MICHAEL J. McSHANE, District Judge.
Plaintiffs Innovation Marine Protein, LLC, an Oregon limited liability company (Innovation Marine), and Front St. Marine LLC, an Oregon limited liability company (Front Street) bring this antitrust action under Sections 1 and 2 of the Sherman Act against defendants Pacific Seafood Group (Pacific Seafood)
Plaintiff Front Street is owned by Stephen and Janet Webster, two long-term residents of Newport, Oregon. "The corporate mission of Front St. Marine, LLC is to acquire and develop Newport waterfront industrial property for the express purpose of building the infrastructure that will diversify the seafood processing sector on the central Oregon Coast, thus bringing the benefits of robust competition in the form of value-added seafood processing, increased ex vessel prices paid to fishermen and more family wage jobs to Lincoln County." FAC ¶ 18 (emphasis added). "On December 21, 2013, in an effort to secure adequate industrial property on Yaquina Bay in Newport to build seafood processing infrastructure, Stephen Webster of plaintiff Front St. Marine LLC forwarded an offer to purchase two parcels owned by [Cal-Shell]." FAC ¶ 49 (emphasis added). Webster made a cash offer of $900,000 for either parcel or $1.8 million for both parcels. FAC ¶49. Included with the offer was "a proposed form of purchase and sale agreement to facilitate a speedy closing of the transaction." FAC ¶ 49. On February 24, 2014, Cal-Shell informed Webster that "`We currently are not interested in the sale' of the two properties." FAC ¶ 50.
15 months later, without contacting Webster, "Cal-Shell sold its former seafood processing facility and operational ice plant to [Pacific Seafood] for just $1,037,500, a 42% discount to the December 2013 offer from Front St. Marine." FAC ¶ 52. "Cal-Shell and Pacific Seafood Group conspired to avoid selling the property to Front St. Marine in order to eliminate the potential for new seafood processor competition at the site." FAC ¶ 52.
For its claim under Section 1 of the Sherman Act, plaintiffs allege:
FAC 81 (emphasis added).
"But for the illegal conspiracy to restrain trade implemented by [defendants, Front Street] would have acquired the Cal-Shell waterfront property in Newport and successfully created the infrastructure for new seafood processor competition in Newport by the end of 2015." FAC ¶ 87 (emphasis added).
For its claim under Section 2 of the Sherman Act, plaintiffs allege that defendants "conspired to monopolize the Newport seafood input markets for trawl caught groundfish, onshore whiting and pink shrimp by conspiring to transfer Trident and Cal-Shell's seafood processing assets in Newport to Pacific Seafood." FAC ¶ 91.
Front Street neither alleges nor seeks any economic damages. Instead, on both claims:
FAC ¶¶ 88, 98.
Turning to the other plaintiff:
FAC ¶ 13.
Carrol and Backus have extensive experience in the fishing industry. "Richard Carroll has over 40 years of experience in the design, construction and operation of whiting and surimi processing plants and fishmeal plants." FAC ¶ 14.
Trident "refused to negotiate with a principal of plaintiff Innovation Marine Protein, LLC to sell its Newport seafood processing facilities and then conspired with Pacific Seafood to develop a two-step scheme to transfer those assets to Pacific Seafood." FAC ¶ 3 (emphasis added). The FAC proceeds to outline Innovation Marine's attempt to enter the Newport seafood processing market in order to potentially compete with Pacific Seafood:
FAC (emphasis added).
Plaintiffs allege Trident sold the fishmeal plant to Pacific Seafood in a secret sale on April 10, 2017, FAC ¶ 3, at price below market value, FAC ¶ 38. Pacific Seafood and Trident then used the May 15, 2017 start of the pacific whiting season (and the 100 or so seasonal jobs that go with it), "to pressure fishermen, the local community, Oregon legislators and regulators into approving an obviously anti-competitive takeover of the surimi plant by monopolist Pacific Seafood." FAC ¶ 3. A shell company owned by Pacific Seafood "either holds an option to acquire the Trident surimi processing plant assets or has already closed on that deal and owns those assets outright." FAC ¶ 2. After Pacific Seafood closed the transactions with Cal-Shell and Trident, it held over 95% of the seafood markets for trawl caught groundfish, onshore whiting and pink shrimp in the Newport market. FAC ¶ 8.
