Act, Inc. v. Sylvan Learning Systems, Inc.

• Decision Date: 30 December 1999
• Docket Number: No. C96-0334 MJM.,C96-0334 MJM.
• Parties: ACT, INC. v. SYLVAN LEARNING SYSTEMS, INC.
• Court: U.S. District Court — Northern District of Iowa

104 F.Supp.2d 1096

ACT, INC. v. SYLVAN LEARNING SYSTEMS, INC.

No. C96-0334 MJM.

United States District Court, N.D. Iowa, Cedar Rapids Division.

December 30, 1999.

COPYRIGHT MATERIAL OMITTED

Patrick M. Roby, Elderkin Law Firm, Cedar Rapids, IA, Robert A. Burgoyne, David S. Cohen, Stephen M. McNabb, and Anthony E. DiResta, Fulbright & Jaworski, Washington, D.C., for plaintiff.

Stephen J. Holtman, Simmons, Perrine, Albright & Ellwood, Cedar Rapids, IA, Michael F. Brockmeyer and Francis B. Burch, Jr., Piper, Marbury, Rudnick & Wolfe, Baltimore, Md., David H. Bamberger, Piper, Marbury, Rudnick & Wolfe, Washington, D.C., for defendant.

ORDER

MELLOY, Chief Judge.

This matter comes before the court pursuant to defendant's July 15, 1999 motion for summary judgment (docket number 101). The plaintiff resisted defendant's motion for summary judgment on August 17, 1999 (docket number 115). Defendant filed a reply to plaintiff's resistance on September 7, 1999 (docket number 126). Oral argument was heard concerning this motion on September 27, 1999. For the reasons set forth below, defendant's motion for summary judgment is granted in part and denied in part.

Count I of plaintiff's (ACT's) complaint alleges that the defendant (Sylvan) tortiously interfered with ACT's contractual relations with NASD. Count II alleges that Sylvan tortiously interfered with ACT's prospective business advantage with NASD. Count III alleges that Sylvan tortiously interfered with ACT's current and prospective contractual relations with Regents College.¹ Court IV alleges that Sylvan has monopolized the relevant market in violation of § 2 of the Sherman Act, 15 U.S.C. § 2 (1998). Count V alleges that Sylvan has attempted to monopolize the relevant market in violation of § 2 of the Sherman Act, 15 U.S.C. § 2. Sylvan claims that it is entitled to summary judgment on all counts.

Summary Judgment

A motion for summary judgment may be granted only if, after examining all of the evidence in the light most favorable to the nonmoving party, the court finds that no genuine issues of material fact exist and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Kegel v. Runnels, 793 F.2d 924, 926 (8th Cir.1986). "Summary judgment is appropriate when there is no genuine issue of material fact and, accordingly, no reasonable jury could find in favor of the nonmoving party." Hennessey v. Good Earth Tools, Inc., 126 F.3d 1107, 1108 (8th Cir. 1997). Once the movant has properly supported its motion, the nonmovant "may not rest upon the mere allegations or denials of [its] pleading, but ... must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). "To preclude the entry of summary judgment, the nonmovant must show that, on an element essential to [its] case and on which [it] will bear the burden of proof at trial, there are genuine issues of material fact." Noll v. Petrovsky, 828 F.2d 461, 462 (8th Cir.1987), cert. denied, 484 U.S. 1014, 108 S.Ct. 718, 98 L.Ed.2d 668 (1988) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). Although "direct proof is not required to create a jury question, ... to avoid summary judgment, `the facts and circumstances relied upon must attain the dignity of substantial evidence and must not be such as merely to create a suspicion.'" Metge v. Baehler, 762 F.2d 621, 625 (8th Cir.1985), cert. denied, 474 U.S. 1057, 106 S.Ct. 798, 88 L.Ed.2d 774 (1986) (quoting Impro Prod., Inc. v. Herrick, 715 F.2d 1267, 1272 (8th Cir.1983), cert. denied, 465 U.S. 1026, 104 S.Ct. 1282, 79 L.Ed.2d 686 (1984)). Moreover, no heightened standards for summary judgment apply in antitrust cases. Midwest Radio Co., Inc. v. Forum Publ'g Co., 942 F.2d 1294, 1296 (8th Cir.1991).

Nonetheless, the Supreme Court's instructions regarding the granting of summary judgment in antitrust cases remain intact.

We believe that summary procedures should be used sparingly in complex antitrust litigation where motive and intent play leading roles, the proof is largely in the hands of the alleged conspirators, and hostile witnesses thicken the plot. It is only when the witnesses are present and subject to cross-examination that their credibility and the weight to be given their testimony can be appraised. Trial by affidavit is no substitute for trial by jury which so long has been the hallmark of `even handed justice.'

