Opinion
A147527
08-31-2017
ANDY'S BP, INC., ET AL., Plaintiffs and Appellants, v. SAFEWAY, INC., Defendant and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Alameda County Super. Ct. No. RG15771884)
Andy's BP, Inc., Dixon Gas Club, LLC, and R.A.T. Oil, Inc., appeal from a judgment of dismissal entered after the court sustained without leave to amend defendants' demurrers to their complaint for relief under the Unfair Practices Act (UPA; Bus. & Prof. Code § 17045 et seq.). Appellants had alleged that a program between respondents Safeway, Inc. (Safeway) and Chevron U.S.A., Inc. (Chevron), by which certain Safeway customers could obtain gas at Chevron stations at a reduced price, constituted an agreement for secret rebates in violation of Business and Professions Code section 17045 (section 17045). The court sustained the demurrer on the ground that the complaint failed to allege actionable price discrimination. Appellants contend the court erred because section 17045 is not limited to price discrimination for vertical competitors. We will affirm the judgment.
Respondents in this case were originally Safeway and Chevron. After briefing and before oral argument, Chevron was dismissed from the appeal without prejudice pursuant to appellants' unopposed request.
I. FACTS AND PROCEDURAL HISTORY
In May 2015, appellants filed a verified complaint against Safeway and Chevron, asserting two causes of action. The first cause of action asserted that a program by which Safeway Club Card holders could obtain a lower price for gas at Chevron stations (the Safeway-Chevron Program) provided for secret rebates in violation of section 17045. The second cause of action asserted derivative liability claims under Business and Professions Code sections 17046, 17047 and 17048.
A. Allegations of Appellants' Complaint
According to the complaint, appellants are entities operating retail motor fuel stations in Northern California: Andy's BP, Inc. (Andy's BP) operates 11 stations in Northern California; Dixon Gas Club, LLC (Dixon) operates one station in Dixon; and R.A.T. Oil, Inc. (R.A.T. Oil) operates a station in Morgan Hill.
Safeway is allegedly "one of the largest food, drug and motor fuel retailers in North America" and operates 45 fuel stations in Northern California. Chevron allegedly "has the largest market share of fuel stations on the West Coast" and competes with stations operated by appellants and Safeway. Each of appellants' stations is allegedly "in competition with Chevron and Safeway fuel stations."
Previously, the Safeway Reward Points Program had allegedly offered fuel at below-cost prices to Safeway customers with Safeway Club Cards who purchased certain products at Safeway stores. Due to this program, Chevron and other fuel station competitors (including appellants) lost a significant volume of sales. As a result, Chevron allegedly entered into an agreement with Safeway to establish the Safeway-Chevron Program, which is the subject of appellants' complaint.
Under the Safeway-Chevron Program, Safeway grocery customers who are entitled to discounts on fuel purchased at Safeway stations through Safeway's Rewards Points Program can also redeem those discounts at participating Chevron stations in amounts up to 20 cents per gallon.
Under the terms of the alleged underlying agreement between Safeway and Chevron, "Safeway reimbursed Chevron 16.5 cents for every 20 cents / gallon" of fuel redeemed at Chevron stations, and "Chevron agreed (for its dealers) to pay Safeway 3.5 cents." Appellants allege that, under article 3 of the agreement, Chevron and Safeway agreed that Safeway would make secret payments of rebates and kickbacks to Chevron, and Chevron would secretly pay a rebate or kickback to Safeway. Appellants further allege that Safeway subsidized its gasoline prices with profits from its grocery sales, and Chevron subsidized its prices with rebates paid by Safeway.
Appellants allege that Safeway and Chevron agreed the promotion would be exclusive between them. Specifically, they allege that "Chevron agreed not to deal with any competitor of Safeway" and "Safeway agreed not to deal with any competitor of Chevron." Thus, participating Chevron stations were the only stations in Northern California other than Safeway's own stations where Safeway grocery customers could redeem the discounts they earned by purchasing Safeway groceries. Indeed, the complaint alleges that appellants "demanded that Safeway give [appellants] the same agreement that Safeway agreed to with Chevron," but Safeway "rejected" their demand that thereby "refused to extend these same terms in the Safeway-Chevron agreement to other fuel competitors of Safeway and Chevron, such as [appellants]."
Appellants allege that the Safeway-Chevron Program has affected competition. They allege the program was implemented pursuant to a "combination and conspiracy" between Safeway and Chevron "to establish a secret rebate program to stabilize prices and limit, lessen and eliminate the competition of Safeway and Chevron with other independent low price gasoline stations," including appellants, while at the same time increasing sales and profits. They further allege that the increased market concentration of Safeway and its Chevron affiliates reduced competition by lowering the market shares of the competing stations—particularly low price competitors—including appellants. And they allege that, if they had been allowed to participate in the Safeway-Chevron program, they would have been able to successfully compete against Safeway and Chevron.
