HARRIS v. CAPITOL RECORDS DISTRIBUTING CORP RCA

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District Court of Appeal, Second District, Division 2, California.

Milton E. HARRIS, dba Phil Harris Record Co., Plaintiff and Appellant, v. CAPITOL RECORDS DISTRIBUTING CORP., a corporation, RCA Victor Distributing Corp., a corporation, and Columbia Records Distribution Corp., a corporation, Defendants and Respondents.

Civ. 28479.

Decided: November 30, 1965

Naiditch & Gould, Louis Naiditch, Morton H. Gould, Irwin Chasalow, Los Angeles, for appellant. Robert E. Carp, Elliot Chaum, Richard Haas, Robert S. Daggett, Brobeck, Phleger & Harrison, San Francico, for respondent Capitol Records Distributing Corp. Gibson, Dunn & Crutcher, Frederic H. Sturdy, Irwin F. Woodland, Los Angeles, for respondent RCA Victor Distributing Corp. O'Melveny & Myers, Homer I. Mitchell, Allyn O. Kreps, James V. DeLong, Los Angeles, for respondent Columbia Records Distribution Corp.

Respondents, Capitol Records Distributing Corp., (Capitol) RCA Victor Distributing Corp., (RCA) and Columbia Records Distribution Corp., (Columbia), were granted summary judgments on appellant's complaint against respondents seeking injunctive relief and damages. Harry Dale, doing business under the fictitious name of Guaranteed Record Sales (Guaranteed) and Master Music Mart, (Master Music), were also defendants in the action. The complaint was bottomed on the Unfair Practices Act. (B & P Code, §§ 17000–17101,1 herein sometimes referred to as the Act.)

Similar motions for summary judgment by Dale and Master Music were denied and a temporary injunction was issued as to the latter two defendants. The pending action, however, has been dismissed against Dale and Master Music by reason of their insolvency.

Appellant asserts that the summary judgments were improperly granted. Respondents contend that on the evidence submitted in the declarations before it the trial court made a valid ruling and urge that in any event the Act has no application to the type of competition here involved.

Since the motions here were granted on the theory that there was no triable issue of fact before the court, it becomes necessary to dissect the declarations at some length.

The averments contained in the declarations in support and in opposition to the motion contained probative evidence in some respects, hearsay, vague, illusory and conclusionary statements in other respects.

Appellant operates a retail record store on Hollywood Boulevard in Los Angeles. He buys his inventory from respondents at list price less a discount of 38%. Dale (the names Dale and Guaranteed being one and the same will be used synonymously and interchangeably), is a record rack-jobber. A rack-jobber is one who services record stands in markets and other retail outlets to which the sale of records is an incidental item. Because of differences in the distribution pattern, respondents allow rack-jobbers an additional 10% discount,2 , or 44.2% of list price.

In May 1963, Dale and his estranged wife, as sole owners thereof, opened a retail record store on Hollywood Boulevard, known as Master Music, opposite appellant's store.3

The gravamen of the complaint in this case is that Dale, contrary to the provisions of the Act, with the knowledge of respondents, purchased records from respondents at rack-jobber's prices, siphoned the records so purchased to Master Music as a retailer, and thus was able to undersell and damage appellant.

The complaint charges respondents with discriminatory pricing practices, assisting in sales below cost and the promotion of loss leaders. In a separate cause of action appellant seeks a declaratory decree invalidating the classification of rack-jobber.4

The allegations of the complaint were almost entirely on information and belief.

The complaint did contain some allegations which may be considered in opposition to a motion for summary judgment. It was incorporated by reference in the declaration of Harris and was thus made one of the declarations of plaintiff in opposition to the motions for summary judgment.

For the purposes of summary judgment, the allegations on information and belief are, of course, worthless to a trial judge, who must determine whether there is a triable issue of fact. (Enter v. Crutcher, (1958) 159 Cal.App.2d Supp. 841, 323 P.2d 586; Bennett v. Hibernia Bank, 186 Cal.App.2d 748, 9 Cal.Rptr. 896; Cowan Oil & Refining Co. v. Miley Petroleum Corp., Ltd., 112 Cal.App.Supp. 773, 780, 295 P. 504; Whaley v. Fowler, 152 Cal.App.2d 379, 313 P.2d 97.)

