A federal judge from the Eastern District of California has dismissed the NCAA’s motion to dismiss two class action lawsuits, which claimed that restrictions on compensation for thousands of volunteer coaches violated antitrust law.
The plaintiffs in the first suit, Taylor Smart and Michael Hacker (collectively “Smart Plaintiffs”), are seeking to represent volunteer baseball coaches, and made claims for (1) violation of Section 1 of the Sherman Act, 15 U.S.C. § 1; (2) quantum meruit under various state laws; (3) unjust enrichment under various state laws; (4) violations of California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code §§ 17200 et seq.; and (5) declaratory judgment under the Declaratory Judgment Act, 28 U.S.C. § 2201.
The plaintiffs in the second suit, Joseph Colon and others (collectively “Colon Plaintiffs”), are seeking to represent volunteer coaches in sports other than baseball, and made one claim for violation of Section 1 of the Sherman Act, 15 U.S.C. § 1.
(Editor’s Note: Only the Section 1 claim is addressed here.)
In reviewing the applicable law, the court noted that Section 1 of the Sherman Act provides: “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. 15 U.S.C. § 1.”
Further, “Although on its face, Section 1 appears to outlaw virtually all contracts, it has been interpreted as ‘outlaw[ing] only unreasonable restraints’ of trade.” In re Nat’l Football League’s Sunday Ticket Antitrust Litig., 933 F.3d 1136, 1149-50 (9th Cir. 2019) (quoting State Oil Co. v. Khan, 522 U.S. 3, 10 (1997)). “Because § 1 . . . only [prohibits] restraints effected by a contract, combination, or conspiracy, the crucial question is whether the challenged anticompetitive conduct stems from an independent decision or from an agreement, tacit or express.” Twombly, 550 U.S. at 553; see Optronic Techs., Inc. v. Ningbo Sunny Elec. Co., 20 F.4th 466, 479 (9th Cir. 2021) (“To establish a conspiracy, the available evidence must tend ‘to exclude the possibility that the alleged conspirators acted independently.’”)
Did Plaintiffs Adequately Allege Antitrust Injury?
The court’s first task was to address whether the plaintiffs adequately alleged antitrust injury, and then whether plaintiffs have adequately pled a claim under Section 1 of the Sherman Act.
The plaintiffs alleged that they suffered antitrust injury because their compensation – $0 – is below the compensation they would have received in a competitive market. The court noted that:
“Restrictions on price and output are the paradigmatic examples of restraints of trade that the Sherman Act was intended to prohibit.” NCAA v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 107-08 (1984) (citing Standard Oil Co. v. United States, 221 U.S. 1, 52-60 (1911)); cf. In re High-Tech Emp. Antitrust Litig., 856 F.Supp.2d 1103, 1123 (N.D. Cal. 2012) (“The Ninth Circuit has held that, where . . . an employee is the direct and intended object of an employer’s anticompetitive conduct, that employee has standing to sue for antitrust injury.”) (citing Ostrofe v. H.S. Crocker Co., Inc., 740 F.2d 739, 742-43 (9th Cir. 1984)) (additional citations omitted). Cf. Knevelbaard Dairies v. Kraft Foods, Inc., 232 F.3d 979, 988 (9th Cir. 2000) (“When horizontal price fixing causes buyers to pay more, or sellers to receive less, than the prices that would prevail in a market free of the unlawful trade restraint, antitrust injury occurs.”).
The court then examined the NCAA’s contention that the allegations were “conclusory.” Specifically, the court wrote, “In drawing all inferences in plaintiffs’ favor, as the court must at this stage, it is not implausible that plaintiffs would have been paid a salary above $0 but for the NCAA’s adoption of the Bylaw,” citing See Cost Mgmt., 99 F.3d at 950.
The court then added that the NCAA’s relied-upon cases were “distinguishable.”
As an example, “in City of Oakland v. Oakland Raiders, 20 F.4th 441 (9th Cir. 2012), Oakland argued that it suffered antitrust injury because, absent the challenged practice, Oakland would have either retained the Raiders or acquired another team. See id. at 559. The Ninth Circuit rejected Oakland’s argument, explaining: ‘[T]here is no way of knowing [] what would have occurred in a more competitive marketplace. Would new teams have joined the NFL? Would they have found Oakland attractive?’ Id. Here, by contrast, plaintiffs’ alleged injury is far less speculative. Both plaintiffs were hired as Division I baseball coaches but did not receive a salary because of the Bylaw. That an already employed baseball coach would be paid a salary over $0 absent the challenged conduct is a far less speculative injury than whether a specific city would be selected to host one of only thirty-two NFL teams.
“As discussed at oral argument, allegations that plaintiffs would have been hired but for the Bylaw are different than allegations that plaintiffs would have been compensated. Because plaintiffs were all hired as volunteer coaches, the issue here is whether they would have been paid, not whether they would have been hired.
Moreover, allegations of horizontal price fixing premised on the creation of the volunteer coach position are sufficient to show antitrust injury. See Bd. of Regents, 468 U.S. at 107-08”
The court then examined whether the plaintiffs had met all the required conditions to state a claim under Section 1 of the Sherman Act as set forth by case law, or a showing that: (1) a contract, combination or conspiracy; (2) that unreasonably restrained trade under either a per se rule of illegality or a rule of reason analysis; and (3) that restraint affected interstate commerce. At the outset, the court found that the first and third factors are “easily satisfied.”
The court continued noting that “this claim rests on what analysis to apply and whether plaintiffs have adequately alleged anticompetitive effects under that analysis.”
A Question of Whether a Relevant Market was Pled
One of the NCAA’s central arguments in the motion was that the plaintiffs “failed to plead a relevant market.” Specifically, it claimed that “Division I cannot be a relevant market because it does not include other available coaching opportunities such as those at the high school or professional levels.”
Setting this argument aside, the court noted that, under Regents, “proof of market power is not required under a quick look analysis. See Bd. of Regents, 468 U.S. at 109.
“… At this stage, plaintiffs’ allegations that the market for Division I coaches is distinct from the market for high school and professional coaches are sufficient. See Newcal Indus., Inc. v. Ikon Office Sols., 513 F.3d 1038, 1045 (9th Cir. 2008) (‘[Because] the validity of the ‘relevant market’ is typically a factual element, alleged markets may survive scrutiny under Rule 12(b)(6) subject to factual testing by summary judgment or trial.’)”
In the Colon case, the defendant additionally argued that: “(1) plaintiffs did not specifically identify any relevant product market; and (2) plaintiff improperly included coaching positions in all sports, even though a coaching position in one sport is not a substitute for a coaching position in a different sport.”
The court, however, rejected both arguments on two grounds. “First, plaintiffs did specify a relevant product market — the market for Division I coaches. Second, the court does not read the Colon Complaint to suggest that plaintiffs believe coaches in one sport are substitutes for coaches in any other sport. To the contrary, plaintiffs sufficiently alleged that defendant determines the number of paid coaches per sport and plaintiffs were each seeking to be paid for the coaching position in their particular sport.”
The court concluded that the plaintiffs have “alleged facts sufficient to show a violation of § 1 of the Sherman Act,” dismissing the defendant’s motions to dismiss the Sherman Act claim in both lawsuits.
Taylor Smart et al. v. National Collegiate Athletic Association, Colon et al v. NCAA; E.D. Cal.; No. 1:23-cv-00425-WBS-KJN, No. 2:22-cv-02125-WBS-KJN; 7/27/23
