GreenCycle Paint, Inc. v. PaintCare, Inc. et al

Filing 72

ORDER by Judge Maria-Elena James granting in part and denying in part 50 , 51 , 52 Motions to Dismiss. Case Management Statement due by 5/11/2017. Case Management Conference set for 5/18/2017 10:00 AM in Courtroom B, 15th Floor, San Francisco. (mejlc2S, COURT STAFF) (Filed on 4/11/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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GREENCYCLE PAINT, INC.,

Case No. 15-cv-04059-MEJ

Plaintiff,
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ORDER RE: SECOND MOTIONS TO
DISMISS

v.
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PAINTCARE, INC., et al.,

Re: Dkt. Nos. 50-52

Defendants.

United States District Court
Northern District of California

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INTRODUCTION

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Plaintiff GreenCycle Paint, Inc. (―Plaintiff‖) alleges Defendants PaintCare, Inc.

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(―PaintCare‖); Clean Harbors Environmental Services, Inc. (―Clean Harbors‖); and Stericycle

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Environmental Solutions (―Stericycle‖) (collectively, ―Defendants‖) violated California‘s antitrust

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and unfair competition laws by conspiring to exclude Plaintiff from the recycled paint market.

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The Court dismissed Plaintiff‘s initial complaint but granted Plaintiff leave to amend on all claims,

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which Plaintiff has done. Order, Dkt. No. 47; see First Am. Compl. (―FAC‖), Dkt. No. 48.

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Defendants now again move to dismiss all claims. Clean Harbors Mot., Dkt. No. 50; PaintCare

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Mot., Dkt. No. 51; Stericycle Mot., Dkt. No. 52. Plaintiff filed a single Opposition to Defendants‘

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Motions. Opp‘n, Dkt. No. 57. Clean Harbors and PaintCare each filed a Reply (Clean Harbors

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Reply, Dkt. No. 62; PaintCare Reply, Dkt. No. 63); Stericycle joins both Replies (Dkt. No. 65).

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Having considered the parties‘ positions, the relevant legal authority, and the record in this case,

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the Court GRANTS IN PART and DENIES IN PART Defendants‘ Motions for the following

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reasons.

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//

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BACKGROUND

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A.

Defendants and the PaintCare Program

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The American Coatings Association (―ACA‖) is the primary trade association of the paint

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and coatings industry and represents, among other things, paint and coatings manufacturers. FAC

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¶ 10. The ACA created and is the sole member of PaintCare, which represents paint

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manufacturers in their efforts to plan and operate paint stewardship programs. Id.
In 2010, California enacted the statewide Architectural Paint1 Recovery Program (the

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―Program‖), Cal. Pub. Res. Code § 48700 et seq., to reduce leftover paint, promote its reuse and

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recycling, and properly manage unwanted leftover paint. Id. ¶¶ 8, 13. The California Department
of Resources Recycling and Recovery (―CalRecycle‖) is the state agency that oversees the

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United States District Court
Northern District of California

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Program. Id. ¶ 9. In 2012, CalRecycle designated PaintCare as the sole steward for the Program;

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PaintCare was the only stewardship organization that submitted a paint stewardship plan to

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CalRecycle to implement a paint recovery program (the ―PaintCare Program‖). Id. ¶ 8. Clean

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Harbors and Stericycle (together, the ―Hauler Defendants‖) are haulers that work with PaintCare

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to transport post-consumer paint collected under the PaintCare Program. Id. ¶ 23.
To fund the PaintCare Program, consumers pay an additional $0.35 to $1.60 assessment on

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all architectural paint sold in California. Id. ¶ 11. PaintCare receives 100% of these assessments,

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and uses them to pay for collection bins, training materials, transportation of paint from collection

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sites, and paint processing. Id. In 2015, PaintCare collected approximately $34 million in

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assessments. Id. ¶ 12.

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B.

Plaintiff’s Efforts to Join the PaintCare Program

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Plaintiff was founded in 2012 as a latex paint processor and manufacturer. Id. ¶ 21. It

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opened a latex paint recycling facility in Oakland, California; while operating, it was the only

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latex paint recycler in the San Francisco Bay Area. Id.; see id. ¶¶ 19, 43.

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―Architectural paint‖ is defined as ―interior and exterior architectural coatings, sold in containers
of five gallons or less for commercial or homeowner use, but does not include aerosol spray paint
or coatings purchased for industrial or original equipment manufacturer use.‖ Cal. Pub. Res. Code
§ 48701(a).
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In April 2012, Plaintiff‘s Chief Executive Officer, Alan Beilke, entered into discussions

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with PaintCare about participating in the PaintCare Program as a latex paint processor. Id. ¶ 22.

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PaintCare introduced Plaintiff to Stericycle and Clean Harbors (together, the ―Hauler

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Defendants‖). Id. ¶ 23. Plaintiff thereafter received contradictory information about the approval

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process from Defendants. See id. ¶ 24. PaintCare advised Plaintiff to go through the Hauler

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Defendants to facilitate receipt of paint under the PaintCare Program. Id. PaintCare represented

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that recyclers had to enter into contracts with the Hauler Defendants and that the Hauler

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Defendants decided which recycling facilities received post-consumer paint. Id. ¶¶ 23-24. But

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according to Fred Gabriel of Clean Harbors, PaintCare had to approve Plaintiff as a recycler

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before Clean Harbors could audit or approve Plaintiff for the receipt of paint. Id. ¶ 24.

United States District Court
Northern District of California

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In September 2012, Plaintiff again met with Defendants‘ representatives to discuss

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Plaintiff‘s desire to participate in the PaintCare Program as a recycler. Id. ¶ 25. Glen Dilman of

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Stericycle informed Beilke that Plaintiff needed to establish a paint recycling facility that was

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ready to receive post-consumer paint before Stericycle would arrange an audit, which was required

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prior to Plaintiff‘s approval to receive used paint. Id.

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That month, Plaintiff moved into a 5,000 square foot facility. Id. ¶ 26. It was ready to

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receive and process paint in November 2012. Id. By December 2012, Plaintiff had done

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everything Defendants required to become an approved latex paint recycling facility and receive

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paint under the PaintCare Program. Id. ¶ 27. Plaintiff also established its own relationship with a

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household hazardous waste program to receive post-consumer paint and began to receive and

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process paint from this source. Id. ¶¶ 27-28. Prior to closing, Plaintiff was in discussions with the

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cities of Hayward and Emeryville, Alameda County, and the Bay Area Rapid Transit (―BART‖)

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district to sell recycled paint to them. Id. ¶ 17.

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Between April 2012 and April 2015, Plaintiff repeatedly met with and spoke to each

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Defendant about receiving paint under the PaintCare Program, and Defendants took actions that

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led Plaintiff to believe that it would be approved to receive post-consumer paint. Id. ¶¶ 21-40.

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Over the course of dozens of discussions and meetings, Plaintiff was led to believe that it would

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receive paint under the PaintCare Program. See id. ¶ 30 (Mark ―Winkler of Stericycle told
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GreenCycle that Stericycle had 3-4 truckloads of paint per month that needed a processor, and that

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GreenCycle would be a suitable processor.‖). Defendants‘ message was that as long as Plaintiff

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complied with certain requirements first, then it would receive paint under the PaintCare Program.

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Id. ¶¶ 29, 46. Despite meeting those requirements, Plaintiff did not receive paint from Defendants.

