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OAKLAND-ALAMEDA COUNTY BUILDERS' EXCHANGE, a Corp., E. A. Patterson Co., a Corp., and Floor Styles, Inc., a Corp., Plaintiffs and Appellants, v. F. P. LATHROP CONSTRUCTION COMPANY, a Corporation, Defendant and Respondent.
Plaintiffs, a builders' exchange which operates a bid depository1 and two subcontractors, have appealed from an adverse judgment entered following the granting of defendant general contractor's motion for judgment on the pleadings. The motion was made and granted on the ground that the rules of the bid depository upon which the plaintiffs predicated their right to relief are illegal per se under the provisions of the Cartwright Act. (Bus. & Prof.Code, §§ 16700–16758.)
The crucial issue on this appeal is whether those rules demonstrate on their face an operation which is illegal per se as a restraint of trade in violation of the provisions of the Cartwright Act. (Bus. & Prof.Code, §§ 16720–16758.) An examination of the applicable precedents, both general and with particular reference to bid depositories, leads to the conclusion that the rules in question in themselves do not establish illegality per se, and that the judgment on the pleadings must be reversed. In so concluding the validity of a provision terminating the price fixing process is upheld and the principles set forth in the cases of Carl N. Swenson Co. v. E. C. Braun Co. (1969) 272 A.C.A. 447, 77 Cal.Rptr. 378, and People v. Inland Bid Depository (1965) 233 Cal.App.2d 851, 44 Cal.Rptr. 206, which were respectively decided after trial and hearing, are distinguished in part and are rejected insofar as inconsistent with the view enunciated below.
The Pleadings
By the complaint the builders' exchange sought a declaration adjudicating the respective rights and obligations of the builders' exchange and the general contractor under the rules and regulations of the bid depository, which are set forth as an exhibit to the complaint, and the defendant's agreement to abide by those rules when he requested and accepted subcontractors' bids from the bid depository in connection with a public work for which he was the successful bidder. In a second cause of action a painting subcontractor seeks to recover $2,817.20 for loss of profit because of the defendant's breach of contract in awarding the painting subcontract to another subcontractor in violation of its agreement with the bid depository; and in the third cause of action the same subcontractor seeks a declaration of the respective rights and duties of the subcontractor and general contractor under the facts referred to above. The fourth and fifth causes of action present similar requests for relief by a carpeting subcontractor which claims $2,659.21 for loss of profits.
The defendant in answering the complaint admitted that the exhibits attached to the complaint correctly set forth the rules and regulations of the bid depository, a copy of the form designed for signature by each bidding subcontractor, and a copy of the form to be signed by a general contractor by which the general contractor agrees to be bound by those rules and regulations; that the general plan of operation of the bid depository requires a subcontractor or supplier desiring to submit a bid to any person or persons through the bid depository to submit to the bid depository a separate and sealed bid addressed to each general contractor to whom the subcontractor or supplier desires to bid, and to file with the bid custodian in a separate sealed envelope an identical copy of each bid filed by him; that the plan permits the general contractor to refuse to accept delivery of the sealed bid of any subcontractor or supplier with whom he does not want to deal; that pursuant to the foregoing procedure on March 1, 1966 various subcontractors submitted bids to the bid depository for use by general contractors on the work referred to below; that on that date defendant executed a general contractor's form in which it acknowledged that it had received from the bid depository, in connection with the bidding for the work of constructing an auditorium at Chabot College, 11 bids from firms engaged in installation of gypsum board and/or lathing and plastering, 4 bids from firms engaged in painting, including one of the plaintiffs in this action, 4 bids from firms engaged in masonry work, 7 bids from firms engaged in installing resilient flooring and/or carpeting, including the other subcontractor plaintiff, 6 bids from firms engaged in roofing, waterproofing, membrand (sic) and dampproofing; 2 bids from firms furnishing steel decking; and 7 bids from firms engaged in structural steel and/or miscellaneous and ornamental metal work; that the form signed recites in part, ‘The undersigned agrees to abide by the rules of the Oakland-Alameda County Builders' Exchange Bid Depository as to the above project and to pay any depository fees payable by the undersigned under Rule 10 of said Bid Depository'2 ; that defendant was awarded the contract for the auditorium and confirmed and issued its contracts to the low bidders through the bid depository in the above classifications except for painting, carpeting and steel decking, and that defendant entered into contracts with parties other than those listed on the form it had executed for the painting and carpeting work.
The defendant denied that there was any enforceable contract between it and the bid depository. As separate defenses to each cause of action it alleged as follows: first, that any cause of action is barred by the provisions of the Cartwright Act, particularly sections 16720, subdivision (a), 16720, subdivision (a) [sic (e)] (4), and 16726 of the Business and Professions Code3 ; second, that any cause of action is barred by the provisions of the Sherman Anti-Trust Act (15 U.S.C.A. §§ 1–7)4 ; and third, that the alleged agreement is void by reason of duress, menace and undue influence. Defendant further alleged that the first, second and third causes of action for declaratory relief cannot be properly entertained because the allegations reflect that the questions reaised in those three causes of action may all be resolved in the causes of action to recover for the actual breach.5 It also asserted that the second and fourth causes of action, in which the respective subcontractors seek to recover money damages for the alleged breach of contract by the defendant, are not within the jurisdiction of the superior court.6
The complaint contains further allegations relating to the purpose, effect and function of the bid depository7 . These allegations were denied by defendant. Defendant also denied that the subcontractor plaintiffs were respectively the low bidder in the painting and carpeting classifications, and that they had demanded that it accept and acknowledge its contract with them.
General Principles
In order to properly dispose of the issues raised by the admitted allegations of the complaint and the defendant's special defense it is necessary to consider the general principles governing the subject matter of contracts which are illegal because they restrain trade, and the precedents in which those principles have been applied to bid depositories. The bid depository rules set forth in the complaint can then be tested in the light of those principles and precedents.
‘The California law of antitrust, commonly known as the Cartwright Act (Bus. & Prof.Code, §§ 16700–16800) is patterned upon the federal Sherman Act and both have their roots in the common law; hence federal cases interpreting the Sherman Act are applicable with respect to the Cartwright Act. [Citation.]’ (Chicago Title Ins. Co. v. Great Western Financial Corp. (1968) 69 Cal.2d 305, 315, 70 Cal.Rptr. 849, 855, 444 P.2d 481, 487. See also Carl N. Swenson Co. v. E. C. Braun Co., supra, 272 A.C.A. 447, 449, 77 Cal.Rptr. 378; and People v. Santa Clara Valley Bowling Proprietors' Assn. (1965) 238 Cal.App.2d 225, 232, 47 Cal.Rptr. 570, and cases therein collected.)
‘Under the Sherman Act, any agreement by a group of competitors to boycott a particular buyer or group of buyers is illegal per se. United States v. General Motors, 384 U.S. 127, 146–147, 786 S.Ct. 1321, 16 L.Ed.2d 415 (1966); Klor's v. Broadway-Hale Stores, 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959).’ (FMC v. Aktiebolaget Svenska Amerika Linien (1968) 390 U.S. 238, 250, 88 S.Ct. 1005, 1012, 19 L.Ed.2d 1071. See, in addition to the cases cited, Silver v. New York Stock Exchange (1963) 373 U.S. 341, 347, 83 S.Ct. 1246, 10 L.Ed.2d 389; White Motor Company v. United States (1963) 372 U.S. 253, 259–260, 83 S.Ct. 696, 9 L.Ed.2d 738; Northern Pac. R. Co. v. United States (1958) 356 U.S. 1, 5, 78 S.Ct. 514, 2 L.Ed.2d 545; Fashion Originators' Guild of America v. Fed. Trade Comm'n. (1941) 312 U.S. 457, 465, 61 S.Ct. 703, 85 L.Ed. 949; Mechanical Contractors Bid Depository v. Christiansen (10th Cir. 1965) 352 F.2d 817, 820, fn. 10 and accompanying text; Christiansen v. Mechanical Contractors Bid Depository (Utah Cent.Div.1964) 230 F.Supp. 186, 189, fn. 7; People v. Santa Clara Valley Bowling Proprietors' Assn., supra, 238 Cal.App.2d 225, 233–234 and 235–237, 47 Cal.Rptr. 570; People v. Inland Bid Depository, supra, 233 Cal.App.2d 851, 860, 44 Cal.Rptr. 206; 6A Corbin on Contracts (1962) § 1406, pp. 209–218; 5 Williston on Contracts (rev. ed. 1937) § 1658, pp. 4665–4669; and 2 Rest., Contracts, § 515, par. (c) and Illustrations 14 and 15, p. 993.)
