Are trade association members or their boards exposed to liability for unlawful bylaws or decisions?
The continued functioning and existence of trade associations are at stake in a case currently working its way through the federal appeals courts. Earlier this year, the U.S. Court of Appeals for the Second Circuit held that an association’s agreement to abide by the rules and policies of its parent organization is sufficient to allege antitrust violations by associations. And because associations, like other corporate entities, can act only through the persons that govern them, the ruling raises the specter of liability for antitrust violations by trade associations’ officers, board members, executives, and even their members, simply because they agree to follow the organization’s regulations.
Fédération Internationale de Football Association (FIFA) is the well-known international governing body for soccer. It is a private membership-based association comprised of over 200 national associations. Each national association is comprised of professional soccer leagues and teams. National associations represent their members in FIFA decision-making and—critically—they agree to comply fully with FIFA’s statutes, regulations, directives, and decisions. The national associations require their members to agree to comply with these same rules and policies. USSF, the FIFA-authorized national association for the United States, and its members are obliged to respect the statutes, regulations, directives, and decisions of FIFA. Leagues and players that fail to comply with FIFA rules and policies are subject to discipline, which can include exclusion from the FIFA World Cup competition.
The Complaint charged that “FIFA and USSF, in combination with numerous FIFA-affiliated men’s top-tier professional soccer leagues and teams, including Major League Soccer (“MLS”) and its member teams, have entered into an agreement to divide geographic markets, including the United States market, which stifles competition in the U.S.” Importantly, the plaintiff alleged that USSF violated Section 1 of the Sherman Antitrust Act and Sections 4 and 16 of the Clayton Antitrust Act simply by adhering to FIFA’s policy that official league games may not be played outside the participant teams’ home territories—a “geographic market division policy” (“the Policy”).
The District Court dismissed the complaint on the ground that, to bring a successful antitrust claim, the plaintiff had to present either direct or circumstantial evidence of a pre-existing agreement among competitors to enforce the anticompetitive policy. The trial court opined that USSF’s compliance with the Policy, without additional facts, was insufficient to constitute direct evidence of an unlawful agreement. See 551 F. Supp. 3d 120 (S.D.N.Y. 2021). The Second Circuit reversed, stating that the plaintiff plausibly alleged that the market division policy reflected a contractual commitment of head-to-head competitors to restrict competition. See 61 F.4th 299, 309 (2023). USSF has urged the U.S. Supreme Court to review the Second Circuit’s decision.[1]
On September 1, 2023, the American Society of Association Executives (ASAE) filed an amicus curiae brief in support of USSF’s petition for certiorari.[2] The critical issue for the ASAE—which provides resources, education, and advocacy to enhance the power and performance of the association community—is that the Second Circuit concluded that the more than 200 organizations that comprise FIFA engaged in “concerted action” for purposes of liability under Section 1 of the Sherman Act (dealing with antitrust and anticompetitive conduct) merely by agreeing when they became members of FIFA to adhere to FIFA’s rules and policies. See 61 F.4th 299, 309 (2023). [LINK TO SECOND CIRCUIT OPINION] ASAE argues that the notion that an individual or entity can face potential liability for doing nothing more than agreeing to participate with others similarly situated in an association will have a chilling effect on association members’ interest in being part of those associations and will jeopardize the beneficial work that flows from associations. As the ASAE stated:
The risk of being improperly labeled a conspirator, and the protracted litigation that comes along with such an accusation, is now much greater for the members of countless associations across the country.
Brief of the American Society of Association Executives as Amicus Curiae in Support of Petitioners, USSF v. Relevent Sports, LLC, et al., No.23-120 (September 1, 2023) at 3. The Chamber of Commerce argued:
[T]he holding dissuades businesses from joining any association and exposes any number of lawful collaborators across industries to crippling litigation risk, including the risk and overwhelming burden of antitrust discovery—risks that such ventures can ill afford and that the law does not contemplate in any event.
Brief of the Chamber of Commerce of the United States of America as Amicus Curiae in Support of Petitioner, USSF v. Relevent Sports, LLC, et al., No.23-120 (September 7, 2023) at 3.
Briefing on USSF’s petition for certiorari (request that the Supreme Court take the case to review the Second Circuit’s decision) was completed on October 24, 2023. On November 13, 2023, the Supreme Court invited the Solicitor General of the United States to file a brief to express the views of the United States on the matter. See USSF v. Relevent Sports, LLC, et al., __ S. Ct. __, 2023 WL 7475127 (Nov. 13, 2023). The Solicitor General’s brief is likely to be filed sometime in the spring, and then the court will decide whether to take the case.
Notably, the Federal Trade Commission has previously issued guidance that “[m]ost trade association activities are procompetitive or completely neutral.” FTC, Spotlight on Trade Associations (https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/dealings-competitors/spotlight-trade-associations). But the FTC also warns that “forming a trade association does not shield joint activities from antitrust scrutiny: Dealings among competitors that violate the law would still violate the law even if they were done through a trade association.” Id.
The issues presented in this case are vital to the continued functioning and existence of trade associations. Under the Second Circuit’s holding, the federal government can bring civil and criminal felony cases against trade associations, including their members and staff. Penalties can be severe: Each individual can be fined up to $100,000 and each member corporation can be fined up to $1,000,000. Individuals may face imprisonment of up to three years. In addition, the government can impose civil sanctions, including cease and desist orders, which result in government restraints on the activities of association members.
For the moment, United States Soccer Federation, Inc. v. Relevent Sports, LLC is the case to watch for any association members and, in particular, those who sit on boards or governing bodies of any trade association.
For further information, contact Kathleen Balthrop Havener at The Cullen Law Firm, PLLC, at 202-298-4775 or kathleen@cullenlaw.com.
Copies of the parties’ briefs can be found at the links below:
[1] On August 4, 2023, the United States Soccer Federation, Inc. (USSF) filed a Petition for a Writ of Certiorari in the United States Supreme Court asking the Court to review the decision by the Second Circuit Court of Appeals in the case of United States Soccer Federation, Inc. v. Relevent Sports, LLC, et al. The Petition for Writ of Certiorari was docketed on August 8, 2023, as Case No 23-120.
[2] The Chamber of Commerce also filed an amicus brief in support of the petition for a writ of certiorari on September 7, 2023.