Poller v. Columbia Broadcasting Sys., 368 U.S. 464, 471, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962).

Statement of Material Facts Not in Dispute

ACT and Sylvan are both in the business of administering standardized tests millions of which are administered every year. Traditionally, standardized tests were given in a paper-and-pencil format. Recently, however, a market in computer-based testing (CBT) has developed and expanded. In the early 1990's, ACT decided that it wanted to enter the CBT market by gaining access to an already established nationwide CBT delivery network.

As of 1994, the National Association of Securities Dealers, Inc. (NASD), an early entrant into the CBT market, operated approximately 55 CBT facilities. In August of 1993, ACT and NASD entered into a Memorandum of Understanding (MOU), under which NASD agreed to provide CBT services at its facilities for ACT and ACT's clients. ACT agreed to market "ACT/NASD-provided computer administered testing services" to third parties. ACT and NASD worked together to market their alliance to the public. The MOU was non-exclusive and contained no provision for ACT to acquire NASD test centers or for ACT to provide test delivery services for NASD.

In May, 1995, NASD and ACT entered into an Interim Test Services Agreement, which did provide for ACT to administer NASD's examinations at ACT's Vernon Hills test center and two other ACT test centers to be opened in Sacramento, CA and New York City. The Interim Agreement noted that ACT and NASD were currently negotiating an agreement to jointly deliver computer-based testing and training. In the event that such an agreement was never executed, the Interim Agreement provided that NASD would assume any real estate leases obtained by ACT or compensate ACT for termination costs. The Interim Agreement did not mention that ACT would acquire NASD's testing network, and it did not provide for the long-term delivery of NASD's tests through an ACT network.

In late November, 1995, ACT and NASD began negotiating a long-term agreement under which NASD would transfer its testing centers to ACT and ACT would provide CBT delivery services to NASD. NASD told ACT that any agreement would need to be presented to and approved by the NASD Board of Governors.

On November 30, 1995, after initially being contacted by Sylvan co-CEO Douglas Becker about the possibility of Sylvan and NASD doing business together, Joseph Hardiman, President and CEO of NASD wrote to Becker, informing him that Sylvan would be afforded an opportunity to compete for NASD's business. On December 19, 1995, Sylvan presented a very favorable proposal to NASD. At this time, Sylvan was aware that ACT and NASD had done business together. On December 22, 1995, O'Donnell (NASD) informed Ferguson (ACT) that Sylvan had submitted a competing proposal. O'Donnell also informed Richard Ferguson that ACT could submit a "best and final proposal." Ferguson told his staff to do no hiring or make further commitments until ACT had a signed agreement with NASD. ACT submitted a "best and final offer" to NASD on January 15, 1996.

On January 18, 1996, the NASD Finance Committee recommended to the NASD Board of Governors that the Sylvan proposal be accepted. ACT was informed of this fact on January 18, 1996. On January 22, 1996 the Board of Governors accepted the Finance Committee's recommendation and approved the selection of Sylvan. NASD and Sylvan executed a letter of intent on January 22 and 23, 1996. The agreement between NASD and Sylvan contains no exclusivity provision. NASD and ACT then negotiated an Unwind Agreement, under which ACT would be compensated for losses sustained by virtue of the fact that ACT and NASD would no longer be doing business together. The Unwind Agreement also provided testing hours in NASD's testing centers for ACT's use through the first quarter of the year 2001.

Since 1993, Sylvan has maintained a 95-100% share of the relevant market in CBT. The relevant product at issue is high security CBT. The relevant geographic market is the United States.

Additional undisputed facts and a discussion of the disputed facts will be set forth in connection with the court's analysis of each of ACT's claims.

Count I-Tortious Interference with Contractual Relations

Count I of ACT's complaint alleges that Sylvan tortiously interfered with ACT's contractual relations with NASD. Sylvan claims that it is entitled to summary judgment on this count because no contract existed between ACT and NASD with which Sylvan could tortiously interfere. Alternatively, Sylvan contends that it is entitled to summary judgment on Count 1 because the undisputed facts show that it had no knowledge of any contractual relationship between ACT and NASD. ACT argues that summary judgment is not appropriate because there is a genuine issue of material fact as to whether ACT and NASD had in place an existing contract. Moreover, ACT claims that a genuine issue of material fact exists as to whether Sylvan knew or had reason to know of the contracts between ACT and NASD.

Under Iowa law, it is a tort to intentionally and improperly interfere with the performance of a contract between another and a third person. Financial Marketing Servs., Inc. v. Hawkeye Bank & Trust of Des Moines, 588 N.W.2d 450, 458 (Iowa 1999). To prevail under this theory, the plaintiff must prove the following elements:

1. The plaintiff had a valid contract.

2. The defendant knew of the contract.

3. The defendant intentionally and improperly interfered with the...