United States District Court, N.D. California
ORDER RE: SECOND MOTIONS TO DISMISS RE: DKT. NOS.
MARIA-ELENA JAMES, United States Magistrate Judge.
GreenCycle Paint, Inc. ("Plaintiff") alleges
Defendants PaintCare, Inc. ("PaintCare"); Clean
Harbors Environmental Services, Inc. ("Clean
Harbors"); and Stericycle Environmental Solutions
"Defendants") violated California's antitrust
and unfair competition laws by conspiring to exclude
Plaintiff from the recycled paint market. The Court dismissed
Plaintiffs initial complaint but granted Plaintiff leave to
amend on all claims, which Plaintiff has done. Order, Dkt.
No. 47; see First Am. Compl. ("FAC"), Dkt.
No. 48. Defendants now again move to dismiss all claims.
Clean Harbors Mot., Dkt. No. 50; PaintCare Mot., Dkt. No. 51;
Stericycle Mot., Dkt. No. 52. Plaintiff filed a single
Opposition to Defendants' Motions. Opp'n, Dkt. No.
57. Clean Harbors and PaintCare each filed a Reply (Clean
Harbors Reply, Dkt. No. 62; PaintCare Reply, Dkt. No. 63);
Stericycle joins both Replies (Dkt. No. 65). Having
considered the parties' positions, the relevant legal
authority, and the record in this case, the Court GRANTS IN
PART and DENIES IN PART Defendants' Motions for the
Defendants and the PaintCare Program
American Coatings Association ("AC A") is the
primary trade association of the paint and coatings industry
and represents, among other things, paint and coatings
manufacturers. FAC ¶ 10. The ACA created and is the sole
member of PaintCare, which represents paint manufacturers in
their efforts to plan and operate paint stewardship programs.
2010, California enacted the statewide Architectural
Paint Recovery Program (the
"Program"), Cal. Pub. Res. Code § 48700 et
seq., to reduce leftover paint, promote its reuse and
recycling, and properly manage unwanted leftover paint.
Id. ¶¶8, 13. The California Department of
Resources Recycling and Recovery ("CalRecycle") is
the state agency that oversees the Program. Id.
¶ 9. In 2012, CalRecycle designated PaintCare as the
sole steward for the Program; PaintCare was the only
stewardship organization that submitted a paint stewardship
plan to CalRecycle to implement a paint recovery program (the
"PaintCare Program"). Id. ¶ 8. Clean
Harbors and Stericycle (together, the "Hauler
Defendants") are haulers that work with PaintCare to
transport post-consumer paint collected under the PaintCare
Program. Id. ¶ 23.
the PaintCare Program, consumers pay an additional $0.35 to
$1.60 assessment on all architectural paint sold in
California. Id. ¶ 11. PaintCare receives 100%
of these assessments, and uses them to pay for collection
bins, training materials, transportation of paint from
collection sites, and paint processing. Id. In 2015,
PaintCare collected approximately $34 million in assessments.
Id. ¶ 12.
Plaintiffs Efforts to Join the PaintCare Program
was founded in 2012 as a latex paint processor and
manufacturer. Id. ¶ 21. It opened a latex paint
recycling facility in Oakland, California; while operating,
it was the only latex paint recycler in the San Francisco Bay
Area. Id.; see Id. ¶¶ 19, 43.
April 2012, Plaintiffs Chief Executive Officer, Alan Beilke,
entered into discussions with PaintCare about participating
in the PaintCare Program as a latex paint processor.
Id. ¶ 22. PaintCare introduced Plaintiff to
Stericycle and Clean Harbors (together, the "Hauler
Defendants"). Id. ¶23. Plaintiff
thereafter received contradictory information about the
approval process from Defendants. See Id. ¶ 24.
PaintCare advised Plaintiff to go through the Hauler
Defendants to facilitate receipt of paint under the PaintCare
Program. Id. PaintCare represented that recyclers
had to enter into contracts with the Hauler Defendants and
that the Hauler Defendants decided which recycling facilities
received post-consumer paint. Id. ¶¶
23-24. But according to Fred Gabriel of Clean Harbors,
PaintCare had to approve Plaintiff as a recycler before Clean
Harbors could audit or approve Plaintiff for the receipt of
paint. Id. ¶ 24.
September 2012, Plaintiff again met with Defendants'
representatives to discuss Plaintiffs desire to participate
in the PaintCare Program as a recycler. Id. ¶
25. Glen Dilman of Stericycle informed Beilke that Plaintiff
needed to establish a paint recycling facility that was ready
to receive post-consumer paint before Stericycle would
arrange an audit, which was required prior to Plaintiffs
approval to receive used paint. Id.
month, Plaintiff moved into a 5, 000 square foot facility.
