Fisherman's Wharf v. Superior Court

Decision Date15 December 2003
Docket NumberNo. A101652.,A101652.
Citation7 Cal.Rptr.3d 628,114 Cal.App.4th 309
CourtCalifornia Court of Appeals Court of Appeals
PartiesFISHERMAN'S WHARF BAY CRUISE CORPORATION etc., Petitioner, v. San Francisco SUPERIOR COURT, Respondent, Blue And Gold Fleet, Inc. Etc., Real Party In Interest.

Los Angeles, for Real Party in Interest.

RUVOLO, J.

I. INTRODUCTION

Petitioner Fisherman's Wharf Bay Cruise Corporation, doing business as "Red and White Fleet" (Red and White), competes against its sole and dominant competitor, real party in interest Blue and Gold Fleet, Inc. and affiliated entities1 (collectively, Blue & Gold), in providing regularly scheduled sightseeing tours on San Francisco Bay (bay cruises). Red and White filed an antitrust lawsuit against Blue & Gold alleging six causes of action based on California's Cartwright Act (Bus. & Prof.Code, § 16700 et seq.) and the Unfair Practices Act (Bus. & Prof.Code, § 17200 et seq.2) (UPA). The trial court granted Blue & Gold's motion for summary adjudication and dismissed most of these causes of action. Red and White petitioned this court for a writ of mandate seeking to compel the trial court to vacate its summary adjudication order and to enter an order denying the motion for summary adjudication.

We affirm in part and reverse in part. We first conclude that Red and White could predicate its causes of action alleging predatory pricing (§ 17043 of the UPA) and the offering of "secret rebates and privileges" (§ 17045 of the UPA) based on Blue & Gold's below-cost sales to wholesale purchasers of bay cruises, an identifiable segment of its total bay cruise business. In so holding, we reject Blue & Gold's contention that it made no below-cost sales because its bay cruise ticket revenues, taken as a whole, are above its costs. We also reinstate the portion of Red and White's section 17045 cause of action based on its purchase of Alcatraz tickets from Blue & Gold on terms less favorable than those generally extended to other wholesale purchasers of Alcatraz tickets.

Next, we conclude Red and White's cause of action alleging Blue & Gold entered into a "combination to restrain trade/exclusive dealing" (§ 16720 of the Cartwright Act) should not have been dismissed in light of Red and White's proffered evidence that Blue & Gold's implied, as well as written, exclusive dealing arrangements foreclosed Red and White from competing in a substantial share of the relevant market.

Lastly, we affirm the summary adjudication granted on the cause of action for tying under section 16727 of the Cartwright Act because sales of bay cruise and Alcatraz tickets are services and do not fall under the provision of the act prohibiting tying arrangements affecting "products."

II. FACTS AND PROCEDURAL HISTORY

The services at issue in the underlying lawsuit are regularly scheduled sightseeing tours on San Francisco Bay (bay cruise) and ferry trips to Alcatraz Island (Alcatraz concession).

For over a decade, Red and White and Blue & Gold have been the only meaningful competitors for bay cruise customers. There are two primary submarkets that make up the bay cruise market. One portion of the market is sold at retail to tourists and local residents, who generally purchase a bay cruise on a "walk-up," spontaneous basis. The other market segment consists of wholesale group purchasers, who buy large volumes of tickets in advance. Most of the tickets sold as group purchases are used by tour operators and travel agents, who include a bay cruise as part of a larger tourist package.

Red and White entered into the bay cruise business in 1997, when it purchased assets from Crowley Maritime Corp. (Crowley). Blue & Gold had originally agreed to purchase all assets of Crowley's passenger operation, but the State of California filed an action seeking to halt the sale to Blue & Gold on the ground that it would result in Blue & Gold having a monopoly over the San Francisco bay cruise market. As a result of that action, Crowley and Blue & Gold entered into a settlement agreement and consent decree with the State of California in February 1997 whereby Crowley agreed to sell certain of its assets to a third party other than Blue & Gold.

