Malinda HEERWAGEN, individually and on behalf of a class of similarly situated individuals, Plaintiff-Appellant, v. CLEAR CHANNEL COMMUNICATIONS, Clear Channel Entertainment, Inc., Clear Channel Radio, Inc., and Clear Channel Broadcasting, Inc., Defendants-Appellees.
No. 04-0699-CV.
United States Court of Appeals, Second Circuit.
Decided January 10, 2006.
435 F.3d 219
Before: CARDAMONE, McLAUGHLIN, and CABRANES, Circuit Judges.
Argued November 3, 2004.
Jonathan M. Jacobson, Wilson Sonsini Goodrich & Rosati, New York, New York (Charles E. Biggio, Wilson Sonsini Goodrich & Rosati, New York, New York; Abid Qureshi, Jamie L. Berger, Akin Gump Strauss Hauer & Feld LLP, New York, New York; Dale A. Head, Richard A. Munisteri, Clear Channel Entertainment, Houston, Texas, of counsel), for Defendants-Appellees.
OPINION
CARDAMONE, Circuit Judge.
Plaintiff, a putative class representative, brought this civil antitrust action in the United States District Court for the Southern District of New York (Sprizzo, J.), charging violations of
BACKGROUND
I The Parties
Plaintiff Malinda Heerwagen (Heerwagen, plaintiff or appellant), an Illinois resident, has lived in Chicago during the entire putative class period from 1997 to the present. During that time she attended ten rock concerts held in her hometown where she heard, among others, U-2, The Grateful Dead, The Rolling Stones, and Paul McCartney. Heerwagen has not attended any concerts outside Chicago during the class period, nor has she studied the ticket prices of concerts held elsewhere.
II Plaintiff‘s Allegations
A. Live Concert Industry in General
The following facts regarding the live concert ticket industry are alleged in the complaint. Typically, a live concert is the product of negotiations between a concert promoter, who stages a performance, and a booking agent, who represents an artist. The agent sells the right to organize a particular concert to a promoter who not only oversees the logistics and sells tickets to the public, but is ordinarily also responsible for the expenses of a show he promotes.
In the early 1970s, as new artists emerged whose performances could fill larger venues, certain regional promotion companies became big businesses. In 1997 a company called SFX Enterprises, Inc.(SFX) spent billions to acquire many major regional promoters. In 2000 Clear Channel purchased SFX and thereby became the nation‘s largest promoter and producer of live entertainment events. In 2001 defendant accounted for 70 percent of concert ticket revenue in the United States. Clear Channel‘s combined ownership of radio stations, outdoor advertising, and concert halls enabled it to book nationwide tours for performing artists without the involvement of independent operators, which regional promoters by definition cannot accomplish.
B. Allegations of Monopolistic Practices
Plaintiff maintains that Clear Channel uses its national presence to set nationally uniform concert ticket prices for certain tours. Specifically, plaintiff‘s amended complaint charges that Clear Channel has engaged in anticompetitive, predatory, and exclusionary practices in an effort to acquire, maintain and extend its monopoly power in a national ticket market for live rock concerts. Defendant‘s conduct allegedly constituted monopolizing and attempted monopolizing of the relevant market and thus violated
To prove an unlawful inflation of ticket prices plaintiff relies on the difference between recent increases in concert ticket prices nationwide and recent increases in the Consumer Price Index (CPI). According to Princeton University Economics Professor Alan B. Krueger, U.S. concert ticket prices rose 61 percent from 1997 to 2002, but only 21 percent between 1991 and 1996. See Alan B. Krueger, How Much is Too Much? The Economics of Concert Ticket Prices, Keynote Address at the Concert Industry Consortium 2002 (Feb. 7, 2002), in The Concert Hotwire, Mar. 4, 2002, at 16, 17 (exhibit to motion for class certification). By comparison, the CPI increased 13 percent between 1997 and 2002, and 15 percent between 1991 and 1996. Id. Prices for top groups (those listed in the Rolling Stone Encyclopedia of Rock and Roll for which Professor Krueger had data) rose even more; ticket prices for these groups rose 73 percent between 1997 and 2002. Id. In that period the price of concert tickets rose more than ticket prices for movies, theatrical performances and sporting events. Id. at 20.
