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Shain v. Advanced Technologies Group, LLC

United States District Court, E.D. Michigan, Southern Division

February 28, 2017

W. CURTIS SHAIN, SCOTT IRWIN, ROBERT SPILLMAN, CEDRIC MYLES, and ANTHONY CALABRO, on behalf of themselves and all others similarly situated, Plaintiffs,



         This is a putative class action lawsuit filed by released Federal Bureau of Prison (“BOP”) inmates on behalf of themselves and current and released BOP inmates who purchased MP3 players and music or other audio files during their incarceration. In a twenty-three count complaint, filed February 2, 2016, Plaintiffs assert claims against Defendants under the Sherman Antitrust Act, 15 U.S.C. §§ 1, 2, as well as various common law and state law claims. Now the Court must address the viability of those claims, as Defendants Advanced Technologies Group, LLC (“ATG”) and SanDisk Corporation (“SanDisk”) (collectively “Defendants”) have filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).[1]

         I. Standard for Rule 12(b)(6) Motion to Dismiss

         A motion to dismiss pursuant to Rule 12(b)(6) tests the legal sufficiency of the complaint. RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134 (6th Cir. 1996). Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” To survive a motion to dismiss, a complaint need not contain “detailed factual allegations, ” but it must contain more than “labels and conclusions” or “a formulaic recitation of the elements of a cause of action . . ..” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). A complaint does not “suffice if it tenders ‘naked assertions' devoid of ‘further factual enhancement.' ” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 557).

         As the Supreme Court provided in Iqbal and Twombly, “[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.' ” Id. (quoting Twombly, 550 U.S. at 570). “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.” Id. (citing Twombly, 550 U.S. at 556). The plausibility standard “does not impose a probability requirement at the pleading stage; it simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of illegal [conduct].” Twombly, 550 U.S. at 556.

         In deciding whether the plaintiff has set forth a “plausible” claim, the court must accept the factual allegations in the complaint as true. Erickson v. Pardus, 551 U.S. 89, 94 (2007). This presumption, however, is not applicable to legal conclusions. Iqbal, 556 U.S. at 668. Therefore, “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly, 550 U.S. at 555).

         Ordinarily, the court may not consider matters outside the pleadings when deciding a Rule 12(b)(6) motion to dismiss. Weiner v. Klais & Co., Inc., 108 F.3d 86, 88 (6th Cir. 1997) (citing Hammond v. Baldwin, 866 F.2d 172, 175 (6th Cir. 1989)). A court that considers such matters must first convert the motion to dismiss to one for summary judgment. See Fed. R. Civ. P 12(d). However, “[w]hen a court is presented with a Rule 12(b)(6) motion, it may consider the [c]omplaint and any exhibits attached thereto, public records, items appearing in the record of the case and exhibits attached to [the] defendant's motion to dismiss, so long as they are referred to in the [c]omplaint and are central to the claims contained therein.” Bassett v. Nat'l Collegiate Athletic Ass'n, 528 F.3d 426, 430 (6th Cir. 2008).

         II. Factual Background

         The named plaintiffs are former BOP inmates who now reside in Kentucky, Michigan, Ohio, Indiana, or New York. (Compl. ¶¶ 9-13.) While incarcerated, Plaintiffs purchased MP3 players, which are “on the BOP-operated facility's ‘Commissary List' of items for sale[.]” (Id. ¶ 52.) BOP allows its inmates to purchase MP3 players because it recognizes that music “help[s] inmates deal with issues such as idleness, stress and boredom associated with incarceration.” (Id. ¶¶ 20, 21, quotation marks omitted.)

         As reflected in BOP's Program Statement 4500.11, titled “Trust Fund/Deposit Fund Manual” (“BOP Program Statement 4500.11”), BOP manages and operates the commissaries within its facilities.[2] (See Defs.' Mot., Ex. A, ECF No. 19-2). The Warden and designated staff at each BOP facility decides, within the guidelines set forth in BOP Program Statement 4500.11, what items to sell in the facility's commissary. (Id. at Ch. 3.3, Pg ID 235.) The guidelines allow for the sale of “the MP3 player identified by the Central Office, Trust Fund Branch” which “may only be ordered from the vendor identified by the Central Office, Trust Fund Branch, to ensure the special security features and interface with TRULINCS [BOP's Trust Fund Limited Inmate Computer System] function correctly.” (Id. at Ch. 3.3(f)(7), Pg ID 237.) As outlined in BOP Program Statement 4500.11, for security reasons, BOP requires the MP3 players (referred to by Plaintiffs as “Prison-Restricted MP3 Players”) sold with certain features disabled, such as the external memory slot and the integrated microphone. (Id.; see also Compl. ¶ 21.)

