In re Juul Labs, Inc. Antitrust Litigation
Case Information
1
2
3 UNITED STATES DISTRICT COURT
4 NORTHERN DISTRICT OF CALIFORNIA 5 6 Case No. 20-cv-02345-WHO
7 IN RE: JUUL LABS, INC., ANTITRUST 8 ORDER ON MOTION COMPEL AND LITIGATION MOTIONS TO DISMISS 9 Dkt. Nos: 207, 209, 210, 211
There are four motions currently pending before me: (1) defendant Juul Labs, Inc.’s (“JLI”) motion to compel arbitration or strike the class claims of the Direct Purchaser Plaintiffs (“DPPs”), Dkt. No. 210; (2) JLI’s motion to dismiss the consolidated class complaints of the DPPs, the Indirect Purchaser Plaintiffs (“IPPs”), and the Indirect Reseller Plaintiffs (“IRPs”), Dkt. No. 207; (3) defendants Altria Group, Inc. and Altria Enterprises, LLC’s (“Altria”) motion to dismiss the consolidated class complaints of the DPPs, IPPs, and IRPs; and (4) defendants Nicholas Pritzker and Riaz Valani’s (“Director Defendants”) motion to dismiss the DPP claims asserted against them. For the reasons discussed below, I GRANT JLI’s motion to compel the claims of the three named DPPs to arbitration, stay the dismissal of the DPPs’ claims against JLI for 30 days and give the DPPs leave to amend to substitute in a proposed plaintiff whose claims against JLI would not be subject to arbitration. On the remaining motions, I dismiss a limited set of claims but otherwise deny the motions to dismiss.
BACKGROUND Three sets of plaintiffs bring antitrust and related state law claims against Altria and JLI challenging the allegedly unlawful and anticompetitive agreement Altria entered into with JLI. The heart of plaintiffs’ allegations, as those made by the Federal Trade Commission (“FTC”) in proceedings against JLI and Altria, is that Altria intentionally departed from the e-cigarette market (despite actively competing with JLI in that market) and joined forces with JLI under a non- compete agreement in order to gain access to and control over JLI’s market-leading product and technology. In return, JLI (and its major investors) received billions of dollars as well as access to Altria’s extensive distribution network, retail opportunities, and regulatory expertise.
Altria is alleged to have started investigating investing in JLI in 2017. DPP Consolidated Class Action Complaint, Dkt. No. 134-3 (“DPP CAC”) ¶¶ 61, 62; IPP Consolidated Class Action Complaint, Dkt. No. 131-4 (“IPP CAC”) ¶ 13; IRP Consolidated Class Action Complaint, Dkt. No. 133-3 (“IRP CAC”) ¶ 13. Valani and Pritzker were crucial players on JLI’s side of the negotiations that spanned much of 2018, intensifying in the summer of 2018 and culminating in an agreement signed on December 20, 2018 whereby Altria acquired a 35% stake in JUUL for $12.8 billion. DPP CAC ¶¶ 8, 70, 74, 86; IPP CAC ¶¶ 14, 16, 77, 82, 84. Altria’s MarkTen Elite product (produced by Altria subsidiary Nu Mark) was its closest competitor to JUUL, and it had committed $100 million dollars to secure prime shelf-space for that product earlier in 2018. DPP CAC ¶ 3, 18, 125, 145; IPP CAC ¶ 7, 135. Plaintiffs allege that a key component of the JLI-Altria deal was that Altria leave the e-vaping market; they say that the JLI-Altria negotiations had stalled in the summer of 2018 over Altria’s refusal to commit to that non-compete. DPP CAC ¶¶ 79, 80, 82; IPP CAC ¶ 88. The negotiations were allegedly restarted by an October 5, 2018 email where Altria agreed “that it would not compete in a manner consistent with our previous discussions in the U.S. e-vapor market for any period” exclusive of the transaction period during which Altria would perform services for JLI. DPP CAC ¶¶ 7, 81; IPP CAC ¶¶ 3, 14, 88. Soon after that October 2018 commitment, Altria withdrew its MarkTen Elite product from the market. IPP CAC ¶¶ 7, 14.
The alleged antitrust agreement (“Agreement”) is comprised of at least the October 2018 commitment, the formalized “Relationship Agreement” from December 2018, and the “Amended Relationship Agreement” from January 2020. DPP CAC ¶¶ 81, 92, 95, 96, 104; IPP CAC ¶ 3. The Relationship Agreement’s Non-Compete provision, Article 3.1 of the Agreement, reads:
[Altria] shall not . . . directly or indirectly (1) own, manage, operate, control, engage in or assist others in engaging in, the e-Vapor business; (2) take actions with the purpose of preparing to engage in the e-Vapor Business, including through engaging in or sponsoring research and development activities; or (3) Beneficially Own any equity interest in any Person, other than an aggregate of not more than four and nine-tenths percent (4.9%) of the equity interests of any Person which is publicly listed on a national stock exchange, that engages directly or indirectly in the e-Vapor Business (other than (x) as a result of [Altria’s] Beneficial Ownership of Shares or (y) engagement in, or sponsorship of, research and development activities not directed toward the e-Vapor Business and not undertaken with the purpose of developing or commercializing technology or products in the e-Vapor Business) . . . . Notwithstanding the foregoing, (x) the [Altria] and its Subsidiaries and controlled Affiliates may engage in the business relating to (I) its Green Smoke, MarkTen (or Solaris, which is the non-U.S. equivalent brand of MarkTen) and MarkTen Elite brands, in each case, as such business is presently conducted, subject to Section 4.1 of the Purchase Agreement, and (II) for a period of sixty (60) days commencing on the date of this Agreement, certain research and development activities pursuant to existing agreements with third parties that are in the process of being discontinued.
Article 3.2 further prohibited competition on an indirect basis with respect to any upstream affiliates of Altria. IPP CAC ¶¶ 103-104; DPP CAC ¶ 95. Altria described the scope of its Relationship Agreement with JLI in its Form 8-K, as follows:
The Relationship Agreement generally prohibits Altria from competing, or otherwise acquiring an interest in an entity competing, in the e-vapor business for a period of at least six years from Closing [of the Transaction], extendable thereafter unless terminated by Altria. If another person were to acquire 40% or more of Altria's voting power, or 30% of Altria's voting power combined with contractual control of a majority of Altria's board of directors, that person would also be subject to certain non-compete obligations set forth in the Relationship Agreement.
IPP CAC ¶ 16. Plaintiffs allege that these “provisions remained in effect in the Amended Relationship Agreement” entered into by Altria and JLI in January 2020.
On April 1, 2020, the FTC filed an administrative complaint (“FTC Complaint”) challenging the lawfulness of both the agreements and the acquisition under Section 5 of the FTC Act (15 U.S.C. § 45), alleging that Altria and JLI’s conduct violated Section 1 of the Sherman Act and Section 7 of the Clayton Act. Federal Trade Comm’n v. Altria Group, Inc., et al ., Dkt. No. 9393 (F.T.C. April 1, 2020). The FTC contends that the defendants’ conduct was anticompetitive under the rule of reason analysis but does not allege a per se restraint, which all three sets of plaintiffs allege here. DPP CAC ¶ 166; IPP CAC ¶ 109; IRP CAC ¶ 106.
Plaintiffs assert in three consolidated class complaints that the Agreements illegally restrained competition in the relevant market in violation of federal and state antitrust laws, unfair competition, and consumer protection laws. IPP CAC ¶¶ 19, 20; DPP ¶¶ 102, 106, 108. The three Direct Purchaser Plaintiffs are Anthony Martinez (a resident of the State of New York), Jessica McGee (a resident of the State of Minnesota), and Mallory Flannery (a resident of the State of Iowa). All allege that they purchased “Closed-System E-Vapor products, including devices and pods, directly from JLI during the relevant period.” DPP CAC ¶¶ 13-15. No other details are provided regarding the dates or timeframes of their purchases. The DPPs allege three claims against three sets of defendants – JLI, Altria, and the Directors Valani and Pritzker – and seek damages and equitable relief for: (1) Restraint of Trade in Violation of Section 1 of the Sherman Act, 15 U.S.C. § 1 (against all defendants); (2) Restraint of Trade in Violation of Section 7 of the Clayton Act, 15 U.S.C. § 18 (against all defendants); and (3) Declaratory and Injunctive Relief for Violations of Section 1 of the Sherman Act and Section 7 of the Clayton Act, 15 U.S.C. § 26 (against all defendants).
