National Association of Investors Corporation v. Bivio, Inc. et al
Filing
46
ORDER granting 40 Defendants' Motion to Dismiss. Plaintiffs Sherman Act claims are DISMISSED with prejudice; All other claims in Plaintiffs Amended Complaint ECF No. 38 are DISMISSED without prejudice; and The Clerk shall enter judgment for Defendants. The Defendants shall have their costs, by Judge William J. Martinez on 1/28/2013.(ervsl, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 11-cv-02435-WJM
NATIONAL ASSOCIATION OF INVESTORS CORPORATION, a Michigan non-profit
corporation,
Plaintiff
v.
BIVIO, Inc., a Delaware corporation
BIVIO SOFTWARE ARTISANS, Inc., a Colorado corporation,
ROBERT NAGLER, an individual,
Defendants.
ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS
Plaintiff National Association of Investors Corporation (“Plaintiff”) brings this
action against Defendants Bivio, Inc., Bivio Software Artisans, Inc., and Robert Nagler
(collectively “Defendants”) alleging various state law contract claims as well as an antitrust claim under the Sherman Act, 15 U.S.C. §§ 1 et seq. (Am. Compl. (ECF No. 38)
at 6-9.) Before the Court is Defendants’ Motion to Dismiss the Amended Complaint
(“Motion”). (ECF No. 40.) For the reasons set forth below, the Motion is granted.
I. LEGAL STANDARD
Defendants move to dismiss this action pursuant to Federal Rule of Civil
Procedure 12(b)(1), (3), (6), and (7). However, the Court’s ruling in this Order examines
only Defendants’ arguments with respect to whether Plaintiff has stated a claim upon
which relief could be granted, as required by Rule 12(b)(6). Therefore, the only relevant
legal standard is that for a Rule 12(b)(6) motion.
The purpose of a motion to dismiss pursuant to Rule 12(b)(6) is to test “the
sufficiency of the allegations within the four corners of the complaint after taking those
allegations as true.” Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir. 1994). To
survive a Rule 12(b)(6) motion, "[t]he complaint must plead sufficient facts, taken as
true, to provide ‘plausible grounds’ that discovery will reveal evidence to support the
plaintiff’s allegations.” Shero v. City of Grove, Okla., 510 F.3d 1196, 1200 (10th Cir.
2007) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)). Plausibility in this
context “must refer to the scope of the allegations in a complaint—i.e. if they are so
general that they encompass a wide swath of conduct, much of it innocent, then the
plaintiffs have not nudged their claims across the line from conceivable to plausible.”
Robbins v. Oklahoma, 519 F.3d 1242, 1247-48. (10th Cir. 2008). The “allegations must
be enough that, if assumed to be true, the plaintiff plausibly (not just speculatively) has
a claim for relief.” Id. This requirement of plausibility “serves not only to weed out
claims that do not have a reasonable prospect of success, [but also to] provide fair
notice to defendants of the actual grounds of the claim against them.” Id. “The court’s
function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties
might present at trial, but to assess whether the plaintiff’s complaint alone is legally
sufficient to state a claim for which relief may be granted.” Sutton v. Utah State Sch. for
the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 1999) (citation omitted).
II. FACTUAL BACKGROUND
The relevant facts, as pled in Plaintiff’s Complaint, are as follows:
In March 2010, Plaintiff brought suit against Defendants in this Court for breach
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of contract alleging that Bivio breached a 2006 Strategic Alliance Agreement (the
“Original Action”). (Am. Compl. ¶ 11.) On August 2, 2011, the parties attended a
settlement conference with U.S. Magistrate Judge Michael E. Hegarty. (Id. ¶ 13.) At
the settlement conference, the parties agreed to resolve their dispute and signed a
“Material Terms of Settlement Agreement” contract (“MTSA”). (Id.) Paragraph 7 of the
MTSA stated: “The parties agree to a mutual nondisparagement clause.” (Compl. (ECF
No. 1) Ex. A.) Paragraph 8 of the MTSA provided that the parties shall cooperate in the
preparation of a formal settlement agreement. (Am. Compl. ¶ 15.) The Original Action
was dismissed based on this settlement. (Id. ¶ 23.)
After the settlement conference, the parties attempted to negotiate the terms of
the formal settlement agreement. The parties exchanged drafts and agreed on all
terms except the text of the non-disparagement clause. (Id. ¶ 17.) The failure to agree
on a non-disparagement clause has prevented execution of the formal agreement. (Id.
