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Reapers Hockey Association, Inc. v. Amateur Hockey Association Illinois, Inc.

United States District Court, N.D. Illinois, Eastern Division

September 26, 2019

Reapers Hockey Association, Inc., Plaintiff,
v.
Amateur Hockey Association Illinois, Inc., et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          MANISH S. SHAH UNITED STATES DISTRICT JUDGE.

         Some of the better amateur hockey players in Illinois compete in a league run by the Amateur Hockey Association Illinois (“AHAI”). Only four clubs are allowed to field teams in that league. The plaintiff, Reapers Hockey Association, Inc., wants to be the fifth, and its complaint alleges that the league rule that stands in its way violates the Sherman Act. But a market that “consists of competitive amateur youth hockey at the Tier I level” does not implicate the Sherman Act and, even if it did, the alleged rule that restricted the number of clubs in that market would be reasonable. All claims are dismissed, and Reapers Inc.’s request for a preliminary injunction compelling defendant AHAI to rescind the four-club rule and let the Reapers play is denied.

         I. Legal Standards

         A motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) is a challenge to subject matter jurisdiction, and a court may look beyond the complaint and “view whatever evidence has been submitted … to determine whether in fact subject matter jurisdiction exists.” Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 444 (7th Cir. 2009); Silha v. ACT, Inc., 807 F.3d 169, 173 (7th Cir. 2015). At least until the court is satisfied that it has the power to hear the case, “no presumptive truthfulness attaches to plaintiff’s allegations.” Apex Digital, Inc., 572 F.3d at 444 (quoting Mortensen v. First Fed. Sav. & Loan Ass’n, 549 F.2d 884, 891 (3d Cir. 1977)). Federal law governs that inquiry. Rawoof v. Texor Petroleum Co., 521 F.3d 750, 756 (7th Cir. 2008).

         Motions to compel arbitration are decided under a standard similar to that articulated in Federal Rule of Civil Procedure 56(e): “the opposing party must demonstrate that a genuine issue of material fact warranting a trial exists.” Tinder v. Pinkerton Sec., 305 F.3d 728, 735 (7th Cir. 2002). The party opposing the motion cannot generally deny facts that allegedly demonstrate arbitrability, and must identify specific evidence in the record to support its argument. Id.

         In order to survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint must contain a short and plain statement that plausibly suggests a right to relief. Ashcroft v. Iqbal, 556 U.S. 662, 677–78 (2009); Fed.R.Civ.P. 8(a)(2). In ruling on a motion to dismiss, although a court must accept all factual allegations as true and draw all reasonable inferences in the plaintiff’s favor, the court need not do the same for legal conclusions or “threadbare recitals” supported by only “conclusory statements.” Ashcroft, 556 U.S. at 678, 80–82. The plaintiff must provide “more than labels” or “a formulaic recitation of a cause of action’s elements, ” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007), and the complaint must “contain either direct or inferential allegations respecting all the material elements necessary to sustain recovery under some viable legal theory.” Id. at 562.

         II. Facts

         AHAI is USA Hockey, Inc.’s regional affiliate for the State of Illinois, [6] ¶ 25; [35-1] ¶¶ 4, 5, and USA Hockey is the United States Olympic Committee’s national governing body for amateur hockey in the United States. [6] ¶¶ 17, 23; [35-1] ¶ 3.[1]AHAI and USA Hockey divide the teams that play in their leagues by skill level, and USA Hockey mandates that no more than 15% of the players in a given state should play in the highest-skill tier, called Tier I. [6] ¶ 28; [35-1] ¶ 8. AHAI has a rule that there shall be “not more than four (4) Tier I [clubs] fielding not more than eight (8) Tier I youth teams at any age level.” [6] ¶ 53; [35-1] ¶ 8. Those four clubs (all defendants) are the Chicago Mission AAA Hockey Club, Inc., the Chicago Fury, Inc., Team Illinois Hockey Club, Inc., and the Chicago Young Americans, Inc. [6] ¶ 44.

         Representatives from these four clubs (and AHAI board members that are not affiliated with those four clubs) serve on AHAI’s Tier I Committee, which can- subject to the approval of the AHAI Board-grant or terminate the authority to operate teams at the Tier I level. [6] ¶¶ 59, 60, 85. The committee can also recommend that the AHAI board modify the four-club rule. Id. ¶ 60. Every president of a Tier I club has a vote on the Tier I committee. Id. ¶ 61. The complaint alleges that this structure gives the club defendants the power to defeat any potential application by voting against it (or lobbying other members to do the same), and that conflicts of interest arise during these votes when club defendant representatives are asked to vote against their own financial interests. Id. ¶ 62.

         These club defendants “control the actions of AHAI either directly (through representatives who are voting members of AHAI’s ‘Tier I Committee’ and/or its Board of Directors) or indirectly (by using misrepresentation, misinformation, or other inappropriate influence over how AHAI Board members vote).” [6] ¶ 3. The complaint alleges that at some point after AHAI granted the fourth charter, former AHAI president John Dunne and other board members (including but not limited to Mike Mullally, Michael Barrett, and Gino Cavallini) made an agreement to restrict competition and, in furtherance of that agreement, caused AHAI to adopt the four-club rule. [6] ¶¶ 51–53; [7-2] ¶ 3.

