Court Dismisses Ex-Student Athletes’ Antitrust Claim against the NCAA
A federal judge from the Southern District of Indiana has dismissed with prejudice the antitrust claim brought by two student athletes against the NCAA, who charged that the association and its members engaged in “a blatant price-fixing agreement and restraint.”
Specifically, plaintiffs Joseph Agnew and Patrick Courtney challenged two of the NCAA’s bylaws: “1) the one-year scholarship limit, which prohibits NCAA member institutions from offering multi-year athletics-based discounts to student-athletes (NCAA Bylaw 15.3.3.1), and 2) the cap on the number of athletic-based discounts a school can offer per sport each year (see, e.g., NCAA Bylaw 15.5.4).”
Agnew enrolled at Rice University in 2006 after receiving an athletic scholarship to play football. He was injured during his sophomore season and was told prior to his junior year that his scholarship would not be renewed. He successfully appealed the non-renewal of his scholarship and ultimately “received a full year’s tuition despite no longer being a member of the Rice football team.” Agnew did not receive tuition for his senior year of college and had to pay tuition and boarding expenses out-of-pocket in order to receive his degree.
Courtney enrolled at North Carolina A&T in 2009 after receiving an athletic scholarship to play football. He injured himself during training camp prior to his freshman season and ultimately was told that his athletic scholarship would not be renewed for his sophomore year.
The plaintiffs alleged that the “NCAA’s wholly artificial caps on the number and distribution of athletics-based discounts reduces the overall supply of athletics-based discounts available to student-athletes” forced them to overpay for bachelor’s degrees. Further, they alleged that the NCAA’s prohibition on multi-year athletics-based scholarships “injures student-athletes by causing them to pay more in tuition when their athletics-based scholarships are reduced or not renewed.”
The court wrote that “the NCAA’s primary contention is that the plaintiffs have failed to allege a relevant product market, geographic market, or anti-competitive effect on a relevant market to survive a motion to dismiss. The parties dispute whether the plaintiffs were required to allege a relevant market and, if they were required to do so, whether their allegations are sufficient to survive the NCAA’s motion to dismiss. Additionally, the NCAA alleges that the plaintiffs lack antitrust standing to challenge the bylaws at issue.”
The court noted early on that the purpose of the Sherman Act is to “rectify injury to consumers caused by diminished competition. Banks v. National Collegiate Athletic Association, 977 F.2d 1081, 1087-88 (7th Cir. 1992). Therefore, a plaintiff must allege not only an injury to himself but an injury to the market as well. Id. A successful claim under Section 1 of the Sherman Act requires proof of three elements: (1) a contract, combination, or conspiracy; (2) a resultant unreasonable restraint of trade in the relevant market; and (3) an accompanying injury. Denny’s Marina v. Renfro Prods., 8 F.3d 1217, 1220 (7th Cir. 1993).”
Further, it noted that the parties were in agreement that NCAA, “is the seminal case governing antitrust law in the context of amateur college sports. NCAA v. Board of Regents, 468 U.S. 85, 104 S. Ct. 2948, 82 L. Ed. 2d 70 (1984). At issue in NCAA, was whether the NCAA’s control over the number of football games a university could televise violated Section 1 of the Sherman Act. Id. The Supreme Court recognized that the horizontal restraint at issue typically would be presumed unreasonable and illegal per se without inquiry into the particular market context; however, ‘what is critical is that this case involves an industry in which horizontal restraints on competition are essential if the product is to be available at all.’ Id at 101. Therefore, the Supreme Court applied the Rule of Reason analysis ‘to form a judgment about the competitive significance of the restraint.’ Id. at 103. A conclusion that a restraint is unreasonable may be based on either the nature or character of the contracts, or the surrounding circumstances giving rise to the inference or presumption that they were intended to restrain trade and enhance prices. Id.
