Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co.
| Decision Date | 20 November 1997 |
| Docket Number | No. B094578,CEL-TECH,B094578 |
| Citation | 69 Cal.Rptr.2d 207,59 Cal.App.4th 436 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Previously published at 59 Cal.App.4th 436 59 Cal.App.4th 436, 1997-2 Trade Cases P 71,985, 97 Cal. Daily Op. Serv. 8807, 97 Daily Journal D.A.R. 14,235 COMMUNICATIONS, INC., et al., Plaintiffs and Appellants, v. LOS ANGELES CELLULAR TELEPHONE COMPANY, Defendant and Respondent. |
Spiegel Liao & Kagay and Charles M. Kagay, San Francisco, for 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, Washington, DC, for Defendant and Respondent.
Horvitz & Levy, Lisa Perrochet and David M. Axelrad, Encino; Latham & Watkins, John F. Walker, Jr., Peter W. Devereaux and Steven D. Atlee, Los Angeles; Heller Ehrman White & McAuliffe, Paul Alexander and Vanessa Wells, Palo Alto; Wright & Talisman, Michael B. Day and Margaret A. Rostker, Washington, DC, as Amici Curiae on behalf of Defendant and Respondent.
Peter Arth, Jr., Sacramento, Mark Fogelman, San Francisco and Fred Harris as Amicus Curiae, upon the request of the Court of Appeal.
Plaintiffs and appellants Cel-Tech Communications, Inc. (Cel-Tech), Comtech, Inc. (Comtech), Cellular Service, Inc. (CSI), and Nutek, Inc. (Nutek) (collectively, plaintiffs), appeal a judgment following a grant of a motion for judgment (Code Civ. Proc., § 631.8) 1 in favor of defendant and respondent Los Angeles Cellular Telephone Company (L.A.Cellular).
L.A. Cellular sold cellular telephones below cost as a strategy to gain subscribers for its cellular service, in which it enjoys a government-protected duopoly, along with AirTouch Cellular (Airtouch). Plaintiffs, who were in the business of selling cellular telephones, were damaged by L.A. Cellular's pricing. The issue presented is whether L.A. Cellular's conduct is actionable. L.A. Cellular did not violate Business and Professions Code sections 17043 and 17044, 2 which prohibit below cost sales and loss leaders, because L.A. Cellular met its burden of proving it did not have an injurious intent. Nor did Nonetheless, on the limited record before us, it appears L.A. Cellular's engaging in below cost sales of cellular equipment in its quest to expand its related cellular service business, a practice which was subsidized by its duopoly profits, may constitute unfair competition under section 17200. Therefore, the judgment is affirmed in part and reversed in part, and the matter is remanded for further proceedings.
L.A. Cellular's conduct violate the Cartwright Act (§ 16720) or constitute intentional interference with prospective economic advantage.
FACTUAL AND PROCEDURAL BACKGROUND 3, 4
This is a civil action for damages and injunctive relief pursuant to the Unfair Practices Act (§ 17000 et seq.), the Cartwright Act (§ 16700 et seq.), the Unfair Competition Act (the UCA) (§ 17200 et seq.) and a common law claim for intentional interference with prospective economic advantage.
L.A. Cellular is one of two companies licensed by the federal government to provide cellular telephone service in the Los Angeles area, AirTouch being the other. L.A. Cellular offers cellular service directly to the public and through resellers. In addition to cellular service, L.A. Cellular also sells cellular telephones, both directly to the public and through retail agents.
Comtech and CSI are resellers of cellular service. In addition, Comtech, Cel-Tech and Nutek are wholesalers of cellular telephones. Comtech and Nutek also sell cellular telephones at retail to the public, with Nutek acting as an agent for CSI.
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 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 multi-million dollar losses on cellular telephone equipment sales were easily offset by its profits on cellular service.
The plaintiffs were injured by L.A. Cellular's below cost sales of cellular equipment. By the time of trial, Cel-Tech, once the largest distributor of cellular telephones in the Los Angeles market, was ceasing operations.
