Opinion ID: 2584692
Heading Depth: 4
Heading Rank: 1

Heading: Cartwright Act amendment in response to federal legislation

Text: In 1976, Congress amended the Clayton Act (15 U.S.C. § 12 et seq.) by passing the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the Hart-Scott-Rodino Act). The Hart-Scott-Rodino Act authorized state attorneys general to file parens patriae suits [14] on behalf of injured consumers for violations of the Sherman Act (15 U.S.C. § 1 et seq.). (15 U.S.C. § 15c(a)(1).) Congress created the remedy out of concern that consumers, the indirect purchasers who typically bear the brunt of antitrust violations in the form of higher prices, had no existing effective redress because the small amounts of their injuries made individual suits impracticable, and consumer class actions had proven a disappointing vehicle for antitrust enforcement. (H.R.Rep. No. 94-499, 2d Sess. (1976), reprinted in 1976 U.S. Code Cong. & Admin. News, pp. 2573-2577.) The Hart-Scott-Rodino Act was designed to fill the remedial gap that sometimes result[ed] in the unjust enrichment of antitrust violators and undermine[d] the deterrent effect of the treble damage action. ( Id. at pp. 2573-2574.) The remedial provisions of the Hart-Scott-Rodino Act focused on achieving full disgorgement of all illegal antitrust profits, using fluid recovery and the cy prés doctrine if necessary, because [t]he only alternativeretention of the profits by the adjudicated wrongdoeris unconscionable and unacceptable. ( Id. at pp. 2585-2586; see also id. at p. 2585 [[T]he premise of § 4D [codified at 15 U.S.C. § 15d] is that defendants should be made to disgorge all measurable profits from an antitrust violation ....].) Notably, the Hart-Scott-Rodino Act originally contained no language to address the possibility that indirect purchasers might recover damages (through their respective attorneys general) when in some instances those same damages might already have been recovered by direct purchasers under the Hanover Shoe rule prohibiting a pass-on defense (see Hanover Shoe, supra, 392 U.S. at p. 494). The problem of potential double recovery under Hanover Shoe was solved by a Senate amendment excluding from parens patriae damage awards any amount that duplicates amounts which have been awarded for the same injury. (15 U.S.C. § 15c(a)(1); see Sen.Rep. No. 94-803, 2d Sess., p. 44 (1976).) As the Senate Report accompanying the amendment explained, the proviso was inserted to assure that defendants are not subjected to duplicative liability, particularly in a chain-of-distribution situation where it is claimed that middlemen absorbed all or part of the illegal overcharge, and to thereby eliminate any perceived tension between authorizing indirect purchaser suits and following Hanover Shoe. (Sen.Rep. No. 94-803, supra, at p. 44.) [15] Specifically, the amendment was intended to codify In re Western Liquid Asphalt Cases (9th Cir. 1973) 487 F.2d 191, a case that relied on the sufficiency of consolidation, interpleader, compulsory joinder, and the like, rather than a bar on indirect purchaser suits, to eliminate double recovery problems. ( Id. at p. 201.) Where the choice is between a windfall to intermediaries or letting guilty defendants go free, liability is imposed. (Sen.Rep. No. 94-803, supra, at p. 44, citing Hanover Shoe, supra, 392 U.S. at p. 494.) The Hart-Scott-Rodino Act was thus of a piece with Hanover Shoe. First, consistent with the policies spelled out by the United States Supreme Court, it reflected Congress's belief that it was better to overdeter antitrust violations than to underdeter them, as well as Congress's desire to create a remedial framework that maximized the likelihood violators would be required to fully disgorge price-fixing profits. (See H.R.Rep. No. 94-499, supra, reprinted in 1976 U.S. Code Cong. & Admin. News, pp. 2573-2586.) Second, the Hart-Scott-Rodino Act expressly contemplated that antitrust violators might be sued by both direct and indirect purchasers, and that rather than limiting direct purchaser recoveriesby repudiating Hanover Shoe or limiting indirect purchaser suits, the problem of duplicative recoveries could be addressed by allowing damages already paid to be offset against subsequent damages claims. (See 15 U.S.C. § 15c(a)(1).)
