Choker v. Pet Emergency Clinic PS

[1] 2 FILED IN THE U.S. DISTRICT COURT EASTERN DISTRICT OF WASHINGTON [3] Mar 11, 2021 [4] SEAN F. MCAVOY, CLERK [5] 6 UNITED STATES DISTRICT COURT 7 EASTERN DISTRICT OF WASHINGTON [8] 9 DRU CHOKER, D.V.M., and MATTHEW 10 DEMARCO, D.V.M., No. 2:20-CV-00417-SAB 11 Plaintiffs, 12 v. ORDER DENYING MOTIONS 13 PET EMERGENCY CLINIC, P.S., by and TO DISMISS 14 through its Board of Directors, and 15 NATIONAL VETERINARY 16 ASSOCIATES, INC., acting on its own 17 behalf and that of NVA PARENT, INC., 18 Defendants. [19] 20 The Court held a motion hearing in the above-captioned matter on March 5, 21 2021 via video conference. Plaintiffs were represented by Mary Schultz, who 22 appeared by video conference. Defendant Pet Emergency Clinic (“PEC”) was 23 represented by Nicholas Pyle, Geoffrey Swindler, and David Lundsgaard, all of 24 whom appeared by video conference; Mr. Pyle presented arguments on behalf of 25 PEC. Defendant National Veterinary Associates (“NVA”) was represented by 26 James McPhee, who appeared by video conference. 27 During the hearing, the Court heard oral argument on Defendant NVA’s 28 Motion to Dismiss Pursuant to Fed. R. Civ. P. 12(b)(6), ECF No. 13, and both 1 Defendants’ Motion to Dismiss, ECF No. 16. Defendant NVA argues the Court 2 should dismiss wrongful termination and breach of contract claims because NVA 3 was neither Plaintiffs’ employer nor party to any of the contracts Plaintiffs alleged 4 were breached. Both Defendants argue Plaintiffs failed to state cognizable, 5 plausible antitrust claims and that the Court should also decline supplemental 6 jurisdiction over Plaintiffs’ pendent state law claims. The Court took both motions 7 under advisement at the close of the hearing. Having reviewed the briefing and 8 applicable case law and having heard from the parties, the Court denies both 9 motions to dismiss. 10 Facts 11 The Court pulls the following facts from Plaintiffs’ Complaint, ECF No. 1, 12 and are assumed to be true for purposes of this motion. 13 Plaintiffs are both veterinarians and former employees of Defendant PEC. 14 Dr. Choker was a veterinarian with PEC and a PEC shareholder from December 15 2002 until December 31, 2017. Dr. DeMarco was a veterinarian with PEC and a 16 PEC shareholder from May 2005 through December 31, 2017. Both Dr. Choker 17 and Dr. DeMarco were fired after they refused to sign new employment 18 agreements that contained restrictive terms, including covenants not to compete 19 and mandatory referral agreements. Plaintiffs are now owners and operators of an 20 emergency veterinary services hospital in Coeur d’Alene, Idaho. Defendant PEC is 21 an emergency animal services center located in Spokane, Washington. PEC is 22 composed of over 50 shareholder veterinarians in the Spokane area. Defendant 23 NVA is a national corporation owned by a German parent company—JAB Holding 24 Co.—that “consolidates” local veterinary practices. Defendant NVA is currently 25 under monitoring by the Federal Trade Commission and a consent order in 26 connection with attempted mergers in cross-state border markets in North and 27 South Carolina and Connecticut and New York, respectively, as well as an 28 intrastate market in Virginia in 2020. ECF No. 1 at ¶¶ 4.13-4.14. The claims here 1 arise out of Defendant NVA and PEC’s merger negotiations in 2018, although the 2 merger did not go through and was abandoned in summer 2018. 3 In general, Plaintiffs argue that Defendants violated federal antitrust laws 4 and Washington State law when it entered into a series of agreements and contracts 5 with each other and with PEC shareholder veterinarians in an attempt to “parlay 6 into a regional monopoly in the delivery of emergency veterinary services.” ECF 7 No. 1 at ¶ 1.2. They argue Defendants’ monopoly goal required that they be fired 8 as PEC veterinarians and ejected from the Spokane/Post Falls area as competitors 9 in the provision of emergency veterinarian services. Id. ¶¶ 1.2-1.3. They allege 10 Defendants sought to create a closed network, with PEC as the emergency hospital 11 hub, plus two specialty practices in surgical services and radiology, and over 50 12 “feeder” veterinarian practices whose owners would be mandated to refer all 13 customers to the merged NVA/PEC entity. Id. at ¶ 1.3. Plaintiffs allege the closed 14 system would have created an effective monopoly and prevented competition 15 because other emergency animal services providers would be unable to develop a 16 customer base and sustain themselves. Id. 17 Plaintiffs allege that, in late 2016, Defendant NVA was contacted by Dr. 18 Joseph Harari—a veterinary surgical services provider—and Dr. Jeffrey