It is also established ‘that resale price fixing is a per se violation of the [Sherman] law whether done by agreement or combination. United States v. Trenton Potteries Co., 273 U.S. 392, 47 S.Ct. 377, 71 L.Ed. 700 (1927); United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129 (1940); Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, 340 U.S. 211, 71 S.Ct. 259, 95 L.Ed. 219 (1951); United States v. McKesson & Robbins, Inc., 351 U.S. 305, 76 S.Ct. 937, 100 L.Ed. 1209 (1956).’ (Albrecht v. Herald Co. (1968) 390 U.S. 145, 151–152, 88 S.Ct. 869, 873, 19 L.Ed.2d 998. See, in addition to the cases cited, U. S. v. Arnold, Schwinn & Co. (1967) 388 U.S. 365, 373, 87 S.Ct. 1856, 18 L.Ed.2d 1249; United States v. Sealy, Inc. (1967) 388 U.S. 350, 355, 87 S.Ct. 187, 18 L.Ed.2d 1238; United States v. General Motors (1966) 384 U.S. 127, 147, 86 S.Ct. 1321, 16 L.Ed.2d 415; White Motor Company v. United States, supra, 372 U.S. 253, 259, 83 S.Ct. 696, 9 L.Ed.2d 738; Northern Pac. R. Co. v. United States (1958) 356 U.S. 1, 5, 78 S.Ct. 514, 2 L.Ed.2d 545; Schwegmann Bros. v. Calvert Distillers Corp. (1951) 341 U.S. 384, 386, 71 S.Ct. 745, 95 L.Ed. 1035; People v. Building Maintenance Contractors' Assn. (1953) 41 Cal.2d 719, 727, 264 P.2d 31; People v. Santa Clara Valley Bowling Proprietors' Assn., supra, 238 Cal.App.2d 225, 233–234, 47 Cal.Rptr. 570; Orrick, op. cit., fn. 1 above, 19 Hastings L.J., at pp. 515–519; Comment, op. cit., fn. 1 above, 114 U. of Pa.L.Rev. at p. 232; Schueller, op. cit., fn. 1 above, 58 Mich.L.Rev. at pp. 507–509; 6A Corbin on Contracts (1962) § 1407, pp. 219–226; 5 Williston on Contracts (rev. ed. 1937) §§ 1648 and 1658, pp. 4631–4636 and 4669–4670; and 2 Rest., Contracts, § 515, par. (c), and Illustration 8, p. 992.)
If the trade practice under attack is unlawful per se it will not be saved ‘by reference to the need for preserving the collaborators' profit margins' or ‘by reference to the allegedly tortious conduct against which a combination or conspiracy may be directed.’ (United States v. General Motors, supra, 384 U.S. 127, 146–147, 86 S.Ct. 1321. See also Klor's v. Broadway-Hale Stores (1959) 359 U.S. 207, 212, 79 S.Ct. 705; Associated Press v. United States (1945) 326 U.S. 1, 16, fn. 15, 65 S.Ct. 1416, 89 L.Ed. 2013; Fashion Originators' Guild of America v. Fed. Trade Comm'n. (1941) 312 U.S. 457, 467–468, 61 S.Ct. 703; Sugar Institute v. United States (1936) 297 U.S. 553, 599–600, 56 S.Ct. 629, 80 L.Ed. 859; Christiansen v. Mechanical Contractors Bid Depository, supra, 230 F.Supp. 186, 192–193; and Schueller, op. cit., fn. 1, supra, 58 Mich.L.Rev. at pp. 506–507; and 6A Corbin on Contracts (1962) §§ 1403 and 1414, pp. 189–199 and 285–289.)
In People v. Building Maintenance etc. Assn., supra, the court observed, ‘Since the Cartwright Act articulates in greater detail a public policy that has long been recognized at common law, Speegle v. Board of Fire Underwriters, supra, 29 Cal.2d 34, 44, 172 P.2d 867), these provisions must be considered in the light of common-law precedents. Moreover, it may be assumed that the broad prohibitions of the Cartwright Act are subject to an implied exception similar to the one that validates reasonable restraints of trade under the federal Sherman Antitrust Act. See Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 60, 31 S.Ct. 502, 55 L.Ed. 619.’ (41 Cal.2d at p. 727, 264 P.2d at pp. 36–37. See also Associated Plumbing Contractors of Marin etc. Counties, Inc. v. F. W. Spencer & Son, Inc. (1963) 213 Cal.App.2d 1, 8, 28 Cal.Rptr. 425.) When the trade practice is not illegal per se it is necessary to determine the market impact of the practice and apply the rule of reason. (See United States v. Arnold, Schwinn & Co., supra, 388 U.S. 365, 372–374, 87 S.Ct. 1856; Silver v. New York Stock Exchange (1963) 373 U.S. 341, 360, 83 S.Ct. 1246; White Motor Company v. United States, supra, 372 U.S. 253, 261–262, 83 S.Ct. 696; Northern Pac. R. Co. v. United States, supra, 356 U.S. 1, 5, 78 S.Ct. 514; Sugar Institute v. United States,supra, 297 U.S. 553, 597–599, 56 S.Ct. 629; Appalachian Coals, Inc. v. United States (1933) 288 U.S. 344, 359–361, 53 S.Ct. 471, 77 L.Ed. 825; Chicago Board of Trade v. United States (1918) U.S. 231, 238, 38 S.Ct. 242, 62 L.Ed. 683; United States v. American Tobacco Co. (1911) 221 U.S. 106, 178–180, 31 S.Ct. 632, 55 L.Ed. 663; Standard Oil Co. of New Jersey v. United States (1911) 221 U.S. 1, 49–60, 31 S.Ct. 502, 55 L.Ed. 619; Unifted States v. Bakersfield Associated Plumbing Contractors, Inc. (S.D.Cal., North.Div.1958) 1958 CCH Trade Cases, ¶69087, p. 74296 at p. 74305; People v. Santa Clara Valley Bowling Proprietors' Assn., supra, 238 Cal.App.2d 225, 232–233, 47 Cal.Rptr. 570; Associated Plumbing Cotractors of Marin etc., Counties, Inc. v. F. W. Spencer & Son, Inc., supra, 213 Cal.App.2d 1, 8, 28 Cal.Rptr. 425; Milton v. Hudson Sales Corp. (1957) 152 Cal.App.2d 418, 441–442, 313 P.2d 936; Loevinger, The Rule of Reason in Antitrust Law (1964) 50 Va.L.Rev. 23; 6A Corbin on Contracts (1962) §§ 1379 and 1402, pp. 29–33 and 179–189; 5 Williston on Contracts (rev. ed. 1937) § 1636 and § 1658, pp. 4580–4584 and 4665–4668; and see 2 Rest., Contracts, §§ 514 and 515; § 515 comment a, p. 989, and Illustration 16, p. 993. Cf. Christiansen v. Mechanical Contractors Bid Depository, supra, 230 F.Supp. 186, 193.) Over a half century ago Justice Brandeis articulated the test, in language which is still vital today. He said for a unanimous court, ‘Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences.’ (Chicago Board of Trade v. United States, supra, 246 U.S. 231, 238, 38 S.Ct. 242, 244. See also Albrecht v. Herald Co., supra, 390 U.S. 145, 155, fn., 88 S.Ct. 869, 19 L.Ed.2d 998, Douglas, J., concurring; U. S. v. Arnold, Schwinn & Co., supra, 388 U.S. 365, 385, 87 S.Ct. 1856, Stewart, J., concurring in part; White Motor Company v. United States, supra, 372 U.S. 253, 261–262, 83 S.Ct. 696.)
Validity of the Rules
1. Closing time for bids
Rule 4 of the bid depository provides a closing time schedule for subcontractor's bids which is four hours prior to the time for bid opening on the general contract when that time is at 1 p. m. or later, and 4 p. m. of the previous normal working day when the general bid opening is earlier.8 Rule 9 provides, among other conditions discussed below, that the bids addressed to the general contractors shall be made available for delivery to the addressees as soon as practicable after the expiration of the time within which bids may be deposited.9
People v. Inland Bid Depository, supra, 233 Cal.App.2d 851, 44 Cal.Rptr. 206 involved an appeal by the People from a judgment which approved revised rules of a bid depository after the court, following a trial, had found that the prior rules violated the provisions of the Cartwright Act (see fn. 3 above). The trial court's final judgment countenanced a cutoff time prior to the time for the award of the general contractor for both subcontractors using the depository and subcontractors not using the depository who wished to submit bids to a general contractor that was securing bids from the depository. As stated by the appellate court, ‘In other words, boycotts and other restraints, illegal per se, were enjoined by the court only with respect to submission of bids by such nonmembers when this occurred more than four hours in advance of the bid opening time. The evidence shows that during the period immediately preceding the awarding authority's time for receipt of bids from the general contractor is precisely the time of the most intensive competition by the subcontractors, even to the last few minutes, when bids are frequently lowered and the general contractor is able to put together a successively lower prime bid as the time for the general contractor's submission of his bid approaches.’ (233 Cal.App.2d at pp. 861–862, 44 Cal.Rptr. at p. 213.) A divided court ruled that it was illegal to permit what it considered a boycott and price tampering for the limited period (233 Cal.App.2d at p. 864, 44 Cal.Rptr. 206).10 The trial court upon finding that the rules in this case had a similar cutoff time properly accepted the law as declared by the Court of Appeal. (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455–456, 20 Cal.Rptr. 321, 369 P.2d 937.) This court, however, is under no such constraint. (3 Witkin, Cal.Procedure, Appeal, § 221, p. 2436.) The decision and the reasons advanced by the majority of the judges of the Fifth District are entitled to great weight. Also to be considered are the dissenting opinion, and the fact that the decision was not subected to review by the state Supreme Court through petition for hearing.11 For the reasons set forth below it is concluded that the closing time provision does not render the rules illegal per se.
