Union Carbide Corp. v. Superior Court , 36 Cal. 3d 15 ( 1984 )

Opinion

REYNOSO, J.

Petitioners are named as defendants in a complaint seeking treble damages under the Cartwright Act (Bus. & Prof. Code, § 16700 et seq.) for an alleged price-fixing conspiracy, resulting in injury to plaintiffs as indirect purchasers. Petitioners request a writ of mandate that would require the respondent superior court to (1) order real parties in interest (hereafter plaintiffs) to join all persons in the chain of distribution between plaintiffs and petitioners as additional parties, on pain of a dismissal of the complaint, and (2) strike allegations of petitioners’ fraudulent concealment of the conspiracy that, if proved, might enable plaintiffs to recover damages for injuries incurred more than four years before commencement of the action but that are not necessary to recovery for injury incurred within the four-year period. We deny the writ.

I

The complaint was filed January 23, 1981. It alleges: The three named plaintiffs are users of industrial gas which they purchased indirectly from petitioners through California distributors. Petitioners and others conspired to fix prices of the gas, causing plaintiffs to pay more for it than they would have paid in the absence of the conspiracy. The action is brought on behalf of a class composed of all California end-users who similarly purchased the gas indirectly from petitioners, and no plaintiff’s individual damages exceed $10,000. Plaintiffs were unaware of the conspiracy and could not have uncovered it earlier by the exercise of due diligence because it was actively concealed by petitioners.

Petitioners demurred to the complaint, claiming a defect of parties (Code Civ. Proc., § 430.10, subd. (d); see § 430.30, subd. (a))¹ and moved to dismiss under section 389 for absence of indispensable parties. They also moved to strike the allegations of fraudulent concealment for uncertainty. The demurrer was overruled and the motions denied.² At petitioners’ request, an alternative writ was issued for the purpose of reviewing those rulings.

The complaint was filed pursuant to section 16750, as amended in 1978. Before that amendment, subdivision (a) of the section provided that “[a]ny person who is injured in his business or property by reason of anything forbidden or declared unlawful by this chapter [the Cartwright Act]” may bring an action for treble damages. (For Cartwright Act provisions forbidding price-fixing, see Bus. & Prof. Code, § 16720.) The 1978 amendment provided: “Such action may be brought by any person who is injured in his business or property by reason of anything forbidden or declared unlawful by this chapter, regardless of whether such injured person dealt directly or indirectly with the defendant.” The statute enacting the amendment declared that it “does not constitute a change in, but is declaratory of, the existing law.” (Stats. 1978, ch. 536, § 2, p. 1696.)

The amendment was enacted in response to the holding in Illinois Brick Co. v. Illinois (1977) 431 U.S. 720 [52 L.Ed.2d 707, 97 S.Ct. 2061], that under section 4 of the Clayton Act (15 U.S.C. § 15) only direct purchasers may sue to recover treble damages for overcharges resulting from price-fixing prohibited by section 1 of the Sherman Act (15 U.S.C. § 1), and that indirect purchasers may not recover even if they show that the overcharges were passed on by the intervening distributors. California’s 1978 amendment to section 16750 in effect incorporates into the Cartwright Act the view of the dissenting opinion in Illinois Brick (431 U.S. at p. 748 [52 L.Ed.2d at p. 726]) that indirect purchasers are persons “injured” by illegal overcharges passed on to them in the chain of distribution. (See Smith, The California Legislature Steers the Antitrust Cart Right Off the Illinois Brick Road (1979) 11 Pacific L.J. 121. For responses by other states to the Illinois Brick decision, see Gisser, Indirect Purchaser Suits Under State Antitrust Laws: A Detour Around the Illinois Brick Wall (1981) 34 Stan.L.Rev. 203.)

II

Petitioners contend that section 389 requires the joinder as parties (subd. (a)), or the naming in the complaint with reasons for nonjoinder (subd. (b)), of all persons in the chain of distribution of industrial gas from petitioners to plaintiffs, because the absence of such persons from the action would subject petitioners “to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations” (§ 389, subd. (a)(2)(ii)). Of the persons whose joinder is sought, petitioners distinguish between those who (1) purchased the gas directly from petitioners and (2) purchased it indirectly from petitioners, regardless of whether the ensuing resales to plaintiffs were direct or indirect. For convenience, we refer to those two categories as “direct purchasers” and “intermediate purchasers.”

As to direct purchasers, petitioners call our attention to a class action in the United States District Court for the Northern District of Illinois (In re Industrial Gas Antitrust Litigation, No. 80 C 3479), brought by residents of states other than California, who allege that they purchased industrial gas directly from petitioners and were injured by essentially the same price-fixing activities as those alleged in the complaint now before us. On October 24, 1983, the federal court authorized the suit to proceed as a class action on behalf of essentially all those in the United States who purchased gas (directly) from petitioners between July 1, 1974, and June 30, 1980. Petitioners argue that the federal suit exposes them to a substantial risk of multiple liability, i.e., liability to direct purchasers under the Sherman and Clayton Acts for damages based on the same alleged overcharges for which plaintiffs in the present action seek damages under the Cartwright Act as indirect purchasers and consumers.