The declaration of Harris leaves much to be desired. However, in Desny v. Wilder, 46 Cal.2d 715, at page 725, 299 P.2d 257, 261, the court says: “[T]he better rule is that the facts alleged in the affidavits of the party against whom the motion is made must be accepted as true, and that such affidavits to be sufficient need not necessarily be composed wholly of strictly evidentiary facts. [Citation.]”

In allegation X, although conclusory in some respects, appellant alleges that ‘* * * plaintiff has suffered substantial * * * loss of profits * * *’ and in allegation XI that “rack-jobbers' have repeatedly * * * abused the additional discounts and allowances granted to them by siphoning the phonograph records acquired by them as ‘rack-jobbers' into retail outlets they own or control; * * * that * * * [respondents] are unable or unwilling to so supervise ‘rack-jobbers' * * * to prevent or curtail such abuses, * * *’; in allegation XII appellant avers that on June 13, 1963 his attorney wrote a letter to respondents, which letter is marked Exhibit ‘A’ and incorporated in the complaint. (Georges v. Kessler, 131 Cal. 183, 63 P. 466; Lambert v. Haskell, 80 Cal. 611, 22 P. 327; Ward v. Clay, 82 Cal. 502, 23 P. 50, 227.) Appellant does not specifically make the statements in the letter his statements, and the manner of its incorporation is merely a convenient method of showing precisely what appellant's attorney wrote. It does not make the attorney a declarant. The contents of the letter therefore are hearsay and not available as proof of the matters asserted therein. However, it may be properly used to show notice to respondents of appellant's statements. Jensen v. Southern Pacific Co., 129 Cal.App.2d 67, 75, 276 P.2d 703; Westman v. Clifton's Brookdale, Inc., 89 Cal.App.2d 307, 310, 200 P.2d 814; Witkin, Calif. Evidence, p. 244.)

Among other things, the letter referred to as Exhibit ‘A’ states the following:

Respondents were in violation of the Act.

‘* * * Prior to the opening of Master's store, and prior to the publication of the advertisements, the manufacturers knew of Guaranteed's interest in Master, knew of Master's intention to sell at prices below cost, and certain of the manufacturers contributed to the cost of advertisement of the illegal sale; notwithstanding, manufacturers sold * * * to Guaranteed and Master at discriminatory prices, with the knowledge * * * that the same were to be unlawfully sold as ‘loss leaders'. It is common knowledge in the recording industry that ‘rack-jobbers' (such as Guaranteed) are abusing the special privileges * * * which is now the subject of investigation by the Federal Trade Commission, * * *. Accordingly, it is our position that in any event, the manufacturers are chargeable with knowledge of the activities of Guaranteed.

‘* * * [W]e wish to place you, and each of you, on notice that our client * * * has established an expanded and sizeable business operation, * * *. The trade practice, if unabated, threatens the destructions of the traditional retail record business, * * *.’

Plaintiff, in addition to his declaration, filed one by Dieter Preussner. Preussner states:

He had been actively engaged in the record business and intimately acquainted with its pricing structure continuously for a period of ten years and had been employed by Harris continuously for two years.

Retailer's cost of merchandise is 62% of list and a sub-distributor's cost is 55.8% of list.

On May 14, 1963, at a reception given by Capitol for people in the business, he heard Dale tell employees of Capitol he was going to open a retail store and that ‘* * * HARRIS is just a small fish in a big ocean * * *. I'll take care of him.’

Just prior to Master Music's opening Preussner spoke with officials of RCA and Capitol who stated that they knew Dale was opening a record store and were concerned about the effect on Harris' business, but that they were ‘forced’ to grant promotional advertising allowances to Dale; both stated that their ‘hands were tied.’

On June 1, 1963, Master Music, comparable in size and directly across the street from appellant, opened its business engaging in the same type of business as appellant and in direct competition with appellant; and ‘* * * Immediately prior thereto and for several weeks following, I observed * * * trucks of * * * GUARANTEED * * * parked in front of MASTER MUSIC MART, from which merchandise was unloaded and carried into * * *’ Master Music Mart.

On the exterior of Master Music's store were large signs advertising sales of records at 50% of list, clearly visible to traffic on Hollywood Boulevard and to patrons of appellant across the street.