¶ 21.)
On September 15, 2011, Plaintiff filed a Complaint bringing the following claims:
(1) breach of contract; (2) declaratory relief; (3) intentional interference with contract; (4)
attempted monopolization in violation of Section 2 of the Sherman Act; and (5)
conspiracy to restrain trade in violation of Section 1 of the Sherman Act. (Compl. pp. 59.) Plaintiff’s Complaint sought damages in the amount of $160,000 (the amount
Defendants were to pay pursuant to the terms of the MTSA), a declaration that
Defendants’ obligations under the MTSA are binding, punitive damages against
Defendant Nagler, and costs and attorney’s fees. (Id. at 9.)
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Defendants filed a Motion to Dismiss on October 23, 2011. (ECF No. 6.) The
Court granted the motion in part pursuant to Rule 12(b)(6), and dismissed Plaintiff’s
claims under the Sherman Act without prejudice, with leave to file an amended
complaint. (ECF No. 37.) Plaintiff filed its Amended Complaint on May 29, 2012,
alleging the same claims as in the original Complaint, with the exception of conspiracy
to restrain trade in violation of Section 1 of the Sherman Act, which was removed from
the Amended Complaint. (See Compl. pp. 8-9.) Plaintiff seeks the same relief as in the
original Complaint, as well as a declaration that Defendants’ construction of the nondisparagement clause violates Section 1 of the Sherman Act. (Id. at 9; Am. Compl. at
9.)
On September 12, 2011, shortly before this action was filed, Defendants filed a
declaratory judgment action regarding the parties’ obligations under the MTSA in
Boulder County District Court against Plaintiff and ICLUB, a wholly-owned subsidiary of
Plaintiff who was a party to the Original Action. (ECF Nos. 6-1, 42-1.) Plaintiff filed an
answer and a counterclaim in the Boulder County action on October 24, 2011. (ECF
No. 42-2.) The Boulder County District Court issued a Setting Order on January 30,
2012, setting the action for trial during the week of January 21, 2013. (ECF No. 42-3.)
III. ANALYSIS
Defendants raise the following arguments in the Motion: (1) Plaintiff’s Amended
Complaint fails to state a claim for a violation of the Sherman Act; (2) Plaintiff’s
Amended Complaint fails to establish that its claims meet the $75,000 minimum for
federal diversity jurisdiction; (3) Plaintiff’s Amended Complaint fails to state a claim
involving a federal question sufficient to confer federal subject matter jurisdiction; (4)
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Plaintiff’s Amended Complaint fails to name an indispensible party, ICLUB, whose
participation would destroy diversity jurisdiction; (5) the Court should abstain from
exercising its jurisdiction over this matter pursuant to Colorado River Water
Conservation Dist. v. United States, 424 U.S. 800, 817-18 (1976); and (6) Plaintiff’s
Amended Complaint fails to state a claim for its state law causes of action. (ECF No.
40 at 2-11.)
Below, the Court will address the first and fifth of Defendants’ arguments.
Because this analysis is dispositive of the case, the Court does not reach the remaining
arguments.
A.
Sherman Act Claims
Plaintiff’s Amended Complaint brings an anti-trust claim for Attempted
Monopolization under Section 2 of the Sherman Act. (Am. Compl. at pp. 8-9.)
Although Plaintiff’s Amended Complaint no longer includes a claim for Conspiracy to
Restrain Trade in Violation of Section 1 (see Compl. at 7-8), Plaintiff’s request for
declaratory relief in the Amended Complaint implicates Section 1 because it seeks a
declaration that Defendants’ preferred construction of the anti-disparagement clause
violates Section 1. (Am. Compl. at 9.) Therefore, the Court will address each of these
claims in turn below.
1.
Section 2: Attempted Monopolization
Plaintiff alleges that Defendants violated Section 2 of the Sherman Act by
attempting to force Plaintiff to enter into a settlement agreement that contained an anticompetitive non-disparagement clause. (Am. Compl. ¶¶ 45-49.)
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Section 2 of the Sherman Act prohibits monopolization or attempted
monopolization of any part of interstate trade or commerce. 15 U.S.C. § 2. In this
circuit, a plaintiff bringing an attempted monopolization claim must allege the following:
(1) that the defendant has engaged in predatory or anti-competitive conduct; (2) with a
specific intent to monopolize; and (3) a “dangerous probability” of achieving monopoly
power. Christy Sports LLC v. Deer Valley Resort Co., 555 F.3d 1188, 1992 (10th Cir.