As to intermediate purchasers who bought indirectly from petitioners and resold directly or indirectly to plaintiffs, petitioners contend that their absence from the present suit would create a substantial risk of multiple liability because the intermediate purchasers might independently sue petitioners under the Cartwright Act, contending that they absorbed, rather than passing on to the present plaintiffs, all or part of the overcharges for which plaintiffs now seek damages.

There are reasons to be cautious in requiring joinder, under subdivision (a)(2)(ii) of section 389, at the very outset of this Cartwright Act action. The subdivision specifies that the risk of multiple liability must be “substantial.” Courts construing identical language in rule 19 of the Federal Rules of Civil Procedure (28 U.S.C.), from which the present version of section 389 was derived in 1971 (see Conrad v. Unemployment Ins. Appeals Bd. (1975) 47 Cal.App.3d 237, 241 [120 Cal.Rptr. 803]), correctly point out that a “substantial risk” means more than a theoretical possibility of the absent party’s asserting a claim that would result in multiple liability. The risk must be substantial as a practical matter. (A. J. Kellos Const. Co., Inc. v. Balboa Ins. Co. (S.D.Ga. 1980) 495 F.Supp. 408, 414; Virginia Electric and Power Co. v. Bunker Ramo Corp. (E.D.Va. 1973) 61 F.R.D. 366, 368-369; F. T. C. v. Manager, Retail Credit Co., Miami Branch Office (D.D.C. 1973) 357 F.Supp. 347, 354, revd. on other grounds (D.C. Cir. 1975) 515 F.2d 988.)

Moreover, in the context of an indirect-purchaser suit under the Cartwright Act, we must take care to avoid an application of section 389 that would thwart the legislative intent, expressed in the 1978 amendment to section 16750, subdivision (a), to retain the availability of indirect-purchaser suits as a viable and effective means of enforcing California’s antitrust laws. In precluding such suits under the Clayton Act, the United States Supreme Court expressed apprehension that “allowing indirect purchasers to recover using pass-on theories, even under the optimistic assumption that joinder of potential plaintiffs will deal satisfactorily with problems of multiple litigation and liability, would transform treble-damages actions into massive multiparty litigations involving many levels of distribution and including large classes of ultimate consumers remote from the defendant.” (Illinois Brick Co. v. Illinois, supra, 431 U.S. 720, 740 [52 L.Ed.2d 707, 721].) The dissenting opinion, however, concluded that “the hypothetical possibility that a few defendants might be subjected to the danger of multiple liability does not, . . . justify erecting a bar against all recoveries by indirect purchasers without regard to whether the particular case presents a significant danger of double recovery.” (Id., at p: 761 [52 L.Ed.2d at p. 734].) The dissent declared that the majority’s decision “regrettably weakens the effectiveness of the private treble-damages action as a deterrent to antitrust violations by, in most cases, precluding consumers from recovering for antitrust injuries.” (Id., at p. 764 [52 L.Ed.2d at p. 736].) The 1978 amendment to section 16750, subdivision (a), implies legislative endorsement of those dissenting views, as applied to the Cartwright Act, and a mandate to avoid unnecessary procedural barriers to indirect purchasers’ prosecution of California antitrust suits.

The fact that petitioners have raised their objections to nonjoinder of parties by demurrer (§§ 430.10, subd. (d), 430.30, subd. (a)) coupled with a motion to dismiss (§ 389) does not necessarily require that the trial court make an immediate determination of what parties, if any, must ultimately be joined. The California Law Revision Commission comment to section 389 quotes these pertinent observations from the Advisory Committee’s note on federal rule 19: “A person may be added as a party at any stage of the action on motion or on the court’s initiative . . .; and a motion to dismiss, on the ground that a person has not been joined and justice requires that the action should not proceed in his absence, may be made as late as the trial on the merits .... However, when the moving party is seeking dismissal in order to protect himself against a later suit by the absent person (subd. (a)(2)(ii)), and is not seeking vicariously to protect the absent person against a prejudicial judgment (subd. (a)(2)(i)), his undue delay in making the motion can properly be counted against him as a reason for denying the motion. A joinder question should be decided with reasonable promptness, but decision may properly be deferred if adequate information is not available at the time. Thus the relationship of an absent person to the action, and the practical effects of an adjudication upon him and others, may not be sufficiently revealed at the pleading stage; in such a case it would be appropriate to defer decision until the action was further advanced. ...”

