Nicolosi Distributing, Inc. v. FinishMaster, Inc. et al, No. 5:2018cv03587 - Document 71 (N.D. Cal. 2019)
Court Description: ORDER GRANTING 53 DEFENDANTS' MOTION TO DISMISS WITH LEAVE TO AMEND IN PART AND WITHOUT LEAVE TO AMEND IN PART. Signed by Judge Beth Labson Freeman on 4/10/2019.(blflc2S, COURT STAFF) (Filed on 4/10/2019)
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1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 SAN JOSE DIVISION 6 7 NICOLOSI DISTRIBUTING, INC., Plaintiff, 8 v. 9 10 FINISHMASTER, INC., et al., Defendants. 11 United States District Court Northern District of California Case No. 18-cv-03587-BLF ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS WITH LEAVE TO AMEND IN PART AND WITHOUT LEAVE TO AMEND IN PART [Re: ECF 53] 12 Before the Court is Defendants FinishMaster, Inc. (“FinishMaster”) and Uni-Select, Inc.’s 13 14 (“Uni-Select”) motion to dismiss Plaintiff Nicolosi Distributing, Inc.’s (“Nicolosi”) First 15 Amended Complaint. Mot., ECF 53. The Court held a hearing on the motion on March 7, 2019. 16 For the reasons stated on the record and as set forth below, the motion is GRANTED WITH 17 LEAVE TO AMEND IN PART AND WITHOUT LEAVE TO AMEND IN PART. 18 19 I. BACKGROUND In its order denying Plaintiff’s motion for preliminary injunction and granting Defendants’ 20 motion to dismiss Plaintiff’s Complaint, the Court detailed the factual background of this case. 21 See MTD Order, ECF 49. In brief, Nicolosi is a small distributor of automotive paints and 22 supplies in the San Francisco Bay Area. First Am. Compl. (“FAC”) ¶¶ 29, 38, ECF 50. 23 FinishMaster, a wholly owned subsidiary of Uni-Select, is a large automotive paint and supplies 24 distributor and a direct competitor of Nicolosi. FAC ¶¶ 30–32. In this action, Nicolosi accuses 25 Defendants of various antitrust violations resulting from FinishMaster’s alleged use of exclusive 26 dealing contracts with autobody shops (including huge up-front payments by FinishMaster and 27 super-deep price discounts for the customer), its acquisition of smaller competitor-distributors, and 28 its unlawful tying of products. See generally FAC. Nicolosi also accuses Defendants of unlawful 1 discriminatory pricing. The Court previously granted with leave to amend Defendants’ motion to dismiss 2 3 Plaintiff’s Complaint (“MTD Order”). The Court first details that order and then describes the 4 new allegations in Plaintiff’s FAC aimed at remedying the deficiencies the Court identified in its 5 MTD Order. A. 7 In its MTD Order, the Court held that Nicolosi failed to state a claim for any of its four 8 causes of action (under Sections 1 and 2 of the Sherman Act and related state law claims) and that 9 Nicolosi failed to allege that the Court has personal jurisdiction over Uni-Select. The Court first analyzed Nicolosi’s cause of action under Section 1 of the Sherman Act, 15 10 United States District Court Northern District of California The Court’s MTD Order 6 11 U.S.C. § 1. The Court held that Nicolosi had, for several reasons, failed to demonstrate that 12 FinishMaster’s exclusive dealing contracts “sufficiently foreclosed competition in a substantial 13 share of the line of commerce affected,” as required to state a claim under Section 1. MTD Order 14 at 6. 15 First, Nicolosi failed to plausibly allege that Bay Area A-list shops who purchase Axalta 16 paint constitute the relevant market. Geographically, Nicolosi failed to demonstrate why the nine- 17 county Bay Area constituted the appropriate “area of effective competition where buyers can turn 18 for alternate sources of supply.” Id. at 6–7 (quoting Morgan, Strand, Wheeler & Biggs v. 19 Radiology, Ltd., 924 F.2d 1484, 1490 (9th Cir. 1991)). Nicolosi also had improperly defined the 20 market based on the type of customer—namely the list level of body shops—as opposed to based 21 on the products sold. Id. at 7 (citing Newcal Indus., Inc. v. Ikon Office Sol., 513 F.3d 1038, 1045 22 (9th Cir. 2008)). Because Nicolosi had not distinguished A-, B-, and C-list shops in terms of their 23 ability or desire to purchase paint, it had not properly alleged that B- and C-list shops should be 24 excluded from the relevant market. Similarly, Nicolosi failed to allege why Axalta paint did not 25 have economic substitutes in the market that should be included in the market definition. Id. 26 Second, Nicolosi failed to demonstrate that FinishMaster had foreclosed a substantial share 27 of the market because it had alleged that Finishmaster had at most 33% of the market share, but 28 even that amount was dubious given the allegation that other major distributors exist in the market 2 1 and potentially share in the unaccounted-for 33% of the market. Id. Third, and finally, Nicolosi failed to allege that FinishMaster’s activities had any anti- 2 3 competitive effects in the market, such as reduced economic output or increased prices for 4 consumers. Id. at 7–8. The Court then held that these deficiencies also barred Nicolosi’s Section 2 claim. 