Petition — Shell Oil Co. v. Deukmejian

\

IN THE L_ MICHAEL RODAK, JR., CLERK

Supreme Court of the Wuited States

OCTOBER TERM, 1978

No. o8-11186

SHELL OIL COMPANY,

Petitioner,

Vv.

GEORGE DEUKMEJIAN , Attorney General,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT

OF APPEALS FOR THE NINTH CIRCUIT

WILLIAM SIMON

HARRY E. JENNINGS, JR.

MARK W. PENNAK

STEVEN SARFATTI

Attorneys for Petitioner

HowRreEY & SIMON

1730 Pennsylvania Avenue, N.W.

Washington, D.C. 20006

Of Counsel

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

» oe

es eee

TABLE OF CONTENTS

OPINIONS BELOW ...................-.--....

i i ccesttisoserenscececcsece

QUESTIONS PRESENTED .002222...eccceeccccccceeeteeeee cere

sg velee So 8 | ha

REASONS FOR GRANTING THE WRIT ......0.0.0.........

THE NINTH CIRCUIT ERRED IN READING

EXXON AS WITHOUT LIMITATION ............

A. Chapter 8 Is Fundamentally Anticompeti-

B.

a canscaccoces

Under the Supremacy Clause and Basic

Principles of Federalism, the Sherman Act

Must, At Some Point, Prevail Over Anticom-

petitive State Legislation 2.0.0... ........0..000000000...

. The Court of Appeals Erred in Uncritically

Failing to Construe the Parker v. Brown

Doctrine as a Limitation on Exwon ................

. The Court of Appeals Failed to Adhere to

California Law and Policy and Strike Down

Chapter 8 in Accordance with the Rice Case..

. The Court of Appeals Erred in Uncritically

Failing to Inquire Into the Degree of An-

tagonism Between the Sherman Act and

The Court of Appeals Erred in Uncritically

Applying the Language of Exxon Because

the California Statute Encompasses Price

Competition for Sales to the Same Customer,

Thereby Undermining the Policies of Section

2(b) of the Robinson-Patman Act ........ Seiiece

CONCLUSION .....................

12

14

17

19

20

21

ii

TABLE OF CITATIONS

CASES Page

Calvin vy. Rupp. 471 F.2d 1846 (8th Cir. 1973)... 19

Cadigan v. Texaco Inc., 492 F.2d 383 (9th Cir.

I a ae a ll

City of Lafayette v. Louisiana Power & Light Co.,

ee PEE ITED Anata nts cncashvnctticitenucbiousandiieicioness 16, 17

Commissioner Vv. Estate of Bosch, 387 U.S. 456

IIE b Gotiscihtn Tete ere eR a an 19

De Canas Vv. Bica, 424 U.S. 351 (1976) oo0. on. 13

Erie Railroad v. Tompkins, 304 U.S. 64 (1988)... 19

Exxon Corp. v. Governor of Maryland, —— U.S.

an, 98 B.Ct. SBO7 (1978) .............cccccccecccscsccccesess passim

FTC v. Standard Oil Co., 355 U.S. 396 (1958) ...... 20

FTC v. Sun Oil Co., 371 U.S. 505 (1968) 20000000... 21

Governor of Maryland v. Exxon Corp., 279 Md.

GB ee Bee Be COED eccrtcncchnitbatecccsetcarecesiicocs 12

Hines Vv. Davidowitz, 812 U.S. 52 (1941) oo... 13

Jones V. Rath Packing Co., 480 U.S. 519 (1977)... 13

McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316

RRA ERNE ae A eS Gi Rok Sa ED 12

Maternally Yours, Inc. v. Your Maternity Shop,

Inc., 234 F.2d 688 (2d Cir. 1956) 0.00.00... 19

New Motor Vehicle Board v. Orrin W. Fox Co.,

— US. ——, 47 U.S.L.W. 4017 (1978)..14, 15, 16, 19

Northern Pacific Railway Co. v. United States,

Sie. es, a 1

Parker v. Brown, 317 U.S. 341 (1948) ........ 4, 8, 15, 16,17

Perez v. Campbell, 402 U.S. 687 (1971) 000.000.0000... 13

Ray V. Atlantic Richfield Co., 485 U.S. 151 (1978).. 18, 19

Rice v. Alcoholic Beverage Control Appeals Board,

21 Cal.8d 431, 579 P.2d 476, 146 Cal. Rptr. 585

CRD OUE . cikmnccmiesincdbuninesseeasisstenhcikaviatacadeces 7, 15, 17, 18, 19

Rice v. Santa Fe Elevator Corp., 381 U.S. 218

COUNIIRD coccsscsdctacannntetcdtcinslieicsictne netimnaieniuescmels 13

Savage Vv. Jones, 225 U.S. 501 (1912) 20... 19

Schwegmann Bros. Vv. Calvert Distillers Corp., 341

Wiis SO EMUINIED. scriicasicettnaseneteuareiecacaciaanis: 14

iii

TABLE OF CITATIONS—Continued

Page

Sears, Roebuck & Co. v. Stiffel Co., 876 U.S. 225

ED stusietiedectsdsdunanssnsticanteteinidlgetcusninstinediabeiaenbniobenna 13

Standard Oil Co. v. FTC, 340 U.S. 281 (1951)...... 11, 20

Sunshine Biscuits, Inc. v. FTC, 806 F.2d 48 (7th

Re IE cocca bia nctaelcninesss CERT Ses ROR Ae at 11

Tarr v. Manchester Insurance Corp., 544 F.2d 14

Pi eke dei emineneaaiiiane 19

United States v. Little Lake Misere Land Co., 412

PT a cabencieteennenna 19

United States v. United States Gypsum Co., ——

U.S. ———, 98 S.Ct. 2864 (1978) ............200...000000+. 10,17

CONSTITUTION

United States Constitution

Supremacy Clause, Art. VI, Cl. 2 «0.0.0.0... passim

STATUTES

Federal Statutes

Clayton Act:

Section 2, as amended, 15 U.S.C. § 13

een eee | sc casnelessmietaie 4

Judicial Code:

, Bie Tie B Th a ee.) See eemnneonnneeeen 2

ee te I, CP OOD eiicicnsncnencensncensnaacacnenoanas 6

Miller-Tydings Act:

50 Stat. 698(19387), repealed, 89 Stat. 801

a a egahbineniiones 14

Robinson Patman Act:

Section 2(b), 12 U.S.C. § 18(b) (1976) .......... passim

Sherman Act:

Be rs WE Oe BU, CRUD cciescscccscsesesssscqeanecses passim

State Statutes

California Business and Professions Code:

Chapter 8, Division 8, §§ 21200-21203......passim

MISCELLANEOUS

The Federalist No. 44 (J. Madison) ........................ 12

IN THE

Supreme Court of the United States

OCTOBER TERM, 1978

No.

SHELL OIL COMPANY,

Petitioner,

Vv. :

EVELLE J. YOUNGER, Attorney General,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT

OF APPEALS FOR THE NINTH CIRCUIT

Petitioner Shell Oil Company (“Shell”) hereby prays

that a writ of certiorari issue to review the judgment of

the United States Court of Appeals for the Ninth Cir-

cuit filed November 28, 1978. The fundamental issue in

this case is whether the Supremacy Clause continues to

place any restraint on the states in their enactment of

legislation which is egregiously anticompetitive and in

conflict with the Congressional purposes underlying en-

actment of the Sherman Act—this Nation’s “compre-

hensive charter of economic liberty,” Northern Pacific

Railway Co. v. United States, 356 U.S. 1, 4 (1958)—and

with Section 2(b) of the RobinsomsPatman Act. The

2

focal point of the petition is the extent and breadth of

that section of this Court’s decision in Exxon Corp. V.

Governor of Maryland, —— U.S. ——, 98 S.Ct. 2207,

2215-18 (1978), which addressed those two federal acts

—the sole authority relied upon by the Court of Appeals.

At issue here, however, is a competitive situation where

there is price competition for sales to the same purchaser,

a situation which was not decided by Exxon, Id. at 2215

n.19.

