Antitrust Law Daily Wrap Up, ANTITRUST—M.D. Pa.: Hotel seller not liable for actions related to sale of hotel, (Dec 16, 2013)

By Jody Coultas, J.D.

A hotelier was unable to state antitrust claims against hotel seller Harristown Development Corporation for allegedly anticompetitive actions related to a sale of a hotel, the federal district court in Harrisburg, Pennsylvania, has ruled (Shah v. Harristown Development Corp., December 13, 2013, Conner, C.).

Harristown Development, through its wholly-owned subsidiary and its affiliates, owned and operated the Harrisburg Hilton Hotel and Towers in downtown Harrisburg. Although the president of Harristown Development allegedly advised the hotelier that he would be “the first to be called” if the Harrisburg Hilton ever became available for sale because he was “an obvious choice” to purchase it, the hotel was sold to Greenwood Hospitality Group, LLC.

The hotelier alleged that Greenwood provided the president of the Harristown Development subsidiary with an ownership interest in Greenwood “as a quid pro quo” for delivering the Harrisburg Hilton to Greenwood. The president of Harristown Development and the president of the subsidiary also allegedly used their positions and acted in concert to fix the sale price and push through the sale of the hotel to Greenwood. The hotelier alleged conspiracy and monopoly claims.

The hotelier’s characterization of both the primary and secondary relevant markets was rejected by the court. Each of the antitrust claims required the court to conduct an analysis of defendants’ economic power and the relevant market. The hotelier defined the primary relevant market as “all investment-grade hotels within downtown Harrisburg,” and that the Hilton was the only investment-grade hotel downtown. The secondary relevant market was defined as all hotels within a ten-mile radius of the Harrisburg Hilton “whose values will be diminished when appraised in light of the sale price of the Harrisburg Hilton.” By asserting that other hotels within a ten-mile radius will have their values diminished by the sale price of the Hilton, the hotelier essentially admitted that those hotels were reasonably interchangeable and enjoyed cross-elasticity of demand with the Harrisburg Hilton. Therefore, a relevant market that only included investment-grade hotels within downtown Harrisburg did not include all reasonably interchangeable products. The hotelier failed to allege that the Harrisburg Hilton possessed market power within this secondary market.

Without a valid relevant market and market power, the court could not determine the sufficiency of the conspiracy claim. The court was unable to determine the anticompetitive effects of defendants’ behavior without proper allegations of the relevant market and defendants’ market power.

Monopoly claims. The hotelier could not adequately allege an unlawful monopoly or monopsony for his Section 2 claims, according to the court. A company holds monopsony power as a buyer when it is able to effectively dictate the prices it will pay for certain goods and services. The hotelier did not present facts enabling the court to infer that Greenwood possessed “substantial power on the buy side of the market” or that they acquired such buying power as a result of the Harrisburg Hilton sale. The fact that Harristown did not consult with other prospective buyers before deciding to sell the Harrisburg Hilton to Greenwood was irrelevant. Also, the hotelier’s argument that Harristown Development had a monopoly over the development of downtown Harrisburg was unsupported by the facts. Downtown Harrisburg was not identified as a relevant market, and the hotelier failed to connect any causal link between the sale of the Harrisburg Hilton and defendants’ continued control over the downtown Harrisburg market. Further, the mere demonstration of anticompetitive conduct does not establish a Section 2 violation when it is impossible for that alleged anticompetitive conduct to result in the achievement or furtherance of monopoly power. Harristown Development did not retain or attempt to retain its alleged monopoly over the market of investment-grade hotels in downtown Harrisburg.

The case is No. 1:12-CV-2196.

Attorneys: Kevin B. Acklin (Saul Ewing LLP) for Hasu P. Shah. Alexander L Harris (Pepper Hamilton LLP) for Harristown Development Corp., Harristown Holding Company, Inc., Harrisburg Hotel Associates LP and Greenwood Hospitality Group, LLC.

Companies: Harristown Development Corp.; Greenwood Hospitality Group, LLC

Cases: Antitrust PennsylvaniaNews