Metropolitan News-Enterprise


Thursday, November 20, 2008


Page 1


S.C. to Rule Whether Antitrust ‘Pass-On’ Defense Is Viable




The California Supreme Court yesterday agreed to decide whether a defendant in an antitrust case may plead as an affirmative defense that the plaintiff has passed on all of the alleged overcharges to its customers and thus suffered no losses.

By a vote of 4-1, justices attending yesterday’s conference in San Francisco agreed to review the July 25 ruling of the First District Court of Appeal, Div. Two, in Clayworth v. Pfizer, Inc. The panel affirmed an Alameda Superior Court judge’s ruling that the pass-on defense remains viable under California’s Cartwright Act despite a U.S. Supreme Court ruling rejecting the defense under federal law.

Chief Justice Ronald M. George, Justices Kathryn M. Werdegar and Carlos Moreno, and Fourth District Court of Appeal Justice Douglas Miller, sitting on assignment, formed the Supreme Court majority in favor of hearing the case. Justice Marvin Baxter voted against, and Justices Joyce L. Kennard, Ming Chin, and Carol Corrigan recused themselves.

The plaintiffs, owners of retail pharmacies in the state, are suing a number of companies that make or distribute pharmaceuticals for price-fixing. The pharmacy owners claim that the defendants conspired “to eliminate price competition and fix prices” in the U.S. market by, among other things, using government-controlled Canadian prices as a “floor” or minimum price for defendants’ U.S. products. 

The defendants established through discovery that the method established by the plaintiffs to determine their prices, both for third-party health plans and for cash customers, assures that any additional costs resulting from the alleged conspiracy are passed on to the end payer. Since the plaintiffs were claiming no other damages, such as lost or delayed sales or other diminution in business, they suffered no recoverable losses, the trial judge ruled in granting summary judgment.

In his opinion for the Court of Appeal, affirming the judgment, Justice James Richman said the pass-on defense remains viable under the Cartwright Act, which, the jurist noted, requires that the plaintiff have been “injured in his or her business or property by reason of anything forbidden or declared unlawful by” the act in order to recover.

A plaintiff who has suffered such injury is entitled to three times the “damages sustained” as a result of the violation. Richman reasoned that where the plaintiff has recovered all of the alleged overcharges from its customers, it has sustained no damages as a result of the violation.

This result is consistent with legislative history and public policy, Richman declared.

Further, Richman noted, the U.S. Supreme Court has recognized a limited situation in which the pass-on defense would apply under federal law, in the case of “cost-plus” contracts. The pricing method used by the plaintiffs to pass on their costs to their customers, he wrote, is “the next best thing” to a cost-plus contract, suggesting that the defense would be viable even if the federal rule applied.

In other conference action, the justices:

•Agreed to decide whether a discovery motion under Penal Code Sec. 1054.9, which grants post-conviction discovery rights to a prisoner seeking habeas corpus relief from a sentence of death or life imprisonment, is subject to a requirement that the motion be filed within a reasonable time. The Fifth District Court of Appeal’s Aug. 22 decision in Catlin v. Superior Court said that case law imposes such a requirement, even though the statute itself does not.

•Denied review of the Third District Court of Appeal’s Aug. 19 decision in The Zumbrun Law Firm v. California Legislature, C054832. The court held there that the Legislature did not violate the constitutional separation of powers or the State Contract Act by mandating use of an all-union workforce for a security project on the Capitol grounds.


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