United States District Court, N.D. Illinois, Eastern Division
June 15, 2004.
Alpha School Bus Company, Inc., and Cook-Illinois Corp., Plaintiffs,
Michael W. Wagner, Barbara Ann Hackel, Leroy Meister, Southwest Transit, Inc., Chicago Bear Bones Leasing, Inc., and Southwest Transit Leasing, LLC, Sunrise Southwest, L.L.C., Sunrise Transportation, Inc., Defendants.
The opinion of the court was delivered by: JOAN GOTTSCHALL, District Judge
MEMORANDUM OPINION AND ORDER
Before the court are defendants' motions to dismiss plaintiffs'
Alpha School Bus Co.'s ("Alpha") and Cook-Illinois Corp.'s
("Cook-Illinois") Third Amended Complaint for failure to state a
claim and for lack of subject matter jurisdiction. Addressing the
jurisdictional arguments first, Baker v. IBP, Inc.,
357 F.3d 685, 687 ("subject matter jurisdiction is the first question . . .
in all suits filed in federal court"), defendants Southwest
Transit, Inc. ("Southwest"), Southwest Leasing, L.L.C.
("Southwest Leasing"), Chicago Bear Bones Leasing, Inc. ("Bear
Bones Leasing"), Barbara Ann Hackel, Michael Wagner, and Leroy
Meister contend that this court lacks jurisdiction because
plaintiffs fail to establish a violation of federal law in their
allegations that defendants violated the Sherman Act,
15 U.S.C. § 1, et seq., and the Racketeer Influenced and Corrupt Organizations Act ("RICO"),
18 U.S.C. § 1961-68.*fn1 For the reasons that follow, defendants'
motions to dismiss are granted.
Alpha is a school bus contractor located in Crestwood,
Illinois, and is a wholly owned subsidiary, along with twelve
other subsidiaries licensed as interstate carriers of passengers,
of Cook-Illinois. Alpha provides student transportation services
for a number of school districts in the greater Chicago and Cook
County, Illinois, area. At issue in this case are the 2003-2006
contracts for busing services for the Chicago Board of Education
non-public routes, Southwest Cook County Cooperative Association
for Special Education, and Oak Lawn School District 218
(collectively, the "School Bus Contracts"). In the spring of
2003, when Alpha prepared and submitted its bids to the Chicago
Board of Education, Southwest Cook County Cooperative Association
for Special Education, and Oak Lawn Board of Education
(collectively, the "School Districts"), Michael Wagner and Leroy
Meister were employed by Alpha as General Manager and Director of
Operations, respectively. According to Alpha, both men had access
to confidential Alpha business information, including details of
Alpha's past and present contracts with the School Districts (for
many years prior to 2003, Alpha provided busing services to all three districts), and both helped
prepare Alpha's bid for the School Bus Contracts for 2003-2006.
In addition to incumbent contract holder Alpha, a number of
other transportation companies also bid for the 2003-2006 School
Bus Contracts; the winner was Southwest. Southwest is an Illinois
corporation, owned and controlled by Barbara Hackel, that
provides busing services in competition with Alpha. Southwest
Leasing, an Illinois limited liability company, and Bear Bones
Leasing, a de jure or de facto Illinois corporation, are owned
and controlled by Wagner and operate to lease buses to Southwest.
Plaintiffs allege that Hackel, Wagner, and Meister contracted to
form Southwest and the leasing companies, and that together they
conspired to underbid Alpha for the School Bus Contracts and
eliminate Alpha as a competitor in the special education student
According to the complaint, Wagner and Meister were still
employed by Alpha when they stole Alpha's confidential bid
information and gave it to Hackel and Southwest, who then used it
to prepare Southwest's bid for the School Bus Contracts. As a
result of Wagner's, Meister's, Hackel's and Southwest's allegedly
unlawful conduct, Southwest submitted a lower bid to the School
Districts and won the 2003-2006 contracts. Soon after the
contracts were awarded to Southwest, Wagner and Meister notified
Alpha of their intent to retire and began working for Southwest
and the leasing company defendants.
In summer of 2003 Plaintiffs filed suit in federal court,
arguing that defendants' conduct amounted to forbidden restraint
of trade under the federal and state antitrust laws, civil conspiracy, violation of Illinois trade secret laws,
tortious interference with business opportunity, breach of
fiduciary duty, racketeering, and fraudulent transfer of assets.
Defendants moved to dismiss all claims against them. Because
federal jurisdiction in this case depends on the existence of a
claim under either the Sherman Act or RICO, the court's opinion
will address these claims first.
