Sumotext Corp. v. Zoove, Inc. ( 2021 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS OCT 27 2021
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
SUMOTEXT CORP., No. 20-17245
Plaintiff-Appellant, D.C. No. 5:16-cv-01370-BLF
v.
MEMORANDUM*
ZOOVE, INC., DBA Starstar Mobile; et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of California
Beth Labson Freeman, District Judge, Presiding
Submitted October 22, 2021**
San Francisco, California
Before: BADE and BUMATAY, Circuit Judges, and SESSIONS,*** District
Judge.
Sumotext Corp. appeals the district court’s dismissal of Mblox, Inc. at the
pleadings stage and the district court’s entry of judgment, after a jury trial, in favor
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
***
The Honorable William K. Sessions III, United States District Judge
for the District of Vermont, sitting by designation.
of Zoove, Inc., Virtual Hold Technology, LLC (“VHT”), StarSteve, LLC, and
VHT StarStar, LLC (collectively, the “Joint Defendants”). We have jurisdiction
under 28 U.S.C. § 1291, and we affirm.
1. The district court properly dismissed Sumotext’s claims against
Mblox under §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. To withstand a
motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure,
Sumotext’s complaint had to plead “enough facts to state a claim to relief that
[was] plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
To state a § 1 claim, Sumotext needed to plead evidentiary facts establishing (1) an
agreement or conspiracy, (2) to harm or restrain trade, (3) which injured
competition. Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1047 (9th Cir. 2008). To
state a plausible claim under § 2, Sumotext had to allege “(1) the existence of a
combination or conspiracy to monopolize; (2) an overt act in furtherance of the
conspiracy; (3) the specific intent to monopolize; and (4) causal antitrust injury.”
Paladin Assocs., Inc. v. Mont. Power Co., 328 F.3d 1145, 1158 (9th Cir. 2003).
Sumotext’s complaint is devoid of evidentiary facts which, if true, would
establish that Mblox joined a conspiracy to restrain trade. Sumotext argues that a
letter of intent executed by Mblox and StarSteve is “direct evidence” that Mblox
entered an anticompetitive agreement. But the terms that Sumotext complains of
were part of a “proposal” for a “Possible Acquisition,” and nothing suggests that
2
those terms were incorporated into a definitive agreement or that Mblox otherwise
agreed to be bound by them. See Steckman v. Hart Brewing, Inc., 143 F.3d 1293,
1295–96 (9th Cir. 1998) (“[W]e are not required to accept as true conclusory
allegations which are contradicted by documents referred to in the complaint.”).
Mblox’s decision to assign its contracts to Zoove and then sell the company to
VHT could just as easily suggest a lawful, arms-length transaction as it could an
illegal conspiracy. See Kendall, 518 F.3d at 1049 (“Allegations of facts that could
just as easily suggest rational, legal business behavior by the defendants as they
could suggest an illegal conspiracy are insufficient to plead a violation of the
antitrust laws.”). And Sumotext’s allegation that Mblox engaged in a horizontal
restraint on trade does not save its claim from dismissal. See William O. Gilley
Enters., Inc. v. Atl. Richfield, Co., 588 F.3d 659, 663 (9th Cir. 2009) (“Whether a
plaintiff pursues a per se claim or a rule of reason claim under § 1, the first
requirement is to allege a contract, combination in the form of trust or otherwise,
or conspiracy.” (internal quotation marks omitted)).
Sumotext’s § 2 claim is also deficient because the complaint does not
adequately allege that Mblox joined a conspiracy to monopolize. Sumotext baldly
alleges that Mblox “joined, furthered, [and] profited from a Conspiracy to
monopolize the national Market for dial codes.” But the complaint is “devoid of
further factual enhancement,” and thus fails to “state a claim to relief that is
3
plausible on its face.” See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal
quotation marks omitted). Sumotext’s arguments against dismissal are not well
taken. Sumotext contends “the district court failed to even address [its] separate
§ 2 allegations,” but this contention is baseless. The district court addressed both
of Sumotext’s antitrust claims against Mblox and dismissed the claims because
Sumotext “failed to allege facts showing that Mblox joined the alleged
conspiracies.” Sumotext’s argument suggesting Mblox withdrew from the alleged
conspiracy misconstrues the district court’s order. The district court did not assess
whether Mblox withdrew from an alleged conspiracy to monopolize; instead, the
district court correctly found that Sumotext did not allege facts showing that
Mblox joined the alleged conspiracy in the first place. Therefore, dismissal of
Sumotext’s claims against Mblox was warranted.
