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1 Case :-cv-000-h-blm Document Filed 0// Page of 0 0 HATTON, PETRIE & STACKLER APC Attorneys at Law 0 Birch Street, Suite 00 Newport Beach, CA 0 Telephone: ( - GREGORY M. HATTON, CAL. BAR NO. 0 ARTHUR R. PETRIE, II, CAL. BAR NO. Attorneys for Defendant NATIONAL PYGMY GOAT ASSOCIATION DEBRA HOSLEY, et al., etc. vs. UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA Plaintiffs, NATIONAL PYGMY GOAT ASSOCIATION, Defendant. - - No. -CV-00-H-BLM REPLY TO OPPOSITION TO MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED (FRCP (b( Case No. -CV-000-H-BLM

2 Case :-cv-000-h-blm Document Filed 0// Page of 0 0 TABLE OF CONTENTS I. INTRODUCTION... II. DISCUSSION... A. PLAINTIFFS RELIANCE ON ABRAHAM IS MISPLACED... B. AS A MATTER OF LAW, THE NPGA DID NOT CONSPIRE WITH ANYONE... C. NPGA IS A CORPORATION, AND PLAINTIFFS HAVE THE BURDEN OF PROVING FACTS SUFFICIENT TO OVERCOME THE BUSINESS JUDGMENT RULE.... D. NPGA DOES NOT COMPETE WITH PLAINTIFFS, SO THEY LACK STANDING TO BRING ANTITRUST CLAIMS... E. PLAINTIFFS ADMIT THEY HAVE NO FACTS SUPPORTING THEIR CLAIMS TO INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE... 0 III. CONCLUSION Case No. -CV-000-H-BLM

3 Case :-cv-000-h-blm Document Filed 0// Page of 0 0 TABLE OF AUTHORITIES Cases Abraham & Veneklasen Joint Venture v. American Quarter Horse Association (N.D. Tex. May, 0 0 WL 0..., Eldridge v. Tymshare, Inc. ( Cal.App.d... Fornaseri v. Cosmosart Realty & Bldg. Corp. ( Cal.App.... Hatley v. American Quarter Horse Association (th Cir. F.d..., Jack Russell Terrier Network of North. Cal. v. American Kennel Club, Inc. (th Cir F.d 0..., Jessup v. The American Kennel Club, Inc. (S.D.N.Y. F.Supp.d...,,, Other Authorities Corley & O Neal, Federal Pleading Standards and the business judgment rule after Twombly and Iqbal (00 vol., No., J. Sec. Law, Reg. & Comp., p. 0..., - - Case No. -CV-000-H-BLM

4 Case :-cv-000-h-blm Document Filed 0// Page of 0 0 I. INTRODUCTION Relying principally on an inapt case and foggy representations as to factual allegations, which can be found nowhere in their complaint plaintiffs argue: ( As a matter of law, the NPGA is a conspiracy of its members (Opp :-; ( This court cannot concern itself with the so-called rule of reason in evaluating a motion to dismiss under Rule (b( (Opp :-0; ( NPGA is not a corporation and so cannot claim protection of the Business Judgment Rule and, further, any discussion of the Rule must await summary judgment (:-:; ( Plaintiff s have standing because they compete with the NPGA in the breeding, registration, and sale of pygmy goats (Opp :-; ( Plaintiff s claims for Interference with Prospective Economic Advantage should survive, despite a lack of supporting facts in the complaint, because Plaintiffs will show specific incidents where they were harmed. (Opp :. None of plaintiffs arguments are availing. The motion should be granted and the case dismissed. II. DISCUSSION A. Plaintiffs Reliance on Abraham is Misplaced Plaintiffs tent-pole case Abraham & Veneklasen Joint Venture v. American Quarter Horse Association (N.D. Tex. May, 0 0 WL 0 lets them down. It has nothing to do with the issues posed by this motion. - - Case No. -CV-000-H-BLM

5 Case :-cv-000-h-blm Document Filed 0// Page of 0 0 Abraham focuses on a rule related to the technological process of producing horses, whose physical characteristics are indistinguishable from some of the breed s champions. (Id. at *. But herein, plaintiffs challenge a rule barring registration of individual goats who subjectively do not meet the NPGA breed standard. This case is far from Abraham (a trial court summary judgment decision, which is currently stayed on appeal and very similar to Hatley v. American Quarter Horse Association (th Cir. F.d (a case that remains good law, a case cited in our motion. In Abraham plaintiffs challenged an AQHA rule barring registration of clones, or their offspring. This case raises the question of whether a dominant horse breed registry violates antitrust law by refusing to register clones of registered horses. A clone is an identical genetic twin of its one parent. (Id. at *. Abraham therefore dealt with a rule against a technological process of producing identical copies of horses, which were already recognized as exemplars of the breed. Nowhere in the complaint do plaintiffs allege they want to produce clones of conforming goats. By contrast, the challenged rule here is directed at maintaining the gene pool of registered pygmy goats by denying registration and related benefits, on a subjective basis, to non-conforming goats. The Abraham court expressly recognized the distinction: Reproductive limitations do not on their face promote a clearly defined breed like many physical limitations do. Certainly, a line must be drawn somewhere to distinguish between a traditionally non-white breed and others. Yet where a breed is already physically and genealogically defined, there may be few If Hatley and Abraham weren t factually disparate, the Abraham court would have been obliged to follow Hatley. Plaintiffs don t even try to distinguish Hatley. - - Case No. -CV-000-H-BLM

