Sykes v. Health Network Sols., Inc.

Sykes v. Health Network Sols., Inc., 2018 NCBC 28.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF FORSYTH 13 CVS 2595

SUSAN SYKES d/b/a ADVANCED
CHIROPRACTIC AND HEALTH
CENTER; DAWN PATRICK; TROY
LYNN; LIFEWORKS ON LAKE
NORMAN, PLLC; BRENT BOST; and
BOST CHIROPRACTIC CLINIC, P.A.,

Plaintiffs,

v.
ORDER & OPINION ON
HEALTH NETWORK SOLUTIONS,
DEFENDANTS’ MOTION TO DISMISS
INC. f/k/a CHIROPRACTIC
PLAINTIFFS’ SECOND AMENDED
NETWORK OF THE CAROLINAS,
COMPLAINT
INC.; MICHAEL BINDER; STEVEN
BINDER; ROBERT STROUD, JR.;
LARRY GROSMAN; MATTHEW
SCHMID; RALPH RANSONE;
JEFFREY K. BALDWIN; IRA RUBIN;
RICHARD ARMSTRONG; BRAD
BATCHELOR; JOHN SMITH; RICK
JACKSON; and MARK HOOPER,

Defendants.

1. THIS MATTER is before the Court on Defendants Health Network

Solutions, Inc. (“HNS”), Michael Binder, Steven Binder, Robert Stroud, Jr., Larry

Grossman, Matthew Schmid, Ralph Ransone, Jeffrey K. Baldwin, Ira Rubin, Richard

Armstrong, Brad Batchelor, John Smith, Rick Jackson, and Mark Hopper’s

(“Individual Defendants” and collectively with HNS, “Defendants”) Motion to Dismiss

Plaintiffs’ Second Amended Complaint (“Motion”). For the reasons discussed below,

the Court GRANTS the Motion.
Oak City Law LLP, by Robert E. Fields III and Samuel Piñero II, Craige
Jenkins Liipfert & Walker LLP, by Ellis B. Drew III and Leon E. Porter,
and Doughton Blancato PLLC, by William A. Blancato, for Plaintiffs.

Brooks, Pierce, McLendon, Humphrey & Leonard LLP, by Jennifer K.
Van Zant, W. Michael Dowling, and Benjamin R. Norman, for
Defendants.

Gale, Chief Judge.

I. INTRODUCTION

2. This putative class action is one of two related cases by four North

Carolina-licensed chiropractors (“Plaintiffs”) who assert that HNS’s business

practices violate North Carolina’s antitrust and insurance laws. The Court earlier

narrowed Plaintiffs’ claims by rejecting certain of the claims based on insurance laws

and restricting potential antitrust claims to only those based on a relevant market

defined as the market for chiropractic services in North Carolina (“North Carolina

Market”). The Motion seeks to dismiss all claims because of Plaintiffs’ failure to

allege market power within that market.

3. Plaintiffs’ essential contention is that HNS, and insurers with which it

conspires, unlawfully restricts the output of chiropractic services. In this action

(“Sykes I”), Plaintiffs bring suit against HNS and its owners. In the later-filed case,

Sykes v. Blue Cross Blue Shield of North Carolina, No. 15 CVS 3136, (“Sykes II”),

Plaintiffs assert substantially similar claims against Blue Cross Blue Shield of North

Carolina (“Blue Cross”), Cigna Healthcare of North Carolina, Inc. (“Cigna”), and

MedCost, LLC1 (“MedCost” and collectively with Blue Cross and Cigna, “Insurers”).

1 Plaintiffs also originally sued another third-party administrator, Healthgram, Inc., but have since

dismissed their claims against it.
4. The Court today issues a separate Order & Opinion in Sykes II and

dismisses all claims in both cases because Plaintiffs have failed to allege market

power in the North Carolina Market.

II. PROCEDURAL BACKGROUND

5. The procedural background of this action is more fully summarized in

the Court’s August 18, 2017 Order & Opinion. Sykes I, No. 13 CVS 2595, 2017 NCBC

LEXIS 73, at *3–6 (N.C. Super. Ct. Aug. 18, 2017).

