Court Opinion

ID: 9600401
Source: CourtListenerOpinion
Date Created: 2023-08-22 01:26:46.142126+00
Date Added: 2024-06-11T18:01:52.300804
License: Public Domain

SHENK, J.
— This proceeding in prohibition was commenced by the General Electric Company to prevent the enforcement by the respondent superior court of its order requiring the petitioner to produce certain of its books and records for inspection by the real party in interest, the Affiliated Government Employees Distributing Company, Inc. The order was made pursuant to discovery procedures (Code Civ. Proc., § 1000) in an action by the petitioner for an injunction under the Fair Trade Act of 1931 as amended in 1933 and 1941 (Bus. & Prof. Code, §§ 16900-16905) to enjoin the retail sale of its products by the real' party in interest at prices below those alleged to have been established in compliance with the terms of the act.
The defendant’s answer in the basic action set forth a number of defenses. The fifth affirmative defense alleged, on information and belief, that the petitioner “has arbitrarily and capriciously fixed the fair trade prices of its commodities far in excess of the cost of manufacturing and distributing the commodities and has unlawfully and inequitably used the Fair Trade Act to provide an arbitrary and unreasonable margin of profit on the sale to the public of its Fair Traded articles”; that “by virtue of the aforesaid conduct, plaintiff has used the Fair Trade Act in a manner detrimental and injurious to the public good and welfare, and has engaged in inequitable conduct which precludes it from seeking relief in a court of equity. ” Upon that defense and in contradiction of an affirmative allegation of the complaint that the petitioner’s products are in fair and open competition with the same class of goods produced by others, as required by the Fair Trade Act (Bus. & Prof. Code, § 16902), the attorney for the real party in interest moved for and was granted the contested order requiring the petitioner to produce its cost accounting records. His motion was supported by his affidavit in which he stated that at the trial he would introduce evidence to prove that petitioner had arbitrarily and unreasonably established the price of its commodities far in *899excess of the cost of manufacturing and distribution, for which purpose he required access to the petitioner’s records.
The order from which relief is sought in this proceeding is not appealable and prohibition is available. (Holm v. Superior Court, 42 Cal.2d 500, 505 [267 P.2d 1025, 268 P.2d 722]; City & County of San Francisco v. Superior Court, 38 Cal.2d 156 [238 P.2d 581].)
The precise question is whether the petitioner’s profits are material to any issue presented in the basic action. If so, there appears to be little question but that the petitioner’s records are subject to discovery procedures in spite of the physical burden under which the petitioner may be placed (Milton Kauffman, Inc. v. Superior Court, 94 Cal.App.2d 8 [210 P.2d 88]), or the disclosure of its claimed confidential manufacturing and business practices which may result thereby (see Code Civ. Proc., § 1000; I.E.S. Corp. v. Superior Court, 44 Cal.2d 559, 563 [283 P.2d 700] ; Holm v. Superior Court, supra, 42 Cal.2d 500). On the other hand, if manufacturer’s profits cannot be shown to be material to any issue pertinent to an action under the Pair Trade Act the trial court lacked the power to order the production of the records.
No provision of the act expressly mentions or puts any profit question in issue. There are two general grounds for the materiality of the records sought. It is claimed first that the records will show that the petitioner, in seeking the aid of a court of equity to restrain the real party in interest from selling for less than the established fair trade prices came into court with “unclean hands” because of the alleged unreasonably high margin of profit ihade possible by procedures undertaken pursuant to the act, and that proof of such claims would constitute a defense to the main action under. general principles of equity. Reliance is placed on Sunbeam Corp. v. Marcus, 105 P.Supp. 39, wherein it is stated, with reference to the showing a manufacturer must make to establish his right to relief under the New York Pair Trade Laws, that “Under equitable principles the plaintiff [manufacturer] has not indulged practices offensive to the conscience of the Court — that he comes into equity with clean hands.” Nowhere in that decision, however, nor in any decision cited or discovered (see Julius Schmid, Inc. v. McKay, 203 Okla. 502 [223 P.2d 529], where a similar contention was made but not passed upon) has the manufacturer’s margin of profit been considered indicative of unclean hands.  Traditionally the doctrine of unclean hands is invoked when the *900one seeking relief in equity “has violated conscience, or good faith, or other equitable principle, in his prior conduct.” (DeGarmo v. Goldman, 19 Cal.2d 755, 765 [123 P.2d 1], quoting from Pomeroy’s Equity Jurisprudence, § 397.)
Where, as here, the Legislature has not limited the price which a producer under the act may demand for his product, nor made the amount of his profits an element to be considered in making contractual arrangements on resale (see Scovill Mfg. Co. v. Skaggs Pay Less Drug Stores, ante, p. 881 [291 P.2d 936]), it does not appear to be within the province of the court to interject into the act such a provision by resort to the doctrine of unclean hands. (See Kofsky v. Smart & Final Iris Co., 131 Cal.App.2d 530 [281 P.2d 5].)
A ease closely in point on the issue of the materiality of the records to charges of unclean hands is Sunbeam Corp. v. Central Housekeeping Mart, Inc. (1954), 2 Ill.App.2d 543 [120 N.E.2d 362]. In that case a defendant retailer against whom a plaintiff manufacturer successfully invoked the injunctive provisions of the Illinois Fair Trade Act alleged that the plaintiff’s margin of profits between cost of production and retail price “was more than 200%.” In holding that the Illinois Fair Trade Act did not provide for an inquiry into prices, the court stated that “We need not decide whether there is no case in which equity could not inquire in the public interest whether an excessive margin of profit had resulted in an extortionate retail price to the consumer. It is enough to say that this charge does not here make an issue which would justify such an inquiry.” (See also Guerlain, Inc. v. F. W. Woolworth Co., 170 Misc. 150 [9 N.Y.S.2d 886].)
As the second ground for the materiality of the records it is contended that an inspection is necessary to determine the differential between production costs and retail prices. These are claimed to be material to the issue whether the petitioner’s products are in “fair and open competition with commodities of the same general class produced by others” (Bus. & Prof. Code, § 16902), and to other related issues raised by the pleadings. The real party in interest would infer the existence of a competition-destroying conspiracy between producers in the field if the profits of the petitioner proved to be unreasonably high. It was said in Scovill Mfg. Co. v. Skaggs Pay Less Drug Stores, supra, ante, p. 881 [291 P.2d 936], that “ ‘Fair and open’ relates only to the manner of competing, not to the results. If economic conditions, not the result of unlawful restraints or collusion, prevail to create a favorable market to the producer or retailer, no reason *901appears why the statute does not apply. There is no requirement concerning a reasonable price level ...”  A determination of the petitioner’s profits alone, if possible from the records sought, would not constitute substantial proof of either a conspiracy or an absence of fair and open competition. It is apparent at once that any examination into the question of fair and open competition requires an investigation of market conditions much broader in scope than the cost records of an individual producer. (See Eastman Kodak Co. v. Federal Trade Com., 158 F.2d 592.) The present petition is supported by exhibits which indicate that there are 16 other producers engaged in the manufacture and sale of competing electrical appliances. The real party in interest does not deny that there are such producers in the field and makes only an academic argument that fair and open competition might not exist.
From the foregoing it is apparent that the petitioner’s cost records have not been shown to be material to any issue presented in the basic action. The peremptory writ is therefore granted.
Gibson, C. J., Carter, J., Traynor, J., and Spence, J., concurred.