OPINIONS BELOW

The Order of the District Court for the Northern Dis-

trict of California granting summary judgment for plain-

tiff Shell Oil Company is reported at 1976-1 Trade Cas.

| 60,960 (N.D. Cal. 1976), and is reproduced in the ac-

companying Appendix at la. The per curiam Opinion of

the Court of Appeals for the Ninth Circuit reversing the

judgment of the District Court is not yet reported, but

is reproduced in the accompanying Appendix at 6a.

JURISDICTION

The judgment of the Court of Appeals for the Ninth

Circuit was entered November 28, 1978. Upon motion by

Shell, the Court of Appeals entered an Order on Decem-

ber 20, 1978, staying its mandate to permit Shell to file

a petition for a writ of certiorari with this Court on or

before January 15, 1979. This Order is reproduced in the

accompanying Appendix at lla. The jurisdiction of the

Court is invoked pursuant to 28 U.S.C. § 1254(1)

(1976).

QUESTIONS PRESENTED

Whether There Are Any Principled Limits on the

Power of a State Legislature to Directly Regulate

Competition Qua Competition by Placing Strict Limi-

tations on Pricing Conduct, Which Limitations Pro-

duce Anticompetitive Effects.

A. Whether the Court of Appeals Erred in Un-

critically Applying the Broad Language of the

Exxon Decision Regarding the Purposes of the

Sherman Act and Not Limiting That Decision by

the Principles of the State Action Doctrine of

Parker v. Brown.

B. Whether the Court of Appeals Erred in Refusing

to Apply State Law and State Policy as Ex-

pressed in a Very Recent Decision of the Cali-

fornia Supreme Court that Adopted the Policy

of the Sherman Act as the Policy of California.

C. Whether the Court of Appeals Erred in Un-

critically Applying the Broad Language of the

Exxon Decision Without Conducting an Inquiry

into the Degree of Antagonism Between the Pur-

poses of the Sherman Act and the Effects of the

California Statute.

D. Whether the Court of Appeals Erred in Un-

critically Applying the Broad Language of the

Exxon Decision When the California Statute

Encompassed the Competitive Situation of Sales

to the Same Customer—a Situation that Was Not

Addressed or Decided in Exxon,

STATUTES INVOLVED

The following statutes are involved in this petition for

certiorari:

(1) California Assembly Bill 950, codified as

Chapter 8, Division 8, of the California Busi-

ness and Professions Code, §§ 21200-21203, re-

produced in the accompanying Appendix at 12a;

(2) The Sherman Act, 15 U.S.C. $1 et seg. (1976),

reproduced in the accompanying Appendix at

14a;

4

(3) Section 2 of the Clayton Act, as amended by

Section 2 of the Robinson-Patman Act, 15

U.S.C. §13 (1976), reproduced in the accom-

panying Appendix at 15a.

STATEMENT

A. Nature of the Question Presented

In its essence, this petition presents the question wheth-

er the Supremacy Clause, and the Sherman Act and

Section 2(b) of the Robinson-Patman Act, continue to

place any restraint on the states in the enactment of

legislation that directly restrains competition, as competi-

tion, and imposes severe restraints on pricing conduct.

Specifically, the petition seeks an adjudication whether

the California legislature, through Chapter 8, Division 8

of the California Business and Professions Code (here-

inafter “Chapter 8” or “California statute”), may pro-

hibit free and open price competition in the sale of motor

vehicle fuels in a manner which conflicts with the pur-

poses of the Sherman Act, as well as with Section 2(b)

of the Robinson-Patman Act, but which does not satisfy

the exemption requirements of the state-action doctrine

of Parker v. Brown, 317 U.S. 341 (1943). Shell respect-

fully suggests that the Court of Appeals erred in un-

critically applying the broad language in Exxon v. Gov-

ernor of Maryland, 98 S.Ct. at 2217-18, to uphold a

California statute regardless of the severity of the anti-

competitive consequences it will create.

B. The California Statute

The operative section of Chapter 8 is Section 21200,

which provides in part that it is unlawful for any seller,

including interstate sellers, of motor vehicle fuels or oils

engaged in business in California to discriminate in

price between different purchasers where the effect of

such discrimination is to lessen competition, or to injure,

destroy, or prevent competition, and:

Upon proof being made, at any hearing on a com-

plaint under this section, that there has been such

discrimination in price, the burden of rebutting the

prima facie case thus made by showing justification

shall be upon the person charged with a violation of

this section. Nothing herein contained shall prevent

a seller rebutting the prima facie case thus made by

showing that his lower price to any purchaser or

purchasers was made in good faith to meet an equal-

ly low price of a competitor and was also offered to

any other of his purchasers in competition with the

purchaser or purchasers receiving such lower price.

App. at 12a (emphasis supplied).

With the exception of the emphasized portions above,

Section 21200 of Chapter 8 roughly follows the language

of Section 2(b) of the Robinson-Patman Act. The critical

difference is that unlike the Robinson-Patman Act, which

permits a seller to limit the grant of a lower price to a

customer who has received an equally lower price offer

from the seller’s competitor, Chapter 8 eliminates that

procompetitive conduct entirely by requiring that the

seller offer the same lower price to every other purchaser

“in competition with the purchaser or purchasers receiv-

ing such lower price,” id., in which case there is no

longer any second line discrimination. Thus, if a seller

wishes to meet a competitor’s offer of a lower price to any

existing or potential customer, then the seller must also

offer that same lower price to all other customers who,

in any manner, compete with such existing or potential

customers. This requirement is not restricted to any

particular type of customer such as service station deal-

ers who resell to the motoring public, but includes jobbers

6

or wholesalers, and commercial, agricultural and indus-

trial customers which consume the motor fuel in the

normal operation of their businesses. The California

statute regulates pricing to every class of business entity

in California’s industrial society to which Shell sells

gasoline and diesel fuel for any purpose.

C. Proceedings Below

Shell commenced this lawsuit on December 17, 1975,

by filing a complaint against Evelle J. Younger, Attorney

General of California, seeking a declaration that on its

face Chapter 8 was in conflict with the Robinson-Patman

Act and thus was void under the Supremacy Clause. The

complaint alleged, inter alia, that Chapter 8 effectively

destroyed price competition in the sale and distribution

of motor fuel in California by destroying price flexibility.

The jurisdiction of the District Court was founded on

28 U.S.C. § 1331 (1976).

On June 11, 1976, after extensive discovery by re-

spondent, the District Court, per the Honorable Lloyd H.

Burke, granted Shell’s motion for summary judgment

holding that “Chapter 8 of Division 8 frustrates the Con-

gressional purpose embodied in Section 2(b) of the

Robinson-Patman Act ... to foster and encourage price

competition.” App. at 2a. Respondent Younger filed an

appeal to the Ninth Circuit where the case was briefed,

argued, and submitted for decision in June 1977. Sub-

sequently, in October of 1977, this Court noted probable

jurisdiction over the appeals of Shell and other oil com-

panies in Exxon v. Governor of Maryland. In an Order

entered December 27, 1977, the Court of Appeals vacated

the submission of Younger’s appeal pending a decision in

Exxon. App. at 5a.

After this Court’s decision in Exxon, the Court of Ap-

peals granted Shell’s motion for leave to file supple-

mental briefs. While not abandoning its contention that

7

the California statute was in conflict with the Robinson-

Patman Act, Shell also urged in supplemental briefs that

the anticompetitive effects of Chapter 8 brought the Cali-

fornia statute into direct conflict with the Sherman Act.

In a decision entered November 28, 1978, the Ninth

Circuit rejected Shell’s contentions and, relying solely on

Exxon, held that the California statute could not conflict

with Section 2(b) of the Robinson-Patman Act. The

Court of Appeals further uncritically applied this Court’s

language in Exxon, 98 S.Ct. at 2218, and held that under

Exxon’s sweeping language the anticompetitive effects of

Chapter 8 were not sufficient to void it. The Court of

Appeals reasoned that even assuming that the anti-

competitive effects of Chapter 8 are greater than those

created by the Maryland statute in Exxon, “this differ-

ence in the degree of impact on competition does not

support an inference of preemption where none was war-

ranted in Exxon.” App. at 9a. The Court of Appeals

relied on no other authority.

