LAWRENCE J. O'NEILL, District Judge.
By notice filed on December 10, 2010, defendants USS-POSCO Industries ("UPI"), U.S. Steel Corp, Pitcal, Inc., POSCO-California Corp, and POSCO American Steel Corp. (Collectively "defendants") filed a joint motion to dismiss the plaintiff's second amended complaint ("SAC"). The motions were filed under seal and redacted portions of the motions were subsequently filed. Plaintiff Stanislaus Food Products filed an opposition to the motions on January 18, 2011. The opposition also was filed under seal with a redacted version also filed. The defendants filed reply briefs on February 2, 2011 and a redacted version was also filed. Pursuant to order, the motion was set without a hearing date. Having considered the moving, opposition, and reply papers, as well as the Court's file, the Court issues the following order.
Plaintiff Stanislaus Food Products ("plaintiff" or "Stanislaus") is a Modesto tomato canner. Stanislaus processes and "fresh packs" tomatoes into tin-plated cans. Since 2001, Stanislaus has purchased millions of one-gallon tin-plated cans pursuant to a Container Supply Agreement ("Container Agreement") with non-party Silgan Containers Corporation ("Silgan"). (Doc. 235, SAC ¶ 15.)
This action alleges antitrust conspiracies by defendants to monopolize the Tin Mill Products market and to price-fix Tin Mill Products.
The hot-rolled steel, also known as "hot-band steel," is supplied to UPI by co-defendant U.S. Steel and non-party Pohang Iron & Steel Co., Ltd. ("POSCO") of South Korea. U.S. Steel is a Delaware corporation with its principal place of business in Pittsburgh, Pennsylvania. (Doc. 235, SAC ¶ 16.) POSCO is a Korean corporation. (Doc. 235, SAC ¶ 21.) UPI is a joint venture formed in 1986 by U.S. Steel and POSCO, through their holding companies. (Doc. 235, SAC ¶ 6.) The nominal general partners of UPI are Defendants Pitcal, Inc. and POSCO-California Corporation ("POSCAL"). Each of these UPI general partners is wholly owned subsidiary of either U.S. Steel or POSCO. Defendant Pitcal, Inc. is a wholly-owned subsidiary of U.S. Steel. POSCAL is a wholly-owned subsidiary of Defendant POSCO American Steel Corporation ("POSAM"), which is in turn a wholly-owned subsidiary of POSCO. (Doc. 235, SAC ¶ 18, 19, 20.) Ultimately, U.S. Steel and POSCO each own a 50% interest in UPI. (Doc. 235, SAC ¶ 6.) The SAC alleges that while Pitcal and POSCAL are nominal partners of UPI, the decision to form and operate UPI were made by U.S. Steel, POSAM and POSCO.
Tin Mill Products are finely rolled steel sheets that are coated with a thin protective layer of tin or chrome. (Doc. 235, SAC ¶ 22.) To make Tin Mill Products, UPI takes hot-band steel, provided by U.S. Steel and POSCO, and processes it through preparatory and manufacturing processes, which is not relevant to these motions. (Doc. 235, SAC ¶ 23.) Tin can makers, like Silgan, purchase the Tin Mill Products for "resale as tin-plate cans" which in turn are used to package food products, such as fruit and vegetables. (Doc. 235, SAC ¶ 24.) Products processed by Stanislaus are packaged into Silgan's tin-plate, enamel-coated steel cans. (Doc. 235, SAC ¶ 26.) Plaintiff alleges Tin Mill Products have no independent utility or value other than to be formed into tin-plate cans. (Doc. 235, SAC ¶ 27.) The demand for Tin Mill Products is directly derived from the demand for tin-plate cans. (Doc. 235, SAC ¶ 27.)
Pursuant to the Container Agreement between Silgan and Stanislaus, Silgan manufactures and sells to Stanislaus Food tin plate and enamel coated cans for fresh packing tomatoes. (Doc. 235, SAC ¶ 83.) Silgan sells tin cans which were "ready to fill tomato and tomato product containers which comply with the provisions of this Agreement ... comprised of the can bodies enclosed at one end (the "Cans") and ends which are covers to be affixed after the Cans are filled (the `Ends') (each Can and End collectively constituting a `Container')." (Doc. 235, SAC ¶ 74.)
Redacted
UPI is the only Tin Mill Products manufacturer in the Western United States. (Doc. 235, SAC ¶ 30.) Companies outside the Western United States have higher transportation costs for their Tin Mill Products. Until 2006, U.S. Steel sold Tin Mill Products in the Western United States by competitively pricing its products compared to UPI. Both U.S. Steel and POSCO own and operate facilities separate from UPI that produce Tin Mill Products. (Doc. 235, SAC ¶ 37.) Plaintiff alleges that until 2006, U.S. Steel competed directly with UPI for sales of Tin Mill Products in the Western United States. (Doc. 235, SAC ¶ 41.) After 2006, the competition ceased pursuant of the Market Allocation Agreement.
Plaintiff alleges UPI, U.S. Steel and POSAM all agreed to allocate the market in 2006, "in order to create a monopoly." (Doc. 235, SAC ¶ 48.) Plaintiff refer to this agreement the "Market Allocation Agreement." Plaintiff alleges defendants "held regular in-person meeting and otherwise directly communicated to maintain and police it." (Doc. 235, SAC ¶ 54.)
In 2006, as a result of the Market Allocation Agreement, an "immediate and dramatic increase in the price of Tin Mill Products in the Relevant Market occurred." (Doc. 235, SAC ¶ 12.) U.S. Steel agreed that once it exited the market, it would increase UPI's prices to monopoly levels, in coordination with POSCO. (Doc. 235, SAC ¶¶ 43, 48, 55, 59, 65.) POSCO agreed to stay out of the market and increase UPI's prices to monopoly levels while UPI's costs decreased, in coordination with U.S. Steel. (Doc. 235, SAC ¶¶ 43, 48, 55, 59, 65.) Plaintiff alleges, as the sole source supplier, UPI had an economic motive to agree on a supracompetitive price for the Tin Mill Products Silgan bought from UPI. Plaintiff alleges that the price for hot band steel and tin went up substantially despite a decrease in raw material prices. The prices charged to plaintiff went up dramatically, and Stanislaus was forced to pay inflated prices for tin-plate cans.
