Deutscher Tennis Bund v. Atp Tour, Inc.

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 08-4123

DEUTSCHER TENNIS BUND,

German Tennis Federation;

ROTHENBAUM SPORTS GMBH;

QATAR TENNIS FEDERATION,

Appellants

v.

ATP TOUR, INC.; ETIENNE DE VILLIERS;

CHARLES PASARELL; GRAHAM PEARCE;

JACCO ELTINGH; PERRY ROGERS;

IGGY JOVANOVIC;

JOHN DOE 7; JOHN DOE 8; JOHN DOE 9

On Appeal from the United States District Court

for the District of Delaware

D.C. Civil Action No. 07-cv-00178

(Honorable Gregory M. Sleet)

Argued November 2, 2009

Before: SCIRICA, JORDAN and

GREENBERG, Circuit Judges.

(Filed: June 25, 2010)

ROBERT D. MacGILL, ESQUIRE (ARGUED)

PETER J. RUSTHOVEN, ESQUIRE

STANLEY C. FICKLE, ESQUIRE

HAMISH S. COHEN, ESQUIRE

MATTHEW B. BARR, ESQUIRE

Barnes and Thornburg

11 South Meridian Street

Indianapolis, Indiana 46204

C. BARR FLINN, ESQUIRE

KAREN E. KELLER, ESQUIRE

Young Conaway Stargatt & Taylor

The Brandywine Building, 17th Floor

1000 West Street, P.O. Box 391

Wilmington, Delaware 19899-0391

Attorneys for Appellants

BRADLEY I. RUSKIN, ESQUIRE (ARGUED)

JENNIFER R. SCULLION, ESQUIRE

COLIN A. UNDERWOOD, ESQUIRE

ROBERT D. FORBES, ESQUIRE

2

Proskauer Rose

1585 Broadway

New York, New York 10036

LAWRENCE C. ASHBY, ESQUIRE

CAROLYN S. HAKE, ESQUIRE

TONI-ANN PLATIA, ESQUIRE

PHILIP TRAINER, JR., ESQUIRE

Ashby & Geddes

500 Delaware Avenue, 8th Floor

P.O. Box 1150

Wilmington, Delaware 19899

Attorneys for Appellees

OPINION OF THE COURT

SCIRICA, Circuit Judge.

Men’s professional tennis is a worldwide enterprise and

every year, professional tennis players compete in various

tournaments around the world. The principal men’s professional

tennis events are the four Grand Slams, the Davis Cup, and the

ATP Tour, a worldwide professional tennis circuit organized by

the Association of Tennis Professionals (“ATP”). This lawsuit

arises out of the reorganization of the ATP Tour—known as the

Brave New World plan—designed to revitalize its popularity,

3

enabling it to better compete with other sports and entertainment

events. The redesigned format channeled more top-tier players

to the top-tier ATP tournaments and also redesignated the tier

categories of some tournaments. The changes included a

downgrade of the Hamburg, Germany tournament from the first

tier to second tier status.

Dissatisfied with the downgrade, Hamburg tournament

owners, the German and Qatar Tennis Federations (the

“Federations”), sued ATP and certain of its officers and

directors. The suit alleged that the Brave New World plan

violated §§ 1 and 2 of the Sherman Act and that ATP’s

Directors breached fiduciary duties owed to the Federations. At

trial, the District Court granted ATP’s motions for judgment as

a matter of law, dismissing the personal liability claims against

the Directors for alleged antitrust violations and breach of

fiduciary duty. The antitrust claims against ATP were submitted

to a jury, which returned a verdict for ATP. The jury found the

Federations failed to prove ATP entered into a contract,

combination, or conspiracy with any separate entity under § 1 of

the Sherman Act, and did not establish a relevant product market

under § 2.

The Federations appeal the jury verdict on § 1 of the

Sherman Act, asserting the District Court erred in instructing the

jury on a “single entity or enterprise defense,” and in failing to

instruct on the “quick look” mode of analysis. The Federations

also appeal the judgment as a matter of law dismissing the

antitrust claims against the Directors and the breach of duty of

4

loyalty claim against Director Charles Pasarell. We will affirm

the jury verdict on the Sherman Act § 1 claim based on the

Federations’ failure to prove the relevant market. Consequently,

the question of personal director liability for antitrust claims is

moot. We also will affirm the judgment as a matter of law

dismissing the breach of duty of loyalty claim against Director

Pasarell because neither he individually nor the ATP Board of

Directors as a whole were materially self-interested when they

voted in favor of the Brave New World plan.

I.

A.

Initially an association of the world’s top men’s

professional tennis players, ATP evolved into a non-profit

corporation consisting of a membership of men’s professional

tennis players and organizers of men’s professional tennis

tournaments. ATP operates a worldwide tennis tour composed

of the member tournaments, culminating in ATP’s end-of-

season championship tournament, the Tennis Masters Cup.1

Tennis players earn prize money and ATP ranking points

through playing in ATP tournaments.

ATP ranking points determine each player’s world

ranking. The player rankings are important because they govern

1

In 2009, the Tennis Masters Cup was replaced by the

Barclays ATP World Tour Finals.

5

entry into and seeding in the Grand Slams 2 as well as ATP top-

tier tournaments—the most important professional tennis

tournaments. In turn, these tournaments award the most prize

money and ranking points.

ATP tournament members are divided into three

categories: (1) Tier I (formerly “Masters Series”); (2) Tier II

(formerly “International Series Gold”); (3) Tier III (formerly

“International Series”). The categories of tournaments are

distinguished by different levels of minimum prize money and

2

The four Grand Slams (Australian Open, French Open,

Wimbledon, and US Open) and the Davis Cup are not ATP

tournaments and are regulated by the International Tennis

Federation (“ITF”). But the Grand Slams have agreed to use

ATP entry and ranking systems as the basis for determining

entry and seeding of men’s professional players into their events

(Wimbledon has its own method of seeding calculation, which

also takes into account players’ past performances on grass over

the previous two years, as well as their ATP ranking). In return,

playing in the Grand Slams is mandatory for top ATP players.

The Grand Slams also agreed not to organize a year-end event

competing with the ATP’s Tennis Masters Cup and ATP agreed

not to combine the Masters Cup with the Women’s Tennis

Association’s year-end event. Additionally, ATP has an

agreement with ITF not to schedule ATP events against Davis

Cup matches and to award ATP ranking points to Davis Cup

tournaments.

6

different amounts of ranking points awarded on the basis of

performance.

ATP is governed by a seven-member Board of

Directors—three elected by tournament members (representing

different geographic regions), three elected by player members,

and a Chairman/President. ATP’s Bylaws give the ATP Board

discretion over the Tour’s format.

In 2007, the Board voted to adopt several changes to the

ATP Tour. According to ATP, this restructuring was

necessitated by market changes and conditions: ATP was losing

ground in the sports and entertainment markets. ATP’s market

research revealed that tennis fans wanted to see the top tennis

players play against each other more often. ATP perceived that

a growing decline in player participation in its top-tier events

undermined its prestige and also the profile of the sport, leading

to a decline in ticket sales and weakening the member

tournaments’ ability to secure television coverage and

sponsorships. By strengthening its top-tier events and

simplifying its tournament structure, ATP believed it could

better compete with other sports events and other forms of

entertainment, and also award more prize money to the players.

