# Petition — Shell Oil Co. v. Deukmejian

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1979
- **Citation:** 440 U.S. 947

## Text

\

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.

~ Ae os Pe es

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_2349%3A1. Public record. Not legal advice.