Opinion
Review Granted Feb. 3, 1998.
Previously published at 59 Cal.App.4th 436
Spiegel Liao & Kagay and Charles M. Kagay, San Francisco, for Plaintiffs and Appellants.
Gibson, Dunn & Crutcher, Robert C. Bonner, Rex S. Heinke, Mark Erich Weber, Los Angeles, Joel S. Sanders, San Francisco, Kathleen M. Vanderziel, Los Angeles and Theodore J. Boutrous, Washington, DC, for Defendant and Respondent.
Horvitz & Levy, Lisa Perrochet and David M. Axelrad, Encino; Latham & Watkins, John F. Walker, Jr., Peter W. Devereaux and Steven D. Atlee, Los Angeles; Heller Ehrman White & McAuliffe, Paul Alexander and Vanessa Wells, Palo Alto; Wright & Talisman, Michael B. Day and Margaret A. Rostker, Washington, DC, as Amici Curiae on behalf of Defendant and Respondent.
Peter Arth, Jr., Sacramento, Mark Fogelman, San Francisco and Fred Harris as Amicus Curiae, upon the request of the Court of Appeal.
KLEIN, Presiding Justice.
Plaintiffs and appellants Cel-Tech Communications, Inc. (Cel-Tech), Comtech, Inc. (Comtech), Cellular Service, Inc. (CSI), and Nutek, Inc. (Nutek) (collectively, plaintiffs), appeal a judgment following a grant of a motion for judgment (Code Civ. Proc., § 631.8) in favor of defendant and respondent Los Angeles Cellular Telephone Company (L.A.Cellular).
In a court trial, a motion for judgment pursuant to Code of Civil Procedure section 631.8 serves the same function as a nonsuit (Code Civ. Proc., § 581c), which is made after the presentation of the evidence in a jury trial. (Lucchesi v. Giannini & Uniack (1984) 158 Cal.App.3d 777, 784, fn. 7, 205 Cal.Rptr. 62.) Code of Civil Procedure section 631.8 is intended in a proper case to eliminate the necessity of defense evidence. (Rodde v. Continental Ins. Companies (1979) 89 Cal.App.3d 420, 423, 152 Cal.Rptr. 500.)
L.A. Cellular sold cellular telephones below cost as a strategy to gain subscribers for its cellular service, in which it enjoys a government-protected duopoly, along with AirTouch Cellular (Airtouch). Plaintiffs, who were in the business of selling cellular telephones, were damaged by L.A. Cellular's pricing. The issue presented is whether L.A. Cellular's conduct is actionable. L.A. Cellular did not violate Business and Professions Code sections 17043 and 17044, which prohibit below cost sales and loss leaders, because L.A. Cellular met its burden of proving it did not have an injurious intent. Nor did Nonetheless, on the limited record before us, it appears L.A. Cellular's engaging in below cost sales of cellular equipment in its quest to expand its related cellular service business, a practice which was subsidized by its duopoly profits, may constitute unfair competition under section 17200. Therefore, the judgment is affirmed in part and reversed in part, and the matter is remanded for further proceedings.
All further statutory references are to the Business and Professions Code, unless otherwise indicated.
FACTUAL AND PROCEDURAL BACKGROUND ,
"The standard of review after a trial court issues judgment pursuant to Code of Civil Procedure section 631.8 is the same as if the court had rendered judgment after a completed trial--that is, in reviewing the questions of fact decided by the trial court, the substantial evidence rule applies. An appellate court must view the evidence most favorably to the respondents and uphold the judgment if there is any substantial evidence to support it. [Citations.] However where ... we are called upon to review a conclusion of law based on undisputed facts, we are not bound by the trial court's decision and are free to draw our own conclusions of law. [Citation.]" (Pettus v. Cole (1996) 49 Cal.App.4th 402, 424-425, 57 Cal.Rptr.2d 46, rev. den.)
The issues presented are primarily legal, not factual. In opening statement, defense counsel asserted: "[Plaintiffs'] opening statement basically laid out our position in this case as well. The only place we really differ is[,] is there any[thing] wrong with what we have done?"
This is a civil action for damages and injunctive relief pursuant to the Unfair Practices Act (§ 17000 et seq.), the Cartwright Act (§ 16700 et seq.), the Unfair Competition Act (the UCA) (§ 17200 et seq.) and a common law claim for intentional interference with prospective economic advantage.
L.A. Cellular is one of two companies licensed by the federal government to provide cellular telephone service in the Los Angeles area, AirTouch being the other. L.A. Cellular offers cellular service directly to the public and through resellers. In addition to cellular service, L.A. Cellular also sells cellular telephones, both directly to the public and through retail agents.
Comtech and CSI are resellers of cellular service. In addition, Comtech, Cel-Tech and Nutek are wholesalers of cellular telephones. Comtech and Nutek also sell cellular telephones at retail to the public, with Nutek acting as an agent for CSI.
The high price of cellular telephones was the primary obstacle to L.A. Cellular's obtaining new subscribers for its service. Sales of cellular telephones are very price sensitive and a purchase of cellular equipment is usually accompanied by a service activation or subscription to cellular service. Consequently, in the early 1990's, L.A. Cellular formulated a strategy of selling cellular telephones below cost in order to increase the number of subscribers to its cellular telephone service. L.A. Cellular estimated that each service activation was worth $1,500 to it. Thus, L.A. Cellular's multi-million dollar losses on cellular telephone equipment sales were easily offset by its profits on cellular service.
The plaintiffs were injured by L.A. Cellular's below cost sales of cellular equipment. By the time of trial, Cel-Tech, once the largest distributor of cellular telephones in the Los Angeles market, was ceasing operations.
The other plaintiffs suffered similar fates, although their circumstances were somewhat different in that their businesses included the resale of cellular service. Like Cel-Tech, they could not afford to sell cellular telephones below cost, or compete with below-cost sales by selling above cost. As a result, their equipment sales deteriorated. Because they could not compete with L.A. Cellular in selling equipment below cost to stimulate service activations, their service businesses also declined.
This litigation resulted.
a. Proceedings.
Plaintiffs filed suit on February 15, 1994. One year later, the matter came to trial and was tried to the court.
At the end of the plaintiffs' case-in-chief, L.A. Cellular moved for judgment pursuant to Code of Civil Procedure section 631.8. b. Trial court's ruling.
The trial court then rendered an extensive statement of decision, as follows:
On the first cause of action, alleging below cost sales (§ 17043) and loss leaders (§ 17044), plaintiffs had failed to show L.A. Cellular's conduct was unlawful. L.A. Cellular did engage in below cost sales and loss leader strategies, and plaintiffs had been injured thereby. Those facts gave rise to a presumption under section 17071 that L.A. Cellular had an injurious intent. This presumption shifted the burden of proof to L.A. Cellular to establish it did not have the intent to injure competitors or destroy competition. L.A. Cellular succeeded in meeting that burden by presenting evidence its intent was merely to compete with AirTouch for subscribers, and that injury to the plaintiffs was unintended.
On the second cause of action, alleging agreements between L.A. Cellular and its exclusive agents, constituting a combination in restraint of trade in violation of section 16720, there was no evidence of any conspiracy or coercive activity by L.A. Cellular. To the contrary, L.A. Cellular made clear each distributor had the discretion to set its own prices.
With respect to the third cause of action, intentional interference with prospective economic advantage, plaintiffs failed to prove L.A. Cellular had the desire or intent to interfere with plaintiffs' business relationships.
Lastly, the trial court held the fourth cause of action for unfair competition under section 17200 necessarily failed with the demise of the other causes of action. The trial court ruled "this cause of action must rise or fall with the proof or the failure of proof of the other 3 causes of action."
Plaintiffs filed a timely appeal from the judgment.
CONTENTIONS
Plaintiffs contend the trial court erred: in holding L.A. Cellular lacked the requisite intent in selling below cost and offering loss leaders; in finding L.A. Cellular did not combine with its agents to restrain trade; in finding L.A. Cellular did not commit the tort of interference with prospective advantage against plaintiffs; in dismissing the unfair competition claim brought under section 17200; and in making the cost award, which contains substantial sums that cannot be awarded as costs.
