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United States Trotting Association v. Chicago Downs Association Inc.

decided: December 8, 1981.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. Nos. 77-3312, 77-3313, 78-1258 -- Marvin E. Aspen, Judge .

Before Cummings, Chief Judge, and Pell, Sprecher, Bauer, Wood and Cudahy, Circuit Judges, en banc.

Author: Cummings

Plaintiff United States Trotting Association (USTA) brought these three actions against Chicago Downs Association, Inc. and Fox Valley Trotting Club, Inc., alleging that they had unlawfully appropriated USTA's property. The three actions were consolidated in the district court and remain consolidated here.

In the first suit (district court number 77-C-3312; our number 80-1948) USTA alleged that Chicago Downs, an Illinois management corporation that sponsors race meetings at Sportsman's Park, a harness race track in Cicero, Illinois, used USTA registration and eligibility certificates during 1975 and 1977 when Chicago Downs was not affiliated with USTA and thereby unlawfully appropriated USTA's property. In the second suit (district court number 77-C-3313; our number 80-1949) USTA made the same allegation against Fox Valley, another Illinois management corporation sponsoring harness horse-racing meetings at Sportsman's Park, with respect to meetings conducted in 1975 and 1977. Both suits sought an accounting, a money judgment and an injunction against continuing misappropriation. USTA's third suit (district court number 78-C-1258; our number 80-1950) sought to enjoin Fox Valley from using USTA certificates during and after the 1978 racing season.

Fox Valley filed an answer and then a counterclaim in the third of the suits. Count I of its counterclaim charged USTA with instigating a group boycott against it in violation of Section 1 of the Sherman Act. Count II charged USTA with tortiously interfering with the contractual and business relations between Fox Valley and the Illinois Harness Horsemen's Association (IHHA).*fn1

Conceding for the time being that there were no material factual issues in dispute, the parties filed motions for summary judgment on all issues. The district court granted defendants' motion for summary judgment on USTA's misappropriation claim because USTA had failed to show that it owned the registration and eligibility certificates. 487 F. Supp. 1008, 1012-1014 (N.D.Ill.1980). Fox Valley's motion for summary judgment on its antitrust counterclaim was granted on the ground that USTA's conduct was a group boycott per se violating Section 1 of the Sherman Act. 487 F. Supp. at 1014-1016. As to Count II of Fox Valley's counterclaim, Judge Aspen held that it was entitled to summary judgment since USTA's actions amounted to tortious interference "with the business relationship existing between the tracks and the horsemen." 487 F. Supp. at 1016-1017. A permanent injunction was subsequently entered barring USTA from invoking any of its by-laws or rules "to sanction any of its horseowner or driver members solely by reason of their participation in any future Fox Valley harness race meetings while Fox Valley is neither a USTA member nor contract track." Various racing associations have filed amici curiae briefs urging reversal.*fn2 We reverse the district court's summary judgments and remand for further proceedings consistent with our opinion. We also vacate the permanent injunction awarded to Fox Valley.

I. Background of Litigation

USTA is an Ohio incorporated, non-profit service organization. It was founded in 1939 to counteract widespread problems in harness racing. Before that time a plethora of local sanctioning organizations had produced inconsistent regulations; record-keeping was spotty; penalties proved unenforceable; and the sport had fallen into general disrepute. The purpose of USTA was to develop comprehensive national records and to promulgate uniform rules and standards. USTA has never had any interest in breeding, buying, selling, or racing horses, nor any investment in race tracks or race meetings. It operates solely as a sanctioning organization and information bank. Since its inception, USTA has grown in size and influence. In 1977 it had 40,861 active members,*fn3 including 426 fair race tracks and 65 parimutuel tracks. Only members can register standardbred horses with the USTA and obtain eligibility certificates documenting a horse's performance in a given racing season. Only members can vote on matters of USTA governance. Nonetheless, tracks that do not wish to become USTA members can affiliate as "contract tracks," paying to use USTA services on the same basis as member tracks, i.e., a percentage of the parimutuel take for each racing day, not in excess of $330 per day. See United States Trotting Association Charter, By-Laws, Rules, and Regulations ("Rules") Art. I, § 4 and Art. VII, § 1.

Owner members of USTA register their standardbred horses with USTA. USTA issues a registration certificate to the owner that describes in detail the horse's physical markings and pedigree, and identifies its owner and breeder. The reverse side of the certificate provides space to record any transfers of ownership of the horse. In addition, USTA maintains central records of the information on the registration certificates and of any transfers of title, so that attempts to tamper with the certificates can be detected.

USTA also issues an eligibility certificate for each registered horse. This certificate contains performance information compiled from the horse's last eight starts in the prior racing season. Throughout the current season, pertinent information about the horse's performance in each of its races is added to the certificate by the clerk of the racecourse, a track employee who is licensed by USTA. The clerk of the course also records the same information on a "Judge's Sheet" which is forwarded to USTA, thus making it possible to detect discrepancies or alterations in the eligibility certificates.

Eligibility certificates are used by track officials to select competitive horses for balanced race fields. Registration certificates are chiefly important in insuring accurate identification and honest transfers of harness horses. They also play a limited role in actual racing activities. Many tracks, including Chicago Downs and Fox Valley, run "claiming races," in which a price is established at which the winning horse can be purchased or "claimed." Such tracks, including Chicago Downs and Fox Valley, require that the USTA registration certificate be surrendered to the new owner before the claiming amount is disbursed. The purpose of the claiming race is to keep owners from entering superior horses in mediocre fields, again to foster competitive races.

