World Wrestling Entertainment, Inc. v. Jakks Pacific, Inc.World Wrestling Entertainment, Inc. v. Jakks Pacific, Inc.
OPINION AND ORDER
Plaintiff World Wrestling Entertainment, Inc. (“WWE”) filed this action against Defendants Jakks Pacific, Inc. (“Jakks”), Jakks Pacific H.K. Ltd. (“Jakks H.K.”), Road Champs, Ltd. (“Road Champs”), THQ, Inc. (“THQ”), THQ/Jakks Pacific LLC (“THQ/Jakks”), Stanley Shenker & Associates, Inc. (“SSAI”), Bell Licensing, LLC (“Bell Licensing”), Stanley Shenker (“Shenker”), James Bell (“Bell”), Jack Friedman (“Friedman”), Stephen Berman (“Berman”), Joel Bennett (“Bennett”), and Brian Farrell (“Farrell”). Plaintiffs original Complaint asserted federal claims arising under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962(c), (d), and the Robinson-Patman Act, 15 U.S.C. § 13(c). The Complaint also alleged causes of action under New York State law for commercial bribery, fraudulent inducement, unjust enrichment, breach of fiduciary duty, inducement of breach of fiduciary duty, tortious interference with contractual relations, and conspiracy to engage in each of the above acts.
As will be discussed more fully below, on March 31, 2005, Plaintiff filed an Amended Complaint. The Amended Complaint contains more detailed factual allegations of wrongdoing by Defendants and also adds a Sherman Act cause of action. Plaintiff seeks compensatory, statutory, and punitive damages, a declaration that the licensing agreements entered into or extended as a result of the alleged bribery are void, an accounting of all revenues and profits obtained by Defendants under the licenses,
All Defendants have moved to dismiss the RICO causes of action on the ground that they fail to adequately plead a RICO enterprise. Certain Defendants have also moved to dismiss the Robinson-Patman and Sherman Act causes of action against them. Furthermore, Defendants Shenker and SSAI have moved to dismiss the RICO causes of action on res judicata and abstention grounds. 1 For the reasons discussed in detail herein, the Motions to Dismiss the RICO causes of action are denied and the Motions to Dismiss the Robinson-Patman and Sherman Act causes of action are granted.
I. Background
A. Parties
This action involves a large number of parties with various roles in the unlawful scheme alleged by Plaintiff. For clarity, the Court provides a summary of the Parties and their respective roles in the alleged scheme.
Plaintiff WWE is principally engaged in the development, promotion, and marketing of television and pay-per-view programming and live arena events related to professional wrestling. (Am.Compl.K 9) As part of its business, WWE also creates characters whose names and likenesses may be licensed to third parties. (Am. ComplJ 9)
Defendant Jakks principally sells action figures and toys. (Am.ComplJ 10) Defendant Jack Friedman is the Chief Executive Officer and Chairman of Jakks. (Am. ComplJ 13) He co-founded Jakks with Defendant Berman. (Am.ComplJ 13) Prior to founding Jakks, Friedman was the CEO of Defendant THQ. (Am.ComplJ 14)
Jakks and Friedman also own Jakks H.K. and Road Champs, both Hong Kong Corporations. (Am.CompLU 11-12)
During'the times relevant to the Amended Complaint, Defendant Berman was the Executive Vice President of Jakks. (Am. ComplJ 15) Berman also served at times as Jakks’s President, Secretary, and Chief Operating Officer. He currently serves on Jakks’s Board of Directors. (Am. ComplJ 15)
Defendant Bennett was Jakks’s Chief Financial Officer during the times relevant to the Complaint. (Am.ComplJ 16)
Defendant THQ, Inc. markets and sells video games. (Am.ComplJ 17) Defendant Farrell is the President, Chief Executive Officer, and a member of the Board of Directors of THQ. (Am.ComplJ 18)
THQ and Jakks formed THQ/Jakks Pacific LLC as a joint venture on June 10, 1998. (Am.ComplJ 19) THQ/Jakks was formed in order to be the official licensee for WWE’s video game license. (Am. ComplJ 19) Defendant Berman was authorized to act on behalf of the joint venture. (Am.ComplJ 19)
Defendant SSAI served as WWE’s licensing agent from approximately April 1995 through June 13, 2000. (Am.
Defendant Bell Licensing is a limited liability company and was allegedly formed to launder bribes paid to Bell while he was an executive at WWE. (Am.Compl^ 22) Defendant Bell is a former WWE executive and is the President and sole owner of Bell Licensing. (Am.Compl.f 23) On February 10, 2005, Bell pled guilty in the United States District Court for the District of Connecticut to one count of mail fraud in violation of 18 U.S.C. § 1342 in connection with his receipt of bribes relating to WWE’s licensing program. (Am. Comply 24)
B. Facts
For purposes of this Motion, the Court accepts as true the allegations in the Amended Complaint, which are: In March 1995, WWE hired Bell to negotiate and procure licenses for its intellectual property. (Am.CompU 29) From October 1996 to his termination on March 24, 2000, Bell served as WWE’s Senior Vice President of Licensing and Merchandising. (Am. ComplY 29)
At Bell’s urging, WWE entered into a nonexclusive agency agreement with SSAI in April 1995. (Am.Compl^ 32) SSAI was to procure and negotiate licensing contracts on behalf of WWE. (Am.Compl^ 32) The agreement between SSAI and WWE provided that SSAI would receive a commission of eleven percent of royalties on licenses negotiated by SSAI. (Am. Comply 77)
Shortly after SSAI and WWE entered into the agency agreement in 1995, Friedman approached Bell and Shenker at the annual New York Toy Fair. (Am. Comply 35) Friedman inquired about obtaining a license on behalf of Jakks to make WWE toys. (Am.OomplJ 35) On October 24,1995, WWE and Jakks entered into a domestic toy license which was scheduled to terminate on December 31, 1997, with a one-year right to renew. (Am.ComplY 35)
At around the same time, Shenker and SSAI entered into undisclosed agreements with Jakks to represent Jakks’s interests at the same time as Shenker and SSAI were serving as WWE’s agents. (Am. Compile 40-46) At first, Shenker’s work for Jakks was on matters unrelated to WWE. But at the New York Toy Fair in 1996, Shenker and Jakks discussed hiring Shenker as Jakks’s agent on WWE matters as well. (Am.Compl^ 49) Jakks’s outside legal counsel, however, advised that such an arrangement would present a conflict of interest for Shenker unless Shenker disclosed the arrangement to WWE and obtained WWE’s full consent. (Am. Comply 50) Nevertheless, without informing WWE, Shenker and Jakks entered into an arrangement whereby Shenker would secretly serve as Jakks’s agent in negotiations with WWE. (Am.Compl.lffl 53-56)
On February 12, 1996, Jakks paid SSAI $2,500 in connection with Shenker’s work as its agent. (Am.ComplJ 48) Shortly thereafter, on April 22, 1996, the domestic toy license between WWE and Jakks was amended to provide additional rights to Jakks. (Am.CompU 56) According to WWE, in compensation for his services, Jakks and Shenker agreed that Shenker would accept bribes from Jakks, and split them with Bell if necessary, to obtain various toy and video game licenses from WWE. The monies used to pay the bribes would be laundered through foreign shell corporations. (Am.ComplY 62)
Plaintiff also alleges that Defendants conspired on behalf of Jakks to obtain the video game license from WWE, which had been previously licensed to video game-maker Acclaim. (Am.Compl.U 100-03) WWE alleges that Shenker wanted Jakks to have the video game license because SSAI and Shenker would not receive royalties from the Acclaim license, which had been negotiated before SSAI was hired. (Am.Compl.U 83, 102) In order to procure the video game license, on January 14, 1998, Jakks paid a bribe to Shenker in the form of payment for a false invoice, (Am. CompLU 85-86, 95) which Jakks laundered through offshore entities, including Shenker’s alter ego, Stanfull. (Am. CompLU 86-87, 94-99) Shenker then paid Bell a portion of the monies received from Jakks in order to secure his assistance. (Am.ComplJ 97) In turn, Bell agreed to prohibit Acclaim from submitting a proposal to renew its video game license with WWE and to instead have the license awarded to Jakks. (Am.ComplJ 104)
WWE contends that Bell failed to forward superior offers and proposals from Jakks’s competitors to WWE’s management in order to protect the scheme to award the license to Jakks. (Am. ComplJ 104) Specifically, according to the Amended Complaint, Bell tried to convince WWE management not to renew the video game license with Acclaim, tried to convince Acclaim not to bid, and submitted a deal memo recommending granting the license to Jakks without seeking any other bidders. (Am.Compl.U 107-08) Upon Bell’s recommendation, WWE informed Acclaim in April 1998 that it would not be renewing its license. (Am.ComplJ 115)