On or about June 2, 1963, there were advertisements in newspapers publicizing that Master Music was selling records of Capitol, RCA and Columbia at prices which were approximately 50% of list.5

The principal record manufacturers customarily from time to time provide advertising for retailers, employing the matrix of the manufacturer. The advertisements of June 2 were in the format customarily employed by record manufacturers when they pay for advertisements and Preussner avers that these advertisements in question were paid for by respondents.6 No one avers that the respondents or any of them saw the advertisements referred to or the signs on the Master Music store.

On or about July 1, 1963, and on August 6, 1963, Preussner caused records to be purchased from Master Music for less than the actual cost of such records to appellant, even after appellant eliminated its overhead.

Subsequent to June 2, 1963, an official of Columbia stated to Preussner that although Columbia knew, before the opening of Master Music, that Dale was going to open directly across from appellant, Columbia sold records to Dale because Columbia was ‘foreced’ to do so.

Appellant received numerous complaints from customers who called attention to the prices across the street at Master Music, and lost a substantial number of sales. Preussner concludes by re-affirming his thorough familiarity with the business and says ‘No legitimate retailer * * * could * * * purchase * * * records being sold by MASTER MUSIC MART at costs [so] low * * * [that] * * * even ignoring * * * overhead, no legitimate retailer could compete * * *.’

In support of their respective motions, declarations were filed by all respondents. Capitol, in pertinent part, avers that: Capitol had granted Dale a greater discount than its retailers on the basis of a difference in functions performed; Capitol sold records to Guaranteed from December 1961, but had never sold records to Master Music until September 1963;7 Capitol has never made an advertising allowance or caused any advertising to be printed for Master Music although Capitol has granted such allowances to Guaranteed; for several years it has been Capitol's policy to require rack-jobbers selling at retail to pay full retail dealers' prices and to report periodically to Capitol; Dale was told he would have to follow this policy after June 18, 1963; and that since September 9, 1963,8 Capitol has billed Master Music at retailers' prices. It was further averred that: Capitol sells its records outright to its customers without knowing or in any way controlling the resale price; Capitol has never sold records to anyone knowing that the records would be resold below cost or intending or suggesting such a sale; if Dale at any time sold records below cost, it was without the sanction of Capitol; none of the sales made by Capitol were made with the intent to injure competition since Capitol is not in competition with appellant;9 and that Capitol had not paid the advertising costs of two particular advertisements as alleged by appellant. Finally, it was averred that Dale's books were audited on July 10 and 11, 1963, to ascertain the amount of rack-jobber discounts given by Capitol to Dale on records resold to Master Music; the audit showed that between May 24 and July 10, 1963, Dale received rack-jobber discounts totaling $382.55, and that Dale was required to pay Capitol the difference between the dealer's discount and the rack-jobber's discount.

RCA filed two declarations in support of its motion. David G. Pearce, RCA's Los Angeles branch manager, declared that: RCA offers special promotional discounts to both retailers and wholesalers; in late April or early May, 1963, Pearce declined Dale's request for a window display to be installed for Master Music at RCA's expense and also denied Dale's request for cooperative advertising in connection with the new store, but that an allowance was given Master Music in connection with a special promotional program instituted by RCA and available to all of its customers; and that he had told appellant's store manager of this allowance, and of the denial of the other requested allowances.10

C. A. Malin, a RCA vice president, declared that: in 1962, he advised Dale by mail of RCA's policy of restrictions on the supply of records to rack-jobbers; in May 1963, RCA sold records to Guaranteed which were to be resold to Master Music; he later received information that Dale might have an interest in Master Music and accordingly wrote Dale inquiring into his relationship to Master Music; he received an answer that Dale had acquired an interest in Master Music but that Guaranteed would not resell to Master Music until Dale had disposed of his interest therein; and that RCA has made no sales to Guaranteed for resale or delivery to Master Music.11

Columbia supported its motion with the declaration of Theodore Rosenberg, Columbia's Los Angeles branch manager, who declared that until July 1963, it was the practice of Columbia to require rack-jobbers to sign an agreement whereby they warranted that they had no control of interest in any retail outlet; and that when he learned that Dale might be violating this agreement, he was instructed to take steps to enforce the agreement. Columbia avers further that it changed its pricing structure in July 1963, at which time rack-jobbers were allowed to have an interest in retail outlets provided records sold through the retail outlet were purchased at retail discount. Pursuant to this new policy Columbia and Dale entered into a new contract fully disclosing Dale's interest in Master Music and requiring an accounting of sales through Master Music. Rosenberg declared further, that: Columbia had not paid either directly or indirectly for any advertising for Master Music or Dale since January 1, 1963; that, if any sales had been made by Dale to Master Music, they were in violation of Columbia's agreements with Dale; and that during the month of June 1963, Dale told him he was going to service a new retail account on Hollywood Boulevard, but did not tell him it was Master Music.12

The trial court concluded that no triable issue of fact was presented by the declarations.

