UNION CARBIDE CORPORATION v. VILLMAR DENTAL LABS INC (1982)

This petition challenges a trial court order overruling a demurrer and denying a motion to dismiss and to strike.   The case is an antitrust action brought by end users/consumers against the manufacturers of industrial gases.   The demurrer and motion claimed that a portion of the complaint was vague and that plaintiffs had failed to join indispensable parties.   We are convinced that the demurrer for vagueness was properly overruled.   However, the trial court erred in not requiring joinder of direct purchasers ¹ and intermediate suppliers,² if any.   We therefore issue writ of mandate.

On January 23, 1981, Villmar Dental Labs, Inc., Nowell's, Inc., and Beaper, Inc., real parties in interest in this proceeding, filed a complaint against petitioners.   As “indirect-purchaser[s], end-user/consumers of substantial amounts of industrial gas manufactured by one or more of the defendants,” real parties sought to represent the class of all end-user/consumer California businesses which had purchased industrial gas indirectly from one or more of the defendants.  “[I]ndustrial gas,” as used in the complaint, includes oxygen, nitrogen, argon, and acetylene.   One paragraph of the complaint alleges:  “CONCEALMENT [¶] 22.   At all times relevant hereto, plaintiffs and the members of the class had no knowledge of the combination and conspiracy alleged herein, or of any facts which might have led to the discovery thereof.   Plaintiffs and the members of the class they represent could not have uncovered the conspiracy at an earlier date by the exercise of due diligence, inasmuch as the unlawful conspiracy was actively concealed by the defendants through the adoption of elaborate schemes, including their resort to secrecy to avoid detection.”   The complaint alleges a conspiracy to fix prices in violation of Business and Professions Code sections 16720 and 17048.

On May 8, 1981, petitioners filed a demurrer, motion to strike, and motion to dismiss, raising the issues discussed herein and noting that there was then pending in the United States District Court for the Northern District of Illinois a federal antitrust case against the same defendants brought by direct purchasers on behalf of the class of all direct purchasers.   Petitioners argued that the absence of direct purchasers and intermediate suppliers from the California lawsuit subjected the defendants to the risk of possible multiple liability and inconsistent verdicts.   Petitioners argued that the allegations of fraudulent concealment, which were intended to circumvent the four-year statute of limitations, were not sufficient because the facts concerning concealment and discovery of the cause of action were not asserted.

On July 7, 1981, after hearing on the motions, the trial court issued its order overruling the demurrer, denying the motion to dismiss, and denying the motion to strike, except for a portion of the complaint not pertinent here.   This petition followed.

(1) Joinder of the Direct Purchasers

Code of Civil Procedure section 389 provides:  “(a) A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter of the action shall be joined as a party in the action if (1) in his absence complete relief cannot be accorded among those already parties or (2) he claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest.   If he has not been so joined, the court shall order that he be made a party.

“(b) If a person as described in paragraph (1) or (2) of subdivision (a) cannot be made a party, the court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed without prejudice, the absent person being thus regarded as indispensable.   The factors to be considered by the court include:  (1) to what extent a judgment rendered in the person's absence might be prejudicial to him or those already parties;  (2) the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided;  (3) whether a judgment rendered in the person's absence will be adequate;  (4) whether the plaintiff or cross-complainant will have an adequate remedy if the action is dismissed for nonjoinder.

“(c) A complaint or cross-complaint shall state the names, if known to the pleader, of any persons as described in paragraph (1) or (2) of subdivision (a) who are not joined, and the reasons why they are not joined.

“(d) Nothing in this section affects the law applicable to class actions.”   (Emphasis added.)

One ground for a special demurrer to a complaint is that there has been “a defect or misjoinder of parties.”  (Code Civ.Proc., § 430.10, subd. (d).)  “[A] defect” of parties has been interpreted as referring to a failure to join a necessary plaintiff or defendant.  (3 Witkin, Cal. Procedure (2d ed. 1971) Pleading, § 822, p. 2431.)

Petitioners contend that the direct purchasers are indispensable parties to this lawsuit because if they prevail in the federal antitrust action they will be entitled to recover the same damages sought by real parties in interest in this lawsuit.   They argue also that the direct purchasers and intermediate suppliers could sue petitioners in California under the Cartwright Act, and if the court made an inconsistent ruling about whether they had passed on the overcharges to real parties in interest, petitioners could be required to reimburse both the direct purchasers or intermediate suppliers and end users/consumers for the same overcharges.

To explain these contentions, it is necessary to examine both federal and state antitrust law and to note a significant difference between the two.

