PARRILLO, J.A.D.
At issue in these consolidated appeals is whether State causes of action in strict product liability, breach of express and implied warranty, and derivative claims for alleged defects in a medical device, the Cyphere® Sirolimus-Eluting Coronary Stent (Cypher or device), manufactured by defendant Cordis Corporation (Cordis or defendant) are preempted by the Medical Device Amendments of 1976 (MDA), 21 U.S.C.A. §§ 360c-360m, to the Food, Drug, and Cosmetic Act (FDCA), 21 U.S.C.A. §§ 301-399. Also at issue is whether Kentucky's or New Jersey's statute of limitations applies to one of these matters for purposes of determining whether the action is time barred. We hold that under either State's law of repose, the action filed by plaintiff Vonnie Cornett, individually and on behalf of the estate of her deceased husband Billie Cornett, is untimely and therefore, affirm the dismissal of her complaint. We also hold that certain claims of all remaining plaintiffs are federally preempted and accordingly affirm the Law Division's dismissal of those claims, but otherwise reverse the dismissal of their other claims and remand.
In September 2008, plaintiffs Vonnie Cornett (Vonnie) and Ernie and Alisha Williamson (collectively Williamsons) filed separate actions in the Law Division for alleged defects in the Cypher drug-coated arterial stent, a medical device manufactured by defendant Cordis, a wholly owned subsidiary of co-defendant Johnson Johnson (J J). They claimed negligence and strict product liability for design defect, manufacturing defect, and failure to warn; breach of implied and express warranties; negligent misrepresentation and fraud; statutory punitive damages for product liability; and for the Williamsons, loss of consortium. In January 2009, Vonnie filed an amended complaint, which dropped the negligence claims, as well as negligent misrepresentation and fraud, while adding claims for wrongful death, survivorship, and loss of consortium.
Plaintiffs do not appeal the dismissal of their Consumer Fraud Act claim, apparently due to our ruling that failure to warn may only be asserted as a product liability claim. McDarby v. Merck, 401 N.J.Super. 10, 94-98, 949 A.2d 223 (App.Div. 2008), appeal dismissed, 200 N.J. 267, 979 A.2d 766 (2009).
Forty-six other cases were consolidated with the Williamsons' action, which was further consolidated with Vonnie's action. The court granted plaintiffs' motion to adopt a "master complaint," and ordered that Vonnie's amended complaint "be deemed to have amended" the complaints in all the cases "with respect to those allegations and causes of action that are common[.]"
In January 2009, defendants moved to dismiss in lieu of answering, pursuant to Rule 4:6-2(e). Following argument on April 17, 2009, the court, applying Kentucky's statute of limitations, dismissed Vonnie's action as, among other reasons, untimely, and dismissed the remaining actions on the ground that federal approval of the device preempted all State causes of action.
By way of background, the first arterial stents were made of bare metal. A stent is a tiny metal mesh tube that is implanted in the coronary artery to open the artery and improve blood flow through the heart. The healing process after the implantation of any stent is the beneficial regrowth atop the stent and arterial wall of endothelial tissue, the normal artery lining that reduces the risk that a blood clot, or thrombus, will form and adhere. To prevent such clots during the period that regrowth was believed to require, patients were prescribed an antiplatelet drug like Plavix.
Cordis, incorporated in Florida with its principal place of business there, is a wholly-owned subsidiary of J J, a New Jersey corporation with its principal place of business here. Cordis operates facilities worldwide, including one in Warren, New Jersey.
Cordis, as well as other manufacturers, developed "drug-eluting stents," which were coated with slow-release drugs intended to inhibit excessive regrowth and thus prevent the artery from being narrowed through the build-up of new tissue. The drug-eluting stent at issue here is Cordis' Cypher stent, which Cordis coated with sirolimus, a chemotherapy drug from Wyeth that slows cell growth and, in turn, the healing process. Cordis used the polymer PEVA/PBMA to bind sirolimus to the device's metal surface.
The Cypher is a Class III medical device regulated by the Food and Drug Administration (FDA) pursuant to the MDA. Class III devices are used for "supporting or sustaining human life or for a use which is of substantial importance in preventing impairment of human health[.]" 21 U.S.C.A. § 360c(a)(1)(C)(ii)(1). "Class III devices receive more extensive federal oversight than any other class of medical devices and are subject to a comprehensive and rigorous process known as premarket approval ("PMA")." Riley v. Cordis Corp., 625 F.Supp.2d 769, 774 (D.Minn. 2009); see Riegel v. Medtronic, Inc., 552 U.S. 312, 128 S.Ct. 999, 1004-05, 169 L.Ed.2d 892 (2008); 21 U.S.C.A. § 360e. As part of its application for PMA, a manufacturer must provide the FDA with "reasonable assurance" that the device is both safe and effective. 21 U.S.C.A. § 360e(d)(2). The manufacturer must comply with all design, manufacturing, and labeling specifications set forth in a PMA approval order. 21 C.F.R. § 814.80. The FDA continues its oversight of the safety and effectiveness of PMA-approved devices after approval. See, e.g., 21 C.F.R. § 814.39(a).
On April 24, 2003, the FDA approved Cordis' application for premarket approval of Cypher. The approval letter stated that Cypher was "indicated for improving coronary luminal diameter in patients with symptomatic ischemic disease due to discrete de novo lesions of length 30 mm in native coronary arteries with a reference vessel diameter of 2.5 to 3.5 mm." The letter instructed that advertising "and other printed materials . . . should not include indications or claims not included in the FDA-approved labeling[,]" with the examples of "use in diabetic patients, small vessels ( 2.5 mm diameter), in-stent restenosis, bifurcation lesions, or patients with acute myocardial infarction."
The letter noted that the "[l]ong-term outcome (beyond [twelve] months) for this permanent implant is unknown at present[,]" and it imposed several conditions on the approval. For five years, Cordis was to collect and submit annual updates on the clinical outcomes of the patients in the preapproval clinical studies. Defendant was also to collect such information on 2,000 other United States patients "to evaluate the potential for less frequent adverse events" that "could not be detected in your initial clinical trials" or that "may have resulted from changes in the manufacturing process between the production of the clinical trial lot and commercial scale-up." In addition, Cordis had to monitor and report changes made in the label for sirolimus, and seek supplemental PMA to effect any appropriate corresponding changes to the device's label. Other manufacturers also obtained FDA approval of their drug-eluting stents.
In April 2004, the FDA sent Cordis a warning letter that described several failures at its facilities, in Warren and out-of-state, to satisfy federal requirements for manufacturing processes and administrative practices that validate conformity to a device's design, and to identify nonconforming product and prevent its distribution. At Cordis's multiple facilities, the FDA noted there were incidents in which Cordis decided that laboratory test results of "[o]ut-[o]f-[s]pecification" for some lots were invalid, or, with respect specifically to its Florida facility, in which lots of devices with "[redacted] coated defects" were released without "adequate data or justification" for Cordis' conclusion that the nonconformity posed a minimal safety risk.
According to the master complaint, in the meantime, Cordis began marketing the device. Defendants represented at medical conferences that significant endothelial regrowth occurred within thirty days of implantation, and that patients would only have to take antiplatelet drugs for ninety days. The master complaint further alleges that Cordis also promoted off-label uses. A May 2004 press release said that clinical studies "suggest" the device also had the "potential" to "treat higher-risk and more challenging blockages" and an October 2005 press release asserted that a study of patients with chronic total occlusions had better clinical outcomes with the device than with bare-metal stents. In March 2007, another press release declared that a two-year study including off-label uses showed a low rate of adverse events, and no differences in the rates of mortality or stent thrombosis between patients who had received the device for approved versus off-label uses.
The master complaint went on to claim that while defendants distributed those studies, they did not include information about the adverse events that the studies reported, and they withheld other relevant treatment information they had about off-label uses. For example, post-marketing studies of clinical results showed that some patients who received a drug-eluting stent did not have endothelium regrow over the stent for at least four years. Others showed that patients who were no longer taking antiplatelet drugs had significantly higher rates of heart attacks and death at eighteen to thirty-six months after implantation. Such patients also had a higher rate of stent thrombosis, which did not diminish over time, but rather increased linearly. The studies indicated that the drug coating had prevented regrowth in those patients by damaging their endothelium.
