Saunders v. Superior Court

• Decision Date: 16 August 1994
• Docket Number: No. B080453,B080453
• Citation: 27 Cal.App.4th 832,33 Cal.Rptr.2d 438
• Court: California Court of Appeals Court of Appeals
• Parties: Mark SAUNDERS, et al., Petitioners, v. SUPERIOR COURT of the State of California, for the County of Los Angeles, Respondent. CALIFORNIA REPORTING ALLIANCE, et al., Real Parties in Interest.

Page 438

33 Cal.Rptr.2d 438

27 Cal.App.4th 832

Mark SAUNDERS, et al., Petitioners, v. SUPERIOR COURT of the State of California, for the County of Los Angeles, Respondent CALIFORNIA REPORTING ALLIANCE, et al., Real Parties in Interest.

No. B080453.

Court of Appeal, Second District, Division 7, California.

Aug. 16, 1994.

Brobeck, Phleger & Harrison, and James L. Miller, Thomas M. Peterson, Meredith N. Landy, and Gregory D. Suski, San Francisco, for petitioners

Dan Stormer, Pasadena, Carol A. Klauschie, Los Angeles, Dori E. Miles, Pasadena, for real parties in interest California Reporting Alliance, et al.

Sheppard, Mullin, Richter & Hampton, and Don T. Hibner, Jr., Dani Jo Merryman, Samantha M. Phillips, Los Angeles, for real party in interest Truck Ins. Exchange.

No appearance for respondent.

JOHNSON, Associate Justice.

Plaintiffs (petitioners) filed suit against a group of certified shorthand reporters and two insurance companies for unfair business practices, interference with contract and interference with prospective economic advantage. The trial court sustained the demurrers of defendants (real parties in interest) to all causes of action without leave to amend. We issued an alternative writ of mandate to review this ruling. For the reasons explained below, we have determined the trial court erred in sustaining the demurrers.

FACTS AND PROCEEDINGS BELOW

This cause and its companion, Wilcox v. Superior Court, 27 Cal.App.4th 809, 33 Cal.Rptr.2d 446 (1994), arise out of the practice of "direct contracting" under which a certified shorthand reporter or association of reporters contract with a major consumer of reporter services, such as an insurance company, for the exclusive right to report depositions taken by attorneys representing that consumer.

Plaintiffs are certified shorthand reporters who have brought suit against defendants, also certified shorthand reporters, alleging "direct contracting" as practiced by defendants constitutes an unfair business practice, intentional interference with plaintiffs' prospective economic advantages and interference with existing contracts. Also named as defendants are two insurance companies which contracted with the defendant reporters. ¹ The alleged unlawful practices are described in our discussion below.

The trial court sustained demurrers to all causes of action without leave to amend. For a variety of procedural reasons we determined plaintiffs have no adequate remedy in the ordinary course of law and, therefore, we issued an alternative writ of mandate to review the trial court's ruling.

DISCUSSION

I. PLAINTIFFS' COMPLAINT STATES A CAUSE OF ACTION FOR UNFAIR BUSINESS PRACTICES UNDER SECTION 17200 OF THE BUSINESS AND PROFESSIONS CODE.

The sufficiency of a complaint is, of course, a question of law which we review de novo. In doing so, we accept as true all properly pleaded allegations and do not go beyond the four corners of the complaint except as to matters which are judicially noticeable. (Committee on Children's Television, Inc. v. General Foods Corp. (1983) 35 Cal.3d 197, 213-214, 197 Cal.Rptr. 783, 673 P.2d 660; Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.)

Plaintiffs' principal claim is that "direct contracting," as practiced by defendants, constitutes unfair competition under Business & Professions Code section 17200. ²

"Direct contracting," as the parties use that term, is a form of exclusive dealing Plaintiffs further allege that pursuant to the agreements between CRA and the insurance companies the companies instructed the attorneys representing their policyholders to sever all existing contracts with reporters and to use exclusively the services of CRA reporters. These instructions were enforced by means of threats by the companies that services performed by non-CRA reporters would not be paid for.

                arrangement whereby the seller sells a product or service to the buyer on condition the buyer purchase the product or service only from the seller.  (See § 16727.)   Here, plaintiffs' complaint alleges the reporter defendants, competitors of plaintiffs, have formed an organization called the California Reporting Alliance (CRA).  As members of CRA the reporter defendants have agreed they will provide reporting services to the insurance company defendants pursuant to rates, terms and conditions set by CRA.  The defendant insurance companies have entered into contracts with CRA which provide all attorneys representing their policyholders must use CRA members for reporting services and the companies will not pay for reporting services unless those services were obtained from a CRA reporter.  CRA will bill the insurance companies directly, at agreed upon rates, for all reporting services furnished to attorneys representing policyholders
                

Plaintiffs do not contend direct contracting is illegal per se. (Cf. Redding v. St. Francis Medical Center (1989) 208 Cal.App.3d 98, 107, 255 Cal.Rptr. 806.) Indeed, some of the plaintiffs admit that prior to the CRA-insurer contract they themselves had contracts with law firms to provide reporter services. Rather, it is plaintiffs' contention direct contracting as practiced by defendants constitutes an unfair business practice under section 17200.

