Opinion ID: 1312425
Heading Depth: 4
Heading Rank: 1

Heading: The Texas Antitrust Act, and Its Progeny

Text: As noted above, we have previously stated that the Cartwright Act was modeled after a bill that was proposed (but rejected) in the United States Senate as an alternative to what became the Sherman Act. This shorthand description of the Act's lineage was adequate for purposes of our analysis in Palsson and Cianci (16 Cal.3d 920; 40 Cal.3d 903), but for present purposes we need to analyze in greater detail the Act's ancestry. The chronology is as follows: Senator Reagan of Texas introduced a short bill to define trusts in the United States Senate in 1888, on the same day Senator Sherman of Ohio introduced his bill. (19 Cong.Rec. 7512-7513 (1888).) The Senate did not debate the subject, however, until early 1890. In the meantime, several states passed their own antitrust acts. (Davies, Trust Laws and Unfair Competition, Dept. of Commerce, Bureau of Corps. (1916) p. 9 [hereafter Davies]; Rush, Historic Origins of Anti-Trust Legislation (1953) 18 Mo.L.Rev. 215, 246; Rubin, Rethinking State Antitrust Enforcement (1974) 26 U.Fla.L.Rev. 653, 657-658, and authorities cited in fn. 22.) Of those acts, the Maine and Kansas laws were the first. (1889 Me. Acts, ch. 266 (Mar. 7, 1889); 1889 Kan. Sess. Laws, ch. 259 (Mar. 9, 1889).) The Kansas act, similar to the Maine law, made illegal all arrangements, contracts, agreements, trusts or combinations ... for various improper purposes. (Italics added.) In the next two years, most states that enacted antitrust legislation followed the Kansas-Maine scheme. (1889 Neb. Laws, ch. 69; 1889 Iowa Acts, ch. 28; 1889 Mich. Pub. Acts, No. 225; 1889 Tenn. Pub. Acts, ch. 250; 1889 N.C. Sess. Laws, ch. 374; 1889 Mo. Laws, p. 96; 1890 N.D. Laws, ch. 174; 1890 S.D. Laws, ch. 154.) During the same period, the Texas Legislature considered a number of antitrust bills, and in late March 1889, enacted a law (1889 Tex. Gen. Laws, ch. 117) modeled after Senator Reagan's 1888 Senate bill. (Cotner, James Stephen Hogg (1959) pp. 163-165 [biography of Texas Attorney General, a principal author of the 1889 Texas act]; Mathews, History, Interpretation and Enforcement of the Texas Antitrust Laws, in Southwestern Legal Foundation, Institute on Antitrust Laws and Price Regulations (1950) pp. 28-29 [hereafter Texas Antitrust Laws ].) The body of the Texas act was more detailed than the 1888 Reagan version, but it retained a significant aspect of that bill: unlike the Kansas-Maine approach, the Texas act simply declared trusts illegal, and proceeded to define trust as a  combination of capital, skill or acts ... for various specific improper purposes. (Italics added; compare 1889 Tex. Gen. Laws, ch. 117, § 1, with the 1888 Reagan bill, 19 Cong.Rec. 7512-7513 (both quoted post, fn. 14).) Accordingly, by the time the United States Senate was ready to debate its own antitrust legislation in 1890, there were two streams of state antitrust laws [3]  the Kansas-Maine format  a broadly worded law that was followed in at least nine states  and the Texas format  a more narrowly worded, specific law which at the time was followed in only one other state. [4] In March 1890, Senator Reagan introduced an amended version of his earlier bill; this second bill followed closely the words and format of the Texas act. (Compare second Reagan bill, 21 Cong.Rec. 2456 (1890), with 1889 Tex. Gen. Laws, ch. 117, § 1, both quoted post, fn. 14.) In response to Senator Sherman's criticism, Senator Reagan told the Senate: The Senator suggests that my amendment ought to undergo the revision of a committee. I may say to the Senator that much of it is copied out of a law, not a law of Congress but one of the States, which underwent very thorough and searching discussion. (21 Cong.Rec. at p. 2564.) It is plain from this chronology, and from comparison of the 1890 Reagan bill and the 1889 Texas act, that Reagan's newly proffered bill was based on the Texas act (which, as noted, itself had its roots in the first version of the Reagan bill). (See Mathews, supra, Texas Antitrust Laws, p. 28; Cotner, supra, pp. 161-167.)
