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Hicks v. PGA Tour, Inc.

United States Court of Appeals, Ninth Circuit

July 27, 2018

WILLIAMS MICHAEL HICKS; KENNETH HARMS, as Class Representative Plaintiffs and Individual Plaintiffs; MATTHEW ACHATZ; BRANDON ANTUS; CHAD ANTUS; ANDREW BARNES; CHRIS BERRY; MICHAEL BESTOR; DUANE BOCK; DAVID BROOKER; MARK CARNES; STEVEN CATLIN; BRUCE CLENDENEN; GRAEME COURTS; MICHAEL DARBY; HENRY DIANA; DON DONATELLO; MICHAEL DORAN; JAMES EDMONDSON; DEAN ELLIOTT; JOSEPH ETTER; BRENT EVERSON; MICAH FUGITT; DAMON GREEN; JAY HAAS, JR.; STEVEN HALE; MATTHEW HAUSER; ADAM HAYES; WILLIAM HEIM; JONATHAN JAKOVAC; TOM JANIS; JIMMY JOHNSON; CHRIS JONES; NICK JONES; STEVE KAY; ANTHONY KNIGHT; SHAY KNIGHT; MITCH KNOX; KURTIS KOWALUK; RONALD LEVIN; JOHN LIMANTI; BRENNEN LITTLE; SCOTT MARTIN, Esquire, Attorney; RICH MAYO, JR.; DANIEL MCQUILKEN; ERIC MELLER, Esquire, Attorney; MATTHEW MINISTER; CHARLES MOHR; TODD MONTOYA; TONY NAVARRO; DONALD NELSON; TRAVIS PERKINS; JOSEPH PYLAND; BRIAN REED; CHAD REYNOLDS; MIGUEL RIVERA; DAVID ROBINSON; SCOTT SAJTINAC; ANDREW SANDERS; FRED SANDERS; CORBY SEGAL; SHAWN SEGARS; BRIAN SMITH; RUSSEL STARK; BRAD SWEARINGEN; PAUL TESORI; ROBERT THOMPSON; SCOTT TWAY; STEVE UNDERWOOD; MARK URBANEK; RUSTY URESTI; BRETT WALDMAN; NEIL WALLACE; AARON WARK; JEFFERY WILLETT; BARRY WILLIAMS; MICHAEL MAZZEO; JOHN YARBROUGH; JUSTIN YORK; DENNIS TURNING; STEPHEN WILLIAMS; TERRY R. ENGLEMAN; THOMAS FLETCHER; ALAN BOND; EDWARD E. WILLIS; ROBERT J. MCFADDEN; PETER AMBROSETTI; KENNETH A. TOLLES; JOSEPH DUPLANTIS; BRADLEY WHITTLE; PETER JORDAN; WESTON SCOTT WATTS; JOSHUA E. DICKINSON; DAVID B. PARSONS; PETER VANDERRIET; MARK CRUNDEN; JOHN M. BUCHNA; COLIN BYRNE; LINN STRICKLER; CHAD ROSENAK; MATTHEW BEDNARSKI; MARTIN COURTOIS; KENNY BUTLER; JEFF DOLF; MARCEL LABAS; RUSSELL CRAVER; JAMES WALTERS; JAMES SMITH; PATRICK V. ESWAY, JR.; MARK HUBER; JON CUSTER; LEWIS B. PULLER III; JIM THOMAS; MARK E. MILLER, Esquire, Attorney; MATTHEW HALL; ERIC SCHWARZ; JOHN R. ADCOX; JOHN VENN; JOHN EGAN; MATTHEW TRITTON; JAMES SPRINGER, Esquire, Attorney; TERRY TRAVIS; RICHARD J. MOTACKI; ROBERT DICKERSON; TIM GOODELL; ROBERT VAIL; TODD NEWCOMB; GREG W. MARTIN; NOAH ZELNIK; BRENT HENLEY; CHRISTOPHER S. FIEDLER; PHILIP LOWE; DAVID PATTERSON; KEVIN MCARTHUR; RICHARD M. SCHLAACK; DAVID H. RAWLS; BOB BURNS; MICHAEL J. WAITE; HARRY BROWN; DAVID A. KERR; BRIAN H. SULLIVAN; ANDREW DAVIDSON; ALLAN MELLAN; DAVID WOOSLEY; RONALD MCCANN; DANIEL SCHLIMM; STEVE GREENWOOD; ANTHONY WILDS; MICHAEL MARONEY; ANDREW MARTINEZ; KYLE KOLENDA; DAVID LAWSON; JOHN L. SMITH; MICHAEL MIDDLEMO; SPENCER SEIFERT; LADDEN CLINE; THOMAS G. WILLIAMS; MICHAEL CARRICK; CALVIN HENLEY; GEORGE ASSANTE; WALTER WORTHERN, JR.; TIMOTHY J. THALMUELLER; WILLIAM POORE; NORMAN R. BLOUNT, JR.; WILLIAM SPENCER; MARK HAMILTON; CHRISTIAN HEATH HOLT; DAMIAN LOPEZ, Plaintiffs-Appellants,
v.
PGA TOUR, INC., Defendant-Appellee.

