High Tek USA, Inc. v. Heat and Control, Inc.

Filing 22

ORDER REGARDING NOTICE OF TENTATIVE RULING ON MOTION OF DEFENDANT HEAT AND CONTROL, INC. TO DISMISS, PARTIALLY GRANTING MOTION WITH LEAVE TO AMEND.No later than 2:00pm on Friday, June 15, 2012 parties may jointly stipulate in writing to entry of this tentative ruling. If parties so stipulate, then the hearing will be taken off calendar, and the tentative ruling shall become the Order of the Court. Otherwise, the hearing will take place on Tuesday, June 26, 2012 at 2:00pm. Signed by Judge Yvonne Gonzalez Rogers on 6/11/12. (fs, COURT STAFF) (Filed on 6/11/2012)

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UNITE STATES D ISTRICT CO
ED
OURT

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NORTHE DISTRIC OF CALIF
ERN
CT
FORNIA

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7
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9

HIG TEK USA INC.,
GH
A,

10

Plaintiff,

Northern District of California

United States District Court

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vs.

C
Case No.: 12
2-CV-00805 YGR
NOTICE OF TENTATIVE RULING ON MOTION
O DEFENDAN HEAT AN CONTROL, INC. TO
OF
NT
ND
L
DISMISS, PAR
RTIALLY GR
RANTING MO
OTION
W ITH LEAVE TO AMEND
E
D

HEA AND CON
AT
NTROL, INC. and DOES 1
thro
ough 50, inc
clusive,
Defe
endants.

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TO ALL PARTIES AND THEIR ATTORNEYS OF RECORD , PLEASE TA NOTICE OF THE FOLLOWING
A
S
S
D
AKE
E

17

TEN
NTATIVE RUL
LING ON THE MOTION TO DISMISS SCH
HEDULED FO HEARING O JULY 19, 2012 AT 2:0
OR
ON
00

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P.M.

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urt
wed
and
ed
ly
The Cou has review the parties’ papers a is incline to partiall grant the motion to

20

dism with lea to amend This is a tentative ruli and the p
miss
ave
d.
t
ing
parties still h
have an oppo
ortunity to

21

pres oral argu
sent
ument. Alte
ernatively, if the parties J OINTLY stip
f
pulate in wri
iting to entry of the
y

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tentative ruling, the hearing shall be taken off calend and the tentative rul
dar,
ling shall be
ecome the

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der
urt.
wise, the hear
ring shall be continued to June 26, 2012 at 2:00 p.m.
o
Ord of the Cou Otherw
The Cou TENTATIV
urt
VELY GRANT IN PART a
TS
and DENIES IN PART the Motion of Defendant
e

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ITH
Hea and Contro Inc. to Di
at
ol,
ismiss the Co
omplaint WI LEAVE TO AMEND as follows:

I.

BACKG
GROUND
This case involves access to repl
lacement par for proce
rts
essing, packa
aging, and w
weighing

equi
ipment used in food prod
duction. The Complaint alleges that Defendant Heat and Co
t
t
ontrol, Inc.

1

(“H&
&C”) is the exclusive North Americ distributor of scales, e
N
ca
r
equipment an parts man
nd
nufactured by

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Ishid Co., Ltd. (“Ishida”). Complaint ¶ 8. Plaintif High Tek U
da
ff
USA, Inc. (“
“High Tek”) alleges that its

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inab
bility to purc
chase Ishida parts from H&C violate federal ant
H
es
titrust and C
California unf
fair

4

com
mpetition law
ws.
High Tek alleges sev causes of action: vio
k
ven
o
olations of S
Sections 1 an 2 of the S
nd
Sherman Act
t,

5

§ 13 (Count III); and state la claims fo Intentiona Interferenc with Cont
3
aw
or
al
ce
tractual Rela
ations (Coun
nt

8

IV); Intentional Interference with Prospective Econo
;
e
omic Advan
ntage (Count V); Promissory Estoppel
t