By these means, plaintiff maintains, the company has been able to lure artists to sign on with it as a promoter of their tours. According to the complaint, Clear Channel‘s alleged anticompetitive actions have led to reduced competition in the concert promotion market, unreasonable restraint of competitors’ entry into the relevant market, limitation of air time for non-Clear Channel artists, and reduction of announcements about non-Clear Channel artists’ upcoming concerts. These alleged unreasonable restraints have resulted in artificially high concert ticket prices and a decrease in concert information available to consumers. Plaintiff insists that any procompetitive benefits of defendant‘s actions are outweighed by these anticompetitive effects.
III District Court Proceedings
Plaintiff‘s amended class action complaint defined the putative class as follows
All persons (excluding defendants, their respective parents, subsidiaries and affiliates and any judge or magistrate presiding over this action and members of their families within the third degree of relationship) who purchased tickets to any live rock concert in the United States directly from any of the defendants or their affiliates or predecessors or agents during the period January 1, 1997 through the present.
After defendant moved to dismiss plaintiff‘s amended complaint the district court ordered minimal discovery held on the class certification issue. It included two experts’ reports and depositions, plaintiff‘s deposition, public concert ticket pricing data, and information from publicly available sources with regard to the concert promotion business. The district court observed that resolution of the class action motion boiled down to one pivotal question: whether the relevant market for assessment of plaintiff‘s
After discovery was completed, the district court held a three day evidentiary hearing on the class certification motion at which it heard testimony from Dr. Arthur Gruen, Jr., plaintiff‘s expert witness, and Professor Richard Gilbert, Clear Channel‘s expert witness. At the close of the hearing, the district court ruled that the relevant market was local. During the certification hearing the district judge found, in addition, that Clear Channel did not have the power to control prices and exclude competition nationally. Had it such power, the district court observed, there would be no price variations for concert ticket prices around the country, but defendant‘s expert had demonstrated that there was such variation. As a consequence of these rulings, the class certification petition was denied.
DISCUSSION
I Standard of Review
In reviewing a district court‘s decision regarding a motion to certify a class, we generally apply the deferential abuse of discretion standard. In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124, 132 (2d Cir.2001). When reviewing a denial of class certification, we accord the district court noticeably less deference than when we review a grant of certification. Parker v. Time Warner Entm‘t Co., 331 F.3d 13, 18 (2d Cir.2003). We will find an abuse of discretion whenever the district court commits an error of law, which we review de novo, makes clearly erroneous findings of fact, or renders a decision outside “the range of permissible decisions.” Zervos v. Verizon New York, Inc., 252 F.3d 163, 169 (2d Cir.2001).
II Class Certification Requirements
(1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
A district court deciding whether class certification is appropriate must ascertain not only whether plaintiff‘s case meets the preconditions of
the court finds that the questions of law or fact common to the members of the class predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy. The matters pertinent to the findings include: (A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; (D) the difficulties likely to be encountered in the management of a class action.
In its order denying plaintiff‘s motion for class certification, the district court concluded “that plaintiff is ... not an adequate or typical representative of a class of ticket purchasers beyond those in plaintiff‘s local market, and that there are not questions of law and fact common to all class members, see
III Plaintiff‘s Claims on Appeal
Heerwagen claims that defendant was guilty of monopolization and attempted monopolization in violation of
To establish a claim for monopolization, plaintiff must show “(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101, 105 (2d Cir.2002) (per curiam) (quoting United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966)). Monopoly power is “the power to control prices or exclude competition,” PepsiCo, 315 F.3d at 107 (quoting United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391 (1956)), and is also referred to as a high degree of “market power,” see Tops Mkts., Inc. v. Quality Mkts., Inc., 142 F.3d 90, 97 (2d Cir.1998). To succeed on her claim, plaintiff must show that defendant has “engaged in improper conduct that has or is likely to have the effect of controlling prices or excluding competition, thus creating or maintaining market power.” PepsiCo, 315 F.3d at 108.
To recover for attempted monopolization, plaintiff must establish “(1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power.” Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993). Because our analysis applies with equal force to plaintiff‘s claim for attempted monopolization, we need not treat that claim separately.
A. Proof of Monopolization in a Specific Market
Monopoly power “may be proven directly by evidence of the control of prices or the exclusion of competition, or it may be inferred from one firm‘s large percentage share of the relevant market.” Tops Mkts., 142 F.3d at 98; PepsiCo, 315 F.3d at 107. Indirect proof of market power, that is, proof that the defendant has a large percentage share of the relevant market, is a “surrogate” for direct proof of market power. See 2A Phillip E. Areeda, Herbert Hovenkamp & John L. Solow, Antitrust Law: An Analysis of Antitrust Principles and Their Application (Areeda & Hovenkamp) ¶ 531a, at 187 (2d ed.2002). Courts often rely on indirect proof of market power because direct measures are often difficult or impossible to prove. See id. ¶ 515, at 114 (explaining that “[i]n resolving market or ‘monopoly’ power issues, the courts have typically relied heavily on market definition and on the defendant firm‘s share of the market thus defined“).
