Cates v. Crystal Clear Techs., LLC

874 F.3d 530

Courtney CATES ; Brian Stover; Jason Miller, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants,

v.CRYSTAL CLEAR TECHNOLOGIES, LLC; Carbine & Associates, LLC ; Tollgate Village Association Inc. ; Bridgemore Village Owners' Association Inc. ; Bridgemore Development Group, LLC; Tollgate Farms, LLC, Defendants-Appellees.

No. 16-6714.

United States Court of Appeals, Sixth Circuit.

Argued: July 26, 2017

Decided and Filed: October 30, 2017

ARGUED: Benjamin Andrew Gastel, BRANSTETTER STRANCH & JENNINGS, PLLC, Nashville, Tennessee, for Appellants. D. Alexander Fardon, RILEY WARNOCK & JACOBSON, PLC, Nashville, Tennessee, for Appellees Crystal Clear Technologies and Carbine & Associates. Valerie Diden Moore, BUTLER SNOW LLP, Nashville, Tennessee, for Appellees Tollgate Village Association and Bridgemore Village Owners' Association. ON BRIEF: Benjamin Andrew Gastel, BRANSTETTER STRANCH & JENNINGS, PLLC, Nashville, Tennessee, for Appellants. D. Alexander Fardon, RILEY WARNOCK & JACOBSON, PLC, Nashville, Tennessee, Craig V. Gabbert, Jr., BASS, BERRY & SIMS PLC, Nashville, Tennessee, for Appellees Crystal Clear Technologies and Carbine & Associates. Valerie Diden Moore, BUTLER SNOW LLP, Nashville, Tennessee, for Appellees Tollgate Village Association and Bridgemore Village Owners' Association.

Before: COLE, Chief Judge; BATCHELDER and MOORE, Circuit Judges.

COLE, C.J., delivered the opinion of the court in which BATCHELER, J., joined in all but Part II.B., and MOORE, J., joined in all but Part II.C. BATCHELDER, J. (pp. 537–40), delivered a separate opinion concurring in part and dissenting from Part II.B. MOORE, J. (pp. 540–44), delivered a separate opinion concurring in part and dissenting from Part II.C.

OPINION

COLE, Chief Judge.

The three named plaintiffs brought a purported class action alleging that the developers of their neighborhoods created agreements that violated both state and federal law by requiring the neighborhoods' homeowners to pay for basic telecommunications services provided by Crystal Clear Technologies, LLC ("Crystal Clear"), an entity owned and controlled by the developers. The district court dismissed the plaintiffs' federal claims for failure to state a claim and subsequently denied as futile the plaintiffs' motion seeking leave to file an amended complaint. We affirm in part and reverse in part the district court's denial of the plaintiffs' motion seeking leave to file an amended complaint.

I. FACTS AND PROCEDURAL HISTORY

The plaintiffs are homeowners in three centrally-planned neighborhoods in Thompson's Station, a small town in Williamson County, Tennessee. The three neighborhoods, Canterbury, Bridgemore, and Tollgate, have hundreds of houses and over a thousand homeowners.

Carbine & Associates, LLC, developed the neighborhoods through affiliated companies, Bridgemore Development Group, LLC, Tollgate Farms, LLC, and Hood Development, LLC. The developers also established and controlled owners' associations for the neighborhoods. However, the developers have since transferred control of the owners' associations to third-party entities not controlled by either the developers or homeowners.

From 2006 to 2007, while under the developers' control, the owners' associations each entered into communications services agreements (the "Agreements") with Crystal Clear. The Agreements grant Crystal Clear the right to provide telecommunications services to the neighborhoods for twenty-five years, with an option for Crystal Clear to unilaterally renew for an additional twenty-five years. In addition, the Agreements authorize Crystal Clear to be the exclusive agent for homeowners in procuring services from any outside providers and grant Crystal Clear the exclusive right to market services within the neighborhoods. Under the Agreements, homeowners must pay the owners' associations a monthly assessment fee, which the associations then use to pay Crystal Clear for basic telecommunications services. Homeowners must pay the fee whether they use Crystal Clear's services or not. In addition, homeowners must make a one-time payment of $1,500 to Crystal Clear for the cost of constructing the telecommunications infrastructure in the neighborhoods. To facilitate the infrastructure's construction, Crystal Clear also obtained a non-exclusive franchise agreement with Thompson's Station that permitted Crystal Clear to use the service easements within the neighborhoods.