The Brave New World plan’s objective was to increase

the value and appeal of top-tier tournaments by channeling top

players to compete in them. It also aimed to make the

progression of the Tour easier for fans to follow by clearly

communicating each tournament’s tier and differentiating

7

between the different tiers. To achieve these goals, the Brave

New World plan altered the number of ranking points awarded

to winning players in different tiers of tournaments. Tier I

tournaments would award 1000 points instead of 500; Tier II

tournaments would award 500 points instead of a range between

250 and 300; Tier III tournaments would award 250 points

instead of a range between 175 and 250. Additionally, the

Brave New World plan renamed the tournament tiers to

correspond to the new ranking points system: Tier I became the

“ATP World Tour Masters 1000”; Tier II became the “ATP

World Tour 500”; and Tier III became the “ATP World Tour

250.” The new ranking point distribution was designed in part

as an incentive for the top tennis players to play the ATP top-tier

events.

The Brave New World plan also reconfigured the Tour

calendar to create geographic “swings” or “seasons” around the

Grand Slams because of their size, prestige, history, and

popularity, and their significantly greater amount of prize

money. Thus, the Brave New World plan scheduled the top-tier

ATP tournaments in the weeks before the Grand Slams with

corresponding court surfaces—e.g., the Tier I tournament in

Madrid, Spain on a clay surface was scheduled in the weeks

before the French Open, a Grand Slam tournament also on clay.

According to ATP, scheduling their tournaments in this way

attracts the top tennis players because of their desire to play on

the same surface as the upcoming Grand Slam tournaments.

Notably, the Brave New World plan also amended ATP

8

rules so that qualifying players were required, under threat of

sanctions—suspension, loss of ranking, and loss of ability to

earn ranking points—to play all Tier I events, at least four Tier

II events, and at least two Tier III events. Further, all qualifying

players were also required to play in the year-end Tennis

Masters Cup championship. In addition, the Brave New World

plan imposed a “Special Events” rule on the top 50 players,

prohibiting them from participating in any non-ATP, non-Grand

Slam events during the weeks of and surrounding ATP events.

As noted, these changes were prompted by the decline in top

player participation in ATP tournaments. In turn, ATP

increased the tournaments’ minimum prize money levels to

benefit the players.

The Brave New World plan also spurred significant

capital investments in facilities on the part of the

tournaments—the Tier I and Tier II tournaments committed to

approximately $864 million in capital investments. ATP

undertook to create a more unified branding approach for the

Tour and increased spending on promotion and marketing. It

projected a $9 million marketing amount for 2009; previous

budgets provided for only $800,000 in 2005 and 2006, and $5

million in 2007 and 2008. It also enhanced pooling for existing

broadcast and digital media rights.

In sum, ATP designed the Brave New World plan as a

comprehensive plan to address the perceived decline of ATP in

the sports and entertainment markets. Concluding that fans

desired a better structured Tour, featuring the best players

9

playing against each other more often, ATP decided to simplify

the Tour’s format and to introduce regulations ensuring top

player participation in ATP top-tier tournaments. Both ATP and

the member tournaments committed to make investments to

improve the quality of the Tour and promote it more effectively.

The tournament members agreed to increase the prize money

levels to compensate the players for agreeing to play in more

top-tier events.

B.

Plaintiff German Tennis Federation promotes tennis in

Germany and claims to be the world’s largest national tennis

federation, with approximately 1.7 million members. It stages

an annual clay-court tournament in Hamburg, Germany. From

1990 to 2009, Hamburg tournament was a Tier I ATP

tournament. Under the Brave New World plan, the Hamburg

tournament was demoted to Tier II. The overall number of Tier

I events remained at nine, with the addition of Shanghai, China.3

In Tier II, the number of events was increased from nine to

eleven. Plaintiff Qatar Tennis Federation was established in

Qatar and has owned and operated a Tier III tournament in

Doha, Qatar. It also owns a 25% stake in Hamburg tournament.

3

The Federations contend that initially the Brave New World

plan downgraded the Monte Carlo tournament to Tier II. But

after Monte Carlo sued ATP, the parties settled with Monte

Carlo having a hybrid status—it awards 1,000 ranking points but

is not a mandatory tournament for players.

10

ATP contends the Hamburg tournament was demoted to

Tier II because of its lack of significant investment, a decrease

in attendance, unfavorable weather, and the decline of interest

in tennis in Germany. ATP asserts that Hamburg tournament

can succeed as a Tier II tournament.

C.

The Federations sued ATP alleging its adoption of the

Brave New World plan violated §§ 1 and 2 of the Sherman Act

and constituted a breach of the directors’ fiduciary duties. The

§ 1 claim contended defendants conspired and combined to

control the supply of top men’s professional tennis players’

services, establishing a favored class of tournaments in which

top-player participation was mandatory, while precluding other

tournaments from competing for such player services.

Similarly, the § 2 claim alleged monopolization, attempt to

monopolize, and conspiracy to monopolize the market for men’s

professional tennis players’ services. Plaintiffs also asserted the

ATP directors’ adoption of the Brave New World plan breached

their fiduciary duties of due care, loyalty, and good faith owed

to the Federations.

The case was tried to a jury. At the close of the

Federations’ case, the District Court granted ATP’s Fed. R. Civ.

P. 50(a) motions for judgment as a matter of law on all claims

of personal liability against the Directors for alleged antitrust

violations and breach of fiduciary duties. The court held that

personal civil liability for antitrust violations is limited to

11

participation in inherently unlawful acts. The court reasoned

that under antitrust law, only per se violations are inherently

unlawful. Finding that the alleged conduct could not be

classified as classic per se violations, the court concluded that

individual directors could not be liable. Addressing the breach

of fiduciary duty claims against the Directors, it found the

Federations failed to satisfy their initial burden of rebutting the

presumption of the business judgment rule by showing the

Directors violated any of their fiduciary duties. Accordingly, the

District Court granted defendants’ motion for judgment as a

matter of law and dismissed all claims against the individual

Directors.

The court then addressed proposed jury instructions.

ATP submitted a proposed instruction on the “single entity or

enterprise defense,” stating that where entities “are commonly

controlled or substantially integrated in their operations, they

may be considered a ‘single entity’ or ‘single enterprise’ under

the antitrust laws.” The Federations objected, arguing that the

instruction misstated the law and created a significant risk of

confusion. Overruling the Federations’ objections, the District

Court gave the “single entity or enterprise defense” jury

instruction as proposed by ATP. The court also considered

whether the alleged restraints should be analyzed under “quick

look” or the full rule of reason analysis. The court instructed the

jury on the latter.

The jury returned a verdict for ATP on all claims. On the

Sherman Act § 1 claim, it found the Federations did not prove

12

ATP “entered into contract(s), combination(s) or conspiracy(ies)

with any separate entity or entities.” And on the Sherman Act

§ 2 claim, it found the Federations did not establish “the

existence of any relevant product market(s) within any

geographic market(s).”

The Federations filed a timely appeal of the Sherman Act

§ 1 claim against ATP and the Directors and the breach of

fiduciary duty of loyalty claim against Director Charles Pasarell.

Specifically, they contend the District Court erred by instructing

the jury on the single entity defense, refusing to instruct the jury

to apply “quick look” analysis, and granting defendants’ motion

for judgment as a matter of law on all claims against the

individual Directors.4

II.

A.

Even assuming, arguendo, that the District Court erred in

instructing the jury on the single entity defense, the Federations

could not have succeeded on their Sherman Act § 1 claim

because they failed to prove “the existence of any relevant

4

The District Court had subject-matter jurisdiction under 28

U.S.C. §§ 1331 and 1337 based on claims alleged under

Sherman Act, 15 U.S.C. §§ 1, 2 and 26, and under 28 U.S.C.

