brief in support of response to motion to...

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS

AMARILLO DIVISION

ABRAHAM & VENEKLASEN § JOINT VENTURE, ABRAHAM § EQUINE, INC. and JASON ABRAHAM § § Plaintiffs, § § v. § CIVIL ACTION NO. 02:12-cv-00103-J § AMERICAN QUARTER HORSE § ASSOCIATION § § Defendant. §

PLAINTIFFS' BRIEF IN SUPPORT OF DEFENDANT'S MOTION TO DISMISS, AND ALTERNATE MOTION FOR LEAVE TO AMEND COMPLAINT

Nancy J. Stone State Bar No. 19297800 320 S Polk St., Ste 820, LB #32 Amarillo, TX 79101 (806) 374-9300; Facsimile: (806) 373-3008 ATTORNEY FOR PLAINTIFF, ABRAHAM & VENEKLASEN JOINT VENTURE

Ronald D. Nickum

State Bar Number 15015000 Box 1889 - Amarillo, TX 79105 610 S.W. 11th - Amarillo, TX 79101 (806) 371-8888; Facsimile:(806) 374-9618 ATTORNEY FOR PLAINTIFF, JASON ABRAHAM

Sam L. Stein State Bar No. 19130100

1010 S. Harrison Amarillo, TX 79101

(580) 596-3000; Facsimile: (580) 596-3004 ATTORNEY FOR PLAINTIFF, ABRAHAM EQUINE, INC.

Case 2:12-cv-00103-J Document 10 Filed 06/04/12 of 23 PageID 83

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TABLE OF CONTENTS

Page TABLE OF CONTENTS ................................................................................................. i TABLE OF AUTHORITIES............................................................................................ ii INTRODUCTION............................................................................................................ 1 ARGUMENT.................................................................................................................... 1 I. The Doctrine of Non-Intervention is Inapplicable ..................................... 1 II. The Complaint States Claims Upon Which Relief May Be Granted ........ 4 A. Applicable Legal Standard ............................................................. 4 B. Sherman Act Section 2 Claims ....................................................... 6 1. Monopolization .................................................................... 7 2. Attempt to Monopolize ........................................................ 14 C. Plaintiffs Request Leave to Amend the Complaint if the Court Finds it to be Deficient in Any Way ............................................... 16 III. CONCLUSION ......................................................................................... 16 CERTIFICATE OF SERVICE ........................................................................................ 18


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TABLE OF AUTHORITIES

Cases Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 ........................................................ 4, 5, 6 Aspen Skiing Co., v. Aspen Highlands Skiing Corp., 472 U.S. 585, 105 S.Ct. 2847, 86 L.Ed.2d 457 (1985) ................................................. 15 Balaklaw v. Lovell, 14 F.3d 793 (2d Cir. 1994) .............................................................................................. 11 Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ............................................ 4, 5, 6 Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, L.Ed.2d 701 (1977) ............................................................ 11 Burge v. American Quarter Horse Ass’n, 782 S.W.2d 353 (Tex. App.–Amarillo 1990, no writ) ........................................... 1, 2, 3, 8 California Computer Products, Inc., et al. v. International Business Machines Corporation, 613 F.2d 727 (9th Cir. 1979) ............................................................................................ 7 Catch Curve, Inc. v. Venali, Inc. 519 F.Supp. 2d 1028, 1035 (C.D. Cal. 2007) .................................................................. 15 Cleveland v. Caplaw Enterprises, 448 F.3d 518 (2d Cir. 2006) ..................................... 3 Culliver v. Taylor, 503 F.3d 397 (5th Cir. 2007) ............................................................ 4 Floyd v. AQHA, Cause No. 87, 589-D, 251st District Court, Potter County, Texas (2000) ....................... 2 Foundation v. First Urantia Soc., No. H-80-1428, 1982 U.S. Dist. LEXIS 10260 (S.D. Tex. Sept. 23, 1982) .................. 3 Great Plains Trust v. Morgan Stanley Dean Witter & Co., 313 F.3d 305 29 (5th Cir. 2002) ...................................................................................... 16