By their demurrer and motion to dismiss, petitioners raise their joinder claim “at the pleading stage,” basing it wholly upon plaintiffs’ complaint, the complaint in the Illinois federal case, and the proceedings in that case regarding certification of the plaintiff class. As we now explain, those papers do not demonstrate a substantial risk of multiple liability sufficient to require that additional parties be joined in the complaint (or named therein with sufficient reasons for nonjoinder) as a prerequisite to petitioners’ being required to answer the complaint in order to avoid default.

We consider first petitioners’ contention that joinder of direct purchasers who were in the chain of distribution to plaintiffs is required by the pendency of the Illinois federal class action, in which recovery is sought for damages based on overcharges paid by those direct purchasers regardless of whether the overcharges were passed on. Petitioners are not entitled to joinder of additional parties on account of a substantial risk of multiple liability (§ 389, subd. (a)(2)(h)) simply because petitioners may be held liable in a federal suit under a federal statute to a person or class wholly different from the person or class to whom they are sought to be held liable in a California action under a California statute for the same tortious conduct. Federal law, interpreted in Illinois Brick, supra, 431 U.S. 720, precludes recovery by indirect purchasers and allows recovery by the direct purchaser regardless of whether the overcharge was passed on, whereas the terms of section 16750, subdivision (a), allow recovery by the indirect purchaser regardless of whether the direct purchaser in the plaintiff’s chain of distribution has asserted a federal claim for damages from the overcharge. Questions of whether overcharges were passed on, essential to the indirect purchaser’s California claim, are irrelevant to, and thus not subject to inconsistent determination in, a suit on the direct purchaser’s federal claim. Thus, federal actions such as the one in Illinois do not give rise to a “substantial risk” of multiple liability under section 389, subdivision (a)(2)(ii).

Petitioners also seek joinder of intermediate purchasers who purchased the gas indirectly from petitioners and sold it directly or indirectly to plaintiffs as end users, or consumers. Petitioners argue (1) that an intermediate purchaser could sue separately under the Cartwright Act for all or part of the overcharges claimed by the present plaintiffs, asserting that those overcharges were absorbed rather than being passed on, and (2) that the separate suit could result in petitioners’ being held liable to both the intermediate purchaser and the plaintiff end users under the same statute for the same overcharges. On the record before us, however, the risk of any such exposure to multiple liability is not “substantial” as required by section 389, subdivision (a)(2)(ii).

In the first place, the complaint does not state that there were in fact any intermediate purchasers in plaintiffs’ chain of distribution; it is neither alleged nor denied that the distributors who bought the gas directly from petitioners sold indirectly, rather than directly, to plaintiffs. The complaint alleges that plaintiffs were “indirect-purchaser, end-user/consumers of substantial amounts of industrial gas manufactured by one or more of the defendants [petitioners]” (fl] 8), that “[purchasers of industrial gas from defendants [petitioners] include independent distributors, who in turn re-sell industrial gas to users” ([1] 24), and that “defendants [petitioners] sold substantial quantities of industrial gas to distributors in the State of California who then re-sold such industrial gas to end-user/consumers such as the plaintiffs” ([f] 25). Thus, on the face of the complaint, the only persons in the chain of distribution between plaintiffs and petitioners may have been direct purchasers who are members of the plaintiff class in the Illinois federal action and need not now be joined for the reasons already stated.

Moreover, the fact of purchasers intermediate between plaintiffs and direct purchasers in the chain of distribution, even if assumed, would not establish a substantial risk of multiple liability. There is no showing of any actual assertion of a Cartwright Act claim on behalf of any such intermediate purchaser. We turn again to the views expressed by the Illinois Brick dissenting opinion that seem to have met with the California Legislature’s approval when it amended section 16750, subdivision (a), in 1978. After pointing out the possibility of coordinating and consolidating pending federal court actions brought by different purchasers, the opinion observes: “True, there is a greater hypothetical danger of multiple recovery where suits are independently instituted after an earlier suit based on the same violation has proceeded to judgment. But even here the likelihood that defendants will be subjected to multiple liability is, as a practical matter, remote. The extended nature of antitrust actions, often involving years of discovery, combines with the short four-year statute of limitations to make it impractical for potential plaintiffs to sit on their rights until after entry of judgment in the earlier suit.” (431 U.S. at pp. 763-764, fn. omitted [52 L.Ed.2d at p. 736].)