The Court of Appeals also rejected the California

Supreme Court’s reasoning in Rice v. Alcoholic Beverage

Control Appeals Board, 21 Cal.3d 431, 579 P.2d 476, 146

Cal. Rptr. 585 (1978), which decision had applied the

policies of the Sherman Act to strike down a similarly

anticompetitive California statute.

REASONS FOR GRANTING THE WRIT

THE NINTH CIRCUIT ERRED IN READING EXXON

AS WITHOUT LIMITATION.

The heart of this case is whether a state may regulate

competition so as to create manifest anticompetitive re-

sults without regard to the policies and purposes of

Congress as expressed in the Sherman Act. The question

is whether the Supremacy Clause and the Sherman Act

draw a logical and principled line across which a state

may not go, except within the orbit of the state-action

8

doctrine of Parker v. Brown. As the decision of the

Court of Appeals makes clear, no such line is apparent in

current doctrine as expressed in Eawxon, Exxon has

created a vast wilderness of legal uncertainty by failing

to provide an analytical framework for the lower courts

to apply in judging the constitutionality of anticompeti-

tive state legislation. This uncertainty must be resolved

if California consumers are to be spared the anticompeti-

tive effects of Chapter 8 and if the lower courts are to be

expected to reach well-reasoned decisions in future cases

which, in view of the proliferation of state statutes akin

to Chapter 8,' will inevitably arise.

A. Chapter 8 Is Fundamentally Anticompetitive.

California’s Chapter 8 is the result of an intentional

decision of the California legislature to regulate competi-

tion in the interstate and intrastate sale and distribution

of motor vehicle fuels in California, The stated purpose

of the statute is that “{c]ompetition” requires the pro-

hibition of “unreasonable discriminatory practices” so as

to promote “the fair and efficient functioning of a free

market economy.” App. at 18a-l14a, Chapter 8 is thus

not a statute where the effects on competition are merely

incidental to legislation designed to achieve some other

regulatory purpose to promote the health or safety of its

citizens, Chapter 8 goes straight to the heart of our eco-

nomic system by directly regulating pricing conduct.

The effect of Chapter 8 is that price competition for

the business of one purchaser is prohibited unless the

seller is willing to bear the financial loss associated with

granting the same lower price to all other competing cus-

tomers. A seller is thus forced to make the “ruinous

choice” between (1) not meeting the competition for a

particular customer’s business and consequently risking

1 See Exvon, 98 S.Ct, at 2215 n,18.

9

the loss of that business, or (2) meeting the competitor’s

lower price, but sacrificing revenues by lowering his price

to each competing customer,

California exacerbates this ‘ruinous choice” even fur-

ther. Section 21200 of Chapter 8 goes on, in plain lan-

guage, to require that before a seller has a defense he

must prove that “his lower price to any purchaser or

purchasers . . . was also offered to any other of his pur-

chasers in competition with the purchaser or purchasers

receiving such lower price.” App. at 12a (emphasis sup-

plied). Thus, to comply with the statute, the same price

reduction must be granted not only to those customers

immediately competing with the customer who received

the lower price offer from the seller’s competitor, but as

well to all other, more removed customers who compete

with the immediately competing customers. Because these

more removed customers, in turn, may compete with

still other further removed customers, a seller such as

Shell would have to grant the same lower price to the

next group of competing customers, and so on, and on.

Chapter 8 thus creates a “ripple effect” of price reduc-

tions in a competitive continuum extending throughout

the entirety of every populated area of California, in

ever-expanding radii from the initial price activity. More-

over, because of the elaborate and modern highway sys-

tem in California and particularly along the coastal

megalopolis, and because Shell’s customers are located

and operate throughout, in rural as well as urban areas,

Jameson Aff’d {| 2, the competitive continuum could easily

ripple into every corner of the state, particularly from

border to border along the coastal population band. In

fact, the statute simply prohibits price discrimination

between competing customers.’

* Except in those instances where different costs of manufacture,

marketing, transportation, sale or delivery justify the discrimi-

nation,

10

The practical effect of Chapter 8 is twofold. First,

sellers will no longer have an economic inducement to

grant price reductions to keep existing customers or to

gain new customers because no seller will engage in price

competition for the business of one customer at the cost

of a widespread price reduction to many customers. The

record is uncontradicted that large industrial, agricul-

tural and commercial bulk customers as a matter of

course switch gasoline suppliers on a regular basis to

obtain the lowest available price for the gasoline they

purchase, The existing price competition for sales to

these customers is intense. In the face of this competi-

tion, “to retain that customer’s business and to avoid

losing it to Shell’s competitor who has offered a lower

price,” Jameson Aff’d { 8, Shell will have to meet the

lower price.

Chapter 8 is exactly the type of situation perceived by

Mr. Justice Powell, concurring in United States v. United

States Gypsum Co,, —— U.S, ——, 98 S.Ct. 2864, 2890

(1978), where he recognized that unless sellers are per-

mitted to respond to individual competitive situations,

sellers sometimes would face the unenviable choice

of reducing prices to one buyer and risking Robinson-

Patman Act liability, refusing to do so and losing

the sale, or reducing prices to all buyers.

A prudent businessman faced with this choice often

would forego the price reduction altogether. This

reaction would disserve the procompetitive policy of

the Sherman Act without advancing materially the

antidiscrimination policy of the Robinson-Patman

Act. (Emphasis supplied).

Chapter 8’s first anticompetitive effect thus is to stabilize

motor fuel prices at artifically high levels by removing

the basic economic incentive to engage in price com-

petition.

11

The second anticompetitive effect is that Chapter 8

effectively mandates horizontal allocation of customers

among sellers and raises significant barriers to entry at

customer levels. For example, no supplier would grant a

lower price to meet competition for a potential customer

new to the business or for an existing customer of another

supplier, because the supplier would then be forced to

grant the same lower price to every one of his existing

customers which happened to compete with the new cus-

tomer.’ Thus, no purchaser from any supplier could hope

to use the competitive forces of the marketplace to obtain

a price concession because a supplier would measure the

cost of that concession, not in terms of revenues lost from

that particular purchaser, but as well in terms of the cost

of granting the same price concession to every other com-

peting customer. Each supplier thus becomes locked into

supplying solely his own customers, with no incentive to

seek out other customers if price competition would be

necessary to obtain their business. The California statute

thus would mandate precisely the same allocation of cus-

tomers that would result from an express agreement

among suppliers.

The anticompetitive effects of the California statute

will be far more comprehensive in scope than the effects

created by the Maryland statute adjudicated in Exxon.

The Maryland statute presented no possibility of the

de facto customer allocation and barriers to customer

entry wrought here because it did not address the situa-

tion where suppliers compete for sales to the same cus-

tomers ‘—precisely the situation adjudicated in Standard

Oil Co. v. FTC, 340 U.S. 281 (1951), where this Court

‘In Cadigan v. Texaco Ine., 492 F.2d 383, 387 (9th Cir. 1974),

the Ninth Circuit held that a discriminatory price so as to meet

competition for new customers is protected by Section 2(b) of the

Robinson-Patman Act. See also Sunshine Biscuits, Inc. v. FTC, 306

F.2d 48, 52 (7th Cir, 1962).

* Exxon, 98 S.Ct. at 2215 n.19.

12

held that the procompetitive purposes of the Sherman

Act required that Section 2(b) be construed to provide

an absolute defense to any charge of price discrimination.

Id, at 249-51. Moreover, the scope of the Maryland

statute was restricted to temporary voluntary competitive

allowances granted to retail service station dealers, while

the California statute encompasses and effectively pro-

hibits all price reductions, for extended as well as tem-

porary duration, to all types and classes of gasoline re-

sellers and commercial customers, not just service station

dealers.°

B. Under the Supremacy Clause and Basic Principles of

Federalism, the Sherman Act Must, at Some Point,

Prevail Over Anticompetitive State Legislation.

