Docket' 74
ORDER DENYING DEFENDANTS’ JOINT MOTION TO DISMISS PLAINTIFF’S FIRST AMENDED COMPLAINT
Solyndra LLC (“Solyndra”) was a domestic manufacturer of tubular solar panels which declared bankruptcy in late 2011. The Solyndra Residual Trust, as the assignee of Solyndra’s assets, brings this antitrust action alleging that various China-based solar panel manufacturers engaged in a predatory price-fixing conspiracy to drive domestic solar panel manufacturers, including Solyndra, out of business by selling their Chinese-made panels at below-market prices in the United States. The First Amended Complaint (“FAC”), the operative pleading before the Court,
The parties are presently before the Court on Defendants’ Joint Motion to Dismiss Plaintiffs First Amended Complaint. Dkt. 74. Having read and considered the papers filed in connection with this matter and being fully informed, the Court hereby DENIES the motion for the reasons set forth below. The Court, in its discretion, finds this matter suitable for resolution without oral argument. See Fed. R. Civ. P. 78(b); N.D. Cal. Civ. L.R. 7-l(b).
I. BACKGROUND
A. The Parties
1. Plaintiff
Solyndra was a manufacturer of solar panels based in Fremont, California. FAC ¶ 12, Dkt. 70. Unlike traditional solar panels, which are comprised of flat polysilicon-based solar cells constructed into a planar surface, Solyndra’s panels featured an array of cylindrical tubes covered with a thin film photovoltaic material. Id. ¶ 13. Aside-by-side comparison of a traditional panel (Fig. A) and Solyndra’s panel (Fig. B) is shown below:
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Id. ¶¶ 46, 47. Solyndra began production in 2007 and shipped its first commercial solar panels in 2008, and thereafter in-creásed its sales volume and revenue every
In September 2011, Solyndra filed for chapter 11 bankruptcy protection and eventually ceased operations, allegedly due to Defendants’ conspiracy to fix prices at anticompetitive levels in the United States. Id. ¶¶ 13, 20, 244. In late 2012, the Bankruptcy Court confirmed a liquidation plan, pursuant to which all of Solyndra’s assets, including the claims and causes of action asserted in this lawsuit, were transferred to a liquidating trust created under the Plan, i.e., the Solyndra Residual Trust. Id. ¶ 13. R. Todd Neilson is the duly-appointed Liquidating Trustee of the So-lyndra Residual Trust. Id.
2. Defendants
Suntech is the world’s largest producer of solar panels, and is managed from its headquarters in China. Id. ¶ 14. As of December 31, 2011, Suntech has assets of $4.5 billion, more than $3 billion in revenue, and 17,500 employees. Id. Suntech’s sales in the United States increased from a negligible amount in 2005 to almost $750 million in 2011. Id. Suntech America is a wholly-owned subsidiary of Suntech based in San Francisco, California, and is the alter ego of Suntech. Id. ¶¶ 14,15.
Like Suntech, Trina is headquartered in China, and is a leading manufacturer of photovoltaic solar panels. Id. ¶ 16. As of December 31, 2011, Suntech had $2.8 billion in assets and $2 billion in revenue. Id. In the United States, Trina has increased its sales from $13 million in 2009 to $440 million in 2011, and has correspondingly increased its market share. Id Trina U.S. is a wholly-owned subsidiary of Trina which is based in San Jose, California, and is the alter ego of Trina. Id. ¶ 17.
Yingli is a leading solar energy company based in China and one of the largest vertically integrated manufacturers of photovoltaic solar panels. Id. ¶ 18. As of December 31, 2011, Yingli Solar had $2 billion in assets, more than $2.3 billion in revenues, and over 16,000 employees. Id. Like its co-conspirators, Yingli’s sales in the United States increased from a negligible amount to $340 million in 2011. Id. Yingli Americas is a wholly-owned subsidiary of Yingli International and is based in San Francisco. Id. ¶ 19. Yingli Americas and Yingli share certain of the same executives and are alter egos of one another. Id.