§ 1367 for supplemental state law claims. We have appellate

jurisdiction under 28 U.S.C. § 1291.

13

product market(s) within any geographic market(s).” 5 On the

§ 1 claim, the jury found no concerted action, so it did not reach

the issue of relevant market. But on the Sherman Act § 2 claim,

the jury did find the Federations failed to prove the existence of

a relevant market.

The Federations contend that market definition and proof

under § 2 differ from those under § 1, arguing that insufficient

§ 2 market proof does not establish insufficiency under § 1. In

Columbia Metal Culvert Co., Inc. v. Kaiser Aluminum & Chem.

Corp., 579 F.2d 20 (3d Cir. 1978), we said that “inquiries into

the scope of competition under § 1 and § 2 are not precisely the

same.” Id. at 27 n.11. But in this case, the Federations asserted

identical market definitions under §§ 1 and 2, as evidenced by

the jury instructions.6 Cf. Tunis Bros. Co., Inc. v. Ford Motor

5

Because the Federations did not carry their burden of

proving a relevant market, we do not need to decide whether the

District Court’s single entity instruction was given in error. See

infra Part III.

6

Giving the jury an overview of the rule of reason analysis

for the purposes of § 1, the court stated: “[Y]ou must first

determine whether Plaintiffs have carried their burden to show

that any challenged restraint has resulted or is likely to result in

a substantial harm to competition in a relevant product or

geographic market(s).” App. 257 (Antitrust Jury Instruction

10—Antitrust Claims: Sherman Act Section 1—Rule of

14

Reason–Overview). Explaining the requirement of proof of

competitive harm, the court repeated: “[I]t is Plaintiffs’ burden

to show that the harm to competition occurred in an identified

market, known as a ‘relevant market.’ There are two aspects to

a relevant market. The first aspect is known as the relevant

product market. The second aspect is known as the relevant

geographic market.” Id. at 258 (Antitrust Jury Instruction

11—Antitrust Claims: Sherman Act Section 1—Rule of

Reason–Proof of Competitive Harm). Closely following the

Model Jury Instructions, the court then instructed the jury on the

substance of the relevant market inquiry. Id. at 261 (Antitrust

Jury Instruction 13—Rule of Reason–Proof of Relevant

Market). Later, describing the elements of the monopolization

claim under § 2, the court explained: “Plaintiffs must prove by

a preponderance of the evidence that the defendants had

monopoly power in a relevant market.” Id. at 272 (Antitrust

Jury Instruction 21— M onopoliza tion: R elevant

Market–General). Using the nearly identical language as for the

rule of reason instructions, the court continued: “There are two

aspects you must consider in determining whether plaintiff has

met its burden to prove the relevant market by a preponderance

of the evidence. The first is the relevant product market; the

second is the relevant geographic market.” Id. No relevant

market inquiry instructions specific to § 2 claims were proposed

or provided. See also ABA Section of Antitrust Law, Model

Jury Instructions in Civil Antitrust Cases A-6 (2005) (suggesting

15

Co., 952 F.2d 715, 724 n.3 (3d Cir. 1991) (“On this record,

however, the plaintiffs do not present a sufficiently close factual

issue to demarcate a distinction between product market

definitions in section 1 and section 2 cases . . . .”). The jury

verdict forms posed the same question regarding proof of the

relevant market for the purposes of §§ 1 and 2 claims: “Have

Plaintiffs proven by a preponderance of the evidence the

existence of a relevant product market within a relevant

geographic market?” App. 5, 10, 14, 18. Therefore, the jury’s

conclusion that the Federations failed to prove a relevant market

under § 2 is equally applicable to § 1 analysis. See Fraser v.

Major League Soccer, L.L.C., 284 F.3d 47, 59–61 (1st Cir.

2002) (affirming the judgment on § 1 claims based on the jury

finding that plaintiffs failed to establish a relevant market under

§ 2).

B.

The Federations also contend they did not need to prove

a relevant market because the District Court should have

instructed the jury to conduct a “quick look” analysis, which

does not require detailed market analysis. The Federations

proposed a “quick look” jury instruction that the alleged

restraints caused substantial harm to competition as a matter of

law, so that the jury needed only consider “whether the restraint

that the instruction describing the relevant market for the

purposes of § 1 claim incorporate the § 2 relevant market

instructions).

16

produces countervailing competitive benefits,” and if so,

“balance the competitive harm against the competitive benefit.”

App. 451. But the District Court reasoned that “[t]he evidence

[presented] could perhaps be evidence of . . . antitrust violations,

but only after one engaged in a detailed examination of the

industry in question, and furthermore, only after taking the

industry in question to be top-tier men’s professional tennis,

rather than, for example, professional sports or spectator events

more generally.” Id. at 25. The court concluded that “the

plaintiffs failed to show evidence [of acts] that have no purpose

except to stifle competition . . . .” Id. Accordingly, the court

required the jury to analyze the alleged restraint under full rule

of reason principles and rejected the proposed “quick look”

instruction.7 Because even beneficial legitimate contracts or

combinations restrain trade to some degree, § 1 of the Sherman

Act has long been interpreted to prohibit only those contracts or

combinations that are “unreasonably restrictive of competitive

conditions.” Standard Oil Co. v. United States, 221 U.S. 1, 58

(1911). Historically, “[t]hree general standards have emerged

for determining whether a business combination unreasonably

restraints trade under [§ 1].” United States v. Brown Univ., 5

F.3d 658, 668 (3d Cir. 1993).

“Most restraints are analyzed under the traditional ‘rule

7

The selection of a mode of antitrust analysis is a question of

law over which we exercise plenary review. See Arizona v.

Maricopa County Med. Soc’y., 457 U.S. 332, 337 n.3 (1982)).

17

of reason.’” Id. (citing Continental T.V., Inc. v. GTE Sylvania

Inc., 433 U.S. 36, 49 (1977)); see also Texaco Inc. v. Dagher,

547 U.S. 1, 5 (2006) (“[T]his Court presumptively applies rule

of reason analysis . . . .”); State Oil v. Khan, 522 U.S. 3, 10

(1997). “The rule of reason requires the fact-finder to ‘weigh []

all of the circumstances of a case in deciding whether a

restrictive practice should be prohibited as imposing an

unreasonable restraint on competition.” Brown, 5 F.3d at 668

(quoting GTE Sylvania, 433 U.S. at 49). The inquiry is whether

the restraint at issue “is one that promotes competition or one

that suppresses competition.” Nat’l Soc’y of Prof’l Eng’rs v.

United States, 435 U.S. 679, 691 (1978). “The plaintiff bears an

initial burden under the rule of reason of showing that the

alleged combination or agreement produced adverse, anti-

competitive effects within the relevant product and geographic

markets.” Brown, 5 F.3d at 668. “The plaintiff may satisfy this

burden by proving the existence of actual anticompetitive

effects,” or defendant’s market power. Id. “If a plaintiff meets

his initial burden of adducing adequate evidence of market

power or actual anti-competitive effects, the burden shifts to the

defendant to show that the challenged conduct promotes a

sufficiently pro-competitive objective.” Id. at 669. “To rebut,

the plaintiff must demonstrate that the restraint is not reasonably

necessary to achieve the stated objective.” Id.

