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Newcal Industries, Inc. v. Ikon Office Solutions

December 23, 2004




Before the Court are two motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) submitted by Defendants IKON Office Solutions, Inc. ("IKON") and General Electric Capital Corp. ("GE Capital"). IKON argues that all claims asserted by Plaintiff Newcal et al. ("Newcal") should be dismissed for failure to state a claim. GE Capital joins IKON's motion to dismiss but also argues that Newcal's only claim against GE Capital, a claim for relief under the Declaratory Judgment Act, fails independently. Having considered the pleadings and papers filed by both sides, the Court GRANTS defendants' motions to dismiss. To ensure the plaintiff a full opportunity to pursue its claims, the Court also GRANTS Newcal one opportunity to amend all of its dismissed claims with the exception of its claim for declaratory relief.


The factual background of this case may be summarized from the complaint, accepting its allegations as true and quoting from it as appropriate. Newcal and its co-plaintiffs compete with IKON in the market to supply and service multiple brands of copiers, printers and facsimile equipment ("Copier Equipment") to businesses and other organizations. Defendant GE Capital is a successor-in-interest to IOS Capital, which was a fully owned subsidiary of IKON that provided lease financing and administration services for IKON. On March 30, 2004, IOS Capital was legally merged with IKON, and GE Capital acquired certain assets and liabilities of IOS including its operation that administers the leases at issue in this action.

IKON often sells Copier Equipment through bundled cost-per-copy or other lease/rental contracts ("IKON Contracts"). The IKON Contracts provide businesses with equipment financing, bundled with supplies, parts and services for a fixed period, typically five (5) years. It has been the practice of Newcal and other competitors to make bids to IKON customers in which they offer to replace the IKON Copier Equipment and pay for the "buy-out" or "lease-end" charges due under the IKON Contract. Newcal alleges that the economics of the contracts makes it impracticable to do so until approximately 70% of the lease has run. During the five year period of the IKON contract, however, IKON often secures one or more amendments to the IKON Contracts that extend the period of time that customers are under contract with IKON. Such amendments are usually secured at the same time that IKON replaces or adds copier equipment or accessories or otherwise changes the terms the original contract. By lengthening the contract term, IKON reduces the ability of Newcal and other competitors to make deals with IKON customers to replace IKON Copier Equipment.

Newcal alleges that IKON acquires both the original IKON Contracts and the amendments that lengthen IKON Contracts through a pattern of "fraudulent, unfair, and otherwise unlawful practices." In terms of the original contract, for example, IKON allegedly falsely represents or conceals its intent to extend the term of the IKON Contract beyond the original term of 60 months. In terms of the amendments, IKON allegedly uses a variety of tactics to conceal the fact that the contract term is being extended when customers sign a contract amendment. For example, IKON uses "pretexts" such as claiming the customer is eligible for a "free" machine or accessories to induce the customer to sign the amendment without calling the customer's attention to, or even misrepresenting, the fact that the amendment lengthens the contract term. Newcal also alleges that IKON designed the amendment forms and trains its employees in ways intended to reduce the customers' ability to know that their contract terms were being extended. According to Newcal, IKON's pattern of business practices allows it to obtain new customers at lower costs than other Copier Equipment dealers and make supracompetitive profits from the amended contracts.

Newcal's complaint asserts twelve claims for relief, including federal law claims under the Sherman Act, Lanham Act, RICO, and Declaratory Judgment Act; and state law claims for tortious interference with business relations and violations of the California Business and Professions Code. IKON seeks dismissal of each claim asserted by Newcal pursuant to Federal Rule of Civil Procedure 12(b)(6). GE Capital joins Newcal in seeking dismissal of each claim, but also moves the court specifically to dismiss Newcal's claim for declaratory relief, which is the only claim for relief asserted against GE Capital. The Court heard oral argument on the motions on November 18, 2004.


Dismissal for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) is appropriate if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Homedics, Inc. v. Valley Forge Ins. Co., 315 F.3d 1135, 1138 (9th Cir. 2003), citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957). All allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party. Roe v. City of San Diego, 356 F.3d 1108, 1112 (9th Cir. 2004).

The Ninth Circuit has consistently held that leave to amend should be granted unless the district court "determines that the pleading could not possibly be cured by the allegation of other facts." United States v. Smithkline Beecham Clinical Labs., 245 F.3d 1048, 1052 (9th Cir. 2001), citing Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (internal quotation marks and citations omitted). However, leave to amend need not be given if the plaintiff has repeatedly failed to cure deficiencies by previous amendments or if further amendments are likely to be futile. Allen v. City of Beverly Hills, 911 F.2d 367, 373 (9th Cir. 1990).


A. Antitrust Claims

Six of Newcal's twelve claims are alleged violations of Sections 1 and 2 of the Sherman Antitrust Act.*fn1 With respect to all of Newcal's antitrust claims, IKON argues that Newcal has failed to allege a legally sufficient relevant market. To establish a claim under Section 1, a plaintiff must show that: 1) there was a contract, combination, or conspiracy; 2) the agreement unreasonably restrained trade under either a per se rule of illegality or a rule of reason analysis; and 3) the restraint affected interstate commerce. T.W. Electrical Service, Inc. v. Pacific Electrical Contractors Assoc., 809 F.2d 626, 632-33 (9th Cir. 1987). Claims for violation of Section 2 must allege two elements: (1) the possession of monopoly power in the relevant market; and (2) the willful acquisition or maintenance of that power. Amarel v. Connell, 102 F.3d 1494, 1521 (9th Cir. 1996), citing United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966).

To prevail on either type of claim, Newcal must show, among other things, that IKON has market power in the relevant product market. See, e.g., Rebel Oil Co., Inc. v. Atlantic Richfield Co., 51 F.3d 1421, 1444 (9th Cir. 1995) (market power required for conspiracy to restrain trade); Eastman Kodak Co. v. Image Technical Serv., Inc., 504 U.S. 451, 481 (1992) (market power required for monopolization); Datagate, Inc. v. ...

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