Since 1787, the Supremacy Clause has been the key-

stone of American federalism through which the sovereign

powers of the federal and state governments have been

apportioned. James Madison, writing in The Federalist

Papers, spoke of the Supremacy Clause as a fundamental

principle of government, stating that, without it,

. . . the world would have seen, for the first time, a

system of government founded on an inversion of the

fundamental principles of all government; it would

have seen the authority of the whole society every-

where subordinate to the authority of the part; it

would have seen a monster, in which the head was

under the direction of the members. The Federal-

ist, No. 44 (J. Madison) at 287 (New American

Library ed. 1961) (emphasis supplied).

Since the seminal decision in McCulloch v. Maryland,

17 U.S. (4 Wheat.) 316, 482 (1819), this Court has

evolved a multi-part analysis to be applied in all Suprem-

°The Maryland Court of Appeals construed the statutory term

“voluntary allowances” to mean temporary price reductions in the

wholesale price of gasoline to a retail dealer. 279 Md. 410, 447, 370

A.2d 1102 (1977).

13

acy Clause cases. First, a state law must fall where

Congress has decided to “occupy the field” to the exclu-

sion of any state regulation “even if [the exercise of state

authority is] harmonious” with federal law. De Canas

v. Bica, 424 U.S. 351, 359 n.7 (1976). That is not Shell’s

argument. On the other hand, where the state law

“stands as an obstacle to the accomplishment and execu-

tion of the full purposes and objectives of Congress,”

Hines v. Davidowitz, 312 U.S. 52, 67 (1941); see also

Ray v. Atlantic Richfield Co., 485 U.S. 151, 165 (1978) ;

Jones V. Rath Packing Co., 480 U.S. 519, 525-26 (1977),

or where “state legislation . . . frustrates the full effec-

tiveness of federal law,” Perez v. Campbell, 402 U.S. 637,

652 (1971), or if “the federal policy ‘[is] set at naught,

or its benefits denied’ by state law,” Sears, Roebuck &

Co. v. Stiffel Co., 376 U.S. 225, 229 (1964), the state act

is void. The state law cannot stand where it “produce(s]

a result inconsistent with the objectives of the federal

statute.” Rice v. Santa Fe Elevator Corp., 331 U.S. 218,

230 (1947) (emphasis supplied).

In Exxon, this Court acknowledged that the Maryland

statute would have an anticompetitive effect. The Court

thus admitted that “[i]n this sense, there is a conflict

between the statute and the central policy of the Sherman

Act—our ‘charter of economic liberty,’ 98 S.Ct. at 2218

(citation omitted), but continued:

Nevertheless, this sort of conflict cannot itself consti-

tute a sufficient reason for invalidating the Maryland

statute. For if an adverse effect on competition

were, in and of itself, enough to render a state

statute invalid, the States’ power to engage in eco-

nomic regulation would be effectively destroyed. Id.

Taken literally, as the Court of Appeals did, that broad

language is susceptible to an interpretation that even the

most severe anticompetitive effects of a state statute may

never constitute the basis for a conflict with the Sherman

Act under the Supremacy Clause.

14

This Court’s earlier decision in Schwegmann Bros. V.

Caivert Distillers Corp., 341 U.S. 384 (1951), stands for

the proposition that the Supremacy Clause is not a dead

letter. There, this Court declared invalid a “non-signer”

provision in Louisiana law. Mr. Justice Douglas, writing

for this Court, unequivocally held that the Louisiana

statute was invalid and unenforceable because it went

beyond the bounds of the Miller-Tydings Act, 50 Stat. 693

(19387), repealed, 89 Stat. 801 (1075): “when a state

compels retailers to follow a parallel price policy, it de-

mands private conduct which the Sherman Act forbids,”

341 U.S. at 389; to interpret the Miller-Tydings Act to

permit such anticompetitive state legislation “would have

a vast and devastating effect on Sherman Act policies.”

Id. (emphasis supplied).

The conflict with “Sherman Act policies” mandated by

California’s Chapter 8 is, in principle, indistinguishable

from the conflict with “Sherman Act policies” adjudicated

in Schwegmann. As in Schwegmann, the California stat-

ute would stabilize prices and, by making it economically

prohibitive to engage in price competition, would establish

a price floor for motor fuels. Further, like the Louisiana

statute, Chapter 8 results from a state legislature’s deci-

sion to control and regulate competition as such.

C. The Court of Appeals Erred in Uncritically Failing to

Construe the Parker vy. Brown Doctrine as a Limita-

tion on Exxon.

The nature of the limits on state legislatures in their

efforts to directly regulate competition is illustrated by

this Court’s very recent decision in New Motor Vehicle

Board v. Orrin W. Fox Co., —— U.S. ——, 47 U.S.L.W.

4017 (U.S. December 5, 1978), rendered after the deci-

sion by the Court of Appeals in this case. At issue in

New Motor was the constitutionality of the California

Automobile Franchise Act. The stated purpose of the Act

was to protect existing franchisees from new franchisees

15

“where the effect of such intrabrand competition would

be injurious to the existing franchisees and to the public

interest,” 47 U.S.L.W. at 4019—a direct regulation of

competition qua competition.

The statute was challenged on the ground, inter alia,

that it was in conflict with the Sherman Act and thus

invalid under the principles of Schwegman. Holding

that the California Act was not in conflict with the Sher-

man Act because it constituted a valid exercise of the

state’s power under the state-action doctrine of Parker v.

Brown, the California statute was upheld:

The dispositive answer is that the Act’s regulatory

scheme is a system of regulation, clearly articulated

and affirmatively expressed, designed to displace un-

fettered business freedom in the matter of the estab-

lishment and relocation of automobile dealerships.

The regulation is therefore outside the reach of the

antitrust laws under the ‘state action’ exemption.

Parker v. Brown, 317 U.S. 341 (1943); Bates v.

State Bar of Arizona, 433 U.S. 350 (1977). See also

City of Lafayette v. Louisiana Power & Light Co.,

—US. (1978).

47 U.S.L.W. at 4021. This Court also stressed that the

anticompetitive restraint created by the California Act

was limited in nature and “(t]he duration of interim

restraint is subject to ongoing regulatory supervision.”

Id, (emphasis supplied).

The analysis of New Motor represents an appropriate

limitation on the boundless language of Exxon where a

state legislature is attempting to directly regulate com-

petition qua competition. Indeed, it was precisely this

approach which the California Supreme Court recently

adopted in Rice v. Alcoholic Beverage Control Appeals

Board, 21 Cal.3d 431, 579 P.2d 476, 146 Cal. Rptr. 585

(1978), discussed infra. Both New Motor and Rice pro-

ceed in their analyses upon the proposition that when

16

a state undertakes to directly regulate competition as

such, it must respect the procompetitive policies of the

Sherman Act unless the state is prepared to enact a

“clearly articulated and affirmatively expressed” system

of regulation which fully satisfies the requirements of the

state-action doctrine.

Such a rule would have many benefits. First, utiliza-

tion of the Parker v. Brown doctrine would create a con-

ceptual “bright line’ which the lower courts could apply

in a reasoned and consistent fashion. Under the broad

and sweeping language of Exxon, this is not possible.

Second, and more importantly, the use of the state-

action doctrine as the governing standard would fully

preserve the objectives of the Sherman Act, as well as

the principles underlying the Supremacy Clause, while

at the same time protecting the right of the state to

engage in economic regulation. As expressed last term

in City of Lafayette v. Louisiana Power & Light Co., 435

U.S. 389 (1978), the state-action doctrine constitutes an

“implied exclusion” from the Sherman Act in that the

Congress did not intend the antitrust laws to encompass a

state’s anticompetitive conduct. 435 U.S. at 398-99. Un-

less the state’s regulatory scheme satisfies the require-

ments of the Parker doctrine, it should not be permitted

to interfere with the “regime of competition’ which the

Sherman Act established “as the fundamental principle

governing commerce in this country.” Lafayette, 435

US. at 398.

