Authenticom, Inc. v. CDK Global, LLC (In re Dealer Mgmt. Sys. Antitrust Litig.)

313 F.Supp.3d 931

IN RE: DEALER MANAGEMENT SYSTEMS ANTITRUST LITIGATION

This Document Applies To: Authenticom, Inc.

v.CDK Global, LLC Case No. 18 CV 868

Case No. 18 CV 864

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

Signed May 14, 2018

MEMORANDUM OPINION AND ORDER

AMY J. ST. EVE, District Court Judge:

Plaintiff Authenticom, Inc., a data-integration firm, sued Defendants CDK Global, LLC and The Reynolds and Reynolds Company, the premier purveyors of dealer management systems, for violating Sections 1 and 2 of the Sherman Act and committing tortious interference. Both Defendants filed respective motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). (R. 53, R. 56.) For the reasons explained below, the Court grants in part and denies in part Defendants' motions.

PROCEDURAL HISTORY

Authenticom filed this lawsuit on May 1, 2017, in the Western District of Wisconsin. With its Complaint, Authenticom filed an emergency motion for a preliminary injunction. The motion sought to enjoin Defendants' allegedly anticompetitive practices which, as explained below, allegedly prevented Authenticom from accessing Defendants' respective dealer management systems ("DMS"), a necessary part of Authenticom's data-integration business. Authenticom claimed that those practices effectively excluded it from the market and, as a result, were "on the verge of putting [it] out of business." (Case No. 18–cv–868, R. 5.) Over the next three months, the parties submitted voluminous exhibits and declarations, and the district court held a two-and-a-half-day hearing in early July 2017.

On July 14, 2017, the district court granted Authenticom's motion for a preliminary injunction. It ruled that Authenticom had demonstrated a "moderate" likelihood of success on its Section 1 claims (it did not address the Section 2 claims), and that Authenticom had no adequate remedy at law as evidence suggested Defendants' conduct could force it to shutter its business. See Authenticom, Inc. v. CDK Glob., LLC , No. 17-CV-318-JDP, 2017 WL 3017048 (W.D. Wis. July 14, 2017), vacated , 874 F.3d 1019 (7th Cir. 2017). Weighing the harms, the court granted Authenticom's motion, and after some further briefing, entered a preliminary injunction against each Defendant on July 28, 2017. See also Authenticom, Inc. v. CDK Glob., LLC , No. 17-CV-318-JDP, 2017 WL 3206943 (W.D. Wis. July 28, 2017), vacated, 874 F.3d 1019 (7th Cir. 2017). Those preliminary injunctions forced, among other things, Defendants to allow Authenticom access to their DMSs.

Defendants appealed, and the Seventh Circuit vacated the preliminary injunctions and remanded the case. The Seventh Circuit held that whatever the merits of Authenticom's Section 1 claims, the injunctions' forced sharing of Defendants' DMSs ran afoul of the bedrock principle that firms generally have no duty to deal with competitors. Authenticom, Inc. v. CDK Glob., LLC , 874 F.3d 1019, 1021 (7th Cir. 2017) (citing Verizon Commc'ns Inc. v. Law Offices of Curtis v. Trinko , 540 U.S. 398, 124 S.Ct. 872, 157 L.Ed.2d 823 (2004), Pacific Bell Tel. Co. v. Linkline Commc'ns, Inc. , 555 U.S. 438, 129 S.Ct. 1109, 172 L.Ed.2d 836 (2009) ). It reasoned that "[t]he proper remedy for a section 1 violation based on an agreement to restrain trade is to set the offending agreement aside," not force the alleged violators to deal with the complainant. Id. at 1026. The Seventh Circuit, however, "urge[d]" the district court to do what it could to expedite resolution of the matter based on Authenticom's representations of financial distress. Id. at 1021.

By the time the Seventh Circuit issued its decision, software vendors and automobile dealers had filed a handful of potential tag-along lawsuits across the country against Defendants. The day after the Seventh Circuit's decision, Defendants filed a motion for transfer and consolidation of those cases (and ones later filed) with the Judicial Panel on Multidistrict Litigation ("JPML"). The JPML granted that motion and transferred the cases to this Court for consolidated pretrial proceedings. (R. 1.) Meanwhile, the district court presiding over Authenticom had granted Defendants' motion for a partial stay of discovery given the pending MDL.

In the midst of the preliminary-injunction and appellate proceedings, the parties briefed Defendants' Rule 12(b)(6) motions to dismiss. Those motions are now before the Court.