According to the master complaint, in December 2006, the FDA convened an advisory panel, which reported an increased risk of thrombosis for drug-eluting stents from one to four years after implantation compared to bare-metal stents. The "risk of all causes of death" was no higher overall than for bare-metal stents, although the subgroup of patients who received a drug-eluting stent for off-label use had a significantly increased risk of late thrombosis "associated with death and myocardial infarction" compared to patients who received such stents for approved uses.
Billie Cornett, Vonnie's decedent, resided in Kentucky and was presumably treated there. He had coronary artery disease that was treated with implantation of a Cypher stent on December 16, 2004. He also had diabetes, which made the use of the device in him off-label. On May 18, 2005, a cardiac catheterization disclosed a subacute thrombosis in the artery with the stent. Billie died on June 1, 2005, purportedly from subacute stent thrombosis arising from the device's implantation. As noted, Vonnie filed her complaint in September 2008.
The Williamsons resided in Illinois. Ernie's only asserted injury was that simply having the device required long-term antiplatelet therapy and the exposure to whatever risks that might entail. Their complaint did not state the date when he received the device, name his medical condition, or assert that the use of the device in him was off-label.
I.
As noted, the court, applying Kentucky's statute of limitations, granted defendants' motion to dismiss Vonnie's complaint as untimely. Plaintiffs argue the choice of law should have been that of New Jersey, which has a strong governmental interest in discouraging domestic corporations from manufacturing and distributing unsafe products within the State. Applying New Jersey's discovery rule, plaintiffs further contend that no patient is expected to understand the possibility of injury from a medical device before the medical community has reached such an understanding concerning patients with the same condition. We disagree.
Choice of law analysis is necessary when the statute of limitations of one potential forum would bar a claim as untimely but that of another would not. Gantes v. Kason Corp., 145 N.J. 478, 481-82, 679 A.2d 106 (1996). In this regard, in New Jersey, the limitation period for product liability actions is two years after the cause of action "shall have accrued." N.J.S.A. 2A:14-2(a); Burd v. N.J. Tele. Co., 76 N.J. 284, 288, 386 A.2d 1310 (1978). New Jersey courts apply a "discovery rule," under which a cause of action does not accrue "until the injured party discovers, or by an exercise of reasonable diligence and intelligence should have discovered that he may have a basis for an actionable claim." Lopez v. Swyer, 62 N.J. 267, 272, 300 A.2d 563 (1973). The bases of a claim for personal injury are the plaintiffs awareness that he or she sustained an injury, and the understanding that the injury may involve another party's fault. Vispisiano v. Ashland Chem. Co., 107 NJ 416, 427, 527 A.2d 66 (1987). When the plaintiff is aware of a "`state of facts'" indicating that a third party's unreasonable conduct might have contributed to the injury, "medical or legal certainty is not required." Lapka v. Porter Hayden Co., 162 N.J. 545, 555-56, 745 A.2d 525 (2000) (internal citation omitted).
In Kentucky, on the other hand, the limitation period for a personal injury claim is one year. Ky. Rev. Stat. Ann. § 413.140(1)(a) (LEXIS 2010); Fluke Corp. v. LeMaster, 306 S.W.3d 55, 60 (Ky. 2010). It may be extended by another year for the representative of a decedent who died before the period ran. Ky. Rev. Stat. Ann. § 413.180(1) (LEXIS 2010).
Kentucky statutes provide a discovery rule in limited circumstances that do not include product liability claims. Ky. Rev. Stat. Ann. § 413.140 (LEXIS 2010); Fluke Corp., supra, 306 S.WM at 60-61. The discovery rule that Kentucky limits to medical malpractice claims resembles the rule that New Jersey applies to all claims: a claim accrues when "the injury is first discovered or in the exercise of reasonable care should have been discovered[.]" Ky. Rev. Stat. Ann. § 413.140(2) (LEXIS 2010). However, Kentucky also imposes an outer limit of five years from when the alleged negligence occurred. Ibid.
While Kentucky courts have sometimes applied a discovery rule to avoid legislative infringement of common-law causes of action that existed prior to adoption of the state constitution, they have not extended that principle to "new [statutory] rights unknown at common law." Wright v. Oberle-Jordre Co., 910 S.W.2d 241, 243 (Ky. 1995). Nonetheless, Fluke, supra, was a product-liability case that discussed the discovery rule as a matter of equity. 306 S.W.3d at 60-61. It held that the intermediate court improperly applied the rule on the facts of the particular case, because the plaintiffs' injuries had been "immediately apparent" and they should have suspected both the cause and the identity of the responsible party within the statutory period, notwithstanding the manufacturer's alleged concealment of product defects from government regulatory agencies. Ibid.
Assuming, therefore, a reasonable probability that the application of Kentucky versus New Jersey law would have led to different results on the question of Vonnie's timeliness, we next consider which state's law applies. In P.V. ex rel. T.V. and L.V. v. Camp Jaycee, 197 N.J. 132, 138-43, 962 A.2d 453 (2008), the Court adopted the standard in the Restatement (Second) of Conflict of Laws (1971) (Restatement) for choice-of-law questions, which was the "most significant relationship" test. See also Fu v. Fu, 160 N.J. 108, 119-39, 733 A.2d 1133 (1999). P.V explained how the "governmental-interest" test used in Gantes, Fu, and other cases had become substantially similar to the Restatement's "most significant relationship" test, to the point that it expressly relied on the Restatement's statement of relevant factors and guiding principles. P.V., supra, 197 N.J. at 141-42, 962 A.2d 453. Unlike a "pure governmental interest analysis[,]" however, in which the relative strength of each state's governmental interests was "dispositive," the Restatement test used additional factors in assessing the significance of each state's contacts with the matter. Ibid.
Under the Restatement Section 146, the choice-of-law analysis in personal injury cases proceeds with the presumption that the law of the state where the injury occurred will apply "`unless, with respect to the particular issue, some other state has a more significant relationship under the principles stated in § 6 to the occurrence and the parties, in which event the local law of the other state will be applied.'" P.V., supra, 197 N.J. at 141, 962 A.2d 453 (quoting Restatement, supra, § 146). Since Section 146 applies to strict liability claims for personal injury, Restatement, supra, § 146 comment a, it therefore covers product liability actions. Dorman v. Emerson Elec. Co., 23 F.3d 1354, 1359 (8th Cir.), cert. denied, 513 U.S. 964, 115 S.Ct. 428, 130 L.Ed.2d 341 (1994); Kozoway v. Massey-Ferguson, Inc., 722 F.Supp. 641, 642-44 (D.Colo. 1989); McKinnon v. F.H. Morgan Co., 170 Vt. 422, 750 A.2d 1026, 1028 (2000). Thus, because Billie Cornett's injury occurred in Kentucky, Section 146 recognizes that state as "likely to have the predominant . . . relationship to the parties and issues in the litigation." P.V., supra, 197 N.J. at 144, 962 A.2d 453.
Nevertheless, that presumption could be overcome. The Restatement lists a number of contacts that must be weighed in determining the state having the more significant relationship. Id. at 144-45, 962 A.2d 453. They are:
(a) the place where the injury occurred,
(b) the place where the conduct causing the injury occurred,
(c) the domicil, residence, nationality, place of incorporation and place of business of the parties, and
(d) the place where the relationship, if any, between the parties is centered.
[
Restatement, supra, § 145(2)(a)-(d).]
The analysis of those contacts is "not merely quantitative." P.V., supra, 197 N.J. at 147, 962 A.2d 453. The purpose is to determine their bearing for the guiding touchstones of Section 6 of the Restatement, which, "[r]educed to their essence," are: "(1) the interests of interstate comity; (2) the interests of the parties; (3) the interests underlying the field of tort law; (4) the interests of judicial administration; and (5) the competing interests of the states." Ibid, (internal quotations and citations omitted).
In our view, the factors of Section 145 of the Restatement, when assessed in terms of the standards of Section 6, show that Kentucky had the more significant relationship to this case. The Cornetts were long-time Kentucky residents, and Billie received all medical care relating to his condition and the device there. Kentucky is where the stent was purchased, implanted and allegedly became blocked. See Rowe v. Hoffman-La Roche, Inc., 189 N.J. 615, 629, 917 A.2d 767 (2007). This particular plaintiff was neither operated on nor injured in Kentucky by pure "happen-stance[,]" so the place of injury could not be discounted as a fortuity. P.V., supra, 197 N.J at 138, 145-46, 962 A.2d 453; Fu, supra, 160 N.J. at 137, 733 A.2d 1133. Kentucky was also the locus of the parties' relationship, because while Cordis issued its warnings and warranties from Florida, Billie and his healthcare providers received them or suffered from their omission in Kentucky. Bearden v. Wyeth, 482 F.Supp.2d 614, 620 (E.D.Pa. 2006); Accord Knipe v. SmithKline Beecham, 583 F.Supp.2d 602, 615-16 (E.D.Pa. 2008).
