Opinion
Case No. 20-cv-03131-JSC
03-29-2021
IN RE CALIFORNIA GASOLINE SPOT MARKET ANTITRUST LITIGATION
ORDER RE: DEFENDANTS' MOTIONS TO STAY AND DISMISS
Re: Dkt. Nos. 222, 224
Plaintiffs allege that Defendants entered into horizonal agreements to restrain competition in the spot market for gasoline and gasoline blending components formulated for use in California. Plaintiffs filed a putative class action bringing federal and state antitrust claims as well as state law unfair competition and unjust enrichment claims against SK Trading International Co., Ltd. ("SK Trading"), SK Energy Americas, Inc. ("SK Energy"), Vitol Inc. ("Vitol"), and two individual defendants. Defendants' joint motion to stay this action pending a related state court action and motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) are now pending before the Court. (Dkt. Nos 222, 224.) Having considered the parties' briefs and having had the benefit of oral argument on January 28, 2021, the Court GRANTS IN PART and DENIES IN PART the motion to dismiss. Plaintiffs' Sherman Act claim is dismissed as Plaintiffs have not established standing to pursue a claim for injunctive relief and their UCL claim is dismissed as they have failed to show that their legal remedies are otherwise inadequate. The motion to dismiss is otherwise denied. Defendants' motion to stay is DENIED because Defendants have failed to establish a basis to stay this action under either Colorado River or this Court's inherent authority.
All parties have consented to the jurisdiction of a magistrate judge pursuant to 28 U.S.C. § 636(c). (Dkt. No. 199 at ¶ 12.)
BACKGROUND
A. Consolidated Class Action Complaint Allegations
The gravamen of the CCAC is that SK Trading, SK Energy, and Vitol conspired to "restrain competition in the spot market for gasoline formulated for use in California and in certain gasoline blending components used in that gasoline." (Consolidated Class Action Complaint ("CCAC"), Dkt. No. 186 at ¶ 1.) "Defendants' scheme exploited a disruption in refining capacity that resulted from an incident at the refinery in Torrance, California wherein a cracking unit exploded which impaired the refinery's ability to refine alkylates from February 2015 through at least June 2016. (Id. at ¶ 3.) The corporate Defendants and their employees—Lucas and Niemann—recognized that the supply disruption provided by the explosion provided them an opportunity to artificially inflate the price of alkylates and thus gasoline (given the relationship between the two). (Id. at ¶ 4.) Defendants negotiated large contracts to supply gasoline and gasoline blending components for delivery in California and entered into agreements with each other to "manipulate the spot market price for refined gasoline and gasoline blending components so that they could realize windfall profits on these contracts." (Id. at ¶¶ 5-6.) They also entered into profit sharing agreements and agreements to disguise their market interference. (Id.)
Record Citations are to material in the Electronic Case File ("ECF"); pinpoint citations are to the ECF-generated page numbers at the top of the document.
"Defendants' repeated and pervasive manipulation of the spot market price caused retail gasoline prices to be higher throughout the Class Period." (Id. at ¶ 152.) Indeed, California Energy Commission's Petroleum Market Advisory Committee "concluded that Californians may have paid at least $12 billion in extra gasoline costs due to the 'unexplained differential' since the 2015 Torrance Refinery explosion." (Id. at ¶ 155.) Plaintiffs thus allege that they paid more for gasoline as a result of Defendants' illegal activities. (Id. at ¶ 9.)
B. Procedural Background
Before this action was filed, the California Attorney General filed a parens patriae action in the San Francisco Superior Court. See The People of the State of California v. Vitol, Inc., et al., Case No. CGC20584456 (S.F. Superior, filed May 4, 2020) ("AG Action"). The AG Action includes Cartwright Act and UCL claims. Pacific Wine Distributors, Inc., filed the first action in this District two days after the AG Action was filed, on May 6, 2020. (Dkt. No. 1.) The other named plaintiffs subsequently filed separate actions, each of which was related to this action. The parties thereafter stipulated that all 23 related actions would be consolidated for purposes of trial. (Dkt. Nos. 67, 121, 133, 146, 148, 174.) The Court then appointed Hausfeld and Girard Sharp as co-lead interim class counsel. (Dkt. No. 167.) Shortly thereafter, Plaintiffs filed the now operative Consolidated Class Action Complaint which includes class claims for (1) violation of the Sherman Act, 15 U.S.C. § 1; (2) violation of the Cartwright Act, Cal. Bus. & Prof. Code § 16720; (3) violation of California's Unfair Competition Law, Cal. Bus. & Prof. Code § 17200; and (4) unjust enrichment. (Dkt. No. 186.)
Following a status conference on October 6, 2020, the Court set a phased briefing schedule for Defendants' forthcoming Rule 12(b) motions with SK Trading's motion to dismiss for lack of personal jurisdiction and improper venue to be heard before the other Defendants' Rule 12(b)(6) motion and motion to stay. (Dkt. No. 207.) The motion to dismiss for lack of personal jurisdiction and improper venue under Rule 12(b)(2), (3) came before the Court for hearing on December 16, 2020 and the Court subsequently granted Plaintiffs leave to take jurisdictional discovery and deferred ruling on the motion. (Dkt. No. 263.) The Rule 12(b)(6) motion and motion to stay came before the Court for hearing on January 28, 2021.
DISCUSSION
Defendants move to stay this action in light of the AG's action in state court and to dismiss each of Plaintiff's claims under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim and as barred in part by the statute of limitations.
I. MOTION TO DISMISS
A. The Cartwright Act
The Cartwright Act, Business and Professions Code section 16700 et seq., was "enacted to promote free market competition and to prevent conspiracies or agreements in restraint or monopolization of trade." Exxon Corp. v. Super. Ct., 51 Cal. App. 4th 1672, 1680 (1997). To state a claim under the Cartwright Act, plaintiffs must allege: "(1) the formation and operation of the conspiracy; (2) illegal acts done pursuant thereto; and (3) damage proximately caused by such acts." In re High-Tech Emp. Antitrust Litig., 856 F. Supp. 2d 1103, 1126 (N.D. Cal. 2012) (quoting Kolling v. Dow Jones & Co., 137 Cal. App. 3d 709, 718 (1982)); see also Cty. of Tuolumne v. Sonora Cmty. Hosp., 236 F.3d 1148, 1160 (9th Cir. 2001) ("The analysis under California's antitrust law mirrors the analysis under federal law because the Cartwright Act, Cal. Bus. & Prof. Code § 16700 et seq., was modeled after the Sherman Act.").