On its Sherman Act Section 1 claim, Innovation Marine alleges:
FAC.
Plaintiffs allege the relevant product markets are the west coast seafood markets for groundfish, pacific onshore whiting and pacific coldwater shrimp. FAC § IV. Plaintiffs describe Pacific Seafood's expansion of monopoly power over the past decade through numerous anticompetitive acquisitions and vertical integrations. FAC ¶¶ 29-30. As relevant here:
FAC ¶ 31.
As noted, defendants moved to dismiss the complaint on multiple grounds. In response, plaintiffs sought leave to file the FAC.
To survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a complaint must contain sufficient factual matter that "state[s] a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible on its face when the factual allegations allow the court to infer the defendant's liability based on the alleged conduct. Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). The factual allegations must present more than "the mere possibility of misconduct." Id. at 678.
When considering a motion to dismiss, the court must accept all allegations of material fact as true and construe those facts in the light most favorable to the non-movant, Burget v. Lokelani Bernice Pauahi Bishop Trust, 200 F.3d 661, 663 (9th Cir. 2000), but the court is "not bound to accept as true a legal conclusion couched as a factual allegation," Twombly, 550 U.S. at 555. If the complaint is dismissed, leave to amend should be granted unless the court "determines that the pleading could not possibly be cured by the allegation of other facts." Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995).
Section 4 of the Clayton Act provides for a seemingly broad entitlement to damages, allowing treble damages to "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws . . . ." 15 U.S.C § 15.
In evaluating whether a plaintiff has antitrust standing, courts examine: (1) the nature of the plaintiff's alleged injury; that is, whether it was the type the antitrust laws were intended to forestall; (2) the directness of the injury; (3) the speculative measure of the harm; (4) the risk of duplicative recovery; and (5) the complexity in apportioning damages. American Ad, 190 F.3d at 1054. Although this determination involves a balancing of all the factors, the first factor, i.e., the nature of the plaintiff's alleged injury, is generally given the greatest weight. Id. at 1055.
Defendants argue that because Front Street is not a participant in the markets for groundfish, pacific whiting, or pacific shrimp, it lacks antitrust standing. I agree. Nowhere does the FAC allege Front Street is engaged in seafood processing. Instead, the FAC reveals Front Street merely seeks waterfront property it can develop and lease to an actual seafood processor. Even read liberally, the FAC makes clear that Front Street is merely a potential landlord seeking a tenant who will compete in the relevant market.
The alleged conspiracy "prevented [Front Street] from redeveloping a partially blighted property with a working ice plant into modern seafood processing facilities operated by new entrants." FAC ¶ 2 (emphasis added). Front Street's "corporate mission" is not to process seafood or compete itself in the relevant market, but "to acquire and develop Newport waterfront industrial property for the express purpose of building the infrastructure that will diversify the seafood processing sector[.]" FAC ¶ 18 (emphasis added). Front Street sought Cal-Shell's waterfront parcels because those parcels provided an opportunity "to secure adequate industrial property on Yaquina Bay in Newport to build seafood processing infrastructure[.]" FAC ¶ 49 (emphasis added). Nowhere does Front Street allege defendants prohibited Front Street from processing seafood. Rather, defendants deprived Front Street only "of the opportunity to develop seafood processing infrastructure in Newport in 2014-15." FAC ¶ 81 (emphasis added). In fact, the FAC clearly states that Front Street does not process seafood on two other waterfront lots it owns. Instead, it leases those lots to Seawater Seafoods Company, a seafood processor. FAC ¶¶ 67-68. Front Street is not a market participant in the relevant markets.
Therefore, the question is whether a potential landlord or developer such as Front Street, who does not participate in the relevant market, has antitrust standing to bring claims challenging a conspiracy to exclude potential new entrants into the relevant market. Another Ninth Circuit case involving fishermen and seafood processors provides helpful guidance. Eagle v. Star-Kist Foods, Inc., 812 F.2d 538 (9th Cir. 1987). In Eagle, crewmembers on vessels fishing for tuna brought antitrust claims against the canneries that purchased the tuna caught by the fishermen. "The central argument is that the canneries conspired to set tuna prices at artificially low levels resulting in a reduction of the wages paid to crewmembers and a loss of employment opportunities by them." Id. at 539. In looking at the nature of the alleged injury, the court noted "The requirement that the alleged injury be related to anticompetitive behavior requires, as a corollary, that the injured party be a participant in the same market as the alleged malefactors." Id. at 540 (quoting Bhan v. NME Hospitals, Inc., 772 F.2d 1467, 1470 (9th Cir. 1985)).