On the other hand, the fact that Cordis' parent company, J J, is headquartered and incorporated in New Jersey is of tenuous relevance absent any showing that the subsidiary is merely its corporate parent's alter ego and lacks a separate corporate existence. Nor is it sufficient that Florida-based Cordis maintains one of a number of its facilities in New Jersey without any demonstration that specific and identifiable activities in the New Jersey operation contributed to decedent's injury. In this regard, plaintiffs only allegation even remotely related to New Jersey is that Cordis' Warren facility was among five others that, after plant inspections, received warnings from the FDA about certain manufacturing processes conducted on premises.
In any event, while New Jersey undoubtedly has an interest in regulating the safety of any activities in Cordis' Warren facility that might have contributed to the injury, see Smith v. Aha Corp., 400 N.J.Super. 529, 545, 948 A.2d 686 (App.Div. 2008), that concern was in competition with Kentucky's differing view of how stringently to regulate. The Kentucky product liability statutes do not have the same tests and standards as New Jersey's. Compare Ky. Rev. Stat. Ann. § 411.310 and 411.320 (LEXIS 2010) and N.J.S.A. 2A:58C-2 to -4. The Kentucky statutes also bar recovery when the plaintiffs negligence was a "substantial cause" of the injury, Ky. Rev. Stat. Ann. § 411.320(3), whereas New Jersey bars recovery only if the plaintiffs negligence was the predominant cause. N.J.S.A. 2A:15-5.1.
These distinctions imply a different balancing of, on the one hand, the need to regulate product safety and, on the other, the need to avoid undue inhibition of the availability of products to consumers. Consequently, they reflect different "interests underlying the field of tort law[.]" See P.V., supra, 197 N.J. at 147-50, 962 A.2d 453 (internal quotations and citations omitted) (New Jersey's strong commitment to charitable immunity reflected different priorities than those served by Pennsylvania's abrogation of the immunity). The varying statutory standards also implicate the parties' interests and expectations, because they establish different substantive standards of conduct to be observed. Id. at 153-54, 962 A.2d 453. Kentucky's interest in its own weighing of those concerns applies to all instate conduct by manufacturers, regardless of whether they are residents. Id. at 137, 149-50, 152-53, 962 A.2d 453.
Applying New Jersey law would thus threaten "the values of uniformity and predictability" that are the main interests of judicial administration, by impairing Kentucky's ability to regulate conduct within its borders according to its own standards. Id. at 153-54, 962 A.2d 453. That ability is a right to which our courts "have continuously deferred" notwithstanding the evolution of choice-of-law doctrines. Id. at 153, 962 A.2d 453. Infringement on that ability would obviously impair comity. By the same token, application of Kentucky law will not frustrate the policies of New Jersey insofar as both States' statutes of limitations are designed to bar stale claims arising out of distant occurrences while providing compensation to residents who are unlawfully injured. Moreover, New Jersey has little interest in protecting the compensation rights of a Kentucky resident. See Deemer v. Silk City Textile Mack Co., 193 N.J.Super. 643, 649, 475 A.2d 648 (App.Div. 1984) ("New Jersey has no interest in protecting the compensation rights of a non-domiciliary resident."). Accordingly, we conclude, as did the motion judge, that the relative strength of New Jersey's relationship with the parties and the issues compared to Kentucky's was insufficient to overcome the presumption in favor of applying Kentucky law.
Even were New Jersey law to apply, we find that plaintiff would fare no better. On its face, plaintiffs September 2008 complaint, alleging decedent's May 29, 2005 death from a blood clot in Cordis' medical device diagnosed on May 18, 2005, is time-barred. N.J.S.A. 2A:14-2(a); N.J.S.A. 2A:31-3. Plaintiff argues, however, that the causative link would not have been discovered until December 2006 when the FDA convened an advisory panel to examine the risks of thrombosis related to drug-eluting stents, and therefore, New Jersey's equitable discovery rule should operate to defer the accrual of her cause of action. We, as did the motion judge, disagree.
Generally, a cause of action accrues at the time of injury. Tevis v. Tevis, 79 N.J. 422, 431, 400 A.2d 1189 (1979). This is so because awareness of one's injuries is usually "immediate and knowledge that someone is at fault is inherent in the nature of the injury or the circumstances in which it occurred." Yarchak v. Trek Bicycle Corp., 208 F.Supp.2d 470, 479 (D.N.J. 2002).
Here, on May 18, 2005, a "sub acute stent thrombosis" was observed "in the area where the Cypher stent was placed." Thus, we may reasonably characterize the May 18, 2005 diagnosis of decedent's stent thrombosis as the date of the injury itself. The thrombosis was immediately apparent, and its diagnosis approximately five months after decedent received his stent on December 16, 2004, with no alleged intervening events, coupled with his death eleven days later, should have made plaintiff at least realize that Billie's death may have been related to a defect in the device or in its use. Vispisiano, supra, 107 N.J. at 427, 527 A.2d 66. After all, this was not the situation of a toxic tort, in which the injury arises years after the exposure. Since the thrombosis occurred in the artery where the device was implanted, a lay person could have reasonably suspected a possible connection between the medical device and decedent's injury, at least to have investigated the matter further or to have contacted counsel. Indeed, even plaintiff acknowledges that it was self-evident from the cause of death that the thrombosis or blood clot formed within the Cypher stent.
Plaintiff nevertheless contends that the cause of action did not accrue until the medical community reached a consensus as to causation. But neither medical nor legal certainty is required if the state of facts would alert a reasonable person to the possibility of an actionable claim, Lapka, supra, 162 N.J. at 555-56, 745 A.2d 525, namely, that a third party's conduct may have contributed to the injury and the conduct might have possibly been unreasonable. Savage v. Old Bridge-Sayreville Med. Group, P.A., 134 N.J. 241, 247-48, 633 A.2d 514 (1993). To posit otherwise, as plaintiff does, the statute of limitations would never run unless and until the relevant medical community reaches agreement as to its understanding of the correlation between a medical product and a particular medical condition. Yet, as noted, that is clearly not the standard. Given the proper measure, the present circumstances — especially the short interval of time involved — lead ineluctably to the conclusion that plaintiff had reason to believe that decedent's clot may have been caused by the stent and to realize that a possible cause of action might exist against defendant. Consequently, even if New Jersey law applies, plaintiff could not avail herself of the State's equitable discovery rule to cure the untimeliness, so her cause of action falls outside both states' limitations periods.
II.
The Law Division dismissed the remaining counts in the master complaint for the consolidated matters, ruling that the express preemption provision for medical devices in the federal statutes precluded all of the plaintiffs' claims. In particular, the claimed express warranty was the patient information card and guide that the FDA had specifically approved as part of Cypher's label, so a claim "that these materials failed to conform with the materials expressly approved by the FDA . . . would be patently false." The claim for breach of express warranty was thus "nothing more than a defective labeling/failure to warn claim, which is preempted" for a device approved under the FDA's premarket approval regime.
The court further found that plaintiffs were simply declaring their claims to be parallel to federal requirements in order to invoke that exception to preemption, without using facts or legal authority to demonstrate that the standards for proving then-claims were indeed equivalent to the federal requirements. Even if claims concerning off-label use were not categorically preempted, the amended complaint contained no allegations that defendants had promoted any particular off-label use.
On appeal, plaintiffs contend the court erred in finding their master complaint was preempted by federal law. They argue that federal law permits claims for violation of state-law duties that parallel federal requirements for medical devices, and that they pleaded each claim in conformity with that test. For reasons that follow, we conclude that some of plaintiffs' claims were properly dismissed as preempted, but that others should not have been rejected on a motion to dismiss.
