Why Associated General Contractors Should Be Used to Assess Standing in Cartwright Act Cases

• Publication year: 2014
• Author: By Anna M. Fabish

WHY ASSOCIATED GENERAL CONTRACTORS SHOULD BE USED TO ASSESS STANDING IN CARTWRIGHT ACT CASES

By Anna M. Fabish¹

I. INTRODUCTION

Courts are far from united in evaluating antitrust standing for indirect purchasers under California's antitrust laws—an inconsistency the California Supreme Court has yet to address. The solution, however, has been available for decades: the multi-factor analysis set forth by the United States Supreme Court in Associated General Contractors v. Cal. State Council of Carpenters ("AGC").² The decision provides a nuanced framework for assessing antitrust standing in all Cartwright Act claims, including—indeed, especially—claims by indirect purchasers.

The underlying principles of AGC, as well as the results of courts applying the AGC factors to Cartwright Act claims to date,³ reveal that AGC and the Cartwright Act are consistent and complementary sources of law. AGC is persuasive federal precedent that can—and, in the interest of helping courts navigate the complex questions of antitrust standing for indirect purchasers, should—be applied to Cartwright Act claims.

While the California Legislature's 1978 amendment to the Cartwright Act was a rejection of the U.S. Supreme Court's 1977 holding in Illinois Brick v. Illinois,⁴ which excluded indirect purchasers from the universe of plaintiffs that might have antitrust standing, the amendment has no effect on the applicability of AGC to Cartwright Act claims. Each addresses a distinct issue: Whereas the amendment makes clear that, as a threshold matter, indirect purchasers may properly be the subject of an antitrust standing analysis, AGC sets forth a framework for performing that analysis.

There is no tension between the AGC analysis and the amended Cartwright Act. The 1978 amendment protects indirect purchasers, not by automatically granting them antitrust standing, but by prohibiting a blanket rule that would automatically deny them antitrust standing. Applying AGC to determine which indirect purchasers have antitrust standing under the Cartwright Act does not resurrect a blanket rule or automatically adjudicate the standing of indirect purchasers as a group. It thus does not abrogate the protection the Cartwright Act affords indirect purchasers.

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The Cartwright Act as amended tees up an antitrust standing analysis, but it does not provide one. Not all indirect purchasers are created equal: their commercial relationships and position in the stream of commerce vary widely. And California case law is thin on how to determine which indirect purchasers should survive an antitrust standing analysis. AGC provides established guidance on antitrust standing that can serve, should serve, and in many instances already has served this role. Such guidance would be particularly helpful for courts because the group of plaintiffs the 1978 amendment swept within the potential scope of the Cartwright Act are as diverse as the outcomes of the AGC standing inquiry and present complex standing issues.

II. THE 1978 CARTWRIGHT ACT AMENDMENT AND THE AGC ANTITRUST STANDING ANALYSIS ADDRESS DISTINCT ISSUES

A. The Clayton Act and the Cartwright Act Both Require Antitrust Standing

On their face, both the federal Clayton Act and California's Cartwright Act grant the ability to sue to any would-be plaintiff who is "injured" "by reason of" an antitrust violation.⁵ The potential reach of the Clayton Act and the Cartwright Act based on these criteria alone would be vast, as conduct that may be considered an antitrust violation can frequently cause harm with no or only a distant connection to the goals of antitrust law.⁶ To address these realities and avoid an unintended use of the antitrust laws, state and federal courts have imposed additional requirements on antitrust plaintiffs. Specifically, for a plaintiff "injured" "by reason of" an alleged antitrust violation to seek private antitrust damages under both federal and California law, he or she must establish antitrust standing.⁷ Antitrust standing involves the concepts of (i) antitrust injury and (ii) a proximate causal connection with the anticompetitive conduct⁸ Thus, under both federal and California antitrust law, not all those injured by an antitrust violation are permitted to seek antitrust damages.⁹

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B. Illinois Brick and the 1978 Cartwright Act Amendment Rejecting It Address Only the Threshold Issue of to Whom an Antitrust Standing Analysis May Properly Be Applied 1. Illinois Brick renders indirect purchasers automatically ineligible for antitrust standing under the Clayton Act

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In Illinois Brick, the Supreme Court determined that, with limited exceptions,¹⁰indirect purchasers cannot have suffered "injury" for the purposes of a Clayton Act claim.¹¹ With this holding, indirect purchasers were automatically excluded from the universe of plaintiffs that might have antitrust standing under federal law. As a result, federal courts need not even consider whether indirect purchasers have antitrust standing under the Clayton Act; a prerequisite for antitrust standing is absent.¹²

The majority in Illinois Brick acknowledged that its holding is "analytically distinct" from the question of antitrust standing for all non-indirect purchaser plaintiffs.¹³ Thus, Illinois Brick did not affect the antitrust standing analysis to be applied to all other Clayton Act plaintiffs not rendered ineligible.

