776 F.3d 321 (5th Cir. 2015), 13-11043, Abraham & Veneklasen Joint Venture v. American Quarter Horse Ass'n

Docket Nº:13-11043
Citation:776 F.3d 321
Opinion Judge:EDITH H. JONES, Circuit Judge:
Party Name:ABRAHAM & VENEKLASEN JOINT VENTURE; ABRAHAM EQUINE, INCORPORATED; JASON ABRAHAM, Plaintiffs - Appellees v. AMERICAN QUARTER HORSE ASSOCIATION, Defendant - Appellant
Attorney:For ABRAHAM & VENEKLASEN JOINT VENTURE, Plaintiff - Appellee: Nancy J. Stone, Amarillo, TX. For ABRAHAM EQUINE, INCORPORATED, Plaintiff - Appellee: Samuel Lee Stein, Law Office of Sam L. Stein, P.L.L.C., Cherokee, OK. For JASON ABRAHAM, Plaintiff - Appellee: Luther T. Munford, Patrick Ryan Becket...
Judge Panel:Before JOLLY and JONES, Circuit Judges, and AFRICK[*], District Judge.
Case Date:January 14, 2015
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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776 F.3d 321 (5th Cir. 2015)

ABRAHAM & VENEKLASEN JOINT VENTURE; ABRAHAM EQUINE, INCORPORATED; JASON ABRAHAM, Plaintiffs - Appellees

v.

AMERICAN QUARTER HORSE ASSOCIATION, Defendant - Appellant

No. 13-11043

United States Court of Appeals, Fifth Circuit

January 14, 2015

Page 322

[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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Appeal from the United States District Court for the Northern District of Texas.

For ABRAHAM & VENEKLASEN JOINT VENTURE, Plaintiff - Appellee: Nancy J. Stone, Amarillo, TX.

For ABRAHAM EQUINE, INCORPORATED, Plaintiff - Appellee: Samuel Lee Stein, Law Office of Sam L. Stein, P.L.L.C., Cherokee, OK.

For JASON ABRAHAM, Plaintiff - Appellee: Luther T. Munford, Patrick Ryan Beckett, Kathleen Elizabeth Ingram, Butler Snow, L.L.P., Ridgeland, MS; Ronald D. Nickum, Amarillo, TX.

For AMERICAN QUARTER HORSE ASSOCIATION, Defendant - Appellant: David E. Keltner, Esq., Marianne Marsh Auld, Mary Hallman Smith, Kelly, Hart & Hallman, L.L.P., Fort Worth, TX; William Wade Arnold, Michael Hunter Loftin, Esq., Attorney, Underwood Law Firm, P.C., Amarillo, TX.

For AMERICAN KENNEL CLUB, INCORPORATED, AMERICAN PAINT HORSE ASSOCIATION, APPALOOSA HORSE CLUB, ARABIAN HORSE ASSOCIATION, CAT FANCIERS' ASSOCIATION, INCORPORATED, JOCKEY CLUB, PINTO HORSE ASSOCIATION, UNITED STATES TROTTING ASSOCIATION, Amici Curiae: Phillip A. Wittmann, Lesli Danielle Harris, Stone Pigman Walther Wittmann, L.L.C., New Orleans, LA.

Before JOLLY and JONES, Circuit Judges, and AFRICK[*], District Judge.

OPINION

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EDITH H. JONES, Circuit Judge:

Jason Abraham, Abraham Equine, Inc., and Abraham & Veneklasen Joint Venture (" Plaintiffs" ) filed suit alleging that the American Quarter Horse Association (" AQHA" ) violated Sections 1 and 2 of the Sherman Act and the Texas Free Enterprise and Antitrust Act.1 The antitrust allegations stem from votes by the Stud Book and Registration Committee (" SBRC" ) of the AQHA, which had blocked AQHA registration of horses created through somatic cell nuclear transfer (" SCNT" ), also known as cloning. At trial, AQHA moved for judgment as a matter of law (" JMOL" ), Fed.R.Civ.P. 50(a), which was denied by the district court. AQHA appeals the denial of its motion. We REVERSE the denial of AQHA's motion for Judgment as a Matter of Law and RENDER judgment in favor of AQHA.

BACKGROUND

The plaintiffs here include Abraham & Veneklasen Joint Venture, a business formed by Jonathan Abraham and Gregg Veneklasen. Abraham is the sole shareholder of Abraham Equine, Inc., which provides recipient mares that act as surrogate mothers for Quarter Horse embryos. Veneklasen is a veterinarian, owner of a veterinary hospital, and an expert in advanced equine reproductive techniques. The two formed Abraham & Veneklasen Joint Venture to invest in shares of multiple Quarter Horses that were produced by cloning top prize winners in racing and cutting horse competitions. Without access to AQHA's breed registry, however, the cloned horses cannot participate in the lucrative racing, breeding or horse shows that are characteristic of the market for " elite Quarter Horses," as defined by Plaintiffs' expert.

Appellant AQHA is a non-profit association with a general membership of more than 280,000 worldwide that was organized in 1940 to collect and register the pedigrees and protect the breed of the American Quarter Horse. In addition to its breed registry, which has listed millions of horses over the years, AQHA sponsors horse shows that attract international patronage, supports educational activities, and sanctions races in which only AQHA-registered horses may compete. Consequently, " [M]eaningful participation in this multimillion dollar industry is dependent upon AQHA membership and AQHA registration." Hatley v. American Quarter Horse Ass'n, 552 F.2d 646, 654 (5th Cir. 1977).