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Great Western Directories, Inc. v. Southwestern Bell Telephone Company, et al., 63 F.3d 1378 (5th Cir. 1995), aff'd in part, rev'd in part, 63 F.3d 1378 (5th Cir. 1995), opinion withdrawn and superseded in part by, 74 F.3d 613 (5th Cir. 1996), vacated pursuant to settlement, 74 F.3d 613 (5th Cir. 1996), cert. dism'd by, 117 S.Ct. 26 (1996) ................................................................................14, 15 Ernest W. Hahn, Inc. v. Codding, 615 F.2d 830 (9th Cir. 1980) ...................................... 6 Huelsman v. Civic Center Corporation, et al., 873 F.2d 1171 (8th Cir. 1989) .......................................................................................... 6 IBM Peripheral EDP Devices Antitrust Litigation, 481 F. Supp. 965 (N.D. Cal., 1979), aff'd, 698 F.2d 1377 (9th Cir., 1983), cert. denied, 464 U.S. 955, 104 S.Ct. 370, 78 L.Ed. 2d 329 (1983) ............................... 7 Lormand v. US Unwired, Inc., 565 F.3d 228 (5th Cir. 2009) ........................................................................................... 4 Nat’l Collegiate Athletic Ass’n v. Bd of Regents of the University of Oklahoma, 468 U.S. 85, 104 S.Ct. 2948, 82 L.Ed.2d 704 (1984) ..................................................... 2 SmileCare Dental Group, 88 F.3d at 780 (9th Cir. 1996) ......................................................................................... 15 Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 113 S.Ct. 884, 122 L.Ed.2d 247 (1993) ................................................... 15 United States v. Aluminum Co. of America., 148 F.2d 416 (2d Cir. 1945) ............................................................................................ 11 United States v. United Shoe Machinery Corp., 110 F. Supp. 295 (D. Mass.1953), aff'd, 347 U.S. 521, 74 S.Ct. 699, 98 L.Ed. 910 (1954) .................................................. 11


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Statutes 15 U.S.C. § 2 (Sherman Act § 2).................................................................................2, 4, 8 15 U.S.C. § 15 (Clayton Act § 4 and § 16) ..................................................................... 4 Texas Business and Commerce Code §15.05 (b), §15.21 (a) and (b)......................... 2, 4, 8

Rules Federal Rule of Civil Procedure, Rule 8(a)(2) ................................................................. 4 Federal Rule of Civil Procedure, Rule 12 (b)(6) .............................................................4, 5 Federal Rule of Civil Procedure, Rule15(a)(2) .............................................................. 16 Other Authorities M. Craig, A HORSE OF A DIFFERENT COLOR: A Study of Color Bias, Anti-trust,and Restraint of Trade Violations in the Equine Industry (2009) <http://works.bepress.com/mary_craig/2> ....................................................... 2


IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS

AMARILLO DIVISION

ABRAHAM & VENEKLASEN § JOINT VENTURE, ABRAHAM § EQUINE, INC. and JASON ABRAHAM § § Plaintiffs, § § v. § CIVIL ACTION NO. 02:12-cv-00103-J § AMERICAN QUARTER HORSE § ASSOCIATION § § Defendant. §

PLAINTIFFS' BRIEF IN SUPPORT OF PLAINTIFFS' RESPONSE TO DEFENDANT'S MOTION TO DISMISS FOR LACK OF JURISDICTION AND

FAILURE TO STATE A CLAIM

Plaintiffs, ABRAHAM & VENEKLASEN JOINT VENTURE, ABRAHAM

EQUINE, INC. and JASON ABRAHAM, file this Brief in Support of Plaintiffs'

Response to Defendant's Motion to Dismiss for Lack of Jurisdiction and Failure to State a

Claim, Alternate Motion for Leave to Amend Complaint and respectfully request that the

Court deny Defendant's motion for the reasons set forth herein.

I. THE DOCTRINE OF NON-INTERVENTION IS INAPPLICABLE

The American Quarter Horse Association’s reliance upon the doctrine of non-

intervention or non-interference is misplaced in this case. It is true that Courts will

sometimes decline to intervene in cases involving the lawful governance and lawful rules

of private associations. See, e.g., Burge v. American Quarter Horse Ass’n, 782 S.W.2d


PLAINTIFFS' BRIEF IN SUPPORT OF RESPONSE TO MOTION TO DISMISS PAGE 2

353 (Tex. App.–Amarillo 1990, no writ).1 The doctrine of non-interference does not

apply, however, so as to leave members of private associations without resort for

unlawful acts of the defendant, nor does it give a private association a license to violate

the laws of the United States or of the State of Texas.2 Courts can and do (as so they

should) interfere with the internal management of voluntary associations when they

violate the laws (including both state and federal anti-trust laws), because those laws

apply with equal force to voluntary associations or non-profit corporations just as they

apply to global corporations.3

Plaintiffs, here, do not seek to have the Court interfere with an interpretation of the

rules of the American Quarter Horse Association ("AQHA"). Rather, Plaintiffs would

have this Court enter an order finding that the acts of AQHA constitute the illegal

maintenance and use of monopoly power or attempted monopolization in violation of § 2

of the Sherman Act and of §15.05 of the Texas Business and Commerce Code.

