Court Opinion

ID: 9585610
Source: CourtListenerOpinion
Date Created: 2023-08-21 23:02:12.840186+00
Date Added: 2024-06-11T17:21:42.428867
License: Public Domain

RICHARDSON, J.*
I respectfully dissent, believing that a writ should issue. In my view, several rules enunciated by the United States Supreme Court in Hanover Shoe v. United Shoe Mach. (1968) 392 U.S. 481 [20 L.Ed.2d 1231, 88 S.Ct. 2224] and Illinois Brick Co. v. Illinois (1977) 431 U.S. 720 [52 L.Ed.2d 707, 97 S.Ct. 2061], considered in conjunction with the Legislature’s 1978 amendment to section 16750 of the Business and Professions Code, make appropriate a joinder of others within the chain of distribution, pursuant to Code of Civil Procedure section 389, subdivision (a).
In Hanover Shoe the high court interpreted section 4 of the Clayton Act (15 U.S.C. § 15) which provides that any person “who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor . . , and shall recover threefold the damages by him sustained . . . .” (Cf. Bus. & Prof. Code, § 16750, subd. (a).) The Hanover Shoe defendant asserted that it should be permitted to show that any illegal overcharge it may have imposed on its purchasers was, in turn, *27“passed on” by the plaintiff purchaser to the latter’s customers with no net loss to plaintiff. The high court rejected the “pass on” defense, reasoning: “We are not impressed with the argument that sound laws of economics require recognizing this defense. A wide range of factors influence a company’s pricing policies. Normally the impact of a single change in the relevant conditions cannot be measured after the fact; indeed a businessman may be unable to state whether, had one fact been different (a single supply less expensive, general economic conditions more buoyant, or the labor market tighter, for example), he would have chosen a different price. Equally difficult to determine, in the real economic world rather than an economist’s hypothetical model, is what effect a change in a company’s price will have on its total sales. Finally, costs per unit for a different volume of total sales are hard to estimate .... Treble-damage actions would often require additional long and complicated proceedings involving massive evidence and complicated theories.” (392 U.S. at pp. 492-493 [20 L.Ed.2d at p. 1241].)
Subsequently, in Illinois Brick, the Supreme Court examined the application of the “pass on” concept when used as a plaintiff’s device, rejecting the proposal that indirect purchasers could demonstrate that damages had been “passed on” to them. Referring to the Clayton Act, the high court said: “Permitting the use of pass-on theories under § 4 essentially would transform treble-damages actions into massive efforts to apportion the recovery among all potential plaintiffs that could have absorbed part of the overcharge—from direct purchasers to middlemen to ultimate consumers. However appealing this attempt to allocate the overcharge might seem in theory, it would add whole new dimensions of complexity to treble-damages suits and seriously undermine their effectiveness.” (431 U.S. at p. 737 [52 L.Ed.2d at p. 719].)
In the year after Illinois Brick the Legislature amended the California antitrust law by the addition of a clause in section 16750, subdivision (a), of the Business and Professions Code to provide that antitrust actions “may be brought by any person who is injured in his business or property by reason of anything forbidden or declared unlawful in this chapter, regardless of whether such injured person dealt directly or indirectly with the defendant.” (Italics added.) Section 2 of the statute provides additionally that “The amendment of this section . . . does not constitute a change in, but is declaratory of, the existing law.” (Stats. 1978, ch. 536, § 2 at p. 1696.) Thus, while the federal rule, solidly and clearly established by the United States Supreme Court, restricts antitrust enforcement to the direct purchaser, the Legislature conferred an express remedy on those who are injured by antitrust action whether or not they dealt directly with defendant. Plaintiffs sue under the authority of the state provision.
*28Nonetheless, as we stressed in Marin County Bd. of Realtors, Inc. v. Palsson (1976) 16 Cal.3d 920, 925 [130 Cal.Rptr. 1, 549 P.2d 833], “A long line of California cases has concluded that the Cartwright Act is patterned after the Sherman Act and both statutes have their roots in the common law. Consequently, federal cases interpreting the Sherman Act are applicable to problems arising under the Cartwright Act. [Citations.]” (See also Chicago Title Ins. Co. v. Great Western Financial Corp. (1968) 69 Cal.2d 305, 315 [70 Cal.Rptr. 849, 444 P.2d 481].) The Legislature’s declaration in section 2 of the amendment demonstrates a general intent to preserve this approach.