In the meantime, one of WWE’s licensees for action figures, Playmates, had begun complaining in January 1997 that Jakks had been granted conflicting domestic rights by WWE. (Am.ComplJ 79) At the direction of Shenker and Jakks, and in order to eliminate competition against Jakks, Bell offered to absolve Playmates of the obligation of its guarantee to WWE if Playmates would give up its rights to produce action figures. (Am.Compl.U 80-83) WWE alleges that this agreement cost the company its guarantee and royalties above the guarantee. (Am.ComplJ 83)
Jakks was also facing competition in bidding on the video game license from THQ, and a new bidder, Activision. (Am. CompLU 127-29) On March 30, 1998, Bell recommended that WWE accept Jakks’s offer for the video game license. (Am. ComplJ 110) Subsequently, without solicitation from Bell or Shenker, Activision and THQ emerged as potential bidders in early April 1998. (Am.Compl.U 127-29) In response, Bell and Shenker attempted to convince THQ and Activision not to bid, going so far as to refuse to provide them with prospective terms for a bid. (Am. ComplJ 129) Nevertheless, THQ and Ac-tivision submitted informal proposals which were superior to Jakks’s previously submitted proposal. (Am.ComplJ 131-32) In order to protect the bribery scheme, Shenker and/or Bell concealed the informal proposals from WWE, but advised Jakks of the terms of THQ’s and Activision’s proposals. (Am.ComplJ 134-35, 145)
According to WWE, THQ accepted the offer because it was in desperate financial straits after the cancellation of one of its most lucrative licenses. (Am. Compl.HH 119-25) The Amended Complaint further alleges that THQ knew Jakks had never been in the video game business, knew that it was improper for Jakks to discuss with THQ the terms by which THQ could gain access to WWE’s intellectual property, and knew that what Jakks was telling THQ was different from what Bell and Shenker had shared earlier. (Am.Compl.HH 139-43,164)
In early May 1998, Bell submitted a deal memo recommending granting the video game license to THQ and Jakks as a joint venture. (Am. Compl.H 152) Shortly thereafter, Activision sent a more formalized version of its earlier informal proposal, which was also superior to the THQ/Jakks proposal. (Am.Compl.H 153) However, Bell and Shenker did not forward the Ac-tivision proposal to WWTS management. (Am.Compl.H 153)
Jakks and THQ agreed to form a joint venture on June 10, 1998. (Am. Compl.H 154) On that same day, WWE and THQ/Jakks executed a licensing .agreement. (Am.CompLH 154) The agreement was for ten years with a five-year right to renew — an allegedly long amount of time for such an agreement. (Am. Compl.HH 148, 157) The terms of the domestic and international toy licenses, which Jakks already had with WWE, were extended to coincide with the term of the video game license. (Am.Compl.H 165)
WWE alleges that the royalties it received under the June 10, 1998 deal were below-market because Shenker and Bell had foreclosed competitive bidding and because some of the money that should have been paid to WWE was, instead paid by THQ to Jakks. (Am.Compl.HH 150, 160-63)
The June 10, 1998 deal allegedly resulted in profits for Bell and Shenker, as well as for Jakks and THQ. In addition to payments from Jakks, Bell and Shenker received a portion of the revenue stream pursuant to SSAI’s agency agreement with WWE. Shenker split the commission with Bell under their unlawful plan. (Am. CompLHH 151,166-70) '
On March 24, 2000, WWE terminated Bell’s employment for reasons unrelated to the bribery scheme (which, at the time, WWE did not know about). (Am. CompLH 187) On June 13, 2000, WWE terminated its contract with SSAI based on a change of business direction. (Am. CompLH 189) In October 2000, SSAI brought a breach of contract claim against WWE in Connecticut state court seeking to be paid commissions on licenses SSAI had allegedly procured for WWE (Am. CompLH 190) WWE cross-claimed against SSAI, sent interrogatories to SSAI, Shenker, Bell, Jakks, and THQ, and deposed Shenker, Friedman, Berman, and Bennett during the course of discovery in the Connecticut state court action. (Am. CompLHH 191-239) WWE alleges that, during the Connecticut litigation, Defendants destroyed evidence of the bribery, provided perjured testimony, made false statements to auditors, and concealed doc
On October 16, 2003, the Connecticut state court dismissed with prejudice SSAI’s action against WWE and entered a default judgment in favor of WWE as a sanction for Shenker’s concealment of critical documents and repeated perjured deposition testimony. (Am.Compl.V 221)
See also Stanley Shenker and Assocs., Inc. v. World Wrestling Fed’n Entm’t, Inc.,
C. Procedural History
On January 25, 2005, the Court held a pre-motion conference with the Parties to discuss Defendants’ requests to file motions to dismiss. At that conference, the Court established a briefing schedule. In accordance with that schedule, each Defendant filed a Motion to Dismiss the certain causes of action alleged against them pursuant to Federal Rule of Civil Procedure 12(b)(6). Plaintiffs response to each Motion to Dismiss was due on March 31, 2005. Instead of responding to the Motions to Dismiss, however, Plaintiff filed an Amended Complaint. In its Amended Complaint, Plaintiff reasserted its RICO, Robinson-Patman Act, and New York state law claims. Plaintiff also added a claim under the Sherman Act, 15 U.S.C. § l.
2
Plaintiff did not, however, aecompa-
However, rather than requiring Defendants to file new motions to dismiss the Amended Complaint, the Court ordered bifurcated briefing. First, the Court ordered the Plaintiff to respond to three threshold issues raised in the Defendants’ original Motions to Dismiss which remained applicable to the Amended Complaint and were potentially dispositive. Those three issues are: (1) whether Plaintiff sufficiently alleged the existence of a RICO enterprise pursuant to 18 U.S.C. § 1962(c); (2) whether Plaintiff pleaded a cause of action under the Robinson-Pat-man Act, 15 U.S.C. § 13(c); and (3) whether Plaintiff is estopped from pursuing its RICO claim against Defendants Shenker and SSAI because it is duplicative of litigation, commenced in Connecticut state court. Second, the Court set a schedule for briefing Plaintiffs Sherman Act claim, which was raised for the first time in the Amended Complaint.
The Court held oral argument on the threshold issues and the Sherman Act claim on January 11, 2006. This Opinion and Order addresses only those issues fully briefed and argued as of January 11, 2006.
II. Discussion
A. Standard of Review
Pursuant to Federal Rule of Civil Procedure 12(b)(6), a party may seek to dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed. R.Civ.P. 12(b)(6). In examining a motion to dismiss, the Court must “accept as true the factual allegations made in the complaint and draw all inferences in favor of the plaintiffs.”
Grandon v. Merrill Lynch & Co., Inc.,
B. RICO Enterprise Pleading Requirement
Defendants seek dismissal of the RICO claims in Counts I and II on several grounds. The only one fully briefed to this point is Defendants’ claim that Plaintiff failed to properly plead a RICO enterprise distinct from the alleged racketeering acts.
4
In particular, Defendants
*?
contend that while Plaintiff may allege an enterprise that is an assoeiation-in-fact, a properly pled RICO enterprise must be comprised of more than just the predicate acts of racketeering. Rather, according to Defendants, a RICO enterprise must be an “ongoing enterprise” whose members “function as a continuing unit.” (Jakks Mem. 27-28 (quoting
United States v. Turkette,
Plaintiff, on the other hand, argues that an enterprise can merely be the sum of the alleged predicate acts, and that no separate, ascertainable structure is required. (WWE Mem. in Opp. to Defs.’ Mot. to Dismiss 19, 22 (“WWE Resp.”)) In its Amended Complaint, Plaintiff contends that there are sufficient allegations to satisfy this minimal burden. Thus, resolution of the dispute on the point of law is dispos-itive, for Plaintiff admits that its Complaint does not allege a RICO enterprise that has an ascertainable structure beyond the purported racketeering acts. (Hr’g Tr. 143-44, Jan. 11, 2006 (“Tr.”))
