Court Opinion

ID: 4578018
Source: CourtListenerOpinion
Date Created: 2020-10-16 21:03:18.265858+00
Date Added: 2024-06-11T08:47:35.273209
License: Public Domain

Filed 10/16/20 Jain Irrigation, Inc. v. Netafim Irrigation, Inc. CA4/1
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                COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                                 DIVISION ONE

                                         STATE OF CALIFORNIA

 JAIN IRRIGATION, INC. et al.,                                        D076633

           Plaintiffs and Respondents,

           v.
                                                                      (Super. Ct. No. 37-2019-
 NETAFIM IRRIGATION, INC.,                                            00035422-CU-AT-CTL)

           Defendant and Appellant.

         APPEAL from an order of the Superior Court of San Diego County,
Kenneth J. Medel, Judge. Affirmed.
         Best Best & Krieger, Kendall H. MacVey, Gregg W. Kettles, and Wendy
Y. Wang for Defendant and Appellant.
         Sheppard, Mullin, Richter & Hampton, Michael W. Scarborough, Dylan
I. Ballard, Helen Eckert, and Joy O. Siu for Plaintiffs and Respondents.

         Jain Irrigation, Inc. (Jain) and Netafim Irrigation, Inc. (Netafim) are
competitor manufacturers. Jain and related entities filed a lawsuit against
Netafim and another manufacturer alleging these defendants conspired to
retaliate against Jain for Jain’s purchase of an ownership interest in two
downstream firms. Plaintiffs alleged the retaliation took the form of two
group boycotts that caused them economic harm.
      Netafim moved to strike the complaint under the anti-SLAPP statute,
arguing the claims arose from its issuance of a press release. (Code Civ.

Proc., § 425.16.)1 The court found the claims did not arise from the press
release, and denied the motion. Netafim appeals. We agree with the trial
court and affirm.
              FACTUAL AND PROCEDURAL BACKGROUND
                      Summary of Complaint’s Allegations
      Jain and Netafim each manufacture micro-irrigation products. Micro-
irrigation is a type of irrigation that delivers low-water volumes to the root
systems of growing plants. As compared to traditional irrigation, it provides
a more efficient water delivery system, and has become crucial to growers in
Central California.
      Micro-irrigation manufacturers provide product components for the
irrigation systems, such as pumps, filters, valves, and sensors.
Manufacturers sell these products to dealers (labeled Design Firms in the
complaint). The Design Firms do not merely distribute the components to the
end users (growers); they are also involved in engineering, designing,
constructing, installing, and servicing micro-irrigation systems consistent
with the particular grower’s needs and specifications.
      Central California growers generally purchase micro-irrigation systems
from Design Firms through a competitive bidding process in which the
grower’s bid request will often identify the brand manufacturers to be used in
the system. Sometimes the grower will designate all parts to be from a single

1     All unspecified statutory references are to the Code of Civil Procedure.
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manufacturer, and other times it will identify parts from different
manufacturers.
      Before April 2017, micro-irrigation manufacturers and Design Firms
were separate entities. In April 2017, Jain formed an entity that acquired a
majority interest in two Design Firms (Agri-Valley Irrigation, LLC (AVI) and
Irrigation Design & Construction, LLC (IDC)). Under the acquisition
agreement, AVI and IDC were permitted to continue serving as authorized
dealers for Jain and other manufacturers.
      Shortly after Jain’s public announcement of this merger, Netafim
allegedly began contacting competitors asking them to join Netafim in a
boycott of Jain (and AVI and IDC) to punish Jain for this first-time vertical
integration in the industry. Several manufacturers allegedly agreed to
participate in the boycott, including codefendant Rivulis Irrigation, Inc.
(Rivulis). Plaintiffs alleged they had direct evidence of the agreement,
including statements by other manufacturer employees that Netafim was the
“ ‘ringleader’ ” of this horizontal boycott. As described in more detail below,
plaintiffs also alleged that Netafim issued a press release stating it would no
longer do business with AVI or IDC, and that this press release was “key to
the successful formation and implementation of the group boycott.”
      The alleged resulting boycott agreement among the micro-irrigation
manufacturers took two forms. First, the manufacturers allegedly agreed to
immediately refuse to supply their micro-irrigation products to AVI and IDC,
despite knowing that AVI and IDC would need access to these products to
successfully bid for irrigation projects. Second, the manufacturers agreed to
“wield their collectively dominant market power” to coerce the other Design
Firms to participate in a group boycott by compelling these firms to take
various actions, including refusing to (1) purchase micro-irrigation products