A. Standard of Review
In considering a motion to dismiss for lack of jurisdiction,
the court must accept as true all well-pleaded factual
allegations and draw all reasonable inferences in favor of the
plaintiff. Alicea-Hernandez v. Catholic Bishop of Chicago,
320 F.3d 698, 701 (7th Cir. 2003). Plaintiffs here assert that
federal jurisdiction exists because defendants violated the
Sherman Act, 15 U.S.C. § 1, and RICO, 18 U.S.C. § 1962. See
28 U.S.C. § 1337. Defendants, however, contend that this court is
without jurisdiction because plaintiffs have failed to state a
claim under either federal statute.
Plaintiffs' federal claims are subject to two different
standards of pleading under the Federal Rules of Civil Procedure.
For plaintiffs' antitrust claim to survive, it must provide a
short and plain statement which demonstrates that plaintiffs
suffered an injury caused by defendants' restraint of interstate
commerce. Midwest Gas Servs. v. Indiana Gas Co., 317 F.3d 703,
711 (7th Cir. 2003); FED. R. CIV. P. 8(a). Importantly,
plaintiffs' injury must be an "antitrust injury which is to
say, injury by reason of those things that make the practice
unlawful, such as reduced output and higher prices," as opposed
to mere economic loss. Gypsum Co. v. Indiana Gas Co., 350 F.3d 623, 626-27 (7th Cir. 2003); Loeb Indus. v. Sumitomo Corp.,
306 F.3d 469, 481 (7th Cir. 2001). For plaintiffs' RICO claims
alleging predicate acts of mail and wire fraud to survive, they
must describe with particularity "the identity of the person who
made the [mis]representation, the time, place, and content of the
misrepresentation, and the method by which the misrepresentation
was communicated to the plaintiff." Slaney v. International
Amateur Athletic Fed'n, 244 F.3d 580, 599 (7th Cir. 2001); FED.
R. CIV. P. 9(b). A successful RICO claim also requires a
plaintiff to show that his injury was proximately caused by
defendants' racketeering activity. Holmes v. Securities Investor
Prot. Corp., 503 U.S. 258, 268-69 (1992). Since plaintiffs fail
to state a claim under either federal law and they assert no
other basis for federal jurisdiction, this case must be dismissed
pursuant to FED. R. CIV. P. 12(h)(3).
B. Sherman Act Antitrust Claim
Section 1 of the Sherman Act, which defendants' act of
underbidding Alpha for the School Bus Contracts by using Alpha's
confidential information is alleged to violate, forbids
conspiracies in restraint of trade or commerce among the states
or with foreign nations. In re High Fructose Corn Syrup
Antitrust Litig., 295 F.3d 651, 654 (7th Cir. 2002). Though all
an antitrust claim need allege to survive a motion to dismiss is
that a plaintiff suffered an injury due to a defendant's unlawful
restraint of interstate commerce, Midwest Gas, 317 F.3d at 711,
it is quite possible for a plaintiff to plead himself out of
court by alleging facts that could not under any circumstances
constitute an antitrust violation, Hammes v. AAMCO
Transmissions, Inc., 33 F.3d 774, 782 (7th Cir. 1994). Plaintiffs in this case have done exactly
A successful claim under § 1 of the Sherman Act requires proof
that (1) a contract, combination, or conspiracy between two or
more persons (2) to restrain interstate commerce in the relevant
market (3) caused an injury of the sort Congress intended to
prevent by enacting the antitrust laws. See Denny's Marina Inc.
v. Renfro Prods., Inc., 8 F.3d 1217, 1220 (7th Cir. 1993);
Hammes, 33 F.3d at 782. Defendants here argue that plaintiffs
fail to establish a § 1 violation in all respects, including (1)
failure to plead a sufficient nexus with interstate commerce, (2)
failure to show a conspiracy among market competitors, and (3)
failure to allege an antitrust injury.
Though not artfully pleaded, plaintiffs' allegations of a nexus
with interstate commerce are sufficient to withstand defendants'
motions to dismiss. An antitrust claim requires an improper
purpose, an anticompetitive effect, and an effect on interstate
commerce. See BCB Anesthesia Care, Ltd. v. Werries,
36 F.3d 664, 666 (7th Cir. 1994). The interstate commerce requirement is
jurisdictional in antitrust suits, United Phosphorus, Ltd. v.
Angus Chem. Co., 322 F.3d 942, 948 (7th Cir. 2003), and the
court must assure itself from allegations in the complaint that
it is not about to hear a case that it is not supposed to have
the power to hear. Hammes, 33 F.3d at 778. In diversity suits,
for example, the complaint must allege the citizenship of the
parties and the amount in controversy, not just that the claim is
within the diversity jurisdiction. Id. "But when the
jurisdictional prerequisite is effect on interstate commerce, the
pleading of a conclusion should be good enough, since the number
of cases that fail at that threshold has become minuscule." Id.