2009). The third element requires consideration of “the relevant market and the
defendant’s ability to lessen or destroy competition in that market.” Id.
a.
Anti-competitive Conduct
Plaintiff’s Amended Complaint alleges that Defendants’ insistence upon a nondisparagement clause that prohibits truthful disparagement constitutes anti-competitive
conduct. (Am. Compl. ¶ 19.) The non-disparagement clause at issue includes the
following language:
Non-Disparagement. No Party, nor its officers, directors, employees,
agents or affiliates, shall at any time directly or indirectly, orally, in writing
or through any other medium, make any statements, assertions or
allegations concerning any other Party or its products which are
disparaging and false. This paragraph is not intended to restrict honest
and fair competition between bivio and ICLUB.
((Id. at ¶ 18) (emphasis added to indicate disputed language).) When Plaintiff insisted
upon adding the words “and false” to qualify the prohibited disparaging statements,
Defendants refused to accept the reference to falsity and instead added the final
sentence to the non-disparagement clause, clarifying that the clause was “not intended
to restrict honest and fair competition between [B]ivio and ICLUB.” (Id.)
Defendants argue that they foreclosed any possibility of anti-competitive
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inference when they added the exemption for fair competition between Bivio and
ICLUB. (ECF No. 40 at 3.) Thus, Defendants’ proposed language would not prohibit
truthful comparative advertising by ICLUB where it falls within the scope of “honest and
fair competition,” and the parties’ “dispute only relate[s] to disparagement other than
that which occurred as part of competition within the Relevant Market.” (ECF No. 42 at
6 (emphasis in original).) Because NAIC is not a direct competitor in the Relevant
Market, Defendants argue that their prohibition on disparaging comments by NAIC
“cannot possibly enable Bivio (or Bivio and ICLUB together) to control prices and
exclude competition in the Relevant Market.” (ECF No. 40 at 4-5.)
However, Plaintiff argues that Defendants’ proposed disclaimer fails to include
NAIC’s truthful disparaging statements in the service of “honest and fair competition,”
and therefore would not protect NAIC’s statements from violating its terms. (Am.
Compl. ¶ 18.) Plaintiff alleges that this restriction has an anti-competitive effect
because “NAIC’s position in the market is such that its ability to influence [its members]
. . . has a direct level on the level of competition in the Relevant Market.” (Id. at ¶ 19.)
NAIC’s inability to engage in truthful disparaging advertising about Bivio would, Plaintiff
alleges, “unduly limit competition,” particularly in light of the fact that “NAIC wholly owns
a direct competitor to Bivio i.e. ICLUB.” (Id. at ¶ 19.) Further, Plaintiff alleges that the
anti-disparagement dispute “has [already] caused a chill in competition because NAIC
and ICLUB have been reluctant to aggressively compete to the same extent they would
have in the absence of such dispute.” (Id. at ¶ 24.)
In its Opposition to the Motion, Plaintiff cites a Federal Trade Commission
(“FTC”) policy statement regarding non-disparagement agreements (ECF No. 41 at 2-7-
3). The FTC policy statement indicates that truthful, non-deceptive comparative
advertising “is a source of important information to consumers[,] . . . encourages
product improvement and innovation, and can lead to lower prices in the marketplace.”
(Id. at 3.) Further, the FTC statement indicates that non-disparagement clauses “may
operate as a restriction on comparative advertising,” and that “the Commission will
continue to scrutinize carefully restraints upon [comparative advertising].” (Id.) While
the FTC policy statement is not dispositive, it lends plausibility to Plaintiff’s allegation
that Defendants’ attempt to restrict truthful comparative advertising by NAIC was anticompetitive.
Therefore, the Court finds that Plaintiff has alleged anti-competitive conduct by
Defendants sufficient to satisfy the first element of an attempted monopolization claim.
b.
Specific Intent to Monopolize
In order to state a claim for attempted monopolization, Plaintiff must also allege
that Defendants had the specific intent to form a monopoly. “While the completed
offense of monopolization under § 2 demands only a general intent to do the act, . . . a
specific intent to destroy competition or build monopoly is essential to guilt for the mere
attempt now charged.” Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 626
(1953) (internal quotation omitted); see also Shoppin’ Bag of Pueblo, Inc. v. Dillon Cos.,
Inc., 783 F.2d 159, 163-64 (10th Cir. 1986) (“[M]onopoly power is correctly defined in this
circuit as the ability to control prices and exclude competition.”) (emphasis in original).