The Second Amended Complaint alleges the following claims for relief:
Defendants challenge each of the claims on various grounds. Defendants contend the First Claim fails because (1) Plaintiff does not have antitrust standing since plaintiff has not plead it suffered antitrust injury in the relevant market, and (2) the claim is not plead with particularity under Twombly. Defendants contend the Second Claim fails because (1) plaintiff does not have standing since it is an indirect purchaser and (2) the claim is not plead with particularity under Twombly. Defendants contend the Third Claim fails because (1) plaintiff does not have standing, and (2) plaintiff failed to allege defendants intended to monopolize and the conspiracy allegations fail under Twombly. Defendant contends that Fourth Claim fails because it is based upon deficient antitrust allegations in claims 1 to 3.
A motion to dismiss pursuant to Fed R. Civ. P. 12(b)(6) is a challenge to the sufficiency of the pleadings set forth in the complaint. A Fed.R.Civ.P. 12(b)(6) dismissal is proper where there is either a "lack of a cognizable legal theory" or "the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir.1988). In considering a motion to dismiss for failure to state a claim, the court generally accepts as true the allegations of the complaint in question, construes the pleading in the light most favorable to the party opposing the motion, and resolves all doubts in the pleader's favor. Lazy Y. Ranch Ltd. v. Behrens, 546 F.3d 580, 588 (9th Cir.2008); Jenkins v. McKeithen, 395 U.S. 411, 421, 89 S.Ct. 1843, 23 L.Ed.2d 404, reh'g denied, 396 U.S. 869, 90 S.Ct. 35, 24 L.Ed.2d 123 (1969).
To survive a motion to dismiss, the plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1974, 167 L.Ed.2d 929 (2007) ("Twombly") A claim has facial plausibility, "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). "[F]or a complaint to survive a motion to dismiss, the non-conclusory `factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Service, 572 F.3d 962, 969 (9th Cir.2009).
A court is "free to ignore legal conclusions, unsupported conclusions, unwarranted inferences and sweeping legal conclusions cast in the form of factual allegations." Farm Credit Services v. American State Bank, 339 F.3d 764, 767 (8th Cir.2003) (citation omitted). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the `grounds' of his `entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 554, 127 S.Ct. 1955, 1964-65 (internal citations
Plaintiff alleges the Market Allocation Agreement violates § 1 and § 2 the Sherman Act. 15 U.S.C. §§ 1, 2. Section 1 prohibits restraint of trade: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce ... is declared to be illegal." To prevail on a cause of action for violation of 15 U.S.C. § 1, a plaintiff must show, "(1) there was an agreement, conspiracy, or combination between two or more entities; (2) the agreement was an unreasonable restraint of trade under either a per se or rule of reason analysis; and (3) the restraint affected interstate commerce." American Ad Management, Inc. v. GTE Corp., 92 F.3d 781, 784 (9th Cir.1996).
Plaintiff also alleges violation of Section 2 of the Sherman Act. Section 2 makes it illegal to "to monopolize ... any part of the trade or commerce ..." 15 U.S.C. § 2. Plaintiff alleges a conspiracy to monopolize. To prove a conspiracy to monopolize in violation of § 2, Plaintiff must show four elements: (1) the existence of a combination or conspiracy to monopolize; (2) an overt act in furtherance of the conspiracy; (3) the specific intent to monopolize; and (4) causal antitrust injury. Paladin Associates, Inc. v. Montana Power Co., 328 F.3d 1145, 1158 (9th Cir.2003).
The defendants challenge the complaint on procedural grounds: (1) lack of antitrust standing, and (2) inadequate pleading under Twombly.
Defendants argue that plaintiff has no standing to pursue Federal Antitrust claims under the controlling precedent of Illinois Brick, because plaintiff is an "indirect purchaser." Defendants argue that Plaintiff's federal antitrust claims under the Sherman Act (claims 1 and 2) are barred because plaintiff is not a direct purchaser of any of defendants' products.
Plaintiff argues that if Illinois Brick applies, it does not bar plaintiff's claims
"Indirect purchasers" do not have standing to recover antitrust damages. In Illinois Brick Co. v. Illinois, the Supreme Court held that indirect purchasers may not recover in an antitrust suit by proving that an overcharge was passed on to them through the distribution chain. Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977). An end user does not have antitrust standing to assert a claim against a manufacturer when a middleman, for example a distributor or a wholesaler, sits between an end user and a manufacturer. The Supreme Court in Illinois Brick denied standing to indirect purchasers in many circumstances. The Court's concern was that allowing indirect purchasers to sue remote price-fixers would open the door to multiple liability for defendants. If the indirect purchaser recovered, trebled, the full amount of the overcharge (or the portion of it that had in fact been passed on to him) from the price-fixer, the direct purchaser (the middleman) could also recover, trebled, the full amount of the overcharge. Id. at 730-31, 97 S.Ct. 2061. The role of "private attorneys general" in the antitrust field was restricted by Illinois Brick to direct purchasers because of the danger of multiple liability and complexity of proof.
As in this Court found in the prior motion to dismiss, plaintiff is not a direct purchaser of Tin Mill Products from any of the defendants. (See Doc. 224, Order p. 9.) Plaintiff does not purchase Tin Mill Products and does not purchase hot-band steel. Rather, plaintiff purchases finished tin cans from Silgan. Plaintiff alleges defendants fixed the price of the raw materials, not the tin cans. Defendants are not parties to the Container Agreement between Silgan and plaintiff, such that any "direct" relationship existed. Indeed, plaintiff has abandoned its prior argument that it is a direct purchaser. Plaintiff is not a direct purchaser of any product produced by any defendant. Thus, plaintiff is an indirect purchaser.
