Dhillon v. Anheuser-Busch CA5

Filed 12/21/22 Dhillon v. Anheuser-Busch CA5
Opinion following transfer from Supreme Court
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIFTH APPELLATE DISTRICT
MANMOHAN DHILLON et al.,
F082763
Plaintiffs and Appellants,
(Super. Ct. No. 14CECG03039)
v.
ANHEUSER-BUSCH, LLC et al., OPINION
Defendants and Respondents.
APPEAL from an order of the Superior Court of Fresno County. Kimberly A.
Gaab, Judge.
Gustafson Gluek, Dennis Stewart, Daniel C. Hedlund, Michelle J. Looby,
Joshua J. Rissman; Coleman & Horowitt, Darryl J. Horowitt, Sherrie M. Flynn;
Freedman Boyd Hollander Goldberg Urias & Ward, Joseph Goldberg and Frank T.
Davis, Jr., for Plaintiffs and Appellants.
Wanger Jones Helsley, Oliver W. Wanger, Patrick D. Toole; Cadwalader,
Wickersham & Taft, Brian D. Wallach and Gregory W. Langsdale for Defendant and
Respondent Anheuser-Busch, LLC.
Chielpegian Cobb and Mark E. Chielpegian for Defendant and Respondent
Donaghy Sales, LLC.
-ooOoo-
Plaintiffs appeal from the second denial of their motion for class certification.
Initially, their motion was denied by the trial court on the ground the proposed class was
not ascertainable. Plaintiffs appealed that order, and we affirmed. The Supreme Court
granted review, then transferred the matter back to this court for reconsideration in light
of its decision in Noel v. Thrifty Payless, Inc. (2019) 7 Cal.5th 955. Applying the rules
governing ascertainability, as clarified by the Supreme Court in that case, we concluded
class certification was not properly denied on that basis. We reversed the trial court’s
order and remanded for a redetermination of the class certification motion.
The trial court again denied the motion. It concluded plaintiffs met their burden of
demonstrating ascertainability and numerosity but failed to demonstrate that common
issues of law or fact predominate, that the named plaintiffs have claims typical of the
claims of the proposed class, that they can adequately represent the proposed class, and
that a class action would provide a superior procedure for litigating the case. Plaintiffs
again appeal. We conclude the trial court abused its discretion in denying class
certification. Accordingly, we reverse and remand to the trial court for a redetermination
of the motion for class certification.
FACTUAL AND PROCEDURAL BACKGROUND
Five named plaintiffs filed this action on behalf of themselves and a class of
persons similarly situated. The operative pleading, the second amended complaint,
alleges the following: Plaintiffs and the class they seek to represent own and operate
retail convenience stores in Fresno and Madera Counties; they sell beer manufactured by
defendant Anheuser-Busch, LLC (Anheuser-Busch) and distributed by defendant
Donaghy Sales, LLC (Donaghy) (collectively, defendants). California law requires
wholesalers of beer to sell to retailers on a nondiscriminatory basis and to charge only the
prices they have filed with the Department of Alcoholic Beverage Control (ABC). A
2.
wholesaler may not charge a different price to a special customer. The wholesaler’s
prices may be modified by filing a new or amended schedule of prices with the ABC.
Plaintiffs allege that, in violation of the wholesale beer pricing and unfair
competition laws, during the class period,1 Donaghy sold beer to certain favored retailers
at effective wholesale prices that were lower than the prices it filed with the ABC. It did
this by providing the favored retailers with disproportionate numbers and amounts of
consumer coupons for discounts off the retail price of beer. Instead of providing the
coupons to consumers, however, the favored retailers redeemed the coupons themselves,
not related to a particular sale of beer to a consumer as required by the coupons. The
favored retailers redeemed the coupons by presenting them to Donaghy for credit against
a subsequent purchase of beer, by redeeming them through a third party redemption
center, or, if in the form of a check, by depositing the check in the retailer’s bank
account.
As a result of this scheme, favored retailers who received and redeemed coupons
effectively paid wholesale prices below the prices filed with the ABC and below the
prices paid by disfavored retailers, who are the members of the proposed class. Plaintiffs
seemed to concede some members of the proposed class also received coupons from
Donaghy, but they alleged class members received substantially fewer than the favored
retailers. This coupon scheme gave the favored retailers an unfair competitive advantage
because they could sell beer at retail at a price below the wholesale price paid by the
disfavored retailers. This forced the disfavored retailers to match, or attempt to match,
the favored retailers’ lower prices, which were often at or below the disfavored retailers’
1 The class definition in plaintiffs’ motion indicates the class period is October 10, 2010,
through December 31, 2014. As defendants point out, Business and Professions Code
section 25600.3, which took effect on January 1, 2015, now prohibits the use of coupons for
beer. Plaintiffs do not appear to contend defendants have provided coupons to, or reimbursed
retailers for, coupons after that date.
3.
wholesale prices. Some aspects of this scheme were known to the disfavored retailers,
but the full extent of the scheme was concealed from them.
Plaintiffs allege Vinay Vohra and Vikram Vohra, as well as others to be identified
later, were favored retailers and coconspirators with Anheuser-Busch and Donaghy.
These favored retailers allegedly accepted large numbers of coupons and used them to
compete unfairly, including by selling at retail below the wholesale price Donaghy filed
with the ABC, “in active cooperation with the Defendants.”
The second amended complaint also alleges defendants sometimes dictated the
retail prices the disfavored retailers could charge, requiring them, through threats of
retaliation, to charge higher retail prices than the favored retailers. Also, Donaghy
personnel sometimes demanded or accepted kickbacks in exchange for coupons,
communicated pricing changes to favored retailers in advance of their effective date, took
orders from favored retailers at the new prices prior to their effective date, and imposed
shelving requirements on disfavored retailers by threatening not to sell to retailers who
did not agree to them.