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See id. ¶¶ 27, 29.
Plaintiff raised its concerns at a July 2014 meeting with Defendants, CalRecycle, and

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CalEPA. Id. ¶ 32. CalRecycle‘s Howard Levensen urged Defendants to increase the amount of

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paint being recycled in the Bay Area by using facilities like Plaintiff‘s for paint that is collected in

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Alameda, Contra Costa, and other Bay Area counties. Id. Bill Pollock, the Program Director of
the Alameda County Household Hazardous Waste Program, spoke directly with Gabriel about

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United States District Court
Northern District of California

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using Plaintiff instead of shipping paint to an out-of-state facility. Id. ¶ 33. Gabriel and Kurt

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Locke, also with Clean Harbors, immediately visited Plaintiff‘s facility to make sure Plaintiff

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could receive Clean Harbors‘ roll-off bins and, in August 2014, told Plaintiff that Clean Harbors

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would mail an audit package for it to complete. Id. ¶¶ 33-34. Plaintiff did not receive the

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package. Id. ¶ 34.
In April 2014, Stericycle approved Plaintiff as a recycler for used latex paint. Id. ¶ 31.

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But Plaintiff did not receive its first shipment of paint under the PaintCare Program until January

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2015; it received its second and final shipment in March 2015. Id. ¶¶ 31, 40. Plaintiff received

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only two shipments despite the fact that the amount of latex paint collected in California has

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increased by approximately 1.4 million gallons—approximately 700 truckloads—since the first

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year after the adoption of the Architectural Paint Recovery Program. Id. ¶ 41. The lack of used

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latex paint and the realization that it was not going to receive paint under the PaintCare Program

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forced Plaintiff to shut down its paint recycling operations in April 2015. Id.

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C.

The Alleged Conspiracy

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Plaintiff contends it was unable to obtain paint because Defendants entered into a secret

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agreement to exclude Plaintiff as a recycler under the PaintCare Program in order to reduce the

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amount of recycled paint that was available in the San Francisco Bay Area market. Id. ¶¶ 29, 36,

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40. PaintCare knew that the availability of recycled paint was a threat to the profits of its
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members—the largest paint manufacturers in the country. Id. ¶¶ 10, 14-16, 18. The ACA,

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PaintCare, and paint manufacturers are concerned about the negative impact that the sale of

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recycled paint, which sells at a discount compared to mid and high-grade paint products, has on

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their revenue and profits. Id. ¶¶ 15-18. Although collection facilities are concentrated in urban

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areas, the paint collected in the Bay Area is shipped out of state, which increases total program

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costs. Id. ¶ 13. The Hauler Defendants agreed to go along with PaintCare‘s plan to exclude

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Plaintiff from the market because they received larger payments for transporting paint to more

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distant facilities in Sacramento and out-of-state. Id. ¶¶ 20, 48, 53. This also reduced competition

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for paint sales in the Bay Area and maintained sales and profits of PaintCare‘s members. Id. ¶ 48.

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Defendants knew that they were excluding an otherwise qualified recycler from the market. Id. ¶

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United States District Court
Northern District of California

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41.

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Defendants‘ actions also harmed Bay Area consumers by depriving them of the

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opportunity to purchase as much as 100,000 gallons of recycled paint per year, and misled all

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California consumers by increasing costs over those necessary to run the program. Id. ¶ 13.

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Recycled paint sells for significantly less than newly-produced, or ―virgin‖ paint; for instance,

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Plaintiff had a contract to sell recycled paint to the City of Oakland for $10 per gallon, while the

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cost of virgin paint typically sells for $25 to $75 per gallon. Id. ¶ 17. Moreover, consumers pay

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the costs for increased transportation through the recycling fee assessed on each gallon of virgin

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paint; if Defendants used local paint recyclers, that assessment could be reduced. Id. ¶ 48.

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LEGAL STANDARD

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A court may dismiss a complaint under Rule 12(b)(6) when it does not contain enough

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facts to state a claim to relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S.

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544, 570 (2007) (internal quotation marks and citation omitted). ―A claim has facial plausibility

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when the plaintiff pleads factual content that allows the court to draw the reasonable inference that

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the defendant is liable for the misconduct alleged.‖ Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

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―The plausibility standard is not akin to a ‗probability requirement,‘ but it asks for more than a

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sheer possibility that a defendant has acted unlawfully.‖ Id. (quoting Twombly, 550 U.S. at 557).

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―While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual
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allegations, a plaintiff‘s obligation to provide the ‗grounds‘ of his ‗entitle[ment] to relief‘ requires

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more than labels and conclusions, and a formulaic recitation of the elements of a cause of action

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will not do. Factual allegations must be enough to raise a right to relief above the speculative

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level.‖ Twombly, 550 U.S. at 555 (internal citations and parentheticals omitted). In considering a

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motion to dismiss, a court must accept all of the plaintiff‘s allegations as true and construe them in

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the light most favorable to the plaintiff. Id. at 550.
DISCUSSION

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The FAC asserts two claims, the first under the Cartwright Act, Cal. Bus. & Prof. Code §

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16720, and the second under California‘s Unfair Competition Law (―UCL‖), Cal. Bus. & Prof.
Code § 17200. Id. ¶¶ 44-57. Defendants seek to dismiss both claims.

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United States District Court
Northern District of California

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A.

Cartwright Act Claim

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1.

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The Cartwright Act makes unlawful a ―trust,‖ defined as a combination of capital, skill, or

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acts by two or more persons or businesses to restrict trade, limit production, increase or fix prices,

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or prevent competition. Cal. Bus. & Prof. Code §§ 16702, 16720. The purpose of the Cartwright

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Act is to prevent any action which ―has as its purpose or effect an unreasonable restraint of trade.‖

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Corwin v. L.A. Newspaper Serv. Bureau, Inc., 22 Cal. 3d 302, 314 (1978) (emphasis in original)

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(citations omitted); Theme Promotions, Inc. v. News Am. Mktg. FSI, 546 F.3d 991, 1000 (9th Cir.

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2008) (recognizing same).

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Standard of Pleading

―California courts‖ demand a ―high degree of particularity in the pleading of Cartwright

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Act violations.‖ Facebook Inc. v. Power Ventures, Inc., 2009 WL 3429568, at *2 (N.D. Cal. Oct.

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22, 2009) (internal quotation marks omitted) (discussing and applying Twombly to Cartwright Act

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claims). ―It is not enough merely to include conclusory allegations that certain actions were the

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result of a conspiracy; the plaintiff must allege facts that make the conclusion plausible.‖

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Name.Space, 795 F.3d at 1129 (citing Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1047-48 (9th

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Cir. 2008)). ―This standard does not impose a ‗probability requirement,‘ but ‗simply calls for

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enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal

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agreement.‘‖ Id. (quoting Twombly, 550 U.S. at 556).
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As such, ―Cartwright Act claims are properly dismissed ‗where the complaint makes

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conclusory allegations of a combination and does not allege with factual particularity that separate

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entities maintaining separate and independent interests combined for the purpose to restrain

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trade.‘‖ In re Netflix Antitrust Litig., 506 F. Supp. 2d 308, 320 (N.D. Cal. 2007) (quoting

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Freeman v. San Diego Ass’n of Realtors, 77 Cal. App. 4th 171, 189 (1999)). Among other things,

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when faced with two possible explanations for a defendant‘s behavior, a plaintiff cannot offer

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allegations that are ―merely consistent with‖ their favored explanation but are also consistent with

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the defendant‘s alternative explanation. In re Century Aluminum Co. Sec. Litig., 729 F.3d 1104,

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1108 (9th Cir. 2013) (citing Iqbal, 556 U.S. at 678). ―Something more is needed, such as facts

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tending to exclude the possibility that the alternative explanation is true, . . . in order to render

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United States District Court
Northern District of California

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plaintiffs‘ allegations plausible within the meaning of Iqbal and Twombly.‖ Id. But where a

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plaintiff‘s allegations are stuck in ―neutral territory,‖ i.e., they do not tend to exclude the innocent

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explanation, such allegations fall short of what Iqbal and Twombly require. See id. at 1108-10

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(affirming dismissal of Securities Act claim where plaintiffs‘ allegations were ―merely consistent

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with both their explanation and the defendants‘ competing explanation‖); see also Gonzalez v.