The other plaintiffs suffered similar fates, although their circumstances were somewhat different in that their businesses included the resale of cellular service. Like Cel-Tech, they could not afford to sell cellular telephones below cost, or compete with below-cost sales by selling above cost. As a result, their equipment sales deteriorated. Because they could not compete with L.A. Cellular in selling equipment below cost to stimulate service activations, their service businesses also declined.
This litigation resulted.
Plaintiffs filed suit on February 15, 1994. One year later, the matter came to trial and was tried to the court.
At the end of the plaintiffs' case-in-chief, L.A. Cellular moved for judgment pursuant to Code of Civil Procedure section 631.8.
Following argument by both sides, the trial court granted L.A. Cellular's motion as to each of plaintiffs' causes of action. Plaintiffs declined to reopen their case-in-chief.
The trial court then rendered an extensive statement of decision, as follows:
On the first cause of action, alleging below cost sales (§ 17043) and loss leaders (§ 17044), plaintiffs had failed to show L.A. Cellular's conduct was unlawful. L.A. Cellular did engage in below cost sales and loss leader strategies, and plaintiffs had been injured thereby. Those facts gave rise to a presumption under section 17071 that L.A. Cellular had an injurious intent. This presumption shifted the burden of proof to L.A. Cellular to establish it did not have the intent to injure competitors or destroy competition. L.A. Cellular succeeded in meeting that burden by presenting evidence its intent was merely to compete with AirTouch for subscribers, and that injury to the plaintiffs was unintended.
On the second cause of action, alleging agreements between L.A. Cellular and its exclusive agents, constituting a combination in restraint of trade in violation of section 16720, there was no evidence of any conspiracy or coercive activity by L.A. Cellular. To the contrary, L.A. Cellular made clear each distributor had the discretion to set its own prices.
With respect to the third cause of action, intentional interference with prospective economic advantage, plaintiffs failed to prove L.A. Cellular had the desire or intent to interfere with plaintiffs' business relationships.
Lastly, the trial court held the fourth cause of action for unfair competition under section 17200 necessarily failed with the demise of the other causes of action. The trial court ruled "this cause of action must rise or fall with the proof or the failure of proof of the other 3 causes of action."
Plaintiffs filed a timely appeal from the judgment.
Plaintiffs contend the trial court erred: in holding L.A. Cellular lacked the requisite intent in selling below cost and offering loss leaders; in finding L.A. Cellular did not combine with its agents to restrain trade; in finding L.A. Cellular did not commit the tort of interference with prospective advantage against plaintiffs; in dismissing the unfair competition claim brought under section 17200; and in making the cost award, which contains substantial sums that cannot be awarded as costs. 5
1. L. A. Cellular met its burden of proving it did not have an injurious intent and therefore substantial evidence supports trial court's determination L.A. Cellular's conduct was not unlawful under sections 17043 and 17044.
The first cause of action alleges sales of cellular phones below cost in violation of section 17043, and sales of cellular phones as loss leaders, in violation of section 17044.
a. Statutory scheme re intent.
Section 17043 states: "It is unlawful for any person engaged in business within this State to sell any article or product at less than the cost thereof to such vendor, or to give away any article or product, for the purpose of injuring competitors or destroying competition." (Italics added.)
Section 17044 states: "It is unlawful for any person engaged in business within this State to sell or use any article or product as In "all actions brought under this chapter proof of one or more acts of selling or giving away any article or product below cost or at discriminatory prices, together with proof of the injurious effect of such acts, is presumptive evidence of the purpose or intent to injure competitors or destroy competition." (§ 17071.)
As observed in Dooley's Hardware Mart v. Food Giant Markets, Inc. (1971) 21 Cal.App.3d 513, 515, 98 Cal.Rptr. 543, "[l]oss leaders are a species of below cost selling." Nonetheless, plaintiffs contend that because section 17044, pertaining to loss leaders, does not expressly include section 17043's "for the purpose of injuring competitors or destroying competition" language, section 17044 does not have an intent requirement. The argument is unavailing.
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Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co.
...v. LOS ANGELES CELLULAR TELEPHONE CO., Respondent No. S066735. Supreme Court of California. Feb. 3, 1998. Prior report: Cal.App., 69 Cal.Rptr.2d 207. Petitions for review GEORGE, C.J., and KENNARD, WERDEGAR, CHIN and BROWN, JJ., concur. ...