Agnew v. Nat'l Collegiate Athletic Ass'n

Decision Date18 June 2012
Docket NumberNo. 11–3066.,11–3066.
PartiesJoseph AGNEW, et al., Plaintiffs–Appellants, v. NATIONAL COLLEGIATE ATHLETIC ASSOCIATION, Defendant–Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

OPINION TEXT STARTS HERE

Steve W. Berman, Attorney, Hagens Berman Sobol Shapiro, LLP, Seattle, WA, Elizabeth A. Fegan (argued), Attorney, Hagens Berman Sobol Shapiro, LLP, Oak Park, IL, for PlaintiffsAppellants.

Gregory L. Curtner (argued), Attorney, Miller Canfield, P.L.C., Ann Arbor, MI, for DefendantAppellee.

Before FLAUM and KANNE, Circuit

Judges, and CHANG, District Judge.**

FLAUM, Circuit Judge.

Joseph Agnew and Patrick Courtney (plaintiffs) have at least two things in common: they were both highly successful high school football players that earned scholarships to play for National Collegiate Athletic Association (NCAA) Division I football programs, and they both suffered career-ending football injuries during their college tenures. The athletic scholarships held by plaintiffs at the time of their injuries were good for one year only, and needed to be renewed to be valid for any subsequent seasons. When plaintiffs' injuries prevented them from playing football, their scholarships were not renewed. Plaintiffs claim that two NCAA regulations—the cap on the number of scholarships given per team and the prohibition of multi-year scholarships 1—prevented them from obtaining scholarships that covered the entire cost of their college education. These regulations, according to plaintiffs, have an anticompetitive effect on the market for student-athletes, and therefore violate § 1 of the Sherman Act. 15 U.S.C. § 1. The NCAA filed a motion to dismiss and the district court granted that motion, finding that plaintiffs failed to allege a relevant market on which the NCAA's Bylaws had an anticompetitive effect. Plaintiffs appealed the dismissal. While we depart from some of the district court's reasoning, we ultimately conclude that plaintiffs' complaint did not sufficiently identify a commercial market—an obvious necessity for Sherman Act violations—and thus we affirm the district court's dismissal of plaintiffs' suit.

I. Background

In 2006, after receiving several offers from a number of college football teams, Agnew enrolled at Rice University on an athletic scholarship. In exchange for agreeing to play football at Rice, Agnew received a year of education, room, and board at no charge. That scholarship was renewed for Agnew's second year at Rice. During his sophomore year, Agnew suffered a series of football-related injuries. The injuries, along with a coaching change at Rice, resulted in the school's decision not to renew Agnew's scholarship for his junior year. Agnew successfully appealed this decision and received one more year-long scholarship, but he was unable to acquire a scholarship for his senior year. As a result, he was forced to pay full price for the last year of his undergraduate education.

Courtney endured a similar experience. In 2009, Courtney decided to attend North Carolina A & T on full athletic scholarship to play football. As with Agnew, the scholarship was only a year long. During training camp Courtney was injured, and as a result, his scholarship was not renewed. Due to his financial circumstances and the high cost of out-of-state tuition, Courtney was forced to transfer to a different school and pay tuition out-of-pocket.

Plaintiffs allege that their failure to acquire a scholarship equal to the full cost of obtaining a bachelor's degree is the result of the NCAA's regulation of participating schools' athletic scholarships. Plaintiffs specifically cite two NCAA bylaws (the “Bylaws”) as the source of their injury: (1) the one-year scholarship limit, which prohibits NCAA member schools from offering student-athletes multi-year scholarships, 2009–10 NCAA Division I Manual, Bylaw 15.3.3.1 (2009–10); and (2) the cap on the number of athletic scholarships a school can offer for each team in a given year, see, e.g., 2009–10 NCAA Division I Manual, Bylaw 15.5.4. According to plaintiffs, NCAA member schools compete intensely over the premier student-athletes in the country, and if the Bylaws had not been passed, schools would need to offer multi-year scholarships to stay competitive in the market for elite athletes. They assert that multi-year scholarships used to be the norm before the Bylaws went into effect. The current ban on such scholarships, they claim, forces student-athletes who do not have their scholarships renewed to pay more for their undergraduate education. Plaintiffs further contend that the limit on the number of athletic scholarships a school can offer reduces the total number of athletic scholarships offered, thus preventing some students—perhaps those that are injured but would have been offered a multi-year scholarship but for the Bylaws—from obtaining a bargained for education. Plaintiffs therefore maintain that the Bylaws violate § 1 of the Sherman Act. 15 U.S.C. § 1.

