Pacific Steel Group v. Commercial Metals Company

• Court: District Court, N.D. California
• Decided: May 21, 2021
• Docket: 4:20-cv-07683
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 PACIFIC STEEL GROUP, Case No. 20-cv-07683-HSG 8 Plaintiff, ORDER GRANTING MOTIONS 9 v. TO DISMISS Re: Dkt. Nos. 39, 40, 41, 49 10 COMMERCIAL METALS COMPANY, et al., 11 Defendants. 12 13 Pending before the Court are motions to dismiss filed by Defendants Commercial Metals 14 Company and its subsidiaries and Defendant Danieli Corporation. Dkt. Nos. 39, 40. For the 15 following reasons, the Court GRANTS the motions to dismiss with LEAVE TO AMEND. 16 I. BACKGROUND 17 A. Causes of Action 18 Plaintiff Pacific Steel Group (“PSG” or “Plaintiff”) brings this action for injunctive relief, 19 damages, and restitution against Defendants Commercial Metals Company (“CMC”) and its 20 subsidiaries, CMC Steel Fabricators, Inc. d/b/a CMC Rebar (“CMC Rebar”), CMC Steel US, LLC 21 (“CMC Steel US”), and Gerdau Reinforcing Steel (“GRS”) (collectively, “CMC” or the “CMC 22 Defendants”) and Defendant Danieli Corporation (“Danieli”) for violations of Sections 1 and 2 of 23 the Sherman Act, California antitrust and unfair competition statutes, and California common law. 24 Dkt. No. 1 (“Compl.”) at 1. PSG lists eight causes of action: 25 1. Conspiracy in restraint of trade against CMC and Danieli in violation of the 26 Sherman Act (15 U.S.C. § 1) and the California Cartwright Act (Cal. Bus. & Prof. Code § 16720); 27 2. Monopolization against CMC in violation of the Sherman Act (15 U.S.C. § 2); 1 3. Attempted monopolization (in the alternative) against CMC in violation of the 2 Sherman Act (15 U.S.C. § 2); 3 4. Conspiracy to monopolize against CMC and Danieli in violation of the Sherman 4 Act (15 U.S.C. §§ 1, 2) and the California Cartwright Act (Cal. Bus. & Prof. Code § 16720); 5 5. Below cost sales against CMC Rebar, CMC Steel US, and GRS in violation of the 6 California Unfair Practices Act (Cal. Bus. & Prof. Code § 17043); 7 6. Loss leader sales against CMC Rebar, CMC Steel US, and GRS in violation of the 8 California Unfair Practices Act (Cal. Bus. & Prof. Code § 17044); 9 7. Unlawful and unfair business practices against all defendants in violation of the 10 California Unfair Competition Law (Cal. Bus. & Prof. Code § 17200); 11 8. Interference with prospective economic advantage against CMC in violation of 12 California common law. Compl. ¶¶ 124-169. 13 B. Parties 14 PSG is a fabricator and installer of steel reinforcing bar (“rebar”) based in San Diego. 15 Compl. ¶ 17. CMC is a U.S.-based manufacturer and fabricator of rebar and is the parent 16 company to CMC Rebar, CMC Steel, and CMC Steel US. Id. ¶ 18. According to the Complaint, 17 CMC is the largest rebar manufacturer and fabricator in the United States. Id. CMC Rebar is a 18 subsidiary of CMC and is in the fabrication and installation market (“Furnish-and-Install”). Id. ¶ 19 19. As of 2018, CMC Rebar owns the assets and liabilities of GRS. Id. CMC Steel US is a 20 subsidiary of CMC and markets and manufactures rebar, among other things. Id. ¶ 20. GRS, like 21 PSG and CMC Rebar, is in the Furnish-and-Install market. Id. ¶ 21. Danieli builds mills and 22 plants for metal industries. Id. ¶ 22. 23 C. Factual Allegations 24 Entities in the Furnish-and-Install market, like PSG, buy rebar from rebar manufacturers, 25 like CMC. Id. ¶ 3. PSG desires to vertically integrate by entering the rebar manufacturing market. 26 Id. Rebar manufacturing is done in steel mills, of which there are three types: traditional 27 integrated steel mills, mini mills (which came into prominence in the 1960s), and micro mills, the 1 traditional integrated mill requires enormous startup costs and historically was only economical to 2 build when done on an enormous scale with millions of tons of annual capacity or more” whereas 3 “mini mills require lower capital costs and provide higher returns on equity” by controlling costs 4 and using advanced technology. Id. ¶ 43, 48-49. Micro mills are allegedly the future of rebar 5 manufacturing because, unlike traditional or mini mills, they “output[] directly into rebar.” Id. ¶ 6 52. “This enables a micro mill not only to be more efficient, it also requires a smaller physical 7 footprint and lower capital expenditures.” Id. According to PSG, these gains in efficiency and 8 lower startup costs are the reason that “[s]ince building its first micro mill over ten years ago, 9 CMC has not built any other type of mill.” Id. ¶ 57. 10 PSG wants to build a micro mill. Id. ¶ 3. According to the Complaint, “[t]he only 11 commercially viable way for PSG to enter the relevant rebar manufacturing market [is] to 12 construct a micro mill, as opposed to a mini mill that requires a significantly greater capital 13 investment and employs older, less efficient technology.” Id. ¶ 5. 14 Danieli is the only company to have developed and sold a micro mill. Id. Danieli has sold 15 or is in the process of selling five such micro mills using its proprietary (“MI.DA”) technology; 16 three of these deals have gone to CMC and two to CMC’s largest national competitor, Nucor 17 Corporation. Id. ¶ 7. CMC’s first micro mill, which was located in Mesa, Arizona, was subject to 18 an exclusivity provision covering a radius of 400 miles from Mesa. Id. 19 PSG met with Danieli in late 2019 to begin negotiations to build an environmentally 20 friendly micro mill. Id. ¶ 85. Initially, the plan was to build the micro mill in Pittsburg, 21 California, which is outside of the 400-mile exclusivity provision of CMC’s first micro mill. Id. ¶ 22 89. At the same time, however, Danieli was allegedly negotiating with CMC for CMC’s purchase 23 of another MI.DA mill to be located in Mesa, Arizona. Id. PSG’s Pittsburg site location fell 24 through, and it decided instead to secure property within the greater Los Angeles basin. Id. ¶ 91. 