Due to the significant issues presented, this court requested supplemental briefing. State Farm Insurance Companies, Truck Insurance Exchange, the Los Angeles Area Chamber of Commerce, and Cellular Carriers Association of California each filed amicus curiae briefs in support of L.A. Cellular. In view of certain arguments raised in those briefs, this court also invited and received an amicus curiae brief from the Public Utilities Commission of the State of California (PUC).
DISCUSSION
1. L. A. Cellular met its burden of proving it did not have an injurious intent and therefore substantial evidence supports trial court's determination L.A. Cellular's conduct was not unlawful under sections 17043 and 17044.
The first cause of action alleges sales of cellular phones below cost in violation of section 17043, and sales of cellular phones as loss leaders, in violation of section 17044.
a. Statutory scheme re intent.
Section 17043 states: "It is unlawful for any person engaged in business within this State to sell any article or product at less than the cost thereof to such vendor, or to give away any article or product, for the purpose of injuring competitors or destroying competition." (Italics added.)
Section 17044 states: "It is unlawful for any person engaged in business within this State to sell or use any article or product as
In "all actions brought under this chapter proof of one or more acts of selling or giving away any article or product below cost or at discriminatory prices, together with proof of the injurious effect of such acts, is presumptive evidence of the purpose or intent to injure competitors or destroy competition." (§ 17071.)
b. Both section 17043 and section 17044 contain an intent requirement.
As observed in Dooley's Hardware Mart v. Food Giant Markets, Inc. (1971) 21 Cal.App.3d 513, 515, 98 Cal.Rptr. 543, "[l]oss leaders are a species of below cost selling." Nonetheless, plaintiffs contend that because section 17044, pertaining to loss leaders, does not expressly include section 17043's "for the purpose of injuring competitors or destroying competition" language, section 17044 does not have an intent requirement. The argument is unavailing.
We are mindful "[i]f the language of a provision is clear and unambiguous, there is no need for judicial construction, and courts should not add to or alter its plain meaning. [Citations.] At the same time, all provisions of a particular statute must be construed as a whole, rather than piecemeal, so as to give purpose and effect to all its component parts. [Citations.]" (Hobby Industry Assn. of America, Inc. v. Younger (1980) 101 Cal.App.3d 358, 365, 161 Cal.Rptr. 601.) Thus, "[a] statute should be interpreted with reference to the whole system of law of which it is a part. [Citations.]" (People v. Comingore (1977) 20 Cal.3d 142, 147, 141 Cal.Rptr. 542, 570 P.2d 723.)
By its express terms, section 17071's presumption of injurious intent applies to "all actions brought under this chapter" (§ 17071, italics added), which would include actions brought under section 17044. It follows that section 17044, like section 17043, requires "evidence of the purpose or intent to injure competitors or destroy competition." (§ 17071.) Case law is in accord. (Ellis v. Dallas (1952) 113 Cal.App.2d 234, 238-239, 248 P.2d 63; Dooley's Hardware Mart, supra, 21 Cal.App.3d at pp. 516-517, 98 Cal.Rptr. 543; Hladek v. City of Merced (1977) 69 Cal.App.3d 585, 591, 138 Cal.Rptr. 194; Western Union Financial Services, Inc. v. First Data Corp. (1993) 20 Cal.App.4th 1530, 1539-1540, fn. 10, 25 Cal.Rptr.2d 341.)
Turning again to the rules of statutory construction, " '[s]tatutes are to be interpreted by assuming that the Legislature was aware of the existing judicial decisions. [Citation.] Moreover, failure to make changes in a given statute in a particular respect when the subject is before the Legislature, and changes are made in other respects, is indicative of an intention to leave the law unchanged in that respect.' [Citations.]" (Bishop v. City of San Jose (1969) 1 Cal.3d 56, 65, 81 Cal.Rptr. 465, 460 P.2d 137.) Thus, as noted in Dooley's Hardware Mart, supra, 21 Cal.App.3d at pages 516-517, 98 Cal.Rptr. 543, "the Ellis decision is still the governing law on this point in view of the failure of the Legislature to nullify by appropriate amendment the Ellis interpretation of section 17044 [citation], and that therefore, notwithstanding the absence of any language to this effect in either section 17044 or section 17030, intent to injure competitors or to destroy competition is required for violation of section 17044."
Accordingly, we reject plaintiffs' argument that section 17044, unlike section 17043, has no requirement of injurious intent.
c. The nature of the presumption.
As indicated, proof of below cost sales, together with proof of the injurious effect of such conduct, "is presumptive evidence of the purpose or intent to injure competitors or destroy competition." (§ 17071.) Another threshold issue is what sort of rebuttable presumption the Legislature intended to create in section 17071. "A presumption is an assumption of fact that the law requires to be made from another fact or group of facts found or otherwise established in the action." (Evid.Code, § 600, subd. (a).) A presumption "is either conclusive or rebuttable. Every rebuttable presumption is either (a) a presumption affecting the burden of producing evidence or (b) a presumption affecting the burden of proof." (Evid.Code, § 601, italics added.) " 'A presumption affecting the burden of producing evidence requires the ultimate fact to be found from proof of the predicate facts in the absence of other evidence. If contrary evidence is introduced then the presumption has no further effect and the matter must be determined on the evidence presented. (Evid.Code, § 604.)' " (State Compensation Ins. Fund v. Workers' Comp. Appeals Bd. (1995) 37 Cal.App.4th 675, 682, 43 Cal.Rptr.2d 660.)
A presumption affecting the burden of proof "has a more substantial impact in determining the outcome of litigation. The effect of a presumption affecting the burden of proof is 'to impose upon the party against whom it operates the burden of proof as to the nonexistence of the presumed fact.' (Evid.Code, § 606.) While a presumption affecting the burden of producing evidence concerns only the particular litigation in which it applies [ (Evid.Code, § 603) ], a presumption affecting the burden of proof 'is established to implement some public policy other than to facilitate the particular action in which it applies. [Citations.]' ( ... Evid.Code, § 605.)" (State Compensation Ins. Fund, supra, 37 Cal.App.4th at p. 682, 43 Cal.Rptr.2d 660.) In other words, " ' "[w]hat makes a presumption one affecting the burden of proof is the fact that there is always some further reason of policy for the establishment of the presumption." ' " (Pruyn v. Agricultural Ins. Co. (1995) 36 Cal.App.4th 500, 530, 42 Cal.Rptr.2d 295.)
For guidance with respect to section 17071, we look to Dooley's Hardware Mart, supra, 21 Cal.App.3d at page 517, 98 Cal.Rptr. 543, wherein the parties disagreed as to the effect of the presumption created by section 17071.5. Dooley's "examined the relevant sections in the Evidence Code, sections 601 through 606, and the comments of the Law Revision Commission and a legislative committee published as annotations to these sections and [concluded] that under [Evidence Code] section 605 [fn. omitted] the presumption of section 17071.5 is a presumption affecting the burden of proof--that is, that under it the defendants in this case were required to prove that by their use of the three loss leaders they did not intend to injure competitors or destroy competition. [Fn. omitted.] [p] This brings us to the question as to how may defendants rebut the 17071.5 presumption.... We believe that defendants may rebut the 17071.5 presumption either by evidence tending to bring them within one of the exceptions to the prohibitions contained in the [Unfair Practices] Act or by evidence establishing otherwise that they did not have the requisite wrongful intent." (Dooley's Hardware Mart, supra, 21 Cal.App.3d at pp. 517-518, 98 Cal.Rptr. 543, italics added.)
Section 17071.5, pertaining to sale of products below cost on terms that limit quantity purchasable by any one customer, is analogous to section 17071. Both sections provide that upon a certain showing, there arises a presumption "of the purpose or intent to injure competitors or destroy competition." (§§ 17071, 17071.5.)
