Monday, August 16, 2010

Cloverleaf Enterprises, Inc. v. Maryland Thoroughbred Horsemen’s Assoc., Inc. (Maryland U.S.D.C.)

Filed: August 6, 2010
Opinion by Judge Richard D. Bennett.

Held: A party’s mere acquiescence in another party’s illegal scheme is sufficient to create a conspiracy in violation of Section 1 of the Sherman Act.

Facts: Cloverleaf Enterprises, Inc. (“Cloverleaf”) owns a racetrack in Maryland that accepts horse racing wagers on live simulcast signals provided by other racetracks. The signals come from both Maryland and out-of-state racetracks. As required under federal and Maryland law, Cloverleaf obtained the consent of other Maryland racetracks and certain other groups before receiving the simulcast signals. The consent was in the form of a Cross-Breed Agreement (the “Contract”), pursuant to which Cloverleaf paid weekly fees in return for the right to accept wagers on the simulcast races.

Cloverleaf breached the Contract by failing to pay the required weekly fees. As a result, the other Maryland racetracks withdrew their consent to Cloverleaf receiving the simulcast signals of their own races and out-of-state races. This withdrawal of consent came just a few days before the Kentucky Derby, historically a significant source of revenue for Cloverleaf. Cloverleaf obtained a temporary restraining order enjoining the racetracks from withdrawing consent to the simulcast of out-of-state races, including the Kentucky Derby. Despite the TRO, the other Maryland racetracks communicated with out-of-state racetracks, including Churchill Downs (home of the Kentucky Derby), urging them to terminate simulcast signals.

Cloverleaf filed a complaint against the other Maryland racetracks alleging, among other things, violation of Section 1 of the Sherman Act for conspiracy to effectuate a group boycott, both among the Maryland racetracks themselves and with out-of-state racetracks. The defendants moved to dismiss for failure to state a claim.

Analysis: The U.S. District Court for Maryland granted the motion with respect to the alleged conspiracy among the Maryland racetracks themselves. Pursuant to the Contract, if Cloverleaf failed to pay the weekly fees, the defendants could withdraw permission to send signals of their races. Therefore, the defendants’ actions were expressly permitted by the Contract.

The court denied the motion with respect to the alleged conspiracy between the Maryland racetracks and out-of-state racetracks. The defendants violated the TRO by urging out-of-state racetracks to terminate their simulcast signals, and most of the racetracks complied with the request. Even though the out-of-state racetracks may not have had anti-competitive motives, mere acquiescence in an illegal scheme is sufficient to create a conspiracy under the Sherman Act.

The full opinion is available in pdf.

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