Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., CEL-TECH

• Decision Date: 08 April 1999
• Docket Number: No. S066735,CEL-TECH,S066735
• Court: California Supreme Court
• Parties: , 973 P.2d 527, 1999-1 Trade Cases P 72,495, 99 Cal. Daily Op. Serv. 2576, 1999 Daily Journal D.A.R. 3360 COMMUNICATIONS, INC., et al., Plaintiffs and Appellants, v. LOS ANGELES CELLULAR TELEPHONE COMPANY, Defendant and Respondent

Page 548

83 Cal.Rptr.2d 548

20 Cal.4th 163, 973 P.2d 527, 1999-1 Trade Cases P 72,495,

99 Cal. Daily Op. Serv. 2576,

1999 Daily Journal D.A.R. 3360

CEL-TECH COMMUNICATIONS, INC., et al., Plaintiffs and Appellants, v. LOS ANGELES CELLULAR TELEPHONE COMPANY, Defendant and Respondent.

No. S066735.

Supreme Court of California

April 8, 1999.

Spiegel Liao & Kagay and Charles M. Kagay, San Francisco, for Plaintiffs and Appellants.

James R. McCall, San Francisco, as Amicus Curiae on behalf of Plaintiffs and Appellants.

The Sturdevant Law Firm, James C. Sturdevant, San Francisco, and Steven S. Kaufhold for Consumer Attorneys of California as Amicus Curiae on behalf of Defendant and Respondent.

Thomas A Papageorge, Deputy District Attorney (Los Angeles); and Lawrence Brown, for California District Attorneys Association as Amicus Curiae on behalf of Plaintiffs and Appellants.

Milberg Weiss Bershad Hynes & Lerach, William S. Dato, Alan M. Mansfield, San Diego; Altshuler, Berzon, Nussbaum, Berzon & Rubin, Fred H. Altshuler, San Francisco, and Michael W. Graf for Natural Resources Defense Council, Environmental Law Foundation and Utility Consumers' Action Network as Amici Curiae on behalf of Plaintiffs and Appellants.

Gibson, Dunn & Crutcher, Robert C. Bonner, Rex S. Heinke, Mark Erich Weber, Los Angeles, Joel S. Sanders, San Francisco, Kathleen M. Vanderziel, Los Angeles, and Theodore J. Boutrous, Dist. of Columbia, for Defendant and Respondent.

Horvitz & Levy, Lisa Perrochet and David M. Axelrad, Encino, for Truck Insurance Exchange as Amicus Curiae on behalf of Defendant and Respondent.

Latham & Watkins, John F. Walker, Jr., Peter W. Devereaux, Steven D. Atlee and Stephen J. Newman, Los Angeles, for the Los Angeles Area Chamber of Commerce as Amicus Curiae on behalf of Defendant and Respondent.

Wright & Talisman, Michael B. Day and Margaret A. Rostker for Cellular Carriers Association of California as Amicus Curiae on behalf of Defendant and Respondent.

Phillip E. Stano; Mayer, Brown & Platt, Evan M. Tager and Donald M. Falk, Wash., Dist. of Columbia, for American Council of Life Insurance as Amicus Curiae on behalf of Defendant and Respondent.

Heller, Ehrman, White & McAuliffe, Paul Alexander, Vanessa Wells and Daniel Rockey, Palo Alto, for State Farm Insurance Companies and Symantec Corporation as Amici Curiae on behalf of Defendant and Respondent.

Fred J. Hiestand, Sacramento, for the Association for California Tort Reform as Amicus Curiae on behalf of Defendant and Respondent.

Howard, Rice, Nemerovski, Canady, Falk & Rabkin, Jerome B. Falk, Jr., Pauline E. Calande; Sheppard, Mullin, Richter & Hampton, Gary L. Halling, San Francisco and Thomas D. Nevins for the Hearst Corporation and San Francisco Newspaper Printing Company as Amici Curiae.

Peter Arth, Jr.; Mark Fogelman, San Francisco; and Fred Harris for the Public Utilities Commission of the State of California as Amicus Curiae.

CHIN, J.

Defendant Los Angeles Cellular Telephone Company (L.A.Cellular) sells cellular telephones and services. Cellular telephones are sold on the open market. As to wholesale sales of cellular services, however, L.A. Cellular has a government-protected "duopoly" status with one other company. In an effort to gain new subscribers for its services and increase overall profits, L.A. Cellular sold telephones below cost. It lost money on telephone sales but made up for those losses with its increased sales of services. Plaintiffs are companies that sell cellular telephones but may not sell services. These companies claim that, because they are not allowed to sell services, they cannot fairly compete with L.A. Cellular's strategy of selling telephones below cost and recouping the losses with profits on the sales of services. The action requires us to interpret California's Unfair Practices Act (Bus. & Prof.Code, § 17000 et seq.) ¹ and unfair competition law (§ 17200 et seq.). ²

We conclude that to violate sections 17043 and 17044, part of the Unfair Practices Act, which prohibit below-cost sales and loss leaders, a company must act with the purpose, i.e., the desire, of injuring competitors or destroying competition. We also conclude that, even if L.A. Cellular's actions lacked the purpose necessary to violate the Unfair Practices Act, they might be deemed unfair under the unfair competition law. We therefore agree with the Court of Appeal's conclusions and affirm its judgment.

