Opinion ID: 1658434
Heading Depth: 1
Heading Rank: 1

Heading: conspiracy in restraint of trade

Text: Statutory Interpretation of § 51:122 An appropriate statutory analysis should begin with an examination of the language of the statute under consideration. According to La.Rev.Stat.Ann. § 1:3, [w]ords and phrases shall be read with their context and shall be construed according to the common and approved usage of the language. In the case of La.Rev.Stat. Ann. § 51:122, two things are apparent. First, the statute was intended to be sweeping in its breadth. Every contract, combination... or conspiracy, which restrains trade or commerce, is included in the prohibition. [12] And, the prohibited combinations can be in the form of trust [13] or otherwise. Second, the plain language of § 122 requires a plurality of actors. A contract, a combination, and a conspiracy each suggests the participation of more than one person or entity. And, at least since 1919, the United States Supreme Court has contrued § 1 of the Sherman Act to require multiple actors. United States v. Colgate & Co., 250 U.S. 300, 39 S.Ct. 465, 63 L.Ed. 992 (1919). Since it is well-settled that each corporation is a distinct and separate legal entity, a conspiracy or combination between two corporations is certainly within the purview of § 51:122's prohibition. The separate corporate forms of a subsidiary and a parent should surely provide the necessary plurality of actors unless some compelling policy consideration were to persuade us to disregard the plain language of § 51:122 and the broad scope of the prohibition enacted (and no doubt intended) by the Legislature. Intra-Enterprise Conspiracy Doctrine in the Federal Jurisprudence In 1947, the United States Supreme Court considered whether members of a vertically integrated enterprise might comprise the plurality of actors necessary for a violation of § 1 of the Sherman Antitrust Act, upon which La.Rev.Stat.Ann. § 51:122 is patterned. United States v. Yellow Cab, 332 U.S. 218, 67 S.Ct. 1560, 91 L.Ed. 2010 (1947). That enterprise consisted of the more important cab operating companies in Chicago, New York and other cities, which the government alleged combined and conspired to monopolize the sale of taxicab type motor vehicles to the principal cab companies in Chicago, Pittsburgh, New York City, and Minneapolis and to furnish cab services for hire in the Chicago area. The Court concluded that a vertically integrated enterprise does not necessarily remove the ban of the Sherman Act. The test of illegality under the Act is the presence or absence of an unreasonable restraint on interstate commerce. Such a restraint may result as readily from a conspiracy among those who are affiliated or integrated under common ownership as from a conspiracy among those who are otherwise independent. It was additionally noted that: any affiliation or integration flowing from an illegal conspiracy cannot insulate the conspirators from the sanctions which Congress has imposed. With this language, the United States Supreme Court in 1946, in United States v. Yellow Cab , introduced what has become known as the intra-enterprise conspiracy doctrine, whereby the fact of affiliation between parent and subsidiary corporations will not immunize defendants from Section 1 Sherman antitrust liability if a restraint of trade has occurred. [14] Although a parent and subsidiary are capable of conspiring and violating § 1 of the Sherman Act under the intra-enterprise conspiracy doctrine, most courts have subjected such alleged conspiracies to a rule of reason before permitting a finding of liability. [15] Thus, only those restraints which were unreasonable were found to violate the Sherman Act, and that determination was influenced by the purpose and effect of the challenged restraint, i.e., what was the intent and impact on competitive conditions. [16] Although courts confronted with the application of the doctrine devised a variety of tests to evaluate conduct allegedly in violation of § 1 (which often produced inconsistent results [17] ), they were consistent in providing a case by case analysis of the multitude of economic, political, and social factors which governed whether a particular action effected an unreasonable restraint of trade. The decision in United States v. Yellow Cab was followed in later Supreme Court cases: Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211, 71 S.Ct. 259, 95 L.Ed. 219 (1951); Timken Roller Bearing Co. v. United States, 341 U.S. 593, 71 S.Ct. 971, 95 L.Ed. 1199 (1951); and Perma Life Mufflers, Inc. v. International Parts Corp., 392 U.S. 134, 88 S.Ct. 1981, 20 L.Ed.2d 982 (1968). The doctrine it engendered, that a parent and subsidiary are capable of conspiring in violation of the Sherman Act, however, was criticized as a source of complication and confusion, the basis of unsuccessful suits that would not otherwise occur, and an unjustified condemnation of some unilateral behavior. Areeda, Intraenterprise Conspiracy in Decline, 97 Harv.L.Rev. 451 (1983). According to the majority opinion in Copperweld, [t]he central criticism is that the doctrine gives undue significance to the fact that a subsidiary is separately incorporated and thereby treats as the concerted activity of two entities what is really unilateral behavior flowing from decisions of a single enterprise. 104 S.Ct. at 2739-40. On the other hand, it is suggested by proponents that the doctrine is necessary to address a gap in antitrust enforcement. [S]ignificant anticompetitive behavior ... otherwise would fall into the interstices of the Sherman, Clayton, and Federal Trade Commission Acts. [18] Even the Copperweld majority concedes that a single firm's anticompetitive conduct may be indistinguishable in economic effect from the conduct of two firms subject to § 1 liability. 