UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________________
No. 98-11102
_______________________
ELEVEN LINE, INC., d/b/a
PERMIAN BASIN SPORTS CENTER,
Plaintiff-Appellee,
versus
NORTH TEXAS STATE SOCCER
ASSOCIATION, INC., A TEXAS
NON-PROFIT CORPORATION,
MIDLAND SOCCER ASSOCIATION,
INC., A TEXAS NON-PROFIT
CORPORATION, AND ODESSA
SOCCER ASSOCIATION, INC., A
TEXAS NON-PROFIT CORPORATION,
Defendants-Appellants.
_________________________________________________________________
Appeal from the United States District Court
for the Northern District of Texas
_________________________________________________________________
May 26, 2000
Before DAVIS and JONES, Circuit Judges, and LEMELLE,* District
Judge.
EDITH H. JONES, Circuit Judge:
This case concerns allegedly exclusionary, anti-
competitive conduct by non-profit volunteer-run soccer
organizations against a for-profit indoor soccer facility that
operated in the Midland-Odessa community of West Texas. A jury
*
District Judge of the Eastern District of Louisiana, sitting by
designation.
found that the organizations’ implementation of a membership rule
requiring players, coaches and referees to play soccer only at
“sanctioned” facilities essentially put the plaintiff, Eleven Line,
Inc., out of business. Several federal antitrust and state law
causes of action were sustained by the jury, and judgment was
rendered for $100,000 in lost profits before trebling. The court
enjoined enforcement of the unsanctioned play rule.
On appeal, North Texas State Soccer Association (“NTSSA”)
seeks a defense in the Amateur Sports Act, a law passed by Congress
to enhance this country’s competitiveness in the Olympics by
eliminating organizational factionalism in amateur sports. See
H.R. Rep. 95-1627, 95th Cong., 2d Sess. 1978, 1978 U.S.C.C.A.N.
7478 (hereinafter “H.R. Rep.”). Failing that, NTSSA questions
every significant aspect of the verdict on the Sherman Act § 1 and
§ 2 claims and the Texas tortious interference claims. NTSSA also
challenges the sufficiency of Eleven Line’s proof of damages.
Although a number of issues raised by NTSSA cast doubt on the
judgment, we ultimately conclude that Eleven Line failed to show
that it suffered compensable damages resulting from NTSSA’s
conduct.
I. BACKGROUND
Tom Higginson, San Diego-based president of Eleven Line,
Inc., parlayed his lifelong love of soccer into several ventures,
including a string of indoor soccer arenas in various parts of the
2
country. In 1990, Higginson opened The Permian Basin Sports Center
(“PBSC”), an indoor arena in Midland, in a building formerly
occupied by an 84 Lumber discount home improvement warehouse.1
Higginson bought the building and its parking lot after a four or
five-day visit to Midland-Odessa. He became persuaded, by
attending one semi-pro soccer game, visiting a small indoor arena
already in business there, and talking with local soccer
enthusiasts, that the Midland-Odessa area would welcome a bigger
and better indoor soccer arena.2
PBSC’s operation was modeled on Higginson’s other indoor
arenas. Most of his youth customers were outdoor soccer players,
ranging from youth six years old to nineteen, who wanted to
maintain their skills during the winter and summer off-seasons for
outdoor soccer. The adult leagues ran year-round. PBSC ran
leagues of a minimum of four teams, grouped according to age or
skill level. Each team consisted of about 10 players, fewer than
an outdoor soccer team because the arenas are smaller. PBSC
furnished player ID cards, maintained league standings, ran
competitions, disciplined players, and coordinated with other
Higginson-run facilities on interstate tournaments. While PBSC did
not formally train referees, it required them to pass a written
1
Eleven Line, Inc., is the corporate successor of another Higginson-
owned company that actually managed PBSC for several years. Because the
corporate identity is immaterial to this opinion, we refer to the plaintiff as
PBSC throughout.
2
After PBSC entered the market, the other indoor arena folded.
3
qualifying test. For officiating services, the facility drew from
its managers and from the more numerous pool of referees trained by
the NTSSA-affiliated organizations. The arena similarly depended
on coaches from the outdoor teams to organize teams of youth
interested in continuing playing during the off-seasons.3 But PBSC
would also form teams of players who signed up singly at its
facility.
The arena charged $350 per team for each eight-game
session. The teams paid small separate fees to the scorekeeper and
one referee at each game. PBSC earned additional revenues from
snack and drink sales and private rentals of the facility. Players
were not insured at PBSC, which required a waiver of liability from
each of its customers.