There is little applicable precedent governing the interplay of federal and state law on the subject. Several congressional proposals to overrule Illinois Brick have been unsuccessful. Six other states by statute have adopted a rule permitting, as does California, actions by indirect purchasers under state antitrust provisions (Alabama, Ala. Code, § 6-5-60(a) (1975); Hawaii, Hawaii Rev. Stat., § 480-14(c) (amended 1980); Illinois, Ill. Ann. Stat., ch. 38, § 60-7(2) (amended 1979); Mississippi, Miss. Code Ann., § 75-21-9 (1973); New Mexico, N.M. Stat. Ann., § 57-1-3(A) (amended 1979); and Wisconsin, Wis. Stat. Ann., § 133.18(1) (amended 1980)). These have yet to be judicially construed.
A critical factor in resolving the issue before us is the fact that defendants here are also defendants in a United States District Court action presently pending in the Eastern Division of the Northern District of Illinois (In re Industrial Gas Antitrust Litigation, Master File No. 80 C 3479). Based upon plaintiffs’ demonstration in the district court action that a common method of proof of damages could be used for all class members on November 3, 1983, the district judge recertified the class of direct purchasers to include: “All persons, firms, and corporations in the United States that purchased industrial gas from any defendant [including their respective subsidiaries or affiliates] at any time during the period of July 1, 1974, to and including June 30, 1980, but excluding (a) any defendants, or other industrial gas manufacturers and their subsidiaries and excluding (b) all on-site and pipeline purchasers.” All direct purchasers at the top of the chain of distribution are included in the class and, as such, if they prevail under federal law are entitled to treble damages for any overcharges by defendants.
In my view, in order to afford complete relief the direct and indirect purchasers in the chain of distribution to plaintiff must be joined as parties. Joinder is appropriate if there are persons not parties to the action in whose “absence complete relief cannot be accorded among those already parties,” or who claim an interest in the subject matter of the action and whose absence may impair their ability to protect that interest or subject any of *29those already parties “to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations . . . (Code Civ. Proc., § 389, subd. (a).) The two bases for my conclusion are (1) the strong probability that unless joinder is effected defendants may be subject to duplicative recovery of damages by different classes of plaintiffs and (2) plaintiffs may encounter significant problems in allocating the available “common fund” composed of trebled overcharges in which other parties may claim an interest. While my colleagues consider the risk speculative at this time, I regard the danger as real and substantial.
The first problem is the potential for duplicative damages against defendants. Direct purchasers under Illinois Brick may recover treble damages for overcharges paid by them even though the overcharges were “passed on” to others and regardless of any proven injury. In addition, under the Legislature’s amendment to Business and Professions Code section 16750, indirect and end-user purchasers may also sue in order to show that the overcharges were passed on to them to their actual détriment, claiming as damages treble the amount of the “passed-on” overcharge. Thus, both federal direct purchaser plaintiffs and state indirect purchaser plaintiffs may recover based on the same overcharge. This potential arithmetic expansion is further complicated by the possibility of further damage awards for others in the chain of distribution. Despite the rather cavalier approach of my colleagues, the risk here is neither speculative nor clearly permissible. In the present case if the direct purchasers prevail in their federal action a plaintiff’s recovery could impose upon defendants a recovery of six times the amount of any overcharge proved.
The Illinois Brick court expressly found such risk of duplicative recoveries wholly unacceptable. (431 U.S. at pp. 730-731, and fn. 11 [52 L.Ed.2d at pp. 715-716].) The high court, stating “we are unwilling to ‘open the door to duplicative recoveries’ under § 4” (p. 731 [52 L.Ed.2d at p. 716]), was entirely consistent with its earlier decision in Hawaii v. Standard Oil Co. (1972) 405 U.S. 251 [31 L.Ed.2d 184, 92 S.Ct. 885], in which it held that section 4 of the Clayton Act did not authorize a state to sue as parens patriae for harm done to its economy allegedly caused by an antitrust violation. The court reasoned that, “A large and ultimately indeterminable part of the injury to the ‘general economy’ ... is no more than a reflection of injuries to the ‘business or property’ of consumers, for which they may recover themselves under § 4. Even the most lengthy and expensive trial could not. . . cope with the problems of double recovery inherent in allowing damages for harm both to the economic interests of individuals and for the quasi-sovereign interests of the State.” (Id., at p. 264 [31 L.Ed.2d at p. 193]; see Comment, Parens Patriae Actions on Behalf of *30Indirect Purchasers: Do They Survive Illinois Brick? (1982) 34 Hastings L.J. 179 [arguing that they do].)