6. Plaintiffs brought this action on April 30, 2013, after which the case was

designated as a complex business case and assigned to the undersigned.

7. Plaintiffs filed their first amended complaint on July 28, 2013, and

Defendants moved to dismiss pursuant to Rules 12(b)(1) and 12(b)(6) of the North

Carolina Rules of Civil Procedure. The Court denied that motion and stayed

additional proceedings pending discovery regarding market definition. See Sykes I,

2013 NCBC LEXIS 52, at *3, *13–17 (N.C. Super. Ct. Dec. 5, 2013).

8. During the market discovery period, Plaintiffs brought Sykes II against

Insurers and, on July 16, 2015, filed their Second Amended Class Action Complaint

(“Second Amended Complaint”) in this action. In the Second Amended Complaint,

Plaintiffs allege that Defendants’ conduct harmed four possible relevant markets, the

fourth of which is the North Carolina Market.

9. On August 28, 2015, Defendants filed a motion for partial summary

judgment, contending that the first three markets Plaintiffs alleged were
impermissibly narrow and legally non-cognizable, and that Defendants did not

participate in the North Carolina Market.

10. On September 25, 2015, Defendants filed the Motion, which attacks the

sufficiency of all of the claims in the Second Amended Complaint.

11. On August 18, 2017, the Court issued its Order & Opinion on

Defendants’ motion for partial summary judgment and the Motion. The Court

dismissed Plaintiffs’ declaratory judgment claims to the extent that they are based

on chapter 58 violations, their North Carolina General Statute section 75-1.1 claim,

their breach of fiduciary duty claim, and their conspiracy claim to the extent it

depended on anything other than claims based on violations of North Carolina

General Statutes sections 75-1, 75-2, and 75-2.1 (“Antitrust Claims”), which the

Court did not dismiss. Sykes I, 2017 NCBC LEXIS 73, at *71–72. The Court granted

in part and denied in part Defendants’ motion for partial summary judgment, and

dismissed the Antitrust Claims to the extent that they were based on three of the

four markets Plaintiffs proposed because those markets are not legally cognizable.

Id. at *71. The Court accepted the North Carolina Market as legally cognizable.

However, it deferred ruling on whether Plaintiffs’ Antitrust Claims could continue

because it could not reasonably assess the adequacy of Plaintiffs’ allegations of

Defendants’ market power within the North Carolina Market until receiving

supplemental briefs on that issue. Id. at *64.

12. On October 2, 2017, the parties filed supplemental briefs, and, on

October 23, 2017, the parties filed response briefs.
13. Pursuant to Rule 7.4 of the General Rules of Practice and Procedure for

the North Carolina Business Court, the Court elects to rule on the Motion without

additional oral argument. The Motion is ripe for resolution.

III. FACTUAL BACKGROUND

14. The Court refers to its earlier extensive summary of factual background,

Sykes I, 2017 NCBC LEXIS 73, at *6–13, and here includes only factual information

pertinent to the Motion. The Court accepts Plaintiffs’ factual allegations as true and

makes any permissible inferences favorable to them, but is not bound by legal

conclusions unsupported by underlying factual allegations.

A. The Parties

15. The named Plaintiffs—Susan Sykes, Dawn Patrick, Troy Lynn, and

Brent Bost—are four licensed North Carolina chiropractors and their affiliated

practices. (Second Amended Class Action Compl. (“Second Am. Compl.”) ¶¶ 3–6, ECF

No. 78.) Plaintiffs seek to represent a class consisting of “all licensed chiropractors

practicing in North Carolina from 2005 to the present who provided services in the

North Carolina Market.” (Second Am. Compl. ¶ 47.)

16. HNS is an “integrated independent practice association” (“IPA”),

consisting of approximately 1,000 of North Carolina’s approximately 2,000 active

chiropractors. (Second Am. Compl. ¶¶ 28–29, 57.)

17. Individual Defendants Michael Binder, Steven Binder, Robert Stroud,

Larry Grossman, Matthew Schmid, Ralph Ransone, Jeffery Baldwin, Ira Rubin,

Richard Armstrong, Brad Batchelor, John Smith, Rick Jackson, Mark Hopper are
chiropractors who currently or previously practiced chiropractic in North Carolina

and who own, or previously owned, an interest in HNS. (Second Am. Compl. ¶¶ 8–

20, 26.)