The relevant market consists of a relevant product market and a relevant geographic market. See PepsiCo, 315 F.3d at 105; United States v. Eastman Kodak Co., 63 F.3d 95, 104 (2d Cir.1995). Because we affirm the district court‘s judgment that denied certification due to plaintiff‘s failure to show that the live rock concert ticket market was national, we need not address the issue of whether the rock concert ticket market is a single product market. Plaintiff‘s case fails regardless of whether or not she can make such a showing with respect to the product market issue.
Courts generally measure a market‘s geographic scope, the “area of effective competition,” by determining the areas in which the seller operates and where consumers can turn, as a practical matter, for supply of the relevant product. Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961); Eastman Kodak Co., 63 F.3d at 104. This approach evaluates the geographic aspect of the elasticity of a specified market — that is, how far consumers will go to obtain the product or its substitute in response to a given price increase and how likely it is that a price increase for the product in a particular location will induce outside suppliers to enter that market and increase supply-side competition in that location. See AD/SAT v. Associated Press, 181 F.3d 216, 227 (2d Cir.1999) (discussing elasticities of demand and supply in the context of the relevant product market).
In other words, “[t]he geographic market encompasses the geographic area to which consumers can practically turn for alternative sources of the product and in which the antitrust defendants face competition.” Morgenstern v. Wilson, 29 F.3d 1291, 1296 (8th Cir.1994); see also Herbert Hovenkamp, Federal Antitrust Policy: The Law of Competition and its Practice (Hovenkamp) § 3.6, at 113 (2d ed. 1999) (“The relevant geographic market for antitrust purposes is some geographic area in which a firm can increase its price without 1) large numbers of its customers quickly turning to alternative supply sources outside the area; or 2) producers outside the area quickly flooding the area with substitute products.“). Factors relevant to the geographic scope of a market may include barriers to transactions between buyers and sellers of different locations, such as transportation costs to a particular location or start-up costs in that location, as well as the relative preferences of consumers with respect to travel and price. See Areeda & Hovenkamp, ¶ 550, at 247, ¶ 556, at 291.
As Heerwagen‘s own testimony shows, there is little cross-elasticity of demand for live rock concert tickets between geographic areas. A purchaser of a concert ticket is hardly likely to look outside of her own area, even if the price for tickets has increased inside her region and decreased for the same tour in other places. Tours are promoted nationally, but a higher price in Boston will not lead Boston purchasers to buy tickets for the same concert held in New York — at least not according to the evidence adduced during the class certification hearing. Such evidence accords with common sense in the calculus for the availability of substitutes. The cost to attend a concert in a remote geographic region would be substantially greater than whatever increment a concert promoter might add to the cost of a concert ticket. Hence, from the standpoint of the individual concertgoer the two concert tickets are not substitutes for one another. Plaintiff‘s expert did not dispute this conclusion.
Here, despite Heerwagen‘s argument that the relevant market for concert tickets is national, the district court determined that it is local. The court concluded that Heerwagen could not therefore satisfy
Plaintiff‘s argument that she need not delineate a geographic market is one we cannot adopt. Instead, a plaintiff claiming monopolization is obligated to establish the relevant market because the power to control prices or exclude competition only makes sense with reference to a particular market. See Republic Tobacco Co. v. N. Atl. Trading Co., Inc., 381 F.3d 717, 737 (7th Cir.2004) (explaining that a plaintiff could not escape reference to a specific market in a monopolization claim because, “[e]conomic analysis is virtually meaningless if it is entirely unmoored from at least a rough definition of a product and geographic market“); see also Hovenkamp § 3.6, at 112 (“Someone who has market power does not generally have it everywhere.“).