Plaintiffs allege Defendants entered into an agreement that constitutes a per se violation of the Cartwright Act. (CCAC at ¶ 177.) Under the per se rule, certain categories of restraint are treated as "necessarily illegal [which] eliminates the need to study the reasonableness of an individual restraint in light of the real market forces at work." Leegin Creative Leather Prod., Inc. v. PSKS, Inc., 551 U.S. 877, 886 (2007) (quoting Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717, 723 (1988)). "Restraints that are per se unlawful include horizontal agreements among competitors to fix prices, or to divide markets." Leegin, 551 U.S. at 886. To state a claim for a per se antitrust violation, Plaintiffs must allege that Defendants "(1) entered into an agreement (2) to fix prices, rig bids, or divide a market." In re WellPoint, Inc. Out-of-Network UCR Rates Litig., 865 F. Supp. 2d 1002, 1025 (C.D. Cal. 2011).
Defendants insist that Plaintiffs' Cartwright Act claim is deficient because it fails to plead (1) an unlawful agreement to restrain trade, (2) causation, and (3) injury. The Court addresses each in turn.
1) Unlawful Agreement to Restrain Trade
The Ninth Circuit recently summarized the federal court requirements for pleading an unlawful agreement to restrain trade:
Rule 8(a)(2) of the Federal Rules of Civil Procedure requires "a short and plain statement of the claim showing that the pleader is entitled to relief." The Supreme Court has held that plaintiffs must put forth: enough factual matter (taken as true) to suggest that an agreement was made.
Asking for plausible grounds to infer an agreement does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Building
upon Twombly and its companion case, Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), we have held that to state a claim for antitrust conspiracy, plaintiffs must allege "'who, did what, to whom (or with whom), where, and when?'"Frost v. LG Elecs., Inc., 801 F. App'x 496, 497 (9th Cir. 2020). Plaintiffs sufficiently allege the who, what, when, and where and the existence of a conspiracy through direct evidence.
In the context of antitrust conspiracy claims, plaintiffs may meet their burden by alleging parallel conduct among competitors and certain "plus factors" suggesting a conspiracy. Alternatively, plaintiffs may meet their burden by putting forth direct evidence of an agreement. To meet the direct evidence standard, however, the evidence must explicitly support the asserted proposition without requiring any inference.
Plaintiffs allege that in October 2014 a Vitol executive advised Lucas—Vitol's primary West Coast gasoline and its blending components trader—that Vitol was looking to work with SK in 2015 and that Lucas should keep the information "super" confidential. (CCAC at ¶ 99.) The following month an internal SK status report explained that Vitol wanted to cooperate with SK in the California market. (Id. at ¶ 100.) The cooperation agreements were not in writing and legal counsel for neither party was involved; indeed, "Vitol and SK took steps not to reveal the nature of these agreements to other market participants." (Id. at ¶ 101.)
While there was ample gasoline supply in the California market at the time the parties began cooperating, by December 2014 "there were indications that a significant refinery outage might occur." (Id. at ¶ 103.) And indeed, in mid-December 2014, Lucas sent an email to Niemann reporting that ExxonMobil had shut a hydrocracker for a leak (a hydrocracker is a part of a refinery involved in the refining of heavier oils into fuel). (Id.) Lucas added that he hoped the shut down would last a month or two, to which Niemann speculated that the leak could cause further damage. Lucas called further damage "ideal," but "probably too much to wish for," to which Niemann responded "it's a start at least." (Id.) Shortly thereafter, Niemann, on behalf of SK Energy, began trading premium gasoline for the first time in California, and Niemann and Lucas expanded their coordination to include premium gasoline trading. (Id. at ¶ 105.) By this time, "Niemann was the senior trader for SK with responsibility for California trading, Lucas had the same role with Vitol, and their respective firms were horizontal competitors in the California gasoline market." (Id. at ¶ 105.)
The Exxon-Mobile Torrance Refinery explosion occurred on February 18, 2015, forcing the Refinery to shut down. (Id. at ¶¶ 106-107.) As a result, Exxon-Mobile "needed to replace a significant amount of lost gasoline and alkylate production in California." (Id. ¶ 107.) Accordingly, it entered into contracts with gasoline trading firms like SK and Vitol to negotiate the purchase of Regular gasoline. (Id. ¶ 108.)
Exxon-Mobile's contracts with SK and Vitol had floating prices tied to the California gasoline-spot market and, in particular, to the prices reported to the Oil Price Information Service, LLC (OPIS), a private subscription service. Once trades are disclosed to OPIS, OPIS reports them in a Daily Market Report. (Id. ¶ 71-73, 108.) Not many trades are reported to OPIS: as few as 5 to 15 per day for Regular gasoline and as few as one to zero for Premium gasoline. (Id. ¶ 74.) Thus, a few trades set the prices for Exxon-Mobile's separate contracts with Defendants.
Plaintiffs allege that unbeknownst to Exxon-Mobile—or the spot market as a whole—Vitol and SK agreed to manipulate the trades reported to OPIS and therefore artificially inflate the price that Exxon-Mobile paid to SK and Vitol under its separate contracts with each, and then to share the profits from their Exxon-Mobile contracts. The manipulation often involved taking a loss on a trade reported to OPIS (paying an artificially high price), but more than making up that loss in what Exxon-Mobile paid under the contracts tied to the OPIS-reported price. (¶¶ 112-118.) Vitol and SK would engage in these market-making trades with each other and with third parties. Among other tactics, they would also engage in second trades with each other that they did not report to OPIS that were the opposite of the OPIS-reported trade; these hidden trades ensured there was little market risk for either party. (Id. ¶ 124.)
