Innovation Marine Protein, LLC v. Pacific Seafood Group

          OPINION AND ORDER

          Michael McShane United States District Judge

         Plaintiffs Innovation Marine Protein, LLC, an Oregon limited liability company (Innovation Marine), and Front St. Marine LLC, an Oregon limited liability company (Front Street) bring this antitrust action under Sections 1 and 2 of the Sherman Act against defendants Pacific Seafood Group (Pacific Seafood)^[1], California Shellfish Company (Cal-Shell), and Trident Seafoods Corporation (Trident). Defendants move to dismiss for, among other reasons, lack of standing. ECF No. 21, 24-25. Because Innovation Marine and Front Street lack standing, and because leave to amend would be futile, this action is DISMISSED, with prejudice.

         BACKGROUND^[2]

         Plaintiff Front Street is owned by Stephen and Janet Webster, two long-term residents of Newport, Oregon. “The corporate mission of Front St. Marine, LLC is to acquire and develop Newport waterfront industrial property for the express purpose of building the infrastructure that will diversify the seafood processing sector on the central Oregon Coast, thus bringing the benefits of robust competition in the form of value-added seafood processing, increased ex vessel prices paid to fishermen and more family wage jobs to Lincoln County.” FAC ¶ 18 (emphasis added). “On December 21, 2013, in an effort to secure adequate industrial property on Yaquina Bay in Newport to build seafood processing infrastructure, Stephen Webster of plaintiff Front St. Marine LLC forwarded an offer to purchase two parcels owned by [Cal-Shell].” FAC ¶ 49 (emphasis added). Webster made a cash offer of $900, 000 for either parcel or $1.8 million for both parcels. FAC ¶49. Included with the offer was “a proposed form of purchase and sale agreement to facilitate a speedy closing of the transaction.” FAC ¶ 49. On February 24, 2014, Cal-Shell informed Webster that “‘We currently are not interested in the sale' of the two properties.” FAC ¶ 50.

         15 months later, without contacting Webster, “Cal-Shell sold its former seafood processing facility and operational ice plant to [Pacific Seafood] for just $1, 037, 500, a 42% discount to the December 2013 offer from Front St. Marine.” FAC ¶ 52. “Cal-Shell and Pacific Seafood Group conspired to avoid selling the property to Front St. Marine in order to eliminate the potential for new seafood processor competition at the site.” FAC ¶ 52.

         For its claim under Section 1 of the Sherman Act, plaintiffs allege:

         As part of the Pacific Seafood Group led conspiracy to acquire all available seafood processing facilities from its existing competitors on the West Coast when any particular competitor is interested in disposing of such assets, [Pacific Seafood and Cal-Shell] conspired to deprive [Front Street] of the opportunity to develop seafood processing infrastructure in Newport in 2014-15.

         FAC 81 (emphasis added).

         “But for the illegal conspiracy to restrain trade implemented by [defendants, Front Street] would have acquired the Cal-Shell waterfront property in Newport and successfully created the infrastructure for new seafood processor competition in Newport by the end of 2015.” FAC ¶ 87 (emphasis added).

         For its claim under Section 2 of the Sherman Act, plaintiffs allege that defendants “conspired to monopolize the Newport seafood input markets for trawl caught groundfish, onshore whiting and pink shrimp by conspiring to transfer Trident and Cal-Shell's seafood processing assets in Newport to Pacific Seafood.” FAC ¶ 91.

         Front Street neither alleges nor seeks any economic damages. Instead, on both claims:

Plaintiff Front St. Marine seeks an order from this Court requiring Pacific Seafood Group to divest itself of the Cal-Shell property that it acquired pursuant to an illegal conspiracy and to transfer that property to plaintiff for the same price paid by [Pacific Seafood] to Cal-Shell. Plaintiff Front St. Marine further seeks interim injunctive relief prohibiting Pacific Seafood from altering the Cal-Shell property during the pendency of this case.

FAC ¶¶ 88, 98.

         Turning to the other plaintiff:

Plaintiff Innovation Marine Protein, LLC is an Oregon limited liability company formed for the purpose of acquiring and operating Trident's seafood processing assets in Newport, Oregon including a fishmeal plant and seafood processing facility. Innovation Marine Protein is owned by Richard Carroll and Edward Backus. Prior to organizing Innovation Marine Protein in 2017, Richard Carrol and Edward Backus formed a partnership in 2016 for the purpose of acquiring a fishmeal plant and associated seafood processing facilities. It was always contemplated by Mr. Carroll and Mr. Backus that their partnership would be converted into a limited liability company which would own and operate the fishmeal plant and seafood processing facilities.

FAC ¶ 13.