According to the complaint, Safeway and Chevron agreed that the agreement between them would be secret. Appellants assert that the terms of the secret payment or allowance of rebates, refunds, or unearned discounts were never disclosed to the general public or to the industry in general, and that appellants did not learn of the essential terms of the agreement until July 2014.
B. Safeway's and Chevron's Demurrers
In July 2015, Safeway and Chevron each filed a demurrer to the complaint and a request for judicial notice. Safeway contended that the complaint failed to state a cause of action under section 17045 because it did not allege (1) that the prices for anything Safeway sold to Chevron differed from customer to customer, (2) that the rebate was secret, or (3) facts showing the tendency of the Safeway-Chevron Program to destroy competition. Chevron similarly contended that appellants failed to allege price discrimination among customers, secrecy, and competitive injury. Appellants opposed the demurrers, and Safeway and Chevron filed reply papers.
C. Trial Court's Ruling
After a hearing, the trial court sustained the demurrers without leave to amend and denied the parties' requests for judicial notice.
As to the first cause of action under section 17045, the court observed that the statute forbids discrimination in favor of certain purchasers at the expense of other purchasers, and even if the transfer from Safeway to Chevron could be characterized as a purchase, the agreements between Safeway and Chevron were exclusive and thus there could not have been any discrimination between purchasers. In the court's view, the essence of appellants' claim was that Safeway refused to extend the same agreement to them, and a refusal to deal does not provide a cause of action under section 17045. Because appellants failed to state a claim under section 17045, and the second cause of action was derivative of the first cause of action, the court sustained Safeway's and Chevron's demurrers. And because appellants did not "give any indication of what factual (as opposed to conclusory) allegations they could possibly add to cure the fundamental issues upon which the demurrers have been sustained," the court denied leave to amend and dismissed the complaint.
Judgment was entered, and this appeal followed.
II. DISCUSSION
Appellants contend the court erred in sustaining the demurrer to the first cause of action under section 17045.
In our de novo review, we assume the truth of all facts properly pleaded in the complaint or reasonably inferred from the pleading, but not mere contentions, deductions, or conclusions of law. We then determine if those facts are sufficient, as a matter of law, to state a cause of action under any legal theory. To prevail on appeal, the appellant must show that the pleaded facts are sufficient to establish every element of a cause of action and overcome all legal grounds on which the trial court sustained the demurrer; we will therefore affirm the ruling if there is any ground on which the demurrer could have been properly sustained. (Intengan v. BAC Home Loans Servicing LP (2013) 214 Cal.App.4th 1047, 1052.)
Section 17045 provides: "The secret payment or allowance of rebates, refunds, commissions, or unearned discounts, whether in the form of money or otherwise, or secretly extending to certain purchasers special services or privileges not extended to all purchasers purchasing upon like terms and conditions, to the injury of a competitor and where such payment or allowance tends to destroy competition, is unlawful."
As relevant here, there are three elements to a violation of section 17045: (1) a secret payment of the type described in section 17045; (2) injury to a competitor; and (3) tendency to destroy competition. (See Diesel Electric Sales & Service, Inc. v. Marco Marine San Diego, Inc. (1993) 16 Cal.App.4th 202, 212.) Appellants contend they alleged each of these elements in their verified complaint. We need only address the first element to resolve the appeal.
B. Secret Payment Described in Section 17045
In the words of the statute, the type of payment targeted by section 17045 is "[t]he secret payment or allowance of rebates, refunds, commissions, or unearned discounts, whether in the form of money or otherwise, or secretly extending to certain purchasers special services or privileges not extended to all purchasers purchasing upon like terms and conditions." (Italics added.)
Our Supreme Court considered this language in the context of the statutory history and purpose in ABC Internat. Traders, Inc. v. Matsushita Electric Corp. (1997) 14 Cal.4th 1247, 1258-1262 (ABC International). As the court explained, section 17045 arose out of legislative concern over grocery manufacturers selling to retail chain stores at better prices (through discounts or rebates) than the prices extended to independent wholesalers and retailers. (Id. at pp. 1258-1259.) The court held that competitive injury could be established in a case involving secret unearned discounts by showing injury to competition among purchasers, because the statute is "focused patently on discrimination among purchasers" and "forbids discrimination in favor of 'certain purchasers' at the expense of other 'purchasers.' " (Id. at pp. 1254, 1266, italics added.)
ABC International thus indicates that section 17045 applies to a seller's rebates (or other payments, discounts, etc.) to "purchasers," and more specifically only to price discrimination among purchasers.
1. Rebates to Purchasers
As the trial court noted, an initial consideration is whether section 17045 precludes secret rebates only in the context of a transaction between a seller and a purchaser. Appellants have not alleged what product or service, if any, Chevron is purchasing from Safeway under the Safeway-Chevron Program.
