The opinion of the court was delivered by: JOHN R. PADOVA
Plaintiffs allege that the organizations of professional major league baseball and an affiliated individual frustrated their efforts to purchase the San Francisco Giants baseball club (the "Giants") and relocate it to Tampa Bay, Florida. Plaintiffs charge these defendants with infringing upon their rights under the United States Constitution and violating federal antitrust laws and several state laws in the process.
Asserting that this Court lacks subject matter jurisdiction over plaintiffs' federal and state claims and that plaintiffs' federal claims fail to state a cause of action, defendants move to dismiss this suit. With regard to plaintiffs' federal antitrust claims, defendants also claim exemption from antitrust liability under Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs, 259 U.S. 200 (1922), and its progeny. For the following reasons, I will grant defendants' motion as to plaintiffs' direct claims under the Constitution; but I will deny defendants' motion in all other respects. As to defendants' assertion of exemption from antitrust liability, I hold that the exemption created by Federal Baseball is inapplicable here because it is limited to baseball's "reserve system."
Plaintiffs are Vincent M. Piazza and Vincent N. Tirendi, both Pennsylvania residents, and PT Baseball, Inc. ("PTB"), a Pennsylvania corporation wholly owned by Piazza and Tirendi. Pursuant to a written Memorandum of Understanding ("Memorandum") dated August 18, 1992, Piazza and Tirendi agreed with four other individuals, all Florida residents, to organize a limited partnership for the purpose of acquiring the Giants. (The parties to the Memorandum will be referred to collectively as the "Investors".)
The Investors anticipated that they would form individual corporations to serve as general partners of the partnership. Accordingly, on August 26, 1992, PTB entered into a Limited Partnership Agreement (the "Partnership Agreement") with corporations owned by the other Investors. This Partnership Agreement implemented the intent of the Memorandum and created a partnership entity known as Tampa Bay Baseball Club, Ltd. (the "Partnership"). PTB agreed to contribute $ 27 million to the Partnership, making it the single largest contributor of Partnership capital.
Earlier, on August 6, 1992, the Investors had executed a Letter of Intent with Robert Lurie, the owner of the Giants, to purchase the Giants for $ 115 million. Pursuant to this Letter of Intent, Lurie agreed not to negotiate with other potential buyers of the Giants and to use his best efforts to secure from defendant Major League Baseball
approval of the sale of the Giants to the Partnership and transfer of the team to the Suncoast Dome, located in St. Petersburg, Florida.
As required by the rules of Major League Baseball, the Partnership submitted an application to that organization on September 4, 1992 to purchase the Giants and move the team to St. Petersburg. In connection with this application, Major League Baseball and its "Ownership Committee" undertook or purported to undertake a personal background check on the Investors. On September 10, 1992, defendant Ed Kuhlmann, Chairman of the Ownership Committee, stated at a press conference that, among other things, the personal background check on the Investors had raised a "serious question in terms of some of the people who were part of that group" and that "a couple of investors will not be in the group." Complaint at P 53. Kuhlmann elaborated that there was a "background" question about two of the investors rather than a question of financial capability and that something had shown up on a "security check." Id. Kuhlmann also stated that the "money" of the two investors "would not have been accepted." Id. Immediately following Kuhlmann at the news conference, Jerry Reinsdorf, a member of the Ownership Committee, added that the Ownership Committee's concern related to the "out-of-state" money and that the "Pennsylvania People" had "dropped out." Complaint at P 56.
On September 11, 1992, plaintiffs' counsel sent letters to Major League Baseball, Kuhlmann, and Reinsdorf requesting immediate correction of these statements and their implications. Plaintiffs' counsel never received a response to these letters, but on September 12, 1992, defendant Kuhlmann admitted to some members of the media that "there was no problem with the security check." Complaint at P 63.
On the same day that the Partnership submitted its application to purchase and relocate the franchise, Kuhlmann directed Lurie to consider other offers to purchase the Giants, in knowing violation of Lurie's exclusive agreement with the Partnership. On September 9, 1992, Bill White, President of the National League, invited George Shinn, a North Carolina resident, to make an alternative bid to purchase the Giants in order to keep the team in San Francisco. An alternative offer was ultimately made by other investors to keep the Giants in San Francisco. Even though this offer was $ 15 million less than the $ 115 million offer made by the Partnership, Major League Baseball formally rejected the proposal to relocate the Giants to the Tampa Bay area on November 10, 1992.