More recently, Western Union Financial Services, Inc., supra, 20 Cal.App.4th at page 1540, 25 Cal.Rptr.2d 341, examined the legal effect of the presumption created by section 17071, which is the presumption applied by the trial court in the instant case. Inexplicably, Western Union cited Dooley's Hardware Mart for the proposition that the presumption is one affecting the burden of producing evidence. (Western Union Financial Services, Inc., supra, at p. 1540, 25 Cal.Rptr.2d 341.) However, as indicated, the actual holding in Dooley's is that the presumption of section 17071.5 "is a presumption affecting the burden of proof . ..." (Dooley's Hardware Mart, supra, 21 Cal.App.3d at pp. 517-518, 98 Cal.Rptr. 543, italics added.)
The discussion in Western Union states: "Assuming [the defendant] had sold a product below cost and assuming [the plaintiff] had proved damages, the obvious and only Having studied the Dooley's decision, it appears to this court that Western Union misconstrued Dooley's resolution of the issue.
Further, as between Western Union and Dooley's, we believe the Dooley's approach is the correct one. As indicated, a presumption affecting the burden of proof "is a presumption established to implement some public policy other than to facilitate the determination of the particular action in which the presumption is applied, ..." (Evid.Code, § 605, italics added.) Such a further reason of policy is clearly present here. The Unfair Practices Act was adopted "to safeguard the public against the creation or perpetuation of monopolies and to foster and encourage competition, by prohibiting unfair, dishonest, deceptive, destructive, fraudulent and discriminatory practices by which fair and honest competition is destroyed or prevented." (§ 17001.)
Given the definition of a presumption affecting the burden of proof as one established to implement a public policy (Evid.Code, § 605), and in view of the Legislature's pronouncement of public policy in the Unfair Practices Act, the conclusion is inescapable that the presumption of section 17071 is one affecting the burden of proof. The rebuttable presumption of section 17071 affects the burden of proof rather than the burden of producing evidence, because it implements the public policy against unfair business practices. Therefore, once the underlying facts have been established, namely, "one or more acts of selling or giving away any article or product below cost or at discriminatory prices, together with proof of the injurious effect of such acts" (§ 17071), the effect is to place upon the defendant the burden of proving it did not have "the purpose or intent to injure competitors or destroy competition." (§ 17071.)
We commend the trial court herein for its astute handling of this issue. In a pretrial ruling, the trial court recognized that Dooley's and Western Union are "diametrically opposed." The trial court then proceeded to examine the application of the two types of presumptions, and concluded the public policy implications require the instant presumption to be one affecting the burden of proof.
d. The requisite intent for liability under the statutory scheme.
Both sections 17043 and 17044 "require an injurious intent (a specific intent to injure or destroy ) and not just an intent to divert customers from a competitor. (Hladek v. City of Merced (1977) 69 Cal.App.3d 585, 591, 138 Cal.Rptr. 194 [an intent to injure competitors or destroy competition is an essential element in a cause of action under §§ 17043 and 17044].)" (Western Union Financial Services, Inc., supra, 20 Cal.App.4th at p. 1540, fn. 10, 25 Cal.Rptr.2d 341, italics added.) Thus, under the statutory scheme, for liability to attach, there must be an intent to injure competitors or destroy competition, not merely conduct which has an injurious effect.
The specific intent standard is dictated by the express language of the Unfair Practices Act. (§ 17000 et seq.) Section 17043 prohibits below cost sales "for the purpose of injuring competitors or destroying competition." Similarly, section 17071, creating a presumption of injurious intent, refers to "the purpose or intent to injure competitors or destroy competition." Section 17071.5 contains this identical language.
Therefore, we reject plaintiffs' contention that "actual purpose to harm is not required; disregard for the harmful consequences of selling below cost is enough to trigger liability." Plaintiffs' argument rests on the general principle that "'intent,' in the law of torts, denotes not only those results the actor desires, but also those consequences which he knows are substantially certain to result Here, however, the nature of the requisite intent is set forth in the statutory scheme. As recognized in Western Union Financial Services, Inc., sections 17043 and 17044 require a specific intent to injure competitors or destroy competition. (Western Union Financial Services, Inc., supra, 20 Cal.App.4th at p. 1540, fn. 10, 25 Cal.Rptr.2d 341.) Therefore, mere knowledge by a defendant that injury to a competitor is substantially certain to result from its pricing strategies is insufficient to give rise to liability under the statute. Our conclusion the statutory scheme requires a specific intent is bolstered by the penal provision of section 17100, making violation of this chapter a misdemeanor. (See also, § 17101 [prosecution must prove unlawful intent].)
Further, there are other areas in the law wherein civil liability turns on a defendant's specific intent to attain a desired result.
An example is an action for inducing breach of contract, wherein the plaintiff must plead and prove the defendant "had knowledge of the contract and intended to induce a breach thereof." (Abrams & Fox, Inc. v. Briney (1974) 39 Cal.App.3d 604, 608, 114 Cal.Rptr. 328.)
Similarly, a cause of action for intentional interference with prospective economic advantage requires not only knowledge by the defendant of the existence of a prospective business relationship containing the probability of future economic rewards for the plaintiff, but also "intentional acts by defendant designed to disrupt the relationship." (Settimo Associates v. Environ Systems, Inc. (1993) 14 Cal.App.4th 842, 845, 17 Cal.Rptr.2d 757, italics added; accord PMC, Inc. v. Saban Entertainment, Inc. (1996) 45 Cal.App.4th 579, 595, 52 Cal.Rptr.2d 877.)
Also, "actual fraud" as defined in Civil Code section 1572 consists of certain acts "committed by a party to the contract, or with his connivance, with intent to deceive another party thereto, or to induce him to enter into the contract. " (Italics added.) Likewise, Civil Code section 1709, pertaining to deceit, provides "[o]ne who willfully deceives another with intent to induce him to alter his position to his injury or risk, is liable for any damage which he thereby suffers." (Italics added; see also, Tarmann v. State Farm Mut. Auto. Ins. Co. (1991) 2 Cal.App.4th 153, 159, 2 Cal.Rptr.2d 861 [discussing specific intent requirement for deceit].)
We conclude the statutory language is controlling with respect to the requisite intent for liability under sections 17043 and 17044. Accordingly, for liability to attach, it is not enough a defendant intended to engage in below cost sales and that plaintiffs were injured thereby. The culpable intent under the statutory scheme is that a defendant act with the specific intent to injure competitors or destroy competition.
e. Trial court's ruling on the section 17043 and section 17044 claims.
The trial court found L.A. Cellular engaged in below cost sales and loss leaders. The trial court further found that plaintiffs were harmed thereby. Pursuant to the statutory presumption of section 17071, the trial court then shifted the burden of proof to L.A. Cellular to prove by a preponderance of the evidence that it did not act with the intent to harm plaintiffs or destroy competition. Having grappled with the legal issue of the nature of the presumption, the trial court was well aware of the legal effect of the presumption. The trial court found in favor of L.A. Cellular because it found L.A. Cellular had met its burden of proving it did not have the intent to harm plaintiffs or destroy competition.
The trial court specifically ruled "there is no credible evidence that L.A. Cellular's prices were set by that company or that partnership with the desire to injure the plaintiffs. That the defendant, in other words, wished or hoped for such injury."
The trial court further found "no evidence in this record that L.A. Cellular harbored any belief in the injurious consequences of its actions." It stated: "The most difficult question is whether L.A. Cellular had knowledge that injury to the plaintiffs was substantially
Thus, the trial court found L.A. Cellular did not intend to injure plaintiffs, and further, that L.A. Cellular was unaware injury to plaintiffs was substantially certain to result from its pricing strategies. The latter finding was irrelevant and may be disregarded as surplusage because, as discussed above, the critical inquiry under the statutory scheme is whether L.A. Cellular acted with the purpose or intent to injure its competitors or to destroy competition. (§ 17071; Western Union Financial Services, Inc., supra, 20 Cal.App.4th at p. 1540, fn. 10, 25 Cal.Rptr.2d 341.)
f. Substantial evidence supports trial court's determination L.A. Cellular rebutted the presumption by proving its purpose or intent was to compete with AirTouch, not to injure plaintiffs' businesses.
The record supports the trial court's finding L.A. Cellular's intent was to compete with AirTouch for subscribers and that injury to the plaintiffs was unintended.
David Stevens, an L.A. Cellular executive, was called by plaintiffs pursuant to Evidence Code section 776. Stevens testified L.A. Cellular's motivation was to obtain service activations and that sales of hardware, namely cellular telephones, were simply a means to that end.