 Under federal antitrust law, as interpreted by the United States Supreme Court in Illinois Brick Co. v. Illinois (1977) 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707, only a direct purchaser may bring a civil antitrust action for treble damages.   This is a corollary to the rule of Hanover Shoe v. United Shoe Mach. (1968) 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231, that a defendant in a treble-damages action cannot escape liability (except under very limited circumstances) by proof that the plaintiff had passed on illegal overcharges to others farther along in the chain of distribution.   Thus, under federal law only the direct purchaser may sue, and he may recover for the entire overcharge, regardless of whether he passed on some or all of the excessive amount.

In 1978, following the United States decision in Illinois Brick Co. v. Illinois, supra, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707, the California Legislature amended state antitrust law specifically to entitle an indirect purchaser ³ to bring a civil action for treble damages.  Business and Professions Code section 16750, subdivision (a), had authorized “[a]ny person who is injured in his business or property” to sue.  (Stats.1977, ch. 540, § 1, p. 1741.)   The Legislature added a paragraph providing:  “Such action may be brought by any person who is injured in his business or property by reason of anything forbidden or declared unlawful by this chapter, regardless of whether such injured person dealt directly or indirectly with the defendant.”  (Stats.1978, ch. 536, § 1, p. 1693.)   Thus, in California either a direct or indirect purchaser may sue, and in assessing damages the court will be required to determine whether and to what extent any overcharges were passed on to subsequent purchasers.

The parties agree that these differences between state and federal law are significant.   They disagree only about whether joinder of direct purchasers and intermediate suppliers is required to avoid the risk of multiple liability and/or inconsistent judgments.   Real parties in interest contend that the risks to petitioners are illusory because:  (1) if direct purchasers and indirect purchasers both prove their claims, petitioners can move for dismissal of this action on the ground that California's indirect purchaser statute is preempted by federal law;  (2) if both are successful, petitioners can sue the direct purchasers on a theory of unjust enrichment or for equitable contribution or indemnity;  (3) if the direct purchasers obtain a money judgment in the federal action, petitioners can interplead it into this action to be distributed according to “pass-on” proof.⁴

Real parties, while suggesting various ways in which the conflicting claims of direct and indirect purchasers may be presented without joinder in this lawsuit, fail to acknowledge the significance of these conflicting claims.   The situation is much like that presented in Atlantic Richfield Co. v. Superior Court (1975) 51 Cal.App.3d 168, 124 Cal.Rptr. 63, where joinder of 57 royalty assignees was required in an action claiming that there had been forged assignment of royalty interests retained by plaintiff's predecessors in interest when they entered oil and gas leases.   The court there concluded that plaintiffs and the 57 royalty assignees claimed an interest in the same property and that disposition of the action in the absence of the assignees might leave defendants subject to the substantial risk of incurring multiple obligations to pay the same oil royalty.

The “common fund” principle applied in Atlantic Richfield was stated in Bank of California v. Superior Court (1940) 16 Cal.2d 516, 521, 106 P.2d 879: ⁵  “First, then, what parties are indispensable?   There may be some persons whose interests, rights, or duties will inevitably be affected by any decree which can be rendered in the action.   Typical are the situations where a number of persons have undetermined interests in the same property, or in a particular trust fund, and one of them seeks, in an action, to recover the whole, to fix his share, or to recover a portion claimed by him.   The other persons with similar interests are indispensable parties.   The reason is that a judgment in favor of one claimant for part of the property or fund would necessarily determine the amount or extent which remains available to the others.   Hence, any judgment in the action would inevitably affect their rights.   Thus, in an action by one creditor against assignees for the benefit of creditors, seeking an accounting and payment of his share of the assets, the other creditors were held indispensable (McPherson v. Parker [1866], 30 Cal. 455 [89 Am.Dec. 129] );  and in an action by plaintiff to enforce a trust, where he claimed the property in his own right, to the exclusion of another actual beneficiary, failure to join the latter was held fatal to the judgment.  (O'Connor v. Irvine [1887], 74 Cal. 435 [16 Pac. 236].)  Where, also, the plaintiff seeks some other type of affirmative relief which, if granted, would injure or affect the interests of a third person not joined, that third person is an indispensable party․

“All of these persons are, of course, ‘necessary’ parties, but the decisions show that they come within a special classification of necessary parties, to which the term ‘indispensable’ seems appropriate.   An attempt to adjudicate their rights without joinder is futile.”  (Emphasis added.)

In Bank of California the various beneficiaries under a will were found not indispensable to a suit alleging an agreement that plaintiff receive the entire estate.   The court concluded that plaintiff's action would determine only her rights against named parties and would in no way diminish the funds available to the unjoined legatees.

 We view the alleged overcharges caused by price fixing in this case as a “common fund.”   Petitioners sold each container of gas only once and allegedly overcharged only once for each sale.   The issue to be decided is who is entitled to recover damages for the alleged overcharge.   If it be assumed, as real parties appear to concede, that petitioners cannot be required to pay twice for the same overcharge, then the rights of unnamed parties are as much affected by this suit as were the royalty assignees in Atlantic Richfield Co. v. Superior Court, supra, 51 Cal.App.3d 168, 124 Cal.Rptr. 63, and as would be those other persons mentioned by the Bank of California court.  (Bank of California v. Superior Court, supra, 16 Cal.2d 516, 106 P.2d 879.)

