Tundra, Inc. v. Faire Wholesale, Inc.

• Court: District Court, N.D. California
• Decided: February 25, 2025
• Docket: 3:23-cv-02513
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 TUNDRA, INC., Case No. 23-cv-02513-AMO

8 Plaintiff, ORDER GRANTING 9 v. MOTION TO DISMISS

10 FAIRE WHOLESALE, INC., Re: Dkt. No. 96 Defendant. 11

12 13 Defendant Faire Wholesale, Inc.’s Motion to Dismiss the First Amended Complaint 14 (“FAC”) was heard before this Court on November 13, 2024. Having read the papers filed by the 15 parties and carefully considered their arguments therein and those made at the hearing, as well as 16 the relevant legal authority, the Court hereby GRANTS Defendant’s Motion for the following 17 reasons. 18 I. BACKGROUND 19 Defendant Faire Wholesale, Inc. (“Faire”; formerly known as “Indigo Fair”) hosts an 20 online wholesale marketplace that connects Retailers with Brands. FAC (ECF 73) ¶ 25. Plaintiff 21 Tundra, Inc., is another online wholesale marketplace and a competitor to Faire. FAC ¶ 25. 22 Tundra purports that it developed an innovative business model that provides essentially the same 23 service as Faire but without charging commissions, instead relying primarily upon paid platform- 24 based advertising to generate revenue. FAC ¶ 25. 25 Tundra alleges that Faire monopolizes, attempts to monopolize, and restrains trade in the 26 supposed relevant market. Primarily, Tundra alleges that a clause in Faire’s Terms of Service with 27 Brands creates an exclusive dealing arrangement. FAC ¶¶ 28, 49. The Terms of Service with 1 marketplace, the Brand is contractually prohibited from doing business with the Retailer ‘in any 2 manner’ other than on Faire.” FAC ¶ 49. Tundra characterizes this provision as a perpetual 3 ratchet that locks Brands and Retailers exclusively into Faire’s platform “for all time.” FAC ¶ 50. 4 In addition to this principal exclusive dealing claim, Tundra alleges a range of 5 anticompetitive or tortious behaviors. Tundra alleges that Faire requires Brands to list their entire 6 catalogs on Faire (FAC ¶ 54); that it uses commission waivers and withholding of payments to 7 enforce the exclusivity provision (FAC ¶¶ 55-56); that it “targets Tundra Brands” (FAC ¶¶ 61-62); 8 and that it “attack[ed]” Tundra’s new Wholesale Co-op Platform in a variety of ways (FAC ¶¶ 63- 9 65). 10 Tundra initiated this lawsuit by complaint filed on May 23, 2023. ECF 1. In its 11 February 13, 2024 Order, the Court dismissed Tundra’s Complaint under Rule 12(b)(6) for failing 12 to adequately allege a proper relevant market in support of Tundra’s several antitrust claims. ECF 13 71. The FAC alleges the same causes of action as alleged in the original Complaint: 14 1. Monopolization under Title 15 U.S.C. § 2, 15 2. Attempted monopolization under Title 15 U.S.C. § 2, 16 3. Unreasonable restraint of trade under Title 15 U.S.C. § 1, 17 4. Unfair Competition under California Business & Professions Code § 17200, and 18 5. Tortious interference with contractual relations. 19 See ECF 73. 20 II. DISCUSSION 21 Faire moves to dismiss the FAC on three bases: (1) failure to allege a relevant product 22 market, (2) failure to allege facts showing an anticompetitive restraint, and (3) failure of the 23 tortious interference claim as derivative. After setting forth the legal standard for a motion to 24 dismiss, the Court focuses its analysis on the sufficiency of Tundra’s allegations regarding 25 anticompetitive conduct.1 26 27 1 A. Legal Standard 2 A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests for the legal 3 sufficiency of the claims alleged in the complaint. Ileto v. Glock, 349 F.3d 1191, 1199-1200 (9th 4 Cir. 2003). Under Federal Rule of Civil Procedure 8, which requires that a complaint include a 5 “short and plain statement of the claim showing that the pleader is entitled to relief,” Fed. R. Civ. 6 P. 8(a)(2), a complaint may be dismissed under Rule 12(b)(6) if the plaintiff fails to state a 7 cognizable legal theory, or has not alleged sufficient facts to support a cognizable legal theory. 8 Somers v. Apple, Inc., 729 F.3d 953, 959 (9th Cir. 2013). 9 While the court is to accept as true all the factual allegations in the complaint, legally 10 conclusory statements, not supported by actual factual allegations, need not be accepted. Ashcroft 11 v. Iqbal, 556 U.S. 662, 678-79 (2009). The complaint must proffer sufficient facts to state a claim 12 for relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 558-59 13 (2007) (citations and quotations omitted). “A claim has facial plausibility when the plaintiff 14 pleads factual content that allows the court to draw the reasonable inference that the defendant is 15 liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citation omitted). “[W]here the well- 16 pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the 17 complaint has alleged – but it has not ‘show[n]’ – that the pleader is entitled to relief.” Id. at 679. 