Strategic decisions for the organization are made by the Board of Directors, the five-member Executive Committee, and a

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variety of standing committees that report to the general membership and the Board. The Board's membership has ranged from about 280-340 during the years in question, and about 99 new Board members joined the Board during the same period. The Stud Book and Registration Committee is one such standing committee. The SBRC comprises about 30 members, with partial annual rotating membership, and its members are selected by the President with the advice and majority vote of the Executive Committee. The SBRC reviews proposed changes to AQHA's equine registration rules and makes recommendations regarding those proposals to the general membership at the annual convention. During the annual meeting, general members are allowed to address the SBRC and observe its discussions. The SBRC's recommendation is then presented to the general membership, which determines whether that recommendation is submitted to the Board for final approval. Only the Board of Directors may change the breed registration rules.

From its inception, AQHA has maintained rules identifying the characteristics required of any horse sought to be registered as an American Quarter Horse, and the organization's registry has maintained records of the offspring of registered American Quarter Horses. Originally, the records consisted essentially of birth certificates for the offspring. As animal reproductive techniques have evolved, however, AQHA registered horses bred by means of artificial insemination and embryo transfers.

Most recently, AQHA approved registration of horses " bred" by Intracytoplasmic Sperm Injection (" ICSI" ). ICSI involves the injection of a single sperm cell into a mature unfertilized egg cell called an oocyte. The fertilized egg is then transferred to a recipient mare. The plaintiffs' cloning techniques, known as Somatic Cell Nuclear Transfer (" SCNT" ), create animals without distinct sire and dam bloodlines for registry. Instead, each cloned horse is a " twin separated by time" of only one animal and any other clones of that initial donor horse.

At its annual convention in 2003, the AQHA Board adopted Rule 227(a), which declared cloned horses ineligible for AQHA breed registration. Between 2008 and 2013, the AQHA received four requests to change the rule, two of which were made by Plaintiffs. In 2008, the SBRC responded by recommending further study; in 2009 the SBRC recommended the creation of a cloning task force to study the impact and science of cloning; and in 2010 the SBRC recommended a denial of the rule change proposal. Since 2010, the SBRC has recommended retention of the rule, and the Board has accepted that recommendation.2

The plaintiffs contend that members of the SBRC and the SBRC conspired with AQHA to prevent cloned horses from being registered as American Quarter Horses and thus excluded their horses from the market for " elite Quarter Horses." Influential members of the SBRC allegedly tainted the committee's deliberations because their personal economic interests would be harmed by competition with cloned horses, especially in breeding and racing. The plaintiffs articulated a plausible motive for anticompetitive activity, but the principal questions on appeal are whether they proved an actual conspiracy to restrain trade in violation of Section 1 of

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the Sherman Act, or illegal monopolization by AQHA of breed registration for the " elite Quarter Horse" market in violation of Section 2.

Plaintiffs filed suit in April 2012, and their case was tried to a jury. The court denied AQHA's motion for judgment as a matter of law. After sending two notes asking for clarification, the jury found in favor of the plaintiffs but declined to award damages. To effectuate the verdict, the court entered a sweeping injunction that specified the rule changes AQHA must adopt to permit breed registration of cloned horses. AQHA has appealed, challenging the sufficiency of evidence for each element of the Sherman Act claims and the scope of the district court's injunction.3

STANDARD OF REVIEW

This court reviews a denial of a motion for judgment as a matter of law de novo. Evans v. Ford Motor Co., 484 F.3d 329, 334 (5th Cir. 2007). A motion for JMOL should be granted if the evidence is legally insufficient, such that " the facts and inferences point so strongly and overwhelmingly in favor of one party that the Court believes that reasonable men could not arrive at a contrary verdict." Boeing v. Shipman, 411 F.2d 365, 374 (5th Cir. 1969) (en banc), overruled on other grounds by Gautreaux v. Scurlock Marine, Inc., 107 F.3d 331, 336 (5th Cir. 1997) (en banc). The reviewing court must consider the facts in the light most favorable to the verdict. Giles v. Gen. Elec. Co., 245 F.3d 474, 481 (5th Cir. 2001).

DISCUSSION

I. Section 1 of the Sherman Act .

As opposed to Section 2 of the Sherman Act, Section 1 is only concerned with concerted conduct among separate economic actors rather than their independent or merely parallel action. Ultimately, " plaintiffs must show that the defendants (1) engaged in a conspiracy (2) that produced some anti-competitive effect (3) in the relevant market." Johnson v. Hosp. Corp. of Am., 95 F.3d 383, 392 (5th Cir. 1996). But not all nominally separate entities are capable of violating Section 1 of the Sherman Act through a conspiracy that restrains trade. AQHA contends, first, that as a " single entity," it could not conspire with its members or with the SBRC. Alternatively, AQHA asserts that the evidence of conspiracy is legally insufficient to support the verdict.

A. Entities Capable of Conspiring.

As a general rule, Section 1 of the Sherman Act does not apply to single entities. Am....

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