Higginson chose not to join NTSSA as a “sanctioned”
facility because he disagreed with some of the organization’s rules
and felt that NTSSA would raise his costs and interfere with his
management prerogatives.4
The arena’s business lurched along for five years, but
its annual gross revenue peaked at $108,000 in 1991. Higginson or
his investors transfused capital into the business nearly every
3
Many members of outdoor teams either decided to rest through the off-
season or to participate in other sports and leisure and extra-curricular
activities.
4
To become a sanctioned arena, PBSC would have to pay a nominal fee
($25) to NTSSA each year and would have to purchase and charge NTSSA-registered
players about $12 for ID cards, remitting part of the charge to NTSSA for player
insurance and NTSSA’s overhead.
4
year. Nevertheless, the company periodically fell behind in its
payroll and property taxes. In 1995, because of insufficient
revenue and a manager “who was not very good at depositing
[revenue] in our account,” Higginson closed the arena from June
through October. Events surrounding the ill-fated re-opening of
the facility in November 1995 are the basis for this lawsuit.
PBSC’s business potential was directly attributable to
the growing popularity of organized soccer in Midland-Odessa.
Making inroads into a locality saturated by the American football
ethos, the Midland (“MSA”) and Odessa (“OSA”) soccer associations’
enrollment grew from about 2,700 in 1990 to over 4,500 registered
players at the date of trial in early 1998.5 The success of
outdoor soccer resulted from thousands of hours’ effort by unpaid
volunteers, many of whom began as soccer moms and dads seeking a
sports activity for their children. The volunteers ran the MSA and
OSA literally from the ground up, building soccer fields in the
hard west Texas caleche soil, coordinating the league, training
players, coaches and referees, fund raising, and disciplining
players. Neither organization had more than one full-time paid
employee during the period covered by the lawsuit. MSA and OSA ran
the only significant youth soccer programs in their respective
communities.
5
OSA’s official history reports that there were 700 registered players
in 1990, and Barbara K. Peterson testified to the number registered at time of
trial. In Midland, Connie Stahl testified, there were over 3,000 registered
players at the date of trial.
5
MSA and OSA are members of the North Texas State Soccer
Association, also a volunteer-run, non-profit corporation, which is
a “national state association” member of the United States Soccer
Federation (“USSF”). USSF, the national governing body for the
sport of soccer, oversees United States participation in the
Olympic games pursuant to the Amateur Sports Act of 1978. Its work
is carried out by 55 national state associations (Texas, like a
couple of other large states, being subdivided into two such
organizations). NTSSA is the fifth largest national state
association, and it has the largest adult registration among the
USSF’s members. The USSF prescribes rules of soccer, determines
qualifications for coaches and referees, and oversees the
operations of the national state associations. It has the
obligation to approve the local rules of national state
associations and may enact eligibility standards for players. The
overriding purpose of these organizations is to encourage the game
of soccer, promoting its popularity as a recreational and
competitive sport and enhancing the skills, safety and
sportsmanship of the participants.
Notwithstanding the lofty goals of the volunteer soccer
organizations, PBSC alleged that their attempted hegemony over the
sport fatally wounded its business.
NTSSA passed an eligibility rule in the 1980's, which
stated that:
6
3.2 Youth and amateur players or teams who
participate with unregistered players or
engage in unsanctioned play shall void their
NTSSA registration and must apply for
reinstatement to their appropriate Youth or
Amateur Commissioner, along with a refiling
fee of $2 per player.
3.2.1. Unsanctioned play shall include, but
not be limited to:
1. Outdoor/indoor league not sanctioned by
NTSSA or another USSF affiliate.
2. Outdoor/indoor tournament not sanctioned
by NTSSA or another USSF affiliate.
3. Any game (friendly or scrimmage) with a
non-USSF affiliate.
This is the “unsanctioned play” rule, and it was reviewed and
approved by USSF according to USSF’s regulations.
The local organizations were paid registration fees by
each player for each season, spring and fall, a portion of which
was remitted to NTSSA for player insurance and NTSSA’s overhead
costs. During PBSC’s existence, the fee was $35 per player per
season, and NTSSA’s share of that was $8, half of which paid for
insurance. For indoor soccer in NTSSA-sanctioned facilities, NTSSA
received revenue from player ID cards.
In early 1995, a newly-elected president of the Midland
Soccer Association says he decided it was time to align local
practices more closely with NTSSA rules. He began discussing the
unsanctioned play rule with NTSSA’s indoor commissioner and brought
the subject up at MSA’s board meetings. If the unsanctioned play
rule were enforced, MSA players and coaches could not utilize PBSC,
7
an unsanctioned facility. No action was taken to enforce the
unsanctioned play rule, however, because PBSC voluntarily shut its
doors in June of that year. The facility was not expected to re-
open.
