Classen v. Weller

• Decision Date: 19 July 1983
• Citation: 145 Cal.App.3d 27,192 Cal.Rptr. 914
• Parties: , 1983-2 Trade Cases P 65,562 Ray CLASSEN, et al., Cross-Complainant and Appellant, v. James WELLER, et al., Cross-Defendants and Respondents. A013098. Civ. 52304.
• Court: California Court of Appeals

Page 914

192 Cal.Rptr. 914

145 Cal.App.3d 27, 1983-2 Trade Cases P 65,562

Ray CLASSEN, et al., Cross-Complainant and Appellant, v. James WELLER, et al., Cross-Defendants and Respondents.

A013098.

Civ. 52304.

Court of Appeal, First District, Division 3, California.

July 19, 1983.

As Modified on Denial of Rehearing Aug. 18, 1983.

Motion for Protective Order Denied Aug. 18, 1983.

M. Fred Rose, Samuel Kornhauser, Rose & Kornhauser, San Francisco, David Malnick, San Jose, for cross-complainant and appellant.

Carlos Bea, John Douglas Moore, San Francisco, for cross-defendants and respondents James H. Weller and Hillsborough Development Corp.

Walter R. Allan, Frank E. Sieglitz, San Francisco, Ardell Johnson, Pillsbury, Madison & Sutro, San Jose, for cross-defendant and respondent Fox & Carskadon, Inc.

FEINBERG, Associate Justice.

The builder (Classen) appeals from summary judgments ¹ in favor of the developers Weller (Weller) and Hillsborough Development Corporation (HDC), and the broker, Fox & Carskadon (Fox), that denied relief on Classen's cross-complaint for damages under the Cartwright and Sherman (Bus. & Prof.Code, § 16700 et seq., 15 U.S.C.A., § 1 et seq.) ² antitrust acts.

On appeal, the major questions are whether Classen alleged compensable damages and is a member of the class.

For the reasons set forth below, we reverse with directions.

The Record

Weller, HDC and Fox denied every factual allegation of Classen's cross-complaint. Our facts are based on the admissions, declarations, and uncontested deposition transcripts properly included in the record.

Classen was asked by a client, Mr. Smith (Smith), to build a home on a lot in the exclusive Hillsborough real estate development known as "Tobin-Clark." This lot was owned by HDC; Weller was president of HDC. Smith liked the lot, but was told by Weller that lots in Tobin-Clark would only be sold to builders and that the sale had to go through Fox. Weller subsequently also told Classen that the lot could only be sold to a builder, and that the sale would have to go through Fox. Classen stated that he did not need a broker, as he already had a buyer. He was told that he could not purchase the lot unless he agreed to employ Fox as the exclusive broker, and that all purchasers of Tobin-Clark lots had to so employ Fox. On March 17, 1977, Classen, Weller (for HDC), and Naud (for Fox) signed a purchase agreement which expressly provided that Fox would have "an exclusive authorization to sell listing contract by the buyer, at a commission rate of 6% for a term of 3 years from date of acquisition of property by the buyer or one year after completion of any home that is constructed." (Emphasis added.) Classen built a house on the lot and conveyed it to Smith in April 1977, but did not pay Fox the commission. On September 9, 1979, Fox commenced the instant action in the municipal court to collect his commission and attorneys fees as provided in the agreement.

Classen then cross-complained on behalf of himself and "all other home builders ... who from 1974 to the present have purchased real estate lots in Tobin-Clark for construction of houses and who were required as a condition of the purchase to use the services of Fox on the sale of said houses." (Emphasis added.) Classen's cross-complaint also alleged that Weller, HDC and Fox conspired to sell the 150-200 available ³ lots in Tobin-Clark by tying a builder's purchase of lots to the additional purchase of real estate services from Fox, in violation of the California Cartwright Act (Bus. & Prof.Code, § 16700 et seq.) and the Sherman Act (15 U.S.C., § 1 et seq.). Classen sought antitrust damages for: (1) lost profits from the noncompetitive broker services; and (2) legal fees that he and the purported class "have incurred and will incur ... to prosecute this action."

After the action was transferred to the superior court on Classen's motion, the court granted Weller's, HDC's, and Fox's motions for summary judgment, on the following grounds: (1) no subject matter jurisdiction of Classen's federal antitrust claims; (2) there was no triable issue of fact as to Weller, since Weller acted solely in a representative capacity on behalf of HDC; and (3) Classen had no standing to sue as he did not represent the class he purported to represent and was not similarly situated to the class alleged. Thus, the court did not consider whether Classen had suffered any damages, and did not distinguish between Classen's claims as an individual and those asserted on behalf of the class.

I. DID CLASSEN ALLEGE "COMPENSABLE DAMAGES"?

The threshold question is whether, as a matter of law, Classen has alleged compensable damages under the Cartwright Act. The answer to this question in turn depends on the resolution of two sub-issues: (1) Was Fox' tied commission an actionable injury under the Cartwright Act? (2) Were the attorneys' fees incurred by Classen in defense of the Fox action "damages" or costs?

