Speegle v. Board of Fire Underwriters

Plaintiff brought this action to recover actual and exemplary damages for alleged injury to his business by defendants. The trial court sustained defendants’ demurrers to plaintiff’s second amended complaint without leave to amend and entered judgment for defendants. Plaintiff appeals.

The following facts are alleged in the second amended complaint : Plaintiff has been an insurance agent in Salmas since 1927, and since 1937 has also done business there as an insurance broker. He entered into written contracts of agency with the 14 defendant insurance companies and with defendant Pennsylvania Underwriters, hereinafter referred to as one of the defendant insurance companies. Defendant insurance companies are all members of defendant Board of Fire Underwriters of the Pacific, an association of fire insurers, hereinafter referred to as the board. In the early part of 1939, the board, acting in concert with defendant Salinas Association of Local Insurance Agents, hereinafter referred to as "the agents’ association, accused plaintiff of violating his contracts with the members of the board by placing insurance, as agent or as broker, with nonboard companies. Plaintiff states that he placed most of his business with board members but that when the interest of his customers required it, he placed insurance with nonboard companies. He denies that this practice constituted a violation of his contracts with board companies. In March, 1939, following an investigation by the board into plaintiff’s practices, defendants caused three of the board companies to terminate their agency contracts with him. In July of that year the board threatened to cause the 12 other board companies to terminate their contracts with plaintiff, unless he immediately ceased to represent nonboard companies and relinquished his broker’s license. Upon plaintiff’s refusal to comply with these conditions, defendants caused the termination of his remaining contracts with board companies.

Plaintiff further alleges that it is the purpose of the board through coercion and oppressive methods, and otherwise, to dominate and control “the class of insurance written by its members ... fix the terms, conditions and rates for such insurance,” determine the terms upon which board members may employ agents, dominate and control the business of such agents and of brokers who act as agents for board members, and by such methods to “limit and restrict and restrain fair competition in said insurance business and as between brokers; and . . . unlawfully to create and carry out restraints and restrictions upon the business and business methods of such agents and brokers and upon fair competition in placing insurance to the best advantage of those who may require or who may desire insurance of the classes written by the . . . members of said Board.”

Plaintiff contends that defendants had no right to require him to represent only board companies and relinquish his broker’s license; that their conduct amounted to an unjustified interference with his contractual relations and, on the part of defendant insurance companies, to a breach of contract; and that their attempt to dominate or destroy his business was part of a conspiracy to restrain the insurance trade in Salinas. The following questions are thus presented for decision: I. Are defendants liable for breach of contract or interference with plaintiff’s contractual relations? II. Has plaintiff properly raised in his pleadings the question of defendants’ liability for restraint of trade? III. Has plaintiff stated a cause of action under statutory (Bus. & Prof. Code, §§ 16700 to 16758, known as the Cartwright Act) or common law rules against restraint of trade? IV. Is the Cartwright Act constitutional?

The complaint does not set forth any of the agency contracts, but pleads them according to their legal effect. As to their duration it merely alleges that in the insurance business such contracts are customarily regarded as being permanent and revocable only for cause. Plaintiff’s contention that in terminating the contracts defendant companies committed breaches thereof rests therefore entirely upon that allegation. A contract for permanent employment, however, is only a contract for an indefinite period terminable at the will of either party (Lord v. Goldberg, 81 Cal. 596 [ 22 P. 1126 , 15 Am.St. Rep. 82 ]), unless it is based upon some consideration other than the services to be rendered. (Brown v. National Electric Works, 168 Cal. 336 [ 143 P. 606 ] ; Davidson v. Laughlin, 138 Cal. 320 [ 71 P. 345 , 5 L.R.A.N.S. 579 ]; Millsap v. National Funding Corp., 57 Cal.App.2d 772 [ 135 P.2d 407 ] ; Seifert v. Arnold Bros., Inc., 138 Cal.App. 324 [ 31 P.2d 1059 ]; see Otten v. Spreckels, 183 Cal. 252 [ 191 P. 11 ].) Since plaintiff has not alleged such consideration, it cannot be concluded that defendant insurance companies violated their contracts with him.

Plaintiff contends, however, that defendants unlawfully interfered with his contracts on the grounds that none of the contracts would have been terminated had the decision rested solely with each insurance company, that the termination of the contracts was brought about by pressure upon the companies brought by the board, assisted by the agents’ association, and that each company was influenced by the others acting in concert.