B. HNS’s Business Structure

18. Only HNS members can provide in-network chiropractic services for

Insurers who contract with HNS. (Second Am. Compl. ¶ 32.) Chiropractors enroll in

HNS by agreeing to provide in-network care to patients covered by Insurers, with

whom HNS has entered into exclusive agreements to provide in-network care.

(Second Am. Compl. ¶ 29.) All chiropractors who join HNS must pay fees to HNS.

(Second Am. Compl. ¶ 32.)

19. HNS uses a utilization management (“UM”) program, whereby HNS and

Insurers review and manage chiropractors based on their cost per patient. (Second

Am. Compl. ¶ 38.) If a chiropractor’s average cost per patient exceeds a mean

calculated by HNS by more than 50%, the chiropractor is put on probation and is

subject to potential termination. (Second Am. Compl. ¶ 38.)

20. Plaintiffs allege that each class member was either excluded from in-

network access to the Insurers’ patients, charged fees and subjected to HNS’s

utilization review process, or both. (Second Am. Compl. ¶ 48.) Plaintiffs allege that

HNS is “like a union which negotiates employment terms for its members,” except

that HNS puts Insurers’ interests ahead of Plaintiffs’ by exclusively contracting with

Insurers to exact fees from chiropractors seeking access to patients covered by

Insurers. (Second Am. Compl. ¶¶ 29–31.) Essentially, Plaintiffs allege that HNS’s
exclusive contracts with Insurers enable a “scheme that reduces the number of

medically necessary and appropriate treatments” provided by chiropractors in HNS’s

network and restrict output by allowing Insurers to avoid paying for medically

necessary and appropriate care. (Second Am. Compl. ¶ 37.) Plaintiffs assert that the

UM program reduces Insurers’ chiropractic purchases by “millions of dollars per

year,” (Second Am. Compl. ¶ 42), thereby giving Insurers a “windfall.” (Pls.’ Br. Opp.

Defs.’ Mot. Dismiss Second Am. Compl. 2, ECF No. 96.)

21. Plaintiffs initially alleged four markets, the narrowest of which was

restricted to insured in-network chiropractic services. The Court has restricted the

Antitrust Claims to those measured within the North Carolina Market.

IV. LEGAL STANDARD

22. On a motion to dismiss under Rule 12(b)(6), the Court considers

“whether the pleadings, when taken as true, are legally sufficient to satisfy the

elements of at least some legally recognized claim.” Arroyo v. Scottie’s Prof’l Window

Cleaning, Inc., 120 N.C. App. 154, 158, 461 S.E.2d 13, 16 (1995) (quoting Harris v.

NCNB Nat’l Bank of N.C., 85 N.C. App. 669, 670, 355 S.E.2d 838, 840 (1987)). The

Court is not required “to accept as true allegations that are merely conclusory,

unwarranted deductions of fact, or unreasonable inferences,” Strickland v. Hedrick,

194 N.C. App. 1, 20, 669 S.E.2d 61, 73 (2008) (quoting Good Hope Hosp., Inc. v. N.C.

Dep’t of Health & Human Servs., 174 N.C. App. 266, 274, 620 S.E.2d 873, 880 (2005)),

and may ignore the plaintiff’s legal conclusions. McCrann v. Pinehurst, LLC, 225

N.C. App. 368, 377, 737 S.E.2d 771, 777 (2013).
23. The Court will grant a motion to dismiss under Rule 12(b)(6) when any

of three things is true: (1) no law supports the plaintiff's claim, (2) the complaint does

not plead sufficient facts to state a legally sound claim, or (3) the complaint discloses

a fact that defeats the plaintiff’s claim. Oates v. JAG, Inc., 314 N.C. 276, 278, 333

S.E.2d 222, 224 (1985).

24. The Motion must be decided under state law, but the Court may consider

federal case law as persuasive authority for the Antitrust Claims. See Rose v. Vulcan

Materials Co., 282 N.C. 643, 656–57, 194 S.E.2d 521, 530–31 (1973); DiCesare v.

