Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: Pest control firm’s monopolization claims “bite the dust”, (Jun 17, 2015)

By Greg Hammond, J.D.

The owner of a pest control business failed to adequately allege that a competitor monopolized the installation and service of tube-in-the-wall pest control systems. Finding that the complaint failed to adequately plead a relevant geographic market, the federal district court in San Francisco granted the competitor’s motion to dismiss (Killian Pest Control, Inc. v. HomeTeam Pest Defense, Inc., June 16, 2015, Chhabria, V.).

Larry Killian, operator of family-owned pest control business Killian Pest Control, contacted Environmental Safety Systems, Inc. (ESSI), creator and patent holder of a tube-in-the-wall pest control system, to obtain a franchise to install the systems in several western states. Tube-in-the-wall pest control systems are installed directly into the walls during construction of new homes. In 1994, Killian obtained a license from ESSI and began providing tube-in-the-wall installations and service. ESSI sold its Pest Defense brand and system to Centex Homes, which began operating the business as HomeTeam Pest Defense.

According to Killian’s complaint, HomeTeam used its monopoly in the installation market to monopolize the secondary service market. Further, HomeTeam used its exclusive access to homebuilders’ lists of customers who had the tube systems installed and capitalized on a captive audience for selling tube-in-the-wall pest control services. Home Team also stifled competition, Killian alleged, by creating service agreements stating that the systems were actually owned by HomeTeam and prohibiting other service providers from servicing the systems. HomeTeam moved to dismiss.

Although Killian adequately pleaded relevant product markets—the markets for installation and servicing of tube-in-the-wall pest control systems—he failed to sufficiently allege a relevant geographic market, the court determined. The complaint alleged that HomeTeam installs tube-in-the-wall systems in a number of states across the nation, “including the states of California, Arizona, Florida, Georgia, Maryland, Missouri, Nevada, New Mexico, North Carolina, South Carolina, Tennessee, Texas, Virginia, and West Virginia.” However, the allegations lacked details concerning whether customers in states other than the ones listed—or even whether customers throughout each of the listed states—can practicably turn to HomeTeam for installation of tube-in-the-wall systems. In addition, the complaint failed to plead sufficient facts to plausibly allege that HomeTeam’s area of effective competition in the tube-in-the-wall servicing market is nationwide. The definition of the relevant geographic market for installation of tube-in-the-wall systems was consequently deemed vague and conclusory.

The state law antitrust claims under the Cartwright Act, California’s Unfair Practices Act, and California’s Unfair Competition Law were also dismissed for failure to state a claim. However, finding that Killian is “highly likely” to state an antitrust claim, he was granted leave to amend.

In a related action, the court dismissed a homeowner’s complaint, alleging that HomeTeam has monopolized the market for installation and servicing tube-in-the-wall pest control systems and caused homeowners to pay inflated prices for servicing the systems installed in their homes (Garnica v. HomeTeam Pest Defense, Inc., June 16, 2015, Chhabria, V.). Although the court rejected HomeTeam’s motion to dismiss on statute of limitations grounds, it granted the motion to dismiss upon finding that Garnica failed to allege a relevant geographic market. Garnica was granted leave to amend.

The case number is 14-cv-05239-VC.

Attorneys: Alexander Russell Wheeler (R. Rex Parris Law Firm), David S. Casey, Jr. (Casey Gerry Schenk Francavilla Blatt and Penfield LLP), and Don Howarth (Howarth and Smith) for Killian Pest Control, Inc. Ryan M. Sandrock (Sidley Austin, LLP) for HomeTeam Pest Defense, Inc. Patricia Kay Oliver (R. Rex Parris Law Firm) for Jose Luis Garnica.

Companies: Killian Pest Control, Inc.; HomeTeam Pest Defense, Inc.

Cases: Antitrust CaliforniaNews