Appeal
from the United States District Court for the Eastern
District of New York. No. 17-cv-4834 - Brian M. Cogan, Judge.
This
case involves allegations that three large dental-supply
distributors-Henry Schein, Inc., Patterson Companies, Inc.,
and Benco Dental Supply Company, Inc. ("the
Defendants")-conspired to violate the antitrust laws by
engineering the boycott of an online distribution portal,
SourceOne, Inc. ("SourceOne"), and dental
manufacturers and suppliers associated with SourceOne. The
Plaintiff, IQ Dental Supply, Inc. ("IQ"), is a
competitor dental-supply distributor that sold dental
products through SourceOne's online portals. IQ sued the
Defendants in the United States District Court for the
Eastern District of New York alleging violations of federal
and state antitrust laws and asserting common law tort
claims. The district court (Cogan, Judge) dismissed
IQ's antitrust claims for lack of antitrust standing and
IQ's tort claims for failure to state a claim. IQ appeals
that decision.
We
affirm the district court's dismissal of IQ's claim
that it has antitrust standing to challenge the boycott of
SourceOne and the state dental associations
("SDAs") that had partnered with SourceOne. As to
IQ's claim that it has standing to challenge injury
inflicted by the direct boycott of its business, however, we
find that IQ's antitrust and tort claims may go forward
on these direct boycott allegations only. Accordingly, we
vacate in part the judgment of the district court and remand
the case for further proceedings consistent with this
opinion.
Lawrence Fox, Duane Morris LLP, New York, NY (William B.
Pollard, Amy C. Gross, Duane Morris LLP, New York, NY; J.
Manly Parks, Robert M. Palumbos, Duane Morris LLP,
Philadelphia, PA, on the brief), for Plaintiff-Appellant.
Richard C. Godfrey, Kirkland & Ellis LLP, Chicago, IL
(Barack S. Echols, Kirkland & Ellis LLP, Chicago, IL;
Colin R. Kass, Adrian Fontecilla, Proskauer Rose LLP,
Washington, DC; Bradley I. Ruskin, Proskauer Rose LLP, New
York, NY, on the brief), for Defendant-Appellee Henry Schein,
Inc.
James
J. Long, Scott M. Flaherty, Briggs and Morgan, P.A.,
Minneapolis, MN, for Defendant- Appellee Patterson Companies,
Inc.
Howard
D. Scher, Thomas P. Manning, Samantha L. Southall, Buchanan
Ingersoll & Rooney PC, Philadelphia, PA, for
Defendant-Appellee Benco Dental Supply Company.
Before: Walker, Jacobs, and Pooler, Circuit Judges.
JOHN
M. WALKER, JR., CIRCUIT JUDGE.
This
case involves allegations that three large dental-supply
distributors-Henry Schein, Inc., Patterson Companies, Inc.,
and Benco Dental Supply Company, Inc. ("the
Defendants")-conspired to violate the antitrust laws by
engineering the boycott of an online distribution portal,
SourceOne, Inc. ("SourceOne"), and of dental
manufacturers and suppliers associated with SourceOne. The
Plaintiff, IQ Dental Supply, Inc. ("IQ"), is a
competitor dental-supply distributor that sold dental
products through SourceOne's online portals. IQ sued the
Defendants in the United States District Court for the
Eastern District of New York alleging violations of federal
and state antitrust laws and asserting common law tort
claims. The district court (Cogan, Judge) dismissed
IQ's antitrust claims for lack of antitrust standing and
IQ's tort claims for failure to state a claim. IQ appeals
that decision.
We
affirm the district court's dismissal of IQ's claim
that it has antitrust standing to challenge the boycott of
SourceOne and the state dental associations
("SDAs") that had partnered with SourceOne. As to
IQ's claim that it has standing to challenge injury
inflicted by the direct boycott of its business, however, we
find that IQ's antitrust and tort claims may go forward
on these direct boycott allegations only. Accordingly, we
vacate in part the judgment of the district court and remand
the case for further proceedings consistent with this
opinion.
BACKGROUND
There
are only a small number of dental-supply companies that
distribute products to dental practices. Three of those
companies, the Defendants, occupy approximately 80% of the
dental-supply distribution market.[1] They purchase dental
supplies and equipment from different manufacturers, and then
sell the products to dental practices nationwide. This
one-stop-shop model obviates the need for dental practices to
purchase their dental equipment from each manufacturer.
IQ is
also a distributor of dental supplies, albeit one with
considerably less market share than any of the Defendants. IQ
entered the market in 2009. Beginning in 2014, IQ adopted a
new distribution model. Instead of distributing dental
supplies through the traditional method of deploying
on-the-ground sales teams around the country (the model used
by the Defendants) IQ distributed dental supplies through an
online portal hosted by SourceOne.
SourceOne's
online portal is a website where dental practices can
purchase their supplies. SourceOne itself does not sell any
dental supplies through the website but serves as the
platform through which dental-supply distributors, such as
IQ, sell products to dental offices. The distributors that
used SourceOne's portals pay SourceOne a commission for
each sale made through the website. In 2013, SourceOne
launched additional distribution websites in partnership with
the SDAs in Texas, Arizona, and Nevada. These SDA-specific
sites operated much like SourceOne's own portal, but each
SDA had its own unique domain name. SourceOne remitted a
portion of their commission to the SDA for each sale made
through an SDA-specific website.