In the first place the restraint is not directly on the price for which the work may be done. Any subcontractor can make a timely bid at any price he chooses through the depository or directly to a general contractor. (The requirement that general contractor put the bid in the depository is discussed below.) For the same reason there is no boycott in the rules themselves. Any subcontractor can bid either through the bid depository or directly to the general contractor prior to the time fixed. The rule is analogous to that approved in Chicago Board of Trade v. United States, supra, which is referred to as follows: ‘The restriction was upon the period of price-making. It required members to desist from further price-making after the close of the call until 9:30 a. m. the next business day: but there was no restriction upon the sending out of bids after close of call. Thus it required members who desired to but grain ‘to arrive’ to make up their minds before the close of the call how much they were willing to pay during the interval before the next session of the Board.' (246 U.S. at p. 239, 38 S.Ct. at p. 244. See also U. S. v. New York Coffee & Sugar Exchange (1924) 263 U.S. 611, 619–620, 44 S.Ct. 225, 68 L.Ed. 475; and Board of Trade of City of Chicago v. Christie Grain & Stock Co. (1905) 198 U.S. 236, 246, 25 S.Ct. 637, 49 L.Ed. 1031.)
In the Inland Bid Depository case the appellate court relied on evidence to show that lower bids were obtained by the competitive process in the period immediately preceding the award of the general contract. (233 Cal.App.2d at pp. 857 and 861–862, 44 Cal.Rptr. 206. See also Southern California Acoustics Co., Inc. v. C. V. Holder, Inc. (1969) 71 A.C. 747, 754, fn. 7, 79 Cal.Rptr. 319, 456 P.2d 975.) The trial court found, however, that the increase in building costs brought about by the operation of the bid depository was de minimis. The instant case has been determined without any evidence, or even allegation, that the facts upon which the court relied in the earlier case existed by reason of the operation of this plaintiff's bid depository.12
Trade and commerce by definition imply that at some time a bargain will be struck. The system of competitive bidding is well recognized as, and is mandatory in connection with most public contracts as, a method of securing the performance of work at the lowest competitive price. It is obvious that there must be some interval between the time the general contractor receives the ultimate bid from a subcontractor, and the time he computes and makes his bid to the awarding authority. An agreement to make this period uniform for general and subcontractros alike is certainly a restraint on trade, but it cannot be considered an unreasonable restraint on trade without indicting the whole competitive bidding process.
From all that appears from the pleadings in this case it may be shown that subcontractors are dissuaded from bidding until the last possible interval of time in the absence of the orderly system provided by a bid depository; that bids are purposely high to compensate for bid shopping or bid peddling; and that the number of subcontractors bidding on any particular job is reduced in the absence of conditions enhancing fair competition. (See Scheuller, Bid Depositories (1960) 58 Mich.L.Rev. 497, 499–500 and cf. pp. 504–505, and references fn. 12 above.) In any event, the pleadings do not permit an empirical finding on either score. As stated in White Motor Company v. United States, supra, ‘* * * we know too little of the actual impact of * * * that restriction * * * to reach a conclusion on the bare bones of the documentary evidence before us.’ (372 U.S. at p. 261, 83 S.Ct. at p. 701, 9 L.Ed.2d 738; and see Schuller, op. cit., at p. 506.)
Similar provisions concerning the time of depositing and opening bids have been upheld both by the court which recently approved the Inland Bid Depository case (cf. Carl N. Swenson Co. v. E. C. Braun Co., supra, 272 A.C.A. 447, 452, 77 Cal.Rptr. 378, with Associated Plumbing Contractors of Marin etc. Counties, Inc. v. F. W. Spencer & Son, Inc., supra, 213 Cal.App.2d 1, 4 and 8, 28 Cal.Rptr. 425), and by the judges of a United States District Court sitting in this state. (United States v. Bakersfield Associated Plumbing Contractors, Inc. (S.D.Cal. No.Div.1958) 1958 Trade Cases, ¶69087, pp. 69087, rule ‘7’ and 69087, and id. (1958) 1959 Trade Cases, 69266, pp. 75037 and 75039, rule ‘7.’) In United States v. Sen Francisco Electric Cont. Assn. (N.D.Cal. So.Div.1944) 57 F.Supp. 57 the principal question was whether the operation under the bid depository restrained interstate commerce. The court did observe: ‘So here, the most that the depository system achieved was to substitute limited and restricted for unlimited and unrestricted bidding. It did not prevent an electrical contractor from doing business as a ‘free lance’ outside the depository system. The record shows that many did so, without hindrance either from the contractors or the unions.' (57 F.Supp. at p. 66.) Although the foregoing federal cases are noted and distinguished in part in the Inland Bid Depository case (see 233 Cal.App.2d at pp. 858 and 863, 44 Cal.Rptr. 206; note also Christiansen v. Mechanical Contractors Bid Depository, supra, 230 F.Supp. 186, 193, fn. 21) the distinctions do not fully rebut the approval of the competitive bidding process which supports the rules at issue in this case.
2. Boycott of Subcontractors
The Inland Bid Depository case relies upon Christiansen v. Mechanical Contractors Bid Depository, supra, 230 F.Supp. 186 (subsequently affd. as Mechanical Contractors Bid Depository v. Christiansen (10th Cir. 1965) 352 F.2d 817, cert. den. (1966) 384 U.S. 918, 86 S.Ct. 1365, 16 L.Ed.2d 439.) That case did not expressly deal with the provision fixing the time for closing bids, but concentrated on the requirement that the general contractor making a request for bids from the depository would use only such bids in preparing his bid (‘Rule V’), a prohibition against splitting bids into classes or work (‘Rule III’), and a restriction prohibiting nonbidding members from submitting further bids for a period of 90 days except where there was a drastic revision in the plans (‘Rule VIII’). The District Court ruled, ‘I doubt that Rule V, as implemented by the required agreement on the part of general contractors bidding through the Depository, can be deemed anything but a per se violation. But standing alone, or in combination with the other provision of the integrated regulations, in my opinion this rule is restrictive of competition to an unreasonable degree and in an unreasonable manner.’ (230 F.Supp., at pp. 189–190.)13
The views in the Christiansen cases must be considered in the light of the fact that use of the bid depository was restricted to its members who comprised a majority of the mechanical contractors in the State of Utah. The requirement that the general contractor use the bid of a member if he elected to receive bids from the depository served to boycott subcontractors who were not members of the depository, and the court found after taking evidence that there was economic pressure on the general contractors to in fact boycott nondepositing subcontractors, and that the freedom of a general contractor to select his subcontractor was commensurately decreased. (See 230 F.Supp. at pp. 190–191 and 352 F.2d at p. 819.) The rules attached to the complaint in this case indicate that ‘any subcontractor or supplier desiring to submit a bid to any person or persons through the Bid Depository’ may use the facilities.14
The rules on their face do not disclose a general plan to exclude or boycott any segment of the subcontractors or suppliers in any particular craft or classification. Defendant asserts that the requirement that a general contractor desiring to use the facilities of the bid depository, who has received or solicited a direct bid, must deposit it in the depository (rule 6, par. b, fn. 14 above), and the restrictions on such a general contractor who wishes to reserve the right to do the work himself (rule 6, par. c, fn. 14 above) render the rules invalid. Here again the issue is not a boycott or price fixing, but a restraint on the time of trading which may or may not be reasonable in the light of all the circumstances. If is noted that the general contractor's bid on his own behalf is an antithetical aspect of the same evil which is found in, and prohibited as, puffing at an auction. (See 5 Williston, Contracts (rev. ed. 1937) § 1664, p. 4695.) It is unnecessary to determine whether the 10 percent qualification on the general contractor's bid is warranted under the circumstances. The rules are severable, and it is not shown in what manner that rule is applicable, or that it restricts the bidding or affects the price generally.