According to Plaintiff, the alleged price fixing scheme which led to the demise of Solyndra and numerous other American solar panel manufacturers was perpetrated by Suntech, Trina and Yingli (all of which are publicly-traded on the New York Stock Exchange), and their respective American alter egos, Suntech America, Trina U.S. and Yingli Americas. Id. ¶ 1. Defendants are members of the China New Energy Chamber of Commerce (“China New Energy”), a trade association which has the stated purpose of promoting “collaboration” amongst its members.. Id. ¶ 4. The chairmen of Suntech and Yingli serve on its board of directors, while the chairman of Yingli serves as a director for China New „Energy. Id. ¶ 87. Through China New Energy, Defendants were able to meet regularly and develop a coordinated pricing and output strategy aimed at dominating the United States solar panel market. Id. ¶ 87.
B. The Rooftop Solar Energy Market
Defendants export 95% or more of their collective solar panel production to the United States market. Id. ¶ 100. These panels are composed of polysilicon-based solar cells arranged in spaced arrays for
In the mid-2000’s, Solyndra developed a novel alternative to the traditional flat panel design with the “panels” formed with a series of cylindrical tubes wrapped in a thin solar film. Id. ¶ 55. These tubes are arranged in a horizontal pane array, similar to flat panels, but differ significantly in design and weight. Id. ¶ 57. Unlike flat panels, the Solyndra tubes are capable of collecting sunlight from 360 degrees without moving, while also allowing air, dirt, and snow to pass through the space between the tubes. Id. ¶¶ 58-59, 62, 63-65. Additionally, Solyndra’s design is capable of collecting direct, diffused, and reflected light without tilting, and benefits rather than suffers from close placement. Id. ¶¶ 58, 62, 66. The Solyndra panels weigh less than traditional flat panels, minimize rooftop impact and have lower maintenance costs. Id. ¶ 58. Installation of the panels can be achieved with one-third the labor, in one-third the time, and for one-half the cost of installing flat panels. Id. ¶ 67. In short, Solyndra’s innovative technology eliminated many of the inefficiencies and complications of flat panel technology, while simultaneously maximizing and increasing sunlight collection, energy absorption, and conversion efficiency. Id. ¶ 56, 59.
Solyndra began production of its panels in September 2007. Id. ¶ 71. ■ Initially, Solyndra charged a price premium of approximately 25% but remained competitive with respect to rooftop installations with the pricing offered by traditional solar panel manufacturers. Id. ¶ 67. Despite the cost premium, demand for Solyndra’s panels was strong. Id. ¶ 71. Between 2009 and 2010, Solyndra increased its sales by 87%, . and had contracted for sales worth hundreds of millions of dollars. Id. ¶ 73. At that time, demand for solar panels in the United States was on the rise, nearly doubling every year since 2007. Id. ¶ 83. In early 2009, the United States market was expected to continue to increase significantly over the three years. Id. ¶ 82.
C. Defendants’ Conduct and PRACTICES
Defendants, desiring to dominate the United States market for solar panels, became concerned with the innovation presented by Solyndra’s technology. Id. ¶¶ 74-77. To that end, Defendants allegedly formed a conspiracy to “dump” (i.e., to price their panels below cost) their solar panels in the United States market. Id. To that end, as demand for solar panels was rising, Defendants acted contrary to “rational economic rules” by “slashing] their prices in an effort to aggressively capture market share and drive competition from the marketplace.” Id. ¶¶ 81, 85.
Defendants also are alleged to have used China New Energy to fix prices at artificially low rates. Id. ¶¶ 86, 88. Each year since founding in 2006, China New Energy has held an International Forum (“Forum”), at which the chairs of Suntech,
D. Effects on United States Solar Market and Solyndra
As prices for Chinese solar panels in the United States plummeted, American solar manufacturers could not keep pace. Id. ¶ 156. Since 2010, “at least twelve domestic U.S. manufacturers have shut down plants, declared bankruptcy, or staged significant layoffs.” Id. ¶ 151. In contrast, Defendants now occupy a dominant position in the American solar panel market, and by the end of 2011, controlled 65% of the rooftop solar market. Id ¶¶40, 172. Correspondingly, Defendants’ net revenues soared, with Suntech’s net revenue alone increasing to $3.1 billion in 2011 from $1.6 billion in 2009. Id. ¶ 173.