         Carrol and Backus have extensive experience in the fishing industry. “Richard Carroll has over 40 years of experience in the design, construction and operation of whiting and surimi processing plants and fishmeal plants.” FAC ¶ 14.^[3] “Edward Backus has 20 years of experience in fisheries policy and conservation, economic development, and community fisheries finance.” FAC ¶ 16.^[4]

         Trident “refused to negotiate with a principal of plaintiff Innovation Marine Protein, LLC to sell its Newport seafood processing facilities and then conspired with Pacific Seafood to develop a two-step scheme to transfer those assets to Pacific Seafood.” FAC ¶ 3 (emphasis added). The FAC proceeds to outline Innovation Marine's attempt to enter the Newport seafood processing market in order to potentially compete with Pacific Seafood:

32. On two occasions in November 2016, Richard Carroll met with Trident COO Mike Luchino to express interest in and pursue the potential purchase of Trident's Seafood processing assets in Newport including both the meal plant and the surimi processing plant. These discussions continued into December 2016 and were of such a serious nature that Mr. Carroll disclosed that he had experience with an advanced technology that would dramatically increase the profitability of the meal plant by enabling it to produce food grade or nutraceutical protein rather than being limited to fishmeal products used in aquaculture.

33. In January 2017, Mr. Carroll told Mr. Luchino that he was interested in discussing a price for the trident assets in Newport and negotiating a final deal as soon as possible. Mr. Luchino promised to contact Trident's [President] and CEO, Joe Bundrant to determine whether Trident was seriously interested in selling these assets. In an email dated January 9, 2017, Mr. Luchino advised Mr. Carroll that he had talked with Mr. Bundrant, who is defendant Frank Dulcich's brother- in-law, that Trident was not interested in selling its assets and “things are at status quo for now.”

34. The “status quo” did not last long. Shortly after rebuffing Mr. Carroll, who would have formed plaintiff Innovation Marine Protein at that time if Trident had been willing to negotiate a deal, Trident and Pacific Seafood Group conspired to develop a two-step plan to transfer Trident's assets to Pacific Seafood Group in a manner that was designed to evade antitrust scrutiny. First, Trident secretly sold its meal plant to Pacific Seafood Group and the co-conspirators concocted the theory that this transaction was necessary for PSG to support its seafood processing operations in Newport and therefore did not raise antitrust concerns. In fact, with the acquisition of Trident's fishmeal plant, Pacific Seafood Group increased its share of the fishmeal plant processing capacity on the West Coast to over 90%. Second, the co-conspirators developed a plan under which PSG would acquire the surimi processing plant under antitrust law's “failing business exception.”

FAC (emphasis added).

         Plaintiffs allege Trident sold the fishmeal plant to Pacific Seafood in a secret sale on April 10, 2017, FAC ¶ 3, at price below market value, FAC ¶ 38. Pacific Seafood and Trident then used the May 15, 2017 start of the pacific whiting season (and the 100 or so seasonal jobs that go with it), “to pressure fishermen, the local community, Oregon legislators and regulators into approving an obviously anti-competitive takeover of the surimi plant by monopolist Pacific Seafood.” FAC ¶ 3. A shell company owned by Pacific Seafood “either holds an option to acquire the Trident surimi processing plant assets or has already closed on that deal and owns those assets outright.” FAC ¶ 2. After Pacific Seafood closed the transactions with Cal-Shell and Trident, it held over 95% of the seafood markets for trawl caught groundfish, onshore whiting and pink shrimp in the Newport market. FAC ¶ 8.

         On its Sherman Act Section 1 claim, Innovation Marine alleges:

80. As part of the Pacific Seafood Group led conspiracy to acquire all available seafood processing facilities from its existing competitors on the West Coast when any particular competitor was interested in disposing of such assets, defendants Pacific Seafood Group and Trident Seafoods Corporation conspired to deprive plaintiff Innovation Marine Protein, LLC of the opportunity to enter the seafood processing and meal plant business in Newport in time to commence operations during the 2017 whiting season.

83. But for the illegal conspiracy to restrain trade implemented by PSG and Trident, and Cal-Shell, plaintiff Innovation Marine Protein LLC would have acquired the Trident processing plant and meal plant assets and successfully entered the seafood processing business in Newport prior to the beginning of the 2017 whiting season. The loss of that opportunity has caused damages to plaintiff Innovation Marine Protein estimated at $2 million in lost net profits in 2017.

84. Plaintiff Innovation Marine Protein seeks an order from this Court requiring Pacific Seafood Group to divest itself of the Trident property that it acquired pursuant to an illegal conspiracy and to transfer that property to plaintiff for the same price paid by PSG to Trident. Plaintiff Innovative Marine Protein further seeks interim injunctive relief prohibiting Pacific Seafood from altering the Trident property during the pendency of this case.

         FAC.

         Plaintiffs allege the relevant product markets are the west coast seafood markets for groundfish, pacific onshore whiting and pacific coldwater shrimp. FAC § IV. Plaintiffs describe Pacific Seafood's expansion of monopoly power over the past decade through numerous anti- competitive ...