25 Ultimately, negotiations between PSG and Danieli were cut short when Danieli and CMC 26 finalized their agreement for a third micro mill. Id. ¶ 95. The agreement includes an exclusivity 27 provision which bars Danieli from selling one of their proprietary micro mills to any company 1 5. This radius covers approximately half of Utah, nearly all of Arizona, the majority of Nevada, 2 and almost all of California (up to just south of Redding). Id. ¶ 97. Rancho Cucamonga is not the 3 planned site of the new mill in Arizona, but instead is apparently the location of one of CMC’s 4 mini mills which is soon to be retired. Id. ¶ 98. PSG claims this new exclusivity agreement 5 “effectively prevents construction of any rebar mill within the 500-mile radius for over five years 6 because the most efficient means of manufacturing rebar is the MI.DA mill.” Id. ¶ 8. 7 CMC’s new mill will allegedly employ the “technology PSG had been led to believe it 8 would be developing in conjunction with Danieli.” Id. ¶ 95. PSG alleges that “CMC promoted 9 the new mill as embracing the very alternative energy use concepts PSG had laid out to Danieli in 10 their initial November 2019 meeting.” Id. Additionally, PSG alleges that Danieli “inappropriately 11 shared PSG’s [Pittsburg, CA] site consideration with CMC.” Id. ¶ 89. PSG alleges that CMC 12 opted for a 500-mile exclusionary zone from Rancho Cucamonga, California—as opposed to 13 Mesa, Arizona—in part because that zone includes Pittsburg, California. Id. ¶ 99; Dkt. No. 99 14 (“Opp.”) at 8. 15 PSG also alleges that building a micro mill outside the reach of the 500-mile restriction is 16 not commercially feasible due to the cost to transport rebar, especially to PSG’s southern 17 California facilities and customers. Compl. ¶ 101. According to PSG, a significant majority of 18 rebar sales are to customers located within 500 miles of a mill. Id. ¶ 108. 19 Finally, PSG also alleges that Defendants in the Furnish-and-Install market (CMC Rebar, 20 CMC Steel US, and GRS) have for years priced their services below cost and used loss leaders “in 21 an effort to minimize PSG’s growth, profitability, effectiveness, and efficiency.” Id. ¶ 1. 22 Allegedly, “[d]espite a California construction boom and rising demand for rebar Furnish-and- 23 Install services, CMC Rebar and GRS have sustained heavy losses in their Furnish-and-Install 24 businesses since at least 2017, due in large part to bidding below cost.” Id. ¶ 63. PSG also claims 25 that “CMC Rebar has been accused [by former employees] of below-cost bidding in other 26 geographic areas,” like Texas, in efforts to undercut competitors and force them to “go broke.” Id. 27 ¶¶ 64-65. 1 II. LEGAL STANDARD 2 Federal Rule of Civil Procedure 8(a) requires that a complaint contain “a short and plain 3 statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A 4 defendant may move to dismiss a complaint for failing to state a claim upon which relief can be 5 granted under Rule 12(b)(6). “Dismissal under Rule 12(b)(6) is appropriate only where the 6 complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory.” 7 Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). To survive a Rule 8 12(b)(6) motion, a plaintiff need only plead “enough facts to state a claim to relief that is plausible 9 on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is facially plausible 10 when a plaintiff pleads “factual content that allows the court to draw the reasonable inference that 11 the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). 12 In reviewing the plausibility of a complaint, courts “accept factual allegations in the 13 complaint as true and construe the pleadings in the light most favorable to the nonmoving party.” 14 Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). Nevertheless, 15 courts do not “accept as true allegations that are merely conclusory, unwarranted deductions of 16 fact, or unreasonable inferences.” In re Gilead Scis. Secs. Litig., 536 F.3d 1049, 1055 (9th Cir. 17 2008) (quoting Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001)). 18 Yet even if the court concludes that a 12(b)(6) motion should be granted, the “court should 19 grant leave to amend even if no request to amend the pleading was made, unless it determines that 20 the pleading could not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 21 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (quotation omitted). 22 In Khoja v. Orexigen Therapeutics, the Ninth Circuit clarified the judicial notice rule and 23 incorporation by reference doctrine. See 899 F.3d 988 (9th Cir. 2018). Under Federal Rule of 24 Evidence 201, a court may take judicial notice of a fact “not subject to reasonable dispute because 25 it … can be accurately and readily determined from sources whose accuracy cannot reasonably be 26 questioned.” Fed. R. Evid. 201(b)(2). Accordingly, a court may take “judicial notice of matters of 27 public record,” but “cannot take judicial notice of disputed facts contained in such public records.” 