Even if plaintiff attempts to prove her monopolization claims by direct evidence, she will have to rely on market specific evidence of Clear Channel‘s power in particular markets that will vary from one putative class member to another. See Blades v. Monsanto Co., 400 F.3d 562, 566 (8th Cir.2005) (“If, to make a prima facie showing on a given question, the members of a proposed class will need to present evidence that varies from member to member, then it is an individual question. If the same evidence will suffice for each member to make a prima facie showing, then it becomes a common question.“). In light of the substantial non-common issues regarding market power, and because we review the district court‘s factual determination as to the bounds of the relevant geographic market for clear error, see United States v. Engelhard Corp., 126 F.3d 1302, 1305 (11th Cir.1997); Phonetele, Inc. v. Am. Tel. & Tel. Co., 889 F.2d 224, 232 (9th Cir.1989), it was not error for the district court to conclude that individualized questions would predominate.
B. Clear Channel‘s Alleged National Conduct Does Not Alone Render the Relevant Market National
Heerwagen next contends that even if she must prove her monopolization claim with reference to a specific geographic market, she should nonetheless have prevailed on her motion for class certification because, she insists, the market for concert tickets at issue here is national. As noted, she does not urge that there is any significant degree of elasticity in the market for concert tickets across geographic locations, but rather objects to the district court‘s determination that the relevant market is local on the ground that Clear Channel‘s national course of alleged anticompetitive conduct alone is sufficient to render the relevant market national. In connection with that argument, plaintiff observes that a Department of Justice memorandum described the “relevant market for concert tours as being ‘national.‘” But she neglects to mention that the memo does not refer to the market that is at issue here — the retail market for concert tickets. In any event, as the subject of the memo, “Request to Open Preliminary Investigation: Clear Channel Communications, Inc. and SFX Entertainment, Inc.,” makes plain, the memo is hardly the product of any conclusive factfinding deserving of judicial deference. Appellant argues that Clear Channel had market power which obviated the need for her to delineate a geographic market and establish Clear Channel‘s market share.
In support of her position, plaintiff relies on United States v. Grinnell Corp., 384 U.S. 563 (1966). In Grinnell, the Supreme Court affirmed a finding of a national market where a company that supplies fire and burglar alarm services operates nationally, engages in national planning, is a party to national agreements with competitors, has a “national schedule of prices, rates and terms, though the rates may be varied to meet local conditions,” follows rate-making, inspection, and certification by national insurers, and makes nationwide contracts with customers. Id. at 575. The Supreme Court ruled that the geographic market was national even though the company could sell its product only to customers within a 25-mile wide radius from each of its central station service centers. See id. at 575-76. Because it is fair to assume the Supreme Court recognized that from an economic standpoint, the market for central service protection was local, we read Grinnell to stand for the proposition that in some cases involving services that tend to be provided locally, the market for purposes of the antitrust laws still could be national.
Grinnell involved the formation of nationwide procurement contracts, horizontal agreements between multistate competitors, and an interstate manufacturing business. See id. Here, by contrast, there are no claims that Clear Channel entered into any horizontal agreements, sold concert tickets pursuant to national contracts or marketed manufactured goods on a national basis. We decline to read Grinnell so broadly as to apply it here. The Supreme Court‘s method of determining relevant geographic markets generally reference both the “area in which the seller operates, and to which the purchaser can practicably turn for supplies,” Tampa Elec. Co., 365 U.S. at 327 (emphasis added); Conn. Nat‘l Bank, 418 U.S. at 668; United States v. Phillipsburg Nat‘l Bank & Trust Co., 399 U.S. 350, 362 (1970). Local markets for tickets sales are not transformed into a national market simply because concert tours are coordinated nationally. Plaintiff‘s reliance on Grinnell is therefore misplaced, and that case does not lead us to conclude that the district court erred in determining that the relevant market was local rather than national.
C. Purported Procedural Errors
Plaintiff maintains finally that in deciding her motion for class certification, the district court erred by considering the merits of her claims and limiting discovery. Upon a review of the record, we conclude that neither of the purported procedural errors of which plaintiff complains constitutes error, let alone an abuse of discretion.
1. Considering the Merits
Plaintiff argues that the district court impermissibly considered the merits of her claims by requiring her to make a predominance showing under
The district court is not permitted to conduct a preliminary inquiry into the merits of plaintiff‘s case at the class certification stage. See 5 James Wm. Moore, Moore‘s Federal Practice § 23.84[2][b], at 23-343-44 (3d ed.2004); In re Visa Check, 280 F.3d at 135; Caridad v. Metro-North Commuter R.R., 191 F.3d 283, 293 (2d Cir.1999). “[I]n making a certification decision, a judge must look somewhere ‘between the pleading and the fruits of discovery.... Enough must be laid bare to let the judge survey the factual scene on a kind of sketchy relief map, leaving for later view the myriad of details that cover the terrain.‘” Sirota v. Solitron Devices, Inc., 673 F.2d 566, 571-72 (2d Cir.1982). The Supreme Court‘s opinion in Falcon is not to the contrary; it simply noted that a certifying court may not be able to “come to rest” on the certification decision before probing behind the pleadings, and thus class certification decisions may be modified as proceedings progress. See Falcon, 457 U.S. at 160.