104 S.Ct. at 2744. Although opponents of the intra-enterprise conspiracy doctrine contend that [a]ny putative legal gap is... a consequence of legal design, [19] that proposition lacks force when we consider the longstanding congressional inaction in response to the courts' interpretation of the legislation. In the four decades since United States v. Yellow Cab , Congress has not acted to change the jurisprudential rule that a restraint [of trade] may result as readily from a conspiracy among those who are affiliated ... as from a conspiracy among those who are otherwise independent. In 1984, the United States Supreme Court, however, decided to repudiate the intra-enterprise conspiracy doctrine to which it had previously acquiesce[d], with regard to the coordinated activity of a parent and its wholly owned subsidiary. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984). The majority emphasized the requirement of concerted action for a violation of § 1, as opposed to § 2 of the Sherman Act, and expressed the belief that the distinction and the stricter treatment imposed by the Sherman Act on concerted activity was justified, noting that concerted behavior is fraught with anticompetitive risk. In this regard, the Court pointed out that the anticompetitive potential of suddenly increasing the economic power moving in one particular direction was sufficient to warrant scrutiny even in the absence of incipient monopoly. However, where there is either an internal agreement among officers or employees of the same company, or the internally coordinated conduct of a corporation and one of its unincorporated divisions, the Court restated the prevailing jurisprudence and general agreement that a § 1 violation does not occur. Such activity does not represent a sudden joining of two independent sources of economic power previously pursuing separate interests. The Court reasoned that the coordinated activity of a parent and its wholly owned subsidiary corporation should be viewed in a similar fashion, for purposes of § 1 consideration, as conduct of a single enterprise. The majority noted that [a] parent and its wholly owned subsidiary have a complete unity of interest. Their objectives are common, not disparate; their general corporate actions are guided or determined not by two separate corporate consciousnesses, but one. 104 S.Ct. at 2742. Furthermore, even where the parent fails to keep a tight rein over the subsidiary, the Court was impressed by the potential exercise of full control. Thus, the Copperweld majority concluded that Congress determined (presumably in 1890 when the Sherman Antitrust Act was passed) to exclude unilateral conduct from § 1 scrutiny, and that the coordinated behavior of a parent and its wholly owned subsidiary corporation is just such unilateral conduct and thus beyond the reach of that provision. [20] Instead, the Court suggested that, in addition to § 1 Sherman Act scrutiny of a parent corporation's initial acquisition of control of a subsidiary, any anticompetitive activities which merit antitrust remedies can be monitored adequately by § 2 of the Sherman Act (which prohibits monopolization of any part of the trade or commerce among the several states), § 7 of the Clayton Act (which makes illegal the acquisition of competing companies when the effect is to substantially lessen competition), and § 5 of the Federal Trade Commission Act (which declares illegal, unfair methods of competition and unfair or deceptive practices in commerce). [21] The Court said, [t]hat these statutes are adequate to control dangerous anticompetitive conduct is suggested by the fact that not a single holding of antitrust liability by this Court would today be different in the absence of the intra-enterprise conspiracy doctrine. [22] Intra-Enterprise Conspiracy Doctrine and Louisiana Jurisprudence Because La.Rev.Stat.Ann. § 51:122 is a counterpart to § 1 of the Sherman Antitrust Act, the United States Supreme Court's interpretation of the Sherman Act should be a persuasive influence on the interpretation of our own state enactment. However, the federal analysis is not controlling. Parish National Bank v. Lane, 397 So.2d 1282, 1285 (La.1981) (citing Madison v. Travelers Insurance Co., 308 So.2d 784 (La.1975); Kay v. Carter, 243 La. 1095, 150 So.2d 27 (1963)). That proposition is especially appropriate in this case where the relevant ruling of the federal high court is a departure from their own well-established rule, and from a prevailing decision of this Court. In 1931, sixteen years before the announcement of the intra-enterprise conspiracy doctrine by the United States Supreme Court, the Louisiana Supreme Court ruled that a cause of action had been asserted under § 1 of 1915 La. Acts No. 11 (La.Rev. Stat.Ann. § 51:122) when the plaintiff alleged in its petition that the defendant corporation, its officers and directors, and other concerns under the same management had attempted to restrain, and monopolize, the manufacture and sale of ice in the town of Bastrop. Tooke & Reynolds v. Bastrop Ice & Storage Co., Inc., 172 La. 781, 135 So. 239 (1931). In that case, the petition alleged that corporate officers managed and controlled Bastrop Ice & Storage Co., Inc., as well as five other ice plants in northeast Louisiana, all of which were owned by essentially the same stockholders. According to the opinion, these ice plants were subsidiaries of the Louisiana Ice & Coal Company, the parent corporation, which control[ed] them. The petition alleged that Bastrop Ice & Storage Co., Inc. conspired to restrain and to monopolize trade by reducing the price of ice in the face of competition to a level where its manufacture and sale at the same price would be destructive to any new enterprise, and that a large sum ($250,000) had been set aside by the ice trust to fight any ice plants that opened in this territory. Although the named defendants were only Bastrop Ice & Storage Co., Inc. and two managing directors of Bastrop Ice, the alleged conspiracy involved the other concerns under the same management. In finding that a cause of action had been asserted under the predecessor statute to § 51:122, the Court specifically read and construed [the