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From Antitrust Law Daily, September 26, 2017

Antitrust, RICO claims against law schools and bar prep company tossed

By Peter Reap, J.D., LL.M.

LLM Bar Exam (LBE), a company that specializes in preparing foreign LL.M. graduates to take and pass the New York and California bar exams, failed to adequately allege that the leading provider of bar exam review courses, Barbri, Inc., illegally conspired with several law schools to monopolize the bar preparation industry in violation of the Sherman Act, the federal district court in New York City has decided. Specifically, all five of LBE’s federal claims were dismissed for failure to state a claim: conspiracy to restrain trade in violation of Section 1 of the Sherman Act; monopolization and attempted monopolization in violation of Section 2 of the Sherman Act; racketeering under the federal RICO statute; and copyright infringement. The court declined to exercise supplemental jurisdiction over LBE’s eight remaining state law claims, dismissing those claims as well (LLM Bar Exam, LLC v. Barbri, Inc., September 25, 2017; Failla, K.).

LBE sued Barbri, several law schools located in New York (collectively, the "New York Law Schools"), and several other law schools located outside of New York (collectively, the "Non-New York Law Schools"). The defendant law schools included Columbia Law School; Fordham University School of Law; New York University Law School; Benjamin N. Cardozo School of Law; St. John’s University School of Law; Harvard Law School; Duke University School of Law; the University of Southern California Gould School of Law; Georgetown University Law Center; and Emory University School of Law.

LBE claimed that Barbri entered into agreements with the New York Law Schools and the Non-New York Law Schools (the "Law School Agreements"). Pursuant to the Law School Agreements, LBE alleged, Barbri donates money to these schools and hires their faculty members to teach bar review courses; in exchange, the law schools ensure that Barbri remains the country’s preeminent provider of bar preparation courses. LBE also alleged that the New York Law Schools and the Non-New York Law Schools conspired with each other to prevent LBE from challenging Barbri. The result, LBE claimed, was that Barbri monopolized the market for preparing foreign LL.M. graduates to take the bar (what LBE termed the "LLM Market").

The linchpin of LBE’s antitrust claims was the existence of the LLM Market — "the U.S. market for bar examination review courses for [f]oreign LL.M. [s]tudents." LBE posited that the LLM Market is one of "[t]wo markets … relating to bar examination review," with the other being the "JD Market." LBE alleged that "[t]he LLM Market is far more limited than the JD Market in part because … significantly" fewer foreign LL.M. graduates "sit for a bar examination."

LBE alleged five federal and eight state law claims. The defendants’ motion to dismiss was before the court.

Conspiracy to restrain trade. A cognizable Section 1 claim has two elements: a combination or some form of concerted action between at least two legally distinct economic entities that unreasonably restrains trade, the court noted. Nothing in the LBE’s First Amended Complaint (FAC) suggested that the defendants entered into a conspiracy. And the FAC did not allege plausibly that any of the defendants sought to unreasonably restrain trade. LBE’s Section 1 claim thus failed, the court ruled.

The FAC did not present direct evidence to support LBE’s claim that Barbri, the New York Law Schools, and the Non-New York Law Schools entered into an agreement (let alone an agreement to restrain trade), the court explained. Nor did the FAC plead indirect evidence to support the existence of an agreement between these entities. LBE attempted to rely on indirect evidence of the defendants’ conspiracy, claiming that in the FAC, the defendants’ "conspiracy agreement" is "evidenced by parallel conduct and contributing ‘plus factors.’" The court disagreed.

The FAC provided no indirect evidence to support LBE’s claim that the defendants entered into an agreement within the meaning of Section 1 of the Sherman Act. LBE argued that the New York Law Schools and the Non-New York Law Schools engaged in parallel conduct when they "forb[ade] [LBE] from any on-campus tabling, marketing[,] and promotion privileges"; LBE deemed these decisions "almost simultaneous." Calling this conduct "parallel" was a stretch, the court observed: The FAC made plain that these schools banned LBE from marketing on their campuses at different times over the span of several years. Columbia, for example, first "disallow[ed] LBE from" its campus in "September of 2010." Fordham did the same, but not until February 2016, the court noted.

