HOST INTERNATIONAL, INC., Appellant v. MARKETPLACE, PHL, LLC,
No. 20-2848
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
April 27, 2022
On Appeal from United States District Court for the Eastern District of Pennsylvania (D.C. No. 2:19-cv-02036). District Judge: Honorable John M. Gallagher. Argued September 24, 2021. Before: CHAGARES, Chief Judge, HARDIMAN, and MATEY, Circuit Judges.
PRECEDENTIAL
Thomas C. Goldstein [ARGUED]
Eric F. Citron
Goldstein & Russell, PC
7475 Wisconsin Avenue, Suite 850
Bethesda, MD 20814
Howard I. Langer
Edward Diver
Peter E. Leckman
Langer Grogan & Diver, PC
1717 Arch Street, Suite 4130
Philadelphia, PA 19103
R. Paul Yetter
Bryce L. Callahan
Yetter Coleman LLP
811 Main Street, Suite 4100
Houston, TX 77002
Counsel for Appellant
Angelo I. Amador
Restaurant Law Center
2055 L Street, NW, 7th Floor
Washington, DC 20036
Gabriel K. Gillett
Kelsey L. Stimple
Jenner & Block LLP
353 North Clark Street, Suite 4500
Chicago, IL 60654
Counsel for Restaurant Law Center, Amicus Curiae in Support of Appellant
Leslie E. John [ARGUED]
Jason A. Leckerman
Elizabeth P. Weissert
Ballard Spahr LLP
1735 Market Street, 51st Floor
Philadelphia, PA 19103
Counsel for Appellee
MATEY, Circuit Judge.
After winning a bid for retail concession space at Philadelphia International Airport
I.
Host is a familiar face to travelers, operating food, beverage, and merchandise concessions at over 120 airports globally, including PHL. The City of Philadelphia owns PHL and uses a private firm, MarketPlace, PHL, LLC (“MarketPlace“), as landlord. PHL is a big operation, serving more than thirty million passengers each year, and producing equally big food and beverage sales, more than $100M in 2016.
After a competitive bidding process, Host won two concession spots at PHL, planning to open a coffee shop in one, and a restaurant in the other. But negotiations between Host and MarketPlace for a lease hit a wall when MarketPlace insisted on a term allowing it to “enter into agreements . . . granting . . . third-parties exclusive or semi-exclusive rights to be sole providers of certain foods, beverages or other types of products.” (App at 24.) That included a “pouring-rights agreement” (“PRA“), “granting a beverage manufacturer, bottler, distributor or other company (e.g., Pepsi or Coca-Cola) the exclusive control over beverage products advertised, sold and served at [PHL].” (App. at 24 (alteration in original)). Host balked and demanded that the PRA be left out. MarketPlace refused, and Host walked away from the deal and into federal court.
Host‘s Complaint sketches a “scheme to gain control over the sale of beverages at PHL” by tying the PRA to leases for commercial space. (App. at 14.) If successful, Host alleges, MarketPlace would enjoy outsized profits “at the expense of PHL consumers, competing beverage suppliers, and lessees of concession and retail space at PHL.” (App. at 15.) Host also alleges that MarketPlace would receive payoffs from a “big soda company” courtesy of an exclusive pouring-rights agreement. (App. at 16.)1 Host grounds those allegations in two theories: 1) an unlawful tying arrangement in violation of Section 1 of the Sherman Act; and 2) an illegal conspiracy and agreement in restraint of trade, another Section 1 violation.2
MarketPlace moved to dismiss the Complaint under
Surviving a motion to dismiss requires “only 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). Further, “[w]e accept as true the factual allegations in the complaint, and draw all reasonable inferences in the plaintiff‘s favor.” Phila. Taxi, 886 F.3d at 338. But “we are not compelled to accept ‘unsupported conclusions and unwarranted inferences.‘” Baraka v. McGreevey, 481 F.3d 187, 195 (3d Cir. 2007) (quoting Schuylkill Energy Res., Inc. v. Pa. Power & Light Co., 113 F.3d 405, 417 (3d Cir. 1997)). As a result, we draw on “judicial experience and common sense,” rather than follow an attenuated chain of assumptions. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).