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Planned Parenthood of L.A., 759 F.3d 1112, 1116 (9th Cir. 2014), cert. denied sub nom. Gonzalez

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v. Planned Parenthood of L.A., Cal., 135 S. Ct. 2313 (2015) (affirming dismissal where plaintiff‘s

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allegation that defendant knowingly submitted false claims was only ―merely possible rather than

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plausible,‖ and could not overcome the plausible and obvious explanation that defendant did not

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knowingly submit false claims (internal quotation marks omitted; emphasis in original)); Eclectic

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Props. E., LLC v. Marcus & Millichap Co., 751 F.3d 990, 996 (9th Cir. 2014) (explaining that

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courts ―must consider‖ ―obvious alternative explanation[s]‖ for a defendant‘s behavior when

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analyzing plausibility); Somers v. Apple, Inc., 729 F.3d 953, 965 (9th Cir. 2013) (affirming

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dismissal of antitrust claim in part due to an obvious alternative explanation for music pricing).

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2.

Analysis

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To establish liability under Section 1 of the Sherman Act (and consequently, the

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Cartwright Act), ―a plaintiff must prove (1) the existence of an agreement, and (2) that the

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agreement was in unreasonable restraint of trade.‖ Aerotec Int’l, Inc. v. Honeywell Int’l, Inc., 836
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F.3d 1171, 1178 (quoting Am. Needle, Inc. v. Nat’l Football League, 560 U.S. 183, 189-90

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(2010)).2
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Agreement

Plaintiff alleges facts to show that Defendants‘ acts were concerted. To plausibly plead a

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conspiracy, an antitrust plaintiff must allege ―parallel behavior that would probably not result from

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chance, coincidence, independent responses to common stimuli, or mere interdependence unaided

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by an advance understanding among the parties.‖ Twombly, 550 U.S. at 556 n.4 (quoting 6

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Areeda & Hovenkamp, Antitrust Law § 1425, at 167-85 (2d ed. 2003)). The conspirators must

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have a unity of purpose or a common design and understanding. Am. Tobacco Co. v. United
States, 328 U.S. 781, 810 (1946); see also William O. Gilley Enters., Inc. v. Atl. Richfield Co., 588

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United States District Court
Northern District of California

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F.3d 659, 663 (9th Cir. 2009) (―Whether a plaintiff pursues a per se claim or a rule of reason claim

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. . . , the first requirement is to allege a ‗contract, combination in the form of trust or otherwise, or

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conspiracy.‘‖).
Plaintiff has now ―plead[ed] not just ultimate facts (such as a conspiracy), but evidentiary

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facts‖ in support of the elements of its claims. William O. Gilley Enters., 588 F.3d at 659.

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Plaintiff alleges that PaintCare—the sole stewardship organization of California‘s Architectural

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Paint Recovery Program—was created by the ACA, which is owned by the largest paint

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manufacturers in the country. FAC ¶¶ 8-10. The FAC alleges PaintCare considers recycled paint

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to be a threat to its owners‘ profits because virgin paint, sells for significantly more than recycled

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paint. Id. ¶¶ 14-18, 48. Plaintiff contends that to prevent cheaper recycled paint from competing

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with more expensive virgin paint in the lucrative Bay Area market, Defendants agreed that Clean

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Harbors and Stericycle would ship paint to more distant recycling facilities, thus removing the

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threat of recycled paint in the Bay Area to PaintCare‘s owners. Id. ¶ 20. In doing so, Defendants

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―The analysis under [the Cartwright Act] mirrors the analysis under federal law because [it] was
modeled after the Sherman Act.‖ Cty. of Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 1148, 1160
(9th Cir. 2001) (citations omitted); Name.Space, Inc. v. Internet Corp. for Assigned Names &
Numbers, 795 F.3d 1124, 1131 n.5 (9th Cir. 2015) (―Because analysis under the Cartwright Act is
identical to that under the Sherman Act, we also affirm the district court‘s dismissal of the
Cartwright Act claim.‖ (citations omitted)).
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also agreed to refuse to do business with Plaintiff to prevent it from recycling paint in the Bay

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Area (so Stericycle and Clean Harbors could collect higher payments for shipping3) and to prevent

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additional recycled paint from entering the Bay Area market (and risk competition with

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PaintCare‘s owners). Id. ¶¶ 20-21, 41. Plaintiff lists numerous examples where Defendants

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plausibly appear to have coordinated their efforts to prevent Plaintiff from entering the market and

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competing (id. ¶¶ 19-20, 23-25, 27, 29, 31, 33-34, 36, 39), which ―reasonably tends to prove that

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the [defendant] and others had a conscious commitment to a common scheme designed to achieve

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an unlawful objective.‖ Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 764

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(1984) (internal quotation marks omitted); see also Beltz Travel Serv. Inc. v. Int’l Air Transp.
Ass’n, 620 F.2d 1360, 1366-67 (9th Cir. 1980) (―Participation by each conspirator in every detail

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United States District Court
Northern District of California

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in the execution of the conspiracy is unnecessary to establish liability, for each conspirator may be

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performing different tasks to bring about the desired result.‖).
b.

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Unreasonable Restraint of Trade

Plaintiff‘s FAC provides plausible allegations establishing both of these elements. While

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Plaintiff does not explicitly articulate a specific theory of antitrust liability (e.g., group boycott,

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refusal to deal, price-fixing, etc.)4, it now provides sufficient factual allegations plausibly

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establishing Defendants agreed not to do business with Plaintiff with the ―rationale or purpose‖ to

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exclude competition. See Aerotec, 2016 WL 4709868, at *9; see also In re High-Tech Emp.

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Antitrust Litig., 856 F. Supp. 2d 1103, 1118 (N.D. Cal. 2012) (in antitrust conspiracy cases,

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―plaintiffs should be given the full benefit of their proof without tightly compartmentalizing the

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various factual components and wiping the slate clean after scrutiny of each . . . . [T]he character

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and effect of a conspiracy are not to be judged by dismembering it and viewing its separate parts,

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PaintCare and Clean Harbors dispute this allegation. See PaintCare Mot. at 3; Clean Harbors
Mot. at 7. On a motion to dismiss, resolution of such disputes of fact is inappropriate.
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The precise antitrust theory impacts whether the alleged conspiracy is properly considered as a
vertical or horizontal restraint of trade and whether to apply a per se illegality analysis or ―rule of
reason‖ analysis. The Court need not decide now whether per se or rule of reason analysis
applies; ―that decision is more appropriate on a motion for summary judgment.‖ In re High-Tech
Emp. Antitrust Litig., 856 F. Supp. 2d at 1122 (citing cases).
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but only by looking at it as a whole. . . .‖ (quoting Continental Ore Co. v. Union Carbide &

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Carbon Corp., 370 U.S. 690, 699 (1962)).

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Although it is not necessary to determine whether the per se or rule of reason analysis
applies at this stage, Plaintiff has alleged a theory of antitrust injury as well. See In re High-Tech

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Empl. Antitrust Litig., 856 F. Supp. 2d at 1122 (inappropriate to determine whether rule of reason

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or per se analysis applies until summary judgment); Pecover v. Elecs. Arts Inc., 633 F. Supp. 2d

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976, 983 (N.D. Cal. 2009) (for Cartwright Act claim, deferring market analysis under rule of

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reason until after deciding motion to dismiss). ―[T]he Cartwright Act, like all antitrust laws, is

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about the protection of competition, not competitors.‖ Asahi Kasei Pharma Corp. v. CoTherix,

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Inc., 204 Cal. App. 4th 1, 20 (2012) (internal quotation marks and citations omitted; emphasis in

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United States District Court
Northern District of California

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original); see also Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc., 198 Cal.

