People ex rel. Freitas v. City and County of San Francisco

• Decision Date: 11 May 1979
• Citation: 155 Cal.Rptr. 319,92 Cal.App.3d 913
• Parties: , 1979-2 Trade Cases P 62,747 PEOPLE of the State of California, Plaintiff and Appellant, v. The CITY AND COUNTY OF SAN FRANCISCO, Board of Supervisors of the City and County of San Francisco, Defendants and Respondents, Richard B. Spohn, Plaintiff in Intervention and Appellant. Civ. 43082.
• Court: California Court of Appeals Court of Appeals

Page 319

155 Cal.Rptr. 319

92 Cal.App.3d 913, 1979-2 Trade Cases P 62,747

PEOPLE of the State of California, Plaintiff and Appellant, v. The CITY AND COUNTY OF SAN FRANCISCO, Board of Supervisors of the City and County of San Francisco, Defendants and Respondents Richard B. Spohn, Plaintiff in Intervention and Appellant.

Civ. 43082.

Court of Appeal, First District, Division 2, California.

May 11, 1979.

Rehearing Denied June 8, 1979.

Hearing Denied July 26, 1979.

Joseph Freitas, Jr., Dist. Atty., Judith D. Ford, Raymond T. Bonner, Asst. Dist. Attys., Consumer Fraud/White Collar Crime Unit, San Francisco, for appellant People of the State of California.

Richard A. Elbrecht, Steven M. Fleisher, Dept. of Consumer Services, Legal Services Unit, Sacramento, for appellant Spohn (Intervener).

George P. Agnost, City Atty., Edmund A. Bacigalupi, Deputy City Atty., San Francisco, for respondents City and County of San Francisco et al.

Harry M. Snyder, Luana L. Martilla, Consumers Union of U. S., Inc., West Coast Regional Office, San Francisco, for amicus curiae.

ROUSE, Associate Justice.

Plaintiffs appeal from a judgment on the pleadings entered in favor of defendants City and County of San Francisco and its Board of Supervisors (hereafter City and Board). We are asked to decide whether the provisions of the Cartwright Act apply to the City and whether San Francisco has the authority, under the California Constitution, to set taxicab fares.

The instant action was initiated by the District Attorney of the City and County of San Francisco (hereafter District Attorney), who filed an antitrust complaint for injunction, civil penalties and other equitable relief. Permission to intervene was then granted to Richard Spohn, Director of the California Department of Consumer Affairs. Intervener's complaint was identical to that filed by the District Attorney, except that it added an eighth cause of action. The judgment of the pleadings was granted as to the first cause of action of both complaints and as to the eighth cause of action of the complaint in intervention. ¹

The first cause of action alleged a Per se violation of the Cartwright Act (Bus. & Prof.Code, § 16700 et seq.) by defendants' fixing of taxicab fares. The eighth cause of action in intervener's complaint alleged that defendants City and Board had no lawful authority to set and fix taxicab fares, and that the section of the San Francisco Municipal Code under which they purported to act is Ultra vires and void.

The following facts were established by plaintiffs' request for admissions and defendants' response thereto: The Board fixes the fares which all taxicab companies operating in San Francisco must charge. Since January 1971, Yellow Cab has submitted five requests for fare increases to the Board. Although an increase was granted in response to all five requests, defendants denied that the fare was set at the level requested by Yellow Cab in every instance.

Plaintiffs' ² first four arguments on appeal are all based on the presumption that federal case law under the Sherman Anti-Trust Act (hereafter Sherman Act; 15 U.S.C.A. § 1) should be followed in this case. ³ They reason that since cases interpreting the Sherman Act are applicable to the California Cartwright Act (Marin County Bd. of Realtors, Inc. v. Palsson (1976) 16 Cal.3d 920, 926, 130 Cal.Rptr. 1, 549 P.2d 833), recent changes in the federal law compel the conclusion that San Francisco is not exempt under the Cartwright Act.

Defendants' major argument is that Widdows v. Koch (1968) 263 Cal.App.2d 228, 69 Cal.Rptr. 464, controls in this case. That case held that municipalities were not "persons" under section 16702 of the Business and Professions Code and therefore were not subject to the provisions of the Cartwright Act (p. 235, 69 Cal.Rptr. 464). Defendants also contend that even though the Sherman Act cases are applicable, they can be distinguished from this case. Finally, they rely upon In re Martinez (1943) 22 Cal.2d 259, 138 P.2d 10, which held that a municipality has the power to set taxicab rates for taxicabs operating within its boundaries.

The first question to be addressed, then, is whether federal antitrust cases have any relevance in determining whether a city has liability under the California Cartwright Act. Our analysis of the federal cases and California law leads us to conclude that, in this limited instance, federal case holdings provide no guide to the interpretation of California antitrust law. Accordingly, plaintiffs' contention that federal law is pertinent to this case must fail.