18 Review is generally limited to the contents of the complaint, although the court can also 19 consider a document on which the complaint relies if the document is central to the claims asserted 20 in the complaint, and no party questions the authenticity of the document. See Sanders v. Brown, 21 504 F.3d 903, 910 (9th Cir. 2007). The court may consider matters that are properly the subject of 22 judicial notice, Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005); Lee v. City of Los Angeles, 23 250 F.3d 668, 688-89 (9th Cir. 2001), and may also consider documents referenced extensively in 24 the complaint and documents that form the basis of the plaintiffs’ claims. See No. 84 Emp’r- 25 Teamster Jt. Council Pension Tr. Fund v. Am. W. Holding Corp., 320 F.3d 920, 925 n.2 (9th Cir. 26 2003). If dismissal is warranted, it is generally without prejudice, unless it is clear that the 27 complaint cannot be saved by any amendment. Sparling v. Daou, 411 F.3d 1006, 1013 (9th Cir. 1 B. Anticompetitive Conduct 2 Tundra asserts antitrust claims for monopolization and attempted monopolization in 3 violation of Section 2 of the Sherman Act (Counts 1 and 2), an unreasonable restraint of trade in 4 violation of Section 1 of the Sherman Act (Count 3), and a violation of California’s Unfair 5 Competition Law (Count 4, “UCL”). As acknowledged at the hearing, all these claims require a 6 showing of anticompetitive conduct. Tundra avers that it sufficiently alleges anticompetitive 7 conduct in the form of exclusive dealing. 8 “Section 1 of the Sherman Act, 15 U.S.C. § 1, prohibits [e]very contract, combination . . . 9 or conspiracy, in restraint of trade or commerce among the several States.” Allied Orthopedic 10 Appliances, Inc. v. Tyco Health Care Grp. LP, 592 F.3d 991, 996 (9th Cir. 2010). From this 11 language, the Supreme Court “has long recognized that Congress intended to outlaw only 12 unreasonable restraints.” State Oil Co. v. Khan, 522 U.S. 3, 10 (1997). “To establish liability 13 under § 1, a plaintiff must prove (1) the existence of an agreement, and (2) that the agreement was 14 an unreasonable restraint of trade.” Aerotec Int’l, Inc. v. Honeywell Int’l, Inc., 836 F.3d 1171, 15 1178 (9th Cir. 2016). An agreement is an unreasonable restraint of trade if defendant “plays 16 enough of a role in [the relevant] market to impair competition significantly” and the challenged 17 agreement “is the type that restrains trade.” Bhan v. NME Hosps., Inc., 929 F.2d 1404, 1413 (9th 18 Cir. 1991). 19 “Exclusive dealing,” the restraint of trade alleged here, “involves an agreement between a 20 vendor and a buyer that prevents the buyer from purchasing a given good from any other vendor.” 21 Fed. Trade Comm’n v. Qualcomm Inc., 969 F.3d 974, 1003 (9th Cir. 2020) (quoting Allied 22 Orthopedic, 592 F.3d at 996). Courts have long held that exclusive dealing arrangements are not 23 per se illegal because “[t]here are ‘well-recognized economic benefits to exclusive dealing 24 arrangements, including the enhancement of interbrand competition.’ ” Allied Orthopedic, 592 25 F.3d at 996 (quoting Omega Envtl., Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1162 (9th Cir. 1997)). 26 An exclusive dealing arrangement only violates the Sherman Act under the rule of reason if “its 27 effect is to ‘foreclose competition in a substantial share of the line of commerce affected.’ ” Id. at 1 dealing agreements do not result in substantial foreclosure of the relevant market where they can 2 be terminated easily and on short notice. Allied Orthopedic, 592 F.3d at 997 (“The ‘easy 3 terminability’ of an exclusive dealing arrangement ‘negate[s] substantially [its] potential to 4 foreclose competition.’ ”) (citation omitted); Western Parcel, 190 F.3d at 976 (finding that 5 exclusive contracts did not hinder competition because, among other things, “the challenged 6 contracts had termination provisions that allowed a customer to terminate the contract for any 7 reason with very little notice”); Omega Envtl., 127 F.3d at 1163-64 (“the short duration and easy 8 terminability of these agreements negate substantially their potential to foreclose competition”); 9 PNY Tech., Inc. v. SanDisk Corp., 2014 WL 2987322, at *4 (N.D. Cal. 2014) (dismissing 10 exclusive dealing claims where the “short duration and easy terminability” of the exclusivity 11 commitment “negate substantially their potential to foreclose competition”). 12 Tundra alleges that Faire engages in anticompetitive conduct by enforcing a “No 13 Circumvention” policy in its Terms, characterizing the policy as “an exclusive dealing 14 requirement of indefinite duration” (FAC ¶ 28) that operates “for all time” and “forever” (FAC 15 ¶ 50). Tundra describes the “No Circumvention” policy as follows: “once a Brand completes any 16 order with a Retailer on Faire’s marketplace, the Brand is contractually prohibited from doing 17 business with the Retailer ‘in any manner’ other than on Faire – meaning that the Brand cannot 18 transact with the same Retailer on any other competing online wholesale marketplace, and 19 likewise cannot do business with the Retailer offline.” FAC ¶ 49.2 Tundra asserts this exclusivity 20 21