In an article by Judge L. Yankwich, formerly Chief Judge of the United States District Court, in 40 Cal.L.Rev., page 205, he points out, among other things, our indebtedness to English procedural reformers for the summary judgment procedure. He says: ‘In an early case * * * (1878) * * * Jessell said ‘I agree entirely with the Vice-Chancellor, that when the judge is satisfied not only that there is no defense, but no fairly arguable point to be argued on behalf of the defendant, it is his duty to give effect to this section, and to give judgment for the plaintiff.’'

Assuming that the ‘fairly arguable point * * *’ referred to in the above quotation, means one that is supported by some probative evidence, we are of the opinion, that, based on section 437c, Code of Civil Procedure, and the expressions of the appellate courts of this state construing that section, there is no escape from this test.

The rules of law on summary judgment have been clearly reiterated in many California cases. In Wilson v. Bittick, 63 A.C. 22, at page 27, 45 Cal.Rptr. 31, 33, 403 P.2d 159, 161, the court says: “The matter to be determined by the trial court in considering such a motion is whether the defendant (or the plaintiff) has presented any facts which give rise to a triable issue. The court may not pass upon the issue itself. Summary judgment is proper only if the affidavits in support of the moving party would be sufficient to sustain a judgment in his favor and his opponent does not by affidavit show such facts as may be deemed by the judge hearing the motion sufficient to present a triable issue. The aim of the procedure is to discover, through the media of affidavits, whether the parties possess evidence requiring the weighing procedures of a trial. In examining the sufficiency of affidavits filed in connection with the motion, the affidavits of the moving party are strictly construed and those of his opponent liberally construed, and doubts as to the propriety of granting the motion should be resolved in favor of the party opposing the motion. Such summary procedure is drastic and should be used with caution so that it does not become a substitute for the open trial method of determining facts.' (Stationers Corp. v. Dun & Bradstreet, Inc. (1965) 62 A.C. 427, 431–432, 42 Cal.Rptr. 449, 452, 398 P.2d 785, 788.)' (Eagle Oil & Refining Co., Inc. v. Prentice, 19 Cal.2d 553, 556, 122 P.2d 264; 2 Witkin, Cal.Proc. 1715; Cone v. Union Oil Co., 129 Cal.App.2d 558, 562, 277 P.2d 464 (1954).)

‘It [must be] perfectly plain that there is no substantial issue to be tried.’ (Luders v. Pummer, 152 Cal.App.2d 276, 279, 313 P.2d 38, 40 (1957).)

It has also been made clear that the motion for summary judgment is not readily adaptable to conspiracy cases or to any case where there are complex issues of fact. (Whaley v. Fowler, 152 Cal.App.2d 379, 313 P.2d 97 (1957); California Lettuce Growers v. Union Sugar Co., 45 Cal.2d 474, 488, 289 P.2d 785, 49 A.L.R.2d 496 (1955).)

In Bozant v. Bank of New York, 156 F.2d 787, at page 790, Judge Learned Hand said: ‘In conclusion we cannot avoid observing that the case is another mistaken effort to save time by an attempt to dispose of a complictaed state of facts on motion for summary judgment. This is especially true when the plaintiff must rely for his case on what he can draw out of the defendant. * * *'13 (Emphasis added.)

We recognize that the Legislature by the specific terms of the Act sought to eliminate any responsibility of persons in the position of respondents which might be created by a sophisticated circumvention of the Act and its purposes by purchasers who alone generate unfair competitive conditions without the participation of respondents. The Act does not make respondents policemen. Thus, section 17048 of the Act specifically provides: ‘It is unlawful for any manufacturer, wholesaler, * * * jobber * * *, retailer, or other vendor, or any agent of any such person, jointly to participate or collude with any other such person in the violation of this chapter.’