Siems—a 19 veterinary radiology provider—about purchasing their respective practices. Id. at 20 ¶ 1.13. Dr. Harari and Dr. Siems were tenants in PEC’s facility in Spokane, 21 Washington. Id. Plaintiffs allege that, through these invitations and ensuing 22 negotiations with Dr. Harari and Dr. Siems, NVA targeted PEC itself as part of its 23 intended “roll-up” acquisition package. Id. Plaintiffs argue that PEC was a unique 24 emergency care animal hospital from which a monopoly could emerge by virtue of 25 (1) the acquisition and consolidation of the two corporations and (2) non26 competition and referral restraints on those services. Id. at ¶¶ 1.14-1.15. Plaintiffs 27 argue that Dr. Hariri and Dr. Siemes, who became president of PEC’s Board of 28 Directors during the relevant time period, facilitated the anti-competitive practices 1 alleged herein. Id. at ¶ 4.50. Plaintiffs allege that NVA eventually began 2 negotiating directly with PEC’s Board of Directors regarding a possible merger. Id. 3 at ¶ 4.52. 4 Plaintiffs allege Defendant PEC is a “willing accomplice” to NVA’s anti5 competitive plan. Id. at ¶ 1.16. Plaintiffs allege there are five “essential 6 agreements” that were made towards achieving this monopoly goal: 7 • Defendant PEC would impose “maximum” anti-competitive restraints 8 on Plaintiffs and all of its employed veterinarians in preparation for 9 the merger with NVA, including non-compete agreements, non10 solicitation agreements, and mandatory referral agreements; 11 • Veterinarians who refused those restraints would be terminated; 12 • Plaintiffs, who did refuse those restraints, were terminated; 13 • Defendants jointly used the “coercive power” of Plaintiffs’ stock in 14 PEC to deprive them from creating any competing practice in the 15 region, including in Idaho; and 16 • Defendants jointly used the “coercive power” of the combined stock 17 of PEC’s over 50 outlying veterinarians in the Eastern Washington 18 area to force Plaintiffs from creating or sustaining competition for 19 veterinarian services throughout the Eastern Washington/Northern 20 Idaho region. 21 Id. Plaintiffs argue that these agreements were intended to and did prevent 22 Plaintiffs from contemplating or initiating competition against both Defendants in 23 the Eastern Washington/Northern Idaho cross-border market. Id. at ¶ 1.17. They 24 allege they were driven from Spokane and Post Falls to Coeur d’Alene, which they 25 allege is outside of Defendants’ intended cross-border restricted region. Id. 26 Plaintiffs also allege that these agreements were made as part of Defendants’ 27 proposed merger, as documented in a May 2018 letter of intent that included terms 28 of sales. Id. at ¶¶ 4.77-4.103. However, Plaintiffs allege that Defendants suspended 1 the finalization of this agreement after they filed a lawsuit alleging unfair business 2 practices in Spokane County Superior Court in August 2018. Id. at ¶ 4.107. They 3 allege the negotiations are still suspended, but the danger of Defendants’ intended 4 monopoly continues to exist. Id. They allege that as of November 1, 2020, 5 Defendant NVA remains in “acquisition mode” and has since acquired another 6 veterinary company in the Spokane region. Id. at ¶ 4.109. 7 Plaintiffs allege Defendants’ conduct violates Sections 1 and 2 of the 8 Sherman Act, the Washington Unfair Business Act, and is contrary to state public 9 policy. They also allege PEC breached contracts it had with Plaintiffs and 10 wrongfully terminated them in violation of public policy. 11 Legal Standard 12 A party may move to dismiss a complaint for failure to state a claim upon 13 which relief can be granted. Fed. R. Civ. P. 12(b)(6). “A complaint may fail to 14 show a right of relief either by lacking a cognizable legal theory or by lacking 15 sufficient facts alleged under a cognizable legal theory.” Woods v. U.S. Bank N.A., [16] 831 F.3d 1159, 1162 (9th Cir. 2016). 17 In ruling on a Rule 12(b)(6) motion, the Court must accept all material 18 allegations as true and construe the complaint in the light most favorable to the 19 plaintiff. Wyler Summit P’ship v. Turner Broad. Sys., Inc., 135 F.3d 658 , 661 (9th 20 Cir. 1998). Thus, the complaint “must contain sufficient factual matter, accepted as 21 true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 22 U.S. 662 , 678 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). 23 Claims are plausible if they allow the court to draw the reasonable inference, based 24 on its own judicial experience and common sense, that the defendant is liable for 25 the misconduct alleged. Iqbal, 556 U.S. at 678-79. This does not require the court 26 to accept legal conclusions as true. Id. at 678. However, if a complaint pleads facts 27 that are merely consistent with a defendant’s liability, it stops short of plausibility. 