Before turning to plaintiffs' specific allegations under section 17200, it is worth noting the breadth of the statute with which we are dealing.

Section 17200 defines unfair competition as "any unlawful, unfair or fraudulent business act or practice...." The "unlawful" practices prohibited by section 17200 are any practices forbidden by law, be it civil or criminal, federal, state, or municipal, statutory, regulatory, or court-made. (People v. McKale (1979) 25 Cal.3d 626, 632, 159 Cal.Rptr. 811, 602 P.2d 731.) It is not necessary that the predicate law provide for private civil enforcement. (Samura v. Kaiser Foundation Health Plan, Inc. (1993) 17 Cal.App.4th 1284, 1299, 22 Cal.Rptr.2d 20.) As our Supreme Court put it, section 17200 "borrows" violations of other laws and treats them as unlawful practices independently actionable under section 17200, et seq. (Farmers Ins. Exchange v. Superior Court (1992) 2 Cal.4th 377, 383, 6 Cal.Rptr.2d 487, 826 P.2d 730.) "Unfair" simply means any practice whose harm to the victim outweighs its benefits. (Motors, Inc. v. Times Mirror Co. (1980) 102 Cal.App.3d 735, 740, 162 Cal.Rptr. 543.) "Fraudulent," as used in the statute, does not refer to the common law tort of fraud but only requires a showing members of the public " 'are likely to be deceived.' " (Bank of the West v. Superior Court (1992) 2 Cal.4th 1254, 1267, 10 Cal.Rptr.2d 538, 833 P.2d 545.)

A plaintiff suing under section 17200 does not have to prove he or she was directly harmed by the defendant's business practices. An action may be brought by any "person, corporation or association or by any person acting for the interests of itself, its members or the general public." (§ 17204.)

With these principles in mind, we review the allegations of the plaintiffs' second amended complaint.

Plaintiffs allege the contracts between defendant reporters and insurers provide, inter alia, all attorneys representing the insurers' policyholders must use CRA members exclusively for reporting services. Furthermore, "CRA and the reporter defendants will offer training to the insurance carrier defendants and their employees in order to facilitate and aid the insurance carrier defendants in fulfilling their duty of defense to policyholders." In addition, "CRA and the reporter defendants will review and comment upon the substance of sworn testimony taken down by the reporter defendants and the These contract provisions, plaintiffs allege, are unlawful and unfair because they compromise the impartiality of the CRA reporters, provide the CRA reporters with a financial interest in the outcome of the litigation and constitute an unreasonable restraint of trade. ³

performance of the lawyers at the proceeding and will assist insurance companies to evaluate the need for replacement counsel."

Section 8025 provides the State may suspend or revoke a shorthand reporter's certification for unprofessional conduct. " 'Unprofessional conduct' includes, but is not limited to, acts contrary to professional standards concerning ... impartiality...." (Ibid.) Under the CRA contract, the reporter at a deposition may be wearing as many as five hats. He or she may be not only reporting the deposition but also may be the trainer of the attorney taking the deposition and the insurance company employees preparing for the deposition. In addition to reporting and transcribing the deposition, the reporter will also be providing a review and commentary on the substance of the sworn testimony, critiquing the performance of the attorney taking the deposition and evaluating for the insurer the need to replace this attorney.

Whether such conduct on the part of a certified shorthand reporter is contrary to professional standards concerning impartiality will have to await expert testimony at trial. A demurrer tests only the legal sufficiency of the allegations. It does not test their truth, the plaintiffs' ability to prove them or the possible difficulty in making such proof. (Committee on Children's Television, supra, 35 Cal.3d at pp. 213-214, 197 Cal.Rptr. 783, 673 P.2d 660.) We cannot say, as a matter of law, a reporter who at the same time acts as trainer, commentator, critiquer and evaluator for one party as to the deposition he or she is reporting has not violated professional standards of impartiality.

Plaintiffs further allege that in order to provide a reduced rate to the insurance companies for reporting and transcribing the deposition, CRA members charge the other parties higher than the normal market rate for copies of the deposition and that the public and the other litigants are not informed of this practice.

The practice of providing a discount to the party who...