6 Case :-cv-000-h-blm Document Filed 0// Page of 0 0 justifiable reasons to exclude animals that fit these parameters so perfectly that they are indistinguishable from some of the breed s champions. (Id. at *. As in Hatley, Jessup v. The American Kennel Club, Inc. (S.D.N.Y. F.Supp.d, and Jack Russell Terrier Network of North. Cal. v. American Kennel Club, Inc. (th Cir F.d 0, 0, not every philosophical disagreement between groups of well-intentioned people dedicated to a breed gives rise to an antitrust case. B. As a matter of law, the NPGA did not conspire with anyone The complaint establishes that proponents and opponents of amending the breeding standard battled over the issue for several years. During that time each provided the NPGA board with voluminous information. Ultimately, the board adopted a new standard. This open, obvious philosophical dispute between members holding different opinions as to what is, and what is not, a conforming pygmy goat, is a part of NPGA s mission, and no conspiracy. (Jack Russell, supra, 0 F.d at pp The fact that the NPGA board ultimately sided with plaintiffs opponents does not mean the NPGA unlawfully conspired with those opponents. As noted in Hatley the definition of the breed is an inquiry the organization ought to be able to pursue. (Hatley, supra, F.d at -. Jack Russell was a (b( case. - - Case No. -CV-000-H-BLM

7 Case :-cv-000-h-blm Document Filed 0// Page of 0 0 Jessup, supra, F.Supp.d, a summary judgment case, dealt with similar facts. The Jessup plaintiffs were owners and breeders of purebred Labrador Retrievers, mostly bred from English bloodlines. Plaintiffs claimed: [R]ival breeders and sellers of Labs conspired to cause one defendant, the Labrador Retriever Club ( LRC, to recommend, and the other defendant, the American Kennel Club ( AKC, to adopt, a new rule concerning breed standards for AKC-registered, purebred Championship Stock Labrador Retrievers ( Champion Labs. The new breed standard requires Labs to be of a certain height in order to compete in AKC dog shows for the title of Champion Lab. The attainment of that title increases the market value of a purebred Lab. Plaintiffs allege that the new rule operates to exclude from the market for Champion Labs a large number of the dogs that plaintiffs breed from English bloodlines, but includes in the market the narrower and taller Labs more recently developed in the United States that are bred and sold by plaintiffs competitors. (Id. at p.. At the time the AKC registered breeds of purebred dogs. The majority of these had parent clubs that assumed primary responsibility for promoting and advancing each club s particular breed. The LRC is such a parent club Back in the AKC approved a breed standard for Labs, which included the following: Height at Shoulders Dogs ½ inches to ½ inches; bitches ½ inches to ½ inches. (Id. at p. There was no indication, however, whether this was a recommendation or a requirement. - - Case No. -CV-000-H-BLM

8 Case :-cv-000-h-blm Document Filed 0// Page of 0 0 As a practical matter, from to height was considered only one among many attributes for judges to consider. Dogs like those belonging to plaintiffs, which fell below the height standard, were able to place and even win in dog show competitions based on superior quality in other facets of the breed standard. (Id. at p.. In the AKC began revising all breed standards to a standardized format. In August the LRC submitted to the AKC directors a proposed, revised breed standard. It proposed changes not relevant to the Jessup decision. It retained the height specifications, but again with no guidance as to whether they were mandatory. Following multiple letters in opposition to the proposed changes, the AKC returned the proposal to the LRC for further consideration. In January, the LRC submitted a second proposed revised standard to the AKC board of directors. It retained the height specifications stated in the standard, but now provided these were mandatory. Specifically, it provided that any deviation from the height specification would constitute a disqualifying fault. (Id. at p.. After multiple letters protesting the changes, the LRC further amended its submission to limit its application to dogs over months of age, and further that dogs within ½ inch of the standard would not be disqualified on the basis of height. Before the AKC board could vote on the LRC s revised proposal counsel for plaintiffs wrote a letter threatening legal action. Nevertheless the AKC went ahead and adopted the new standards, including the mandatory height specifications as amended. (Id. at p Case No. -CV-000-H-BLM