Plaintiffs allege that Baseball never intended to permit the Giants to relocate to Florida and failed to evaluate fairly and in good faith their application to do so. They claim that to avoid relocation of the Giants, Baseball set out to "destroy the financial capability of the Partnership by vilifying plaintiffs." Complaint at P 65. And in addition to preventing plaintiffs' purchase and relocation of the Giants, plaintiffs allege that Baseball's allegedly defamatory statements cost them the loss of a significant contract in connection with one of their other businesses, which depends upon "impeccable personal reputations." Complaint at P 69.
Plaintiffs first claim that the above actions of Baseball violated the First and Fifth Amendments to the United States Constitution by (1) depriving them of their liberty and property interests and privileges without due process of law, (2) denying them equal protection of the laws, and (3) impairing their freedom of contract and association. In this connection, plaintiffs claim that Baseball's actions should be attributed to the federal government, to which the constraints of the U.S. Constitution apply, because the federal government has granted Baseball a unique exemption from the federal antitrust laws.
Plaintiffs next assert a claim under 42 U.S.C.A. § 1983 (West 1981),
alleging that Baseball acted under color of state law in unlawfully depriving them of the rights, privileges, immunities, freedoms, and liberties secured by Article IV, Section 2 of the U.S. Constitution, as well as the First, Fifth and Fourteenth Amendments. Plaintiffs claim that Baseball's actions took place under color of state law because (a) Baseball is exempt from liability under state antitrust laws; (b) there is a close nexus and symbiotic relationship between Baseball and state and local governments; and (c) Baseball acted in concert with the City of San Francisco to prevent the Giants from being relocated.
Plaintiffs' final federal claim asserts violations of sections 1 and 2 of the Sherman Anti-Trust Act, 15 U.S.C.A. §§ 1 and 2 (West 1973 & Supp. 1993).
Plaintiffs claim that Baseball has monopolized the market for Major League Baseball teams and that Baseball has placed direct and indirect restraints on the purchase, sale, transfer, relocation of, and competition for such teams. Plaintiffs allege that these actions have unlawfully restrained and impeded plaintiffs' opportunities to engage in the business of Major League Baseball.
Plaintiffs also assert claims against Baseball under Pennsylvania law for slander, libel, invasion of the right of privacy, false light, tortious interference with existing and prospective contractual business relations, unlawful restraint of trade, and civil conspiracy.
Plaintiffs aver that this Court has jurisdiction over their federal claims pursuant to 28 U.S.C. §§ 1331, 1337, and 1343, and supplemental jurisdiction over their state law claims pursuant to 28 U.S.C. § 1367. Defendants move under Fed. R. Civ. P. 12(b)(1), lack of subject matter jurisdiction, and Fed. R. Civ. P. 12(b)(6), failure to state a claim upon which relief can be granted, for an order dismissing plaintiffs' federal claims and, in the event the federal claims are dismissed, for an order directing dismissal of plaintiffs' state claims for lack of supplemental jurisdiction.
The standards for dismissal of a claim under Fed. R. Civ. P. 12(b)(1) and 12(b)(6) are different. Dismissal is proper under Rule 12(b)(1) "only when the claim 'clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction or . . . is wholly insubstantial and frivolous.'" Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir.)(quoting Bell v. Hood, 327 U.S. 678, 682 (1946)), cert. denied, 111 S. Ct. 2839 (1991). Under Rule 12(b)(6), however, the standard is lower; even if not wholly insubstantial, a claim may be dismissed if no facts have been alleged upon which relief may be granted. See id. at 1409-10; Conley v. Gibson, 355 U.S. 41, 45-46 (1957). The respective burdens upon the parties differ as well. A Rule 12(b)(1) motion places the burden of persuasion on the plaintiff to show that his claims are not wholly insubstantial; under Rule 12(b)(6), the defendant bears the burden of showing that no claim has been stated. See Kehr Packages, 926 F.2d at 1409-10.