Similarly, Ewa Gawora, a senior marketing manager for L.A. Cellular, testified
L.A. Cellular's basic business was to sell cellular telephone service, and the hardware
In addition, Roy Weinstein, plaintiffs' expert in antitrust economics, testified "the motivation of L.A. Cellular to sell equipment below cost flows from a desire to add subscribers to the service base." Weinstein acknowledged "that lowering equipment prices for cellular equipment results in more people signing up for cellular service."
In view of this testimony, it is not surprising that plaintiffs acknowledge L.A. Cellular's "motive" was to compete with AirTouch for service activations. Nonetheless, plaintiffs assert "innocent motive is seldom a defense to an intentional tort.... After all, any business selling below cost in all likelihood has an overriding motive to enhance its own business, and might be indifferent to or even regretful regarding the inevitable injury to others. This does not make the consequences of its acts unintentional." Therefore, according to plaintiffs, "[i]t is entirely consistent as a legal matter for L.A. Cellular to have a motive to sell more activations and at the same time to have a legally culpable intent to injure competitors or injure competition."
Thus, plaintiffs do not challenge the trial court's factual finding L.A. Cellular's motive was to compete with AirTouch, not to harm plaintiffs' businesses. Instead, plaintiffs attack the trial court's legal reasoning, arguing the requisite injurious intent is present where it is "substantially certain" a defendant's below cost pricing will harm a competitor. As explained below, plaintiffs' theory that L.A. Cellular necessarily had a culpable intent is without merit.
We recognize that "[i]ntent ... may be established by inference as well as by direct proof." (Seaman's Direct Buying Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 767, 206 Cal.Rptr. 354, 686 P.2d 1158, overruled in part on other grounds by Freeman & Mills, Inc. v. Belcher Oil Co. (1995) 11 Cal.4th 85, 102-103, 44 Cal.Rptr.2d 420, 900 P.2d 669 and Della Penna v. Toyota Motor Sales, U.S.A., Inc. (1995) 11 Cal.4th 376, 393, fn. 5, 45 Cal.Rptr.2d 436, 902 P.2d 740.) Thus, the trier of fact may "infer culpable intent from conduct 'substantially certain' " to produce injury. (Seaman's Direct Buying Service, Inc., supra, at p. 767, 206 Cal.Rptr. 354, 686 P.2d 1158.) However, plaintiffs give undue weight to the legal effect of conduct which is "substantially certain" to injure competitors or destroy competition. Even though the evidence, particularly the testimony of David Stevens, showed below cost sales were substantially certain to harm plaintiffs, the trial court was not compelled to infer that L.A. Cellular had an injurious intent. Although an injurious intent may be inferred from a defendant's knowledge its conduct is likely to have injurious consequences, it does not necessarily follow such a defendant had an injurious intent. The trial court was free to, and did, draw a contrary inference from all the evidence, namely, that L.A. Cellular's specific intent was merely to compete with AirTouch for subscribers.
Said finding is supported by substantial evidence and therefore cannot be disturbed on appeal. It is well settled that the "inferences to be drawn [from the evidence] were for the trier of fact to determine, and this court may not, regardless of what it might have [found] if sitting as a trial court, disturb the findings of that tribunal, founded as they are upon substantial evidence." (Moran v. Bromley (1952) 112 Cal.App.2d 520, 523, 246 P.2d 1001; accord Hellman v. La Cumbre Golf & Country Club (1992) 6 Cal.App.4th 1224, 1229, 8 Cal.Rptr.2d 293, 9 Witkin, Cal. Procedure (4th ed. 1997) Appeal, § 370, pp. 420-422.)
In sum, there is substantial evidence to support the trial court's finding L.A. Cellular met its burden of proving it did not have an injurious intent. Therefore, the trial court's determination with respect to the alleged violations of sections 17043 and 17044 must be affirmed. 2. Second cause of action.
The second cause of action alleged agreements between L.A. Cellular and its exclusive agents constituted a combination in restraint of trade in violation of section 16720.
a. General principles.
The Cartwright Act "is contained in ... section 16700 et seq. Sections 16720 and 16726 generally codify the common law prohibition against restraint of trade. [Citation.] Thus, an unlawful trust is defined in section 16720 as 'a combination of capital, skill or acts by two or more persons' for enumerated purposes which restrain trade. Section 16726 declares that 'every [such] trust is unlawful, against public policy and void.' Section 16750, subdivision (a) confers a private right of action for treble damages and attorneys' fees upon 'Any person who is injured in his business or property by reason of anything forbidden or declared unlawful by this chapter, ...' " (G.H.I.I. v. MTS, Inc. (1983) 147 Cal.App.3d 256, 264-265, 195 Cal.Rptr. 211.)
Recovery is available under the Cartwright Act " 'where the activities of a combination result in a restraint of trade.' [Citation.]" (G.H.I.I., supra, 147 Cal.App.3d at p. 265, 195 Cal.Rptr. 211.) In order to maintain a cause of action for such combination in restraint of trade, a plaintiff is required to establish: "The formation and operation of the conspiracy; the illegal acts done pursuant thereto; a purpose to restrain trade; and the damage caused by such acts. [Citations.]" (Ibid.)
The " 'conspiracy' or 'combination' necessary to support an antitrust action can be found where a supplier or producer, by coercive conduct, imposes restraints to which distributors involuntarily adhere. [Citations.] If a 'single trader' pressures customers or dealers into adhering to resale price maintenance, territorial restrictions, exclusive dealing arrangements or illegal '[tie-ins],' an unlawful combination is established, irrespective of any monopoly or conspiracy, and despite the recognized right of a producer to determine with whom it will deal. [Citations.]" (Kolling v. Dow Jones & Co. (1982) 137 Cal.App.3d 709, 720, 187 Cal.Rptr. 797.)
Whether each of the elements of a Cartwright Act claim "has been established is a question of fact to be determined by the trier of fact. [Citation.] Accordingly, on appeal this court is bound by the substantial evidence rule, and every intendment or presumption must be indulged in favor of the judgment. [Citation.]" (Kolling, supra, 137 Cal.App.3d at p. 718, 187 Cal.Rptr. 797.)
b. Trial court's ruling.
The trial court rejected the Cartwright Act claim, finding no credible evidence L.A. Cellular and its agents acted in restraint of trade.
The trial court stated: "Plaintiffs offer as evidence in support of these allegations the testimony of one Mr. Beau Bennett, who, as head of Cellular Order Desk, which is a ... L.A. Cellular agent, ... was approached by one Dennis Desmith of L.A. Cellular, who, according to Mr. Bennett, asked Mr. Bennett, quote, 'Why he didn't get with the program,'... Mr. Bennett understood this to mean why don't you sell at illegal, below cost prices. Plaintiffs also alleged that another hammer over the agents' heads is the allocation formula for distributing phones: increase your activations, you get more phones. This, according to plaintiffs, gives agents a strong incentive to sell below cost.... The court has analyzed the evidence and concludes as follows: If the conversation between Desmith and Bennett was a suggestion that he simply lower his prices, that would hardly be anti-competitive. If it were a suggestion that could be construed as an invitation to a conspiracy in restraint of trade, such suggestion would run directly counter to the October 9, 1992 letter from Stevens to defendant's agents, which said 2 things: 1, L.A. Cellular will refuse to pay co-op advertising to any agent listing below cost prices. And, 2, the letter stated that, quote, 'the ultimate price to the consumer is solely at your discretion.'... I do not believe that the testimony of Mr. Bennett is sufficient to establish conspiracy, express or implied. The approaches which L.A. Cellular has taken to the allocation of phones and to such matters as commissions, rebates and the like, appear to this court to be well within what is known in the antitrust law as the rule of c. No merit to plaintiffs' challenges to trial court's ruling on the Cartwright Act claim.