9

(Cou VI); and violations of California Unfair Co
unt
d
o
a’s
ompetition L
Law, Cal. Bu & Prof. C
us.
Code §§ 17200

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et se (Count VII). H&C has moved to dismiss on the grounds that this is a garden-var
eq.
V
h
o
s
riety busines
ss

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Northern District of California

15 U.S.C. §§ 1 & 2 (Counts I and II); pr discrimi
U
s
rice
ination unde the Robins
er
son-Patman Act, 15 U.S.C.

7

United States District Court

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disp between a parts supp
pute
n
plier and its former custo
omer, which the antitrus laws do no reach.
h
st
ot

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II.

LEGAL STANDAR
L
RD
To survi a motion to dismiss, “a complain must conta sufficien factual mat
ive
nt
ain
nt
tter, accepted

13
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as tr to ‘state a claim to relief that is plausible on its face.’” A
rue,
r
p
n
Ashcroft v. I
Iqbal, 556 U 662, 678
U.S.
8

15

(200 (quoting Bell Atl. Co v. Twom
09)
orp.
mbly, 550 U.S 544, 557 (
S.
(2007)). In the antitrust context, “a

16

cour must deter
rt
rmine wheth an antitru claim is ‘ plausible’ in light of bas economic principles.”
her
ust
n
sic
c

17

Will
liam O. Gille Enters., Inc. v. Atl. Ri
ey
In
ichfield Co., 588 F.3d 65 662 (9th Cir. 2009) (
59,
(citing

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Two
ombly, supra 550 U.S. at 556). If th allegations in the com
a,
a
he
mplaint fail to give rise to a plausible
o
o

19

claim for relief, “‘this basic deficiency should . . . b e exposed at the point of minimum e
m
s
t
f
expenditure of

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time and money by the parti and the court.’” Two
e
y
ies
c
ombly, supra 550 U.S. a 558 (citations omitted)
a,
at
).

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III.

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ANALY
YSIS
A.
SECTION 1 SHERMAN ACT – CONTR
C
RACT IN REST
TRAINT OF TRADE
As to Co
ount I, allegi a violatio of Section 1 of the Sh
ing
on
n
herman Act, High Tek fa to allege
ails
e

suff
ficiently each of the requ
h
uired elemen of the clai
nts
im. Section 1 of the She
n
erman Act fo
orbids
cont
tracts in rest
traint of trade 1 To state a Section 1 Sherman Ac claim, the plaintiff mu plead not
e.
ct
e
ust
t

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15 U.S.C. § 1. Trusts, etc., in restraint of trade illegal; p
T
n
t
penalty
Every con
ntract, combination in the form of trust or otherwise, or conspirac in restrain of
cy,
nt
trade or commerce am
c
mong the sever States, or with foreign nations, is de
ral
eclared to be i
illegal.
Every per
rson who sha make any contract or en
all
c
ngage in any c
combination o conspiracy hereby
or
y
declared to be illegal shall be deem guilty of a felony ...
s
med
2

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just ultimate fac (such as a conspiracy but eviden
cts
y),
ntiary facts w
which, if true will prove (1) a
e,
e:

2

tract, combin
nation or con
nspiracy among two or m
more person or distinct business en
ns
ntities; (2) by
y
cont

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whic the persons or entities intended to harm or res
ch
o
strain trade o commerce; (3) which actually
or
h

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inju competit
ures
tion. Twomb supra, 550 U.S. at 5
bly,
5
548.