Intentional and unjustifiable interference with contractual relations is actionable in California as in most other jurisdictions. (Imperial Ice Co. v. Rossier, 18 Cal.2d 33 [1, 12 P.2d 631 ]; see eases collected in 84 A.L.R. 43 .) Recognizing that the fact that a contract is “at the will of the parties, respectively does not make it one at the will of others,” (Truax v. Raich, 239 U.S. 33 , 38 [ 36 S.Ct. 7 , 60 L.Ed. 131 , Ann.Cas. 1917B 283, L.R.A. 191,6D 545]) the great majority of the cases have held that unjustifiable interference with contracts terminable at will is actionable. (Hitchman Coal & Coke Co. v. Mitchell, 245 U.S. 229 [ 38 S.Ct. 65 , 62

Defendants’ activities would be for an unlawful pur

II. Has plaintiff properly raised in his pleadings the question of defendants’ liability for restraint of trade?

Since the case is before us on demurrer, the allegations of plaintiff’s second amended complaint must be regarded as true. Defendants contend that although the second amended complaint alleges that the board was organized to restrain trade it fails to allege that the purpose of defendants' activities against plantiff was to restrain trade or that plaintiff’s alleged injuries resulted from activities in restraint of trade. Plaintiff alleged that the board was organized to 1 ‘ dominate and control to their economic advantage, the class of insurance written by its members ... fix the terms, conditions and rates for such insurance . . . likewise dominate and control the business and business methods of said agents and of every independent insurance broker who may be acting as an insurance agent for any member ... of said Board, and by and through such coercion, oppression, domination and control limit and restrict and restrain fair competition in said insurance business and as between brokers . . . and by such coercion and oppression in respect to and domination and control of the classes of insurance written by its members . . . unlawfully to create and carry out restraints and restrictions upon the business ... of such agents and brokers and upon fair competition in placing insurance to the best advantage of those who may require . . . insurance of the classes written by said members of said Board.” Plaintiff's allegation that the board was organized to stifle competition in the insurance field by dominating the business of insurance agents must be read in conjunction with his allegations as to the conditions that defendants sought to impose upon him and his allegation that acceptance of those conditions would have meant domination of his business by defendants. If these allegations are read in conjunction with each other it cannot be seriously questioned that plaintiff’s second amended complaint alleged that it was defendants’ purpose not merely to injure plaintiff's business, but to dominate that business along with the

Even if the trial court was of the opinion that plaintiff's second amended complaint was not sufficiently detailed, it abused its discretion in sustaining defendants’ demurrers without leave to amend, for a plaintiff who has pleaded the general set of facts upon which his cause of action is based should be given an opportunity to amend his complaint, and should not be deprived of his right to maintain his action on the ground that his pleadings were defective for lack of particulars. (Code Civ. Proc., § 472(c); Olivera v. Grace, 19 Cal.2d 570 , 579 [ 122 P.2d 564 , 140 A.L.R. 1328 ] ; Maclsaac v. Pozzo, 26 Cal.2d 809 , 815 [ 161 P.2d 449 ]; Wennerholm v. Stanford Univ. Sch. of Med., 20 Cal.2d 713 , 719 [ 128 P.2d 522 , 141 A.L.R. 1358 ]; Guilliams v. Hollywood Hospital, 1. 8 Cal.2d 97 , 104 [ 114 P.2d 1 ].)

It must be concluded, therefore, that plaintiff’s second amended complaint properly raised the question of defendants’ liability for restraint of trade.

III. Has plaintiff stated a cause of action under statutory or common law rules against restraint of trade?

The Cartwright Act (Bus. & Prof. Code, §§ 16700-16758) forbids combinations in restraint of trade and grants a cause of action to any person injured by such a combination. Under section 16726, trusts, as defined in section 16720, are “unlawful, against public policy and void.” Under section 16750 any person whose business is injured by such a trust “may sue