1In Burge, the Amarillo Court of Appeals confirmed AQHA's "power to make, amend, repeal and enforce rules and regulations not contrary to law" (emphasis added). This holding merely confirms that courts will not interfere with the internal management of a voluntary association "so long as the governing bodies of such associations do not substitute legislation for interpretation and do not overstep the bounds of reason or violate public policy or the laws of this state while doing so." Id. at 355 (emphasis added).

2AQHA is fully aware from the adverse ruling against it arising out of its unlawful restrictions on the registration of foals resulting from embryo transfer, the subject of Cause No. 87, 589-D, Floyd v. AQHA, 251st Dist. Court, Potter County, Texas (2000) that Courts can and do interfere with its rules when they are unlawful. See, M. Craig, A HORSE OF A DIFFERENT COLOR: A Study of Color Bias, Anti-trust, and Restraint of Trade Violations in the Equine Industry, p.16 (2009) http://works.bepress.com/mary_craig/2 (“the message the court sent to AQHA [in Floyd] was clear: A Texas court will look past the sanctity of self-regulation and force a rule change when the rule directly conflicts with Texas law”).

3Nat’l Collegiate Athletic Ass’n v. Bd of Regents of the University of Oklahoma, 468 U.S. 85, 101 at n. 22, 104 S.Ct. 2948, 82 L.Ed.2d 704 (1984) (citing Goldfarb v. Virginia State Bar, 421 U.S. 773, 786–787, 95 S.Ct. 2004, 2012–2013, 44 L.Ed.2d 572 (1975) and American Society of Mechanical Engineers, Inc. v. Hydrolevel Corp., 456 U.S. 556, 576, 102 S.Ct. 1935, 1947, 72 L.Ed.2d 330 (1982)).



When properly analyzed, the cases cited by AQHA are inapplicable to this case

where Plaintiffs intend to show that AQHA has abused its monopoly power and exceeded

lawful limitations imposed by state and federal law. Unlike the private association

defendant in Foundation v. First Urantia Soc., No. H-80-1428, 1982 U.S. Dist. LEXIS

10260 (S.D. Tex. Sept. 23, 1982), AQHA has not imposed "lawful limitations" by its

rules. Admission into the association is not voluntary, but rather mandatory for owners,

exhibitors and registered Quarter Horses. [See, Complaint at ¶ 27(a) and (d)].4

Even AQHA recognizes that the law requires that it manage the Association’s

affairs within legal limits in order to escape court intervention, for: "Indeed, one court

has already found that “AQHA, we believe, has the right to manage, within the legal

limits, its own affairs without interference from the courts. Burge, 782 S.W.2d at 354."

[Defendant's Brief in Support of Motion to Dismiss for Lack of Jurisdiction and Failure

to State a Claim, page 5].5

Plaintiffs are not asking the Court to interfere with a reasonable interpretation

placed by the Association on its own rules, but to find that Rule 277 and AQHA’s

enforcement of it a) is an abuse of Defendant's monopoly in the market for high quality

registered Quarter Horses; b) has an adverse effect on competition; c) is without

reasonable business justification; and d) has caused and continues to cause damages to

Plaintiffs.

4The court must accept the allegations in the complaint as true, and draw all reasonable inferences in the plaintiff's favor. Cleveland v. Caplaw Enterprises, 448 F.3d 518, 521 (2d Cir. 2006).

5See, Note 2, supra.



II. THE COMPLAINT STATES CLAIMS UPON WHICH RELIEF MAY BE GRANTED

The Complaint filed by Plaintiffs more than adequately states claims for relief

under § 2 of the Sherman Antitrust Act (15 U.S.C. § 2), § 4 and § 16 of the Clayton Act

(15 U.S.C. § 15) and the Texas Business & Commerce Code §§15.05(b), § 15.21(a) and

(b).

A. Applicable Legal Standard

Motions to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure

are viewed with disfavor and are rarely granted. Lormand v. US Unwired, Inc., 565 F.3d

228, 233 (5th Cir. 2009) (internal quotations omitted). In considering such a motion, the

Court must accept all factual allegations in the complaint as true and draw all reasonable

inferences from those allegations in the plaintiff‘s favor. Id. To survive a Rule 12(b)(6)

motion to dismiss, a complaint does not need detailed factual allegations, "but must

provide the plaintiff‘s grounds for entitlement to relief—including factual allegations that

when assumed to be true raise a right to relief above the speculative level." Culliver v.

