Netafim Irrigation, Inc. v. Jain Irrigation, Inc.
| Decision Date | 15 July 2022 |
| Docket Number | 1:21-cv-00540-AWI-EPG |
| Court | U.S. District Court — Eastern District of California |
| Parties | NETAFIM IRRIGATION, INC., Plaintiff, v. JAIN IRRIGATION, INC., JAIN DISTRIBUTION HOLDINGS, INC., IRRIGATION DESIGN & CONSTRUCTION, LLC, and AGRIVALLEY IRRIGATION, LLC, Defendants |
ORDER ON DEFENDANTS' MOTION TO DISMISS PLAINTIFF'S FIRST AMENDED COMPLAINT
This case involves an alleged anticompetitive acquisition involving competitors in the micro-irrigation industry. Presently before the Court is Defendants Jain Irrigation Inc., Jain Distribution Holdings, Inc., Irrigation Design & Construction, LLC, and Agri-Valley Irrigation LLC's Motion to Dismiss Plaintiff Netafim Irrigation Inc.'s First Amended Complaint. Doc. No. 34. The First Amended Complaint (“FAC”) asserts causes of action under Section 1 of the Sherman Act, Section 7 of the Clayton Act, and the Lanham Act. Doc. No. 25. Having considered the parties' submissions, the Court will grant in part and deny in part Defendants' Motion.
BACKGROUND[1]
Plaintiff and Defendants are involved in the micro-irrigation industry in Central California. Doc. No. 25, ¶ 2. Micro-irrigation is a comparatively cost-effective and sustainable form of irrigation that delivers water and nutrients directly to the root systems of crops. Id., ¶ 17. The micro-irrigation industry has three levels: (1) manufacturers that produce equipment for microirrigation systems; (2) local design firms that customize, install, and maintain micro-irrigation systems for growers; and (3) growers that purchase and use micro-irrigation systems on their farms. Id., ¶ 18. Growers do not purchase micro-irrigation equipment directly from manufacturers, but instead purchase it through local design firms. Id., ¶ 20. The services and expertise of local design firms are crucial to growers because improper irrigation risks harm to a grower's crop and livelihood and because micro-irrigation systems require substantial investments in equipment of as much as $1,000-$3,000 per acre. Id.
Manufacturers compete to supply micro-irrigation equipment through local design firms. Id., ¶ 19. To ensure that design firms are knowledgeable about the manufacturers' product lines and prices, manufacturers invest time and money in their relationships with the design firms. Id., ¶ 21. Manufacturers also often provide design firms with non-public pricing and individualized bids on large projects. Id. Notwithstanding these relationships, design firms have historically worked with multiple manufacturers to offer growers a wide selection of micro-irrigation equipment so that growers have a choice between competitive products and can select between them based on price and quality. Id., ¶ 22. This approach fosters competition between manufacturers to offer lower prices and higher quality so that design firms would carry their products and recommend them to growers. Id.
Plaintiff and the Jain entities are the two largest manufacturers in Central California. Id., ¶ 19. Other competing manufacturers include Rivulis, Eurodrip, Toro, Irritec, and Rain Bird. Id. In 2016, Plaintiff had approximately $65 million in sales in Central California. Id. Jain, on the other hand, had approximately $25 million in Central Valley sales in 2016. Id. Rivulis and Eurodrip, who was later acquired by Rivulis in 2017, had combined sales of approximately $20 million in Central California in 2016. Id. Toro, Irritec, and Rain Bird each had Central California sales in 2016 of approximately $15 million, $6 million, and $5 million, respectively. Id.