Appellants contend the statute is not limited to purchase-sales transactions, because it actually describes two distinct types of conduct, separated by an "or" in the statute. One type of conduct, relevant here, is set forth in the statutory phrase, "rebates, refunds, commissions, or unearned discounts," without specifying that the conduct must involve a purchaser. A different type of conduct is identified in the phrase, "or secretly extending to certain purchasers special services or privileges not extended to all purchasers purchasing upon like terms and conditions," which does specify the conduct must be with respect to a purchaser. (Italics added.) Because the statute does not explicitly refer to "purchaser" in the phrase that includes "rebates," appellants argue that the statute prohibits all secret "rebates," even if not given to a purchaser and not in the context of a purchase-sale transaction. Appellants then proceed to argue that they alleged a secret rebate by pleading that Safeway paid Chevron 16.5 cents for every 20 cents per gallon under the agreement, that Chevron agreed for its dealers to pay Safeway 3.5 cents, and that Chevron subsidized its prices with rebates paid by Safeway.
We question appellants' assertion that section 17045 applies to rebates made to others besides purchasers. Although our Supreme Court did not address the point directly in ABC International, it did rule that section 17045 is "tailored to address the problem of a manufacturer or other producer who is forced or induced to give preferential prices to one or more individual purchasers," in a case involving secret unearned discounts—conduct described before the "or" in the statute. (ABC International, supra, 14 Cal.4th at p. 1267, italics added.) In light of the statutory background and purpose, it is reasonable to conclude that all of the conduct mentioned in the statute, whether before the "or" or after, requires the existence of a purchase and sale transaction. (Kunert v. Mission Financial Services Corp. (2003) 110 Cal.App.4th 242, 260 (Kunert) [concluding that conduct described before the "or" is confined to conduct towards purchasers, and noting that " 'rebates, refunds, . . . or unearned discounts' are all necessarily payments to purchasers"].) Even the cases cited by appellants involve purchase and sale transactions. (E.g., ABC International, supra, 14 Cal.4th at pp. 1252-1253 [sale of electronic telephone products from manufacturer to distributor]; Eddins v. Redstone (2005) 134 Cal.App.4th 290, 298-300 [sale of movies from studios to video stores]; Diesel Electric Sales & Service, Inc. v. Marco Marine San Diego, Inc., supra, 16 Cal.App.4th at pp. 208-209 [sale of hydraulic hose and fittings from manufacturer to distributor]; Pet Food Express, Ltd. v. Royal Canin USA Inc. (N.D. Cal. Feb. 16, 2010) No. C 09-1483 MHP, 2010 WL 583973 [sale of pet food from manufacturer to retail store].)
Nonetheless, we need not and do not decide this statutory interpretation question to resolve the appeal. Even if a secret rebate provided to someone other than a purchaser could be actionable under section 17045 (or even if appellants had alleged a purchase- sale transaction), appellants' allegations as to the Safeway-Chevron Program do not state a cause of action because they do not allege price discrimination, as discussed next.
2. Discriminatory Pricing
California courts have long observed that section 17045 prohibits only differential or discriminatory pricing by sellers. (Chicago Title Ins. Co. v. Great Western Financial Corp. (1968) 69 Cal.2d 305, 323 (Chicago Title) [to state a cause of action for violation of section 17045, the complaint must "allege facts from which a court might properly infer that the prices charged . . . differ from customer to customer"]; ABC International, supra, 14 Cal.4th at pp. 1254, 1267 [§ 17045 is "focused patently on discrimination among purchasers" and prevents a distributor from discriminating between customers]; Fisherman's Wharf Bay Cruise Corp. v. Superior Court (2003) 114 Cal.App.4th 309, 331 ["Violation [of § 17045] requires proof that payments were, in fact, secret and discriminated among customers of the entity granting the rebates"]; Kunert, supra, 110 Cal.App.4th at p. 260 ["the purpose of section 17045 [is] to prevent a manufacturer or other supplier from discriminating among its customers"].) Appellants do not address these authorities in their opening brief, and they note in their reply brief that "appellate authorities limit Section 17045's application to price discrimination."
Appellants' complaint does not allege that Safeway has engaged in price discrimination. For price discrimination among purchasers to exist, there must of course be more than one purchaser. (See L & L Oil Co. v. Murphy Oil Corp. (5th Cir. 1982) 674 F.2d 1113, 1120 ["one seller must have made at least two actual sales to two actual buyers at different prices"].) Conversely, where a product is being sold only to one customer, prices obviously cannot "differ[] from customer to customer." (See Chicago Title, supra, 69 Cal.2d at p. 323 [§ 17045 claim "defective" because complaint "fails to allege facts from which a court might properly infer that the prices charged by [defendants] differ from customer to customer"].)