The Amended Complaint states that Defendants “attempted to force NAIC to
enter into an unlawful agreement to limit competition,” and that such an attempt
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“constituted an attempt to establish or maintain a monopoly or joint monopoly.” (Am.
Compl. ¶ 48.) However, Plaintiff does not expressly allege that Defendants acted with
the intent to monopolize. Rather, Plaintiff’s Opposition to the Motion argues that
“specific intent can be inferred from the facts and circumstances,” because Defendants’
conduct restricts NAIC’s comparative advertising, and “truthful marketing and
comparative advertising is an important part of competition.” (ECF No. 42 at 2.)
Plaintiff’s reliance upon inference to establish intent is not misplaced, as courts
have held that “[o]ften no direct evidence of specific intent exists and inferences from
conduct are necessary.” Shoppin’ Bag of Pueblo, Inc., 783 F.2d at 163 (citing William
Inglis v. ITT Cont’l Baking Co., 668 F.2d 1014, 1029 (9th Cir. 1981) (referring to “conduct
[that] is also the sort from which specific intent can be inferred”)). At the pleading
stage, all that is required is that Plaintiff allege facts from which it can plausibly be
inferred that Defendants had the requisite intent, not that Plaintiff provide evidence
proving such an intent, which evidence may well be supplied via inference.
Plaintiff’s Amended Complaint alleges that Defendants intended to force Plaintiff
into an anti-competitive agreement (Am. Compl. ¶ 48), and it can be inferred that
Defendants intended thereby to gain a competitive advantage. Plaintiff’s quotation from
the Federal Trade Commission policy statement regarding non-disparagement
agreements, stating that “comparative advertising . . . can lead to lower prices in the
marketplace” (ECF No. 41 at 2-3), permits the inference that Defendants’ attempt to
restrict such comparative advertising by NAIC was an attempt to control prices.
However, neither the Complaint nor the Amended Complaint contains an
allegation or plausible inference that Defendants acted with an intention to form or
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maintain a monopoly, that is, both to control prices and exclude competition. Rather,
Plaintiff alleges only that Defendants intended to form a contract that would have anticompetitive effects on the Relevant Market. Plaintiff’s failure to allege the requisite
specific intent defeats its ability to state a claim for attempted monopolization. See
Times-Picayune Pub. Co., 345 U.S. at 626-27 (finding no showing of specific intent
where a publisher of a morning newspaper acquired an evening newspaper and
operated it at a loss to gain competitive advantage, as publisher’s actions were
“predominantly motivated by legitimate business aims”). Plaintiff’s conclusory
statement that the attempt to form this anti-competitive agreement “constituted an
attempt to establish or maintain a monopoly or joint monopoly” (Am. Compl. ¶ 48) is
insufficient to plead specific intent to monopolize. See Times-Picayune Pub. Co., 345
U.S. at 626; TV Commc’ns Network, Inc. v. Turner Network Television, Inc., 964 F.2d
1022, 1026 (10th Cir. 1992) (“The use of antitrust ‘buzz words’ does not supply the
factual circumstances necessary to support [plaintiff]'s conclusory allegations.”).
c.
Dangerous Probability of Success
Even if Plaintiff had properly pleaded the requisite intent, Plaintiff must still plead
that Defendants had a dangerous probability of success in establishing or maintaining a
monopoly. The key inquiry in evaluating this element is “the power of the defendant in
the market in which it competes.” TV Commc’ns Network, Inc., 964 F.2d at 1025
(quoting Perington Wholesale, Inc. v. Burger King Corp., 631 F.2d 1369, 1376 (10th Cir.
1979)). To evaluate a defendant’s market power, “[a]t the very least it must be shown
how much of the relevant market a defendant controls.” Shoppin' Bag of Pueblo, Inc.,
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783 F.2d at 161-62.