It is true that here the “common fund” is not a specifically identified trust fund or collection of royalties.   But the alleged overcharge is something that must be proven and identified at trial in order for damages to be recovered.   It is a fund to which there may be conflicting claims.   A direct purchaser may claim under federal law that it is entitled to the entire overcharge, or it or an intermediate supplier may claim under state law that it did not pass on any or much of the overcharge to the indirect purchaser.   Real parties claim that at least a portion of the overcharge was an injury to the end users/consumers.   These inconsistent claims must be resolved in some forum.

Adverting to the language of Code of Civil Procedure section 389, joinder is required if either of two conditions exist:  (1) in the absence of the nonjoined party “․ complete relief cannot be accorded among those already parties ․,” or (2) the nonjoined party “claims an interest relating to the subject of the action and is so situated that the disposition of the action in his absence may (i) as a practical matter impair or impede his ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of his claimed interest․”

Addressing these criteria in order, (1) this is not a situation in which complete relief between petitioners and the end users/consumers cannot be accorded without joinder.   The court can determine the issues of liability and damages almost as easily without the direct purchasers and intermediate suppliers as it could with them in the suit, and a money judgment for plaintiffs or a defense verdict would grant complete relief among the parties.   The conclusion is different for criterion (2).   The direct purchasers clearly have an interest in the alleged overcharges passed on to real parties because under federal law they would be entitled to recover all overcharges and under state law they and intermediate suppliers would have an interest in proving that they had not passed on the overcharges to the end users/consumers.

The remaining questions are whether disposition in the absence of the direct purchasers and intermediate suppliers “may” impede their ability to protect their interests or leave petitioners open to a substantial risk of double liability.   Since under federal law direct purchasers would be entitled to treble damages for all overcharges, any recovery by end users/consumers will have one or the other of two adverse effects:  it will either (1) require the direct purchasers to take actions to protect their rights to damages for all overcharges, or (2) require petitioners to pay damages to both direct purchasers and end users/consumers for the same overcharges.   Only a ruling that federal law preempts the state law action by indirect purchasers would avoid these adverse effects.   Under such a ruling, real parties could not even maintain their lawsuit.

Intermediate suppliers are in a slightly different position from direct purchasers.   Their entitlement to damages depends upon state law and proof that some of the overcharges were passed on to them but not passed through to real parties.   The need to join them arises only from the possibility that they would file state suits and prove different facts concerning passing on of overcharges, leading to inconsistency between their judgments and the judgment in this lawsuit.   Under the “common fund” theory they should be joined too.   They are certainly claimants for a portion of the damages, assuming no federal preemption.   Leaving them out of the case could lead to multiple liability for petitioners or, alternatively, could cause them to lose their shares of the overcharges if multiple liability is not permitted.

Real parties suggest that because the direct purchasers and intermediate suppliers could protect their interests in collateral suits or by intervention, they need not be made parties.   However, implicit in the language of Bank of California v. Superior Court, supra, 16 Cal.2d 516, 106 P.2d 879, and Atlantic Richfield Co. v. Superior Court, supra, 51 Cal.App.3d 168, 124 Cal.Rptr. 63, is the rejection of that argument.   The fact that an indispensable party might voluntarily join the suit, bring a collateral action, or come in by interpleader cannot remove the initial obligation of the plaintiffs to join the party.

We have concluded that in a suit by end users/consumers the direct purchasers and intermediate suppliers are indispensable parties.   Real parties must join all those “subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter ․”  (Code Civ.Proc., § 389, subd. (a)) and must state the names of those known to real parties who are not joined and explain the reasons for nonjoinder (Code Civ.Proc., § 389, subd. (c)).  The trial court may then determine whether the matter should proceed among the present parties or be dismissed.  (Code Civ.Proc., § 389, subd. (b).)

(2) Allegations of Fraudulent Concealment

Business and Professions Code section 16750.1 provides that any civil action to enforce state antitrust laws “shall be commenced within four years after the cause of action accrued.”   In an apparent attempt to recover maximum damages, real parties have alleged in their complaint that the offenses began at a “date unknown” and that fraudulent concealment prevented plaintiffs from learning about the unlawful conduct.   Petitioners object that the fraudulent concealment allegations quoted earlier in this opinion are not specific and factual.

