Opinion
Plaintiff Bill Chavez appeals a judgment dismissing his complaint against defendants Whirlpool Corporation (Whirlpool) and Howard’s after the court sustained a demurrer without leave to amend. He alleges that Whirlpool has required Howard’s and other retailers to maintain minimum resale prices for its products and contends the practice constitutes
We conclude that the complaint fails to state a cause of action for violation of the Cartwright Act because the alleged conduct is permissible under the Colgate doctrine (United States v. Colgate & Co. (1919) 250 U.S. 300 [39 S.Ct. 465, 63 L.Ed. 992, 7 A.L.R. 443] (Colgate)), and the facts pleaded are insufficient to establish a coerced agreement. We also conclude that conduct that is permissible under the Colgate doctrine is neither unlawful nor “unfair” under the unfair competition law, so the complaint fails to state a cause of action for violation of the unfair competition law. We therefore affirm the judgment.
Factual and Procedural Background
Whirlpool manufactures household appliances, including KitchenAid dishwashers. Howard’s is a retailer. Chavez is a consumer who purchased a KitchenAid product from Howard’s.
Chavez sued Whirlpool and Howard’s in May 1999 on behalf of himself, others similarly situated, and the general public, alleging that the defendants had agreed to maintain minimum resale prices for KitchenAid dishwashers. The complaint alleges causes of action for violation of the Cartwright Act and the unfair competition law.
Chavez alleges that Whirlpool announced a KitchenAid Unilateral Price Policy (the price policy) prescribing minimum resale prices for KitchenAid products and informed Howard’s and other retailers that it would monitor their compliance and would refuse to sell KitchenAid products to any retailer who failed to comply. He alleges that Whirlpool advised the retailers that there would be “no second chances” and that any single violation of the price policy would result in the termination of sales to the individual retail store and to all of the retailer’s other stores. He further alleges that Howard’s agreed to implement the price policy and maintained the minimum resale prices, although Howard’s normally discounted its products, and that Howard’s announced to its employees that the policy would benefit Howard’s and its employees. He alleges in the alternative that even if Howard’s did not voluntarily agree to maintain the minimum resale prices, it agreed under coercion and the threat that Whirlpool would terminate sales to Howard’s.
Whirlpool demurred to the complaint on the ground that the alleged conduct was lawful. Howard’s joined in the demurrer. Whirlpool argued that
Chavez responded that an unlawful combination under the Cartwright Act exists when a manufacturer coerces a retailer to comply involuntarily with minimum resale prices, and that the complaint adequately alleges coercion. He argued that the complaint could be amended, if necessary, to allege more specific coercive acts after the completion of some discovery. With respect to the unfair competition cause of action, he argued that the price policy is “unlawful” because it violates the Cartwright Act and that it is “unfair” because the harm to consumers outweighs the benefits.
The trial court determined that under the Colgate doctrine, Whirlpool’s announcement of the price policy and the retailers’ alleged acquiescence in the policy were unilateral actions that did not constitute an agreement, and that the complaint did not allege other conduct beyond the announcement of the price policy that would create an unlawful combination. It concluded that since the alleged conduct was permissible under the Cartwright Act, it was neither unlawful nor unfair for purposes of the unfair competition law. The court therefore sustained the demurrer without leave to amend and dismissed the action.
Contentions
Chavez contends (1) the complaint adequately alleges that Whirlpool coerced retailers to comply with the price policy, creating an unlawful combination under the Cartwright Act; (2) the price policy is “unlawful” under the unfair competition law because it violates the Cartwright Act, and it is “unfair” because the harm to consumers outweighs the benefits; and (3) the court abused its discretion by denying leave to amend the complaint to allege additional facts to support both causes of action.
Discussion
1. Standard of Review
On appeal from a judgment dismissing a complaint after a demurrer is sustained without leave to amend, we assume the truth of properly pleaded
2. The Cartwright Act Claim
A. Legal Background
The Cartwright Act prohibits every trust, defined as “a combination of capital, skill or acts by two or more persons” for specified anticompetitive purposes. (Bus. & Prof. Code, §§ 16720, 16726.) The federal Sherman Act prohibits every “contract, combination ... or conspiracy, in restraint of trade.” (15 U.S.C. § 1.) The similar language of the two acts reflects their common objective to protect and promote competition. (State of California ex rel. Van de Kamp v. Texaco, Inc. (1988) 46 Cal.3d 1147, 1153 [252 Cal.Rptr. 221, 762 P.2d 385]; Business Electronics v. Sharp Electronics (1988) 485 U.S. 717, 726 [108 S.Ct. 1515, 1520-1521, 99 L.Ed.2d 808] [emphasizing interbrand competition].) Since the Cartwright Act and the federal Sherman Act share similar language and objectives, California courts often look to federal precedents under the Sherman Act for guidance. (Morrison v. Viacom, Inc. (1998) 66 Cal.App.4th 534, 541, fn. 2 [78 Cal.Rptr.2d 133].)