Charlotte-Mecklenburg Hosp. Auth., No. 16 CVS 16404, 2017 NCBC LEXIS 33, at *44

(N.C. Super. Ct April 11, 2017); Window World of Baton Rouge, LLC, v. Window

World, Inc., Nos. 15 CVS 1–2, 2016 NCBC LEXIS 82, at *14–15 (N.C. Super. Ct. Oct.

25, 2016). However, when considering federal case law, the Court does not apply the

“plausibility” standard adopted by the federal courts. See Bell Atl. Corp. v. Twombly,

550 U.S. 544, 555–56 (2007).

V. ANALYSIS

A. Plaintiffs do not Satisfy Rule 12(b)(6) Simply by Adhering to Rule 8.

25. In their abbreviated supplemental briefs, Plaintiffs argue that they have

complied with Rule 8’s requirement to provide fair notice of their claims, and that

surviving the Motion under Rule 12(b)(6) does not require more. (Pls.’ Suppl. Br.

Concerning Market Power 1–2, ECF No. 105; Pls.’ Response Br. Concerning Market

Power 1–2, ECF No. 108.) Making no attempt to segregate their factual allegations

among the four markets they allege, Plaintiffs argue only that thirty-four or more
paragraphs in the Second Amended Complaint “have allegations about market

power, abuse of that power, how [Defendants] have used their power to restrict output

and fix prices and how competition has been restricted.” (Pls.’ Suppl. Br. Concerning

Market Power 2.)

26. “The general standard for civil pleadings in North Carolina is notice

pleading.” Murdock v. Chatham Cty., 198 N.C. App. 309, 316, 679 S.E.2d 850, 855

(2009) (citing N.C. Gen. Stat. § 1A-1, Rule 8(a)(1)). “Under this ‘notice pleading’

standard, ‘a statement of claim is adequate if it gives sufficient notice of the claim

asserted to enable the adverse party to answer and prepare for trial, to allow for the

application of the doctrine of res judicata, and to show the type of case

brought.’” Tillery Envtl. LLC v. A&D Holdings, Inc., No. 17 CVS 6525, 2018 NCBC

LEXIS 13, at *78 (N.C. Super. Ct. Feb. 9, 2018) (quoting Wake Cty. v. Hotels.com,

L.P., 235 N.C. App. 633, 646, 762 S.E.2d 477, 486 (2014)).

27. However, even if a pleading provides proper notice of “the nature and

basis” of a claim sufficient to formulate an answer, the Court must still, under a Rule

12(b)(6) motion, “address the legal sufficiency” of each pleaded claim. Kingsdown,

Inc. v. Hinshaw, No. 14 CVS 1701, 2015 NCBC LEXIS 30, at *14, *15 (N.C. Super.

Ct. Mar. 25, 2015). A pleading that satisfies Rule 8’s notice requirement may still be

subject to Rule 12(b)(6) dismissal. Id. at *13–45 (holding that a counterclaim-

plaintiff’s claims did not violate Rule 8 and then dismissing with prejudice many of

those claims under Rule 12(b)(6)).
28. The Court previously held that Plaintiffs satisfied Rule 8 in regard to

claims against the Individual Defendants. Sykes I, 2017 NCBC LEXIS 73, at *65

(noting that Plaintiffs’ allegations regarding the Individual Defendants were “within

the outer bounds of acceptable notice pleading”). The Court similarly concludes that

Plaintiffs have satisfied Rule 8 in regard to their definition of the North Carolina

Market, (Second Am. Compl. ¶ 33), and their generalized contention that HNS

abused its market power in that market. (See, e.g., Second Am. Compl. ¶¶ 37–39, 46,

66–68). This holding, however, does not resolve the Rule 12(b)(6) Motion.

B. The Antitrust Claims

(1) The Court assumes, for purposes of the Motion only, that HNS
participates in the North Carolina Market.

29. Defendants initially argue that the Antitrust Claims against them must

fail because they do not participate in the North Carolina Market. (Defs.’ Br. Supp.

