Doron Precision Systems, Inc. v. Faac, Inc.
| Decision Date | 23 March 2006 |
| Docket Number | No. 05 Civ. 7663(PAC).,05 Civ. 7663(PAC). |
| Citation | 423 F.Supp.2d 173 |
| Parties | DORON-PRECISION SYSTEMS, INC., Plaintiff, v. FAAC, INC. and New York City Transit Authority, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Heather E. Caramello, Joshua C. Krumholz, Holland, Knight Law Firm-Boston Office, Boston, MA, Peter H. Bouman, Xibai Gao, Coughlin & Gerhart Law Firm, Binghamton, NY, James Vincent Marks, Holland & Knight LLP (Fla.), Jacksonville, FL, for Plaintiff.
Angela L. Jackson, Anthony P. Patti, Bruce T. Wallace, Susan T. Cannell, Hooper, Hathaway, Price, Beuche & Wallace, Ann Arbor, MI, Michael Jeffrey Hahn, Lowenstein Sandler PC, Roseland, NJ, Aldan John Synnott, Paul, Weiss, Rifkind, Wharton & Garrison LLP (NY), New York, NY, for Defendants.
Plaintiff Doron Precision Systems, Inc. filed this lawsuit against FAAC, Inc., a private company, and the New York City Transit Authority, a public transit authority, alleging violations of the Sherman Antitrust Act, 15 U.S.C. §§ 1 and 2, and the Donnelly Act (New York's antitrust law), N.Y. Gen. Bus L. § 340(1), as well as violations of a variety of New York state laws governing competitive bidding by public entities and the proper use of public funds. Defendants FAAC and NYCTA now move to dismiss Doron's amended complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6) ("Federal Rule 12(b)(6)"). For the reasons set forth below, the Court grants the motions to dismiss.
Plaintiff Doron Precision Systems, Inc. ("Doron" or "Plaintiff") is a small company located in Binghamton, New York. (Am. Compl.¶¶ 1:) It specializes in the manufacture and sale of electronic educational systems, such as educational television systems and driving simulators.1 (Id. ¶ 14.) Doron has sold computer-aided driving simulators to public transit authorities for almost eighteen years, selling the first system to Broward County Transit in June 1988.2 (Id. ¶¶ 23-24.)
Until 1999, Doron was the only manufacturer of computer-aided bus-driving simulators for public transit agencies in the United States. (Id. ¶ 28.) Other companies, including such formidable companies as General Electric and Lockheed Martin, attempted to manufacture and sell similar products, but none of them was able to compete successfully in the marketplace, thereby leaving Doron as the only major player in the market. (Id. ¶ 27.)
In 1999, Doron lost its long-held monopoly when Defendant FAAC, Inc. ("FAAC") entered the market. Prior to 1999, FAAC, a Michigan company, specialized in manufacturing simulators primarily for truck and military applications, and had never manufactured or sold driving simulators to the bus industry. (Id. ¶¶29, 31.) In February 1999, however, FAAC contracted with Defendant New York City Transit Authority ("NYCTA") to convert FAAC's existing truck-driving simulator into a busdriving simulator that rivaled Doron's product. (Id. ¶¶ 29, 30, 32.)
On February 26, 1999, NYCTA President Lawrence G. Reuter authorized NYTA contract No. 99B7424 (the "NYCTFAAC Contract" or "February 1999 Contract"), which initiated a partnership between NYCTA and FAAC to develop a bus-driving simulator to train bus drivers working for urban and suburban public transit authorities nationwide. (Id. ¶ 30-33.) The contract was entered into on a sole-source basis, without a competitive bidding process, and without the approval of the NYCTA Board. (Id. ¶ 30.)
The NYCTA-FAAC Contract was structured as a profit-sharing partnership. FAAC received $200,000 from NYCTA for development of the bus simulator, a bus cab from the NYCTA fleet, and an additional $60,000 to modify the bus cab for use as a simulator. (Id. ¶¶ 34, 35.) NYTA also agreed to purchase approximately $180,000 in hardware required to develop the simulator and to make NYCTA employees available to provide "subject matter expertise." (Id. ¶ 35.) In return NYCTA would receive a non-exclusive license to use the simulator and up to $240,000 in royalties from FAAC's sales of the bus simulator "to offset non-recurring engineering labor funded by NYCTA in development of [the bus simulator]."3 (Buckingham Decl., Ex. A (N.Y.CTFAAC Contract, clause 9).) Royalties were to be paid to NYCTA only from sales of the FAAC bus simulator to entities other than NYCTA and its sister agencies, so NYCTA recouped its initial investment only if FAAC successfully sold its bus simulator to other public transit authorities (or private bus companies) around the country.4 (Id.)