Plaintiff argues that, as an indirect purchaser, it has standing under Illinois Brick because it falls within the "cost-plus" contract exception.
In Illinois Brick, the Supreme Court suggested an exception where the indirect purchaser, like plaintiff, purchased goods from a direct purchaser, like Silgan, according to a preexisting "cost-plus contract." Illinois Brick, 431 U.S. at 726 n. 2, 736 n. 16, 97 S.Ct. 2061. The Supreme Court later clarified that these exceptions should be read narrowly and not expanded. Kansas v. UtiliCorp United, Inc., 497 U.S. 199, 216-18, 110 S.Ct. 2807, 111 L.Ed.2d 169 (1990) (we might allow indirect purchaser to sue only when, by hypothesis,
Redacted (Doc. 241, P & A p. 9-10.)
Redacted
The Illinois Brick "cost-plus" exception requires an allegation that plaintiff was required to purchase a "fixed quantity of goods."
See also Kansas v. UtiliCorp United, Inc., 497 U.S. 199, 217, 110 S.Ct. 2807, 2817, 111 L.Ed.2d 169 (1990) (affirming summary judgment where customers had no commitment to purchase any particular quantity of goods). In Kansas v. UtiliCorp, a public utility, the direct purchaser, and its customers (represented by the state attorney general) who were the indirect purchasers, sued the utility's suppliers of natural gas for unlawful price increases. The public utility passed on 100% of the increased costs to its customers. The Court declined to extend the cost-plus exception to the customers and dismissed the customers as indirect purchasers. The Court stated that the customers did not fall within the "cost plus contract" exception because the "utility customers made no commitment to purchase any particular quantity of gas." Id. at 218, 110 S.Ct. 2807.
Redacted Defendant relies upon Lefrak v. Arabian Am. Oil Co., 487 F.Supp. 808, 823 n. 21 (E.D.N.Y.1980).
Lefrak is distinguishable, and is helpful to plaintiff's position. The plaintiff in Lefrak owned apartment buildings and brought an antitrust action against his suppliers of fuel oil. Lefrak purchased his fuel oil from distributors who purchased from the suppliers. As does plaintiff here, Lefrak argued he fell within the cost plus exception of Illinois Brick. The court there disagreed. The plaintiff was not able to present "contracts which locked him into buying a fixed quantity regardless of price fluctuations in the market. Indeed, the contracts expressly permitted Lefrak to buy from other distributors so as to take advantage of more favorable prices." Further, the court found "there was no rigid pricing formulas in the contracts such that the entire overcharges was passed on without reference to the forces of the marketplace." Lefrak, 487 F.Supp. at 820-21. Thus, Lefrak did not involve "pass through" contracts which locked the purchaser into a fixed quantity or to a particular supplier.
Redacted Doe v. Arizona Hosp. and Healthcare Ass'ns, 2009 WL 1423378, *8 (D.Ariz.2009) (Denying motion to dismiss; holding that without examining the contracts between the parties, the court could not ascertain on a motion to dismiss whether the contracts were cost plus arrangements with an exception to the indirect purchaser rule.)
Redacted Defendants rely upon Shamrock Foods.
In a footnote, Shamrock Foods, 729 F.2d at 1212 n. 2 described a "cost plus contract" as one where a predetermined quantity of goods is purchased to which a predetermined sum is added to the price.
Redacted Illinois Brick, 431 U.S. at 733 n. 12, 97 S.Ct. 2061.
In the FAC, plaintiff alleged that it is a "direct" purchaser because Silgan who was an unnamed "co-conspirator." In the SAC, Plaintiff has abandoned Silgan as a co-conspirator and therefore this exception to Illinois Brick and it progeny does not apply. Plaintiff has abandoned the vertical conspiracy between Silgan and the other defendants.
Another exception to Illinois Brick is if plaintiff seeks only injunctive relief. The Ninth Circuit has distinguished between an antitrust claim that seeks damages and one that seeks injunctive relief, noting that the "direct purchaser" doctrine applies only to the former. Lucas Automotive Engineering, Inc. v. Bridgestone/Firestone, Inc., 140 F.3d 1228, 1235 (9th Cir.1998) (observing that "indirect purchasers are not barred from bringing an antitrust claim for injunctive relief against manufacturers").
As they did in the motion to dismiss the FAC, Defendants again challenge whether plaintiff is in the "relevant market" such that plaintiff may seek injunctive relief. Defendants argue that plaintiff is not in the "relevant market." Defendants argue that plaintiff is in the tin can market, and defendants are in the tin-plated steel market. They argue that plaintiff fails to satisfy the "same functionality" requirement, that tin-plated steels plates have the same functionality as tin cans. (Doc. 241, P & A p. 11.) Thus, because Plaintiff purchases "transformed" tin cans produced by Silgan, plaintiff cannot allege that it participates and was injured in defendants' market for tin-mill products.
The Clayton Act "provides a vehicle for private enforcement of the [Sherman Act]." Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 109, 107 S.Ct. 484, 93 L.Ed.2d 427 (1986). Under § 16 of the Clayton Act, "[any] person, firm, corporation, or association shall be entitled to sue for and have injunctive relief ... against threatened loss or damage by a violation of the antitrust laws." To have standing to seek injunctive relief under section 16 of the Clayton Act, a private plaintiff must allege that the plaintiff has "suffered loss or damage of a type the antitrust laws were designed to prevent and that flows from that which makes defendants' acts unlawful." Cargill, 479 U.S. at 113, 107 S.Ct. 484.
