State of New York v. Intel Corporation

Filing 270

MEMORANDUM OPINION. Signed by Judge Leonard P. Stark on 12/7/2011. (rpg)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
STATE OF NEW YORK, by,
Attorney General Eric T. Schneiderman,
Plaintiff,
V.

Civ. No. 09-827-LPS

INTEL CORPORATION,
Defendant.

Richard L. Schwartz, Esquire, Emily Granrud, Esquire, Jeremy R. Kasha, Esquire, James Yoon,
Esquire and Saami Zain, Esquire, OFFICE OF THE ATTORNEY GENERAL OF THE STATE
OF NEW YORK, New York, NY.
Attorneys for Plaintiff.

Robert A. Van Nest, Esquire, Paula L. Blizzard, Esquire and Brook Dooley, Esquire ofKEKER
& VAN NEST, San Francisco, CA.
Donn P. Pickett, Esquire and Frank M. Hinman, Esquire of BINGHAM MCCUTCHEN LLP,
San Francisco, CA.
DanielS. Floyd, Esquire of GIBSON, DUNN & CRUTCHER LLP, Los Angeles, CA.
Joseph Kattan, PC, of GIBSON, DUNN & CRUTCHER LLP, Washington, DC.
Richard L. Horwitz, Esquire and W. Harding Drane, Jr., Esquire of POTTER ANDERSON &
CORROON LLP, Wilmington, DE.
Attorneys for Defendant.

MEMORANDUM OPINION

December 7, 2011
Wilmington, Delaware

-t~ ~,A:;:

STARK, U.S. District Judge:
Pending before the Court is the Motion under Rule 12(c) for dismissal ofNew York's
Donnelly Act Damages Claim on Behalf of Consumers (Docket Item ("D.I.") 161 and,
hereinafter, the "Donnelly Consumer Motion") filed by defendant Intel Corporation ("Intel" or
"Defendant"). For the reasons discussed below, the Court will grant the motion.

BACKGROUND

I.

Plaintiff, the State of New York ("Plaintiff' or "New York"), filed the complaint
("Complaint") in this action on November 4, 2009 against Intel. (D.I. 1) The Complaint alleges:
Intel has engaged in a systematic worldwide campaign of illegal,
exclusionary conduct to maintain its monopoly power and prices in
the market for x86 microprocessors, the "brains" of Personal
Computers ("PCs"). By exacting exclusive or near-exclusive
agreements from large computer makers ("Original Equipment
Manufacturers" or "OEMs") in exchange for payments totaling
billions of dollars, and threatening retaliation against any company
that did not heed its wishes, Intel robbed its competitors of the
opportunity to challenge Intel's dominance in key segments of the
market. This illegal behavior was highly detrimental to consumers,
competition, and innovation.

(!d.

~

1; see also id.

~~

2-9, 252 (discussing, inter alia, Intel's alleged behavior and consumer

harm, including "depriv[ing] New York consumers ... of innovative technology and
compell[ing] them to pay prices above competitive levels")) Plaintiff asserts violations of
Section 2 of the federal Sherman Act, 15 U.S.C. § 2 (Claim One), and two state statutes- (1)
New York's antitrust law (the "Donnelly Act"), N.Y. Gen. Bus. Law§ 340 et seq. (Claim Two),
and (2) Section 63(12) ofNew York's Executive Law, N.Y. Exec. Law§ 63(12) (the "Executive
Law"), a statute permitting New York's Attorney General to seek relief with respect to certain
"repeated fraudulent or illegal acts" (Claims Three and Four). (See D.I. 1)