RICO defines an “enterprise” to include any “individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity.” 18 U.S.C. § 1961(4). According to the Supreme Court, a RICO enterprise is “a group of persons associated together for a common purpose of engaging in a course of conduct,” which must be proved “by evidence of an ongoing organization, formal or informal, and by evidence of the various associates functioning as a continuing unit.”
Turkette,
“Defendants interpret
[Turkette
], not without reason, to hold that the evidence necessary to establish an enterprise must be distinct from that which a plaintiff must adduce to show a pattern of racketeering activity.”
Hansel ‘N Gretel Brand, Inc. v. Savitsky,
No. 94 Civ. 4027,
The panel in
First Capital
cited
Turk-ette
for support of the proposition that “the enterprise must be separate from the pattern of racketeering activity.”
There is little doubt that if
First Capital
was the only Second Circuit decision discussing the elements of a RICO enterprise, Defendants’ Motion to Dismiss would be summarily granted. However, over two decades ago a panel of the Second Circuit confronted the same argument being made by Defendants here: “Mazzei claims that to establish a violation of RICO, there must be proof that the alleged enterprise was distinct from the alleged pattern of racketeering activity.... To support this contention, he relies principally on
[Ttirkette
] and
United States v. Bledsoe,
We agree that Turkette requires the government to prove both the existence of an “enterprise” and a “pattern of racketeering activity.” We do not, however, read Turkette to hold that proof of these separate elements be distinct and independent, as long as the proof offered is sufficient to satisfy both elements. There is nothing in the language or legislative history of the Act to support the appellant’s view. Moreover, it does not make sense to import a “distinctiveness” requirement in RICO cases. The appellant would have us rule that his actions are beyond the purview of RICO because he engaged only in point shaving and did not commit criminal acts other than those specifically contemplated in the conspiracy. Mazzei’s interpretation would lead to the anomalous result that a large scale underworld operation which engaged solely in trafficking of heroin would not be subject to RICO’s enhanced sanctions, whereas small-time criminals jointly engaged in infrequent sales of contraband drugs and illegal handguns arguably could be prosecuted under RICO. The Court will not place its imprimatur on such a counter-productive interpretation.
Two other things are noteworthy about
Mazzei.
First, in rejecting the same claim made by Defendants in this case, the panel acknowledged that “the Eighth Circuit’s position on the ‘distinctness’ issue is at odds with our analysis” (citing,
inter alia, Bledsoe,
To blunt the force of
Mazzei,
in addition to
First Capital,
Defendants turn to the district courts within the Second Circuit to claim that their view of what Plaintiff must allege about a RICO enterprise is the correct one. On this score, there is no question that Defendants can cite to many more district court decisions that embrace Defendants’ position than Plaintiff can to support its side.
See, e.g., Stein v. New York Stair Cushion Co., Inc.,
No. 04 Civ. 4741,
The courts within the Second Circuit, however, are not unanimous, as some have adhered to
Mazzei
and its specific rejection of the Eighth Circuit’s view expressed in
Stephens
and
Bledsoe. See Nat’l Group for Commc’ns and Computers Ltd. v. Lucent Techs. Inc.,
Additionally, a deeper look at the cases lining up with Defendants reveals that they provide insufficient support for Defendants’ motion. To begin, only two of the district court decisions noted above were appealed to the Second Circuit. In one,
First Nationwide,
the Second Circuit affirmed the district court’s dismissal of the complaint solely on the grounds that plaintiff had not alleged an injury ripe- for suit under RICO, and that plaintiff had not sufficiently pleaded proximate cause from any alleged RICO violation.
Moreover, very few of the district court decisions explicitly considered
Mazzei
and its progeny. For example, in
Schmidt
the court explicitly relied on the very same Eighth Circuit decision
(Bledsoe)
that the
Mazzei
panel rejected, in holding that an enterprise “cannot simply be the minimal association which surrounds the [pattern racketeering] acts.”
The
Schmidt
decision proved to be significant in that it took on a life of its own, being cited by numerous courts in this Circuit (and elsewhere) for the proposition (earlier rejected in
Mazzei)
that there must be an ascertainable structure to a RICO enterprise beyond the mere accumulation of racketeering acts.
See, e.g., Nasik Breeding,
But what about the Second Circuit’s decision in
First Capital?
There is no question that Defendants’ reliance on certain statements in that case is proper and persuasive. However, there also appears to be no doubt that these same statements are inconsistent with the holdings of
Mazzei
and its progeny.
Compare First Capital,
In the absence of an express decision overruling
Mazzei,
the remaining question is whether it has been implicitly overruled. The Court is unaware of any such decision, and Defendants have failed to identify the case that implicitly neutered
Mazzei.
Instead, at oral argument, counsel for Defendants suggested that the Second Circuit’s decisions in
United States v. Porcelli,
Defendants also believe
First Capital,
while not overruling
Mazzei,
should control as it is “the most extensive analysis in a civil context of any of the cases.” (Tr. 25) The Court is unaware, however, of any Second Circuit decision limiting the reach of
Mazzei
to criminal cases, and does not believe there would be a logical way to distinguish a civil from a criminal RICO enterprise. Moreover, to the extent Defendants are hinting that
First Capital
implicitly overruled
Mazzei,
the argument suffers from the fact that the validity of the plaintiffs’ pleading regarding the RICO enterprises at issue in that case was not before the
First Capital
panel. In fact, none of the three district court decisions that were on appeal in
First Capital
dismissed the complaint on the ground that the plaintiffs failed to properly allege that the enterprise was distinct from the racketeering acts. Instead, the RICO causes of action in the district courts were dismissed for failure to properly plead a pattern of racketeering activity, and for lack of standing and personal jurisdiction.
See First Capital,
In the end, therefore, it is insufficiently clear to this Court that
First Capital
should be read to implicitly overrule
Maz-zei,
thereby constraining this Court to follow
Mazzei. Cf. Russotti
C. Robinson-Patman Act
In Count VI of the Amended Complaint, Plaintiff claims that Defendants’ alleged bribery scheme violates § 2(c) of the Robinson-Patman Act (“RPA”). Specifically, Plaintiff alleges that the RPA Defendants
Section 2(c) of the Clayton Act, as amended by the Robinson-Patman Act, 15 U.S.C. § 13(c), states:
It shall be unlawful for any person engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares, or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediary therein where such intermediary is acting in fact for or in behalf, or is subject to the direct or indirect control, of any party to such transaction other than the person by whom such compensation is so granted or paid.
15 U.S.C. § 13(c).
Plaintiff reads this provision as “straightforward” (WWE Resp. 28), yet Justice Frankfurter commented that “precision of expression is not an outstanding characteristic of the Robinson-Patman Act.”
Automatic Canteen Co. of Am. v. FTC,
A little history is in order. “Section 2, ‘when originally enacted as part of the Clayton Act in 1914 was born of a desire by Congress to curb the use by financially powerful corporations of localized price-cutting tactics which had gravely impaired the competitive position of other sellers.’ ”
Volvo Trucks North Am., Inc. v. Reeder-Simco GMC, Inc.,
— U.S. -, -,
Notwithstanding this history, Plaintiff claims that § 2(c) applies to “services” such as the licenses at issue in this action. First, Plaintiff cites to a “diagram” of § 2(c) in
Blue Tree.
(WWE Mem. 28-29).
10
However, nothing about this diagram, or the holding in
Blue Tree,
supports Plaintiffs claim. Indeed, the court in
Blue Tree
merely held that plaintiffs had failed to state an RPA claim because they had not alleged that the payments to defendants were improper.