Prior to executing the Agreements, Crystal Clear had no experience in the telecommunications-services industry. To provide services to the neighborhoods, Crystal Clear contracts with another provider, DirecTV, and charges a premium to homeowners in addition to the rate negotiated with DirecTV. Further, Crystal Clear does not provide services outside of the neighborhoods at issue in this case.

The plaintiffs brought this suit and subsequently filed their first amended complaint, alleging both state and federal claims. The plaintiffs claimed that the Agreements constituted self-dealing, unjust enrichment, unconscionability, unlawful tying, market allocation, and unlawful exclusivity.

The defendants moved to dismiss, arguing that the first amended complaint failed to assert allegations necessary for the federal claims and that the plaintiffs lack standing to bring claims on behalf of the owners' associations. The district court dismissed the first amended complaint under Federal Rule of Civil Procedure 12(b)(6) without addressing the standing argument and declined to exercise supplemental jurisdiction over the remaining state-law claims.

The plaintiffs then moved under Federal Rule of Civil Procedure 59 to alter or amend the judgment and under Rule 15 for leave to file a second amended complaint that asserted the same federal claims. The district court denied the plaintiffs' motion after determining that the second amended complaint would fail to survive a motion to dismiss and was thus futile. The plaintiffs timely appealed from both the district court's dismissal and its refusal to allow the second amended complaint. However, the plaintiffs agree that the second amended complaint reflects the plaintiffs' most recent and developed pleading for purposes of this appeal. Accordingly, we consider only whether the district court erred in refusing to allow the second amended complaint under Rule 59 and Rule 15. Furthermore, the plaintiffs challenge only the district court's decisions regarding their tying and exclusivity claims. Therefore, we do not address the dismissal of the market allocation claim.

II. ANALYSIS

A. Standard of Review

We review de novo the denial of a motion seeking to amend a complaint where the denial is based on the determination that the amended complaint is futile because it would fail under a motion to dismiss. Winget v. JP Morgan Chase Bank, N.A. , 537 F.3d 565, 572 (6th Cir. 2008).

"To survive a motion to dismiss, a plaintiff must allege facts that state a claim to relief that is plausible on its face and that, if accepted as true, are sufficient to raise a right to relief above the speculative level." Bickerstaff v. Lucarelli , 830 F.3d 388, 396 (6th Cir. 2016) (citation and internal quotation marks omitted). "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." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v. Twombly , 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). "This standard ‘does not impose a probability requirement at the pleading stage; it simply calls for enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of illegal [conduct.]’ " Ohio Pub. Emps. Ret. Sys. v. Fed. Home Loan Mortg. Corp. , 830 F.3d 376, 383 (6th Cir. 2016) (quoting Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). This court must "construe the complaint in the light most favorable to the plaintiff, accept its allegations as true, and draw all reasonable inferences in favor of the plaintiff." Bickerstaff , 830 F.3d at 396 (citation omitted).

B. Unlawful Tying Under the Sherman Act

"A tying arrangement is defined as an agreement by a party to sell one product [a tying product] ... only on the condition that the buyer also purchases a different (or tied) product...." Mich. Division-Monument Builders of N. Am. v. Mich. Cemetery Ass'n , 524 F.3d 726, 732 (6th Cir. 2008) (quoting N. Pac. Ry. Co. v. United States , 356 U.S. 1, 5–6, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958) ). "The typical tying case involve[s] a seller's attempt to exploit its economic power over one product or in one market to force a less desirable, tied product on a buyer." Id. (internal quotation marks omitted). "Illegal tying therefore occurs only if the seller has appreciable economic power in the tying product market and if the arrangement affects a substantial volume of commerce in the tied market." Id. (internal quotation marks omitted). With regard to the impact on the tied market, "the controlling consideration is simply whether a total amount of business, substantial enough ... so as not to be merely de minimis, is foreclosed to competitors by the tie...." Fortner Enter., Inc. v. U.S. Steel Corp. , 394 U.S. 495, 501, 89 S.Ct. 1252, 22 L.Ed.2d 495 (1969). This latter requirement "makes no reference to the scope of any particular market or to the share of that market foreclosed by the tie." Id.

Under their tying claim, the plaintiffs allege that the developers used their market power over the sale of homes in these neighborhoods to force the homeowners to purchase telecommunications services from Crystal Clear, thereby harming competition for the provision of telecommunications services and violating the Sherman Act, 15 U.S.C. § 1. The district court found that the first amended complaint failed to state a tying claim because it did not define the...