Here, plaintiffs claim that "Student transportation services
[including the School Bus contracts at issue] . . . and the
competitive bidding process to let those contracts, affect
interstate commerce." Given the low threshold for satisfying the
interstate commerce nexus in antitrust suits, see Summit Health,
Ltd. v. Pinhas, 500 U.S. 322, 333 (1991), and liberal federal
pleading standards, plaintiffs' allegations in this case are
sufficient to establish this court's jurisdiction.
Defendants also argue that plaintiffs' Sherman Act claim must
be dismissed for failure to allege a conspiracy. Plaintiffs
contend that defendants Wagner, Meister, Southwest Leasing, and
Bear Bones Leasing conspired with Hackel and Southwest to
restrain trade. The complaint also asserts that Wagner and
Meister were employed by Alpha at the time of the alleged
conspiracy. It appears from the complaint, and plaintiffs' brief
confirms, that Wagner and Meister acted solely to benefit
Southwest, Hackel, and the leasing defendants. Thus, defendants
argue, Wagner and Meister are either agents acting on behalf
Southwest and therefore cannot conspire with their principal, or
are employees of Alpha and therefore Alpha cannot recover for
damages incurred through its own conspiracy with Southwest.
Plaintiffs' response to defendants' argument is confounding, as
it argues simultaneously that Wagner and Meister are not agents
of Southwest because they are Alpha employees and that Alpha is
not responsible for their actions because Wagner and Meister were
acting on behalf of Southwest. The court need not decipher this
illogic, however, because as explained below, there is a
possibility, however slight, that the complaint alleges a
conspiracy between Southwest and the leasing defendants to restrain trade.
An antitrust conspiracy requires an agreement between two or
more persons to restrain trade in a given market. Denny's
Marina, 8 F.3d at 1220. Usually, as in a per se violation of §
1, the conspirators are direct competitors in the market.
Sometimes, however, as in the case of a clothing manufacturer
attempting to eliminate competition among retailers of its
products, a single individual may attempt, by conspiring with
market competitors, to control a market from the outside. See,
e.g., 42nd Parallel North v. E Street Denim Co., 286 F.3d 401
(7th Cir. 2002). In the latter case, the non-market conspirator
must have some kind of "market power," or ability to raise prices
above a competitive level without losing its business, to be
found capable of restraining trade in the relevant market. Id.
Of all the named defendants in this case, only Southwest
actually competes with Alpha in the relevant market. The
complaint does not specifically define the market, but the court
presumes from facts therein that it is the market for special
education student transportation services in the greater Chicago
and Cook County, Illinois, area. Though plaintiffs charge the
individual defendants, Meister and Wagner, and the leasing
company defendants, Southwest Leasing and Bear Bones Leasing,
with conspiring to restrain trade, none of these defendants
provides student transportation services and none of them is
alleged to have the kind of market power that would enable them
to control competition in the busing market. If this is true,
only Alpha and Southwest would be capable of the "bid-rigging"
and "price-fixing" conduct complained of here, and Alpha would
have no cause of action to recover for its own illegal activities. See 42nd Parallel North, 286 F.3d at 405
("[a]ntitrust laws protect competition, not competitors").
But the court cannot draw this inference against plaintiffs in
ruling on a motion to dismiss. Plaintiffs allege repeatedly that
"Wagner, Meister, Chicago Bear Bones and Southwest Leasing
together with Hackel and Southwest" conspired to restrain trade.
Since the court must take this and other facts in the complaint
as true, and since plaintiffs need not allege the market power of
potential conspirators to state a claim under § 1, the court must
assume that the individual and leasing company defendants were in
fact capable of conspiring with Southwest and Hackel to commit
the alleged antitrust violation.
Though the court finds that plaintiffs have pleaded an
interstate commerce nexus and a conspiracy, their antitrust claim
still must fail because plaintiffs have not alleged an antitrust
injury. An antitrust injury is an injury caused by the kind of
conduct that the antitrust laws seek to prevent. Brunswick Corp.
v. Peublo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). The
antitrust injury doctrine was created as a way to screen out
complaints by competitors and others who were hurt not by
anticompetitive practices, but by productive efficiencies, higher
output, and lower prices the very things antitrust laws are
designed to encourage. Gypsum, 350 F.3d at 627. Thus, a
plaintiff competitor who seeks a kind of relief that would injure
customers, such as less competition or higher prices for his
product, does not suffer antitrust injury. Id. Similarly, a
defendant competitor who undertakes to squeeze out his market
competitors by underbidding them or increasing output or
discounting prices does not cause an antitrust injury, unless his
activities are undertaken in concert with another competitor and
involve anticompetitive conduct like fixing prices, shorting
supply, or tying.
