Antitrust Law Daily Wrap Up, ANTITRUST—EDVa: Racetrack’s Business Conspiracy Claims Proceed Against Holders of Trademark in Racing Event, (Feb 14, 2013)

By Tobias J. Gillett, J.D., LLM.

In a trademark infringement action brought by the holders of a trademark for a horse-racing event, a racetrack sufficiently alleged Virginia statutory business conspiracy counterclaims, the federal district court in Richmond has ruled (Harrell v. Colonial Holdings, Inc., February 12, 2013, Hudson, H.). The racetrack sufficiently alleged the underlying torts of defamation and tortious interference with contract, its complaint adequately asserted the counterclaims against the holders as individuals rather than as a general partnership, the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) did not apply to the counterclaims, and the allegations would have satisfied Rule 9(b) even if it did apply, in the court’s view.

The State Fair of Virginia, Inc. (SFV) operated an annual event called “Strawberry Hill Races,” and since 2000 had hosted the event at Colonial Downs racetrack, operated by Colonial Downs, L.P. In December 2011, SFV filed for bankruptcy. On May 24, 2012, the plaintiffs purchased the “Strawberry Hill Races” trademark at a bankruptcy auction.

Following the bankruptcy filing, Colonial Downs negotiated an agreement with SFV to hold the event in partnership with SFV. SFV later went into liquidation and the bankruptcy trustee rejected the agreement. According to Colonial Downs, this constituted breach of contract. After acquisition of the trademark, the plaintiffs sent Colonial Downs a letter stating that “Colonial Downs’ sponsorship of the Strawberry Hill Races” would be “illegal and without the authority of the owner of the trade name.”

Despite warnings from the plaintiffs regarding their claimed ownership of the trademark, Colonial Downs held the event on June 2, 2012. The parties disputed whether ownership of the trademark transferred before or after the race. The plaintiffs later send a letter to Colonial Downs accusing it of trademark infringement, failure to pay vendors for services rendered at the event, and other transgressions, and sent copies of the letter to the National Steeplechase Association and the Virginia Racing Commission.

The plaintiffs filed suit, and the defendants asserted counterclaims, including a counterclaim for statutory business conspiracy in violation of Virginia law based on alleged defamation and tortious interference with Colonial Downs’ contract with SFV.

The plaintiffs moved to dismiss, arguing that (1) no underlying tort had been committed; (2) as partners in a general partnership, they could not conspire with each other; and (3) Colonial Downs had not sufficiently pled the conspiracy claim to satisfy the requirements of Federal Rule of Civil Procedure 9(b). The court initially noted that it had found the claims for defamation and tortious interference with contract to be sufficient, and thus rejected the first argument.

The court first addressed the argument that, as partners, the plaintiffs could not conspire with each other. The court explained that a business conspiracy under the Virginia law consists of two or more individual who “combine, associate, agree, mutually undertake or concert together for the purpose of willfully and maliciously injuring another in his reputation, trade, business, or profession by any means whatsoever.” The court also noted that under case precedent “where the alleged co-conspirators are the two general partners in a partnership, acting within the scope of partnership affairs, only one entity exists—the partnership.”

However, the court concluded that the complaint addressed itself to the plaintiffs as individuals, rather than as a partnership. The court determined that the complaint’s allegation that the plaintiffs were motivated to “give themselves and their partnership . . . a competitive advantage” did not mean that the conspiracy claim was asserted against a partnership, because it “could be construed to allege a conspiracy by the individuals to give the partnership that they operate an advantage, and not necessarily a conspiracy by the partnership itself.”

With respect to the contention that the counterclaim did not satisfy the heightened pleading requirements of Rule 9(b), the court observed that “[s]ome courts have held that business conspiracy, like fraud, must be pleaded with particularity.” However, the court noted that some cases drew a distinction between claims of conspiracy to commit fraud and other conspiracy claims, with Rule 9(b) only applying to the former. The court concluded that, since the claims in this case were based on defamation and tortious interference with contract rather than fraud, the claims “need not be held to the heightened requirements of Rule 9(b).”

Even if Rule 9(b) did apply, however, the allegations here would satisfy it, in the court’s view. Colonial Downs had alleged that the plaintiffs purchased the trademark on May 24, 2012; that they “formed an agreement to tortuously injure” Colonial Downs within a week of the purchase; that the plaintiffs sent the letter declaring Colonial Downs’ intended sponsorship of the event to be “illegal” on May 30 2012, thus allegedly interfering with Colonial Downs’ contract with SFV; and that they sent the second letter to the National Steeplechase Association and the Virginia Racing Commission, thus allegedly defaming Colonial Downs. The court concluded that “[t]hese details are sufficient to provide the time, place, and manner of the conspiracy, as would be required if Rule 9(b) applied.”

The case is No. 3:12CV831-HEH.

Attorneys: Michael Aristo Leonard, II (Leonard Patel PC) for Christie D. Harrell. Chandra Dore Lantz (Hirschler Fleischer PC) for Colonial Holdings, Inc.

Companies: Colonial Holdings, Inc.

Cases: Antitrust VirginiaNews