Guzowski v. Hartman

Decision Date12 August 1992
Docket NumberNo. 90-1737,90-1737
Citation969 F.2d 211
Parties1992-1 Trade Cases P 69,890, RICO Bus.Disp.Guide 8044 Frank GUZOWSKI; Lorraine Guzowski; Raymond Guzowski; and Donald Guzowski, Plaintiffs-Appellants, v. Bernard HARTMAN; Herbert Tyner; Emanuel J. Sears; James Karoub; Detroit Racing Association, Inc.; and Hazel Park Racing Association, Inc., Defendants-Appellees.
CourtU.S. Court of Appeals — Sixth Circuit

P. David Palmiere (argued and briefed), Hardig & McConnell, Bloomfield Hills, Mich., for plaintiffs-appellants.

J. Leonard Hyman, Nazli G. Sater (argued), Hyman and Lippitt, Sharon Mullin Fox (briefed), Carson, Fischer & Potts, Birmingham, Mich., for defendants-appellees.

Before: KEITH and MARTIN, Circuit Judges; and KRUPANSKY, Senior Circuit Judge.

KRUPANSKY, Senior Circuit Judge.

The plaintiffs-appellants Frank Guzowski, Lorraine Guzowski, Raymond Guzowski, and Donald Guzowski ("Guzowskis") have appealed the order and judgment of the district court dismissing their complaint for failure to state a claim. The Guzowskis, who owned and operated a family partnership that engaged in breeding, training, and racing thoroughbred horses, brought this complaint against the Hazel Park Racing Association, Inc., which owns and operates the Hazel Park Race Course, Detroit Racing Association, Inc., and its subsidiary the Detroit Race Course. Both racing corporations are owned by the defendants-appellees Bernard Hartman and Herbert Tyner. The defendant-appellee Emanuel J. Sears was racing secretary at both tracks. 1

This is the third appellate review of this controversy. The Guzowskis filed the initial complaint in this action in 1981. It charged violations of the Sherman Act, 15 U.S.C. sections 1 and 2, 42 U.S.C. section 1983, and 42 U.S.C. section 1985(3). It also asserted several pendent state law causes of action. The first complaint was dismissed by the district court (Churchill, J.) for failure to state a claim. This court affirmed the district court's dismissal of the only count appealed, the Sherman Act section 1 refusal to deal claim. Guzowski v. Hartman, 723 F.2d 909 (6th Cir.1983) (per curiam).

The Guzowskis filed a second complaint in 1984, which is currently under review. The allegations in the second complaint, like the allegations of the first complaint, are anchored in the same conspiracy that the Guzowskis assert was calculated to bar them from racing thoroughbred horses in Michigan by refusing to permit their horses onto the Michigan tracks, denying their horses stall space, and publishing false statements about Frank Guzowski. The second complaint was essentially the same as the first complaint and alleged violations of the Sherman Act, 15 U.S.C. sections 1 and 2, and the Clayton Act, 15 U.S.C. sections 14 and 25, in Counts II and III. Counts IV and V alleged violations of 42 U.S.C. sections 1983 and 1985(3). Count X alleged a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. sections 1961 to 1968, together with four counts of pendent state law violations.

The district court (La Plata, J.) dismissed the entire second complaint by applying the doctrine of res judicata. A panel of this court reversed that dismissal, concluding that this court's affirmance of the trial court's dismissal of the first complaint was without prejudice, thereby permitting the Guzowskis to refile the Sherman Act section 1 action. This court also explained that the RICO recovery, if any existed, was embraced within the same general refusal to deal theory arising under the Sherman Act section 1 cause of action and, accordingly, remained as a viable action. Finally, this court stated that the 1981 causes of action that were not appealed in the first appeal, the Sherman Act section 2 cause of action and the 42 U.S.C. section 1983 and 1983(5) causes of action, were to be evaluated under principles of issue preclusion, i.e., collateral estoppel, rather than claim preclusion, i.e., res judicata. Guzowski v. Hartman, 849 F.2d 252, 255-56 (6th Cir.1988) (Guzowski II ).

On remand, the district court addressed the sufficiency of the Sherman Act sections 1 and 2, the Clayton Act, and the RICO causes of action on their individual merits and dismissed them for failure to state a claim. The district court determined that the sections 1983 and 1983(5) causes of action were barred by issue preclusion. The Guzowskis have appealed the dismissal of all the federal causes of actions except those invoking the Clayton Act.

