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Macquarie Group Limited v. Pacific Corporate Group

March 2, 2009


The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court


Before the Court are defendant's Rule 12(b)(6) motion to dismiss, Rule 12(f) motion to strike, and motion to stay the action. (Doc. Nos. 11 and 12.) Plaintiffs opposed and defendant filed a reply.


The following factual background is drawn from plaintiffs' first amended complaint. All facts alleged are taken as true for the limited purposes of this motion.

A. Parties

Plaintiff Macquarie Group Limited ("MGL") and plaintiff Macquarie Bank Limited ("Macquarie") are Australian corporations with principal places of business in Sydney, Australia. Macquarie is a wholly owned subsidiary of MGL. Plaintiff Allan Moss was the Managing Director and Chief Executive of Macquarie until November 2007, when he became the Managing Director and Chief Executive of MGL. Plaintiff Ben Bruck was the Head of Macquarie Funds Management Group, a business division within MGL. Plaintiff Jeff Blakely was the head of Macquarie Funds Management Group's Alternative Investments private equity management business. Defendant, Pacific Corporate Group, is a Delaware limited liability corporation with its principal place of business in La Jolla, California. Defendant also maintains an office in New York, New York.

B. Facts Underlying the Request for Declaratory Relief

In October 2006, Peter Martenson, an employee of a MGL subsidiary, allegedly sent e-mail messages to a number of defendant's employees in which he falsely identified the author of the emails as defendant's chairman, Christopher Bower. Martenson also sent an email to Dow Jones reporter Laura Kreutzer, in which he falsely identified the email's author as defendant's former president. In these emails, Martenson purported to transmit disparaging information about defendant gathered from the website of one of defendant's clients.

In January 2008, defendant notified plaintiffs it intended to bring claims for violations of various federal and state laws arising from Martenson's conduct. Defendant presented plaintiffs with a proposed complaint, which defendant intended to file in the Superior Court of the State of California for the County of San Diego ("draft complaint"). (FAC, Ex. A.)In the draft complaint, defendant claimed plaintiffs were responsible for Martenson's conduct and conspired with Martenson to damage defendant. Defendant's draft complaint alleged $25 million in damages. Plaintiffs commenced this action in the Southern District of New York on April 7, 2008. Defendant filed a complaint in the Superior Court of the State of California for the County of San Diego on May 23, 2008.

C. The Alleged Refusal To Deal

The alleged refusal to deal stems from plaintiffs' attempted entry into the investment management services for public pension funds market in 2005. A pension fund is a pool of assets bought with contributions made under a pension plan. When an employee retires, she receives payment from the pension fund. Pension plans funded by governments are pubic pension funds.

Public pension funds have trillions of dollars in capital to invest on behalf of their beneficiaries. These funds are highly risk averse and are often restricted by complicated laws and regulations governing how the public pension fund can invest. Most of the funds have extensive internal rules and regulations which require a public pension fund investment manager to develop highly specialized knowledge and understanding.

Before hiring a manager, public pension funds engage in extensive due diligence, including a review of the manager's track record. Reputation is therefore essential to secure investment business. Part of this reputation is premised on a new investment manager's first investments. The ability to acquire initial investment opportunities will have a disproportionately high impact on the investment manager's ability to enter the market. For example, an investment manager's initial inability to secure access to significant investment opportunities signals the new manager may not be able to secure adequate, long-term investment returns.

In July 2005, Macquarie attempted to enter the public pension fund investment management market. As part of the effort, Macquarie attempted to secure the business of the Government Employees Superannuation Board ("GESB"). In August 2005, Macquarie approached Aisling Capital LLC ("Aisling"), a life science venture capital fund manager with an office in New York, New York. Aisling was amenable to dealing with Macquarie and indicated Macquarie would receive a commitment of at least $15 million in the Aisling fund.