Defendants do not appear to dispute that Plaintiffs' allegations are sufficient to demonstrate an agreement. Instead, Defendants insist that Plaintiffs' allegations at best demonstrate lawful "output-increasing joint ventures to import alkylate into California and sell it during a supply shortage." (Dkt. No. 266 at 15:13-14.) To be sure, it is not per se unlawful for two competitors to enter into a joint venture. See Ixchel Pharma, LLC v. Biogen, Inc., 9 Cal. 5th 1130, 1161 (2020). But Plaintiffs' allegations are not that Defendants engaged in a joint venture which is unreasonable under the antitrust laws; rather, Plaintiffs allege that "the 'joint ventures' were effectively a sham or pretext for unlawful cooperation and were a method of engaging in prearranged transactions in restraint of trade to avoid competition in violation of federal and state antitrust laws." (CCAC at ¶ 138.) The question is whether drawing all reasonable inferences in Plaintiffs' favor, they have plausibly pled a joint venture agreement as a pretext to restrain trade. They have.
The alleged joint venture was not in writing, not reviewed by counsel, and not known to Exxon-Mobile or the market as a whole. Defendants referred to their cooperation as being super secret and when Lucas asked for confirmation of the agreement via email, Niemann responded that he agreed, but "never sent anything before as didn't think you wanted me to do that." (Id. at ¶ 133.) In June 2016, Vitol executives wrote regarding a trade with SK: "we JV the back side no one knows this so P[rivate] & C[onfidential]." (Id. ¶ 135.) Neither SK nor Vitol publicized their alleged joint venture even though they had done so with other joint ventures in the past. (¶Id. at 139.) Drawing all reasonable inferences in Plaintiffs' favor, the CCAC plausibly alleges that the so-called joint venture was a subterfuge for an illegal price-fixing conspiracy. The allegations are thus distinguishable from Kendall v. Visa, U.S.A., Inc., 518 F.3d 1042 (9th Cir. 2008) and In re Musical Instruments & Equip. Antitrust Litig., 798 F.3d 1186 (9th Cir. 2015), which challenged public and transparent business arrangements with an obvious pro-competitive purpose.
Defendants next insist that Plaintiffs have not plausibly pled an antitrust price fixing conspiracy because they have not identified a single specific trade that Defendants engaged in as part of their manipulation of OPIS. They appear to argue that while Plaintiffs may have plausibly alleged a price-fixing conspiracy given the emails, meetings, and fact that prices remained high for longer than would be expected, they do not sufficiently allege how the price fixing occurred. In other words, while the outlines of how the scheme operated might be sufficiently alleged, Plaintiffs have not alleged enough details to support a plausible inference that what is alleged is how the conspiracy actually worked.
Defendants demand more at this litigation stage than Rule 8 requires. Rule 8 requires that Plaintiffs allege enough factual matter (taken as true) to suggest that an agreement was made. "Asking for plausible grounds to infer an agreement does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007). Here, if the alleged facts—agreeing to cooperate as suggested by the quoted emails, manipulating OPIS-reported trades to inflate the price of their contracts, and prices remaining inflated for longer than would be expected—are taken as true, there is a reasonable expectation that discovery will disclose evidence of the horizontal price-fixing agreement. To put it another way, Plaintiffs have alleged the who (Vitol (through Lucas) and SK (through Neimann), did what to whom (manipulated OPIS-reported trades to artificially inflate the prices paid by Exxon-Mobile on its separate contracts with Vitol and SK), where (in California) and when (late 2014 through 2016). The allegations plausibly support an inference of a per se unlawful agreement to fix prices.
2) Causation and Injury
Under the Cartwright Act, the plaintiff must also show that an antitrust violation was the proximate cause of its injuries. Kolling v. Dow Jones & Co., 137 Cal.App.3d 709, 723 (1982). Both direct and indirect purchasers have standing under the Cartwright Act. Cellular Plus, Inc. v. Superior Court, 14 Cal. App. 4th 1224, 1234 (1993). "[T]he case will be quite rare in which a per se violation ... does not cause competitive injury." Kolling, 137 Cal. App. 3d at 724.
Defendants insist that Plaintiffs have failed to demonstrate either injury or causation because Plaintiffs have not identified specific trades or pricing windows that were impacted by Defendants' conduct, Plaintiffs have not shown how any upmarket trades could have affected downstream consumers, and because Plaintiffs' theory is implausible in light of other market forces which caused elevated gasoline prices (such as, presumably, the refinery explosion). Plaintiffs, however, are not required to plead specific trades to plead injury for a Cartwright Act claim. See Darush v. Revision LP, No. CV 12-10296 GAF AGRX, 2013 WL 8182502, at *5 (C.D. Cal. July 16, 2013) (finding that plaintiffs' allegations that its 'injury is caused by [its] unlawful termination as a distributor—pursuant to Defendants' unlawful price fixing agreement—resulting in a reduction in competition and increased prices to consumers purchasing Revision products'" adequately alleged injury); see also Flagship Theatres of Palm Desert, LLC v. Century Theatres, Inc., 198 Cal. App. 4th 1366, 1380 (2011), as modified on denial of reh'g (Sept. 29, 2011) (To allege an antitrust injury, the plaintiff "must show that it was injured by the anticompetitive aspects or effects of the defendant's conduct, as opposed to being injured by the conducts neutral or even procompetitive aspects ... to make that showing, the plaintiff need not show that the market has actually become less competitive than it would have been without the defendant's conduct.").