Mot. Dismiss Second Am. Compl. 11, ECF No. 86.) Plaintiffs characterize this

argument as “silly” and assert that HNS’s contracts with insurers, contracts with

chiropractors, and monitoring of chiropractors’ services “without question” constitute

HNS’s participation in the North Carolina Market. (Pls.’ Br. Opp. Defs.’ Mot. Dismiss

Second Am. Compl. 11.)

30. The Court earlier concluded “that there are disputed issues of fact as to

whether Defendants participate in [the North Carolina M]arket,” and that summary

judgment for Defendants on that issue was inappropriate at that time. Sykes I, 2017

NCBC LEXIS 73, at *46. For purposes of the Motion only, the Court assumes that

HNS and the Individual Defendants participate in the North Carolina Market.
(2) The Antitrust Claims require a showing of market power in the
North Carolina Market, which Plaintiffs may allege through
direct or circumstantial evidence.

31. The Court has held that each of Plaintiffs’ Antitrust Claims require an

appropriate allegation of market power in the North Carolina Market, whether the

claim is one for monopolization or monopsonization Sykes I, 2017 NCBC LEXIS 73,

at *17–18, *22, *58. Seller-side market power is the “ability to raise prices above the

levels that would be charged in a competitive market,” R.J. Reynolds Tobacco Co. v.

Phillip Morris Inc., 199 F. Supp. 2d 362, 381–83 (M.D.N.C. 2002) (quoting NCAA v.

Board of Regents of the Univ. of Okla., 468 U.S. 85, 109 n.38 (1984)), and buyer-side

market power includes the buyer’s ability “to lower input prices below competitive

levels, which requires the ability to restrict the quantity demanded of the input,” and

results in higher output prices. Roger D. Blair & Jeffrey L. Harrison, Antitrust Policy

and Monopsony, 76 Cornell L. Rev. 297, 306 (1991).

32. Market power may be alleged based on facts that will provide either

direct or circumstantial evidence of that power. Rebel Oil Co. v. Atl. Richfield Co., 51

F.3d 1421, 1434 (9th Cir. 1995). Direct evidence “generally requires . . . evidence of

restricted output and supracompetitive prices,” Sykes I, 2017 NCBC LEXIS 73, at

*61, while circumstantial evidence—“the more common type of proof”—generally

contains evidence “pertaining to the structure of the market.” Rebel Oil, 51 F.3d at

1434. Circumstantial proof will require at least that a plaintiff properly define a

relevant market, show that a defendant owns a dominant share of that market, and

show that there are significant barriers to entry to that market. Id.; see also Sykes I,
2017 NCBC LEXIS 73, at *61 (noting that indirect proof of market power requires

proof “of ownership of a dominant share of the relevant market and significant

barriers to market entry”).

(3) Plaintiffs have failed to specifically allege an output restriction
in the North Carolina Market adequate to support a
presumption that HNS has market power.

33. Plaintiffs assert that they have adequately demonstrated a restriction

of output of medically-necessary chiropractic services sufficient to infer HNS’s market

power in the North Carolina Market. (Pls.’ Br. Opp. Defs.’ Mot. Dismiss Second Am.

Compl. 12–14.) More specifically, Plaintiffs argue that their allegations that “tens of

millions of dollars of medically necessary care that has not been provided” pursuant

to HNS’s conduct by itself satisfies their pleading burden. (Pls.’ Br. Opp. Defs’ Mot.

Dismiss Second Am. Compl. 12–13.)

34. Plaintiffs correctly note that “proof of actual detrimental effects, such as

a reduction of output, can obviate the need for an inquiry into market power.” FTC

v. Indiana Fed’n of Dentists, 476 U.S. 447, 460–61 (1986). Judge Sotomayor while

serving on the United States Court of Appeals for the Second Circuit wrote that “[i]f

a plaintiff can show that a defendant’s conduct exerted an actual adverse effect on

competition, this is a strong indicator of market power.” Todd v. Exxon Corp., 275

F.3d 191, 206 (2d Cir. 2001).

