Stiles v. Wal-Mart Stores Inc, et al

Filing 188

MEMORANDUM AND ORDER signed by District Judge Morrison C. England, Jr on 3/28/19 DENYING Defendants' 147 Motion to Dismiss the First and Second Claims of Plaintiff's Fourth Amended Complaint. (Becknal, R)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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SHARIDAN STILES,

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No. 2:14-cv-02234-MCE-DMC

Plaintiff,
v.

MEMORANDUM AND ORDER

WAL-MART STORES, INC.;
AMERICAN INTERNATIONAL
INDUSTRIES, INC.; and DOES 1-100,
Defendants.

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Sharidan Stiles (“Plaintiff”) brings this action against Wal-Mart Stores, Inc.

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(“Walmart” or “Defendant”) and American International Industries (“AI”) (collectively

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“Defendants”) alleging intellectual property and antitrust violations related to the so-

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called Stiles Razor, a styling razor patented by Plaintiff. Plaintiff’s Fourth Amended

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Complaint (“FAC”) brings seven claims for relief; at issue here are her First and Second

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Claims for violations of 15 U.S.C. § 1 (the “Sherman Act”) and Cal. Bus. & Prof. Code

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§ 16700 et seq. (the “Cartwright Act”), respectfully. FAC, ECF No. 142. Presently

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before the Court is Walmart’s Motion to Dismiss Plaintiff’s First and Second Claims.

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Def.’s Mot., ECF No. 147. AI has joined the Motion. ECF No. 150. For the reasons

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below, Defendants’ Motion is DENIED.
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BACKGROUND1

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Plaintiff is the inventor of a disposable personal styling razor with a narrow 1/8-

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inch blade and ergonomic handle designed for detailed shaving of unique areas of the

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body like eyebrows, scalp art, and sideburns. Plaintiff began selling her razor in Walmart

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stores on a test run basis in 2006, and then in the Wet Shave Department in 2007.

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Stiles was told her product would continue to be sold at Walmart if she could sell two

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units per store per week—four units was considered a “great product performance.” In

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2008, Plaintiff sold six units per store, per week, which constituted approximately $1.7

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million in annual sales.

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Despite exceeding sales minimums, Walmart supposedly began suppressing the

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growth of Plaintiff’s product. According to Plaintiff, Walmart removed the Stiles Razor

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from high sales stores, including 631 stores selling at least six units weekly. Plaintiff also

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alleges Walmart did not restock the razors where it sold well and tripled the minimum

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sales requirement in stores where the razor had its lowest performance. Walmart also

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apparently refused to “rollback” the price of the razor to increase sales. At the same

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time, Walmart kept the razor in stock at stores with lower sales. In 2009, Walmart

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discontinued sales of the Stiles Razor in the Wet Shave Department, and after selling it

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in the Beauty Department from 2011 to 2012, Walmart ended Plaintiff’s contract in May

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2012.

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Defendant AI has manufactured and sold its Ardell Brow Precision Shaper since

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2008. Plaintiff claims this product infringes on the Stiles Razor. In 2011, Walmart

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entered into an agreement with AI to sell their Ardell Brow Precision Shaper under

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Walmart’s store brand, Salon Perfect. Walmart began selling the Salon Perfect Micro

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Razor in 2013. In 2014, the Executive Vice President of AI allegedly confessed to

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Plaintiff that Walmart approached AI in 2012 to create a “knockoff” Stiles Razor (i.e., the

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The following facts are taken from Plaintiff’s FAC.

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Micro Razor) to be sold under Walmart’s Salon Perfect brand. AI allegedly

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accommodated Defendant’s request, and in return Walmart agreed to sell AI’s razor.

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After Defendant terminated Plaintiff’s contract, she claims she pitched Stiles

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Razors to at least twenty-two other retailers but was rejected by each due to her product

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being dropped at Walmart. The application process to become a supplier at a retail

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store requires submission of the former retailer’s sales data, and Plaintiff claims that a

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Walmart sales representative warned that if the Stiles Razor was dropped at Walmart, “it

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would be impossible to explain that to other future retailers.” FAC ¶ 99. Additionally, an

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email exchange between Plaintiff and Walmart’s Vice President of the Beauty and

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Personal Care Department discusses that many other retailers expressed concern that

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Plaintiff’s product was “deleted and moved” by Walmart. Plaintiff contends that due to

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Defendants’ actions, she has effectively been “blacklisted” within the market.