In Illinois the legislature has relied on the offices of USTA as an integral part of its regulatory scheme. Illinois law requires that all horses entering harness races be "registered as (harness or standardbred horses) with and meet ( ) the requirements of and (be) approved by the United States Trotting Association." Ill.Rev.Stat.chap. 8 § 37-3.06(c) (1979). In addition the Illinois Racing Board Rules provide that any harness horse entered at a parimutuel track have a current USTA eligibility certificate (Rule 9.01), that all matters relating to registration of harness horses be governed by USTA rules (Rule 9.02), that all horses be tattooed with their USTA identification number (Rule 7.08), that persons suspended by USTA be barred from participating in harness race meetings (Rule 5.10), and that clerks of the course send race information to USTA and the Illinois Racing Board (Rule 6.18). The thirteen other states that allow parimutuel harness racing have similarly incorporated USTA standards in their regulatory systems (App. 304-305).

During the 1975, 1977, and subsequent racing seasons,*fn4 neither Chicago Downs nor Fox Valley joined USTA as a regular member or contracted to buy USTA's services. Both continued to hold races with USTA-registered horses and to use the information contained on USTA registration and eligibility certificates. Both continued to provide USTA with information about racing performances by forwarding Judge's Sheets to USTA headquarters. Each of the defendants thus enjoyed a paradigmatic "free ride," receiving all of the benefits of USTA affiliation with none of the attendant costs.

In an effort to put an end to this free riding, USTA announced to its members its intention to invoke certain sanctions.*fn5 It would henceforth, it said, provide no services to Fox Valley and Chicago Downs. Nor would it enter in its records information about racing performances at the defendants' meets. Finally, it directed its members' attention to Rules 5 and 17 of its by-laws. The USTA eligibility certificate application states that members are prohibited from racing horses at meets sponsored by organizations that are not USTA members or contract tracks. Members who violate this prohibition are subject to revocation of their eligibility certificates and may be precluded from obtaining certificates for future racing seasons. Rule 5, § 1. Furthermore, USTA member drivers who drive horses at unaffiliated tracks can be fined up to $100 for each infraction. Rule 17, § 5. These rules are necessary, USTA asserts, to protect its system of racing information "from those who might act to undermine it" and to ensure the "integrity of (its) data system" (Br. 14). The rules were upheld as reasonable restraints in United States v. United States Trotting Association, 1960 CCH Trade Cases P 69,761 (S.D.Ohio 1960).

II. USTA's Misappropriation Claim

In its first two complaints USTA contended that defendants had misappropriated its records and services, particularly its registration and eligibility certificates, and therefore sought an accounting, money judgments and injunctive relief. After defendants filed a motion for summary judgment on the ground that the certificates were the property of the horse owners to whom issued, USTA filed a cross-motion for summary judgment on the ground that its affidavits and exhibits showed that defendants were liable for misappropriation of plaintiff's property. The district court held that USTA had failed to persuade it that USTA owned the registration and eligibility certificates and therefore granted defendants' motion for summary judgment, stating that "USTA has established no proprietary interest in the certificates or the information contained therein." 487 F. Supp. at 1014 and n. 22. However, the court and defendants left unanswered USTA's affidavits and documentary materials supporting its cross-motion.

In support of affirmance defendants contend that USTA's cross-motion for summary judgment precludes it from now claiming that there are certain disputed questions of fact. But the filing of a cross-motion for summary judgment does not prevent a plaintiff from contending on appeal that there is a dispute as to material facts. Case & Co., Inc. v. Board of Trade of City of Chicago, 523 F.2d 355, 360 (7th Cir. 1975).

The eligibility certificates have the following legend on their face:

This eligibility certificate and the information contained on it are the property of USTA and all rights to its use and reproduction are reserved by it. Use of this certificate and the information contained hereon is restricted to members of USTA and tracks contracting with the Association and only for the purposes of entering, classifying and identifying the horse named hereon and for recording its performances. Permission for any other use of this certificate and the information contained on it or for its use by any other person or organization must be obtained from USTA.*fn6

In deciding that this language did not raise an inference of ownership, the district court found that "(the) expression of ownership is negated by the adhesive nature of the contract between horsemen and USTA." 487 F. Supp. at 1014. The record, however, does not support a finding of adhesion. We do not deal here with parties of vastly disparate bargaining power, to whose agreements the adhesion doctrine is properly applied. Rather horseowners and other USTA members collectively select a Board of Directors which supervises the USTA and which, together with the officers, establishes USTA's operating procedures. Thus there are institutional means available through which the horseowners collectively can modify or eliminate any terms in the eligibility certificates with which they disagree.

The adhesion argument has also been recently rejected in a challenge to a forum selection clause in the USTA by-laws. In language equally applicable here the court said:

Plaintiffs assert that the USTA has successfully achieved its goal of regulating the entire harness racing industry, and that by virtue of its control of the sport, membership in the USTA is, practically speaking, compulsory for all who wish to compete in the United States and Canada. Thus, plaintiffs argue, the forum clause is in reality part of a "contract of adhesion" to which they did not freely assent. But, even assuming the accuracy of their description of the USTA's power, plaintiffs' contention that the by-law is thus unenforceable as a matter of contract law * * * cannot be accepted. This is not a situation where the court is asked to enforce a highly prejudicial term in a contract between two parties of significantly different bargaining power, which term is to the benefit of the stronger and the detriment of the weaker. Plaintiffs have entered into a contract with their fellow members, who adopted the instant by-law for their mutual benefit. Collectively, ...

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