The unsanctioned play rule went right back on MSA’s board
meeting agenda in November, 1995, however, shortly after Troy
Skinner arrived in Midland as Higginson’s manager to reopen PBSC.
Troy had begun calling coaches and players who had previously
patronized the arena, soliciting their business for an immediately
impending winter season. The MSA board discussed the application
of the unsanctioned play rule to players, coaches and referees who
might consider returning to PBSC. A rumor spread that anyone who
played at PBSC without authorization would be suspended from NTSSA
soccer for a year. Meanwhile, at the OSA, the coaches’ coordinator
distributed a letter reporting a controversy surrounding
unsanctioned play and the filing of a lawsuit by PBSC (on December
19, 1995), and recommending that OSA members should not play there
until the dust settled.
Within a month, NTSSA board members were discussing the
unsanctioned play rule at their meeting.6 NTSSA’s president David
Messersmith sent a letter to both the MSA and OSA in early
December, advising board members and any other local administrators
who were asked about the unsanctioned play rule simply to quote or
6
On November 22, 1995, PBSC’s attorney sent a letter demanding that
NTSSA not enforce the unsanctioned play rule.
8
read the rule. This was the “only appropriate response[s]” to such
inquiries.
Confusion persisted. Nearly all of the MSA, OSA and
NTSSA Board members testified that they did not publicize
Messersmith’s letter or direct any players or coaches not to play
at PBSC. No one testified that the unsanctioned play rule was
actually enforced against anyone, and the soccer board members
uniformly testified that before it could be enforced, a formal
complaint would have to be brought against an alleged violator, and
a hearing must be held. No such complaints or hearings
materialized.7 But the horse was out of the barn, because the
Messersmith letter was posted at the OSA offices, the Odessa
coaches’ coordinator sent out his interpretation of the events on
OSA stationery, and the potential applicability of the unsanctioned
play rule was made known. Several coaches from Midland and Odessa
testified that they were reluctant to allow their teams to play at
PBSC and to jeopardize their standing for future outdoor soccer
competition.
PBSC’s business declined precipitously. Instead of the
105 youth and adult teams that had been registered for the 1994-95
winter season, only 43 signed up for 1995-96. Within six months,
7
The record does contain a half dozen or so letters from soccer
players or their parents, attaching requests for “reinstatement” together with
the $2 refiling fee. There is no evidence that any player was denied permission
to play on account of not paying the refiling fee.
9
PBSC had closed for good, and Higginson sold the facility. The
lawsuit continued.
When this case came to trial, PBSC contended that NTSSA,
MSA and OSA were one entity running organized soccer in North Texas
and that this entity conspired with the players, coaches and
referees to “enforce” the unsanctioned play rule and prevent PBSC
from obtaining business at its unsanctioned facility. Whether the
eligibility rule effected a per se federal antitrust violation or
not, it was alleged to constitute a vertical restraint imposed by
the soccer organizations on their members/consumers that
unreasonably restrained trade by depriving the soccer players of
the opportunity to play at unsanctioned facilities.8 PBSC also
contended that the soccer organizations form a monopoly that used
its market power to exclude “competitors” like PBSC from the market
for soccer in the Midland-Odessa area. PBSC contended its damages
consisted of discounted lost cash flow for a ten-year period
projected forward from 1995.
NTSSA defended the unsanctioned play rule as a device
originally intended (1) to deter fraudulent or mistaken insurance
claims on the policy that covers players, (2) to maintain uniform
discipline over the players, and (3) to control the quality and
safety of facilities. Although the court denied NTSSA’s motion for
8
PBSC also alleged tortious interference with contract and business
relations claims dependent on the finding of antitrust violations, which would
vitiate defendants’ right to rely upon the unsanctioned play rule.
10
summary judgment based on an implied antitrust exemption created by
the Amateur Sports Act, the defendants were permitted to explain
that the national state associations’ rules were subject to express
approval by the U.S. Soccer Federation. Defense witnesses
discussed the benefits of their organization’s oversight of indoor
arenas where thousands of NTSSA-registered players compete in the
off-seasons. Defense witnesses also asserted that none of the
organizations had directly enforced the unsanctioned play rule,
that no complaints were brought to enforce the rule, and that they
never sought to identify who played at the PBSC. Finally, they
emphasized that their organizations would reap at best a minuscule
financial benefit from the closing of PBSC.
The jury found the soccer organizations guilty of a
Sherman Act § 1 conspiracy to perpetrate an unreasonable restraint
of trade, § 2 illegal monopolization and “leveraging,” and state
tortious interference claims.9 The jury awarded most of the
damages sought by PBSC.