Id. at 540-41 (alterations in original).
Front Street's relationship to the markets for groundfish, pacific whiting, or pacific shrimp is much more tenuous and indirect than that of the fishermen in Eagle to the tuna market. Front Street merely seeks to own the land (and future infrastructure) on which its prospective tenant will someday potentially compete with Pacific Seafood in the Newport markets for groundfish, pacific whiting, or pacific shrimp. Relevant markets are, of course, at the heart of any antitrust claim. After all, "the Sherman Act was enacted to assure customers the benefits of price competition, and our prior cases have emphasized the central interest in protecting the economic freedom of participants in the relevant market." Associated Gen. Contractors, 459 U.S. at 538.
Here, plaintiffs allege that defendants "conspired to monopolize the Newport seafood input markets for trawl caught groundfish, onshore whiting and Pacific shrimp by conspiring to transfer Trident and Cal-Shell's seafood processing assets in Newport to Pacific Seafood." FAC ¶ 91. The fishermen selling into those "input markets," forced to sell to Pacific Seafood, are the "customers" the Sherman Act was enacted to protect. Associated Gen. Contractors, 459 U.S. at 538. The other market participants are the processors who purchase that fish, i.e., Pacific Seafood and Front Street's future tenant. In its role as developer and future landlord to a seafood processor, however, Front Street will neither buy nor sell any fish.
Plaintiffs argue, "The nut of this case is that Plaintiffs' lost business opportunity was a consequence of defendants' illegal conspiracy." ECF No. 33 at 20. While that may be true, it is largely irrelevant to whether Front Street suffered any antitrust injury. See Eagle, 812 F.2d at 540 (noting the entire point behind the antitrust standing evaluation is "to determine whether a plaintiff, who has suffered an injury which bears a causal connection to the alleged antitrust violation, also satisfies the more demanding antitrust standing standard."). Plaintiffs appear to confuse the requirements for Article III standing with the "more demanding standard for antitrust standing." Lucas Automotive Eng'g v. Bridgestone/Firestone, Inc., 140 F.3d 1228, 1232 (9th Cir. 1998) (quoting Amarel v. Connell, 102 F.3d 1494, 1507 (9th Cir. 1997) (emphasis omitted)). But no one disputes that Front Street has Article III standing. Plaintiffs continue, "Put another way, unlike in Lucas, but for defendants' conspiracy to violate the antitrust laws, plaintiffs would not have been injured." ECF No. 33 at 20. In addition to flowing from defendants' conduct, however, Front Street's injury must be "of the type the antitrust laws were intended to prevent." American Ad, 190 F.3d at 1057.
American Ad, 190 F.3d at 1057 (alterations in original).
Front Street's injury, if any, occurred in the Newport waterfront real estate market. See FAC ¶ 87 (But for conspiracy, Front Street "would have acquired the Cal-Shell waterfront property in Newport and successfully created the infrastructure for new seafood processor competition"). But Front Street would have suffered an identical alleged injury had Cal-Shell simply moth-balled the blighted plant, "redevelop[ed its own] partially blighted property . . . into a modern seafood processing facility[y]," FAC ¶ 2, or sold the property to a bowling alley developer. Because Front Street would have suffered the same alleged injury in those instances, its injury is not "of the type antitrust laws were intended to prevent." American Ad, 190 F.3d at 1057.