35. However, again, Plaintiffs fail to account for the differences in how their

allegations of output based on market power must be separately viewed in the four

markets they allege. After the Court examined Plaintiffs’ output-reduction argument
in its August 18, 2017 Order & Opinion, it doubted, but left open the question of,

whether the pleadings justified “a presumption that Defendants have, or can be tied

to, market power in the North Carolina Market adequate to relieve Plaintiffs of their

pleading burden.” Sykes I, 2017 NCBC LEXIS 73, at *64. The Court now concludes

that Plaintiffs’ allegations of output reductions are not sufficient to permit an

inference that Defendants have market power in the North Carolina Market.

36. Plaintiffs conflate their allegation of a reduction of output in markets the

Court has rejected with an allegation of reduction of output in the North Carolina

Market. Plaintiffs seem to suggest that because Defendants have allegedly caused a

reduction in the more narrow markets restricted to in-network chiropractors, (see,

e.g., Second Am. Compl. ¶¶ 39, 42, 98), it reasonably leads to an inference that

Defendants have caused an overall reduction in output among all chiropractors in the

North Carolina Market.

37. While the Court here has the benefit of market discovery that dispels

any such inference, the Second Amended Complaint asserts no facts that suggest

more than a shift in output from the in-network insured market to other segments of

the larger North Carolina Market, which includes chiropractic services provided out-

of-network or to patients who make cash payments or receive services as beneficiaries

of various government programs, including workers’ compensation. Significantly, the

Second Amended Complaint supports this contrary inference when it alleges that

approximately half of all licensed North Carolina chiropractors are not HNS

members. (Second Am. Compl. ¶¶ 28–29.) Three of Plaintiffs’ proposed markets
exclude these alternative consumers of chiropractic services, but they must be

considered within the North Carolina Market. Without factual allegations to support

their argument, Plaintiffs state in conclusory fashion that “Defendants’ actions have

reduced output and that output is not finding its way back into the market through

government insurance or the cash market.” (Pls.’ Response Br. Concerning Market

Power 2).

38. The Court concludes that Plaintiffs do not allege a restriction of

chiropractic services in the North Carolina Market sufficient to raise a presumption

that the restriction is due to HNS’s alleged market power. Accordingly, Plaintiffs are

not relieved from pleading more specific facts that may be adequate to support a

finding of HNS’s market power in the North Carolina Market.

(4) Plaintiffs fail to allege specific facts adequate to support a
finding of HNS’s market power in the North Carolina Market.

39. The Court inquires whether the Second Amended Complaint alleges

facts which may be adequate to define a relevant market, show that a defendant owns

a dominant share of that market, and show that there are significant barriers to entry

to that market. Rebel Oil, 51 F.3d at 1434; see also Sykes I, 2017 NCBC LEXIS 73,

at *61; cf. Sitelink Software, LLC v. Red Nova Labs, Inc., 14 CVS No. 9922, 2016

NCBC LEXIS 45, at *31 (N.C. Super. Ct. June 14, 2016) (holding that to succeed on

antitrust claims, a plaintiff must allege some “minimal set of well-grounded factual

allegations to support an assertion of market power” in the relevant market).
40. Plaintiffs’ Second Amended Complaint includes the following

allegations regarding their claims that HNS has market power within the North

Carolina Market:

 The North Carolina Market is a market “in which HNS ha[s]

market power.” (Second Am. Compl. ¶ 33);

 “HNS and the Insurers through aggregation of ultimate

consumers of chiropractic services, and their participation and

use of the HNS network, have material market power in the

relevant markets.” (Second Am. Compl. ¶ 34);

 “By virtue of its exclusive relationships with the Insurers,

particularly [Blue Cross], HNS controls . . . a materially

significant percentage of . . . the North Carolina Market.”

(Second Am. Compl. ¶ 46); and

 “HNS through its exclusive contracts with the Insurers has

monopsony power in the relevant markets.” (Second Am. Compl.

¶ 132.)