This appeal will address several of the significant
issues raised by NTSSA.
9
The court first entered judgment on the verdict finding a per se §
1 violation, but on reconsideration, he wisely chose the alternate ground of an
unreasonable restraint of trade. See, e.g. Nat’l Soc’y of Prof’l Engineers v.
United States, 435 U.S. 679, 691, 98 S.Ct. 1355, 1365 (1978).
11
II. AMATEUR SPORTS ACT
Congress passed the Amateur Sports Act (“ASA”), 36 U.S.C.
§ 220501 et seq., in 1978, creating a vertical structure for the
management of certain amateur sports in the United States.10 See
36 U.S.C. § 220503; H.R. Rep. At the head of this vertical
structure is the U.S. Olympic Committee, which Congress intended as
a coordinating body for amateur sports that Americans compete in
internationally. See H.R. Rep.. At the next level are National
Governing Bodies (“NGBs”) for each sport included in the Olympic
Games or the Pan-American Games. See 36 U.S.C. § 220521.
The NGBs are crucial to carrying out the ASA’s purpose.
In order to be recognized as a NGB, a sports organization must
demonstrate autonomy in the governance of its sport – it must
“independently decide[] and control[] all matters central to
governance;” “not delegate decision-making and control of matters
central to governance;” and be “free from outside restraint.” See
36 U.S.C. § 220522(a)(5). Once established, a NGB has broad
authority. In addition to other powers, it may establish national
goals for the sport, act as the coordinating body for amateur
athletic activity in the United States, conduct amateur athletic
10
Congress wished to address the disorganization and
factionalism of amateur sports organizations in the United States,
a disorganization which it felt had contributed to the overall
decline of American achievement in international competition. See
H.R. Rep.; Behagen v. Amateur Basketball Ass’n of the United
States, 884 F.2d 524, 527 (10th Cir. 1989).
12
competition and establish procedures for determining eligibility
standards. See 36 U.S.C. § 220523. In addition, it is responsible
for tasks like developing interest and participation in the sport,
minimizing scheduling conflicts through coordination, and
disseminating information. See 36 U.S.C. § 220524.
Appellants argue that the ASA exempts from the federal
antitrust laws their actions in promulgating and threatening
enforcement of the unsanctioned play rule. They base their
argument on Behagen v. Amateur Basketball Ass’n of the United
States, 884 F.2d 524, 529-30 (10th Cir. 1989). In that case, the
Tenth Circuit held that, in passing the ASA, Congress intended for
NGBs to exercise monolithic control over a particular sport, and
NGBs could exercise such control without fear of violating the
federal antitrust laws. Id.
To be sure, Congress did not expressly exempt action
taken under the ASA’s direction from the federal antitrust laws.
See Behagen, 884 F.2d at 529. An ASA exemption must be implied,
and implied exemptions are not favored. See Silver v. New York
Stock Exchange, 373 U.S. 341, 357, 83 S.Ct. 1246, 1257 (1963). A
court should only find an implied antitrust exemption where it is
necessary to the operation of another statutory scheme, and then
only to the minimum extent necessary. See id.
Despite the narrow range of implied exemptions, Behagen
extrapolated from the ASA’s purpose and structure that Congress
13
intended that action taken under its direction be exempt from the
federal antitrust laws. See Behagen, 884 F.2d at 529. Like PBSC
here, Behagen complained of an alleged group boycott. See Behagen,
884 F.2d at 527. He alleged that the amateur eligibility rules of
the international basketball association, Federation Internationale
de Basketball Amateur (“FIBA”), and the U.S. NGB for basketball,
the Amateur Basketball Association of the United States
(“ABA/USA”), effected an illegal group boycott of players like him
who had played American professional basketball more than once.
See Behagen, 884 F.2d at 525-26. The Tenth Circuit rejected his
claim after concluding that the ABA/USA, as the NGB for basketball,
could promulgate amateur eligibility rules exempt from the
application of the federal antitrust laws. See Behagen, 884 F.2d
at 528.
This Court believes Behagen was correctly decided; but it
does not cover the case at bar. Behagen sued the NGB itself for
its action taken pursuant to its rule about player eligibility. In
this case, however, USSF11 neither issued the NTSSA unsanctioned
play rule nor explicitly approved it. In fact, NTSSA is USSF’s
only national state association to have such a rule, which suggests
that the rule is not necessary to the local management of amateur
soccer. Appellants argue that USSF’s rule requiring that USSF
review the original and any amendments of the charter, bylaws,
11
USSF is the NGB for soccer.
