DocketNumber： S.F. 24987
Judges： Lucas, Mosk
Filed Date： 10/20/1988
Status： Precedential
Modified Date： 11/2/2024
Opinion
The California Attorney General sued under the Cartwright Act (Bus. & Prof. Code, § 16720 et seq.) and the Unfair Practices
The trial court sustained defendants’ demurrer without leave to amend, and dismissed the complaint. In the Court of Appeal, the Attorney General asserted the lower court erred in concluding that neither the Cartwright Act nor the Unfair Practices Act applies to an acquisition or merger, and that the action is preempted by the supremacy clause (U.S. Const., art. VI, cl. 2) by virtue of a consent decree issued by the Federal Trade Commission (FTC). Additionally, the Attorney General asserted, the lower court erred to the extent it held the action is preempted by the commerce clause (id., art. I, § 8, cl. 3).
The Court of Appeal held the action preempted by federal antitrust law under the supremacy clause, and affirmed judgment for defendants on that ground. We affirm the judgment of the Court of Appeal, but we do not reach the preemption questions because we hold that neither cited state law regulates a merger.
I. Facts and Procedure
Texaco and Getty entered into a merger agreement under which Texaco would acquire Getty, and thereby become the second largest petroleum company in the United States. Pursuant to 15 United States Code section 18a, the firms notified the FTC and the United States Justice Department of their agreement, and the FTC proceeded to investigate whether the proposed merger would violate federal antitrust law. Thereafter the FTC filed and accepted comments on a provisional consent order concerning both firms. Based in part on comments from, inter alia, the California Attorney General, the FTC issued a complaint under section 7 of the Clayton Act (15 U.S.C. § 18), detailing the potential anticompetitive effects of the proposed merger. At the same time, the FTC entered into an agreement, in the form of a consent order, with Texaco. The consent order bound Texaco to divest itself of certain Getty assets located throughout the country; offer pipeline access to former Getty customers; and refrain from acquiring wholesale
The Attorney General was unsatisfied with the consent order, however, and filed the present action, which essentially copies the FTC’s complaint based on section 7 of the Clayton Act. The Attorney General’s complaint asserted the merger may in several specific respects substantially lessen competition in the state market for crude oil and related products. In other words, the complaint claimed the merger posed an incipient threat to competition.
II. Application of the Cartwright Act to a Merger
A. Words of the Statute
The Cartwright Act (or Act) (Stats. 1907, ch. 530, pp. 984-987) states, “Except as provided in this chapter, every trust is unlawful, against public policy and void.” (Bus. & Prof. Code, § 16726.) The Act defines “trust” as “a combination of capital, skill or acts by two or more persons for any of the following purposes: (a) To create or carry out restrictions in trade or commerce. . . . (e) To make or enter into or execute or carry out contracts, obligations or agreements of any kind or description, by which they . . . [a]gree to pool, combine, or directly or indirectly unite any interests that they may have connected with the sale or transportation of any . . . article or commodity, that its price might in any manner be affected.” (Id., § 16720, subds. (a) & (e)(4), italics added.) The Act makes agreements in violation of its provisions void and unenforceable (id., § 16722), and subject to injunction (id., § 16754.5) and civil actions for damages (id., § 16750). Another section makes violation of the Act subject to fine or imprisonment, or both. (Id., § 16755, subd. (a).)
The Attorney General asserts that a merger is “precisely” a “combination of capital,” hence the statute covers mergers. It is questionable, however, whether the statutory meaning of “combination” is so broad. As defendants suggest, the word combination might well contemplate a situation in which separate entities that maintain separate and independent interests, act in concert—“combine”—for a certain purpose, but which thereafter perdure, i.e., continue to maintain their separate identities and interests.
Accordingly, we question whether the words of the statute support the Attorney General’s assertion that it was intended to apply to mergers. On the other hand, we cannot confidently know, without further inquiry, that defendants’ interpretation is the intended one. In this situation, it is appropriate to look beyond the statute’s terms to discover its intent. (E.g., Solberg v. Superior Court (1977) 19 Cal.3d 182, 198 [137 Cal.Rptr. 460, 561 P.2d 1148].)
B. Purpose of the Statute
The Attorney General first asserts that his interpretation of the statute, and of the word “combination” in particular, best comports with the asserted “manifest purpose” of the statute: protecting competition. (Marin County Bd. of Realtors, Inc. v. Palsson (1976) 16 Cal. 3d 920, 928 [130 Cal.Rptr. 1, 549 P.2d 833].) His point, however, begs the question. Beyond doubt, the Act was intended to protect and foster competition. The question is, to what lengths did the drafters intend to go to accomplish that goal? Did they intend to regulate any form of business transaction that may affect competition? Or did they intend merely to regulate certain types of collusive arrangements between ongoing, separate businesses? As the following discussion discloses, we conclude the drafters did not intend the Act to regulate a merger.