         In 2015, Steven Dry (president of a Tier II club) started pushing AHAI’s leadership to grant a charter for a fifth team. [6] ¶¶ 69–71. He made little headway until June of 2018, when Dunne retired, Barrett took over in his stead, and Mullally told Dry that the AHAI board was “ready to consider allowing a new Tier I club” and that Dry should “go ahead and fill out an application.” [6] ¶¶ 74, 75. Dry and others then formed an unincorporated association-the Reapers Tier I Hockey Association- in order to seek a charter from AHAI to sponsor a fifth team. [58-1] ¶ 2. In July of 2018, Dry signed an application to form a Tier I club, [35-1] at 7, and his signature appears below a line that reads, “[a]s President of the The Reapers Tier 1 Hockey Association, I acknowledge that I have read, understand and agree to abide by all of the AHAI By-Laws and Rules & Regulations.” Id.

         Dry says that when he emailed Mullally to say that the Association was planning to submit its application, Mullally replied-copying Barrett, Dunne, and board member Ken Michel-and confirmed that the information Dry planned to submit “should be sufficient for consideration” by the Tier I committee and the board. [6] ¶ 78. According to Dry, no one “indicated that there were any further barriers to the Board’s consideration of the merits of the Reapers’ application.” Id. Mullally says that, at some point, he told Dry that, “in order for his application to be considered, the AHAI Board would be required to revise [the four-club rule] to allow for an additional Tier I club.” [35-1] ¶ 10.

         Dry gave presentations to the board, its Tier I Committee, and the Tier II Presidents’ Committee concerning the Association’s upcoming application. [6] ¶¶ 81– 96; [35-1] ¶ 10. On January 7, 2019, the board voted to not rescind the four-club rule, [6] ¶ 99; [35-1] ¶¶ 11, 12, and so did not consider the merits of the Association’s application. [6] ¶ 147; [35-1] ¶ 13. According to Mullally, no board member affiliated with a Tier I club participated in that vote. [35-1] ¶ 11.

         Dry and the Association understood that, in order to hold a charter, the Association would need to incorporate as a non-profit entity. [58-1] ¶ 4. On January 9, 2019, the Association retained counsel in order to help with incorporation. Id. ¶ 8. On January 10, Dry and the Association found out that the AHAI board had voted to not rescind the four-club rule, and that the Association would not be granted a charter. Id. ¶ 9; [35-1] ¶ 13. On January 11, the Association convened a properly noticed meeting of its board of directors. [58-1] ¶ 11. The board agreed that the Association “should be incorporated and that all rights, privileges, property and legal claims of [the Association] should be transferred to Reapers Inc [sic], including Reapers Association’s right to sue in this litigation.” Id. The board then voted unanimously to that effect, and did so “in accordance with [the Association’s] bylaws.” Id.[2] The Illinois Secretary of State filed the articles of incorporation for the non-profit entity the “Reapers Hockey Association” on January 14. [35-1] at 9.

         The complaint describes the relevant market as “competitive amateur youth hockey at the Tier I level.” [6] ¶ 31. The relevant geographic market “consists of the State of Illinois, ” id. ¶ 32, and the complaint alleges that, in that market, “Tier I competition provides players with important hockey development and recruiting opportunities that are unique to Tier I and cannot be realized elsewhere.” [6] ¶¶ 31– 33. The four-club rule allegedly harms competition in this market by cutting off a large geographic area of Illinois from access to Tier I clubs and by artificially inflating the prices for “Tier I youth hockey programming.” [6] ¶ 120. The complaint requests an injunction prohibiting AHAI from enforcing its rule and directing AHAI to grant Reapers, Inc., a charter, [6] ¶¶ 10, 126(A)–(B), 132(A)–(B), or, in the alternative, requests an order requiring AHAI to adopt and implement an “objectively fair, unbiased, and transparent process for annually weighing the relative merits of each club’s application and determining the four clubs that will receive a charter each year.” Id. ¶¶ 11, 126(C), 132(C).

         III. Analysis

         The complaint alleges that all of the defendants (AHAI and the four clubs that benefit from the rule) violated § 1 of the Sherman Act, and that AHAI violated § 2. See 15 U.S.C. §§ 1, 2. It also alleges that all of the defendants violated Illinois’s Consumer Fraud and Deceptive Business Practices Act, 815 Ill. Comp. Stat. §§ 505/1– 505/12, 510/1–510/7, and seeks declaratory relief under the Declaratory Judgment Act. 28 U.S.C. § 2201. There are a few motions pending: Reapers, Inc.’s motions for a preliminary injunction, [7] and [68], AHAI’s motion to stay and compel arbitration, [33], and AHAI’s ([38]) and the team defendants’ ([51]) motions to dismiss.

         A. Standing and Real-Party-in-Interest

         Article III’s case-or-controversy requirement is fundamental, and questions about it must be answered first. Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 94 (1998); Rawoof v. Texor Petroleum Co., 521 F.3d 750, 756 (7th Cir. 2008); Raytheon Co. v. Ashborn Agencies, Ltd., 372 F.3d 451, 453 (D.C. Cir. 2004) (Article III standing must be addressed before issues of arbitrability). Such fundamental, jurisdictional questions ask whether there has been an injury in fact, whether the defendant’s conduct ...


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