In Parker v. Brown (1943) 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315, the United States Supreme Court held that federal antitrust laws were not intended by Congress to apply to state action. The court reasoned that there was "nothing in the language of the Sherman Act or in its history which suggests that its purpose was to restrain a state or its officers or agents from activities directed by its legislature. In a dual system of government in which, under the Constitution, the states are sovereign, save only as Congress may constitutionally subtract from their authority, an unexpressed purpose to nullify a state's control over its officers and agents is not lightly to be attributed to Congress." (pp. 350-351, 63 S.Ct. p. 313.) It was pointed out that although previous cases had held that a state could sue under the federal antitrust laws, the legislative history of the act indicated that it prevented only " 'business combinations.' " (p. 351, 63 S.Ct. 307.) The act "must be taken to be a prohibition of individual and not state action." The state, acting as sovereign, is not prohibited by the Sherman Act from imposing a restraint as an act of government. (p. 352, 63 S.Ct. p. 314.)

Goldfarb v. Virginia State Bar (1975) 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572, held that the state action exemption announced in Parker Was inapplicable to a minimum fee schedule for lawyers published by a local bar association and enforced by the State Bar. In order to come within Parker, anticompetitive activities must be compelled by direction of the state acting as a sovereign. (p. 791, 95 S.Ct. 2004.) The Virginia Supreme Court was authorized to regulate the practice of law, and had adopted ethical codes which dealt in part with fees, "and far from exercising state power to authorize binding price fixing, explicitly directed lawyers not 'to be controlled' by fee schedules." (p. 789, 95 S.Ct. p. 2014.) When the State Bar provided for disciplinary action for deviation from fee schedules, it "voluntarily joined in what is essentially a private anticompetitive activity" which is within the reach of the Sherman Act. (pp. 791-792, 95 S.Ct. p. 2015.)

In Cantor v. Detroit Edison Co. (1976) 428 U.S. 579, 96 S.Ct. 3110, 49 L.Ed.2d 1141, a

private utility distributed, without additional charge, lightbulbs to residential customers, under a longstanding practice antedating state regulation of electric utilities. This practice, challenged as an unlawful "tie-in" of bulbs to electricity, was described in the utilities tariffs, which were binding on the utility until changed. Nevertheless, the challenged tie-in was held not to be immune from antitrust laws. The court pointed out that Chief Justice Stone in Parker had carefully selected language which plainly limited the court's holding to official action taken by state officials. (p. 591, 96 S.Ct. 3110.) "The cumulative effect of these carefully drafted references unequivocally differentiates between official action, on the one hand, and individual action (even when commanded by the State), on the other hand." (p. 591, fn. 24, 96 S.Ct. p. 3118.) The court emphasized that Cantor Was distinguishable from Parker because the only defendant in Cantor was a public utility and there was no claim that any state action violated the antitrust laws. Since Parker involved the issue of whether the sovereign state itself was subject to the antitrust laws, it was not controlling in Cantor. (pp. 591-592, 96 S.Ct. 3110.) Therefore, since the state had merely approved but had not mandated the "tie-in" arrangement, the state action "exemption" did not apply.

By contrast, a Sherman Act immunity was found in Bates v. State Bar of Arizona (1977) 433 U.S. 350, 97 S.Ct. 2691, 53 L.Ed.2d 810. The United States Supreme Court found that a ban on price advertising, adopted by the Arizona Supreme Court, did not violate the Sherman Act, because the state court itself had adopted the challenged rule, and the State Bar's role was completely defined. The court found the restraint to be compelled by direction of the state acting as sovereign. (p. 360, 97 S.Ct. 2691.) Nevertheless, the ban on advertising was invalidated on the ground that it violated the First Amendment because of overbreadth. (pp. 383-384, 97 S.Ct. 2691.)

Finally, in Lafayette v. Louisiana Power & Light Co. (1978) 435 U.S. 389, 98 S.Ct. 1123, 55 L.Ed.2d 364, the court held that cities were not exempt from the federal antitrust laws, when they owned and operated electric utility systems both within and beyond their city limits. The court pointed out that cities have long been "persons" under the Sherman Act (citing Chattanooga Foundry v. Atlanta (1906) 203 U.S. 390, 27 S.Ct. 65, 51 L.Ed. 241.) The court concluded that the "Parker doctrine exempts only anticompetitive conduct engaged in as an act of government by the State as sovereign, or, by its subdivisions, pursuant to state policy to displace competition with regulation or monopoly public service." (p. 413, 98 S.Ct. p. 1137.)

On the basis of their analysis of the above cases, plaintiffs conclude that, before local government can deprive the public of the benefits of competition, the conduct must be thoroughly analyzed, and the government must establish that it has been compelled by the state to engage in the otherwise unlawful activity.

Defendants subscribe to the concept...