The Senate rejected Reagan's bill, and enacted a much modified version of Senator Sherman's bill in July 1890. (26 Stats. 209; 15 U.S.C. §§ 1-7.) [5] Section 1 of the Sherman Act resembled the Kansas-Maine format: it made illegal [e]very contract, combination in the form of a trust or otherwise, or conspiracy in restraint of trade or commerce among the several States.... (15 U.S.C. § 1.) Section 2 of the Sherman Act had no counterpart in any of the then-existing state antitrust statutes. It provided: Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of trade or commerce among the several states ... shall be deemed guilty of a felony.... ( Id., § 2.) During the next 17 years, a few states adopted versions of the Sherman Act as their own state antitrust statutes. [6] Most, however, adopted acts more closely based on the original Kansas-Maine [7] or Texas [8] formats. Over the years, a number of states switched back and forth between the latter two models, and many added special provisions in a constant effort to refine and focus the law; Texas, for example, enacted revised laws in 1895, 1899, and 1903. Overall, the trend favored the Kansas-Maine format. [9] In addition to this legislative action, there also developed between 1896-1904, a substantial body of case law construing the various statutes  particularly the first Texas act (1889 Tex. Gen. Laws, ch. 117), and one of its progeny, the second Michigan act (1899 Mich. Pub. Acts, No. 255). The scope and meaning of the term combination in the original Texas act was addressed in a number of decisions by the Texas Supreme Court. Cooperative action for a specified, anticompetitive purpose by otherwise independent, competing firms, was held to be an illegal combination. [10] In Gates v. Hooper (1897) 90 Tex. 563 [39 S.W. 1079], however, the court held the 1889 Texas act did not regulate a purchase by one mercantile company of another. The court reasoned that in such a transaction the parties do not combine, as that term is used in the statute, because under a sale the parties do not maintain a separate, otherwise independent and competing relationship. In Gates, supra, 90 Tex. 563, a merchant sold his business to a competitor. The court explained why this transaction did not result in a combination: In order to constitute a trust, within the meaning of the statute, there must be a `combination of capital, skill or acts by two or more.' `Combination,' as here used means union or association. If there be no union or association by two or more of their `capital, skill or acts,' there can be no `combination,' and hence no `trust.' When we consider the purposes for which the `combination' must be formed, to come within the statute, ... we are led to the conclusion that the union or association of `capital, skill or acts' denounced is where the parties in the particular case designed the united co-operation of such agencies, which might have been otherwise independent and competing, for the accomplishment of one or more of such purposes. In the case stated in the petition there is no `combination.' The plaintiff bought defendant's goods, together with the goodwill of his business, both of which were subjects of purchase and sale.... By this transaction neither the capital, skill, nor acts of the parties were brought into any kind of union, association or cooperative action. The purchaser became the owner of the things sold.... ( Id., at p. 1080.) When confronted with the question of whether the two Michigan acts applied to mergers, the Sixth Circuit Court of Appeals interpreted the word combination consistently with Gates, supra, 39 S.W. 1079. In Hitchcock v. Anthony (6th Cir.1897) 83 Fed. 779, the court rejected a claim that a sale of one dockyard business to another dockyard company violated the first Michigan act (1889 Pub. Acts, No. 225). That act was modeled after the Kansas-Maine format, and prohibited all contracts, agreements, understandings and combinations made for various anticompetitive purposes. Despite the broadly worded proscription of conduct under the act, the court focused on the word, combination. The court wrote: The Michigan statute cited was properly construed by Judge Severens, who tried this case below, when he said that: `It is aimed at combinations between parties who, having each a separate business with no interest or concern in that of the other, join together to restrict the output or enhance the prices of goods; and not to cases where one owning a property which he could devote to a given purpose or not, as he pleases, conveys it to another....' ( Id., at p. 781.) Similarly, in A. Booth & Co. v. Davis (C.C.E.D.Mich. 1904) 127 Fed. 875, the court stated that Michigan's second act (1899 Pub. Acts, No. 225) did not apply to the sale of one fishing business to