The Indirect Purchaser Plaintiffs are Kurt Doughty (a resident of Rhode Island), Allison Harrod (a resident of Florida), Daraka Larimore (a resident of Santa Barbara County, California), Adam Matschullat (a resident of San Diego County, California), Keith May (a resident of Florida), Dylan Pang (a resident of New York), and Kerry Walsh (a resident of Massachusetts). IPP CAC ¶¶ 26-32. All allege generally that they “purchased JUUL Closed-System E-Cigarettes indirectly from various retail locations during the Class Period.” Id . The IPPs assert sixteen claims against defendants JLI and Altria: (1) Violation of Sections 1 and 3 of the Sherman Act, 15 U.S.C. §§ 1, 3 (on behalf of the Nationwide Class for Injunctive Relief); (2) Violation of Section 2 of the Sherman Act - Monopolization, 15 U.S.C. § 2 (against JLI, on behalf of the Nationwide Class for Injunctive Relief); (3) Violation of Section 2 of the Sherman Act – Attempted Monopolization, 15 U.S.C. § 2 (against JLI, on behalf of the Nationwide Class for Injunctive Relief); (4) Violation of Section 2 of the Sherman Act – Conspiracy to Monopolize, 15 U.S.C. § 2 (on behalf of the Nationwide Class for Injunctive Relief); (5) Violation of Section 7 of the Clayton Act, 15 U.S.C. § 18 (on behalf of the Nationwide Class for Injunctive Relief); (6) Violation of California’s Cartwright Act, Cal. Bus. & Prof. Code § 16700, et seq . (on behalf of the Nationwide Class for Damages); (7) Violation of California’s Cartwright Act, Cal. Bus. & Prof. Code § 16700, et seq . (on behalf of the Cartwright Act Class for Damages); (8) Violation of California’s Cartwright Act, Cal. Bus. & Prof. Code § 16700, et seq . (by plaintiffs Daraka Larimore and Adam Matschullat on behalf of the California Class for Damages); (9) Violations of California’s Unfair Competition Law, Cal. Bus. & Prof. Code § 17200, et seq . (the “UCL”) (on behalf of the Nationwide Class for Damages); (10) Violations of California’s Unfair Competition Law, Cal. Bus. & Prof. Code § 17200, et seq . (by plaintiffs Daraka Larimore and Adam Matschullat on behalf of the California Class for Damages); (11) Violation of the Florida Deceptive and Unfair Trade Practices Act, Fla. Stat. § 501.201(2), et seq . (by plaintiffs Allison Harrod and Keith May on behalf of the Florida Class for Damages); (12) Violation of Mass. Gen. Laws ch. 93A § 1, et seq . (by plaintiff Kerry Walsh on behalf of the Massachusetts Class for Damages); (13) Violation of Section 340 of New York General Business Law (by plaintiff Dylan Pang on behalf of the New York Class for Damages); (14) Violation of the Rhode Island Antitrust Act R.I. Gen. Laws § 6-36-1, et seq . (by plaintiff Kurt Doughty on behalf of the Rhode Island Class for Damages); (15) Violation of the Rhode Island Unfair Trade Practice and Consumer Protection Act, R.I. Gen. Laws § 6-13-1.1-1, et seq . (by plaintiff Kurt Doughty on behalf of the Rhode Island Class for Damages); and (16) Unjust Enrichment (by plaintiffs on behalf of each State Class for Damages).
The Indirect Reseller Plaintiffs Sofijon, Inc. (“Sofijon”), Rose And Fifth, Inc. (“RFI”), Napht, Inc. (“Napht”), B&C Retail, Inc. (“B&C”), and Irwindale Fuel Station, Inc. (“Irwindale Fuel Station”) are business headquartered in California. IRP Big Puffs Vapor Store (“Big Puffs”), is headquartered in Jamestown, New York, IRP Somerset Party Store Inc. (“Somerset Party Store”) is a Michigan corporation, and IRP Noor Baig, Inc. (“Noor Baig”) is a Florida corporation. The IRPs allege generally that they “purchased JLI’s closed-system e-cigarette products indirectly, for resale, during the Class Period, October 25, 2018 through the date on which Defendants’ anticompetitive conduct ceases.” IRP CAC ¶¶ 23-30. The IRPs assert eleven claims against defendants JLI and Altria for: (1) Violation of Sections 1 and 3 of the Sherman Act, 15 U.S.C. §§ 1, 3 (on behalf of the Nationwide Class for Injunctive Relief); (2) Violation of Section 2 of the Sherman Act - Monopolization, 15 U.S.C. § 2 (against JLI, on behalf of the Nationwide Class for Injunctive Relief); (3) Violation of Section 2 of the Sherman Antitrust Act (15 U.S.C. § 2) (Attempted Monopolization Against JLI on behalf of the Nationwide Class for Injunctive Relief); (4) Violation of Section 2 of the Sherman Antitrust Act (15 U.S.C. § 2) (Conspiracy to Monopolize) (on behalf of the Nationwide Class for Injunctive Relief); (5) Violation of Section 7 of the Clayton Act (15 U.S.C. § 18); (6) Violation of California Antitrust Statutes (on behalf of the Nationwide Class, on behalf of the Cartwright Act Class and by plaintiffs Sofijon, Rose And Fifth, Inc., B&C, Napht, Irwindale Fuel Station on behalf of the California State Class for Damages); (7) Violation of California’s Unfair Competition Law, Cal. Bus.& Prof. Code § 17200, et seq . (on behalf of the Nationwide Class and by plaintiffs Sofijon, Rose And Fifth, Inc., B&C, Napht, Irwindale Fuel Station on behalf of California State Class); (8) Violation of the Florida Deceptive and Unfair Trade Practices Act (by Noor Baig on behalf of the Florida Class); (9) Violation of the Michigan Antitrust Reform Act (Mich. Comp. Laws § 445.771, et seq .) (by Somerset Party Store on behalf of the Michigan Class); (10) Violation of Section 340 of New York General Business Law (by Big Puff on behalf of the New York Class); and (11) Unjust Enrichment (on behalf of each State Class for Damages).
Defendants move to dismiss the class claims asserted by the IPPs, the IRPs, and the DPPs. Dkt. Nos. 207 (“Altria MTD”), 209 (“Director MTD”), 211 (“JLI MTD”). JLI also moves to compel to arbitration or strike the class claims asserted by the DPPs due to the arbitration provision and class action waiver contained in JLI’s terms and conditions displayed on JLI’s website. Dkt. No. 210 (“MTC”).
DISCUSSION
I. JLI’S MOTION TO COMPEL ARBITRATION OR STRIKE DPP CLASS
ALLEGATIONS
JLI moves to compel arbitration and in the alternative to strike the class claims of plaintiffs Martinez, McGee, and Flannery. When those plaintiffs created their accounts, the JLI website through which they made their direct purchases required them to agree to arbitration and to waive their right to pursue class claims. I agree that the plaintiffs gave constructive assent to these provisions through the hyperlinked Terms and Conditions to which they agreed.
A. Background
JLI asserts that during the timeframe each of the three DPPs created their JLI accounts on www.juul.com to purchase JLI’s products – between August 2018 and July 2019 – the DPPs were required to affirmatively check a box (“clickbox”) on each version of the “Log In/Sign Up” page they were presented, establishing their assent to the hyperlinked Terms and Conditions that governed the terms of plaintiffs’ access to and use of the site and their agreement to arbitrate claims and waive a right to pursue a class action. See Declaration of Eadon Jacobs (Jacobs Decl., Dkt. No. 210-1), Exs. 4-8 (screen shots of Log In/Sign Up pages from August 2018 and February 2019, the “Create Your Account” page on July 19, 2019, the “Welcome Back” screen from July 31, 2019, and the Log In/Sign Up page from July 2019); Exs. 10-12 (JLI’s website Terms and Conditions as they existed: (i) between June 29, 2017 and July 17, 2019; (ii) between July 17, 2019 and November 26, 2019, and (iii) from January 13, 2020 to date). JLI’s Senior Director of
22
Product, Identity Verification & Ecommerce, Eadon Jacobs, states that “[s]ince at least August 23
2018,” the clickbox was added and made it impossible for a user to create an account and use the 24
25 JLI declares that: (i) Martinez created his account on August 26, 2018 and made purchases through March 13, 2020; (ii) Flannery created her account on February 26, 2019 and made a purchase only on that date; and (iii) McGee created her account on July 19, 2019 and made a 26 purchase only on that date. Declaration of Eadon Jacobs in Support of Motion to Compel 27 Arbitration or Strike Class Allegations (Jacobs Decl., Dkt. No. 210-1) ¶ 3 & Exs. 1-3. Plaintiffs do not contest those dates. website unless they affirmatively checked their agreement to the Terms and Conditions and Privacy Policy. Jacobs Decl. ¶ 4. In his second declaration, submitted with JLI’s reply, Jacobs provides a more specific date based on his efforts to confirm that as of August 9, 2018, before the date Martinez created his account on August 26, 2018, the clickbox requirement was in place. Declaration of Eadon Jacobs in Support of Reply (Jacobs Reply Decl., Dkt. No. 236-1), ¶¶ 3-6.
