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The Morning Star Packing v. Sk Foods

September 30, 2011



Defendants Ingomar Packing Company, Los Gatos Tomato Products, Stuart Woolf and Greg Pruett (defendants) have filed a motion to dismiss the RICO, RICO conspiracy and Sherman Acts claims in the seconded amended complaint (SAC) filed by plaintiffs Morning Star Packing Company LP, Liberty Packing Company, LLC, California Fruit and Tomato Kitchens, LLC and the Morning Star Company (plaintiffs). The motion was submitted without argument. L.R. 230(g).

I. Background

The backdrop to this litigation is the FBI's investigation of defendant SK Foods and Scott Salyer, its owner, for alleged price-fixing and bribery in the processed tomato product industry. Plaintiffs, also producers of processed tomato products, allege generally that SK's manipulation of the processed tomato market has harmed them civilly.

Defendants Ingomar Packing Company, Los Gatos Tomato Products, Greg Pruett and Stuart Woolf brought a motion to dismiss plaintiffs' first amended complaint (FAC), which alleged that defendants' conduct violated the Sherman Act, the Racketeering Influenced and Corrupt Organizations Act (RICO), and California common law unfair competition as well as California Business and Professions Code § 17000 et seq. The court denied the motion as to plaintiffs' Sherman Act claims, but granted it as to the California common law and statutory claims as well as the RICO cause of action. ECF No. 115. It noted that plaintiffs had not sufficiently pleaded that the RICO violations proximately caused their injuries. Id. at 12.

On December 10, 2010, plaintiffs filed a second amended complaint, alleging violations of the Sherman Act against defendants SK Foods, Scott Salyer, Randall Rahal, Intramark USA, Ingomar Packing, Greg Pruett, Los Gatos Tomato Products and Stuart Woolf, all of whom the complaint groups as the CTEG defendants, and RICO and conspiracy to violate RICO against all defendants. SAC, ECF No. 116 ¶ 16.*fn1 Defendants have filed a motion to dismiss the SAC, arguing that the SAC fails to state a claim as to the RICO and RICO conspiracy and Sherman Act claims.

II. Standards For A Motion To Dismiss

Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may move to dismiss a complaint for "failure to state a claim upon which relief can be granted." A court may dismiss "based on the lack of cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Balistreri v. Pacifica Police Department, 901 F.2d 696, 699 (9th Cir. 1990).

Although a complaint need contain only "a short and plain statement of the claim showing that the pleader is entitled to relief," ( Fed. R. Civ. P. 8(a)(2)), in order to survive a motion to dismiss this short and plain statement "must contain sufficient factual matter . . . to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, U.S. , 129 S.Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 570 (2007)). A complaint must include something more than "an unadorned, the-defendant-unlawfully-harmed-me accusation" or "'labels and conclusions'" or "'a formulaic recitation of the elements of a cause of action.'" Iqbal, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 555). Determining whether a complaint will survive a motion to dismiss for failure to state a claim is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 129 S.Ct. at 1950. Ultimately, the inquiry focuses on the interplay between the factual allegations of the complaint and the dispositive issues of law in the action. See Hishon v. King & Spalding, 467 U.S. 69, 73 (1984).

In making this context-specific evaluation, this court must construe the complaint in the light most favorable to the plaintiff and accept as true the factual allegations of the complaint. Erickson v. Pardus, 551 U.S. 89, 93-94 (2007). This rule does not apply to "'a legal conclusion couched as a factual allegation,'" (Papasan v. Allain, 478 U.S. 265, 286 (1986) (quoted in Twombly, 550 U.S. at 555), nor to "allegations that contradict matters properly subject to judicial notice" or to material attached to or incorporated by reference into the complaint. Sprewell v. Golden State Warriors, 266 F.3d 979, 988-89 (9th Cir. 2001). A court's consideration of documents attached to a complaint or incorporated by reference or matter of judicial notice will not convert a motion to dismiss into a motion for summary judgment. United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003); Parks School of Business v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995); compare Van Buskirk v. CNN, 284 F.3d 977, 980 (9th Cir. 2002) (noting that even though court may look beyond pleadings on motion to dismiss, generally court is limited to face of the complaint on 12(b)(6) motion).

III. RICO and RICO Conspiracy Claims

Plaintiffs and defendants are in the business of turning tomatoes into processed tomato products, such as tomato paste and pasta sauce. SAC ¶¶ 24-25. The products are generally sold to large corporate purchasers, such as Kraft Foods, Frito-Lay, and Safeway, which employ purchasing agents to undertake the competitive bidding system for the products. SAC ¶¶ 26-28. Because a single contract typically involves millions of pounds of processed tomato products, even a small pricing difference will affect the total cost of the contract and influence a buyer's decision. SAC ¶ 24.

Plaintiffs allege that Randall Rahal, a sales broker for SK Foods, paid bribes to purchasing agents for large corporate customers, with Salyer's and SK's knowledge, to secure contracts for SK Foods and to receive confidential information about plaintiffs' bids, which defendants then used to structure their own bids. SAC ¶¶ 33, 35, 69-70.

In addition, plaintiffs assert that in 2005, SK Foods and its president Salyer, along with Rahal's company Intramark, joined with former competitors Ingomar and its president Pruett and Los Gatos Tomato Products and its president Woolf to fix the price of their processed tomato products, rig bids and allocate the market share among them. SAC ¶¶ 10-14, 72. These defendants created CTEG ostensibly to arrange the sale of processed tomato products overseas but actually to agree on domestic prices. SAC ¶ 77. Salyer, Woolf and Pruett agreed on the prices their companies would charge for tomato paste and diced tomatoes and agreed not to compete for the other's long-standing "legacy" accounts. SAC ¶ 80. They also agreed they would not compete against each other, especially when competing against the plaintiffs, and would submit bids within an agreed price range, which allowed them to focus on competing for plaintiffs' customers. SAC ¶¶ 82-83. The CTEG defendants envisioned controlling the market and eventually crushing competitors, including plaintiffs. SAC ¶ 78. They describe several specific instances, which were not included in the First Amended Complaint: . . . Plaintiffs are informed and believe. . .as the Artley Search

Warrant Affidavit details, in or about April 2007, the CTEG Defendants, as the result of the bribery scheme, were informed that Morning Star had bid $.35/lb. for a contract to sell tomato paste to Kraft. Kraft had been a long time customer of Plaintiffs. Plaintiffs are informed and believe and thereon allege that (1) the CTEG Defendants agreed that Kraft would be a legacy account of SK Foods and Ingomar; (2) the CTEG Defendants were advised that Kraft would still award the contract to one or more of the CTEG Defendants for $.36/lb. as long as no other submitted bids were below $.36/lb. ...

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