Taylor, 503 F.3d 397, 401 (5th Cir. 2007) (quoting Bell Atlantic Corp. v. Twombly, 550

U.S. 544, 127 S.Ct. 1955 at 1969, 167 L.Ed.2d 929 (2007)). Put another way, the

plaintiff need not establish a probability of success in the complaint, but the complaint

must contain sufficient factual matter, accepted as true, to state a claim to relief that is

plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937 at 1949, 173

L.Ed.2d 868 (emphasis added and internal quotations omitted).

Rule 8(a)(2) of the Federal Rules of Civil Procedure, requires “a short and plain



statement of the claim showing that the pleader is entitled to relief, in order to give the

defendant fair notice of what the ... claim is and the grounds upon which it rests." Bell

Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955 at 1969, 167 L.Ed.2d 929

(2007) (ellipsis in original) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). In

Twombly, which arose in the context of a Sherman Act claim, the Supreme Court held

that to survive a motion to dismiss under Rule 12(b)(6), a plaintiff must provide the

grounds upon which the claims rest, through factual allegations sufficient to raise a right

to relief above the speculative level. Id. “A claim has facial plausibility when the

plaintiff pleads factual content that allows the court to draw the reasonable inference that

the defendant is liable for the misconduct alleged.” Iqbal, 129 S.Ct. at 1949. The Court,

therefore, does not require “heightened fact pleading of specifics, but only enough facts

to state a claim to relief that is plausible on its face.” Id. at 1974. “[O]nce a claim has

been stated adequately, it may be supported by showing any set of facts consistent with

the allegations in the complaint.” Twombly, 550 U.S. at 1959-60.

The Supreme Court has described the motion to dismiss standard as encompassing

a “two-pronged approach” that requires a court first to construe a complaint's allegations

as true, while not accepting the veracity of a legal conclusion couched as a factual

allegation. Iqbal, 129 S.Ct. at 1950. Second, a court must consider whether the

complaint “states a plausible claim for relief,” which is “a context-specific task that

requires the reviewing court to draw on its judicial experience and common sense.” Id.

Accepting the factual allegations as true and drawing all reasonable inferences in

Plaintiffs' favor, the Court should deny AQHA's Motion to Dismiss for Failure to State a



Claim. See, Iqbal, 129 S.Ct. at 1949.

Pre Twombly both the Eight and the Ninth Circuits have noted that “there is a

policy disfavoring the pre-trial dismissal of antitrust actions because the proof lies largely

in the hands of the defendants.” Ernest W. Hahn, Inc. v. Codding, 615 F.2d 830, 835

(9th. Cir. 1980) (citing Poller v. Columbia Broadcasting, 368 U.S. 464, 473, 82 S.Ct.

486, 7 L.Ed. 2d 458 (1962)); see also Hydranautics v. FilmTec Corp., 70 F.3d 533, 537

(9th Cir. 1995) (determining whether particular litigation was a sham “could not properly

be resolved against Hydranautics on the basis of the pleadings. The outcome [would]

depend on evidence.”). As the Court held in Huelsman v. Civic Center Corporation, et

al., 873 F.2d 1171, 1174 (8th Cir. 1989):

In reviewing a district court's dismissal of an antitrust case before the initiation of discovery, an appellate court must employ a “concededly rigorous standard” of scrutiny. Hospital Bldg. Co. v. Trustees of Rex Hosp., 425 U.S. 738, 746, 96 S.Ct. 1848, 1853, 48 L.Ed.2d 338 (1976). Initially, we note the existence of a policy disfavoring the dismissal of antitrust actions before discovery begins because the proof of illegal conduct lies largely in the hands of the alleged conspirators. Id.; Quality Mercury, Inc. v. Ford Motor Co., 542 F.2d 466, 472 (8th Cir. 1976), cert. denied, 433 U.S. 914, 97 S.Ct. 2986, 53 L.Ed.2d 1100 (1977); see also, Tarleton v. Meharry Medical College, 717 F.2d 1523, 1529 (6th Cir. 1983) (dismissals of antitrust claims prior to discovery should be granted very sparingly); Chapiewsky v. G. Heileman Brewing Co., 297 F. Supp. 33, 38 (W.D. Wis. 1968) (recognizing the difficulty of precisely pleading the effects on interstate commerce before completion of discovery).

B. Sherman Act Section 2 Claims

AQHA asserts that Plaintiffs failed to state a claim on which relief can be granted

under Section Two of the Sherman Act contending that Plaintiffs 1) did not allege

sufficient facts to support a claim that AQHA has engaged in any anticompetitive



conduct in order to acquire or maintain monopoly power in the relevant market; 2) have

not alleged any facts to show that AQHA willfully acquired or maintained monopoly

power and that Plaintiffs pled no facts to support the "essential element of

anticompetitive intent"; 3) have "not established that Rule 227 has an adverse effect on

competition; and 4) failed to allege facts sufficient to show that AQHA has engaged in

predatory of anticompetitive conduct and that AQHA had the specific intent to

monopolize.

