The Distance Learning Company v. The Maynard Group

Background

The Distance Learning Company filed a putative class action against Bethany Susan Maynard and Derick Gene Maynard. The plaintiff and the proposed class operate online driver’s education and traffic schools in California. The complaint alleged that the defendants registered hundreds of traffic schools using the same website, business address, curriculum, and instructor. According to the complaint, the defendants jointly operated approximately 1,500 of the DMV’s 2,790 licensed traffic schools and created duplicate schools to increase their chances of appearing near the top of the DMV’s randomized list.

The plaintiff alleged that this conduct suppressed competition, raised barriers to entry, and helped the defendants charge prices above the industry average. Its amended complaint asserted five claims: conspiracy under Section 1 of the Sherman Act, monopolization under Section 2, attempted monopolization under Section 2, violation of California’s Cartwright Act, and violation of California’s Unfair Competition Law (UCL).

Section 1 Sherman Act Claim

The court found that the plaintiff had alleged enough facts to plausibly suggest that the defendants agreed to flood the market with duplicate traffic schools. The allegations identified who was involved, what they allegedly agreed to do, how they would do it, and the intended effects. The alleged parallel conduct—including using the same resources, charging the same price, and opening hundreds of schools on the same day—also supported an inference of an agreement.

The court nevertheless dismissed the Section 1 claim because the complaint showed that the defendants had a unity of interest and therefore were legally incapable of conspiring with each other under Section 1. The court emphasized that the defendants were alleged to be a husband and wife who jointly operated the schools, rather than independent competitors pursuing separate economic interests. The court rejected the plaintiff’s argument that the schools themselves were the alleged conspirators because the complaint described the schools as conduits through which the defendants acted. The Section 1 claim was dismissed without prejudice, and the court allowed amendment.

Section 2 Sherman Act Claims

The court dismissed the monopolization and attempted-monopolization claims because the plaintiff had not adequately alleged market power. The court did not find the proposed market—online traffic schools—to be facially unsustainable, and it said that whether the market definition was too narrow could be addressed at summary judgment or trial.

The problem was the alleged market share. The plaintiff alleged that the defendants operated 53.8% of the DMV’s licensed traffic schools, but the court explained that this did not establish that the defendants received 53.8% of all business in the online traffic-school market. Even accepting the plaintiff’s supplemental allegation that 80% of business came through the DMV list, the resulting estimate of 43.04% of all business did not clearly satisfy the applicable standards.

The court also found that the plaintiff had not alleged significant barriers to entry. The complaint itself stated that a company could establish a new traffic school by paying the $450 application fee and meeting requirements concerning a curriculum, place of business, operator, instructor, and bond. The court rejected the plaintiff’s argument that competitors effectively had to pay $675,000 to create 1,500 schools of their own. The Section 2 claims were dismissed without prejudice because amendment was not futile.

Cartwright Act Claim

The court explained that California’s Cartwright Act analysis generally mirrors federal antitrust analysis when the claims are based on the same conduct. Because the Cartwright Act claim relied on the alleged creation of duplicate traffic schools to flood the market, the court dismissed it without prejudice.

Unfair Competition Law Claim

The plaintiff pursued the UCL’s unlawful and unfair theories. The unlawful theory failed because the plaintiff had not adequately alleged a Sherman Act or Cartwright Act violation. The court separately considered the unfair theory and concluded that the plaintiff did not satisfy the applicable test for a competitor’s claim. Because the UCL claim was based on the same conduct as the failed antitrust claims, the court held that the same allegations could not independently support the UCL claim. The UCL claim was dismissed without prejudice.

Disposition

The court granted the defendants’ motion to dismiss. It did not reach the defendants’ arguments concerning restitution, injunctive relief, or punitive damages because the complaint was being dismissed for failure to state a claim. The plaintiff was permitted to file an amended complaint within thirty days of the order. Judge Kandis A. Westmore signed the order as a United States Magistrate Judge.