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NCAA Class Action Defense Cases–O’Bannon v. NCAA: California Federal Court Denies Motion To Dismiss Antitrust Class Action Holding Student Athlete Claims Adequately Pleaded Sherman Act Claim

Class Action Challenging NCAA Requirement that Student Athletes Allow NCAA to use Likeness, Without Compensation, Adequately Pleaded Antitrust Violations California Federal Court Holds

Two separate class action lawsuits, one by Edward O’Bannon and one by Craig Newsome, were filed against the National Collegiate Athletic Association (NCAA) and the Collegiate Licensing Company (CLC) alleging violations of the Sherman Act, as well as state law claims for unjust enrichment and accounting. O’Bannon v. National Collegiate Athletic Ass’n, ___ F.Supp.2d ___ (N.D.Cal. February 8, 2010) [Slip Opn., at 1]. The class actions were consolidated with other class actions containing similar claims. Id., at 4. According to the allegations underlying the class action complaints, plaintiffs competed as student athletes at their respective universities, and were at that time governed by the “rules and regulations of NCAA.” Id., at 2. The class actions alleged that the NCAA’s rules and regulations violate the Sherman Act because Form 08-3a, which the NCAA requires student athletes to sign, provides: “You authorize the NCAA [or a third party acting on behalf of the NCAA (e.g., host institution, conference, local organizing committee)] to use your name or picture to generally promote NCAA championships or other NCAA events, activities or programs.” Id., at 2-3. Moreover, NCAA Bylaw Article 12.5.1.1 authorizes the NCAA (and certain others) to “use a student-athlete’s name, picture or appearance to support its charitable or educational activities or to support activities considered incidental to the student-athlete’s participation in intercollegiate athletics,” id., at 3. This constitutes anticompetitive conduct, the class actions alleged, because the NCAA essentially “requires student athletes to ‘relinquish all rights in perpetuity to the commercial use of their images, including after they graduate and are no longer subject to NCAA regulations.’” Id. Plaintiffs alleged that they “[did not] consent to these agreements and that they [did] not receive compensation for the use of their images.” Id. Defense attorneys moved to dismiss the class actions; the district court found that the Newsome class action allegations were inadequate to state claims, but that the O’Bannon class action adequately alleged violations of the Sherman Act.

The district court began by analyzing the Sherman Act claims in the O’Bannon class action. See O’Bannon, at 5. The court concluded that each of the elements required to state a claim: specifically, the class action complaint adequately alleged an “agreement among Defendants and their purported co-conspirators,” id., at 6, an “unreasonable restraint of trade” under the “rule of reason,” id., at 7-11, and an impact on interstate commerce, id., at 11. Further, the claim was not time barred because the “continuing violation” doctrine tolled the statute of limitations. Id., at 11-12. O’Bannon also had standing to prosecute the class action claim, id., at 12-13, in part because his complaint alleges that “Defendants’ actions have deprived him of compensation for the use of images of himself from his collegiate career” and that his injury is “traceable to Defendants’ conduct, which includes, but is not limited to, NCAA’s rules and regulations,” id., at 13. The Newsome class action complaint, however, failed to state a claim under the Sherman Act because it failed to adequately allege an unreasonable restraint of trade. See id., at 13-14. Newsome’s fault was in filing a “truncated version of the O’Bannon [class action] complaint” that failed to adequately “plead a relevant market.” Id., at 14.

The district court also concluded that the O’Bannon class action adequately alleged a common law claim for unjust enrichment but not for an accounting. O’Bannon, at 14-16. The Newsome complaint failed as to both counts. Id., at 14. The federal court thus denied the defense motion to dismiss the Sherman Act antitrust claims and unjust enrichment claims in the O’Bannon class action, and granted both plaintiffs leave to amend their respective class actions on all other claims. Id., at 16-17.

Download PDF file of Bannon v. National Collegiate Athletic Ass’n