As a threshold matter, we note the standard of review for the dismissal of a complaint under R. 4:6-2(e), for failure to state a claim on which relief can be granted, is whether the pleadings even "suggest[]" a basis for the requested relief. Printing Mart-Morristown v. Sharp Elecs. Corp., 116 N.J. 739, 746, 563 A.2d 31 (1989). The reviewing court is assessing only the legal sufficiency of the claim, Sickles v. Cabot Corp., 379 N.J.Super. 100, 106, 877 A.2d 267 (App.Div.), certif. denied 185 N.J. 297 , 884 A.2d 1267 (2005), so "[a]t this preliminary stage of the litigation the Court is not concerned with the ability of plaintiffs to prove the allegation contained in the complaint." Printing Mart, supra, 116 N.J. at 746, 563 A.2d 31. We instead accept the factual allegations as true, Sickles, supra, 379 N.J.Super. at 106, 877 A.2d 267, and "`search[] the complaint in depth and with liberality to ascertain whether the fundament of a cause of action may be gleaned even from an obscure statement of claim[.]'" Printing Mart, supra, 116 N.J. at 746, 563 A.2d 31 (internal quotations and citation omitted). However, we have also cautioned that legal sufficiency requires allegation of all the facts that the cause of action requires. Sickles, supra, 379 N.J.Super. at 106, 877 A.2d 267. Without such allegations, the claim must be dismissed. Ibid.
A. The statute and regulations.
The Food, Drug, and Cosmetic Act, 21 U.S.C.A. §§ 301-399 (FDCA), did not cover devices until Congress enacted the Medical Device Amendments of 1976 (MDA), which added 21 U.S.C.A. §§ 360c-360m to the FDCA. Medtronic, Inc. v. Lohr, 518 U.S. 470, 475-476, 116 S.Ct. 2240, 2246, 135 L.Ed.2d 700, 709-10 (1996). The MDA also extended some general provisions of the FDCA to apply to devices as well as to drugs, for example, 21 U.S.C.A. § 351 on adulteration and 21 U.S.C.A. § 352 on misbranding. Even without regard to such modification, the FDCA's general provisions about manufacturing standards, labeling, and standing to enforce have been construed after the MDA's enactment as equally applicable to devices and drugs. See, e.g., Buckman Co. v. Plaintiffs' Legal Comm, 531 U.S. 341, 349, 121 S.Ct 1012, 1017-18,148 L.Ed.2d 854, 861-62 (2001).
A device is misbranded if the label is "false or misleading" in any way. 21 U.S.C.A. § 352(a). A device is also misbranded "[u]nless its labeling bears . . . warnings against use in those pathological conditions . . . where its use may be dangerous to health," and any necessary warnings against unsafe "methods . . . of administration[.]" 21 U.S.C.A. § 352(f).
As noted, Cypher was a new kind of Class III device, which required premarket approval (PMA). 21 U.S.C.A. § 360c(a)(1)(C). The applicant for PMA of a Class III device had to demonstrate its safety and effectiveness in "the persons for whose use the device is represented or intended" and "with respect to the conditions of use prescribed, recommended, or suggested in the label[.]" 21 U.S.C.A. § 360c(a)(2)(A)-(B). The applicant thus had to provide "a detailed description of the proposed conditions of use of the device," 21 U.S.C.A. § 360c(a)(3)(D)(i); a sample label delineating the intended uses, 21 U.S.C.A. § 360e(c)(1)(F); and "full reports of all information, published or known to or which should reasonably be known to the applicant, concerning investigations which have been made to show whether or not such device is safe and effective[.]" 21 U.S.C.A. § 360e(c)(1)(A).
A manufacturer is required to follow the design controls process as enumerated in 21 C.F.R. § 820.30. In addition to design controls, the manufacturer must also comply with manufacturing controls outlined at 21 C.F.R. § 814.20(b)(4) and § 820. These controls require the manufacturer to submit to the FDA a complete description of the methods used in, and the facilities and controls used for, the manufacture, processing, packing, storage, and where appropriate, installation of the device. As to labeling of the medical device, 21 C.F.R. § 801.5 requires a manufacturer to give adequate directions for the use of a medical device such that a "layman can use a device safely for the purposes for which it is intended[,]" and Section 801.15 includes requirements for how the label must appear.
PMA approval thus incorporates an FDA finding that the device is safe and effective under the conditions of use included on the label and that the label is not false or misleading. 21 U.S.C.A. § 360e(d)(1)(A), (2). The manufacturer may not change the label, even to add warnings, until it submits the proposed change as part of a "supplemental" PMA application and obtains FDA approval. 21 U.S.CA. § 360e(d)(6); Riegel, supra, 552 U.S. at 319, 128 S.Ct. at 1005, 169 L.Ed.2d at 900. This preserves the balance that the FDA is presumed to have struck, during the "exhaustive" PMA process, between the imperative of safety and Congress's recognition in 21 U.S.C.A. §§ 360k and 396, discussed below, of the importance of off-label use to the continuing improvement of medical practice. See Buckman, supra, 531 U.S. at 349-51, 121 S.Ct. at 1017-19,148 L.Ed.2d at 861-63.
After approval, the device's manufacturer must report to the FDA whenever it "becomes aware of information that reasonably suggests" a "significant adverse device experience[.]" 21 U.S.C.A. § 360i(a)(1), (3). It must also perform whatever post-marketing surveillance, evaluation, and reporting the FDA ordered as a condition of approval. 21 U.S.C.A. § 3601.
The MDA includes an express preemption provision against state standards for PMA-approved devices that would be stricter than the MDA:
[N]o State or political subdivision of a State may establish or continue in effect with respect to a device intended for human use any requirement"
(1) which is different from, or in addition to, any requirement applicable under this Act to the device, and
(2) which relates to the safety or effectiveness of the device or to any other matter included in a requirement applicable to the device under this Act.
[21 U.S.C.S. § 360k(a)J
Two decades after it enacted the MDA, Congress clarified that the off-label use of devices was not illegal per se, by denying the FDA any power "to limit or interfere with the authority of a health care practitioner to prescribe or administer any legally marketed device to a patient for any condition or disease within a legitimate health care practitioner-patient relationship." 21 U.S.C.A. § 396. It also provided a safe harbor for manufacturers of Class III devices to "disseminate" to health-care providers peer-reviewed articles or "reference publications" "concerning theis imposed in order "to avoid deterring innocent conduct that reflects enhanced, rather than restrained, competition." In re Flat Glass Antitrust Litig., 385 F.3d 350, 357 (3d Cir. 2004).
The parties further agree that this Court reviews the denial of a motion to amend under an abuse of discretion standard of review. See, e.g., E. Minerals Chems. Co. v. Mahan, 225 F.3d 330, 339-40 (3d Cir. 2000).
III.
As highlighted by the extensive factual discussion in Section I, supra, this appeal presents the Court with an unusual and challenging set of circumstances. Simply put, this case involves a relatively large number of entities, specifically the various sanctioning bodies governing the sport of dirt oval track racing in the United States and Canada, which, over an extensive period of time dating back decades, have adopted the single tire rule for various races and, in turn, have entered exclusive contracts with the major tire suppliers. Furthermore, even though the parties and the amici cite to a large number of prior cases from this Court, our sister circuits, and other courts, very few of these decisions appear to be directly on point. In turn, the decisions that are, more or less, on point are often distinguishable on a variety of grounds (or otherwise are not binding on this Court). Finally, the importance of this case goes far beyond the tire suppliers and sanctioning body actually named as the Plaintiffs and Defendants. In fact, our result and reasoning could have an effect beyond the world of dirt oval track racing (or even motorsports racing in general).
Having fully considered the numerous arguments of the parties and the amici, the record on appeal, the District Court's thorough and carefully reasoned ruling, and the governing legal principles, we ultimately determine that the District Court properly ruled in favor of Hoosier and DMS. We reach this result based on the following considerations: (1) Hoosier clearly has not coerced, or otherwise improperly interfered with, the determinations of DMS and the other sanctioning bodies to adopt the single tire rule and to enter into the respective exclusive supply contracts; (2) the sanctioning bodies presented, in good faith, more than sufficient pro-competitive or business justifications for their actions; and (3) STA has otherwise not suffered any cognizable antitrust injury because it has had the opportunity to bid on exclusive supply deals and has in fact done so with some success.
A. Basic Principles of Antitrust Law
This Court has never directly considered the legality of a practice like the single tire rule or the specific kind of exclusive contracts entered by the sanctioning bodies and Hoosier. Nevertheless, there are certain fundamental and well-established legal principles that must guide our analysis. The District Court itself accurately summarized at least some of these principles in its summary judgment ruling.