In urging reversal, plaintiffs contend: "There are at least two means by which the acts of an antitrust defendant can violate the 'combination' provision of the Cartwright Act without directly entering into an agreement with another actor in restraint of trade. The first arises when the defendant enters into a combination that, while not itself an agreement in restraint of trade, materially aids a restraint of trade. The second occurs in a vertical distribution arrangement in which defendant's customers (here, L.A. Cellular's agents) do not enter into an agreement with the defendant at all, but instead are coerced into conforming to the trade restraint. Both of these situations were embraced by plaintiffs' allegations. The trial court's ruling ignored the first, and dismissed the evidence of the second without a proper assessment of what the evidence showed."
With respect to the vertical price-fixing claim, plaintiffs acknowledge the weakness of their contention. Their reply brief states: "The trial court ruled against the vertical price-fixing claim, finding evidence that L.A. Cellular did not coerce its agents in letters to the agents reciting to them their putative right to charge whatever they want. Thus, there was at least some support in the record for the court's conclusion that L.A. Cellular did not engage in vertical price-fixing." (Italics added.)
Plaintiffs' alternative theory of a Cartwright Act violation is that even if L.A. Cellular did not coerce its agents into selling below cost, L.A. Cellular "used its agents as instrumentalities in carrying out its scheme to destroy the equipment market to further its service sales." However, the evidence established there was no such scheme by L.A. Cellular to destroy the equipment market. For these reasons, we perceive no error in the trial court's ruling on the Cartwright Act claim.
Plaintiffs cite Albrecht v. Herald Co. (1968) 390 U.S. 145, 88 S.Ct. 869, 19 L.Ed.2d 998, overruled on other grounds by State Oil Co. v. Khan (1997) 522 U.S. 3, 118 S.Ct. 275, 139 L.Ed.2d 199, for the proposition that even where a defendant does not enter into an agreement with a third party to restrain trade, a combination in restraint of trade arises when the third party materially aids a restraint of trade. Because the Cartwright Act is patterned upon the federal Sherman Anti-Trust Act (15 U.S.C § 1 et seq.), "federal cases interpreting the Sherman Act are applicable with respect to the Cartwright Act. [Citations.]" (Chicago Title Ins. Co. v. Great Western Financial Corp. (1968) 69 Cal.2d 305, 315, 70 Cal.Rptr. 849, 444 P.2d 481; accord Cellular Plus, Inc. v. Superior Court (1993) 14 Cal.App.4th 1224, 1240, 18 Cal.Rptr.2d 308.) In Albrecht, a newspaper company hired another company to solicit subscribers away from an independent carrier, to force the independent carrier to charge no more than the suggested retail price for the newspaper. Such conduct was held to constitute an illegal restraint of trade under the Sherman Act. (Albrecht, supra, at p. 153, 88 S.Ct. at pp. 873-874.) Albrecht found the newspaper company's "conduct cannot be deemed wholly unilateral and beyond the reach of ... the Sherman Act" in that "a combination arose between [the newspaper company], [the company which solicited the carrier's customers], and [the new carrier] to force [the first carrier] to conform to the advertised retail price." (Id., at p. 149, 88 S.Ct. at p. 871, italics added.)
3. Substantial evidence supports trial court's ruling with respect to third cause of action for intentional interference with prospective economic advantage.
"The elements of the tort include (1) the existence of a prospective business relationship containing the probability of future economic rewards for plaintiff; (2) knowledge by defendant of the existence of the relationship; (3) intentional acts by defendant designed to disrupt the relationship; (4) actual causation; and, (5) damages to plaintiff proximately caused by defendant's conduct. [Citation.] The general wrong inherent in this tort is the unlawful interference with a business opportunity through methods which are not within the privilege of fair competition. [Citation.]" (Settimo Associates, supra, 14 Cal.App.4th at p. 845, 17 Cal.Rptr.2d 757, italics added; accord PMC, Inc., supra, 45 Cal.App.4th at p. 595, 52 Cal.Rptr.2d 877.)
Our disposition of plaintiffs' claims under sections 17043 and 17044 resolves this cause of action as well. This cause of action similarly requires a specific intent, namely, the intent to disrupt a prospective business relationship. (Settimo Associates, supra, 14 Cal.App.4th at p. 845, 17 Cal.Rptr.2d 757; PMC, Inc., supra, 45 Cal.App.4th at p. 595, 52 Cal.Rptr.2d 877.)
As discussed above, there is substantial evidence to support the trial court's finding L.A. Cellular's intent was to compete with AirTouch for subscribers, and that "injury to the plaintiffs was unintended." Therefore, the trial court properly found in favor of L.A. Cellular on the tortious interference claim.
4. On the record presented, the trial court erred in finding there could be no violation of section 17200 as a matter of law.
The fourth cause of action alleged L.A. Cellular engaged in unfair competition pursuant to section 17200 et seq., the UCA.
Section 17200 provides: "[a]s used in this chapter, unfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising and any act prohibited by Chapter 1 (commencing with Section 17500) of Part 3 of Division 7 of the Business and Professions Code." (Italics added.) It is clear the statute is written in the disjunctive. (State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093, 1102, 53 Cal.Rptr.2d 229, rev. den.; Podolsky v. First Healthcare Corp. (1996) 50 Cal.App.4th 632, 647, 58 Cal.Rptr.2d 89.)
However, in granting the motion for judgment at the close of the plaintiffs' case, the trial court ruled "by the allegations of that cause of action, it is based on the Unfair Practices Act, the Cartwright Act and the common law cause of action for interference. Therefore, this cause of action must rise or fall with the proof or the failure of proof of the other 3 causes of action."
As explained below, the ruling was erroneous as a matter of law. The fate of the section 17200 claim did not turn on the resolution of the other three causes of action. In particular, our determination that L.A. Cellular's conduct was not unlawful under a. The "unfair" prong of section 17200.
The continuing vitality of section 17200 was recognized by this court in State Farm Fire & Casualty Co., wherein we held a cause of action under section 17200 was stated "based upon an insurer's alleged fraudulent misconduct and breach of the covenant of good faith implied in every policy of insurance." (State Farm Fire & Casualty Co., supra, 45 Cal.App.4th at p. 1098, 53 Cal.Rptr.2d 229.) Although that decision arose in a different context, by way of background it contains a helpful general discussion of the nature of a UCA action. (Id., at pp. 1102-1105, 53 Cal.Rptr.2d 229.)
As noted, because section 17200 is written in the disjunctive, it establishes three varieties of unfair competition-business acts or practices which are unlawful, or unfair, or fraudulent. "In other words, a practice is prohibited as 'unfair' or 'deceptive' even if not 'unlawful' and vice versa. [Citation.]" (State Farm Fire & Casualty Co., supra, 45 Cal.App.4th at p. 1102, 53 Cal.Rptr.2d 229; accord Podolsky, supra, 50 Cal.App.4th at p. 647, 58 Cal.Rptr.2d 89.) Thus, "[t]he 'unfair' standard, the second prong of section 17200, ... provides an independent basis for relief." (State Farm Fire & Casualty Co., supra, at p. 1103, 53 Cal.Rptr.2d 229.)
In Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94, 111-112, 101 Cal.Rptr. 745, 496 P.2d 817, the Supreme Court gave an expansive interpretation to the concept of unfair practices. Barquis construed Civil Code former section 3369, which was partially recodified in 1977 in section 17200. (Stats.1977, ch. 299, §§ 1, 2, pp. 1202-1204; see 12A, West's Ann. Civ.Code (1997 ed.) Historical and Statutory Notes foll. § 3369, pp. 6-7.) Like its successor, Civil Code former section 3369 defined "unfair competition" to include "unlawful, unfair or fraudulent business practice[s]." (Barquis, supra, at p. 109, 101 Cal.Rptr. 745, 496 P.2d 817, italics deleted.) Barquis made this sweeping statement: "In permitting the restraining of all 'unfair' business practices, section 3369 undeniably establishes only a wide standard to guide courts of equity; ... given the creative nature of the scheming mind, the Legislature evidently concluded that a less inclusive standard would not be adequate." (Id., at p. 112, 101 Cal.Rptr. 745, 496 P.2d 817.) Thus, the Supreme Court in Barquis "merely echoed that what had been said a decade earlier in People ex rel. Mosk v. National Research Co. of Cal. (1962) 201 Cal.App.2d 765, 772, 20 Cal.Rptr. 516: '[I]t would be impossible to draft in advance detailed plans and specifications of all acts and conduct to be prohibited [citations omitted], since unfair or fraudulent business practices may run the gamut of human ingenuity and chicanery.' " (Motors, Inc. v. Times-Mirror Co. (1980) 102 Cal.App.3d 735, 740, 162 Cal.Rptr. 543.)