14
rules and regulations of a national state association mean that
USSF has effectively endorsed the unsanctioned play rule. See USSF
Official Administrative Rule Book, R. 2011 § 2 (1996-1997). This
Court is not persuaded; the supposed approval is simply too
tenuous.
Although the facts of this case do not support an implied
exemption from the antitrust laws, an implied exemption would be
appropriate in many other situations. For example, if national
state associations all over the country had a similar rule, one
could infer that the rule was necessary to the management of the
sport. If NTSSA’s insurers had required that it have such a rule,
then its existence would be necessary to the continued successful
operation of amateur soccer in the area. If USSF had promulgated
the rule or expressly approved NTSSA’s rule in such a way as to
indicate an awareness of its consequences, it would be a player
eligibility rule exempted under Behagen. Or if NTSSA faced a spate
of facilities that refused to become sanctioned facilities, NTSSA
could face a freeriding problem that would threaten its
effectiveness as a national state association. Any of these
circumstances, and no doubt others not described here, would merit
an implied exemption.
None of these situations present themselves, however.
Rather, NTSSA promulgated a rule that could be found nowhere else
in the country, that was not explicitly approved by the USSF, and
for which it was unable to articulate a convincing rationale
15
related to its management of amateur soccer in the area. Given
these factors, the ASA does not exempt the NTSSA from antitrust
scrutiny related to the unsanctioned play rule.12
III. ANTITRUST CLAIMS
For reasons other than the impact of the Amateur Sports
Act, the jury’s findings rendered this a most unusual antitrust
case. First, the conspirators include, on one hand, the defendant
soccer organizations, and, on the other hand, the moms and dads who
serve as coaches and referees for the youthful players. Second,
treating the soccer organizations as a monopolist seems to make
little sense because of the minimal gains they could claim by
eliminating PBSC from the Midland-Odessa market. After an
exhaustive search of antitrust law pertaining to league sports, we
have been unable to identify any really analogous case.13 The
unique feature of this case, which pervades the issues of
conspiracy and monopoly, is the involvement of defendants and
conspirators none of whom has an economic motive for
12
For similar reasons, PBSC’s state law actions are not preempted by
the ASA. The ASA has not totally occupied the field, and the state law actions
are not inconsistent with the ASA’s statutory scheme.
13
See, e.g., Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S.
585, 105 S.Ct. 2847 (1985); NCAA v. Bd. of Regents of the Univ. of Okla., 468
U.S. 85, 104 S.Ct. 2948 (1984); Chicago Prof’l. Sports, Ltd. v. NBA, 95 F.3d 593
(7th Cir. 1996); McCormack v. NCAA, 845 F.2d 1338 (5th Cir. 1988); United States
Trotting Ass’n v. Chicago Downs Ass’n, Inc., 665 F.2d 781 (7th Cir. 1981); Hatley
v. Am. Quarter Horse Ass’n., 552 F.2d 646 (5th Cir. 1977); Bridge Corp. of
America v. Am. Contract Bridge League, Inc., 428 F.2d 1365 (9th Cir. 1970);
Washington State Bowling Proprietors Ass’n v. Pacific Lanes, Inc., 356 F.2d 371
(9th Cir. 1966); Seabury Mgmt., Inc. v. Prof’l Golfers’ Ass’n of Am., Inc., 878
F. Supp. 771 (D.Md. 1994), aff’d in part & rev’d in part, 52 F.3d 322 (4th Cir.
1995), cert. denied, 516 U.S. 867, 116 S.Ct. 184 (1995); Medlin v. Prof’l Rodeo
Cowboys Ass’n., Inc., 1991 WL 340303 (D.Colo. 1991).
16
anticompetitive activity because none participates in soccer for
profit.
It appears to be a novel claim by PBSC that a volunteer
sports league can conspire with its volunteer players and coaches.
In a for-profit league, no similar conspiracy could exist because
the coaches and players are employees of the league or its teams.
See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 769,
104 S.Ct. 2731, 2741 (1984). Similarly, Copperweld renders
infeasible any claim of conspiracy among NTSSA, MSA, and OSA, which
function jointly as one entity under the auspices of USSF. Id.
There are no organized teams within the league that could be
identified as co-conspirators. This situation leaves as the only
possible co-conspirators the moms and dads, since their children
who play soccer are too young to conspire. Moms and dads are
acting independently of the soccer organizations, but inasmuch as
they are not economically motivated, it is difficult to conclude
that they are more like joint venturers than a functional entity as
contemplated by Copperweld. Copperweld, 467 U.S. at 768, 104 S.Ct.
at 274. Whether moms and dads can conspire with NTSSA, MSA, and
OSA decides whether section 1 of the Sherman Act, proscribing a
“conspiracy” in restraint of trade, applies to their conduct. The
nature of the concerted action does not, however, remove the
defendants’ conduct from the purview of section 2 if they are
monopolizing.