JLI shows that access to the Terms and Conditions was readily available during account creation. The required clickbox was followed by this language: “By registering with JUUL Labs, Inc. you agree to our Terms and Conditions and Privacy Policy.” Jacobs Decl., Exs. 4-6. By clicking on the underlined terms, the individual would be taken to the Terms and Conditions or Privacy Policy. JLI notes that on July 31, 2019, when Martinez signed in to make a purchase, he would have seen either the “Log In/Sign Up” screen or the “Welcome Back” screen where the Log In/Sign Up screen also required the user to “check” the disclosure box, but the Welcome Back screen simply reminded users that by registering they agree to the hyperlinked Terms and Conditions. Jacobs Ex. 7 & ¶ 7. When Martinez logged back in on February 27, 2020, he would have seen a “Welcome Back” sign in page that did not require a clickbox to proceed but disclosed, “By proceeding, you agree to our Terms and Conditions and Privacy Policy .” Jacobs Decl., Ex. 9. While the Terms and Conditions varied over time, JLI declares that the arbitration and class action wavier provisions at issue here remained constant. Prior to 2020, the provisions provided:
GOVERNING LAW, VENUE, AND CLASS ACTION /JURY TRIAL WAIVER
[* * *]
Arbitration. Read this section carefully because it requires the parties to arbitrate their disputes and limits the manner in which you can seek relief from JUUL Labs. For any dispute with JUUL Labs, you agree to first contact us via email and attempt to resolve the dispute with us informally. In the unlikely event that JUUL Labs has not been able to resolve a dispute it has with you after sixty (60) days, we each agree to resolve any claim, dispute, or controversy (excluding any claims for injunctive or other equitable relief as provided below) arising out of or in connection with or relating to these Terms, or the breach or alleged breach thereof (collectively, “Claims”), by binding arbitration by JAMS, under the Optional Expedited Arbitration Procedures then in effect for JAMS . . . . Nothing in this Section shall be deemed as preventing JUUL Labs from seeking injunctive or other equitable relief from the courts as necessary to prevent the actual or threatened infringement, misappropriation, or violation of our data security, Intellectual Property Rights or other proprietary rights. Class Action/Jury Trial Waiver. With respect to all persons and entities, regardless of whether they have obtained or used the Website or JUUL Labs Products or services for personal, commercial or other purposes, all claims must be brought in the parties’ individual capacity, and not as a plaintiff or class member in any purported class action, collective action, private attorney general action or other representative proceeding. This waiver applies to class arbitration,
and, unless we agree otherwise, the arbitrator may not consolidate more than one person’s claims. You agree that, by entering into this agreement, you and JUUL Labs are each waiving the right to a trial by jury or to participate in a class action, collective action, private attorney general action, or other representative proceeding of any kind.
Id . These Terms and Conditions were governed by California law. When Martinez accessed his account in February and March 2020, the provisions expressly included that covered claims included those related to the “purchase or use of JUUL Products” and changed governing law to Delaware. Jacobs Decl., Ex. 12. In all of the versions of the Terms and Conditions, the arbitration agreement and class action waiver provisions were emphasized in a notice at the top of the page:
GENERAL STATEMENT / WEBSITE TERM OF USE: JUUL Labs has adopted these Terms of Service to inform you of your rights and obligations when using the Website and/or when purchasing any JUUL Labs products or goods . . . . Your use of this Website, and/or your purchase of any Products constitutes your agreement to the following Terms of Service. If you do not agree to these Terms of Service you may not use the Website or purchase our Products from the websites. JUUL Labs may, and reserves the right, to from time to time modify, limit, change, discontinue, or replace the website and these Terms of Service at any time. In the event JUUL Labs modifies, limits, changes, or replaces the website or these Terms of Service, your continued use thereafter constitutes your agreement to such modification, limitation, change, or replacement.
It is your responsibility to review these Terms of Service on a regular basis to keep yourself informed of any modifications, limitations, changes, or replacements.
* * *
Please read these Terms of Service carefully to ensure that you understand each provision. These Terms contain a mandatory individual arbitration and class action/jury trial waiver provision that requires the use of arbitration on an individual basis to resolve disputes, rather than jury trials or class actions.
Id ., Ex. 10; see also id ., Exs. 11-12 (materially identical).
Plaintiffs each state in declarations in support of their Opposition to the Motion to Compel
that they do not recall seeing any disclosure of JLI’s Terms and Conditions or that they saw a
hyperlink to the Terms and Conditions on the JLI website when they created their accounts, and
that they do not recall clicking or checking a box next to any disclosure of the Terms and
Conditions. Declaration of Plaintiff Anthony Martinez (Martinez Decl., Dkt. No. 229-115) ¶ 4;
Declaration of Plaintiff Mallory Flannery (Flannery Decl., Dkt. No. 229-16) ¶ 4; Declaration of
Plaintiff Jessica McGee (McGee Decl., Dkt. No. 229-17) ¶ 4. They likewise declare that they “do
not believe that [they] agreed to arbitration or to waive [their] right to proceed with a class action”
and they “did not read or understand the Terms and Conditions.” Martinez Decl. ¶ 8; Flannery
Decl. ¶ 6; McGee Decl. ¶ 7.
In a prior related case, I addressed the enforceability of JLI’s arbitration agreement as of
August 2018.
Colgate v. JUUL Labs, Inc
.,
B. Legal Standard
“The FAA, 9 U.S.C. § 1 et seq., requires federal district courts to stay judicial proceedings
and compel arbitration of claims covered by a written and enforceable arbitration agreement. []
The FAA limits the district court's role to determining whether a valid arbitration agreement
exists, and whether the agreement encompasses the disputes at issue.”
Nguyen v. Barnes & Noble
Inc
.,
The internet has “not fundamentally changed the requirement that mutual manifestation of
assent, whether by written or spoken word or by conduct, is the touchstone of contract.”
Id
., 763
F.3d at 1175;
see also Long v. Provide Commerce, Inc
.,
“Whether a user has inquiry notice of a browsewrap agreement, in turn, depends on the
design and content of the website and the agreement’s webpage. [] Where the link to a website's
terms of use is buried at the bottom of the page or tucked away in obscure corners of the website
where users are unlikely to see it, courts have refused to enforce the browsewrap agreement.”
Id
.
at 1177 (citations omitted). However, courts have “been more willing to find the requisite notice
for constructive assent where the browsewrap agreement resembles a clickwrap agreement—that
is, where the user is required to affirmatively acknowledge the agreement before proceeding with
use of the website.”
Id
. at 1176. This type of agreement has been characterized as a third
category, as a “sign-in wrap” agreement and is regarded as a “blend” or “hybrid” of the two.
Snow
v. Eventbrite, Inc
., 3:20-CV-03698-WHO,
Each of the plaintiffs here accessed JLI’s website through this third, sign-in wrap type of agreement.
C. Enforceability
1. Colgate Decision, Estoppel, and Evidence of Sign-In Process Plaintiffs contend that in light of my determination in the Colgate case, JLI is estopped from enforcing the arbitration provision against plaintiffs that created an account at least before August 4, 2018 using the same Log In pages I determined were unenforceable in Colgate . I agree. However, JLI has presented evidence that by the time each of the DPPs created their accounts on JLI’s website, the design had been modified to include the clickbox. Jacobs Reply Decl. ¶¶ 5-8. Absent a direct purchaser class representative who created an account on or before August 4, 2018, I need not address the impact of the pre-August 9, 2018 account creation page. Plaintiffs’ attack on the sufficiency of the evidence regarding the different screen shots of the Log In/Sign Up pages proffered by JLI as existing on the dates each named plaintiff created their account (August 26, 2018 [Martinez], February 26, 2019 [Flannery], July 19, 2019 [McGee]), is unpersuasive. At a minimum, the Jacobs Reply Declaration explaining how he ascertained the presence of the affirmative clickbox on each of those dates is sufficient. Jacobs Reply Decl. ¶¶ 5-8. While plaintiffs note that they were unable to pull from the Wayback Machine screen shots from JLI’s Log In/Sign Up pages on each of the specific dates each plaintiff created their account, they and defendants have identified screen shots from immediately around those dates. While there could be some differences (other than noted below) between how the text immediately adjacent to the affirmative clickbox appeared, plaintiffs have not identified Wayback Machine screen shots from the relative time periods showing anything materially different from the screen shots proffered by JLI on this motion.
JLI’s evidence, as supplemented by Jacobs’ Reply Declaration, is not like the evidence I
found insufficient in
Snow v. Eventbrite, Inc
., 3:20-CV-03698-WHO,
2. Enforceability
JLI does not dispute each DPPs’ testimony that she or he did not have actual knowledge of
the Terms and Conditions, much less the included arbitration and class action waiver provisions. Actual knowledge, however, is not determinative. The relevant question is whether the addition of
the affirmative assent clickbox in combination with the placement and design of the following
disclosure containing the hyperlinks to the Terms and Conditions (and Privacy Policy) were
sufficient to establish objective constructive assent.
JLI argues that by requiring the affirmative assent to the clickbox with the Term and
Conditions hyperlinked in text immediately following the box, it used a “clickwrap-like”
agreement, also known as a sign-in wrap agreement. It points to numerous cases enforcing similar
sign-in wrap agreements where the hyperlinked Terms and Conditions are sufficiently disclosed
.
