| Continental Guest Servs. Corp. v International Bus Servs.,Inc. |
| 2012 NY Slip Op 01348 [92 AD3d 570] |
| February 23, 2012 |
| Appellate Division, First Department |
| Continental Guest Services Corporation,Appellant, v International Bus Services, Inc., et al., Respondents, et al.,Defendants. |
—[*1] Paul Hastings LLP, New York (Michael P.A. Cohen of counsel), for respondents.
Judgment, Supreme Court, New York County (Charles Edward Ramos, J.), entered October15, 2010, insofar as appealed from as limited by the briefs, dismissing the Donnelly Act (GeneralBusiness Law § 340 et seq.) claims against defendants International Bus Services,Inc. (IBS), City Sights Twin, LLC (City Sights), and Twin America, LLC (Twin America),unanimously affirmed, with costs. Appeal from order, same court and Justice, entered September14, 2010, unanimously dismissed, without costs, as subsumed in the appeal from the judgment.
Until the spring of 2009, defendant IBS and defendant City Sights operated competingdouble-decker sightseeing tour buses in New York City. However, they subsequently formedTwin America, which controls 90% of the double-decker sightseeing tour bus market in NewYork City;[FN1]the only competitor was nonparty Big Taxi Tours. According to the complaint, plaintiff is thelargest operator of hotel concierge desks in New York City and the largest single source of ticketsales for double-decker sightseeing bus tours in the City.
Prior to commencement of this litigation, plaintiff had operated concierge desks at 43 NewYork City hotels, pursuant to written agreements with these hotels. The hotel concierge desksprovide a range of services including flowers, car rentals, and, as relevant to this appeal, ticketsto sightseeing tours including double-decker bus tours. Specifically, plaintiff sells vouchers fordefendants' double-decker bus tours, and customers submit the vouchers to [*2]defendants in exchange for a ticket to board the bus. Plaintiffsubsequently remits the voucher payments to defendants within a specified number of days,minus an agreed upon commission percentage.
After the formation of Twin America, defendants reduced plaintiff's commission and theamount of time plaintiff had to remit payment. Plaintiff alleges that when it refused to sell a 49%interest in its company to defendants, defendants advised plaintiff that they would "force[p]laintiff out" so defendants could control the hotel concierge desks.[FN2]
Plaintiff's complaint alleges monopolization, and attempted monopolization, of both the TourBus Market and the Ticket Sales Market. Plaintiff defines the Tour Bus Market as the market forhop-on, hop-off double-decker sightseeing bus tours in New York City, and the Ticket SalesMarket as the "hotel concierge desk distribution channel for the sale of tickets to passengers forthe double-decker sightseeing tours in New York City." Plaintiff contends that IBS and CitySights conspired to form Twin America, with the intent to control, dominate and curtailcompetition in the Tour Bus Market. Plaintiff also alleges that defendants conspired tomonopolize the Ticket Sales Market by vertically controlling distribution of their tickets, "takingover" hotel concierge desks previously operated by plaintiff, and reducing plaintiff's commissionpercentage and time to remit payment.
The motion court properly dismissed the antitrust claims for failure to state a cause ofaction.[FN3]Although the motion court found that plaintiff had standing as to the Tour Bus Market claims,that aspect of the ruling is incorrect. Plaintiff is neither a consumer nor a competitor in the TourBus Market because it does not operate bus tours. Plaintiff's allegations that defendants increasedtheir ticket price and that the quality of the tours has decreased are injuries that can be vindicatedby tour bus passengers and/or the Attorney General. This consideration "diminishes thejustification for allowing a more remote party such as [plaintiff] to perform the office of a privateattorney general" (see Associated Gen. Contractors of Cal., Inc. v Carpenters, 459 US519, 542 [1983]).