Second, Plaintiff cites language (but not the holding) in a seventy-year-old Second Circuit decision that is not on point. Specifically, Plaintiff quotes from a portion of
Biddle Purchasing Co. v. FTC,
The report of the House and Senate Conference Committee, submitted in referring to the bill in its present form, interprets the section as having this meaning[:]
‘This subsection permits the payment of compensation by a seller to his broker or agent for services actually rendered in his behalf; likewise by a buyer to his broker or agent for services in connection with the purchase of goods actually rendered in his behalf; but it prohibits direct or indirect payment of brokerage except for such services rendered....’ House Rep., 2951, 74th Congress, 2d Session.
(WWE Resp. 29) (quoting
Biddle,
As with Blue Tree, the quote should be put into context. Biddle Purchasing Co. supplied market information, for a monthly fee, to subscribers who were in turn wholesalers and distributors. Id. at 689. Biddle also acted as a broker, selling goods on behalf of “numerous manufacturers, can-ners, and packers,” to Biddle’s subscribers. Id. For brokering these sales, Biddle received commissions from the sellers. Id. The buyers (subscribers) would receive back the commissions paid to Biddle by the sellers. In the vast majority of these sales, the commissions refunded to the buyers were no more than they had paid for the subscription services they received from Biddle. Id. However, in some instances, the commissions paid to Biddle exceeded the subscription fees and the excess was given to the buyers, thus in effect giving these buyers a discount. Id. It was this practice that the FTC found objectionable, and which led to the appeal. Id.
In upholding the FTC’s order, the Second Circuit noted that “the statute prohibits payment of brokerage by the seller to the buyer or his agent or representative or controlled intermediary, except for services rendered.” Id. at 691. It was after this comment that the court then cited the House and Senate Report (as quoted above in Plaintiffs brief). The purpose of quoting this part of the legislative history was not, as Plaintiff suggests, to define the “services rendered” exception, but to make clear that the exception “prohibited] payments which were made here to the buyers.” Id. Indeed, the court went on to note that based on this legislative history, it was fair to conclude that “Congress must have intended that payments by sellers should not be made to buyers through any one acting as agent for the buyer.” Id. at 691. This all led to the bottom line in Biddle: “[T]he brokerage fees by the sellers to the Biddle Company could not be made in good faith as compensation for services rendered, since the fees are intended for the buyers and are immediately transmitted to them.” Id. at 691-92.
As should be clear from this description of the background and holding in
Biddle,
Finally, Plaintiff points to a footnote in the Eight Circuit’s decision in
Ideal Plumbing Co., v. Benco, Inc.,
It is also apparent that the terminology “goods, wares, or merchandise” in the statute may merely modify the “services rendered” exception and therefore constitute only an element to be determined when a defendant contends that the concession was made in exchange for services rendered.
In the end, Plaintiff is not able to cite a single holding that supports its reading of the statute. Instead, in its quiver, Plaintiff only has a “diagram,” one out-of-context quotation from two Second Circuit decisions that do not remotely deal with the issue presented, and, at best, equivocal dicta from another circuit.
Plaintiffs offering is paltry compared to the scores of cases that line up squarely with Defendants’ view of the statute, which is that it simply does not, by its terms and consistent with its legislative history, cover services or other intangible items such as licenses. This authority spans each decade since enactment of the RPA, and includes jurisdictions covering virtually every time zone in the continental United States.
See Union City Barge Line, Inc. v. Union Carbide Corp.,
Furthermore, while neither the Supreme Court nor the Second Circuit has squarely addressed the issue, there is dicta or language in decisions from both courts that is consistent with Defendants’ interpretation. For example, in a footnote declining to address plaintiffs argument, raised for the first time on appeal, that providing surcharges and discounts not in connection with services rendered violates § 2(c) of the RPA, the Second Circuit, in addition to rejecting the claim as waived, noted that § 2(c) proscribes such practices “only ‘in connection with the sale or purchase of goods, wares, or merchandise....’”
Gordon v. N.Y. Stock Exchange Inc.,
Plaintiff attempts to escape the weight of this vast authority through two arguments. First, Plaintiff claims that many of these cases should be ignored because
Finally, Plaintiff criticizes at least one of the decisions cited above (the Seventh Circuit’s decision in Freeman), because in that case the court “admitfted] that it actually had to repunctuate the statute to achieve its interpretation of the statute.” (WWE Resp. 31) Even if true, however, the Seventh Circuit’s view is not wrong. The Supreme Court long ago observed that:
Punctuation marks are not part of an act. To determine the intent of the law, the court, in construing the statute, will disregard the punctuation, or will re-punctuate, if that be necessary, in order to arrive at the natural meaning of the words employed.
United States v. Shreveport Grain & Elevator Co.,
The pertinent part of the statute proscribes the payment or receipt of payment “of anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares, or merchandise.” In
Freeman,
the Seventh Circuit suggested that a comma should have been inserted between “rendered” and “in connection.”
Ultimately, this issue ends where it started, with Judge Sprizzo’s admonition to a plaintiff who appeared to ignore the “abundance of authority estabhshing that the Robinson-Patman Act applies only to goods and commodities and does not apply to services.”
Empire State Pharm. Co.,
D. Duplicative Litigation
The next question is whether Plaintiff can maintain an action against the Shenker Defendants in federal court. The Shenker Defendants argue that Plaintiff should be estopped from pursuing a civil RICO action against them in federal court because it is duplicative of litigation in Connecticut state court arising out of the same events.
In October 2000, SSAI brought a breach of contract claim against WWE in Connecticut state court seeking license commissions it was allegedly due. (Am. Comply 190) WWE filed counterclaims against SSAI and discovery ensued. On October 16, 2003, the Connecticut Superior Court entered an Order dismissing SSAI’s claims with prejudice and granting a default judgment in favor of WWE on its counterclaims.
See Stanley Shenker and Assocs., Inc.,
The Shenker Defendants assert three different grounds for their estoppel claim: (1) res judicata; (2) the prior pending action doctrine; and (3) the “one satisfaction” rule. The Court will address each one in turn.
1. Res Judicata
“ ‘Where there is a final state court judgment, a federal court looks to that state’s rules of res judicata to determine the preclusive effect of that judgment.’”
AmBase Corp. v. City Investing Co. Liquidating Trust,
In Connecticut, the elements of res judicata are: (1) identity of the parties to the actions; (2) the same claim, demand, or cause of action at issue; (3) a final judgment on the merits by a court of competent jurisdiction in the first matter; and (4) the parties had a full opportunity to litigate the matter.
See Tirozzi v. Shelby Ins. Co.,
In order to determine if res judica-ta applies, the Court must compare “the complaint in this action with the pleadings and the judgment in the earlier action.”
Joe’s Pizza, Inc.,
Because the Defendants chose to raise the affirmative defense of res judicata in a Rule 12(b)(6) motion, Defendants must accept the more stringent standard of review for a motion to dismiss. The defense must be supported by facts appearing on the face of the complaint and the motion may be granted only where “it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief.”
Citibank, N.A. v. K-H Corp.,
Here, the first requirement for res judi-cata is met — the parties in the state and federal actions are the same or in privity. Although Shenker is not presently a party in his personal capacity in the Connecticut action, he is in privity with SSAI because he is the President and sole shareholder of SSAI.
See Joe’s Pizza, Inc.,
b. Identity of Claims
As to the second requirement, Connecticut takes a transactional approach in determining whether claims are the same.
See AmBase,
A comparison of the pleadings and the Order in the Connecticut case reveals that this action arises out of a common nucleus of operative facts as the Connecticut action. WWE’s counterclaims in the Connecticut action consist of allegations that Shenker and Bell received kickbacks from WWE’s licensees, including Jakks, in exchange for licenses. (Freeman Deck Exs. C, E; Gruenglas Deck Exs. C, E) These same facts — that potential licensees, including Jakks, made improper payments to Shenker, SSAI and/or Bell in order to obtain favorable licensing agreements— form the core of WWE’s RICO allegations in this action.
See Tafflin v. Levitt,
Despite Shenker’s perjury and Shenker’s and Bell’s destruction of evidence, WWE knew about Stanfull and Jakks’s role in the bribery scheme during the pen-dency of the Connecticut action and could have added a RICO claim in that action. In the October 16, 2003 Order dismissing Shenker’s complaint and entering a default judgment in favor of WWE, the court noted that Shenker had perjured himself about the existence of Stanfull and about improper payments made by licensees, including Jakks.