9 Case :-cv-000-h-blm Document Filed 0// Page of 0 0 Plaintiffs sued, complaining their dogs no longer complied with AKC standards: Plaintiffs contend that the new height requirement does not properly establish the height standard of the Labrador Retriever breed, precisely because the shorter Labs bred and owned by plaintiffs from English bloodlines do not grow to that size. (Id. at p.. The Jessup court noted plaintiffs lack of direct evidence of any express agreement between AKC and LRC to restrain or monopolize trade. In such a context, if defendants can demonstrate they had no rational motive to participate in an anti-competitive conspiracy, and that the conduct at issue is consistent with permissible activity under the antitrust laws, such conduct does not give rise to an inference of conspiracy unless plaintiffs come forward with evidence that tends to exclude permissible explanations for the conduct. (Id. at p.. The Jessup court found plaintiffs failed to produce evidence doing so: Defendants are not-for-profit corporations that exist for the purpose of maintaining definitive and uniform breed standards for purebred dogs. The LRC deals strictly with purebred Labs, while the AKC deals with all varieties of purebred dogs including Labs. As such, the AKC and LRC are not competitors in the alleged market for Champion Labs, and plaintiffs have expressly admitted that the LRC and AKC's economic interests, if anything, would favor more not less competition among breeders, which would lead to greater revenues from registration and entry fees at the various dog shows. Defendants therefore have no inherent economic motive to participate in an anti-competitive conspiracy with plaintiffs' competitors. (Id. Setting breed standards was a legitimate and necessary function of the LRC and the AKC, and it remains so for NPGA herein. Without some definitive breed standard set by the LRC and AKC, there could not be competition among Lab owners and breeders because there would be no uniform standard against which to measure the relative quality of Labrador Retrievers. - - Case No. -CV-000-H-BLM

10 Case :-cv-000-h-blm Document Filed 0// Page 0 of 0 0. Moreover, any standards inevitably provide competitive advantages to dogs that meet the standards and corresponding disadvantages to dogs that do not meet the standards. (Id. at pp. -, original emphasis. Similarly, here, without standards there could be no competition among breeders of pygmy goats. And plaintiffs admit, indeed they argue, that by cutting the pool of potential registrants, the NPGA action hurts itself financially. (Opp. :-. Why would it conspire to do that? Defendant does not today enjoy the benefit of burden shifting attendant a motion for summary judgment, but it is revealing that plaintiff is unable to plead facts demonstrating the board s actions are unprotected by the Business Judgment Rule? The NPGA s adoption of the rule was the product of a protracted, public, deliberative process. As discussed below, plaintiffs must plead facts demonstrating a plausible claim for relief, including facts overcoming the presumptions of the Business Judgment Rule. (Corley & O Neal, Federal Pleading Standards and the business judgment rule after Twombly and Iqbal (00 vol., No., J. Sec. Law, Reg. & Comp., p. 0 ( Federal Pleading. Plaintiff claims defendant is not a corporation, and so its board s judgment is not so protected. This is false. Attached as Exhibit is a printout from the Washington Secretary of State showing NPGA is a Washington non-profit corporation. Defendant requests judicial notice of its status. (FRE 0(b. - - Case No. -CV-000-H-BLM

11 Case :-cv-000-h-blm Document Filed 0// Page of 0 0 C. NPGA is a corporation, and plaintiffs have the burden of proving facts sufficient to overcome the Business Judgment Rule. As noted in footnote, and demonstrated in Exhibit, the NPGA is a corporation. (Even were it not, its lack of traditional corporate structure would be no barrier to traditional analysis of board action. (Jack Russell, supra, 0 F.d at p. 0, fn.. Setting and maintaining breed standards is squarely within the NPGA s mission. (Comp. 0 Courts impose stricter pleading requirements in cases attacking board action that is admittedly within the scope of its authority. General charges of fraud, conspiracy, and bad faith on the part of the corporate directors are insufficient in the absence of allegations of specific facts adequate to show the basis for the general charges. Plaintiffs must demonstrate some reasonable possibility of success. (Eldridge v. Tymshare, Inc. ( Cal.App.d, ; cf Bell Atlantic Corp. v. Twombly (00 0 US,, Ashcroft v. Iqbal (00 US, -. The complaint must plead specific acts or conduct on the part of the directors that could be said to constitute fraudulent or dishonest acts or gross abuse of their authority or discretion with respect to the corporation. (Eldridge, supra, Cal.App.d at. To warrant interference by this court in favor of plaintiffs a case must be made out which plainly shows that an action is so far opposed to the true interests of the corporation itself as to lead to the clear inference that no one so acting could have been influenced by any honest desire to secure such interest, but that he or she must have acted with an intent to serve some outside purpose, regardless of the consequences to the corporation. (Fornaseri v. Cosmosart Realty & Bldg. Corp. ( Cal.App.,, citations omitted. - - Case No. -CV-000-H-BLM