Again, these allegations are grouped among the four different markets Plaintiffs

allege, three of which the Court has rejected. While Plaintiffs allege that HNS

controls a specific percentage of the markets the Court has rejected, (see, e.g., Second

Am. Compl. ¶ 46 (“HNS controls 100% of the HNS Market”)), Plaintiffs do not allege

that HNS controls a specific share of the North Carolina Market.
41. Although “each case turns on a fact-specific inquiry,” SiteLink, 2016

NCBC LEXIS 45, at *29, federal and state courts in North Carolina have found

allegations that a defendant possesses at least fifty percent of a relevant market may

be adequate to show that that defendant owns a “dominant share” of the market. See

R. J. Reynolds Tobacco Co., 199 F. Supp. 2d at 383 (finding that an alleged 51.3%

market share was sufficient to show a defendant’s dominant share); compare

DiCesare, 2017 NCBC LEXIS 33, at *48–50 (finding that an allegation that a

defendant possessed “approximately 50%” of the relevant market was sufficient to

allege that defendant’s dominant share in that market and allowing antirust claims

to survive a Rule 12(b)(6) motion), with Sitelink, 2016 NCBC LEXIS 45, at *30–31

(holding that an allegation of market share between 35% and 40% was insufficient to

survive a Rule 12(b)(6) motion, “even under North Carolina’s liberal pleading

standard”).

42. Arguably, Plaintiffs would have adequately alleged market power in the

other more narrow markets had the Court not rejected them. But, an allegation of a

specific market share in the narrower and irrelevant markets cannot support a

reasonable inference that HNS has market power in the North Carolina Market. See

Bookhouse of Stuyvesant Plaza, Inc. v. Amazon.com, Inc., 985 F. Supp. 2d 612, 621

(S.D.N.Y. 2013) (holding that allegations that defendants had a 60% share in the

print book market was insufficient to establish market power in the e-book market

where the plaintiffs had made no specific allegations regarding the defendants’

market share in the e-book market); see also Top Rank, Inc. v. Haymon, No. CV 15-
4961-JFW (MRWx), 2015 U.S. Dist. LEXIS 164676, at *22–24 (C.D. Cal. Oct. 16,

2015) (holding that the plaintiff had not adequately pleaded market power in the

relevant market in part because the allegations regarding significant market share

pertained to markets the court had rejected).

43. Vague or conclusory allegations of market power in a relevant market

may be insufficient to survive a Rule 12(b)(6) motion, even if the market is sufficiently

defined. See, e.g., Rick-Mik Enters., Inc. v. Equilon Enters. LLC, 532 F.3d 963, 972

(9th Cir. 2008) (holding that an allegation that the defendant ranked “number one”

in its industry was insufficient to plead market power); Cupp v. Alberto-Culver USA,

Inc., 310 F. Supp. 2d 963, 974 (W.D. Tenn. 2004) (dismissing an antitrust claim when

the plaintiff made only conclusory allegations regarding the relevant market and

described the defendants’ market power using only vague descriptors); Hip Hop

Beverage Corp. v. Monster Energy Co., No. 2:16-CV-1421-SVW-FFM, 2016 U.S. Dist.

LEXIS 167077, at *14–15 (C.D. Cal. Oct. 26, 2016) (holding that an allegation that a

defendant controlled “a major percent” of the relevant market was insufficient to

allege market power); Westlake Servs., LLC v. Credit Acceptance Corp., No. CV 15-

07490 SJO (MRWx), 2015 U.S. Dist. LEXIS 175643, at *18 (C.D. Cal. Dec. 7, 2015)

(holding that an allegation that a defendant had a “predominant market share of and

market power in” the relevant market was insufficient to plausibly show that the

defendant held sufficient market power).

44. The Court is “fully cognizant that the Motion must be resolved under

North Carolina’s lenient Rule 12(b)(6) standard rather than the more exacting
federal plausibility standard that governs . . . federal antitrust precedents,” but it is

also aware that “[e]ven North Carolina’s more lenient standard . . . does not allow a

party to withstand a Rule 12(b)(6) motion based on conclusory allegations that are

not supported by underlying factual allegations.” Sitelink, 2016 NCBC LEXIS 45, at

*17; see also Window World, 2016 NCBC LEXIS 82, at *13–14 (rejecting the plaintiffs’

argument that market power need not be specifically pleaded to withstand 12(b)(6)

dismissal).

