California Landmark Cases on Cartwright Act Violation

An indispensable element of any action for a Cartwright Act violation is proof of a "combination of resources of two or more independent interests for the purpose of restraining competition and preventing market competition." (GHII v. MTS (1983) 147 Cal. App. 3d 256, 266, 195 Cal. Rptr. 211, see Bus. & Prof. Code, 16720.) Thus, a plaintiff must plead and prove an illegal combination between two separate entities. (Freeman v. San Diego Assn. of Realtors (1999) 77 Cal.App.4th 171, 189 (Freeman).) In interpreting analogous federal antitrust law, the courts focus on the substance, rather than the form, of the relationship in determining whether two entities are separate and therefore prohibited from engaging in anticompetitive behavior. (Copperweld Corp. v. Independence Tube Corp. (1984) 467 U.S. 752, 772-773, 81 L. Ed. 2d 628, 104 S. Ct. 2731 (Copperweld).) Under this functional approach, "whether separate entities are present requires analysis not of the corporate formalities but of the economic realities under which the entities operate . . . . The mere existence of separate incorporated entities does not automatically suffice to show that these entities are capable of combining; instead the entities must have separate and independent interests that are combined by the unlawful conspiracy." (Freeman, supra, 77 Cal.App.4th at p. 189; see Copperweld, supra, 467 U.S. at pp. 770-771; City of Mt. Pleasant, Iowa v. Assoc. Elect. Co-op. (8th Cir. 1988) 838 F.2d 268, 275.) In Freeman, this court applied Copperweld's "economic realities" test to analyze the separate entity issue under a state Cartwright Act claim. (Freeman, supra, 77 Cal.App.4th at pp. 189-194; accord, Lake Communications, Inc. v. ICC Corp. (9th Cir. 1984) 738 F.2d 1473, 1480, overruled on other grounds by Nghiem v. NEC Electronic, Inc. (9th Cir. 1994) 25 F.3d 1437, 1442.) Though recognizing that the federal antitrust law (the Sherman Act) is not always directly probative of the legislative intent underlying the Cartwright Act, California courts frequently look to judicial interpretations of the Sherman Act as helpful authority because of the similarity in language and purpose in the federal and state statutes. (Morrison v. Viacom, Inc. (1998) 66 Cal.App.4th 534, 541, fn. 2.) Although no California court has yet addressed the issue, several federal courts have since applied Copperweld's reasoning to conclude that the antitrust laws are inapplicable to a parent and subsidiary even if the subsidiary is not wholly owned. (See, e.g., Coast Cities Truck Sales, Inc. v. Navistar Internat. Transportation Co. (D. N.J. 1995) 912 F. Supp. 747, 764-766 (Coast Cities); Siegel Transfer, Inc. v. Carrier Express, Inc. (3rd Cir. 1995) 54 F.3d 1125, 1131-1135 (Siegel Transfer); Williams v. I.B. Fischer Nevada (9th Cir. 1993) 999 F.2d 445, 447; Bell Atlantic Business Systems v. Hitachi Data Systems Corp. (N.D. Cal. 1994) 849 F. Supp. 702, 707 (Bell Atlantic); but see Aspen Title & Escrow, Inc. v. Jeld-Wen, Inc. (D. Or. 1987) 677 F. Supp. 1477; see generally Comment, Partial Ownership of Subsidiaries, Unity of Purpose, and Antitrust Liability (2001) 68 U.Chi.L.Rev. 1401.) Although these courts have not always expressed consistent reasoning, the essential logic underlying their holdings is the idea that even where a parent does not wholly own a subsidiary, the parent's legal control over the subsidiary means that the parent can assert full control over the subsidiary if the subsidiary ceases to act in the parent's best interest and, therefore, the essential factors of "unity of interest" and "common corporate consciousness" will necessarily be present despite the lack of a 100 percent ownership. (See Bell Atlantic, supra, 849 F. Supp. at pp. 705-706.)