In the instant case, defendants' acts of pilfering Alpha's
proprietary information in order to undercut Alpha's bid and win
the School Bus Contracts is not the kind of wrongful conduct that
the antitrust laws forbid. Though plaintiffs label defendants'
activities as "price-fixing" and "bid-rigging," two practices
that are considered per se violations of § 1, the conduct
alleged in the complaint belies such description. Price-fixing,
in general terms, occurs when competitors in a given market get
together and agree to sell at a uniform price. Kahn v. State Oil
Co., 93 F.3d 1358, 1361 (7th Cir. 1996) rev'd on other
grounds, 522 U.S. 3 (1997); United States v. Heffernan,
43 F.3d 1144, 1149 (7th Cir. 1994). Bid-rigging has a more
specialized meaning in antitrust law and is analogous to bid
rotation. Heffernan, 43 F.3d at 1150. Bid rigging or bid
rotation occurs when two or more competitors agree which of them
should be the low bidder for a particular job, and the others
submit higher bids to make sure the designated bidder wins. Id.
What happened in this case, at least as far as the complaint
describes, amounts neither to price-fixing nor bid-rigging. See
BCB Anesthesia Care, 36 F.3d at 667 ("pinning a label on
conduct, such as `tying' or `boycott,' is not enough if the
conduct does not necessarily have the pernicious effect the label
suggests"). Plaintiffs allege that Meister and Wagner secretly
conspired with Hackel and Southwest to use Alpha's confidential bid information, which Meister and Wagner compiled
while still working for Alpha, in preparing Southwest's bid for
the School Bus Contracts. This conduct is not price-fixing
because there is no allegation that any two market competitors
(and there are only two actual market competitors named in this
case, Alpha and Southwest) conspired to submit noncompetitive
bids or to sell their student transportation services at a
uniform price. See United States v. Brighton Bldg. & Maint.
Co., 598 F.2d 1101, 1106 (7th Cir. 1979).
Nor is the complained-of conduct bid-rigging since there is no
allegation that Alpha or Southwest agreed in advance of
submitting their bids that one of them would offer a higher bid
in order for the other to win the contracts. See Heffernan, 43
F.3d at 1146. Instead, the complaint repeatedly asserts that
Southwest secretly underbid Alpha and that, had Alpha known it
was going to be underbid, it would have lowered its own bid to
win the contracts. Plaintiffs do not contend and no inference can
be drawn from these allegations that Southwest and Alpha had any
kind of agreement in place to rotate their bids on the School Bus
Because the complaint does not allege a per se violation of §
1 and is otherwise devoid of any allegation that defendants'
conduct restrained trade in a manner prohibited by the antitrust
laws, it fails to state an antitrust claim and is therefore
dismissed. See, e.g., BCB Anesthesia Care, 36 F.3d at 666
("[o]nly unreasonable restraints of trade are illegal" under §
1); 42nd Parallel North, 286 F.3d at 404 (upholding dismissal
of § 1 claim due to lack of anticompetitive effect on the
market). C. RICO Mail and Wire Fraud Claims
Plaintiffs also charge defendants with conspiring to and
committing numerous acts of mail and wire fraud in violation of
RICO, 18 U.S.C. § 1962 (a)-(d). Plaintiffs allege that defendants
are associated in fact and constitute an enterprise within the
meaning of § 1961(d) and that defendants' mail and wire fraud
constitute a pattern of racketeering activity, the purpose of
which was to "rig-bids" on the School Bus Contracts and acquire
the contracts and Alpha's property "by fraudulent, deceptive and
illegal means." To state a cause of action under RICO a plaintiff
must allege with particularity (1) conduct (2) of an enterprise
(3) through a pattern (4) of racketeering activity, Slaney, 244
F.3d at 597, and that plaintiffs' injury occurred "by reason of"
defendants' racketeering activity, Holmes v. Securities Investor
Prot. Corp., 503 U.S. 258, 268-69 (1992). Defendants in this
case argue that plaintiffs' RICO claims fail as a matter of law
because (1) plaintiffs fail to plead the predicate mail and wire
fraud claims with the specificity required by FED. R. CIV. P.
9(b), (2) the racketeering allegations do not establish a
"pattern," and (3) plaintiffs' injury did not occur by reason of
defendants' alleged racketeering activity.
