Schwartz v. Upper Deck Co., Civ. 96-3408-B (AJB).

• Decision Date: 05 June 1997
• Docket Number: No. Civ. 96-3408-B (AJB).,Civ. 96-3408-B (AJB).
• Citation: 967 F.Supp. 405
• Court: U.S. District Court — Southern District of California
• Parties: Marty SCHWARTZ, et al., Plaintiff, v. The UPPER DECK COMPANY, Defendant.

967 F.Supp. 405

Marty SCHWARTZ, et al., Plaintiff, v. The UPPER DECK COMPANY, Defendant.

No. Civ. 96-3408-B (AJB).

United States District Court, S.D. California.

June 5, 1997.

COPYRIGHT MATERIAL OMITTED

William Lerach, Patrick Coughlin, Alan Marsfield, San Diego, CA, for Plaintiff.

Jon Logan Edwards, Liesel Brand Stevens, San Francisco, CA, for Defendant.

ORDER DENYING DEFENDANT'S MOTION TO DISMISS OR, IN THE ALTERNATIVE, TO STAY THE PROCEEDINGS

BREWSTER, District Judge.

This matter came on for hearing on defendant's motion to dismiss, or in the alternative to stay the proceedings. After careful consideration of the moving and opposing papers, the Court hereby DENIES both motions.

I. CASE TYPE AND JURISDICTION

This is a civil RICO class action against the manufacturer and marketer of packaged sports and entertainment trading cards for allegedly organizing and participating in a pattern of racketeering activity through the distribution of its trading cards. This Court has jurisdiction based on 28 U.S.C. § 1331 and 18 U.S.C. § 1964(c). The defendant has filed a 12(b)(6) motion to dismiss for failure to state a claim upon which relief may be granted, or if the motion to dismiss is denied, a motion to stay the proceedings pending the resolution of an appeal of a similar action in Texas.

II. BACKGROUND

A. The Parties

Defendant, The Upper Deck Company ("Upper Deck") is the third largest manufacturer and marketer of sports and entertainment trading cards in the United States with its principal corporate offices in Carlsbad, California. Founded in 1988, Upper Deck is a privately held company that describes itself as the "leading manufacturer to bring involvement to the trading card business through its high quality, full-color baseball, basketball, football, hockey, motor sports and animation-style cards for sports fans and collectors." In 1992, Upper Deck's revenues from the sale of its trading cards exceeded $80 million.

The plaintiffs are a class of individuals who bring this action on behalf of those similarly situated who have purchased Upper Deck's trading cards. The representatives of the class include: (1) Marty Schwartz from Port Washington, New York; (2) Lance Kuba from Woodbury, New York; (3) Bruce Laxer from North Caldwell, New Jersey; and (4) Patricia Sullivan from New Hyde Park, New York (suing on her own behalf and as guardian ad litem of her son).

B. The Alleged "Gambling Activity"

The amended complaint alleges that the packaging and distribution of Upper Deck's sports and entertainment cards constitutes a gambling activity. Upper Deck manufactures cards, packages them in a sealed wrapping, and distributes them to retailers across the country. Each package contains a preset number of cards; however, the package does not disclose or describe the specific cards contained therein. Instead, on the back of the package, in very small print, it states that the package "contains a random assortment" of numbered trading cards (regarding one specific sport or subject such as football or basketball). See FAC, Ex.'s A-J. The package also provides that "randomly inserted into these specially marked packages are the following insert cards." Id. The label then lists various types of cards and the odds of receiving one of the cards in that particular package.¹ Plaintiffs allege that the random insertion of cards manufactured in limited quantity, or "chase cards,"² constitutes illegal gambling activity sufficient to sustain a claim under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-1964.

C. Procedural History

The defendant filed a motion to dismiss the original complaint which the Court granted with leave to amend on March 11, 1997.³ The Court found that plaintiffs could state a claim for violation of civil RICO, 18 U.S.C. § 1962(c), but found that plaintiffs had not adequately alleged such a violation. On March 21, 1997, plaintiffs filed a first amended complaint ("FAC"). The FAC alleges claims for violation of 18 U.S.C. § 1962(c) and for violation of Cal. Bus. & Prof.Code § 17200. Defendant has now filed a motion to dismiss the FAC with prejudice, or in the alternative, to stay the proceedings.