The Cartwright Act merely articulates in greater detail a public policy against restraint of trade that has long been recognized at common law. Thus, under the common law of this state combinations entered into for the purpose of restraining competition and fixing prices are - unlawful. (Getz Bros. & Co. v. Federal Salt Co., 147 Cal. 115 , 1,18 [ 81 P. 416 , 109 Am.St.Rep. 114 ]; Meyers v. Merillion, 118 Cal. 352 , 356 [ 50 P. 662 ]; Endicott v. Rosenthal, 216 Cal. 721 , 726 [ 16 P.2d 673 ] ; Herriman v. Menzies, 115 Cal. 1 ,6, 21 [ 44 P. 660 , 46 P. 730 , 56 Am.St.Rep. 82 , 35 L.R.A. 318 ] ; Santa Clara Valley Mill & Lumber Co. v. Hayes, 76 Cal. 387 , 393 [ 18 P. 391 , 9 Am.St.Rep. 211 ] ; Pacific Factor Co. v. Adler, 90 Cal. 110 [ 27 P. 36 , 25 Am.St.Rep. 102 ] ; see, 36 Am.Jur. 579.) The public interest requires free competition so that prices be not dependent upon an understanding among suppliers of any given commodity, but upon the interplay of the economic forces -of supply and demand. Combinations between insurers or insurers and insurance agents for the purpose of stifling competition in the insurance market and fixing insurance rates are clearly in violation of the common law rules against restraint of trade. (Aetna Ins. Co. v. Commonwealth, 106 Ky. 864 [ 51 S.W. 624 , 45 L.R.A. 355 ] ; McCarter v. Firemen’s Ins. Co., 74 N.J.Eq. 372 [ 73 A. 80 , 414, 135 Am.St.Rep. 708 , 18 Ann.Cas. 1048, 29 L.R.A.N.S. 1194 ].) Insurance is a matter of such public concern that many states regard the protection afforded the community by statutory or common law rules against restraint of trade as insufficient and have accordingly enacted special statutes against combinations that seek to dominate the field of insurance or have given their insurance commissioners special powers over insurance rates. The enactment of such special legislation signifies there is a

Courts have recognized that a certain amount of cooperation between insurers is required by the very nature of the insurance business. (Continental Ins. Co. v. Board of Fire Underwriters of the Pacific, 67 F. 310 ; Booker & Kinnaird v. Louisville Board of Fire Underwriters, 188 Ky. 771 [ 224 S.W. 451 , 454, 21 A.L.R. 531 ] ; see Cline v. Insurance Exchange of Houston, 140 Tex. 175 [ 166 S.W.2d 677 ] ; Cline v. Insurance Exchange of Houston (Tex.Civ.App.) 154 S.W.2d 491 , 495; Buffalo Ass’n of Fire Underwriters v. Noxsel-Dimick Co., 235 App.Div. 92 [ 256 N.Y.S. 263 ], aff’d, 260 N.Y. 678 [1. 84 N.E. 142 ] ; Walker v. Fort Worth Ins. Underwriters’ Ass’n. (Tex.Civ.App.) 79 S.W.2d 661 .) It does not follow that insurance companies are immune from common law and statutory rules against restraint of trade. The combination complained of in the present case.wag not merely between insurers but between insurers and an association of their agents; combinations between employers and employees present a particularly effective means of stifling competition. The United States Supreme Court has recently declared that “Congress never intended that unions could, consistently with the Sherman Act, aid non-labor groups to create business monopolies and to control the marketing of goods and services.” (Allen Bradley Co. v. Local Union No. 3, 325 U.S. 797 , 808 [ 65 S.Ct. 1533 , 89 L.Ed. 1939 ]; see, United States v. Borden Co., 308 U.S. 188 , 204 [ 60 S.Ct. 182 , 84 L.Ed. 181 ]; 19 So.Cal.L.Rev. 256.)

If the trial court should determine that plaintiff’s business was injured by activities in restraint of trade, the question will arise as to how plaintiff’s damages should be computed. One whose business has been injured by the activities of a combination in restraint of trade is entitled to damages, not only under the Cartwright Act (Bus. & Prof. Code, § 16750), but also under the common law. (Civ. Code, § 3281,, see, cases cited in 36 Am.Jur. 660, n.9.) Since proof of the damages suffered may be difficult, “the wrongdoer may not object to the plaintiff’s reasonable estimate of the cause of the injury and of its amount, supported by the evidence, because not based on more accurate data which the wrongdoer’s misconduct has rendered unavailable.” (Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251 [ 66 S.Ct. 574 , 580, 90 L.Ed. 652 ].) “The most elementary conceptions of justice and public policy require that the wrongdoer shall bear the risk of the uncertainty which his own wrong has created. . . . That principle is an ancient one . . . and is not restricted to proof of damage in antitrust suits, although their character is such as frequently to call for its application.” (Ibid.)