To seek injunctive relief, plaintiff must show, as relevant to this motion, that it suffered "an antitrust injury." Knevelbaard Dairies v. Kraft Foods, Inc., 232 F.3d 979, 987 (9th Cir.2000). Antitrust injury requires that the "injured party be a participant in the same market as the alleged malefactors." Knevelbaard Dairies, 232 F.3d at 987 (emphasis added), citing American Ad Management v. General Telephone Co. of California, 190 F.3d 1051, 1057 (9th Cir.1999); Glen Holly Entertainment, Inc. v. Tektronix, Inc., 352 F.3d 367, 372 (9th Cir.2003) (we impose a requirement, that "the injured party be a participant in the same market as the alleged malefactors."); Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 539, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983) (denying antitrust standing to party that was "neither a consumer nor a competitor in the market in which trade was restrained"). Thus, to have an "antitrust injury," plaintiff must be in the same relevant market.
Defendants challenge whether plaintiff is in the "relevant market" such that plaintiff may seek injunctive relief. Defendants argue that plaintiff's conclusory allegation
In this Court's prior order on the motions to dismiss, this court held that component part plaintiffs may participate in the "relevant market" if the markets are "linked" or the product's functionality is the same in both markets, relying upon In re Dynamic Random Access Memory, 536 F.Supp.2d 1129 (N.D.Cal.2008) and In re TFT-LCD (Flat Panel) Antitrust Litigation, 586 F.Supp.2d 1109 (N.D.Cal.2008), among others. (See Doc. 224, Order p. 19-20.)
Plaintiff argues that it adequately has alleged that Tin Mill Products are "directly and intimately linked with sales of tin-plate cans." Plaintiff argues that it has alleged the same kind of allegations which were held sufficient in TFT-LCD (Flat Panel). (Doc. 252, Opposition p. 27.) Plaintiff alleges:
—the Tin Mill Products exists to serve the market for tin cans,
—Tin Mill Products have no independent utility other than to make tin cans,
—the demand for Tin Mill Products is derived from demand for tin cans,
—there is a traceable physical chain from manufacturer to Stanislaus. (Doc. 252, Opposition p. 27.)
In TFT-LCD (Flat Panel), the defendant manufacturers of crystal display panels argued that the indirect plaintiffs could not be considered participants in the relevant market for LCDs, since they purchased finished products containing LCD panels. The court held that plaintiffs adequately alleged the relevant market. In TFT-LCD, plaintiff had alleged that the products were "inextricably linked and intertwined between the markets" and that products "have no independent utility and have value only as components for other products." Id. at 1123. The court found that the allegations were sufficient to survive a motion to dismiss. The Court found plaintiffs' allegations sufficient where they alleged that the market for LCD panels and the market for the products into which the panels are placed are "inextricably linked and intertwined," and as a result, the demand for LCD panels directly derives from the demand for such products: "just as LCD panels can be physically traced through the supply chain, so can their price be traced to show that changes in the prices paid by direct purchasers of LCD panels affect prices paid by indirect purchasers of products containing LCD panels." Thus, the product provided the same functionality in all markets. TFT-LCD (Flat Panel), 586 F.Supp.2d at 1123.
In In re Flash Memory Antitrust Litigation, 643 F.Supp.2d 1133 (N.D.Cal.2009), indirect purchasers sued manufacturers of NAND flash memory products (used in computers, consoles, etc). Manufacturers moved to dismiss contending indirect purchasers were not in the same market because they purchased the NAND flash memory as part of finished products. The Court did not dismiss the complaint, because while the flash memory has a variety of applications, it provides essentially the same functionality, digital storage. Id. at 1154. "[W]hile the markets for NAND flash memory and products that contain NAND flash memory technically may be different, in practice, both markets are inextricably intertwined and there is inherent cross-elasticity of demand between the two." Id.
In In re Graphics Processing Units Antitrust Litig. ("GPU II"), 540 F.Supp.2d 1085, 1092-1093 (N.D.Cal.2007), indirect
In In re Cathode Ray Tube (CRT) Antitrust Litigation, 738 F.Supp.2d 1011 (N.D.Cal.2010), the court held that indirect purchasers had adequately alleged standing. In direct purchasers of cathode ray tubes (CRTs) and products incorporating CRTs alleged a conspiracy to fix prices. They alleged that the price of the end products was directly correlated to the price of the CRTS that the markets are "inextricably linked and cannot be considered separately; and they are discreet component that can easily be traced." 738 F.Supp.2d at 1024.
Here, the SAC contains similar allegations held sufficient regarding the same relevant market:
The Court finds that the allegations are stated sufficiently that plaintiffs are in the same relevant market. In its previous order, the Court stated that the products are transformed in the distribution chain. This statement this does not mean that the products are not inextricably linked and intertwined. Plaintiff alleges that the primary use of Tin Mill Products is to make tin-plate cans. Plaintiff alleges that the functionality of Tin Mill Products is to serve the purpose of making tin-plate cans to the exclusion of other purposes. As the court stated in TFT-LCD, "it would be inappropriate to determine `complex and intensely factual' damages issues without `a more fully [sic] developed factual record.'" TFT-LCD, 586 F.Supp.2d at 1124.
Defendants's reliance upon Lorenzo v. Qualcomm Inc., 603 F.Supp.2d 1291 (S.D.Cal.2009) is not persuasive because this case is distinguishable. In a series of challenges to a patent owner's licensing practices, several cases dealt with "remote" indirect purchaser as not in the same "relevant market." In Lorenzo v. Qualcomm Inc., plaintiffs were end consumers of cellular telephone and telephone service markets. They sued defendant Qualcomm, the patent owner who had licensed certain chip components to various manufacturers. The plaintiffs were indirect purchasers who were injured by Qualcomm's licensing practices which indirectly caused Plaintiffs to pay supracompetitive prices for cell phones and cellular service. The court held that the end consumers in the "chip market" were not in the same market. Plaintiffs were in the cell phone and cellular service market while Qualcomm was in the market for chip patents and technology. 603 F.Supp.2d at 1303. Plaintiff's injury was too remote to patent owner's alleged unlawful licensing practices. The customer's injury was traced through three levels of the supply chain and the company's technology was only a component of the technology that the customer complained was overpriced due to the company's licensing practices. Thus, end users did not have standing. See also Valikhani v. Qualcomm Inc., 2009 WL 539915, *6 (S.D.Cal.2009); Meyer v. Qualcomm Inc., 2009 WL 539902, *8 (S.D.Cal. 2009).