California’s Chapter 8 does not satisfy the require-

ments of the Parker doctrine. One of the most important

requirements is that the anticompetitive effects of the

state statute be “subject to ongoing regulatory super-

vision.” New Motor, 47 U.S.L.W. at 4021. The anti-

competitive effects of Chapter 8 are not in any manner

so controlled. Furthermore, enforcement of Chapter 8

17

would neither further nor even be consistent with any

other federal legislative purpose. See Parker v. Brown,

317 U.S. at 352-59. As this Court noted in Lafayette,

“(t]he State regulatory program involved in Parker

furthered an important state interest which was con-

sistent with federal policy.” Lafayette, 435 U.S. at 409

n.39. As perceived by Mr. Justice Powell, concurring in

Gypsum, the imposition of the ruinous choice required

by the California statute “would disserve the procompeti-

tive policy of the Sherman Act without advancing ma-

terially the antidiscrimination policy of the Robinson-

Patman Act.” United States Gypsum Co., 98 S.Ct. at

2890.

D. The Court of Appeals Failed to Adhere to California

Law and Policy and Strike Down Chapter 8 in Ac-

ance with the Rice Case.

The governmentally-imposed price uniformity that

would result from enforcement of Chapter 8 is no dif-

ferent in its effects from a state-sanctioned and man-

dated price-fixing scheme. As such, California’s Chapter

8, under the unequivocal state law and policy set forth

by the California Supreme Court in Rice v. Alcoholic

Beverage Control Appeals Board, 21 Cal.8d 431, 579

P.2d 476, 146 Cal. Rptr. 585 (1978),° deprives California

citizens of the benefits of price competition and con-

travenes the fundamental purposes of the Sherman Act.

The California Supreme Court’s unanimous decision in

Rice struck down Section 24755 of the California Busi-

ness and Professions Code which required manufacturers

of alcoholic beverages to file minimum price schedules for

distilled spirits and prohibited retail licensees from selling

liquor at less than the prescribed prices, notwithstanding

*The Rice decision was not handed down until May 30, 1978,

almost a year after oral argument was had before the Court of

Appeals.

13°

the provisions of the Twenty-First Amendment which ex-

pressly authorize the states to regulate trade in alcoholic

beverages. The court held that such uniform price re-

strictions conflict with the California public interest in

free competition and with the policies of the Sherman Act.

In Rice and under Chapter 8, price uniformity pur-

suant to a legislatively-commanded state policy is directed

by state statute. In both, the California statute effectively

“compels private persons to engage in anti-competitive

conduct.” 21 Cal.3d at 444, 579 P.2d at 485, 146 Cal.

Rptr. at 594. In both, adherence to the California statute

impacts through the reseller chain on direct sales to con-

sumers of products for which prices are fixed in accord-

ance with state policy. The anticompetitive effects flow-

ing from California’s Chapter 8 are congruent with the

anticompetitive effects condemned in Rice.

Justice Stanley Mosk, speaking for a unanimous

Supreme Court of California, in order to further the

California public interest in free competition, set forth

and adopted as the law of California “the policy under-

lying the Sherman Act”:

That policy was cogently described by Justice Black

in Northern Pacific Railway Co. v. United States

(1958) 356 U.S. 1, 4-5, 78 S.Ct. 514, 517, 2 L.Ed.2d

545: ‘The Sherman Act was designed to be a com-

prehensive charter of economic liberty aimed at pre-

serving free and unfettered competition as the rule

of trade. It rests on the premise that the unre-

strained interaction of competitive forces will yield

the best allocation of our economic resources, the

lowest prices, the highest quality and the greatest

material progress, while at the same time providing

an environment conducive to the preservation of our

democratic political and social institutions. But even

were that premise open to question, the policy un-

equivocally laid down by the Act is competition... .’

21 Cal.3d at 453, 579 P.2d at 491, 146 Cal. Rptr. at 600.

Fe ee ee

19

Once presented with the decision of the California

Supreme Court in the Rice case which had analyzed and

struck down a comparable anticompetitive California

statute, application of the rule in Rice became obligatory

for the Court of Appeals. Erie Railroad Co. v. Tompkins,

304 U.S. 64, 78 (1938); Commissioner vy. Estate of

Bosch, 387 U.S. 456, 461 (1967) ; United States v. Little

Lake Misere Land Co., 412 U.S. 580, 591 (1973); Tarr v.

Manchester Insurance Corp., 544 F.2d 14, 15 (1st Cir.

1976); Calvin v. Rupp, 471 F.2d 1346, 1349 n.2 (8th

Cir. 1973); Maternally Yours v. Your Maternity Shop,

Inc., 234 F.2d 538, 540 n.1 (2d Cir. 1956). The Court of

Appeals erred in failing to adhere to the California

Supreme Court’s rule laid down in Rice and in not strik-

ing down Chapter 8,

E. The Court of Appeals Erred in Uncritically Failing to

Inquire Into the Degree of Antagonism Between the

Sherman Act and Chapter 8.

If application of the Parker doctrine is not appro-

priate, there is a second principle that should limit the

reach of the expansive language in the Exxon decision.

As Mr. Justice Hughes stated in Savage v.’ Jones, 225

U.S. 501, 583 (1912), and as this Court has consistently

proceeded in its analysis ever since, see, e.g., Ray V.

Atlantic Richfield Co., supra, 435 U.S, at 157-58, the

Supremacy Clause requires a careful analysis and con-

sideration of the purposes intended by the federal statute,

together with the practical effects of the challenged state

statute. The inquiry is necessary to determine the sever-

ity of the antagonism between the two statutes and the

necessity for removing the obstacle that interferes with

the accomplishment of the overriding federal objectives.

Application of this principle was evident in Exxon and

was quite clearly developed in the recent New Motor

decision. Nevertheless, in its per curiam opinion, the

Court of Appeals uncritically rejected any such inquiry

20

and relied solely upon the broad language of Exxon for

its authority. Indeed, the Court of Appeals stated that a

“difference in the degree of impact on competition does

not support an inference of preemption where none was

warranted in Exxon.” App. at 9a, Chapter 8 is a much

more egregiously anticompetitive statute than the Mary-

land Act. This departure from traditional Supremacy

Clause analysis was erroneous.

F. The Court of Appeals Erred in Uncritically Applying

the Language of Exxon Because the California Stat-

ute Encompasses Price Competition for Sales to the

Same Customer, Thereby Undermining the Policies of

Section 2(b) of the Robinson-Patman Act.

In the decision in Exxon, this Court specifically left

open the fact situation where “a discriminatory price

reduction [is] made to meet an equally low price offered

to the same buyer by a competing seller. In the lower

court’s view, this situation clearly fell within the § 2(b)

defenses, but was not encompassed by the term ‘voluntary

allowances.’” 98 S.Ct. at 2215 n.19 (citation omitted).

California’s Chapter 8 squarely presents this fact situa-

tion that was left open in the Maryland litigation.

This Court’s earlier decision in Standard Oil Co. v.

FTC, 340 U.S. 231 (1951), directly adjudicated this type

of competitive situation. There, Standard had seven cus-

tomers in the Detroit area who purchased and resold both

as jobbers and as retailers. Standard lost three of these

customers to competitors because it refused to meet the

lower prices the competing suppliers made to them.

Thereafter, Standard lowered its price to the four re-

maining customers in differing amounts to meet in good

faith, either in whole or in part, the lower price offers

from the competing suppliers. This Court held in Stand-

ard Oil and its progeny, FTC v. Standard Oil Co., 355

—= =a

21

U.S. 396, 402-04 (1958), that under Section 2(b) of the

Robinson-Patman Act Standard was entitled to defend

itself competitively and meet its competition on an individ-

ualized customer-by-customer basis, regardless of the com-

petitive impact. 340 U.S. at 250-51; see also FTC Vv.

Sun Ot Co., 371 U.S. 505, 514 (1968). California’s

Chapter 8 obliterates that individualized defense. In the

process, it also brings the certainty of price rigidity and

the nullification of competition in gasoline marketing to

California consumers. This state statute attempts to

directly regulate the situation adjudicated in Standard

Oil; it must fall pursuant to the dictates of the

Supremacy Clause.