2. The district court applied the correct legal standard when resolving
Sumotext’s motion to exclude the testimony of Debra Aron, Ph.D., the Joint
Defendants’ expert witness. Rule 702 of the Federal Rules of Evidence governs
the admissibility of expert testimony. Estate of Barabin v. AstenJohnson, Inc., 740
F.3d 457, 463 (9th Cir. 2014) (en banc), overruled on other grounds by United
States v. Bacon, 979 F.3d 766 (9th Cir. 2020) (en banc). To satisfy Rule 702,
expert testimony must be relevant and reliable. Id. The district court
acknowledged these requirements and performed a “flexible inquiry” because
4
“Sumotext’s challenges [were] not framed in terms of the four factors discussed in
Daubert.” See Wendell v. GlaxoSmithKline LLC, 858 F.3d 1227, 1232 (9th Cir.
2017) (noting the Rule 702 “inquiry is flexible” and “should be applied with a
liberal thrust favoring admission” (internal quotation marks omitted)). The district
court therefore applied the correct legal standard when resolving Sumotext’s
motion to exclude.
The district court did not abuse its discretion in finding Dr. Aron’s testimony
to be sufficiently reliable. Barabin, 740 F.3d at 460 (reviewing the admission of
expert testimony for an abuse of discretion). Dr. Aron’s testimony had a “reliable
basis in the knowledge and experience of [her] discipline.” Kumho Tire Co. v.
Carmichael, 526 U.S. 137, 148 (1999) (quoting Daubert v. Merrell Dow Pharms.,
Inc., 509 U.S. 579, 592 (1993)). She formed her opinions based on a variety of
sources, including industry publications and industry executives’ deposition
testimony.
Even assuming the district court abused its discretion by failing to make an
express relevancy finding, the error was harmless. See United States v. Jawara,
474 F.3d 565, 583 (9th Cir. 2007). Dr. Aron’s testimony did not prejudice
Sumotext because “it is more probable than not that the jury would have reached
the same verdict even if the evidence had not been admitted.” Barabin, 740 F.3d
at 465 (quoting Jules Jordan Video, Inc. v. 144942 Can. Inc., 617 F.3d 1146, 1159
5
(9th Cir. 2010)). Moreover, “the record shows that [Dr. Aron’s] testimony
satisfied the requirements for admission.” United States v. Ruvalcaba-Garcia, 923
F.3d 1183, 1190 (9th Cir. 2019) (internal quotation marks omitted). Expert
testimony is relevant if “it logically advances a material aspect of the proposing
party’s case.” Daubert v. Merrell Dow Pharms., Inc., 43 F.3d 1311, 1315 (9th Cir.
1995). By highlighting alleged flaws in Dr. Sullivan’s methodology and market
definitions, Dr. Aron’s testimony undermined Sumotext’s antitrust claims and
“logically advance[d]” the Joint Defendants’ defense. Id. Her testimony thus
clears relevancy’s low bar. Messick v. Novartis Pharms. Corp., 747 F.3d 1193,
1196 (9th Cir. 2014).
We also reject Sumotext’s argument that Dr. Aron improperly testified as a
summary witness. “An expert may base an opinion on facts or data in the case that
the expert has been made aware of or personally observed.” Fed. R. Evid. 703.
Dr. Aron formed her opinions based on, inter alia, her experience as an economist,
her review of customer data and financial data provided by the parties, independent
industry research, and her review of deposition testimony. Synthesizing that
information, Dr. Aron criticized Dr. Sullivan’s opinions. Dr. Aron did not simply
repeat testimony offered by lay witnesses at trial. Accordingly, the district court
6
did not commit reversible error.1
3. The district court properly required Sumotext to prove by a
preponderance of the evidence a relevant antitrust market. Sumotext challenges
the application of the burden of proof on three grounds, none of which are
persuasive. First, Sumotext’s argument that the district court required it “to prove
the existence of the relevant market circumstantially” is belied by the record. The
district court instructed the jury to consider both direct and circumstantial
evidence, and Sumotext presented what it describes as “direct evidence” of harm to
competition and supracompetitive prices to the jury.
Second, Sumotext contends “the district court erroneously heightened [its]
burden of proof” by “making the relevant market definition a threshold issue at
trial.” We construe this argument as a challenge to the jury instructions and verdict
form and conclude that Sumotext waived its objections. Sumotext stipulated to a
jury instruction that stated it was Sumotext’s “burden to prove the existence of a
relevant market,” and Sumotext proposed the verdict form that listed the relevant
market definitions as threshold questions. Consequently, Sumotext waived review
of its challenges to the jury instruction and verdict form. See Crowley v. Epicept
1
Sumotext identifies three objections that it made at trial, but it does not
develop an argument based on those objections. We conclude that Sumotext has
abandoned the issue, and our refusal to review the issue will not result in manifest
injustice. See Leer v. Murphy, 844 F.2d 628, 634 (9th Cir. 1988); see also Fed. R.