Defendants’ coordinated pricing strategy also compelled Solyndra to lower their prices on preexisting contracts with several large solar integrators, installers, and distributors. Id. ¶¶ 186-91; 197-98, 203, 212. Defendants also threatened Solyndra’s customers that if they continued to honor the original agreements with Solyndra, other distributors and installers would buy Defendants’ panels to undersell them, “effectively threatening the customers’ existence.” Id. ¶ 191. At least one of Solyndra’s customers renegotiated its contract to buy fewer panels for less money and Solyndra panels with Yingli panels. Id. ¶¶ 201-207. Taking into account the losses on three of Solyndra’s contracts before and after renegotiation, Solyndra lost $236.4 million as a result of changed market conditions caused by Defendants’ coordinated actions. Id. ¶¶ 196-98, 202-03, 210-12.
E. Procedural History
On October 11, 2012, Plaintiff filed suit in this Court against Defendants. The subsequently-filed FAC alleges five claims for relief, styled as follows: (1) Conspiracy and Combination to Dump. Product and Fix Prices (for Violation of § 1 of the Sherman Antitrust Act, 15 U.S.C. § 1); (2) Combination to Dump Product and Fix
The gravamen of Plaintiffs claims is that Defendants conspired to fix prices and dominate the market for solar panels in the United States by selling their Chinese-made panels at “below cost, non-competitive prices” and thereby driving domestic manufacturers, including Solyndra, from the market. Id. ¶¶ 1-2. Plaintiff alleges that these actions were not merely a matter of permissible competitive business behavior, but predatory conduct aided by various co-conspirators. Id. Plaintiff prays for judgment not less than $1.5 billion for damages, penalties, other monetary relief, and applicable treble damages. Id. at 52.
Defendants have filed a joint motion to dismiss the FAC. Dkt. 74. They argue that the Sherman Act claim should be dismissed because Plaintiff has failed to allege a plausible conspiracy, has not suffered any antitrust injury, lacks standing to sue, and has failed to properly plead adequate markets to support its antitrust claim. Defs.’ Mot. at 1-3. Defendants further argue that the Court should dismiss Plaintiffs remaining state law claims, or in the alternative, decline to assert supplemental jurisdiction over them. Id. at 2. The Court granted the parties’ request to file oversized briefs, and the matter is now ripe for adjudication.
II. LEGAL STANDARD
Pleadings in federal court actions are governed by Federal Rule of Civil Procedure 8(a)(2), which requires only “a short and plain statement of the claim showing that the pleader is entitled to relieff.]” A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) “tests the legal sufficiency of a claim.” Navarro v. Block,
To survive a motion to dismiss for failure to state a claim, the plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly,
III. DISCUSSION
A. Sherman Act
“Section 1 of the Sherman Act proscribes contracts, combinations or conspiracies that unreasonably restrain trade.” Gorlick Distrib. Ctr., LLC v. Car Sound Exhaust Sys., Inc.,
To state a claim under § 1 of the Sherman Act, a plaintiff must show: “(1) that there was a contract, combination, or conspiracy; (2) that the agreement unreasonably restrained trade under either a per se rule of illegality or a rule of reason analysis; and (3) that the restraint affected interstate commerce.” Tanaka v. Univ. of S. Cal.,
1. Express Agreement
Defendants first argue that Plaintiff has failed to allege a “plausible” conspiracy “because the [FAC] does not allege facts showing any express agreement among
As an initial matter, “it has long been settled that explicit agreement is not a necessary part of a Sherman Act conspiracy.” United States v. General Motors Corp.