Petitioners argue that real parties are required to plead:  (1) when the facts giving rise to their claims were discovered;  (2) what facts were discovered that led to the initiation of the claim and under what circumstances such facts were discovered;  (3) that neither plaintiffs nor any of the putative class members had actual or presumptive knowledge of facts sufficient to put them under a duty to inquire;  (4) that plaintiffs and putative class members are not at fault for failing to discover the facts underlying their cause of action sooner;  and (5) that the failure to discover such facts was attributable to affirmative acts of fraudulent concealment perpetrated by defendants.

Petitioners cite Kimball v. Pacific Gas & Elec. Co. (1934) 220 Cal. 203, 215, 30 P.2d 39;  Baker v. Beech Aircraft Corp. (1974) 39 Cal.App.3d 315, 321, 114 Cal.Rptr. 171, and other authority for the proposition that when the plaintiff seeks to avoid the statute of limitations by showing fraudulent concealment of the cause of action, the plaintiff must plead with particularity the facts showing fraudulent concealment.   Petitioners accurately interpret those authorities.   However, we find them distinguishable.

 The principle applied by those authorities is the well-recognized proposition that if on the face of the complaint the action appears barred by the statute of limitations, plaintiff has an obligation to anticipate the defense and plead facts to negative the bar.  (3 Witkin, Cal. Procedure (2d ed. 1971) Pleading, §§ 313, 779, pp. 1983, 2395.)   Here, however, nothing appearing on the face of the complaint suggests that the action is barred by the statute of limitations.   The complaint alleges that the offenses began at a time unknown and continued up to the date of the filing of the complaint.   Thus, the filing of the action was not barred by the statute of limitations.   At most, plaintiffs will be limited to recovering damages for actions occurring within the four years preceding the complaint.

 Because the complaint does not reveal on its face that it is barred by the statute of limitations, real parties were not required to plead fraudulent concealment as an excuse for late filing.   Thus, the fraudulent concealment allegation is mere surplusage, and the trial court was not required to sustain a demurrer or motion to strike directed toward it.⁶

Let a peremptory writ of mandate issue, directing the trial court to vacate those portions of its order of July 7, 1981, which rejected petitioners' position concerning joinder, to provide real parties in interest with a reasonable period of time to join other parties, and to conduct such further proceedings concerning joinder as may be appropriate.

FOOTNOTES

1.   As used in this opinion, “direct purchaser” means one who purchased industrial gas directly from one of the defendants and sold the gas directly or indirectly to one of the real parties or to a member of the class they seek to represent.

2.   As used in this opinion, “intermediate supplier” means any party who forms a link in the chain of distribution connecting the “direct purchaser” with one of the real parties or to a member of the class they seek to represent.

3.   As used in this opinion, “indirect purchaser” includes either an “intermediate supplier” or end user/consumer.

4.   In their opposition brief, real parties contend that joinder is not required because plaintiffs do not necessarily know the identities of all the purchasers in the chain of distribution and because joinder of certain direct purchasers might cause the action to be removed to federal court;  if the court were deprived of jurisdiction, joinder could not take place.   These two arguments are unpersuasive.   Implicitly, Code of Civil Procedure section 389 requires joinder only of parties known or reasonably discoverable.   Subdivision (c) requires the pleader to state the names of nonjoined persons who qualify for joinder under subdivision (a) “if known.”   Subdivision (b) permits the court to proceed without these known persons in some circumstances.   The same allowances should be made for unknown persons, who for obvious reasons cannot be served.   The removal argument is circular.   Removal would not take place until joinder had been accomplished.   Removal is hardly a catastrophic result, in any case, because the federal court would apply state antitrust law to the indirect purchaser lawsuit brought thereunder.

5.   Although Bank of California arose under a prior version of Code of Civil Procedure section 389, the Law Revision Commission Comment printed with the present statute explains that the guidelines of the new law “are substantially those that have guided the courts for years.   See Bank of California v. Superior Court, 16 Cal.2d 516, 106 P.2d 879 (1940).”  (Cal.Law Revision Com. com. to Code Civ.Proc., § 389, 1971 Amendment, 14 West's Ann.Code Civ.Proc. (1973 ed.) p. 223.)

6.   Petitioners contend that the requirement of particularized pleading in anticipation of the statute of limitations should be enforced here because otherwise real parties will be permitted to seek discovery concerning injuries “stretching back through the endless corridors of time, ․”  However, it is only through this discovery that real parties can uncover the beginnings of the alleged conspiracy which they assert has been concealed by petitioners.   The situation differs markedly from one in which the complaint alleges an open or public injurious act and that there has been concealment from the plaintiff of the defendant's involvement or of the as-yet-unrealized injurious consequences of the act.   By its nature, a conspiracy to fix prices in violation of antitrust law is a secret act whose effects are public.   Only through discovery or chance disclosure can an antitrust plaintiff learn about the actions leading to the observable effects.

BARRY–DEAL, Associate Justice.

WHITE, P. J., and FEINBERG, J., concur.