C. Derivation of the Statute
In the past, we have attributed various (and sometimes conflicting) roots to the Cartwright Act. We have (i) asserted that it was patterned after a proposed alternative bill to what became the Sherman Act (15 U.S.C. §§ 1-7) (Palsson, supra, 16 Cal.3d 920, 926; Cianci v. Superior Court (1985) 40 Cal.3d 903, 919 [221 Cal.Rptr. 575, 710 P.2d 375]); (ii) suggested that it was modeled after the Sherman Act itself (e.g., Palsson, supra, 16 Cal.3d at p. 925); and (iii) stated that it codified the common law (e.g., Corwin v. Los Angeles Newspaper Service Bureau, Inc. (1971) 4 Cal.3d 842, 852 [94 Cal.Rptr. 785, 484 P.2d 953]). (See Lasky, Folklore and Myth in Judicial Opinions—Some Reflections Inspired by Texaco-Getty (1987) 20 U.C.Davis L.Rev. 591.) As discussed below, the first position—or at least a variation of it—is most historically correct, and it discloses most clearly the probable intent of the drafters.
a. Senator Reagan’s Bills of 1888 and 1890
As noted above, we have previously stated that the Cartwright Act was modeled after a bill that was proposed (but rejected) in the United States Senate as an alternative to what became the Sherman Act. This shorthand description of the Act’s lineage was adequate for purposes of our analysis in Palsson and Cianci (16 Cal.3d 920; 40 Cal.3d 903), but for present purposes we need to analyze in greater detail the Act’s ancestry.
The chronology is as follows: Senator Reagan of Texas introduced a short “bill to define trusts” in the United States Senate in 1888, on the same day Senator Sherman of Ohio introduced his bill. (19 Cong.Rec. 7512-7513 (1888).) The Senate did not debate the subject, however, until early 1890. In the meantime, several states passed their own antitrust acts. (Davies, Trust Laws and Unfair Competition, Dept. of Commerce, Bureau of Corps. (1916) p. 9 [hereafter Davies]; Rush, Historic Origins of Anti-Trust Legislation (1953) 18 Mo.L.Rev. 215, 246; Rubin, Rethinking State Antitrust Enforcement (1974) 26 U.Fla.L.Rev. 653, 657-658, and authorities cited in fn. 22.) Of those acts, the Maine and Kansas laws were the first. (1889 Me. Acts, ch. 266 (Mar. 7, 1889); 1889 Kan. Sess. Laws, ch. 259 (Mar. 9, 1889).)
The Kansas act, similar to the Maine law, made illegal “all arrangements, contracts, agreements, trusts or combinations . . .” for various improper purposes. (Italics added.) In the next two years, most states that enacted antitrust legislation followed the Kansas-Maine scheme. (1889 Neb. Laws, ch. 69; 1889 Iowa Acts, ch. 28; 1889 Mich. Pub. Acts, No. 225; 1889 Tenn. Pub. Acts, ch. 250; 1889 N.C. Sess. Laws, ch. 374; 1889 Mo. Laws, p. 96; 1890 N.D. Laws, ch. 174; 1890 S.D. Laws, ch. 154.) During the same period, the Texas Legislature considered a number of antitrust bills, and in late March 1889, enacted a law (1889 Tex. Gen. Laws, ch. 117) modeled after Senator Reagan’s 1888 Senate bill. (Cotner, James Stephen Hogg (1959) pp. 163-165 [biography of Texas Attorney General, a principal author of the 1889 Texas act]; Mathews, History, Interpretation and Enforcement of the Texas Antitrust Laws, in Southwestern Legal Foundation, Institute on Antitrust Laws and Price Regulations (1950) pp. 28-29 [hereafter Texas Antitrust Laws\.) The body of the Texas act was more detailed than the 1888 Reagan version, but it retained a significant aspect of that bill: unlike the Kansas-Maine approach, the Texas act simply declared “trusts” illegal, and proceeded to define “trust” as a “combination of capital, skill or acts . . .” for various specific improper purposes. (Italics added; compare
Accordingly, by the time the United States Senate was ready to debate its own antitrust legislation in 1890, there were two streams of state antitrust laws
b. Interpretation of the Texas and Michigan Acts
The Senate rejected Reagan’s bill, and enacted a much modified version of Senator Sherman’s bill in July 1890. (26 Stats. 209; 15 U.S.C. §§ 1-7.)
During the next 17 years, a few states adopted versions of the Sherman Act as their own state antitrust statutes.
In addition to this legislative action, there also developed between 1896-1904, a substantial body of case law construing the various statutes—particularly the first Texas act (1889 Tex. Gen. Laws, ch. 117), and one of its progeny, the second Michigan act (1899 Mich. Pub. Acts, No. 255).
In Gates, supra, 90 Tex. 563, a merchant sold his business to a competitor. The court explained why this transaction did not result in a “combination”: “In order to constitute a trust, within the meaning of the statute, there must be a ‘combination of capital, skill or acts by two or more.’ ‘Combination,’ as here used means union or association. If there be no union or association by two or more of their ‘capital, skill or acts,’ there can be no ‘combination,’ and hence no ‘trust.’ When we consider the purposes for which the ‘combination’ must be formed, to come within the statute, ... we are led to the conclusion that the union or association of ‘capital, skill or acts’ denounced is where the parties in the particular case designed the united co-operation of such agencies, which might have been otherwise independent and competing, for the accomplishment of one or more of such purposes. In the case stated in the petition there is no ‘combination.’ The plaintiff bought defendant’s goods, together with the goodwill of his business, both of which were subjects of purchase and sale. ... By this transaction neither the capital, skill, nor acts of the parties were brought into any kind of union, association or cooperative action. The purchaser became the owner of the things sold . . . .” (Id., at p. 1080.)