IQ was
not SourceOne's first distribution partner. Two other
distributors-DDS Dental Supply and Arnold Dental Supply
("DDS and Arnold")-distributed products through
SourceOne before IQ reached its agreement with SourceOne. But
sometime around April 2014 both DDS and Arnold stopped
selling through SourceOne because the Defendants pressured
dental-supply manufacturers to stop supplying DDS and Arnold
due to their arrangement with SourceOne. After losing DDS and
Arnold as distribution partners, SourceOne tried to enlist a
third distributor to supply dental products, but that
distributor declined, allegedly because of the same
anticompetitive behavior by the Defendants that had caused
DDS and Arnold to withdraw.
SourceOne's
need for a distributor to supply its online portals opened
the door for IQ. In May of 2014, IQ signed a contract to
distribute through SourceOne-affiliated websites, and, since
then, IQ has supplied 90% of the dental supplies sold through
SourceOne's website and its affiliated SDA websites. But
IQ soon encountered the same problem that DDS and Arnold had
faced: pressure from the Defendants intended to disrupt
SourceOne's online sales portals began to affect IQ's
business.
IQ
alleged that the Defendants engaged in this campaign to force
SourceOne out of business by conspiring to organize a boycott
of: (1) SourceOne and SourceOne-affiliated SDA websites, (2)
participating SDAs and SDA trade shows, and (3) IQ directly
by pressuring the manufacturers to stop supplying IQ. It also
alleged that the Defendants engaged in a price-fixing
conspiracy, which is not part of this appeal. These unlawful
boycotts allegedly frightened off dental manufacturers, SDAs,
and dental practices from doing business with companies
connected to SourceOne, and, as a result, ultimately dealing
with IQ. These boycotts "severely limited and inhibited
IQ's growth and sales, and has cost IQ many millions of
dollars in lost profits." Appellant's Br. at 13.
In
August 2017, IQ sued the defendants in the Eastern District
of New York, under the Sherman Act, 15 U.S.C. § 1, and
corresponding state antitrust laws-the Donnelly Act, N.Y.
Gen. Bus. Law §§ 340 et seq., and the New
Jersey Antitrust Act, N.J. Stat. Ann. §§ 56:9-1
et seq. IQ also brought common-law claims for
tortious interference with prospective business relations,
civil conspiracy, and aiding and abetting.
The
district court granted the Defendants' motion to dismiss
IQ's complaint. It determined that IQ failed to establish
antitrust standing because it had neither alleged an
antitrust injury, nor shown that it was an efficient enforcer
of the antitrust laws. The remaining state law claims were
dismissed for failure to state a claim. IQ now appeals that
decision.
DISCUSSION
We
review the district court's grant of a motion to dismiss
de novo; we accept as true all factual claims and
draw all reasonable inferences in IQ's favor. Gelboim
v. Bank of Am. Corp., 823 F.3d 759, 769 (2d Cir. 2016).
Questions of standing are also reviewed de novo.
In re DDAVP Direct Purchaser Antitrust Litig., 585
F.3d 677, 688 (2d Cir. 2009).
I.
Antitrust Standing
To
survive the pleading stage, an antitrust plaintiff must
demonstrate that it has "antitrust standing."
See Daniel v. Am. Bd. of Emergency Med., 428 F.3d
408, 436-37 (2d Cir. 2005). Only antitrust standing is at
issue here. The antitrust standing requirement reflects the
judgment that "'Congress did not intend the
antitrust laws to provide a remedy in damages for all
injuries that might conceivably be traced to an antitrust
violation.'" Id. (quoting Associated
Gen. Contractors of Cal., Inc. v. Cal. State Council of
Carpenters (AGC), 459 U.S. 519, 534 (1983)).
To
satisfy antitrust standing at the pleading stage a plaintiff
must plausibly allege two things: (1) "that it suffered
a 'special kind of antitrust injury, '" and (2)
"that it is a suitable plaintiff to pursue the alleged
antitrust violations and thus is an 'efficient
enforcer' of the antitrust laws." Gatt
Commc'ns, Inc. v. PMC Assocs., L.L.C., 711 F.3d 68,
76 (2d Cir. 2013) (internal quotation marks omitted) (quoting
Port Dock & Stone Corp. v. Oldcastle Ne.,
Inc., 507 F.3d 117, 121-22 (2d Cir. 2007)). We address
both these antitrust-standing imperatives in turn.
A.
Antitrust Injury
A
plaintiff raising an antitrust claim must demonstrate
antitrust injury to "'ensure[] that the harm claimed
by the plaintiff corresponds to the rationale for finding a
violation of the antitrust laws in the first
place.'" Gatt, 711 F.3d at 76 (quoting
Atl. Richfield Co. v. USA Petroleum Co., 495 U.S.
328, 342 (1990)).
Our
jurisprudence culminating in Gatt Communications, Inc. v.
PMC Associates, L.L.C. established a three-part test for
determining whether the plaintiff has alleged an antitrust
injury: (1) the court "must 'identify[] the practice
complained of and the reasons such a practice is or might be
anticompetitive, '" Id. (quoting Port
Dock, 507 F.3d at 122); (2) the court must
"identify the 'actual injury the plaintiff
alleges' . . . [which] requires us to look to the ways in
which the plaintiff claims it is in a 'worse
position' as a consequence of the defendant's
conduct," id. (quoting Port Dock, 507
F.3d at 122, and Brunswick Corp. v. Pueblo Bowl-O-Mat,
Inc., 429 U.S. 477, 486 (1977)); and (3) the court
compares the "'anticompetitive effect of the
specific practice at issue' ...