See, e.g
.,
In re Facebook Biometric Info. Priv. Litig
.,
JLI also relies on a series of cases where arbitration provisions in terms and conditions
were enforced absent a clickbox denoting agreement to the term conditions, where the hyperlinked
text was conspicuous, appeared in close proximity to “sign up” buttons, and consumers were
warned that by proceeding to use the website, the user was agreeing to those hyperlinked terms
and conditions.
See, e.g., Dohrmann v. Intuit, Inc
.,
Plaintiffs attempt to distinguish both of these lines of cases by pointing out – as I noted in Colgate – that the hyperlinks for the Terms and Conditions and Privacy Policy in the post-August 9, 2018 Log In/Sign Up pages were not highlighted in a different text color or set apart from other text on the page, and were instead presented as black or dark grey text in a gray box. That is true only for the Log In/Sign Up pages from February 2019. Jacobs Decl., Ex. 5. But “Terms and Conditions” is now underlined immediately following the clickbox and presented on a relatively uncluttered page. Plaintiffs also point out that the “Forgot Password” hyperlink on each version of the “Sign-In” screens was more prominently displayed and more significantly highlighted than the Terms and Conditions and Privacy Policy hyperlinks because it was bolded. On each of the Log In/Sign Up pages at issue, the required “Sign Up” button is right beneath the affirmative clickbox with the obviously hyperlinked Terms and Conditions. The way the Terms and Conditions were displayed on the Log In/Sign Up pages used by the three DPPs do not create a material difference between this motion and the motion in Colgate .
However, the addition of the affirmative assent clickbox, drawing attention to the text
immediately
following that contains the somewhat highlighted hyperlinked Terms and Conditions
links, does change the analysis. Other factors also support a finding of constructive assent. Each
of the Log In/Sign Up pages was relatively clear and uncluttered. As of and after August 9, 2018,
the Terms and Conditions and Privacy Policy hyperlinks
were
in a different shade of text and in a
different font-style.
[8]
And by 2019, the hyperlinks following the clickbox were underlined and for
part of that period also italicized.
[9]
DPP used here. In
Cullinane v. Uber Techs., Inc
.,
Unlike the cases the DPPs rely on, the Log In/Sign Up pages here do not have the same
amount of clutter and do not create a significant risk of confusion concerning what the Terms and
Conditions governed.
See, e.g., Long v. Provide Com., Inc
.,
Plaintiffs’ constructive assent to the arbitration agreement and class action waiver has been demonstrated.
D. Unconscionability
Plaintiffs argue that even if there is sufficient evidence of constructive assent to bind the DPPs to the Terms and Conditions, I should not enforce the arbitration agreement against the three DPPs because the Agreement is procedurally and substantively unconscionable.
Whether a contract is unconscionable is a question of law.
Patterson v. ITT Consumer Fin.
Corp.
,
Both the procedural and substantive elements must be met before a provision will be
deemed unconscionable, but both need not be present to the same degree. Rather, “the more
substantively oppressive the contract term, the less evidence of procedural unconscionability is
required to come to the conclusion that the term is unenforceable, and vice versa.”
Armendariz v.
Found. Health Psychcare Services, Inc.
,
1. Procedural Unconscionability
Plaintiffs argue that the arbitration agreement is procedurally unconscionable because: (1)
plaintiffs were addicted to nicotine when they created their accounts and purchased products to
satisfy their existing addiction to and use of JLI’s pod-based products (meaning they would have
had to spend more to buy a new vaping system if they did not buy pods from JLI); (2) plaintiffs
had no opportunity or ability to bargain with JLI over the arbitration agreement; (3) JLI did not
require plaintiffs to view or read the Terms and Conditions before allowing them to create their
accounts and purchase products; and (4) plaintiffs were not thereafter provided with a copy of the
Terms and Conditions or the JAMS procedures for arbitration that governed the agreement.
Plaintiffs have not demonstrated significant procedural unconscionability. First, plaintiffs
cite no authority for their position that a consumer lacks capacity to consent simply because a
product is addictive and the individual plaintiffs provide no evidence that they were incompetent
to enter into an agreement because of their addiction.
See In re Rains
,
Third and fourth, plaintiffs cite no cases requiring the immediate display or separate
provision of an arbitration agreement or the rules governing the arbitration to consumers as
predicates to enforceability. The availability of the Terms and Conditions in the hyperlinked text
immediately next to the clickbox where the DPPs affirmatively assented to the Terms and
Conditions is sufficient for enforceability. The failure to provide consumers with a copy of the
underlying rules governing the arbitration does not make the agreement or its enforcement
unconscionable.
See Baltazar v. Forever 21, Inc
.,
2. Substantive Unconscionability
Plaintiffs argue that the arbitration agreement is substantively unconscionable because: (1)
JLI retained the unilateral right to modify or change the Terms and Conditions, without notifying
plaintiffs; (2) consumers are forced to bring their claims in San Francisco or (under the newer
Terms and Conditions) Wilmington, Delaware and that choice of forums imposes unfair costs on
consumers; (3) while consumers have to arbitrate their claims, JLI retains the right to seek
“injunctive or equitable relief” from a court to protect its intellectual property, making the
agreement impermissibly one-sided; (4) JLI purports to shorten the statute of limitations from four
years to one; and (5) the JAMS rules are substantively unconscionable because they limit
plaintiffs’ rights to discovery, which is particularly intensive for antitrust claims.
On the first point, there is no dispute that JLI reserved the right to modify or change the
Terms and Conditions, as the Terms and Conditions explain that a consumer’s “continued use” of
the site “constitutes your agreement to such modification.” Jacobs Decl., Ex. 10 at ¶ 1. Plaintiffs’
argument might have some force if JLI was attempting to enforce a materially different set of
Terms and Conditions that none of these plaintiffs had assented to, but that is not the situation
here.
Compare In re Zappos.com, Inc., Customer Data Sec. Breach Litig
.,
On the second point, specifying San Francisco as the location for arbitrations is not procedurally unconscionable. Plaintiffs voluntarily commenced their litigation here. They do not otherwise provide any authority that would undermine the arbitration agreement simply because it specifies a location for arbitration (San Francisco or Wilmington), considering the JAMS rules or otherwise.
On the third point, each of the three sets of Terms and Conditions that JLI contends (and
plaintiffs do not dispute) existed during the operative times provides that JLI “retain[s] the right to
seek injunctive or other equitable relief in a court of competent jurisdiction to prevent the actual or
threatened infringement, misappropriation or violation of a [sic] our copyrights, trademarks, trade
secrets, patents, or other intellectual property or proprietary right.”
See, e.g
., Jacobs Decl., Ex. 10;
see also
Exs. 11 & 12. These provisions arguably reserve the right to seek injunctive relief to
protect JLI’s intellectual property in court to JLI only. This limited reservation, however, does not
implicate the concern recognized by California courts in employment cases when an employer
seeks to compel the types of claims employee are likely to raise but preserves the employer’s right
to go to court on claims it would likely initiate.
See, e.g., Serafin v. Balco Properties Ltd., LLC
,
On the fourth point, plaintiffs correctly argue that the two applicable sets of Terms and Conditions (existing from June 29, 2017 and July 17, 2019 and between July 17, 2019 and November 26, 2019) imposed a one-year statute of limitations, contrary to the four-year statute that would otherwise apply to plaintiffs’ claims. Exs. 10, 11 (“You agree that any cause of action you have that arises out of or relates to these Terms of Service or your use of the Website must be brought by you within one year after the cause of action accrues. Otherwise, any such action by you against JUUL Labs is permanently barred.”). Relying on one case arising in the employment context, they assert that reduction in the statute of limitations is substantively unconscionable. DPP Oppo. to MTC at 21. JLI does not respond at all to this argument. I agree with plaintiffs that this provision is substantively unconscionable and will sever it, leaving the remaining provisions of the arbitration agreements enforceable. Severance is appropriate because the agreements are not “so ‘permeated’ by unconscionability that it cannot be cured by severance.” Serafin, LLC , 235 Cal. App. 4th at 183-84.
proportionality of discovery required under the Federal Rules. While plaintiffs contend that the JAMS’s Optional Expedited Arbitration Procedure limits them to “one discovery deposition,” which they contend is unreasonable in an antitrust case, they ignore that the one-deposition rule is a default that will be reconsidered given the complexity of the case. Plaintiffs also ignore that even in arbitration they will have the benefit (provided under the Protective Order and Amended Protective Order entered in this case) of the discovery produced in the FTC action as well as Finally, the proportionality rule of discovery in the JAMS rules appears consistent with the discovery taken here. Plaintiffs have provided no evidence, by declaration or otherwise, substantiating their claim that they will not be able to secure or use sufficient discovery in any JAMS arbitration of their antitrust claims against JLI.
In short, at most the arbitration agreements are marginally substantively unconscionable. The significantly unconscionable provision – limiting the statute of limitations in two of the Agreements – is readily severable. The agreements are otherwise enforceable.
