Cloverleaf Enterprises, Inc. v. Md. Thoroughbred, Horsemen's Ass'n, Inc.

730 F.Supp.2d 451

CLOVERLEAF ENTERPRISES, INC., Plaintiff,

v.MARYLAND THOROUGHBRED, HORSEMEN'S ASSOCIATION, INC., et al., Defendants.

Civil Action No. RDB 10-407.

United States District Court, D. Maryland.

Aug. 6, 2010.

Amit P. Mehta, Nelson C. Cohen, Virginia Whitehill Guldi, William W. Taylor, III, Zuckerman Spaeder LLP, Washington, DC, Gregg Lewis Bernstein, Zuckerman Spaeder LLP, Baltimore, MD, Joseph B. Chazen, Meyers Rodbell and Rosenbaum PA, Riverdale, MD, for Plaintiff.

Jerrold A. Thrope, Lawrence D. Coppel, Susan J. Klein, Gordon Feinblatt Rothman Hoffberger and Hollander LLC, Darek S. Bushnaq, James E. Gray, Jason Charles Rose, Taren N. Stanton, Venable LLP, Gary Howard Leibowitz, Cole Schotz Meisel Forman and Leonard PA, Baltimore, MD, Joseph A. Lynott, III, Lynott and Lynott, Rockville, MD, Michael L. Vild, Delaware Racing Assoc., Wilmington, DE, Edward W. Chang, Martin J. Weis, Dilworth Paxson LLP, Philadelphia, PA, Alan M. Rifkin, Rifkin Livingston Levitan and Silver LLC, Annapolis, MD, Marie Celeste Bruce, Rifkin Livingston Levitan and Silver LLC, Bethesda, MD, Michael D. Berman, Rifkin Livingston Levitan and Silver LLC, Greenbelt, MD, for Defendants.

MEMORANDUM OPINION

RICHARD D. BENNETT, District Judge.

Plaintiff and Debtor Cloverleaf Enterprises, Inc. ("Cloverleaf"), which owns Rosecroft Raceway ("Rosecroft"),¹ a Maryland standardbred racetrack, brings this suit asserting antitrust and breach of contract claims against eighteen defendants-primarily racetracks, horsemen's associationsand individuals that work for them. The thrust of Cloverleaf's action is brought against Defendants Maryland Jockey Club of Baltimore City, Inc. ("MJC"), Laurel Racing Association, LP ("LRA"), Thomas Chuckas, Jr. and Dennis Smoter (collectively, "Jockey Defendants"), and the Maryland Thoroughbred Horsemen's Association ("Horsemen"), Richard J. Hoffberger and Alan Foreman (collectively, "Horsemen Defendants"). Cloverleaf alleges that the Defendants violated the Sherman Antitrust Act, 15 U.S.C. §§ 1 & 2 ("Sherman Act"), by engaging in a group boycott orchestrated to destroy competition in off-track betting and to monopolize the off-track betting market and in doing so engaged in a breach of contract. The Horsemen Defendants and the Jockey Defendants have separately moved to dismiss Cloverleaf's antitrust claims under federal law, and unfair competition and tortious interference with contract claims under Maryland law. Defendants Horsemen and the Maryland Horse Breeders Association, Inc. ("Horse Breeders") also move to dismiss Cloverleaf's breach of contract claim. The parties have fully briefed the issues and oral argument was presented to this Court on July 29, 2010. For the reasons that follow, the Jockey Defendants' Partial Motion to Dismiss (Paper No. 109) is DENIED, with those defendants being granted an extension of time to respond to Counts IV (breach of contract) and IX (right of setoff). The Horsemen Defendants and the Horse Breeders' Motion to Dismiss (Paper No. 110) is GRANTED as to Count IV (breach of contract) but DENIED as to the remaining counts. With respect to Count I, which alleges Defendants violated Section 1 of the Sherman Act, this Court finds that Cloverleaf's allegations that Defendants took concerted action with out-of-state racetracks state a claim upon which relief can be granted. Cloverleaf's allegations that Defendants took concerted action amongst themselves in violation of Section 1, however, fail to state a claim.

BACKGROUND

In ruling on a motion to dismiss, "[t]he factual allegations in the Plaintiff's complaint must be accepted as true and those facts must be construed in the light most favorable to the plaintiff." Edwards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir.1999).

A. The Parties

Plaintiff Cloverleaf is a Maryland corporation that owns and operates Rosecroft Raceway, a standardbred racetrack in Prince George's County, Maryland.² Am. Compl. ¶ 25. Though Rosecroft has historically hosted live standardbred races at its track, in recent years the majority of its revenue has come from off-track betting ("OTB"). Id. ¶ 26. Thus, Rosecroft accepts wagers on live simulcast signals of thoroughbred, standardbred and quarterhorse races held at tracks both within Maryland and out-of-state. Id. Though Rosecroft is a standardbred racetrack, the most important simulcast signals it receives come from thoroughbred racetracks since these tracks host the most high profile and lucrative races for wagering, such as the Triple Crown and Breeders' Cup races. Id. ¶ 27. In 2007 and 2008, OTB revenues accounted for approximately 95% of Rosecroft's annual revenue, with 75% of its annual revenue coming specifically from thoroughbred simulcast wagers. Id.