1 court takes judicial notice of a document, it must specify what facts it judicially noticed from the 2 document. Id. at 999. Further, “[j]ust because the document itself is susceptible to judicial notice 3 does not mean that every assertion of fact within that document is judicially noticeable for its 4 truth.” Id. As an example, the Ninth Circuit held that for a transcript of a conference call, the 5 court may take judicial notice of the fact that there was a conference call on the specified date, but 6 may not take judicial notice of a fact mentioned in the transcript, because the substance “is subject 7 to varying interpretations, and there is a reasonable dispute as to what the [document] establishes.” 8 Id. at 999–1000. 9 III. DISCUSSION 10 A. Sherman Act Antitrust Plaintiffs Must Establish A Geographic Market, A Product Market, And Market Power 11 “A threshold step in any antitrust case is to accurately define the relevant market, which 12 refers to ‘the area of effective competition.’” Fed. Trade Comm’n v. Qualcomm Inc., 969 F.3d 13 974, 992 (9th Cir. 2020) (citing Ohio v. Am. Express Co., 138 S. Ct. 2274, 2285 (U.S. 2018)). 14 “[T]he plaintiff must allege both that a ‘relevant market’ exists and that the defendant has power 15 within that market.” Newcal Indus., Inc. v. Ikon Off. Sol., 513 F.3d 1038, 1044 (9th Cir. 2008). 16 Such allegations need not be pled with specificity. Id. Although the “validity of the ‘relevant 17 market’ is typically a factual element rather than a legal one,” an antitrust complaint may be 18 dismissed under Rule 12(b)(6) “if the complaint's ‘relevant market’ definition is facially 19 unsustainable.” Id. “The relevant market must include both a geographic market and a 20 product market.” Hicks v. PGA Tour, Inc., 897 F.3d 1109, 1120 (9th Cir. 2018). PSG alleges two 21 relevant markets: a rebar manufacturing market centered near Los Angeles, which PSG seeks to 22 enter, and Furnish-and-Install markets in the Los Angeles Basin and the San Francisco Bay Area, 23 in which PSG currently competes. 24 i. Geographic Market 25 A properly defined geographic market extends to the “area of effective competition” in 26 which “buyers can turn for alternative sources of supply.” Tanaka v. Univ. of S. Cal., 252 F.3d 27 1059, 1063 (9th Cir. 2001) (citation and internal quotation marks omitted). PSG alleges the 1 relevant Furnish-and-Install market covers a 200-mile radius from the Los Angeles basin (PSG’s 2 Southern California fabrication facilities), and a 200-mile radius from the San Francisco Bay Area 3 (PSG’s Northern California fabrication facilities). Compl. ¶ 117. PSG alleges the relevant rebar 4 manufacturing market covers a “500-mile radius from the high desert area near the greater Los 5 Angeles basin.” Id. ¶ 109. 6 With respect to the Furnish-and-Install market, PSG alleges that rebar is “costly to ship due 7 to its weight and irregular shape[,]” and that “additional trips to the construction site are 8 sometimes needed.” Id. ¶ 115. Therefore, “[t]he large majority of sales of Furnish-and-Install 9 services are provided at construction sites within 200 miles of the fabrication plant.” Id. ¶ 116. 10 As a result, the alleged Furnish-and-Install product market extends 200 miles from each of PSG’s 11 fabrication facilities. The Court finds that PSG has plausibly alleged this market. 1 12 With respect to the rebar manufacturing market, PSG contends that “[r]ebar’s weight 13 makes it expensive to ship, especially relative to the cost of manufacturing rebar.” Compl. ¶ 30. 14 “There are substantial cost advantages to sourcing rebar locally to reduce shipping costs.” Id. As 15 a result, “[a] significant majority of rebar sales are to customers located within 500 miles of a mill, 16 and most of those sales are to customers located less than 400 miles away.” Id. ¶ 108. On this 17 basis, PSG alleges that the relevant rebar market is defined by the outer limits of what is 18 economical to ship. 19 CMC contends that PSG’s allegations regarding the geographic market are conclusory and 20 implausible. Dkt. No. 40 (“CMC Mot.”) at 8. CMC argues that a geographic market must include 21 all sellers to whom a purchaser can reasonably turn, including imports, and that because at least 22 some rebar in California is supplied by imports, PSG’s claimed geographic market is implausible. 23 Id. (citing Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961)). PSG acknowledges 24 that foreign imports account for at least some (roughly 7%) of total rebar sourced in California. 25 Compl. ¶ 33.2 26 1 While CMC asserts that “[t]his geographic scope is not supported by any facts,” CMC Mot. at 27 14, CMC fails to address the alleged facts about the Furnish-and-Install market’s geographic 1 The question of what constitutes a relevant market is factual, and not usually appropriate to 2 resolve at the motion to dismiss stage. Newcal Indus., 513 F.3d at 1045. Because PSG has 3 plausibly alleged that transportation costs are a determinative factor in the geographic scope of the 4 rebar market and that the majority of rebar sales are to customers located within 500 miles of a 5 mill, its alleged geographic market is not “facially unsustainable.” Id. Accordingly, the Court 6 finds that PSG has plausibly alleged a geographic rebar manufacturing market. 