The charged trial court error in the second dismissal of the second complaint is reviewed by this court de novo pursuant to Fed.R.Civ.P. 12(b)(6). Dana Corp. v. Blue Cross & Blue Shield, 900 F.2d 882, 885 (6th Cir.1990); Dugan v. Brooks, 818 F.2d 513, 516 (6th Cir.1987). In considering the sufficiency of the complaint, this court must construe the complaint in the light most favorable to the Guzowskis, accept all of the Guzowskis' factual allegations as true, and affirm the dismissal only if "it appears beyond doubt that the plaintiff[s] can prove no set of facts in support of [their] claim which would entitle [them] to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). Hishon v. King & Spaulding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984); Dana Corp., 900 F.2d at 885.

Section 1 of the Sherman Act provides, "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal...." 15 U.S.C. § 1 (Supp.1991). As the statutory language indicates, the threshold requirement to proving a section 1 refusal to deal cause of action is a contract, agreement, or conspiracy to restrain trade. Davis-Watkins Co. v. Service Merchandise, 686 F.2d 1190, 1196 (6th Cir.1982). Section 1 does not reach conduct that is "wholly unilateral" and does not reach agreements between the officers of a corporation and its employees. The thrust of a conspiracy to restrain trade within the factual parameters of this case is concisely explained by the Supreme Court in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984):

The distinction between unilateral and concerted conduct is necessary for a proper understanding of the terms 'contract, combination ... or conspiracy' in § 1. Nothing in the literal meaning of those terms excludes coordinated conduct among officers or employees of the same company. But it is perfectly plain that an internal 'agreement' to implement a single, unitary firm's policies does not raise the antitrust dangers that § 1 was designed to police. The officers of a single firm are not separate economic interests, so agreements among them do not suddenly bring together economic power that was previously pursuing divergent goals.... For these reasons, officers or employees of the same firm do not provide the plurality of actors imperative for a § 1 conspiracy.

There is also a general agreement that § 1 is not violated by the internally coordinated conduct of a corporation and one of its unincorporated divisions. Although this Court has not previously addressed the question, there can be little doubt that the operations of a corporate enterprise organized into divisions must be judged as the conduct of a single actor. The existence of an unincorporated division reflects no more than a firm's decision to adopt an organizational division of labor. A division within a corporate structure pursues the common interests of the whole rather than interests separate from those of the corporation itself; a business enterprise establishes divisions to further its own interests in the most efficient manner. Because coordination between a corporation and its division does not represent a sudden joining of two independent sources of economic power previously pursuing separate interests, it is not an activity that warrants § 1 scrutiny.

....

For similar reasons, the coordinated activity of a parent and its wholly owned subsidiary must be viewed as that of a single enterprise for purposes of § 1 of the Sherman Act. A parent and its wholly owned subsidiary have a complete unity of interest. Their objectives are common, not disparate; their general corporate actions are guided or determined not by two separate corporate consciousness, but one. They are not unlike a multiple team of horses driving a vehicle under the control of a single driver. With or without a formal "agreement," the subsidiary acts for the benefit of the parent, its sole shareholder. If a parent and a wholly owned subsidiary do "agree" to a course of action, there is no sudden joining of economic resources that had previously served different interest, and there is no justification for a § 1 scrutiny.

Copperweld Corp. v. Independence Tube Corp., 467 U.S. at 769-771, 104 S.Ct. at 2740-42, 81 L.Ed.2d 628; see also Directory Sales Mgmt. v. Ohio Bell Telephone Co., 833 F.2d 606 (6th Cir.1987).

In the instant case, the district court noted that although the two racetracks are owned by separate corporations, the shareholders of the corporations, Hartman and Tyner, are identical. The corporations were, accordingly, a single economic unit serving a common interest and could not conspire with each other. See American Tobacco Co. v. United States, 328 U.S. 781, 810, 66 S.Ct. 1125, 1139, 90 L.Ed. 1575 (1946). The common economic identity of the two corporations is reinforced by the contained size of the corporations and their limited shareholders. Thus, the racetracks could not, for purposes of a Sherman Act section 1 cause of action, combine, contract or conspire to restrain trade. Likewise, under Copperweld Corp., the officers of the corporations could not combine, contract, or conspire with the corporation's own employees of its related entities. Copperweld Corp., 467...

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