Similarly, in A. Booth & Co. v. Davis (C.C.E.D.Mich. 1904) 127 Fed. 875, the court stated that Michigan’s second act (1899 Pub. Acts, No. 225) did not apply to the sale of one fishing business to another fishing company. This Michigan act, as noted, was modeled after the original Texas act. It made trusts illegal, and defined trust as “a combination of capital, skill or artst [
The few other state cases of that period addressing the issue and construing similar statutes are in accord, and they demonstrate general awareness
c. Development of Antimerger Provisions
In the meantime—and in the face of the various courts’ narrow construction of the term “combination”—some states amended their earlier acts to adopt provisions that reached beyond the scope of all previous state acts and the Sherman Act. These newer acts, in addition to regulating “trusts” and “combinations” in restraint of trade, also regulated, inter alia, monopolies
On the subject of mergers, the third of Texas’s antitrust acts—the act of 1899—stated that “monopoly” was unlawful, and broadly defined monopoly as including “all aggregations, amalgamations, affiliations, consolidations or incorporations of . . . assets [or] property, . . . whether effected by the ordinary methods of partnership or by actual union . . . or an incorporated body resulting from the union of one or more distinct firms or corporations, or by the purchase, acquisition or control of shares or certificates of stock[
Similarly, the second Mississippi act provided: “No corporation shall directly or indirectly purchase or own the capital stock, or any part thereof, of any other corporation, nor directly or indirectly purchase, or in any manner acquire the franchise, plant or equipment of any other corporation,
The fourth (1903) Texas act made illegal any monopoly “effected by either of the following methods: [H] When the direction of the affairs of two or more corporations is in any manner brought under the same management or control for the purpose of producing, or where such common management or control tends to create a trust .... [^f] 2. Where any corporation acquires the shares or certificates of stock or bonds, franchise or other rights, or the physical properties, or any part thereof, of any other corporation or corporations, for the purpose of preventing or lessening, or where the effect of such acquisition tends to affect or lessen competition, whether such acquisition is accomplished directly or through the instrumentality of trustees or otherwise.” (1903 Tex. Gen. Laws, ch. 94, § 2 (1), (2)-)
Finally, in 1905, Arkansas amended its earlier act and enacted an anti-merger provision worded after the Texas version of 1899. (1905 Ark. Acts, No. 1, § 5.)
d. Enactment of the Cartwright Act
Against this background of increasingly sophisticated state antitrust statutes and case law, our Legislature in 1907 enacted the Cartwright Act. In doing so it settled on an act patterned closely after the original 1889 Texas act and its progeny, most notably the 1899 Michigan act.
Contrary to the Attorney General’s suggestions, the absence of today’s computerized legal research systems in 1907 does not diminish the force of this canon. As demonstrated above, the Gates and Davis courts’ construction of the term “combination” was both widely known and followed, explicitly and implicitly, in other courts’ interpretations of the same term in cases involving acquisitions. These cases were published in the National Reporter System and the American State Reports, and were available to our Legislature through the Shepard’s Citation Service and other resources of the period.
In this case, the presumption of legislative intent (by virtue of previous judicial construction) is additionally strengthened by the history of sister state legislation—dating from eight years before the Cartwright Act—designed to regulate mergers. It is clear that the legislatures of the day both (i) recognized the problems posed by mergers, and (ii) were capable of framing legislation designed to regulate such practices. In particular, the fact that the Texas Legislature (to which our Legislature obviously looked for guidance in this area) saw it necessary to twice enact antimerger provisions, but ours did not, strongly suggests our Legislature was content to enact a law of limited scope, which did not address mergers. (See post, pp. 1167-1168.)
Finally, our Legislature’s inaction on this subject for the past 80 years is significant. Although it has amended the Cartwright Act at least 26 times
The foregoing history demonstrates that the drafters of the Cartwright Act must have known the limitations of what they were adopting: The operative words of their act had been construed consistently in at least three published opinions, and Texas, the parent state from which the Cartwright Act was copied, was among the states that had in the interim adopted additional, express statutory provisions clearly extending coverage of their acts to mergers. Instead of adopting one of the newer, more expansive models of antitrust statutes, our Legislature opted for the simpler, judicially construed format first enacted by Texas in 1889. Given this history, we must conclude that the drafters intended that their Act apply, as its words had been construed, only to entities that “combine,” in the sense of those who perdure (i.e., continue as separate, independent, competing entities during and after their collusive action)—and therefore that the drafters did not intend the Cartwright Act to regulate the bona fide purchase and sale of one firm by another. Any other interpretation of the drafters’ intent cannot be reconciled with the Act’s history. As we explain below, nothing presented by the Attorney General undermines this conclusion.
