Tundra, Inc. v. Faire Wholesale, Inc.

Background

Faire Wholesale, Inc. operates an online wholesale marketplace connecting retailers and brands. Tundra, Inc., described in the opinion as another online wholesale marketplace and a competitor, alleged that Faire monopolized, attempted to monopolize, and restrained trade in a relevant market. Tundra also alleged unfair competition under California law and tortious interference with contractual relations.

Tundra’s main theory concerned a “No Circumvention” provision in Faire’s Terms of Service. Tundra alleged that, after a brand completed an order with a retailer through Faire, the brand could not do business with that retailer outside Faire, including through another online marketplace or offline. Tundra characterized the provision as an exclusive-dealing arrangement lasting indefinitely. It also alleged that Faire required brands to list their entire catalogs, used commission waivers and withheld payments to enforce its policies, targeted Tundra brands, and interfered with Tundra’s Wholesale Co-op Platform.

The court had previously dismissed Tundra’s original complaint under Federal Rule of Civil Procedure 12(b)(6) for failing to adequately allege a relevant market. Tundra then filed the first amended complaint, asserting: (1) monopolization under Section 2 of the Sherman Act; (2) attempted monopolization under Section 2; (3) unreasonable restraint of trade under Section 1; (4) violation of California’s Unfair Competition Law; and (5) tortious interference with contractual relations.

Faire’s Motion

Faire moved to dismiss the amended complaint on three grounds: failure to allege a relevant product market, failure to allege anticompetitive conduct, and failure of the tortious-interference claim as derivative. The court focused its analysis on whether Tundra adequately alleged anticompetitive conduct.

A Rule 12(b)(6) motion tests whether a complaint states a legally sufficient claim. The court generally accepts well-pleaded factual allegations as true but need not accept legal conclusions unsupported by facts. The complaint must contain enough factual content to make liability plausible.

Court’s Analysis

The court explained that exclusive dealing is an agreement between a vendor and buyer that prevents the buyer from purchasing a product from another vendor. Such arrangements are not automatically illegal. Under the rule of reason, an exclusive-dealing arrangement violates the Sherman Act only if it substantially forecloses competition in the affected market. The court noted that agreements that can be terminated easily and on short notice generally do not substantially foreclose competition.

The court held that Tundra failed to plausibly allege an anticompetitive exclusive-dealing arrangement. The Terms of Service incorporated into the complaint included a termination provision allowing brands to terminate their accounts at any time, for any reason, and with immediate effect. The court concluded that this easy termination substantially undermined Tundra’s theory that the policy created perpetual exclusivity.

Tundra also argued for a “de facto” exclusive-dealing theory, meaning an arrangement that functions as exclusive dealing even if it does not expressly require exclusivity. The court stated that the Ninth Circuit had not broadly recognized that theory, except in limited situations involving discounts or rebates conditioned on exclusivity or on purchasing a specified quantity or market share. The court found that Tundra had not alleged requirements terms, volume or market-share targets, long-term contracts, discounts, rebates, or comparable coercive provisions. It therefore held that Tundra’s de facto exclusive-dealing theory failed as a matter of law.

The court also rejected Tundra’s attempts to supplement its theory with Faire’s entire-catalog policy, alleged enforcement actions, threats, penalties, and alleged threats of litigation. The court found that Tundra had not shown how the entire-catalog policy changed the alleged exclusivity arrangement and treated the alleged enforcement conduct as contractual enforcement. It further stated that threats of litigation could not support an antitrust claim without unusual circumstances that Tundra had not alleged.

Because the antitrust claims lacked adequately alleged anticompetitive conduct, the court granted Faire’s motion to dismiss Tundra’s Sherman Act claims. The opinion also states that Tundra conceded its tortious-interference claim could not survive if the antitrust theory failed.

Disposition

Judge Araceli Martinez-Olguin granted Defendant Faire’s motion to dismiss with prejudice. The court dismissed the action without leave to amend, and the clerk was directed to close the file.