Some categories of restraints, such as horizontal price-

fixing and market allocation agreements among competitors,

“because of their pernicious effect on competition and lack of

18

any redeeming virtue are conclusively presumed to be

unreasonable.” Id. (quoting N. Pac. Ry. Co. v. United States,

356 U.S. 1, 5 (1958)). “Such ‘plainly anticompetitive’

agreements or practices are deemed to be ‘illegal per se,’” id.

(quoting Prof’l Eng’rs, 435 U.S. at 692), without an “elaborate

inquiry into the reasonableness of a challenged business

practice,” id. (quoting Arizona v. Maricopa County Med. Soc’y,

457 U.S. 332, 343 (1982)). “Per se liability is reserved for only

those agreements that are ‘so plainly anticompetitive that no

elaborate study of the industry is needed to establish their

illegality.’” Dagher, 547 U.S. at 5 (quoting Prof’l Eng’rs, 435

U.S. at 692); see also State Oil Co., 522 U.S. at 10 (“Per se

treatment is appropriate ‘[o]nce experience with a particular

kind of restraint enables the Court to predict with confidence

that the rule of reason will condemn it.’” (quoting Maricopa

County Med. Soc’y, 457 U.S. at 344)). Accordingly, the courts

are reluctant “to adopt per se rules . . . where the economic

impact of certain practices is not immediately obvious.” State

Oil Co., 522 U.S. at 10 (internal quotation marks omitted).

“In addition to the traditional rule of reason and the per

se rule, courts sometimes apply what amounts to abbreviated or

‘quick look’ rule of reason analysis.” Brown, 5 F.3d at 669; see

NCAA v. Bd. of Regents, 468 U.S. 85, 109 n.39. It is “an

intermediate standard” and “applies in cases where per se

condemnation is inappropriate but where no elaborate industry

analysis is required to demonstrate the anticompetitve character

of an inherently suspect restraint.” Brown, 5 F.3d at 669

19

(internal quotation marks omitted); see FTC v. Ind. Fed’n of

Dentists, 476 U.S. 447, 459 (1986); NCAA, 468 U.S. at 109

(1984); Prof’l Eng’rs, 435 U.S. at 692. In such cases, “an

observer with even a rudimentary understanding of economics

could conclude that the arrangements in question would have an

anticompetitive effect on customers and markets.” Cal. Dental

Ass’n v. FTC, 526 U.S. 756, 770 (1999). In other words,

“quick-look analysis carries the day when the great likelihood of

anticompetitive effects can easily be ascertained.” Id. Under

“quick look” analysis, the competitive harm is presumed, and

“the defendant must promulgate ‘some competitive justification’

for the restraint.” Brown, 5 F.3d at 669 (quoting NCAA, 468

U.S. at 110). “If no legitimate justifications are set forth, the

presumption of adverse competitive impact prevails and ‘the

court condemns the practice without ado.’” Id. (quoting

Chicago Prof’l Sports Ltd. P’ship v. NBA, 961 F.2d 667, 674

(7th Cir. 1992)). “If the defendant offers sound pro-competitive

justifications, however, the court must proceed to weigh the

overall reasonableness of the restraint using a full-scale rule of

reason analysis.” Id.

“[T]here is often no bright line separating” the different

modes of analysis. NCAA, 468 U.S. at 104 n.26. “‘There is

always something of a sliding scale in appraising

reasonableness, but the sliding scale formula deceptively

suggests greater precision than we can hope for. . . .

Nevertheless, the quality of proof required should vary with the

circumstances.’” Cal. Dental, 526 U.S. at 779 (quoting Philip

20

E. Areeda, Antitrust Law ¶ 1507, at 402 (1986)). “[The]

categories of analysis of anticompetitive effect are less fixed

than terms like ‘per se,’ ‘quick look,’ and ‘rule of reason’ tend

to make them appear.” Id. Regardless of the standard used, the

purpose of the inquiry is always to assess the effect of the

conduct on competition: “Whether the ultimate finding is the

product of a presumption or actual market analysis, the essential

inquiry remains the same—whether or not the challenged

restraint enhances competition.” NCAA, 468 U.S. at 104. As

the Supreme Court summarized:

[T]here is generally no categorical line to be

drawn between restraints that give rise to an

intuitively obvious inference of anticompetitive

effect and those that call for more detailed

treatment. What is required, rather, is an enquiry

meet for the case, looking to the circumstances,

details, and logic of a restraint. The object is to

see whether the experience of the market has been

so clear, or necessarily will be, that a confident

conclusion about the principal tendency of a

restriction will follow from a quick (or at least

quicker) look, in place of a more sedulous one.

Cal. Dental, 526 U.S. at 780–781. Thus, the three modes of

analysis should be viewed as a single inquiry that, depending on

the circumstances, may sometimes be conducted by applying

various presumptions. See generally 7 Philip E. Areeda &

Herbert Hovenkamp, Antitrust Law ¶ 1511, at 418 (2d ed.

21

2000).

C.

The Federations contend that the Brave New World plan

“allocates and divides the player services market among

horizontal competitors” and “[t]his obviates competition among

favored tournaments for the player services vital for success,

while making it impossible for other tournaments . . . to compete

for such services.” Appellant’s Br. 48. The Federations allege

an output-limiting horizontal restraint. Nevertheless, the per se

rule does not apply because for a tennis tour, like other sports

leagues, “horizontal restraints on competition are essential if the

product is to be available at all.” NCAA, 468 U.S. at 101; see

also Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S.

1, 23 (1979) (rejecting per se treatment “where the agreement on

price is necessary to market the product at all”); Worldwide

Basketball & Sports Tours, Inc. v. NCAA, 388 F.3d 955, 959

(6th Cir. 2004) (“Because there is no doubt that horizontal

restraints are necessary to make the kind of league competition

at issue available, the rule of reason applies.”); Law v. NCAA,

134 F.3d 1010, 1019 (10th Cir. 1998) (“[C]ourts consistently

have analyzed challenged conduct under the rule of reason when

dealing with an industry in which some horizontal restraints are

necessary for the availability of a product . . . .”).

Under “quick look,” the rationale for presuming

competitive harm without detailed market analysis is that the

anticompetitive effects on markets and consumers are obvious.

22

Cal. Dental, 526 U.S. at 770. Although the Federations

contended the Brave New World Plan restrained the “top player

services” market, the definition of the relevant market was one

of the most contested issues at trial—so much so that after all

the evidence was presented the District Court saw the bounds of

the relevant market as “ambiguous.” App. 25. Because “the

contours of the market” here are not “sufficiently well known or

defined to permit the court to ascertain without the aid of

extensive market analysis whether the challenged practice

impairs competition,” “quick look” is not appropriate and proof

of relevant market is required under full-scale rule of reason.

Worldwide Basketball & Sports Tours, 388 F.3d at 961.

Further, even where anticompetitive effects are obvious,

“quick look” condemnation is proper only after assessing and

rejecting the logic of proffered procompetitive justifications.