22 2 The “No Circumvention” clause reads,

23 No Circumvention. Once an order has been placed through your Shop Page by a Retailer, you agree that you will fulfill all orders 24 placed by such Retailer through the Services. You further agree to not influence Retailers to transact offline outside of the Services in 25 any manner, or otherwise circumvent Faire’s process in order to transact orders with Retailers who were introduced to you through 26 the Services offline or outside of the Services in any manner. Faire reserves the right to deactivate or terminate your account if you fail 27 to abide by these terms. 1 prohibition operates to prohibit Brands and Retailers “from ever doing business together ‘in any 2 manner’ offline.” FAC ¶ 50. 3 Faire argues that, as long as a contract provides that it “can be terminated easily and on 4 short notice, the contract does not result in substantial foreclosure of the relevant market.” Mot. at 5 12 (citing Allied Orthopedic, 592 F.3d at 997). Because the Terms of Service at issue can be 6 terminated easily and on short notice, Faire reasons, these agreements cannot support any of 7 Tundra’s claims for anticompetitive conduct based on exclusive dealing. Id. Tundra argues in 8 response that Faire establishes de facto exclusive dealing arrangements with Brands and Retailers 9 through the “No Circumvention” policy enshrined in its Terms and that “de facto exclusive 10 dealing claims are cognizable under the antitrust laws.” Opp. at 15 (quoting ZF Meritor, LLC v. 11 Eaton Corp., 696 F.3d 254, 270 (3d Cir. 2012)). 12 The Ninth Circuit, however, has not “explicitly recognized a ‘de facto’ exclusive dealing 13 theory like that recognized in the Third Circuit and Eleventh Circuit.” See Aerotec Int’l, Inc. v. 14 Honeywell Int’l, Inc., 836 F.3d 1171, 1182 (9th Cir. 2016); ZF Meritor, 696 F.3d at 282 n.14; 15 McWane, Inc. v. Federal Trade Commission, 783 F.3d 814, 833-35 (11th Cir. 2015). Instead, the 16 Ninth Circuit recognizes that “[i]n certain limited situations, discounts and rebates conditioned on 17 a promise of exclusivity or on purchase of a specified quantity or market share of the seller’s 18 goods or services may be understood as ‘de facto’ exclusive dealing contracts because they coerce 19 buyers into purchasing a substantial amount of their needs from the seller.” Aerotec, 836 F.3d at 20 1182 (citing XI Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶¶ 1807b1-2 (3d ed. 21 2011)). 22 Here, Tundra fails to plausibly allege an anticompetitive exclusive dealing arrangement. 23 On this record, including the No Circumvention and Termination contractual provisions 24 incorporated by reference, Faire’s Terms are easily terminable by either side at any time. For 25 example, Clause 18 of Faire’s Brand Terms of Service, the “Termination” provision, permits 26 Brands to terminate their accounts at any time, for any reason, and with immediate effect. Brand 27 Terms of Service, Clause 18 (ECF 97-1 at 11) (“You may terminate your relationship with Faire at 1 down your Shop Page as soon as practicable and will close your Brand Account once there has 2 been an accounting of all monies due and owing.”). Tundra does not provide any authority 3 suggesting that this exclusivity towards both sides of the marketplace is somehow different from 4 the long line of cases finding that exclusive dealing agreements do not result in substantial 5 foreclosure of the relevant market where they can be terminated easily and on short notice. See 6 Allied Orthopedic, 592 F.3d at 996 (“The ‘easy terminability’ of an exclusive dealing arrangement 7 ‘negate[s] substantially [its] potential to foreclose competition.’ ” (quoting Omega, 127 F.3d at 8 1163-64)). 9 Tundra asks the Court to permit a theory of de facto exclusive dealing to proceed based on 10 the limited options for Brands and Retailers to connect with each other after the two entities have 11 both departed the platform. Tundra avers that the two-way No Circumvention precludes former 12 Faire Brands from contracting with former Faire Retailers so long as either one remains on the 13 platform, and this creates a de facto exclusivity arrangement in which Brands and Retailers are 14 forever obligated to transact exclusively through Faire once they make a connection through Faire. 