1. Monopolization

To state a claim for monopolization a plaintiff must allege the elements as set out

in cases such as, In re IBM Peripheral EDP Devices Antitrust Litigation, 481 F. Supp.

965, 974 (N.D. Cal., 1979), aff'd, 698 F.2d 1377 (9th Cir., 1983), cert. denied, 464 U.S.

955, 104 S.Ct. 370, 78 L.Ed.2d 329 (1983) as follows:

1) that the defendant was in possession of monopoly power in a relevant market;

and either 2) that the defendant has willfully acquired or maintained that power; [FN4]

FN4. United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966) (“Grinnell ”); California Computer Products, Inc., et al. v. International Business Machines Corporation, 613 F.2d 727 (9th Cir. 1979) (“CalComp”); Greyhound Computer Corp. v. International Business Machines Corporation, 559 F.2d 488, 492 (9th Cir. 1977), Cert. denied, 434 U.S. 1040, 98 S.Ct. 782, 54 L.Ed.2d 790 (1978) ( “Greyhound” ).

or



3) that the defendant used its monopoly power, whether lawfully or

unlawfully acquired, to foreclose competition, to gain a competitive advantage, or to destroy a competitor.[FN5]

FN5. United States v. Griffith, 334 U.S. 100, 107, 68 S.Ct. 941, 92 L.Ed. 1236 (1948); Berkey Photo, Inc. v. Eastman Kodak Company, 603 F.2d 263 (2nd Cir. 1979) (“Berkey”); Telex Corp. v. International Business Machines Corp., 510 F.2d 394, 926-928 (10th Cir. 1975), Cert. dismissed, 423 U.S. 802, 96 S.Ct. 8, 46 L.Ed.2d 244 (1975) (“Telex”).

Plaintiffs have properly and adequately pled that AQHA has monopoly power in

the relevant market and that AQHA has used its monopoly power to foreclose

competition by among other things, pleading the following:

25. Plaintiffs assert that Rule 227 and Defendant’s enforcement of it a) is an abuse of Defendant's monopoly in the market for high quality registered Quarter Horses; b) has an adverse effect on competition; c) is without reasonable business justification; and, d) has caused and continues to cause damages to Plaintiffs.

* * * 28. By controlling registration, AQHA controls the supply of high quality registered Quarter Horses. AQHA has sufficient market power to restrict competition and decrease output. Specifically, the restriction limits the supply of registered horses thereby driving up the price and injuring consumers. AQHA covers every state in the nation and many other countries and significantly affects interstate commerce. 29. Rule 227 of the American Quarter Horse Association Rules & Regulations, which prohibits the registration of any horses produced by the cloning process, violates Section 2 of the Sherman Antitrust Act (15 U.S.C. § 2) and Section 15.05(a) of the Texas Free Enterprise and Antitrust Act of 1983 (Tex. Bus. & Comm. Code § 15.05(a)).

30. Rule 227 precludes competition and inhibits Plaintiffs' efforts to compete by establishing unnecessary barriers to entry into the market.

31. AQHA possesses monopoly power over high quality registered Quarter Horses and has abused that power through the



enforcement of Rule 227. AQHA’s abuse of its monopoly power causes there to be fewer high quality registered Quarter Horses.

32. Denial of registration has grave economic consequences to horse owners. The Rule 227 restrictions limit the supply of high quality registered Quarter Horses and thereby drive up prices and harm competition and consumers. With the power to control output is the power to control price. 33. Rule 227 violates the antitrust laws because it lacks sufficient grounding to meet the competitive needs of AQHA and/or because it is broader than necessary to accomplish any legitimate objective of AQHA or its members. 34. Rule 227 creates significant competitive disadvantages to AQHA members who own cloned horses and their offspring, as well as to competition and to consumers. Denial of registration impairs a non-registered horse’s ability to compete effectively with registered horses and protects registered Quarter Horses from having to compete with quality unregistered horses. This restricts competition and benefits registered horse owners at the expense of owners of cloned Quarter Horses and their offspring. The harm to the members that own clones and their offspring is the mirror image of the benefits to other members. Registered Quarter Horses get wide exposure to numerous potential buyers that is not available for members owning clones and their offspring. Buyers and sellers of clones and their offspring are also harmed by unjustified exclusions. 35. AQHA knows that by refusing to register Plaintiffs' Quarter Horses, that it forecloses competition by Plaintiffs. AQHA is knowingly using its monopoly power to preclude and bar competitive entry into the market.