5 6 Nicolosi’s failure to plausibly allege an appropriate relevant market, what percentage of the 7 market FinishMaster had captured, and any anti-competitive impacts on the market caused by 8 FinishMaster’s acts doomed its Section 2 claim. Because the Court dismissed both federal law 9 claims, it also dismissed Nicolosi’s derivative state law claims. Id. at 8–9. The Court then held that Nicolosi failed to plausibly allege that the Court has personal United States District Court Northern District of California 10 11 jurisdiction over Uni-Select. Nicolosi did not rely on general jurisdiction, but instead alleged that 12 the Court had specific jurisdiction over Uni-Select seemingly based on Uni-Select’s status as 13 FinishMaster’s parent company (and thus based on FinishMaster’s actions in the state) and based 14 on Uni-Select’s actions in the state through its provision of funds directly to FinishMaster. The 15 Court rejected both sets of allegations as insufficient to allege personal jurisdiction over Uni- 16 Select. 17 B. 18 In its First Amended Complaint, Nicolosi attempts to remedy the deficiencies identified in The First Amended Complaint 19 this Court’s MTD Order and brings additional claims against Defendants. See Opp. at 1–2, ECF 20 54 (chart setting forth new allegations and deficient areas they attempt to address). 21 Nicolosi includes new allegations aimed at more clearly delineating the relevant market. 22 As to geography, it reduces the size of the market from a nine-county Bay Area market to a four- 23 county Bay Area market. See, e.g., FAC ¶¶ 40, 106. Nicolosi supports this geographic limitation 24 by alleging that customers generally require delivery of the paint on a same-day basis. FAC ¶ 105. 25 As such, distributors, including FinishMaster, have a “pattern and practice” of having distribution 26 centers “in close proximity to the auto body shop customers,” leading to shops throughout each 27 county. FAC ¶¶ 105, 107, 110. Moreover, the distributors have agreements that are granted on a 28 “county-by-county basis,” based on “long-established custom and practice of the paint 3 1 manufacturers.” FAC ¶ 105. Nicolosi alleges that each of these facts indicates that the market 2 should be defined as a “local county-by-county geographic market.” FAC ¶ 110. Nicolosi also 3 added allegations to support its argument that Axalta paint does not have economic substitutes in 4 the market. Though Nicolosi admits that paint brands are “more or less interchangeable” and that 5 a “shop can switch” the paint brand it purchases, Nicolosi alleges that “it’s a hugely complicated 6 process that is in fact rarely done.” FAC ¶ 162. By contrast, Nicolosi did not add new allegations 7 to further delineate the A-, B-, and C-list shops in terms of their willingness or ability to purchase 8 paint. Though at times Nicolosi appears to allege that the relevant market is A- and B-list shops, 9 elsewhere he clearly limits the market to A-list shops only. See, e.g., FAC ¶¶ 66, 101. United States District Court Northern District of California 10 As to FinishMaster’s market share, Nicolosi alleges that FinishMaster has approximately 11 85% of the A-list body shop market. FAC ¶¶ 66, 101, 143. Elsewhere, Nicolosi alleges that 12 smaller distributors “account for selling approximately two-thirds of the Bay Area Market.” 13 FAC ¶ 66. 14 As to the anti-competitive impacts on the market, Nicolosi alleges that FinishMaster’s 15 vertical exclusive supply and tying restraints do not enhance Interbrand competition or provide 16 other market efficiencies because they have not improved FinishMaster’s provision of services to 17 customers. FAC ¶¶ 44–47, 112. FinishMaster’s exclusive dealing contracts, which come with 18 deep up-front payments and discounts to the customer, in tandem with FinishMaster’s purchasing 19 of small distributors in the area, has kept other smaller distributors from selling to A-list 20 customers, and leads to a cycle of FinishMaster purchasing smaller distributors and gaining more 21 of the market. FAC ¶¶ 66, 125. Nicolosi alleges that, at least as to one business, if FinishMaster 22 were not allowed to use exclusive supply agreements, Nicolosi could “provide a matching or 23 better offer” to the customer. FAC ¶ 92. 