         In 2012, BOP and ATG signed a $5.15 million contract giving ATG the exclusive right to supply Prison-Restricted MP3 Players and MP3 music and audio files to BOP inmates. (Id. ¶ 23.) Around the same time, ATG and SanDisk entered into an agreement for SanDisk to supply exclusively the Prison-Restricted MP3 Players to ATG. (Id. ¶ 28.) Pursuant to this agreement, only one brand and model of MP3 music player is available for sale as a Prison-Restricted MP3 Player: SanDisk's Sansa Clip.[3] (Id. ¶ 27.) SanDisk places the “physical and technological locks and restrictions on the MP3 players it supplies, with the specific knowledge and/or intent that those Prison-Restricted MP3 Players are sold by ATG to inmates in BOP facilities.” (Id. ¶ 28.)

         The Prison-Restricted MP3 Players are not connected to the Internet. (Compl. ¶ 21.) Instead, they can be used to download approved music and audio files through TRULINCS. (Id.) Music audio files range in price of $.80 to $1.80 per song; the cost of other audio files (e.g. audiobooks) is significantly higher. (Compl. ¶ 31.) Inmates can purchase as many as 1, 500 songs to download onto a Prison-Restricted MP3 player through TRULINCS. (Id. ¶ 30.) According to BOP's Program Statement 4500.11, “[a]ll music sales are final” and “[a]ll purchased music/media files must be stored on the MP3 player.” (Defs.' Mot., Ex. A at Ch. 14.10(g), Pg ID 342.) MP3 player sales are not final, however. (Id. at Ch. 3.4(g), Pg ID 244.)

         BOP operates TRULINCS. (Id. at Ch. 14.2, Pg ID 332.) The Trust Fund Supervisor is responsible for administering, maintaining, and monitoring the system. (Id.) Inmates must “accept the Music/Media Terms of Use before accessing the [Music S]ervice” via TRULINCS. (Id. at Ch. 14.10(g), Pg ID 342.)

         In addition to purchasing and downloading copyrighted audio files, inmates use TRULINCS for many purposes, including: (a) sending and receiving secure electronic messages with BOP employees; (2) processing their trust account transactions; (3) communicating with approved members of the public using a secure electronic messaging interface (monitored by BOP staff); and (4) managing their contacts. (Compl. ¶ 22.) Inmates also use TRULINCS' Music Service to activate MP3 players purchased from the commissary and to re-validate the players. (Defs.' Mot., Ex. A at Ch. 14.10(g), Pg ID 342.) Prison-Restricted MP3 Players must be connected to TRULINCS and re-validated every 14 days or they will stop working. (Id.; Compl. ¶ 26.) As a result, when prisoners are released from BOP custody and no longer have access to TRULINCS, their Prison-Restricted MP3 Players soon will become inoperable and the released prisoners (“Released Purchasers”) will lose access to the audio files purchased and downloaded to the players (i.e., their “Purchased Music Collections”). (Compl. ¶ 36.) Plaintiffs allege that this consequence is not conveyed to inmates before or at the time they purchase a Prison-Restricted MP3 Player. (Id. ¶ 37.)