Id. ¶ 26. It was ready to receive and process
paint in November 2012. Id. By December 2012,
Plaintiff had done everything Defendants required to become
an approved latex paint recycling facility and receive paint
under the PaintCare Program. Id. ¶ 27.
Plaintiff also established its own relationship with a
household hazardous waste program to receive post-consumer
paint and began to receive and process paint from this
source. Id. ¶¶ 27-28. Prior to closing,
Plaintiff was in discussions with the cities of Hayward and
Emeryville, Alameda County, and the Bay Area Rapid Transit
("BART") district to sell recycled paint to them.
Id. ¶ 17.
April 2012 and April 2015, Plaintiff repeatedly met with and
spoke to each Defendant about receiving paint under the
PaintCare Program, and Defendants took actions that led
Plaintiff to believe that it would be approved to receive
post-consumer paint. Id. ¶¶ 21-40. Over
the course of dozens of discussions and meetings, Plaintiff
was led to believe that it would receive paint under the
PaintCare Program. See Id. ¶ 30 (Mark
"Winkler of Stericycle told GreenCycle that Stericycle
had 3-4 truckloads of paint per month that needed a
processor, and that GreenCycle would be a suitable
processor."). Defendants' message was that as long
as Plaintiff complied with certain requirements first, then
it would receive paint under the PaintCare Program.
Id. ¶¶ 29, 46. Despite meeting those
requirements, Plaintiff did not receive paint from
Defendants. See Id. ¶¶ 27, 29.
raised its concerns at a July 2014 meeting with Defendants,
CalRecycle, and CalEPA. Id. ¶ 32.
CalRecycle's Howard Levensen urged Defendants to increase
the amount of paint being recycled in the Bay Area by using
facilities like Plaintiffs for paint that is collected in
Alameda, Contra Costa, and other Bay Area counties.
Id. Bill Pollock, the Program Director of the
Alameda County Household Hazardous Waste Program, spoke
directly with Gabriel about using Plaintiff instead of
shipping paint to an out-of-state facility. Id.
¶ 33. Gabriel and Kurt Locke, also with Clean Harbors,
immediately visited Plaintiffs facility to make sure
Plaintiff could receive Clean Harbors' roll-off bins and,
in August 2014, told Plaintiff that Clean Harbors would mail
an audit package for it to complete. Id.
¶¶ 33-34. Plaintiff did not receive the package.
Id. ¶ 34.
April 2014, Steri cycle approved Plaintiff as a recycler for
used latex paint. Id. ¶31. But Plaintiff did
not receive its first shipment of paint under the PaintCare
Program until January 2015; it received its second and final
shipment in March 2015. Id. ¶¶ 31, 40.
Plaintiff received only two shipments despite the fact that
the amount of latex paint collected in California has
increased by approximately 1.4 million gallons-approximately
700 truckloads-since the first year after the adoption of the
Architectural Paint Recovery Program. Id. ¶ 41.
The lack of used latex paint and the realization that it was
not going to receive paint under the PaintCare Program forced
Plaintiff to shut down its paint recycling operations in
April 2015. Id.
The Alleged Conspiracy
contends it was unable to obtain paint because Defendants
entered into a secret agreement to exclude Plaintiff as a
recycler under the PaintCare Program in order to reduce the
amount of recycled paint that was available in the San
Francisco Bay Area market. Id. ¶¶ 29, 36,
40. PaintCare knew that the availability of recycled paint
was a threat to the profits of its members-the largest paint
manufacturers in the country. Id. ¶¶ 10,
14-16, 18. The AC A, PaintCare, and paint manufacturers are
concerned about the negative impact that the sale of recycled
paint, which sells at a discount compared to mid and
high-grade paint products, has on their revenue and profits.
Id. ¶¶ 15-18. Although collection
facilities are concentrated in urban areas, the paint
collected in the Bay Area is shipped out of state, which
increases total program costs. Id. ¶ 13. The
Hauler Defendants agreed to go along with PaintCare's
plan to exclude Plaintiff from the market because they
received larger payments for transporting paint to more
distant facilities in Sacramento and out-of-state.
Id. ¶¶ 20, 48, 53. This also reduced
competition for paint sales in the Bay Area and maintained
sales and profits of PaintCare's members. Id.
¶ 48. Defendants knew that they were excluding an
otherwise qualified recycler from the market. Id.
actions also harmed Bay Area consumers by depriving them of
the opportunity to purchase as much as 100, 000 gallons of
recycled paint per year, and misled all California consumers
by increasing costs over those necessary to run the program.
