Categories & Search

Out of Luck: Second Circuit Dismisses Antitrust Suit Brought by Catskills “Racino” Developers on Market Definition Grounds

On March 18, 2016, the Second Circuit Court of Appeals affirmed the dismissal of an antitrust lawsuit brought by the prospective developers of a racing track and casino in the Catskills region of New York against their one-time collaborators in the venture.  In Concord Assocs. v. Entm’t Props. Tr., 2d Cir., No. 13-3933-cv, the appellate court dismissed the complaint without leave to amend because the plaintiffs’ case had a fatal flaw: there is nothing special about the Catskills that renders the region a unique geographic market to people nearby who want to gamble.

The dispute in this case can be traced back to the 1998 bankruptcy of the Concord Resort Hotel, a formerly eminent resort in the Catskills.  As part of that bankruptcy, the plaintiffs bought the site of hotel with the intention of transforming it into a racing and gambling facility, better known as a “racino.”  The plaintiffs subsequently entered into an agreement with Empire Resorts whereby Empire would provide management services at the proposed racino.  Empire operated a racino in Monticello, only four miles away from the location of the plaintiffs’ proposed resort, which thus made the Monticello Raceway “the only game in town,” according to the plaintiffs.

When Empire Resorts was acquired in November 2009, it repudiated the management services agreement and allegedly began to work to undermine plaintiffs’ proposed racino.  Plaintiffs’ state court actions for breach of contract proved unsuccessful.  Plaintiffs subsequently filed suit against the defendants in federal court for violations of the Sherman Act and Clayton Act based on an alleged anticompetitive scheme by defendants to limit casino-related products and services in the region.

Reviewing the district court’s decision to dismiss the suit de novo, the Second Circuit noted that to define the relevant geographic market in an antitrust case, the court must look at “the areas in which the seller operates and where consumers can turn, as a practical matter, for supply of the relevant product.”  The panel decided that the plaintiffs’ proposed market definition of “the Racing/Gaming Market in the Catskills region” was “too narrow and inherently implausible” because it included a “catchment area” that encompassed highly populous parts of New York and New Jersey, but stopped short of the gambling facilities in Connecticut, Pennsylvania, and New Jersey “that are well-known and accessible to residents of the NY Metro area.”

The plaintiffs tried in vain to explain that Atlantic City and Connecticut casinos are not reasonably interchangeable substitutes based on “distance” and “regional character.”  The court noted that these gambling facilities are only 25 miles further than plaintiffs’ proposed resort, and that these destinations also offered prospective customers a chance to combine a gambling trip with access to natural resources and outdoor activities.  Ultimately, plaintiffs’ gerrymandered geographic market definition was held to be implausible because it defied the rules of interchangeability and cross-elasticity.

The major takeaway from this case is that when filing an antitrust suit, plaintiffs need to provide economic evidence justifying their market definitions.  The court will scrutinize the proposed definition, and if it does not include reasonably interchangeable substitutes, it will find the definition to be implausible.  Notably, this case was decided in the context of a failed state court action, so the court may have also been sending a message that litigants cannot simply convert a contract dispute into an antitrust action as a backup plan.  The Second Circuit’s opinion can be found here.