The second amended complaint contains four causes of action: (1) unfair
competition by means of unlawful business practices (Bus. & Prof. Code,2 § 17200 et
seq.); (2) unfair competition by means of unfair business practices, including allegations
of incipient violation of antitrust laws (§ 17200 et seq.); (3) secret payment or allowance
of rebates (§ 17045); and (4) soliciting or participating in the secret payment or allowance
of rebates in violation of section 17045 (§§ 17047, 17048).
Plaintiffs filed a motion for class certification, redefining the class and adding
Hardeep Singh as an additional favored retailer and alleged coconspirator; the class
definition expressly excluded the favored retailers from the class. Defendants opposed
2 All further statutory references are to the Business and Professions Code unless otherwise
indicated.
4.
the motion, and the trial court denied it, concluding plaintiffs failed to demonstrate the
existence of an ascertainable class. On appeal, we affirmed, but the Supreme Court
granted plaintiffs’ petition for review and transferred the matter back to this court to
reconsider it in light of the decision in Noel v. Thrifty Payless, Inc., supra, 7 Cal.5th 955,
which clarified the standards applicable to the ascertainability of a proposed class. On
reconsideration, we concluded the trial court applied a standard inconsistent with that set
out in Noel; we reversed the trial court’s order denying certification and remanded for the
trial court to determine ascertainability using the Noel standard and to determine whether
the other elements necessary for class certification were met.
On remand, the parties filed further papers. The trial court again denied the
motion. It found that, while plaintiffs demonstrated ascertainability and numerosity of
the class, they failed to demonstrate that common issues of law and fact predominated as
to all their claims. On the claim that plaintiffs were overcharged for beer, the expert
declaration of Marianne DeMario, a forensic accountant, demonstrated there were
common issues. The trial court concluded, however, that plaintiffs’ allegations of price
fixing and other antitrust violations required a showing of harm to competition, but
plaintiffs failed to demonstrate such an injury could be proven by common evidence.
The trial court also found plaintiffs failed to demonstrate that the named plaintiffs
have claims typical of the class and that they can adequately represent the interests of all
class members. Further, it concluded that, because of the lack of common questions and
typical claims, plaintiffs had not demonstrated the superiority of proceeding with the case
as a class action; plaintiffs had not demonstrated that the benefits of certifying the class
would outweigh the burdens.
Plaintiffs appeal the second denial of their motion for class certification. They
contend the trial court misapprehended the theory of their case and misapplied the law
governing class certification.
5.
DISCUSSION
I. Standard of Review
“The denial of certification to an entire class is an appealable order.” (Linder v.
Thrifty Oil Co. (2000) 23 Cal.4th 429, 435.) “A trial court’s order granting or denying
class certification is subject to review for abuse of discretion. [Citation.] ‘Because trial
courts are ideally situated to evaluate the efficiencies and practicalities of permitting
group action, they are afforded great discretion in granting or denying certification.’ ” (In
re Cipro Cases I & II (2004) 121 Cal.App.4th 402, 409.) In the absence of other error, a
certification order generally will not be disturbed unless (1) it is unsupported by
substantial evidence, (2) it rests on improper criteria, or (3) it rests on erroneous legal
assumptions. (Fireside Bank v. Superior Court (2007) 40 Cal.4th 1069, 1089 (Fireside
Bank); Linder, at pp. 435–436.)
“An appeal from an order denying class certification presents an exception to
customary appellate practice by which we review only the trial court’s ruling, not its
rationale.” (Alberts v. Aurora Behavioral Health Care (2015) 241 Cal.App.4th 388,
399.) “ ‘[W]hen denying class certification, the trial court must state its reasons, and we
must review those reasons for correctness.’ ” (Hendershot v. Ready to Roll
Transportation, Inc. (2014) 228 Cal.App.4th 1213, 1221.) “ ‘[W]e review only the
reasons given by the trial court for denial of class certification, and ignore any other
grounds that might support denial.’ ” (Corbett v. Superior Court (2002) 101 Cal.App.4th
649, 658.)
II. Standards for Class Certification
“Code of Civil Procedure section 382 authorizes class actions ‘when the question
is one of a common or general interest, of many persons, or when the parties are
numerous, and it is impracticable to bring them all before the court .…’ ” (Sav-On Drug
Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326 (Sav-On Drug Stores).) “Class
6.
certification requires proof (1) of a sufficiently numerous, ascertainable class, (2) of a
well-defined community of interest, and (3) that certification will provide substantial
benefits to litigants and the courts, i.e., that proceeding as a class is superior to other
methods. [Citations.] In turn, the ‘community of interest requirement embodies three
factors: (1) predominant common questions of law or fact; (2) class representatives with
claims or defenses typical of the class; and (3) class representatives who can adequately
represent the class.’ ” (Fireside Bank, supra, 40 Cal.4th at p. 1089.) “The certification
question is ‘essentially a procedural one that does not ask whether an action is legally or
factually meritorious.’ ” (Sav-On Drug Stores, at p. 326.)
“On a motion for class certification, the plaintiff has the ‘burden to establish that
in fact the requisites for continuation of the litigation in that format are present.’ ” (Caro
v. Procter & Gamble Co. (1993) 18 Cal.App.4th 644, 654.) In reviewing a certification
order, the court considers “whether the theory of recovery advanced by the proponents of
certification is, as an analytical matter, likely to prove amenable to class treatment.
[Citations.] ‘Reviewing courts consistently look to the allegations of the complaint and
the declarations of attorneys representing the plaintiff class to resolve this question.’ ”
(Sav-On Drug Stores, supra, 34 Cal.4th at p. 327.)
III. Trial Court’s Ruling
The trial court found plaintiffs met their burden of demonstrating the putative class
is ascertainable and sufficiently numerous to support class certification. It concluded
plaintiffs did not meet their burden of establishing a well-defined community of interest.
The trial court observed that the second amended complaint alleges the putative class
suffered at least two types of harm: (1) overcharges for the purchase of beer from
Donaghy because the putative class allegedly paid an effective wholesale price higher
than the effective wholesale price paid by the favored retailers, who were given an illegal
secret rebate; and (2) damages from an illegal price-fixing scheme in which defendants
7.
coerced the putative class members to price the beer they sold above, or not below, the
prices charged by the favored retailers, which allowed the favored retailers to compete
unfairly and illegally with the putative class members by allowing the favored retailers to
charge retail prices below those of the putative class members.