17
But therein lies another rub. These soccer organizations
had no economic motive for violating the monopolization
prohibitions of the antitrust laws. No evidence suggested that MSA
or OSA would gain a single dollar by eliminating PBSC from the
market, while the maximum revenue that NTSSA might earn from
exclusion was paltry.14 Contrary to the economic theory of
monopolistic conduct, none of the defendants had a motive to
increase prices or limit output of soccer. The development of the
sport, to which the organizations are committed, depends on
increasing player participation, creating more teams and offering
more soccer games. The organizations’ fees are kept in check
internally because the volunteers who are also consumers of the
services set their own fees. In a relevant market that consisted
of soccer alone, the defendant organizations may have been a
functional monopolist, but they gained only minimal value by
eliminating PBSC. It is true that the Supreme Court has exempted
neither the NCAA, for-profit sports leagues (apart from baseball),
or professional associations from the reach of antitrust laws.15
14
NTSSA received a $25 annual fee from each sanctioned indoor soccer
facility and could earn, at most, a few thousand dollars (net of insurance costs)
from player registrations at an indoor arena like PBSC. Presumably, NTSSA did
earn some small sums after PBSC closed, because a sanctioned indoor facility,
Sticks and Kicks, took the place of PBSC in the market.
15
FTC v. Indiana Fed. of Dentists, 476 U.S. 447, 106 S.Ct. 2009 (1986);
NCAA v. Bd. of Regents, 468 U.S. 85, 104 S.Ct. 2948 (1984); Arizona v.
Maricopa County Med. Soc., 457 U.S. 332, 102 S.Ct. 2466 (1982); National Soc’y
of Prof’l Engineers v. United States, 435 U.S. 679, 98 S.Ct. 1355 (1978).
18
In none of those cases, however, was there such a complete absence
of evidence of profit incentives as in this case.
Although this case poses ponderous and unusual antitrust
questions, which may not have been fully explored below because of
the limited resources available to both sides, we note them to
preserve the issues for a future day. For even if affirmance of
the judgment of liability is compelled by antitrust law,16 the
judgment for damages is not, and the deficiencies of the damage
judgment are much easier to explain.
IV. DAMAGES
The general principles governing antitrust damages are
settled. A plaintiff must first prove the fact of antitrust
damages, some “element of actual damages caused by the defendant’s
violation of the antitrust laws.” Multiflex, Inc. v. Samuel Moore
& Co., 709 F.2d 980, 989 (5th Cir. 1983), cert. denied, 104 S.Ct.
16
We decline to endorse and do not rule on the district court’s
application of a § 2 “monopolistic leveraging” theory of liability. This theory,
based on Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 275 (2d Cir.
1979), cert. denied, 444 U.S. 1093 (1980), is the subject of a circuit split.
See M & M Medical Supplies and Service, Inc. v. Pleasant Valley Hosp., Inc., 981
F.2d 160, 168-69 (4th Cir. 1992) (en banc), cert. denied, 508 U.S. 972, 113 S.Ct.
2962, 125 L.Ed.2d 662 (1993) (declining to determine whether there exists a claim
for monopoly leveraging that differs materially from the classic claim for
monopolization); Fineman v. Armstrong World Industries, Inc., 980 F.2d 171, 204-
06 (3d Cir. 1992), cert. denied. 507 U.S. 921, 113 S.Ct. 1285, 122 L.Ed.2d 677
(1993) (rejecting monopoly leveraging); Alaska Airlines, Inc. v. United Airlines,
Inc., 948 F.2d 536, 547 n.16 (9th Cir. 1991), cert. denied, 503 U.S. 977, 112
S.Ct. 1603, 118 L.Ed.2d 316 (1992) (rejecting monopoly leveraging). In addition
to the leveraging theory, the district court’s judgment rested on § 2
monopolization and attempt to monopolize claims, which is affected by our refusal
to endorse the leverating theory Because the jury instructions regarding § 2
violation allowed the jury to find a violation if the defendants used their
monopoly power “to gain a competitive advantage” even if the defendants did not
attempt to monopolize the second market, the jury’s verdict regarding the § 2
violation is completely tainted and must be overturned.