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Plaintiff claims that Defendant is the dominant buyer in disposable personal

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styling razors market, and that AI is the largest manufacturer of personal styling razors,

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manufacturing Ardell-branded and Salon Perfect razors for Walmart. Together,

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Defendants Walmart and AI control 98% of the disposable styling razor market. Plaintiff

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alleges Walmart sought to suppress the growth of the Stiles Razor and eventually end its

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relationship with Plaintiff to “buy time to switch the market from Stiles’ Razors to the

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lower quality Salon Perfect Micro Razor and the Salon Perfect Precision Shaper . . . .”

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FAC ¶ 108(e). Walmart and AI, with their combined market share, allegedly worked to

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divide customers since AI’s Ardell product would be sold at Target and other retailers,

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while the AI-manufactured Salon Perfect Micro Razor would be sold at Walmart.

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STANDARD

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On a motion to dismiss for failure to state a claim under Federal Rule of Civil

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Procedure 12(b)(6), all allegations of material fact must be accepted as true and

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construed in the light most favorable to the nonmoving party. Cahill v. Liberty Mut. Ins.
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Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Rule 8(a)(2) “requires only ‘a short and plain

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statement of the claim showing that the pleader is entitled to relief’ in order to ‘give the

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defendant fair notice of what the . . . claim is and the grounds upon which it rests.’” Bell

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Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41,

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47 (1957)). A complaint attacked by a Rule 12(b)(6) motion to dismiss does not require

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detailed factual allegations. However, “a plaintiff's obligation to provide the grounds of

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his entitlement to relief requires more than labels and conclusions, and a formulaic

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recitation of the elements of a cause of action will not do.” Id. (internal citations and

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quotations omitted). A court is not required to accept as true a “legal conclusion

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couched as a factual allegation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting

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Twombly, 550 U.S. at 555). “Factual allegations must be enough to raise a right to relief

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above the speculative level.” Twombly, 550 U.S. at 555 (citing 5 Charles Alan Wright &

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Arthur R. Miller, Federal Practice and Procedure § 1216 (3d ed. 2004) (stating that the

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pleading must contain something more than “a statement of facts that merely creates a

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suspicion [of] a legally cognizable right of action”)).

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Furthermore, “Rule 8(a)(2) . . . requires a showing, rather than a blanket

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assertion, of entitlement to relief.” Twombly, 550 U.S. at 555 n.3 (internal citations and

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quotations omitted). Thus, “[w]ithout some factual allegation in the complaint, it is hard

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to see how a claimant could satisfy the requirements of providing not only ‘fair notice’ of

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the nature of the claim, but also ‘grounds' on which the claim rests.” Id. (citing Wright &

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Miller, supra, at 94, 95). A pleading must contain “only enough facts to state a claim to

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relief that is plausible on its face.” Id. at 570. If the “plaintiffs . . . have not nudged their

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claims across the line from conceivable to plausible, their complaint must be dismissed.”

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Id. However, “[a] well-pleaded complaint may proceed even if it strikes a savvy judge

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that actual proof of those facts is improbable, and ‘that a recovery is very remote and

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unlikely.’” Id. at 556 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)).

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A court granting a motion to dismiss a complaint must then decide whether to
grant leave to amend. Leave to amend should be “freely given” where there is no
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“undue delay, bad faith or dilatory motive on the part of the movant, . . . undue prejudice

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to the opposing party by virtue of allowance of the amendment, [or] futility of the

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amendment . . . .” Foman v. Davis, 371 U.S. 178, 182 (1962); Eminence Capital, LLC v.

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Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003) (listing the Foman factors as those to

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be considered when deciding whether to grant leave to amend). Not all of these factors

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merit equal weight. Rather, “the consideration of prejudice to the opposing party . . .