LEGAL STANDARDS

I. Rule 12(b)(6) and the Plausibility Standard

"A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the viability of a complaint by arguing that it fails to state a claim upon which relief may be granted." Camasta v. Jos. A. Bank Clothiers, Inc. , 761 F.3d 732, 736 (7th Cir. 2014) ; see also Hill v. Serv. Emp. Int'l Union , 850 F.3d 861, 863 (7th Cir. 2017). Under Rule 8(a)(2), a complaint must include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). To survive a Rule 12(b)(6) challenge, a "complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Mann v. Vogel , 707 F.3d 872, 877 (7th Cir. 2013). Courts, of course, accept all well-pleaded facts as true and draw reasonable inferences in the plaintiff's favor. See, e.g. , Forgue v. City of Chicago , 873 F.3d 962, 966 (7th Cir. 2017). After "excising the allegations not entitled to the presumption" of truth, courts "determine whether the remaining factual allegations plausibly suggest an entitlement to relief." McCauley v. City of Chicago , 671 F.3d 611, 616 (7th Cir. 2011).

II. The Materials Upon Which the Court Relies on a Rule 12(b)(6) Motion

In addition to well-pleaded facts, "a court ruling on a motion to dismiss can rely on the complaint itself, documents attached to the complaint, documents that are critical to the complaint and referred to in it, and information that is subject to proper judicial notice." Olson v. Bemis Co. , 800 F.3d 296, 305 (7th Cir. 2015) ; see also, e.g. , Geinosky v. City of Chicago, 675 F.3d 743, 745 n. 1 (7th Cir. 2012). Further, although a "complaint may not be amended by the briefs in opposition to a motion to dismiss," Agnew v. Nat'l Collegiate Athletic Ass'n , 683 F.3d 328, 348 (7th Cir. 2012), courts may "consider additional facts set forth in" a brief opposing dismissal "so long as those facts are consistent with the pleadings," Phillips v. Prudential Ins. Co. of Am. , 714 F.3d 1017, 1019–20 (7th Cir. 2013) (quoting Geinosky , 675 F.3d at 745 n. 1 ); see also, e.g. , Jones v. Sparta Cmty. Hosp. , 716 Fed.Appx. 547 (7th Cir. 2018) ("because [plaintiff-appellant] now elaborates on the factual allegations in his amended complaint, and his elaborations are consistent with the pleadings, we consider that information in our review"); Heng v. Heavner, Beyers & Mihlar, LLC , 849 F.3d 348, 354 (7th Cir. 2017) ("Materials or elaborations in appellants' brief opposing dismissal may be considered, so long as those materials or elaborations are consistent with the pleadings."); Martin v. Cook Cnty., Ill. , No. 17 C 2330, 2018 WL 1942654, at *1 (N.D. Ill. Apr. 25, 2018) (a court may consider "additional facts set forth in [plaintiff's] brief opposing dismissal, so long as those additional facts are consistent with the pleadings."). "To the extent that an exhibit attached to or referenced by the complaint contradicts the complaint's allegations, the exhibit takes precedence." Phillips , 714 F.3d at 1020.

BACKGROUND

I. DMSs, Data Integration, and Auto Dealers

This case concerns the data services and businesses upon which auto dealers rely in conducting their operations.¹ Two purported markets in that space are of principal relevance here: the DMS market and the data-integration market.

A. The DMS Market

DMS software is the "central nervous system" of a dealership. (Compl. ¶ 28.) It is essentially enterprise software designed specifically for dealers, and a DMS manages "virtually every aspect of a dealer's business." (Id. ) Specifically, DMS software handles information regarding sales, financing, part and vehicle inventory, repair and service, accounting, payroll, human resources, marketing, and still more. In addition to some management functionalities, a DMS is a database in which dealers effectively house this critical information and data. A dealer has only one DMS provider at a time; it would be "functionally impossible" for a dealer to try to use more than one. A DMS provider licenses its software to a dealer through a written contract generally lasting between five to seven years. The Complaint defines the DMS market as providers that sell DMS software to dealers in the United States. (Id. ¶ 32.)

CDK and Reynolds "dominate" the DMS market. (Id. ¶ 33.) Viewed by dealer-customers, they together control approximately 75 percent of the market. CDK has approximately 45 percent of it, and Reynolds has approximately 30 percent. Viewed by the number of vehicles sold, their collective control increases to approximately 90 percent.

As alleged duopolists, CDK and Reynolds enjoy a profitable business. They each, for example, earn approximately 40 percent profit margin. Their customers, the dealers, are also unable to freely switch between DMS providers. In addition to the contract lengths, "it is enormously difficult and disruptive for a dealer to switch DMS" given the costs of transferring data, retraining employees, and reconfiguring systems. (Id. ¶ 40.) Adding to those "logistical nightmares," the Complaint claims that CDK and Reynolds "punish" dealers that try to change DMS...