28 Twombly, 550 U.S. at 678 ; Lacey v. Maricopa Cty., 693 F.3d 896, 911 (9th Cir. 1 2012). A complaint that offers only labels and conclusions or a “formulaic 2 recitation” of the elements of a cause of action does not meet this burden. Iqbal, 3 556 U.S. at 678. Some courts have held that contradictory allegations are 4 inherently implausible and are grounds for dismissal under Twombly and Iqbal. See 5 Warner v. Tinder Inc., 105 F. Supp. 3d 1083, 1098 (C.D. Cal. 2015). 6 When ruling on a Rule 12(b)(6) motion, the Court is generally limited to 7 evidence within the pleadings. If the Court considers evidence outside the 8 pleadings, the motion is normally converted into a motion for summary judgment. 9 United States v. Ritchie, 342 F.3d 903, 907 (9th Cir. 2003). However, the Court 10 may consider documents outside the complaint if it is incorporated by reference in 11 the Complaint, either because the complaint refers to it extensively or the 12 document itself forms the basis of the claim. Id. at 908 . Although mere mention of 13 a document is insufficient, a document is incorporated when its contents are 14 described and are integral to the complaint. Tunac v. United States, 897 F.3d 1197 , 15 1207 fn. 8 (9th Cir. 2018). 16 Defendant NVA’s Motion to Dismiss 17 The Court first considers Defendant NVA’s Motion to Dismiss, ECF No. 13. 18 Defendant NVA asks the Court dismiss claims of breach of contract and wrongful 19 termination in violation of public policy on the grounds that it was neither a party 20 to any contract with Plaintiffs nor Plaintiffs’ employers. However, the Court notes 21 that NVA’s motion was not necessary. Turning to the Complaint, neither of these 22 claims are alleged against NVA. See ECF No. 1 at ¶¶ 6.13 (“PEC’s firing of 23 Plaintiffs…”), 6.14 (“PEC’s actions in terminating Plaintiffs…”), 6.15 (“…as a 24 direct result of Defendant PEC’s unlawful conduct…”), 6.26 (“PEC’s breaches of 25 contract caused the damages…”). Because neither of these claims are actually 26 alleged against Defendant NVA, the motion is denied. 27 // 28 // 1 Defendant PEC and Defendant NVA’s Motion to Dismiss 2 The Court next considers Defendant PEC’s Motion to Dismiss, ECF No. 16, 3 which Defendant NVA joined, ECF No. 17. Defendants argue the Court should 4 dismiss Plaintiffs’ Sherman Act claims because they have failed to allege sufficient 5 facts as to (1) antitrust standing; (2) injury to competition; (3) market power; and 6 (4) relevant geographic and product market. They also request that the Court 7 decline to exercise supplemental jurisdiction over Plaintiffs’ pendent state law 8 claims. Plaintiffs argue their complaint is sufficiently detailed at this stage of the 9 proceedings. The Court denies the motion. 10 Section 1 of the Sherman Act prohibits every “contract, combination in the 11 form of trust or otherwise, or conspiracy, in restraint of trade or commerce among 12 the several states.” 15 U.S.C. § 1 . The phrase “restraint of trade” has been narrowly 13 interpreted to mean “undue restraint.” Ohio v. Am. Express Co., 138 S. Ct. 2274 , 14 2283 (2018). To establish a Section 1 violation, a plaintiff must establish four 15 elements: (1) an agreement, conspiracy, or combination among two or more 16 persons or distinct business entities; (2) the agreement, conspiracy, or combination 17 was intended to harm or unreasonably restrain competition; (3) the agreement 18 actually caused injury to competition, beyond the impact on the claimant, within a 19 field of commerce in which the claimant is engaged; and (4) that the claimant was 20 harmed by the defendant’s anti-competitive contract, combination or conspiracy, 21 and his harm flowed from an anti-competitive aspect of the practice under scrutiny. 22 Brantley v. NBC Universal, Inc., 675 F.3d 1192, 1197 (9th Cir. 2012); Kendall v. 23 Visa U.S.A., Inc., 518 F.3d 1042, 1047 (9th Cir. 2008). In order to satisfy pleading 24 requirements under Twombly, the plaintiff must allege enough factual matter if, 25 taken as true, suggests that an illegal agreement was made, with the reasonable 26 expectation that discovery will reveal evidence of such an illegal agreement. 