The holdings of lower federal and state courts following Illinois Brick have demonstrated the problem. Thus, in Alton Box Bd. Co. v. Esprit de Corp. (9th Cir. 1982) 682 F.2d 1267, the Ninth Circuit sustained the refusal by the district court, on procedural grounds, to enjoin a state court action by indirect purchasers. Finding no independent basis for federal jurisdiction the Alton court held that an injunction would be procedurally inappropriate. (See Anti-Injunction Act, 28 U.S.C. § 2283.) In dicta, however, the court viewed with favor the defendant manufacturer’s argument that the Cartwright Act proceeding and an ongoing federal action involved claims to the same “common fund” which therefore might result in “ ‘duplicative recoveries’ condemned by the Supreme Court. ” (Id., at p. 1272.) One New York court denied recovery to indirect purchasers in a state action reasoning that “If the direct purchasers class in the Federal Court recover, allowing the putative class proposal by the plaintiffs here, to also sue would subject defendants for a second time to liability for damages.” (Russo & Dubin v. Allied Maint. (1978) 95 Misc.2d 344, 348 [407 N.Y.Supp.2d 617].) Finally, another federal court in construing South Carolina’s antitrust law limited the application of the state statute to intrastate commerce, and dismissed the indirect purchaser plaintiff’s claims on the ground that they were interstate in character. It reasoned that, “Failure to apply Illinois Brick in this action would create the same problems the Supreme Court sought to avoid when it rendered that decision. . . . [including] the ‘serious risk of multiple liability for defendants’ . ...” (In re Wiring Device Antitrust Litigation (E.D.N.Y. 1980) 498 F.Supp. 79, 87.) Thus, all the courts previously considering this problem have indicated that they believe risks such as the one involved here are not acceptable.
In attempting to accommodate the federal iu-j limiting treble damages to one action, some commentators have argued that the rule is not binding on state legislatures which may adopt a policy of compensation in preference to deterrence. (See Note, State Indirect Purchaser Statutes: The Preemptive Power of Illinois Brick (1982) 62 B.U.L.Rev. 1241, 1266-1268, 1270-1271; Note, Indirect Purchaser Suits Under State Antitrust Laws: A Detour Around the Illinois Brick Wall (1981) 34 Stan. L.Rev. 203, 208-211, 218-220 [recommending a legislative solution to the unacceptable problems of potential duplicative liability].) However, we are not asked, either by pleading or argument, to determine at this time whether the effect of Illinois Brick is to preempt those state laws which may result in duplicative liability. Nonetheless, the Legislature has expressly said that the substantial risk of such multiple liability is a basis for joinder. (Code Civ. Proc., § 389, subd. (a).) While deference should be afforded to state antitrust statutes (see Exxon *31Corp. v. Governor of Maryland (1978) 437 U.S. 117, 128, 130-132 [57 L.Ed.2d 91, 101, 102-104, 98 S.Ct. 2207]; Note, State Indirect Purchaser Statutes: The Preemptive Power of Illinois Brick, supra, 62 B.U.L.Rev. at pp. 1252-1253, and fn. 76), I cannot accept plaintiffs’ argument that there is no substantial potential for duplicative liability or the majority’s conclusion made without citation or analysis that in any event such duplication would be permissible.
In fact, plaintiffs rather than claiming a right to duplicative recovery, instead attempt to suggest methods by which the problems of such recovery could be ameliorated. Each of the remedies suggested by plaintiffs raises substantial difficulties. It may be difficult for defendants to interplead or otherwise gain access to damages that may be awarded to direct purchasers in the federal action. (Code Civ. Proc., § 386.) Under Illinois Brick only direct purchasers are entitled to any such award, and attempts by state courts or defendants in state court actions to force federal plaintiffs to disgorge any part of the recovery to which they are expressly and solely entitled under federal law may well directly conflict with the federal decisions and the rationale behind them. Arguably, a direct purchaser will be less likely to sue if he knows that, after he obtains recovery, he may be required to “pass-on” that recovery to state court plaintiffs. “Simple” procedural devices normally available under state law thus may be inapplicable where the federal and state systems interact.
Next, plaintiffs assert that the risk to defendants of multiple liability becomes substantial only after plaintiffs have won. However, joinder is an appropriate protective remedy before any duplicate relief to plaintiff is assured. In the case before us, for example, a parallel federal action is proceeding in which direct purchasers from defendants are an integral part of the plaintiff class at the top of plaintiffs’ distribution chain.