Some years after Barquis, in seeking to define the term "unfair business practice" within the meaning of section 17200, People v. Casa Blanca Convalescent Homes, Inc. (1984) 159 Cal.App.3d 509, 530, 206 Cal.Rptr. 164, looked to "guidelines set by the Federal Trade Commission and sanctioned by the United States Supreme Court in F.T.C. v. Sperry and Hutchinson Co. (1972) 405 U.S. 233, 244 [92 S.Ct. 898, 905, 31 L.Ed.2d 170, 179], [for] needed guidance. The United States Supreme Court said: 'The Commission has described the factors it considers in determining whether a practice that is neither in violation of the antitrust laws nor deceptive is nonetheless unfair: "(1) whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise--whether, in other words, it is within at least the penumbra of some common-law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical,
Another, complementary test, for whether a particular business practice is "unfair" involves an "examination of its impact on its alleged victim, balanced against the reasons, justifications and motives of the alleged wrongdoer. In brief, the court must weigh the utility of the defendant's conduct against the gravity of the harm to the alleged victim--a weighing process.... [Citations.]" (Motors, Inc. v. Times Mirror Co., supra, 102 Cal.App.3d at p. 740, 162 Cal.Rptr. 543; accord State Farm Fire & Casualty Co., supra, 45 Cal.App.4th at pp. 1103-1104, 53 Cal.Rptr.2d 229; Olsen v. Breeze, Inc. (1996) 48 Cal.App.4th 608, 618, 55 Cal.Rptr.2d 818.)
Examples of "unfair business practices include: charging a higher than normal rate for copies of deposition transcripts (by a group of certified shorthand reporters), where the party receiving the original is being given an undisclosed discount as the result of an exclusive volume-discount contract with two insurance companies (Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 840-841 [33 Cal.Rptr.2d 438] ); placing unlawful or unenforceable terms in form contracts (People v. McKale (1979) 25 Cal.3d 626, 634-635 [159 Cal.Rptr. 811, 602 P.2d 731] ); asserting a contractual right one does not have (People v. McKale, supra, 25 Cal.3d at p. 635, 159 Cal.Rptr. 811, 602 P.2d 731; People v. Custom Craft Carpets, Inc. (1984) 159 Cal.App.3d 676, 683-684 [206 Cal.Rptr. 12] ); systematically breaching a form contract affecting many consumers (Orkin Exterminating Co., Inc. v. F.T.C. (11th Cir.1988) 849 F.2d 1354, 1367-1368), or many producers (Allied Grape Growers v. Bronco Wine Co. (1988) 203 Cal.App.3d 432, 449-453 [249 Cal.Rptr. 872] ); and imposing contract terms that make the debtor pay the collection costs (Bondanza v. Peninsula Hospital & Medical Center (1979) 23 Cal.3d 260, 266-267 [152 Cal.Rptr. 446, 590 P.2d 22] )." (State Farm Fire & Casualty Co., supra, 45 Cal.App.4th at p. 1104, 53 Cal.Rptr.2d 229.)
In view of these authorities, we are unpersuaded by L.A. Cellular's argument the law is too vague to guide businesses in their conduct or courts in the application of section 17200. (See also, People ex rel. Mosk v. National Research Co. of Cal. (1962) 201 Cal.App.2d 765, 771-772, 20 Cal.Rptr. 516, rejecting contention that Civil Code former section 3369 was unconstitutionally void for uncertainty and vagueness ["[t]here is ... a definite background of experience and precedence to illuminate the meaning of the words employed in the statute"].)
b. Application of section 17200 to address conduct that is not otherwise unlawful.
Over the years, the courts have used section 17200 to address conduct which may be unfair, even if not otherwise unlawful.
For example, in Motors, Inc. v. Times Mirror Co., supra, 102 Cal.App.3d at page 738, 162 Cal.Rptr. 543, the plaintiff challenged a newspaper's two-tiered advertising rate structure, which offered substantially lower rates at every volume level for retail concerns. The reviewing court held that even though the complaint did not state a cause of action under the Cartwright Act, and irrespective of whether the pricing policy was specifically outlawed by the Unfair Practices Act (§ 17000 et seq.), the complaint In Saunders v. Superior Court (1994) 27 Cal.App.4th 832, 33 Cal.Rptr.2d 438, the plaintiffs alleged the defendants' direct contracting, "a form of exclusive dealing arrangement whereby the seller sells a product or service to the buyer on condition the buyer purchase the product or service only from the seller," constituted an unfair business practice under section 17200. (Id., at p. 838, 33 Cal.Rptr.2d 438.) Plaintiffs did "not contend direct contracting is illegal per se. [Citation.]" (Ibid.) Rather, plaintiffs contended that direct contracting as practiced by defendants, a group of certified shorthand reporters and two insurance companies, constituted unfair competition under section 17200. (Ibid.) Saunders held the complaint stated a cause of action under section 17200, even though there was no claim the practice was illegal per se. (Id., at pp. 837-841, 33 Cal.Rptr.2d 438.)
The California Attorney General also has recognized that section 17200 provides an independent basis for relief. It has concluded "[t]he practice by a lender making loans secured by deeds of trust on real property of designating on its defaulted loans only those foreclosure trustees who agree to charge as a trustee fee for a foreclosure sale on its FHA and VA secured loans only the amount the federal government will reimburse the lender for such fees and allowing the foreclosure trustee to charge the maximum fee allowed by state law on its other loan foreclosures does not violate Civil Code section 2924(c) or the Cartwright Act" (71 Ops.Cal.Atty.Gen. 314 (1988)) but nonetheless "constitutes an 'unlawful, unfair or fraudulent business practice' within the meaning of B & P section 17200." (Id., at pp. 322-323.)
In sum, an unfair business practice is independently actionable under the UCA (§ 17200 et seq.), even if the practice is not otherwise unlawful.
Nonetheless, seeking to parlay its favorable ruling on the sections 17043 and 17044 claims into a similar outcome on the section 17200 claim, L.A. Cellular cites Hobby Industry Assn. of America, Inc. v. Younger (1980) 101 Cal.App.3d 358, 161 Cal.Rptr. 601, for the proposition that where the Legislature has enacted a statute that expressly governs the precise conduct that is challenged, and the defendant's conduct is lawful under that statute, the courts cannot enjoin that conduct under section 17200. That case involved the Fair Packaging and Labeling Act (§ 12601 et seq.), which provides that wholesalers and retailers are generally immune under the Act unless they actually package or label the nonconforming commodities themselves, prescribe the manner of packaging, or have knowledge of the commodities' nonconforming nature. (§ 12602, subd. (b); Hobby Industry Assn. of America, Inc., supra, at p. 369, 161 Cal.Rptr. 601.)
Rejecting the contention that wholesalers and retailers immune under section 12602 were still subject to suit under section 17200, the reviewing court held "[t]here is nothing in section 17200 et seq. which reimposes the liability on wholesalers and retailers which is expressly excluded by section 12602.... Although the Supreme Court has construed the orbit of the unfair competition statutes expansively [citations], it cannot be said that this embracing purview also encompasses business practices which the Legislature has expressly declared to be lawful in other legislation. [Citation.]" (Hobby Industry Association of America, Inc., supra, 101 Cal.App.3d at pp. 369-370, 161 Cal.Rptr. 601.)
L.A. Cellular's reliance on Hobby Industry to avoid section 17200 is misplaced. The Legislature has not expressly declared below cost sales and loss leaders to be lawful in other legislation. Rather, as discussed, it has declared that below cost sales and loss leaders which have an injurious effect are presumptively unlawful. (§§ 17043, 17044, 17071.) Accordingly, merely because L.A. Cellular successfully resisted the sections 17043 and 17044 claims by negating the element of unlawful intent does not preclude the application of section 17200.
c. Application of the above principles puts in issue whether L.A. Cellular's below cost sales of cellular telephones under these circumstances may constitute an unfair practice within the meaning of section 17200.