Plaintiffs allege that
Defendants' anticompetitive and unlawful conduct has proximately caused injury to Plaintiffs and members of the Class by restraining competition and thereby raising, maintaining and/or stabilizing the prices of gasoline at levels above those that would have prevailed in a competitive market. Defendants' conduct restrained trade in the market in which Plaintiffs and members of the Class made their purchases. In paying overcharges as a result of Defendants' conduct, Plaintiffs and members of the Class suffered an injury of a type which the antitrust laws were designed to redress.(CCAC at ¶ 178.) These allegations combined with Plaintiffs' allegations of a scheme to inflate and otherwise impact the price of gasoline in California, as described above, adequately plead causation and an antitrust injury. Whether other factors likewise impacted the price so as to undermine Plaintiffs' allegations that Defendants' actions were the proximate cause of their injury is not a question that can be resolved at the pleading stage. "[T]he antitrust injury requirement means that in order to prevail on its antitrust claims, [Plaintiffs] must show that its "loss stems from a competition—reducing aspect or effect of the defendant's behavior." Flagship Theatres, 198 Cal. App. 4th at 1381.
***
Accordingly, Defendants' motion to dismiss Plaintiffs' Cartwright Act claim is denied.
B. The Sherman Act
As discussed above, Plaintiffs allege that Defendants' activities constitute a per se violation of the Sherman Act, 15 U.S.C. § 1. (CCAC at ¶ 171.) However, Plaintiffs only seek injunctive relief for their Sherman Act claim. Under Section 16 of the Clayton Act, a party may seek injunctive relief "against threatened loss or damage by a violation of the antitrust laws." 15 U.S.C. § 26. Defendants insist that Plaintiffs lack standing to seek injunctive relief because there are no allegations of ongoing unlawful activity.
Plaintiffs respond that past exposure to illegal conduct accompanied by continuing adverse effects is sufficient to establish standing. They insist that the "'mystery gasoline surcharge' is a continuing phenomenon." (Dkt. No. 253 at 32:10-11.) However, the paragraphs of the CCAC that Plaintiffs identify—paragraphs 7 and 141—do not allege that it is a continuing phenomenon. Paragraph 7 quotes from a 2017 news article which described gas prices as "still out of whack." Likewise, paragraph 141 describes the price spike through 2018. Neither of these paragraphs plausibly suggest that the surcharge is ongoing into 2021. Moreover, Plaintiffs elsewhere cabin the effects as lasting through 2017. (CCAC ¶ 146 ("California gas prices remained at levels substantially above the historic average through 2015 and 2016 and into 2017"). "Past exposure to illegal conduct does not in itself show a present case or controversy regarding injunctive relief, however, if unaccompanied by any continuing, present adverse effects." O'Shea v. Littleton, 414 U.S. 488, 495-96 (1974).
Plaintiffs next "point to potential future conduct." (Dkt. No. 253 at 32:15.) Potential harm, however, is insufficient. As the Supreme Court has "repeatedly reiterated[,] threatened injury must be certainly impending to constitute injury in fact, and [] [a]llegations of possible future injury are not sufficient." Clapper v. Amnesty Int'l USA, 568 U.S. 398, 409 (2013) (internal citation and quotation marks omitted). Instead, Plaintiffs must demonstrate "a significant threat of injury from an impending violation ... or from a contemporary violation likely to continue or recur." In re New Motor Vehicles Canadian Exp. Antitrust Litig., 522 F.3d 6, 12-13 (1st Cir. 2008) (internal citation and quotation marks omitted). In New Motor Vehicles, for example, the First Circuit found that plaintiffs lacked standing to pursue their Sherman Act injunctive relief claim because "[t]he perfect storm that allegedly precipitated massive arbitrage opportunities for selling Canadian cars in the United States ceased long ago." Id. at 15 (internal quotation marks omitted). So too here.
Plaintiffs' allegations relate to Defendants' actions in 2014-2016. (CCAC ¶¶ 97-157.) Further, while the parties dispute whether Vitol still employs Lucas, Plaintiffs concede that Niemann left SK Energy in May 2017. (Id. at ¶ 92.) Plaintiffs' reliance on their allegations that both SK Energy and Vitol are still registered to conduct business in California and that Kim (who oversaw global trading for SK Trading and to whom Niemann reported during the period in question) is still employed by SK entities, is not persuasive. If these allegations were sufficient to establish a significant threat of future injury, there would nearly always be standing to obtain injunctive relief where the competitors remain the market. Clapper, 568 U.S at 416 (finding that standing requires allegations of harm that is "certainly impending"). Even if the Court were to conclude that Plaintiffs' allegation that "Vitol and SK are known recidivist antitrust violators" was plausible notwithstanding the thin supporting allegations, this would not be enough to show imminent threatened antitrust activity with respect to the gasoline market in California. (CCAC at ¶¶ 22, 23, 173.) In Adkins, the court found that "Facebook's repetitive losses of users' privacy supplies a long-term need for supervision." Adkins v. Facebook, Inc., 424 F. Supp. 3d 686, 698 (N.D. Cal. 2019). Here, in contrast, Plaintiffs allege prior bad acts unrelated to the conduct at issue here.
Accordingly, Plaintiffs have failed to demonstrate standing to pursue their injunctive relief claims under the Sherman Act. See Bennett v. Spear, 520 U.S. 154, 167-68 (1997) ("each element of Article III standing must be supported in the same way as any other matter on which the plaintiff bears the burden of proof, i.e., with the manner and degree of evidence required at the successive stages of the litigation.") (internal citation and quotation marks omitted). Defendants' motion to dismiss the Sherman Act claim is granted with leave to amend.
C. The UCL
Defendants insist that Plaintiffs' UCL claim is foreclosed by the Ninth Circuit's recent decision in Sonner v. Premier Nutrition Corp., 971 F.3d 834 (9th Cir. 2020). In Sonner, the court affirmed dismissal of plaintiff's UCL and CLRA claims because she failed to allege that she lacked an adequate remedy at law. Id. at 844. The court relied on the plaintiff's concession that she sought the same sum in equitable restitution as she sought in damages, and the plaintiff's failure to "explain how the same amount of money for the exact same harm is inadequate or incomplete." Id. Plaintiffs counter that Sonner is distinguishable because it was decided at a different procedural posture and it does not apply to their claim for injunctive relief. Neither argument is availing.