another fishing company. This Michigan act, as noted, was modeled after the original Texas act. It made trusts illegal, and defined trust as a combination of capital, skill or arts[ [11] ] by two or more persons ... for specified anticompetitive purposes. The federal district court found the act was directed only against combinations of persons or firms ... conspiring to co-operate in violation of its provisions, and that it contains nothing prohibitive of the acquisition by a person ... or association.... All such persons ... may carry on business ... provided they do not ... combine with other persons [or] firms ... to effect in any way the ends denounced in the statute. ( Id., at p. 878.) On appeal, the Sixth Circuit agreed: We think that the intent which [would make a given] contract or combination unlawful was one in which both parties participated, and that the act was not intended to comprise a case where there was a sale and a purchase of property, after which the seller should have no interest in the property, and therefore would have no intent as to its further use. ( Davis v. A. Booth & Co. (6th Cir.1904) 131 Fed. 31, 37-38 [construing 1899 Michigan act consistently with 1889 Michigan act].) The few other state cases of that period addressing the issue and construing similar statutes are in accord, and they demonstrate general awareness of the cases discussed above. For example, the Missouri Supreme Court cited and applied Gates, supra, 39 S.W. 1079, in holding a tobacco manufacturing corporation's purchase of another manufacturing corporation did not amount to a combination. ( State v. Continental Tobacco Co. (1903) 75 S.W. 737, 747.) And, although its opinion was filed shortly after the Cartwright Act was passed in 1907, the Nebraska Supreme Court also cited Gates, supra, (together with Davis, supra, 127 Fed. 875, 131 Fed. 31, and Hitchcock v. Anthony, supra, 83 Fed. 779), for the proposition that sale of one lumberyard business to another lumber company is not itself an illegal combination. ( Engles v. Morgenstern (1909) 85 Neb. 51 [122 N.W. 688, 690].) In summary, at the time the Cartwright Act was enacted there was a recognizable body of case law construing the word combination (in both Kansas-Maine and Texas-type acts) as not applying to the purchase of one business by another entity engaged in the same business.
In the meantime  and in the face of the various courts' narrow construction of the term combination  some states amended their earlier acts to adopt provisions that reached beyond the scope of all previous state acts and the Sherman Act. These newer acts, in addition to regulating trusts and combinations in restraint of trade, also regulated, inter alia, monopolies [12] and, significantly, corporate mergers. On the subject of mergers, the third of Texas's antitrust acts  the act of 1899  stated that monopoly was unlawful, and broadly defined monopoly as including all aggregations, amalgamations, affiliations, consolidations or incorporations of... assets [or] property, ... whether effected by the ordinary methods of partnership or by actual union ... or an incorporated body resulting from the union of one or more distinct firms or corporations, or by the purchase, acquisition or control of shares or certificates of stock[ [13] ] ... if ... created or entered into for any one ... of the purposes named in this act.... (1899 Tex. Gen. Laws, ch. 146, § 2.) Similarly, the second Mississippi act provided: No corporation shall directly or indirectly purchase or own the capital stock, or any part thereof, of any other corporation, nor directly or indirectly purchase, or in any manner acquire the franchise, plant or equipment of any other corporation, if such other corporation be engaged in the same kind of business and be a competitor therein. (1900 Miss. Laws, ch. 88, § 5.) The fourth (1903) Texas act made illegal any monopoly effected by either of the following methods: [¶] When the direction of the affairs of two or more corporations is in any manner brought under the same management or control for the purpose of producing, or where such common management or control tends to create a trust.... [¶] 2. Where any corporation acquires the shares or certificates of stock or bonds, franchise or other rights, or the physical properties, or any part thereof, of any other corporation or corporations, for the purpose of preventing or lessening, or where the effect of such acquisition tends to affect or lessen competition, whether such acquisition is accomplished directly or through the instrumentality of trustees or otherwise. (1903 Tex. Gen. Laws, ch. 94, § 2 (1), (2).) Finally, in 1905, Arkansas amended its earlier act and enacted an antimerger provision worded after the Texas version of 1899. (1905 Ark. Acts, No. 1, § 5.)