LBE’s attempt to establish "plus factors" was similarly unavailing. LBE argued that the FAC pleaded three such factors: "(i) common motive to conspire; (ii) actions contrary to each defendant’s self-interest; and (iii) regular communication between defendants." But the biggest flaw in LBE’s account of these "plus factors" — and, more broadly, in LBE’s Section 1 claim — was that "there are obvious alternative explanations for the" New York Law Schools’ and Non-New York Law Schools’ conduct, the court reasoned. LBE posited that these law schools "provide preferential treatment to Barbri over its competitors to ensure" that the schools continue receiving "donations and sizable employment agreements" from Barbri. The FAC gave no sense of these donations’ size. Nor did it attempt to explain why the administrators of the New York Law Schools and the Non-New York Law Schools would be invested in ensuring that professors at these schools can continue teaching Barbri courses on the side. Even more importantly, the FAC did not provide any support for LBE’s claim that the New York Law Schools and the Non-New York Law Schools favor Barbri over Barbri’s competitors.

Further, in light of numerous complaints, it was unsurprising that, at different times over the span of several years, many of the defendant law schools barred LBE from marketing its courses on their campuses.

In addition to failing to plead an agreement between and among the defendants, LBE failed to established the second element of this claim: that the defendants unreasonably restrained trade, the court held. The FAC alleged clearly that LBE and Barbri are in a dispute. But it gave no indication that the defendants have done anything to harm "competition as a whole" within the LLM Market. Another reason why LBE failed to allege injury to competition was the fact that the FAC provided no information about other companies that compete with Barbri and LBE. The FAC did not contain a single allegation about these competitors, let alone how competition among them has suffered because of the defendants’ actions, the court said.

Monopolization. LBE’s Section 2 monopolization claim failed because the FAC did not plausibly allege that Barbri has market power. What LBE believed to be the relevant market, the LLM Market, was not cognizable under Section 2, the court held. This was in large part because LBE did not define the LLM Market with reference to the rule of reasonable interchangeability and cross-elasticity of demand, a deficiency that alone merited dismissal of LBE’s Section 2 claim. And in any event, the FAC gave no indication that Barbri holds an excess share of the LLM Market.

The FAC did not explain why the JD Market does not offer reasonably interchangeable substitutes for the courses available in the LLM Market. LBE’s failure to address these alternative products rendered its definition of the LLM Market implausible.

Even if LBE had plausibly defined the LLM Market, the FAC did not allege that Barbri holds an excess share of it. The FAC provided no indication of Barbri’s share of the LLM Market.

Attempted monopolization. LBE’s attempted monopolization claim mirrored its actual monopolization claim and failed for similar reasons, the court decided. LBE failed to establish a cognizable market and its failure to define a valid market prevented it from demonstrating that Barbri has a dangerous probability of achieving a monopoly, the court determined.

RICO. The FAC did not state a cognizable civil RICO claim. LBE alleged that "[b]etween the summer of 2009 through April 2016," Barbri, the New York Law Schools, and the Non-New York Law Schools "formed an association-in-fact for the purpose of defrauding LBE." That enterprise’s "common purpose," LBE claimed, "was to use artifice, deceit, misinformation, and dishonest means to wrest away from LBE its customers in the LLM Market." And the defendants allegedly accomplished this purpose by committing various predicate acts of mail and wire fraud. LBE’s allegations of fraud did not satisfy Rule 12(b)(6), much less Rule 9(b). The FAC thus failed to allege plausibly that the defendants engaged in a pattern of racketeering activity. LBE’s allegations that the defendants formed an enterprise-in-fact were equally unavailing. The FAC gave no indication that the defendants "functioned as a unit."

Copyright infringement. LBE’s final federal claim failed for a simple reason: the complaint did not allege that LBE holds, or has even applied for, a copyright. Registration was plainly a prerequisite for suing for copyright infringement under the Copyright Act, according to the court.

State law claims. Judicial economy tilted in favor of declining supplemental jurisdiction, because this case had not yet moved past the pleadings stage, the court noted. In addition, there was nothing inconvenient about having the parties litigate LBE’s state claims in state court. The court also did not believe that declining supplemental jurisdiction would prejudice the parties, and comity counseled in favor of having LBE pursue its state-law claims in state court.

The case is No. 1:16-cv-03770-KPF.

Attorneys: Jessica Esmeralda Matic (Tosolini, Lamura, Rasile & Toniutti LLP) for LLM Bar Exam, LLC. Brian Timothy Burgess (Goodwin Procter, LLP) for Barbri, Inc.

Companies: LLM Bar Exam, LLC; Barbri, Inc.

MainStory: TopStory Antitrust RICO NewYorkNews

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