The Legislature moved quickly to incorporate the remedial framework of the Hart-Scott-Rodino Act into the Cartwright Act, enacting a statute that precisely tracked the federal act and authorized the Attorney General to sue for Cartwright Act violations on behalf of consumers. (§ 16760, added by Stats. 1977, ch. 543, § 1, p. 1747.) [16] Notably for our purposes, the Legislature adopted as well the Hart-Scott-Rodino Act's damages provision. (Compare § 16760, subd. (a)(1) [any award must exclude damages which duplicate[] amounts which have been awarded for the same injury] with 15 U.S.C. § 15c(a)(1) [same].) As we have discussed, that provision was specifically designed to account for duplicative damage awards resulting from allowing indirect purchasers to recover damages when, under the Hanover Shoe no pass-on defense rule ( Hanover Shoe, supra, 392 U.S. at p. 494), direct purchasers might already have been awarded those same damages. Section 16760, subdivision (a)(1), in parallel with the corresponding provision in the Hart-Scott-Rodino Act, thus took as its premise that under the Cartwright Act direct purchasers could themselves recover overcharges that might in theory have been passed on to indirect purchasers, that is, the Hanover Shoe rule. Evidently, then, the Legislature presumed that such a rule would apply to the Cartwright Act as well. (4) Two additional factors suggest the Legislature took as a given the application of Hanover Shoe 's no pass-on defense rule to the Cartwright Act. First, we may presume that when the Legislature borrows a federal statute and enacts it into state law, it has considered and is aware of the legislative history behind that enactment. ( People v. Butler (1996) 43 Cal.App.4th 1224, 1244 [51 Cal.Rptr.2d 150]; see also American Civil Liberties Union Foundation v. Deukmejian (1982) 32 Cal.3d 440, 447 [186 Cal.Rptr. 235, 651 P.2d 822] [the legislative history of a federal statute may be used to interpret a state statute based on it].) Second, Assembly Bill No. 1162's (1977-1978 Reg. Sess.) legislative history indicates members of the Legislature were in fact aware of the legislative history behind, and the import of, the various portions of the Hart-Scott-Rodino Act they incorporated into state law. The Assembly Judiciary Committee's materials for Assembly Bill No. 1162 include by way of explanation for the bill and its purpose excerpts from the Hart-Scott-Rodino Act's legislative history, including remarks from Representative Rodino describing at length how the no-duplicative-recovery provision of title 15 United States Code section 15c(a)(1) was adopted to accommodate the effects of applying the Hanover Shoe rule. (See Assem. Com. on Judiciary, Worksheet on Assem. Bill No. 1162 (1977-1978 Reg. Sess.) as introduced Mar. 29, 1977 [attachments excerpting Sept. 16, 1976 remarks of Rep. Rodino].) Manufacturers argue it would be absurd to conclude the Legislature that passed Assembly Bill No. 1162 (1977-1978 Reg. Sess.), strengthening consumer antitrust protections, also approved the Hanover Shoe rule, which might in a hypothetical case impair consumer recoveries. Manufacturers posit a scenario in which an intermediary purchaser (such as Pharmacies here) sues first, recovers the full measure of any overcharge under Hanover Shoe, and leaves nothing for the ultimate consumers (because § 16760's duplicative-liability language would exclude the previous recovery from an antitrust defendant's future liability). We have no difficulty reconciling Assembly Bill No. 1162's (1977-1978 Reg. Sess.) consumer-protecting provisions with tacit approval of the Hanover Shoe rule. In the abstract, both rules are intended to achieve the same goal: maximum deterrence and disgorgement. If the Hanover Shoe rule enhances enforcement and deters to some degree future antitrust violations, consumers benefit. As for the specific hypothetical, it posits a scenario in which an antitrust suit is filed, a full award is made against the defendants, and the case becomes final, all before the four-year statute of limitations expires and before the Attorney General has any opportunity to file suit. The Legislature could easily have assumed that this would be a rare scenario indeed, and that the short statute of limitations (at least in comparison with the time it takes to resolve an antitrust case), combined with the availability of devices such as joinder, interpleader, and case consolidation, would make such a scenario the exception rather than the rule. (See Union Carbide Corp. v. Superior Court (1984) 36 Cal.3d 15, 24 [201 Cal.Rptr. 580, 679 P.2d 14] [noting that where suits are pending at the same time, consolidation can be employed, and the practical likelihood of sequential suits is `remote' because `[t]he extended nature of antitrust actions, often involving years of discovery, combines with the short four-year statute of limitations to make it impractical for potential plaintiffs to sit on their rights until after entry of judgment in the earlier suit'].) [17] In short, the Legislature decided to include in its new parens patriae statute a protection against the occasional potential for double recovery that arises when indirect purchasers can sue but direct purchasers are not subject to a pass-on defense, a provision created under the specific belief that Hanover Shoe would apply. From this, we may infer the Legislature approved application of Hanover Shoe to the Cartwright Act.