Motion — Crown Oil Corp. v. Lapidus Popcorn, Inc.

Supreme Court, U.S,

FILED

ae SEP 19 1986

)} JOSEPH F. SPANIOL,

7 CLERK

No. 86-287

In the Supreme Court

OF THE

United States

OCTOBER TERM, 1986

Crown O1L CORPORATION, GRANEX CORPORATION,

U.S.A. and PAN-PACIFIC COMMODITIES,

Appellants,,

Vv.

LapPipus Popcorn, INC.,

Appellee.

On Appeal from the Court of Appeal

of the State of California After Denial

of Review by the Supreme Court of California

MOTION TO DISMISS APPEAL

FRANCIS O. SCARPULLA

Counsel of Record

SCARPULLA & SCARPULLA

A Professional Corporation

423 Washington Street, 4th Floor

San Francisco, CA 94111

(415) 788-7210

[ Additional Counsel Appear

on Signature Page]

Counsel for Appellee

Lapidus Popcorn, Inc.

BOWNE OF GAN FRANCISCO. INC. + 130 NINTH ST. « S.F.. CA 94193 + (415) 864-2300

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QUESTION PRESENTED

This appeal was taken from a decision of the California Court

of Appeal affirming the trial court’s order overruling Defendants-

Appellants’ demurrer to this state antitrust action. Thus, the only

question presented here is:

Whether the Court of Appeal’s opinion in Crown Oil

Corporation v. Superior Court, 177 Cal. App. 3d 604, 223

Cal. Rptr. 164 (1986) deciding that Appellants’ //linois

Brick demurrer to an indirect-purchaser Cartwright Act case

presents a substantial Federal question, should be reviewed

by this Court?

ii

DESIGNATION OF CORPORATE RELATIONSHIPS

Lapidus Popcorn, Inc. has no parent company and does not

have an ownership interest in any subsidiary.

ili

TABLE OF CONTENTS

COUNTERSTATEMENT OF THE CASE............

REASONS FOR DISMISSING THE APPEAL........

A. The appeal should be dismissed for lack of finality

B. The California Court of Appeal did not decide the

due process issue

et ee ee ee ee a ee oe ee ee ee a a a eo ae

1. The Court of Appeal’s decision is not a final

judgment on the federal issue for purposes of

state court proceedings... .............0005.

2. Review of the Court of Appeal’s opinion would

not preclude further litigation

CONCLUSION

SS 2S 86) 4:6 & SA OO 8

a eh og ay oy ee ee Te le es ee ee ee ee a a ee oe ee |

iV

TABLE OF AUTHORITIES

Cases

Lh

Agency Rent-A-Car, Inc. v. Connolly, 686 F.2d 1029 (Ist

<n, Ee rere er rt gee CN Perry aera 7

Associated General Contractors of California, Inc. v. Cali-

fornia State Council of Carpenters, 459 U.S. 519 (1983) 6

Blue Shield of Virginia v. McCready, 457 U.S. 465 (1982) 6

California v. Zook, 336 U.S. 725 (1949) ............... 4,7

Cities Service Co. v. McGrath, 342 U.S. 330 (1952) ..... 5

Clark v. Kansas City, 172 U.S. 334 (1899) ............. 3

Colorado Anti-discrimination Commission v. Continental

pa Se ye a oR. By SG . . * | acer area 7

Cox Broadcasting Corporation v. Cohn, 420 U.S. 469

LAD ies Fe BE ari er rere Tawny yr ee ee 4,5

Crown Oil Corporation v. Superior Court, 177 Cal. App.

56 G4, 725 Cal. Role. 166 CIES) ... 5 cc ccc ceas. 3,4

Flynt v. Ohio, 451 U.S. 619 (1981) ..............000-. 4

Hayfield Northern Railroad Co., Inc. v. Chicago & N.W.

Transportation Co., 467 U.S. 622 (1984) ............. a

Illinois Brick v. Illinois, 431 U.S. 720 (1977) ......... 2, 4, 6

In Re Beef Industry Antitrust Litigation, 600 F.2d 1148 (Sth

rE ac Siig Gt ie aes i GN sarees ae 4

McComb v. Commissioners, 91 U.S. 1 (1876) .......... 3

Meagher v. Minnesota Thresher Mfg. Co., 145 U.S. 608

(1 RAE Es GRE A Senn aE Ore ee teen Lae 3

Mid-West Paper Products Co. v. Continental Group, 596

VF Bp Be” Ca), | ee eerie ere tare 4

North Dakota State Board of Pharmacy v. Snyder’s Drug

a ae aS a ek | re rare 2

Radio Station WOW v. Johnson, 326 U.S. 120 (1945) ... 3

Silkwood v. Kerr-McGee Corp., 464 U.S. 238 (1984) .... 5,7

Western Union Tel. Co. v. Pennsylvania, 368 U.S. 71 (1961) 5

Other

i ee, Te et CSD 6a vic koe nn cedsncceveveruks 6

No. 86-287

In the Supreme Court

OF THE

United States

OCTOBER TERM, 1986

CROWN OIL CORPORATION, GRANEX CORPORATION,

U.S.A. and PAN-PACIFIC COMMODITIES,

Appellants,

ws

LAPIDUS PopcorN, INC.,

Appellee.