7 ii. Product Market 8 A properly defined product market “must encompass the product at issue as well as all 9 economic substitutes for the product.” Id. at 1045 (citation omitted). Whether a product can be 10 substituted is “determined by the reasonable interchangeability of use or the cross-elasticity of 11 demand between the product itself and substitutes for it.” Id. (citing Brown Shoe v. United States, 12 370 U.S. 294, 325 (1962)). Concerning the rebar manufacturing market, PSG alleges that “[s]teel 13 rebar is used to reinforce concrete slabs in construction projects. . . . It is virtually impossible to 14 complete a commercial construction project without using rebar to reinforce concrete structures.” 15 Compl. ¶ 106. Alternatives, like stainless steel, are far more expensive and are not commercially 16 viable. Id. Concerning the Furnish-and-Install market, PSG alleges that fabrication and 17 installation “services are necessary for steel rebar to be used to reinforce concrete in a structure, 18 and there are no substitutes for these services.” Id. ¶ 114. These factual allegations are sufficient 19 to plausibly allege a product market. 20 iii. CMC’s Market Power 21 PSG’s Sherman Act claims also require plausible allegations of market power. See Newcal 22 Indus., 513 F.3d at 1044 n. 3 (“The ‘relevant market’ and ‘market power’ requirements apply 23 identically under the two different sections of the Act, meaning that the requirements apply 24 identically to all six of [plaintiff’s] claims.”).3 Market power is demonstrated by a party’s “ability 25 suppliers located outside of PSG’s geographic market and requests judicial notice of documents 26 that purport to show PSG’s purchase of rebar from Washington, Nevada, Oregon, and Texas. CMC Mot. at 3-4, 9. The Court DENIES CMC’s request for judicial notice, Dkt. No. 41, because 27 CMC asks the Court to resolve a factual dispute through “judicial notice of disputed facts 1 to raise prices profitably by restricting output.” Am. Express Co., 138 S. Ct. at 2288 (citation 2 omitted). “Market power cannot be inferred solely from the existence of entry barriers and a 3 dominant market share.” Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d 1421, 1441 (9th Cir. 1995). 4 “The ability to control output and prices—the essence of market power—depends largely on the 5 ability of existing firms to quickly increase their own output in response to a contraction by the 6 defendant.” Id. 7 The Ninth Circuit has explained that “[w]hile market share is just the starting point for 8 assessing market power, . . . market share, at least above some level, could support a finding of 9 market power in the absence of contrary evidence.” Cost Mgmt. Servs., Inc. v. Wash. Nat. Gas 10 Co., 99 F.3d 937, 950-51 (9th Cir. 1996) (quoting Hunt–Wesson Foods, Inc. v. Ragu Foods, 11 Inc., 627 F.2d 919, 925 (9th Cir.1980)). “Where such an inference is not implausible on its face, 12 an allegation of a specific market share is sufficient, as a matter of pleading, to withstand a motion 13 for dismissal.” Id. (emphasis removed). 14 With respect to the rebar market, PSG “believes that CMC has accounted for 15 approximately 50% of the total rebar sold in the relevant market during the relevant time period.” 16 Compl. ¶ 111. CMC contends that this allegation is conclusory and below the threshold of 65% 17 market share generally required by courts. CMC Mot. at 7. The Ninth Circuit, however, has been 18 “reluctant to apply such bright-line rules regarding market share in deciding whether a defendant 19 has market power to restrict output or raise prices.” Rebel Oil, 51 F.3d at 1438 n.10. The Ninth 20 Circuit has advised courts to be “wary of the numbers game of market percentage,” and instead 21 consider relevant market factors including “market share, entry barriers and the capacity of 22 existing competitors to expand output.” Id. Given that the complaint includes allegations of 50% 23 market share and “[s]ubstantial barriers to entry . . . that make CMC’s market power durable,” 24 Compl. ¶¶ 71, 111-112, the Court finds that PSG has plausibly alleged CMC’s market power in 25 need not establish CMC’s market power. Opp. at 12-13. But the Supreme Court has made clear 26 that a market power analysis is required for antitrust claims based on vertical restraints. Am. Express, 138 S. Ct. at 2285 n.7 (“Vertical restraints often pose no risk to competition unless the 27 entity imposing them has market power, which cannot be evaluated unless the Court first defines 1 the rebar manufacturing market. 2 With respect to the Furnish-and-Install market, “PSG estimates that CMC Rebar’s market 3 share in each of the relevant markets has ranged between 15% and 30% during the relevant time 4 period.” Compl. ¶ 119. But a market share of somewhere between 15% and 30% does not appear 5 to be enough to establish market power. See Distance Learning Co. v. Maynard, No. 19-cv- 6 03801-KAW, 2020 WL 2995529, at *7 (N.D. Cal. June 4, 2020) (noting “the ‘gray area of the 7 law’ between the 30% and 65% thresholds identified by the Ninth Circuit.”). PSG disagrees and 8 cites three cases in support of its argument that market power can exist below 30% of market 9 share. Opp. at 14 (citing Twin City Sportservice, Inc. v. Charles O. Finley & Co., Inc., 676 F.2d 10 1291, 1301 (9th Cir. 1982); United States v. Visa U.S.A., Inc., 344 F.3d 229 (2nd Cir. 2003); Toys 11 “R” Us, Inc. v. F.T.C., 221 F.3d 928, 937 (7th Cir. 2000)). But none of those cases stand for the 12 proposition that a market share below 30%, standing alone, equates to market power. The court in 13 Twin City Sportservice “found unreasonable restraint of trade had been evidenced not only by 14 Sportservice’s 24 percent share of the relevant market, but also from its continuing pattern of 15 conduct that produced that market share,” including predatory franchise agreements. 