Id. ¶ 13. Recycled paint sells for
significantly less than newly-produced, or "virgin"
paint; for instance, Plaintiff had a contract to sell
recycled paint to the City of Oakland for $10 per gallon,
while the cost of virgin paint typically sells for $25 to $75
per gallon. Id. ¶ 17. Moreover, consumers pay
the costs for increased transportation through the recycling
fee assessed on each gallon of virgin paint; if Defendants
used local paint recyclers, that assessment could be reduced.
Id. ¶ 48.
may dismiss a complaint under Rule 12(b)(6) when it does not
contain enough facts to state a claim to relief that is
plausible on its face. BellAtl. Corp. v. Twombly,
550 U.S. 544, 570 (2007) (internal quotation marks and
citation omitted). "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,
556 U.S. 662, 678 (2009). "The plausibility standard is
not akin to a 'probability requirement, ' but it asks
for more than a sheer possibility that a defendant has acted
unlawfully." Id. (quoting Twombly, 550
U.S. at 557). "While a complaint attacked by a Rule
12(b)(6) motion to dismiss does not need detailed factual
allegations, a plaintiffs obligation to provide the
'grounds' of his 'entitle[ment] to relief
requires more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do.
Factual allegations must be enough to raise a right to relief
above the speculative level." Twombly, 550 U.S.
at 555 (internal citations and parentheticals omitted). In
considering a motion to dismiss, a court must accept all of
the plaintiffs allegations as true and construe them in the
light most favorable to the plaintiff. Id. at 550.
asserts two claims, the first under the Cartwright Act, Cal.
Bus. & Prof. Code § 16720, and the second under
California's Unfair Competition Law ("UCL"),
Cal. Bus. & Prof. Code § 17200. Id.
¶¶ 44-57. Defendants seek to dismiss both claims.
Cartwright Act Claim
Standard of Pleading
Cartwright Act makes unlawful a "trust, " defined
as a combination of capital, skill, or acts by two or more
persons or businesses to restrict trade, limit production,
increase or fix prices, or prevent competition. Cal. Bus. &
Prof. Code §§ 16702, 16720. The purpose of the
Cartwright Act is to prevent any action which "has as
its purpose or effect an unreasonable
restraint of trade." Corwin v. L.A. Newspaper Serv.
Bureau, Inc., 22 Cal.3d 302, 314 (1978) (emphasis in
original) (citations omitted); Theme Promotions, Inc. v.
News Am. Mktg. FSI, 546 F.3d 991, 1000 (9th Cir. 2008)
courts" demand a "high degree of particularity in
the pleading of Cartwright Act violations."
Facebooklnc. v. Power Ventures, Inc., 2009 WL
3429568, at *2 (N.D. Cal. Oct. 22, 2009) (internal quotation
marks omitted) (discussing and applying Twombly to
Cartwright Act claims). "It is not enough merely to
include conclusory allegations that certain actions were the
result of a conspiracy; the plaintiff must allege facts that
make the conclusion plausible." Name.Space, 795
F.3d at 1129 (citing Kendall v. Visa U.S.A., Inc.,
518 F.3d 1042, 1047-48 (9th Cir. 2008)). "This standard
does not impose a 'probability requirement, ' but
'simply calls for enough fact to raise a reasonable
expectation that discovery will reveal evidence of illegal
agreement.'" Id. (quoting Twombly,
550 U.S. at 556).
such, "Cartwright Act claims are properly dismissed
'where the complaint makes conclusory allegations of a
combination and does not allege with factual particularity
that separate entities maintaining separate and independent
interests combined for the purpose to restrain
trade.'" In re Netflix Antitrust Litig.,
506 F.Supp.2d 308, 320 (N.D. Cal. 2007) (quoting Freeman
v. San Diego Ass 'n of Realtors, 77 Cal.App.4th 171,
189 (1999)). Among other things, when faced with two possible
explanations for a defendant's behavior, a plaintiff
cannot offer allegations that are "merely consistent
with" their favored explanation but are also consistent
with the defendant's alternative explanation. In re
Century Aluminum Co. Sec. Litig., 729 F.3d 1104, 1108
(9th Cir. 2013) (citing Iqbal, 556 U.S. at 678).