III. DISCUSSION

A. Standard of Law

A motion to dismiss for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6) tests the legal sufficiency of the claims in the complaint. A claim can only be dismissed with prejudice if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief" Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). This court must accept as true all material allegations in the complaint, as well as reasonable inferences to be drawn from them, and must construe the complaint in the light most favorable to plaintiff. NL Industries, Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986); Parks School of Business, Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). The court need not, however, accept every allegation in the complaint as true; rather, the court "will examine whether conclusory allegations follow from the description of facts as alleged by the plaintiff." Holden v. Hagopian, 978 F.2d 1115, 1121 (9th Cir.1992) (citation omitted).

B. Collateral Estoppel

In addition to the instant case, groups of plaintiffs have filed four other class actions against other manufacturers of sports trading cards who place "chase" cards in their packages of trading cards. On April 2, 1997, a court in the Northern District of Texas dismissed plaintiffs' claims against Pinnacle Brands, Inc. with prejudice. Price v. Pinnacle Brands, Inc., Civ. No. 96-2150-T (N.D. Tex. April 2, 1997) (hereinafter the "Texas opinion" or "Pinnacle action"). Plaintiffs Lance Kuba and Bruce Laxter are also plaintiffs in the Pinnacle action. Plaintiffs Marty Schwartz and Patricia Sullivan, both in her individual capacity and as guardian ad litem for Scan Sullivan, are not plaintiffs in the Pinnacle action. The Texas court held that plaintiffs failed to state a claim upon which relief could be granted because Pinnacle's manufacture and sale of trading cards did not constitute illegal gambling. The court found the element of consideration lacking because plaintiffs received exactly what they paid for — a random selection of trading cards.⁴ Plaintiffs have now appealed this dismissal to the Fifth Circuit.

Defendant argues that this Court is bound by the Texas district court's ruling due to the bar of collateral estoppel. This is clearly not true. First, this court's ruling on March 11, 1997 predates the ruling from the court in Texas on April 2, 1997.⁵ This Court found that plaintiff could state a claim for violation of civil RICO based on Upper Deck's manufacture and sale of "chase" cards, but dismissed the complaint because plaintiff had failed to properly allege such a RICO violation. Since this Court reached its decision prior to the Texas court's decision, collateral estoppel cannot be used to retroactively overrule a prior order of this Court.⁶

Second, not all of the plaintiffs in this action are identical or in privity with plaintiffs in the Pinnacle action. The three requirements for collateral estoppel are: (1) that the issue decided in the prior adjudication was identical with the one presented in the present action; (2) that the decision in the first action was a decision on the merits; and (3) that the party against whom the plea is asserted was a party or in privity with the party to the prior adjudication. Bernhard v. Bank of America, N.T.S.A., 19 Cal.2d 807, 813, 122 P.2d 892 (1942); Durkin v. Shea & Gould, 92 F.3d 1510, 1515 (9th Cir.1996); Bates v. Jones, 904 F.Supp. 1080, 1088 (N.D.Cal.1995).

Plaintiffs argue (1) that although similar, the issue in the Pinnacle action is not identical, and (2) that several of the plaintiffs in this action are different. Both cases are class actions. The Pinnacle action is brought on behalf of all purchasers of Pinnacle trading cards, and this action is brought on behalf of all purchasers of Upper Deck trading cards. While there may be some overlap between these two classes, there are certainly people who have purchased cards from one manufacturer without purchasing any from the other manufacturer.

Non-parties have been found in privity with parties to a prior action under very limited conditions.

The privity doctrine precludes non-parties from relitigating a case when there is "such an identification of interest of one person with another as to represent the same legal rights."

Bates, 904 F.Supp. at 1088.

Due process requires that the nonparty have had a identity of interest with and adequate representation by the losing party in the first action, and that the circumstances have been such that the nonparty should reasonably have expected to be bound by the prior adjudication.

Id. at 1089 (citing Clemmer v. Hartford Ins. Co., 22 Cal.3d 865, 875, 151 Cal.Rptr. 285, 587 P.2d 1098 (1978)).

Nonparties have been found in privity with parties in two instances: (1) when a non-party actually contested the former action or had a proprietary or financial interest in and controlled the prior action (i.e. parent corp of wholly owned subsidiary who was a party); and (2) when the party in the first action might fairly be treated as acting in a representative capacity for the non-party. Id.

Defendant makes the blanket statement that the "community of interest" between the non-party and the party plaintiffs justifies the court's application of collateral estoppel against the non-party plaintiffs. Defendant has failed to demonstrate, however, that the non-party plaintiffs either controlled the prior action or that the plaintiffs in the prior action were acting as representatives for them. Moreover, the class of plaintiffs in this action is clearly different from the class in the Pinnacle action. For these reasons, collateral estoppel does not bar pla...