Court Opinion

ID: 9545297
Source: CourtListenerOpinion
Date Created: 2023-08-07 17:09:44.962734+00
Date Added: 2024-06-11T15:14:29.975227
License: Public Domain

*385CLARK, J., Dissenting.
Anomalously, the majority use the anti-price-fixing provisions of the Cartwright Act—designed to reduce prices and to eliminate restraint of trade—to invalidate contractual provisions designed to reduce prices and to foster competition with other retailers.
The undisputed evidence establishes the enterprise would sell gasoline at prices at or below its competitors; that when plaintiffs took over the enterprise, contract provisions were adopted to assure its prices would be maintained at or below the price of any competitor even during price wars; that defendants in fact set the retail price 1 cent below the lowest price charged by any competitor; and that after plaintiffs breached the agreement, they raised the prices above those of some competitors.
The trial court properly concluded defendants have not violated the Cartwright Act. Where, as here, both the right to profit and the risk of loss from retail sales are shared by noncompeting parties, an agreement between them regarding price to be charged does not constitute a per se violation of antitrust regulations. Rather, the rule of reason is applicable. Because the challenged business relation was intended to promote competition and neither stifled competition in fact, nor had any tendency to do so, the price agreement did not violate the act. While defendants’ secret commission may have constituted a breach of contract or a tort, it did not stifle competition within the meaning of the act. Viewed alone or in conjunction with the price agreement, the commission does not warrant an award of treble damage.
Joint Enterprise
Although price fixing by two business entities has been held a per se violation of antitrust regulations, there are exceptions. (Battle v. Liberty National Life Insurance Company (5th Cir. 1974) 493 F.2d 39; Congoleum Industries, Inc. v. Armstrong Cork Company (E.D.Pa. 1973) 366 F.Supp. 220, affd. 510 F.2d 334.) One such exception exists when the entities are not truly independent but act as a joint enterprise in the sale of a product.
Such a situation was presented in Evans v. S. S. Kresge Co. (3d Cir. 1976) 544 F.2d 1184, 1186-1187, cert. den., 433 U.S. 908 [53 L.Ed.2d 1092, 97 S.Ct. 2903], where two independent business entities used the same name under the same roof. A small percentage of the products sold by each was also sold by the other, each agreeing to charge the same prices *386for the items carried by both. The court concluded establishing prices did not violate federal antitrust laws.1
The court in Kresge reasoned that the two entities, independent for most purposés, may be viewed as partners for the purpose of antitrust analysis. “In addition, to the extent that Kresge and Hempfield offered like products for sale and competed ‘as one’ with other establishments, the two acted as ‘partners’ in establishing and operating under joint merchandising and pricing policies.” (Evans v. S. S. Kresge, supra, 544 F.2d 1184, 1191-1192.) The court stated that a means for determining the price to be charged which is “. . . designed only for the operation of a more efficient unified competitive entity vis-a-vis others—cannot be said to either ‘suppress’ or ‘destroy’ competition.” (Evans v. S. S. Kresge, supra, 544 F.2d 1184, 1196.)
In the instant case, plaintiffs and defendants were in effect engaged in a joint enterprise. Both relied upon retail sale of gasoline for a return on their investment, and both shared the risk of loss. Owning real and personal property and goodwill, defendants were to be compensated through rental and royalty of 5 percent of gross retail sales, with a guaranteed minimum. Defendants’ commissions from Powerine were also dependent upon the volume of plaintiffs’ sales. Defendants’ rental from their real and personal property and royalty for the franchise were directly related to the retail sales by plaintiffs. If prices were established so high that plaintiffs could not compete with other retailers, defendants obviously would suffer along with plaintiffs. Remember, plaintiffs’ complaint was that prices-were too low.
Further, defendants not only shared in plaintiffs’ potential losses but also increased their own risk of loss by guaranteeing plaintiffs a 7 percent gross profit on gasoline sales. If the retail gasoline price was fixed very low so as to increase volume, thus increasing rental, defendants would suffer large losses on their guarantee.
It is unrealistic to conclude, as the majority do, that defendants did not assume “the risk of losses on gasoline sales to any substantial extent.” (Ante, p. 378.) Defendants not only took the risk of the guaranteed profit but also the risk that their substantial property and royalty interests would realize little or no return. The complex method of sharing the profits and losses of the business establishes that defendants were directly *387involved in the venture’s success and that they .were engaged with plaintiffs in a joint enterprise competing with other retailers.
The majority tell us that in the “long run” the rebates would pay defendants as much or more than they were required to pay out as guaranteed profits. (Ante, p. 378.) However, bankruptcy courts are filled with debtors whose businesses might have become profitable in the “long run,” but somehow become insolvent in the shorter run. Both sides in the instant case presented evidence that competitors were driven out of business by the price wars—businesses which, had they survived the wars, might have succeeded in the “long run.” We do not know whether plaintiffs would have survived absent the $20,000 received under the guarantee, nor do we know when defendants would have become insolvent had the price war continued.
The provisions establishing prices and guaranteeing profits viewed either alone or with the rental provision, caused defendants to assume much of the profit and loss risk of the joint enterprise. The price provision was designed to, and had the effect of, creating a joint enterprise permitting competition with others during price wars. Like the Evans association, the arrangement “cannot be said to either ‘suppress’ or ‘destroy’ competition.”
The majority concede that no horizontal combination restricting competition existed. (Ante, p. 378, fn. 11.) They also recognize that the relationship between the parties did not constitute the type of vertical arrangement which has been found illegal per se by the courts in the past. (Ante, p. 378.) The record clearly reveals the joint enterprise was designed to compete successfully with other retailers and was not an attempt to restrict or restrain the market place.
Commission
The commissions paid by Powerine to defendants do not violate the Cartwright Act. Again, defendants were not in competition with plaintiffs. Those commissions were no more in restraint of trade than any commission paid by a manufacturer or wholesaler to its salesman. Indeed, the majority’s commission discussion casts doubt on the validity of the millions of salesman commission contracts in this state.
While the commission agreement with Powerine may have been “secret,” secrecy can hardly be said to restrain trade in the market place. *388Secrecy may facilitate the efficacy of an agreement or practice restraining trade, but it is the practice—not its covert nature—which determines whether restraint exists. While secret commissions in the instant case may give rise to an action for breach of contract or for tort, they do not constitute a restraint of trade violative of the Cartwright Act, warranting treble damages.2
Conclusion
The anti-price-fixing provisions of the Cartwright Act are intended to prevent restraints on trade hindering competition. It is obvious neither plaintiffs nor defendants intended to restrain trade, to impair competition or to alter existing market conditions. Rather, the clear purpose of the price provisions was to establish a means of payment for the leased premises, the franchise, and the guaranteed profit. These provisions not only allowed but required plaintiffs to compete with other retailers at all times, including price wars. Plaintiffs, perhaps suffering buyer’s remorse, should not now be permitted to avoid their obligations on the basis of a public policy which was furthered—not violated—by the agreement. Much less should plaintiffs be allowed a triple reward.
Richardson, J., concurred.
The petition of the cross-defendants and appellants for a rehearing was denied March 9, 1978. Clark, J., and Richardson, J., were of the opinion that the petition should be granted.

The majority recognize that federal precedents are applicable in construing the act. (Ante, p. 376.)

The majority do not discuss potential recovery for breach of contract or fraud. Plaintiffs have already recovered $19,000 from Powerine by settlement and over $20,000 in guaranteed profits. In addition, the trial court found that after plaintiffs discovered the rebates in July 1969 they failed to mitigate damages. It is by no means clear that they could recover more than already recovered absent an award of treble damages.