In the Inland Bid Depository case the originall rules which were found illegal by the trial court precluded the general contractor from using any bid not processed by the depository (233 Cal.App.2d at p. 853, 44 Cal.Rptr. 206). The trial court thereafter approved rules which permitted a general contractor to solicit and receive bids outside of the depository so long as he deposited the bids with the depository (id., pp. 853–854, 44 Cal.Rptr. 206). Similar rules were noted in the Swenson case (272 A.C.A. at p. 451, 77 Cal.Rptr. 378). The restraint found illegal in each case does not appear to be the requirement of clearing the bid through the depository, but the provision discussed and approved above, that the price fixing process be terminated at some reasonable time prior to the time of the award of the general contract.
3. Boycott of General Contractors
In the Inland Bid Depository case it was noted that ‘subcontractors who signed the rules or submitted a bid in accordance with the rules could not submit a bid to a contractor who did not use the depository.’ (233 Cal.App.2d at p. 853, 44 Cal.Rptr. at p. 207.) That restriction contained in the original rules was struck down by the trial court. There was a similar boycott of nonusing general contractors in the Christiansen case (see 230 F.Supp. at pp. 190 and 191, and 352 F.2d at p. 819). The District Court stated, ‘[The rules] further encourage mechanical subcontractors bidding through the Bid Depository to boycott general contractors who do not sign the Depository agreement.’ (230 F.Supp. at p. 190.)
The defendant concedes that there is no provision in the bid depository rules attached to the complaint, other than the time of bid closing, which precludes subcontractors using the depository from submitting bids to nonusing general contractors. From all that appears a nonusing general contractor may shop for bids, and receive bids from bid peddlers up to the time of the award of the general contract. Defendants claim that ‘the practical effect as shown by its [the bid depository's] operation, is that subcontractors are not free to bid to general contractors both within and without the depository’ is a matter of fact which cannot be determined from the pleadings on file.
In the Christiansen case (230 F.Supp. at p. 189 (‘Rule VIII’), the Swenson case (272 A.C.A. at pp. 450–451, 77 Cal.Rptr. 378), the Associated Plumbing Contractors case (213 Cal.App.2d at p. 6, 28 Cal.Rptr. 425), and the Bakersfield case (1958 Trade Cases at p. 74301, ‘10’ and 1959 Trade Cases at p. 75039, ‘10’) the rules contained restrictions which would preclude substitution of subcontractors (i. e., shopping and peddling) after the award of the general contract is made. The rules in this case have a provision of similar import.15 Such a substitution is prohibited in public contracts. (Gov.Code, §§ 4100–4113; and see Southern California Acoustics Co., Inc. v. C. V. Holder, supra, 71 A.C. 747, 752–755, 79 Cal.Rptr. 319, 456 P.2d 975; and People v. Inland Bid Depository, supra, 233 Cal.App.2d 851, 863–864, 44 Cal.Rptr. 206.) There is no public interest in protecting the contractor who is attempting to increase his profit at the expense of the subcontractor. (See 71 A.C. at p. 754, fn. 7, 79 Cal.Rptr. 319, 456 P.2d 975.) No illegality should be predicated upon the post-award restrictions whether the general contract awarded is public or private.
From all that appears in the pleadings any general contractor can deal with any subcontractor in any manner it wishes until the time of the award, but if he wants the advantages (lower price?) which may be produced from orderly bidding through the bid depository, he will have to forego his negotiations after the time of closing the subbids, a restriction which it has been concluded does not appear unreasonable on its face.
4. Withdrawal of Bids
In the Bakersfield case the original rules provided for withdrawal of a bid, during an interval between the time the bids were opened, and the time that they were delivered to the general contractor, upon the payment of a penalty (1958 Trade Cases, p. 74301, rule ‘12’, par. ‘B’). The court found from the evidence that this rule afforded an opportunity, and was in fact used, to allow an unsuccessful bidder to buy off the successful bidder by paying the latter's penalty (id., p. 74304). The rule was invalidated in the original judgment (Jertberg, Dist. Judge, subsequently Judge 9th Cir.) which prohibited any rule which ‘(iv) permits any subcontractor to withdraw any bid during the interval between the time such subcontractor's bid is opened at such bid depository, and the time when any such bid is available for delivery to any general contractor by such bid depository.’ (1958 Trade Cases, p. 74306.) In the judgment entered after the submission of revised rules, the court (Yankwich, Chief Dist. Judge16 ) eliminated the foregoing provision. (1959 Trade Cases, p. 75037.) The revised rules for withdrawal were approved in their original form (id., pp. 75039–75040). The court aimed its proscription at the injurious practices that attended the use of the withdrawal privilege.17
In the Inland Bid Depository case the court referred to a similar rule (233 Cal.App.2d at p. 853, 44 Cal.Rptr. 206). It apparently was only of significance insofar as it precluded a subcontractor from withdrawing a bid without penalty during the period between the subbid closing and the general award. A similar rule was given such significance in the Swenson case and found to be illegal upon the precedent established in the earlier case in the Fifth District (272 A.C.A. at p. 452, 77 Cal.Rptr. 378).
Swenson further held illegal a provision which requires that a subcontractor who withdraws a particular separate bid for a craft or classification must also withdraw any combination bid containing the withdrawn bids (id., pp. 452–453, 77 Cal.Rptr. 378).
The rules involved in this case18 permit withdrawal up to the closing time of P.2d 146 subbids without any penalty (rule 8, par. a, fn. 18 above). They do, however, as in Swenson, require the subcontractor to also withdraw ‘any combination containing the items withdrawn’ (rule 8, par. d, fn. 18 above). In Swenson the arbitration award which was questioned depended on whether or not the subcontractor had properly withdrawn its plumbing bid. It was established that it had refused to withdraw its combination bid and that the combination bid was low. On that showing, the rule by requiring arbitrary withdrawal of the low combination bid, operated to restrain trade and fix a price above what should have obtained by true competitive bidding. Whether or not the rule uniformedly requires such a result cannot be determined on the record before us. It would appear to be an illegal condition. In the Bakersfield case the court outlawed a provision restricting combination bids. (See 1958 Trade Cases, p. 74300, rule ‘6’ and comment p. 74304.) Similarly in the Christiansen case a converse restriction against bid splitting was found to be involved. (See 230 F.Supp., p. 189, rule ‘III’ and comment pp. 191–192.)
Nevertheless, the rule in question does not directly affect the respective rights and obligations of the parties to this action. The rules purport to be severable.19 The fact that under particular circumstances an illegal restraint may be effected under one rule should not invalidate the entire procedure. The extent to which the tainted rule affects the construction industry, and particularly its customers, should be considered before arriving at such a drastic adjudication.
The provision for withdrawal of a delivered bid for a substantial mistake (rule 8, pars. b and c, fn. 18 above) appears to be reasonable. (Cf. Drennan v. Star Paving Co. (1958) 51 Cal.2d 409, 415–416, 333 P.2d 757.) They do not leave the door open for the evils discovered and proscribed in the Bakersfield case. The question of the reasonableness of the fee is discussed below.
5. Fees
In the Bakersfield case the court found that the fees collected under a rule which required the successful subbidder to pay 1 percent of the bid price to a maximum of $1,000 was producing substantially more revenue than was required for the ordinary operation and maintenance of the bid depository. (1958 Trade Cases, p. 74300, rule ‘8’ and p. 74303 finding ‘40.’) The first judgment prohibited the collection of any fee from the subcontractor (id., p. 74306). The judgment with respect to the revised rules prohibited any rule which ‘(iii) requires that subcontractors who have been awarded contracts as a result of bids deposited at such bid depository shall pay any fees which, in the aggregate and in combination with any other fees collected pursuant to any such rule, are in excess of the amount reasonably required for the operation and maintenance of such bid depository; * * *’ (1959 Trade Cases, p. 75037.)
The latter conclusion is in accord with prevalent authority. In the Restatement of Contracts, the proposition, section 517, that ‘A bargain not to bid at an auction, or any public competition for a sale or contract, having as its primary object to stifle competition, is illegal’ is accompanied by the following illustration: ‘6. A, B, C and D, building contractors, agree with one another to form the X association and that in future bids for the award of building contracts the successful bidder shall pay the X association 2 per cent. of the gross amount of the price fixed in the contract awarded. The agreement between A, B, C and D is illegal’ (id., pp. 1003–1004). This rule has been applied indiseriminately in some cases. (See Constructor's Assn. of Western Pennsylvania v. Seeds (1940) 142 Pa.Super. 59, 63–64, 15 A.2d 467, 469; Associated Wisconsin Contractors v. Lathers (1940) 235 Wis. 14, 291 N.W. 770; and Annotation, Trade Association Dues—Public Policy (1946) 161 A.L.R. 795, 798–800. Cf. Morgan v. Gove (1929) 206 Cal. 627, 634, 275 P. 415.) The better view is that dues or fees commensurate with the costs of services rendered are not rendered illegal because they are measured by gross business transacted. (Associated Plumbing Contractors of Marin etc. Counties, Inc. v. F. W. Spencer & Son, Inc., supra, 213 Cal.App.2d 1, 8, 28 Cal.Rptr. 425; Constructors' Assn. of Western Penn. v. Furman (1949) 165 Pa.Super. 248, 252, 67 A.2d 590, 592; Electrical Contractors' Ass'n of City of Chicago v. A. S. Schulman El. Co. (1945) 391 Ill. 333, 339–346, 63 N.E.2d 392, 395–397; 161 A.L.R. 787, 794–795; Griffiths & Sprague Steve. Co. v. Waterfront Emp. Assn. (9th Cir. 1947) 162 F.2d 1017, 1019; Annotation, op. cit.,161 A.L.R. 795, 797–798 and 800–801.)
