OJ Commerce, LLC v. KidKraft, Inc.

34 F.4th 1232

OJ COMMERCE, LLC, Naomi Home, Inc., Plaintiffs-Appellants,

v.KIDKRAFT, INC., MidOcean Partners IV, L.P., Defendants-Appellees,Ikea North America Services, LLC., Defendant.

No. 21-11521

United States Court of Appeals, Eleventh Circuit.

Filed: May 24, 2022

Devin Freedman, Constantine Philip Economides, Roche Freedman, LLP, Miami, FL, Carl Edward Goldfarb, Boies Schiller & Flexner, LLP, Fort Lauderdale, FL, Robert George Keefe, Boies Schiller & Flexner, LLP, Miami, FL, Shlomo Y. Hecht, Shlomo Y. Hecht, PA, Pembroke Pines, FL, Mark A. Schweikert, Schweikert Law, PLLC, Miami, FL, for Plaintiff-Appellant OJ Commerce, LLC.

Devin Freedman, Constantine Philip Economides, Roche Freedman, LLP, Miami, FL, Shlomo Y. Hecht, PA, Pembroke Pines, FL, Mark A. Schweikert, Schweikert Law, PLLC, Miami, FL, for Plaintiff-Appellant Naomi Home, Inc.

Joshua Lipton, Thomas G. Hungar, Jessica Wagner, Gibson Dunn & Crutcher, LLP, Washington, DC, Scott K. Hvidt, Gibson Dunn & Crutcher, LLP, Dallas, TX, Alexandra Milagros Mora, Akerman, LLP, Miami, FL, Barbara Joy Riesberg, RiesbergLaw, Miami, FL, Lawrence Dean Silverman, Sidley Austin, LLP, Miami, FL, for Defendant-Appellee KidKraft, Inc.

Joshua Lipton, Thomas G. Hungar, Jessica Wagner, Gibson Dunn & Crutcher, LLP, Washington, DC, Scott K. Hvidt, Gibson Dunn & Crutcher, LLP, Dallas, TX, Alexandra Milagros Mora, Akerman, LLP, Miami, FL, Lawrence Dean Silverman, Sidley Austin, LLP, Miami, FL, for Defendant-Appellee MidOcean Partners IV, L.P.

Gerard Andrew Tuzzio, Roberts Reynolds Bedard & Tuzzio, Coral Springs, FL, for Service.

Before William Pryor, Chief Judge, Rosenbaum, and Brasher, Circuit Judges.

William Pryor, Chief Judge:

This antitrust appeal presents two questions. The first is whether MidOcean Partners IV, L.P., a private-equity firm, and KidKraft, Inc., a majority-owned subsidiary, are capable of conspiring with one another in violation of section one of the Sherman Act. See 15 U.S.C. § 1. The second is whether OJ Commerce, LLC, a retailer, and Naomi Home, Inc., a manufacturer, have marshalled substantial evidence to support their claim that KidKraft monopolized the market for the manufacture of wooden play kitchens in violation of section two of the Act. See id. § 2. Because we conclude that a company ordinarily cannot conspire with an entity it owns and controls and with which it does not compete, the district court correctly entered a summary judgment in favor of MidOcean and KidKraft on the section-one claim. The district court also correctly entered a summary judgment against the section-two claim because OJ Commerce and Naomi Home failed to present substantial evidence to support a viable theory of monopolization. And, because the remaining claim, premised on state law, rises and falls with the antitrust claims, the district court correctly entered a summary judgment against that claim. We affirm.

I. BACKGROUND

KidKraft manufactures wooden play kitchens and other children's toys. It sells its products to tens—and sometimes hundreds—of commercial resellers. Those resellers include large retailers such as Amazon, Costco, Sam's Club, and Walmart.

OJ Commerce, a smaller online retailer, began purchasing wooden play kitchens from KidKraft in 2011. OJ Commerce describes itself as "an aggressive discounter" that "incentivizes other sellers ... to keep their own prices on [the same] products low." And it was "at times ranked as high as [the] 13th largest" customer of KidKraft products. The company is owned and operated by Jacob Weiss.

Weiss also owns and operates Naomi Home, a manufacturer that, in 2011, sold exclusively to OJ Commerce. Naomi Home uses sales data from OJ Commerce "[a]s part of its market research to develop products." In 2013, Naomi Home began selling a wooden play kitchen through OJ Commerce. The parties dispute the degree of similarity between the Naomi Home kitchen and KidKraft's kitchen—KidKraft describes the former as a "knock-off" of the latter. Naomi Home also began "developing other play kitchens," but did not sell those kitchens during the relevant period.

In July 2015, private-equity firm MidOcean acquired a 57 percent ownership interest in KidKraft Group Holdings, LLC, the company that wholly owns KidKraft. The acquisition agreement gave MidOcean the right to appoint a majority of the KidKraft board of directors, and MidOcean has exercised that right. MidOcean also enjoys certain approval rights. For example, MidOcean's written approval is required before KidKraft may appoint or remove officers, enter into corporate transactions worth over $1 million, or change the size of the board. MidOcean has no other investments in the children's toy industry.