676 F.2d at 16 1301 (emphasis added). The court in Visa U.S.A. found defendants had market power because 17 merchants “could not refuse to accept payment by Visa [47% market share] or MasterCard [26% 18 market share], even if faced with significant price increases, because of customer preference.” 19 344 F.3d at 239-40. And the court in Toys “R” Us found that defendant had market power not 20 because of its 20% market share but because of “direct evidence of anticompetitive effects.” 221 21 F.3d at 937. In short, market power can be plausibly alleged even with a low market share if other 22 anticompetitive factors are adequately alleged. 23 Here, PSG’s allegations regarding the Furnish-and-Install market are focused on state law 24 unfair practices claims rather than Sherman Act violations. Compl. ¶¶ 148-157. PSG does allege 25 that Defendants’ anticompetitive behavior in the rebar manufacturing market will result in loss of 26 access to a lower-cost supply of rebar for PSG’s Furnish-and-Install business, Id. ¶¶ 128, 133-134, 27 140-141, 146-147, but these allegations are conclusory and stem from alleged anticompetitive 1 PSG’s allegations as a whole, the Court finds that PSG has not plausibly alleged that CMC’s 2 market share of 15-30% coupled with other behavior establishes market power in the Furnish-and- 3 Install market. According, PSG’s Sherman Act claims against CMC in the Furnish-and-Install 4 market are DISMISSED WITH LEAVE TO AMEND. 5 iv. Danieli’s Market Power 6 As discussed above, “[i]n order to state a valid claim under the Sherman Act, a plaintiff 7 must allege that the defendant has market power within a ‘relevant market.’” Newcal Indus., 513 8 F.3d at 1044. But PSG does not allege that Danieli has market power in either the rebar 9 manufacturing market or the Furnish-and-Install market. See Compl. at 28-29, 31. Rather, 10 Danieli builds and supplies steel mills. Id. ¶ 22. 11 Still, PSG contends that a supplier that has entered into an anticompetitive vertical 12 agreement with a customer may be subject to antitrust liability for harm caused in the customer’s 13 downstream market, relying on Beech Cinema, Inc. v. Twentieth Century Fox-Film Corp., 622 14 F.2d 1106 (2d Cir. 1980), and similar cases. Opp. at 31. The Court finds that Beech Cinema and 15 the other cases cited by PSG are of limited persuasive value. In addition to being out of circuit 16 authority that is decades old, the cases relied upon by PSG do not squarely analyze whether a 17 supplier like Danieli can be held liable under the Sherman Act for anticompetitive behavior in a 18 market in which it does not participate. In the absence of clear authority to the contrary, the Court 19 will rely on Ninth Circuit precedent holding that “to state a valid claim under the Sherman Act, a 20 plaintiff must allege that the defendant has market power within a ‘relevant market.’” Newcal 21 Indus., 513 F.3d at 1044. PSG is not pleading that the market for steel mills is being restrained. 22 Rather, PSG is pleading that the rebar manufacturing and Furnish-and-Install markets are being 23 restrained. But Danieli is not a participant in those markets and is not alleged to have market 24 power within them. 25 Further, PSG’s arguments come close to implying that Danieli has an antitrust duty to deal 26 with PSG. As Danieli points out, PSG does not allege that it was barred from contracting with 27 another builder of steel mills, or with Danieli to build a different type of steel mill, such as a mini 1 contracting with Danieli for one specific type of steel mill, i.e. a micro mill, that it preferred at a 2 location of its choosing. “As the Supreme Court has repeatedly emphasized, there is ‘no duty to 3 deal under the terms and conditions preferred by [a competitor’s] rivals[.]” Qualcomm, 969 F.3d 4 at 993 (citations omitted). Likewise, “the Sherman Act ‘does not restrict the long recognized right 5 of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own 6 independent discretion as to parties with whom he will deal.’” Id. “This is because the antitrust 7 laws, including the Sherman Act, were enacted for the protection of competition, not competitors.” 8 Id. (citations and quotation marks omitted). The limited exception to the “general rule that there is 9 no antitrust duty to deal comes under the Supreme Court’s decision in Aspen Skiing Co. v. Aspen 10 Highlands Skiing Corp., 472 U.S. 585 (1985).” Id. The Ninth Circuit has explained that the 11 Aspen Skiing exception applies in limited circumstances where a company (1) “unilateral[ly] 12 terminat[es]. . .a voluntary and profitable course of dealing;” (2) “the only conceivable rationale or 13 purpose is ‘to sacrifice short-term benefits in order to obtain higher profits in the long run from the 14 exclusion of competition;’” and (3) “the refusal to deal involves products that the defendant 15 already sells in the existing market to other similarly situated customers.” Id. (citations omitted). 