Here, appellants have not alleged two purchasers from Safeway, but one: Chevron. So even if the complaint could be construed to allege that Chevron was purchasing something from Safeway, Chevron is the only alleged purchaser of that product or service. In fact, the complaint specifically alleged that the Safeway-Chevron Program is exclusive between Safeway and Chevron and that Safeway rejected appellants' demand for such an arrangement.
Indeed, appellants' contention regarding the Safeway-Chevron Program is not that Safeway charged different price terms to different customers, but that Safeway declined to allow appellants, or any fuel retailer other than Chevron, to redeem Safeway's grocery-based fuel rewards. This type of "refusal to deal ... is not within the scope of Business and Professions Code section 17045." (Eddins v. Redstone, supra, 134 Cal.App.4th at p. 334.) To the contrary, section 17042, subdivision (a) provides that nothing in the UPA prohibits a "selection of customers." (Dimidowich v. Bell & Howell (E.D. Cal. 1984) 590 F.Supp. 45, 50, affirmed in relevant part in (9th Cir. 1986) 803 F.2d 1473 [a refusal to deal "is excepted from the operation of the [UPA]" by § 17042].)
Appellants failed to state a cause of action under section 17045.
C. Appellants' Argument Regarding Horizontal Competition
Appellants argue that the trial court erred by limiting section 17045 causes of action to "vertical competitors" and by ruling that it does not apply to "horizontal competitors." Appellants recite their attorney's comments at the demurrer hearing and assert there is no reported case limiting section 17045 to vertical competitors. They also note that the court in ABC International stated: "In light of the legislative mandate that we construe section 17045 'liberally . . . that its beneficial purposes may be subserved' (§ 17002), we must, in the absence of clear evidence of a contrary legislative intent, interpret the statute to protect against competitive injury in the secondary, as well as primary, lines of commerce." (ABC International, supra, 14 Cal.4th at p. 1257.)
Appellants' argument is unavailing. First, appellants misstate the trial court's order. The court did not rule that a transaction between horizontal competitors could never violate section 17045. Rather, it ruled that appellants failed to allege discriminatory pricing as required for a section 17045 cause of action. Although the court observed that collaboration between horizontal competitors is usually the subject of the Cartwright Act (Bus. & Prof. Code, § 16700 et seq.), the court's ruling was plainly predicated on the absence of any allegation that Safeway had discriminated on the basis of the price for whatever Safeway was purportedly selling to Chevron.
Second, although market participants can be aligned both horizontally (as competitors) and vertically (as sellers and purchasers), in any event a cause of action under section 17045 could not be stated without allegations of differential pricing among multiple purchasers. (E.g., Chicago Title, supra, 69 Cal.2d at p. 323.) As discussed ante, appellants' pleading utterly fails in this regard.
Third, appellants' reliance on ABC International is misplaced. In the portion of the decision quoted by appellants, the court in ABC International was addressing a different element of section 17045: harm to competition. The court concluded that, where a seller was providing unearned discounts to some but not all purchasers, the competition element could be satisfied by proof of harm either at the primary level of commerce (i.e., the seller's level—competition between defendant manufacturer and other manufacturers) or at the secondary level of commerce (i.e., the purchaser's level—competition between plaintiff and other purchasers). (ABC International, supra, 14 Cal.4th at pp. 1257, 1261.) But that has nothing to do with the separate requirement that differential pricing be alleged.
D. Appellants' Argument Regarding Commercial Bribery
At the hearing on the demurrers, appellants argued that section 17045 operates as both a price discrimination statute and a "commercial bribery" statute, such that allegations of differential pricing are unnecessary under section 17045. Although appellants quote their counsel's assertion at the hearing, they provide no legal authority for that proposition. Furthermore, such an argument is contrary to ABC International and other cases describing section 17045 as a price discrimination statute.
E. Conclusion
Because we conclude that appellants' complaint failed to allege a cause of action under section 17045 due to its failure to allege price discrimination, we need not and do not consider whether other required elements of a section 17045 claim, including secrecy and competitive injury, were adequately alleged. And because appellants do not challenge either the trial court's conclusion that the second cause of action must be dismissed as merely derivative of the first, or the trial court's conclusion that leave to amend should be denied, we will affirm the judgment.
Safeway requested that we take judicial notice of certain documents filed in another proceeding brought against it by R.A.T. Oil. We deferred ruling on the request until our decision on the merits. We now deny the request: Safeway has not demonstrated that the documents were before the trial court at the time of its ruling on the demurrers or that they are relevant to the disposition of this appeal. --------
III. DISPOSITION
The judgment is affirmed.
/s/_________
NEEDHAM, J. We concur. /s/_________
JONES, P.J. /s/_________
SIMONS, J.