Stanley Shenker and As-socs., Inc.,
c. Final Judgment on the Merits
The third requirement is that the judgment be both on the merits and final. However, this requirement cannot be met here. Connecticut Justice Roberts explicitly stated in the 2003 Order that the court’s “findings do not constitute findings regarding the merits of the underlying case.”
Stanley Shenker and Assocs., Inc.,
Furthermore, the October 16, 2003 Order is not a final judgment. In Connecticut, a default judgment ordinarily “admits the material facts constituting a cause of action.”
Kloter v. Carabetta Enters., Inc.,
The Shenker Defendants have served notice in Connecticut court pursuant to Connecticut Practice Book § 17-34 that “they intend to challenge certain material allegations of WWE’s counterclaims and to assert various defenses at the damages hearing.” (Letter from Michael A. Freeman to the Court 2, Jan. 19, 2006) The provisions of § 17-34 essentially give the Shenker Defendants an opportunity to reopen the default judgment that was entered against them.
See Schwartz v. Mi-lazzo,
d. Full and Fair Opportunity to Litigate
As to the fourth and final element, WWE did not have an opportunity to fully and fairly litigate its RICO claim in the Connecticut action. Even though WWE had sufficient facts to plead a RICO violation against the Shenker Defendants in the Connecticut action, because of Shenker’s persistent and pervasive abuse of the discovery process, WWE never had an opportunity to actually litigate its counterclaims. The October 16, 2003 Order dismissed SSAI’s suit against WWE and entered a default judgment in favor of WWE as a sanction for Shenker’s perjury and abuse of the discovery process. The Connecticut court did not reach any conclusions re
The Shenker Defendants cannot meet the third and fourth requirements for res judicata according to Connecticut law. Therefore, the Shenker Defendants’ Motion to preclude Plaintiffs RICO claim on the ground of res judicata is denied without prejudice. If circumstances change such that the requirements for res judicata are met, the Shenker Defendants may inform the Court at that time, and, if appropriate, seek leave to refile the Motion.
2. Prior Pending Action Doctrine
Alternatively, Defendants argue that the Court should dismiss or stay this action under its inherent power as articulated in the prior pending action doctrine.
See Cont’l Time Corp. v. Swiss Credit Bank,
Where subject matter jurisdiction is proper, federal courts have a “ ‘virtually unflagging obligation’ ” to exercise that jurisdiction.
Bethlehem Contracting Co. v. Lehrer/McGovern, Inc.,
The factors the court should consider include: (1) the assumption of jurisdiction by either court over any res or property; (2) the inconvenience of the federal forum; (3) the desirability of avoiding piecemeal litigation; (4) the order in which jurisdiction was obtained by the concurrent forums; (5) whether state or federal law supplies the rule of decision; and (6) whether the state court proceeding will adequately protect the rights of the party seeking to invoke federal jurisdiction.
See id.
at 19, 23-27,
a. Jurisdiction Over the Res
The first factor is the Court’s assumption of jurisdiction over the res or any property. This factor weighs against abstention here because there is neither res nor property at stake in either jurisdiction. “ ‘[T]he facial neutrality of a factor is a basis for retaining jurisdiction, not for yielding it.’ ”
Linens of Europe, Inc.,
b. Inconvenience of the Federal Forum
The next factor is the inconvenience of the federal forum. This factor also weighs
c. Avoidance of Piecemeal Litigation
The next factor invokes the obvious desire to avoid piecemeal litigation. This factor also weighs against abstention. WWE did not bring a RICO cause of action against the Shenker Defendants in Connecticut state court. For the reasons discussed above, WWE is not precluded under res judicata from now bringing a RICO claim against the Shenker Defendants in federal court. However, if the Court were to abstain as to the Shenker Defendants on the RICO claim, WWE would still be required to litigate its RICO action against the remaining Defendants now, and then return to federal court after the completion of the state court action, and potentially litigate the same RICO claim against the Shenker Defendants. Thus, if anything, abstention here would be more likely to result in piecemeal litigation.
Furthermore, because of the procedural posture of the case, all claims against all parties cannot be resolved in one forum.
See SST Global Tech., LLC,
d. Order in Which Actions Were Filed
The next factor — the order in which the actions were filed — clearly weighs in favor of abstention. SSAI filed its action in state court in October 2000. (Am. ComplJ 190) The federal court action was filed in October 2004, four years later. However, “priority should not be measured exclusively by which complaint was filed first, but rather in terms of how much progress has been made on the two actions.”
Moses H. Cone Mem’l Hosp.,
e. Law Which Supplies the Rule of Decision
The next factor involves consideration of which law governs. This factor weighs heavily against abstention because federal law supplies the rule of decision on the RICO, RPA, and Sherman Act claims.
See Johnson,
f Adequate Protection of Rights
Finally, the Court is to consider whether the state court will adequately protect WWE’s rights. This factor also weighs against abstention. The claims asserted against the Shenker Defendants in the federal action are not the same as the cross-claims asserted by WWE against SSAI in the Connecticut action.
Compare Radioactive, J.V. v. Manson,
g. Balancing the Factors
In balancing the factors outlined above, the Court must keep in mind that the “balance [is] heavily weighted in favor of the exercise of jurisdiction,”
Moses H. Cone Mem’l Hosp.,
S. “One Satisfaction Rule”
Finally, the Shenker Defendants contend that the “one satisfaction rule” bars Plaintiff from pursuing its RICO claim against them in federal court. The “one satisfaction rule” states that “[a] plaintiff may not recover twice for the same injury.”
Phelan v. Local 305 of the United Assoc. of Journeymen,
As discussed in the context of the application of res judicata above, it appears that Plaintiffs state and federal claims against the Shenker Defendants are based on the same injury. Plaintiffs counterclaims in the Connecticut action allege, in sum and substance, that SSAI, through Shenker, conspired with Bell to provide favorable licensing terms to Plaintiffs licensees in exchange for unlawful payments from those licensees. In addition, Shenker allegedly conspired with Bell to defraud Plaintiff into paying SSAI license commissions to which it was not entitled. (Am. Compklffl 151, 186) Plaintiffs RICO claim in federal court includes the same factual allegations. (Am.Compl.lffl 249-58)
To the extent that Plaintiff recovers on its counterclaims in the Connecticut action, and to the extent that Plaintiff cannot show that the Connecticut claims arose from different facts or that the injury suffered was different, WWE’s state court recovery should be set off against any recovery Plaintiff receives on its federal civil RICO claim.
See Phelan,
E. Sherman Act Claim
1. The Antitrust Allegations
In Count III of the Amended Complaint, Plaintiff alleges that all Defendants, other than Jakks Pacific and Road Champs, conspired to unreasonably restrain trade, in violation of § 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. Defendants seek dismissal of this Count, claiming that Plaintiff: (i) has not alleged the requisite antitrust injury from Defendants’ conduct; (ii) has not pled a substantive antitrust violation under § 1; and (iii) cannot prevail because the four-year statute of limitations ran before the Complaint was filed. The Court finds the first argument persuasive and dismisses Count III on that basis.