CONCLUSION

For all the foregoing reasons, the petition for a writ of

certiorari should be granted.

Respectfully submitted,

WILLIAM SIMON

HARRY E. JENNINGS, JR.

MARK W. PENNAK

STEVEN SARFATTI

Attorneys for Petitioner

Howrey & SIMON

1730 Pennsylvania Avenue, N.W.

Washington, D.C. 20006

Of Counsel

Dated: January 15, 1979

APPENDIX

TABLE OF CONTENTS

Order of the United States District Court For The

Northern District of California (June 11, 1976) ......

Order of the United States Court of Appeals For The

Ninth Circuit (December 27, 1977) .0....000.00000cce.

Opinion of the United States Court Of Appeals For The

Ninth Circuit (November 28, 1978) 2000000000000...

Order of the United States Court of Appeals For The

Ninth Circuit Staying Issuance Of Mandate (Decem-

Cee an cnececseveccccsccscees

The California Statute: Assembly Bill 950, Chapter

8, Division 8, California Business and Professions

aan enccdendbconececvoccccccces

The Sherman Act, as amended, 15 U.S.C. §§$1, 2, 3

aera... cevcccncccccccococe

The Robinson-Patman Act, 15 U.S.C. § 18 (1976) ........

Page

la

5a

6a

lla

la

THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

C-75 2691 LHB

SHELL OIL COMPANY,

Plaintiff,

vs.

EVELLE J. YOUNGER,

Attorney General of the State of California,

Defendant.

[Filed June 11, 1976]

ORDER

This cause came on to be heard by this Court upon:

1. Defendant’s Motion to Dismiss for Lack of Subject

Matter Jurisdiction Because of a Lack of a Justiciable

Controversy and the Non-Joinder of Interested Parties,

and Motion to Dismiss or in the Alternative Stay This

Action on Abstention Grounds;

2. Defendant’s Notice of Three-Judge District Court

Requirement; and

8. Plaintiff Shell Oil Company’s Motion for Summary

Judgment.

Having considered the affidavits and memoranda of

points and authorities submitted in support of and in

opposition to these three motions, having considered the

pleadings and other papers on file, having heard the oral

2a

argument of counsel, and being fully advised herein, the

Court hereby finds and decrees that:

1. Defendant’s motion to dismiss, or to stay, is denied

in all respects. This action presents a justiciable con-

troversy. None of the other grounds urged by defendant

in support of the motion to dismiss or to stay is valid.

2. This Court possesses the jurisdiction to deny de-

fendant’s motion to dismiss, or stay, and to decide Shell’s

motion for summary judgment, and the convening of a

three-judge court is not required. The Court declares,

and the parties have agreed in open court, that Section

2281 of the Judicial Code, 28 U.S.C. § 2281, is inappli-

cable to the resolution of constitutional questions arising

solely under the Supremacy Clause of the United States

Constitution and Shell’s motion for summary judgment

arises solely under the Supremacy Clause.

8. Chapter 8, Division 8 of the California Business

and Professions Code (California Assembly Bill No. 950,

enacted by the California Legislature in its 1975 session,

signed into law on September 22, 1975 and effective

January 1, 1976) is in irreconcilable conflict with the

Federal Clayton Act, as amended by the Robinson-

Patman Act, 15 U.S.C. §13(a), et seq. and under the

Supremacy Clause of the United States Constitution

must be, and hereby is, declared to be unconstitutional,

illegal, invalid and of no force and effect. Chapter 8

of Division 8 frustrates the Congressional purpose em-

bodied in Section 2(b) of the Robinson-Patman Act, 15

U.S.C. $13(b), to foster and encourage price competi-

tion. Moreover, the California statute is in direct, ac-

tual conflict with the Federal Act.

There is no genuine issue of material fact relative to

Shell’s motion for summary judgment and plaintiff Shell

is entitled to judgment as a matter of law.

—— Le

NOW, THEREFORE, IT IS HEREBY ORDERED

THAT:

1. Defendant’s Motion to Dismiss for Lack of Subject

Matter Jurisdiction Because of a Lack of Justiciable

Controversy and the Non-Joinder of Interested Parties,

and Motion to Dismiss or in the Alternative Stay This

Action on Abstention Grounds is denied in all respects.

2. This Court possesses the jurisdiction to deny de-

fendant’s motion to dismiss, or to stay, and to decide

Shell’s summary judgment motion. The convening of a

three-judge court is not necessary. Section 2281 of the

Judicial Code, 28 U.S.C, § 2281, is inapplicable since

Shell’s motion for summary judgment involves solely a

claim of unconstitutionality under the Supremacy Clause

of the United States Constitution.

8. Plaintiff Shell Oil Company’s Motion for Summary

Judgment is hereby granted on the grounds that Chapter

8, Division 8 of the California Business and Professions

Code (Assembly Bill 950) is in direct, actual irrecon-

cilable conflict with the Federal Clayton Act, as amended

by the Robinson-Patman Act, 15 U.S.C. §13(a), et seq.

4. Plaintiff’s motion in open Court to dismiss the sec-

ond count of its Complaint ({/[ 14-17), without preju-

dice, is hereby granted.

5. Judgment be and the same hereby is entered in

favor of plaintiff Shell Oil Company and against the

defendant Evelle J. Younger, Attorney General of the

State of California, and Chapter 8, Division 8 of the

California Business and Professions Code (As embly

Bill 950) is hereby declared and decreed to be unconsti-

tutional, illegal, invalid and of no force and effect.

6. Evelle J. Younger, Attorney General of the State

of California, and each of his successors, is hereby pro-

hibited and enjoined from enforcing in any way against

4a

plaintiff Shell Oil Company the provisions of Chapter 8,

Division 8 of the California Business and Professions

Code (Assembly Bill 950).

7. Costs to be taxed by the Clerk in favor of plaintiff

and against defendant.

Dated: June 11, 1976,

/s/ Lloyd H. Burke

United States District Judge

5a

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

No. 76-2784

SHELL OIL COMPANY,

Plaintiff-Appellee,

Vv.

EVELLE J. YOUNGER, Attorney General of the

State of California,

Defendant-A ppellant.

ORDER

[Filed December 27, 1977]

Before: BROWNING, * TUTTLE, and ANDERSON,

Circuit Judges

Submission of the appeal is vacated pending a decision

by the Supreme Court of the United States in Exxon

Corp. Vv. Maryland, review granted 46 U.S.L.W. 3184

(October 3, 1977).

“Honorable Elbert Parr Tuttle, Senior United States Circuit

Judge, Fifth Circuit, sitting by designation,

6a

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

No. 76-2784

| Received December 4, 1978]

SHELL OIL COMPANY,

. Plaintiff-Appellee,

EVELLE J. YOUNGER, Attorney General of the

State of California,

Defendant-A ppellant.

[Filed November 28, 1978]

Appeal from the United States District Court

for the Northern District of California

OPINION

Before: BROWNING, TUTTLE *, and ANDERSON,

Circuit Judges

PER CURIAM:

In 1975 the California legislature passed section 21200

of the California Business & Professions Code (chapter

8) to regulate price discrimination by major distributors

of motor fuel. The first paragraph of chapter 8, in lan-

guage paralleling section 2a of the Robinson-Patman Act,

15 U.S.C. $13(a) (1970), prohibits price discrimination

where the effect of such discrimination is to lessen com-

petition. The second paragraph of chapter 8, like section

2b of the federal statute, 15 U.S.C. §18(b), provides

a “meeting competition” defense. The defense under the

California statute, however, is narrower than that un-

* Honorable Elbert Parr Tuttle, Senior Judge, United States

Court of Appeals for the Fifth Circuit, sitting by designation.

— A A AE .

7a

der the federal statute. To be exculpated under the

state act, a discriminating seller must prove not only

that the lower price was offered in good faith to meet

the equally low price of a competitor, which is all the

federal statute requires, but also that the lower price

was offered to all customers of the seller in competition

with the favored purchaser.