On October 25, 2010, plaintiffs filed suit against the NCAA in the United States District Court for the Northern District of California.2 In response, the NCAA filed a motion to dismiss and a motion to transfer simultaneously. The motion to dismiss was fully briefed, but in February 2011, the Northern District of California decided not to rule on the motion and to transfer the case to the Southern District of Indiana. The parties set a schedule for rebriefing applying Seventh Circuit case law, and before the briefs were submitted, plaintiffs filed an amended complaint. The complaint alleged that the Bylaws resulted in a horizontal agreement to fix prices and reduce output, which caused a reduction of the supply of bachelor's degrees and an increase in the price for bachelor's degrees for those that did not have their scholarships renewed.

In its motion to dismiss, the NCAA argued that plaintiffs' complaint should be dismissed for three reasons: (1) it failed to identify a relevant market, a necessity for a valid Sherman Act claim; (2) it failed to allege facts sufficient to show that the NCAA injured competition in a relevant market; and (3) it failed to allege facts sufficient to show an injury as a result of anticompetitive acts committed by the NCAA. On September 1, 2011, the district court granted the NCAA's motion to dismiss. The court held that plaintiffs failed to identify a cognizable market in which trade was improperly restrained, and that even if plaintiffs did adequately allege that there is a product market for bachelor's degrees or a labor market for student-athletes—as plaintiffs contended during oral argument—those markets are not cognizable in the context of the Sherman Act. Since the NCAA's first argument was sufficient to dismiss plaintiffs' claims, the court did not pass on the NCAA's other arguments. The district court also held that plaintiffs' claims would be dismissed with prejudice for two reasons. First, plaintiffs already had the opportunity to amend their complaint after being exposed to the NCAA's arguments in the Northern District of California, and yet they chose not to clearly identify a relevant commercial market. Second, plaintiffs did not show how they could alter their complaint to make it sufficient since, according to the district court, the markets discussed at oral argument are not cognizable under the Sherman Act. Plaintiffs have appealed the district court's decision to dismiss its claims as well as its decision to dismiss with prejudice.

II. Discussion

Plaintiffs' suit was brought pursuant to statutory provisions found in the Sherman Act and the Clayton Act. Under § 1 of the Sherman Act, [e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce ... is declared to be illegal.” 15 U.S.C. § 1. Plaintiffs' civil cause of action is rooted in the Clayton Act, which states that “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue ... and shall recover threefold the damages by him sustained.” 15 U.S.C. § 15. Plaintiffs allege that the Bylaws are a restraint on trade in the labor market for student-athletes and the product market for bachelor's degrees, and thus violated plaintiffs' statutory rights under the Sherman Act. The NCAA contends that plaintiffs' complaint did not identify any market, including a bachelor's degree or labor market, in which the Bylaws restrained trade. The NCAA further argues that even if plaintiffs' complaint did sufficiently identify a product market for bachelor's degrees or a labor market for student-athletes, those markets are not commercial, and therefore are not cognizable under the Sherman Act. If this is true, then any NCAA actions affecting those markets—to the extent that they are markets—are not subject to antitrust laws.

In reviewing the sufficiency of a complaint, we must accept all well pled facts as true and draw all permissible inferences in favor of the plaintiff. Active Disposal, Inc. v. City of Darien, 635 F.3d 883, 886 (7th Cir.2011). The Federal Rules of Civil Procedure require only that a complaint provide the defendant with “fair notice of what the ... claim is and the grounds upon which it rests.” Erickson v. Pardus, 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). We have explained, however, that a complaint may be “so sketchy that the complaint does not provide the type of notice of the claim to which the defendant is entitled under [the Federal Rules of Civil Procedure],” in which case a dismissal of the complaint is proper. Airborne Beepers & Video, Inc. v. AT & T Mobility LLC, 499 F.3d 663, 667 (7th Cir.2007). The Supreme Court has described this notice-pleading standard as requiring a complaint to “contain sufficient factual matter,...

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