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App. 4th 1366, 1378 (2011), as modified on denial of reh’g (Sept. 29, 2011) (―[T]he antitrust

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injury requirement applies to cases alleging conduct that is per se unlawful as well as to cases

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governed by the rule of reason.‖). ―The antitrust injury requirement ensures that a plaintiff can

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recover only if the loss stems from a competition-reducing aspect or effect of the defendant‘s

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behavior.‖ Flagship Theatres, 198 Cal. App. 4th at 1379 (emphasis in original) (quoting Atl.

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Richfield Co., 495 U.S. at 344). ―Vertical agreements that foreclose competitors from entering or

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competing in a market can injure competition by reducing the competitive threat those competitors

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would pose.‖ Brantley v. NBC Universal, Inc., 675 F.3d 1192, 1198 (9th Cir. 2012).

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Additionally, ―[s]ome types of vertical agreements can also injure competition by facilitating

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horizontal collusion.‖ Id. (citation omitted); see also In re Musical Instruments & Equip. Antitrust

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Litig., 798 F.3d 1186, 1199 n.3 (9th Cir. 2015) (antitrust conspiracy may include a so-called

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―rimless hub-and-spoke conspiracy‖ where ―various defendants enter into separate agreements

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with a common defendant, but where the defendants have no connection with one another other

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than the common defendant‘s involvement in each transaction.‖).

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c.

Beyond Neutral Territory

Taking the allegations in the light most favorable to Plaintiff, the FAC now takes
Plaintiff‘s allegations out of ―neutral territory‖ and excludes the innocent explanations Defendants
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offered that Plaintiff was somehow unqualified to accept recycled paint. See In re Century

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Aluminum, 729 F.3d at 1108. Plaintiff affirmatively alleges that even after it had done ―everything

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that had been asked of it, and had continued to make efforts to meet each new requirement

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imposed upon it‖ Defendants still would not allow it to recycle paint. FAC ¶¶ 27, 29. Plaintiff

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alleges that ―while it was in operation it was the only latex paint recycler in the San Francisco Bay

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Area‖ and other entities had successfully used it to recycle paint. Id. ¶¶ 21, 27, 38; see also id. ¶¶

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19-20, 41 (alleging Defendants shipped paint out of state for recycling, which all Defendants stand

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to profit from). But even after Stericycle approved Plaintiff as a recycler for used latex paid,

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Plaintiff did not receive a single gallon of used paint from Stericycle or any other hauler in the

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PaintCare program for eight months. Id. ¶¶ 31, 41 (―[D]efendants were aware of GreenCycle‘s

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United States District Court
Northern District of California

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successful track record in processing post-consumer paint, had visited the facility and had

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approved of its operations‖ but still did not send it paint). The Court previously noted Plaintiff‘s

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allegations that PaintCare was conspiring to suppress the recycling of latex paint ―lack[ed]

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plausibility as it appears to run counter to the whole purpose of PaintCare‘s mission under the

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Program and for which CalRecycle has selected PaintCare.‖ Order at 9. Plaintiff‘s new

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allegations clarifies PaintCare‘s motivation to allow its owners to sell the more expensive virgin

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paint and not having to compete with Plaintiff for selling more affordable recycled pain and makes

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the alleged conspiracy sufficiently plausible. This is particularly true as Plaintiff has plausibly

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pled it had done all Defendants asked of it to be qualified to receive paint for processing. See

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Aerotec, 2016 WL 4709868, at *9 (there is ―no duty to deal under the terms and conditions

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preferred by a competitor‘s rivals,‖ but there is a duty not to refrain from dealing where the ―only

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conceivable rationale or purpose‖ is ―to obtain higher profits in the long run from the exclusion of

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competition‖ (internal quotation marks and brackets omitted)); cf. Name.Space, Inc., 795 F.3d at

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1130 (9th Cir. 2015) (―[A]bsent allegations that suggest [defendant‘s] decisions were illogical or

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suspicious‖ rational, independent business decisions not subject to antitrust liability). PaintCare

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attempts to argue the ―uncontested facts‖ show other recyclers had ―much more experience and a

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proven track record of success.‖ PaintCare Mot. at 11 n.4. This is a consideration for summary

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judgment—not a motion to dismiss. Consequently, taking Plaintiff‘s well-pleaded allegations as
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true, it plausibly alleges an antitrust conspiracy.
The FAC alleges Defendants‘ conspiracy prevented Plaintiff from participating in the

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PaintCare Program, which in turn prevented millions of dollars of lower-priced recycled paint

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from entering the Bay Area market. FAC ¶¶ 17, 21, 47-48; Opp‘n at 14. Plaintiff alleges it could

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have sold its recycled paint directly to consumers, had a contract with the City of Oakland, and

6

was in discussion to sell to several other government entities in the Bay Area. FAC ¶¶ 17, 215; see

7

Brantley, 675 F.3d at 1198 (―[P]laintiffs must plead an injury to competition beyond the impact on

8

the plaintiffs themselves.‖). Plaintiff has also alleged plausible facts that the market itself was

9

injured by Defendants‘ anticompetitive conduct when they refused to allow Plaintiff to participate
in the PaintCare program. See Flagship Theatres, 198 Cal. App. 4th at 1379-80 (conduct that is

11
United States District Court
Northern District of California

10

otherwise forbidden by the Cartwright Act ―is not to be tolerated merely because the victim is just

12

one merchant whose business is so small that his destruction makes little difference to the

13

economy‖—an antitrust plaintiff ―need not show that the market has actually become less

14

competitive than it would have been without the defendant‘s conduct‖).
PaintCare‘s citation to its agreement with the City and County of San Francisco (―San

15
16

Francisco‖) to make some reprocessed paint available to the public for free does not necessarily

17

diminish the potential injury to competition and Bay Area consumers so as to make Plaintiff‘s

18

claim implausible. See PaintCare Mot. at 1 (contending that under an agreement between

19

PaintCare and San Francisco, reprocessed paint is made available to the public for free by San

20

Francisco-managed facilities, citing PaintCare Request for Judicial Notice, Ex. K at p.6; Ex. M;

21

Ex. N). As discussed above, the FAC alleges Plaintiff had the capacity to recycle large amounts of

22

paint and to sell that paint to consumers in the Bay Area at a much lower cost than PaintCare‘s

23

members sold virgin paint—but ―Defendants conspired to exclude Plaintiff in order to reduce and

24
5

25
26
27
28

These allegations counter PaintCare‘s arguments that (1) Plaintiff has not shown how its
presence in the market would increase the amount of paint available (PaintCare Mot. at 14); (2)
Plaintiff ―does not allege any facts to support its speculation that without Plaintiff‘s particular
Oakland recycling plant, there would be less recycled paint available to consumers in the Bay
Area to compete with virgin paint‖ (PaintCare Reply at 2); and (3) ―Plaintiff pleads
no facts suggesting that the location of a recycler has any relationship to the availability of
recycled paint in that same geographic area‖ (PaintCare Mot. at 9 (emphasis omitted)).
12

1

control the supply of recycled paint in the Bay Area market.‖ Opp‘n at 16 (emphasis added).

2

Even if the Court relied on PaintCare‘s evidence about the contract with the City and County of

3

San Francisco, as Twombly explicitly acknowledges, ―a well-pleaded complaint may proceed even

4

if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very

5

remote and unlikely.‖ 550 U.S. at 556 (internal quotation marks omitted).
At this point, Plaintiff‘s FAC adequately states a Cartwright Act claim.

6
7
8
9

B.

UCL
California‘s UCL proscribes three types of unfair competition: ―practices which are

unlawful, unfair or fraudulent.‖ In re Tobacco II Cases, 46 Cal. 4th 298, 311 (2009) (internal
quotation marks and citation omitted); see also Cal. Bus. & Prof. Code § 17200 (defining unfair

11
United States District Court
Northern District of California

10

competition to include ―any unlawful, unfair or fraudulent business act or practice‖). ―Each prong

12

of the UCL is a separate and distinct theory of liability,‖ and ―an independent basis for relief.‖

13

Lozano v. AT&T Wireless Servs., Inc., 504 F.3d 718, 731 (9th Cir. 2007) (citation omitted).