On May 16, 2017, Defendant Jain Distribution Holdings, Inc.-a sister company of Defendant Jain Irrigation, Inc.-acquired an 80% interest in Defendant Irrigation Design & Construction, LLC (“IDC”) and an 80% interest in Defendant Agri-Valley Irrigation, LLC (“AVI”).[2] Id. Before these acquisitions, IDC and AVI were the largest local design firms in a number of markets in Central California. Id., ¶¶ 23, 24. IDC had stores farther north in Central California, such as in Dixon and Stockton, while AVI had stores farther south, such as in Fresno, Visalia, and Bakersfield. Id., ¶ 38. They had overlapping stores in the central part of the valley, such as in Dos Palos-Firebaugh. Id. Based on Plaintiff's experiences in and understanding of the micro-irrigation industry in Central California, IDC and AVI had the following estimated combined market shares in 2016 in the following geographic markets:
Pre-acquisition, IDC and AVI carried and sold equipment from many manufacturers, including those of Plaintiff, Jain, Rivulis, Eurodrip, Toro, Irritec, and Rain Bird. Id., ¶¶ 26, 27. In 2016, IDC was Plaintiff's largest dealer in Central California, selling over $7.2 million of Plaintiff's products. Id., ¶ 29. AVI was also a large Netafim dealer, selling over $1.4 million in Plaintiff's products. Id. Netafim made substantial sales through IDC and AVI in previous years, and had invested in expanding its relationship with IDC and AVI. Id. IDC and AVI were also large dealers in 2016 for other manufacturers including Rivulis, Eurodrip, Toro, Irritec, and Rain Bird. Id., ¶ 30.
Post-acquisition, Plaintiff terminated its relationships with IDC and AVI because its products would allegedly be disfavored to Jain's products and because Plaintiff wished to avoid providing Jain with access to its competitively sensitive pricing and product information. Id., ¶ 33. Additionally, after the acquisition, IDC and AVI allegedly stopped offering the products of Rivulis, Eurodrip, Toro, Irritec, and Rain Bird to growers. Id., ¶ 34. Plaintiff attempted to make up for its loss of sales but was unable to replace IDC and AVI by selling more of its products through other design firms. Id., ¶ 42.
On March 29, 2021, Plaintiff filed the original Complaint in this Court seeking damages and equitable relief. Doc. No. 1. The Court later dismissed the Complaint's antitrust claims against Jain with leave to amend on the grounds that they failed to sufficiently plead a relevant geographic market and antitrust injuries. Doc. No. 20. On January 13, 2022, Plaintiff filed its FAC, alleging that it suffered millions of dollars in harm in three geographic markets: (1) Dos Palos-Firebaugh, (2) Patterson-Newman, and (3) Stockton. Doc. No. 25, ¶¶ 42, 65. Defendants thereafter filed their Motion to Dismiss the Antitrust Claims in the FAC on February 10, 2022. Doc. No. 34.
Under Federal Rule of Civil Procedure 12(b)(6), a cause of action may be dismissed where a plaintiff fails “to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). Dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. Godecke ex rel. United States v. Kinetic Concepts, Inc., 937 F.3d 1201, 1208 (9th Cir. 2019) (citing Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990)). To survive a Rule 12(b)(6) motion for failure to allege sufficient facts, a complaint must include a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Compliance with this rule ensures that the defendant has “fair notice” of the claims against it. Williams v. Yamaha Motor Co., 851 F.3d 1015, 1025 (9th Cir. 2017) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Under this standard, a complaint must contain sufficient factual matter to “state a claim to relief that is plausible on its face.” Irving Firemen's Relief & Ret. Fund v. Uber Techs., Inc., 998 F.3d 397, 403 (9th Cir. 2021) (quoting Twombly, 550 U.S. at 570). 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 alleged misconduct. Id. (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
In reviewing a complaint under Rule 12(b)(6), all allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party. Benavidez v. Cty. of San Diego, 993 F.3d 1134, 1144 (9th Cir. 2021). But the Court is “not ‘required to accept as true allegations that contradict exhibits attached to the Complaint or matters properly subject to judicial notice, or allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.'” Seven Arts Filmed Entm't, Ltd. v. Content Media Corp. PLC, 733 F.3d 1251, 1254 (9th Cir. 2013) (quoted source omitted). Complaints that offer no more than “labels and conclusions” or “a formulaic recitation of the elements of a cause of action will not do.” Benavidez, 993 F.3d at 1145 (citing Iqbal, 556 U.S. at 678). Rather, “[f]or a complaint to survive a motion to dismiss, the non-conclusory ‘factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.” Hernandez v. City of San Jose, 897 F.3d 1125, 1132 (9th Cir. 2018) (citing Iqbal, 556 U.S. at 678).
If a motion to dismiss is granted, a “district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts.” Perez v. Mortg. Elec. Registration Sys., 959 F.3d 334, 340 (9th Cir. 2020) (citing Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000)).
I. Defendants' Motion to Dismiss
Defendants move to dismiss the FAC's first cause of action (Sherman Act, Section 1) and second cause of action (Clayton Act Section 7) on the grounds that they fail to sufficiently allege a relevant market, market...
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