Cal. Dental, 526 U.S. at 771; see N. Tex. Speciality Physicians

v. FTC, 528 F.3d 346, 362 (5th Cir. 2008). Although

competitive harm is initially presumed under “quick look,” “[i]f

the defendant offers sound procompetitive justifications, . . . the

court must proceed to weigh the overall reasonableness of the

restraint using a full-scale rule of reason analysis.” Brown, 5

F.3d at 669; see also Cal. Dental, 526 U.S. 756, 771 (1999)

(holding that full rule of reason analysis was required where

challenged restraint “might plausibly be thought to have a net

procompetitive effect, or possibly no effect at all on

competition”); Bogan v. Hodgkins, 166 F.3d 509, 514 n.6 (2d

Cir. 1999) (observing that courts must apply the full rule of

23

reason once defendant has introduced “sound allegations of

procompetitive benefit”). Where procompetitive justifications

are proffered, their logic must be assessed and rejected in order

to avoid reverting to full-scale rule of reason analysis. “[T]he

burden remains on the challenger to demonstrate that the

proffered procompetitive effect does not plausibly result in ‘a

net procompetitive effect, or possibly no effect at all on

competition.’” N. Tex. Speciality Physicians, 528 F.3d at 362

(quoting Cal. Dental, 526 U.S. at 771). “If, after examining the

competing claims of anti- and procompetitive effects, it remains

plausible that the net effect is procompetitive or that there is no

effect on competition, then “[t]he obvious anticompetitive effect

that triggers abbreviated analysis has not been shown.” Id.

(quoting Cal. Dental, 526 U.S. at 778); see also 11 Areeda &

Hovenkamp, supra, ¶ 1911c, at 305 (2d ed. 2005) (explaining

that when defendant offers preliminary evidence suggesting that

the challenged restraint is justified, and the court finds such

evidence plausible, the restraint must be “subjected to general

rule of reason analysis requiring full consideration of power and

anticompetitive effects”).

ATP proffered evidence of procompetitive justifications

for the Brave New World plan. The plan was developed to

make the ATP Tour more competitive with other spectator

sports and entertainment products by improving the quality and

consistency of its top-tier events. The modifications to the tour

calendar, increase of investment, higher payments to players,

and expanded geographic reach were all designed to improve the

24

Tour. Such rules and regulations can be procompetitive where

they enhance the “character and quality of the ‘product.’”

NCAA, 468 U.S. at 102.

In fact, the Federations seem to concede that ATP offered

procompetitive justifications. But they would have the jury

balance the proffered procompetitive justification against the

presumed anticompetitive harm. They argue that under “quick

look,” the jury’s inquiry “starts from the premise—already

determined by the court as a matter of law—that the restraint’s

anticompetitive effect is evident without need for detailed

market analysis, requiring no proof by plaintiff of market

definition or power.” Appellant’s Reply Br. 7. The Federations

misapprehend the reasonableness analysis. Once a defendant

comes forward with plausible procompetitive justification for

the challenged restraint, the “quick look” presumption

disappears and the overall reasonableness of the restraint is

assessed using a full-scale rule of reason analysis. Brown, 5

F.3d at 669. “The application of the quick look analysis is a

question of law to be determined by the court,” and therefore the

concept of “quick look” has no application to jury inquiry. ABA

Section of Antitrust Law, Model Jury Instructions in Civil

Antitrust Cases A-8 n.2 (2005). The jury was properly

instructed to analyze the alleged restraints under the rule of

reason, and their finding that the Federations failed to prove the

25

relevant market defeats the Sherman Act § 1 claim.8

8

The Federations also appeal the District Court’s grant of

judgment as a matter of law on all antitrust liability claims

against individual ATP directors. Relying on Murphy Tugboat

Co. v. Shipowners & Merchs. Towboat Co., 467 F. Supp. 841

(N.D. Cal. 1979), aff’d sub nom. Murphy Tugboat Co. v.

Crowley, 658 F.2d 1256 (9th Cir. 1981), the District Court held

“that civil liability for antitrust violations is limited to

participation in inherently unlawful acts, that is, [] per se

violation[s] of antitrust law.” App. 24. It concluded that “the

evidence [in this case] shows the individuals’ conduct was not

the type of inherently wrongful activity that gives rise to

personal liability under antitrust law,” but “seem[s] within or at

least bordering that gray area of socially acceptable

economically justifiable business conduct that the law, in fact,

permits.” Id. at 25.

The Federations argue that the District Court’s limitation

of directors’ personal liability to per se antitrust violations is

legally incorrect. We question the persuasive value of Murphy

Tugboat. See, e.g., Monarch Mktg. Sys., Inc. v. Duncan Parking

Meter Maint. Co., No. 82 C 2599, 1986 WL 3625, at *2 (N.D.

Ill. Mar. 13, 1986); Gregory Walker, Note, The Personal

Liability of Corporate Officers in Private Actions Under the

Sherman Act: Murphy Boat in Distress, 55 Fordham L. Rev. 909

(1987) (criticizing Murphy Tugboat approach to corporate

officers’ personal liability for antitrust violations). But we need

26

III.

A.

On the Sherman Act § 1 claim, the jury also found the

Federations did not prove that ATP entered into “contract(s),

combination(s) or conspiracy(ies) with any separate entity or

entities.” In other words, the jury did not find the requisite

concerted action to support a § 1 claim. The Federations assert

the jury reached this conclusion based on the “single entity or

enterprise defense” instruction, which allowed the jury to find

that defendants’ actions were undertaken as a single entity,

instead of as independent actors. The Federations contend the

instruction misstated the law and thus was given in error.9

not decide whether the District Court erred in imposing a

limitation on directors’ personal liability and dismissing the

antitrust claims against them. Because the Federations could not

sustain their antitrust claims and failed to prove an antitrust

violation, they would not be able to sustain the same claim

against the Directors. Therefore, even assuming the District

Court erred in granting summary judgment on the antitrust

claims against the directors, plaintiffs cannot prevail on these

claims.

9

“We exercise plenary review to determine whether jury

instructions misstated the applicable law . . . .” Cooper Distrib.

Co. v. Amana Refrigeration., Inc., 180 F.3d 542, 549 (3d Cir.

1999).

27

To prevail under § 1 of the Sherman Act, a plaintiff must

first establish a “contract, combination . . . or conspiracy.”

Section 1 applies only to concerted action and does not proscribe

independent action by a single entity, regardless of its purpose

and effect on competition. Am. Needle, Inc. v. NFL, No. 08-

661, 2010 WL 2025207, at *5 (U.S. May 24, 2010); Monsanto

Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 761 (1984).10

Under Copperweld Corp. v. Independence Tube Corp.,

467 U.S. 752 (1984), in certain cases, distinct legal entities are

incapable of concerted action for the purposes of § 1 and must

be viewed as a single entity.11 Although Copperweld did not set

10

Independent action by a single entity can still be scrutinized

under § 2 of the Sherman Act. Fineman v. Armstrong World

Indus., Inc., 980 F.2d 171, 205 (3d Cir. 1992).

11

In Copperweld, the Supreme Court held that “the

coordinated activity of a parent and its wholly owned subsidiary

must be viewed as that of a single enterprise for purposes of § 1

of the Sherman Act.” 467 U.S. at 771. The Court reasoned that

§ 1 scrutiny is not justified because “[a] parent and its wholly

owned subsidiary have a complete unity of interest,” and when

they agree to a course of action, “there is no sudden joining of

economic resources that had previously served different

interests.” Id. The antitrust laws treat concerted behavior more

strictly than unilateral behavior because “[c]oncerted activity

inherently is fraught with anticompetitive risk.” Id. at 768-69.

28

clear parameters for what constitutes a single economic entity

beyond the parent-subsidiary context, “it nonetheless

encouraged the courts to analyze the substance, not the form, of

economic arrangements.” 12 Siegel Transfer, Inc. v. Carrier

Express, Inc., 54 F.3d 1125, 1132 (3d Cir. 1995); see Am.