Front Street argues that even if it is not a market participant, it has standing because its injury is "`inextricably intertwined' with the injury defendants sought to inflict through their conspiracy, and it therefore falls `within the area of congressional concern.' McCready, 457 U.S. at 484." ECF No. 33 at 25. I disagree. McCready had standing because that conspiracy targeted psychologists and McCready was "a consumer of psychotherapy services entitled to financial benefits under" her health plan and therefore "within the area of the economy . . . endangered by [that] breakdown of competitive conditions' resulting from" her health plan's refusal to reimburse. McCready, 457 U.S. at 480-81. Unlike cases finding a plaintiff's injury "inextricably intertwined" with an antitrust injury sought to be inflicted upon market participants, Front Street is not "a customer [] directly damaged by an act alleged to be in violation of the antitrust laws." Glen Holly Entm't Inc. v. Tektronix Inc., 352 F.3d 367, 376 (9th Cir. 2003). No matter Front Street's "corporate mission," its lost opportunity to develop waterfront property it hoped to lease to a market participant is not "inextricably intertwined" with the harm defendants sought to impose on the west coast seafood markets for groundfish, pacific onshore whiting and pacific coldwater shrimp.
The second factor in evaluating a plaintiff's antitrust standing requires the court "to examine the directness or indirectness of the causal connection between the alleged injury and the alleged violation." Eagle, 812 F.2d at 541. "The chain of causation between the injury and the alleged restraint in the market should lead directly to the `immediate victims of any alleged violation.'" Id. In Eagle, the court concluded that because the vessel owners control the negotiations with the canneries over the price of the tuna, the crewmembers were ordinary employees and any loss of wages of the crewmembers "is derived from any injury suffered by the vessel owners during the sale of the fish." Id. Although Front Street does not allege any economic damages—likely because any such damages would be far too speculative and derivative to recover—the policy considerations behind the antitrust laws demonstrates Front Street's injury, in antitrust terms, is indirect.
"[T]he existence of an identifiable class of persons whose self interest would normally motivate them to vindicate the public interest in antitrust enforcement diminishes the justification for allowing a more remote party such as the [plaintiffs] to perform the office of a private attorney general." Id. (quoting Associated Gen. Contractors, 459 U.S. at 542) (second alteration in original). The vessel owners who suffered the direct antitrust injury in Eagle pursued their own antitrust action against the canneries "alleging the same antitrust violations alleged" by the crew members. Id. at 542 n.2. Here, the fishermen forced to sell into Pacific Seafood's alleged monopoly in Newport are the direct victims of the alleged conspiracy and could bring their own antitrust action against these defendants. Therefore, declining to allow a more remote party such as Front Street standing to challenge this alleged conspiracy "is not likely to leave a significant antitrust violation undetected or unremedied." Id. (quoting Lucas Automotive, 800 F.2d at 846).
Finally, Front Street argues that because it seeks only injunctive relief in the form of divestiture, and because antitrust standing requirements are relaxed for those seeking injunctive relief, it may proceed here. This argument is meritless. While Front Street is correct that certain standing requirements—such as the remoteness or speculative nature of the plaintiff's injury
Unlike Front Street, there is no dispute that Innovation Marine was a prospective participant in the relevant market. The dispute instead centers on whether Innovation Marine took "substantial steps" to enter that market. A "potential competitor" such as Innovation Marine "has standing if he can show a genuine intent to enter the market and a preparedness to do so." Bubar v. AMPCO Foods, Inc., 752 F.2d 445, 450 (9th Cir. 1995). When considering a potential competitor's preparedness to enter a market, courts consider:
Id. at 451-52.
Other than the fact that the plaintiffs in Bubar were much more prepared (when compared to Mr. Carrol and Mr. Backus) to enter that intended market, the facts of Bubar are remarkably similar to the facts here. Plaintiffs there were former top management employees of a wholly-owned potato, garlic, and onion processing subsidiary of A & B. A & B wanted to sell the subsidiary and eventually sold to Ampco foods, a competitor of the subsidiary. Plaintiffs brought antitrust claims under Sections 1 and 2 of the Sherman Act, alleging Ampco, A & B, and the subsidiary conspired to prevent plaintiffs from purchasing the subsidiary.
Over the course of several months, plaintiffs and Ampco made several "proposals" to purchase the subsidiary. Plaintiffs proposed buying the subsidiary for $10 million. A & B countered with $15 million and plaintiffs responded with a proposal for $12.5 million. Ampco then offered $10 million for only the potato processing portion, at which point A & B proposed a sale of $13.5 million to plaintiffs for the entire subsidiary. "At this time, all of the proposals were preliminary negotiations, with no firm offers having been made." Id. at 446. The Bubar plaintiffs took several preliminary steps any prospective purchaser would make:
Id. at 447.
