ABC Intern. Traders, Inc. v. Matsushi
| Decision Date | 19 December 1995 |
| Docket Number | No. B087534,B087534 |
| Citation | 41 Cal.App.4th 125,48 Cal.Rptr.2d 415 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Previously published at 41 Cal.App.4th 125, 45 Cal.App.4th 1516, 50 Cal.App.4th 393 41 Cal.App.4th 125, 45 Cal.App.4th 1516, 50 Cal.App.4th 393, 95 Cal. Daily Op. Serv. 9720, 95 Daily Journal D.A.R. 16,889 ABC INTERNATIONAL TRADERS, INC., Plaintiff and Appellant, v. MATSUSHITA ELECTRIC CORPORATION OF AMERICA, Defendant and Respondent. |
Blecher & Collins, Maxwell M. Blecher and James Robert Noblin, Los Angeles, for plaintiff and appellant.
David B. Bloom, James E. Adler, Los Angeles, Golenbock, Eiseman, Assor & Bell, and Martin S. Hyman, New York City, for defendant and respondent.
Plaintiff ABC International Traders, Inc. (ABC) appeals from an order dismissing its action against defendant Matsushita Electric Corporation of America (MECA) after the trial court sustained MECA's demurrer to ABC's second amended complaint without leave to amend. ABC contends it properly stated a cause of action for MECA's violation of Business and Professions Code section 17045 1 and California's unfair competition statute. (§ 17200 et seq.) 2 It asks this court, "[i]f [it] agrees with ABC's legal arguments, but finds the pleading factually insufficient, [to overturn] the grant of demurrer ... to allow ABC to cure such deficiencies by amendment."
Because this case comes to us after the sustaining of a demurrer, all well-pleaded allegations of ABC's second amended complaint, which is at issue in this appeal, will be taken as true. (Fermino v. Fedco, Inc. (1994) 7 Cal.4th 701, 706, 30 Cal.Rptr.2d 18, 872 P.2d 559.)
ABC is a wholesale distributor of telephone and other electronic products for resale to retailers throughout the world. It filed its second amended complaint on June 23, 1994. Named as defendants were Procom Supply Corporation (Procom) and Tele-Com Office Products Corporation (Tele-Com), two competitors of ABC who are not parties to this appeal, and MECA, which does business as Panasonic Company.
ABC's first cause of action was for violations of the Unfair Practices Act, and in particular sections 17045-17048. It alleged that in or about 1989, ABC had a "strong suspicion" MECA was providing Procom and Tele-Com a 5 percent discount on their purchases of Panasonic telephone and other electronic products. ABC was not receiving such a discount. Around October 1991, MECA refused to sell any more of its products to ABC. In September 1992, one of Procom's owners and its sales manager approached ABC with a proposal whereby Procom would sell Panasonic telephone products to ABC at a price 2 percent below that paid by other wholesale distributors. During the course of the discussion, Procom disclosed that MECA "had for years been giving Procom and Tele-Com a five percent discount from the prices charged to other wholesale distributors." Procom did not specify whether the discount had applied only to telephone products, but ABC stated on information and belief that it had extended to other electronic equipment as well.
ABC asserted the existence of the 5 percent discount was "secret," since neither MECA nor any of the wholesale distributors receiving the discount disseminated information about it "to substantial segments of the wholesale or retail market" for Panasonic products, nor did any of them confirm to ABC, prior to September 1992, that Procom and Tele-Com were receiving the discount. ABC further charged the services Procom and Tele-Com furnished MECA were functionally equivalent to those provided by ABC and other non-defendant wholesaler distributors; that Procom and Tele-Com had not earned the discounts in any manner permitted under the Unfair Practices Act; and that they were not "innocent, unknowing recipients" of the discounts because they either were aware or should have been aware the discounts were unavailable to ABC and other non-defendant wholesale distributors of MECA's products.