In Bay Area Painters etc. Committee v. Orack (1951) 102 Cal.App.2d 81, 226 P.2d 644 the court approved and quoted the trial judge's opinion which followed the Illinois case cited above. In Orack the court upheld the right of a nonprofit corporation, created to stabilize an industrial activity, to collect a sum from nonmembers which was the equivalent of the sums derived from members of employers' associations through such associations. The charges were upheld against the contention that they imposed an unreasonable restraint on trade, because they were reasonable in the light of the services performed.
The rules in question here provide a fee of 1 percent of the price accepted with a maximum of $500 and a minimum of $5.20 It cannot be ascertained from the pleadings whether the sums collected exceed the amount reasonably required for the operation and maintenance of the bid depository. The provisions of the rules which provide for a decrease but not an increase in the fees, and for the reporting of income and expense suggest that there may be some effort made to keep the two in balance.
The provision for a payment of the fee by the general contractor in the event the successful subbid is one deposited by him, is not unreasonable in the light of the Painter's case referred to above.
6. Collateral Rulings
In the briefs reference has been made to the following: (1) an Attorney General's letter dated July 1, 1966 which invited attention to the Inland Bid Depository case and recommended that ‘each bid depository consult with its legal counsel with a view to conforming its rules with the law and the mandate of that and other decisions'; and (2) letters of the office of the Chancellor of the California State Colleges and of the Attorney General concerning the restriction of the use of bid depositories in connection with bids for certain public contracts. Although these letters may reflect the views of the authors they are not particularly pertinent to the solution of the questions discussed above.
7. Absence of Legislation
It has been noted that Congress has failed to pass legislation to prevent bid shopping and peddling. (Schueller, op. cit., 58 Mich. L.Rev. at pp. 503–506.)
The California Legislature has similarly turned down legislation relating to practices prior to the award. Statutes of 1963, chapter 2125, p. 4410 et seq. which enacted the ‘Subletting and Subcontracting Fair Practices Act’ (Gov.Code, §§ 4100–4113) was originally introduced as Assembly Bill No. 2037. The bill as introduced (§ 2) contained the recitals now found in section 4101 reading, ‘The Legislature finds that the practices of bid shopping and bid peddling in connection with the construction, alteration, and repair of public improvements often result in poor quality of material and workmanship to the detriment of the public, deprive the public of the full benefits of fair competition among prime contractors and subcontractors, and lead to insolvencies, loss of wages to employees, and other evils.’ (See Southern Cal. Acoustics Co. v. C. V. Holder, Inc., supra, 71 A.C. 747, 753, fn. 5, 79 Cal.Rptr. 319, 456 P.2d 975.) It also (§ 5) amended and renumbered section 4102 and proposed (§ 3) a new section 4102 reading: ‘4102. (a) It is, therefore, hereby declared to be the policy of the State of California to eliminate, insofar as possible, the practices of bid shopping and bid peddling in connection with any public work or improvement.
‘(b) It is further declared to be the policy of the State of Califorina that, at the time of bidding to an awarding authority on any public work or improvement, the prime contractor offer to such awarding authority not only qualifications and experience on his part which are necessary for the efficient performance of the work which such prime contractor undertakes for himself but also such qualifications and experience on the part of each subcontractor under such prime contractor with respect to the work to be performed by such subcontractor.
‘(c) It is further declared to be the policy of the State of California, that, in the interest of efficiency, economy, and fair practice in connection with the construction, alteration, and repair of public works, each awarding authority shall comply with the following procedure to insure (1) that competition among subcontractors be completed prior to submission of their bids to the prime contractor; (2) that the bids of such prime contractors will reflect such competition; and (3) that the awarding authority is apprised as to the identity of each subcontractor whom the prime contractor will actually utilize in the performance of any substantial portion of such public work or improvement.’ (Emphasis added.) These provisions were once amended (May 1, 1963) and then deleted (May 10, 1963) by amendments in the assembly. A bill by the same author, Assembly Bill No. 2068, proposed to add section 4107.7 to the Government Code. This proposal read in part: ‘4107.7. The public policy of this State in the construction, alteration and repair of building structures by all public agencies is to provide a uniform procedure for the taking of subbids on a competitive basis prior to submission of any bid by a prime or general contractor to any public agency and the naming of the subcontractors to be used at the time of such submittal as provided in this chapter * * *.’ This bill was returned from the committee without action. In 1965 a similar bill, Assembly Bill. No. 1725 met with a similar fate. In 1967 a proposal, Assembly Bill No. 1792, provided that subcontractor's bids be submitted to the prime contractor not later than 24 hours before the time set for the award of the prime contract, and that copies be deposited with the awarding authority. No action was ever taken on this bill in committee. In 1969 through Senate Bill No. 85 revisions were enacted (Stats. 1969, ch. 332, § 1, p. 705) to the law found in the Government Code. The revisions referred to substitution for cause after an award, and the legislation as proposed and as enacted never referred to the preaward relationship.
It cannot be determined whether the failure to legislate is an approval of preaward bid peddling and bid shopping, or an approval of the right to use self help, short of an unreasonable restraint of trade. It does not elucidate the questions presented by the rules which are reviewed in this case.
8. Price Fixing
The key to any bid depository arrangement is the general contractor's obligation to take the low bid from the depository. (See Carl N. Swenson Co. v. E. C. Braun Co., supra, 272 A.C.A. at p. 451, 77 Cal. Rptr. 378; People v. Inland Bid Depository, supra, 233 Cal.App.2d at p. 853, 44 Cal.Rptr. 206, and see fn. p. 854, 44 Cal.Rptr. 206 et seq. and cf. ‘Section 8 * * * B’ as found in fn. 2 at p. 860, 44 Cal.Rptr. 206; Mechanical Contractors Bid Depository v. Christiansen, supra, 352 F.2d at p. 818 and Christiansen v. Mechanical Contractor's Bid Depository, supra, 230 F.Supp. at p. 188 ‘Rule V’; United States v. Bakersfield Associated Plumbing Contractors, supra, 1959, Trade Cases, at p. 74039, ‘Rule 7 * * * D,’ and id. 1958 Trade Cases at p. 74300, ‘Rule 7 * * * D.’) In this case the rules attached to the complaint impose such an obligation on general contractor who elects to receive bids from the depository. (See rule 9, fn. 9 above, particularly pars. c, d and e.)
It is suggested that the agreement between the subcontractors who deposit bids and the general contractors who elect to receive bids from the bid depository is illegal per se because it fixes the price at which the services and materials are to be furnished to the general contractor and perforce to the awarding authority.
Reflection indicates that a price arrived at by open competitive bidding is by its very nature not a price arrived at by restraints on competition. If the effect on the price of the use of the bid depository is to be condemned it must be for other causes. It has been shown above that these other causes are not inherent in the rules under review. The only restraint on the competitive process is that terminating the price fixing process at a reasonable time prior to the award of the general contract. For reasons set forth above the indictment of this rule as a per se illegality is rejected. Nothing is found in the statutory law or the precedents which have been examined, to require that a general contractor or the public whom he serves is entitled to the anarchy that traditionally is attributed to the price fixing process in an oriental bazaar. In our economy an individual is free to put a price on his goods or services and abide by it. He may resist being cajoled or coerced into lowering it. (Cf., however, People v. Inland Bid Depository, supra, 233 Cal.App.2d at pp. 863–864, 44 Cal.Rptr. 206; and Christiansen v. Mechanical Contractors Bid Depository, supra, 230 F.Supp. at p. 190, fn. 10.) If he elects to exercise such restraint by using, what appears to be on the record in this case, an impartial instrumentality designed to produce a competi tive price, he should not be faulted anymore than he would if refused to consider a bid shopping general contractor's overtures that he reduce his bid to meet a competitor.
Aside from the cutoff time, from all that appears in the rules under revue, any general contractor is free to use or not use the depository as it may desire, without being subject to boycott by any subcontractor if he elects to proceed in the latter fashion. Similarly any subcontractor is free to deal in any manner it wishes with a general contractor, subject only to the condition that if the general wants to increase the competition by receiving bids from the depository, it may deposit the independent subcontractor's bid. The record fails to establish either boycott or price fixing or other grounds for finding illegality per se. (See analysis of the Bakersfield case in Christiansen v. Mechanical Contractors Bid Depository, supra, 230 F.Supp. at pp. 193–194, fn. 21.)