Sometime in 2015, Matan Wolfson, a KidKraft employee, had a conversation with Weiss about the Naomi Home kitchen. As Weiss recalls the conversation, "KidKraft was very upset about [the kitchen] and wanted to end its relationship with OJ Commerce." Wolfson asked Weiss why OJ Commerce was "competing with KidKraft." Weiss "told [Wolfson] that [OJ Commerce] was not competing with KidKraft because [OJ Commerce] w[as] selling to consumers and KidKraft was selling to retailers." Weiss also told Wolfson that Naomi Home "would agree not to produce any additional new items ... that would compete with KidKraft and ... wouldn't reach out to any of KidKraft's retailers [other than OJ Commerce] to compete with KidKraft." Wolfson replied that he was "going to take it up the chain and ... let [Weiss] know." "But [Weiss] ... didn't hear[ ] ... back from him," and "the situation went away." Still, at Weiss's direction, Naomi Home "dropped plans to develop additional products" and "did not ... try to sell any [of its] products to any retailers for approximately two years." OJ Commerce continued to sell Naomi Home kitchens, and KidKraft continued to supply its own kitchens to OJ Commerce.

The relationship between KidKraft and OJ Commerce came to an end in 2016. That year, OJ Commerce's sales of KidKraft's products "plummeted," although the parties dispute the cause of this decline. According to KidKraft, it believed that OJ Commerce "was using KidKraft's kitchen as a prop to drive consumers to the Naomi Home kitchen and was no longer focused on selling KidKraft's kitchens." OJ Commerce, by contrast, blames KidKraft for "not making inventory available ... during this time period." Whatever the cause, a MidOcean board member reached out to KidKraft in November and instructed KidKraft to contact OJ Commerce about the "decline in sales." According to Weiss, KidKraft told him that it "was going to cut OJ[ ] [Commerce] off because it sold [Naomi Home]." Weiss urged KidKraft to change its mind, but KidKraft stopped supplying OJ Commerce two days later.

Following the termination, sales of Naomi Home wooden play kitchens "increased considerably," and Naomi Home attempted to sell the kitchens to third-party retailers. The company hired Michael Drobnis, a seasoned independent sales representative, for that task. But "every retailer [he] contacted declined ... to carry Naomi Home's [k]itchen." Drobnis "received the impression that [the retailers] did not want to carry a product that would directly compete with Kid[K]raft and thereby upset the applecart." Drobnis put Weiss in touch with Shannon Lord, a Costco employee who explained to Drobnis in February 2017 "that the [wooden play kitchen] category was already filled." On a telephone call, Lord told Weiss that "Costco did not want to jeopardize its relationship with KidKraft by purchasing Naomi Home kitchens."

OJ Commerce and Naomi Home sued KidKraft and MidOcean. OJ Commerce and Naomi Home alleged that "KidKraft control[led] over 70% of the wooden play kitchen market in the continental United States." They asserted that "KidKraft's termination of its relationship with OJ[ ] [Commerce] had no legitimate business justification or procompetitive benefit" and violated section two of the Sherman Act. See 15 U.S.C. § 2. They asserted that, alternatively, the termination was a form of attempted monopolization, a separate violation of section two. See id. They asserted that KidKraft and MidOcean had violated section one of the Sherman Act, see id. § 1, by conspiring "to refuse to sell and boycott OJ[ ] [Commerce], solely on the basis of it selling the competing Naomi Home [k]itchen." They asserted that MidOcean committed tortious interference with contract by "induc[ing] KidKraft to terminate its business relationship with OJ[ ] [Commerce]." And they sought damages, including treble damages for the Sherman Act violations. See id. § 15(a).

At the close of discovery, KidKraft and MidOcean moved for summary judgment. By then, OJ Commerce and Naomi Home had come up with an additional theory in support of the section-two monopolization claim: "that KidKraft foreclosed [Naomi Home]’s access to retail channels of distribution by threatening other retailers that KidKraft would withhold sales of its toy kitchens if those retailers did business with [Naomi Home]." KidKraft argued that "there [was] no evidence to support [this] theory," and that, in any event, there was no evidence "that KidKraft foreclosed such a substantial portion of the market that competition was thereby harmed." As for the theory that KidKraft violated section two by terminating its relationship with OJ Commerce, KidKraft argued that the unilateral termination of a distributor is lawful under the Sherman Act; that a "rare exception to th[is] general rule" did not apply; that the termination did not cause anticompetitive harm; and that KidKraft had legitimate business reasons to justify the termination. KidKraft also argued that OJ Commerce and Naomi Home had failed to prove that KidKraft had monopoly power. MidOcean and KidKraft argued that the section-one claim failed because "MidOcean owns and controls KidKraft," so the two entities are "incapable of conspiring with one another." And MidOcean argued that the state-law claim failed...