The Cartwright Act provides that "[a]ny person who is injured in his business or property by reason of anything forbidden or declared unlawful by this chapter, may sue therefor ...." (Bus. & Prof.Code, § 16750, ⁴ emphasis added.) Tying arrangements of the type alleged here are prohibited by Business and Professions Code section 16720 (the state equivalent of the federal Clayton Act, § 3) as well as sections 16726 and 16727 (patterned after the Sherman Act). (People v. National Ass'n of Realtors (1981) 120 Cal.App.3d 459, 472, 174 Cal.Rptr. 728; Suburban Mobile Homes, Inc. v. AMFAC Communities, Inc. (1980) 101 Cal.App.3d 532, 541-542, 161 Cal.Rptr. 811.) ⁵

A tie-in (or tying arrangement) is a requirement that a buyer purchase one product or service as a condition of the purchase of another. (Yentsch v. Texaco, Inc. (2d Cir.1980) 630 F.2d 46, 56.) Traditionally, the product which is the inducement for the arrangement is called the "tying product" and the product or service that the buyer is required to purchase is the "tied product." The general rule is that if the seller has any appreciable power in the market for the tying product, and if the arrangement affects more than an insignificant amount of commerce in the market for the tied product, then the requirement violates the antitrust laws. (See Northern Pac. Ry. v. U.S. (1958) 356 U.S. 1, 6, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 citing International Salt Co. v. U.S. (1947) 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20; Portland Retail Druggists Association v. Kaiser Foundation Health Plan (9th Cir.1981) 662 F.2d 641, 648.)

The purpose of the prohibition against the use of ties is to prevent a seller from using a dominant desired product to compel the purchase of a second distinct commodity. (Moore v. Jas. H. Matthews & Co. (9th Cir.1977) 550 F.2d 1207, 1214.) Where by tying a sale of one item to the sale of another a seller has the economic power to coerce buyers to forego exercise of their independent judgment as to the merits of the tied product, thus shielding it from competitive market forces, there is a restraint on competition. In fact, "[t]ying agreements serve hardly any purpose beyond the suppression of competition." (Standard Oil Co. v. United States (1949) 337 U.S. 293, 305-306, 69 S.Ct. 1051, 1058, 93 L.Ed. 1371.) The greater the market control over the tying product (here the limited number of Tobin-Clark lots), the greater the economic power to restrain competition in sales of the tied product (here the broker's commission). A tying arrangement is unreasonable per se under section 16727 if the seller either (1) enjoys a monopolistic position in the market for the "tying" product; or (2) if a substantial volume of commerce in the tied product is restrained. Under section 16720, both elements are required for a per se finding of illegality of the tie-in. (Suburban Mobile Homes, supra, 101 Cal.App.3d at p. 549, 161 Cal.Rptr. 811.)

"Even absent a showing of market dominance, the crucial economic power may be inferred from the tying product's desirability to consumers or from uniqueness in its attributes." (Corwin v. Los Angeles Newspaper Service Bureau, Inc., supra, 4 Cal.3d at p. 858, 94 Cal.Rptr. 785, 484 P.2d 953.) Land because of its uniqueness and scarcity easily confers the power to restrain competition. (Cf. Northern Pacific Railway v. U.S. (1958) 356 U.S. 1, 7, 78 S.Ct. 514, 519, 2 L.Ed.2d 545.) Services or intangibles also may be the "tied products." (People v. National Association of Realtors (1981) 120 Cal.App.3d 459, 470, 174 Cal.Rptr. 728; Marin Cty. Bd. of Realtors v. Palsson (1976) 16 Cal.3d 920, 925, 130 Cal.Rptr. 1, 549 P.2d 833.)

An antitrust complaint predicated on an illegal per se tying arrangement must allege that: (1) a tying agreement, arrangement or condition existed whereby the sale of the tying product was linked to the sale of the tied product or service; (2) the party had sufficient economic power in the tying market to coerce the purchase of the tied product; (3) a substantial amount of sale was effected in the tied product; and (4) the complaining party sustained pecuniary loss as a consequence of the unlawful act. (Suburban Mobile Homes, supra, 101 Cal.App.3d at p. 542-543, 161 Cal.Rptr. 811; Alberto-Culver Company v. Andrea Dumon, Inc. (N.D.Ill.1969) 295 F.Supp. 1155, 1157; McCormack v. Theo. Hamm Brewing Co. (D.Minn.1968) 284 F.Supp. 158, 164.) As Classen alleged that HDC and Weller controlled the sale of all Tobin-Clark lots and sold them only to builders by agreements with the tied commission, the first three requirements are not in dispute on this appeal.

The instant controversy focuses on the last of the above requirements.

First, Weller, HDC and Fox argue that since Classen in fact did not use Fox' services or pay the commission, and was not prevented from buying or re-selling the lot, Classen has not been "injured" in his business or property. However, the question is whether Classen's obligation to pay Fox a 6% commission...