As an initial matter, plaintiffs' RICO claims do not satisfy
Rule 9(b)'s particularity requirements. Federal rules require
mail and wire fraud, the predicate acts underlying plaintiffs'
RICO claims in this case, to be pleaded with particularity. FED.
R. CIV. P. 9(b); Slaney, 244 F.3d at 597. This means that
plaintiffs must allege the time, place, and content of the
misrepresentations as well as the method by which they were
communicated to plaintiffs. Slaney, 244 F.3d at 597; Pizzo v.
Bekin Van Lines Co., 258 F.3d 629, 631 (7th Cir. 2001). Here, plaintiffs'
complaint enumerates 13 separate instances of mail and wire fraud
and not one of them contains all of the factual specificity
required by Rule 9(b). Most are infirm because they do not
explain how defendants' fraud was communicated to plaintiffs, and
some are inadequate because they do not specify when the alleged
misrepresentation occurred. However, even if plaintiffs were to
cure the pleading deficiencies, their RICO claims cannot be
salvaged because it is clear from the facts in the complaint that
plaintiffs' alleged injury monetary losses in excess of
$3,000,000 due to the lost School Bus Contracts was not
proximately caused by defendants' alleged racketeering activity.
To recover under RICO a plaintiff must show some direct
relation between the injury asserted and the injurious conduct
alleged. See Associated Gen. Contractors of Cal., Inc. v.
California State Council of Carpenters, 459 U.S. 519, 532-33
(1983); Boim v. Quranic Literary Inst., 291 F.3d 1000, 1012
(7th Cir. 2002). "Thus, a plaintiff who complain[s] of harm
flowing merely from the misfortunes visited upon a third person
by the defendant's acts [i]s generally said to stand at too
remote a distance to recover." Holmes, 503 U.S. at 268-69. For
plaintiffs in this case to satisfy RICO's requirement of
proximate causation, they must allege a relation between their
injury and the defendants' violation that is neither indirect nor
remote. Loeb Indus., 306 F.3d at 496. Plaintiffs allegations
fall well short of establishing this necessary relationship.
From the face of the complaint, it is evident that plaintiffs
view their injury as the loss of the School Bus Contracts due to
defendants' theft of Alpha's proprietary bid information and "bid-rigging." Plaintiffs portray defendants'
alleged racketeering activity, however, as fraudulent use of the
mail and wires to incorporate, secure loans, solicit investment
income, recruit employees, and obtain insurance. In most of these
allegations, plaintiffs assert that because of defendants'
deception of others including banks, investors, insurance
companies, and accounting firms defendants were able to create
their racketeering enterprise. This is too remote a connection
for plaintiffs to recover under RICO. If this court were to find
otherwise, any individual who reads in the newspaper that a
racketeering enterprise was created by falsely incorporating and
swindling investors could recover under RICO whether or not the
enterprise's illegal activities caused any direct harm to that
individual. This kind of ephemeral injury is not the sort that
RICO is designed to prevent.
Two other of plaintiffs' allegations come closer to making a
direct connection between plaintiffs' injury and defendants'
"racketeering" actions. Specifically, plaintiffs allege that "In
or about January 2003 the defendants used emails sent through the
interstate wires to solicit bid bonds and performance bonds for
bids for the school district contracts" and that "defendants used
the wires and mails to submit rigged bids" to the School
Districts. The first of these does not help plaintiffs' case
because it contains no allegation of fraud with respect to the
solicitation of bid bonds or performance bonds. The accusation
does not suggest that defendants were not entitled to obtain the
bonds, and the complaint does not contain anything that would
permit the court to so infer.
As for the second allegation, that defendants submitted a
rigged bid, the court has already explained that defendants did not as a matter of law
engage in "bid-rigging" as that term is meant in antitrust law.
Moreover, even if defendants used the mail or wires to submit
their bid to the School Districts, and even if the bid was
fraudulent, one act of fraud does not establish a "pattern" of
racketeering sufficient to state a claim under RICO, especially
where there is no evidence that defendants intended to repeat the
criminal activity in the future. See Pizzo, 258 F.3d at 633
(finding that two disputes of fraud five months apart with no
other evidence of ongoing criminal activity were not sufficient
to establish a pattern of fraudulent activity required under
RICO). Plaintiffs' RICO claims are therefore dismissed for
failure to state a claim.
Plaintiffs have failed to allege any facts that would entitle
them to relief under either § 1 of the Sherman Act or § 1962 of
RICO, so defendants' motions to dismiss are granted. As
plaintiffs' remaining claims all seek recovery for violations of
state law and no other basis for federal jurisdiction exists, the
court will not address the merits of plaintiffs' state law
claims. Case dismissed for lack of jurisdiction.