It is clear too that the Legislature intended to permit respondents to sell to rack-jobbers at prices different than sales to retailers. (Section 17042, supra.)

We therefore assume that the Legislature did not intend to pass a law which would permit a purchaser by secret or insidious machinations to subject his unwitting vendors to liability for injuries caused by such a purchaser.

We are required however, as a corollary to the rules applicable to summary judgments to draw all logical inferences from the evidence before us which will fortify the opposition. (McComsey v. Leaf, 36 Cal.App.2d 132, 97 P.2d 242; Desny v. Wilder, 46 Cal.2d 715, 726, 299 P.2d 257.)

Although proof of direct knowledge and participation of respondents in Dale's wrongdoing is paperthin and may not suffice as proof if the action was tried on the merits, we cannot say from what is before us that there is no triable issue of fact as to such knowledge and participation.

It seems reasonably clear to us from the declarations that there is an issue as to whether respondents knew or as reasonable prudent persons had reason to know that Dale was purchasing records at rack-jobbers' discounts for resale to himself, and that even after they were possessed of such knowledge, they continued to sell to Dale at rack-jobbers' prices.

The best construction we can give to the declarations of respondents is that they remained passive when on the evidence disclosed by the declarations of appellant which pursuant to the rules heretofore enunciated, we must accept as true, they and each of them as reasonably prudent men had repeated notice that Dale was in fact selling to himself. It has been held in an analogous situation that where one has a legal duty and has knowledge of circumstances which will cause harm to another, and has the power to prevent such harm, the failure to exercise that power may result in responsibility for an injurious act which is in fact committed. (Fernelius v. Pierce, 22 Cal.2d 226, 138 P.2d 12.)

In Fernelius, supra, the court said at page 239, 138 P.2d at page 20:

‘We are of the opinion that permitting an act, where one has knowledge that it is impending and has the power and duty to prevent it, is the equivalent of directing it, so far as legal responsibility therefor is concerned.’

On the facts, however, Capitol argues that it is in a unique position, in that it had discovered, through a July 10 audit of Dale's books, that Master Music had in fact made use of the rack-jobber discount, and that Capitol had subsequently received payment from Dale for the difference between the rack-jobber and dealer's discount. Capitol argues that this discharged any duty it may have under the Act. This is an argument, as to the effect of this evidence, which will undoubtedly be considered by the trier of fact when it is weighed with other evidence presented.

In addition to their contention that there is no probative showing that they participated in price discrimination between Dale and Harris, and their denial that they did, respondents urge that the summary judgments must be sustained because the Act does not apply to them. Their legal position is that the Act applies only to unfair competition between themselves and other manufacturers and distributors and even if it does not apply to them alone, it is so limited that it does not prevent them from selling to appellant at one price and to Dale or any other retailer in competition with appellant at a lesser price, since appellant and Dale are in the same locality and the discrimination prohibited by the Act is between retailers in different geographical sections of the city. On this construction the Act applies only to intentional discrimination in prices to a purchaser on the east side of town over one on the west side.

In respect of point one respondents urged that the Act was designed to outlaw the practice of a predatory competitor who would move into a geographic area so distinct from others as to be a separate market, cut prices in that area and drive competition from it. When the competition had been driven out, the competitor would raise its prices, realize monopoly profits which would then be used in the conquest of new areas by like methods.

If this interpretation is accepted, respondents or any of them, are prohibited only from discriminatory practices against each other. Each would have a complete license to intentionally, by unfair competitive practices, destroy any retailer. To support this position, respondents argue that the Act has been amended many times, and if the Legislature had desired to forbid differentials in prices to individual purchasers, it could have said so in specific language merely by copying section (a) of the Robinson-Patman Act, 15 U.S.C. § 13: ‘It shall be unlawful for any person engaged in commerce * * * either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality * * *.’ Respondents cite no cases in support of this position.14

The argument of respondents on this point amounts to nothing but their ipse dixit that the Act should be so construed.

In our opinion, a reading of the various applicable sections of the Act makes it quite probable that the Legislature did not adopt the proposal to include Robinson-Patman language in the 1961 proposal because it felt it was unnecessary to do so.