As to the alleged price-fixing scheme, plaintiffs offered the expert opinion of
Dr. J. Douglas Zona, an economist, which concluded the alleged use of coupons caused
harm to competition. The trial court found Zona’s expert opinion was insufficient to
demonstrate there were common issues of law or fact regarding plaintiffs’ claims of price
fixing or other antitrust violations because his opinion concerning harm to competition
was not based on any empirical evidence; Zona did not determine whether any putative
class members actually reduced their retail prices in order to compete with the favored
retailers. Accordingly, the trial court refused to “certify a class with regard to any claim
of price fixing or damage to competition.”
As to the alleged overcharges, the trial court found DeMario’s expert report
concluded that all, or nearly all, of the putative class members were injured in a similar
manner by the common scheme of providing coupons that acted as secret rebates,
resulting in putative class members effectively paying higher wholesale prices for beer
than the favored retailers. The trial court concluded plaintiffs “met their burden of
showing that there are common issues of law and fact regarding the injuries suffered by
the proposed class.”
The trial court found, however, that plaintiffs failed to show that their claims were
typical of those of the putative class members and they could adequately represent the
putative class. It purportedly based these conclusions on the declarations of the named
plaintiffs, which showed they were pressured by Donaghy to lower their retail prices for
Anheuser-Busch beer in return for coupons that reimbursed them for doing so; the
declarations did not show that plaintiffs received fewer coupons than the favored retailers
8.
or that they were instructed to use them to effectively give themselves a secret rebate off
the wholesale price of the beer. Further, the deposition testimony of plaintiffs stated they
paid the prices filed with the ABC when they purchased beer from Donaghy, the coupons
did not reduce the invoice price they paid Donaghy for beer but merely reimbursed them
for discounts they gave to retail customers, and the money from the coupons did not go
into their pockets but was passed through to retail customers.
The trial court also found plaintiffs had not shown the benefits of proceeding as a
class action would outweigh the disadvantages and burdens; that is, they did not show the
superiority of the class procedure as a means of litigating their claims. The named
plaintiffs did not suffer the same injuries as the putative class; there was no evidence the
alleged coupon scheme caused any harm to competition by compelling putative class
members to reduce retail prices, lose profits, or go out of business; and it was unclear
how many, if any, of the other putative class members might have suffered injury as a
result of the alleged coupon scheme. The trial court opined that a multitude of minitrials
would be necessary to determine whether each putative class member had a valid claim
and how much damage that class member sustained. Additionally, plaintiffs did not offer
a trial plan or strategy that showed the case could be tried in a manageable and efficient
way.
IV. Numerous, Ascertainable Class
The first requirement for class certification is the existence of a “sufficiently
numerous, ascertainable class.” (Fireside Bank, supra, 40 Cal.4th at p. 1089.) The trial
court determined that plaintiffs met their burden of demonstrating the elements of
ascertainability and numerosity exist as to the proposed class. This conclusion has not
been challenged, and we need not address it.
9.
V. Well-defined Community of Interest
The second requirement for certification of a class action is a well-defined
community of interest among the putative class members. (Sav-On Drug Stores, supra,34 Cal.4th at p. 326.) “[T]he ‘community of interest requirement embodies three factors:
(1) predominant common questions of law or fact; (2) class representatives with claims or
defenses typical of the class; and (3) class representatives who can adequately represent
the class.’ ” (Fireside Bank, supra, 40 Cal.4th at p. 1089.)
A. Predominant common questions of law or fact
“Plaintiffs’ burden on moving for class certification … is not merely to show that
some common issues exist, but, rather, to place substantial evidence in the record that
common issues predominate.” (Lockheed Martin Corp. v. Superior Court (2003)
29 Cal.4th 1096, 1108.) “Predominance is a comparative concept.” (Medrazo v. Honda
of North Hollywood (2008) 166 Cal.App.4th 89, 99.) It “requires a showing ‘that
questions of law or fact common to the class predominate over the questions affecting the
individual members.’ ” (In re Cipro Cases I & II, supra, 121 Cal.App.4th at p. 410.)
“The ‘ultimate question’ the element of predominance presents is whether ‘the issues
which may be jointly tried, when compared with those requiring separate adjudication,
are so numerous or substantial that the maintenance of a class action would be
advantageous to the judicial process and to the litigants.’ ” (Brinker Restaurant Corp. v.
Superior Court (2012) 53 Cal.4th 1004, 1021 (Brinker).)
“To assess predominance, a court ‘must examine the issues framed by the
pleadings and the law applicable to the causes of action alleged.’ ” (Brinker, supra,53 Cal.4th at p. 1024.) The legal elements of the causes of action must be considered in
determining whether common issues predominate. (Apple Inc. v. Superior Court (2018)
19 Cal.App.5th 1101, 1116.) The court “must determine whether the elements necessary
to establish liability are susceptible of common proof or, if not, whether there are ways to
10.
manage effectively proof of any elements that may require individualized evidence.”
(Alberts v. Aurora Behavioral Health Care, supra, 241 Cal.App.4th at p. 398.) “In
deciding whether the common questions ‘predominate,’ courts must do three things:
‘identify the common and individual issues’; ‘consider the manageability of those issues’;
and ‘taking into account the available management tools, weigh the common against the
individual issues to determine which of them predominate.’ ” (Id. at p. 397.)
The trial court’s ruling did not separately address the four causes of action alleged
in the second amended complaint. It did not discuss the elements of the causes of action,
or whether they raised issues susceptible of common proof. The trial court reached
general conclusions without associating them with the elements of any specific cause of
action. Consequently, it is not clear to which cause or causes of action some of its
findings were intended to apply. Nonetheless, we will discuss each cause of action
separately and attempt to relate the trial court’s conclusions to the cause or causes of
action that include the element to which the conclusion is relevant.