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from Jain or include any Jain products in their project bids to growers; and
(2) sell any of their products to AVI and IDC through what is known in the
industry as a “ ‘two-step’ transaction.” Plaintiffs alleged these manufacturers
presented the Design Firms “with an ultimatum: either agree to boycott
Plaintiffs or be cut off from receiving the . . . [m]anufacturers’ essential
products.”
                                     Lawsuit
      In July 2019, Jain, AVI, IDC, and the Jain entity holding the AVI and
IDC interests, sued Netafim and Rivulis, alleging four causes of action:
(1) two causes of action for violation of California’s Cartwright Act (Bus. &
Prof. Code, § 16720); (2) intentional interference with prospective economic
advantage; and (3) violation of California’s unfair competition law (UCL)
(Bus. & Prof. Code, § 17200).
      Each cause of action was based on the assertion that the alleged
boycott agreements, and alleged implementation of the agreements, were
unlawful and wrongful. Plaintiffs’ detailed complaint (158 paragraphs)
identified numerous alleged facts supporting the existence of the alleged
boycott agreements, including direct statements, inferences from actions, and
Netafim’s press release signaling to others its firm commitment not to do
business with Jain or its related entities.
      In the Cartwright Act claims, plaintiffs alleged that in or about April
2017, defendants and other “Conspiring Manufacturers” organized, entered
into, and carried out an illegal combination and conspiracy “for the purpose of
hurting” their competitor, Jain, through refusing to sell any of their products
to AVI and IDC and/or pressuring other Design Firms not to do business with
Jain, AVI or IDC.

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      Plaintiffs alleged they suffered injury “as a result of ” this “horizontal
conspiracy.” Specifically, plaintiffs alleged the boycott prevented Jain from
“successfully selling its products” and “vertically integrating with AVI and
IDC.” Plaintiffs further alleged the boycott “substantially reduc[ed] the value
of ” Jain “by eliminating the increased value of AVI and IDC as a combined
operation. . . .” Plaintiffs alleged that “[a]s a result of the combination and
conspiracy . . . , growers in Central California enjoy fewer competitive
choices . . . and higher prices . . . . Thus, through their collusive actions,
Defendants and their co-conspirators have illegally restrained trade or
commerce in violation of the Cartwright Act.”
      Both the intentional interference and UCL claims were based on
allegations that defendants violated the Cartwright Act by agreeing to, and
engaging in, the boycotts.
                               Anti-SLAPP Motion
      Netafim moved to dismiss the claims under the anti-SLAPP statute.
Netafim argued each of the claims arose from its issuance of its press release,
which it said was widely distributed on public forums, and concerned issues
of public interest involving the role of micro-irrigation in Central California
and the dangers posed by vertical mergers in the industry. It further argued
plaintiffs would be unable to establish a likelihood of success on the merits of
their claims.
      In support of its argument that plaintiffs’ claims were subject to the
anti-SLAPP statute, Netafim relied on Paragraphs 86 and 87 of plaintiffs’
complaint discussing Netafim’s press release. In these paragraphs, plaintiffs
alleged: “At the same time that Netafim was contacting [its] competitors to
persuade them to ‘join [Netafim] in cutting off ’ AVI and IDC so as to punish
Jain, Netafim publicly announced [in a press release sent] to the industry