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Here, the Complaint identifies H&C’s contra with Ishi which m
e
t
H
act
ida,
makes H&C t exclusive
the

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Nor America distributor of Ishida part but does n allege th either H& or Ishida entered into
rth
d
o
ts,
not
hat
&C
a
o

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the contract for the purpose of harming or restrainin commerce Moreover as to the th element
c
ng
e.
r,
hird
t,

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the Complaint alleges only the ultimate fact that “th [unspecifi
C
a
t
he
ied] way [H& execute those
&C]
es

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cont
tracts in Nor America unreasonabl restrains t
rth
ly
trade” withou providing any eviden
ut
g
ntiary fact of

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inju to competition.
ury
Based on the foregoi analysis, the Court G RANTS the Motion to D
n
ing
,
Dismiss Coun I WITH
nt

Northern District of California

United States District Court

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LEA TO AME .
AVE
END

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B.

SECTION 2 SHERMAN ACT – ILLEGA MONOPO
C
AL
OLY

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As to Co
ount II, alleg
ging a violati of Sectio 2 of the S
ion
on
Sherman Act, Plaintiff fa to plead
ails

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facts regarding the relevant product mar
t
rket. Section 2 of the Sh
n
herman Act m
makes it unl
lawful to

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nopolize, atte
empt to mon
nopolize, or combine or c
c
conspire to m
monopolize.2 To state a cause of
.
mon

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actio for the of
on
ffense of monopoly unde Section 2 of the Sherm Act, a p
er
man
plaintiff must plead three
t
e

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elem
ments: (1) the relevant market that de
m
efendant has monopolize (2) posse
s
ed;
ession of mo
onopoly pow
wer

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in th market; and (3) willfu acquisitio or mainten
hat
a
ful
on
nance of tha power thro
at
ough compet
titively

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unre
easonable means, rather than as a consequence o a superior product, bu
of
usiness acum or histor
men,
ric

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acci
ident. United States v. Grinnell Corp 384 U.S. 563, 570-71 (1966).
G
p.,
1
Charges of monopol
lization can only be judg in the fra
o
ged
amework of the relevant market, which
t

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has two dimensi
ions: the “re
elevant geog
graphic mark and the “relevant pr
ket”
roduct marke While th
et.”
he

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ties
at
nt
ic
States, they d
differ on the scope of the
e
e
part agree tha the relevan geographi market is the United S

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“rele
evant produc market.” In the Comp
ct
plaint, High Tek alleges that the rele
evant produc market is the
ct
t

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2

15 U.S.C. § 2. Monopolizing trade a felon penalty
M
g
ny;
Every per
rson who sha monopolize or attempt t monopoliz or combine or conspire with
all
e,
to
ze,
any other person or pe
r
ersons, to mon
nopolize any part of the tra or comme among th
ade
erce
he
several States, or with foreign natio shall be d
ons,
deemed guilty of a felony .
y
...
3

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purchase of Ishida parts. Complaint ¶ 29. In its Opposition Brief, High Tek adds two additional

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relevant markets: the aftermarket for refurbished Ishida scales and the aftermarket for servicing Ishida

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scales. H&C argues that the relevant product market is all food processing scales sold in the United

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States.
High Tek alleges no facts from which it plausibly could be inferred that the relevant product

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aftermarket for servicing Ishida scales)3 as opposed to all food processing scales sold in the United

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States. See Brown Shoe Co. v. United States, 370 U.S. 294, 325-26 (1962) (“The outer boundaries of

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a product market are determined by the reasonable interchangeability of use . . . between the product

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itself and the substitutes for it.”); see also Volvo Trucks N. Am., Inc. v. Reeder-Simco GMC, Inc., 546

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Northern District of California

market is the purchase of Ishida parts (the aftermarket for refurbished Ishida scales and/or the

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United States District Court

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U.S. 164, 180 (2006) (“Interbrand competition, our opinions affirm, is the ‘primary concern of

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antitrust law.’”). This infirmity is fatal to its section 1 Sherman Act claim. United States v. E.I. du

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Pont de Nemours & Co., 351 U.S. 377, 391 (1956) (“where there are market alternatives that buyers

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may readily use for their purposes, illegal monopoly does not exist.”).
Because High Tek has failed to show a relevant market against which H&C’s market power

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and the anticompetitive effects of its practices can be judged,4 High Tek has failed to state a Section 2

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Sherman Act claim.
Based on the foregoing analysis, the Court GRANTS the Motion to Dismiss Count II WITH

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LEAVE TO AMEND.

