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When Can an Organization Conspire with Itself?

The U.S. Court of Appeals for the Fifth Circuit last week reversed a jury verdict and rendered judgment for American Quarter Horse Association (AQHA) in a much-contested antitrust case about AQHA's ban of cloned horses. The Fifth Circuit left open the possibility that a single entity like AQHA could conspire with its own members or sub-parts. The takeaway? Without transparency in decision-making procedures, organizations can find themselves vulnerable in antitrust litigation.

The case concerned the rules for registering a specific breed of horse, the Quarter Horse. AQHA is a non-profit association that registers the pedigrees of the American Quarter Horse breed. The American Quarter Horse is considered an elite breed, and is particularly sought after for horse shows, racing, and rodeos. Registration is required for participation in many of these lucrative activities. In 2003--following the first-ever cloning of a horse--AQHA adopted a rule declaring cloned horses ineligible for registration.

The plaintiffs in the case had invested in cloned horses but found themselves barred from registering them. They alleged that the AQHA committee that enacted the rules on cloned horses did so to eliminate competition from these horses. AQHA, meanwhile, maintained that the ban had been enacted through an appropriate process and had moral and practical justifications. A jury found that the ban violated antitrust laws but awarded no damages. The trial court entered an injunction requiring AQHA to adopt rules permitting registration of cloned horses.

The Fifth Circuit grappled with whether the enactment of a rule by a single entity like AQHA could constitute conspiracy--and ultimately left the question for another day. Instead, it assumed arguendo that AQHA was legally capable of conspiring with its members. It then declared the evidence insufficient to support a finding of conspiracy.

Because there was no direct evidence of a conspiracy, the plaintiffs needed to show circumstantial evidence that both supported an inference of conspiracy and excluded the possibility of independent conduct. The court found that the evidence did not rule out independent actions. Rather, the evidence amounted only to speculation, innuendo, and pejoratives. For example, in response to the plaintiffs' attack of the rule-making procedures as a sham, the court found that plaintiffs did not show "that the deliberative processes in place deviated from AQHA’s standard procedures," and issued a reminder that "antitrust laws are not intended as a device to review the details of parliamentary procedure.”

The decision adds a layer of nuance to the analysis of conspiracies within organizations after American Needle v. National Football League. In American Needle, the Supreme Court held that the NFL and its competitor members could engage in a conspiracy because they held separate and independent economic interests. In other words, American Needle rejected single entity status for organizations made up of separate economic actors.

The Fifth Circuit found many "troubling distinctions" between the structures of the organizations at issue in American Needle and AQHA and expressed uncertainty about American Needle's scope. For example, it highlighted the relevance of an organization's legal structure to the question of whether an association can conspire with its members--an issue the Supreme Court did not discuss in American Needle.

Perhaps we'll see an explicit narrowing of American Needle in the future. In the meantime, extra attention to transparency and appropriate process in rule-making by associations could help ward off antitrust allegations.