Challenges for failure to state a cause of action "ordinarily should be made under Rule 12(b)(6)." Id. at 1409. The Third Circuit has held that a claim dismissed as legally insufficient under Rule 12(b)(1) should properly be treated as having been dismissed pursuant to 12(b)(6) where the plaintiff has approached the defendant's motion as having been made under Rule 12(b)(6). See id. Until very recently, both plaintiffs and defendants have treated defendants' motion as having been made solely under Rule 12(b)(6) -- defendants informed plaintiffs and the Court that they were proceeding under Rule 12(b)(1) only after the Court raised the point during oral argument and after nearly all of the issues had been fully briefed by both parties. Even at this late stage, however, defendants have not called into question, as required by Kehr Packages, the authority of this Court to exercise jurisdiction over plaintiffs' claims under the federal Constitution, federal civil rights act, and federal antitrust laws. Thus, like Kehr Packages, plaintiffs' complaint here is more appropriately evaluated for legal sufficiency under Rule 12(b)(6), which requires that this Court view all factual allegations in the complaint and all reasonable inferences that can be drawn from them as true. See id. at 1410. Every doubt is to be resolved in favor of the plaintiff, and the complaint can be dismissed only if the plaintiff has alleged no set of facts upon which relief can be granted. Id.; Conley v. Gibson, 355 U.S. at 45-46.
B. Direct Constitutional Claims
In most instances, the limitations of the First and Fifth Amendments to the U.S. Constitution restrict only federal government action, not the action of private entities. See Lugar v. Edmondson Oil Co., 457 U.S. 922, 936 (1982); Nguyen v. United States Catholic Conference, 719 F.2d 52, 54 (3d Cir. 1983). When governmental authority dominates the activities of a private entity to such an extent that the entity is deemed to act with the authority of the government, however, the entity will be subject to constitutional restraints. See Edmonson v. Leesville Concrete Co., Inc., U.S. , 111 S. Ct. 2077, 2082 (1991).
Determining whether the conduct of a private entity should be attributed to the federal government requires employment of the two-part "state action" analysis set forth by the Supreme Court in Lugar v. Edmondson Oil, 457 U.S. at 937-42. See Leesville Concrete, 111 S. Ct. at 2082-83. The Lugar framework requires that this Court ask "first whether the claimed constitutional deprivation resulted from the exercise of a right or privilege having its source in [federal] . . . authority; and second, whether the private party charged with the deprivation could be described in all fairness as a [federal] . . . actor." Leesville Concrete, 111 S. Ct. at 2082-83 (applying Lugar)(citations omitted).
As to the first part of this analysis, plaintiffs claim that defendants, admittedly private entities, should be held subject to the restraints of the federal Constitution because their alleged activities have been countenanced by the federal government through (1) the unique exemption of Baseball from liability under the federal antitrust laws -- an exemption first conferred upon Baseball by the U.S. Supreme Court in Federal Baseball Club of Baltimore, Inc. v. National League of Professional Baseball Clubs, 259 U.S. 200 (1922), and later reaffirmed by the Court in Toolson v. New York Yankees, 346 U.S. 356 (1953), and Flood v. Kuhn, 407 U.S. 258 (1972);
and (2) congressional desire, expressed by its "positive inaction," Flood, 407 U.S. at 283-84, not to disapprove of these cases legislatively. With respect to the second prong of the Lugar analysis, plaintiffs assert in circuitous fashion that it would be "eminently fair" to describe Baseball as a federal actor because Baseball would not have committed the acts alleged were it not for the Federal Baseball antitrust exemption. See Plaintiffs' Memorandum of Law in Opposition to Defendants' Motion to Dismiss the Complaint at 27.
Baseball does not dispute that plaintiffs plead adequately that its alleged actions resulted, in part, from the perceived comfort afforded by the Federal Baseball antitrust exemption. But Baseball contends that there must be more than a mere allegation that a private entity acted pursuant to federal law or a federal judicial decision before the entity's actions can be attributed to the federal government. I agree.
