All Star Carts and Vehs. v. Bfi Canada Income Fund

• Decision Date: 04 February 2009
• Docket Number: No. CV 08-1816.,CV 08-1816.
• Parties: ALL STAR CARTS AND VEHICLES, INC., H.B. Millwork, Inc., and Electronics Company, Inc., on behalf of themselves and all others similarly situated, Plaintiffs, v. BFI CANADA INCOME FUND, IESI Corp., IESI N.Y. Corp., Winters Bros. Recycling Corp., Winters Bros Waste Systems, Inc., Waste Management of New York, LLC. Allied Waste Industries, Inc., Allied Waste of Long Island, Inc. and Island Waste Services, Ltd., Defendants.
• Court: U.S. District Court — Eastern District of New York

Page 630

596 F.Supp.2d 630

ALL STAR CARTS AND VEHICLES, INC., H.B. Millwork, Inc., and Electronics Company, Inc., on behalf of themselves and all others similarly situated, Plaintiffs, v. BFI CANADA INCOME FUND, IESI Corp., IESI N.Y. Corp., Winters Bros. Recycling Corp., Winters Bros Waste Systems, Inc., Waste Management of New York, LLC. Allied Waste Industries, Inc., Allied Waste of Long Island, Inc. and Island Waste Services, Ltd., Defendants.

No. CV 08-1816.

United States District Court, E.D. New York.

February 4, 2009.

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Lewis Johs Avallone Aviles, LLP, by James F. Murphy, Esq., Melville, NY, Reese Richman LLP, by Michael R. Reese, Esq., Kim E. Richman, Esq., New York, NY, for Plaintiffs.

Greenberg Traurig, LLP, by James I. Serota, Esq., Ronald Lefton, Esq., Daniel J. Buzzetta, Esq., New York, NY, for Defendants.

MEMORANDUM AND ORDER

WEXLER, District Judge:

This is an antitrust action alleging a conspiracy to restrain trade, and an attempt to monopolize in violation of Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. Presently before the court is the motion of certain defendants to dismiss for lack of personal jurisdiction, as well as the motion of all defendants to dismiss for failure to state a claim.

BACKGROUND

I. Factual Allegations of the Complaint

In light of the fact that this case is before the court as a motion to dismiss, the court accepts as true the facts set forth in Plaintiffs' First Amended Class Action Complaint (the "Complaint").

A. The Relevant Markets

Prior to identifying the parties, the court will outline the allegations concerning the relevant business market, and the relevant geographic market alleged. The relevant business market described in the Complaint is the market for "small containerized waste hauling and disposal services." As alleged here, that market encompasses the lifting of small containers of waste for emptying into the storage section of a vehicle which then transports the waste to a disposal site. Such services are described as provided primarily to commercial customers including restaurants apartment complexes and stores. These customers generate more waste than residences, but less than larger entities that would typically utilize "roll-off" containers. Roll-off containers are transported to disposal sites, and returned to the customer. In contrast, the market here provides the service of transporting waste from small containers that remain on the customers' premises. Plaintiffs assert that there is no practical substitute for small containerized waste hauling. Therefore, customers of this service will not generally switch to a different type of waste disposal service, such as curbside pick-up, or roll-off containers, in the event of a price raise. The relevant geographic market in which defendants are alleged to operate is the Long Island, New York Area.

B. The Parties

Plaintiffs allege to be members of a class consisting of all persons and entities that have contracted with, and purchased small containerized waste disposal services in the relevant market directly from defendants (the "Plaintiff Class"). The relevant time period alleged covers May 5, 2004, through the present.

Defendants and their places of incorporation and executive offices are alleged as follows:

• BFI Canada Income Fund ("BFI"): Canadian business income trust with its principle offices in Toronto.

• EISI, Corp. ("EISI"): Delaware corporation with its principle offices in Houston Texas.

• EISI NY: Delaware corporation with its principle offices in Bayonne, New Jersey.

• Winters Bros Recycling and Winters Bros. Waste Systems, Inc.: New York corporations with their principle executive offices in Westbury, New York (collectively "Winters Brothers").

• Waste Management of New York, LLC ("Waste Management"): Delaware corporation with its principle offices in Houston, Texas.

• Allied Waste Industries, Inc. ("Allied"): Delaware corporation with its principle offices in Phoenix, Arizona.

• Collectively ("Defendants").