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that it had immediately terminated AVI’s and IDC’s status as authorized
dealers of Netafim’s Micro-Irrigation Products.” Plaintiffs further alleged:
“Netafim’s public, unequivocal and irrevocable declaration of its refusal to
continue doing business with AVI and IDC was key to the successful
formation and implementation of the group boycott. . . . The only plausible
reason for Netafim to publicly broadcast its decision to terminate AVI and
IDC was to encourage and establish a pretextual justification for other
[manufacturers] to follow suit, and signal Netafim’s . . . commitment to the
horizontal boycott. . . . Netafim also used the announcement to begin paving
the way for the manufacturers’ conspiracy to pressure and persuade dealers
to assist with the overall effort to punish Jain.”
      Netafim also submitted copies of the April 2017 press releases issued
by Jain and Netafim.
      Jain’s press release announced its merger with AVI and IDC, which it
said were two of the “United States’ largest” micro-irrigation dealers. The
press release said the new “entity will provide a unique platform to help
growers implement state-of-the-art irrigation technology and achieve more
crop per drop.” Quoting Jain’s CEO, the press release also said: “ ‘We are
delighted to be able to finance and participate in such an industry changing
and strategic partnership. The transaction gives us the capability to provide
grower focused, turn-key, end-to-end project solutions, consistent with our
global solutions and capabilities.’ ”
      Netafim’s press release (issued five days after Jain’s press release)
announced that IDC and AVI “will no longer be recognized as authorized
distributors” for Netafim. The press release said: “[t]he decision to revoke
IDC’s and AVI’s status as Netafim[’s] authorized dealers is a direct result of
[Jain’s] announcement that the two firms have entered into an agreement to

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merge their business under a newly formed distribution company,
owned . . . by [Jain].” The release also said:
         “ ‘We terminated our relationship with IDC and AVI to
         demonstrate our strong support for the independent
         dealers, ultimately for the benefit of California’s
         growers . . . . We see this arrangement to be in direct
         conflict with our policy of maintaining independent, full
         service dealer-partners that lead with our products, and
         who share our philosophy of providing growers with the
         best possible irrigation solutions. We have been consistent
         that the North American market is best served . . .
         [through] a collaboration model . . . and we see the value
         and innovation . . . eroding in a model where one entity
         controls both functions.’ ”

      Netafim also produced the declaration of its marketing director, who
said the two press releases were issued on PR Newswire, which “reaches
thousands of websites and journalists . . . .” He further stated:
         “Jain’s acquisition and merger threatened to change the
         role of distributors. It risked creating a conflict-of-interest
         in the supply chain to the detriment to the growers . . . . [¶]
         To respond publicly to Jain’s Press Release . . . and
         highlight the risks it posed to the micro-irrigation market
         and growers, . . . [Netafim made] clear [it] would not
         support any effort to change the role of independent
         distributors in the market and the public announcement of
         [this] decision . . . was intended to demonstrate its
         commitment to that principle.”

      Netafim also asked the court to take judicial notice of numerous
documents which it said supported its contentions that its press release
concerned a matter of public interest and that plaintiffs’ antitrust claims
have no merit.
                       Opposition to Anti-SLAPP Motion
      Plaintiffs responded that the anti-SLAPP statute was inapplicable
because their claims arose from the “two . . . antitrust conspiracies,” and not