The Attorney General cites authorities stating the Cartwright Act is modeled after the Sherman Act. He then asserts that the Sherman Act has been construed as applying to mergers, and concludes that the Carwright Act should be construed as applying to mergers as well. In light of the above discussion, however, the Attorney General’s fundamental premise is flawed. Admittedly, in past statements we have suggested that the Cartwright Act is patterned after the Sherman Act. (E.g., Palsson, supra, 16 Cal.3d 920, 925, and cases cited.) As shown above, however, historical and textual analysis reveals that the Act was patterned after the 1889 Texas act and the 1899 Michigan act, and not the Sherman Act. (See ante, fn. 14.) Hence judicial interpretation of the Sherman Act, while often helpful, is not directly probative of the Cartwright drafters’ intent, given the different genesis of the provision under review. Nevertheless, even if we were to accept the Attorney General’s premise, interpretation of the Sherman Act is unhelpful to the Attorney General’s view.
As the Attorney General observes, there are cases allowing challenges to mergers under the Sherman Act. The early cases involved large railroads, the mergers of which would have amounted to an actual restraint of competition. As one commentator noted, these decisions “hinge on the size of the defendant companies.” (4 Kitner, Legislative History of the Federal Antitrust Laws and Related Statutes (1980) § 10.77, p. 291 [hereafter Kitner]; see Northern Securities Co. v. United States (1904) 193 U.S. 197 [48 L.Ed. 679, 24 S.Ct. 436]; United States v. Union Pacific Railroad Co. (1912) 226 U.S. 61 [57 L.Ed. 124, 33 S.Ct. 53]; United States v. Reading Co. (1920) 253 U.S. 26 [64 L.Ed. 760, 40 S.Ct. 425]; United States v. Southern Pacific Co. (1922) 259 U.S. 214 [66 L.Ed. 907, 42 S.Ct. 496]; see also Davies, supra, pp. 98-105.)
Defendants respond that these early cases appear to be based on section 2 of the Sherman Act, which section prohibits monopolies. (15 U.S.C. § 2, quoted ante, pp. 1155-1156; see Kintner, supra, pp. 3436-3441, quoting FTC report.) They then cite authorities stating that the Cartwright Act contains no corresponding provision.
Still, this line of authority ultimately does not assist the Attorney General’s position in this case. The cases allowing challenges to mergers under the Sherman Act require—pursuant to section 1 of that Act—that an actual “restraint of trade” be proved. (15 U.S.C. § 1, quoted ante, p. 1156.) To the extent the Cartwright Act could be said to be patterned after the Sherman Act, a merger challenge under the state Act would require the same showing, i.e., that the merger “effected” an unreasonable restraint of trade. The Attorney General, however, has alleged no such thing; as explained above, his complaint is modeled after the FTC’s initial complaint in this matter, and both complaints are clearly framed under section 7 of the Clayton Act. (15 U.S.C. § 18.) That latter Act—in contrast to the Sherman Act—allows challenges to incipient threats to competition, i.e., “[m]ergers with a probable anticompetitive effect . . . .” (Brown Shoe Co. v. United States (1962) 370 U.S. 294, 323 [8 L.Ed.2d 510, 534, 82 S.Ct. 1502].)
We reiterate that, contrary to the Attorney General’s view, interpretation of the Sherman Act is not directly probative of the intent of the drafters of the Cartwright Act, given the different genesis of the provision under review. Nevertheless, in light of the above discussion, it appears that the Attorney General’s complaint in this case would not state a cause of action under his cited Sherman Act cases. In fact, his view would require expansion of both the Cartwright and Sherman Acts beyond the scope attributed to them by any court. Nothing in the Sherman Act or the cases applying it supports the Attorney General’s view that the Cartwright Act was intended
3. The Common Law
Defendants attempt to bolster their view of the Cartwright Act by suggesting that (i) the Act is a codification of the common law, and (ii) the common law did not impose restrictions on the outright purchase of one business by another. As we shall explain, both points are mistaken. As we also explain, however, the true state of the common law at the time of the Cartwright Act supports our conclusion about the drafters’ intent.
Although there is dictum supporting defendants’ first proposition in Rolley Inc. v. Merle Norman Cosmetics (1954) 129 Cal.App.2d 844, 846 [278 P.2d 63], and subsequent cases (e.g., Corwin, supra, 4 Cal.3d 842, 852), Rolley is based on a misunderstanding of Speegle v. Board of Fire Underwriters (1946) 29 Cal.2d 34 [172 P.2d 867], in which Justice Traynor explained that the Cartwright Act “articulates in greater detail a public policy against restraint of trade that has long been recognized at common law.” (Id., at p. 44.) Speegle stands simply for the proposition that the public policy underlying the Cartwright Act—and all early antitrust acts, for that matter—is rooted in the common law. This is not to say, however, that the Act is confined by, or as broad as, the common law; instead, the Act stands on its own, and courts must interpret its words as best they can in order to effectuate the intent, not of “the common law,” but of the Act’s drafters. Nevertheless, because the state of the common law at the time the Act was drafted may shed light on the drafters’ intent, we will review the common law on the question of “mergers.”