2. The 1978 Cartwright Act amendment ensures that courts will not view indirect purchasers as automatically ineligible for antitrust standing

In a rejection of Illinois Brick, the California Legislature a year later amended the Cartwright Act to make clear that indirect purchasers may be considered "persons injured," and thus be eligible for antitrust standing.¹⁴ The 1978 amendment is phrased as the rejection of a possible restriction: It adds language noting that a person may be deemed "injured" for purposes of the statute "regardless of whether such injured person dealt directly or indirectly with the defendant."¹⁵

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Dictating that an indirect purchaser is a "person injured," however, simply permits the antitrust standing analysis to proceed. Unlike a court applying federal law post-Illinois Brick, a court applying the Cartwright Act is not required—indeed, is not permitted—to end its inquiry upon ascertaining a plaintiff is an indirect purchaser. Instead, a court must consider whether that plaintiff has antitrust standing under a more rigorous analysis, taking into account more than just the plaintiff's level of privity with the defendant.¹⁶

3. The 1978 Cartwright Act amendment does not affirmatively grant standing to all indirect purchasers

While the 1978 amendment prevents Illinois Brick's blanket exclusion, it does not automatically grant all indirect purchasers standing.¹⁷ The California Supreme Court has recognized that the intent of the 1978 amendment was to ensure that the possibility of an indirect purchaser with license to enforce the antitrust laws remained on the table.¹⁸ Beyond that, it does not affect the antitrust standing analysis at all.

This is plain from both the language of the Cartwright Act overall and the language added by the 1978 amendment. First, nothing in the amended language is relevant to establishing antitrust injury under the Cartwright Act, except to clarify that being an indirect purchaser does not preclude antitrust injury.¹⁹ The California Court of Appeals recognized this same logic in a parallel context in Morrison v. Viacom, Inc.²⁰ In Morrison, the court recognized that California law establishing the plaintiffs' status as customers (rather than competitors) did not prevent them from proving antitrust injury, but nevertheless held that the plaintiffs had failed to do so:

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Appellants allege that the fact that they are not competitors of Viacom does not prevent them from establishing antitrust injury. Although we agree, appellants completely miss the point. Appellants failed to allege antitrust injury not because they are customers rather than competitors of Viacom, but because they have failed to allege any facts to show they suffered an injury which was caused by restraints on competition.²¹

Similarly, the fact that indirect purchasers are not prevented from proving antitrust injury or standing based on their indirect purchaser status does not change the need for them to establish antitrust injury in order to have antitrust standing.

Moreover, nothing in the 1978 amendment disturbs the "by reason of" proximate cause language already in the Cartwright Act.²² Indeed, the Illinois Brick dissent, on which the 1978 amendment is based,²³ acknowledges that its rejection of the majority's view does not affect the need to establish proximate cause limits on antitrust liability.^24,25 This becomes clear when one envisions a world but-for Illinois Brick: without the Illinois Brick decision, there is simply a lack of any special treatment — positive or negative — for indirect purchasers.

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Thus, the California Legislature's rejection of Illinois Brick, like the decision itself, does nothing to inform the "analytically distinct"²⁶ issue of what the outcome of an indirect purchaser standing analysis will be, except to allow that analysis to proceed.²⁷

C. AGC Provides a Framework for an Antitrust Standing Analysis that Does Not Rely on or Incorporate the Holding of Illinois Brick

Several years after Illinois Brick, the U.S. Supreme Court in AGC provided guidance on how courts should analyze whether an "injured person" has antitrust standing under the Clayton Act and set forth factors to be weighed.²⁸ These factors have since been summarized as: "(1) the nature of the plaintiff's alleged injury; that is, whether it was the type the antitrust laws were intended to forestall; (2) the directness of the injury; (3) the speculative measure of the harm; (4) the risk of duplicative recovery; and (5) the complexity in apportioning damages."²⁹ The first of these factors is the...