L.A. Cellular asserts plaintiffs' challenge to its conduct herein "ignores the very
L.A. Cellular's paean to free competition and survival of the fittest rings hollow. It is L.A. Cellular's privileged status as one of two holders of a lucrative government-licensed duopoly which enabled L.A. Cellular to subsidize massive losses on below cost sales of cellular equipment with its duopoly profits on cellular service, profits which by law were unavailable to its competitors. In this regard, the PUC itself has recognized "the discounts on cellular equipment are supported by the high profits on cellular service, profits which are in turn made possible by the duopoly market structure. We have little doubt that greater competition among cellular providers would greatly lower profits, which in turn would reduce the providers' ability to offer discounts on equipment. Under the current unnatural market structure, equipment discounts become a form of price competition for cellular service which can be focused on new subscribers." (Re Regulation of Cellular Radiotelephone Utilities (1995) 59 Cal.P.U.C.2d 192, 205, 1995 WL 298917, italics added.) Given L.A. Cellular's government-protected position in the duopoly service market, the fairness of its below-cost sales of cellular equipment requires careful scrutiny.
We recognize the instant trial concluded with a grant of motion for judgment pursuant to Code of Civil Procedure section 631.8, before the presentation of a defense case. However, the limited record presented is sufficient to put in issue whether L.A. Cellular's conduct was unfair within the meaning of section 17200. Under the FTC guidelines cited in People v. Casa Blanca Convalescent Homes, Inc., supra, 159 Cal.App.3d at page 530, 206 Cal.Rptr. 164, and State Farm Fire & Casualty Co., supra, 45 Cal.App.4th at page 1104, footnote 6, 53 Cal.Rptr.2d 229, it would appear L.A. Cellular's below cost sales may represent an unfair practice. Even though L.A. Cellular's below cost sales are not unlawful under sections 17043 and 17044 because L.A. Cellular established it did not have an injurious intent, its below cost sales may be "within at least the penumbra of some ... statutory ... concept of unfairness." (People v. Casa Blanca Convalescent Homes, Inc., supra, 159 Cal.App.3d at p. 530, 206 Cal.Rptr. 164.) The Legislature has not authorized this practice of selling below cost. To the contrary, under California law, below cost sales and loss leaders which have an injurious effect are presumptively unlawful. (§§ 17043, 17044, 17071.) Merely because L.A. Cellular was able to establish its conduct was not unlawful under sections 17043 and 17044 does not establish its conduct was not unfair under section 17200. Even though L.A. Cellular succeeded in establishing it lacked an injurious intent and thereby avoided liability under sections 17043 and 17044, those statutes represent a legislative determination that selling below cost can be unfair to competitors.
It is a commercial reality that businesses occasionally utilize below cost sales and loss leaders to meet competition and to expand sales volume. In Dooley's Hardware Mart v. Food Giant Markets, Inc., supra, 21 Cal.App.3d at page 515, 98 Cal.Rptr. 543, a food market offered for sale and sold "limited quantities and for limited periods in January 1967 three loss leaders, Tide, a detergent, Folger's Coffee and C & H Sugar." Similarly, in Ellis v. Dallas, supra, 113 Cal.App.2d at page 236, 248 P.2d 63, "the defendants advertised and sold certain grocery articles, to wit: Crisco, Tide and Bisquick, below cost. The advertisements ... commenced May 18, 1951, and continued until July 5th following." In both cases, the evidence established the defendants' purpose was not to injure their competitors but to induce the purchase of Such relatively benign short-term use of below cost sales of a handful of items stands in marked contrast to the instant situation. Here, for a period of years, L.A. Cellular has engaged in an ongoing business practice of selling cellular equipment below cost to expand its cellular service business. Despite massive and steady losses on equipment sales, L.A. Cellular was able to thrive by virtue of its government-protected duopoly in the service market. Plaintiffs, who are in the business of selling cellular telephones, cannot withstand such a retail environment.
In addition to arguably being within the penumbra of the statutory concept of unfairness, L.A. Cellular's pricing strategy may be "oppressive" to plaintiffs, which is the second prong of the FTC test. (People v. Casa Blanca Convalescent Homes, Inc., supra, 159 Cal.App.3d at p. 530, 206 Cal.Rptr. 164.) No business, no matter how efficient, can succeed in a competitive environment where below-cost sales are the norm. L.A. Cellular, by its willingness to incur losses on equipment sales to build up its related cellular service business, frustrated the right of plaintiffs to fair competition in the cellular equipment business.
Finally, the third prong of the FTC test for whether a business practice is unfair is whether the practice causes substantial injury to consumers or competitors. (People v. Casa Blanca Convalescent Homes, Inc., supra, 159 Cal.App.3d at p. 530, 206 Cal.Rptr. 164.) As indicated, the trial court found plaintiffs, L.A. Cellular's competitors, were damaged by L.A. Cellular's below-cost sales and the record supports that conclusion.
As for the impact on consumers, L.A. Cellular's discounted sales of cellular telephones did not necessarily benefit consumers who bought them. L.A. Cellular recouped its equipment losses many times over through what it earned in service charges. The evidence showed, for example, that in December 1993, L.A. Cellular incurred a loss of $1,294,340 on equipment sales, but had a margin on nonequipment of $20,165,319, for a total operating margin of $18,870,979. As indicated, section 17200 is intended to protect consumers as well as competitors. (Tippett, supra, 37 Cal.App.4th at p. 1536, 44 Cal.Rptr.2d 862.)
Under a balancing test, which weighs the utility of L.A. Cellular's conduct against the gravity of the harm to the plaintiffs (Motors, Inc. v. Times Mirror Co., supra, 102 Cal.App.3d at p. 740, 162 Cal.Rptr. 543; State Farm Fire & Casualty Co., supra, 45 Cal.App.4th at pp. 1103-1104, 53 Cal.Rptr.2d 229), L.A. Cellular's conduct likewise is questionable. L.A. Cellular's purported justification is that it is vying with AirTouch for market share in the cellular service business. Against that marginal benefit to L.A. Cellular must be weighed the extreme detriment to plaintiffs, who are destined to fail in the business of selling cellular telephones in the face of L.A. Cellular's below cost sales of such equipment. Therefore, it would appear that L.A. Cellular's below cost equipment sales may amount to an unfair business practice.
Plaintiffs' economist testified L.A. Cellular can compete against AirTouch to obtain service activations without destroying the equipment market, by reducing its monthly access charges and usage rates. The PUC also has expressed a preference for "healthy and direct competition for cellular service," as opposed to the current practice of bundled equipment discounts. (Re Regulation of Cellular Radiotelephone Utilities, supra, 59 Cal.P.U.C.2d at p. 205.) The possible availability to L.A. Cellular of an alternative competitive strategy which would not be injurious to plaintiffs further puts in issue whether its below cost sales of equipment may constitute an unfair practice.
Bundling is the practice of "the combined sale of discounted cellular telephone equipment and tariffed cellular service." (Re Regulation of Cellular Radiotelephone Utilities, supra, 59 Cal. P.U.C.2d at p. 196.)
Although L.A. Cellular asserts it was simply meeting the competitive challenge posed by AirTouch, plaintiffs did not proceed against the latter, raising the issue whether AirTouch in fact was engaging in similar practices.
For all these reasons, it would appear L.A. Cellular's strategy of selling cellular We are mindful the instant action concluded in a grant of a motion for judgment under Code of Civil Procedure section 631.8. Where a trial court grants such a motion for judgment and the judgment is reversed on appeal, the situation is the same as if the motion had not been granted. Therefore, on retrial L.A. Cellular is entitled to present evidence in support of the defense or in rebuttal. (Pinsker v. Pacific Coast Soc. of Orthodontists (1969) 1 Cal.3d 160, 167, 81 Cal.Rptr. 623, 460 P.2d 495.)
With respect to available remedies, "section 17203 authorizes a trial court to order restitution of money lost through acts of unfair competition, as defined in section 17200, whether or not the court also enjoins future violations." (ABC Internat. Traders, Inc. v. Matsushita Electric Corp. (1997) 14 Cal.4th 1247, 1271, 61 Cal.Rptr.2d 112, 931 P.2d 290.)