Plaintiff's claims with respect to the Ticket Sales Market were correctly dismissed becauseplaintiff failed to define a relevant product market. A relevant product market includes allproducts that are "reasonably interchangeable," and the alleged market must be plausible(Theatre Party Assoc., Inc. v Shubert Org., Inc., 695 F Supp 150, 154 [SD NY 1988]).The general rule when determining a relevant product market is that "[t]he outer boundaries of aproduct market are determined by the reasonable interchangeability of use [by consumers] or thecross-elasticity of demand between the product itself and substitutes for it" (F.T.C. v Staples,Inc., 970 F Supp 1066, 1074 [DDC 1997] [internal quotation marks omitted]).Interchangeability and cross-elasticity of demand look to the availability of substitutecommodities, meaning, "whether two products can be used for the same purpose, and if so,whether and to what extent purchasers are willing to substitute one for the other" (id.[internal quotation marks omitted]). If there are other products available to consumers thatare similar in character or use to the products in question, then the products are said to befunctionally interchangeable and form the outer boundaries of a relevant product market forantitrust purposes.
Here, according to plaintiff, the market for ticket sales for double-decker bus tours throughhotel concierge desks is distinct from the market for ticket sales for the same double-decker bustours that are available through other vendors and distribution channels. Although plaintiffcontends it is the "major distribution channel" of defendants' tickets, it is not the only distributionchannel because consumers can purchase tickets from street vendors, the Internet, and visitorcenters operated by defendants. Thus, there is functional interchangeability between the hotelconcierge desk distribution channel and other distribution channels and vendors. Plaintiff'sisolation of a supposed separate market via hotel concierge desks from the other vendors is toonarrow a definition to constitute a plausible market (Belfiore v New York Times Co., 826F2d 177, 180 [2d Cir 1987], cert denied 484 US 1067 [1988]).
Furthermore, the hotel concierge desk distribution channel does not constitute a submarketwithin the larger double-decker tour bus ticket sales market. Courts recognize that submarketscan exist within larger product markets, thereby providing potential plaintiffs with anotheravenue of establishing a relevant product market for an antitrust claim. The United StatesSupreme Court in Brown Shoe Co. v United States (370 US 294, 325 [1962]) provided aseries of factors for determining whether a submarket exists, including "industry or publicrecognition of the submarket as a separate economic entity, the product's peculiar characteristicsand uses, . . . [and] distinct prices." In this case, the tickets sold by plaintiff do nothave any peculiar characteristics, but rather provide the consumer with the same product andexperience as a ticket purchased through any of the other distribution channels. Moreover,plaintiff does not allege that either the hotel concierge industry or the double-decker tour busindustry recognizes plaintiff's defined submarket as a separate economic entity. Indeed, plaintiffdoes not set the price for the double-decker tour bus tickets; it is solely a distributor of vouchersfor defendants' product.
Even if the Ticket Sales Market were a relevant product market or submarket, plaintiff failedto allege an antitrust injury in that market. An antitrust injury is an injury "attributable to ananti-competitive aspect of the practice under scrutiny" (Atlantic Richfield Co. v USAPetroleum Co., 495 US 328, 334 [1990]). Here, plaintiff complains that defendants havereplaced it as the concierge at 11 of the 43 hotels where it used to operate the concierge desk, thatdefendants plan to take over the hotel concierge industry, and in so doing, defendants havedecreased plaintiff's commission and the amount of time plaintiff has to remit payment.However, in the hotel concierge industry, plaintiff and defendants are now competitors, and theantitrust laws were enacted to protect competition, not competitors (see Theatre Party,695 F Supp at 155). Plaintiff does not allege that defendants have prevented it from sellingvouchers at concierge desks it continues to operate.
Furthermore, the antitrust laws do not require defendants to pay plaintiff a particularcommission or give it a certain number of days to pay (see Belfiore v New York TimesCo., 654 F Supp 842, 847 [D Conn 1986], affd 826 F2d 177 [2d Cir 1987], certdenied 484 US 1067 [1988]). In fact, defendants may decline to deal with plaintiff altogether(see Theatre Party, 695 F Supp at 155; see also E & L Consulting, Ltd. v DomanIndus. Ltd., 472 F3d 23, 29 [2d Cir 2006], cert denied 552 US 816 [2007]).