E. Unenforceable Prospective Waiver
Plaintiffs also contend that the arbitration agreements contain unenforceable prospective
waivers of plaintiffs’ substantive rights under federal antitrust laws because the choice of law
provisions in the agreements provide that they “shall be governed by the internal substantive laws
of the State of California” or for the later Terms, “governed and interpreted under the laws of the
State of Delaware, USA.” Jacobs Exs. 10, 12. They also note that while the Clayton Act claims
could be pursued under the agreement governed by California law, Delaware does not have a
private right of action for antitrust violations. Finally, they argue that given JLI’s retention of the
sole right to seek injunctive relief in court and JAMS procedures not conferring the right to award
public injunctive or other equitable relief, the agreement should not be enforced.
See, e.g., McGill
v. Citibank, N.A
.,
21
MoneyLion, Inc
.,
“public injunctive relief” is generally available arbitration.
23
Nothing in the Terms and Conditions or the Agreements themselves constitutes an 24
unenforceable prospective waiver.
25
26
27 The provision of the arbitration agreements allowing JLI to seek injunctive relief to protect its intellectual property rights in court does not expressly restrict or imply that a consumer does not have the right to seek injunctive relief in arbitration. F. Individual Defendants
The DPPs argue that even if their claims against JLI are subject to arbitration, their claims
against the JLI Director Defendants – Pritzker and Valani – should not be. The Ninth Circuit has
explained that “nonsignatories of arbitration agreements may be bound by the agreement under
ordinary contract and agency principles.”
Letizia v. Prudential Bache Securities, Inc
., 802 F.2d
1185, 1187 (9th Cir. 1986) (citations omitted). “[A]gents of a signatory can compel the other
signatory to arbitrate so long as (1) the wrongful acts of the agents for which they are sued relate
to their behavior as agents or in their capacities as agents [] and (2) the claims against the agents
arise out of or relate to the contract containing the arbitration clause. . . .”
Amisil Holdings Ltd. v.
Clarium Capital Mgmt
.,
26
27 There are no allegations in the complaints, for example, that Pritzker or Valani were ever acting outside of the scope of their roles with JLI or acting in unauthorized ways. G. Remedy
For the foregoing reasons, JLI’s motion to compel arbitration of the claims of Martinez, McGee, and Flannery against JLI and the Director Defendants is GRANTED. The DPPs are given leave to amend to substitute a named direct purchaser plaintiff who purchased directly from JLI prior to August 9, 2018 or who otherwise is not subject to JLI’s Terms and Conditions for direct purchases on or after August 9, 2018. Such amendment, if possible, shall be made within thirty days (30) of the date of this Order.
JLI asks me to either dismiss or stay the litigation of antitrust claims brought by the DPPs in their Consolidated Class Action Complaint if I find that the three DPP plaintiffs’ claims against JLI and the Director Defendants are subject to arbitration. The DPPs did not address their preferred course of action in their opposition brief. Within thirty days of the date of this Order, the DPPs shall notify me whether they want the claims of the three named DPP plaintiffs (Martinez, McGee, and Flannery) against JLI and the Director Defendants stayed or dismissed. II. DEFENDANTS’ MOTIONS TO DISMISS THE DPP, IPP, AND IRP CONSOLIDATED CLASS ACTION COMPLAINTS Defendants each move to dismiss the Consolidated Class Action Complaints filed separately by the DPPs, IPPs, and IRPs. Dkt. Nos. 207, 209, 211. While I have granted JLI’s motion to compel arbitration with respect to the three currently named DPPs for the claims asserted against JLI and the Director Defendants, I have stayed the effect of that order to give the
DPPs leave to amend to substitute one or more named plaintiffs whose claims might (as in the Colgate case) not be subject to an enforceable arbitration agreement. Therefore, I now consider the arguments of JLI and the Director Defendants’ that the DPPs’ claims against them should nonetheless be dismissed, as well as JLI and Altria’s arguments in support of dismissing the IPP and IRP claims.
A. Antitrust Injury
Defendants argue broadly that no plaintiff in any of the three CACs has adequately alleged
antitrust injury – plausible facts supporting an adverse impact on price, output of the products, or
innovation in the market – that occurred following the alleged agreement to restrain trade.
Defendants note that injury is not a showing required for the FTC action, but is a key showing
required of private parties.
See, e.g., Pool Water Products v. Olin Corp
.,
Antitrust injury is the “‘type the antitrust laws were intended to prevent and that flows
from that which makes defendants’ acts unlawful.’”
Knevelbaard Dairies v. Kraft Foods, Inc
.,
23
Defendants contend that plaintiffs cannot show antitrust injury because of a document that 24
the IPP and IRP plaintiffs have incorporated by reference into their CACs. It demonstrates that in 25
the twelve months following October 2018 (when Altria’s MarkTen Elite product was pulled from 26
the market), JLI’s prices decreased by almost 12%, JLI’s output substantially increased, and JLI’s 27
market share fell by ten percentage points while other competitors made significant market share gains. October 2019 “Wells Fargo Report,” Ex. 12 to Altria’s RJN; IPP ¶ 48, IRP ¶ 45.
At this juncture, the information that can be incorporated by reference does not fatally undermine plaintiffs’ allegations of antitrust injury. The only information from that document appropriate for consideration on these motions, as discussed later, is from the February 2019 Wells Fargo Report that these plaintiffs intended to rely on, and perhaps the actual chart from the October 2019 Wells Fargo Report that was mistakenly included. Plaintiffs contend that they will develop evidence (expert and otherwise) to explain that any short-term decrease in JLI market share or output following Altria’s withdrawal from the market was only a temporal situation resulting primarily from JLI withdrawing its fruit-flavored pods in response to regulatory and public pressure.
Defendants’ challenges are better determined on a full record. If I were to consider defendants’ evidence that the price of JLI’s product decreased in the months following the withdrawal of Altria’s products from the market – which plaintiffs argue is not accurate “in absolute terms” and needs expert analysis given the regulatory pressure and other factors at play – plaintiffs still adequately allege that JLI charged supracompetitive prices despite the potential decrease in absolute prices following the increased governmental and public criticism. The departure of the second largest competitor in the closed system e-vapor market – where Altria allegedly held around 8% of the market – supports the plausible allegation that Altria’s departure led to supracompetitive process, reduced output, and reduced innovation.
The allegations here are not similar to those in
Somers v. Apple, Inc
.,
Here, there is nothing on the face of the CACs – or in facts appropriately judicially noticeable that are not subject to dispute – that undermines plaintiffs’ theories. They allege that in the short term following the Agreement, the economic metrics in the market were impacted by JLI’s decisions to withdraw its fruit-flavored pods and take other steps in response to the regulatory and public pressure and that they suffered from supracompetitive prices in the more concentrated market that was enabled by JLI and its most effective competitor reaching the Agreement to remove Altria from the market. (separate from the failure to adequately allege causation argument) because plaintiffs do not allege that they will be wronged in a similar way in the future. Plaintiffs question whether the requirement to expressly allege likelihood of future injury is required in the antitrust context but Finally, defendants assert that plaintiffs’ equitable relief claims must be dismissed do not dispute that they have not alleged possible future injury in their CACs. Assuming the need to plead that possible or likely future injury applies in this context, defendants’ motions to dismiss are GRANTED in this limited respect. Plaintiffs are given leave to amend. Within thirty (30) days of the date of this Order, they must file amended CACs containing (where appropriate) allegations that some or all of the named plaintiffs may suffer future injury to support the claims for equitable relief.
B. Sherman Act Claims
Anticompetitive Agreement Defendants argue that no plaintiff has adequately alleged a per se anticompetitive agreement in violation of Section 1 of the Sherman Act. They point out that the three written agreements identified by plaintiffs as anticompetitive – the October 5, 2018 email, the Relationship Agreement (entered in December 2018) and the January 28, 2020 Amended Relationship Agreement – do not expressly require Altria to leave the market. The written agreements, instead, allowed Altria to continue with its then current activities and only prevented Altria from entering the market with any new line of products, a restraint defendants characterize as reasonable as a matter of law to protect JLI’s intellectual property. Finally, defendants note that despite having access to over 700,000 pages of documents from the FTC production, plaintiffs do not add any more facts to support their per se theory. Even assuming that plaintiffs had the time to review and absorb the FTC production before
filing the CACs, defendants’ arguments fail. Plaintiffs identify facts supporting their theory that the key part of the overall Agreement between JLI and Altria was Altria’s full exit from the e- vapor market. That theory is supported by references in the IPP, IRP, and DPP CACs to facts known about the negotiations, the parties involved, the three writings identified above, and the acts and explanations Altria contemporaneously provided to explain its actions. Although the required withdrawal of Altria from the market was not reduced to writing (which plaintiffs allege was for obvious reasons), plaintiffs have plausibly alleged that the withdrawal was key to the deal with JLI by inference supported by specifically identified facts.