On Appeal from the Court ef Appeal

of the State of California After Denial

of Review by the Supreme Court of California

MOTION TO DISMISS APPEAL

COUNTERSTATEMENT OF THE CASE

In September 1984, Plaintiff-Appellee, Lapidus Popcorn, Inc.

(“Lapidus”) filed suit against Defendants-Appellants, Crown Oil

Corporation, Granex Corporation, U.S.A. and Pan-Pacific Com-

modities, alleging a price-fixing conspiracy in violation of both

California’s antitrust laws (Business and Professions Code, Sec-

tion 16700, et seg.), and its unfair business practices statutes

(Business and Professions Code, Section 17200, et seq.).

As Lapidus did not purchase coconut oil directly from any

defendant, Appellants demurred to the complaint, claiming that

the California Superior Court lacked jurisdiction to hear the suit

and that the complaint failed to state a cause of action. According

to Appellants, to the extent that California’s antitrust act permits

2

indirect-purchaser suits, it conflicts with, and is preempted by,

this Court’s decision in J//inois Brick v. Illinois, 431 U.S. 720

(1977). Moreover, Appellants claim that these California code

sections unduly burden interstate commerce.

On May 9, 1985, the trial court entered an order overruling

Appellants’ demurrer. Appellants’ Appendix, p. !2.

The California Court of Appeal initially denied Appellants’

petition for mandate. Appellants’ Appendix, p. 15. The California

Supreme Court instituted the Court of Appeal to hear that

petition. Appellants’ Appendix p. 16. The Court of Appeal then

heard argument and filed the opinion under consideration here.

The California Supreme Court subsequently denied Appeliants’

petition for review after the judgment of the Court of Appeai had

been entered. Appellants’ Appendix p. 18-19.

Appellants’ now seek review of the Court of Appeai’s decision

in this Court, incorrectly claiming that a substantial federal

question is presented.

REASONS FOR DISMISSING THE APPEAL

A. The Appeal Should Be Dismissed for Lack of Finality

Both Title 28 U.S.C. sections, 1257 and 2103, require that the

judgment or decree of the highest state court respecting the

federal question be final before this Court can entertain an appeal

from such an order. As noted in North Dakota State Board of

Pharmacy v. Snyder's Drug Stores, Inc., 414 U.S. 156, 159

(1973), this finality requirement serves ends relating to judicial

economy, comity, and federalism because:

(1) it avoids piecemeal review of state court decisions; (2)

it avoids giving advisory opinions in cases where there may

be no real “case” or “controversy” in the sense of Art. IIT;

(3) it limits review of state court determinations of federal

constitutional issues to leave at a minimum federal intrusion

in state affairs.

The Court of Appeal’s February 14, 1986 decision affirming the

Superior Court’s order overruling Appellants’ demurrer is not a

final order. Finality is lacking where the court overrules a demur-

3

rer and orders that an answer be filed. Clark v. Kansas City, 172

U.S. 334 (1899); Meagher v. Minnesota Thresher Mfg. Co., 145

U.S. 608, 610-611 (1892); McComb v. Commissioners, 91 U.S. |

(1876); For this reason alone, Lapidus respectfully suggests that

this Court should dismiss this appeal.

B. The California Court of Appeal Did Not Decide the Due

Process Issue

The Court of Appeai held that Appellants had not demon-

strated that California’s remedy for antitrust violations was pre-

empted by the federal remedy articulated in J/linois Brick, and,

therefore, left undecided the subsidiary and related due process

challenges raised by Appellants in their demurrer. The potential

for multiple liability claimed by Appellants could not be litigated

at the pleading stage of this case. Any such ruling would consti-

tute “sheer speculation” by the courts and would constitute an

impermissible “advisory opinion.” Crown Oil Corporation v. Su-

perior Court, 177 Cal. App. 3d 604, 223 Cal. Rptr. 164, 169

(1986). Consequently, without a record, the Court of Appeal

stated it was premature to consider the due process component of

Appellants’ preemption claim. /d. at 169-170.