These cases are distinguishable because of the allegations in the SAC in which plaintiff alleges that the primary use of Tin Mill Products is to make tin-plate cans.
In this Court' previous order, the Court held that various allegations were barred by the applicable statute of limitations. In their current motion, Defendants state, in a footnote, that the SAC fails under the statute of limitations. (Doc. 241, Motion p. 16 n. 8.) Without specific argument on this issue, the Court will not address the statute of limitations.
Defendants argue that plaintiff fails to allege a viable conspiracy claim. The basis for the conspiracy claim is the "Market Allocation Agreement." Defendants argue that other than saying the "Market Allocation Agreement" was made in 2006 to allocate the tin-plate market to UPI, plaintiff fails to provide details for the Market Allocation Agreement, citing SAC § 11, 48. Defendants argue the SAC fails to allege the existence of a conspiracy to monopolize and specific intent to monopolize. (Doc. 241, Moving paper p. 20.) Defendants further argue that the conspiracy claim amounts to a vague accusation of an agreement without any specificity of persons who made the agreement, when they made it or where.
Plaintiff argues it alleges the Market Allocation Agreement with specificity. (Doc. 252, Opposition p. 14-15, citing SAC ¶¶ 48-52, 56). Plaintiff argues that it alleged the agreement began in 2006, allocated all customers of Tin Mill Products in the Western U.S. to UPI, and involved specific roles for each defendant. Plaintiff argues that it alleges the Market Allocation Agreement resulted in two dramatic changes in the Relevant Market: (1) U.S. Steel ended freight equalization and quarter-inch width surplus discounting, and (2) the prices of Tin Mill Products skyrocketed to level well above marginal costs. (Doc. 252, Opposition p. 14.) Plaintiff argues that it is not required to plead the "who, what, when and where" of the Market Allocation Agreement.
"[A] district court must retain the power to insist upon some specificity in pleading before allowing a potentially massive factual controversy to proceed." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 558, 127 S.Ct. 1955, 1967, 167 L.Ed.2d 929 (2007). The complaint must allege "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570, 127 S.Ct. 1955. A claim of Sherman Act violation requires enough factual allegations to suggest an illegal agreement was made.
The allegations in the SAC regarding the Market Allocation Agreement, in substance, are that "defendants and co-conspirator POSCO entered into an illegal agreement to allocate the Relevant Market to UPI." (Doc. 235, redacted SAC ¶ 11.) Plaintiff calls this agreement the "Market Allocation Agreement." U.S. Steel agreed with POSCO and UPI to exit the Relevant Market by ending U.S. Steel's decades-long practice of discount pricing for "quarter-inch width surplus" and "freight equalization." (Doc. 235 redacted SAC ¶¶ 11-13.) The specifics of the agreement are alleged as follows:
Plaintiff alleges that POSCO and U.S. Steel "entered into this agreement with the specific intent to eliminate competition and monopolize the Relevant Market." (Doc. 235, SAC ¶ 49, 50.)
In Twombly, the Supreme Court found allegations that the defendant telephone companies "entered into a contract, combination or conspiracy to prevent competitive entry in their respective local telephone and/or high speed internet services markets and have agreed not to compete with one another and otherwise allocated customers and markets to one another" insufficient because no evidentiary facts were pleaded which could prove the conspiracy. Twombly, 550 U.S. at 565, 127 S.Ct. 1955. The Court stated, in dicta, that "the pleadings mentioned no specific time, place, or person involved in the alleged conspiracies." 550 U.S. at 565 n. 10, 127 S.Ct. 1955 ("the complaint here furnishes no clue as to which of the four [defendants] (much less which of their employees) supposedly agreed, or when and where the illicit agreement took place."). Allegations of an agreement would normally include details about the formation of that agreement. See Twombly, 550 U.S. at 565 n. 10, 127 S.Ct. 1955. Accord Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1048 (9th Cir.2008) ("There are no facts alleged to support [the conclusion that a conspiracy existed]. Even after the depositions taken, the complaint does not answer the basic questions: who, did what, to whom (or with whom), where, and when?")
In Kendall, 518 F.3d at 1047, a class of retailers failed to plead sufficient evidentiary facts to survive dismissal under Twombly of a price-fixing claim against Visa, MasterCard and banks belonging to the two systems. Plaintiffs alleged that the defendants had conspired to fix the bank fees charged to retailers for processing credit card sales. The court found that plaintiffs offered no evidentiary facts as to the banks individually beyond the collective legal conclusion that the "banks" knowingly participated in the alleged scheme. Id. at 1048. The court stated that plaintiffs allegation of an agreement that the "Banks knowingly, intentionally and actively participated in an individual capacity in the alleged scheme" to fix the fees, was factually insufficient. Kendall, 518 F.3d at 1048. Without more factual content the "banks," which were large institutions with hundreds of employees, entering into contracts and agreements daily, would have no idea how to begin to respond to the allegations of a conspiracy. Id. at 1047. The court held the complaint was properly dismissed because plaintiffs
Twombly does not require that plaintiff prove their case or include every factual detail in support of their claims in their complaints. Rather, Twombly requires plaintiff to include sufficient facts supporting the existence of a conspiracy, beyond the conclusory allegation that a conspiracy did exist. Under Twombly, plaintiff cannot simply allege a conspiracy beginning at a particular time; rather, they must allege facts to support the existence of a conspiracy during the entire period. Plaintiff must at least provide a factual basis for their starting date, to show an entitlement to relief beginning on that date.