First, it is of no moment that Sonner was decided at a much later stage in the litigation—after the plaintiff attempted to amend her complaint on the eve of trial to drop her damages claim. Id. at 838. "Nothing in Sonner limits its precedential value to such circumstances." Zaback v. Kellogg Sales Co., No. 20-00268 BEN MSB, 2020 WL 6381987, at *4 (S.D. Cal. Oct. 29, 2020) (collecting cases that have "applied Sonner to dismiss complaints in cases involving similar claims at the more familiar early stages of litigation"). The dispositive issue in Sonner was the plaintiff's failure to plead inadequate remedies at law or explain why the remedies she requested in the complaint would be inadequate. So too here. Plaintiffs do not plead that they have inadequate remedies at law and instead allege that "to the extent the Court ultimately deems inadequate the remedies at law that Plaintiffs request, Plaintiffs and members of the Class are entitled to equitable relief such as restitution and injunctive relief pursuant to California Business and Professions Code § 17203." (CCAC at ¶ 186.) But nowhere in the complaint do Plaintiffs allege that the three-fold damages they seek are inadequate or otherwise distinguish their request for restitution from their request for damages. (Id. at p. 46 ¶ E.) See Sonner, 971 F.3d at 844 (finding that plaintiff "must establish that she lacks an adequate remedy at law before securing equitable restitution for past harm under the UCL and CLRA."); Julian v. TTE Tech., Inc., No. 20-CV-02857-EMC, 2020 WL 6743912, at *5 (N.D. Cal. Nov. 17, 2020) (dismissing where "on the face of the complaint, it appears that what Plaintiffs' claim for damages and restitution are not really different").
Second, "numerous courts in this circuit have applied Sonner to injunctive relief claims." In re MacBook Keyboard Litig., No. 5:18-CV-02813-EJD, 2020 WL 6047253, at *3 (N.D. Cal. Oct. 13, 2020) (collecting cases); see also Huynh v. Quora, Inc., No. 5:18-CV-07597-BLF, 2020 WL 7495097, at *19 (N.D. Cal. Dec. 21, 2020) (same). Neither Krommenhock nor JUUL Labs held otherwise; to the contrary, the courts in both cases granted the motions to dismiss. See Krommenhock v. Post Foods, LLC, No. 16-CV-04958-WHO, 2020 WL 6074107, at *1 (N.D. Cal. Sept. 29, 2020) (dismissing complaint to allow leave to amend to allege that the plaintiffs' remedies at law were inadequate in light of Sonner); In re JUUL Labs, Inc., Mktg., Sales Practices, & Prod. Liab. Litig., No. 19-MD-02913-WHO, 2020 WL 6271173, at *55 (N.D. Cal. Oct. 23, 2020) (dismissing and granting leave to amend to "allege that [plaintiffs] remedies at law are inadequate and to support their claim to equitable restitution under the UCL and FAL").
Finally, Plaintiffs' citation to a pre-Sonner case for the proposition that they are permitted to plead alternative claims for relief is unavailing. Several courts have rejected this same argument. See, e.g., Anderson v. Apple Inc., No. 3:20-CV-02328-WHO, 2020 WL 6710101, at *7 (N.D. Cal. Nov. 16, 2020) (rejecting reliance on pre-Sonner cases regarding pleading alternative remedies noting that Sonner appeared to have resolved the split of authority regarding "whether plaintiffs should be barred from pleading claims for equitable relief under the UCL and CLRA if they have alleged a claim that would provide an adequate remedy at law."); In re MacBook Keyboard Litig., 2020 WL 6047253, at *2 ("this is not an election of remedies issue. The question is not whether or when Plaintiffs are required to choose between two available inconsistent remedies, it is whether equitable remedies are available to Plaintiffs at all. In other words, the question is whether Plaintiffs have adequately pled their claims for equitable relief, and that question is not premature on a motion to dismiss.").
Plaintiffs' UCL claim is dismissed with leave to amend to the extent they have a good faith basis for alleging that they lack an adequate remedy of law.
D. Unjust Enrichment
Defendants contend that Plaintiffs' unjust enrichment claim is also foreclosed by Sonner since they have not alleged that they lack an adequate remedy at law. Defendants also insist that there is not a standalone claim for unjust enrichment under California law.
Plaintiffs counter that the remedy they seek—nonrestitutionary disgorgement—is available here. Indeed, the relief that Plaintiffs seek for their unjust enrichment claim is not the same as that sought for their UCL claim. While Plaintiffs seek restitution for their UCL claim, for their unjust enrichment claim Plaintiffs seek "non-restitutionary disgorgement of the financial profits that Defendants obtained as a result of their unjust conduct." (CCAC at ¶ 190.) In addition, in contrast to their UCL claim, for their unjust enrichment claim Plaintiffs affirmatively allege no alternative remedy at law for the claim. (Id.) Sonner is therefore distinguishable, as there, unlike here, plaintiff failed to allege a difference between the money damages sought and restitution claimed.
Further, nonrestitutionary disgorgement is not available under the UCL. See S. California Water Co. v. Aerojet-Gen. Corp., No. CV 02-6340ABCRCX, 2003 WL 25537163, at *11 (C.D. Cal. Apr. 1, 2003) (citing Korea Supply Company v. Lockheed Martin Corporation, 29 Cal.4th 1134, 1147 (2003)). Nonrestitutionary disgorgement is, however, a remedy for unjust enrichment claims "[w]here a benefit has been received by the defendant but the plaintiff has not suffered a corresponding loss or, in some cases, any loss, but nevertheless the enrichment of the defendant would be unjust." Meister v. Mensinger, 230 Cal. App. 4th 381, 398 (2014). Under these circumstances, "the defendant may be under a duty to give to the plaintiff the amount by which [the defendant] has been enriched. Id. (internal quotation marks and citations omitted; alteration in original).
Defendants fail to address Plaintiffs' claim for nonrestitutionary disgorgement, nor do they make a showing as to how this claim overlaps with Plaintiffs' damages claim. Accordingly, Defendants' motion to dismiss Plaintiffs' claim for unjust enrichment is denied.