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from Netafim’s press release. Plaintiffs argued “the factual allegations . . .
include repeated conspiratorial meetings and communications, efforts to
intimidate other market participants into cooperating, and direct admissions
that the conspiracies existed. Netafim ignores virtually all of these
allegations, and instead cherry-picks two paragraphs from Plaintiffs’ 158-
paragraph Complaint—which refer to a single Netafim press release as one of
many acts in support of the conspiracies . . . .” (Boldface and italics omitted.)
      Plaintiffs alternatively argued: (1) the press release did not constitute
protected activity because Netafim’s statements did not concern an issue of
public interest (§ 425.16, subd. (e)(3), (4)); and (2) the press release falls
within anti-SLAPP’s “ ‘commercial speech’ ” exception (§ 425.17, subd. (c)(1)).
Plaintiffs also maintained that even if the anti-SLAPP applied, their claims
have at least minimal merit, and submitted the supporting declaration of
Jain’s executive vice-president, who discussed facts pertaining to Netafim’s
role in the alleged boycotts.
      Plaintiffs sought costs and attorney fees based on their claim Netafim’s
anti-SLAPP motion was frivolous. (See § 425.16, subd. (c)(1).)
                                       Reply
      On the probability-of-prevailing issue, Netafim argued the executive
vice-president’s declaration was inadmissible because his statements were
based largely on hearsay. Netafim also filed a separate motion asserting
numerous evidentiary objections to the declaration.
                                  Court’s Ruling
      After a hearing, the court denied the anti-SLAPP motion, finding the
press release “is not the real thrust of the case.” In its written ruling, the
court reiterated that “[t]he allegations are not within the purview of [section]
425.16.” Based on this finding, the court did not reach the probability-of-

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prevailing issues, or rule on Netafim’s evidentiary objections pertaining only
to those issues. The court declined to award attorney fees as sanctions,
finding the motion was not “totally and completely without merit.”
                                DISCUSSION
                              I. Legal Principles
      California's anti-SLAPP statute “provides a procedure for weeding out,
at an early stage, meritless claims arising from protected activity.” (Baral v.
Schnitt (2016) 1 Cal. 5th 376, 384 (Baral).) “Resolution of an anti-SLAPP
motion involves two steps. First, the defendant must establish that the
challenged claim arises from activity protected by [the statute]. [Citation.] If
the defendant makes the required showing, the burden shifts to the plaintiff
to demonstrate the merit of the claim by establishing a probability of
success.” (Ibid.) We review de novo a court's rulings on whether the parties
met their respective burdens. (Monster Energy Co. v. Schechter (2019) 7
Cal. 5th 781, 788.)
      Under the first step of the anti-SLAPP analysis, the moving party must
show (1) the complaint alleges protected speech or conduct, and (2) the “relief
is sought based on allegations arising from” the protected activity. (Baral,
supra, 1 Cal.5th at p. 396, italics added; accord Park v. Board of Trustees of
California State University (2017) 2 Cal. 5th 1057, 1061-1063 (Park).)
      The statute defines four categories of protected activities. (§ 425.16,
subd. (e).) In the proceedings below, Netafim maintained that plaintiffs’
claims concerned matters of public interest and thus fell under section
425.16, subdivision (e)(3) or (4). On appeal, Netafim reasserts these
arguments. However, before reaching this issue, we address the foundational
question whether plaintiffs’ claims arose from this asserted protected activity.
(See Wilson v. Cable News Network, Inc. (2019) 7 Cal. 5th 871, 885 (Wilson).

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If the claims did not arise from the alleged protected activity, the anti-SLAPP
statute does not apply. (Ibid.; Park, supra, 2 Cal.5th at pp.1060-1061, 1062-
1067.)
      On the “arising from” requirement, the defendant must show “the
defendant's act underlying the plaintiff’s cause of action [was] itself ” a
protected act. (City of Cotati v. Cashman (2002) 29 Cal. 4th 69, 78 (City of
Cotati); accord Wilson, supra, 7 Cal.5th at p. 884; Park, supra, 2 Cal.5th at
p. 1060.) “ ‘[T]he mere fact that an action was filed after protected activity
took place does not mean the action arose from that activity for the purposes
of the anti-SLAPP statute.’ [Citations.] Instead, the focus is on determining
what ‘the defendant's activity [is] that gives rise to his or her asserted
liability—and whether that activity constitutes protected speech or
petitioning.’ ” (Park, at p. 1063, italics added; Gaynor v. Baral (2018) 19
Cal. App. 5th 864, 877-878.)
      In considering whether this test is met, a court must identify the
alleged injury-producing act that formed the basis for the claim. (Park,
supra, 2 Cal.5th at pp. 1062-1063.) “ ‘The only means specified in section
425.16 by which a moving defendant can satisfy the [“arising from”]
requirement is to demonstrate that the defendant's conduct by which plaintiff
claims to have been injured falls within one of the four categories described in
subdivision (e). . . .’ ” (Id. at p. 1063.) “[C]ourts must ‘consider the elements
of the challenged claim and what actions by the defendant supply those
elements and consequently form the basis for liability.’ ” (Wilson, 7 Cal.5th
at p. 884.) In so doing, the courts should be “attuned to and . . . respect the
distinction between activities that form the basis for a claim and those that
merely lead to the liability-creating activity or provide evidentiary support for
the claim.” (Park, at p. 1064, italics added.)