petition] as a whole. The Court first recited how the petition alleged that the parent company Louisiana Ice & Coal Company of Monroe conspired in restraint of trade with its subsidiary corporation Bastrop Ice and Storage Co. and other subsidiary corporations which operated ice plants in four towns in Northeast Louisiana, then added that Bastrop Ice also formed an illegal combination with its individual members, shareholders and managers. [23] Thus, this Court in 1931 found that a parent corporation has conspiratorial capacity with a subsidiary which it controls. That holding of this Court has not been overturned in the ensuing fifty-five years. The Court in Tooke & Reynolds v. Bastrop Ice Co., Inc . did not, of course, conclude that Bastrop Ice Co. had conspired with its parent company, Louisiana Ice & Coal Company. It held only that conspiracy between affiliated corporations as alleged in the petition charged a violation of Louisiana's antitrust statute, and it allowed the plaintiff an opportunity to prove at trial that the alleged combinations had occurred, and had stifled competition or discouraged enterprise and industry. Under this rule, that parent corporations have conspiratorial capacity with subsidiaries, the remaining determination of the existence of an unreasonable restraint of trade may well lead to varying results, as is apparent from the federal jurisprudence. [24] However, this Court does not choose to substitute for a case by case approach which may produce varying results, an inflexible approach which adopts a per se rule of nonliability for parent and subsidiary corporations. [25] Such a choice would run counter to the Legislature's intent in enacting the antitrust legislation and divest our courts of the authority which reposes in them by virtue of this legislation. As the Court in Yellow Cab first pointed out, and as the Copperweld majority recently re-affirmed, anticompetitive conduct which is indistinguishable in economic effect may arise from the conduct of a single firm, of affiliated firms, or of two independent firms acting in concert. But because § 1 of the Sherman Antitrust Act and La.Rev.Stat.Ann. § 51:122 condemn combinations or conspiracies in restraint of trade only if by two parties (the latter requirement of multiple actors implied from the language of the statute), it may be appropriate to preclude § 1 prosecution for conspiratorial conduct between divisions or among officers of a single corporation. It is not appropriate, in our view, to extend that preclusion to two or more separate corporations, a parent corporation and either a partially owned subsidiary or a wholly owned subsidiary. (Note that between 1965 and 1968 Pennzoil, owning 42% of United Gas Company, effectively only partially owned United Gas Company's wholly owned subsidiary and Pennzoil's codefendant in this case, United Gas Pipe Line Company.) With respect to the partially owned subsidiary, in fact, not even Copperweld commands a contrary result. The United States Supreme Court majority at 104 S.Ct. 2740, specifically recited that they did not consider [in that opinion] under what circumstances, if any, a parent may be liable for conspiring with an affiliated corporation it does not completely own. And, even giving credence to the rationale underlying Copperweld, their reasoning is not necessarily applicable in the partially owned situation. A parent and its partially owned subsidiary need not be a single economic entity. The parent may not have control, [26] and a parent and its partially owned subsidiary may not have a complete unity of interest. [27] Even with regard to combinations between a corporate parent and its wholly owned subsidiary, furthermore, reasons exist for treating a separate corporate entity for what it is, a separate person capable of conspiring with another corporation, irrespective of whether the two corporations might be perceived as constituting a single economic entity. There are goals served by antitrust legislation other than best allocation of resources, low prices and high quality, which are not necessarily furthered by the efficient corporate operations that we recognize may sometimes follow conspiratorial or coordinated conduct between affiliated corporations. These goals are more political in nature and were addressed in Northern Pacific Railway Co. v. U.S. 356 U.S. at page 4, 78 S.Ct. at page 517. The Court there stated that free and unfettered competition as a rule of trade should both secure the advantages of an efficient operation and provid[e] an environment conducive to the preservation of our democratic political and social institutions. Id. We believe that achievement of both goals is best served by a flexible approach which permits antitrust scrutiny of affiliated corporations as well as of independent firms acting in concert. Our conclusion is in accord with Louisiana jurisprudence which dates to 1931, and with the longstanding Federal jurisprudence prior to the 1984 decision in Copperweld. And in all events, independent of the philosophical, economic, or political considerations which support or oppose the application of La. Rev.Stat.Ann. § 51:122 to combinations between parent and subsidiary corporations, the unqualified statutory language (Every contract, combination in the form of trust or otherwise or conspiracy, in restraint of trade or commerce in this state is illegal) in our view, commands such an application. For the foregoing reasons, we conclude that La.Rev.Stat.Ann. § 51:122, Louisiana's prohibition against contracts, combinations and conspiracies in restraint of trade, does not except from its provisions unreasonable restraints of trade committed by a parent corporation and its partially or wholly owned subsidiary corporation. In so holding, we affirm this Court's earlier decision in Tooke & Reynolds v. Bastrop Ice & Storage Co., Inc ., and so interpret § 51:122, unpersuaded by the United States Supreme Court's recent interpretation of its counterpart antitrust statute in Copperweld.