Finally, while “it is inappropriate to apply Twombly‘s plausibility standard with extra bite in antitrust and other complex cases,” W. Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 98 (3d Cir. 2010), we need not “accept as true a legal conclusion couched as a factual allegation,” Papasan v. Allain, 478 U.S. 265, 286 (1986) (cited with approval in Twombly, 550 U.S. at 555-56); Iqbal, 556 U.S. at 678-79 (quoting Twombly, 550 U.S. at 555).
A. Host Fails to Plead Antitrust Standing
Despite the sweeping commands of the Sherman and Clayton Acts, courts have read a limit into their text.4 So while Section 4 of the Clayton Act permits enforcement of the Sherman Act through civil suits for treble damages by “any person who shall be injured in his business or property,”
Ethypharm S.A. France v. Abbotts Labs., 707 F.3d 223, 232 (3d Cir. 2013) (quoting City of Pittsburgh v. W. Penn Power Co., 147 F.3d 256, 264 (3d Cir. 1998)). While the name echoes the familiar formulation of Article III, the judicially imposed requirement of antitrust standing is far more limiting. Gulfstream III Assocs., Inc. v. Gulfstream Aerospace Corp., 995 F.2d 425, 429 (3d Cir. 1993). So even though “‘[h]arm to the antitrust plaintiff is sufficient to satisfy the constitutional standing requirement of injury in fact,’ courts must also consider ‘whether the plaintiff is a proper party to bring a private antitrust action.‘” Phila. Taxi, 886 F.3d at 343 (quoting AGC, 459 U.S. at 535 n.31).
Naturally, determining who is a “proper party” is complicated by a consideration of generalized concepts like “foreseeability and proximate cause, directness of injury, certainty of damages and privity of contract.” Gulfstream, 995 F.2d at 429 (quoting AGC, 459 U.S. at 532-33). And so courts whipped up a list of factors:
(1) the causal connection between the antitrust violation and the harm to the plaintiff and the intent by the defendant to cause that harm, with neither factor alone conferring standing; (2) whether the plaintiff‘s alleged injury is of the type for which the antitrust laws were intended to provide redress; (3) the directness of the injury, which addresses the concerns that liberal application of standing principles might produce speculative claims; (4) the existence of more direct victims of the alleged antitrust violations; and (5) the potential for duplicative recovery or complex apportionment of damages.
In re Lower Lake Erie Iron Ore Antitrust Litig., 998 F.2d 1144, 1165-66 (3d Cir. 1993) (citing AGC, 459 U.S. at 545). But we need not pore over the list, as one, the absence of antitrust injury, is enough to affirm the District Court‘s judgment.6
1. There is No Antitrust Injury on These Facts
“The second [AGC] factor, antitrust injury, ‘is a necessary . . . condition of antitrust standing.’ If it is lacking, [a court] need not address the remaining AGC factors.” Ethypharm, 707 F.3d at 233 (quoting Barton & Pittinos, Inc. v. SmithKline Beecham Corp., 118 F.3d 178, 182 (3d Cir. 1997)). We start our search there, looking for an “injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendant[‘s] acts unlawful.” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). Somewhat circular, but it means the “challenged conduct affected the prices, quantity or quality of goods or services, not just [the plaintiff‘s] own welfare.” Mathews v. Lancaster Gen. Hosp., 87 F.3d 624, 641 (3d Cir. 1996) (quotations omitted). All of which “aims to protect competition, not competitors,” consistent with the judicial gloss on the antitrust laws. Id. And the injury required for antitrust standing must flow from the unlawful nature of defendants’ acts. See
Accepting Host‘s argument, the District Court reasoned that “the alleged antitrust injury” is “exclusion from PHL.” (App. at 9.) But Host was not excluded; Host chose to walk away from the table because it did not like the lease terms MarketPlace offered. And the conclusion that Host pled a plausible antitrust injury stretches the boundaries of antitrust law too far. First, because a breakdown in contract negotiations is outside the Sherman Act‘s scope; second, because injury to competitors, rather than to competition, is beyond the law‘s sphere.