Section 1 of the Sherman Act provides that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce . . . is declared to be illegal." 15 U.S.C. § 1. It is well established that this provision prohibits only "unreasonable" restraints of trade. See, e.g., NCAA v. Bd. of Regents, 468 U.S. 85, 98, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984). STA appears to agree that the "rule of reason" standard applies in this context. See, e.g., Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1368 (3d Cir. 1996).
"In order to survive summary judgment in cases where [the rule of reason] applies, the plaintiff must show concerted action, antitrust injury, evidence that the conspiracy produced `adverse, anti-competitive effects within the relevant product and geographic markets,' and evidence `that the objects of and the conduct pursuant to the conspiracy were illegal.'" InterVest, Inc. v. Bloomberg, L.P., 340 F.3d 144, 159 (3d Cir. 2003) (quoting Rossi v. Standard Roofing, Inc., 156 F.3d 452, 465 (3d Cir. 1998)). The plaintiff may satisfy its burden by showing either actual anti-competitive effects or proof of the defendant's market power. See, e.g., Orson, 79 F.3d at 1367. The notion of "market power" in this context is defined as the ability to raise prices above those that would exist in a competitive market. See, e.g., id.
The burden then shifts to the defendant to show a sufficient pro-competitive justification or objective for the challenged conduct. See, e.g., id. at 1367-68. A restraint cannot be justified solely on the basis of social welfare considerations. See, e.g., United States v. Brown Univ., 5 F.3d 658, 678-79 (3d Cir. 1993). The plaintiff then must demonstrate that the restraint itself is not reasonably necessary to achieve the stated objective. See, e.g., Orson, 79 F.3d at 1368. In other words, "[e]ven if an anticompetitive restraint is intended to achieve a legitimate objective, the restraint only survives a rule of reason analysis if it is reasonably necessary to achieve the legitimate objectives proffered by the defendant." Brown Univ., 5 F.3d at 678-79 (citations omitted). "`The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition.'" Orson, 79 F.3d at 1367 (quoting Bd. of Trade v. United States, 246 U.S. 231, 238, 38 S.Ct. 242, 62 L.Ed. 683 (1918)).
Section 2 of the Sherman Act targets persons "who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of . . . trade or commerce." 15 U.S.C. § 2. This offense of monopolization has two elements: "`(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.'" Eastman Kodak, 504 U.S. at 481, 112 S.Ct. 2072(quoting United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966)). As to the second element, "[a] monopolist willfully acquires or maintains monopoly power when it competes on some basis other than the merits." LePage's Inc. v. 3M, 324 F.3d 141, 147 (3d Cir. 2003) (en banc) (citing Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605 n. 32, 105 S.Ct. 2847, 86 L.Ed.2d 467 (1985)). In turn, the offense of attempted monopolization has the following three elements: "(1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power." Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456, 113 S.Ct. 884, 122 L.Ed.2d 247 (1993) (citation omitted). The final element requires an inquiry into the relevant product and geographic market as well as the defendant's economic power in that market. See, e.g., id. at 459, 113 S.Ct. 884. In turn, market share, while crucial, may not always be determinative. See, e.g., United States v. Microsoft Corp., 253 F.3d 34, 54 (D.C. Cir. 2001) (en banc) (per curiam). Once the plaintiff demonstrates harm to competition, the defendant then has to show that it is actually promoting a pro-competitive or legitimate business objective. See, e.g., United States v. Dentsply Int'l, Inc., 399 F.3d 181, 187, 196-97 (3d Cir. 2005). Ultimately, Section 2 is directed against conduct that "unfairly tends to destroy competition itself," as opposed to even "severe" competition. Spectrum Sports, 506 U.S. at 458, 113 S.Ct. 884 (citations omitted).
STA also claims that it has been the victim of unlawful "tying." "`Tying is defined as selling one good (the tying product) on the condition that the buyer also purchase another separate good (the tied product).'" Harrison Aire, 423 F.3d at 385 (quoting Town Sound Custom Tops, Inc. v. Chrysler Motors Corp., 959 F.2d 468, 475 (3d Cir. 1992) (en banc)).
A private antitrust plaintiff must further establish that it suffered an "antitrust injury" as a result of the misconduct and therefore possesses the standing necessary to seek relief. The antitrust laws were enacted "`for the protection of competition not competitors.'" Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977) (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962)). Therefore, the injury prong requires: "(1) harm of the type the antitrust laws were intended to prevent; and (2) an injury to the plaintiff which flows from that which makes defendant's acts unlawful." Gulfstream III Assocs. Inc. v. Gulfstream Aerospace Corp., 995 F.2d 425, 429 (3d Cir. 1993) (citing Int'l Raw Materials, Ltd. v. Stauffer Chem. Co., 978 F.2d 1318, 1327-28 (3d Cir. 1992)).
The District Court correctly recognized that exclusive supply contracts or exclusive dealing agreements have been frequently upheld when challenged on antitrust grounds. See, e.g., E. Food Servs., Inc. v. Pontifical Catholic Univ. Servs. Ass'n, Inc., 357 F.3d 1, 8 (1st Cir. 2004) (stating that exclusive dealing contracts are not disfavored by antitrust laws and ordinarily pose threat to competition only in very discrete circumstances); Barr Labs., Inc. v. Abbott Labs., 978 F.2d 98, 111 (3d Cir. 1992) (recognizing that "existence of legitimate business justifications for the [exclusive dealing] contracts also supports the legality of the global contracts"). "Rather, it is widely recognized that in many circumstances [exclusive dealing arrangements] may be highly efficient — to assure supply, price stability, outlets, investment, best efforts or the like — and pose no competitive threat at all." E. Food Servs., 357 F.3d at 8 (citation omitted). Expressly rejecting any assertion that exclusive deals are subject to a per se rule of illegality, the Seventh Circuit in Menasha Corp. v. News America Marketing In-Store, Inc., 354 F.3d 661 (7th Cir. 2004), appropriately explained that the competition to be an exclusive supplier may constitute "a vital form of rivalry, and often the most powerful one, which the antitrust laws encourage rather than suppress." Id. at 663 (citing Paddock Publications, Inc. v. Chicago Tribune Co., 103 F.3d 42 (7th Cir. 1996)).
On the other hand, we agree with STA that such exclusive agreements are not exempt from antitrust scrutiny. In fact, the Third Circuit addressed exclusive dealing arrangements in its en banc ruling in LePage's Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003) (en banc), and, more recently, in United States v. Dentsply International, Inc., 399 F.3d 181 (3d Cir. 2005). In the en banc case, the Court upheld a jury verdict under Section 2 against 3M, a clearly dominant supplier in the transparent tape market that paid major retailers through a rebate program "designed to achieve sole-source supplier status" (and also entered exclusive dealing agreements with at least two retailers), LePage's, 324 F.3d at 157, and thereby cut off its plaintiff competitor from "key retail pipelines," id. at 160. In Dentsply, this Court reversed the trial court's judgment in favor of the defendant, ruling that an exclusivity policy imposed by an artificial teeth monopoly on its dealers violated Section 2. Dentsply, 399 F.3d at 184; see also, e.g., E. Food Servs., 357 F.3d at 8 (providing as "best example" of possible threat to competition situation in which market itself is already heavily concentrated and long-term exclusive contracts then "foreclose so large a percentage of the available supply or outlets that entry into the concentrated market is unreasonably constricted").
B. Application of Legal Principles
We now come to the challenging task of applying these fundamental legal principles to the specific circumstances presented by this appeal. Like the District Court, we accept, for purposes of this Opinion, STA's definition of the relevant market, in short: the market for the sale of racing tires that race on dirt oval tracks in the United States and Canada. Further following the example set by the District Court (as well as the parties and the amici), our analysis focuses on the following components: (1) the fundamental if contested notion of "coercion"; (2) the various benefits and justifications offered in support of the single tire rule and the related exclusive contracts between Hoosier and the various sanctioning bodies; and (3) the antitrust standing requirement. At the outset, we acknowledge that these components overlap in practice, although they do represent rather distinct aspects of the antitrust inquiry. For the sake of clarity and to avoid unnecessary repetition, we accordingly: (1) in the coercion discussion, focus on the issue of whether the sanctioning bodies have been free to adopt the single tire rule and to enter into an exclusive supply agreement with the supplier of their choice and also address the specific terms contained in Hoosier's contracts; (2) in the justification discussion, obviously turn to the various justifications and benefits offered in support of the single tire rule itself as well as the appropriate degree of deference to be accorded the determinations of sanctioning bodies and similar sports-related organizations; and (3) in the antitrust injury analysis, consider whether STA has had a real opportunity to compete with Hoosier for single tire business in this market.