Altria spends significant time in its motion and reply attempting to anchor alternative, non-
antitrust explanations for its conduct. It references documents and statements identified in the
CACs to claim that Nu Mark was being trounced by JUUL despite Altria’s heavy investments and
retail power and that Altria was only in the beginning stages of developing a product utilizing
technology similar to JLI’s.
See
Altria MTD at 27-29; Altria Reply at 14-18 (relying on
In re
Cent. Aluminum Co. Securities Litig
.,
But, as the cases relied on by Altria demonstrate, “Plaintiff’s complaint may be dismissed
only when defendant’s plausible alternative explanation is so convincing that plaintiff’s
explanation is
im
plausible.”
Starr v. Baca
,
Nor can defendants ignore plaintiffs’ plausible allegations that a key part of the Agreement
was Altria’s withdrawal in order to shift the focus to the specific, written non-compete provision
in the Relationship Agreement. Defendants may be correct that covenants not to compete,
especially those entered in the employment context or ones otherwise intended to protect
intellectual property, “should not be tested under the per se rule. Such covenants often serve
legitimate business concerns such as preserving trade secrets and protecting investments in
personnel.”
Aydin Corp. v. Loral Corp
.,
Finally, whether the Agreement was a “naked”
pro se
restraint (as characterized by
plaintiffs given the unwritten but otherwise expressed requirement that Altria leave the market) or
merely an “ancillary” restraint (as characterized by the defendants whereby Altria was only
prohibited from introducing new products into the market and part of the defendants’ “larger
endeavor whose success they promote”) cannot be determined at this juncture.
See Polk Bros.,
Inc. v. Forest City Enterprises, Inc
.,
Agreement – preventing Altria from entering the market with new products to protect JLI’s intellectual property – is legal as a matter of law under the rule of reason analysis, given the Relationship Agreement’s express concern to protect JLI’s intellectual property during the time that Altria provided critical distribution and regulatory services to JLI. Defendants go so far as to argue that but for Altria providing regulatory services to JLI, the JUUL product might not secure PMTA approval and result in lessened competition. See Altria MTD at 30. But this argument ignores plaintiffs’ allegations of the unwritten pre-condition to the Relationship Agreement that Altria leave the market. As noted above, that allegation has been adequately alleged. Similarly, as noted above, the plaintiffs have adequately alleged plausible antitrust injury.
The impact of the express non-compete provisions in the Relationship Agreement must be
considered in connection with the other relevant agreements including the Purchase Agreement,
the Services Agreement, the Intellectual Property License Agreement, and the Voting Agreement.
See, e.g.,
Altria Mot. at 30-31;
see also
DPP CAC ¶¶ 93-97. This analysis is heavily fact
dependent and cannot be resolved on the pleadings.
See, e.g., In re Nat’l Football League’s
Sunday Ticket Antitrust Litig
.,
3. Director Defendants a. Standard The DPPs and the Director Defendants – Pritzker and Valani, named as defendants in only
the DPP CAC – engage in a vigorous debate over the standard required to hold corporate directors
liable under the Sherman Act. The Director Defendants argue that individuals can only be
theoretically liable for a corporation’s allegedly anticompetitive conduct under the Sherman Act
where the allegations establish the individuals’ direct participation in a
per se
violation based on
those individuals’ “inherently wrongful conduct.”
Murphy Tugboat Co. v. Shipowners &
Merchants Towboat Co., Ltd
.,
individual acts in facilitating a horizontal antitrust conspiracy sufficient);
In re California Bail
Bond Antitrust Litig
.,
The DPPs dispute whether personal conduct in support of a pro se agreement needs to be alleged. They contend that “inherently wrongful conduct,” if that is the correct standard to be applied, can arise in connection with agreements analyzed under the rule of reason. That debate does not need to be resolved now. Plaintiffs have adequately alleged both a per se violation and Pritzker and Valani’s personal participation in it. The DPP CAC is replete with allegations that Pritzker and Valani, who were critical players in negotiating the Agreement with Altria, often acting as JLI’s points of contact at meetings and in correspondence, had the ultimate aim to protect their investments and enrich themselves given the size of their ownership and additional investments as recent as July 2018 in JLI. See, e.g ., DPP CAC ¶¶ 19, 20, 68, 70, 71, 72, 74, 77, 79, 81, 86. I cannot decide on the pleadings whether this conduct amounts to “inherently wrongful conduct” that Pritzker and Valani engaged in for their own enrichment and not as part of their fiduciary duties to JLI, or whether that conduct was indicative of legitimate business considerations on behalf of JLI and undertaken as part of the Director Defendants’ fiduciary duties to JLI. If plaintiffs fail to prove their per se allegations, the issue of whether the individuals’ conduct nonetheless amounts to actionable conduct under the “inherently wrongful” or a lesser standard may be raised again.
b. Injunctive Relief The Director Defendants also argue that they cannot be liable for equitable or injunctive relief for the antitrust claims as the series of agreements constituting the anticompetitive Agreement were entered into by JLI and Altria and not the Director Defendants, and that the Director Defendants have no authority to compel JLI or Altria to take any action. The DPPs do not address this argument or provide any authority showing that similarly situated directors can be required to provide the sort of injunctive relief the DPPs seek.
The DPPs claim for injunctive relief against the Director Defendants is DISMISSED without leave to amend.
4. Section 2 Conspiracy Claim Finally, Altria argues the IPPs and IRPs Section 2 conspiracy claim fails for the same reasons their Section 1 claim fails. [19] However, as noted above, the Section 1 claim survives and has been adequately alleged. As a result, the Section 2 claim likewise survives. [20]
5. Section 2 Injunctive Relief JLI separately argues that the IPPs and IRPs’ Section 2 monopolization claims – given their indirect purchaser status, they can only seek injunctive relief – must be dismissed because these plaintiffs fail to plausibly plead that there is now or likely will be in the future an attempt by JLI to monopolize the closed-system E-vapor market. In support, JLI points to plaintiffs’ own allegations that “paint a picture of a market that is increasingly competitive, as to which JLI’s influence is waning.” JLI Mot. at 8. This argument is derivative of the similar argument made by Altria that plaintiffs have failed to plead antitrust injury given their own allegations and the Wells Fargo Reports, addressed above. It fails for similar reasons. Even though plaintiffs rely on market data from 2018 and even though absolute prices or market shares may have fallen for JLI in the short term following the Altria Agreement, plaintiffs’ explanations (those changes were the result of acts JLI voluntarily took in response to regulatory pressure and public pressure) are not implausible or otherwise fatally undermined by their other allegations. Whether or not plaintiffs will be able to prove that an injunction is necessary to correct for and otherwise prevent a future injury related to monopolistic conduct is better tested on an evidentiary record.
C. Clayton Act Claims 1
Altria as Actual or Potential Competitor Altria argues that the Section 7 claim must be dismissed because plaintiffs allege that by the time the Altria investment was finalized in December 2018, it had already removed its competing products from the market. DPP ¶ 137, IPP ¶ 96, IRP ¶ 93. In that circumstance, Altria contends, it was not a competitor. According to Altria, plaintiffs cannot rely on their “actual competitor theory” but must instead rely on one of two theories, the “actual potential competitor theory” or a “perceived potential competitor theory.”
To satisfy the actual potential competitor theory, Altria asserts that plaintiffs must show that the acquisition foreclosed Altria from future de novo entry and, but for the Agreement, Altria would have entered de novo . Plaintiffs cannot do so, Altria argues, given their admissions in the CACs regarding the high barriers to entry created by the onerous regulatory scheme required for new products and the attendant expenses to enter the market. Under the perceived potential competitor theory, Altria argues that plaintiffs must plausibly allege that the “mere threat” of Altria’s potential entry prevented those already in the market from raising price, which plaintiffs have not attempted to plead. Plaintiffs respond that in the situation here – where pursuant to the alleged antitrust Agreement a competitor leaves the market – Altria’s voluntary departure does not insulate it from traditional Section 7 actual competitor analysis. Plaintiffs point to their allegations that if the JLI deal was not effectuated, Altria was fully situated to bring and in fact made comments that it would bring the MarkTen Elite product back to the market. IPP ¶¶ 67, 83, 91 IRP ¶¶ 64, 80, 88. These allegations are plausible at this juncture and sufficient to allege the actual competitor theory.
