Putative Class Action Plaintiffs Defeat NCAA’s Motion To Dismiss Sherman Act Claim
08/08/2023On July 27, 2023, Judge William Shubb of the United States District Court for the Eastern District of California denied the National Collegiate Athletic Association’s (NCAA) motion to dismiss a putative class action alleging in part that the NCAA and its member schools violated Section 1 of the Sherman Act by conspiring not to compensate coaches defined as volunteer coaches under NCAA regulations. Smart v. NCAA, No. 22-cv-02125 (E.D. Cal. July 27, 2023). The NCAA has three divisions, and the top division is Division I. Plaintiffs worked as volunteer coaches for several different Division I member schools across a variety of sports. Plaintiffs claim to have performed duties like those of paid coaches, including preparing for and attending all practices and games and traveling for away games. NCAA Division I regulations agreed to by the NCAA and its member schools, however, required that volunteer coaches not be paid and placed restrictions on other benefits, such as health insurance and housing. Plaintiffs allege that by capping the salary levels and other benefits of Division 1 volunteer coaches, the NCAA regulations amounted to an unreasonable restraint of trade violating Section 1 of the Sherman Act.
The Court began its Sherman Act analysis by addressing whether plaintiffs adequately pled antitrust injury, an element of every antitrust claim requiring that plaintiffs suffered the type of harm the antitrust laws were intended to prevent. The NCAA argued that plaintiffs had failed to allege facts showing that plaintiffs would have received greater compensation for their services absent the NCAA’s rules. Having earlier discussed the substantial compensation paid to other types of college athletic coaches, however, the Court concluded “it is not implausible that plaintiffs would have been paid a salary above $0 but for the NCAA’s adoption of the Bylaw [regulating pay and other benefits for volunteer coaches].”
The Court then moved to its substantive analysis of plaintiffs’ Sherman Act Section 1 claim, which requires an agreement unreasonably restraining trade that affects interstate commerce. After quickly concluding based on prior precedent that NCAA regulations are agreements affecting interstate commerce, the Court focused its inquiry on the appropriate analytical framework for assessing the anticompetitive effects of the NCAA regulations at issue. Generally, courts treat horizontal price-fixing agreements, such as the agreement between the NCAA and its member schools not to pay volunteer coaches here, as per se violations of Section 1. Because this case involves the NCAA, however, the Court relied on the Supreme Court’s decision in NCAA v. Board of Regents of the University of Oklahoma, 468 U.S. 85 (1984), to conclude instead that a quick-look analysis was most appropriate. More demanding than the per se rule but less stringent than the rule of reason’s detailed factual investigation, quick-look analysis requires that plaintiff show “that a horizontal agreement to fix prices exists, that the agreement is effective, and that the price set by such an agreement is more favorable to the defendant than otherwise would have resulted from the operation of market forces.” Again relying on plaintiffs’ allegations of the substantial compensation paid to other types of college coaches, as well as “the overall increase in coach salaries,” the Court concluded that plaintiffs did allege facts sufficient to show a violation of Section 1 under a quick-look analysis. The Court further rejected the NCAA’s argument that plaintiffs failed to plead a relevant market when they did not include in that market “other available coaching opportunities such as those at the high school or professional levels.” The Court noted that proof of market power is not required under a quick-look analysis and that plaintiffs’ pleadings regarding the relevant market were in any event sufficient at the motion to dismiss stage. The Court also suggested without deciding that the relevant market in this case might indeed be properly defined as the market for Division I coaches.
This decision serves as useful guidance on the application of quick-look analysis to Sherman Act Section 1 claims at the motion to dismiss stage of litigation. As this case makes clear, quick-look analysis is a more plaintiff-friendly analytical framework than the rule of reason and less receptive to more nuanced arguments regarding market definition.