24 As to the Court’s personal jurisdiction over Uni-Select, Nicolosi alleges that Uni-Select 25 funds FinishMaster’s actions, intending as part of its business strategy for FinishMaster to use the 26 money to purchase smaller distributors and fund the up-front discounts to the A-list customers in 27 California. FAC ¶¶ 8, 31, 34, 51–55, 78, 233–34, 247, 264. It also alleges that Uni-Select has 28 substantial contacts with California because FinishMaster has activities throughout California, and 4 1 2 As with the original Complaint, based on these alleged actions, Nicolosi asserts the 3 following causes of action: (1) violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, for 4 entering into agreements in restraint of trade; (2) violation of Section 2 of the Sherman Act, 15 5 U.S.C. § 2, for unlawful monopolization and/or attempted monopolization; (3) violation of the 6 Cartwright Act, California Bus. & Prof. Code §§ 16720, 16726; and (4) violation of Cal. Bus. & 7 Prof. Code § 17200, et seq. 8 United States District Court Northern District of California Uni-Select is FinishMaster’s parent company. FAC ¶¶ 32, 33. Nicolosi also asserts the following new causes of action against Defendants, supported by 9 new allegations: (5) price discrimination in violation of the Robinson-Patman Act, 15 U.S.C. § 10 13(f); (6) secret rebates in violation of Cal. Bus. & Prof. Code § 17045; (7) tying in violation of 11 Section 1 of the Sherman Act, 15 U.S.C. § 1; and (8) tying in violation of Cal. Bus. & Prof. Code 12 § 16727. 13 To support its Robinson-Patman Act claims, Nicolosi alleges that Defendants knowingly 14 induce and receive discriminatory price discounts from Axalta, the paint manufacturer, that are not 15 offered to Nicolosi and other small distributors. FAC ¶¶ 202–240. First, Nicolosi alleges that 16 Axalta gives FinishMaster a $10 million discount on its purchases, but this discount was never 17 offered to Nicolosi. FAC ¶¶ 205–10. Defendants allegedly knew that Nicolosi never received this 18 discount because they purchased all of the distributors large enough to make a similar $10 million 19 order, and because the discount is offered in rush circumstances and FinishMaster knows it is the 20 “go-to entity” in such circumstances because other smaller distributors cannot qualify for such 21 purchases so quickly. FAC ¶¶ 208–09. Second, Nicolosi alleges that Axalta helps FinishMaster 22 provide the up-front discounts offered to the body shops. FAC ¶¶ 223–26. Nicolosi alleges it was 23 never offered similar discounts, FAC ¶ 229; however, it also alleges that Axalta offers it the “top- 24 level of discounts in exactly the same way and level as are similarly available to FinishMaster” 25 and that Axalta “has a corporate policy of giving all distributors the same discount packages.” 26 FAC ¶¶ 85–86; see also FAC ¶¶ 91–92 (alleging Axalta gave Nicolosi “special discounting 27 arrangements”). 28 These same allegations underpin Nicolosi’s secret rebate claim. See, e.g., FAC ¶¶ 245, 5 1 247 (alleging $10 million discount and up-front discount are not offered to Nicolosi on same 2 terms). Nicolosi claims that both the $10 million discount and the up-front monies discount are 3 kept secret. FAC ¶¶ 247–48. Nicolosi is injured by these acts because Axalta is helping its 4 competitor and keeping it out of the market. See, e.g., FAC ¶ 250–57. 5 Finally, Nicolosi alleges that in FinishMaster’s exclusive supply agreements with body 6 shops, it unlawfully ties the purchase of paint to the purchase of all nonpaint supplies. FAC ¶¶ 7 258–84. As proof, Nicolosi quotes portions of an exclusive supply agreement FinishMaster uses 8 that says that the customer “shall purchase 100% of its paint and material requirements 9 exclusively” from FinishMaster. FAC ¶ 272. These tying arrangements have excluded Nicolosi 10 United States District Court Northern District of California 11 12 from selling even nonpaint products to A-list autobody shops. See, e.g., FAC ¶ 267. II. LEGAL STANDARD “A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a 13 claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation 14 Force v. Salazar, 646 F.3d 1240, 1241–42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 15 729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts 16 as true all well-pled factual allegations and construes them in the light most favorable to the 17 plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the 18 Court need not “accept as true allegations that contradict matters properly subject to judicial 19 notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or 20 unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) 21 (internal quotation marks and citations omitted). While a complaint need not contain detailed 22 factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a claim to 23 relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. 24 Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the 25 court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. 26 If the Court concludes that the complaint should be dismissed, it must then decide whether 27 to grant leave to amend. Under Rule 15(a) of the Federal Rules of Civil Procedure, leave to 28 amend “shall be freely given when justice so requires,” bearing in mind “the underlying purpose 6 1 of Rule 15 . . . [is] to facilitate decision on the merits, rather than on the pleadings or 2 technicalities.