Unlike the cases relied on by defendants – that did not involve agreements that reduced the number of competitors in the market or otherwise altered concentration levels – plaintiffs’ allegations are plausibly alleged in support of the Section 7 claim. Altria and JLI were actual
26
27
See, e.g., F.T.C. v. A. Richfield Co
.,
The plaintiffs also argue that even if Altria was able to voluntarily “terminate” its status as an actual competitor, their allegations adequately establish that it was an actual potential competitor. They point to Altria’s plans to reenter with the MarkTen Elite product and use of “growth teams” to develop next generation e-cigarettes. See IPP ¶¶ 67, 83, 91 IRP ¶¶ 64, 80, 88; see also IPP ¶ 160, IRP ¶ 157. These plausible allegations, plus the evidence regarding Altria’s ability (unlike other potential entrants) to reenter the market given its extensive background, regulatory experience, and ample funds, render Altria both a potential actual competitor and a “perceived potential competitor.” 2. Market Concentration Altria challenges plaintiffs’ market concentration allegations as inapposite because it was
not an existing competitor to JLI when the Agreements was entered. That argument has been rejected. Altria also argues that allegations that the market became more concentrated following Altria’s exit are implausible (given the chart in the Wells Fargo Report showing JLI’s market share fell) and unsubstantiated ( e.g ., with any actual Herfindahl-Hirschman Index (HHI) calculations). As noted above, Altria overstates the significance and impact the Wells Fargo Report has at this juncture. It provides no authority for the proposition that at the motion to dismiss stage – unlike where the government is attempting to enjoin a merger and evidence is required to establish its prima facie case – a plaintiff must provide HHI calculations or anything similarly detailed. Plaintiffs’ market concentration allegations are sufficient.
3. JLI
JLI separately argues that because it did not acquire any stock, it cannot have liability
under Section 7 of the Clayton Act. Plaintiffs respond that caselaw recognizes that JLI is a proper
defendant to this claim because it was the seller of the acquired assets and a party to the allegedly
illegal acquisition, especially considering plaintiffs’ claim for injunctive relief to undo the
anticompetitive agreement.
See, e.g., Frike-Parks Press, Inc. v. Fang
,
In addition, plaintiffs argue that through the anticompetitive Agreement JLI acquired “assets,” like the shelf-space and services from Altria, that lessened competition and falls within the broad interpretation of assets under Section 7. See Gerlinger v. Amazon, Inc ., 311 F. Supp. 2d 838, 853 (N.D. Cal. 2004) (noting the broad interpretation of “assets” in the Ninth Circuit which includes “sales routes and sales volumes” and distribution rights). The determination of whether the “assets” secured by JLI here were more akin to “services” JLI paid for or more akin to licenses or distribution routes that could be considered “assets” under Section 7 must be resolved on an evidentiary record. Id . at 853 (finding allegations sufficient at motion to dismiss but considering evidence and rejecting claim on summary judgment). 4. Pritzker and Valani The Director Defendants also argue that because they acquired no stock or assets in the deal, they cannot be liable to the DPPs under Section 7. The DPPs respond that they have
adequately pleaded that Pritzker and Valani were the primary architects of the Agreement and, as board members whose assent would be required to undo the deal, they are necessary to provide the complete injunctive relief they seek here (the undoing of the Agreement). However, the DPPs provide absolutely no authority or apposite caselaw in support of their position that board members are appropriate defendants under a Section 7 claim seeking injunctive relief against the corporate entity.
The Section 7 claim against the Director Defendants is DISMISSED with prejudice. D. IPP State Law Claims
Defendants move to dismiss the IPP state law claims asserted under (i) the antitrust laws of California, New York, Michigan, and Rhode Island and (ii) the consumer protection laws of California, Florida, Massachusetts, and Rhode Island.
1. State Antitrust and Consumer Protection Claims Altria argues that the California, New York, Michigan, and Rhode Island antitrust claims are derivative and therefore rise and fall with the federal claims. It argues the same for the consumer protection claims asserted under California, Florida, Massachusetts and Rhode Island law, because the claims all challenge an alleged restraint in trade that caused plaintiffs to pay allegedly supracompetitive prices (the same allegations underlying the antitrust claims). [23] Even if I agreed with Altria that the state law claims are derivative, they cannot be dismissed because the federal claims survive.
2. UCL Claims and Unjust Enrichment
Altria argues that there are additional reasons why the UCL and unjust enrichment claims should be dismissed. First, Altria complains that the captions in the IPP complaint for the UCL claims ask for “damages,” but only restitution is available. However, the paragraphs under each UCL claim accurately identify restitution (not damages) as the relief sought. IPP CAC ¶¶ 258, 263. Second, Altria argues that the UCL and unjust enrichment claims must be dismissed because plaintiffs have not alleged that Altria received any funds or other benefits from plaintiffs as a result of the alleged anticompetitive arrangement or JLI’s charging of supracompetitive prices. Altria contends that plaintiffs cannot allege this as plaintiffs’ CACs admit that Altria lost billions on its investment in JLI. But even though Altria may have written down the value of its 33% ownership in JLI, how that devaluation occurred and what it means for Altria’s existing ownership in JLI remain facts in dispute. Moreover, the devaluation does not mean that Altria may not still be indirectly receiving funds from consumers due to JLI’s charging supracompetitive prices for its products. IPP ¶¶ 164-165, 263, 265-66; IRP ¶¶ 161-162, 233, 235, 237. [24] This argument fails.
Third, Altria contends that because these plaintiffs have an adequate remedy at law, they
cannot proceed on the UCL claim or on the unjust enrichment claim under California,
Massachusetts, Michigan or New York law.
See Sonner v. Premier Nutrition Corp
.,
3. Service of IPP Complaints of Larimore, Matshullat, and May
Altria contends that three IPP plaintiffs – Larimore, Matshullat, and May – had not (at the
that the unjust enrichment claims under Michigan and New York law must be dismissed. There, I
concluded – after full briefing under various states’ laws – that “the transactions and relationships
between the indirect purchaser plaintiffs and the defendants are too attenuated to state an unjust
enrichment claim under” either Michigan law or New York law.
Id
. at 1088, 1090. That may be
the result here as well, but absent direct and full briefing on cases under these states’ laws – that
Altria does not provide – I will not separately consider this argument now. Nor will I address
arguments and cases raised only in reply.
See, e.g
., Altria Reply at 27 (relying on
In re Suboxone
(Buprenorphine Hydrochloride and Naloxone) Antitrust Litig
.,
In response, plaintiffs argue that they had a good faith belief that defendants would not
raise a defense based on service, but they acknowledge they must have misunderstood the parties’
agreement. Declaration of Thomas H. Burt, Dkt. No. 227-1. Nonetheless, they contend that Altria
has not suffered any cognizable harm. Altria knows all of the facts on which the IPP claims are
based. Given the service of the IPP CAC, it likewise knows the basis of these three IPPs’ claims.
original complaints on Altria at the same time the IPPs serve their Amended Consolidated Class
Action Complaints as required by this Order.
lacks that jurisdiction for the state law claims. Plaintiffs respond that because the federal claims
survive, as discussed above, pendent jurisdiction exists over the state law claims despite Altria’s
Altria argues that even if the court has jurisdiction over Altria on the federal law claims, it
There is no cognizable prejudice to Altria. The three IPPs are given leave to serve their
4. Personal Jurisdiction over Altria on state law claims
argument that pendant jurisdiction was overruled by
Bristol-Myers Squibb Co. v. Super. Ct. of
California, San Francisco County
,
Even if pendent jurisdiction were not available given the posture of this case, specific
jurisdiction exists. Altria allegedly negotiated the anticompetitive Agreement with a California-
based on company in part by attending meetings that took place in California. IRP CAC ¶¶ 83, 84,
91, 94, 221; IPP CAC ¶¶ 86, 87, 94, 97, 224; DPP CAC ¶¶ 79, 87. It is that anticompetitive
Agreement that caused the plaintiffs’ harm. There is jurisdiction over Altria.
See also In re JUUL
Labs, Inc., Mktg. Sales Prac. and Products Liab. Litig
., 19-MD-02913-WHO,
III. REQUEST FOR JUDICIAL NOTICE In support of its motion to dismiss, Altria asks me to take judicial notice of fifteen exhibits,
nine under the doctrine of judicial notice (Exhibits 1-7, 9, 13) and six under the doctrine of incorporation by reference (Exhibits 8, 10-12, 14-15). Request for Judicial Notice, Dkt. No. 208. Plaintiffs oppose in part. Dkt. Nos. 233, 228. I take judicial notice of the existence of the regulatory publications (Exhibits 1-3, 6-7) for the fact that they were issued and the topics they covered, but I do not take judicial notice of the disputed facts regarding the impact those pronouncements had on any party. I decline to take judicial notice of the news articles and press releases (Exhibits 4-5, 9, 13). The contents of those publications are not relevant to my determination of the motions at issue.
The exhibits Altria argues are incorporated by reference into the CACs are: letters and emails from JLI and Altria (Exs. 8, 10), the Service Agreement (Ex. 11), the October 2019 Wells Fargo Report (Ex. 12), the January 2020 Amendment to the Relationship Agreement (Ex. 14), and the February 2019 Wells Fargo Report (Ex. 15).
The IPP and IRPs object to the incorporation by reference in whole of Exhibits 11 and 14 (the Service Agreement and the Amendment), arguing that they are unauthenticated and introduced only to suggest an alternate explanation for Altria’s conduct. Dkt. No. 228. I agree with Altria that these two segments of the alleged antitrust agreement are incorporated by reference by the repeated citation to them in the CACs. However, I cannot and do not resolve the parties’ disputes over what certain provisions in those documents mean. As noted above, the parties argue the provisions mean different things on their face or in the context of the other written and unwritten agreements and communications between the parties. Exhibits 8 and 10, correspondence between the parties, are likewise incorporated by reference, but are not considered to resolve the parties’ disputes over what the assertions and provisions in those communications mean.
