Chavez v. Whirlpool Corp.

• Decision Date: 29 October 2001
• Docket Number: No. B136778.,B136778.
• Citation: 93 Cal.App.4th 363,113 Cal.Rptr.2d 175
• Court: California Court of Appeals Court of Appeals
• Parties: Bill CHAVEZ et al., Plaintiffs and Appellants, v. WHIRLPOOL CORPORATION et al., Defendants and Respondents.

113 Cal.Rptr.2d 175

93 Cal.App.4th 363

Bill CHAVEZ et al., Plaintiffs and Appellants, v. WHIRLPOOL CORPORATION et al., Defendants and Respondents.

No. B136778.

Court of Appeal, Second District, Division 3.

October 29, 2001.

Review Denied February 13, 2002.

Lakeshore Law Center, Jeffrey Wilens, Irvine; Anderson & Anderson and Martin W. Anderson, Santa Ana, for Plaintiffs and Appellants.

Bill Lockyer, Attorney General, Richard M. Frank, Chief Assistant Attorney General, Thomas Greene, Assistant Attorney General, Barbara M. Motz and Quyen D. Nguyen, Deputy Attorneys General, for the State of California as Amicus Curiae on behalf of Plaintiff and Appellant.

Gibson, Dunn & Crutcher, Irvine, William E. Wegner, Daniel S. Floyd and William A. Wargo, Los Angeles, for Defendant and Respondent Whirlpool Corporation.

McNamara & Spira and Michael P. McNamara, Santa Monica, for Defendant and Respondent Howard's.

KITCHING, J.

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 an unlawful combination under the Cartwright Act (Bus. & Prof.Code, § 16700 et seq.) and an unlawful and unfair business practice under the unfair competition law (Bus. & Prof.Code, § 17200 et seq.).

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 (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 under the Colgate doctrine, if a manufacturer unilaterally announces a minimum resale price policy and a retailer unilaterally complies with the policy, there is no agreement or combination under the Cartwright Act and no Cartwright Act violation unless the manufacturer employed coercive tactics to enforce compliance. It argued that Chavez's allegations of an agreement and coercion were either too vague and conclusory to state a valid claim or alleged specific conduct that was lawful. It argued further that the complaint did not allege an unlawful or unfair business practice under the unfair competition law because the alleged conduct did not violate the Cartwright Act, threaten an incipient violation of the law, or violate the policy or spirit of the law.

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 factual allegations and determine de novo whether the complaint alleges facts sufficient to state a cause of action on any legal theory. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58; Venice Town Council, Inc. v. City of Los Angeles (1996) 47 Cal.App.4th 1547, 1557, 55 Cal.Rptr.2d 465.) It is an abuse of discretion to sustain a demurrer if there is a reasonable possibility that the defect can be cured by amendment. (Blank, at p. 318, 216 Cal.Rptr. 718, 703 P.2d 58.) The burden is on the plaintiff to demonstrate how the complaint can be amended to state a valid cause of action. (Ibid.)

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, 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 evaluate 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. 1515.)

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. 1515; 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 franchisee was per se unlawful under the Cartwright Act].) The United States Supreme Court has stated that resale price maintenance, a vertical restraint, destroys horizontal competition as effectively as would a horizontal agreement among distributors or retailers. (California Liquor Dealers v. Midcal Aluminum (1980) 445 U.S. 97, 103, 100 S.Ct. 937, 63 L.Ed.2d 233; Dr. Miles Medical Co. v. Park & Sons Co. (1911) 220 U.S. 373, 408, 31 S.Ct. 376, 55 L.Ed. 502.)

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, 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. 1464.) This is known as the Colgate doctrine, arising from ...