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (internal quotation 3 marks and citation omitted). Nonetheless, a district court may deny leave to amend a complaint 4 due to “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure 5 deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue 6 of allowance of the amendment, [and] futility of amendment.” See Leadsinger, Inc. v. BMG Music 7 Publ’g, 512 F.3d 522, 532 (9th Cir. 2008). 8 III. United States District Court Northern District of California 9 DISCUSSION After reviewing the relevant briefing and hearing argument on the record, the Court finds 10 that Nicolosi has failed to (1) state a claim for any of its eight causes of action; and (2) to 11 demonstrate that this Court has personal jurisdiction over Uni-Select. 12 13 14 15 The Court first revisits Nicolosi’s four original causes of action, and then discusses each new cause of action in turn. The Court then discusses personal jurisdiction over Uni-Select. A. Claims 1–4: Sherman Act Sections 1 and 2; Cartwright Act, Cal. Bus. & Prof. Code §§ 16720, 16726; and California Unfair Competition Law, Cal. Bus. & Prof. Code § 17200, et seq. 16 The FAC defines the relevant product and geographic markets as “a submarket of 17 distribution of Axalta-made automotive paint lines and 3M sandpaper, tape, masking paper, and 18 other related non-paint auto body supplies to A- List auto body shops located in either of San 19 Mateo County, Santa Clara County, Alameda County or San Francisco County.” FAC ¶ 40. 20 Nicolosi’s FAC goes some way toward remedying the deficiencies from its Complaint with 21 respect to the relevant market, such as the geographic scope and the limitation to Axalta paint. 22 However, Nicolosi has made no modification to the limitation to A-list customers, as opposed to 23 A-, B-, and C- list customers. In any event, on all three points Nicolosi has not plausibly alleged 24 that FinishMaster has foreclosed a substantial enough portion of the relevant market to be liable 25 under the Sherman Act and related state laws. 26 First, Nicolosi has narrowed its alleged geographic market from the nine-county Bay Area 27 to only four counties— San Mateo, Santa Clara, Alameda, San Francisco—alleging that the 28 market is defined by same-day delivery requirements. See, e.g., FAC ¶ 105. Although same-day 7 United States District Court Northern District of California 1 delivery may factually support a narrow geographic market, Nicolosi’s inclusion of four 2 neighboring counties is not plausible because there is no reason to exclude other neighboring 3 counties, even under Plaintiff’s own reasoning. For example, Plaintiff’s market would exclude an 4 autobody shop in Orinda (Contra Costa County) purchasing from a distributor in Oakland 5 (Alameda County), where the distance between the two is only 8.6 miles. See Google Maps, 6 maps.google.com (Oakland, CA to Orinda, CA). At the same time, Plaintiff’s market would 7 include an autobody shop in Livermore (Alameda County) purchasing from the same Oakland 8 distributor, where the distance is 33 miles. Id. (Livermore, CA to Oakland, CA). Or more 9 expansively, it would include an autobody shop in Gilroy (Santa Clara County) purchasing from a 10 distributor in Livermore (Alameda County), where the distance is over 60 miles. Id. (Gilroy, CA 11 to Livermore, CA). Because Nicolosi does not allege why these discrepancies make sense given 12 the market, Nicolosi’s narrow market is simply not plausible. See Twombly, 550 U.S. at 570. 13 Though Nicolosi defines the geographic market in terms of its own customer base, see FAC ¶ 106, 14 and alleges that distributors have stores on a “county-by-county” basis, FAC ¶ 105, these 15 limitations do not explain the discrepancies above and thus are not enough to allege a plausible 16 market. See Sidibe v. Sutter Health, 4 F. Supp. 3d 1160, 1175 (N.D. Cal. 2013) (holding 17 complaint insufficiently alleged relevant geographic market in part because “Plaintiffs provide[d] 18 no factual allegations to support drawing lines at [] county borders”); see also Concord Assocs., 19 L.P. v. Entm’t Properties Tr., 817 F.3d 46, 53–55 (2d Cir. 2016) (affirming dismissal of complaint 20 because it did not plausibly allege that geographic market for racing/gambling market should be 21 limited to the Catskills). 