Blue Tree Hotels Inv. V. Starwood Hotels & Resorts

Decision Date20 May 2004
Docket NumberDocket No. 02-9312.
Citation369 F.3d 212
PartiesBLUE TREE HOTELS INVESTMENT (CANADA), LTD., Edmonton Plaza Hotel, Inc., Caesar Park Hotels & Resorts Tucson Co. and Caesar Park Hotels & Resorts Hilton Head Ltd. Partnership, Plaintiffs-Appellants, v. STARWOOD HOTELS & RESORTS WORLDWIDE, INC., Starwood Hotels & Resorts, Westin Canada Management Co., Westin Ottawa Management Co. and Westin North America Management Co., Defendants-Appellees.
CourtU.S. Court of Appeals — Second Circuit

Cecelia L. Fanelli, Stroock & Stroock & Lavan, LLP (Bruce H. Schneider, on the brief), New York, NY, for Plaintiffs-Appellants

Daniel Brown (William A. Brewer III, James S. Renard, Jeremy R. Wilson, Bickel & Brewer, on the brief), New York, NY, for Defendants-Appellees

Before: WALKER, Chief Judge, CALABRESI, Circuit Judge, and KORMAN, Chief Judge.*

JOHN M. WALKER, JR., Chief Judge.

Plaintiffs-appellants Blue Tree Hotels Investment (Canada), Ltd., Edmonton Plaza Hotel, Inc., Caesar Park Hotels & Resorts Tucson Company, and Caesar Park Hotels & Resorts Hilton Head Limited Partnership (collectively, "Blue Tree Owners") are owners of seven Westin Hotels in Canada and the United States ("Hotels"). Defendants-appellees Starwood Hotels & Resorts Worldwide, Inc., Starwood Hotels & Resorts, Westin Canada Management Co., Westin Ottawa Management Co., and Westin North America Management Co. (collectively, "Starwood") are a group of related companies that own and/or manage numerous hotels throughout the world (including Westin Hotels, W Hotels, Four Points Hotels, St. Regis Hotels, and Sheraton Hotels). In a complaint filed pursuant to § 4 of the Clayton Act, 15 U.S.C. § 15(a), the Blue Tree Owners alleged that Starwood, acting in its capacity as the manager of their Hotels, has engaged in commercial bribery by receiving and retaining various rebates and discounts in connection with its purchasing activities on behalf of the Hotels and the other hotels Starwood owns and/or manages. Asserting that this conduct violates § 2(c) of the Robinson-Patman Act, 15 U.S.C. § 13(c), the Blue Tree Owners claim treble damages and attorneys' fees.

The United States District Court for the Southern District of New York (Charles L. Brieant, Jr., District Judge) entered judgment dismissing the complaint under Fed.R.Civ.P. 12(b)(6) for failure to state a claim. The district court ruled that the Blue Tree Owners lacked standing to seek treble damages for the alleged violation, concluding that the only parties who would be able to allege an antitrust injury arising from this type of § 2(c) violation would be vendors who directly compete with the vendors who paid the alleged commercial bribes to Starwood. The Blue Tree Owners appeal.

While we conclude that the district court erred in holding that proof of competitive injury was a necessary component of a § 2(c) violation, we nevertheless find that appellants have failed to allege a violation of § 2(c). Accordingly, we affirm the district court's dismissal of the complaint.

BACKGROUND

In 1995, Starwood purchased the entire chain of Westin hotels with the exception of the Hotels owned by the Blue Tree Owners. Prior to Starwood's purchase of the Westin chain, each of the Blue Tree Owners had entered into management agreements (the "Management Agreements") with the Westin Hotel Company ("Westin"), pursuant to which Westin operated the Hotels on behalf of the Blue Tree Owners. As part of its purchase of the Westin chain, Starwood acquired Westin's interest in the Management Agreements.

Under the Management Agreements, Starwood is obligated to operate the Hotels on behalf of the Blue Tree Owners in exchange for management fees, reimbursement for expenses incurred by Starwood for the Blue Tree Owners' accounts, and payment of a percentage of the Westin chain's overhead costs. Each Management Agreement grants Starwood discretion to purchase for the Hotels any operating supplies and fixtures it deems advisable. In addition, all but one of the Management Agreements permit Starwood to "implement [its] standard administrative, accounting, budgeting, marketing, personnel, and operational policies and practices relating to or affecting hotel operations, as those policies may be amended from time to time, but all of which [the Blue Tree Owners] agree [] to accept."

