Christy Sports, LLC v. Deer Valley Resort Co.

• Decision Date: 18 February 2009
• Docket Number: No. 07-4198.,07-4198.
• Citation: 555 F.3d 1188
• Parties: CHRISTY SPORTS, LLC, a Colorado Limited Liability Company, Plaintiff-Appellant, v. DEER VALLEY RESORT COMPANY, LTD., a Utah Limited Partnership, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

555 F.3d 1188

CHRISTY SPORTS, LLC, a Colorado Limited Liability Company, Plaintiff-Appellant, v. DEER VALLEY RESORT COMPANY, LTD., a Utah Limited Partnership, Defendant-Appellee.

No. 07-4198.

United States Court of Appeals, Tenth Circuit.

February 18, 2009.

Thomas P. McMahon, Jones & Keller, P.C., Denver, CO (Steven G. Loosle, Kruse Landa Maycock & Ricks, LLC, Salt Lake City, UT, with him on the briefs), for Plaintiff-Appellant.

Gordon Strachan, Strachan, Strachan, & Simon, P.C., Park City, UT (Kevin J. Simon, with him on the brief), for Defendant-Appellee.

Before McCONNELL, EBEL, and GORSUCH, Circuit Judges.

McCONNELL, Circuit Judge.

When the Deer Valley Resort Company ("DVRC") was developing its world-renowned ski resort in the Wasatch Mountains, it sold parcels of land within the resort village to third parties, while reserving the right of approval over the conduct of certain ancillary businesses on the property, including ski rentals. For about fifteen years, DVRC granted permission to Cole Sports and plaintiff-appellant Christy Sports to rent skis in competition with its own ski rental outlet. More recently, however, DVRC revoked that permission, presumably in order to gain more business for its own newly-opened mid-mountain ski rental store. The question is whether this revocation violated the antitrust laws. We conclude that it did not.

I. Background

Deer Valley is one of three resorts in the vicinity of Park City, Utah. Many— indeed, "the vast majority," according to the Complaint, ¶ 25 — of Deer Valley's patrons are destination skiers who fly into Salt Lake City and then take a forty-five minute bus or shuttle ride to the resort. The resort itself is divided into two areas: the base area, located at the bottom of the mountain, and the ritzier mid-mountain village, located halfway up the slope. DVRC has always been the sole provider of ski rentals at the base area, but at the mid-mountain village, Christy and Cole Sports have operated rental facilities; DVRC itself opened a mid-mountain ski rental facility in 2005.

Originally, DVRC owned all the property at the mid-mountain village, but over the years it has sold parcels to third parties. In 1990, DVRC sold one such parcel to S.Y. and Betty Kimball, subject to a restrictive covenant that prohibited use of the property for either ski rental or real estate sales office purposes without DVRC's express written consent. The Kimballs built a commercial building and leased space in it to Christy's corporate predecessor, Bulrich Corporation. The lease expressly prohibited both the rental of skis and the operation of a real estate office. The next year, though, DVRC gave Bulrich permission to rent skis in return for 15% of the rental revenue. When Bulrich merged with another company in 1994 and formed Christy Sports, LLC, Christy continued to operate the rental business. According to the complaint, Christy stopped paying DVRC 15% of its rental revenue in 1995, though the reason for this change is unknown. Christy rented skis at the Deer Valley mid-mountain village with no objection from DVRC until 2005. During that time, DVRC was the sole purveyor of rental skis at the base area but did not have a ski rental operation at mid-mountain.

DVRC opened a mid-mountain ski rental outlet in 2005. In August of that year, the resort notified Christy that, beginning the following year's ski season, the restrictive covenant would be enforced and Christy would no longer be allowed to rent skis. Christy believes that DVRC issued the same message to Cole's, leaving DVRC as the only rental ski provider at Deer Valley, with the exception of a small operation at the Stein Eriksen Lodge, which serves its own lodgers. This leaves that majority of skiers who fly into Salt Lake City and then shuttle to Deer Valley with few choices: they can carry unwieldy ski equipment onto the plane,¹ take a shuttle into Park City and hunt for cheaper ski rentals in town, or rent from the more conveniently located DVRC location. Christy predicts, not improbably, that most consumers will choose the third option.