Here, the pleadings specifically allege facts that are more than sufficient to suggest that Defendants reached an agreement to fix prices and flood the American market with them below cost Chinese-made panels for the purpose of stifling competition. The FAC alleges that Defendants effectively controlled their industry trade organization, China New Energy, and held meetings at its annual Forums to coordinate their market strategy, including the coordinated, drastic lowering of prices to dominate the American market for solar panels. After each Forum held between 2007 and 2010, Defendants’ prices uniformly fell precipitously. These uniform price decreases were completely unanticipated within the industry, given that it was economically irrational to slash prices so significantly in the face of rising demand. Id. ¶¶ 81, 101-104, 161-62. Allegedly as a result of Defendants’ predatory and collusive conduct, Solyndra and a host of other American competitors went out of business, while Defendants correspondingly increased their sales and market share in the United States. Id. ¶¶ 14, 16,18, 23, 40, 85. Construing these allegations in a light most favorable to Plaintiff, the Court finds that they are sufficient to present a plausible claim that Defendants formed an agreement to restrain trade.
2. Predatory Pricing
Defendants next argue that Plaintiff has failed to allege a “likelihood of recoupment” and “pricing below marginal cost,” which they aver are necessary to sustain a predatory pricing claim. Defs.’ Mot. at 10-13.
Predatory pricing claims generally are brought under § 2 of the Sherman Act. See Weyerhaeuser,
Unlike concerted activity, the harm to competition posed by monopolization or attempted monopolization proscribed by § 2 is not always readily apparent. Spectrum Sports, Inc. v. McQuillan,.
In view of the fundamental distinctions between § 1 and § 2 of the Sherman Act, the Court is not persuaded by Defendants’ contention that Plaintiffs claim under § 1 of the Sherman Act is subject to dismissal for failing to plead a likelihood of recoupment. The recoupment requirement derives directly from the Supreme Court’s insistence that § 2 claims be supported by a showing of monopolization or the dangerous threat of monopolization. Brooke Group,
Even if Plaintiff were required to plead recoupment, there are sufficient allegations to satisfy such requirement. Plaintiff alleges that Defendants’ collusive pricing led to numerous American solar panel manufacturers, including Solyndra, going out of business, thereby rendering the market more concentrated and less competitive. FAC ¶¶ 151-55.
Nor is the Court persuaded by Defendants’ ancillary argument that a predatory price fixing claim must be accompanied by allegations that Defendants priced their products below the “incremental cost of production (i.e., marginal cost) ...” Defs.’ Mot. at 12-13. The Ninth Circuit has recognized that pricing may be deemed predatory, “even though it is impossible to establish that it is below either the ‘product’s’ marginal or average variable cost.” Marsann Co. v. Brammall, Inc.,
As for the cases cited by Defendants, they are inapposite. In Church & Dwight Co., Inc. v. Mayer Laboratories, Inc., No. C 10-4429 EMC,
3. Standing
Defendants assert that Plaintiff lacks standing to bring a federal antitrust claim on the ground that Plaintiff has failed to plead, a “viable allegation of predatory conduct and harm to competition.” Defs.’ Mot. at 15. To establish antitrust standing, a plaintiff must plead the existence of an antitrust injury; that is, “[an] injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful.” Atl. Richfield Co. v. USA Petroleum
Defendants do not specifically address the elements of antitrust injury as set forth in Glen Holly. Instead, Defendants contend that Plaintiff has failed to demonstrate that they engaged in predatory pricing, and that Solyndra’s mere inability to “meet or beat” Defendants’ prices is insufficient to establish an antitrust injury. Defs.’ Mot. at 15-16. As discussed above, however, Plaintiff has adequately pleaded that Defendants engaged in predatory pricing, and that such conduct resulted in losses to domestic solar panel manufacturers, including Solyndra. FAC ¶¶ 143, 149, 156-59. These allegations are sufficient to show antitrust injury. See Knevelbaard Dairies,
4. Relevant Market
Defendants next contend that Plaintiff has failed to adequately allege a “relevant market.” Defs.’ Mot. at 17. “In order to state a valid claim under the Sherman Act, a plaintiff must allege that the defendant has market power within a ‘relevant market.’ That is, the plaintiff must allege both that a ‘relevant market’ exists and that the defendant has power within that market.” Newcal Indus., Inc. v. Ikon Office Solution,
As an initial matter, the Court notes that there is Ninth Circuit authority holding that “[w]hen a per se violation such as horizontal price fixing has occurred, there is no need to define a relevant market or to show that the defendants had power within the market.” Knevelbaard Dairies,
a) Geographic Market
A geographic market must “ ‘correspond to the commercial realities’ of the industry and be economically significant.” Id. at 336-37,
b) Product Market