Plaintiff alleges that “Bivio and ICLUB possess over 80% of the Relevant
Market,” and that because Plaintiff’s claim is based on a “joint monopolization theory,”
this sizeable majority of the market share is sufficient to allege a dangerous probability
of success in monopolization. (ECF No. 41 at 4.) Defendants argue that Plaintiff’s joint
monopolization theory is “novel,” has been disapproved by other courts and has not
been adopted by the Tenth Circuit. (ECF No. 40 at 5 (citing to In re Denta/AirTran
Baggage Fee Antitrust Lit., 733 F. Supp. 2d 1348, 1366-67 (N.D. Ga. 2010) (in turn
citing cases from the Second, Seventh, and Ninth Circuits, as well as district courts in
Florida and Pennsylvania)).) Defendants further point out that “Plaintiff does not allege
what share of the Relevant Market is possessed by Bivio” alone. (Id. at 4.)
Plaintiff’s allegation with regard to this element is self-contradictory. Assuming
the validity of a joint monopolization theory, if Plaintiff’s argument is premised on a
theory that Defendants are attempting joint monopolization with ICLUB, then Plaintiff
has successfully pleaded an eighty percent market share, substantial enough to allege
a dangerous probability of success. However, under a joint monopolization theory, the
anti-competitive effects of that monopoly would fall not on ICLUB, but on other market
competitors, as ICLUB would be a member of the monopoly. The Court’s analysis of
Defendants’ alleged anti-competitive conduct, supra in III.A.1.a, relies upon Plaintiff’s
allegations of the negative effects on ICLUB and its ability to compete with Bivio. As
Plaintiff has not made any allegations regarding harm to competition with other
participants in the Relevant Market, the joint monopolization theory defeats Plaintiff’s
ability to state a claim with regard to anti-competitive conduct. See Four Corners
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Nephrology Assocs., P.C. v. Mercy Med. Ctr. of Durango, 582 F.3d 1216, 1225 (10th
Cir. 2009) (“After all, it is the protection of competition or prevention of monopoly[ ]
which is plainly the concern of the Sherman Act, not the vindication of general notions
of fair dealing.”) (internal citations omitted).
Alternatively, since Plaintiff argues that ICLUB has been and will be harmed by
Defendants’ anti-competitive conduct (Am. Compl. ¶ 24)—suggesting that Defendants’
conduct is an attempt to gain a competitive advantage over all competitors, including
ICLUB—the Court construes Plaintiff’s allegations as premised upon a sole
monopolization theory. Under a sole monopolization theory, Plaintiff is required to
allege the market share of the Defendants. Shoppin' Bag of Pueblo, Inc., 783 F.2d at
161-62. As Defendants point out, the Amended Complaint does not contain any
allegation as to Bivio’s market share. (ECF No. 40 at 4.) Plaintiff cannot have it both
ways. Either Plaintiff has properly pleaded dangerous probability of success but failed
to plead anti-competitive conduct, or Plaintiff has pleaded anti-competitive conduct but
failed to plead the probability of success. In either case, Plaintiff fails to state a claim
for attempted monopolization.
Because the Court finds that Plaintiff’s Amended Complaint fails to allege either
that Defendants had a specific intent to monopolize or a dangerous probability of
success, Plaintiff fails to state a claim for violation of Section 2 of the Sherman Act.
2.
Section 1: Restraint of Trade
Although Plaintiff’s Amended Complaint no longer includes a claim under
Section 1 of the Sherman Act, it adds a request for a declaration that Defendants’
construction of the anti-disparagement clause violates Section 1. (Am. Compl. ¶ 37.)
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Section 1 of the Sherman Act provides as follows:
Every contract, combination in the form of trust or otherwise,
or conspiracy, in restraint of trade or commerce among the
several States or with foreign nations, is declared to be
illegal.
15 U.S.C. § 1. While a literal reading of Section 1 would seem to prohibit all anticompetitive conduct as an illegal restraint of trade, the Supreme Court “has not taken a
literal approach to this language.” Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006).
Rather, the Supreme Court “has long recognized that Congress intended to outlaw only
unreasonable restraints.” State Oil Co. v. Khan, 522 U.S. 3, 10 (1997).
Defendants’ Motion argues that Plaintiff has added the Sherman Act its claim for
declaratory relief “in an apparent attempt to transform that claim into one ‘arising
under’” federal law in order to confer subject matter jurisdiction. (ECF No. 40 at 7-8.)
Without ruling on Defendants’ jurisdiction arguments, the Court agrees that Plaintiff’s
reference to Section 1 in its claim for declaratory relief is unavailing. In contrast to the
initial Complaint (ECF No. 1), the Amended Complaint alleges no separate claim under
Section 1. (See ECF No. 38.) Because a literal reading of Section 1 has been rejected
by the Supreme Court, anti-competitive conduct does not necessarily violate Section 1,
and no violation of Section 1 can be inferred solely from Plaintiff’s allegations of anticompetitive conduct.