Section 17040 of the Act reads: ‘It is unlawful for any person engaged in the production, manufacture, distribution or sale of any article or product of general use or consumption, with intent to destroy the competition of any regular established dealer in such article or product, or to prevent the competition of any person who in good faith, intends and attempts to become such dealer, to create locality discriminations.’

Section 17002 provides: ‘This chapter shall be liberally construed that its beneficial purposes may be subserved.’

It is elementary that statutes are to be construed to give a reasonable result consistent with the legislative purpose. (Pacific Tel. & Tel. Co. v. Public Util. Com., 62 A.C. 671, 691, 44 Cal.Rptr. 1, 401 P.2d 353.)

Moreover, the Act when read as a whole, adds convincing support to appellant's position. Section 17042 provides that ‘Nothing in this chapter prohibits any of the following: (a) A selection of customers. (b) A functional classification by any person of any customer as broker, jobber, wholesaler or retailer. (c) A differential in price for any article or product as between any customers in different classifications.’ Under the license granted by this section, suppliers such as respondents here, are permitted to sell at one price to a rack-jobber and at another to a retailer. However, it seems to us inescapable that in expressly allowing each of these exceptions, the Legislature was directly concerned with relationships between suppliers and their customers not included within any one of these exceptions. Again, section 17045 expressly covers purchasers in providing that ‘[t]he secret payment or allowance of rebates, refunds, commissions, or unearned discounts, whether in the form of money or otherwise, or secretly extending to certain purchasers special services or privileges not extended to all purchasers purchasing upon like terms and conditions, to the injury of a competitor and where such payment or allowance tends to destroy competition, is unlawful.’ (Emphasis added.) This section was part of the original Act and in our opinion was intended in part to prevent discriminatory acts within the purview of the statute against customers of the same distributor or manufacturer.

We are of the opinion too that the Act is not limited in its application to purchasers in different geographic sections of a city. As originally promulgated the Act provided that ‘It shall be unlawful for any person * * * with the intent to destroy the competition of any regular established dealer * * * or to prevent the competition of any person * * * to discriminate between different sections, communities or cities or portions thereof of this state * * *.’ (Emphasis added.) (Stats.1913, ch. 276, p. 508, § 1.) In 1931, the Legislature amended the Act and added ‘or between different locations in such sections, communities, cities or portions thereof * * * by selling * * * in one location in such section, community, or city * * *.’15 This amendment and the amendments of 1935, proscribing sales below cost and loss leaders materially changed the complexion of the Act from one principally concerned with geographic price discrimination to one concerned with all forms of injury to competition and competitors.

As the Act was originally worded, it may be as respondents contend in connection with their first point, that the Legislature sought to prevent a common economic practice whereby large chain stores lowered prices in one area, constituting a severable market, until the competition from smaller businesses and competitors is eliminated concurrently reducing losses so suffered by higher prices charged in another area. (Foremost Dairies, Inc. v. Thomason, Mo., 384 S.W.2d 651, 659; Emmett H. Wilson, California Unfair Practices Act and Fair Trade Act, 27 A.B.A.J. 249.) By forbidding the sale or furnishing of a product at a lower price in one section, community or city, ‘or any portion thereof’ the Legislature covered the entire range of separable marketing areas and eliminated the practice described. The phrases ‘or between different locations' and ‘by selling or furnishing an article * * * in one location in such section, community, or city or any portion thereof, than in another’, although appearing to be geographic, in context must refer to businesses within the same location. The phrases excerpted have no meaningful relationship to separate marketing areas, which are adequately included in the first clause of section 17031. Any other conclusion would render the addition of the phrase ‘or different locations' a mere redundancy.

We therefore hold that sections 17031 and 17040 do prohibit price discrimination by a distributor between purchasers from the distributor in competition with each other in the same locality.

Appellant urges too that sections 17030, 17043 and 17044, supra, prohibit the sale (including advertising for sale) of products below cost or as loss leaders. This point is not based on sales by respondent record companies, but upon the collusion of respondents in such acts by Dale and Master Music under section 17048. Appellant argues that Master Music's sales were below cost (as defined in sections 17026, 17027 and 17028), and that respondents participated in such sales.

Again, respondents do not dispute the price at which Master Music advertised and sold records purchased from them, but challenge the sufficiency of Preussner's affidavit to raise the issue of their knowing participation in such advertising.