Christy argues that DVRC's decision to begin enforcing its restrictive covenant is an attempt to monopolize the market of ski rentals available to destination skiers in Deer Valley, or, alternatively, to the destination skiers in the mid-mountain village itself. It alleges that by eliminating its competitors, DVRC will be able to increase prices and reduce output, thus harming consumers. The complaint states that the number of skis available for rental mid-mountain will decline by 620 pairs, and the price will increase by at least twenty-two to thirty-two percent.

The district court dismissed Christy's antitrust complaints. In this appeal, Christy challenges only the dismissal of its claims under § 2 of the Sherman Act.

II. Analysis

We review the grant of a Rule 12(b)(6) motion to dismiss de novo. Teigen v. Renfrow, 511 F.3d 1072, 1078 (10th Cir.2007). In doing so, we ask whether there is "plausibility in [the] complaint." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1970, 167 L.Ed.2d 929 (2007). The complaint "does not need detailed factual allegations," id. at 1964, but the "[f]actual allegations must be enough to raise a right to relief above the speculative level." Id. at 1965. When, in Twombly, the Supreme Court emphasized the need for plausibility in the complaint rather than "wholly conclusory statement[s]," id. at 1966-67, it warned particularly of the high costs and frequent abuses associated with antitrust discovery. Id. at 1959 ("It is one thing to be cautious before dismissing an antitrust complaint in advance of discovery, but quite another to forget that proceeding to antitrust discovery can be expensive.") (internal citations omitted). The concept of "plausibility" at the dismissal stage refers not to whether the allegations are likely to be true; the court must assume them to be true. The question is whether, if the allegations are true, it is plausible and not merely possible that the plaintiff is entitled to relief under the relevant law. Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir.2008).

Christy has alleged that DVRC violated § 2 of the Sherman Act by either actual or attempted monopolization. "The offense of monopoly under § 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power." United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966). Similarly, an attempt claim must show "(1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power," with the third element requiring "consider[ation] [of] the relevant market and the defendant's ability to lessen or destroy competition in that market." Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456, 113 S.Ct. 884, 122 L.Ed.2d 247 (1993). Under both types of § 2 claims Christy must therefore plead both power in a relevant market and anticompetitive conduct. The relevant market, according to Christy's complaint, is the market for ski rentals to destination skiers in Deer Valley in general or, even more narrowly, the market for ski rentals in the mid-mountain village. Compl. ¶ 61. The alleged anticompetitive conduct is the enforcement of the restrictive covenant.

A great many pages in the briefs are devoted to whether the defined market set forth in the complaint—destination skiers at Deer Valley, or alternatively at Deer Valley's mid-mountain village—is too small to constitute a market for antitrust purposes, in light of the proximity of a number of ski rental outlets in Park City, just down the road. For purposes of analyzing the complaint, however, we find it not implausible that destination skiers who arrive at the resort by bus or shuttle will find it sufficiently inconvenient to travel into town to rent skis that a successful monopolist over ski rental at Deer Valley could charge supracompetitive prices. The question, we believe, is not whether DVRC might be able to raise prices and reduce output by becoming the only purveyor of rental skis at the resort, but whether such a market is legally cognizable under the antitrust laws and whether the decision of a resort owner to reserve to itself the right to provide ancillary services counts as anticompetitive conduct.

The defendant argues that these issues must be analyzed primarily from the temporal perspective of DVRC's decision to impose a restrictive covenant on the sale of the property to the Kimballs. It points out that DVRC had the right not to sell the property at issue at all; it could have operated its own ski rental facilities at mid-mountain as it did at the base, without allowing competitors to enter the business. None of this would have violated the antitrust laws. Such an arrangement would not have diminished competition; on the contrary, by creating a resort and providing all the services ancillary to it, DVRC increased competition in the ski industry as a whole. The defendant argues that the analysis is the same when it allows an outside ski rental provider to operate for a period of time, and later changes its mind. If it is permissible for a resort owner to impose a covenant on land sales restricting potential competition in the provision of ancillary services, defendants argue, it must be permissible to exercise those rights under the covenant at a later date.

The plaintiff argues, on the contrary, that the temporal focus should be on DVRC's decision to withdraw its consent to the operation of Cole and Christy's ski rental facilities. It argues that this decision diminished competition in the ski rental business for destination skiers at Deer Valley (or, alternatively, at mid-mountain), and will result in lowered output and higher prices for ski rentals, as...