As suggested above, defendants assert that the common law distinguished between outright “purchase” or “acquisition,” on one hand, and “combinations” or “trusts,” on the other, and that the former were legal and enforceable whereas the latter were void and unenforceable. After reading the cases cited by defendants (e.g., Davis v. A. Booth & Co., supra, 131 Fed. 31, 37; Lumberman's Trust Co. v. Title Ins. Co. (9th Cir. 1918) 248 Fed. 212, 217-218; and Trenton Potteries Co. v. Oliphant (1899) 58 N.J.Eq. 507, 524 [43 A. 723]), we are not persuaded that defendants’ interpretation of them is correct; in our view, these cases do not apply the common law. The cited page to Davis, for example, is to the court’s statutory construction analysis of the Sherman Act, not the common law; the court did discuss the common law on the following page (131 Fed. at p. 38), but reached no clear conclusion on the issue here, and it plainly did not announce the rule advanced by defendants. Likewise, Lumberman's interprets a state constitutional provi
In any event, the clear “majority view” at common law was that certain forms of mergers or acquisitions were “illegal.” As explained by Kintner, supra, “the test of the legality of a combination . . . regardless of the form it assume[d lay] in the object of the combination” (id., § 3.14, p. 118), and “where the purpose, tendency, or natural consequences of a corporate combination was to monopolize or restrain trade, the combination was illegal.” (Id., at p. 114; see also, Davies, supra, at pp. 65-69.) Accordingly, there are a number of common law cases in which mergers were held illegal. (E.g., Richardson v. Buhl (1889) 77 Mich. 632 [43 N.W. 1102, 1110] [consolidation of separate, otherwise competing, companies into one large corporation amounted to a restraint of competition, and an illegal monopoly]; People v. Chicago Gas Trust Co. (1889) 130 111. 268 [22 N.E. 798, 801-803] [same]; Distilling & Cattle Feeding Co. v. People (1895) 156 111. 448 [41 N.E. 188, 202] [same].)
Like the courts construing the Sherman Act, however, the above cited common law cases condemning mergers all involved clear, actual threats to competition, not merely incipient threats to competition. And, as explained above, the Attorney General in this case alleged at most an incipient threat.
Moreover, the Cartwright Act (like most states’ antitrust statutes) departed from the common law in a significant way. “Illegality” under the common law meant only that an agreement was void and unenforceable (United States v. Addyson Pipe & Steel Co. (6th Cir. 1898) 85 Fed. 271, 279), or subject to “prosecution by the state by quo warranto . . . .” (Distilling & Cattle, supra, 41 N.E. 188, 203; see also Rush, supra, 18 Mo. L.Rev. 215, 219, and cases cited.) Under the Cartwright Act, however, an “illegal” agreement is subject to, inter alia, civil damage awards and criminal punishment. In light of the dramatically enhanced sanctions imposed by the Act, we see no anomaly in the view that the drafters of the Cartwright Act intended to make their law applicable only to situations in which the parties improperly collude and continue as separate, independent entities, and not to situations in which, by virtue of purchase and sale, or merger, one or more of the entities ceases to exist. The drafters could reasonably have believed that the existing remedy at common law under the line of cases following Buhl, supra, 43 N.W. 1102, Chicago Gas, supra, 22 N.E. 798, and
In sum, we conclude that the Attorney General’s interpretation of the Cartwright Act—far from being consistent with the common law—would in fact require a dramatic expansion of the common law. Nothing in the common law compels the Attorney General’s interpretation of the Act.
4. Breadth of the Cartwright Act
Ultimately, the Attorney General’s view that the Cartwright Act applies to mergers is not supported by analogy to the Sherman Act or the common law. As shown above (i) the Sherman Act is not, contrary to our past statements, directly probative on interpretation of the Cartwright Act; (ii) the cases under both the Sherman Act and the common law show at most a willingness to allow challenges to mergers that actually restrain competition, and not those that pose merely an incipient threat to competition; and (iii) in any event, the remedy at common law was different in kind from that available under the Cartwright Act—invalidation of the “illegal” agreement, etc., as opposed to civil or criminal sanctions. At bottom, therefore, the Attorney General resorts to the propositions that (a) the acts of Texas, Michigan and numerous other states, and the cases interpreting those acts, are insignificant indicators of the drafters’ intent; (b) the Cartwright Act is more expansive than both of its other putative sources (Sherman Act and common law); and (c) the Cartwright Act essentially embodies the later-enacted section 7 of the Clayton Act, which as noted above allows challenges to mergers in their incipiency.
For the reasons set out above, we conclude that the 1889 Texas act and the 1899 Michigan act, the interpretation of those acts in Gates, supra, 39 S.W. 1079, and Davis, supra, 127 Fed. 875, 131 Fed. 31, and the striking similarity of the Cartwright Act to those laws, together with the enactment by three states—including Texas—of express antimerger provisions, clearly indicates that the drafters did not intend the Cartwright Act to apply to a purchase and sale agreement, or a merger, between otherwise competing firms.