i. Failure to Secure Preferred Contractual Terms is Not an Antitrust Injury
Begin with the narrow contours of Host‘s claim. MarketPlace selected Host to develop retail space and offered a proposed lease. Host did not like the terms and, weighing its options, declined the offer. It is a scenario that plays out across the nation daily, in transactions big and small. But it is not an antitrust injury because competition has not been suppressed. Host has not been excluded from any market nor forced to purchase non-alcoholic beverages from anyone. True, refusing to deal can sometimes establish an antitrust claim under Section 2.7 Likewise, a group decision among competitors to boycott a firm might constitute a claim under Section 1. And a host of common law claims sounding in contract, quasi-contract, and tort could come into play. See JetAway Aviation, LLC v. Bd. of Cty. Comm‘rs, 754 F.3d 824, 855 (10th Cir. 2014) (per curiam) (Tymkovich, J., concurring); E. Food Servs., Inc. v. Pontifical Catholic Univ. Servs. Ass‘n, Inc., 357 F.3d 1, 9 (1st Cir. 2004).
But Host seeks something novel: recognition that failing to contract for commercial space states a Section 1 claim. We decline that invitation. An objectionable term in a commercial agreement, without more, is not an antitrust violation because “[d]espite [Section 1‘s] seemingly absolute language,” only unreasonable agreements in restraint of trade are antitrust violations under the Sherman Act. W. Penn, 627 F.3d at 99 (citations omitted). Host‘s Complaint alleges how the exclusive beverage agreement and the PRA are undesirable, but not how they are unreasonable restraints. Host surely prefers a broader set of options for its sublessees, but that does not create a duty on MarketPlace because “[a]s a general rule, businesses are free to choose the parties with whom they will deal, as well as the prices, terms, and conditions of that dealing.” See Pac. Bell Tel. Co. v. linkLine Commc‘ns, Inc., 555 U.S. 438, 448 (2009). As a result, Host does not have
ii. Host Alleges Harm Only to Itself
Refusing to agree to a contract also cannot state a plausible Section 1 injury because it is now “axiomatic that the antitrust laws were passed for ‘the protection of competition, not competitors.‘” Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 224 (1993) (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962)). Even if that axiom comes from the courts, not Congress, it is still a binding limitation on our review.
The District Court recognized, “[d]espite references of potential harm to others, . . . Host seeks remedy for its injury alone, and that injury is its exclusion from PHL.” (App. at 9.) But, once again, pleading an antitrust injury requires a plaintiff to “prove that [the] challenged conduct affected the prices, quantity or quality of goods or services, not just [its] own welfare.” Mathews, 87 F.3d at 641 (quotations omitted); see also Eisai, Inc. v. Sanofi Aventis U.S., LLC, 821 F.3d 394, 403 (3d Cir. 2016) (citing W. Penn, 627 F.3d at 100).8 Host “estimates [under the PRA] . . . costs at its existing units would increase by over 30%,” noting, for example, “the price increase for regular non-premium water is more than 40% for a smaller serving size.” (App. at 21.) But that is harm only to Host‘s “own welfare,” which is not our focus. Mathews, 87 F.3d at 641. Host fails to plead facts tending to show that consumer prices would increase under the PRA because it does not follow that Host‘s costs must be passed on to consumers. The PRA might just as easily secure lower or discounted beverage prices for smaller subtenants who could not access volume discounts and decrease prices for consumers. See Eisai, 821 F.3d at 403 (“[E]xclusive dealing arrangements . . . can also offer consumers various economic benefits, such as assuring them the availability of supply and price stability.“); Race Tires Am., Inc. v. Hoosier Racing Tire Corp., 614 F.3d 57, 76 (3d Cir. 2010) (“[I]t is widely recognized that in many circumstances [exclusive dealing arrangements] may be highly efficient to assure supply, price stability, outlets, investment, best efforts or the like—and pose no competitive threat at all.” (quoting E. Food Servs., 357 F.3d at 8)). And what is more, Host is not even required to purchase non-alcoholic beverages under the PRA.