ABC maintained that it had paid MECA $7,973,096 for telephone products between February 1988 and December 1991 and $11,730,880 for other electronic products from about 1987 through 1991. Of those total sums, approximately $1,433,243 had been expended for telephone products and $2,108,740 for other electronic products for the period between February 15, 1991 and December 31, 1991. 3 According to ABC, had it received the 5 percent discount, it would have paid at least $71,662 less for the telephone products and $105,437 less for the other electronic products it purchased since February 15, 1991. The absence of the discounts put ABC at a competitive disadvantage resulting in lost sales and profits, and tended to destroy competition among wholesale distributors of Panasonic products.
In its second cause of action, ABC claimed that "[b]y engaging in the practice regarding discounts alleged above," defendants had violated the state's unfair competition statute. Pursuant to section 17203, ABC requested an order requiring defendants to restore all the money it had lost and to disgorge the profits defendants had received as a result of their misconduct during the four-year period preceding the commencement of this lawsuit. 4
ABC limited its allegations to events occurring after February 15, 1990, [45 Cal.App.4th 397] because of the four-year statute of limitations applicable to actions under the unfair competition statute. (§ 17208.)
MECA demurred, urging ABC's second amended complaint did not state facts sufficient to constitute a cause of action. Among the purported deficiencies cited by MECA were ABC's failure to adequately allege facts establishing secret discounts granted by MECA, injury to a competitor of MECA, and any tendency to destroy competition between MECA and its competitors. MECA additionally argued ABC had sought restitution for MECA's alleged violation of the unfair competition statute even though injunctive relief, to which restitution could only be ancillary under the statute, was neither requested nor supportable. MECA accused ABC of deleting without explanation damaging admissions which had appeared in ABC's original complaint. Procom and Tele-Com filed joinders in MECA's demurrer.
ABC's opposition took issue with the soundness of MECA's legal argument. However, as a protective measure in the event the trial court disagreed with its position, ABC asked that it be given an opportunity to amend its complaint. It did not suggest what amendments it might make, except to indicate it could more precisely allege Procom and Tele-Com "knowingly received a either [sic ] secret rebate or unearned discount."
The trial court sustained MECA's demurrer to the entire second amended complaint without leave to amend. Procom and Tele-Com's demurrers were sustained without leave to amend only as to the second cause of action. ABC was given 20 days to amend its first cause of action as it related to Procom and Tele-Com. 5
"[A] violation of section 17045 consists of three elements: (1) a secret payment or rebate, (2) the injury of a competitor and (3) the tendency of such rebate to destroy competition." (E & H Wholesale, Inc. v. Glaser Bros. (1984) 158 Cal.App.3d 728, 738, 204 Cal.Rptr. 838.) ABC contends each of these elements was established in its second amended complaint since it pled that MECA had provided a discount, which was secret, unearned and unavailable to ABC; the discount caused monetary injury to ABC; and the discount caused injury to competition among wholesale distributors of MECA's products, i.e., ABC, Procom, and Tele-Com.
Here, as below, the legal question dispositive of ABC's ability to state a cause of action under section 17045 is, whose competitors, and what level of competition, must suffer injury for a violation of the section to occur? Nearly three decades ago, our Supreme Court strongly stated that the Unfair Practices Act was directed at "primary competition," that is competition at the level of the business engaging in the discriminatory practice.
In Harris v. Capitol Records etc. Corp. (1966) 64 Cal.2d 454, 50 Cal.Rptr. 539, 413 P.2d 139 (Harris ), the court considered a complaint alleging locality discrimination, in violation of section 17040. The plaintiff in Harris, the owner of a retail record store, sued three record distributors, alleging they had created an unlawful locality discrimination by selling at one price to him and at another price to a subdistributor who had opened a retail record store of his own across from plaintiff's establishment. The court agreed with the defendants that "section 17040 is intended to apply only to competition on the same 'level' as the person allegedly creating the locality discrimination (i.e., 'primary' competition), rather than to competition between those who purchase from the alleged discriminator (i.e., 'secondary' competition)." (Harris, supra, 64 Cal.2d at p. 460, 50 Cal.Rptr. 539, 413 P.2d 139.)
The high court then proceeded to make the following, consistent observations about the Unfair Practices Act as a whole, specifically referring to section 17045:
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ABC Intern. Traders, Inc. v. Matsushita Elec. Corp. of America
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