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GreenCycle Paint, Inc. v. Paintcare, Inc.

United States District Court, N.D. California

April 11, 2017

GREENCYCLE PAINT, INC., Plaintiff,
v.
PAFNTCARE, INC., et al., Defendants.

          ORDER RE: SECOND MOTIONS TO DISMISS RE: DKT. NOS. 50-52

          MARIA-ELENA JAMES, United States Magistrate Judge.

         INTRODUCTION

         Plaintiff GreenCycle Paint, Inc. ("Plaintiff") alleges Defendants PaintCare, Inc. ("PaintCare"); Clean Harbors Environmental Services, Inc. ("Clean Harbors"); and Stericycle Environmental Solutions ("Stericycle") (collectively, "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 following reasons.

         BACKGROUND

         A. Defendants and the PaintCare Program

         The 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. Id.

         In 2010, California enacted the statewide Architectural Paint[1] 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.

         To fund 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.

         B. Plaintiffs Efforts to Join the PaintCare Program

         Plaintiff 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.

         In 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.

         In 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.

         That 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.

         Between 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.

         Plaintiff 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.

         In 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.

         C. The Alleged Conspiracy

         Plaintiff 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. ¶ 41.

         Defendants' 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.

         LEGAL STANDARD

         A court 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.

         DISCUSSION

         The FAC 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.

         A. Cartwright Act Claim

         1. Standard of Pleading

         The 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) (recognizing same).

         "California 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).

         As 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).

         2. Analysis

         To 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 (2010)).[2]

         a. Agreement

         Plaintiff 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 conspiracy.'").

         Plaintiff 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[3]) 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 result.").

         b. Unreasonable ...


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