The relevant product market consists of “those products to which consumers will turn, given reasonable .variations in price.” Lucas Auto. Eng’g, Inc. v. Bridgestone/Firestone, Inc.,
The FAC avers that “[t]he relevant product market consists of the market for the sales or marketing of commercial and industrial rooftop solar photovoltaic panels to commercial and industrial rooftop solar photovoltaic panel production plants (i.e., sell-side), and the market for the purchase of commercial and industrial rooftop solar photovoltaic panels (i.e., buy-side).” FAC ¶ 35 (emphasis added). Defendants complain that Plaintiff has improperly limited the
B. Cartwright Act
The Cartwright Act “is California’s version of the federal Sherman Act and sets forth California’s antitrust laws.” Cellular Plus, Inc. v. Superior Court of San Diego Cnty.,
C. Unfair Practices Act
Under California’s Unfair Practices Act, it is unlawful for an entity engaged in business within the state to “sell any article or product at less than the cost thereof to such vendor ... for the purpose of injuring competitors or destroying competition.” Cal. Bus. & Prof. Code § 17043. The Act also prohibits the sale or use of any article or product as a “loss leader.” Id. § 17044.
Plaintiff alleges that Defendants sold their products at below-cost for the purpose and effect of destroying competition, and precluding new entrants, such as Solyndra, from successfully entering into the market. FAC ¶¶ 220-23, 241. Further, Plaintiff alleges specific facts in support of this claim. E.g., id. ¶¶ 77, 82-85, 100, 103, 105, 163-67. Defendants nonetheless argue that they could not have intended to harm Solyndra in particular because they allegedly formed their anti-competitive agreement before Plaintiff began selling its solar panels. Defs.’ Mot. at
Defendants next argue that the Plaintiffs allegations show only that their purpose in selling their solar panels below cost was to gain market share or meeting competitor prices — which does not violate the Unfair Practices Act. Defs.’ Mot. at 23. While the Unfair Practices Act does not apply to “vigorous competition” or price reductions aimed at increasing market share, it does apply to below cost pricing directed at harming competition. See Bay Guardian Co.,
D. Interference with Prospective Economic Advantage
A claim for intentional interference with prospective economic advantage requires, among other things, that a plaintiff allege that the conduct constituting the interference was unlawful for reasons other than that it interfered with a prospective advantage. See CRST Van Expedited, Inc. v. Werner Enters.,
The parties disagree as to whether Defendants’ alleged conduct qualifies as an unlawful act. Defs.’ Mot. at 20-21; Pl.’s Opp’n at 21-22. Defendants argue that because their alleged sales of solar panels at low prices did not violate the Sherman Act or the Cartwright Act, Plaintiff has failed to sufficiently plead an independent unlawful act. Defs.’ Mot. at 20-21. However, as discussed above, Plaintiff has sufficiently stated a claim for relief under the Sherman Act and the Cartwright Act. Defendants’ alleged conduct, if ultimately proven, would constitute an independent unlawful act in violation of federal and state laws. Accordingly, Plaintiff sufficiently states a claim for interference with prospective economic advantage. See CRST Van Expedited, Inc.,
Under California law, a third party to a contract may be liable in tort for intentionally interfering with the performance of the contract. Reeves v. Hanlon,
With regard to the second element of a claim .for interference with contractual relations, Defendants argue that Plaintiff has failed to plead that they had actual notice of Plaintiffs contracts. Defs.’ Mot. at 24 n.19. Under California law, a cause of action for intentional interference with contractual relations may be stated if it is possible to infer from the facts alleged that the defendant knew of plaintiffs contractual relationships with third parties, even if the defendant does not know the specific identity of the third party. Sebastian Int'l v. Russolillo,
Equally unpersuasive is Defendants’ contention that Plaintiff has failed to allege sufficient intentional acts ■ of inducement. Defs.’ Mot. at 24. More specifically, Defendants assert that merely selling their, products “at low prices” is insufficient to constitute inducement. Id. at 25. But the FAC does not merely allege that Defendants charged “low prices”; rather, it avers that Defendants sold their products at below cost in order to drive American competitors out of business and to control the United States market. FAC ¶ 1. Such allegations are sufficient to show intentional acts of inducement. See Quelimane Co.v. Stewart Title Guar. Co.,
Finally, Defendants argue that the FAC fails to allege facts demonstrating that there were any contractual breaches, and that Plaintiffs allegations show only that it “voluntarily agreed to modify contract terms.” Defs.’ Mot. at 24. Under California law, an express breach is unnecessary to state a claim for the tort of inducing breach of contract. Ramona Manor Convalescent Hosp. v. Care Enters.,
Here, Plaintiff alleges that Defendants warned Solyndra’s customers that “if they
IV. CONCLUSION
For the reasons stated above,
IT IS HEREBY ORDERED THAT:
1. The Defendants’ Joint Motion to Dismiss Plaintiffs First Amended Complaint is DENIED.
2. This Order terminates Docket No. 74.
IT IS SO ORDERED.
Notes
. The facts that follow are taken from Plaintiff's FAC, which, for purposes of this motion, the Court accepts as true.
. The FAC includes a discussion of investigations conducted by the International Trade Commission ("ITC”) and Department of Commerce regarding Defendants' trade practices and conduct, as well as the resulting injury to United States manufacturers, including So-lyndra. FAC ¶¶ 124-151. In its motion to dismiss, Defendants dispute the relevance of this information, and argue the findings of the ITC and Department of Commerce "differ significantly from the ■ metric required by the antitrust laws.” Defs.' Mot. at 3. A court considering a motion to dismiss may take notice of matters of public record, and materials necessarily relied upon in the pleadings where authenticity is not contested. Lee v. City of Los Angeles,
. The Sherman Act, § 1, prohibits agreements that unreasonably restrain competition, while § 2 prohibits monopolization, attempted monopolization, and conspiracies to monopolize.
. "The per se analysis is applied to practices that are presumptively illegal, such as (1) horizontal and vertical price-fixing; (2) horizontal market division; (3) group boycotts and concerted refusals to deal; and (4) tie-in sales.” McGlinchy v. Shell Chem. Co.,
. Defendants also posit that Plaintiff's claims of conspiratorial conduct are “implausible” given the “large number of players alleged to have been involved.” Defs.' Mot. at 8. Plaintiff has identified seven co-conspirators in addition to named Defendants. Defendants cite no authority for the proposition that this particular number of coconspirators renders the alleged conspiracy untenable, as a matter of law. In any event, given the limited record presented, this issue is not one suitable for resolution at this stage of the litigation.
. Though the pleadings utilize the term "predatory” in relation to Defendants' intentional pricing strategy, Plaintiff styles its Sherman Act claim as one for price-fixing, and not strictly for predatory pricing. FAC ¶¶ 218-227.'
. "Certain agreements, such as horizontal price fixing and market allocation, are thought so inherently anticompetitive that each is illegal per se without inquiry into the harm it has actually caused.” Copperweld,
. In their reply, Defendants posit that 65% control of the solar panel market is insuffi..cient to confer the requisite market power to control prices. Defs.’ Reply at 5. Defendants cite no authority for this assertion, which, in any event, is not suitable for resolution on a pleading motion.
. In the context of a Sherman Act § 1 claim, the Supreme Court has expressly declined to decide "what 'cost' is relevant in such cases.” Matsushita,
. Section 17030 of the Business and Professions Code defines a "loss leader” as an "article or product sold at less than cost: [¶] (a) Where the purpose is to induce, promote or encourage the purchase of other merchandise; or [¶] (b) Where the effect is a tendency or capacity to mislead or deceive purchasers or prospective purchasers; or [¶] (c) Where the effect is to divert trade from or otherwise injure competitors.’,’