1

As to its state-based Donnelly Act claims, Plaintiff, as parens patriae, seeks redress on
behalf of New York consumers-at-large, specifically natural persons and governmental entities. 1
Of particular relevance here is Claim Two of the Complaint, whereby Plaintiff, under color of
New York law, "as the duly constituted officer authorized to represent ... consumers" and "sue[]
on behalf of ... New York consumers who purchased x86 CPU s or x86 CPU -containing
products directly or indirectly from [Intel]," seeks to recover, under the Donnelly Act, "treble
damages on behalf of all New York consumers who suffered directly or indirectly as a result of
Intel's illegal conduct." (D.I. 1 ,-r,-r 14,263, Prayer for Relief; see also D.I. 162 at 1 & n.1)
Intel answered the Complaint on January 5, 2010. (D.I. 14) On May 27, 2011, Intel filed
its Donnelly Consumer Motion, seeking dismissal of Plaintiff's Donnelly Act treble damages
claim on behalf of individual New York consumers. (D.I. 161) By its motion, Intel submits that
New York is simply vested with the power to assert this treble damages claim on behalf of
consumers, as such a claim is rooted in neither statutory nor common law. (See D.I. 162 at 1;
D.I. 220 at 1) Intel contends the Donnelly Act does not bestow authority upon New York to sue
for damages on behalf of consumers; rather, the Act confines New York, when filing suit on
behalf of its citizens, to requests for penalties and injunctive relief. (See D.I. 162 at 1, 3-4; D.I.
220 at 1; Tr. at 16-18) Moreover, Intel continues, New York cannot ground its request for relief
under the cloak of other statutory authority, or on a parens patriae theory, "because a sovereign
has no parens patriae right to recover damages on behalf of particular individuals for harm done
to those individuals." (D.I. 162 at 1; see also id. at 4-9; D.I. 220)

1

New York sought to amend its Complaint on December 9, 2010 to amend the term
"consumers" to include not only natural persons and governmental entities but also small and
medium businesses. (See D.I. 87) That request was denied. (See D.I. 154)
2

After briefing on the motion was completed, the Court heard argument on October 27,
2011 (see Transcript of October 27,2011 hearing (D.I. 247) (hereinafter "Tr.")).

II.

LEGALSTANDARDS
A.

Motion to Dismiss -Fed. R. Civ. P. 12(c)

Under Federal Rule of Civil Procedure 12(c), "[a]fter the pleadings are closed- but early
enough not to delay trial- a party may move for judgment on the pleadings." A motion for
judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c), alleging a failure to
state a claim upon which relief can be granted, is analyzed under the same standard as a Rule
12(b)(6) motion to dismiss. See Turbe v. Gov 't of Virgin Islands, 938 F.2d 427, 428 (3d Cir.
1991).
B.

Motion to Dismiss- Fed. R. Civ. P. 12(b)(6)

Federal Rule of Civil Procedure 12(b)(6) permits a court to dismiss all or part of an action
"for failure to state a claim upon which relief can be granted." "In deciding a motion to dismiss,
all well-pleaded allegations of the complaint must be taken as true and interpreted in the light
most favorable to the plaintiffs, and all inferences must be drawn in favor of them." McTernan v.
City of York, 577 F.3d 521, 526 (3d Cir. 2009) (internal citation and quotation marks omitted). A

Rule 12(b)( 6) motion to dismiss should be granted only if the plaintiff is unable to articulate
"enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007); see also Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949
(2009). A plaintiff is required, by Fed. R. Civ. P. 8(a)(2), to provide the "grounds of his
entitle[ment] to relief," which "requires more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (internal

3

quotation marks omitted).
The Third Circuit has explained:
In deciding motions to dismiss pursuant to Rule 12(b)( 6), courts
generally consider only the allegations in the complaint, exhibits
attached to the complaint, matters of public record, and documents
that form the basis of a claim. A document forms the basis of a
claim if the document is integral to or explicitly relied upon in the
complaint. The purpose of this rule is to avoid the situation where
a plaintiff with a legally deficient claim that is based on a particular
document can avoid dismissal of that claim by failing to attach the
relied upon document. Further, considering such a document is not
unfair to a plaintiff because, by relying on the document, the
plaintiff is on notice that the document will be considered.

Lum v. Bank ofAm., 361 F.3d 217,222 n.3 (3d Cir. 2004) (internal citations and quotation marks
omitted) (abrogated in part on other grounds by Bell At!. Corp. v. Twombly, 550 U.S. 544, 570
(2007)); see also In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997).

III.

DISCUSSION
Intel filed its Donnelly Consumer Motion seeking dismissal ofNew York's Donnelly Act

treble damages claim on behalf of consumers. (D.I. 161) Intel highlights the language of the
Donnelly Act, which, it contends, limits the State to bringing on behalf of "the people" only
claims for penalties or injunctive relief. (D.I. 162 at 3) The statute provides:
The attorney-general may bring an action in the name and in behalf
of the people of the state against any person, trustee, director,
manager or other officer or agent of a corporation, or against a
corporation, foreign or domestic, to restrain and prevent the doing
in this state of any act herein declared to be illegal, or any act in,
toward or for the making or consummation of any contract,
agreement, arrangement or combination herein prohibited,
wherever the same may have been made. In such an action, the
court may award to the plaintiff a sum not in excess of twenty
thousand dollars as an additional allowance.

