Downeast Builders & Realty Inc v. Essex Homes Southeast Inc et al

Filing 55

OPINION AND ORDER granting 34 Motion to Dismiss for Failure to State a Claim: The court grants Downeast's motion to dismiss Essex's fifth counterclaim pursuant to Rule 12(b)(6). Signed by Honorable Cameron McGowan Currie on 7/3/2012.(cbru, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
COLUMBIA DIVISION
Downeast Builders & Realty, Inc.,

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Plaintiff,
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v.
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Essex Homes Southeast, Inc.,
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Essex Homes Southeast NC, Inc. and
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Karl A. Haslinger,
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)
Defendants
)
)
v.
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Downeast Builders & Realty, Inc.,
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Frank Downey, and Catherine M. Downey, )
)
Counterclaim Defendants.
)
____________________________________)

C.A. No. : 3:11-cv-02653-CMC

OPINION AND ORDER
ON PARTIAL MOTION TO
DISMISS

This matter is before the court on motion of Counterclaim Defendants Downeast Builders
& Realty, Inc., Frank Downey, and Catherine M. Downey (“Counterclaim Defendants” or
“Downeast”) to dismiss the fifth counterclaim brought by Counterclaim Plaintiffs Essex Homes
Southeast, Inc., Essex Homes Southeast NC, Inc., and Karl A. Haslinger (“Counterclaim Plaintiffs”
or “Essex”) for “attempted monopolization” pursuant to Rule 12(b)(6), Federal Rules of Civil
Procedure. Dkt. No. 16. The court has jurisdiction under 28 U.S.C. § 1331. For the reasons stated
below, Downeast’s partial motion to dismiss is granted.
STANDARD
A motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure should be granted only
if, after accepting all well-pleaded allegations in the complaint as true, it appears certain the plaintiff
cannot prove any set of facts in support of its claims that entitles it to relief. See Edwards v. City of

Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999). Although the court must take the facts in the light
most favorable to the plaintiff, it “need not accept the legal conclusions [the plaintiff would draw]
from the facts.” Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008) (quoting Eastern Shore
Mkts., Inc. v. J.D. Assocs. Ltd. P’ship, 213 F.3d 175, 180 (4th Cir. 2000)). The court may also
disregard any “unwarranted inferences, unreasonable conclusions, or arguments.” Id.
The Rule 12(b)(6) standard has often been expressed as precluding dismissal unless it is
certain that the plaintiff is not entitled to relief under any legal theory that plausibly could be
suggested by the facts alleged. See Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993).
Nonetheless, the plaintiff must allege “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) (quoted in Giarratano, 521 F.3d at
302). See also Wolman v. Tose, 467 F.2d 29, 33 n.5 (4th Cir. 1972) (“Under the liberal rules of
federal pleading, a complaint should survive a motion to dismiss if it sets out facts sufficient for the
court to infer that all the required elements of the cause of action are present.”).
Thus, in applying Rule 12(b)(6), the court also applies the relevant pleading standard.
Despite the liberal pleading standard of Rule 8, a plaintiff in any civil action must include more than
mere conclusory statements in support of his claim. See Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949
(2009) (court need only accept as true the complaint’s factual allegations, not its legal conclusions);
see also Bass v. Dupont, 324 F.3d 761, 765 (4th Cir. 2003) (holding that “[w]hile a plaintiff is not
charged with pleading facts sufficient to prove her case, as an evidentiary matter, in her complaint,
a plaintiff is required to allege facts that support a claim for relief”).

