Opinion ID: 2584692
Heading Depth: 3
Heading Rank: 1

Heading: The Cartwright Act's Text and Early History

Text: (1) We begin with the language of the statute. If the text is sufficiently clear to offer conclusive evidence of the statute's meaning, we need look no further. ( Microsoft Corp. v. Franchise Tax Bd. (2006) 39 Cal.4th 750, 758 [47 Cal.Rptr.3d 216, 139 P.3d 1169].) If it is susceptible of multiple interpretations, however, we will divine the statute's meaning by turning to a variety of extrinsic sources, including the legislative history (e.g., Lexin v. Superior Court (2010) 47 Cal.4th 1050, 1080-1081 [103 Cal.Rptr.3d 767, 222 P.3d 214]), the nature of the overall statutory scheme (e.g., Tonya M. v. Superior Court (2007) 42 Cal.4th 836, 844-845 [69 Cal.Rptr.3d 96, 172 P.3d 402]), and consideration of the sorts of problems the Legislature was attempting to solve when it enacted the statute (e.g., Burris v. Superior Court (2005) 34 Cal.4th 1012, 1018 [22 Cal.Rptr.3d 876, 103 P.3d 276]). (2) Section 16750, subdivision (a) authorizes anyone injured in his or her business or property by actions forbidden under the Cartwright Act (§ 16700 et seq.) to recover three times the damages sustained. Aside from an increase in the multiplier, to treble damages from the original double damages, this language has been carried forward essentially without change from the original version of the act. [7] We reject at the outset Manufacturers' contention that the choice of the words damages sustained (§ 16750, subd. (a)) or damages by him sustained (Stats. 1907, ch. 530, § 11, p. 987) establishes a particular legislative intent on the question whether a pass-on defense should be available. The express text says only that a party must have been injured by a Cartwright Act violation and may recover the resulting damages sustained; it says nothing about how the injury or damages are to be quantified. In the antitrust context, one might measure the damages from a violation any number of ways: e.g., the excess amount a party paid the violator (the overcharge) (see Hanover Shoe, supra, 392 U.S. at pp. 487-490); the sales a party lost as a result of the overcharge (lost sales) (see Hanover Shoe, at p. 493; Kansas v. UtiliCorp United Inc. (1990) 497 U.S. 199, 224 [111 L.Ed.2d 169, 110 S.Ct. 2807] (dis. opn. of White, J.); B.W.I. Custom Kitchen v. Owens-Illinois, Inc., supra, 191 Cal.App.3d at p. 1353); the lost profit opportunity a party suffered due to increased costs (lost profits) (see Hanover Shoe, at p. 493 & fn. 9); or the impact on the value of a business as a going concern due to lost market share (see B.W.I. Custom Kitchen, at p. 1353). Put another way, one could in theory measure injury by considering only the primary consequences of a price conspiracy (the overcharge), as Hanover Shoe did; by considering only the primary and secondary consequences (the overcharge and pass-on), as Manufacturers argue; or by considering the primary, secondary, and tertiary consequences (as, for instance, B.W.I. Custom Kitchen, at p. 1353, theorized one might have to). The words of the statute themselves dictate no particular choice among these options, nor any particular conclusion as to whether a pass-on defense should be available. That the text of the Cartwright Act is ambiguous on this point is further illustrated by the fact the United States Supreme Court, interpreting the essentially identical language of the federal Clayton Act (15 U.S.C. § 12 et seq.), reached a conclusion diametrically opposite to that of the Court of Appeal in this case. Construing the Clayton Act's damages provision (damages by him sustained), [8] the Supreme Court concluded defensive use of a pass-on theory was prohibited ( Hanover Shoe, supra, 392 U.S. at pp. 489-494); construing the Cartwright Act's damages provision (damages sustained), [9] the Court of Appeal here concluded such use of a pass-on theory was permitted, indeed compelled. Nor is Hanover Shoe an anomaly; addressing a federal damages provision mirroring that of the Cartwright Act, the Supreme Court in Adams v. Mills, supra, 286 U.S. at pages 406-408, likewise rejected the defendants' pass-on theory. [10] This divergence illustrates not that either conclusion must be wrong, only that reasonable jurists mayfrom a text as opaque as damages sustainedarrive at widely differing conclusions, and that that text is thus susceptible of being read as supporting more than one rule for measuring damages. [11] The question we face is how to measure damages sustained, and nothing in the Cartwright Act's language, as enacted in 1907 or thereafter amended, resolves that question. Insofar