By Jeff Birren, Senior Writer
Caddies on the PGA Tour (“PGA”) wear official bibs supplied to them at each PGA tournament. The bibs have the logos of both the tournament and its sponsors on them, with the monies generated by the sponsorships going to the PGA and its tournaments. Since the caddies receive none of the funds generated by the logos on their bibs, they were seeking to sell other endorsements that would be placed on the bibs they wear at tournaments and stop wearing the mandatory official bibs supplied by the PGA tournaments.
On Feb. 3, 2015 the caddies sued the PGA in San Francisco Federal District Court, claiming the rules violated Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. The complaint included a Lanham Act false advertising claim, and a host of state law claims. They also sought an injunction to prevent the PGA from enforcing the supposed illegal rule.
The caddies alleged that the PGA and its tournaments violated Section 1 by agreeing to require the caddies to wear bibs, and this restrained trade in the relevant markets. They further asserted the PGA violated Section 2 by monopolizing or attempting to monopolize the relevant markets through coercive and threatening conduct. The third antitrust allegation was that the coercive dealing was a variant of a “tying” claim, wherein the PGA and the tournaments leveraged their power in the professional golf tournaments market by selling the right to participate in the tournaments to the caddies on the condition that the caddies sell their endorsement services to the PGA.
The PGA brought a motion to dismiss the twice-amended complaint, arguing that the caddies had long consented to wear the bibs, and that the antitrust relevant market allegations were implausible. District Court Judge Vince Chhabria agreed with the PGA on Feb. 9, 2016 (William Michael Hicks v. PGA Tour, Inc., Case No. 15-cv-00489-VC, (U.S. District Court, N.D. Cal.) (“Hicks”)).
The judge held that the “caddies agreed the PGA could make them wear bibs” (William Hicks v. PGA Tour, Case No. 16-15370, (9th Cir, July 27, 2018)(“Hicks v. PGA”) at 14-15). Based on that consent, the District Court dismissed with prejudice the claims for unjust enrichment, publicity, and the Lanham Act false advertising claims. It also dismissed with prejudice the claims that the caddies signed the consent forms under economic duress because the caddies had embarked “upon a profession whose practitioners have long been required to wear bibs” (Id. at 15). The court also dismissed the breach of contract claim with prejudice.
The antitrust claims fared no better. The caddies pled two relevant markets, one for the Endorsement Market and one for the Live Action Advertising Market. They defined the relevant Endorsement Market as “the national market for the endorsement of products and services by participants in professional golf tournaments” (Id. at 11). It defined the Live Action Advertising Market as a national “market for in-play or in-action commercial advertising at professional golf events between commercial breaks” (Id. at 12). This included advertising space on the golf course that television and webcast audiences could see. The court concluded that the markets as pled were not plausible, and dismissed the antitrust claims and California unfair competition claims with prejudice.
Judge Chhabria concluded: “The caddies’ overall complaint about poor treatment by the Tour has merit, but this federal lawsuit about bibs does not. The complaint is dismissed with prejudice” (Hicks at 15). The caddies appealed.
The Ninth Circuit heard oral argument on Oct. 12, 2017. The panel included Chief Judge Sidney Thomas, Kathleen O’Malley and Stephen Reinhardt. The presence of Reinhardt must have pleased the caddies. Unfortunately Judge Reinhardt passed away in March 2018 and Judge Michael Hawkins replaced him. (An audio recording of the hearing is available on the Ninth Circuit’s website.)
Judge Thomas wrote the opinion issued on July 27, 2018 and certified for publication. He stated that the court reviewed the dismissal for failure to state a claim de novo. The caddies asserted that the District Court was required to treat the motion to dismiss as a summary judgment motion. The Ninth Circuit disagreed, because the court below “did not consider any material outside of the pleadings” (Hicks v. PGA at 16). For this purpose, the “pleadings” include not only the complaint but also exhibits attached to the complaint or matters “properly subject to judicial notice” (Id. at 17). The court may also consider facts based on concessions made either in pleadings or at oral argument (Id.).
The critical concession was the caddies’ admission that the PGA required the bibs for decades (Id.). The Circuit declared that the “district court properly concluded that the Caddies had consented to wear the bibs” (Id.). It was, in fact, “unambiguous consent to wear the bibs” (Id.). The bib was part of the required “uniform” (Id. at 20). (The purpose of the uniform was to help identify the caddies on the course.)