4

N.Y. Gen. Bus. Law§ 342 (emphasis added). Another provision of the statute states:
In lieu of any penalty otherwise prescribed for a violation of a
provision of this article and in addition to an action pursuant to
section three hundred forty-two ofthis article, the attorney-general
may bring an action in the name and in behalf of the people of the
state against any person, trustee, director, manager or other officer
or agent of a corporation, or against a corporation, foreign or
domestic, to recover a penalty in the sum specified in section
three hundred forty-one of this article for the doing in this state of
any act herein declared to be illegal, or any act in, toward or for the
making or consummation of any contract, agreement, arrangement
or combination herein prohibited, wherever the same may have
been made. The action must be brought within three years after the
commission of the act upon which it is based.
N.Y. Gen. Bus. Law§ 342-a (emphasis added). Finally, N.Y. Gen. Bus. Law§ 342-b provides:
In addition to existing statutory authority to bring such actions on
behalf of the state and public authorities, the attorney general may
also bring action on behalf of any political subdivision or public
authority of the state upon the request of such political subdivision
or public authority to recover damages for violations of section
three hundred forty of this article, or to recover damages
provided for by federal law for violations of the federal antitrust
laws. In any class action the attorney general may bring on behalf
of these or other subordinate governmental entities, any
governmental entity that does not affirmatively exclude itself from
the action, upon due notice thereof, shall be deemed to have
requested to be treated as a member of the class represented in that
action. The attorney general, on behalf of the state of New York,
shall be entitled to retain from any moneys recovered in such
actions the costs and expenses of such services.
(Emphasis added).
Based on these statutory provisions, Intel contends:
the Donnelly Act does not authorize New York to bring a damages
claim for harm done to private parties. . . . Notably, the Donnelly
Act specifically permits New York to seek damages for harms that
"the state" itselfhas sustained (and also permits non-state public
entities and consumers to seek damages for harms they sustained
5

themselves). See N.Y. Gen. Bus. Law§ 340(5). The Donnelly Act
further allows New York to bring suit for damages on behalf of
harms suffered by non-state public entities, but only "upon the
request[ s]"of such entities .... The Donnelly Act includes no
similar provision authorizing New York to sue for damages on
behalf of consumers.
(D.I. 162 at 3; see also Tr. at 16-18)
Courts considering the issue before the Court have agreed with Intel's reading of the
Donnelly Act. For instance, in In re Dynamic Random Access Memory Antitrust Litig. (In re
DRAM), the Northern District of California held:

[T]he [Donnelly] Act itself does not authorize the [New York]
Attorney General to pursue damages claims on behalf of natural
persons. To be sure, the Act does contemplate that the Attorney
General may file claims "in behalf of the people of the state ... "
See N.Y. Gen. Bus. Law§ 342. However, the Act specifically
limits such claims to those seeking injunctive relief, or civil
penalties under the Act. See id. at § 342-a. By contrast, the
separate provision of the Act that expressly governs the Attorney
General's ability to pursue damages claims under the Act,
unambiguously limits such actions to those "on behalf of any
political subdivision or public authority of the state." See id. at
§ 342-b. Presumably, the legislature knew how to include language
granting the Attorney General the right to sue "in behalf of the
people of the state" in the Act's damages relief provision, as it did
so with respect to the provisions allowing actions for injunctive
relief and civil penalties. Accordingly, the court concludes that the
legislature's failure to include similar language in the provision
authorizing damages suits was deliberate. As such, plaintiff may
not assert a claim for monetary damages under the Act on behalf of
natural persons.
2007 WL 2517851, *8 (N.D. Cal. Aug. 31, 2007); see also New York v. Feldman, 210 F. Supp. 2d
294, 303 n.4 (S.D.N.Y. 2002) ("The [Donnelly] Act does not authorize [New York] to recover
damages on behalf of the people."); see also People v. Gold Medal Farms, Inc., 113 Misc. 2d 574,
578 (N.Y. Sup. Ct. 1982) (examining text of Donnelly Act to determine state's statutorily