         Plaintiffs also allege in their Complaint that the only way to avoid this consequence is for Released Purchasers to buy a “Post-Release MP3 Player” from ATG. (Id. ¶ 36.) SanDisk manufactures and is the exclusive supplier to ATG of this “Post-Release MP3 Player.” (Id. ¶ 39.) According to Plaintiffs, ATG charges up to $110 for a Post-Release MP3 Player. (Id. ¶ 42.) Because “ATG will not restore any content to a third party player” (id. ¶ 44), Released Purchasers will lose access to their Purchased Music Collections if they buy any other MP3 player-of which, Plaintiffs allege, there are many in the open market sold by many different manufacturers. (Id.) Some of this information is conveyed to purchasers in the SanDisk Sansa Clip Manual (“Manual”), which inmates receive with their Prison-Restricted MP3 Players.[4]

         The Manual reflects, however, that ATG is not selling Released Purchasers new MP3 Players unless their Prison-Restricted MP3 Players are lost or no longer working and out of warranty. Instead, ATG offers to “deinstitutionalize” existing Prison-Restricted MP3 Players. The Manual explains this “Post Release Deinstitutionalization” as follows:

Within one year of being released from the Bureau of Prison facility, the purchaser may choose to send the player to ATG to deinstitutionalize it. This process removes the device's special security features but preserves the music, audiobooks or other media (“User Data”) that the purchaser had purchased during the last incarceration according to the TRULINCS database.

(Defs.' Mot., Ex. B, ECF No. 19-3.) As the Manual further provides, Post Release Deinstitutionalization costs $15.00, plus $10.00 shipping and handling. (Id.) If a Prison-Restricted MP3 Player is lost or is not working and not under warranty, ATG offers to provide a replacement device and restore the Released Purchaser's Purchased Music Collection for a charge of $70.00, plus $10.00 shipping and handling. (Id.)

         Plaintiffs do not allege in their Complaint that any named plaintiff or putative class member purchased a Post-Release MP3 Player. Plaintiffs assert in response to Defendants' motion to dismiss, however, that named plaintiff Anthony Calabro “purchased [this] product.” (Pls.' Resp. Br. at 20, ECF No. 23 at Pg ID 425.) At the motion hearing, Plaintiffs' counsel informed the Court that Calabro's Prison-Restricted MP3 Player was working and not lost when he was released.

         Thus, what he purchased was the device's “deinstitutionalization[.]”

         III. Applicable Law and Analysis

         A. Plaintiffs' Antitrust Claims (Counts I-XII)

         In Counts I-VIII of their Complaint, Plaintiffs allege that Defendants engaged in unlawful tying, or conspiracy to engage in unlawful tying, in violation of Section 1 of the Sherman Antitrust Act. In Counts IX-XII, Plaintiffs allege that Defendants engaged in unlawful monopolization, attempted monopolization, or conspiracy to monopolize in violation of Section 2 of the Sherman Antitrust Act.

         With respect to their tying claims, Plaintiffs assert that the purchase of a Post-Release MP3 Player is a prerequisite to a Released Purchaser's ability to retain access to his or her Purchased Music Collection. As such, Plaintiffs allege that Defendants unlawfully tie the purchase of a Prison-Restricted MP3 Player or audio files (i.e. the “tying” products) to the purchase of a Post-Release MP3 Player (i.e., the “tied” product”). With respect to their monopolization claims, Plaintiffs allege that Defendants' conduct has “exclusionary and anti-competitive effects with respect to the market for sales of Post-Release MP3 Players.” (See, e.g., Compl. ¶ 210.) As Plaintiffs explain in part:

ATG utilizes its [contract with BOP to be the exclusive supplier of Prison-Restricted MP3 Players] to impose upon all purchasers of (1) its SanDisk Prison-Restricted MP3 Players and (2) its MP3 music and audio files making up the Purchased Music Collection an unforeseeable restriction of Released Purchasers' ability to retain ownership and possession of their Purchased Music Collection after release from prison unless they purchase a SanDisk Post-Release MP3 Player[] from ATG.

(See, e.g., id.)

         Defendants raise several arguments in support of their motion to dismiss Plaintiffs' antitrust claims. The Court finds it necessary to address only one of those arguments: Defendants' assertion that Plaintiffs lack antitrust standing.

         The Supreme Court has articulated several factors relevant to whether a plaintiff has standing to bring an antitrust action. Associated Gen. Contractors of Calif. v. Calif. State Council of Carpenters, 459 U.S. 519, 537-45 (1983). The Sixth Circuit subsequently summarized those factors as:

(1) the causal connection between the antitrust violation and the harm to the plaintiff and the intent by the defendant to cause that harm, with neither factor alone conferring standing; (2) whether the plaintiff's alleged injury is of the type for which the antitrust laws were intended to provide redress; (3) the directness of the injury, which addresses the concerns that liberal application of standing principles might produce speculative claims; (4) the existence of more direct victims of the alleged antitrust violations; and (5) the potential for duplicative recovery or complex apportionment of damages.