Further, the Court noted in its Order on Defendants’ previous Motion to Dismiss
(ECF No. 37) that an essential element of any Section 1 claim is a showing of
concerted action. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 76768 (1984). The Section 1 claim in the initial Complaint alleged that Defendants’
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insistence on a non-disparagement clause that would prohibit truthful marketing was
“an attempted conspiracy to restrain trade—in violation of Section 1 of the Sherman
Act.” (Compl. ¶ 50.) In contrast, the Amended Complaint no longer contains any
reference to conspiracy except for one statement of “the attempted conspiracy by Bivio
and Nagler” in its Section 2 claim. (Am. Compl. ¶ 49.) Just as the Court found in its
previous order, the fact that Plaintiff alleges that the conspiracy was only attempted
indicates that there was no actual concerted action. (See ECF No. 37 at 8.) Therefore,
Plaintiff again has failed to allege facts making a Section 1 claim plausible.
Accordingly, the Court finds that the Amended Complaint states no claim under
Section 1 of the Sherman Act.
3.
Leave to Amend
In its Opposition to the Motion to Dismiss, Plaintiff requests that it be granted
leave to amend if the Court decides to grant the Motion. (ECF No. 41 at 11.) The
Tenth Circuit has held that the Court “may dismiss without granting leave to amend
when it would be futile to allow the plaintiff an opportunity to amend his complaint.”
Brereton v. Bountiful City Corp., 434 F.3d 1213, 1219 (10th Cir. 2006). A refusal to
grant leave to amend is discretionary, and where “the denial rests on articulated
reasons such as failure to cure deficiencies by previous amendments or futility of
amendment, the district court's decision shall stand.” TV Commc’ns Network, Inc., 964
F.2d at 1028.
Plaintiff was previously granted leave to amend its Sherman Act claims (ECF No.
37). In view of Plaintiff’s second failure to properly allege these claims, the Court finds
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that it would be inequitable to allow Plaintiff a third bite at the apple, requiring
Defendants to once again incur substantial attorney’s fees and costs in having to
address a Second Amended Complaint. Because Plaintiff has failed to state a claim
under both Sections 1 and 2, the Court dismisses both Sherman Act claims with
prejudice pursuant to Fed. R. Civ. P. 12(b)(6).
B.
Colorado River Doctrine
The Colorado River doctrine governs whether a district court should stay or
dismiss a federal suit pending the resolution of a parallel state court proceeding. See
Colorado River Water Conservation Dist. v. United States, 424 U.S. 800, 817-18
(1976). Defendants move to dismiss Plaintiff’s Amended Complaint, or, in the
alternative, to stay this case, because of the parallel state court proceeding in Boulder
County District Court (the “Boulder County Action”). (ECF No. 40 at 9.)
The Supreme Court has held that federal courts may not use any of the
abstention doctrines to refuse to exercise jurisdiction over a suit for non-equitable relief
that duplicates an ongoing state litigation. See Colorado River, 424 U.S. at 813, 816818. However, the Supreme Court also concluded that in certain circumstances,
judicial economy concerns and “reasons of wise judicial administration” weigh in favor
of “permitting the dismissal of a federal suit due to the presence of a concurrent state
proceeding” that will resolve the issues presented in the federal case. Id. at 818-20. In
many circumstances under the abstention doctrines, the Court is required to abstain;
however, whether to decline to exercise jurisdiction pursuant to Colorado River is
discretionary. Rienhardt v. Kelly, 164 F.3d 1296, 1303 (10th Cir. 1999).
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The Tenth Circuit has warned that the appropriate circumstances for deferral
under the Colorado River doctrine are “considerably more limited than the
circumstances appropriate for abstention” and must be “exceptional.” Id. (quoting
Colorado River, 424 U.S. at 817-18). Accordingly, the Court’s “task in cases such as
this is not to find some substantial reason for the exercise of federal jurisdiction . . . ;
rather, the task is to ascertain whether there exist exceptional circumstances, the
clearest of justifications, that can suffice under Colorado River to justify the surrender of
the jurisdiction.” Id. (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp.,
460 U.S. 1, 25-26 (1983)).
The first step under the Colorado River analysis is determining “whether the
state and federal proceedings are parallel.” Allen v. Board of Educ., Unified Sch. Dist.,
436, 68 F.3d 401, 403 (10th Cir. 1995). Suits are parallel if “substantially the same
parties litigate substantially the same issues in different forums.” Id. A court examines
“the state proceedings as they actually exist to determine whether they are parallel to
the federal proceedings, resolving any doubt in favor of exercising federal jurisdiction.”