Defendant Horsemen represents, assists and promotes the interests of Maryland thoroughbred owners and trainers. Id. ¶ 4. Defendant Richard J. Hoffberger is Horsemen's President, and Defendant Alan Foreman is Horsemen's General Counsel. Id. ¶¶ 21, 22. Defendant Horse Breeders similarly represents, assists and promotes the interests of Maryland's thoroughbred breeders. Id. ¶ 5.

Defendants the MJC and LRA operate two thoroughbred racetracks, Pimlico and Laurel Park, both of which are located within 60 miles of Rosecroft in Maryland.³ Id. ¶ 32. Defendant Thomas Chuckas, Jr. is the President of MJC, and Defendant Dennis Smoter is the Vice President of MJC. Id. ¶¶ 19, 20.

Defendant TrackNet Media Group, LLC ("TrackNet") ⁴ is based in Louisville, Kentucky and sells horse-racing content to wagering outlets. Id. ¶ 6. TrackNet has an agreement with Cloverleaf to send Rosecroft simulcast signals of thoroughbred races held at a number of racetracks around the country, including Churchill Downs, which hosts the Kentucky Derby the first Saturday in May every year. Id. ¶ 7.

B. Applicable Horseracing Law

The Interstate Horseracing Act ("IHA"), 15 U.S.C. §§ 3001-3007, regulates interstate commerce with respect to horseracing wagers. The IHA imposes conditions on an OTB facility before it can accept wagers on out-of-state races. 15 U.S.C. § 3002(3). Its overarching requirement is that an OTB facility must get consent to accept wagers from both the host state, which is the state where the race is held, and from the home state, which is the state where the OTB facility is located. Am. Compl. ¶ 29; 15 U.S.C. § 3004(a)(2). With respect to the host state, an OTB facility must obtain consent from both the host state racetrack and the host state racing commission. Am. Compl. ¶ 30; 15 U.S.C. § 3004(a)(1). Notably, the host state racetrack cannot consent to an OTB facility accepting a wager on its races until it has obtained a written agreement with its horsemen's group. Am. Compl. ¶ 32; 15 U.S.C. § 3004(a)(1)(A). With respect to the home state consent, an OTB facility must receive consent from both the home state racing commission and from any tracks within sixty miles of the OTB facility. Am. Compl. ¶¶ 30, 32; 15 U.S.C. § 3004(b)(1)(A). In this case, the home state racing commission is the Maryland Racing Commission ("MRC"). Am. Compl. ¶ 25. The only two tracks within 60 miles of Rosecroft are Pimlico and Laurel, both of which are run by the MJC. Id. ¶ 32. Thus, in order to receive simulcast signals Rosecroft had to receive consent from both the Maryland Racing Commission and the Maryland Jockey Club.

The Maryland Horseracing Act (the "MHA"), Md.Code Ann. Bus. Reg. §§ 11-101, et seq. , regulates horseracing wagers in Maryland. The MHA creates the Maryland Racing Commission, which regulates all respects of horse racing in Maryland and must consent to all instate wagering. Md.Code Ann. Bus. Reg. § 11-201. The Maryland Horseracing Act also requires the approval of MJC, the Horsemen and the Breeders for Laurel or Pimlico to send its signals to Rosecroft. Md.Code Ann. Bus. Reg. § 11-811(f).

C. Cross-Breed Agreement

In March 2006, Cloverleaf, the MJC, Horsemen and Horse Breeders entered into the Cross-Breed Agreement (the "Agreement") establishing that Rosecroft, Pimlico and Laurel consented to send and receive simulcast signals on both in-state and out-of-state races. Am. Compl. ¶ 36. Since Pimlico's and Laurel's thoroughbred races are more lucrative than Rosecroft's standardbred races, Cloverleaf agreed to pay the MJC "for the benefit of the thoroughbred industry" (including Horsemen and Horse Breeders) an annual "premium" of $5.9 million, payable in fifty weekly installments of $118,000. Id. ¶ 37; Ex. C ¶ 2. This payment provides Cloverleaf the right "to accept wagers at Rosecroft on all live races conducted at Pimlico Race Course and Laurel Park and all out-of-state thoroughbred races ..." Id. Ex. C ¶¶ 27, 37. The Cross-Breed Agreement also provides that if "MJC or Cloverleaf fails to make timely payments to the other Party and the failure remains uncured for seven (7) days after written notice thereof is given to the defaulting Party, the Party owed the funds may terminate this Cross-Breed Agreement and/or take such other legal actions as are available to it." Id. ¶ 12.

D. Actions of the Parties

Around August 2008, Cloverleaf advised the MJC, Horsemen and Horse Breeders that it could not afford to pay the weekly $118,000 payments it owed under the Agreement because its revenue had declined significantly. Am. Compl. ¶ 38. Cloverleaf and the MJC agreed to a one-time concession payment of $470,000 for 2008 and began to renegotiate the Agreement. Id. ¶ 39. The parties were not able to revise the Agreement, however, and negotiations came to an end around March 2009. Id. ¶ 41. At that point, Cloverleaf had made no payments to the MJC (including Horsemen and Horse Breeders) for 2009. Id. ¶ 40.

On April 28, 2009, the MJC and the Horsemen petitioned the MRC at its regularly-scheduled meeting to revoke its consent to Rosecroft's receipt of simulcast signals of out-of-state races based upon Rosecroft's failure to make the weekly payments the MJC was owed under the Agreement. Id. ¶ 44....