Nor can we agree that the Cartwright Act is somehow broader than the Sherman Act and the common law. For this proposition, the Attorney General cites our statement in Palsson, supra, 16 Cal.3d 920, that the bill
In the same vein, the Attorney General also rests on dicta from our recent decision in Cianci, supra, 40 Cal.3d 903, to the effect that the Cartwright Act is “broader in range and deeper in reach than the Sherman Act” (id., at p. 920), and that it “reaches beyond the Sherman Act to threats to competition in their incipiency—much like section 7 of the Clayton Act . . .—and thereby goes beyond ‘clear-cut menaces to competition’ in order to deal with merely ‘ephemeral possibilities’ [citations].” (Id., at p. 918.) In view of the evidence to the contrary, Cianci’s conclusory and substantively suspect dicta
III. Application of the Unfair Practices Act to Mergers
The Unfair Practices Act, Business and Professions Code, section 17000 et seq., defines “unfair competition” as, inter alia, “unlawful, unfair or fraudulent business practice . . . .” (Id., § 17200, italics added.) As we have said, the statute is directed at “ ‘on-going wrongful business conduct’ . . . .” (People v. McKale (1979) 25 Cal.3d 626, 632 [159 Cal.Rptr. 811, 602 P.2d 731].) Thus the “practice” requirement envisions something more
IV. Conclusion
We conclude that neither the Cartwright Act, nor the Unfair Practices Act, was intended to apply to a merger. The judgment of the Court of Appeal is affirmed.
Panelli, J., Arguelles, J., and Eagleson, J., concurred.
Several days after oral argument in this case, defendant Texaco petitioned under the federal bankruptcy law for protection from creditors. Thereafter the United States Bankruptcy Court, Southern District of New York, approved by order a stipulation between the parties in this suit. The stipulation provides that the parties desire this appeal be determined by this court and that “[njeither Texaco nor the Attorney General shall use the pendency of Texaco’s [bankruptcy] case as a basis to challenge the other party’s right to proceed with the pending appeal in [this] litigation.”
As discussed below, this was the accepted interpretation of “combination” when the statute was enacted. (See post, part II.C.l.b.; cf., G.H.I.I. v. MTS, Inc. (1983) 147 Cal.App.3d
Although overlooked by some prominent commentators who have focused on the history of the federal antitrust laws, it has been correctly observed that “the first legislation spawned by the national antitrust movement of the late nineteenth century occurred at the state level.” (Thorelli, The Federal Antitrust Policy: Origin of An American Tradition (1955) pp. 155-157; Rubin, supra, 26 U. Fla. L.Rev at p. 657, and fn. 21.) Indeed, it appears from the debates of the Sherman Act, and the language of the Clayton Act, that Congress borrowed liberally from state statutes of the day (in addition to the common law). On the subject of mergers, for example, compare the acts of Texas (1899), Mississippi (1900), Texas (1903), and Arkansas (1905), all discussed post, pages 1159-1160, with the original language of the Clayton Act (38 Stats. 730 (1914)).
(1890 Miss. Laws, ch. 36.) Still, the Texas law was well publicized in this early period. The Texas bill was presented at conventions of state legislators in 1889 and 1890, and “this attention . . . resulted in several states copying [the Texas bill].” (Mathews, supra, Texas Antitrust Laws, pp. 29-30; see also Cotner, supra, at pp. 165-166.)
See Letwin, Congress and the Sherman Antitrust Law: 1887-1890 (1956) 23 U. Chi. L.Rev. 221, 249-255; Rubin, supra, 26 U. Fla. L.Rev. 653, 661, footnote 38; Thorelli, supra, at pages 210-214.
(1890 La. Acts, No. 86; 1905 Neb. Laws, ch. 162, §§ 1, 2.)
In addition to the initial round of states that adopted the Kansas-Maine format {ante, p. 1154), at least five more states adopted that format. (1891 111. Laws, p. 206; 1897 S.C. Acts, No. 265; 1899 Ark. Acts 41; 1907 Wis. Laws, § 1791], pp. 432-433; 1907 Ind.Acts, ch. 243.) Moreover, a number of states, some of which had previously embraced the Texas format, subsequently enacted a law using the Kansas-Maine format. (See the laws of Kansas, Texas, and Mississippi, post, fn. 9.)
It is widely recognized that the 1889 Texas act served as the model for a number of state acts that followed it. (Rubin, supra, 26 U. Fla. L.Rev. 653, 659; Mathews, Texas Antitrust Laws, pp. 29-30.) In addition to the initial laws of Mississippi and Ohio (see 1890 Miss. Laws, ch. 36; 1898 Ohio Laws, p. 143), the Texas act appears to have been the model for the subsequent acts of Kansas, Michigan, North Dakota, South Dakota, Nebraska, as well as forming the basis for later revisions of the Texas antitrust acts. (See post, fn. 9.)