"Something more is needed, such as facts tending to
exclude the possibility that the alternative explanation is
true, ... in order to render plaintiffs' allegations
plausible within the meaning of Iqbal and
Twombly." Id. But where a plaintiffs
allegations are stuck in "neutral territory, "
i.e., they do not tend to exclude the innocent explanation,
such allegations fall short of what Iqbal and
Twombly require. See Id. at 1108-10
(affirming dismissal of Securities Act claim where
plaintiffs' allegations were "merely consistent with
both their explanation and the defendants' competing
explanation"); see also Gonzalez v. Planned
Parenthood of L.A., 759 F.3d 1112, 1116 (9th Cir. 2014),
cert, denied sub nom. Gonzalez v. Planned Parenthood of
L.A., Cal., 135 S.Ct. 2313 (2015) (affirming dismissal
where plaintiffs allegation that defendant knowingly
submitted false claims was only "merely
possible rather than plausible, " and could not
overcome the plausible and obvious explanation that defendant
did not knowingly submit false claims (internal quotation
marks omitted; emphasis in original)); Eclectic Props. K,
LLC v. Marcus & Millichap Co., 751 F.3d 990, 996 (9th
Cir. 2014) (explaining that courts "must consider"
"obvious alternative explanation[s]" for a
defendant's behavior when analyzing plausibility);
Somers v. Apple, Inc., 729 F.3d 953, 965 (9th Cir.
2013) (affirming dismissal of antitrust claim in part due to
an obvious alternative explanation for music pricing).
establish liability under Section 1 of the Sherman Act (and
consequently, the Cartwright Act), "a plaintiff must
prove (1) the existence of an agreement, and (2) that the
agreement was in unreasonable restraint of trade."
Aerotec Int'l, Inc. v. Honeywell Int'l,
Inc., 836 F.3d 1171, 1178 (quoting Am. Needle, Inc.
v. Nat'l Football League, 560 U.S. 183, 189-90
alleges facts to show that Defendants' acts were
concerted. To plausibly plead a conspiracy, an antitrust
plaintiff must allege "parallel behavior that would
probably not result from chance, coincidence, independent
responses to common stimuli, or mere interdependence unaided
by an advance understanding among the parties."
Twombly, 550 U.S. at 556 n.4 (quoting 6 Areeda &
Hovenkamp, Antitrust Law § 1425, at 167-85 (2d ed.
2003)). The conspirators must have a unity of purpose or a
common design and understanding. Am. Tobacco Co. v.
United States, 328 U.S. 781, 810 (1946); see also
William O. Gilley Enters., Inc. v. Ail. Richfield Co.,
588 F.3d 659, 663 (9th Cir. 2009) ("Whether a plaintiff
pursues a per se claim or a rule of reason claim . . ., the
first requirement is to allege a 'contract, combination
in the form of trust or otherwise, or
has now "plead[ed] not just ultimate facts (such as a
conspiracy), but evidentiary facts" in support of the
elements of its claims. William O. Gilley Enters.,
588 F.3d at 659. Plaintiff alleges that PaintCare-the sole
stewardship organization of California's Architectural
Paint Recovery Program-was created by the ACA, which is owned
by the largest paint manufacturers in the country. FAC
¶¶ 8-10. The FAC alleges PaintCare considers
recycled paint to be a threat to its owners' profits
because virgin paint, sells for significantly more than
recycled paint. Id. ¶¶ 14-18, 48.
Plaintiff contends that to prevent cheaper recycled paint
from competing with more expensive virgin paint in the
lucrative Bay Area market, Defendants agreed that Clean
Harbors and Stericycle would ship paint to more distant
recycling facilities, thus removing the threat of recycled
paint in the Bay Area to PaintCare's owners. Id.
¶ 20. In doing so, Defendants also agreed to refuse to
do business with Plaintiff to prevent it from recycling paint
in the Bay Area (so Stericycle and Clean Harbors could
collect higher payments for shipping) and to prevent additional
recycled paint from entering the Bay Area market (and risk
competition with PaintCare's owners). Id.
¶¶ 20-21, 41. Plaintiff lists numerous examples
where Defendants plausibly appear to have coordinated their
efforts to prevent Plaintiff from entering the market and
competing (id. ¶¶ 19-20, 23-25, 27, 29,
31, 33-34, 36, 39), which "reasonably tends to prove
that the [defendant] and others had a conscious commitment to
a common scheme designed to achieve an unlawful
objective." Monsanto Co. v. Spray-Rite Serv.
Corp., 465 U.S. 752, 764 (1984) (internal quotation
marks omitted); see also Beltz Travel Serv. Inc. v.
Int'l Air Transp. Ass 'n, 620 F.2d 1360, 1366-67
(9th Cir. 1980) ("Participation by each conspirator in
every detail in the execution of the conspiracy is
unnecessary to establish liability, for each conspirator may
be performing different tasks to bring about the desired