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      Applying these principles to conspiracy claims, the courts have found
the anti-SLAPP statute inapplicable when the asserted protected activities
are the statements or conduct leading to the alleged unlawful agreement.
(See, e.g., Spencer v. Mowat (2020) 46 Cal. App. 5th 1024, 1037 [“When
liability is asserted for the target act of a conspiracy, the preliminary speech
or petitioning activity is simply evidence of the defendants liability, not the
‘wrong complained of ’ ”]; Richmond Compassionate Care Collective v. 7 Stars
Holistic Foundation, Inc. (2019) 32 Cal. App. 5th 458, 470 (Richmond)
[gravamen was antitrust conspiracy, not statements made and actions taken
in furtherance of conspiracy].)
                                  II. Analysis
      The elements of plaintiffs’ Cartwright Act claims are “ ‘ “(1) the
formation and operation of the conspiracy, (2) the wrongful act or acts done
pursuant thereto, and (3) the damage resulting from such act or acts.
[Citations.]” ’ ” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19
Cal. 4th 26, 47 (Quelimane); Marsh v. Anesthesia Services Medical Group, Inc.
(2011) 200 Cal. App. 4th 480, 493.) The remaining two claims (intentional
interference and the UCL violation) are based on proof of the Cartwright Act
claims.
      Plaintiffs pled the Cartwright Act elements by alleging the existence of
an agreement among Jain’s competitors to refuse to supply their products to
AVI and IDC and to pressure the other Design Firms not to purchase from
Jain or transact business with AVI and IDC; defendants’ implementation of
the agreements; and plaintiffs’ economic harm suffered because of the
actions. Plaintiffs claimed these alleged agreements and boycotts violated
state antitrust laws and caused harm to their economic interests.

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      Under these allegations, the trial court correctly found the alleged
boycott agreements and implementation of these agreements formed the
basis for the elements of the causes of action, and not Netafim’s press release.
Plaintiffs did not allege that issuing the press release was itself an antitrust
violation. Instead, the wrong complained of was that Netafim and the
“Conspiring Manufacturers” unlawfully agreed to boycott plaintiffs’
businesses. (See Quelimane, supra, 19 Cal.4th at pp. 48-50 [while refusing to
sell a product to a consumer does not itself violate Cartwright Act, when the
refusal results from a combination, agreement, or conspiracy to make the
product unavailable in a given market, a prohibited restraint of trade may be
found]; see also In re Automobile Antitrust Cases I and II (2016) 1
Cal. App. 5th 127, 160-161.)
      Netafim’s issuance of its press release provided evidence of how
Netafim first informed others of its alleged boycott plan and of its firm
commitment to this plan. But it was not the press release that was allegedly
unlawful. The press release did not trigger anti-SLAPP protection because it
was merely the conduct that led “to the [alleged] liability-creating activity”
and “provided evidentiary support” for plaintiffs’ claims. (Park, supra,
2 Cal.5th at p. 1064; see Area 51 Productions, Inc. v. City of Alameda (2018)
20 Cal. App. 5th 581, 596.) Plaintiffs did not claim they were injured by the
press release, nor did they claim that the press release was the wrongful
conduct that formed the basis of their claims. It was the boycott agreements
that caused plaintiffs alleged harm, not the press release.
      In its appellate briefs, Netafim focuses on plaintiffs’ allegation that the
press release “was key to the successful formation and implementation of the
group boycott.” (Italics added.) Viewed in context, the word “key” did not
mean the press release was the basis for plaintiffs’ antitrust claims. As