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3

In its Opposition Brief, High Tek attempts to explain why it believes that Ishida parts is the relevant market.
For example, it argues that Ishida equipment is the “premium brand,” the “gold standard” of weighing and
packaging equipment, that Ishida equipment is utilized by a majority of manufacturers and distributors of
packaging equipment. Facts not alleged in the Complaint will not prevent dismissal for failure to state a claim.
Without deciding whether the additional facts are sufficient to state a Section 2 Sherman Act claim, the Court
will permit High Tek to amend its Complaint to allege additional facts.

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The term “monopolize,” as used in the federal antitrust laws, means the power either to obtain, or to maintain,
the power to remove or exclude competitors from the field of competition in a particular business or industry.
Since H&C is the exclusive distributor of Ishida parts, H&C maintains its so-called monopoly power to
purchase Ishida parts because of H&C’s contract with Ishida to be the exclusive North American distributor for
Ishida parts, not because of any of the alleged anticompetitive behavior. Additionally, High Tek’s theory, that
because it is a competitor that has been harmed, that H&C has harmed competition does not state a claim under
the antitrust laws. “[T]he plaintiff here must allege and prove harm, not just to a single competitor, but to the
competitive process, i.e., to competition itself.” NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 135 (1998).
4

1
2

C.

ROBINSON-PATMAN ACT CLAIM – P RICE DISCR
P
T
RIMINATION
N

As to Co
ount III for violation of the Robinson
v
t
n-Patman Ac High Tek fails to alle each of th
ct,
k
ege
he

3

requ
uired elemen of the cla
nts
aim. The Robinson-Patm Act of 1936, 15 U.S § 13, for
man
S.C.
rbids price

4

disc
crimination when it is apt to have an anticompeti
w
itive effect. To state a cl
laim for a vi
iolation of

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Sect
tion 2(a) of the Robinson
t
n-Patman Ac a plaintif must plead four elements: (1) the relevant sale
ct,
ff
d
es

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were made in in
e
nterstate com
mmerce; (2) the products sold were o the same g
t
of
grade and qu
uality; (3) tha
at

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H&C discrimina in price as between High Tek an another p
C
ated
e
nd
purchaser; an (4) the dis
nd
scrimination
n

8

had a prohibited effect on co
d
ompetition. See Texaco Inc. v. Hasb
brouck, 496 U.S. 543, 55 (1990).
56

9

The Com
mplaint alleg that H&C required H
ges
C
High Tek to p a 10-20% markup on all Ishida
pay
%
n

Northern District of California

part – somethin other com
ts
ng
mpanies who were not in direct comp
o
n
petition with H&C were not required to
h
d

11

United States District Court

10

pay. Complaint ¶ 15. Thus, High Tek alleges that i was not in competition with the pu
.
t
a
it
n
n
urchasers wh
ho

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were allegedly the beneficia
e
t
aries of the price discrim
p
mination. As such, High Tek has fail to state a
led

13

claim for price discriminatio under the Robinson-P
m
d
on
e
Patman Act.

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15
16
17

Based on the foregoi analysis, the Court G RANTS the Motion to D
n
ing
,
Dismiss Coun III WITH
nt
LEA TO AME .
AVE
END
D.