14

Plaintiff alleges Defendants‘ conduct violates all three prongs.

15

1.

Unlawful and Unfair Prongs

16

―By proscribing ‗any unlawful‘ business practice, § 17200 borrows violations of other laws

17

and treats them as unlawful practices that the unfair competition law makes independently

18

actionable.‖ Cel-Tech Commc’ns, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 180 (1999)

19

(internal quotation marks omitted). In other words, claims raised under the UCL‘s unlawful prong

20

rise or fall with the Court‘s determination of liability with respect to the underlying violation. See

21

Krantz v. BT Visual Images, 89 Cal. App. 4th 164, 178 (2001).

22

―[W]ith respect to business-competitor cases, to state a claim under the UCL‘s ‗unfair‘

23

prong the alleged unfairness must ‗be tethered to some legislatively declared policy or proof of

24

some actual or threatened impact on competition.‘‖ Levitt v. Yelp! Inc., 765 F.3d 1123, 1136 (9th

25

Cir. 2014) (quoting Cel-Tech Commc’ns, 20 Cal. 4th at 186-87 (an act or practice is ―unfair‖ under

26

the UCL only if the conduct ―threatens an incipient violation of an antitrust law, or violates the

27

policy or spirit of one of those laws because its effects are comparable to or the same as a violation

28

of the law, or otherwise significantly threatens or harms competition.‖)). ―[W]here the same
13

1

conduct alleged to be unfair under the UCL is also alleged to be a violation of another law, the

2

UCL claim rises or falls with the other claims.‖ Hicks v. PGA Tour, Inc., 165 F. Supp. 3d 898,

3

911 (N.D. Cal. Feb. 9, 2016) (citation omitted).

4

Because the Court has found Plaintiff properly alleges a Cartwright Act violation, it finds
Plaintiff has also sufficiently stated a UCL claim under the unlawful and unfair prongs. See

6

Prakashpalan v. Engstrom, Lipscomb & Lack, 223 Cal. App. 4th 1105, 1133 (2014), as modified

7

on denial of reh’g (Feb. 27, 2014) (―[A] violation of another law is a predicate for stating a cause

8

of action under the UCL's unlawful prong.‖); Scripps Clinic v. Superior Court, 108 Cal. App. 4th

9

917, 940 (2003) (UCL unfair prong claim ―must be ‗tethered‘ to specific constitutional, statutory

10

or regulatory provisions.‖ (citations omitted)). While Defendants challenge Plaintiff‘s allegations

11
United States District Court
Northern District of California

5

of injury under the UCL, the Court finds Plaintiff has also alleged sufficient injury to support its

12

UCL claim: as a result of Defendants‘ agreement and concerted action to exclude Plaintiff from

13

receiving paint under the PaintCare Program, Plaintiff suffered financial losses and consumers in

14

the San Francisco Bay Area have been harmed. See FAC ¶¶ 17, 21, 47-48; Opp‘n at 21.

15

3.

Fraudulent Prong

16

―To establish an unfair competition claim under the fraudulent prong, plaintiffs must show

17

that [the defendant‘s] representations were false or were likely to have misled reasonable

18

consumers.‖ Belton v. Comcast Cable Holdings, LLC, 151 Cal. App. 4th 1224, 1241 (2007)

19

(internal quotation marks omitted); see also State Farm Fire & Cas. Co. v. Superior Court, 45 Cal.

20

App. 4th 1093, 1105 (1996) (―The test is whether the public is likely to be deceived. [Citation.]

21

This means that a section 17200 violation, unlike common law fraud, can be shown even if no one

22

was actually deceived, relied upon the fraudulent practice, or sustained any damage. [Citation.]‖).

23

―The standard for finding a likelihood of deception is that of a reasonable consumer who is neither

24

the most vigilant and suspicious of advertising claims nor the most unwary and unsophisticated,

25

but instead is ‗the ordinary consumer within the target population.‘‖ Ehret v. Uber Techs., Inc., 68

26

F. Supp. 3d 1121, 1137 (N.D. Cal. 2014) (internal quotation marks omitted).

27
28

Defendants argue the FAC does not allege Defendants made representations to consumers,
upon which consumers relied to their detriment. PaintCare Mot. at 18. As the Court pointed out
14

1

in its prior Order,

2

Plaintiff is not clear about which Defendants made what
misrepresentations to the public or how specifically they misled
consumers regarding the costs of the Program or its benefits. See
Fed. R. Civ. P. 9(b) (‗a party must state with particularity the
circumstances constituting fraud . . . .‘). Without more, it cannot
maintain its UCL claims under the fraud prong.

3
4
5
6

Order at 19. Plaintiff has not clarified these claims in its FAC, noting only in a conclusory fashion

7

that ―[D]efendants‘ actions violated state law, including California Public Resources Code §

8

48703(b)(4), resulted in an unfair competitive market for the sale of paint, reduced the choices that

9

Bay Area consumers had when purchasing paint, and was conducted in an effort to mislead
GreenCycle and the public.‖ FAC ¶ 54. But there are no allegations about what representations

11
United States District Court
Northern District of California

10

Defendants made and when or how such representations were likely to mislead the public. While

12

the Court can speculate about how Plaintiff may be able to assert such claims, at this point, it has

13

failed to do so despite having an opportunity to cure the initial Complaint‘s deficiencies. As such,

14

the Court DISMISSES Plaintiff‘s UCL fraudulent practices claim WITHOUT LEAVE TO

15

AMEND.

16

4.

17

Clean Harbors also challenges Plaintiff‘s standing to bring a UCL claim. Clean Harbors

18

Mot. at 10. In order to have standing under the UCL, a plaintiff must show that it ―has suffered

19

injury in fact and has lost money or property as a result of such unfair competition.‖ Cal. Bus. &

20

Prof. Code § 17204. In addition, where a plaintiff alleges a UCL claim against multiple

21

defendants, it must allege that it ―suffered injury in fact or lost money or property as a result of

22

alleged unfair competition‖ of each defendant. Schulz v. Neovi Data Corp., 152 Cal. App. 4th 86,

23

92 (2007) (brackets omitted). Clean Harbors contends ―Plaintiff merely alleges that it ‗lost time

24

and effort, lost profits and eventually GreenCycle was required to shut down because it was unable

25

to obtain sufficient used paint . . . to continue to viably operate its recycling facility.‘‖ Clean

26

Harbors Mot. at 10 (quoting FAC ¶ 55). But it contends this allegation is insufficient, ―as Plaintiff

27

does not allege the loss of money or Property as a direct result of [Clean Harbor]‘s alleged

28

conduct.‖ Id.

Standing

15

The Court disagrees. As discussed above, Plaintiff alleges Clean Harbors and the other

1
2

Defendants violated California‘s Cartwright Act and conspired to exclude Plaintiff from the

3

recycled latex paint market. As a result of the exclusion, Plaintiff was allegedly unable to obtain

4

used paint and had to close its business. These allegations are sufficient to show Plaintiff lost

5

money or property as a result of all Defendants‘ acts. See Hinojos v. Kohl’s Corp., 718 F.3d 1098,

6

1104 (9th Cir. 2013), as amended on denial of reh’g and reh’g en banc (July 8, 2013) (―The ‗lost

7

money or property‘ requirement . . . requires a plaintiff to demonstrate some form of economic

8

injury as a result of his transactions with the defendant, . . . although the quantum of lost money or

9

property necessary to show standing is only so much as would suffice to establish Article III
injury in fact[.]‖ (internal quotation marks, citation, and brackets omitted)).

11
United States District Court
Northern District of California

10

C.

Safe Harbor Provision

12

PaintCare argues Plaintiff‘s Cartwright Act and UCL claims are barred by the Safe Harbor

13

Provision of California Public Resources Code (―PRC‖) section 48706. PaintCare Mot. at 18-21.