36. AQHA’s illegal and unreasonable refusal to register Plaintiffs' Quarter Horses has and will continue to inflict severe competitive handicap on Plaintiffs and preclude Plaintiffs' entry into the market for high quality registered Quarter Horses.

37. AQHA’s continued enforcement of Rule 227 is an abuse of its monopoly that places artificial and undue restraint on the production of high quality registered Quarter Horses, thereby reducing available quantities of, and raising prices for, such horses. This Court should therefore enjoin the continued enforcement of the rule or of any other rule which denies registration on the basis of cloning.



Plaintiffs' claims survive a motion to dismiss because Plaintiffs have plausibly

alleged that AQHA's monopoly power has been abused through the exclusionary conduct

described above. Contrary to AQHA's assertion Plaintiffs have pled sufficient facts to

support a claim that AQHA has engaged in anticompetitive conduct in order to maintain

monopoly power in the relevant market.

AQHA's assertion that Plaintiffs have not alleged any facts to show that AQHA

wilfully acquired or maintained monopoly power and that Plaintiffs pled no facts to

support the "essential element of anticompetitive intent" is incorrect as is evident by the

plain language of the Complaint, overlooks that this is an abuse of monopoly case and

that specific anticompetitive intent is not an essential element of a monopolization claim

that need be specifically pleaded. Allegations of intent include the following:

35. AQHA knows that by refusing to register Plaintiffs' Quarter Horses, that it forecloses competition by Plaintiffs. AQHA is knowingly using its monopoly power to preclude and bar competitive entry into the market.

* * * 48. Among other things Plaintiffs have alleged that "by its conduct as described above, AQHA has deliberately used and is continuing to use monopoly power in the market for high quality registered Quarter Horses to exclude Plaintiffs and other competitors from the market and to restrict supply."

* * * 52. By its conduct as described above, AQHA has intentionally attempted to monopolize the market for high quality registered Quarter Horses.

The law is clear that intent can be inferred from evidence of monopoly power plus

exclusionary practices and Plaintiffs have unquestionably pleaded both. In

monopolization cases, monopolistic intent can be inferred from the exclusionary conduct



of a firm with monopoly power. United States v. Aluminum Co. of America, 148 F.2d

416, 432 (2d Cir. 1945) (noting that, in a monopolization case, “no intent is relevant

except that which is relevant to any liability, criminal or civil: i.e. an intent to bring about

the forbidden act”); United States v. United Shoe Machinery Corp., 110 F. Supp. 295,

346 (D. Mass.1953) aff'd, 347 U.S. 521, 74 S.Ct. 699, 98 L.Ed. 910 (1954) (“Defendant

intended to engage in the leasing practices and pricing policies which maintained its

market power. That is all the intent which the law requires when both the complaint and

the judgment rest on a charge of ‘monopolizing’, not merely ‘attempting to monopolize’.

Defendant having willed the means, has willed the end.”),

Contrary to AQHA's assertion, Plaintiffs do not have to "establish" that Rule 277

has an adverse effect on competition. To survive a motion to dismiss, a complaint must

allege “antitrust injury, which is to say injury of the type the antitrust laws were intended

to prevent and that flows from that which makes defendants' acts unlawful. The injury

should reflect the anticompetitive effect either of the violation or of anticompetitive acts

made possible by the violation.” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S.

477, 489, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977); see also Balaklaw v. Lovell, 14 F.3d 793,

797 (2d Cir. 1994). Plaintiffs need not prove that competition has been harmed; it is

sufficient to show a likelihood that competition would be diminished and therefore it is

sufficient to allege a likelihood and not actual harm to competition. Brunswick Corp.,

429 U.S. at 489.

Plaintiffs have shown the requested injury by identifying the practice complained

of and the reasons such a practice is or might be anticompetitive. The Complaint alleges



facts which show likelihood of harm and harm to competition, as distinct from injury to

Plaintiffs as competitors, including but not limited to the following:

- By controlling registration, AQHA controls the supply of high quality registered Quarter Horses. Specifically, the restriction limits the supply of registered horses thereby driving up the price and injuring consumers. (Complaint, ¶28);

- Rule 227 precludes competition and inhibits Plaintiffs' efforts to compete by establishing unnecessary barriers to entry into the market. (Complaint, ¶30);

- AQHA’s abuse of its monopoly power causes there to be fewer high quality registered Quarter Horses. (Complaint, ¶31);

- Denial of registration has grave economic consequences to horse owners. Rule 227 restrictions limit the supply of high quality registered Quarter Horses and thereby drive up prices and harm competition and consumers. (Complaint, ¶32);

