Racetech, LLC v. Ky. Downs, LLC

Decision Date11 March 2016
Docket NumberCIVIL ACTION NO. 1:15-CV-00082-GNS
Citation169 F.Supp.3d 709
Parties Racetech, LLC, Plaintiff v. Kentucky Downs, LLC, Encore Gaming, LLC, Defendants
CourtU.S. District Court — Western District of Kentucky

Daniel Sakaguchi, Zachary C. Howenstine, Armstrong Teasdale, LLP, St. Louis, MO, E. Kenly Ames, English, Lucas, Priest & Owsley LLP, Bowling Green, KY, Kevin D. Evans, Armstrong Teasdale, LLP, Denver, CO, for Plaintiff.

David A. Barnette, Jackson Kelly, PLLC, Charleston, WV, Mary Elisabeth Naumann, William A. Hoskins, Jackson Kelly, PLLC, Lexington, KY, for Defendants.

MEMORANDUM OPINION AND ORDER

Greg N. Stivers

, Judge, United States District Court

This matter is before the Court on Plaintiff's Motion to Dismiss Amended Counterclaims (DN 22) and Plaintiff's Motion for Leave to File Overlength Reply (DN 33). The motions have been fully briefed and are ripe for decision. For the reasons stated below, the motions are GRANTED .

I. BACKGROUND

This motion to dismiss relates to counterclaims by Defendants Kentucky Downs, LLC (Kentucky Downs) and Encore Gaming, LLC (Encore) alleging violations of federal and Kentucky antitrust laws, interference with a business relationship, and civil conspiracy against RaceTech. (Answer & Am. Countercl. ¶¶ 66-116, DN 17). Plaintiff RaceTech, LLC (RaceTech) is a company that provides a pari-mutuel gaming system called INSTANT RACING™ based on historical horse racing, which is a means of pari-mutuel wagering through computer terminals utilizing data from past horse races.1 (Compl. ¶ 2, DN 1; Defs.' Resp. to Mot. to Dismiss 3-4, DN 25 [hereinafter Defs.' Resp.] ). The INSTANT RACING platform employs a totalizator service2 which is provided by AmTote International, Inc. (“AmTote”).3 Combined, the platform allows players to place wagers on past races via computer monitors with winnings paid out of a wager pool, rather than by the racetrack.

On August 19, 2011, RaceTech entered into a licensing agreement with Kentucky Downs to provide INSTANT RACING terminals at Kentucky Downs' racetrack located in Franklin, Kentucky. (Defs.' Resp. 7). The parties amended the agreement multiple times, including a provision allowing either party to terminate the license on thirty days' notice. (Defs.' Resp. 7). On February 19, 2015, RaceTech notified Kentucky Downs that it was terminating the agreement effective March 31, 2015, though RaceTech offered to continue service to Kentucky Downs on the condition that RaceTech would be its exclusive provider of historical wagering. (Defs.' Resp. 8). After Kentucky Downs refused these terms and the agreement expired, Kentucky Downs began offering wagering on historical racing through a rival system provided by Encore.

The alleged conspiracy began in March 2015, contemporaneous with the expiration of the RaceTech-Kentucky Downs license. (Answer & Am. Countercl. ¶ 46). According to Kentucky Downs, RaceTech induced Monarch to send a letter to Kentucky Downs claiming that Encore's terminals were improperly using racing content from fourteen racetracks, four of which are part of the Stronach Group. (Answer & Am. Countercl. ¶¶ 47-48; Defs.' Resp. 10). RaceTech also is alleged to have contacted the Kentucky Horsemen's Benevolent and Protective Association (“HBPA”) to inform the HBPA that Encore's system improperly used data without compensating jockeys. (Answer & Am. Countercl. ¶ 53). Defendants further claim that an officer of RaceTech communicated with Equibase, raising intellectual property concerns related to Encore's gaming system. (Answer & Am. Countercl. ¶ 55). Equibase then sent a letter to Encore, asserting that Encore was required to obtain advance permission from two racetracks before using data from races conducted at those tracks. (Answer & Am. Countercl. ¶ 56; Answer & Am. Countercl. Ex. H, at 1-2, DN 17-2). Finally, RaceTech representatives allegedly contacted a subsidiary of Equibase, Axcis Information Network, Inc. (“Axcis”), raising similar concerns. (Answer & Am. Countercl. ¶ 60). Combined, Defendants allege that a corporate conspiracy exists from the foregoing communications and actions intending to harm Defendants' historical racing operations.