We do not foreclose the possibility that through discovery or other means petitioners may be able later to make a showing of substantial risk of multiple liability that would entitle them to a joinder order. Nor do we have occasion now to consider questions of whether or how potential plaintiffs should be represented if the present suit goes forward as a class action. (See § 389, subd. (d) [“Nothing in this section affects the law applicable to class actions”].) We simply reject petitioners’ contention that on the present record they are entitled to joinder under section 389, subdivision (a)(2)(ii).³

Ill

Finally, petitioners contend that the trial court should have granted its motion to strike the following allegations of the complaint for uncertainty: “Concealment H[] 22. At all times relevant hereto, plaintiffs and the members of the class had no knowledge of the combination and conspiracy alleged herein, or of any facts which might have led to the discovery thereof. Plaintiffs and the members of the class they represent could not have uncovered the conspiracy at an earlier date by the exercise of due diligence, inasmuch as the unlawful conspiracy was actively concealed by the defendants through the adoption of elaborate schemes, including their resort to secrecy to avoid detection.”

We have concluded that petitioners’ contention should be rejected for the reasons stated in the following portion of the opinion prepared in this case by Justice Barry-Deal for the Court of Appeal:

“Business and Professions Code section 16750.1 provides that any civil action to enforce state antitrust laws ‘shall be commenced within four years after the cause of action accrued.’ In an apparent attempt to recover maximum damages, [plaintiffs] have alleged in their complaint that the offenses began at a ‘date unknown’ and that fraudulent concealment prevented plaintiffs from learning about the unlawful conduct. Petitioners object that the fraudulent concealment allegations quoted earlier in this opinion are not specific and factual.

“Petitioners argue that [plaintiffs] are required to plead: (1) when the facts giving rise to their claims were discovered; (2) what facts were discovered that led to the initiation of the claim and under what circumstances such facts were discovered; (3) that neither plaintiffs nor any of the putative class members had actual or presumptive knowledge of facts sufficient to put them under a duty to inquire; (4) that plaintiffs and putative class members are not at fault for failing to discover the facts underlying their cause of action sooner; and (5) that the failure to discover such facts was attributable to affirmative acts of fraudulent concealment perpetrated by defendants.

“Petitioners cite Kimball v. Pacific Gas & Electric Co. (1934) 220 Cal. 203, 215 [30 P.2d 39], Baker v. Beech Aircraft Corp. (1974) 39 Cal.App.3d 315, 321 [114 Cal.Rptr. 171, 91 A.L.R.3d 981], and other authority for the proposition that when the plaintiff seeks to avoid the statute of limitations by showing fraudulent concealment of the cause of action, the plaintiff must plead with particularity the facts showing fraudulent concealment. Petitioners accurately interpret those authorities. However, we find them distinguishable.

“The principle applied by those authorities is the well-recognized proposition that if on the face of the complaint the action appears barred by the statute of limitations, plaintiff has an obligation to anticipate the defense and plead facts to negative the bar. (3 Witkin, Cal. Procedure (2d ed. 1971) Pleading, §§ 313, 779, pp. 1983, 2395.) Here, however, nothing appearing on the face of the complaint suggests that the action is barred by the statute of limitations. The complaint alleges that the offenses began at a time unknown and continued up to the date of the filing of the complaint. Thus, the filing of the action was not barred by the statute of limitations. At most, plaintiffs will be limited to recovering damages for actions occurring within the four years preceding the complaint.

“Because the complaint does not reveal on its face that it is barred by the statute of limitations, real parties were not required to plead fraudulent concealment as an excuse for late filing. Thus, the fraudulent concealment allegation is mere surplusage, and the trial court was not required to sustain a demurrer or motion to strike directed toward it.6”

The Court of Appeal’s footnote 6 states:

“Petitioners contend that the requirement of particularized pleading in anticipation of the statute of limitations should be enforced here because otherwise real parties will be permitted to seek discovery concerning injuries ‘stretching back through the endless corridors of time, . . .’ However, it is only through this discovery that [plaintiffs] can uncover the beginning of the alleged conspiracy which they assert has been concealed by petitioners. The situation differs markedly from one in which the complaint alleges an open or public injurious act and that there has been concealment from the plaintiff of the defendant’s involvement or of the as-yet-unrealized injurious consequences of the act. By its nature, a conspiracy to fix prices in violation of antitrust law is a secret act whose effects are public. Only through discovery or chance disclosure can an antitrust plaintiff learn about the actions leading to the observable effects.”

The petition for a peremptory writ of mandate is denied, and the alternative writ is discharged.

Bird, C. J., Mosk, J., Kaus, J., Broussard, J., and Grodin, J., concurred.

1 All section references are to the Code of Civil Procedure unless otherwise indicated, except that citations of section 16750 refer to the Business and Professions Code.

2 Certain allegations of the complaint not relevant to this writ proceeding were stricken on petitioners’ motion, and plaintiffs filed an amended complaint that, for present purposes, may be treated as no different from the original complaint.

3 The dissenting opinion implicates substantive questions yet to be resolved. Petitioners do not contend, in this proceeding, that the 1978 amendment poses impermissible conflict with federal law, and we express no opinion on that issue.