Southaven Land Co. v. Malone & Hyde, Inc., 715 F.2d 1079, 1085 (6th Cir. 1983) (citing Associated Gen. Contractors, 459 U.S. at 537-45.) All five factors are meant to be balanced. Indeck Energy Servs., Inc. v. Consumers Energy Co., 250 F.3d 972, 976 (6th Cir. 2000). Nevertheless, the Supreme Court has described the second factor-referred to as the “antitrust injury” requirement-as a “necessary, but not always sufficient” component of antitrust standing. Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 484, 489 n.5 (1986). Thus, where a complaint fails to establish an antitrust injury, the court must dismiss it as a matter of law. NicSand, Inc. v. 3M Co., 507 F.3d 442, 450 (6th Cir. 2007) (en banc) (explaining that “antitrust standing is a threshold, pleading-stage inquiry and when a complaint by its terms fails to establish this requirement we must dismiss it as a matter of law- lest the antitrust laws become a treble-damages sword rather than the shield against competition-destroying conduct that Congress meant it to be.”).

         To establish an antitrust injury, a plaintiff must show an “ ‘injury causally linked' ” to an alleged anti-competitive practice and that the injury is “ ‘of the type the antitrust laws were intended to prevent and that flows from that which makes the defendants' acts unlawful.' ” Cargill, 479 U.S. at 109 (quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977)); see also NicSand, 507 F.3d at 450 (quoting Brunswick Corp., 429 U.S. at 489). “[E]ven though a claimant alleges that an injury is ‘causally related to an antitrust violation, ' it ‘will not qualify as ‘antitrust injury' unless it is attributable to an anticompetitive aspect of the practice under scrutiny.' ” NicSand, 507 F.3d at 451 (quoting Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334 (1990)). Thus, antitrust injury is lacking when the plaintiff's claimed injury results from governmental laws or regulations, rather than the defendant's alleged anticompetitive conduct. See, e.g., CBC Companies, Inc. v. Equifax, Inc., 561 F.3d 569, 573 (6th Cir. 2009) (quoting RSA Media, Inc. v. AK Media Grp., Inc., 260 F.3d 10, 13, 15 (1st Cir. 2001)) (“No cognizable antitrust injury exists where the alleged injury is a ‘byproduct of the regulatory scheme' or federal law rather than of the defendant's business practices.”); Standfacts Credit Servs. v. Experian Info. Solutions, Inc., 294 F. App'x 271, 272 (9th Cir. 2008) (holding that even where the defendants held “monopoly power in the wholesale market, ” the plaintiff resellers could not succeed on their antitrust claims where the monopoly power derived from federal requirements and not anticompetitive conduct); In re Canadian Import Antitrust Litig., 470 F.3d 785, 791 (8th Cir. 2006) (finding no antitrust injury to support the plaintiffs' claims that they were injured by increased prices for prescription drugs in the United States due to their inability to import less expensive drugs distributed by Canadian pharmacies where the absence of competition from Canadian sources was due to the prohibition on the importation of prescription drugs from Canada under federal law); RSA Media, 260 F.3d at 15 (finding no antitrust injury where the plaintiff's exclusion from the market for outdoor billboards was not a result of the defendant's anticompetitive conduct but a state regulatory scheme preventing new billboards from being built).

         Defendants contend that the antitrust injuries Plaintiffs allege- having to purchase Post-Release MP3 players or lose their Purchased Music Collections and the inability to purchase MP3 players manufactured and sold by Defendants' competitors- result from the security restrictions BOP imposes for the MP3 players and audio files sold to inmates rather than Defendants' alleged anticompetitive conduct. Clearly, it is due to BOP policy rather than any anticompetitive conduct by Defendants that only ATG-supplied and SanDisk- manufactured MP3 Players are sold to BOP inmates. According to BOP Program Statement 4500.11, only “the MP3 player identified by the Central Office, Trust Fund Branch is sold in the Commissary” and “may only be ordered from the vendor identified by the Central Office, Trust Fund Branch ….” (Defs.' ...

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