          Argued and Submitted October 12, 2017 San Francisco, California

          Appeal from the United States District Court for the Northern District of California D.C. No. 3:15-cv-00489-VC Vince Chhabria, District Judge, Presiding.

          Arthur R. Miller (argued), The Lanier Law Firm P.C., New York, New York; Benjamin T. Major (argued), Kevin P. Parker, Richard D. Meadow, and W. Mark Lanier, The Lanier Law Firm P.C., Houston, Texas; for Plaintiffs-Appellants.

          Jeffrey A. Mishkin (argued) and Anthony Dreyer, Skadden Arps Slate Meagher & Flom LLP, New York, New York; Raoul D. Kennedy, Skadden Arps Slate Meagher & Flom LLP, Palo Alto, California; for Defendant-Appellee.

          Before: Sidney R. Thomas, Chief Judge, and Michael Daly Hawkins and Kathleen M. O'Malley, [*] Circuit Judges.

         SUMMARY[**]

         Antitrust

         The panel affirmed in part and vacated in part the district court's dismissal of antitrust and related state law claims of professional golf caddies who participate in golf tournaments run by the PGA Tour, arising out of the Tour's requirement that the caddies wear bibs containing advertisements at professional golfing events.

         The panel held that the district court was not required to convert the Tour's Fed.R.Civ.P. 12(b)(6) motion to dismiss to a summary judgment motion because the court did not consider any material outside the pleadings.

         The panel held that the district court properly concluded that the caddies had consented to wearing the bibs, based on the text of a tournament participation form, considered with the caddies' concession that the Tour had required them to wear bibs for decades. The district court also did not err in concluding that the caddies failed to allege plausibly that the Tour secured their consent through economic duress. The caddies therefore failed to state claims for breach of contract and quasi-contract relief, California state law publicity claims, a Lanham Act false endorsement claim, or a plausible economic duress claim.

         The panel held that the district court properly determined that the caddies had not alleged plausible product markets to support their antitrust claims. The panel held that, even if advertisements to golf fans constituted a unique product market, "in-play" or "in-action" advertising during professional golf tournaments-either in any format or endorsements alone-did not constitute a unique submarket. Agreeing with other circuits, the panel concluded that the caddies' proposed product markets were facially unsustainable because they failed to include many reasonably interchangeable products.

         The panel held that the district court therefore correctly dismissed the caddies' antitrust claims, as well as their California unfair competition claim. The panel, however, vacated the dismissal with prejudice of these claims because the district court made a simple denial of leave to amend without adequate explanation. The panel remanded for the district court to reconsider its decision to deny the caddies leave to amend the antitrust and unfair competition claims.

          OPINION

          THOMAS, CHIEF JUDGE.

         This appeal concerns various antitrust and related state law claims of professional golf caddies ("Caddies") who participate in golf tournaments run by the PGA Tour ("the Tour") arising out of the Tour's requirement that they wear bibs containing advertisements at professional golfing events. The district court dismissed all claims with prejudice. We affirm the dismissal, but remand the case to allow the district court to reconsider whether to grant the Caddies leave to amend their federal antitrust and California unfair competition claims.

         I

         Henry Longhurst, the renowned British golf writer and commentator, once wrote: "A good caddie is more than a mere assistant. He is a guide, philosopher, and friend." The professional caddie has evolved from simply carrying bags and locating errant shots to providing valuable insights on course topography, club selection, and reading shots. Caddies serve as coaches, strategists, and counselors to professional golfers.

         The Tour operates three tours of professional golf tournaments throughout the United States. It requires caddies to wear specified uniforms at the tournaments, including a "bib"-a loose-fitting sleeveless garment on the upper body used for identification. For each tournament, the Tour generally works with a local host ("Local Host"). The Local Hosts and Tour seek to secure and retain sponsors, including title sponsors for the tournaments. Sponsors pay Local Hosts and the Tour to secure advertising space at the tournaments. At issue in this case is the advertising space on the bibs worn by the Caddies during the tournaments.

         Local Hosts and the Tour design the bibs. The bibs bear a tournament logo and sponsors' logos, which are often integrated together. With exposure to live tournament, television, and webcast audiences, advertising space on the bibs is valued at approximately $50 million annually. Local Hosts and the Tour receive the entirety of these revenues. The Caddies receive none.

         Although individual professional golfers employ the Caddies as independent contractors, the Tour and Local Hosts require the Caddies to wear the bibs. The Caddies must sign a Caddie Registration and Regulations Form ("the Form") in order to participate in any Tour tournament. The Form notes that "[i]n consideration of PGA TOUR's services in cosponsoring the Tournament," the Caddies "grant and assign to PGA TOUR, without limitation, [their] individual television, radio, motion picture, photographic, electronic, . . . and all other similar or related media rights with respect to [their] participation in the Tournament."