In People v. Inland Bid Depository, supra, the opinion recites: ‘To require the general contractor to employ the lowest bid under 8B, at a time when he had seen no other subbids, would be detrimental to the public, leading to collusion by the subcontractors, and ruinous to the constructing industry.’ (233 Cal.App.2d at pp. 859–860, 44 Cal.Rptr. at p. 212.) This statement simply does not bear analysis. Cutting of the price fixing process at reasonable time prior to the award of the general contract does not of itself necessarily establish a higher price or illegally restrain trade. In the Inland Bid Depository case the trial court found ‘the increase in building costs brought about by the operations of defendant is de minimis' (id., pp. 854–855, 44 Cal.Rptr. p. 209. See also fn. 12 above). In the instant case the bids were satisfactory in four out of seven classifications. It is at least arguable in the absence of evidence to the contrary that the stability afforded by the depository encourages more bidders and consequently more competitive prices. If there is evidence of collusion, bid rigging, boycott, price fixing or any other restraint on the open competition which is fostered up to the bid cutoff time, it may be alleged and proved by the defendant. The rules themselves do not establish any such practice.21
The judgment on the pleadings is reversed.
FOOTNOTES
1. For discussion of the nature and the legality of bid depositories see: Orrick, Trade Associations Are Boycott-Prone—Bid Depositories As a Case Study (1968) 19 Hastings L.J. 505, 519–524; Comment (1965) 114 U.Pa.L.Rev. 231; and Scheuller, Bid Depositories (1960) 58 Mich.L.Rev. 497. For studies of the background of the general contractorsubcontractor relationship see: Note, Construction Bidding (1967) 53 Va.L.Rev. 1720; Note, Construction Bidding (1964) 39 N.Y.U.L.Rev. 816; and Schultz, The Firm Offer Puzzle (1952) 19 U. of Ch.L.Rev. 237.
2. The document, with the exception of the listing of the bidders and the last paragraph, which has been quoted above, reads: ‘The undersigned hereby acknowledges receipt from the Bid Depository of the Oakland-Alameda County Builders' Exchange of bids for the designated craft(s) and/or classification(s) of work on Building No. 1300 Auditorium, Chabot College (Hayward) Mt. Eden from the following Bidders: * * * In the event the undersigned is awarded the general contract for the above project by the awarding authority, the undersigned agrees to accept the lowest of the bids submitted through the Bid Depository in each of the designated craft(s) and classification(s) if it complies with the Rules and regulations of said Depository and has not been revoked under Rule 8. Lowest of said bids includes a bid submitted by the general contractor under Rule 6c., subject to the terms and conditions of said section. The undersigned reserves the right to reject the low bid so submitted to the undersigned if the person submitting the same: (1) shall at the time of submitting such bid indicate that he is unable to and/or unwilling to, or (2) shall fail at the time of submitting such bid to indicate that he is able and willing to, or (3) shall not, upon the request of and at the expense of the undersigned at the established charge therefor, furnish to the undersigned a bond issued by an authorized surety company wherein the undersigned shall be named as the obligee, guaranteeing prompt and faithful performance of said bid and the payment of all claims for labor and materials furnished or used in and about the work to be done and performed under the said bid.’
3. The Cartwright Act provides in part:‘§ 16720. A trust is a combination of capital, skill or acts by two or more persons for any of the following purposes: (a) To create or carry out restrictions in trade or commerce. (b) To limit or reduce the production, or increase the price of merchandise or of any commodity. (c) To prevent competition in manufacturing, making, transportation, sale or purchase of merchandise, produce or any commodity. (d) To fix at any standard or figure, whereby its price to the public or consumer shall be in any manner controlled or established, any article or commodity of merchandise, produce or commerce intended for sale, barter, use or consumption in this State. (e) To make or enter into or execute or carry out any contracts, obligations or agreements of any kind or description, by which they do all or any combination of any of the following: (1) Bind themselves not to sell, dispose of or transport any article or any commodity or any article of trade, use, merchandise, commerce or consumption below a common standard figure, or fixed value. (2) Agree in any manner to keep the price of such article, commodity or transportation at a fixed or graduated figure. (3) Establish or settle the price of any article, commodity or transportation between them or themselves and others, so as directly or indirectly to preclude a free and unrestricted competition among themselves, or any purchasers or consumers in the sale or transportation of any such article or commodity. (4) Agree to pool, combine or directly or indirectly unite any interests that may have connected with the sale or transportation of any such article or commodity, that its price might in any manner be affected.’‘§ 16722. Any contract or agreement in violation of this chapter is absolutely void and is not enforceable at law or in equity.’‘§ 16726. Except as provided in this chapter, every trust is unlawful, against public policy and void.’
4. The Sherman Antitrust Act provides in part:‘Every contract, combination in the from of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal: * * *.’ (15 U.S.C.A. § 1.)‘Every person who shall monopolize, or attempt to monopolize, or conbine 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 misdemeanor, * * *.’ (15 U.S.C.A. § 2.)Alpha Beta Food Mkts. v. Amal. Meat Cutters (1956) 147 Cal.App.2d 343, 351, 305 P.2d 163 indicates that this defense may be raised in the state court.
5. See Code Civ.Proc. §§ 1060 and 1061; Bachis v. State Farm Mutual Auto. Ins. Co. (1968) 265 Cal.App.2d 722, 724–728, 71 Cal.Rptr. 486; General of America Ins. Co. v. Lilly (1968) 258 Cal.App.2d 465, 470–472, 65 Cal.Rptr. 750; Girard v. Miller (1963) 214 Cal.App.2d 266, 277, 29 Cal.Rptr. 359; Houghton v. Coberly (1962) 201 Cal.App.2d 820, 824, 20 Cal.Rptr. 489; and Adams v. San Joaquin County (1958) 162 Cal.App.2d 271, 274, 328 P.2d 250; but cf. Holland v. Paddock (1956) 142 Cal.App.2d 534, 538, 298 P.2d 587. Regardless of the merits of this contention with respect to the subcontractors, further matters must be considered in regard to the bid depository's cause of action. (See Code Civ.Proc. § 382; Professional Fire Fighters, Inc. v. City of Los Angeles (1963) 60 Cal.2d 276, 283–284, 32 Cal.Rptr. 830, 384 P.2d 158; and International Assn. of Fire Fighters, Local No. 1319, AFL–CIO v. City of Palo Alto (1963) 60 Cal.2d 295, 298–299, 32 Cal.Rptr. 842, 384 P.2d 170; and note Western Gulf Oil Co. v. Oilwell Service Co. (1963) 219 Cal.App.2d 235, 239–240, 33 Cal.Rptr. 20; and County of Colusa v. Strain (1963) 215 Cal.App.2d 472, 476–478, 30 Cal.Rptr. 415.)
6. See Const., article VI, section 10, 2d paragraph, and section 5, 3d paragraph; Code Civ.Proc. § 89; Emery v. Pacific Employers Ins. Co. (1937) 8 Cal.2d 663, 666, 67 P.2d 1046 [distinguished and disapproved on another issue Barrera v. State Farm Mut. Auto. Ins. Co. (1969) 71 A.C. 683, 703, 79 Cal.Rptr. 106, 456 P.2d 674, fn and accompanying text]; Bachis v. State Farm Mut. Auto. Ins. Co., supra, 265 Cal.App.2d 722, 724–728, 71 Cal.Rptr. 486; Linnick v. Sedelmeier (1968) 262 Cal.App.2d 12, 14–16, 68 Cal.Rptr. 334; and Cochrane v. Superior Court (1968) 261 Cal.App.2d 201, 203–205, 67 Cal.Rptr. 675. When the case was originally called for trial it was continued four days so that counsel could brief the legal issues involved. At the continued hearing the court recognized the jurisdictional question involved by the juxtaposition of the principles set forth in this and in the immediately preceding footnotes. Nevertheless, it elected to proceed to dispose of the case on the issue presented by defendant's first separate defense as applied to the facts admitted in the pleadings. In so doing the court was acting within the jurisdiction of the superior court. ‘The superior court is not under the same disability as the municipal court. The fifth paragraph of section 396 provides: ‘Nothing herein shall be construed to require the superior court to transfer any action or proceeding because the judgment to be rendered, as determined at the trial or hearing, is one which might have been rendered by a municipal or justice court in the same county or city and county.’ (Emphasis added.) The effect of this paragraph is to qualify the second paragraph of section 396 as to superior courts only. It gives such courts the discretion either to transfer back to the municipal courts or retain jurisdiction where what otherwise would be a lack of jurisdiction is ‘determined at the trial or hearing.’' (Wexler v. Goldstein (1956) 146 Cal.App.2d 410 414, 304 P.2d 41, 43. See also Linnick v. Sedelmeier, supra, 262 Cal.App.2d 12, 14–15, 68 Cal.Rptr. 334; and Adams v. County of San Joaquin (1958) 162 Cal.App.2d 271, 275–276, 328 P.2d 250.) The parties have tacitly recognized the jurisdiction of the court to so proceed by failing to mention the issues discussed in this footnote in their briefs.