Plaintiff cites Flash Memory, 643 F.Supp.2d at 1148 for the proposition that it does not have to allege the "who, what, or how" of the alleged improper agreement, because "specific facts" are not necessary. In re Flash Memory Antitrust Litigation, 643 F.Supp.2d 1133, 1148 (N.D.Cal.2009). In Flash Memory, plaintiff alleged a conspiracy to fix the price of memory chips which was formed when defendants participated in trade associations at which it was possible for the agreements to be made. The Court found that participating in trade associations, alone, was not sufficient to state a claim, but considered other allegations in the complaint. The court rejected defendants argument that the complaint should be dismissed because plaintiff had failed to identify who had attended the trade shows and trade association meetings at which prices were fixed. The court rejected the argument that complaint should be dismissed for "fail[ure] to identify who attended these meetings, what was discussed at them, or how they purportedly related to the conspiracy other than providing an opportunity for the parties to talk to one another." The Court stated that the "complaint in this case contains extensive, detailed allegations as to when, where and who engaged in at least some of the meetings that gave rise to the alleged conspiracy." Flash Memory, 643 F.Supp.2d at 1147. In re Static Random Access Memory (SRAM) Litig., 580 F.Supp.2d 896 (N.D.Cal.2008), the court held that evidence of guilty pleas in markets not directly involved in the claims before it supported a reasonable inference of conspiratorial behavior in the markets in the case before it. The plaintiff had alleged the agreement was communicated through various emails and other correspondence. Plaintiff alleged the specific communications and contents of the emails regarding the agreement to exchange and set prices. SRAM, 580 F.Supp.2d at 900-901. Plaintiffs also alleged other communications between defendants for exchange of price information. In addition, plaintiffs alleged guilty pleas by defendants' representative which the court stated was "not sufficient to support Plaintiffs' claims standing on their own, [but] they do support an inference of a conspiracy in the SRAM industry" and thus these allegations supported the plausibility of the alleged conspiracy involved. In In re Late Fee and Over-Limit Fee Litig., 528 F.Supp.2d 953 (N.D.Cal.2007), credit card holders sued large credit card issuers in the United States alleging excessive late-fees. The court held that stray statements, attributed to no one in particular, without any suggestion as to content or circumstances, failed to satisfy the Twombly plausibility requirement. Id. at 962. The court held that plaintiffs failed to place their allegations "in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action." Id. at 963 (quoting Twombly).
The Court affirmed dismissal because that the allegations were "in entirely general terms without any specification of any particular activities by an particular defendant." 502 F.3d at 51.
Here, the Court finds that plaintiff's allegations of the Market Allocation Agreement are conclusory and non-specific. Plaintiffs' allegations do not put Defendants on notice with enough sufficiency to form the basis for a response. From the allegations of the SAC, plaintiff alleges that the defendants, all of them and in equal parts, entered into the "Market Allocation Agreement" in 2006. U.S. Steel, for its part, agreed to exit the Relevant Market by no longer offering discount pricing. No specifics are given. No specific agreements among and between defendants are alleged. All defendants agreed to all agreements, notwithstanding their different corporate roles in and between themselves. For instance, plaintiff does not allege the specific corporate players along with names of key executives. Plaintiff does not allege where the agreement was made, or if there were multiple agreements or one global agreement made at one time. Specific allegations of the terms of the Market Allocation Agreement are particularly significant in this case. Here, plaintiff alleges 2006 agreement to exit the market and dramatically increased prices, yet plaintiff's pricing chart shows prices did not "dramatically" increase until 2009, three years later. (Doc. 235, SAC ¶¶ 48, 61.) The terms of the agreement therefore become factually significant.
Further, the Court notes that the agreement alleged in the SAC is not the same as the agreement alleged in the most-recent prior pleading (First Amended Complaint).
Plaintiff argues that the SAC alleges the agreement was subject to "specific enforcement and monitoring activities." The "enforcement and monitoring" allegations, however, do not allege how the agreement was formed, the specific terms of the agreement and by whom. The allegations of the "specific enforcement and monitoring activities" address what occurred after the agreement was formed. (Doc. 235, SAC ¶ 56: "After entering into the Market Allocation Agreement, U.S. Steel, UPI and POSCO held regular in-person meetings.")
Defendants argue that the SAC fails to state a claim that is "plausible on its face." (Doc. 241, Moving papers p. 17.) Defendants argue that it is implausible that UPI would increase its tin mill products to supracompetitive levels just because U.S. Steel ended its competitive pricing because U.S. Steel was not the sole competitor. In the SAC, UPI had other competitors and as such UPI could not freely increase its prices; and did so only after all competitors ended "freight equalization." Defendants argue that "[t]he existence of this plausible, alternative explanation renders Plaintiff's claims unsustainable under Twombly." (Doc. 241, Moving papers p. 18-19.)
Defendants also argue that it is implausible that UPI waited three years after obtaining monopoly power in 2006 to raise prices in 2009. Defendants argue that the allegations are internally inconsistent because a pricing chart shows prices were raised in 2009. Defendants argue that the more plausible explanation is that pricing decisions of independent competitors allowed UPI to raise prices. (Doc. 241, Moving paper p. 19.) Defendants also argue that the various versions of the complaint allege inconsistent and varying conspiracies throughout the years.