To put Defendants’ Motion in the proper perspective, it is important to review Plaintiffs allegations regarding the purported antitrust violation. In Count III, Plaintiff alleges that Defendants conspired to unreasonably restrain trade by “agreeing and conspiring to rig the terms of the bid that would be offered by the conspiring competitors to [Plaintiff] for the video-game license,” including the royalty rate ultimately accepted by Plaintiff. (Am. Comply 267) According to the Amended Complaint, the “bid rigging” conspiracy “foreelos[ed] competition” for the video game license. (Am.ComplJ 267) As a result, Plaintiff “received less favorable license terms (including, but not limited to, a lower than market royalty rate) than WE would have received if the conspiracy had not foreclosed the competitive operation of the market.” (Am.ComplJ 270)
The factual allegations, however, tell a different story. In early 1997, Defendant Jakks was allegedly concerned about intense competition in the market for "WWE toys from a company known as Playmates. (Am.Compl.U 57-62) In particular, Jakks was concerned that Playmates could get WWE’s first international toy license, as well as other domestic toy licenses. To eliminate this competitive threat, Jakks allegedly directed the Shenker Defendants to use their influence with WWE to obtain licensing rights for Jakks that would conflict with the domestic licensing rights previously given to Playmates, which the Shenker Defendants purportedly did. (Am.Compl.U 63-66) Also, through the supposedly corrupt influence of Shenker, Jakks obtained an amendment to its original toy license agreement and an agreement procuring WWE’s international toy license. (Am.Compl.M 67-68, 71) As might be expected, Playmates did not react favorably to being squeezed out, and complained to WWE about not acting in good faith by not permitting Playmates to submit a competing bid to WWE. (Am. ComplJ 70)
In reaction, Shenker, who by then had been retained by WWE as its exclusive licensing agent (allegedly without WWE’s knowledge of the corrupt arrangement between Jakks and the Shenker Defendants), approached Bell about having Jakks buy Playmates out in order to eliminate them as a competitor. (Am.ComplJ 79) It was also around this time that Shenker allegedly first proposed to Bell, who was going through marital difficulties, the possibility of accepting payments in return for favorable treatment of Jakks’s licensing rights, including those rights that WWE might sell in connection with video games. (Am. ComplJ 80) Bell is alleged to have agreed “to the corrupt plan to give favorable treatment to Jakks on licensing matters and to violate his fiduciary duties and duty of honest services to WWE in order to do so.” (Am.ComplJ 82) In November 1997, as part of this plan, Bell persuaded Playmates to give up its licensing rights, thus allegedly denying WWE $376,391.64 left to be paid by Playmates to WWE on its
Fresh from this success, Jakks is said to have turned its attention to the WWE video game license, which was up for renewal and was held at that time by a company known as Acclaim. (Am. CompLM 100-01) Bell was in charge of the video game license renewal, and, therefore as part of the allegedly corrupt plan to assist Jakks, Bell and Shenker were to ensure that Acclaim would not get to renew that license. (Am.ComplJ 104) Indeed, the Amended Complaint alleges that Bell was expecting to receive a sum of money when he “formally recommend[ed] to WWE that Jakks be awarded the video game license.” (Am.ComplJ 106) Doing as he was paid to do, Bell allegedly advised Acclaim that he would not even review any application for.a license renewal, and Bell and Shenker made no effort to contact any other potential bidder for the video game license. (Am.Compl.M 108-09) As had Playmates, Acclaim complained to WWE management about being boxed out of a competitive process. (Am.ComplJ 109) Nonetheless, Bell recommended to WWE management that it grant the video game license to Jakks. (Am.ComplJ 111) For this deed, Bell allegedly received $20,000 a few days thereafter. (Am.ComplJ 113) Unaware of the payments to Bell or Shenker, on April 8, 1998, WWE management approved Jakks as the video game licensee, and advised Acclaim that it would not renew its license. (Am.ComplJ 114)
However, things did not go as smoothly with the video game license as it had with the toy license. According to the Amended Complaint, “a series of events occurred which threatened to expose the illegal plan to obtain the video game license at below-market rates by corruption of WWE’s agents.” (Am.ComplJ 117) (emphasis added) Soon after Bell and Shenker had recommended to WWE that it grant Jakks the video game license, two other companies, Activision and Defendant THQ contacted Bell and/or Shenker to express an interest in bidding for the video game license, and Activision even went so far as to submit informal proposals for the license. (Am.Compl.M 127-29, 131-32) According to the Amended Complaint, the specter of these two competitors “jeopardized Jakks’ illicit plan to obtain valuable licensing rights at below-market rates by corrupting Shenker and Bell since questions would be raised if WWE went forward with the Jakks proposed license and later learned that WWE agents, [Shenker] and Bell, had been told that clearly superi- or offers from THQ and Activision would be forthcoming.” (Am.ComplJ 133)
According to the Amended Complaint, Bell, Shenker, and Jakks acted quickly to conceal their ongoing bribery scheme to corruptly influence the licensing of WWE’s intellectual property rights. For example,
“[i]n order to conceal the illicit plan and see it to fruition,
SSAI and Bell did not provide WWE management with copies of the April 23, 1998 letter from THQ or the April 27, 1998 Activision informal proposal.” (Am.ComplJ 134) (emphasis added) Furthermore, “[i]n direct response to the threat of competition,
and in order to maintain control over the videogame licensing process it had acquired by the corruption of WWE licensing agents,
Jakks ... secured the agreement of THQ ... not to make an independent bid to secure the video game license in its own right.” (Am.ComplJ 137) (emphasis added) Indeed, to bring THQ into the fold, Defendant Friedman allegedly told Defendant Farrell “that Jakks was in control of the videogame license, had access to the terms Activision had informally proposed, and that THQ could participate in the revenue stream from the videogame license at
Based on the allegedly corrupt recommendation of Bell and Shenker, on June 10,1998, WWE executed a licensing agreement with the Jakks/THQ joint venture, after having earlier accepted their joint bid. (Am.Compl.1ffl 146-49, 151) It' is important to note, however, that according to the Complaint, WWE management never knew about Activision’s interest in submitting a bid. In fact, Shenker and Bell ignored, and did not. forward- to WWE management, a formal proposal later prepared by Activision. They also did not solicit an increased bid from Activision. (Am.Compl^ 153) Moreover, Bell and Shenker allegedly shared Activision’s earlier informal bid with Jakks and THQ officials so they could make their bid slightly more comparable to Activision’s informal offer. (Am.Compl^ 145) As a result, according to the Amended Complaint, the joint bid ultimately accepted by WWE was allegedly fifty to sixty percent lower than what WWE could have earned from a competitive bid, thus costing WWE millions of dollars of lost royalties. (Am. CompLUf 163-64)
After Jakks secured the video game license, its allegedly corrupt relationship with Shenker and Bell continued. On June 24, 1998, “as a necessary and essential part of the commercial bribery scheme,” Shenker and Bell secured an extension of the terms of Jakks’s domestic and international toy licenses to coincide with the term of the video game license. (Am.Compl^ 165) When the commercial bribery scheme was once again threatened with exposure during discovery associated with SSAI’s suit against WWE in Connecticut state court, Jakks allegedly took steps to conceal the scheme. For example, in response to a subpoena dated June 11, 2002, Jakks reportedly failed to produce any documents reflecting payments made to Shenker or revealing the fact that Shenker had acted as Jakks’s agent. (Am. Compl-¶ 198) In response to WWE’s repeated requests, Jakks allegedly continued to deny having made payments to Shenker. (Am.Compl.1ffl 201-07) It was not until November 11, 2003, after Shenker had recanted his perjured testimony in the Connecticut action and the Connecticut Order was issued, in which Jakks was specifically identified as one of WWE’s licensees that had made improper payments to Shenker, that Jakks “found” evidence of payments to Shenker in its files and turned them over to WWE. (Am.Compl.1ffl 214-20, 222, 228, 230)
2. Discussion
Before discovery, courts should dismiss antitrust complaints “sparingly” where the proof of the alleged antitrust violation is largely in the hands of the defendants.
Hosp. Bldg. Co. v. Trs. of Rex Hosp.,
Plaintiff claims that the conduct described above in detail violates § 1 of the Sherman Antitrust Act. However, that provision does not provide for a private right of action. Instead, a plaintiff alleging injury from an antitrust violation may seek damages only under § 4 of the Clayton Act, which authorizes private lawsuits by “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws.” 15 U.S.C. § 15(a). “It is a well-established principle that, while the United States is authorized to sue anyone violating the federal antitrust laws, a private plaintiff must demonstrate ‘standing.’ ”
Daniel v. Am. Bd. of Emergency Med.,
“In order to have standing to bring a private antitrust action, a plaintiff must allege both antitrust injury and antitrust standing.”
Arnold Chevrolet LLC v. Tribune Co.,
[A]n injury in fact (1) to plaintiffs’ business or property, (2) that is not remote from or duplicative of that sustained by a more directly injured party, (3) that qualifies as an “antitrust injury,” and (4) that translates into reasonably quantifiable damages.
Daniel,
In conducting this inquiry, “it is useful to distinguish the question of whether an antitrust violation occurred from whether plaintiffs have standing to pursue it. To avoid confusing these issues, some courts and commentators have suggested assuming the existence of a violation in addressing the issue of standing.”