22 Second, Nicolosi seeks to limit the relevant market to a single paint brand, Axalta. But it 23 acknowledges that paint brands are interchangeable and offers only a conclusory reason to limit 24 the market to a single brand. The totality of Plaintiff’s allegations is set forth in FAC ¶ 162, which 25 states: “Paint brands are more or less interchangeable; yes a shop can switch, but it’s a hugely 26 complicated process that is in fact done rarely.” This allegation simply is not sufficient to make 27 Plaintiff’s claim of lack of interchangeability plausible. See Apple, Inc. v. Psystar Corp., 586 F. 28 Supp. 2d 1190, 1198 (N.D. Cal. 2008) (holding complaint did not plausibly allege single-brand 8 1 market because “[s]ingle-brand markets are, at a minimum, extremely rare” and the complaint 2 “fail[ed] to allege facts plausibly supporting the counterintuitive claim that Apple’s operating 3 system is so unique that is suffers no actual or potential competitors”). Third, Nicolosi asks this Court to find that A-list customers constitute a “customer-type United States District Court Northern District of California 4 5 submarket,” and thus can be a relevant market. Opp. at 3–5. But black-letter law dictates that to 6 define the relevant market, courts look to the geographic market and the product market, not the 7 customer market. See Brown Shoe Co. v. United States, 370 U.S. 294, 324 (1962) (“The ‘area of 8 effective competition’ must be determined by reference to a product market (the ‘line of 9 commerce’) and a geographic market (the ‘section of the country’).”); Oltz v. St. Peter’s Cmty. 10 Hosp., 861 F.2d 1440, 1446 (9th Cir. 1988) (“The term ‘relevant market’ encompasses notions of 11 geography as well as product use, quality, and description.”). The product market is not defined in 12 terms of the customer, but rather “includes the pool of goods or services that enjoy reasonable 13 interchangeability of use and cross-elasticity of demand.” Oltz, 861 F.2d at 1446; see also United 14 States v. E. I. du Pont de Nemours & Co., 351 U.S. 377, 395 (1956) (“[N]o more definite rule can 15 be declared than that commodities reasonably interchangeable by consumers for the same 16 purposes make up that ‘part of the trade or commerce’, monopolization of which may be illegal.”). 17 As the Ninth Circuit has made clear, “the relevant market must be a product market. The 18 consumers do not define the boundaries of the market; the products or producers do.” Newcal 19 Indus., Inc. v. Ikon Office Sol., 513 F.3d 1038, 1045 (9th Cir. 2008) (emphasis in original) 20 (footnote omitted) (citing Brown Shoe, 370 U.S. at 325). Put another way, “[t]he relevant 21 market . . . includes the full range of selling opportunities reasonably open to rivals, namely, all 22 the product and geographic sales they may readily compete for, using easily convertible plants and 23 marketing organizations.” Omega Envt’l., Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1162 (9th Cir. 24 1997) (quoting 2A Philip E. Areeda et al., Antitrust Law ¶ 570b1 at 278 (1995)).1 Here, Nicolosi has not alleged why B-list and C-list shops should not be “include[d] in the 25 26 full range of selling opportunities reasonably open” to Nicolosi as a rival of FinishMaster. 27 28 Nicolosi’s reliance on CACI 3414, see Opp. at 5, is misplaced, as that jury instruction pertains to defining the geographic market, not the product market. 9 1 1 Because Nicolosi fails to allege why B- and C-list shops would not desire to or cannot purchase 2 paint from Nicolosi or why Nicolosi could not otherwise sell to these shops, it has failed to show 3 that these consumers should be excluded from the relevant market, particularly where there is only 4 a single product at issue with no alleged differentiation. In fact, at the hearing on the motion, 5 Nicolosi’s counsel conceded that he created the term “A-list, and that “A-list” is not an accepted 6 industry term. United States District Court Northern District of California 7 With B- and C-list shops included in the market, Nicolosi alleges at most that FinishMaster 8 has 33% of the market, see FAC ¶ 66(f), but even that is not a plausible inference because 9 Nicolosi alleges that the “smaller” distributors have two-thirds of the market share, leaving the 10 three larger distributors (one of which is FinishMaster) and the manufacturers themselves to share 11 the remaining 33%. FAC ¶¶ 62, 66, 96. An allegation that the defendant has less than 33% 12 market share is not sufficient to establish a Section 1 or Section 2 claim, particularly in light of the 13 fact that the FAC does not provide any details concerning the exclusivity agreements themselves, 14 such as the duration of the agreements or what proportion of FinishMaster’s sales are a result of 15 such agreements. See Feitelson v. Google Inc., 80 F. Supp. 3d 1019, 1029–30 & n.8 (N.D. Cal. 16 2015) (substantial share is “40–50% of the relevant market”); Rebel Oil Co. v. Atl. Richfield Co., 17 51 F.3d 1421, 1438 (9th Cir. 1995) (50% and 30% market shares are presumptively insufficient to 18 establish market power for actual and attempted monopolization claims, respectively). What’s 19 more, Nicolosi still fails to plausibly allege that any of FinishMaster’s actions, be it buying up 20 smaller distributors or entering into exclusive supply agreements, has an anticompetitive effect on 21 the market, such as reduced output or increased prices. See Coal. for Icann Transparency Inc. v. 22 Verisign, Inc., 464 F. Supp. 2d 948, 964 (N.D. Cal. 2006). Quite the contrary, Nicolosi alleges 23 that these acts have led to price discounts for customers. See FAC ¶¶ 66, 88, 93. 