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SCHWARTZ v. UPPER DECK CO.

June 5, 1997

MARTY SCHWARTZ, ET AL., PLAINTIFFS,
v.
THE UPPER DECK COMPANY, DEFENDANTS.



The opinion of the court was delivered by: BREWSTER

 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 pre-set 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. *fn1" Plaintiffs allege that the random insertion of cards manufactured in limited quantity, or "chase cards," *fn2" 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. *fn3" 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, 2 L. Ed. 2d 80, 78 S. Ct. 99 (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).

 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., 1997 U.S. Dist. LEXIS 11698, 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 Sean 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. *fn4" 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. *fn5" 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. *fn6"

 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.

 Bates, 904 F. Supp. at 1088.

 
Due process requires that the nonparty have had an 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, ...


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