Numerous modifications were made to the February 1999 Contract. (Am. Compl.¶¶ 44-56.) These modifications authorized additional payments to FAAC for the creation of the simulator, both in cash and through the provision of additional parts and software, and authorized the purchase of additional products from FAAC in connection with the project. (Id.) Later modifications also allocated NYCTA staff to assist FAAC in selling the product to other public transit authorities.5 (Id. ¶ 56.) None of these modifications was subject to competitive bidding. (Id. ¶¶ 44-56.) While some of these modifications were approved by the NYCTA Board, Doron alleges that the Board only approved these modifications because it was misled to believe that only FAAC could meet NYCTA's needs and fulfill the contract. (Id.)
Having completed the development work on the new simulator, FAAC and NYCTA launched a campaign to sell the simulator to other public transit authorities throughout the United States. NYCTA used its "nationwide influence and prestige in the transit industry" to endorse the product, donating its corporate logo to advertise and promote the simulator, providing potential customers with access to its resources and staff, and giving training and technical support to other public transit authorities that purchased the simulator. (Id. ¶ 80.) NYCTA does not provide similar sales, marketing and training support to Doron or its customers. (Id. ¶85.)
FAAC has had a great deal of success marketing and selling its bus-driving simulator. In fact, even though Doron's bus simulator is substantially cheaper than FAAC's simulator, FAAC has prevailed over Doron in a number of public bids. (Id. ¶ 156.) Doron alleges that this success is due not to the superiority of FAAC's product, but to the fact that FAAC and NYCTA have induced the "unsophisticated procurement officers" employed by public transit authorities to write the specifications of the FAAC simulator into their requests for proposals ("RFPs"). (Id. ¶¶ 87-89, 144, 156; Oral Argument Tr. 41, 44.) Because Doron's simulator uses vastly different technology, only FAAC can satisfy these tailored RFPs and win the contracts. (Am. Compl.¶ 156.) According to Doron, this conduct is "deceptive" and "anticompetitive" because it induces the public transit authorities to "break their own procurement laws." (Id. ¶ 89; Oral Argument Tr. 41, 44, Dec. 9, 2005.)
Doron provides numerous instances in which FAAC successfully procured a contract for its bus simulator as a result of tailored bid specifications. For example, on December 9, 2002, the Los Angeles County Metropolitan Transportation Authority published an RFP containing specifications that mirrored in large part the specifications of the FAAC product. (Am. Compl.¶ 92.) Both Doron and FAAC submitted proposals in response to the RFP. (Id. ¶ 94.) Despite the fact that FAAC's simulator cost almost twice the amount of Doron's product, FAAC won the bid because its product was the only one that met all the detailed specifications contained in the RFP. (Id.) Similarly tailored RFPs have been published by the Metropolitan Suburban Bus Authority, City of Flint, Michigan, and Maryland Transit Authority, among others. (Id. ¶¶97-142, 149, 151, 153, 156.) In each case, FAAC won the contract because only its product could meet the specifications written into the RFP. (Id.)
Doron protested a number of these bids.6 (Id. ¶¶ 96, 112, 126, 139, 140, 151, 157.) While some of these protests were successful, none of these protests has led to the sale of a Doron simulator, as the subject authorities have responded to the bid protest either by issuing a new RFP with similar, though less directly tailored, specifications, or by withdrawing the RFP altogether. (Id.) As a result, FAAC obtained 80%-90% of the market share for bus simulators from 1999 through 2002. (Id. ¶ 156.) While Doron alleges in its amended complaint that it has "failed to secure a single bid in over two years" (id. ¶ 158), and therefore Doron now has 100% of the market for computer-aided bus-driving simulators, this statement conflicts with the representations on Doron's own website, which announces that the Nashville Metropolitan Transit Authority purchased Doron's interactive bus-driving simulator in November 2005.7 See www.doron precision.com/press_releases/nov12005.html.8
Doron complains that NYCTA and FAAC violated a number of federal and state laws. First, Doron claims the February 1999 Contract violated the New York Public Authorities Law, which requires that NYCTA procure goods and services through open and competitive bidding. Second, Doron claims that the contract violated the New York Constitution's prohibition against gifts of public funds to private entities, because NYCTA gave equipment purchased with public funds to FAAC withotit fair compensation. Third, and most important for purposes of the Court's analysis, Doron claims that the February 1999 Contract and subsequent sales efforts violated federal and New York state antitrust laws, because they restrained trade and were intended to give FAAC a monopoly in the bus-simulator market. Because Doron's Sherman Act antitrust claims are the only causes of action arising under federal law, the Court considered only these claims when deciding Defendants' motions...
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