Texas enacted a new act, similar in all relevant respects to its first, in 1895. (1895 Tex. Gen. Laws, ch. 83.) Mississippi, in 1900, and Texas, in 1899, switched from the Texas format to the Kansas-Maine format. (1900 Miss. Laws, ch. 88; 1899 Tex. Gen. Laws, ch. 146.) Missouri reenacted its Kansas-type act in 1891 (Mo. Laws, p. 186) and did so again in 1895 (Mo. Laws, p. 237). Texas then switched, as did five other states, from the Kansas-Maine format to the Texas format. (1903 Tex. Gen. Laws, ch. 94; 1897 Neb. Laws, ch. 79; 1897 Kan. Sess. Laws, ch. 265; 1897 S.D. Laws, ch. 94; 1899 Mich. Pub. Acts, No. 255; 1905 N.D. Laws, ch. 188.) In 1893, and again in 1897, Illinois reenacted Kansas-type laws (III. Laws, p. 89; 111. Laws, p. 298). In 1899 Kansas returned to its original format, and Missouri again reenacted a Kansas-type law (1899 Kan. Sess. Laws, ch. 293; 1899 Mo. Laws, p. 314). In 1905, Nebraska switched to a format following the Sherman Act. (1905 Neb. Laws, ch. 162.) Tennessee reenacted a law following the Kansas scheme (1903 Tenn. Pub. Acts, ch. 140), and Michigan returned to a Kansas-type law. (1905 Mich. Pub. Acts, No. 229.) Arkansas reenacted a Kansas-type law (1905 Ark. Acts, No. 1). Finally, Missouri continued to tinker with its Kansas-type law. (1907 Mo. Laws, p. 377.) At least one state enacted a law that combined attributes of the two formats. (1892 La. Acts, No. 90.)
The court first confronted the meaning of the term in Texas & P. Coal Co. v. Lawson (1896) 89 Tex. 400 [34 S.W. 919]. In that case, a coal company leased some of its land to a saloon owner. The contract provided the company would lease to no other saloon; that it would pay its employees by check, not money; and that the saloon would accept the checks as payment, and remit to the company two-thirds of the profits as rent. The court held this illegal under the statute because “the contract provided, not only for the union or association by the parties of their capital, but also for their united and associated action, during the entire term, in furtherance of the common object, and was, therefore, a ‘combination of capital’ and ‘acts.’ ” (Id., at p. 920.)
Similar decisions focusing on the definition of “combination” were handed down thereafter. (See Welch v. Phelps & Bigelow Windmill Co. (1896) 89 Tex. 653 [36 S.W. 71] [“The purpose of the statute was to prohibit ‘two or more persons,’ etc., from uniting or associating their otherwise independent, separate, and possibly competing ‘capital, skill, or acts’ . . .”]; Texas Brewing Co. v. Templeman (1896) 90 Tex. 277 [38 S.W. 27, 28]; Fuqua v. Pabst Brewing Co. (1896) 90 Tex. 298 [38 S.W. 29, 30].)
See post, footnote 14.
(E.g., 1899 Tex. Gen. Laws, ch. 146, §§ 2, 3, 4, 13; 1903 Tex. Gen. Laws, ch. 94, §§ 2, 4; 1900 Miss. Laws, ch. 88, § 2; 1905 Neb. Laws, ch. 162, § 2; see also 1889 Tenn. Pub. Acts, ch. 250, § 1; 1890 La. Acts, No. 86, § 3; 1907 Ind. Acts, ch. 243, § 2.)
Eleven years earlier, a commentator had recommended prohibiting corporations from holding or controlling, directly or indirectly, the stock of another corporation. (Stimson, Trusts (1888) 1 Harv.L.Rev. 132, 143.)
Comparison of selected relevant language (and enforcement provisions) from the various acts and the Reagan bills of 1889 and 1890 demonstrates that the Cartwright Act, although similar in many respects to the Reagan bill of 1890, is more similar to the Texas and Michigan acts. Comparison also discloses that the language of the Cartwright Act has very little in common with that of the Sherman Act. By way of example, some key passages are set out below, with deviation from the words and punctuation of the Cartwright Act noted by underscoring.
The Cartwright Act. As originally enacted, the Cartwright Act read: “A trust is a combination of capital, skill or acts by two or more persons, firms, partnerships, corporations or associations of persons, or of any two or more of them for either, any or all of the following purposes: []]] 1. To create or carry out restrictions in trade or commerce. ...[([] 5. To make or enter into or execute or carry out any contracts, obligations or agreements of any kind or description, . . . so as to directly or indirectly preclude a free and unrestricted competition among themselves, . . . or by which they shall agree to pool, combine or directly or indirectly unite any interests that they may have connected with the sale or transportation of any such article or commodity, that its price might in any manner be affected. . . .” (Stats. 1907, ch. 530, § 1 (1) & (5), pp. 984-985.)
The Reagan Bill of 1888. This bill read: “That a trust is the combination of capital — or skill... by two or more persons . . for . . . the following purposes: []|] First. To create or carry out restrictions on trade . . . . []]] Fourth. To create a monopoly. . ” (19 Cong.Rec. p. 7512.)