1. First Cause of Action—Unlawful Business Practices
Plaintiffs’ first and second causes of action allege violations of California’s unfair
competition law (UCL) (§ 17200 et seq.). The UCL defines unfair competition to “mean
and include any unlawful, unfair or fraudulent business act or practice.” (§ 17200.)
Because the statute “is written in the disjunctive, it establishes three varieties of unfair
competition—acts or practices which are unlawful, or unfair, or fraudulent.” (Podolsky v.
First Healthcare Corp. (1996) 50 Cal.App.4th 632, 647.) Plaintiffs’ first cause of action
is alleged under the “unlawful” prong of section 17200.
“The purpose of the UCL ‘is to protect both consumers and competitors by
promoting fair competition in commercial markets for goods and services.’ ” (Solus
Industrial Innovations, LLC v. Superior Court (2018) 4 Cal.5th 316, 340.) It also
“ ‘provides an equitable means through which … private individuals can bring suit to
11.
prevent unfair business practices and restore money or property to victims of these
practices.’ ” (Ibid., italics omitted.) “While the scope of conduct covered by the UCL is
broad, its remedies are limited. [Citation.] A UCL action is equitable in nature; damages
cannot be recovered.” (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th
1134, 1144.) “[U]nder the UCL, ‘[p]revailing plaintiffs are generally limited to
injunctive relief and restitution.’ ” (Ibid, first bracketed insertion added.) A restitution
order compels “ ‘a UCL defendant to return money obtained through an unfair business
practice to those persons in interest from whom the property was taken.’ ” (Ibid.)
“An unlawful business practice under section 17200 is ‘ “an act or practice,
committed pursuant to business activity, that is at the same time forbidden by law.” ’ ”
(Progressive West Ins. Co. v. Superior Court (2005) 135 Cal.App.4th 263, 287, italics
omitted.) “By prohibiting unlawful business practices, ‘ “section 17200 ‘borrows’
violations of other laws and treats them as unlawful practices” that the unfair competition
law makes independently actionable.’ ” (De La Torre v. CashCall, Inc. (2018) 5 Cal.5th
966, 980.) “Virtually any state, federal or local law can serve as the predicate for an
action under … section 17200.” (Podolsky v. First Healthcare Corp., supra,
50 Cal.App.4th at p. 647.)
Plaintiffs’ first cause of action alleges defendants committed unlawful business
practices by violating sections 25000, 25001, 25004, and 17045.
Section 25000 provides, in part:
“(a) Each … wholesaler of beer shall file and thereafter maintain on file
with the department … a written schedule of selling prices charged by the
licensee for beer sold and distributed by the licensee to customers in
California …. Each … wholesaler of beer shall file a price schedule for
each county in which his or her customers have their premises ….
Different prices for different trading areas within a county shall be based
12.
upon natural geographical differences justifying the different prices, and
shall not be established for special customers.” (§ 25000, subd. (a).)3
Section 25001 authorizes a wholesaler to modify its schedule of prices by filing a
new schedule or an amendment to its existing schedule. Section 25004 provides that,
once a new or amended schedule has become effective, “all prices therein stated shall be
strictly adhered to by the filing licensee, and any departure or variance therefrom by a
licensee is a misdemeanor.” (§ 25004.) Thus, these sections would be violated if a
wholesaler charged a retailer a price other than the applicable wholesale price on file with
the ABC at the time. A wholesale customer’s remedies under the UCL would be
injunctive relief and restitution of any money wrongfully obtained from that customer.
In their motion for class certification, plaintiffs asserted that, pursuant to
sections 25000, 25001, and 25004 they are seeking amounts they were overcharged for
beer during the class period. They contend Anheuser-Busch and Donaghy used coupons
to unlawfully give the favored retailers discounts from the filed wholesale price of beer.
Plaintiffs maintain that, in order to reduce the wholesale price to any retailer, Donaghy
was required by these statutes to file a new or modified schedule of wholesale prices with
the ABC, reflecting the price reduction, and charge the new price to all retailers.
Plaintiffs concede that many of the putative class members received coupons from
Donaghy and redeemed them. They contend, however, that, because Anheuser-Busch
and Donaghy used larger numbers of coupons to give larger discounts to the favored
retailers, effectively lowering the wholesale price those favored retailers were charged
below the price charged to the putative class members, they were in violation of the
pricing statutes; consequently, all disfavored retailers who were charged a higher
effective wholesale price than the effective wholesale price charged to the favored
retailers at the time are entitled to recover the overcharges.
3 Plaintiffs’ class definition includes retail business establishments in Fresno and Madera
Counties that plaintiffs refer to generally as convenience stores.
13.
In their motion, plaintiffs argued that the central issues presented by their claims
can be determined on a class-wide basis. They identified the central issues as: “Whether
the couponing practices Plaintiffs complain about constitute effective discounts from the
posted wholesale prices for beer and hence violate B&P Code §§ 17200 [sic] and the
Unfair Practices Act § 17045; and whether these violations harmed all or nearly all class
members.” Plaintiffs asserted evidence of the coupon program is largely documentary,
and would show the operation of the rebate scheme, sales transactions within the class
period, the filed wholesale prices, the rebates given, to whom they were given, and on
what products and in what amounts they were given. Plaintiffs supported their motion
with the expert report of DeMario, which analyzed the information found in Donaghy’s
sales records and the records of the third party redemption center that redeemed many of
the coupons. DeMario concluded “that all or nearly all of the proposed class members
were injured in a similar manner by the alleged scheme, as they effectively had to pay
higher wholesale prices for [Anheuser-Busch] beer purchased from Donaghy as
compared to the favored retailers.” DeMario offered two methods of calculating
restitution of the overcharges for all the putative class members collectively.