14

PaintCare raised this issue in its first Motion to Dismiss; however, because the Court did not find

15

Plaintiff stated a claim for either its Cartwright Act or UCL claim, it did not consider the

16

applicability of the Safe Harbor Provision. Order at 5. The Court also noted that no other court

17

had yet interpreted this provision and none of the parties had provided any legislative history and

18

other materials that may have assisted the Court in interpreting this provision. Id. Now, as the

19

Court has found Plaintiff has stated a claim for violations of the Cartwright Act and UCL against

20

PaintCare, the Court must consider the Safe Harbor Provision.

21

1.

Interpretation of State Law

22

Federal courts interpreting a state law look to the state‘s rules of statutory interpretation

23

and attempt to determine what meaning the state‘s highest court would give it. See Turnacliff v.

24

Westly, 546 F.3d 1113, 1117-18 (9th Cir. 2008). The ―ultimate task‖ in statutory interpretation ―is

25

to ascertain the legislature‘s intent.‖ People v. Massie, 19 Cal. 4th 550, 569 (1998). California

26

courts have established a three-step process of statutory interpretation to determine legislative

27

intent. See MacIsaac v. Waste Mgmt. Collection & Recycling, Inc., 134 Cal. App. 4th 1076, 1082

28

(2005) (―[T]he key to statutory interpretation is applying the rules of statutory construction in their
16

1
2

proper sequence.‖).
First, courts ―scrutinize the actual words of the statute, giving them a plain and

3

commonsense meaning.‖ Gomez v. Superior Court, 54 Cal. 4th 293, 300 (2012) (quoting

4

Goodman v. Lozano, 47 Cal. 4th 1327, 1332 (2010)). If the ―language of the statute is not

5

ambiguous, the plain meaning controls and resort to extrinsic sources to determine the

6

Legislature‘s intent is unnecessary.‖ Id. (quoting Ste. Marie v. Riverside Cty. Reg’l Park & Open-

7

Space Dist., 46 Cal. 4th 282, 288 (2009)). When the wording of the statute is ambiguous or

8

permits more than one reasonable interpretation, courts move to the second step of the inquiry.

9

See Alejo v. Torlakson, 212 Cal. App. 4th 768, 787 (2013). In this step, a court may turn to
secondary rules of interpretation, such as ―maxims of construction,‖ People v. Smith, 32 Cal. 4th

11
United States District Court
Northern District of California

10

792, 798 (2004), ―the statutory scheme of which the provision is a part, the history and

12

background of the statute, the apparent purpose, and any considerations of constitutionality,‖

13

Hughes v. Bd. of Architectural Exam’rs, 17 Cal. 4th 763, 776 (1998). ―If ambiguity remains after

14

resort to secondary rules of construction . . . then [courts] must cautiously take the third and final

15

step in the interpretive process.‖ Alejo, 212 Cal. App. 4th at 788. In this step, courts apply

16

―reason, practicality, and common sense to the language at hand.‖ Id.

17

2.

18

The Court finds the Safe Harbor Provision‘s plain language does not bar Plaintiff‘s claims.

19
20
21

22
23
24
25

Statutory Language & Analysis

PRC section 48706 states:
(a) Except as provided in subdivision (c), an action solely to
increase the recycling of architectural paint by a producer,
stewardship organization, or retailer that affects the types or
quantities being recycled, or the cost and structure of any return
program, is not a violation of the statutes specified in
subdivision (b).
(b) The following statutes are not violated by an action specified in
subdivision (a):
(1)

26
27
28

(2)

The Cartwright Act (Chapter 2 (commencing with
Section 16700) of Part 2 of Division 7 of the Business
and Professions Code).
The Unfair Practices Act (Chapter 4 (commencing with
Section 17000) of Part 2 of Division 7 of the Business
and Professions Code).
17

1
2
3
4
5

(c) Subdivision (a) shall not apply to any agreement establishing or
affecting the price of paint, except for the architectural paint
stewardship assessment, or the output or production of paint, or
any agreement restricting the geographic area or customers to
which paint will be sold.
Cal. Pub. Res. Code § 48706.
PaintCare interprets section 48706 to protect it from both of Plaintiff‘s claims. It contends

6

Plaintiff‘s allegations concern the ―types or quantities [of paint] being recycled, or the cost and

7

structure‖ of the ―return program.‖ PaintCare Mot. at 20 (quoting Cal. Pub. Res. Code §

8

48706(a)). As such, PaintCare argues ―Plaintiff []cannot avoid the Safe Harbor unless it alleges

9

facts showing an ‗agreement establishing or affecting the price of paint, except for the
architectural paint stewardship assessment, or the output or production of paint, or any agreement

11
United States District Court
Northern District of California

10

restricting the geographic area or customers to which paint will be sold.‘‖ Id. (quoting Cal. Pub.

12

Res. Code § 48706(c)). PaintCare contends this must involve agreements to engage in the type of

13

price fixing, supply manipulation, or territorial market allocations that are the standard target of

14

the Cartwright Act. Id. (citing Cal. Anti. & Unfair Comp. L. § 2.07, Market Allocation

15

Agreements). PaintCare avers Plaintiff has not alleged such facts and urges the Court to prohibit

16

Plaintiff‘s claims under the Safe Harbor, arguing ―Plaintiff‘s attempt through this litigation to

17

change this important statutory program so as to advance its own private financial interests is

18

exactly what the Safe Harbor Provision is designed to prevent.‖ Id. at 21.

19

Plaintiff does not disagree that it is challenging an action related to ―types or quantities [of

20

paint] being recycled, or the cost and structure‖ of the ―return program.‖ Plaintiff instead focuses

21

on the first part of section 48706(a), which limits application of the safe harbor protections to ―an

22

action solely to increase the recycling of architectural paint by a . . . stewardship organization[.]‖

23

Cal. Pub. Res. Code § 48706(a). As Plaintiff points out, PaintCare‘s Motion ―ignores the initial

24

clause of Section 48706(a) (providing protection only to actions ‗solely to increase the recycling

25

of architectural paint‘)[.]‖ Opp‘n at 20. Plaintiff interprets the Safe Harbor to ―only appl[y] to

26

actions taken in order to increase the amount of recycled paint that also affect the types or

27

quantities of paint that is being recycled or the cost structure of the return program.‖ Id.

28

Plaintiff emphasizes that it has alleged ―that rather than taking action solely to increase the
18

1

recycling of architectural paint, PaintCare‘s actions excluded GreenCycle and other latex paint

2

recycling facilities from entering the San Francisco Bay Area market.‖ Opp‘n at 20 (citing FAC

3

¶¶ 45, 53). This, ―even when viewed in a light most favorable to PaintCare, either reduced or had

4

no overall impact on the recycling of architectural paint.‖ Id. Put another way, Plaintiff contends

5

the Safe Harbor Provision is implicated ―if PaintCare modifies the surcharge on all paint sold

6

across the state in order to increase recycling[;] that action would be protected by the safe harbor

7

provision.‖ Id. ―But[] entering into a conspiracy with the haulers to prevent a recycling facility

8

from operating in the Bay Area is not an act solely to increase the recycling of architectural paint

9

and, for that simple reason, is not covered by the safe harbor provision.‖ Id.