II. JURISDICTION

The Court has subject matter jurisdiction over this case pursuant to 28 U.S.C. §§ 1331

and 1338(a) because it arises under the laws of the United States. This Court has supplemental jurisdiction over all other claims pursuant to 28 U.S.C. § 1367(a).

III. STANDARD OF REVIEW

Plaintiff has moved to dismiss Defendants' counterclaims. In order to survive dismissal for failure to state a claim under Rule 12(b)(6), the counterclaims “must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009)

(internal quotation marks omitted) (citation omitted). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citation omitted). [A] district court must (1) view the complaint in the light most favorable to the plaintiff and (2) take all well-pleaded factual allegations as true.” Tackett v. M & G Polymers, USA, LLC , 561 F.3d 478, 488 (6th Cir.2009) (citation omitted). “But the district court need not accept a bare assertion of legal conclusions.”

Id.

(internal quotation marks omitted) (citation omitted). “A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do. Nor does a complaint suffice if it tenders naked assertion[s] devoid of further factual enhancement.” Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (internal quotation marks omitted) (citation omitted).

IV. DISCUSSION

Defendants' counterclaims arise from RaceTech's supposed communications to third parties. Defendants first allege RaceTech violated Sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1

-7. (Answer & Am. Countercl. ¶¶ 66-92). Defendants claim a similar violation under state law, KRS 367.175(1) -(2). (Answer & Am. Countercl. ¶¶ 93-105). Finally, Defendants assert common law claims of tortious interference with a prospective business relationship and civil conspiracy. (Answer & Am. Countercl. ¶¶ 106-116). The Court considers each claim in turn.

A. Sherman Antitrust Act Claims

Defendants allege antitrust claims under Sections 1 and 2 of the Sherman Antitrust Act. (Answer & Am. Countercl. ¶¶ 66-92). Section 1

outlines the specific types of practices that constitute anticompetitive conduct and provides that [e]very 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. Section 2 makes it illegal to “monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations ....” 15 U.S.C. § 2.

1. Section 1
Claim

To state a cause of action under Section 1 of the Sherman Antitrust Act, Defendants must allege three elements: (1) the existence of a contract, combination, or conspiracy (2) affecting interstate commerce (3) that imposes an unreasonable restraint on trade.” Churchill Downs Inc. v. Thoroughbred Horsemen's Grp., LLC , 605 F.Supp.2d 870, 887 (W.D.Ky.2009)

(citations omitted). While the Section 1 does not provide a private cause of action, 15 U.S.C. § 15 creates such an action for “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws ....” 15 U.S.C. § 15(a). Standing to assert a claim requires:

[An] antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful. The injury should reflect the anticompetitive effect either of the violation or of anticompetitive acts made possible by the violation. It should, in short, be the type of loss that the claimed violations ... would be likely to cause.

Brunswick Corp. v. Pueblo Bowl O Mat, Inc. , 429 U.S. 477, 489, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977)

(internal quotation marks omitted) (citation omitted). See also

Chrysler Corp. v. Fedders Corp. , 643 F.2d 1229, 1235 (6th Cir.1981) (applying Brunswick Corp. ). Thus, Defendants must allege an actual injury to establish a Section 1 claim.

While Defendants assert that RaceTech's communications have jeopardized Encore's supply of historical racing data, their counterclaim does not allege an actual injury. (Answer & Am. Countercl. ¶¶ 76-83). Defendants instead claim only a potential injury to their business and what could happen “if [RaceTech's] [efforts] are successful ....” (Answer & Am. Countercl. ¶¶ 76, 78). Encore's licensing agreement with Equibase is currently in effect until December 31, 2016, and Defendants have not stated that their access to the data from Equibase has actually been adversely affected by RaceTech's actions. (Answer & Am. Countercl. ¶¶ 40-41). As such, Defendants' fail to allege any actions on the part of RaceTech which have ripened into an actual injury as required to state a private cause of action under Section 1

.

Equibase's letter dated April 16, 2015, does not constitute an injury sufficient to support the alleged Section 1

violation. In that letter, Equibase directs that Encore comply with the terms of their licensing agreement. (Answer & Am. Countercl. Ex. H, at 1-2). There is no claim, however, that Equibase has ended its relationship with Encore or that Encore's access to historical racing data has presently been hindered in any way. Encore cannot claim an injury simply because Equibase requests that Encore comply with its existing contractual obligations. To the contrary, Kentucky Downs—which utilizes Encore's services—has...

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