Morning Star Packing Co. v. Sk Foods, Lp

Citations: 754 F. Supp. 2d 1230; 2010 U.S. Dist. LEXIS 121525; 2010 WL 4720867Docket: 2:09-cv-208

Court: District Court, E.D. California; November 17, 2010; Federal District Court

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Defendants Ingomar Packing Company, Greg Pruett, Los Gatos Tomato Products, and Stuart Woolf filed a motion to dismiss claims against them in the First Amended Complaint by Plaintiffs The Morning Star Packing Company, Liberty Packing Company, LLC, California Fruit Tomato Kitchens, and The Morning Star Company, arguing failure to state a claim under Federal Rule of Civil Procedure Rule 12(b)(6). Plaintiffs, engaged in processing raw tomatoes into products, allege that Defendants, their direct competitors, formed a partnership named CTEG with co-defendant SK Foods in 2006 to collude on domestic pricing and allocate customers. They claim that prior to this partnership, Defendants and SK Foods entered into anticompetitive agreements, including price-fixing for tomato paste and diced tomatoes, as well as bribing customers' purchasing agents to manipulate bid outcomes and obtain confidential information about competitors' bids. Plaintiffs assert that these practices hindered their ability to compete for contracts, resulting in lost business opportunities. The court acknowledged that for a motion to dismiss, all material facts must be accepted as true and viewed in favor of the nonmoving party. Ultimately, the court granted the Defendants' motion in part and denied it in part, signaling that some claims may proceed while others may not.

Rule 8(a)(2) requires a complaint to provide a short and plain statement that demonstrates the pleader's entitlement to relief, ensuring the defendant receives fair notice of the claim and its grounds. While detailed factual allegations are not necessary, the claims must exceed mere labels or conclusions and raise the right to relief above speculation. A complaint must present more than just facts that create suspicion of a legal right; it must nudge claims from conceivable to plausible. Upon granting a motion to dismiss, the court may allow the plaintiff to amend the complaint, per Rule 15(a), unless there's undue delay, bad faith, or the deficiencies cannot be cured. A complaint should only be dismissed under Rule 12(b)(6) if no set of facts could support the claim.

The plaintiffs argue that the defendants violated the Sherman Act, RICO, California Common Law Unfair Competition, and California Business and Professions Code §17000 et seq. The court's current focus is on whether the plaintiffs' allegations are sufficient to survive a Rule 12(b)(6) motion to dismiss. Specifically, under the Sherman Act, the plaintiffs allege price fixing, customer allocation, bribery, and bid rigging, which are prohibited under 15 U.S.C. §1. The 'rule of reason' analysis is applied to determine if an agreement unreasonably restrains trade, requiring consideration of all case circumstances. To establish standing under the Sherman Act, a plaintiff must show an 'antitrust injury' that is intended to be prevented by antitrust laws. Defendants contend that the plaintiffs have not adequately alleged such an injury or provided sufficient facts to support the claims of bribery.

Defendants argue that Plaintiffs did not suffer an antitrust injury from alleged price-fixing practices, as both parties are competitors. Any price inflation due to price fixing would benefit both Defendants and Plaintiffs, thus negating the claim of injury. The Court agrees that no antitrust injury from price fixing is demonstrated; however, Plaintiffs adequately allege injury from other anticompetitive behaviors, including bribery, bid rigging, and customer allocation. Defendants' assertion that these practices only inflate prices for customers is incorrect, as they can also harm competitors by affecting contract awards. Plaintiffs claim that SK Foods and Defendants bribed purchasing agents for bid information, which harmed Plaintiffs by preventing them from securing contracts. These allegations sufficiently establish an antitrust injury caused by Defendants' actions. Additionally, while the bribery charges primarily involve SK Foods, the Complaint alleges that Defendants participated by paying bribes to influence bid outcomes and gain competitive advantage. This provides adequate notice of the claimed violations under the Sherman Act. As a result, the Court denies Defendants' Motion to Dismiss regarding Plaintiffs' Sherman Act claims. Furthermore, RICO allows individuals injured by a RICO violation to pursue a private right of action.