Notwithstanding the special concerns of federalism and comity,

review of the preemption decision when the related federai due

process issue has been left unresolved makes appellate review by

this Court at this juncture inappropriate. Justice Frankfurter

cautioned against such piecemeal appeals in Radio Station WOW

v. Johnson, 326 U.S. 120, 127 (1945) stating:

Of course, where the remaining litigation may raise other

federal questions that may later come here...to allow

review of an intermediate adjudication would offend the

decisive objection to fragmentary reviews.

Despite this apparent facial lack of finality, Appellants suggest

that review by this Court is appropriate as the Crown Oil decision

“involves a direct assault upon the important federal policies

recognized in this Court’s decision in J/linois Brick. ...” Appel-

lants’ Jurisdictional Statement p. 7 fn. 3.

4

Of course, that is not the issue. The only issue here is whether

the Crown Oil decision has -the requisite finality and, if so,

whether a substantial federal question is presented, both of which

are lacking here.

1. The Court of Appeal’s Decision Is Not a Final Judg-

ment on the Federal Issue for Purposes of State Court

Proceedings

The first category invoked by Appellants permits federal appel-

late review of a state court judgment which is a “final judgment

on the federal issue for purposes of state court proceedings,” and

there is “no probability of piecemeal review with respect to

federal issues.” Flynt v. Ohio, 451 U.S. 619, 621 (1981); see also,

Cox Broadcasting Corporation v. Cohn, 420 U.S. 469 (1975).

Only one aspect of the preemption challenge to the complaint

was resolved by the California Court of Appeal. Following this

Court’s precedent, the Court of Appeal first found that it was not

the intention of Congress to preempt the field of antitrust enforce-

ment. Crown Oil, supra, 223 Cal. Rptr. at 167-68. Furthermore,

the Court of Appeal found no conflict between the federal and

State statutes concerning conduct condemned under the Sherman

Act and the Cartwright Act. Jd. 167-68 (citing Alton Box Board

Co. v. Esprit de Corp., 682 F.2d 1267, 1274 fn.11 (9th Cir.

1982)).

Certain indirect-purciiaser remedies survived this Court’s deci-

sion in //linois Brick. ““Cost-plus” pricing to customers, as well as

indirect purchasers who buy products from producer-owned or

controlled direct purchasers, may still institute federal Sherman

Act suits. I/liniois Brick, supra, 431 U.S. at 135-36 and fn.16.

Indirect purchasers may also maintain actions for injunctive

relief. In Re Beef Industry Antitrust Litigation. 600 F.2d 1148,

1167 (Sth Cir. 1979); Mid-West Paper Products Co. v. Continen-

tal Group, 596 F.2d 573, 589-594 (3rd Cir. 1979). Thus, in

indirect-purchaser actions, a potential conflict arises only when

comparing federal and state remedies with respect to damages.

That an offense against both state and federal statutes might

draw separate prosecutions and differing penalties from each is

not evidence of federal preemption, as Appellants urge. California

5

v. Zook, 336 U.S. 725, 730-31 (1949). Using the more recent,

and far more complex statutory schemes in Silkwood v. Kerr-

McGee Corp., 464 U.S. 238 (1984) and Hayfield Northern

Railroad Co., Inc. v. Chicago & N.W. Transportation Co., 467

U.S. 622 (1984), the California Court of Appeal concluded that

the Cartwright Act’s remedy for antitrust violations did not

conflict with the federal remedy.

Left unresolved was the related due process challenge raised by

Appellants under the so-called “common fund” theory.’ This

issue, derivative of the preemption claim, was not decided by the

Court of Appeal. A ruling on this due process claim could not and

should not be made in a hypothetical vacuum. To date, no

California court has had the opportunity to fashion a method for

assessing damages for indirect-purchaser Cartwright Act suits.

Therefore, as the Court of Appeal’s pinion did not finally

resolve the due process issue, no final, substantial federal question

is presented here and this appeal should be dismissed.

2. Review of the Court of Appeal’s Opinion Would Not

Preclude Further Litigation

The second category into which Appellants attempt to place

this appeal permits interlocutory review by this Court when

“reversal of the state court on the federal issue would be preclu-

sive of any further litigation on the relevant cause of action,” Cox

Broadcasting, supra, 420 U.S. at 482-83. Appellants claim that

the case involves “identifiable federal statutory or constitutional

' Appellants’ reliance on Western Union Tel. Co. v. Pennsylvania, 368

U.S. 71 (1961) and Cities Service Co. v. McGrath, 342 U.S. 330 (1952)

distorts the holdings in these cases. Neither involves any wrongdoing by

defendants. Both involve competing interests to possession uf the same

property. Underlying Appellants’ use of these “due process” decisions is

the unsubstantiated assumption that each tortious wrongdoing should

produce only one fund from which injured parties can claim. That

assumption ignores the fact that antitrust law is derived from intentional

tort law. Consequently, the wrongdoer is responsible for payment to

anyone foreseeably injured, noi merely for creation of some single fund

created by the overcharge.