Plaintiff argues that Twombly does not require that the alleged antitrust conspiracy be the most likely explanation and that defendants' argument that there exists "a more plausible, alternative explanation" is not the legal standard. Plaintiff argues that the Market Allocation Agreement is plausible. Plaintiff argues that it has alleged numerous "plus factors" which show the plausibility of the alleged conspiracy and agreement. The structure of the Relevant Market makes collusion plausible,
The Court need not make unwarranted deduction or unreasonable inference from the allegations. But as long as the theory "is not facially implausible, the court's skepticism is reserved for later stages of the proceedings." In re Gilead Sciences Sec. Litigation, 536 F.3d 1049, 1057 (9th Cir.2008). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal at 1949.
Here, the Court has found that the Market Allocation Agreement factually insufficient. Without the specificity of pleading that Agreement, the Court cannot determine its plausibility. Therefore, the Court does not reach this issue.
Plaintiff explains in its opposition that the agreement had two parts. All defendants and co-conspirator POSCO agreed to fully allocate customers of Tin Mill Products in the Western United States of UPI. All defendants and POSCO agreed to use UPI's resulting monopoly power to increase the prices of Tin Mill Products in the Western United States to supracompetitive levels. These two aspects form both the § 1 and § 2 violations of the Sherman Act.
Section 1 of the Sherman Act prohibits "[e]very contract, combination ... or conspiracy in restraint of trade or commerce among the several States." 15 U.S.C. § 1. To state a claim under Section 1 of the Sherman Act, 15 U.S.C. § 1, claimants must plead not just ultimate facts (such as a conspiracy), but evidentiary facts which, if true, will prove: (1) a contract, combination or conspiracy among two or more persons or distinct business entities; (2) by which the persons or entities intended to harm or restrain trade or commerce, (3) which actually injures competition. Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1047 (9th Cir.2008).
Unlike Section 1, Section 2 of the Sherman Act prohibits antitrust activity of a single entity. Section 2 makes it an offense for any person to "monopolize, or attempt to monopolize, or combine or conspire with any other persons, to monopolize any part of the trade or commerce among the several states." 15 U.S.C. § 2. To prove a conspiracy to monopolize in violation of § 2, Plaintiff must show four elements: (1) the existence of a combination or conspiracy to monopolize; (2) an overt act in furtherance of the conspiracy; (3) the specific intent to monopolize; and (4) causal antitrust injury. Paladin Associates, Inc. v. Montana Power Co., 328 F.3d 1145, 1158 (9th Cir.2003).
Defendants challenge the first through third claims as failing to allege a viable conspiracy to monopolize. Defendants argues that plaintiff fails to allege two elements—Defendants argue plaintiff has failed to allege facts regarding (1) the existence of a conspiracy to monopolize and (2) specific intent to monopolize. (Doc. 241, Moving papers p. 21.) Defendants argue that the allegations of the conspiracy in the SAC are "conclusory and superficial" and repeat their arguments regarding the
To prevail on a conspiracy to monopolize, plaintiff must show "specific intent to monopolize and anticompetitive acts designed to effect that intent." Hunt-Wesson Foods, Inc. v. Ragu Foods, Inc., 627 F.2d 919, 926 (9th Cir.1980), cert. denied, 450 U.S. 921, 101 S.Ct. 1369, 67 L.Ed.2d 348 (1981). "[S]pecific intent to monopolize and anticompetitive acts designed to effect that intent" are required for a conspiracy to monopolize claim. Freeman v. San Diego Ass'n of Realtors, 322 F.3d at 1154; Syufy Enterprises v. American Multicinema, Inc., 793 F.2d 990, 1001 (1986) ("But we know of no authority that a Section 2 conspiracy may be established without some showing that more than one of the alleged co-conspirators had at least some awareness that the underlying conduct was anticompetitive or monopolistic").
A "specific intent to monopolize" means an intent to exclude competition or control prices. Carpet Seaming Tape Licensing Corp. v. Best Seam. Inc., 616 F.2d 1133, 1141-42 (9th Cir.1980) (specific adverse impact on the market); see American Tobacco Co. v. United States, 328 U.S. 781, 789, 66 S.Ct. 1125, 90 L.Ed. 1575 (1946) (object of a combination or conspiracy to monopolize is the exclusion of actual and potential competitors). A specific intent to destroy competition or build monopoly is essential. Times-Picayune Pub. Co. v. U.S., 345 U.S. 594, 626, 73 S.Ct. 872, 890, 97 L.Ed. 1277 (U.S.1953) Thus, plaintiff must allege "specific intent" to ultimately seize monopoly power within the relevant market.
Plaintiff argues that it has satisfied the requirements to allege the existence of a conspiracy to monopolize, by alleging the Market Allocation Agreement. That argument, and the adequacy of the Market Allocation Agreement, has been addressed, infra.
Plaintiff also argues that it has alleged specific intent to monopolize. (Doc. 252, Opposition p. 22 and n. 15.) In its opposition, plaintiff points to the purpose of the Market Allocation Agreement. Plaintiff alleges that the purpose of the Market Allocation Agreement was to allocate all customers in the Western United States to UPI. (Doc. 235, SAC ¶ 48-52.) U.S. Steel ended all sales of Tin Mill Products to the Western United States. (Doc. 235, SAC ¶¶ 12, 60-62, 63.) POSCO also did not sell Tin Mill Products within the Western United States. Through joint control of UPI, U.S. Steel and POSCO set UPI's Tin Mill Products prices at supracompetitive prices. (SAC ¶ 43, 52, 60-67.)
Defendants argue specific intent is improperly alleged because the market conditions, not any improper agreement, resulted in the price increase. Defendants argue that plaintiff alleges that from UPI's formation in 1986 until 2006, UPI faced competitors in the Tin Mill Products market, including U.S. Steel. (Doc. 241, Moving papers p. 21; Doc. 235 SAC ¶ 44.) Defendants argue that plaintiff alleges that there were other competitors in the market and plaintiff makes no effort to explain what happened to the competitive, other companies and how that influence the Market Allocation Agreement.