E. Statute of Limitations
Defendants insist that Plaintiffs' pre-2016 claims are barred by the four-year statute of limitations on antitrust and UCL claims. Because the Court has dismissed Plaintiffs' Sherman Act and UCL claims, the Court only considers whether Plaintiffs' Cartwright Act claim is time-barred. As statute of limitations is an affirmative defense, Defendants bear the burden that based on the CCAC's allegations, the Cartwright Act is untimely. Defendants have met that burden as to all Plaintiffs and class members who purchased gas four years prior to the filing of the complaint. Plaintiffs do not contend otherwise.
Defendants do not move to dismiss Plaintiffs' unjust enrichment claim as untimely. (Dkt. No. 224 at 49 ("Plaintiffs' claims under the Sherman Act, the Cartwright Act, and the UCL are all subject to a four-year statute of limitations.").
The burden thus moves to Plaintiffs to show that tolling of some sort saves the pre-2016 claims. Plaintiffs insist that their pre-2016 claims are subject to tolling under the discovery rule, the doctrine of fraudulent concealment, and by virtue of express tolling agreements between the AG and Defendants. (CCAC at ¶ 168.)
Although both parties address tolling under federal law, California tolling rules apply as the Court has dismissed the Sherman Act claim and only California claims remain.
1) The Discovery Rule
The discovery rule "postpones accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action." Aryeh v. Canon Bus. Sols., Inc., 55 Cal. 4th 1185, 1192 (2013) (internal citation omitted). "[A] plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence." Beasley v. Conagra Brands, Inc., 374 F. Supp. 3d 869, 883 (N.D. Cal. 2019) (internal citation omitted) (quoting McKelvey v. Boeing N. Am., Inc., 74 Cal. App. 4th 151, 160 (1999)).
Plaintiffs allege that they discovered the basis for their claims when the AG filed its complaint in state court. (CCAC at ¶ 159.) "Before then, Plaintiffs and the Class had neither actual nor constructive knowledge, and no reason to believe, that they paid prices for gasoline that were affected by Defendants' illegal conduct, and thus until then had no duty to investigate the claims set forth in this Consolidated Complaint." (Id.) Plaintiff Pacific Wine Distributors, Inc., filed its complaint in this Court two days after the AG's complaint was filed in state court. Plaintiffs have thus alleged when they discovered the basis for the claim, that they could not have discovered it earlier, and that they acted diligently upon discovery of the basis for their claims by filing this action two days later.
Defendants do not dispute that Plaintiffs have sufficiently pled delayed discovery; instead, they insist that the discovery rule does not apply to the Cartwright Act claim because the time runs from the injury rather than the discovery. As support Defendants rely exclusively on Ryan v. Microsoft Corp., No. 14-CV-04634-LHK, 2015 WL 1738352, at *16 (N.D. Cal. Apr. 10, 2015). Ryan reasoned that "the default accrual rule is the last element rule, where a claim accrues when [it] is complete with all of its elements'—those elements being wrongdoing, harm, and causation." Id. at *15. The court then concluded that the plaintiffs had not identified "any circumstances warranting a deviation from the default common law last element accrual rule," and therefore the discovery rule did not apply. Id.
Defendants fault Plaintiffs for not refuting the "body of cases establishing that the discovery rule does not apply." (Dkt. No. 266 at 33.) But Defendants cite only one case holding that the discovery rule does not apply to Cartwright Act cases. (Dkt. No. 224 at 49.)
Plaintiffs respond by citing a different district court case: In re California Bail Bond Antitrust Litig., No. 19-CV-00717-JST, 2020 WL 3041316 (N.D. Cal. Apr. 13, 2020). The Bail Bond court concluded that the defendants had not met their burden of proving as a matter of law that the discovery rule did not apply in light of the California Supreme Court's decision in Aryeh v. Canon Bus. Sols., Inc., 55 Cal. 4th 1185, 1195 (2013). In Aryeh, the California Supreme Court rejected the notion that judicial interpretations of the Sherman Act—including those barring delayed discovery based on ignorance—apply fully to Cartwright Act claims. Aryeh, 55 Cal. 4th at 1195 (holding that "[i]nterpretations of federal antitrust law are at most instructive, not conclusive, when construing the Cartwright Act, given that the Cartwright Act was modeled not on federal antitrust statutes but instead on statutes enacted by California's sister states around the turn of the 20th century."). Instead, it held that when determining whether equitable exceptions to the last element accrual rule apply to a claim, courts should look to the particular theory of the claim to determine whether the discovery tolling rule should apply. Id. at 1196.
As Defendants' motion is based on its bald assertion that the discovery tolling rule categorically does not apply to Cartwright claims—and assertion belied by Aryeh— their motion to dismiss on this ground is denied without prejudice.
2) Fraudulent Concealment
"The doctrine of fraudulent concealment tolls the statute of limitations where a defendant, through deceptive conduct, has caused a claim to grow stale." Aryeh, 55 Cal. 4th at 875. The limitations period is tolled "only for that period during which the claim is undiscovered by plaintiff or until such time as plaintiff, by the exercise of reasonable diligence, should have discovered it." MGA Entm't, Inc. v. Mattel, Inc., 41 Cal. App. 5th 554, 561 (2019) (quoting Bernson v. Browning-Ferris Industries, 7 Cal. 4th 926, 931 (1994)). "The doctrine of fraudulent concealment of the cause of action ... has an effect similar to the statutory rule of delayed accrual and the same pleading and proof is required ..., i.e., the plaintiff must show (a) the substantive elements of fraud, and (b) an excuse for late discovery of the facts." Invs. Equity Life Holding Co. v. Schmidt, 195 Cal. App. 4th 1519, 1533 (2011), as modified (June 15, 2011) (internal citation and quotation marks omitted).
As noted above, Defendants do not dispute that Plaintiffs have adequately alleged delayed discovery. Given this, and the Court's conclusion that Plaintiffs have plausibly alleged a Cartwright Act claim based on a price fixing conspiracy, Plaintiffs have adequately pled grounds for fraudulent concealment.