“In NCAA, the Supreme Court ultimately concluded that, despite the NCAA’s proffered justifications, the NCAA had engaged in unjustified anticompetitive conduct by restraining the number of football games universities could televise. The Supreme Court emphasized, however, that its holding was not a prohibition on the majority of the NCAA’s regulations because the NCAA must implement rules to preserve the character and quality of its product:
“’What the NCAA and its member institutions market in this case is competition itself — contests between competing institutions. Of course, this would be completely ineffective if there were no rules on which the competitors agreed to create and define the competition to be marketed. A myriad of rules affecting such matters such as the size of the field, the number of players on a team, and the extent to which physical violence is encouraged or proscribed, all must be agreed upon, and all restrain the manner in which institutions compete. . . . In order to preserve the character and quality of the “product,” athletes must not be paid, must be required to attend class, and the like. And the integrity of the product cannot be preserved except by mutual agreement; if an institution adopted such restrictions unilaterally, its effectiveness as a competitor on the playing field might soon be destroyed. Thus, the NCAA plays a vital role in enabling college football to preserve its character, and as a result enables a product to be marketed which might otherwise be unavailable. In performing this role, its actions widen consumer choice — not only the choices available to sports fans but also those available to athletes — and hence can be viewed as pro-competitive.
“’It is reasonable to assume that most of the regulatory controls of the NCAA are justifiable means of fostering competition among amateur athletic teams and therefore pro-competitive because they enhance public interest in intercollegiate sports. The specific restraints on football telecasts that are challenged in this case do not, however, fit into the same mold as do rules defining the conditions of the contest, the eligibility of participants, or the manner in which members of a joint enterprise shall share the responsibilities and the benefits of the total venture.
“’The NCAA plays a critical role in the maintenance of a revered tradition of amateurism in college sports. There can be no question but that it needs ample latitude to play that role, or that the preservation of the student-athlete in higher education adds richness and diversity to intercollegiate athletics and is entirely consistent with the goals of the Sherman Act. Id. at 101-102, 117, 120.’”
The court also identified support for the NCAA’s motion in the Banks ruling. That panel of judges concluded that “allegations that the NCAA rules restrain trade or commerce may not be viewed as per se violations of the Sherman Act, but must be addressed under the Rule of Reason.” 977 F.2d at 1088 (quoting Board of Regents, 468 U.S. at 85). “Thus, the Seventh Circuit held that in order for a plaintiff’s complaint to state a claim upon which relief can be granted, ‘it must allege anti-competitive effects on a discernible market.’ Banks, 977 F.2d at 1088.”
In determining whether the plaintiffs have met the requirement of a “discernible market,” the court examined the plaintiff’s contention that both the labor market and the market for bachelor’s degrees met the requirement.
The labor market “fails as a matter of law because the Seventh Circuit has already rejected the idea of a labor market in the amateur college sports context,” wrote the court. Meanwhile, it agreed with the NCAA that the market for bachelor’s degrees “is implausible as a matter of law because people cannot simply purchase bachelor’s degrees at Division I colleges and universities.”
Thus, the court granted the defendant’s motion. In addition, it chose to dismiss with prejudice in light of the fact that plaintiff “have already had multiple attempts to cure deficiencies in their pleadings.”
Joseph Agnew, et al. v National Collegiate Athletic Association; S.D. Ind.; 1:11-cv-0293-JMS-MJD, 2011 U.S. Dist. LEXIS 98744; 9/1/11.
Attorneys of record: (for plaintiffs) Shana E. Scarlett, LEAD ATTORNEY, PRO HAC VICE, Hagens Berman Sobol Shapiro LLP, Berkeley, CA; Brad A. Catlin, Joseph N. Williams, William N. Riley, PRICE WAICUKAUSKI & RILEY, Indianapolis, IN; Jennifer L. Murray, Stuart McKinley Paynter, PRO HAC VICE, THE PAYNTER LAW FIRM PLLC, Washington, DC; Leonard W. Aragon, PRO HAC VICE, HAGEN BERMAN SOBOL SHAPIRO LLP, Phoenix, AZ; Robert B. Carey, HAGENS BERMAN SOBOL SHAPIRO LLP, Phoenix, AZ; Steve W. Berman, PRO HAC VICE, HAGENS BERMAN SOBOL SHAPIRO LLP, Seattle, WA. (for defendant) Gregory L. Curtner, Robert James Wierenga, LEAD ATTORNEYS, Jessica A. Sprovtsoff, Kimberly Lynn Scott, Suzanne Wahl, PRO HAC VICE, Kimberly K. Kefalas, Miller Canfield Paddock and Stone, PLC, Ann Arbor, MI; Jason Alex Geller, Long & Levit LLP, San Francisco, CA; Kathy Lynn Osborn, BAKER & DANIELS – Indianapolis, Indianapolis, IN.