Appellee brought this action for declaratory and in-

junctive relief contending that, because of the limited

“meeting competition” defense, the state act is in conflict

with section 2b of the Robinson-Patman Act and therefore

unconstitutional under the Supremacy Clause. The dis-

trict court agreed, and granted summary judgment de-

claring the state statute void and of no effect. This appeal

followed.

Appellee originally argued broadly that the California

statute is in conflict with the Robinson-Patman Act (1)

because the California statute requires a seller to grant

a lower price to customers other than the one who re-

ceived a lower price from a competitor of the seller, and

thus compels the seller to violate the Robinson-Patman

Act which protects discriminatory price reductions only

to the customer who has received a price offer from the

competing seller; and (2) because the California statute

deprives the seller of a federally guaranteed right to

defend against customer raids by a price reduction limited

to the particular customer to whom the competitor has

offered a lower price.

The Supreme Court rejected the premise of both of

these arguments in Exxon Corp. v. Governor of Mary-

land, —— U.S. —— (June 14, 1978). The Court said:

Appellants, however, also claim that the Robinson-

Patman Act does not simply permit localized discrimi-

nation, but actually establishes a federal right to en-

gage in discriminatory pricing in certain situations.

8a

They argue that this federal right may be found

directly in § 2(b), or, more generally, in our Nation’s

basic policy favoring competition as reflected in the

Sherman Act as well as §2(b). We find neither

argument persuasive.

The proviso in § 2(b) of the Robinson-Patman Act

is merely an exception to that statute’s broad pro-

hibition against discriminatory pricing. It created no

new federal right; quite the contrary, it defined a

specific, limited defense, and even narrowed the good-

faith defense that had previously existed. ‘To be sure,

the defense is an important one, and the interpreta-

tion of its contours has been informed by the under-

lying national policy favoring competition which it

reflects. But it is illogical to infer that by excluding

certain competitive behavior from the general ban

against discriminatory pricing, Congress intended to

pre-empt the States’ power to prohibit any conduct

within that exclusion. This Court is generally re

luctant to infer pre-emption, see, e.g., DeCanas v.

Bica, 424 U.S. 351, 357-358, n.5; Merrill Lynch,

Pierce Fenner & Smith v. Ware, 414 U.S. 117, 127,

and it would be particularly inappropriate to do so

in this case because the basic purposes of the state

statute and the Robinson-Patman Act are similar.

Both reflect a policy choice favoring the interest in

equal treatment of all customers over the interest in

allowing sellers freedom to make selective competitive

decisions.

Id.; Slip op. at 13-14 (footnotes omitted).

Attempting to escape the force of Exxon, appellees now

argue that the anticompetitive effects of chapter 8 con-

flict with the Sherman Act policy favoring price com-

petition. Exxon disposes of this argument as well:

i

ee ee

9a

Appellants . .. [state] that the Maryland statute

[challenged in Exxon] will have an anticompetitive

effect. In this sense, there is a conflict between the

statute and the central policy of the Sherman Act—

our “charter of economic liberty.” Northern Pacific

R. Co. v, United States, 356 U.S. 1, 4. Nevertheless,

this sort of conflict cannot itself constitute a sufficient

reason for invalidating the Maryland statute. For if

an adverse effect on competition were, in and of

itself, enough to render a State statute invalid, the

States’ power to engage in economic regulation would

be effectively destroyed. We are, therefore, satisfied

that neither the broad implications of the Sherman

Act nor the Robinson-Patman Act can fairly be con-

strued as a congressional decision to pre-empt the

power of the Maryland Legislature to enact this law.

Id. at 14-15 (footnote omitted).

Appellees suggest that Exxon is distinguishable be-

cause the anticompetitive effects of chapter 8 are more

severe—and thus more in conflict with the federal policy

of price competition—than the effects of the Maryland

statute upheld in Ewxon,.' Assuming appellees correctly

analyze the potential effect of chapter 8, this difference in

the degree of impact on competition does not support an

inference of preemption where none was warranted in

Exxon,

The decision of the California Supreme Court in Rica

[sic] v. Alcoholic Beverage Control Appeals Board, 146

Cal. Rptr. 585, 579 P.2d 476 (1978), is hardly “disposi-

' Four differences are cited: that chapter 8 extends to permanent

price reductions, while the Maryland statute applied only to tempo-

rary ones; that chapter 8, unlike the Maryland law, covers price

concessions on bulk and wholesale fuel sales as well as sales to retail

service stations; that chapter 8 applies to gasoline flowing in inter-

state as well as intrastate commerce; and that chapter 8 limits the

duration of “meeting competition” price reductions to one year.

10a

tive of the issue on this appeal,’ as appellees contend.

As a statement of state law it is inapplicable here. As an

exposition of federal law it cannot supplant Exxon,

Reversed.

lla

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

No. 76-2784

DC CV 75-2691

LFB

SHELL OIL COMPANY,

Plaintiff/ Appellee,

EVELLE J. YOUNGER,

Attorney General of the State of California,

Defendant/Appellant.

[Filed December 20, 1978]

ORDER STAYING ISSUANCE OF MANDATE

Upon application of William Simon, Esq. counsel for

the Plaintiff/Appellee, and good cause appearing, IT IS

ORDERED that the issuance, under Rule 41(a) of the

Federal Rules of Appellate Procedure, of the certified

copy of the judgment of this Court in the above cause be

and hereby is stayed pending the filing, consideration and

disposition by the Supreme Court of the United States

of a petition for writ of certiorari to be made by the

Plaintiff/Appellee herein, provided such petition is filed

in the Clerk’s Office of the Supreme Court of the United

States on or before January 15, 1979.

In the event the petition for writ of certiorari is

granted, then this stay is to continue pending the final

disposition of the case by the Supreme Court of the

United States.

/s/ James R. Browning

United States Circuit Judge.

HON. JAMES R. BROWNING

DATED: SAN FRANCISCO, CALIF.

12a

The California Statute: Assembly Bill 950, Chapter 8,

Division 8, California Business and Professions Code:

SECTION 1. Chapter 8 (commencing with Section

21200) is added to Division 8 of the Business and Pro-

fessions Code, to read:

CHAPTER 8. UNFAIR PRACTICES

21200. It is unlawful for any refiner, distributor,

manufacturer, or transporter of motor vehicle fuels or

oils engaged in business in this state, either directly or

indirectly, to discriminate in price between different pur-

chasers of motor vehicle fuels or oils of like grade and

quality, where the effect of such discrimination is to

lessen competition, or to injure, destroy, or prevent com-

petition with any person who either grants or knowingly

receives the benefit of such discrimination, or with cus-

tomers of either of them.

Upon proof being made, at any hearing on a complaint

under this section, that there has been such discrimina-

tion in price, the burden of rebutting the prima facie

case thus made by showing justification shall be upon

the person charged with a violation of this section.

Nothing herein contained shall prevent a seller rebutting

the prima facie case thus made by showing that his

lower price to any purchaser or purchasers was made

in good faith to meet an equally low price of a com-

petitor and was also offered to any other of his pur-

chasers in competition with the purchaser or purchasers

receiving such lower price. If such lower price should

be incorporated into a term contract, no such contract

shall as to such discriminatory price be valid for more

than one year.

Nothing in this section shall prevent differentials which

make only due allowance for differences in the cost of

manufacture, marketing, transportation, sale, or delivery

Rea ee re

18a

resulting from the differing methods or quantities in

which such commodities are to such purchasers sold or

delivered.

Nothing in this section shall prevent persons engaged

in selling motor vehicle fuels or oils in this state from

selecting their own customers in bona fide transactions

and not in restraint of trade.

Nothing in this section shall prevent price changes

from time to time where in response to changing con-

ditions affecting the market for, or the marketability

of, the products concerned, such as, but not limited to,

actual or imminent deterioration of products, distress

sales under court process, or sales in good faith in dis-

continuance of business in the products concerned.

