Netafim Irrigation, Inc. v. Jain Irrigation, Inc.
| Decision Date | 14 December 2021 |
| Docket Number | Case No. 1:21-cv-00540-AWI-EPG |
| Parties | NETAFIM IRRIGATION, INC., Plaintiff, v. JAIN IRRIGATION, INC., Jain Distribution Holdings, Inc., Irrigation Design & Construction, LLC, and Agri-Valley Irrigation, LLC, Defendants. |
| Court | U.S. District Court — Eastern District of California |
Gabriel J. Lazarus, Pro Hac Vice, Kenneth Reinker, Pro Hac Vice, Cleary Gottlieb Steen & Hamilton LLP, Washington, DC, Gregg William Kettles, Wendy Y. Wang, Best Best & Krieger LLP, Los Angeles, CA, Kendall H. MacVey, Best Best & Krieger LLP, Riverside, CA, for Plaintiff.
Dylan Ballard, Michael W. Scarborough, Sheppard, Mullin, Richter & Hampton LLP, San Francisco, CA, for Defendants Jain Irrigation, Inc., Jain Distribution Holdings, Inc., Irrigation Design & Construction, LLC, Agri-Valley Irrigation, LLC.
ORDER ON DEFENDANTS’ MOTION TO DISMISS
Plaintiff Netafim Irrigation, Inc., alleges that Defendants Jain Irrigation, Inc., Jain Distribution Holdings, Inc., Irrigation Design & Construction, LLC, and Agri-Valley Irrigation, LLC, engaged in anticompetitive market behavior when the Jain entities acquired majority shares of the latter two companies. Netafim also alleges that all four Defendants are liable for false advertising that caused it damage. Defendants now move to dismiss each of Netafim's claims. For the reasons that follow, the Court will grant that motion in part and deny it in part.
Netafim's case is centered on the micro-irrigation industry in Central California. Doc. No. 1 ("Compl."), ¶ 1.1 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., ¶ 15. The micro-irrigation industry consists of three levels: (1) manufacturers that produce equipment for micro-irrigation systems; (2) local design firms that work with growers to customize, install, and maintain micro-irrigation systems; and (3) growers that purchase and use micro-irrigation systems on their farms. Id., ¶ 16. Manufacturers depend on local design firms to sell products to growers, as the local design firms are able to design micro-irrigation systems that meets the needs of particular growers’ fields and then install and maintain those systems. Id., ¶ 17. As part of these relationships, manufacturers invest time and money to ensure the local design firms are knowledgeable about the manufacturers’ product lines and prices—this often involves manufacturers’ provision to local design firms of non-public pricing and individualized quotes for projects. Id., ¶ 19. These relationships notwithstanding, local design firms have historically worked with multiple manufacturers in order to offer growers the most suitable products at the best prices. Id., ¶ 18. Likewise, local design firms also compete to win growers’ business based on the price, quality, and array of equipment they can offer. Id.
Netafim manufactures micro-irrigation equipment and is based in Fresno, California. Id., ¶¶ 1, 3. Jain Irrigation is also based in Fresno and serves as Netafim's largest competitor in micro-irrigation equipment manufacturing. Id., ¶¶ 1, 4. Irrigation Design and Agri-Valley are micro-irrigation design firms based in Patterson, California, and Fresno, respectively. Id., ¶¶ 6–7.
In 2016, Netafim had approximately $65 million in sales in Central California, which included around $9 million in sales through Irrigation Design and Agri-Valley. Id., ¶¶ 20, 23–28. Jain, on the other hand, had approximately $25 million in Central Valley sales in 2016. Id., ¶ 21. Meanwhile, Irrigation Design and Agri-Valley had combined revenues of $113 million in 2016. Id., ¶ 22. At that time, Irrigation Design and Agri-Valley were the two largest micro-irrigation design firms in Central California. Id.
In 2017, Jain Distribution—a Fresno-based sister company of Jain Irrigation—acquired an 80% interest in both Irrigation Design and Agri-Valley. Id., ¶¶ 5–7, 29.2 After the acquisition, Netafim terminated its relationships with Irrigation Design and Agri-Valley. Id., ¶ 31. Given the control that Irrigation Design and Agri-Valley had over access to growers in local markets in Central California, once these relationships were terminated, Netafim was unable to match its pre-acquisition sales figures by using other design firms. Id., ¶¶ 35–36. In turn, Netafim's equipment sales declined in 2017 and were still depressed through 2020. Id., ¶¶ 36–38.
Netafim filed its complaint on March 29, 2021.3 Therein, it alleges that Jain's acquisition of Irrigation Design and Agri-Valley reduced competition in the sale of micro-irrigation equipment in local markets across Central California. Id., ¶ 1. On this theory, Netafim raises causes of action under the Sherman Antitrust Act, 15 U.S.C. § 1, and the Clayton Antitrust Act, 15 U.S.C. § 18. Compl., ¶¶ 79–85, 86–92. Netafim also brings a cause of action under the Lanham Act, 15 U.S.C. § 1125, which is based on allegations that Defendants engaged in an adverse campaign of false advertisements following the acquisition. Compl., ¶¶ 93–102. Netafim seeks equitable relief and millions of dollars in damages for its claims. Id., ¶ 1, Prayer for Relief.
Defendants now move to dismiss the complaint in full under Federal Rule of Civil Procedure 12(b)(6). Doc. No. 15. Netafim has filed its opposition, to which Defendants have replied. Doc. Nos. 17 & 18.
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. Conservation Force v. Salazar, 646 F.3d 1240, 1242 (9th Cir. 2011) ; Johnson v. Riverside Healthcare Sys., LP, 534 F.3d 1116, 1121–22 (9th Cir. 2008). 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 what the ... claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) ) (internal marks omitted). Under this standard, a complaint must contain sufficient factual matter to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955 ) (internal marks 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 alleged misconduct. Id. at 663, 129 S.Ct. 1937.
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. Mollett, 795 F.3d at 1065 ; Marceau v. Blackfeet Hous. Auth., 540 F.3d 916, 919 (9th Cir. 2008). 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." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ; Johnson v. Fed. Home Loan Mortg. Corp., 793 F.3d 1005, 1008 (9th Cir. 2015). Rather, "for 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." Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir. 2009) (quoting Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ). If a motion to dismiss is granted, the 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." Henry A. v Willden, 678 F.3d 991, 1005 (9th Cir. 2012) ().
In their motion, Defendants argue that all three of Netafim's claims should be dismissed. The Court will start with Defendants’ challenges to the antitrust claims, and then turn to the parties’ disputes regarding the false advertising claim.
Section 1 of the Sherman Antitrust Act prohibits "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce." 15 U.S.C. § 1. Section 7 of the Clayton Antitrust Act prohibits mergers and acquisitions "in any line of commerce" in which the effect "may be substantially to lessen competition, or to tend to create a monopoly." 15 U.S.C. § 18.
Mirroring these provisions, Netafim uses its first two claims to allege that Jain's acquisition of Irrigation Design and Agri-Valley was an unreasonable restraint of trade (in violation of the Sherman Act) that substantially lessened competition in the markets for micro-irrigation equipment and micro-irrigation design services in local markets throughout Central California (in violation of the Clayton Act). Compl., ¶¶ 81, 88. Defendants now challenge both claims, considered together, on four threshold grounds.4
Defendants’ first two challenges go to Netafim's pleading of an antitrust injury, which is itself a necessary predicate for possessing the unique antitrust standing that is required for claims under the Sherman and Clayton Acts. Somers v....
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