19
1594 (1984). If he does so, a more relaxed burden of proof obtains
for the amount of damages than would justify an award in other
civil cases. See Pierce v. Ramsey Winch Co., 753 F.2d 416, 434
(5th Cir. 1985). “But this tolerant view is limited by our
responsibility not to allow damages to be determined by ‘guesswork’
or ‘speculation;’ we must at least insist upon a ‘just and
reasonable estimate of the damage based on relevant data.’ Lehrman
v. Gulf Oil Corp., 464 F.2d 26, 46 (5th Cir. 1972) (quoting Bigelow
v. RKO Radio Pictures, Inc., 327 U.S. 251, 264, 66 S.Ct. 574, 580
(1946)), cert. denied 409 U.S. 1077, 93 S.Ct. 687 (1972).
While the two most common methods of quantifying
antitrust damages are the “before and after” and “yardstick”
measures of lost profits,17 a plaintiff may prove damages by a
different measure tailored to the facts of the case, so long as the
estimates and assumptions used rest on adequate data. See Lehrman
v. Gulf Oil Corp., 500 F.2d 659, 668 (5th Cir. 1974) (hereinafter,
“Lehrman II”).
17
This court has defined the two methods as follows:
The before and after theory compares the plaintiff’s profit record
prior to the violation with that subsequent to it. The before and
after theory is not easily adaptable to a plaintiff who is driven
out of business before he is able to compile an earnings record
sufficient to allow estimation of lost profits. Therefore, the
yardstick test is sometimes employed. It consists of a study of the
profits of business operations that are closely comparable to the
plaintiff’s. Although allowances can be made for differences
between the firms, the business used as a standard must be as nearly
identical to the plaintiff’s as possible.
Lehrman v. Gulf Oil Corp., 500 F.2d 659, 667 (5th Cir. 1974).
20
This opinion will not dwell on whether the “fact” of
antitrust injury has been proved, because PBSC’s evidence of actual
injury impermissibly consists of estimates based on assumptions
that are based on estimates and assumptions. PBSC never made a
profit during the five and one-half years it was open before the
unsanctioned play rule was invoked by the defendants. It was
allowed to put before the jury, however, a damage estimate that
ignored the arena’s past track record entirely by projecting a net
operating margin of 8.6% for two years, 17.7% for a third year, and
20% for each of the following seven years of hypothetical revenues.
PBSC’s brief explains its novel calculations as “evidence of lost
net income, based upon cash flow projections,” urging that because
Tom Higginson did not utilize customary measures of profitability
in running his arenas, neither should the courts.
At least two elements of the damage proof cannot be
reconciled with even the lenient standard approved by antitrust
law.18 First, the jury was instructed to find lost profits, not
lost net income, yet the arena’s evidence was based only on the
latter concept. Second, even if PBSC’s calculations were based on
future lost profit, the “yardstick” measure of rates of return
18
Lost profits is a measure of proof recognized by Texas courts for
tortious interference claims. Under state law, such damages must be proved with
reasonable particularity. See Kevin S. Marshall & Kurt J. Beron, Statistics &
the Law: Proving Lost Profits, 2 Texas Wesleyan L.R. 467, 468 (1996)
(hereinafter, “Beron”). Because the Texas standard appears to be more demanding
than the antitrust standard, it follows that PBSC’s proof would be inadequate to
support the state law portion of the verdict.
21
employed by the plaintiff’s economist was too speculative to
support a verdict. These conclusions warrant further discussion.
As Higginson explained it, he computed the success of his
indoor arenas by a hand-to-mouth technique. He considered an arena
successful if it generated sufficient net revenue to pay current
operating expenses each year and yielded enough extra to pay down
debt acquired when the arena was purchased. He did not include
depreciation in his calculation of net revenue, because he felt it
was “not real.” PBSC, however, did not perform even according to
this optimistic strategy. It did not pay payroll and property
taxes timely and only rarely reimbursed Higginson for his firm’s
services. It never generated extra revenue to pay down the
acquisition cost of the real estate. Instead, Higginson’s investor
group continued contributing funds to cover that cost. In effect,
Higginson kept the property open by borrowing from himself and his
investors, but the evidence does not indicate that they ever
received a return on their loans or investment.19
Consistent with Higginson’s view of his business’s
welfare, PBSC took the position at trial that evidence of lost net
revenue was a valid measure of damages. Lost net revenue was
computed as the excess of revenue over current operating expenses
with no deduction for depreciation. PBSC’s economist acknowledged
19
The long-term debt owed by the facility to Higginson’s group and 84
Lumber increased from $183,000 in 1990 to $231,000 in the last full year of
operation.
22
that lost net revenue is different from lost profits. According to
PBSC, since generally accepted accounting principles (GAAP) do not
have to be maintained by a small, privately held business, any old
measure of “profit” will do.