Daniel,
Plaintiff suggests that merely by asserting a
per se
violation, in this case the allegedly corrupt agreement between Jakks and THQ to submit a joint bid, Plaintiff has established antitrust injury. (WWE Sherman Act Resp. 20-21) This is a curious claim since the Supreme Court has expressly rejected the idea that “no antitrust injury need be shown where a
per se
violation is involved.”
Atl. Richfield Co. v. USA Petroleum Co.,
Under these standards, Plaintiffs Amended Complaint fails to allege an antitrust injury and fails to allege that but for Defendants’ joint bid, Plaintiff would not have suffered any such injury. Fairly read, the Amended Complaint describes in impressive detail an extensive and, if true, astounding commercial bribery scheme. The scheme initially only involved Jakks allegedly making improper payments to the Shenker Defendants to ensure that they steered whatever WWE licensing business they could to Jakks. After a while, however, it became apparent to Jakks and the Shenker Defendants that coopting Bell would be essential not only to the continuation of the toy licenses, but to the future acquisition of the lucrative video game license. What initially made Bell indispensable was Playmates’s effort to circumvent Shenker and make an appeal directly to WWE for a fair opportunity to bid on-WWE’s licenses. Thus, Bell was brought into the bribery scheme and allegedly did what he was paid to do — get Playmates to agree to a buy-out.
Soon after the Playmates buy-out, Jakks and Shenker made a corrupt play for the video game license. The first phase involved using Bell to scare off the current license-holder, Acclaim, from seeking to put in a renewal bid. That apparently worked because Acclaim faded from the picture before there was' any Jakks/THQ joint bid. The next phase involved Shenker and Bell making a concerted effort to
As alleged, it is clear that Plaintiff has not suffered from an antitrust injury. Even if Defendants intended to engage in a bid-rigging scheme, and that scheme had a “competition-reducing effect” — both dubious assumptions — nothing about Jakks’s cooptation of THQ, even in combination with the bribery scheme, prevented WWE from negotiating licensing agreements with other vendors. As such this case is virtually identical to
Fed. Paper Bd. Co. v. Amato,
In
Amata,
plaintiffs employee, Amata, took bribes from suppliers in return for him recommending sales to plaintiff.
Id.
at 1380. The price at which plaintiff purchased its supplies concededly was inflated as a result of the bribes, thus plainly causing plaintiff economic injury.
Id.
Yet, the
Amata
court, in granting the motion to dismiss, held that there was no
antitrust
injury because there was no allegation that non-bribing suppliers could not compete, or that plaintiff could not purchase from non-bribing suppliers.
Id.
at 1383-84 (finding no claim in the complaint to suggest that suppliers who refused to pay bribes to Amata were “precluded from taking competitive actions in order to secure sales with Federal” or that “Amata and the suppliers paying him bribes could have prevented any other supplier from dealing with Federal”). The court recognized (as does this Court) that the bribes were unfair competition, but that alone did not make them an actionable restraint on trade under § 4 of the Clayton Act.
Id.
at 1383;
see also Calnetics Corp. v. Volkswagen,
Plaintiffs allegation that Jakks and THQ engaged in bid rigging and price fixing does not change the analysis, because THQ and Jakks were only two of several competitors for the video game license. As in
Amata,
WWE failed to demonstrate how the joint bid, even combined with the bribery of Shenker and Bell, prevented competitive bids from being offered to, or accepted by, WWE’s management. Indeed, the allegations in the Amended Complaint are even more problematic for Plaintiff here than in
Ama-ta
because the Amended Complaint identifies competitors that were active in the bidding process for the video game licenses. Acclaim and Activision submitted proposed bids to Plaintiff despite Bell’s and Shenker’s attempts to discourage them
Plaintiff counters by asserting that it suffered an antitrust injury because it was the victim of a bid-rigging conspiracy. Implicit in Plaintiffs argument is that all bid-rigging schemes necessarily deprive the “other party to the transaction of a fair price.” (WWE Sherman Act Resp. 22) Yet, that is not at all true here. Plaintiff is really a victim of its own choice, albeit a choice allegedly influenced by its corrupt employee, to accept Defendants’ joint (lower) bid in lieu of other higher bids. 25 Thus, there is no cognizable antitrust injury from the alleged joint bid or the bribery scheme.
Aside from failing to allege an antitrust injury, Plaintiff fails to adequately allege that any anti-competitive conduct was the cause of Plaintiffs injuries. As noted, to “satisfy the antitrust injury requirement, a § 4 plaintiff must show that its injury ‘flows from that which makes defendants’ acts unlawful,’ that ‘but for’ the alleged violation, the injuries would not have occurred.”
Greater Rockford Energy,
III. Conclusion
For the reasons stated above, Defendants’ Motion to Dismiss Counts I and II for failure to properly plead an enterprise pursuant to § 1962(c) is DENIED; Defendants’ Motion to Dismiss Count III is GRANTED; the Shenker Defendants’ Motion to Dismiss based on res judicata abstention principles is DENIED; and Defendants’ Motion to Dismiss Count VI is GRANTED.
SO ORDERED.
Notes
. The Defendants have also moved to dismiss the RICO causes of action on other grounds, as well as the state law causes of action. Those motions have not been fully briefed for reasons discussed below, and therefore, are not considered here. Also, Defendants moved for transfer of venue, but have since withdrawn those Motions. (See Letter from Michael A. Freeman to the Court, Jan. 24, 2006; Letter from Richard Schaeffer to the Court, Jan. 23, 2006; Letter from Jonathan J. Lerner to the Court, Jan. 20, 2006; Letter from Steven A. Marenberg to the Court, Jan. 19, 2006)
. The Complaint alleges fifteen counts. Not all counts are alleged against each Defendant. The specific allegations are as follows:
• Count I (against all Defendants): Violation of RICO, 18 U.S.C. § 1962(c). (Am. Compl.VU 242-53);
• Count II (against all Defendants): Conspiracy to Violate RICO, 18 U.S.C. § 1962(d). (Am.Compl.VV 254-58);
• Count III (against all Defendants except Jakks H.K. and Road Champs): Violation of the Sherman Act, 15 U.S.C. § 1. (Am. Compl.VU 259-72);
• Count IV (against THQ, THQ/Jakks, and Jakks): Declaratory Judgment as to whether the video game license and the 1998 amendments to the toy license are void because they, were formed as a result of commercial • bribery in violation of New York law. (Am.Compl.VV 273-80);
• Count V (against THQ, THQ/Jakks, and Jakks): Declaratory Judgment as to whether the video game license and the 1998 amendments to the toy license are void because of Shenker's and Bell's illegal acts and conflict of interest which was known to Jakks, in violation of New York law. (Am. Compl.VU 281-95);
• Count VI (against THQ/Jakks, Jakks, THQ, Friedman, Berman, and Bennett): Violation of the Robinson-Patman Act, 15 U.S.C. § 13(c). (Am.Compl.VV 296-302);
• Count VII (against THQ, THQ/Jakks, Jakks, Friedman, Berman, and Bennett): Violation of the New York commercial bribery law. (Am.Compl.VV 303-09);
• Count VIII (against THQ, THQ/Jakks, Jakks, Friedman, Berman, Bennett, and Farrell): Fraudulent inducement in violation of New York law. (Am.Compl.VV 310-17);
• Count IX (against THQ, THQ/Jakks, Jakks, Friedman, Berman, and Bennett): Unjust enrichment in violation of New York law. (Am.Compl.VV 318-21);
• Counts X and XI (against THQ, THQ/Jakks, Jakks, Friedman, Berman, and Bennett): Inducing breach of fiduciary duty in violation of New York law. (Am.Compl.VV 322-40);
• Count XII (against THQ, THQ/Jakks, Jakks, Friedman, Berman, and Bennett): Constructive trust under New York law. (Am. Compl.VV 343-47);
• Count XIII (against THQ, THQ/Jakks, Jakks, Friedman, Berman, and Bennett): Tortious interference with contractual relations in violation of New York law. (Am. Compl.VV 348-53);
• Count XIV (against THQ, THQ/Jakks, and Jakks): Piercing the corporate veil under New York law. (Am.Compl.VV 354-58);
• Count XV (against THQ, THQ/Jakks, Jakks, Friedman, Berman, and Bennett): Conspiracy to commit commercial bribery; fraudulent inducement; inducing breach of fiduciary duty; and tortious interference with
. On September X, 2005, Defendants James Bell and Bell Licensing, L.L.C. withdrew their Motions to Dismiss.