16 It may be that PSG is able to adequately allege facts supporting this exception, but it has not done 17 so in the current complaint. Accordingly, the Court DISMISSES WITH LEAVE TO AMEND 18 the claims against Danieli. 19 B. First Cause of Action: Conspiracy In Restraint Of Trade By CMC And Danieli In Violation Of The Sherman Act, Section 1 20 21 Section 1 of the Sherman Act prohibits “[e]very contract, combination . . . , or conspiracy, 22 in restraint of trade or commerce among the several States.” 15 U.S.C. § 1. The Supreme Court 23 has long held that, “the phrase ‘restraint of trade’ is best read to mean ‘undue restraint.’” Am. 24 Express Co., 138 S. Ct. at 2283. Therefore, “[t]o establish liability under § 1, a plaintiff must 25 prove (1) the existence of an agreement, and (2) that the agreement was in unreasonable restraint 26 of trade.” Aerotec Int’l, Inc. v. Honeywell Int’l, Inc., 836 F.3d 1171, 1178 (9th Cir. 2016) (citation 27 omitted). Because PSG’s Sherman Act claims against CMC in the Furnish-and-Install Market and 1 PSG has adequately alleged an unreasonable restraint of trade against CMC in the rebar 2 manufacturing market. 3 i. Existence Of An Agreement 4 The parties do not dispute that a contract exists between CMC and Danieli, and PSG’s 5 factual allegations are sufficient to establish an agreement. Therefore, the first element of a 6 Sherman Act Section 1 claim is satisfied. 7 ii. An Unreasonable Restraint of Trade 8 A restraint of trade may be found unreasonable under either a per se rule or the “rule of 9 reason” burden-shifting framework. Am. Express, 138 S. Ct. at 2283-2284. A minority of 10 restraints are found per se unreasonable because they “always or almost always tend to restrict 11 competition and decrease output. . . . Restraints that are not unreasonable per se are judged under 12 the ‘rule of reason.’” Id. (citation omitted). “The rule of reason requires courts to conduct a fact- 13 specific assessment of ‘market power and market structure . . . to assess the [restraint]’s actual 14 effect’ on competition.” Id. (citation omitted). 15 “Typically only ‘horizontal’ restraints—restraints ‘imposed by agreement between 16 competitors’—qualify as unreasonable per se.” Id. at 2284 (citation omitted). A common 17 example is price fixing. On the other hand, vertical restraints should nearly always be analyzed 18 under the rule of reason. Id.; see also Allied Orthopedic Appliances Inc. v. Tyco Health Care Grp. 19 LP, 592 F.3d 991, 996 (9th Cir. 2010) (“[A]n exclusive-dealing arrangement does not constitute a 20 per se violation of section 1.”). PSG contends that CMC and Danieli’s conduct is a per se 21 violation of federal and California state antitrust laws. Compl. ¶ 127. But the parties do not 22 dispute that the agreement at issue—establishing the micro-mill exclusivity zone—is vertical, and 23 PSG has not pled that CMC and Danieli agreed to set prices. See Rheumatology Diagnostics Lab., 24 Inc. v. Aetna, Inc., No. 12-cv-05847-WHO, 2014 WL 524076, at *9 (N.D. Cal. Feb. 6, 2014) (“A 25 vertical restraint of trade is not per se illegal under § 1 of the Sherman Act unless it includes some 26 agreement on price or price levels.” (quoting Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 27 717, 717 (1988))). PSG has not provided any other reason why the Court should analyze the 1 applies. 2 In its motion to dismiss, CMC argues that PSG fails to adequately allege that entry into the 3 rebar manufacturing market is foreclosed by the exclusivity zone, relying on caselaw that 4 addresses “exclusive-dealing” arrangements. CMC Mot. at 9-10. 12-14. In response, PSG argues 5 that it is not bringing an exclusive-dealing claim, such that market foreclosure is not at issue. 6 Opp. at 21. Rather, PSG argues that the relevant question is whether the contract restriction 7 constitutes “anticompetitive conduct.” Id. The Court finds this argument curious. It is true that 8 the CMC-Danieli exclusivity zone is not “an agreement between a vendor and a buyer that 9 prevents the buyer from purchasing a given good from any other vendor” and thus does not fit 10 squarely within the traditional definition of an exclusive-dealing relationship. See Allied 11 Orthopedic 592 F.3d at 996. But the “anticompetitive conduct” that PSG alleges is an exclusive 12 relationship between a provider of an essential input into a market, i.e. steel mills, and a customer. 13 See Compl. ¶ 110 (“CMC was able to exclude PSG by conspiring with the sole provider of the 14 technology PSG needs to profitably enter the market.”). And the harm alleged by PSG is 15 foreclosure from the rebar manufacturing market. Id. ¶ 100 (“Exclusive access not only 16 forecloses PSG’s entry into the relevant rebar manufacturing market, but blocks entry by other 17 potential competitors as well.”) (emphasis added). 18 Given that the harm alleged by PSG is market foreclosure due to an exclusive relationship 19 between a provider and its customer, the Court is not persuaded by PSG’s argument that the 20 authority on exclusive dealing and market foreclosure is irrelevant. On the contrary, the Court 21 finds that the contractual relationship at issue between CMC and Danieli is analogous enough to a 22 traditional exclusive-dealing relationship to make the precedent in that area helpful in analyzing 23 PSG’s allegations of anticompetitive conduct. See Omega Env’t, Inc. v. Gilbarco, Inc., 127 F.3d 24 1157, 1162 (9th Cir. 1997) (“The main antitrust objection to exclusive dealing is its tendency to 25 ‘foreclose’ existing competitors or new entrants from competition in the covered portion of the 26 relevant market during the term of the agreement.”). 