45. Based on these principles, the Court concludes that Plaintiffs fail to

allege facts adequate to support a finding that HNS has market power in the North

Carolina Market. First, as noted above, Plaintiffs do not allege that HNS controls a

specific percentage of the North Carolina Market. Second, Plaintiffs cannot rely on

allegations of HNS’s market share in markets the Court has rejected. Finally,

Plaintiffs’ general allegations that HNS has “market power,” “material market

power,” “a materially significant percentage,” and “monopsony power” in the North

Carolina Market, (Second Am. Compl. ¶¶ 33, 34, 46, 132), are conclusory, nonspecific,

and insufficient.

46. For these reasons, the Court concludes that Plaintiffs do not adequately

allege HNS’s market power in the North Carolina Market. Accordingly, the Antitrust

Claims against HNS fail and must be dismissed. See Rick-Mik, 532 F.3d, at 972 (“A

failure to allege power in the relevant market is a sufficient ground to dismiss an

antitrust complaint.”).
C. Plaintiffs’ Claims that Derive from the Antitrust Claims

(1) Declaratory judgment

47. Plaintiffs’ declaratory-judgment claim originally sought ten different

declarations, three of which the Court determined that Plaintiffs do not have

standing to bring. Sykes I, 2017 NCBC LEXIS 73, at *53 (holding that Plaintiffs lack

standing to pursue alleged chapter 58 violations). The Court also ruled that the

remaining declaratory judgment claims “should survive dismissal, but only to the

extent that they relate to the other surviving [antitrust] claims.” Id. at *70. Because

the Antitrust Claims do not survive, Plaintiffs’ remaining claims for declaratory

judgment fail and must be dismissed.

(2) Conspiracy

48. The Court previously noted that Plaintiffs’ civil conspiracy claim should

survive Rule 12(b)(6) dismissal only to the extent that the Antitrust Claims survived.

Id. at *70; see also Shope v. Boyer, 268 N.C. 401, 404–05, 150 S.E.2d 771, 773–74

(1966) (holding that North Carolina does not recognize freestanding civil conspiracy

claims). The Antitrust Claims do not survive. Accordingly, Plaintiffs’ civil conspiracy

claim fails and must be dismissed.

(3) Claims against Individual Defendants

49. Plaintiffs attempt to impose personal liability on the Individual

Defendants by alleging “that the Individual Defendants are either joint tortfeasors

who knowingly and purposefully established HNS to inflict harm on Plaintiffs . . . ,

or co-conspirators who actively participated in the wrongful conduct.” Sykes I, 2017
NCBC LEXIS 73, at *64–65. The Court earlier concluded that “the claims against

the Individual Defendants survive the Motion . . . to the same extent that the claims

also survive against HNS.” Id. at *66. Because all of Plaintiffs’ claims against HNS

are dismissed, all claims against the Individual Defendants fail and must likewise be

dismissed.

(4) Punitive damages

50. North Carolina does not allow freestanding claims for punitive damages.

Shugar v. Guill, 304 N.C. 332, 335, 283 S.E.2d 507, 509 (1981) (“A civil action may

not be maintained solely for the purpose of collecting punitive damages but may only

be awarded when a cause of action otherwise exists in which at least nominal

damages are recoverable by the plaintiff.”). Because the Court has dismissed each of

the claims against HNS and the Individual Defendants, Plaintiffs’ punitive damages

claim must also be dismissed.

VI. CONCLUSION

51. After three complaints, two motions to dismiss, fact discovery regarding

market definition, a summary judgment motion based on market definition, and two

rounds of supplemental briefing, Plaintiffs continue to fail to adequately allege that

HNS has market power in the North Carolina Market. Plaintiffs’ failure to plead

market power in the relevant market is fatal to all the Antitrust Claims, and the

failure of the Antitrust Claims is fatal to every other remaining claim. There being

no remaining claims, the Motion is GRANTED and the Second Amended Complaint

is DISMISSED WITH PREJUDICE.
SO ORDERED, this the 5th day of April, 2018.

/s/ James L. Gale
James L. Gale
Chief Business Court Judge