27 Kendall, 518 F.3d at 1047 (citing Twombly, 550 U.S. 544 ). [28] 1 There are three types of Section 1 claims: per se claims, rule of reason 2 claims, and quick look claims. The rule of reason is the default level of analysis 3 and requires a fact-intensive market-level analysis of the claims. Harris v. 4 Safeway, Inc., 651 F.3d 1118, 1133 (9th Cir. 2011). Per se treatment is given only 5 to those agreements that is conclusively determined to be unlawful because they 6 always or almost always tend to restrict competition. Am. Express, 138 S. Ct. at 7 2283. Quick look claims fall between these two ends, and is essentially an 8 abbreviated form of the rule of reason that should be used when “an observer with 9 even a rudimentary understanding of economics could conclude that the 10 arrangements in question could have an anticompetitive effect on customers and 11 markets.” Cal. Dental Ass’n v. FTC, 526 U.S. 756, 770 (1999). 12 The Court concludes that Plaintiffs’ Complaint has alleged sufficient facts to 13 make out a plausible Section 1 claim. Plaintiffs’ allegations of 14 veterinarian/shareholder non-solicitation agreements as to employees, 15 veterinarian/shareholder mandatory referral and non-competition agreements as to 16 customers, and agreements limiting shareholder communications with suppliers are 17 sufficient to state plausible claims of antitrust injury and injury to competition. 18 Plaintiffs have sufficiently alleged the relevant market in this case; although the 19 Complaint uses several slightly different terms to define the market, the Court 20 finds the description of the market as the area within a 25 mile-radius of PEC’s 21 Spokane facility sufficient to state a plausible claim. Finally, although Plaintiffs’ 22 response introduced evidence in support of market power that was not incorporated 23 into the Complaint (and that Defendants want the Court to strike), the Court finds 24 the Complaint itself sufficiently alleged market power. As the Ninth Circuit stated 25 in Kendall, these are sufficient facts to demonstrate that further evidence of an 26 illegal agreement or conspiracy may be produced in discovery. Kendall, 518 F.3d 27 at 1047. Thus, the Court denies Defendants’ motion to dismiss Plaintiffs’ Section 1 28 claim. 1 Section 2 of the Sherman Act declares it unlawful to monopolize or attempt 2 to monopolize a market. 15 U.S.C. § 2 . In order to state a claim under Section 2, a 3 plaintiff must prove: (1) possession of monopoly power in the relevant market; (2) 4 willful acquisition or maintenance of that power; and (3) causal antitrust injury. 5 SmileCare Dental Grp. v. Delta Dental Plan of Cal., Inc., 88 F.3d 780, 783 (9th 6 Cir. 1996). To establish an attempt to monopolize claim, as alleged here, the 7 plaintiff must allege (1) a specific intent to control prices or destroy competition; 8 (2) predatory or anticompetitive conduct to accomplish the monopolization; (3) 9 dangerous probability of success; and (4) causal antitrust injury. McGlinchy v. 10 Shell Chem. Co., 845 F.3d 802, 811 (9th Cir. 1988). 11 The Court finds Plaintiffs’ Complaint also alleges sufficient facts to make 12 out a plausible Section 2 claim. The Complaint alleges Defendants’ combined 13 market power would cover 100% of the animal emergency services market in the 14 25-mile radius around PEC’s Spokane facility. ECF No. 1 at ¶¶ 5.14-5.23. The 15 Complaint also alleges a number of agreements made by PEC at NVA’s behest as 16 part of their contemplated merger that had the effect of reducing competition in the 17 provision of emergency veterinary services. The Complaint also alleges a plausible 18 antitrust injury in that Plaintiffs were ejected from their preferred market and 19 forced to open their practice in Coeur d’Alene, Idaho by virtue of the restraints 20 placed on PEC’s shareholder veterinarians. The Court therefore denies Defendants’ 21 motion to dismiss Plaintiffs’ Section 2 claim. 22 Finally, because the Court is denying Defendants’ motion to dismiss, the 23 Court need not consider Defendants’ request that the Court decline to exercise 24 supplemental jurisdiction. The anchoring federal claims over which the Court has 25 jurisdiction have not been dismissed, so there is no basis to dismiss the federal 26 claims at this time. 28 U.S.C. § 1367 (c); Retail Pro. Trust v. United Bhd. of 27 Carpenters and Joiners of Am., 768 F.3d 938, 962 (9th Cir. 2014). 28 // l Accordingly, IT IS HEREBY ORDERED: 2 1. Defendant National Veterinary Associates, Inc.’s Motion to Dismiss 3|| Pursuant to Fed. R. Civ. P. 12(b)(6), ECF No. 13, is DENIED. 2. Defendants’ Motion to Dismiss, ECF No. 16, is DENIED. 5 3. Each Defendant shall file an Answer within twenty-one days of entry of this Order. A telephonic scheduling conference will be scheduled after receipt of the Defendant’s Answers. 8 IT IS SO ORDERED. The District Court Clerk is hereby directed to enter 9|| this Order and to provide copies to counsel. 10 DATED this 11th day of March 2021. [14] Sclerld Eee roar 16 Stanley A. Bastian Chief United States District Judge [21] 22)