A federal judge from the Northern District of Illinois has sided with the Amateur Hockey Association Illinois (AHAI) in a case in which the league was sued on antitrust grounds when it declined to admit another club, the Reapers Hockey Association, Inc., citing league rules.
In so ruling, the court wrote that a market that “consists of competitive amateur youth hockey at the Tier I level” does not implicate the Sherman Act. “And even if it did, the alleged rule that restricted the number of clubs in that market would be reasonable.”
AHAI is USA Hockey, Inc.’s regional affiliate for the State of Illinois. USA Hockey is the United States Olympic Committee’s national governing body for amateur hockey in the United States. AHAI and USA Hockey divide the teams that play in their leagues by skill level, and USA Hockey mandates that no more than 15 percent of the players in a given state should play in the highest-skill tier, called Tier I. AHAI has a rule that there shall be “not more than four Tier I clubs fielding not more than eight Tier I youth teams at any age level.” Relevant here, those four clubs (all defendants) are the Chicago Mission AAA Hockey Club, Inc., the Chicago Fury, Inc., Team Illinois Hockey Club, Inc., and the Chicago Young Americans, Inc.
Representatives from these four clubs (and AHAI board members that are not affiliated with those four clubs) serve on AHAI’s Tier I Committee, which can—subject to the approval of the AHAI Board—grant or terminate the authority to operate teams at the Tier I level. The committee can also recommend that the AHAI board modify the four-club rule. Every president of a Tier I club has a vote on the Tier I committee. The complaint alleges that this structure gives the club defendants the power to defeat any potential application by voting against it (or lobbying other members to do the same), and that conflicts of interest arise during these votes when club defendant representatives are asked to vote against their own financial interests.
These club defendants “control the actions of AHAI either directly (through representatives who are voting members of AHAI’s ‘Tier I Committee’ and/or its Board of Directors) or indirectly (by using misrepresentation, misinformation, or other inappropriate influence over how AHAI Board members vote),” according to the plaintiff. The complaint alleges that at some point after AHAI granted the fourth charter, former AHAI president John Dunne and other board members (including but not limited to Mike Mullally, Michael Barrett, and Gino Cavallini) made an agreement to restrict competition and, in furtherance of that agreement, caused AHAI to adopt the four-club rule.
In 2015, Steven Dry (president of a Tier II club) started pushing AHAI’s leadership to grant a charter for a fifth team. He made little headway until June 2018, when Dunne retired. Barrett took over for Dunne, and Mullally told Dry that the AHAI board was “ready to consider allowing a new Tier I club” and that Dry should “go ahead and fill out an application.” Dry and others then formed an unincorporated association—the Reapers Tier I Hockey Association—in order to seek a charter from AHAI to sponsor a fifth team. In July 2018, Dry signed an application to form a Tier I club and his signature appears below a line that reads, “as President of the Reapers Tier 1 Hockey Association, I acknowledge that I have read, understand and agree to abide by all of the AHAI By-Laws and Rules & Regulations.”
Dry says that when he emailed Mullally to say that the Association was planning to submit its application, Mullally replied—copying Barrett, Dunne, and board member Ken Michel—and confirmed that the information Dry planned to submit “should be sufficient for consideration” by the Tier I committee and the board. According to Dry, no one “indicated that there were any further barriers to the Board’s consideration of the merits of the Reapers’ application.” Mullally says that, at some point, he told Dry that, “in order for his application to be considered, the AHAI Board would be required to revise [the four-club rule] to allow for an additional Tier I club.”
On Jan. 7, 2019, the board voted not to rescind the four-club rule, and so did not consider the merits of the Association’s application.
The plaintiff sued.
The complaint describes the relevant market as “competitive amateur youth hockey at the Tier I level.” The relevant geographic market is the State of Illinois. The complaint alleges that, in that market, “Tier I competition provides players with important hockey development and recruiting opportunities that are unique to Tier I and cannot be realized elsewhere.” The four-club rule allegedly harms competition in this market by cutting off a large geographic area of Illinois from access to Tier I clubs and by artificially inflating the prices for “Tier I youth hockey programming.” The complaint requests an injunction prohibiting AHAI from enforcing its rule and directing AHAI to grant Reapers, Inc., a charter, or, in the alternative, requests an order requiring AHAI to adopt and implement an “objectively fair, unbiased, and transparent process for annually weighing the relative merits of each club’s application and determining the four clubs that will receive a charter each year.”
The complaint alleges, among other things, that all of the defendants (AHAI and the four clubs that benefit from the rule) violated § 1 of the Sherman Act, and that AHAI violated § 2. See 15 U.S.C. §§ 1, 2.
Section 1 of the Sherman Act declares illegal “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States.” 15 U.S.C. § 1.
Section 2 of the Sherman Act prohibits monopolization. 15 U.S.C. § 2.
“The failure to allege the existence of a relevant commercial market is fatal to both types of claims, regardless of whether per se, quick-look, or rule-of-reason analysis is applied,” wrote the court, citing Agnew v. Nat’l Collegiate Athletic Ass’n, 683 F.3d 328, 337 (7th Cir. 2012) and other cases.