On November 9, 2005, Jan Hoerrner, Aisling's Director of Investor Relations and Marketing, telephoned Macquarie concerning Macquarie's investment in the Aisling fund. Hoerrner told Macquarie she had received a call on November 9, 2005 from defendant's president. Defendant's president told Aisling to not allow Macquarie into the Aisling Fund, requested priority over Macquarie in the fund, and threatened to not recommend Aisling to clients if Macquarie entered the fund. Aisling subsequently lowered Macquarie's investment opportunity from $15 million to $5 million.

This reduction in investment opportunity signaled to investors Macquarie could not secure meaningful investments for its clients. Plaintiffs allege defendant knew the importance of this investment opportunity and coerced Aisling into reducing the opportunity to prevent Macquarie's entry into the market. Subsequently, defendant circulated rumors in the marketplace that Macquarie was having difficulties getting access to funds like Aisling's. As a result, Macquarie failed to receive allocations from several public pension funds.

Defendant's conduct damaged not only Macquarie, but also the market. Macquarie offered lower management fees. Therefore, by preventing Macquarie's entry into the market, defendant was able to sustain higher fees and offer lower quality service. Macquarie, as well as consumers in general, suffered financial harm from defendant's acts.

Further, without Macquarie's consent, defendant obtained confidential documents belonging to Macquarie. For example, defendant's California complaint quotes a confidential email.

D. Procedure

On October 31, 2008, Judge Castel transferred this case from the Southern District of New York to the Southern District of California pursuant to 28 U.S.C. § 1404(a). On November 26, 2008, plaintiffs filed a first amended complaint, alleging defendant (1) violated section 1 of the Sherman Act; (2) violated New York General Business Law § 349 (deceptive acts and practices); (3) tortiously interfered with prospective economic relations; and (4) committed conversion. Plaintiff also requests declaratory judgment arising from the Martenson incident. On December 15, 2008, defendant filed

(1) a motion to strike portions of the first amended complaint and (2) a motion to dismiss or stay the action. (Doc. Nos. 11, 12.) Plaintiffs filed an opposition and defendant replied.


A. Motion to Dismiss

A motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) tests the legal sufficiency of the claims asserted in the complaint. Fed. R. Civ. P. 12(b)(6). To avoid a Rule 12(b)(6) dismissal, a complaint need not contain detailed factual allegations; rather, it must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S.544 (2007). The court's review is limited to the contents of the complaint and must accept all factual allegations pled in the complaint as true, drawing all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337-38 (9th Cir.1996). In spite of this deference, it is not proper for the court to assume that "the [plaintiff] can prove facts which [he or she] has not alleged." Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526 (1983). Furthermore, a court is not required to credit conclusory legal allegations cast in the form of factual allegations, unwarranted deductions of fact, or unreasonable inferences. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).

B. Motion to Strike

Rule 12(f) permits the court to strike any "redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). Motions to strike are a drastic remedy and generally disfavored. 5C Wright & A. Miller, Federal Practice and Procedure §1380 (3d ed. 2004). A matter is impertinent if the statements do not pertain, and are not necessary, to the issues in question. Fantasy, Inc.v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993) rev'd on other grounds 510 U.S. 517 (1994). "Scandalous" matters "casts a cruelly derogatory light on a party or other person." In re, Inc. Sec. Litig., 114 F. Supp. 2d 955, 965 (C.D. Cal. 2000); see, e.g. Jacobsen-Wayne v. Calvin C.M. Kam, M.D., Inc., 198 F.3d 254 (9th Cir. 1999) (striking the words "date rape" and "rape" from a reply brief in a case arising from a medical examination); Alvarado-Morales v. Digital Equip. Corp., 843 F.2d 613 (1st Cir. 1988) (striking the terms "concentration camp," "brainwashing," and "torture" in a tort case in the employment context).


A. Motion to Dismiss Sherman Act Claim

Plaintiffs allege a vertical agreement between defendant and Aisling, through which defendant attempted to bar plaintiffs' entry into the market for investment management for public pension funds.*fn1 Defendant allegedly knew a failure to procure initial investment opportunities would be a barrier to market entry and knew of plaintiffs' relationship with Aisling. Defendant allegedly called Aisling and asked the company to reduce plaintiffs' investment opportunity. Aisling subsequently reduced plaintiffs' opportunity from $15 million to $5 million. Further, defendant allegedly spread rumors regarding plaintiffs' ability to procure investment opportunities. Plaintiffs contend this, coupled with the reduction of their investment opportunity, effectively barred their entry into the market.