We have already decided, in our discussion on price discrimination, that a triable issue exists concerning respondents' payment for the advertisement of June 2, and their knowledge of the contents thereof. It is that very price discrimination, if it exists, which has enabled Master Music to sell respondents' records below cost and as loss leaders.

In view of that discussion, it would be illogical to now hold that the fact of respondents' collusion in advertising for these unlawful sales is not a triable issue of fact.

No showing of intent is required by section 17044 (prohibiting the use of loss leaders), although section 17030 (defining loss leaders) does require a showing that such sales were for the purpose of promoting sales of other merchandise; tended to mislead or deceive purchasers; or diverted trade or otherwise injured competition.

Appellant has declared, and thus put in issue, the fact of trade diversion.

Respondents urge further that appellant fails to show that Dale sold below his actual cost as a wholesaler, or that Master Music sold below its actual cost as a retailer.

Appellant's argument in this respect is that Master Music, if doing business in the ordinary channels of retail trade, would be allowed a discount of 38% which would permit it to sell records at 62% plus overhead. Instead, appellant says, Master Music sold records at a 50% discount and could do so only because it acquired its records at rack-jobbers' prices. Appellant's argument, if supported by facts, does not do violence to the statute.

“Cost' as applied to distribution means the invoice or replacement cost, whichever is lower, of the article or product to the distributor and vendor, plus the cost of doing business by the distributor and vendor and in the absence of proof of cost of doing business a markup of 6 percent on such invoice or replacement cost shall be prima facie proof of such cost of doing business.' (Section 17026). ‘In establishing the cost of a given article [any] * * * other sale outside of the ordinary channels of trade may not be used as a basis for justifying a price lower than one based upon the replacement cost as of the date of the sale of the article or product replaced through the ordinary channels of trade * * *.’ (Section 17027). “Ordinary channels of trade' means those ordinary, regular and daily transactions in the mercantile trade whereby title to an article or product, in no way damaged or deteriorated, is transferred from one person to another * * *.' (Section 17028). In addition the Act provides that ‘a merchant who hires labor at less than the ‘prevailing’ wage shall include it at the prevailing rate when computing his ‘cost’, and ‘in kind’ purchases of materials shall be computed at ‘prevailing’ prices.' (Sections 17075, 17076, 17077; see Barron, California Antitrust-Legislative Schizophrenia, 35 So.Cal.Law R. 393, 403.) Combined with sections 17002 and 17049, the above outlined legislative scheme is clearly susceptible to application to the facts at bench. Cost may not be established by reference to sales outside the ordinary channels of trade. Ordinary channels of trade can only be determined by reference to the article or product before the court and in the context which such article is actually sold. Thus, in looking at retail trade situations, cost must be determined by applyin the statutory definitions to retail outlets. Any other result would allow wholesalers to unfairly compete with retailers, whereby competition would not merely be injured, but would be destroyed.

Appellant's cause of action for declaratory relief is unsupported by any facts in the declarations in opposition to the motion. Summary judgment was proper on this issue.

Summary judgments in respect of declaratory relief are affirmed.

In all other respects, the judgments are reversed, appellants to recover costs on appeal.

FOOTNOTES

1.  All references to code sections will be to the Business & Professions Code, unless otherwise noted.

2.  The statute permits such sales to a rack-jobber. Section 17042 reads: ‘Nothing in this chapter prohibits any of the following: (a) A selection of customers. (b) A functional classification by any person of any customer as broker, jobber, wholesaler or retailer. (c) A differential in price for any article or product as between any customers in different functional classifications.’

3.  Although the identity of Dale and Master Music is alleged in the complaint on information and belief, the declarations leave no doubt but that they too are one and the same; [for the purpose of summary judgment.] It is stated in 36 Am.Jur. at page 565: ‘* * * [W]here the corporate form is assumed by individuals for the purpose of evading the law against monopoly, and as a cloak under which unlawful practices may be concealed, the courts will disregard the appearance and consider the substance, and thus determine the propriety of the transaction under scrutiny * * *.’

4.  Since reversal is required on other grounds, we make no decision as to the propriety of appellant's request for declaratory relief.