The Circuit also held that the “district court did not err in concluding that the Caddies failed to allege plausibly that the Tour secured their consent through economic duress” (Id. at 21). The “Caddies failed to allege a ‘wrongful act which [was] sufficiently coercive or that they faced ‘no reasonable alternative [but] to succumb to the perpetrator’s pressure'” (Id. at 22). “In sum, the Caddies failed to state claims for breach of contract and quasi-contract because they consented to wearing the bibs” (Id.). The quasi-contract claim included “unjust enrichment, quantum meruit and money had and received. The Caddies’ consent to wearing the bibs in exchange for participation in the tournament defeats those claims” (Id., n. 6).
That consent also defeated the California state law publicity and Lanham Act false endorsement claims (Id. at 22-23). “Finally, as discussed above, the Caddies fail to excuse their consent by pleading a plausible economic duress claim” (Id. at 23).
The court then turned to the antitrust allegations. “[T]he district court also properly determined that the Caddies had not alleged plausible markets to support their antitrust claims” (Id.). In the absence of a per se violation, the plaintiffs “must plead a relevant market to state an antitrust claim under the Sherman Act” (Id.). This includes both a relevant product market and a relevant geographic market. The product market includes not only the product at issue but also all reasonable substitutes. It may also include well-defined submarkets but that requires a showing that the submarket is economically distinct from the general market (Id.).
The caddies’ proposed market “depends on two assumptions: (1) that advertisements to golf fans constitute a unique product market and (2) that ‘in-play’ or ‘in-action’ advertising during professional golf tournaments (i.e., between commercial breaks)–either in any format or endorsements alone–constitutes a unique submarket” (Id. at 25). “As the district court noted, the Caddies’ proposed submarkets are ‘not natural,’ are “artificial,’ and ‘contorted to meet their litigation needs'” (Id.).
Furthermore, the markets as pled, “omit many economic substitutes” (Id. at 27). Advertisers had ways to target golf fans other than just the few pled by the Caddies. The caddies made a number of failed arguments. That “golf fans can avoid some forms of advertising” did not lead to the conclusion that the formats are not reasonably interchangeable. Moreover, the claims that the markets as pled increased effectiveness and price flexibility “also fail to support their proposed markets” (Id.) because the price of endorsement advertising during tournaments “would reflect any increased effectiveness compared to other forms of advertising. This increased effectiveness would not place the advertising format in a distinct market because, as discussed above, companies can reach golf consumers through other formats” (Id.).
The price flexibility proposal for a relevant submarket also failed. Although “hiring a little-known player or caddy” may reduce costs, “companies could advertise through smaller golf periodicals, less frequented websites, and radio programs” (Id. at 27-28). Finally, the caddies claimed that studies supported their view, but this “last claim is a legal conclusion veiled as a factual allegation that we do not consider when ruling on a motion to dismiss” (Id. at 28.) “The Caddies merely restate a test for market definition without any factual elaboration” (Id.). The Circuit continued that the “district court properly concluded that the Caddies’ proposed product markets are ‘facially unsustainable’ because they fail to include many ‘reasonabl[y] interchangeab[le]’ products” (Id.).
The Circuit noted that its “conclusion is consistent with the opinions of our sister circuits” (Id.). It spent almost two pages discussing non-sports cases from other circuits. The failure to “allege a relevant product market” “also confirms that the district court properly dismissed the Caddies’ California unfair competition claims that the Tour’s conduct was ‘unlawful, unfair or fraudulent,’ Cal. Bus. & Prof. Code § 17200” (Id. at 30). Furthermore, the allegations that the PGA misled sponsors into believing that the caddies had consented to wear the bibs without compensation also failed under the fraud prong “because the Caddies did consent to wearing the bibs” (Id. at 31).
However, the Court vacated the dismissal of the antitrust and California unfair competition claims with prejudice, and remanded those claims to the district court. It did so because that court made a “simple denial of leave to amend” “without adequate explanation” (Id.). It also failed to discuss the relevant legal factors and this constituted “an abuse of discretion considering that the district court only dismissed the complaint once, the Tour fails to identify any specific prejudice it would experience, and we cannot conclude that amendment would be futile” (Id. at 32). It therefore remanded “this issue for the district court to reconsider its decision to deny the Caddies leave to amend the antitrust and unfair competition claims” (Id.).
The mandate was received by the district court on Aug. 22, 2018. A case management conference is scheduled for Sept. 18, 2018. For now, the antitrust and unfair competition claims remain on legal life support.
Birren is an adjunct professor at Southwestern University School of Law and former general counsel of the Oakland Raiders.