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DISCUSSION
Downeast argues that Essex’s counterclaim of attempted monopolization should be dismissed
because it fails to state a cause of action. Specifically, Downeast argues that the fifth counterclaim
“fails because (1) it alleges neither a relevant product nor geographic market; (2) it does not plausibly
allege that any Downeast litigation is objectively and subjectively baseless; and (3) it has not
plausibly alleged facts supporting a claim of either attempted monopolization or monopolization.”
Dkt. No. 34 at 2.
Essex alleges the following as to its claim of attempted monopolization in violation of federal
antitrust laws:
FIFTH COUNTERCLAIM–ATTEMPTED
MONOPOLIZATION–VIOLATION OF FEDERAL
ANTITRUST LAWS
105. The Essex Counterclaim-Plaintiffs repeat and reallege the allegations contained
in each of the foregoing Paragraphs, including the Affirmative Defenses hereof.
106. Attempted monopolization. The Counterclaim Defendants with affiliates and
associated companies commonly owned by or acting in conspiracy under the
direction of the Downey Counterclaim Defendants have engaged in predatory or
anticompetitive conduct with a specific intent to monopolize, and a dangerous
probability of achieving monopoly power.
107. Relevant Market. The Counterclaim Defendants have engaged in a pattern of
conduct in an attempt to monopolize the market for an identified subclass or
submarket of new houses within a particularized price point and within the
geographical market area served by Essex.
108. Predatory and Anti-Competitive Conduct. The Counterclaim Defendants have
knowingly attempted to monopolize by bringing objectively baseless copyright
claims and threats of false claims against Essex and other competitors in said defined
relevant submarket, and upon information and belief by threatening and intimidating
Essex and other such competitors in a pattern of sham litigation and threats of
litigation. For example, and in addition to the present predatory lawsuit filed against
the Essex et al. the Counterclaim Defendants together with their affiliates, associated
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companies and agents have filed similarly baseless lawsuits and have threatened yet
others with the monopolistic threat of suit for supposed copyright infringement.
109. The willful misconduct. The Counterclaim Defendants are aware that the alleged
copyright registrations are invalid and not infringed.
110. The anti-trust violations. The Counterclaim Defendants’ lawsuit hereof is
objectively baseless in the sense that no reasonable litigant could realistically expect
success on the merits. Moreover, the Counterclaim Defendants have brought this
baseless suit with the subjective motivation to interfere directly with the business
relationships of a competitor. Specifically, the Counterclaim-Defendants’ objectively
baseless copyright claims in this lawsuit and the threats to sue other persons who
have purchased Essex houses and to offer up such houses for destruction constitute
attempted monopolization in violation of Section 2 of the Sherman Act.
111. Attempted monopolization. The Counterclaim-Defendants have economic
market power in the relevant market. The sham litigation and threats of litigation of
the Counterclaim-Defendants in an unlawful attempt to extend their market power
through over-extending the purported reach, if any, of the alleged copyright
registrations is in violation of Section 2 of the Sherman Act.
112. Adverse effect on Interstate Commerce. The Counterclaim- Defendants’ conduct
has had an adverse effect on Interstate Commerce.
113. Antitrust Injury, Standing and Damages. The Counterclaim Defendants’
attempts and threats of enforcing baseless claims through the courts are
anticompetitive. The Counterclaim Plaintiffs and the marketplace have been damaged
by Counterclaim Defendants’ anticompetitive acts. Counterclaim Defendants’
attempted monopolization has injured the Counterclaim Plaintiffs, as Counterclaim
Defendants are attempting to exclude the Counterclaim Plaintiffs from the relevant
submarket. And the Counterclaim Plaintiffs have been forced to incur the expense
of defending Counterclaim Defendants’ baseless copyright claims, and in responding
to threats to sue their customers, and further to respond in futuro to and to refute false
and misleading statements made to members of the purchasing public in reference
to the present litigation. Accordingly, the Counterclaim Plaintiffs are entitled to their
actual damages, trebled, to attorney’s fees under 15 U.S.C. § 15, and to injunctive
relief to enjoin Counterclaim Defendants’ unlawful practices under 15 U.S.C. § 26.
Dkt. No. 16 at 36-38.

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I. Preliminary Inquiry: Relevant Market.
“In analyzing Sherman Act Section 2 claims . . . , courts begin with a preliminary inquiry into
market definition, which serves as a tool to determine the defendant’s market power. The market
definition has two components the relevant product market and the relevant geographic market.”
E.I. du Pont de Nemours and Co. v. Kolon Indus., Inc., 637 F.3d 435, 441 (4th Cir. 2011) (internal
citations omitted). Essex has alleged that the relevant market is “the market for an identified
subclass or submarket of new houses within a particularized price point and within the geographical
market area served by Essex.” Downeast argues that Essex has failed to plead either component of
the market definition. Dkt. No. 34-1 at 4.
A relevant product market includes reasonably interchangeable products that may compete
with one another. United States v. E.I. duPont de Nemours and Co., 351 U.S. 377, 404 (1956). A
relevant geographic market encompasses the “area of effective competition” and includes the
geographic area where purchasers “can practicably turn to alternative supplies if the defendant were
to raise its prices or restrict its output.” E.I. du Pont de Nemours, 637 F.3d at 441. As explained
by the Fourth Circuit, courts hesitate to grant motions to dismiss antitrust claims for failure to
adequately plead the relevant market because it is a “‘deeply fact-intensive inquiry.’” Id. at 443.
(quoting Todd v. Exxon Corp., 275 F.3d 191, 199 (2d. Cir. 2001)). The Fourth Circuit, however, has
explained that some circumstances warrant dismissal for failure to plead a relevant market:
Stated differently, “dismissals at the pre-discovery, pleading stage remain relatively
rare and are generally limited to” certain types of “glaring deficiencies,” such as
failing to allege a relevant market.” Allen v. Dairy Farmers of Am., Inc., 748 F.
Supp. 2d 232, 339 (D. Vt. 2010) (stating that dismissals are generally limited to
instances in which the complaint either: (1) fails to allege a geographic market or the
boundaries of a relevant geographic market; (2) defines a geographic market in an