7. The allegations read: ‘III. For many years prior to the establishment of the BID DEPOSITORY, more particularly hereinafter described and referred to, the construction trades in Alameda County and vicinity were plagued with the practices of ‘bid pedding’ which refers to the disclosure, for the purpose of obtaining a more favorable bid, by a general contractor of one subcontractor's bid to a competing subcontractor prior to award, and the practice of ‘bid shopping’ which refers to such disclosure for the same purpose after an award has been made to a general contractor.‘IV. In coder to combat the practices aforesaid, and as a service to contractors in the construction trades, whether members of plaintiff or not, plaintiff heretofore has established the OAKLAND-ALAMEDA COUNTY BUILDERS' EXCHANGE BID DEPOSITORY, hereinafter called BID DEPOSITORY, which is a facility established, maintained and operated by plaintiff through which bids of subcontractors and suppliers electing to use the BID DEPOSITORY are received, processed and made available to general contractors in accordance with the rules and regulations for the operation of said depository’;‘V. * * * upon receiving the delivery of bids he [the general contractor] agrees to accept and use the bid of the lowest bidder using the depository. The bids filed with the Bid Custodian are retained as a check against any change of bids before or after award to eliminate the opportunity of ‘bid pedding’ and ‘bid shopping’; and‘VII. The BID DEPOSITORY Rules and Regulations were established to implement a general plan whereby the practices of ‘bid peddling’ and ‘bid shopping’ could be minimized and eliminated. The form signed by the general contractor is required under Rule 9e which rule requires that the general contractor abide by the rules of the BID DEPOSITORY as to that particular job.'
8. ‘4. TIME OF DEPOSIT: All bids submitted through the Bid Depository shall be actually delivered to the Bid Custodian by mail, or in person, or otherwise, as follows:C1-2Bid Depository Closing Time ScheduleGeneral OpeningC2Depository Closing Time9:00 AM4:00 PM Previous Normal Working Day10:00 AM4:00 PM Previous Normal Working Day11:00 AM4:00 PM Previous Normal Working Day12:00 Noon4:00 PM Previous Normal Working Day1:00 PM9:00 AM Same Day2:00 PM10:00 AM Same Day3:00 PM11:00 AM Same Day4:00 PM12:00 Noon Same Day5:00 PM1:00 PM Same DayThe Depository Closing Time shall be 1:00 P.M. of the same day on all projects where the Bid Opening for General Contractors is after 5:00 P.M. '
9. ‘9. DELIVERY OF BIDS:‘a. The sealed envelopes containing bids addressed to the general contractors shall be made available for delivery to the person or persons to whom addressed as soon as practicable after the expiration of the time for depositing bids upon the project involved as specified in Rule 4 hereof, provided, however, that the general contractor may refuse to accept any envelope containing the bid of a subcontractor with whom he does not desire to contract or any supplier from whom he does not wish to purchase or the general contractor may reject the bid of any subcontractor with whom he does not desire to contract or any supplier from whom he does not wish to purchase by immediately returning to the Bid Custodian, unopened, the envelope containing the bid of such subcontractor or supplier.‘A general contractor may refuse to accept all bids of a separate craft or classification. In the event of such rejection the general contractor nevertheless may accept bids through the Bid Depository from subcontractors of other crafts and suppliers of other classifications.‘b. If only one subcontractor in any particular craft or one supplier in any particular classification submits bid(s) to the general contractors through the Bid Depository on a particular project, the Bid Custodian shall declare that particular craft or classification for that particular project closed and shall return such bids unopened to the subcontractor, supplier or general contractor thus submitting such bids, and no general contractor shall be given any bid in this particular craft or classification from the Bid Depository.‘c. If a general contractor elects to receive delivery through the Bid Depository of one or more bids for a craft or classification, he shall be obligated, and he hereby agrees, that if he is the successful prime bidder and receives an award of the general contract, he will award the contract for this particular craft or classification to the lowest bidder whose bid he receives through the Bid Depository. As used in these Rules, ‘lowest bidder whose bid he received through the Bid Depository’ shall include a bid submitted by the general contractor under Rule 6c., subject to the terms and conditions of said section.‘d. The election of the general contractor shall be endorsed by him on the general contractor's bid acceptance form, and thereupon he shall take and fully execute the form and deliver the same to the Bid Depository, whereupon the sealed envelopes which he has elected to receive shall be made available to him at the Bid Depository for his use.‘e. No sealed bid shall be delivered to a general contractor by the Bid Depository except in accordance with these Rules and until the general contractor shall have executed the general contractor's bid acceptance form provided by the Bid Depository. Such form shall require the general contractor to abide by the Rules of the Bid Depository as to the particular project.’
10. In Carl N. Swenson Co. v. E. C. Braun Co. (1969) 272 A.C.A. 447, 77 Cal.Rptr. 378 the case was analyzed as follows: ‘In the Inland Bid Depository case, the court held that group boycotts were illegal per se, constituting restraints on trade in violation of the Cartwright Act. The court further held that a bid depository could not be allowed to operate under rules which (1) prevent, preclude or in any manner limit any subcontractor from submitting a bid to a general contractor or awarding authority on any construction project at any time prior to the time set by the awarding authority for the receipt of bids upon any such construction project; (2) limit or restrict, in any way, the amount of a bid submitted by a subcontractor to a general contractor or awarding authority at any time prior to the time set by the awarding authority for the receipt of bids upon a construction project; or (3) limit or in any way prevent a general contractor or awarding authority from receiving or considering any bid which is or may be submitted to him by a subcontractor at any time prior to the time set by the awarding authority for the receipt of bids upon a construction project.’ (272 A.C.A. at p. 450, 77 Cal.Rptr. at p. 380.)
11. In Carl N. Swenson Co. v. E. C. Braun Co., supra, 272 A.C.A. 447, 77 Cal.Rptr. 378, the court upheld a judgment which denied the general contractor the right to recover from a subcontractor on an arbitration award made under bid depository rules following the allegedly improper withdrawal of the subcontractor's bid. (Cf. Drennan v. Star Paving Co. (1958) 51 Cal.2d 409, 415, 333 P.2d 757.) The court concluded that analysis of rules which limited the time and the manner in which a subcontractor's bid could be withdrawn ‘effectively demonstrates that said provisions, when viewed in the context of the other bid depository rules which prohibit depository users from submitting or receiving bids outside the depository, do tend to stifle competition between subcontractors and do further an illegal restraint of trade within the meaning of the Inland Bid Depository case.’ (272 A.C.A. at p. 453, 77 Cal.Rptr. at pp. 381–382.) In that case a hearing was denied by the Supreme Court on June 25, 1969, Tobriner, J. voting for hearing. (See Tobriner & Jaffe, Revision of the Anti-Trust Laws (1932) 20 Cal.L.Rev. 585.) This refusal to examine the questions presented in the Inland Bid Depository case insofar as they were carried forward in the later case, may be balanced against the denial of a hearing by the Supreme Court in Associated Plumbing Contractors of Marin etc. Counties, Inc. v. F. W. Spencer & Sons, Inc. (1963) 213 Cal.App.2d 1, 28 Cal.Rptr. 425, when the court stated, ‘* * * the trial court properly concluded that such restraints of trade as existed under the rules of the two assiciations were reasonable restraints of trade in the public interest and justified by the cirumstances.’ (213 Cal.App.2d at p. 8, 28 Cal.Rptr. at p. 429.)
12. In fact the admitted facts tend to support a contrary finding. The defendant, which apparently considered itself free to shop the bids received from him prior to the award of the general contract, was apparently only able to secure more favorable terms in three of the seven categories in which he requested and accepted bids. That he secured more favorable terms is an assumption that goes beyond the admitted facts. From all that appears the general contractor may have rejected the bids tendered for steel decking by the bid depository, and the subcontractors he selected for painting and carpeting may in fact have been selected for an equal price or on terms which permitted an equal or greater price if the general contractor was successful in getting the award.See, Note, op. cit., fn. 1, supra, 53 Va.L.Rev. at page 1724, ‘As bid shopping becomes widespread in a given area, subs puff their instant bids to leave room for later negotiations, thus fictionalizing the bidding process.’ (See also id., pp. 1732–1733 and 1738–1739.)See, Note, op. cit., fn. 1, supra, 39 N.Y.U.L.Rev. at p. 818, ‘The more trouble the general contractor and subcontractor have in binding each other, the more the awarding authority—the third party with an interest in the bidding—may be hurt, eiter by having to pay a higher price or by not getting the best product for his money.’ (See, also, id., pp. 825–826.)See, Schultz, op. cit., fn. 1 above, 19 U. of Ch.L.Rev. at pp. 280–281, and at p. 285, where he states, ‘Possibly, the firm offer provision will be a boon to the owner, the one whom sub and general are supposed to serve, in terms of more efficient construction at lower costs.’