INTENTIONA INTERFER
AL
RENCE

As to Co
ounts IV and V for intentional interfe
d
ference with contractual relations and intentional
d
l

18

inter
rference with prospectiv economic advantage, H
h
ve
H&C attack the merits of the claim but does no
ks
m
ot

19

addr the suffi
ress
ficiency of th allegation in the Com
he
ns
mplaint. The elements fo a cause of action for
e
or
f

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inten
ntional inter
rference with contractual relations an intentiona interferenc with pros
h
l
nd
al
ce
spective

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econ
nomic advan
ntage essenti
ially are: (1) a contract o other econ
or
nomic relatio
onship betwe plaintiff
een

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and a third party (2) the def
y;
fendant’s kn
nowledge of the contract or relationship; (3) defe
endant’s

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ntional acts designed to induce a bre
each or disru the contra or relatio
upt
onship; (4) a
actual breach or
h
inten
act

24

disru
uption; and (5) damage. Korea Supp Co. v. Lo
ply
ockheed Mar Corp., 2 Cal. 4th 1134, 1153
rtin
29

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(Cal 2003); Quelimane Co. v. Stewart Title Guaran Co., 19 C 4th 26, 5 (Cal. 1998).
l.
T
nty
Cal.
55

26

k
at
se
rts
d
ny’s
t
High Tek alleges tha its inability to purchas Ishida par has halted the compan ability to

27

cond busines Complain ¶ 20. H& argues tha its decisio not to sell High Tek Ishida parts was
duct
ss.
nt
&C
at
on
l
w

28

justi
ified and wa not wrongful. Whethe H&C’s ac
as
er
ctions were justified or p
privileged is an evidentia
ary

5

1

issu (for which H&C will have the burden of proof not a plea
ue
h
h
f),
ading issue. As such, H& has faile
&C
ed

2

to id
dentify a pleading defect in High Tek intention interferen claims.
t
k’s
nal
nce

3

urt
he
o
ounts IV and V on this b
d
basis.
The Cou DENIES th Motion to Dismiss Co

4

E.

5

As to Co
ount VI, Hig Tek fails to state a cla for prom
gh
t
aim
missory estop because the Compla
ppel
aint

PROMISSORY ESTOPPEL
Y
L

6

alleg that H&C performed the very pr
ges
C
d
romise the H
High Tek see to enforce. The elem
eks
ments for a

7

claim of promissory estoppe are: “‘(1) the party to be estopped must be app
m
el
t
d
prised of the facts; (2) he
e
e

8

mus intend that his conduct shall be act upon, or must so act that the part asserting the estoppel
st
t
t
ted
ty

9

has a right to be
elieve it was so intended; (3) the othe party mus be ignoran of the true state of fact
;
er
st
nt
ts;

Northern District of California

and (4) he must rely upon th conduct to his injury.’ People v. Castillo, 49 Cal. 4th 14 156 n.10
he
o
’”
.
9
45,

11

United States District Court

10

(Cal 2010) (quo
l.
oting City of Goleta v. Su
f
uperior Cou 40 Cal. 4 270, 279 (Cal. 2006)). If the
urt,
4th

12

prom sought to be enforc was perfo
mise
ced
formed, then the doctrine is inapplica
e
able. Money Store Inv.
y

13

Corp v. S. Calif
rp.
fornia Bank, 98 Cal. App 4th 722, 7 (Cal. Ct. App. 2002) (“A cause o action for
,
p.
732
.
)
of
r

14

prom
missory esto
oppel would be superfluo
b
ous”). More
eover, becaus promissor estoppel i an equitable
se
ry
is

15

doct
trine that pro
ovides a substitute for co
onsideration to enforce a promise, if the only cla
f
aimed relianc
ce

16

is pe
erformance of the act ba
o
argained for, the doctrine is inapplica
e
able. See Fo
ontenot v. W
Wells Fargo

17

Ban N.A., 198 Cal. App. 4th 256, 275 (Cal. Ct. Ap 2011).
nk,
4
pp.