1. "Coercion"
The notion of "coercion" occupied an especially important role in the District Court's reasoning. Hoosier, DMS, and the amici likewise emphasize this concept on appeal. For its part, STA vigorously contests the role of the concept itself, and, in the alternative, it contends that there are genuine issues of material fact as to whether Hoosier has actually "coerced," or otherwise colluded with, the various sanctioning bodies.
We do acknowledge that the District Court did not cite to any specific case or any other authority in support of its assertion that coercion constitutes an essential element of a successful antitrust claim in the present circumstances. STA, among other things, quotes a leading antitrust commentator, who stated that "`it matters little whether one views exclusive dealing as "imposed" by the dominant firm or "agreed upon" by the dominant firm and its dealers.'" (Appellants' Brief at 35 (emphasis in quotation omitted) (quoting H. Hovenkamp, Antitrust Law ¶ 1800c5, at 20 (Aspen 2005)).)
We note, however, that this concept has played a key, if sometimes unexplored, role in the relevant case law, especially in the Section 2 context. For instance, the Court in Dentsply expressly noted that, among other things, the exclusivity policy at issue was "imposed by a manufacturer on its dealers," Dentsply, 399 F.3d at 184, and that, "[w]hile the [customers] might prefer to sell the [products] of multiple manufacturers, if faced with an `all or nothing' choice they may accede to the dominant firm's wish for exclusive dealing," id. at 195 (quoting Areeda Hovencamp, Antitrust Law ¶ 1802e3, at 78-79 (2d ed. 2002)). Likewise, the en banc Court in LePage's confronted a situation in which the seller, which had clear monopoly power over the market, induced retailers to purchase a full line of products from it, including products its competition did not make, with the intent of forcing any such competition from the market and then raising prices. LePage's, 324 F.3d at 157-63.
In Santana Products Inc. v. Bobrick Washroom Equipment, Inc., 401 F.3d 123 (3d Cir. 2005), the plaintiff toilet partition manufacturer brought claims under Sections 1 and 2 of the Sherman Act after the government selected its competitor's products based on the specifications chosen by the government's architects, alleging, inter alia, that the competitor and its representatives falsely claimed that the plaintiff's own products were a fire hazard. Id. at 125-28. This Court ultimately affirmed the summary judgment granted in favor of the competitor, rejecting the group boycott claim and instead concluding that there was no restraint where the decision to choose a product was in the hands of the decision-maker (i.e., the architects) for the consumer (i.e., the government). Id. at 133 ("Unlike cases where the alleged exclusionary conduct leaves the consumer with no input whatever, the decision to specify `was always ultimately in the hands of the consumer.'" (quoting Stearns Airport Equip. Co., Inc. v. FMC Corp., 170 F.3d 518, 525 (5th Cir. 1999))). Because the plaintiff failed to allege that the defendants "engaged in coercive measures that prevented [the plaintiff] from selling its products to any willing buyer or prevented others from dealing with [the plaintiff]," id. at 132, it was never really "excluded from competition," id. at 133. "`Without a showing of some other factor, we can assume that a customer will make his decision only on the merits,'" and the appropriate response in such circumstances "`would seem to be an increase in the losing party's sales efforts on future potential bids, not an antitrust suit.'" Id. (quoting Stearns, 170 F.3d at 525).
In the end, although we do not hold that coercion is an essential element of every successful antitrust claim, we conclude that coercion is a fundamental consideration in the present circumstances, namely, where various sports sanctioning bodies have freely adopted their own equipment rules and then freely entered into exclusive contracts with the respective suppliers. However, we add that Hoosier and DMS are not entitled to summary judgment merely because there is an absence of coercion or interference on the part of Hoosier. On the contrary, the sanctioning bodies must still offer good faith justifications for the alleged conduct. As discussed in Section III.B.2, infra, DMS and the other sanctioning bodies do present more than adequate justifications for their actions.
STA, in turn, raises a variety of contentions in support of its theory that there are genuine issues of material fact with respect to the existence of either coercion on the part of Hoosier or, at the very least, collusion between Hoosier and the various sanctioning bodies, especially DMS. The District Court did acknowledge that Hoosier's standard form contract provides for payments to the sanctioning body, lasts for a lengthy period of time, contains an automatic renewal provision, and allegedly provides that, if the sanctioning body exercised its right not to renew, the remaining financial contribution to the sanctioning body would be forfeited. We likewise are particularly troubled by the so-called Sprint Summit and the resulting relationship between Hoosier and DMS. This Court nevertheless finds that the various contentions raised by STA fail to demonstrate the existence of a genuine issue of material fact as to whether its competitor has coerced or otherwise unduly interfered with the decision-making process of the various sanctioning bodies.
Initially, we must not overlook the crucial and undisputed fact that, in the words of STA's own expert, "[t]he sanctioning organization or promoter ultimately decides whether or not to enter into a contract with Hoosier requiring a Hoosier-only rule . . . in their own best interest." (A1921.) In fact, it appears clear that the major sanctioning bodies themselves generally prefer the single tire and, at least sometimes, desire a Hoosier-only rule. The present circumstances actually resemble the situation described by the Seventh Circuit in Menasha:
That retailers and manufacturers
like exclusive deals implies that they serve the interests of these, the consumers of couponing services [provided by the plaintiff and its competitor defendant]. When the consumers favor a product or practice, and only rivals squawk, the most natural inference is that the complained-of practice promotes rather than undermines competition, for what helps consumers often harms other producers such as [the plaintiff].
Menasha, 354 F.3d at 663.
Furthermore, it appears that it is a common and generally accepted practice for a supplier to provide a sports sanctioning body or similar sports-related organization financial support in exchange for a supply contract (although such practices, no matter how widely followed, cannot be characterized as totally innocuous). In fact, STA has actually engaged in such behavior and has specifically included offers of financial support in its various successful and unsuccessful proposals to the respective sanctioning bodies over the years. In turn, these financial contributions may be used as part of the sanctioning body's point funds, and such point funds constitute a crucial incentive offered by the sanctioning body to attract prospective racers and drivers to its own races. As to the amount and specific terms of the contributions, it is no more an act of coercion, collusion, or improper interference for Hoosier, STA, or any one else to offer more money to the sanctioning body than it is for such suppliers to offer the lowest tire prices. In any case, the sanctioning body itself remains free to pick the supplier that it believes will provide the best deal. Similarly, neither the lengthy duration of the Hoosier contracts nor their renewal terms represent real evidence of coercion or interference. The respective sanctioning body simply may enter a contract with the tire supplier of its choice. If anything, the actual terms contained in Hoosier's form contract appear to be completely consistent with what one would actually expect to find in an exclusive supply arrangement.
We also do not overlook the fact that it is the racers and the drivers that ultimately purchase the racing tires. Unlike in Dentsply and LePage's, we accordingly are not dealing with the case of a supplier entering exclusive arrangements with retailers, which purchase the products at issue for resale to the ultimate customers. It is undeniably troubling that the evidence in the record indicates that the interests of at least some of the racers, drivers, and others have evidently diverged from the interests (and actions of) the governing sanctioning bodies. For instance, more than one thousand racers, drivers, and other industry participants have actually signed STA's "Declaration in Favor of Competition," attacking the single tire formula as a monopolistic practice and calling for its replacement. On an even more basic level, it appears clear that, the more a tire supplier offers a sanctioning body in terms of financial support, the more the racers and drivers have to pay for the tires themselves. At the very least, such circumstances further complicate this case, providing at least some support for STA's antitrust claims against Hoosier and DMS.
We, nevertheless find that such considerations ultimately do not assist STA. As already noted, the financial contributions do ultimately benefit the actual tire purchasers, either directly in the form of point funds or indirectly by providing the financial resources allowing the sanctioning bodies to function and hold the races in the first place. Furthermore (and as explained in more detail in Section III.B.3, infra), the purchasers otherwise remain free to "vote with their trailers" by not participating in a sanctioning body's races because of its adoption of a single tire rule or its entry into an exclusive deal with Hoosier. We further add that no racer or driver has actually joined STA as a Plaintiff in this litigation or otherwise filed an amicus curiae brief in its favor.