Defendants further argue that plaintiff's allegations are internally inconsistent on
The statute targets "the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." Pacific Bell Telephone Co. v. Linkline Communications, Inc., 555 U.S. 438, 129 S.Ct. 1109, 1118, 172 L.Ed.2d 836 (2009). Specific intent is sufficiently met by proof that a group of competitors took concerted action to drive independent competitors out of business. TV Communications Network v. Turner Network Television, Inc., 964 F.2d 1022 (10th Cir.1992), citing Matsushita Elec. Ind., 475 U.S. 574, 106 S.Ct. 1348.
Here, the Court agrees with defendant that plaintiff has not alleged specific intent. "Specific intent" allegation is conclusory. Plaintiff alleges that the "U.S. Steel entered into this [Market Allocation Agreement] with the specific intent to eliminate competition and monopolize the Relevant Market." (Doc. 235 SAC ¶ 49.) Similar allegations are alleged of the remaining defendants. (Doc. 235 SAC ¶ 50-52) ("[defendant] entered into this agreement with the specific intent to eliminate competition and monopolize the Relevant Market.") Plaintiff's conclusory allegation of specific intent does not allege the facts in which defendants intended and did drive out independent competitors. Indeed, plaintiff alleges that other competitors existed in the market. Plaintiff alleges that "Since its formation and until 2006, UPI faced competitors in the market for Tin Mill Products in the Western Unites States. One competitor was U.S. Steel itself." (Doc. 235 SAC ¶ 44.) The allegations do not state that (or how) the Market Allocation Agreement drove out independent competition. The SAC fails to allege the defendants acted with specific intent of driving out competition.
Defendant UPI argues that plaintiff's California Cartwright Act claim fails for the same reasons as under the Sherman Act.
The Cartwright Act is California's antitrust statute. Bus. & Prof.Code §§ 16700-16770. Cases decided under the Sherman Act are applicable to interpreting the Cartwright Act. See Marin County Bd. of Realtors, Inc. v. Palsson, 16 Cal.3d 920, 130 Cal.Rptr. 1, 549 P.2d 833 (1976). Indeed, the analysis under California's antitrust law mirrors the analysis under federal law because the Cartwright Act was modeled after the Sherman Act. County of Tuolumne v. Sonora Community Hosp., 236 F.3d 1148, 1160 (9th Cir.2001). Therefore, the analysis and conclusions would be the same under the Cartwright Act, as under the federal claims.
Defendants argue that plaintiff's California Cartwright Act claim fails because plaintiff lacks standing. Plaintiff lacks standing since plaintiff has not suffered an "antitrust injury" because plaintiff does not participate in the relevant market. Plaintiff does not participate in the defendants' market for tin-mill products. Defendants further argue that plaintiff lacks standing because "the injury Plaintiff alleges it suffered is purely derivative of the injury allegedly suffered by Silgan." (Doc. 241, Moving papers p. 15.)
As stated in this Court prior order, the Cartwright Act permits indirect purchasers to have standing. Pursuant to
Given the analyses and conclusions regarding the federal claims, the Court incorporates those rulings for the state Cartwright Act antitrust claim as well. To the extent that the motion has been granted for lack of standing, that ruling is inapplicable to the Cartwright Act.
Further, defendants argue that the claim should be dismissed because it does not satisfy the "high degree of particularity" required for pleading a Cartwright Act violation, citing Freeman v. San Diego Assn. of Realtors, 77 Cal.App.4th 171, 91 Cal.Rptr.2d 534 (1999). (Doc. 241, Motion p. 23.) Defendants rely upon California's pleading standards which require a certain level of "particularity" for pleading antitrust violations.
The Federal Rules of Civil Procedure govern the sufficiency of a pleading in federal actions. In federal court actions based on state law claims, state law determines whether the claims exist and what defenses are recognized. The manner in which such claims or defenses are raised, however, is governed by the Federal Rules. See Taylor v. United States, 821 F.2d 1428, 1433 (9th Cir.1987) (state law affirmative defenses waived if not pleaded). Federal pleading standards do not require a "high degree of particularity." The standard for pleading was stated in Twombly: the complaint must allege "enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570, 127 S.Ct. 1955. To the extent the Court found the pleading inadequate, that ruling applies to the Cartwright Act claim.
Plaintiff's count 4 alleges a claim under California's Unfair Practices Act, also called the Unfair Competition Act ("UCL"). The purposes of the UCL are "to safeguard the public against the creation or perpetuation of monopolies and to foster and encourage competition, by prohibiting unfair, dishonest, deceptive, destructive, fraudulent and discriminatory practices by which fair and honest competition is destroyed or prevented." Cal. Bus. & Prof.Code § 17001. "The UC[L] works by `borrowing' violations of other laws and treating those transgressions, when committed as a business activity, as `unlawful business practices.'" Stevens v. Superior Court, 75 Cal.App.4th 594, 602, 89 Cal.Rptr.2d 370 (1999). These "unlawful business practices" are "independently actionable under section 17200 et seq. and
The UCL claim predicates liability based on the Sherman Act and the Cartwright Act. (See Doc. 235, SAC ¶ 112-113.) Plaintiff alleges that the agreements, combination and conspiracies alleged in the Sherman Act claims and the Cartwright Act claims "constitute unlawful and unfair business practices." (Doc. 235, SAC ¶ 114-115.)
Given the analyses and conclusions regarding the federal and state claims, the Court incorporates those rulings for the UCL claim as well.
For the foregoing reasons, the motion to dismiss the second amended complaint is GRANTED with leave to amend in strict conformance with this order.
Plaintiff shall have 20 days from the date of service of this order to file an amended complaint. Frankly stated, this Court, due to its crushing caseload, does not have the time or resources to spend re-doing what it has already done. If the third amended complaint is non-compliant with this order, there will be no more opportunities to amend absent an order from the Ninth Circuit.
IT IS SO ORDERED.