. In addition to the enterprise argument, Defendants have also argued that Plaintiff's RICO claim should be dismissed for the following reasons: (1) failure to allege a threat of continued criminal activity (Jakks Mem. of Law in Supp. of Mot. to Dismiss Am. CompL, 18-24 (“Jakks Mem.'')); (2) failure to establish a pattern of racketeering activity (Jakks Mem. 24-27); (3) failure to allege a pecuniary injury to its business or property (Jakks Mem 29-31); (4) failure to seek enjoinment of future conduct (Jaldes Mem. 31-32); and (4) failure to properly plead the RICO predicate acts (Jakks Mem. 32-35). For the reasons stated earlier, the Court is only addressing the enterprise argument at this time. See supra Part I.C.
. In
Errico,
the panel upheld the RICO conviction of defendants whose enterprise was solely engaged in the fixing of horse races.
See
. The Court does not cite or rely on the Circuit's unpublished opinion reversing the district court, as the Second Circuit's rules prohibit citation to the opinion.2d Cir. R. 0.23. However, it remains true that the district court's dismissal of the complaint was reversed, even if the grounds are not precedent in this Circuit. It bears noting that the district court dismissed the RICO counts in the complaint solely on the basis that they failed
. The Court is bound to follow precedent even if it disagrees with it.
See State Oil Co. v. Khan,
. Nor is there anything in
Coonan
that suggests an implicit retreat from
Mazzei.
In fact, the panel in
Coonan
cited
Mazzei
and
Bagaric
for the notion that "[c]ommon sense suggests that the existence of an association-in-fact is oftentimes more readily proven by 'what it
does,
rather than by abstract analysis of its structure.’ ”
. A practitioner has observed:
Linguistically, Section 2(c) is a genuine piece of art. It has 115 words, all in one sentence. There are no semicolons, no clauses, just a few commas — and there has even been a debate about whether the commas are in the right places. As you might expect in such a situation, no one has ever come forward to take full responsibility for its drafting.
Mark L. Yeager, Developments — 1984: Living with the Robinson-Patman Act, 53 Antitrust L.J. 1029 (1985).
. The diagram breaks down § 2(c) as follows:
It is unlawful for any person to
(1) pay (or receive)'—
a. anything of value as a commission, brokerage, or other compensation, or
b. any allowance or discount in lieu of brokerage, except for services rendered in connection with a sale or purchase of goods,
(2) when the payment is made to (or by)
a. the other party to the transaction, or
b. an agent, representative or other intermediary where the intermediary is
(i) acting for or in behalf of, or
(ii) subject to the direct or indirect control of any party to the transaction other than the person by whom compensation is paid.
Blue Tree Hotels Inv. (Canada), Ltd.,
. In
Blue Tree,
the district court dismissed the complaint on the grounds that plaintiffs had failed to allege any competitive injury from defendants’ alleged conduct.
. In support of this point, the court cited to the Biddle court's quote from the legislative history, which Plaintiff relies upon as well. As discussed above, relying on that quote is misguided. Also, it bears noting that no other court has adopted the Ideal Plumbing court's interpretation of the quote from Biddle.
. This interpretation of § 2(c) is consistent with the common interpretation of other provisions of the RPA. For example, like § 2(c), § 2(a) has also been interpreted to apply only to tangible goods. See
Innomed Labs, LLC v. ALZA Corp.,
. In 1979, three years after
Abbott Labs,
the Second Circuit, noting the "strict view of the meaning of the term 'commodities' ” taken by other circuits, held that the sale of advertising was not a transaction involving "commodities” under § 2(a) of the RPA.
Ambook Enters, v. Time Inc.,
. For different reasons, the Fifth Circuit came to the same conclusion over sixty years ago.
See Webb-Crawford,
. Plaintiff argues that the affirmative defense of res judicata cannot be raised in a Rule 12(b)(6) motion unless all relevant facts are shown in the court's own record, of which the court can take judicial notice. (WWE Resp. 2) See
Day v. Moscow,
. Plaintiff argues that Shenker cannot rely upon the doctrine of res judicata because he perjured himself and destroyed evidence in the Connecticut action, which precluded Plaintiff from pleading the RICO claim in that action. (WWE Resp. 3) The discussion above reveals that, despite Shenker’s initial perjury, he was forced to "come clean” before the action was over and with sufficient time for WWE to add a RICO claim in that action.
. While the Court dismisses the RPA and Sherman Act claims, Plaintiff still may pursue the anti-trust claims, either through an appeal or by seeking leave to amend the Amended Complaint.
. As discussed above, the Shenker Defen
. The Shenker Defendants urge the Court to also consider whether WWE’s federal claims are "vexatious or reactive.” (Shenker Reply 8) The Supreme Court credited the suggestion that the purpose behind filing a second lawsuit could be useful in deciding whether to abstain. However, the Court did not adopt it as a factor.
See Moses H. Cone,
In any event, the Shenker Defendants argue that, because WWE has already obtained a default judgment in Connecticut, which entities them to damages commensurate to what they could recover in federal court, WWE’s subsequent federal suit must have been filed with a vexatious purpose. However, the default judgment in favor of WWE appears to have entitled WWE to little more than a delayed trial on the merits in the form of a damages hearing.
See supra
Part II.D.l. Additionally, although the RICO claim arose out of the same facts as WWE’s cross-claims in Connecticut court, WWE has obtained additional facts (despite the Shenker Defendants' alleged attempts to conceal them), named additional Defendants, and added federal causes of action. Thus, there is nothing to suggest that WWE’s federal suit was a "reactive defensive maneuver ... to delay the state proceeding and postpone final resolution of its dispute" with the Shenker Defendants.
Calvert Fire Ins. Co. v. Am. Mut. Reinsurance Co.,
. A comparison with a case where the court found that the balance of factors weighed in favor of abstention illustrates why abstention is inappropriate here. In
Radioactive, J.V.,
.
Accord. In re Lower Lake Erie Iron Ore Antitrust Litig.,
. The Parties have sacrificed a great number of trees in briefing the question of whether the alleged joint bid by THQ/Jacks is governed by the rule of reason or
per se
analysis (Jaldes Sherman Act Mem. 21-27; WWE Sherman Act Resp. 17-24; Jakks Sherman Act Reply 3-8). Plaintiff argues strenuously that the joint bid by Jakks/THQ was part of a textbook bid-rigging scheme, which is a
per se
violation, while Jakks insists that the joint bid was lawful, under the rule of reason, as it was accepted by WWE knowing that it was a joint bid submitted by competitors. (Jakks Sherman Act Mem. 22-24; WWE Sherman Act Resp. 21-24; Jakks Sherman Act Reply 3-8) Resolution of this dispute, while potentially interesting, is unnecessary.
See Sage Realty,
. There even is authority for the proposition, contrary to Plaintiff’s suggestion, that "to satisfy the antitrust injury requirement, a plaintiff must show that ‘the challenged action has had an
actual
adverse effect on competition as a whole in the relevant market; to prove it has been harmed as an individual competitor will not suffice.' ”
Sage Realty,
. Because Defendants did not rig all, or even close to all, of the bids available to WWE, this case is different from
Philip Morris Inc. v. Heinrich,
No. 95 Civ. 0328,
Unlike in Philip Morris, the Defendants here did not engage in the same type of bid-rigging scheme, nor did they seek to include all would-be bidders in any such scheme. Therefore, the injury to Plaintiff here from any joint bid is far different from what it was there. Moreover, in this case, contrary to Plaintiff's efforts to spin otherwise, the crux of the Defendants’ anti-competitive conduct is the bribery of the licensing agents and purchasers, with the joint bid being a means of promoting the success of that scheme. In Philip Morris, however, the bribery was the means of insuring success of the bid-rigging scheme.