In Caridad, we reviewed the denial of a class certification motion in a discrimination suit where the district court had determined that plaintiffs failed to show commonality and typicality under
By contrast here, whether Clear Channel is liable for monopolization on the one hand, and whether issues common to the class are likely to predominate, on the other hand, are sufficiently distinct that the district court did not prematurely rule on the merits by weighing the experts’ testimony. See 7B Charles A. Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure § 1798, at 223 (3d ed.2005) (commenting that on a motion for class certification an evidentiary hearing may be appropriate if it is “directed toward examining the underlying facts to determine whether they are susceptible to common proof and is not to determine the probability of success on the merits“).
The finding that individual issues were likely to predominate did not depend on an assessment of the validity of plaintiff‘s claim or of the potential claims of other members of the putative class. Rather, the district court resolved an independent fact question concerning the expected forms of proof in light of the specific factual allegations contained in the amended complaint. Some overlap with the ultimate review on the merits is an acceptable collateral consequence of the “rigorous analysis” that courts must perform when determining whether
The comparison of the weight of the experts’ testimony here did not amount to error inasmuch as the district court was resolving the sufficiently independent question of whether plaintiff had made a proper showing of predominance pursuant to
Plaintiff also maintains the district court impermissibly considered the merits of her action in requiring her to show that common issues would predominate pursuant to
Even if a preponderance of the evidence standard was invoked, that was not in error. Complying with
2. Limiting Discovery
Discovery is often appropriate on class certification issues, see Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351 n. 13 (1978); Parker, 331 F.3d at 21. The amount of discovery is generally left to the trial court‘s considerable discretion. Am. Sav. Bank, FSB v. UBS PaineWebber, Inc. (In re Fitch, Inc.), 330 F.3d 104, 108 (2d Cir.2003); see also Wills v. Amerada Hess Corp., 379 F.3d 32, 41 (2d Cir.2004); 3 Alba Conte & Herbert B. Newberg, Newberg on Class Actions § 7.8 (4th ed. 2005) (“Plaintiffs seeking discovery of the defendants on class issues should be aware that the management of discovery... is under the sound discretion of the court.“); 5 Moore‘s Federal Practice § 23.85[1] (“District courts have considerable discretion to determine whether, and to what extent, to allow discovery with respect to class certification issues.“).
Discovery on the prerequisites of
Limiting discovery in preparation for the class certification motion in order to reduce expense, the district court allowed plaintiff‘s deposition and the deposition of experts. Although Judge Sprizzo made comments suggesting improper bases for limiting discovery — including a categorical statement that he generally does not allow plaintiffs discovery on the issue of class certification and an unsupported claim that plaintiff‘s counsel here sought discovery “as some sort of settlement leverage” — we nonetheless cannot conclude that the decision to limit discovery here amounted to an abuse of the district court‘s broad discretion.
In addition to the discovery allowed, significant relevant information was apparently available in the public domain, as evidenced by the exhibits submitted in connection with plaintiff‘s motion for class certification. Moreover, plaintiff failed to make any showing, however preliminarily, that she could satisfy the predominance requirement of
Plaintiff has made no colorable showing that additional discovery would have enabled her to demonstrate predominance or that the district court abused its discretion in limiting discovery to conserve the resources of the parties. She has not identified any information about the relevant market that might have helped her overcome her inability to establish that the market for concert tickets is national.
CONCLUSION
Despite the various problems we have with the district court‘s methods and approach to this case, we affirm its denial of class certification because whatever proof the plaintiff attempted to use to show defendant‘s alleged monopoly power or attempted monopolization, a national class would not be the appropriate or preferable means to deal with plaintiff‘s claim. Because appellant failed to meet the requirements of
In sum, we hold that defendant has failed to demonstrate that the district court committed prejudicial error in: (1) determining that she must prove her monopolization claim with reference to a specific market; (2) concluding that the market at issue here is local; (3) weighing the testimony of the experts or imposing a preponderance of the evidence standard in connection with the
CARDAMONE
UNITED STATES CIRCUIT JUDGE