The trial court concluded that, to the extent plaintiffs and the putative class are
seeking recovery of overcharges for the purchase of beer products from Donaghy,
DeMario’s expert opinion satisfied plaintiffs’ burden “of showing that there are common
issues of law and fact regarding the injuries suffered by the proposed class.” The trial
court’s conclusion appears to apply to plaintiffs’ first cause of action, which alleges
plaintiffs were overcharged for Anheuser-Busch beer products through the coupon
scheme. Plaintiffs interpret the trial court’s statement as a finding that common issues
predominate in the first cause of action.
The issue presented by a class certification motion is not whether some common
issues exist, but whether plaintiffs have shown that common issues predominate.
14.
(Lockheed Martin Corp. v. Superior Court, supra, 29 Cal.4th at p. 1108.) The trial court
did not find that common issues predominate in the overcharge claims, but only that there
are common issues “regarding the injuries suffered by the proposed class.” In
considering whether common issues predominate, a court “must determine whether the
elements necessary to establish liability are susceptible of common proof, or, if not,
whether there are ways to manage effectively proof of any elements that may require
individualized evidence.” (Brinker, supra, 53 Cal.4th at p. 1024.) By its terms, the trial
court’s ruling addressed only issues regarding class injuries, not issues that would
establish defendants’ liability. It did not reflect a weighing of common issues against
individualized issues, determine whether any individualized issues may be managed
effectively within a class action, or conclude common issues predominate. Thus, it is not
clear whether the trial court intended its ruling to mean that common issues of law or fact
predominate in the first cause of action.
Additionally, the first cause of action includes allegations of violation of
section 17045. Plaintiffs’ motion for class certification did not address these allegations
at all in its discussion of the first cause of action. The trial court also did not specifically
address them in its ruling.
Section 17045 is part of the Unfair Practices Act (§ 17000 et seq.) and provides:
“The secret payment or allowance of rebates, refunds, commissions, or
unearned discounts, whether in the form of money or otherwise, or secretly
extending to certain purchasers special services or privileges not extended
to all purchasers purchasing upon like terms and conditions, to the injury of
a competitor and where such payment or allowance tends to destroy
competition, is unlawful.” (§ 17045.)
Thus, as alleged in this case, a violation of section 17045 requires a (1) secret
(2) payment or allowance of rebates that (3) injures a competitor and (4) tends to destroy
competition. A violation of this section requires proof of elements beyond those required
for a violation of sections 25000, 25001, and 25004. The trial court did not analyze the
15.
issues raised by the section 17045 claim along with those raised by sections 25000,
25001, and 25004, or determine whether, as to the first cause of action as a whole,
common issues predominate. Consequently, the trial court’s analysis of the first cause of
action to determine whether common issues of law or fact predominate is incomplete. It
did not identify the issues raised by all the elements of the cause of action, consider all
the proper criteria related to those issues, or reach a conclusion on the proper legal
question: predominance of common issues.
2. Second Cause of Action–Unfair Business Practices
The second cause of action of plaintiffs’ second amended complaint alleges that
the same couponing conduct alleged in the first cause of action also constitutes a
violation of the “unfair” business practices prong of the UCL. The second cause of
action alleges violations of: the fair and equal, nondiscriminatory pricing policies of
sections 25000, 25001, and 25004; the policy expressed in section 17001, “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’ ”; the policies underlying section 17045, the secret rebate statute; the policies
underlying sections 17043 and 17049, which prohibit selling below cost for the purpose
of injuring competitors or destroying competition; and the policies underlying the
Cartwright Act (§ 16720 et seq.), which is California’s antitrust law.
Section 17045 prohibits secret rebates to purchasers that injure a competitor,
where the allowance of the rebate tends to destroy competition. Section 17043 makes it
unlawful for any person engaged in business to sell below its cost “for the purpose of
injuring competitors or destroying competition”; section 17049 extends the reach of
section 17043 to any scheme of special rebates that has the effect of violating
section 17043. The Cartwright Act “ ‘generally outlaws any combinations or agreements
16.
which restrain trade or competition or which fix or control prices.’ ” (Pacific Gas &
Electric Co. v. County of Stanislaus (1997) 16 Cal.4th 1143, 1147.)
Plaintiffs argue that, with the exception of the element of harm to competition, the
elements of the second cause of action are substantially similar to the elements of the first
cause of action. They interpret the trial court’s ruling as finding that common issues
predominate in the first cause of action and argue the same common elements are present
in the second cause of action. As to the element of harm to competition, plaintiffs cite
Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th
163, 166 (Cel-Tech) for the proposition that actual harm to competition is not required in
order to prove an unfair business practice; a threatened effect on competition is sufficient
for that purpose. Plaintiffs argue they demonstrated, through the declaration of their
expert witness, Zona, that the element of harm, or threatened harm, to competition can be
proven by the class through common evidence.
In Cel-Tech, the Supreme Court determined that the definitions the Courts of
Appeal had developed for the term “unfair” business practices, as used in the unfair
competition law, were “too amorphous and provide too little guidance to courts and
businesses.” (Cel-Tech, supra, 20 Cal.4th at pp. 184–185.) It devised a more precise
test:
“[T]o guide courts and the business community adequately and to promote
consumer protection, we must require that any finding of unfairness to
competitors under section 17200 be tethered to some legislatively declared
policy or proof of some actual or threatened impact on competition. We
thus adopt the following test: When a plaintiff who claims to have suffered
injury from a direct competitor’s ‘unfair’ act or practice invokes
section 17200, the word ‘unfair’ in that section means conduct that
threatens an incipient violation of an antitrust law, or violates the policy or
spirit of one of those laws because its effects are comparable to or the same
as a violation of the law, or otherwise significantly threatens or harms
competition.” (Cel-Tech, supra, 20 Cal.4th at pp. 186–187.)
17.
Cel-Tech “defined ‘unfair’ in the context of a UCL action by one competitor
against a direct competitor” and “made clear that its discussion about ‘unfair’ practices
was limited to actions by competitors alleging anticompetitive practices, and did not
relate to actions by consumers.” (Morgan v. AT&T Wireless Services, Inc. (2009)
177 Cal.App.4th 1235, 1254.) Here, plaintiffs and the putative class are not direct
competitors of Anheuser-Busch and Donaghy; they claim to be direct competitors of the
favored retailers, who are named defendants. Plaintiffs also allege practices of Anheuser-
Busch and Donaghy that they contend interfere with their ability to compete on fair terms
with the favored retailers. Accordingly, we apply the Cel-Tech test.