24 For these reasons, Nicolosi’s Sherman Act 1 and 2 claims fail. Because Nicolosi has 25 already had the opportunity to amend as to these same deficiencies, further amendment would be 26 futile. And because Nicolosi’s state law claim under the Cartwright Act, California Bus. & Prof. 27 Code §§ 16720, 16726, is based on the same underlying actions as its federal antitrust claims, its 28 state law antitrust claim similarly fails. See Opp. at 15–17; Eastman v. Quest Diagnostics Inc., 10 1 724 F. App’x 556, 559 n.2 (9th Cir. 2018). Likewise, to the extent Nicolosi’s claim under Cal. 2 Bus. & Prof. Code § 17200, et seq., is premised on this conduct, it too fails. 3 For the foregoing reasons, Nicolosi’s claims 1–4 are DISMISSED WITH PREJUDICE. 4 B. 5 Nicolosi’s next claim is for unlawful price discrimination under the Robinson-Patman Act 6 (“RPA”), 15 U.S.C. § 13(f) based on Axalta allegedly giving FinishMaster 10% discounts on $10 7 million purchases and Axalta’s sharing in FinishMaster’s up-front rebates to body shops. See, 8 e.g., FAC ¶¶ 85–86, 91–92, 202–240. United States District Court Northern District of California 9 Claim 5: Price Discrimination, Robinson-Patman Act, 15 U.S.C. § 13(f) The RPA “prohibits sellers from discriminating on price in the sale of like goods, and 10 thereby reducing competition, unless the price differential can be justified by savings to the 11 seller.” Gorlick Distribution Centers, LLC v. Car Sound Exhaust Sys., Inc., 723 F.3d 1019, 1021 12 (9th Cir. 2013). The RPA contains a counterpart provision that makes it unlawful for buyers 13 “knowingly to induce or receive a discrimination in price which is prohibited by this section.” Id. 14 (quoting 15 U.S.C § 13(f)). A buyer can only be liable under the RPA were “the seller is in 15 violation of the Act as well.” Klamath-Lake Pharm. Ass’n v. Klamath Med. Serv. Bureau, 701 16 F.2d 1276, 1283 (9th Cir. 1983); accord Great Atl. & Pac. Tea Co. v. F.T.C., 440 U.S. 69, 77 17 (1979) (“[B]uyer liability under § 2(f) is dependent on seller liability under § 2(a).”). Thus, 18 Nicolosi must allege a violation of the RPA by Axalta under Section 2(a) by pleading the 19 following four elements: “(1) the relevant sales were made in interstate commerce; (2) the 20 products sold were of the same grade and quality; (3) that [the seller] discriminated in price as 21 between [the plaintiff] and another purchaser; and (4) the discrimination had a prohibited effect on 22 competition.” High Tek USA, Inc. v. Heat & Control, Inc., No. 12-CV-00805 YGR, 2012 WL 23 2979051, at *4 (N.D. Cal. July 18, 2012) (citing Texaco Inc. v. Hasbrouck, 496 U.S. 543, 556 24 (1990)). Moreover, to be liable for the seller’s price discrimination, the buyer (FinishMaster) must 25 know “both that (1) [it] was receiving a lower price than a competitor and (2) the seller would 26 have ‘little likelihood of a defense’ for offering that price.” Gorlick, 723 F.3d at 1022. Nicolosi 27 fails to plausibly allege several of these elements. 28 First, Nicolosi has not plausibly alleged that Axalta discriminated in price as between 11 United States District Court Northern District of California 1 Nicolosi and FinishMaster. In fact, Nicolosi’s FAC alleges in several places that Nicolosi receives 2 the same discounts as FinishMaster and that this equality is pursuant to Axalta policy. See, e.g., 3 FAC ¶¶ 85–86, 91–92. Though elsewhere Nicolosi alleges it was never offered the $10 million 4 discount, FAC ¶¶ 217, 229, these allegations are contradicted by the FAC’s other allegations. 5 Without some additional evidence of discrimination, use of a volume discount does not plausibly 6 imply price discrimination where there may be a legitimate reason that the seller is using such a 7 discount. See Automatic Canteen Co. of Am. v. FTC, 346 U.S. 61, 71 (1953). Nicolosi also fails 8 to allege that there was price discrimination between “two completed, substantially 9 contemporaneous sales by the same seller.” Design & Office Concepts, Inc. v. Haworth, Inc., No. 10 C-94-20905 PVT, 1995 WL 325986, at *1 (N.D. Cal. May 25, 1995). As to the 10% discount, the 11 FAC is sparse on information regarding when and how Axalta offered the discounts to 12 FinishMaster, and, equally importantly, what discounts it did or did not offer to Nicolosi around 13 the same time for the same goods. As to the up-front rebates, the FAC is similarly deficient and 14 does not clearly allege what up-front rebate help Axalta was or was not offering to Nicolosi when 15 it was allegedly offering such help to FinishMaster. Moreover, Nicolosi has failed to demonstrate 16 how such up-front rebates are tied to the sale of “tangible goods” to FinishMaster, considering the 17 up-front rebates are offered to body shops (not distributors) and the rebate sharing is not otherwise 18 allegedly related to FinishMaster’s purchase of paint from Axalta. See May Dep’t Store v. 19 Graphic Process Co., 637 F.2d 1211, 1214 (9th Cir. 1980). All of these deficiencies also make 20 Nicolosi’s allegations that it suffered injury because of such price discrimination implausible. 