Nothing in this section shall apply to the purchase of

motor vehicle fuels or oils for their own use by state

and local agencies or public utilities,

21201. The provisions of this chapter shall only apply

to refiners, distributors, manufacturers, or transporters

of petroleum products engaged in business in this state

whose total production, gasoline refining capacity or sales

volume at the wholesale level is 50,000 barrels a day or

more,

21202. Any person injured by any violation of the

provisions of this chapter may bring an action for the

recovery of damages. Judgment may be entered for three

times the amount at which the actual demages are as-

sessed plus reasonable attorney’s fees,

21203. The Legislature finds and declares that dis-

tribution and sales of motor vehicle fuels and oils in the

State of California affect the general economy of the

state, the public interest and the public welfare. Com-

petition and freedom from unreasonable discriminatory

practices are essential to the fair and efficient function-

14a

ing of a free market economy. Competitive conditions

are rapidly changing with resulting market dislovation.

Therefore, it is further provided that any existing con-

tracts, arrangements, or agreements with provision for

prices not in compliance with this chapter shall be void

on and after the effective date of this chapter as to such

provisions, except for any as may be required to be

extended beyond said date to comply with any applicable

federal price control laws, regulations or orders.

Sherman Act, 15 U.S.C. §§ 1, 2, 3 (1976):

$1. Trusts, ete., in restraint of trade illegal; penalty

Every contract, combination in the form of trust or

otherwise, or conspiracy, in restraint of trade or com-

merce among the several States, or with foreign nations,

is declared to be illegal. Every person who shall make

any contract or engage in any combination or conspiracy

hereby declared to be illegal shall be deemed guilty of

a felony, and, on conviction thereof, shall be punished

by fine not exceeding one million dollars if a corporation,

or, if any other person, one hundred thousand dollars or

by imprisonment not exceeding three years, or by both

said punishments, in the discretion of the court.

As amended Dec, 21, 1974, Pub.L. 98-528, § 8, 88 Stat.

1708; Dee, 12, 1975, Pub.L. 94-145, § 2, 89 Stat. 801.

§ 2. Monopolizing trade a felony; penalty

Every person who shall monopolize, or attempt to mon-

opolize, or combine or conspire with any other person or

persons, to monopolize any part of the trade or commerce

among the several States, or with foreign nations, shall

be deemed guilty of a felony, and, on conviction thereof,

shall be punishéd by fine not exceeding one million dol-

lars if a corporation, or, if any other person, one hun-

lba

dred thousand dollars or by imprisonment not exceeding

three years, or by both said punishments, in the discretion

of the court.

As amended Dec, 21, 1974, Pub.L. 98-528, § 8, 88 Stat.

1708.

$8. Trusts in Territories or District of Columbia il-

legal; combination a felony

Every contract, combination in form of trust or other-

wise, or conspiracy, in restraint of trade or commerce in

any Territory of the United States or of the District of

Columbia, or in restraint of trade or commerce between

any such Territory and another, or between any such

Territory or Territories and any State or States or the

District of Columbia, or with foreign nations, or between

the District of Columbia and any State or States or for-

eign nations, is declared illegal. Every person who shall

make any such contract or engage in any such combina-

tion or conspiracy, shall be deemed guilty of a felony, and,

on conviction thereof, shall be punished by fine not ex-

ceeding one million dollars if a corporation, or, if any

other person, one hundred thousand dollars or by impri-

sonment not exceeding three years, or by both said pun-

ishments, in the discretion of the court,

As amended Dec. 21, 1974, Pub.L. 98-528, § 8, 88 Stat.

1708.

Section 2, Clayton Act, as amended by Section 2 of the

Robinson-Patman Act, 15 U.S.C. § 13 (1976):

§ 13. Discrimination in price, services, or facilities.

(a) Price; selection of customers

It shall be unlawful for any person engaged in com-

merce, in the course of such commerce, either directly

or indirectly, to discriminate in price between different

16a

purchasers of commodities of like grade and quality,

where either or any of the purchases involved in such

discrimination are in commerce, where such commodi-

ties are sold for use, consumption, or resale within the

United States or any Territory thereof or the District

of Columbia or any insular possession or other place

under the jurisdiction of the United States, and where

the effect of such discrimination may be substantially to

lessen competition or tend to create a monopoly in any

line of commerce, or to injure, destroy, or prevent com-

petition with any person who either grants or knowingly

receives the benefit of such discrimination, or with cus-

tomers of either of them: Provided, That nothing herein

contained shall prevent differentials which make only

due allowance for differences in the cost of manufacture,

sale, or delivery resulting from the differing methods or

quantities in which such commodities are to such pur-

chasers sold or delivered: Provided, however, That the

Federal Trade Commission may, after due investigation

and hearing to all interested parties, fix and establish

quantity limits, and revise the same as it finds neces-

sary, as to particular commodities or classes of com-

modities, where it finds that available purchasers in

greater quantities are so few as to render differentials

on account thereof unjustly discriminatory or promotive

of monopoly in any line of commerce; and the foregoing

shall then not be construed to permit differentials based

on differences in quantities greater than those so fixed and

established: And provided further, That nothing herein

contained shall prevent persons engaged in selling goods,

wares, or merchandise in commerce from selecting their

own customers in bona fide transactions and not in

restraint of trade: And provided further, That nothing

herein contained shall prevent price changes from time

to time where in response to changing conditions affect-

ing the market for or the marketability of the goods

concerned, such as but not limited to actual or imminent

a enn eee |

l7a

deterioration of perishable goods, obsolescence of seasonal

goods, distress sales under court process, or sales in good

faith in discontinuance of business in the goods concerned.

(b) Burden of Rebutting Prima-Facie Case of Discrimination

Upon proof being made, at any hearing on a com-

plaint under this section, that there has been discrimina-

tion in price or services or facilities furnished, the bur-

den of rebutting the prima-facie case thus made by show-

ing justification shall be upon the person charged with a

violation of this section, and unless justification shall be

affirmatively shown, the Commission is authorized to

issue an order terminating the discrimination: Provided,

however, That nothing herein contained shall prevent a

seller rebutting the prima-facie case thus made by show-

ing that his lower price or the furnishing of services or

facilities to any purchaser or purchasers was made in

good faith to meet an equally low price of a competitor,

or the services or facilities furnished by a competitor.

(c) Payment or Acceptance of Commission, Brokerage

or Other Compensation

It shall be unlawful for any person engaged in com-

merce, in the course of such commerce, to pay or

grant, or to receive or accept, anything of value as a

commission, brokerage, or other compensation, or any

allowance or discount in lieu thereof, except for services

rendered in connection with the sale or purchase of goods,

wares, or merchandise, either to the other party to such

transaction or to an agent, representative, or other in-

termediary therein where such intermediary is acting

in fact for or in behalf, or is subject to the direct or in-

direct control, of any party to such transaction other

than the person by whom such compensation is so granted

or paid.

18a

(d) Payment for Services or Facilities for

Processing or Sale

It shall be unlawful for any person engaged in com-

merce to pay or contract for the payment of anything

of value to or for the benefit of a customer of such

person in the course of such commerce as compensa-

tion or in consideration for any services or facilities fur-

nished by or through such customer in connection with

the processing, handling, sale, or offering for sale of any

products or commodities manufactured, sold, or offered

for sale by such person, unless such payment or con-

sideration is available on proportionally equal terms to

all other customers competing in the distribution of such

products or commodities.

(e) Furnishing Services or Facilities for

Processing, Handling, etc.

It shall be unlawful for any person to discriminate

in favor of one purchaser against another purchaser

or purchasers of a commodity bought for resale, with or

without processing, by contracting to furnish or furnish-

ing, or by contributing to the furnishing of, any services

or facilities connected with the processing, handling, sale,

or offering for sale of such commodity so purchased upon

terms not accorded to all purchasers on proportionally

equal terms.

(f) Knowingly Inducing or Receiving

Discriminatory Price

It shall be unlawful for any person engaged in com-

merce, in the course of such commerce, knowingly to

induce or receive a discrimination in price which is pro-

hibited by this section.

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