Id. If the cases are not parallel, the federal court must exercise jurisdiction. Allen, 68
F.3d at 403.
However, where the cases are parallel, the Supreme Court has identified several
non-exclusive factors to consider in evaluating whether to decline jurisdiction, including:
(1) whether the state or federal court has assumed jurisdiction over property in dispute;
(2) the inconvenience to the parties of the federal forum; (3) avoiding piecemeal
litigation; (4) the order in which the courts obtained jurisdiction; (5) the vexatious nature
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of the litigation; (6) whether federal law provides the rule of decision; and (7) and the
adequacy of the state court proceeding to protect the federal plaintiff’s rights. See
Colorado River, 424 U.S. at 818; Moses H. Cone Mem’l Hosp., 460 U.S. at 18-28.
These factors are not a “mechanical checklist”; rather, the Court should “careful[ly]
balanc[e] . . . the most important factors as they apply in a given case, with the balance
heavily weighted in favor of the exercise of jurisdiction.” Fox v. Maulding, 16 F.3d 1079,
1082 (10th Cir. 1994).
1.
Parallel Actions
Defendants’ Motion argues that Plaintiff’s claims “are already the subject of the
prior Colorado Action” (ECF No. 40 at 9), and Defendants have attached to their Reply
copies of their complaint and Plaintiff’s answer and counterclaim filed in the Boulder
County Action. (ECF Nos. 42-1 & 42-2.) The Court has reviewed Plaintiff’s
counterclaims in the Boulder County Action (ECF No. 42-2), and finds them to be nearly
identical, word for word, to those in the Complaint filed here (ECF No. 1), with the
exception of exchanging the Sherman Act claims for Colorado antitrust law claims.
Thus, after the dismissal of the Sherman Act claims in this action, every one of
Plaintiff’s claims is included in its counterclaim in the Boulder County Action. The two
actions not only involve “substantially the same parties litigat[ing] substantially the same
issues in different forums,” Allen, 68 F.3d at 403; rather, the parties and issues are
identical.
Thus, the Court finds that the actions are parallel and will proceed to an analysis
of the various factors that must be weighed.
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2.
Neutral Factors
Several of the factors to be considered are neutral in this case and can be
dispensed of as a preliminary matter. No property here is in dispute; thus the first factor
is not applicable. The relative convenience of the state and federal forums involved in
this case is neutral, as the two courthouses are geographically proximate, and no party
has suggested any inconvenience suffered as a result of litigating in one forum or the
other. Nor is there anything in the nature of this litigation that makes it particularly
vexatious. Therefore, as the Court must resolve any doubt in favor of exercising
jurisdiction, these factors weigh against abstention.
3.
Order of Obtaining Jurisdiction
When evaluating the order in which the courts obtained jurisdiction, “priority
should not be measured exclusively by which complaint was filed first, but rather in
terms of how much progress has been made in the two actions.” Moses H. Cone Mem'l
Hosp., 460 U.S. at 3 (finding that “no substantial proceedings had taken place in the
state suit at the time of the District Court's stay order, whereas in the federal suit the
parties had taken most of the steps necessary to a resolution of the arbitrability issue.”).
Here, the initial filings in the state and federal cases occurred within three days
of each other, and Plaintiff’s answer and counterclaim was filed a month later. (ECF
No. 42-1 Exs. A, B.) However, because of the proceedings following Defendants’ initial
Motion to Dismiss (ECF No. 6), including the dismissal of Plaintiff’s Sherman Act claims
as alleged in the initial Complaint on May 15, 2012 (ECF No. 37), Plaintiff’s subsequent
Amended Complaint filed May 29, 2012 (ECF No. 38), and the instant Motion to
Dismiss the Amended Complaint (ECF No. 40), this federal action has progressed
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much more slowly than the state action, which had a trial date set for the week of
January 21, 2013. (ECF No. 42-3 Ex. C.) Although the state court’s January trial date
has since been vacated, it is apparent that the proceeding in state court is substantially
more advanced than that before this Court, where no answer has yet been filed
pending the resolution of the instant motion. Therefore, this factor weighs in favor of
abstention.