California and federal antitrust law under the two acts generally distinguish between conduct that is per se unlawful and conduct that is evaluated under the rule of reason. The law conclusively presumes manifestly anticompetitive restraints of trade to be unreasonable and unlawful, and evaluates other restraints under the rule of reason. (Marin County Bd. of Realtors, Inc. v. Palsson (1976) 16 Cal.3d 920, 930-931 [130 Cal.Rptr. 1, 549 P.2d 833]; Business Electronics v. Sharp Electronics, supra, 485 U.S. at pp. 723-724 [108 S.Ct. at pp. 1518-1520].)
An agreement between a manufacturer or supplier and distributors or retailers to maintain minimum resale prices is per se unlawful under both the Cartwright Act and the Sherman Act. (Business Electronics v. Sharp Electronics, supra, 485 U.S. at p. 724 [108 S.Ct. at pp. 1519-1520]; cf. Mailand v. Burckle (1978) 20 Cal.3d 367, 377-378 [143 Cal.Rptr. 1, 572 P.2d 1142] [held that a minimum resale price agreement between a franchisor and a
A resale price maintenance agreement can be inferred from certain conduct. (Monsanto Co. v. Spray-Rite Service Corp. (1984) 465 U.S. 752, 764, 768 [104 S.Ct. 1464, 1470-1471, 1472-1473, 79 L.Ed.2d 775] (Monsanto).) The conduct from which an agreement can be inferred is circumscribed as a matter of law in order to protect a manufacturer’s right to select with whom to do business and on what terms. (Id. at pp. 761, 763 [104 S.Ct. at pp. 1469, 1470].) This is known as the Colgate doctrine, arising from Colgate, supra, 250 U.S. 300. As the United States Supreme Court stated in Monsanto, “Under Colgate, the manufacturer can announce its resale prices in advance and refuse to deal with those who fail to comply. And a distributor is free to acquiesce in the manufacturer’s demand in order to avoid termination.” (Monsanto, at p. 761 [104 S.Ct. at p. 1469].) California courts have adopted the Colgate doctrine for purposes of applying the Cartwright Act. (Bert G. Gianelli Distributing Co. v. Beck & Co. (1985) 172 Cal.App.3d 1020, 1042-1043 [219 Cal.Rptr. 203]; G.H.I.I. v. MTS, Inc. (1983) 147 Cal.App.3d 256, 267-268 [195 Cal.Rptr. 211, 41 A.L.R.4th 653]; Kolling v. Dow Jones & Co. (1982) 137 Cal.App.3d 709, 720-721 [187 Cal.Rptr. 797]; R. E. Spriggs Co. v. Adolph Coors Co. (1979) 94 Cal.App.3d 419, 425-426 [156 Cal.Rptr. 738].)
In Monsanto, supra, 465 U.S. 752, a distributor of agricultural chemicals alleged that the manufacturer had terminated the distributorship pursuant to a resale price maintenance agreement with other distributors. The jury found that the manufacturer had violated the Sherman Act, and the circuit court of appeals affirmed the judgment, holding that the manufacturer’s termination of the distributorship in response to complaints from other distributors was sufficient evidence from which to infer a conspiracy to set resale prices. (Monsanto, at pp. 757-759 [104 S.Ct. at pp. 1467-1468].) The Supreme Court rejected that analysis but affirmed the judgment based on a more rigorous standard of proof designed to distinguish “independent action by the manufacturer” from “price-fixing agreements.” (Id. at pp. 759, 763 [104 S.Ct. at pp. 1468, 1470].)