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carries the greatest weight.” Id. (citing DCD Programs, Ltd. v. Leighton, 833 F.2d 183,

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185 (9th Cir. 1987)). Dismissal without leave to amend is proper only if it is clear that

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“the complaint could not be saved by any amendment.” Intri-Plex Techs. v. Crest Group,

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Inc., 499 F.3d 1048, 1056 (9th Cir. 2007) (citing In re Daou Sys., Inc., 411 F.3d 1006,

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1013 (9th Cir. 2005); Ascon Props., Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir.

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1989) (“Leave need not be granted where the amendment of the complaint . . .

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constitutes an exercise in futility . . . .”)).

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ANALYSIS

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In a prior Order, the Court dismissed Plaintiff’s antitrust claims on grounds that

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she failed to allege that Defendants precluded her from selling Stiles Razors to other

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retailers. ECF No. 101 at 8:24–9:8. After this ruling, Plaintiff submitted new evidence in

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support of a Motion for Reconsideration, asking this Court to reverse its decision

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dismissing her so-called “rule of reason” claims under the Sherman Act and Cartwright

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Act. ECF No. 141 at 7–8. This new evidence tended to show that Plaintiff had

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“attempted to enter the market through other retailers and was rejected because her

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product ‘failed’ at Walmart.” Id. at 8:17–19. Based on this added information, the Court

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was convinced that reconsideration was called for and granted Plaintiff leave to file a

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FAC reasserting her rule of reason antitrust claims. Id. at 9. Nonetheless, upon the

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filing of her FAC, Defendants now once again seek dismissal of the same Sherman Act

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and Cartwright Act rule of reason claims.
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A.

Defendant’s Motion to Dismiss Plaintiff’s First Claim for Violation of
Section 1 of the Sherman Act

The Court finds that Plaintiff has alleged sufficient facts to state a claim for

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antitrust conduct under the rule of reason. Absent facts indicating a per se

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unreasonable restraint on trade, agreements are analyzed under the “rule of reason.”

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California ex rel. Brown v. Safeway, Inc., 615 F.3d 1171, 1178 (9th Cir. 2010). Under

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the rule of reason, the fact finder weighs all circumstances of the case to determine

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whether, on balance, the agreement at issue is an unreasonable restraint on

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competition. Leegin Creative Leather Prod., Inc. v. PSKS, Inc., 551 U.S. 877, 885

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(2007). Factors to be considered include “specific information about the relevant

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business,” “the restraint’s history, nature, and effect,” and whether the businesses

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involved have sufficient market power. Id. at 885-86 (quoting State Oil Co. v. Khan,

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522 U.S. 3, 10 (1997)). “In its design and function the rule distinguishes between

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restraints with anticompetitive effect that are harmful to the consumer and restraints

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stimulating competition that are in the consumer’s best interest.” Id.

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Application of the rule of reason does not automatically guarantee that a pleading

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survives a motion to dismiss. Though “the trier of fact must determine the ultimate

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viability of a trade restraint under the rule of reason, that requirement does not prevent

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the Court from determining if [Plaintiff’s] claim[s] [have] met the threshold pleading

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requirement . . . .” Clear Connection Corp. v. Comcast Cable Commc’ns Mgmt., LLC,

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149 F. Supp. 3d 1188, 1197 (E.D. Cal. 2015). To state a claim under Section 1 of the

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Sherman Act, a plaintiff must show an unlawful agreement constituting a restraint of

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trade. Under the rule of reason, the antitrust plaintiff bears the initial burden of

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demonstrating that a defendant’s conduct or policy had a substantially harmful effect on

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competition. Safeway, Inc., 615 F.3d at 1178. A plaintiff may satisfy this burden by

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offering “proof of actual detrimental effects, such as a reduction of output.” FTC v. Ind.

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Fed’n of Dentists, 476 U.S. 447, 460 (1986). After a plaintiff meets this burden, “the fact

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finder weighs all circumstances of the case to determine whether, on balance, the
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agreement at issue is an unreasonable restraint on competition.” Leegin Creative

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Leather Prod., 551 U.S. at 885.