Needle, 2010 WL 2025207, at *8 (“As Copperweld exemplifies,

‘substance, not form, should determine whether a[n] . . . entity

is capable of conspiring under § 1.’” (quoting Copperweld, 467

U.S. at 773 n.21)). Courts have applied the single-entity concept

to joint ventures of separately owned entities. In determining

Concerted action “deprives the marketplace of the independent

centers of decisionmaking that competition assumes and

demands.” Id. at 769. But although parent and wholly owned

subsidiaries are distinct corporate entities and independent legal

persons, they nevertheless compose a single economic entity for

antitrust scrutiny because “[t]hey share a common purpose,” id.

at 771. Since they always have a “unity of purpose or a common

design,” id., they are “incapable of conspiring with each other

for purposes of § 1 of the Sherman Act,” id. at 777.

12

Courts have extended Copperweld to situations involving

sibling-subsidiaries of the same parent corporation, see Eichorn

v. AT&T Corp., 248 F.3d 131 (3d Cir. 2001), subsidiaries owned

by the same co-owners who maintained control over them, see

Century Oil Tool, Inc. v. Prod. Specialties, 737 F.2d 1316 (5th

Cir. 1984), and franchisors and franchisees, see Williams v. I.B.

Fischer Nev., 999 F.2d 445 (9th Cir. 1993).

29

whether Copperweld applies to joint ventures, courts have

focused primarily on whether the venture “bring[s] together the

economic power of actors which were previously pursuing

divergent interests and goals.” 13 Siegel Transfer, 54 F.3d at

1137. “The key is whether the alleged ‘contract,

combination . . . , or conspiracy’ is concerted action—that is,

whether it joins together separate decisionmakers.” Am. Needle,

2010 WL 2025207, at *8. “The relevant inquiry, therefore, is

whether there is a ‘contract, combination . . . or conspiracy’

amongst separate economic actors pursuing separate economic

interests, such that the agreement deprives the marketplace of

independent centers of decisionmaking, and therefore of

diversity of entrepreneurial interests, and thus of actual or

potential competition.” Id. (internal quotation marks omitted).

Indisputably, joint ventures can be economically beneficial. But

“the fact that joint venturers pursue the common interests of the

whole is generally not enough, by itself, to render them a single

13

See, e.g., Jack Russell Terrier Network of N. Cal. v. Am.

Kennel Club, Inc., 407 F.3d 1027, 1035 (9th Cir. 2005) (holding

that a national club and its regional affiliates were incapable of

conspiring as separate entities because they were not

competitors and maintained an economic unity); City of Mt.

Pleasant v. Associated Elec. Coop., 838 F.2d 268 (8th Cir.

1988) (holding that a rural electrical cooperative consisting of

three tiers of cooperatives with interlocking ownership was a

single entity because member cooperatives shared a common

goal of providing low-cost electricity).

30

entity.” Freeman v. San Diego Ass’n of Realtors, 322 F.3d

1133, 1148 (9th Cir. 2003). “[A] commonality of interest exists

in every cartel.” Id. (quoting L.A. Mem’l Coliseum v. NFL, 726

F.2d 1381, 1389 (9th Cir. 1984)). The formalities should not

detract from the necessity to examine the economic realities of

the restraints imposed on competition by a joint venture. See

Am. Needle, 2010 WL 2025207, at *6 (“[W]e have eschewed

such formalistic distinctions in favor of a functional

consideration of how the parties involved in the alleged

anticompetitive conduct actually operate.”). The focus of the

inquiry under § 1 of the Sherman Act centers on diminution of

competition that would otherwise exist. Id. at *8. When the

agreement joins together independent centers of

decisionmaking, “the entities are capable of conspiring under

§ 1, and the court must decide whether the restraint of trade is an

unreasonable and therefore illegal one.” Id. at *9.

B.

At trial, ATP contended it constitutes a single enterprise,

and under Copperweld, its internal decisions cannot violate § 1

of the Sherman Act. It asserted each of its tournament members

is dependent on the others to produce a common product—a

marketable annual professional tennis tour that competes with

other forms of entertainment, within and without the sports

arena. ATP maintained its members do not compete but instead

cooperate to produce the Tour, and its adoption of the Brave

New World plan was the core activity of producing this product.

For their part, the Federations contended ATP operates in the

31

market for top tier men’s professional tennis players, and

individual tournaments compete to attract top players. They

asserted the Brave New World plan was an agreement

unreasonably restraining trade in this alleged market. Both

parties presented expert testimony. The District Court

concluded “there [were] at least underlying facts that [were]

critical to” a determination of “whether the ATP and its

members function as a single business entity,” and that these

facts are “beyond [the] Court’s purview and in need of attention

by a jury.” App. 36. Accordingly, the court gave the jury ATP’s

proposed single enterprise instruction.

C.

In the context of the professional sports industry, courts

have historically subjected sports leagues to antitrust scrutiny

under § 1 of the Sherman Act. In NCAA v. Board of Regents,

468 U.S. 85 (1984), decided eight days after Copperweld, the

Supreme Court considered a § 1 challenge to the NCAA’s

restrictions on member institutions’ ability to enter into separate

contracts to televise their football games. The Court

acknowledged that “a certain degree of cooperation is

necessary” to preserve the “type of competition that [the NCAA]

and its member institutions seek to market.” Id. at 117. But the

Court concluded that because the challenged plan “prevent[ed]

member institutions from competing against each other,” they

had “created a horizontal restraint—an agreement among

competitors on the way in which they will compete with one

another.” Id. at 99. After analyzing the reasonableness of the

32

alleged restraint, the Court held it violated § 1 of the Sherman

Act. Id. at 120.

Many other courts have resisted single entity arguments

involving sports industries.14 But the Court of Appeals for the

14

See e.g., NHL Players Ass’n v. Plymouth Whalers Hockey

Club, 419 F.3d 462, 470 (6th Cir. 2005) (holding that the hockey

league’s adoption of a players-eligibility rule was “an agreement

between multiple actors”); Sullivan v. NFL, 34 F.3d 1091, 1099

(1st Cir.1994) (refusing to hold as a matter of law that the NFL

is a single entity under Copperweld); L.A. Mem’l Coliseum

Comm’n v. NFL, 726 F.2d 1381, 1388–89 (9th Cir. 1984)

(rejecting the NFL’s argument for single entity treatment

because “[w]hile the NFL clubs have certain common

purposes . . . NFL policies are not set by one individual or parent

corporation, but by the separate teams acting jointly”); Mid-

South Grizzlies v. NFL, 720 F.2d 772, 778, 787 (3d Cir. 1983)

(describing ways in which NFL teams compete with each other);

N. Am. Soccer League v. NFL, 670 F.2d 1249, 1257–58 (2d Cir.

1982) (refusing to treat the NFL as a single economic entity and

exempt it from liability under § 1 of the Sherman Act); accord

Volvo N. Am. Corp. v. Men’s Int’l Prof’l Tennis Council, 857

F.2d 55, 71 (2d Cir. 1995) (holding that an association

consisting of representatives of national tennis associations,

tournament owners and directors, and professional tennis players

was a joint venture, consisting of multiple entities, and able to

conspire under § 1 of the Sherman Act). But see Seabury

33

Seventh Circuit in Chicago Professional Sports Limited

Partnership v. NBA, 95 F.3d 593 (7th Cir. 1996) (“Bulls II”),

suggested that a sports league can sometimes be viewed as a

single entity for antitrust purposes. Id. at 598 (“We see no

reason why a sports league cannot be treated as a single

firm . . . .”). The court concluded that Copperweld’s rule is not

limited to the circumstances where cooperating parties have a

“complete unity of interest.” Id. Recognizing that whether the

NBA “is more like a single firm . . . or like a joint venture . . . is

a tough question” because “it has characteristics of both,” the

court concluded that “the league looks more or less like a firm

depending on which facet of the business one examines.” Id. at

599. “From the perspective of fans and advertisers . . . ‘NBA

Basketball’ is one product from a single source,” “[b]ut from the

perspective of college basketball players who seek to sell their

skills, the teams are distinct,” and “the league looks more like a

group of firms acting as a monopsony.” Id. Remanding to the

district court for determination of the issue, the court observed:

“Sports are sufficiently diverse that it is essential to investigate

their organization and ask Copperweld’s functional question one

Mgmt., Inc. v. PGA of Am., Inc., 878 F. Supp. 771, 778 (D. Md.