as the text of the Cartwright Act is concerned, the question is an open one. We reject as well a second interpretive argument pressed by Manufacturers and adopted by the Court of Appeal: that at the beginning of the 20th century there was an existing, generally understood meaning for damages by him sustained, and we therefore should presume the Legislature intended that meaning when it used the phrase in the Cartwright Act. The general principle that we should assume the Legislature uses words in accordance with their commonly understood meaning is sound. In State of California ex rel. Van de Kamp v. Texaco, Inc. (1988) 46 Cal.3d 1147 [252 Cal.Rptr. 221, 762 P.2d 385], for example, we interpreted ambiguous provisions of the Cartwright Act by considering whether extant law established an accepted meaning for the chosen terms. Because our research disclosed an accepted understanding that a prohibition against a combination did not extend to mergers, we concluded the Legislature surely knew of and adopted that understanding when it passed the Cartwright Act. ( State of California ex rel. Van de Kamp v. Texaco, Inc ., at pp. 1160-1163.) That principle has no similar application here. We can discern no contemporaneous consensus with respect to the phrase damages by him sustained. The Cartwright Act was passed in 1907 as part of a wave of turn-of-the-century state and federal legislation intended to stem the power of monopolies and cartels. (Landry & Hornbeck, One Hundred Years in the Making: The Cartwright Act in Broad Outline (2008) 17, No. 2, J. of Antitrust and Unfair Competition Section of State Bar 7, 7-8; State of California ex rel. Van de Kamp v. Texaco, Inc., supra, 46 Cal.3d at pp. 1154-1156; see generally Limbaugh, Historic Origins of Anti-trust Legislation (1953) 18 Mo. L.Rev. 215.) It was based in part on other recently enacted state laws aimed at the same problems. ( State of California ex rel. Van de Kamp v. Texaco, Inc ., at pp. 1160-1162 & fn. 14; Hibner & Cooper, The Cartwright Act at 100A History of Complementary Antitrust EnforcementA Celebration (2008) 17, No. 2, J. of Antitrust and Unfair Competition Section of State Bar 81, 91-92.) The phrase damages sustained or damages by him sustained was routinely employed in the remedial provisions of the antitrust statutes of the time. [12] However, our review of out-of-state and federal decisions in the years preceding the Cartwright Act's 1907 adoption discloses nothing (never mind a consensus) speaking to how the damages by him sustained should be measured or allocated between direct and indirect purchasers who seek to sue for antitrust loss. Certainly the California cases relied on by Manufacturers and the Court of Appeal do not establish any consensus as to how damages were to be measured. In De Costa v. Mass. Mining Co. (1861) 17 Cal. 613, 617, a nuisance case, we explained that the damages for creating an unwanted ditch on another's property were confined to the injury sustained, the diminution in the value of the property in its present condition, rather than the full cost of remediation (filling in the ditch). In Utter v. Chapman (1869) 38 Cal. 659, 664-666, a breach of contract case, we explained that the plaintiff steamship operator could not automatically recover the full contract price for shipping grain the defendant failed to provide. The plaintiff had a duty to mitigate by finding substitute employment for his steamer, such as transporting grain for other parties, and, to the extent he was able to do so, his damages were thereby diminished. In Hicks v. Drew (1897) 117 Cal. 305, 314-315 [49 P. 189], a tort action for injury to real property, we indicated damages should be measured based on the net impact of the defendant's actions, offsetting any benefit to the plaintiff against any loss. These contract and tort cases are unhelpful on the question of how to measure the damages sustained in an antitrust case. They express in a variety of contexts the truism that damages are to compensate for actual loss, but this, again, begs the question before us: how to measure actual loss in the context of an intermediary purchaser antitrust action for price fixing. Notably as well, in 1907 an antitrust claim for civil money damages was a wholly new kind of claim, part of the dramatically enhanced sanctions imposed by the [Cartwright] Act. ( State of California ex rel. Van de Kamp v. Texaco, Inc., supra, 46 Cal.3d at p. 1167.) At common law, no such private claim existed; remedies for illegal agreements and restraints on trade were confined to proceedings to hold the agreements void and unenforceable and to revoke