21 Second, Nicolosi has not plausibly alleged that FinishMaster knew that Axalta was 22 engaging in any alleged price discrimination. Nicolosi’s allegations of knowledge are largely 23 conclusory. At most, Nicolosi factually alleges that FinishMaster knew that Axalta would go to it 24 instead of other distributors to get quick $10 million revenues and that FinishMaster has bought up 25 everyone big enough to make a similar $10 million order. FAC ¶¶ 206, 207, 209, 226. But such 26 facts do not support a plausible inference that FinishMaster knew that Axalta was not offering 27 such discounts to other distributors contemporaneously or would not offer such discounts to other 28 distributors should they be able to qualify. Indeed, Nicolosi indicates it may have been able to 12 1 qualify, but it itself does not know if Axalta would offer it the discount on certain payment terms. 2 FAC ¶ 208. Without more facts about the price discrimination itself, and how FinishMaster would 3 have known it was anything other than a lawful volume discount, the Court cannot plausibly infer 4 that FinishMaster knowingly received or induced any alleged discriminatory prices. Cf. Gorlick, 5 723 F.3d at 1021 (affirming grant of summary judgment because there was no evidence that the 6 superior prices and discounts “resulted from anything other than the significant differences in how 7 the two companies did business”). 8 United States District Court Northern District of California 9 Because Nicolosi may be able to cure these deficiencies, and because Nicolosi has not previously had an opportunity to amend on this claim, claim 5 is DISMISSED WITH LEAVE TO 10 AMEND. 11 C. 12 Nicolosi next claims that Axalta’s $10 million discount and rebate-sharing constitutes a Claim 6: Secret Rebates, Cal. Bus. & Prof. Code § 17045 13 secret rebate under Cal. Bus. & Prof. Code § 17045. Section 17045 states that “[t]he secret 14 payment or allowance of rebates, refunds, commissions, or unearned discounts, whether in the 15 form of money or otherwise, or secretly extending to certain purchasers special services or 16 privileges not extended to all purchasers purchasing upon like terms and conditions, to the injury 17 of a competitor and where such payment or allowance tends to destroy competition, is unlawful.” 18 A claim under Section 17045 has three elements: “(1) there must be a secret allowance of an 19 unearned discount; (2) there must be injury to a competitor; and (3) the allowance must tend to 20 destroy competition.” PHL Variable Ins. Co. v. Crescent Fin. & Ins. Agency, Inc., No. 16-CV- 21 01307-CAS, 2018 WL 1577709, at *5 (C.D. Cal. Mar. 26, 2018) (citations and internal quotation 22 marks omitted). 23 This claim fails for many of the same reasons as Nicolosi’s RPA claim fails. Because 24 Nicolosi’s allegations are internally inconsistent with respect to whether it received similar 25 discounts as FinishMaster, these facts bely the argument that the $10 million discount was secret. 26 Nicolosi also does not adequately allege that these discounts were “unearned,” including by 27 distinguishing the discount and the up-front rebates from lawful volume discounts. And as with 28 its RPA claim, Nicolosi does not allege that these discounts were “not extended to all purchasers 13 1 purchasing upon like terms and conditions” because it does not allege any contemporaneous 2 purchase by Nicolosi for a different price. But see Packaging Sys., Inc. v. PRC-Desoto Int’l, Inc., 3 268 F. Supp. 3d 1071, 1087 (C.D. Cal. 2017) (holding that a court can plausibly infer a tendency 4 to destroy competition from allegations of discriminatory pricing). 5 Because Nicolosi may be able to cure these deficiencies, and because Nicolosi has not 6 previously had an opportunity to amend on this claim, claim 6 is DISMISSED WITH LEAVE TO 7 AMEND. 