- Rule 227 creates significant competitive disadvantages to AQHA members who own cloned horses and their offspring, as well as to competition and to consumers. Denial of registration impairs a non-registered horse’s ability to compete effectively with registered horses and protects registered Quarter Horses from having to compete with quality unregistered horses. This restricts competition and benefits registered horse owners at the expense of owners of cloned Quarter Horses and their offspring. The harm to the members that own clones and their offspring is the mirror image of the benefits to other members. Registered Quarter Horses get wide exposure to numerous potential buyers that is not available for members owning clones and their offspring. Buyers and sellers of clones and their offspring are also harmed by unjustified exclusions. (Complaint, ¶34); and - AQHA’s continued enforcement of Rule 227 is an abuse of its monopoly that places artificial and undue restraint on the production of high quality registered Quarter Horses, thereby reducing available quantities of, and raising prices for, such horses. (Complaint, ¶59).

Plaintiffs' Complaint is replete with facts showing injury to competition including

those enumerated under the section titled "ANTITRUST INJURY AND THE NEED

FOR INJUNCTIVE RELIEF", as follows:



38. Specifically, the above-referenced conduct of AQHA, in the absence of permanent injunctive relief, will have the following effects, among others:

a. Competition in the market for high quality registered

Quarter Horses will continue to be restricted, suppressed and restrained.

b. Owners and purchasers of high quality registered

Quarter Horses will continue to be deprived of the benefits of cloning, which include the propagation of superior animals, the ability to breed around or minimize the chance of genetic disease and the potential improvement of the breed.

c. Purchasers and owners of high quality registered

Quarter Horses will be denied the ability to choose horses produced through the cloning process and their offspring.

d. Purchasers of high quality registered Quarter Horses

will be deprived of free and open competition, and the prices will be higher than they would be with competition from cloning.

e. Few, if any, options will be available for reproduction

of outstanding horses that are unable to breed (i.e., geldings that prove themselves to be superior horses and both mares and stallions that died young or are no longer able to breed).

f. Owners and purchasers of high quality unregistered

Quarter Horses will continue to be deprived of the benefits of the exposure for their horses that owners of high quality registered Quarter Horses enjoy.

g. Consumers will be denied the genetic benefits of the

propagation of superior, genetically clean horses.

39. … This has a detrimental effect on the public in general and the owners of clones and their offspring in particular and causes the value of the registered horses to be inflated because of this output restriction. Rule 227 and its enforcement causes the market value of clones and their



offspring to diminish for at least the following reasons: a. Unregistered Quarter Horses may not compete, race,

be shown or exhibited in any AQHA sanctioned events.

b. The offspring of unregistered Quarter Horses are not

eligible to be registered with the AQHA and may not compete in AQHA sanctioned events.

c. Because of supply and demand the lucrative breeding opportunities available for high quality registered Quarter Horse stallions and mares are unavailable to their unregistered counterparts.

40. Rule 227 has a detrimental effect on consumers because the value of a comparably bred registered horse is inflated. The rule has a detrimental effect on the producers of cloned horses and their offspring because of the diminution in value of their production.

41. Refusing to register Plaintiffs' horses without legitimate business reasons is an attempt to exclude Plaintiffs and others from the market for high quality registered Quarter Horses. AQHA's Rule 227 is anti-competitive because it precludes cloning or the breeding of cloned horses to produce high quality registered Quarter Horses thereby restricting the output, resulting in higher prices and harm to consumers and competition.

2. Attempt to Monopolize

AQHA incorrectly asserts that "Plaintiffs have failed to allege facts sufficient to

show that AQHA has engaged in predatory or anticompetitive conduct and that AQHA

had the specific intent to monopolize." The allegations made by Plaintiffs as set forth

above are more than adequate to withstand a motion to dismiss. It is well established in

the law that "intent may be inferred by anticompetitive practices or proven by direct

evidence." Great Western Directories, Inc. v. Southwestern Bell Telephone Company, et

al., 63 F.3d 1378 (5th Cir. 1995), aff'd in part, rev'd in part, 63 F.3d 1378 (5th Cir. 1995),

opinion withdrawn and superseded in part by, 74 F.3d 613 (5th Cir. 1996), vacated



pursuant to settlement, 74 F.3d 613 (5th Cir. 1996), cert. dism'd by, 117 S.Ct. 26 (1996).

At the pleading stage, additional facts to support allegations about AQHA's intent

are likely in the possession of AQHA and may be discovered by Plaintiffs at a later stage

in the litigation. Furthermore, anticompetitive conduct alone can satisfy the specific

intent requirement if the conduct “form[s] the basis for a substantial claim of restraint of

trade” or is “clearly threatening to competition or clearly exclusionary.” Catch Curve,

Inc. v. Venali, Inc. 519 F.Supp.2d 1028, 1035 (C.D. Cal. 2007) 8 (citing Twin City

Sportservice, Inc. v. Charles O. Finley & Co., Inc., 676 F.2d 1291, 1309 (9th Cir. 1982);

see Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 459, 113 S.Ct. 884, 122 L.Ed.2d

247 (1993) (stating that unfair tactics can suffice to prove intent to monopolize).