6

mandated authority). The Court is persuaded that no express statutory authority permits New
York to bring treble damages claims on behalf of individuals under the Donnelly Act.
New York seeks to distinguish In re DRAM based on the fact it predates more recent statelaw authority, particularly New York v. Liberty Mutual Ins. Co., 861 N.Y.S.2d 294 (1st Dept.
2009). Yet federal courts have adhered to In re DRAM even after having the benefit of New
York's subsequent authority. In In re TFT-LCD (Flat Panel) Antitrust Litig., the Northern
District of California adopted In re DRAM's conclusion and reasoning. See 2011 WL 3475408, at
*4-6 (N.D. Cal. Aug. 9, 2011). Indeed, the TFT-LCD court explicitly rejected New York's
reliance on Liberty Mutual, explaining that Liberty Mutual's treatment of the issue is "exceedingly
brief' and "does not discuss what relief would be available" in a parens patriae damages suit on
behalf of individuals. 2011 WL 3475408, at *6. 2
New York insists that New York courts have allowed parens patriae treble damages
actions under the Donnelly Act. (See D.I. 213 at 1, 7-10) Intel responds that New York failed to
invoke the parens patriae theory in its Donnelly Act claim. Intel further contends that "New
York's suit for treble damages on behalf of consumers in connection with individual computer
purchases is the prototypical example of a claim brought to vindicate private interests and
therefore cannot be maintained under New York's common-law parens patriae authority." (D.I.
162 at 4 n.3, 5; see also In re Dram, 2007 WL 2517851, at *8-9 (rejecting notion that subject suit

2

Subsequent to the Court's hearing on Intel's Donnelly Consumer Motion, the parties
apprised the Court that the TFT-LCD court denied New York's motion to reconsider the holding
regarding the State's parens patriae damages claim. (See D.I. 255; D.I. 256) In reaffirming its
original decision, the Northern District of California emphasized that "the New York legislature
has 'unambiguously' restricted the state's ability to seek such damages to actions 'on behalf of
any political subdivision or public authority of the state."' In re TFT-LCD (Flat Panel) Antitrust
Litig., 2011 WL 5573930, at * 1 (N.D. Cal. Nov 16, 2011 ).
7

could be premised on state's general common law powers when there "is no broadly recognized
common law parens patriae right to pursue monetary damages claims, and cases discussing the
common law parens patriae right have generally been limited to cases seeking injunctive or other
equitable relief')) Intel further submits that a parens patriae claim can only be brought on behalf
of the State as a whole to protect a "quasi-sovereign interest," and cannot be asserted to vindicate
the "interests of particular private parties." (D.I. 162 at 4; see also Alfred L. Snapp & Son, Inc. v.
Puerto Rico, 458 U.S. 592, 607 (1982))

In support of its position, Intel cites a decision of the Court of Appeals of New York
adopting Snapp's "quasi-sovereign interest" standard for measuring New York's common-law
parens patriae authority. (See D.I. 162 at 4; People v. Grasso, 11 N.Y.3d 64, 69 n.4 (2008)
("Parens patriae is a common-law standing doctrine that permits the state to commence an action

to protect a public interest, like the safety, health or welfare of its citizens. To invoke the
doctrine, the Attorney General must prove a quasi-sovereign interest distinct from that of a
particular party and injury to a substantial segment of the state's population."); see also New York
ex rel. Abrams v. Seneci, 817 F.2d 1015, 1017 (2d Cir. 1987) (denying New York's assertion of

standing to sue in representative capacity on behalf of individuals under parens patriae theory to
recover treble damages, explaining "[a] State that sues as parens patriae must seek to redress an
injury to an interest that is separate from the interests of particular individuals"); id. ("Where the
complaint only seeks to recover money damages for injuries suffered by individuals, the award of
money damages will not compensate the state for any harm done to its quasi-sovereign interests.
Thus, the state as parens patriae lacks standing to prosecute such a suit.")).
New York responds that the New York Attorney General is permitted to recover its state