Apart from the danger of improper duplicative awards, another related consideration persuades me that a joinder of plaintiffs is required. If the present federal action involving direct purchasers across the United States results in a jury verdict for defendants it is arguable that such a verdict will have either a res judicata or collateral estoppel effect on the present case. The majority completely ignores this problem, commenting only that questions of pass-on are irrelevant and therefore not subject to an inconsistent result in the federal action. (See ante, p. 23.) Plaintiffs in the case before us can recover only if they can establish an overcharge by defendants to direct purchasers which overcharge has been passed down the distribution chain to them as indirect purchasers. If there is a judgment for defendants in the federal action on the ground that there was no antitrust violation causing an overcharge to direct purchasers, that judgment arguably would *32estop plaintiffs in this state action. (See Degnan, Federalized Res Judicata (1976) 85 Yale L.J. 741, 767-773; cf. Ford Motor Co. v. Superior Court (1973) 35 Cal.App.3d 676, 679 [110 Cal.Rptr. 59] [after dismissal of federal antitrust action plaintiff barred from bringing Cartwright Act suit based on same acts alleged in federal complaint: “The two actions . . . rested on but a single invasion of one primary right . . .”]; Federated Department Stores, Inc. v. Moitie (1981) 452 U.S. 394 [69 L.Ed.2d 103, 101 S.Ct. 2424] [antitrust plaintiffs who brought state action instead of appealing after losing in federal antitrust action were barred on res judicata grounds from proceeding after removal of the new action to federal court despite the fact that plaintiffs in related suits had successfully appealed].) If on the other hand, the direct purchaser plaintiffs prevail in the federal action all of the above problems of duplicative recovery would be squarely raised.
Thus, in my view, joinder is appropriate because of the substantial possibility of multiple recovery. Moreover, even if plaintiffs before us are correct that, upon proof of “pass on,” they are entitled to relief through apportionment of any recovery received by plaintiffs in the federal action, and thus problems of duplicative recovery will not occur, a determination will still have to be made regarding the competing rights of various sets of plaintiffs to any treble damages recovery.
In Bank of California v. Superior Court (1940) 16 Cal.2d 516, 521 [106 P.2d 879], we described situations relating to a “common fund” which require all interested parties to be joined: “There may be some persons whose interests, rights, or duties will inevitably be affected by any decree which can be rendered in the action. Typical are the situations where a number of persons have undetermined interests in the same property, or in a particular trust fund, and one of them seeks, in an action, to recover the whole, to fix his share, or to recover a portion claimed by him. The other persons with similar interests are indispensable parties. The reason is that a judgment in favor of one claimant for part of the property or fund would necessarily determine the amount or extent which remains available to the others.”
Contrary to the majority, but consistent with Illinois Brick, I view the damages flowing from an overcharge antitrust violation, if multiple recoveries are barred, as constituting a common fund. The Supreme Court had this precisely in mind when it observed: “potential plaintiffs at each level in the distribution chain are in a position to assert conflicting claims to a common fund—the amount of the alleged overcharge—by contending that the entire overcharge was absorbed at that particular level in the chain.” (Illinois Brick, 431 U.S. at p. 737 [52 L.Ed.2d at p. 720], fn. omitted; see *33Atlantic Richfield Co. v. Superior Court (1975) 51 Cal.App.3d 168 [124 Cal.Rptr. 63].)
I find unpersuasive the majority’s contention that there is no logical inconsistency in simultaneous federal and state antitrust awards. It is no answer to the problem before us to note that in “common fund” situations the prospective claimants may recover pro rata shares of the fund while here the plaintiffs may be in an adversarial position. Whenever there are competing claims, the competitors with interest in the funds are adversaries. The real problem remains—if indeed the right to recover for an overcharge creates a common fund—what will be the effect on the excluded claimants in a related state action of a federal court decision awarding all interests in the common fund to one of several potential claimants? To me the competing claims here involved make invocation of the joinder statute entirely proper.
In summary, because of the significant unresolved issues affecting the rights of parties to this action as well as persons not parties but with interests affected by this suit, I find compelling the high court’s assessment of joinder in Illinois Brick: “A treble-damages action brought by one of these potential plaintiffs [persons at each level of the distribution chain] (or one class of potential plaintiffs) to recover the overcharge implicates all three of the interests that have traditionally been thought to support compulsory joinder of absent and potentially adverse claimants: the interest of the defendant in avoiding multiple liability for the fund; the interest of the absent potential plaintiffs in protecting their right to recover for the portion of the fund allocable to them; and the social interest in the efficient administration of justice and the avoidance of multiple litigation. [Citations.]” (431 U.S. at pp. 737-738 [52 L.Ed.2d at p. 720].)