The complaint fails because “it defines the relevant market in terms of a label that two entities have elected to attach to a particular type of athletic contest—this is too narrow. The complaint says that the market at issue ‘consists of competitive amateur youth hockey at the Tier I level [in Illinois].’ But ‘Tier I’ is a name that USA Hockey and AHAI use to refer to the league in which their ‘highest skill level players’ compete. This is akin to a trademark or brand that cannot define a market for antitrust scrutiny. See Generac Corp. v. Caterpillar Inc., 172 F.3d 971, 977 (7th Cir. 1999); Digital Equip. Corp. v. Uniq Digital Techs., Inc., 73 F.3d 756, 762-63 (7th Cir. 1996); Sheridan v. Marathon Petroleum Co. LLC, 530 F.3d 590, 595 (7th Cir. 2008).
Even if Reapers, Inc., had sufficiently alleged a product market—including a sufficiently commercial one to warrant application of the Sherman Act, see Agnew, 683 F.3d at 340—its complaint would still fail to allege an unreasonable restraint on trade. See Denny’s Marina, Inc., 8 F.3d at 1220. There are three categories of analysis for deciding whether an action has an anticompetitive effect: per se, quick-look, and Rule of Reason. Agnew, 683 F.3d at 335.
Reapers, Inc., alleges a per se anticompetitive horizontal restraint. The per se approach is used when the practice at issue is one that “would always or almost always tend to restrict competition and decrease output,” such as horizontal price fixing and output limitation. Agnew, 683 F.3d. at 336 (citing Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of Univ. of Oklahoma, 468 U.S. 85, 100, 104 S. Ct. 2948, 82 L. Ed. 2d 70 (1984)). A rule limiting the number of teams does not decrease output in the sense the antitrust laws care about for per se treatment. It limits the number of slots available for those who wish to play highly skilled hockey at the Tier I level, but the economic impact of this narrowed path to play a particular game is not immediately obvious. A four-club league may be a unique economic commodity with features and benefits that would not otherwise exist if it were a five-club league, and eliminating its chosen structure is not obviously pro consumer—it may just create a different product entirely. See State Oil Co. v. Khan, 522 U.S. 3, 10, 118 S. Ct. 275, 139 L. Ed. 2d 199 (1997) (“we have expressed reluctance to adopt per se rules with regard to restraints imposed in the context of business relationships where the economic impact of certain practices is not immediately obvious”).
The “quick-look” approach is used when “an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effect on customers and markets, but there are nonetheless reasons to examine potential procompetitive justifications.” Agnew, 683 F.3d at 336. Such reasons exist here: a rule that limits the number of teams in a league could help ensure that the teams are more evenly matched, which could help keep scores close (and protect participants not skilled enough to play against larger or stronger competitors), which could in turn help ensure that the games are exciting. That could justify higher ticket prices and might also allow the players in the league to better hone their skills. There are reasons to examine the procompetitive justifications for the restraint, and a full Rule of Reason analysis is in order. Agnew, 683 F.3d at 336. During that analysis, courts must conduct an “inquiry into market power and market structure designed to assess the … actual effect” of the contract, combination, or conspiracy. Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 768, 104 S. Ct. 2731, 81 L. Ed. 2d 628 (1984).
The four-club rule survives that Rule of Reason analysis under the facts alleged in the complaint. Much like the NCAA’s rules, which “enhance public interest in intercollegiate athletics,” AHAI’s rules seek to foster a particular type of competition that is in the public’s interest: that which trains amateur hockey players to compete in the Olympics and other international competitions. Such rules can be upheld at the “twinkling of an eye” so long as they “fit into the same mold as … 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.” Bd. of Regents, 468 U.S. at 117; Agnew, 683 F.3d at 341-42. Restrictions that maintain a competitive balance among teams fit within that mold. Bd. of Regents, 468 U.S. at 101.
“The four-club rule fits the mold,” wrote the court. “One of the conditions of any contest is the skill level of the opponent, and the four-club rule is a choice about how many players are skilled enough to play AHAI’s preferred Tier I brand of hockey. In that way, it also defines the eligibility of the participants and the scope of competition against which Olympic hopefuls can hone their skills. Even assuming that the four-club rule is a restraint, it is a reasonable one.” Bd. of Regents, 468 U.S. 85, 101, 104 S. Ct. 2948, 82 L. Ed. 2d 70 (1984).
Thus, the court dismissed the antitrust claim.
Reapers Hockey Ass’n v. Amateur Hockey Ass’n Ill., Inc. et al.; N.D. Ill.; 2019 U.S. Dist. LEXIS 165153. No. 19 CV 1302; 9/26/19
Attorneys of Record: (for plaintiff) Ronald Steven Betman, LEAD ATTORNEY, Shawn Gebhardt, Ulmer & Berne LLP, Chicago, IL. (for defendant) James H. Mutchnik, Barack S. Echols, LEAD ATTORNEY, Donna Peel, Kirkland & Ellis LLP, Chicago, IL; Matthew Scott Owen, PRO HAC VICE, Kirkland & Ellis LLP, Washington, DC. Anthony J. Nasharr, III, LEAD ATTORNEY, Rodney L. Lewis, Sohil M. Shah, Polsinelli PC, Chicago, IL; Mitchell D. Raup, LEAD ATTORNEY, Polsinelli PC, Washington, DC; Gregory M. Bentz, Phillip J.R. Zeeck, PRO HAC VICE, Polsinelli PC, Kansas City, MO.