5. The primary jurisdiction doctrine does not bar the section 17200 claim.
Certain amici curiae contend this court should defer to the PUC under the doctrine of primary jurisdiction, because the PUC has authorized L.A. Cellular's practice of bundling cellular telephone equipment and cellular service.
By way of background, the doctrine of primary jurisdiction applies where a claim is originally cognizable in the courts, and comes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body. (Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377, 390, 6 Cal.Rptr.2d 487, 826 P.2d 730.) In such a case the judicial process is suspended pending referral of such issues to the administrative body for its views. (Ibid.) "[T]he primary jurisdiction doctrine advances two related policies: it enhances court decisionmaking and efficiency by allowing courts to take advantage of administrative expertise, and it helps assure uniform application of regulatory laws. [Citations.]" (Id., at p. 391, 6 Cal.Rptr.2d 487, 826 P.2d 730.)
At our invitation, the PUC filed an amicus curiae brief to address these concerns. The PUC's brief states: "The Superior Court is charged with the responsibility for enforcing the Business and Professions Code. The [PUC's] lack of jurisdiction over cellular telephone sales and rates, and limited authority over the remaining aspects of the cellular industry, restricts the type of relief it could grant in proceedings involving alleged violations of the Business and Professions Code, yet its authorization of bundling is predicated upon cellular carrier compliance with that Code. In these circumstances, the [PUC] sees no reason why the doctrine of primary jurisdiction should bar the current judicial proceeding."
Also relevant here is the PUC's recent decision in Investigation on the Commission's own Motion into the Regulation of Cellular Radiotelephone Utilities (1997) Cal.P.U.C. Dec. No. 97-02-053. The PUC ruled "[i]f [the California Resellers Association] believes that cellular carriers who bundle are violating the Cartwright Act, it may complain in civil court. The court, not the [PUC], has jurisdiction to determine violations of antitrust laws. [Citations.]" (Slip opinion, p. 18.) The PUC also observed, "[i]f an entity violates below-cost pricing law ..., it is subject to the usual consequences for such violations. We note that while we would, of course, review a below-cost allegation brought before us in an appropriate proceeding, we are certainly not the primary enforcer of below-cost pricing law." (Id., at p. 39.) In view of the PUC's position on the issue, we conclude the doctrine of primary jurisdiction has no application here.
The PUC only requests that this court not preclude the practice of cellular bundling, a practice the PUC has found to be in the public interest. The issue of the propriety of bundling is not before this court and we express no opinion in that regard.
6. L.A. Cellular is not exempt from below-cost pricing laws.
a. The PUC's approval of bundling specifically requires providers to conform to California below-cost pricing laws.
In light of the argument that cellular telephones may be sold below cost because the PUC has approved the practice of bundling cellular equipment with cellular service, we examine the PUC's position on the matter.
In Re Regulation of Cellular Radiotelephone Utilities, supra, 59 Cal.P.U.C.2d at page 196, the PUC substantially relaxed its prohibition against bundling. Previously, the PUC had "prohibited the practice of bundling cellular equipment with cellular service and discounting the package." (Id., at p. 197.) In relaxing the prohibition against bundling, the PUC specifically required cellular providers to comply with California below-pricing laws. On the pricing issue, the PUC observed "[t]he prices for cellular equipment in a number of states which permit bundling are significantly below the prices for unbundled cellular equipment in California, and in some situations, such as the Motorola DPC 550 'Flip-Fone' selling for $1.00 upon activation in Seattle or Dallas, the telephones are undoubtedly below cost. However, California, similar to other states, has laws which restrict the practice of below-cost pricing (e.g., B & P Code § 17043). Any bundling approval on our part must not violate or encourage any violation of below-cost pricing laws. California's prohibitions against below-cost pricing must be incorporated in any bundling authority that we may grant." (Id., at p. 205, italics added.) Hence, the PUC's order in that matter directs that "Providers conform to all applicable California and federal consumer protection and below-cost pricing laws." (Id., at p. 214.)
Thus, in approving the practice of bundling, by no means did the PUC endorse the selling of cellular equipment below cost.
b. The limited exception of section 17026.1.
Section 17026.1, which became operative January 1, 1994, provides in relevant part: "Consistent with the provisions of subdivision (d) of Section 17050, providers of cellular services shall be permitted to sell cellular telephones below cost, provided that sales below cost are a good faith endeavor to meet the legal market prices of competitors in the same locality or trade area." (§ 17026.1, subd. (a)(2), italics added.)
Section 17050, referred to in section 17026.1, states in relevant part: "The prohibitions of this chapter against locality discriminations, sales below cost, and loss leaders do not apply to any sale made: [p] ... [p] (d) In an endeavor made in good faith to meet the legal prices of a competitor selling the same article or product, in the same locality or trade area and in the ordinary channels of trade."
Thus, the statutory scheme permits below-cost sales of cellular telephones on only a limited basis. A provider of cellular service may engage in below-cost sales of cellular telephones only in "a good faith endeavor to meet the legal market prices of competitors in the same locality or trade area." (§ 17026.1, subd. (a)(2).)
On remand, if the trial court determines injunctive relief is appropriate, it shall consider this new enactment in fashioning a remedy.
7. Award of costs must be reversed.
Following trial, the trial court awarded $175,274.78 in costs to L.A. Cellular as the prevailing party. Plaintiffs contend the cost award contains substantial sums which cannot, under applicable law, be awarded as costs. Specifically, plaintiffs complain of the trial court's award to L.A. Cellular of $72,187.23 in costs for the photocopying of exhibits. L.A. Cellular marked about 3500 exhibits for trial, of which only about 100 were actually introduced at trial, but claimed all of the photocopying expense as an allowable The contention does not detain us. In view of the reversal and remand on the section 17200 claim, the entire cost award to L.A. Cellular must be vacated.
DISPOSITION
The judgment is affirmed with respect to the first, second and third causes of action, and is reversed as to the fourth cause of action for violation of section 17200. The fourth cause of action shall be retried (Pinsker, supra, 1 Cal.3d at p. 167, 81 Cal.Rptr. 623, 460 P.2d 495), guided by the legal principles enunciated in this opinion. The trial court's award of costs to L.A. Cellular is also reversed. Plaintiffs are awarded their costs on appeal.
CROSKEY and ALDRICH, JJ., concur.
"Q. Now, in fact L.A. Cellular could not continue in the equipment business on that basis [selling below cost] if that were the only business it were in, could it?
"A. I don't know how to answer that. I am not sure we would want to.
"Q. If you had enough money, you could. But it wouldn't be a desirable business decision; is that what you are saying?
"A. It [is] a very hypothetical question. It is probably a business I would not be interested in.
"Q. Eventually you would run yourself into the ground?
" A. Yes.
"Q. And basically it is because you have a profitable service business that you can continue in the equipment business, is it not?
"A. Well, I think we started out saying that we are in the equipment business to support the service business.
"Q. And these figures just illustrate that fact, don't they?
"A. The figures illustrate we lost money on equipment. I guess you can draw that conclusion from them.
"Q. You didn't have a reason for losing money on equipment to be giving away money. You wanted to support your service business?
"A. Correct." (Italics added.)
Thus, it was certainly foreseeable L.A. Cellular's below cost equipment sales would injure plaintiffs. However, as discussed above, to impose liability the statutory scheme requires a defendant act with the specific intent to injure competitors or to destroy
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competition. (§ 17071; Western Union Financial Services, Inc., supra, 20 Cal.App.4th at p. 1540, fn. 10, 25 Cal.Rptr.2d 341.) Here, as discussed, L.A. Cellular established its intent was simply to compete with AirTouch for subscribers, and that the harm to plaintiffs was unintended.Albrecht is plainly distinguishable. Here, unlike in Albrecht, the evidence established there was no coercive conduct by the defendant to secure the compliance of others in restraint of trade. L.A. Cellular did not take coercive action against either its agents or against plaintiffs. As the trial court found, L.A. Cellular made clear in its written communications with its agents, and in its advertisements, that each agent was free to set its own prices.