This reasoning is unconvincing. It is inconsistent with,
and the proof is therefore insufficient pursuant to, the court’s
definition of profits. “Profits” was defined in the jury
instructions as “gain which is in excess of all expenses, costs,
depreciation and other operating expenses and the like.” PBSC has
not challenged on appeal this instruction, which accords with the
conventional understanding of profit. PBSC’s computations,
however, excluded depreciation entirely (although the firm’s income
statements consistently reflected depreciation charges). If
depreciation charges are added to PBSC’s costs, as the court’s
instruction required, PBSC never made a profit in five full years
of operation. Moreover, its lack of profitability is accentuated
by PBSC’s failure to pay local property taxes when due. Under the
court’s definition, then, PBSC never made a profit before the
enforcement of the unsanctioned play rule. Lost future profits
could hardly be demonstrated by an entity that never made profits
to lose.20
20
Compare Beron, supra note 18, at 471-72 (evidence that a plaintiff’s
business lost money from the very beginning, never turned a profit or never got
out of red ink will preclude recovery of lost profits in Texas law) (citations
omitted).
23
Even if we were to accept lost net revenue as a measure
of damages, however, the projections by PBSC’s economist Dr. Beron
are not based on a satisfactory “yardstick” of performance by
“closely comparable” businesses. See Lehrman II, 500 F.2d at 667.
Dr. Beron applied average rates of return (more precisely, rates
based on net revenues over current expenses) derived from the
experience at Higginson’s other indoor arenas around the country.
The purpose of averaging, the economist said, was to gauge PBSC’s
future performance by the blended performance of Higginson’s more-
and less-profitable facilities. One analytical problem and failure
of this proof lies in the fact that an average of unknowns is also
an unknown. An antitrust plaintiff who uses a yardstick method of
determining lost profit bears the burden to demonstrate the
reasonable similarity of the business whose earning experience he
would borrow. See, e.g., Lehrman II, 500 f.2d at 667. Here, the
only evidence of comparability was that Higginson owned the other
indoor soccer arenas. No evidence was offered of the geographical
location, size or attractiveness of those facilities, the size and
type of the soccer player market that they served, the relative
costs of operation, the amounts charged per team, or the number of
seasons run. To apply those arenas’ average “rates of return”
indiscriminately to PBSC is like arguing that because McDonald’s
franchises earn a certain average rate of return, a particular
franchise will perform to the average. Neither the yardstick
arenas’ rates of return nor their average was shown to be “as
24
nearly identical to (PBSC) as possible.” Lehrman II, 500 F.2d at
667.
The yardstick measure was also unsupported in light of
the record of PBSC’s consistently negative cash flows. The trial
exhibits based on PBSC records show that “true cash flow” measured
by PBSC’s method (i.e., excluding any charge for depreciation) was
“even” in two of its five full years of operation, about 10% and 6%
in the next two years and substantially negative in the first eight
months of 1995. These figures are a far cry from the estimates of
years of 20% net cash flow accepted as a yardstick by Dr. Beron.
Damage assumptions that find no support in the actual facts of the
case cannot support a verdict. See Metrix Warehouse, Inc. v.
Daimler-Benz Aktiengesellschaft, 828 F.2d 1033, 1043 (4th Cir.
1987); Keener v. Sizzler Family Steak Houses, 597 F.2d 453, 456
(5th Cir. 1979) (a “verdict for damages may not be based on
speculation and guesswork”).21
To shore up the flaws in its proof, PBSC takes refuge in
the lenient standard for quantifying antitrust damages and its
underlying policy, which is to assure that anticompetitive conduct
does not go unpunished for mere uncertainty in the amount of loss
inflicted. But the lenient standard does not allow a plaintiff to
21
Perhaps the projections of PBSC’s lost net revenue were to be
increased based on Higginson’s testimony that he planned to move to flex
scheduling and thus add more seasons of adult play. If so, however, Dr. Beron’s
estimates do not account for this change in any way, as the estimated “profit”
margins and lost “profits” are based solely on the experience of other indoor
arenas, which was not shown to be comparable.
25
mask its consistent lack of business success by using arbitrary
measures of loss and counterfactual estimates of future “rates of
return”. The lenient standard does not permit the affirmance of a
verdict on evidence that does not satisfy the court’s instructions.
Moreover, insofar as the purpose of the antitrust laws is to
protect competition rather than competitors, competition in a
market is not eroded when an entity fails that could not really
compete because of its financial instability.
V. CONCLUSION
For the foregoing reasons, the damage judgment in favor
of PBSC is REVERSED; the injunction order, not having been
appealed, is unaffected by this reversal.
AFFIRMED in part, REVERSED in part.
26