Host also contends that “MarketPlace and [PHL] have attempted to cause and have in fact caused competitive harm . . . potentially to other lessors/sublessors at PHL, as well as to competing beverage suppliers shut out of the market under pouring rights and consumers of beverages and other products at PHL.” (App. at 28 (emphasis added).) But Host‘s Complaint lacks any facts alleging harm to other PHL tenants and potential harms do not suffice. To recover treble damages under Section 4 of the Clayton Act, “a plaintiff must make some showing
Sailing a straight course through the murky waters of antitrust injury challenges courts to avoid the siren songs of illusory harm. That is why the doctrine “requires every plaintiff to show that its loss comes from acts that reduce output or raise prices to consumers” in the relevant market. Chicago Prof‘l Sports Ltd. P‘ship v. Nat‘l Basketball Ass‘n, 961 F.2d 667, 670 (7th Cir. 1992) (collecting cases). Host does not and, for that reason, cannot state a claim for relief.
B. The Tying Claim
While Host‘s failure to plead antitrust standing defeats both its Section 1 claims,10 we note a deeper problem with using a “tying theory” on these facts. Tying refers to “selling one good (the tying product) on the condition that the buyer also purchase another separate good (the tied product).” Race Tires, 614 F.3d at 75 (quoting Harrison Aire, Inc. v. Aerostar Int‘l, Inc., 423 F.3d 374, 385 (3d Cir. 2005)).11
That is not the case here. Host strains to argue that a lease provision limiting the use of MarketPlace‘s property forces Host‘s sublessees to purchase something they may not want. But we “are not bound to accept as true a legal conclusion couched as a factual allegation.” Twombly, 550 U.S. at 555 (quoting Papasan, 478 U.S. at 286). It also requires Olympic-level gymnastics to bound across the floor from a publicly bid leased space to a tying agreement. Among the leaps: Host is not “purchasing” non-alcoholic beverages (when instead its tenants might); Host is not “forced” to purchase non-alcoholic beverages (when instead the PRA only limits Host‘s sublessees’ choice of vendors). Thankfully, “we are not compelled to accept ‘unsupported conclusions and unwarranted inferences,‘” Baraka, 481 F.3d at 195 (quoting Schuylkill, 113 F.3d at 417) and can rely instead on ordinary understanding, Iqbal, 556 U.S. at 679. Understanding that draws on the “essential characteristic of an invalid tying arrangement,” namely “the seller‘s exploitation of its control over the tying product to force the buyer into the purchase of a tied product.” Jefferson Par. Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 12 (1984),
At bottom, Host alleges the proposed lease demands purchasing non-alcoholic beverages under the PRA. If that sounds familiar, it is, because it again recasts the PRA contract restriction as a product. But even if it were, Host would be obligated to “purchase” the tied product because of the lease agreement, not because of MarketPlace‘s market power over the tying product. “The flaw in this argument is that the essential element of coercion on the part of the product seller is absent completely from the facts.” Aquatherm Indus., Inc. v. Fla. Power & Light Co., 145 F.3d 1258, 1263 (11th Cir. 1998). If anything, that is an issue of contract law rather than antitrust law. MarketPlace‘s control over the non-alcoholic beverage suppliers at PHL does not stem from market power; it stems from its role as a landlord.12 See Queen City Pizza, Inc. v. Domino‘s Pizza, Inc., 124 F.3d 430, 441 (3d Cir. 1997).
Antitrust plaintiffs cannot simply frame their contract claims in a clever way to pursue treble damages.13
III.
Contractual negotiations began the relationship between Host and Marketplace, and contract, not antitrust, is where that relationship ends. The antitrust laws prevent the consequence of an antitrust injury; they do not create one. Whatever remedy exists for Host‘s disappointment must lie outside the antitrust law which “is not intended to be as available as an over-the-counter cold remedy, because were its heavy power brought into play too readily it would not safeguard competition, but destroy it.” Capital Imaging Assocs., P.C. v. Mohawk Valley Med. Assocs., Inc., 996 F.2d 537, 539 (2d Cir. 1993). For that reason, we will affirm the judgment of the District Court dismissing the Complaint with prejudice.