Indeed, a manufacturer's vertical control of the distribution of its own product ispresumptively legal and not a violation of the antitrust laws (E & L Consulting, 472 F3dat 30). The gravamen of plaintiff's argument is that defendants are distributing theirdouble-decker tour tickets themselves, instead of using plaintiff's services. However, "[i]t is not aviolation of the antitrust laws, without a showing of actual adverse effect on competitionmarket-wide, for a manufacturer to terminate a distributor" (id. at 29 [internal quotationmarks omitted]). Notably, defendants' vertical control of their product does not provide anymonopolistic benefit that defendants do not already enjoy.
The motion court properly dismissed plaintiff's attempted monopolization claims. Althoughthe motion court found that plaintiff could not bring a private right of action for attemptedmonopolization, that portion of the ruling is incorrect.[FN4]Plaintiff's claims of attempted monopolization fail because plaintiff does not have standing in theTour Bus Market, and plaintiff has not alleged anticompetitive conduct by defendants or a"dangerous probability" that the attempted monopolization will succeed in the Ticket SalesMarket (International Distrib. Ctrs., Inc. v Walsh Trucking Co., Inc., 812 F2d 786, 791[2d Cir 1987], cert denied 482 US 915 [1987]). The complaint alleges that defendantshave taken over some of plaintiff's hotel concierge desks. However, the seven hotels thatterminated plaintiff's contract were able to do so without alleging cause and were free to hire anyreplacement company to operate the concierge desks. Just because defendants are now incompetition with plaintiff in the hotel concierge desk industry does not mean that they engagedin anticompetitive conduct.
To establish a "dangerous probability" of success we must examine whether a defendant"possesses a significant market share when it undertakes the challenged anticompetitive conduct"(Intl. Distrib., 812 F2d at 791). Here, the minimal economic power defendants may havein the hotel concierge industry does not warrant the conclusion that they possessed a significantmarket share at the time plaintiff alleges they engaged in the anticompetitive actions. Defendantsnow operate seven hotel concierge desks in New York City, however, according to thecomplaint, plaintiff remains the "largest operator of hotel concierge desks in New York City."Further, plaintiff's conclusory allegations that defendants will eventually "take over each andevery hotel concierge desk in New York City" and thereby put plaintiff out of business is legallyinsufficient to make out a violation of the Donnelly Act (Sands v Ticketmaster-N.Y.,Inc., 207 AD2d 687, 688 [1994], lv denied 85 NY2d 904 [1995]).
The motion court properly declined to permit plaintiff to replead its antitrust claims becauseno amount of repleading will change the nature of its injuries (see Chapman v New York[*3]State Div. for Youth, 546 F3d 230, 239 n 3 [2d Cir2008], cert denied sub nom. Handle With Care Behavior Management System, Inc. v NewYork State Division for Youth, 558 US —, 130 S Ct 552 [2009]).
We have considered the parties' remaining contentions and find them unavailing.Concur—Tom, J.P., Moskowitz, Richter, Abdus-Salaam and RomÁn, JJ.
Footnote 1: On February 8, 2011, the UnitedStates Surface Transportation Board (STB) denied approval of the Twin America joint venture.On March 8, 2011, the STB stayed its February 8 decision pending defendants' petition forreconsideration.
Footnote 2: Although 11 hotels initiallyterminated their contracts with plaintiff and gave business to defendants, four of these hotelssubsequently reinstated plaintiff as the hotel concierge desk operator.
Footnote 3: The motion court alsodetermined that defendants were one entity after the creation of Twin America and thereforeplaintiff had failed to allege a conspiracy between two or more legal or economic entities.However, it does not matter, for purposes of this decision, whether or not the motion court erredin finding that defendants had become a single entity because plaintiff's claims fail on othergrounds.
Footnote 4: In Two Queens v Scoza(296 AD2d 302 [2002]), this Court reinstated the defendant's counterclaims, which included anallegation of attempted monopolization. It is a fair inference that the Two Queens Courtfound that the Donnelly Act provided for a private right of action for attempted monopolization.