6

policies which would [be] undermined by the continuation of the

litigation in the state courts.”

No federal statutory or constitutional policies are being under-

mined by the prosecution of this indirect-purchaser suit.

Neither the Sherman Act nor the Clayton Act precludes

indirect-purchaser suits. As a rule of judicial economy, this

Court’s J/linois Brick opinion concluded that “the legislative

purpose in creating a group of ‘private attorneys general’ to

enforce the antitrust laws under Section 4 is better served by

holding direct purchasers to be injured to the full extent of the

overcharge. ...” J/linois Brick, supra, 431 U.S. at 746.

This Court’s decision was neither a rule of standing, nor a

decision of constitutional proportions. /d. at 728 fn.7; see also

Associated General Contractors of California, Inc. v. California

State Council of Carpenters, 459 U.S. 519, 535 fn.31 (1983).

Illoinis Brick was a decision concerning statutory construction

only. /d. at 736. This Court apparently determined that ordinarily

the indirect purchaser theory of damages should not be imposed

on the federal judiciary. Blue Shield of Virginia v. McCready, 457

U.S. 465, 475 fn.11 (1982); Associated General Contractors of

California, supra, 459 U.S. at 544 fn.51.

Illinois Brick did not vitiate a states’ authority to permit their

courts the opportunity to fashion damage remedies for indirect-

purchaser actions brought under state statutes.

The legislative history of the Sherman Act, 15 U.S.C., Section

1, reveais that the Act’s sponsor, Senator Sherman, did not intend

it to preempt state antitrust laws:

This bill... has for its... object to invoke the aid of the

courts of the United States to deal with the combinations . . .

when they affect injuriously our foreign and interstate com-

merce... and in this way to supplement the enforcement of

the established rules of the common and statute laws by the

several states in dealing with combinations that affect injuri-

ously the industrial liberty of the citizens of those states. It is

to arm the federal courts within the limit of their constitu-

tional power, that they may cooperate with the state couris in

7

checking, curbing and controlling the most dangerous com-

binations that now threaten the business, property, and trade

of the people of the United States....21 CONG. REC.

2457 (1890) (Statement of Senator Sherman) (emphasis

added).

Where the federal and state governments have concurrent

power to regulate the same conduct, state laws providing a

cumulative, different or harsher remedy are not preempted unless

the states’ power to fashion a remedy has been specifically

withdrawn by Congress. Agency Rent-A-Car, Inc. v. Connolly,

686 F.2d 1029, 1036-40 (Ist Cir. 1982).

This is especially true where the state is acting pursuant to its

traditional police powers and both regulatory schemes provide for

identical standards of conduct, differing solely as to remedies.

Colorado Anti-discrimination Commission v. Continental Air-

lines, 372 U.S. 714 (1962); California v. 2 00k, supra.

In Silkwood this Court reaffirmed this principle when it re-

jected the argument that the Nuclear Regulatory Commission’s

exclusive authority to reguiate nuclear safety preempted state

punitive damage recovery under tort law:

The United States, as amicus curiae, contends that the

award of punitive damages in this case is preempted because

it conflicts with the federal remedial scheme, noting that the

NRC is authorized to impose civil penalties on licensees

when federal standards have been violated. 42 U.S.C. Sec-

tion 2282 (1976 ed. and Supp. V). However, the award of

punitive damages in the present case does not conflict with

that scheme. Paying both federal fines and state-imposed

punitive damages for the same incident would not appear to

be physically impossible. Nor does exposure to punitive

damages frustrate any purpose of the federal remedial

scheme.

Silkwood, supra, 464 U.S. at 257; see also, Hayfield Northern

Railroad Co., inc. v. Chicago & N.W. Transportation Co., 467

U.S. 622 (1984).

8

For these reasons Appellee respectfully suggests that this court

should dismiss this appeal.

CONCLUSION

For each of the reasons stated above, Appellee respectfully

Suggests that this appeal should be dismissed.

Dated: September 18, 1986

FRANCIS O. SCARPULLA

Counsel of Record

SCARPULLA & SCARPULLA

A PROFESSIONAL CORPORATION

423 Washington Street, 4th Floor

San Francisco, CA 94111

Mario N. ALIOTO

JosepH M. PATANE

LAW OFFICES OF

Mario N. ALIOoTO

2280 Union Street

San Francisco, CA 94123

Counsel for Appellee

Lapidus Popcorn, Inc.