The Monsanto court first distinguished between “concerted and independent action.” (Monsanto, supra, 465 U.S. at p. 761 [104 S.Ct. at p. 1469].) It
The Monsanto court stated that the distinctions between concerted and independent action and between price and nonprice restrictions are difficult to apply in practice, and acknowledged that the economic impact of both proscribed and permitted behavior in many cases may be the same and that the parties’ conduct may be indistinguishable. (Monsanto, supra, 465 U.S. at p. 762 [104 S.Ct. at p. 1470].) It noted that a manufacturer and its distributors may have legitimate reasons to discuss resale prices and marketing strategy and to maintain reasonable nonprice restrictions that may affect resale prices. (Id. at pp. 762-763 [104 S.Ct. at p. 1470], citing Continental T. V., Inc. v. GTE Sylvania Inc. (1977) 433 U.S. 36, 55 [97 S.Ct. 2549, 2560, 53 L.Ed.2d 568].) Nonprice restrictions affecting resale prices may help to ensure that retailers promote products and offer services, and may help to avoid “‘free riders.’” (Monsanto, at pp. 762-763 [104 S.Ct. at p. 1470]; Sylvania, at p. 55 [97 S.Ct. at p. 2560].) “Nevertheless,” the Monsanto court stated, it is important to distinguish between independent action, “concerted action on nonprice restrictions,” and “price-fixing agreements, since under present law the latter are subject to per se treatment and treble damages. . . .” If an inference of such an agreement may be drawn from highly ambiguous evidence, there is a considerable danger that the doctrines enunciated in Sylvania and Colgate will be seriously eroded. (Monsanto, at p. 763 [104 S.Ct. at p. 1470].)
The court concluded as a matter of law that to permit the inference of a price fixing agreement based solely on a manufacturer’s termination of a distributorship in response to a complaint from another distributor would unduly inhibit legitimate conduct by manufacturers. (Monsanto, supra, 465 U.S. at pp. 763-764 & fn. 8 [104 S.Ct. at pp. 1470-1471].) It stated that there must be some other evidence showing that the manufacturer and distributors were not acting independently, but had achieved “ ‘a meeting of the minds’ ” or “ ‘a common scheme.’ ” (Id. at p. 764 & fn. 9 [104 S.Ct. at p. 1471].) It stated that the fact that a distributor had conformed to a suggested retail price is insufficient to support an inference of an agreement to maintain resale prices without some other evidence, and that “evidence must be presented both that the distributor communicated its acquiescence or agreement, and that this was sought by the manufacturer.” (Id. at p. 764, fn. 9 [104 S.Ct. at p. 1471].)
The standard of proof articulated in Monsanto is based largely on the court’s desire to protect the right of a manufacturer, under the Colgate doctrine, to announce resale prices and refuse to deal with dealers who do not comply, and the dealers’ freedom to acquiesce in the manufacturer’s demand in order to avoid termination. (Monsanto, supra, 465 U.S. at pp. 761, 763 [104 S.Ct. at pp. 1469, 1470].) Monsanto therefore reaffirms that principle and imposes a heightened standard of proof to establish an implied agreement on resale prices. (Accord, Matsushita Elec. Industrial Co. v. Zenith Radio (1986) 475 U.S. 574, 588 [106 S.Ct. 1348, 1536-1537, 89 L.Ed.2d 538].)
Thus, a manufacturer’s announcement of a resale price policy and its refusal to deal with dealers who do not comply coupled with the dealers’ voluntary acquiescence in the policy does not constitute an implied agreement or an unlawful combination as a matter of law. (Monsanto, supra, 465 U.S. at p. 761 [104 S.Ct. at p. 1469]; United States v. Parke, Davis & Co. (1960) 362 U.S. 29, 44 [80 S.Ct. 503, 511-512, 4 L.Ed.2d 505].) An unlawful combination arises, however, if the manufacturer goes beyond those measures by seeking communication of a dealer’s acquiescence or agreement to secure the dealer’s compliance, such as by means of coercion, and the dealer so communicates. (Monsanto, at pp. 764, fn. 9, 765, fn. 10
The question here is whether the facts alleged in the complaint are sufficient to allege an unlawful combination under the Cartwright Act based on a resale price maintenance agreement.
B. The Sufficiency of the Complaint
A cause of action for violation of the Cartwright Act “ ‘ “must allege (1) the formation and operation of the conspiracy, (2) the wrongful act or acts done pursuant thereto, and (3) the damage resulting from such act or acts. [Citations.]” ’ ” (Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, 47 [77 Cal.Rptr.2d 709, 960 P.2d 513].) Whirlpool challenges only the first element.
Chavez alleges that Whirlpool announced the price policy prescribing minimum resale prices for KitchenAid products in February 1999 and informed retailers that it would refuse to sell products to any retailer who did not comply. He further alleges that Whirlpool announced that it would monitor the retailers’ compliance with the policy by reviewing their advertising, collecting sales receipts, ■ and sending “mystery shoppers” to retail stores, and that it employed other unspecified “threats, coercion, intimidation and boycott” to cause the dealers to comply. The facts pleaded are insufficient to establish a coerced agreement in violation of the Cartwright Act and allege only behavior permitted under the Colgate doctrine.