         The Form also provides a list of regulations that the Caddies must adhere to, which in relevant part state:

2. Caddies shall wear uniforms and identification badges as prescribed by the host tournament and PGA Tour. All caddies are required to wear solid-colored, Khaki-style long pants, which touch the top of the shoe, or solid-colored, knee-length, tailored shorts or skorts and a collared shirt while on club property. T-shirts, jeans, culottes, skirts, capris, cut-off shorts and cargo-style shorts are not permitted. Acceptable colors shall be determined at the discretion of the Tournament Director.
3. Caddies shall wear smooth rubber-sole shoes, preferably tennis or basketball shoes. Permissible colors are limited to white and earth tones such as navy, blue, black, brown, tan, gray, dark green and the like. Bright colors that are intended to draw attention to a person's footwear are not acceptable. Footwear with a closed toe is required. Flip flops, open-toed sandals and other similar shoes are not permitted. Closed-toe Crocs are acceptable provided they conform with the colors described above. GOLF SPIKES are prohibited.
4. Caddies' clothing must conform to the Player Endorsement Policy as stated in the PGA TOUR Player Handbook and Tournament Regulations.[1]

         The Player Endorsement Policy ("Endorsement Policy") referenced in Regulation Four prohibits endorsing specific categories of products, places limitations on the size and location of endorsements, and specifies that "[a]ll sponsorships, endorsements and promotional activities by members, whether during or outside PGA TOUR competitions, are subject to the approval of the PGA TOUR."[2]

         The Tour and Local Hosts have threatened to prevent caddies who refuse to wear the bibs from participating in tournaments. They have also directly contacted golfers to determine whether the golfers would decline to hire caddies who refused to wear the bibs. These tactics, combined with the Tour's requirement that each golfer have a caddy to participate in a tournament, maximize the value of bib advertising during tournament play.

         The Caddies contend that the Tour and Local Hosts cannot compel them to wear the bibs. Relatedly, they allege that by requiring the Caddies to wear the bibs, the Tour and Local Hosts have inhibited their endorsement rights under the Endorsement Policy.[3] Based on these allegations, the Caddies assert contract, equitable quasi-contract, economic duress, publicity, and unfair competition claims under California law.[4] See, e.g., Cal. Civ. Code § 3344(a) (discussing publicity claims); Cal. Bus. & Prof. Code § 17200 (defining "unfair competition"). They also allege a false endorsement claim under the Lanham Act. 15 U.S.C. § 1125. Finally, the Caddies assert antitrust claims under Sections 1 and 2 of the Sherman Act. 15 U.S.C. §§ 1, 2.

         For their antitrust claims, the Caddies allege two relevant product markets: the Endorsement Market and the Live Action Advertising Market. They define the Endorsement Market as "the national market for the endorsement of products and services by participants in professional golf tournaments." Without the Tour's requirement that the Caddies wear bibs, the Caddies and golfers would be the only sellers in this market. Indeed, the Caddies and golfers are the only visible and recognizable individuals who participate in golf tournaments.

         According to the Caddies, the Tour's audience is a distinct advertising market given its unique demographic. The majority of Tour fans are older, Caucasian, travel via airplane for business, and are interested in products such as financial planning and vacation traveling. These characteristics allegedly distinguish the average Tour fan from the average fan of other major sports.

         Moreover, endorsements from the Caddies and golfers during tournament play are purportedly more effective than other forms of golf-related advertising. A golf fan can ignore other forms of advertising by flipping the page of a magazine, clicking away from an online advertisement, or fast-forwarding through television commercials with a DVR. In contrast, a golf fan cannot ignore an in-action endorsement from a caddy or golfer. The Caddies contend that this enhanced effectiveness, combined with a unique degree of price-flexibility provided by the possibility of hiring golfers and caddies of varying skill levels, establishes the plausibility of the Endorsement Market.

         The Caddies define the slightly more expansive Live Action Advertising Market as "the national . . . market for in-play or in-action commercial advertising at professional golf events between commercial breaks." In addition to endorsements from the Caddies and golfers, this market includes advertising space on and around the golf course that live tournament, television broadcast, and webcast audiences can see during in-play tournament action. The Tour and Local Hosts provide the advertising space on and around the course. The Caddies contend that the Live Action Advertising Market constitutes a plausible product market for similar reasons as above.

         The Caddies allege three antitrust claims reliant on these proposed product markets. First, they contend that the Tour and Local Hosts violate Section 1 of the Sherman Act by agreeing to require the Caddies to wear the bibs, which unreasonably restrains trade by reducing the product supply in the relevant markets. Second, the Caddies allege that the Tour violates Section 2 of the Sherman Act by monopolizing or attempting to monopolize the relevant markets through the use of coercive and threatening conduct. Finally, the Caddies allege that the Tour also violates Section 2 by engaging in coercive reciprocal dealing-a variant of tying. Specifically, the Caddies contend that the Tour leverages monopoly power in ...


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