18

The Com
mplaint alleg that prior to entering into a parts account, H& required that High Tek
ges
r
&C
T

19

rem
move languag from its ca
ge
atalog that st
tated someth
hing to the ef
ffect of “Hig Tek is the best in the
gh
e

20

indu
ustry.” Com
mplaint ¶ 14. High Tek alleges that it detrimental relied upon a promise of a longa
t
lly

21

term parts accou and mad the reques change to its catalog H&C pro
m
unt,
de
sted
g.
ovided High Tek with a

22

part account to purchase Ishida parts fr
ts
rom early 20 until Dec
007
cember 20, 2
2011. Id. ¶¶ 14-16.
¶

23

Either ad
dequate cons
sideration was given her i.e., H&C promised a long-term p
re,
C
parts account if

24

High Tek remov certain language from its catalog or it was r
h
ved
m
g,
rendered moot by H&C’s performan
nce

25

of it obligation under the agreement, i.e., H&C gr
ts
ns
a
i
ranted High T a parts a
Tek
account and provided Hi
igh

26

Tek Ishida parts for four ove years. To the extent t
k
s
er
o
that High Te believes th it was en
ek
hat
ntitled to a

27

long term contract, under California la any agre
ger
aw,
eement not to be perform within a year must be
o
med
b

28

redu
uced to writing to be vali See Cal. Civ. Code § 1624(a)(1) (statute of f
id.
)
frauds).

6

1

Based on the foregoi analysis, High Tek h failed to state a claim for promissory estoppe
n
ing
,
has
m
el.

2

F.

3

As to Co
ount VII, for violations of California Unfair Co
r
o
a’s
ompetition L (“UCL” Cal. Bus.
Law
”),

4

Prof Code. § 17
f.
7200, High Tek claims are based upo its federa antitrust cl
T
a
on
al
laims. Calif
fornia’s UCL
L

5

statu prohibits “any unlaw
ute
s
wful, unfair or fraudulent business ac or practice Cal. Bus. Prof. Code. §
o
t
ct
e.”

6

1720 Cel-Tech Comm., In v. Los Ang
00;
h
nc.
geles Cellula Tel. Co., 20 Cal. 4th 163, 180 (Ca 1999).
ar
al.

7

With respect to Plaintiff’s al
h
llegations un
nder the unfa prong of the UCL, be
fair
ecause High Tek simply
h

8

borr
rows from its federal ant
titrust claims and becau High Tek has failed t adequately plead its
s,
use
k
to
y

9

antit
trust claims, its UCL cla necessar fails as w
,
aim
rily
well. See Ing v. Westw
gels
wood One B
Broad. Servs.,

10

Inc., 129 Cal. App. 4th 1050 1060 (Cal Ct. App. 20
A
0,
l.
005).
Based on the foregoi analysis, the Court G RANTS the Motion to D
n
ing
,
Dismiss Coun VII WITH
nt
H

Northern District of California

11

United States District Court

CALIFORNIA BUSINESS AND PROFES
A
A
SSIONS CODE §§ 17200 e seq.
E
et

12

LEA TO AME .
AVE
END

13

IV.

CONCL
LUSION

14

Therefor the Court tentatively Orders the f
re,
t
following:

15

1) Defe
endant’s Mot
tion to Dism is GRAN
miss
NTED IN PAR and DENIE IN PART.
RT
ED

16

2) Coun I, II, III, VI, and VII are DISMISS WITH LEAVE TO AMEND.
nts
SED

17

3) Plain shall ha until July 16, 2012 to file an ame
ntiff
ave
y
o
ended compl
laint.

18

No later than 2:00 p.m. on Friday, June 15 , 2012, the p
parties may JOINTLY stip
pulate in

19

writ
ting to entry of this tenta
ative ruling. If the partie so stipula then the hearing shal be taken off
es
ate,
ll

20

cale
endar, and th tentative ru
he
uling shall become the O
b
Order of the Court. Othe
erwise, the h
hearing will

21

take place on Tu
e
uesday, June 26, 2012 at 2:00 p.m.
e
t

22

IT IS SO ORDERED.

23
24
25

Date: June 11, 2012

__
__________
___________
__________
__________
YVON GONZAL ROGERS
NNE
LEZ
UNITED ST
TATES DISTR
RICT COURT JUDGE
T

26
27
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7