The Reagan bill of 1890. This second Reagan bill copied the first sentence of the above act, replaced the monopoly provision, renumbered the final sentence as paragraph six, copied the first half of that sentence from the above act, and made syntax and punctuation changes in the last half of that sentence. It read as follows: “That a trust is a combination of capital, skill, or acts by two or more persons, firms, . . . corporations, or associations of persons, or of any two or more of them for either, any, or all of the following purposes: [U] First. To create or carry out restrictions in trade . . . [[]] Fifth. To create a monopoly . . . . [1J] Sixth. To make or enter into or execute or carry out any contract, obligation, or agreement_of any kind or description — ... so as to . ■ . preclude . . . free and unrestricted competition among themselves — . . or by which they shall agree to pool, combine, or . . . unite any interest — . . . they may have connected with the sale or transportation of any such article or commodity — that its price may, in any manner, be so affected....” (21 Cong.Rec. p. 2456 (1890).) "
The Michigan act of 1899. This act modified the first sentence by adding the word “partnerships,” substituting “arts” for “acts,” and deleting some punctuation. It also deleted the monopoly provision, added an opening clause to the fifth paragraph, made plural that paragraph’s list of “contracts, obligations or agreements,” added the phrase “directly or indirectly” in two places in the middle of that sentence, and modified (consistently with the 1889 Texas act) the syntax of the final clause of the last sentence (“that its price might in any manner be affected. . . .”). It read: “That a trust is a combination of capital, skill or arts by two or more persons, firms, partnerships, corporations or associations of persons, or of any two or more of them for either, any or all of the following purposes: [fl] 1. To create or carry out restrictions in trade or commerce;. . . [H] 5. It shall hereafter be unlawful. . . [t]o make or enter into or execute or carry out any contracts, obligations or agreements of any kind or description, ... so as to directly or indirectly preclude a free and unrestricted competition among themselves,. . . or by which they shall agree to pool, combine or directly or indirectly unite any interests that they may have connected with the sale or transportation of any such article or commodity, that its price might in any manner be affected. . . .” (1899 Mich. Pub. Acts, No. 255, § 1 (1) & (5).) Michigan, in turn, appears to have followed the language of the Ohio act of 1898. (See Ohio Laws, p. 143 et seq., § 1 (1) & (5).)
(The language of the Sherman Act, by contrast, differed substantially from all of the above. See ante, pp. 1155-1156, quoting 15 U.S.C. §§ 1, 2.)
In addition to the above noted differences in language and coverage between the Reagan bills and the Cartwright Act, we also note that the two Reagan bills differed in another
Additionally, it is clear that our Legislature is well aware of the Clayton Act, section 7 of which expressly regulates mergers. (15 U.S.C. § 18; see post, fn. 18.) In 1961 the Legislature enacted Business and Professions Code section 16727, essentially adopting section 3 of the Clayton Act (15 U.S.C. § 14), which deals with exclusive dealing arrangements.
The antimerger provisions of the original three states remain in effect today. (Tex. Bus.& Comm. Code Ann., § 15.05(d); Miss. Code Ann., § 75-21-13; Ark. Code Ann., § 4-75-301.)
We note that the Uniform State Antitrust Act (1974) does not contain an antimerger provision. This may reflect some commentators’ concern about the propriety of such state regulation. (See Rubin, supra, 26 U.Fla. L.Rev. 653, 731, 723, fn. 502, and authorities cited.) The drafters of at least one modern state antitrust statute specifically declined to adopt the Clayton Act, which, inter alia, regulates mergers. (See 15 U.S.C. § 18; corns., 111. Stat. Ann., ch. 38, § 60 et seq., p. 441 [drafters’ comments on 1965 111. Laws, p. 1943].)
(E.g., Von Kalinowsky & Hanson, The California Antitrust Laws: A Comparison With the Federal Laws (1959) 6 UCLA L.Rev. 533, 553; but see Folsom & Fellmeth, California Antitrust Law and Practice (1983) § 45, pp. 37-38; Lowell v. Mother’s Cake & Cookie Co. (1978) 79 Cal.App.3d 13, 23 [144 Cal.Rptr. 664, 6 A.L.R.4th 184]; Munter v. Eastman Kodak Co. (1915) 28 Cal.App. 660, 666 [153 P. 737] [dicta].)
We need not decide the Attorney General’s claim that the Cartwright Act reaches monopolistic practices by individual firms, because the Attorney General’s complaint does not allege a monopoly.
See Kintner, supra, section 10.77, page 292 (Section 7 of the Clayton Act “was designed to reach acquisitions and mergers before they accomplished their anticompetitive effects. [It] was to reach ‘incipient monopolies and trade restraints’ which would otherwise be immune from attack under the Sherman Act. Therefore, the Clayton Act speaks in terms of probabilities rather than actualities. The Government need not show that a lessening of competition has already occurred, or that it will certainly occur; instead, the Clayton Act merely requires that it is probable that competition will be substantially lessened by the transaction.”). (Italics added.)
The Attorney General did not challenge the merger on common law grounds, and we do not address the issue here.
Cianci’s dicta is evidently based on Business and Professions Code section 16720, subdivision (e)(4), which prohibits certain activity respecting “ ‘any . . . article or commodity, that its price might in any manner be affected.’ ” (40 Cal.3d at p. 918, italics added in Cianci.) This provision—including the underscored phrase—appears in the original Texas act of 1889, and most acts following it. (See 1889 Tex. Gen. Laws, ch. 117, § 1; e.g., 1890 Miss. Laws, ch. 36, § 1; 1897 Kan. Sess. Laws, ch. 265, § 1; 1897 Neb. Laws, ch. 79, § 1; 1898 Ohio Laws, p. 143, § 1(5); 1899 Mich. Pub. Acts No. 255, § 1(5); N.D. Laws, ch. 188, § 1.) We are aware of no case construing this language as suggested by Cianci’s dicta.
To the extent it is inconsistent with our conclusion, we disapprove dicta in Munter, supra, 28 Cal.App. 660, 666.