2. Benefits and Justifications of the Single Tire Rule
Initially, the Court agrees with the position of the amici that motorsports sanctioning bodies, as well as similar organizations in other sports, deserve a bright-line rule to follow so they can avoid potential antitrust liability as well as time-consuming and expensive antitrust litigation. In fact, this current lawsuit is the second federal antitrust case brought against Hoosier arising out of the single tire rule. In M H Tire Co. v. Hoosier Racing Tire Corp., 733 F.2d 973 (1st Cir. 1984), the First Circuit rejected an antitrust challenge by a tire supplier, M H, to the adoption of such a rule by several race tracks and driving clubs as well as their entry into an exclusive contract with Hoosier. Id. at 974-89. Likewise, there have been other antitrust lawsuits challenging the adoption of racing equipment rules of various kinds. See Brookins v. Int'l Motor Contest Ass'n, 219 F.3d 849 (8th Cir. 2000) (transmission rule); STP v. U.S. Auto Club, Inc., 286 F.Supp. 146 (S.D.Ind. 1968) (engine specification rule). While the sanctioning body defendants ultimately prevailed in all three cases, see Brookins, 219 F.3d at 852-55; STP, 286 F.Supp. at 171, it has undoubtedly come at considerable expense. Contrary to the pro-competitive purposes of antitrust law, this expense may have a very real anti-competitive effect, especially on the smaller sanctioning bodies. Furthermore, if the Court fails to adopt a relatively clear rule here, motorsports sanctioning bodies, in the apt words of the amici, "will have to chart a narrow, and perhaps unsustainable, course, between (1) the Scylla of anti-competitive, expensive, and unsafe rules and (2) the Charybdis of the optimum rules for the sport accompanied by potential antitrust litigation and exposure, including the crippling expense in defending their legitimate right to promulgate their own rules." (Amicus Brief at 9-10.) Nevertheless, we must be careful not to establish an overly broad rule detached from the specific facts now before us, especially in light of the highly fact-specific nature of the antitrust standards themselves.
Accordingly, sports-related bodies should be given leeway with respect to their adoption of equipment requirements as well as their related decision to enter exclusive contracts with the respective suppliers. As highlighted by the racing case law cited above, it appears that the courts have generally accorded sports organizations a certain degree of deference and freedom to act in similar circumstances. See, e.g., Am. Needle, Inc. v. NFL, ___ U.S. ___, 130 S.Ct. 2201, ___ L.Ed.2d ___ (2010) (exclusive football headwear license); McCormack v. NCAA, 845 F.2d 1338 (5th Cir. 1988) (NCAA football eligibility rules); Gunter Harz Sports, Inc. v. U.S. Tennis Ass'n, Inc., 665 F.2d 222 (8th Cir. 1981) (per curiam) (prohibition of double-strung tennis rackets); Hatley v. Am. Quarter Horse Ass'n, 552 F.2d 646 (5th Cir. 1977) (definition of "quarter horse"); Deesen v. Prof'l Golfers Ass'n, 358 F.2d 165 (9th Cir. 1966) (PGA eligibility rules); Toscano v. PGA Tour, Inc., 201 F.Supp.2d 1106 (E.D.Cal. 2002) (same). Even STA appears to acknowledge that such organizations are entitled to some deference. However, the standard it offers, requiring, inter alia, that the rules be adopted by a neutral and unbiased body and that they do not result in any significant market foreclosure, does not seem very deferential. Among other things, such an approach would preclude sanctioning bodies from entering into an exclusive equipment contract with a supplier that already has a high share of the relevant geographic or product markets.
We further believe that a deferential approach is especially appropriate in light of the practical restraints faced by the sanctioning bodies in this case. Even though they may, among other things, receive significant financial support from the suppliers, DMS and the other sanctioning bodies do not have unfettered discretion in adopting rules, entering exclusive arrangements, or imposing higher equipment costs on the racers and drivers. It is well established that the sanctioning bodies compete for racers and drivers, and these racers and drivers in turn are more than able to, in the words of amici, "vote with their trailers." (Amicus Brief at 14.) Fewer racers and drivers mean less for the sanctioning body in terms of the entry fees charged to the participating racers and drivers themselves as well as a possible decrease in the number of tickets and revenues earned from concessions and other sources of money (at the very least because the friends and families of non-participating racers and drivers would be much less likely to attend). In turn, this can lead to a "death spiral" because lower gate receipts and other forms of revenue mean lower prize purses, which means less interest among racers and drivers, which results in even less revenue to the sanctioning body, and so on. Ultimately, the sanctioning bodies which consistently make the wrong business decisions face the prospect of going out of business. They, like other kinds of businesses, also have no long-term interest in the creation of a monopolist in their own supply chains. If Hoosier actually were a monopolist, not only could it charge racers and drivers whatever it wanted for tires, it could also reduce its monetary payments to the sanctioning body or eliminate such support altogether. See, e.g., Menasha, 354 F.3d at 663 ("Why would these entities shoot themselves in the feet by signing (retailers) or favoring (manufacturers) exclusive contracts that entrench [the defendant] as a monopolist that then can apply the squeeze."). Finally, the fact that not all races are governed by single tire rules shows that the sanctioning bodies can and do recognize that not all forms of racing in all parts of the country are identical and that such bodies are more than able to adopt the rule that best advances the particular kind of racing at issue.
This Court therefore approaches the actions of DMS and the other sanctioning bodies with a degree of deference and we adopt the following general rule: the Sherman Act does not forbid sanctioning bodies and other sports-related organizations from freely (i.e., without any coercion or improper interference) adopting exclusive equipment requirements, so long as such organizations otherwise possess, in good faith, sufficient pro-competitive or business justifications for their actions. At the same time, we wish to make it clear that we are not granting any kind of antitrust immunity. Cf., e.g., Am. Needle, 130 S.Ct. at 2214 n. 7 (attacking Seventh Circuit concerted action ruling for, inter alia, "carv[ing] out a zone of antitrust immunity for conduct arguably related to [NFL] league operations by reasoning that coordinated team trademark sales are necessary to produce `NFL football'"). For instance, we are not confronted with a situation in which the sanctioning body offers absolutely no justification whatsoever for its actions or its justifications are offered in bad faith or are otherwise nonsensical. Instead, we will affirm the District Court's ruling because there are several good faith justifications for the sanctioning bodies' single tire rule.
We acknowledge that STA vigorously attacks the single tire rule itself, arguing that there were less restrictive alternatives. According to STA, there are, at least, genuine issues of material fact with respect to each and every benefit and justification offered by Hoosier, DMS, and the amici in support of the rule itself. To a certain degree, such a vigorous if understandable attack actually serves to highlight our reluctance to second guess the decisions made by a sanctioning body regarding the basic rules and guidelines of its sport. In fact, STA's extensive challenge to the single tire rule constitutes an attack on the very raison d' etre of the sanctioning bodies, which exist in order to set certain ground rules and then run races in conformity with such rules. In any case, we agree with the District Court that the sanctioning bodies have properly adopted the single tire rule because they believe such a rule creates more exciting races, ensures equal access to a uniform product, leads to increased safety, and lowers the costs of tires by eliminating the so-called "tire wars."
In fact, STA's whole challenge to the single tire rule has a simple yet serious flaw. It was STA that actually pioneered and promoted the whole idea in the first place. STA's own website claimed credit for promoting "spec tire or track rules," in which "track owners and promoters adopted a manufacturer's tire for a particular class of races for the duration of a racing season." (A484.) In turn, it claimed that such a rule had several benefits, including the avoidance of constant and costly tire changes and the encouragement of parity between racers and drivers, and that its adoption even contributed "to the success and popularity of dirt track racing in America." ( Id.) Jacobs actually defended the rule as part of the M H litigation. More recently, STA's general manager, Mateer, testified at his deposition in this litigation that limiting the number of tires bought by racers could be good for the sport itself and that a single tire rule also could reduce costs. Further acknowledging STA's own role in developing the rule, Mateer added that it was created in order "[t]o eliminate the constant in-season product development that was requiring the racers to buy every trick new tire that came along." (A833.)
We recognize that STA has turned against the rule itself, at least as in its more recent form. In turn, it attempts to explain its prior support for the rule and how Hoosier has usurped and distorted the rule into an anti-competitive tool. STA certainly has a right to change its position, but the past support provided for the rule now challenged in this litigation cannot be overlooked so easily.