Defendants contend that the Cartwright Act is unconstitutional. It was so held in Ward v. Auctioneers Ass’n of So. Cal., 67 Cal.App.2d 183 [ 153 P.2d 765 ]; and Blake v. Paramount Pictures, 22 F.Supp. 249 , on the authority of Cline v. Frink Dairy Co., 274 U.S. 445 [ 47 S.Ct. 681 , 71 L.Ed. 1146 ]. In the latter case the Supreme Court of the United States enjoined the prosecution of several dairy companies under the Colorado Anti-Trust Act, a statute “which is in terms a replica of the Cartwright Act,” (In re Battelle, 207 Cal. 227 , 251 [ 277 P. 725 , 65 A.L.R. 1497 ]) on the ground that the provisions therein exempting from its operation combinations entered into for the purpose of securing reasonable profits to their members, provided such profits could not otherwise be secured, left the whole statute “without a fixed standard of guilt” and thus rendered it unconstitutional. Although the court did not expressly hold those provisions to be inseparable, it must have regarded them as such in the absence of any decision on the subject by the Supreme Court of Colorado, for it indicated that the statute would have been valid without them. Plaintiff contends, however, that the cor

Defendants contend, however, that when the Legislature in 1941 reenacted the Cartwright Act, as amended in 1909, into the Business and Professions Code, it intended that the entire statute be regarded as having been enacted at the same time. It need not be determined whether in that event the 1909 provisions would be inseparable from the 1907 provisions, for plaintiff's cause of action arose in 1939 and the act must be construed as it stood at that time. Moreover, far from expressing the intention suggested by defendants, the Legislature made it clear that the 1907 and 1909 provisions should continue to be regarded as separable. Not only does section 2 of the Business and Professions Code specify that the provisions of that code should be construed as restatements and continuations of similar provisions of existing statutes rather than as new enactments, but section 16701 provides that the separability of the provisions of the Cartwright Act should be determined by “whether the provisions of . . . 1907 and the provisions of . . . 1909 are separable among themselves and as to each other. ’ ’ The 1,909 amendment added four provisions to and deleted two words from the original enactment. In order to make it absolutely clear that if the 1909 amendment were invalid, the entire 1907 enactment should stand, the Legislature added a second paragraph to section 16701, in which it specified that, if the two words that it attempted to delete in 1909 were not effectively deleted, it intended them to be part of the act. Defendants point to the difference between section 16701(1) and section 16701(2) and contend that if the Legislature intended to have the entire 1907 enactment stand should the 1909 amendment be invalid, it would have said so expressly as it did in section 16701(2) as to the two deleted words. Section 16701(2), however, was enacted as a precaution to cover two words that do not appear in the text of the amended statute and no similar precaution was needed as to the rest, for, with the exception of those two words, the amended statute includes both the original provisions and those added in 1909. It must be concluded, therefore that the Cartwright Act is constitutional. Ward v. Auctioneers Ass’n of So. Cal., supra, 67 Cal.App.2d 183 , is therefore disapproved.

Although the South-Eastern case brought “a reorientation of attitudes toward federal power in its relation to the business of insurance conducted across state lines” (Prudential Ins. Co. v. Benjamin, 328 U.S. 408 [ 66 S.Ct. 1142 , 1147, 90 L.Ed. 1342 , 164 A.L.R. 476 ]), the United States Supreme Court made it clear that this reorientation did not mean that the states were deprived of jurisdiction to regulate insurance. “It is settled that, for Constitutional purposes, certain activities of a business may be intrastate and therefore subject to state control, while other activities of the same business may be interstate and therefore subject to federal regulation. And there is a wide range of business and other activities which, though subject to federal regulation, are so intimately related to local welfare that, in the absence of Congressional action, they may be regulated or taxed by the states. In marking out these activities the primary test applied by the Court is not the mechanical one of whether the particular activity affected by the state regulation is part of interstate commerce, but rather whether, in each case, the competing demands of the state and national interests involved can be accommodated. And the fact that particular phases of an interstate business or activity have long been regulated or taxed by states has been recognized as a strong reason why, in the continued absence of conflicting Congressional action, the state regulatory and tax laws should be declared valid. . . . Finally it is argued . . . that virtually all the states regulate the insurance business on the theory that competition in the field of insurance is detrimental both to the insurers and the insured, and that if the Sherman Act be held applicable to insurance much of this state regulation will be destroyed. . . . The argument that the Sherman Act

The judgment is reversed.

Gibson, C. J., Shenk, J., Edmonds, J., Carter, J., Schauer, J., and Peters, J. pro tern., concurred.

Respondents’ petition for a rehearing was denied October 17, 1946. Shenk, J., voted for a rehearing.