10

PaintCare appears to attack Plaintiff‘s interpretation of the Safe Harbor‘s limitation to

United States District Court
Northern District of California

11

discrete actions ―solely‖ to increase the recycling of architectural paint. See PaintCare Reply at

12

13-14. PaintCare states:

13
14
15
16
17
18
19
20
21

22

Plaintiff argues that its claims do not fall within the scope of the safe
harbor provision because it has not alleged conduct that was taken
by ―a producer, stewardship organization, or retailer‖ ―solely to
increase the recycling of architectural paint . . . that affects the types
or quantities being recycled, or the cost and structure of the return
program.‖ Opp. at 19 (quoting PRC § 48706). Plaintiff cannot
escape the safe harbor so easily. As this Court found, Plaintiff‘s
allegations ―appear[] to run counter to the whole purpose of
PaintCare‘s mission under the Program and for which CalRecycle
has selected PaintCare.‖ Order at 9:13-15. Theoretically, any one
component of the Program – whether it be, e.g., the selection of
recyclers or the location of collection bins or the terms of
PaintCare‘s contracts with the haulers – could be claimed in
isolation to not be necessary to increase recycling. But the Program
as a whole – as confirmed by CalRecycle – is designed solely to
increase recycling, and PaintCare‘s decisions in implementing the
components of that Program must be covered by the safe harbor for
that provision to have any meaning.

23

PaintCare Reply at 13 (italics in original). PaintCare thus contends the Safe Harbor Provision

24

protects any actions taken pursuant to the Program, which it asserts ―is designed to increase the

25

recycling of architectural paint.‖ Suppl. Br. at 3, Dkt. No. 67. PaintCare argues without citation

26

that its ―decisions in implementing the components of that Program must be covered by the safe

27

harbor for that provision to have any meaning.‖ PaintCare Reply at 13; see Suppl. Br. at 4 (―To

28

provide any possible safe harbor; i.e., to have any possible meaning or effect, the words ‗an action
19

1

solely to increase the recycling of architectural paint‘ must refer to the paint stewardship program

2

as a whole.‖).
The Court disagrees that the Safe Harbor Provision should be interpreted so broadly.

3
4

Courts ―presume the Legislature intended everything in a statutory scheme, and . . . do not read

5

statutes to omit expressed language or to include omitted language.‖ Tyrone W. v. Superior Court,

6

151 Cal. App. 4th 839, 850 (2007). Section 48706 does not define ―an action‖ to mean any action

7

taken to implement the paint stewardship program, and PaintCare provides no support for this

8

interpretation. Section 48706 does, however, set specific parameters as to what actions are

9

protected. The Safe Harbor Provision identifies only one type of protected action and the laws
which such an action does not violate: it shields ―[1] an action solely to increase the recycling of

11
United States District Court
Northern District of California

10

architectural paint [2] by a producer, stewardship organization, or retailer that [3] affects the types

12

or quantities being recycled, or the cost and structure of any return program‖ from Cartwright Act

13

or the UCL claims. Cal. Pub. Res. Code § 48706(a)-(b).
Indeed, PaintCare‘s interpretation ignores the Safe Harbor‘s requirement that the action

14
15

must be one ―solely to increase the recycling of architectural paint.‖ This limitation suggests only

16

certain actions are protected, namely, those that increase the amount of recycled paint. If

17

PaintCare engaged in acts that increased the amount of recycled paint, such conduct would be

18

consistent with the purpose of the Program; in that case, protection from antitrust lawsuits is

19

appropriate. But that is not what Plaintiff alleges occurred. Taking Plaintiff‘s well-pleaded

20

allegations as true as the Court must in considering Defendants‘ Motions to Dismiss, PaintCare

21

took steps to decrease the availability of recycled paint, which Plaintiff alleges is contrary to the

22

Program‘s purpose.6 See FAC ¶ 13 (shipping paint out of state ―violate[s] the statutory program

23

goals‖). Moreover, Plaintiff alleges PaintCare‘s sole purpose in diverting paint away from

24

Plaintiff was to ―prevent[] a recycling facility from operating in the Bay Area and [to] limit[] the

25

amount of paint being recycled for sale in California.‖ FAC ¶ 31. The Safe Harbor Provision is

26
27
28

6

To the extent PaintCare relies on CalRecycle‘s approval of its plans as proof that it sought to
fulfill the Program‘s goal, the Court declines to consider such evidence at the motion to dismiss
stage.
20

1

silent as to a stewardship organization‘s actions taken to decrease the recycling of architectural

2

paint.

3

PaintCare cannot hide behind the stated purpose of the Program. See PaintCare Reply at

4

13 (―But the Program as a whole . . . is designed solely to increase recycling, and PaintCare‘s

5

decisions in implementing the components of that Program must be covered by the safe harbor for

6

that provision to have any meaning.‖). It is undisputed that ―[t]he purpose of the architectural

7

paint recovery program . . . is to require paint manufacturers to develop and implement a program

8

to collect, transport, and process postconsumer paint to reduce the costs and environmental

9

impacts of the disposal of postconsumer paint in this state.‖ Cal. Pub. Res. Code § 48700. Simply
because the Program has a purpose does not mean PaintCare‘s decisions were in accordance with

11
United States District Court
Northern District of California

10

that goal. Again, this is what Plaintiff alleges: by conspiring to exclude Plaintiff from the

12

PaintCare Program, PaintCare sought to decrease the amount of recycled paint—contrary to the

13

purpose of the Program.

14

In short, the Court cannot find the Safe Harbor Provision‘s plain language is meant to

15

immunize any action taken pursuant to the Program from claims under the Cartwright Act or the

16

UCL. Rather, the plain language indicates only ―actions solely to increase the recycling of

17

architectural paint‖ are protected from antitrust suits. The Safe Harbor Provision therefore does

18

not apply where, as here, the defendant allegedly took steps to decrease paint recycling.

19

3.

Legislative History

20

The legislative history of the Architectural Paint Recovery Program supports the preceding

21

analysis. Initial drafts of the Safe Harbor Provision were significantly broader than the current

22

version. On February 27, 2009, Assembly Member Huffman introduced AB 1343, which

23

established the Program. Dkt. No. 51-2 at ECF p.2; see id. at ECF p.200. AB 1343 contained a

24

safe harbor provision that provided that

25
26
27
28

[a]ny action taken by a manufacturer or representative organization
regarding the cost recovery system or the collecting, transporting, or
processing of postconsumer paint, pursuant to the requirements of
this chapter and only to the extent necessary to plan and implement
the cost recovery system, collection system, or recycling system, is
not a violation of the Cartwright Act (Chapter 2 (commencing with
21

1
2
3

Section 16700) of Part 2 of Division 7 of the Business and Practices
Code), the Unfair Practices Act (commencing with Section 17000)
of Part 2 of Division 7 of the Business and Professions Code), or
any other state law relating to antitrust, regulation of trade, or
regulation of commerce.

4

Dkt. No. 51-2 at ECF pp.4-5. This version remained unchanged when the California Assembly

5

amended the bill on May 2, 2009. See id. at ECF pp.8-9. The Senate‘s June 24, 2009

6

amendments left this provision substantively the same as well. See id. at ECF pp.18-19.

7

Several local governments and agencies supported a limited antitrust exemption. The City

8

and County of San Francisco, Sonoma County Waste Management Agency, and the City of

9

Buenaventura opined that ―[t]he bill should . . . include language providing the paint
manufacturers protection from any anti-trust violation claims to allow them to work together to

11
United States District Court
Northern District of California

10

develop a stewardship organization solely for the purposes of establishing a statewide stewardship

12

program for paint. The exemptions should be very limited only to compliance with this program.‖

13

Dkt. No. 51-3 at ECF pp.25, 48, 56 (emphasis added). Napa County similarly supported AB 1343

14

provided it were amended to ―include language providing the paint manufacturers protection from

15

any anti-trust violation claims to allow them to work together to develop a stewardship

16

organization solely for the purposes of establishing a statewide stewardship program for paint.‖

17

Id. at ECF p.53 (emphasis in original).

18

In conjunction with a July 6, 2009 hearing on the bill, the Senate Committee on

19

Environmental Quality recommended the ―[r]emov[al] of the provisions related to anti-trust and

20

trade issues . . . [to] allow the author to find another approach to address these issues.‖ Dkt. No.

21

51-2 at ECF p.198. The July 13, 2009 amendment eliminated the safe harbor provision in its

22

entirety. Id. at ECF p.27.