(2a) Against this background of increasingly sophisticated state antitrust statutes and case law, our Legislature in 1907 enacted the Cartwright Act. In doing so it settled on an act patterned closely after the original 1889 Texas act and its progeny, most notably the 1899 Michigan act. [14] The Act embraced by our Legislature contained the well-known limitations on combinations in restraint of trade, but it (i) failed to include the latest invention of the evolving antitrust statutes  an antimerger provision  and (ii) embraced the term combination, without attempting to modify the language in order to avoid the prevailing narrow construction of that term. In the absence of contrary indications  of which we have none  it must be assumed that our Legislature intended combination to have the same meaning under the Cartwright Act as that term was given under the identical words of the original 1889 Texas act and the 1899 Michigan act. (3) We have long recognized the principle of statutory construction that `[w]hen legislation has been judicially construed and a subsequent statute on the same or an analogous subject is framed in the identical language, it will ordinarily be presumed that the Legislature intended that the language as used in the later enactment would be given a like interpretation.' ( Belridge Farms v. Agricultural Labor Relations Bd. (1978) 21 Cal.3d 551, 557 [147 Cal. Rptr. 165, 580 P.2d 665]; see also Erlich v. Municipal Court (1961) 55 Cal.2d 553, 558 [11 Cal. Rptr. 758, 360 P.2d 334] [statute patterned after New York statute given same construction as given by New York courts].) (2b) Contrary to the Attorney General's suggestions, the absence of today's computerized legal research systems in 1907 does not diminish the force of this canon. As demonstrated above, the Gates and Davis courts' construction of the term combination was both widely known and followed, explicitly and implicitly, in other courts' interpretations of the same term in cases involving acquisitions. These cases were published in the National Reporter System and the American State Reports, and were available to our Legislature through the Shepard's Citation Service and other resources of the period. In this case, the presumption of legislative intent (by virtue of previous judicial construction) is additionally strengthened by the history of sister state legislation  dating from eight years before the Cartwright Act  designed to regulate mergers. It is clear that the legislatures of the day both (i) recognized the problems posed by mergers, and (ii) were capable of framing legislation designed to regulate such practices. In particular, the fact that the Texas Legislature (to which our Legislature obviously looked for guidance in this area) saw it necessary to twice enact antimerger provisions, but ours did not, strongly suggests our Legislature was content to enact a law of limited scope, which did not address mergers. (See post, pp. 1167-1168.) Finally, our Legislature's inaction on this subject for the past 80 years is significant. Although it has amended the Cartwright Act at least 26 times between 1909 and the present, it has never enacted a merger provision. [15] This stands in contrast to other states that either (i) enacted antitrust legislation with specific antimerger provisions well before the Cartwright Act was passed in 1907 (see ante, pp. 1159-1160) or (ii) have since then amended their antitrust laws specifically to address the regulation of mergers or acquisitions. (Some of these provisions were enacted shortly after the Cartwright Act: see, e.g., Okla. Stat., tit. 79, § 84 (1913 Okla. Sess. Laws, ch. 114, § 4); La. Rev. Stat. Ann., tit. 51, § 125 (1915 La. Acts, No. 11, § 5). Others are of more recent vintage: Alaska Stat., § 45.50.568 (1975 Alaska Sess. Laws, ch. 53, § 1); Hawaii Rev. Stat., § 480-7 (1961 Hawaii Sess. Laws, ch. 190, § 5); Neb. Rev. Stat., § 59-1606 (1974 Neb. Laws, LB 1028, § 13); N.J. Stat. Ann., 56:9-4 (1970 N.J. Laws, ch. 73, § 4); Wash. Rev. Code, § 19.86.060 (1961 Wash. Laws, ch. 216, § 6).) [16] The Attorney General has not cited, nor have we found, a state statute similar to the Cartwright Act that has been construed as applying to mergers. (Cf. post, fn. 20.) The foregoing history demonstrates that the drafters of the Cartwright Act must have known the limitations of what they were adopting: The operative words of their act had been construed consistently in at least three published opinions, and Texas, the parent state from which the Cartwright Act was copied, was among the states that had in the interim adopted additional, express statutory provisions clearly extending coverage of their acts to mergers. Instead of adopting one of the newer, more expansive models of antitrust statutes, our Legislature opted for the simpler, judicially construed format first enacted by Texas in 1889. Given this history, we must conclude that the drafters intended that their Act apply, as its words had been construed, only to entities that combine, in the sense of those who perdure (i.e., continue as separate, independent, competing entities during and after their collusive action)  and therefore that the drafters did not intend the Cartwright Act to regulate the bona fide purchase and sale of one firm by another. Any other interpretation of the drafters' intent cannot be reconciled with the Act's history. As we explain below, nothing presented by the Attorney General undermines this conclusion.