27 “Under the antitrust rule of reason, an exclusive dealing arrangement violates Section 1 affected.’” Allied Orthopedic, 592 F.3d at 996. The Ninth Circuit has indicated that in analyzing 2 allegations of market foreclosure, courts are to consider alternative sources available to 3 competitors. Omega Env’t, 127 F.3d at 1162-63 (quoting with approval the proposition that the 4 “foreclosure calculation ‘includes the full range of selling opportunities reasonably open to rivals, 5 namely, all the product and geographic sales they may readily compete for, using easily 6 convertible plants and marketing organizations.’”).4 7 PSG claim that it is foreclosed from the rebar manufacturing market by the exclusivity 8 zone is undermined by PSG’s own factual allegations. The premise of PSG’s claim is that entry 9 into the rebar manufacturing market must be via a micro mill built by Danieli. See Compl. ¶¶ 5, 10 113, 126. In support, PSG alleges that “all three of the new mills CMC has built (or is building) 11 since 2009 are [micro] mills . . . as are both of the mills built recently by Nucor Corporation.” 12 Opp. at 4; Compl. ¶¶ 55-57, 98. But this, at best, suggests only that micro mills are preferable to 13 mini mills, not that mini mills are obsolete, or that “[t]he only commercially viable way for PSG to 14 enter the relevant rebar manufacturing market [is] to construct a micro mill.” Compl. ¶ 5 15 (emphasis added). 16 On the contrary, a necessary implication of PSG’s allegations is that other competitors are 17 operating successfully in the rebar manufacturing market without micro mills. For example, PSG 18 alleges that CMC controls 50% of the Los Angeles-based rebar manufacturing market even though 19 CMC is the only manufacturer in the region using a micro mill. Id. ¶ 111. Thus, accepting PSG’s 20 allegations as true, at least half of the market is being supplied by traditional or mini mills. CMC 21 itself uses mini mills and has purchased them quite recently: while it may be true that all of the 22 mills CMC has built recently are micro mills, CMC agreed to acquire four steel mills from Gerdau 23 in 2018, none of which are micro mills. Id. ¶ 69. PSG concedes that mini mills are “capable of 24 generating profits on rebar through cost control and advanced technology.” Id. ¶ 49. Finally, PSG 25 4 While the Ninth Circuit’s decision in Omega Environmental dealt with a claim under Section 3 26 of the Clayton Act, the Ninth Circuit has applied similar standards in Sherman Act cases and held that “a greater showing of anticompetitive effect is required to establish a Sherman Act violation 27 than a section three Clayton Act violation in exclusive-dealing cases.” Twin City Sportservice, 1 alleges that it is a superior competitor. Id. ¶ 62 (“PSG’s innovative and efficient operations and its 2 high performance standards yield superior performance and lower costs”). So, a reasonable 3 inference is that PSG could, like those companies already in the rebar market, compete using a 4 mini mill. 5 In short, PSG’s claim elides the difference between “the most efficient means of entry or 6 expansion—the MI.DA mill—” and the ability to enter the market at all. Id. ¶ 113. It may be true 7 that micro mills are highly efficient and an improvement on mini mills. Id. ¶ 52-60. Micro mills 8 can, for example, output directly to rebar rather than steel billets (which must later be crafted into 9 rebar); mini mills cannot. Id. But neither PSG’s allegations, nor reasonable inferences from them, 10 plausibly allege that building a micro mill with Danieli is the only way to enter the rebar 11 manufacturing market. Because PSG’s restraint of trade claim is based on its complete exclusion 12 from the rebar manufacturing market and because the facts alleged by PSG suggest that 13 manufacturing using mini mills is a viable means of competing in the market, the Court finds that 14 PSG has not adequately alleged an unreasonable restraint of trade.5 Accordingly, PSG’s 15 conspiracy in restraint of trade claim is DISMISSED WITH LEAVE TO AMEND. 16 C. Second Through Fourth Causes of Action: Monopolizations Claims In Violation Of The Sherman Act, Section 2 17 18 To establish liability under Section 2 of the Sherman Act, “a plaintiff must show: (a) the 19 possession of monopoly power in the relevant market; (b) the willful acquisition or maintenance 20 of that power; and (c) causal antitrust injury.” Qualcomm, 969 F.3d at 990 (quotation marks 21 omitted). 22 “‘Antitrust injury’ means ‘injury of the type the antitrust laws were intended to prevent and 23 that flows from that which makes defendants’ acts unlawful.’” Somers v. Apple, Inc., 729 F.3d 24 25 5 The Court notes that the exclusionary zone challenged by PSG centers on Rancho Cucamonga, 26 California and not Mesa, Arizona, the site of the planned CMC micro mill. While certainly revealing with respect to CMC’s motives, this fact does not obviate the need for PSG to plausibly 27 allege all necessary elements of its Sherman Act claims. Additionally, even if CMC had opted to 1 953, 963 (9th Cir. 2013). Essentially, PSG must adequately allege that its loss “flows from 2 an anticompetitive aspect or effect of” Defendants’ behavior. Pool Water Prods. v. Olin Corp., 3 258 F.3d 1024, 1034 (9th Cir. 2011). “‘If the injury flows from aspects of the defendant’s conduct 4 that are beneficial or neutral to competition, there is no antitrust injury, even if the defendant’s 5 conduct is illegal per se.’” Id. A causal link between a plaintiff’s injuries and a defendant’s 6 actions alone is not enough to sustain an antitrust claim. See Cascade Health Sols. v. 7 PeaceHealth, 515 F.3d 883, 902 (9th Cir. 2008). 