8

law Donnelly Act damages for injury to consumers because New York has a "quasi-sovereign
interest in maintaining a competitive marketplace." (D.I. 213 at 3) Specifically, Plaintiff insists it
meets the three-prong test of Grasso. (See id. at 1-2) As New York summarizes: '" [T]he three
factors that normally determine whether a quasi-sovereign interest is sufficiently important to
permit standing are ( 1) the size of the segment of the population that has been adversely affected,
(2) the magnitude ofthe harm inflicted, and (3) the practical ability of those injured to obtain
complete relief without intervention by the sovereign.' 72 Am. Jur. 2d States, Etc. § 91 (20 11 ). "
(D.I. 213 at 4) Here, New York contends its claim vindicates a quasi-sovereign interest since
computers can be found in nearly every home, so virtually all New Yorkers are affected by the
claim; the magnitude of harm is large in terms of dollar amount and populace affected, and
competition and innovation are risked; and, it would be impractical for individuals to seek relief
without sovereign intervention. (See id. at 4)
In Grasso, the Court observed: "In varying contexts, courts have held that a state has a
quasi-sovereign interest in protecting the integrity of the marketplace." 11 N.Y.3d at 69 n.4.
Here, however, the Court agrees with Intel that New York is suing to recover treble damages on
behalf of certain New York consumers, in order to recover overcharges those consumers allegedly
paid while purchasing computers containing microprocessors, and this ground for relief seeks to
vindicate particular private interests. (D.I. 162 at 6-9)
Finally, New York offers that, "[i]ndependent of its common law authority, New York
may also bring its Donnelly Act claim on behalf of consumers by virtue of separate statutes."

9

(D.I. 213 at 10; see also Tr. at 50) In particular, New York cites Executive Law Section 63(1) 3 as
authorizing the Attorney General to "[p ]rosecute and defend all actions and proceedings in which
the State is interested." (D.I. 213 at 10) Additionally, New York cites to Executive Law Section
63(12) 4 as authorizing the Attorney General to sue "in the name of the people of the State ofNew

3

NY Exec. Law§ 63(1) provides:
The attorney-general shall:
Prosecute and defend all actions and proceedings in
which the state is interested, and have charge and
control of all the legal business of the departments
and bureaus of the state, or of any office thereof
which requires the services of attorney or counsel,
in order to protect the interest of the state, but this
section shall not apply to any of the military
department bureaus or military offices of the state.
No action or proceeding affecting the property or
interests of the state shall be instituted, defended or
conducted by any department, bureau, board,
council, officer, agency or instrumentality of the
state, without a notice to the attorney-general
apprising him of the said action or proceeding, the
nature and purpose thereof, so that he may
participate or join therein if in his opinion the
interests of the state so warrant.

4

NY Exec. Law§ 63(12) provides:
Whenever any person shall engage in repeated fraudulent or illegal
acts or otherwise demonstrate persistent fraud or illegality in the
carrying on, conducting or transaction of business, the attorney
general may apply, in the name ofthe people of the state ofNew
York, to the supreme court of the state ofNew York, on notice of
five days, for an order enjoining the continuance of such business
activity or of any fraudulent or illegal acts, directing restitution and
damages and, in an appropriate case, cancelling any certificate filed
under and by virtue of the provisions of section four hundred forty
of the former penal law or section one hundred thirty of the general
business law, and the court may award the relief applied for or so
10

York" when any person shall "[ e]ngage in repeated fraudulent or illegal acts or otherwise
demonstrate persistent fraud or illegality in the carrying on, conducting, or transaction of
business." (!d. at 10-11) New York submits that courts have determined that these two statutory
provisions constitute "express state statutory authority [allowing the Attorney General] to
represent consumers in a capacity that is the functional equivalent of parens patriae authority."
(ld. at 11)

However, the Executive Law permits New York to recover compensatory damages for
harms to individuals arising from repeated violations ofthe Donnelly Act. (See Tr. at 16)
(counsel for Intel stating, "I think everyone is mindful that there is authority with the Executive
Law, Section 63[(12)], that they can bring single compensatory damage, Donnelly Act-type claims
but not the treble damages under 342-b.") It does not permit New York to bring treble damages
claims on behalf of consumers.
IV.

CONCLUSION

For the reasons set forth above, the Court will grant Intel's Donnelly Consumer Motion. A
separate Order, consistent with this Memorandum Opinion, will be entered.

much thereof as it may deem proper. The word "fraud" or
"fraudulent" as used herein shall include any device, scheme or
artifice to defraud and any deception, misrepresentation,
concealment, suppression, false pretense, false promise or
unconscionable contractual provisions. The term "persistent fraud"
or "illegality" as used herein shall include continuance or carrying
on of any fraudulent or illegal act or conduct. The term "repeated"
as used herein shall include repetition of any separate and distinct
fraudulent or illegal act, or conduct which affects more than one
person.
11