In July 2000, Starwood filed a complaint against the Blue Tree Owners in New York State Supreme Court asserting several claims, including breach of contract, tortious interference with business relationships, and fraud.1 In October 2000, the Blue Tree Owners and others filed a complaint against Starwood, also in New York State Supreme Court, asserting claims of commercial bribery, fraud, negligent misrepresentation, conversion, breach of contract, and breach of fiduciary duty.2 As of the date of oral argument in this case, both of these state court cases were still pending.

The Blue Tree Owners filed this federal action in April 2002, asserting a private antitrust claim pursuant to § 4 of the Clayton Act, 15 U.S.C. § 15(a), based on allegations that Starwood has engaged in a commercial bribery scheme that violates § 2(c) of the Robinson-Patman Act, 15 U.S.C. § 13(c). Specifically, the Blue Tree Owners allege that (1) one of Starwood's responsibilities under the Management Agreements is to act as a purchasing agent for the Hotels; (2) it performs such purchasing activities in conjunction with its purchases for the other hotels it owns or manages; (3) it has "entered into agreements with vendors to provide the Hotels with the goods, wares and merchandise that the Hotels require"; and (4) pursuant to these agreements, Starwood has "sought and obtained undisclosed Kickbacks" from the vendors, thereby engaging in an "unlawful Kickback scheme." The Blue Tree Owners define these "Kickbacks" as "allowances, bonuses, charges, commissions, credits, discounts, fees, incentives, profits, rebates, and/or kickbacks."

The Blue Tree Owners acknowledge that they have no involvement in or control over the negotiation and execution of the purchasing agreements between Starwood and its vendors. They complain, however, that Starwood has "intentionally failed to disclose and/or fraudulently concealed [its] receipt and retention of [the] Kickbacks [as well as] the amount of Kickbacks [it has] received and retained in the aggregate, and with respect to each of the Hotels individually." In addition, the Blue Tree Owners allege, Starwood "intended to retain [and] did retain ... the Kickbacks for [its] own account and to profit therefrom to the detriment of the Hotels and in violation of [its fiduciary] duties and obligations to [the Blue Tree Owners]."

The complaint further alleges that, as a consequence of the "Kickback scheme," Starwood is acting as a "dishonest competitor[]" because the Hotels compete with the other hotels Starwood owns and manages, including the Westin and Sheraton brands. The Blue Tree Owners assert that they have been injured by the "Kickback scheme" because (1) it has deprived them of the opportunity to obtain advantageous prices and terms that would otherwise be available from vendors who did not participate in the "Kickback scheme"; and (2) it has increased the cost of goods to the Blue Tree Owners while simultaneously reducing the cost of goods and generating profits for Starwood. The Blue Tree Owners seek treble damages and attorneys' fees. They also seek permanent injunctive relief prohibiting Starwood from continuing (a) to obtain and retain "Kickbacks" and (b) to impede the Blue Tree Owners' access to the Hotels' financial and operating information.

Attached to the complaint are copies of the seven Management Agreements, as well as a series of letters dating from December 1998 to June 2000 that were sent on behalf of the Blue Tree Owners to Starwood and its accountants. The initial letters sent to Starwood in 1998 and 1999 requested information concerning, inter alia, Starwood's "[t]reatment of [r]ebates and [c]ommissions," including the total amount of rebates, "the way in which Starwood expects to use rebates to offset the cost of [Starwood's] purchasing function," and the proportion of rebates that would be allocated to the Hotel's marketing fund. In subsequent letters to Starwood, the Blue Tree Owners objected to Starwood's retention of rebates and other compensation it obtained from its purchasing activities, asserting that "rebates are owned by the [Blue Tree Owners]."

In May 2002, Starwood moved to dismiss the complaint. The district court granted Starwood's motion on the ground that, as a matter of law, the Blue Tree Owners did not have standing to pursue a § 2(c) claim based on the alleged commercial bribery scheme. As an initial matter, the district court noted that whether commercial bribery falls within the ambit of § 2(c) was an open question in this circuit. On the assumption that § 2(c) comprehends commercial bribery, however, the district court held that a plaintiff seeking to file a private cause of action for treble damages and attorneys' fees would nevertheless have to allege an antitrust injury in accordance with the requirements of § 4 of the Clayton Act, because § 2(c) does not itself create a private cause of action.

Next the district court observed that the legislative history of the Robinson-Patman Act showed that § 2(c) "was enacted to remedy ... [t]he abuses ... [of] price discrimination obtained through brokerage schemes[] and the unfair advantage over a competing seller who could not or would not pay kickbacks." The district court concluded that in light of this purpose, the only plaintiffs with standing to file a private action based on the alleged scheme would be the vendors of hotel supplies who directly competed with the vendors who paid the "Kickbacks" to Starwood. The district court reasoned that competing vendors would be the only parties who could...

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