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unreasonably and implausibly narrow manner; or (3) alleges a contradictory and
vague delineation of the relevant geographic market.”).
Id. at 444. The Fourth Circuit has also cited to circumstances where dismissal is appropriate for
failure to allege a product market in cases that involve either “‘failed attempts to limit a product
market to a single brand, franchise, institution, or comparable entity that competes with potential
substitutes or (2) failure even to attempt a plausible explanation as to why a market should be limited
in a particular way.’” Id. at 443 (quoting Todd, 275 F.3d at 199-200).
First, Essex fails to allege the relevant product market. Essex fails to allege what “identified
subclass or submarket of new houses” or what “particularized price point” Downeast is attempting
to monopolize. There are no allegations in Essex’s other counterclaims that further specify the
relevant product that is the focus of its attempted monopolization claim.
Second, Essex fails to allege the geographic market it claims Downeast is attempting to
monopolize. Essex merely alleges that the market is “within the geographical market area served
by Essex.” In its response to Downeast’s motion to dismiss, Essex refers to Downeast’s complaint,
which alleges that Essex has “conducted business in South Carolina and North Carolina, built houses
in South Carolina and North Carolina, advertised in and into South Carolina and North Carolina,
sold houses in South Carolina and North Carolina, and advertised their South Carolina and North
Carolina neighborhoods where they build and sell houses.” Dkt. No. 45 at 8 (quoting Dkt. No. 1 at
4, ¶ 14). Essex argues that, based on this allegation, “[t]here is no ambiguity here” as to the
geographic market alleged. Id. However, this allegation only provides that Essex builds and sells
homes in South Carolina and North Carolina, but does not allege that Essex’s operations are limited
to those states. Further, Essex refers to an additional allegation in Downeast’s complaint which

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refers to the “Southeastern United States.” Id. Essex’s counterclaim, even read in conjunction with
Downeast’s complaint, does nothing to clarify the geographic market, which could be interpreted
as the Southeastern United States, as South Carolina and North Carolina, or as some portion of South
Carolina and North Carolina.1 The court, therefore, finds that Essex has failed to plead a relevant
market.
II. Elements of Attempted Monopolization: Dangerous Probability of Success. Essex’s
failure to define the market affects another critical element that Essex must plead

a dangerous

probability of achieving a monopoly.2 The primary factor in considering whether a defendant has
a dangerous probability of achieving a monopoly is the defendant’s market share of the relevant
market.3 Without alleging a relevant market, Essex cannot allege Downeast’s market share of that
market. Essex simply alleges that Downeast “ha[s] economic market power in the relevant market.”
This conclusory allegation of market power fails to allege any factual support.

1

Essex attempts to repair its vague and uninformative allegations by attaching to its response
a printout of houses that Essex allegedly sells in Lexington, S.C. for under $400,000. Even assuming
the court could consider this additional evidence on a motion to dismiss, which it cannot, this
printout from the Essex website only provides evidence that Essex, not Downeast, has homes for sale
in Lexington, S.C. under $400,000. This printout defines neither the relevant product nor geographic
market that is the subject of its attempted monopolization claim.
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“An attempted monopolization offense consists of: (1) the use of anticompetitive conduct;
(2) with specific intent to monopolize; and (3) a dangerous probability of success.” E.I. du Pont de
Nemours and Co. v. Kolon Indus., Inc., 637 F.3d 435, 441 (4th Cir. 2011).
3

The Fourth Circuit has “previously noted that ‘when monopolization has been found the
defendant controlled seventy to one hundred per cent [sic] of the relevant market.’” E.I. du Pont,
637 F.3d at 450. In E.I. du Pont, the Fourth Circuit found that allegations that there were numerous
barriers to entry into the relevant market, that the defendant had long dominated the relevant market,
and that the defendant controlled 70 percent of the relevant market were sufficient to allege
possession of monopoly power. Although in this case Essex must allege only “a dangerous
probability of achieving a monopoly,” the court finds that Essex must allege facts as to Downeast’s
ability of achieving a monopoly.
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Essex’s attempted monopolization counterclaim fails because Essex has not adequately pled
a relevant market (both a relevant product market and geographic market) and a dangerous
probability of achieving a monopoly. The court, therefore, concludes that Essex’s counterclaim for
attempted monopolization should be dismissed for failure to allege a claim.
CONCLUSION
For the reasons set forth above, the court grants Downeast’s motion to dismiss Essex’s fifth
counterclaim pursuant to Rule 12(b)(6).
IT IS SO ORDERED.

S/ Cameron McGowan Currie
CAMERON MCGOWAN CURRIE
UNITED STATES DISTRICT JUDGE
Columbia, South Carolina
July 3, 2012

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