23

A safe harbor provision was reintroduced on January 7, 2010. See Dkt. No. 51-4 at ECF

24

p.103. This version provided a narrower exemption than the initial iteration; it set forth in

25

subdivision (a) two specific actions that would not constitute an antitrust violation:

26
27
28

(1) Establishing and levying an architectural paint stewardship
assessment for each container of architectural paint sold by a
manufacturer in this state.
(2) Developing and implementing a recovery program to reduce the
generation of postconsumer architectural paint, to promote the use
22

of postconsumer architectural paint, and to manage the end-of-life of
postconsumer
architectural
paint,
including
collection,
transportation, processing, and disposal.

1
2
3

Id. It also added for the first time a provision that ―Subdivision (a) shall not apply to any

4

agreement establishing or affecting the price of paint, except for the architectural paint

5

stewardship assessment, or the output or production of paint, or any agreement restricting the

6

geographic area or customers to which paint will be sold.‖ Id.
On August 10, 2010, the Senate amended AB 1343 to contain the current version of the

7
8

safe harbor provision.7 Dkt. No. 51-2 at ECF p.39. It ―[l]imit[ed] the anti-trust exemption for

9

stewardship activities related to the product stewardship assessment or the output or production for
paint or any agreement restricting the geographic area or customers to which paint will be sold.‖

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Northern District of California

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Dkt. No. 51-4 at ECF p.119. Governor Arnold Schwarzenegger approved AB 1343 on September

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28, 2010. Dkt. No. 51-2 at ECF pp.40-46; see id. at ECF p.48.

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PaintCare asserts without citation that ―[t]he purpose of the safe harbor is to protect

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stewardship organizations from having to defend against legal claims by private parties that would

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challenge how the Program is being implemented.‖ PaintCare Reply at 14. PaintCare further

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argues—again without citation—that ―[t]he Legislature . . . was concerned with exempting the

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The August 10, 2010 amendment of AB 1343 stated:

(a) Except as provided in subdivision (c), an action solely to
increase the recycling of architectural paint by a producer,
stewardship organization, or retailer that affects the types or
quantities being recycled, or the cost and structure of any return
program, is not a violation of the statutes specified in subdivision
(b).
(b) The following statutes are not violated by an action specified in
subdivision (a):
(1) The Cartwright Act (Chapter 2 (commencing with
Section 16700) of Part 2 of Division 7 of the Business and
Professions Code).
(2) The Unfair Practices Act (Chapter 4 (commencing with
Section 17000) of Part 2 of Division 7 of the Business and
Professions Code).
(c) Subdivision (a) shall not apply to any agreement establishing or
affecting the price of paint, except for the architectural paint
stewardship assessment, or the output or production of paint, or any
agreement restricting the geographic area or customers to
which paint will be sold.
Dkt. No. 51-2 at ECF p.39.
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paint stewardship program from having to defend antitrust lawsuits. That intent is only

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effectuated if the ‗action‘ in question is the paint stewardship program itself.‖ Suppl. Br. at 4

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(emphasis in original); see id. (―To provide any possible safe harbor; i.e., to have any possible

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meaning or effect, the words ‗an action solely to increase the recycling of architectural paint‘ must

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refer to the paint stewardship program as a whole.‖).
The legislative history suggests otherwise: the amendments to section 48706 show a

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progressive narrowing of the Safe Harbor Provision. Whereas the first version of AB 1343

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broadly provided that ―[a]ny action taken by a manufacturer or representative organization

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regarding the cost recovery system or the collecting, transporting, or processing of postconsumer

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paint‖ (Dkt. No. 51-2 at ECF p.4-5) was immune from antitrust actions, the current version limits

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Northern District of California

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that protection to ―an action solely to increase the recycling of architectural paint by a producer,

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stewardship organization, or retailer that affects the types or quantities being recycled or the cost

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and structure of any return program‖ (Cal. Pub. Res. Code § 48706(a)). Indeed, in a corrected

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Report on Enrolled Bill submitted to Governor Schwarzenegger clarified that section 48706

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―would provide that certain actions taken pursuant to the program . . . do not violate the

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Cartwright Act or the Unfair Practices Act.‖ Dkt. No. 51-5 at ECF p.61. By noting that only

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―certain actions‖ would fall under the Safe Harbor Provision, it is clear that the Safe Harbor was

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not intended to be as all-encompassing as PaintCare argues. Moreover, the ACA—PaintCare‘s

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alleged creator and sole member—endorsed this narrow exemption. See Dkt. No. 51-4 at ECF

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p.51. In an August 10, 2010 joint memorandum with the California Paint Council (―CPC‖) to the

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Senate Appropriations Committee, the ACA and the CPC stated that ―[w]e also appreciate the

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assistance of the Senate Judiciary Committee in finalizing a narrow antitrust provision to enable

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the paint stewardship organization authorized in the bill to operate effectively.‖ Id. (emphasis

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added).
As such, the Court finds section 48706‘s legislative history shows that the Safe Harbor

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Provision is not intended to protect all actions taken under the Program, but rather only those

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actions that are specified in the statute.

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//
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4.

Reason, Practicality, and Common Sense

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In the third step of the statutory interpretation analysis, courts interpret the statutory

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language ―to make [it] workable and reasonable‖ and ―consider the consequences that will flow

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from a particular statutory interpretation.‖ In re A.M., 225 Cal. App. 4th 1075, 1081 (2014)

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(internal quotation marks omitted).
The above findings do not negate the Safe Harbor‘s effectiveness and comport with reason,

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practicality, and common sense. PaintCare asserts the ―[t]he Safe Harbor provision makes no

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sense and serves no purpose if it is not a legal defense to GreenCycle‘s antitrust lawsuit arising out

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of the operation of the paint stewardship program.‖ Suppl. Br. at 7. On the contrary, it serves a

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purpose: by protecting those actions that increase the recycling of paint, the Safe Harbor allows

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Northern District of California

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entities to carry out the Program‘s goal without fear of litigation, but it allows an antitrust suit

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where a defendant‘s acts are allegedly antagonistic to the Program. This interpretation is both

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workable and reasonable.

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5.

Summary

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At this point, the Court finds the Safe Harbor Provision does not shield PaintCare from

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Plaintiff‘s claims. PaintCare may be able to demonstrate that its actions in fact increased the paint

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recycling; however, at this stage, Plaintiff has alleged sufficient facts to show that the Provision

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does not apply.
CONCLUSION

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For the foregoing reasons, the Court GRANTS Defendants‘ Motions to Dismiss as to

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Plaintiff‘s UCL fraudulent practices claim but DENIES the Motions in all other respects.8 The

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Court shall hold a Case Management Conference on May 18, 2017 at 10:00 a.m. in Courtroom B,

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15th Floor, 450 Golden Gate Avenue, San Francisco, California. This conference shall be

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attended by lead trial counsel.

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PaintCare and Plaintiff filed requests for judicial notice. See PaintCare RJN, Dkt. No. 53; Pl.
RJN, Dkt. No. 58. Because the Court does not rely on the documents sought to be judicially
noticed, the Court DENIES both requests AS MOOT. See McLaughlin v. Wells Fargo Bank, NA,
2015 WL 10889993, at *2 (N.D. Cal. Oct. 29, 2015).
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No later than seven calendar days before the Case Management Conference, the parties

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shall file a Joint Case Management Statement containing the information in the Standing Order for

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All Judges in the Northern District of California, available at: http://cand.uscourts.gov/mejorders.

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The Joint Case Management Statement form may be obtained at:

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http://cand.uscourts.gov/civilforms. If the statement is e-filed, no chambers copy is required.

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IT IS SO ORDERED.

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Dated: April 11, 2017
______________________________________
MARIA-ELENA JAMES
United States Magistrate Judge

United States District Court
Northern District of California

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