I. FACTUAL AND PROCEDURAL HISTORY

At the time relevant to this action, ³ the federal government licensed two companies to provide cellular telephone service in the Los Angeles area: L.A. Cellular and AirTouch Cellular. In addition to cellular service, L.A. Cellular sells cellular telephones. Plaintiffs Cel-Tech Communications, Inc., Comtech, Inc., Cellular Service, Inc., and Nutek, Inc., sell cellular telephones. The Court of Appeal opinion described L.A. Cellular's activities challenged in this action. "The high price of cellular telephones was the primary obstacle to L.A. Cellular's obtaining new subscribers for its service. Sales of cellular telephones are very price sensitive and a purchase of cellular equipment is usually accompanied by a service activation or subscription to cellular service. Consequently, in the early 1990's, L.A. Cellular formulated a strategy of selling cellular telephones Plaintiffs sued L.A. Cellular, alleging that its below-cost telephone sales practice harmed them. It alleged several causes of action including, as relevant here, that L.A. Cellular violated the Unfair Practices Act and the unfair competition law. The action under the Unfair Practices Act alleged L.A. Cellular had unlawfully engaged in below-cost sales (§ 17043) and used loss leaders (§ 17044). The matter was tried before the court. At the end of plaintiffs' case-in-chief, and before the defense presented evidence, the court granted L.A. Cellular's motion for judgment under Code of Civil Procedure section 631.8. It issued an extensive statement of decision. On the cause of action under the Unfair Practices Act, the court found that L.A. Cellular did engage in below-cost sales and used loss leaders, and that it thereby harmed plaintiffs. It found, however, that L.A. Cellular did not violate the Unfair Practices Act because it intended merely to compete with AirTouch Cellular, not to harm the plaintiffs. It also ruled that the action under the unfair competition law necessarily failed along with the other causes of action. Plaintiffs appealed.

below cost in order to increase the number of subscribers to its cellular telephone service. L.A. Cellular estimated that each service activation was worth $1,500 to it. Thus, L.A. Cellular's multimillion-dollar losses on cellular [973 P.2d 533] telephone equipment sales were easily offset by its profits on cellular service."

The Court of Appeal reversed as to the cause of action under the unfair competition law and affirmed the judgment as to the other causes of action. It held that L.A. Cellular proved it did not have an "injurious intent," and hence its actions did not violate sections 17043 and 17044 of the Unfair Practices Act. It also held that L.A. Cellular's actions might nevertheless have violated the unfair competition law and remanded the matter for retrial on that cause of action. Plaintiffs petitioned for review of the holding regarding the Unfair Practices Act, and L.A. Cellular petitioned for review of the holding regarding the unfair competition law. We granted both petitions.

II. DISCUSSION

Preliminarily, we note that some amici curiae have suggested that this action might infringe on the regulatory authority of the Public Utilities Commission (PUC). (See generally, San Diego Gas & Electric Co. v. Superior Court (1996) 13 Cal.4th 893, 918, 55 Cal.Rptr.2d 724, 920 P.2d 669; Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377, 390-392, 6 Cal.Rptr.2d 487, 826 P.2d 730.) The Court of Appeal invited the PUC to file an amicus curiae brief addressing this question. That brief concludes that it is unlikely this action will interfere with the PUC's regulatory responsibilities. Having considered the matter ourselves, we agree.

In 1995, the PUC issued an order largely rescinding prior prohibitions on the practice of "bundling," i.e., "packaging cellular telephone equipment with cellular service and discounting the price of the package." (Re Regulation of Cellular Radiotelephone Utilities, supra, 59 Cal.P.U.C.2d at p. 196.) The PUC expressed concern that cellular equipment dealers "will be unable to continue to profitably compete if bundling is permitted because of below-cost equipment sales...." (Id. at p. 206.) Despite this concern, it chose to permit bundling, but stressed that "California, similar to the other states, has laws which restrict the practice of below-cost pricing (e.g., [Bus. & Prof.] Code § 17043). Any bundling approval on our part must not violate or encourage any violation of below-cost pricing laws. California's prohibitions against below-cost pricing must be incorporated in any bundling authority that we may grant." (Id. at p. 205.) Because of these laws, the PUC said, "there is no basis to assume that below-cost pricing of equipment of the sort prohibited by [Business and Professions Code section] 17043 will occur." (Id. at p. 206.) Its order expressly permits bundling only if providers "conform to all applicable California and federal consumer protection and below-cost pricing laws." (Id. at p. 214.)

More recently, the PUC noted that the "court, not the [PUC], has jurisdiction to determine violations of antitrust laws," and that "[i]f an entity violates below-cost pricing law ..., it is subject to the usual consequences We conclude that we may decide this action without infringing on the PUC's authority. ⁴

for such violations. We note that while we would, of course, review a below-cost allegation brought before us in an appropriate proceeding, we are certainly not...