1994) (holding that the PGA could not conspire with its regional

sections as a matter of law), aff’d in relevant part, 52 F.3d 322

(4th Cir. 1995) (Table); NFL v. N. Am. Soccer League, 459 U.S.

1074, 1077 (1982) (Rehnquist J., dissenting from denial of

certiorari) (arguing that the NFL is a single entity because it

“competes as a unit against other forms of entertainment”).

34

league at a time—and perhaps one facet of a league at a

time . . . .” Id. at 600.

The parties in Bulls II settled after the case was

remanded, but the Court of Appeals for the Seventh Circuit

revisited the issue in American Needle, Inc. v. NFL, 538 F.3d

736 (7th Cir. 2008), rev’d, 2010 WL 2025207 (U.S. May 24,

2010). Guided by principles enunciated in Bulls II, the court

affirmed the district court’s grant of summary judgment for the

NFL on a claim stemming from its practice of centralized

licensing of intellectual property. Id. at 744 (concluding “the

NFL teams are best described as a single source of economic

power when promoting NFL football though licensing the

teams’ intellectual property”). But the Supreme Court reversed,

finding the court’s reasoning unpersuasive. 2010 WL 2025207,

at *10. The Court observed that each of the teams in the NFL

is a “substantial, independently owned, and independently

managed business.” Id. at *9. The Court further noted the NFL

teams “compete with one another, not only on the playing field,

but to attract fans, for gate receipts and for contracts with

managerial and playing personnel.” Id. Specifically relevant to

the case, the Court found “the teams compete in the market for

intellectual property.” Id. at *9. Therefore, the Court concluded

“[d]ecisions by NFL teams to license their separately owned

trademarks collectively and to only one vendor are decisions

‘that depriv[e] the marketplace of independent centers of

decisionmaking,’ and therefore of actual or potential

competition.” Id. (quoting Copperweld, 467 U.S. at 770).

35

Similarly, the agreement among the ATP’s tournament

members in the Brave New World Plan might have deprived the

marketplace of potential competition. Professional sports teams

or tournaments always have an interest in obtaining the best

players possible. Brown v. Pro Football, Inc., 518 U.S. 231

(1996). The record in this case indicates that the individual

tennis tournaments traditionally compete for player talent. An

agreement restricting this competition should not necessarily be

immune from § 1 scrutiny merely because the tournaments

cooperate in various aspects of producing the ATP Tour. “The

justification for cooperation is not relevant to whether that

cooperation is concerted or independent action.” Am. Needle,

2010 WL 2025207, at *11. The necessity of cooperation does

not “transform[] concerted action into independent action.” Id.

“The mere fact that the teams operate jointly in some sense does

not mean that they are immune.” Id.

But we need not decide whether the single enterprise

instruction was given in error. As noted, even if the jury had

found concerted action, the Federations’ antitrust claims still fail

because they did not satisfy their burden of proving a relevant

market.15

15

In American Needle, the Supreme Court emphasized that

“teams that need to cooperate are not trapped by antitrust law,”

id. at *12, because “‘[t]he special characteristics of this industry

may provide a justification’ for many kinds of agreements.” Id.

(quoting Brown, 518 U.S. at 252). “When ‘restraints on

36

IV.

A.

In their complaint, the Federations asserted claims of

breach of fiduciary duties of loyalty, due care, and good faith

against six individual directors of ATP, all of whom voted in

favor of the Brave New World plan. The District Court granted

ATP’s motion for judgment as a matter of law on these claims.

The Federations appeal the judgment only in relation to their

claim of breach of duty of loyalty by Director Charles Pasarell.

Notably, they do not appeal the judgment in relation to their

breach of fiduciary duty claims against the other five directors.

As noted, ATP is governed by a seven-member Board of

Directors—three elected by tournament members, each

r e p re s e n tin g a g e o g ra p h ic re g io n (“ T o u r n a m e n t

Representatives”), three elected by player members (“Player

Representatives”), and a Chairman/President. Section 12.9 of

ATP’s Bylaws requires certain corporate actions to be approved

by two affirmative votes of both the three Tournament

competition are essential if the product is to be available at all,’

per se rules of illegality are inapplicable, and instead the

restraint must be judged according to the flexible Rule of

Reason.” Id. (quoting NCAA, 468 U.S. at 101). As we

explained supra Part II.C, given the circumstances of this case,

the District Court correctly instructed the jury to evaluate the

alleged restraints under the full rule of reason.

37

Representatives and the three Player Representatives. The

Brave New World plan required such an approval. The

European Tournament Representative, Zejlko Franulovic, voted

against most provisions of the Brave New World plan, citing

concerns about restrictions on competition. Accordingly, the

votes of the other two Tournament Representatives were

necessary for adoption of the Brave New World plan.

Director Pasarell served as a Tournament Representative

from 1990. At the same time, he also was employed as

Tournament Director of the Indian Wells Masters Series Event

and held a 24% ownership in the Indian Wells tournament.

Indian Wells is a tournament member of ATP. The Federations

claimed that his vote in favor of the Brave New World plan

constituted a breach of duty of loyalty because it was self-

interested.

The District Court rejected the Federations’ argument,

concluding that they failed to rebut the business judgment rule

presumption with sufficient evidence that Pasarell was

materially self-interested in the Brave New World transaction.

The District Court observed that although Pasarell, like other

tournament owners, stood to benefit from any projected success

of the Brave New World plan, Indian Wells was already among

the most financially successful tournaments, and did not need

the Brave New World plan to make money. Further, the court

also held that the other directors were not materially self-

interested and the Federations do not appeal that finding.

38

B.

Under Delaware law, the business judgment rule “is a

presumption that in making a business decision the directors of

a corporation acted on an informed basis, in good faith and in

the honest belief that the action taken was in the best interests of

the company.” Aronson v. Lewis, 473 A.2d 805, 812 (Del.

1984), overruled on other grounds by Brehm v. Eisner, 746

A.2d 244 (Del. 2000). Thus, “[t]he burden is on the party

challenging the decision to establish facts rebutting the

presumption.” Id. The business judgment rule presumption can

be rebutted by establishing “that the board was either interested

in the outcome of the transaction or lacked the independence to

consider objectively whether the transaction was in the best

interest of its company and all of its shareholders.” Orman v.

Cullman, 794 A.2d 5, 22 (Del. Ch. 2002).16 “To establish that

16

The presumption can also be rebutted by showing that “one

or more directors less than a majority of those voting” suffers

from a material and disabling interest and that “the interested

director controls or dominates the board as a whole or [that] the

interested director fail[ed] to disclose his interest in the

transaction to the board and a reasonable board member would

have regarded the existence of the material interest as a

significant fact in the evaluation of the proposed transaction.”

Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1168 (Del.

1995) (“Technicolor III”) (alteration in original) (quoting

Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1134, 1153 (Del.

39

a board was interested[,] . . . a plaintiff must allege facts as to

the interest . . . of the individual members of that board.” Id.

Thus, a plaintiff must normally demonstrate “that a majority of

the director defendants have a financial interest in the

transaction . . . .” Id. (internal quotation marks and citation

omitted); see also Malpiede v. Townson, 780 A.2d 1075,

1084–85 (Del. 2001) (concluding that the claim of breach of

fiduciary duty of loyalty was insufficient because it alleged self-

interest of only one director); Brehm v. Eisner, 746 A.2d 244,

257 (Del. 2000) (determining whether a majority of the board

was disinterested and independent); Cinerama, Inc. v.

Technicolor, Inc., 663 A.2d 1156, 1168 (Del. 1995)

(“Technicolor III”) (affirming Court of Chancery determination

that “if actual self-interest is present and affects a majority of

directors approving a transaction, the entire fairness standard

applies” (emphasis added)).

C.

The Federations cannot prevail on their claim of breach

of duty of loyalty because they failed to rebut the business

judgment rule presumption. The District Court found that

Ch. 1994)); see also In re Transkaryotic Therapies, Inc., 954

A.2d 346, 363 (Del. Ch. 2008). Because the Federations do not

allege Pasarell controlled the ATP Board or failed to disclose his

interest in Indian Wells, the only issue relevant to this appeal is

whether the Board as a whole was interested and/or lacked

independence. See Orman, 794 A.2d at 23.

40

Pasarell was not materially self-interested in his Brave New

World vote. The Delaware Supreme Court has defined

“interest” to “mean[] that directors can neither appear on both

sides of a transaction nor expect to derive any personal financial

benefit from it in the sense of self-dealing, as opposed to a

benefit which devolves upon the corporation or all stockholders

generally.” Aronson, 473 A.2d at 812. “[I]n the absence of self-

dealing, it is not enough to establish the interest of a director by

alleging that he received any benefit not equally shared by the

stockholders. Such benefit must be alleged to be material to

that director.” 17 Orman, 794 A.2d at 23 (citing Cede & Co. v.

Technicolor, Inc., 634 A.2d 345, 363 (Del. 1993), modified, 636

A.2d 956 (“Technicolor II”)). “Materiality means that the

17

The materiality requirement is not applicable to cases

involving “classic self-dealing” where a director “stand[s] on

both sides of a transaction.” HMG/Courtland Props., Inc. v.

Gray, 749 A.2d 94, 113–115 (Del. Ch. 1999). Although the

Federations label Pasarell’s vote as “self-dealing” instead of

“self-interested,” such characterization is misleading because

Pasarell’s Brave New World vote did not involve Indian Wells

transacting with ATP. Pasarell’s financial stake in Indian Wells

was not “antithetic to the corporate interest in a . . . proposed

course of action.” 1 David A. Drexler et al., Delaware

Corporation Law and Practice § 15.05[1]. The Federations

allege that Pasarell received a special benefit. Thus, they must

show materiality of the interest to rebut the business judgment

rule presumption. See generally id.

41

alleged benefit was significant enough ‘in the context of the

director’s economic circumstances, as to have made it

improbable that the director could perform her fiduciary duties

to the . . . shareholders without being influenced by her

overriding personal interest.’” Id. (omission in original)

(quoting In re Gen. Motors Class H S’holders Litig., 734 A.2d

611, 617 (Del. Ch. 1999)). “In determining the sufficiency of

factual allegations made by a plaintiff as to . . . a director’s

interest . . . the Delaware Supreme Court . . . requires the

application of a subjective ‘actual person’ standard to determine

whether a particular director’s interest is material and

debilitating . . . .” Id. at 24 (quoting Technicolor III, 663 A.2d

at 1167).

Pasarell was not materially self-interested because he did

not stand to obtain any unique benefits from the Brave New

World plan. “A director is considered interested where he or

she will receive a personal financial benefit from a transaction

that is not equally shared by the stockholders.” Rales v.

Blasband, 634 A.2d 927, 936 (Del. 1993); see also Aronson, 473

A.2d at 812. The Brave New World plan was designed to

benefit all the ATP top tier tournaments—Pasarell’s supposed

benefits from the Brave New World plan were not unique.

Moreover, Pasarell’s alleged interest could not be subjectively

material because the evidence showed that Indian Wells was

already doing well financially, attracting top tennis players

before the Brave New World plan was adopted. Therefore, the

alleged benefit was not “significant enough in the context of the

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director’s economic circumstances” to interfere with Pasarell’s

ability to perform his fiduciary duties “without being influenced

by [his] overriding personal interest.” In re Gen. Motors Class

H S’holders Litig., 734 A.2d at 617. Because the Federations

failed to show Pasarell was self-interested, his vote is entitled to

the protection of the business judgment rule.18

18

Further, regardless of whether Pasarell’s vote was

materially self-interested, to rebut the business judgment rule

presumption, the Federations would need to show that the ATP

Board was materially self-interested. But because the

Federations do not now dispute that the remaining five directors,

who voted for the Brave New World plan, were not materially

self-interested, the disinterested directors made up the majority

of the Board (six out of seven) and the majority of directors

voting to approve the Brave New World plan (five out of six).

Therefore, the Federations cannot establish that the majority of

the ATP directors were materially self-interested. The

Federations emphasize that the Brave New World plan could not

have been adopted without Pasarell’s vote. They argue that the

disinterested majority rule should not apply here because the

ATP Bylaws’ “super-majority” voting provisions made simple

majority approval insufficient to adopt the Brave New World

plan.

Because we hold the District Court was correct in its

finding that Pasarell was not self-interested, we do not need to

decide how the super-majority voting provisions might affect the

self-interest inquiry. However, we note that the Delaware

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Supreme Court has previously addressed a similar issue. In

Technicolor III, the corporation’s certificate of incorporation

included a provision which could be repealed with a

recommendation made through a unanimous vote of qualified

directors. 663 A.2d at 1170–71. The directors voted

unanimously to recommend repealing the provision, but one of

the directors was found to have been interested, and plaintiffs

argued that the transaction was therefore voidable. The

Delaware Supreme Court affirmed the Court of Chancery’s

conclusion that the unanimity provision in the charter “should

not be construed to include an implied exclusion of interested

directors from eligibility to participate in the unanimous vote.”

Id. at 1171. Similarly, Pasarell’s necessary vote, even if

materially interested, is not excluded by the super-majority

provision of the ATP Bylaws. The provision states that “two

affirmative votes of the Tournament Tour Board

Representatives plus two affirmative votes of the Player Tour

Board Representatives” are required. App. 2692 . Like the

provisions in Technicolor III, the bylaws here do not require

exclusion of the interested votes, and Technicolor III suggests

that no such exclusion can be implied. But although in

Technicolor III the board’s actions were examined under the

business judgment rule and found not to have breached the duty

of loyalty, neither the Court of Chancery nor the Delaware

Supreme Court explicitly stated that the super-majority voting

requirement does not affect the applicability of the business

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V.

For these reasons, we will affirm the jury verdict for

defendants on the Sherman Act § 1 claim, and the District

Court’s judgment as a matter of law for defendant Pasarell on

the breach of fiduciary duty of loyalty claim.

judgment rule presumption. As noted, because Pasarell was not

self-interested, we do not need to decide this issue.

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