Plaintiffs' Complaint details the corporate relationships among Defendants as follows. At the head of the alleged corporate structure is Defendant BFI, which is described as one of the largest business income trusts in the North American capital markets. BFI is also alleged to be one of the largest non-hazardous solid waste management companies in North America, with 2007 revenues of approximately $1 billion. Plaintiffs state that BFI conducts business in the relevant market described above directly, and through its wholly owned and dominated subsidiaries in North America (certain of which are named Defendants), including those located in the United States and within this district.

The Complaint alleges that Defendants IESI, IESI NY, and Winters Brothers are all wholly owned and dominated subsidiaries of BFI that are engaged in the provision of non-hazardous solid waste management services in the United States, and in this district. Waste Management and Allied are described as being "presently or formerly" engaged in the business of the relevant market. The Complaint alleges that in or about 2006, Waste Management and Allied sold certain assets, including transfer stations, and contracts for the disposal of solid waste within the relevant geographic market, to Winters Brothers. As a result of this transaction, Winters Brothers is alleged to have tripled in size, and increased its market power. In August of 2007, Winters Brothers was acquired by BFI. Upon this acquisition, BFI is alleged to have announced to its shareholders that Winters Brothers had approximately 13,000 commercial customers, and that more than 80% of these customers were parties to long term contracts with Winter Brothers that were typically seven years in length.

C. The Alleged Anti-Competitive Contracts

At the core of Plaintiffs' antitrust complaint are certain contractual provisions binding customers, including members of the Plaintiff Class, who purchase small containerized hauling and waste disposal services from the Defendants. The specific allegedly anti-competitive provisions are contractual terms of three years or more, and in many cases seven to ten years, along with automatic renewal provisions. These renewal provisions extend the contracts for same period of time as the original term, and require customers to give notice of termination at least ninety days prior to the end of a term. Also identified as anti-competitive are liquidated damages provisions, and those that require customers to give notice to Defendants of any offer by another solid waste hauling company. These "right to compete" clauses require customers to give Defendants a reasonable opportunity to respond to the competitor's offer.

Defendants' use of these clauses, in the context of their large market share, and market power in the relevant market is alleged to have had anti-competitive and exclusionary effects. These effects are described as significantly increasing barriers to entry facing new entrants to the relevant market, and barriers to expansion faced by incumbent competitors. Defendants' market power is alleged to be maintained, and enhanced by their use and enforcement of these contracts. As a result of enforcement of the allegedly anticompetitive clauses, Plaintiffs allege a conspiracy to restrain trade in violation of Section 1 of the Sherman Act, and a dangerous probability that Defendants "will achieve monopoly power in the Relevant Market in violation of Section 2 of the Sherman Act."

In support of the allegation that the contractual clauses at issue violate the Sherman Act, Plaintiffs allege that the Defendants' conduct here is no different from conduct specifically identified by the United States Department of Justice ("DOJ") as anti-competitive, and in violation of Section 2 of the Sherman Act. Plaintiffs cite to a 1996 DOJ complaint in a separate matter, that did not involve the entities named as Defendants here. That matter, however, did involve contractual provisions similar to those at issue in this lawsuit. The contracts at issue in the DOJ complaint were enforced by waste management companies engaged in businesses similar to that alleged as the relevant market here. In the DOJ case, which ended in settlement, the government alleged that contracts containing provisions similar to those described in the Complaint (including long terms, provisions for automatic renewal, and right to compete clauses) were anti-competitive barriers to entry that led to the possibility that defendants therein would achieve monopoly power. See United States v. Waste Management of Georgia, et al., http://www.usdoj.gov/atr/ cases/f0500/0535.htm. As noted, the DOJ case alleging this anticompetitive behavior ended in settlement. Thus, there was neither a judicial finding of conduct in violation of the antitrust laws, nor any admission of liability.

II. The Complaint: Causes of Action Alleged

Plaintiffs allege violations of Sections 1 and 2 of the Sherman Act. Plaintiffs' first claim alleges a conspiracy to restrain trade in violation of Section 1 of the Sherman Act ("Section 1"). Specifically, it is alleged that Defendants conspired to restrain trade by locking in customers through the use of contracts, and horizontal agreements containing illegal and anti-competitive provisions. These acts are alleged to have restrained competition, and injured the Plaintiff Class by resulting in the payment of higher prices for small containerized waste hauling services. Defendants' conduct is alleged to constitute both a per se, and rule of reason violation of Section 1.

Plaintiffs' second claim sets forth a willful attempt to monopolize in violation of Section 2 of the Sherman Act ("Section 2"). This claim alleges that Defendants possess, or are attempting to possess monopoly power in the relevant market. Defendants are further alleged to have conspired to unlawfully...