Under the Cel-Tech test, actual harm to competition is not required in order to
establish that defendant’s business practices are unfair. “[C]onduct that threatens an
incipient violation of an antitrust law” or “otherwise significantly threatens …
competition” is sufficient to establish a business practice is “unfair” under the UCL.
(Cel-Tech, supra, 20 Cal.4th at p. 187.)
In its order, the trial court concluded that “plaintiffs have failed to meet their
burden of showing that there are common issues of law or fact with regard to their claims
to the extent that they rely on harm to competition based on the alleged price fixing or
other antitrust violations. Indeed, in their reply, plaintiffs deny that they are alleging they
were forced to fix or reduce their prices by defendants’ coupon scheme, and instead
contend that they are only alleging claims for restitution based on the alleged overcharges
for wholesale beer prices caused by the coupon scheme. However, their contention is
inconsistent with the allegations of their own second amended complaint, which clearly
alleges that plaintiffs are seeking damages for defendants’ conduct in coercing the class
members to keep their prices artificially high and other anticompetitive conduct.”
As the trial court pointed out, the second cause of action raises issues beyond
those raised by plaintiffs’ claims that they were overcharged through the discriminatory
18.
use of coupons. The second cause of action alleges Anheuser-Busch and Donaghy
sometimes dictated retail prices to class members, requiring that they price their beer
above, or at least not below, the price of the favored retailers, and threatening retaliation
for noncompliance. Donaghy agreed with favored retailers not to supply disfavored
retailers with coupons so the favored retailers could underprice the disfavored retailers,
often below the disfavored retailer’s cost. Donaghy’s employees sometimes demanded or
accepted kickbacks in exchange for coupons; sometimes communicated pricing
intentions to favored retailers in advance of the effective date of filed pricing changes;
took orders from favored retailers at the new prices prior to their effective date; timed
amendments that lowered prices on the filed pricing schedule to benefit favored retailers
who would receive deliveries on weekends, unlike disfavored retailers; and frequently
imposed shelving requirements on disfavored retailers, requiring the retailer to devote a
certain percentage of its shelf space to Anheuser-Busch products and backing the
requirement with threats that Donaghy would not sell beer to that retailer at all or would
limit its allocation of products to the retailer at the filed sale price if the retailer did not
comply. Plaintiffs’ motion did not attempt to demonstrate that these activities, which
allegedly occurred “sometimes” or “frequently,” could be proven on a class-wide basis.
The trial court declined to “certify a class with regard to any claim of price fixing
or damage to competition.” Most of the statutes cited as the basis for the second cause of
action require a business practice that “tends to destroy competition” (§ 17045), is
engaged in “for the purpose of injuring competitors or destroying competition”
(§ 17043), or destroys or prevents fair and honest competition (§ 17001). The trial court
based its decision on its conclusion that plaintiffs had presented no evidence the alleged
price-fixing activities actually harmed competition. It concluded Zona’s declaration did
not establish any such harm because his opinion was not based on any empirical evidence
of actual price effects caused by the alleged coupon scheme. Under Cel-Tech, however,
19.
actual harm to competition is not an essential element of a claim of unfair business
practices under the UCL. A significant threat to competition or a threat of an incipient
antitrust violation suffices. (Cel-Tech, supra, 20 Cal.4th at p. 187.) Thus, the trial court
applied an improper legal standard.
Plaintiffs’ second cause of action alleges that price fixing at the retail level and
selective discounting of wholesale prices through the use of coupons threatened an
incipient violation of antitrust law: they tended “to impede and delay the dissemination
of lower prices in the market,” because, if Donaghy had lowered prices generally, by
filing a new price schedule with the ABC instead of offering coupons to some retailers,
but not others, retailers would have learned of the reduced prices more quickly, resulting
in “more broadly based price reductions at the retail level across Fresno and Madera
[C]ounties.” The trial court did not consider whether plaintiffs made a sufficient
showing, through Zona’s declaration or other evidence, that these allegations raise
common issues regarding a significant threat to competition or a threat of an incipient
antitrust violation that could be addressed on a class-wide basis. The trial court also
failed to weigh the common issues that may be jointly tried against those issues that
require individual adjudication to determine which predominate. We conclude the trial
court applied an incorrect standard, requiring a showing of actual harm to competition,
rather than presentation of evidence that a significant threat to competition or a threat of
an incipient antitrust violation could be demonstrated on a class-wide basis. It also failed
to weigh the common issues against the issues requiring separate adjudication to
determine whether the common issues predominate. Thus, the decision regarding the
second cause of action rests on improper criteria and erroneous legal assumptions.
3. Third and Fourth Causes of Action—Secret Rebates
Plaintiffs’ third cause of action alleges a violation of section 17045, which
requires a (1) secret (2) payment or allowance of rebates that (3) injures a competitor and
20.
(4) tends to destroy competition. The fourth cause of action alleges violation of
sections 17047 and 17048, which make it unlawful for any manufacturer or wholesaler to
solicit or participate in a violation of section 17045 or to collude with another in a
violation of section 17045.
Plaintiffs broadly claim these causes of action present common questions
regarding whether defendants violated these sections by “not filing and posting, and
selectively implementing, coupon rebates.” They contend the trial court abused its
discretion by failing to address and analyze these causes of action in its ruling.
Because one of the elements of these causes of action is a tendency of the secret
rebates to destroy competition, the trial court’s refusal to certify a class “with regard to
any claim of … damage to competition” appears to apply to these causes of action. As
previously discussed, the trial court did not apply the proper criteria in its analysis of the
element of damage to competition. Consequently, to the extent the trial court intended to
deny certification of these causes of action based on plaintiffs’ failure to demonstrate that
damage to competition could be proven on a class-wide basis, that denial would be based
on improper criteria and erroneous legal assumptions.