3) AG Tolling Agreements
Plaintiffs also invoke the tolling agreements that Defendants signed with the California Attorney General in the state court action. (CCAC ¶ 167.) Defendants counter that Plaintiffs as non-parties to the agreements cannot invoke the agreements' tolling provision. Indeed, the agreements state that they apply "to any claims that might be brought by the CAG related to the subject matter of the INVESTIGATION." (Dkt. No. 225-5 at 1; Dkt. No. 225-6 at 1.) Plaintiffs nevertheless insist that they can enforce the agreements as third-party beneficiaries given the nature of the parens patrie action. Even if this were the case, it would only toll the claims of two of the Plaintiffs—Justin Lardinois and Asante Cleveland—because a parens patrie action cannot be brought on behalf of business or non-California residents. (CCAC at ¶¶ 19, 20.) However, given the Court's conclusion with respect to the discovery rule and fraudulent concealment doctrine, the Court need not finally resolve this issue as there are other bases for tolling Plaintiffs' claims at this stage of the litigation.
The Court takes judicial notice of the tolling agreements under the incorporation-by-reference doctrine. Under this doctrine, "[a] court may consider evidence on which the complaint necessarily relies if: (1) the complaint refers to the document; (2) the document is central to the plaintiff's claim; and (3) no party questions the authenticity of the copy attached to the 12(b)(6) motion." Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (internal quotation marks and citation omitted).
Accordingly, Defendants' motion to dismiss Plaintiffs' claims as barred by the statute of limitations is denied.
***
As set forth above, Defendants' motion to dismiss is granted in part and denied in part. The motion is denied as to the Cartwright Act and unjust enrichment claims, but granted as to the Sherman Act and UCL claims. Further, Plaintiffs have adequately pled equitable tolling based on the delayed discovery rule and fraudulent concealment doctrine.
II. MOTION TO STAY
Defendants' motion to stay is two-fold: they seek stays (1) under the Colorado River abstention doctrine, or alternatively, (2) under the Court's inherent authority to manage its own docket. The Court begins with Colorado River abstention.
A. Colorado River Abstention
The Colorado River doctrine represents a "narrow exception to the virtually unflagging obligation of the federal courts to exercise the jurisdiction given them." Smith v. Ctr. Ariz. Water Conservation Dist., 418 F.3d 1028, 1033 (9th Cir. 2005) (internal citation and quotation marks omitted); see Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976)). Abstention in favor of a parallel state action may be proper due to considerations of "[w]ise judicial administration giving regard to conservation of judicial resources and comprehensive disposition of litigation." Nakash v. Marciano, 882 F.2d 1411, 1415 (9th Cir. 1989) (citation omitted). Such cases are "rare," "limited," and "exceptional," with "only the clearest of justifications" supporting abstention. R.R. St. & Co. v. Transp. Ins. Co., 656 F.3d 966, 977-78 (9th Cir.2011) (internal quotation marks and citation omitted). The Ninth Circuit "generally require[s] a stay rather than a dismissal." Id. at 979 n. 8. Colorado River abstention does not require "exact parallelism" between the actions; instead, the actions need only be "substantially similar[.]" Nakash, 882 F.2d at 1416.
In determining whether to stay a case pursuant to Colorado River, courts in the Ninth Circuit consider eight factors:
(1) which court first assumed jurisdiction over any property at stake; (2) the inconvenience of the federal forum; (3) the desire to avoid piecemeal litigation; (4) the order in which the forums obtained jurisdiction; (5) whether federal law or state law provides the rule of decision on the merits; (6) whether the state court proceedings can adequately protect the rights of the federal litigants; (7) the desire to avoid forum shopping; and (8) whether the state court proceedings will resolve all issues before the federal court.R.R. St. & Co., 656 F.3d at 978-79. "No one factor is necessarily determinative; a carefully considered judgment taking into account both the obligation to exercise jurisdiction and the combination of factors counseling against that exercise is required." Colorado River, 424 U.S. at 818-19, 96. Put another way, the decision does not "rest on a mechanical checklist, but on a careful balancing of the important factors as they apply in a given case, with the balance heavily weighted in favor of the exercise of jurisdiction." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 16 (1983). Thus, courts have denied a Colorado River stay even where a majority of the factors favors abstention. See, e.g., Ramirez v. Avalonbay Cmtys., Inc., No. C 14-04211 WHA, 2015 WL 4396380, at *2 (N.D. Cal. July 17, 2015).
However, the eighth factor—whether there is "substantial doubt as to whether the state proceedings will resolve the federal action precludes the granting of a stay"—is "dispositive." Intel Corp. v. Advanced Micro Devices, Inc., 12 F.3d 908, 913 (9th Cir.1993); see also Holder v. Holder, 305 F.3d 854, 868 (9th Cir. 2002) ("Because there is substantial doubt that a final determination in the custody proceeding will resolve all of the issues in Jeremiah's federal Hague Convention petition, we conclude that the district court abused its discretion in staying proceedings."). Any such doubt as to resolution of the federal action compels the court to deny a Colorado River stay without consideration of the other factors. Intel, 12 F.3d at 913 n.7. The Ninth Circuit has cautioned that the existence of a substantial doubt as to whether the state proceedings will resolve the federal action generally precludes the granting of a Colorado River stay. Id. at 913. That is, "[a] district court may enter a Colorado River stay order only if it has 'full confidence' that the parallel state proceeding will end the litigation." Id. (citation omitted).
1) Substantial Doubt as to Whether the AG Action Will Resolve the Case
Defendants insist that "there is no meaningful difference between the State AG complaint and the CCAC: they contain the same state law claims for relief, the same corporate defendants, and heavily overlapping plaintiff classes." (Dkt. No. 222 at 10:9-11.) Plaintiffs counter that there are three critical differences which preclude a finding of substantial similarity: (1) the AG Action only represents natural persons in California and this lawsuit contains claims by non-California residents as well as businesses; (2) in addition to pleading the same claims as in the AG Action, this action also includes a common law unjust enrichment claim and a claim for injunctive relief under the Sherman Act, 15 U.S.C. § 1; and (3) this action also names individual defendants, not named in the AG Action.