Nonetheless, Plaintiffs' Complaint includes the following allegations of intent:

35. AQHA knows that by refusing to register Plaintiffs' Quarter Horses, that it forecloses competition by Plaintiffs. AQHA is knowingly using its monopoly power to preclude and bar competitive entry into the

8 The court denied a motion to dismiss and held that plaintiff had alleged the kind of injury to competition that antitrust laws were designed to prevent by pleading that:

Defendants' unlawful conduct has stifled competition in the VS Compatible Electrodes market and has had a direct, substantial and adverse effect on competition by monopolizing the VS Compatible Electrodes market, artificially creating barriers to entry in the VS Compatible Electrodes market, and foreclosing competition on the basis of price and quality. Defendants' anticompetitive conduct was instituted so that it could illegally maintain the monopoly profits that it reaped from purchases of VS Compatible Electrodes.

The Court also held that:

In order to state a claim for attempted monopolization, Venali must allege that Catch Curve and j2 have engaged in “predatory or anticompetitive conduct to accomplish the monopolization.” SmileCare Dental Group, 88 F.3d at 783. The question of whether a particular course of conduct is predatory or anticompetitive (also referred to as exclusionary) “cannot be answered by simply considering its effect on” Venali. Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605, 105 S.Ct. 2847, 86 L.Ed. 2d 467 (1985)



market. * * *

48. Among other things Plaintiffs have alleged that "by its conduct as described above, AQHA has deliberately used and is continuing to use monopoly power in the market for high quality registered Quarter Horses to exclude Plaintiffs and other competitors from the market and to restrict supply."

* * * 52. By its conduct as described above, AQHA has intentionally attempted to monopolize the market for high quality registered Quarter Horses.

C. Plaintiffs Request Leave to Amend the Complaint if the Court Finds it to

be Deficient in Any Way In the unlikely event the Court concludes that the Complaint fails to state a claim,

Plaintiffs respectfully request leave to amend in order to remedy any deficiency identified

by the Court. The court should freely give leave [to amend] when justice so requires.

See Fed. R. Civ. P. 15(a)(2) and Great Plains Trust v. Morgan Stanley Dean Witter &

Co., 313 F.3d 305, 329 (5th Cir. 2002) (granting leave [to amend] is especially

appropriate when the trial court has dismissed the Complaint for failure to state a claim)

(internal quotations and alterations omitted).

III. CONCLUSION

Plaintiffs have plausibly pled all facts to support all causes of action, including

those necessary to allege anticompetitive conduct and intent which AQHA asserts as

grounds for dismissal. Plaintiffs' Complaint states plausible claims and contains

sufficient facts and therefore AQHA's Motion to Dismiss for Lack of Jurisdiction and

Failure to State a Claim should be denied. In the alternative, if the Court grants AQHA's

motion, Plaintiffs should be given the opportunity to amend their Complaint.



Respectfully submitted,

/s/ Nancy J. Stone Nancy J. Stone

State Bar No. 19297800 320 S Polk St., Ste 820, LB #32 Amarillo, TX 79101 Telephone: (806) 374-9300 Facsimile: (806) 373-3008 [email protected]

ATTORNEY FOR PLAINTIFF, ABRAHAM & VENEKLASEN JOINT VENTURE

/s/ Ronald D. Nickum Ronald D. Nickum

State Bar Number 15015000 Box 1889 - Amarillo, TX 79105 610 S.W. 11th - Amarillo, TX 79101 Telephone: (806) 371-8888 Facsimile: (806) 374-9618 [email protected]

ATTORNEY FOR PLAINTIFF, JASON ABRAHAM

/s/ Sam L. Stein Sam L. Stein State Bar No. 19130100

1010 S. Harrison Amarillo, TX 79101

Telephone: (580) 596-3000 Facsimile: (580) 596-3004

[email protected] ATTORNEY FOR ABRAHAM EQUINE, INC.



CERTIFICATE OF SERVICE This is to certify that a true and correct copy of the foregoing has been served via the Court’s ECF Noticing System on June 4, 2012 on the following counsel of record: W. Wade Arnold Mike H. Loftin Autum L. White Underwood Law Firm, P.C. P. O. Box 90158 Amarillo, Texas 79105-9158

/s/ Nancy J. Stone


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