App. P. 28(a)(8)(A).
7
Corp., 883 F.3d 739, 748 (9th Cir. 2018) (per curiam) (“Waiver of a jury
instruction occurs when a party considers the controlling law . . . and, in spite of
being aware of the applicable law, proposed or accepted a flawed instruction.”
(internal quotation marks omitted)); see also United States v. Reed, 147 F.3d 1178,
1180 (9th Cir. 1998) (“Verdict forms are, in essence, instructions to the jury.”).
Sumotext’s third argument—that the district court “heightened [its] burden
of proof by requiring it to disprove a scattershot of economic theories asserted
without economic evidence or expert foundation”—fares no better. An antitrust
plaintiff generally bears the burden of proving a relevant market. See Ohio v. Am.
Express Co., 138 S. Ct. 2274, 2284–85 (2018). A “relevant market is defined as
the area of effective competition.” Id. at 2285 (internal quotation marks omitted).
It includes “the product at issue as well as all economic substitutes for the
product.” Newcal Indus., Inc. v. Ikon Off. Sol., 513 F.3d 1038, 1045 (9th Cir.
2008) (citing Brown Shoe Co. v United States, 370 U.S. 294, 325 (1962)).
Sumotext’s expert, Dr. Sullivan, offered two market definitions, both narrowly
construed to include only StarStar numbers. The Joint Defendants called witnesses
at trial who testified about various products that compete with StarStar numbers
and criticized Dr. Sullivan’s market definitions. The district court properly
allowed the Joint Defendants to rebut Dr. Sullivan’s opinion. We reject
Sumotext’s attempt to disclaim its burden of proof.
8
4. The jury’s verdict is supported by substantial evidence. See Pavao v.
Pagay, 307 F.3d 915, 918 (9th Cir. 2002) (“A jury’s verdict must be upheld if it is
supported by substantial evidence, which is evidence adequate to support the jury’s
conclusion, even if it is also possible to draw a contrary conclusion.”). The jury
found that Sumotext failed to prove by a preponderance of the evidence a relevant
market for leasing or servicing StarStar numbers in the United States. Testimony
from industry executives provided substantial evidence showing that the relevant
markets were broader than Sumotext proposed. Dr. Aron’s testimony criticizing
Dr. Sullivan’s market definitions, as well as his methodology, provided additional
support for the jury’s verdict. See Humetrix, Inc. v. Gemplus S.C.A., 268 F.3d 910,
919 (9th Cir. 2001) (“Authority to determine the victor in such a ‘battle of expert
witnesses’ is properly reposed in the jury.”). Thus, because the jury’s verdict is
supported by substantial evidence, it must stand.
5. The district court did not abuse its discretion in denying Sumotext’s
motion for a new trial under Rule 59 of the Federal Rules of Civil Procedure.
Flores v. City of Westminster, 873 F.3d 739, 755–56 (9th Cir. 2017) (reviewing a
“district court’s denial of a motion for new trial for abuse of discretion”). When
evaluating Sumotext’s Rule 59 motion, the district court properly weighed the
evidence presented at trial, including expert testimony, evidence of price increases,
evidence of reduced output, evidence of excluded competitors, and other
9
restraining factors. Molski v. M.J. Cable, Inc., 481 F.3d 724, 729 (9th Cir. 2007)
(noting that when assessing a “Rule 59 motion of the party against whom a verdict
has been returned, the district court has the duty . . . to weigh the evidence as [the
court] saw it” (alterations in original) (internal quotation marks omitted)). After
conducting a thorough analysis, the district court concluded that the jury’s verdict
was not against the clear weight of the evidence. Flores, 873 F.3d at 748 (“We
will grant a new trial only if the verdict is against the clear weight of the evidence,
and not simply because the evidence might have led us to arrive at a different
verdict.”). Sumotext has not demonstrated that this decision was “a plain error,
discretion exercised to an end not justified by the evidence,” or “clearly against the
logic and effect of the facts as are found.” Rabkin v. Or. Health Scis. Univ., 350
F.3d 967, 977 (9th Cir. 2003) (internal quotation marks omitted).
AFFIRMED.
10