5.  These advertisements were attached to Preussner's affidavit as exhibits, and substantiate his declaration.

6.  This statement, except as it may be inferred from the immediately preceding statements, is a conclusion. However, the inference which we believe can properly be made from the preceding statements is fortified by the admission in the declaration of Capitol (infra) that advertising allowances were granted to Guaranteed without any indication that such allowances were eliminated after the opening of Master Music. Pearce for RCA admits an allowance for a special promotional program (infra). Columbia alone directly denies paying for any advertising (infra).

7.  A further reading of this declaration, unaided by the others, which, of course, cannot be ignored, makes it abundantly clear that Capitol knew that Dale as Master Music opened for business on June 1, 1963. Capitol in this declaration avers, and it also appears from the others that it was selling to Dale doing business as Guaranteed. In the circumstances it requires some strain to reject the inference that Dale as Master Music was obtaining records from Dale as Guaranteed. To the contrary, the law in respect of summary judgment, as will appear, requires that the trier of fact draw such an inference. It should be noted too at this point that none of the declarations filed by any of the respondents states directly any lack of knowledge that Master Masic opened on June 1, 1963, or that they did not know that Master Music was Dale.

8.  Nothing appears in this affidavit to show that Capitol did not know that Master Music opened for business on June 1, 1963.

9.  This averment reverts to one of Capitol's legal points, (infra) that the Act applies only to a competitor of Capitol and is pregnant with the admission that Capitol was not concerned with the effect of its conduct on the competition between Harris and Master Music.

10.  It is clear from these averments that respondent RCA not only knew of Dale's activities as Master Music, but cooperated undoubtedly in a legitimate manner in at least one instance—although it denied other requests from Dale for help.

11.  These averments not only show knowledge by RCA but show that RCA was alerted to what could happen. The averment that RCA made no sales to Guaranteed ‘for * * * resale to Master Music * * *’ is not a statement that no such sales were made or that RCA did not know that such sales were made, and is actually implicit with the admission that Guaranteed on its own made such sales despite the fact that RCA did not sell to Guaranteed for resale to Master Music.

12.  This declaration, accepted alone and at its face value, shows that Columbia was aware of the factual situation in the industry, if not specifically as to what Dale was doing with Master Music, and it fortifies the statement in Exhibit ‘A’ to the complaint, to the effect that rack-jobbers were abusing their preferred classification. It is noted that Columbia does say sales were not made in violation of its agreement and/or they didn't know that such sales were made. The first portion of this statement is, of course, a conclusion. Insofar as it denies knowledge of the sales, it raises a triable issue of fact.

13.  The emphasized sentence is peculiarly applicable to the case at bench, since an examination of the proper employees of respondents may be the source of evidence which appellant can adduce in support of his position. This assumption is not hypothetical since it appears from the record that after judgments were entered in the case at bench, appellant, in a procedure to obtain a new trial which was denied, urged as one of his grounds, that he had not had the opportunity to take the depositions of employees of respondents. Appellant raises this point as additional reason for reversal. We do not pass thereon, since it is not necessary to a decision of this appeal.

14.  Two superior court cases are cited: Millage v. Interstate Bakeries, Inc., Sup.Ct. San Bern. Co. (April 25, 1957, No. 8473); Hardware Centers, Inc. v. Blue Chip Stamp Co., Sup.Ct.L.A. Co. (October 16, 1963, No. 804,308.) The Millage case is quoted as holding ‘* * * Section 17040 * * * applies only to such discriminations as are made with intent to destroy the competition of a dealer who competes with the person creating the discrimination by selling at a lower price. * * * [T]he legislature did not intend to declare unlawful a sale at a lower price in one locality than in another where there was no intent to destroy competition with the person who was making the sale * * *.’ The facts in etither case are not before us but it does appear from the one quoted excerpt in the briefs, which is set forth substantially herein, that the court did find ‘* * * there was no intent to destroy competition * * *.’ We have made no independent examination of these cases and do not feel called upon to do so.

15.  ‘§ 17031. Locality discrimination. Locality discrimination means a discrimination between different sections, communities or cities or portions thereof, or between different locations in such sections, communities, cities or portions thereof in this State, by selling or furnishing an article or product, at a lower price in one section, community or city, or any portion thereof, or in one location in such section, community, or city or any portion thereof, than in another.’

ROTH, Presiding Justice.

HERNDON and FLEMING, JJ., concur.