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Here, Plaintiff’s FAC contains allegations that Defendants exercised market

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control by entering into an illicit agreement to push Plaintiff out of the disposable

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personal styling razor market. These allegations include details on how Defendants kept

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Plaintiff out of the market, such as Walmart’s intentional tripling of sales-minimums at

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poorly performing locations, while stopping sales in high performing locations. Relying

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on an out-of-circuit case, Defendants nonetheless argue that their alleged agreement to

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infringe on Plaintiff’s patent is not enough to show a restriction of trade or commerce.

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ECF No. 147 at 9-11 (citing Retractable Techs., Inc. v. Becton Dickinson & Co., 842 F.3d

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883, 893 (5th Cir. 2016)). However, Plaintiff’s allegations suggest a three-part

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agreement amongst Defendants: first, Defendants agreed that AI would produce a

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“knockoff” Stiles Razor for sale under the Salon Perfect brand; second, Walmart would in

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turn sell AI’s Ardell branded razor; and finally, once the Salon Perfect razor was

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produced, Defendants would split the market with the Salon Perfect razor being sold at

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Walmart, and the Ardell at other retailers. Plaintiff contends that because Walmart

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controlled so much of the market, Defendants had enough market power to exclude her

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from substantial portions of the disposable styling razor market. According to Plaintiff,

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because the Stiles Razor falls into a smaller, unique market on account of its detailed

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shaving functions and grip to prevent risk of injury, and given Walmart’s status as the

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largest retailer in the world in this niche market, it accordingly had the power to set prices

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and exclude competitors. The Court believes these contentions are sufficient to survive

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Defendants’ pleading challenge.

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Plaintiff’s allegations, if true, support that Walmart could, and in fact did, leverage

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its ability to set the prices of products, manipulate sales and product output by selectively

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stocking and/or removing Stiles Razors inapposite to sales performance data. Plaintiff

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claims that she tried to sell Stiles Razors elsewhere, but since her product “failed” at

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Walmart, these other retailers refused to stock it. Defendants’ apparent success in
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pushing Plaintiff’s razor out of the disposable styling razor market undermines

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contentions that Walmart does not compete in the relevant market. As the Court held in

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its prior Order, “[t]hat is not to say this evidence is dispositive of any antitrust behavior,

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nor is it even dispositive of Walmart’s market power. Walmart’s arguments to the

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contrary are well understood. It is, however, enough to sufficiently allege market power

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in order to survive a motion to dismiss.” ECF No. 141 at 9:2-5.

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As Plaintiff has alleged enough facts to state viable antitrust claims, Defendants’

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Motion to Dismiss Plaintiff’s First Claim for violations of Section 1 of the Sherman Act is

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DENIED.

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B.

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Defendant’s Motion to Dismiss Plaintiff’s Second Claim for Violation
of the Cartwright Act

California’s Cartwright Act prohibits combinations of two or more persons’ capital,

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skill, or acts to restrict trade or commerce. Cal. Bus. & Prof. Code § 16720(a). To

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sustain a claim for violation of the Cartwright Act under the rule of reason, Plaintiff must

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show that “the purpose of the effect of the conspiracy is an illegal restraint of trade.”

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Dimidowich v. Bell & Howell, 803 F.2d 1473, 1483 (9th Cir. 1986). “The question in a

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rule of reason case is whether the anticompetitive effects of the restraint outweigh the

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procompetitive effects.” Id. at 1484.

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Here, for the same reasons that Plaintiff’s Sherman Act claim survives, so does

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her Cartwright Act claim. See Id. at 1476–77 (“The antitrust provisions of the Cartwright

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Act were patterned after section 1 of the Sherman Act,” indeed, “[t]he California

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Supreme Court has said that the Cartwright Act ‘is similar in spirit and substance’ to the

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Sherman Act). Therefore, Defendants’ Motion to Dismiss Plaintiff’s Second Claim for

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violations of the Cartwright Act is DENIED.2

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Plaintiff’s Motion to File a Sur-Reply, ECF No. 164, is DENIED as moot.

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CONCLUSION

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For the reasons set forth above, Defendants’ Motion to Dismiss the First and
Second Claims of Plaintiff’s FAC, ECF No. 147, is DENIED.
IT IS SO ORDERED.
Dated: March 28, 2019

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