13. The Court of Appeals noted, ‘It was suggested that Rule V alone constituted a per se violation Section 1; however, since the decision was based on the combined effect of Rules V, III and VIII, and their implementation, we need not determine whether a per se violation occurred.’ (352 F.2d at p. 819, fn 5.)
14. ‘6. SUBMISSION OF BIDS:‘a. Any subcontractor or supplier desiring to submit a bid to any person or persons through the Bid Depository shall submit to the Bid Depository a separate and sealed bid addressed to each general contractor to whom the subcontractor or supplier desires to bid and shall file with the Bid Custodian in a separate and sealed envelope addressed to the Bid Depository an identical copy of each such bid filed by him.‘b. Any general contractor who has received or solicited a bid direct from or subcontractor in a particular craft or supplier in a particular classification upon any project and who desires to use the facilities of the Bid Depository upon that project for receiving competitive bids in that craft or classification, shall submit to the Bid Depository such bid in a separate and sealed envelope addressed to the general contractor and shall file with the Bid Custodian in separate and sealed envelope addressed to the Bid Depository an identical copy of each such bid filed by him, indicating on both the envelopes and the bid forms the subcontractor or supplier whose bid is being submitted and the craft or classification covered by the bid.‘c. A general contractor may submit through the Bid Depository in his own behalf a bid for any craft or classification as he may elect. Such bid submitted shall be considered on the same basis as other bids the general contractor shall receive through the Bid Depository from subcontractors or suppliers covering the same portion of work. In the event such general contractor's bid is lower by 10%, or less, of the next low bid submitted through the Bid Depository by the subcontractors or suppliers, the general contractor shall award the contract to the subcontractor or supplier submitting the low bid through the Bid Depository in accordance with the agreement entered into by the general contractor and the subcontractor or supplier at the time of delivery of bids. If the bid of the general contractor is low by more than 10% of the next low bid submitted through the Bid Depository, he may either award the contract to the subcontractor or supplier submitting the low bid through the Bid Depository in accordance with the agreement entered into by the general contractor and the subcontractor or supplier at the time of delivery of bids or he may perform the work with his own work forces.‘d. Each of the sealed envelopes shall on its outside cover specify the project upon which the bid is made and the portion of the work on the project covered by the bid.’
15. ‘13. GENERAL CONTRACT ADJUSTMENT: In the event that the awarding authority, after general bid opening, but prior to award, negotiates with the general contractor for changes in plans and specifications resulting in a revision downward of the general contract price, the general contractor shall negotiate such changes with the low bidder submitting bids through the Depository in each particular craft or classification involved. In case no agreement is reached as the result of such negotiations, bids for the particular craft(s) or classification(s) involved shall be resubmitted through the Bid Depository.’
16. Judge Yankwich also authored United States v. San Francisco Electrical Const. Assn. (N.D.Cal.So.Div.1944) 57 F.Supp. 57 and United States v. Heating, Piping & Air Conditioning Contractors Assn. (S.D.Cal.Cent.Div.1940) 33 F.Supp. 978. In the latter case he recognized that collusion between bidders, or bidders and others, price rigging, and division of the work are abuses which should be struck down whether they utilize a bid depository or not. (See also Local 175 etc. v. United States (6th Cir. 1955) 219 F.2d 431; Las Vegas Merchant Plumbers Assn. v. United States (9th Cir. 1954) 210 F.2d 732; United States v. Northeast Texas Chapter (5th Cir. 1950) 181 F.2d 30; Annotation, Combination Among Contractors (1939) 121 A.L.R. 345; and Annotation: Labor-Antitrust Laws (1963) 9 L.Ed.2d 998, 1045–1050 and 1057–1058.) He apparently did not think it was necessary to burn down the barn to kill the rats. By coincidence the Christiansen case is found reported in a volume containing a testimonial to this brilliant jurist on his retirement (230 F.Supp., preface).
17. The parties were restrained from ‘(c) coercing, inducing, or attempting to coerce or induce, any contractor who has submitted a bid through a bid depository operated by defendants, or any of them, to withdraw such bid after it has been opened, announced, or pulished at such bid depository; and (d) soliciting, receiving, or accepting money or any other things of value as an inducement to the withdrawal of any bid submitted through a bid depository operated by the defendants, or any of them, after it has been opened, announced, or published at such bid depository.’ (1959 Trade Cases, p. 75037.)
18. ‘8. REVOCATION OF BIDS:‘a. Any bid deposited with the Bid Depository may be revoked by the person submitting the same at any time prior to the expiration of the time for depositing bids upon the project involved as specified in Rule 4 hereof. Notice of revocation of any bid must be made in writing by the subcontractor or supplier or his authorized agent and any bids so revoked shall not be delivered to the person or persons to whom addressed.‘b. Any bid delivered to a general contractor as in these Rules provided, shall be deemed an irrevocable offer to such contractor and may not be revoked thereafter without such general contractor's consent for a period of thirty (30) days from the date of delivery to the general contractor or for such period as may be designated in the contract documents for acceptance of bids by the Awarding Authority, unless, prior to general bid opening:‘1. The subcontractor or supplier gives notice to all general contractors to whom he has bid of a substantial mistake, which notice shall constitute revocation of the bids, and he shall likewise immediately give such notice to the Bid Depository or Bid Custodian, or‘2. The bid appears on its face to a bidding general contractor that it is an obvious and substantial mistake, in which case that general contractor shall immediately notify the subcontractor or supplier giving the bid of the apparent mistake. The subcontractor or supplier shall as soon as possible either revoke the bid to all general contractors (as under paragraph 1 above) or confirm to the general contractor that the bid amount is correct.‘c. In the event any such bid be revoked and cancelled under paragraph b above, the subcontractor or supplier submitting such bid shall immediately pay to the Bid Depository a depository fee equal to 1% of the bid price privided, however, that such depository fee payable by any one person upon any one project shall not exceed $500.00 or be less than $5.00.‘d. In the event of bids submitted in combination, any segregated portion of the bid may be withdrawn as provided under Rule 8 without jeopardizing or invalidating other segregated portions of the bid. However, in addition to the segregated portion withdrawn, any combination containing the item withdrawn must likewise be withdrawn.’
19. ‘20. SEVERABILITY: Any provision or condition of these Bid Depository Rules and Regulations which may be held to be void or unenforceable by a court of competent jurisdiction shall be severable from the remaining provisions and conditions which shall continue in full force and effect.’
20. ‘10. DEPOSITORY FEE: Any subcontractor or supplier obtaining a contract through a bid submitted through the Bid Depository shall pay to the Oakland-Alameda County Builders' Exchange as a depository fee a sum equal to 1% of the bid price provided, however, that the depository fee in no event shall exceed $500.00 or be less than $5.00. The said depository fee shall be due and payable thirty (30) days after the time of the award of the contract by the general contractor to such subcontractor or supplier. If paid within ten (10) days of the date of billing, there is a 5% discount allowable.‘In the event a general contractor deposits a bid with the Bid Depository which has been received by him direct or solicited by him, as provided in Rule 6 hereof, from a subcontractor or supplier not party to these Rules and Regulations, and such bid is the lowest bid submitted through the Bid Depository, the said general contractor shall pay to the Oakland-Alameda County Builders' Exchange the amount of the Bid Depository fee above, provided the general contractor is awarded the general contract by the awarding authority. Said fee shall be due and payable thirty (30) days after the time of the award of the contract by the general contractor to the said subcontractor or supplier. If paid within ten (10) days of date of billing, there is a 5% discount allowable.‘The Bid Depository Fees herein provided may be decreased but not increased by authorization of the Bid Depository Committee of the Oakland-Alameda County Builders' Exchange from time to time without amendment of these Rules and Regulations. There shall be an annual report of income and expenses of the Bid Depository to the Committee and to the Board of Directors of the Builders' Exchange.‘The Bid Depository Committee of the Oakland Alameda County Builders' Exchange may at its option refuse to permit any person who is delinquent in the payment of any fee provided in Rules 8 and 10 to use the facilities of the Bid Depository until all such delinquent payments have been made.’
21. Similarly the conclusion of a learned and experienced author that ‘These provisions clearly and plainly violate the antitrust laws, * * *’ (Orick, op. cit., 19 Hastings L.J. at p. 522) must be read as referring conjunctively rather than severally to the four types of rules which he lists. Since he refers to rules in which the subcontractors boycott nonusing general contractors, and in which generals utilizing the depository boycott nonusing subcontractors, his observations are not controlling in this case.
SIMS, Associate Justice.
MOLINARI, P. J., and ELKINGTON, J., concur.
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Docket No: Civ. 25660.
Decided: May 26, 1970
Court: Court of Appeal, First District, Division 1, California.
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