In any case, even setting aside STA's prior conduct, the record here clearly establishes that there are more than ample justifications for the single tire rule. DMS specifically discusses in some detail the statements made by eleven separate individuals regarding the various benefits arising out of a single tire rule. For instance, Driggers, who serves as the racing director for DMS, explained in some detail how the car counts increase under a single tire rule. Likewise, the sanctioning body's president, Deery, indicated that these equipment rules have long been recognized as a "cornerstone" of motor racing. (A1931.) Specifically defending the single tire rule, Deery asserted that "spec tires save money, provide a level field, are safe, and make for a more successful show." (A1934.)
In the end, we recognize that STA and others have serious issues with the single tire rule, at least in its current form. They otherwise remain free to argue that such a rule and the related exclusive contracts harm both the competitive process and the sport of dirt oval track racing. In fact, the racers and drivers themselves are free to "vote with their trailers" by not participating in races conducted under a single tire or Hoosier-only rule. Following the District Court, we nevertheless find that DMS and the other sanctioning bodies possess good faith justifications, amply supported in the record, for adopting a well-established rule actually developed and defended by STA itself. In such circumstances (and in the absence of any coercion or improper interference on the part of the respective suppliers), such sports-related organizations should have the right to determine for themselves the set of rules that they believe best advance their respective sport (and therefore their own business interests), without undue and costly interference on the part of courts and juries.
3. Antitrust Injury
We next come to the question of antitrust injury and standing. To establish antitrust injury, a plaintiff must show harm to competition, not just harm to the plaintiff competitor. See Brunswick Corp., 429 U.S. at 488, 97 S.Ct. 690. We agree with the District Court that STA does not satisfy this requirement.
It is well established that competition among businesses to serve as an exclusive supplier should actually be encouraged. See, e.g., Menasha, 354 F.3d at 663 (recognizing that competition to become exclusive supplier "is a vital form of rivalry, and often the most powerful one, which the antitrust laws encourage rather than suppress" (citation omitted)). In Section III. B.1, supra, this Court explained in some detail how the sanctioning bodies are free to adopt a single tire rule and then contract with the supplier of their choice without any undue interference or coercion on the part of Hoosier. Our focus now shifts to whether STA has been able to compete for this business.
We acknowledge that the process used by the various sanctioning bodies has too often been less than perfect. The District Court partly recognized as much, noting that the sanctioning bodies may elect to dispense with sending out a formal RFP to the various tire suppliers. In fact, DMS did not select its tire suppliers through a formal bidding process prior to the start of this litigation, and it evidently did not possess specific procedures or protocols for selecting a tire supplier. We similarly continue to be troubled by certain other aspects of the process used to select a supplier, especially the fact that tire suppliers provide financial support to the sanctioning bodies, even though such bodies do not actually purchase the tires. See, supra, n. 2.
Nevertheless, the record here clearly establishes the existence of competition on the part of the remaining suppliers for the valuable right to serve as an exclusive provider of tires. Accordingly, the District Court properly recognized that the suppliers themselves are generally well aware of what is going on in the marketplace, and they actually have been able to take business away from their competitors over the years. For instance, STA has continued to respond to RFPs from the various sanctioning bodies, and it has also attempted to win an exclusive contract even in the absence of a formal proposal from the sanctioning body itself. We note that STA evidently has had some success in this market, especially in the past. In fact, it has served as the exclusive tire supplier for a number of sanctioning bodies.
We specifically note that: (1) from the 1980s to approximately 2005, IMCA required its cars to use the G-60 American Racer tire manufactured by STA; (2) in 2006-2007, STA responded, without success, to an RFP for an exclusive tire contract sent out by WISSOTA; (3) although there was no formal RFP, STA submitted a proposal to ASCS in 2007, in which it offered a financial contribution in exchange for exclusivity; (4) STA submitted a bid in response to USAC's RFP, although its bid, among other things, did not propose exclusivity; (5) an STA distributor won the bid to be UMP's exclusive tire supplier for certain races in 1994 but was then outbid by Hoosier in 1995; (6) after the filing of this lawsuit, STA responded with seemingly non-exclusive and ultimately unsuccessful bids to 2007 and 2008 RFPs from DMS; and (7) Lias Tire, an STA distributor, won an exclusive agreement with URC and further agreed to pay this sanctioning body $14,500.00 to be the single tire at approximately thirty (30) events.
Furthermore, Hoosier and DMS should not be held legally accountable for STA's recent pattern of submitting "nonexclusive" bids to the respective sanctioning bodies, even after the sanctioning bodies expressed a desire for an exclusive relationship.
In the end, STA never suffered the kind of injury that gives rise to an antitrust claim. On the contrary, it has had the clear opportunity to compete and did compete, sometimes successfully, for the exclusive tire contracts. See, e.g., NicSand, Inc. v. 3M Co., 507 F.3d 442, 456 (6th Cir. 2007) (en banc) ("When one exclusive dealer is replaced by another exclusive dealer, the victim of the competition does not state an antitrust injury." (citation omitted)); U.S. v. Aluminum Co. of Am., 148 F.2d 416, 430 (2d Cir. 1945) (Hand, J.) ("The successful competitor, having been urged to compete, must not be turned upon when he wins."). Accordingly, the District Court was correct to grant summary judgment in favor of Hoosier and DMS because of this failure to meet the antitrust injury requirement.
All six of STA's claims, including STA's illegal tying claim, were properly dismissed on this ground.
C. The Denial of the Motion for Leave to Amend
Finally, this Court must consider whether the District Court properly denied STA's request for leave to amend its complaint in order to add an express refusal to deal or group boycott claim to the five substantive causes of action it had already alleged. We find that the District Court did not abuse its discretion by rejecting a last-minute attempt to amend a pleading for the fourth time.
Given the fact that this motion was filed sometime after the expiration of the May 30, 2008 deadline stated in the District Court's own scheduling order, the District Court purportedly applied the "good cause" standard of Federal Rule of Civil Procedure 16(b)(4) (providing that "[a] schedule [set forth in a scheduling order] may be modified only for good cause and with the judge's consent"), as opposed to the more liberal approach to amendments established in Federal Rule of Civil Procedure 15(a)(2) (providing that "[t]he court should freely give leave when justice so requires"). It further stated that, unlike Rule 15(a)(2) and its focus on the question of prejudice to the non-moving party, Rule 16(b)(4) focuses on the moving party's burden to show due diligence. While the District Court indicated that we have yet to address this tension between Rule 15(a)(2) and Rule 16(b)(4), STA acknowledges on appeal that it had the burden to demonstrate good cause and due diligence (and the District Court itself ultimately found that the proposed amendment would in fact prejudice the other parties).
The District Court properly denied leave to amend. According to STA, it could not have discovered the key facts supporting this new claim until it reviewed "hundreds of thousands of late-produced documents," which were not provided until after the deadline to amend had already passed. (Appellants' Brief at 57.) In turn, STA specifically takes issue with: (1) the District Court's statement that "`it is not easy for the Court to discern when Plaintiffs were, or should have been, aware of the basis for the group boycott claim;'" (2) the District Court's reliance on STA's failure to amend the scheduling order to seek more time for discovery (arguing that such a failure actually highlighted STA's own diligence); and (3) the District Court's finding of prejudice (on the grounds that STA never requested any additional discovery in its motion to amend). ( Id. (citation omitted).) On the other hand, as a practical matter, it bears repeating that this was the fourth time that STA desired to amend its complaint in this already very complicated and highly contentious litigation, in which STA had already alleged multiple theories of relief. Furthermore, STA evidently informed the District Court that, "during an October 29, 2008 deposition of Hoosier's sales manager, Paul Mentink, Plaintiffs learned that the `Hoosier-only' rules known as the `national sprint tire' rule. . . . originated from a July 2006 Sprint Summit meeting in Pittsburgh arranged by [DMS]." (A7 (citation omitted).) The District Court then, quite reasonably, noted that: (1) the original complaint actually included an attached copy of the December 15, 2006 statement by Hoosier announcing the creation of a new sprint car tire at the request of several sanctioning bodies and tracks; and (2) the previous complaints expressly alleged that Hoosier agreed with multiple sanctioning bodies to develop a new sprint tire that the sanctioning bodies would use in their races. The District Court also understandably wanted this complicated case to move forward to its ultimate resolution. In any case, any attempt to add a new claim would be moot given our ruling on the merits of STA's existing claims. Therefore, we are unable to find that the District Court abused its discretion here.
IV.
For the foregoing reasons we will affirm the District Court's rulings in favor of Hoosier and DMS.