In mid-1997, Crowley sold some of its assets to Red and White, including those necessary to operate a competitive bay cruise business. Blue & Gold purchased those assets not purchased by Red and White. The Alcatraz concession was assigned to Blue & Gold on June 24, 1997, as part of the Crowley sale. Only Blue & Gold operates the Alcatraz concession pursuant to its exclusive contract with the National Park Service, an agency of the United States Government. The Alcatraz concession is Blue & Gold's most important contract, as it grants to Blue & Gold the exclusive right to run passenger-carrying ferryboats from San Francisco to Alcatraz Island and to offer tours of Alcatraz Island. The Alcatraz tour is a unique offering in the San Francisco tourist market and among the city's most popular tourist attractions.

Since 1997, the parties' respective shares of the bay cruise market have remained relatively constant. Red and White, the new entrant operating out of one facility, holds approximately one-third of the market. Blue & Gold, operating with more vessels and out of two facilities, holds the remaining two-thirds of the market. It is undisputed that Red and White has lost money annually from its operations, while Blue & Gold has generated a net profit each year.

The events that triggered the present lawsuit allegedly began as soon as Red and White became a competitor in the bay cruise market in 1997. Red and White alleges that since that time, Blue & Gold has engaged in a concerted effort to drive it out of business by engaging in a number of anticompetitive practices. These acts include Blue & Gold systematically charging below-cost prices to wholesale bay cruise customers and entering into exclusive dealing arrangements, below-cost pricing contracts, and tying arrangements that offered valuable Alcatraz tickets to wholesale customers who refrained from patronizing Red and White. Red and White also alleges Blue & Gold has provided wholesale customers with secret discounts on bay cruises and valuable Alcatraz ticket privileges which were denied to Red and White. According to Red and White, the goal of Blue & Gold's efforts was to eliminate Red and White as a competitor, thereby garnering a monopoly position over both the retail and wholesale bay cruise markets.

As a result of this alleged anticompetitive conduct, Red and White sued Blue & Gold on May 16, 2001, in San Francisco Superior Court. Red and White asserted six causes of action under California's two antitrust statutes — the Cartwright Act and the UPA. The Cartwright Act targets contracts in restraint of trade and promotes a free market by proscribing trusts. (See The Cartwright Act — California's Sleeping Beauty (1949) 2 Stan. L.Rev. 201.) The UPA is aimed at safeguarding the public against monopolies and encouraging competition "by prohibiting unfair, dishonest, deceptive, destructive, fraudulent and discriminatory practices by which fair and honest competition is destroyed or prevented." (§ 17001.)

The first cause of action for "illegal tying" predicates liability on section 16727 of the Cartwright Act, and alleges Blue & Gold tied the sale of Alcatraz tickets and privileges, over which it holds a monopoly, to wholesale tour customers' refusal to do business with Red and White.

The second cause of action for "secret rebates and privileges" predicates liability on section 17045 of the UPA, and alleges Blue & Gold gave "secret rebates, refunds, commissions, unearned discounts and/or privileges" in the sale of Alcatraz tickets to competing tour operators, which unlawfully prevented Red and White from competing in the wholesale segment of the bay cruise tour market. This cause of action also alleges that Blue & Gold "granted secret rebates, refunds, commissions, unearned discounts and/or [privileges]" in the sale of bay cruise tickets to wholesale customers.

The third cause of action for "combination to restrain trade/exclusive dealing" was brought under section 16720 of the Cartwright Act. This cause of action alleges that Blue & Gold has entered into "various agreements and arrangements in restraint of trade" with tour operators "including, but not limited to," agreements whereby tour operators "agreed to purchase bay cruise tickets exclusively from Blue [ & ] Gold in exchange for Blue [ & ] Gold's agreement to provide them with a preferential allocation of Alcatraz tickets."

The fourth cause of action for "predatory pricing" predicates liability on section 17043 of the UPA. This cause of action alleges that Blue & Gold "has offered for sale and sold bay cruise tickets at prices below its fully allocated costs for providing bay cruises" with the intention of injuring Red and White and ultimately eliminating Red and White as an effective competitor.

The fifth cause of action alleges the common law tort of "interference with prospective economic advantage." Red and White alleges that "[i]n an effort to prevent, disrupt, and destroy" Red and White's relationships with tour operators, Blue & Gold "illegally coerced tour operators into agreeing not to purchase bay cruise tickets from [Red and White] by threatening to cut off the tour operators' access to Alcatraz tickets...."

The sixth cause of action alleges "false advertising" under sections 17200 and 17500 of the UPA. This cause of action alleges Blue & Gold engaged in a number of "unfair and/or fraudulent business practices and/or false advertising" including ...

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