Just as the announcement of a resale price policy and refusal to deal with dealers who do not comply is permissible, measures to monitor compliance that do not interfere with the dealers’ freedom of choice are permissible. To hold otherwise would render the manufacturer’s announced policy ineffective and undermine rights protected by the Colgate doctrine, and could also result in the mistaken and arbitrary termination of dealers. By monitoring the dealers’ compliance without forcing compliance or seeking and receiving communication of their compliance, a manufacturer permissibly exercises its right to select with whom to do business and on what terms. In this manner, a manufacturer that announces a resale price policy and enforces the policy by monitoring the dealers’ compliance and refusing to deal with dealers who do not comply does not violate the Cartwright Act.
C. Leave to Amend
Chavez contends the complaint can be amended to state a valid cause of action by alleging that after Whirlpool announced the end of the price
3. The Unfair Competition Claim
Section 17200 of the Business and Professions Code defines “unfair competition” to include “any unlawful, unfair or fraudulent business act or practice.” The broad scope of the statute encompasses both anticompetitive business practices and practices injurious to consumers. (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 [83 Cal.Rptr.2d 548, 973 P.2d 527] (Cel-Tech).) An act or practice may be actionable as “unfair” under the unfair competition law even if it is not “unlawful.” (Ibid.)
The complaint does not allege a valid Cartwright Act violation to establish an “unlawful” act or practice, as explained ante. The remaining question is whether the complaint adequately alleges an “unfair” act or practice.
The California Supreme Court in Cel-Tech, supra, 20 Cal.4th 163 held that conduct that the Legislature has determined to be lawful cannot be “unfair” under the unfair competition law. (Id. at p. 183.) Although conduct may be “unfair” even if there is no statute prohibiting the conduct, conduct is not actionable under the unfair competition law if a statute expressly precludes an action based on the conduct. (Id. at pp. 183-184.)
' The Cel-Tech court was critical of the definitions of “unfair” articulated in People v. Casa Blanca Convalescent Homes, Inc. (1984) 159 Cal.App.3d 509, 530 [206 Cal.Rptr. 164, 53 A.L.R.4th 661] (“[A]n ‘unfair’ business practice occurs when it offends an established public policy or when the practice is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers”) and State Farm Fire & Casualty Co. v. Superior Court (1996) 45 Cal.App.4th 1093, 1104 [53 Cal.Rptr.2d 229] (“‘the court must weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim’ ”) as too vague, amorphous, and uncertain. (Cel-Tech, supra, 20 Cal.4th at pp. 184-185.) It noted that a poorly defined standard of what is “unfair” under the unlawful competition law “may even lead to the enjoining of jDrocompetitive conduct and thereby undermine consumer protection, the primary purpose of the antitrust laws.” (Id. at p. 185.)
We need not decide whether the Cel-Tech test applies in the present action by a consumer because we conclude as a matter of law that conduct that the courts have determined to be permissible under the Colgate doctrine cannot be deemed “unfair” under the unfair competition law.
The purpose of federal and state antitrust laws is to protect and promote competition for the benefit of consumers. (NCAA v. Board of Regents of Univ. of Okla. (1984) 468 U.S. 85, 106-107 [104 S.Ct. 2948, 2962-2963, 82 L.Ed.2d 70]; Cianci v. Superior Court (1985) 40 Cal.3d 903, 918-919 [221 Cal.Rptr. 575, 710 P.2d 375].) Antitrust laws are designed to prohibit only unreasonable restraints of trade, meaning conduct that unreasonably impairs competition and harms consumers. (Business Electronics v. Sharp Electronics, supra, 485 U.S. at p. 723 [108 S.Ct. at pp. 1518-1519]; Marin County Bd. of Realtors, Inc. v. Palsson, supra, 16 Cal. 3d at p. 930.) If the same conduct is alleged to be both an antitrust violation and an “unfair” business act or practice for the same reason—because it unreasonably restrains competition and harms consumers—the determination that the conduct is not an unreasonable restraint of trade necessarily implies that the conduct is not “unfair” toward consumers. To permit a separate inquiry into essentially the same question under the unfair competition law would only invite conflict and uncertainty and could lead to the enjoining of procompetitive conduct. (See Cel-Tech, supra, 20 Cal.4th at p. 185.)
We do not hold that in all circumstances an “unfair” business act or practice must violate an antitrust law to be actionable under the unfair competition law. Instead we hold that conduct alleged to be “unfair” because it unreasonably restrains competition and harms consumers, such as the resale price maintenance agreement alleged here, is not “unfair” if the conduct is deemed reasonable and condoned under the antitrust laws.
The judgment is affirmed. Whirlpool shall recover its costs on appeal.
Croskey, Acting P. J., and Aldrich, J., concurred.
Appellants’ petition for review by the Supreme Court was denied February 13, 2002. Werdegar, J., did not participate therein.