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framed, this allegation described an important step in Netafim’s creation and
formation of the allegedly unlawful boycott (by communicating and making
clear to its competitors its firm commitment not to deal with AVI or IDC).
But this allegation cannot be fairly interpreted to mean the press release
formed a necessary predicate for the elements of plaintiffs’ claims. Even
without the allegation, plaintiffs’ claims would stand. (See Park, supra, 2
Cal.5th at p. 1068 [claim did not arise from protected activity if “ ‘[p]laintiff
could have omitted allegations [of the protected conduct] and still state the
same claims’ ”]; see also Richmond, supra, 32 Cal.App.5th at p. 469 [anti-
SLAPP analysis should not be based on a “myopic” or “selective reading” of
the complaint].)
      For similar reasons, we find unavailing Netafim’s discussion of
plaintiffs’ assertions that the group boycott was “instigated by Netafim’s
issuance of its press release.” As our high court said almost two decades ago,
it is not enough that an action was filed after protected activity or that it was
taken in response to that protected activity. (City of Cotati, supra, 29 Cal.4th
at pp. 76-77.) The fact that a protected activity may have triggered the
wrongful conduct “does not necessarily mean that the causes of action arose
from the protected activity.” (Third Laguna Hills Mutual v. Joslin (2020)
49 Cal. App. 5th 366, 373.)
      Netafim contends the crux of the dispute was “a case of dueling press
releases,” and that plaintiffs are “punishing” Netafim for exercising its First
Amendment rights to respond to Jain’s press release. This contention is
unsupported. Plaintiffs’ complaint does not challenge Netafim’s right to issue
a press release, nor are plaintiffs’ legal claims grounded on conflicting
information in the press releases. Plaintiffs do not allege, for example, that
any information in Netafim’s press release was independently actionable.

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Rather, plaintiffs allege Netafim’s press release was evidence to show one
way in which Netafim communicated with other competitors to reflect its
desire to engage in a boycott. The fact that alleged protected statements
supply evidence to support the claim “does not convert the statements
themselves into the basis for liability.” (Park, supra, 2 Cal.5th at p. 1068.)
      We also find unavailing Netafim’s argument that the press release
must be the “gravamen” of the claims because it “is the only admissible
evidence plaintiffs have to support their alleged conspiracy.” The argument
has no place in the first step of the anti-SLAPP analysis. Plaintiffs had no
burden to come forward with evidence if their claims were not protected by
the anti-SLAPP statute. Thus, the nature of plaintiffs’ admissible evidence to
support their claims is not before us (or the trial court) at this stage of the
proceedings.
      Based on our finding that plaintiffs’ claims did not arise from the
claimed protected activity, we do not reach the parties’ alternate arguments
regarding whether the press release concerned an issue of public interest;
whether the claims fell within the comparative advertising exception
(§ 425.17, subd. (c)(1)); and/or whether plaintiffs established a probability of
prevailing. On the latter issue, we emphasize that nothing we have said in
this opinion should be interpreted as expressing views on the merits of the
allegations; those issues are not before us.
      We deny plaintiffs’ request for judicial notice. As those documents
pertain primarily to the probability-of-prevailing element, they are not
helpful to our resolution of this appeal.

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                               III. Attorney Fees
      Plaintiffs request attorney fees for Netafim’s filing a frivolous appeal.
(§ 425.16, subd. (c)(1).) We deny this request as we find the appeal was not
frivolous under applicable standards.
                                DISPOSITION
      Order affirmed. Appellant to bear respondents’ costs on appeal.

                                                                    HALLER, J.

WE CONCUR:

HUFFMAN, Acting P. J.

DATO, J.

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