That the class members in each lawsuit are different defeats a finding of substantial similarity. The AG Action does not and cannot seek redress for the claims of businesses or non-California plaintiffs, both of which are included as named plaintiffs and in the putative class here. See Mai Katy Xiong v. G4S Secure Sols. (USA) Inc., 2019 WL 3817643, at *2 (E.D. Cal. Aug. 14, 2019) ("That the state actions and federal action have overlapping claims and seek similar statutory penalties does not mean the adjudication of the state actions will fully resolve the federal action" given that the state action "class is underinclusive as to the this action"); Perez v. Nidek Co., 657 F. Supp. 2d 1156, 1167 (S.D. Cal. 2009), aff'd, 711 F.3d 1109 (9th Cir. 2013) (declining to stay where "plaintiffs and potential classes are different"). "The decision to invoke Colorado River necessarily contemplates that the federal court will have nothing further to do in resolving any substantive part of the case, whether it stays or dismisses." Holder, 305 F.3d at 868 (quoting Moses H. Cone, 460 U.S. at 28) (emphasis added). The Court cannot reach that conclusion given that the state action will not and cannot resolve the claims of the businesses and non-California residents who are parties and putative class members in this action.
Further, courts routinely decline to stay federal actions where the scope of claims is broader in the federal case than the state case. See, e.g., Sciortino v. Pepsico, Inc., 108 F. Supp. 3d 780, 815 (N.D. Cal. 2015) (declining to stay where "broader remedies" were sought in the federal action); I.K. ex rel. E.K. v. Sylvan Union Sch. Dist., 681 F. Supp. 2d 1179, 1199 (E.D. Cal. 2010) (finding that defendants argument that "most" of the issues in the federal complaint would be resolved in the state court action was a dispositive "conce[ssion] that not all the federal issues in this case will be resolved by the state court action.") (emphasis added); In re Mattel, Inc., 588 F. Supp. 2d 1111, 1120 (C.D. Cal. 2008) (denying motion to state where "[o]nly one part of one cause of action is duplicated in the Attorney General's case"). Defendants do not argue otherwise, and instead, insist that the federal claim here lacks merit. While the Court has dismissed the federal Sherman Act claim, see supra, it has denied Defendants' motion to dismiss the unjust enrichment claim—a claim not pled in the state action.
Because "the existence of a substantial doubt as to whether the state proceedings will resolve the federal action precludes the granting of a [Colorado River] stay," is dispositive, the Court's analysis need proceed no further. Intel Corp, 12 F.3d at 913. Defendants' motion for a stay under Colorado River is denied.
B. Stay Based on the Court's Inherent Authority
Defendants also request that the Court stay the action based on its inherent authority. "[T]he power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants." Landis v. N. Am. Co., 299 U.S. 248, 254 (1936). In deciding whether to grant a stay, a court may weigh the following: "the possible damage which may result from the granting of a stay; the hardship or inequity which a party may suffer in being required to go forward; and the orderly course of justice measured in terms of the simplifying or complicating of issues, proof, and questions of law which could be expected to result from a stay." CMAX, Inc. v. Hall, 300 F.2d 265, 268 (9th Cir. 1962) (citing Landis, 299 U.S. at 254-255).
While the Ninth Circuit has not addressed the issue, several district courts and Courts of Appeals outside the Ninth Circuit have concluded that where the court finds that a stay is not warranted under Colorado River, Landis does not provide an alternative basis for a stay. See AIIRAM LLC v. KB Home, No. 19-CV-00269-LHK, 2019 WL 3779185, at *6 (N.D. Cal. Aug. 12, 2019) (collecting cases). "To permit a district court to rely solely on its inherent power to control its docket, when the effect of the district court's order is to accomplish the same result contemplated by Colorado River, would allow a court to bypass the rigorous test set out by the Supreme Court." Cottrell v. Duke, 737 F.3d 1238, 1249 (8th Cir. 2013).
Defendants' reliance on United Specialty Ins. Co. v. Bani Auto Grp., Inc., No. 18-CV-01649-BLF, 2018 WL 5291992, at *7 (N.D. Cal. Oct. 23, 2018), does not persuade the Court otherwise. The Bani court did not directly consider the incongruence of granting a stay under Landis while finding a stay under Colorado River inappropriate, and more significantly, did not involve parallel state and federal actions regarding the same claims, but instead, a federal insurance coverage action and state action that was the source of the coverage dispute. Likewise, Defendants' reliance on Bradshaw v. City of Los Angeles, No. 2:19-CV-06661-VAP-JC, 2020 WL 2065007, at *4 (C.D. Cal. Mar. 23, 2020), is misplaced as it and the cases it cites were considering whether a parties' request for a stay should be analyzed under Colorado River or Landis—not whether a stay under Landis was proper notwithstanding a finding that a stay under Colorado River was not.
Given the "exceedingly narrow" bounds of the Colorado River doctrine, Landis does not provide an alternative to a Colorado River stay here. Defendants' motion for a stay is denied.
CONCLUSION
For the reasons stated above, the Court GRANTS IN PART and DENIES IN PART Defendants' motion to dismiss. Plaintiffs' Sherman Act and UCL claims are dismissed with leave to amend to the extent Plaintiffs have a good faith basis for doing so consistent with this Order. The motion is otherwise denied. Defendants' motion to stay is also DENIED.
Plaintiffs' amended complaint, if any, is due in 30 days. If Plaintiffs elect not to amend their complaint, they shall file a statement on the docket to this effect thereby triggering Defendants' deadline to answer the complaint.
In light of this Order, the parties' joint discovery letter brief regarding Plaintiffs' Rule 45 subpoena to OPIS is denied as moot. (Dkt. No. 280.) The stay of discovery if lifted with respect to the claims that survive.
The Court sets a further Case Management Conference for June 3, 2021 at 1:30 p.m. An updated Case Management Conference statement is due a week before.
This Order disposes of Docket Nos. 222, 224, and 280.
IT IS SO ORDERED. Dated: March 29, 2021
/s/_________
JACQUELINE SCOTT CORLEY
United States Magistrate Judge