Exhibits 12 and 15, the Wells Fargo Reports, will not be incorporated by reference, except for the one chart specifically included in the CACs (from the October 2019 Report) and the chart the Indirect Plaintiffs thought they were including (from the February 2019 Report). The February chart is mentioned only twice in the complaints. IPP CAC ¶ 48, IRP CAC ¶ 45 (“In a February 11, 2019 presentation, an analyst at Wells Fargo Securities, LLC said that JUUL “re-ignited” the e-cigarette category and depicted its dominance in the following chart”). In other portions of their CACs, the indirect plaintiffs also cite an unspecified Wells Fargo report addressing market share, but plaintiffs assert that is a reference to the same exact information. See IPP CAC ¶ 151, IRP CAC ¶ 148 (“According to a Wells Fargo report on the tobacco industry based on Nielsen scanner data, JUUL had amassed a 72 percent market share by August 2018. Altria’s market share at that time was 8 percent.”); see also DPP CAC ¶ 136 (“According to a Wells Fargo report on the tobacco industry based on Nielsen scanner data, JLI had amassed a 72 percent market share by August of 2018. Altria’s market share at that time was 8 percent.”); ¶ 137 (“According to the same Wells Fargo report, Altria began withdrawing its products from the market in October 2018. By November, Altria’s market share had fallen to 4 percent, and JLI’s had grown to over 75 The DPPs object to incorporation of reference for each of these because defendants allegedly 27 rely on them only to present their own “version” or gloss on the contents to support their arguments, which is improper. Dkt. No. 233. percent.”). [28]
At most, therefore, the two charts and the explanatory language is subject to incorporation by reference. [29] Any other chart or information calling into question the same specific topic from the same reports might possibly fall within the incorporation by reference doctrine but defendants do not identify any other chart or information in the Reports that would meet those criteria. The incorporation by reference doctrine cannot be stretched to include the full and varied contents of both Reports, prepared by a third-party and not adequately authenticated, whose conclusions are disputed by the parties.
CONCLUSION
The motion to compel the three named Direct Purchaser Plaintiff claims against JLI and the Director Defendants is GRANTED. The effect of this Order is stayed for thirty (30) days to allow the DPPs to substitute in a class representative whose claims against JLI and the Director Defendants would not be subject to arbitration and for the DPPs to notify me whether they want these claims dismissed or stayed pending arbitration. Plaintiffs’ claims for injunctive relief are DISMISSED, but plaintiffs are given leave to amend to identify and include allegations that some or all of the named plaintiffs may suffer future injury to support the claims for injunctive relief. The UCL claim and state unjust enrichment claims under California, Massachusetts, Michigan or New York law are DISMISSED, but plaintiffs are given leave to amend to plead that their remedies at law are inadequate.
The DPPs’ claim for injunctive relief against the Director Defendants is DISMISSED with prejudice. The DPPs’ Section 7 claim against the Director Defendants is DISMISSED with prejudice.
Defendants’ motions are otherwise DENIED. Plaintiffs shall file their amended Consolidated Class Action Complaints by September 20, 2021.
Dated: August 19, 2021
William H. Orrick United States District Judge
Notes
[1] The DPPs also allege federal antitrust claims against two of JLI’s Board of Directors, Nicholas Pritzker and Riaz Valani.
[2] The allegations in the IPP and IRP Consolidated Class Action Complaints are practically identical but numbered differently.
[3] Ten additional individual defendants were named in the DPP CAC, but they were dismissed by stipulation on January 15, 2021. Dkt. Nos. 197-206.
[5] In each of the account creation pages presented to the three named plaintiffs, the “clickbox” 27 disclosure sentence had the specific and hyperlinked words “Terms and Conditions” and “Privacy Policy” either underlined or presented in a different color font from the other words in the disclosure sentence.
[6] Plaintiffs do not dispute that the class action waiver provision rises and falls with the enforceability of the arbitration provision.
[7] The declarations of Flannery and McGee – who both created their accounts on their iPhone – that
24
they do not recall whether the “disclosure was hidden under her keyboard as she typed her email
address and password on her iPhone” is irrelevant where each had to affirmatively check the box
25
next to the disclosure before creating the accounts.
Compare
Jacobs Reply Decl. ¶¶ 5-8.
with
Flannery Decl. ¶ 4; McGee Decl. ¶ 4. That they did not recall doing so or seeing any disclosure
regarding Terms and Conditions is irrelevant as long as defendant has sufficient evidence that the
26
disclosures were in fact available.
Lee v. Ticketmaster L.L.C.
,
[8] As noted in
Colgate
, use of a slightly different shade of text was the only way a consumer may
know she or he was agreeing to hyperlinked Terms and Conditions, and that alone was
insufficient.
Colgate v. JUUL Labs, Inc
.,
[9] I need not separately address the “Welcome Back” screen that plaintiff Martinez may have seen 27 following the creation of his account (where those Welcome Back screens do not require a customer who already has an account to affirmatively check again their agreement to the Terms and Conditions).
[10] Plaintiffs do not dispute that their purchases through the JLI website would be covered by the arbitration Agreement and class action waiver if the Terms and Conditions are enforceable against them.
[11] Declaration of Kyle P. Quackenbush, Dkt. No. 229-1, ¶ 34, Ex. 13 (JAMS’s Optional Expedited Arbitration Procedure, Rule 16.2(d)(v) (noting the “limitation of one discovery deposition per side (Rule 17(b)) shall be applied by the Arbitrator, unless it is determined, based on all relevant circumstances, that more depositions are warranted” considering the amount in controversy, the complexity of the factual issues in dispute, etc.).
[14] The most significant arguments in support of dismissal are made by Altria in its motion and reply. Dkt. Nos. 207, 237. Altria’s arguments are joined by JLI and the Director Defendants (with respect to the DPP claims). Dkt. Nos. 211, 209. I will generally address the arguments as made by “defendants” unless there are unique arguments presented by particular defendants.
[15] There is some dispute as to which Wells Fargo Report the IPPs/IRPs actually relied on in their CACs. The Indirect Plaintiffs explain they intended to reference and include a chart from the February 2019 Wells Fargo Report but mistakenly included the chart from the October 2019 Report. Dkt. No. 228 at 7 n.3. As explained below, at most these two charts would be incorporated by reference, but not the remaining portions of the two Reports.
[16] I need not reach the other injuries alleged, including reduction in innovation. But even if I agreed with defendants’ characterization of plaintiffs’ assertions as confirming the e-cigarette industry’s high barriers to entry and innovation in the market, there are plausible inferences drawn from plaintiffs’ allegations that Altria was well-positioned to bring new products and innovation to the industry despite those barriers.
[17] In
Name.Space, Inc. v. Internet Corp. for Assigned Names and Numbers
, unlike here, the
plaintiffs’ allegations were “fully consistent” with the defendants’ express agreement to manage
internet naming rights and defendants implemented the agreement with neutral rules. Absent
factual allegations that the process was rigged to benefit defendants’ own interests, the claim
failed.
Id
.,
[18] As the case Altria relies on explains, “[t]he covenant not to compete means that A may trust B
26
with broader responsibilities, the better to compete against third parties. Covenants of this type are
evaluated under the Rule of Reason as ancillary restraints, and unless they bring a large market
27
share under a single firm’s control they are lawful.”
Polk Bros., Inc. v. Forest City Enterprises
,
Inc.,
[19] The DPPs do not allege a Section 2 claim against any defendant. 27
[20] I acknowledge but need not reach the IPP and IRP argument that even in absence of a Section 1 claim, the Section 2 conspiracy-to-monopolize claim could survive.
[22]
F.T.C. v. H.J. Heinz Co
.,
[23] Altria admits that Rhode Island has not decided how closely its consumer protection claim 26 adheres to conclusions reached on the federal antitrust claims, but argues that because Rhode Island’s consumer protection law is similar to the other states (here, California, Florida, and 27 Massachusetts) Rhode Island courts likely follow suit.
[24] Altria relies on
Fenerjian v. Nongshim Co., Ltd
,
[26] Altria raises two arguments, foreclosed by Ninth Circuit precedent, for purposes of preserving 27 them on appeal: that venue is not appropriate here under the Clayton Act and that this court does not have personal jurisdiction over Altria under the federal claims. Altria Mot. at 45-46. The motion is DENIED on those arguments, and they are preserved for appeal.
[28] The indirect plaintiffs explain they mistakenly included the chart from the Wells Fargo October 26 15, 2019 analyst report (Ex. 12) in their CACs but intended to include and referred to a chart from the referenced Wells Fargo February 11, 2019 analyst report (Ex. 15). Dkt. No. 228 at 7 n. 3. 27
[29] As noted above, however, these charts do not fatally undermine the adequacy of plaintiffs’ antitrust injury allegations.