8 PSG alleges that competition in the rebar manufacturing market has been harmed in a 9 number of ways: PSG claims that it would have been a “a lower-cost producer with the ability and 10 incentive to price below the market and spur greater price competition” had it entered the rebar 11 manufacturing market; that “additional production capacity and output and the resulting additional 12 competition is excluded from the market”; and that “other potential entry into the relevant rebar 13 manufacturing market is foreclosed.” Compl. ¶ 126. But the only basis upon which PSG rests 14 these claims is the allegation that “[t]he only commercially viable way for PSG to enter the 15 relevant rebar manufacturing market [is] to construct a micro mill.” Id. ¶ 5 (emphasis added). As 16 discussed above, PSG’s allegations, and reasonable inferences drawn from them, do not 17 adequately foreclose the possibility that PSG or other competitors could enter the rebar market 18 using mini mills rather than a micro mill built by Danieli, which is the only type of steel mill 19 affected by the alleged anticompetitive conduct. 20 PSG also claims personal injuries, asserting that, since it is barred from the rebar 21 manufacturing market, “it will lose sales of rebar and the profits thereon; and . . . [it] is losing 22 access to a lower-cost supply of rebar for its rebar Furnish-and-Install business.” Compl. ¶ 134. 23 Setting aside the issue of whether PSG is in fact barred from the rebar manufacturing market, 24 injuries to a competitor that do not also harm competition are not grounds for antitrust claims. See 25 Qualcomm, 969 F.3d at 993 (explaining that “the antitrust laws, including the Sherman Act, were 26 enacted for the protection of competition, not competitors” and therefore the Sherman Act 27 generally “does not restrict the long recognized right of [a] trader or manufacturer engaged in an 1 whom he will deal.”); Paladin Assocs., Inc. v. Montana Power Co., 328 F.3d 1145, 1158 (9th Cir. 2 2003) (“Where the defendant’s conduct harms the plaintiff without adversely affecting 3 competition generally, there is no antitrust injury.”). 4 To that end, competition may be promoted rather than harmed by vertical agreements, like 5 the ones at issue here, because they have “potential to stimulate interbrand competition, ‘the 6 primary concern of antitrust law.’” Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 724 7 (1988). And PSG, as a purchaser of rebar, may in fact be helped by this interbrand competition if 8 it results in lower priced rebar available from CMC. See Atlantic Richfield Co. v. USA Petroleum 9 Co., 495 U.S. 328, 329 (1990) (finding that plaintiff did not suffer antitrust injury in part because 10 the alleged conspiracy would have worked to its advantage). That said, vertical restraints certainly 11 can injure competition when they “foreclose competitors from entering or competing in a market.” 12 Brantley v. NBC Universal, Inc., 675 F.3d 1192, 1198-1200 (9th Cir. 2012). But, again, PSG has 13 not adequately pled that it has been prevented from entering the rebar manufacturing market. 14 In short, because PSG’s has not adequately pled causal antitrust injury, its monopolization 15 claims are DISMISSED WITH LEAVE TO AMEND. 16 D. Fifth Through Eighth Causes of Action (State Law Claims) 17 A district court may decline to exercise supplemental jurisdiction if it has dismissed all 18 claims over which it has original jurisdiction. Sanford v. MemberWorks, Inc., 625 F.3d 550, 561 19 (9th Cir. 2010) (citing 28 U.S.C. § 1367(c)(3)). “[I]n the usual case in which all federal-law 20 claims are eliminated before trial, the balance of factors to be considered under the pendent 21 jurisdiction doctrine—judicial economy, convenience, fairness, and comity—will point toward 22 declining to exercise jurisdiction over the remaining state-law claims.” Id. (citation and internal 23 quotations omitted). 24 PSG alleges that the Court has subject matter jurisdiction over the federal claims and 25 supplemental jurisdiction over the state claims. Compl. ¶ 11. Having dismissed all the federal 26 claims, the Court, in its discretion, declines to assert supplemental jurisdiction over the remaining 27 state law claims unless and until PSG can state a valid federal claim. Accordingly, PSG’s state 1 state law claims) in any amended complaint. 2 || IV. CONCLUSION 3 The Court GRANTS Defendants’ motions to dismiss with LEAVE TO AMEND.°® Dkt. 4 || Nos. 39, 40. Plaintiff may not add any new causes of action or defendants to an amended 5 complaint, and any amended complaint must be filed within 21 days from the date of this Order. 6 IT IS SO ORDERED. 7 || Dated: 5/21/2021 8 Alaupwred 5 HAYWOOD S. GILLIAM, JR. 9 United States District Judge 10 11 12

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Z 18 19 20 21 22 23 24 25 26 27 IP 28 ®° The Court also DENIES AS MOOT Defendants’ motion to stay discovery pending the Court’s decision on Defendants’ motion to dismiss. Dkt. No. 49.