The management group met with several banks to secure an $8 million line of credit, and despite interest from the banks, no commitments had been made. The group held discussions with multiple venture capital groups, who determined a new corporation would have to be formed to acquire the subsidiary. The management group never finalized the different financial commitments, stock interests, or voting rights of the new corporation. Id. at 447-48. The leaders of the management group, along with the lead equity group, met with A & B and proposed buying the subsidiary for $13.5 million and ultimately requested six weeks to complete the financial package. A & B's representative stated he would speak to the president of the company and respond to the plaintiffs, but refused to end discussions with other potential buyers. "No written agreements or letters of intent were signed and no oral commitments to buy or to sell were made." Id. at 448. A & B met with Ampco later that day and, over the course of the next few days, agreed to sell the potato division to Ampco for $11,350,000. Like Innovation Marine, the management group alleged their yet-to-be-formed corporation was "frozen out" of the market by defendants' concerted failure to deal. The court concluded:
Bubar, 752 F.2d at 454.
As the full extent of the negotiations between Mr. Carroll and Trident are outlined in two brief paragraphs of the FAC, and because those paragraphs reveal the stark contrast between steps taken by the partnership and the plaintiffs in Bubar, I include Innovation Marine's entire description of these "serious" discussions:
FAC (emphasis added).
Utterly lacking within this description is any allegation that the partnership had the financial commitments necessary to even make a firm offer (to say nothing of actually completing the purchase). Despite Mr. Backus' apparent background in securing financing, he appears to have done nothing in advance of Mr. Carroll's "discussions" with Trident. The FAC is silent as to any discussions regarding a line of credit for operating expenses of the new company. There are no allegations detailing contracts, let alone discussions, between the proposed company and the fishermen it would need to secure product from. There are no allegations regarding the ownership percentages or control of Innovation Marine, the yet-to-be-formed company. Instead, the FAC reveals Mr. Carrol informed Mr. Luchino he knew of "advanced technology" that would help make the company profitable, and "express[ed] interest in [] pursu[ing] the potential purchase of Trident's Seafood processing assets[.]" FAC ¶ 32. "In January 2017, Mr. Carroll told Mr. Luchino that he was interested in discussing a price for the Trident assets in Newport and negotiating a final deal as soon as possible." FAC ¶ 33. These were not serious discussions. Mr. Carrol had yet to even discuss a price with Trident, let alone make a "proposal" to Trident.
Defendants argue that because Innovation Marine did not file Articles of Organization with the Oregon Secretary of State until after Trident sold its assets to Pacific Seafood, it could not suffer any antitrust injury. Innovation Marine filed Articles of Organization on April 21, 2017.
Innovation Marine argues, "Indeed, the only Bubar factor that plaintiffs do not meet is the consummation of contracts which, of course, Pacific Seafood and its co-conspirators colluded to prevent." ECF No. 33 at 23. Innovation Marine is correct that the consummation of contracts is one factor courts look to when evaluating whether a potential competitor was prepared to enter a market. Bubar, 752 F.2d at 451-52. As demonstrated above, however, Innovation Marine failed to allege that it either: (1) took any real "substantial steps" to enter the market; or (2) possessed the financial ability to purchase the equipment or facilities necessary to enter the market. Additionally, the court in Bubar rejected Innovation Marine's argument that the lack of a consummated contract with the alleged conspirator should not factor against it:
Id. at 452.
While I assume at this stage that Mr. Carroll and Mr. Backus had the background and experience to operate the prospective seafood processing company, they did not take the requisite affirmative actions to engage in the prospective business, did not allege the financial ability to engage in the business, and failed to consummate any contracts necessary of any prospective competitor.
Defendants' motions to dismiss for lack of standing, ECF No. 21, 24-25, are GRANTED. No amount of repleading will turn Front Street into a participant in the relevant market. And no amendment will backdate Innovation Marine's filings with the Secretary of State. As explained above, amending to add the preexisting partnership as a plaintiff will not somehow turn the initial talks Mr. Carrol had with Trident into the "substantial steps" necessary for antitrust standing. Because Innovation Marine and Front Street lack standing, and because leave to amend would be futile, this action is DISMISSED, with prejudice.
IT IS SO ORDERED.