Additionally, the trial court did not analyze all of the elements of these causes of
action, identify the common or individual issues raised by them, or determine whether
plaintiffs showed that common issues predominate.
B. Typical claims
Class “[c]ertification requires a showing that the class representative has claims or
defenses typical of the class.” (Fireside Bank, supra, 40 Cal.4th at p. 1090.) The class
representatives must be members of the class they claim to represent and must be situated
similarly to the class members. (Caro v. Procter & Gamble Co., supra, 18 Cal.App.4th
at p. 663.) “The typicality requirement’s purpose ‘ “is to assure that the interest of the
named representative aligns with the interests of the class. [Citation.] ‘ “Typicality
21.
refers to the nature of the claim or defense of the class representative, and not to the
specific facts from which it arose or the relief sought.” ’ [Citations.] The test of
typicality ‘is whether other members have the same or similar injury, whether the action
is based on conduct which is not unique to the named plaintiffs, and whether other class
members have been injured by the same course of conduct.’ ” ’ ” (Martinez v. Joe’s
Crab Shack Holdings (2014) 231 Cal.App.4th 362, 375.)
The trial court concluded the evidence did not support a finding that the named
plaintiffs had claims typical of the class. It found their declarations merely stated they
were pressured by Donaghy to lower their retail prices for Anheuser-Busch beer and they
would receive coupons to compensate them for lowering their retail prices.4 “Plaintiffs
do not allege that they were not given the same number of coupons as the favored
retailers, or that they were instructed to use the coupons they did receive to effectively
give them a secret rebate off the wholesale price of beer. At most their allegations show
that they were given coupons to reimburse them for reducing their retail prices, which
apparently resulted in no net loss to them. Thus, plaintiffs’ declarations fail to establish
that they were subjected to a discriminatory scheme where they did not receive as many
coupons as the favored retailers.”
The primary theory of plaintiffs’ case, asserted on behalf of the named plaintiffs
and the class, is that coupons were given to the favored retailers in relatively large
numbers while they were either not given to or given in significantly smaller numbers to
the disfavored retailers making up the putative class. As a result, the class members
effectively paid a higher wholesale price for Anheuser-Busch beer than the favored
retailers; this violated the beer pricing and unfair competition laws, which required
wholesalers to sell beer to all retailers in Fresno and Madera Counties at the same price.
4 We note that only one of the seven declarations cited by the trial court in support of these
statements was the declaration of a named plaintiff. The others were declarations of putative
class members.
22.
Regardless whether the coupons ostensibly were given to reimburse the retailer for a
reduction in price given to the retail customer, plaintiffs contend redemption of the
coupons effectively lowered the wholesale price paid by the redeeming retailer to
Donaghy for Anheuser-Busch beer products. Whether this was actually the legal effect
of coupon redemption is a merits question that is not relevant to the certification issue.
Thus, declarations stating that named plaintiffs or putative class members were pressured
by Donaghy to lower their retail prices in exchange for coupons are not inconsistent with
plaintiffs’ theory of the case and do not render the named plaintiffs’ claims atypical of the
claims asserted by the putative class in the second amended complaint.
The trial court’s concern that the declarations did not state they were given fewer
coupons than the favored retailers is unfounded. That information is contained in
DeMario’s report. Her report included a summary of the information she collected from
the records of Donaghy and the third party redemption center, indicating the value of
coupons redeemed by each of the retailers in the putative class, including the named
plaintiffs, to the extent that information was available.
The trial court’s observation that the named plaintiffs did not declare they were
instructed to use the coupons they received to effectively give them a secret rebate off the
wholesale price of beer does not make their claims atypical. The second amended
complaint does not allege that any member of the class was so instructed. Rather,
plaintiffs contend that redemption of the coupons had the effect of reducing the wholesale
price paid by the redeeming retailers for Anheuser-Busch beer products purchased from
Donaghy.
The trial court also cited deposition testimony of the named plaintiffs that they
were not charged wholesale prices different from the prices Donaghy filed with the ABC,
the coupons did not reduce the invoice price plaintiffs paid for beer products purchased
from Donaghy, and the coupon discount was passed on to the retail customer and
23.
reimbursed later. Again, these are the same allegations made by the named plaintiffs on
behalf of the class: the wholesale price of the beer products was effectively reduced by
the use of coupons subsequent to the purchase of the products, and the favored retailers
received a greater reduction because they received more coupons than the disfavored
retailers.
We conclude the trial court misconstrued the nature of plaintiffs’ claims and
misapplied the standards for determining the typicality of a class representative’s claims.
A class representative is not required to have identical interests with all of the class
members. (Classen v. Weller (1983) 145 Cal.App.3d 27, 46.) Here, the class
representatives claim the same type of injury, arising from the same conduct by the
defendants, as the putative class. We conclude the trial court erred in determining that
the named plaintiffs do not have claims typical of the class.
C. Adequacy of representation
“To maintain a class action, the representative plaintiff must adequately represent
and protect the interests of other members of the class. [Citation.] This requirement is a
natural consequence of the equitable origins of the action and is the product in part of the
relation between the res judicata effect of the class judgment on absent members and the
requirements of due process.” (City of San Jose v. Superior Court (1974) 12 Cal.3d 447,
463.) “Adequacy of representation depends on whether the plaintiff’s attorney is
qualified to conduct the proposed litigation and the plaintiff’s interests are not
antagonistic to the interests of the class.” (McGhee v. Bank of America (1976)
60 Cal.App.3d 442, 450.) “ ‘It is axiomatic that a putative representative cannot
adequately protect the class if his [or her] interests are antagonistic to or in conflict with
the objectives of those he [or she] purports to represent. But only a conflict that goes to
the very subject matter of the litigation will defeat a party’s claim of representative status.
Moreover, if the court can … divide the class into subclasses or … separate those issues
24.
that merit class action treatment so as to remove any antagonism, then the action need not
be dismissed.’ ” (Richmond v. Dart Industries, Inc. (1981) 29 Cal.3d 462, 470–471.)