Section 1 of the Sherman Act states, "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade . . . is declared to be illegal." 15 U.S.C. § 1. Because many beneficial business contracts restrain trade, courts interpret section 1 to prohibit only those that are "unreasonably restrictive of competitive conditions." Standard Oil Co. v. United States, 221 U.S. 1 (1911). To prevail on an section 1 claim, a plaintiff must prove three elements: (1) an agreement or conspiracy intended to restrain trade; (2) which actually restrains trade; and (3) which causes an injury to competition. Les Shockley Racing, Inc. v. Nat'l Hot Rod Ass'n, 884 F.2d 504, 507 (9th Cir.1989). Further, the plaintiff must establish both the relevant market and market power. See Newcal Industries, Inc. v. Ikon Office Solution, 513 F.3d 1038, 1045 (9th Cir. 2008).

If the plaintiffs establish these elements, the Court must determine whether to implement the per se rule or the "rule of reason." See Paladin Assocs., Inc. v. Montana Power Co., 328 F.3d 1145, 1154 (9th Cir.2003). Per se liability is reserved for those agreements "so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality." National Soc. of Professional Engineers v. United States, 435 U.S. 679, 692 (1978). An agreement between a single customer and a single supplier to terminate a second supplier is not unlawful per se. NYNEX Corp. v. Discon, 525 U.S. 128 (1998). Therefore, the Court analyzes this type of vertical agreement using the rule of reason. A.H. Cox & Company v. Star Machinery Co., 653 F.2d 1302, 1305-6 (9th Cir. 1981). The rule of reason requires the Court to "weigh the anticompetitive effects and the procompetitive effects or business justifications advanced for the challenged restraint to determine whether it is unreasonable." Les Shockley, 884 F.2d at 507. Below, the Court evaluates whether plaintiffs meet the section 1 elements before applying the rule of reason.

1. Agreement or Conspiracy

i. Parties' Argument

Defendant argues plaintiffs cannot show an agreement because the facts alleged do not exclude the possibility defendant and Aisling Capital each acted independently. Defendant notes that, generally, a market participant may freely choose his clients, citing Monsanto Co. v. Spray-Rite Service Corp., 465 752, 761 (1984)("A distributor is free to acquiesce in the manufacturer's demand in order to avoid termination."); Sorisio v. Lenox, Inc., 701 F. Supp. 950, 956 (D. Conn. 1988)("[P]ersuasion, pressure, even argument, is permissible."); America Channel, LLC v. Time Warner Cable, Inc., 2007 WL 1892227 at *5 (D. Minn. June 28, 2007)("allegations regarding [the defendant's] refusal to deal are insufficient to allege a claim of conspiracy because . . . they fail . . . to exclude the possibility of independent action.").

Plaintiffs argue coerced conduct satisfies the joint conduct requirement, citing Spectators' Commc's Network v. Colonia Country Club, 253 F.3d 215, 225 (5th Cir. 2001); MCM Partners, Inc. v. Andrews-Bartlett & Assoc., 62 F.3d 967, 973-74 (7th Cir. 1995); Pinhas v. Summit Health, Ltd., 894 F.2d 1024 (9th Cir. 1990); Oltz v. St. Petter's Cmty. Hosp., 861 F.2d 1440, 1445 (9th Cir. 1988).

ii. Analysis

For an agreement to constitute a restraint of trade, plaintiffs must show the conspirators had "conscious commitment to a common scheme designed to achieve an unlawful objective." Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 768 (1984). The agreeing parties need not share a motive and "acquiescence in an illegal scheme is as much a violation of the Sherman act as the creation and promotion of one." Spectators', 253 F.3d at 221. An agreement to exclude a competitor from the market has been widely found to be a unlawful objective. ...

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