corporate privileges. ( Ibid. ) Thus, no reason exists to assume the Legislature intended to incorporate any particular existing method of measuring damages derived from statutory or common law precedent, including the common law contract and tort damage measures on which Manufacturers rely. [13] More generally, we consider it implausible that the Legislature had any specific intent on the question we face. Certainly nothing in what minimal legislative history has survived from the Cartwright Act's 1907 enactment sheds any direct light on the question. The economic theories that underlie an antitrust claim are sufficiently complex that we may safely surmise the fine points of whether enforcement by direct and indirect purchasers should be permitted or preferred, and what precise proof of passed-on costs, lost sales, and lost profits should become the grist of an antitrust trial, were not at the forefront of the Legislature's mind when enacting what was then a pioneering law. Certainly by its choice of the generic phrases damages by him sustained and injured in his business or property, the Legislature did not presume to resolve these complex questions. Two early Court of Appeal Cartwright Act cases relied on by Manufacturers do not lead us to a different conclusion. Krigbaum v. Sbarbaro (1913) 23 Cal.App. 427 [138 P. 364] is a case about antitrust causation, i.e., the notion that to have an antitrust claim one must establish a causal nexus between one's injury and the alleged unlawful restraint of trade. (See Associated General Contractors v. Carpenters (1983) 459 U.S. 519, 540-542 [74 L.Ed.2d 723, 103 S.Ct. 897]; Vinci v. Waste Management, Inc. (1995) 36 Cal.App.4th 1811, 1814 [43 Cal.Rptr.2d 337].) In Krigbaum, the plaintiff alleged the defendants had conspired to monopolize the market for vineyard-quality land, but his injury arose not from any restraints on trade accomplished by the alleged trust; rather, it arose from specific actions the defendants took to interfere with a particular real estate transaction he had brokered. ( Krigbaum, at pp. 433-434.) Because the plaintiff had not alleged causation, a demurrer to his Cartwright Act claim was properly sustained. ( Ibid. ) Krigbaum has nothing to say on the general topic that concerns us: when (as here) causation has been properly alleged, how are antitrust damages to be measured? Equally unilluminating is Overland P. Co. v. Union L. Co. (1922) 57 Cal.App. 366 [207 P. 412], another antitrust causation case. The plaintiff, a printing and publishing company, alleged the defendant printing trade association had agreed to limit bidding for certain printing jobs, thereby driving up prices. As the Court of Appeal there correctly explained, nothing about this arrangement caused the plaintiff injury; instead, the decision of the plaintiff's competitors not to bid for work reduced the competition for the plaintiff and likely benefited it. ( Id. at pp. 374-375.) Here, in contrast, Pharmacies are not Manufacturers' competitors but their indirect customers, and they have properly alleged that Manufacturers' price-fixing conspiracy caused them injury in the form of higher prices. As with Krigbaum v. Sbarbaro, supra, 23 Cal.App. 427, nothing in the Overland P. court's discussion speaks to how we should measure the damages of those plaintiffs who have alleged causation. (3) In the absence of textual guidance, we must turn elsewhere. We thus look to the Legislature's subsequent amendments to related parts of the Cartwright Act, and we consider as well the object which [the Cartwright Act] seeks to achieve and the evil which it seeks to prevent .... ( Judson Steel Corp. v. Workers' Comp. Appeals Bd. (1978) 22 Cal.3d 658, 669 [150 Cal.Rptr. 250, 586 P.2d 564]; see also Burris v. Superior Court, supra, 34 Cal.4th at p. 1018 [we must consider the human problems the Legislature sought to address in adopting [the statute] ...].) Consideration of these sources leads us to conclude the federal Hanover Shoe rule ( Hanover Shoe, supra, 392 U.S. at p. 494) is most consistent with legislative intent and applies equally to state claims under the Cartwright Act. Every indication available from the Legislature demonstrates that, given a choice, it would prefer an enforcement regime in which Hanover Shoe is the law. In particular, the Legislature's actions at two closely related points in time are telling: (1) in 1977, following Congress's passage of the Hart-Scott-Rodino amendments to the federal Clayton Act (15 U.S.C. § 12 et seq.); and (2) in 1978, in the immediate aftermath of the United States Supreme Court's decision in Illinois Brick, supra, 431 U.S. 720.