The closest plaintiffs come to pleading significant governmental encouragement appears in the following paragraph of their complaint: "The federal antitrust exemption has permitted Major League Baseball to operate free of the legal restraints applicable to other interstate businesses and has thus enabled, encouraged and created the framework for the conduct of defendants complained of herein." Complaint at P 74 (emphasis added). Simply uttering the word "encouraged," however, is not enough to equate Baseball's actions with those of the federal government. The so-called encouragement alluded to in this paragraph is explained by plaintiffs themselves in the preceding clause as flowing solely from a judicially-created antitrust exemption, "which has permitted Baseball to operate free of the legal restraints applicable to other interstate businesses." Id. (emphasis added). Thus the governmental involvement alleged here can, at best, be viewed as mere acquiescence, as opposed to the "significant," active encouragement required to adequately link defendants' actions to the federal government. See United States Olympic Comm., 483 U.S. at 547 (mere governmental approval of or acquiescence in conduct of private entity insufficient to equate private entity's actions with those of the federal government).
In essence, plaintiffs claim that Baseball's actions should be attributed to the federal government solely because the federal government allegedly has exempted Baseball from the antitrust laws. But such reasoning was flatly rejected by the Supreme Court in Jackson v. Metropolitan Edison Co., 419 U.S. 345 (1974). There, the Court affirmed dismissal of a civil rights complaint proceeding under 42 U.S.C.A. § 1983 because the defendant private utility could not be viewed as a state actor. In so doing, the Court expressly rejected the plaintiff's contention that the private utility was a state actor because it enjoyed state-created monopoly status under the antitrust laws. Jackson, 419 U.S. at 351-52. The Court's analysis in Jackson is equally applicable here, where plaintiffs charge Baseball as a federal actor solely because it enjoys an alleged exemption from federal antitrust laws. Cf. United States Olympic Comm., 483 U.S. at 547 (Congress's conferral upon private entity of exclusive right under trademark laws to use of term "Olympic" not enough to make private entity's choice of how to enforce that right a governmental decision). Compare Leesville Concrete, 111 S. Ct. at 2085 (private party using preemptory challenges to exclude jurors on basis of race found to be a governmental actor because of, inter alia, "direct and indispensable participation of the judge " (emphasis added)). I will therefore dismiss plaintiffs' direct constitutional claims under Fed. R. Civ. P. 12(b)(6) for failure to state a cause of action.
To state a civil rights claim under 42 U.S.C.A. § 1983, plaintiffs must plead that Baseball (1) deprived them of a right secured by the Constitution or laws of the United States while (2) acting under color of state law. See, e.g., Flagg Bros., Inc. v. Brooks, 436 U.S. 149, 155 (1978); Adickes v. S.H. Kress & Co., 398 U.S. 144, 150 (1970). With regard to the first element, plaintiffs plead that Baseball deprived them of rights secured by Article IV, Section 2
of the U.S. Constitution and the First, Fifth, and Fourteenth Amendments. In particular, plaintiffs claim that Baseball (a) denied them the right to participate in the purchase of a Major League Baseball team from an owner who contracted to sell the team to plaintiffs; (b) impaired their liberty interest in their reputations by impugning their good names, honor, and integrity and foreclosing their personal, business, and occupational opportunities; and (c) discriminated against them on the basis of their state residence and ethnic heritage and denied them equal protection of the laws.
As to the second element of § 1983, plaintiffs aver that Baseball acted under color of state law because (a) Baseball is exempt from liability under state antitrust laws; (b) there is a symbiotic relationship and close nexus between Baseball and state and local governments; and (c) Baseball acted in concert with the City of San Francisco to prevent the Giants from being relocated.
Baseball focuses its motion to dismiss solely upon the second element of § 1983, arguing that plaintiffs have not sufficiently pled that Baseball acted under color of state law. Because I conclude that plaintiffs have sufficiently pled that Baseball acted in concert with the City of San Francisco to deprive them of their constitutionally protected rights, I will address at length only that portion of plaintiffs' complaint, and deny Baseball's motion as to plaintiffs' § 1983 claims.
A private defendant's joint participation with a state official in a conspiracy to deprive another of constitutionally protected rights constitutes both state action essential to show a direct violation of a plaintiff's rights and action "under color of state law" for purposes of § 1983. See Lugar v. Edmonson Oil Co., 457 U.S. 922, 931 (1982)(explaining Adickes, 398 U.S. 144). In their complaint, plaintiffs plead the following facts:
On information and belief, the City of San Francisco through its officials and Major League Baseball have colluded to keep the Giants ...