Additional guidance favoring joinder may be found in the Law Revision Commission comment to the 1971 amendment to Code of Civil Procedure section 389 which noted that the section was “revised to substitute practically in its entirety Rule 19 of the Federal Rules of Civil Procedure . . . .” Accordingly, “[i]t is therefore appropriate to use federal precedents as a guide to application of the statute.” (Conrad v. Unemployment Ins. Appeals Bd. (1975) 47 Cal.App.3d 237, 241, [120 Cal.Rptr. 803]; see Van Atta v. Scott (1980) 27 Cal.3d 424, 451 and fn. 30 [166 Cal.Rptr. 149, 613 P.2d 210].) As the high court expressly declared in Illinois Brick: “if the defendant, for any of a variety of reasons does not choose to interplead the absent potential claimants, there would be a strong argument for joining them as ‘persons needed for just adjudication’ under Fed. Rule Civ. Proc. 19(a) .... These absent potential claimants would seem to fit the classic definition of ‘necessary parties,’ for purposes of compulsory joinder . . . .” *34(431 U.S. at pp. 738-739, fns. omitted [52 L.Ed.2d atpp. 720-721].) Under both state and federal authority, joinder is appropriate.
A secondary issue, raised by plaintiffs for the first time in their petition for hearing with us, involves the party upon whom falls the burden of naming those to be joined in the litigation. It seems to me that the plaintiffs have more accurate knowledge of, or at least access to, identification of those persons or entities along the chain of distribution. In the federal action the number of direct purchasers from defendants is so numerous that plaintiffs are proceeding as a class action. Defendants would have a difficult task if they were required to trace the sales to plaintiffs here through all their direct purchasers, the majority of whom may well have no relationship to this action.
Furthermore, Code of Civil Procedure section 389, subdivision (c), provides that “A complaint or cross-complaint shall state the names, if known to the pleader, of any persons as described in paragraph (1) or (2) of subdivision (a) who are not joined and the reasons why they are not joined.” (See Illinois Brick, 431 U.S. at p. 739 [52 L.Ed.2d at p. 721] [“The plaintiff bringing the treble damages action would be required under Fed. Rule Civ. Proc. 19(c), to ‘state the names, if known,’ of these absent claimants”].) I believe that it is incumbent upon plaintiffs to name the required parties or to suffer the risk of dismissal if they fail to do so or fail to explain the basis for their omission.
Finally, on the burden point, it may be observed that plaintiffs had apparently named as defendants in their action three direct purchasers whom they have subsequently dismissed because of the federal court’s recertification of the class. It thus appears to me that plaintiffs do indeed have knowledge of the persons through whom they must prove their case and the added obligation to plaintiffs becomes no burden at all. Plaintiffs will be required to discover the persons or entities in the chain of distribution between their purchase and defendants’ initial sale in order to prove that any overcharge was passed on to them. Nor are we here faced with a claim by defendants that plaintiffs must now join any users to whom plaintiffs might have sold their product thus making identification more difficult. As to such an assertion, Illinois Brick suggested that one possible procedural solution in such a situation was appointment of a class representative of such consumers. (431 U.S. at p. 739 [52 L.Ed.2d at p. 720].) Alternatively, another approach is to allow courts to inquire whether users further down the distribution chain are too remote or speculative to permit standing. (See Harris & Sullivan, Passing On The Monopoly Overcharge: A Comprehensive Policy Analysis (1979) 128 U.Pa.L.Rev. 269, 347, and fns. 149, 150.) In any event, plaintiffs, who will be required to identify the others in the line of *35distribution leading to them in order to prevail, are best situated to identify the necessary parties.
From the foregoing, I conclude that joinder is appropriate for purchasers in the distribution chain leading to plaintiffs. I would issue a writ of prohibition directing the superior court to vacate its order denying defendants’ motion to dismiss and ordering it to effect joinder of other purchasers within the line of distribution leading from defendants to plaintiffs. If it appears that any of such parties are not amenable to the court’s jurisdiction, then the trial court should exercise its balancing function carefully applying those factors described by the Legislature in Code of Civil Procedure section 389, subdivision (b).

Retired Associate Justice of the Supreme Court sitting under assignment by the Chairperson of the Judicial Council.