Sights," and, "Sightholder status terminates when [this right] . . . terminates." Id. at §I(PP).

The parties agree that, should the Sullivan settlement remain in effect,*fn5 the Sullivan release covers all of Plaintiff's claims against Defendant except any claims arising out of W.B. David's purchases as a Sightholder. See John A. Wait Letter, Aug. 12, 2010; see also TeseMilner I, 613 F. Supp. 2d at 409 ("The parties agree that the settlement limits Plaintiff's claims in the instant case to those based on W.B. David's purchases as a Sightholder . . . .").

On September 14, 2010, the Court issued an order denying Defendant's motion to dismiss the SAC without prejudice, on the basis that the parties had insufficiently briefed several issues. (Dkt. No. 275.) The Court granted Defendant leave to refile its motion and ordered that the parties submit supplemental briefing on the following three issues: (1) whether any specific factual allegations in the SAC relate back to the OC; (2) whether Plaintiff's Supplier of Choice claims are covered by the Sullivan release; and (3) whether Plaintiff's Supplier of Choice claims are barred by the statute of limitations or, alternatively, whether they relate back to the OC, notwithstanding the fact that they were dropped from the AC. (Id.)

On October 22, 2010, Defendant refiled its motion to dismiss. The parties have filed supplemental briefs responding to the Court's September 14, 2010 order. (Dkt. No. 276.)

II. Legal Standard: Motion to Dismiss

In order to survive a Rule 12(b)(6) motion, a plaintiff must have pleaded sufficient factual allegations "to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, -- U.S. --, 129 S. Ct. 1937, 1949 (2009). Where a plaintiff has not "nudged [his or her] claims across the line from conceivable to plausible, [the] complaint must be dismissed." Twombly, 550 U.S. at 570. The Court must accept as true all well-pleaded factual allegations in the complaint, and "draw[ ] all inferences in the plaintiff's favor." Allaire Corp. v. Okumus, 433 F.3d 248, 249-50 (2d Cir. 2006) (internal quotations omitted). However, "the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions." Iqbal, 129 S. Ct. at 1949. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id.

There is no heightened pleading requirement in antitrust cases. See Twombly v. Bell Atl. Corp., 425 F.3d 99, 108-09 (2d Cir. 2005), rev'd on other grounds, 550 U.S. 544 (2007) ("We have consistently rejected the argument . . . that ...


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