12 Case :-cv-000-h-blm Document Filed 0// Page of 0 0 The business judgment rule precludes courts from reviewing the conduct of corporate directors and officers unless a plaintiff first overcomes the presumptions that such actions were taken on an informed basis, in good faith, and in the honest belief their actions were taken in the best interests of the company. It is impossible to determine whether, as required by Twombly and Iqbal, there is a reasonable inference that the defendant is liable for the misconduct alleged without considering whether those presumptions may be rebutted under the facts alleged in the complaint. If there are no well-pleaded facts to rebut the presumptions of the business judgment rule, there can be no plausible claim for liability. (Corley et al., Federal Pleading, supra, J. Sec. Law, Reg. & Comp. at p.. D. NPGA does not compete with plaintiffs, so they lack standing to bring antitrust claims Plaintiffs blandly assert that Plaintiffs and Defendants are obviously competitors in that they both breed, register and compete in the target pygmy goat market. (Opp :-. Maybe plaintiffs here refer to the Doe defendants. They cannot be talking about the NPGA. Plaintiffs complaint alleges that NPGA registers pygmy goats, and that plaintiffs breed and sell them. Their complaint is that the NPGA has adopted a rule precluding registration of their goats, affecting the profitability of breeding and selling them. This does not make NPGA and plaintiffs competitors. - - Case No. -CV-000-H-BLM

13 Case :-cv-000-h-blm Document Filed 0// Page of 0 0 E. Plaintiffs admit they have no facts supporting their claims to Interference with Prospective Economic Advantage In the motion, NPGA pointed out the plaintiffs had pled only a hypothetical claim based on future relationships foregone by as-yet unidentified buyers, who would refuse to buy as-yet unborn goats. (Mot. :-. This is not enough. And plaintiffs know it. Hoping to avoid dismissal, they argue, if allowed to survive, they will show specific incidents where they have had to refund money for goats sold that cannot now be registered. (Opp. : :. III. CONCLUSION Plaintiffs refer, obviously without citation, to facts pled in the complaint, which a searching examination of the complaint cannot find. And plaintiffs boldly state principles of law without any supporting authority. The NPGA did not and could not conspire with its board members to commit an anti-trust violation. The NPGA was in the middle of a dispute between factions of its members: Plaintiffs who wanted to continue breeding Grey/Brown Agoutis and proponents of amending the breed standard to stop the practice. The dispute had to end somehow plaintiffs are simply unhappy to be on the wrong side of the NPGA s decision. Dated: April, 0 HATTON, PETRIE & STACKLER By: /S/ Arthur R. Petrie, II Attorneys for Defendant NATIONAL PYGMY GOAT ASSOCIATION Case No. -CV-000-H-BLM

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15 Case :-cv-000-h-blm Document Filed 0// Page of 0 PROOF OF SERVICE USDC, SOUTHERN DISTRICT OF CALIFORNIA I am employed in the County of Orange, State of California. I am over the age of and not a party to the within action; my business address is 0 Birch Street, Suite 00, Newport Beach, CA 0 On the date indicated below, I served the foregoing document described as REPLY TO OPPOSITION TO MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED (FRCP (b( on interested parties in this action by placing a true and correct copy thereof enclosed in a sealed envelope addressed as follows: [X] SEE ATTACHED SERVICE LIST ELECTRONICALLY through the Courts CM/ECF System [X] (FEDERAL: I declare that I am employed in the office of a member of the bar of this court at whose direction the service was made. I declare that the information herein is true and correct under the penalty of perjury under the laws of the United States. Executed on April, 0, at Newport Beach, California. /s/ Arthur R. Petrie, II 0 -- PROOF OF SERVICE

16 Case :-cv-000-h-blm Document Filed 0// Page of SERVICE LIST 0 0 Edward W. Burns BURNS, SCHALDENBRAND, RODIGUEZ Sportfisher Drive, Suite 0 Oceanside, CA 0 Tel: 0-- Fax: 0-- ewburns@bsrlawyers.com Attorneys for Plaintiffs: Debra Hosley; Amber Waves; Donna Elkins; Proverbial Pygmies; Barbara Crane; Critter Craze Ranch; Mike Heim; Citrus Lane Pygmies; Rhonda Moore; # Moore Kidd; Chelsea Bates; Picture Perfect Pygmies -- PROOF OF SERVICE