8 D. 9 Claims 7 & 8: Tying under Sherman Act Section 1 and Cal. Bus. & Prof. Code § 16727 Finally, Nicolosi alleges that FinishMaster has unlawfully tied the sale of paint to the sale 10 United States District Court Northern District of California 11 of related automotive products. At the hearing, Nicolosi’s counsel confirmed that the only evidence Nicolosi has of this tying is that FinishMaster’s exclusive dealing agreement with the 12 body shops says that the body shops will purchase all of their paint and supplies from 13 FinishMaster. See FAC ¶ 272. The contract does not say that FinishMaster required the body 14 shops to purchase the supplies in order to purchase the paint. But to state a valid tying claim, 15 16 17 18 19 20 Nicolosi must plausibly allege that FinishMaster “condition[ed] the sale of one product (the tying product) on the buyer’s purchase of a second product (the tied product).” Aerotec Int’l, Inc. v. Honeywell Int’l, Inc., 836 F.3d 1171, 1178 (9th Cir. 2016) (citation omitted). A tie only exists where “the defendant improperly imposes conditions that explicitly or practically require buyers to take the second product if they want the first one.” Id. (quoting 10 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 1752b (3d ed. 2011)). “Even when a defendant sells two distinct 21 products and its customers buy them both, we must still ask whether the two products were tied 22 together.” Areeda & Hovenkamp, Fundamentals of Antitrust Law § 17.11B at 17-132 (4th ed. 23 2018). The contract alone does not raise any plausible inference that the shops had to buy the 24 supplies in order to also buy the paint from FinishMaster. Because Nicolosi does not, and 25 26 27 admittedly cannot, allege that FinishMaster conditioned the body shops’ purchase of paint on their purchase of supplies, Nicolosi’s tying claims fail as a matter of law. As such, Nicolosi’s claims 7 and 8 are DISMISSED WITH PREJUDICE. 28 14 1 E. Personal Jurisdiction Over Uni-Select Nicolosi has also failed to plausibly allege that the Court has personal jurisdiction over 2 Uni-Select. Nicolosi does not challenge the Court’s ruling that Uni-Select is not subject to general 3 jurisdiction here. MTD Order. at 9–10. As to specific jurisdiction, the FAC still asserts personal 4 jurisdiction over Uni-Select based on its status as FinishMaster’s parent company, its provision of 5 funds to FinishMaster to fund up-front rebates to body shops, and its alleged involvement in 6 FinishMaster’s business strategy of purchasing smaller distributors and offering up-front rebates. 7 See, e.g., FAC ¶¶ 8, 31, 32, 78, 141. And Nicolosi again relies on the same evidence submitted in 8 support of its opposition to Defendants’ original motion to dismiss, including Uni-Select’s annual 9 reports, FinishMaster’s press releases, excerpts from depositions of various individuals, and 10 exemplar contracts. See Opp. at 23 (citing Franck Decl., Exhs. A–O, ECF 28-3). However, 11 United States District Court Northern District of California Nicolosi does not point to any specific information in this evidence that would bolster its personal 12 jurisdiction argument. See Opp. 23–25 (citing evidence as a whole). 13 These three bases fail to establish personal jurisdiction. As the Court noted in its MTD 14 Order, Uni-Select’s role as a parent corporation is insufficient without allegations or evidence that 15 Uni-Select has pervasive control over FinishMaster. See Ranza v. Nike, Inc., 793 F.3d 1059, 16 1070–71 (9th Cir. 2015); see also Holland Am. Line Inc. v. Wartsila N. Am., Inc., 485 F.3d 450, 17 459 (9th Cir. 2007). Likewise, Nicolosi still does not allege or provide evidence to show that 18 19 provision of funds to FinishMaster by Uni-Select was “purposefully direct[ed]” at California, or FinishMaster’s exclusive agreements therein. See Williams v. Yamaha Motor Co., 851 F.3d 1015, 20 1023 (9th Cir. 2017). Nicolosi, who bears the burden of demonstrating personal jurisdiction, does 21 not cite to a single case in which a parent corporation’s mere funding of a subsidiary corporation 22 or aiding in corporate strategy was sufficient to establish minimum contacts with the forum state. 23 Thus, these alleged facts and the accompanying evidence are insufficient to establish personal 24 jurisdiction over Uni-Select. Because Nicolosi has had the opportunity to amend on this point 25 before, further amendment would be futile. 26 As such, all claims against Uni-Select are DISMISSED WITHOUT PREJUDICE for lack 27 of personal jurisdiction. Plaintiff may refile its claims against Uni-Select in a proper forum. 28 15 1 IV. ORDER For the foregoing reasons and those stated on the record at the hearing, Defendants’ motion 2 to dismiss for failure to state a claim and for lack of personal jurisdiction as to Defendant Uni3 Select is GRANTED WITH LEAVE TO AMEND IN PART AND WITHOUT LEAVE TO 4 AMEND IN PART as follows: 5 1. Claims 1–4 are DISMISSED WITH PREJUDICE. 2. Claims 5 and 6 are DISMISSED WITH LEAVE TO AMEND. 3. Claims 7 and 8 are DISMISSED WITH PREJUDICE. 4. All claims against Uni-Select are DISMISSED WITHOUT PREJUDICE to Uni- 6 7 8 9 Select’s refiling them in a proper forum. 10 Nicolosi’s second amended complaint is due on or before May 13, 2019. Plaintiff may not add 11 United States District Court Northern District of California parties or claims without leave of the Court. 12 13 IT IS SO ORDERED. 14 15 Dated: April 10, 2019 16 17 18 ______________________________________ BETH LABSON FREEMAN United States District Judge 19 20 21 22 23 24 25 26 27 28 16
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