15 However, such perpetuity is plainly contradicted by the Termination provision in the Terms of 16 Service that underlie Tundra’s Complaint. See Brand Terms of Service, Clause 18. Further, these 17 allegations do not reflect any of the hallmarks of de facto exclusive dealing, even if that theory 18 were more clearly cognizable in this Circuit. The FAC does not present any allegations that would 19 support a claim of exclusivity, e.g., “requirements terms, . . . volume or market share targets, or 20 long-term contracts that prevent meaningful competition by taking potential purchasers off the 21 market.” Aerorec Int’l, 836 F.3d at 1181 (citations omitted). Nor does the FAC present any 22 allegations regarding the other conditions, such as discounts or rebates, that would permit finding 23 a de facto exclusive dealing arrangement. Id. at 1182 (“In certain limited situations, discounts and 24 rebates conditioned on a promise of exclusivity or on purchase of a specified quantity or market 25 share of the seller’s goods or services may be understood as ‘de facto’ exclusive dealing contracts 26 because they coerce buyers into purchasing a substantial amount of their needs from the seller.”). 27 The Terms at issue here simply do not include any such coercive provisions. Tundra accordingly 1 absence of the coercive circumstances necessary to support such a theory in the Ninth Circuit, 2 Tundra’s claim of de facto exclusive dealing fails as a matter of law. Aerotec, 836 F.3d at 1182. 3 In an effort to supplement this deficient theory, Tundra contends that “Faire supplements 4 its exclusive dealing contracts through other anticompetitive behavior and policies” such as 5 “aggressive threats, penalties, and enforcement actions,” Faire’s Entire Catalog policy, and 6 “illegal, abusive threats of litigation toward brands and retailers who seek to do business with its 7 competitors.” Opp. at 20. However, Tundra fails to establish how the Entire Catalog policy 8 (requiring Brands to offer their entire catalog of products for sale on the platform, not piecemeal) 9 alters the exclusivity arrangement at all. See Thompson Everett, Inc. v. National Cable Ad., L.P., 10 850 F. Supp. 470, 476 n.4 (1994) (“[a]n exclusive distributorship typically provides a distributor 11 with the right to be the exclusive outlet for a manufacturer’s products or services in a given 12 geographic area”) (citation omitted)). And while Tundra charges that Faire “openly and 13 aggressively polices compliance with its policies, terms, and conditions” such that any Brand or 14 Retailer deviating from Faire’s contractual restrictions is “forever barred from using Faire’s 15 platform,” (see FAC ¶ 31), such conduct appears to be mere contractual enforcement. Indeed, any 16 threats of litigation by Faire cannot serve as the basis of an antitrust claim absent unusual 17 circumstances that Tundra does not allege here. Professional Real Estate Investors, Inc. v. 18 Columbia Pictures Indus., Inc., 508 U.S. 49, 60-61 (1993) (holding that the assertion of claims in 19 litigation is protected from antitrust challenge unless plaintiff can show that claims were 20 objectively baseless and subjectively intended to interfere directly with a competitor). Overall, 21 none of these assertions meet the prevailing legal standards to allege actionable anticompetitive 22 conduct in the form of exclusive dealing. The Court accordingly finds that the antitrust claims 23 based on the exclusive dealing agreements fall short, and the Court therefore GRANTS Faire’s 24 motion to dismiss Tundra’s Sherman Act antitrust claims.3 25 26

27 3 Tundra concedes that its common law claim for tortious interference cannot survive if Tundra 1 || CONCLUSION 2 For the foregoing reasons, including that Tundra’s theory of de facto exclusive dealing 3 fails as a matter of law, the Court GRANTS Defendant Faire’s Motion to Dismiss with prejudice. 4 || The Court hereby DISMISSES the action without leave to amend. The Clerk of Court shall close 5 the file in this matter. 6 7 IT ISSO ORDERED. 8 Dated: February 25, 2025 9 - □□ 10 : ARACELI MARTINEZ-OLGUIN I United States District Judge a 12

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