“When a court decides a proposed class certification request, to consider issues of
adequacy and fairness of representation, it will evaluate ‘the seriousness and extent of
conflicts involved compared to the importance of issues uniting the class; the alternatives
to class representation available; … the procedures available to limit and prevent
unfairness; and any other facts bearing on the fairness with which the absent class
member is represented.’ ” (Global Minerals & Metals Corp. v. Superior Court (2003)
113 Cal.App.4th 836, 851.)
The trial court did not separately consider whether the class representatives
demonstrated that they could adequately represent the class. It lumped together the
typicality and adequacy of representation requirements and concluded that, for the same
reasons their claims were not typical, the named plaintiffs would not be adequate
representatives of the putative class. The trial court did not consider whether any
conflicts or antagonistic interests exist between the named plaintiffs and the other
members of the proposed class.
We note that, according to G.H.I.I. v. MTS, Inc. (1983) 147 Cal.App.3d 256, an
action for unfair business practices founded on a violation of the secret rebate statute
(§ 17045) may be maintained not only against the seller who granted the secret rebate to
the buyer, but also against the buyer who received it. (G.H.I.I., at p. 271.) If, as plaintiffs
contend, redemption of coupons violated section 17045, because it constituted receipt of
a secret rebate which resulted in the redeeming retailer paying a lower wholesale price for
beer products, then the members of the class who redeemed coupons reaped the benefits
of the secret rebates. That may put the members of the putative class who did not redeem
coupons in a significantly different position than those who redeemed coupons, which
may result in antagonistic or conflicting interests.
25.
Further, the methods of calculating restitution proposed by DeMario do not
distinguish between the putative class members who did not receive or redeem any
coupons and the members who redeemed some coupons but allegedly not as many as the
favored retailers. She combines the two groups in her calculations. In Alternative One,
she compares the average discount received by the favored retailers through the use of
coupons with the average discount received by the putative class. In Alternative Two,
she compares the largest discount received by any retailer (favored or disfavored) during
a promotion period with the average discount received by the putative class. In either
case, she averages the discounts received by all 808 putative class members, although
only 310 or 372 putative class members (depending on which data is consulted)
redeemed coupons; plaintiffs admit at least 436 putative class members did not redeem
any coupons and therefore did not receive any reductions from the filed wholesale price.
The effect of her calculations is to attribute price reductions to at least 436 putative class
members who received none.
We recognize that DeMario’s calculations are a means of presenting the restitution
claims on behalf of the class as a whole and do not necessarily address distribution of any
recovery among the class members. In determining the adequacy of the named plaintiffs’
representation of the class as a whole, however, it appears the status of the named
plaintiffs, who in this case all appear to have redeemed coupons, and the potential for a
conflict of interest caused by the difference in status, are valid considerations.5
Because the trial court did not separately consider whether the named plaintiffs
would adequately represent the class and did not analyze potentially conflicting or
antagonistic interests in making that determination, we conclude the trial court’s analysis
of this element is incomplete.
5 “Case law imposes fiduciary duties on the trial courts, class counsel, and class
representatives, who must ensure the action proceeds in the class members’ best interest.”
(Hernandez v. Restoration Hardware, Inc. (2018) 4 Cal.5th 260, 266.)
26.
VI. Superiority of Class Procedure
In addition to demonstrating there is a sufficiently numerous, ascertainable class
and a well-defined community of interest, plaintiffs seeking class certification must
demonstrate that certification will provide substantial benefits to the litigants and the
court, that is, that proceeding as a class is superior to other methods. (Fireside Bank,
supra, 40 Cal.4th at p. 1089.) Regarding the superiority of the class method, the trial
court stated the same problems it identified with regard to community of interest also
weighed against finding that a class action would be a superior procedure. “The named
plaintiffs apparently did not suffer the same injuries as the other proposed class members,
and, in fact, they denied that the coupons were used to lower the wholesale price they
paid to Donaghy for [Anheuser-Busch] beer. There is also no evidence that the alleged
coupon scheme caused any harm to competition by forcing the class members to reduce
their prices, lose profits, or go out of business. It is unclear how many, if any, of the
other class members might have suffered injury due to the alleged coupon scheme.” The
trial court concluded “a multitude of mini-trials” would be required to adjudicate the
individual claims of the class members to determine whether each has a valid claim and
how much damage they sustained.
Regarding the named plaintiffs’ denial that the coupons were used to lower the
wholesale price they paid, the theory of plaintiffs’ case is that the coupons in fact had that
effect; whether plaintiffs and the class members understood they had that effect would
not change the outcome. Plaintiffs contend the effect of the coupons is a common issue
suitable for litigation on a class-wide basis. The trial court, earlier in its ruling, appeared
to agree when it accepted DeMario’s declaration as showing a common scheme of
providing coupons that acted as secret rebates and showing all or nearly all of the
putative class members were injured in a similar manner by the alleged coupon scheme.
The trial court’s conclusion that “[i]t is unclear how many, if any, of the other class
27.
members might have suffered injury due to the alleged coupon scheme” appears to
contradict its earlier statement that DeMario’s declaration showed all or nearly all of the
putative class members were injured in a similar manner by the alleged coupon scheme.
As previously discussed, actual harm to competition is not a required element of
plaintiffs’ second cause of action for unfair business practices under the UCL. The trial
court did not analyze, for any cause of action, whether plaintiffs demonstrated that the
type of harm or threatened harm to competition required for each cause of action can be
proven on a class-wide basis by common evidence.
Thus, the trial court did not consider the appropriate factors in determining
whether proceeding by class action would be superior to proceeding by individual
actions.
We conclude the trial court abused its discretion by denying plaintiffs’ motion for
class certification.
DISPOSITION
The order denying class certification is reversed. We remand the matter to the
trial court for further consideration of the motion for class certification consistent with
the views expressed in this opinion. Plaintiffs are awarded their costs on appeal.
HILL, P. J.
WE CONCUR:
SMITH, J.
DE SANTOS, J.
28.