Plaintiffs in Sybersound Records, Inc. v. UAV Corp. allege violations of RICO statutes 18 U.S.C. 1962(c) and (d), where subsection (c) prohibits individuals associated with an enterprise engaged in interstate commerce from participating in the enterprise's conduct through a pattern of racketeering activity, and subsection (d) prohibits conspiracy to violate subsection (c). To establish a claim under 1962(c), a plaintiff must demonstrate: 1) conduct, 2) of an enterprise, 3) through a pattern, and 4) of racketeering activity. Additionally, the plaintiff must show that the defendant's RICO violation proximately caused their injury, with the Ninth Circuit providing non-exhaustive factors to determine proximate cause, including the presence of direct victims and the difficulty in calculating damages. The central inquiry for proximate cause is whether the alleged violation directly caused the harm suffered. In this case, the immediate victims are the purchasers of processed tomato products, not the Plaintiffs, who claim injuries but do not provide sufficient factual basis linking their losses directly to Defendants' alleged conduct. Plaintiffs' assertions lack evidence that they competed for the same contracts or that they would have secured contracts absent the alleged RICO violations. Consequently, the Court finds no basis for Plaintiffs’ claims, leading to the granting of Defendants' Motion to Dismiss their RICO claims. Additionally, the document briefly mentions California's common law regarding unfair competition, equating it with the act of 'passing off' goods.

Plaintiffs have argued that California common law has evolved to address various unfair competitive practices; however, the expansion has primarily been statutory rather than common law. To establish a claim for Common Law Unfair Competition, plaintiffs must demonstrate that defendants misrepresented their goods as those of another, which plaintiffs failed to do. Consequently, the court grants defendants' motion to dismiss the Common Law Unfair Competition claim. 

Plaintiffs’ final claim seeks an injunction against defendants for alleged wrongful conduct, including commercial bribery and price fixing, under California's Unfair Competition Law (UCL). To seek injunctive relief, plaintiffs must prove Article III standing by showing an imminent and actual threat of harm. Past exposure to harm does not automatically confer standing if the plaintiff does not face ongoing adverse effects. The plaintiffs did not provide sufficient facts indicating that defendants are likely to continue unfair practices or that plaintiffs face a real threat of future harm. As a result, the court grants defendants' motion to dismiss the UCL claim.

In conclusion, defendants' motion to dismiss is granted with leave for plaintiffs to amend their Third, Fourth, and Fifth Causes of Action against specific defendants. However, the motion to dismiss the Second Cause of Action for Sherman Act violations is denied. Plaintiffs have 20 days to file an amended complaint, after which any unamended claims will be dismissed without leave to amend.

Factual assertions in this section derive from the Plaintiffs' First Amended Complaint, unless stated otherwise. SK Foods is named as a defendant but is not involved in the current motion. Defendants are accused of 'allocating customers' by agreeing not to compete for clients of long-standing relationships with other CTEG members. The Complaint includes a claim under the Robinson-Patman Act, but this claim does not concern the moving Defendants. It is noted that entities using competitors' bid information can manipulate their bids to ensure profitability. Paragraph 98 of the Complaint alleges that Defendants and co-conspirators ensured winning bids for SK Foods, Ingomar, and Los Gatos through illegal bribes to purchasing agents. Defendants Ingomar, Los Gatos, Pruett, and Woolf are recognized as part of the definition of 'defendants' in the Complaint. Additionally, Defendants challenge the sufficiency of the RICO claims regarding the alleged predicate acts; however, the Court finds it unnecessary to address this issue to reach a conclusion. The parties agree that Plaintiffs are not entitled to restitution. The Court has determined that oral argument will not significantly aid its decision, leading to the matter being submitted on briefs only.