4.
Avoiding Piecemeal Litigation
The attempt to avoid piecemeal litigation is arguably the most essential element
of the Colorado River doctrine, as it is directly connected to the goal to preserve judicial
economy. “It is well-established that ‘federal courts have the power to refrain from
hearing,’ among other things, ‘cases which are duplicative of a pending state
proceeding.’ This latter principle—the avoidance of duplicative litigation—is at the core
of the Colorado River doctrine.” D.A. Osguthorpe Family P’ship v. ASC Utah, Inc., No.
11-4062, 2013 WL 150221, at *7 (10th Cir. Jan. 15, 2013) (quoting Quackenbush v.
Allstate Ins. Co., 517 U.S. 706, 716-17 (1996)).
Here, after dismissal of Plaintiff’s Sherman Act claims, every one of the
remaining claims in the Amended Complaint is stated in Plaintiff’s counterclaim in the
Boulder County Action. In addition, the Boulder County Action includes Defendants’
claims as stated in their complaint, Plaintiff’s affirmative defenses to Defendants’
complaint, and Plaintiff’s claims under Colorado antitrust law. (See ECF Nos. 42-1 &
42-2.) If this Court exercised jurisdiction to resolve all of Plaintiff’s claims in the
Amended Complaint, it would still leave Defendants’ claims and Plaintiff’s Colorado
antitrust claims to be resolved in the Boulder County Action. Further, as the Boulder
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County Action is much more advanced than the federal case, the parties’ dispute may
be resolved much sooner if this Court abstains from exercising jurisdiction. Therefore,
this factor weighs heavily in favor of abstention to permit all of Plaintiff’s and
Defendants’ claims to be resolved in one forum.
5.
Federal Rule and State Court Protection of Litigants’ Rights
Finally, the Court must consider whether “‘federal law provides the rule of
decision on the merits,’ and whether the state court proceedings adequately protect the
litigants’ rights.” D.A. Osguthorpe Family P’ship, 2013 WL 150221 at *9 (quoting Moses
H. Cone Mem’l Hosp., 460 U.S. at 23, 26-27). With the dismissal of Plaintiff’s Sherman
Act claims, federal law no longer governs the merits of the remainder of Plaintiff’s
claims. Plaintiff’s remaining claims all arise under Colorado state law, making the
Colorado state court an appropriate forum for their resolution—arguably a more
appropriate forum than this Court. There is no reason to believe that the state court will
have any limitations in protecting Plaintiff’s rights. Therefore, these factors weigh in
favor of abstention as well.
The Court is well-advised to be cautious in exercising its discretion, and to limit
abstention under Colorado River to the rare exceptional case; yet such “circumstances,
though exceptional, do nevertheless exist.” Colorado River, 424 U.S. at 818. The
Court finds that the factors pertinent to this case weigh strongly in favor of abstention
under Colorado River, and that the state court is a more than adequate forum to resolve
the parties’ disputes. Therefore, the Court concludes that this case is such an
exceptional circumstance as to warrant abstention.
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Having determined that abstention under Colorado River is appropriate, the
Court must choose whether to stay the case pending the resolution of the state
proceedings, or alternatively whether to dismiss. Where it is possible that “the state
court proceedings [may] not resolve all the federal claims, a stay preserves an available
federal forum in which to litigate the remaining claims, without the plaintiff having to file
a new federal action.” Fox, 16 F.3d at 1083. In this case, because Plaintiff’s federal
claims have been dismissed and all of Plaintiff’s other claims are included in the
Boulder County Action, the availability of the federal forum need not be preserved.
Accordingly, the Court grants Defendants’ Motion and dismisses Plaintiff’s claims
without prejudice. The Court declines to rule on the remainder of the arguments raised
in Defendants’ Motion, as they are now moot.
IV. CONCLUSION
For the reasons set forth above, the Court ORDERS as follows:
1.
Defendants’ Motion to Dismiss (ECF No. 40) is GRANTED;
2.
Plaintiff’s Sherman Act claims are DISMISSED with prejudice;
3.
All other claims in Plaintiff’s Amended Complaint (ECF No. 38) are
DISMISSED without prejudice; and
4.
The Clerk shall enter judgment for Defendants. The Defendants shall
have their costs.
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Dated this 28th day of January, 2013.
BY THE COURT:
William J. Martínez
United States District Judge
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